<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
----------------
Date of Report (Date of Earliest Event Reported) March 14, 2000
NORTH FORK BANCORPORATION, INC.
(Exact Name of Registrant as Specified in Charter)
DELAWARE 1-10458 36-3154608
- ---------------------------- ------------------------ -------------------
(STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
275 Broad Hollow Road Melville, New York 11747
(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code) (631) 844-1004
<PAGE>
ITEM 5. OTHER EVENTS.
North Fork Bancorporation, Inc., a Delaware corporation (the "Company"), has
included herein the audited supplemental consolidated balance sheets of the
Company and subsidiaries as of December 31, 1998 and 1997, and the related
audited supplemental 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 financial statements give
retroactive effect to the merger of the Company and JSB Financial, Inc. on
February 29, 2000, which transaction has been accounted for as a
pooling-of-interests.
ITEM 7. FINANCIAL STATEMENT AND EXHIBITS.
(c) Exhibits
23.1 Consent of KPMG LLP, New York, New York
99.1 Audited supplemental financial statements
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunder duly authorized.
Dated: March 14, 2000
NORTH FORK BANCORPORATION, INC.
By: /s/ Daniel M. Healy
-------------------------------------
Name: Daniel M. Healy
Title: Executive Vice President
and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
23.1 Consent of KPMG LLP, New York, New York
99.1 Audited supplemental financial statements
<PAGE>
[KPMG Letterhead]
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
North Fork Bancorporation, Inc.:
We hereby consent to the incorporation by reference in Registration Statement
(No. 333-94381) on Form S-8, of our report dated March 10, 2000, relating to the
supplemental consolidated balance sheets of North Fork Bancorporation, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the related supplemental
consolidated statements of income, cash flows, changes in shareholders' equity,
and comprehensive income for each of the years in the three-year period ended
December 31, 1998, included in the current report on Form 8-K of North Fork
Bancorporation, Inc. filed with the Securities and Exchange Commission on
March 14, 2000.
KPMG LLP
New York, New York
March 14, 2000
<PAGE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans....................................................... $590,165 $540,072 $462,436
Mortgage-Backed Securities.................................. 218,345 227,615 203,185
Other Securities............................................ 32,367 29,103 24,364
U.S. Treasury & Government Agency Securities................ 19,668 27,147 20,353
State & Municipal Obligations .............................. 3,849 5,365 4,773
Federal Funds Sold.......................................... 6,063 4,587 6,776
Interest Earning Deposits................................... 456 146 220
-----------------------------------------
Total Interest Income....................................... 870,913 834,035 722,107
-----------------------------------------
INTEREST EXPENSE:
Savings, NOW & Money Market Deposits........................ 80,875 84,099 88,360
Other Time Deposits......................................... 145,185 143,515 148,765
Federal Funds Purchased & Securities Sold Under
Agreements to Repurchase................................. 129,183 112,881 52,971
Other Borrowings............................................ 11,689 26,182 31,228
-----------------------------------------
Total Interest Expense................................... 366,932 366,677 321,324
-----------------------------------------
Net Interest Income...................................... 503,981 467,358 400,783
Provision for Loan Losses................................... 15,551 8,748 8,640
-----------------------------------------
Net Interest Income after Provision for Loan Losses...... 488,430 458,610 392,143
-----------------------------------------
NON-INTEREST INCOME:
Fees & Service Charges on Deposit Accounts.................. 28,085 26,021 22,645
Investment Management, Commissions & Trust Fees............. 13,225 10,085 7,014
Mortgage Banking Operations................................. 4,054 4,269 4,412
Other Operating Income...................................... 15,369 19,094 8,876
Interest on Tax Settlement.................................. - 4,515 -
Net Securities Gains........................................ 9,433 15,398 6,226
-----------------------------------------
Total Non-Interest Income.............................. 70,166 79,382 49,173
-----------------------------------------
NON-INTEREST EXPENSE:
Compensation & Employee Benefits............................ 96,914 99,118 94,894
Occupancy & Equipment, net.................................. 32,276 33,959 32,715
Capital Securities Costs.................................... 16,843 9,235 25
Amortization & Write-down of Intangible Assets.............. 14,479 7,292 6,364
Other Operating Expense..................................... 44,875 51,539 52,592
Merger Related Restructure Charge........................... 52,452 - 21,613
SAIF Recapitalization Charge................................ - - 17,782
-----------------------------------------
Total Non-Interest Expense.............................. 257,839 201,143 225,985
-----------------------------------------
Income Before Income Taxes.................................. 300,757 336,849 215,331
Provision for Income Taxes.................................. 88,394 129,238 94,158
=========================================
Net Income............................................. $212,363 $207,611 $121,173
=========================================
EARNINGS PER SHARE - BASIC.................................. $1.25 $1.25 $0.73
-----------------------------------------
EARNINGS PER SHARE - DILUTED................................ $1.23 $1.22 $0.71
-----------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE>
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
At December 31,
(in thousands, except for share amounts)
<TABLE>
<CAPTION>
1998 1997
---------------------------
<S> <C> <C>
ASSETS
Cash & Due from Banks............................................................ $165,425 $192,192
Interest Earning Deposits........................................................ 11,929 7,787
Federal Funds Sold .............................................................. 116,000 66,000
Securities:
Available-for-Sale............................................................ 3,072,737 2,226,512
Held-to-Maturity (Fair value $1,783,102 in 1998; $2,111,407 in 1997)......... 1,780,002 2,116,275
---------------------------
Total Securities........................................................... 4,852,739 4,342,787
---------------------------
Loans............................................................................ 6,909,709 6,769,649
Less: Unearned Income............................................................. 19,833 24,893
Allowance for Loan Losses............................................. 77,683 80,273
---------------------------
Net Loans............................................................. 6,812,193 6,664,483
---------------------------
Intangible Assets................................................................ 84,676 96,398
Premises & Equipment, net........................................................ 90,363 94,254
Accrued Income Receivable........................................................ 75,724 76,248
Other Assets..................................................................... 66,680 52,886
---------------------------
Total Assets................................................................ $12,275,729 $11,593,035
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand Deposits.................................................................. $1,321,861 $992,525
Savings, NOW & Money Market Deposits............................................. 3,607,469 3,697,169
Other Time Deposits.............................................................. 2,057,521 2,328,747
Certificates of Deposit, $100,000 & Over........................................ 590,534 461,428
---------------------------
Total Deposits.............................................................. 7,577,385 7,479,869
---------------------------
Federal Funds Purchased & Securities Sold Under
Agreements to Repurchase...................................................... 2,955,096 2,104,036
Other Borrowings................................................................. 85,000 449,600
Accrued Expenses & Other Liabilities............................................. 245,233 221,863
---------------------------
Total Liabilities.......................................................... 10,862,714 10,255,368
---------------------------
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 192,924,714 in 1998; 202,073,867 shares in 1997................ 482,312 376,790
Additional Paid in Capital....................................................... 80,867 173,125
Retained Earnings................................................................ 879,441 781,052
Accumulated Other Comprehensive Income - Unrealized Gains
on Securities Available-for-Sale, net of taxes............................... 50,208 45,593
Deferred Compensation............................................................ (28,842) (23,560)
Treasury Stock at cost; 23,334,963 shares in 1998; 32,835,785 shares in 1997.... (250,260) (214,597)
---------------------------
Total Stockholders' Equity................................................. 1,213,726 1,138,403
===========================
Total Liabilities and Stockholders' Equity................................. $12,275,729 $11,593,035
===========================
</TABLE>
SEE ACCOMPANYING NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income...................................................................... $212,363 $207,611 $121,173
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Provision for Loan Losses....................................................... 15,551 8,748 8,640
Net gain on sale/redemption of equity securities................................ (9,433) (15,398) (6,226)
Depreciation and Amortization................................................... 13,059 12,376 12,356
Mortgage loans originated for sale.............................................. (4,839) (1,612) (1,621)
Proceeds from sale of mortgage loans originated for sale........................ 4,821 1,636 1,737
Gain on sales of mortgage and other loans, net.................................. (47) (35) (53)
Payments received against Nationar claim........................................ - - 10,205
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............................... (11,260) (7,495) (4,719)
Proceeds from Sales of Securities Held-for-Trading.............................. - 10,125 2,003
Purchases of Securities Held-for-Trading........................................ - (9,670) -
Other, Net...................................................................... 53,310 8,097 38,507
------------------------------------------
Net Cash Provided by Operating Activities................................... 300,813 230,727 199,629
------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Securities Held-to-Maturity........................................ (1,617,184) (662,677) (894,783)
Maturities, Redemptions, Calls and Principal Repayments on Securities
Held-to-Maturity.............................................................. 1,005,390 917,039 974,817
Purchases of Securities Available-for-Sale...................................... (2,168,102) (1,498,648) (1,056,948)
Proceeds from Sales of Securities Available-for-Sale............................ 1,021,477 279,110 735,467
Maturities and Principal Repayments on Securities Available-for-Sale............ 1,279,525 413,086 448,528
Loans Originated, Net of Principal Repayments................................... (313,354) (800,095) (678,646)
Proceeds from the Sale of Loans................................................. 200,678 89,096 112,431
Purchases of Loans.............................................................. (21,344) (22,342) (370,400)
Sales of Other Real Estate Owned, Net........................................... 5,670 16,973 8,935
Purchases of Premises and Equipment, Net........................................ (6,968) (8,602) (11,140)
Purchase Acquisitions, Net of Cash Acquired..................................... 805 56,147 595,650
------------------------------------------
Net Cash Used in Investing Activities....................................... (613,407) (1,220,913) (136,089)
------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase/(Decrease) in Customer Deposit Liabilities......................... 52,185 (41,549) (275,040)
Net Increase in Borrowings...................................................... 429,854 887,061 252,778
Proceeds from the Issuance of Capital Securities................................ - 99,614 99,637
Purchase of Treasury Stock...................................................... (87,928) (27,733) (79,244)
Common Stock Sold for Cash...................................................... 28,990 8,382 33,269
Cash Dividends Paid............................................................. (82,748) (60,412) (44,691)
------------------------------------------
Net Cash Provided by / (Used in) Financing Activities....................... 340,353 865,363 (13,291)
==========================================
Net Increase/(Decrease) in Cash and Cash Equivalents........................ 27,759 (124,823) 50,249
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.................................. 265,979 390,802 279,806
------------------------------------------
Cash and Cash Equivalents at End of Year........................................ $293,354 $265,979 $390,802
==========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Period for:
Interest Expense............................................................ $370,739 $371,458 $326,703
------------------------------------------
Income Taxes................................................................ $25,332 $87,245 $69,367
==========================================
Securities Transferred from Held-to-Maturity to Available-for-Sale due to the
Merger with NYB............................................................. $913,598 $- $-
Purchases of Various Securities at Year End which
Settled in the Subsequent Period............................................ 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 SUPPLEMENTAL 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 Superiors' common stock was exchanged for .1957
shares of the Company's common stock and the Company made a cash payment to
the holder of Superiors' 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.
3
<PAGE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Three Years Ended December 31, 1998
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Unrealized
Additional Securities
Common Paid in Retained Gains/ Deferred Treasury
Stock Capital Earnings (Losses) Compensation Stock Total
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996............................ $244,734 $238,193 $569,289 $21,070 ($4,855) ($145,809) $922,622
Net Income.......................................... - - 121,173 - - - 121,173
Cash Dividends ($.28 per share)..................... - - (22,721) - - - (22,721)
Cash Dividends-Acquired Companies................... - - (27,347) - - - (27,347)
Issuance of Stock (1,996,152 shares)................ 101 6,077 - - - 15,350 21,528
North Side Common Stock Retirement (1,124,988
shares)........................................... (937) (7,558) - - - - (8,495)
Purchase of Treasury Stock (11,438,174 shares)...... - - - - - (79,244) (79,244)
JSB Loss on Reissuance of Treasury Stock............ - - (1,364) - - - (1,364)
Restricted Stock Activity, net...................... - 1,450 - - (4,179) 2,896 167
Amortization of Other Compensation Plans............ - - - - 566 - 566
Stock Based Compensation Activity, net.............. 1,473 8,085 (2,695) - - 7,621 14,484
North Side Net Income for the Three Months Ended
December 31, 1995............................... - - 5,834 - - - 5,834
Adjustment to Unrealized Gains/(Losses) on
Securities Available-for-Sale, net of taxes...... - - - (2,470) - - (2,470)
-----------------------------------------------------------------------------
Balance, December 31, 1996.......................... $245,371 $246,247 $642,169 $18,600 ($8,468) ($199,186) $944,733
-----------------------------------------------------------------------------
Net Income.......................................... - - 207,611 - - - 207,611
Cash Dividends ($.38 per share)..................... - - (38,226) - - - (38,226)
Cash Dividends-Acquired Company..................... - - (25,196) - - - (25,196)
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 - - - - 34,420
Issuance of Stock (165,524 shares).................. 276 2,311 - - - - 2,587
Purchase of Treasury Stock (4,174,344 shares)....... - - - - - (27,733) (27,733)
JSB Loss on Reissuance of Treasury Stock............ - - (1,437) - - - (1,437)
Restricted Stock Activity, net...................... 423 11,536 - - (15,092) 3,805 672
Stock Based Compensation Activity, net.............. 1,200 8,131 (3,655) - - 8,517 14,193
Amortization of Unrealized Loss on Securities
Transferred from Available-for-Sale to
Held-to-Maturity.................................. - - (214) (331) - - (545)
Adjustment to Unrealized Gains/(Losses) on
Securities Available-for-Sale, net of taxes....... - - - 27,324 - - 27,324
-----------------------------------------------------------------------------
Balance, December 31, 1997.......................... $376,790 $173,125 $781,052 $45,593 ($23,560) ($214,597) $1,138,403
-----------------------------------------------------------------------------
Net Income.......................................... - - 212,363 - - - 212,363
Cash Dividends ($.65 per share).................... - - (92,713) - - - (92,713)
Cash Dividends-Acquired Company..................... - - (18,935) - - - (18,935)
Issuance of Stock for the 3-for-2 Stock Split....... 120,288 (120,288) - - - - -
Issuance of Stock-Amivest Acquisition............... 905 7,825 - - - - 8,730
Issuance of Stock (1,216,087 shares)................ 331 16,126 - - - 12,214 28,671
NYB Common Stock Retirement (12,740,406 shares)..... (21,234) (35,398) - - - 56,632 -
Purchases of Treasury Stock (2,603,825 shares)...... - - - - - (87,928) (87,928)
JSB Loss on Reissuance of Treasury Stock............ - - (2,634) - - - (2,634)
Restricted Stock Activity, net...................... - (385) - - (5,282) (443) (6,110)
Stock Based Compensation Activity, net.............. 5,232 39,862 (11,523) - - (16,138) 17,433
NYB Net Income for the Three Months
Ended December 31, 1997........................... - - 11,992 - - - 11,992
Amortization of Unrealized Loss on Securities
Transferred from Available-for-Sale to
Held-to-Maturity.................................. - - (161) (170) - - (331)
Adjustment to Unrealized Gains/(Losses) on
Securities Available-for-Sale, net of taxes....... - - - 4,785 - - 4,785
=============================================================================
BALANCE, DECEMBER 31, 1998.......................... $482,312 $80,867 $879,441 $50,208 ($28,842) ($250,260) $1,213,726
=============================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31,
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Net Income.............................................. $212,363 $207,611 $121,173
-----------------------------------------
Other Comprehensive Income/(Loss), Net
of Income Taxes:
Unrealized Gains on
Securities Available-for-Sale......................... 9,895 35,763 1,015
Less: Reclassification of Realized Gains
Included in Net Income................................ (5,280) (8,770) (3,485)
-----------------------------------------
Other Comprehensive Income/(Loss)....................... 4,615 26,993 (2,470)
=========================================
Comprehensive Income.................................... $216,978 $234,604 $118,703
=========================================
</TABLE>
SEE ACCOMPANYING NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
NOTES TO SUPPLEMENTAL 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 non-bank 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 supplemental consolidated financial statements include the accounts
of the Company and its banking and non-bank subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
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 supplemental
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.
After the close of business on February 29, 2000, JSB Financial, Inc.,
("JSB") the parent company of Jamaica Federal Savings Bank, ("Jamaica"), was
merged with and into the Company in a pooling-of-interests transaction.
Accordingly, the Company's supplemental consolidated financial statements
include the consolidated accounts of JSB for all periods reported.
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
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.
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
would be 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.
6
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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 be
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 supplemental 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 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.
7
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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 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 which is included in other
expenses in the Company's Supplemental Consolidated Statements of Income.
(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.
(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.
(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 Principles Board 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. The cost of common stock held by
JSB's Benefit Restoration Plan is reflected as deferred compensation in the
Company's Supplemental Consolidated Balance Sheets. These amounts totaled $4.4
and $4.2 million for the years ended 1998 and 1997, respectively.
8
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) EARNINGS PER SHARE ("EPS")
The Company follows 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
170,085,044, 166,334,843, and 166,688,635 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 171,987,568, 169,903,051, and
170,015,034 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 period.
On May 15, 1998 and February 25, 1997, the Company issued a
three-for-two and a two-for-one common stock split, respectively. The par value
of the value of the Company's common stock remained unchanged at $2.50. As a
result, $120.3 million and $126.3 million were transferred from additional
paid-in-capital to common stock to reflect these issues, respectively. All per
share, weighted average shares outstanding, and the option data presented herein
has been adjusted retroactively to reflect the effects of the splits.
(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) SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of consolidated cash flows, cash and cash equivalents are
defined as the amounts included in the Supplemental Consolidated Balance Sheets
under the captions "Cash & Due from Banks", "Interest Earning Deposits", and
"Federal Funds Sold", with a contractual maturity of less than 90 days.
Cash flows associated with derivative financial instruments used by the
Company are classified in the accompanying Supplemental Consolidated Statements
of Cash Flows in the same category as the cash flows from the asset or liability
being hedged.
NOTE 2 - BUSINESS COMBINATIONS
COMPLETED ACQUISITIONS
(a) NEW YORK BANCORP
On March 27, 1998, New York Bancorp (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. 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
9
<PAGE>
NOTE 2 - BUSINESS COMBINATIONS (CONTINUED)
COMPLETED ACQUISITIONS (CONTINUED)
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.
(a) NEW YORK BANCORP (CONTINUED)
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 supplemental 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)
<TABLE>
<CAPTION>
STATEMENT OF INCOME DATA:
<S> <C>
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)
===============
</TABLE>
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).
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)
<TABLE>
<CAPTION>
<S> <C>
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
===============
</TABLE>
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
supplemental 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
10
<PAGE>
NOTE 2 - BUSINESS COMBINATIONS (CONTINUED)
processing operations. As of December 31, 1998, $29.9 million of the merger
related restructure charge utilized represented cash outlays by the Company.
b) RELIANCE BANCORP, INC.
On August 30, 1999, the Company entered into an Agreement and Plan of
Merger with Reliance Bancorp, Inc. ("Reliance"), the parent company of Reliance
Federal Savings Bank, whereby it would acquire Reliance in a stock-for-stock
merger. On August 30, 1999, simultaneous with the announcement of the merger,
the Company's board of directors formally approved the purchase of up to 50% of
the common shares to be issued in the transaction, or 8.5 million shares. As of
December 31, 1999, the Company completed the purchase of 7.8 million shares
under the program. The program was completed subsequent to December 31, 1999. On
February 18, 2000, Reliance was merged with and into the Company in accordance
with the purchase method of accounting. Pursuant to the merger agreement, the
Company issued 2.0 shares of its common stock for each share of Reliance's
common stock outstanding (17,120,160 common shares were reissued by the Company
from its treasury account in satisfaction of the Reliance exchange ratio) and
reserved for issuance 1,369,434 common shares for Reliance's outstanding stock
options at the date of merger.
At December 31, 1999, Reliance had total assets of $2.5 billion, loans
of $2.1 billion, deposits of $1.5 billion, and stockholders' equity of $176
million. Reliance Federal Savings Bank operated from 29 retail banking
facilities throughout Suffolk and Nassau counties, New York, as well as in the
New York City borough of Queens.
c) JSB FINANCIAL, INC.
On August 16, 1999, the Company entered into an Agreement and Plan of
Merger with JSB Financial, Inc. ("JSB"), the parent company of Jamaica Savings
Bank ("Jamaica"), whereby it would acquire JSB in a stock-for-stock merger. In
connection with the merger, the Company needed to reissue a sufficient number of
shares of its treasury stock prior to the consummation of the merger, in order
that the merger not fail to qualify for pooling-of-interests accounting
treatment. The necessary treasury shares were reissued on February 18, 2000, in
connection with the Reliance transaction. On February 29, 2000, JSB was merged
with and into the Company in accordance with the pooling-of-interests method of
accounting. Pursuant to the merger agreement, the Company issued 3.0 shares of
common stock for each share of JSB's common stock outstanding. Accordingly, the
Company issued 28,312,851 of its common shares, simultaneously retired 6,562,383
shares of JSB's common stock held in treasury and reserved 2,410,500 common
shares for JSB's outstanding stock options at the merger date.
On August 16, 1999, simultaneous with the announcement of the JSB
merger, the Company's Board of Directors formally rescinded the 10% share
repurchase program instituted in October 1998. At that date, the Company had
completed the repurchase of approximately 8.1 million shares.
At December 31, 1999, JSB had total assets of $1.6 billion, loans of
$1.3 billion, deposits of $1.1 billion, and stockholders' equity of $380
million. Jamaica operated from 13 retail-banking facilities in the New York City
boroughs of Manhattan and Queens and in Nassau and Suffolk counties, New York. A
summary of the merger and restructuring charge, based on North Fork and JSB's
best estimates, is as follows:
(in thousands)
<TABLE>
<CAPTION>
<S> <C>
Merger Expenses................................................ $4,148
Restructuring Charge:
Merger Related Compensation and Severance Costs............ 32,566
Facilities and Systems Costs............................... 5,635
Other Merger Related Costs................................. 8,375
---------------
Total Pre-Tax Merger and Restructuring Charge.................. $50,724
===============
</TABLE>
The aforementioned charges will be reflected in the Company's
Consolidated Statement of Income for the three-month period ended March 31,
2000.
11
<PAGE>
NOTE 2 - BUSINESS COMBINATIONS (CONTINUED)
(c) JSB FINANCIAL, INC. (CONTINUED)
The Company's previously reported components of consolidated income and
the amounts reflected in the accompanying supplemental consolidated statements
of income for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
---------------------------------------------
Net Interest Income
<S> <C> <C> <C>
As Previously Reported...... $424,644 $278,351 $230,946
New York Bancorp............ - 119,270 101,709
JSB Financial, Inc.......... 79,337 69,737 68,128
---------------------------------------------
Combined........................ $503,981 $467,358 $400,783
=============================================
<CAPTION>
(in thousands) 1998 1997 1996
---------------------------------------------
Net Income
<S> <C> <C> <C>
As Previously Reported...... $167,975 $119,310 $62,442
New York Bancorp............ - 51,211 32,006
JSB Financial, Inc.......... 44,388 37,090 26,725
---------------------------------------------
Combined........................ $212,363 $207,611 $121,173
=============================================
</TABLE>
(d) 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 operating results of Amivest are not
significant to the supplemental consolidated financial statements of the
Company.
(e) SUPERIOR SAVINGS OF NEW ENGLAND
In December 1997, the Company acquired Superior Savings of New England
("Superior"), formerly Branford Savings Bank, 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 operating results of Superior are not significant to the
supplemental consolidated financial statements of the Company.
(f) PROPOSED ACQUISITION
DIME BANCORP, INC.
On March 5, 2000, the Company announced its intention to offer an exchange of
the Company's common stock and cash for the common stock of Dime Bancorp, Inc.
("Dime"), the parent company of Dime Savings Bank of New York, FSB. The purpose
is for the Company to acquire control of, and, thereafter the entire common
equity interest in Dime. Under the terms of the proposal, each share of Dime's
common stock would be exchanged for 0.9302 shares of the Company's common stock
and $2.00 cash. The offer is contingent on various conditions, including (i)
conditions that would require Dime's stockholders not to approve the Dime's
proposed merger with another financial institution, (ii) a minimum number of
shares of Dime's common stock to be tendered, (iii) making of Dime's stockholder
rights plan inapplicable to the Company's offer, (iv) approval of the Company's
stockholders of the issuance of the Company's common stock in the offer and the
merger, and (v) receipt of required regulatory approvals. The transaction should
close during the third quarter of 2000, if all of the Company's conditions are
met. The transaction, as proposed, is expected to be treated as a tax-free
reorganization for tax purposes and accounted as a purchase for accounting
purposes.
12
<PAGE>
NOTE 2 - BUSINESS COMBINATIONS (CONTINUED)
(f) DIME BANCORP, INC. (CONTINUED)
Dime Bancorp had total assets of $23.9 billion, net loans of $15.2
billion, investments of $14.2 billion, deposits of $14.3 billion and
stockholders equity of $1.5 billion at December 31, 1999.
Contingent on the closure of the above proposed transaction, the
Company entered into a stock purchase agreement with FleetBoston Corporation
("FleetBoston"). Pursuant to this agreement, FleetBoston agreed to purchase (i)
250,000 shares of the Company's 7.5% Series B Non-Cumulative Convertible
Preferred Stock, par value $1.00 per share and with a liquidation preference of
$1,000.00 per share, convertible at $18.69 per share into the Company's common
stock and (ii) Common Stock Purchase Rights to acquire 7,500,000 shares of the
Company's common stock at an exercise price of $17.88, for an aggregate purchase
price of $250 million.
In connection with Company's announcement of the aforementioned
proposed acquisition, a lawsuit has been filed alleging certain violations of
anti-trust laws. The Company is of the opinion that the lawsuit is without
merit.
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)................... 222,606 79,668 (2,134) 300,140 187,082 60,812 (515) 247,379
===========================================================================================
$2,983,333 $99,210 $(9,806) $3,072,737 $2,144,602 $83,413 ($1,503) $2,226,512
===========================================================================================
</TABLE>
(1) Amortized cost and fair value includes $100.8 million and $93.3 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... $110,070 $38 $(8) $110,100 $244,999 $464 $- $245,463
State & Municipal Obligations........... 71,837 1,301 (27) 73,111 114,511 1,702 (114) 116,099
Mortgage-Backed Securities.............. 563,486 2,352 (625) 565,213 417,561 2,525 (1,817) 418,269
CMO's Agency Issuances.................. 137,778 457 (125) 138,110 438,991 1,457 (1,993) 438,455
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
===========================================================================================
$1,780,002 $6,870 $(3,770) $1,783,102 $2,116,275 $9,266 $(14,134) $2,111,407
===========================================================================================
</TABLE>
13
<PAGE>
NOTE 3 - SECURITIES (CONTINUED)
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.
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 increased $7.5
million to $89.4 million at December 31, 1998 when compared to $81.9 million at
December 31, 1997. This increase 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 publicly 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>
Held-to-Maturity Available-for-Sale
----------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Due in one year or less.................... $118,674 $118,734 $21,028 $21,141
Due after one year through five years...... 11,001 11,680 39,169 39,567
Due after five years through ten years..... 73,783 74,229 136,219 141,152
Due after ten years........................ 2,209 2,222 204,407 201,480
----------------------------------------------------------
Subtotal................................. 205,667 206,865 400,823 403,340
----------------------------------------------------------
Mortgage-Backed Securities................ 563,486 565,213 728,849 731,815
CMO's...................................... 1,010,849 1,011,024 1,631,055 1,637,442
Equity Securities.......................... - - 222,606 300,140
----------------------------------------------------------
$1,780,002 $1,783,102 $2,983,333 $3,072,737
==========================================================
</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 $279,111 $735,469
=========================================
Gross Realized Gains.................... 12,196 16,502 8,843
Gross Realized (Losses)................. (2,763) (1,104) (2,617)
-----------------------------------------
Net Realized Gains...................... $9,433 $15,398 $6,226
=========================================
</TABLE>
<PAGE>
NOTE 3 - SECURITIES (CONTINUED)
Gross realized gains in 1998 ,1997 and 1996 resulted principally from
the sale of equity positions and capital securities of certain publicly traded
companies.
The Company loans securities to specified brokerage houses. These
securities are collateralized at a minimum of 102% of their fair value with
government securities and/or cash. To protect the Company's investment, the
agreements contain provisions to increase the collateral obtained, should the
fair value of the collateral decline or the fair value of the security loaned
increase. Upon termination of the agreement, securities loaned are returned to
the Company. The following table reflects the carrying value of securities
loaned and their estimated fair value and the estimated fair value of the
collateral at December 31:
14
<PAGE>
(in thousands) 1998 1997
------------------------
Amortized cost-Securities Loaned...................... $9,996 $79,970
========================
Estimated fair value-Securities Loaned................ $10,034 $80,188
========================
Estimated fair value-Collateral....................... $10,422 $82,069
========================
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............ $1,977,532 29% $2,217,786 33%
Mortgage Loans-Multi-family........... 2,656,998 38 2,365,770 35
Mortgage Loans-Commercial............. 1,173,229 17 1,263,910 18
Commercial & Industrial............... 530,782 8 455,224 7
Consumer Loans and Leases............. 493,966 7 412,840 6
Construction and Land Loans........... 77,202 1 54,119 1
-------------------------------------------------------------
Total.............................. $6,909,709 100% $6,769,649 100%
-------------------------------------------------------------
Less:
Unearned Income...................... 19,833 24,893
Allowance for Loan Losses............ 77,683 80,273
=============== ===============
Net Loans........................ $6,812,193 $6,664,483
=============== ===============
</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 collateral. 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 $921.1 million and $963.2
million as of December 31, 1998 and 1997, respectively. At December 31, 1998,
$15.2 million in residential mortgage loans were held-for-sale.
15
<PAGE>
NOTE 4 - LOANS (CONTINUED)
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 $19.2 million at December 31, 1998, as
compared to $57.3 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.
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..................................... 7,778 43,985
----------------------
Non-Performing Loans............................... 15,462 50,399
Other Real Estate..................................... 3,494 6,416
----------------------
Non-Performing Assets.............................. $18,956 $56,815
======================
Restructured, Accruing Loans.......................... $2,426 $16,407
======================
</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............................ 3,697 18,350
Commercial & Industrial............................... 2,485 3,378
Mortgage Loans-Multi-family........................... 467 13,575
Construction and Land Loans........................... - 1,162
======================
Total Non-Performing Loans......................... $15,462 $50,399
======================
</TABLE>
Interest foregone on non-accrual loans, or the amount of income that
would have been earned had those loans remained performing, aggregated $1.7
million, $4.1 million, and $6.2 million in 1998, 1997, and 1996, respectively.
RESTRUCTURED LOANS
Restructured, accruing loans were $2.4 million and $16.4 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.
16
<PAGE>
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................................................. $80,273 $78,607 $82,596
Provision for Loan Losses.................................................... 15,551 8,748 8,640
Recoveries Credited to the Allowance......................................... 3,835 2,585 2,692
----------------------------------------
99,659 89,940 93,928
Losses Charged to the Allowance.............................................. (21,921) (12,161) (18,603)
New York Bancorp 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....................................................... $77,683 $80,273 $78,607
========================================
</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>
1998 1997
--------------------------
(in thousands)
<S> <C> <C>
Land................................................. $18,577 $18,760
Bank Premises........................................ 69,514 71,689
Leasehold Improvements............................... 18,576 22,692
Equipment............................................ 63,791 73,086
--------------------------
170,458 186,227
Accumulated Depreciation and Amortization............ (80,095) (91,973)
--------------------------
$90,363 $94,254
==========================
</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.
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% 0.00%
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>
17
<PAGE>
NOTE 7 - FEDERAL FUNDS PURCHASED & SECURITIES SOLD UNDER AGREEMENTS TO
REPURCHASE (CONTINUED)
Qualifying SSURA are treated as financings and the obligations to
repurchase securities sold are reflected as a liability in the supplemental
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 as of December 31, 1998 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 Average Amortized
(dollars in thousands) SSURA(2) Rate Cost Fair Value SSURA(2) Rate Cost Fair Value
-----------------------------------------------------------------------------------------------------------
<S> <C> <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 matured in April 1999. In addition, at December
31, 1998, the Company had outstanding a $50.0 million, 5.62% fixed rate Federal
Home Loan Bank ("FHLB") advances, due in December 2008 and at December 31, 1997,
the Company 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 March 1998.
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.
At December 31, 1997, the Company had $7.6 million in subordinated
capital notes outstanding. These amounts were paid prior to March 1998.
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.
18
<PAGE>
NOTE 9 - CAPITAL SECURITIES (CONTINUED)
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,:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
Current Tax Expense.............. $86,841 $124,642 $91,180
Deferred Tax Expense............. 1,553 4,596 2,978
------------------------------------------
Income Tax Provision............. $88,394 $129,238 $94,158
==========================================
</TABLE>
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........ 4.68 4.34 7.64
Amortization and Write Down of Intangible assets....................... 1.92 .35 .50
Tax Exempt Interest, net............................................... (.57) (.60) (.87)
Nondeductible Merger Related Restructure Charges....................... 1.11 - 1.58
Dividends Received Deduction........................................... (.37) (.41) (.13)
Non-Taxable Distributions from a Corporate Reorganization.............. (11.10) - -
Valuation Allowance.................................................... (.92) - -
Other, Net............................................................. (.36) (.31) .01
---------------------------------------
Effective Tax Rate..................................................... 29.39% 38.37% 43.73%
=======================================
</TABLE>
The components of the net deferred tax asset are included in "Other
Assets" in the accompanying supplemental consolidated balance sheets at December
31, and are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
------------------------------
DEFERRED TAX ASSETS
<S> <C> <C>
Allowance for Loan Losses....................................... $33,292 $30,882
Deferred Compensation and Other Employee Benefit Plans.......... 9,197 8,589
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- Other Real Estate.......... 1,728 2,207
Excess of Tax Basis Over Book Basis- Premises and Equipment..... 1,583 783
Other........................................................... 4,550 7,090
------------------------------
Gross Deferred Tax Asset................................... 61,657 55,226
Valuation Allowance....................................... (4,567) (7,342)
------------------------------
Deferred Tax Asset........................................ 57,090 47,884
------------------------------
DEFERRED TAX LIABILITIES
Unrealized Gain on Securities Available for Sale................ (39,196) (35,986)
Tax Bad Debt Recapture.......................................... (6,820) (929)
Deferred Income................................................. (5,006) -
Other........................................................... (3,702) (4,010)
------------------------------
Gross Deferred Tax Liability.............................. (54,724) (40,925)
------------------------------
Net Deferred Tax Asset..................................... $2,366 $6,959
==============================
</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
19
<PAGE>
NOTE 10 - INCOME TAXES (CONTINUED)
earnings at December 31, 1998 and 1997, includes approximately $136 million and
$108 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 $2.4 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 plans were merged
with that of the Company. Jamaica sponsored a trusteed non-contributory defined
benefit pension plan covering substantially all of its full-time employees. In
addition, Jamaica sponsored a pension benefit restoration plan ("Pension Restore
Plan") that provides retirement benefits which would have been provided under
the Jamaica pension plan except for the limitations imposed by Section 415 and
401(a)(17) of the Internal Revenue Code. 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 supplemental consolidated
financial statements at December 31,
<TABLE>
<CAPTION>
(dollars in thousands) 1998 1997
--------------------------
CHANGE IN BENEFIT OBLIGATION:
<S> <C> <C>
Benefit Obligation at Beginning of Year................ $104,044 $91,299
Service Cost........................................... 3,078 2,541
Interest Cost.......................................... 6,623 6,334
Amendments............................................. 503 1,117
Acquisitions........................................... - 2,123
Benefits Paid.......................................... (9,079) (7,134)
Actuarial Loss......................................... 155 7,764
==========================
Benefit Obligation at End of Year....................... $105,324 $104,044
==========================
CHANGE IN PLAN ASSETS:
Fair Value of Plan Assets at Beginning of Year......... $122,189 $108,470
Actual Return on Plan Assets........................... 13,246 19,221
Employer Contributions................................. 313 34
Acquisitions........................................... - 1,598
Benefits Paid.......................................... (9,079) (7,134)
==========================
Fair Value of Plan Assets at End of Year................ $126,669 $122,189
==========================
RECONCILIATION OF FUNDED STATUS:
Funded Status.......................................... $21,345 $18,145
Unrecognized Actuarial Gain............................ (14,137) (11,463)
Unrecognized Prior Service Cost........................ (445) (1,319)
Unrecognized Transition Assets......................... (2,961) (3,377)
==========================
Prepaid Benefit Cost................................... $3,802 $1,986
==========================
</TABLE>
20
<PAGE>
NOTE 11 - RETIREMENT AND OTHER EMPLOYEE BENEFITS PLANS (CONTINUED)
The projected benefit obligation, accumulated benefit obligation and fair value
of Jamaica plan assets for the pension plan with accumulated benefit obligations
(i.e. the Jamaica Pension Restore Plan) in excess of plan assets were
$4,043,000, $3,544,000 and $0, respectively, as of December 31, 1998 and
$4,728,000, $4,036,000 and $0, respectively, as of December 31, 1997.
RETIREMENT PLANS (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------
NORTH FORK WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31,
<S> <C> <C> <C>
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
JAMAICA WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31,
Discount Rate 5.75 5.75 6.50
Expected Return on Plan Assets 8.00 8.00 8.00
Rate of Compensation Increase 6.50 6.50 6.50
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service Cost $3,078 $2,541 $2,527
Interest Cost 6,623 6,334 5,793
Expected Return on Plan Assets (10,083) (8,667) (7,406)
Amortization of Prior Service Cost (171) (97) (132)
Amortization of Transition Asset (486) (606) (634)
Recognized Actuarial Loss/(Gain) (262) (518) 471
Additional (Gain)/Loss Recognized Due to Curtailment (201) 203 -
Additional Cost Recognized by NYB - 514 879
-------------------------------------------
NET PERIODIC (BENEFIT) / COST $(1,502) $(296) $1,498
===========================================
</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 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.
21
<PAGE>
NOTE 11 - RETIREMENT AND OTHER EMPLOYEE BENEFITS PLANS (CONTINUED)
POST-RETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
The following table sets forth the change in North Fork's
post-retirement benefit obligation and amounts recognized in the accompanying
supplemental consolidated financial statements at December 31,
<TABLE>
<CAPTION>
(dollars in thousands) 1998 1997
-----------------------
CHANGE IN ACCUMULATED POST-RETIREMENT BENEFIT OBLIGATION ("APBO"):
<S> <C> <C>
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
=======================
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF FUNDED STATUS:
Accumulated Post-Retirement Benefit Obligation
<S> <C> <C>
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 North Fork's
accumulated post-retirement benefit obligation was 6.5% and 7.0% in 1998 and
1997, respectively.
In measuring North Fork's 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% 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.
Jamaica also maintained a life insurance benefit plan that provided for
continued coverage for retirees with fifteen years of credited service. The
coverage at the time of retirement, or age 65, whichever comes first, was
reduced by 20% per year over a five year period to a minimum coverage of $5,000,
which remained in force until death. The retiree had the option each time the
coverage was reduced to convert all or part of the reduction to whole-life
coverage at the retiree's cost.
The cost of post retirement benefits were accrued during an employee's
active working career. The following tables set forth Jamaica's benefit
obligations, fair values of plan assets and funded status recognized in the
supplemental consolidated financial statements for the other postretirement
benefit plans at or for the years ended December 31:
22
<PAGE>
POST-RETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
<TABLE>
<CAPTION>
(dollars in thousands) 1998 1997
------------------------
CHANGE IN BENEFIT OBLIGATION:
<S> <C> <C>
Balance at Beginning of Year............................................ $1,596 $1,527
Service Cost............................................................ 24 24
Interest Cost........................................................... 96 96
Actuarial (Gain)/Loss................................................... - -
Benefits Paid........................................................... (53) (51)
------------------------
Balance at End of Year................................................... $1,663 $1,596
========================
CHANGE IN PLAN ASSETS:
Balance at Beginning of Year............................................ $- $-
Actual Return on Plan Assets, Net of Expenses........................... - -
Employer Contributions.................................................. 53 51
Benefits Paid........................................................... (53) (51)
------------------------
Balance at End of Year.................................................. $- $-
========================
Funded Status........................................................... $(1,663) $(1,596)
Unrecognized Net Asset.................................................. - -
Unrecognized Prior Service Cost......................................... - -
Unrecognized Actuarial (Gain)/Loss...................................... - -
------------------------
Net Amount Recognized.................................................... $(1,663) $(1,596)
========================
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION CONSISTS OF:
Prepaid Benefit Cost.................................................... $- $-
Accrued Benefit Liability................................................ (1,663) (1,596)
Accumulated Other Comprehensive Income.................................. - -
------------------------
Net Amount Recognized.................................................... $(1,663) $(1,596)
========================
</TABLE>
Weighted-average assumptions were as follows as of December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Discount Rate............................ 8.00% 8.00% 8.00%
Expected Return on Plan Assets........... N/A N/A N/A
Rate of Compensation Increase............ 6.50% 6.50% 6.50%
</TABLE>
The projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for the Jamaica pension plan with accumulated benefit
obligations in excess of plan assets were $4.0 million, $3.5 million and $0,
respectively, as of December 31, 1998 and $4.7 million, $ 4.0 million and $0,
respectively, as of December 31, 1997.
The following table sets forth the components of the North Fork's and
Jamaica's net periodic post-retirement benefits other than pension expense for
the years ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST:
<S> <C> <C> <C>
Service Cost....................................... $159 $158 $168
Interest Cost...................................... 884 790 848
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.......................... $1,301 $1,116 $1,225
==========================================
</TABLE>
23
<PAGE>
NOTE 11 - RETIREMENT AND OTHER EMPLOYEE BENEFITS PLANS (CONTINUED)
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.
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.
24
<PAGE>
NOTE 12 - COMMON STOCK PLANS (CONTINUED)
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.
JAMAICA SAVINGS BANK PLANS - PRE-MERGER
All references made to JSB shares in the following discussion are stated at
pre-merger amounts. On February 29,2000, each share of JSB stock was exchanged
for three shares of the Company's stock.
EMPLOYEE STOCK OWNERSHIP PLAN
Since 1990, Jamaica maintained an ESOP. For 1998, 1997, and
1996, the JSB Board of Directors authorized contributions to the ESOP,
to purchase shares, based on approximately 6.0% of employees' base
salary.
ESOP benefits generally became 20% vested after each year of
credited service, becoming 100% vested after five years of service with
Jamaica. Forfeited shares were reallocated among participating
employees in the same proportion as contributions. Benefits are payable
upon death, retirement, early retirement, disability or separation from
service and may be payable in cash or stock. Jamaica recorded a net
expense of $574,000, $566,000, and $550,000 related to the ESOP for the
years ended December 31, 1998, 1997, and 1996, respectively. There were
eight and three unallocated shares in the ESOP Plan at December 31,
1998 and 1997, respectively, and none at December 31, 1996.
The trustee for the ESOP would vote all allocated stock held
in the ESOP trust in accordance with the instructions of the
participants. Common stock allocated to participants was 12,451,
15,342, and 17,633 shares for the years ended December 31, 1998, 1997,
and 1996, respectively. Jamaica incurred the cost of administering the
ESOP.
INCENTIVE STOCK OPTION PLAN
Pursuant to the Incentive Stock Option Plan ("Stock Option
Plan"), 1,430,000 common stock options (which expired ten years from
the date of grant, June 27, 1990) were granted to the executive
officers and employees of JSB and its subsidiary, Jamaica. Each option
entitled the holder to purchase one share of JSB's common stock at an
exercise price equal to $10.00 per share (the initial public offering
price). Options became exercisable on a cumulative basis in equal
installments at a rate of 20% per year commencing one year from the
date of grant. Simultaneously with the grant of these options, "limited
rights" with respect to the shares covered by the options were granted.
Limited rights granted were subject to terms and conditions and could
be exercised only in the event of a change in control of JSB. Upon
exercise of a limited right, the holder would receive from JSB a cash
payment
25
<PAGE>
NOTE 12 - COMMON STOCK PLANS (CONTINUED)
JAMAICA SAVINGS PLANS - PRE-MERGER (CONTINUED)
equal to the difference between the exercise price of the option
($10.00) and the fair market value of the underlying shares of common
stock. During the years ended December 31, 1998, 1997 and 1996, 98,046,
122,646, and 121,256 options granted under the Stock Option Plan were
exercised, respectively. At December 31, 1998, the remaining 226,094
options granted under the Stock Option Plan were exercisable.
OPTION PLAN FOR OUTSIDE DIRECTORS
Each member of JSB's Board of Directors, who was neither an
officer nor an employee of JSB or Jamaica, was granted nonstatutory
common stock options to purchase 25,000 shares of the common stock. In
addition, active Directors Emeritus were each granted nonstatutory
common stock options to purchase 10,000 shares of the common stock. In
the aggregate, members of JSB's Board of Directors and active Directors
Emeritus were granted options, with limited rights, to purchase 170,000
shares of the common stock of JSB at an exercise price equal to $10.00
per share, the initial public offering price. All options granted,
including limited rights attached thereto, under the Directors' Option
Plan expired upon the earlier of 10 years following the date of grant
or one year following the date the optionee ceased to be a Director.
During the years ended December 31, 1998, 1997 and 1996, 106,250,
6,250, and 2,000 options granted under this Plan were exercised,
respectively. At December 31, 1998, 40,500 options granted under the
Option Plan for Outside Directors were exercisable.
THE 1996 STOCK OPTION PLAN
The JSB Financial, Inc. 1996 Stock Option Plan (the "1996
Option Plan"), became effective January 1, 1996. JSB reserved 800,000
shares of its common stock for issuance upon the exercise of options.
The 1996 Option Plan provided for: (1) the grant of stock options to
directors on an annual basis pursuant to a specified formula; (2) the
grant of stock options to officers at the discretion of the Employee
Benefits Committee of Jamaica; (3) if certain events, which were likely
to lead to a change in control of JSB or Jamaica, would occur, stock
options relating to any shares of JSB reserved for issuance that were
not previously made subject to options, would be granted to all current
directors and officers who were previously granted stock options under
the 1996 Option Plan; (4) the grant of limited rights relating to all
of the foregoing options, which would be exercisable only upon a change
of control; and (5) the grant of dividend equivalent rights ("DER")
relating to all of the foregoing options, which could provide for a
cash payment to the optionee upon exercise of the option, based on the
difference between the percentage of earnings per share paid by JSB as
cash dividends compared to the percentage of earnings per share paid as
cash dividends by the twenty-five largest stock owned thrift
institutions in the United States, calculated on an annual basis.
Pursuant to the 1996 Option Plan, each of JSB's Directors,
who was neither an officer nor an employee of JSB or Jamaica, was
granted annually, nonstatutory common stock options to purchase 4,000
shares of the common stock, each active Director Emeritus was granted
2,000 options and individuals who became directors were granted 5,000
options. Options granted under the 1996 Option Plan were granted at an
exercise price equal to the market closing price of JSB's common stock
on the business day prior to grant. The option period during which an
individual granted options may exercise such option will commence six
months after the date of grant and will expire no later than ten years
from the date of the grant. There were no options exercised from the
1996 Option Plan during 1998. During 1997, 8,000 options granted from
the 1996 Option Plan were exercised. At December 31, 1998, all of the
496,000 options outstanding under the 1996 Option Plan were
exercisable. Effective January 1, 1999, an additional 154,000 options
were granted at an exercise of $54.375 per share. Upon the execution of
the merger agreement on August 16, 1999 between the Company and JSB, an
additional 108,395 options were granted at an exercise price between
$43.52 and $44.15 per share.
26
<PAGE>
NOTE 12 - COMMON STOCK PLANS (CONTINUED)
The following is a summary of the activity in the aforementioned North
Fork and Jamaica 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 Price
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at Beginning of Year..... 7,923,033 $7.61 9,540,761 $5.38 9,725,168 $3.88
Granted.............................. 1,494,692 22.61 2,157,752 13.00 2,783,736 8.53
Exercised............................ (4,833,742) 6.78 (3,752,503) 5.03 (2,822,197) 3.50
Canceled............................. (14,103) 26.27 (22,977) 7.64 (145,946) 2.58
---------------------------------------------------------------------------------------------
Outstanding at End of Year........... 4,569,880 13.32 7,923,033 7.61 9,540,761 5.38
=============================================================================================
Options Exercisable at Year End...... 4,318,043 $13.17 6,720,085 $7.27 7,709,998 $4.86
=============================================================================================
</TABLE>
The following is a summary of the information concerning currently
outstanding and exercisable options as of December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -----------------------------------------------------------------------------------------------------------------------------------
Range of Weighted Average Weighted Average Weighted Average
Exercise Options Remaining Exercise Options Exercise
Prices Outstanding Life Price Exercisable Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2.29-$10.75 1,965,037 4.0 $5.94 1,933,435 $5.92
$10.76-$16.41 893,504 7.7 12.21 812,219 12.29
$16.42-$26.88 1,711,339 6.9 22.38 1,572,389 22.54
===================================================================================================================================
$2.29-$26.88 4,569,880 5.8 $13.33 4,318,043 $13.17
===================================================================================================================================
</TABLE>
The following is a summary of the activity in the Company's 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 $3.1 million, $2.0 million,
and $1.3 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, Stock
Appreciation Rights, Jamaica's ESOP, and Jamaica's Restore Plan. 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 $4.4
million, or $.03 per share in 1998, $4.6 million, or $.03 per share in 1997, and
$4.2 million, or $.02 per share in 1996.
The estimated fair value of the Company's 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% to
5.66%, no assumed forfeiture rate, and an expected average life of six years for
options with an original term greater than six years
27
<PAGE>
NOTE 12 - COMMON STOCK PLANS (CONTINUED)
or the options remaining term, if its original maturity is less than 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 than 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.
The estimated fair value of the options granted for the JSB plans
during 1998 was $3.65, ranged from $2.74 to $3.63 during 1997 and was $2.54
during 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
under JSB plans granted during 1998: a dividend yield of 3.07%, volatility of
20.75%, risk-free interest rate of 5.74%, no assumed forfeiture rate, and an
expected average life of 5.7 years. The following assumptions were used in
calculating the fair value of the options granted during 1997: a dividend yield
of 3.63%, volatility of 20.93%, risk-free interest rate of 6.28%, no assumed
forfeiture rate, and an expected average life of six years. The following
assumptions were used in calculating the fair value of the JSB options granted
during 1996: a dividend yield of 3.63%, volatility of 21.92%, risk-free interest
rate of 5.44%, no assumed forfeiture rate, and an expected average 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.
NOTE 13 - PARENT COMPANY ONLY
CONDENSED FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS DECEMBER 31,
<TABLE>
<CAPTION>
(in thousand) 1998 1997
-------------------------------
ASSETS
<S> <C> <C>
Deposits with Bank Subsidiary ......................................... $26,763 $22,511
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
Securities Held-to-Maturity............................................ 40,000 70,000
Mortgage Loans, net.................................................... - 15,195
Investment in Subsidiaries............................................. 1,126,299 992,820
Intangible Assets...................................................... 28,965 28,367
Other Assets........................................................... 39,600 10,536
-------------------------------
Total............................................................... $1,495,989 $1,393,185
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Junior Subordinated Debt............................................... $205,475 $205,450
Senior Note Payable.................................................... 25,000 25,000
Dividends Payable...................................................... 39,041 10,142
Other Liabilities...................................................... 12,747 14,190
Stockholders' Equity................................................... 1,213,726 1,138,403
===============================
Total............................................................... $1,495,989 $1,393,185
===============================
</TABLE>
28
<PAGE>
CONDENSED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
--------------------------------------------
INCOME:
<S> <C> <C> <C>
Dividends from Subsidiaries............................................. $92,800 $41,600 $128,191
Interest Income......................................................... 19,092 16,949 8,211
Net Securities Gains.................................................... 9,032 6,376 5,826
Other Income............................................................ 3,515 812 18
--------------------------------------------
Total Income........................................................... 124,439 65,737 142,246
--------------------------------------------
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.......................................................... 2,238 2,222 1,836
--------------------------------------------
Total Expenses......................................................... 31,934 15,369 4,709
--------------------------------------------
Income before Income Taxes and Equity in Undistributed Earnings
of Subsidiaries................................................. 92,505 50,368 137,537
Income Tax Expense...................................................... 1,822 1,932 3,519
Equity in Undistributed (Overdistributed) Earnings of Subsidiaries...... 121,680 159,175 (12,845)
============================================
Net Income........................................................... $212,363 $207,611 $121,173
============================================
</TABLE>
29
<PAGE>
NOTE 13 - PARENT COMPANY ONLY (CONTINUED)
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
----------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income........................................................................ $212,363 $207,611 $121,173
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization................................................... 1,187 1,218 487
Amortization and Write Down of Intangible Assets................................ 7,986 440 440
Equity in (Undistributed) / Overdistributed Earnings of Subsidiaries............ (121,680) (159,175) 12,845
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...................................................................... (27,645) (4,032) 2,131
----------------------------------------------
Net Cash Provided by Operating Activities.................................... 63,179 40,141 131,250
----------------------------------------------
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)
Proceeds from Maturities of Securities Held-to-Maturity......................... 235,000 270,000 215,000
Purchases of Securities Held-to-Maturity........................................ (205,000) (260,000) (205,021)
Principal Payments on Mortgage Loans............................................ 15,195 44 40
Accretion of Discount in Excess of Amortization of Premium on Debt Securities... - 7 14
Investment in Subsidiary Trusts................................................. - (3,093) (3,093)
Investment in Bank Subsidiary................................................... - (4,000) -
----------------------------------------------
Net Cash Provided by /(Used in)Investing Activities........................... 24,345 (116,058) 1,080
----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Treasury Shares..................................................... (87,928) (27,733) (79,244)
Common Stock Sold for Cash...................................................... 26,949 6,814 24,687
Proceeds upon Exercise of Common Stock Options.................................. 2,041 1,568 1,233
Dividends Paid to Shareholders.................................................. (82,748) (60,412) (44,691)
Proceeds from the Issuance of Junior Subordinate Debt Securities................ - 102,713 102,737
----------------------------------------------
Net Cash (Used in)/Provided by Financing Activities........................... (141,686) 22,950 4,722
----------------------------------------------
Net (Decrease)/Increase in Cash and Cash Equivalents.......................... (54,162) (52,967) 137,052
Cash and Cash Equivalents at Beginning of Year.................................... 122,482 175,449 38,397
==============================================
Cash and Cash Equivalents at End of Year.......................................... $68,320 $122,482 $175,449
==============================================
</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
30
<PAGE>
NOTE 14 - REGULATORY MATTERS (CONTINUED)
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.
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:
(dollars in thousands)
<TABLE>
<CAPTION>
Amount Ratio
------------------------------
<S> <C> <C>
Tier 1 Capital.......................... $1,278,130 17.26%
Regulatory Requirement.................. 296,162 4.00%
------------------------------
Excess.................................. $981,968 13.26%
------------------------------
Total Risk Adjusted Capital............. $1,401,768 18.82%
Regulatory Requirement.................. 592,324 8.00%
------------------------------
Excess.................................. $809,444 10.82%
==============================
</TABLE>
The Company's risk weighted assets was $7.4 billion at December 31,
1998. The Company's leverage capital ratio at December 31, 1998 was 10.76%.
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.
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 its balance
sheet. NYB was party to $700 million in interest rate collar agreements, which
expired in August 1998. They required receipt of
31
<PAGE>
NOTE 15 - DERIVATIVES FINANCIAL INSTRUMENTS (CONTINUED)
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 matured in 1999. Stock indexed call options
were utilized for purposes of hedging MarketSmart CDs, previously offered by
NYB. The call options hedged the interest rate paid on these five year CD
deposits, which was 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
supplemental 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.
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
AMOUNT Amount
------ ------
(in thousands)
FINANCIAL INSTRUMENTS WHOSE CONTRACT AMOUNTS REPRESENT CREDIT RISK:
<S> <C> <C>
Commitments to extend credit......................................... $510,179 $557,985
Standby letters of credit............................................ 45,229 25,232
</TABLE>
32
<PAGE>
NOTE 16 - OTHER COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
(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:
(in thousands)
<TABLE>
<CAPTION>
Minimum
Year Ended December 31: Rentals
----------
<S> <C>
1999....................................................... $7,545
2000....................................................... 6,558
2001....................................................... 5,449
2002....................................................... 4,912
2003....................................................... 3,867
Thereafter................................................. 13,454
</TABLE>
Rent expense for the years ended December 31, 1998, 1997, and 1996
amounted to $6.7 million, $7.2 million, and $5.9 million, respectively.
(c) SECURITY PURCHASE COMMITMENTS
At December 31, 1998, the Company had outstanding security purchase commitments
of $50,000,000 related to federal agency and CMO securities.
(d) 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.
The Company's banking 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.
33
<PAGE>
NOTE 17 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
CASH, CASH EQUIVALENTS AND SECURITIES
The carrying amounts for cash and cash equivalents are reasonable
estimates of fair value. The fair value of securities is estimated based on
quoted market prices as published by various quotation services, or if quoted
market prices are not available, on dealer quotes. The following table presents
the carrying value and estimated fair value of cash, cash equivalents and
securities at December 31,
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------------------------------
CARRYING ESTIMATED Carrying Estimated
(in thousands) AMOUNT FAIR VALUE Amount Fair Value
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents...................... $293,354 $293,354 $265,979 $265,979
Securities Held-to-Maturity.................... 1,780,002 1,783,102 2,116,275 2,111,407
Securities Available-for-Sale ................. 3,072,737 3,072,737 2,226,512 2,226,512
----------------------------------------------------------------------
Total Cash, Cash Equivalents and Securities.... $5,146,093 $5,149,193 $4,608,766 $4,603,898
======================================================================
</TABLE>
LOANS
Fair values are estimated for portfolios of loans with similar
financial characteristics. The fair value of performing loans is calculated by
discounting the estimated cash flows through 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................... $6,909,709 $7,110,450 $6,769,649 $6,868,657
=============================================================
</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................................ $1,321,861 $1,321,861 $992,525 $992,525
Savings........................................ 2,610,345 2,610,345 2,677,281 2,677,281
NOW & Money Market............................. 997,124 997,124 1,019,888 1,019,888
Certificates of Deposit........................ 2,648,055 2,679,799 2,790,175 2,806,114
Borrowings with terms 90 days or less.......... 823,300 823,300 794,156 794,156
Borrowings with terms greater than 90 days..... 2,216,796 2,259,597 1,759,480 1,761,119
-----------------------------------------------------------------
Total Deposit Liabilities & Borrowings.........$10,617,481 $10,692,026 $10,033,505 $10,051,083
=================================================================
</TABLE>
At December 31, 1998, certificate of deposits totaling $503.3 million
and $119.7 million mature between 1-2 years and 2-5 years, respectively.
34
<PAGE>
NOTE 17 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (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 "Supplemental 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
35
<PAGE>
NOTE 18 - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
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.
In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137" Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of SFAS 133, delaying its effective
date to all fiscal quarters of all fiscal years beginning after June 15, 2000.
Management is currently evaluating the effect SFAS 133, as amended will have on
its financial statements.
36
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
North Fork Bancorporation, Inc.:
We have audited the accompanying supplemental consolidated balance sheets of
North Fork Bancorporation, Inc. and subsidiaries (the "Company") as of December
31, 1998 and 1997, and the related supplemental 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
supplemental consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
supplemental 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.
The supplemental consolidated financial statements give retroactive effect to
the merger of the Company and JSB Financial, Inc. on February 29, 2000, which
has been accounted for as a pooling of interests as described in Note 1 to the
supplemental consolidated financial statements. Generally accepted accounting
principles proscribe giving effect to a consummated business combination
accounted for by the pooling-of-interests method in financial statements that do
not include the date of consummation. These financial statements do not extend
through the date of consummation. However, they will become the historical
consolidated financial statements of North Fork Bancorporation, Inc. and
subsidiaries after financial statements covering the date of consummation of the
business combination are issued.
In our opinion, the supplemental consolidated financial statements referred to
above present fairly, in all material respects, the financial position of North
Fork Bancorporation, Inc. and subsidiaries as of December 31, 1998 and 1997, and
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 applicable after financial statements are issued
for a period which includes the date of consummation of the business
combination.
KPMG LLP
New York, New York
March 10, 2000
37
