-----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, WtzJe036Jeu1whCRAL/GlhvgAkwwBVefmMtlELjRpc0B+gfAuGp41FZOxdedIhkP 9RzvNdivbBI1FxEcL2bHKQ== 0000950123-99-002677.txt : 19990330 0000950123-99-002677.hdr.sgml : 19990330 ACCESSION NUMBER: 0000950123-99-002677 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH FORK BANCORPORATION INC CENTRAL INDEX KEY: 0000352510 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 363154608 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-10458 FILM NUMBER: 99576123 BUSINESS ADDRESS: STREET 1: 275 BROAD HOLLOW RD STREET 2: PO BOX 8914 CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5168441004 MAIL ADDRESS: STREET 1: 275 BROAD HOLLOW RD STREET 2: PO BOX 8914 CITY: MELVILLE STATE: NY ZIP: 11747 10-K405 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, 1998 COMMISSION FILE NUMBER 1-10458 NORTH FORK BANCORPORATION, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 36-3154608 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 275 BROAD HOLLOW ROAD, MELVILLE, NEW YORK 11747 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) (516) 844-1004 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - ------------------- ----------------------------------------- COMMON STOCK, PAR NEW YORK STOCK EXCHANGE VALUE $2.50
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (X) Yes ( ) No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) As of March 25, 1999, there were 141,062,833 shares of the Registrant's common stock outstanding. The aggregate market value of the Registrant's common stock (based on the average stock price on March 25, 1999) held by non-affiliates was approximately $3,129,832,000. 1 2 DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference into the specified parts of this Annual Report: North Fork Bancorporation, Inc. 1998 Annual Report to Shareholders - Parts I, II and IV. North Fork Bancorporation, Inc. 1999 Definitive Proxy Statement for its annual meeting of Stockholders to be held on April 27, 1999- Part III CAUTIONARY STATEMENT UNDER FEDERAL SECURITIES LAWS: Certain statements contained in this Annual Report on Form 10-K may constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Words such are "expects," "believes," "should," "plans," "will," "estimates," and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future financial condition, performance or operations and involve certain risks and uncertainties that are difficult to quantify or, in some cases, to identify. Therefore, actual outcomes and results may differ materially from what is indicated or forecasted in such forward-looking statements. Factors that may cause or contribute to such differences include, among others, the following possibilities: (1) changes in economic or market conditions; (2) significantly increased competition in the banking and financial services industry; (3) changes in the interest rate environment, with reductions in bank margins; and (4) changes in state and federal regulation of banking institutions. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Registrant undertakes no obligation to revise or update these forward-looking statements to reflect the occurrence of unanticipated events. 2 3 PART I ITEM 1 - BUSINESS GENERAL DEVELOPMENT OF BUSINESS North Fork Bancorporation, Inc. (the "Registrant"), with its executive headquarters located in Melville, New York, is a bank holding company organized under the laws of the State of Delaware in 1980 and registered under the Bank Holding Company Act of 1956, as amended. The Registrant's primary subsidiary, North Fork Bank ("North Fork"), operates through 110 full-service retail banking facilities located in the New York metropolitan area. Its other bank subsidiary, Superior Savings of New England ("Superior"), formerly Branford Savings Bank, a Connecticut chartered savings bank located in the Connecticut county of New Haven, operates from one location where it currently conducts a telebanking operation focused on gathering deposits throughout the New England region. In June 1998, the Registrant completed its first non-bank acquisition with the purchase of Amivest Corporation ("Amivest"), a privately held investment management and broker/dealer firm located in New York City. At the date of acquisition, Amivest had approximately $700 million in assets under management. On March 27, 1998, New York Bancorp Inc. ("NYB"), the parent company of Home Federal Savings Bank ("Home"), was merged with and into the Registrant in a transaction treated as a tax-free reorganization and accounted for using the pooling-of-interests method of accounting. Pursuant to the merger agreement, the Registrant issued 39.9 million shares of its common stock to NYB shareholders, as adjusted, for the 3-for-2 stock split and simultaneously retired 12.7 million shares, as adjusted, of NYB's common stock held in treasury as of the merger date. NYB had $3.4 billion in total assets, $2.0 billion in net loans, $1.7 billion in deposit liabilities, $140.3 million in capital and operated 35 branches throughout Kings, Queens, Richmond, Nassau and Suffolk counties of New York. In anticipation of its merger with NYB, the Registrant enhanced its regulatory capital ratios through the issuance of $100 million of 8.0% Capital Pass-Through Securities ("Capital Securities") in December 1997. In December 1996, the Registrant also issued $100 million of 8.70% Capital Securities. At December 31, 1998, the carrying value of these Capital Securities qualified as Tier I capital. In December 1997, the Registrant acquired Superior, a Connecticut chartered savings bank, in a purchase transaction. At December 31, 1997, Superior had total assets of $179 million, deposits of $160 million, and stockholders' equity of $16.6 million. In October 1998, four of the five Superior branches and $67 million in deposit liabilities were sold for a deposit premium of 9%. The net gain on the sale of the branches was approximately $5.8 million and was utilized to reduce goodwill arising from the original purchase. In December 1996, North Side Savings Bank ("North Side") was merged with and into North Fork in a transaction accounted for as a tax-free reorganization and accounted for using the pooling-of-interests method of accounting. North Side had $1.6 billion in total assets, $1.2 billion in deposit liabilities, $124.4 million in capital and operated seventeen full-service banking facilities in the New York City boroughs of Bronx and Queens, as well as Nassau and Suffolk counties of New York. Pursuant to the merger agreement, the Registrant issued 22.7 million shares of its common stock to North Side shareholders. In March 1996, North Fork acquired the domestic commercial banking business of Extebank ("Extebank") in a purchase transaction. Extebank had $388 million in total assets, $200 million in net loans, $348 million in deposit liabilities, $30 million in capital and operated eight full-service banking facilities in the metropolitan New York area, including Manhattan. Additionally, in March 1996 North Fork acquired ten Long Island branches of First Nationwide Bank, and assumed $572 million of deposit liabilities for which it paid a deposit premium of 6.35%. 3 4 PART I (CONTINUED) ITEM 1 - BUSINESS (CONTINUED) GENERAL DEVELOPMENT OF BUSINESS (CONTINUED) In July 1995, the Registrant acquired Great Neck Bancorp, the parent company of Bank of Great Neck, ("Great Neck") in a purchase transaction. Great Neck had net assets of $91 million, including $49.4 million in net loans and $90.3 million in deposits. In November 1994, Metro Bancshares Inc. ("Metro"), the parent company of Bayside Federal Savings Bank ("Bayside"), was merged with and into the Registrant in a transaction accounted for using the pooling-of-interests method of accounting. Bayside had $1.0 billion in total assets, $.9 billion in deposit liabilities, $83.5 million in capital, and operated thirteen full-service banking facilities in the New York City borough of Queens, and Nassau and Suffolk counties of New York. Additionally, the Registrant operates other non-bank subsidiaries, none of which accounted for a significant portion of the Registrant's consolidated assets, nor contributed significantly to the Registrant's consolidated results of operations, at and for the year ended December 31, 1998. DESCRIPTION OF BUSINESS The Registrant, through its primary subsidiary North Fork and its investment management and broker/dealer subsidiaries, Compass Investment Services Corp ("Compass") and Amivest Corporation, provides a variety of banking and financial services to middle market and small business organizations, local governmental units, and retail customers in the New York metropolitan area. Additionally, the Registrant conducts a telebanking operation through its other bank subsidiary, Superior. The Registrant's major competitors across the entire line of its products and services are local branches of large money-center banks headquartered in New York City and other major commercial banks headquartered in New York State and elsewhere. North Fork also competes with other independent commercial banks in its marketplace for loans and deposits; with local savings and loan associations and savings banks for deposits and mortgage loans; with credit unions for deposits and consumer loans; with insurance companies and money market funds for deposits; and with local consumer finance organizations and the financing affiliates of consumer goods manufacturers (especially automobile manufacturers) for consumer loans. In setting rate structures for loan and deposit products, management refers to a wide variety of financial information and indices, including the rates charged or paid by the major money-center banks, both locally and in the commercial centers, and the rates fixed periodically by smaller, local competitors. Superior currently competes with financial institutions throughout the New England region for deposits. The Registrant and its subsidiaries, in their normal course of business, are subject to various regulatory statutes and guidelines. Additional information is set forth under the caption "Capital" (page 28) in Management's Discussion and Analysis and "Note 14 - Regulatory Matters" (pages 63 - 64) of the Registrant's 1998 Annual Report to Shareholders included as Exhibit 13 herewith and incorporated herein by reference. As of December 31, 1998, the Registrant and its consolidated subsidiaries had 1,687 full-time equivalent employees. ITEM 2 - PROPERTIES The executive and administrative offices of the Registrant and its bank subsidiaries are located at 275 Broad Hollow Road, Melville, New York. The Registrant currently leases 81,000 square feet of the facility, representing approximately 70% of its rentable space. North Fork maintains its data processing and operations center in a 44,900 square foot, owned facility, located at 9025 Main Road, Mattituck, New York. Superior operates from an owned facility, located at 45 South Main Street, Branford, Connecticut. 4 5 PART I (CONTINUED) ITEM 2 - PROPERTIES (CONTINUED) Amivest conducts its investment management and broker/dealer operations at 767 Fifth Avenue, New York, New York. Amivest currently leases space on the 50th floor of the building. At December 31, 1998, the Registrants' bank subsidiaries owned 59 of their branch offices (see "Note 6 Premises and Equipment" (page 52) of the Registrant's 1998 Annual Report to Shareholders included as Exhibit 13 herewith and incorporated herein by reference) and leased 59 branch offices under various lease arrangements expiring at various times through 2016 (see "Note 16 - Other Commitments and Contingent Liabilities (b) Lease Commitments" (page 66) of the Registrant's 1998 Annual Report to Shareholders included as Exhibit 13 herewith and incorporated herein by reference). The Registrant is also obligated under various other leases for facilities that have been vacated, as a result of its consolidation of operations following its merger and acquisition activities. The facilities owned or occupied under a lease are considered by management to be well located and suitably equipped to serve as banking and financial services facilities. ITEM 3 - LEGAL PROCEEDINGS The information required by this item is set forth in "Note 16 - Other Commitments and Contingent Liabilities (c) Other Matters" (page 66) of the Registrant's 1998 Annual Report to Shareholders included herewith as Exhibit 13 and incorporated herein by reference. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of shareholders during the fourth quarter of 1998. ITEM 4A - EXECUTIVE OFFICERS OF THE REGISTRANT The name, age, position and business experience during the past five years of each of the executive officers of the Registrant as of January 1, 1999, are presented in the following table. The officers are elected annually by the Board of Directors.
Name Age Positions Held in Most Recent 5 Years - ---- --- ------------------------------------- John A. Kanas 52 Chairman, President and Chief Executive Officer of the Registrant and North Fork, throughout the past five years. John Bohlsen 56 Vice Chairman of the Registrant and North Fork. Mr. Bohlsen also has been President of The Helm Development Corp., a real estate company, throughout the past five years. Thomas M. O'Brien 48 Vice Chairman of the Registrant and North Fork (since January 1997). Previously, Mr. O'Brien was Chairman, President and Chief Executive Officer of North Side Savings Bank. Daniel M. Healy 56 Executive Vice President and Chief Financial Officer of the Registrant and North Fork, throughout the past five years.
5 6 PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Registrant's common stock is traded on the New York Stock Exchange under the symbol NFB. As of March 23, 1999, there were 7,136 shareholders of record of the Registrant's common stock. For additional information regarding dividends and restrictions thereon, and market price information, refer to the "Selected Financial Data" (pages 12-13), and "Liquidity" (page 22) sections of Management's Discussion and Analysis, the "Selected Statistical Data" (page 35), and "Note 14 - Regulatory Matters" (page 63-64) of the Registrant's 1998 Annual Report to Shareholders included herewith as Exhibit 13 and incorporated herein by reference. ITEM 6 - SELECTED FINANCIAL DATA The information required by this item is set forth in "Selected Financial Data" (pages 12-13) of the Registrant's 1998 Annual Report to Shareholders included herewith as Exhibit 13 and incorporated herein by reference. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is set forth in "Management's Discussion and Analysis", (pages 14-34) of the Registrant's 1998 Annual Report to Shareholders included herewith as Exhibit 13 and incorporated herein by reference. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is set forth in Management's Discussion and Analysis, (pages 14-34) of the Registrant's 1998 Annual Report to Shareholders included herewith as Exhibit 13 and incorporated herein by reference. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is set forth under the captions "Selected Statistical Data" (page 35); the Consolidated Financial Statements (pages 36-41); the Notes to the Consolidated Financial Statements (pages 42-69); the Independent Auditors' Report (page 70); and the Report of Management (page 71) of the Registrant's 1998 Annual Report to Shareholders included herewith as Exhibit 13 and incorporated herein by reference. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in or disagreements with accountants on accounting and financial disclosure as defined in Item 304 of Regulation S-K. 6 7 PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is set forth under the caption "Election of Directors and Information with Respect to Directors and Officers" (pages 2-5) in the Registrant's Definitive Proxy Statement for its Annual Meeting of Stockholders to be held on Tuesday, April 27, 1999, which is incorporated herein by reference, and in Part I of this report under the caption Item 4A "Executive Officers of the Registrant". ITEM 11 - EXECUTIVE COMPENSATION The information required by this item is set forth under the captions "Compensation of Directors" (page 7), "Executive Compensation" (pages 8-28), and "Retirement Plans" (pages 28-29) in the Registrant's Definitive Proxy Statement for its Annual Meeting of Stockholders to be held April 27, 1999, which is incorporated herein by reference. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is set forth under the caption "Certain Beneficial Ownership" and "Nominees for Director and Directors Continuing in Office" (pages 2-5) in the Registrant's Definitive Proxy Statement for its Annual Meeting of Stockholders to be held April 27, 1999, which is incorporated herein by reference. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is set forth under the caption "Transactions with Directors, Executive Officers and Associated Persons" (page 29) in the Registrant's Definitive Proxy Statement for its Annual Meeting of Stockholders to be held April 27, 1999, which is incorporated herein by reference. 7 8 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The consolidated financial statements, including notes thereto, and financial schedules of the Registrant, required in response to this item as set forth in response to Part II, Item 8 of this Annual Report are incorporated herein by reference to the Registrant's 1998 Annual Report to Shareholders filed herewith as Exhibit 13.
1. Financial Statements Page No. Consolidated Statements of Income 36 Consolidated Balance Sheets 37 Consolidated Statements of Cash Flows 38-39 Consolidated Statements of Changes in Stockholders' Equity 40 Consolidated Statements of Comprehensive Income 41 Notes to Consolidated Financial Statements 42-69 Independent Auditors' Report 70 Report of Management 71
2. Financial Statement Schedules Schedules to the consolidated financial statements required by Article 9 of Regulation S-X and all other schedules to the consolidated financial statements of the Registrant have been omitted because they are either not required, are not applicable or are included in the consolidated financial statements or notes thereto, which are incorporated herein by reference to the Registrant's 1998 Annual Report to Shareholders filed herewith as Exhibit 13. 3. Exhibits The exhibits listed on the Exhibit Index page of this Annual Report are incorporated herein by reference or filed herewith as required by Item 601 of Regulation S-K (each management contract or compensatory plan or arrangement listed therein is identified). (b) Current Reports on Form 8-K filed during the fourth quarter of 1998 are as follows: On October 13, 1998, the Registrant filed a Current Report stating that it had issued a press release regarding its third quarter and year-to-date 1998 financial results. On October 19, 1998, the Registrant filed a Current Report stating that it completed the sale of four of its five Branford Savings Bank branches and that it had, simultaneously, changed Branford's name to Superior Savings of New England. 8 9 Pursuant to the requirements of Section 13 or 15(d) of this Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NORTH FORK BANCORPORATION, INC. BY: /s/ John A. Kanas ----------------- JOHN A. KANAS President and Chief Executive Officer Dated: March 24, 1999 10 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- /s/ John A. Kanas Chairman of the Board, March 25, 1999 - ----------------- President and Chief Executive John A. Kanas Officer (Principal Executive Officer) /s/ Daniel M. Healy Executive Vice President and March 25, 1999 - ------------------- Chief Financial Officer Daniel M. Healy (Principal Accounting Officer) /s/ John Bohlsen Director March 25, 1999 - ---------------- Vice Chairman of the Board John Bohlsen /s/ Thomas M. O'Brien Director March 25, 1999 - --------------------- Vice Chairman of the Board Thomas M. O'Brien /s/ Irvin L. Cherashore Director March 24, 1999 - ----------------------- Irvin L. Cherashore /s/ Allan C. Dickerson Director March 24, 1999 - ---------------------- Allan C. Dickerson /s/ Lloyd A. Gerard Director March 25, 1999 - ------------------- Lloyd A. Gerard /s/ Patrick E. Malloy III Director March 24, 1999 - ------------------------- Patrick E. Malloy III /s/ James F. Reeve Director March 24, 1999 - ------------------ James F. Reeve /s/ George H. Rowsom Director March 24, 1999 - -------------------- George H. Rowsom /s/ Dr. Kurt R. Schmeller Director March 24, 1999 - ------------------------- Dr. Kurt R. Schmeller /s/ Raymond W. Terry, Jr. Director March 24, 1999 - ------------------------- Raymond W. Terry, Jr.
11 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION METHOD OF FILING - ------ ----------- ---------------- 3.1 Articles of Incorporation of North Previously filed on Form S-3 dated, August 16, Fork Bancorporation, Inc. 1991 as Exhibit 4(b) (Registration No. 33-42294) and incorporated herein by reference. 3.2 By-Laws of North Fork Bancorporation, Filed herewith. Inc., as amended, effective October 29, 1998. 4.1 Rights Agreement dated February 28, Previously filed on Form 8-A, dated March 21, 1989, between North Fork Bancorporation, 1989 as Exhibit 1. Inc. and North Fork Bank, as rights agent. 4.2 Prospectus included in the North Fork Previously filed with Post-Effective Amendment Capital Trust I offer to exchange its No. 1 to the Registrants' registration statement on 8.70% Capital Trust Pass-Through Form S-4, dated May 2, 1997 (Registration No. Securities, which have been registered 333-24419) and incorporated herein by reference. under the Securities Act of 1933 for all of its outstanding 8.70% original Capital Trust Pass-Through Securities. 4.3 Prospectus for North Fork Capital Previously filed with Post-Effective Amendment Trust II issuance of Capital Trust No. 1 to the Registrants' registration statement on Pass-Through Securities. Form S-3, dated November 21, 1997 (Registration No. 333-40311) and incorporated herein by reference. 4.4 Prospectus for the issuance of Previously filed on Form S-3 dated, June 15, 1998 common shares in connection (Registration No. 333-56913) and incorporated with the acquisition of Amivest herein by reference. Corporation. 10.1 North Fork Bancorporation, Inc. Previously filed with Post-Effective Amendment Dividend Reinvestment and Stock No. 1 to the Registrant's registration statement on Purchase Plan, as amended. Form S-3, dated May 16, 1995 (Registration No. 33-54222) and incorporated herein by reference. 10.2(a) North Fork Bancorporation, Inc. Previously filed on Form S-8, dated August 29, 1985 Incentive Stock Option Plan. 1995 (Registration No. 2-99984) and incorporated herein by reference. 10.3(a) North Fork Bancorporation, Inc. Previously filed on Form S-8, dated June 12, 1987 1987 Long Term Incentive Plan. (Registration No. 33-14903) and incorporated herein by reference. 10.4(a) North Fork Bancorporation, Inc. Previously filed on Form S-8, dated April 1989 Executive Management 17, 1990 (Registration No. 33-34372) and Compensation Plan. incorporated herein by reference.
12 EXHIBIT INDEX (CONTINUED)
EXHIBIT NUMBER DESCRIPTION METHOD OF FILING - ------ ----------- ---------------- 10.5(a) North Fork Bancorporation, Inc. Previously filed on Form S-8, dated September 28, 401(k) Retirement Savings Plan, 1992 (Registration No. 33-52504) as amended by as amended. Exhibit 4 to the Registrant's Registration Statement on Form S-8 dated February 2, 1996 (Registration No. 333-00675) and incorporated herein by reference. 10.6(a) North Fork Bancorporation, Inc. Previously filed on Form S-8, dated May 4, 1994 1994 Key Employee Stock Plan. (Registration No. 33-53467), as amended by the filing of Form S-8 dated June 7, 1996 (Registration No. 333-05513) and incorporated herein by reference. 10.7(a) North Fork Bancorporation, Inc. Previously filed on Form S-8, dated December 31, Long-Term Incentive Capital 1996 (Registration No. 333-19047) and Accumulation Plan resulting incorporated herein by reference. from the merger with North Side Savings Bank. 10.8(a) North Fork Bancorporation, Inc. Previously filed on Form 10-K for the year Performance Plan. ended December 31, 1994, dated March 28, 1995, as Exhibit 10.9 and incorporated herein by reference. 10.9(a) Form of Change-in-Control Previously filed as Exhibit 10.2 to the Quarterly Agreement, as entered into between Report on Form 10-Q for the quarter ended North Fork Bancorporation, Inc. March 31, 1995, and incorporated herein by and each of John A. Kanas, John reference. Bohlsen and Daniel M. Healy, each dated December 20, 1994. 10.10(a) Form of Change-in-Control Previously filed on Form 10-K for the year ended Agreement, as entered into between December 31, 1996, dated March 25, 1997 as North Fork Bancorporation, Inc. Exhibit 10.12(a) and incorporated herein by and Thomas M. O'Brien dated reference. December 31, 1996. 10.11(a) Form of Employment Agreement, Previously filed a Form 10-K for the year ended as entered into between North December 31, 1996, dated March 25, 1997 as Fork Bancorporation, Inc. and Exhibit 10.13(a) and incorporated herein by Thomas M. O'Brien, dated reference. December 31, 1996. 10.12 Amended and Restated Agreement Previously filed as Annex A to the Joint Proxy and Plan of Merger, dated as of Statement - Prospectus contained in the October 7, 1997, between North Registrant's registration statement on Form S-4, Fork Bancorporation, Inc. and dated December 17, 1997 (Registration No. 333- New York Bancorp, Inc. 42515) and incorporated herein by reference.
13 EXHIBIT INDEX (CONTINUED)
EXHIBIT NUMBER DESCRIPTION METHOD OF FILING - ------ ----------- ---------------- 10.13 Agreement and Plan of Merger by Previously filed as Annex A to the Registrant's and among North Fork Bancorporation, registration statement on Form S-4, effective Inc., merger bank, and Branford Savings November 7, 1997 (Registration No. 333-35111) Bank, dated July 24, 1997. and incorporated herein by reference 10.14(a) North Fork Bancorporation, Inc. 1997 Previously filed on Form S-8, dated June 8, 1998 Non-Officer Stock Plan. (Registration No. 333-56329) and incorporated herein by reference. 10.15(a) North Fork Bancorporation, Inc. 1998 Previously filed on Form S-8, dated March 19, Stock Compensation Plan. 1999 (Registration No. 333-74713) and incorporated herein by reference. 10.16(a) Form of consulting agreement, as entered Filed herewith. into between North Fork Bancorporation, Inc. and Patrick E. Malloy, III dated March 27, 1998. 11 Statement re: Computation of Filed herewith. earnings per share. 13 Pages 11 through 72 of the Registrant's Filed herewith. 1998 Annual Report to Shareholders that are incorporated herein by reference. 21 Subsidiaries of Registrant. Filed herewith. 23 Accountants' Consent. Filed herewith. 27 Financial Data Schedule. Only included in electronic filing. (a) Management contract or compensatory plan or arrangement.
EX-3.2 2 BY-LAWS OF NORTH FORK BANCORPORATION, INC. 1 EXHIBIT 3.2 BY-LAWS OF NORTH FORK BANCORPORATION, INC. (A Delaware Corporation) 2 TABLE OF CONTENTS Section Page - ------- ---- ARTICLE I OFFICES ............................................................................. 1 ARTICLE II STOCKHOLDERS Section 1. Annual Meetings; Special Meetings ............................... 1 Section 2. Action without a Meeting ........................................ 1 Section 3. Notice of Meetings .............................................. 1 Section 4. Waiver of Notice ................................................ 2 Section 5. Fixing of Record Date ........................................... 2 Section 6. Quorum .......................................................... 2 Section 7. Conduct of Meetings ............................................. 2 Section 8. Voting .......................................................... 2 Section 9. Proxies ......................................................... 3 ARTICLE III CAPITAL STOCK Section 1. Certificates of Stock ........................................... 3 Section 2. Registration and Transfer of Shares ............................. 3 Section 3. Holder of Record ................................................ 4 ARTICLE IV BOARD OF DIRECTORS Section 1. Responsibilities; Number of Directors ........................... 4 Section 2. Term of Office .................................................. 4 Section 3. Qualifications .................................................. 4 Section 4. Mandatory Retirement ............................................ 4 Section 5. Regular and Annual Meetings ..................................... 4 Section 6. Special Meetings ................................................ 5 (i) 3 Section Page - ------- ---- Section 7. Notice of Special Meetings; Waiver Of Notice ................... 5 Section 8. Presence at Meetings by Conference Telephone ................... 5 Section 9. Quorum and Voting Requirements ................................. 5 Section 10. Removal ........................................................ 6 Section 11. Vacancies ...................................................... 6 ARTICLE V COMMITTEES Section 1. Membership ..................................................... 6 Section 2. Executive Committee ............................................ 7 Section 3. Examining Committee ............................................ 7 Section 4. Meetings of Committees; Quorum ................................. 7 ARTICLE VI OFFICERS Section 1. Identification; Election; Term; Compensation ................... 7 Section 2. Chairman of the Board .......................................... 8 Section 3. Vice Chairman of the Board ..................................... 8 Section 4. President ...................................................... 8 Section 5. Executive and Senior Vice President(s) ......................... 8 Section 6. Secretary ...................................................... 8 Section 7. Auditor ........................................................ 9 Section 8. Bonded ......................................................... 9 Section 9. Conveyances .................................................... 9 ARTICLE VII DIVIDENDS ............................................................................ 9 ARTICLE VIII INDEMNIFICATION Section 1. Indemnification of Officers and Directors ...................... 9 Section 2. Indemnification of Other Persons ............................... 10 Section 3. Indemnification for Certain Regulatory Matters ................. 10 Section 4. Insurance ...................................................... 11 (ii) 4 Section Page - ------- ---- ARTICLE IX MISCELLANEOUS Section 1. Depositories ................................................... 11 Section 2. Banking Hours. ................................................. 11 Section 3. Emergencies .................................................... 11 Section 4. Corporate Seal ................................................. 11 Section 5. Rules of Procedure ............................................. 11 Section 6. Rules and Regulations .......................................... 11 ARTICLE X AMENDMENTS ........................................................................... 12 (iii) 5 BY-LAWS OF NORTH FORK BANCORPORATION, INC. (A Delaware Corporation) ------------------------------------------------------------ ARTICLE 1 DEFINITIONS As used in these By-laws, unless the context otherwise requires, the term: 1.1 "Assistant Secretary" means an Assistant Secretary of the Corporation. 1.2 "Assistant Treasurer" means an Assistant Treasurer of the Corporation. 1.3 "Board" means the Board of Directors of the Corporation. 1.4 "By-laws" means the initial by-laws of the Corporation, as amended from time to time. 1.5 "Certificate of Incorporation" means the initial certificate of incorporation of the Corporation, as amended, supplemented or restated from time to time. 1.6 "Chairman" means Chairman of the Board of the Corporation. 1.7 "Corporation" means North Fork Bancorporation, Inc. 1.8 "Directors" means directors of the Corporation. 1.9 "General Corporation Law" means the General Corporation Law of the State of Delaware, as amended from time to time. 1.10 "Office of the Corporation" means the executive office of the Corporation, anything in Section 131 of the General Corporation Law to the contrary notwithstanding. 1.11 "President" means the President of the Corporation. 1.12 "Secretary" means the Secretary of the Corporation. 6 1.13 "Stockholders" means stockholders of the Corporation. 1.14 "Total number of directors" means the total number of directors determined in accordance with Section 141(b) of the General Corporation Law and Section 3.2 of the By-Laws. 1.15 "Treasurer" means the Treasurer of the Corporation. 1.16 "Vice President" means a Vice President of the Corporation. 1.17 "Whole Board" means the total number of directors of the Corporation. ARTICLE 2 STOCKHOLDERS 2.1 Place of Meeting. Every meeting of stockholders shall be held at the office of the Corporation or at such other place within or without the State of Delaware as shall be specified or fixed in the notice of such meeting or in the waiver or notice thereof. 2.2 Annual Meeting. A meeting of stockholders shall be held annually for the election of directors and the transaction of other business at such hour and on such business day in March, April or May as may be determined by the Board and designated in the notice of meeting. 2.3 Deferred Meeting for Election of Directors, Etc. If the annual meeting of stockholders for the election of directors and the transaction of other business is not held within the months specified in Section 2.2, the Board shall call a meeting of stockholders for the election of directors and the transaction of other business as soon thereafter as convenient. 2.4 Other Special Meetings. A special meeting of stockholders (other than a special meeting for the election of directors), unless otherwise prescribed by statute, may be called at any time by the Board, by the Chairman or by the President. At any special meeting of stockholders only such business may be transacted as is related to the purpose or purposes of 2 7 such meeting set forth in the notice thereof given pursuant to Section 2.6 of the By-laws or in any waiver of notice thereof given pursuant to Section 2.7 of the By-laws. 2.5 Fixing Record Date. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or for the purpose of determining stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix, in advance, a date as the record date for any such determination of stockholders. Such date shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no such record date is fixed: 2.5.1 The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; 2.5.2 The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is expressed; 2.5.3 The record date for determining stockholders for any purpose other than those specified in Sections 2.5.1 and 2.5.2 shall be at the close of business on the day on which the Board adopts the resolution relating thereto. When a determination of stockholders entitled to notice of or to vote at any meeting of stockholders has been made as provided in this Section 2.5, such determination shall apply to any adjournment thereof, unless the Board fixes a new record date for the adjourned meeting. 3 8 2.6 Notice of Meetings of Stockholders. (The provisions of Section 2.6 of Article 2 are hereby stricken in their entirety and the following substituted in their place by approval of the Board of Directors on October 29, 1998) Except as otherwise provided in Sections 2.5 and 2.7 of the By-laws, whenever under the General Corporation Law or the Certificate of Incorporation or the By-laws, stockholders are required or permitted to take any action at a meeting, written notice shall be given stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. A copy of the notice of any meeting shall be given, personally or by mail, not less than ten nor more than sixty days before the date of the meeting, to each stockholder entitled to notice of or to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, with postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. An affidavit of the Secretary or an Assistant Secretary or of the transfer agent of the Corporation that the notice required by this section has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, and at the adjourned meeting any business may be transacted that might have been transacted at the meeting as originally called. If, however, the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or 4 9 any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Company (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.6 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 2.6. In addition to any other application requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Company. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Company not less than forty-five (45) days nor more than ninety (90) days prior to the anniversary date of the date on which the Company first mailed its proxy materials for the preceding annual meeting of stockholders; provided, however, that in the event the annual meeting is called for a date that is not within thirty (30) days before or after the anniversary date of the prior year's annual meeting of stockholders, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which notice of the date of the annual meeting is first mailed or public disclosure of the date of the annual meeting is first made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or 5 10 understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or proxy at the annual meeting to bring such business before the meeting. No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 2.6, provided, however, that once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 2.6 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. 2.7 Waivers of Notice. Whenever notice is required to be given to any stockholder under any provision of the General Corporation Law or the Certificate of Incorporation or the By-laws, a written waiver thereof, signed by the stockholder entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a stockholder at a meeting shall constitute a waiver of notice of such meeting, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice. 2.8 List of Stockholders. The Secretary shall prepare and make, or cause to be prepared and made, at least ten days before every meeting of stockholders, a complete list of the 6 11 stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 2.9 Quorum of Stockholders; Adjournment. The holders of a majority of the shares of stock entitled to vote at any meeting of stockholders, present in person or represented by proxy, shall constitute a quorum for the transaction of any business at such meeting. When a quorum is once present to organize a meeting of stockholders, it is not broken by the subsequent withdrawal of any stockholders. The holders of a majority of the shares of stock present in person or represented by proxy at any meeting of stockholders, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. 2.10 Voting; Proxies. Unless otherwise provided in the Certificate of Incorporation, every stockholder of record shall be entitled at every meeting of stockholders to one vote for each share of capital stock standing in his name on the record of stockholders determined in accordance with Section 2.5 of the By-laws. If the Certificate of Incorporation provides for more or less than one vote for any share, on any matter, every reference in the By-laws or the General Corporation Law to a majority or other proportion of stock shall refer to such majority or other proportion of the votes of such stock. The provisions of Sections 212 and 217 of the General Corporation Law shall apply in determining whether any shares of capital stock may be voted and the persons, if any, entitled to vote such shares; but the Corporation shall be protected in 7 12 treating the persons in whose names shares of capital stock stand on the record of stockholders as owners thereof for all purposes. At any meeting of stockholders (at which a quorum was present to organize the meeting), all matters, except as otherwise provided by law or by the Certificate of Incorporation or by the By-laws, shall be decided by a majority of the votes cast at such meeting by the holders of shares present in person or represented by proxy and entitled to vote thereon, whether or not a quorum is present when the vote is taken. All elections of directors shall be by written ballot unless otherwise provided in the Certificate of Incorporation. In voting on any other question on which a vote by ballot is required by law or is demanded by any stockholder entitled to vote, the voting shall be by ballot. Each ballot shall be signed by the stockholder voting or by his proxy, and shall state the number of shares voted. On all other questions, the voting may be viva voce. Every stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy. The validity and enforceability of any proxy shall be determined in accordance with Section 212 of the General Corporation Law. 2.11 Selection and Duties of Inspectors at Meetings of Stockholders. The Board, in advance of any meeting of stockholders, may appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed, the person presiding at such meeting may, and on the request of any stockholder entitled to vote thereat shall, appoint one or more inspectors. In case any person appointed fails to appear or act, the vacancy may be filled by appointment made by the Board in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspector or inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the 8 13 meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting or any stockholder entitled to vote thereat, the inspector or inspectors shall make a report in writing of any challenge, question or matter determined by him or them and execute a certificate of any fact found by him or them. Any report or certificate made by the inspector or inspectors shall be prima facie evidence of the facts stated and of the vote as certified by him or them. 2.12 Organization. At every meeting of stockholders, the Chairman, or in the absence of the Chairman, the President, shall act as chairman of the meeting. The Secretary, or in his absence one of the Assistant Secretaries, shall act as secretary of the meeting. In case none of the officers above designated to act as chairman or secretary of the meeting, respectively, shall be present, a chairman or a secretary of the meeting, as the case may be, shall be chosen by a majority of the votes cast at such meeting by the holders of shares of capital stock present in person or represented by proxy and entitled to vote at the meeting. 2.13 Order of Business. The order of business at all meetings of stockholders shall be as determined by the chairman of the meeting, but the order of business to be followed at any meeting at which a quorum is present may be changed by a majority of the votes cast at such meeting by the holders of shares of capital stock present in person or represented by proxy and entitled to vote at the meeting. 2.14 Written Consent of Stockholders Without a Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required by the General Corporation Law to be taken at any annual or special meeting of stockholders of the Corporation, or any action 9 14 which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. (2.15 Consideration of Submission of Tender Offers to Stockholder Vote See Exhibit I attached Amendment to By-laws dated January 18, 1984) ARTICLE 3 DIRECTORS 3.1 General Powers. Except as otherwise provided in the Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board. The Board may adopt such rules and regulations, not inconsistent with the Certificate of Incorporation or the By-laws or applicable laws, as it may deem proper for the conduct of its meetings and the management of the Corporation. In addition to the powers expressly conferred by the By-laws, the Board may exercise all powers and perform all acts which are not required, by the By-laws or the Certificate of Incorporation or by law, to be exercised and performed by the stockholders. 3.2 Number; Qualification; Term of Office. (See Exhibit II-Amendments to By-laws dated March 21, 1984 & July 26, 1988) The Board shall consist of five or more members. The total number and classes of directors shall be fixed initially by the incorporator. Thereafter, the total number of directors may be changed from time to time by vote of the total number of 10 15 directors then in office. Each director shall hold office until his successor is elected and qualified or until his earlier death, resignation or removal, or reaching age 70. 3.3 Election. (See Exhibit III-Amendment to By-laws dated July 28, 1992) Directors shall, except as otherwise required by law or by the Certificate of Incorporation, be elected by a plurality of the votes cast at a meeting of stockholders by the holders of shares entitled to vote in the election. 3.4 Newly Created Directorships and Vacancies. Unless otherwise provided in the Certificate of Incorporation, newly created directorships resulting from an increase in the number of directors and vacancies occurring in the Board for any other reason may be filled by vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director, or may be elected by a plurality of the votes cast by the holders of shares of capital stock entitled to vote in the election at a special meeting of stockholders called for that purpose. No change in the total number of directors or filling of newly created or vacant directorships shall affect the class of any director in office prior to such increase or filling. A director elected to fill a vacancy shall be elected to hold office until his successor is elected and qualified, or until his earlier death, resignation or removal, or reaching age 70. 3.5 Resignations. Any director may resign at any time by written notice to the Corporation. Such resignation shall take effect at the time therein specified, and, unless otherwise specified, the acceptance of such resignation shall not be necessary to make it effective. 3.6 Removal of Directors. Subject to the provisions of Section 141(1) of the General Corporation Law, any or all of the directors may be removed by the holders of a majority of the shares then entitled to vote at an election of directors. 11 16 3.7 Compensation. Each director, in consideration of his service as such, shall be entitled to receive from the Corporation such amount per annum or such fees for attendance at directors' meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable expenses incurred by him in connection with the performance of his duties. Each director who shall serve as a member of any committee of directors in consideration of his serving as such shall be entitled to such additional amount per annum or such fees for attendance at committee meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable expenses incurred by him in the performance of his duties. Nothing contained in this section shall preclude any director from serving the Corporation or its subsidiaries in any other capacity and receiving proper compensation therefor. 3.8 Place and Time of Meetings of the Board. Meetings of the Board, regular or special, may be held at any place within or without the State of Delaware. The times and places for holding meetings of the Board may be fixed from time to time by resolution of the Board or (unless contrary to resolution of the Board) in the notice of the meeting. 3.9 Annual Meetings. On the day when and at the place where the annual meeting of stockholders for the election of directors is held, and as soon as practicable thereafter, the Board may hold its annual meeting, without notice of such meeting, for the purposes of organization, the election of officers and the transaction of other business. The annual meeting of the Board may be held at any other time and place specified in a notice given as provided in Section 3.11 of the By-laws for special meetings of the Board or in a waiver of notice thereof. 3.10 Regular Meetings. Regular meetings of the Board may be held at such times and places as may be fixed from time to time by the Board. Unless otherwise required by the Board, regular meetings of the Board may be held without notice. If any day fixed for a regular meeting 12 17 of the Board shall be a Saturday or Sunday or a legal holiday at the place where such meeting is to be held, then such meeting shall be held at the same hour at the same place on the first business day thereafter which is not a Saturday, Sunday or legal holiday. 3.11 Special Meetings. Special meetings of the Board shall be held whenever called by the Chairman or the President or by any two or more directors. Notice of each special meeting of the Board shall, if mailed, be addressed to each director at the address designated by him for that purpose or, if none is designated, at his last known address at least two days before the date on which the meeting is to be held; or such notice shall be sent to each director at such address by telegraph, cable or wireless, or be delivered to him personally, not later than the day before the date on which such meeting is to be held. Every such notice shall state the time and place of the meeting but need not state the purposes of the meeting, except to the extent required by law. If mailed, each notice shall be deemed given when deposited, with postage thereon prepaid, in a post office or official depository under the exclusive care and custody of the United States post office department. Such mailing shall be by first class mail. 3.12 Adjourned Meetings. A majority of the directors present at any meeting of the Board, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. Notice of any adjourned meeting of the Board need not be given to any director whether or not present at the time of the adjournment. Any business may be transacted at any adjourned meeting that might have been transacted at the meeting as originally called. 3.13 Waiver of Notice. Whenever notice is required to be given to any director or member of a committee of directors under any provision of the General Corporation Law or of the Certificate of Incorporation or By-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to 13 18 notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice. 3.14 Organization. At each meeting of the Board, the Chairman of the Corporation, or in the absence of the Chairman, the President of the Corporation, or in his absence, a chairman chosen by a majority of the directors present, shall preside. The Secretary shall act as secretary at each meeting of the Board. In case the Secretary shall be absent from any meeting of the Board, an Assistant Secretary shall perform the duties of secretary at such meeting; and in the absence from any such meeting of the Secretary and all Assistant Secretaries, the person presiding at the meeting may appoint any person to act as secretary of the meeting. 3.15 Quorum of Directors. A majority of the total number of directors shall constitute a quorum for the transaction of business or of any specified item of business at any meeting of the Board. 3.16 Action by the Board. All corporate action taken by the Board or any committee thereof shall be taken at a meeting of the Board, or of such committee, as the case may be, except that any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or of such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which 14 19 all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 3.16 shall constitute presence in person at such meeting. Except as otherwise provided by the Certificate of Incorporation or by law, the vote of a majority of the directors present (including those who participate by means of conference telephone or similar communications equipment) at the time of the vote, if a quorum is present at such time, shall be the act of the Board. ARTICLE 4 COMMITTEES OF THE BOARD The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-laws of the Corporation; and, unless the resolution designating 15 20 it expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. ARTICLE 5 OFFICERS 5.1 Officers. The Board shall elect a Chairman, a President, a Secretary and a Treasurer, and may elect or appoint one or more vice Presidents and such other officers as it may determine. The Board may designate one or more Vice Presidents as Executive Vice Presidents, and may use descriptive words or phrases to designate the standing, seniority or area of special competence of the Vice Presidents elected or appointed by it. Each officer shall hold his office until his successor is elected and qualified or until his earlier death, resignation or removal in the manner provided in Section 5.2 of the By-laws. Any two or more offices may be held by the same person. The Board may require any officer to give a bond or other security for the faithful performance of his duties, in such amount and with such sureties as the Board may determine. All officers as between themselves and the Corporation shall have such authority and perform such duties in the management of the Corporation as may be provided in the By-laws or as the Board may from time to time determine. 5.2 Removal of Officers. Any officer elected or appointed by the Board may be removed by the Board with or without cause. The removal of an officer without cause shall be without prejudice to his contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. 5.3 Resignations. Any officer may resign at any time by so notifying the Board or the President or the Secretary in writing. Such resignation shall take effect at the date of receipt of such notice or at such later time as is therein specified, and, unless otherwise specified, the 16 21 acceptance of such resignation shall not be necessary to make it effective. The resignation of an officer shall be without prejudice to the contract rights of the Corporation, if any. 5.4 Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled for the unexpired portion of the term in the manner prescribed in the By-laws for the regular election or appointment to such office. 5.5 Compensation. Salaries or other compensation of the officers may be fixed from time to time by the Board. No officer shall be prevented from receiving a salary or other compensation by reason of the fact that he is also a director. 5.6 Chairman. The Chairman shall preside at each meeting of the stockholders and the Board of the Corporation. He may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts and other instruments, except in cases where the signing and execution thereof shall be expressly delegated by the Board or by the By-laws to some other officer or agent of the Corporation, or shall be required by law otherwise to be signed or executed; and, in general, he shall perform all duties incident to the Office of Chairman and such other duties as from time to time may be assigned to him by the Board. 5.7 President. The President shall be the chief executive officer of the Corporation and shall have general supervision over the business of the Corporation, subject, however, to the control of the Board and of any duly authorized committee of directors. The President shall, if present, in absence of the Chairman, preside at all meetings of the stockholders and at all meetings of the Board. He may, with the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer, sign certificates for shares of capital stock of the Corporation. He may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts and other instruments, except in cases where the signing and execution thereof shall be expressly delegated by the Board or by the By-laws to some other officer or agent of the Corporation, or shall be 17 22 required by law otherwise to be signed or executed; and, in general, he shall perform all duties incident to the office of President and such other duties as from time to time may be assigned to him by the Board. 5.8 Vice Presidents. At the request of the President, or, in his absence, at the request of the Board, the Vice Presidents shall (in such order as may be designated by the Board or, in the absence of any such designation, in order of seniority based on age) perform all of the duties of the President and so acting shall have all the powers of and be subject to all restrictions upon the President. Any Vice President may also, with the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer, sign certificates for shares of capital stock of the Corporation; may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments authorized by the Board, except in cases where the signing and execution thereof shall be expressly delegated by the Board or by the By-laws to some other officer or agent of the Corporation, or shall be required by law otherwise to be signed or executed; and shall perform such other duties as from time to time may be assigned to him by the Board or by the President. 5.9 Secretary. The Secretary, if present, shall act as secretary of all meetings of the stockholders and of the Board, and shall keep the minutes thereof in the proper book or books to be provided for that purpose; he shall see that all notices required to be given by the Corporation are duly given and served; he may, with the President or a Vice President, sign certificates for shares of capital stock of the Corporation; he shall be custodian of the seal of the Corporation and may seal with the seal of the Corporation, or a facsimile thereof, all certificates for shares of capital stock of the Corporation and all documents the execution of which on behalf of the Corporation under its corporate seal is authorized in accordance with the provisions of the By-laws; he shall have charge of the stock ledger and also of the other books, records and papers of 18 23 the Corporation relating to its organization and management as a Corporation, and shall see that the reports, statements and other documents required by law are properly kept and filed; and shall, in general, perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board or by the President. 5.10 Treasurer. The Treasurer shall have charge and custody of, and be responsible for, all funds, securities and notes of the Corporation; receive and give receipts for moneys due and payable to the Corporation from any sources whatsoever; deposit all such moneys in the name of the Corporation in such banks, trust companies or other depositaries as shall be selected in accordance with these By-laws; against proper vouchers, cause such funds to be disbursed by checks or drafts on the authorized depositaries of the Corporation signed in such manner as shall be determined in accordance with any provisions of the By-laws, and be responsible for the accuracy of the amounts of all moneys so disbursed; regularly enter or cause to be entered in books to be kept by him or under his direction full and adequate account of all moneys received or paid by him for the account of the Corporation; have the right to require, from time to time, reports or statements giving such information as he may desire with respect to any and all financial transactions of the Corporation from the officers or agents transacting the same; render to the President or the Board, whenever the President or the Board, respectively, shall require him so to do, an account of the financial condition of the Corporation and of all his transactions as Treasurer; exhibit at all reasonable times his books of account and other records to any of the directors upon application at the office of the Corporation where such books and records are kept; and, in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board or by the President; and he may sign with the President or a Vice President certificates for shares of capital stock of the Corporation. 19 24 5.11 Assistant Secretaries and Assistant Treasurers. Assistant Secretaries and Assistant Treasurers shall perform such duties as shall be assigned to them by the Secretary or by the Treasurer, respectively, or by the Board or by the President. Assistant Secretaries and Assistant Treasurers may, with the President or a Vice President, sign certificates for shares of capital stock of the Corporation. ARTICLE 6 CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. 6.1 Execution of Contracts. The Board may authorize any officer, employee or agent, in the name and on behalf of the Corporation, to enter into any contract or execute and satisfy any instrument, and any such authority may be general or confined to specific instances, or otherwise limited. 6.2 Loans. The President or any other officer, employee or agent authorized by the By-laws or by the Board may effect loans and advances at any time for the Corporation from any bank, trust company or other institutions or from any firm, corporation or individual and for such loans and advances may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, and, when authorized by the Board so to do, may pledge and hypothecate or transfer any securities or other property of the Corporation as security for any such loans or advances. Such authority conferred by the Board may be general or confined to specific instances or otherwise limited. 6.3 Checks, Drafts, Etc. All checks, drafts and other orders for the payment of money out of the funds of the Corporation and all notes or other evidences of indebtedness of the Corporation shall be signed on behalf of the Corporation in such manner as shall from time to time be determined by resolution of the Board. 20 25 6.4 Deposits. The funds of the Corporation not otherwise employed shall be deposited from time to time to the order of the Corporation in such banks, trust companies or other depositaries as the Board may select or as may be selected by an officer, employee or agent of the Corporation to whom such power may from time to time be delegated by the Board. ARTICLE 7 STOCK AND DIVIDENDS 7.1 Certificates Representing Shares. The shares of capital stock of the Corporation shall be represented by certificates in such form (consistent with the provisions of Section 158 of the General Corporation Law) as shall be approved by the Board. Such certificates shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and may be sealed with the seal of the Corporation or a facsimile thereof. The signatures of the officers upon a certificate may be facsimiles, if the certificate is countersigned by a transfer agent or registrar other than the Corporation itself or its employee. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon any certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may, unless otherwise ordered by the Board, be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. 7.2 Transfer of Shares. Transfers of shares of capital stock of the Corporation shall be made only on the books of the Corporation by the holder thereof or by his duly authorized attorney appointed by a power of attorney duly executed and filed with the Secretary or a transfer agent of the Corporation, and on surrender of the certificate or certificates representing such shares of capital stock properly endorsed for transfer and upon payment of all necessary transfer taxes. Every certificate exchanged, returned or surrendered to the Corporation shall be marked 21 26 "Cancelled," with the date of cancellation, by the Secretary or an Assistant Secretary or the transfer agent of the Corporation. A person in whose name shares of capital stock shall stand on the books of the Corporation shall be deemed the owner thereof to receive dividends, to vote as such owner and for all other purposes as respects the Corporation. No transfer of shares of capital stock shall be valid as against the Corporation, its stockholders and creditors for any purpose, except to render the transferee liable for the debts of the Corporation to the extent provided by law, until such transfer shall have been entered on the books of the Corporation by an entry showing from and to whom transferred. 7.3 Transfer and Registry Agents. The Corporation may from time to time maintain one or more transfer offices or agents and registry offices or agents at such place or places as may be determined from time to time by the Board. 7.4 Lost, Destroyed, Stolen and Mutilated Certificates. The holder of any shares of capital stock of the Corporation shall immediately notify the Corporation of any loss, destruction, theft or mutilation of the certificate representing such shares, and the Corporation may issue a new certificate to replace the certificate alleged to have been lost, destroyed, stolen or mutilated. The Board may, in its discretion, as a condition to the issue of any such new certificate, require the owner of the lost, destroyed, stolen or mutilated certificate, or his legal representatives, to make proof satisfactory to the Board of such loss, destruction, theft or mutilation and to advertise such fact in such manner as the Board may require, and to give the Corporation and its transfer agents and registrars, or such of them as the Board may require, a bond in such form, in such sums and with such surety or sureties as the Board may direct, to indemnify the Corporation and its transfer agents and registrars against any claim that may be made against any of them on account of the continued existence of any such certificate so alleged 22 27 to have been lost, destroyed, stolen or mutilated and against any expense in connection with such claim. 7.5 Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with the By-laws or with the Certificate of Incorporation, concerning the issue, transfer and registration of certificates representing shares of its capital stock. 7.6 Restriction on Transfer of Stock. A written restriction on the transfer or resignation of transfer of capital stock of the Corporation, if permitted by Section 202 of the General Corporation Law and noted conspicuously on the certificate representing such capital stock, may be enforced against the holder of the restricted capital stock or any successor or transferee of the holder including an executor, administrator, trustee, guardian or other fiduciary entrusted with like responsibility for the person or estate of the holder. Unless noted conspicuously on the certificate representing such capital stock, a restriction, even though permitted by Section 202 of the General Corporation Law, shall be ineffective except against a person with actual knowledge of the restriction. A restriction of the transfer or registration of transfer of capital stock of the Corporation may be imposed either by the Certificate of Incorporation or by an agreement among any number of stockholders or among such stockholders and the Corporation. No restriction so imposed shall be binding with respect to capital stock issued prior to the adoption of the restriction unless the holders of such capital stock are parties to an agreement or voted in favor of the restriction. 7.7 Dividends, Surplus, Etc. Subject to the provisions of the Certificate of Incorporation and of law, the Board: 7.7.1 May declare and pay dividends or make other distributions on the outstanding shares of capital stock in such amounts and at such time or times as, in its discretion, the condition of the affairs of the Corporation shall render advisable; 23 28 7.7.2 May use and apply, in its discretion, any of the surplus of the Corporation in purchasing or acquiring any shares of capital stock of the Corporation, or purchase warrants therefor, in accordance with law, or any of its bonds, debentures, notes, scrip or other securities or evidences or indebtedness; 7.7.3 May set aside from time to time out of such surplus or net profits such sum or sums as, in its discretion, it may think proper, as a reserve fund to meet contingencies, or for equalizing dividends or for the purpose of maintaining or increasing the property or business of the Corporation, or for any purpose it may think conducive to the best interests of the Corporation. ARTICLE 8 INDEMNIFICATION 8.1 Indemnification of Officers and Directors. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or an officer of the Corporation, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding to the fullest extent and in the manner set forth in and permitted by the General Corporation Law, and any other applicable law, as from time to time in effect. Such right of indemnification shall not be deemed exclusive of any other rights to which such director or officer may be entitled apart from the foregoing provisions. The foregoing provisions of this Section 8.1 shall be deemed to be a contract between the Corporation and each director and officer who serves in such capacity at any time while this Article 8 and the relevant provisions of the General Corporation Law and other applicable law, if any, are in effect, and any repeal or modification thereof shall not affect 24 29 any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. 8.2 Indemnification of Other Persons. The Corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding to the extent and in the manner set forth in and permitted by the General Corporation Law, and any other applicable law, as from time to time in effect. Such right of indemnification shall not be deemed exclusive of any other rights to which any such person may be entitled apart from the foregoing provisions. 8.3 Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of Sections 8.1 and 8.2 of the By-laws or under Section 145 of the General Corporation Law or any other provision of law. 25 30 ARTICLE 9 BOOKS AND RECORDS 9.1 Books and Records. The Corporation shall keep correct and complete books and records of account and shall keep minutes of the proceedings of the stockholders, the Board and any committee of the Board. The Corporation shall keep at the office designated in the Certificate of Incorporation or at the office of the transfer agent or registrar of the Corporation, a record containing the names and addresses of all stockholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof. 9.2 Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible written form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. 9.3 Inspection of Books and Records. Except as otherwise provided by law, the Board shall determine from time to time whether, and, if allowed, when and under what conditions and regulations, the accounts, books, minutes and other records of the Corporation, or any of them, shall be open to the inspection of the stockholders. ARTICLE 10 SEAL The Board may adopt a corporate seal which shall be in the form of a circle and shall bear the full name of the Corporation, the year of its incorporation and the word "Delaware." 26 31 ARTICLE 11 FISCAL YEAR The fiscal year of the Corporation shall be determined, and may be changed, by resolution of the Board. ARTICLE 12 VOTING OF SHARES HELD Unless otherwise provided by resolution of the Board, the President may, from time to time, appoint one or more attorneys or agents of the Corporation, in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as a stockholder or otherwise in any other corporation, any of whose shares or securities may be held by the Corporation, at meetings of the holders of stock or other securities of such other corporation, or to consent in writing to any action by any such other corporation, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed on behalf of the Corporation and under its corporate seal, or otherwise, such written proxies, consents, waivers or other instruments as he may deem necessary or proper in the premises; or the President may himself attend any meeting of the holders of the stock or other securities of any such other corporation and thereat vote or exercise any or all other powers of the Corporation as the holder of such stock or other securities of such other corporation. ARTICLE 13 AMENDMENTS The By-laws may be altered, amended, supplemented or repealed, or new By-laws may be adopted, by vote of the holders of the shares entitled to vote in the election of directors. The By-laws may be altered, amended, supplemented or repealed, or new By-laws may be adopted, 27 32 by the Board. Any By-laws adopted, altered, amended, or supplemented by the Board may be altered, amended, or supplemented or repealed by the stockholders entitled to vote thereon. 28 33 Exhibit I Amendment to By-laws of North Fork Bancorporation, Inc. adopted by the Board of Directors on January 18, 1984 ARTICLE 2 STOCKHOLDERS 2.15 Consideration of Submission of Tender Offers to Stockholder Vote. The Officers and Board of Directors of the Corporation shall consider, on an ongoing basis, not less often than annually, presenting to the stockholders for ratification or rejection any tender offer (for the stock of any bank or non-banking organization) that would involve the issuance of securities or the payment of cash of a value of more than five percent of the total assets and more than five percent of the net earnings and revenues, such percentages being those which are determined at the end of each fiscal year of the Corporation. 29 34 Exhibit II Amendment to By-laws of North Fork Bancorporation, Inc. adopted by the Board of Directors on March 21, 1984 ARTICLE 3 DIRECTORS 3.2 Number; Qualification; Term of Office. The Board shall consist of five or more members. The total number and classes of directors shall be fixed initially by the incorporator. Thereafter, the total number of directors may be changed from time to time by vote of the total number of directors then in office. Each director shall hold office until his successor is elected and qualified or until his earlier death, resignation or removal, or until the Annual Meeting next following his reaching age 70. (see next page for later amendment) 30 35 Exhibit II-Page 2 Amendment to By-laws of North Fork Bancorporation, Inc. adopted by the Board of Directors on July 26, 1988 ARTICLE 3 DIRECTORS 3.2 Number; Qualification; Term of Office. The Board shall consist of five or more members. The total number and classes of directors shall be fixed initially by the incorporator. Thereafter, the total number of directors may be changed from time to time by vote of the total number of directors then in office. Each director shall hold office until his successor is elected and qualified or until his earlier death, resignation or removal, or until his reaching age 70. 31 36 Exhibit III Amendment to By-laws of North Fork Bancorporation, Inc. adopted by the Board of Directors on July 28, 1992: ARTICLE 3 DIRECTORS Section 3.3 of Article 3 is hereby amended by adding at the end of said Section the following: 3.3 Election. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Company. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Company (i) who is a stockholder of record on the date of the giving of 32 37 the notice provided for in this Section 3.3 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 3.3. In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Company. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Company not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving such notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of 33 38 capital stock of the Company which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Company unless nominated in accordance with the procedures set forth in this Section 3.3. If the Chairman of the annual meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. 34 EX-10.16.A 3 FORM OF CONSULTING AGREEMENT 1 CONSULTING AGREEMENT CONSULTING AGREEMENT (this "Agreement"), dated as of March 27, 1998 by and between North Fork Bancorporation, Inc. (the "Company") and Patrick E. Malloy, III (the "Consultant"). WHEREAS, the Company and New York Bancorp Inc. ("NY Bancorp") have entered into an Amended and Restated Agreement and Plan of Merger (the "Merger Agreement"), dated as of October 7, 1997, pursuant to which, among other things, NY Bancorp will be merged with and into the Company as of the Effective Time (as defined in the Merger Agreement); WHEREAS, in connection with the transactions contemplated by the Merger Agreement and in recognition of the Consultant's experience and abilities, the Company desires to assure itself of the services of the Consultant in accordance with and subject to the terms and conditions provided herein; and WHEREAS, the Consultant wishes to perform services for the Company in accordance with and subject to the terms and conditions provided herein. NOW, THEREFORE, in consideration of the mutual premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Engagement as Consultant. The Company hereby agrees to engage the Consultant, and the Consultant hereby agrees to perform services for the Company, on the terms and conditions set forth herein. 2. Term. The term of this Agreement (the "Term") shall commence on the Effective Time and terminate on the first anniversary thereof. This Agreement shall be of no force and effect unless and until the Effective Time occurs. 3. Duties. During the Term, the Consultant shall perform such services relating to the business of the Company and its subsidiaries as the Consultant and the Chief Executive Officer or Board of Directors of the Company shall mutually agree, such services to be consistent with the Consultant's expertise in 2 asset/liability management. The Consultant shall expend such time and effort as he reasonably believes to be necessary to perform his services on behalf of the Company, and in no event shall he be required to provide consulting services to the Company for more than 20 hours during any week. The scheduling of such time shall be mutually agreeable to the Consultant and the Company. The Consultant may pursue other personal or business interests during the Term, provided, however, that such interests do not interfere with his duties as set forth in this Section 3 and do not violate his obligations under Section 8 hereof. 4. Place of Performance. The Consultant shall perform his duties and conduct his business from his primary residence and/or at such other locations as are reasonably acceptable to him and the Company. The Consultant shall not be required to travel outside of the New York metropolitan area in the performance of his services hereunder. 5. Independent Contractor. During the term of this Agreement, the Consultant shall be an independent contractor and not an employee of the Company. Accordingly, Consultant shall be responsible for payment of all taxes, including Federal and State income tax, Social Security tax, Unemployment Insurance tax, and any other taxes or business license fees as required. 6. Compensation and Related Matters. (a) Monthly Consulting Fee. During the Term, the Company shall pay to the Consultant, in equal monthly installments, an annual consulting fee of $750,000. (b) Benefits: Perquisites. As of the Effective Time, the Consultant may elect on behalf of himself and his qualified beneficiaries, continuation of health coverage in accordance with Section 4980B of the Internal Revenue Code of 1986 and Part 6 of Subtitle B of Title I of the Employee Retirement Income Security Act of 1974, as amended ("COBRA Coverage"). During the Term, the Company shall reimburse the Consultant for premiums actually paid by the Consultant for such COBRA Coverage. (c) Reimbursement of Expenses. The Company shall promptly reimburse the Consultant for all reasonable business expenses incurred in connection with the services performed by him on behalf of the Company, subject to documentation in accordance with the Company's policies. 2 3 7. Termination. The Consultant's engagement as a consultant hereunder shall terminate without further action by any party hereto upon the expiration of the Term or upon the Consultant's death or permanent disability (as defined in the Company's long term disability plan). This Agreement may also be terminated (i) by the Consultant upon 30 days' written notice to the Company (such notice may be waived by mutual consent of the parties) or (ii) by the Company upon a material breach by the Consultant of this Agreement (including, without limitation, any breach of Sections 8 or 9 hereof). The Company shall not have the right to terminate this Agreement pursuant to clause (ii) of the preceding sentence unless the Company shall have first provided written notice to the Consultant specifying the details of any claimed material breach and the Consultant shall have failed to cure such breach within 30 days after receiving written notice thereto. Upon termination of the Consultant's engagement as a consultant hereunder in accordance with the immediately preceding sentence or as a result of death or permanent disability, the parties hereto shall have no further obligation or liability under this Agreement, except that the Company shall pay the Consultant all amounts owed the Consultant hereunder in respect of the period prior to the date of termination. 8. Noncompetition. The Consultant shall not engage in any Competitive Activity during the Term. For the purposes hereof, a "Competitive Activity" shall mean the Consultant's direct or indirect participation in the ownership, management, operation or control of, or employment, as an officer, employee, partner or otherwise, with any business which is in competition with the business conducted by the Company and its affiliates in any geographic area where such business is being conducted. Notwithstanding the foregoing, nothing contained in this Section 8 shall prohibit the Consultant from acquiring beneficial ownership of up to 5% of the outstanding voting securities of any publicly-traded depository institution (or publicly-traded holding company thereof) any of the securities of which are registered pursuant to Section 12 of the Securities and Exchange Act of 1934, as amended (any such acquisition, a "Permitted Investment"); provided, however, that the Consultant shall not, without the Company's prior consent, make a Permitted Investment in any such depository institution or holding company if both (i) the market capitalization of such depository institution or holding company was $10 billion or less at any time during the twelve-month period immediately preceding the proposed investment by the Consultant, and (ii) such depository institution or holding company is headquartered, or its business is otherwise principally located, in New York, New Jersey or Connecticut. Contemporaneously with the execution of this Agreement, the Consultant will deliver to the Company a schedule indicating, as of this date of this Agreement, the amount and nature of the Consultant's beneficial 3 4 ownership of voting securities of any financial institution having a market capitalization of $10 billion or less. 9. Compliance with Law and Company Policy. In the performance of the services herein contemplated, the Consultant is an independent contractor with the authority to control the details of his work. However, the services of the Consultant are subject to the approval of the Company and shall be subject to the Company's general right of supervision to secure the satisfactory performance thereof. The Consultant agrees to comply with all federal, state and municipal laws, rules and regulations, as well as all policies and procedures of the Company, that are now or may in the future become applicable to the Consultant in connection with his services to the Company. At all times during or after the Term, the Consultant shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliates, and shall not in any manner, directly or indirectly, use for his own benefit or the benefit of any other person, firm, entity or corporation, nor disclose, divulge, render or offer, any such secret or confidential information, except on behalf of the Company in the course of the proper performance of the Consultant's duties or except as may otherwise be required by law or legal process (provided the Company, to the extent reasonably practicable, has been given notice and opportunity to challenge or limit the scope of disclosure purportedly so required). Confidential information shall not include, for purposes of this Section 9, any information which is generally available to the public other than as a result of a prohibited disclosure by the Consultant or any information in the possession of the Consultant which has been independently developed by him or made available to him by a third party with no obligation of confidentiality to the Company. At all times during or after the Term, the Consultant shall refrain from making disparaging remarks about the Company and its officers, directors or employees. 10. Indemnification. The Company agrees that the Consultant shall be entitled to indemnification, with respect to all cost, expense, liability and loss incurred by the Consultant and resulting from the provision of services by the Consultant in accordance herewith, as and to the same extent that the Company's directors and officers are entitled to indemnification pursuant to the Company's certificate of incorporation and by-laws. 4 5 11. Successors: Binding Agreement. (a) The Company shall require any successor to all or substantially all of the business or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. (b) This Agreement and all rights of the Consultant hereunder shall inure to the benefit of and be enforceable by the Consultant's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. This Agreement is personal to and may not be assigned by the Consultant. (c) On and after the Effective Time, this Agreement shall supercede any other agreement between the parties hereto or between NY Bancorp and the Consultant with respect to the subject matter hereof. 12. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or sent by an overnight courier service to the parties at the following addresses (or at such other addresses for a party as shall be specified by the notice): If to the Company: North Fork Bancorporation, Inc. 275 Broad Hollow Road Melville, New York 11747 Attention: Corporate Secretary If to the Consultant: Patrick E. Malloy, III c/o Malloy Enterprises, Inc. Bay Street at the Waterfront Sag Harbor, New York 11963 13. Specific Performance. Whereas the Company's remedy at law for any breach of Sections 8 or 9 of this Agreement would be inadequate, the Company shall be entitled to injunctive relief and to enforce its rights thereunder by an action for specific performance in case of any such breach. 5 6 14. Disputes. Except as otherwise provided in Section 13 hereof, any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or validity hereof, shall be finally settled by arbitration by one arbitrator in New York City, New York pursuant to the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court of competent jurisdiction. 15. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the parties hereto. No waiver by a party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by the parties which are not set forth expressly in this Agreement. This Agreement shall be governed and construed in accordance with the laws of the State of New York, without giving effect to the principles of conflicts of law thereunder. 16. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 17. Enforcement. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. 18. Survival. The obligations of the parties set forth in Section 9 shall survive any termination or expiration of the Consultant's engagement as a consultant hereunder or of this Agreement as necessary to give full effect to the provisions of such Section. 6 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. NORTH FORK BANCORPORATION, INC. By: /s/ Daniel M. Healy ----------------------------------- Name: Daniel M. Healy Title: Executive Vice President and Chief Financial Officer /s/ Patrick E. Malloy, III ----------------------------------- Patrick E. Malloy, III 7 EX-11 4 STATEMENT RE: COMPUTATION OF SHARES 1 North Fork Bancorporation, Inc. Exhibit 11 - Computation of Earnings Per Share December 31, 1998
-------------------------------------------- Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996 -------------------------------------------- Net Income $167,975,347 $170,521,287 $ 94,448,282 Common Equivalent Shares: Weighted Average Common Shares Outstanding 140,706,044 136,760,843 136,502,635 Weighted Average Common Equivalent Shares - Options 675,556 2,424,623 2,011,960 Weighted Average Common Equivalent Shares - Restricted Stock 383,968 147,585 192,439 ------------------------------------------- Weighted Average Common and Common Equivalent Shares 141,765,568 139,333,051 138,707,034 =========================================== Net Income per Common Equivalent Share - Basic $ 1.19 $ 1.24 $ 0.69 Net Income per Common Equivalent Share - Diluted $ 1.18 $ 1.22 $ 0.68
EX-13 5 ANNUAL REPORT TO SHAREHOLDERS 1 North Fork Bancorporation Financial Statements 12 Selected Financial Data 14 Management's Discussion and Analysis 36 Consolidated Statements of Income 37 Consolidated Balance Sheets 38 Consolidated Statements of Cash Flows 40 Consolidated Statements of Changes in Stockholders' Equity 41 Consolidated Statements of Comprehensive Income 42 Notes to Consolidated Financial Statements 70 Independent Auditors' Report 71 Report of Management 72 Corporate Information 11 2 Selected Financial Data Selected financial data for each of the years in the five year period ended December 31, 1998 are set forth below. The Company's consolidated financial statements and notes thereto as of December 31, 1998 and 1997 and for each of the years in the three year period ended December 31, 1998 are included elsewhere herein. All prior years' financial information has been conformed to the current year presentation.
(dollars in thousands, except per share amounts) 1998 1997 1996 1995 1994 ----------------------------------------------------------------------- Statement of Income Data: Interest Income (tax equivalent basis)(2) .............. $ 758,606 $ 731,832 $ 617,580 $ 532,209 $ 473,358 Interest Expense ....................................... 328,456 326,803 281,107 242,129 192,524 ----------------------------------------------------------------------- Net Interest Income (tax equivalent basis) ........... 430,150 405,029 336,473 290,080 280,834 Less: Tax Equivalent Adjustment ........................ 5,506 7,408 3,818 1,970 1,862 ----------------------------------------------------------------------- Net Interest Income .................................. 424,644 397,621 332,655 288,110 278,972 Provision for Loan Losses .............................. 15,500 8,100 8,000 13,525 9,475 Non-Interest Income(3) ................................. 54,885 50,915 38,602 29,695 28,168 Net Securities Gains/(Losses) .......................... 9,433 8,407 6,224 5,886 (8,587) Other Non-Interest Expense ............................. 146,607 157,182 154,643 140,983 154,449 Capital Securities Costs ............................... 16,843 9,235 25 -- -- Amortization & Write-down of Intangible Assets ......... 14,479 7,292 6,364 1,688 1,543 Merger Related Restructure Charges ..................... 52,452 -- 21,613 19,024 14,338 SAIF Recapitalization Charge ........................... -- -- 17,782 -- -- Income Before Income Taxes ........................... 243,081 275,134 169,054 148,471 118,748 Provision for Income Taxes(4) .......................... 75,106 104,613 74,606 69,567 42,557 ----------------------------------------------------------------------- Net Income ........................................... $ 167,975 $ 170,521 $ 94,448 $ 78,904 $ 76,191 ======================================================================= Per Share:(5) Net Income-Basic ....................................... $ 1.19 $ 1.24 $ 0.69 $ 0.55 $ 0.56 Net Income-Diluted(6) .................................. $ 1.18 $ 1.22 $ 0.68 $ 0.55 $ 0.54 Cash Dividends(7) ...................................... $ 0.65 $ 0.38 $ 0.28 $ 0.18 $ 0.12 Dividend Payout Ratio(6) ............................... 55% 32% 36% 26% 25% Book Value at December 31 .............................. $ 5.89 $ 5.53 $ 4.45 $ 4.15 $ 3.80 Market Price at December 31 ............................ $ 23.94 $ 22.50 $ 11.88 $ 8.42 $ 4.59 Balance Sheet Data at December 31: Total Assets ........................................... $10,679,556 $10,073,632 $ 8,691,434 $ 7,622,458 $ 6,842,809 Securities: Available-for-Sale .................................... 2,980,223 2,156,624 1,301,891 1,425,868 344,316 Held-to-Maturity ...................................... 1,571,545 1,763,308 1,851,575 1,770,734 2,463,007 Loans, net ............................................. 5,714,293 5,739,131 5,044,073 4,086,497 3,761,979 Demand Deposits ........................................ 1,263,105 948,458 771,920 520,977 397,539 Interest Bearing Deposits .............................. 5,164,517 5,389,481 5,427,940 4,983,498 4,947,761 Federal Funds Purchased & Securities Sold Under Agreements to Repurchase ........................ 2,955,096 2,104,036 1,075,487 987,229 491,766 Other Borrowings ....................................... 35,000 449,600 590,088 457,278 409,006 Capital Securities ..................................... 199,289 199,264 99,637 -- -- Stockholders' Equity ................................... 831,250 770,889 609,434 582,515 527,212 Average Balance Sheet Data: Total Assets ........................................... 10,107,386 9,557,020 8,283,418 7,099,152 6,880,831 Securities ............................................. 3,835,761 3,783,276 3,346,563 2,879,863 2,781,830 Loans, net ............................................. 5,729,743 5,357,470 4,531,541 3,919,342 3,724,486 Total Deposits ......................................... 6,484,243 6,179,024 6,114,852 5,402,606 5,403,927 Federal Funds Purchased & Securities Sold Under Agreements to Repurchase ........................ 2,236,257 1,944,592 939,365 658,050 611,114 Other Borrowings ....................................... 185,783 485,200 533,516 397,830 289,082 Capital Securities ..................................... 199,277 105,646 281 -- -- Stockholders' Equity ................................... $ 837,413 $ 667,211 $ 589,352 $ 558,816 $ 503,491
12 3
(dollars in thousands, except per share amounts) 1998 1997 1996 1995 1994 ----------------------------------------------------------------------- Selected Ratios: Return on Average Assets(6) ............................ 1.66% 1.78% 1.14% 1.11% 1.11% Return on Average Stockholders' Equity(6)(8) ........... 20.50% 25.63% 15.90% 14.09% 14.96% Core Efficiency Ratio(9) ............................... 35.03% 38.22% 42.61% 43.95% 48.60% Net Interest Margin(2) ................................. 4.48% 4.42% 4.24% 4.24% 4.24% Average Stockholders' Equity to Average Assets ......... 8.29% 6.98% 7.11% 7.87% 7.32% Tier I Capital Ratio ................................... 15.19% 15.33% 13.82% 14.45% 14.33% Risk Adjusted Capital Ratio ............................ 16.39% 16.58% 15.11% 15.59% 15.72% Leverage Capital Ratio ................................. 9.09% 8.74% 7.46% 7.35% 7.32% Allowance for Loan Losses to Non-Performing Loans ...... 470% 198% 146% 107% 90% Non-Performing Loans to Total Loans, net ............... 0.27% 0.66% 1.00% 1.78% 2.57% Non-Performing Assets to Total Assets .................. 0.17% 0.43% 0.64% 1.08% 1.69% Weighted Average Shares-Basic(5) ....................... 140,706 136,761 136,504 142,297 136,054 Weighted Average Shares-Diluted(5) ..................... 141,766 139,333 138,707 144,227 142,055 Branch Offices, as originally reported ................. 111 85 82 67 63
(1) On March 27, 1998, New York Bancorp Inc. ("NYB") was merged with and into the Company. On December 31, 1996, North Side Savings Bank ("North Side") was merged with and into the Company. On January 27, 1995 Hamilton Bancorp, Inc. ("Hamilton") was merged with and into NYB. On November 30, 1994, Metro Bancshares Inc. ("Metro") was merged with and into the Company. These mergers were accounted for as pooling-of-interests and, accordingly, the financial results for all periods reported have been retroactively restated to include NYB, North Side, Hamilton and Metro. (2) Interest income on a tax equivalent basis includes the additional amount of interest income that would have been earned if the Company's investment in state and local municipal obligations, preferred stock issues, and tax exempt loans had been made in investment securities and loans subject to New York State and City, and Federal income taxes yielding the same after tax income. (3) Includes $4.5 million from interest on a tax settlement received by NYB from the Internal Revenue Service during 1997. (4) Includes a $5.7 million benefit for NYB's cumulative effect of change in accounting for income taxes during 1994. (5) Amounts have been restated to give effect for the 3-for-2 common stock split effective May 15, 1998, the 2-for-1 common stock split effective May 15, 1997, NYB's 4-for-3 common stock split effective July 24, 1997, NYB's 3-for-2 common stock split effective January 23, 1997, and NYB's ten percent common stock dividend effective February 14, 1994. (6) For 1998, diluted earnings per share, the dividend payout ratio, return on average assets and return on average equity, excluding the merger related restructure charge and special items would have been $1.46, 45%, 2.04% and 25.22%, respectively. Non-recurring items and special charges incurred in the first quarter of 1998 were comprised of a $52.5 million merger related restructure charge, an additional $11.5 million loan loss provision, a $6 million write-down of intangible assets, securities losses of $2.5 million, and $1.8 million of other operating expenses (net of $20.7 million in tax benefit). Tax items included a charge of $5 million related to the recapture of NYB's banking subsidiary, Home Federal Savings Bank, bad debt reserve for State and Local tax purposes and a benefit of $20 million, which resulted from a corporate reorganization. (7) Cash dividends per share represent amounts for the Company, exclusive of NYB, North Side, Hamilton, and Metro. (8) Excludes the effect of the SFAS No. 115 adjustment. (9) The core efficiency ratio is defined as the ratio of non-interest expense, net of other real estate expenses and other non-recurring charges, to net interest income on a tax equivalent basis and other non-interest income, net of securities gains/(losses) and other non-recurring items. 13 4 Management's Discussion and Analysis Certain statements under this caption constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995 which involve risk and uncertainties. These statements are based on the beliefs, assumptions, and expectations of management. Words such as "expects", "believes", "should", "plans", "will", "estimates", and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future financial condition, performance or operations and involve certain risks and uncertainties that are difficult to quantify or, in some cases, to identify. Therefore, actual outcomes or results may differ materially from what is indicated or forecasted in such forward-looking statements. Factors that may cause or contribute to such differences include, among others, the following possibilities: (1) changes in economic or market conditions; (2) significantly increased competition in the banking and financial services industry; (3) changes in the interest rate environment, with reductions in bank margins; and (4) changes in state and federal regulation of banking institutions. Management's Discussion and Analysis This section presents management's discussion and analysis of the consolidated results of operations and financial condition of North Fork Bancorporation, Inc. (the "Company"), a $10.7 billion multi-bank holding company. At December 31, 1998, the Company ranks among the nation's top 50 bank holding companies when measured by performance and asset size. The Company's primary bank subsidiary, North Fork Bank ("North Fork"), operates through 110 full-service retail banking facilities located in the New York metropolitan area. Its other bank subsidiary, Superior Savings of New England ("Superior"), formerly Branford Savings Bank, a Connecticut charted savings bank located in the Connecticut county of New Haven, operates from one location where it currently conducts a telebanking operation focused on gathering deposits throughout the New England region. On March 27, 1998, New York Bancorp Inc. ("NYB"), the parent company of Home Federal Savings Bank ("Home"), was merged with and into the Company in a transaction accounted for in accordance with the pooling-of-interests method of accounting. Accordingly, the consolidated financial statements and the accompanying management's discussion and analysis include the consolidated accounts of NYB. At the date of merger, NYB had $3.4 billion in total assets, $2.0 billion in net loans, $1.7 billion in deposit liabilities, $140.3 million in capital and operated through 35 branches throughout Kings, Queens, Richmond, Nassau and Suffolk counties of New York. The transaction provided a much sought after presence in the Brooklyn market area with nine branch locations. Pursuant to the merger agreement the Company issued 1.19 shares of common stock, or 39.9 million shares, for each outstanding share of NYB. Simultaneously, 12.7 million shares, as adjusted, of NYB's treasury shares with a cost basis of $56.6 million were retired. A pre-tax charge for merger and related restructuring costs of $52.5 million was recorded (See "Notes to Consolidated Financial Statements--Note 2-Business Combinations"). In June 1998, the Company completed its first non-bank acquisition with the purchase of Amivest Corporation ("Amivest"), a privately held investment management and broker/dealer firm located in New York City. At the date of acquisition, Amivest had approximately $700 million in assets under management. The purchase price and operating results of this acquisition were not significant to the consolidated financial statements of the Company. The Amivest acquisition increased assets under management to approximately $1.4 billion at December 31, 1998. In the fourth quarter of 1998, the Board of Directors, after considering the Company's continued ability to generate excess capital from earnings, adopted two measures aimed at improving shareholder returns. A share repurchase program of up to 14.3 million or 10% of the Company's common shares was approved. At December 31, 1998, approximately 2.6 million shares were repurchased under the stock buy-back program. The timing and amount of future purchases under the program will depend upon market conditions and other alternative uses of capital. Secondly, the Board, while deliberating the declaration of the fourth quarter regular cash dividend of $.125, declared an additional cash dividend of $.15 per share, both payable in 1999. Additional cash dividends of the type declared in the fourth quarter will remain a recurring consideration of the Company's overall capital management program. The discussion and analysis that follows should be read in conjunction with the consolidated financial statements and supplementary data contained elsewhere in this 1998 Annual Report to Shareholders. 14 5 Overview The Company continued to be among the industry leaders in all key measures of operating performance, highlighted by record earnings of $206.6 million, or diluted earnings per share of $1.46 when adjusted for the merger related restructure charge and special items, totaling $38.6 million after taxes, incurred in connection with the March 1998 merger with NYB (See "Notes to Consolidated Financial Statements--Note 2-Business Combinations"). In 1997 the Company earned $170.5 million, or diluted earnings per share of $1.22. Return on average total assets and average stockholders' equity, exclusive of these items, was 2.04% and 25.22%, respectively, placing the Company in a leading position among top bank holding companies. The Company ranks first, as the most efficient bank holding company in the nation with a core efficiency ratio of 35%. Management demonstrated, once again, its ability to successfully reduce operating expenses and enhance revenues subsequent to its mergers and acquisitions. Net income, return on average assets and return on average equity including these charges, was $168 million or diluted earnings per share of $1.18, 1.66% and 20.50%, respectively. The proven capability of transforming thrift acquisitions into commercial banking enterprises was evidenced by the continued growth in demand deposits and generation of fee income. Demand deposits increased 33.2% to $1.3 billion and represent approximately 20% of total deposits at December 31, 1998, as compared to $948.5 million or 15% of total deposits at December 31, 1997. Non-interest income, excluding securities gains and the interest on a tax settlement in 1997, increased 18% to $54.9 million which is primarily related to the success in making the multiple commercial banking and financial service products available to approximately 220 thousand new NYB customers and new market areas. Performance of the loan portfolio and overall asset quality remained solid, as non-performing assets and restructured accruing loans declined by 67.2% to $19.1 million at December 31, 1998. Asset quality ratios improved significantly, as non-performing loans to net loans and allowance for loan losses to total loans were .27% and 470%, respectively, at December 31, 1998 as compared to .66% and 198%, respectively, at December 31, 1997. On March 24, 1998, the Board of Directors approved a 3-for-2 common stock split. The additional shares were issued on May 15, 1998, to shareholders of record on April 24, 1998. All per share, weighted average shares outstanding, and option data presented herein have been retroactively adjusted to reflect the effects of the split. Net Interest Income Net interest income, which represents the difference between interest earned on interest earning assets and interest incurred on interest bearing liabilities, is the primary source of earnings. Net interest income is affected by the level and composition of assets, liabilities, and equity, as well as changes in market interest rates. During 1998, net interest income increased $27.0 million or 6.8% to $424.6 million when compared to $397.6 million in 1997. This growth was achieved through an increase in the level and composition of interest earning assets and a modest improvement in the net interest margin. The increase in average interest earning assets was primarily funded through the growth in demand deposit balances, internally generated capital (primarily retained earnings), and the December 1997 issuance of $100 million in capital securities. The growth attributable to these factors was partially offset by the decline in yield on average interest earning assets, principally investment securities. As a result of the aforementioned factors, the net interest margin improved 6 basis points to 4.48% during 1998 when compared to 4.42% in 1997. Interest income increased $28.7 million or 4.0% to $753.1 million in 1998. This increase resulted from a $447.6 million or 4.9% increase in average interest earning assets to $9.6 billion in 1998, partially offset by a 10 basis point decline in the yield on average interest earning assets to 7.89% in 1998. Average loan growth of $372.3 million, or 6.9%, was the primary factor contributing to the increase in average interest earning assets as well as interest income. Average loans comprised 60% of average interest earning assets and represent 88.4% of average total deposits. The yields on average loans remained constant at 8.64%. During 1998, average securities increased $52.5 million to $3.8 billion. Yields on average securities declined to 6.80% in 1998 when compared to 7.08% in 1997, adversely impacting interest income. This 28 basis point decline was due principally to significant prepayment activity totaling $1.7 billion, or approximately 43% of securities at December 31, 1997, and the corresponding reinvestment into lower yielding securities, which reflected market interest rates at the time. 15 6 Management's Discussion and Analysis (continued) Interest expense increased $1.7 million to $328.5 million in 1998, reflecting an average cost of funds of 4.20%, as compared with $326.8 million or a 4.21% average cost of funds in 1997. Average total savings and time deposits, which continue to represent a stable funding source, were $5.4 billion, reflecting an average cost of funds of 3.48% in 1998, as compared to $5.3 billion, with an average cost of funds of 3.53% during 1997. During 1998, average interest bearing deposit growth of $72.0 million was concentrated in the savings category, while the average cost of funds for these deposits decreased 7 basis points to 2.16%. Both interest bearing customer deposit liability levels and the corresponding cost of funds trends were principally a result of management implementing its pricing and integration strategy on customer deposit liabilities assumed in the NYB merger. Average securities sold under agreements to repurchase increased $291.7 million to $2.2 billion replacing other borrowings, principally Federal Home Loan Bank ("FHLB") fixed and variable rate term borrowings. The cost of funds on total borrowings was 5.81% and 5.72% during 1998 and 1997, respectively. Average demand deposits increased $233.2 million, or 27.3%, to $1.1 billion during 1998, as compared to $854.3 million in 1997. The growth in the level of demand deposits has resulted from management's emphasis on converting acquired savings bank locations into full-service commercial banking locations, and an emphasis on developing deposit relationships with its borrowers. At December 31, 1998, demand deposits represented approximately 20% of total deposits, as compared to 15% at December 31, 1997. During 1998, the use of interest rate swaps decreased interest expense by approximately $.8 million, which was immaterial to the overall cost of funds and net interest margin. The average cost of funds in 1997 was positively impacted by NYB's use of interest rate swaps and other off-balance sheet instruments, decreasing interest expense by $6.3 million. The cost of funds, excluding these instruments, would have increased 9 basis points to 4.30% while the net interest margin would have decreased by 7 basis points to 4.35% during 1997. (See "Asset/Liability Management" section of "Management's Discussion and Analysis"). The following table sets forth a summary analysis of the relative impact on net interest income of changes in the average volume of interest earning assets and interest bearing liabilities and changes in average rates on such assets and liabilities. Because of the numerous simultaneous volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes to volume or rate. For presentation purposes, changes which are not solely due to volume changes or rate changes have been allocated to these categories based on the respective percentage changes in average volume and average rates as they compare to each other.
Years Ended December 31, 1998 vs. 1997 1997 vs. 1996 -------------------------------------------------------------------------- Change in Net Change in Net Average Average Interest Average Average Interest (in thousands ) Volume Rate Income Volume Rate Income -------------------------------------------------------------------------- Interest Income from Earning Assets: Interest Earning Deposits .......................... $ 324 $ (14) $ 310 $ (81) $ 7 $ (74) Securities ......................................... 3,678 (10,747) (7,069) 30,364 14,100 44,464 Loans, net of unearned income ...................... 32,181 430 32,611 71,332 359 71,691 Federal Funds Sold ................................. 904 18 922 (1,940) 111 (1,829) -------------------------------------------------------------------------- Total Interest Income ............................ 37,087 (10,313) 26,774 99,675 14,577 114,252 -------------------------------------------------------------------------- Interest Expense on Liabilities: Savings, NOW & Money Market Deposits ............... 1,706 (2,142) (436) (899) (2,028) (2,927) Time Deposits ...................................... (282) 747 465 (3,276) (2,965) (6,241) Federal Funds Purchased and Securities Sold Under Agreements to Repurchase ................... 16,851 (549) 16,302 58,308 1,602 59,910 Other Borrowings ................................... (18,081) 3,403 (14,678) (2,709) (2,337) (5,046) -------------------------------------------------------------------------- Total Interest Expense ........................... 194 1,459 1,653 51,424 (5,728) 45,696 -------------------------------------------------------------------------- Net Change in Net Interest Income .................. $ 36,893 $ (11,772) $ 25,121 $ 48,251 $ 20,305 $ 68,556 ==========================================================================
(1) The above table is presented on a tax equivalent basis. (2) Non-accrual loans are included in the average outstanding loan balances. 16 7 The following table presents an analysis of net interest income by each major category of interest earning assets and interest bearing liabilities for the years ended December 31,
1998 1997 1996 --------------------------------------------------------------------------------------------------- Average Average Average Average Average Average (dollars in thousands ) Balance Interest Rate Balance Interest Rate Balance Interest Rate --------------------------------------------------------------------------------------------------- Interest Earning Assets: Interest Earning Deposits ..... $ 9,305 $ 456 4.90% $ 2,718 $ 146 5.37% $ 4,222 $ 220 5.21% Securities .................... 3,835,761 260,831 6.80% 3,783,276 267,900 7.08% 3,346,563 223,436 6.68% Loans, net of unearned income(1) 5,729,743 495,313 8.64% 5,357,470 462,702 8.64% 4,531,541 391,011 8.63% Federal Funds Sold ............ 36,010 2,006 5.57% 19,780 1,084 5.48% 55,258 2,913 5.27% ----------------------- ---------------------- ---------------------- Total Interest Earning Assets ..................... 9,610,819 758,606 7.89% 9,163,244 731,832 7.99% 7,937,584 617,580 7.78% ----------------------- ---------------------- ---------------------- Non Interest Earning Assets: Cash and Due from Banks ....... 156,101 136,249 161,275 Other Assets(2) ............... 340,466 257,527 184,559 ----------- ---------- ---------- Total Assets ................ $10,107,386 $9,557,020 $8,283,418 =========== ========== ========== Interest Bearing Liabilities: Savings, NOW & Money Market Deposits .............. $ 2,989,870 $ 64,557 2.16% $2,912,303 $ 64,993 2.23% $2,951,753 $ 67,920 2.30% Time Deposits ................. 2,406,901 123,212 5.12% 2,412,431 122,747 5.09% 2,476,088 128,988 5.21% ----------------------- ---------------------- ---------------------- Total Savings and Time Deposits ................ 5,396,771 187,769 3.48% 5,324,734 187,740 3.53% 5,427,841 196,908 3.63% Federal Funds Purchased & Securities Sold Under Agreements to Repurchase ..... 2,236,257 129,183 5.78% 1,944,592 112,881 5.80% 939,365 52,971 5.64% Other Borrowings .............. 185,783 11,504 6.19% 485,200 26,182 5.40% 533,516 31,228 5.85% ----------------------- ---------------------- ---------------------- Total Borrowings ............ 2,422,040 140,687 5.81% 2,429,792 139,063 5.72% 1,472,881 84,199 5.72% ----------------------- ---------------------- ---------------------- Total Interest Bearing Liabilities ................ 7,818,811 328,456 4.20% 7,754,526 326,803 4.21% 6,900,722 281,107 4.07% ----------------------- ---------------------- ---------------------- Rate Spread ................... 3.69% 3.77% 3.71% Non-Interest Bearing Liabilities: Demand Deposits ............... 1,087,472 854,290 687,011 Other Liabilities ............. 164,413 175,347 106,052 ----------- ---------- ---------- Total Liabilities ........... 9,070,696 8,784,163 7,693,785 Capital Securities ............ 199,277 105,646 281 Stockholders' Equity .......... 837,413 667,211 589,352 ----------- ---------- ---------- Total Liabilities and Stockholders' Equity ....... $10,107,386 $9,557,020 $8,283,418 =========== ========== ========== Net Interest Income & Net Interest Margin(3) ....... 430,150 4.48% 405,029 4.42% 336,473 4.24% Less: Tax Equivalent Adjustment ................... (5,506) (7,408) (3,818) --------- --------- --------- Net Interest Income ......... $ 424,644 $ 397,621 $ 332,655 ========= ========= =========
(1) For purposes of these computations, non-accrual loans are included in the average outstanding loan balances. (2) For purposes of these computations, unrealized gains/(losses) on available-for-sale securities are recorded in other assets. (3) The above table is presented on a tax equivalent basis. 17 8 Management's Discussion and Analysis (continued) Asset/Liability Management The Company's primary earnings source is the net interest margin, which is affected by changes in the level of interest rates, the relationship between rates, the impact of interest rate fluctuations on asset prepayments, the level and composition of assets and liabilities, and the credit quality of the loan portfolio. Management's asset/liability objectives are to maintain a strong, stable net interest margin, to utilize its capital effectively without taking undue risks and to maintain adequate liquidity. The risk assessment program includes a coordinated approach to the management of liquidity, capital and interest rate risk. This risk assessment process is governed by policies and limits established by senior management which are reviewed and approved by the Asset/Liability Committee of the Board of Directors ("ALCO"). ALCO, comprised of members of senior management and the Board, meets periodically to evaluate the impact of changes in market interest rates on interest earning assets and interest bearing liabilities, net interest margin, capital and liquidity, and to evaluate the Company's strategic plans. The balance sheet structure is primarily short-term with most assets and liabilities repricing or maturing in less than five years. Management monitors the sensitivity of net interest income by utilizing a dynamic simulation model complemented by a traditional gap analysis. This model measures net interest income sensitivity and volatility to interest rate changes. It involves a degree of estimation based on certain assumptions that management believes to be reasonable. Factors considered include actual maturities, estimated cash flows, repricing characteristics, deposit growth/retention and, primarily, the relative sensitivity of assets and liabilities to changes in market interest rates. Utilizing this process, management can estimate and project the impact of changes in interest rates on net interest income. This relative sensitivity is important to consider since the Company's core deposit base is not subject to the same degree of interest rate sensitivity as its assets. Core deposit costs are internally controlled and generally exhibit less sensitivity to changes in interest rates than the adjustable rate assets whose yields are based on external indices and change in concert with market interest rates. Management has established certain limits for the potential volatility of net interest income, assuming certain levels of change in market interest rates with the objective of maintaining a stable level of net interest income under various probable rate scenarios. Management may choose to extend the maturity of its funding source and/or reduce the repricing mismatches of its assets or liabilities by using interest rate swaps. Additionally, management may use interest rate collars, interest rate floors, and interest rate cap agreements to assist in insulating it from volatile interest rate changes. Based upon the aforementioned factors regarding the simulation model, projected net interest income for the next twelve months was modeled based on both an immediate rise or fall in interest rates as well as gradual movements in interest rates over the twelve month period. Based on the information and assumptions in effect at December 31, 1998, management believes that a 100 basis point gradual increase in interest rates over the next twelve months would decrease net interest income by $9.3 million or 2.0% while a gradual decrease in interest rates would reduce net interest income by $1.3 million or 0.3%. Management utilizes the traditional gap analysis to complement its income simulation modeling, primarily focusing on the longer term structure of the balance sheet, since the gap analysis does not assess the relative sensitivity of assets and liabilities to changes in interest rates. The gap analysis is prepared based on the maturity and repricing characteristics of interest earning assets and interest bearing liabilities for selected time periods. The mismatch between repricings or maturities within a time period is commonly referred to as the "gap" for that period. A positive gap (asset sensitive), where interest-rate sensitive assets exceed interest-rate sensitive liabilities, generally will result in the net interest margin increasing in a rising rate environment and decreasing in a falling rate environment. A negative gap (liability sensitive) will generally have the opposite results on the net interest margin. However, the gap analysis is static in nature, therefore, the maturity and repricing characteristics of interest earning assets and interest bearing liabilities can change considerably with changes in interest rates. 18 9 Management's strategy for the securities portfolios is to maintain a short-weighted average life to minimize the exposure to future rises in interest rates and to provide cash flows that may be reinvested at current market interest rates. At December 31, 1998, the combined weighted average life of securities portfolios was 3.4 years. Approximately 85% of these securities were mortgage-backed securities ("MBS") representing a relatively stable source of cash flows. Such MBS securities are either guaranteed by FHLMC, GNMA or FNMA, or constitute collateralized mortgage-backed obligations ("CMO") backed by U.S. government agency securities or CMO private issuances, which are principally AAA rated and are conservative current pay sequentials or PAC structures. To maintain the interest rate risk profile which existed prior to the merger with NYB, the Company reclassified approximately $913 million of investment securities from its held-to-maturity portfolio to its available-for-sale portfolio in connection with the merger. This transfer was made pursuant to Statement of Financial Accounting Standard ("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity Securities". The securities transferred were primarily MBS's and CMO's having a higher degree of interest rate risk and duration volatility. Additionally, approximately $415 million of these securities were identified for sale at the time of reclassification, resulting in $2.5 million of securities losses in the quarter ended March 31, 1998. These securities were subsequently sold. During 1998, the Company entered into $475 million in interest rate swap agreements extending the maturity of certain funding sources and reducing the repricing mismatches of certain interest earning assets and interest bearing liabilities. This action created a more consistent and predictable interest rate spread between certain securities and their funding sources. These agreements require the Company to make periodic fixed rate payments while receiving periodic variable rate payments indexed to the 3 month LIBOR rate and mature in terms ranging from 2 to 10 years. The weighted average life of these agreements is 3.4 years. The interest rate swaps are accounted for as hedges and are not recorded on the balance sheet. Income or expense related to these instruments is accrued monthly and recognized as adjustments to interest income or interest expense for those balance sheet items being hedged. At December 31, 1998, an unrealized loss of $3.8 million was recorded relating to a $75 million interest rate swap hedging available-for-sale securities. Prior to the merger, NYB utilized interest rate collars, swaps, and floor agreements to insulate it from volatile interest rate changes. These agreements were accounted for as hedges and were not recorded on balance sheet. NYB was party to $700 million in interest rate collars, which expired in August 1998. It required receipt of payment when the 3 month LIBOR exceeded 7.50%, and required payment when the 3 month LIBOR was less than 5.00%. During 1995, NYB entered into $1.0 billion of interest rate floor agreements to protect against interest rate risk associated with repricing of interest bearing deposits, which expired in February 1998. During 1995, these agreements were terminated to secure the hedge position, and the gain was deferred and amortized over the original contractual life of the agreements. During 1997, $600 million of interest rate swap agreements matured, which were utilized to extend the maturity of certain liabilities to create a more consistent and predictable interest rate spread. These agreements required NYB to make periodic fixed rate payments while receiving periodic variable rate payments. The credit risk associated with these off-balance sheet instruments is the risk of non-performance by the counterparty to the agreements. However, management does not anticipate non-performance by the counterparty and monitors/controls the risk through its asset/liability management procedures. (See "Notes to Consolidated Financial Statements--Note 15-Derivative Financial Instruments"). 19 10 Management's Discussion and Analysis (continued) The following table reflects the repricing of the balance sheet, or "gap" position at December 31, 1998.
0-90 91-180 181-365 1-5 Over 5 (dollars in thousands) Days Days Days Years Years Total ---------------------------------------------------------------------------------------- Interest Earning Assets: Interest Earning Deposits ............. $ 11,929 $ -- $ -- $ -- $ -- $ 11,929 Federal Funds Sold .................... 17,000 -- -- -- -- 17,000 Securities(1) ......................... 766,099 526,105 920,042 1,913,548 409,293 4,535,087 Loans, net of unearned income(2)(3) ... 896,759 308,651 608,984 2,938,953 953,354 5,706,701 ---------------------------------------------------------------------------------------- Total Interest Earning Assets ....... $ 1,691,787 $ 834,756 $ 1,529,026 $ 4,852,501 $ 1,362,647 $10,270,717 ---------------------------------------------------------------------------------------- Interest Bearing Liabilities: Savings, NOW and Money Market Deposits(4) .......................... $ -- $ 142,833 $ 285,666 $ 2,102,918 $ 418,605 $ 2,950,022 Time Deposits ......................... 697,074 380,582 460,861 675,206 772 2,214,495 Federal Funds Purchased and Securities Sold Under Agreements to Repurchase .. 513,300 78,850 283,446 1,954,500 125,000 2,955,096 Other Borrowings ...................... -- 35,000 -- -- -- 35,000 Capital Securities .................... -- -- -- -- 199,289 199,289 ---------------------------------------------------------------------------------------- Total Interest Bearing Liabilities .. $ 1,210,374 $ 637,265 $ 1,029,973 $ 4,732,624 $ 743,666 $ 8,353,902 ---------------------------------------------------------------------------------------- Gap before Interest Rate Swaps ........ $ 481,413 $ 197,491 $ 499,053 $ 119,877 $ 618,981 ---------------------------------------------------------------------------------------- Interest Rate Swaps ................... $ 475,000 $ -- $ -- $ (400,000) $ (75,000) Cumulative Difference Between Interest Earning Assets and Interest Bearing Liabilities after Interest Rate Swaps ............ $ 956,413 $ 1,153,904 $ 1,652,957 $ 1,372,834 $ 1,916,815 ======================================================================== Cumulative Difference as a Percentage of Total Assets ...................... 8.96% 10.80% 15.48% 12.85% 17.95% ========================================================================
(1) Based upon (a) contractual maturity, (b) repricing date, if applicable, and (c) projected repayments of principal based upon experience. Amounts exclude the unrealized gains/(losses) on securities available-for-sale. (2) Based upon (a) contractual maturity, (b) repricing date, if applicable, and (c) management's estimate of principal prepayments. (3) Excludes non-accrual loans totaling $7.6 million. (4) Estimated 60% of Money Market Deposit run-off in less than one year with the remaining balance withdrawn evenly through year three. Estimated 60% of Savings and NOW deposit run-off in the first two years with remaining balance withdrawn evenly through five years. The tables that follow depict the amortized cost, contractual maturities and approximate weighted average yields (on a tax equivalent basis) of the held-to-maturity and available-for-sale securities portfolios at December 31, 1998, respectively: Held-to-Maturity
U.S. (dollars in thousands) State & Government Municipal Agencies Other Maturity Obligations Yield Obligations Yield Securities Yield Total Yield - ----------------------------------------------------------------------------------------------------------------------------- Within 1 Year ......................... $ 8,678 6.44% $ -- -- $ -- -- $ 8,678 6.44% After 1 But Within 5 Years ............ 33,590 6.90% 74 8.87% 880 7.90% 34,544 6.93% After 5 But Within 10 Years ........... 27,360 6.62% -- -- 22,881 6.38% 50,241 6.51% After 10 Years ........................ 2,209 6.65% -- -- -- -- 2,209 6.65% ---------------------------------------------------------------------------------- Subtotal ............................ 71,837 6.73% 74 8.87% 23,761 6.44% 95,672 6.66% Mortgage-Backed Securities ............ -- -- -- -- -- -- 560,815 6.46% CMO's ................................. -- -- -- -- -- 915,058 6.35% ---------------------------------------------------------------------------------- Total Securities .................... $ 71,837 6.73% $ 74 8.87% $ 23,761 6.44% $1,571,545 6.41% ==================================================================================
20 11 Available-for-Sale(1)
U.S. (dollars in thousands) U.S. Government Treasury Agencies Other Maturity Securities Yield Obligations Yield Securities Yield Total Yield - ----------------------------------------------------------------------------------------------------------------------------- Within 1 Year ......................... $ 21,028 6.07% $ -- -- $ -- -- $ 21,028 6.07% After 1 But Within 5 Years ............ 9,924 6.37% 26,245 6.03% 3,000 8.65% 39,169 6.32% After 5 But Within 10 Years ........... -- -- 136,219 7.36% -- -- 136,219 7.36% Due After 10 Years .................... -- -- -- -- 204,407 8.33% 204,407 8.33% ---------------------------------------------------------------------------------- Subtotal ............................ 30,952 6.17% 162,464 7.15% 207,407 8.33% 400,823 7.69% Mortgage-Backed Securities ............ -- -- -- -- -- -- 728,849 6.45% CMO's ................................. -- -- -- -- -- -- 1,631,055 6.47% Equity Securities ..................... -- -- -- -- -- -- 202,815 6.95% ---------------------------------------------------------------------------------- Total Securities .................... $ 30,952 6.17% $ 162,464 7.15% $ 207,407 8.33% $2,963,542 6.66% ==================================================================================
(1) Unrealized gains/(losses) have been excluded for presentation purposes. The following table presents the composition of the carrying value of the securities portfolio in each of the last three years at December 31,
(in thousands) 1998 1997 1996 -------------------------------------------------------- U.S. Treasury Securities ........................ $ 31,345 $ 33,119 $ 76,990 U.S. Government Agencies Obligations ............ 167,485 246,035 226,090 State & Municipal Obligations ................... 71,837 114,511 121,945 Mortgage-Backed Securities ...................... 1,292,630 1,180,087 1,244,081 CMO Agency Issuances ............................ 233,949 384,336 252,261 CMO Private Issuances ........................... 2,318,551 1,711,570 1,144,543 Other Securities ................................ 228,345 72,783 13,398 Equity Securities ............................... 207,626 177,491 74,158 -------------------------------------------------------- Total ......................................... $4,551,768 $3,919,932 $3,153,466 ========================================================
The following are approximate contractual maturities and sensitivities to changes in interest rates of certain loans, exclusive of non-commercial real estate mortgages, consumer loans and leases and non-accrual loans as of December 31, 1998:
Maturities ------------------------------------------------------------------- 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 ....................... $ 104,650 $1,009,827 $ 537,113 $1,651,590 Mortgage Loans-Commercial ......................... 247,700 599,841 254,924 1,102,465 Commercial & Industrial ........................... 337,415 157,526 23,425 518,366 Construction and Land Loans ....................... 65,509 6,517 -- 72,026 ------------------------------------------------------------------- Total ............................................ $ 755,274 $1,773,711 $ 815,462 $3,344,447 =================================================================== Rate Provisions: Amounts with Fixed Interest Rates ................. $ 73,507 $ 886,004 $ 802,376 $1,761,887 Amounts with Adjustable Interest Rates ............ 681,767 887,707 13,086 1,582,560 ------------------------------------------------------------------- Total ............................................ $ 755,274 $1,773,711 $ 815,462 $3,344,447 ===================================================================
21 12 Management's Discussion and Analysis (continued) The following table shows the classification of the average daily deposits and average rates paid for each of the last three years ended December 31,
(dollars in thousands) 1998 1997 1996 -------------------------------------------------------------------- Demand Deposits .................... $1,087,472 -- $ 854,290 -- $ 687,011 -- Savings Deposits ................... 2,118,024 2.15% 2,100,664 2.28% 2,198,011 2.35% NOW & Money Market Deposits ........ 871,846 2.18% 811,639 2.10% 753,742 2.16% Time Deposits ...................... 2,406,901 5.12% 2,412,431 5.09% 2,476,088 5.21% -------------------------------------------------------------------- Total Deposits .................. $6,484,243 2.90% $6,179,024 3.04% $6,114,852 3.22% ====================================================================
At December 31, 1998, the remaining maturities of certificate of deposits in amounts of $100,000 and over were as follows:
(in thousands) 1998 -------- 3 months and less ................................ $323,992 3 to 6 months .................................... 65,377 6 to 12 months ................................... 59,607 Greater than one year ............................ 93,041 -------- $542,017 ========
Liquidity The objective of liquidity management is to ensure the availability of sufficient resources to meet all financial commitments and to capitalize on opportunities for business expansion. Liquidity management addresses the ability to meet deposit withdrawals either on demand or at contractual maturity, to repay other borrowings as they mature and to make new loans and investments as opportunities arise. Sources of liquidity include dividends from subsidiaries, borrowings, the sale of securities from the available-for-sale portfolio, and funds available through the capital markets. Dividends from the Company's primary subsidiary, North Fork Bank, are limited by New York State Banking Department regulations to the current year's earnings plus the prior two years' retained net profits. Pursuant to this regulation, North Fork Bank had $174.6 million of retained earnings available for dividends as of January 1, 1999. The Company enhanced its liquidity position and strengthened its regulatory capital ratios through the issuance of $200 million in Capital Trust Pass-Through Securities ("Capital Securities"). These securities, which mature on December 15, 2027 and December 31, 2026, are noncallable at any time, in whole or in part, prior to December 15, 2007 and December 31, 2026, except in certain circumstances. They may be redeemed annually thereafter, in whole or in part, at declining premiums to maturity. The bank subsidiaries have numerous sources of liquidity including loan and security principal repayments and maturities, lines-of-credit with other financial institutions, the ability to borrow under repurchase agreements and Federal Home Loan Bank ("FHLB") advances utilizing its unpledged securities and mortgage related loan portfolios, the sale of securities from their available-for-sale portfolio, the securitization of loans within the portfolio, whole loan sales, and growth in their core deposit base. The Banks currently have the ability, as members of the FHLB system, to borrow $1.8 billion on a secured basis utilizing FHLB stock, first mortgage loans, and certain mortgage-backed securities as collateral for a term ranging from one day to ten years at both fixed and variable rates. At December 31, 1998, the Company had $1.6 billion in outstanding borrowings with the FHLB. The Company and its banking subsidiaries liquidity positions are monitored daily to ensure the maintenance of an optimum level and efficient use of available funds. Management believes that the Company and its banking subsidiaries have sufficient liquidity to meet their operating requirements. 22 13 Loan Portfolio The loan portfolio is concentrated primarily in loans secured by real estate in the New York metropolitan area. The risk inherent in this portfolio is dependent not only upon regional and general economic stability, which affects property values, but also the financial well-being and creditworthiness of the borrowers. At December 31, 1998, loans outstanding totaled $5.7 billion, representing a modest decline of $29.3 million. While experiencing growth in most loan categories, this growth has been offset by accelerated prepayments in the residential 1-4 family mortgage and commercial mortgage portfolios. This accelerated level of prepayment activity is due in large measure to the interest rate environment and aggressive pricing levels offered by competitors, principally thrift companies and Wall Street conduits during most of 1998. However, the Company experienced a reversal in this downward trend during the fourth quarter of 1998 and believes this recent trend of loan growth should continue in the near term. Management anticipates that this growth will be driven by multi-family, commercial and consumer lending. With the exception of residential 1-4 family mortgages, loan growth in the recent years resulted from both originations and acquisitions. Originations have been principally from multi-family lending, commercial lending, and consumer loans. Multi-family mortgage loans generally are for $1-$5 million and are secured by properties located in the metropolitan New York area, where demand for such housing is strong. Commercial and industrial loans consist primarily of loans to small and medium size businesses. Consumer loan growth represents the increase in the auto loans originated through an expanded dealer network. The credit risk in auto lending is dependent upon the creditworthiness of the borrower and the value of the collateral. The average loan originated is generally between $15-$25 thousand for periods ranging from 36-60 months. The Bank accepts substantially only "A" rated paper or higher, which are borrowers without past credit history problems. The NYB merger added approximately $2 billion in mortgage related loans. The composition of NYB's loan portfolio was principally residential mortgage loans totaling $1.1 billion, or 52.6% of its total loans, multi-family mortgages totaling $432.4 million, or 21.2% of its total loans, and commercial mortgages totaling $421.3 million, or 20.7% of total loans. The following table represents the components of the loan portfolio at December 31.
(dollar in thousands) 1998 1997 1996 1995 1994 -------------------------------------------------------------------------------------------- Mortgage Loans-Residential $1,901,759 33% $2,144,029 37% $2,205,533 44% $1,967,873 48% $1,853,582 49% Mortgage Loans-Multi-family 1,651,590 29% 1,534,623 26% 1,127,817 22% 788,736 19% 655,339 17% Mortgage Loans-Commercial . 1,104,228 19% 1,192,071 21% 1,010,631 20% 818,704 20% 777,653 21% Commercial & Industrial ... 520,130 9% 444,480 8% 359,788 7% 259,876 6% 260,772 7% Consumer Loans and Leases . 481,691 9% 394,436 7% 306,285 6% 208,902 5% 160,923 4% Construction and Land Loans 72,026 1% 51,052 1% 61,740 1% 65,943 2% 77,846 2% -------------------------------------------------------------------------------------------- Total ................... $5,731,424 100% $5,760,691 100% $5,071,794 100% $4,110,034 100% $3,786,115 100% ============================================================================================
Asset Quality During 1998, non-performing assets, which include loans past due 90 days and still accruing interest, non-accrual loans and other real estate, declined $25.1 million, or 57.6%, to $18.5 million at year-end. The substantial decline was achieved principally through the sales of non-performing and marginally performing assets, principal repayments, the workout of non-performing loans to performing status, and charge-offs. The decline in non-performing assets was principally comprised of residential and commercial mortgages totaling $14.8 million and $3.8 million, respectively. At December 31, 1998, non-performing loans were comprised of $4.5 million in commercial mortgages, $4.3 million in consumer loans and leases, $3.5 million in residential mortgages, $2.5 million in commercial loans, and $.5 million in multi-family mortgages. The declining trend in non-performing assets over the past five years is a result of the effectiveness of the Company's loan administration and workout procedures as well as a strong local economy. 23 14 Management's Discussion and Analysis (continued) The components of non-performing assets and restructured, accruing loans are detailed below at December 31,
(in thousands) 1998 1997 1996 1995 1994 -------------------------------------------------------------------- Loans Ninety Days Past Due and Still Accruing ........... $ 7,684 $ 6,414 $ 6,988 $ 6,130 $ 5,597 Non-Accrual Loans ....................................... 7,592 31,231 43,297 66,783 90,909 -------------------------------------------------------------------- Non-Performing Loans .................................. 15,276 37,645 50,285 72,913 96,506 Other Real Estate ....................................... 3,217 5,943 5,095 9,287 19,149 -------------------------------------------------------------------- Non-Performing Assets ................................... $ 18,493 $ 43,588 $ 55,380 $ 82,200 $115,655 ==================================================================== Restructured, Accruing Loans ............................ $ 584 $ 14,567 $ 19,552 $ 50,420 $ 53,140 ==================================================================== Allowance for Loan Losses to Non-Performing Loans .................................. 470% 198% 146% 107% 90% Non-Performing Assets to Total Assets ................... 0.17% 0.43% 0.64% 1.08% 1.69%
Loans are classified as restructured loans when management has granted, for economic or legal reasons related to the borrower's financial condition, concessions to the customer that it would not otherwise consider. Generally, this occurs when the cash flow of the borrower is insufficient to service the loan under its original terms. Loans restructured are reported as such in the year of restructuring. In subsequent reporting periods, if the loan yields a market rate of interest, is performing in accordance with the restructure terms and management expects such performance to continue, the loan is then removed from its restructured status. During 1998, restructured, accruing loans declined approximately $14.0 million, or 96%, to $.6 million. This was achieved through principal repayments, maturities, and the satisfaction of the performance requirements on certain of these loans during 1998. At December 31, 1998, the portfolio of restructured, accruing loans is comprised primarily of loans which have demonstrated performance in accordance with the terms of their restructure agreements, however, did not yield a market rate of interest at the time of restructuring. Allowance for Loan Losses The determination of the adequacy of the allowance for loan losses and the periodic provisioning for estimated losses included in the consolidated financial statements is the responsibility of management. The evaluation process is undertaken on a quarterly basis but may increase in frequency should conditions arise that would require management's prompt attention. Conditions giving rise to such action are business combinations, opportunities to dispose of non-performing and marginally performing loans by bulk sale or any development which may indicate an adverse trend. In the five year period ended December 31, 1998, the Company completed several mergers and acquisitions of commercial banks and thrift companies. Generally, in these transactions, the merged entity's loan underwriting standards were less restrictive than those of the Company which had the result of increasing the level of loan portfolio risk. The methodology employed for assessing the appropriateness of the allowance consists of the following criteria: o The establishment of reserve amounts for all specifically identified criticized loans, including those arising from business combinations, that have been designated as requiring attention by management's internal loan review program, bank regulatory examinations or the Company's external auditors. o An average one year loss factor is applied to smaller balance homogenous types of loans not subject to specific review. These loans include residential 1-4 family properties and consumer loans. o An allocation to the remaining loans giving effect to historical loss experience over several years and linked to cyclical trends. Recognition is also given to the changed risk profile brought about from the aforementioned business combinations, customer knowledge, the results of the ongoing credit-quality monitoring processes and the cyclical nature of economic and business conditions. An important consideration in applying these methodologies is the concentration of real estate related loans located in the New York metropolitan area. 24 15 The initial allocation or specific-allowance methodology commences with loan officers and underwriters grading the quality of their loans on an eight category risk classification scale. Loans identified from this process as below investment grade are referred to the independent Loan Review Department (LRD) for further analysis and identification of those factors that may ultimately affect full recovery or collectibility of principal and/or interest. These loans are subject to continuous review and monitoring while they remain in the criticized category. Additionally, LRD is responsible for performing periodic reviews of the entire loan portfolio that are independent from the identification process employed by loan officers and underwriters. Gradings that fall into criticized categories are further evaluated and a range of reserve amounts is established for each loan. The second allocation or loss factor approach to common or homogenous loans is made by applying the average one year loss factor to the outstanding balances in each loan category. The final allocation of the allowance is made by applying several years of loss experience to categories of loans. It gives recognition to the loss experience of acquired businesses, business cycle changes and the real estate components of loans. Since many of the loans depend upon the sufficiency of collateral, any adverse trend in the real estate markets could seriously affect underlying values available to protect the Company from loss. This condition existed in the early part of the decade when the Company experienced sizable real estate loan losses. Other evidence used to support the amount of the allowance and its components are as follows: o Regulatory examinations o The amount and trend of criticized loans o Actual losses o Peer comparisons with other financial institutions o Economic data associated with the real estate market in the Company's market area o Opportunities to dispose of marginally performing loans for cash consideration The following table presents the allocation of the allowance for loan losses and the related percentage of loans in each category to total loans.
% of % of % of % of % of Loans Loans Loans Loans Loans to to to to to Total Total Total Total Total (dollars in thousands) 1998 Loans 1997 Loans 1996 Loans 1995 Loans 1994 Loans ------------------------------------------------------------------------------------ Mortgage Loans-Residential ........ $14,278 33% $ 9,776 37% $11,195 44% $ 8,053 48% $ 8,054 49% Mortgage Loans-Multi-family ....... 5,985 29% 6,904 26% 5,543 22% 6,461 19% 9,759 17% Mortgage Loans-Commercial ......... 22,423 19% 23,928 21% 24,684 20% 22,506 20% 25,586 21% Consumer Loans and Leases ......... 9,634 9% 6,886 7% 5,028 6% 3,479 5% 3,509 4% Commercial & Industrial ........... 11,408 9% 11,513 8% 14,790 7% 19,215 6% 21,781 7% Construction & Land Loans ......... 2,589 1% 1,829 1% 1,955 1% 3,418 2% 4,919 2% Unallocated ....................... 5,442 -- 13,557 -- 10,085 -- 14,767 -- 13,344 -- ------------------------------------------------------------------------------------ Total .......................... $71,759 100% $74,393 100% $73,280 100% $77,899 100% $86,952 100% ====================================================================================
Based upon the process employed and giving recognition to all attendant factors associated with the loan portfolio, management considers the allowance for loan losses at December 31, 1998 to be adequate. 25 16 Management's Discussion and Analysis (continued) Transactions in the Allowance for Loan Losses are summarized as follows for the years ended December 31,
(dollars in thousands) 1998 1997 1996 1995 1994 ---------------------------------------------------------------------------- Loans Net of Unearned Income: Average Balance ................................. $ 5,729,743 $ 5,357,470 $ 4,531,541 $ 3,919,342 $ 3,724,486 End of Year ..................................... 5,714,293 5,739,131 5,044,073 4,086,497 3,761,979 ============================================================================ Analysis of Allowance for Loan Losses: Balance at Beginning of Year .................... $ 74,393 $ 73,280 $ 77,899 $ 86,952 $ 94,498 Loans Charged-Off: Mortgage Loans-Commercial ....................... $ 5,225 $ 3,932 $ 7,022 $ 7,668 $ 4,768 Consumer Loans and Leases ....................... 6,439 3,014 1,126 778 1,257 Commercial & Industrial ......................... 2,567 1,888 2,623 3,215 8,319 Mortgage Loans-Residential ...................... 6,482 2,908 6,014 5,402 3,823 Mortgage Loans-Multi-family ..................... 287 191 548 4,456 2,454 Construction and Land Loans ..................... 896 121 1,237 5,631 2,031 ---------------------------------------------------------------------------- Total Charge-Offs ............................. $ 21,896 $ 12,054 $ 18,570 $ 27,150 $ 22,652 Recoveries of Loans Charged-Off: Mortgage Loans-Commercial ....................... $ 153 $ 634 $ 513 $ 1,660 $ 960 Consumer Loans and Leases ....................... 2,312 640 507 525 465 Commercial & Industrial ......................... 1,149 1,114 544 1,377 2,621 Mortgage Loans-Residential ...................... 51 71 97 237 542 Mortgage Loans-Multi-family ..................... 95 19 724 100 55 Construction and Land Loans ..................... 57 95 284 94 624 ---------------------------------------------------------------------------- Total Recoveries .............................. $ 3,817 $ 2,573 $ 2,669 $ 3,993 $ 5,267 Net Loans Charged-Off: ............................ $ 18,079 $ 9,481 $ 15,901 $ 23,157 $ 17,385 Provision for Loan Losses ....................... 15,500 8,100 8,000 13,525 9,475 Merger and Acquisition Activity: Net Merger Activity for the Quarter Ended December 31,(1) ......................... (55) -- 190 87 364 Additional Allowance Acquired in Purchase Acquisitions ........................... -- 2,494 3,092 492 -- ---------------------------------------------------------------------------- Balance at End of Year .......................... $ 71,759 $ 74,393 $ 73,280 $ 77,899 $ 86,952 ============================================================================ Ratio of Net Charge-Offs to Average Loans ....... 0.32% 0.18% 0.35% 0.59% 0.47% ============================================================================ Ratio of Allowance for Loan Losses to Non-performing Loans .......................... 470% 198% 146% 107% 90% ============================================================================
(1) Represents the activity of the NYB, North Side, Hamilton, and Metro mergers for the quarters ended December 31, 1997, 1995, 1994 and 1993, respectively. During 1998, the provision for loan losses increased to $15.5 million as compared to $ 8.1 million in 1997. Reflected in the current year was a special provision of $11.5 million. This additional provision was due to the sale of $32 million in non-performing and marginally performing loans acquired in the NYB merger and to restore, as of the merger date, the Company's post-merger reserve coverage ratios to approximate pre-merger levels. The Company's ratio of allowance for loan losses to non-performing loans pre-merger were 362%, 265%, 151% and 109% at December 31, 1997, 1996, 1995 and 1994, respectively. 26 17 Non-Interest Income Non-interest income, exclusive of net securities gains and interest on tax settlement received in 1997, increased 18.3% to $54.9 million in 1998, compared with $46.4 million in 1997. This increase in non-interest income resulted from a $2.3 million, or 9.6% increase in fees and service charges on deposit accounts to $26.2 million, a $3.1 million, or 31.1% increase in investment management, commissions and trust fees to $13.2 million and a $3.3 million, or 40.3% increase in other operating income to $11.4 million. These increases were attributable to management's success in making its multiple commercial banking and financial service products available to approximately 220 thousand new NYB customers and new market areas. Also, contributing to the growth in investment management, commissions and trust fees is the operating results of Amivest, which was acquired in a purchase transaction in June 1998. During 1998, net securities gains were $9.4 million, compared with net securities gains of $8.4 million in 1997. Gross realized gains in 1998 and 1997 resulted principally from the sale of equity positions and capital securities of certain publicly traded companies. Management has been successful in making such investments in publicly traded companies that have materialized as a source of such gains. Upon consummation of the merger with NYB, approximately $415 million of securities were transferred from held-to-maturity to available-for-sale, resulting in a $2.5 million securities loss in the first quarter of 1998. This transfer and subsequent sale was done pursuant to SFAS No. 115 in order to maintain the interest rate risk profile of the Company which existed prior to the merger (See "Asset/Liability Management" section of "Management's Discussion and Analysis"). Non-Interest Expense During 1998, non-interest expense, exclusive of the merger related restructure charge and other special items totaling $52.5 million and $7.8 million, respectively, aggregated $170.1 million, a decrease of $3.6 million or 2.1% compared to $173.7 million in 1997. The reduction in non-interest expense is attributable to a $3.0 million decrease in compensation and employee benefits, a $2.0 million decrease in occupancy and equipment, net, and a $7.4 million decrease in other operating expenses. The reduction was partially offset by an increase of $7.6 million in capital securities costs due to the issuance of an additional $100 million in capital securities in December 1997 and an $1.2 million increase in amortization of intangible assets due to the purchase acquisitions of Superior and Amivest in December 1997 and June 1998, respectively. The core efficiency ratio, which represents the ratio of non-interest expense, net of other real estate costs and other non-recurring charges, to net interest income on a tax equivalent basis and non-interest income net of securities gains/(losses) and other non-recurring items, improved to 35.03% in 1998, as compared with 38.22% for 1997. The improvement in the core efficiency ratio once again demonstrates management's ability to employ its disciplined merger and acquisition strategy by successfully reducing operating costs and enhancing its revenue base post-merger. In connection with the NYB merger, the Company recorded a pre-tax charge for merger related restructuring costs of $52.5 million. This charge included $11.6 million in direct merger expenses, primarily investment banking, legal fees, other professional fees, and expenses associated with shareholder and customer notifications. Severance and other employee related costs totaled $16.4 million consisting of employee severance, compensation arrangements, transitional staffing and related employee benefits expenses. Facility and systems costs totaled $16.8 million consisting primarily of lease termination charges and equipment write-offs resulting from the consolidation of overlapping branch locations and duplicate headquarters and operational facilities. Also reflected are the costs associated with the cancellation of certain data and items processing contracts and the deconversion of NYB's computer systems. Other merger related costs totaled $7.6 million and arose primarily from the application of the Company's accounting practices to the accounts of the merged business and to a lesser extent other expenses associated with the integration of operations. Additionally, the Company recorded a $5.0 million tax charge, net of federal benefit, relating to the recapture of Home's tax bad debt reserve for state and city tax purposes. (See "Notes to Consolidated Financial Statements--Note 2-Business Combinations"). 27 18 Management's Discussion and Analysis (continued) In March 1998, the Company recorded an intangible asset write-down of $6 million due to the realignment in its business arising from the merger with NYB. This write-down was done pursuant to SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" and was classified in the caption "Amortization Write-down of Intangible Assets" in the Company's "Consolidated Statements of Income" for 1998. Income Taxes For 1998, the effective tax rate was 30.9% compared to 38.0% for the year ended 1997. The decrease in the effective tax rate was primarily due to a non-taxable distribution from a corporate reorganization. This reduction was partially offset by the recognition of certain non-deductible merger related restructuring costs associated with the NYB merger, the recapture of Home's state and city tax bad debt reserves, and the intangible asset write-down due to the realignment in the Company's business arising from the merger. The effective tax rate exclusive of the merger related restructure charge, special items, and tax benefit was approximately 35%. (See "Notes to Consolidated Financial Statements--Note 10-Income Taxes"). Capital The Company and its bank subsidiaries are subject to the risk based capital guidelines administered by the banking regulatory agencies. The risk based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Under these guidelines, assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk weighted assets and off-balance sheet items. The guidelines currently require all banks and bank holding companies to maintain a minimum ratio of total risk based capital to total risk weighted assets of 8%, including a minimum ratio of Tier I capital to total risk weighted assets of 4% and a Tier I capital to average assets of 4%. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators, that, if undertaken, could have a direct material effect on the Company's financial statements. As of December 31, 1998, the most recent notification from the various banking regulators categorized the Company and its bank subsidiaries as well capitalized under the regulatory framework for prompt corrective action. Under the adequacy guidelines, a well capitalized institution must maintain a minimum total risk based capital to total risk weighted assets ratio of at least 10%, a minimum Tier I capital to total risk weighted assets ratio of at least 6%, a minimum leverage ratio of at least 5% and not be subject to any written order, agreement or directive. There are no conditions or events since such notification that management believes have changed this classification. The Company enhanced its regulatory capital ratios with the two issuances of approximately $100 million in capital securities in December 1997 and 1996, respectively. At December 31, 1998, the carrying value of these capital securities qualified as Tier I capital (See "Notes to Consolidated Financial Statements--Note 9-Capital Securities"). The following table sets forth the Company's regulatory capital at December 31, 1998, under the rules applicable at such date. Management believes that the Company meets all capital adequacy requirements to which it is subject.
(dollars in thousands) Amount Ratio --------------------- Tier 1 Capital ................................. $ 936,525 15.19% Regulatory Requirement ......................... 246,643 4.00% --------------------- Excess ......................................... $ 689,882 11.19% ===================== Total Risk Adjusted Capital .................... $1,010,449 16.39% Regulatory Requirement ......................... 493,285 8.00% --------------------- Excess ......................................... $ 517,164 8.39% ===================== Risk Weighted Assets ........................... $6,166,067 ==========
The Company's leverage ratio at December 31, 1998 was 9.09%. 28 19 Other Matters The Year 2000 date change (commonly referred to as "Y2K") creates numerous technical issues resulting from computer technology using two digit date fields, rather than four digits, to define the applicable year. The Y2K date change, which is common to most corporations including banks, concerns the inability of information systems, primarily, but not exclusively, computer software programs, to properly recognize and process date sensitive information beyond January 1, 2000. The Company's information systems are primarily processed in-house, using programs developed by third-party vendors and to a lesser extent, utilizing third-party service providers. Therefore, the direct effort to correct Y2K issues will be undertaken largely by third-parties and will not be within the Company's direct control. The Company expects to bring its mission critical systems into compliance through the installation of updated or replacement programs developed by these third-parties. The Company began addressing the Y2K date change in October 1996 with the establishment of a Y2K Committee ("the Committee"). The Committee is comprised of senior management and personnel representing various areas directly or indirectly affected by the Y2K date change. A formal Year 2000 program was developed by the Committee and approved by the Board of Directors in 1997. The Committee has completed an assessment of its information technology ("IT") and non-IT systems, identified mission critical systems, and created a formal tracking system. Mission critical systems have been defined as all computer hardware and software necessary for the successful continuation of a core business activity. In addition to the computer systems identified as mission critical, the Committee has also identified other essential services that may be impacted by Y2K date change such as utilities, telecommunications, and credit bureau information. The Committee is communicating with the providers of these essential services to monitor their progress in addressing Y2K issues. To date, no information has been provided to suggest such essential services will not be Y2K compliant. The Company's plan to address the Y2K date change was developed in accordance with the management process outlined in the Federal Financial Institutions Examination Council ("FFIEC") Year 2000 statement issued on May 5, 1997, which consisted of the following phases: (a) awareness; (b) assessment; (c) renovation; (d) validation; and (e) implementation. Numerous subsequent FFIEC statements have been issued, which have been incorporated into the Year 2000 program. To date, the Company has completed the awareness and initial assessment phases and has substantially completed the renovation, validation and implementation phases for its mission critical systems. On an ongoing basis, third-party service provider and vendor progress in addressing the Y2K issue is monitored. Remediation and testing of the various systems and computer programs commenced in the second quarter of 1998 and have been substantially completed at December 31, 1998 for mission critical applications. The Company's core application system, which performs deposit, loan, and general ledger accounting processing is provided by a third-party vendor. This software has been renovated, unit tested, acceptance tested, and was installed during the third quarter of 1998. Year 2000 testing for this software has been completed. Renovation and acceptance testing (including Year 2000 testing) for vendor provided, non-mission critical applications is ongoing and is expected to be completed by June 30, 1999. Testing with third-party service providers is currently being performed in accordance with the applicable regulatory guidance and is expected to be substantially completed by March 31, 1999. The Company believes its Year 2000 program should enable it to be successful in modifying its computer systems to be Year 2000 compliant. Contingency plans, which include timetables and various alternatives based upon the failure of a system(s) to be adequately modified and/or sufficiently tested and validated to ensure Year 2000 compliance, have been developed. These contingency plans are refined on an ongoing basis. There can be no assurance that either the Year 2000 program or contingency plans will avoid partial or total system interruptions. 29 20 Management's Discussion and Analysis (continued) The principal components of the expense related to the Y2K date change are the replacement of personal computer equipment and the purchase or upgrade of third-party software. External modification and internal costs will be expensed as incurred. Costs of new hardware and software will be capitalized and depreciated in accordance with policies. Based on current estimates, management does not expect the costs associated with its Y2K program to be material to its financial condition and results of operations. If the Y2K program is unsuccessful, it may have a material, adverse effect on its future operating results and financial condition. Recognizing the importance of customer awareness, the Company has mailed Y2K information to the various segments of its customer base, including all depositors. Additionally, letters have been sent to all material loan customers informing them of the Y2K issue and how it can impact businesses. An assessment of the Y2K readiness of the significant loan customers has also been completed. Recent Accounting Pronouncements Reporting Comprehensive Income The Company adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130") in January 1998. SFAS 130 establishes standards for reporting and the display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. In accordance with SFAS 130, all items that are required to be recognized under accounting standards as components of comprehensive income must be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS 130 also requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in-capital in the equity section of a statement of financial position (See the "Consolidated Statements of Comprehensive Income", included herein). Disclosure about Segments for an Enterprise and Related Information In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for the way an enterprise reports information about operating segments in annual financial statements and requires that enterprises report selected information about operating segments in interim financial reports issued to shareholders. Operating segments are components of an enterprise about which separate financial information is available, that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS 131 requires a reconciliation of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments to the amounts in the enterprise's financial statements. It also requires an enterprise to report descriptive information about the way the operating segments were determined, the products and services provided by the operating segments, and any differences between the measurements used for segment reporting and financial statement reporting. SFAS 131 is effective for fiscal years beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated. Management has evaluated the disclosure requirements and determined that disclosure is not required as its operating segments do not meet the quantitative thresholds as prescribed in SFAS 131 for all reporting periods. 30 21 Employers' Disclosures about Pensions and Other Post-Retirement Benefits In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Post-Retirement Benefits" ("SFAS 132"). SFAS 132 revises employers' disclosures about pensions and other post-retirement benefit plans; it does not change the measurement or recognition under these plans. SFAS 132 standardizes the disclosure requirements for pensions and other post-retirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer useful. SFAS 132 is effective for fiscal years beginning after December 15, 1997 (See Footnote 11, "Retirement and Other Employee Benefit Plans", included herein for the required disclosure). Accounting for Derivative Instruments and Hedging Activities In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign currency denominated forecasted transaction. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Under SFAS 133, an entity that elects to apply hedge accounting is required to establish, at the inception of the hedge, the method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. Those methods must be consistent with the entity's approach to managing risk. SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Management is currently evaluating the effect SFAS 133 will have on its financial statements. Comparison Between 1997 and 1996 Overview During 1997, the Company integrated and leveraged off three strategic in market acquisitions including its December 1996 merger with North Side and its March 1996 purchase acquisitions of Extebank and ten Long Island branches of First Nationwide. These acquisitions were accretive to earnings, significantly expanded the Company's geographic presence in its primary markets and represented an efficient use of capital. North Side, which was accounted for as a pooling-of-interests transaction, had $1.6 billion in total assets, $1.2 billion in deposit liabilities, $124.4 million in capital and operated through seventeen full-service banking locations in the New York Counties of Bronx, Queens, Nassau and Suffolk. 31 22 Management's Discussion and Analysis (continued) The North Side merger enhanced the Company's lending activities within its expanded market areas, specifically the Bronx and Queens Counties of New York. At December 31, 1997, loans outstanding totaled $5.8 billion, an increase of $688.9 million, or 13.6%, from 1996 while performance of the loan portfolio remained solid as non-performing assets and restructured, accruing loans declined $16.8 million, or 22.4% to $58.2 million during 1997. The Company also reported substantial achievements in all key measures of performance highlighted by its return on average assets, stockholders' equity, and its core efficiency ratios of 1.78%, 25.63% and 38.22%, respectively. The Company had enhanced its regulatory Tier I Capital with two issuances of approximately $100 million each in Capital Securities in December 1997 and 1996. During 1997, management entered into a capital management strategy, whereby it leveraged its excess capital to generate additional net interest income through an increased level in interest earning assets, funded principally with repurchase agreements of varied maturities. Earnings Summary The Company's net income for the year ended December 31, 1997 was $170.5 million, or diluted earnings per share of $1.22, as compared with $94.4 million or diluted earnings per share of $.68 in 1996. Net income and diluted earnings per share during 1996 were impacted by the recognition of a $21.6 million merger related restructure charge associated with the North Side merger, and a $17.8 million charge for the recapitalization of the Savings Association Insurance Fund ("SAIF"). Net income and diluted earnings per share exclusive of the aforementioned charges would have been $118.5 million or $.85 per share in 1996. Net Interest Income During 1997, net interest income increased $65.0 million or 19.5% to $397.6 million when compared to $ 332.7 million in 1996. This growth was achieved through a significant increase in the level and composition of interest earning assets and an 18 basis point improvement in the net interest margin to 4.42% during 1997. Factors contributing to the widening in the net interest margin included: (a) a change in the composition combined with a significant increase in average interest earning assets and overall asset yields; (b) higher levels of non-interest bearing customer deposit liabilities; (c) an overall decline in the cost of funds for customer deposits; (d) the issuance of $200 million in capital securities, of which $100 million was issued in December 1997; and (e) increased levels of capital. The positive impact of these factors was offset by an increase in the level of higher costing wholesale liabilities. Interest income increased $110.7 million or 18.0% to $724.4 million in 1997. Management entered into a capital management strategy, whereby it leveraged its excess capital in 1997, to generate additional net interest income. This strategy contributed to the $1.2 billion or 15.4% increase in average interest earning assets to $9.2 billion in 1997 and the change in the composition of average interest earning assets as evidenced by the increase in yield on such assets to 7.99% in 1997 as compared to 7.78% in 1996. As a result of the increase in the level of interest earning assets, which were funded principally with repurchase agreements of varied maturities, additional net interest income was generated. Average loans, net of unearned income increased $825.9 million or 18.2% to $5.4 billion in 1997, representing 58.5% of average interest earning assets. This level of growth was achieved through continued strong demand in virtually all loan categories with the exception of lower yielding residential mortgage loans. The yields on average loans remained relatively constant at 8.64% 32 23 Average securities increased $436.7 million or 13.0% in 1997 with a corresponding increase in the overall yield on the securities portfolio to 7.08% as compared to 6.68% in 1996. These improvements during 1997 were achieved principally through the investment of the proceeds generated from the aforementioned leverage strategy into higher yielding securities, which reflected market interest rates at the time of investment. Interest expense increased to $45.7 million in 1997 reflecting an average cost of funds of 4.21% as compared with 4.07% in 1996. This increase principally resulted from a $1.0 billion increase in the level of average securities sold under agreements to repurchase. Overall interest expense was positively impacted by the modest decline in average customers savings and time deposit liabilities as well as a 10 basis point decline in these cost of funds to 3.53% during 1997. Both interest bearing customer deposit liability levels and the corresponding cost of funds declined principally as a result of management implementing its pricing strategy on customer deposit liabilities assumed in the North Side merger as well as several purchase acquisitions during 1996. Average demand deposits increased $167.3 million or 24.3% in 1997. The growth in the level of demand deposits has resulted from management's emphasis on converting its acquired savings bank locations into full service commercial banking locations, and an emphasis on developing deposit relationships with its borrowers. At December 31, 1997, demand deposits represented 15% of total deposits as compared to 12.5% at December 31, 1996. The average cost of funds was positively impacted by the use of interest rate swaps and other off-balance sheet instruments which decreased interest expense by $6.3 million and $3.5 million during 1997 and 1996, respectively. The cost of funds, excluding these instruments, would have increased 9 basis points and 5 basis points to 4.30% and 4.12% during 1997 and 1996, respectively. The net interest margin, exclusive of these off balance sheet instruments, would have decreased by 7 basis point and 5 basis points to 4.35% and 4.19% in 1997 and 1996, respectively (See "Asset/Liability Management" section of "Management's Discussion and Analysis"). Provision for Loan Losses The provision for loan losses totaled approximately $8 million during 1997 and 1996. Net charge-offs in 1997 aggregated $9.5 million or .18% of average loans, as compared to $15.9 million or .35% of average loans during 1996. At December 31, 1997, the allowance for loan losses to non-performing loans improved to 198% from 146% at December 31, 1996. The improvement resulted from an $11.8 million decline in non-performing assets to $43.6 million at December 31, 1997, which resulted from the sale of non-performing and marginally performing assets, principal repayments, the workout of non-performing loans to performing status and charge-offs. Non-Interest Income Non-interest income, exclusive of net securities gains and interest on a tax settlement during 1997, increased 20.2% to $46.4 million in 1997, compared to $38.6 million in 1996. The increase in non-interest income resulted from a $3.4 million, or 16.4% increase in fees and service charges on deposit accounts to $23.9 million, a $3.1 million, or 43.8% increase in investment management, commission and trust fees to $10.1 million, and a $1.5 million, or 22.5% increase in other income to $8.1 million. The growth in non-interest income is attributable to management's success in delivering a full compliment of financial services and products to its expanded market areas and increased customer base through its 1996 merger and acquisitions. 33 24 Management's Discussion and Analysis (continued) Net securities gains were $8.4 million and $6.2 million during 1997 and 1996, respectively and resulted principally from the sale of equity positions and capital securities of certain publically traded companies. During 1996, these gains were partially offset by securities losses recognized on the repositioning of the Company's available-for-sale securities portfolio in connection with the North Side merger. Non-Interest Expense Non-interest expense increased $12.7 million, or 7.9% to $173.7 million in 1997, exclusive of the 1996 North Side merger related restructure charge of $21.6 million and the SAIF recapitalization charge of $17.8 million. The increase is principally attributable to $9.2 million in costs associated with the two issuances of approximately $100 million each in capital securities in December 1997 and 1996, a $4.7 million, or 6.0% increase in compensation and employee benefit expense to $83.2 million principally associated with the appreciation in NYB's stock appreciation rights, and a $1 million, or 14.6% increase in amortization of intangibles to $7.3 million associated with the Company's Extebank and First Nationwide purchase acquisitions during the first quarter of 1996. This increase was partially offset by a $3.5 million reduction in FDIC insurance premiums during 1997. The core efficiency ratio, which represents the ratio of non-interest expense, net of other real estate costs and other non-recurring charges, to net interest income on a tax equivalent basis and non-interest income net of securities gains/(losses) and other non-recurring items, improved to 38.22% in 1997, as compared with 42.61% for 1996. This improvement was achieved principally through the efficient integration of the Company's 1996 merger and acquisitions. Income Taxes For 1997, the effective tax rate was 38.0% compared to 44.1% for the year ended 1996. The decrease in the Company's effective tax rate during 1997 resulted from the implementation of certain tax planning strategies and the 1996 recognition of certain non-deductible merger related restructure costs associated with the North Side merger as well as the recapture of North Side's state and city tax bad debt reserves. 34 25 Selected Statistical Data
Quarterly Financial Information (unaudited) 1998 1997 ---------------------------------------------------------------------------------------------- (in thousands, except 1st 2nd 3rd 4th 1st 2nd 3rd 4th per share amounts) Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr ---------------------------------------------------------------------------------------------- Interest Income ................... $ 190,506 $ 182,368 $ 188,110 $ 192,116 $ 165,625 $ 182,538 $ 188,549 $ 187,712 Interest Expense .................. 86,299 77,854 81,735 82,568 71,349 81,814 86,171 87,469 ---------------------------------------------------------------------------------------------- Net Interest Income ............... 104,207 104,514 106,375 109,548 94,276 100,724 102,378 100,243 Provision for Loan Losses ......... 12,500 1,000 1,000 1,000 1,800 2,700 1,800 1,800 ---------------------------------------------------------------------------------------------- Net Interest Income after Provision for Loan Losses ....... 91,707 103,514 105,375 108,548 92,476 98,024 100,578 98,443 Non-Interest Income ............... 11,251 14,863 17,792 20,412 10,487 18,481 12,324 18,030 Non-Interest Expense .............. 54,380 40,196 42,141 41,212 42,456 44,602 42,419 44,232 Merger Related Restructure Charge .......................... 52,452 -- -- -- -- -- -- -- ---------------------------------------------------------------------------------------------- Income Before Income Taxes ........ (3,874) 78,181 81,026 87,748 60,507 71,903 70,483 72,241 (Benefit)/Provision for Income Taxes .................... (11,249) 27,285 28,359 30,711 24,527 28,320 27,426 24,340 ---------------------------------------------------------------------------------------------- Net Income ........................ $ 7,375 $ 50,896 $ 52,667 $ 57,037 $ 35,980 $ 43,583 $ 43,057 $ 47,901 ============================================================================================== Per Share: Earnings Per Share-Basic .......... $ 0.05 $ 0.36 $ 0.37 $ 0.40 $ 0.26 $ 0.32 $ 0.31 $ 0.35 Earnings Per Share-Diluted ........ $ 0.05 $ 0.36 $ 0.37 $ 0.40 $ 0.26 $ 0.31 $ 0.31 $ 0.34 Common Stock Price Range of the Company: High ............................ $ 26.33 $ 27.33 $ 27.19 $ 23.94 $ 14.17 $ 15.33 $ 19.33 $ 22.50 Low ............................. $ 20.00 $ 23.79 $ 19.00 $ 16.31 $ 11.38 $ 12.08 $ 14.96 $ 18.71
35 26 Consolidated Statements of Income
For the Years Ended December 31, 1998 1997 1996 ---------------------------------------------- (in thousands, except per share amounts) Interest Income: Loans ..................................................................... $494,125 $461,984 $390,451 Mortgage-Backed Securities ................................................ 211,808 219,179 192,383 Other Securities .......................................................... 24,090 13,651 6,799 U.S. Treasury & Government Agency Securities .............................. 16,766 23,015 16,223 State & Municipal Obligations ............................................. 3,849 5,365 4,773 Federal Funds Sold ........................................................ 2,006 1,084 2,913 Interest Earning Deposits ................................................. 456 146 220 ---------------------------------------------- Total Interest Income ..................................................... 753,100 724,424 613,762 ---------------------------------------------- Interest Expense: Savings, NOW & Money Market Deposits ...................................... 64,557 64,993 67,920 Other Time Deposits ....................................................... 91,754 98,821 109,857 Certificates of Deposit, $100,000 & Over .................................. 31,458 23,926 19,131 Federal Funds Purchased & Securities Sold Under Agreements to Repurchase ................................................. 129,183 112,881 52,971 Other Borrowings .......................................................... 11,504 26,182 31,228 ---------------------------------------------- Total Interest Expense .................................................. 328,456 326,803 281,107 ---------------------------------------------- Net Interest Income ..................................................... 424,644 397,621 332,655 Provision for Loan Losses ................................................. 15,500 8,100 8,000 ---------------------------------------------- Net Interest Income after Provision for Loan Losses ..................... 409,144 389,521 324,655 ---------------------------------------------- Non-Interest Income: Fees & Service Charges on Deposit Accounts ................................ 26,208 23,921 20,546 Investment Management, Commissions & Trust Fees ........................... 13,225 10,085 7,014 Mortgage Banking Operations ............................................... 4,054 4,269 4,412 Other Operating Income .................................................... 11,398 8,125 6,630 Interest on Tax Settlement ................................................ -- 4,515 -- Net Securities Gains ...................................................... 9,433 8,407 6,224 ---------------------------------------------- Total Non-Interest Income ............................................... 64,318 59,322 44,826 ---------------------------------------------- Non-Interest Expense: Compensation & Employee Benefits .......................................... 81,071 83,197 78,482 Occupancy & Equipment, net ................................................ 27,095 28,865 27,116 Capital Securities Costs .................................................. 16,843 9,235 25 Amortization & Write-down of Intangible Assets ............................ 14,479 7,292 6,364 Other Operating Expenses .................................................. 38,441 45,120 49,045 Merger Related Restructure Charges ........................................ 52,452 -- 21,613 SAIF Recapitalization Charge .............................................. -- -- 17,782 ---------------------------------------------- Total Non-Interest Expense .............................................. 230,381 173,709 200,427 ---------------------------------------------- Income Before Income Taxes ................................................ 243,081 275,134 169,054 Provision for Income Taxes ................................................ 75,106 104,613 74,606 ---------------------------------------------- Net Income .............................................................. $167,975 $170,521 $ 94,448 ============================================== Earnings Per Share-Basic .................................................. $ 1.19 $ 1.24 $ 0.69 Earnings Per Share-Diluted ................................................ $ 1.18 $ 1.22 $ 0.68
See accompanying notes to consolidated financial statements. 36 27 Consolidated Balance Sheets
At December 31, 1998 1997 --------------------------------- (in thousands, except per share amounts) Assets Cash & Due from Banks .................................................................... $ 151,576 $ 179,268 Interest Earning Deposits ................................................................ 11,929 7,787 Federal Funds Sold ....................................................................... 17,000 4,000 Securities: Available-for-Sale ...................................................................... 2,980,223 2,156,624 Held-to-Maturity (Fair value $1,574,196 in 1998; $1,757,411 in 1997) .................... 1,571,545 1,763,308 --------------------------------- Total Securities ....................................................................... 4,551,768 3,919,932 --------------------------------- Loans .................................................................................... 5,731,424 5,760,691 Less: Unearned Income ................................................................... 17,131 21,560 Allowance for Loan Losses ......................................................... 71,759 74,393 --------------------------------- Net Loans ......................................................................... 5,642,534 5,664,738 --------------------------------- Intangible Assets ........................................................................ 84,676 96,398 Premises & Equipment ..................................................................... 72,023 77,225 Accrued Income Receivable ................................................................ 66,951 66,970 Other Assets ............................................................................. 81,099 57,314 --------------------------------- Total Assets ........................................................................... $ 10,679,556 $ 10,073,632 ================================= Liabilities and Stockholders' Equity Demand Deposits .......................................................................... $ 1,263,105 $ 948,458 Savings, NOW & Money Market Deposits ..................................................... 2,950,022 3,008,839 Other Time Deposits ...................................................................... 1,672,478 1,960,765 Certificates of Deposit, $100,000 & Over ................................................. 542,017 419,877 --------------------------------- Total Deposits ......................................................................... 6,427,622 6,337,939 --------------------------------- Federal Funds Purchased & Securities Sold Under Agreements to Repurchase ................. 2,955,096 2,104,036 Other Borrowings ......................................................................... 35,000 449,600 Accrued Expenses & Other Liabilities ..................................................... 231,299 211,904 --------------------------------- Total Liabilities ...................................................................... $ 9,649,017 $ 9,103,479 --------------------------------- Capital Securities ....................................................................... $ 199,289 $ 199,264 Stockholders' Equity Preferred Stock, par value $1.00; authorized 10,000,000 shares, unissued ................. -- -- Common stock, par value $2.50; authorized 200,000,000 shares; issued shares 144,924,714 in 1998; 154,073,867 shares in 1997 ........................... 362,312 256,790 Additional Paid in Capital ............................................................... 32,044 127,853 Retained Earnings ........................................................................ 541,967 469,616 Accumulated Other Comprehensive Income - Unrealized Gains on Securities Available-for-Sale, net of taxes ............................................. 9,337 17,124 Deferred Compensation .................................................................... (24,365) (19,361) Treasury Stock at cost; 3,852,732 shares in 1998; 14,595,566 shares in 1997 .............. (90,045) (81,133) --------------------------------- Total Stockholders' Equity ............................................................. 831,250 770,889 --------------------------------- Total Liabilities and Stockholders' Equity ............................................. $ 10,679,556 $ 10,073,632 =================================
See accompanying notes to consolidated financial statements. 37 28 Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 1997 1996 ------------------------------------------------ (in thousands) Cash Flows from Operating Activities: Net Income ................................................................... $ 167,975 $ 170,521 $ 94,448 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Loan Losses .................................................... 15,500 8,100 8,000 Depreciation and Amortization ................................................ 10,846 10,485 10,530 Amortization and Write-down of Intangible Assets ............................. 14,479 7,292 6,364 Amortization of Securities Premiums .......................................... 12,809 9,052 11,263 Accretion of Discounts and Net Deferred Loan Fees ............................ (10,490) (6,440) (3,299) Proceeds from Sales of Securities Held-for-Trading ........................... -- 10,125 2,003 Purchases of Securities Held-for-Trading ..................................... -- (9,670) -- Net Securities Gains ......................................................... (9,433) (8,407) (6,224) Other, Net ................................................................... 47,829 17,376 36,063 ------------------------------------------------ Net Cash Provided by Operating Activities .................................. 249,515 208,434 159,148 ------------------------------------------------ Cash Flows from Investing Activities: Purchases of Securities Held-to-Maturity ..................................... (1,181,100) (107,722) (235,939) Maturities, Redemptions, Calls and Principal Repayments on Securities Held-to-Maturity ............................................................ 424,656 253,904 183,665 Purchases of Securities Available-for-Sale ................................... (2,166,825) (1,497,862) (1,056,391) Proceeds from Sales of Securities Available-for-Sale ......................... 1,021,477 271,297 735,437 Maturities and Principal Repayments on Securities Available-for-Sale ......... 1,279,525 413,086 448,528 Loans Originated, Net of Principal Repayments ................................ (138,940) (653,769) (589,558) Proceeds from the Sale of Loans .............................................. 195,534 88,415 111,497 Purchases of Loans ........................................................... (21,344) (22,342) (370,400) Transfers to Other Real Estate, Net of Sales ................................. 2,314 (1,402) 3,770 Purchases of Premises and Equipment, Net ..................................... (3,444) (6,511) (7,642) Purchase Acquisitions, Net of Cash Acquired .................................. 805 56,147 595,650 ------------------------------------------------ Net Cash Used in Investing Activities ...................................... (587,342) (1,206,759) (181,383) ------------------------------------------------ Cash Flows from Financing Activities: Net Increase/(Decrease) in Customer Deposits Liabilities ..................... 44,352 (21,177) (241,273) Net Increase in Borrowings ................................................... 379,854 887,061 252,778 Proceeds from the Issuance of Capital Securities ............................. -- 99,614 99,637 Purchase of Treasury Stock ................................................... (56,462) (27,733) (51,594) Common Stock Sold for Cash ................................................... 26,949 6,814 32,036 Cash Dividends Paid .......................................................... (67,032) (46,607) (32,601) ------------------------------------------------ Net Cash Provided by Financing Activities .................................. 327,661 897,972 58,983 ------------------------------------------------ Net (Decrease)/Increase in Cash and Cash Equivalents ....................... (10,166) (100,353) 36,748 NYB Activity for the Three Months Ended December 31, 1997 .................... (384) -- -- North Side Activity for the Three Months Ended December 31, 1995 ............. -- -- 60,747 Cash and Cash Equivalents at Beginning of Year ............................... 191,055 291,408 193,913 ------------------------------------------------ Cash and Cash Equivalents at End of Year ..................................... $ 180,505 $ 191,055 $ 291,408 ================================================
38 29 Consolidated Statements of Cash Flows (continued)
For the Years Ended December 31, 1998 1997 1996 ---------------------------------------- (in thousands) Supplemental Disclosures of Cash Flow Information: Cash Paid During the Period for: Interest Expense ..................................................................... $ 332,406 $ 331,577 $ 286,488 ======================================= Income Taxes ......................................................................... $ 19,507 $ 55,209 $ 46,997 ======================================= Securities Transferred from Held-to-Maturity to Available-for-Sale due to the Merger with NYB ...................................................................... $ 913,598 $ -- $ -- During the Year the Company Purchased Various Securities which Settled in the January 1999 .......................................................... $ 7,912 $ 60,866 $ -- ======================================= Non-Cash Activity Related to Acquisitions Not Reflected Above for the Years ended December 31, 1998, 1997 and 1996 are as follows: ..................................... (1) (2) (3) Fair Value of Assets Acquired ......................................................... $ 2,377 $ 177,085 $ 920,047 Intangible Assets ..................................................................... 8,434 21,515 61,072 Cash Paid ............................................................................. -- (3,009) (47,000) Common Stock Issued ................................................................... (8,730) (34,420) -- --------------------------------------- Liabilities Assumed and Common Stock Issued ........................................... $ 2,081 $ 161,171 $ 934,119 =======================================
See accompanying notes to consolidated financial statements. (1) In June 1998, the Company acquired Amivest Corporation, a privately held investment management and broker/dealer firm. (2) In December 1997, the Company acquired all of the outstanding common stock of Superior. Each share of Superior's common stock was exchanged for .1957 shares of the Company's common stock and the Company made a cash payment to the holder of Superior's outstanding warrants. (3) In March 1996, the Company acquired the domestic commercial banking business of Extebank and assumed $572 million in deposit liabilities from First Nationwide Bank. 39 30 Consolidated Statements of Changes in Stockholders' Equity
Unrealized Additional Securities Deferred Common Paid in Retained Gains/ Compen- Three Years Ended December 31, 1998 Stock Capital Earnings (Losses) sation ------------------------------------------------------------- (dollars in thousands, except per share amounts) Balance, January 1, 1996 ....................... $ 124,734 $ 195,467 $ 292,972 $ 5,320 $ (1,585) Net Income ..................................... -- -- 94,448 -- -- Cash Dividends ($.28 per share) ................ -- -- (22,721) -- -- Cash Dividends-Acquired Companies .............. -- -- (15,257) -- -- Issuance of Stock (1,996,152 shares) ........... 101 6,077 -- -- -- North Side Common Stock Retirement (1,124,988 shares) .......................... (937) (7,558) -- -- -- Purchases of Treasury Stock (11,438,174 shares) -- -- -- -- -- Restricted Stock Activity, net ................. -- 1,450 -- -- (4,174) Amortization of Other Compensation Plans ....... -- -- -- -- 566 Stock Based Compensation Activity, net ......... 1,473 7,151 (2,695) -- -- North Side Net Income for the Three Months Ended December 31, 1995 ........................... -- -- 5,834 -- -- Adjustment to Unrealized Gains on Securities Available-for-Sale, net of taxes ............ -- -- -- (8,515) -- ------------------------------------------------------------- Balance, December 31, 1996 ..................... $ 125,371 $ 202,587 $ 352,581 $ (3,195) $ (5,193) Net Income ..................................... -- -- 170,521 -- -- Cash Dividends ($.38 per share) ................ -- -- (38,226) -- -- Cash Dividends-Acquired Company ................ -- -- (11,391) -- -- Issuance of Stock for the 2-for-1 Stock Split .. 126,313 (126,313) -- -- -- Issuance of Stock-Superior Acquisition (1,924,352 shares) .......................... 3,207 31,213 -- -- -- Issuance of Stock (165,524 shares) ............. 276 2,311 -- -- -- Purchases of Treasury Stock (4,174,344 shares) . -- -- -- -- -- Restricted Stock Activity, net ................. 423 11,536 -- -- (14,168) Stock Based Compensation Activity, net ......... 1,200 6,519 (3,655) -- -- Amortization of Unrealized Loss on Securities Transferred from Available-for-Sale to Held-to-Maturity ............................ -- -- (214) (331) -- Adjustment to Unrealized (Losses) on Securities Available-for-Sale, net of taxes ............ -- -- -- 20,650 -- ------------------------------------------------------------- Balance, December 31, 1997 ..................... $ 256,790 $ 127,853 $ 469,616 $ 17,124 $ (19,361) Net Income ..................................... -- -- 167,975 -- -- Cash Dividends ($.65 per share) ................ -- -- (92,713) -- -- Cash Dividends-Acquired Company ................ -- -- (3,219) -- -- Issuance of Stock for the 3-for-2 Stock Split .. 120,288 (120,288) -- -- -- Issuance of Stock-Amivest Acquisition .......... 905 7,825 -- -- -- Issuance of Stock (1,216,087 shares) ........... 331 16,126 -- -- -- NYB Common Stock Retirement (12,740,406 shares) (21,234) (35,398) -- -- -- Purchases of Treasury Stock (2,603,825 shares) . -- -- -- -- -- Restricted Stock Activity, net ................. -- (385) -- -- (5,004) Stock Based Compensation Activity, net ......... 5,232 36,311 (11,523) -- -- NYB Net Income for the Three Months Ended December 31, 1997 ..................... -- -- 11,992 -- -- Amortization of Unrealized Loss on Securities Transferred from Available-for-Sale to Held-to-Maturity ............................ -- -- (161) (170) -- Adjustment to Unrealized Gains on Securities Available-for-Sale, net of taxes ........... -- -- -- (7,617) -- ------------------------------------------------------------- Balance, December 31, 1998 ..................... $ 362,312 $ 32,044 $ 541,967 $ 9,337 $ (24,365) ============================================================= Treasury Stock Total ------------------------ Balance, January 1, 1996 ....................... $ (34,393) $ 582,515 Net Income ..................................... -- 94,448 Cash Dividends ($.28 per share) ................ -- (22,721) Cash Dividends-Acquired Companies .............. -- (15,257) Issuance of Stock (1,996,152 shares) ........... 15,350 21,528 North Side Common Stock Retirement (1,124,988 shares) .......................... -- (8,495) Purchases of Treasury Stock (11,438,174 shares) (51,594) (51,594) Restricted Stock Activity, net ................. 2,896 172 Amortization of Other Compensation Plans ....... -- 566 Stock Based Compensation Activity, net ......... 5,024 10,953 North Side Net Income for the Three Months Ended December 31, 1995 ........................... -- 5,834 Adjustment to Unrealized Gains on Securities Available-for-Sale, net of taxes ............ -- (8,515) ------------------------ Balance, December 31, 1996 ..................... $ (62,717) $ 609,434 Net Income ..................................... -- 170,521 Cash Dividends ($.38 per share) ................ -- (38,226) Cash Dividends-Acquired Company ................ -- (11,391) Issuance of Stock for the 2-for-1 Stock Split .. -- -- Issuance of Stock-Superior Acquisition (1,924,352 shares) .......................... -- 34,420 Issuance of Stock (165,524 shares) ............. -- 2,587 Purchases of Treasury Stock (4,174,344 shares) . (27,733) (27,733) Restricted Stock Activity, net ................. 3,805 1,596 Stock Based Compensation Activity, net ......... 5,512 9,576 Amortization of Unrealized Loss on Securities Transferred from Available-for-Sale to Held-to-Maturity ............................ -- (545) Adjustment to Unrealized (Losses) on Securities Available-for-Sale, net of taxes ............ -- 20,650 ------------------------ Balance, December 31, 1997 ..................... $ (81,133) $ 770,889 Net Income ..................................... -- 167,975 Cash Dividends ($.65 per share) ................ -- (92,713) Cash Dividends-Acquired Company ................ -- (3,219) Issuance of Stock for the 3-for-2 Stock Split .. -- -- Issuance of Stock-Amivest Acquisition .......... -- 8,730 Issuance of Stock (1,216,087 shares) ........... 12,214 28,671 NYB Common Stock Retirement (12,740,406 shares) 56,632 -- Purchases of Treasury Stock (2,603,825 shares) . (56,462) (56,462) Restricted Stock Activity, net ................. (443) (5,832) Stock Based Compensation Activity, net ......... (20,853) 9,167 NYB Net Income for the Three Months Ended December 31, 1997 ..................... -- 11,992 Amortization of Unrealized Loss on Securities Transferred from Available-for-Sale to Held-to-Maturity ............................ -- (331) Adjustment to Unrealized Gains on Securities Available-for-Sale, net of taxes ........... -- (7,617) ------------------------ Balance, December 31, 1998 ..................... $ (90,045) $ 831,250 ========================
See accompanying notes to consolidated financial statements. 40 31 Consolidated Statements of Comprehensive Income
For the Years Ended December 31, 1998 1997 1996 --------------------------------------------- (in thousands) Net Income ................................................................... $ 167,975 $ 170,521 $ 94,448 --------------------------------------------- Other Comprehensive Income, net of Income Taxes: Unrealized (Losses)/Gains on Securities Available-for-Sale ................... (2,507) 25,034 (5,030) Less: Reclassification of Realized Gains Included in Net Income .............. (5,280) (4,715) (3,485) --------------------------------------------- Other Comprehensive (Loss)/Income ............................................ (7,787) 20,319 (8,515) --------------------------------------------- Comprehensive Income ......................................................... $ 160,188 $ 190,840 $ 85,933 ==============================================
See accompanying notes to consolidated financial statements. 41 32 Notes to Consolidated Financial Statements Note 1 - Summary of Significant Accounting Policies (a) Basis of Presentation North Fork Bancorporation, Inc. (the "Company"), through its primary bank subsidiary, North Fork Bank ("North Fork"), and its investment management and broker/dealer subsidiaries, Compass Investment Services Corp ("Compass") and Amivest Corporation ("Amivest"), provides a variety of banking and financial services to middle market and small business organizations, local governmental units, and retail customers in the New York metropolitan area. The Company currently conducts a telebanking operation through its subsidiary, Superior Savings of New England ("Superior") located in Connecticut. The consolidated financial statements include the accounts of the Company, and its banking and non-bank subsidiaries. In March 1998, New York Bancorp ("NYB"), the parent company of Home Federal Savings Bank ("Home"), was merged with and into the Company in a pooling-of-interests transaction. Accordingly, the Company's consolidated financial statements include the consolidated accounts of NYB for all periods reported. The Company reports its financial results on a calendar year basis, whereas NYB had reported its financial results on a fiscal year basis, which ended September 30. The consolidated financial results for the current year have been adjusted to conform NYB's year end with that of the Company. The consolidated financial results for years prior to 1998 reflect the combination of the Company at and for the years ended December 31 with NYB at and for the years ended September 30. Certain NYB financial information has been reclassified to conform with that of the Company. The accounting and reporting policies of the Company are in conformity with generally accepted accounting principles and prevailing practices within the financial services industry. The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Such estimates are subject to change in the future as additional information becomes available or previously existing circumstances are modified. Actual results could differ from those estimates. (b) Securities and Trading Account Assets Securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and carried at amortized cost. Debt securities that may be sold in response to, or in anticipation of, changes in interest rates and resulting prepayment risk, or other factors, and marketable equity securities, are classified as available-for-sale and carried at fair value. The unrealized gains and losses on these securities are reported, net of applicable taxes, as a separate component of stockholders' equity. Debt and equity securities that are purchased and held principally for the purpose of selling them in the near term are classified as trading account assets and reported at fair value. The unrealized gains and losses on trading securities are reported as a component of other non-interest income. Management determines the appropriate classification of securities at the time of purchase, and at each reporting date, management reassesses the appropriateness of the classification. Interest income on securities, including amortization of premiums and accretion of discounts, is recognized using the level yield method over the lives of the individual securities. Realized gains and losses on sales of securities are computed using the specific identification method. The cost basis of individual held-to-maturity and available-for-sale securities are reduced through write-downs to reflect other-than-temporary impairments in value. 42 33 (c) Derivative Financial Instruments Periodically, the Company enters into interest rate agreements, including interest rate swaps, caps, and floors, as part of its management of interest rate exposure. These agreements are entered into as hedges against interest rate risk and are designated against specific assets and liabilities. To qualify as a hedge, the agreements must be designated as a hedge and effective in reducing the market risk of an existing asset, liability or firm commitment. The effectiveness of the hedge is evaluated on an initial and ongoing basis. The premium paid or received for any of these agreements is amortized over the term of the agreements. These instruments are accounted for on an accrual basis in the interest income or expense category of the related hedged asset or liability. The estimated fair values of such agreements are not reflected in the Company's Consolidated Balance Sheets, unless designated to securities available-for-sale, in which case they are carried at estimated fair value with unrealized gains and losses, net of taxes, reflected as a component of stockholders' equity. If the asset or liability being hedged is disposed of, the market value of the interest rate contract is included in the determination of the gain or loss from disposition. In the event of the early termination of a derivative financial instrument contract, any resulting gain or loss is deferred, as an adjustment of the carrying value of the designated assets or liabilities, and recognized in operations over the shorter of the remaining life of the designated assets or liabilities or the derivative financial instrument agreement. (d) Loans Loans are carried at the principal amount outstanding, net of unearned income and net deferred loan fees. Mortgage loans held-for-sale are valued at the lower of aggregate cost or market value. Interest income is recognized using the interest method or a method that approximates a level rate of return over the loan term. Unearned income and net deferred loan fees are accreted into interest income over the loan term as a yield adjustment. (e) Non-accrual and Restructured Loans Loans are placed on non-accrual status when, in the opinion of management, there is doubt as to the collectibility of interest or principal, or when principal and interest are past due 90 days or more, the loan is not well secured and in the process of collection. Interest and fees previously accrued, but not collected, are reversed and charged against interest income at the time a loan is placed on non-accrual status. Interest payments received on non-accrual loans are recorded as reductions of principal if, in management's judgment, principal repayment is doubtful. Loans may be reinstated to an accrual or performing status if future payments of principal and interest are reasonably assured and the loan has a demonstrated period of performance. Loans are classified as restructured loans when the Company has granted, for economic or legal reasons related to the borrower's financial condition, concessions to the borrower that it would not otherwise consider. Generally, this occurs when the cash flows of the borrower are insufficient to service the loan under its original terms. Restructured loans are reported as such in the year of restructuring. In subsequent reporting periods, if the loan yields a market rate of interest, is performing in accordance with the restructure terms, and management expects such performance to continue, the loan is then removed from restructured status. (f) Allowance for Loan Losses The allowance for loan losses is based on a periodic analysis of the loan portfolio and reflects an amount which, in management's judgment, is adequate to provide for losses inherent in the loan portfolio. In evaluating the portfolio, management takes into consideration numerous factors, such as present and potential risks inherent in the loan portfolio, loan growth, prior loss experience, current economic conditions and periodic examinations conducted by regulatory agencies. Additionally, management utilizes the guidelines established under Statement of Financial Accounting Standards ("SFAS") No.114 "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting by Creditors for Impairment of a Loan-Income 43 34 Notes to Consolidated Financial Statements (continued) Recognition and Disclosure" to assess loan impairment. The allowance is maintained at a level considered by management to be adequate to cover reasonably foreseeable loan losses. While management uses available information to estimate possible loan losses, future additions to the allowance may be necessary based on adverse changes in economic conditions. (g) Premises and Equipment Premises and equipment, including leasehold improvements, are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful life of the owned asset and, for leasehold improvements, over the estimated useful life of the related asset or the lease term, whichever is shorter. Maintenance, repairs, and minor improvements are charged to operations in the period incurred, while major improvements are capitalized. Premises and equipment are periodically reviewed for possible impairment when events or changes in circumstances occur that may affect the underlying basis of the assets. (h) Other Real Estate Other real estate consists of property acquired through foreclosure or deed in lieu of foreclosure. Other real estate is carried at the lower of the recorded amount of the loan or the fair value of the property based on the current appraised value adjusted for estimated disposition costs. Prior to foreclosure, the recorded amount of the loan is written down, if necessary, to the fair value of the real estate to be acquired by a charge to the allowance for loan losses. Subsequent to foreclosure, gains and losses on the periodic revaluation of real estate acquired, and gains and losses on the disposition of such properties, are credited or charged to other real estate expense. (i) Income Taxes The Company provides for income taxes under the asset and liability method whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period the change occurs. Deferred tax assets are reduced, through a valuation allowance, if necessary, by the amount of such benefits that are not expected to be realized based on current available evidence. The Company files consolidated income tax returns with substantially all of its subsidiaries. Income tax expense and benefits are allocated among members in the consolidated group based on a separate return basis. (j) Retirement and Benefit Plans The Company has a non-contributory defined benefit pension plan covering substantially all full-time employees. Annual pension expense is recognized over the employee's expected service life utilizing the projected unit cost actuarial method. Supplemental retirement benefits are provided for selected employees where income tax limitations have been placed on the amount of retirement benefits otherwise earned. Post-retirement and post-employment benefits are recorded on an accrual basis with an annual provision that considers an actuarially determined future obligation. 44 35 (k) Stock-Based Compensation The Company accounts for its stock-based compensation plans in accordance with SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 defines a fair value-based method of accounting for stock-based compensation. However, SFAS 123 allows an entity to continue to measure compensation expense for those instruments using the intrinsic value-based method of accounting prescribed by Accounting Pronouncements Bulletin Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25"). The Company has elected to continue to follow APB 25, however, SFAS 123 requires disclosure of pro forma net income and earning per share information in the notes to the financial statements, as if the fair value-based method had been adopted. Restricted stock awards are reflected as deferred compensation at the fair market value of the shares at the date of grant, and amortized to compensation expense over the vesting periods. (l) Earnings Per Share ("EPS") The Company utilizes SFAS No. 128 "Earnings Per Share" for computing and presenting earnings per share data. SFAS 128 was retroactively adopted in December 1997. Basic EPS is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were converted into common stock that then shared in the earnings of the entity. The weighted average number of common shares outstanding used in the computation of Basic EPS was 140,706,044, 136,760,843, and 136,502,635 for the years ended 1998, 1997, and 1996, respectively. The weighted average number of common shares outstanding used in the computation of Diluted EPS was 141,765,568, 139,333,051, and 138,707,034 for the years ended 1998, 1997 and 1996, respectively. The differential in the weighted average number of common shares outstanding used in the computation of Basic and Diluted EPS represents the average common stock equivalents of employee stock options and restricted stock grants outstanding during the periods. On May 15, 1998, the Company issued a three-for-two common stock split. The par value of the Company's common stock remained unchanged at $2.50. As a result, $120.3 million was transferred from additional paid-in-capital to common stock to reflect this issuance. All per share, weighted average shares outstanding, and option data presented herein has been retroactively adjusted to reflect the effects of the split. (m) Intangible Assets Intangible assets consist of goodwill and core deposit intangibles associated with purchase acquisitions. The Company records the acquired assets and liabilities assumed at fair value. The excess of the Company's cost over the fair value of the net assets acquired is recorded as an intangible asset. The Company's cost includes the consideration paid and all direct costs associated with the purchase. Indirect and general expenses relating to the acquisition are expensed as incurred. Goodwill is amortized on a straight-line basis generally over 15 years or the estimated periods to be benefited. Core deposit intangibles are amortized on an accelerated method over the estimated benefit period to be benefited. Intangible assets are reviewed for possible impairment when certain events, such as significant business combinations, or changes in strategy or other business developments occur that may affect the underlying basis or the future life of the assets. Such an event occurred in 1998 with the write down of $6 million in intangible assets due to the consolidation of certain components of the NYB merged business. (n) Consolidated Statements of Cash Flows For purposes of the consolidated cash flows, cash and cash equivalents are defined as the amounts included in the Consolidated Balance Sheets under the captions "Cash & Due from Banks", "Interest Earning Deposits", and "Federal Funds Sold". 45 36 Notes to Consolidated Financial Statements (continued) Cash flows associated with derivative financial instruments used by the Company are classified in the accompanying Consolidated Statements of Cash Flows in the same category as the cash flows from the asset or liability being hedged. Note 2 - Business Combinations (a) New York Bancorp On March 27, 1998, New York Bancorp, the parent company of Home Federal Savings Bank, was merged with and into the Company in a transaction accounted for in accordance with the pooling-of-interests method of accounting. Pursuant to the merger agreement, the Company issued 1.19 shares of common stock for each share of NYB's common stock outstanding (39.9 million common shares issued, as adjusted, for the 3-for-2 stock split and simultaneously retired 12.7 million shares, as adjusted, of NYB's common stock held in treasury as of the merger date). NYB had $3.4 billion in total assets, $2.0 billion in net loans, $1.7 billion in deposit liabilities, and $140.3 million in capital at March 27, 1998. The Company's previously reported components of consolidated income and the amounts reflected in the accompanying consolidated statements of income for the years ended December 31, are as follows:
(in thousands) 1997 1996 - -------------------------------------------------------------------------------- Net Interest Income As Previously Reported .......... $278,351 $230,946 New York Bancorp ................ 119,270 101,709 ----------------------------- Combined ........................ $397,621 $332,655 ============================= Net Income As Previously Reported .......... $119,310 $ 62,442 New York Bancorp ................ 51,211 32,006 ----------------------------- Combined ........................ $170,521 $ 94,448 =============================
NYB's reporting period had been as of and for the year ended September 30, whereas the Company utilizes a calendar year basis. NYB's financial results for 1998 have been conformed to the calendar year reporting period of the Company. All prior year consolidated financial results combine the Company with NYB utilizing its respective fiscal reporting period. As a result, NYB's operating results for the three month period ended December 31, 1997 have been set forth separately as a component of consolidated stockholders equity and are not included in the Company's consolidated statements of income. The following is a summary of NYB's results of operations and cash flows for the three months ended December 31, 1997: (in thousands) Statement of Income Data: Net Interest Income ................................. $ 29,329 -------- Net Income .......................................... $ 11,992 ======== Statement of Cash Flows Data: Cash Provided by Operating Activities ............... $ 19,896 Cash Used in Investing Activities ................... (65,460) Cash Provided by Financing Activities ............... 45,180 -------- Net Decrease in Cash & Cash Equivalents ............. $ (384) ======== In accordance with the pooling-of-interests accounting requirements, NYB consummated a private placement of 600,000 shares of its common stock (1,071,000 shares, as adjusted by the 1.19 exchange ratio and the 3-for-2 stock split), which were previously held in treasury, at a price of $43.625 per share ($24.44 per share, as adjusted). 46 37 The following table sets forth a summary of the components reflected in the Merger Related Restructure Charge recognized in the consolidated statement of income in connection with the NYB merger: (in thousands) Merger Expenses ........................................... $11,576 Restructure Charge: Merger Related Compensation and Severance Costs ......... 16,449 Facility and System Costs ............................... 16,822 Other Merger Related Costs .............................. 7,605 ------- Total Pre-Tax Merger and Related Restructure Charge ....... $52,452 ======= Merger expenses consist primarily of investment banking, legal fees, other professional fees, and expenses associated with shareholder and customer notifications. The restructure charge component represents merger related compensation and severance costs which consist primarily of employee severance, compensation arrangements, transitional staffing and related employee benefits expenses. Facility and system costs consist primarily of lease termination charges and equipment write-offs resulting from the consolidation of overlapping branch locations and duplicate headquarters and operational facilities. Also reflected are the costs associated with the cancellation of certain data and item processing contracts and the deconversion of NYB's computer systems. Other merger related costs arise primarily from the application of the Company's accounting practices to the accounts of the merged business and to a lesser extent other expenses associated with the integration of operations. Additionally, the Company recorded a $5.0 million tax charge, net of federal benefit, relating to the recapture of Home's tax bad debt reserve for state and city tax purposes. At December 31, 1998, $7.3 million of the merger related restructure charge was reflected in accrued expenses and other liabilities in the consolidated balance sheet. The remaining balance includes amounts to cover payments expected to continue under long-term lease arrangements related to vacated facilities and NYB's data processing operations. As of December 31, 1998, $29.9 million of the merger related restructure charge utilized represented cash outlays by the Company. (b) Amivest Corporation In June 1998, the Company completed its purchase acquisition of Amivest Corporation ("Amivest"), a privately held investment management and broker/dealer firm located in New York City. At the date of acquisition, Amivest had approximately $700 million in assets under management. Goodwill recognized in connection with the transaction was $8.4 million and is being amortized on a straight-line basis over 15 years. The financial position and operating results of Amivest are not significant to the consolidated financial statements of the Company. (c) Superior Savings of New England ("Superior"), formerly Branford Savings Bank In December 1997, the Company acquired Superior, a Connecticut chartered savings bank in a transaction utilizing the purchase method of accounting. At December 31, 1997, Superior had total assets of $179 million, deposits of $160 million, and stockholders' equity of $16.6 million. In October 1998, the Company sold four of the five Superior branches and $67 million in deposit liabilities for a deposit premium of 9%. The net gain on sale of approximately $5.8 million was utilized as a reduction of the goodwill arising from the purchase. The goodwill of approximately $14.3 million is being amortized on a straight-line basis over 15 years. The financial position and operating results of Superior are not significant to the consolidated financial statements of the Company. 47 38 Notes to Consolidated Financial Statements (continued) Note 3 - Securities Available-for-Sale Securities The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of available-for-sale securities were as follows at December 31,
1998 1997 ------------------------------------------------------------------------------------------------------- Gross Gross Gross Gross Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair (in thousands) Cost Gains (Losses) Value Cost Gains (Losses) Value ------------------------------------------------------------------------------------------------------- U.S. Treasury Securities $ 30,952 $ 393 $ -- $ 31,345 $ 32,963 $ 156 $ -- $ 33,119 U.S. Government Agencies Obligations ............. 162,464 4,947 -- 167,411 242,685 3,572 (318) 245,939 Mortgage-Backed Securities. 728,849 4,115 (1,149) 731,815 758,952 8,070 (472) 766,550 CMO's Agency Issuances .... 190,249 1,776 (64) 191,961 48,607 780 (2) 49,385 CMO's Private Issuances.... 1,440,806 5,358 (683) 1,445,481 816,341 5,531 (193) 821,679 Other Securities .......... 207,407 2,953 (5,776) 204,584 57,972 4,492 (3) 62,461 Equity Securities(1) ...... 202,815 6,922 (2,111) 207,626 168,568 9,350 (427) 177,491 ------------------------------------------------------------------------------------------------------- $2,963,542 $ 26,464 $ (9,783) $2,980,223 $2,126,088 $ 31,951 $ (1,415) $2,156,624 =======================================================================================================
(1) Amortized cost and fair value includes $91.9 million and $85.7 million in Federal Home Loan Bank stock at December 31, 1998 and 1997, respectively. Held-to-Maturity Securities The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of held-to-maturity securities were as follows at December 31,
1998 1997 ------------------------------------------------------------------------------------------------- Gross Gross Gross Gross Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair (in thousands) Cost Gains (Losses) Value Cost Gains (Losses) Value ------------------------------------------------------------------------------------------------ U.S. Government Agencies Obligations ..................... $ 74 $ -- $ -- $ 74 $ 96 $ -- $ -- $ 96 State & Municipal Obligations ..... 71,837 1,301 (27) 73,111 114,511 1,702 (114) 116,099 Mortgage-Backed Securities ........ 560,815 2,140 (625) 562,330 413,537 2,190 (1,817) 413,910 CMO's Agency Issuances ............ 41,988 147 (22) 42,113 334,951 1,162 (1,928) 334,185 CMO's Private Issuances ........... 873,070 2,693 (2,849) 872,914 889,891 3,028 (10,177) 882,742 Other Securities .................. 23,761 29 (136) 23,654 10,322 90 (33) 10,379 ------------------------------------------------------------------------------------------------ $1,571,545 $ 6,310 $ (3,659) $1,574,196 $1,763,308 $ 8,172 $ (14,069) $1,757,411 ================================================================================================
In connection with the NYB merger, approximately $913 million of investment securities were reclassified from held-to-maturity to available-for-sale. This transfer was made pursuant to SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities" to maintain the interest rate risk profile which existed prior to the merger with NYB. The securities transferred were primarily mortgage-backed securities ("MBS") and collateralized mortgage-backed obligations ("CMO") having a higher degree of interest rate risk and duration volatility. Approximately $415 million of these securities were identified for sale at the time of reclassification, resulting in $2.5 million of securities losses in the quarter ended March 31, 1998. These securities were subsequently sold. Management's strategy is to invest in securities with short-weighted average lives, minimizing exposure to future increases in interest rates. These are principally mortgage-backed securities that provide stable cash flows which may be reinvested at current market interest rates. The combined weighted average life of the held-to-maturity and available-for-sale securities portfolios at December 31, 1998 was 3.4 years. 48 39 CMO's are collateralized by either U.S. Government Agency MBS's or whole loans which are principally AAA rated conservative current pay sequentials or PAC structures with current weighted average lives of approximately 2.2 years. The net unrealized gain on securities available-for-sale declined $13.8 million to $16.7 million at December 31, 1998 when compared to $30.5 million at December 31, 1997. This decline was caused by prevailing market conditions. At December 31, 1998, equity securities maintained in the available-for-sale portfolio were comprised principally of common stock and preferred stock of certain publically traded companies. Other securities maintained in the available-for-sale portfolio consist of capital securities and debt issuances of certain financial institutions. Securities carried at $3.5 billion at December 31, 1998 were pledged to secure securities sold under agreements to repurchase, other borrowings and for other purposes as required by law. The amortized cost and estimated fair value of securities at December 31, 1998, by contractual maturity, are presented in the table below. Expected maturities will differ from contractual maturities since issuers may have the right to call or prepay obligations without call or prepayment penalties.
Available-for-Sale Held-to-Maturity -------------------------------------------------- Amortized Fair Amortized Fair (in thousands) Cost Value Cost Value ------------------------------------------------- Due in one year or less ........... $ 21,028 $ 21,141 $ 8,678 $ 8,709 Due after one year through five years 39,169 39,567 34,544 35,275 Due after five years through ten years 136,219 141,152 50,241 50,633 Due after ten years ............... 204,407 201,480 2,209 2,222 ------------------------------------------------- Subtotal ....................... 400,823 403,340 95,672 96,839 Mortgage-Backed Securities ........ 728,849 731,815 560,815 562,330 CMO's ............................. 1,631,055 1,637,442 915,058 915,027 Equity Securities ................. 202,815 207,626 -- -- ------------------------------------------------- $2,963,542 $2,980,223 $1,571,545 $1,574,196 =================================================
Prepayments on MBS's, including CMO's, are monitored by the portfolio management function. Management typically invests in MBS's with stable cash flows and relatively short duration, thereby limiting the impact of interest rate fluctuations on the portfolio. Management regularly performs simulation testing to assess the impact that interest and market rate changes would have on the MBS portfolio. The proceeds, gross realized gains and gross realized losses on the sale of securities available-for-sale were as follows at December 31,
(in thousands) 1998 1997 1996 ------------------------------------------- Proceeds from Sales ....... $ 1,021,477 $ 271,297 $ 735,437 =========================================== Gross Realized Gains ...... 12,196 9,511 8,839 Gross Realized Losses ..... (2,763) (1,104) (2,615) ------------------------------------------- Net Realized Gains ........ $ 9,433 $ 8,407 $ 6,224 ===========================================
Gross realized gains in 1998 and 1997 resulted principally from the sale of equity positions and capital securities of certain publicly traded companies. 49 40 Notes to Consolidated Financial Statements (continued) Note 4 - Loans The composition of the loan portfolio is summarized as follows at December 31,
(dollars in thousands) 1998 1997 --------------------------------------- Mortgage Loans-Residential ...... $1,901,759 33% $2,144,029 37% Mortgage Loans-Multi-family ..... 1,651,590 29% 1,534,623 26% Mortgage Loans-Commercial ....... 1,104,228 19% 1,192,071 21% Commercial & Industrial ......... 520,130 9% 444,480 8% Consumer Loans and Leases ....... 481,691 9% 394,436 7% Construction and Land Loans ..... 72,026 1% 51,052 1% --------------------------------------- Total ........................ $5,731,424 100% $5,760,691 100% Less: Unearned Income ............... 17,131 21,560 Allowance for Loan Losses ..... 71,759 74,393 --------------------------------------- Net Loans .................... $5,642,534 $5,664,738 =======================================
The loan portfolio is concentrated primarily in loans secured by real estate in the New York metropolitan area. The risk inherent in this portfolio is dependent not only upon regional and general economic stability which affects property values, but also the financial well-being and creditworthiness of the borrowers. To minimize the credit risk related to the portfolio's real estate concentration, management utilizes prudent underwriting standards as well as diversifying the type and locations of loan placements. The multi-family lending business includes loans on various types and geographically diverse apartment complexes. Multi-family mortgages are dependent largely on sufficient income to cover operating expenses and may be affected by government regulation, such as rent control regulations, which could impact the future cash flows of the property. Most multi-family mortgages do not fully amortize. Therefore, the principal outstanding is not significantly reduced prior to contractual maturity. The residential mortgage portfolio is comprised primarily of first mortgage loans on owner occupied 1-4 family residences located in the New York metropolitan area. The commercial mortgage portfolio contains loans secured by professional office buildings, retail stores, shopping centers and industrial developments. Land loans are used to finance the acquisition of vacant land for future residential and commercial development. Construction loans finance the construction of industrial developments and single-family subdivisions. Commercial loans consist primarily of loans to small and medium size businesses. Consumer loans and leases represent credit to individuals for household, family, and other personal expenditures and consist primarily of loans to finance new and used automobiles. The Company's real estate underwriting standards include various limits on the loan-to-value ratios based on the type of property, and management considers among other things, the creditworthiness of the borrower, the location of the real estate, the condition and value of the security property, the quality of the organization managing the property, and the viability of the project including occupancy rates, tenants and lease terms. Additionally, the underwriting standards require appraisals and periodic inspections of the properties as well as ongoing monitoring of operating results. Mortgage loans serviced for others aggregated $904.6 million and $948.7 million as of December 31, 1998 and 1997, respectively. At December 31, 1998, $15.0 million in residential mortgage loans were held-for-sale. Non-performing assets include loans ninety days past due and still accruing, non-accrual loans and other real estate. Other real estate consists of property acquired through foreclosure or deeds in lieu of foreclosure. Non-performing assets declined to $18.5 million at December 31, 1998, as compared to $43.6 million at December 31, 1997. This reduction was achieved principally through the sale of non-performing assets, principal repayments, the workout of non-performing loans to performing status, and charge-offs. 50 41 Non-Performing Assets Non-performing assets at December 31, consisted of the following:
(in thousands) 1998 1997 -------------------- Loans Ninety Days Past Due and Still Accruing ..... $ 7,684 $ 6,414 Non-Accrual Loans ................................. 7,592 31,231 -------------------- Non-Performing Loans .............................. 15,276 37,645 Other Real Estate ................................. 3,217 5,943 -------------------- Non-Performing Assets ............................. $18,493 $43,588 ==================== Restructured, Accruing Loans ...................... $ 584 $14,567 ====================
The following table represents the components of non-performing loans at December 31,
1998 1997 ----------------------- Mortgage Loans-Commercial ................... $ 4,519 $ 8,270 Consumer Loans and Leases ................... 4,294 5,664 Mortgage Loans-Residential .................. 3,511 18,350 Commercial & Industrial ..................... 2,485 3,378 Mortgage Loans-Multi-family ................. 467 821 Construction and Land Loans ................. -- 1,162 ----------------------- Total Non-Performing Loans .................. $15,276 $37,645 =======================
Interest foregone on non-accrual loans, or the amount of income that would have been earned had those loans remained performing, aggregated $1.3 million, $2.9 million, and $5.1 million in 1998, 1997, and 1996, respectively. Restructured Loans Restructured, accruing loans were $.6 million and $14.6 million at December 31, 1998 and 1997, respectively. The decline in the level of restructured, accruing loans was achieved through principal repayments, maturities, and the satisfaction of the performance requirements on certain of these loans during 1998. The amount of interest income recorded on restructured loans was approximately $.6 million, $1.1 million, and $1.5 million in 1998, 1997, and 1996, respectively. The difference between interest income included in the results of operations under the restructured terms, and that amount which would have been recognized had these loans performed in accordance with their original terms, was immaterial. At December 31, 1998, the Company had no commitments to lend additional funds to borrowers whose loans are non-performing or currently classified as restructured. Related Party Loans Loans to related parties include loans to directors and their related companies and executive officers of the Company and its subsidiaries. Such loans are made in the ordinary course of business on substantially the same terms as loans to other individuals and businesses of comparable risks. Related party loans aggregated $5.6 million and $8.3 million at December 31, 1998 and 1997, respectively. 51 42 Notes to Consolidated Financial Statements (continued) Note 5 - Allowance for Loan Losses A summary of changes in the allowance for loan losses is shown below for the years ended December 31,
(in thousands) 1998 1997 1996 -------------------------------- Balance at Beginning of Year ......................................... $ 74,393 $ 73,280 $ 77,899 Provision for Loan Losses ............................................ 15,500 8,100 8,000 Recoveries Credited to the Allowance ................................. 3,817 2,573 2,669 -------------------------------- 93,710 83,953 88,568 Losses Charged to the Allowance ...................................... (21,896) (12,054) (18,570) NYB Net Activity for the Three Months Ended December 31, 1997 ........ (55) -- -- Additional Allowance Acquired in Purchase Acquisitions ............... -- 2,494 3,092 North Side Net Activity for the Three Months Ended December 31, 1995 . -- -- 190 -------------------------------- Balance at End of Year ............................................... $ 71,759 $ 74,393 $ 73,280 ================================
During 1998, an additional provision for loan losses of $11.5 million was recognized. This additional provision was due to the sale of certain non-performing and marginally performing loans acquired in the NYB merger and to restore the Company's post-merger reserve coverage ratios to pre-merger levels. Note 6 - Premises and Equipment The following is a summary of premises and equipment at December 31,
(in thousands) 1998 1997 ------------------------ Land .......................................... $ 15,946 $ 16,129 Bank Premises ................................. 49,892 52,611 Leasehold Improvements ........................ 18,576 22,692 Equipment ..................................... 42,962 55,159 ------------------------ 127,376 146,591 Accumulated Depreciation and Amortization ..... (55,353) (69,366) ------------------------ $ 72,023 $ 77,225 ========================
The decline in premises and equipment during 1998 is due principally to the consolidation and elimination of duplicate facilities resulting from the merger with NYB, the sale of four Superior branches, and the removal of assets no longer in service. 52 43 Note 7 - Federal Funds Purchased & Securities Sold Under Agreements to Repurchase The following is a summary of federal funds purchased and securities sold under agreements to repurchase ("SSURA") at and for the years ended December 31,
(dollars in thousands) 1998 1997 1996 - ------------------------------------------------------------------------------------------------ Federal Funds Purchased Period End Balance ...................... $ 70,000 $ 40,000 $ -- Maximum Amount Outstanding at Any Month End 125,000 80,000 90,000 Average Outstanding Balance ............. 28,766 27,563 34,756 Weighted Average Interest Rate Paid ..... 5.49% 5.66% 5.51% Weighted Average Interest Rate at Year End 5.38% 6.81% -- Securities Sold Under Agreements to Repurchase Period End Balance ...................... $2,885,096 $2,064,036 $1,075,487 Accrued Interest Payable at Period End .. 14,904 10,234 5,827 Maximum Amount Outstanding at Any Month End 2,885,096 2,310,458 1,103,975 Average Outstanding Balance ............. 2,207,491 1,917,029 904,609 Weighted Average Interest Rate Paid ..... 5.78% 5.81% 5.65% Weighted Average Interest Rate at Year End 5.57% 5.85% 5.66%
Qualifying SSURA are treated as financings and the obligations to repurchase securities sold are reflected as a liability in the consolidated balance sheet. The dollar amount of securities underlying the agreements remains in the asset accounts, although the securities underlying the agreements are delivered to the brokers who arranged the transactions. In certain instances, the broker may have sold, loaned, or disposed of the securities to other parties in the normal course of their operations, and have agreed to resell to the Company substantially similar securities at the maturity of the agreements. The following is a summary of the amortized cost and fair value of securities collateralizing SSURA's, in addition to the amounts of and interest rate on the related borrowings.
MBS & CMO Securities (1) U.S. Govt. Agencies (1) --------------------------------------------------------------------------------------------------------- Average Amortized Fair Average Amortized Fair (dollars in thousands) SSURA(2) Rate Cost Value SSURA(2) Rate Cost Value --------------------------------------------------------------------------------------------------------- Up to 30 Days ...... $ 443,300 5.82% $ 493,405 $ 494,335 $ -- -- $ -- $ -- 30 to 90 Days ...... 400,000 4.85% 409,085 408,376 -- -- -- -- 90 Days to 1 Year... 273,446 5.81% 266,749 267,837 18,850 6.54% 19,295 19,710 In Excess of 1 Year 1,687,000 5.61% 1,774,525 1,784,512 62,500 5.81% 66,216 68,333 --------------------------------------------------------------------------------------------------------- Total ........... $2,803,746 5.55% $2,943,764 $2,955,060 $81,350 5.98% $85,511 $88,043 =========================================================================================================
(1) Excludes accrued interest receivable of $21.6 million and $2.8 million in MBS & CMO securities and U.S. government agencies, respectively, securing the related repurchase agreements. (2) Excludes accrued interest payable. Note 8 - Other Borrowings At December 31, 1998 and 1997, the Company had outstanding a $25.0 million, 7.56% Senior Note and $10 million in 10% fixed rate Federal Home Loan Bank advances. These borrowings mature in April 1999 and will be repaid at maturity from available liquidity. At December 31, 1997, NYB had $156 million in fixed rate Federal Home Loan Bank ("FHLB") advances at interest rates ranging from 5.68% to 6.02% and $249.5 million in variable rate advances at interest rates ranging from 5.63% to 6.63%, all of which matured prior to the merger. Indebtedness to and outstanding commitments from the FHLB are collateralized by the Company's investment in FHLB stock, first mortgage loans, and certain mortgage-backed securities under the terms of the collateral agreement. 53 44 Notes to Consolidated Financial Statements (continued) Additionally, at December 31, 1997, Home had $7.6 million in subordinated capital notes outstanding. Prior to the merger, the outstanding balances were prepaid by NYB. The Company's bank subsidiaries had arrangements with various correspondent banks providing short-term credit for regulatory liquidity requirements. These lines of credit aggregated $200 million at December 31, 1998. Note 9 - Capital Securities Company Obligated Mandatorily Redeemable Capital Securities of Subsidiary Trusts ("Capital Securities") are summarized as follows at December 31,
1998 1997 ------------------------ 8.00% Capital Securities due December 15, 2027 $ 99,628 $ 99,615 8.70% Capital Securities due December 15, 2026 99,661 99,649 ------------------------ $199,289 $199,264 ========================
The aforementioned Capital Securities were issued in December 1997 and 1996 through wholly-owned statutory business trust subsidiaries (collectively, the "Trusts"). The Trusts were formed with initial capitalizations in common stock and for the exclusive purpose of issuing the Capital Securities and using the proceeds to acquire Junior Subordinated Debt Securities ("Debt Securities") issued by the Company. The Debt Securities are due at maturity, are non-callable at any time in whole or in part for ten years from the date of issuance, except in certain circumstances, but may be redeemed annually thereafter, in whole or in part, at declining premiums to maturity. At December 31, 1998 and 1997, these Capital Securities qualified as Tier I capital for regulatory capital purposes. The costs associated with these issuances have been capitalized and are being amortized using the straight-line method to maturity. Note 10 - Income Taxes The components of the consolidated provision for income taxes is shown below for the years ended December 31, (in thousands) 1998 1997 1996 ------------------------------------------ Current Tax Expense ..... $74,453 $100,113 $72,680 Deferred Tax Expense .... 653 4,500 1,926 ------------------------------------------ Income Tax Provision .... $75,106 $104,613 $74,606 ========================================== The following table reconciles the statutory Federal tax rate to the effective tax rate on income before income taxes for the years ended December 31,
1998 1997 1996 ----------------------------------------- Federal Income Tax Expense at Statutory Rates ................... 35.00% 35.00% 35.00% Increase/(Reduction) Resulting from: State and Local Income Taxes, Net of Federal Income Tax Benefit 4.70% 3.96% 7.43% Nontaxable Distributions from a Corporate Reorganization ...... (9.35%) -- -- Tax Exempt Interest, net ...................................... (0.71%) (0.74%) (1.11%) Nondeductible Merger Related Restructure Charges .............. 1.38% -- 2.01% Valuation Allowance ........................................... (1.14%) -- -- Amortization & Write-down of Intangible Assets ................ 2.37% 0.43% 0.64% Dividends Received Deduction .................................. (0.35%) (0.41%) (0.03%) Other, Net .................................................... (1.00%) (0.22%) 0.19% ---------------------------------------- Effective Tax Rate ............................................ 30.90% 38.02% 44.13% ========================================
54 45 The components of the net deferred tax asset are included in "Other Assets" in the accompanying consolidated balance sheets at December 31, and are as follows:
(in thousands) 1998 1997 ------------------------- Deferred Tax Assets Allowance for Loan Losses ........................... $ 30,698 $ 28,261 Deferred Compensation and Other Employee Benefit Plans 7,948 6,759 Acquired Net Operating Loss Carry Forward ........... 8,195 4,011 Deductible Merger Related Restructure Charges ....... 3,112 1,664 Excess of Tax Basis Over Book Basis-Premises & Equipment 1,583 783 Other ............................................... 3,745 6,366 ------------------------- Gross Deferred Tax Asset ........................... $ 55,281 $ 47,844 Valuation Allowance ................................. (4,567) (7,342) ------------------------- Deferred Tax Asset ................................. $ 50,714 $ 40,502 ========================= Deferred Tax Liability Unrealized Gain on Securities Available-For-Sale .... $ (7,173) $(13,081) Tax Bad Debt Recapture .............................. (6,820) (929) Deferred Income ..................................... (5,006) -- Other ............................................... (3,873) (3,905) ------------------------- Gross Deferred Tax Liability ....................... $(22,872) $(17,915) ------------------------- Net Deferred Tax Asset ............................. $ 27,842 $ 22,587 =========================
The reduction in the valuation allowance was due principally to the revaluation of the net assets acquired in the Superior purchase transaction. This reduction was utilized to reduce the goodwill previously recorded in the transaction. Management continues to reserve a portion of the New York State and City deferred tax asset due to uncertainties of realization since New York State and City tax laws do not provide for the utilization of net operating loss carry-forwards or carry-backs. Additionally, as a result of the Company's experience in merging with and acquiring thrifts, the retained earnings at December 31, 1998 and 1997, includes approximately $51 million and $23 million for which no Federal income tax liability has been recognized. This amount represents the balance of acquired thrift bad debt reserves created for tax purposes as of December 31, 1987. These amounts are subject to recapture in the unlikely event that North Fork (i) makes distributions in excess of earnings and profits, (ii) redeems its stock, or (iii) liquidates. Management anticipates that the realization of the net deferred tax asset of $27.8 million is more likely than not, based on existing carryback ability, available planning strategies, and projected taxable income. Note 11 - Retirement and Other Employee Benefits Plans Retirement Plans The Company maintains a retirement plan (the "Plan") covering substantially all of its full-time employees. Participants accrue a benefit each year equal to five percent of their annual compensation, as defined, plus a rate of interest based on one-year Treasury Bill rates, credited quarterly. Plan assets are invested in a diversified portfolio of fixed income securities, mutual funds and equity securities. The Company contributes to the Plan an amount sufficient to meet Employee Retirement Income Security Act ("ERISA") funding standards. NYB and Superior maintained retirement plans covering substantially all of their full-time employees, subject to certain limitations. These plans were curtailed as of their respective merger dates, and all future benefit accruals ceased. Subsequent to these transactions, all former NYB and Superior employees retained by the Company meeting Plan requirements became eligible for participation in the Plan. Effective May 31, 1998, the former NYB and Superior 55 46 Notes to Consolidated Financial Statements (continued) plans were merged with that of the Company. The following table sets forth the change in benefit obligations, the change in plan assets, the funded status of the plan, and amounts recognized in the accompanying consolidated financial statements at December 31,
(dollars in thousands) 1998 1997 ------------------------- Change in Benefit Obligation: Benefit Obligation at Beginning of Year ... $ 56,911 $ 49,991 Service Cost .............................. 1,839 1,543 Interest Cost ............................. 3,999 3,766 Amendments ................................ 503 1,117 Acquisitions .............................. -- 2,123 Benefits Paid ............................. (7,334) (5,463) Actuarial Loss ............................ 1,305 3,834 ------------------------- Benefit Obligation at End of Year ......... $ 57,223 $ 56,911 ========================= Change in Plan Assets: Fair Value of Plan Assets at Beginning of Year $ 58,478 $ 55,597 Actual Return on Plan Assets .............. 4,226 6,746 Employer Contributions .................... 279 -- Acquisitions .............................. -- 1,598 Benefits Paid ............................. (7,334) (5,463) ------------------------- Fair Value of Plan Assets at End of Year .. $ 55,649 $ 58,478 ========================= Reconciliation of Funded Status: Funded Status ............................. $ (1,574) $ 1,567 Unrecognized Actuarial Loss ............... 3,521 1,485 Unrecognized Prior Service Cost ........... (1,873) (2,891) Unrecognized Transition Asset ............. (76) (37) ------------------------- (Accrued)/Prepaid Benefit Cost ............ $ (2) $ 124 =========================
1998 1997 1996 ----------------------------------------- Weighted-Average Assumptions as of December 31, Discount Rate ...................................... 6.50% 7.00% 7.75% Expected Return on Plan Assets ..................... 8.50% 8.50% 8.50% Rate of Compensation Increase ...................... 4.50% 4.50% 4.50% Components of Net Periodic Benefit Cost: Service Cost ....................................... $ 1,839 $ 1,543 $ 1,449 Interest Cost ...................................... 3,999 3,766 3,280 Expected Return on Plan Assets ..................... (5,051) (4,500) (3,687) Amortization of Prior Service Cost ................. (316) (242) (277) Amortization of Transition Asset ................... (32) (152) (180) Recognized Actuarial Loss/(Gain) ................... 167 (290) 218 Additional (Gain)/Loss Recognized Due to Curtailment (201) 203 Additional Cost Recognized by NYB .................. -- 514 879 ----------------------------------------- Net Periodic Benefit Cost .......................... $ 405 $ 842 $ 1,682 =========================================
The Company maintains a Supplemental Executive Retirement Plan ("SERP"), which restores to specified senior executives the full level of retirement benefits they would have been entitled to receive absent the ERISA provision limiting maximum payouts under tax qualified plans. The projected benefit obligation, which is unfunded, was $299 thousand at December 31, 1998 and $168 thousand at December 31, 1997. Net periodic pension expense incurred in 1998, 1997, and 1996, for the 56 47 SERP was $52 thousand, $31 thousand, and $11 thousand, respectively. The weighted average discount rate utilized to determine the projected benefit obligation was 6.50%, 7.0%, and 7.75% for 1998, 1997, and 1996, respectively. The assumed rate of future compensation increases was 4.50% for 1998, 1997, and 1996. NYB had also maintained a SERP and as a result of the merger, benefits under the plan were frozen with executives participating in the plan needing to meet the retirement age as specified in NYB's former pension plan prior to being eligible to receive any distributions. The projected benefit obligation, which is unfunded, was $1.5 million at December 31 1998 and $1.2 million at September 30, 1997. Net periodic pension expense incurred in 1998, 1997, and 1996 for the SERP was $100 thousand, $151 thousand, and $229 thousand, respectively. The weighted average discount rate utilized to determine the projected benefit obligation was 6.50%, 7.0% to 7.50%, and 7.50% to 8.0% for 1998, 1997, and 1996, respectively. The assumed rate of future compensation was 4% for 1997 and 1996. Post-Retirement Benefits Other Than Pensions The Company provides certain health care and life insurance benefits to eligible retired employees. Health care benefits received range between 0% and 100% of coverage premiums based on an employee's age, years of service and retirement date. Participants who retired after November 1, 1992 are responsible for all premium increases after 1997. The Company's plan for its post-retirement obligation is unfunded. The following table sets forth the change in post-retirement benefit obligation and amounts recognized in the accompanying consolidated financial statements at December 31,
(in thousands) 1998 1997 ------------------------- Change in Accumulated Post-Retirement Benefit Obligation ("APBO"): Accumulated Post-Retirement Benefit Obligation at Beginning of Year $ 10,423 $ 10,237 Service Cost ................................................... 135 134 Interest Cost .................................................. 788 694 Acquisitions ................................................... -- 350 Premiums Paid .................................................. (652) (644) Actuarial Loss/(Gain) .......................................... 603 (348) ------------------------- Accumulated Post-Retirement Benefit Obligation at End of Year .. $ 11,297 $ 10,423 ========================= Reconciliation of Funded Status: Accumulated Post-Retirement Benefit Obligation Inactives ...................................................... $ (9,350) $ (8,352) Actives Fully Eligible ......................................... (716) (394) Actives Not Yet Fully Eligible ................................. (1,231) (1,677) ------------------------- Funded Status .................................................. $(11,297) $(10,423) Unrecognized Transition Obligation ............................. 3,626 3,943 Unrecognized Prior Service Cost ................................ (1,002) (1,098) Unrecognized Net Loss .......................................... 1,401 835 ------------------------- (Accrued) Post-retirement Benefit Cost ......................... $ (7,272) $ (6,743) =========================
The weighted average discount rate utilized to determine the accumulated post-retirement benefit obligation was 6.5% and 7.0% in 1998 and 1997, respectively. In measuring the APBO, a 6.5% annual trend rate for health care costs was assumed for the year ended December 31, 1998. These rates are assumed to decline to 6% in 1999 and ratably to 5.5% through 2010, and remain at that level thereafter. However, for retirees after November 1, 1992, no increases in the annual trend rate are assumed for after 1997. The effect of a 1% increase in the health care cost trend rate on the aggregate of the service and interest cost components of net periodic post-retirement health care benefit cost and the APBO for health care benefits would be an increase of $44 thousand and $644 thousand, respectively, in 1998 and $80 thousand and $772 thousand, respectively, in 1997. The effect of a 1% 57 48 Notes to Consolidated Financial Statements (continued) decrease in the health care cost trend rate on the aggregate of the service and interest cost components of net periodic post-retirement health care benefit cost and the APBO for health care benefits would be a decrease of $37 thousand and $576 thousand, respectively, in 1998 and $71 thousand and $654 thousand, respectively, in 1997. The following table sets forth the components of net periodic post-retirement benefits expense for the years ended December 31,
(in thousands) 1998 1997 1996 ------------------------------------- Components of Net Periodic Benefit Cost: Service Cost ...................... $ 135 $ 134 $ 144 Interest Cost ..................... 788 694 751 Amortization of Prior Service Cost (96) (90) (90) Amortization of Transition Asset .. 317 255 342 Recognized Actuarial Loss/(Gain) .. 37 3 (43) ------------------------------------- Net Periodic Benefit Cost ......... $ 1,181 $ 996 $ 1,104 =====================================
401(k) Savings Plan The Company maintains a savings plan under section 401(k) of the Internal Revenue Code, covering substantially all current full-time and certain part-time employees. Newly hired employees can elect to participate in the savings plan after completing one year of service. Under the provisions of the savings plan, employee contributions are partially matched by the Company. This matching is fully vested for employees participating at the inception date of the plan, however, the matching vests for all other plan participants 25% per year beginning the second year of participation. Participant account balances are invested at the direction of the participant into one or more investment funds, including a fund which invests in shares of the Company's common stock. NYB also had a qualified 401(k) savings plan for its employees in which NYB matched a portion of the employee's contribution. Upon merger, all NYB plan participants were fully vested in their account balances. On December 31, 1998, the NYB plan was merged into the Company's plan with the Company's plan being the successor plan. The aggregate expense of the plans was $1.8 million, $1.6 million, and $1.7 million for the years ended 1998, 1997, and 1996, respectively. Note 12 - Common Stock Plans 1998 Stock Compensation Plan The plan provides for two types of awards, non-qualified stock options and restricted stock awards, to be granted either separately or in combination to all eligible persons, including executive officers and other full-time employees of the Company. The number of shares issuable thereunder is 1,500,000 with no more than 500,000 authorized for restricted stock awards. Shares of restricted stock granted under the plan are forfeitable and subject to certain restrictions on the part of the recipient until ownership of the shares vest in the recipient at some dates after the date of grant, as determined by the Compensation Committee upon grant. Awards are granted to employees by the Compensation Committee. The Committee can, at its discretion, accelerate the removal of any and all restrictions. If the Company is a party to a merger, consolidation, sale of substantially all assets or similar transaction and as a result, the common stock is exchanged for stock of another corporation, cash or other consideration, all restrictions on outstanding unvested options, and restricted stock will lapse and cease to be effective as of the day on which such corporate change is consummated. At December 31, 1998, 1,012,700 shares remain authorized and unissued. Restricted stock awarded under the plan is reflected as deferred compensation at the fair market value of the shares at the date of grant, and amortized to compensation expense over the vesting periods. 58 49 1997 Non-Officer Stock Plan The plan provided for two types of awards, non-qualified stock options and restricted stock awards, for a broad range of full-time employees of the Company who are not officers, as defined in the Plan. The number of shares issuable thereunder, either as restricted stock or non-qualified options, was limited to 375,000 shares. Each non-qualified stock option granted had a minimum six month vesting period. Restricted stock awarded under the plan contain similar restrictions and accelerated vesting provisions as those in the 1998 Stock Compensation Plan. Awards were granted to employees by the Compensation Committee. The right to grant awards under the plan terminated on November 30, 1998. 1994 Key Employee Stock Plan The plan provides for three types of awards, incentive stock options, non-qualified stock options and restricted stock, to be granted either separately or in combination. Awards are granted to employees by the Compensation Committee. In 1996, shareholders approved an amendment to the Plan to increase the number of shares issuable thereunder from 2,100,000 to 3,600,000 shares, with no more than 1,200,000 authorized for restricted stock. The Compensation Committee determines all grants of awards. Restricted stock awarded under the plan contain similar restrictions and accelerated vesting provision as those in the 1998 Stock Compensation Plan. At December 31, 1998, 198,916 shares remain authorized and unissued. New York Bancorp Plans - Pre-Merger NYB maintained several incentive stock option and non-qualified stock option plans for its officers, directors and other key employees. Generally, these plans granted options to individuals at a price equivalent to the fair market value of the stock at the date of grant. Options awarded under the plans generally vested over a three-year period from the date of grant and expired ten years from the grant date for employees and five years for directors. As a result of the merger, participants under the plans became fully vested with all outstanding options exercised by the merger date. Additionally, NYB had granted stock appreciation rights ("SARS") to certain key employees. SARS entitled the participant to receive cash equal to the excess of the market value of the shares at the date the right is exercised over the exercise price. An expense was accrued for the earned portion of the amount by which the market value of the stock exceeded the exercise price for each SAR outstanding. Participants became fully vested at the merger date. Compensation expense recognized under the terms of the SARS was $2.8 million, and $1.8 million in 1997 and 1996, respectively. North Side Stock Plans - Pre-Merger North Side maintained several incentive stock option and non-qualified stock option plans for its officers and key employees. Generally, these plans granted options to individuals at a price equivalent to the fair market value of the stock at the date of grant. Pursuant to the North Side merger agreement, options outstanding under these plans were converted into options on the Company's stock. North Side maintained a Management Development and Recognition Plan under which key employees participated in awards in the form of common stock held in trusts by the plan for the benefit of participants pending the vesting of such shares. Participants under the plan became fully vested at the merger date. Compensation expense recognized under the plan was $566 thousand in 1996. 59 50 Notes to Consolidated Financial Statements (continued) The following is a summary of the activity in the aforementioned stock option plans for the three year period ended December 31,
1998 1997 1996 -------------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options(1) Price ------------------------------------------------------------------------------------------- Outstanding at beginning of year... 5,514,363 $ 7.96 7,246,403 $ 5.53 7,541,255 $ 4.04 Granted ........................... 1,002,692 25.51 1,632,752 13.05 2,288,736 8.10 Exercised ......................... (4,220,854) 7.28 (3,341,815) 5.18 (2,452,429) 3.52 Canceled .......................... (14,103) 26.27 (22,977) 7.64 (131,159) 2.50 -------------------------------------------------------------------------------------------- Outstanding at end of year ........ 2,282,098 16.80 5,514,363 7.96 7,246,403 5.53 ============================================================================================ Options exercisable at year end.... 2,030,261 $16.90 4,329,415 $ 7.56 5,415,640 $ 4.85 ============================================================================================
(1) Includes 1995 performance awards that were granted in January 1996 and 1996 performance awards that were granted in December 1996. The following is a summary of the information concerning currently outstanding and exercisable options as of December 31, 1998:
Options Options Outstanding Exercisable - --------------------------------------------------------------------------------------- Weighted Weighted Weighted Range of Average Average Average Exercise Options Remaining Exercise Options Exercise Prices Outstanding Life Price Exercisable Price - --------------------------------------------------------------------------------------- $ 2.29-$10.75 682,255 5.2 $ 5.74 650,653 $ 5.65 $10.76-$16.41 380,504 7.9 11.38 299,219 11.37 $16.42-$26.88 1,219,339 6.3 24.67 1,080,389 25.21 - --------------------------------------------------------------------------------------- $ 2.29-$26.88 2,282,098 6.2 $ 16.80 2,030,261 $ 16.90 =======================================================================================
The following is a summary of the activity in the restricted stock plans for the years ended December 31,
1998 1997 1996 ------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Grant Grant Grant Shares Price Shares Price Shares Price ------------------------------------------------------------------------------- Outstanding at beginning of year 1,489,823 $13.94 784,476 $ 8.41 398,712 $ 5.79 Granted ..................... 324,350 20.49 746,652 19.42 457,200 10.35 Vested ...................... (44,626) 7.07 (6,805) 3.21 (63,936) 6.38 Canceled .................... (6,601) 14.60 (34,500) 8.69 (7,500) 5.53 ------------------------------------------------------------------------------- Outstanding at year end ..... 1,762,946 $15.32 1,489,823 $13.94 784,476 $ 8.41 ===============================================================================
The amount of compensation expense related to restricted stock awards included in compensation and employee benefits was $2.2 million, $1.2 million, and $.5 million in 1998, 1997, and 1996, respectively. The Company applies APB 25 and related interpretations in accounting for its plans. Accordingly, no compensation expense has been recognized for its stock-based compensation plans other than for restricted stock awards and Stock Appreciation Rights. Had compensation expense for the Company's stock option plans been determined based upon the fair value at grant date for awards under these plans net income and diluted earnings per share would have been reduced by approximately $3.4 million, or $.02 per share in 1998, $3.8 million, or $.03 per share in 1997, and $3.7 million, or $.03 per share in 1996. The estimated fair value of the options granted during 1998 and 1997 ranged from $1.19 to $8.32 and $.73 to $7.43, respectively, and was estimated at $3.10 in 1996 on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used in calculating the fair value of the options granted during 1998: a dividend yield of 2.25%, volatility ranging from 21-30%, risk-free interest rates ranging from 4.50%-5.66%, no assumed forfeiture rate, and an expected average life of six years for options with an original term greater than six years or the options remaining term, if its 60 51 original maturity is less then six years. The following assumptions were used in calculating the fair value of the options granted during 1997: dividend yield ranging from 2.00%-2.25%, volatility ranging from 20%-40%, risk-free interest rate ranging from 5.30%-6.30%, no assumed forfeiture and an expected life of six years for options with an original term greater than six years or the options remaining term, if its original maturity is less then six years. The following assumptions were used in calculating the fair value of the options granted during 1996: dividend yield ranging from 2.0%-2.75%, volatility ranging from 40%-43%, risk-free interest rate ranging from 5.28%-5.80%, no assumed forfeiture and an expected life of six years. Dividend Reinvestment and Stock Purchase Plan The Dividend Reinvestment and Stock Purchase Plan provides stockholders with a method of investing cash dividends and/or optional cash payments in additional common stock. Under the plan, cash dividends and/or optional cash payments can be used to purchase common stock without brokerage commission. The discount can be revised by the Board of Directors at its discretion. The amount of optional cash payment allowed in any month is restricted requiring a minimum optional cash payment of $200 per month and a maximum optional cash payment for participants of $15,000 regardless of the number of shares owned. At December 31, 1998, 715,099 shares remain authorized and unissued. Change-in-Control Arrangements and Shareholders' Rights Plan The Company has arrangements with certain key executive officers that provide for the payment of a multiple of base salary, should a change-in-control, as defined, of the Company occur. These payments are limited under guidelines for deductibility pursuant to Internal Revenue Service regulations. Also, in connection with a potential change-in-control, the Company adopted performance plans in which substantially all employees could participate in a cash distribution. The amount of the performance plan cash fund is established when a change-in-control transaction exceeds industry averages and achieves an above average return for shareholders. A limitation is placed on the amount of the fund and no performance pool is created if the transaction does not exceed industry averages. The Company had a shareholders' rights plan that was originally put in place to afford the company and its shareholders a defense mechanism in the event of an unsolicited offer for the Company or a controlling interest therein. The plan expired in March 1999 and was not renewed. 61 52 Notes to Consolidated Financial Statements (continued) Note 13 - Parent Company Only Condensed Financial Statements Condensed Balance Sheets December 31, (in thousands) 1998 1997 -------------------------- Assets Deposits with Bank Subsidiary ................................... $ 5,661 $ 5,347 Deposits with Other Financial Institutions ...................... 1,557 71 Securities Purchased Under Agreements to Resell with Bank Subsidiary 40,000 99,900 Securities Available-for-Sale ................................... 192,805 153,785 Investment in Subsidiaries ...................................... 805,144 728,356 Intangible Assets ............................................... 28,965 28,367 Other Assets .................................................... 39,190 9,810 -------------------------- Total .......................................................... $1,113,322 $1,025,636 ========================== Liabilities and Stockholders' Equity Junior Subordinated Debt (See Note 9) ........................... $ 205,475 $ 205,450 Senior Note Payable ............................................. 25,000 25,000 Dividends Payable ............................................... 39,041 10,142 Other Liabilities ............................................... 12,556 14,155 Stockholders' Equity ............................................ 831,250 770,889 -------------------------- Total .......................................................... $1,113,322 $1,025,636 ==========================
Condensed Statements of Income For the Years Ended December 31,
(in thousands) 1998 1997 1996 ----------------------------------------- Income: Dividends from Subsidiaries ................................ $ 92,800 $ 41,600 $ 108,191 Interest Income ............................................ 14,496 10,869 1,622 Net Securities Gains ....................................... 9,032 6,376 5,826 Other Income ............................................... 2,428 799 -- ----------------------------------------- Total Income .............................................. 118,756 59,644 115,639 ----------------------------------------- Expense: Interest Expense ........................................... 2,274 2,033 1,913 Interest on Junior Subordinated Debt ....................... 17,242 9,463 25 Compensation and Employee Benefits ......................... 2,194 1,211 495 Amortization and Write-down of Intangibles ................. 7,986 440 440 Other Expenses ............................................. 1,577 1,691 1,385 ----------------------------------------- Total Expenses ............................................ 31,273 14,838 4,258 Income before Income Taxes and Equity in Undistributed Earnings ----------------------------------------- of Subsidiaries .......................................... 87,483 44,806 111,381 Income Tax Expense ......................................... 280 151 1,419 Equity in Undistributed Earnings of Subsidiaries ........... 80,772 125,866 (15,514) ----------------------------------------- Net Income ................................................ $167,975 $170,521 $ 94,448 =========================================
62 53 Condensed Statements of Cash Flows For the Years Ended December 31,
(in thousands) 1998 1997 1996 --------------------------------------------- Cash Flows from Operating Activities: Net Income .................................................. $ 167,975 $ 170,521 $ 94,448 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization ............................... 1,187 1,218 487 Amortization & Writedown of Intangible Assets ............... 7,986 440 440 Equity in Undistributed Earnings of Subsidiaries ............ (80,772) (125,866) 15,514 Proceeds from Sales of Securities Held-for-Trading .......... -- 10,125 -- Purchase of Securities Held-for-Trading ..................... -- (9,670) -- Net Securities Gains ........................................ (9,032) (6,376) (5,826) Other, Net .................................................. (28,049) (4,019) 1,434 --------------------------------------------- Net Cash Provided by Operating Activities .................. 59,295 36,373 106,497 --------------------------------------------- Cash Flows from Investing Activities: Proceeds from Sales of Securities Available-for-Sale ........ 112,782 42,016 32,419 Purchases of Securities Available-for-Sale .................. (133,632) (161,032) (38,279) Investment in Subsidiary Trusts ............................. -- (3,093) (3,093) Investment in Bank Subsidiary ............................... -- (4,000) -- --------------------------------------------- Net Cash (Used in)/ Provided by Investing Activities ....... (20,850) (126,109) (8,953) --------------------------------------------- Cash Flows from Financing Activities: Purchase of Treasury Shares ................................. (56,462) (27,733) (51,594) Common Stock Sold for Cash .................................. 26,949 6,814 24,687 Dividends Paid to Shareholders .............................. (67,032) (46,607) (32,601) Proceeds from the Issuance of Junior Subordinate Debt Securities -- 102,713 102,737 --------------------------------------------- Net Cash (Used in)/Provided by Financing Activities ........ (96,545) 35,187 43,229 --------------------------------------------- Net (Decrease)/Increase in Cash and Cash Equivalents ........ (58,100) (54,549) 140,773 Cash and Cash Equivalents at Beginning of Year .............. 105,318 159,867 19,094 --------------------------------------------- Cash and Cash Equivalents at End of Year ................... $ 47,218 $ 105,318 $ 159,867 =============================================
Note 14 - Regulatory Matters The Company and its bank subsidiaries are subject to the risk based capital guidelines administered by the banking regulatory agencies. The risk based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Under these guidelines, assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk weighted assets and off-balance sheet items. The guidelines require all banks and bank holding companies to maintain a minimum ratio of total risk based capital to total risk weighted assets of 8%, including a minimum ratio of Tier 1 capital to total risk weighted assets of 4% and a Tier 1 capital to average assets of 4% ("Leverage Ratio"). Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators, that, if undertaken, could have a direct material effect on the Company's financial statements. As of December 31, 1998, the most recent notification from the various regulators categorized the Company and its bank subsidiaries as well capitalized under the regulatory framework for prompt corrective action. Under the capital adequacy guidelines, a well capitalized institution must maintain a minimum total risk based capital to total risk weighted assets ratio of at least 10%, a minimum Tier 1 capital to total risk weighted assets ratio of at least 6%, a minimum leverage ratio of at least 5% and not be subject to any written order, agreement or directive. There are no conditions or events since such notifications that management believes have changed this classification. 63 54 Notes to Consolidated Financial Statements (continued) The following table sets forth the Company's regulatory capital at December 31, 1998, under the rules applicable at such date. At such date, management believes that the Company meets all capital adequacy requirements to which it is subject:
(dollars in thousands) Amount Ratio ----------------------- Tier 1 Capital .................................. $ 936,525 15.19% Regulatory Requirement .......................... 246,643 4.00% ----------------------- Excess .......................................... $ 689,882 11.19% ----------------------- Total Risk Adjusted Capital ..................... $1,010,449 16.39% Regulatory Requirement .......................... 493,285 8.00% ----------------------- Excess .......................................... $ 517,164 8.39% ======================= Risk Weighted Assets ............................ $6,166,067 ==========
The Company's leverage capital ratio at December 31, 1998 was 9.09%. The Tier 1, total risk based and leverage capital ratios of North Fork were 11.81%, 13.01%, and 6.98%, respectively, at December 31, 1998. The Tier I, total risk based and leverage capital ratios of Superior were 29.32%, 29.52%, and 7.13%, respectively, at December 31, 1998. Dividends from North Fork to the Company are limited by the regulations of the New York State Banking Department to North Fork's current year's earnings plus the prior two years' retained net profits. North Fork's dividend capability at January 1, 1999, pursuant to the regulations, was $174.6 million. Dividends from Superior are similarly limited by regulations of the State of Connecticut. In September 1996, legislation was passed that empowered the Federal Deposit Insurance Corporation to impose a special assessment on "SAIF-Assessable Deposits" of depository institutions in order to recapitalize the Savings Association Insurance Fund ("SAIF"). Certain of North Fork's deposit liabilities acquired in previous thrift acquisitions are insured under the SAIF fund (SAIF insured deposits at December 31, 1998 were approximately $2.9 billion) and accordingly are subject to higher quarterly assessments. As a result of maintaining deposits in the SAIF, North Fork is considered an OAKAR institution and, therefore, qualified for a reduced one-time special assessment rate of 52.6 basis points per $100 of insured SAIF assessable deposits as of March 31, 1995. During 1996, North Fork recognized a non-recurring one-time charge for this assessment of $17.8 million. Note 15 - Derivatives Financial Instruments Periodically, the Company enters into interest rate agreements, including interest rate swaps, caps, and floors, as part of its management of interest rate exposure. These agreements are entered into as hedges against interest rate risk and are designated against specific assets and liabilities. Interest rate swaps outstanding at December 31, 1998 are summarized as follows (dollars in thousands):
Fixed Variable Notional Interest Rate Interest Rate Maturity Amount Paying Receiving - ----------------------------------------------------------------------------------------- November 2000 ............................. $100,000 4.62% 5.25% May 2000 .................................. 100,000 5.42% 5.40% November 2001 ............................. 100,000 4.66% 5.25% November 2001 ............................. 100,000 4.72% 5.25% May 2008 .................................. 75,000 6.14% 5.34% -------- Total Notional Amount of Interest Rate Swaps $475,000 ========
These agreements require the Company to make periodic fixed rate payments while receiving periodic variable rate payments indexed to the three month London Interbank Offer Rate ("LIBOR"). At December 31, 1998 and 1997, the Company's interest rate swaps had an unrealized loss of $1.0 million and $.4 million, respectively. 64 55 Prior to the merger, NYB utilized interest rate collars, swaps, and floors agreements to insulate it from volatile interest rate changes. These agreements were accounted for as hedges and were not recorded on the balance sheet. NYB was party to $700 million in interest rate collar agreements, which expired in August 1998. They required receipt of payment when the three month LIBOR exceeded 7.50% and required payment when the three month LIBOR was less than 5.00%. During 1995, NYB entered into $1.0 billion of interest rate floor agreements to protect against interest rate risk associated with repricing of interest bearing deposits, which expired in February 1998. During 1995, these agreements were terminated to secure the hedge position, and the gain was deferred and amortized over the original contractual life of the agreements. During 1997, a $600 million interest rate swap agreement matured, which was utilized to extend the maturity of liabilities in order to create a more consistent and predictable interest rate spread. These agreements required NYB to make periodic fixed rate payments while receiving periodic variable rate payments. The credit risk associated with these off-balance sheet instruments is the risk of non-performance by the counterparty to the agreements. However, management does not anticipate non-performance by the counterparty and monitors/controls the risk through its asset/liability management procedures. Additionally, the Company had approximately $2.3 million in contracts for purposes of hedging the "Standard & Poor's 500" index outstanding at December 31, 1998. The call options mature in 1999. Stock indexed call options are utilized for purposes of hedging MarketSmart CDs, previously offered by NYB. The call options hedge the interest rate paid on these five year CD deposits, which is an annual percentage yield based on the change in the Standard & Poor's 500 Composite Stock Price Index during each of the five year terms of the CDs. These CDs have not been offered since 1995. The impact of the aforementioned agreements was to reduce interest expense by approximately $.8 million, $6.3 million, and $3.5 million during 1998, 1997, and 1996, respectively. Note 16 - Other Commitments and Contingent Liabilities (a) Off-Balance Sheet Risks The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are reflected in the consolidated financial statements when and if proceeds associated with the commitments are disbursed. The exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. Management uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet financial instruments. Commitments to extend credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Management evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing properties. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. 65 56 Notes to Consolidated Financial Statements (continued) The notional principal amount of the off-balance sheet financial instruments at December 31, is as follows:
1998 1997 Contract or Contract or Notional Notional (in thousands) Amount Amount --------------------------- Financial instruments whose contract amounts represent credit risk: Commitments to extend credit .................................... $468,241 $502,105 Standby letters of credit ....................................... 45,229 25,232
(b) Lease Commitments At December 31, 1998, the Company was obligated under a number of non-cancelable leases for land and buildings that expire at various dates through August 2016. Minimum annual rental commitments, exclusive of taxes and other charges, under non-cancelable leases are summarized as follows:
Minimum (in thousands) Rentals ------- Year Ended December 31: 1999 ......................................................... $ 7,354 2000 ......................................................... 6,392 2001 ......................................................... 5,349 2002 ......................................................... 4,862 2003 ......................................................... 3,867 Thereafter ................................................... 13,454
Rent expense for the years ended December 31, 1998, 1997, and 1996 amounted to $6.4 million, $6.9 million, and $5.6 million, respectively. (c) Other Matters The Company and its subsidiaries are subject to certain pending and threatened legal actions which arise out of the normal course of business. Management believes that the resolution of any pending or threatened litigation will not have a material adverse effect on its financial condition or results of operations. On October 13, 1998, the Company's Board of Directors approved the repurchase of up to 14.3 million of the Company's common shares, or approximately 10% of its shares outstanding. As of December 31, 1998, approximately 2.6 million shares had been repurchased. The Bank subsidiaries are required to maintain balances with the Federal Reserve Bank of New York for reserve and clearing requirements. These balances averaged $3.4 million in 1998. Note 17 - Disclosures About Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107 "Disclosure about Fair Value of Financial Instruments" ("SFAS 107") requires that the Company disclose estimated fair values for its financial instruments. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. SFAS 107 has no effect on the financial position or results of operations in the current year or any future period. Furthermore, the fair values disclosed under SFAS 107 are not representative of the total value of the Company. If quoted market prices are not available, SFAS 107 permits using the present value of anticipated future cash flows to estimate fair value. Accordingly, the estimated fair value will be influenced by prepayment and discount rate assumptions. This method may not provide the actual amount that would be realized in the ultimate sale of the financial instrument. Fair value estimates, methods and assumptions are set forth below. 66 57 Cash, Cash Equivalents and Securities The carrying amounts for cash and cash equivalents are reasonable estimates of fair value. The fair value of securities is estimated based on quoted market prices as published by various quotation services, or if quoted market prices are not available, on dealer quotes. The following table presents the carrying value and estimated fair value of cash, cash equivalents and securities at December 31,
1998 1997 ---------------------------------------------------------------- Carrying Estimated Carrying Estimated (in thousands) Amount Fair Value Amount Fair Value ---------------------------------------------------------------- Cash and Cash Equivalents ..................... $ 180,505 $ 180,505 $ 191,055 $ 191,055 Securities Held-to-Maturity ................... 1,571,545 1,574,196 1,763,308 1,757,411 Securities Available-for-Sale (1) ............. 2,984,035 2,984,035 2,156,624 2,156,624 ---------------------------------------------------------------- Total Cash, Cash Equivalents and Securities.... $4,736,085 $4,738,736 $4,110,987 $4,105,090 ================================================================
(1) Excludes $3.8 million in unrealized losses on related interest swap agreements, used to hedge certain debt securities at December 31, 1998. Loans Fair values are estimated for portfolios of loans with similar financial characteristics. The fair value of performing loans is calculated by discounting the estimated cash flows through expected maturity or repricing using the current rates at which similar loans would be made to borrowers with similar credit risks. For non-performing loans, the present value is separately discounted consistent with management's assumptions in evaluating the adequacy of the allowance for loan losses. The following table presents the carrying value and the estimated fair value of the loan portfolio as of December 31,
1998 1997 ------------------------------------------------------------- Carrying Estimated Carrying Estimated (in thousands) Amount Fair Value Amount Fair Value ------------------------------------------------------------- Gross Loans.................... $5,731,424 $5,889,662 $5,760,691 $5,807,815 =============================================================
Deposit Liabilities and Borrowings The carrying amount for demand deposits, savings, NOW, money market accounts and borrowings with a remaining term of 90 days or less are reasonable estimates of fair value. Fair value for certificates of deposit and longer term borrowings are estimated by discounting the future cash flows using the rates currently offered for deposits and borrowings of similar remaining maturities. The following table presents the carrying value and estimated fair value of the deposits and borrowings as of December 31,
1998 1997 ---------------------------------------------------------------- Carrying Estimated Carrying Estimated (in thousands) Amount Fair Value Amount Fair Value ---------------------------------------------------------------- Demand Deposits ....................... $1,263,105 $1,263,105 $ 948,458 $ 948,458 Savings ............................... 2,052,650 2,052,650 2,101,829 2,101,829 NOW and Money Market .................. 897,372 897,372 907,010 907,010 Certificates of Deposit ............... 2,214,495 2,244,254 2,380,642 2,395,881 Borrowings with terms of 90 days or less 823,300 823,300 794,156 794,156 Borrowings with terms greater than 90 days 2,166,796 2,209,348 1,759,480 1,761,119 ---------------------------------------------------------------- Total Deposit Liabilities and Borrowings $9,417,718 $9,490,029 $8,891,575 $8,908,453 ================================================================
At December 31, 1998, certificate of deposits totaling $465.9 million and $90.8 million mature between 1-2 years and 2-3 years, respectively. 67 58 Notes to Consolidated Financial Statements (continued) Commitments to Extend Credit and Standby Letters of Credit These financial instruments generally are not sold or traded, and estimated fair values are not readily available. However, the fair value of commitments to extend credit and standby letters of credit is based on fees currently charged to enter into similar agreements with comparable credit risks and the current creditworthiness of the counterparties. Commitments to extend credit issued by the Company are generally short-term in nature and, if drawn upon, are issued under current market terms and conditions for credits with comparable risks. At December 31, 1998 and 1997, there was no significant unrealized appreciation or depreciation on these financial instruments. Derivative Financial Instruments The fair value of derivative financial instruments is estimated based on quoted market prices from various brokers. The following table presents the carrying value and the estimated fair value of derivative financial instruments as of December 31,
1998 1997 ---------------------------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ---------------------------------------------- Off Balance Sheet Instruments ... $(3,812) $(957) $-- $(400) ==============================================
Note 18 - Recent Accounting Pronouncements Reporting Comprehensive Income The Company adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130") in January 1998. SFAS 130 establishes standards for reporting and the display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. In accordance with SFAS 130, all items that are required to be recognized under accounting standards as components of comprehensive income must be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS 130 also requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in-capital in the equity section of a statement of financial position (See the "Consolidated Statements of Comprehensive Income" included herein). Disclosure about Segments for an Enterprise and Related Information In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for the way an enterprise reports information about operating segments in annual financial statements and requires that enterprises report selected information about operating segments in interim financial reports issued to shareholders. Operating segments are components of an enterprise about which separate financial information is available, that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS 131 requires a reconciliation of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments to the amounts in the enterprise's financial statements. It also requires an enterprise to report descriptive information about the way the operating segments were determined, the products and services provided by the operating segments, and any differences between the measurements used for segment reporting and financial statement reporting. SFAS 131 is effective for fiscal years beginning 68 59 after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated. Management has evaluated the disclosure requirements and determined that disclosure is not required as its operating segments do not meet the quantitative thresholds prescribed in SFAS 131 for all reporting periods. Employers' Disclosures about Pensions and Other Post-Retirement Benefits In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Post-retirement Benefits" ("SFAS 132"). SFAS 132 revises employers' disclosures about pensions and other post-retirement benefit plans; it does not change the measurement or recognition under these plans. SFAS 132 standardizes the disclosure requirements for pensions and other post-retirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer useful. SFAS 132 is effective for fiscal years beginning after December 15, 1997 (See Footnote 11, "Retirement and Other Employee Benefit Plans", included herein for the required disclosure). Accounting for Derivative Instruments and Hedging Activities In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign currency denominated forecasted transaction. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Under SFAS 133, an entity that elects to apply hedge accounting is required to establish, at the inception of the hedge, the method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. Those methods must be consistent with the entity's approach to managing risk. SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Management is currently evaluating the effect SFAS 133 will have on its financial statements. 69 60 Independent Auditors' Report [LOGO] KPMG TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF NORTH FORK BANCORPORATION, INC.: We have audited the accompanying consolidated balance sheets of North Fork Bancorporation, Inc. and subsidiaries as of December 31, 1998 and 1997, the related consolidated statements of income, cash flows, changes in stockholders' equity and comprehensive income for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of North Fork Bancorporation, Inc. and subsidiaries at December 31, 1998 and 1997, the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ KPMG LLP New York, New York January 14, 1999 70 61 Report of Management MANAGEMENT OF NORTH FORK BANCORPORATION, INC. is responsible for the preparation, content and integrity of the consolidated financial statements and all other information whether audited or unaudited in this annual report. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and, where necessary, are based on management's best estimates and judgment. The financial information contained elsewhere in this annual report is consistent with that contained in the consolidated financial statements. North Fork Bancorporation, Inc.'s independent auditors have been engaged to perform an audit of the consolidated financial statements in accordance with generally accepted auditing standards and the independent auditors' report expresses their opinion as to the fair presentation of the consolidated financial statements in accordance with generally accepted accounting principles. Management maintains accounting systems and internal controls to meet its responsibilities for reliable consolidated financial statements. There are inherent limitations in the effectiveness of internal controls, including the possibility of errors or irregularities. Furthermore, because of changes in conditions, the effectiveness of internal controls may vary over time. Management believes that these systems and controls provide reasonable assurance that assets are safeguarded and transactions are properly recorded and executed, in accordance with management's authorization. An internal audit function is maintained to continually evaluate the adequacy and effectiveness of such internal controls, policies, and procedures. The Board of Directors pursues its oversight role for the financial statements through the Audit Committee, which is composed entirely of outside directors. The Audit Committee meets periodically with management, the internal auditors and the independent auditors, to discuss internal controls and accounting, auditing and financial reporting matters. The Audit Committee reviews and approves the scope of internal and external audits, as well as recommendations made with respect to internal controls by the independent and internal auditors and the various regulatory agencies. /s/ John Adam Kanas /s/ Daniel M. Healy John Adam Kanas Daniel M. Healy Chairman, President and Executive Vice President Chief Executive Officer and Chief Financial Officer 71 62 Corporate Information Executive Information John Adam Kanas Chairman, President & Chief Executive Officer John Bohlsen Vice Chairman Thomas M. O'Brien Vice Chairman Daniel M. Healy Executive Vice President & Chief Financial Officer Aurelie S. Graf Corporate Secretary Board of Directors John Adam Kanas, Chairman John Bohlsen, Vice Chairman Thomas M. O'Brien, Vice Chairman Irvin L. Cherashore Allan C. Dickerson Lloyd A. Gerard Patrick E. Malloy III James F. Reeve George H. Rowsom Dr. Kurt R. Schmeller Raymond W. Terry, Jr. Executive Offices 275 Broad Hollow Road Melville, N.Y. 11747 Shareholder Information Investor Relations Shareholders seeking information about the Company or the annual report pursuant to Section 112 of the FDIC Improvement Act of 1991 are directed to contact the Corporate Secretary's office, North Fork Bancorporation, Inc., 275 Broad Hollow Road, Melville, New York 11747, (516) 298-5000. Additional inquiries and analyst coverage regarding the Company can be made at www.northforkbank.com. Dividend Services Dividend Reinvestment Plan (DRP)-The DRP provides shareholders with a convenient means to acquire additional shares of stock through reinvesting dividends and/or making optional cash payments without a brokerage commission or service charges. Direct Deposit of Cash Dividends-Direct deposit provides a safe, timesaving method of receiving cash dividends. Shareholders can automatically have their dividends deposited on the date of payment into a checking, savings, or money market account at any financial institution which provides Automated Clearing House services. Shareholder Account Inquiries Shareholders who wish to change the name, address or ownership of stock, consolidate accounts, eliminate duplicate mailings or replace lost certificates or dividend checks, should contact the Stock Registrar and Transfer Agent at the address and phone number listed. Stock Registrar and Transfer Agent First Chicago Trust Company of New York c/o Equiserve P.O. Box 2500 Jersey City, New Jersey 07303-2500 (800) 317-4445 E-mail Address: fctc@em.fcnbd.com Stock Listing North Fork Bancorporation, Inc. is traded on the New York Stock Exchange under the symbol NFB. Newspaper stock listings: North Fork Bcp or NO FK BC. Annual Meeting The annual meeting of shareholders will be held on Tuesday, April 27, 1999, 10:00 a.m. at the Islandia Marriott Long Island, 3635 Express Drive North, Hauppauge, New York 11788, (516) 232-3000. 72 EX-21 6 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT - 21
SUBSIDIARIES OF REGISTRANT STATE OF INCORPORATION - -------------------------- ---------------------- North Fork Bank New York Superior Savings of New England Connecticut Compass Investment Services Corp New York Amivest Corporation Delaware North Fork Capital Trust I New York North Fork Capital Trust II New York SUBSIDIARIES OF NORTH FORK BANK NFB Properties, Inc. New York Home Fed Realty Corporation Delaware NFB Funding Inc. New Jersey First Settlers Corporation New York NFB Development Corp New York Cutchco Corp New York Clare Elm Corp New York Compass Food Service Corp New York NBALI Services Corp New York
EX-23 7 ACCOUNTANT'S 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. 2-99984, 33-14903, 33-34372, 33-52504, 33-53467, 333-05513, 333-00675, 333-56329, 333-74713, and 333-19047) on Form S-8, (Nos. 333-42515, 333-35111, and 333-24419) on Form S-4 and (Nos. 333-56913, 33-42294, 33-54222, and 333-40311) on Form S-3 of North Fork Bancorporation, Inc. of our report dated January 14, 1999 relating to the consolidated balance sheets of North Fork Bancorporation, Inc. and subsidiaries as of December 31, 1998 and 1997 and the related consolidated statements of income, cash flows, changes in stockholders' equity, and comprehensive income for each of the years in the three-year period ended December 31, 1998, which report appears in the December 31, 1998 Annual Report on Form 10-K of North Fork Bancorporation, Inc. Our report refers to various changes in accounting as discussed in the notes to those statements. KPMG LLP New York, New York March 29, 1999 EX-27.1 8 FINANCIAL DATA SCHEDULE
9 1,000 YEAR DEC-31-1998 DEC-31-1998 151,576 11,929 17,000 0 2,980,223 1,571,545 1,574,196 5,731,424 71,759 10,679,556 6,427,622 440,000 430,588 2,550,096 0 0 362,312 468,938 10,679,556 494,125 256,513 2,462 753,100 187,769 328,456 424,644 15,500 9,433 230,381 243,081 243,081 0 0 167,978 1.19 1.18 4.48 7,592 7,684 584 0 74,393 21,896 3,817 71,759 66,317 0 5,442
EX-27.2 9 FINANCIAL DATA SCHEDULE
9 1,000 YEAR DEC-31-1997 DEC-31-1997 179,268 7,787 4,000 0 2,156,624 1,763,308 1,757,411 5,760,691 74,393 10,073,632 6,337,939 999,156 411,158 1,554,480 0 0 256,790 514,099 10,073,632 461,984 261,210 1,230 724,424 187,740 326,803 397,621 8,100 8,407 173,709 275,134 275,134 0 0 170,521 1.24 1.22 4.42 31,231 6,414 14,567 0 73,280 12,054 2,573 74,393 60,836 0 13,557
EX-27.3 10 FINANCIAL DATA SCHEDULE
9 1,000 YEAR DEC-31-1996 DEC-31-1996 163,410 2,298 125,700 0 1,301,891 1,851,575 1,828,715 5,071,794 73,280 8,691,434 6,199,860 1,206,275 216,565 459,300 0 0 125,371 484,063 8,691,434 390,451 220,178 3,133 613,762 196,908 281,107 332,655 8,000 6,224 200,427 169,054 169,054 0 0 94,448 0.69 0.68 4.24 43,297 6,988 19,552 0 77,899 18,570 2,669 73,280 63,195 0 10,085
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