-----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, S2vTzYhHID8pJVsRAJjvJG02B9Ctpf/IHj+ZPdyKGnR8Tk1lxmv4dSB9kUz+TZzw CUGGj7L2+1pkuPZ5SZ1odA== 0000352510-95-000018.txt : 19951130 0000352510-95-000018.hdr.sgml : 19951130 ACCESSION NUMBER: 0000352510-95-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH FORK BANCORPORATION INC CENTRAL INDEX KEY: 0000352510 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 363154608 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10458 FILM NUMBER: 95592377 BUSINESS ADDRESS: STREET 1: 9025 ROUTE 25 CITY: MATTITUCK STATE: NY ZIP: 11952 BUSINESS PHONE: 5162985000 MAIL ADDRESS: STREET 1: 9025 ROUTE 25 CITY: MATTITUCK STATE: NY ZIP: 11952 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the period ended: September 30, 1995 NORTH FORK BANCORPORATION, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-315460 (State or other Jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9025 ROUTE 25, MATTITUCK, NEW YORK 11952 (Address of principal executive offices) (Zip Code) (516) 298-5000 (Registrant's telephone number, including area code) 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: Yes (X) No ( ) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASSES OF COMMON STOCK NUMBER OF SHARES OUTSTANDING 11/13/95 $2.50 Par Value 24,817,564 INDEX PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. North Fork Bancorporation, Inc. and Subsidiaries (1.) Consolidated Balance Sheets. (2.) Consolidated Statements of Income. (3.) Consolidated Statements of Cash Flows. (4.) Consolidated Statements of Changes in Stockholders' Equity. (5.) Notes to Consolidated Financial Statements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable. ITEM 2. CHANGES IN SECURITIES Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. PART II. OTHER INFORMATION (continued) ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K The following exhibits are submitted herewith: (a) Exhibit # Description (11) Statement Re: Computation of per share earnings. (27) Financial Data Schedule (b) Current Reports on Form 8-K: dated September 19, 1995 Current Reports on Form 8-K: dated September 29,1995 Consolidated Balance Sheets (in thousands, except per share amounts) Sept. 30, 1995 Dec.31, 1994 Sept. 30, 1994 (unaudited) (unaudited) Assets Cash & Due from Banks $100,625 $67,168 $75,502 Interest Earning Deposits 1,153 748 585 Federal Funds Sold & Securities Purchased under Agreements to Resell 8,000 - 8,275 Securities: Held-to-Maturity 546,355 631,492 639,812 Available-for-Sale 463,081 141,805 333,057 Total Securities 1,009,436 773,297 972,869 Loans 1,938,259 1,831,466 1,810,381 Less: Unearned Income & Fees 18,251 17,429 18,177 Allowance for Loan Losses 51,222 50,069 50,643 Net Loans 1,868,786 1,763,968 1,741,561 Premises & Equipment, Net 42,699 39,168 39,083 Accrued Income Receivable 20,503 19,315 19,489 Other Real Estate 2,500 4,861 5,841 Other Assets 24,437 27,043 26,243 Excess of Cost over Fair Value of Net Assets Acquired 26,896 22,208 22,576 Total Assets $3,105,035 $2,717,776 $2,912,024 Liabilities and Stockholders' Equity Demand Deposits $404,002 $331,245 $312,152 Savings, N.O.W. & Money Market Deposits 1,149,825 1,325,628 1,361,908 Certificates of Deposits in Amounts of $100,000 & Over 165,987 71,978 74,141 Other Time Deposits 784,305 614,036 598,972 Total Deposits 2,504,119 2,342,887 2,347,173 Federal Funds Purchased & Securities Sold Under Agreements to Repurchase 175,938 20,000 201,614 Other Borrowings 10,000 50,000 60,257 Senior Notes Payable 25,000 25,000 25,000 Accrued Interest & Other Expenses 23,798 19,770 14,266 Purchased Securities Liability 58,421 - 2,108 Other Liabilities 8,567 5,196 9,646 Total Liabilities $2,805,843 $2,462,853 $2,660,064 Stockholders' Equity Preferred Stock, par value $1.00; authorized 10,000,000 shares, unissued - - - Common stock, par value $2.50; authorized 50,000,000 shares; issued & outstanding 24,843,436, 23,049,187, 22,706,849 shares at the periods ending, respectively 62,109 57,623 56,767 Additional Paid in Capital 101,713 94,526 93,270 Retained Earnings 134,948 106,186 107,521 Unrealized Gain/( Loss) on Securities Available-for-Sale, net of taxes 2,085 (2,871) (4,969) Deferred Compensation (1,029) (514) (611) Treasury Stock at cost; 36,024, 1,945, 1,253 shares at the periods ending, respectively (634) (27) (18) Total Stockholders' Equity 299,192 254,923 251,960 Total Liabilities and Stockholders' Equity $3,105,035 $2,717,776 $2,912,024
Consolidated Statements of Income (Unaudited) (in thousands, except per share amounts) Three Months Ended Nine Months Ended Sept.30, 1995 Sept.30, 1994 Sept.30, 1995 Sept.30, 1994 (in thousands, except per share amounts) Interest Income Loans (including fee income) $43,805 $37,391 $127,044 $109,302 Interest Earning Deposits 23 4 77 8 Federal Funds Sold & Securities Purchased Under Agreements to Resell 212 551 755 1,572 Mortgage-Backed Securities 10,583 10,928 29,389 31,282 U.S. Treasury & Government Agency Securities 1,771 2,484 4,156 7,041 State & Municipal Obligations 498 619 1,839 1,608 Other Securities 420 325 1,124 905 Total Interest Income 57,312 52,302 164,384 151,718 Interest Expense Savings, N.O.W. & Money Market Deposits 6,723 7,776 21,197 23,194 Certificates of Deposit, $100,000 and Over 2,221 745 5,721 1,861 Other Time Deposits 11,045 5,704 29,402 17,091 Short-Term Borrowings 964 3,313 1,851 9,063 Long-Term Borrowings 728 728 2,175 2,244 Total Interest Expense 21,681 18,266 60,346 53,453 Net Interest Income 35,631 34,036 104,038 98,265 Provision for Loan Losses 2,000 (375) 6,000 2,525 Net Interest Income after Provision for Loan Losses 33,631 34,411 98,038 95,740 Non-Interest Income Fees & Service Charges on Deposit Accounts 2,720 2,753 8,093 8,310 Trust & Investment Management Fees 404 427 1,306 1,278 Mortgage Banking Operations 673 490 1,944 1,744 Net Securities Gains/(Losses) 3,025 (1,940) 3,173 (1,994) Other Operating Income 1,445 1,111 4,207 2,974 Total Non-Interest Income 8,267 2,841 18,723 12,312 Non-Interest Expense Salaries & Employee Benefits 8,736 9,640 24,971 27,207 Occupancy 1,664 1,710 4,934 5,111 Equipment 1,046 1,312 3,341 4,004 FDIC Insurance Premiums 402 1,317 3,024 4,159 Other Real Estate (269) 948 41 4,795 Prepayment Charge Senior Note Retirement - - - 876 Amortization of Excess of Cost Over Fair Value of Net Assets Acquired 466 368 1,200 1,104 Other Operating Expenses 3,801 4,749 12,373 13,269 Total Non-Interest Expense 15,846 20,044 49,884 60,525 Income Before Income Taxes 26,052 17,208 66,877 47,527 Provision for Income Taxes 11,100 6,772 28,195 18,830 Net Income $14,952 $10,436 $38,682 $28,697 Per Share: Net Income $0.60 $0.44 $1.59 $1.20 Cash Dividends $0.150 $0.100 $0.400 $0.250
Consolidated Statement of Cash Flows (Unaudited) Nine Months Ended September 30, 1995 1994 (in thousands) Cash Flows from Operating Activities: Net Income $38,682 $28,697 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Loan Losses 6,000 2,525 Provision for Losses on Real Estate Acquired in Settlement of Loans 246 2,655 Depreciation and Amortization 3,298 3,327 Amortization of Excess of Cost Over Fair Value of Net Assets Acquired 1,200 1,104 Accretion of Discounts and Net Deferred Loan Fees (2,922) (754) Amortization of Premiums 2,949 6,907 Purchases of Trading Account Securities (40,853) - Proceeds from the Sales of Trading Account Securities 40,920 - Net Gains on Trading Account Securities (67) - Net Securities (Gains)/Losses (3,106) 1,994 Other, Net 6,653 (4,394) Net Cash Provided by Operating Activities 53,000 42,061 Cash Flows from Investing Activities: Maturities, Calls and Principal Repayments on Securities Held-to-Maturity 104,408 123,500 Purchases of Securities Held-to-Maturity (20,445) (264,311) Proceeds from Sales of Securities Available-for-Sale 91,597 64,739 Maturities, Calls and Principal Repayments on Securities Available-for-Sale 50,839 144,480 Purchases of Securities Available-for-Sale (372,680) (74,735) Loans Originated and Principal Repayments on Loans and Other Real Estate Owned, Net (75,213) (96,421) Proceeds from Sales of Real Estate Acquired in Settlements of Loans 8,259 13,221 Proceeds from the Sale of Loans 10,150 27,808 Purchases of Premises and Equipment, Net (6,639) (1,081) Purchase of Bank Subsidiary, Net of Cash Acquired 10,868 - Net Cash Used in Investing Activities (198,856) (62,800) Cash Flows from Financing Activities: Net Increase/(Decrease) in Deposits 70,973 (6,606) Net Increase/(Decrease) in Short-Term and Other Borrowings 115,938 (8,940) Proceeds from the Issuance of Senior Notes Payable - 25,000 Repayment of Senior Notes Payable - (20,000) Purchase of Treasury Shares (1,312) (26) Common Stock Issued for Cash 10,622 2,071 Dividends Paid to Shareholders (8,503) (4,675) Net Cash Provided by/(Used in) Financing Activities 187,718 (13,176) Net Increase/(Decrease in Cash and Cash Equivalents 41,862 (33,915) Metro Activity for the Three Months Ended December 31, 1993 - 356 Cash and Cash Equivalents at Beginning of the Year 67,916 117,921 Cash and Cash Equivalents at End of the Period $109,778 $84,362
Consolidated Statement of Cash Flows (Unaudited), Continued Nine Months Ended September 30, 1995 1994 Supplemental Disclosures of Cash Flow Information: Cash Paid During the Period for: Interest Expense $51,505 $52,675 Income Taxes $22,857 $18,937 Supplemental Schedule of Noncash Investing and Financing Activities: Securities Transferred to Available-for-Sale Upon Adoption of SFAS 115 - $275,200 Real Estate Acquired in Settlement of Loans $6,292 $6,841 Loans to Facilitate the Sale of Other Real Estate $6,426 $4,879 During the period the Registrant purchased various investment securities which settled in the subsequent month $58,421 $2,108 On July 3, 1995, the Registrant acquired all the outstanding common stock of Great Neck Bancorp for cash and other consideration. In connection with this acquisition, the following assets were acquired and liabilities assumed: Fair Value of Loans, Investments and Other Assets Acquired $111,431 Cash Paid for Common Stock and Other Acquisition Expenses (8,512) Other Non-Monetary Consideration (11,695) Deposits and Other Liabilities Assumed $91,224
Consolidated Statements of Changes in Stockholders' Equity (UNAUDITED) (in thousands, except per share amounts) Additional Unrealized Common Paid in Retained Securities Deferred Treasury Stock Capital Earnings Gain/(Loss) Compensation Stock Total Balance, December 31, 1993 56,114 91,473 79,623 - (899) (1) 226,310 Unrealized Gain on Securities Available-for-Sale, net of taxes at January 1, 1994 - - - 2,241 - - 2,241 Net Income - - 28,697 - - - 28,697 Cash Dividends (The Registrant $0.25 per share) - - (3,572) - - - (3,572) Cash Dividends ( Metro Pre-Merger $0.81 per share) (1) - - (4,126) - - - (4,126) Sale of Common Stock (141,866 shares) 408 1,292 - - - - 1,700 Exercise of Warrants (98,000 shares) 245 216 - - - - 461 Deferred Compensation Activity: Restricted Stock Awards (10,000 shares) - 55 - - (122) 67 - Removal of Restrictions Accelerated Regarding Restricted Stock Awards (1,000 shares) - - - - 4 - 4 Amortization of Restricted Stock Awards - - - - 163 - 163 Forfeiture of Restricted Stock Awards (4,334 shares) - (12) - - 29 (58) (41) Amortization of Other Deferred Compensation Plans - 246 62 - 214 - 522 Purchase of Treasury Stock (1,846 shares) - - - - - (26) (26) Metro Net Income for the Three Months Ended December 31, 1993 - - 6,837 - - - 6,837 Adjustment to Unrealized Gain/(Loss) on Securities Available-for-Sale, net of taxes - - - (7,210) - - (7,210) Balance, September 30, 1994 56,767 93,270 107,521 (4,969) (611) (18) 251,960 Balance, December 31, 1994 $57,623 $94,526 $106,186 ($2,871) ($514) ($27) $254,923 Net Income - - 38,682 - - - 38,682 Cash Dividends ($0.40 per share) - - (9,920) - - - (9,920) Sale of Common Stock (806,392 shares) 2,016 3,985 - - - - 6,001 Exercise of Warrants (987,857 shares) 2,470 3,138 - - - - 5,608 Deferred Compensation Activity: Restricted Stock Awards (53,600 shares) - 61 - - (940) 879 - Amortization of Restricted Stock Awards - - - - 186 - 186 Forfeiture of Restricted Stock Awards (12,002 shares) - 3 - - 33 (174) (138) Amortization of Other Deferred Compensation Plans - - - - 206 - 206 Purchase of Treasury Stock (75,677 shares) - - - - - (1,312) (1,312) Adjustment to Unrealized Gain/(Loss) on Securities Available-for-Sale, net of taxes - - - 4,956 - - 4,956 Balance, September 30, 1995 $62,109 $101,713 $134,948 $2,085 ($1,029) ($634) $299,192
(1) See "Note 2 - Business Combinations" of the Registrant's 1994 Annual Report on From 10-K for further discussion of this transaction. North Fork Bancorporation, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 1995 and 1994 General The consolidated financial statements of North Fork Bancorporation, Inc. (the "Registrant"), a bank holding company, and its subsidiaries, have been prepared in conformity with generally accepted accounting principles and prevailing practices within the financial services industry. On November 30, 1994, Metro Bancshares Inc. ("Metro"), the Parent Company of Bayside Federal Savings Bank ("Bayside") was merged with and into the Registrant. The merger was accounted for as a pooling-of-interests and, as a result, the Registrant's consolidated financial statements have been retroactively restated for all reporting periods to include the consolidated accounts of Metro. The Registrant's previously reported components of consolidated income and the amounts reflected in the accompanying consolidated statements of income for the three and nine months ended September 30,1994, are as follows: Three Months Nine Months (in thousands) Ended Ended Net Interest Income As Previously Reported $22,150 $64,041 Metro 11,886 34,224 Combined $34,036 $98,265 Net Income As Previously Reported $7,484 $19,070 Metro 2,952 9,627 Combined $10,436 $28,697
Metro's reporting period had been as of and for the year ended September 30, whereas the Registrant utilizes a calendar year basis. Metro's results for 1994 have been conformed to the calendar year reporting of the Registrant. See "Note 2 - Business Combinations" of the Registrant's 1994 Annual Report to Shareholders for further discussion of this transaction. On July 3, 1995, the Registrant consummated its purchase of Great Neck Bancorp, the parent company of Bank of Great Neck, a Long Island based commercial bank. See the Consolidated Statement of Cash Flows for a summary of the assets acquired and liabilities assumed. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The excess cost over the fair value of net assets acquired of approximately $5.9 million will be amortized over a fifteen year period. The effect of this acquisition on the Registrant's results for the third quarter ended September 30, 1995 was immaterial. In the opinion of management, all significant intercompany accounts and transactions have been eliminated in consolidation. In addition, all adjustments necessary for a fair presentation of the consolidated financial position, results of operations and cash flows of the Registrant for the interim periods have been made. All such adjustments are of a normal and recurring nature. These statements should be read in conjunction with the Registrant's summary of significant accounting policies which are incorporated herein by reference in its 1994 Annual Report on Form 10-K. Results of operations for the three and nine months ended September 30, 1995 are not necessarily indicative of the results of operations which may be expected for the full year 1995 or any other interim periods. RECENT ACCOUNTING DEVELOPMENTS: Accounting by Creditors for Impairment of a Loan: Statement of Financial Accounting Standards No. 114, ("SFAS 114"), as amended by Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures" ("SFAS 118") The Registrant adopted SFAS 114, as amended by SFAS 118 (collectively referred to as "the Statement"), effective January 1, 1995. The Statement requires that the measurement of impaired loans be based on the present value of expected future cash flows discounted at the loan's effective interest rate or, at the loan's observable market price or the fair value of the collateral, if the loan is collateral dependent. A loan is considered to be impaired when, based upon current information and events, it is probable that the Registrant will be unable to collect all amounts due according to the contractual terms of the loan. Impairment is primarily measured based on the fair value of the loan's collateral. The Statement does not apply to large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment (residential mortgage and consumer loans) , except for those loans restructured under a troubled debt restructuring. The Registrant, had previously assessed the adequacy of its allowance for loan losses, using a methodology consistent with the procedures prescribed by the Statement. Accordingly, adoption of the Statement did not have a material adverse effect on the level of the Registrant's allowance for loan losses or on its financial results for the three and nine month periods ended September 30, 1995. Upon adoption of the Statement, the Registrant was not required to change its interest income recognition policy with regard to impaired loans. Additionally, the Statement amended the accounting for loans previously classified as in-substance foreclosures. Under previous guidance, when a loan met the criteria of an in-substance foreclosure, the creditor was required to account for the loan and any future transactions as if they had received the collateral in full satisfaction of the debt. However, the Statement requires that a creditor shall measure impairment based on the fair value of the collateral when a creditor determines that foreclosure is probable. In these situations, the creditor is required to continue to carry the asset as a loan rather than reclassify it to Other Real Estate. As a result, $8.2 million and $9.6 million of loans previously reported as in-substance foreclosures at December 31, 1994 and September 30, 1994, respectively, have been reclassified from Other Real Estate to loans in the accompanying Balance Sheets. All financial ratios contained within this document affected by this reclassification have been restated for comparability purposes. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RECENT ACCOUNTING DEVELOPMENTS (continued): Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of : Financial Statement of Accounting Standards No. 121, ("SFAS 121") In March 1995, the Financial Accounting Standards Board issued SFAS 121. This Statement establishes the accounting and reporting standards for the recognition of impairment on long-lived assets, certain identifiable intangibles, and goodwill related to those assets. SFAS 121 requires that an entity review long-lived assets and certain unidentifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In these situations, an entity is required to recognize an impairment loss if the sum of the estimated future cash flows, on an undiscounted basis, is less than the carrying amount of the asset. SFAS 121 is effective for fiscal years beginning after December 15, 1995 however, earlier application is encouraged. The Registrant is currently assessing the financial implications of implementing SFAS 121 and believes that the adoption will not have a material adverse effect on its financial condition or results of operations. Accounting for Mortgage Servicing Rights : Statement of Financial Accounting Standards No. 122, ("SFAS 122") In May 1995, the Financial Accounting Standards Board issued SFAS 122 . This Statement amends certain provisions of SFAS 65, "Accounting for Certain Mortgage Banking Activities," requiring an entity to capitalize the rights to service mortgage loans for others, whether those rights are acquired through loan origination activities or purchased from others. Additionally, SFAS 122 requires an entity to assess its capitalized mortgage servicing rights for impairment based on the fair value of those rights. SFAS 122 is effective for fiscal years beginning after December 15, 1995 however, earlier application is encouraged. The Registrant is currently assessing the financial implications of implementing SFAS 122 and believes that it will not have a material adverse effect on its financial condition or results of operations. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Earnings Summary North Fork Bancorporation, Inc. (the "Registrant") recognized net income of $38.7 million, or $1.59 per share for the first nine months of 1995, as compared with net income of $28.7 million, or $1.20 per share earned in 1994. Return on average total assets was 1.82% and the return on average stockholders' equity was 18.71% for the first nine months of 1995. Return on average total assets was 1.29% and the return on average stockholders' equity was 15.85% for the comparable prior year period. Net income for the quarter ended September 30, 1995 was $15.0 million, or $.60 per share, as compared with net income of $10.4 million, or $.44 per share earned in 1994 . Return on average total assets was 2.01% and the return on average stockholders' equity was 20.43% for the 1995 third quarter. Return on average total assets was 1.40% and the return on average stockholders' equity was 16.56% for the comparable prior year period. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Earnings Summary (continued) The improvement in the Registrant's 1995 third quarter results, when compared with the comparable prior year period, is attributable to a $1.6 million increase in net interest income, a $5.4 million increase in non-interest income, and a $4.2 million decrease in non-interest expense. This activity was partially offset by a $2.4 million increase in the provision for loan losses and a $4.3 million increase in the provision for income taxes. 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 Registrant's primary source of earnings. Net interest income is affected by the level and composition of interest earning assets and interest incurred on interest bearing liabilities, as well as changes in market interest rates. Net interest income, on a fully taxable equivalent basis, increased $1.5 million, or 4.4%, to $36.1 million for the third quarter of 1995, when compared to $34.6 million for the comparable prior year period. The components of this increase include a $4.9 million increase in interest income, on a fully taxable equivalent basis, partially offset by a $3.4 million increase in interest expense. The net interest margin for the third quarter of 1995 increased 33 basis points to 5.18% from 4.85% for the comparable prior year period. During these same periods the Registrant's rate spread remained unchanged at 4.35%. Interest income, on a fully taxable equivalent basis, aggregated $57.8 million for the 1995 third quarter compared to $52.8 million for the same period of 1994 . The yield on interest earning assets, on a fully taxable equivalent basis, increased to 8.29% in the 1995 third quarter as compared to 7.41% in the 1994 comparable period. This increase is attributable to (a) multiple increases in the Registrant's prime lending rate during the past year, (b) the impact of higher market interest rates on the reinvestment of cash flows generated from principal amortization on certain interest earning assets during the past year and the restructure of the investment portfolio, whereby lower yielding securities were paired off against short term borrowings, during the fourth quarter of 1994, (c) a change in composition of interest earning assets to higher yielding loans, from lower yielding investment securities. These factors were partially offset by a $66 million decline in the level of interest earning assets to $2.76 billion during the third quarter of 1995 when compared to $2.83 billion for the comparable period of 1994. Average loans increased $131.0 million to $1.91 billion for the third quarter of 1995 when compared to $1.78 billion during the same prior year period. Average securities declined $156.7 million to $833.8 million for the third quarter of 1995 when compared to $990.5 million during the same prior year period. Average federal funds sold and securities purchased under agreements to resell declined $39.1 million to $14.6 million for the third quarter of 1995 when compared to $53.7 million during the same prior year period The decline in the level of interest earning assets is a result of the Registrant's strategy to reduce its reliance on short-term borrowings, principally repurchase agreements and short-term Federal Home Loan Bank advances, through the liquidation of certain securities classified as available-for-sale combined with maturities of certain securities. This strategy, which was implemented during the latter half of 1994, was in response to increases in short-term interest rates and a flattening of the yield curve. In the most recent quarter, as more fully described below, the Registrant commenced a pre-investment program in connection with its pending acquisition that will increase its level of interest earning assets, primarily mortgage backed securities, with a corresponding effect on average short term borrowings during the fourth quarter. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net Interest Income (continued) Interest expense increased to $21.7 million for the 1995 third quarter, reflecting an effective cost of funds of 3.94%, as compared to $18.3 million, or an effective cost of funds of 3.05%, for the comparable prior year period. The increase in interest expense period-over-period is attributable to the (a) impact of higher market interest rates on the Registrant's overall cost of funds and (b) shift in interest bearing customer deposits to higher yielding time deposit accounts. These factors were partially offset by a $189.5 million decline in the level of average interest bearing liabilities resulting from (a) the impact that the aforementioned strategy had on the level of average short-term borrowings , (b) the successful conversion of certain former Bayside accounts to non-interest bearing demand deposit accounts. Similarly, as a result of the aforementioned strategy, interest incurred on short-term borrowings declined $2.3 million to $1.0 million in the third quarter of 1995 when compared to $3.3 million in the 1994 comparable period . The Registrant reduced the level of average short term borrowings by $215.1 million to $58.9 million for the third quarter of 1995, as compared to the amount outstanding during the comparable prior year period. The average interest rate paid on total interest bearing deposits rose to 3.79% during the third quarter of 1995 from 2.73% during the third quarter of 1994. As a result, interest incurred on total interest bearing deposits increased $5.8 million to $20.0 million in the third quarter of 1995 when compared to the comparable period of 1994. Average Savings, N.O.W. and Money Market deposits declined $244.2 million to $1.145 billion for the 1995 third quarter as compared to $1.389 billion for the comparable prior year period, while, average Time deposits increased $269.7 million to $945.0 million for the 1995 third quarter as compared to $675.3 million for the comparable prior year period. This increase in deposit funding costs during the above referenced periods was partially offset by a reduction in the level of average interest bearing deposits. Conversely, average demand deposits increased $110.8 million or 36.5% to $414.2 million for the 1995 third quarter as compared to $303.4 million for the comparable prior year period. Demand deposits comprised 16.1% of total deposits at September 30, 1995 as compared to 13.3% at September 30, 1994. The increase in demand deposits is reflective of the ongoing success in converting the former Bayside thrift branches into full-service commercial bank outlets and greater penetration in the markets the Registrant serves. The Registrant has initiated a pre-investment program in anticipation of approximately $540 million in additional liquidity that will result from the consummation of the First Nationwide branch acquisition (See the "Other Matters" section of this report). The Registrant is currently pre-investing the transaction proceeds by purchasing approximately $300 million in mortgage backed securities. These purchases will be funded through the use short-term borrowings at a projected positive spread of approximately 100 basis points. Upon consummation of the transaction, these short-term borrowings will be replaced with the lower costing core deposits acquired. 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 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net Interest Income (continued) liabilities. Due to the numerous simultaneous volume and rate changes during the period analyzed, it is not possible to precisely allocate changes between volumes and rates. For presentation purposes, changes which are not solely due to volume changes or rate changes have been allocated to these categories based on the respective percentage changes in average volume and average rates as they compare to each other. In addition, average interest earning assets include nonaccrual loans. Nine Months Ended Three Months Ended For the Periods Ended September 30, 1995 vs. 1994 1995 vs. 1994 (in thousands ) Change in Change in Average Average Net Interest Average Average Net Interest Volume Rate Income Volume Rate Income INTEREST INCOME FROM EARNING ASSETS: Interest Earning Deposits $10 $59 $69 $12 $7 $19 Taxable Securities (3,934) 1,328 (2,606) (1,048) 432 (616) Non-Taxable Municipals (23) 372 349 (269) 110 (159) Mortgage-Backed Securities (5,488) 3,594 (1,894) (1,150) 805 (345) Taxable Loans, including non-accrual loans 6,736 11,141 17,877 2,850 3,617 6,467 Non-Taxable Loans (159) (60) (219) (53) (32) (85) Federal Funds Sold and Securities Purchased Under Agreements to Resell (1,503) 687 (816) (508) 169 (339) Total Interest Earning Assets (4,361) 17,121 12,760 (166) 5,108 4,942 INTEREST EXPENSE ON LIABILITIES: Total Savings and Time Deposits 2,525 11,649 14,174 1,713 4,051 5,764 Short-Term Borrowings (9,687) 2,475 (7,212) (3,234) 885 (2,349) Long-Term Borrowings 131 (200) (69) - - - Total Interest Expense (7,031) 13,924 6,893 (1,521) 4,936 3,415 Net Change in Interest Income $2,670 $3,197 $5,867 $1,355 $172 $1,527 The above table has been prepared on a taxable equivalent basis.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net Interest Income (continued) The following tables present an analysis of net interest income by each major category of interest earning assets and interest bearing liabilities for the nine and three month periods ended September 30, 1995 and 1994, respectively: ANALYSIS OF NET INTEREST INCOME Nine Months Ended Sept. 30, 1995 Sept. 30, 1994 Average Average Average Average Balance Interest Rate Balance Interest Rate (dollars in thousands ) INTEREST EARNING ASSETS: Interest Earning Deposits $1,437 $77 7.16% $829 $8 1.29% Taxable Securities 119,377 5,486 6.14% 209,358 8,092 5.17% Non-Taxable Municipals 52,984 2,820 7.12% 53,485 2,471 6.18% Mortgage-Backed Securities 615,930 29,389 6.38% 736,654 31,283 5.68% Taxable Loans, net of unearned income & fees 1,865,085 126,523 9.07% 1,759,884 108,646 8.25% Non-Taxable Loans 8,056 822 13.64% 9,588 1,041 14.52% Federal Funds Sold and Securities Purchased Under Agreements to Resell 17,078 755 5.91% 59,245 1,571 3.55% Total Interest Earning Assets 2,679,947 165,872 8.28% 2,829,043 153,112 7.24% Allowance for Loan Losses (51,921) (56,174) Cash and Due from Banks 85,809 80,839 Other Non-Interest Earning Assets 124,512 119,049 Total Assets $2,838,347 $2,972,757 INTEREST BEARING LIABILITIES: Savings, N.O.W & Money Market Deposits 1,174,750 21,197 2.41% 1,390,392 23,194 2.23% Time Deposits 882,015 35,123 5.32% 686,911 18,952 3.69% Total Savings and Time Deposits 2,056,765 56,320 3.66% 2,077,303 42,146 2.71% Short-Term Borrowings 43,765 1,851 5.65% 292,986 9,063 4.14% Long-Term Borrowings 35,000 2,175 8.31% 33,003 2,244 9.09% Total Interest Bearing Liabilities 2,135,530 60,346 3.78% 2,403,292 53,453 2.97% Rate Spread 4.50% 4.26% Non-Interest Bearing Deposits 385,044 291,094 Other Non-Interest Bearing Liabilities 41,334 36,258 Total Liabilities 2,561,908 2,730,644 Stockholders' Equity 276,439 242,113 Total Liabilities and Stockholders' Equity $2,838,347 $2,972,757 Net Interest Income and Net Interest Margin 105,526 5.26% 99,659 4.71% Less: Tax Equivalent Basis Adjustment (1,488) (1,394) Net Interest Income $104,038 $98,265 The above table has been prepared on a taxable equivalent basis.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net Interest Income (continued) ANALYSIS OF NET INTEREST INCOME Three Months Ended Sept. 30, 1995 Sept. 30, 1994 Average Average Average Average Balance Interest Rate Balance Interest Rate (dollars in thousands ) INTEREST EARNING ASSETS: Interest Earning Deposits $1,311 $23 6.96% $465 $4 3.41% Taxable Securities 141,914 2,258 6.31% 211,196 2,874 5.40% Non-Taxable Municipals 40,469 788 7.73% 54,821 947 6.85% Mortgage-Backed Securities 651,371 10,583 6.45% 724,443 10,928 5.98% Taxable Loans, net of unearned income & fees 1,906,189 43,636 9.08% 1,775,456 37,169 8.31% Non-Taxable Loans 7,567 267 14.00% 9,013 352 15.49% Federal Funds Sold and Securities Purchased Under Agreements to Resell 14,570 212 5.77% 53,688 551 4.07% Total Interest Earning Assets 2,763,391 57,767 8.29% 2,829,082 52,825 7.41% Allowance for Loan Losses (53,412) (55,218) Cash and Due from Banks 89,221 76,647 Other Non-Interest Earning Assets 146,602 112,218 Total Assets $2,945,802 $2,962,729 INTEREST BEARING LIABILITIES: Savings, N.O.W & Money Market Deposits 1,144,961 6,723 2.33% 1,389,159 7,776 2.22% Time Deposits 945,041 13,266 5.57% 675,315 6,449 3.79% Total Savings and Time Deposits 2,090,002 19,989 3.79% 2,064,474 14,225 2.73% Short-Term Borrowings 58,924 964 6.49% 273,977 3,313 4.80% Long-Term Borrowings 35,000 728 8.25% 35,000 728 8.25% Total Interest Bearing Liabilities 2,183,926 21,681 3.94% 2,373,451 18,266 3.05% Rate Spread 4.35% 4.35% Non-Interest Bearing Deposits 414,174 303,417 Other Non-Interest Bearing Liabilities 57,285 35,865 Total Liabilities 2,655,385 2,712,733 Stockholders' Equity 290,417 249,996 Total Liabilities and Stockholders' Equity $2,945,802 $2,962,729 Net Interest Income and Net Interest Margin 36,086 5.18% 34,559 4.85% Less: Tax Equivalent Basis Adjustment (455) (523) Net Interest Income $35,631 $34,036 The above table has been prepared on a taxable equivalent basis.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Non-Interest Income Non-interest income, exclusive of net securities gains, was $5.2 million for the 1995 third quarter reflecting no material change when compared with $4.8 million for the comparable prior year period. Net securities gains increased $ 4.9 million to $3.0 million during the 1995 third quarter when compared to net securities losses of $ 1.9 million during the comparable prior year period. This increase is due primarily to the Registrant recognizing a $2.5 million gain, during the 1995 third quarter, on the liquidation of its interest in Sunrise Bancorp. The net securities loss recorded during the 1994 third quarter resulted from the Registrant recording a write-down of $1.9 million on an impaired collateralized mortgage obligation received by Metro as partial satisfaction in a troubled debt loan restructuring entered into in 1991. Non-Interest Expense Non-interest expense declined $4.2 million, or 20.9%, to $15.8 million during the 1995 third quarter when compared to $20.0 million during the comparable prior year period. This reduction is attributable to a $1.2 million decrease in other real estate expenses, a $.9 million reduction in FDIC insurance premiums (approximately $862 million of the Registrant's deposits are insured under the Savings Association Insurance Fund "SAIF"), a $.9 million reduction in salaries & employee benefits, a $1.2 million reduction in general & administrative expenses, resulting from the post-merger integration of operations and the achievement of other efficiencies associated with the combination of certain product lines. The Registrant's core efficiency ratio, which represents the ratio of non-interest expense, net of other real estate expenses and other nonrecurring charges, to net interest income, on a tax equivalent basis, and non-interest income net of securities gains and losses, improved to 39.0% for the three months ended September 30, 1995 compared with 48.54% for the comparable prior year period. The core efficiency ratio for the first nine months of 1995 was 41.17% compared with 48.90% for the comparable prior year period. This achievement occurred as core operating expense levels declined while net interest income and non-interest income improved. Income Taxes The Registrant provides for income taxes under the asset and liability method. Under this method, the Registrant is required to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Registrant's assets and liabilities at the enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance is to be established to reduce the deferred tax asset if it is "more likely than not" that some or all of the deferred tax asset will not be realized. The Registrant's effective tax rate was 42.6% for the third quarter of 1995, as compared to 39.4% for the comparable prior year period. The effective tax rate for the first nine months of 1995 was 42.2% compared with 39.6% for the comparable prior year period. The increase in the effective tax rate during the three and nine month periods is primarily attributable to the Registrant recognizing a decrease in the deferred tax valuation allowance during 1994. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Loans and Leases Loans and leases, net of unearned income, increased 5.8% to $1.94 billion at September 30, 1995 as compared with $1.83 billion at December 31, 1994. This increase is due primarily to the acquisition of Bank of Great Neck which added $49.4 million, of principally commercial real estate loans, coupled with steady growth in multi-family and consumer loan and Lease portfolios, partially offset by a decline in residential mortgage loans. The portfolio is concentrated principally in loans secured by real estate in the metropolitan New York area. Real estate related loans, which include multi-family, residential, and commercial mortgages and to a lesser extent construction and land development loans, aggregated 82.4% of the total loan portfolio at September 30, 1995. Multi-family mortgage loans, which rely principally on their underlying cash flows to service the related debt, comprise the largest real estate concentration within the Registrant's loan portfolio, aggregating $604.4 million and representing 31.2% of the total loan portfolio at September 30, 1995. Residential mortgages, consists principally of owner occupied residents, aggregated $568.7 million or 29.3% of the total loan portfolio at September 30, 1995. Commercial mortgages, comprised of both owner occupied and income producing rental properties, aggregated $372.8 million or 19.2% of the total loan portfolio at September 30, 1995. This diversity ameliorates the risks typically associated with real estate concentrations. The following table delineates the composition of the Registrant's loan portfolio for the period indicated (in thousands): % of % of % of Sept 30, 1995 Total Dec 30, 1994 Total Sept 30, 1994 Total Mortgage Loans-Multi-Family $604,432 31.18% $524,167 28.62% $506,826 28.00% Mortgage Loans-Residential 568,654 29.34% 598,711 32.69% 601,423 33.20% Mortgage Loans-Commercial 372,805 19.23% 340,157 18.57% 344,607 19.04% Commercial & Industrial 237,870 12.27% 241,544 13.19% 234,307 12.94% Consumer Loans 66,861 3.45% 51,291 2.80% 46,088 2.55% Construction & Land Development Loans 51,853 2.68% 54,789 2.99% 60,197 3.33% Leases, net 35,784 1.85% 20,807 1.14% 16,933 0.94% TOTAL $1,938,259 100.00% $1,831,466 100.00% $1,810,381 100.00%
Non-performing assets, which include loans ninety days past due and still accruing, nonaccrual loans and other real estate, declined $2.5 million to $44.5 million at September 30, 1995 when compared to $47.0 million at December 31, 1994 and declined $12.3 million when compared to $56.8 at September 30, 1994. Non-performing assets represent 1.43% of total assets at September 30, 1995 comparing favorably to 1.73% at December 31, 1994 and 1.95% at September 30, 1994. The components of non-performing assets are delineated in the table below (in thousands): Sept. 30, 1995 Dec. 31, 1994 Sept. 30, 1994 Loans 90 days past due & still accruing $2,447 $1,597 $2,318 Non-accrual Loans 39,599 40,516 48,623 Non-performing Loans 42,046 42,113 50,941 Other Real Estate Owned 2,500 4,861 5,841 Non-performing assets 44,546 46,974 56,782 Restructured, Accruing loans $33,416 $37,044 $31,800
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Loans and Leases (continued) The adoption of SFAS 114 did not affect the level of non-performing assets as loans previously classified as in-substance foreclosures, and contained within the other real estate caption, are now classified within the nonaccrual loans caption. For a further discussion, refer to the Recent Accounting Developments section of this report. Additionally, as of September 30, 1995, the weighted average yield on restructured , accruing loans was 6.92%. The provision for loan losses increased $2.4 million to $2.0 million for the 1995 third quarter, from a negative provision of $.4 million in the comparable prior year period. The negative provision recorded during the comparable prior year period was attributable to Metro reducing the level of its allowance for loan losses by $1.1 million, partially offset by the Registrant recording a provision of $.7 million during this period. Net charge-offs aggregated $3.3 million, or .68% of average loans, net of unearned income, on an annualized basis, for the 1995 third quarter, as compared with $4.0 million, or .90% of average loans, net of unearned income, on an annualized basis, for the 1994 third quarter. The allowance for loan losses at September 30, 1995 was $51.2 million, or 121.8% of non-performing loans, and 2.67% of loans, net of unearned income. The allowance for loan losses at December 31, 1994 was $50.1 million, or 118.9% of non-performing loans, and 2.76% of loans, net of unearned income. The allowance for loan losses at September 30, 1994 was $50.6 million, or 99.42% of non-performing loans and 2.83% of loans, net of unearned income. Management determines what it deems to be the appropriate level of the Registrant's allowance for loan losses on an ongoing basis by reviewing individual loans within, as well as the composition of and trends in the loan portfolio. Management considers, among other things, concentrations within segments of the loan portfolio, delinquency trends, as well as recent charge-off experience and third party evidentiary matter (such as appraisals) when assessing the degree of credit risk in the portfolio. Various appraisals and estimates of current value influence the estimation of the required allowance at any point in time. While management uses available information to provide for possible loan losses, future additions to the allowance may be necessary based on future changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Registrant's bank subsidiary's allowance for loan losses. Such agencies may require the Registrant to recognize additions to the allowance based on their judgment of information available to them at the time of their examinations which may not be available now. Based on current economic conditions, management considers the allowance at September 30, 1995 adequate to cover the possible risk of loss in the loan portfolio. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Securities A) Held-to-Maturity Securities Held-to-maturity securities are debt securities that the Registrant has the positive intent and ability to hold to maturity and are stated at amortized cost. At September 30, 1995, securities held-to-maturity consisted of the following (in thousands): Gross Gross Amortized Unrealized Unrealized Fair Cost Gains (Losses) Value U.S. Government Agencies Obligations $49,257 $8 ($691) $48,574 State and Municipal Obligations 53,195 367 (444) 53,118 Mortgage-Backed Securities 443,903 1,389 (6,850) 438,442 TOTAL $546,355 $1,764 ($7,985) $540,134
B) Available-for-Sale Securities Available-for-Sale Securities are debt and equity securities not classified as either securities held-to-maturity or trading securities and are stated at fair value. At September 30, 1995, available-for-sale securities consisted of the following (in thousands): Gross Gross Amortized Unrealized Unrealized Fair Cost Gains (Losses) Value U.S. Treasury $19,986 $34 $- $20,020 U.S. Government Agencies Obligations 9,459 18 - 9,477 Mortgage-Backed Securities 369,747 922 (609) 370,060 S.B.A. Securities 29,938 201 - 30,139 Equity Securities 30,310 3,075 - 33,385 TOTAL $459,440 $4,250 ($609) $463,081
The amortized cost of mortgage-backed securities ("MBS") included in both the available-for-sale and held-to-maturity categories was $813.7 million at September 30, 1995, with an aggregate fair value of $808.5 million, or a net pre-tax unrealized loss of $5.1 million. This compares to securities with an amortized cost of $640.0 million and an aggregate fair value of $636.6 million or a net pre-tax unrealized loss of $6.4 million at June 30,995 and securities with an amortized cost of $586.6 million and an aggregate fair value of $549.6 million or a net pre-tax unrealized loss of $37.0 million, at December 31, 1994. The increase in fair value reflects the favorable impact of lower market interest rates during the first nine months of 1995. The Registrant's mortgage-backed securities are principally fixed rate and the value of these instruments moves in an inverse relationship to interest rates. Mortgage-backed securities classified as held-to-maturity included $85.4 million in collateralized mortgage obligations at September 30, 1995. Mortgage-backed securities classified as available-for-sale included $31.9 million in collateralized mortgage obligations at September 30, 1995. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Securities (continued) The prepayment of mortgage-backed securities, including collateralized mortgage obligations, is actively monitored through the Registrant's portfolio management function. The Registrant typically invests in MBS's with stable cash flows and relatively short duration, thereby limiting the impact of interest rate fluctuations on the portfolio. Management regularly performs simulation testing to assess the impact that interest and market rate changes would have on its MBS's portfolio. At September 30, 1995, securities carried at $312.5 million were pledged for various purposes as required by law and to secure securities sold under agreements to repurchase and other borrowings. On July 31, 1995, the Registrant sold its interest in Sunrise Bancorp. for $7.3 million or $30.00 per share, resulting in a gain of $2.5 million, adding approximately $.05 per share to earnings during the third quarter. The Registrant is currently evaluating the allocation of its securities portfolio between held-to-maturity and available-for-sale in light of the recent announcement by the Financial Accounting Standards Board ("FASB") that Companies will be given an opportunity to transfer securities from the held-to-maturity category without undergoing a mandatory reevaluation of other securities in this category to determine whether they should be reclassified. This opportunity will exist from mid November ( when FASB plans to issue its implementation guide on SFAS 115 ) and year end. Capital The Federal Reserve Board has formal capital guidelines which bank holding companies are required to meet. The risk based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Under these guidelines, assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk weighted assets and off balance sheet items. The guidelines currently require all bank holding companies to maintain a minimum ratio of total risk based capital to total risk weighted assets of 8.00%, including a minimum ratio of Tier I capital to risk weighted assets of 4.00%. The following table sets forth the Registrant's regulatory capital as of September 30, 1995 under the rules applicable at such date. At such date the Registrant was in compliance with all applicable regulatory requirements. Amount Ratio Tier 1 Capital $270,159 15.83% Regulatory Requirement 68,272 4.00% Excess 201,887 11.83% Total Risk Adjusted Capital 291,863 17.10% Regulatory Requirement 136,543 8.00% Excess $155,320 9.10% Risk Weighted Assets $1,706,793
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capital (Continued) The Registrant's leverage ratio at September 30, 1995 was 9.26%. The Tier I, total risk based and leverage capital ratios of the Registrant's bank subsidiary, were 16.30%, 17.58%, and 9.49%, respectively, at September 30, 1995. The Federal Deposit Insurance Corporation Act ("FDICIA") became effective December 19, 1991. FDICIA substantially revised the depository institution regulatory and funding provisions of the Federal Deposit Insurance Act and makes revisions to several other banking statutes. Among other things, FDICIA requires the federal banking regulators to take prompt corrective action on depository institutions that do not meet minimum capital requirements. FDICIA establishes five categories: "well capitalized", "adequately capitalized", "undercapitalized", "significantly undercapitalized" and "critically undercapitalized". Under the regulations, a "well capitalized" institution has a minimum total risk based capital to total risk weighted assets of at least 10%, a minimum Tier I capital to total risk weighted assets of 6%, a minimum leverage ratio of at least 5% and is not subject to any written order, agreement or directive. The Registrant and its bank subsidiary are considered well capitalized. On April 20, 1995 the Registrant's Board of Directors approved the repurchase of up to 1.2 million shares or approximately 5% of the Registrant's common shares outstanding. To date, the Registrant has purchased 74,592 shares. Consistent with the Registrant's intended purpose for the Stock Repurchase Program, 49,100 of these shares were used to fund deferred compensation plans during 1995. On September 26, 1995, the Registrant's Board of Directors declared a 20% increase in its quarterly cash dividend to 15.0 cents per share. The dividend will be payable November 15, 1995 to shareholders of record at the close of business October 26, 1995. Liquidity The objective of the Registrant's 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 Registrant's ability to meet deposit withdrawals either on demand or contractual maturity, to repay other borrowings as they mature and to make new loans and investments as opportunities arise. The Registrant's sources of liquidity include dividends from its subsidiaries, borrowings, and funds available through the capital markets. Dividends from the Registrant's bank subsidiary are limited by New York State Banking Department regulations to the current year's earnings plus the prior two years' retained net profits. According to the parameters of this regulation, the Bank had $93.1 million of retained earnings available for dividends to the Registrant as of September 30, 1995. The Bank has numerous sources of liquidity including loan and security principal repayments and maturities, lines of credit with other financial institutions, the ability to borrow under repurchase agreements utilizing its unpledged securities portfolio, the sale of securities from its available for sale portfolio, the securitization of loans within the portfolio, whole loan sales and growth in its core deposit base. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity (continued) In addition, the Bank has the ability, as a member of the Federal Home Loan Bank ("FHLB") system, to borrow approximately $320 million on a secured basis, utilizing mortgage related loans and securities as collateral, for a term ranging from one day to ten years at both fixed and variable rates. As of September 30, 1995, the Bank had $10 million in such advances, with an original maturity of greater than one year. The Registrant's liquidity position is monitored on a daily basis to ensure the maintenance of an optimum level and the most cost efficient use of available funds. Management believes that the Registrant has sufficient liquidity to meet its operating requirements. Pending Acquisitions Extebank Domestic Banking Business On September 18,1995, the Registrant and Banco Exterior de Espana, S.A., Spain ("BEX") entered into an agreement whereby the Registrant will acquire the domestic commercial banking business of Extebank ("Extebank"), a wholly owned subsidiary of BEX, for $47.0 million in cash, which represents approximately 157 % of book value. Extebank has approximately $442 million in total assets, including net loans of $252 million, and deposits of $396 million. The Registrant will merge Extebank into its banking subsidiary, North Fork Bank. The transaction is subject to regulatory approval and is expected to be completed during the first quarter of 1996. First Nationwide Bank Long Island Branches On September 29, 1995, the Registrant announced that North Fork Bank had entered into an agreement with First Nationwide Bank to acquire its ten Long Island branches with approximately $590 million in deposits for $37.5 million in cash, or a deposit premium of 6.35%. The transaction is subject to regulatory approval and is expected to be completed during the first quarter of 1996. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 13, 1995 /s/ Daniel M. Healy Daniel M. Healy Executive Vice President & Chief Financial Officer [EXHIBIT 11] North Fork Bancorporation, Inc. COMPUTATION OF NET INCOME PER COMMON EQUIVALENT SHARE September 30, 1995 (Unaudited) Three Months Ended Nine Months Ended Sept.30, 1995 Sept.30, 1994 Sept.30, 1995 Sept.30, 1994 Net Income $14,952,119 $10,436,173 $38,682,234 $28,697,026 Common Equivalent Shares: Weighted Average Common Shares Outstanding 24,751,446 22,654,635 24,271,687 22,554,953 Weighted Average Common Equivalent Shares (a) 150,013 1,355,336 119,562 1,324,452 Weighted Average Common and Common Equivalent Shares 24,901,459 24,009,971 24,391,249 23,879,405 Net Income per Common Equivalent Share $0.60 $0.44 $1.59 $1.20 (a) Consists of warrants and options
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