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) April 18, 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) (516) 844-1004
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, 1999 and 1998, 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, 1999. 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
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: April 18, 2000
NORTH FORK BANCORPORATION, INC.
By: /s/ Daniel M. Healy
-----------------------------------
Name: Daniel M. Healy
Title: Executive Vice President
and Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
23.1 Consent of KPMG LLP, New York, New York
99.1 Audited supplemental financial statements
EXHIBIT 23.1
Consent of Independent Auditors
The Board of Directors
North Fork Bancorporation, Inc.:
We consent to incorporation by reference in the Post-Effective Amendment
No. 1 on Form S-8 to Form S-4 (No. 333-94381) dated as of March 1, 2000,
the Registration Statement on Form S-8 (No. 333-33008) dated as of March
22, 2000, the Post-Effective Amendment No. 1 on Form S-8 to Form S-4 (No.
333-94385) dated as of March 22, 2000, and Amendment No. 1 to Form S-4 (No.
333-32492) dated March 28, 2000, of our report dated April 10, 2000,
relating to the supplemental consolidated balance sheets of North Fork
Bancorporation, Inc. and subsidiaries as of December 31, 1999 and 1998, 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, 1999, included in the
current report on Form 8-K of North Fork Bancorporation, Inc. filed with
the Securities and Exchange Commission on April 18, 2000.
/s/ KPMG LLP
- -------------------
KPMG LLP
New York, New York
April 17, 2000
EXHIBIT 99.1
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December
31, (in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans.................................................... $597,524 $590,165 $540,072
Mortgage-Backed Securities............................... 273,837 218,345 227,615
Other Securities......................................... 36,036 32,367 29,103
U.S. Treasury & Government Agency Securities............. 11,011 19,668 27,147
State & Municipal Obligations............................ 3,447 3,849 5,365
Money Market Investments................................. 7,728 6,519 4,733
--------------------------------
Total Interest Income................................ 929,583 870,913 834,035
--------------------------------
INTEREST EXPENSE:
Savings, NOW & Money Market Deposits..................... 66,553 80,875 84,099
Other Time Deposits...................................... 96,436 111,381 117,652
Certificate of Deposits, $100,000 & Over................. 31,879 33,804 25,863
Federal Funds Purchased & Securities Sold Under
Agreements to Repurchase.............................. 160,963 129,183 112,881
Other Borrowings......................................... 49,593 11,689 26,182
--------------------------------
Total Interest Expense................................ 405,424 366,932 366,677
--------------------------------
Net Interest Income................................... 524,159 503,981 467,358
Provision for Loan Losses................................ 6,013 15,551 8,748
--------------------------------
Net Interest Income after Provision for Loan Losses... 518,146 488,430 458,610
NON-INTEREST INCOME:
Fees & Service Charges on Deposit Accounts............... 29,928 27,157 25,091
Investment Management, Commissions & Trust Fees.......... 16,175 13,225 10,085
Mortgage Banking Operations.............................. 3,603 4,054 4,269
Other Operating Income................................... 12,694 16,297 20,024
Interest on Tax Settlement............................... - - 4,515
Net Securities Gains..................................... 13,578 9,433 15,398
--------------------------------
Total Non-Interest Income........................... 75,978 70,166 79,382
--------------------------------
NON-INTEREST EXPENSE:
Compensation & Employee Benefits......................... 102,857 96,914 99,118
Occupancy & Equipment, net............................... 33,975 32,276 33,959
Capital Securities Costs................................. 16,843 16,843 9,235
Amortization & Write-down of Intangible Assets........... 8,408 14,479 7,292
Other Operating Expense.................................. 42,040 44,875 51,539
Merger Related Restructure Charge........................ - 52,452 -
--------------------------------
Total Non-Interest Expense........................... 204,123 257,839 201,143
--------------------------------
Income Before Income Taxes............................... 390,001 300,757 336,849
Provision for Income Taxes............................... 140,480 88,394 129,238
--------------------------------
Net Income.......................................... $249,521 $212,363 $207,611
================================
EARNINGS PER SHARE - BASIC............................... $1.53 $1.25 $1.25
--------------------------------
EARNINGS PER SHARE - DILUTED............................. $1.52 $1.23 $1.22
--------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
At December 31,
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998
---------------------------
<S> <C> <C>
ASSETS:
Cash & Due from Banks........................................ $ 317,434 $ 165,425
Money Market Investments..................................... 85,767 127,929
Securities:
Available-for-Sale........................................ 3,682,210 3,072,737
Held-to-Maturity (Fair value $1,299,596 in 1999;
$1,783,102 in 1998)..................................... 1,351,504 1,780,002
---------------------------
Total Securities....................................... 5,033,714 4,852,739
---------------------------
Loans........................................................ 7,913,328 6,909,709
Less: Unearned Income...................................... 15,640 19,833
Allowance for Loan Losses......................... 74,525 77,683
---------------------------
Net Loans......................................... 7,823,163 6,812,193
---------------------------
Intangible Assets............................................ 79,151 84,676
Premises & Equipment......................................... 92,652 90,363
Accrued Income Receivable.................................... 78,651 75,724
Other Assets................................................. 165,624 92,156
---------------------------
Total Assets............................................ $13,676,156 $12,301,205
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Demand Deposits.............................................. $ 1,558,044 $ 1,321,861
Savings Deposits............................................. 2,563,609 2,610,345
NOW & Money Market Deposits.................................. 1,034,872 997,124
Other Time Deposits.......................................... 1,965,827 2,057,521
Certificates of Deposit, $100,000 & Over.................... 519,211 590,534
---------------------------
Total Deposits.......................................... 7,641,563 7,577,385
Federal Funds Purchased & Securities Sold Under
Agreements to Repurchase.................................. 2,665,200 2,955,096
Other Borrowings............................................. 1,894,000 85,000
Accrued Expenses & Other Liabilities......................... 276,981 270,709
---------------------------
Total Liabilities...................................... 12,477,744 10,888,190
---------------------------
Capital Securities........................................... 199,314 199,289
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $1.00; authorized 10,000,000
shares, unissued........................................... - -
Common Stock, par value $2.50; authorized 200,000,000
share; issued shares 193,126,522 in 1999;
192,924,714 shares in 1998................................ 482,816 482,312
Additional Paid in Capital................................... 84,864 80,867
Retained Earnings............................................ 1,026,546 879,441
Accumulated Other Comprehensive Income - Unrealized
(Losses)/Gains on Securities Available-for-Sale,
net of taxes............................................. (37,818) 50,208
Deferred Compensation........................................ (32,777) (28,842)
Treasury Stock at cost; 36,541,330 shares in 1999;
23,334,963 shares in 1998................................. (524,533) (250,260)
Total Stockholders' Equity............................. 999,098 1,213,726
---------------------------
Total Liabilities and Stockholders' Equity............. $13,676,156 $12,301,205
===========================
</TABLE>
SEE ACCOMPANYING NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income............................................. $ 249,521 $ 212,363 $ 207,611
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Provision for Loan Losses.............................. 6,013 15,551 8,748
Net Securities Gains................................... (13,578) (9,433) (15,398)
Depreciation and Amortization.......................... 14,830 13,059 12,376
Mortgage loans originated for sale..................... (538) (4,839) (1,612)
Proceeds from sale of mortgage loans originated
for sale............................................. 634 4,821 1,636
Amortization and Write-down of Intangible Assets....... 8,408 14,479 7,292
Amortization of Securities Premiums.................... 9,922 12,809 9,052
Accretion of Discounts and Net Deferred Loan Fees...... (9,426) (11,260) (7,495)
Proceeds from Sales of Securities Held-for-Trading..... - - 10,125
Purchases of Securities Held-for-Trading............... - - (9,670)
Other, Net............................................. (72,767) 53,263 8,062
----------------------------------------
Net Cash Provided by Operating Activities.......... 193,019 300,813 230,727
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Securities Held-to-Maturity............... (402,777) (1,617,184) (662,677)
Maturities, Redemptions, Calls and Principal
Repayments on Securities Held-to-Maturity............ 828,801 1,005,390 917,039
Purchases of Securities Available-for-Sale............. (1,835,466) (2,168,102) (1,498,648)
Proceeds from Sales of Securities Available-for-Sale... 116,923 1,021,477 279,110
Maturities and Principal Repayments on Securities
Available-for-Sale................................... 1,044,056 1,279,525 413,086
Loans Originated, Net of Principal Repayments.......... (1,099,873 (313,354) (800,095)
Proceeds from the Sale of Loans........................ 89,205 200,678 89,096
Purchases of Loans..................................... - (21,344) (22,342)
Sales of Other Real Estate Owned, Net.................. 4,225 5,670 16,973
Purchases of Premises and Equipment, Net............... (14,010) (6,968) (8,602)
Purchase Acquisitions, Net of Cash Acquired............ - 805 56,147
----------------------------------------
Net Cash Used in Investing Activities.............. (1,268,916) (613,407) (1,220,913)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase/(Decrease) in Customer Deposit
Liabilities.......................................... 64,178 52,185 (41,549)
Net Increase in Borrowings............................. 1,554,104 379,854 887,061
Net (Decrease)/Increase in Long-Term Debt.............. (35,000) 50,000 -
Proceeds from the Issuance of Capital Securities....... - - 99,614
Purchase of Treasury Stock............................. (289,313) (87,928) (27,733)
Common Stock Sold for Cash............................. 8,855 28,990 8,382
Cash Dividends Paid.................................... (117,080) (82,748) (60,412)
----------------------------------------
Net Cash Provided by Financing Activities.......... 1,185,744 340,353 865,363
----------------------------------------
Net Increase/(Decrease) in Cash and Cash
Equivalents........................................ 109,847 27,759 (124,823)
NYB Activity for the Three Months Ended
December 31, 1997.................................... - (384) -
Cash and Cash Equivalents at Beginning of Year......... 293,354 265,979 390,802
----------------------------------------
Cash and Cash Equivalents at End of Year............... $ 403,201 $ 293,354 $ 265,979
========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Period for:
Interest Expense................................... $ 390,312 $ 370,739 $ 371,458
----------------------------------------
Income Taxes....................................... $ 181,377 $ 25,332 $ 87,245
========================================
Securities Transferred from Held-to-Maturity to
Available-for-Saledue to the Merger with NYB......... $ 913,598 $ -
Purchases of Various Securities at Year End which
Settled in the Subsequent Period..................... 24,737 7,912 60,866
Non-Cash Activity Related to Acquisitions Not
Reflected Above for the Years ended
December 31,1998 and 1997 are as follows: (1) (2)
Fair Value of Assets Acquired.......................... 2,377 177,085
Intangible Assets...................................... 8,434 21,515
Cash Paid.............................................. - (3,009)
Common Stock Issued.................................... (8,730) (34,420)
--------------------------
Liabilities Assumed and Common Stock Issued............ $ 2,081 $ 161,171
==========================
</TABLE>
(1) In June 1998, the Company acquired Amivest Corporation, a privately
held investment management and broker/dealer firm.
(2) In December 1997, the Company acquired all of the outstanding common
stock of Superior. Each share of Superior's common stock was exchanged
for .1957 shares of the Company's common stock and the Company made a
cash payment to the holder of Superior's outstanding warrants.
SEE ACCOMPANYING NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Three Years Ended December 31, 1999
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Unrealized
Additional Securities
Common Paid in Retained Gains/ Deferred Treasury
Stock Capital Earning (Losses) Compensation Stock Total
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997.........................$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 (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 (4,464,125 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 Securties
Transferred from Available-for-Sale to
Held-to-Maturity............................... - - (161) (170) - - (331)
Adjustment to Unrealized (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) $1,213,726
----------------------------------------------------------------------------------
Net Income....................................... - - 249,521 - - - 249,521
Cash Dividends ($.63 per share)................. - - (84,312) - - - (84,312)
Cash Dividends-Acquired Company.................. - - (16,847) - - - (16,847)
Issuance of Stock (180,508 shares)............... 260 1,974 - - - 1,659 3,893
Purchases of Treasury Stock (14,275,923 shares).. - - - - - (289,313) (289,313)
JSB Loss on Reissuance of Treasury Stock......... - - (1,086) - - - (1,086)
Restricted Stock Activity, net................... - (1,052) - - (3,935) (480) (5,467)
Stock Based Compensation Activity, net........... 244 3,075 - - - 13,861 17,180
Amortization of Unrealized Loss on Securties
Transferred from Available-for-Sale to
Held-to-Maturity............................... - - (171) 171 - - -
Adjustment to Unrealized Gains on Securities
Available-for-Sale, net of taxes............... - - - (88,197) - - (88,197)
----------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999.......................$482,816 $ 84,864 $1,026,546 $(37,818) $(32,777) $(524,533) $ 999,098
==================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31,
(in thousands)
1999 1998 1997
-------------------------------
Net Income.................................... $249,521 $212,363 $207,611
OTHER COMPREHENSIVE INCOME/(LOSS), NET
OF INCOME TAXES:
Unrealized (Losses)/Gains on
Securities Available-for-Sale............... (80,287) 9,895 35,763
Less: Reclassification of Realized Gains
Included in Net Income...................... (7,739) (5,280) (8,770)
-------------------------------
Other Comprehensive (Loss)/Income............. (88,026) 4,615 26,993
-------------------------------
Comprehensive Income.......................... $161,495 $216,978 $234,604
===============================
SEE ACCOMPANYING NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS.
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 and
includes the relevant financial information for JSB Financial, Inc. and
Jamaica Savings Bank (Note 2(a)) to reflect this acquisition using the
pooling of interests method of accounting. All significant intercompany
accounts and transactions have been eliminated in consolidation.
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.
(c) DERIVATIVE FINANCIAL INSTRUMENTS
Periodically, the Company enters into interest rate agreements,
including interest rate swaps, caps, and floors, as part of the 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, and 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 carried 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, the 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 restructured 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.
(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 operating 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. Income tax expense and benefits are allocated
among members of the consolidated group based on a separate return basis.
(j) RETIREMENT AND BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan
covering substantially all full-time employees. Annual pension expense is
recognized over the employee's expected service life utilizing the
projected unit cost actuarial method. Supplemental retirement benefits are
provided for selected employees where income tax limitations have been
placed on the amount of retirement benefits otherwise earned.
Post-retirement and post-employment benefits are recorded on an
accrual basis with an annual provision that considers an actuarially
determined future obligation.
(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 ("APB") 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 Jamaica Savings Bank's Benefit
Restoration Plan is reflected as deferred compensation in the Company's
supplemental consolidated balance sheets.
(l) EARNINGS PER SHARE ("EPS")
The Company follows SFAS No. 128 "Earnings Per Share" ("SFAS 128")
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 162,991,108,
170,085,044 and 166,334,843 for the years ended 1999, 1998, and 1997,
respectively. The weighted average number of common shares outstanding used
in the computation of Diluted EPS was 164,439,869, 171,987,568 and
169,903,051 for the years ended 1999, 1998 and 1997, respectively. The
differential in the weighted average number of common shares outstanding
used in the computation of Basic and Diluted EPS represents the average
common stock equivalents of employee stock options and restricted stock
grants outstanding during the periods.
(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 the
estimated period 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 whenever events or
circumstances indicate that the carrying amount of the intangible asset may
not be recoverable.
(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" and "Money Market
Investments", 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
(a) 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, described below. On February 29, 2000, JSB was merged with and
into the Company in accordance with the pooling-of-interests method of
accounting. On March 10, 2000, Jamaica was merged with and into North Fork.
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, 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. JSB has
been included in all supplemental consolidated financial statements
presented under pooling of interest accounting.
(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. The Company reissued from its treasury account
17,120,160 common shares in satisfaction of the Reliance exchange ratio and
reserved for issuance 1,369,438 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,
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) PRO-FORMA FINANCIAL INFORMATION WITH ACQUISITIONS
The following unaudited pro forma supplemental condensed combined
financial statements are based on the historical financial statements of
the Company and Reliance. The supplemental pro forma balance sheet gives
effect to the transactions as if they had become effective as of December
31, 1999. The supplemental pro forma statements of income give effect to
the transaction as if it had become effective as of the beginning of each
of the years for which information is presented.
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED DECEMBER 31,
(in thousands) 1999
------------
ASSETS
Cash & Due from Banks.................................... $ 348,422
Money Market Investments................................. 110,737
Securities............................................... 6,277,045
Loans, net............................................... 8,881,597
Allowance for Loan Losses................................ (83,570)
------------
Net Loans................................................ 8,798,027
------------
Intangible Assets........................................ 339,070
Other Assets............................................. 447,759
------------
Total Assets........................................ $16,321,060
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand Deposits.......................................... $ 1,622,242
Savings, NOW & Money Market Deposits..................... 4,238,473
Time Deposits............................................ 3,328,281
------------
Total Deposits........................................... 9,188,996
------------
Federal Funds Purchased & Securities Sold Under
Agreement to Repurchase............................... 2,921,981
Other Borrowings......................................... 2,308,097
Accrued Expenses & Other Liabilities..................... 389,680
------------
Total Liabilities........................................ $14,808,754
------------
Capital Securities....................................... 244,314
Stockholders' Equity..................................... 1,267,992
------------
Total Liabilities and Stockholders' Equity.......... $16,321,060
============
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (UNAUDITED)
FOR THE YEARS ENDED DECEMBER 31,
1999 1998 1997
---------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Interest Income........................................$1,081,774 $870,913 $834,035
Interest Expense....................................... 496,911 366,932 366,677
---------------------------------
Net Interest Income.................................. 584,863 503,981 467,358
Provision for Loan Losses.............................. 6,163 15,551 8,748
---------------------------------
Net Interest Income after Provision for Loan Loss.... 578,700 488,430 458,610
Non-Interest Income.................................... 69,883 60,019 53,542
Real Estate Operations, net............................ 1,239 714 10,442
Net Securities Gains .................................. 13,690 9,433 15,398
Other Non-Interest Expense............................. 215,862 174,065 184,616
Capital Securities Costs............................... 20,929 16,843 9,235
Amortization & Write-down of Intangible Assets......... 21,404 14,479 7,292
Merger Related Restructure Charge...................... - 52,452 -
---------------------------------
Income before Income Taxes........................... 405,317 300,757 336,849
Provision for Income Taxes............................. 151,967 88,394 129,238
---------------------------------
Net Income........................................... $253,350 $212,363 $207,611
=================================
Earnings Per Share - Basic............................. $1.49 $1.25 $1.25
Earnings Per Share - Diluted........................... $1.47 $1.23 $1.22
Weighted Average Shares Outstanding - Basic............ 170,436 170,085 166,335
Weighted Average Shares Outstanding - Diluted.......... 172,731 171,988 169,903
</TABLE>
At December 31,1999, the Company's unaudited pro forma Tier 1, Total Risk
Based and Leverage Capital Ratios were 12.60%, 13.83%, and 7.58%,
respectively.
(d) NEW YORK BANCORP
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
transaction accounted for in accordance with the pooling-of-interests
method of accounting. Pursuant to the merger agreement, the Company issued
39.9 million shares of common stock to NYB shareholders and simultaneously
retired 12.7 million shares of NYB's common stock held in treasury as of
the date of the merger. 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 the date of the merger. In connection with the merger, the
Company recorded a pre-tax charge for merger-related restructure costs of
$52.5 million. As of December 31, 1999, substantially all cash payments
associated with this charge have been made except for certain payments due
under long-term leases.
(e) 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 $10.4 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.
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>
1999 1998
------------------------------------------------------------------------------------------
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>
CMO Private Issuances.................. $1,781,288 $ 235 $(57,340) $1,724,183 $1,440,806 $ 5,358 $ (683) $1,445,481
CMO Agency Issuances................... 489,151 - (26,064) 463,087 190,249 1,776 (64) 191,961
Mortgage-Backed Securities............. 895,855 266 (26,239) 869,882 728,849 4,115 (1,149) 731,815
U.S. Government Agencies' Obligations.. O88,709 - (2,499) 86,210 162,464 4,947 - 167,411
U.S Treasury Securities................ 20,046 - (68) 19,978 30,952 393 - 31,345
Equity Securities (1).................. 273,701 69,807 (6,954) 336,554 222,606 79,668 (2,134) 300,140
Other Securities....................... 198,861 5,001 (21,546) 182,316 207,407 2,953 (5,776) 204,584
------------------------------------------------------------------------------------------
$3,747,611 $75,309 $(140,710) $3,682,210 $2,983,333 $99,210 $(9,806) $3,072,737
==========================================================================================
</TABLE>
(1) Amortized cost and fair value includes $170.6 million and $100.8
million in Federal Home Loan Bank stock at December 31, 1999 and 1998,
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>
1999 1998
------------------------------------------------------------------------------------------
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>
CMO Private Issuances.................. $ 674,072 $ 30 $(28,402) $ 645,700 $ 873,070 $2,693 $(2,849) $ 872,914
CMO Agency Issuances................... 115,027 10 (1,567) 113,470 137,778 457 (125) 138,110
Mortgage-Backed Securities............. 447,209 172 (19,486) 427,895 563,486 2,352 (625) 565,213
State & Municipal Obligations.......... 76,173 126 (2,128) 74,171 71,837 1,301 (27) 73,111
U.S. Government Agencies' Obligations.. 20,051 - (4) 20,047 110,070 38 (8) 110,100
Other Securities....................... 18,972 - (659) 18,313 23,761 29 (136) 23,654
------------------------------------------------------------------------------------------
$1,351,504 $338 $(52,246) $1,299,596 $1,780,002 $6,870 $(3,770) $1,783,102
===========================================================================================
</TABLE>
Management's strategy is to invest in securities with short-weighted
average lives, minimizing exposure to future increases in interest rates.
These investments are principally mortgage-backed securities ("MBS's") 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, 1999 was 4.4
years.
Collateralized Mortgage Obligations ("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 Planned Amortization
Class ("PAC") structures with current weighted average lives of
approximately 2.2 years.
At December 31, 1999 and 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 $3.4 billion at December 31, 1999 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, 1999, by contractual maturity, are presented in the table below.
Expected maturities will differ from contractual maturities since issuers
may have the right to call or prepay obligations without call or prepayment
penalties.
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
----------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Due in one year or less....................... $ $ - $ 28,504 $ 28,509
Due after one year through five years......... 20,046 19,978 45,806 45,372
Due after five years through ten years........ 94,481 91,060 29,145 27,730
Due after ten years........................... 193,089 177,466 11,741 10,920
----------------------------------------------
Subtotal.................................... 307,616 288,504 115,196 112,531
CMO's......................................... 2,270,439 2,187,270 789,099 759,170
Mortgage-Backed Securities................... 895,855 869,882 447,209 427,895
Equity Securities............................. 273,701 336,554 - -
----------------------------------------------
$3,747,611 $3,682,210 $1,351,504 $1,299,596
==============================================
</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,:
(in thousands) 1999 1998 1997
-----------------------------
Proceeds from Sales............................. $116,923 $1,021,477 $279,111
=============================
Gross Realized Gains............................ 13,632 12,196 16,502
Gross Realized Losses........................... (54) (2,763) (1,104)
-----------------------------
Net Realized Gains.............................. $13,578 $9,433 $15,398
=============================
Gross realized gains in 1999, 1998 and 1997 resulted principally from
the sale of equity positions and capital securities of certain publicly
traded companies.
NOTE 4 - LOANS
The composition of the loan portfolio is summarized as follows at
December 31,
<TABLE>
<CAPTION>
% OF % of
(dollars in thousands) 1999 TOTAL 1998 Total
-------------------------------------
<S> <C> <C> <C> <C>
Mortgage Loans-Residential...................$2,212,948 28% $1,977,532 29%
Mortgage Loans-Multi-family...................2,827,272 36 2,656,998 38
Mortgage Loans-Commercial.....................1,327,001 1 1,173,229 17
Commercial & Industrial....................... 752,256 9 530,782 8
Consumer Loans and Leases..................... 706,594 9 493,966 7
Construction and Land Loans................... 87,257 1 77,202 1
-------------------------------------
Total......................................7,913,328 100% $6,909,709 100%
-------------------------------------
Less:
Unearned Income.............................. 15,640 19,833
Allowance for Loan Losses.................... 74,525 77,683
--------- ---------
Net Loans...............................$7,823,163 $6,812,193
========= =========
</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. Multi-family
lending 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 $847.6 million and
$921.1 million as of December 31, 1999 and 1998, respectively. At December
31, 1999, $1.9 million in residential mortgage loans were held-for-sale.
Non-performing assets include loans ninety days past due and still
accruing, non-accrual loans and other real estate. Other real estate
consists of property acquired through foreclosure or deeds in lieu of
foreclosure. Non-performing assets declined to $15.9 million at December
31, 1999, as compared to $19.4 million at December 31, 1998. 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:
(in thousands) 1999 1998
--------- ---------
Loans Ninety Days Past Due and Still Accruing............. $6,131 $8,133
Non-Accrual Loans......................................... 8,997 7,778
--------- ---------
Non-Performing Loans...................................... 15,128 15,911
Other Real Estate......................................... 787 3,494
--------- ---------
Non-Performing Assets..................................... $15,915 $19,405
========= =========
Restructured, Accruing Loans.............................. $ - $2,426
========= =========
The following table represents the components of non-performing loans
at December 31,
1999 1998
--------- ---------
Consumer Loans and Leases................................. $5,798 $4,294
Mortgage Loans-Residential................................ 4,310 4,146
Commercial & Industrial................................... 2,693 2,485
Mortgage Loans-Commercial................................. 1,661 4,519
Mortgage Loans-Multi-family............................... 666 467
--------- ---------
Total Non-Performing Loans............................. $15,128 $15,911
========= =========
Interest foregone on non-accrual loans, or the amount of income that
would have been earned had those loans remained performing, aggregated $1.0
million, $1.8 million and $4.1 million in 1999, 1998, and 1997,
respectively.
At December 31, 1999, 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 $6.2 million and $5.6 million at December
31, 1999 and 1998, respectively.
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
A summary of changes in the allowance for loan losses is shown below
for the years ended December 31,
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
--------- ------------------
<S> <C> <C> <C>
Balance at Beginning of Year........................... $77,683 $80,273 $78,607
Provision for Loan Losses.............................. 6,013 15,551 8,748
Recoveries Credited to the Allowance................... 5,194 3,835 2,585
--------- ------------------
88,890 99,659 89,940
Losses Charged to the Allowance........................ (14,365) (21,921) (12,161)
New York Bancorp Net Activity for the Three Months
Ended December 31,................................... - (55) -
Additional Allowance Acquired in Purchase Acquisitions. - - 2,494
--------- ------------------
Balance at End of Year................................. $74,525 $77,683 $80,273
========= ==================
</TABLE>
The provision for loan losses declined to $6.0 million in 1999, when
compared to $15.6 million for the prior year period. Reflected in 1998 was
a special provision of $11.5 million. This additional provision was due to
the sale of $32 million in non-performing and marginally performing loans,
at amounts below the loans carrying value, acquired in the NYB merger. Due
to the aforementioned sale, the Company recognized a corresponding charge
to the allowance for loan losses. This decision was predicated on the fact
that management could sell these loans into a liquid market, reinvest the
cash into other interest earning assets, and mitigate potential carrying
costs associated with their future workout and resolution. Historically,
NYB did not actively sell non- performing and marginally performing loans
as part of its workout and recovery process. Subsequent to these sales, the
Company restored its post-merger reserve coverage ratios to approximate
pre-merger levels.
NOTE 6 - PREMISES AND EQUIPMENT, NET
The following is a summary of premises and equipment, net at December 31,:
1999 1998
--------- ---------
(in thousands)
Land.................................................... $18,652 $18,577
Bank Premises........................................... 71,940 69,514
Leasehold Improvements.................................. 20,517 18,576
Equipment............................................... 72,531 63,791
--------- ---------
183,640 170,458
Accumulated Depreciation and Amortization............... (90,988) (80,095)
--------- ---------
$92,652 $90,363
========= =========
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) 1999 1998 1997
--------------------------------
FEDERAL FUNDS PURCHASED
<S> <C> <C> <C>
Period End Balance...................................... $89,700 $ 70,000 $ 40,000
Maximum Amount Outstanding at Any Month End............. 115,000 125,000 80,000
Average Outstanding Balance............................. 62,446 28,766 27,563
Weighted Average Interest Rate Paid..................... 5.15% 5.49% 5.66%
Weighted Average Interest Rate at Year End.............. 5.34% 5.38% 6.81%
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Period End Balance...................................... $2,575,500 $2,885,096 $2,064,036
Accrued Interest Payable at Period End.................. 13,349 14,904 10,234
Maximum Amount Outstanding at Any Month End............. 3,291,796 2,885,096 2,310,458
Average Outstanding Balance............................. 2,849,356 2,207,491 1,917,029
Weighted Average Interest Rate Paid..................... 5.54% 5.78% 5.81%
Weighted Average Interest Rate at Year End.............. 5.69% 5.57% 5.85%
</TABLE>
Qualifying SSURA are treated as financings and the obligations to
repurchase securities sold are reflected as liabilities 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 brokers 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, 1999 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....... $ 300,000 5.95% $ 332,778 $ 315,682 $ - $ $ -
30 to 90 Days....... 1,150,000 5.79 1,281,133 1,230,660 - - - -
90 days to 1 Year... 117,000 6.32% 94,768 91,798 - - - -
In Excess of 1 Year. 971,000 5.86% 1,081,365 1,042,834 37,500 5.75% 39,512 38,410
----------------------------------------------------------------------------------------
Total...... $2,538,000 5.86% $2,790,044 $2,680,894 $37,500 5.75% $39,512 $38,410
========================================================================================
</TABLE>
(1) Excludes accrued interest receivable of $22.3 million and $1.1
million on 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, 1999, the Company had $1.8 billion outstanding in
short-term Federal Home Loan Bank ("FHLB") advances at an average cost of
funds of 5.89%. At December 31, 1999 and 1998, the Company had $50.0
million outstanding in 5.62% fixed rate FHLB advances, due in December
2008. At December 31, 1998, the Company had $10.0 million outstanding in
10% fixed rate FHLB advances which matured in April 1999. At December 31,
1998, the Company had outstanding a $25.0 million, 7.56% Senior Note which
also matured in April 1999.
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.
The Company's bank subsidiaries have arrangements with various
correspondent banks providing short-term credit for regulatory liquidity
requirements. These lines of credit aggregated $225 million at December 31,
1999.
NOTE 9 - CAPITAL SECURITIES
Company Obligated Mandatorily Redeemable Capital Securities of
Subsidiary Trusts ("Capital Securities") are summarized as follows at
December 31,:
1999 1998
--------- ---------
8.00% Capital Securities due December 15, 2027......... $ 99,641 $ 99,628
8.70% Capital Securities due December 15, 2026......... 99,673 99,661
--------- ---------
$ 199,314 $199,289
========= =========
The aforementioned Capital Securities were issued in 1997 and 1996
through wholly-owned statutory business trust subsidiaries (collectively,
the "Trusts"). The Trusts were formed with initial capitalizations in
common stock and for the exclusive purpose of issuing the Capital
Securities and using the proceeds to acquire Junior Subordinated Debt
Securities ("Debt Securities") issued by the Company. The Debt Securities
are due at maturity, are non-callable at any time in whole or in part for
ten years from the date of issuance, except in certain circumstances, but
may be redeemed annually thereafter, in whole or in part, at declining
premiums to maturity.
At December 31, 1999 and 1998, 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) 1999 1998 1997
-----------------------------
<S> <C> <C> <C>
Current Tax Expense.................................... $119,031 $86,841 $124,642
Deferred Tax Expense................................... 21,449 1,553 4,596
-----------------------------
Income Tax Provision................................... $140,480 $88,394 $129,238
=============================
</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>
1999 1998 1997
-----------------------------
<S> <C> <C> <C>
Federal Income Tax Expense at Statutory Rate...... 35.00% 35.00% 35.00%
Increase/(Decrease) Resulting from:...............
State and Local Income Taxes, Net of Federal
Income Tax Benefit.......................... 1.84 4.68 4.34
Non-Taxable Distributions from Corporate
Reorganizations............................. - (11.10) -
Tax Exempt Interest, Net...................... (.80) (.57) (.60)
Nondeductible Merger Related Restructure Charge - 1.11 -
Valuation Allowance........................... - (.92) -
Amortization of Intangible Assets............. .39 1.92 .35
Dividend Received Deduction................... (31) (.37) (.41)
Other, Net.................................... (.10) (.36) (.31)
-----------------------------
Effective Tax Rate............................ 36.02% 29.39% 38.37%
=============================
</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) 1999 1998
-------------------
DEFERRED TAX ASSETS
<S> <C> <C>
Unrealized Loss on Securities Available-for-Sale.......... $25,646 $ -
Allowance for Loan Losses................................. 31,939 33,292
Deferred Compensation and Other Employee Benefit Plans.... 8,618 9,197
Acquired Net Operating Loss Carry Forward................. - 8,195
Deductible Merger Related Restructure Charges............. 1,715 3,112
Excess of Tax Basis Over Book Basis- Other Real Estate.... 1,371 1,728
Excess of Tax Basis Over Book Basis- Premises and Equipment 1,241 1,583
Other..................................................... 3,248 4,550
-------------------
Gross Deferred Tax Asset............................. $73,778 $61,657
Valuation Allowance....................................... (4,567) (4,567)
-------------------
Deferred Tax Asset.................................. $69,211 $57,090
-------------------
DEFERRED TAX LIABILITIES
Unrealized Gain on Securities Available for Sale.......... $ $(39,196)
Tax Bad Debt Recapture.................................... (6,012) (6,820)
Deferred Income........................................... (11,519) (5,006)
Other..................................................... (4,417) (3,702)
-------------------
Gross Deferred Tax Liability........................ $ (21,948) $(54,724)
-------------------
Net Deferred Tax Asset.............................. $47,263 $2,366
===================
</TABLE>
As of December 31, 1999, the Company's valuation allowance remained
at $ 4.6 million. 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 carrybacks. Additionally, as a result of
the Company's experience in merging with and acquiring thrifts, retained
earnings at both December 31, 1999 and 1998, includes approximately $136
million and $136 million, respectively 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
the Bank (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 $ 47.3 million is more likely than not, based on existing
carryback ability, available tax 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 maintained a
retirement plan covering substantially all of their full-time employees,
subject to certain limitations. This plan was curtailed as of the merger
date, and all future benefit accruals ceased. Subsequent to this
transaction, all former NYB employees retained by the Company meeting Plan
requirements became eligible for participation in the Plan. Effective May
31, 1998, the former NYB plan was 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
provided retirement benefits which would have been provided under the
Jamaica pension plan except for the limitations imposed by Sections 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) 1999 1998
------------------
CHANGE IN BENEFIT OBLIGATION:
<S> <C> <C>
Benefit Obligation at Beginning of Year........................ $105,324 $104,044
Service Cost................................................... 3,144 3,078
Interest Cost.................................................. 6,359 6,623
Amendments..................................................... 3,975 503
Benefits Paid.................................................. (9,025) (9,079)
Actuarial (Gain)/Loss.......................................... (10,061) 155
------------------
Benefit Obligation at End of Year.............................. $99,716 $105,324
==================
CHANGE IN PLAN ASSETS:
Fair Value of Plan Assets at Beginning of Year................. $126,669 $122,189
Actual Return on Plan Assets................................... 7,566 13,246
Employer Contributions......................................... 34 313
Benefits Paid.................................................. (9,024) (9,079)
------------------
Fair Value of Plan Assets at End of Year........................ $125,245 $126,669
==================
RECONCILIATION OF FUNDED STATUS:
Funded Status.................................................. $25,529 $21,345
Unrecognized Actuarial (Loss).................................. (21,052) (14,137)
Unrecognized Prior Service Cost/Benefit........................ 3,525 (445)
Unrecognized Transition Assets................................. (2,490) (2,961)
------------------
Prepaid Benefit Cost........................................... $5,512 $3,802
==================
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------
NORTH FORK WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31,
<S> <C> <C> <C>
Discount Rate.......................................... 7.75% 6.50% 7.00%
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.......................................... 6.25% 5.75% 5.75%
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........................................... $3,144 $3,078 $2,541
Interest Cost.......................................... 6,359 6,623 6,334
Expected Return on Plan Assets......................... (10,087) (10,083) (8,667)
Amortization of Prior Service Cost..................... 6 (171) (97)
Amortization of Transition Asset....................... (472) (486) (606)
Recognized Actuarial Gain.............................. (626) (262) (518)
---------------------------
Net Periodic Benefit Cost.............................. $ (1,676) $(1,301) $(1,013)
Additional (Gain)/Loss Recognized Due to Curtailment... - (201) 203
Additional Cost Recognized by NYB...................... - - 514
---------------------------
TOTAL BENEFIT COST..................................... $ (1,676) $(1,502) $(296)
===========================
</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 $89 thousand at
December 31, 1999 and $299 thousand at December 31, 1998. Net periodic
pension expense incurred in 1999, 1998, and 1997, for the SERP was $68
thousand, $52 thousand and $31 thousand, respectively. The weighted average
discount rate utilized to determine the projected benefit obligation was
7.75%, 6.50% and 7.00% for 1999, 1998, and 1997, respectively. The assumed
rate of future compensation increases was 4.50% for 1999, 1998, and 1997.
POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care and life insurance benefits
to eligible retired employees. Health care benefits received range between
0% and 100% of coverage premiums based on an employee's age, years of
service and retirement date. Participants who retired after November 1,
1992 are responsible for all premium increases after 1997. The Company's
plan for its post-retirement obligation is unfunded.
The following table sets forth the change in 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) 1999 1998
-----------------
CHANGE IN ACCUMULATED POST-RETIREMENT BENEFIT OBLIGATION ("APBO"):
Accumulated Post-Retirement Benefit Obligation at Beginning
<S> <C> <C>
of Year...........................................................$11,297 $ 10,423
Service Cost........................................................ 123 135
Interest Cost....................................................... 706 788
Premiums Paid....................................................... (540) (652)
Actuarial (Gain)/Loss...............................................(1,298) 603
------------------
Accumulated Post-Retirement Benefit Obligation at End of Year.......$10,288 $ 11,297
==================
RECONCILIATION OF FUNDED STATUS:
Accumulated Post-Retirement Benefit Obligation at End of Year.......$(10,288) $(11,297)
Fair Value of Plan Assets........................................... - -
------------------
Funded Status.......................................................$(10,288) $(11,297)
Unrecognized Transition Obligation.................................. 3,333 3,626
Unrecognized Prior Service Benefit.................................. (921) (1,002)
Unrecognized Net Loss............................................... 82 1,401
------------------
Accrued Post-Retirement Benefit Cost................................$ (7,794) $(7,272)
==================
</TABLE>
The weighted average discount rate utilized to determine North Fork's
accumulated post- retirement benefit obligation was 7.75% and 6.50% in 1999
and 1998, respectively.
In measuring North Fork's APBO, a 6.0% annual trend rate for health
care costs was assumed for the year ended December 31, 1999. These rates
are assumed to remain at 6.0% from 2000 through 2009 and decline to 5.5%
through 2020. 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
$46 thousand and $589 thousand, respectively, in 1999 and $44 thousand and
$644 thousand, respectively, in 1998. 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 $40 thousand
and $527 thousand, respectively, in 1999 and $37 thousand and $576
thousand, respectively, in 1998.
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 came 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 table sets forth the change
in benefit obligations and change in plan assets for this Jamaica plan:
<TABLE>
<CAPTION>
(dollars in thousands) 1999 1998
------------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Balance at Beginning of Year................................... $1,663 $1,596
Service Cost................................................... 24 24
Interest Cost.................................................. 96 96
Benefits Paid.................................................. (57) (53)
------------------
Balance at End of Year......................................... $1,726 $1,663
==================
CHANGE IN PLAN ASSETS:
Balance at Beginning of Year................................... $- $-
Employer Contributions......................................... 57 53
Benefits Paid.................................................. (57) (53)
------------------
Balance at End of Year......................................... $- $-
==================
</TABLE>
The funded status recognized in the supplemental consolidated
financial statements for the other postretirement benefit plans at or for
the years ended December 31, 1999, and 1998 were $1,726,000 and $1,663,000,
respectively.
Weighted-average assumptions for Jamaica's post-retirement benefits were as
follows as of December 31,:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------
<S> <C> <C> <C>
Discount Rate.......................................... 8.00% 8.00% 8.00%
Rate of Compensation Increase.......................... 6.50% 6.50% 6.50%
</TABLE>
The following table sets forth the components of North Fork's and
Jamaica's net periodic post- retirement benefits other than pension expense
for the years ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service Cost........................................... $147 $159 $158
Interest Cost.......................................... 802 884 790
Amortization of Prior Service Cost..................... (81) (96) (90)
Amortization of Transition Asset....................... 293 317 255
Recognized Actuarial Loss.............................. 21 37 3
---------------------------
Net Periodic Benefit Cost.............................. $1,182 $1,301 $1,116
===========================
</TABLE>
401(K) SAVINGS PLAN
The Company maintains a savings plan under section 401(k) of the
Internal Revenue Code, covering substantially all current full-time and
certain part-time employees. Newly hired employees can elect to participate
in the savings plan after completing one year of service. Under the
provisions of the savings plan, employee contributions are partially
matched by the Company. This matching is fully vested for employees
participating at the inception date of the plan, however, the matching
vests for all other plan participants at 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. 401(k) plan
expense was $1.6 million, $1.8 million and $1.6 million for the years ended
1999, 1998, and 1997, respectively.
NOTE 12 - STOCK PLANS
1999 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 5,000,000 with no more than 2,500,000 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. Restricted stock awarded under
the plan is reflected as deferred compensation in the Company's
supplemental consolidated balance sheets at the fair market value of the
shares at the date of grant, and amortized to compensation expense over the
vesting periods. At December 31, 1999, 5,000,000 shares remain authorized
and unissued.
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 1,000,000 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. Restricted stock awarded under
the plan is reflected as deferred compensation in the Company's
supplemental consolidated balance sheets at the fair market value of the
shares at the date of grant, and amortized to compensation expense over the
vesting periods. At December 31, 1999, 427,800 shares remain authorized and
unissued.
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 in 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, 1999, 111,216 shares remain authorized and unissued.
NEW YORK BANCORP PLANS - PRE-MERGER
NYB maintained several incentive stock option and non-qualified stock
option plans for its officers, directors and other key employees.
Generally, these plans granted options to individuals at a price equivalent
to the fair market value of the stock at the date of grant. Options awarded
under the plans generally vested over a three-year period from the date of
grant and expired ten years from the grant date for employees and five
years for directors. As a result of the merger, participants under the
plans became fully vested with all outstanding options exercised by the
merger date.
Additionally, NYB had granted stock appreciation rights ("SARS") to
certain key employees. SARS entitled the participant to receive cash equal
to the excess of the market value of the shares at the date the right is
exercised over the exercise price. An expense was accrued for the earned
portion of the amount by which the market value of the stock exceeded the
exercise price for each SAR outstanding. Participants became fully vested
at the merger date. Compensation expense recognized under the terms of the
SARS was $2.8 million in 1997.
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
common stock was exchanged for three shares of the Company's common stock.
EMPLOYEE STOCK OWNERSHIP PLAN
Since 1990 Jamaica maintained an ESOP. For 1999, 1998, and 1997,
JSB's 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 $569,000, $574,000 and
$566,000 related to the ESOP for the years ended December 31, 1999, 1998,
and 1997, respectively. At December 31, 1999 there were no unallocated
shares in the ESOP Plan. There were eight and three unallocated shares in
the ESOP Plan at December 31, 1998 and 1997, respectively.
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 10,913, 12,451 and 15,342 shares for
the years ended December 31, 1999, 1998, and 1997, 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 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,
1999, 1998 and 1997, 83,660, 98,046 and 122,646, options granted under the
Stock Option Plan were exercised, respectively. At December 31, 1999, the
remaining 142,434 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 JSB common stock. In addition, active
Directors Emeritus were each granted nonstatutory common stock options to
purchase 10,000 shares of JSB 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, 1999,
1998 and 1997, 40,500, 106,250 and 6,250 options granted under this Plan
were exercised, respectively. At December 31, 1999, the remaining 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 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 JSB 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
could exercise such option would commence six months after the date of
grant and would expire no later than ten years from the date of the grant.
There were 76,000, 0 and 8,000 options exercised from the 1996 Option Plan
during the years ended 1999, 1998 and 1997, respectively. At December 31,
1999, 574,000 of the 716,000 options outstanding under the 1996 Option Plan
were exercisable. Effective January 1, 1999, 154,000 options were granted
at an exercise price of $54.375 per share. Upon the execution of the merger
agreement on August 16, 1999 between the Company and JSB, an additional
142,000 options were granted at an exercise price between $43.52 and $51.74
per share. These options, which are not reflected in the tables below, will
become exercisable on the earlier of six months from the date of grant or
the effective date of the merger.
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>
1999 1998 1997
----------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
OPTIONS Exercise Exercise Exercise
Price Options Price Options Price
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at Beginning of 4,569,880 $13.32 7,923,033 $ 7.61 9,540,761 $ 5.38
Granted........................... 1,214,900 16.94 1,494,692 22.61 2,157,752 13.00
Exercised......................... (728,680) 6.74 (4,833,742) 6.78 (3,752,503) 5.03
Canceled.......................... (234,758) 26.54 (14,103) 26.27 (22,977) 7.64
------------------------------------ ---------------------------
Outstanding at End of Year........ 4,821,342 $14.59 4,569,880 $13.32 7,923,033 $ 7.61
================================================================
Options Exercisable at Year End... 4,118,198 $14.47 4,318,043 $13.17 6,720,085 $ 7.27
================================================================
</TABLE>
The following is a summary of the information concerning currently
outstanding and exercisable options as of December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------------------------------
Range of Weighted Average Weighted Average Weighted Average
Exercise Options Remaining Exercise Options Exercise
Prices Outstanding Life in Years Price Exercisable Price
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.81 - $10.75 1,366,557 3.7 $ 6.28 1,350,357 $ 6.26
$10.76 - $18.81 2,455,354 8.4 15.30 1,774,910 15.28
$18.82 - $26.88 999,431 6.6 24.18 992,931 24.21
- ---------------------------------------------------------------------------------------------------
$1.81 - $26.88 4,821,342 6.7 $14.59 4,118,198 $14.47
===================================================================================================
</TABLE>
The following is a summary of the activity in the Company's
restricted stock plans for the years ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------ -------------------------
Weighted Weighted Weighted
Average Average Average
Grant Grant Grant
Shares Price Shares Price Shares Price
--------------------------------------------------------------
Outstanding at Beginning of Year..
<S> <C> <C> <C> <C> <C> <C>
Granted........................... 1,762,946 $15.32 1,489,823 $13.94 784,476 $ 8.41
Vested............................ 378,200 18.21 324,350 20.49 746,652 19.42
Canceled.......................... (31,851) 5.81 (44,626) 7.07 (6,805) 3.21
(10,850) 17.01 (6,601) 14.60 (34,500) 8.69
Outstanding at Year End........... --------------------------------------------------------------
2,098,445 $16.21 1,762,946 $15.32 1,489,823 $13.94
===============================================================
</TABLE>
The amount of compensation expense related to restricted stock
awards, JSB's stock option plan, JSB's ESOP and JSB's Benefit Restore Plan
included in compensation and employee benefits was $4.0 million, $3.1
million and $2.0 million in 1999, 1998 and 1997, 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 $3.6 million, or $0.02 per share in 1999, $4.4 million, or
$.03 per share in 1998 and $4.6 million, or $.03 per share in 1997.
The estimated fair value of the Company's options granted during
1999, 1998 and 1997 ranged from $4.64 to $5.43, $1.19 to $8.32 and $.73 to
$7.43, respectively, on the date of grant using the Black-Scholes
option-pricing model. The following assumptions were used in calculating
the fair value of the options granted during 1999: a dividend yield of
3.0%, volatility ranging from 24.5% to 25.5%, risk-free interest rates
ranging from 5.15% to 6.15%, no assumed forfeiture rate, and an expected
average life of six years. 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% to 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 or the option's remaining term, if the 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% to 2.25%, volatility ranging from 20% to 40%,
risk-free interest rate ranging from 5.30% to 6.30%, no assumed forfeiture
and an expected life of six years for options with an original term greater
than six years or the option's remaining term, if the original maturity is
less than six years.
The estimated fair value of the options granted for the JSB plans
during 1999 ranged from $3.40 to $6.52, was $3.65 in 1998 and ranged from
$2.74 to $3.63 during 1997, 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 1999: a
dividend yield of 3.19 %, volatility of 22.07%, risk-free interest rate of
4.65%, no assumed forfeiture rate, and an expected average life of 4.7
years. 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
under JSB plans 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.
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, 1999, 569,148 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.
NOTE 13 - PARENT COMPANY ONLY
CONDENSED FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS DECEMBER 31,
<TABLE>
<CAPTION>
(in thousand) 1999 1998
----------------------
ASSETS
<S> <C> <C>
Deposits with Bank Subsidiary.................................... $31,466 $26,763
Deposits with Other Financial Institutions....................... 1,322 1,557
Securities Purchased Under Agreements to Resell with Bank
Subsidiary .................................................... - 40,000
Securities Available-for-Sale.................................... 151,743 192,805
Securities Held-to-Maturity...................................... - 40,000
Investment in Subsidiaries....................................... 1,035,595 1,126,299
Intangible Assets................................................ 28,416 28,965
Other Assets..................................................... 23,062 39,600
----------------------
Total......................................................... $1,271,604 $1,495,989
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Junior Subordinated Debt (Note 9)................................ $ 205,500 $ 205,475
Loan from Affiliate.............................................. 40,000 -
Senior Note Payable.............................................. - 25,000
Dividends Payable................................................ 23,119 39,041
Other Liabilities................................................ 3,887 12,747
Stockholders' Equity............................................. 999,098 1,213,726
----------------------
Total......................................................... $1,271,604 $1,495,989
======================
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
(in thousands) 1999 1998 1997
---------------------------
INCOME:
<S> <C> <C> <C>
Dividends from Subsidiaries............................ $263,000 $92,800 $41,600
Interest Income........................................ 12,675 19,092 16,949
Net Securities Gains................................... 13,566 9,032 6,376
Other Income........................................... 692 3,515 812
---------------------------
Total Income........................................ 289,933 124,439 65,737
---------------------------
EXPENSE:
Interest Expense....................................... 1,454 2,274 2,033
Interest on Junior Subordinated Debt................... 17,242 17,242 9,463
Compensation and Employee Benefits..................... 3,048 2,194 1,211
Amortization and Write-down of Intangibles............. 2,088 7,986 440
Other Expenses......................................... 2,557 2,238 2,222
---------------------------
Total Expenses...................................... 26,389 31,934 15,369
---------------------------
Income Before Income Taxes and Equity in
Undistributed Earnings of Subsidiaries......... 263,544 92,505 50,368
Income Tax Expense..................................... (177) 1,822 1,932
Equity in (Overdistributed) Undistributed Earnings of
Subsidiaries......................................... (14,200) 121,680 159,175
---------------------------
Net Income.......................................... $249,521 $212,363 $207,611
===========================
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
(in thousands) 1999 1998 1997
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income............................................. $249,521 $212,363 $207,611
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
Provided by Operating Activities:
Depreciation and Amortization........................ 4,338 1,187 1,218
Amortization and Write Down of Intangible Assets..... 2,088 7,986 440
Equity in (Overdistributed) Undistributed Earnings of
Subsidiaries......................................... 14,200 (121,680) (159,175)
Proceeds from Sales of Securities Held for Trading... - - 10,125
Purchase of Securities Held for Trading.............. - - (9,670)
Net Securities Gains................................. (13,566) (9,032) (6,376)
Other, Net........................................... 14,194 (27,645) (4,032)
-----------------------------
Net Cash Provided by Operating Activities.......... 270,775 63,179 40,141
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sales of Securities Available-for-Sale. 105,038 112,782 42,016
Purchases of Securities Available-for-Sale........... (68,807)(133,632) (161,032)
Proceeds from Maturities of Securities
Held-to-Maturity.................................... 100,000 235,000 270,000
Purchases of Securities Held-to-Maturity............. (60,000)(205,000) (260,000)
Principal Payments on Mortgage Loans................. - 15,195 44
Accretion of Discount in Excess of Amortization of
Premium on Debt Securities.......................... - - 7
Investment in Subsidiary Trusts...................... - - (3,093)
Investment in Bank Subsidiary........................ - - (4,000)
----------------------------
Net Cash Provided by /(Used in)Investing Activities 76,231 24,345 (116,058)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Maturity of Senior Note Payable...................... (25,000) - -
Loan from Affiliate.................................. 40,000 - -
Purchase of Treasury Shares.......................... (289,313) (87,928) (27,733)
Common Stock Sold for Cash........................... 4,777 26,949 6,814
Proceeds upon Exercise of Common Stock Options....... 4,078 2,041 1,568
Dividends Paid to Shareholders....................... (117,080) (82,748) (60,412)
Proceeds from the Issuance of Junior Subordinate Debt
Securities......................................... - - 102,713
----------------------------
Net Cash (Used in)/Provided by Financing Activities.. (382,538)(141,686) 22,950
----------------------------
Net Decrease in Cash and Cash Equivalents............ (35,532) (54,162) (52,967)
Cash and Cash Equivalents at Beginning of Year......... 68,320 122,482 175,449
----------------------------
Cash and Cash Equivalents at End of Year............... $32,788 $68,320 $122,482
============================
</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, 1999, the most
recent notification from the various regulators categorized the Company and
its bank subsidiaries as well capitalized under the regulatory framework
for prompt corrective action. Under the capital adequacy guidelines, a well
capitalized institution must maintain a minimum total risk based capital to
total risk weighted assets ratio of at least 10%, a minimum Tier 1 capital
to total risk weighted assets ratio of at least 6%, a minimum leverage
ratio of at least 5% and not be subject to any written order, agreement or
directive. There are no conditions or events since such notification that
management believes have changed this classification.
The following table sets forth the Company's regulatory capital at
December 31, 1999, under the rules applicable at such date. At such date,
management believes that the Company meets all capital adequacy
requirements to which it is subject:
<TABLE>
<CAPTION>
(dollars in thousands)
Amount Ratio
-------------------
<S> <C> <C> <C>
Tier 1 Capital................................................. $1,154,378 13.70%
Regulatory Requirement......................................... 336.954 4.0%
-------------------
Excess......................................................... 817,424 9.70%
-------------------
Total Risk Adjusted Capital.................................... 1,259,319 14.95%
Regulatory Requirement......................................... 673,909 8.0%
-------------------
Excess......................................................... $ 585,410 6.95%
===================
</TABLE>
The Company's risk weighted assets was $8.4 billion at December 31,
1999. The Company's leverage capital ratio at December 31, 1999 was 8.57%.
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, 2000, pursuant to the
regulations, was $28.3 million. Dividends from Superior are similarly
limited by regulations of the State of Connecticut.
Certain of North Fork's deposit liabilities acquired in previous
thrift acquisitions are insured under the SAIF fund (SAIF insured deposits
at December 31, 1999 were approximately $3.0 billion) and accordingly are
subject to higher quarterly assessments.
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, 1999 are summarized
as follows (dollars in thousands):
<TABLE>
<CAPTION>
Fixed Variable
Notional Interest Rate Interest Rate
Maturity Amount Paying Receiving
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
November 2000........................................ $100,000 4.62% 6.11%
November 2001........................................ 100,000 4.66% 6.11%
November 2001........................................ 100,000 4.72% 6.11%
May 2008............................................. 75,000 6.14% 6.13%
---------
Total Notional Amount of Interest Rate Swaps...... $375,000
=========
</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, 1999 and
1998, the Company's interest rate swaps had an unrealized gain of $13.9
million and an unrealized loss of $1.0 million, 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>
1999 1999
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................................... $623,606 $510,179
Standby letters of credit...................................... 60,473 45,229
</TABLE>
(b) LEASE COMMITMENTS
At December 31, 1999, 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:
Minimum
(in thousands) Rentals
---------
Year Ended December 31:
2000.............................................................. $ 8,220
2001.............................................................. 7,278
2002.............................................................. 6,718
2003.............................................................. 5,725
2004.............................................................. 4,777
Thereafter........................................................ 13,349
Rent expense for the years ended December 31, 1999, 1998, and 1997
amounted to $7.2 million, $6.7 million and $7.2 million, respectively.
(c) OTHER MATTERS
On February 11, 2000, shareholders approved a reduction in the par
value of the Company's common stock from $2.50 per share to $0.01 per share
and increased the Company's authorized common shares from 200 million to
500 million shares.
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 the Company's
financial condition or results of operations.
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.
(a) 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>
1999 1998
---------------------------------------------------
Carrying Estimated Carrying Estimated
(In Thousands) Amount Fair Value Amount Fair Value
---------------------------------------------------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents............. $ 403,201 $ 403,201 $293,354 $293,354
Securities Held-to-Maturity........... 1,351,504 1,299,596 1,780,002 1,783,102
Securities Available-for-Sale (1)..... 3,677,308 3,677,308 3,076,549 3,076,549
---------------------------------------------------
Total Cash, Cash Equivalents and
Securities..........................$5,432,013 $5,380,105 $5,149,905 $5,153,005
===================================================
</TABLE>
(1) Excludes $4.9 million in unrealized gains and $3.8 million in unrealized
losses on related interest swap agreements used to hedge certain debt
securities at December 31, 1999 and 1998 respectively.
(b) 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>
1999 1998
---------------------------------------------------
CARRYING ESTIMATED Carrying Estimated
(in thousands) AMOUNT FAIR VALUE Amount Fair Value
---------------------------------------------------
<S> <C> <C> <C> <C>
Gross Loans........................... $7,913,328 $7,798,864 $6,909,709 $7,110,450
===================================================
</TABLE>
(c) DEPOSIT LIABILITIES AND BORROWINGS
The carrying amount for demand deposits, savings, NOW and 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>
1999 1998
-----------------------------------------------------
Carrying Estimated Carrying Estimated
(In Thousands) Amount Fair Value Amount Fair Value
-----------------------------------------------------
<S> <C> <C> <C> <C>
Demand Deposits..................... $1,558,044 $ 1,558,044 $1,321,861 $1,321,861
Savings............................. 2,563,609 2,563,609 2,610,345 2,610,345
NOW and Money Market................ 1,034,872 1,034,872 997,124 997,124
Certificates of Deposit............. 2,485,038 2,497,373 2,648,055 2,679,799
Borrowings with terms 90 days or less 3,203,700 3,203,700 823,300 823,300
Borrowings with terms greater than 90 1,355,500 1,340,213 2,216,796 2,259,597
------------------------------------------------------
Total Deposit Liabilities & Borrowing $12,200,763 $ 12,197,811 $10,617,481 $10,692,026
======================================================
</TABLE>
(d) 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, 1999 and 1998, there was no significant unrealized
appreciation or depreciation on these financial instruments.
(E) 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>
1999 1998
---------------------------------------------------
Carrying Estimated Carrying Estimated
(In Thousands) Amount Fair Value Amount Fair Value
---------------------------------------------------
<S> <C> <C> <C> <C>
Off Balance Sheet Instruments......... $4,902 $13,930 $(3,812) $(957)
===================================================
</TABLE>
NOTE 18 - SUBSEQUENT EVENT
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 pur
Dime had total assets of $23.9 billion, net loans of $15.1 billion,
investments of $4.2 billion, deposits of $14.3 billion and stockholders'
equity of $1.5 billion at December 9.
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 that the Company
and FleetBoston's actions violate anti-trust laws. The Company is of the
opinion that the allegations raised in the Dime's complaint are without
merit and intends to contest the allegations vigorously.
NOTE 19 - RECENT ACCOUNTING PRONOUNCEMENTS
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. Management has evaluated the disclosure
requirements and determined that disclosure is not required as its
operating segments do not meet the quantitative thresholds prescribed in
SFAS 131 for all reporting periods.
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 SFAS 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.
At December 31, 1999, the Company was a party to three interest rate
swap contracts with an aggregate notional value of $375 million.
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, 1999 and 1998, 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, 1999. 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, 1999
and 1998, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1999, 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
April 10, 2000
