-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cjm6BUPBV26hRCzhmYw8/Rv3/BCgJRRI5bVmWBJ3cg1c+THJfNNznD69rGUAhqWj fft81igp6bcDaDXLK4sSVA== 0000950123-96-001315.txt : 19960607 0000950123-96-001315.hdr.sgml : 19960607 ACCESSION NUMBER: 0000950123-96-001315 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960326 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH FORK BANCORPORATION INC CENTRAL INDEX KEY: 0000352510 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 363154608 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10458 FILM NUMBER: 96538603 BUSINESS ADDRESS: STREET 1: 275 BROAD HOLLOW RD STREET 2: PO BOX 8914 CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5162985000 MAIL ADDRESS: STREET 1: 275 BROAD HOLLOW RD STREET 2: PO BOX 8914 CITY: MELVILLE STATE: NY ZIP: 11747 10-K 1 NORTH FORK BANCORPORATION, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 Commission File Number 1-10458 NORTH FORK BANCORPORATION, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-3154608 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 275 BROAD HOLLOW ROAD, MELVILLE, NEW YORK 11747 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (516) 844-1004 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock par New York Stock Exchange value $2.50 Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (X) Yes ( ) No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) As of March 15, 1996, there were 24,704,893 shares of the Registrant's common stock outstanding. The aggregate market value of the Registrant's common stock (based on the average stock price on March 15, 1996) held by non-affiliates was approximately $580,565,000. 2 DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated herein by reference in the following parts of this Annual Report: North Fork Bancorporation, Inc. 1995 Annual Report to Shareholders -- Parts I, II and IV. North Fork Bancorporation, Inc. 1996 Definitive Proxy Statement -- Part III 3 PART I ITEM 1 BUSINESS General Development of Business North Fork Bancorporation, Inc. (the "Registrant") with its executive headquarters located in Melville, New York, is a bank holding company organized under the laws of the State of Delaware in 1980 and registered under the Bank Holding Company Act of 1956, as amended. The Registrant's primary subsidiary, North Fork Bank, operates forty-nine retail banking facilities throughout Suffolk, Nassau, Queens, Westchester and Rockland Counties, New York. During 1995, North Fork Bank entered into definitive merger agreements to acquire the domestic commercial banking business of Extebank with approximately $387 million in assets and $348 million in deposits for $47 million in cash. Extebank operated seven retail banking facilities in Suffolk County and one in Manhattan, New York. Additionally, North Fork Bank entered into an Asset Purchase and Sale Agreement with First Nationwide Bank to acquire their ten Long Island branches with approximately $600 million in deposits at a deposit premium of 6.35% (see "Note 2 -- Mergers and Acquisitions" (pages 24-25) of the Registrant's 1995 Annual Report for a more detailed discussion). Both of these in-market acquisitions closed during the first quarter of 1996. On July 3, 1995, the Bank consummated its purchase of Great Neck Bancorp, the parent company of Bank of Great Neck, a Long Island based commercial bank ("Great Neck"). Great Neck with net assets of $91 million, including $49.4 million in net loans and $90.3 million in deposits, was merged into North Fork Bank. On November 30, 1994, Metro Bancshares Inc. ("Metro"), the parent company of Bayside Federal Savings Bank ("Bayside") was merged with and into the Registrant. Simultaneously, Bayside (with approximately $1.0 billion in assets, $.9 billion in deposits and $83.5 million in stockholders equity, operating through thirteen branch locations in Queens, Nassau and Suffolk Counties, New York) was merged with and into the Bank. The merger was accounted for as a pooling-of-interests, and accordingly, the Registrant's consolidated financial statements include the consolidated results of Metro. North Fork Bank is the result of the October 1, 1992 merger of the Registrant's banking subsidiaries, The North Fork Bank & Trust Company ("Bank & Trust") and Southold Savings Bank ("Southold"). Bank & Trust was merged into Southold; Southold then converted its charter from that of a state savings bank to a state commercial bank and changed its name to North Fork Bank. Prior to 1988, the Registrant's principal asset was Bank & Trust and its business consisted primarily of the ownership and operation of Bank & Trust. On August 1, 1988, the Registrant completed the acquisition of Southold, a New York State chartered savings bank. Southold expanded its branch network through the June 28, 1991 acquisition of Eastchester Financial Corporation, ("Eastchester"). Eastchester's primary asset was Eastchester Savings Bank, a $500.8 million savings bank which operated through seven branch locations in Westchester and Rockland Counties, New York. Immediately upon consummation of the acquisition. Eastchester was dissolved and its operations consolidated into those of Southold. Additionally, the Registrant and the Bank have nine active non-bank subsidiaries, none of which accounted for a significant portion of the Registrant's consolidated assets, nor contributed significantly to the Registrant's consolidated results of operations, at and for the year ended December 31, 1995. 4 DESCRIPTION OF BUSINESS The Registrant, through its bank subsidiary, provides a variety of banking and financial services to middle market and small business organizations, local governmental units, and retail customers in the metropolitan New York area. The Bank's major competitors across the entire line of its products and services are local branches of large money-center banks headquartered in New York City and other banks headquartered in New York State. Additionally, the Bank competes with other independent commercial banks in its marketplace for loans and deposits; with local savings and loan associations and savings banks for deposits and mortgage loans; with credit unions for deposits and consumer loans; with insurance companies and money market funds for deposits; and with local consumer finance organizations and the financing affiliates of consumer goods manufacturers for consumer loans, especially automobile manufacturers. In setting rate structures for the Bank's loan and deposit products, management refers to a wide variety of financial information and indices, including the rates charged or paid by the major money-center banks, both locally and in the commercial centers, and the rates fixed periodically by smaller, local competitors. The Registrant and the Bank, in their normal course of business, are subject to various regulatory statutes and guidelines. Additional information is set forth under the caption "Capital" (pages 13-14) in Management's Discussion and Analysis of the Registrant's 1995 Annual Report to Shareholders included as Exhibit 13 herewith and incorporated herein by reference. As of December 31, 1995, the Registrant and its consolidated subsidiaries had approximately 814 full-time equivalent employees. ITEM 2 PROPERTIES During 1995, the Registrant entered into a long-term lease for a portion of a four-story office building located at 275 Broad Hollow Road, Melville, New York. At December 31, 1995, the Registrant occupied 48,125 square feet which represents approximately 42% of the building's rentable space. This additional space was necessitated by the Registrant's recent acquisitions which expanded its presence in the metropolitan New York area, specifically, Queens and Nassau Counties. This facility now serves as the Registrant's administrative headquarters, and includes its lending, retail banking, trust and investment management services divisions and its recently relocated Melville branch. The Registrant maintains its operations center and mortgage origination and administration offices in a 28,300 square foot facility owned by the bank, located at 9025 Main Road, Mattituck, New York. The Bank owns twenty-six (26) buildings and occupies thirty-four (34) other facilities under various lease arrangements expiring at various times through 2014 (see "Note 14 - Other Commitments and Contingent Liabilities(b) Lease Commitments" (page 39)) of the Registrant's 1995 Annual Report to Shareholders included as Exhibit 13 herewith and incorporated herein by reference). All but six of these buildings and facilities are utilized by the Bank to provide banking and related financial services either as bank branches or as limited banking facilities (principally stand-alone ATM locations). Of the six not used for retail banking, two are owned facilities used by the data processing, loan servicing and operations departments of the Bank. The remaining space is leased to either accommodate additional office space or has been vacated and subleased as a result of relocating certain departments to 275 Broad Hollow Road, Melville. The premises occupied or leased by the Registrant and its subsidiaries are considered to be well located and suitably equipped to serve as banking and related financial services facilities. 5 ITEM 3 LEGAL PROCEEDINGS Information required by this item is set forth under the caption "Note 14 -- Other Commitments and Contingent Liabilities -- (c) Other Matters" (page 39), in the Registrant's 1995 Annual Report to Shareholders included herein as Exhibit 13 and incorporated herein by reference. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to security holders for vote during the fourth quarter of 1995. ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT The name, age, position and business experience during the past five years of each of the executive officers of the Registrant as of December 31, 1995, are presented in the following table. The officers are elected annually by the Board of Directors.
Name Age Positions Held in Most Recent 5 Years - - ---- --- ------------------------------------- John Adam Kanas 49 Chairman, President and Chief Executive Officer of the Registrant and the Bank, throughout the past 5 years. John Bohlsen 53 Vice Chairman of the Registrant (since 10/92) and of the Bank (since 12/89). Mr. Bohlsen has been President of The Helm Development Corp., a real estate company, throughout the past 5 years. Daniel M. Healy 53 Executive Vice President and Chief Financial Officer of the Registrant (since 3/92). Before that, Mr. Healy was a partner with the accounting firm of KPMG Peat Marwick LLP.
PART II ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Registrant's common stock is traded on the New York Stock Exchange under the symbol NFB. As of March 15, 1996, there were approximately 5,551 shareholders of record of the Registrant's common stock. During 1995, the Registrant declared dividends of $.125 per share for the first and second quarters, respectively, and $.15 per share for the third and fourth quarter, respectively. During 1994, the Registrant declared dividends of $.075 per share for the first and second quarters, respectively, and $.10 per share for the third and fourth quarters, respectively (dividends declared are exclusive of dividends declared by Metro prior to merger). For additional information regarding dividends and restrictions thereon, and market price information, refer to the "Selected Financial Data" (page 1), the "Liquidity" section of Management's Discussion and Analysis (pages 9-10), the "Selected Statistical Data" (page 16), "Note 8 - Long Term Borrowings" (page 29), and "Note 13 - Regulatory Matters" (page 37) of the Registrant's 1995 Annual Report to Shareholders included herewith as Exhibit 13 and incorporated herein by reference. 6 ITEM 6 SELECTED FINANCIAL DATA The information required by this item is set forth in "Selected Financial Data" (page 1) of the Registrant's 1995 Annual Report to Shareholders included herewith as Exhibit 13 and incorporated herein by reference. ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is set forth in Management's Discussion and Analysis, (pages 3-15) of the Registrant's 1995 Annual Report to Shareholders included herewith as Exhibit 13 and incorporated herein by reference. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following information is set forth in the Registrant's 1995 Annual Report to Shareholders included herewith as Exhibit 13 and incorporated herein by reference: Unaudited Consolidated Quarterly Financial Information (page 16); the Consolidated Financial Statements (pages 17-21); the Notes to the Consolidated Financial Statements (pages 22-41); the Independent Auditors' Report (page 42); and the Report of Management (page 43). ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in or disagreements with accountants on accounting and financial disclosure as defined by Item 304 of Regulation S-K. PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is set forth under the caption "Election of Directors and Information with Respect to Directors and Officers" (pages 2-6) in the Registrant's Definitive Proxy Statement for its Annual Meeting of Stockholders to be held April 23, 1996, which is incorporated herein by reference, and in Part I of this report under the caption "Executive Officers of the Registrant". ITEM 11 EXECUTIVE COMPENSATION The information required by this item is set forth under the captions "Compensation of Directors" (pages 6 - 7), "Executive Compensation" (pages 8-19), and "Retirement Plans" (pages 19-20) in the Registrant's Definitive Proxy Statement for its Annual Meeting of Stockholder's to be held April 23, 1996, which is incorporated herein by reference. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is set forth under the caption "Certain Beneficial Ownership" and "Nominees for Director and Directors Continuing in Office" (pages 2-6) in the Registrant's Definitive Proxy Statement for its Annual Meeting of Stockholder's to be held April 23, 1996, which is incorporated herein by reference. 7 ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is set forth under the caption "Transactions with Directors, Executive Officers and Associated Persons" (page 20) in the Registrant's Definitive Proxy Statement for its Annual Meeting of Stockholders to be held April 23, 1996, which is incorporated herein by reference. PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The consolidated financial statements, including notes thereto, and financial schedules of the Registrant, required in response to this item is set forth in response to Part II, Item 8 of this Annual Report are incorporated herein by reference in the Registrant's 1995 Annual Report to Shareholders filed herewith as Exhibit 13. 1. Financial Statements Page # Consolidated Statements of Income 17 Consolidated Balance Sheets 18 Consolidated Statements of Cash Flows 19-20 Consolidated Statements of Changes 21 in Stockholders' Equity Notes to Consolidated Financial Statements 22-41 Report of Independent Public Accountants 42 2. Financial Statement Schedules Schedules to the consolidated financial statements required by Article 9 of Regulation S-X and all other schedules to the consolidated financial statements of the Registrant have been omitted because they are either not required, are not applicable or are included in the consolidated financial statements or notes thereto, which is incorporated herein by reference. 3. Exhibits The exhibits listed on the Exhibit Index page of this Annual Report are incorporated by reference or filed herewith as required by Item 601 of Regulation S-K (each management contract or compensatory plan or arrangement listed therein is identified). (b) Current Reports on Form 8-K The Registrant has not filed any reports on Form 8-K during the last quarter of the year ended December 31, 1995. 8 Pursuant to the requirements of Section 13 or 15(d) of this Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NORTH FORK BANCORPORATION, INC. BY: /s/ John A. Kanas ------------------------------------- JOHN A. KANAS President and Chief Executive Officer Dated: March 26, 1996 9 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signature Title Date /s/ John A. Kanas Director, President, March 26, 1996 - - ------------------------- Chief Executive Officer, John A. Kanas and Chairman of the Board (Principal Executive Officer) /s/ Daniel M. Healy Executive Vice President and March 26, 1996 - - ------------------------- Chief Financial Officer Daniel M. Healy (Principal Accounting Officer) /s/ John Bohlsen Director March 26, 1996 - - ------------------------- Vice Chairman of the Board John Bohlsen /s/ Malcolm J. Delaney Director March 26, 1996 - - ------------------------- Malcolm J. Delaney /s/ Allan C. Dickerson Director March 26, 1996 - - ------------------------- Allan C. Dickerson /s/ Lloyd A. Gerard Director March 26, 1996 - - ------------------------- Lloyd A. Gerard /s/ James F. Reeve Director March 26, 1996 - - ------------------------- James F. Reeve /s/ James H. Rich, Jr. Director March 26, 1996 - - ------------------------- James H. Rich, Jr. /s/ George H. Rowsom Director March 26, 1996 - - ------------------------- George H. Rowsom /s/ Raymond W. Terry, Jr. Director March 26, 1996 - - ------------------------- Raymond W. Terry, Jr. /s/ Dr. Kurt R. Schmeller Director March 26, 1996 - - ------------------------- Dr. Kurt R. Schmeller 10 EXHIBIT INDEX
Exhibit Number Description Method of Filing ------- ----------- ---------------- 2.1 Stock Purchase Agreement Filed herewith. dated as of September 19, 1995, among North Fork Bank and Banco Exterior de Espana, S.A. 2.2 Asset Purchase and Sale Agree- Filed herewith. ment dated as of September 28, 1995, among North Fork Bank and First Nationwide Bank. 3.1 Articles of Incorporation Previously filed on Form S-3 dated 8/16/91 as of North Fork Bancorporation, Inc. Exhibit 4(b) (Registration No. 33-42294) and incorporated herein by reference. 3.2 By-Laws of North Fork Bancorpor- Previously filed on Form 10K for the year ation, as amended, effective ended December 31, 1993 dated 3/9/94, 7/28/92. as Exhibit 3(b) and incorporated herein by reference. 4.1 Rights Agreement dated Incorporated by reference to Form 8-A 2/28/89, between North Fork Registration Statement dated 3/21/89. Bancorporation, Inc. and North Fork Bank, as rights agent. 10.1 North Fork Bancorporation, Inc. Previously filed with post-effective Dividend Reinvestment and Stock Amendment #1 to the Registrant's Purchase Plan, as amended. registration statement on Form S-3 dated 5/16/95 (Registration No. 33-54222) and incorporated herein by reference. 10.2(a) North Fork Bancorporation, Inc. Previously filed on Form S-8 dated 12/1/82 1982 Incentive Stock Option Plan. (Registration No. 2-80676) and incorporated herein by reference. 10.3(a) North Fork Bancorporation, Inc. Previously filed on Form S-8 dated 8/29/85 1985 Incentive Stock Option Plan. (Registration No. 2-99984) and incorporated herein by reference. 10.4(a) North Fork Bancorporation, Inc. Previously filed on Form S-8 dated 6/12/87 1987 Long Term Incentive Plan. (Registration No. 33-14903) and incorporated herein by reference. 10.5(a) North Fork Bancorporation, Inc. Previously filed on Form S-8 dated 4/17/90 1989 Executive Management (Registration No. 33-34372) and incorporated Compensation Plan. herein by reference.
11 EXHIBIT INDEX (continued)
EXHIBIT NUMBER DESCRIPTION METHOD OF FILING - - ------- ----------- ---------------- 10.6(a) North Fork Bancorporation, Inc. Previously filed as Exhibit 4 to the Registrant's 401(k) Retirement Savings Plan, registration statement on Form S-8 dated as amended. 2/2/96 (Registration No. 333-00675) and incorporated herein by reference. 10.7(a) North Fork Bancorporation, Inc. Previously filed on Form S-8 dated 5/4/94 1994 Key Employee Stock Plan. (Registration No. 33-53467) and incorporated herein by reference. 10.8(a) North Fork Bancorporation, Inc. Previously filed on Form S-8 dated 12/5/94 The Secondary Stock Option Plan, (Registration No. 33-56743) and incorporated the Secondary Incentive Stock herein by reference. Option Plan, the Secondary 1993 Stock Option Plan, and the Secondary 1993 Incentive Stock Option Plan resulting from the merger with Metro Bancshares Inc. 10.9(a) North Fork Bancorporation, Inc. Previously filed on Form 10-K for the year Performance Plan. ended December 31, 1994 dated 3/28/95, as Exhibit 10.9 and incorporated herein by reference. 10.10(a) Form of Change-in-Control Previously filed as Exhibit 10.2 Agreement, as entered into to Quarterly Report on Form 10-Q between North Fork Bancorporation, for the quarter ended March 31, Inc. and each of John A. Kanas, 1995, and incorporated herein by John Bohlsen and Daniel M. reference. Healy, each dated December 20, 1994. 10.11(a) Letter Agreement dated Filed herewith. September 14, 1995 between North Fork Bank and Mindy Butler, regarding the cessation of Ms. Butler's employment. 11 Statement re: Computation of Filed herewith earnings per share. 13 All portions of the Registrant's Filed herewith 1995 Annual Report to Shareholders that are incorporated herein by reference. 21 Subsidiaries of Registrant. Filed herewith
12 EXHIBIT INDEX (continued)
EXHIBIT NUMBER DESCRIPTION METHOD OF FILING - - ------- ----------- ---------------- 22 Registrant's Definitive Proxy Previously filed on 3/20/96 Pursuant to Statement for its Annual Meeting Section 14(a) of the Securities Exchange of Stockholders. Act of 1934 and incorporated herein by reference. 23 Accountants' Consent. Filed herewith. 27 Financial Data Schedule. Only included in electronic filing
(a) Management Contract or Compensatory Plan arrangement. EX-2.1 2 STOCK PURCHASE AGREEMENT 1 EXHIBIT 2.1 STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT, dated as of September 19, 1995, by and among North Fork Bank, a New York-chartered stock commercial bank ("NFB"), Banco Exterior de Espana, S.A., a banking corporation organized under the laws of the Kingdom of Spain (the "Company"), and Extebank, a New York-chartered stock commercial bank and a wholly-owned subsidiary of the Company (the "Company Bank"). WHEREAS, the Company Bank is engaged in both domestic and international banking operations; WHEREAS, NFB seeks to purchase all of the capital stock of the Company Bank (the "Stock Purchase"), and thereby acquire the domestic banking business of the Company Bank and its Subsidiaries (as hereinafter defined) as such business is described in the draft "Management's Discussion and Analysis of Financial Condition and Results of Operations" (hereinafter referred to as the "Domestic Business"); WHEREAS, prior to the Stock Purchase, the Company Bank will transfer to the Company the International Business (as hereinafter defined); WHEREAS, NFB (which is sometimes hereinafter referred to as the "Surviving Bank") and the Company Bank will enter into a Subsidiary Agreement and Plan of Merger (which shall be a plan of complete liquidation of the Company Bank for purposes of Sections 332(a) and 337(a) of the Internal Revenue Code of 1986, as amended (the "Code")) substantially in the form of Exhibit A hereto (the "Bank Merger Agreement") providing for the merger (the "Merger") of the Company Bank with and into NFB immediately following the Closing; and 2 WHEREAS, the parties desire to make certain representations, warranties and agreements in connection with the Stock Purchase and also to prescribe certain conditions to the consummation of such transaction. NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained herein, and intending to be legally bound hereby, the parties agree as follows: ARTICLE I THE PURCHASE AND SALE OF SHARES 1.1. Transfer of Shares by the Company. Subject to the terms and conditions of this Agreement, at the Closing (as defined below), the Company agrees to sell 619,597 shares (the "Shares") of the Company Bank's common stock, par value $5.00 per share (the "Common Stock"), and deliver the certificates evidencing the Shares to NFB, free and clear of all Encumbrances (as defined below). 1.2. Purchase of Shares by the Bank; Purchase Price. Subject to the terms and conditions of this Agreement, NFB agrees to acquire the Shares from the Company and to pay U.S. $47 million (the "Purchase Price") to the Company; provided, that if the Closing Date occurs after January 16, 1996, and if, prior to such date, the covenant contained in Section 5.17 shall have been breached by NFB, the Purchase Price shall be an amount equal to the product obtained by multiplying (i) $47,000,000, (ii) the quotient obtained by dividing (a) the number of days elapsed between January 17, 1996 and the Closing Date by (b) 360 and (iii) the Federal Funds Rate as published in the "Money Rates" section of the Wall Street Journal as of January 17, 1996. 3 1.3. Closing; Payment of Purchase Price. (a) The sale and purchase of the Shares (the "Closing") hereunder shall be deemed to occur at the close of business on the Closing Date (as defined below). Subject to the terms and conditions of this Agreement, the parties hereto shall use their best efforts to cause the Closing Date to be January 2, 1996 or on a business day as soon as reasonably practicable thereafter (the "Closing Date"). The Closing shall take place at 9:00 a.m., local time, on the Closing Date at the offices of NFB's counsel. (b) On the Closing Date, the following actions shall be taken: (i) NFB shall pay the Purchase Price to the Company by wire transfer of immediately available funds to such account or accounts as the Company shall designate in writing at least two business days prior to the Closing Date; (ii) NFB shall pay up to $1,350,000 of the fees and expenses of the firms listed on Section 2.7 of the Disclosure Schedule; (iii) the Company shall deliver certificates for the Shares, duly endorsed in blank or with stock powers duly endorsed in blank, together with such other documents as NFB may reasonably request to evidence the transfer to NFB of good and valid title in and to all of the Shares, free and clear of any and all Encumbrances (as defined below); (iv) immediately following the Closing, the Company Bank shall merge into NFB pursuant to the terms of the Bank Merger Agreement; and (v) each party shall take such other actions, and shall execute and deliver such other instruments or documents, as shall be required under the terms of this Agreement and the Bank Merger Agreement. ARTICLE II 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to NFB as follows: 2.1. Corporate Organization. (a) The Company is a corporation duly organized and validly existing under the laws of the Kingdom of Spain. (b) The Company Bank is a commercial bank duly organized, validly existing and in good standing under the laws of the State of New York. The deposit accounts of the Company Bank are insured by the Federal Deposit Insurance Corporation (the "FDIC") through the Bank Insurance Fund to the fullest extent permitted by the Federal Deposit Insurance Act, and all premiums and assessments required to be paid in connection therewith have been paid by the Company Bank. The Company Bank has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted and is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or the location of the properties and assets owned or leased by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified would not have a Material Adverse Effect (as hereinafter defined). Each Subsidiary of the Company Bank has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted, and is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified would not have a Material Adverse Effect. The articles of organization and by-laws of the Company Bank, copies of which are attached to Section 2.1 of the Disclosure Schedule which is being delivered to NFB 5 concurrently herewith (the "Disclosure Schedule"), are true, complete and correct copies of such documents as in effect as of the date of this Agreement. As used in this Agreement, the term "Material Adverse Effect" means a material adverse effect on the business, properties, assets, liabilities, results of operations or financial condition of the Company Bank and its Subsidiaries taken as a whole; provided, however, that for purposes of determining whether any event or condition has had a Material Adverse Effect, the Company Bank and its Subsidiaries shall be considered without regard to the International Business. As used in this Agreement, the word "Subsidiary" when used with respect to any party means any corporation, partnership or other organization, whether incorporated or unincorporated, which is consolidated with such party for financial reporting purposes. (c) The minute books of the Company Bank and each of its Subsidiaries contain true, complete and accurate records in all material respects of all meetings and other corporate actions held or taken since December 31, 1992 of their respective stockholders and Boards of Directors (including committees of their respective Boards of Directors). 2.2. Capitalization. (a) The Company owns, beneficially and of record, all of the Shares, free and clear of all liens, claims, charges, encumbrances and security interests (collectively, "Encumbrances") whatsoever, and the Shares are duly authorized and validly issued and are fully paid, nonassessable (except to the extent required by Sections 114 and 632 of the New York Banking Law) and free of preemptive rights, with no personal liability attaching to the ownership thereof (except as aforesaid). The authorized capital stock of the Company Bank consists of 619,597 shares of Common Stock all of which shares are issued and outstanding and no shares are held in the Company Bank's treasury. Other than the Shares, there are no shares of 6 capital stock of the Company Bank issued or outstanding. There are no shares of Common Stock reserved for issuance. Except for this Agreement, there are no outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of Common Stock or any other equity security of the Company Bank or any securities representing the right to purchase or otherwise receive any shares of Common Stock or any other equity security of the Company Bank. (b) Section 2.2(b) of the Disclosure Schedule sets forth a true, complete and correct list of all of the Subsidiaries of the Company Bank. The Company Bank owns, directly or indirectly, all of the issued and outstanding shares of the capital stock of each of such Subsidiaries, free and clear of all Encumbrances, and all of such shares are duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights with no personal liability attaching to the ownership thereof. No Subsidiary of the Company Bank has or is bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of capital stock or any other equity security of such Subsidiary or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of such Subsidiary. Except for the Subsidiaries of the Company Bank, there are no Affiliates of the Company Bank engaged in the Domestic Business in the Region (as hereinafter defined) other than intercompany transactions between the Company and such Affiliates. As used in this Agreement, the term "Affiliate" shall have the meaning given such term in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date of this Agreement. 7 2.3. Authority; No Violation. (a) The Company has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the Company, and no other corporate proceedings on the part of the Company are necessary to approve this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Company and (assuming the due authorization, execution and delivery by NFB) constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as enforcement may be limited by laws affecting insured depository institutions, general principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally (including laws affecting the rights and remedies of creditors of insured depository institutions). (b) The Company Bank has full corporate power and authority to execute and deliver this Agreement and the Bank Merger Agreement and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Bank Merger Agreement, and the consummation of the transactions contemplated hereby and thereby, have been duly and validly approved by the Board of Directors of the Company Bank and by the Company as the sole stockholder of the Company Bank, and no other corporate proceedings on the part of the Company Bank are necessary to approve this Agreement and the Bank Merger Agreement and to consummate the transactions contemplated hereby and thereby. This Agreement has been duly and validly executed and delivered by the Company Bank and (assuming 8 the due authorization, execution and delivery by NFB) constitutes a valid and binding agreement of the Company Bank, enforceable against the Company Bank in accordance with its terms, except as enforcement may be limited by laws affecting insured depository institutions, general principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally (including laws affecting the rights and remedies of creditors of insured depository institutions). The Bank Merger Agreement, upon execution and delivery by the Company Bank, will be duly and validly executed and delivered by the Company Bank and will (assuming due authorization, execution and delivery by NFB) constitute a valid and binding agreement of the Company Bank, enforceable against the Company Bank in accordance with its terms, except as enforcement may be limited by laws affecting insured depository institutions, general principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally (including laws affecting the rights and remedies of creditors of insured depository institutions). (c) Except as set forth in Section 2.3(c) of the Disclosure Schedule, neither the execution and delivery of this Agreement by the Company or by the Company Bank nor the execution and delivery of the Bank Merger Agreement by the Company Bank nor the consummation by the Company or the Company Bank, as the case may be, of the transactions contemplated hereby or thereby, nor compliance by the Company or the Company Bank, as the case may be, with any of the terms or provisions hereof or thereof, will (i) violate any provision of the Estatutos of the Company or the articles of organization or by-laws of the Company Bank or any of its Subsidiaries, or (ii) assuming that the consents and approvals referred to in Section 2.4 9 hereof are duly obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to the Company, the Company Bank or any Subsidiaries of the Company Bank, or any of their respective properties or assets, or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any lien, pledge, security interest, charge or other encumbrance upon any of the respective properties or assets of the Company, the Company Bank or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which the Company, the Company Bank or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected, except for such violations, conflicts, breaches or defaults which, either individually or in the aggregate, would not have a Material Adverse Effect. 2.4. Consents and Approvals. Except for (a) the filing of applications and notices, as applicable, with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") under the Bank Holding Company Act of 1956, as amended (the "BHC Act"), the FDIC under the Bank Merger Act, as amended (the "Bank Merger Act"), the New York State Banking Department (the "Banking Department") under the New York Banking Law, and the approval of, and expiration of waiting periods relating to, such applications and notices, as the case may be, and (b) such additional filings, authorizations, consents or approvals as may be set forth in Section 2.4 of the Disclosure Schedule, no consents or approvals of or filings or registrations with any 10 court, administrative agency or commission or other governmental authority or instrumentality, whether foreign, federal, state or local (each a "Governmental Entity") or with any third party are necessary in connection with (1) the execution and delivery by the Company and the Company Bank of this Agreement, (2) the consummation by the Company and the Company Bank of the transactions contemplated hereby, (3) the execution and delivery by the Company Bank of the Bank Merger Agreement and (4) the consummation by the Company Bank of the Merger and the transactions contemplated by the Bank Merger Agreement except, in each case, for consents, approvals, filings or registrations the failure to obtain or make, either individually or in the aggregate, would not have a Material Adverse Effect. 2.5. Reports. The Company Bank and each of its Subsidiaries have filed all material reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since December 31, 1992 with or pursuant to the requirements of (i) the Federal Reserve Board, (ii) the FDIC, (iii) the Banking Department, (iv) any foreign Governmental Entity and (v) any other self-regulatory organization, and have paid all fees and assessments due and payable in connection therewith. Except for examinations conducted by a Governmental Entity in the regular course of the business of the Company Bank and its Subsidiaries, and except as set forth in Section 2.5 of the Disclosure Schedule, no Governmental Entity has initiated any proceeding or, to the knowledge of the Company Bank, investigation into the business or operations of the Company Bank or any of its Subsidiaries since December 31, 1992. There is no unresolved material violation or material criticism asserted or made by any Governmental Entity contained in any report or statement relating to any examination of the Company Bank or any of its Subsidiaries. 11 2.6. Financial Statements. (a) The Company has delivered to NFB copies of (i) the audited consolidated balance sheets of the Company Bank and its Subsidiaries as of December 31, 1994 and 1993 and the related consolidated statements of income, shareholders' equity and cash flows for the years then ended, in each case accompanied by the audit report of Arthur Andersen LLP, independent public accountants with respect to the Company Bank ("Arthur Andersen") and (ii) the audited consolidated balance sheet of the Company Bank and its Subsidiaries as of June 30, 1995 (the "June 30 Balance Sheet") and the related audited consolidated statement of income for the six-month period then ended (the "June 30 Income Statement"), accompanied by the audit report of Arthur Andersen. The December 31, 1994 consolidated balance sheet of the Company Bank and the June 30 Balance Sheet (including in each case the related notes, where applicable) fairly present the consolidated financial position of the Company Bank and its Subsidiaries as of the dates thereof, and the other financial statements referred to in this Section 2.6 (including the related notes, where applicable) fairly present (subject, in the case of unaudited statements, to recurring audit adjustments normal in nature and not material in amount), the results of the consolidated operations and consolidated financial position of the Company Bank and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth; each of such statements (including the related notes, where applicable) comply in all material respects with applicable accounting requirements; and each of such statements (including the related notes, where applicable) has been prepared in accordance with GAAP consistently applied during the periods involved. The books and records of the Company Bank and its Subsidiaries have been, and are being, maintained in all material respects in 12 accordance with generally accepted accounting principles ("GAAP") and any other applicable legal and accounting requirements and reflect only actual transactions. (b) The column entitled "Domestic" on the June 30 Balance Sheet fairly presents the pro forma consolidated financial position of the Domestic Business as of the date thereof. The column entitled "Domestic" on the June 30 Income Statement fairly presents the pro forma results of the consolidated operations of the Domestic Business for the fiscal period therein set forth. 2.7. Broker's Fees. Neither the Company nor the Company Bank nor any of the Subsidiaries of the Company Bank nor any of their respective officers or directors has employed any broker or finder or incurred any liability for any broker's fees, commissions or finder's fees in connection with any of the transactions contemplated by this Agreement, except that the Company has engaged the firms listed on Section 2.7 of the Disclosure Schedule in accordance with the terms of letter agreements, true, complete and correct copies of which are attached to Section 2.7 of the Disclosure Schedule. 2.8. Absence of Certain Changes or Events. Except as may be set forth in Section 2.8 of the Disclosure Schedule or as expressly permitted by this Agreement, since June 30, 1995: (a) neither the Company Bank nor any of its Subsidiaries has: (i) issued or sold any equity securities; (ii) mortgaged, pledged or subjected to any Encumbrance or lease any of its material assets, tangible or intangible, or permitted or suffered any such asset to be subjected to any Encumbrance or lease, except in the ordinary course of business; (iii) acquired or disposed of any material assets or properties, or entered into any contract for any such acquisition or disposition, except acquisitions and dispositions effected in the ordinary course of business; (iv) solely with 13 respect to the Company Bank, declared, paid, or set apart any sum or property for any dividend or other distribution or paid or transferred any funds or property to its shareholders or, directly or indirectly, redeemed or otherwise acquired any of its capital stock; (v) other than in the ordinary course of business, increased the wages, salaries, compensation, pension, or other fringe benefits or perquisites payable to any executive officer, employee, or director from the amount in effect as of December 31, 1994, granted any severance or termination pay, entered into any contract to make or grant any severance or termination pay, or paid any bonus; (vi) forgiven or canceled any material indebtedness or contractual obligation; (vii) suffered any material strike, work stoppage, slow-down, or other labor disturbance; (viii) entered into any lease of real or personal property, except for any lease involving payment of amounts not in excess of $25,000 per annum; or (ix) entered into any other material transaction other than in the ordinary course of business; and (b) no event other than changes in general conditions (including laws and regulations) applicable to the banking industry, or in general economic conditions, has occurred which has caused a Material Adverse Effect. 2.9. Legal Proceedings. (a) Except as set forth in Section 2.9 of the Disclosure Schedule, neither the Company Bank nor any of its Subsidiaries is a party to any, and there are no pending or, to the Company Bank's knowledge, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature (collectively, "Proceedings") against the Company Bank or any of its Subsidiaries or challenging the validity or propriety of the transactions contemplated by this Agreement as to which there is a reasonable probability of an adverse determination and which, if adversely determined, would, individually or in the aggregate, have a Material Adverse Effect. 14 (b) Except as set forth in Section 2.9(b) of the Disclosure Schedule, there is no injunction, order, judgment, decree, or regulatory restriction imposed upon the Company Bank or any of its Subsidiaries or any of their respective assets which has had a Material Adverse Effect. (c) Section 2.9 of the Disclosure Schedule sets forth all Proceedings pending as of the date hereof against the Company Bank or any of its Subsidiaries, indicating for each such Proceeding a brief description of the nature of the claim, the remedy sought, the identity of the parties, the forum in which the claim has been brought and the procedural posture of the Proceeding. 2.10. Taxes. Except as set forth in Schedule 2.10 of the Disclosure Schedule and except as, individually or in the aggregate, would not have a Material Adverse Effect: (a) all returns, declarations, reports, estimates, information returns and statements required to be filed under federal, state, local or any foreign tax laws by or on behalf of the Company Bank or any of its Subsidiaries or any affiliated, combined or unitary group of which the Company Bank or any of its Subsidiaries is or was a member ("Returns") have been timely filed and were true, complete and correct; (b) the Company Bank and each of its Subsidiaries has paid or has had paid on its behalf, within the time and in the manner prescribed by law, all Taxes for which it is liable including, without limitation, withholding Taxes as described in Sections 1441 and 1442 of the Code or similar provisions under any foreign laws and all withholding from employee wages or other remuneration, or has established reserves with respect thereto pursuant to Section 2.10(c) of the Disclosure Schedule; 15 (c) the reserves for Taxes (except for deferred Taxes) reflected on the books and records of the Company Bank and its Subsidiaries are sufficient for the payment of all unpaid Taxes (whether or not currently disputed) which are incurred or may be incurred with respect to the period reflected by such books and records and for all years and periods ended prior thereto; (d) reserved; (e) the statute of limitations for the assessment of federal income Taxes with respect to the Company Bank and each of its Subsidiaries has expired for all periods through 1990; (f) neither the Company Bank nor any of its Subsidiaries has requested any extension of time within which to file any Return, which Return has not since been filed; (g) there are no outstanding waivers of any statute of limitations with respect to any taxable year or period or any Return of the Company Bank or any of its Subsidiaries; (h) no federal, state, local or foreign audits or other administrative proceedings or court proceedings are presently pending against the Company Bank or any of its Subsidiaries; (i) no power of attorney has been granted by the Company Bank or any of its Subsidiaries with respect to any matter relating to Taxes which is currently in force; (j) there are no liens for Taxes upon any property or assets of the Company Bank or any of its Subsidiaries, except for liens for Taxes not yet due; 16 (k) neither the Company Bank nor any of its Subsidiaries (A) is a party to any agreement providing for the allocation or sharing of Taxes or (B) is required to include in income any adjustment pursuant to Section 481(a) of the Code, and none of the Company, the Company Bank or any of its Subsidiaries has knowledge that the Internal Revenue Service has proposed any such adjustment or change in accounting method; (l) neither the Company Bank nor any of its Subsidiaries is a party to any agreement, contract or arrangement that could result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code; (m) neither the Company Bank nor any of its Subsidiaries has participated in or cooperated with an international boycott within the meaning of Section 999 of the Code; (n) neither the Company Bank nor any of its Subsidiaries has filed a consent pursuant to section 341(f) of the Code or agreed to have section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code); (o) no property of the Company or any of its Subsidiaries is property that the Company Bank or any of its Subsidiaries is or will be required to treat as being owned by another person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended, as in effect prior to the enactment of the Tax Reform Act of 1986 or is "tax-exempt use property" within the meaning of Section 168 of the Code; (p) neither the Company Bank nor any of its Subsidiaries computes its bad debt reserves in accordance with Section 593 of the Code; 17 (q) neither the Company Bank nor any of its Subsidiaries is a "loss corporation" within the meaning of Section 382(k)(1) of the Code; (r) the Company Bank is not and, during the applicable period specified in Section 897(c)(1)(ii) of the Code, has not been a United States real property holding company (as defined in Section 897(c)(2) of the Code); and (s) neither the Company Bank nor any of its Subsidiaries is subject to the provisions of Section 1503(d) of the Code. For purposes of this Agreement, "Taxes" shall mean all taxes, charges, fees, levies or other assessments, including, without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, goods and services, capital, transfer, franchise, profits, license, withholding, payroll, employment, employer health, excise, estimated, severance, stamp, occupation, property or other taxes, customs duties, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority (domestic or foreign). 2.11. Employees. (a) Other than as set forth in Section 2.11(a) of the Disclosure Schedule, there are no employee benefit plans, arrangements or agreements ("Plans") that are maintained or contributed to or required to be contributed to by the Company Bank, any of its Subsidiaries or by any trade or business, whether or not incorporated (an "ERISA Affiliate"), all of which together with the Company Bank would be deemed a "single employer" within the meaning of Section 4001 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), for the benefit of any employee or former employee of the Company Bank or any of its Subsidiaries. 18 (b) Except as set forth in Section 2.11(b) of the Disclosure Schedule, (i) each of the Plans has been operated and administered in all material respects in accordance with its terms and applicable law, including but not limited to ERISA and the Code, (ii) each of the Plans intended to be "qualified" within the meaning of Section 401(a) of the Code is so qualified, (iii) with respect to each Plan which is an "employee benefit plan" as defined in Section 3(3) of ERISA and which is subject to Title IV of ERISA, the present value of accrued benefits under such Plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such Plan's actuary with respect to such Plan, did not, as of its latest valuation date, exceed the then current value of the assets of such Plan allocable to such accrued benefits, (iv) no Plan provides benefits, including without limitation death or medical benefits (whether or not insured), with respect to current or former employees of the Company Bank, any of its Subsidiaries or any ERISA Affiliate beyond their retirement or other termination of service, other than (w) coverage mandated by applicable law, (x) death benefits or retirement benefits under any "employee pension plan," as that term is defined in Section 3(2) of ERISA, (y) deferred compensation benefits accrued as liabilities on the books of the Company Bank, any of its Subsidiaries or the ERISA Affiliates or (z) benefits the full cost of which is borne by the current or former employee (or his beneficiary), (v) no plan which is an "employee benefit plan" as defined in Section 3(3) of ERISA and which is subject to Title IV of ERISA has been terminated or completely or partially withdrawn from so as to result, directly or indirectly, in any liability under Title IV of ERISA of the Company Bank or any of its Subsidiaries that has not been satisfied in full, (vi) no Plan is a "multiemployer pension plan," as such term is defined in Section 3(37) of ERISA, (vii) all contributions or other amounts payable by the Company Bank, any of its 19 Subsidiaries or any ERISA Affiliates with respect to each Plan in respect of current or prior plan years have been paid or accrued in accordance with GAAP and Section 412 of the Code, (viii) neither the Company Bank, any of its Subsidiaries nor any ERISA Affiliate has engaged in a transaction in connection with which the Company Bank or any of its Subsidiaries could be subject to either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975 or 4976 of the Code and (ix) there are no material pending, or, to the knowledge of the Company Bank, threatened or anticipated claims (other than routine claims for benefits) by, on behalf of or against any of the Plans or any trusts related thereto and (x) the consummation of the transactions contemplated by this Agreement will not accelerate the time of payment or vesting or increase the amount of compensation due any such employee or officer. (c) Except as set forth in Section 2.11(c) of the Disclosure Schedule, the Company Bank has no obligations under any stock option or stock performance-based plans of the Company Bank or any of its Subsidiaries. 2.12. Compliance with Applicable Law. The Company Bank and each of its Subsidiaries hold all licenses, franchises, permits and authorizations (each, a "License") necessary for the lawful conduct of their respective businesses under and pursuant to all, and have complied with and are not in default in any respect under any, applicable laws, statutes, orders, rules, regulations, policies and/or guidelines of any Governmental Entity relating to the Company Bank or any of its Subsidiaries, except where the failure to hold such License or such noncompliance or default would not, individually or in the aggregate, have a Material Adverse Effect, and neither 20 the Company Bank nor any of its Subsidiaries knows of, or has received notice of, any material violations of any such laws, statutes, orders, rules, regulations, policies and/or guidelines. 2.13. Contracts. (a) Except as set forth in Section 2.13(a) of the Disclosure Schedule, neither the Company Bank nor any of its Subsidiaries is a party to or bound by any contract, arrangement, plan, commitment or understanding (whether written or oral) (i) with respect to the employment of any directors, officers, employees or consultants, (ii) which, upon the consummation of the transactions contemplated by this Agreement, will (either alone or upon the occurrence of any additional acts or events) result in any payment (whether of severance pay or otherwise) becoming due from NFB, the Company, the Company Bank, or any of their respective Subsidiaries to any officer or employee thereof, (iii) which is an agreement involving the payment of more than $40,000 per annum, (iv) which materially restricts the conduct of any line of business by the Company Bank or its Subsidiaries or (v) is a collective bargaining agreement. Each contract, arrangement, plan, commitment or understanding of the type described in this Section 2.13(a), whether or not set forth in Section 2.13(a) of the Disclosure Schedule, is referred to herein as a "Covered Contract". The Company Bank has previously delivered to the Bank true and correct copies of each Covered Contract. (b) Except as set forth in Section 2.13(b) of the Disclosure Schedule, (i) each Covered Contract is valid and binding and in full force and effect, (ii) the Company Bank and each of its Subsidiaries have in all material respects performed all obligations required to be performed by it under each Covered Contract, except where such noncompliance, individually or in the aggregate, would not have a Material Adverse Effect, (iii) no event or condition exists which constitutes or, after notice or lapse of time or both, would constitute, a material default on 21 the part of the Company Bank or any of its Subsidiaries under any such Covered Contract, except where such default, individually or in the aggregate, would not have a Material Adverse Effect and (iv) no other party to such Covered Contract is, to the knowledge of the Company Bank, in default in any material respect thereunder. 2.14. Agreements with Regulatory Agencies. Except as set forth in Section 2.14 of the Disclosure Schedule, neither the Company Bank nor any of its Subsidiaries is subject to any cease-and-desist or other written order or written directive issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a recipient of any extraordinary supervisory letter from, or has adopted any board resolutions at the request of (each, whether or not set forth on Section 2.14 of the Disclosure Schedule, a "Regulatory Agreement"), any state, federal or foreign bank regulatory authority that restricts the conduct of its business or that in any manner relates to its capital adequacy, its credit policies, its management or its business, nor has the Company Bank or any of its Subsidiaries been advised by any state, federal or foreign bank regulatory authority that it is considering issuing or requesting any Regulatory Agreement. 2.15. Investment Securities. Section 2.15 of the Disclosure Schedule sets forth (i) the book and estimated market value as of August 31, 1995 of the investment securities, mortgage-backed securities and securities held for sale of the Company Bank and its Subsidiaries and (ii) an investment securities report as of such date which includes security descriptions, CUSIP numbers, pool face values, book values and coupon rates. Except for the above-described securities that are Transferred Assets, none of such securities are denominated in currencies other 22 than U.S. dollars, except for such securities which do not have a market value that exceeds U.S. $1,000,000. 2.16. Undisclosed Liabilities. Except (a) as set forth in the Disclosure Schedule, (b) for those liabilities that are fully reflected or reserved against on the June 30 Balance Sheet, (c) for liabilities incurred in the ordinary course of business consistent with past practice since June 30, 1995 and (d) for liabilities which are being assumed by the Company pursuant to Section 5.10, neither the Company Bank nor any of its Subsidiaries has incurred any liability of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or to become due), except for liabilities that are not material to the Company Bank and its Subsidiaries taken as a whole, without regard to the International Business. 2.17. Reserved. 2.18. Environmental Matters. Except as set forth in Section 2.18 of the Disclosure Schedule: (a) Each of the Company Bank and its Subsidiaries are, and have been, in compliance with all applicable federal, state and local laws including common law, regulations and ordinances and with all applicable decrees, orders and contractual obligations relating to pollution, the discharge of, or exposure to, materials in the environment or workplace ("Environmental Laws"), except for violations which, either individually or in the aggregate, would not and cannot reasonably be expected to have a Material Adverse Effect; (b) There is no suit, claim, action or proceeding pending or, to the knowledge of the Company Bank, threatened, before any Governmental Entity or other forum in which the Company Bank or any of its Subsidiaries has been or, with respect to threatened 23 proceedings, may be, named as a defendant (x) for alleged noncompliance (including by any predecessor) with any Environmental Laws (other than with respect to any Loan Property or Participation Facility), or (y) relating to the release, threatened release or exposure to any material described in any of the Environmental Laws (other than with respect to any Loan Property) whether or not occurring at or on a site owned, leased or operated by the Company Bank or any of its Subsidiaries, except where such noncompliance or release would not have, either individually or in the aggregate, in a Material Adverse Effect; (c) To the knowledge of the Company Bank, during the period of the Company Bank's or any of its Subsidiaries' ownership or operation of any of their respective current properties, there has been no release of materials in, on, under or affecting any such Property (other than any Loan Property, or Participation Facility), except where such release has not had and cannot reasonably be expected to result in, either individually or in the aggregate, a Material Adverse Effect. To the knowledge of the Company Bank, prior to the period of the Company Bank's or any of its Subsidiaries' ownership or operation of any of their respective current properties, there was no release or threatened release of materials in, on, under or affecting any such properties (other than any Loan Property or Participation Facility), except where such release has not had and cannot be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect; and For purposes of this Section 2.18 (x) "Loan Property" means any property in which the Company Bank or any of its Subsidiaries holds a security interest, and, where required, by the context, said term means the owner or operator of such property and (y) "Participation Facility" means any facility in which the Company Bank or any of its Subsidiaries participates in 24 the Management and, where required by the context, said term means the owner or operator of such property. 2.19. Derivative Transactions, Letters of Credit and Loan Commitments. Except as set forth in Section 2.19 of the Disclosure Schedule and except for Transferred Assets and Transferred Liabilities (as such terms are hereinafter defined) and in the case of clauses (b) and (c) below with respect to such items which in the aggregate are not material in amount, neither the Company Bank nor any of its Subsidiaries (a) is a party to transactions in or involving forwards, futures, options on futures, options, swaps, caps, collars, floors, swaptions, structured notes or other derivative instruments, whether relating to currencies, interest rates, securities or commodities, (b) has entered into or is subject to any commercial letters of credit, standby letters of credit or similar obligations, or (c) has entered into or is subject to any Loan Commitments, however denominated, to extend credit, except such Loan Commitments in U.S. dollars relating to the Domestic Business which are not and should not be classified as "Special Mention", "Substandard", "Doubtful" or "Loss", or words of similar import. The financial position of the Company Bank and its Subsidiaries on a consolidated basis under or with respect to each such disclosed instrument has in all material respects been reflected in the books and records of the Company Bank and its Subsidiaries in accordance with GAAP consistently applied. 2.20. Loan Portfolio. Except as set forth in Section 2.20 of the Disclosure Schedule and other than with respect to the Transferred Assets, as of the date of this Agreement, neither the Company Bank nor any of its Subsidiaries is a party to any written or oral (i) non-U.S. dollar denominated Loans (as hereinafter defined) with or to any obligor except for such Loans which do not, in the aggregate, exceed U.S. $1,000,000 at any time or (ii) Loan with any director 25 or executive officer of the Company Bank or any of its Subsidiaries, or to the best knowledge of the Company Bank, any person, corporation or enterprise controlling, controlled by or under common control with any of the foregoing other than residential mortgage loans and consumer credit in accordance with applicable bank regulatory laws. 2.21. Title to Assets. Except as set forth in Section 2.21 of the Disclosure Schedule and except for Permitted Liens and except as would not, individually or in the aggregate, have a Material Adverse Effect, to the knowledge of the Company Bank, there are no Liens on the real property of the Company Bank or any of its Subsidiaries (the "Fee Properties" and the "Leased Properties" and, collectively, the "Real Property") and each of the Company Bank and its Subsidiaries has (a) good and valid title to the Fee Properties and (b) a valid leasehold interest in the Leased Properties. None of the Company Bank, any Subsidiary of the Company Bank or, to the knowledge of the Company Bank, any other party is in default (and there does not exist any event which with notice or lapse of time or both would constitute a default) under any of the leases relating to the Real Property, except for such defaults thereunder which, in the aggregate, would not have a Material Adverse Effect. To the knowledge of the Company Bank, all such leases referred to in the second preceding sentence are valid and binding and in full force and effect. As used in this Agreement, "Permitted Liens" shall mean liens for current Taxes not yet due or being contested in good faith and for which appropriate reserves under GAAP have been established, Liens imposed by law and incurred in the ordinary course of business for obligations not yet due to carriers, warehousemen, laborers, materialmen and the like, Liens in respect of pledges or deposits under workers' compensation laws or similar legislation, 26 and minor defects in title, none of which, individually or in the aggregate, materially interferes with the use or value of the property subject thereto. 2.22. Scheduled Assets. Except as set forth in Section 2.22 of the Disclosure Schedule and except for Loans and the Transferred Assets described in Section 5.10 (a)(i) and 5.10(a)(iii), Schedule A hereto (the "Asset Schedule") sets forth a true, correct and complete list as of the date hereof of all Problem Assets. As used herein, the term "Problem Assets" shall mean (a) all Loans or other assets of the Company Bank or any of its Subsidiaries that are classified (by an examiner of a Governmental Entity or by an internal examiner) as "Special Mention," "Substandard," "Doubtful," "Loss," or otherwise adversely criticized with words of similar import or as "In-Substance Foreclosure" (including an indication of whether such asset is on accrual or non-accrual status), (b) Loans or other assets of the Company Bank or any of its Subsidiaries that are classified as non-performing or non-accrual, and (c) Loans, under the terms of which the obligor is over 90 days delinquent in payment of principal or interest or in default of any other provision. The assets reflected on the Asset Schedule are hereinafter referred to as the "Scheduled Assets." 2.23. Approvals. As of the date of this Agree- ment, neither the Company nor the Company Bank knows of any reason why all of the Requisite Regulatory Approvals (as hereinafter defined) shall not be obtained. 2.24. Loans. Except as described on Section 2.24 of the Disclosure Schedule and for the Transferred Assets and except where the failure of any of the following to be true, would not, individually or in the aggregate, have a Material Adverse Effect, with respect to each Loan or 27 Loan Commitment (as such terms are hereinafter defined) of the Company Bank and its Subsidiaries, to the Company's knowledge: (a)(i) Each Loan Document (as hereinafter defined) constitutes a valid, legal and binding obligation of the obligor thereunder, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium, laws governing fraudulent conveyance or equitable subordination and other similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity, (ii) each Loan Document contains customary and enforceable provisions such as to render the rights and remedies of the holder thereof adequate for the realization (including realization by judicial foreclosure) of the benefits intended to be provided by the security interest or lien, if any, created and granted by such Loan Document, subject to bankruptcy, insolvency, reorganization, moratorium, laws governing fraudulent conveyance or equitable subordination and other similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity, and (iii) all Liens (as hereinafter defined) in any collateral described in each Loan Commitment and Loan Document as security for each Loan and Loan Commitment constitute valid and perfected Liens in such collateral (assuming the relevant person obligated on or in respect to such Loan or Loan Commitment, including any guarantor, hypothecator or other provider of security (each, a "Debtor") has rights in the collateral as to permit attachment), subject to (x) bankruptcy, insolvency, reorganization, moratorium, laws governing fraudulent conveyance or equitable subordination and other similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity and (y) federal and state laws relating to fraudulent conveyances and preferences; 28 (b) All Loans, Loan Commitments and related Loan Documents were issued, made and maintained in accordance with applicable law; under existing law, there is no valid claim against the Company Bank with respect to, or valid defense to the enforcement of, such Loan or Loan Commitment and neither the Company Bank nor any of its Affiliates has taken or failed to take any action that would, and the transactions contemplated hereby do not, entitle any Debtor or other party to assert successfully any claim or defense against the Company Bank (including without limitation any right not to repay any such obligation or any part thereof); (c) None of the rights or remedies under the Loan Documents in favor of the Company Bank have been amended, modified, waived, supplemented, subordinated or otherwise altered by the Company Bank other than in good faith and in the ordinary course of business and all writings and other documents relating to any such amendment, modification, waiver, supplement, subordination or other alteration of any Loan or Loan Commitment are included among the Loan Documents; and (d) Each file of Loan Documents pertaining to each Loan includes all documents relating to each such Loan that are necessary to enforce such Loan. As used in this Agreement, the term "Liens" shall mean any mortgage, lien, pledge, charge, assignment for security purposes, security interest, or encumbrance of any kind, including any related unconditional sale agreement or capital lease or other title retention agreement. 29 ARTICLE III REPRESENTATIONS AND WARRANTIES OF NFB NFB hereby represents and warrants to the Company as follows: 3.1. Corporate Organization. NFB is a commercial bank duly organized, validly existing and in good standing under the laws of the State of New York. The deposit accounts of NFB are insured by the FDIC through the Bank Insurance Fund to the fullest extent permitted by law, and all premiums and assessments required in connection therewith have been paid by NFB. Each of NFB's Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. 3.2. Authority; No Violation. (a) NFB has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly approved by the Board of Directors of NFB and no other corporate proceedings on the part of NFB are necessary to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by NFB and (assuming the due authorization, execution and delivery by the Company and the Company Bank) constitutes a valid and binding agreement of NFB, enforceable against NFB in accordance with its terms, except as enforcement may be limited by laws affecting insured depository institutions, general principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally (including laws affecting the rights and remedies of creditors of insured depository institutions). 30 (b) NFB has full corporate power and authority to execute and deliver the Bank Merger Agreement and to consummate the transactions contemplated thereby. The execution and delivery of the Bank Merger Agreement and the consummation of the transactions contemplated thereby have been duly and validly approved by the Board of Directors of NFB and by North Fork Bancorporation, Inc. as the sole stockholder of NFB, and no other corporate proceedings on the part of NFB are necessary to consummate the transactions contemplated thereby. The Bank Merger Agreement, upon execution and delivery by NFB, will be duly and validly executed and delivered by NFB and will (assuming the due authorization, execution and delivery by the Company Bank) constitute a valid and binding agreement of NFB, enforceable against NFB in accordance with its terms, except as enforcement may be limited by laws affecting insured depository institutions, general principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally (including laws affecting the rights and remedies of creditors of insured depository institutions). (c) Neither the execution and delivery of this Agreement or the Bank Merger Agreement by NFB, nor the consummation by NFB of the transactions contemplated hereby or thereby, nor compliance by NFB with any of the terms or provisions hereof or thereof, will (i) violate any provision of the Certificate of Incorporation or By-Laws of NFB or any of its Affiliates or (ii) assuming that the consents and approvals referred to in Section 3.3 are duly obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to NFB or any of its Affiliates or any of their respective properties or assets, or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit 31 under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any lien, pledge, security interest, charge or other encumbrance upon any of the respective properties or assets of NFB or any of its Affiliates under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which NFB or any of its Affiliates is a party, or by which they or any of their respective properties or assets may be bound or affected, except for such violations, conflicts, breaches or defaults which either individually or in the aggregate would not prevent or materially delay NFB from performing its obligations hereunder. 3.3. Consents and Approvals. Except for the filing of applications and notices, as applicable, with the Federal Reserve Board under the BHC Act, the FDIC under the Bank Merger Act and the Banking Department under the New York Banking Law, and the approval of, or expiration of waiting periods relating to, such applications and notices, as the case may be, no consents or approvals of or filings or registrations with any Governmental Entity or with any third party are necessary in connection with the execution and delivery by NFB of this Agreement and the Bank Merger Agreement and the consummation by NFB of the transactions contemplated hereby and thereby except, in each case, for consents, approvals, filings or registrations the failure to obtain or make, either individually or in the aggregate, would not prevent or materially delay NFB from performing its obligations hereunder. 3.4. Approvals. As of the date of this Agreement, NFB does not know of any reason why all of the Requisite Regulatory Approvals shall not be obtained. 32 3.5. Financing. NFB has current assets or other financial arrangements such that at the Closing, NFB will have funds sufficient to enable it to carry out its obligations under this Agreement. ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS 4.1. Covenants of the Company and the Company Bank. During the period from the date of this Agreement and continuing until the Closing, except as expressly contemplated or permitted by this Agreement or with the prior written consent of NFB, the Company shall cause the Company Bank to carry on its business in the ordinary course consistent with past practice. The Company shall cause the Company Bank to use its best efforts to (x) preserve its business organization and that of its Subsidiaries intact and (y) keep available to itself and the Company Bank the present services of the employees of the Company Bank and its Subsidiaries. Without limiting the generality of the foregoing, and except as set forth in Section 4.1 of the Disclosure Schedule or as otherwise contemplated by this Agreement or consented to in writing by NFB, the Company shall not permit the Company Bank or any of its Subsidiaries to: (a) other than as necessary to effectuate the provisions of this Agreement, declare or pay any dividends on, or make other distributions in respect of, any of its capital stock; (b) Reserved. (c) issue, deliver or sell, or authorize or propose the issuance, delivery or sale of, any shares of its capital stock or any securities convertible into or exercisable for, or any rights, warrants or options to acquire, any such shares, or enter into any agreement with respect to any of the foregoing; 33 (d) amend its Articles of Organization, By-laws or other similar governing documents; (e) enter into any new line of business; (f) acquire or agree to acquire, by merging or consolidating with, or by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire any assets, which would be material, individually or in the aggregate, to the Domestic Business, other than in connection with foreclosures, settlements in lieu of foreclosure or troubled loan or debt restructuring in the ordinary course of business consistent with past practices; (g) Reserved. (h) change its methods of accounting in effect at June 30, 1995, except as required by changes in GAAP or regulatory accounting principles as concurred to by the Company Bank's independent auditors; (i) (i) except as required by applicable law or to maintain qualification pursuant to the Code, adopt, amend, renew or terminate any Plan or any agreement, arrangement, plan or policy between the Company Bank or any Subsidiary of the Company Bank and one or more of its current or former directors, officers or employees or (ii) except for normal increases in the ordinary course of business consistent with past practice or except as required by applicable law, increase in any manner the compensation or fringe benefits of any director, officer or employee or pay any benefit not required by any plan or agreement as in effect as of the date hereof; 34 (j) except as set forth in Section 4.1 of the Disclosure Schedule or as expressly contemplated by this Agreement, sell, lease, encumber, assign or otherwise dispose of, or agree to sell, lease, encumber, assign or otherwise dispose of, any of its assets, properties or other rights or agreements, other than pursuant to existing contracts or commitments that are not, individually or in the aggregate, material to the Domestic Business or activities in the ordinary course of business consistent with past practice (including disposal of real property acquired by the Company Bank or any of its Subsidiaries in satisfaction of a debt previously contracted in a manner consistent with past practice); (k) other than in the ordinary course of business consistent with past practice, incur or assume any liabilities or incur any indebtedness for borrowed money, assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other individual, corporation or other entity; (l) file any application to relocate or terminate the operations of any banking office of it or any of its Subsidiaries; (m) commit any act or omission which constitutes a material breach or default by the Company Bank or any of its Subsidiaries under any material agreement or license to which the Company Bank or any of its Subsidiaries is a party or by which any of them or their respective properties is bound; (n) make any equity investment or commitment to make such an investment in real estate or in any real estate development project, other than in connection with foreclosures, settlements in lieu of foreclosure or troubled loan or debt restructuring in the ordinary course of business consistent with past banking practices; 35 (o) create, renew, amend or terminate or give notice of a proposed renewal, amendment or termination of, any material contract, agreement or lease for goods, services or office space to which the Company Bank or any of its Subsidiaries is a party or by which the Company Bank or any of its Subsidiaries or their respective properties are bound; (p) take any action which would cause the termination or cancellation by the FDIC of insurance in respect of the Company Bank's deposits; or (q) agree to do any of the foregoing. ARTICLE V ADDITIONAL AGREEMENTS 5.1. Regulatory Matters. (a) The parties hereto shall cooperate with each other and use their best efforts to promptly prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, and to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties and Governmental Entities which are necessary or advisable to consummate the transactions contemplated by this Agreement and the Bank Merger Agreement. The parties hereto agree that they will consult with each other with respect to the obtaining of all permits, consents, approvals and authorizations of all third parties and Governmental Entities necessary or advisable to consummate the transactions contemplated by this Agreement and the Bank Merger Agreement and each party will keep the other apprised of the status of matters relating to completion of the transactions contemplated herein. (b) The parties hereto shall, upon request, furnish each other with all information concerning themselves, their Subsidiaries, directors, officers and stockholders and such other matters as may be reasonably necessary or advisable in connection with any filing, 36 notice or application made by or on behalf of the parties hereto or any of their respective Subsidiaries to any Governmental Entity in connection with the Stock Purchase and the Merger and the other transactions contemplated by this Agreement and the Bank Merger Agreement. (c) The parties hereto shall promptly furnish each other with copies of written communications received by any of them or any of their respective Subsidiaries, Affiliates or Associates (as such term is defined in Rule 12b-2 under the Exchange Act as in effect on the date of this Agreement) from, or delivered by any of the foregoing to, any Governmental Entity in respect of the transactions contemplated hereby and by the Bank Merger Agreement. 5.2. Access to Information. (a) Upon reasonable notice and subject to applicable laws relating to the exchange of information, the Company shall cause the Company Bank and each of its Subsidiaries to afford to the officers, employees, accountants, counsel and other representatives of NFB, access, during normal business hours during the period prior to the Closing, to all its properties, books, contracts, commitments, records, officers, employees, accountants, counsel and other representatives and, during such period, the Company shall cause the Company Bank and its Subsidiaries to make available to NFB (i) a copy of each report, schedule and other document filed or received by it during such period pursuant to the requirements of Federal or state laws (other than reports or documents which the Company Bank is not permitted to disclose under applicable law) and (ii) all other information concerning its business, properties and personnel as NFB may reasonably request. Neither the Company Bank nor any of its Subsidiaries shall be required to provide access to or to disclose information where such access or disclosure would violate or prejudice the rights of the Company Bank's customers, jeopardize any attorney-client privilege or contravene any law, rule, regulation, order, judgment, 37 decree, fiduciary duty or binding agreement entered into prior to the date of this Agreement. The parties hereto will make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply. NFB will hold all such information in confidence to the extent required by, and in accordance with, the provisions of the confidentiality agreement, dated September 15, 1995, between NFB and the Company (the "Confidentiality Agreement"). (b) Any information furnished by NFB to the Company or the Company Bank and their representatives pursuant hereto shall be treated as the sole property of NFB and, if the Stock Purchase shall not occur, the Company and the Company Bank and their representatives shall return to NFB all of such written information and all documents, notes, summaries or other materials containing, reflecting or referring to, or derived from, such information. The Company and the Company Bank shall, and shall use their respective best efforts to cause their representatives to, keep confidential all such information, and shall not directly or indirectly use such information for any competitive or other commercial purpose. The obligation to keep such information confidential shall continue for five years from the date the proposed Stock Purchase is abandoned and shall not apply to (i) any information which (x) was already in the Company's or the Company Bank's possession prior to the disclosure thereof by NFB; (y) was then generally known to the public; or (z) was disclosed to the Company or the Company Bank by a third party not bound by an obligation of confidentiality that was known or that reasonably should have been known to the Company or the Company Bank or (ii) disclosures made as required by law. It is further agreed that, if in the absence of a protective order or the receipt of a waiver hereunder the Company or the Company Bank is nonetheless, in the opinion of 38 its counsel, compelled to disclose information concerning NFB to any tribunal or governmental body or agency or else stand liable for contempt or suffer other censure or penalty, the Company or the Company Bank, as the case may be, may disclose such information to such tribunal or governmental body or agency without liability hereunder. (c) No investigation by NFB shall affect the representations, warranties, covenants or agreements of the Company or the Company Bank set forth herein, including, without limitation, the indemnification obligations contained in Article VIII hereof. 5.3. Legal Conditions to Stock Purchase and the Merger. Each of NFB, the Company and the Company Bank shall, and shall cause its Subsidiaries to, use their best efforts (a) to take, or cause to be taken, all actions necessary, proper or advisable to comply promptly with all legal requirements which may be imposed on such party or its Subsidiaries with respect to the Stock Purchase or the Merger and, subject to the conditions set forth in Article VI hereof, to consummate the transactions contemplated by this Agreement and the Bank Merger Agreement and (b) to obtain (and to cooperate with the other party to obtain) any consent, authorization, order or approval of, or any exemption by, any Governmental Entity and any other third party which is required to be obtained by the Company or NFB or any of their respective Subsidiaries in connection with the Stock Purchase and the Merger and the other transactions contemplated by this Agreement. 5.4. Employee Benefit Plans. The employees of the Company Bank associated with the Domestic Business (the "Company Bank Employees") shall be entitled to participate in NFB's employee benefit plans in which similarly situated employees of NFB participate, to the same extent as comparable employees of NFB. As of the Closing, NFB shall permit the Company 39 Bank Employees to participate in NFB's group hospitalization, medical, life and disability insurance plans (the "NFB Welfare Plans") on the same terms and conditions as applicable to comparable employees of NFB. NFB shall cause to be waived any preexisting condition restrictions otherwise applicable under any NFB Welfare Plan to a Company Bank Employee or his or her covered dependents (but only to the extent waived immediately prior to the Closing Date under any similar plan of the Company Bank with respect to such employee or dependent) and give effect, in determining any deductible and maximum out-of-pocket limitations, to claims incurred, amounts paid by and amounts reimbursed to Company Bank Employees with respect to similar plans maintained for their benefit immediately prior to the Closing Date. As of the Closing, NFB shall permit the Company Bank Employees to participate in NFB's defined benefit pension plan, thrift plan, severance, and similar plans on the same terms and conditions as employees of NFB and its Subsidiaries, giving effect (solely for purposes of NFB's defined benefit pension plan and thrift plan) to years of service with the Company Bank and its Subsidiaries (to the extent the Company Bank gave effect) as if such service were with NFB, for purposes of eligibility to participate and vesting, but not for benefit accrual purposes. With respect to the Company Bank Savings Plan and Pension Plan, the parties hereto shall cooperate in effecting a transfer of assets and liabilities under such plan that will result in the Company retaining liability for the benefits of Transferred Employees and former employees of the Company Bank and its Subsidiaries and NFB and the Company Bank retaining liability for the benefits of Company Bank Employees. 5.5. Subsequent Interim Financial Statements. As soon as reasonably available, but in no event more than 30 days after the end of each fiscal quarter ending after the date of this 40 Agreement, upon the request of NFB, the Company Bank will deliver to NFB its unaudited consolidated balance sheets and related statements of income, shareholders' equity and cash flows for the fiscal quarter then ended, in each case prepared on the same basis as the June 30 Balance Sheet and the June 30 Income Statement and separately reflecting the International Business and the Domestic Business. 5.6. Additional Agreements. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, or the Bank Merger Agreement, or to vest the Surviving Bank with full title to all properties, assets, rights, approvals, immunities and franchises of any of the parties to the Stock Purchase or the Merger, the proper officers and directors of each party to this Agreement and their respective Subsidiaries shall take all such necessary action as may be reasonably requested by NFB. 5.7. Advice of Changes. From time to time prior to the Closing (and on the date prior to the Closing Date), the Company will promptly (or, in the case of the matters described below that are not material, within a reasonable time following the discovery of such matter) supplement or amend the Disclosure Schedule delivered in connection with the execution of this Agreement to reflect any matter which, if existing, occurring or known at the date of this Agreement, would have been required to be set forth or described in such Disclosure Schedule or which is necessary to correct any information in such Disclosure Schedule which has been rendered inaccurate thereby. No supplement or amendment to such Disclosure Schedule shall have any effect for the purpose of determining the accuracy of the Company's representation and warranties, the satisfaction of any of the conditions set forth in Article VI hereof, the compliance 41 by the Company with its covenants and agreements contained herein or the obligation of the Company to indemnify NFB pursuant to Article VIII hereof. 5.8. Current Information. During the period from the date of this Agreement to the Closing, the Company Bank will cause one or more of its designated representatives to confer on a regular and frequent basis (not less than monthly) with representatives of NFB and to report (i) the general status of the ongoing operations of the Company Bank and its Subsidiaries and (ii) the status of, and the action proposed to be taken with respect to, those Loans held by the Company or any Subsidiary of the Company which are non-performing assets and which are not reflected on the Asset Schedule. The Company Bank will promptly notify NFB of any material change in the normal course of business or in the operation of the properties of the Company Bank or any of its Subsidiaries and of any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or the institution or the threat of significant litigation involving the Company Bank or any of its Subsidiaries, and will keep NFB fully informed of such events. 5.9. Execution and Authorization of Bank Merger Agreement; Consummation of the Merger. NFB and the Company Bank shall execute and deliver the Bank Merger Agreement. The parties hereto shall take all necessary action to effect the Merger immediately following the Closing. 5.10. Transfer of the International Business. (a) At or prior to the Closing, the Company shall cause the Company Bank to transfer, assign, convey and deliver to the Company, and the Company shall acquire from the Company Bank, all of the business and operations of the Company Bank conducted as part of the "International Operations" of the Company Bank as 42 described in the draft "Management's Discussion and Analysis of Financial Condition and Results of Operations" attached to Section 5.10 of the Disclosure Schedule (such business and operations being referred to herein as the "International Business"), and all right, title and interest of the Company Bank as of the Closing Date in and to the assets, rights, properties, claims and contracts in respect of the International Business as of the close of business on the Closing Date, including without limitation the Transferred Assets (provided that for purposes of determining compliance with this covenant for purposes of satisfaction of the condition to closing set forth on Section 6.2(b) (and not for any other purpose, including without limitation under clause (c) of Section 8.1), such compliance shall be determined solely with reference to the Transferred Assets). As used herein, the term "Transferred Assets" shall mean: (i) assets of the Company Bank which are reflected on the June 30 Balance Sheet under the column entitled "International" (collectively, "Balance Sheet Assets") except to the extent that any such assets have previously been disposed of by the Company Bank; (ii) the Scheduled Assets, except to the extent that any such assets have previously been disposed of by the Company Bank; (iii) any assets of the Company Bank acquired or generated subsequent to June 30, 1995 which, based on the criteria used by the Company Bank and Arthur Andersen (the "AA Criteria") in establishing the June 30 Balance Sheet (which criteria are described in the notes to the June 30 Balance Sheet (it being understood that such criteria may not necessarily specifically articulate a basis for allocating each and every asset and liability to either the International Business or the Domestic Business)), would have been 43 reflected on the June 30 Balance Sheet under the column entitled "International" if such assets had been acquired or generated as of June 30, 1995 (collectively, the "After-Acquired Assets"), except to the extent that any such assets have previously been disposed of by the Company Bank; (iv) earned and unpaid interest with respect to any Loan which constitutes a Balance Sheet Asset, a Scheduled Asset or an After-Acquired Asset; (v) Assumed Contracts and Other Obligations (as hereinafter defined); (vi) books and records related to the In- ternational Business; (vii) all accounts as to which the Company Bank or any of its Subsidiaries acts as a fiduciary, including but not limited to accounts for which any of such entities serves as a trustee, agent, custodian, personnel representative, guardian, conservator, or investment advisor (collectively, the "Fiduciary Business"); and (viii) such additional liquid securities or cash as may be necessary to prevent the Company Bank from having shareholders' equity at the Closing Date in excess of the amount referred to in Section 5.15 of this Agreement. As used herein, the term "Assumed Contracts and Other Obligations" means those Contracts (as hereinafter defined) and all other obligations or liabilities of the Company Bank or any of its Subsidiaries relating to or arising from the International Business, except in each case those expiring or terminating between the date hereof and the Closing Date. As used herein, the term "Contracts" means any arrangement, note, bond, commitment, franchise, guarantee, indemnity, instrument, license or other agreement, understanding or obligation, whether written or 44 oral, and all rights, interests and obligations arising thereunder or in connection therewith, in each case relating to or arising from the International Business. Notwithstanding anything to the contrary contained in this Agreement, the Transferred Assets shall not include the following assets, which assets shall remain as assets of the Company Bank following the Closing: (i) all of the branch offices of the Company Bank, which branch offices are listed in Section 5.10 of the Disclosure Schedule; (ii) the Company Bank's charter documents, non-transferable licenses, permits, charters, corporate seals, minute books, stock books and other corporate records having to do with the corporate organization and capitalization of the Company Bank, and all records relating to Taxes; provided, however, that the Transferred Assets shall include copies of all records relating to those Taxes constituting Transferred Liabilities reasonably requested by the Company and, if the Company is requested by any Governmental Entity or required in connection with any suit, action or proceeding to produce originals of such records, NFB shall provide such originals to the Company for such purpose; (iii) the Company Bank's personnel records pertaining to any employees of the Company Bank, personnel references and security or background investigation materials which were prepared or obtained at the time of hiring with respect to employees of the Company Bank and any other books and records which the Company Bank is required by law to retain, provided that the Transferred Assets shall include copies of any portion of such retained books and records that relate to the employees of the International Business reasonably requested by the Company and, if the Company is 45 requested by any Governmental Entity or required in connection with any suit, action or proceeding to produce originals of such records, NFB shall provide such originals to the Company for such purpose. (b) At or prior to the Closing, the Company shall assume, agree to pay, perform and discharge when due all liabilities and obligations relating to in any manner or arising out of the International Business, whether primary or secondary, direct or indirect, absolute or contingent, contractual, tortious or otherwise, including without limitation the Transferred Liabilities (provided that for purposes of determining compliance with this covenant for purposes of satisfaction of the condition to closing set forth on Section 6.2(b) (and not for any other purpose, including without limitation under clause (c) of Section 8.1), such compliance shall be determined solely with reference to the Transferred Liabilities). As used herein, the term "Transferred Liabilities" shall mean: (i) liabilities of the Company Bank which are reflected on the June 30 Balance Sheet under the column entitled "International" (collectively, "Balance Sheet Liabilities") except to the extent that any such liabilities have previously been satisfied or discharged by the Company Bank; (ii) any liabilities of the Company Bank acquired, generated or incurred subsequent to June 30, 1995 which, based on the AA Criteria, would have been reflected on the June 30 Balance Sheet under the column entitled "International" if such liabilities had been acquired, generated or incurred as of June 30, 1995 (collectively, the "After-Acquired Liabilities") except to the extent that any such liabilities have previously been satisfied or discharged by the Company Bank; 46 (iii) obligations under Loans and Loan Commitments (as hereinafter defined) included as part of the International Business and obligations under Loan Documents (as hereinafter defined) relating to such Loans and Loan Commitments; (iv) obligations under Assumed Contracts and Other Obligations; (v) liabilities that may arise in connection with any litigation or other claim that has been or may be brought against the Company Bank or any of its subsidiaries or any of their respective directors or NFB as the successor to the Company Bank in connection with or arising out of the International Business, the Fiduciary Business (as hereinafter defined) or in respect of NFB's indemnification obligations with respect thereto, including without limitation those claims against the Company Bank described in Section 5.10 of the Disclosure Schedule; (vi) obligations arising under participation arrangements sold to third parties with respect to Loans and Loan Commitments included in the Transferred Assets; (vii) all Employment Liabilities (as hereinafter defined) relating to the transfer of employment contemplated by Section 5.10(c); and (viii) all obligations and liabilities relating to, or arising out of, the Fiduciary Business. As used herein, the term "Loan" shall mean all: (i) loans, advances or other extensions of credit, including interests in loan participations and assignments, customer liabilities on letters of credit, bankers acceptances and participations in letters of credit (including in all cases loans made to pay 47 interest accruing on loans, whether or not due or payable (sometimes referred to as capitalized interest)); and (ii) all amendments, modifications, renewals, extensions, refinancings and refundings of or for any of the foregoing. As used herein, the term "Loan Commitments" shall mean the collective reference to each commitment or obligation to extend credit to any person (including pursuant to a letter of credit or banker's acceptance) or to participate therein, whether or not such commitment, obligation or participation has been accepted or utilized by such person. As used herein, the term "Loan Documents" shall mean the agreements, instruments, certificates, or other documents at any time evidencing or otherwise relating to, governing, or executed in connection with, or as security for, a Loan or Loan Commitment, including without limitation, notes, bond, loan agreements, letter of credit applications, letters of credit, lease financing contracts, bankers' acceptances, drafts, guarantees, deeds of trust, mortgages, assignments, security agreements, pledges, subordination or priority agreement, lien priority agreements, undertakings, security instruments, financing statements, certificates, documents, legal opinions, participation and assignment agreements and inter-creditor agreements, and all amendments, modifications, renewals, extensions, rearrangements, and substitutions with respect to any of the foregoing. (c) Prior to the Closing, the Company shall cause those employees of the Company Bank listed on Section 5.10(c) of the Disclosure Schedule (the "Transferred Employees") to be transferred to the employ of the Company and, at the time of such transfer, such employees shall cease to be employees of the Company Bank. 48 5.11. Reserved. 5.12. Intercompany Accounts Settlement. Prior to the Closing, (a) the Company Bank and its Subsidiaries shall pay and discharge all amounts of intercompany indebtedness owed by the Company Bank or any of its Subsidiaries to the Company or any Affiliate of the Company (other than the Company Bank and its Subsidiaries) and (b) the Company shall pay and discharge (or cause to be paid and discharged) all amounts of intercompany indebtedness owed by the Company or any Affiliate (other than the Company Bank and its Subsidiaries) to the Company Bank or any of its Subsidiaries. 5.13. Termination of Intercompany Agreements. Other than as expressly contemplated by this Agreement, the Company shall, and will cause each of its Affiliates (other than the Company Bank and its Subsidiaries) to terminate, effective at or prior to Closing, in accordance with their terms, any and all agreements then in effect as between the Company, any Affiliate of the Company (other than the Company Bank or any of its Subsidiaries) or any predecessor thereof, on the one hand, and the Company Bank or any of its Subsidiaries, on the other hand and, at such time, all rights under any such agreement shall terminate and all liabilities under any such agreement shall be paid and discharged in accordance with the provisions of Section 5.13. Notwithstanding the foregoing, the parties shall enter into mutually satisfactory arrangements with respect to assets on the books of the Company that are currently being serviced by the Company Bank. 5.14. Covenants Not to Compete and Solicit. From and after the Closing Date and continuing until the eighteen-month anniversary thereof, the Company shall not, and shall not permit any of its Subsidiaries to: (a) directly or indirectly acquire or establish any office in the 49 boroughs of Queens or Brooklyn or the counties of Nassau or Suffolk (together, the "Region") which is engaged in the business of accepting deposits or originating loans or (b) solicit loans or other products or services of the type currently made or offered by the Domestic Business to any persons who reside (in the case of individuals) or conduct the substantial part of their business in the Region. 5.15. Shareholders' Equity. (a) No later than December 15, 1995, the Company shall deliver to NFB a pro forma consolidated balance sheet of the Company Bank as of November 30, 1995, giving effect to the transfer of the International Business as contemplated by Section 5.10 hereof and prepared on the basis and with the adjustments set forth in this Section 5.15 (the "November 30 Balance Sheet"). From and after the delivery of the November 30 Balance Sheet, the parties hereto shall monitor the assets and the liabilities of the Company Bank on a regular and frequent basis and shall cooperate and act in good faith to jointly prepare a consolidated balance sheet of the Company Bank as of the close of business on the business day immediately preceding the Closing Date (the "Closing Balance Sheet"). The Closing Balance Sheet shall be prepared in accordance with GAAP applied on a consistent basis with the preparation of the June 30 Balance Sheet, subject to the adjustments referred to in this Section 5.15. (b) The Company and the Company Bank shall take all actions necessary to cause the shareholders' equity of the Company Bank as reflected on the Closing Balance Sheet to be $30 million after taking into account (i) the transfer of the International Business (together with the Transferred Assets and Transferred Liabilities) as contemplated by Section 5.10 hereof, (ii) the application of Financial Accounting Standards No. 115 ("FAS 115"), (iii) the establishment 50 of the amounts referred to in paragraph (c) of this Section 5.15, and (iv) the exclusion referred to in clause (z) of paragraph (d) of this Section 5.15. (c) The Company shall establish as liabilities on the Closing Balance Sheet (whether or not in accordance with GAAP) amounts equal to (i) except as otherwise provided below, all Employment Liabilities with respect to the employment or termination of employment of employees or former employees (including, without limitation, the Transferred Employees (as hereinafter defined)) of the Company Bank or any of its Subsidiaries incurred, or arising out of, events occurring (or, in the case of medical benefits, claims incurred) on or prior to the Closing Date (collectively, "Pre-Closing Employee Liabilities"), to the extent not theretofore discharged; (ii) all liabilities and obligations for Taxes of the Company Bank and its Subsidiaries arising in or attributable to any Pre-Closing Period (as hereinafter defined), including, without limitation, any liabilities for Taxes arising out of, attributable to, or incurred in connection with or with respect to, any of the transactions contemplated by this Agreement, and any ad valorem, withholding, real or personal or intangible property, sales or other Taxes which are not due or assessed until after the Closing Date but which are attributable to any Pre-Closing Period (collectively, "Pre-Closing Tax Liabilities") in each case to the extent not theretofore discharged; (iii) all fees, costs and expenses incurred or payable by the Company Bank in connection with the transactions contemplated by this Agreement, except as set forth in Section 1.3(b)(ii), to the extent not theretofore discharged (the "Transactional Costs"), (iv) all attorney and accounting fees, costs and expenses incurred or payable by the Company Bank or any of its Subsidiaries for the period on or prior to the Closing Date, whether or not incurred or payable in the ordinary course of business and including without limitation any such fees and expenses incurred in connection with any 51 potential securities offering by the Company Bank or any current or proposed Affiliate thereof, to the extent not theretofore discharged (the "Professional Fees") and (vi) all current costs and expenses incurred in connection with the operation of the Company Bank for the period on or prior to the Closing Date (the "Current Expenses"). As used herein, the term "Employment Liabilities" shall mean any liabilities, obligations, losses, claims, demands, suits, actions, damages, costs, expenses or commitments related to compensation, retirement benefits, severance or other welfare benefits ("Costs"), whether arising under a plan, agreement, arrangement, policy, understanding or applicable federal, state or local law, other than Costs in respect of the contract identified in Section 2.8(v) of the Disclosure Schedule. (d) The parties hereto acknowledge that certain of the Transferred Assets may not be transferable from the Company Bank to the Company as a matter of law, contract or otherwise (any such asset being referred to herein as a "paragraph (d) asset"). The parties hereto agree that in the case of (i) paragraph (d) assets and (ii) tax assets (other than the deferred tax asset relating to the Domestic Business), (x) NFB shall hold all such assets for the benefit of the Company, (y) any cash or other property received by NFB in respect of any such assets shall be delivered by NFB to the Company within five business days after receipt thereof by NFB, and (z) none of such assets shall be reflected on the Closing Balance Sheet. (e) Neither compliance by NFB with this Section 5.15 nor the consummation by NFB of the Stock Purchase in reliance on the Closing Balance Sheet shall affect the representations, warranties, covenants or agreements of the Company or the Company Bank set forth herein, including, without limitation, the covenants of the Company contained in this Section 5.15 and the indemnification obligations contained in Article VIII hereof. 52 (f) Within five business after the Closing Date, the parties shall complete the preparation of a balance sheet as of the close of business on the Closing Date (the "Final Balance Sheet"). The Final Balance Sheet shall be prepared on the same basis as the Closing Balance Sheet and shall reflect all of the adjustments referred to in this Section 5.15. In the event the amount reflected as shareholders' equity on the Final Balance Sheet is less than $30 million, then on the next business day after the completion of the Final Balance Sheet the Company shall pay to NFB in immediately available funds the amount by which $30 million exceeds the amount of shareholders' equity on the Final Balance Sheet. In the event the amount reflected as shareholders' equity on the Final Balance Sheet is more than $30 million, then on the next business day after the completion of the Final Balance Sheet NFB shall pay to the Company in immediately available funds the amount by which the amount of shareholders' equity on the Final Balance Sheet exceeds $30 million. Any payments made pursuant to the preceding two sentences shall be with interest from but not including the Closing Date to and including the date of payment at the rate set forth in Section 1.2 hereof. If for any reason the parties are unable to agree on all aspects of the Final Balance Sheet within such five business day period, then the parties shall jointly select an independent accounting firm to resolve any disputes between the parties. The determination of such firm shall be binding upon the parties and any amount determined to be due from one party to the other shall be paid in immediately available funds (together with interest from and after the Closing Date at the rate set forth in Section 1.2 hereof) on the business day immediately following the date of such determination. The party who is required to make a payment pursuant to the preceding sentence shall pay all of the fees and expenses of such accounting firm. 53 5.16. FIRTPA Compliance. The Company shall deliver at the Closing to NFB a certification that the stock of the Company Bank does not constitute a U.S. real property interest in a form which complies with the requirements of Section 1445 of the Code and the regulations promulgated thereunder. 5.17. Certain Actions. Except as disclosed in writing prior to the date hereof by NFB or its legal counsel, NFB will not take any action that would jeopardize or materially delay the receipt of the Requisite Regulatory Approvals. 5.18 Fiduciary Business. NFB shall indemnify the directors of the Company Bank against and hold each of them harmless from any and all claims in respect of, relating to, or arising out of, the Fiduciary Business. 54 ARTICLE VI CONDITIONS PRECEDENT 6.1. Conditions to Each Party's Obligation To Effect the Stock Purchase. The respective obligation of each party to effect the Stock Purchase shall be subject to the satisfaction at or prior to the Closing of the follow- ing conditions: (a) Approvals. All regulatory approvals required to consummate the transactions contemplated hereby and by the Bank Merger Agreement (including the Stock Purchase and the Merger) shall have been obtained and shall remain in full force and effect (all such approvals being referred to herein as the "Requisite Regulatory Approvals") and all statutory waiting periods in respect thereof shall have expired. (b) No Injunctions or Restraints; Illegality. No order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition (an "Injunction") preventing the consummation of the Stock Purchase, the Merger or any of the other transactions contemplated by this Agreement or the Bank Merger Agreement shall be in effect. No statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any Governmental Entity which prohibits, restricts or makes illegal consummation of the Stock Purchase or the Merger. 6.2. Conditions to Obligations of NFB. The obligation of NFB to effect the Stock Purchase is also subject to the satisfaction or waiver by NFB at or prior to the Closing of the following conditions: 55 (a) Representations and Warranties. The representations and warranties of the Company set forth in this Agreement (other than the representation contained in Section 2.9(c)) shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date. NFB shall have received a certificate signed on behalf of the Company by the Managing Director of the Company to the foregoing effect. (b) Performance of Obligations of the Company and the Company Bank. Each of the Company and the Company Bank shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and NFB shall have received a certificate signed on behalf of the Company by the Managing Director of the Company to such effect. (c) No Pending Governmental Actions. No proceeding initiated by any Governmental Entity seeking an Injunction shall be pending. (d) Legal Opinion. NFB shall have received the opinion of Davis Polk & Wardwell, counsel to the Company, dated the Closing Date, covering the matters set forth on Exhibit 6.2(d)(a) and Spanish counsel to the Company, who may be an employee of the Company, covering the matters set forth on Exhibit 6.2(d)(b). As to any matter in such opinion which involves matters of fact or matters relating to laws other than Federal or New York law, such counsel may rely upon the certificates of officers of the Company and the Company Bank and of public officials and opinions of local counsel, reasonably acceptable to NFB, provided a copy of such reliance opinion shall be attached as an exhibit to the opinion of such counsel. 56 (e) Shareholders' Equity. The shareholders' equity of the Company Bank, as reflected on the books and records of the Company Bank, in accordance with GAAP, taking into account the application of FAS 115, as of the Closing Date and subsequent to the transfer of the International Business (together with the Transferred Assets and Transferred Liabilities) as contemplated by Section 5.10 hereof and the establishment of the amounts referred to in Section 5.15 hereof, shall not be less than $30,000,000. (f) Loan Loss Reserve. The loan loss reserve of the Company Bank, as reflected on the books and records of the Company Bank, as of the Closing Date and subsequent to the transfer of the International Business as contemplated by Section 5.10 hereof, shall not be less than $6,006,900 minus the amount equal to one-half of the carrying value of the loan set forth in the Asset Schedule. 6.3. Conditions to Obligations of the Company and the Company Bank. The obligation of each of the Company and the Company Bank to effect the Stock Purchase is also subject to the satisfaction or waiver by the Company or the Company Bank at or prior to the Closing of the following conditions: (a) Representations and Warranties. The representations and warranties of NFB set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date; provided, however, that for purposes of determining the satisfaction of the foregoing condition, such representations and warranties shall be deemed to be true and correct in all material respects unless the failure or failures of such representations and warranties to be so true and correct, 57 individually or in the aggregate, will prevent the consummation of the transactions contemplated hereby. (b) Performance of Obligations of NFB. NFB shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date. (c) No Pending Governmental Actions. No proceeding initiated by any Governmental Entity seeking an Injunction shall be pending. (d) Legal Opinion. The Company shall have received the opinion of Skadden, Arps, Slate, Meagher & Flom, counsel to NFB, dated the Closing Date, covering the matters set forth on Exhibit 6.3(d). As to any matter in such opinion which involves matters of fact or matters relating to laws other than Federal or New York law, such counsel may rely upon the certificates of officers of NFB and of public officials and opinions of local counsel, reasonably acceptable to the Company and the Company Bank, provided a copy of such reliance opinions shall be attached as an exhibit to the opinion of such counsel. ARTICLE VII TERMINATION AND AMENDMENT 7.1. Termination. This Agreement may be terminated at any time prior to the Closing: (a) by mutual consent in writing of the Company and NFB; (b) by either NFB or the Company upon written notice to the other party (i) 60 days after the date on which any request or application for a Requisite Regulatory Approval shall have been denied or withdrawn at the request or recommendation of the Governmental 58 Entity which must grant such Requisite Regulatory Approval, unless within the 60-day period following such denial or withdrawal a petition for rehearing or an amended application has been filed with the applicable Governmental Entity, provided, however, that no party shall have the right to terminate this Agreement pursuant to this Section 7.1(b)(i) if such denial or request or recommendation for withdrawal or failure to file and request for rehearing or an amended application shall be due to the failure of the party seeking to terminate this Agreement to perform or observe the covenants and agreements of such party set forth herein or (ii) if any Governmental Entity of competent jurisdiction shall have issued a final nonappealable order enjoining or otherwise prohibiting the consummation of any of the transactions contemplated by this Agreement; (c) by either NFB or the Company if the Closing shall not have occurred on or before April 30, 1996, unless the failure of the Closing to occur or the Requisite Regulatory Approvals to have been obtained by such respective dates shall be due to the failure of the party seeking to terminate this Agreement to perform or observe the covenants and agreements of such party set forth herein; (d) by either NFB or the Company (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein) if there shall have been a material breach of any of the representations or warranties set forth in this Agreement on the part of the other party, which breach is not cured within thirty days following written notice to the party committing such breach, or which breach, by its nature, cannot be cured prior to the Closing; provided, however, that neither party shall have the right to terminate this Agreement pursuant to this Section 7.1(d) unless the breach of 59 representation or warranty, together with all other such breaches, would entitle the party receiving such representation not to consummate the transactions contemplated hereby under Section 6.2(a) (in the case of a breach of representation or warranty by the Company) or Section 6.3(a) (in the case of a breach of representation or warranty by NFB); provided, further, however, that no party may terminate this Agreement under this subsection (d) prior to December 31, 1995; (e) by either NFB or the Company (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein) if there have been a material breach of any of the covenants or agreements set forth in this Agreement on the part of the other party, which breach shall not have been cured within thirty days following receipt by the breaching party of written notice of such breach from the other party hereto; provided, however, that no party may terminate this Agreement under this subsection (e) prior to December 31, 1995. 7.2. Effect of Termination; Expenses. (a) In the event of termination of this Agreement by either NFB or the Company as provided in Section 7.1, this Agreement shall forthwith become void and have no effect except that (i) the last sentence of Section 5.2(a), and Sections 5.2(b), 7.2 and 10.1, shall survive any termination of this Agreement, and (ii) notwithstanding anything to the contrary contained in this Agreement, no party shall be relieved or released from any liabilities or damages arising out of its willful breach of any provision of this Agreement. (b) In the event (i) this Agreement is terminated by the Company or the Stock Purchase is otherwise abandoned, (ii) NFB shall have breached the covenant contained in Section 5.17 and (iii) at the time of such termination or abandonment, NFB would not be entitled 60 not to consummate the Agreement pursuant to Section 6.2(a) or Section 6.2(b) if the Closing Date were otherwise scheduled to occur on such date of termination or abandonment, then, without limiting any of the Company's or the Company Bank's remedies available under law, NFB shall pay the Company $1,500,000. 7.3. Amendment. Subject to compliance with applicable law, this Agreement may be amended by the parties hereto by a duly authorized instrument in writing signed on behalf of each of the parties hereto. 7.4. Extension; Waiver. At any time prior to the Closing, the parties hereto may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party, but such extension or waiver or failure to insist on strict compliance with an obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. ARTICLE VIII INDEMNIFICATION 8.1. Obligations of the Company. From and after the Closing Date, the Company shall indemnify, defend and hold harmless NFB and its directors, officers and Affiliates from and against any and all claims, losses, liabilities, costs, penalties, fines and expenses (including attorney's, accountant's, consultant's and expert's fees and expenses), damages, obligations to third 61 parties, expenditures, proceedings, judgments, awards or demands ("Losses") which any of them may suffer, incur or sustain arising out of, attributable to, or resulting from: (a) any inaccuracy in or breach of any of the representations or warranties of the Company made in or pursuant to this Agreement (it being agreed that solely for purposes of establishing whether any matter is indemnifiable pursuant to this clause (a), the accuracy of the representations and warranties made by the Company shall be determined without giving effect to the qualifications to such representations and warranties concerning "materiality," the Company's or the Company Bank's "knowledge," and "Material Adverse Effect," and all such representations and warranties shall be tested as if such qualifications were not included therein); (b) any breach or nonperformance of any of the covenants or agreements made by the Company in or pursuant to this Agreement; (c) the International Business, including without limitation the Transferred Assets or the Transferred Liabilities (whether arising before, on or after the Closing Date), (d) any litigation not set forth on Schedule 2.9 (whether arising prior to, on or after the Closing Date) which arises out of any act or omission of the Company Bank or any of its Affiliates on or prior to the Closing Date and (e) the reconciliation of the Company Bank's accounts with ACS. 8.2. Adjustments. Notwithstanding any other provisions of this Agreement: (a) The Company shall, and hereby does, indemnify NFB and its Affiliates against and hold each of them harmless from any and all Pre-Closing Tax Liabilities to the extent not discharged on or before the Closing Date; provided, however, that the Company shall not be required to indemnify NFB with respect to Pre-Closing Tax Liabilities unless and until the aggregate Pre-Closing Tax Liabilities exceed the amounts reflected in respect of Pre-Closing Tax Liabilities (other than deferred Tax liabilities in respect of the Domestic Business on the Final 62 Balance Sheet). Upon the occurrence of such event, the Company shall pay to NFB the amount of such excess, and, thereafter, the Company shall indemnify NFB with respect to all Pre-Closing Tax Liabilities. If, following the expiration of the statute of limitations, including extensions thereof, with respect to all Pre-Closing Periods and the payment of all Pre-Closing Tax Liabilities, the amounts reflected in respect of Pre-Closing Tax Liabilities (other than deferred Tax Liabilities) exceed the Pre-Closing Tax Liabilities, NFB shall pay to the Company the amount of such excess. (b) The Company shall, and hereby does, indemnify NFB and its Affiliates against and hold each of them harmless from any and all Pre-Closing Employee Liabilities to the extent not discharged on or before the Closing Date; provided, however, that the Company shall not be required to indemnify NFB with respect to Pre-Closing Employee Liabilities unless and until the aggregate Pre-Closing Employee Liabilities exceed the amounts reflected in respect of Pre-Closing Employee Liabilities on the Final Balance Sheet. Upon the occurrence of such event, the Company shall pay to NFB the amount of such excess, and, thereafter, the Company shall indemnify NFB with respect to all Pre-Closing Employee Liabilities. If, following the payment of all Pre-Closing Employee Liabilities, the amounts reflected in respect of Pre-Closing Employee Liabilities exceed the Pre-Closing Employee Liabilities, NFB shall pay to the Company the amount of such excess. (c) Any amounts paid pursuant to Sections 8.2(a) and 8.2(b) shall be with interest for the number of days from the Closing Date (in the event of payments by NFB) or the date such payment was made (in the case of payments by the Company) to the date of payment at, in all cases, the Federal Funds Rate as published in the "Money Rates" section of The Wall Street Journal as of the Closing Date. 63 (d) Any amounts paid pursuant to Sections 8.2(a) and 8.2(b) shall be treated as adjustments to the Purchase Price for tax purposes. (e) Each of the amounts reflected as liabilities on the Closing Balance Sheet with respect to Transactional Costs, Professional Fees and Current Expenses shall be reduced by the amount of any payment duly made by NFB or any of its Affiliates in respect of such liability following the Closing Date. To the extent that the amount of any such liability is reduced, as a result of payments made by NFB, below zero (a "Deficiency"), the Company shall pay to NFB the absolute value of the amount of such Deficiency with interest on such amount for the number of days from the date the Deficiency arose to the date of payment of the Deficiency by the Company at the Federal Funds Rate as published in the "Money Rates" section of The Wall Street Journal as of the Closing Date. (f) If, after all of the liabilities with respect to each of the Transactional Costs, Professional Fees and Current Expenses have been paid by NFB or any of its Affiliates, the amount reflected as a liability with respect to each of the Transactional Costs, Professional Fees and Current Expenses is greater than zero, NFB shall pay the Company the amount of such excess with interest on such amount for the number of days from the Closing Date to the date of such payment at the Federal Funds Rate as published in the "Money Rates" section of The Wall Street Journal as of the Closing Date. 8.3. Procedure. (a) Any party entitled to be indemnified under this Agreement (an "Indemnified Party") seeking indemnification for any Loss or potential Loss arising from a claim asserted by a third party against the Indemnified Party (a "Third Party Claim") shall give written notice to the Company (the "Indemnifying Party"). Written notice to the Indemnifying 64 Party of the existence of a Third Party Claim shall be given by the Indemnified Party within 30 days after its receipt of a written assertion of liability from the third party; provided, however, that the Indemnified Party shall not be foreclosed from seeking indemnification pursuant to this Article VIII by any failure to provide timely notice of the existence of a Third Party Claim to the Indemnifying Party except and only to the extent that the Indemnifying Party actually incurs an out-of-pocket expense or otherwise has been damaged or prejudiced as a result of such delay. In the event that the Company receives notice from a third party of a claim or potential claim against an Indemnified Party for Taxes, the Company shall give written notice to such Indemnified Party of such claim and such parties shall otherwise comply with the procedures contained herein. (b) Except as otherwise provided herein, the Indemnifying Party may elect to compromise or defend, at such Indemnifying Party's own expense and by such Indemnifying Party's own counsel (which counsel shall be reasonably satisfactory to the Indemnified Party), any Third Party Claim. If the Indemnifying Party elects to compromise or defend such Third Party Claim, it shall, within 30 days after receiving notice of the Third Party Claim, notify the Indemnified Party of its intent to do so, and the Indemnified Party shall cooperate, at the expense of the Indemnifying Party, in the compromise of, or defense against, such Third Party Claim. If the Indemnifying Party elects not to compromise or defend against the Third Party Claim, or fails to notify the Indemnified Party of its election to do so as herein provided, or otherwise abandons the defense of such Third Party Claim, (i) the Indemnified Party may pay (without prejudice of any of its rights as against the Indemnifying Party), compromise or defend such Third Party Claim and (ii) the costs and expenses of the Indemnified Party incurred in connection therewith shall be indemnifiable by the Indemnifying Party pursuant to the terms of this Agreement. 65 Notwithstanding anything to the contrary contained herein, in connection with any Third Party Claim (i) for Taxes or (ii) in which the Indemnified Party shall reasonably conclude, based upon the advice of its counsel, that (x) there is a conflict of interest between the Indemnifying Party and the Indemnified Party in the conduct of the defense of such Third Party Claim or (y) there are specific defenses available to the Indemnified Party which are different from or additional to those available to the Indemnifying Party and which could be materially adverse to the Indemnifying Party, then the Indemnified Party shall have the right to assume and direct the defense and compromise of such Third Party Claim. In such an event, the Indemnifying Party shall pay the fees and disbursements of counsel to each of the Indemnifying Party and the Indemnified Party. Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnified Party may settle or compromise any claim (unless the sole relief payable to a third party in respect of such Third Party Claim is monetary damages that are paid in full by the party settling or compromising such claim) over the objection of the other, provided, however, that consent to settlement or compromise shall not be unreasonably withheld. In any event, except as otherwise provided herein, the Indemnified Party and the Indemnifying Party may each participate, at its own expense, in the defense of such Third Party Claim. If the Indemnifying Party chooses to defend any claim, the Indemnified Party shall make available to the Indemnifying Party any personnel or any books, records or other documents within its control that are reasonably necessary or appropriate for such defense, subject to the receipt of appropriate confidentiality agreements. Notwithstanding anything to the contrary contained in this paragraph (b), in the event prompt action is required with respect to the defense of a Third Party Claim, the Indemnified Party shall, subject to the terms and conditions of this Article VIII, have the right to assume the defense of such Third Party 66 Claim; provided, however, that in the event that the Indemnifying Party subsequently elects to assume the defense of such Third Party Claim, then the provisions set forth in this paragraph (b) shall be applicable and the Indemnifying Party shall, subject to the terms and conditions of this Article VIII, reimburse the Indemnified Party for any costs and expenses incurred by the Indemnified Party prior to the date the Indemnifying Party assumes control of such Third Party Claim. Notwithstanding anything to the contrary contained in this Agreement, the Indemnifying Party shall not settle any Third Party Claim with respect to Taxes without the consent of the Indemnified Party, which consent shall not be unreasonably withheld. (c) Notwithstanding the foregoing, if an offer of settlement or compromise is made by a third party claimant, and the Indemnifying Party notifies the Indemnified Party in writing of the Indemnifying Party's willingness to accept the settlement offer and pay the amount called for by such offer, and the Indemnified Party declines to accept such offer, the Indemnified Party may continue to contest such claim, free of any participation by the Indemnifying Party, and the amount of any ultimate liability with respect to such Indemnifiable Claim that the Indemnifying Party has an obligation to pay hereunder shall be limited to the lesser of (A) the amount of the settlement offer that the Indemnified Party declined to accept plus the costs and expenses of the Indemnified Party prior to the date the Indemnifying Party notifies the Indemnified Party of the Indemnifying Party's willingness to settle or compromise such Third Party Claim and (B) the aggregate Losses of the Indemnified Party with respect to such claim. (d) Any claim on account of a Loss which does not involve a Third Party Claim shall be asserted by written notice given by the party claiming indemnity to the Company. The Company shall have a period for 30 days within which to respond thereto. If the 67 Company does not respond within such 30-day period, the Company shall be deemed to have accepted responsibility to make payment, subject to the provisions hereof, and shall have no further right to contest the validity of such claim. If the Company does respond within such 30-day period and rejects such claim in whole or in part, the party claiming indemnity shall be free to pursue such remedies as may be available to such party by applicable law. Notwithstanding anything to the contrary contained in this Agreement, no claim shall be made against the Company for indemnification under clauses (a), (b) and (d) of Section 8.1 with respect to any Loss unless the aggregate of all such Losses described in such clauses (a), (b) and (d) of Section 8.1 shall exceed $1,000,000 (the "Basket"), and the Company shall only be required to pay or be liable for any such Losses arising under such clauses in Section 8.1 to the extent that their aggregate amount exceeds the Basket, and then only with respect to Losses incurred in excess of such amount, provided, however, that the Basket contained in this Section 8.3(d) shall not apply to, and dollar-for-dollar recovery shall be available with respect to, Losses suffered, incurred or sustained which arise out of, result from or are attributable to breaches of the representations contained in Sections 2.2 and 2.10 hereof and breaches of the covenants contained in Sections 5.10, 5.15 and Article IX hereof. The Indemnifying Party shall not be liable for any breach of representation or warranty hereunder if the Loss therefrom, in any individual case, amounts to $15,000 or less; however, such Losses shall be included in calculating the $1 million threshold established in the immediately preceding sentence, provided, however, that in the case of any Loss exceeding $15,000, subject to the Basket, the entire Loss, and not solely the portion of such Loss in excess of $15,000, shall be indemnifiable by the Indemnifying Party and provided further, however, that 68 where a number of Losses are each individually less than $15,000, but the aggregate of such Losses exceeds $15,000, and all such Losses are based upon, arise from or are attributable to the same or a series of closely related matters, then subject to the Basket, such Losses shall be indemnifiable by the Indemnifying Party pursuant to Section 8.1(a). No indemnification shall be available for any Loss incurred by NFB in respect of the matter listed as item No. 3 in Section 2.9 of the Disclosure Schedule, although if NFB incurs such a Loss at a time when all other Losses in the aggregate are less than the Basket, then the Loss attributable to such item may be applied to the Basket. (e) No action or claim pursuant to Section 8.1(a) hereof resulting from breaches of the representations and warranties of the Company or any claim for indemnity in respect thereof shall be brought or made unless, prior to the expiration of the survival period for the applicable representation or warranty as set forth below, the action or claim shall have been the subject of a good faith written notice from the Indemnified Party to the Indemnifying Party which notice specifies in reasonable detail the nature of the claim (it being understood that such written notice may be delivered prior to the incurrence or suffering of a Loss by an Indemnified Party if facts are described in sufficient detail in such notice as to warrant the delivery of a good faith notice in which case the party giving such notice shall be entitled to indemnification in accordance with the provisions hereof notwithstanding that such Loss may occur after the expiration of the applicable survival period). The representations and warranties of the Company contained in this Agreement or in any certificate or instrument delivered pursuant to this Agreement shall survive the Closing and shall expire on the eighteen-month anniversary of the Closing Date, provided, however, that the representations and warranties contained in (i) Section 69 2.2 shall survive the Closing indefinitely and (ii) Section 2.10 shall survive until 30 days after the expiration of the applicable statute of limitations periods (taking into account extensions thereof). The covenants of any party contained herein (including, without limitation, those relating to indemnification) shall survive the Closing indefinitely other than the covenants contained in Sections 4.1, 5.1, 5.2 (except as provided otherwise therein), 5.3, 5.5, 5.7, 5.8, and 5.9, which shall expire on the eighteen-month anniversary of the Closing Date. ARTICLE IX CERTAIN TAX MATTERS 9.1. Tax Returns. (a) Except as otherwise provided in Section 9.3, NFB shall file or cause to be prepared for filing, all Returns of or which include the Company Bank or any of its Subsidiaries (including any amendments thereto) with respect to any taxable period ending on or prior to the Closing Date or treated as ending on the Closing Date pursuant to Section 9.1(b) (a "Pre-Closing Period") with respect to which the due date for filing is after the Closing Date; provided, however, that 30 days before the date on which such Returns are required to be filed, NFB shall provide to the Company copies of such Returns; and, before NFB executes and files such Returns or pays any Taxes shown to be due thereon, the Company shall have the right to object reasonably to anything contained in such Returns that is reported in a manner which is inconsistent with the manner reported in such Returns for the immediately preceding taxable period. (b) If, for any federal, state, local or foreign tax purpose, a taxable period of the Company Bank or any of its Subsidiaries does not terminate on the Closing Date, the parties hereto will, to the extent permitted by applicable law, elect with the relevant taxing 70 authority to treat such taxable period for all purposes as a short taxable period ending as of the close of the Closing Date. In any case where applicable law does not permit such an election to be made, then for purposes of this Agreement, the parties shall treat such taxable period as ending on the Closing Date. In such a case, Taxes for the entire taxable period shall be allocated to the period ending on or prior to the Closing Date using an interim-closing-of-the-books method assuming that such taxable period ended at the close of the Closing Date, except that (i) exemptions, allowances or deductions that are calculated on an annual basis (such as the deduction for depreciation) shall be apportioned on a perdiem basis, (ii) real property Taxes shall be allocated in accordance with the principles of Section 164(d) of the Code, (iii) any and all Taxes arising out of, attributable to or incurred in connection with or with respect to the International Business and the transactions contemplated by Section 5.10 shall be allocated to the period prior to the Closing Date. For purposes of this Agreement, any taxable period ending or treated by the parties as ending on the Closing Date shall constitute a Pre-Closing Period. (c) To the extent that the Company is subject to an obligation for indemnification with respect to such Returns, the Company shall have the right to object reasonably to anything contained in such Returns that is reported in a manner which is inconsistent with the manner reported in such Returns for the immediately preceding taxable period. 9.2. Refunds. The Company shall be entitled to any refunds of Taxes attributable to any Pre-Closing Period. NFB shall be entitled to any refund attributable to any period after the Closing date. 9.3. Conveyance Taxes. The Company and NFB shall each pay one-half of the liability for all sales, transfer, stamp, real property transfer or real property gains and similar Taxes 71 (collectively "Conveyance Taxes") attributable to, arising out of, or incurred in connection with or with respect to the transactions effected pursuant to this Agreement. The Company agrees to file all required Returns and reports due in connection with the Conveyance Taxes and assumed under this Section 9.2. To the extent the Company and NFB are required to file any joint Returns or reports, the Company will submit to NFB for its review and comment, ten days in advance of the due date for such filing, copies of all such Returns or reports it intends to file and will in good faith consider all comments made by the Bank. 9.4. Post-Closing Taxes. Notwithstanding anything herein to the contrary, the Company shall have no liability under this Agreement in respect of Taxes of the Company Bank or any of its Subsidiaries attributable to any action (including, without limitation, the Merger), of NFB, the Company Bank or any of its Subsidiaries that occurs after the Closing. ARTICLE X GENERAL PROVISIONS 10.1. Expenses. Except as provided in Sections 1.3(b)(ii) and 5.15(f) all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense. 10.2. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (with confirmation), mailed by registered or certified mail (return receipt requested) or delivered by an express courier (with confirmation) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to NFB, to: 72 North Fork Bank 9025 Route 25 Mattituck, New York 11952 Attn: Daniel M. Healy, Chief Financial Officer and Executive Vice President with a copy to: Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New York 10022 Attn: William S. Rubenstein, Esq. and (b) if to the Company or the Company Bank, to: Banco Exterior de Espana, S.A. 645 Fifth Avenue New York, New York 10022 Attn: Marco Antonio Garcia with a copy to: Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Attn: Randal Quarles, Esq. 10.3. Interpretation. When a reference is made in this Agreement to Sections, Exhibits or Schedules, such reference shall be to a Section of or Exhibit or Schedule to this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. The phrases "the date of this Agreement", "the date hereof" and 73 terms of similar import, unless the context otherwise requires, shall be deemed to refer to September 19, 1995. 10.4. Counterparts. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 10.5. Entire Agreement. This Agreement (including the documents and the instruments referred to herein) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, other than the Confidentiality Agreement and the Bank Merger Agreement. 10.6. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York, without regard to any applicable conflicts of law. 10.7. Enforcement of Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court, federal or state, within the State of New York, this being in addition to any other remedy to which they are entitled at law or in equity. 10.8. Severability. Any term or provision of this Agreement which is invalid or unenforceable in any 74 jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. 10.9. Publicity. Except as otherwise required by law or the rules of the NYSE, so long as this Agreement is in effect, neither NFB nor the Company shall, or shall permit any of its Subsidiaries to, issue or cause the publication of any press release or other public announcement with respect to, or otherwise make any public statement concerning, the transactions contemplated by this Agreement without the consent of the other party, which consent shall not be unreasonably withheld. 10.10. Assignment; No Third Party Beneficiaries. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. This Agreement (including the documents and instruments referred to herein) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. 10.11. Consent to Jurisdiction; Service of Process. The parties hereto hereby exclusively and irrevocably submit to the jurisdiction of the state courts 75 of New York and federal courts located in New York over any action suit or proceeding arising out of or relating to this Agreement and any of the agreements entered into in connection herewith and the Company, the Company Bank and NFB hereby irrevocably agree that all claims in respect of any such suit, action or proceeding shall be heard and determined in such courts. The parties hereby irrevocably waive, to the fullest extent permitted by applicable law, any objection which they may now or hereafter have to the laying of venue of any such suit, action or proceeding brought in such court or any defense of inconvenient forum for the maintenance of such suit, action or proceeding. Each of the parties hereto agrees that a judgment in any such action, suit or pro- ceeding may be enforced in other jurisdictions by suit on the judgment or in any manner provided by law. Each of the parties hereto hereby consents to process being served by any party to this Agreement in any suit, action or proceeding of the nature specified in subsection (a) above by the mailing of a copy thereof in accordance with the provisions of Section 10.2 of this Agreement. 76 IN WITNESS WHEREOF, the Bank, the Company and the Company Bank have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. BANCO EXTERIOR DE ESPANA, S.A. By:/s/ Marco A. Garcia --------------------------------- Name: Marco Antonio Garcia Title: Director General EXTEBANK By:/s/ Marco A. Garcia --------------------------------- Name: Marco Antonio Garcia Title: Chairman NORTH FORK BANK By:/s/ John A. Kanas --------------------------------- Name: John A. Kanas Title: Chairman, Chief Executive Officer & President EX-2.2 3 ASSET PURCHASE AND SALE AGREEMENT 1 EXHIBIT 2.2 ASSET PURCHASE AND SALE AGREEMENT THIS ASSET PURCHASE AND SALE AGREEMENT (the "Agreement") is made as of September 28, 1995, by and between FIRST NATIONWIDE BANK, A FEDERAL SAVINGS BANK (the "Seller") and NORTH FORK BANK (the "Purchaser"). R E C I T A L S WHEREAS, Seller desires to sell and Purchaser desires to acquire and operate the branch offices described in Exhibit A, which is attached hereto and incorporated by this reference (the "Branch Offices") and the business conducted at the Branch Offices; WHEREAS, Seller desires to assign to Purchaser and Purchaser desires to assume from Seller certain liabilities relating to the Branch Offices and the business conducted at the Branch Offices, including certain obligations and liabilities relating to the deposits of the Branch Offices and certain other obligations of Seller; NOW, THEREFORE, in consideration of the foregoing recitals and the following terms, covenants, and conditions, the parties agree as follows: ARTICLE I DEFINITIONS 1.1 "ACH Accounts" is defined in the definition of "Deposits". 1.2 "ACH Items" is defined in the definition of "Deposits". 1.3 "Additional Contract" is defined in Section 5.13. 1.4 "Affiliates" is defined in Section 12.1. 1.5 "Assumed Liabilities" is defined in Section 2.4. 1.6 "Assets" is defined in Section 2.1. 1.7 "ATM" is defined in Section 2.1(a). 1.8 "Book Value Schedule" is defined in Section 2.6(a). 1.9 "Branch Account" is defined in Section 5.8. 1.10 "Branch Account Report" is defined in Section 5.8. 1.11 "Business Day" means any day (other than a Saturday or Sunday) on which banking institutions shall generally be open for the transaction of business in the State of New York. 1 2 1.12 "Business Retirement Plan", "BRP", "Keogh Account" or "Keogh" means an account created by a trust for the benefit of employees (some or all of whom are owner-employees) that complies with the provisions of Section 401 of the Code. 1.13 "Cash" is defined in Section 2.1(a). 1.14 "Closing" is defined in Section 8.1(b). 1.15 "Closing Date" is defined in Section 8.1(a). 1.16 Space Reserved. 1.17 "Code" is defined in Section 2.9. 1.18 "Collection Accounts" is defined in the definition of "Deposits". 1.19 "Comparable Position" is defined in Section 6.1(b). 1.20 "Confidential Information" is defined in Section 5.2. 1.21 "Contracts" is defined in Section 2.1(f). 1.22 "Covenant Not To Compete" is defined in Section 5.10. 1.23 The term "Deposits" shall mean all deposits (as defined in Section 31(l) of the Federal Deposit Insurance Act ("FDIA") as amended, 12 U.S.C. Section 1813(l)), including without limitation the aggregate balances of all savings accounts (including certificates of deposit) domiciled at each Branch Office as of the close of business on the Closing Date, including accounts accessible by negotiable orders of withdrawal ("NOW") or other demand instruments; all deposit accounts maintained by a customer for the stated purpose of the accumulation of funds to be drawn upon at retirement ("Retirement Accounts"); all deposit accounts domiciled at each Branch Office through which Seller accepts payments or deposits for credit or deposit to another account domiciled at such Branch Office (the "Collection Accounts"); all deposit accounts subject to arrangements between the owner of the account and a third party which directly makes automated clearing house debits and credits, including, but not limited to, social security payments, Federal recurring payments, and other payments debited and/or credited on a regularly scheduled basis to or from such accounts (such payments being hereinafter referred to as the "ACH Items" and such accounts being hereinafter referred to as the "ACH Accounts"); and all other accounts and deposits, together with interest, if any, that is accrued but unposted as of the close of business on the Closing Date provided that notwithstanding anything to the contrary contained in this Agreement, Seller shall not assign, and Purchaser shall not assume, any Deposits subject to or involved in any form of litigation, any Deposits as to which assets 2 3 of Seller have been pledged as security for amounts in excess of the FDIC insured limits, or any "Escheatable Deposits." 1.24 "Deposit Obligations" is defined in Section 2.3. 1.25 "Deposit Premium" is defined in Section 2.6(b). 1.26 "Designated Employees" is defined in Section 6.1(g). 1.27 "Disagreement" is defined in Section 2.7(b). 1.28 "Employees" means all persons employed by Seller at any Branch Office and those employees of FNIC set forth on Schedule 3.15(e) excluding (i) any person who indicates that he or she is not interested in seeking employment with Purchaser and (ii) any person who is on leave or disability and does not return to work within 6 months after the initial date of leave or disability. 1.29 "Encumbrances" is defined in Section 3.5. 1.30 "Environmental Laws" means all applicable federal, state and local laws and regulations and rules relating to pollution, discharge or release of Hazardous Substances into the environment or workplace. 1.31 Intentionally Deleted. 1.32 "Escheatable Deposits" means Deposits held as of the close of business on the Closing Date at any Branch Office which, in the absence of any claim by the depositor thereof, will become subject to escheat, in the calendar year in which the Closing occurs, to the State of New York pursuant to applicable escheat and unclaimed property laws. 1.33 "Estimation Date" is defined in Section 2.6(a). 1.34 "Estimated Cash" is defined in Section 2.6(a). 1.35 "Estimated Deposits" is defined in Section 2.6(a). 1.36 "Estimated Loan Payment" is defined in Section 2.6(a). 1.37 "Estimated Pro-Rata Adjustment" is defined in Section 2.6(a). 1.38 "Estimated Transfer Amount" is defined in Section 2.6(b). 1.39 "Excluded Assets" is defined in Section 2.2(a). 1.40 "Excluded Liabilities" is defined in Section 2.2(b). 1.41 "Fee Properties" is defined in Section 2.1(c). 3 4 1.42 "FDIA" is defined in the definition of "Deposits". 1.43 "FDIC" means Federal Deposit Insurance Corporation. 1.44 "Final Settlement Date" is defined in Section 2.8. 1.45 "Final Transfer Amount" is defined in Section 2.8. 1.46 "FIRPTA Affidavit" is defined in Section 7.1(d). 1.47 "GAAP" is defined in Section 3.11(a). 1.48 "Government Entity" is defined in Section 3.3(a). 1.49 "Hazardous Substances" means the definition of pollutants, contaminants and hazardous substances set forth in the Federal Comprehensive Environmental Response Compensation and Liability Act and similar New York state law. 1.50 "Indemnitee" is defined in Section 12.3(a). 1.51 "Indemnifying Party" is defined in Section 12.3(a). 1.52 "Interest Period" is defined in Section 2.8. 1.53 "IRA" means individual retirement account. 1.54 "IRS" means Internal Revenue Service. 1.55 "Keogh Account" or "Keogh" has the same meaning as "Business Retirement Plan" or "BRP". 1.56 "Leased Properties" is defined in Section 2.1(c). 1.57 "Leasehold Improvements" is defined in Section 2.1(g). 1.58 "Leases" is defined in Section 2.1(c). 1.59 Space Reserved. 1.60 "Loans" is defined in Section 2.1(b). As used in this Agreement, the term "Loans" shall also include (i) any and all liens and other security or other interests in various items of property and assets of the borrowers ("Borrower" or "Borrowers") and other obligors ("Obligor" or "Obligors") under the Loans held as collateral for the indebtedness covered by the Loans (the "Collateral") as provided for in any mortgages, deeds of trust, security agreements or other agreements, documents, or instruments granting liens or other encumbrances which may have been executed by the various Borrowers and Obligors in favor of the Seller and relating to the Loans ("Security Instruments") and (ii) promissory notes, guarantees, subordination agreements and similar agreements, 4 5 documents or instruments relating to the Loans and executed by Borrowers or Obligors. 1.61 "Losses" is defined in Section 12.1. 1.62 "Material Adverse Effect" means a material adverse effect on the Assets or on the business or operations conducted by Seller at the Branch Offices. 1.63 "material part" is defined in Section 2.11(d). 1.64 "Material Violation" means a violation which, individually or in the aggregate with all other such violations, would have a Material Adverse Effect or constitute or give rise to a default under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any lien, pledge, security interest, charge or other encumbrance upon any of the Assets or any of the assets of Seller relating to the Branch Offices under any material Seller Agreement. 1.65 "Names" is defined in Section 5.12. 1.66 "NOW" is defined in the definition of "Deposits". 1.67 "Notice of Disagreement" is defined in Section 2.7(b). 1.68 "Other Liabilities" is defined in Section 2.4. 1.69 "Permits" is defined in Section 3.4(c). 1.70 "Personal Property" is defined in Section 2.1(d). 1.71 "Post-Closing Schedule" is defined in Section 2.7(a). 1.72 "properties" is defined in Section 3.9. 1.73 "Pro-Rata Adjustment" is defined in Section 2.5. 1.74 "Purchaser" means North Fork Bank. 1.75 "Purchaser Agreement" is defined in Section 4.2(b). 1.76 "Purchaser's Account" is defined in Section 2.6(b). 1.77 "Purchaser's Indemnified Parties" is defined in Section 12.1. 1.78 "Real Properties" is defined in Section 3.14. 1.79 "Records" means all records and original documents in Seller's possession which pertain to and are utilized by Seller to 5 6 administer, reflect, monitor, evidence or record information respecting the business or conduct of any of the Branch Offices and all such records and original documents respecting (i) the Contracts, (ii) the Assets, (iii) the Deposits, (iv) the Leases and (v) the Employees (except confidential employee records for which consents to release such records to Purchaser shall not have been obtained from the relevant employee), including all such records maintained on electronic or magnetic media in the electronic data base system of Seller or to comply with any applicable federal or state law or governmental regulation to which the Deposits are subject, including but not limited to Federal Reserve Board Regulation E (12 C.F.R. Section 205), Federal Reserve Board Regulation CC (12 C.F.R. Section 229) and the escheat and unclaimed property laws of the State of New York. 1.80 "Requisite Regulatory Approvals" is defined in Section 9.1. 1.81 "Retirement Accounts" is defined in the definition of "Deposits". 1.82 "Returned Items" is defined in Exhibit B. 1.83 "Review Period" is defined in Section 2.7(b). 1.84 "Safe Deposit Box Assets" is defined in Section 2.1(h). 1.85 "Seller" means First Nationwide Bank, A Federal Savings Bank. 1.86 "Seller Agreement" is defined in Section 3.2(b)(iii). 1.87 "Seller's Account" is defined in Section 2.8. 1.88 "Seller's Indemnified Parties" is defined in Section 12.2. 1.89 "SAIF" means Savings Association Insurance Fund. 1.90 "Taxes" means all taxes, charges, fees, levies or other like assessments, including, without limitation, income, gross receipts, excise, real and personal and intangible property, sales, use, transfer, transfer gain, withholding, license, payroll, recording, ad valorem and franchise taxes imposed by the United States, or any state, local or foreign government or subdivision or agency thereof; and such term shall include any interest, penalties or additions to tax attributable to such assessments. 1.91 "Tax Return" shall mean any report, return or other information required to be supplied to a taxing authority in connection with Taxes. 1.92 "Taxpayer Information" is defined in Exhibit B. 6 7 1.93 "Termination Date" is defined in Section 13.1(b). 1.94 "TIN" means taxpayer identification number. 1.95 "Third Party" is defined in Section 12.3(a). 1.96 "Third Party Claim" is defined in Section 12.3(a). 1.97 "Transfer Taxes" is defined in Section 7.1(b). ARTICLE II TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES 2.1 Purchase and Sale of Assets. On the Closing Date, subject to the terms and conditions set forth in this Agreement, Seller shall sell, transfer, assign, convey and deliver to Purchaser, and Purchaser shall purchase and acquire from Seller, all of Seller's right, title and interest in and to the following assets (collectively, the "Assets") relating to the Branch Offices as of the close of business on the Closing Date: (a) Cash on Hand. All petty cash, vault cash, teller cash, automated teller machine ("ATM") cash and any other cash at or held for the account of the Branch Offices (the "Cash"). (b) Loans. All savings account loans secured by an interest in Deposits and loans made by the Branch Offices in connection with automatic loan reserves (i.e., overdraft protection), together with all interest thereon that shall accrue but not be received by Seller on or prior to the Closing Date (the "Loans"). At least ten Business Days prior to the Closing Date, Seller shall provide Purchaser with Schedule 2.1(b) which sets forth all Loans as of the most recent practicable date. (c) Real Property. (i) All real property described on Schedule 2.1(c)(i) including the buildings, improvements and structures thereon and the appurtenances belonging thereto (the "Fee Properties") and (ii) all leasehold interests in real property identified on Schedule 2.1(c)(ii) (the "Leased Properties") and all of Seller's rights with respect to the occupancy of the Leased Properties (the "Leases"). (d) Personal Property. The personal property set forth on Schedule 2.1(d)-1, which is located at the Branch Offices on the Closing Date and owned by Seller (including without limitation furniture, fixtures and equipment) but excluding the property set forth on Schedule 2.1(d)-2 ("Personal Property"). (e) Records. All segregated Records, provided that if the 7 8 Purchaser reasonably determines that unsegregated Records are necessary to administer a Branch Office Seller shall use reasonable efforts to make available to Purchaser the Records or portions thereof that are necessary to administer the Branch Office. (f) Contracts. The contract rights, licenses, permits, approvals, authorizations and franchises set forth on Schedule 2.1(f), together with any additional contract rights added to such Schedule pursuant to Section 5.13 hereof (the "Contracts"). (g) Leasehold Improvements. All leasehold improvements (to the extent not otherwise included as Personal Property) located at the Branch Offices on the Closing Date (the "Leasehold Improvements"). (h) Safe Deposit Box Assets. All assets related to the safe deposit box business located at the Branch Offices as of the close of business on the Closing Date (the "Safe Deposit Box Assets"). (i) Intangibles. The Covenant Not to Compete and the core deposit intangibles associated with the assumption of Deposits pursuant to Section 2.3 hereto. 2.2 Excluded Assets and Liabilities. (a) It is understood and agreed that Purchaser is not acquiring from Seller, and Seller shall retain ownership of all right, title and interest in and to, any property or asset which is not being transferred pursuant to Section 2.1 hereof (including but not limited to (i) the existing or any currently anticipated future name of Seller or derivation thereof and (ii) any logos, service marks, trademarks, advertising material, slogans, or similar items used on or prior to the Closing Date by Seller in connection with its business) and the assets and liabilities set forth on Schedule 2.2 (collectively, the "Excluded Assets"). (b) Except as expressly set forth in this Agreement, Purchaser shall not assume or be liable for any of the debts, obligations or liabilities of Seller of any kind or nature whatsoever (whether or not accrued or fixed, absolute or contingent, known or unknown), and Seller shall remain and be solely and exclusively liable with regard to such debts, liabilities and obligations (collectively, the "Excluded Liabilities"). 2.3 Assignment and Assumption of Deposits. Subject to the terms and conditions set forth in this Agreement, on the Closing Date, Seller shall assign to Purchaser, and Purchaser shall (a) accept and assume from Seller and (b) pay, perform and discharge all obligations with respect to and be solely 8 9 liable for all Deposits domiciled at the Branch Offices (the "Deposit Obligations"). At least ten Business Days prior to the Closing Date, Seller shall provide Purchaser with Schedule 2.3 which sets forth a list of all the Deposits as of the most recent practicable date. 2.4 Assignment and Assumption of Other Liabilities. ---------------------------------------------- Subject to the terms and conditions set forth in this Agreement, on the Closing Date, Seller shall assign to Purchaser, and Purchaser shall (a) accept and assume from Seller and (b) pay, perform and discharge all obligations with respect to and be solely liable for, the liabilities and obligations that arise under the Leases and the Contracts, which liabilities and obligations become due and payable after the Closing Date (the "Other Liabilities"). The Deposit Obligations and the Other Liabilities shall collectively be referred to as the "Assumed Liabilities". 2.5 Adjustment for Income, Expenses, Pre-Payments and Fees. ------------------------------------------------------ (a) All items of income, operating expenses, pre-payments and fees relating to the Assets and Assumed Liabilities, whether accrued or prepaid on or prior to the Closing Date (including without limitation, wages, salaries, rents, equipment charges, safe deposit fees, utility payments, personal property taxes, non delinquent real property taxes and assessments relating to the Branch Offices or the Fee Properties, any fees paid or payable to Seller with respect to the Loans or the IRA and Keogh Accounts, and any FDIC/SAIF fees, premiums or assessments), shall be pro-rated between the parties as of the close of business on the Closing Date. Seller shall be responsible for (or entitled to receive, as the case may be) all such items which are allocable to the period on or prior to the Closing Date, and Purchaser shall be responsible for (or entitled to receive, as the case may be) all such items which are allocable to the period subsequent to the Closing Date. Notwithstanding the foregoing, any special or extraordinary FDIC/SAIF fees, premiums or assessments relating to the Deposits levied after the execution of this Agreement shall be paid by Purchaser; and payment of such fees, premiums or assessments will be made as part of the Estimated Transfer Amount under Section 2.6 (if levied prior to the Closing), the Final Transfer Amount under Section 2.8 (if levied after the Closing but prior to the Final Settlement) or within 10 Business Days of presentment for payment (if levied after the Final Settlement is made). The aggregate net amount of such proration adjustments shall be referred to herein as the "Pro-Rata Adjustment". The Pro-Rata Adjustment shall be included as part of the calculation of the Estimated Transfer Amount and the Final Transfer Amount as provided for in this Agreement. (b) The Pro-Rata Adjustment shall include the dollar amount of all security deposits which Seller has paid to lessors 9 10 under the Leases, as indicated in the estoppel certificates or assignments to be signed by such lessors. (c) To the extent that any of the items of income, fees or expenses described in paragraph (a) of this section are not discovered prior to the preparation of the Post-Closing Schedule, the parties shall cooperate with one another so that Purchaser or Seller, as the case may be, pays any such fee or expense, or receives any such income, depending upon whether such fee, expense or income relates to the period before, on or after the Closing Date. (d) All prorations made pursuant to this section shall be based upon the ratio of the number of days on or prior to the Closing Date related to such item compared to the total number of days related to such item. 2.6 Estimated Transfer Payment. (a) Five (5) Business Days prior to the Closing, Seller shall deliver to Purchaser a schedule estimating the following, in each case as of the close of business on the last day of the month preceding the month in which the Closing Date shall occur (the "Estimation Date"): (i) the aggregate balance of the Deposits (the "Estimated Deposits"), (ii) the aggregate book value, net of specific loan loss reserves, of the Loans, plus (to the extent not reflected in such book value) all interest thereon that shall accrue but not be received by Seller on or prior to the Estimation Date (such book value, as so adjusted, the "Estimated Loan Payment"), (iii) the aggregate amount of the Cash (the "Estimated Cash") and (iv) the Pro-Rata Adjustment (the "Estimated Pro-Rata Adjustment"). At the Closing, Seller shall deliver to Purchaser a true and complete schedule (the "Book Value Schedule") setting forth the aggregate book value, net of accumulated depreciation, as of the Closing Date, of the Personal Property located at the Branch Offices, the Leasehold Improvements and the Fee Properties. (b) In connection with the sale by Seller to Purchaser of the Assets and the assumption by Purchaser of the Deposits as provided for herein, at the Closing, Seller shall transfer to Purchaser in immediately available funds, by wire transfer to an account designated in writing by Purchaser to Seller at least two days prior to the Closing Date ("Purchaser's Account"), an amount (the "Estimated Transfer Amount") equal to the Estimated Deposits minus the sum of (i) the amount set forth on Schedule 2.6 (b)(i) (the "Deposit Premium"), (ii) the Estimated Loan Payment, (iii) the Estimated Cash, (iv) the aggregate book value (net of accumulated depreciation) as of the Closing Date of the Personal Property located at the Branch Offices, the Leasehold Improvements and the Fee Properties and (v) the Estimated Pro-Rata Adjustment. (c) In order to illustrate the parties' intent with 10 11 respect to the amount payable by Seller pursuant to Section 2.6(b) of this Agreement, within 15 Business Days of the date of this Agreement Seller shall deliver to Purchaser Schedule 2.6(c) calculating the amount that would have been payable by Seller pursuant to such Section 2.6(b) if the Closing Date were August 31, 1995. 2.7 Post-Closing Schedule. (a) Within ten (10) Business Days after the Closing Date, Seller shall deliver to Purchaser a schedule (the "Post-Closing Schedule") setting forth the actual amount of (i) the aggregate balance of the Deposits as of the close of business on the Closing Date, (ii) the aggregate book value, net of specific loan loss reserves, as of the Closing Date of the Loans, plus (to the extent not reflected in such book value) all interest thereon that shall accrue but not be received by Seller on or prior to the Closing Date, (iii) the aggregate amount of the Cash as of the close of business on the Closing Date, (iv) the Deposit Premium and (v) the Pro-Rata Adjustment. Purchaser shall cooperate with Seller in the preparation of the Post-Closing Schedule. Purchaser shall provide Seller and its independent accountants with reasonable access to the books, records, facilities and personnel of the Branch Offices in a manner which does not unduly disrupt or interfere with the operation of the Branch Offices so that Seller and its independent accountants may prepare the Post-Closing Schedule. (b) Within thirty (30) calendar days after delivery of the Post-Closing Schedule to Purchaser (the "Review Period"), Purchaser may dispute all or any portion of the Post-Closing Schedule by giving written notice (a "Notice of Disagreement") to Seller setting forth in reasonable detail the basis for such dispute (hereinafter called a "Disagreement"). The failure by Purchaser to deliver a Notice of Disagreement during the Review Period shall constitute an irrevocable acceptance by Purchaser of the Post-Closing Schedule in the form delivered by Seller. If Purchaser delivers a Notice of Disagreement during the Review Period, the parties shall promptly commence good faith negotiations with a view to resolving such Disagreement. If Seller shall not dispute all or any portion of the Notice of Disagreement by giving written notice to Purchaser setting forth in reasonable detail the basis for such dispute within 10 Business Days following the delivery of the Notice of Disagreement, Seller shall be deemed to have irrevocably accepted the Post-Closing Schedule as modified by the Notice of Disagreement. (c) If Seller disputes all or any portion of the Notice of Disagreement within the 10 Business Days following the delivery of the Notice of Disagreement and the parties are not able to resolve any Disagreement within 30 calendar days after the delivery by Seller of its dispute of the Notice of Disagreement, such Disagreement shall be referred to a nationally recognized 11 12 accounting firm for determination of the disputed amounts in accordance with this Agreement. If Purchaser and Seller do not promptly agree on the selection of a nationally recognized accounting firm, their respective independent public accountants shall immediately select such accounting firm. The determination of such firm shall be final and binding upon the parties and the amount so determined shall be used to complete the final Post-Closing Schedule. Such firm shall render its determination as soon as practicable after referral of the Disagreement. The fees and expenses of such firm shall be paid one-half by Purchaser and one-half by Seller. The parties shall cooperate with each other and such firm with respect to the resolution of any Disagreement, such cooperation to include reasonable access to books, records, facilities and personnel. 2.8 Final Settlement. On the Business Day immediately following the day on which the Post-Closing Schedule is finally determined pursuant to the terms of Section 2.7 of this Agreement (the "Final Settlement Date"), the Estimated Transfer Amount shall be recalculated using the amounts reflected in the final Post-Closing Schedule (the "Final Transfer Amount"). If the Final Transfer Amount exceeds the Estimated Transfer Amount, Seller shall pay the difference to Purchaser by wire transfer in immediately available funds to Purchaser's Account. If the Estimated Transfer Amount exceeds the Final Transfer Amount, Purchaser shall refund the difference to Seller by wire transfer in immediately available funds to an account designated in writing by Seller ("Seller's Account"). Any payment pursuant to this section shall include interest on such amount for the number of days from (but not including) the Closing Date to, but excluding, the Final Settlement Date (the "Interest Period") calculated at the Federal Funds Rate as published in the "Money Rates" section of The Wall Street Journal as of the Closing Date. 2.9 Allocation of Purchase Price. The consideration paid by Purchaser to Seller pursuant to this Agreement shall be allocated among the Assets, including any intangible assets, as set forth on Schedule 2.9. The allocation of the purchase price will be bargained and negotiated for, and each party agrees to report the transactions contemplated hereby for federal income tax and all other tax purposes (including, without limitation, for purposes of Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code")) in a manner consistent with the allocation set forth on Schedule 2.9 determined pursuant to this Section 2.9 and in accordance with all applicable rules and regulations, and to take no position inconsistent with such allocation in any administrative or judicial examination or other proceeding or otherwise. Each of Purchaser and Seller shall timely file the appropriate forms in accordance with the requirements of 12 13 Section 1060 of the Code and this section. 2.10 Limited Warranty; Nonrecourse; Conveyance (a) EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THIS AGREEMENT, THE CONVEYANCE OF ALL ASSETS, INCLUDING PERSONAL PROPERTY INTERESTS, PURCHASED BY PURCHASER UNDER THIS AGREEMENT AND UNDER ANY CONVEYANCING DOCUMENT EXECUTED IN CONNECTION HEREWITH SHALL BE MADE, AS NECESSARY, BY SELLER'S SPECIAL WARRANTY DEED WITH COVENANTS AGAINST GRANTOR'S ACTS, ASSIGNMENT OR BILL OF SALE, IN "AS IS" AND "WHERE IS" CONDITION, WITHOUT RECOURSE AND, WITHOUT ANY WARRANTIES WHATSOEVER WITH RESPECT TO SUCH ACQUIRED ASSETS, EXPRESS OR IMPLIED, WITH RESPECT TO TITLE, ENVIRONMENTAL CONDITION, ENFORCEABILITY, COLLECTABILITY, DOCUMENTATION OR FREEDOM FROM LIENS OR ENCUMBRANCES (IN WHOLE OR IN PART), CONDITION OF PROPERTY OR ANY OTHER MATTER. (b) On and after the Closing Date, Seller shall execute and deliver to Purchaser such further instruments and documents of conveyance (in form and substance satisfactory to Seller and Purchaser) as shall be reasonably necessary to vest in Purchaser the full legal or equitable title of Seller in and to the Assets. (c) On and after the Closing Date, Purchaser shall execute, acknowledge and deliver all such acknowledgements and other instruments as shall be reasonably necessary to effectively relieve and discharge Seller from any of the Assumed Liabilities. 2.11 Risk of Loss; Repairs. (a) If, on or before the Closing Date, any of the Leased Properties or Fee Properties is damaged in material part by fire or other cause, Seller shall promptly notify Purchaser thereof in writing. In such event, Purchaser may elect to: (i) In the case of the Fee Property or Leased Property, allow as a reduction in the consideration payable by Purchaser to Seller an amount equal to the estimated cost of restoration (to the extent of the damaged property interest owned by Seller) as determined by an independent construction contracting firm satisfactory to both Seller and Purchaser; or (ii) (A) In the case of the Fee Property, assign at Closing to Purchaser, without recourse to Seller, the insurance proceeds for the casualty and the right to collect same, without any reduction in the consideration payable by Purchaser to Seller or (B) in the case of a Leased Property, assign at Closing to Purchaser, without recourse to Seller, the insurance proceeds for the casualty and the right to collect same (but only to the extent that Seller, pursuant to the terms of the applicable lease, is 13 14 entitled to such insurance proceeds payable in connection with such fire or other cause), without any reduction in the consideration payable by Purchaser to Seller (b) If, on or before the Closing Date, any condemnation or eminent domain proceedings are initiated which could result in the taking of any part of any Fee Property or Leased Property, Seller shall promptly notify Purchaser of the initiation of any such proceedings. Upon receipt of such notice, if a material part of the premises is to be taken, Purchaser may elect to: (i) (A) In the case of the Fee Property, consummate the purchase of the Fee Property and receive a reduction in the consideration payable by Purchaser to Seller in an amount equal to the book value of the Fee Property at such time giving effect to such taking, in which case Seller shall receive and retain any award made in connection with such condemnation or eminent domain proceedings or (B) in the case of a Leased Property, consummate the purchase of the real property leasehold interest in such Leased Property and receive a reduction in the consideration payable by Purchaser to Seller in an amount equal to the current book value of the real property leasehold interest in such Leased Property giving effect to such taking, in which case Seller shall receive any award made in connection with such condemnation or eminent domain proceedings which is payable to Seller pursuant to the applicable lease; or (ii) (A) In the case of the Fee Property, consummate the purchase of the Fee Property without any reduction in the consideration payable by Purchaser to Seller, in which event Seller shall assign to Purchaser, without recourse to Seller, all of Seller's right, title and interest in and to any award made in connection with such condemnation or eminent domain proceedings or (B) in the case of a Leased Property, consummate the purchase of the real property leasehold interest in such Leased Property, without any reduction in the consideration payable by Purchaser to Seller, in which event Seller shall assign to Purchaser, without recourse to Seller, all of Seller's right, title and interest in and to any award made in connection with such condemnation or eminent domain proceedings as provided in the applicable lease. (c) Purchaser shall have ten (10) Business Days from the date of receipt of Seller's written notice within which to make such election, and a failure to make an election shall be deemed an election to consummate this transaction pursuant to subsection 2.11(a)(i) or 2.11(b)(i) above, as applicable. (d) A "material part" shall be deemed to mean (i) any 14 15 taking or damage which would leave remaining a balance of such Fee Property or Leased Property which, due either to the area so taken or damaged or the location of the part so taken or damaged in relation to the part not so taken or damaged, would not permit it to be used effectively for its intended purpose and, under economic conditions, zoning laws or building regulations then existing or prevailing, would not readily accommodate a new or reconstructed building or buildings of a type not materially different from the building or buildings existing on the date of such taking or damage or (ii) any damage or taking that would require Purchaser to incur costs or expenses exceeding fifty thousand dollars ($50,000) to repair the branch or to compensate for such taking. (e) If any Fee Property or Leased Property requires any capital improvements between the date of this Agreement and the Closing Date, Seller shall give Purchaser notice of the proposed improvements and the cost thereof. If Purchaser does not object to such proposal within five (5) Business Days, Seller shall have the right to make such capital improvements and the consideration payable by Purchaser to Seller shall be increased by the cost of such capital improvements (only to the extent that the cost of such improvements have not been reflected in the book value of the Asset so improved). ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Purchaser as follows: 3.1 Corporate Organization and Powers. (a) Seller is a federally chartered savings bank, duly organized, validly existing and in good standing under the laws of the United States of America. (b) Seller has the corporate power and authority to own, lease or operate the Assets and to carry on the business of the Branch Offices as presently conducted and is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary, except where the failure to be so qualified would not, individually or in the aggregate with all other such failures, have a Material Adverse Effect. (c) Seller's deposits are, subject to applicable monetary limits established by law, insured by the SAIF of the FDIC, and all premiums and assessments required in connection therewith have been paid when due by Seller. 3.2 Corporate Authority; No Violation. 15 16 (a) Seller has the corporate power and authority to execute and deliver this Agreement and any documents, agreements or instruments to be executed by Seller pursuant to this Agreement, and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and any documents, agreements or instruments to be executed by Seller pursuant to this Agreement, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action on the part of Seller, and no further corporate authorization on the part of Seller is necessary to approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Seller. Assuming the due authorization, execution and delivery of this Agreement and of other documents, agreements and Instruments to be delivered by Seller to Purchaser pursuant to this Agreement by Purchaser, and except as enforcement may be limited by general principles of equity, whether applied in a court of law or a court of equity, and by bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally, (i) this Agreement constitutes a legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms and (ii) the other documents, agreements and instruments to be delivered by Seller to Purchaser pursuant to this Agreement, when executed and delivered, will be duly executed and delivered by Seller and will constitute legal, valid and binding obligations of Seller. (b) The execution and delivery by Seller of this Agreement or any document, agreement or instrument to be executed by Seller pursuant to this Agreement, the consummation by Seller of the transactions contemplated hereby or thereby, and compliance by Seller with the terms or provisions hereof or thereof, shall not result: (i) in a violation of any provision of the Charter or Bylaws of Seller, (ii) in a Material Violation of any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to Seller or any of its properties or assets (including, without limitation, the Assets), or (iii) in a Material Violation of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement, or other instrument or obligation to which Seller is a party or by which Seller or any of the Assets may be bound or affected (a "Seller Agreement"). 3.3 Consents and Approvals. (a) Except as set forth on Schedule 3.3, Seller is not required to obtain any consent, approval, order, authorization, registration, declaration from, or to make any filing with, any 16 17 court, administrative agency or commission, or governmental authority or instrumentality, domestic or foreign (each a "Governmental Entity") or any other third party in connection with (a) Seller's execution and delivery of this Agreement or any document, agreement or instrument to be executed pursuant to this Agreement or (b) the consummation by Seller of the transactions contemplated hereby or thereby (including without limitation the transfer of the Assets to Purchaser). (b) As of the date of this Agreement, Seller knows of no reason, specifically relating to its business or operations, why all of the Requisite Regulatory Approvals shall not be obtained. 3.4 Compliance With Law. (a) Except as set forth on Schedule 3.4, with respect to the Assets and the business of the Seller related to the Branch Offices, Seller is in compliance in all material respects with the provisions of all applicable federal, state and local statutes, regulations and ordinances. (b) Except as set forth on Schedule 3.4, and except for regularly scheduled examinations, audits and full and limited scope reviews conducted by Governmental Entities under applicable laws relating to federal savings banks and their holding companies, no investigation or review by any Governmental Entity concerning any possible conflicts or violations by Seller is pending or threatened to the knowledge of Seller. (c) Seller has all licenses, franchises, permits, certificates of public convenience, orders and other authorizations ("Permits") of all federal, state and local governments and governmental authorities necessary for the lawful conduct of the business being conducted at each of the Branch Offices, all such Permits are valid and in good standing, and all such Permits are not subject to any suspension, modification or revocation or proceedings related thereto except where the failure to have such Permits, or the invalidity thereof, would not, individually or in the aggregate, have a Material Adverse Effect. 3.5 Title to Assets. As of the Closing Date, Seller or one of its subsidiaries will have, and will deliver to Purchaser at the Closing, good, valid, and marketable title and with respect to the Fee Properties and will assign a valid leasehold interest in, all of the Leased Properties, free and clear of all mortgages, claims, pledges, charges, liens, encumbrances, easements, limitations, restrictions, commitments and security interests (collectively, the "Encumbrances") except for Encumbrances: (a) securing any Assumed Liability; 17 18 (b) listed on Schedule 3.5 or disclosed in any title reports, opinions or insurance binders listed on Schedule 3.5; (c) incurred in connection with the acquisition of property and securing the purchase price therefor, in either case only if such liability relating thereto is an Assumed Liability; (d) for Taxes or assessments, special or otherwise, either payable in installments or not due and payable or being contested in good faith and subject to escrow, reserves, or other appropriate protection for Purchaser; (e) easements, rights of way, restrictions, covenants of record, claims and covenants not shown of record, and other similar charges and encumbrances which, if the rights granted under such instruments were exercised, would not individually, or in the aggregate, impair or interfere with the present and continued use operation, value or marketability of the affected property; (f) rights of parties in possession, matters which would be shown on an accurate survey, and any other defect or exception to title, which in any case does not materially impair the present and continued use, operation, value or marketability of the Asset to which it relates; and (g) with respect to each Fee Property, any other title exceptions affecting the Fee Property which do not impair or interfere with the present and continued use, operation, value or marketability of the Fee Property. Seller shall cooperate with Purchaser to remove those encumbrances on the Fee Property which the title company may agree to delete as exceptions to the title thereto, but the title company's failure to delete any such encumbrance shall not constitute a breach of this representation. 3.6 Contracts and Leases. (a) Seller is not a party to or bound by any agreements or arrangements for the purchase or sale of any of the Assets, or for the grant of any preferential right to purchase any of the Assets, other than in the ordinary course of business. (b) Schedule 3.6(b) sets forth each Contract for transactions: (i) with an aggregate value of five thousand dollars ($5,000) or more during the past three (3) months or twenty-five thousand dollars ($25,000) or more during the past 12 months; (ii) with a remaining term of more than one (1) year, or 18 19 (iii) that has or may have a material effect on the Assets or on the business or operations conducted by Seller at the Branch Offices. Each of the foregoing contracts, whether or not set forth on Schedule 3.6(b), is referred to herein as a Contract. (c) Upon the Closing, each of the Contracts set forth on Schedule 3.6(b) and Leases: (i) will constitute the legal, valid and binding obligation of Seller, and to the knowledge of Seller, each of the other parties thereto, (ii) will be enforceable in accordance with its terms, and (iii) will not be subject to any material defaults or existing acts, events or conditions which, with notice or lapse of time, or both, will result in a material default under any of such Contracts or Leases. Seller has made available to Purchaser true and correct copies of each Contract set forth on Schedule 2.1(f), and all attachments, amendments and addenda thereto, excluding those Contacts added pursuant to Section 5.13. (d) Seller has delivered to Purchaser true, complete and correct copies of the Leases, together with all amendments, modifications, and other changes. The Leases are also listed on Schedule 2.1(c)(ii). (e) All sums due and owing by Seller pursuant to the Leases, through the Closing Date, have been or will be paid prior to the Closing Date. (f) Except as set forth on Schedule 3.6(f), Seller has not subleased any of its interests in any Leased Property. (g) Seller has not received any notice of (i) non-compliance with any restriction encumbering any Leased Property, or (ii) any zoning violations adversely affecting the value or use of any Leased Property. 3.7 Assignment of Assumed Liabilities. As of the Closing Date, each of the Assumed Liabilities will be properly assigned to Purchaser, and to the best of Seller's knowledge, there are no material defaults under any of such Assumed Liabilities. 19 20 3.8 Litigation. Schedule 3.8 sets forth each action, suit, proceeding, inquiry or investigation, at law or in equity, before any court, arbitrator, mediator or any governmental body, agency or official, pending, or, to Seller's knowledge, threatened, against Seller relating to any of the Assets, Assumed Liabilities, or the business or operation of the Branch Offices. Except as set forth on Schedule 3.8, there is no action, suit, proceeding, at law or in equity, before any court or arbitrator or any governmental body, agency or official, pending, or, to Seller's knowledge, threatened against Seller, wherein an unfavorable decision, ruling or finding would adversely affect (a) the validity or enforceability of this Agreement or any document necessary to consummate the transactions contemplated herein, (b) the consummation of the transactions contemplated hereby, (c) any approval, consent or permission required to be obtained by Seller hereunder, (d) the ability of Seller to perform its obligations under this Agreement, (e) the use, development, operation or maintenance of the Fee Properties or the Leased Properties as branch banking facilities or (f) the business, assets, liabilities or operations of any of the Branch Offices. Except as set forth on Schedule 3.8, no attachments, execution proceedings, assignments for the benefit of creditors, insolvency, bankruptcy, reorganization or other proceedings relating to the Assets or the Branch Offices are pending, or, to Seller's knowledge, threatened. 3.9 Environmental. Seller represents and warrants concerning the Fee Properties, the Leased Properties and all other property contained therein which shall be transferred pursuant hereto (for purposes of this Section 3.9, "properties") that, except as set forth on Schedule 3.9 and breaches of this representation that, individually or in the aggregate, would not have a Material Adverse Effect on the Assets or the Assumed Liabilities: (a) Except as otherwise provided herein or as disclosed in any environmental studies, reports, investigations or other documents (all of which are listed on Schedule 3.9), such properties are and have been in substantial compliance with all Environmental Laws, (b) there has been no storage, disposal, arrangement for disposal, presence or release of Hazardous Substances, from, in, upon or below any such properties, (c) Seller has not engaged in any activity that involves or involved the generation, use, manufacture, treatment, transportation, storage in tanks or otherwise, or disposal of Hazardous Substances on or from any property, and has no actual 20 21 knowledge that any other person has engaged in any such activity, (d) Seller has not received any written communication from any person or entity that alleges a violation of Environmental Laws concerning, or that Seller may be responsible for any Loss (as defined in this Agreement) under Environmental Laws with respect to, any of the properties, (e) Seller has not received any written notice of any claim, action, demand, or investigation from any person or entity alleging or describing potential Loss under Environmental Laws arising out of or based on or resulting from (a) the presence, release or threatened release of any Hazardous Substance from, in, upon or below any of the properties or (b) the violation or alleged violation of any Environmental Laws concerning any of the properties, and (f) Seller is not aware of any past or present actions, conditions or occurrences which could reasonably be expected to form the basis of any Loss to Seller under Environmental Laws concerning, relating to or incidental to the ownership or operation of any of the properties. (g) Seller has made available to Purchaser copies of all environmental studies, reports, investigations and other documents relating to the properties of which Seller has possession. 3.10 Finders or Brokers. Except as disclosed on Schedule 3.10, Seller has not paid or agreed to pay any fee or commission to any agent, broker, finder or other person for or on account of services rendered as a broker or finder in connection with this Agreement or the transactions covered and contemplated hereby. 3.11 Financial Information. (a) The books of account of the Branch Offices fairly and accurately reflect the respective Assets and Assumed Liabilities of the Branch Offices, in accordance with generally accepted accounting principles ("GAAP") or regulatory accounting principles, whichever is applicable. (b) The books of account of the Branch Offices (i) are maintained by Seller substantially in accordance with applicable legal and accounting requirements and (ii) reflect only actual transactions. (c) The Book Value Schedule shall accurately reflect the book value of the Assets referred to therein as of its date, recorded at their historical cost and depreciated in accordance 21 22 with Seller's historical accounting policies, all in accordance with GAAP. (d) The Post-Closing Schedule, to the extent it relates to Loans, shall accurately reflect the book value of the Loans referred to therein as of the Closing Date in accordance with generally accepted accounting practices. (e) Schedule 2.6(c) will be accurate, when delivered in accordance with the provisions of this Agreement, in all material respects. 3.12 Taxes. To the best of Seller's knowledge, (a) All Taxes which are due or payable by Seller relating to the Assets (except those Taxes which are Purchaser's responsibility under a different covenant of this Agreement) have been paid in full or properly accrued and adequately provided for by reserves shown in the books and records of Seller, or will be so paid or accrued and provided for in the books and records of the Seller. (b) All Tax Returns required to be filed with respect to the Assets have been filed with the appropriate federal, state or local taxing authority and each such Tax Return is true, complete and correct in all material respects. (c) All Taxes shown to be due on such Tax Returns, and all Taxes arising from or attributable to the Assets required to be withheld by or with respect to the Seller have been paid or, if applicable, withheld and paid to the appropriate taxing authority, other than those Taxes the failure of which to be paid would not result in a lien on the Assets or become a liability of Purchaser. (d) No notice of deficiency or assessment of Taxes has been received from any taxing authority with respect to the Assets. (e) There are no ongoing audits or examinations of any of the Tax Returns relating to or attributable to the Assets, other than with respect to Taxes that would not result in a lien on the Assets or become a liability of Purchaser. (f) No consents or waivers to extend the statutory period of limitations applicable to the assessment of any Taxes with respect to the Assets has been granted, other than with respect to Taxes that would not result in a lien on the Assets or become a liability of Purchaser. 22 23 3.13 Loans. Except as set forth on Schedule 3.13, (a) each evidence of indebtedness representing a Loan has been duly and validly executed and delivered by the Borrower(s) and other Obligors(s) thereunder, (b) each Loan constitutes a genuine, valid and legally binding obligation of such Borrower(s) and other Obligor(s), enforceable against such Borrower(s) and other Obligor(s) in accordance with its terms, except as enforceability may be limited by general principles of equity, whether applied in a court of law or a court of equity, and bankruptcy, insolvency and similar laws affecting creditors rights and remedies generally and (c) Seller has duly performed in all material respects all of its obligations thereunder. There are no material claims, counterclaims, set-off rights or other rights with respect to any Loan which could impair the collectability of such Loan or the foreclosure on the Collateral related thereto. Schedule 3.13 contains a true, complete and correct list of all Loans made in connection with overdraft protection which (x) are more than 30 days past due or (y) have been classified or criticized by any federal or state regulator of Seller or by Seller. 3.14 State of the Property. (a) Schedule 3.14 contains a list, that is complete and accurate in all material respects, which sets forth as of a recent date identified on said schedule (i) the address of each Fee Property and Leased Property and (ii) the Leases with respect to the Leased Properties and all material amendments thereto; (b) The improvements and building systems are in good operating condition and repair, subject to ordinary wear and tear and routine maintenance needs; and (c) The present use, operation and physical condition of the Fee Properties and the Leased Properties are in material compliance with all applicable laws. 3.15 Employees. (a) There are no claims (statutory or otherwise), demands, proceedings or other actions pending or, to Seller's actual knowledge, threatened against Seller by (a) any of its present or former employees at the Branch Offices or (b) any person who sought to become employed by Seller at the Branch Offices. (b) None of the Employees is a member of any labor union or is otherwise subject to collective bargaining. (c) For purposes of Section 2.4 hereof, the term "Contracts" does not include any employment, severance, termination or similar agreement. 23 24 (d) Seller's 401(k) plan is a qualified plan for purposes of Section 401(a) of the Code. (e) Schedule 3.15(e) sets forth a true and complete list of all Employees as of the date set forth therein. 3.16 Deposit Insurance. The Deposits are insured by SAIF up to the maximum extent permitted by law, and Seller has filed and will file all reports and paid all fees, premiums and assessments required under the Federal Deposit Insurance Act, as amended. 3.17 Currency Transaction Reports. Seller has filed all Currency Transaction Reports with respect to all transactions required to be reported under the Bank Secrecy Act and regulations adopted pursuant thereto. 3.18 Insurance. (a) With respect to the Assets and the operations of the Branch Offices, Seller currently maintains insurance (the "Insurance") as set forth on Schedule 3.18. All premiums due on the Insurance have been paid by Seller. Seller has not received, and has no knowledge of, any notice or request from any insurance company or board of fire underwriters requesting the performance of any work or alteration with respect to the Assets. Seller has received no notice from any insurance company, nor is Seller aware, of any defects or inadequacies in the Assets which, if not corrected, would result in the termination or limitation of the Insurance or any increase in the cost of the Insurance. (b) The Insurance is sufficient to replace (less any deductible amount) the Branch Offices or any of the Assets which are damaged, destroyed or lost prior to the Closing Date. (c) The Insurance will be "occurrence" insurance, meaning that Seller or such lessors, as the case may be, will have the enforceable right to submit and pursue claims and receive proceeds under such insurance after the Closing Date with respect to events occurring prior to the Closing Date (d) Seller's rights under the Insurance can be assigned to Purchaser without the consent of any person. 3.19 Condemnation; Special Assessments. Except as set forth on Schedule 3.19 hereto, there are no pending, or to the best of Seller's knowledge, contemplated, 24 25 condemnation or similar proceedings or special assessments which would affect any Fee Property or Leased Property or any part thereof in any way whatsoever. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represents and warrants to Seller as follows: 4.1. Corporate Organization and Powers. (a) Purchaser is a New York chartered stock commercial bank, duly organized, validly existing and in good standing under the laws of the State of New York. (b) Purchaser has the corporate power and authority to own, lease or operate its properties and to carry on its business as presently conducted and is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary, except where the failure to be so qualified would not, individually or in the aggregate with all other such failures, have a material adverse effect on Purchaser's ability to consummate the transactions contemplated hereby and perform its obligations hereunder. (c) Purchaser's deposits are, subject to applicable monetary limits established by law, insured by the SAIF and the Bank Insurance Fund of the FDIC, and all premiums and assessments required in connection therewith have been paid when due by Purchaser. 4.2 Corporate Authority; No Violation. (a) Purchaser has the corporate power and authority to execute and deliver this Agreement and any documents, agreements or instruments to be executed by Purchaser pursuant to this Agreement, and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and any documents, agreements or instruments to be executed by Purchaser pursuant to this Agreement, and the consummation of the transactions con templated hereby and thereby, have been duly authorized by all necessary corporate action on the part of Purchaser, and no further corporate authorization on the part of Purchaser is necessary to approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Purchaser. Assuming the due authorization, execution and delivery of this Agreement and of the other documents, agreements and instruments to be delivered by Purchaser to Seller pursuant to this Agreement by Seller, and except as enforcement may be limited by general principles of equity, whether applied in a 25 26 court of law or a court of equity, and by bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally, (i) this Agreement constitutes a legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms and (ii) the other documents, agreements and instruments to be delivered by Purchaser to Seller pursuant to this Agreement, when executed and delivered, will be duly executed and delivered by Purchaser and will constitute legal, valid and binding obligations of Purchaser. (b) The execution and delivery by Purchaser of this Agreement or any document, agreement or instrument to be executed by Purchaser pursuant to this Agreement, the consummation by Purchaser of the transactions contemplated hereby or thereby, and compliance by Purchaser with the terms or provisions hereof or thereof, shall not result: (i) in a violation of any provision of the Charter or Bylaws of Purchaser, (ii) in a violation of any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to Purchaser or any of its properties or assets (including, without limitation, the Assets), except for those violations which would not have, individually or in the aggregate, a material adverse effect on Purchaser's ability to consummate the transactions contemplated hereby and performance obligation hereunder, or (iii) in a violation of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement, or other instrument or obligation to which Purchaser is a party or by which Purchaser or any of the Assets may be bound or affected (a "Purchaser Agreement"), except for those violations which would not have, individually or in the aggregate, a material adverse effect on Purchaser's ability to consummate the transactions contemplated hereby and performance obligation hereunder. 4.3 Consents and Approvals. (a) Except for the filing of applications and notices, as applicable, with the FDIC, Office of Thrift Supervision ("OTS") and the New York Banking Department, and the approval of, or the expiration of waiting periods relating to such applications and notices, as the case may be, Purchaser is not required to obtain any consent, approval, order, authorization, registration, declaration from, or to make any filing with, any Governmental Entity or any other third party in connection with (a) Purchaser's execution and delivery of this Agreement or any document, agreement or instrument to be executed pursuant to this Agreement or (b) the 26 27 consummation by Purchaser of the transactions contemplated hereby or thereby. (b) As of the date of this Agreement, Purchaser knows of no reason, specifically relating to its business or operations, why all of the Requisite Regulatory Approvals shall not be obtained. 4.4 Litigation. There is no action, suit, proceeding, at law or in equity, before any court or arbitrator, or any governmental body, agency or official pending, or, to Seller's knowledge, threatened against Seller, wherein an unfavorable decision, ruling or finding would adversely affect (a) the validity or enforceability of this Agreement or any document necessary to consummate the transactions contemplated herein, (b) the consummation of the transactions contemplated hereby, (c) any approval, consent or permission required to be obtained by Purchaser hereunder, (d) the ability of Purchaser to perform its obligations under this Agreement or, (e) the business, assets, liabilities or operations of any of the Branch Offices. 4.5 Finders or Brokers. Purchaser has not paid or agreed to pay any fee or commission to any agent, broker, finder or other person for or on account of services rendered as a broker or finder in connection with this Agreement or the transactions covered and contemplated hereby. 4.6 Estimates, Projections and Other Predictions. It is understood that any cost estimates, projections or other predictions contained or referred to in any Exhibit or Schedule hereto or which otherwise have been provided to Purchaser are not and shall not be deemed to be representations or warranties of Seller. Purchaser acknowledges that there are uncertainties inherent in attempting to make such estimates, projections and other predictions, that Purchaser is familiar with such uncertainties, that Purchaser is taking full responsibility for making its own evaluation of the adequacy and accuracy of all estimates, projections and other predictions so furnished to it, and that Purchaser shall have no claim against anyone with respect thereto. ARTICLE V COVENANTS OF THE PARTIES 5.1 Business Obligations. Except as set forth on Schedule 5.1, as otherwise provided 27 28 in this Agreement, or as required by applicable law, between the date of this Agreement and the Closing Date: Seller shall: (a) conduct the business of the Branch Offices and the operations of Seller relating thereto in the ordinary course of business, consistent with Seller's past practice and applicable law, and consistent with prudent banking practice, (b) maintain its books and records in accordance with GAAP, and (c) use its reasonable efforts to preserve, for itself and Purchaser, its present business organization and the goodwill of its customers and others with whom business relationships exist. (d) Except as may be required (x) to obtain the Requisite Regulatory Approvals, (y) otherwise by a Governmental Entity, or (z) to accomplish the transactions contemplated hereby, with respect to the Branch Offices, the Deposits and the Loans, Seller shall not, without the prior written consent of Purchaser: (i) Cause any Branch Office to engage or participate in any material transaction or incur or sustain any material obligation except in the ordinary course of business; (ii) Change its interest rate or fee pricing policies, or materially alter the mix of rate, terms and account types, in each case, as in effect as of date of this Agreement, with respect to Deposits at the Branch Offices other than in the ordinary course of business and consistent with the markets in which the Branch Offices operate and promptly disclosed to Purchaser; (iii) Cause the Branch Offices to transfer to or receive from Seller's or any third party's other operations or branches which are not Branch Offices any (x) Loans or (y) Personal Property, other than in the ordinary course of business; (vi) Cause the Branch Offices to transfer to or receive from Seller's or any third party's other operations or branches any Deposits, except upon the unsolicited request of a depositor in the ordinary course of business, or if such deposit is pledged as security for a loan which is not a 28 29 Loan; (v) Transfer, assign, encumber, or otherwise dispose of or enter into any contract, agreement, or understanding to transfer, assign, encumber, or otherwise dispose of the Assets except in the ordinary course of business or as contemplated by this Agreement; (vi) Increase the salary, remuneration, or compensation of persons employed at the Branch Offices other than normal increases in accordance with Seller's customary policies as in existence on the date hereof, or pay any uncommitted bonus to any such employee other than regular bonuses granted based on historical practice of Seller; (vii) Amend, terminate or modify any of the terms of any Lease or Contract, or waive any of the provisions thereof except in the ordinary course of business; (viii) Amend or modify the terms of any Loan in any manner materially adverse to Seller or Purchaser; (ix) Open, close or relocate any Branch Office, or transfer any employee to or from a Branch Office (other than to or from another Branch Office); (x) Agree to do any of the foregoing. 5.2 Access. (a) Between the date of this Agreement and the Closing Date, Seller shall provide Purchaser and its authorized representatives access, upon reasonable notice and during normal business hours, to copies of Seller's confidential, proprietary and non-public information ("Confidential Information") except the Confidential Information that Seller is by law not permitted to disclose, including without limitation Seller's books, records, contracts, documents, Loan files, and other information of or relating to the Branch Offices. (b) Purchaser's investigations shall be conducted in a manner which does not unreasonably interfere with Seller's normal operations, customers, and employee relations. Seller shall, and shall cause its employees to, cooperate with and assist Purchaser to perform said investigations. No investigation conducted by the Purchaser pursuant to this Agreement shall affect any of Seller's representations, warranties, covenants or agreements made in this 29 30 Agreement. (c) All of Seller's Confidential Information shall be treated as and remain the sole property of Seller. If the transactions contemplated by this Agreement do not occur, Purchaser and its representatives shall return to Seller, or destroy, all of Seller's Confidential Information, and all documents, notes, summaries and other materials that contain, refer to, or are derived from such Confidential Information; Purchaser shall certify to the return or destruction of such Confidential Information. (d) Purchaser shall keep confidential and not disclose any of Seller's Confidential Information. Purchaser shall not directly or indirectly use Seller's Confidential Information for any purpose other than the consummation of this Agreement. (e) Purchaser's obligations to keep confidential and to not disclose Seller's Confidential Information shall continue for five years from the date of the transactions contemplated by this Agreement are consummated or abandoned and shall not apply to any information which was (i) in Purchaser's possession prior to its disclosure by Seller or (ii) generally known to the public, or (iii) rightfully disclosed to Purchaser by a third party not bound by an obligation of confidentiality. It is further agreed that, if in the absence of a protective order or the receipt of a waiver hereunder Purchaser is nonetheless, in the opinion of its counsel, compelled to disclose information concerning Seller to any tribunal or Governmental Entity or else stand liable for contempt or suffer other censure or penalty, Purchaser may disclose such information to such tribunal or governmental body or agency without liability hereunder. (f) Upon receipt of all of the Requisite Regulatory Approvals other than the expiration of any statutory waiting period relating thereto, and upon notice to Seller of a proposed Closing Date, Purchaser may communicate with, and deliver information, brochures, bulletins, press releases, and other communications to, depositors, Loan borrowers and other customers of the Branch Offices concerning (i) the transactions contemplated by this Agreement and (ii) the business and operations of Purchaser. The communications described hereinabove must be made with Seller's prior written consent (which consent shall not be unreasonably withheld) and shall be made at Purchaser's sole cost and expense. Seller, if so requested by Purchaser, shall on behalf and at the sole cost and expense of Purchaser, furnish such information and communications to depositors, Loan borrowers, and other customers of the Branch Offices in a commercially reasonable manner. (g) Except as may be required in connection with the obtaining of the Requisite Regulatory Approvals or as required by applicable law, Purchaser shall not disclose to any person, including to employees of the Branch Offices, the possible closing 30 31 of any of the Branch Offices prior to the Closing Date. 5.3 Legal and Regulatory Matters. With respect to the making of filings to any Governmental Entity or third party: (a) Seller and Purchaser shall cooperate with each other and use their best efforts to promptly prepare and file all necessary documentation; to effect all applications, notices, petitions and filings; and to promptly obtain all permits, consents, approvals, waivers and authorizations of all third parties and Governmental Entities which are necessary or advisable to consummate the transactions contemplated by this Agreement. (b) Within 30 days after the execution of this Agreement, Seller and Purchaser shall each file with the appropriate Governmental Entities all the applications for the Requisite Regulatory Approvals, consents, permits and authorizations which such party is required to obtain in connection with the consummation of the transactions contemplated by this Agreement. (c) Subject to the applicable laws relating to the exchange of information, Seller and Purchaser shall consult with each other and exchange information in order to obtain all the permits, consents, approvals and authorizations that are necessary or advisable to consummate the transactions contemplated by this Agreement from all third parties and Governmental Entities. (d) Seller and Purchaser will keep the other party apprised of the status of all applications and filings. (e) Except for any confidential portions thereof, the party responsible for making a filing shall promptly (i) provide a copy of the filing, and any supplement, amendment or item of additional information in connection with the filing, to the other party and (ii) deliver to the other party a copy of each material notice, order, opinion and other item of correspondence received by it from any Governmental Entity in respect of any such filing whose consent or approval is required for consummation of the transactions contemplated by this Agreement. (f) Purchaser and Seller shall promptly advise each other of any communication received from a Governmental Entity which causes such party to believe that there is a reasonable likelihood that a Requisite Regulatory Approval will not be obtained or that the receipt of such approval will be materially delayed. 5.4 Payment of Liabilities. From and after the Closing Date, Purchaser shall pay all properly drawn checks, drafts and non-negotiable withdrawal orders 31 32 timely presented to it (including without limitation those presented by mail, over the counter, or through clearings) by depositors whose deposits or accounts on which such items are drawn are Deposits. Payment of said items shall be made without regard to whether the items are drawn on the check or draft forms provided by Seller or by Purchaser. Further, Purchaser shall, in all other respects, discharge, in the usual course of the banking business, the duties and obligations of Seller with respect to the balances due and owing to the depositors whose accounts are assumed by Purchaser. The obligations set forth in this section shall be in addition to the Purchaser's obligations under Sections 2.3 and 2.4. 5.5 Interest Reporting. From January 1 of the current calendar year through the Closing Date, Seller shall report all interest credited to, interest withheld from, and early withdrawal penalties charged to the Deposits. After the Closing Date and through the end of the calendar year in which the Closing occurs, Purchaser shall report all interest credited to, interest withheld from, and early withdrawal penalties charged to the Deposits. Said reports shall be made to the holders of the Deposits and to the applicable federal and state regulatory agencies. 5.6 Transfer Fees. (a) Except as set forth in Section 2.5, Seller and Purchaser shall equally bear all fees incurred in connection with the obtaining of third party consents for transfer of the Assets from Seller to Purchaser and the assumption by Purchaser of the liabilities of Seller specified herein. (b) Notwithstanding the foregoing, if any lessor requires an increase in the amounts payable under any of the Leases as a condition to its consent to the assumption of such Lease by Purchaser, Purchaser shall be solely responsible for the payment of all such increases after the Closing. Seller shall not negotiate or agree to any such increase without the consent of Purchaser, which consent shall not be unreasonably withheld. 5.7 Reports. (a) Subsequent to the Closing Date, Purchaser shall make all the reports that are required to be made in the ordinary course of business to any Governmental Entity or otherwise with respect to the Branch Offices, including without limitation, federal, state and local income tax reporting of Retirement Accounts, 1099 information returns and other required tax forms, and cash transaction reports. Notwithstanding the foregoing, Purchaser's obligations with respect to said reports shall only apply to the extent that any such reports relate to matters occurring after the Closing Date. 32 33 (b) Seller shall have the obligation to make all such reports with respect to matters occurring on or prior to the Closing Date. (c) All reports shall be made to the holders of accounts and to the applicable federal, state and local regulatory agencies. 5.8 Branch Account Report. As soon as practicable after the date of this Agreement, Seller shall furnish Purchaser with a report of the Deposits as of the date of such report (the "Branch Account Report") in form reasonably acceptable to Purchaser. To the extent such information is maintained by Seller on its computer systems, the Branch Account Report shall enumerate for each account constituting a Deposit ("Branch Account"): (a) the address and taxpayer identification number of the owner of the Branch Account, (b) the type of account, (c) the date the Branch Account was opened, (d) the current interest rate paid on the Branch Account, if any, (e) the balance of the Branch Account, and (f) the term and maturity of any Branch Account that is a certificate of deposit or similar time deposit. By 11:00 A.M. on the Tuesday preceding the Closing, Seller should provide Purchaser with a Branch Account Report for the Friday preceding the Closing. 5.9 General Notices to Depositors and Safe Deposit Box Owners. --------------------------------------------------------- (a) Within five (5) business days following the receipt of all Requisite Regulatory Approvals, Seller shall provide Purchaser with an intermediate customer list of the accounts that are to be assumed by Purchaser pursuant to this Agreement. The customer list shall contain information that is accurate as of the month-end prior to the giving of the notice referred to in Section 5.9(b) of this Agreement. (b) Within five (5) Business Days following the receipt of all of the Requisite Regulatory Approvals (other than the expiration of all statutory waiting periods relating thereto), Seller shall notify the holders of the Deposits that are to be assumed under this Agreement that, subject to satisfaction of the conditions to closing contained herein, Purchaser will assume the liability for the Deposits. Such notifications shall include notice that Purchaser shall not continue services to depositors provided by Seller but not routinely offered by Purchaser, as specified by Purchaser prior to the giving of such notification. The notifications shall be based on the list referred to in Section 5.9(a) of this Agreement and a listing maintained at the Branch Offices of the new accounts opened since the date of such list. Seller shall provide Purchaser with the documentation of such lists up to the date of Seller's mailing. Prior to the Closing, Purchaser shall send notifications to the appropriate holders setting out the details of its administration of the assumed 33 34 accounts. Each party shall obtain approval of its notification letter(s) from the other party, and said approval shall not be unreasonably withheld. Each party shall bear the cost of its own mailing. (c) Within five (5) Business Days following the receipt of all of the Requisite Regulatory Approvals (other than the expiration of all statutory waiting periods relating thereto), Seller shall provide a notice to the owners of each of the safe deposit boxes at the Branch Offices stating that Seller shall assign to Purchaser the safe deposit agreements between Seller and each of such parties on the Closing Date. The notice shall be made by a letter that is mutually acceptable to Purchaser and Seller. Seller and Purchaser shall cooperate with one another in order to transfer the Safe Deposit Box Assets from Seller to Purchaser. As soon as practicable after the date of this Agreement, Seller shall deliver copies of all safe deposit box lease forms currently used in connection with the Safe Deposit Box business of the Seller. (d) At least thirty (30) days before the Closing Date, Seller shall prominently and continuously display a sign in each Branch Office stating that the Branch Office will be closed on the Saturday following the Closing Date and will not reopen until the following Monday (unless such Monday is a bank holiday, in which case the sign will indicate that the Branch Office will reopen the following Tuesday). The contents and form of the sign shall be subject to Purchaser's prior approval, which shall not be unreasonably withheld. At a mutually agreeable time on the Closing Date, Seller shall provide Purchaser and their agents access to each Branch Office in order for Purchaser to take such steps as are necessary to enable Purchaser to reopen such Branch Office on the date described above as a functioning branch office of Purchaser. 5.10 Covenant Not to Compete. (a) For a period of two (2) years following the Closing Date, Seller shall not, and shall not allow any of its Affiliates to, directly or indirectly solicit any deposit business of the Branch Offices, or establish or maintain a branch office or other physical facility for the purpose of accepting deposits within the Borough of Queens or the counties of Nassau or Suffolk (the "Region"). (b) For two years following the Closing Date, Seller shall not, and shall not allow any of its Affiliates to, (i) directly contact any customer of the Branch Offices as of the Closing Date for the purpose of soliciting any deposit or (ii) conduct general solicitations specifically targeted to such customers. (c) For two years following the Closing Date, Seller shall not, and shall not allow any of its Affiliates to, solicit loans to any of the Deposit customers of the Branch Offices, unless 34 35 such customer is currently a secured real estate borrower. (d) Notwithstanding the foregoing, Seller and its Affiliates may (i) acquire any thrift or depositary institution, or the assets and/or liabilities thereof, which conducts business in the Region (provided the deposits of such thrift's or depository institution's retail branches located in the Region do not exceed twenty-five percent of the total deposits of the thrift or depository institution being acquired), (ii) conduct general solicitations and mailings that are not specifically targeted to such customers (including without limitation solicitations related to the mortgage banking and loan origination business), and (iii) conduct solicitations and mailings to people who are depositors at another branch of Seller that is not covered by this Agreement (regardless of whether they are also customers of a Branch Office). (e) The obligations of Seller created by this Section 5.10 are referred to herein as the "Covenant Not To Compete". 5.11 Insurance. Following execution of this Agreement until the Closing Date, Seller shall maintain in full force and effect all of the Insurance listed in Schedule 3.18. 5.12 Use of Names, Trademarks and Service Marks. ------------------------------------------ (a) Except for the trademarks set forth in Schedule 5.12, no interest in or right to use any logo, name, trademark or service mark presently or previously used by Seller is being conveyed pursuant to this Agreement. (b) Purchaser agrees that from and after the Closing Date neither it nor any of its affiliates (including the Branch Offices) will use the name "First Nationwide Bank", "First Nationwide", or any similar name indicating affiliation after the Closing with Seller or any of its affiliates, in connection with any business or activity engaged in by Purchaser or any of its affiliates, except that (x) for a period of three months after the Closing, Purchaser may, with the prior consent of Seller (which consent shall not be unreasonably withheld), refer to the Branch Offices and Assets in correspondence with existing customers of Seller as "formerly known as First Nationwide Bank, A Federal Savings Bank" or a similar designation and (y) Purchaser or its Affiliates or advisers may make "tombstone" advertisements announcing consummation of the transactions contemplated hereby. (c) Promptly after the Closing Date, Purchaser shall commence the removal of the trade names, names, service marks, logos, insignia, slogans, emblems, symbols, designs, and other identifying characteristics ("Names"), except the Names set forth on Schedule 5.12, from all premises, equipment, signs, interior 35 36 decor items, fixtures and furnishings, and from all printed materials and related business literature associated with the Branch Offices and the Personal Property acquired. The costs associated with such removal shall be at the sole expense of the Purchaser and shall be completed not later than 30 days after the Closing Date. 5.13 Additional Contracts. (a) From the date of this Agreement until and through the Closing Date, the parties shall take the following actions for any contract or group of related contracts which are related to the operations of the Branch Offices or the other operations that are the subject of this Agreement, and which are (i) not related to the ordinary course of business of the Branch Offices or (ii) expected to result in payments of more than $50,000 in any year or $25,000 in the case of contracts which are not cancelable on 60 days or less notice without cost or penalty (an "Additional Contract"). (b) Prior to entering into an Additional Contract, Seller shall provide written notice to Purchaser of its intention to enter into the Additional Contract and shall afford Purchaser reasonable access to the documents relating thereto. (c) By 12:00 p.m. of the tenth Business Date following notice by Seller, Purchaser shall state to Seller its decision as to whether or not to accept such Additional Contract. The failure by Purchaser to respond prior to 12:00 p.m. on such tenth Business Day shall be deemed an acceptance of such Additional Contract. (d) Any Additional Contracts accepted or deemed accepted by Purchaser under this section, and any contract entered into by Seller subsequent to the date hereof for which Seller is not required to notify Purchaser pursuant to the terms of this section, shall be added to Schedule 2.1(a)(vi) and become part of the Contracts to be assumed by Purchaser. 5.14 Updating Schedules. On the Closing Date, Seller shall deliver to Purchaser updated versions of all Schedules hereto with the latest information available to Seller as of two (2) Business Days prior to the Closing Date. Within five (5) calendar days after the Closing Date, Seller shall deliver to Purchaser final versions of all Schedules covering all transactions through the close of business on the Closing Date. No updating of schedules pursuant to this Section shall affect any of Seller's representations, warranties, covenants or agreements in this Agreement. 36 37 5.15 General Conversion Matters. Seller and Purchaser agree to terms, covenants and conditions related to the conversion of the Branch Offices set forth in Exhibit B. 5.16 Intentionally Deleted. 5.17 Assistance Clause. At the request of Purchaser, Seller shall execute and deliver such instruments and take such action as may be reasonably necessary in order to carry out the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, on and after the Closing Date, Seller shall use reasonable efforts to assist Purchaser in the orderly transfer of the Assets and Deposits. 5.18 Other Information. From the date of this Agreement until the Closing Date, within 15 days following the end of each calendar month, Seller shall use reasonable efforts to deliver to Purchaser those reports set forth on Schedule 5.18, or, in the event such information is not reasonably available, such information as shall be mutually agreed upon by Seller and Purchaser for each of the Branch Offices. 5.19 Title to Assets. At least three (3) business days prior to the Closing, Seller shall deliver (i) for recordation on the Closing Date, executed and acknowledged special warranty deeds with covenants against grantor's acts, and (ii) assignments in form acceptable to Seller and Purchaser, by which Seller will convey to Purchaser all of its right, title and interest, respectively, to each of the Fee Properties and the Leased Properties. ARTICLE VI EMPLOYEE MATTERS 6.1 Employee Matters. (a) As of the Closing Date, except for those Employees set forth on Schedule 6.1, Purchaser shall offer to employ all of the Employees. Seller shall pay, discharge and be responsible for (i) all salary, wages and claims arising out of or relating to the employment of the Employees on or before the Closing Date and (ii) any employee benefits (including, but not limited to, accrued vacation, annual or long-term incentive program, 401(k) plan, non-qualified deferred compensation plan and group health coverage continuation pursuant to the Code) arising under Seller's employee 37 38 benefit plans and employee programs on or prior to the close of business on the Closing Date, including benefits with respect to claims incurred on or prior to the close of business on the Closing Date but reported after the Closing Date. After the Closing Date, Purchaser shall pay, discharge and be responsible for all salary, wages, claims and benefits arising out of or relating to the employment of the Employees by Purchaser after the Closing Date. (b) Except as otherwise provided herein, for a period of twelve (12) months following the Closing Date (or for such shorter period as Purchaser shall employ an Employee), Purchaser shall pay each Employee a base salary and benefits that is generally equivalent to but not less than, on an aggregate dollar value basis, ninety-five (95) percent of the dollar value of the base salary and reasonably quantifiable benefits (excluding retention plans) received by such Employee from Seller immediately prior to the Closing Date (a "Comparable Position"). In addition, Purchaser shall cause all Employees as of the Closing Date to be eligible to participate, as of the next "entry date" under any such plan that so limits the commencement of participation therein, (i) in any holiday, sick leave, vacation pay, leave of absence or similar policy of Purchaser in which similarly situated employees of Purchaser are generally eligible to participate without duplication of benefits and (ii) in the "employee welfare benefit plans" and "employee pension plans" (as defined in Section 3 (1) and Section 3 (2) of ERISA, respectively) of Purchaser in which similarly situated employees of Purchaser are generally eligible to participate. Notwithstanding the foregoing, all Employees and their dependents shall be covered immediately after the Closing (and shall not be excluded from coverage on account of any pre-existing condition or actively-at-work requirement) under any such plan that is a group health plan of Purchaser subject to Part 6 of Title I of ERISA and under basic company-provided life or disability coverage. For purposes of any seniority or length of service requirements, waiting periods, vesting periods or differential benefits based on length of service in any such plan or policy of Purchaser for which an Employee may be eligible after the Closing, Purchaser shall ensure that service by such Employee with Seller shall be deemed to have been service with Purchaser for all purposes under any such plan or policy to the extent such service is credited by Seller under its similar plans; provided that Purchaser shall not be required to treat an Employee's service with Seller as service with Purchaser for purposes of determining benefit accrual under any defined benefit plan maintained by Purchaser. (c) With respect to any Employee who declines employment with Purchaser and who was not offered a Comparable Position with Purchaser or who is terminated by Purchaser other than for "cause" within twelve (12) months following the Closing Date, Purchaser shall provide to such Employee the compensation and other benefits described on Schedule 6.1 hereof, provided, however, 38 39 that with respect to the Employees set forth on Schedule 6.1, Seller shall promptly reimburse Purchaser for all costs incurred by Purchaser pursuant to this section. In the event a right to reimbursement arises hereunder, Purchaser shall promptly submit to Seller a claim for reimbursement setting forth the Employee involved, the effective date of termination of employment of such Employee, and the aggregate amount of the costs incurred by Purchaser for which the Purchaser seeks reimbursement. Within five (5) calendar days of Seller's receipt of such claim, Seller shall remit to Purchaser, in immediately available funds, the amount of such claim. (d) Except with the prior written consent of Purchaser, Seller shall not for a period of one (1) year after the Closing Date solicit any Employee to again become an employee of Seller or any of its affiliates. Seller shall inform Purchaser of any Employee who resigns prior to the Closing Date, within five (5) days of such resignation. (e) If the transactions contemplated by this Agreement are not consummated for any reason, Purchaser shall not solicit for hire any Employee for a period of one (1) year from the date hereof. (f) For each Employee, Seller shall use its reasonable efforts to deliver to Purchaser copies of Seller's general employee benefit information, staff lists that include title and hire date, all records relating to withholding and payment of income and unemployment taxes (federal, state and local) and FICA taxes (including, without limitation, Forms W-4, Forms I-9, Employee's Withholding Allowance Certificate) with respect to wages paid by Seller during the 1995 calendar year, and other employee records (including, without limitation, performance reviews, pre-employment investigation and background checks). Seller shall provide Purchaser with such information no later than 30 days after the execution of this Agreement. (g) Prior to the Closing Date, Purchaser shall interview all Employees set forth on Schedule 6.1 who are interested in seeking employment with Purchaser and deliver to Seller a confidential list setting forth those Employees to which Purchaser intends to offer employment on the Closing Date (the "Designated Employees") and the position to be offered to each Employee. Notwithstanding anything herein to the contrary, Purchaser shall have no obligation to offer employment to any of such Employees. Notwithstanding the exception contained in this section, Purchaser's obligations with respect to Employees contained in this section shall apply to each of the Designated Employees who accepts employment with Purchaser as if such Designated Employees were not set forth on Schedule 6.1. (h) As soon as practicable following the Closing Date, 39 40 Purchaser and Seller shall cooperate to transfer from Seller's 401(k) plan, as applicable to Purchaser's 401(k) plan, the assets and liabilities in Seller's 401(k) plan attributable to the Employees. (i) Seller shall promptly reimburse Purchaser for all costs incurred by Purchaser with respect to any person on leave or disability on the Closing Date who does not return to work within the six-month period after the initial date of leave or disability. 6.2 Notice of Closing. Except as necessary in order to obtain the Requisite Regulatory Approvals or as required by law, prior to the Closing Date Purchaser shall not give any notice or notification of the closing of any of the Branch Offices, or that any Employees are not to be offered employment by Purchaser, or be responsible for any such notice or notification or the communication of any such information to any person. ARTICLE VII CERTAIN TAX MATTERS 7.1 Certain Tax Matters. (a) Except as otherwise provided in this section hereof (relating to Transfer Taxes), Seller shall be responsible for the payment of all Taxes relating to the Assets for all taxable periods that end prior to the close of business on the Closing Date. Responsibility for Taxes relating to the Assets for all taxable periods which include (but do not end on) the Closing Date shall be allocated between Purchaser and Seller in accordance with the method of Section 164(d) of the Code, as amended. The party which has the primary obligation to do so under applicable law shall file any Tax Return that is required to be filed in respect of Taxes described in this section, and that party shall pay the Taxes shown on such Tax Return and notify the other party in writing of the other party's share of Taxes for which it is responsible, if any, of the Taxes shown on such Tax Return and how such Taxes and share were calculated, which the other party shall reimburse by wire transfer of immediately available funds no later than ten days after receipt of such notice. (b) Purchaser and Seller shall each pay one-half of all transfer, recording, sales, use (including all bulk sales taxes) and other similar taxes and fees (collectively, the "Transfer Taxes") arising out of or in connection with the transactions effected pursuant to this Agreement. The party which has the primary obligation to do so under applicable law shall file any Tax Return that is required to be filed in respect of Taxes described 40 41 in this section, and that party shall pay the Taxes shown on such Tax Return and notify the other party in writing of the other party's share of Taxes for which it is responsible, if any, of the Taxes shown on such Tax Return and how such Taxes and share were calculated, which the other party shall reimburse by wire transfer of immediately available funds no later than ten days after receipt of such notice. (c) Seller and the Purchaser shall provide each other with such assistance as reasonably may be requested by either of them in connection with (i) the preparation of any Tax Return, or (ii) any audit or other examination by any taxing authority, or any judicial or administrative proceedings relating to liability for Taxes. The party requesting assistance hereunder shall reimburse the other party for reasonable out-of-pocket expenses incurred in providing such assistance, provided, however, that no independent contractors, such as accountants or attorneys, shall be consulted without the written consent of the party requesting assistance, which consent shall not be unreasonably withheld. (d) Seller shall deliver to the Purchaser at the Closing a true, correct and complete affidavit which meets the requirements of Treasury Regulation Section 1.1445-2(b)(2) and which attests to Seller's non-foreign status (the "FIRPTA Affidavit"). If Purchaser receives the FIRPTA Affidavit at the Closing, Purchaser shall not withhold any of the consideration paid to Seller under this agreement pursuant to Section 1445 of the Code (and regulations thereunder). ARTICLE VIII OBLIGATIONS OF PARTIES ON THE CLOSING DATE 8.1 Closing Date/Closing. (a) Except as otherwise hereinafter provided, the closing date (the "Closing Date") shall be the second Friday upon which all conditions set forth in this Agreement are satisfied or waived or such other date as may be mutually agreeable to the parties hereto; provided, however, that unless otherwise mutually agreed by the parties, the Closing Date shall not be prior to January 1, 1996. (b) The delivery of the instruments of assignment and transfer to be delivered by Seller and payment by Seller of the amount set forth under this Agreement, delivery of the instruments of assumption to be delivered by Purchaser, and the other transactions herein contemplated to take place concurrently with such deliveries, assumptions, and payments (the "Closing"), shall take place on the Closing Date, at 1:00 P.M. Eastern Time, at the offices of Seller, 135 Main Street, San Francisco, California (or at such other time and place as are agreed to by the parties), and 41 42 all such deliveries, assumptions, and payments shall be effective as of the close of business on the Closing Date. (c) At the Closing, any funds to be paid on the Closing Date shall be paid by wire transfer of immediately available funds on the Closing Date as early as possible and, in any event, before 3:00 p.m. Eastern Standard Time on the Closing Date, and, no effect shall be given to any assignment or assumption by Seller or Purchaser contained in this Agreement until Seller's wire transfer of funds is actually received on the Closing Date. (d) Any deliveries, assignments, or transfers required under this Agreement, other than the foregoing, shall be made at the time and date specified in this Agreement (and where no time is specified, on or before the close of business on the date specified) and in the manner and place specified in this Agreement (or, where not specified, in the manner and place as may be reasonably requested in writing by the party that is to receive such delivery, assignment or transfer). (e) The payment of the Final Transfer Amount, to the extent based on any of the items to be reflected on the Post-Closing Schedule, shall be determined as of the close of business on the Closing Date. 8.2 Obligations of Seller on the Closing Date. ----------------------------------------- On the Closing Date, Seller shall: (a) deliver to Purchaser the Records referred to in Section 2.1(e), to the extent that any such Records are not located at the Branch Offices; and (b) execute, acknowledge and deliver to Purchaser (i) a Bill of Sale substantially similar in form and substance to Exhibit C attached hereto and made a part hereof, (ii) with respect to the Fee Properties, special warranty deeds with covenants against grantor's acts and (iii) all such endorsements, assignments, bills of sale, and other instruments of conveyance, assignment and transfer as shall be reasonably necessary or advisable to consummate the sale and transfer to Purchaser of the assets to be sold hereunder. 8.3 Obligations of Purchaser on the Closing Date. On the Closing Date, Purchaser shall execute, acknowledge and deliver to Seller an Instrument of Assumption of Assumed Liabilities substantially similar in form and substance to Exhibit D attached hereto and made a part hereof, and all such other instruments as shall be reasonably necessary or advisable to consummate the sale and transfer of assets to Purchaser and the assumption of Assumed Liabilities by Purchaser. 42 43 ARTICLE IX CONDITIONS TO EACH PARTY'S OBLIGATIONS The obligations of the parties under this Agreement are to the satisfaction, on or before the Closing Date, of the following conditions: 9.1 Approval of Governmental Authorities. All regulatory approvals required to consummate the transactions contemplated hereby shall have been obtained and remain in full force and effect, and all applicable statutory waiting periods relating thereto shall have expired (all such approvals and the expiration of all such waiting periods being referred to herein as the "Requisite Regulatory Approvals"). 9.2 No Injunctions or Restraints. There shall be no order, injunction or decree issued by a court or agency of competent jurisdiction or other legal restraint or prohibition (an "Injunction") preventing the consummation of the transactions contemplated by this Agreement in effect. 9.3 Illegality. There shall be no statute, rule, regulation, order, injunction or decree enacted, entered, promulgated or enforced by any Governmental Entity which prohibits, restricts or makes illegal consummation of the transactions contemplated by this Agreement. ARTICLE X CONDITIONS TO PURCHASER'S OBLIGATIONS The obligations of Purchaser under this Agreement are subject to the satisfaction or waiver, on or before the Closing Date, of the following conditions: 10.1 Representations and Warranties True; Obligations Performed. ---------------------------------------------------------- (a) The representations and warranties made by Seller in this Agreement shall be true and correct as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date at and as though such representations and warranties were made as of the Closing Date. The condition contained in this Section 10.1(a) shall be deemed to have been satisfied even if such representations or warranties are not true and correct unless the failure of any of the representations or warranties to be so true and correct, individually or in the aggregate, would have a Material Adverse Effect, and, nothing contained in this section 10.1(a) shall be deemed to preclude, or otherwise limit, the right of Purchaser to 43 44 be indemnified for any breach of a representation or warranty by Seller in accordance with the provisions of Article XII hereof. (b) Seller shall have performed and complied in all material respects with all obligations, covenants and agreements required by this Agreement to be performed or complied with by it on or prior to the Closing Date. (c) Seller shall have delivered to Purchaser a certificate of an executive officer of Seller, dated the Closing Date, certifying to the fulfillment of the foregoing conditions. 10.2 Opinion of Counsel. Purchaser shall have received an opinion of counsel for Seller, dated the Closing Date, with respect to the matters set forth on Exhibit E attached hereto. 10.3 No Pending Governmental Actions. There shall be no pending proceeding, initiated by any Governmental Entity, seeking an Injunction. 10.4 Consents. All of the consents contemplated by Schedule 3.3 (other than those contemplated by Section 9.1) shall have been obtained by Seller, except for such third party consents the failure of which to obtain would not have a Material Adverse Effect. 10.5 No Material Adverse Change. Nothing shall have occurred or failed to occur subsequent to June 30, 1995, which shall have caused or shall reasonably be expected to cause a material adverse change in the assets, liabilities, business, financial condition or results of operations of the Branch Offices taken as a whole. ARTICLE XI CONDITIONS TO SELLER'S OBLIGATIONS The obligations of Seller under this Agreement to be performed at the Closing shall be subject to the satisfaction or waiver, on or before the Closing Date, of the following conditions: 11.1 Representations and Warranties True; Obligations Performed. ------------------------------------ --------------------- (a) The representations and warranties made by Purchaser in this Agreement shall be true and correct as of the date of this Agreement and (except to the extent such representations and 44 45 warranties speak as of an earlier date) as of the Closing Date as though such representations and warranties were made at and as of such date. Notwithstanding the foregoing, the conditions contained in this Section 11.1(a) shall be deemed to have been satisfied even if such representations or warranties are not true and correct unless the failure of any of the representations or warranties to be so true and correct, individually or in the aggregate, would have a material adverse effect on Purchaser's ability to consummate the transactions contemplated herein, and, nothing contained in this section 11.1(a) shall be deemed to preclude, or otherwise limit, the right of Seller to be indemnified for any breach of a representation or warranty by Purchaser in accordance with the provisions of Article XII hereof). (b) Purchaser shall have performed and complied in all material respects with all obligations and agreements required by this Agreement to be performed or complied with by it prior to or at the Closing Date. (c) Purchaser shall have delivered to Seller a certificate of an executive officer of Purchaser, dated the Closing Date, certifying to the fulfillment of the foregoing conditions. 11.2 Opinion of Counsel. Seller shall have received an opinion of counsel for Purchaser, dated the Closing Date, with respect to the matters set forth on Exhibit F attached hereto. 11.3 No Governmental Actions. There shall be no pending proceeding, initiated by any Governmental Entity, seeking an Injunction. 11.4 Consents. All of the consents contemplated by Section 4.3 (other than those contemplated by Section 9.1) shall have been obtained by Purchaser, except for such third party consents the failure of which to obtain would not have a material adverse effect on Purchaser's ability to consummate the transactions contemplated herein. ARTICLE XII INDEMNIFICATION 12.1 Seller to Indemnify. Seller agrees to indemnify, hold harmless and defend Purchaser, and Purchaser's directors, officers, subsidiaries, successors and assigns, and "Affiliates", as such term is defined 45 46 in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (collectively, the "Purchaser's Indemnified Parties"), on an after tax basis, from and against any and all claims, losses, liabilities, costs and expenses, including legal fees and expenses, damages, expenditures, proceedings, judgments, awards, demands and obligations to third parties ("Losses") of any kind whatsoever which may at any time be incurred by, imposed upon, or asserted or awarded against Purchaser's Indemnified Parties that (it being agreed that solely for purposes of establishing whether any matter is indemnifiable pursuant to this clause (a), the accuracy of the representations and warranties made by Seller in this Agreement shall be determined without giving effect to any qualifications concerning knowledge contained in the representations and warranties set forth in Section 3.9, and any qualifications concerning Material Adverse Effect contained in the representations set forth in Section 3.9, and such representations and warranties shall be tested as if such qualifications were not included therein); (a) arise out of or result from the breach or inaccuracy of any representation or warranty made by Seller in this Agreement (which shall include the Exhibits and Schedules attached hereto) or any certificate delivered to Purchaser hereunder, (b) arise out of or result from any breach or failure to comply with any covenant made by Seller in this Agreement, (c) arise out of or result from or are based upon (i) any Excluded Asset and any asset other than the Assets or (ii) any Excluded Liability, (d) is a claim, liability, obligation or penalty related to the Deposits transferred pursuant to this Agreement arising out of or relating to Seller's preparation or submission (or failure to prepare or submit) of the information, returns or reports required by applicable laws with respect to periods prior to the Closing Date, except, to the extent that such claim, liability or obligation is caused by Purchaser's negligence, (e) is a claim, liability, obligation, Tax, contract or commitment arising out of or relating to any of the Assets, the Branch Offices, or Seller or its business or operations, except to the extent specifically assumed by Purchaser hereunder, (f) is a claim or liability asserted by any former employee of Seller relating to any condition which existed in the Branch Offices during the time that Seller operated such Branch Offices and Seller employed such employee, or (g) is a claim or liability arising out of Seller's failure to properly record accrued interest on the Deposits prior to the Closing Date. 46 47 12.2 Purchaser to Indemnify. Purchaser agrees to indemnify, hold harmless and defend Seller, and Seller's directors, officers, subsidiaries, successors and assigns, and Affiliates (collectively, the "Seller's Indemnified Parties"), on an after tax basis, from and against any and all Losses of any kind whatsoever which may at any time be incurred by, imposed upon, or asserted or awarded against the Seller's Indemnified Parties that: (a) arise out of or result from the breach or inaccuracy of any representation or warranty made by Purchaser in this Agreement (which shall include the Exhibits and Schedules attached hereto) or any certificate delivered to Seller hereunder, (b) arise out of or result from any breach or failure to comply with any covenant made by Purchaser in this Agreement, (c) is sustained or incurred by the Seller's Indemnified Parties by reason of any failure of the Purchaser to pay, perform or otherwise discharge the Assumed Liabilities, (d) is based upon any action taken or omitted to be taken by Purchaser subsequent to the Closing Date or (except to the extent specifically otherwise provided herein) results from or arises in connection with any transaction or event occurring subsequent to the Closing Date unless such Loss arises out of or results from the failure of Seller to deliver on the Closing Date to the Purchaser all applicable Records relating to such Loss which are requested in writing on or prior to the Closing Date, or (e) is for any exit or entrance fees payable to the FDIC as a result of the consummation of the transactions contemplated hereby. 12.3 Procedure for Indemnification. (a) If a party entitled to be indemnified under this Agreement (an "Indemnitee") receives notice of the assertion by an unaffiliated third party (a "Third Party") of any claim or potential liability or of the commencement by any such person of any action or proceeding (a "Third Party Claim") with respect to which another party hereto (an "Indemnifying Party") is obligated to provide indemnification, the Indemnitee shall give the Indemnifying Party prompt notice thereof after becoming aware of such Third Party Claim. Such notice shall describe the Third Party Claim in reasonable detail and shall indicate the amount (estimated if necessary) of the Loss that has been or may be sustained by the Indemnitee. Such notice shall be a condition precedent to any liability of the Indemnifying Party for any Third Party Claim under the provisions for indemnification contained in this Agreement; provided, however, that the failure of the Indemnitee to give 47 48 prompt notice to the Indemnifying Party of such Third Party Claim shall adversely affect the Indemnitee's rights to indemnification hereunder solely to the extent that such failure prejudices the Indemnifying Party in the defense of such Third Party Claim. (b) The Indemnifying Party may elect to compromise or defend, at such Indemnifying Party's own expense and by such Indemnifying Party's own counsel, any Third Party Claim. If the Indemnifying Party elects to compromise or defend such Third Party Claim, it shall, within 30 days after receiving notice of the Third Party Claim, notify the Indemnitee of its intent to do so, and the Indemnitee shall cooperate, at the expense of the Indemnifying Party, in the compromise of, or defense against, such Third Party Claim. If the Indemnifying Party elects not to compromise or defend against the Third Party Claim, or fails to notify the Indemnitee of its election as herein provided, or otherwise abandons the defense of such Third Party Claim, (i) the Indemnitee may pay (without prejudice of any of its rights as against the Indemnifying Party), compromise or defend such Third Party Claim and (ii) the costs and expenses of the Indemnitee incurred in connection therewith shall be indemnifiable by the Indemnifying Party pursuant to the terms of this Agreement. (c) In addition, in connection with any Third Party Claim in which the Indemnitee shall reasonably conclude, based upon an opinion of its counsel, that (i) there is a conflict of interest between the Indemnifying Party and the Indemnitee in the conduct of the defense of such Third Party Claim or (ii) there are specific defenses available to the Indemnitee which are different from or additional to those available to the Indemnifying Party and which could be materially adverse to the Indemnifying Party, then the Indemnitee shall have the right to retain separate counsel in connection with such Third Party Claim. In such an event, the Indemnifying Party shall pay the reasonable fees and disbursements of counsel to each of the Indemnifying Party and the Indemnitee. (d) Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnitee may settle or compromise any claim (unless the sole relief payable to a Third Party in respect of such Third Party Claim is monetary damages that are paid in full by the party settling or compromising such claim) over the objection of the other, provided, however, that consent to settlement or compromise shall not be unreasonably withheld. (e) In any event, except as otherwise provided herein, the Indemnitee and the Indemnifying Party may each participate, at its own expense, in the defense of such Third Party Claim. (f) If the Indemnifying Party chooses to defend any claim, the Indemnitee shall make available to the Indemnifying Party any personnel or any books, records or other documents within its control that are reasonably necessary or appropriate for such 48 49 defense, subject to the receipt of appropriate confidentiality agreements. (g) Notwithstanding anything to the contrary stated hereinabove in this section, in the event prompt action is required with respect to the defense of a Third Party Claim, the Indemnitee shall, subject to the terms and conditions of this Article, have the right to assume the defense of such Third Party Claim; provided, however, that in the event that the Indemnifying Party subsequently elects to assume the defense of such Third Party Claim, then the provisions set forth hereinabove shall be applicable and the Indemnifying Party shall, subject to the terms and conditions of this Article, reimburse the Indemnitee for any costs and expenses incurred by the Indemnitee prior to the date the Indemnifying Party assumes control of such Third Party Claim. (h) Notwithstanding the foregoing, if an offer of settlement or compromise is received by or communicated to the Indemnifying Party with respect to a Third Party Claim and the Indemnifying Party notifies the Indemnitee in writing of the Indemnifying Party's willingness to settle or compromise such Third Party Claim on the basis set forth in such notice and the Indemnitee declines to accept such settlement or compromise, the Indemnitee may continue to contest such Third Party Claim, free of any participation by the Indemnifying Party, at the Indemnitee's sole expense. The obligation of the Indemnifying Party to the Indemnitee with respect to such Third Party Claim shall be equal to the lesser of (i) the amount of the offer of settlement or compromise which the Indemnitee declined to accept plus the costs and expenses of the Indemnitee prior to the date the Indemnifying Party notifies the Indemnitee of the Indemnifying Party's willingness to settle or compromise such Third Party Claim or (ii) the amount the Indemnitee is obligated to pay as a result of the Indemnitee's continuing to contest such Third Party Claim including costs and expenses with respect thereto; and the Indemnifying Party shall be entitled to recover (by set-off or otherwise) from the Indemnitee any additional expenses incurred by the Indemnifying Party as a result of the Indemnitee's decision to continue to contest such Third Party Claim. (i) Any claim on account of a Loss which does not involve a Third Party Claim shall be asserted by a written notice given by the party claiming indemnity to the party from which indemnity is claimed. The recipient of such notice shall have a period of 30 days within which to respond thereto. If such recipient does not respond within such 30-day period, such recipient shall be deemed to have accepted responsibility to make payment, subject to the provisions hereof, and shall have no further right to contest the validity of such claim. If the recipient does respond within such 30-day period and rejects such claim in whole or in part, the party claiming indemnity shall be free to pursue such remedies as may be available to such party by 49 50 applicable law. (j) If the amount of any Loss shall, at any time subsequent to payment of indemnification pursuant to this Agreement, be reduced by receipt of insurance proceeds by the Indemnitee in respect of such Loss, the amount of such reduction less any expenses incurred in connection therewith shall promptly be repaid by the Indemnitee to the Indemnifying Party. (k) Notwithstanding anything to the contrary contained in this Agreement, no claim shall be made against Seller for indemnification under Section 12.1(a) with respect to any Loss which any of Purchaser's Indemnified Parties may suffer, incur or sustain unless the aggregate of all such Losses described in Section l2.l(a) shall exceed $750,000, and Seller shall only be required to pay or be liable for any such Losses described in Section l2.l(a) to the extent that their aggregate amount exceeds $750,000, and then only with respect to Losses incurred in excess of such amount, provided, however, that the $750,000 limitation contained in this Section 12.3(k) shall not apply to, and Purchaser's Indemnified Parties shall be entitled to dollar-for-dollar recovery with respect to, Losses suffered, incurred or sustained which arise out of, result from or are attributable to breaches of the representations contained in Sections 3.5 and 3.12 hereof. 12.4 Production of Witnesses. Following the Closing, each party shall use its best efforts to make available to the other party, upon written request, its employees and agents as witnesses to the extent that any such person may be reasonably required in connection with any legal, administrative or other proceedings in which the requesting party may from time to time be involved. 12.5 Survival. No rights to indemnification with respect to breaches of the representations and warranties of the parties contained in this Agreement shall be asserted by any party unless notice thereof is given on or before the date such representation or warranty no longer survives as provided in this Section l2.5 (it being understood that such written notice may be delivered prior to the incurrence or suffering of a Loss by an Indemnitee if the facts or occurrence giving rise to such Loss occurred prior to the second anniversary described above and the anticipated Loss is described with reasonable certainty in such notice, in which case the party giving such notice shall be entitled to indemnification in accordance with the provisions hereof notwithstanding that such Loss may occur after the expiration of the applicable survival period). The representations and warranties of Seller, on the one hand, and of Purchaser, on the other hand, contained in this 50 51 Agreement or in any certificate or instrument delivered pursuant to this Agreement shall survive the Closing Date and shall expire on the second anniversary of the Closing Date. ARTICLE XIII TERMINATION 13.1 Methods of Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing: (a) by mutual written consent of Seller and Purchaser; (b) by either Seller or Purchaser, upon written notice to the other, if the transactions contemplated by this Agreement are not consummated on or before March 31, 1996 (the "Termination Date"), unless the failure of such occurrence is due to the failure of the party seeking to terminate this Agreement to perform or to observe the agreements set forth herein at or before the Closing; (c) by either Seller or Purchaser, upon written notice to the other, if there is a material breach of an obligation of the other party hereunder and such breach is not remedied within 30 days after receipt by such breaching party of notice in writing from the non-breaching party, specifying the nature of such breach and requesting that it be remedied; (d) by either Seller or Purchaser, upon written notice to the other, if any court or governmental authority of competent jurisdiction issues a final unappealable order prohibiting consummation of any material transaction contemplated hereby; or (e) by either Seller or Purchaser, upon written notice to the other, following the expiration of thirty (30) days after any Governmental Entity shall have denied or refused to grant the approvals or consents required to be obtained pursuant to this Agreement, unless within said thirty (30) day period Purchaser and Seller agree to submit or resubmit an application to, or appeal the decision of, the regulatory authority which denied or refused to grant approval thereof. 13.2 Effect of Termination. In the event of the termination and abandonment of this Agreement pursuant to Section 13.1 hereof, this Agreement shall become void and have no effect, without any liability on the part of any party to this Agreement or its Affiliates, directors, officers or stockholders, other than the provisions of this Section 51 52 13.2, Section 14.4 and the confidentiality provisions of Section 5.2(e). Notwithstanding the foregoing sentence, a termination of this Agreement shall not defeat or impair the right of any party to pursue such relief as may otherwise be available to it on account of any willful breach of this Agreement or any of the representations, warranties, covenants or agreements contained in this Agreement. ARTICLE XIV GENERAL PROVISIONS 14.1 Entire Agreement; Modification; Waiver. This Agreement, including all Exhibits and Schedules hereto, constitutes the entire agreement of the parties pertaining to the subject matter contained herein and this Agreement supersedes all prior or contemporaneous agreements, representations and understandings of the parties. No supplement, modification or amendment to, or waiver of this Agreement shall be binding unless executed in writing by Seller and Purchaser. No waiver of any provision of this Agreement shall be deemed or shall constitute a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. 14.2 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 14.3 Headings. The headings of the Sections, Articles, Exhibits and Schedules of this Agreement are inserted for convenience only and shall not constitute a part of this Agreement. 14.4 Payment of Expenses. Except as otherwise provided in this Agreement, whether or not the transactions contemplated hereby are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. 14.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the principles of conflict of laws thereof. 52 53 14.6 Addresses of Notice, Etc. All notices, requests, demands and other communications provided for under this Agreement and under the related documents shall be in writing (including telegraphic communication) and mailed (by registered or certified mail, return receipt requested, or by Federal Express or other similar express overnight delivery service), or telegraphed, or delivered to the applicable party at the addresses indicated below. If to Purchaser: North Fork Bank 275 Broad Hollow Road Melville, New York 11747 Attn: Daniel M. Healy, Executive Vice President and Chief Financial Officer With a copy to: Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New York 10022 Attn: William S. Rubenstein, Esq. If to Seller: First Nationwide Bank, A Federal Savings Bank 135 Main Street, 20th Floor San Francisco, California 94105 Attention: Carl Webb, President With a copy to: First Nationwide Bank, A Federal Savings Bank 200 Crescent Ct., Ste. 1350 Dallas, TX 75201 Attention: Christie S. Flanagan, General Counsel or, to each party, at such other address that party designates in a written notice to the other party in accordance with this section. All such notices, requests, demands or other communications shall be deemed delivered (i) if sent by messenger, upon personal delivery to the party to whom the notice is directed, (ii) if sent by telecopier, upon electronic or telephonic confirmation of receipt from the receiving telecopier machine, (iii) if sent by reputable overnight courier, one (1) day after delivery to such courier, or (iv) if sent by mail, three (3) days following deposit in the United States mail, postage prepaid, certified mail, return receipt requested. 53 54 14.7 Publicity. Except as may be required by law or by the rules or regulations of any Governmental Entity or securities exchange prior to the Closing Date, neither party shall, directly or indirectly, make or cause to be made any public announcement or disclosure, or issue any notice, relating to any of the transactions contemplated by this Agreement, without the prior written consent of the other party, which consent shall not be unreasonably withheld. Both parties will limit the distribution of information relative to this transaction to those persons who must be aware of the Agreement for the performance of their duties. 14.8 Severability. If any paragraph, section, sentence, clause, phrase, word or covenant contained in this Agreement shall become illegal, null or void, or against public policy, for any reason, or shall be held by any court of competent jurisdiction to be illegal, null or void, or against public policy, the remaining paragraphs, sections, sentences, clauses, phrases, words and covenants contained in this Agreement shall not be affected. 14.9 Enforcement of the Agreement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 14.10 Binding Nature; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their permitted successors and assigns. Neither party shall assign or otherwise transfer any rights or obligations under this Agreement without the express written consent of the other party; provided, however, that either party may assign its rights or obligations under this Agreement to any Affiliate of such party; provided, further, that no such assignment shall relieve the assigning party of its obligations hereunder. 54 55 14.11 No Third Party Rights. This Agreement is not intended, nor shall it be construed, to create any express or implied third party beneficiary rights in any person, including present or former employees of Seller, the Employees, or any beneficiaries or dependents thereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of _________________, 1995. SELLER: FIRST NATIONWIDE BANK, A FEDERAL SAVINGS BANK By: /s/ Sam Webb --------------------------------- Name: Sam Webb --------------------------------- Title: --------------------------------- PURCHASER: NORTH FORK BANK By: /s/ Daniel M. Healy --------------------------------- Name: Daniel M. Healy --------------------------------- Title: EVP & CFO --------------------------------- 55 EX-10.11(A) 4 LETTER AGREEMENT 1 NORTH EXHIBIT 10.11(a) FORK BANK September 14, 1995 Ms. Mindy Butler 32 Cottontail Road Melville, New York 11747 Re: Termination of the Employment with North Fork Bank (the "Bank") ---------------------------------- Dear Ms. Butler: This letter confirms the mutually agreed arrangement concerning the termination of your employment with the Bank. Effective August 25, 1995, the "Termination Date", the Bank has accepted your resignation from employment. In connection with and in consideration of this termination and the release described below, the Bank will pay to you and make available to you the sums and benefits in the manner described below. These sums and benefits are in excess of what the Bank is required to provide to you and are in complete satisfaction of all amounts which are or may be due pursuant to the Bank's letter of March 31, 1994 regarding your employment, or any other agreement or on any other basis. This letter shall not be construed as an admission of wrongdoing by you or by the Bank or any of its officers, directors, or employees. This letter is written without prejudice and shall not be effective until the provisions of paragraph 12 below are met. 1. SEVERANCE PAYMENT: You have received a severance payment in the sum of $8,653.85 less required withholding and deductions and will receive further severance payments of $367,788.63 and $75,000.00, each less required withholding and deductions, within 5 days after the occurrence of the Last Revocation Day (as defined below) without this agreement being revoked. 2. USE OF AUTOMOBILE: You will return to the Bank the leased vehicle now in your possession promptly after the Last Revocation Day. 3. STOCK OPTIONS: You currently hold the following non-qualified stock options with regard to the stock of North Fork Bancorporation, Inc. which are fully vested. You must exercise these options at your own cost and expense, (and pay all taxes incident to the exercise) by the expiration date indicated or they will lapse. 2
NUMBER OF SHARES EXERCISE PRICE EXPIRATION DATE - - ---------------- -------------- --------------- 20,000 $14.125 August 25, 1996
You have exercised your options with respect to 10,000 shares of North Fork Bancorporation, Inc. stock at 14.19. 4. RESTRICTED STOCK: The grant of 5,000 restricted shares of North Fork Bancorporation, Inc. has not vested in whole or in part, and is forfeited effective on the Termination Date. 5. LONG TERM DISABILITY: You will be entitled to convert your coverage under the Bank's Long Term Disability Plan to coverage under a Group Long Term Disability Conversion Policy under the terms and subject to the limitations of the Conversion Policy, provided you meet all requirements of eligibility for conversion and timely submit all required documentation. If you so convert, the Bank will pay premiums through December 31, 1995. You will be responsible for premiums thereafter. One of the conditions of eligibility is application within thirty-one (31) days of the Termination Date. Coverage is not available if you are or become insured for Long Term Disability insurance under another insurance plan within thirty-one (31) days after the Termination Date. 6. HEALTH AND MEDICAL BENEFITS: Since you did not participate in the Bank's health and medical benefit plan, you are not entitled to COBRA coverage. However, since you participated in the Flexible Spending Account Program, you are entitled to extend this participation through COBRA. You must elect to do so. 7. RETIREMENT PLANS: Your participation in the Bank's 401(K) Plan ended upon the Termination Date. Your contributions to the 401(K) program are available to you in accordance with law. However, the Bank's contributory portion of your 401(K) is forfeited since it was not vested. You have not and will not pursuant to this letter vest in the Bank's cash balance retirement plan and all amounts therein are forfeited. 8. BANK EQUIPMENT: You shall immediately return all Bank property in your possession or entrusted to you, including but not limited to fax machine and cellular telephone. 9. RELEASE: a. In consideration of the provisions of this letter you release the Bank, North Fork Bancorporation, Inc., and all of their subsidiaries and affiliates, "Companies", and all of the Companies' officers, directors and employees, all of the foregoing, collectively "Releasees", from all claims and demands you may have arising out of your employment and termination of employment. This release includes, but is not limited to, claims arising under the Federal Age Discrimination in Employment Act, the Federal Equal Opportunity Employment Act and the New York State Human Rights Law and any other federal, state or local law which prohibits employment 3 discrimination. This release bars you from bringing any complaint or action against Releasees for employment discrimination or wrongful termination of employment, including, but not limited to, age, sex, and/or religious discrimination. This release does not release any claims which arise after this letter becomes effective, such as your right to enforce this Agreement with respect to any matter which has not been released. If you bring an action with respect to such matters and you are the prevailing party, you shall be entitled to attorney's fees and all other expenses incurred. You agree not to commence any action against Releasees with respect to any matter covered by this release. If you bring such an action, and the Releasees are the prevailing party, you must pay the Releasees' attorneys fees and all other expenses. b. You represent to us that in your employment with the Bank you conducted business on the Companies' behalf in conformity with applicable law and regulation. In reliance upon this representation and as further consideration, the Companies release you from all claims and demands they may have against you based upon facts existing as of the Termination Date, whether or not known except for breach of the foregoing representation. If any action is brought contrary to this release and you prevail, you shall be entitled to the costs and attorney's fees you incur. 10. CONFIDENTIALITY: You agree to keep the existence and substance of this letter completely confidential and not disclose same to any person or entity, except in response to Court Order or to your spouse, accountant or attorney. You further agree to keep confidential and not to disclose to any person or entity, at any time, any information concerning the Companies, their operations, their financial affairs, their customers or business relationships, except in response to Court Order and upon not less than ten (10) days written notice of intention to comply with such Court Order. All work produced by you during the course of your employment is the sole property of the Bank and shall not be used, reproduced or disclosed to others. 11. EFFECTIVE DATE: The provisions of this letter shall not become effective until seven (7) days after you have signed and returned a copy of this letter, "Last Revocation Day". You may revoke your agreement to the provisions of this letter within such seven (7) day period by delivery of a written notice of revocation no later than the close of business on the Last Revocation Day. If you revoke this letter, it shall not become effective or enforceable. If you do not revoke this letter, it shall be effective and enforceable the day after the Last Revocation Day. 12. REVIEW AND ADVICE OF COUNSEL: You are given a period of twenty-one (21) days in which to review and consider this letter before signing it. You are encouraged to consult an attorney before signing this letter. 4 13. MISCELLANEOUS: This letter contains the entire understanding between you and the Bank with regard to your termination of employment and supersedes the letter agreement between you and the Bank dated March 31, 1994 and any other agreements between you and the Bank and the Companies with regard to your employment and termination. The provisions of this letter may not be waived, modified or terminated orally. In any action arising out of or concerning this letter, both you and the Bank waive trial by jury. This letter shall be governed by Federal Law and the internal laws of the State of New York without regard to conflicts of laws rules. This letter shall be binding and inure to the benefit of yourself, your heirs, and assigns and the companies and their successors and assigns. If the foregoing correctly reflects our agreement and is satisfactory, kindly sign, date and return the enclosed copy of this letter where indicated. Very truly yours, /s/ John Adam Kanas ------------------------------------- John Adam Kanas JAK/dmc/is Enclosure I have read the foregoing letter, understand it and voluntarily countersign it. I accept and agree to be bound by the terms of this letter. I understand that the letter contains a release. /s/ Mindy Butler September 22, 1995 - - ------------------------------------ ------------------------------------- Mindy Butler Date EX-11 5 STATEMENT RE: COMPUTATION OF EARNINGS 1 EXHIBIT 11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (dollars in thousands, except per share amounts)
Net Income.................................. $ 52,235 Weighted Average Equivalent Shares Outstanding: Average Outstanding Shares.............. 24,410,976 Common Stock Equivalents(1)............. 142,611 Weighted Average Equivalent Shares...... 24,553,587 Earnings Per Share.......................... $ 2.13
- - ------------- (1) Represents options. EX-13 6 1995 ANNUAL REPORT 1 EXHIBIT 13 North Fork Bancorporation, Inc. and Subsidiaries SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA FOR EACH OF THE YEARS IN THE FIVE YEAR PERIOD ENDED DECEMBER 31, 1995 ARE SET FORTH BELOW. THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO AS OF DECEMBER 31, 1995 AND 1994 AND FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 1995 ARE INCLUDED ELSEWHERE HEREIN. ALL PRIOR YEARS' FINANCIAL INFORMATION HAS BEEN CONFORMED TO CURRENT YEAR PRESENTATION.
(in thousands, except ratios and per share amounts) 1995 1994 1993 (1) 1992 (1) 1991 (1) (2) ------------------------------------------------------------------------ STATEMENT OF OPERATIONS DATA: Interest Income (tax equivalent basis) (3) . . . . . $228,368 $205,595 $193,119 $212,337 $228,028 Interest Expense . . . . . . . . . . . . . . . . . . 85,162 71,227 73,169 105,714 136,464 ------------------------------------------------------------------------ Net Interest Income (tax equivalent basis) (3) . 143,206 134,368 119,950 106,623 91,564 Less: Tax Equivalent Basis Adjustment . . . . . . . . 1,970 1,862 1,489 1,557 2,173 ------------------------------------------------------------------------ Net Interest Income . . . . . . . . . . . . . . . 141,236 132,506 118,461 105,066 89,391 Provision for Loan Losses . . . . . . . . . . . . . . 9,000 3,275 10,300 23,775 66,625 Non-Interest Income . . . . . . . . . . . . . . . . 20,942 19,020 18,938 16,860 13,399 Net Securities Gains/(Losses) . . . . . . . . . . . . 6,379 (9,211) 1,457 9,547 9,052 Non-Interest Expense . . . . . . . . . . . . . . . . 68,588 74,453 71,962 72,104 62,663 Other Real Estate Expense . . . . . . . . . . . . . . 255 3,651 13,971 16,358 10,663 Merger & Related Restructure Charges . . . . . . . . -- 14,338 -- 1,200 -- ------------------------------------------------------------------------ Income/(Loss) Before Income Taxes . . . . . . . . 90,714 46,598 42,623 18,036 (28,109) Provision/(Benefit) for Income Taxes . . . . . . . . 38,479 16,926 16,976 8,609 (164) ------------------------------------------------------------------------ Net Income/(Loss) . . . . . . . . . . . . . . . . . $52,235 $29,672 $25,647 $9,427 ($27,945) ======================================================================== AVERAGE BALANCE SHEET DATA: Securities . . . . . . . . . . . . . . . . . . . . . $857,302 $968,908 $869,792 $544,966 $450,831 Loans, net of unearned income & fees . . . . . . . . 1,893,654 1,773,088 1,735,122 1,906,438 1,884,440 Total Assets . . . . . . . . . . . . . . . . . . . . 2,928,773 2,933,943 2,820,491 2,782,480 2,542,179 Total Deposits . . . . . . . . . . . . . . . . . . . 2,464,776 2,363,965 2,363,652 2,467,494 2,172,622 Federal Funds Purchased & Securities Sold Under Agreements to Repurchase . . . . . . . . . . . . . 102,893 244,688 176,519 57,568 73,881 Other Borrowings . . . . . . . . . . . . . . . . . . 10,000 25,537 13,696 15,190 32,916 Senior Notes Payable . . . . . . . . . . . . . . . . 25,000 23,507 22,863 40,000 40,000 Stockholders' Equity . . . . . . . . . . . . . . . . 283,024 244,759 210,345 169,155 191,749 BALANCE SHEET DATA AT DECEMBER 31: Securities $1,156,628 $773,297 $971,867 $658,127 $440,990 Loans, net of unearned income & fees . . . . . . . . 1,966,440 1,814,037 1,740,778 1,807,119 1,987,560 Total Assets . . . . . . . . . . . . . . . . . . . . 3,303,311 2,717,776 2,884,375 2,691,011 2,854,876 Total Deposits . . . . . . . . . . . . . . . . . . . 2,535,460 2,342,887 2,348,545 2,387,368 2,503,661 Federal Funds Purchased & Securities Sold Under Agreements to Repurchase . . . . . . . . . . . . . 391,369 20,000 255,643 28,200 366 Other Borrowings . . . . . . . . . . . . . . . . . . 10,000 50,000 13,000 13,000 27,000 Senior Notes Payable . . . . . . . . . . . . . . . . 25,000 25,000 20,000 40,000 40,000 Stockholders' Equity . . . . . . . . . . . . . . . . 309,845 254,923 226,310 183,147 166,475 PER SHARE: Net Income/(Loss) . . . . . . . . . . . . . . . . . . $2.13 $1.25 $1.10 $0.48 ($1.51) Cash Dividends (4) . . . . . . . . . . . . . . . . . 0.55 0.35 - - 0.34 Book Value at December 31 . . . . . . . . . . . . . . 12.47 11.06 10.08 9.08 8.71 Market Price at December 31 . . . . . . . . . . . . . 25.25 13.75 12.88 8.13 4.75 SELECTED RATIOS: Return on Average Total Assets . . . . . . . . . . . 1.78% 1.01% 0.91% 0.34% -1.10% Return on Average Stockholders' Equity . . . . . . . 18.46% 12.12% 12.19% 5.57% -14.57% Core Efficiency Ratio (5) . . . . . . . . . . . . . . 41.78% 47.97% 51.81% 58.39% 59.70% Net Interest Margin . . . . . . . . . . . . . . . . 5.18% 4.81% 4.48% 4.03% 3.90% Average Stockholders' Equity to Average Assets . . . 9.66% 8.34% 7.46% 6.08% 7.54% Tier I Capital Ratio . . . . . . . . . . . . . . . . 15.50% 14.94% 12.06% 9.28% 7.34% Risk Adjusted Capital Ratio . . . . . . . . . . . . 16.77% 16.22% 13.34% 10.65% 8.84% Leverage Ratio . . . . . . . . . . . . . . . . . . . 8.86% 8.40% 6.88% 5.83% 4.85% Allowance for Loan Losses/Non-Performing Loans . . . 154.05% 118.89% 96.04% 53.64% 44.23% Non-Performing Assets to Total Assets . . . . . . . . 1.13% 1.73% 2.43% 5.19% 5.76% AVERAGE EQUIVALENT SHARES OUTSTANDING . . . . . . . . 24,554 23,763 23,242 19,689 18,490 NUMBER OF BRANCH OFFICES OF THE COMPANY . . . . . . . 49 47 35 35 41
(1) On November 30, 1994, Metro Bancshares Inc. ("Metro") was merged with and into the Company. The merger has been accounted for as a pooling-of-interests and, accordingly, all prior periods include the consolidated results of Metro. (2) The results of operations for the Company include the results of operations for Eastchester Savings Bank from July 1, 1991. 2 (3) Interest income on a tax equivalent basis includes the additional amount of interest income that would have been earned if the Company's investment in state and municipal obligations and tax-exempt loans had been made in investment securities and loans subject to New York State and City, and Federal income taxes yielding the same after tax income. (4) Cash dividends do not reflect dividends declared by Metro prior to the merger. (5) The core efficiency ratio is defined as the ratio of non-interest expenses, net of other real estate expenses and other non-recurring charges, to net interest income on a taxable equivalent basis and other non-interest income net of net securities gains/(losses). 3 MANAGEMENT'S DISCUSSION AND ANALYSIS This section presents management's discussion and analysis of the consolidated results of operations and financial condition of North Fork Bancorporation, Inc. (the "Company"), a $3.3 billion commercial bank holding company. The Company's primary subsidiary, North Fork Bank (the "Bank"), operates retail banking facilities throughout Suffolk, Nassau, Queens, Westchester and Rockland Counties, New York. On November 30, 1994, Metro Bancshares Inc. ("Metro"), the parent company of Bayside Federal Savings Bank ("Bayside"), was merged with and into the Company. The merger was accounted for as a pooling-of-interests. Accordingly, the financial results for all prior periods reported in the accompanying management discussion and analysis include the results of Metro. On July 3, 1995, Great Neck Bancorp, the parent company of the Bank of Great Neck ("Great Neck"), was acquired in a purchase transaction. This acquisition is not significant to the operating results. The discussion and analysis that follows should be read in conjunction with the consolidated financial statements and supplementary data contained elsewhere in this 1995 Annual Report to Shareholders. OVERVIEW In 1995, the Company achieved record earnings of $52.2 million or $2.13 per share and demonstrated significant improvement in several key operating performance measurements. This was accomplished by successfully following the Company's operating plan, including efficiently integrating two business acquisitions, carefully monitoring operating costs, remaining cautious and prudent in underwriting and avoiding any significant interest rate risk in asset/liability management. Return on average stockholders' equity and average total assets was 18.46% and 1.78%, respectively, which ranks among the industry's highest performers. Shareholders' returns in 1995 were increased through the rise in the market value of the Company's stock and greater cash dividends. The success of the Metro and Great Neck mergers demonstrates management's ability to reduce operating costs post merger. Specificaly, the core efficiency ratio declined to 41.8% for 1995 compared to 48% in 1994. Also, management increased demand deposits balances, an important funding source, in the Bayside thrift conversion. Total demand deposits were $451.8 million at December 31, 1995, representing a 36.4% increase over 1994. The multi-family mortgage line of business, which was acquired with Bayside, also prospered. At December 31, 1995, total multi-family mortgage loans were $662.3 million and constituted 33.4% of the Company's loan portfolio as yields improved and asset quality remained strong. Overall asset quality improved further as the level of non-performing assets declined 20.4% to $37.4 million at December 31, 1995, as compared with $47.0 million at December 31, 1994. Management continued to maintain its allowance for loan losses at conservative levels, and, as a result, the reserve to non-performing loans increased to 154.1% at December 31, 1995, as compared to 118.9% at December 31, 1994. During 1995 the Company entered into definitive merger agreements to acquire the domestic commercial banking business of Extebank with approximately $410 million in assets and $375 million in deposits for $47.0 million in cash and the ten Long Island branches of First Nationwide Bank with approximately $600 million in deposits at a deposit premium of 6.35% (See Note 2 of the Consolidated Financial Statements). Both of these in-market acquisitions are scheduled to close during the first quarter of 1996 and will provide approximately 100 thousand new customers and 18 new retail locations. In 1995, the Company opened two de novo branches in Nassau County and continues to evaluate new opportunities to serve its customers. NET INTEREST INCOME Net interest income, which represents the difference between interest earned on interest earning assets and interest incurred on interest bearing liabilities, is the Company's primary source of earnings. Net interest income is affected by the level and composition of assets, liabilities and equity, as well as changes in market interest rates. Net interest income increased $8.7 million to $141.2 million in 1995, as compared to $132.5 million in 1994. The components of this increase include a $22.6 million increase in interest income partially offset by a $13.9 million increase in interest expense. The net interest margin, on a taxable equivalent basis, improved to 5.18% in 1995 as compared to 4.81% in 1994. Interest income improved to $226.4 million in 1995 from $203.7 million in 1994. This improvement, despite a modest decline in average interest earning assets to $2.77 billion from $2.79 billion, resulted from a change in the mix of interest earning assets to higher yielding loans from lower yielding investment securities and the impact of higher market interest rates. The increase in average net loans to $1.89 billion in 1995 as compared to $1.77 billion in 1994, resulted from continued growth in multi-family mortgages and consumer loans and leases, and the addition of $49.4 million in loans acquired in the Great Neck acquisition. This increase was partially offset by a decline in residential mortgage loans. The results of these changes are evident in the improvement in yield on interest earning assets to 8.26% from 7.36%. Interest expense increased to $85.2 million in 1995, reflecting a 3.86% cost of funds, as compared with $71.2 million or 3.02% in 1994. The $13.9 million increase is attributable to the impact of higher short-term market interest rates on the Company's overall cost of funds and the change in the relative composition of the Company's 4 funding sources. Interest bearing deposits remained stable, however, in response to market interest rates, customers shifted balances from lower yielding savings accounts to higher yielding time deposits. In early 1995, certain N.O.W. accounts were converted into non-interest bearing deposit accounts, which the Company was able to successfully retain. The Company continued to benefit from its ability to grow demand deposits as average balances increased $97.8 million or 32.7% to $396.8 million for 1995 as compared to $299.0 million for 1994. Demand deposits comprised 17.8% of total deposits at December 31, 1995 as compared to 14.1% at December 31, 1994. This increase reflects continuing success in converting former thrift branches into full-service commercial bank outlets and greater market penetration. The growth in demand deposits and internally generated capital allowed the Company to minimize its reliance on short-term borrowings as a funding source for its core assets. The following table sets forth a summary analysis of the relative impact on net interest income of changes in the average volume of interest earning assets and interest bearing liabilities and changes in average rates on such assets and liabilities. Because of the numerous simultaneous volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes to volume or rate. For presentation purposes, changes which are not solely due to volume changes or rate changes have been allocated to these categories based on the respective percentage changes in average volume and average rates as they compare to each other. In addition, average interest earning assets include non-accrual loans.
Years Ended December 31, 1995 vs. 1994 1994 vs. 1993 ----------------------------------------------------------------------------- (in thousands) CHANGE IN Change in Net AVERAGE AVERAGE NET INTEREST Average Average Interest VOLUME RATE INCOME Volume Rate Income ----------------------------------------------------------------------------- INTEREST INCOME FROM EARNING ASSETS: Interest Earning Deposits . . . . . . . . . . . $31 $29 $60 $10 $9 $19 Taxable Securities . . . . . . . . . . . . . . (4,387) 1,433 (2,954) 1,598 1,191 2,789 Non-Taxable Municipals . . . . . . . . . . . . (115) 415 300 1,744 (131) 1,613 Mortgage-Backed Securities . . . . . . . . . . (2,090) 4,663 2,573 2,259 909 3,168 Loans, including non-accrual loans . . . . . . 10,380 13,586 23,966 2,948 1,956 4,904 Federal Funds Sold and Securities Purchased Under Agreements to Resell . . . . (1,891) 719 (1,172) (725) 708 (17) ----------------------------------------------------------------------------- Total Interest Income . . . . . . . . . . . 1,928 20,845 22,773 7,834 4,642 12,476 ----------------------------------------------------------------------------- INTEREST EXPENSE ON LIABILITIES: Total Savings and Time Deposits . . . . . . . . 4,924 14,333 19,257 (1,777) (4,315) (6,092) Short-Term Borrowings . . . . . . . . . . . . . (8,271) 3,013 (5,258) 3,383 1,672 5,055 Long-Term Borrowings . . . . . . . . . . . . . 130 (194) (64) (305) (600) (905) ----------------------------------------------------------------------------- Total Interest Expense . . . . . . . . . . . (3,217) 17,152 13,935 1,301 (3,243) (1,942) ----------------------------------------------------------------------------- Net Change in Net Interest Income . . . . . . . $5,145 $3,693 $8,838 $6,533 $7,885 $14,418 =============================================================================
(1) The above table is presented on a taxable equivalent basis. (2) Prior period amounts have been restated to reflect the adoption of SFAS 114. 5 The following table presents an analysis of net interest income by each major category of interest earning assets and interest bearing liabilities for the years ended December 31,
1995 1994 (2) -------------------------------------------------------------------------- AVERAGE AVERAGE Average Average (dollars in thousands) BALANCE INTEREST RATE Balance Interest Rate -------------------------------------------------------------------------- INTEREST EARNING ASSETS: Interest Earning Deposits . . . . . . . . . . . . $1,385 $93 6.71% $811 $33 4.07% Taxable Securities . . . . . . . . . . . . . . . 124,601 7,610 6.11% 199,264 10,564 5.30% Non-Taxable Municipals . . . . . . . . . . . . . 53,725 3,778 7.03% 55,509 3,478 6.27% Mortgage-Backed Securities . . . . . . . . . . . 678,976 43,604 6.42% 714,135 41,031 5.75% Loans, net of unearned income & fees . . . . . . 1,893,654 172,484 9.11% 1,773,088 148,518 8.38% Federal Funds Sold and Securities Purchased Under Agreements to Resell . . . . . . 13,535 799 5.90% 50,961 1,971 3.87% --------------------- ----------------------- Total Interest Earning Assets . . . . . . . . . 2,765,876 228,368 8.26% 2,793,768 205,595 7.36% ===================== ======================= Allowance for Loan Losses . . . . . . . . . . . . (52,008) (54,720) Cash and Due from Banks . . . . . . . . . . . . . 87,242 80,616 Other Non-Interest Earning Assets (3) . . . . . . 127,663 114,279 ---------- ---------- Total Assets . . . . . . . . . . . . . . . . . . $2,928,773 $2,933,943 ---------- ---------- INTEREST BEARING LIABILITIES: Savings, N.O.W. & Money Market Deposits . . . . . $1,167,929 $27,789 2.38% $1,386,052 $30,968 2.23% Time Deposits . . . . . . . . . . . . . . . . . . 900,084 48,507 5.39% 678,919 26,071 3.84% --------------------- ----------------------- Total Savings and Time Deposits . . . . . . . . 2,068,013 76,296 3.69% 2,064,971 57,039 2.76% Short-Term Borrowings . . . . . . . . . . . . . . 102,893 5,963 5.80% 260,225 11,221 4.31% Long-Term Borrowings . . . . . . . . . . . . . . 35,000 2,903 8.29% 33,507 2,967 8.85% --------------------- ----------------------- Total Interest Bearing Liabilities . . . . . . . 2,205,906 85,162 3.86% 2,358,703 71,227 3.02% --------------------- ----------------------- Rate Spread . . . . . . . . . . . . . . . . . . . 4.40% 4.34% Non-Interest Bearing Deposits . . . . . . . . . . 396,763 298,994 Other Non-Interest Bearing Liabilities . . . . . 43,080 31,487 ---------- ---------- Total Liabilities . . . . . . . . . . . . . . . 2,645,749 2,689,184 Stockholders' Equity . . . . . . . . . . . . . . 283,024 244,759 ---------- ---------- Total Liabilities and Stockholders' Equity . . . $2,928,773 $2,933,943 ========== ========== Net Interest Income and Net Interest Margin (1) . 143,206 5.18% 134,368 4.81% Less: Tax Equivalent Basis Adjustment . . . . . . (1,970) (1,862) --------- --------- Net Interest Income . . . . . . . . . . . . $141,236 $132,506 ========= =========
6
1993 (2) ------------------------------------ Average Average (dollars in thousands) Balance Interest Rate ------------------------------------ INTEREST EARNING ASSETS: Interest Earning Deposits . . . . . . . . . . . . . . . . . . . . $528 $14 2.65% Taxable Securities . . . . . . . . . . . . . . . . . . . . . . . 167,439 7,775 4.64% Non-Taxable Municipals . . . . . . . . . . . . . . . . . . . . . 27,793 1,865 6.71% Mortgage-Backed Securities . . . . . . . . . . . . . . . . . . . 674,560 37,863 5.61% Loans, net of unearned income & fees . . . . . . . . . . . . . . 1,735,122 143,614 8.28% Federal Funds Sold and Securities Purchased Under Agreements to Resell . . . . . . . . . . . . . . 73,734 1,988 2.70% ----------------------- Total Interest Earning Assets . . . . . . . . . . . . . . . . . 2,679,176 193,119 7.21% ----------------------- Allowance for Loan Losses . . . . . . . . . . . . . . . . . . . . (65,816) Cash and Due from Banks . . . . . . . . . . . . . . . . . . . . . 73,731 Other Non-Interest Earning Assets . . . . . . . . . . . . . . . . 133,400 ----------- Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $2,820,491 =========== INTEREST BEARING LIABILITIES: Savings, N.O.W. & Money Market Deposits . . . . . . . . . . . . . $1,408,306 $34,960 2.48% Time Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 710,574 28,171 3.96% ----------------------- Total Savings and Time Deposits . . . . . . . . . . . . . . . . 2,118,880 63,131 2.98% Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . 176,519 6,166 3.49% Long-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . 36,559 3,872 10.59% ----------------------- Total Interest Bearing Liabilities . . . . . . . . . . . . . . . 2,331,958 73,169 3.14% ----------------------- Rate Spread . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.07% Non-Interest Bearing Deposits . . . . . . . . . . . . . . . . . . 244,772 Other Non-Interest Bearing Liabilities . . . . . . . . . . . . . 33,416 ----------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . 2,610,146 Stockholders' Equity 210,345 ----------- Total Liabilities and Stockholders' Equity . . . . . . . . . . . $2,820,491 =========== Net Interest Income and Net Interest Margin . . . . . . . . . . . 119,950 4.48% Less: Tax Equivalent Basis Adjustment . . . . . . . . . . . . . . (1,489) --------- Net Interest Income . . . . . . . . . . . . . . . . . . . . $118,461 =========
(1) Interest income on a tax equivalent basis includes the additional amount of interest and dividend income that would have been earned if the Company's investment in state and municipal obligations, non-taxable loans and equity securities had been made in securities and loans subject to New York State and Federal income taxes yielding the same after tax income. The tax equivalent amount for $1.00 of non-taxable investment income, non-taxable loan income, dividends and interest income from U.S. Obligations (included in Taxable Securities) was $1.57, $1.57, $1.43 and $1.03 in 1995; $1.54, $1.58, $1.43 and $1.03 in 1994; and $1.54, $1.58, $1.43 and $1.03 in 1993. (2) Prior period amounts have been restated to reflect the adoption of SFAS 114. (3) Unrealized gains/(losses) on available-for-sale securities are recorded in other non-interest earning assets. ASSET/LIABILITY MANAGEMENT The Company's primary earnings source is its net interest margin, which is affected by changes in the level of interest rates, the relationship between rates, the impact of interest rate fluctuations on asset prepayments and the level and composition of deposits, and the credit quality of the portfolio. Management's asset/liability objectives are to maintain a strong, stable net interest margin, to utilize its capital effectively without taking undue risks and to maintain adequate liquidity. The Company's risk assessment program includes a coordinated approach to the management of liquidity, capital and interest rate risk. This risk assessment process is governed by policies and limits established by senior management which are reviewed and approved by the Asset/Liability Committee of the Board of Directors ("ALCO"). ALCO, comprised of members of senior management and the Board, meets periodically to evaluate the impact of changes in market interest rates on assets and liabilities, net interest margin, capital and liquidity, and to evaluate the strategic plan. The balance sheet structure is primarily short-term with most assets and liabilities repricing or maturing in less than five years. Management monitors the sensitivity of net interest income by utilizing a dynamic simulation model complemented by traditional gap analysis. This model measures net interest income sensitivity and volatility to interest rate changes. This model involves a degree of estimation based on certain assumptions that management believes to be reasonable. Factors considered include actual maturities, estimated cash flows, repricing characteristics, deposit growth/retention and, primarily, the relative sensitivity of assets and liabilities to changes in market interest rates. Utilizing this process, management can project the impact of changes in interest rates on net interest income. This relative sensitivity is important to consider since the core deposit base is not subject to the same degree of interest rate sensitivity as assets. The core deposit costs are internally controlled and generally exhibit less sensitivity to changes in interest rates than the adjustable rate assets whose yields are based 7 on external indices and change in concert with market interest rates. Management has established certain limits for potential volatility of net interest income, assuming certain levels of change in market interest rates with the objective of maintaining a stable level of net interest income under various probable rate scenarios. The traditional gap analysis is prepared based on the maturity and repricing characteristics of interest earning assets and liabilities for selected time periods. The mismatch between repricings or maturities within a time period is commonly referred to as the "gap" for that period. A positive gap (asset sensitive), where interest-rate sensitive assets exceed interest-rate sensitive liabilities, generally will result in net interest margin increasing in a rising rate environment and decreasing in a falling rate environment. A negative gap (liability sensitive) will generally have the opposite results on the net interest margin. However, the traditional gap analysis does not assess the relative sensitivity of assets and liabilities to changes in interest rates. Management utilizes the gap analysis to complement income simulation modeling, primarily focusing on the longer term structure of the balance sheet. The asset/liability process has enabled the Company to achieve its net interest income targets despite the turbulence in market interest rates over the past three years. During the fourth quarter of 1995, management initiated a pre-investment program in anticipation of the pending acquisitions. At year end, management had invested approximately $380 million of the anticipated transaction proceeds by purchasing mortgage-backed securities with a weighted average life of 3.5 years. These purchases have been funded through short-term borrowings at a positive spread of approximately 100 basis points. These short-term borrowings will be replaced with the low cost core deposits obtained in the acquisitions. Over time, it is expected that the composition of interest earning assets will shift from investment securities to higher yielding loans. Management's strategy for its securities portfolios is to maintain a short-weighted average life to minimize its exposure to future rises in interest rates and to provide cash flows that may be reinvested at current market interest rates. The weighted average lives of the held-to-maturity and available-for-sale securities portfolios at December 31, 1995 were 3.8 years. Deposit liabilities fund 81.2% of interest earning assets at December 31, 1995. The pending acquisitions are anticipated to result in the percentage of interest earning assets funded by deposit liabilities to rise significantly. The following table reflects the repricing of the balance sheet, or "gap" position at December 31, 1995:
(dollars in thousands) 0-90 91-180 181-365 1-5 Over 5 INTEREST EARNING ASSETS: Days Days Days Years Years Total ------------------------------------------------------------------------- Interest Earning Deposits . . . . . . . . . . . . . $1,347 - - - - $1,347 Securities (1) . . . . . . . . . . . . . . . . . . 113,938 82,953 126,860 453,443 375,681 1,152,875 Loans, net of unearned income & fees (2) (3) . . . 441,822 148,129 355,642 866,307 123,034 1,934,934 ------------------------------------------------------------------------- Total Interest Earning Assets . . . . . . . . $557,107 $231,082 $482,502 $1,319,750 $498,715 $3,089,156 ------------------------------------------------------------------------- INTEREST BEARING LIABILITIES: Savings, N.O.W. and Money Market Deposits (4) . . . $104,233 $104,233 $208,467 $736,806 - $1,153,739 Time Deposits . . . . . . . . . . . . . . . . . . . 345,121 181,389 178,703 224,706 - 929,919 Federal Funds Purchased and Securities Sold Under Agreements to Repurchase . . . . . 391,369 - - - - 391,369 Other Borrowed Funds . . . . . . . . . . . . . . . - - - 35,000 - 35,000 ------------------------------------------------------------------------- Total Interest Bearing Liabilities . . . . . $840,723 $285,622 $387,170 $996,512 - $2,510,027 ------------------------------------------------------------------------- Gap . . . . . . . . . . . . . . . . . . . . . . . . ($283,616) ($54,540) $95,332 $323,238 $498,715 ----------------------------------------------------------- Cumulative Difference Between Interest Earning Assets and Interest Bearing Liabilities . . . ($283,616) ($338,156) ($242,824) $80,414 $579,129 =========================================================== Cumulative Difference as a Percentage of Total Assets . . . . . . . . . . . . . . . . . (8.59%) (10.24%) (7.35%) 2.43% 17.53% ===========================================================
Notes: (1) Based upon (a) contractual maturity, (b) repricing date, if applicable, and (c) projected repayments of principal based upon experience. Amounts exclude the unrealized gain on securities available-for-sale. (2) Based upon (a) contractual maturity, (b) repricing date, if applicable, and (c) management's estimate of prepayments of principal. (3) Excludes non-accrual loans totaling $31.5 million. (4) Savings, N.O.W. and Money Market Deposits are allocated to specific time bands in accordance with the proposed rule of Section 305 of the Federal Deposit Insurance Corporation Improvement Act. 8 The tables that follow depict the amortized cost, contractual maturities and approximate weighted average yields (on a tax equivalent basis) of the held-to-maturity and available-for-sale securities portfolios at December 31, 1995, respectively: HELD-TO-MATURITY
State & (dollars in thousands) Municipal Maturity Obligations Yield Total Yield - - --------------------------------------------------------------------------------------- Within 1 Year . . . . . . . . . . . . . . $21,709 6.61% $21,709 6.61% After 1 But Within 5 Years . . . . . . . 20,220 7.28% 20,220 7.28% After 5 But Within 10 Years . . . . . . . 18,796 7.29% 18,796 7.29% . . . . . . . . . . . . . . . . . . . . . ----------------------------------------- Subtotal . . . . . . . . . . . . . . 60,725 7.04% 60,725 7.04% Mortgage-Backed Securities . . . . . . . - -- 281,418 6.40% ----------------------------------------- Total Securities . . . . . . . . . . $60,725 7.04% $342,143 6.51% =========================================
AVAILABLE -FOR-SALE (1) U.S. U.S. Government (dollars in thousands) Treasury Agencies' Maturity Securities Yield Obligations Yield Total Yield - - ------------------------------------------------------------------------------------------------------------------- Within 1 Year . . . . . . . . . . . . . . $9,995 6.18% $9,612 6.56% $19,607 6.37% After 1 But Within 5 Years . . . . . . . 9,994 5.99% 34 8.05% 10,028 6.00% After 5 But Within 10 Years . . . . . . . -- -- 49,050 5.65% 49,050 5.65% ----------------------------------------------------------------------- Subtotal . . . . . . . . . . . . . . 19,989 6.09% 58,696 5.80% 78,685 5.87% Equity Securities . . . . . . - -- -- -- 24,907 -- SBA Securities . . . . . . . . . . . . . -- -- -- -- 29,500 7.09% Mortgage-Backed Securities . . . . . . . - -- -- -- 677,640 6.76% ----------------------------------------------------------------------- Total Securities . . . . . . . . . . $19,989 -- $58,696 5.80% $810,732 6.42% =======================================================================
(1) Amounts exclude unrealized gains/(losses) reflected as a seperate component of stockholders' equity, net of taxes. The following table presents the composition of the carrying value of the securities portfolio in each of the last three years at December 31,
(in thousands) 1995 1994 1993 --------------------------------------------- Mortgage-Backed Securities . . . . . . . . . . . . . . . $961,404 $581,674 $762,692 State & Municipal Obligations . . . . . . . . . . . . . . 60,725 64,672 46,265 U.S. Government Agencies' Obligations . . . . . . . . . . 58,552 54,793 55,988 SBA Securities . . . . . . . . . . . . . . . . . . . . . 29,968 -- -- Equity Securities . . . . . . . . . . . . . . . . . . . . 25,836 25,990 9,679 U.S. Treasury Securities . . . . . . . . . . . . . . . . 20,143 46,168 97,243 --------------------------------------------- $1,156,628 $773,297 $971,867 =============================================
9 The following are approximate contractual maturities and sensitivities to changes in interest rates of certain loans, exclusive of non-commercial real estate mortgages, consumer loans and leases and non-accrual loans as of December 31, 1995:
Maturity ---------------------------------------------------------------- Due After One But Due Within Within Five Due After (in thousands) One Year Years Five Years Total ---------------------------------------------------------------- TYPES OF LOANS: Mortgage Loans-Multi-family . . . . . . . $110,999 $489,779 $61,551 $662,329 Mortgage Loans-Commercial . . . . . . . . 173,322 134,483 47,851 355,656 Commercial & Industrial . . . . . . . . . 185,367 40,157 12,954 238,478 Construction and Land Loans . . . . . . . 39,610 2,266 - 41,876 ---------------------------------------------------------------- Total . . . . . . . . . . . . . . . $509,298 $666,685 $122,356 $1,298,339 ================================================================ RATE PROVISIONS: Amounts with Fixed Interest Rates . . . . $49,118 $131,817 $96,401 $277,336 Amounts with Adjustable Interest Rates . 460,180 534,868 25,955 1,021,003 ---------------------------------------------------------------- Total . . . . . . . . . . . . . . . $509,298 $666,685 $122,356 $1,298,339 ================================================================
The following table shows the classification of the average daily deposits for each of the periods indicated:
For the year ended December 31, 1995 1994 1993 ----------------------------------------------- (in thousands) Demand Deposits . . . . . . . . . . . . . . . . . . . . . $396,763 $298,994 $244,772 Savings Deposits . . . . . . . . . . . . . . . . . . . . 842,516 1,003,934 1,030,444 N.O.W. & Money Market Deposits . . . . . . . . . . . . . 325,413 382,118 377,862 Time Deposits . . . . . . . . . . . . . . . . . . . . . . 900,084 678,919 710,574 ----------------------------------------------- Total Deposits . . . . . . . . . . . . . . . . . . . . $2,464,776 $2,363,965 $2,363,652 ===============================================
At December 31, 1995, the remaining maturities of certificates of deposit in amounts of $100,000 or greater were as follows:
1995 ------------- (in thousands) 3 months and less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $112,115 3 to 6 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,028 6 to 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,555 One to five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,285 Greater than five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 ------------- $176,110 =============
LIQUIDITY The objective of liquidity management is to ensure the availability of sufficient resources to meet all financial commitments and to capitalize on opportunities for business expansion. Liquidity management addresses the ability to meet deposit withdrawals either on demand or by contractual maturity, to repay other borrowings as they mature and to make new loans and investments as opportunities arise. The Company's sources of liquidity include dividends from its subsidiaries, borrowings, and funds available through the capital markets. Dividends from the Bank are limited by New York State Banking Department regulations to the current year's earnings plus the prior two years' retained net profits. Pursuant to this regulation, the Bank had $74.6 million of retained earnings available for dividends to the Company as of January 1, 1996. 10 The Bank has numerous sources of liquidity including loan and security principal repayments and maturities, lines of credit with other financial institutions, the ability to borrow under repurchase agreements utilizing its unpledged securities portfolio, the sale of securities from its available-for-sale portfolio, the securitization of loans within the portfolio, whole loan sales and growth in its core deposit base. In addition, the Bank has the ability, as a member of the Federal Home Loan Bank system, to borrow $322 million on a secured basis, utilizing mortgage related loans and securities as collateral, for a term ranging from one day to ten years at both fixed and variable rates. As of December 31, 1995, the Bank had $10 million in such advances with an original maturity of greater than one year. The Company's liquidity positions are monitored daily to ensure the maintenance of an optimum level and efficient use of available funds. Management believes that the Company and Bank have sufficient liquidity to meet their operating requirements. LOAN PORTFOLIO The loan portfolio is concentrated primarily in loans secured by real estate in metropolitan New York. Loans outstanding totaled $2.0 billion at December 31, 1995, an increase of $153.6 million or 8.4% from the 1994 year end levels of $1.83 billion, of which $49.4 million was acquired in the Great Neck acquisition. Great Neck's loan portfolio was comprised primarily of commercial loans and commercial mortgages. Aggregate loan growth during 1995 consisted of a 26.4% increase in multi-family mortgage loans to $662.3 million, a 54.6% increase in consumer loans and leases to $111.5 million, a 7.9% increase in commercial mortgage loans to $367.2 million and a modest increase in commercial and industrial loans. This growth was partially offset by a 7.6% decline in residential mortgage loans to $552.7 million at December 31, 1995. Effective January 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan" ("SFAS 114"), as amended by Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures" ("SFAS 118") (collectively referred to as "the Statement"). The Statement requires that impairment of larger balance, non-homogeneous loans be measured by comparing the net carrying value (or amount) of the loan to the present value of the expected future cash flows discounted at the loan's effective rate, the secondary market value of the loan, or the fair value of the collateral for collateral-dependent loans. A valuation allowance is established if necessary within the overall allowance for credit losses. Smaller balance, homogeneous loans, such as residential mortgages and consumer loans and leases, are collectively evaluated for impairment. Adoption of the Statement had no impact on the level of the overall allowance for loan losses, and does not affect the Company's policies regarding charge-offs, recoveries and interest income recognition. In accordance with the Statement, $8.2 million, $14.9 million, $53.3 million, and $58.4 million of loans previously reported as in-substance foreclosures at December 31, 1994, 1993, 1992 and 1991, respectively, have been reclassified from Other Real Estate to Loans in the accompanying disclosures. The adoption of the Statement did not affect the level of non-performing assets as loans previously classified as in-substance foreclosures, and contained within the other real estate caption, have been classified as non-accrual loans. All financial ratios contained within this annual report affected by this reclassification have been restated for comparability purposes. The following table represents the components of the loan portfolio at December 31,
(dollars in thousands) 1995 1994 1993 1992 1991 ----------------------------------------------------------------------------------------------------- Mortgage Loans-Multi-family . . $662,329 33.4% $524,167 28.6% $382,836 21.7% $344,370 18.8% $295,012 14.6% Mortgage Loans-Residential . . 552,681 27.8% 598,711 32.7% 651,721 37.0% 685,293 37.4% 833,960 41.2% Mortgage Loans-Commercial . . . 367,158 18.5% 340,157 18.6% 343,750 19.5% 337,258 18.4% 343,458 17.0% Commercial & Industrial . . . . 245,956 12.4% 241,544 13.2% 257,151 14.6% 288,114 15.7% 319,421 15.8% Consumer Loans and Leases . . . 111,475 5.6% 72,098 3.9% 61,647 3.5% 73,702 4.0% 98,182 4.9% Construction and Land Loans . . 45,429 2.3% 54,789 3.0% 64,031 3.7% 103,712 5.7% 131,005 6.5% ----------------------------------------------------------------------------------------------------- Total . . . . . . . . . . . . $1,985,028 100.0% $1,831,466 100.0% $1,761,136 100.0% $1,832,449 100.0% $2,021,038 100.0% =====================================================================================================
ASSET QUALITY At December 31, 1995, non-performing assets, which includes loans past due 90 days and still accruing interest, non-accrual loans and other real estate, declined $9.6 million or 20.3% to $37.4 million, in comparison to $47.0 million at December 31, 1994. Non-performing loans consisted of $12.0 million in commercial mortgages, $9.0 million in residential mortgages, $7.8 million in commercial loans, $3.6 million in construction and land loans, and $.2 million in consumer loans and leases. The decline in non-performing assets consisted principally of a $4.7 million decline in construction and land loans, a $1.8 million decline in multi-family mortgages, a $1.8 million decline in residential mortgages. 11 The components of non-performing assets and restructured, accruing loans are detailed below.
December 31, 1995 1994 1993 1992 1991 ------------------------------------------------------------------ (in thousands) Loans Ninety Days Past Due and Still Accruing . . $1,088 $1,597 $2,265 $6,048 $7,027 Non-Accrual Loans . . . . . . . . . . . . . . . . . 31,506 40,516 56,624 123,682 137,029 ------------------------------------------------------------------ Non-Performing Loans . . . . . . . . . . . . . . 32,594 42,113 58,889 129,730 144,056 Other Real Estate . . . . . . . . . . . . . . . . . 4,805 4,861 11,326 9,850 20,339 ------------------------------------------------------------------ Non-Performing Assets . . . . . . . . . . . . . . $37,399 $46,974 $70,215 $139,580 $164,395 ================================================================== Restructured, Accruing Loans . . . . . . . . . . . $31,875 $37,044 $43,456 $50,639 $28,132 ==================================================================
Loans are classified as restructured loans when management has granted, for economic or legal reasons related to the borrower's financial difficulties, concessions to the customer that would not otherwise be considered. Generally, this occurs when the cash flow of the borrower is insufficient to service the loan under its original terms. At December 31, 1995, the portfolio of restructured, accruing loans is comprised primarily of loans which have demonstrated performance in accordance with the terms of their restructure agreements for at least two years, and are currently yielding 6.95%. Management determines what it deems to be the appropriate level of the allowance for loan losses on an ongoing basis by reviewing individual loans, as well as the composition of and trends in the loan portfolio. Management considers, among other things, concentrations within segments of the loan portfolio, delinquency trends, as well as recent charge-off experience and third party evidentiary matter (such as appraisals) when assessing the degree of credit risk in the portfolio. Various appraisals and estimates of current value influence the estimation of the required allowance at any point in time. During 1995, the provision for loan losses was $9.0 million as compared to $3.3 million in 1994. Net charge-offs in 1995 aggregated $9.3 million, or .49% of average net loans, as compared with $10.3 million or .57% of average net loans during 1994. The allowance for loan losses at year end 1995 was $50.2 million, or 154.1% of non-performing loans and 2.55% of net loans. This compares to an allowance for loan losses of $50.1 million, or 118.9% of non-performing loans, and 2.76% of net loans at December 31, 1994. Although the trend of improved asset quality continued in 1995, management prudently assessed the loan portfolio considering its growth and the level of charge-offs during the year and increased the provision for loan losses. While management uses available information in estimating possible loan losses, future additions to the allowance may be necessary based on future changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgment of information available to them at the time of their examinations. Based on current economic conditions, management considers the allowance at December 31, 1995, adequate to cover the possible credit losses inherent in the loan portfolio. 12 Transactions in the Allowance for Loan Losses are summarized as follows for the years ended December 31,
(dollars in thousands) 1995 1994 1993 1992 1991 ---------------------------------------------------------------- LOANS (NET OF UNEARNED INCOME & FEES): Average Balance . . . . . . . . . . . . . . $1,893,654 $1,773,088 $1,735,122 $1,906,438 $1,884,440 End of Year . . . . . . . . . . . . . . . . 1,966,440 1,814,037 1,740,778 1,807,119 1,987,560 ================================================================ ANALYSIS OF ALLOWANCE FOR LOAN LOSSES: Balance at Beginning of Year . . . . . . . $50,069 $56,556 $69,583 $63,722 $34,051 LOANS CHARGED-OFF: Mortgage Loans-Multi-family . . . . . . . $ 3,236 $ 747 $ 5,305 $ 1,221 $ 550 Mortgage Loans-Residential . . . . . . . . 1,815 1,590 2,713 178 475 Mortgage Loans-Commercial . . . . . . . . 3,578 2,989 2,335 2,717 15,776 Commercial & Industrial . . . . . . . . . 2,870 7,724 14,362 13,029 19,151 Consumer Loans and Leases . . . . . . . . 396 727 1,216 2,207 3,217 Construction and Land Loans . . . . . . . 1,098 680 1,074 1,174 15,837 ---------------------------------------------------------------- Total charge-offs . . . . . . . . . . . $12,993 $14,457 $27,005 $20,526 $55,006 RECOVERIES OF LOANS CHARGED-OFF: Mortgage Loans-Multi-family . . . . . . . $ 100 $ 50 $ -- $ -- $ -- Mortgage Loans-Residential . . . . . . . . 127 157 50 125 -- Mortgage Loans-Commercial . . . . . . . . 1,587 611 452 156 -- Commercial & Industrial . . . . . . . . . 1,344 2,573 2,557 1,097 212 Consumer Loans and Leases . . . . . . . . 390 333 508 557 304 Construction and Land Loans . . . . . . . 94 607 111 677 226 ---------------------------------------------------------------- Total Recoveries . . . . . . . . . . . $3,642 $ 4,331 $ 3,678 $ 2,612 $ 742 NET LOANS CHARGED-OFF $9,351 $10,126 $23,327 $17,914 $54,264 Provision for Loan Losses . . . . . . . . . . 9,000 3,275 10,300 23,775 66,625 Additional Allowance Acquired in Acquisition 492 -- -- -- 17,310 Metro Activity for the Three Months . . . . . Ended December 31, 1993 . . . . . . . . . . -- 364 -- -- -- ---------------------------------------------------------------- Balance at End of Year . . . . . . . . . . . $50,210 $50,069 $56,556 $69,583 $63,722 ================================================================ Ratio of Net Charge-Offs to Average Loans . . 0.49% 0.57% 1.34% 0.94% 2.88% ================================================================ Ratio of Allowance for Loan Losses to Non-performing Loans . . . . . . . . . 154.05% 118.89% 96.04% 53.64% 44.23% ================================================================
Management considers the adequacy of the allowance for loan losses in its entirety, however , to comply with regulatory reporting requirements, management has allocated the allowance for loan losses as shown in the table below into components by loan type at each year end. Management does not intend to imply that actual future charge-offs will necessarily follow the allocations described below.
PERCENTAGE Percentage Percentage Percentage Percentage OF LOANS of Loans of Loans of Loans of Loans (dollars in thousands) 1995 TO TOTAL 1994 to Total 1993 to Total 1992 to Total 1991 to Total AMOUNT LOANS Amount Loans Amount Loans Amount Loans Amount Loans ------------------------------------------------------------------------------------------------------- Mortgage Loans-Multi-family $15,767 33.4% $16,811 28.6% $5,781 21.7% $6,968 18.8% $5,290 14.6% Mortgage Loans-Residential 1,876 27.8% 1,840 32.7% 5,668 37.0% 5,114 37.4% 4,972 41.2% Mortgage Loans-Commercial . 12,419 18.5% 12,711 18.6% 20,542 19.5% 16,997 18.4% 15,178 17.0% Commercial & Industrial . . 9,521 12.4% 9,716 13.2% 18,120 14.6% 25,030 15.7% 25,538 15.8% Consumer Loans and Leases . 1,857 5.6% 1,443 3.9% 901 3.5% 817 4.0% 1,337 4.9% Construction and Land Loans 1,461 2.3% 1,825 3.0% 4,669 3.7% 7,158 5.7% 11,407 6.5% Unallocated . . . . . . . . 7,309 -- 5,723 -- 875 -- 7,499 -- -- -- ------------------------------------------------------------------------------------------------------- Total . . . . . . . . . . $50,210 100.0% $50,069 100.0% $56,556 100.0% $69,583 100.0% $63,722 100.0% =======================================================================================================
13 NON-INTEREST INCOME Non-interest income, exclusive of net securities gains, was $20.9 million in 1995, compared with $19.0 million in 1994. Net securities gains in 1995 were $6.4 million, as compared with net securities losses of $9.2 million in 1994. Net securities gains recognized during 1995 were principally due to the Company selling its equity investments in certain financial institutions and the recognition of a $.9 million recovery on the settlement of a certain collateralized mortgage obligation that had been written down during 1994. Other operating income increased $1.9 million, or 48.3%, to $5.7 million during 1995 when compared to $3.8 million during 1994. This increase is primarily attributable to $730 thousand in distribution gains recognized on a long standing minority interest in a venture capital fund and a $950 thousand increase in fees and commissions earned by the Company's broker/dealer subsidiary (Compass Investment Services Corp). Income from mortgage banking activities increased 10.2% during 1995 to $2.6 million as compared to $2.4 million for 1994. This modest increase is attributable to the positive impact lower market interest rates had on the sale of loans into the secondary market, offset by a decrease in the level of servicing revenue. NON-INTEREST EXPENSE Non-interest expense in 1995 was $68.8 million, compared with $92.4 million in 1994. Included in the results for 1994 was a $14.3 million merger and restructure related charge incurred in connection with the Metro acquisition. Non-interest expense during 1995 declined $9.3 million or 11.9% when compared to 1994 results, exclusive of the aforementioned restructure charge. This reduction is attributable to a $3.4 million decrease in other real estate expenses, a $1.8 million reduction in FDIC insurance premiums (during 1995, approximately 38% of the Company's deposits were insured under the Savings Association Insurance Fund ("SAIF"), a $2.3 million decline in compensation and employee benefits, and a $1.8 million decline in general and administrative expenses. The post-merger integration of Metro's operations and the achievement of other efficiencies associated with the combination of certain product lines contributed to certain of the aforementioned reductions. The Company's core efficiency ratio, which represents the ratio of non-interest expenses, net of other real estate costs and other non-recurring charges, to net interest income on a tax equivalent basis and non-interest income net of securities gains and losses, improved to 41.78% in 1995 from 47.97% and 51.81% in 1994 and 1993, respectively. INCOME TAXES The effective tax rate on income before income taxes was 42.4% for 1995 as compared to 36.3% and 39.8% for 1994 and 1993, respectively. The effective tax rate in 1994 reflects a reduction in the deferred tax asset valuation allowance partially offset by the recapture of Bayside's tax bad debt reserve. The effective tax rate during 1993 was also positively impacted by a reduction in the deferred tax asset valuation allowance. CAPITAL The Federal Reserve Board has formal capital guidelines which bank holding companies are required to meet. The risk based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Under these guidelines, assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk weighted assets and off-balance sheet items. The guidelines currently require all bank holding companies to maintain a minimum ratio of total risk based capital to total risk weighted assets of 8.00%, including a minimum ratio of Tier I capital to risk weighted assets of 4.00%. The following table sets forth the Company's regulatory capital at December 31, 1995, under the rules applicable at such date. At such date, the Company was in compliance with all applicable Regulatory requirements.
(dollars in thousands) Amount Ratio -------------------------------- Tier 1 Capital . . . . . . . . . . . . . . . . $281,063 15.50% Regulatory Requirement . . . . . . . . . . . . 72,521 4.00% -------------------------------- Excess . . . . . . . . . . . . . . . . . . . . $208,542 11.50% ================================ Total Risk Adjusted Capital . . . . . . . . . . $304,066 16.77% Regulatory Requirement . . . . . . . . . . . . 145,042 8.00% -------------------------------- Excess . . . . . . . . . . . . . . . . . . . . $159,024 8.77% ================================ Risk Weighted Assets . . . . . . . . . . . . . $1,813,029 ================
14 The Company's leverage ratio at December 31, 1995 was 8.86%. The Tier I, total risk based and leverage capital ratios of the Bank were 16.00%, 17.26%, and 9.14%, respectively, at December 31, 1995. The Federal Deposit Insurance Corporation Improvement Act ("FDICIA") became effective December 19, 1991. FDICIA substantially revised the depository institution regulatory and funding provisions of the Federal Deposit Insurance Act and makes revisions to several other banking statutes. Among other things, FDICIA requires the federal banking regulators to take prompt corrective action on depository institutions that do not meet minimum capital requirements. FDICIA established five capital categories (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized). Under the regulations, a "well capitalized" institution has a minimum total risk based capital to total risk weighted assets ratio of at least 10%, a minimum Tier I capital to total risk weighted assets ratio of 6%, a minimum leverage ratio of at least 5% and is not subject to any written order, agreement or directive. As of December 31, 1995, the Company and the Bank were considered well capitalized. COMPARISON BETWEEN 1994 AND 1993 OVERVIEW The November 1994 acquisition of Metro increased total assets to $2.7 billion from $1.8 billion. Similarly, stockholders' equity rose to $255 million with the issuance of 8.4 million shares of common stock in connection with the transaction and the combined earnings results for 1994. Net income in 1994 was $29.7 million or $1.25 per share, as compared with $25.6 million or $1.10 in 1993. The 1994 results were impacted by a $14.3 million merger and related restructure charges that were incurred in connection with the Metro acquisition. Net securities losses of $9.2 million resulted from the repositioning of the available-for-sale portfolio in light of the current and anticipated interest rate environment and the write-down of a certain investment security for an other than temporary impairment in value. Earnings were favorably impacted by the further strengthening of the net interest margin to 4.81% in 1994 as compared with 4.48% in 1993. The growth in net interest margin increased net interest income to $132.5 million in 1994 from $118.5 million in 1993. The decline in the level of non-performing assets further contributed to improved earnings as the provision for loan losses was reduced to $3.3 million in 1994, from $10.3 million in 1993. The level of other real estate expenses (primarily maintenance and liquidation costs) declined to $3.7 million in 1994 from $14.0 million in 1993. NET INTEREST INCOME Net interest income increased $14.0 million to $132.5 million in 1994, as compared to $118.5 million in 1993. The components of this increase include a $12.1 million increase in interest income and a $1.9 million decline in interest expense. Interest income aggregated $203.7 million in 1994, a $12.1 million increase from $191.6 million in 1993. This increase is attributable to a $114.6 million growth in average interest earning assets to $2.79 billion in 1994, from $2.68 billion in 1993, increases in the prime rate of interest during 1994, and the impact of higher market interest rates on the securities portfolio. Interest expense declined to $71.2 million in 1994, reflecting a 3.02% cost of funds, as compared with $73.1 million, or 3.14% in 1993. The $1.9 million decline was achieved despite the rising interest rate environment that prevailed during 1994. Higher costs of funds associated with short-term borrowings were offset by interest reductions on the core deposit base. Short-term borrowings incurred in connection with the balance sheet leverage strategy were liquidated at year end 1994. PROVISION FOR LOAN LOSSES Net charge-offs declined to $10.1 million in 1994, or .57% of average net loans as compared with $23.3 million, or 1.34% of average net loans for 1993. The ratio of the allowance for loan losses to non-performing loans was 118.9% at December 31, 1994, as compared with 96.0% at December 31, 1993. NON-INTEREST INCOME Non-interest income, exclusive of securities transactions, was $19.0 million in 1994, compared with $18.9 million in 1993. Net securities losses in 1994 were $9.2 million as compared with net securities gains of $1.5 million in 1993. Net securities losses during 1994 resulted primarily from management's decision to reduce its securities holdings and short-term borrowings. Net securities losses also reflect a $3.2 million write-down on an 15 impaired collateralized mortgage obligation previously received by Metro as partial satisfaction in a troubled debt loan restructuring. Through growth in its demand deposit base, increases in service fees, and the introduction of new products and services, the Company increased its fees and service charges on deposit accounts $1.7 million, or 18.6%, during 1994. Trust and investment management fees increased 8.1% to $1.8 million for 1994. These increases were offset by a $1.7 million or 41.8% decline in income from mortgage banking operations, due to higher mortgage interest rates and a corresponding decrease in the level of refinancing activity. NON-INTEREST EXPENSE Non-interest expense for 1994 included a $14.3 million charge incurred in connection with the merger with Metro. This charge included $3.0 million in direct merger expenses (primarily legal and professional fees), a $5.9 million in severance related costs, and $5.4 million in system and facility costs (primarily for the elimination of duplicate facilities, the write-off of certain property and equipment, the cancellation of certain contractual obligations and other expenses associated with the merger). Excluding this charge, non-interest expense declined $7.8 million, or 9.1%, to $78.1 million in 1994 when compared to $85.9 million in 1993. The decline is primarily the result of a $10.3 million decrease in other real estate expenses and a $1.3 million decrease in occupancy and equipment expense. These improvements were partially offset by a $3.8 million increase in compensation and employee benefits primarily attributable to expenses incurred in connection with Metro's former Stock Appreciation Rights Plan. The Company's core efficiency ratio was 47.97% in 1994 and 51.81% in 1993. 16 SELECTED STATISTICAL DATA Quarterly Financial Information (unaudited)
1995 1994 ------------------------------------------------------------------------------- 1ST 2ND 3RD 4TH 1st 2nd 3rd 4th (in thousands, except per share amounts) QTR QTR QTR QTR Qtr Qtr Qtr Qtr ------------------------------------------------------------------------------- Interest Income . . . . . . . . . . . . . . $52,005 $55,067 $57,312 $62,014 $48,291 $51,125 $52,302 $52,015 Interest Expense . . . . . . . . . . . . . 18,153 20,512 21,681 24,816 17,246 17,941 18,266 17,774 ------------------------------------------------------------------------------- Net Interest Income . . . . . . . . . . . 33,852 34,555 35,631 37,198 31,045 33,184 34,036 34,241 Provision /(Benefit) for Loan Losses . . . 2,000 2,000 2,000 3,000 1,700 1,200 (375) 750 ------------------------------------------------------------------------------- Net Interest Income after Provision for Loan Losses . . . . . . . . . . . . 31,852 32,555 33,631 34,198 29,345 31,984 34,411 33,491 Non-Interest Income/(Loss) . . . . . . . . 5,153 5,303 8,267 8,598 4,892 4,579 2,841 (2,503) Non-Interest Expense . . . . . . . . . . . 17,236 16,801 15,846 18,960 19,784 20,697 20,044 31,917 ------------------------------------------------------------------------------- Income/(Loss) Before Income Taxes . . . . 19,769 21,057 26,052 23,836 14,453 15,866 17,208 (929) Provision/(Benefit) for Income Taxes . . . 8,268 8,827 11,100 10,284 5,682 6,376 6,772 (1,904) ------------------------------------------------------------------------------- Net Income . . . . . . . . . . . . . . . . $11,501 $12,230 $14,952 $13,552 $8,771 $9,490 $10,436 $975 =============================================================================== Per Share: Net Income . . . . . . . . . . . . . . . $0.48 $0.50 $0.60 $0.54 $0.37 $0.40 $0.44 $0.04 Common Stock Price Range High . . . . . . . . . . . . . . . . . $16.50 $18.38 $20.75 $25.25 $15.13 $15.88 $16.63 $16.00 Low . . . . . . . . . . . . . . . . . . $13.63 $16.00 $17.75 $20.75 $12.75 $13.25 $13.50 $13.50
On November 30, 1994, Metro Bancshares Inc. ("Metro") was merged with and into the Company. The merger has been accounted for as a pooling-of-interests and, accordingly, prior period amounts include the consolidated results of Metro. 17 CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, (in thousands, except per share amounts) 1995 1994 1993 ------------------------------------- INTEREST INCOME Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $172,088 $148,050 $142,907 Mortgage-Backed Securities . . . . . . . . . . . . . . . . . . . . . 43,604 41,031 37,863 U.S. Treasury & Government Agency Securities . . . . . . . . . . . . 5,845 9,108 6,801 State & Municipal Obligations . . . . . . . . . . . . . . . . . . . 2,488 2,300 1,271 Other Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 1,481 1,240 786 Federal Funds Sold & Securities Purchased Under Agreements to Resell . . . . . . . . . . . . . . . . . . 799 1,971 1,988 Interest Earning Deposits . . . . . . . . . . . . . . . . . . . . . . 93 33 14 ------------------------------------- Total Interest Income . . . . . . . . . . . . . . . . . . . . . . . . 226,398 203,733 191,630 ------------------------------------- INTEREST EXPENSE Savings, N.O.W & Money Market Deposits . . . . . . . . . . . . . . . 27,789 30,968 34,960 Other Time Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 40,179 23,532 26,305 Certificates of Deposit, $100,000 and Over . . . . . . . . . . . . . 8,328 2,539 1,866 Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . . 5,963 11,221 6,166 Long-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . . 2,903 2,967 3,872 ------------------------------------- Total Interest Expense . . . . . . . . . . . . . . . . . . . . . . 85,162 71,227 73,169 ------------------------------------- Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . 141,236 132,506 118,461 Provision for Loan Losses . . . . . . . . . . . . . . . . . . . . . . 9,000 3,275 10,300 ------------------------------------- Net Interest Income after Provision for Loan Losses . . . . . . . . . . . . . . . . . . 132,236 129,231 108,161 ------------------------------------- NON-INTEREST INCOME Fees & Service Charges on Deposit Accounts . . . . . . . . . . . . . 10,840 11,013 9,287 Mortgage Banking Operations . . . . . . . . . . . . . . . . . . . . . 2,599 2,358 4,051 Trust & Investment Management Fees . . . . . . . . . . . . . . . . . 1,794 1,800 1,665 Other Operating Income . . . . . . . . . . . . . . . . . . . . . . . 5,709 3,849 3,935 Net Securities Gains/(Losses) . . . . . . . . . . . . . . . . . . . . 6,379 (9,211) 1,457 ------------------------------------- Total Non-Interest Income . . . . . . . . . . . . . . . . . . . 27,321 9,809 20,395 ------------------------------------- NON-INTEREST EXPENSE Compensation & Employee Benefits . . . . . . . . . . . . . . . . . . 34,633 36,934 33,145 Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,774 6,764 6,970 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,684 5,314 6,455 FDIC Insurance Premiums . . . . . . . . . . . . . . . . . . . . . . . 3,683 5,476 5,736 Amortization of Excess of Cost Over Fair Value of Net Assets Acquired . . . . . . . . . . . . . . . . 1,667 1,470 1,595 Other Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . 255 3,651 13,971 Merger & Related Restructure Charges . . . . . . . . . . . . . . . . - 14,338 - Other Operating Expense . . . . . . . . . . . . . . . . . . . . . . . 17,147 18,495 18,061 ------------------------------------- Total Non-Interest Expense . . . . . . . . . . . . . . . . . . . 68,843 92,442 85,933 ------------------------------------- Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . 90,714 46,598 42,623 Provision for Income Taxes . . . . . . . . . . . . . . . . . . . . . 38,479 16,926 16,976 ------------------------------------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . $52,235 $29,672 $25,647 ===================================== EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . . . . . . $2.13 $1.25 $1.10
See accompanying notes to consolidated financial statements. 18 CONSOLIDATED BALANCE SHEETS
At December 31, (in thousands, except per share amounts) 1995 1994 ------------------------------- ASSETS Cash & Due from Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $106,476 $67,168 Interest Earning Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,347 748 Securities: Available-for-Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 814,485 141,805 Held-to-Maturity (Fair value $341,925 in 1995; $593,110 in 1994) . . . . . . . . . . . 342,143 631,492 ------------------------------- Total Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,156,628 773,297 ------------------------------- Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,985,028 1,831,466 Less: Unearned Income & Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,588 17,429 Allowance for Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,210 50,069 ------------------------------- Net Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,916,230 1,763,968 ------------------------------- Premises & Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,169 39,168 Accrued Income Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,400 19,315 Excess of Cost over Fair Value of Net Assets Acquired . . . . . . . . . . . . . . . . . . . 26,586 22,208 Other Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,805 4,861 Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,670 27,043 ------------------------------- Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,303,311 $2,717,776 =============================== LIABILITIES AND STOCKHOLDERS' EQUITY Demand Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $451,802 $331,245 Savings, N.O.W. & Money Market Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 1,153,739 1,325,628 Other Time Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 753,809 614,036 Certificates of Deposit, $100,000 and Over . . . . . . . . . . . . . . . . . . . . . . . . 176,110 71,978 ------------------------------- Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,535,460 2,342,887 Federal Funds Purchased & Securities Sold Under Agreements to Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391,369 20,000 Other Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 50,000 Senior Note Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 25,000 Accrued Expenses & Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,637 24,966 ------------------------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,993,466 2,462,853 STOCKHOLDERS' EQUITY Preferred Stock, par value $1.00; authorized 10,000,000 shares, unissued . . . . . . . . . - - Common stock, par value $2.50; authorized 50,000,000 shares; issued & outstanding 1995, 24,879,196 shares; 1994, 23,049,187 shares . . . . . . . . . 62,198 57,623 Additional Paid in Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,398 94,526 Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,773 106,186 Unrealized Gains/(Losses) on Securities Available-for-Sale, net of taxes . . . . . . . . . 2,149 (2,871) Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,020) (514) Treasury Stock at cost; 36,187 shares in 1995; 1,945 shares in 1994 . . . . . . . . . . . (653) (27) ------------------------------- Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309,845 254,923 ------------------------------- Total Liabilities and Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . $3,303,311 $2,717,776 ===============================
See accompanying notes to consolidated financial statements. 19 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993 -------------------------------------------- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $52,235 $29,672 $25,647 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Provision for Loan Losses . . . . . . . . . . . . . . . . . . . . . . . 9,000 3,275 10,300 Provision for Losses on Real Estate Acquired in Settlement of Loans . . . . . . . . . . . . . . . . . . . . . . . . 353 2,486 10,055 Depreciation and Amortization . . . . . . . . . . . . . . . . . . . . . 4,523 5,521 6,855 Amortization of Excess of Cost Over Fair Value of Net Assets Acquired . . . . . . . . . . . . . . . . . . . . . . . . 1,667 1,470 1,595 Accretion of Discounts and Net Deferred Loan Fees . . . . . . . . . . . (4,021) (1,771) (939) Amortization of Premiums . . . . . . . . . . . . . . . . . . . . . . . 4,384 7,957 10,154 Proceeds from Sales of Trading Account Securities . . . . . . . . . . . 40,920 - - Purchases of Trading Account Securities . . . . . . . . . . . . . . . . (40,853) - - Net Securities (Gains)/Losses . . . . . . . . . . . . . . . . . . . . . (6,379) 9,211 (1,457) Other, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,594 (14,289) 2,456 -------------------------------------------- Net Cash Provided by Operating Activities . . . . . . . . . . . . . 66,423 43,532 64,666 -------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Maturities, Calls and Principal Repayments on Securities Held-to-Maturity . . . . . . . . . . . . . . . . . . . . 125,061 138,706 415,103 Purchases of Securities Held-to-Maturity . . . . . . . . . . . . . . . (28,931) (269,519) (660,071) Proceeds from Sales of Securities Available-for-Sale . . . . . . . . . 103,510 272,175 71,519 Maturities and Principal Repayments on Securities Available-for-Sale . . . . . . . . . . . . . . . . . . . 70,895 150,831 49,967 Purchases of Securities Available-for-Sale . . . . . . . . . . . . . . (620,429) (106,008) (199,197) Loans Originated and Principal Repayments on Loans and Other Real Estate Owned, Net . . . . . . . . . . . . . (136,522) (120,191) (53,247) Proceeds from Sales of Real Estate Acquired in Settlements of Loans . . . . . . . . . . . . . . . . . . . . . . 10,750 15,586 27,993 Proceeds from the Sale of Loans . . . . . . . . . . . . . . . . . . . . 17,091 28,801 60,736 Purchases of Premises and Equipment, Net . . . . . . . . . . . . . . . (10,247) (3,250) (3,841) Purchase of Great Neck Bank, Net of Cash Acquired . . . . . . . . . . . 10,868 - - -------------------------------------------- Net Cash (Used in)/Provided by Investing Activities . . . . . . . . (457,954) 107,131 (291,038) -------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Increase/(Decrease) in Deposits . . . . . . . . . . . . . . . . . . 102,313 (3,601) (56,332) Proceeds from the Issuance of Senior Note Payable . . . . . . . . . . . - 25,000 - Repayment of Senior Notes Payable . . . . . . . . . . . . . . . . . . . - (20,000) (20,000) Net Increase/(Decrease) in Short-Term and Other Borrowings . . . . . . 331,369 (199,054) 226,322 Purchase of Treasury Shares . . . . . . . . . . . . . . . . . . . . . . (1,316) (35) (45) Common Stock Sold for Cash . . . . . . . . . . . . . . . . . . . . . . 11,297 3,696 19,260 Dividends Paid to Shareholders . . . . . . . . . . . . . . . . . . . . (12,225) (7,030) (2,364) -------------------------------------------- Net Cash Provided by/(Used in) Financing Activities . . . . . . . . 431,438 (201,024) 166,841 -------------------------------------------- Net Increase/(Decrease) in Cash and Cash Equivalents . . . . . . . 39,907 (50,361) (59,531) Metro Activity for the Three Months Ended December 31, 1993 . . . . . . - 356 - Cash and Cash Equivalents at Beginning of Year 67,916 117,921 177,452 -------------------------------------------- Cash and Cash Equivalents at End of Year $107,823 $67,916 $117,921 ============================================
See accompanying notes to consolidated financial statements. 20 CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993 ---------------------------------------- (in thousands) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash Paid During the Period for: Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $74,622 $72,101 $74,357 ======================================== Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,759 $24,747 $14,671 ======================================== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Securities Transferred from Held-to-Maturity to Available-for-Sale . . . . . . . . $191,449 $275,200 - ======================================== Real Estate Acquired in Settlement of Loans . . . . . . . . . . . . . . . . . . . $11,199 $5,126 $8,887 ======================================== Loans to Facilitate the Sale of Other Real Estate . . . . . . . . . . . . . . . . . $7,696 $10,907 $14,075 ======================================== On July 3, 1995, the Bank acquired all the outstanding common stock of Great Neck Bancorp for cash and other consideration. In connection with this acquisition, the following assets were acquired and liabilities assumed: Fair Value of Investments, Loans and Other Assets Acquired, Net . . . . . . . . $99,736 Cash Paid for Common Stock and Other Acquisition Expenses . . . . . . . . . . . (8,512) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ----------- Deposits and Other Liabilities Assumed . . . . . . . . . . . . . . . . . . . . $91,224 ===========
See accompanying notes to consolidated financial statements. 21 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Three Years Ended December 31, 1995 (Dollars in thousands, except per share amounts) Additional Unrealized Common Paid in Retained Securities Deferred Treasury Stock Capital Earnings Gains/(Losses) Compensation Stock Total ------------------------------------------------------------------------------ BALANCE, JANUARY 1, 1993 $50,436 $77,883 $56,342 ($25) ($1,460) ($29) $183,147 Net Income - - 25,647 - - - 25,647 Cash Dividends (Metro Pre-Merger $.50 per share) (1) - - (2,364) - - - (2,364) Sale of Common Stock (1,617,031 shares) . . . . . . . 4,061 11,192 - - - - 15,253 Exercise of Warrants (646,975 shares) . . . . . . . . 1,617 2,390 - - - - 4,007 Deferred Compensation Activity: Restricted Stock Activity, net (2,466 shares) . . - 8 - - 247 73 328 Amortization of Other Deferred Compensation Plans - - - - 314 - 314 Purchase of Treasury Stock (3,926 shares) . . . . . . - - - - - (45) (45) Fractional Share Adjustment . . . . . . . . . . . . . - - (2) - - - (2) Net Change in Unrealized Depreciation on Certain Marketable Equity Securities . . . . . . . - - - 25 - - 25 ------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1993 . . . . . . . . . . . . . $56,114 $91,473 $79,623 - ($899) ($1) $226,310 Unrealized Gain on Securities Available-for-Sale, net of taxes at January 1, 1994 . . . . . . . . . - - - 2,241 - - 2,241 Net Income . . . . . . . . . . . . . . . . . . . . . - - 29,672 - - - 29,672 Cash Dividends (The Company $.35 per share) . . . . . - - (5,882) - - - (5,882) Cash Dividends (Metro Pre-Merger $.81 per share) (1) - - (4,125) - - - (4,125) Sale of Common Stock (419,717 shares) . . . . . . . . 1,056 2,377 - - - - 3,433 Exercise of Warrants (176,616 shares) . . . . . . . . 442 390 - - - - 832 Deferred Compensation Activity: Restricted Stock Activity, net (4,666 shares) . . 12 43 - - 120 9 184 Amortization of Other Deferred Compensation Plans - 247 61 - 265 - 573 Purchase of Treasury Stock (2,538 shares) . . . . . . - - - - - (35) (35) Fractional Share Adjustment . . . . . . . . . . . . . (1) (4) - - - - (5) Metro Net Income for the Three Months Ended December 31, 1993 . . . . . . . . . . . . . . . . - - 6,837 - - - 6,837 Adjustment to Unrealized Gains/(Losses) on Securities Available-for-Sale, net of taxes . . . . . . . . - - - (5,112) - - (5,112) ------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1994 . . . . . . . . . . . . . $57,623 $94,526 $106,186 ($2,871) ($514) ($27) $254,923 Net Income . . . . . . . . . . . . . . . . . . . . . - - 52,235 - - - 52,235 Cash Dividends ( $.55 per share) . . . . . . . . . . - - (13,648) - - - (13,648) Sale of Common Stock (842,152 shares) . . . . . . . . 2,105 4,599 - - - - 6,704 Exercise of Warrants (987,857 shares) . . . . . . . . 2,470 3,138 - - - - 5,608 Deferred Compensation Activity: Restricted Stock Activity, net (41,598 shares) . - 135 - - (712) 690 113 Amortization of Other Deferred Compensation Plans - - - - 206 - 206 Purchase of Treasury Stock (75,840 shares) . . . . . - - - - - (1,316) (1,316) Adjustment to Unrealized Gains/(Losses) on Securities Available-for-Sale, net of taxes . . . . . . . . - - - 5,020 - - 5,020 ------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1995 . . . . . . . . . . . . . $62,198 $102,398 $144,773 $2,149 ($1,020) ($653) $309,845 ==============================================================================
See accompanying notes to consolidated financial statements. (1) Represents Metro's dividends per share based upon pre-merger shares outstanding. 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL North Fork Bancorporation, Inc. (the "Company"), a bank holding company organized in 1980 under the laws of the State of Delaware, is registered under the Bank Holding Company Act of 1956, as amended. The Company, through its bank subsidiary, North Fork Bank (the "Bank") provides a variety of banking and financial services to middle market and small business organizations, local governmental units, and retail customers in the metropolitan New York area. On November 30, 1994, Metro Bancshares Inc. ("Metro"), the parent company of Bayside Federal Savings Bank ("Bayside"), was merged with and into the Company. The merger was accounted for as a pooling-of-interests and, accordingly, the Company's consolidated financial statements include the consolidated accounts of Metro. The following is a summary of the Company's significant accounting and reporting policies: (a) BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company, and its Bank and non-bank subsidiaries. The Company reports its financial results on a calendar year basis, whereas Metro had reported its financial results on a fiscal year basis which ended September 30. The consolidated financial results for 1994 have been adjusted to conform Metro's year-end with that of the Company. The consolidated financial results for the period ended December 31, 1993, reflect the combination of the Company at and for the year ended December 31 with Metro at and for the year ended September 30. The accounting and reporting policies of the Company are in conformity with generally accepted accounting principles and prevailing practices within the financial services industry. The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Such estimates are subject to change in the future as additional information becomes available or previously existing circumstances are modified. Actual results could differ from those estimates. (b) STATEMENT OF CASH FLOWS For purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents includes those amounts included in the Balance Sheet captions - Cash and Due from Banks, Interest Earning Deposits, Federal Funds Sold and Securities Purchased Under Agreements to Resell, all of which have an initial maturity of less than 90 days. Cash flows from purchases, maturities and principal repayments, and sales of available-for-sale securities are classified as cash flows from investing activities, and such activity for prior periods has been similarly reclassified. (c) SECURITIES AND TRADING ACCOUNT ASSETS The Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115") in 1994. Securities that Management has the positive intent and ability to hold to maturity are classified as held-to-maturity and carried at amortized cost. Debt securities that may be sold in response to or in anticipation of changes in interest rates and resulting prepayment risk, or other factors, and marketable equity securities, are classified as available-for-sale and carried at fair value. The unrealized gains and losses on these securities are reported, net of applicable taxes, as a separate component of stockholders' equity. Debt and equity securities that are purchased and held principally for the purpose of selling them in the near term are classified as trading account assets and reported at fair value. Management determines the appropriate classification of securities at the time of purchase. Interest income on securities, including amortization of premiums and accretion of discounts, is recognized using the level yield method over the lives of the individual securities. Realized gains and losses on sales of securities are computed using the specific identification method. The cost bases of individual held-to-maturity and available-for-sale securities are reduced through write-downs to reflect other-than-temporary impairments in value. (d) LOANS Loans are generally carried at the principal amount outstanding, net of unearned income and net deferred loan fees. Mortgage loans held-for-sale are 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. 23 (e) NON-ACCRUAL LOANS Loans are placed on non-accrual status when, in the opinion of management, there is doubt as to the collectibility of interest or principal, or when principal and interest is past due 90 days or more and the loan is not well secured and in the process of collection. Interest and fees previously accrued, but not collected, are reversed and charged against interest income at the time a loan is placed on non-accrual status. Interest payments received on non-accrual loans are recorded as reductions of principal if, in management's judgment, principal repayment is doubtful. Loans may be reinstated to an accrual or performing status if future payments of principal and interest are reasonably assured and the loan has a demonstrated period of performance. Loans are classified as restructured loans when the Company has granted, for economic or legal reasons related to the borrower's financial difficulties, concessions to the borrower that it would not otherwise consider. Generally, this occurs when the cash flows of the borrower are insufficient to service the loan under its original terms. (f) ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is based on a periodic analysis of the loan portfolio and reflects an amount which, in management's judgment, is adequate to provide for possible loan losses in the existing portfolio. In evaluating the portfolio, management takes into consideration numerous factors, such as present and potential risks of the loan portfolio, loan growth, prior loss experience, current economic conditions and periodic examinations conducted by regulatory agencies. The allowance is maintained at a level considered by management to be adequate to cover reasonably foreseeable loan losses. While management uses available information to estimate possible loan losses, future additions to the allowance may be necessary based on adverse changes in economic conditions. Effective January 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan", ("SFAS 114"), as amended by Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures" ("SFAS 118") (collectively referred to as "the Statement"). The Statement requires that impairment of larger balance, non-homogeneous loans be measured by comparing the net carrying value (or amount) of the loan to the present value of the expected future cash flows discounted at the loan's effective rate, the secondary market value of the loan, or the fair value of the collateral for collateral-dependent loans. A valuation allowance is established if necessary within the overall allowance for loan losses. Smaller balance, homogeneous loans, such as residential mortgages and consumer loans and leases, are collectively evaluated for impairment. Adoption of the Statement had no impact on the level of the overall allowance for loan losses and does not affect the Company's policies regarding charge-offs and recoveries. (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. (h) OTHER REAL ESTATE Other real estate consists of property acquired through foreclosure or deed in lieu of foreclosure. Other real estate is carried at the lower of the recorded amount of the loan or the fair value of the property based on the current appraised value adjusted for estimated disposition costs. Prior to foreclosure, the recorded amount of the loan is written down, if necessary, to the fair value of the real estate to be acquired by a charge to the allowance for loan losses. Subsequent to foreclosure, gains and losses on the periodic revaluation of real estate acquired, and gains and losses on the disposition of such properties, are credited or charged to other real estate expense. In connection with the adoption of SFAS l14 effective January 1, 1995, in-substance foreclosures are no longer classified as OREO and are instead included in non-accrual loans. (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 is not expected to be realized based on current available evidence. 24 The Company files consolidated income tax returns with its subsidiaries. Tax expenses or benefits are generally allocated among members in the consolidated group based on a separate return basis. (j) RETIREMENT AND BENEFIT PLANS The Company has a non-contributory defined benefit pension plan covering substantially all employees. Annual pension cost is provided 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. Postretirement and postemployment benefits are recorded on an accrual basis with an annual provision that considers an actuarially determined future obligation. (k) EARNINGS PER SHARE Earnings per share is computed by dividing net income by the weighted-average number of common shares and common stock equivalents outstanding during the period. (l) EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED The excess of cost over fair value of net assets acquired is amortized on a straight line basis over the estimated periods to be benefited. The estimated periods to be benefited range from fifteen to twenty-five years. (m) OFF-BALANCE SHEET INSTRUMENTS Periodically, the Company enters into interest rate contracts, including interest rate caps, floors and swap agreements, as part of its asset/liability management of interest rate exposure. These instruments are entered into as hedges against interest rate risk and are designated against specific assets and liabilities. To qualify as a hedge, the instrument must be designated as a hedge and effective in reducing the market risk of an existing asset, liability on firm commitment. Effectiveness of the hedge is evaluated on an initial and ongoing basis using statistical calculations of correlation. The premium paid or received for any of these instruments is amortized over the term of the agreement. These instruments are accounted for on an accrual basis in the interest income or expense category of the related hedged asset or liability. If the asset or liability being hedged is disposed of, the market value of the interest rate contract is included in the determination of the gain or loss from disposition. At December 31, 1995 and 1994, the Company had no contracts or agreements outstanding. NOTE 2 - MERGERS AND ACQUISITIONS COMPLETED ACQUISITIONS METRO BANCSHARES INC. On November 30, 1994, the Company acquired Metro in a transaction accounted for under the pooling-of-interests method of accounting. Pursuant to the merger agreement, the Company issued 1.645 shares of common stock for each share of Metro's common stock outstanding (8,440,746 common shares issued) and reserved for issuance 739,038 common shares for Metro's outstanding stock options as of the acquisition date. Metro had consolidated total assets, deposits and shareholders' equity of $964.3 million, $832.5 million and $84.7 million respectively at November 30, 1994. Metro's operating results for the three month period ended December 31, 1993 have been set forth separately as a component of consolidated stockholders' equity and are not included in the Company's consolidated statements of income. During this three month period, Metro had net interest income of $10.7 million and net income of $6.8 million, which included a $3.7 million credit for the cummulative effect of Metro's change in accounting for income taxes. In connection with the merger, the Company recorded a charge for merger and related restructuring expenses of $14.3 million in 1994. As of December 31, 1995, all cash payments associated with this charge have been made except for certain rent payments due under long-term leases. GREAT NECK BANCORP In July 1995, the Bank consummated the cash purchase of Great Neck Bancorp, the parent company of Bank of Great Neck, a Long Island based commercial bank ("Great Neck"). Net assets acquired were $91 million, including $49.4 million in net loans and deposit liabilities assumed were $90.3 million. The excess of cost over fair value of net assets acquired was $6.0 million and is being amortized over fifteen years. The operating results of this purchased business are not significant to the consolidated financial statements of the Company. 25 PENDING ACQUISITIONS EXTEBANK DOMESTIC COMMERCIAL BANKING BUSINESS In September 1995, the Company announced that it had entered into an agreement with Banco Exterior de Espana, S.A., Spain ("BEX") whereby the Company will acquire the domestic commercial banking business of Extebank ("Extebank"), a wholly owned subsidiary of BEX, for $47.0 million in cash. As of December 31, 1995, Extebank had approximately $410 million in total assets, $222 million in net loans, $375 million in deposits and $30 million in capital. The Company will merge Extebank into the Bank. FIRST NATIONWIDE BANK - LONG ISLAND BRANCHES In September 1995, the Company announced that the Bank had entered into an agreement with First Nationwide Bank to acquire its ten Long Island branches with approximately $600 million in deposits at a deposit premium of 6.35%. The Company will receive cash of approximately $562 million. The foregoing transactions are expected to close during the first quarter of 1996. NOTE 3 - SECURITIES On November 15, 1995, the Financial Accounting Standards Board released a special report, "A Guide to Implementation of SFAS 115", which allowed for a one-time redesignation of securities out of the held-to-maturity category without the otherwise required reevaluation of other securities in that category. As a result, the Company transferred $191.5 million (fair value of $190.9 million) in securities from held-to-maturity to available-for-sale on December 30, 1995. 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,
1995 1994 GROSS GROSS Gross Gross AMORTIZED UNREALIZED UNREALIZED FAIR Amortized Unrealized Unrealized Fair (in thousands) COST GAINS (LOSSES) VALUE Cost Gains (Losses) Value -------------------------------------------------------------------------------------------- Mortgage-Backed Securities . . . . $281,418 $2,101 ($2,293) $281,226 $485,650 $93 ($32,130) $453,613 State & Municipal Obligations . . . 60,725 448 (474) 60,699 64,672 217 (2,100) 62,789 U.S. Government Agencies' Obligations - - - - 54,793 - (4,462) 50,331 U.S. Treasury Securities . . . . . - - - - 26,377 2 (2) 26,377 -------------------------------------------------------------------------------------------- $342,143 $2,549 ($2,767) $341,925 $631,492 $312 ($38,694) $593,110 ============================================================================================
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,
1995 1994 GROSS GROSS Gross Gross AMORTIZED UNREALIZED UNREALIZED FAIR Amortized Unrealized Unrealized Fair (in thousands) COST GAINS (LOSSES) VALUE Cost Gains (Losses) Value ------------------------------------------------------------------------------------------- Mortgage-Backed Securities . . . . . . $677,640 $3,410 ($1,064) $679,986 $100,903 $111 ($4,990) $96,024 U.S. Government Agencies' Obligations . 58,696 55 (199) 58,552 - - - - U.S. Treasury Securities . . . . . . . 19,989 154 - 20,143 20,077 6 (292) 19,791 SBA Securities . . . . . . . . . . . . 29,500 468 - 29,968 - - - - Equity Securities . . . . . . . . . . . 24,907 1,036 (107) 25,836 25,839 284 (133) 25,990 ------------------------------------------------------------------------------------------- $810,732 $5,123 ($1,370) $814,485 $146,819 $401 ($5,415) $141,805 ===========================================================================================
Mortgage-backed securities classified as held-to-maturity included $1.0 million and $92.8 million in collateralized mortgage obligations ("CMO") at December 31, 1995 and 1994, respectively. Mortgage-backed securities ("MBS") classified as available-for-sale included $216.1 million and $1.0 million in CMO's at December 31, 1995 and 1994. These CMO securities, collaterialized by either U.S. Government agency MBS's or whole loans, are principally conservative current pay sequentials or PAC structures with a current weighted average life of 3.5 years. 26 The amortized cost and estimated fair value of securities at December 31, 1995, 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.
HELD-TO-MATURITY AVAILABLE-FOR-SALE Amortized Fair Amortized Fair (in thousands) Cost Value Cost Value ------------------------------------------------------ Due in one year or less . . . . . . . . . . . . $21,709 $21,748 $19,607 $19,693 Due after one year through five years . . . . . 20,220 20,223 10,028 10,140 Due after five years through ten years . . . . 18,796 18,728 49,050 48,862 ------------------------------------------------------ Subtotal . . . . . . . . . . . . . . . . . . 60,725 60,699 78,685 78,695 Mortgage-Backed and SBA Securities . . . . . . 281,418 281,226 707,140 709,954 Equity Securities . . . . . . . . . . . . . . - - 24,907 25,836 ------------------------------------------------------ $342,143 $341,925 $810,732 $814,485 ======================================================
The prepayment of MBS's including CMO's is actively monitored through the portfolio management function. Management typically invests in MBS's with stable cash flows and relatively short duration, thereby limiting the impact of interest rate fluctuations on the portfolio. Management regularly performs simulation testing to assess the impact that interest and market rate changes would have on its MBS portfolio. The proceeds, gross realized gains and gross realized losses on the sale of securities available-for-sale were as follows at December 31,
(in thousands) 1995 1994 ------------------------------- Proceeds from Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $103,510 $272,175 =============================== Gross Realized Gains . . . . . . . . . . . . . . . . . . . . . . . . . . 6,728 2,467 Gross Realized Losses . . . . . . . . . . . . . . . . . . . . . . . . . . (349) (11,678) ------------------------------- Net Realized Gains/(Losses) . . . . . . . . . . . . . . . . . . . . . . . $6,379 ($9,211) ===============================
Gross realized gains in 1995 primarily resulted from the sale of equity positions in certain financial institutions. In addition, the Company recognized a $.9 million recovery on the settlement of a CMO written down in 1994. Gross realized losses for 1994 contain a $3.2 million charge to reduce the carrying value of the aforementioned CMO, received by Metro in 1991 as a partial settlement in a troubled debt loan restructuring. Proceeds from sales of investments and debt securities were $73.2 million in 1993 with a gross realized gain of $1.4 million. At December 31, 1995, held-to-maturity securities carried at $278.5 million and available-for-sale securities carried at $315.9 were pledged for various purposes as required by law and to secure securities sold under agreements to repurchase and other borrowings. At December 31, 1994, held-to-maturity securities carried at $127.8 million and available-for-sale securities carried at $17.1 million were similarly pledged as collateral. NOTE 4 - LOANS The composition of the loan portfolio is summarized as follows at December 31,
(dollars in thousands) 1995 1994 ------------------------------------------------------ Mortgage Loans-Multi-family . . . . . . . . . . . $662,329 33.4% $524,167 28.6% Mortgage Loans-Residential . . . . . . . . . . . 552,681 27.8% 598,711 32.7% Mortgage Loans-Commercial . . . . . . . . . . . . 367,158 18.5% 340,157 18.6% Commercial & Industrial . . . . . . . . . . . . . 245,956 12.4% 241,544 13.2% Consumer Loans and Leases . . . . . . . . . . . . 111,475 5.6% 72,098 3.9% Land and Construction Loans . . . . . . . . . . . 45,429 2.3% 54,789 3.0% ------------------------------------------------------ Total . . . . . . . . . . . . . . . . . . . . $1,985,028 100.0% $1,831,466 100.0% Less: Unearned Income and Fees . . . . . . . . . . . . 18,588 17,429 Allowance for Loan Losses . . . . . . . . . . . 50,210 50,069 --------------- ------------ Net Loans . . . . . . . . . . . . . . . . . $1,916,230 $1,763,968 =============== ============
27 The loan portfolio is principally located in the metropolitan New York area. The risk inherent in this portfolio is dependent not only upon regional and general economic stability which affects property values, but also the financial well-being and creditworthiness of the borrowers. To minimize the credit risk related to the portfolio's real estate concentration, management utilizes prudent underwriting standards as well as diversifying the type and locations of loan placements. The multi-family lending business includes loans of various types and geograhically diverse apartment complexes. Multi-family loans 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 loans do not fully amortize. Therefore, the principal outstanding is not significantly reduced prior to contractual maturity. The residential mortgage portfolio is comprised primarily of first mortgage loans on owner occupied 1-4 family residences located in the metropolitan New York area. The commercial mortgage portfolio contains loans secured by industrial developments, professional office buildings, retail stores and shopping centers. Land loans are loans to finance the acquisition of vacant land for future residential and commercial development. Construction loans principally finance the construction of industrial developments and single-family subdivisions. Commercial and industrial loans consist primarily of loans to small and medium size businesses. Consumer loans and leases represent credit to individuals for household, family, and other personal expenditures and consist primarily of loans and leases to finance new and used automobiles. The Company's real estate underwriting standards include various limits on the loan to value ratios based on the type of property, and the Company 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. Included in residential mortgage loans at December 31, 1995 and 1994 were loans held-for-sale of $1.3 million and $.6 million, respectively. Mortgage loans serviced for others aggregated $421.7 million and $442.0 million as of December 31, 1995 and 1994, respectively. NON-PERFORMING ASSETS Non-performing assets include loans ninety days past due and still accruing, non-accrual loans and other real estate. Other real estate consists of property acquired through foreclosure or deeds in lieu of foreclosure. Non-performing assets at December 31, consisted of the following:
(in thousands) 1995 1994 ------------------------------ Loans Ninety Days Past Due and Still Accruing $1,088 $1,597 Non-Accrual Loans . . . . . . . . . . . . . . 31,506 40,516 ------------------------------ Non-Performing Loans . . . . . . . . . . . 32,594 42,113 Other Real Estate . . . . . . . . . . . . . . 4,805 4,861 ------------------------------ Non-Performing Assets . . . . . . . . . . $37,399 $46,974 ==============================
The largest concentration of non-performing loans are those secured by real estate aggregating $24.6 million, or 75.3% of non-performing loans, at December 31, 1995. Interest foregone on non-accrual loans and other real estate, or the amount of income that would have been earned had those loans remained performing, aggregated $3.6 million, $4.5 million and $5.6 million in 1995, 1994, and 1993, respectively. RESTRUCTURED LOANS Restructured, accruing loans were $31.9 million and $37.0 million at December 31, 1995 and 1994, respectively. Restructured loans on non-accrual status at December 31, 1995 and 1994 were $.3 million and $2.2 million, respectively. The amount of interest income recorded on restructured loans was approximately $2.3 million, $3.0 million and $3.2 million in 1995, 1994 and 1993, respectively. The difference between income included in the results of operations under the restructured terms and that amount which would have been recognized had these loans performed in accordance with their original terms was $.9 million, $.8 million and $.9 million in 1995, 1994 and 1993, respectively. The Company had no commitments to lend additional funds to borrowers whose loans are non-performing or whose terms have been previously restructured at December 31, 1995. 28 RELATED PARTY LOANS Loans to related parties include loans to directors and their related companies and executive officers of the Company and any of its subsidiaries. Such loans are made in the ordinary course of business on substantially the same terms as loans to other individuals and businesses of comparable risks. Related party loans aggregated $1.2 million and $.7 million at December 31, 1995 and 1994, 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,
(in thousands) 1995 1994 1993 ------------------------------------- Balance at Beginning of Year . . . . . . . . . . . . . . . . . . . $50,069 $56,556 $69,583 Provisions for Loan Losses . . . . . . . . . . . . . . . . . . . . 9,000 3,275 10,300 Recoveries Credited to the Allowance . . . . . . . . . . . . . . . 3,642 4,331 3,678 ------------------------------------- 62,711 64,162 83,561 Losses Charged to the Allowance . . . . . . . . . . . . . . . . . . (12,993) (14,457) (27,005) Additional Allowance Acquired in Acquisition . . . . . . . . . . . 492 - - Metro Net Activity for the Three Months Ended December 31, 1993 . . - 364 - ------------------------------------- Balance at End of Year . . . . . . . . . . . . . . . . . . . . $50,210 $50,069 $56,556 =====================================
As of December 31, 1995, $22.5 million in loans were impaired within the scope of SFAS 114 and were carried on a non-accrual basis. Approximately 13% of these loans were measured for impairment using the fair value of collateral, while the remaining 87% were measured using the present value of the expected future cash flows discounted at the loan's effective date. The application of SFAS 114 measurement principles indicated that approximately $5.9 million of these loans required valuation allowances, totalling $1.1 million, which are included within the overall allowance for loan losses at December 31, 1995. Residential mortgages and consumer loans and leases outside the scope of SFAS 114 are collectively evaluated for impairment. During 1995, the average amount of impaired loans within the scope of SFAS 114 was approximately 27.0 million, and the amount of cash basis interest income recognized on these loans was $1.1 million. NOTE 6 - PREMISES AND EQUIPMENT The following is a summary of premises and equipment at December 31,
(in thousands) 1995 1994 ------------------------------ Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,164 $9,299 Bank Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,427 24,908 Leasehold Improvements . . . . . . . . . . . . . . . . . . . . . . 8,781 6,723 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,399 31,049 ------------------------------ 80,771 71,979 Accumulated Depreciation and Amortization . . . . . . . . . . . . . (35,602) (32,811) ------------------------------ $45,169 $39,168 ==============================
29 NOTE 7 - SHORT TERM BORROWINGS Federal funds purchased and securities sold under agreements to repurchase and related information is summarized as follows at and for the years ended December 31,
(in thousands) 1995 1994 1993 ---------------------------------------------- Federal Funds Purchased Period End Balance $ - $ 20,000 $ - Maximum Amount Outstanding at Any Month End 60,000 25,000 - Average Outstanding Balance 11,133 5,032 28 Weighted Average Interest Rate Paid 5.89% 5.47% 3.10% Weighted Average Interest Rate at Year End - 6.00% - Securities Sold Under Agreements to Repurchase Period End Balance $391,369 $ - $255,643 Maximum Amount Outstanding at Any Month End 391,369 322,876 325,779 Average Outstanding Balance 90,362 239,656 176,491 Weighted Average Interest Rate Paid 5.77% 4.25% 3.49% Weighted Average Interest Rate at Year End 5.81% - 3.41%
Federal Home Loan Bank Advances with original maturities of less than one year were $40.0 million at December 31, 1994 with a weighted average interest rate of 5.63%. At December 31, 1995, the Company had no advances outstanding. The Bank has arrangements with various correspondent banks providing short-term credit for regulatory liquidity requirements. These lines of credit aggregated $135.0 million at December 31, 1995. NOTE 8 - LONG TERM BORROWINGS During 1994, the Company issued a $25.0 million, 7.56% Senior Note (the "Note") due April 20, 1999. The Note imposes certain restrictions on the Company. These restrictions include, but are not limited to, the maintenance of certain capital levels, limitations on the payment of dividends, limitations on the repurchase of common stock, and additionally, the Note contains certain prepayment penalties. A portion of the Note proceeds were used to prepay the $20.0 million, 10.08% Senior Note due March 28, 1995. At December 31, 1995, the Company was in compliance with the covenants of the Note. Long-term Federal Home Loan Bank advances totaled $10 million at December 31, 1995 and 1994. These borrowings bear an interest rate of 10.00% and mature on April 28, 1999. 30 NOTE 9 - INCOME TAXES The components of the consolidated income tax provision is shown below for the years ended December 31,
(in thousands) 1995 1994 1993 -------------------------------------- Current Tax Expense . . . . . . . . . . . . . . . . . . . . . . $37,338 $22,268 $15,539 Deferred Tax Expense . . . . . . . . . . . . . . . . . . . . 1,141 1,508 2,922 Adjustment to Deferred Tax Assets and Liabilities for Enacted Changes in Tax Rates . . . . . . . . . . . . . -- -- (193) Change in Valuation Allowance . . . . . . . . . . . . . . . . . -- (6,850) (1,292) -------------------------------------- Income Tax Provision . . . . . . . . . . . . . . . . . . . . . $38,479 $16,926 $16,976 ======================================
The following table reconciles the statutory U.S. Federal tax rate to the effective tax rate on income before income taxes for the years ended December 31,
RECONCILIATION OF STATUTORY RATE TO EFFECTIVE RATE 1995 1994 1993 --------------------------------------- Federal Income Tax Expense at Statutory Rates . . . . . . . . . 35.00% 35.00% 34.90% Increase/(Reduction) Resulting from: State and Local Income Taxes, Net of Federal Income Tax . . 7.87 9.3 4.6 Tax Exempt Interest, net . . . . . . . . . . . . . . . . . (1.08) (2.1) (1.8) Accretion/Amortization of Purchase Accounting Premiums and Discounts . . . . . . . . . . . . . . . . . (0.01) (0.5) (0.5) Amortization of Excess Cost Over Fair Value of Net Assets Acquired . . . . . . . . . . . . . . . . . . . 0.64 1.2 1.3 Recapture of Tax Bad Debt Reserve Due to Merger -- 7.3 - Change in Valuation Allowance . . . . . . . . . . . . . . . -- (14.7) (2.7) Federal Bad Debt Deduction less than Financial Statement Provision . . . . . . . . . . . . . . . . . . . -- -- 2.5 Other, Net . . . . . . . . . . . . . . . . . . . . . . . . -- 0.8 1.5 --------------------------------------- Effective Tax Rate . . . . . . . . . . . . . . . . . . . . . . 42.42% 36.3% 39.8% =======================================
31 The components of the net deferred tax asset are included in "Other Assets" in the accompanying consolidated balance sheets at December 31, and are as follows:
(in thousands) 1995 1994 ------------------------- Deferred Tax Assets Allowance for Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . $20,352 $20,985 Deferred Compensation and Other Employee Benefit Plans . . . . . . . . . . 1,337 1,615 Unrealized Loss on Securities Available-for-Sale . . . . . . . . . . . . . . -- 2,143 Excess of Tax Basis Over Book Basis-Other Real Estate . . . . . . . . . . . 93 58 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,493 7,261 ------------------------- Gross Deferred Tax Asset . . . . . . . . . . . . . . . . . . . . . . . . $24,275 $32,062 Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,391) (3,391) ------------------------- Deferred Tax Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,884 $28,671 ========================= Deferred Tax Liability Tax Bad Debt Recapture . . . . . . . . . . . . . . . . . . . . . . . . . . ($4,185) ($5,873) Unrealized Gain on Securities Available-for-Sale . . . . . . . . . . . . . ($3,391) -- Excess of Book Basis Over Tax Basis, Premises & Equipment . . . . . . . . . (375) (496) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,438) (2,004) ------------------------- Deferred Tax Liability . . . . . . . . . . . . . . . . . . . . . . . . . ($9,389) ($8,373) ------------------------- Net Deferred Tax Asset . . . . . . . . . . . . . . . . . . . . . . . . . $11,495 $20,298 =========================
During 1994, the Company reduced its valuation allowance by $6.9 million due to the improved earnings potential and the continued strengthening of the quality of assets. During 1995, the Company's valuation allowance remained at $3.4 million as it continues to reserve for a portion of the New York State and City deferred tax assets due to uncertainties of realization since state and city law does not provide for the utilization of net operating loss carryforwards or carrybacks. NOTE 10 - RETIREMENT AND OTHER EMPLOYEE BENEFITS PLANS RETIREMENT PLAN The Company maintains a retirement plan (the "Plan") covering substantially all of its employees. Metro did not maintain a retirement Plan and subsequent to the merger all former Metro employees became eligible for participation in the Plan. Participants accrue a benefit each year equal to five percent of their annual compensation, as defined, plus a rate of interest based on one-year Treasury Bill rates, credited quarterly. Plan assets are invested in a diversified portfolio of fixed income securities, mutual funds and equity securities. The Company contributes to the Plan an amount sufficient to meet Employee Retirement Income Security Act ("ERISA") funding standards. The following table sets forth the funded status of the Plan, and amounts recognized in the accompanying consolidated financial statements.
December 31, 1995 1994 ---------------------------- (in thousands) Actuarial Present Value of Accumulated Benefit Obligation: Vested Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($17,676) ($14,653) Non-Vested Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . (452) (315) ============================ Accumulated Benefit Obligation . . . . . . . . . . . . . . . . . . . . . . . (18,128) (14,968) Effect of Projected Future Compensation Levels . . . . . . . . . . . . . . . (400) (372) ---------------------------- Projected Benefit Obligation . . . . . . . . . . . . . . . . . . . . . . . . (18,528) (15,340) Plan Assets at Fair Value . . . . . . . . . . . . . . . . . . . . . . . . . . 18,344 14,376 ---------------------------- Plan Assets Less than of Projected Benefit Obligation . . . . . . . . . . . . (184) (964) Unrecognized Net Asset Value Existing at Plan Year End . . . . . . . . . . . (394) (458) Unrecognized Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,573 3,845 Unrecognized Prior Service Cost . . . . . . . . . . . . . . . . . . . . . . . (2,787) (3,037) ---------------------------- Prepaid/ (Accrued) Pension Cost . . . . . . . . . . . . . . . . . . . . . . . $1,208 ($614) ============================
32
(in thousands) 1995 1994 1993 -------------------------------------- Components of Net Periodic Pension Expense: Service Cost-Benefits Earned During the Year . . . . . . . . $834 $710 $613 Interest Cost on Projected Benefit Obligation . . . . . . . 1,268 1,188 1,115 Net Amortization and Deferral . . . . . . . . . . . . . . . 1,630 (1,685) (639) -------------------------------------- $3,272 $213 $1,089 Less Actual Return on Plan Assets . . . . . . . . . . . . . . . 2,954 (184) 1,079 -------------------------------------- Net Periodic Pension Expense . . . . . . . . . . . . . . . . $778 $397 $10 ====================================== Assumptions Used in Actuarial Computations were: Weighted Average Discount Rate . . . . . . . . . . . . . . 7.25% 8.50% 7.50% Rate of Increase in Future Compensation Levels . . . . . . 4.50% 4.50% 4.50% Expected Long-Term Rate of Return on Assets . . . . . . . . 8.50% 8.50% 8.50%
The Company maintains a supplemental retirement plan which restores to specified senior executives the full level of retirement benefits they would have been entitled to receive absent the ERISA provision limiting maximum payouts under tax qualified plans. The actuarial present value of the accumulated benefit obligation and the projected benefit obligation, which are unfunded, was $164 thousand at December 31, 1995 and $162 thousand at December 31, 1994. Net periodic pension expense incurred in 1995, 1994 and 1993, for the supplemental retirement plan was $33 thousand, $40 thousand and $31 thousand, respectively. The weighted average discount rate utilized to determine the projected benefit obligation was 7.25% for 1995, 8.50% for 1994 and 7.50% for 1993. The assumed rate of future compensation increases was 4.50% for 1995 and 1994, and 5.50% for 1993 . The expected long-term rate of return on plan assets was 8.50% for 1995 and 1994, and 7.0% for 1993. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company provides certain health care and life insurance benefits to eligible retired employees. Health care benefits received range between 0% and 100% of coverage premiums based on an employee's age, years of service and retirement date. Participants who retire after November 1, 1992 are responsible for all premium increases after 1997. The Company's plan for its postretirement obligation is unfunded. The following table sets forth information related to the Company's postretirement benefit obligations at December 31,
(in thousands) 1995 1994 ----------------------------- Accumulated Postretirement Benefit Obligation Retirees and Beneficiaries Eligible for Benefits . . . . . . . . . . . . $5,198 $3,725 Active Employees Fully Eligible for Benefits . . . . . . . . . . . . . . 743 619 ----------------------------- Accumulated Postretirement Benefit Obligation . . . . . . . . . . . 5,941 4,344 Unrecognized Transition Obligation (amortized over 20 year period) . . . 3,506 3,769 Unrecognized Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . 1,841 277 ----------------------------- Accrued Postretirement Benefit Obligation . . . . . . . . . . . . . . . . $594 $298 =============================
The weighted average discount rate utilized to determine the accumulated postretirement benefit obligation was 7.25% and 8.50% in 1995 and 1994, respectively. The assumed rate of future compensation increases was 5.50% for both years. The weighted average discount rate utilized to determine the net periodic postretirement benefits expense was 8.50% and 7.50% for 1995 and 1994, respectively. In measuring the APBO, a 9.00% annual trend rate for health care costs was assumed for the year ended December 31, 1995. These rates are assumed to decline ratably to 5.5% through 2010, and remain at that level thereafter. However, for retirees after November 1, 1992 no increases in the annual trend rate are assumed for after 1997. If the assumed health care cost trend rate changed by 1%, the APBO at December 31, 1995 would change by 6.5%. The effect of a 1% change in the health care cost trend rate on the service and interest cost components of net periodic postretirement benefits expense would be a change of 6.3%. 33 The net periodic postretirement benefits expense for the years ended December 31, consisted of the following:
(in thousands) 1995 1994 1993 --------------------------------------- Service Cost (Benefits Earned During the Year) . . . . . . . . . . $48 $115 $39 Interest Cost on Accumulated Postretirement Benefit Obligation . . 411 396 325 Amortization of Transition Obligation and Net Loss . . . . . . . . 234 263 208 --------------------------------------- Net Periodic Postretirement Benefits Expense . . . . . . . . . . $693 $774 $572 =======================================
401-(k) SAVINGS PLAN The Company maintains a savings plan under section 401-(k) of the Internal Revenue Code, covering substantially all current full-time and certain part-time employees. Newly hired employees can elect to participate in the savings plan after completing one year of service. Under the provisions of the savings plan, employee contributions are partially matched by the Company. This matching is fully vested for employees participating at the inception date of the plan, however, the matching vests for all other plan participants 25% per year beginning the second year of participation. Participant account balances are invested at the direction of the participant into one or more investment funds, including a fund which invests in shares of the Company's common stock. The 401-(k) plan expense was $.7 million, $.8 million, and $.8 million for the years ended 1995, 1994 and 1993, respectively. NOTE 11 - STOCK OPTIONS AND RIGHTS PLANS 1985 INCENTIVE STOCK OPTION PLAN Under the plan, 360,000 shares of common stock were reserved for issuance to key employees. Options were awarded by the Compensation and Stock Committee of the Board of Directors ("Compensation Committee"), a committee appointed by the Board of Directors. The plan provided that the option price would not be less than the fair market value of the stock on the date the option was granted. All options are exercisable upon the grant for a period of ten years. At December 31, 1995, no shares remain authorized and unissued. 1987 LONG TERM INCENTIVE PLAN The plan provided for two types of awards, non-qualified stock options and restricted stock, to be granted either separately or in combination. Awards were granted to employees by the Compensation Committee. The maximum aggregate number of shares of common stock which could have been issued under the plan, either as restricted stock awards or non-qualified stock options, was 400,000 shares. The value of restricted stock awarded under the plan is reflected as deferred compensation at fair market value of the shares at the date of grant, and amortized as additional compensation expense over the years the restrictions lapse, which is generally 33 1/3% per year from years five to seven after the grant date. The Compensation Committee, in its sole discretion, may also accelerate the removal of any or all restrictions. If the Company is a party to a merger, consolidation, sale of substantially all assets or similar transaction and, as a result, the common stock is exchanged for stock of another corporation, cash or other consideration, all restrictions on restricted stock awarded under the plan and then outstanding will lapse and cease to be effective, as of the day on which such corporate change is consummated. At December 31, 1995, no shares remain authorized and unissued. 1989 EXECUTIVE MANAGEMENT COMPENSATION PLAN The plan provides for two types of awards, non-qualified stock options and restricted stock, to be granted either separately or in combination. Awards are granted to executive officers by the Compensation Committee. The maximum aggregate number of shares of common stock which may be issued under the plan, either as restricted stock awards or non-qualified stock options, is 460,000 shares. Each non-qualified stock option awarded under the plan shall vest and become exercisable with respect to 20% of the shares subject to the option on the first anniversary of the date of grant. Thereafter, each option shall vest and become exercisable with respect to an additional 20% of the original shares subject to the option on each consecutive anniversary of the date of grant. Restricted stock awarded under the plan contains similar restrictions as those issued under the 1987 Long Term Incentive Plan. The right to grant awards under the plan will terminate upon the earlier of December 31, 1999, or the issuance of a number of shares equal to the maximum aggregate number reserved for issuance under the plan. At December 31, 1995, 18,518 shares remain authorized and unissued. 34 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 . The maximum aggregate number of shares of common stock which could be issued under the plan is 700,000 shares, with no more than 200,000 authorized for Restricted Stock. Restricted stock awarded under the plan contains similar restrictions as those under the 1987 Long Term Incentive Plan. The Compensation Committee, in its sole discretion, may also accelerate the removal of any or all restrictions. If the Company is a party to a merger, consolidation, sale of substantially all assets or similar transaction and, as a result, the common stock is exchanged for stock of another corporation, cash or other consideration, all restrictions on restricted stock awarded under the plan and then outstanding will lapse and cease to be effective, as of the day on which such corporate change is consummated. At December 31, 1995, 325,400 shares remain authorized and unissued. Of this amount, 186,250 shares were issued in January 1996. METRO STOCK PLANS - PRE-MERGER Metro maintained several incentive stock option and non-qualified stock option plans for its officers, directors and key employees. Generally, these plans granted options to individuals at a price equivalent to the fair market value of the stock at the date of grant and were exercisable over a ten year period from the date of grant. Pursuant to the merger agreement, options outstanding under these plans were converted into 739,038 options on the Company's stock at exercise prices of $2.38 and $10.57 based on the merger exchange ratio of 1.645. At December 31, 1995, 13,748 options remained outstanding. Also, Metro had a Stock Appreciation Rights Plan (SAR) under which participants became fully vested at the merger date. Compensation expense recorded for these SAR's in 1994 and 1993 was $2.0 million and $1.0 million, respectively. The following is a summary of the activity in the common stock option and restricted stock plans for the three year period ended December 31, 1995.
Restricted Exercise Stock Grant Options Price Awards Price ---------------------------------------------------------------------------------- Outstanding at December 31, 1992 . . . . . 620,331 $5.44 - $25.13 122,142 $5.44 - $23.25 Granted . . . . . . . . . . . . . . . . . . 184,500 $7.94 - $12.69 8,000 $12.69 Exercised . . . . . . . . . . . . . . . . . (15,650) $6.88 - $8.81 - - Forfeited . . . . . . . . . . . . . . . . . (30,350) $8.81 - $20.75 (1,034) $15.94 - $20.75 Vested . . . . . . . . . . . . . . . . . . - - (22,397) $5.81 - $23.25 Removal of Restrictions Accelerated - - (4,500) $7.94 ----------- -------------- Outstanding at December 31, 1993 . . . . . 758,831 $5.44 - $25.13 102,211 $5.44 - $23.25 Metro Options Outstanding at Nov. 30, 1994 . 739,038 $2.38 - $10.57 - - Granted . . . . . . . . . . . . . . . . . . 315,000 $10.57 - $15.75 10,000 $11.75 - $12.69 Exercised . . . . . . . . . . . . . . . . . (167,009) $2.38 - $12.69 - - Forfeited . . . . . . . . . . . . . . . . . (31,700) $10.25 - $20.75 (4,334) $10.25 - $19.06 Vested . . . . . . . . . . . . . . . . . . - - (11,735) $13.94 - $19.06 Removal of Restrictions Accelerated - - (1,000) $12.25 ----------- -------------- Outstanding at December 31, 1994 . . . . . 1,614,160 $2.38 - $25.13 95,142 $5.44 - $23.25 Granted . . . . . . . . . . . . . . . . . 42,500 $15.69 - $21.75 58,600 $12.69 - $22.88 Exercised . . . . . . . . . . . . . . . . . (698,068) $2.38 - $20.75 - - Forfeited . . . . . . . . . . . . . . . . . (55,500) $18.13 - $20.75 (17,002) $5.44 - $19.06 Vested . . . . . . . . . . . . . . . . . . - - (3,836) $7.75 - $22.75 ----------- -------------- OUTSTANDING AT DECEMBER 31, 1995 . . . . . 903,092 $2.38 - $25.13 132,904 $5.44 - $23.25 =========== ==============
The table does not reflect the activity of the Metro plans pre-merger. For the period from October 1, 1992 through November 30, 1994, Metro issued 104,260 options while 31,468 options were exercised, based upon the merger exchange ratio of 1.645. 35 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, 1995, 407,107 shares remain authorized and unissued. SHAREHOLDERS' RIGHTS PLAN AND CHANGE-IN-CONTROL ARRANGEMENTS The Company maintains a shareholders' rights plan. Each right under the plan entitles the holder, following the occurrence of certain events, to purchase a unit, consisting of one one-hundredth of a share of Series A Junior Participating Preferred Stock, at a purchase price of $70 per unit, subject to adjustment. The rights will become exercisable and transferable apart from the common stock 10 days after the public announcement that a person or group has acquired 20% or more of the outstanding shares of common stock, 10 business days following the commencement of a tender or exchange offer that would result in a person or group beneficially owning 25% or more of the outstanding shares of common stock, or 10 days after the Board of Directors has determined that any person has become the beneficial owner of a substantial amount (defined as 10% or greater) of the outstanding shares of common stock and that such beneficial ownership is adverse to the Company in certain specified respects. Rights held by such an acquiring person or persons may thereafter become void. Under certain circumstances, a right may become a right to purchase common stock or assets of the Company or common stock of an acquiring corporation at a substantial discount. Under certain circumstances, the Company may redeem the rights for $.01 per right. The rights will expire at the close of business on March 13, 1999 unless earlier redeemed or exchanged by the Company. The Company has arrangements with certain key executive officers that provide for the payment of a multiple of base salary, should a change-in-control, as defined, of the Company occur. These payments are limited under guidelines for deductibility pursuant to Internal Revenue Service regulations. Also, in connection with a potential change-in-control, the Company adopted performance plans in which substantially all employees could participate in a cash distribution. The amount of the performance plan cash fund is established when a change-in-control transaction exceeds industry averages and achieves an above average return for shareholders. A limitation is placed on the amount of the fund and no performance pool is created if the transaction does not exceed industry averages. 36 NOTE 12 - PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
(in thousands) CONDENSED BALANCE SHEETS DECEMBER 31, 1995 1994 --------------------------- ASSETS Deposits with Bank Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . $330 $2,186 Deposits with Other Financial Institutions . . . . . . . . . . . . . . . . . . . . . . 234 125 Securities Purchased Under Agreements to Resell with Bank Subsidiary . . . . . . . . . 10,000 7,500 Securities Available-for-Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,248 8,554 Investment in Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313,609 258,344 Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 755 819 Excess of Cost Over Fair Value of Net Assets Acquired . . . . . . . . . . . . . . . . . 7,731 8,171 --------------------------- Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $341,907 $285,699 =========================== LIABILITIES AND STOCKHOLDERS' EQUITY Senior Note Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25,000 $25,000 Dividends Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,726 2,304 Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,336 3,472 Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309,845 254,923 --------------------------- Total Liabilities & Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . $341,907 $285,699 ===========================
(in thousands) CONDENSED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993 ------------------------------------------- INCOME Dividends from Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000 $8,300 $2,600 Net Securities Gains/(Losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,041 1,109 (295) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 745 345 298 ------------------------------------------- Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,786 9,754 2,603 ------------------------------------------- EXPENSE Interest on Long-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 1,901 1,966 2,582 Interest on Capital Note Payable to Bank Subsidiary . . . . . . . . . . . . . . . . - 129 363 Compensation & Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 113 172 328 Occupancy & Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 73 82 Merger & Related Restructure Charges . . . . . . . . . . . . . . . . . . . . . . . - 1,122 - Prepayment Penalty-Senior Notes Payable . . . . . . . . . . . . . . . . . . . . . . - 877 - Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,114 1,297 1,606 Amortization of Excess of Cost Over Fair Value of Net Assets Acquired . . . . . . . 440 440 440 ------------------------------------------- Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,603 6,076 5,401 ------------------------------------------- Income/(Loss) before Income Taxes and Equity in Undistributed Earnings of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,183 3,678 (2,798) Income Tax Expense/(Benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,022 (1,388) (2,227) Equity in Undistributed Earnings of Subsidiaries Bank Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,989 24,296 26,323 Non-Bank Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 310 (105) ------------------------------------------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $52,235 $29,672 $25,647 ===========================================
37
CONDENSED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993 -------------------------------------- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $52,235 $29,672 $25,647 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES: Depreciation and Amortization . . . . . . . . . . . . . . . . . . . . . . . . . 147 245 410 Amortization of Excess of Cost Over Fair Value of Net Assets Acquired . . . . . 440 440 440 Equity in Undistributed Earnings of Subsidiaries . . . . . . . . . . . . . . . (50,074) (24,606) (26,218) Net Securities (Gains)/Losses . . . . . . . . . . . . . . . . . . . . . . . . . (5,041) (1,109) 295 Other, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 479 1,236 (1,990) -------------------------------------- Net Cash (Used in)/Provided by Operating Activities . . . . . . . . . . . . . (1,814) 5,878 (1,416) -------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Sales of Securities Available-for-Sale . . . . . . . . . . . . . 20,963 3,819 17 Purchases of Securities Available-for-Sale . . . . . . . . . . . . . . . . . . (16,152) (10,266) - -------------------------------------- Net Cash Provided by/(Used in) Investing Activities . . . . . . . . . . . . . 4,811 (6,447) 17 -------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the Issuance of Senior Note Payable . . . . . . . . . . . . . . . - 25,000 - Repayments of Senior Notes Payable . . . . . . . . . . . . . . . . . . . . . . - (20,000) (20,000) Repayment of Other Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . - (3,250) (174) Purchase of Treasury Shares . . . . . . . . . . . . . . . . . . . . . . . . . . (1,316) (35) (45) Common Stock Sold for Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 11,297 3,696 19,260 Dividends Paid to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . (12,225) (7,030) (2,364) -------------------------------------- Net Cash Used in Financing Activities . . . . . . . . . . . . . . . . . . . . (2,244) (1,619) (3,323) -------------------------------------- Net Increase/(Decrease) in Cash and Cash Equivalents . . . . . . . . . . . . 753 (2,188) (4,722) Cash and Cash Equivalents at Beginning of Year . . . . . . . . . . . . . . . . . 9,811 12,665 17,387 Metro Activity for the Three Months Ended December 31, 1993 . . . . . . . . . . . - (666) - -------------------------------------- Cash and Cash Equivalents at End of Year . . . . . . . . . . . . . . . . . . . . $10,564 $9,811 $12,665 ======================================
NOTE 13 - REGULATORY MATTERS The Company is subject to the requirements of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). FDICIA imposes a number of mandatory supervisory measures on banks and thrift institutions. Among other matters, FDICIA established five capital categories (well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized). Such classifications are used by the FDIC and other bank regulatory agencies to determine matters ranging from each institution's semi-annual FDIC deposit insurance premium assessments, approvals of applications authorizing institutions to grow their asset size or otherwise expand business activities and to acquire other depository and non-depository institutions. Banks are generally required to maintain, for regulatory compliance and reporting purposes, regulatory defined minimum Leverage and Risk-based capital ratio levels at least 5% and 8%, respectively. The Company and the Bank are considered well capitalized in accordance with the requirements of FDICIA. Dividends from the Bank to the Company are limited by the regulations of the New York State Banking Department to the Bank's current year's earnings plus the prior two years' retained net profits. The Bank's dividend capability at January 1, 1996, pursuant to the regulations, was approximately $74.6 million. Certain of the Bank's deposits are insured under the Savings Association Insurance Fund (SAIF). In connection with a proposed merging of the SAIF with the Bank Insurance Fund (BIF), these SAIF insured deposits may be subject to a one-time assessment. The Bank's SAIF deposits aggregated approximately $900 million at December 31, 1995. Further, the pending acquisition of deposits from First Nationwide Bank (Note 2) are also insured under SAIF. These deposits aggregate approximately $600 million at December 31, 1995. The amount of assessment and approximate date of payment has not as yet been determined. The Bank, which is considered an OAKAR institution, may receive a reduction of the aggregate amount of the assessment. 38 NOTE 14 - OTHER COMMITMENTS AND CONTINGENT LIABILITIES (a) OFF-BALANCE SHEET RISKS The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are reflected in the consolidated financial statements when and if proceeds associated with the commitments are disbursed. The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. Management uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet financial instruments. Commitments to extend credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Management evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing properties. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. During 1994, the Company terminated its interest rate swap and cap contracts which were used as hedges against interest rate risk associated with certain securities available-for-sale. These contracts had an aggregate notional value of $99 million, and were terminated at a net gain of $.9 million. At December 31, 1995, and 1994, the Company had no interest rate swap or cap contracts outstanding. The notional principal amount of the off-balance sheet financial instruments at December 31, are as follows:
1995 1994 CONTRACT OR Contract or NOTIONAL Notional AMOUNT Amount (IN THOUSANDS) (in thousands) --------------------------------- Financial instruments whose contract amounts represent credit risk Commitments to extend credit . . . . . . . . . . . . . . . . . . . . . $189,529 $124,050 Standby letters of credit . . . . . . . . . . . . . . . . . . . . . . . 13,468 13,933
39 (b) LEASE COMMITMENTS At December 31, 1995, the Company was obligated under a number of non-cancelable leases for land and buildings that expire at various dates through August 2014. Minimum annual rental commitments , exclusive of taxes and other charges, under non-cancelable leases are summarized as follows:
Year Ended December 31, Minimum (in thousands) Rentals -------------------- 1996 . . . . . . . . . . . . . . . . . . . . . $3,364 1997 . . . . . . . . . . . . . . . . . . . . . 3,289 1998 . . . . . . . . . . . . . . . . . . . . . 2,653 1999 . . . . . . . . . . . . . . . . . . . . . 2,291 2000 . . . . . . . . . . . . . . . . . . . . . 1,927 Thereafter . . . . . . . . . . . . . . . . . . 9,768
Rent expense for the years ended December 31, 1995, 1994 and 1993 amounted to $2.4 million, $2.3 million and $2.0 million, respectively. (c) OTHER MATTERS The Bank is required to maintain balances with the Federal Reserve Bank of New York for reserve and clearing requirements. These balances averaged $22.3 million in 1995. The Company and its subsidiaries are subject to certain pending and threatened legal actions which arise out of the normal course of business. Management believes that the resolution of any pending or threatened litigation will not have a material adverse effect on its financial condition or results of operations. NOTE 15 - 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 based on relevant market information and information about the financial instrument. SFAS 107 has no effect on 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. 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,
(in thousands) 1995 1994 ------------------------------------------------------------ CARRYING ESTIMATED Carrying Estimated AMOUNT FAIR VALUE Amount Fair Value ------------------------------------------------------------ Cash and Cash Equivalents . . . . . . . . . $107,823 $107,823 $67,916 $67,916 Securities Held-to-Maturity . . . . . . . . 342,143 341,925 631,492 593,110 Securities Available-for-Sale . . . . . . . 814,485 814,485 141,805 141,805 ------------------------------------------------------------ Total Cash, Cash Equivalents and Securities $1,264,451 $1,264,233 $841,213 $802,831 ------------------------------------------------------------
LOANS Fair values are estimated for portfolios of loans with similar financial characteristics. The fair value of performing loans is calculated by discounting the estimated cash flows through its expected maturity or repricing using the current rates at which similar loans would be made to borrowers with similar credit risks. For 40 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, 1995 and 1994.
(in thousands) 1995 1994 ----------------------------------------------------------- CARRYING ESTIMATED Carrying Estimated AMOUNT FAIR VALUE Amount Fair Value ----------------------------------------------------------- Gross Loans . . . . . . . . . . . . . . . . $1,985,028 $1,970,175 $1,831,466 $1,747,761 ===========================================================
DEPOSIT LIABILITIES AND BORROWINGS The carrying amount for demand deposits, savings, N.O.W., money market accounts and borrowings with a term of 90 days or less are reasonable estimates of fair value. Fair value for certificates of deposit and longer term borrowings are estimated by discounting the future cash flows using the rates currently offered for deposits and borrowings of similar remaining maturities. The following table presents the carrying value and estimated fair value of the deposits and borrowings as of December 31,
(in thousands) 1995 1994 ---------------------------------------------------------- CARRYING ESTIMATED Carrying Estimated AMOUNT FAIR VALUE Amount Fair Value ---------------------------------------------------------- Demand Deposits . . . . . . . . . . . . . . $451,802 $451,802 $331,245 $331,245 Savings, N.O.W. and Money Market . . . . . 1,153,739 1,153,739 1,325,628 1,325,628 Certificates of Deposit . . . . . . . . . . 929,919 938,309 686,014 672,135 Borrowings with Terms of 90 Days or Less . 391,369 391,369 60,000 60,000 Borrowings with Terms Greater than 90 Days 35,000 36,761 35,000 33,678 ---------------------------------------------------------- Total Deposits and Borrowings . . . . . $2,961,829 $2,971,980 $2,437,887 $2,422,686 ==========================================================
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, 1995 and 1994, there was no significant unrealized appreciation or depreciation on these financial instruments. INTEREST RATE CAP, FLOOR AND SWAP AGREEMENTS In 1993, the Company entered into a variety of interest rate contracts including interest rate caps, floors and swaps to hedge against interest rate risk. During 1994, the Company terminated its interest rate swap and cap contract. The Company had no interest rate swap or cap contracts outstanding at December 31, 1995 and 1994. NOTE 16 - ACCOUNTING DEVELOPMENTS ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" ("SFAS 121"). This Statement establishes the accounting and reporting standards for the recognition of impairment on long-lived assets, certain identifiable intangibles, and goodwill related to those assets. SFAS 121 does not apply to financial instruments, long-term customer relationships of a financial institution (such as core deposit, intangibles, mortgage servicing rights and deferred tax assets, all of which are covered by existing accounting standards). SFAS 121 requires that an entity review long-lived assets, such as premises and equipment and other real estate owned, and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In these situations, an entity is required to 41 recognize an impairment loss if the sum of the estimated future cash flows, on an undiscounted basis, is less than the carrying amount of the asset. SFAS 121 is effective for fiscal years that begin after December 15, 1995. Management is currently assessing the financial implications of implementing SFAS 121 and believes that the adoption will not have a material adverse effect on its financial condition or results of operations. ACCOUNTING FOR MORTGAGE SERVICING RIGHTS In May 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS 122"). This Statement amends certain provisions of Statement of Financial Accounting Standards No. 65, "Accounting for Certain Mortgage Banking Activities " requiring an entity to capitalize the rights to service mortgage loans for others, whether those rights are acquired through loan origination activities or purchased from others. Additionally, SFAS 122 requires an entity to assess its capitalized mortgage servicing rights for impairment based on the fair value of those rights. SFAS 122 is effective for fiscal years that begin after December 15, 1995. Management is currently assessing the financial implications of implementing SFAS 122 and believes that it will not have a material adverse effect on its financial condition or results of operations. ACCOUNTING FOR STOCK BASED COMPENSATION In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"). This Statement establishes the financial accounting and reporting standards for employee stock-based compensation plans in which an employer grants shares of its stock or other equity instruments to employees except for employee stock ownership plans. SFAS 123 permits a company to choose either a new fair value based method or continue to follow the current arrangements under Accounting Principles Board Opinion No. 25 ("Opinion No. 25") practice in accounting for its stock-based compensation. SFAS 123 requires proforma disclosures of net income and earnings per share computed as if the fair value based method had been applied in financial statements of companies that continue to follow current practice in accounting for such arrangements under Opinion No. 25. SFAS 123 is effective for fiscal years that begin after December 15, 1995. Management will adopt SFAS 123 in 1996 and expects to continue to follow the current practice in accounting for such arrangements under Opinion No. 25. 42 INDEPENDENT AUDITORS' REPORT LLP KPMG Peat Marwick To the Stockholders and Board of Directors of North Fork Bancorporation, Inc.: We have audited the accompanying consolidated balance sheets of North Fork Bancorporation, Inc. and subsidiaries as of December 31, 1995 and 1994, the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of North Fork Bancorporation, Inc. management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of North Fork Bancorporation, Inc. and subsidiaries as of December 31, 1995 and 1994, the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in the Notes to the consolidated financial statements, North Fork Bancorporation, Inc. adopted Statement of Financial Accounting Standards Nos. 114 and 118 in 1995, No. 115 in 1994 and Nos. 106 and 109 in 1993. /s/ KPMG PEAT MARWICK LLP - - ------------------------- New York, New York January 16, 1996 43 REPORT OF MANAGEMENT Management of North Fork Bancorporation, Inc. is responsible for the preparation, content and integrity of the consolidated financial statements and all other information contained in this annual report. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and, where necessary, are based on management's best estimates and judgments. The financial information contained elsewhere in this annual report is consistent with that contained in the consolidated financial statements. North Fork Bancorporation, Inc.'s independent auditors have been engaged to perform an audit of the consolidated financial statements in accordance with generally accepted auditing standards and the independent auditors' report expresses their opinion as to the fair presentation of the consolidated financial statements in accordance with generally accepted accounting principles. North Fork Bancorporation, Inc. maintains an internal control structure that provides reasonable assurance that its accounting and administrative procedures and reporting practices are of the highest quality and integrity. Because of inherent limitations in any internal control structure, there can be no absolute assurance that errors or irregularities will not occur. Nevertheless, management believes that this structure provides reasonable assurance that assets are safeguarded and reliable financial records are maintained for preparing financial statements. An internal audit function is maintained to continually evaluate the adequacy and effectiveness of such internal controls, policies and procedures. The Board of Directors pursues its oversight role for the financial statements through the Audit Committee, which is composed entirely of outside directors. The Audit Committee meets periodically with management, the internal auditor and the independent auditor, to discuss the internal control structure and accounting, auditing and financial reporting matters. The Audit Committee reviews and approves the scope of internal and external audits, as well as recommendations made with respect to the internal control structure by the independent and internal auditors and the various regulatory agencies. /s/ John Adam Kanas - - ------------------- Chairman, President and Chief Executive Officer /s/ Daniel M. Healy - - ------------------- Executive Vice President and Chief Financial Officer EX-21 7 SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF REGISTRANT North Fork Bank North Fork Leasing Corp. North Fork Capital Corp. Compass Investment Services Corp. North Interim AcuData Service Corp. (inactive) SUBSIDIARIES OF NORTH FORK BANK NFB Development Corp. Cutchco Corp. First Settlers Corp. Claire Elm Corp. Howard Enterprises, Inc. North Fork Information Services, Inc. (inactive) North Fork Loan Service Corp. (inactive) Long Island Mortgage Corp. (inactive) Unified Management Corp. (inactive) CPS Service Corp. (inactive) East Quogue Health & Racquet Club, Inc. (inactive) Bay Advertising (inactive) BFS Service Corp. (inactive) Great Weston Realty Corp. (inactive) Bay Abstract (inactive) EX-23 8 CONSENT 1 EXHIBIT 23 ACCOUNTANTS CONSENT The Stockholders and Board of Directors North Fork Bancorporation, Inc.: We consent to the incorporation by reference in the Registration Statements (Nos. 2-80676, 2-80677, 2-99984, 33-14903, 33-34372, 33-52504, 33-53467, 333-00675, and 33-56743) on Form S-8 and (Nos. 33-42294 and 33-54222) on Form S-3 of North Fork Bancorporation, Inc. of our report dated January 16, 1996 relating to the consolidated balance sheets of North Fork Bancorporation, Inc. and subsidiaries as of December 31, 1995 and 1994 and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995, which report is incorporated by reference in the December 31, 1995 Annual Report on Form 10-K of North Fork Bancorporation, Inc. Our report refers to a change in the methods of accounting as discussed in the notes to those statements. /s/ KPMG PEAT MARWICK LLP ------------------------- New York, New York March 26, 1996 EX-27 9 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1995 DEC-31-1995 106476 1347 0 0 814485 342143 341925 1966440 50210 3303311 2535460 391369 31637 35000 0 0 62198 247647 3303311 172088 53418 892 226398 76296 85162 141236 9000 6379 68843 90714 90714 0 0 52235 2.13 2.13 5.18 31506 1088 31875 0 50069 12993 3642 50210 42901 0 7309
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