<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, 1998
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:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- -----------------------------------------
<S> <C>
COMMON STOCK, PAR NEW YORK STOCK EXCHANGE
VALUE $2.50
</TABLE>
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 25, 1999, there were 141,062,833 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 25, 1999) held by
non-affiliates was approximately $3,129,832,000.
1
<PAGE> 2
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. 1998 Annual Report to Shareholders -
Parts I, II and IV.
North Fork Bancorporation, Inc. 1999 Definitive Proxy Statement for its
annual meeting of Stockholders to be held on April 27, 1999- Part III
CAUTIONARY STATEMENT UNDER FEDERAL SECURITIES LAWS: Certain statements
contained in this Annual Report on Form 10-K may constitute "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995. 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
financial condition, performance or operations 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
indicated or forecasted in such forward-looking statements. Factors that may
cause or contribute to such differences include, among others, the following
possibilities: (1) changes in economic or market conditions; (2) significantly
increased competition in the banking and financial services industry; (3)
changes in the interest rate environment, with reductions in bank margins; and
(4) changes in state and federal regulation of banking institutions. 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.
2
<PAGE> 3
PART I
ITEM 1 - BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
North Fork Bancorporation, Inc. (the "Registrant"), with its executive
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 primary subsidiary,
North Fork Bank ("North Fork"), operates through 110 full-service retail banking
facilities located in the New York metropolitan area. Its other bank subsidiary,
Superior Savings of New England ("Superior"), formerly Branford Savings Bank, a
Connecticut chartered savings bank located in the Connecticut county of New
Haven, operates from one location where it currently conducts a telebanking
operation focused on gathering deposits throughout the New England region.
In June 1998, the Registrant completed its first non-bank acquisition
with the purchase of Amivest Corporation ("Amivest"), a privately held
investment management and broker/dealer firm located in New York City. At the
date of acquisition, Amivest had approximately $700 million in assets under
management.
On March 27, 1998, New York Bancorp Inc. ("NYB"), the parent company of
Home Federal Savings Bank ("Home"), was merged with and into the Registrant in a
transaction treated as a tax-free reorganization and accounted for using the
pooling-of-interests method of accounting. Pursuant to the merger agreement, the
Registrant issued 39.9 million shares of its common stock to NYB shareholders,
as adjusted, for the 3-for-2 stock split and simultaneously retired 12.7 million
shares, as adjusted, of NYB's common stock held in treasury as of the merger
date. NYB had $3.4 billion in total assets, $2.0 billion in net loans, $1.7
billion in deposit liabilities, $140.3 million in capital and operated 35
branches throughout Kings, Queens, Richmond, Nassau and Suffolk counties of New
York.
In anticipation of its merger with NYB, the Registrant enhanced its
regulatory capital ratios through the issuance of $100 million of 8.0% Capital
Pass-Through Securities ("Capital Securities") in December 1997. In December
1996, the Registrant also issued $100 million of 8.70% Capital Securities. At
December 31, 1998, the carrying value of these Capital Securities qualified as
Tier I capital.
In December 1997, the Registrant acquired Superior, a Connecticut
chartered savings bank, in a purchase transaction. At December 31, 1997,
Superior had total assets of $179 million, deposits of $160 million, and
stockholders' equity of $16.6 million. In October 1998, four of the five
Superior branches and $67 million in deposit liabilities were sold for a deposit
premium of 9%. The net gain on the sale of the branches was approximately $5.8
million and was utilized to reduce goodwill arising from the original purchase.
In December 1996, North Side Savings Bank ("North Side") was merged
with and into North Fork in a transaction accounted for as a tax-free
reorganization and accounted for using the pooling-of-interests method of
accounting. 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 facilities in the New York City boroughs of Bronx and Queens, as well as
Nassau and Suffolk counties of New York. Pursuant to the merger agreement, the
Registrant issued 22.7 million shares of its common stock to North Side
shareholders.
In March 1996, North Fork acquired the domestic commercial banking
business of Extebank ("Extebank") in a purchase transaction. Extebank had $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
facilities in the metropolitan New York area, including Manhattan. Additionally,
in March 1996 North Fork 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%.
3
<PAGE> 4
PART I (CONTINUED)
ITEM 1 - BUSINESS (CONTINUED)
GENERAL DEVELOPMENT OF BUSINESS (CONTINUED)
In July 1995, the Registrant acquired Great Neck Bancorp, the parent
company of Bank of Great Neck, ("Great Neck") in a purchase transaction. Great
Neck had net assets of $91 million, including $49.4 million in net loans and
$90.3 million in deposits.
In November 1994, Metro Bancshares Inc. ("Metro"), the parent company
of Bayside Federal Savings Bank ("Bayside"), was merged with and into the
Registrant in a transaction accounted for using the pooling-of-interests method
of accounting. Bayside had $1.0 billion in total assets, $.9 billion in deposit
liabilities, $83.5 million in capital, and operated thirteen full-service
banking facilities in the New York City borough of Queens, and Nassau and
Suffolk counties of New York.
Additionally, the Registrant operates other 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, 1998.
DESCRIPTION OF BUSINESS
The Registrant, through its primary subsidiary North Fork and its
investment management and broker/dealer subsidiaries, Compass Investment
Services Corp ("Compass") and Amivest Corporation, provides a variety of banking
and financial services to middle market and small business organizations, local
governmental units, and retail customers in the New York metropolitan area.
Additionally, the Registrant conducts a telebanking operation through its other
bank subsidiary, Superior. The Registrant'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 and elsewhere. North Fork 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
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. Superior currently competes
with financial institutions throughout the New England region for deposits.
The Registrant and its subsidiaries, in their normal course of
business, are subject to various regulatory statutes and guidelines. Additional
information is set forth under the caption "Capital" (page 28) in Management's
Discussion and Analysis and "Note 14 - Regulatory Matters" (pages 63 - 64) of
the Registrant's 1998 Annual Report to Shareholders included as Exhibit 13
herewith and incorporated herein by reference.
As of December 31, 1998, the Registrant and its consolidated
subsidiaries had 1,687 full-time equivalent employees.
ITEM 2 - PROPERTIES
The executive and administrative offices of the Registrant and its bank
subsidiaries are located at 275 Broad Hollow Road, Melville, New York. The
Registrant currently leases 81,000 square feet of the facility, representing
approximately 70% of its rentable space.
North Fork maintains its data processing and operations center in a
44,900 square foot, owned facility, located at 9025 Main Road, Mattituck, New
York.
Superior operates from an owned facility, located at 45 South Main
Street, Branford, Connecticut.
4
<PAGE> 5
PART I (CONTINUED)
ITEM 2 - PROPERTIES (CONTINUED)
Amivest conducts its investment management and broker/dealer operations
at 767 Fifth Avenue, New York, New York. Amivest currently leases space on the
50th floor of the building.
At December 31, 1998, the Registrants' bank subsidiaries owned 59 of
their branch offices (see "Note 6 Premises and Equipment" (page 52) of the
Registrant's 1998 Annual Report to Shareholders included as Exhibit 13 herewith
and incorporated herein by reference) and leased 59 branch offices under various
lease arrangements expiring at various times through 2016 (see "Note 16 - Other
Commitments and Contingent Liabilities (b) Lease Commitments" (page 66) of the
Registrant's 1998 Annual Report to Shareholders included as Exhibit 13 herewith
and incorporated herein by reference). The Registrant is also obligated under
various other leases for facilities that have been vacated, as a result of its
consolidation of operations following its merger and acquisition activities. The
facilities owned or occupied under a lease are considered by management to be
well located and suitably equipped to serve as banking and financial services
facilities.
ITEM 3 - LEGAL PROCEEDINGS
The information required by this item is set forth in "Note 16 - Other
Commitments and Contingent Liabilities (c) Other Matters" (page 66) of the
Registrant's 1998 Annual Report to Shareholders included herewith as Exhibit 13
and incorporated herein by reference.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth
quarter of 1998.
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, 1999, 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 52 Chairman, President and Chief Executive Officer of the Registrant and
North Fork, throughout the past five years.
John Bohlsen 56 Vice Chairman of the Registrant and North Fork. Mr. Bohlsen also has
been President of The Helm Development Corp., a real estate company,
throughout the past five years.
Thomas M. O'Brien 48 Vice Chairman of the Registrant and North Fork (since January 1997).
Previously, Mr. O'Brien was Chairman, President and Chief Executive
Officer of North Side Savings Bank.
Daniel M. Healy 56 Executive Vice President and Chief Financial Officer of the Registrant
and North Fork, throughout the past five years.
</TABLE>
5
<PAGE> 6
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 23, 1999, there were 7,136 shareholders of
record of the Registrant's common stock.
For additional information regarding dividends and restrictions
thereon, and market price information, refer to the "Selected Financial Data"
(pages 12-13), and "Liquidity" (page 22) sections of Management's Discussion and
Analysis, the "Selected Statistical Data" (page 35), and "Note 14 - Regulatory
Matters" (page 63-64) of the Registrant's 1998 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" (pages 12-13) of the Registrant's 1998 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 14-34) of the Registrant's 1998 Annual Report
to Shareholders included herewith as Exhibit 13 and incorporated herein by
reference.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is set forth in Management's
Discussion and Analysis, (pages 14-34) of the Registrant's 1998 Annual Report to
Shareholders included herewith as Exhibit 13 and incorporated herein by
reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth under the captions
"Selected Statistical Data" (page 35); the Consolidated Financial Statements
(pages 36-41); the Notes to the Consolidated Financial Statements (pages 42-69);
the Independent Auditors' Report (page 70); and the Report of Management (page
71) of the Registrant's 1998 Annual Report to Shareholders included herewith as
Exhibit 13 and incorporated herein by reference.
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.
6
<PAGE> 7
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 on Tuesday, April 27, 1999, 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" (page 7), "Executive Compensation" (pages 8-28), and
"Retirement Plans" (pages 28-29) in the Registrant's Definitive Proxy Statement
for its Annual Meeting of Stockholders to be held April 27, 1999, 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 Stockholders to be held April 27, 1999, 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
29) in the Registrant's Definitive Proxy Statement for its Annual Meeting of
Stockholders to be held April 27, 1999, which is incorporated herein by
reference.
7
<PAGE> 8
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 1998 Annual Report to Shareholders filed herewith
as Exhibit 13.
<TABLE>
<CAPTION>
<S> <C> <C>
1. Financial Statements Page No.
Consolidated Statements of Income 36
Consolidated Balance Sheets 37
Consolidated Statements of Cash Flows 38-39
Consolidated Statements of Changes
in Stockholders' Equity 40
Consolidated Statements of
Comprehensive Income 41
Notes to Consolidated Financial Statements 42-69
Independent Auditors' Report 70
Report of Management 71
</TABLE>
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 are incorporated herein
by reference to the Registrant's 1998 Annual Report to
Shareholders filed herewith as Exhibit 13.
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 Reports on Form 8-K filed during the fourth quarter of 1998
are as follows:
On October 13, 1998, the Registrant filed a Current Report
stating that it had issued a press release regarding its third
quarter and year-to-date 1998 financial results.
On October 19, 1998, the Registrant filed a Current Report
stating that it completed the sale of four of its five Branford
Savings Bank branches and that it had, simultaneously, changed
Branford's name to Superior Savings of New England.
8
<PAGE> 9
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 24, 1999
<PAGE> 10
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 dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John A. Kanas Chairman of the Board, March 25, 1999
- ----------------- President and Chief Executive
John A. Kanas Officer
(Principal Executive Officer)
/s/ Daniel M. Healy Executive Vice President and March 25, 1999
- ------------------- Chief Financial Officer
Daniel M. Healy (Principal Accounting Officer)
/s/ John Bohlsen Director March 25, 1999
- ---------------- Vice Chairman of the Board
John Bohlsen
/s/ Thomas M. O'Brien Director March 25, 1999
- --------------------- Vice Chairman of the Board
Thomas M. O'Brien
/s/ Irvin L. Cherashore Director March 24, 1999
- -----------------------
Irvin L. Cherashore
/s/ Allan C. Dickerson Director March 24, 1999
- ----------------------
Allan C. Dickerson
/s/ Lloyd A. Gerard Director March 25, 1999
- -------------------
Lloyd A. Gerard
/s/ Patrick E. Malloy III Director March 24, 1999
- -------------------------
Patrick E. Malloy III
/s/ James F. Reeve Director March 24, 1999
- ------------------
James F. Reeve
/s/ George H. Rowsom Director March 24, 1999
- --------------------
George H. Rowsom
/s/ Dr. Kurt R. Schmeller Director March 24, 1999
- -------------------------
Dr. Kurt R. Schmeller
/s/ Raymond W. Terry, Jr. Director March 24, 1999
- -------------------------
Raymond W. Terry, Jr.
</TABLE>
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
<S> <C> <C>
3.1 Articles of Incorporation of North Previously filed on Form S-3 dated, August 16,
Fork Bancorporation, Inc. 1991 as Exhibit 4(b) (Registration No. 33-42294)
and incorporated herein by reference.
3.2 By-Laws of North Fork Bancorporation, Filed herewith.
Inc., as amended, effective October 29,
1998.
4.1 Rights Agreement dated February 28, Previously filed on Form 8-A, dated March 21,
1989, between North Fork Bancorporation, 1989 as Exhibit 1.
Inc. and North Fork Bank, as rights agent.
4.2 Prospectus included in the North Fork Previously filed with Post-Effective Amendment
Capital Trust I offer to exchange its No. 1 to the Registrants' registration statement on
8.70% Capital Trust Pass-Through Form S-4, dated May 2, 1997 (Registration No.
Securities, which have been registered 333-24419) and incorporated herein by reference.
under the Securities Act of 1933 for
all of its outstanding 8.70% original
Capital Trust Pass-Through Securities.
4.3 Prospectus for North Fork Capital Previously filed with Post-Effective Amendment
Trust II issuance of Capital Trust No. 1 to the Registrants' registration statement on
Pass-Through Securities. Form S-3, dated November 21, 1997 (Registration
No. 333-40311) and incorporated herein by
reference.
4.4 Prospectus for the issuance of Previously filed on Form S-3 dated, June 15, 1998
common shares in connection (Registration No. 333-56913) and incorporated
with the acquisition of Amivest herein by reference.
Corporation.
10.1 North Fork Bancorporation, Inc. Previously filed with Post-Effective Amendment
Dividend Reinvestment and Stock No. 1 to the Registrant's registration statement on
Purchase Plan, as amended. Form S-3, dated May 16, 1995 (Registration No.
33-54222) and incorporated herein by reference.
10.2(a) North Fork Bancorporation, Inc. Previously filed on Form S-8, dated August 29,
1985 Incentive Stock Option Plan. 1995 (Registration No. 2-99984) and incorporated
herein by reference.
10.3(a) North Fork Bancorporation, Inc. Previously filed on Form S-8, dated June 12, 1987
1987 Long Term Incentive Plan. (Registration No. 33-14903) and incorporated herein
by reference.
10.4(a) North Fork Bancorporation, Inc. Previously filed on Form S-8, dated April
1989 Executive Management 17, 1990 (Registration No. 33-34372) and
Compensation Plan. incorporated herein by reference.
</TABLE>
<PAGE> 12
EXHIBIT INDEX (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
<S> <C> <C>
10.5(a) North Fork Bancorporation, Inc. Previously filed on Form S-8, dated September 28,
401(k) Retirement Savings Plan, 1992 (Registration No. 33-52504) as amended by
as amended. Exhibit 4 to the Registrant's Registration Statement
on Form S-8 dated February 2, 1996 (Registration
No. 333-00675) and incorporated herein by
reference.
10.6(a) North Fork Bancorporation, Inc. Previously filed on Form S-8, dated May 4, 1994
1994 Key Employee Stock Plan. (Registration No. 33-53467), as amended by the
filing of Form S-8 dated June 7, 1996 (Registration
No. 333-05513) and incorporated herein by
reference.
10.7(a) North Fork Bancorporation, Inc. Previously filed on Form S-8, dated December 31,
Long-Term Incentive Capital 1996 (Registration No. 333-19047) and
Accumulation Plan resulting incorporated herein by reference.
from the merger with North Side
Savings Bank.
10.8(a) North Fork Bancorporation, Inc. Previously filed on Form 10-K for the year
Performance Plan. ended December 31, 1994, dated March 28, 1995,
as Exhibit 10.9 and incorporated herein by
reference.
10.9(a) Form of Change-in-Control Previously filed as Exhibit 10.2 to the Quarterly
Agreement, as entered into between Report on Form 10-Q for the quarter ended
North Fork Bancorporation, Inc. March 31, 1995, and incorporated herein by
and each of John A. Kanas, John reference.
Bohlsen and Daniel M. Healy, each
dated December 20, 1994.
10.10(a) Form of Change-in-Control Previously filed on Form 10-K for the year ended
Agreement, as entered into between December 31, 1996, dated March 25, 1997 as
North Fork Bancorporation, Inc. Exhibit 10.12(a) and incorporated herein by
and Thomas M. O'Brien dated reference.
December 31, 1996.
10.11(a) Form of Employment Agreement, Previously filed a Form 10-K for the year ended
as entered into between North December 31, 1996, dated March 25, 1997 as
Fork Bancorporation, Inc. and Exhibit 10.13(a) and incorporated herein by
Thomas M. O'Brien, dated reference.
December 31, 1996.
10.12 Amended and Restated Agreement Previously filed as Annex A to the Joint Proxy
and Plan of Merger, dated as of Statement - Prospectus contained in the
October 7, 1997, between North Registrant's registration statement on Form S-4,
Fork Bancorporation, Inc. and dated December 17, 1997 (Registration No. 333-
New York Bancorp, Inc. 42515) and incorporated herein by reference.
</TABLE>
<PAGE> 13
EXHIBIT INDEX (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
<S> <C> <C>
10.13 Agreement and Plan of Merger by Previously filed as Annex A to the Registrant's
and among North Fork Bancorporation, registration statement on Form S-4, effective
Inc., merger bank, and Branford Savings November 7, 1997 (Registration No. 333-35111)
Bank, dated July 24, 1997. and incorporated herein by reference
10.14(a) North Fork Bancorporation, Inc. 1997 Previously filed on Form S-8, dated June 8, 1998
Non-Officer Stock Plan. (Registration No. 333-56329) and incorporated
herein by reference.
10.15(a) North Fork Bancorporation, Inc. 1998 Previously filed on Form S-8, dated March 19,
Stock Compensation Plan. 1999 (Registration No. 333-74713) and
incorporated herein by reference.
10.16(a) Form of consulting agreement, as entered Filed herewith.
into between North Fork Bancorporation,
Inc. and Patrick E. Malloy, III dated
March 27, 1998.
11 Statement re: Computation of Filed herewith. earnings per
share.
13 Pages 11 through 72 of the Registrant's Filed herewith.
1998 Annual Report to Shareholders
that are incorporated herein by
reference.
21 Subsidiaries of Registrant. Filed herewith.
23 Accountants' Consent. Filed herewith.
27 Financial Data Schedule. Only included in electronic filing.
(a) Management contract or compensatory plan or arrangement.
</TABLE>
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
NORTH FORK BANCORPORATION, INC.
(A Delaware Corporation)
<PAGE> 2
TABLE OF CONTENTS
Section Page
- ------- ----
ARTICLE I
OFFICES
............................................................................. 1
ARTICLE II
STOCKHOLDERS
Section 1. Annual Meetings; Special Meetings ............................... 1
Section 2. Action without a Meeting ........................................ 1
Section 3. Notice of Meetings .............................................. 1
Section 4. Waiver of Notice ................................................ 2
Section 5. Fixing of Record Date ........................................... 2
Section 6. Quorum .......................................................... 2
Section 7. Conduct of Meetings ............................................. 2
Section 8. Voting .......................................................... 2
Section 9. Proxies ......................................................... 3
ARTICLE III
CAPITAL STOCK
Section 1. Certificates of Stock ........................................... 3
Section 2. Registration and Transfer of Shares ............................. 3
Section 3. Holder of Record ................................................ 4
ARTICLE IV
BOARD OF DIRECTORS
Section 1. Responsibilities; Number of Directors ........................... 4
Section 2. Term of Office .................................................. 4
Section 3. Qualifications .................................................. 4
Section 4. Mandatory Retirement ............................................ 4
Section 5. Regular and Annual Meetings ..................................... 4
Section 6. Special Meetings ................................................ 5
(i)
<PAGE> 3
Section Page
- ------- ----
Section 7. Notice of Special Meetings; Waiver Of Notice ................... 5
Section 8. Presence at Meetings by Conference Telephone ................... 5
Section 9. Quorum and Voting Requirements ................................. 5
Section 10. Removal ........................................................ 6
Section 11. Vacancies ...................................................... 6
ARTICLE V
COMMITTEES
Section 1. Membership ..................................................... 6
Section 2. Executive Committee ............................................ 7
Section 3. Examining Committee ............................................ 7
Section 4. Meetings of Committees; Quorum ................................. 7
ARTICLE VI
OFFICERS
Section 1. Identification; Election; Term; Compensation ................... 7
Section 2. Chairman of the Board .......................................... 8
Section 3. Vice Chairman of the Board ..................................... 8
Section 4. President ...................................................... 8
Section 5. Executive and Senior Vice President(s) ......................... 8
Section 6. Secretary ...................................................... 8
Section 7. Auditor ........................................................ 9
Section 8. Bonded ......................................................... 9
Section 9. Conveyances .................................................... 9
ARTICLE VII
DIVIDENDS
............................................................................ 9
ARTICLE VIII
INDEMNIFICATION
Section 1. Indemnification of Officers and Directors ...................... 9
Section 2. Indemnification of Other Persons ............................... 10
Section 3. Indemnification for Certain Regulatory Matters ................. 10
Section 4. Insurance ...................................................... 11
(ii)
<PAGE> 4
Section Page
- ------- ----
ARTICLE IX
MISCELLANEOUS
Section 1. Depositories ................................................... 11
Section 2. Banking Hours. ................................................. 11
Section 3. Emergencies .................................................... 11
Section 4. Corporate Seal ................................................. 11
Section 5. Rules of Procedure ............................................. 11
Section 6. Rules and Regulations .......................................... 11
ARTICLE X
AMENDMENTS
........................................................................... 12
(iii)
<PAGE> 5
BY-LAWS
OF
NORTH FORK BANCORPORATION, INC.
(A Delaware Corporation)
------------------------------------------------------------
ARTICLE 1
DEFINITIONS
As used in these By-laws, unless the context otherwise requires, the term:
1.1 "Assistant Secretary" means an Assistant Secretary of the
Corporation.
1.2 "Assistant Treasurer" means an Assistant Treasurer of the
Corporation.
1.3 "Board" means the Board of Directors of the Corporation.
1.4 "By-laws" means the initial by-laws of the Corporation, as
amended from time to time.
1.5 "Certificate of Incorporation" means the initial certificate of
incorporation of the Corporation, as amended, supplemented or restated
from time to time.
1.6 "Chairman" means Chairman of the Board of the Corporation.
1.7 "Corporation" means North Fork Bancorporation, Inc.
1.8 "Directors" means directors of the Corporation.
1.9 "General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended from time to time.
1.10 "Office of the Corporation" means the executive office of the
Corporation, anything in Section 131 of the General Corporation Law to the
contrary notwithstanding.
1.11 "President" means the President of the Corporation.
1.12 "Secretary" means the Secretary of the Corporation.
<PAGE> 6
1.13 "Stockholders" means stockholders of the Corporation.
1.14 "Total number of directors" means the total number of directors
determined in accordance with Section 141(b) of the General Corporation
Law and Section 3.2 of the By-Laws.
1.15 "Treasurer" means the Treasurer of the Corporation.
1.16 "Vice President" means a Vice President of the Corporation.
1.17 "Whole Board" means the total number of directors of the
Corporation.
ARTICLE 2
STOCKHOLDERS
2.1 Place of Meeting. Every meeting of stockholders shall be held at
the office of the Corporation or at such other place within or without the
State of Delaware as shall be specified or fixed in the notice of such
meeting or in the waiver or notice thereof.
2.2 Annual Meeting. A meeting of stockholders shall be held annually
for the election of directors and the transaction of other business at
such hour and on such business day in March, April or May as may be
determined by the Board and designated in the notice of meeting.
2.3 Deferred Meeting for Election of Directors, Etc. If the annual
meeting of stockholders for the election of directors and the transaction
of other business is not held within the months specified in Section 2.2,
the Board shall call a meeting of stockholders for the election of
directors and the transaction of other business as soon thereafter as
convenient.
2.4 Other Special Meetings. A special meeting of stockholders (other
than a special meeting for the election of directors), unless otherwise
prescribed by statute, may be called at any time by the Board, by the
Chairman or by the President. At any special meeting of stockholders only
such business may be transacted as is related to the purpose or purposes
of
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<PAGE> 7
such meeting set forth in the notice thereof given pursuant to Section 2.6
of the By-laws or in any waiver of notice thereof given pursuant to
Section 2.7 of the By-laws.
2.5 Fixing Record Date. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or for the purpose of
determining stockholders entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for
the purpose of any other lawful action, the Board may fix, in advance, a
date as the record date for any such determination of stockholders. Such
date shall not be more than sixty nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action. If no
such record date is fixed:
2.5.1 The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held;
2.5.2 The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no
prior action by the Board is necessary, shall be the day on which the
first written consent is expressed;
2.5.3 The record date for determining stockholders for any purpose
other than those specified in Sections 2.5.1 and 2.5.2 shall be at the
close of business on the day on which the Board adopts the resolution
relating thereto.
When a determination of stockholders entitled to notice of or to vote at any
meeting of stockholders has been made as provided in this Section 2.5, such
determination shall apply to any adjournment thereof, unless the Board fixes a
new record date for the adjourned meeting.
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<PAGE> 8
2.6 Notice of Meetings of Stockholders. (The provisions of Section 2.6 of
Article 2 are hereby stricken in their entirety and the following substituted in
their place by approval of the Board of Directors on October 29, 1998) Except as
otherwise provided in Sections 2.5 and 2.7 of the By-laws, whenever under the
General Corporation Law or the Certificate of Incorporation or the By-laws,
stockholders are required or permitted to take any action at a meeting, written
notice shall be given stating the place, date and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called. A copy of the notice of any meeting shall be given, personally or by
mail, not less than ten nor more than sixty days before the date of the meeting,
to each stockholder entitled to notice of or to vote at such meeting. If mailed,
such notice shall be deemed to be given when deposited in the United States
mail, with postage prepaid, directed to the stockholder at his address as it
appears on the records of the Corporation. An affidavit of the Secretary or an
Assistant Secretary or of the transfer agent of the Corporation that the notice
required by this section has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken, and at the adjourned meeting any business may be transacted that might
have been transacted at the meeting as originally called. If, however, the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
No business may be transacted at an annual meeting of stockholders, other
than business that is either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors (or
any duly authorized committee thereof), (b) otherwise properly brought before
the annual meeting by or at the direction of the Board of Directors (or
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<PAGE> 9
any duly authorized committee thereof) or (c) otherwise properly brought before
the annual meeting by any stockholder of the Company (i) who is a stockholder of
record on the date of the giving of the notice provided for in this Section 2.6
and on the record date for the determination of stockholders entitled to vote at
such annual meeting and (ii) who complies with the notice procedures set forth
in this Section 2.6.
In addition to any other application requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Company.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Company not
less than forty-five (45) days nor more than ninety (90) days prior to the
anniversary date of the date on which the Company first mailed its proxy
materials for the preceding annual meeting of stockholders; provided, however,
that in the event the annual meeting is called for a date that is not within
thirty (30) days before or after the anniversary date of the prior year's annual
meeting of stockholders, notice by the stockholder in order to be timely must be
so received not later than the close of business on the tenth (10th) day
following the day on which notice of the date of the annual meeting is first
mailed or public disclosure of the date of the annual meeting is first made,
whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth as to each matter such stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of such stockholder, (iii) the class
or series and number of shares of capital stock of the Company which are owned
beneficially or of record by such stockholder, (iv) a description of all
arrangements or
5
<PAGE> 10
understandings between such stockholder and any other person or persons
(including their names) in connection with the proposal of such business by such
stockholder and any material interest of such stockholder in such business and
(v) a representation that such stockholder intends to appear in person or proxy
at the annual meeting to bring such business before the meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 2.6, provided, however, that once business
has been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section 2.6 shall be deemed to preclude discussion
by any stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
2.7 Waivers of Notice. Whenever notice is required to be given to any
stockholder under any provision of the General Corporation Law or the
Certificate of Incorporation or the By-laws, a written waiver thereof, signed by
the stockholder entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a stockholder at a
meeting shall constitute a waiver of notice of such meeting, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice.
2.8 List of Stockholders. The Secretary shall prepare and make, or cause
to be prepared and made, at least ten days before every meeting of stockholders,
a complete list of the
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stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
2.9 Quorum of Stockholders; Adjournment. The holders of a majority of the
shares of stock entitled to vote at any meeting of stockholders, present in
person or represented by proxy, shall constitute a quorum for the transaction of
any business at such meeting. When a quorum is once present to organize a
meeting of stockholders, it is not broken by the subsequent withdrawal of any
stockholders. The holders of a majority of the shares of stock present in person
or represented by proxy at any meeting of stockholders, including an adjourned
meeting, whether or not a quorum is present, may adjourn such meeting to another
time and place.
2.10 Voting; Proxies. Unless otherwise provided in the Certificate of
Incorporation, every stockholder of record shall be entitled at every meeting of
stockholders to one vote for each share of capital stock standing in his name on
the record of stockholders determined in accordance with Section 2.5 of the
By-laws. If the Certificate of Incorporation provides for more or less than one
vote for any share, on any matter, every reference in the By-laws or the General
Corporation Law to a majority or other proportion of stock shall refer to such
majority or other proportion of the votes of such stock. The provisions of
Sections 212 and 217 of the General Corporation Law shall apply in determining
whether any shares of capital stock may be voted and the persons, if any,
entitled to vote such shares; but the Corporation shall be protected in
7
<PAGE> 12
treating the persons in whose names shares of capital stock stand on the record
of stockholders as owners thereof for all purposes. At any meeting of
stockholders (at which a quorum was present to organize the meeting), all
matters, except as otherwise provided by law or by the Certificate of
Incorporation or by the By-laws, shall be decided by a majority of the votes
cast at such meeting by the holders of shares present in person or represented
by proxy and entitled to vote thereon, whether or not a quorum is present when
the vote is taken. All elections of directors shall be by written ballot unless
otherwise provided in the Certificate of Incorporation. In voting on any other
question on which a vote by ballot is required by law or is demanded by any
stockholder entitled to vote, the voting shall be by ballot. Each ballot shall
be signed by the stockholder voting or by his proxy, and shall state the number
of shares voted. On all other questions, the voting may be viva voce. Every
stockholder entitled to vote at a meeting of stockholders or to express consent
or dissent to corporate action in writing without a meeting may authorize
another person or persons to act for him by proxy. The validity and
enforceability of any proxy shall be determined in accordance with Section 212
of the General Corporation Law.
2.11 Selection and Duties of Inspectors at Meetings of Stockholders. The
Board, in advance of any meeting of stockholders, may appoint one or more
inspectors to act at the meeting or any adjournment thereof. If inspectors are
not so appointed, the person presiding at such meeting may, and on the request
of any stockholder entitled to vote thereat shall, appoint one or more
inspectors. In case any person appointed fails to appear or act, the vacancy may
be filled by appointment made by the Board in advance of the meeting or at the
meeting by the person presiding thereat. Each inspector, before entering upon
the discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector at such meeting with strict impartiality and according
to the best of his ability. The inspector or inspectors shall determine the
number of shares outstanding and the voting power of each, the shares
represented at the
8
<PAGE> 13
meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting or any stockholder entitled to vote thereat,
the inspector or inspectors shall make a report in writing of any challenge,
question or matter determined by him or them and execute a certificate of any
fact found by him or them. Any report or certificate made by the inspector or
inspectors shall be prima facie evidence of the facts stated and of the vote as
certified by him or them.
2.12 Organization. At every meeting of stockholders, the Chairman, or in
the absence of the Chairman, the President, shall act as chairman of the
meeting. The Secretary, or in his absence one of the Assistant Secretaries,
shall act as secretary of the meeting. In case none of the officers above
designated to act as chairman or secretary of the meeting, respectively, shall
be present, a chairman or a secretary of the meeting, as the case may be, shall
be chosen by a majority of the votes cast at such meeting by the holders of
shares of capital stock present in person or represented by proxy and entitled
to vote at the meeting.
2.13 Order of Business. The order of business at all meetings of
stockholders shall be as determined by the chairman of the meeting, but the
order of business to be followed at any meeting at which a quorum is present may
be changed by a majority of the votes cast at such meeting by the holders of
shares of capital stock present in person or represented by proxy and entitled
to vote at the meeting.
2.14 Written Consent of Stockholders Without a Meeting. Unless otherwise
provided in the Certificate of Incorporation, any action required by the General
Corporation Law to be taken at any annual or special meeting of stockholders of
the Corporation, or any action
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<PAGE> 14
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
(2.15 Consideration of Submission of Tender Offers to Stockholder Vote See
Exhibit I attached Amendment to By-laws dated January 18, 1984)
ARTICLE 3
DIRECTORS
3.1 General Powers. Except as otherwise provided in the Certificate of
Incorporation, the business and affairs of the Corporation shall be managed by
or under the direction of the Board. The Board may adopt such rules and
regulations, not inconsistent with the Certificate of Incorporation or the
By-laws or applicable laws, as it may deem proper for the conduct of its
meetings and the management of the Corporation. In addition to the powers
expressly conferred by the By-laws, the Board may exercise all powers and
perform all acts which are not required, by the By-laws or the Certificate of
Incorporation or by law, to be exercised and performed by the stockholders.
3.2 Number; Qualification; Term of Office. (See Exhibit II-Amendments to
By-laws dated March 21, 1984 & July 26, 1988) The Board shall consist of five or
more members. The total number and classes of directors shall be fixed initially
by the incorporator. Thereafter, the total number of directors may be changed
from time to time by vote of the total number of
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<PAGE> 15
directors then in office. Each director shall hold office until his successor is
elected and qualified or until his earlier death, resignation or removal, or
reaching age 70.
3.3 Election. (See Exhibit III-Amendment to By-laws dated July 28, 1992)
Directors shall, except as otherwise required by law or by the Certificate of
Incorporation, be elected by a plurality of the votes cast at a meeting of
stockholders by the holders of shares entitled to vote in the election.
3.4 Newly Created Directorships and Vacancies. Unless otherwise provided
in the Certificate of Incorporation, newly created directorships resulting from
an increase in the number of directors and vacancies occurring in the Board for
any other reason may be filled by vote of a majority of the directors then in
office, although less than a quorum, or by a sole remaining director, or may be
elected by a plurality of the votes cast by the holders of shares of capital
stock entitled to vote in the election at a special meeting of stockholders
called for that purpose. No change in the total number of directors or filling
of newly created or vacant directorships shall affect the class of any director
in office prior to such increase or filling. A director elected to fill a
vacancy shall be elected to hold office until his successor is elected and
qualified, or until his earlier death, resignation or removal, or reaching age
70.
3.5 Resignations. Any director may resign at any time by written notice to
the Corporation. Such resignation shall take effect at the time therein
specified, and, unless otherwise specified, the acceptance of such resignation
shall not be necessary to make it effective.
3.6 Removal of Directors. Subject to the provisions of Section 141(1) of
the General Corporation Law, any or all of the directors may be removed by the
holders of a majority of the shares then entitled to vote at an election of
directors.
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3.7 Compensation. Each director, in consideration of his service as such,
shall be entitled to receive from the Corporation such amount per annum or such
fees for attendance at directors' meetings, or both, as the Board may from time
to time determine, together with reimbursement for the reasonable expenses
incurred by him in connection with the performance of his duties. Each director
who shall serve as a member of any committee of directors in consideration of
his serving as such shall be entitled to such additional amount per annum or
such fees for attendance at committee meetings, or both, as the Board may from
time to time determine, together with reimbursement for the reasonable expenses
incurred by him in the performance of his duties. Nothing contained in this
section shall preclude any director from serving the Corporation or its
subsidiaries in any other capacity and receiving proper compensation therefor.
3.8 Place and Time of Meetings of the Board. Meetings of the Board,
regular or special, may be held at any place within or without the State of
Delaware. The times and places for holding meetings of the Board may be fixed
from time to time by resolution of the Board or (unless contrary to resolution
of the Board) in the notice of the meeting.
3.9 Annual Meetings. On the day when and at the place where the annual
meeting of stockholders for the election of directors is held, and as soon as
practicable thereafter, the Board may hold its annual meeting, without notice of
such meeting, for the purposes of organization, the election of officers and the
transaction of other business. The annual meeting of the Board may be held at
any other time and place specified in a notice given as provided in Section 3.11
of the By-laws for special meetings of the Board or in a waiver of notice
thereof.
3.10 Regular Meetings. Regular meetings of the Board may be held at such
times and places as may be fixed from time to time by the Board. Unless
otherwise required by the Board, regular meetings of the Board may be held
without notice. If any day fixed for a regular meeting
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of the Board shall be a Saturday or Sunday or a legal holiday at the place where
such meeting is to be held, then such meeting shall be held at the same hour at
the same place on the first business day thereafter which is not a Saturday,
Sunday or legal holiday.
3.11 Special Meetings. Special meetings of the Board shall be held
whenever called by the Chairman or the President or by any two or more
directors. Notice of each special meeting of the Board shall, if mailed, be
addressed to each director at the address designated by him for that purpose or,
if none is designated, at his last known address at least two days before the
date on which the meeting is to be held; or such notice shall be sent to each
director at such address by telegraph, cable or wireless, or be delivered to him
personally, not later than the day before the date on which such meeting is to
be held. Every such notice shall state the time and place of the meeting but
need not state the purposes of the meeting, except to the extent required by
law. If mailed, each notice shall be deemed given when deposited, with postage
thereon prepaid, in a post office or official depository under the exclusive
care and custody of the United States post office department. Such mailing shall
be by first class mail.
3.12 Adjourned Meetings. A majority of the directors present at any
meeting of the Board, including an adjourned meeting, whether or not a quorum is
present, may adjourn such meeting to another time and place. Notice of any
adjourned meeting of the Board need not be given to any director whether or not
present at the time of the adjournment. Any business may be transacted at any
adjourned meeting that might have been transacted at the meeting as originally
called.
3.13 Waiver of Notice. Whenever notice is required to be given to any
director or member of a committee of directors under any provision of the
General Corporation Law or of the Certificate of Incorporation or By-laws, a
written waiver thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to
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notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice.
3.14 Organization. At each meeting of the Board, the Chairman of the
Corporation, or in the absence of the Chairman, the President of the
Corporation, or in his absence, a chairman chosen by a majority of the directors
present, shall preside. The Secretary shall act as secretary at each meeting of
the Board. In case the Secretary shall be absent from any meeting of the Board,
an Assistant Secretary shall perform the duties of secretary at such meeting;
and in the absence from any such meeting of the Secretary and all Assistant
Secretaries, the person presiding at the meeting may appoint any person to act
as secretary of the meeting.
3.15 Quorum of Directors. A majority of the total number of directors
shall constitute a quorum for the transaction of business or of any specified
item of business at any meeting of the Board.
3.16 Action by the Board. All corporate action taken by the Board or any
committee thereof shall be taken at a meeting of the Board, or of such
committee, as the case may be, except that any action required or permitted to
be taken at any meeting of the Board, or of any committee thereof, may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee. Members of the Board, or any
committee designated by the Board, may participate in a meeting of the Board, or
of such committee, as the case may be, by means of conference telephone or
similar communications equipment by means of which
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all persons participating in the meeting can hear each other, and participation
in a meeting pursuant to this Section 3.16 shall constitute presence in person
at such meeting. Except as otherwise provided by the Certificate of
Incorporation or by law, the vote of a majority of the directors present
(including those who participate by means of conference telephone or similar
communications equipment) at the time of the vote, if a quorum is present at
such time, shall be the act of the Board.
ARTICLE 4
COMMITTEES OF THE BOARD
The Board may, by resolution passed by a majority of the whole Board,
designate one or more committees, each committee to consist of one or more of
the directors of the corporation. The Board may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board to
act at the meeting in the place of any such absent or disqualified member. Any
such committee, to the extent provided in the resolution of the Board, shall
have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-laws of the Corporation; and, unless the resolution
designating
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it expressly so provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
ARTICLE 5
OFFICERS
5.1 Officers. The Board shall elect a Chairman, a President, a Secretary
and a Treasurer, and may elect or appoint one or more vice Presidents and such
other officers as it may determine. The Board may designate one or more Vice
Presidents as Executive Vice Presidents, and may use descriptive words or
phrases to designate the standing, seniority or area of special competence of
the Vice Presidents elected or appointed by it. Each officer shall hold his
office until his successor is elected and qualified or until his earlier death,
resignation or removal in the manner provided in Section 5.2 of the By-laws. Any
two or more offices may be held by the same person. The Board may require any
officer to give a bond or other security for the faithful performance of his
duties, in such amount and with such sureties as the Board may determine. All
officers as between themselves and the Corporation shall have such authority and
perform such duties in the management of the Corporation as may be provided in
the By-laws or as the Board may from time to time determine.
5.2 Removal of Officers. Any officer elected or appointed by the Board may
be removed by the Board with or without cause. The removal of an officer without
cause shall be without prejudice to his contract rights, if any. The election or
appointment of an officer shall not of itself create contract rights.
5.3 Resignations. Any officer may resign at any time by so notifying the
Board or the President or the Secretary in writing. Such resignation shall take
effect at the date of receipt of such notice or at such later time as is therein
specified, and, unless otherwise specified, the
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acceptance of such resignation shall not be necessary to make it effective. The
resignation of an officer shall be without prejudice to the contract rights of
the Corporation, if any.
5.4 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled for the unexpired
portion of the term in the manner prescribed in the By-laws for the regular
election or appointment to such office.
5.5 Compensation. Salaries or other compensation of the officers may be
fixed from time to time by the Board. No officer shall be prevented from
receiving a salary or other compensation by reason of the fact that he is also a
director.
5.6 Chairman. The Chairman shall preside at each meeting of the
stockholders and the Board of the Corporation. He may sign and execute in the
name of the Corporation deeds, mortgages, bonds, contracts and other
instruments, except in cases where the signing and execution thereof shall be
expressly delegated by the Board or by the By-laws to some other officer or
agent of the Corporation, or shall be required by law otherwise to be signed or
executed; and, in general, he shall perform all duties incident to the Office of
Chairman and such other duties as from time to time may be assigned to him by
the Board.
5.7 President. The President shall be the chief executive officer of the
Corporation and shall have general supervision over the business of the
Corporation, subject, however, to the control of the Board and of any duly
authorized committee of directors. The President shall, if present, in absence
of the Chairman, preside at all meetings of the stockholders and at all meetings
of the Board. He may, with the Secretary or the Treasurer or an Assistant
Secretary or an Assistant Treasurer, sign certificates for shares of capital
stock of the Corporation. He may sign and execute in the name of the Corporation
deeds, mortgages, bonds, contracts and other instruments, except in cases where
the signing and execution thereof shall be expressly delegated by the Board or
by the By-laws to some other officer or agent of the Corporation, or shall be
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required by law otherwise to be signed or executed; and, in general, he shall
perform all duties incident to the office of President and such other duties as
from time to time may be assigned to him by the Board.
5.8 Vice Presidents. At the request of the President, or, in his absence,
at the request of the Board, the Vice Presidents shall (in such order as may be
designated by the Board or, in the absence of any such designation, in order of
seniority based on age) perform all of the duties of the President and so acting
shall have all the powers of and be subject to all restrictions upon the
President. Any Vice President may also, with the Secretary or the Treasurer or
an Assistant Secretary or an Assistant Treasurer, sign certificates for shares
of capital stock of the Corporation; may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts or other instruments authorized
by the Board, except in cases where the signing and execution thereof shall be
expressly delegated by the Board or by the By-laws to some other officer or
agent of the Corporation, or shall be required by law otherwise to be signed or
executed; and shall perform such other duties as from time to time may be
assigned to him by the Board or by the President.
5.9 Secretary. The Secretary, if present, shall act as secretary of all
meetings of the stockholders and of the Board, and shall keep the minutes
thereof in the proper book or books to be provided for that purpose; he shall
see that all notices required to be given by the Corporation are duly given and
served; he may, with the President or a Vice President, sign certificates for
shares of capital stock of the Corporation; he shall be custodian of the seal of
the Corporation and may seal with the seal of the Corporation, or a facsimile
thereof, all certificates for shares of capital stock of the Corporation and all
documents the execution of which on behalf of the Corporation under its
corporate seal is authorized in accordance with the provisions of the By-laws;
he shall have charge of the stock ledger and also of the other books, records
and papers of
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the Corporation relating to its organization and management as a Corporation,
and shall see that the reports, statements and other documents required by law
are properly kept and filed; and shall, in general, perform all the duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the Board or by the President.
5.10 Treasurer. The Treasurer shall have charge and custody of, and be
responsible for, all funds, securities and notes of the Corporation; receive and
give receipts for moneys due and payable to the Corporation from any sources
whatsoever; deposit all such moneys in the name of the Corporation in such
banks, trust companies or other depositaries as shall be selected in accordance
with these By-laws; against proper vouchers, cause such funds to be disbursed by
checks or drafts on the authorized depositaries of the Corporation signed in
such manner as shall be determined in accordance with any provisions of the
By-laws, and be responsible for the accuracy of the amounts of all moneys so
disbursed; regularly enter or cause to be entered in books to be kept by him or
under his direction full and adequate account of all moneys received or paid by
him for the account of the Corporation; have the right to require, from time to
time, reports or statements giving such information as he may desire with
respect to any and all financial transactions of the Corporation from the
officers or agents transacting the same; render to the President or the Board,
whenever the President or the Board, respectively, shall require him so to do,
an account of the financial condition of the Corporation and of all his
transactions as Treasurer; exhibit at all reasonable times his books of account
and other records to any of the directors upon application at the office of the
Corporation where such books and records are kept; and, in general, perform all
the duties incident to the office of Treasurer and such other duties as from
time to time may be assigned to him by the Board or by the President; and he may
sign with the President or a Vice President certificates for shares of capital
stock of the Corporation.
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5.11 Assistant Secretaries and Assistant Treasurers. Assistant Secretaries
and Assistant Treasurers shall perform such duties as shall be assigned to them
by the Secretary or by the Treasurer, respectively, or by the Board or by the
President. Assistant Secretaries and Assistant Treasurers may, with the
President or a Vice President, sign certificates for shares of capital stock of
the Corporation.
ARTICLE 6
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
6.1 Execution of Contracts. The Board may authorize any officer, employee
or agent, in the name and on behalf of the Corporation, to enter into any
contract or execute and satisfy any instrument, and any such authority may be
general or confined to specific instances, or otherwise limited.
6.2 Loans. The President or any other officer, employee or agent
authorized by the By-laws or by the Board may effect loans and advances at any
time for the Corporation from any bank, trust company or other institutions or
from any firm, corporation or individual and for such loans and advances may
make, execute and deliver promissory notes, bonds or other certificates or
evidences of indebtedness of the Corporation, and, when authorized by the Board
so to do, may pledge and hypothecate or transfer any securities or other
property of the Corporation as security for any such loans or advances. Such
authority conferred by the Board may be general or confined to specific
instances or otherwise limited.
6.3 Checks, Drafts, Etc. All checks, drafts and other orders for the
payment of money out of the funds of the Corporation and all notes or other
evidences of indebtedness of the Corporation shall be signed on behalf of the
Corporation in such manner as shall from time to time be determined by
resolution of the Board.
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6.4 Deposits. The funds of the Corporation not otherwise employed shall be
deposited from time to time to the order of the Corporation in such banks, trust
companies or other depositaries as the Board may select or as may be selected by
an officer, employee or agent of the Corporation to whom such power may from
time to time be delegated by the Board.
ARTICLE 7
STOCK AND DIVIDENDS
7.1 Certificates Representing Shares. The shares of capital stock of the
Corporation shall be represented by certificates in such form (consistent with
the provisions of Section 158 of the General Corporation Law) as shall be
approved by the Board. Such certificates shall be signed by the President or a
Vice President and by the Secretary or an Assistant Secretary or the Treasurer
or an Assistant Treasurer, and may be sealed with the seal of the Corporation or
a facsimile thereof. The signatures of the officers upon a certificate may be
facsimiles, if the certificate is countersigned by a transfer agent or registrar
other than the Corporation itself or its employee. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon any certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, such certificate may, unless
otherwise ordered by the Board, be issued by the Corporation with the same
effect as if such person were such officer, transfer agent or registrar at the
date of issue.
7.2 Transfer of Shares. Transfers of shares of capital stock of the
Corporation shall be made only on the books of the Corporation by the holder
thereof or by his duly authorized attorney appointed by a power of attorney duly
executed and filed with the Secretary or a transfer agent of the Corporation,
and on surrender of the certificate or certificates representing such shares of
capital stock properly endorsed for transfer and upon payment of all necessary
transfer taxes. Every certificate exchanged, returned or surrendered to the
Corporation shall be marked
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"Cancelled," with the date of cancellation, by the Secretary or an Assistant
Secretary or the transfer agent of the Corporation. A person in whose name
shares of capital stock shall stand on the books of the Corporation shall be
deemed the owner thereof to receive dividends, to vote as such owner and for all
other purposes as respects the Corporation. No transfer of shares of capital
stock shall be valid as against the Corporation, its stockholders and creditors
for any purpose, except to render the transferee liable for the debts of the
Corporation to the extent provided by law, until such transfer shall have been
entered on the books of the Corporation by an entry showing from and to whom
transferred.
7.3 Transfer and Registry Agents. The Corporation may from time to time
maintain one or more transfer offices or agents and registry offices or agents
at such place or places as may be determined from time to time by the Board.
7.4 Lost, Destroyed, Stolen and Mutilated Certificates. The holder of any
shares of capital stock of the Corporation shall immediately notify the
Corporation of any loss, destruction, theft or mutilation of the certificate
representing such shares, and the Corporation may issue a new certificate to
replace the certificate alleged to have been lost, destroyed, stolen or
mutilated. The Board may, in its discretion, as a condition to the issue of any
such new certificate, require the owner of the lost, destroyed, stolen or
mutilated certificate, or his legal representatives, to make proof satisfactory
to the Board of such loss, destruction, theft or mutilation and to advertise
such fact in such manner as the Board may require, and to give the Corporation
and its transfer agents and registrars, or such of them as the Board may
require, a bond in such form, in such sums and with such surety or sureties as
the Board may direct, to indemnify the Corporation and its transfer agents and
registrars against any claim that may be made against any of them on account of
the continued existence of any such certificate so alleged
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to have been lost, destroyed, stolen or mutilated and against any expense in
connection with such claim.
7.5 Regulations. The Board may make such rules and regulations as it may
deem expedient, not inconsistent with the By-laws or with the Certificate of
Incorporation, concerning the issue, transfer and registration of certificates
representing shares of its capital stock.
7.6 Restriction on Transfer of Stock. A written restriction on the
transfer or resignation of transfer of capital stock of the Corporation, if
permitted by Section 202 of the General Corporation Law and noted conspicuously
on the certificate representing such capital stock, may be enforced against the
holder of the restricted capital stock or any successor or transferee of the
holder including an executor, administrator, trustee, guardian or other
fiduciary entrusted with like responsibility for the person or estate of the
holder. Unless noted conspicuously on the certificate representing such capital
stock, a restriction, even though permitted by Section 202 of the General
Corporation Law, shall be ineffective except against a person with actual
knowledge of the restriction. A restriction of the transfer or registration of
transfer of capital stock of the Corporation may be imposed either by the
Certificate of Incorporation or by an agreement among any number of stockholders
or among such stockholders and the Corporation. No restriction so imposed shall
be binding with respect to capital stock issued prior to the adoption of the
restriction unless the holders of such capital stock are parties to an agreement
or voted in favor of the restriction.
7.7 Dividends, Surplus, Etc. Subject to the provisions of the Certificate
of Incorporation and of law, the Board:
7.7.1 May declare and pay dividends or make other distributions on
the outstanding shares of capital stock in such amounts and at such time
or times as, in its discretion, the condition of the affairs of the
Corporation shall render advisable;
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7.7.2 May use and apply, in its discretion, any of the surplus of
the Corporation in purchasing or acquiring any shares of capital stock of
the Corporation, or purchase warrants therefor, in accordance with law, or
any of its bonds, debentures, notes, scrip or other securities or
evidences or indebtedness;
7.7.3 May set aside from time to time out of such surplus or net
profits such sum or sums as, in its discretion, it may think proper, as a
reserve fund to meet contingencies, or for equalizing dividends or for the
purpose of maintaining or increasing the property or business of the
Corporation, or for any purpose it may think conducive to the best
interests of the Corporation.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification of Officers and Directors. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was a director or an officer of the Corporation, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding to the fullest extent and in the manner set forth in and permitted by
the General Corporation Law, and any other applicable law, as from time to time
in effect. Such right of indemnification shall not be deemed exclusive of any
other rights to which such director or officer may be entitled apart from the
foregoing provisions. The foregoing provisions of this Section 8.1 shall be
deemed to be a contract between the Corporation and each director and officer
who serves in such capacity at any time while this Article 8 and the relevant
provisions of the General Corporation Law and other applicable law, if any, are
in effect, and any repeal or modification thereof shall not affect
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any rights or obligations then existing with respect to any state of facts then
or theretofore existing or any action, suit or proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts.
8.2 Indemnification of Other Persons. The Corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he is or
was an employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the extent and in the manner set forth in and
permitted by the General Corporation Law, and any other applicable law, as from
time to time in effect. Such right of indemnification shall not be deemed
exclusive of any other rights to which any such person may be entitled apart
from the foregoing provisions.
8.3 Insurance. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of Sections 8.1 and 8.2 of the
By-laws or under Section 145 of the General Corporation Law or any other
provision of law.
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ARTICLE 9
BOOKS AND RECORDS
9.1 Books and Records. The Corporation shall keep correct and complete
books and records of account and shall keep minutes of the proceedings of the
stockholders, the Board and any committee of the Board. The Corporation shall
keep at the office designated in the Certificate of Incorporation or at the
office of the transfer agent or registrar of the Corporation, a record
containing the names and addresses of all stockholders, the number and class of
shares held by each and the dates when they respectively became the owners of
record thereof.
9.2 Form of Records. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account,
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible written
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
9.3 Inspection of Books and Records. Except as otherwise provided by law,
the Board shall determine from time to time whether, and, if allowed, when and
under what conditions and regulations, the accounts, books, minutes and other
records of the Corporation, or any of them, shall be open to the inspection of
the stockholders.
ARTICLE 10
SEAL
The Board may adopt a corporate seal which shall be in the form of a
circle and shall bear the full name of the Corporation, the year of its
incorporation and the word "Delaware."
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ARTICLE 11
FISCAL YEAR
The fiscal year of the Corporation shall be determined, and may be
changed, by resolution of the Board.
ARTICLE 12
VOTING OF SHARES HELD
Unless otherwise provided by resolution of the Board, the President may,
from time to time, appoint one or more attorneys or agents of the Corporation,
in the name and on behalf of the Corporation, to cast the votes which the
Corporation may be entitled to cast as a stockholder or otherwise in any other
corporation, any of whose shares or securities may be held by the Corporation,
at meetings of the holders of stock or other securities of such other
corporation, or to consent in writing to any action by any such other
corporation, and may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent, and may execute or cause to
be executed on behalf of the Corporation and under its corporate seal, or
otherwise, such written proxies, consents, waivers or other instruments as he
may deem necessary or proper in the premises; or the President may himself
attend any meeting of the holders of the stock or other securities of any such
other corporation and thereat vote or exercise any or all other powers of the
Corporation as the holder of such stock or other securities of such other
corporation.
ARTICLE 13
AMENDMENTS
The By-laws may be altered, amended, supplemented or repealed, or new
By-laws may be adopted, by vote of the holders of the shares entitled to vote in
the election of directors. The By-laws may be altered, amended, supplemented or
repealed, or new By-laws may be adopted,
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by the Board. Any By-laws adopted, altered, amended, or supplemented by the
Board may be altered, amended, or supplemented or repealed by the stockholders
entitled to vote thereon.
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Exhibit I
Amendment to By-laws of North Fork Bancorporation, Inc. adopted by the Board of
Directors on January 18, 1984
ARTICLE 2
STOCKHOLDERS
2.15 Consideration of Submission of Tender Offers to Stockholder Vote. The
Officers and Board of Directors of the Corporation shall consider, on an ongoing
basis, not less often than annually, presenting to the stockholders for
ratification or rejection any tender offer (for the stock of any bank or
non-banking organization) that would involve the issuance of securities or the
payment of cash of a value of more than five percent of the total assets and
more than five percent of the net earnings and revenues, such percentages being
those which are determined at the end of each fiscal year of the Corporation.
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Exhibit II
Amendment to By-laws of North Fork Bancorporation, Inc. adopted by the Board of
Directors on March 21, 1984
ARTICLE 3
DIRECTORS
3.2 Number; Qualification; Term of Office. The Board shall consist of five or
more members. The total number and classes of directors shall be fixed
initially by the incorporator. Thereafter, the total number of directors
may be changed from time to time by vote of the total number of directors
then in office. Each director shall hold office until his successor is
elected and qualified or until his earlier death, resignation or removal,
or until the Annual Meeting next following his reaching age 70.
(see next page for later amendment)
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Exhibit II-Page 2
Amendment to By-laws of North Fork Bancorporation, Inc. adopted by the Board of
Directors on July 26, 1988
ARTICLE 3
DIRECTORS
3.2 Number; Qualification; Term of Office. The Board shall consist of five
or more members. The total number and classes of directors shall be fixed
initially by the incorporator. Thereafter, the total number of directors may be
changed from time to time by vote of the total number of directors then in
office. Each director shall hold office until his successor is elected and
qualified or until his earlier death, resignation or removal, or until his
reaching age 70.
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Exhibit III
Amendment to By-laws of North Fork Bancorporation, Inc. adopted by the Board of
Directors on July 28, 1992:
ARTICLE 3
DIRECTORS
Section 3.3 of Article 3 is hereby amended by adding at the end of
said Section the following:
3.3 Election. Only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors of the Company.
Nominations of persons for election to the Board of Directors may be made at any
annual meeting of stockholders (a) by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (b) by any stockholder
of the Company (i) who is a stockholder of record on the date of the giving of
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the notice provided for in this Section 3.3 and on the record date for the
determination of stockholders entitled to vote at such annual meeting and (ii)
who complies with the notice procedures set forth in this Section 3.3.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder, such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Company.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Company not
less than sixty (60) days nor more than ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within thirty (30) days before or after such anniversary date,
notice by the stockholder in order to be timely must be so received not later
than the close of business on the tenth (10th) day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the Company which
are owned beneficially or of record by the person and (iv) any other information
relating to the person that would be required to be disclosed in a proxy
statement or other filings required to be made in connection with solicitations
of proxies for election of directors pursuant to Section 14 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder; and (b) as to the stockholder giving such
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of
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capital stock of the Company which are owned beneficially or of record by such
stockholder, (iii) a description of all arrangements or understandings between
such stockholder and each proposed nominee and any other person or persons
(including their names) pursuant to which the nomination(s) are to be made by
such stockholder, (iv) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to nominate the persons named in its
notice and (v) any other information relating to such stockholder that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serve as a director if
elected.
No person shall be eligible for election as a director of the Company
unless nominated in accordance with the procedures set forth in this Section
3.3. If the Chairman of the annual meeting determines that a nomination was not
made in accordance with the foregoing procedures, the Chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.
34
<PAGE> 1
CONSULTING AGREEMENT
CONSULTING AGREEMENT (this "Agreement"), dated as of March 27, 1998 by and
between North Fork Bancorporation, Inc. (the "Company") and Patrick E. Malloy,
III (the "Consultant").
WHEREAS, the Company and New York Bancorp Inc. ("NY Bancorp") have
entered into an Amended and Restated Agreement and Plan of Merger (the "Merger
Agreement"), dated as of October 7, 1997, pursuant to which, among other
things, NY Bancorp will be merged with and into the Company as of the Effective
Time (as defined in the Merger Agreement);
WHEREAS, in connection with the transactions contemplated by the Merger
Agreement and in recognition of the Consultant's experience and abilities, the
Company desires to assure itself of the services of the Consultant in
accordance with and subject to the terms and conditions provided herein; and
WHEREAS, the Consultant wishes to perform services for the Company in
accordance with and subject to the terms and conditions provided herein.
NOW, THEREFORE, in consideration of the mutual premises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Engagement as Consultant. The Company hereby agrees to engage the
Consultant, and the Consultant hereby agrees to perform services for the
Company, on the terms and conditions set forth herein.
2. Term. The term of this Agreement (the "Term") shall commence on the
Effective Time and terminate on the first anniversary thereof. This Agreement
shall be of no force and effect unless and until the Effective Time occurs.
3. Duties. During the Term, the Consultant shall perform such services
relating to the business of the Company and its subsidiaries as the Consultant
and the Chief Executive Officer or Board of Directors of the Company shall
mutually agree, such services to be consistent with the Consultant's expertise
in
<PAGE> 2
asset/liability management. The Consultant shall expend such time and effort as
he reasonably believes to be necessary to perform his services on behalf of the
Company, and in no event shall he be required to provide consulting services to
the Company for more than 20 hours during any week. The scheduling of such time
shall be mutually agreeable to the Consultant and the Company. The Consultant
may pursue other personal or business interests during the Term, provided,
however, that such interests do not interfere with his duties as set forth in
this Section 3 and do not violate his obligations under Section 8 hereof.
4. Place of Performance. The Consultant shall perform his duties and
conduct his business from his primary residence and/or at such other locations
as are reasonably acceptable to him and the Company. The Consultant shall not
be required to travel outside of the New York metropolitan area in the
performance of his services hereunder.
5. Independent Contractor. During the term of this Agreement, the
Consultant shall be an independent contractor and not an employee of the
Company. Accordingly, Consultant shall be responsible for payment of all taxes,
including Federal and State income tax, Social Security tax, Unemployment
Insurance tax, and any other taxes or business license fees as required.
6. Compensation and Related Matters.
(a) Monthly Consulting Fee. During the Term, the Company shall pay
to the Consultant, in equal monthly installments, an annual consulting fee of
$750,000.
(b) Benefits: Perquisites. As of the Effective Time, the Consultant
may elect on behalf of himself and his qualified beneficiaries, continuation of
health coverage in accordance with Section 4980B of the Internal Revenue Code
of 1986 and Part 6 of Subtitle B of Title I of the Employee Retirement Income
Security Act of 1974, as amended ("COBRA Coverage"). During the Term, the
Company shall reimburse the Consultant for premiums actually paid by the
Consultant for such COBRA Coverage.
(c) Reimbursement of Expenses. The Company shall promptly reimburse
the Consultant for all reasonable business expenses incurred in connection with
the services performed by him on behalf of the Company, subject to
documentation in accordance with the Company's policies.
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<PAGE> 3
7. Termination. The Consultant's engagement as a consultant hereunder
shall terminate without further action by any party hereto upon the expiration
of the Term or upon the Consultant's death or permanent disability (as defined
in the Company's long term disability plan). This Agreement may also be
terminated (i) by the Consultant upon 30 days' written notice to the Company
(such notice may be waived by mutual consent of the parties) or (ii) by the
Company upon a material breach by the Consultant of this Agreement (including,
without limitation, any breach of Sections 8 or 9 hereof). The Company shall
not have the right to terminate this Agreement pursuant to clause (ii) of the
preceding sentence unless the Company shall have first provided written notice
to the Consultant specifying the details of any claimed material breach and the
Consultant shall have failed to cure such breach within 30 days after receiving
written notice thereto. Upon termination of the Consultant's engagement as a
consultant hereunder in accordance with the immediately preceding sentence or
as a result of death or permanent disability, the parties hereto shall have no
further obligation or liability under this Agreement, except that the Company
shall pay the Consultant all amounts owed the Consultant hereunder in respect
of the period prior to the date of termination.
8. Noncompetition. The Consultant shall not engage in any Competitive
Activity during the Term. For the purposes hereof, a "Competitive Activity"
shall mean the Consultant's direct or indirect participation in the
ownership, management, operation or control of, or employment, as an officer,
employee, partner or otherwise, with any business which is in competition with
the business conducted by the Company and its affiliates in any geographic area
where such business is being conducted. Notwithstanding the foregoing, nothing
contained in this Section 8 shall prohibit the Consultant from acquiring
beneficial ownership of up to 5% of the outstanding voting securities of any
publicly-traded depository institution (or publicly-traded holding company
thereof) any of the securities of which are registered pursuant to Section 12
of the Securities and Exchange Act of 1934, as amended (any such acquisition, a
"Permitted Investment"); provided, however, that the Consultant shall not,
without the Company's prior consent, make a Permitted Investment in any such
depository institution or holding company if both (i) the market capitalization
of such depository institution or holding company was $10 billion or less at
any time during the twelve-month period immediately preceding the proposed
investment by the Consultant, and (ii) such depository institution or holding
company is headquartered, or its business is otherwise principally located, in
New York, New Jersey or Connecticut. Contemporaneously with the execution of
this Agreement, the Consultant will deliver to the Company a schedule
indicating, as of this date of this Agreement, the amount and nature of the
Consultant's beneficial
3
<PAGE> 4
ownership of voting securities of any financial institution having a market
capitalization of $10 billion or less.
9. Compliance with Law and Company Policy. In the performance of the
services herein contemplated, the Consultant is an independent contractor with
the authority to control the details of his work. However, the services of the
Consultant are subject to the approval of the Company and shall be subject to
the Company's general right of supervision to secure the satisfactory
performance thereof. The Consultant agrees to comply with all federal, state
and municipal laws, rules and regulations, as well as all policies and
procedures of the Company, that are now or may in the future become applicable
to the Consultant in connection with his services to the Company. At all times
during or after the Term, the Consultant shall hold in a fiduciary capacity for
the benefit of the Company all secret or confidential information, knowledge or
data relating to the Company or any of its affiliates, and shall not in any
manner, directly or indirectly, use for his own benefit or the benefit of any
other person, firm, entity or corporation, nor disclose, divulge, render or
offer, any such secret or confidential information, except on behalf of the
Company in the course of the proper performance of the Consultant's duties or
except as may otherwise be required by law or legal process (provided the
Company, to the extent reasonably practicable, has been given notice and
opportunity to challenge or limit the scope of disclosure purportedly so
required). Confidential information shall not include, for purposes of this
Section 9, any information which is generally available to the public other
than as a result of a prohibited disclosure by the Consultant or any
information in the possession of the Consultant which has been independently
developed by him or made available to him by a third party with no obligation
of confidentiality to the Company. At all times during or after the Term, the
Consultant shall refrain from making disparaging remarks about the Company and
its officers, directors or employees.
10. Indemnification. The Company agrees that the Consultant shall be
entitled to indemnification, with respect to all cost, expense, liability and
loss incurred by the Consultant and resulting from the provision of services by
the Consultant in accordance herewith, as and to the same extent that the
Company's directors and officers are entitled to indemnification pursuant to
the Company's certificate of incorporation and by-laws.
4
<PAGE> 5
11. Successors: Binding Agreement.
(a) The Company shall require any successor to all or substantially
all of the business or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
(b) This Agreement and all rights of the Consultant hereunder shall
inure to the benefit of and be enforceable by the Consultant's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. This Agreement is personal to and may not
be assigned by the Consultant.
(c) On and after the Effective Time, this Agreement shall supercede
any other agreement between the parties hereto or between NY Bancorp and the
Consultant with respect to the subject matter hereof.
12. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed) or sent by an overnight courier service to the parties at the
following addresses (or at such other addresses for a party as shall be
specified by the notice):
If to the Company: North Fork Bancorporation, Inc.
275 Broad Hollow Road
Melville, New York 11747
Attention: Corporate Secretary
If to the Consultant: Patrick E. Malloy, III
c/o Malloy Enterprises, Inc.
Bay Street at the Waterfront
Sag Harbor, New York 11963
13. Specific Performance. Whereas the Company's remedy at law for any
breach of Sections 8 or 9 of this Agreement would be inadequate, the Company
shall be entitled to injunctive relief and to enforce its rights thereunder by
an action for specific performance in case of any such breach.
5
<PAGE> 6
14. Disputes. Except as otherwise provided in Section 13 hereof, any
dispute, controversy or claim arising out of or relating to this Agreement, or
the breach, termination or validity hereof, shall be finally settled by
arbitration by one arbitrator in New York City, New York pursuant to the
Commercial Arbitration Rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court of
competent jurisdiction.
15. 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 parties hereto. No waiver by a party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision 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 the parties which are not set forth expressly in this
Agreement. This Agreement shall be governed and construed in accordance with
the laws of the State of New York, without giving effect to the principles of
conflicts of law thereunder.
16. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but both of which together shall
constitute one and the same instrument.
17. Enforcement. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
18. Survival. The obligations of the parties set forth in Section 9 shall
survive any termination or expiration of the Consultant's engagement as a
consultant hereunder or of this Agreement as necessary to give full effect to
the provisions of such Section.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
NORTH FORK BANCORPORATION, INC.
By: /s/ Daniel M. Healy
-----------------------------------
Name: Daniel M. Healy
Title: Executive Vice President and
Chief Financial Officer
/s/ Patrick E. Malloy, III
-----------------------------------
Patrick E. Malloy, III
7
<PAGE> 1
North Fork Bancorporation, Inc.
Exhibit 11 - Computation of Earnings Per Share
December 31, 1998
<TABLE>
<CAPTION>
--------------------------------------------
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996
--------------------------------------------
<S> <C> <C> <C>
Net Income $167,975,347 $170,521,287 $ 94,448,282
Common Equivalent Shares:
Weighted Average Common Shares Outstanding 140,706,044 136,760,843 136,502,635
Weighted Average Common Equivalent Shares - Options 675,556 2,424,623 2,011,960
Weighted Average Common Equivalent Shares - Restricted Stock 383,968 147,585 192,439
-------------------------------------------
Weighted Average Common and Common Equivalent Shares 141,765,568 139,333,051 138,707,034
===========================================
Net Income per Common Equivalent Share - Basic $ 1.19 $ 1.24 $ 0.69
Net Income per Common Equivalent Share - Diluted $ 1.18 $ 1.22 $ 0.68
</TABLE>
<PAGE> 1
North Fork Bancorporation
Financial Statements
12 Selected Financial Data
14 Management's Discussion
and Analysis
36 Consolidated Statements
of Income
37 Consolidated Balance Sheets
38 Consolidated Statements
of Cash Flows
40 Consolidated Statements of
Changes in Stockholders' Equity
41 Consolidated Statements of
Comprehensive Income
42 Notes to Consolidated
Financial Statements
70 Independent Auditors' Report
71 Report of Management
72 Corporate Information
11
<PAGE> 2
Selected Financial Data
Selected financial data for each of the years in the five year period ended
December 31, 1998 are set forth below. The Company's consolidated financial
statements and notes thereto as of December 31, 1998 and 1997 and for each of
the years in the three year period ended December 31, 1998 are included
elsewhere herein. All prior years' financial information has been conformed to
the current year presentation.
<TABLE>
<CAPTION>
(dollars in thousands, except per share amounts) 1998 1997 1996 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Interest Income (tax equivalent basis)(2) .............. $ 758,606 $ 731,832 $ 617,580 $ 532,209 $ 473,358
Interest Expense ....................................... 328,456 326,803 281,107 242,129 192,524
-----------------------------------------------------------------------
Net Interest Income (tax equivalent basis) ........... 430,150 405,029 336,473 290,080 280,834
Less: Tax Equivalent Adjustment ........................ 5,506 7,408 3,818 1,970 1,862
-----------------------------------------------------------------------
Net Interest Income .................................. 424,644 397,621 332,655 288,110 278,972
Provision for Loan Losses .............................. 15,500 8,100 8,000 13,525 9,475
Non-Interest Income(3) ................................. 54,885 50,915 38,602 29,695 28,168
Net Securities Gains/(Losses) .......................... 9,433 8,407 6,224 5,886 (8,587)
Other Non-Interest Expense ............................. 146,607 157,182 154,643 140,983 154,449
Capital Securities Costs ............................... 16,843 9,235 25 -- --
Amortization & Write-down of Intangible Assets ......... 14,479 7,292 6,364 1,688 1,543
Merger Related Restructure Charges ..................... 52,452 -- 21,613 19,024 14,338
SAIF Recapitalization Charge ........................... -- -- 17,782 -- --
Income Before Income Taxes ........................... 243,081 275,134 169,054 148,471 118,748
Provision for Income Taxes(4) .......................... 75,106 104,613 74,606 69,567 42,557
-----------------------------------------------------------------------
Net Income ........................................... $ 167,975 $ 170,521 $ 94,448 $ 78,904 $ 76,191
=======================================================================
Per Share:(5)
Net Income-Basic ....................................... $ 1.19 $ 1.24 $ 0.69 $ 0.55 $ 0.56
Net Income-Diluted(6) .................................. $ 1.18 $ 1.22 $ 0.68 $ 0.55 $ 0.54
Cash Dividends(7) ...................................... $ 0.65 $ 0.38 $ 0.28 $ 0.18 $ 0.12
Dividend Payout Ratio(6) ............................... 55% 32% 36% 26% 25%
Book Value at December 31 .............................. $ 5.89 $ 5.53 $ 4.45 $ 4.15 $ 3.80
Market Price at December 31 ............................ $ 23.94 $ 22.50 $ 11.88 $ 8.42 $ 4.59
Balance Sheet Data at December 31:
Total Assets ........................................... $10,679,556 $10,073,632 $ 8,691,434 $ 7,622,458 $ 6,842,809
Securities:
Available-for-Sale .................................... 2,980,223 2,156,624 1,301,891 1,425,868 344,316
Held-to-Maturity ...................................... 1,571,545 1,763,308 1,851,575 1,770,734 2,463,007
Loans, net ............................................. 5,714,293 5,739,131 5,044,073 4,086,497 3,761,979
Demand Deposits ........................................ 1,263,105 948,458 771,920 520,977 397,539
Interest Bearing Deposits .............................. 5,164,517 5,389,481 5,427,940 4,983,498 4,947,761
Federal Funds Purchased & Securities Sold
Under Agreements to Repurchase ........................ 2,955,096 2,104,036 1,075,487 987,229 491,766
Other Borrowings ....................................... 35,000 449,600 590,088 457,278 409,006
Capital Securities ..................................... 199,289 199,264 99,637 -- --
Stockholders' Equity ................................... 831,250 770,889 609,434 582,515 527,212
Average Balance Sheet Data:
Total Assets ........................................... 10,107,386 9,557,020 8,283,418 7,099,152 6,880,831
Securities ............................................. 3,835,761 3,783,276 3,346,563 2,879,863 2,781,830
Loans, net ............................................. 5,729,743 5,357,470 4,531,541 3,919,342 3,724,486
Total Deposits ......................................... 6,484,243 6,179,024 6,114,852 5,402,606 5,403,927
Federal Funds Purchased & Securities Sold
Under Agreements to Repurchase ........................ 2,236,257 1,944,592 939,365 658,050 611,114
Other Borrowings ....................................... 185,783 485,200 533,516 397,830 289,082
Capital Securities ..................................... 199,277 105,646 281 -- --
Stockholders' Equity ................................... $ 837,413 $ 667,211 $ 589,352 $ 558,816 $ 503,491
</TABLE>
12
<PAGE> 3
<TABLE>
<CAPTION>
(dollars in thousands, except per share amounts) 1998 1997 1996 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Ratios:
Return on Average Assets(6) ............................ 1.66% 1.78% 1.14% 1.11% 1.11%
Return on Average Stockholders' Equity(6)(8) ........... 20.50% 25.63% 15.90% 14.09% 14.96%
Core Efficiency Ratio(9) ............................... 35.03% 38.22% 42.61% 43.95% 48.60%
Net Interest Margin(2) ................................. 4.48% 4.42% 4.24% 4.24% 4.24%
Average Stockholders' Equity to Average Assets ......... 8.29% 6.98% 7.11% 7.87% 7.32%
Tier I Capital Ratio ................................... 15.19% 15.33% 13.82% 14.45% 14.33%
Risk Adjusted Capital Ratio ............................ 16.39% 16.58% 15.11% 15.59% 15.72%
Leverage Capital Ratio ................................. 9.09% 8.74% 7.46% 7.35% 7.32%
Allowance for Loan Losses to Non-Performing Loans ...... 470% 198% 146% 107% 90%
Non-Performing Loans to Total Loans, net ............... 0.27% 0.66% 1.00% 1.78% 2.57%
Non-Performing Assets to Total Assets .................. 0.17% 0.43% 0.64% 1.08% 1.69%
Weighted Average Shares-Basic(5) ....................... 140,706 136,761 136,504 142,297 136,054
Weighted Average Shares-Diluted(5) ..................... 141,766 139,333 138,707 144,227 142,055
Branch Offices, as originally reported ................. 111 85 82 67 63
</TABLE>
(1) On March 27, 1998, New York Bancorp Inc. ("NYB") was merged with and into
the Company. On December 31, 1996, North Side Savings Bank ("North Side")
was merged with and into the Company. On January 27, 1995 Hamilton
Bancorp, Inc. ("Hamilton") was merged with and into NYB. On November 30,
1994, Metro Bancshares Inc. ("Metro") was merged with and into the
Company. These mergers were accounted for as pooling-of-interests and,
accordingly, the financial results for all periods reported have been
retroactively restated to include NYB, North Side, Hamilton 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 local municipal obligations, preferred stock issues, 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) Includes $4.5 million from interest on a tax settlement received by NYB
from the Internal Revenue Service during 1997.
(4) Includes a $5.7 million benefit for NYB's cumulative effect of change in
accounting for income taxes during 1994.
(5) Amounts have been restated to give effect for the 3-for-2 common stock
split effective May 15, 1998, the 2-for-1 common stock split effective May
15, 1997, NYB's 4-for-3 common stock split effective July 24, 1997, NYB's
3-for-2 common stock split effective January 23, 1997, and NYB's ten
percent common stock dividend effective February 14, 1994.
(6) For 1998, diluted earnings per share, the dividend payout ratio, return
on average assets and return on average equity, excluding the merger
related restructure charge and special items would have been $1.46, 45%,
2.04% and 25.22%, respectively. Non-recurring items and special charges
incurred in the first quarter of 1998 were comprised of a $52.5 million
merger related restructure charge, an additional $11.5 million loan loss
provision, a $6 million write-down of intangible assets, securities losses
of $2.5 million, and $1.8 million of other operating expenses (net of
$20.7 million in tax benefit). Tax items included a charge of $5 million
related to the recapture of NYB's banking subsidiary, Home Federal Savings
Bank, bad debt reserve for State and Local tax purposes and a benefit of
$20 million, which resulted from a corporate reorganization.
(7) Cash dividends per share represent amounts for the Company, exclusive of
NYB, North Side, Hamilton, and Metro.
(8) Excludes the effect of the SFAS No. 115 adjustment.
(9) 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 tax equivalent basis and other non-interest income,
net of securities gains/(losses) and other non-recurring items.
13
<PAGE> 4
Management's Discussion and Analysis
Certain statements under this caption constitute "forward-looking statements"
under the Private Securities Litigation Reform Act of 1995 which involve risk
and uncertainties. These statements are based on the beliefs, assumptions, and
expectations of management. Words such as "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 financial condition, performance or
operations and involve certain risks and uncertainties that are difficult to
quantify or, in some cases, to identify. Therefore, actual outcomes or results
may differ materially from what is indicated or forecasted in such
forward-looking statements. Factors that may cause or contribute to such
differences include, among others, the following possibilities: (1) changes in
economic or market conditions; (2) significantly increased competition in the
banking and financial services industry; (3) changes in the interest rate
environment, with reductions in bank margins; and (4) changes in state and
federal regulation of banking institutions.
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 $10.7 billion multi-bank holding company. At December 31,
1998, the Company ranks among the nation's top 50 bank holding companies when
measured by performance and asset size. The Company's primary bank subsidiary,
North Fork Bank ("North Fork"), operates through 110 full-service retail banking
facilities located in the New York metropolitan area. Its other bank subsidiary,
Superior Savings of New England ("Superior"), formerly Branford Savings Bank, a
Connecticut charted savings bank located in the Connecticut county of New Haven,
operates from one location where it currently conducts a telebanking operation
focused on gathering deposits throughout the New England region.
On March 27, 1998, New York Bancorp Inc. ("NYB"), the parent company of Home
Federal Savings Bank ("Home"), was merged with and into the Company in a
transaction accounted for in accordance with the pooling-of-interests method of
accounting. Accordingly, the consolidated financial statements and the
accompanying management's discussion and analysis include the consolidated
accounts of NYB. At the date of merger, NYB had $3.4 billion in total assets,
$2.0 billion in net loans, $1.7 billion in deposit liabilities, $140.3 million
in capital and operated through 35 branches throughout Kings, Queens, Richmond,
Nassau and Suffolk counties of New York. The transaction provided a much sought
after presence in the Brooklyn market area with nine branch locations. Pursuant
to the merger agreement the Company issued 1.19 shares of common stock, or 39.9
million shares, for each outstanding share of NYB. Simultaneously, 12.7 million
shares, as adjusted, of NYB's treasury shares with a cost basis of $56.6 million
were retired. A pre-tax charge for merger and related restructuring costs of
$52.5 million was recorded (See "Notes to Consolidated Financial
Statements--Note 2-Business Combinations").
In June 1998, the Company completed its first non-bank acquisition with the
purchase of Amivest Corporation ("Amivest"), a privately held investment
management and broker/dealer firm located in New York City. At the date of
acquisition, Amivest had approximately $700 million in assets under management.
The purchase price and operating results of this acquisition were not
significant to the consolidated financial statements of the Company. The Amivest
acquisition increased assets under management to approximately $1.4 billion at
December 31, 1998.
In the fourth quarter of 1998, the Board of Directors, after considering the
Company's continued ability to generate excess capital from earnings, adopted
two measures aimed at improving shareholder returns. A share repurchase program
of up to 14.3 million or 10% of the Company's common shares was approved. At
December 31, 1998, approximately 2.6 million shares were repurchased under the
stock buy-back program. The timing and amount of future purchases under the
program will depend upon market conditions and other alternative uses of
capital. Secondly, the Board, while deliberating the declaration of the fourth
quarter regular cash dividend of $.125, declared an additional cash dividend of
$.15 per share, both payable in 1999. Additional cash dividends of the type
declared in the fourth quarter will remain a recurring consideration of the
Company's overall capital management program.
The discussion and analysis that follows should be read in conjunction with
the consolidated financial statements and supplementary data contained elsewhere
in this 1998 Annual Report to Shareholders.
14
<PAGE> 5
Overview
The Company continued to be among the industry leaders in all key measures of
operating performance, highlighted by record earnings of $206.6 million, or
diluted earnings per share of $1.46 when adjusted for the merger related
restructure charge and special items, totaling $38.6 million after taxes,
incurred in connection with the March 1998 merger with NYB (See "Notes to
Consolidated Financial Statements--Note 2-Business Combinations"). In 1997 the
Company earned $170.5 million, or diluted earnings per share of $1.22. Return on
average total assets and average stockholders' equity, exclusive of these items,
was 2.04% and 25.22%, respectively, placing the Company in a leading position
among top bank holding companies. The Company ranks first, as the most efficient
bank holding company in the nation with a core efficiency ratio of 35%.
Management demonstrated, once again, its ability to successfully reduce
operating expenses and enhance revenues subsequent to its mergers and
acquisitions. Net income, return on average assets and return on average equity
including these charges, was $168 million or diluted earnings per share of
$1.18, 1.66% and 20.50%, respectively.
The proven capability of transforming thrift acquisitions into commercial
banking enterprises was evidenced by the continued growth in demand deposits and
generation of fee income. Demand deposits increased 33.2% to $1.3 billion and
represent approximately 20% of total deposits at December 31, 1998, as compared
to $948.5 million or 15% of total deposits at December 31, 1997. Non-interest
income, excluding securities gains and the interest on a tax settlement in 1997,
increased 18% to $54.9 million which is primarily related to the success in
making the multiple commercial banking and financial service products available
to approximately 220 thousand new NYB customers and new market areas.
Performance of the loan portfolio and overall asset quality remained solid,
as non-performing assets and restructured accruing loans declined by 67.2% to
$19.1 million at December 31, 1998. Asset quality ratios improved significantly,
as non-performing loans to net loans and allowance for loan losses to total
loans were .27% and 470%, respectively, at December 31, 1998 as compared to .66%
and 198%, respectively, at December 31, 1997.
On March 24, 1998, the Board of Directors approved a 3-for-2 common stock
split. The additional shares were issued on May 15, 1998, to shareholders of
record on April 24, 1998. All per share, weighted average shares outstanding,
and option data presented herein have been retroactively adjusted to reflect the
effects of the split.
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 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.
During 1998, net interest income increased $27.0 million or 6.8% to $424.6
million when compared to $397.6 million in 1997. This growth was achieved
through an increase in the level and composition of interest earning assets and
a modest improvement in the net interest margin. The increase in average
interest earning assets was primarily funded through the growth in demand
deposit balances, internally generated capital (primarily retained earnings),
and the December 1997 issuance of $100 million in capital securities. The growth
attributable to these factors was partially offset by the decline in yield on
average interest earning assets, principally investment securities. As a result
of the aforementioned factors, the net interest margin improved 6 basis points
to 4.48% during 1998 when compared to 4.42% in 1997.
Interest income increased $28.7 million or 4.0% to $753.1 million in 1998.
This increase resulted from a $447.6 million or 4.9% increase in average
interest earning assets to $9.6 billion in 1998, partially offset by a 10 basis
point decline in the yield on average interest earning assets to 7.89% in 1998.
Average loan growth of $372.3 million, or 6.9%, was the primary factor
contributing to the increase in average interest earning assets as well as
interest income. Average loans comprised 60% of average interest earning assets
and represent 88.4% of average total deposits. The yields on average loans
remained constant at 8.64%.
During 1998, average securities increased $52.5 million to $3.8 billion.
Yields on average securities declined to 6.80% in 1998 when compared to 7.08% in
1997, adversely impacting interest income. This 28 basis point decline was due
principally to significant prepayment activity totaling $1.7 billion, or
approximately 43% of securities at December 31, 1997, and the corresponding
reinvestment into lower yielding securities, which reflected market interest
rates at the time.
15
<PAGE> 6
Management's Discussion and Analysis (continued)
Interest expense increased $1.7 million to $328.5 million in 1998, reflecting
an average cost of funds of 4.20%, as compared with $326.8 million or a 4.21%
average cost of funds in 1997. Average total savings and time deposits, which
continue to represent a stable funding source, were $5.4 billion, reflecting an
average cost of funds of 3.48% in 1998, as compared to $5.3 billion, with an
average cost of funds of 3.53% during 1997. During 1998, average interest
bearing deposit growth of $72.0 million was concentrated in the savings
category, while the average cost of funds for these deposits decreased 7 basis
points to 2.16%. Both interest bearing customer deposit liability levels and the
corresponding cost of funds trends were principally a result of management
implementing its pricing and integration strategy on customer deposit
liabilities assumed in the NYB merger.
Average securities sold under agreements to repurchase increased $291.7
million to $2.2 billion replacing other borrowings, principally Federal Home
Loan Bank ("FHLB") fixed and variable rate term borrowings. The cost of funds on
total borrowings was 5.81% and 5.72% during 1998 and 1997, respectively.
Average demand deposits increased $233.2 million, or 27.3%, to $1.1 billion
during 1998, as compared to $854.3 million in 1997. The growth in the level of
demand deposits has resulted from management's emphasis on converting acquired
savings bank locations into full-service commercial banking locations, and an
emphasis on developing deposit relationships with its borrowers. At December 31,
1998, demand deposits represented approximately 20% of total deposits, as
compared to 15% at December 31, 1997.
During 1998, the use of interest rate swaps decreased interest expense by
approximately $.8 million, which was immaterial to the overall cost of funds and
net interest margin. The average cost of funds in 1997 was positively impacted
by NYB's use of interest rate swaps and other off-balance sheet instruments,
decreasing interest expense by $6.3 million. The cost of funds, excluding these
instruments, would have increased 9 basis points to 4.30% while the net interest
margin would have decreased by 7 basis points to 4.35% during 1997. (See
"Asset/Liability Management" section of "Management's Discussion and Analysis").
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.
<TABLE>
<CAPTION>
Years Ended December 31, 1998 vs. 1997 1997 vs. 1996
--------------------------------------------------------------------------
Change in Net Change in Net
Average Average Interest Average Average Interest
(in thousands ) Volume Rate Income Volume Rate Income
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income from Earning Assets:
Interest Earning Deposits .......................... $ 324 $ (14) $ 310 $ (81) $ 7 $ (74)
Securities ......................................... 3,678 (10,747) (7,069) 30,364 14,100 44,464
Loans, net of unearned income ...................... 32,181 430 32,611 71,332 359 71,691
Federal Funds Sold ................................. 904 18 922 (1,940) 111 (1,829)
--------------------------------------------------------------------------
Total Interest Income ............................ 37,087 (10,313) 26,774 99,675 14,577 114,252
--------------------------------------------------------------------------
Interest Expense on Liabilities:
Savings, NOW & Money Market Deposits ............... 1,706 (2,142) (436) (899) (2,028) (2,927)
Time Deposits ...................................... (282) 747 465 (3,276) (2,965) (6,241)
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase ................... 16,851 (549) 16,302 58,308 1,602 59,910
Other Borrowings ................................... (18,081) 3,403 (14,678) (2,709) (2,337) (5,046)
--------------------------------------------------------------------------
Total Interest Expense ........................... 194 1,459 1,653 51,424 (5,728) 45,696
--------------------------------------------------------------------------
Net Change in Net Interest Income .................. $ 36,893 $ (11,772) $ 25,121 $ 48,251 $ 20,305 $ 68,556
==========================================================================
</TABLE>
(1) The above table is presented on a tax equivalent basis.
(2) Non-accrual loans are included in the average outstanding loan balances.
16
<PAGE> 7
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>
1998 1997 1996
---------------------------------------------------------------------------------------------------
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 ..... $ 9,305 $ 456 4.90% $ 2,718 $ 146 5.37% $ 4,222 $ 220 5.21%
Securities .................... 3,835,761 260,831 6.80% 3,783,276 267,900 7.08% 3,346,563 223,436 6.68%
Loans, net of unearned income(1) 5,729,743 495,313 8.64% 5,357,470 462,702 8.64% 4,531,541 391,011 8.63%
Federal Funds Sold ............ 36,010 2,006 5.57% 19,780 1,084 5.48% 55,258 2,913 5.27%
----------------------- ---------------------- ----------------------
Total Interest Earning
Assets ..................... 9,610,819 758,606 7.89% 9,163,244 731,832 7.99% 7,937,584 617,580 7.78%
----------------------- ---------------------- ----------------------
Non Interest Earning Assets:
Cash and Due from Banks ....... 156,101 136,249 161,275
Other Assets(2) ............... 340,466 257,527 184,559
----------- ---------- ----------
Total Assets ................ $10,107,386 $9,557,020 $8,283,418
=========== ========== ==========
Interest Bearing Liabilities:
Savings, NOW & Money
Market Deposits .............. $ 2,989,870 $ 64,557 2.16% $2,912,303 $ 64,993 2.23% $2,951,753 $ 67,920 2.30%
Time Deposits ................. 2,406,901 123,212 5.12% 2,412,431 122,747 5.09% 2,476,088 128,988 5.21%
----------------------- ---------------------- ----------------------
Total Savings and
Time Deposits ................ 5,396,771 187,769 3.48% 5,324,734 187,740 3.53% 5,427,841 196,908 3.63%
Federal Funds Purchased &
Securities Sold Under
Agreements to Repurchase ..... 2,236,257 129,183 5.78% 1,944,592 112,881 5.80% 939,365 52,971 5.64%
Other Borrowings .............. 185,783 11,504 6.19% 485,200 26,182 5.40% 533,516 31,228 5.85%
----------------------- ---------------------- ----------------------
Total Borrowings ............ 2,422,040 140,687 5.81% 2,429,792 139,063 5.72% 1,472,881 84,199 5.72%
----------------------- ---------------------- ----------------------
Total Interest Bearing
Liabilities ................ 7,818,811 328,456 4.20% 7,754,526 326,803 4.21% 6,900,722 281,107 4.07%
----------------------- ---------------------- ----------------------
Rate Spread ................... 3.69% 3.77% 3.71%
Non-Interest Bearing Liabilities:
Demand Deposits ............... 1,087,472 854,290 687,011
Other Liabilities ............. 164,413 175,347 106,052
----------- ---------- ----------
Total Liabilities ........... 9,070,696 8,784,163 7,693,785
Capital Securities ............ 199,277 105,646 281
Stockholders' Equity .......... 837,413 667,211 589,352
----------- ---------- ----------
Total Liabilities and
Stockholders' Equity ....... $10,107,386 $9,557,020 $8,283,418
=========== ========== ==========
Net Interest Income &
Net Interest Margin(3) ....... 430,150 4.48% 405,029 4.42% 336,473 4.24%
Less: Tax Equivalent
Adjustment ................... (5,506) (7,408) (3,818)
--------- --------- ---------
Net Interest Income ......... $ 424,644 $ 397,621 $ 332,655
========= ========= =========
</TABLE>
(1) For purposes of these computations, non-accrual loans are included in the
average outstanding loan balances.
(2) For purposes of these computations, unrealized gains/(losses) on
available-for-sale securities are recorded in other assets.
(3) The above table is presented on a tax equivalent basis.
17
<PAGE> 8
Management's Discussion and Analysis (continued)
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 assets and liabilities, and the credit quality of the loan
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 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
interest earning assets and interest bearing 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 a traditional gap analysis. This model measures net interest
income sensitivity and volatility to interest rate changes. It 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 estimate and project the impact of
changes in interest rates on net interest income. This relative sensitivity is
important to consider since the Company'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 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. Management may choose to extend the maturity of its
funding source and/or reduce the repricing mismatches of its assets or
liabilities by using interest rate swaps. Additionally, management may use
interest rate collars, interest rate floors, and interest rate cap agreements to
assist in insulating it from volatile interest rate changes.
Based upon the aforementioned factors regarding the simulation model,
projected net interest income for the next twelve months was modeled based on
both an immediate rise or fall in interest rates as well as gradual movements in
interest rates over the twelve month period. Based on the information and
assumptions in effect at December 31, 1998, management believes that a 100 basis
point gradual increase in interest rates over the next twelve months would
decrease net interest income by $9.3 million or 2.0% while a gradual decrease in
interest rates would reduce net interest income by $1.3 million or 0.3%.
Management utilizes the traditional gap analysis to complement its income
simulation modeling, primarily focusing on the longer term structure of the
balance sheet, since the gap analysis does not assess the relative sensitivity
of assets and liabilities to changes in interest rates. The gap analysis is
prepared based on the maturity and repricing characteristics of interest earning
assets and interest bearing 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 gap analysis is static in nature, therefore, the maturity and repricing
characteristics of interest earning assets and interest bearing liabilities can
change considerably with changes in interest rates.
18
<PAGE> 9
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. At December 31, 1998, the combined weighted average life of
securities portfolios was 3.4 years. Approximately 85% of these securities were
mortgage-backed securities ("MBS") representing a relatively stable source of
cash flows. Such MBS securities are either guaranteed by FHLMC, GNMA or FNMA, or
constitute collateralized mortgage-backed obligations ("CMO") backed by U.S.
government agency securities or CMO private issuances, which are principally AAA
rated and are conservative current pay sequentials or PAC structures.
To maintain the interest rate risk profile which existed prior to the merger
with NYB, the Company reclassified approximately $913 million of investment
securities from its held-to-maturity portfolio to its available-for-sale
portfolio in connection with the merger. This transfer was made pursuant to
Statement of Financial Accounting Standard ("SFAS") No. 115 "Accounting for
Certain Investments in Debt and Equity Securities". The securities transferred
were primarily MBS's and CMO's having a higher degree of interest rate risk and
duration volatility. Additionally, approximately $415 million of these
securities were identified for sale at the time of reclassification, resulting
in $2.5 million of securities losses in the quarter ended March 31, 1998. These
securities were subsequently sold.
During 1998, the Company entered into $475 million in interest rate swap
agreements extending the maturity of certain funding sources and reducing the
repricing mismatches of certain interest earning assets and interest bearing
liabilities. This action created a more consistent and predictable interest rate
spread between certain securities and their funding sources. These agreements
require the Company to make periodic fixed rate payments while receiving
periodic variable rate payments indexed to the 3 month LIBOR rate and mature in
terms ranging from 2 to 10 years. The weighted average life of these agreements
is 3.4 years. The interest rate swaps are accounted for as hedges and are not
recorded on the balance sheet. Income or expense related to these instruments is
accrued monthly and recognized as adjustments to interest income or interest
expense for those balance sheet items being hedged. At December 31, 1998, an
unrealized loss of $3.8 million was recorded relating to a $75 million interest
rate swap hedging available-for-sale securities.
Prior to the merger, NYB utilized interest rate collars, swaps, and floor
agreements to insulate it from volatile interest rate changes. These agreements
were accounted for as hedges and were not recorded on balance sheet. NYB was
party to $700 million in interest rate collars, which expired in August 1998. It
required receipt of payment when the 3 month LIBOR exceeded 7.50%, and required
payment when the 3 month LIBOR was less than 5.00%. During 1995, NYB entered
into $1.0 billion of interest rate floor agreements to protect against interest
rate risk associated with repricing of interest bearing deposits, which expired
in February 1998. During 1995, these agreements were terminated to secure the
hedge position, and the gain was deferred and amortized over the original
contractual life of the agreements. During 1997, $600 million of interest rate
swap agreements matured, which were utilized to extend the maturity of certain
liabilities to create a more consistent and predictable interest rate spread.
These agreements required NYB to make periodic fixed rate payments while
receiving periodic variable rate payments.
The credit risk associated with these off-balance sheet instruments is the
risk of non-performance by the counterparty to the agreements. However,
management does not anticipate non-performance by the counterparty and
monitors/controls the risk through its asset/liability management procedures.
(See "Notes to Consolidated Financial Statements--Note 15-Derivative Financial
Instruments").
19
<PAGE> 10
Management's Discussion and Analysis (continued)
The following table reflects the repricing of the balance sheet, or "gap"
position at December 31, 1998.
<TABLE>
<CAPTION>
0-90 91-180 181-365 1-5 Over 5
(dollars in thousands) Days Days Days Years Years Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Interest Earning Deposits ............. $ 11,929 $ -- $ -- $ -- $ -- $ 11,929
Federal Funds Sold .................... 17,000 -- -- -- -- 17,000
Securities(1) ......................... 766,099 526,105 920,042 1,913,548 409,293 4,535,087
Loans, net of unearned income(2)(3) ... 896,759 308,651 608,984 2,938,953 953,354 5,706,701
----------------------------------------------------------------------------------------
Total Interest Earning Assets ....... $ 1,691,787 $ 834,756 $ 1,529,026 $ 4,852,501 $ 1,362,647 $10,270,717
----------------------------------------------------------------------------------------
Interest Bearing Liabilities:
Savings, NOW and Money Market
Deposits(4) .......................... $ -- $ 142,833 $ 285,666 $ 2,102,918 $ 418,605 $ 2,950,022
Time Deposits ......................... 697,074 380,582 460,861 675,206 772 2,214,495
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase .. 513,300 78,850 283,446 1,954,500 125,000 2,955,096
Other Borrowings ...................... -- 35,000 -- -- -- 35,000
Capital Securities .................... -- -- -- -- 199,289 199,289
----------------------------------------------------------------------------------------
Total Interest Bearing Liabilities .. $ 1,210,374 $ 637,265 $ 1,029,973 $ 4,732,624 $ 743,666 $ 8,353,902
----------------------------------------------------------------------------------------
Gap before Interest Rate Swaps ........ $ 481,413 $ 197,491 $ 499,053 $ 119,877 $ 618,981
----------------------------------------------------------------------------------------
Interest Rate Swaps ................... $ 475,000 $ -- $ -- $ (400,000) $ (75,000)
Cumulative Difference Between
Interest Earning Assets and
Interest Bearing Liabilities
after Interest Rate Swaps ............ $ 956,413 $ 1,153,904 $ 1,652,957 $ 1,372,834 $ 1,916,815
========================================================================
Cumulative Difference as a Percentage
of Total Assets ...................... 8.96% 10.80% 15.48% 12.85% 17.95%
========================================================================
</TABLE>
(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 $7.6 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.
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,
1998, respectively:
Held-to-Maturity
<TABLE>
<CAPTION>
U.S.
(dollars in thousands) State & Government
Municipal Agencies Other
Maturity Obligations Yield Obligations Yield Securities Yield Total Yield
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Within 1 Year ......................... $ 8,678 6.44% $ -- -- $ -- -- $ 8,678 6.44%
After 1 But Within 5 Years ............ 33,590 6.90% 74 8.87% 880 7.90% 34,544 6.93%
After 5 But Within 10 Years ........... 27,360 6.62% -- -- 22,881 6.38% 50,241 6.51%
After 10 Years ........................ 2,209 6.65% -- -- -- -- 2,209 6.65%
----------------------------------------------------------------------------------
Subtotal ............................ 71,837 6.73% 74 8.87% 23,761 6.44% 95,672 6.66%
Mortgage-Backed Securities ............ -- -- -- -- -- -- 560,815 6.46%
CMO's ................................. -- -- -- -- -- 915,058 6.35%
----------------------------------------------------------------------------------
Total Securities .................... $ 71,837 6.73% $ 74 8.87% $ 23,761 6.44% $1,571,545 6.41%
==================================================================================
</TABLE>
20
<PAGE> 11
Available-for-Sale(1)
<TABLE>
<CAPTION>
U.S.
(dollars in thousands) U.S. Government
Treasury Agencies Other
Maturity Securities Yield Obligations Yield Securities Yield Total Yield
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Within 1 Year ......................... $ 21,028 6.07% $ -- -- $ -- -- $ 21,028 6.07%
After 1 But Within 5 Years ............ 9,924 6.37% 26,245 6.03% 3,000 8.65% 39,169 6.32%
After 5 But Within 10 Years ........... -- -- 136,219 7.36% -- -- 136,219 7.36%
Due After 10 Years .................... -- -- -- -- 204,407 8.33% 204,407 8.33%
----------------------------------------------------------------------------------
Subtotal ............................ 30,952 6.17% 162,464 7.15% 207,407 8.33% 400,823 7.69%
Mortgage-Backed Securities ............ -- -- -- -- -- -- 728,849 6.45%
CMO's ................................. -- -- -- -- -- -- 1,631,055 6.47%
Equity Securities ..................... -- -- -- -- -- -- 202,815 6.95%
----------------------------------------------------------------------------------
Total Securities .................... $ 30,952 6.17% $ 162,464 7.15% $ 207,407 8.33% $2,963,542 6.66%
==================================================================================
</TABLE>
(1) Unrealized gains/(losses) have been excluded for presentation purposes.
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) 1998 1997 1996
--------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Securities ........................ $ 31,345 $ 33,119 $ 76,990
U.S. Government Agencies Obligations ............ 167,485 246,035 226,090
State & Municipal Obligations ................... 71,837 114,511 121,945
Mortgage-Backed Securities ...................... 1,292,630 1,180,087 1,244,081
CMO Agency Issuances ............................ 233,949 384,336 252,261
CMO Private Issuances ........................... 2,318,551 1,711,570 1,144,543
Other Securities ................................ 228,345 72,783 13,398
Equity Securities ............................... 207,626 177,491 74,158
--------------------------------------------------------
Total ......................................... $4,551,768 $3,919,932 $3,153,466
========================================================
</TABLE>
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, 1998:
<TABLE>
<CAPTION>
Maturities
-------------------------------------------------------------------
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 ....................... $ 104,650 $1,009,827 $ 537,113 $1,651,590
Mortgage Loans-Commercial ......................... 247,700 599,841 254,924 1,102,465
Commercial & Industrial ........................... 337,415 157,526 23,425 518,366
Construction and Land Loans ....................... 65,509 6,517 -- 72,026
-------------------------------------------------------------------
Total ............................................ $ 755,274 $1,773,711 $ 815,462 $3,344,447
===================================================================
Rate Provisions:
Amounts with Fixed Interest Rates ................. $ 73,507 $ 886,004 $ 802,376 $1,761,887
Amounts with Adjustable Interest Rates ............ 681,767 887,707 13,086 1,582,560
-------------------------------------------------------------------
Total ............................................ $ 755,274 $1,773,711 $ 815,462 $3,344,447
===================================================================
</TABLE>
21
<PAGE> 12
Management's Discussion and Analysis (continued)
The following table shows the classification of the average daily deposits and
average rates paid for each of the last three years ended December 31,
<TABLE>
<CAPTION>
(dollars in thousands) 1998 1997 1996
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand Deposits .................... $1,087,472 -- $ 854,290 -- $ 687,011 --
Savings Deposits ................... 2,118,024 2.15% 2,100,664 2.28% 2,198,011 2.35%
NOW & Money Market Deposits ........ 871,846 2.18% 811,639 2.10% 753,742 2.16%
Time Deposits ...................... 2,406,901 5.12% 2,412,431 5.09% 2,476,088 5.21%
--------------------------------------------------------------------
Total Deposits .................. $6,484,243 2.90% $6,179,024 3.04% $6,114,852 3.22%
====================================================================
</TABLE>
At December 31, 1998, the remaining maturities of certificate of deposits in
amounts of $100,000 and over were as follows:
<TABLE>
<CAPTION>
(in thousands) 1998
--------
<S> <C>
3 months and less ................................ $323,992
3 to 6 months .................................... 65,377
6 to 12 months ................................... 59,607
Greater than one year ............................ 93,041
--------
$542,017
========
</TABLE>
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 at contractual maturity, to
repay other borrowings as they mature and to make new loans and investments as
opportunities arise.
Sources of liquidity include dividends from subsidiaries, borrowings, the
sale of securities from the available-for-sale portfolio, and funds available
through the capital markets. Dividends from the Company's primary subsidiary,
North Fork 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, North Fork Bank had $174.6 million of retained
earnings available for dividends as of January 1, 1999. The Company enhanced its
liquidity position and strengthened its regulatory capital ratios through the
issuance of $200 million in Capital Trust Pass-Through Securities ("Capital
Securities"). These securities, which mature on December 15, 2027 and December
31, 2026, are noncallable at any time, in whole or in part, prior to December
15, 2007 and December 31, 2026, except in certain circumstances. They may be
redeemed annually thereafter, in whole or in part, at declining premiums to
maturity.
The bank subsidiaries have 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 and
Federal Home Loan Bank ("FHLB") advances utilizing its unpledged securities and
mortgage related loan portfolios, the sale of securities from their
available-for-sale portfolio, the securitization of loans within the portfolio,
whole loan sales, and growth in their core deposit base.
The Banks currently have the ability, as members of the FHLB system, to
borrow $1.8 billion on a secured basis utilizing FHLB stock, first mortgage
loans, and certain mortgage-backed securities as collateral for a term ranging
from one day to ten years at both fixed and variable rates. At December 31,
1998, the Company had $1.6 billion in outstanding borrowings with the FHLB.
The Company and its banking subsidiaries 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 its banking
subsidiaries have sufficient liquidity to meet their operating requirements.
22
<PAGE> 13
Loan Portfolio
The loan portfolio is concentrated primarily in loans secured by real estate in
the New York metropolitan 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.
At December 31, 1998, loans outstanding totaled $5.7 billion, representing
a modest decline of $29.3 million. While experiencing growth in most loan
categories, this growth has been offset by accelerated prepayments in the
residential 1-4 family mortgage and commercial mortgage portfolios. This
accelerated level of prepayment activity is due in large measure to the interest
rate environment and aggressive pricing levels offered by competitors,
principally thrift companies and Wall Street conduits during most of 1998.
However, the Company experienced a reversal in this downward trend during the
fourth quarter of 1998 and believes this recent trend of loan growth should
continue in the near term. Management anticipates that this growth will be
driven by multi-family, commercial and consumer lending.
With the exception of residential 1-4 family mortgages, loan growth in the
recent years resulted from both originations and acquisitions. Originations have
been principally from multi-family lending, commercial lending, and consumer
loans. Multi-family mortgage loans generally are for $1-$5 million and are
secured by properties located in the metropolitan New York area, where demand
for such housing is strong. Commercial and industrial loans consist primarily of
loans to small and medium size businesses. Consumer loan growth represents the
increase in the auto 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 $15-$25 thousand for periods ranging from 36-60 months. The
Bank accepts substantially only "A" rated paper or higher, which are borrowers
without past credit history problems.
The NYB merger added approximately $2 billion in mortgage related loans.
The composition of NYB's loan portfolio was principally residential mortgage
loans totaling $1.1 billion, or 52.6% of its total loans, multi-family mortgages
totaling $432.4 million, or 21.2% of its total loans, and commercial mortgages
totaling $421.3 million, or 20.7% of total loans.
The following table represents the components of the loan portfolio at
December 31.
<TABLE>
<CAPTION>
(dollar in thousands) 1998 1997 1996 1995 1994
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Loans-Residential $1,901,759 33% $2,144,029 37% $2,205,533 44% $1,967,873 48% $1,853,582 49%
Mortgage Loans-Multi-family 1,651,590 29% 1,534,623 26% 1,127,817 22% 788,736 19% 655,339 17%
Mortgage Loans-Commercial . 1,104,228 19% 1,192,071 21% 1,010,631 20% 818,704 20% 777,653 21%
Commercial & Industrial ... 520,130 9% 444,480 8% 359,788 7% 259,876 6% 260,772 7%
Consumer Loans and Leases . 481,691 9% 394,436 7% 306,285 6% 208,902 5% 160,923 4%
Construction and Land Loans 72,026 1% 51,052 1% 61,740 1% 65,943 2% 77,846 2%
--------------------------------------------------------------------------------------------
Total ................... $5,731,424 100% $5,760,691 100% $5,071,794 100% $4,110,034 100% $3,786,115 100%
============================================================================================
</TABLE>
Asset Quality
During 1998, non-performing assets, which include loans past due 90 days and
still accruing interest, non-accrual loans and other real estate, declined $25.1
million, or 57.6%, to $18.5 million at year-end. The substantial decline was
achieved principally through the sales of non-performing and marginally
performing assets, principal repayments, the workout of non-performing loans to
performing status, and charge-offs. The decline in non-performing assets was
principally comprised of residential and commercial mortgages totaling $14.8
million and $3.8 million, respectively. At December 31, 1998, non-performing
loans were comprised of $4.5 million in commercial mortgages, $4.3 million in
consumer loans and leases, $3.5 million in residential mortgages, $2.5 million
in commercial loans, and $.5 million in multi-family mortgages. The declining
trend in non-performing assets over the past five years is a result of the
effectiveness of the Company's loan administration and workout procedures as
well as a strong local economy.
23
<PAGE> 14
Management's Discussion and Analysis (continued)
The components of non-performing assets and restructured, accruing loans are
detailed below at December 31,
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996 1995 1994
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans Ninety Days Past Due and Still Accruing ........... $ 7,684 $ 6,414 $ 6,988 $ 6,130 $ 5,597
Non-Accrual Loans ....................................... 7,592 31,231 43,297 66,783 90,909
--------------------------------------------------------------------
Non-Performing Loans .................................. 15,276 37,645 50,285 72,913 96,506
Other Real Estate ....................................... 3,217 5,943 5,095 9,287 19,149
--------------------------------------------------------------------
Non-Performing Assets ................................... $ 18,493 $ 43,588 $ 55,380 $ 82,200 $115,655
====================================================================
Restructured, Accruing Loans ............................ $ 584 $ 14,567 $ 19,552 $ 50,420 $ 53,140
====================================================================
Allowance for Loan Losses to
Non-Performing Loans .................................. 470% 198% 146% 107% 90%
Non-Performing Assets to Total Assets ................... 0.17% 0.43% 0.64% 1.08% 1.69%
</TABLE>
Loans are classified as restructured loans when management has granted, for
economic or legal reasons related to the borrower's financial condition,
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 yields 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. During 1998, restructured, accruing loans declined
approximately $14.0 million, or 96%, to $.6 million. This was achieved through
principal repayments, maturities, and the satisfaction of the performance
requirements on certain of these loans during 1998. At December 31, 1998, 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.
Allowance for Loan Losses
The determination of the adequacy of the allowance for loan losses and the
periodic provisioning for estimated losses included in the consolidated
financial statements is the responsibility of management. The evaluation process
is undertaken on a quarterly basis but may increase in frequency should
conditions arise that would require management's prompt attention. Conditions
giving rise to such action are business combinations, opportunities to dispose
of non-performing and marginally performing loans by bulk sale or any
development which may indicate an adverse trend. In the five year period ended
December 31, 1998, the Company completed several mergers and acquisitions of
commercial banks and thrift companies. Generally, in these transactions, the
merged entity's loan underwriting standards were less restrictive than those of
the Company which had the result of increasing the level of loan portfolio risk.
The methodology employed for assessing the appropriateness of the
allowance consists of the following criteria:
o The establishment of reserve amounts for all specifically identified
criticized loans, including those arising from business
combinations, that have been designated as requiring attention by
management's internal loan review program, bank regulatory
examinations or the Company's external auditors.
o An average one year loss factor is applied to smaller balance
homogenous types of loans not subject to specific review. These
loans include residential 1-4 family properties and consumer loans.
o An allocation to the remaining loans giving effect to historical
loss experience over several years and linked to cyclical trends.
Recognition is also given to the changed risk profile brought about from
the aforementioned business combinations, customer knowledge, the results of the
ongoing credit-quality monitoring processes and the cyclical nature of economic
and business conditions. An important consideration in applying these
methodologies is the concentration of real estate related loans located in the
New York metropolitan area.
24
<PAGE> 15
The initial allocation or specific-allowance methodology commences with
loan officers and underwriters grading the quality of their loans on an eight
category risk classification scale. Loans identified from this process as below
investment grade are referred to the independent Loan Review Department (LRD)
for further analysis and identification of those factors that may ultimately
affect full recovery or collectibility of principal and/or interest. These loans
are subject to continuous review and monitoring while they remain in the
criticized category. Additionally, LRD is responsible for performing periodic
reviews of the entire loan portfolio that are independent from the
identification process employed by loan officers and underwriters. Gradings that
fall into criticized categories are further evaluated and a range of reserve
amounts is established for each loan.
The second allocation or loss factor approach to common or homogenous loans
is made by applying the average one year loss factor to the outstanding balances
in each loan category.
The final allocation of the allowance is made by applying several years of
loss experience to categories of loans. It gives recognition to the loss
experience of acquired businesses, business cycle changes and the real estate
components of loans. Since many of the loans depend upon the sufficiency of
collateral, any adverse trend in the real estate markets could seriously affect
underlying values available to protect the Company from loss. This condition
existed in the early part of the decade when the Company experienced sizable
real estate loan losses.
Other evidence used to support the amount of the allowance and its
components are as follows:
o Regulatory examinations
o The amount and trend of criticized loans o Actual losses
o Peer comparisons with other financial institutions
o Economic data associated with the real estate market in the
Company's market area
o Opportunities to dispose of marginally performing loans for cash
consideration
The following table presents the allocation of the allowance for loan
losses and the related percentage of loans in each category to total loans.
<TABLE>
<CAPTION>
% of % of % of % of % of
Loans Loans Loans Loans Loans
to to to to to
Total Total Total Total Total
(dollars in thousands) 1998 Loans 1997 Loans 1996 Loans 1995 Loans 1994 Loans
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Loans-Residential ........ $14,278 33% $ 9,776 37% $11,195 44% $ 8,053 48% $ 8,054 49%
Mortgage Loans-Multi-family ....... 5,985 29% 6,904 26% 5,543 22% 6,461 19% 9,759 17%
Mortgage Loans-Commercial ......... 22,423 19% 23,928 21% 24,684 20% 22,506 20% 25,586 21%
Consumer Loans and Leases ......... 9,634 9% 6,886 7% 5,028 6% 3,479 5% 3,509 4%
Commercial & Industrial ........... 11,408 9% 11,513 8% 14,790 7% 19,215 6% 21,781 7%
Construction & Land Loans ......... 2,589 1% 1,829 1% 1,955 1% 3,418 2% 4,919 2%
Unallocated ....................... 5,442 -- 13,557 -- 10,085 -- 14,767 -- 13,344 --
------------------------------------------------------------------------------------
Total .......................... $71,759 100% $74,393 100% $73,280 100% $77,899 100% $86,952 100%
====================================================================================
</TABLE>
Based upon the process employed and giving recognition to all attendant factors
associated with the loan portfolio, management considers the allowance for loan
losses at December 31, 1998 to be adequate.
25
<PAGE> 16
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) 1998 1997 1996 1995 1994
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans Net of Unearned Income:
Average Balance ................................. $ 5,729,743 $ 5,357,470 $ 4,531,541 $ 3,919,342 $ 3,724,486
End of Year ..................................... 5,714,293 5,739,131 5,044,073 4,086,497 3,761,979
============================================================================
Analysis of Allowance for Loan Losses:
Balance at Beginning of Year .................... $ 74,393 $ 73,280 $ 77,899 $ 86,952 $ 94,498
Loans Charged-Off:
Mortgage Loans-Commercial ....................... $ 5,225 $ 3,932 $ 7,022 $ 7,668 $ 4,768
Consumer Loans and Leases ....................... 6,439 3,014 1,126 778 1,257
Commercial & Industrial ......................... 2,567 1,888 2,623 3,215 8,319
Mortgage Loans-Residential ...................... 6,482 2,908 6,014 5,402 3,823
Mortgage Loans-Multi-family ..................... 287 191 548 4,456 2,454
Construction and Land Loans ..................... 896 121 1,237 5,631 2,031
----------------------------------------------------------------------------
Total Charge-Offs ............................. $ 21,896 $ 12,054 $ 18,570 $ 27,150 $ 22,652
Recoveries of Loans Charged-Off:
Mortgage Loans-Commercial ....................... $ 153 $ 634 $ 513 $ 1,660 $ 960
Consumer Loans and Leases ....................... 2,312 640 507 525 465
Commercial & Industrial ......................... 1,149 1,114 544 1,377 2,621
Mortgage Loans-Residential ...................... 51 71 97 237 542
Mortgage Loans-Multi-family ..................... 95 19 724 100 55
Construction and Land Loans ..................... 57 95 284 94 624
----------------------------------------------------------------------------
Total Recoveries .............................. $ 3,817 $ 2,573 $ 2,669 $ 3,993 $ 5,267
Net Loans Charged-Off: ............................ $ 18,079 $ 9,481 $ 15,901 $ 23,157 $ 17,385
Provision for Loan Losses ....................... 15,500 8,100 8,000 13,525 9,475
Merger and Acquisition Activity:
Net Merger Activity for the Quarter
Ended December 31,(1) ......................... (55) -- 190 87 364
Additional Allowance Acquired in
Purchase Acquisitions ........................... -- 2,494 3,092 492 --
----------------------------------------------------------------------------
Balance at End of Year .......................... $ 71,759 $ 74,393 $ 73,280 $ 77,899 $ 86,952
============================================================================
Ratio of Net Charge-Offs to Average Loans ....... 0.32% 0.18% 0.35% 0.59% 0.47%
============================================================================
Ratio of Allowance for Loan Losses to
Non-performing Loans .......................... 470% 198% 146% 107% 90%
============================================================================
</TABLE>
(1) Represents the activity of the NYB, North Side, Hamilton, and Metro
mergers for the quarters ended December 31, 1997, 1995, 1994 and 1993,
respectively.
During 1998, the provision for loan losses increased to $15.5 million as
compared to $ 8.1 million in 1997. Reflected in the current year was a special
provision of $11.5 million. This additional provision was due to the sale of $32
million in non-performing and marginally performing loans acquired in the NYB
merger and to restore, as of the merger date, the Company's post-merger reserve
coverage ratios to approximate pre-merger levels. The Company's ratio of
allowance for loan losses to non-performing loans pre-merger were 362%, 265%,
151% and 109% at December 31, 1997, 1996, 1995 and 1994, respectively.
26
<PAGE> 17
Non-Interest Income
Non-interest income, exclusive of net securities gains and interest on tax
settlement received in 1997, increased 18.3% to $54.9 million in 1998, compared
with $46.4 million in 1997. This increase in non-interest income resulted from a
$2.3 million, or 9.6% increase in fees and service charges on deposit accounts
to $26.2 million, a $3.1 million, or 31.1% increase in investment management,
commissions and trust fees to $13.2 million and a $3.3 million, or 40.3%
increase in other operating income to $11.4 million. These increases were
attributable to management's success in making its multiple commercial banking
and financial service products available to approximately 220 thousand new NYB
customers and new market areas. Also, contributing to the growth in investment
management, commissions and trust fees is the operating results of Amivest,
which was acquired in a purchase transaction in June 1998.
During 1998, net securities gains were $9.4 million, compared with net
securities gains of $8.4 million in 1997. Gross realized gains in 1998 and 1997
resulted principally from the sale of equity positions and capital securities of
certain publicly traded companies. Management has been successful in making such
investments in publicly traded companies that have materialized as a source of
such gains. Upon consummation of the merger with NYB, approximately $415 million
of securities were transferred from held-to-maturity to available-for-sale,
resulting in a $2.5 million securities loss in the first quarter of 1998. This
transfer and subsequent sale was done pursuant to SFAS No. 115 in order to
maintain the interest rate risk profile of the Company which existed prior to
the merger (See "Asset/Liability Management" section of "Management's Discussion
and Analysis").
Non-Interest Expense
During 1998, non-interest expense, exclusive of the merger related restructure
charge and other special items totaling $52.5 million and $7.8 million,
respectively, aggregated $170.1 million, a decrease of $3.6 million or 2.1%
compared to $173.7 million in 1997. The reduction in non-interest expense is
attributable to a $3.0 million decrease in compensation and employee benefits, a
$2.0 million decrease in occupancy and equipment, net, and a $7.4 million
decrease in other operating expenses. The reduction was partially offset by an
increase of $7.6 million in capital securities costs due to the issuance of an
additional $100 million in capital securities in December 1997 and an $1.2
million increase in amortization of intangible assets due to the purchase
acquisitions of Superior and Amivest in December 1997 and June 1998,
respectively.
The 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/(losses) and other non-recurring items, improved to 35.03% in
1998, as compared with 38.22% for 1997. The improvement in the core efficiency
ratio once again demonstrates management's ability to employ its disciplined
merger and acquisition strategy by successfully reducing operating costs and
enhancing its revenue base post-merger.
In connection with the NYB merger, the Company recorded a pre-tax charge
for merger related restructuring costs of $52.5 million. This charge included
$11.6 million in direct merger expenses, primarily investment banking, legal
fees, other professional fees, and expenses associated with shareholder and
customer notifications. Severance and other employee related costs totaled $16.4
million consisting of employee severance, compensation arrangements,
transitional staffing and related employee benefits expenses. Facility and
systems costs totaled $16.8 million consisting primarily of lease termination
charges and equipment write-offs resulting from the consolidation of overlapping
branch locations and duplicate headquarters and operational facilities. Also
reflected are the costs associated with the cancellation of certain data and
items processing contracts and the deconversion of NYB's computer systems. Other
merger related costs totaled $7.6 million and arose primarily from the
application of the Company's accounting practices to the accounts of the merged
business and to a lesser extent other expenses associated with the integration
of operations. Additionally, the Company recorded a $5.0 million tax charge, net
of federal benefit, relating to the recapture of Home's tax bad debt reserve for
state and city tax purposes. (See "Notes to Consolidated Financial
Statements--Note 2-Business Combinations").
27
<PAGE> 18
Management's Discussion and Analysis (continued)
In March 1998, the Company recorded an intangible asset write-down of $6
million due to the realignment in its business arising from the merger with NYB.
This write-down was done pursuant to SFAS No. 121 "Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" and was classified
in the caption "Amortization Write-down of Intangible Assets" in the Company's
"Consolidated Statements of Income" for 1998.
Income Taxes
For 1998, the effective tax rate was 30.9% compared to 38.0% for the year ended
1997. The decrease in the effective tax rate was primarily due to a non-taxable
distribution from a corporate reorganization. This reduction was partially
offset by the recognition of certain non-deductible merger related restructuring
costs associated with the NYB merger, the recapture of Home's state and city tax
bad debt reserves, and the intangible asset write-down due to the realignment in
the Company's business arising from the merger. The effective tax rate exclusive
of the merger related restructure charge, special items, and tax benefit was
approximately 35%. (See "Notes to Consolidated Financial Statements--Note
10-Income Taxes").
Capital
The Company and its bank subsidiaries 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, 1998,
the most recent notification from the various banking regulators categorized the
Company and its bank subsidiaries as well capitalized under the regulatory
framework for prompt corrective action. Under the 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 be subject to any written order, agreement or directive. There
are no conditions or events since such notification that management believes
have changed this classification.
The Company enhanced its regulatory capital ratios with the two issuances
of approximately $100 million in capital securities in December 1997 and 1996,
respectively. At December 31, 1998, the carrying value of these capital
securities qualified as Tier I capital (See "Notes to Consolidated Financial
Statements--Note 9-Capital Securities"). The following table sets forth the
Company's regulatory capital at December 31, 1998, under the rules applicable 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 ................................. $ 936,525 15.19%
Regulatory Requirement ......................... 246,643 4.00%
---------------------
Excess ......................................... $ 689,882 11.19%
=====================
Total Risk Adjusted Capital .................... $1,010,449 16.39%
Regulatory Requirement ......................... 493,285 8.00%
---------------------
Excess ......................................... $ 517,164 8.39%
=====================
Risk Weighted Assets ........................... $6,166,067
==========
</TABLE>
The Company's leverage ratio at December 31, 1998 was 9.09%.
28
<PAGE> 19
Other Matters
The Year 2000 date change (commonly referred to as "Y2K") creates numerous
technical issues resulting from computer technology using two digit date fields,
rather than four digits, to define the applicable year. The Y2K date change,
which is common to most corporations including banks, concerns the inability of
information systems, primarily, but not exclusively, computer software programs,
to properly recognize and process date sensitive information beyond January 1,
2000.
The Company's information systems are primarily processed in-house, using
programs developed by third-party vendors and to a lesser extent, utilizing
third-party service providers. Therefore, the direct effort to correct Y2K
issues will be undertaken largely by third-parties and will not be within the
Company's direct control. The Company expects to bring its mission critical
systems into compliance through the installation of updated or replacement
programs developed by these third-parties.
The Company began addressing the Y2K date change in October 1996 with the
establishment of a Y2K Committee ("the Committee"). The Committee is comprised
of senior management and personnel representing various areas directly or
indirectly affected by the Y2K date change. A formal Year 2000 program was
developed by the Committee and approved by the Board of Directors in 1997. The
Committee has completed an assessment of its information technology ("IT") and
non-IT systems, identified mission critical systems, and created a formal
tracking system. Mission critical systems have been defined as all computer
hardware and software necessary for the successful continuation of a core
business activity.
In addition to the computer systems identified as mission critical, the
Committee has also identified other essential services that may be impacted by
Y2K date change such as utilities, telecommunications, and credit bureau
information. The Committee is communicating with the providers of these
essential services to monitor their progress in addressing Y2K issues. To date,
no information has been provided to suggest such essential services will not be
Y2K compliant.
The Company's plan to address the Y2K date change was developed in
accordance with the management process outlined in the Federal Financial
Institutions Examination Council ("FFIEC") Year 2000 statement issued on May 5,
1997, which consisted of the following phases: (a) awareness; (b) assessment;
(c) renovation; (d) validation; and (e) implementation. Numerous subsequent
FFIEC statements have been issued, which have been incorporated into the Year
2000 program. To date, the Company has completed the awareness and initial
assessment phases and has substantially completed the renovation, validation and
implementation phases for its mission critical systems. On an ongoing basis,
third-party service provider and vendor progress in addressing the Y2K issue is
monitored. Remediation and testing of the various systems and computer programs
commenced in the second quarter of 1998 and have been substantially completed at
December 31, 1998 for mission critical applications. The Company's core
application system, which performs deposit, loan, and general ledger accounting
processing is provided by a third-party vendor. This software has been
renovated, unit tested, acceptance tested, and was installed during the third
quarter of 1998. Year 2000 testing for this software has been completed.
Renovation and acceptance testing (including Year 2000 testing) for vendor
provided, non-mission critical applications is ongoing and is expected to be
completed by June 30, 1999. Testing with third-party service providers is
currently being performed in accordance with the applicable regulatory guidance
and is expected to be substantially completed by March 31, 1999.
The Company believes its Year 2000 program should enable it to be
successful in modifying its computer systems to be Year 2000 compliant.
Contingency plans, which include timetables and various alternatives based upon
the failure of a system(s) to be adequately modified and/or sufficiently tested
and validated to ensure Year 2000 compliance, have been developed. These
contingency plans are refined on an ongoing basis. There can be no assurance
that either the Year 2000 program or contingency plans will avoid partial or
total system interruptions.
29
<PAGE> 20
Management's Discussion and Analysis (continued)
The principal components of the expense related to the Y2K date change are
the replacement of personal computer equipment and the purchase or upgrade of
third-party software. External modification and internal costs will be expensed
as incurred. Costs of new hardware and software will be capitalized and
depreciated in accordance with policies. Based on current estimates, management
does not expect the costs associated with its Y2K program to be material to its
financial condition and results of operations. If the Y2K program is
unsuccessful, it may have a material, adverse effect on its future operating
results and financial condition.
Recognizing the importance of customer awareness, the Company has mailed
Y2K information to the various segments of its customer base, including all
depositors. Additionally, letters have been sent to all material loan customers
informing them of the Y2K issue and how it can impact businesses. An assessment
of the Y2K readiness of the significant loan customers has also been completed.
Recent Accounting Pronouncements
Reporting Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130")
in January 1998. SFAS 130 establishes standards for reporting and the display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. Comprehensive income is
defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. In
accordance with SFAS 130, all items that are required to be recognized under
accounting standards as components of comprehensive income must be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 also requires that an enterprise (a) classify
items of other comprehensive income by their nature in a financial statement and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in-capital in the equity section of a
statement of financial position (See the "Consolidated Statements of
Comprehensive Income", included herein).
Disclosure about Segments for an Enterprise and Related Information
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for the way an enterprise reports
information about operating segments in annual financial statements and requires
that enterprises report selected information about operating segments in interim
financial reports issued to shareholders. Operating segments are components of
an enterprise about which separate financial information is available, that are
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. SFAS 131 requires a
reconciliation of total segment revenues, total segment profit or loss, total
segment assets, and other amounts disclosed for segments to the amounts in the
enterprise's financial statements. It also requires an enterprise to report
descriptive information about the way the operating segments were determined,
the products and services provided by the operating segments, and any
differences between the measurements used for segment reporting and financial
statement reporting. SFAS 131 is effective for fiscal years beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years is to be restated. Management has evaluated the disclosure
requirements and determined that disclosure is not required as its operating
segments do not meet the quantitative thresholds as prescribed in SFAS 131 for
all reporting periods.
30
<PAGE> 21
Employers' Disclosures about Pensions and Other Post-Retirement Benefits
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Post-Retirement Benefits" ("SFAS 132"). SFAS 132 revises
employers' disclosures about pensions and other post-retirement benefit plans;
it does not change the measurement or recognition under these plans. SFAS 132
standardizes the disclosure requirements for pensions and other post-retirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer
useful. SFAS 132 is effective for fiscal years beginning after December 15, 1997
(See Footnote 11, "Retirement and Other Employee Benefit Plans", included herein
for the required disclosure).
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a foreign
currency denominated forecasted transaction. The accounting for changes in the
fair value of a derivative depends on the intended use of the derivative and the
resulting designation. Under SFAS 133, an entity that elects to apply hedge
accounting is required to establish, at the inception of the hedge, the method
it will use for assessing the effectiveness of the hedging derivative and the
measurement approach for determining the ineffective aspect of the hedge. Those
methods must be consistent with the entity's approach to managing risk.
SFAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Management is currently evaluating the effect SFAS 133 will
have on its financial statements.
Comparison Between 1997 and 1996
Overview
During 1997, the Company integrated and leveraged off three strategic in market
acquisitions including its December 1996 merger with North Side and its March
1996 purchase acquisitions of Extebank and ten Long Island branches of First
Nationwide. These acquisitions were accretive to earnings, significantly
expanded the Company's geographic presence in its primary markets and
represented an efficient use of capital. North Side, which was accounted for as
a pooling-of-interests transaction, 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 Bronx,
Queens, Nassau and Suffolk.
31
<PAGE> 22
Management's Discussion and Analysis (continued)
The North Side merger enhanced the Company's lending activities within its
expanded market areas, specifically the Bronx and Queens Counties of New York.
At December 31, 1997, loans outstanding totaled $5.8 billion, an increase of
$688.9 million, or 13.6%, from 1996 while performance of the loan portfolio
remained solid as non-performing assets and restructured, accruing loans
declined $16.8 million, or 22.4% to $58.2 million during 1997. The Company also
reported substantial achievements in all key measures of performance highlighted
by its return on average assets, stockholders' equity, and its core efficiency
ratios of 1.78%, 25.63% and 38.22%, respectively.
The Company had enhanced its regulatory Tier I Capital with two issuances
of approximately $100 million each in Capital Securities in December 1997 and
1996. During 1997, management entered into a capital management strategy,
whereby it leveraged its excess capital to generate additional net interest
income through an increased level in interest earning assets, funded principally
with repurchase agreements of varied maturities.
Earnings Summary
The Company's net income for the year ended December 31, 1997 was $170.5
million, or diluted earnings per share of $1.22, as compared with $94.4 million
or diluted earnings per share of $.68 in 1996. Net income and diluted earnings
per share during 1996 were impacted by the recognition of a $21.6 million merger
related restructure charge associated with the North Side merger, and a $17.8
million charge for the recapitalization of the Savings Association Insurance
Fund ("SAIF"). Net income and diluted earnings per share exclusive of the
aforementioned charges would have been $118.5 million or $.85 per share in 1996.
Net Interest Income
During 1997, net interest income increased $65.0 million or 19.5% to $397.6
million when compared to $ 332.7 million in 1996. This growth was achieved
through a significant increase in the level and composition of interest earning
assets and an 18 basis point improvement in the net interest margin to 4.42%
during 1997. Factors contributing to the widening in the net interest margin
included: (a) a change in the composition combined with a significant increase
in average interest earning assets and overall asset yields; (b) higher levels
of non-interest bearing customer deposit liabilities; (c) an overall decline in
the cost of funds for customer deposits; (d) the issuance of $200 million in
capital securities, of which $100 million was issued in December 1997; and (e)
increased levels of capital. The positive impact of these factors was offset by
an increase in the level of higher costing wholesale liabilities.
Interest income increased $110.7 million or 18.0% to $724.4 million in
1997. Management entered into a capital management strategy, whereby it
leveraged its excess capital in 1997, to generate additional net interest
income. This strategy contributed to the $1.2 billion or 15.4% increase in
average interest earning assets to $9.2 billion in 1997 and the change in the
composition of average interest earning assets as evidenced by the increase in
yield on such assets to 7.99% in 1997 as compared to 7.78% in 1996. As a result
of the increase in the level of interest earning assets, which were funded
principally with repurchase agreements of varied maturities, additional net
interest income was generated.
Average loans, net of unearned income increased $825.9 million or 18.2% to
$5.4 billion in 1997, representing 58.5% of average interest earning assets.
This level of growth was achieved through continued strong demand in virtually
all loan categories with the exception of lower yielding residential mortgage
loans. The yields on average loans remained relatively constant at 8.64%
32
<PAGE> 23
Average securities increased $436.7 million or 13.0% in 1997 with a
corresponding increase in the overall yield on the securities portfolio to 7.08%
as compared to 6.68% in 1996. These improvements during 1997 were achieved
principally through the investment of the proceeds generated from the
aforementioned leverage strategy into higher yielding securities, which
reflected market interest rates at the time of investment.
Interest expense increased to $45.7 million in 1997 reflecting an average
cost of funds of 4.21% as compared with 4.07% in 1996. This increase principally
resulted from a $1.0 billion increase in the level of average securities sold
under agreements to repurchase. Overall interest expense was positively impacted
by the modest decline in average customers savings and time deposit liabilities
as well as a 10 basis point decline in these cost of funds to 3.53% during 1997.
Both interest bearing customer deposit liability levels and the corresponding
cost of funds declined principally as a result of management implementing its
pricing strategy on customer deposit liabilities assumed in the North Side
merger as well as several purchase acquisitions during 1996.
Average demand deposits increased $167.3 million or 24.3% in 1997. The
growth in the level of demand deposits has resulted from management's emphasis
on converting its acquired savings bank locations into full service commercial
banking locations, and an emphasis on developing deposit relationships with its
borrowers. At December 31, 1997, demand deposits represented 15% of total
deposits as compared to 12.5% at December 31, 1996.
The average cost of funds was positively impacted by the use of interest
rate swaps and other off-balance sheet instruments which decreased interest
expense by $6.3 million and $3.5 million during 1997 and 1996, respectively. The
cost of funds, excluding these instruments, would have increased 9 basis points
and 5 basis points to 4.30% and 4.12% during 1997 and 1996, respectively. The
net interest margin, exclusive of these off balance sheet instruments, would
have decreased by 7 basis point and 5 basis points to 4.35% and 4.19% in 1997
and 1996, respectively (See "Asset/Liability Management" section of
"Management's Discussion and Analysis").
Provision for Loan Losses
The provision for loan losses totaled approximately $8 million during 1997 and
1996. Net charge-offs in 1997 aggregated $9.5 million or .18% of average loans,
as compared to $15.9 million or .35% of average loans during 1996. At December
31, 1997, the allowance for loan losses to non-performing loans improved to 198%
from 146% at December 31, 1996. The improvement resulted from an $11.8 million
decline in non-performing assets to $43.6 million at December 31, 1997, which
resulted from the sale of non-performing and marginally performing assets,
principal repayments, the workout of non-performing loans to performing status
and charge-offs.
Non-Interest Income
Non-interest income, exclusive of net securities gains and interest on a tax
settlement during 1997, increased 20.2% to $46.4 million in 1997, compared to
$38.6 million in 1996. The increase in non-interest income resulted from a $3.4
million, or 16.4% increase in fees and service charges on deposit accounts to
$23.9 million, a $3.1 million, or 43.8% increase in investment management,
commission and trust fees to $10.1 million, and a $1.5 million, or 22.5%
increase in other income to $8.1 million. The growth in non-interest income is
attributable to management's success in delivering a full compliment of
financial services and products to its expanded market areas and increased
customer base through its 1996 merger and acquisitions.
33
<PAGE> 24
Management's Discussion and Analysis (continued)
Net securities gains were $8.4 million and $6.2 million during 1997 and
1996, respectively and resulted principally from the sale of equity positions
and capital securities of certain publically traded companies. During 1996,
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.
Non-Interest Expense
Non-interest expense increased $12.7 million, or 7.9% to $173.7 million in 1997,
exclusive of the 1996 North Side merger related restructure charge of $21.6
million and the SAIF recapitalization charge of $17.8 million. The increase is
principally attributable to $9.2 million in costs associated with the two
issuances of approximately $100 million each in capital securities in December
1997 and 1996, a $4.7 million, or 6.0% increase in compensation and employee
benefit expense to $83.2 million principally associated with the appreciation in
NYB's stock appreciation rights, and a $1 million, or 14.6% increase in
amortization of intangibles to $7.3 million associated with the Company's
Extebank and First Nationwide purchase acquisitions during the first quarter of
1996. This increase was partially offset by a $3.5 million reduction in FDIC
insurance premiums during 1997.
The 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/(losses) and other non-recurring items, improved to 38.22% in
1997, as compared with 42.61% for 1996. This improvement was achieved
principally through the efficient integration of the Company's 1996 merger and
acquisitions.
Income Taxes
For 1997, the effective tax rate was 38.0% compared to 44.1% for the year ended
1996. The decrease in the Company's effective tax rate during 1997 resulted from
the implementation of certain tax planning strategies and the 1996 recognition
of certain non-deductible merger related restructure costs associated with the
North Side merger as well as the recapture of North Side's state and city tax
bad debt reserves.
34
<PAGE> 25
Selected Statistical Data
<TABLE>
<CAPTION>
Quarterly Financial Information
(unaudited) 1998 1997
----------------------------------------------------------------------------------------------
(in thousands, except 1st 2nd 3rd 4th 1st 2nd 3rd 4th
per share amounts) Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income ................... $ 190,506 $ 182,368 $ 188,110 $ 192,116 $ 165,625 $ 182,538 $ 188,549 $ 187,712
Interest Expense .................. 86,299 77,854 81,735 82,568 71,349 81,814 86,171 87,469
----------------------------------------------------------------------------------------------
Net Interest Income ............... 104,207 104,514 106,375 109,548 94,276 100,724 102,378 100,243
Provision for Loan Losses ......... 12,500 1,000 1,000 1,000 1,800 2,700 1,800 1,800
----------------------------------------------------------------------------------------------
Net Interest Income after
Provision for Loan Losses ....... 91,707 103,514 105,375 108,548 92,476 98,024 100,578 98,443
Non-Interest Income ............... 11,251 14,863 17,792 20,412 10,487 18,481 12,324 18,030
Non-Interest Expense .............. 54,380 40,196 42,141 41,212 42,456 44,602 42,419 44,232
Merger Related Restructure
Charge .......................... 52,452 -- -- -- -- -- -- --
----------------------------------------------------------------------------------------------
Income Before Income Taxes ........ (3,874) 78,181 81,026 87,748 60,507 71,903 70,483 72,241
(Benefit)/Provision for
Income Taxes .................... (11,249) 27,285 28,359 30,711 24,527 28,320 27,426 24,340
----------------------------------------------------------------------------------------------
Net Income ........................ $ 7,375 $ 50,896 $ 52,667 $ 57,037 $ 35,980 $ 43,583 $ 43,057 $ 47,901
==============================================================================================
Per Share:
Earnings Per Share-Basic .......... $ 0.05 $ 0.36 $ 0.37 $ 0.40 $ 0.26 $ 0.32 $ 0.31 $ 0.35
Earnings Per Share-Diluted ........ $ 0.05 $ 0.36 $ 0.37 $ 0.40 $ 0.26 $ 0.31 $ 0.31 $ 0.34
Common Stock Price Range
of the Company:
High ............................ $ 26.33 $ 27.33 $ 27.19 $ 23.94 $ 14.17 $ 15.33 $ 19.33 $ 22.50
Low ............................. $ 20.00 $ 23.79 $ 19.00 $ 16.31 $ 11.38 $ 12.08 $ 14.96 $ 18.71
</TABLE>
35
<PAGE> 26
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the Years Ended December 31, 1998 1997 1996
----------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Interest Income:
Loans ..................................................................... $494,125 $461,984 $390,451
Mortgage-Backed Securities ................................................ 211,808 219,179 192,383
Other Securities .......................................................... 24,090 13,651 6,799
U.S. Treasury & Government Agency Securities .............................. 16,766 23,015 16,223
State & Municipal Obligations ............................................. 3,849 5,365 4,773
Federal Funds Sold ........................................................ 2,006 1,084 2,913
Interest Earning Deposits ................................................. 456 146 220
----------------------------------------------
Total Interest Income ..................................................... 753,100 724,424 613,762
----------------------------------------------
Interest Expense:
Savings, NOW & Money Market Deposits ...................................... 64,557 64,993 67,920
Other Time Deposits ....................................................... 91,754 98,821 109,857
Certificates of Deposit, $100,000 & Over .................................. 31,458 23,926 19,131
Federal Funds Purchased & Securities Sold Under
Agreements to Repurchase ................................................. 129,183 112,881 52,971
Other Borrowings .......................................................... 11,504 26,182 31,228
----------------------------------------------
Total Interest Expense .................................................. 328,456 326,803 281,107
----------------------------------------------
Net Interest Income ..................................................... 424,644 397,621 332,655
Provision for Loan Losses ................................................. 15,500 8,100 8,000
----------------------------------------------
Net Interest Income after Provision for Loan Losses ..................... 409,144 389,521 324,655
----------------------------------------------
Non-Interest Income:
Fees & Service Charges on Deposit Accounts ................................ 26,208 23,921 20,546
Investment Management, Commissions & Trust Fees ........................... 13,225 10,085 7,014
Mortgage Banking Operations ............................................... 4,054 4,269 4,412
Other Operating Income .................................................... 11,398 8,125 6,630
Interest on Tax Settlement ................................................ -- 4,515 --
Net Securities Gains ...................................................... 9,433 8,407 6,224
----------------------------------------------
Total Non-Interest Income ............................................... 64,318 59,322 44,826
----------------------------------------------
Non-Interest Expense:
Compensation & Employee Benefits .......................................... 81,071 83,197 78,482
Occupancy & Equipment, net ................................................ 27,095 28,865 27,116
Capital Securities Costs .................................................. 16,843 9,235 25
Amortization & Write-down of Intangible Assets ............................ 14,479 7,292 6,364
Other Operating Expenses .................................................. 38,441 45,120 49,045
Merger Related Restructure Charges ........................................ 52,452 -- 21,613
SAIF Recapitalization Charge .............................................. -- -- 17,782
----------------------------------------------
Total Non-Interest Expense .............................................. 230,381 173,709 200,427
----------------------------------------------
Income Before Income Taxes ................................................ 243,081 275,134 169,054
Provision for Income Taxes ................................................ 75,106 104,613 74,606
----------------------------------------------
Net Income .............................................................. $167,975 $170,521 $ 94,448
==============================================
Earnings Per Share-Basic .................................................. $ 1.19 $ 1.24 $ 0.69
Earnings Per Share-Diluted ................................................ $ 1.18 $ 1.22 $ 0.68
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE> 27
Consolidated Balance Sheets
<TABLE>
<CAPTION>
At December 31, 1998 1997
---------------------------------
(in thousands, except per share amounts)
<S> <C> <C>
Assets
Cash & Due from Banks .................................................................... $ 151,576 $ 179,268
Interest Earning Deposits ................................................................ 11,929 7,787
Federal Funds Sold ....................................................................... 17,000 4,000
Securities:
Available-for-Sale ...................................................................... 2,980,223 2,156,624
Held-to-Maturity (Fair value $1,574,196 in 1998; $1,757,411 in 1997) .................... 1,571,545 1,763,308
---------------------------------
Total Securities ....................................................................... 4,551,768 3,919,932
---------------------------------
Loans .................................................................................... 5,731,424 5,760,691
Less: Unearned Income ................................................................... 17,131 21,560
Allowance for Loan Losses ......................................................... 71,759 74,393
---------------------------------
Net Loans ......................................................................... 5,642,534 5,664,738
---------------------------------
Intangible Assets ........................................................................ 84,676 96,398
Premises & Equipment ..................................................................... 72,023 77,225
Accrued Income Receivable ................................................................ 66,951 66,970
Other Assets ............................................................................. 81,099 57,314
---------------------------------
Total Assets ........................................................................... $ 10,679,556 $ 10,073,632
=================================
Liabilities and Stockholders' Equity
Demand Deposits .......................................................................... $ 1,263,105 $ 948,458
Savings, NOW & Money Market Deposits ..................................................... 2,950,022 3,008,839
Other Time Deposits ...................................................................... 1,672,478 1,960,765
Certificates of Deposit, $100,000 & Over ................................................. 542,017 419,877
---------------------------------
Total Deposits ......................................................................... 6,427,622 6,337,939
---------------------------------
Federal Funds Purchased & Securities Sold Under Agreements to Repurchase ................. 2,955,096 2,104,036
Other Borrowings ......................................................................... 35,000 449,600
Accrued Expenses & Other Liabilities ..................................................... 231,299 211,904
---------------------------------
Total Liabilities ...................................................................... $ 9,649,017 $ 9,103,479
---------------------------------
Capital Securities ....................................................................... $ 199,289 $ 199,264
Stockholders' Equity
Preferred Stock, par value $1.00; authorized 10,000,000 shares, unissued ................. -- --
Common stock, par value $2.50; authorized 200,000,000 shares;
issued shares 144,924,714 in 1998; 154,073,867 shares in 1997 ........................... 362,312 256,790
Additional Paid in Capital ............................................................... 32,044 127,853
Retained Earnings ........................................................................ 541,967 469,616
Accumulated Other Comprehensive Income - Unrealized Gains on
Securities Available-for-Sale, net of taxes ............................................. 9,337 17,124
Deferred Compensation .................................................................... (24,365) (19,361)
Treasury Stock at cost; 3,852,732 shares in 1998; 14,595,566 shares in 1997 .............. (90,045) (81,133)
---------------------------------
Total Stockholders' Equity ............................................................. 831,250 770,889
---------------------------------
Total Liabilities and Stockholders' Equity ............................................. $ 10,679,556 $ 10,073,632
=================================
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE> 28
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended December 31, 1998 1997 1996
------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income ................................................................... $ 167,975 $ 170,521 $ 94,448
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for Loan Losses .................................................... 15,500 8,100 8,000
Depreciation and Amortization ................................................ 10,846 10,485 10,530
Amortization and Write-down of Intangible Assets ............................. 14,479 7,292 6,364
Amortization of Securities Premiums .......................................... 12,809 9,052 11,263
Accretion of Discounts and Net Deferred Loan Fees ............................ (10,490) (6,440) (3,299)
Proceeds from Sales of Securities Held-for-Trading ........................... -- 10,125 2,003
Purchases of Securities Held-for-Trading ..................................... -- (9,670) --
Net Securities Gains ......................................................... (9,433) (8,407) (6,224)
Other, Net ................................................................... 47,829 17,376 36,063
------------------------------------------------
Net Cash Provided by Operating Activities .................................. 249,515 208,434 159,148
------------------------------------------------
Cash Flows from Investing Activities:
Purchases of Securities Held-to-Maturity ..................................... (1,181,100) (107,722) (235,939)
Maturities, Redemptions, Calls and Principal Repayments on Securities
Held-to-Maturity ............................................................ 424,656 253,904 183,665
Purchases of Securities Available-for-Sale ................................... (2,166,825) (1,497,862) (1,056,391)
Proceeds from Sales of Securities Available-for-Sale ......................... 1,021,477 271,297 735,437
Maturities and Principal Repayments on Securities Available-for-Sale ......... 1,279,525 413,086 448,528
Loans Originated, Net of Principal Repayments ................................ (138,940) (653,769) (589,558)
Proceeds from the Sale of Loans .............................................. 195,534 88,415 111,497
Purchases of Loans ........................................................... (21,344) (22,342) (370,400)
Transfers to Other Real Estate, Net of Sales ................................. 2,314 (1,402) 3,770
Purchases of Premises and Equipment, Net ..................................... (3,444) (6,511) (7,642)
Purchase Acquisitions, Net of Cash Acquired .................................. 805 56,147 595,650
------------------------------------------------
Net Cash Used in Investing Activities ...................................... (587,342) (1,206,759) (181,383)
------------------------------------------------
Cash Flows from Financing Activities:
Net Increase/(Decrease) in Customer Deposits Liabilities ..................... 44,352 (21,177) (241,273)
Net Increase in Borrowings ................................................... 379,854 887,061 252,778
Proceeds from the Issuance of Capital Securities ............................. -- 99,614 99,637
Purchase of Treasury Stock ................................................... (56,462) (27,733) (51,594)
Common Stock Sold for Cash ................................................... 26,949 6,814 32,036
Cash Dividends Paid .......................................................... (67,032) (46,607) (32,601)
------------------------------------------------
Net Cash Provided by Financing Activities .................................. 327,661 897,972 58,983
------------------------------------------------
Net (Decrease)/Increase in Cash and Cash Equivalents ....................... (10,166) (100,353) 36,748
NYB Activity for the Three Months Ended December 31, 1997 .................... (384) -- --
North Side Activity for the Three Months Ended December 31, 1995 ............. -- -- 60,747
Cash and Cash Equivalents at Beginning of Year ............................... 191,055 291,408 193,913
------------------------------------------------
Cash and Cash Equivalents at End of Year ..................................... $ 180,505 $ 191,055 $ 291,408
================================================
</TABLE>
38
<PAGE> 29
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
For the Years Ended December 31, 1998 1997 1996
----------------------------------------
(in thousands)
<S> <C> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Interest Expense ..................................................................... $ 332,406 $ 331,577 $ 286,488
=======================================
Income Taxes ......................................................................... $ 19,507 $ 55,209 $ 46,997
=======================================
Securities Transferred from Held-to-Maturity to Available-for-Sale due to the
Merger with NYB ...................................................................... $ 913,598 $ -- $ --
During the Year the Company Purchased Various Securities which
Settled in the January 1999 .......................................................... $ 7,912 $ 60,866 $ --
=======================================
Non-Cash Activity Related to Acquisitions Not Reflected Above for the Years ended
December 31, 1998, 1997 and 1996 are as follows: ..................................... (1) (2) (3)
Fair Value of Assets Acquired ......................................................... $ 2,377 $ 177,085 $ 920,047
Intangible Assets ..................................................................... 8,434 21,515 61,072
Cash Paid ............................................................................. -- (3,009) (47,000)
Common Stock Issued ................................................................... (8,730) (34,420) --
---------------------------------------
Liabilities Assumed and Common Stock Issued ........................................... $ 2,081 $ 161,171 $ 934,119
=======================================
</TABLE>
See accompanying notes to consolidated financial statements.
(1) In June 1998, the Company acquired Amivest Corporation, a privately held
investment management and broker/dealer firm.
(2) In December 1997, the Company acquired all of the outstanding common stock
of Superior. Each share of Superior's common stock was exchanged for .1957
shares of the Company's common stock and the Company made a cash payment
to the holder of Superior's outstanding warrants.
(3) In March 1996, the Company acquired the domestic commercial banking
business of Extebank and assumed $572 million in deposit liabilities from
First Nationwide Bank.
39
<PAGE> 30
Consolidated Statements of
Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Unrealized
Additional Securities Deferred
Common Paid in Retained Gains/ Compen-
Three Years Ended December 31, 1998 Stock Capital Earnings (Losses) sation
-------------------------------------------------------------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 ....................... $ 124,734 $ 195,467 $ 292,972 $ 5,320 $ (1,585)
Net Income ..................................... -- -- 94,448 -- --
Cash Dividends ($.28 per share) ................ -- -- (22,721) -- --
Cash Dividends-Acquired Companies .............. -- -- (15,257) -- --
Issuance of Stock (1,996,152 shares) ........... 101 6,077 -- -- --
North Side Common Stock Retirement
(1,124,988 shares) .......................... (937) (7,558) -- -- --
Purchases of Treasury Stock (11,438,174 shares) -- -- -- -- --
Restricted Stock Activity, net ................. -- 1,450 -- -- (4,174)
Amortization of Other Compensation Plans ....... -- -- -- -- 566
Stock Based Compensation Activity, net ......... 1,473 7,151 (2,695) -- --
North Side Net Income for the Three Months Ended
December 31, 1995 ........................... -- -- 5,834 -- --
Adjustment to Unrealized Gains on Securities
Available-for-Sale, net of taxes ............ -- -- -- (8,515) --
-------------------------------------------------------------
Balance, December 31, 1996 ..................... $ 125,371 $ 202,587 $ 352,581 $ (3,195) $ (5,193)
Net Income ..................................... -- -- 170,521 -- --
Cash Dividends ($.38 per share) ................ -- -- (38,226) -- --
Cash Dividends-Acquired Company ................ -- -- (11,391) -- --
Issuance of Stock for the 2-for-1 Stock Split .. 126,313 (126,313) -- -- --
Issuance of Stock-Superior Acquisition
(1,924,352 shares) .......................... 3,207 31,213 -- -- --
Issuance of Stock (165,524 shares) ............. 276 2,311 -- -- --
Purchases of Treasury Stock (4,174,344 shares) . -- -- -- -- --
Restricted Stock Activity, net ................. 423 11,536 -- -- (14,168)
Stock Based Compensation Activity, net ......... 1,200 6,519 (3,655) -- --
Amortization of Unrealized Loss on Securities
Transferred from Available-for-Sale to
Held-to-Maturity ............................ -- -- (214) (331) --
Adjustment to Unrealized (Losses) on Securities
Available-for-Sale, net of taxes ............ -- -- -- 20,650 --
-------------------------------------------------------------
Balance, December 31, 1997 ..................... $ 256,790 $ 127,853 $ 469,616 $ 17,124 $ (19,361)
Net Income ..................................... -- -- 167,975 -- --
Cash Dividends ($.65 per share) ................ -- -- (92,713) -- --
Cash Dividends-Acquired Company ................ -- -- (3,219) -- --
Issuance of Stock for the 3-for-2 Stock Split .. 120,288 (120,288) -- -- --
Issuance of Stock-Amivest Acquisition .......... 905 7,825 -- -- --
Issuance of Stock (1,216,087 shares) ........... 331 16,126 -- -- --
NYB Common Stock Retirement (12,740,406 shares) (21,234) (35,398) -- -- --
Purchases of Treasury Stock (2,603,825 shares) . -- -- -- -- --
Restricted Stock Activity, net ................. -- (385) -- -- (5,004)
Stock Based Compensation Activity, net ......... 5,232 36,311 (11,523) -- --
NYB Net Income for the Three Months
Ended December 31, 1997 ..................... -- -- 11,992 -- --
Amortization of Unrealized Loss on Securities
Transferred from Available-for-Sale to
Held-to-Maturity ............................ -- -- (161) (170) --
Adjustment to Unrealized Gains on Securities
Available-for-Sale, net of taxes ........... -- -- -- (7,617) --
-------------------------------------------------------------
Balance, December 31, 1998 ..................... $ 362,312 $ 32,044 $ 541,967 $ 9,337 $ (24,365)
=============================================================
<CAPTION>
Treasury
Stock Total
------------------------
<S> <C> <C>
Balance, January 1, 1996 ....................... $ (34,393) $ 582,515
Net Income ..................................... -- 94,448
Cash Dividends ($.28 per share) ................ -- (22,721)
Cash Dividends-Acquired Companies .............. -- (15,257)
Issuance of Stock (1,996,152 shares) ........... 15,350 21,528
North Side Common Stock Retirement
(1,124,988 shares) .......................... -- (8,495)
Purchases of Treasury Stock (11,438,174 shares) (51,594) (51,594)
Restricted Stock Activity, net ................. 2,896 172
Amortization of Other Compensation Plans ....... -- 566
Stock Based Compensation Activity, net ......... 5,024 10,953
North Side Net Income for the Three Months Ended
December 31, 1995 ........................... -- 5,834
Adjustment to Unrealized Gains on Securities
Available-for-Sale, net of taxes ............ -- (8,515)
------------------------
Balance, December 31, 1996 ..................... $ (62,717) $ 609,434
Net Income ..................................... -- 170,521
Cash Dividends ($.38 per share) ................ -- (38,226)
Cash Dividends-Acquired Company ................ -- (11,391)
Issuance of Stock for the 2-for-1 Stock Split .. -- --
Issuance of Stock-Superior Acquisition
(1,924,352 shares) .......................... -- 34,420
Issuance of Stock (165,524 shares) ............. -- 2,587
Purchases of Treasury Stock (4,174,344 shares) . (27,733) (27,733)
Restricted Stock Activity, net ................. 3,805 1,596
Stock Based Compensation Activity, net ......... 5,512 9,576
Amortization of Unrealized Loss on Securities
Transferred from Available-for-Sale to
Held-to-Maturity ............................ -- (545)
Adjustment to Unrealized (Losses) on Securities
Available-for-Sale, net of taxes ............ -- 20,650
------------------------
Balance, December 31, 1997 ..................... $ (81,133) $ 770,889
Net Income ..................................... -- 167,975
Cash Dividends ($.65 per share) ................ -- (92,713)
Cash Dividends-Acquired Company ................ -- (3,219)
Issuance of Stock for the 3-for-2 Stock Split .. -- --
Issuance of Stock-Amivest Acquisition .......... -- 8,730
Issuance of Stock (1,216,087 shares) ........... 12,214 28,671
NYB Common Stock Retirement (12,740,406 shares) 56,632 --
Purchases of Treasury Stock (2,603,825 shares) . (56,462) (56,462)
Restricted Stock Activity, net ................. (443) (5,832)
Stock Based Compensation Activity, net ......... (20,853) 9,167
NYB Net Income for the Three Months
Ended December 31, 1997 ..................... -- 11,992
Amortization of Unrealized Loss on Securities
Transferred from Available-for-Sale to
Held-to-Maturity ............................ -- (331)
Adjustment to Unrealized Gains on Securities
Available-for-Sale, net of taxes ........... -- (7,617)
------------------------
Balance, December 31, 1998 ..................... $ (90,045) $ 831,250
========================
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE> 31
Consolidated Statements of
Comprehensive Income
<TABLE>
<CAPTION>
For the Years Ended December 31, 1998 1997 1996
---------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net Income ................................................................... $ 167,975 $ 170,521 $ 94,448
---------------------------------------------
Other Comprehensive Income, net of Income Taxes:
Unrealized (Losses)/Gains on Securities Available-for-Sale ................... (2,507) 25,034 (5,030)
Less: Reclassification of Realized Gains Included in Net Income .............. (5,280) (4,715) (3,485)
---------------------------------------------
Other Comprehensive (Loss)/Income ............................................ (7,787) 20,319 (8,515)
---------------------------------------------
Comprehensive Income ......................................................... $ 160,188 $ 190,840 $ 85,933
==============================================
</TABLE>
See accompanying notes to consolidated financial statements.
41
<PAGE> 32
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
(a) Basis of Presentation
North Fork Bancorporation, Inc. (the "Company"), through its primary bank
subsidiary, North Fork Bank ("North Fork"), and its investment management and
broker/dealer subsidiaries, Compass Investment Services Corp ("Compass") and
Amivest Corporation ("Amivest"), provides a variety of banking and financial
services to middle market and small business organizations, local governmental
units, and retail customers in the New York metropolitan area. The Company
currently conducts a telebanking operation through its subsidiary, Superior
Savings of New England ("Superior") located in Connecticut.
The consolidated financial statements include the accounts of the Company,
and its banking and non-bank subsidiaries. In March 1998, New York Bancorp
("NYB"), the parent company of Home Federal Savings Bank ("Home"), was merged
with and into the Company in a pooling-of-interests transaction. Accordingly,
the Company's consolidated financial statements include the consolidated
accounts of NYB for all periods reported. The Company reports its financial
results on a calendar year basis, whereas NYB 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 NYB's year end with
that of the Company. The consolidated financial results for years prior to 1998
reflect the combination of the Company at and for the years ended December 31
with NYB at and for the years ended September 30. Certain NYB financial
information has been reclassified to conform with that of the Company.
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) 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. The unrealized gains and losses on trading securities
are reported as a component of other non-interest income. 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 basis
of individual held-to-maturity and available-for-sale securities are reduced
through write-downs to reflect other-than-temporary impairments in value.
42
<PAGE> 33
(c) Derivative Financial Instruments
Periodically, the Company enters into interest rate agreements, including
interest rate swaps, caps, and floors, as part of its management of interest
rate exposure. These agreements are entered into as hedges against interest rate
risk and are designated against specific assets and liabilities. To qualify as a
hedge, the agreements must be designated as a hedge and effective in reducing
the market risk of an existing asset, liability or firm commitment. The
effectiveness of the hedge is evaluated on an initial and ongoing basis. The
premium paid or received for any of these agreements is amortized over the term
of the agreements. These instruments are accounted for on an accrual basis in
the interest income or expense category of the related hedged asset or
liability. The estimated fair values of such agreements are not reflected in the
Company's Consolidated Balance Sheets, unless designated to securities
available-for-sale, in which case they are carried at estimated fair value with
unrealized gains and losses, net of taxes, reflected as a component of
stockholders' equity. 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.
In the event of the early termination of a derivative financial instrument
contract, any resulting gain or loss is deferred, as an adjustment of the
carrying value of the designated assets or liabilities, and recognized in
operations over the shorter of the remaining life of the designated assets or
liabilities or the derivative financial instrument agreement.
(d) Loans
Loans are 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 are past due 90 days or more, 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 condition,
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. Restructured loans are reported as such in the
year of restructuring. In subsequent reporting periods, if the loan yields 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.
(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 losses inherent in the loan portfolio. In evaluating the portfolio,
management takes into consideration numerous factors, such as present and
potential risks inherent in the loan portfolio, loan growth, prior loss
experience, current economic conditions and periodic examinations conducted by
regulatory agencies. Additionally, management utilizes the guidelines
established under Statement of Financial Accounting Standards ("SFAS") No.114
"Accounting by Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting
by Creditors for Impairment of a Loan-Income
43
<PAGE> 34
Notes to Consolidated Financial Statements (continued)
Recognition and Disclosure" to assess loan impairment. 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. Maintenance,
repairs, and minor improvements are charged to operations in the period
incurred, while major improvements are capitalized. Premises and equipment are
periodically reviewed for possible impairment when events or changes in
circumstances occur that 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. Income tax expense and benefits are 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 expense is recognized over
the employee's expected service life utilizing the projected unit cost actuarial
method. Supplemental retirement benefits are provided for selected employees
where income tax limitations have been placed on the amount of retirement
benefits otherwise earned.
Post-retirement and post-employment benefits are recorded on an accrual
basis with an annual provision that considers an actuarially determined future
obligation.
44
<PAGE> 35
(k) Stock-Based Compensation
The Company accounts for its stock-based compensation plans in accordance with
SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123
defines a fair value-based method of accounting for stock-based compensation.
However, SFAS 123 allows an entity to continue to measure compensation expense
for those instruments using the intrinsic value-based method of accounting
prescribed by Accounting Pronouncements Bulletin Opinion No. 25 "Accounting for
Stock Issued to Employees" ("APB 25"). The Company has elected to continue to
follow APB 25, however, SFAS 123 requires disclosure of pro forma net income and
earning per share information in the notes to the financial statements, as if
the fair value-based method had been adopted.
Restricted stock awards are reflected as deferred compensation at the fair
market value of the shares at the date of grant, and amortized to compensation
expense over the vesting periods.
(l) Earnings Per Share ("EPS")
The Company utilizes SFAS No. 128 "Earnings Per Share" for computing and
presenting earnings per share data. SFAS 128 was retroactively adopted in
December 1997. Basic EPS is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were converted into common
stock that then shared in the earnings of the entity. The weighted average
number of common shares outstanding used in the computation of Basic EPS was
140,706,044, 136,760,843, and 136,502,635 for the years ended 1998, 1997, and
1996, respectively. The weighted average number of common shares outstanding
used in the computation of Diluted EPS was 141,765,568, 139,333,051, and
138,707,034 for the years ended 1998, 1997 and 1996, respectively. The
differential in the weighted average number of common shares outstanding used in
the computation of Basic and Diluted EPS represents the average common stock
equivalents of employee stock options and restricted stock grants outstanding
during the periods.
On May 15, 1998, the Company issued a three-for-two common stock split.
The par value of the Company's common stock remained unchanged at $2.50. As a
result, $120.3 million was transferred from additional paid-in-capital to common
stock to reflect this issuance. All per share, weighted average shares
outstanding, and option data presented herein has been retroactively adjusted to
reflect the effects of the split.
(m) Intangible Assets
Intangible assets consist of goodwill and core deposit intangibles associated
with purchase acquisitions. The Company records the acquired assets and
liabilities assumed 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 and all direct costs associated
with the purchase. Indirect and general expenses relating to the acquisition are
expensed as incurred.
Goodwill is amortized on a straight-line basis generally over 15 years or
the estimated periods to be benefited. Core deposit intangibles are amortized on
an accelerated method over the estimated benefit period to be benefited.
Intangible assets are reviewed for possible impairment when certain events, such
as significant business combinations, or changes in strategy or other business
developments occur that may affect the underlying basis or the future life of
the assets. Such an event occurred in 1998 with the write down of $6 million in
intangible assets due to the consolidation of certain components of the NYB
merged business.
(n) Consolidated Statements of Cash Flows
For purposes of the consolidated cash flows, cash and cash equivalents are
defined as the amounts included in the Consolidated Balance Sheets under the
captions "Cash & Due from Banks", "Interest Earning Deposits", and "Federal
Funds Sold".
45
<PAGE> 36
Notes to Consolidated Financial Statements (continued)
Cash flows associated with derivative financial instruments used by the
Company are classified in the accompanying Consolidated Statements of Cash Flows
in the same category as the cash flows from the asset or liability being hedged.
Note 2 - Business Combinations
(a) New York Bancorp
On March 27, 1998, New York Bancorp, the parent company of Home Federal Savings
Bank, was merged with and into the Company in a transaction accounted for in
accordance with the pooling-of-interests method of accounting. Pursuant to the
merger agreement, the Company issued 1.19 shares of common stock for each share
of NYB's common stock outstanding (39.9 million common shares issued, as
adjusted, for the 3-for-2 stock split and simultaneously retired 12.7 million
shares, as adjusted, of NYB's common stock held in treasury as of the merger
date). NYB had $3.4 billion in total assets, $2.0 billion in net loans, $1.7
billion in deposit liabilities, and $140.3 million in capital at March 27, 1998.
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) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Net Interest Income
As Previously Reported .......... $278,351 $230,946
New York Bancorp ................ 119,270 101,709
-----------------------------
Combined ........................ $397,621 $332,655
=============================
Net Income
As Previously Reported .......... $119,310 $ 62,442
New York Bancorp ................ 51,211 32,006
-----------------------------
Combined ........................ $170,521 $ 94,448
=============================
</TABLE>
NYB's reporting period had been as of and for the year ended September 30,
whereas the Company utilizes a calendar year basis. NYB's financial results for
1998 have been conformed to the calendar year reporting period of the Company.
All prior year consolidated financial results combine the Company with NYB
utilizing its respective fiscal reporting period. As a result, NYB's operating
results for the three month period ended December 31, 1997 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 NYB's results of operations and cash flows
for the three months ended December 31, 1997:
(in thousands)
Statement of Income Data:
Net Interest Income ................................. $ 29,329
--------
Net Income .......................................... $ 11,992
========
Statement of Cash Flows Data:
Cash Provided by Operating Activities ............... $ 19,896
Cash Used in Investing Activities ................... (65,460)
Cash Provided by Financing Activities ............... 45,180
--------
Net Decrease in Cash & Cash Equivalents ............. $ (384)
========
In accordance with the pooling-of-interests accounting requirements, NYB
consummated a private placement of 600,000 shares of its common stock (1,071,000
shares, as adjusted by the 1.19 exchange ratio and the 3-for-2 stock split),
which were previously held in treasury, at a price of $43.625 per share ($24.44
per share, as adjusted).
46
<PAGE> 37
The following table sets forth a summary of the components reflected in the
Merger Related Restructure Charge recognized in the consolidated statement of
income in connection with the NYB merger:
(in thousands)
Merger Expenses ........................................... $11,576
Restructure Charge:
Merger Related Compensation and Severance Costs ......... 16,449
Facility and System Costs ............................... 16,822
Other Merger Related Costs .............................. 7,605
-------
Total Pre-Tax Merger and Related Restructure Charge ....... $52,452
=======
Merger expenses consist primarily of investment banking, legal fees, other
professional fees, and expenses associated with shareholder and customer
notifications. The restructure charge component represents merger related
compensation and severance costs which consist primarily of employee severance,
compensation arrangements, transitional staffing and related employee benefits
expenses. Facility and system costs consist primarily of lease termination
charges and equipment write-offs resulting from the consolidation of overlapping
branch locations and duplicate headquarters and operational facilities. Also
reflected are the costs associated with the cancellation of certain data and
item processing contracts and the deconversion of NYB's computer systems. Other
merger related costs arise primarily from the application of the Company's
accounting practices to the accounts of the merged business and to a lesser
extent other expenses associated with the integration of operations.
Additionally, the Company recorded a $5.0 million tax charge, net of federal
benefit, relating to the recapture of Home's tax bad debt reserve for state and
city tax purposes.
At December 31, 1998, $7.3 million of the merger related restructure
charge was reflected in accrued expenses and other liabilities in the
consolidated balance sheet. The remaining balance includes amounts to cover
payments expected to continue under long-term lease arrangements related to
vacated facilities and NYB's data processing operations. As of December 31,
1998, $29.9 million of the merger related restructure charge utilized
represented cash outlays by the Company.
(b) Amivest Corporation
In June 1998, the Company completed its purchase acquisition of Amivest
Corporation ("Amivest"), a privately held investment management and
broker/dealer firm located in New York City. At the date of acquisition, Amivest
had approximately $700 million in assets under management. Goodwill recognized
in connection with the transaction was $8.4 million and is being amortized on a
straight-line basis over 15 years. The financial position and operating results
of Amivest are not significant to the consolidated financial statements of the
Company.
(c) Superior Savings of New England ("Superior"), formerly Branford Savings Bank
In December 1997, the Company acquired Superior, a Connecticut chartered savings
bank in a transaction utilizing the purchase method of accounting. At December
31, 1997, Superior had total assets of $179 million, deposits of $160 million,
and stockholders' equity of $16.6 million. In October 1998, the Company sold
four of the five Superior branches and $67 million in deposit liabilities for a
deposit premium of 9%. The net gain on sale of approximately $5.8 million was
utilized as a reduction of the goodwill arising from the purchase. The goodwill
of approximately $14.3 million is being amortized on a straight-line basis over
15 years. The financial position and operating results of Superior are not
significant to the consolidated financial statements of the Company.
47
<PAGE> 38
Notes to Consolidated Financial Statements (continued)
Note 3 - Securities
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>
1998 1997
-------------------------------------------------------------------------------------------------------
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>
U.S. Treasury Securities $ 30,952 $ 393 $ -- $ 31,345 $ 32,963 $ 156 $ -- $ 33,119
U.S. Government Agencies
Obligations ............. 162,464 4,947 -- 167,411 242,685 3,572 (318) 245,939
Mortgage-Backed Securities. 728,849 4,115 (1,149) 731,815 758,952 8,070 (472) 766,550
CMO's Agency Issuances .... 190,249 1,776 (64) 191,961 48,607 780 (2) 49,385
CMO's Private Issuances.... 1,440,806 5,358 (683) 1,445,481 816,341 5,531 (193) 821,679
Other Securities .......... 207,407 2,953 (5,776) 204,584 57,972 4,492 (3) 62,461
Equity Securities(1) ...... 202,815 6,922 (2,111) 207,626 168,568 9,350 (427) 177,491
-------------------------------------------------------------------------------------------------------
$2,963,542 $ 26,464 $ (9,783) $2,980,223 $2,126,088 $ 31,951 $ (1,415) $2,156,624
=======================================================================================================
</TABLE>
(1) Amortized cost and fair value includes $91.9 million and $85.7 million in
Federal Home Loan Bank stock at December 31, 1998 and 1997, respectively.
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>
1998 1997
-------------------------------------------------------------------------------------------------
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>
U.S. Government Agencies
Obligations ..................... $ 74 $ -- $ -- $ 74 $ 96 $ -- $ -- $ 96
State & Municipal Obligations ..... 71,837 1,301 (27) 73,111 114,511 1,702 (114) 116,099
Mortgage-Backed Securities ........ 560,815 2,140 (625) 562,330 413,537 2,190 (1,817) 413,910
CMO's Agency Issuances ............ 41,988 147 (22) 42,113 334,951 1,162 (1,928) 334,185
CMO's Private Issuances ........... 873,070 2,693 (2,849) 872,914 889,891 3,028 (10,177) 882,742
Other Securities .................. 23,761 29 (136) 23,654 10,322 90 (33) 10,379
------------------------------------------------------------------------------------------------
$1,571,545 $ 6,310 $ (3,659) $1,574,196 $1,763,308 $ 8,172 $ (14,069) $1,757,411
================================================================================================
</TABLE>
In connection with the NYB merger, approximately $913 million of investment
securities were reclassified from held-to-maturity to available-for-sale. This
transfer was made pursuant to SFAS 115 "Accounting for Certain Investments in
Debt and Equity Securities" to maintain the interest rate risk profile which
existed prior to the merger with NYB. The securities transferred were primarily
mortgage-backed securities ("MBS") and collateralized mortgage-backed
obligations ("CMO") having a higher degree of interest rate risk and duration
volatility. Approximately $415 million of these securities were identified for
sale at the time of reclassification, resulting in $2.5 million of securities
losses in the quarter ended March 31, 1998. These securities were subsequently
sold.
Management's strategy is to invest in securities with short-weighted
average lives, minimizing exposure to future increases in interest rates. These
are principally mortgage-backed securities that provide stable cash flows which
may be reinvested at current market interest rates. The combined weighted
average life of the held-to-maturity and available-for-sale securities
portfolios at December 31, 1998 was 3.4 years.
48
<PAGE> 39
CMO's are collateralized by either U.S. Government Agency MBS's or whole
loans which are principally AAA rated conservative current pay sequentials or
PAC structures with current weighted average lives of approximately 2.2 years.
The net unrealized gain on securities available-for-sale declined $13.8
million to $16.7 million at December 31, 1998 when compared to $30.5 million at
December 31, 1997. This decline was caused by prevailing market conditions.
At December 31, 1998, equity securities maintained in the
available-for-sale portfolio were comprised principally of common stock and
preferred stock of certain publically traded companies. Other securities
maintained in the available-for-sale portfolio consist of capital securities and
debt issuances of certain financial institutions.
Securities carried at $3.5 billion at December 31, 1998 were pledged to
secure securities sold under agreements to repurchase, other borrowings and for
other purposes as required by law.
The amortized cost and estimated fair value of securities at December 31,
1998, 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>
Available-for-Sale Held-to-Maturity
--------------------------------------------------
Amortized Fair Amortized Fair
(in thousands) Cost Value Cost Value
-------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less ........... $ 21,028 $ 21,141 $ 8,678 $ 8,709
Due after one year through five years 39,169 39,567 34,544 35,275
Due after five years through ten years 136,219 141,152 50,241 50,633
Due after ten years ............... 204,407 201,480 2,209 2,222
-------------------------------------------------
Subtotal ....................... 400,823 403,340 95,672 96,839
Mortgage-Backed Securities ........ 728,849 731,815 560,815 562,330
CMO's ............................. 1,631,055 1,637,442 915,058 915,027
Equity Securities ................. 202,815 207,626 -- --
-------------------------------------------------
$2,963,542 $2,980,223 $1,571,545 $1,574,196
=================================================
</TABLE>
Prepayments on MBS's, including CMO's, are monitored by 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 the 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) 1998 1997 1996
-------------------------------------------
<S> <C> <C> <C>
Proceeds from Sales ....... $ 1,021,477 $ 271,297 $ 735,437
===========================================
Gross Realized Gains ...... 12,196 9,511 8,839
Gross Realized Losses ..... (2,763) (1,104) (2,615)
-------------------------------------------
Net Realized Gains ........ $ 9,433 $ 8,407 $ 6,224
===========================================
</TABLE>
Gross realized gains in 1998 and 1997 resulted principally from the sale of
equity positions and capital securities of certain publicly traded companies.
49
<PAGE> 40
Notes to Consolidated Financial Statements (continued)
Note 4 - Loans
The composition of the loan portfolio is summarized as follows at December 31,
<TABLE>
<CAPTION>
(dollars in thousands) 1998 1997
---------------------------------------
<S> <C> <C> <C> <C>
Mortgage Loans-Residential ...... $1,901,759 33% $2,144,029 37%
Mortgage Loans-Multi-family ..... 1,651,590 29% 1,534,623 26%
Mortgage Loans-Commercial ....... 1,104,228 19% 1,192,071 21%
Commercial & Industrial ......... 520,130 9% 444,480 8%
Consumer Loans and Leases ....... 481,691 9% 394,436 7%
Construction and Land Loans ..... 72,026 1% 51,052 1%
---------------------------------------
Total ........................ $5,731,424 100% $5,760,691 100%
Less:
Unearned Income ............... 17,131 21,560
Allowance for Loan Losses ..... 71,759 74,393
---------------------------------------
Net Loans .................... $5,642,534 $5,664,738
=======================================
</TABLE>
The loan portfolio is concentrated primarily in loans secured by real estate in
the New York metropolitan 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.
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 New York
metropolitan area. The commercial mortgage portfolio contains loans secured by
professional office buildings, retail stores, shopping centers and industrial
developments. Land loans are used to finance the acquisition of vacant land for
future residential and commercial development. Construction loans finance the
construction of industrial developments and single-family subdivisions.
Commercial 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 to finance new
and used automobiles.
The Company's real estate underwriting standards include various limits on
the loan-to-value ratios based on the 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 $904.6 million and $948.7
million as of December 31, 1998 and 1997, respectively. At December 31, 1998,
$15.0 million in residential mortgage loans were held-for-sale.
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 to $18.5 million at December 31, 1998, as
compared to $43.6 million at December 31, 1997. This reduction was achieved
principally through the sale of non-performing assets, principal repayments, the
workout of non-performing loans to performing status, and charge-offs.
50
<PAGE> 41
Non-Performing Assets
Non-performing assets at December 31, consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
--------------------
<S> <C> <C>
Loans Ninety Days Past Due and Still Accruing ..... $ 7,684 $ 6,414
Non-Accrual Loans ................................. 7,592 31,231
--------------------
Non-Performing Loans .............................. 15,276 37,645
Other Real Estate ................................. 3,217 5,943
--------------------
Non-Performing Assets ............................. $18,493 $43,588
====================
Restructured, Accruing Loans ...................... $ 584 $14,567
====================
</TABLE>
The following table represents the components of non-performing loans at
December 31,
<TABLE>
<CAPTION>
1998 1997
-----------------------
<S> <C> <C>
Mortgage Loans-Commercial ................... $ 4,519 $ 8,270
Consumer Loans and Leases ................... 4,294 5,664
Mortgage Loans-Residential .................. 3,511 18,350
Commercial & Industrial ..................... 2,485 3,378
Mortgage Loans-Multi-family ................. 467 821
Construction and Land Loans ................. -- 1,162
-----------------------
Total Non-Performing Loans .................. $15,276 $37,645
=======================
</TABLE>
Interest foregone on non-accrual loans, or the amount of income that would have
been earned had those loans remained performing, aggregated $1.3 million, $2.9
million, and $5.1 million in 1998, 1997, and 1996, respectively.
Restructured Loans
Restructured, accruing loans were $.6 million and $14.6 million at December 31,
1998 and 1997, respectively. The decline in the level of restructured, accruing
loans was achieved through principal repayments, maturities, and the
satisfaction of the performance requirements on certain of these loans during
1998. The amount of interest income recorded on restructured loans was
approximately $.6 million, $1.1 million, and $1.5 million in 1998, 1997, and
1996, respectively. The difference between interest 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 immaterial.
At December 31, 1998, the Company had no commitments to lend additional
funds to borrowers whose loans are non-performing or currently classified as
restructured.
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 $5.6 million and $8.3 million at December 31, 1998 and 1997,
respectively.
51
<PAGE> 42
Notes to Consolidated Financial Statements (continued)
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) 1998 1997 1996
--------------------------------
<S> <C> <C> <C>
Balance at Beginning of Year ......................................... $ 74,393 $ 73,280 $ 77,899
Provision for Loan Losses ............................................ 15,500 8,100 8,000
Recoveries Credited to the Allowance ................................. 3,817 2,573 2,669
--------------------------------
93,710 83,953 88,568
Losses Charged to the Allowance ...................................... (21,896) (12,054) (18,570)
NYB Net Activity for the Three Months Ended December 31, 1997 ........ (55) -- --
Additional Allowance Acquired in Purchase Acquisitions ............... -- 2,494 3,092
North Side Net Activity for the Three Months Ended December 31, 1995 . -- -- 190
--------------------------------
Balance at End of Year ............................................... $ 71,759 $ 74,393 $ 73,280
================================
</TABLE>
During 1998, an additional provision for loan losses of $11.5 million was
recognized. This additional provision was due to the sale of certain
non-performing and marginally performing loans acquired in the NYB merger and to
restore the Company's post-merger reserve coverage ratios to pre-merger levels.
Note 6 - Premises and Equipment
The following is a summary of premises and equipment at December 31,
<TABLE>
<CAPTION>
(in thousands) 1998 1997
------------------------
<S> <C> <C>
Land .......................................... $ 15,946 $ 16,129
Bank Premises ................................. 49,892 52,611
Leasehold Improvements ........................ 18,576 22,692
Equipment ..................................... 42,962 55,159
------------------------
127,376 146,591
Accumulated Depreciation and Amortization ..... (55,353) (69,366)
------------------------
$ 72,023 $ 77,225
========================
</TABLE>
The decline in premises and equipment during 1998 is due principally to the
consolidation and elimination of duplicate facilities resulting from the merger
with NYB, the sale of four Superior branches, and the removal of assets no
longer in service.
52
<PAGE> 43
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 ("SSURA") at and for the years ended December 31,
<TABLE>
<CAPTION>
(dollars in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal Funds Purchased
Period End Balance ...................... $ 70,000 $ 40,000 $ --
Maximum Amount Outstanding at Any Month End 125,000 80,000 90,000
Average Outstanding Balance ............. 28,766 27,563 34,756
Weighted Average Interest Rate Paid ..... 5.49% 5.66% 5.51%
Weighted Average Interest Rate at Year End 5.38% 6.81% --
Securities Sold Under Agreements to Repurchase
Period End Balance ...................... $2,885,096 $2,064,036 $1,075,487
Accrued Interest Payable at Period End .. 14,904 10,234 5,827
Maximum Amount Outstanding at Any Month End 2,885,096 2,310,458 1,103,975
Average Outstanding Balance ............. 2,207,491 1,917,029 904,609
Weighted Average Interest Rate Paid ..... 5.78% 5.81% 5.65%
Weighted Average Interest Rate at Year End 5.57% 5.85% 5.66%
</TABLE>
Qualifying SSURA are treated as financings and the obligations to repurchase
securities sold are reflected as a liability in the consolidated 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.
The following is a summary of the amortized cost and fair value of
securities collateralizing SSURA's, in addition to the amounts of and interest
rate on the related borrowings.
<TABLE>
<CAPTION>
MBS & CMO Securities (1) U.S. Govt. Agencies (1)
---------------------------------------------------------------------------------------------------------
Average Amortized Fair Average Amortized Fair
(dollars in thousands) SSURA(2) Rate Cost Value SSURA(2) Rate Cost Value
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Up to 30 Days ...... $ 443,300 5.82% $ 493,405 $ 494,335 $ -- -- $ -- $ --
30 to 90 Days ...... 400,000 4.85% 409,085 408,376 -- -- -- --
90 Days to 1 Year... 273,446 5.81% 266,749 267,837 18,850 6.54% 19,295 19,710
In Excess of 1 Year 1,687,000 5.61% 1,774,525 1,784,512 62,500 5.81% 66,216 68,333
---------------------------------------------------------------------------------------------------------
Total ........... $2,803,746 5.55% $2,943,764 $2,955,060 $81,350 5.98% $85,511 $88,043
=========================================================================================================
</TABLE>
(1) Excludes accrued interest receivable of $21.6 million and $2.8 million in
MBS & CMO securities and U.S. government agencies, respectively, securing
the related repurchase agreements.
(2) Excludes accrued interest payable.
Note 8 - Other Borrowings
At December 31, 1998 and 1997, the Company had outstanding a $25.0 million,
7.56% Senior Note and $10 million in 10% fixed rate Federal Home Loan Bank
advances. These borrowings mature in April 1999 and will be repaid at maturity
from available liquidity.
At December 31, 1997, NYB had $156 million in fixed rate Federal Home Loan
Bank ("FHLB") advances at interest rates ranging from 5.68% to 6.02% and $249.5
million in variable rate advances at interest rates ranging from 5.63% to 6.63%,
all of which matured prior to the merger.
Indebtedness to and outstanding commitments from the FHLB are
collateralized by the Company's investment in FHLB stock, first mortgage loans,
and certain mortgage-backed securities under the terms of the collateral
agreement.
53
<PAGE> 44
Notes to Consolidated Financial Statements (continued)
Additionally, at December 31, 1997, Home had $7.6 million in subordinated
capital notes outstanding. Prior to the merger, the outstanding balances were
prepaid by NYB.
The Company's bank subsidiaries had arrangements with various
correspondent banks providing short-term credit for regulatory liquidity
requirements. These lines of credit aggregated $200 million at December 31,
1998.
Note 9 - Capital Securities
Company Obligated Mandatorily Redeemable Capital Securities of Subsidiary Trusts
("Capital Securities") are summarized as follows at December 31,
<TABLE>
<CAPTION>
1998 1997
------------------------
<S> <C> <C>
8.00% Capital Securities due December 15, 2027 $ 99,628 $ 99,615
8.70% Capital Securities due December 15, 2026 99,661 99,649
------------------------
$199,289 $199,264
========================
</TABLE>
The aforementioned Capital Securities were issued in December 1997 and 1996
through wholly-owned statutory business trust subsidiaries (collectively, the
"Trusts"). The Trusts were formed with initial capitalizations in common stock
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, are non-callable
at any time in whole or in part for ten years from the date of issuance, except
in certain circumstances, but may be redeemed annually thereafter, in whole or
in part, at declining premiums to maturity.
At December 31, 1998 and 1997, these Capital Securities qualified as Tier
I capital for regulatory capital purposes. The costs associated with these
issuances have been capitalized and are being amortized using the straight-line
method to maturity.
Note 10 - Income Taxes
The components of the consolidated provision for income taxes is shown below for
the years ended December 31,
(in thousands) 1998 1997 1996
------------------------------------------
Current Tax Expense ..... $74,453 $100,113 $72,680
Deferred Tax Expense .... 653 4,500 1,926
------------------------------------------
Income Tax Provision .... $75,106 $104,613 $74,606
==========================================
The following table reconciles the statutory Federal tax rate to the effective
tax rate on income before income taxes for the years ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------
<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 4.70% 3.96% 7.43%
Nontaxable Distributions from a Corporate Reorganization ...... (9.35%) -- --
Tax Exempt Interest, net ...................................... (0.71%) (0.74%) (1.11%)
Nondeductible Merger Related Restructure Charges .............. 1.38% -- 2.01%
Valuation Allowance ........................................... (1.14%) -- --
Amortization & Write-down of Intangible Assets ................ 2.37% 0.43% 0.64%
Dividends Received Deduction .................................. (0.35%) (0.41%) (0.03%)
Other, Net .................................................... (1.00%) (0.22%) 0.19%
----------------------------------------
Effective Tax Rate ............................................ 30.90% 38.02% 44.13%
========================================
</TABLE>
54
<PAGE> 45
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) 1998 1997
-------------------------
<S> <C> <C>
Deferred Tax Assets
Allowance for Loan Losses ........................... $ 30,698 $ 28,261
Deferred Compensation and Other Employee Benefit Plans 7,948 6,759
Acquired Net Operating Loss Carry Forward ........... 8,195 4,011
Deductible Merger Related Restructure Charges ....... 3,112 1,664
Excess of Tax Basis Over Book Basis-Premises & Equipment 1,583 783
Other ............................................... 3,745 6,366
-------------------------
Gross Deferred Tax Asset ........................... $ 55,281 $ 47,844
Valuation Allowance ................................. (4,567) (7,342)
-------------------------
Deferred Tax Asset ................................. $ 50,714 $ 40,502
=========================
Deferred Tax Liability
Unrealized Gain on Securities Available-For-Sale .... $ (7,173) $(13,081)
Tax Bad Debt Recapture .............................. (6,820) (929)
Deferred Income ..................................... (5,006) --
Other ............................................... (3,873) (3,905)
-------------------------
Gross Deferred Tax Liability ....................... $(22,872) $(17,915)
-------------------------
Net Deferred Tax Asset ............................. $ 27,842 $ 22,587
=========================
</TABLE>
The reduction in the valuation allowance was due principally to the revaluation
of the net assets acquired in the Superior purchase transaction. This reduction
was utilized to reduce the goodwill previously recorded in the transaction.
Management continues to reserve a portion of the New York State and City
deferred tax asset due to uncertainties of realization since New York State and
City tax laws do not provide for the utilization of net operating loss
carry-forwards or carry-backs. Additionally, as a result of the Company's
experience in merging with and acquiring thrifts, the retained earnings at
December 31, 1998 and 1997, includes approximately $51 million and $23 million
for which no Federal income tax liability has been recognized. This amount
represents the balance of acquired thrift bad debt reserves created for tax
purposes as of December 31, 1987. These amounts are subject to recapture in the
unlikely event that North Fork (i) makes distributions in excess of earnings and
profits, (ii) redeems its stock, or (iii) liquidates.
Management anticipates that the realization of the net deferred tax asset
of $27.8 million is more likely than not, based on existing carryback ability,
available planning strategies, and projected 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. NYB
and Superior maintained retirement plans covering substantially all of their
full-time employees, subject to certain limitations. These plans were curtailed
as of their respective merger dates, and all future benefit accruals ceased.
Subsequent to these transactions, all former NYB and Superior employees retained
by the Company meeting Plan requirements became eligible for participation in
the Plan. Effective May 31, 1998, the former NYB and Superior
55
<PAGE> 46
Notes to Consolidated Financial Statements (continued)
plans were merged with that of the Company. The following table sets forth the
change in benefit obligations, the change in plan assets, the funded status of
the plan, and amounts recognized in the accompanying consolidated financial
statements at December 31,
<TABLE>
<CAPTION>
(dollars in thousands) 1998 1997
-------------------------
<S> <C> <C>
Change in Benefit Obligation:
Benefit Obligation at Beginning of Year ... $ 56,911 $ 49,991
Service Cost .............................. 1,839 1,543
Interest Cost ............................. 3,999 3,766
Amendments ................................ 503 1,117
Acquisitions .............................. -- 2,123
Benefits Paid ............................. (7,334) (5,463)
Actuarial Loss ............................ 1,305 3,834
-------------------------
Benefit Obligation at End of Year ......... $ 57,223 $ 56,911
=========================
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year $ 58,478 $ 55,597
Actual Return on Plan Assets .............. 4,226 6,746
Employer Contributions .................... 279 --
Acquisitions .............................. -- 1,598
Benefits Paid ............................. (7,334) (5,463)
-------------------------
Fair Value of Plan Assets at End of Year .. $ 55,649 $ 58,478
=========================
Reconciliation of Funded Status:
Funded Status ............................. $ (1,574) $ 1,567
Unrecognized Actuarial Loss ............... 3,521 1,485
Unrecognized Prior Service Cost ........... (1,873) (2,891)
Unrecognized Transition Asset ............. (76) (37)
-------------------------
(Accrued)/Prepaid Benefit Cost ............ $ (2) $ 124
=========================
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Weighted-Average Assumptions as of December 31,
Discount Rate ...................................... 6.50% 7.00% 7.75%
Expected Return on Plan Assets ..................... 8.50% 8.50% 8.50%
Rate of Compensation Increase ...................... 4.50% 4.50% 4.50%
Components of Net Periodic Benefit Cost:
Service Cost ....................................... $ 1,839 $ 1,543 $ 1,449
Interest Cost ...................................... 3,999 3,766 3,280
Expected Return on Plan Assets ..................... (5,051) (4,500) (3,687)
Amortization of Prior Service Cost ................. (316) (242) (277)
Amortization of Transition Asset ................... (32) (152) (180)
Recognized Actuarial Loss/(Gain) ................... 167 (290) 218
Additional (Gain)/Loss Recognized Due to Curtailment (201) 203
Additional Cost Recognized by NYB .................. -- 514 879
-----------------------------------------
Net Periodic Benefit Cost .......................... $ 405 $ 842 $ 1,682
=========================================
</TABLE>
The Company maintains a Supplemental Executive Retirement Plan ("SERP"), 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 projected benefit obligation,
which is unfunded, was $299 thousand at December 31, 1998 and $168 thousand at
December 31, 1997. Net periodic pension expense incurred in 1998, 1997, and
1996, for the
56
<PAGE> 47
SERP was $52 thousand, $31 thousand, and $11 thousand, respectively. The
weighted average discount rate utilized to determine the projected benefit
obligation was 6.50%, 7.0%, and 7.75% for 1998, 1997, and 1996, respectively.
The assumed rate of future compensation increases was 4.50% for 1998, 1997, and
1996.
NYB had also maintained a SERP and as a result of the merger, benefits
under the plan were frozen with executives participating in the plan needing to
meet the retirement age as specified in NYB's former pension plan prior to being
eligible to receive any distributions. The projected benefit obligation, which
is unfunded, was $1.5 million at December 31 1998 and $1.2 million at September
30, 1997. Net periodic pension expense incurred in 1998, 1997, and 1996 for the
SERP was $100 thousand, $151 thousand, and $229 thousand, respectively. The
weighted average discount rate utilized to determine the projected benefit
obligation was 6.50%, 7.0% to 7.50%, and 7.50% to 8.0% for 1998, 1997, and 1996,
respectively. The assumed rate of future compensation was 4% for 1997 and 1996.
Post-Retirement 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 retired after November 1, 1992 are responsible for all
premium increases after 1997. The Company's plan for its post-retirement
obligation is unfunded.
The following table sets forth the change in post-retirement benefit
obligation and amounts recognized in the accompanying consolidated financial
statements at December 31,
<TABLE>
<CAPTION>
(in thousands) 1998 1997
-------------------------
<S> <C> <C>
Change in Accumulated Post-Retirement Benefit Obligation ("APBO"):
Accumulated Post-Retirement Benefit Obligation at Beginning of Year $ 10,423 $ 10,237
Service Cost ................................................... 135 134
Interest Cost .................................................. 788 694
Acquisitions ................................................... -- 350
Premiums Paid .................................................. (652) (644)
Actuarial Loss/(Gain) .......................................... 603 (348)
-------------------------
Accumulated Post-Retirement Benefit Obligation at End of Year .. $ 11,297 $ 10,423
=========================
Reconciliation of Funded Status:
Accumulated Post-Retirement Benefit Obligation
Inactives ...................................................... $ (9,350) $ (8,352)
Actives Fully Eligible ......................................... (716) (394)
Actives Not Yet Fully Eligible ................................. (1,231) (1,677)
-------------------------
Funded Status .................................................. $(11,297) $(10,423)
Unrecognized Transition Obligation ............................. 3,626 3,943
Unrecognized Prior Service Cost ................................ (1,002) (1,098)
Unrecognized Net Loss .......................................... 1,401 835
-------------------------
(Accrued) Post-retirement Benefit Cost ......................... $ (7,272) $ (6,743)
=========================
</TABLE>
The weighted average discount rate utilized to determine the accumulated
post-retirement benefit obligation was 6.5% and 7.0% in 1998 and 1997,
respectively.
In measuring the APBO, a 6.5% annual trend rate for health care costs was
assumed for the year ended December 31, 1998. These rates are assumed to decline
to 6% in 1999 and 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. The effect of a 1% increase in the
health care cost trend rate on the aggregate of the service and interest cost
components of net periodic post-retirement health care benefit cost and the APBO
for health care benefits would be an increase of $44 thousand and $644 thousand,
respectively, in 1998 and $80 thousand and $772 thousand, respectively, in 1997.
The effect of a 1%
57
<PAGE> 48
Notes to Consolidated Financial Statements (continued)
decrease in the health care cost trend rate on the aggregate of the service and
interest cost components of net periodic post-retirement health care benefit
cost and the APBO for health care benefits would be a decrease of $37 thousand
and $576 thousand, respectively, in 1998 and $71 thousand and $654 thousand,
respectively, in 1997.
The following table sets forth the components of net periodic
post-retirement benefits expense for the years ended December 31,
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
-------------------------------------
<S> <C> <C> <C>
Components of Net Periodic Benefit Cost:
Service Cost ...................... $ 135 $ 134 $ 144
Interest Cost ..................... 788 694 751
Amortization of Prior Service Cost (96) (90) (90)
Amortization of Transition Asset .. 317 255 342
Recognized Actuarial Loss/(Gain) .. 37 3 (43)
-------------------------------------
Net Periodic Benefit Cost ......... $ 1,181 $ 996 $ 1,104
=====================================
</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. NYB also
had a qualified 401(k) savings plan for its employees in which NYB matched a
portion of the employee's contribution. Upon merger, all NYB plan participants
were fully vested in their account balances. On December 31, 1998, the NYB plan
was merged into the Company's plan with the Company's plan being the successor
plan. The aggregate expense of the plans was $1.8 million, $1.6 million, and
$1.7 million for the years ended 1998, 1997, and 1996, respectively.
Note 12 - Common Stock Plans
1998 Stock Compensation Plan
The plan provides for two types of awards, non-qualified stock options and
restricted stock awards, to be granted either separately or in combination to
all eligible persons, including executive officers and other full-time employees
of the Company. The number of shares issuable thereunder is 1,500,000 with no
more than 500,000 authorized for restricted stock awards. Shares of restricted
stock granted under the plan are forfeitable and subject to certain restrictions
on the part of the recipient until ownership of the shares vest in the recipient
at some dates after the date of grant, as determined by the Compensation
Committee upon grant. Awards are granted to employees by the Compensation
Committee. The Committee can, at its discretion, accelerate the removal of any
and 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 outstanding unvested options, and restricted
stock will lapse and cease to be effective as of the day on which such corporate
change is consummated. At December 31, 1998, 1,012,700 shares remain authorized
and unissued. Restricted stock awarded under the plan is reflected as deferred
compensation at the fair market value of the shares at the date of grant, and
amortized to compensation expense over the vesting periods.
58
<PAGE> 49
1997 Non-Officer Stock Plan
The plan provided for two types of awards, non-qualified stock options and
restricted stock awards, for a broad range of full-time employees of the Company
who are not officers, as defined in the Plan. The number of shares issuable
thereunder, either as restricted stock or non-qualified options, was limited to
375,000 shares. Each non-qualified stock option granted had a minimum six month
vesting period. Restricted stock awarded under the plan contain similar
restrictions and accelerated vesting provisions as those in the 1998 Stock
Compensation Plan. Awards were granted to employees by the Compensation
Committee. The right to grant awards under the plan terminated on November 30,
1998.
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 2,100,000 to 3,600,000
shares, with no more than 1,200,000 authorized for restricted stock. The
Compensation Committee determines all grants of awards. Restricted stock awarded
under the plan contain similar restrictions and accelerated vesting provision as
those in the 1998 Stock Compensation Plan. At December 31, 1998, 198,916 shares
remain authorized and unissued.
New York Bancorp Plans - Pre-Merger
NYB maintained several incentive stock option and non-qualified stock option
plans for its officers, directors and other 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
generally vested over a three-year period from the date of grant and expired ten
years from the grant date for employees and five years for directors. As a
result of the merger, participants under the plans became fully vested with all
outstanding options exercised by the merger date.
Additionally, NYB had granted stock appreciation rights ("SARS") to certain
key employees. SARS entitled the participant to receive cash equal to the excess
of the market value of the shares at the date the right is exercised over the
exercise price. An expense was accrued for the earned portion of the amount by
which the market value of the stock exceeded the exercise price for each SAR
outstanding. Participants became fully vested at the merger date. Compensation
expense recognized under the terms of the SARS was $2.8 million, and $1.8
million in 1997 and 1996, respectively.
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. Pursuant to the North Side merger agreement, options
outstanding under these plans were converted into options on the Company's
stock. North Side maintained a Management Development and Recognition 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.
59
<PAGE> 50
Notes to Consolidated Financial Statements (continued)
The following is a summary of the activity in the aforementioned stock option
plans for the three year period ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options(1) Price
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year... 5,514,363 $ 7.96 7,246,403 $ 5.53 7,541,255 $ 4.04
Granted ........................... 1,002,692 25.51 1,632,752 13.05 2,288,736 8.10
Exercised ......................... (4,220,854) 7.28 (3,341,815) 5.18 (2,452,429) 3.52
Canceled .......................... (14,103) 26.27 (22,977) 7.64 (131,159) 2.50
--------------------------------------------------------------------------------------------
Outstanding at end of year ........ 2,282,098 16.80 5,514,363 7.96 7,246,403 5.53
============================================================================================
Options exercisable at year end.... 2,030,261 $16.90 4,329,415 $ 7.56 5,415,640 $ 4.85
============================================================================================
</TABLE>
(1) Includes 1995 performance awards that were granted in January 1996 and
1996 performance awards that were granted in December 1996.
The following is a summary of the information concerning currently outstanding
and exercisable options as of December 31, 1998:
<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>
$ 2.29-$10.75 682,255 5.2 $ 5.74 650,653 $ 5.65
$10.76-$16.41 380,504 7.9 11.38 299,219 11.37
$16.42-$26.88 1,219,339 6.3 24.67 1,080,389 25.21
- ---------------------------------------------------------------------------------------
$ 2.29-$26.88 2,282,098 6.2 $ 16.80 2,030,261 $ 16.90
=======================================================================================
</TABLE>
The following is a summary of the activity in the restricted stock plans for the
years ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------------------------------
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 1,489,823 $13.94 784,476 $ 8.41 398,712 $ 5.79
Granted ..................... 324,350 20.49 746,652 19.42 457,200 10.35
Vested ...................... (44,626) 7.07 (6,805) 3.21 (63,936) 6.38
Canceled .................... (6,601) 14.60 (34,500) 8.69 (7,500) 5.53
-------------------------------------------------------------------------------
Outstanding at year end ..... 1,762,946 $15.32 1,489,823 $13.94 784,476 $ 8.41
===============================================================================
</TABLE>
The amount of compensation expense related to restricted stock awards included
in compensation and employee benefits was $2.2 million, $1.2 million, and $.5
million in 1998, 1997, and 1996, respectively.
The Company applies APB 25 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 and Stock
Appreciation Rights. Had compensation expense for the Company's stock option
plans been determined based upon the fair value at grant date for awards under
these plans net income and diluted earnings per share would have been reduced by
approximately $3.4 million, or $.02 per share in 1998, $3.8 million, or $.03 per
share in 1997, and $3.7 million, or $.03 per share in 1996. The estimated fair
value of the options granted during 1998 and 1997 ranged from $1.19 to $8.32 and
$.73 to $7.43, respectively, and was estimated at $3.10 in 1996 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 1998: a
dividend yield of 2.25%, volatility ranging from 21-30%, risk-free interest
rates ranging from 4.50%-5.66%, no assumed forfeiture rate, and an expected
average life of six years for options with an original term greater than six
years or the options remaining term, if its
60
<PAGE> 51
original maturity is less then six years. The following assumptions were used in
calculating the fair value of the options granted during 1997: dividend yield
ranging from 2.00%-2.25%, volatility ranging from 20%-40%, risk-free interest
rate ranging from 5.30%-6.30%, no assumed forfeiture and an expected life of six
years for options with an original term greater than six years or the options
remaining term, if its original maturity is less then six years. The following
assumptions were used in calculating the fair value of the options granted
during 1996: dividend yield ranging from 2.0%-2.75%, volatility ranging from
40%-43%, risk-free interest rate ranging from 5.28%-5.80%, 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, 1998, 715,099 shares remain authorized and unissued.
Change-in-Control Arrangements and Shareholders' Rights Plan
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.
The Company had a shareholders' rights plan that was originally put in
place to afford the company and its shareholders a defense mechanism in the
event of an unsolicited offer for the Company or a controlling interest therein.
The plan expired in March 1999 and was not renewed.
61
<PAGE> 52
Notes to Consolidated Financial Statements (continued)
Note 13 - Parent Company Only
Condensed Financial Statements
Condensed Balance Sheets December 31,
<TABLE>
(in thousands) 1998 1997
--------------------------
<S> <C> <C>
Assets
Deposits with Bank Subsidiary ................................... $ 5,661 $ 5,347
Deposits with Other Financial Institutions ...................... 1,557 71
Securities Purchased Under Agreements to Resell with Bank Subsidiary 40,000 99,900
Securities Available-for-Sale ................................... 192,805 153,785
Investment in Subsidiaries ...................................... 805,144 728,356
Intangible Assets ............................................... 28,965 28,367
Other Assets .................................................... 39,190 9,810
--------------------------
Total .......................................................... $1,113,322 $1,025,636
==========================
Liabilities and Stockholders' Equity
Junior Subordinated Debt (See Note 9) ........................... $ 205,475 $ 205,450
Senior Note Payable ............................................. 25,000 25,000
Dividends Payable ............................................... 39,041 10,142
Other Liabilities ............................................... 12,556 14,155
Stockholders' Equity ............................................ 831,250 770,889
--------------------------
Total .......................................................... $1,113,322 $1,025,636
==========================
</TABLE>
Condensed Statements of Income For the Years Ended December 31,
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Income:
Dividends from Subsidiaries ................................ $ 92,800 $ 41,600 $ 108,191
Interest Income ............................................ 14,496 10,869 1,622
Net Securities Gains ....................................... 9,032 6,376 5,826
Other Income ............................................... 2,428 799 --
-----------------------------------------
Total Income .............................................. 118,756 59,644 115,639
-----------------------------------------
Expense:
Interest Expense ........................................... 2,274 2,033 1,913
Interest on Junior Subordinated Debt ....................... 17,242 9,463 25
Compensation and Employee Benefits ......................... 2,194 1,211 495
Amortization and Write-down of Intangibles ................. 7,986 440 440
Other Expenses ............................................. 1,577 1,691 1,385
-----------------------------------------
Total Expenses ............................................ 31,273 14,838 4,258
Income before Income Taxes and Equity in Undistributed Earnings -----------------------------------------
of Subsidiaries .......................................... 87,483 44,806 111,381
Income Tax Expense ......................................... 280 151 1,419
Equity in Undistributed Earnings of Subsidiaries ........... 80,772 125,866 (15,514)
-----------------------------------------
Net Income ................................................ $167,975 $170,521 $ 94,448
=========================================
</TABLE>
62
<PAGE> 53
Condensed Statements of Cash Flows For the Years Ended December 31,
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income .................................................. $ 167,975 $ 170,521 $ 94,448
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization ............................... 1,187 1,218 487
Amortization & Writedown of Intangible Assets ............... 7,986 440 440
Equity in Undistributed Earnings of Subsidiaries ............ (80,772) (125,866) 15,514
Proceeds from Sales of Securities Held-for-Trading .......... -- 10,125 --
Purchase of Securities Held-for-Trading ..................... -- (9,670) --
Net Securities Gains ........................................ (9,032) (6,376) (5,826)
Other, Net .................................................. (28,049) (4,019) 1,434
---------------------------------------------
Net Cash Provided by Operating Activities .................. 59,295 36,373 106,497
---------------------------------------------
Cash Flows from Investing Activities:
Proceeds from Sales of Securities Available-for-Sale ........ 112,782 42,016 32,419
Purchases of Securities Available-for-Sale .................. (133,632) (161,032) (38,279)
Investment in Subsidiary Trusts ............................. -- (3,093) (3,093)
Investment in Bank Subsidiary ............................... -- (4,000) --
---------------------------------------------
Net Cash (Used in)/ Provided by Investing Activities ....... (20,850) (126,109) (8,953)
---------------------------------------------
Cash Flows from Financing Activities:
Purchase of Treasury Shares ................................. (56,462) (27,733) (51,594)
Common Stock Sold for Cash .................................. 26,949 6,814 24,687
Dividends Paid to Shareholders .............................. (67,032) (46,607) (32,601)
Proceeds from the Issuance of Junior Subordinate Debt Securities -- 102,713 102,737
---------------------------------------------
Net Cash (Used in)/Provided by Financing Activities ........ (96,545) 35,187 43,229
---------------------------------------------
Net (Decrease)/Increase in Cash and Cash Equivalents ........ (58,100) (54,549) 140,773
Cash and Cash Equivalents at Beginning of Year .............. 105,318 159,867 19,094
---------------------------------------------
Cash and Cash Equivalents at End of Year ................... $ 47,218 $ 105,318 $ 159,867
=============================================
</TABLE>
Note 14 - Regulatory Matters
The Company and its bank subsidiaries 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 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% ("Leverage Ratio"). 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, 1998,
the most recent notification from the various regulators categorized the Company
and its bank subsidiaries 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 not be subject to any written order, agreement or directive. There
are no conditions or events since such notifications that management believes
have changed this classification.
63
<PAGE> 54
Notes to Consolidated Financial Statements (continued)
The following table sets forth the Company's regulatory capital at December 31,
1998, 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 .................................. $ 936,525 15.19%
Regulatory Requirement .......................... 246,643 4.00%
-----------------------
Excess .......................................... $ 689,882 11.19%
-----------------------
Total Risk Adjusted Capital ..................... $1,010,449 16.39%
Regulatory Requirement .......................... 493,285 8.00%
-----------------------
Excess .......................................... $ 517,164 8.39%
=======================
Risk Weighted Assets ............................ $6,166,067
==========
</TABLE>
The Company's leverage capital ratio at December 31, 1998 was 9.09%. The Tier 1,
total risk based and leverage capital ratios of North Fork were 11.81%, 13.01%,
and 6.98%, respectively, at December 31, 1998. The Tier I, total risk based and
leverage capital ratios of Superior were 29.32%, 29.52%, and 7.13%,
respectively, at December 31, 1998.
Dividends from North Fork to the Company are limited by the regulations of
the New York State Banking Department to North Fork's current year's earnings
plus the prior two years' retained net profits. North Fork's dividend capability
at January 1, 1999, pursuant to the regulations, was $174.6 million. Dividends
from Superior are similarly limited by regulations of the State of Connecticut.
In September 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 North Fork's deposit liabilities
acquired in previous thrift acquisitions are insured under the SAIF fund (SAIF
insured deposits at December 31, 1998 were approximately $2.9 billion) and
accordingly are subject to higher quarterly assessments. As a result of
maintaining deposits in the SAIF, North Fork 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 1996, North Fork recognized a non-recurring one-time charge for this
assessment of $17.8 million.
Note 15 - Derivatives Financial Instruments
Periodically, the Company enters into interest rate agreements, including
interest rate swaps, caps, and floors, as part of its management of interest
rate exposure. These agreements are entered into as hedges against interest rate
risk and are designated against specific assets and liabilities.
Interest rate swaps outstanding at December 31, 1998 are summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Fixed Variable
Notional Interest Rate Interest Rate
Maturity Amount Paying Receiving
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
November 2000 ............................. $100,000 4.62% 5.25%
May 2000 .................................. 100,000 5.42% 5.40%
November 2001 ............................. 100,000 4.66% 5.25%
November 2001 ............................. 100,000 4.72% 5.25%
May 2008 .................................. 75,000 6.14% 5.34%
--------
Total Notional Amount of Interest Rate Swaps $475,000
========
</TABLE>
These agreements require the Company to make periodic fixed rate payments while
receiving periodic variable rate payments indexed to the three month London
Interbank Offer Rate ("LIBOR"). At December 31, 1998 and 1997, the Company's
interest rate swaps had an unrealized loss of $1.0 million and $.4 million,
respectively.
64
<PAGE> 55
Prior to the merger, NYB utilized interest rate collars, swaps, and floors
agreements to insulate it from volatile interest rate changes. These agreements
were accounted for as hedges and were not recorded on the balance sheet. NYB was
party to $700 million in interest rate collar agreements, which expired in
August 1998. They required receipt of payment when the three month LIBOR
exceeded 7.50% and required payment when the three month LIBOR was less than
5.00%. During 1995, NYB entered into $1.0 billion of interest rate floor
agreements to protect against interest rate risk associated with repricing of
interest bearing deposits, which expired in February 1998. During 1995, these
agreements were terminated to secure the hedge position, and the gain was
deferred and amortized over the original contractual life of the agreements.
During 1997, a $600 million interest rate swap agreement matured, which was
utilized to extend the maturity of liabilities in order to create a more
consistent and predictable interest rate spread. These agreements required NYB
to make periodic fixed rate payments while receiving periodic variable rate
payments.
The credit risk associated with these off-balance sheet instruments is the
risk of non-performance by the counterparty to the agreements. However,
management does not anticipate non-performance by the counterparty and
monitors/controls the risk through its asset/liability management procedures.
Additionally, the Company had approximately $2.3 million in contracts for
purposes of hedging the "Standard & Poor's 500" index outstanding at December
31, 1998. The call options mature in 1999. Stock indexed call options are
utilized for purposes of hedging MarketSmart CDs, previously offered by NYB. The
call options hedge the interest rate paid on these five year CD deposits, which
is an annual percentage yield based on the change in the Standard & Poor's 500
Composite Stock Price Index during each of the five year terms of the CDs. These
CDs have not been offered since 1995.
The impact of the aforementioned agreements was to reduce interest expense
by approximately $.8 million, $6.3 million, and $3.5 million during 1998, 1997,
and 1996, respectively.
Note 16 - 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 non-performance 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.
65
<PAGE> 56
Notes to Consolidated Financial Statements (continued)
The notional principal amount of the off-balance sheet financial instruments at
December 31, is as follows:
<TABLE>
<CAPTION>
1998 1997
Contract or Contract or
Notional Notional
(in thousands) Amount Amount
---------------------------
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit .................................... $468,241 $502,105
Standby letters of credit ....................................... 45,229 25,232
</TABLE>
(b) Lease Commitments
At December 31, 1998, 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>
Minimum
(in thousands) Rentals
-------
<S> <C>
Year Ended December 31:
1999 ......................................................... $ 7,354
2000 ......................................................... 6,392
2001 ......................................................... 5,349
2002 ......................................................... 4,862
2003 ......................................................... 3,867
Thereafter ................................................... 13,454
</TABLE>
Rent expense for the years ended December 31, 1998, 1997, and 1996 amounted to
$6.4 million, $6.9 million, and $5.6 million, respectively.
(c) Other Matters
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.
On October 13, 1998, the Company's Board of Directors approved the
repurchase of up to 14.3 million of the Company's common shares, or
approximately 10% of its shares outstanding. As of December 31, 1998,
approximately 2.6 million shares had been repurchased.
The Bank subsidiaries are required to maintain balances with the Federal
Reserve Bank of New York for reserve and clearing requirements. These balances
averaged $3.4 million in 1998.
Note 17 - 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.
66
<PAGE> 57
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>
1998 1997
----------------------------------------------------------------
Carrying Estimated Carrying Estimated
(in thousands) Amount Fair Value Amount Fair Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents ..................... $ 180,505 $ 180,505 $ 191,055 $ 191,055
Securities Held-to-Maturity ................... 1,571,545 1,574,196 1,763,308 1,757,411
Securities Available-for-Sale (1) ............. 2,984,035 2,984,035 2,156,624 2,156,624
----------------------------------------------------------------
Total Cash, Cash Equivalents and Securities.... $4,736,085 $4,738,736 $4,110,987 $4,105,090
================================================================
</TABLE>
(1) Excludes $3.8 million in unrealized losses on related interest swap
agreements, used to hedge certain debt securities at December 31, 1998.
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 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,
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------------------
Carrying Estimated Carrying Estimated
(in thousands) Amount Fair Value Amount Fair Value
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Loans.................... $5,731,424 $5,889,662 $5,760,691 $5,807,815
=============================================================
</TABLE>
Deposit Liabilities and Borrowings
The carrying amount for demand deposits, savings, NOW, money market
accounts and borrowings with a remaining 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>
1998 1997
----------------------------------------------------------------
Carrying Estimated Carrying Estimated
(in thousands) Amount Fair Value Amount Fair Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Demand Deposits ....................... $1,263,105 $1,263,105 $ 948,458 $ 948,458
Savings ............................... 2,052,650 2,052,650 2,101,829 2,101,829
NOW and Money Market .................. 897,372 897,372 907,010 907,010
Certificates of Deposit ............... 2,214,495 2,244,254 2,380,642 2,395,881
Borrowings with terms of 90 days or less 823,300 823,300 794,156 794,156
Borrowings with terms greater than 90 days 2,166,796 2,209,348 1,759,480 1,761,119
----------------------------------------------------------------
Total Deposit Liabilities and Borrowings $9,417,718 $9,490,029 $8,891,575 $8,908,453
================================================================
</TABLE>
At December 31, 1998, certificate of deposits totaling $465.9 million and $90.8
million mature between 1-2 years and 2-3 years, respectively.
67
<PAGE> 58
Notes to Consolidated Financial Statements (continued)
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, 1998 and 1997, there was no significant unrealized
appreciation or depreciation on these financial instruments.
Derivative Financial Instruments
The fair value of derivative financial instruments is estimated based on quoted
market prices from various brokers.
The following table presents the carrying value and the estimated fair
value of derivative financial instruments as of December 31,
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------------------------------------------
<S> <C> <C> <C> <C>
Off Balance Sheet Instruments ... $(3,812) $(957) $-- $(400)
==============================================
</TABLE>
Note 18 - Recent Accounting Pronouncements
Reporting Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130")
in January 1998. SFAS 130 establishes standards for reporting and the display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. Comprehensive income is
defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. In
accordance with SFAS 130, all items that are required to be recognized under
accounting standards as components of comprehensive income must be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 also requires that an enterprise (a) classify
items of other comprehensive income by their nature in a financial statement and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in-capital in the equity section of a
statement of financial position (See the "Consolidated Statements of
Comprehensive Income" included herein).
Disclosure about Segments for an Enterprise and Related Information
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for the way an enterprise reports
information about operating segments in annual financial statements and requires
that enterprises report selected information about operating segments in interim
financial reports issued to shareholders. Operating segments are components of
an enterprise about which separate financial information is available, that are
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. SFAS 131 requires a
reconciliation of total segment revenues, total segment profit or loss, total
segment assets, and other amounts disclosed for segments to the amounts in the
enterprise's financial statements. It also requires an enterprise to report
descriptive information about the way the operating segments were determined,
the products and services provided by the operating segments, and any
differences between the measurements used for segment reporting and financial
statement reporting. SFAS 131 is effective for fiscal years beginning
68
<PAGE> 59
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. Management has evaluated the
disclosure requirements and determined that disclosure is not required as its
operating segments do not meet the quantitative thresholds prescribed in SFAS
131 for all reporting periods.
Employers' Disclosures about Pensions and Other Post-Retirement Benefits
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Post-retirement Benefits" ("SFAS 132"). SFAS 132 revises
employers' disclosures about pensions and other post-retirement benefit plans;
it does not change the measurement or recognition under these plans. SFAS 132
standardizes the disclosure requirements for pensions and other post-retirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer
useful. SFAS 132 is effective for fiscal years beginning after December 15, 1997
(See Footnote 11, "Retirement and Other Employee Benefit Plans", included herein
for the required disclosure).
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a foreign
currency denominated forecasted transaction. The accounting for changes in the
fair value of a derivative depends on the intended use of the derivative and the
resulting designation. Under SFAS 133, an entity that elects to apply hedge
accounting is required to establish, at the inception of the hedge, the method
it will use for assessing the effectiveness of the hedging derivative and the
measurement approach for determining the ineffective aspect of the hedge. Those
methods must be consistent with the entity's approach to managing risk.
SFAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Management is currently evaluating the effect SFAS 133 will
have on its financial statements.
69
<PAGE> 60
Independent Auditors' Report
[LOGO] KPMG
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, 1998 and 1997, the
related consolidated statements of income, cash flows, changes in
stockholders' equity and comprehensive income for each of the years in the
three-year period ended December 31, 1998. 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, 1998 and 1997, the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
New York, New York
January 14, 1999
70
<PAGE> 61
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.
Management maintains accounting systems and internal controls to meet its
responsibilities for reliable consolidated financial statements. There are
inherent limitations in the effectiveness of internal controls, including the
possibility of errors or irregularities. Furthermore, because of changes in
conditions, the effectiveness of internal controls may vary over time.
Management believes that these systems and controls provide reasonable assurance
that assets are safeguarded and transactions are properly recorded and executed,
in accordance with management's authorization. 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 internal controls 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 internal controls by the independent and
internal auditors and the various regulatory agencies.
/s/ John Adam Kanas /s/ Daniel M. Healy
John Adam Kanas Daniel M. Healy
Chairman, President and Executive Vice President
Chief Executive Officer and Chief Financial Officer
71
<PAGE> 62
Corporate Information
Executive Information
John Adam Kanas
Chairman, President & Chief Executive Officer
John Bohlsen
Vice Chairman
Thomas M. O'Brien
Vice Chairman
Daniel M. Healy
Executive Vice President & Chief Financial Officer
Aurelie S. Graf
Corporate Secretary
Board of Directors
John Adam Kanas, Chairman
John Bohlsen, Vice Chairman
Thomas M. O'Brien, Vice Chairman
Irvin L. Cherashore
Allan C. Dickerson
Lloyd A. Gerard
Patrick E. Malloy III
James F. Reeve
George H. Rowsom
Dr. Kurt R. Schmeller
Raymond W. Terry, Jr.
Executive Offices
275 Broad Hollow Road
Melville, N.Y. 11747
Shareholder Information
Investor Relations
Shareholders seeking information about the Company 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. Additional
inquiries and analyst coverage regarding the Company can be made at
www.northforkbank.com.
Dividend Services
Dividend Reinvestment Plan (DRP)-The DRP 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.
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.
Stock Registrar and Transfer Agent
First Chicago Trust Company of New York
c/o Equiserve
P.O. Box 2500
Jersey City, New Jersey 07303-2500
(800) 317-4445
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 27, 1999,
10:00 a.m. at the Islandia Marriott Long Island, 3635 Express Drive North,
Hauppauge, New York 11788, (516) 232-3000.
72
<PAGE> 1
EXHIBIT - 21
<TABLE>
<CAPTION>
SUBSIDIARIES OF REGISTRANT STATE OF INCORPORATION
- -------------------------- ----------------------
<S> <C>
North Fork Bank New York
Superior Savings of New England Connecticut
Compass Investment Services Corp New York
Amivest Corporation Delaware
North Fork Capital Trust I New York
North Fork Capital Trust II New York
SUBSIDIARIES OF NORTH FORK BANK
NFB Properties, Inc. New York
Home Fed Realty Corporation Delaware
NFB Funding Inc. New Jersey
First Settlers Corporation New York
NFB Development Corp New York
Cutchco Corp New York
Clare Elm Corp New York
Compass Food Service Corp New York
NBALI Services Corp New York
</TABLE>
<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. 2-99984, 33-14903, 33-34372, 33-52504, 33-53467, 333-05513, 333-00675,
333-56329, 333-74713, and 333-19047) on Form S-8, (Nos. 333-42515, 333-35111,
and 333-24419) on Form S-4 and (Nos. 333-56913, 33-42294, 33-54222, and
333-40311) on Form S-3 of North Fork Bancorporation, Inc. of our report dated
January 14, 1999 relating to the consolidated balance sheets of North Fork
Bancorporation, Inc. and subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of income, cash flows, changes in stockholders'
equity, and comprehensive income for each of the years in the three-year period
ended December 31, 1998, which report appears in the December 31, 1998 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 LLP
New York, New York
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 151,576
<INT-BEARING-DEPOSITS> 11,929
<FED-FUNDS-SOLD> 17,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,980,223
<INVESTMENTS-CARRYING> 1,571,545
<INVESTMENTS-MARKET> 1,574,196
<LOANS> 5,731,424
<ALLOWANCE> 71,759
<TOTAL-ASSETS> 10,679,556
<DEPOSITS> 6,427,622
<SHORT-TERM> 440,000
<LIABILITIES-OTHER> 430,588
<LONG-TERM> 2,550,096
0
0
<COMMON> 362,312
<OTHER-SE> 468,938
<TOTAL-LIABILITIES-AND-EQUITY> 10,679,556
<INTEREST-LOAN> 494,125
<INTEREST-INVEST> 256,513
<INTEREST-OTHER> 2,462
<INTEREST-TOTAL> 753,100
<INTEREST-DEPOSIT> 187,769
<INTEREST-EXPENSE> 328,456
<INTEREST-INCOME-NET> 424,644
<LOAN-LOSSES> 15,500
<SECURITIES-GAINS> 9,433
<EXPENSE-OTHER> 230,381
<INCOME-PRETAX> 243,081
<INCOME-PRE-EXTRAORDINARY> 243,081
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 167,978
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.18
<YIELD-ACTUAL> 4.48
<LOANS-NON> 7,592
<LOANS-PAST> 7,684
<LOANS-TROUBLED> 584
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 74,393
<CHARGE-OFFS> 21,896
<RECOVERIES> 3,817
<ALLOWANCE-CLOSE> 71,759
<ALLOWANCE-DOMESTIC> 66,317
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,442
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 179,268
<INT-BEARING-DEPOSITS> 7,787
<FED-FUNDS-SOLD> 4,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,156,624
<INVESTMENTS-CARRYING> 1,763,308
<INVESTMENTS-MARKET> 1,757,411
<LOANS> 5,760,691
<ALLOWANCE> 74,393
<TOTAL-ASSETS> 10,073,632
<DEPOSITS> 6,337,939
<SHORT-TERM> 999,156
<LIABILITIES-OTHER> 411,158
<LONG-TERM> 1,554,480
0
0
<COMMON> 256,790
<OTHER-SE> 514,099
<TOTAL-LIABILITIES-AND-EQUITY> 10,073,632
<INTEREST-LOAN> 461,984
<INTEREST-INVEST> 261,210
<INTEREST-OTHER> 1,230
<INTEREST-TOTAL> 724,424
<INTEREST-DEPOSIT> 187,740
<INTEREST-EXPENSE> 326,803
<INTEREST-INCOME-NET> 397,621
<LOAN-LOSSES> 8,100
<SECURITIES-GAINS> 8,407
<EXPENSE-OTHER> 173,709
<INCOME-PRETAX> 275,134
<INCOME-PRE-EXTRAORDINARY> 275,134
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 170,521
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.22
<YIELD-ACTUAL> 4.42
<LOANS-NON> 31,231
<LOANS-PAST> 6,414
<LOANS-TROUBLED> 14,567
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 73,280
<CHARGE-OFFS> 12,054
<RECOVERIES> 2,573
<ALLOWANCE-CLOSE> 74,393
<ALLOWANCE-DOMESTIC> 60,836
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 13,557
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 163,410
<INT-BEARING-DEPOSITS> 2,298
<FED-FUNDS-SOLD> 125,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,301,891
<INVESTMENTS-CARRYING> 1,851,575
<INVESTMENTS-MARKET> 1,828,715
<LOANS> 5,071,794
<ALLOWANCE> 73,280
<TOTAL-ASSETS> 8,691,434
<DEPOSITS> 6,199,860
<SHORT-TERM> 1,206,275
<LIABILITIES-OTHER> 216,565
<LONG-TERM> 459,300
0
0
<COMMON> 125,371
<OTHER-SE> 484,063
<TOTAL-LIABILITIES-AND-EQUITY> 8,691,434
<INTEREST-LOAN> 390,451
<INTEREST-INVEST> 220,178
<INTEREST-OTHER> 3,133
<INTEREST-TOTAL> 613,762
<INTEREST-DEPOSIT> 196,908
<INTEREST-EXPENSE> 281,107
<INTEREST-INCOME-NET> 332,655
<LOAN-LOSSES> 8,000
<SECURITIES-GAINS> 6,224
<EXPENSE-OTHER> 200,427
<INCOME-PRETAX> 169,054
<INCOME-PRE-EXTRAORDINARY> 169,054
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,448
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.68
<YIELD-ACTUAL> 4.24
<LOANS-NON> 43,297
<LOANS-PAST> 6,988
<LOANS-TROUBLED> 19,552
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 77,899
<CHARGE-OFFS> 18,570
<RECOVERIES> 2,669
<ALLOWANCE-CLOSE> 73,280
<ALLOWANCE-DOMESTIC> 63,195
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 10,085
</TABLE>
