-----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, TXpHEiM7GLlHQeJhHw17b9JeaPWrwxnkmXP6nXn1Nazl9kjgF3jWaV+YYcCC6lxE 6g02Yg/fmfpCIqy/9vEweQ== 0000950123-00-003057.txt : 20000516 0000950123-00-003057.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950123-00-003057 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 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-K405 SEC ACT: SEC FILE NUMBER: 001-10458 FILM NUMBER: 588230 BUSINESS ADDRESS: STREET 1: 275 BROAD HOLLOW RD STREET 2: PO BOX 8914 CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 6318441004 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, 1999 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) (631) 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 28, 2000, there were 173,584,524 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 27, 2000) held by non-affiliates was approximately $2,929,239,000. 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. 1999 Annual Report to Shareholders - Parts I, II and IV. North Fork Bancorporation, Inc. 2000 Definitive Proxy Statement for its annual meeting of Stockholders to be held on April 25, 2000- Part III CAUTIONARY STATEMENT UNDER FEDERAL SECURITIES LAWS: Certain statements which involve risk and uncertainties contained in this Annual Report on Form 10-K may constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs, assumptions and expectations of management of the Company. 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 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 among financial services companies; (3) changes in the interest rate environment, which may reduce interest margins; and (4) accounting, tax, legislative or regulatory changes may adversely affect the business in which the Company is engaged. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company 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 "Company"), 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 Company's primary subsidiary, North Fork Bank ("North Fork"), operates through 154 full-service retail banking facilities (inclusive of the locations acquired in the JSB and Reliance transactions) located in the New York metropolitan area. The Company's other bank subsidiary, Superior Savings of New England ("Superior") 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. On March 5, 2000, the Company announced its intention to seek to acquire Dime Bancorp, Inc. ("Dime"). Additional information is set forth in Note 18 - "Subsequent Event" (page 62) of the Company's 1999 Annual Report to Shareholders included herewith as Exhibit 13 and incorporated herein by reference. On August 16, 1999, the Company entered into an Agreement and Plan of Merger with JSB Financial, Inc. ("JSB"), the parent company of Jamaica Savings Bank, whereby it would acquire JSB in a stock-for-stock merger. In connection with the merger, the Company needed to reissue a sufficient number of shares of its treasury stock prior to the consummation of the merger in order that the merger qualify for pooling-of-interests accounting treatment. The necessary treasury shares were reissued on February 18, 2000, in connection with the Reliance transaction described below. On February 29,2000, JSB was merged with and into the Company in accordance with the pooling-of-interests method of accounting. On March 10, 2000, Jamaica Savings Bank was merged with and into North Fork Bank. Pursuant to the merger agreement, the Company issued 3.0 shares of common stock for each share of JSB's common stock outstanding. Accordingly the Company issued 28,312,851 of its common shares and simultaneously retired 6,562,383 of JSB's common shares held in treasury. At December 31, 1999, JSB had total assets of $1.6 billion, deposits of $1.1 billion, and stockholders' equity of $380 million. Jamaica Savings Bank operated from 13 retail-banking facilities in the New York City boroughs of Manhattan and Queens and in Nassau and Suffolk counties, New York. On August 30, 1999, the Company entered into an Agreement and Plan of Merger with Reliance Bancorp, Inc. ("Reliance"), the parent company of Reliance Federal Savings Bank, whereby it would acquire Reliance in a stock-for-stock merger accounted for under the purchase method of accounting. On August 30, 1999, simultaneous with the announcement of the merger, the Company's Board of Directors formally approved the purchase of up to 50% of the common shares to be issued in the transaction, or 8.5 million shares. As of December 31, 1999 the Company completed the purchase of 7.8 million shares under the program. The program was completed subsequent to December 31, 1999. On February 18, 2000, Reliance was merged with and into the Company in accordance with the purchase method of accounting. Pursuant to the merger agreement, the Company issued 2.0 shares of its common stock for each share of Reliance's common stock outstanding (17,120,160 common shares were reissued by the Company from its treasury account in satisfaction of the Reliance exchange ratio and the JSB pooling requirement. At December 31, 1999, Reliance had total assets of $2.5 billion, deposits of $1.5 billion, and stockholders' equity of $176 million. Reliance Federal Savings Bank operated from 29 retail-banking facilities throughout Suffolk and Nassau counties, New York, as well as in the New York City borough of Queens. During December 1999, the Company announced the formation of North Fork's equipment and vehicle lease finance company, All Points Capital Corp. ("All Points"). All Points provides lease financing products and programs on a national basis to qualified third party originators as well as offering existing business customers equipment-leasing solutions. The Company expects that origination's from this new program will be significant in the near future and will add to the diversity in the loan portfolio through the origination of quality asset based lease receivables. 3 4 PART I (CONTINUED) ITEM 1 - BUSINESS (CONTINUED) GENERAL DEVELOPMENT OF BUSINESS (CONTINUED) 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. 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 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 Company 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 Company also issued $100 million of 8.70% Capital Securities. At December 31, 1999, the carrying value of these Capital Securities qualified as Tier I capital. In December 1997, the Company acquired Superior, formerly Branford Savings Bank; 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 Company 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%. In July 1995, the Company 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 Company 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 Company operates other non-bank subsidiaries, none of which accounted for a significant portion of the Company's consolidated assets, nor contributed significantly to the Company's consolidated results of operations, at and for the year ended December 31, 1999. 4 5 PART I (CONTINUED) ITEM 1 - BUSINESS (CONTINUED) DESCRIPTION OF BUSINESS The Company, 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 Company'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 Company 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" (pages 28 - 29) in Management's Discussion and Analysis and "Note 14 - Regulatory Matters" (pages 58 - 59) of the Company's 1999 Annual Report to Shareholders included as Exhibit 13 herewith and incorporated herein by reference. As of December 31, 1999, the Company and its consolidated subsidiaries had 1,783 full-time equivalent employees. ITEM 2 - PROPERTIES The executive and administrative offices of the Company and its bank subsidiaries are located at 275 Broad Hollow Road, Melville, New York. The Company currently leases 83,000 square feet of the facility, representing approximately 70% of its rentable space. North Fork maintains its data processing and operations center in a 53,000 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. 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, 1999, the Company's bank subsidiaries owned 56 of their branch offices (see "Note 6 - Premises and Equipment" (page 49) of the Company's 1999 Annual Report to Shareholders included as Exhibit 13 herewith and incorporated herein by reference) and leased 58 branch offices under various lease arrangements expiring at various times through 2016 (see "Note 16 - Other Commitments and Contingent Liabilities (b) Lease Commitments" (page 60) of the Company's 1999 Annual Report to Shareholders included as Exhibit 13 herewith and incorporated herein by reference). The Company 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. 5 6 PART I (CONTINUED) ITEM 3 - LEGAL PROCEEDINGS On March 6, 2000, we filed a complaint against Dime, certain members of the board of directors of Dime ("Dime Board"), and Hudson United Bancorp ("Hudson") in the Court of Chancery of the State of Delaware, alleging, among other things, breaches of fiduciary duties by the Dime board in connection with the Dime-Hudson merger agreement. We also allege in the complaint that Hudson has aided and abetted the Dime board's breaches of its fiduciary duties. We believe that the board of directors of Dime has violated its fiduciary duties to Dime stockholders by agreeing to provisions in the Dime-Hudson merger agreement which are designed to inhibit any competing offers for Dime from the Company or anyone else, including (a) its agreement not to enter into any discussions with or furnish any confidential information to any person making an offer to merge with or acquire Dime, (b) its agreement to recommend the proposed Dime-Hudson merger to Dime stockholders under any and all circumstances, even if a third party makes a superior proposal to merge with or acquire Dime and (c) its agreement that Dime may not terminate the merger agreement prior to June 30, 2000, even if Dime stockholders fail to approve the proposed Dime-Hudson merger. Our complaint seeks, among other things, an order invalidating these provisions of the Dime-Hudson merger agreement. On March 9, 2000, we amended our complaint to include allegations that the Dime board had violated its fiduciary duties by, among other things, forcing a premature stockholder vote under circumstances where Dime stockholders have been coerced, misled and insufficiently informed. We also alleged in the amended complaint that Dime's proxy statement supplement contains materially false and misleading information. Also on March 9, 2000, we brought a motion in the Court of Chancery for a temporary restraining order to enjoin the Dime stockholder vote at the special meeting initially scheduled for March 15, 2000 until such time as the court rules on our motion, complete and curative disclosures are mailed to Dime's stockholders with a reasonable period for their review, or the court orders otherwise. A hearing was scheduled for Friday, March 10, 2000. Later on March 9, 2000, Dime announced that it was postponing its special meeting of stockholders to be held to consider the Dime-Hudson merger until March 24, 2000. In light of the postponement of Dime's special meeting, we subsequently withdrew our motion for a temporary restraining order, and the March 10, 2000 hearing was cancelled. We have not abandoned any of our claims contained in the amended complaint and have reserved our right to renew our motion, if appropriate, following review of Dime's supplemental proxy materials and other disclosures in the form actually distributed to Dime stockholders. On March 10, 2000, Dime filed a complaint in the Supreme Court of the State of New York, County of New York, against the Company and FleetBoston, alleging violations of the New York State antitrust laws, including that the Company and FleetBoston conspired to purchase Dime in order to eliminate a combined Dime/Hudson entity from competition in several purported banking markets, that the proposed acquisition of Dime by the Company and FleetBoston will substantially lessen competition and create a monopoly in at least two purported banking markets, and that FleetBoston has monopoly power in banking markets throughout New England and is using its monopoly profits in order to acquire Dime and eliminate a strong new competitor in several purported banking markets throughout New York, Connecticut and New Jersey. Dime's complaint seeks declaratory and injunctive relief, including an order enjoining the Company and FleetBoston from making any coordinated effort to acquire Dime and an order enjoining FleetBoston's pending branch sale transaction with Sovereign Bancorp, Inc., and such other relief as may be granted. We believe that the allegations against us in Dime's complain are without merit and we intend to contest Dime's allegations vigorously. Among other things, we believe that the alleged market area in New York in which Dime alleges that competition will be diminished is inconsistent with applicable precedent, including recent orders of the Federal Reserve Board and thus does not present the appropriate area in which to assess competitive effects. We believe that the banking competition in the Metropolitan New York-New Jersey banking market, as defined by the Federal Reserve Bank of New York, is vigorous and will not be impacted adversely by the Company's acquisition of Dime. Furthermore, we believe not only that Dime will be unable to substantiate its claims, but also that the New York State regulatory scheme set out under the Bank Holding Company Act, which places exclusive jurisdiction to review and approve bank holding company mergers and acquisitions with the Federal Reserve Board and the U.S. Department of Justice. We understand that FleetBoston also believes that the allegations against it in Dime's complaint are without merit and that FleetBoston intends to contest Dime's allegations vigorously. 6 7 PART I (CONTINUED) ITEM 3 - LEGAL PROCEEDINGS (CONTINUED) On March 13, 2000, we filed a motion in the Court of Chancery to enjoin Dime from taking any further steps to prosecute the New York action on the grounds that the New York action arises out of the same nucleus of operative facts as those involved in the Delaware litigation and would necessarily involve adjudication of matters relating to the Delaware litigation. On March 17, 2000, Dime filed a response with the Delaware court opposing the Company's motion to stay Dime's antitrust action in New York. On March 20, 2000, the Delaware court denied the Company's motion. On March 17, 2000, the Company moved for an expedited hearing and partial summary judgment with respect to its claims in the Delaware litigation. A briefing schedule on that motion has been established and a hearing has been set for April 17, 2000. On March 21, 2000, Dime filed a complaint in the United States District Court for the Eastern District of New York against the Company and the individual members of the Company's board of directors alleging claims under the federal securities laws based on what Dime has claimed are material misstatements and omissions in the proxy solicitation and exchange offer material filed by the Company with the SEC. Dime's claim seeks injunctive and other relief. The Company believes that the claims alleged by Dime in its complaint are without merit and intends to contest the action vigorously. Additional information required by this item is set forth in "Note 16 - Other Commitments and Contingent Liabilities (c) Other Matters" (page 60) and "Note 18 - Subsequent Event" (page 62) of the Company's 1999 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 1999. 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 Company as of January 1, 2000, 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 53 Chairman, President and Chief Executive Officer of the Company and North Fork, throughout the past five years. John Bohlsen 57 Vice Chairman of the Company and North Fork. Mr. Bohlsen also has been President of the Helm Development Corp., a real estate company, throughout the past five years. 7 8 Thomas M. O'Brien 49 Vice Chairman of the Company 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 57 Executive Vice President and Chief Financial Officer of the Company throughout the past five years. PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the New York Stock Exchange under the symbol NFB. As of March 27, 2000, there were 7,395 shareholders of record of the Company'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 23) sections of Management's Discussion and Analysis, the "Selected Statistical Data" (page 33), and "Note 14 - Regulatory Matters" (page 58-59) of the Company's 1999 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 Company's 1999 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 14-33) of the Company's 1999 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 14-33) of the Company's 1999 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 33); the Consolidated Financial Statements (pages 34-39); the Notes to the Consolidated Financial Statements (pages 40-63); the Independent Auditors' Report (page 64); and the Report of Management (page 65) of the Company's 1999 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. 8 9 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 4-7) in the Company's Definitive Proxy Statement for its Annual Meeting of Stockholders to be held on Tuesday, April 25, 2000, 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 9), "Executive Compensation" (pages 10-26), and "Retirement Plans" (pages 26-27) in the Company's Definitive Proxy Statement for its Annual Meeting of Stockholders to be held April 25, 2000, 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 2-4) in the Company's Definitive Proxy Statement for its Annual Meeting of Stockholders to be held April 25, 2000, 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 27) in the Company's Definitive Proxy Statement for its Annual Meeting of Stockholders to be held April 25, 2000, which is incorporated herein by reference. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The consolidated financial statements, including notes thereto, and financial schedules of the Company, 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 Company's 1999 Annual Report to Shareholders filed herewith as Exhibit 13. 1. Financial Statements Page No. -------------------- -------- Consolidated Statements of Income 34 Consolidated Balance Sheets 35 Consolidated Statements of Cash Flows 36-37 Consolidated Statements of Changes in Stockholders' Equity 38 Consolidated Statements of Comprehensive Income 39 Notes to Consolidated Financial Statements 40-63 Independent Auditors' Report 64 Report of Management 65 2. Financial Statement Schedules ----------------------------- 9 10 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 Company 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 Company's 1999 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 1999 are as follows: On October 22, 1999, the Company filed a Current Report stating that it had issued a press release regarding its third quarter and year-to-date 1999 financial results. On December 29, 1999, the Company filed a Current Report containing, as exhibits, the Agreement and Plan of Mergers (as amended and restated) for both the Reliance Bancorp, Inc. (Exhibit 2.1) and the JSB Financial, Inc. (Exhibit 2.2) transactions. 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 29, 2000 10 11 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 28, 2000 - - - - ------------------------- President and Chief Executive John A. Kanas Officer (Principal Executive Officer) /s/ Daniel M. Healy Director March 28, 2000 - - - - ------------------------- Executive Vice President and Daniel M. Healy Chief Financial Officer Principal Accounting Officer) /s/ John Bohlsen Director March 28, 2000 - - - - ------------------------- Vice Chairman of the Board John Bohlsen /s/ Thomas M. O'Brien Director March 28, 2000 - - - - ------------------------- Vice Chairman of the Board Thomas M. O'Brien /s/ Irvin L. Cherashore Director March 28, 2000 - - - - ------------------------- Irvin L. Cherashore /s/ Park T. Adikes Director March 28, 2000 - - - - ------------------------- Park T. Adikes /s/ Allan C. Dickerson Director March 28, 2000 - - - - ------------------------- Allan C. Dickerson /s/ Lloyd A. Gerard Director March 28, 2000 - - - - ------------------------- Lloyd A. Gerard /s/ Patrick E. Malloy III Director March 28, 2000 - - - - ------------------------- Patrick E. Malloy III /s/ Raymond A. Nielsen Director March 28, 2000 - - - - ------------------------- Raymond A. Nielsen /s/ James F. Reeve Director March 28, 2000 - - - - ------------------------- James F. Reeve /s/ George H. Rowsom Director March 28, 2000 - - - - ------------------------- George H. Rowsom /s/ Dr. Kurt R. Schmeller Director March 28, 2000 - - - - ------------------------- Dr. Kurt R. Schmeller /s/ Raymond W. Terry, Jr. Director March 28, 2000 - - - - ------------------------- Raymond W. Terry, Jr. 12 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION METHOD OF FILING - - - - ------ ----------- ---------------- 2.1 Amended and Restated Agreement Previously filed on Form 8-K and Plan of Merger, dated as of as Exhibit 2.2 dated December 29, 1999 and August 16, 1999, between North incorporated herein by reference. Fork Bancorporation, Inc. and JSB Financial, Inc. 2.2 Amended and Restated Agreement Previously filed on Form 8-K and Plan of Merger, dated as of as Exhibit 2.1 dated December 29, 1999 and August 30, 1999, between North incorporated herein by reference. Fork Bancorporation, Inc. and Reliance Bancorp, Inc. 3.1 Articles of Incorporation of North Filed herewith. Fork Bancorporation, Inc. 3.2 By-Laws of North Fork Bancorporation, Previously filed on Form 10-K for the year ended Inc., as amended, effective October 29, December 31, 1998, dated March 29, 1999, as 1998. Exhibit 3.2 and incorporated herein by reference. 4.1 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. 4.2 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. 4.3 Prospectus for Reliance Capital Trust Previously filed by Reliance Bancorp, Inc on Form I, issuance of Capital Trust Pass- S-4, dated October 13, 1998 (Registration No. 333-64219) Through Securities. and incorporated by reference. 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. 1985 (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.
13 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 Non-Qualified Stock Option Filed herewith. Agreement entered into between North Fork Bancorporation, Inc. and John A. Kanas, John Bohlsen, Thomas M. O'Brien and Daniel M. Healy dated December 13, 1999. 10.11(a) Form of Restricted Stock Agreement, Filed herewith. entered into between North Fork Bancorporation, Inc. and John A. Kanas, John Bohlsen, Thomas M. O'Brien and Daniel M. Healy dated December 13, 1999. 10.12(a) North Fork Bancorporation, Inc. 1999 Filed herewith. Stock Compensation Plan.
14 EXHIBIT INDEX (CONTINUED)
EXHIBIT NUMBER DESCRIPTION METHOD OF FILING - - - - ------ ----------- ---------------- 10.13(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. 10.14(a) North Fork Bancorporation, Inc. 1998 Filed herewith. Stock Compensation Plan, as amended. 10.15(a) Form of Consulting Agreement, as entered Filed herewith. into between North Fork Bancorporation, Inc. and Raymond A. Nielsen, III dated December 29, 1999. 10.16(a) Form of Consulting Agreement, as entered Filed herewith. into between North Fork Bancorporation, Inc. and Thomas M. O'Brien dated December 31, 1999. 11 Statement re: Computation of Filed herewith. Earnings Per Share. 13 Pages 12 through 65 of the Company's Filed herewith. 1999 Annual Report to Shareholders that are incorporated herein by reference. 21 Subsidiaries of Company. 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-3.1 2 ARTICLES OF INCORPORATION 1 EXHIBIT 3.1 CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF NORTH FORK BANCORPORATION, INC. ------------------------------------ PURSUANT TO SECTION 242 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE ------------------------------------ North Fork Bancorporation, Inc., a Delaware corporation (hereafter called the "Corporation"), does hereby certify as follows: FIRST: Paragraph (a) of Article Fourth of the Corporation's Restated Certificate of Incorporation is hereby amended to read in its entirety as set forth below: FOURTH: Capital Stock (a) The authorized shares which the Corporation has authority to issue shall be five hundred ten million (510,000,000), divided into five hundred million (500,000,000) shares of common stock, par value of one cent ($.01) each, and ten million (10,000,000) shares of Preferred Stock, par value of one dollar ($1.00) each which Preferred Stock may be divided into and issued in series as described herein, SECOND: The foregoing amendment was duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, North Fork Bancorporation, Inc. has caused this Certificate to be duly executed in its corporate name this 11th day of February, 2000. NORTH FORK BANCOPORATION, INC. By: /s/ Aurelie S. Graf --------------------------- Name: Aurelie S. Graf Title: Secretary EX-10.10.A 3 FORM OF NON-QUALIFIED STOCK OPTION PLAN 1 EXHIBIT 10.10(A) 1998 Plan Executive --------- (reload, transferable, immediate vesting, deferred delivery) NORTH FORK BANCORPORATION, INC. ------------------------------- NONQUALIFIED STOCK OPTION AGREEMENT Date of Option Grant: _______ Number of Shares to Which Option Relates: _______ OPTION PRICE PER SHARE: $_________ (Representing ___ Percent of the Market Price on the Date of Grant) AGREEMENT, dated the Date of Option Grant set forth above, between North Fork Bancorporation, Inc., a Delaware corporation (the "Company"), and _________ ("Optionee"). WHEREAS, Optionee is a valued and trusted key employee of the Company or one of its subsidiaries; and WHEREAS, the Company, pursuant to and in accordance with its 1998 Stock Compensation Plan (the "Plan"), has elected to grant to Optionee an option to buy shares of the common stock, par value $2.50 per share, of the Company ("Common Stock"), with the expectation that Optionee thereby may be induced to acquire and maintain an ownership interest in the Common Stock and to work for the success of the Company and its subsidiaries; NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants contained herein, the parties hereto hereby agree as follows: 1. GRANT OF OPTION. As of the Date of Option Grant identified above, the Company grants to Optionee, subject to the conditions set forth herein and in the Plan, the right, privilege, and option (the "Option") to purchase that number of shares of Common Stock identified above opposite the heading "Number of Shares to Which Option Relates" (the "Shares"), at the per share price specified above opposite the heading "Option Price Per Share," ex dividend. 2. VESTING (EXERCISABILITY) OF OPTION; TERM OF OPTION. The Option shall vest on the earliest date permitted under the terms of the Plan and applicable law, such being the Date of Option Grant as indicated above (the "Vesting Date"). On and after the Vesting Date and until the tenth anniversary of the Date of Option Grant (such period, the "Option Period"), the Option will be and remain exercisable, in whole or in part, subject to Section 4 hereof, "Conditions to Exercise," and to possible early termination of the Option under Section 3, below. 3. EFFECT OF TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY OF OPTIONEE. In the event that Optionee's employment with the Company and its subsidiaries terminates prior to full 2 exercise of the Option and expiration of the Option Period, Optionee may exercise the Option at any time prior to or on, but not after, the date that is ninety (90) days after the date of termination of employment or the last day of the Option Period, whichever comes first; provided, however, (i) if Optionee's employment is terminated due to Optionee's Disability (as defined below), Optionee may exercise the Option at any time prior to or on, but not after, the date that is one year after the date of termination of employment or the last day of the Option Period, whichever comes first, (ii) if Optionee's employment is terminated due to the death of Optionee, the Option may be exercised by the legal representative(s) or beneficiary(-ies) of Optionee at any time prior to or on, but not after, the last day of the Option Period, and (iii) if Optionee's employment is Terminated for Cause (as defined below), the Option will cease to be exercisable and will terminate, effective as of the date of termination of employment. For purposes of this Agreement, leaves of absence granted by the Company for reasons including, but not limited to, military service or illness and transfers of employment between the Company and any of its subsidiaries shall not constitute termination of employment. "Disability" means permanent and total disability as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended and in effect from time to time (the "Code"), as determined by the Committee in good faith, upon receipt of and in reliance on sufficient competent medical advice. "Terminated for Cause" means, (a) for any Optionee serving under an employment agreement containing a provision for termination of employment for "cause," termination of the employment of Optionee for "cause" pursuant to such provision, and (b) for any other Optionee, termination of the employment of Optionee by a two-thirds vote of the entire Board of Directors of the Company or the subsidiary of the Company employing such Optionee expressly for one or both of the following "causes," as evidenced in a certified resolution of such Board: (1) any willful misconduct by Optionee which is materially injurious to the Company or the subsidiary, monetarily or otherwise, or (2) conviction of Optionee with no further possibility of appeal of a felony under applicable state or federal banking or financial institution laws, or the agreement of Optionee to plead guilty to any such felony. 4. CONDITIONS TO EXERCISE OF OPTION. The Option may not be exercised unless, as of the Exercise Date (as defined in Section 5(b), below), each of the following conditions is met: (i) The Option has not terminated pursuant to Section 3; (ii) The underlying Shares as to which the Option is then sought to be exercised are the subject of an effective registration statement under the Securities Act of 1933, as amended, and are registered under applicable state securities laws, or may then be issued to Optionee exempt from such federal or state registration; (iii) Payment in full of the exercise price for that number of Shares as to which the Option is being exercised has been received by the Company in accordance with Section 5(c), below; and 2 3 (iv) All other actions required to be taken by the Company and the Exercising Person (as defined in Section 5(a), below) prior to such exercise of the Option in accordance with the Plan and this Agreement shall have been taken. 3 4 5. METHOD OF EXERCISE OF OPTION. (a) If Optionee or any person authorized to exercise the Option on Optionee's behalf or in the event of Optionee's death (the "Exercising Person") elects to exercise the Option, in whole or in part, such Exercising Person shall deliver to the Secretary of the Company at the Company's principal place of business a written notice of election to exercise the Option, identifying that number of whole Shares as to which exercise is then being sought, which number may not exceed the number of Shares as to which the Option may then be exercised in light of any and all prior partial exercises of the Option. If the Exercising Person is not Optionee, the notice also shall identify the nature of the Exercising Person's authority to exercise the Option. In all cases, such written notice of election must be accompanied by surrender of the original of this Agreement. (b) In the event of such election, the effective date of the exercise (the "Exercise Date") shall be a date designated by the Secretary of the Company that is not later than the third business day after the day the Secretary receives the written notice, unless all required conditions to exercise as set forth in Section 4 have not been satisfied as of the close of business on such third day, in which event the Exercise Date shall be the first subsequent business day on which all such conditions are satisfied. If postponement of exercise beyond such third business day becomes necessary, the Secretary shall give the Exercising Person reasonable advance notice of such postponement. At any time prior to the Exercise Date, the Exercising Person may revoke the election to exercise by subsequent notice to the Secretary, such revocation to become effective upon receipt of such subsequent notice. (c) Payment of the exercise price for that number of Shares as to which the Option is being exercised shall be made to the Secretary of the Company. Payment shall be in cash or, if authorized by the committee of the Board of Directors of the Company that administers the Plan (the "Committee"), may be made at the discretion of the Exercising Person in whole or in part by surrender to the Company of shares of Common Stock owned by Optionee and acceptable to the Committee (a "Stock-for-Stock Exercise"). Any shares surrendered in payment of the exercise price in a Stock-for-Stock Exercise ("Payment Shares") shall be valued at the fair market value thereof, (determined as provided in the Plan) on the Exercise Date. In a Stock-for-Stock Exercise, in lieu of actually surrendering to the Company a certain number of Payment Shares, the Exercising Person may elect to submit to the Company a statement affirming ownership by Optionee of such number of shares and request that such shares, although not actually surrendered, be deemed to have been surrendered by the Exercising Person to the Company in payment of the exercise price (any such payment, a "Deemed Payment"). (d) Subject to Section 5(e) below, on the Exercise Date, the Company shall deliver to the Exercising Person or the designee of the Exercising Person as of the Exercise Date the number of Shares as to which the Option has thus been exercised, provided that, if the Exercising Party has elected in connection with a Stock-for-Stock Exercise to make a Deemed Payment, the Company will deduct from the number of Shares thus deliverable by it on the Exercise Date the number of shares deemed surrendered but not actually surrendered by the Exercising Person and deliver only the remaining number of Shares (the "Spread Shares"). If, on the Exercise Date, any Shares remain as to which the Option is not being exercised, the Company, simultaneously with delivery of the appropriate number of Shares, shall return to the Exercising Person the original of 4 5 this Agreement, with appropriate notations as to the partial exercise of the Option. To the extent that exercise of the Option obligates the Company to pay withholding taxes on behalf of Optionee, the Company will pay the minimum amount of such withholding taxes then due and either (i) withhold such amount from Optionee's wages or other compensatory payments due to Optionee, or (ii) if the Company so elects, deduct from the number of Shares otherwise then deliverable by it a number of Shares having a fair market value on the Exercise Date, as determined by the Committee, equal to the amount of such withholding tax payment, in which event Optionee shall have no further rights with respect to such nondelivered Shares, provided that, if the Exercising Person at the time of exercise delivers funds to the Company for payment of such withholding taxes, the Company will first apply such funds to the payment of such taxes. (e) With the consent of the Committee and subject to such procedures as may be established from time to time by the Committee, Optionee, by written notice given to the Company an appropriate period of time prior to the Exercise Date, in connection with a Stock-for-Stock Exercise of the Option, may elect to defer until some date after the Exercise Date the delivery by the Company of some or all of the Spread Shares otherwise deliverable by the Company as of the Exercise Date under Section 5(d), above (a "Deferred Delivery"). Notice of any such Deferred Delivery shall be on such form as may be specified by the Committee, which form, in addition to any other appropriate information or statements, shall require Optionee to identify the number of Spread Shares as to which delivery is to be deferred (the "Deferred Shares") and the date or dates upon which Optionee wishes delivery of the Deferred Shares to be made (the "Deferred Delivery Date"), and to agree to abide by all procedures then or thereafter established by the Committee for a Deferred Delivery. In the event of a Deferred Delivery, on the Exercise Date the Company shall give to Optionee, in lieu of the Deferred Shares, a promise to deliver the Deferred Shares on the Deferred Delivery Date selected by Optionee, together with such other documentation as the Committee may deem appropriate. Until the Deferred Delivery Date and delivery by the Company to Optionee of the Deferred Shares, Optionee shall not be treated as the owner of the Deferred Shares, shall not have any rights as a stockholder as to the Deferred Shares, and shall have only a contractual right to receive the Deferred Shares, unsecured by any assets of the Company or its subsidiaries. (f) Nothing in this Section 5 shall preclude exercise of this Option by means of a so-called "brokered exercise" involving payment of the exercise price of the Shares as to which the Option is being exercised by a broker, dealer or other agent acting on behalf of Optionee, utilizing proceeds from the sale on behalf of Optionee of a number of shares of Common Stock equal to or less than the full number of Shares deliverable by the Company upon such exercise, provided the Company has approved exercise of the Option by such method. 6. TRANSFERABILITY OF OPTION. At any time from and after the Date of Grant and prior to full exercise of the Option or expiration of the Option Period, Optionee may transfer any portion of the Option that is then exercisable, for no consideration, to or for the benefit of one or more members of Optionee's Immediate Family (as defined below), including, without limitation, to a trust for the benefit of one or more members of Optionee's Immediate Family or to a partnership of and among members of Optionee's Immediate Family, in which event the transferee or transferees of such portion shall possess all rights of Optionee under this Agreement with respect to such portion and shall remain subject to all the terms and conditions applicable thereto, including those terms and conditions pursuant to which the exercisability of the Option is related 5 6 to the continuing employment of Optionee (not the transferee or transferees) by the Company or its subsidiaries as specified in Section 3 above. The Committee may specify from time to time the procedures applicable to any such transfer and certain limitations relating thereto as may be practical or are necessary to protect the Company's interests, including limitations on the minimum size of the Option interest (expressed as a number of Shares) that may be transferred in any one transaction, the maximum number of transfers per year, and requirements that in connection with any such transfer or transfers Optionee retain ownership of an appropriate interest in the Option and the right to acquire the Shares subject thereto for the purpose of utilizing such Shares, if necessary, for payment of applicable withholding taxes upon exercise of the portion or portions of the Option thus transferred. For purposes of this Section 6, "Optionee's Immediate Family" means Optionee's parents, spouse, children, stepchildren, adoptive relationships, sisters, brothers and grandchildren. If a transferee of the Option elects to exercise the Option by way of a Stock-for-Stock Exercise, Optionee, if still employed by the Company or a subsidiary thereof on the Exercise Date, may request that the Committee award to the Optionee (not to the exercising transferee) as of the Exercise Date of the underlying Option, a Reload Option as defined in and in accordance with the terms and conditions set forth in Section 10 hereof. If the Optionee submits such a request, the Committee, in its sole discretion, shall determine whether or not to grant a Reload Option to the Optionee, but such decision (and if the Committee elects to grant such a Reload Option, the grant thereof) shall have no impact on the rights and obligations of the transferee exercising the underlying transferred Option pursuant to this Section 6. Except for those transfers specifically permitted in accordance with the foregoing paragraph, the Option shall be non-transferable except in the event of Optionee's death, as provided in Section 3 above, and during Optionee's lifetime shall be exercisable only by Optionee. 7. STOCKHOLDER RIGHTS. Optionee shall have no rights as a stockholder with respect to any of the Shares until the Option shall have been exercised with respect to such Shares and such Shares have been issued in the name of Optionee. 8. DESIGNATION OF BENEFICIARY. Optionee may designate a person or persons to receive the Option in the event of the death of Optionee. Such designation must be made either in the space indicated at the end of this Agreement or upon forms supplied by and delivered to the Company and may be revoked in writing. If Optionee fails effectively to designate a beneficiary, the estate of Optionee will be deemed to be the beneficiary of Optionee with respect to the Option. 9. ADJUSTMENTS. In the event of any change in the outstanding shares of Common Stock after the Date of Option Grant, by reason of any stock dividend or stock split, recapitalization, merger, sale, consolidation, spinoff, reorganization, combination, issuance of stock rights or warrants, exchange of shares, or other similar corporate change, an appropriate adjustment will be made by the Committee to the number of Shares to which the Option theretofore related and the exercise price per Share under the Option, consistent with equitable considerations; provided, however, that if the Company shall issue additional shares of Common Stock or other securities 6 7 for consideration, no such adjustment shall be made. No such adjustment may materially change the value of benefits available to Optionee as a result of the prior grant of the Option. 10. RELOAD OPTION. In the event that the holder of the Option intends to exercise the Option, in whole or in part, in a Stock-for-Stock Exercise, Optionee may request, prior to such exercise, that the Committee award Optionee a Reload Option, as defined below, upon such exercise, and the Committee, in its sole discretion, will determine whether or not to do so. If the Committee determines to comply with Optionee's request, then upon such Stock-for-Stock Exercise, the Company shall deliver to Optionee, a new option (a "Reload Option") to purchase a number of shares of Common Stock equal to (i) the number of Payment Shares surrendered or deemed surrendered by the holder of the Option upon exercise of the Option, plus (ii) the additional number of shares of Common Stock, if any, then withheld by the Company from the Shares otherwise deliverable to the holder of the Option as payment of any applicable withholding taxes upon such exercise. The date of grant of the Reload Option shall be the Exercise Date of the underlying Option and the exercise price per share of the Reload Option shall be the fair market value (determined as provided in the Plan) of the Common Stock on such Exercise Date. The Reload Option shall be fully exercisable immediately upon grant, and shall continue to be exercisable during the period, but only during the period, that the underlying Option remains exercisable or would have remained exercisable absent full exercise thereof, in accordance with Sections 2 and 3 hereof. Optionee may elect, by notice to the Company prior to the Exercise Date of the underlying Option, to have the Reload Option be an "incentive stock option" within the meaning of Section 422 of the Code (subject to the availability of incentive stock options under the Company's compensatory stock option plans then in effect and limitations on the maximum number of incentive stock options first becoming exercisable in any year that may be granted to any one individual under the Code). To the extent Optionee does not elect "incentive stock option" treatment, the Reload Option shall be a so-called "nonqualified stock option," that is, an option that is not an "incentive stock option" under Section 422 of the Code. Any Reload Option granted to Optionee shall be the subject of a separate Option Agreement between Optionee and the Company. 11. EFFECT ON EMPLOYMENT. The grant of the Option provided for herein shall not confer upon Optionee any right to continue in the employment of the Company or its subsidiaries or to continue to perform services therefor and shall not in any way interfere with any right of the Company or its subsidiaries to terminate the services of Optionee as an employee or officer at any time. 12. APPLICABLE LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware. 13. EFFECT OF THE PLAN. Optionee acknowledges that in the event of any inconsistency between the provisions of this Agreement and the Plan, the provisions of the Plan will control. 14. NONQUALIFIED STOCK OPTION. This Option is not intended to be, and will not be treated as, an "incentive stock option" within the meaning of Section 422 of the Code. 7 8 IN WITNESS WHEREOF, the parties hereto have, personally or by a duly authorized representative, executed this Agreement as of the Date of Option Grant first above written. NORTH FORK BANCORPORATION, INC. By: ---------------------------------- (Authorized Officer) ("OPTIONEE") ------------------------------------- (Optionee) DESIGNATION OF BENEFICIARY - - - - --------------------------------------- (Relationship to Optionee) -------------------------------------- (Name of Beneficiary) -------------------------------------- (Street Address) -------------------------------------- (City, State, Zip Code) -------------------------------------- (Social Security Number) 8 EX-10.11.A 4 FORM OF RESTRICTED STOCK AGREEMENT 1 EXHIBIT 10.11(A) 1998 Plan Executive --------- (retirement vesting/ from treasury with complete tax gross up) NORTH FORK BANCORPORATION, INC. RESTRICTED STOCK AGREEMENT DATE OF GRANT: _______________ NUMBER OF SHARES: _______________ AGREEMENT, dated the Date of Grant set forth above, between North Fork Bancorporation, Inc., a Delaware corporation (the "Company"), and _____________ _______________________________ ("Grantee"). WHEREAS, Grantee is a valued and trusted key employee of the Company or one of its subsidiaries; and WHEREAS, the Company has elected to award to Grantee shares of "Restricted Stock" pursuant to and in accordance with the Company's 1998 Stock Compensation Plan (the "Plan"), in order that Grantee thereby may be induced to acquire and maintain an ownership interest in the Common Stock of the Company ("Common Stock") and to work for the success of the Company and its subsidiaries; NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants contained herein, the parties hereto agree as follows: 1. RESTRICTED STOCK AWARD. The Company hereby grants and awards to Grantee, subject to the conditions and restrictions set forth in this Agreement and in the Plan, that number of shares of Common Stock identified above opposite the heading "Number of Shares" (the "Shares"), which Shares will be "Restricted Stock" within the meaning of Sections 2(u) and 9 of the Plan. As of the Date of Grant, the Shares will be issued from the treasury of the Company in the name of Grantee or a nominee of Grantee, provided, however, that a certificate or certificates representing the Shares will not be delivered to Grantee until such later date as is identified in Section 3 below. 2. RESTRICTIONS ON TRANSFER, FORFEITABILITY PRIOR TO VESTING. (a) Except as otherwise specified by the committee of the Board of Directors of the Company (the "Board") charged with administering the Plan from time to time (the "Committee"), the Shares and rights relating thereto may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, and Grantee agrees not to sell, assign, transfer, pledge, hypothecate or otherwise dispose of such Shares or rights, prior to the Vesting Date (as defined in Section 2(b) 2 below). If Grantee ceases to be an Affiliate of the Company (as defined below) prior to such Vesting Date, Grantee shall immediately forfeit any and all unvested Shares together with all rights relating thereto, and the full ownership of such Shares and rights shall revert to the Company, and Grantee shall have no further rights under this Agreement. For purposes of the foregoing sentence, Grantee shall be an "Affiliate of the Company" if Grantee is employed by the Company or any of its subsidiaries or is serving the Company under a Consulting Agreement (as defined in Section 2(b) below). A leave of absence granted by the Company for reasons including, but not limited to, military service or illness and transfers of employment between the Company and any of its subsidiaries shall not be deemed a termination of employment of Grantee. On the Vesting Date, the restrictions on transferability of the Shares set forth in the first sentence of this Section 2(a) and the forfeitability of the Shares set forth in the second sentence of this Section 2(a) shall lapse and expire, and the Shares, if not previously forfeited, will become freely transferable, subject only to such further limitations on transfer, if any, as may exist under applicable securities laws or any other agreement then binding upon Grantee. (b) The "Vesting Date" for all the Shares subject hereto shall be that date when there occurs the first to occur of the following "Vesting Events": (i) Grantee's attaining normal retirement age under the principal retirement plan of the Company in effect at such time (the "Retirement Plan"), or the "early retirement" of Grantee under the Retirement Plan prior to attaining normal retirement age with the approval of the Board or the Committee, which approval for early retirement required under this subsection (b)(i) may be withheld for any reason or no reason (other than unlawful discrimination) and shall be required in order for the date of early retirement to constitute the Vesting Date hereunder even if such approval is not required for early retirement under the Retirement Plan; (ii) Grantee's death or Disability (as defined in Section 2(d) below); or (iii) the occurrence of a Change in Control of the Company (as defined in Section 7 below); provided, however, that if the first to occur of subsections (b)(i), (b)(ii) or (b)(iii), above, is the Grantee's attaining normal retirement age or the approved early retirement of Grantee in accordance with subsection (b)(i) above, and if, as of the date of such occurrence ("Grantee's Retirement Date"), the Board or the Committee determines, in the exercise of its reasonable judgment, that it is highly probable that some or all of the taxable compensation income that would be recognized by Grantee as a result of the vesting of the Shares as of Grantee's Retirement Date would be non-deductible to the Company for federal income tax purposes for the taxable year of the Company in which Grantee's Retirement Date falls as a result of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor provision of federal income tax law then in effect, then Page 2 3 Grantee's attaining normal retirement age or the approved early retirement of Grantee shall not constitute a Vesting Event under this Agreement and Grantee's Retirement Date shall not be the Vesting Date of the Shares hereunder, but rather on Grantee's Retirement Date, without any further action on the part of Grantee or the Company, there shall automatically come into existence a post-retirement consultancy agreement between Grantee and the Company ("Consulting Agreement"), which Consulting Agreement shall consist of such mutual duties, obligations and undertakings, and shall continue for at least such minimum period of time (the "Minimum Consulting Period"), as are set forth in Exhibit A attached hereto. In the event such a Consulting Agreement comes into effect, a Vesting Event within the meaning of subsection (b)(i) above shall be the expiration of the Minimum Consulting Period under the Consulting Agreement following Grantee's Retirement Date, and if such occurrence is the first Vesting Event to occur, the Vesting Date shall be 11:59 p.m. on the last day of the Minimum Consulting Period. To the extent that Grantee may have the right under the Retirement Plan, separate and apart from this Agreement and approved early retirement under subsection 2(b)(i), above, to elect early retirement without otherwise obtaining approval of the Company, the Board or the Committee, Grantee may request in advance that the Board or the Committee make a preliminary determination as to whether Grantee's election of early retirement as of any particular date would result in an automatic Consulting Agreement hereunder, and if so requested the Board or the Committee shall exercise its good faith judgment in making such a preliminary determination and communicating the same to Grantee for his consideration before electing early retirement. (c) Notwithstanding any other provision of this Agreement to the contrary, the Committee may, in its sole discretion, at any time or from time to time and with respect to any or all of the Shares, accelerate the Vesting Date of the Shares, if in its judgment the performance of Grantee has warranted such action or such action is in the best interest of the Company. (d) For purposes of this Agreement, "Disability" shall have the meaning set forth in Section 22(e)(3) of the Code, as determined by the Committee in good faith, upon receipt of and in reliance on sufficient competent medical advice. 3. CERTIFICATES. One or more certificates representing the Shares will be held by the Company or by its transfer agent, together with a stock power to be executed by Grantee in favor of the Company, until the Vesting Date of the Shares under Section 2(b), at which time a certificate or certificates representing the Shares will be issued to Grantee. 4. DIVIDENDS AND VOTING. From and after the Date of Grant with respect to the Shares and until any subsequent transfer or forfeiture thereof by Grantee, Grantee shall be treated as the sole beneficial owner of such Shares, having all rights of a common stockholder of the Company with respect thereto, except as otherwise may be set forth in this Agreement. Specifically, and without limitation, Grantee shall have the following rights: Page 3 4 (a) Grantee shall be entitled to receive all dividends, payable in stock, in cash or in kind, or other distributions, declared on or with respect to any Shares as of a record date that occurs on or after the Date of Grant hereunder and prior to any transfer or forfeiture of such Shares; provided that any such dividends or distributions payable in equity securities of the Company or its affiliates, including shares of Common Stock or any series of Preferred Stock of the Company, or any warrants, options or rights to purchase any of the foregoing, received by Grantee prior to the Vesting Date shall be received and held by Grantee subject to the same restrictions on transfer and the same conditions regarding forfeiture as apply to the Shares with respect to which such dividends or distributions are paid; and (b) Grantee shall be entitled to exercise all voting rights with respect to the Shares, if the record date for the exercise of such voting rights occurs on or after the Date of Grant hereunder and prior to any transfer or forfeiture of such Shares. In the event of forfeiture of any or all of the Shares by Grantee, Grantee shall not be required to return to the Company any dividends or distributions previously paid to Grantee with respect to such Shares, other than any dividends or distributions payable in the form of equity securities as described in subsection (a) of this Section 4, above. 5. DESIGNATION OF BENEFICIARY. Grantee may designate a person or persons to receive, in the event of the death of Grantee, any Shares that may then vest. Such designation must be made either in the space indicated at the end of this Agreement or upon forms supplied by and delivered to the Company and may be revoked in writing. If Grantee fails effectively to designate a beneficiary, the estate of Grantee will be deemed to be the beneficiary of Grantee with respect to any such Shares then vesting. 6. ADJUSTMENTS. In the event of any change in the outstanding shares of Common Stock by reason of any stock dividend or stock split, recapitalization, merger, sale, consolidation, spinoff, reorganization, combination, delivery of stock rights or warrants, exchange of shares, or other similar corporate change, an appropriate adjustment will be made by the Committee to the number of Shares then subject to this Agreement, consistent with equitable considerations; provided, however, that if the Company shall deliver additional shares of Common Stock or other securities for consideration, no such adjustment shall be made. No such adjustment may materially change the value of benefits available to Grantee as a result of the prior award of the Shares. 7. CHANGE IN CONTROL. A Change in Control of the Company (as defined below) constitutes a Vesting Event under Section 2(b) of this Agreement. For purposes of this Agreement, a "Change in Control of the Company" shall be deemed to have occurred as of the first date that any of the following occurs: Page 4 5 (a) Any individual, corporation (other than the Company), partnership, trust, association, pool, syndicate, or any other entity or any group of persons acting in concert (other than any of the foregoing that is controlled by or under common control with the Company) becomes the "beneficial owner," as that concept is defined in Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, as the result of any one or more transactions (including gifts and stock repurchases but excluding transactions described in subsection (c), below), of securities of the Company possessing twenty-five percent (25%) or more of the Voting Power (as defined below) of the Company; (b) Approved Directors constitute less than a majority of the entire Board, with "Approved Directors" defined to mean the members of the Board as of the Date of Grant hereunder and any individuals who subsequently become members of the Board (i) having been elected by stockholders after being nominated or approved by a majority of the Approved Directors on the Board prior to such election, or (ii) having been appointed to the Board to fill a vacancy with the approval of a majority of Approved Directors on the Board prior to such appointment; or (c) The Company has entered into a binding agreement for a Sale of the Company (as defined below) and has received all required corporate, regulatory and other approvals for consummating such Sale of the Company, and the consummation thereof is expected by the Company to occur within fifteen (15) days. For purposes of subsection (c) of the preceding paragraph, "Sale of the Company" shall mean: (i) Any consolidation, merger or stock-for-stock-exchange involving the Company or the securities of the Company in which the holders of voting securities of the Company immediately prior to the consummation of such transaction will own, as a group, immediately after such consummation, voting securities of the Company (or, if the Company is not to survive such transaction, voting securities of the Surviving Corporation, as defined below) having less than fifty percent (50%) of the Voting Power of the Company (or the Surviving Corporation), excluding any securities of the Surviving Corporation owned by any members of such group prior to such transaction and any securities to be received in such transaction by any members of such group which represent disproportionate percentage increases in their share holdings vis-a-vis the other members of such group; or (ii) Any sale, lease, exchange or other transfer (in one transaction or a series of related transactions), of all, or substantially all, of the assets of the Company to a party which is not controlled by or under common control with the Company prior to such transaction or series of transactions. For purposes of the preceding sentence, the "Surviving Corporation" in any transaction in which the Page 5 6 Company does not survive shall mean the corporation that issues securities and/or other consideration to the stockholders of the Company in connection with such transaction, or, if such issuing corporation is controlled directly or indirectly by another corporation, the ultimate controlling corporation of such issuing corporation. For purposes of this Section 7, the "Voting Power" of a corporation at a given time shall mean the total number of votes entitled to be cast generally in an election of directors of such corporation at such time by all holders of outstanding equity securities of such corporation. 8. EFFECT ON EMPLOYMENT. The award of Shares and related rights to Grantee provided for herein shall not, in and of itself, confer upon Grantee any right to continue in the employment of the Company or its subsidiaries or to continue to perform services therefor and shall not in any way interfere with any right of the Company or its subsidiaries to terminate the services of Grantee as an employee or officer at any time. 9. TAX PAYMENTS. The Company shall pay on behalf of Grantee any and all taxes, federal, state or local, payable by Grantee on or as a result of the vesting of the Shares awarded hereunder, including any taxes or additional taxes payable by Grantee on or as a result of amounts received by or on behalf of Grantee under any other agreement, contract, plan or arrangement with the Company or any of its subsidiaries which would not have been payable absent such vesting. Taxes payable hereunder on behalf of Grantee shall include, without limitation, all income and excise taxes, including excise taxes under Section 4999(a) of the Code, and also shall include all income and excise taxes payable by Grantee as a result of payments of taxes by the Company on behalf of Grantee under this Section 9. 10. APPLICABLE LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware. 11. EFFECT OF PLAN. Grantee acknowledges that in the event of any inconsistency between the provisions of this Agreement and the Plan, the provisions of the Plan will control. Page 6 7 IN WITNESS WHEREOF, the parties hereto have, personally or by a duly authorized representative, executed this Agreement as of the Date of Grant first above written. NORTH FORK BANCORPORATION, INC. By: _________________________________ (Authorized Officer) "GRANTEE" ________________________________________ DESIGNATION OF BENEFICIARY _______________________________ (Relationship to Grantee) ________________________________________ (Name of Beneficiary) ________________________________________ (Street Address) ________________________________________ (City, State, Zip Code) ________________________________________ (Social Security Number) Page 7 8 Exhibit A Key Terms of Consulting Agreement The Consulting Agreement between Grantee and the Company referred to in Section 2(b) of the Restricted Stock Agreement to which this Exhibit A is attached (the "Agreement") shall contain the following key terms and provisions: 1. Grantee will perform, and the Company will expect Grantee to perform, commencing on Grantee's Retirement Date and continuing until termination of the Consulting Agreement, personal consulting services for the Company of a substantial nature and involving duties and tasks of the sort typical and suitable for retiring executives such as Grantee to perform under such continuing consulting arrangements. The identification of specific duties and tasks to be performed by Grantee will be within the overall control and discretion of the Board, provided that in the daily performance of his tasks Grantee will act as an independent contractor. 2. In return for his services as consultant, Grantee will receive from the Company for the duration of the Consulting Agreement a monthly amount, payable in cash, equal to one-eighteenth of Grantee's final annual base salary as an executive officer of the Company. Grantee shall be eligible for such other consideration, including participation in such compensatory plans of the Company that do not limit participation therein to employees, as the Board or the Committee may deem appropriate. 3. During the term of the Consulting Agreement, Grantee shall not at any time be an "executive officer" of the Company within the meaning of Item 402 of Regulation S-K promulgated by the Securities and Exchange Commission, or any successor regulation in effect from time to time. 4. The parties intend that the Consulting Agreement shall continue for at least a minimum period of time after Grantee's Retirement Date extending from such date until (x) the last day of the first calendar month in the fiscal year of the Company following the fiscal year of the Company in which Grantee's Retirement Date occurs, or (y) the 90th day after Grantee's Retirement Date, whichever is later (such minimum duration, the "Minimum Consulting Period"). The Consulting Agreement will terminate on the last day of the Minimum Consulting Period, unless terminated before such date or extended beyond such date pursuant to the provisions of Section 5 of this Exhibit A. 5. The Company may terminate the Consulting Agreement before the last day of the Minimum Consulting Period if and only if the Board determines by a majority of the entire Board that Grantee has not adequately performed his assigned consulting tasks and duties thereunder, after notice and a reasonable opportunity to correct such non-performance. At any time prior to the last A-1 9 day of the Minimum Consulting Period, the Company may advise Grantee that it is willing to extend the Consulting Agreement beyond such last day, for a definite or indefinite period of time beyond such last day, and Grantee may accept such offer of extension, in which event the Consulting Agreement shall continue until such later date as the Company may then or subsequently designate as the final termination date. No such offer and acceptance of an extension of the Consulting Agreement, however, will affect the date of the Vesting Event under subsection (i) of Section 2(b) of the Agreement, which date shall be the last day of the Minimum Consulting Period if a Consulting Agreement described herein is entered into and becomes effective under Section 2(b) of the Agreement. Nothing herein shall preclude Grantee from discontinuing his services to the Company under the Consulting Agreement at any time, with or without prior notice. 6. The Consulting Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware. It shall be binding upon and shall inure to the benefit of the respective parties' heirs, successors and assigns. Capitalized terms used herein and not otherwise defined herein shall have the meaning given such terms in the Agreement. A-2 EX-10.12.A 5 1999 STOCK COMPENSATION PLAN 1 EXHIBIT 10.12(A) NORTH FORK BANCORPORATION, INC. 1999 STOCK COMPENSATION PLAN SECTION 1. ESTABLISHMENT AND PURPOSE North Fork Bancorporation, Inc. (the "Company") hereby establishes a long term incentive plan to be named the North Fork Bancorporation, Inc. 1999 Stock Compensation Plan (the "Plan"), for employees of the Company and its subsidiaries. The purpose of this Plan is to encourage those employees who are given awards by the committee administering the Plan to acquire and maintain an interest in the Common Stock of the Company and thus to have additional incentive to continue to work for the success of the Company and its subsidiaries. SECTION 2. DEFINITIONS Whenever used herein, the following terms shall have the respective meanings set forth below: (A) AWARD means any Option or Restricted Stock or right to receive either granted under the Plan. (B) AWARD AGREEMENT means the written agreement evidencing an Award under the Plan, which shall be executed by the Company and the Award Holder. Award Holder shall mean the Employee or other eligible individual designated to receive an Award under the Plan or any permitted transferee of such Award. (C) BOARD means the Board of Directors of the Company. (D) CODE means the Internal Revenue Code of 1986, as amended and in effect from time to time. (E) COMMITTEE means the Stock and Compensation Committee of the Board, or any successor to such Committee, the members of which shall be elected by the Board. (F) COMPANY means North Fork Bancorporation, Inc., a Delaware corporation. (G) EMPLOYEE means a salaried employee (including officers and directors who are also employees) of the Company or any Subsidiary. (H) EXCHANGE ACT means the Securities Exchange Act of 1934, as amended. (I) EXERCISE PRICE of an Option means a price fixed by the Committee upon grant of the Option as the purchase price for Stock under the Option, as such may be adjusted under Section 10 of the Plan. 2 (J) FAIR MARKET VALUE means, for any particular day, (i) for any period during which the Stock shall be listed for trading on a national securities exchange, the average of the high and low price per share of Stock on such exchange on such day, (ii) for any period during which the Stock shall not be listed for trading on a national securities exchange, but when prices for the Stock shall be reported by the National Market System of the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), the average of the high and low transaction price per share as quoted by the National Market System of NASDAQ for such day, (iii) for any period during which the Stock shall not be listed for trading on a national securities exchange or its price reported by the National Market System of NASDAQ, but when prices for the Stock shall be reported by NASDAQ, the average of the high and low bid price per share as reported by NASDAQ for such day, or (iv) in the event none of (i), (ii) and (iii) above shall be applicable, the fair market price per share of Stock for such day as determined by the Board of Directors. If Fair Market Value is to be determined as of a day when the securities markets are not open, the Fair Market Value on that day shall be the Fair Market Value on the nearest preceding day when the markets were open. (K) OPTION means the right to purchase Stock at the Exercise Price for a specified period of time and subject to specified conditions. For purposes of the Plan, all Options shall be so-called nonqualified (or nonstatutory) stock options, not qualifying as "incentive stock options" under Section 422 of the Code. (L) PERIOD OF RESTRICTION means the period during which Restricted Stock is subject to forfeiture under Section 9 of the Plan. (M) REPORTING PERSON means a person subject to Section 16 of the Exchange Act. (N) RESTRICTED STOCK means shares of Stock awarded under the Plan that are subject to certain risks of forfeiture during a Period of Restriction, as provided in Section 9 of the Plan, and which cease to be shares of Restricted Stock upon expiration of the Period of Restriction. (O) RULE 16B-3 means Rule 16b-3 promulgated by the Securities and Exchange Commission pursuant to the Exchange Act, or any successor regulation. (P) STOCK means the Common Stock of the Company. (Q) SUBSIDIARY means a subsidiary corporation of the Company as defined in Section 424(f) of the Code. (R) TAXABLE EVENT means an event relating to an Award granted under the Plan which requires federal, state or local tax to be withheld by the Company or a Subsidiary. (S) TERMINATED FOR CAUSE means, (i) for Employees serving under an employment agreement containing a provision for termination of employment for "cause," termination of employment of the Employee for "cause" pursuant to such 2 3 provision, and (ii) for other Employees, termination of employment of the Employee by a two-thirds vote of the entire Board of Directors of the Company or the Subsidiary employing such Employee, expressly for one or both of the following "causes," as evidenced in a certified resolution of the Board: (A) any willful misconduct by the Employee which is materially injurious to the Company or the Subsidiary, monetarily or otherwise; or (B) conviction of the Employee with no further possibility of appeal of any felony under applicable state or federal banking or financial institution laws, or the agreement of the Employee to plead guilty to any such felony. SECTION 3. ADMINISTRATION The Plan will be administered by the Committee. The determinations of the Committee shall be made in accordance with its judgment as to the best interests of the Company and its stockholders and in accordance with the purposes of the Plan. Notwithstanding the foregoing, the Committee in its discretion may delegate to the President or other appropriate officers of the Company or any Subsidiary the authority to make any or all determinations under the Plan (including the decision to grant Awards and types of Awards granted) with respect and only with respect to persons receiving Awards or Award Holders (other than the delegatees) who are not Reporting Persons, notwithstanding the fact that the delegatees may themselves be persons eligible to receive Awards under the Plan and/or Reporting Persons. A majority of members of the Committee shall constitute a quorum, and all determinations of the Committee shall be made by a majority of its members. Any determination of the Committee under the Plan may be made without notice or meeting of the Committee, and all actions made or taken by the Committee pursuant to the provisions of the Plan shall be final, binding and conclusive for all purposes and upon all persons. SECTION 4. SHARES AUTHORIZED FOR AWARDS The maximum number of shares available for Awards under the Plan is 5,000,000 shares of Stock, of which a maximum of 3,300,000 shares may take the form of Restricted Stock, and there is hereby reserved for issuance under the Plan an aggregate of 5,000,000 shares of Stock, subject in the case of each of the foregoing to adjustment as provided in Section 10 of the Plan. Shares of Stock underlying outstanding Options and outstanding shares of unvested Restricted Stock will be counted against the Plan maximum while such Options and shares of Restricted Stock are outstanding. Upon termination of outstanding Options that are unexercised and upon forfeiture of outstanding shares of Restricted Stock prior to vesting, the shares of Stock underlying such Awards shall be returned to the Plan and available for future grants of Awards thereunder. In addition, if payment of the Exercise Price of any Option granted under the Plan is satisfied, upon exercise of such Option, by the Award Holder by surrender to the Company of shares of Stock previously owned by the Award Holder (or, in lieu of actual surrender, by a deemed surrender of such shares), the number of shares of Stock surrendered or deemed surrendered shall be returned to the Plan and available for future grants of Awards thereunder. 3 4 SECTION 5. RECIPIENTS OF AWARDS (a) Any Employee of the Company or any Subsidiary of the Company will be eligible to receive one or more Awards under the Plan if the Committee determines in its sole discretion that the job performance of such Employee is likely to be significantly enhanced by the latter's receipt of such Awards. Designation of an Employee as a Participant to receive an Award in any year shall not require the Committee to designate such Employee to receive an Award in any other year or to designate any other Employee to receive an Award in such year or any other year. The Committee shall consider such factors as it deems pertinent in selecting Employees to receive Awards and determining the type and amount of their respective Awards. (b) The Committee in its discretion may grant one or more Awards to an individual, in connection with the hiring or potential hiring of such individual by the Company or any Subsidiary, prior to the date the latter becomes an Employee and first performs services for the Company or such Subsidiary, provided that no such Award shall become vested or exercisable prior to a date established by the Committee upon grant, which date shall not be earlier than the day 60 days after the date on which the individual first becomes an Employee of the Company or such Subsidiary. (c) The Committee may grant one or more Awards to any consultant, advisor or other person providing key services to the Company or a Subsidiary, but only to the extent such grant does not prohibit the Company from using a registration statement on Form S-8, or any successor form, to register with the Securities and Exchange Commission the shares of Stock authorized under the Plan. (d) No individual may receive under the Plan Awards relating to more than 1,250,000 shares of Stock in the aggregate, as adjusted from time to time in accordance with Section 10 of the Plan. SECTION 6. TYPES OF AWARDS The following Awards, and rights thereto, may be granted under the Plan in any proportion: Options and Restricted Stock, as further described below. Except as specifically limited elsewhere in this Plan, the Committee shall have complete discretion in determining the type and number of Awards to be granted to any eligible person and, subject to the provisions of the Plan, the terms and conditions of each Award, which terms and conditions need not be uniform as among different recipients of Awards or different Awards of the same general type. Each Award shall be evidenced by an Award Agreement, as provided in Section 7 of the Plan. From time to time, as the Committee deems appropriate and in the best long-term interests of the Company and its stockholders, the Committee may elect to modify or waive one or more terms or conditions of an outstanding Award previously granted under the Plan, provided that (i) no such modification or waiver shall give the holder of any other Award granted under the Plan any right to a similar modification or waiver, (ii) no such modification or waiver of an Award shall involve a change in the number of shares subject to the Award or a change in the Exercise Price of an Option or the purchase price, if any, of Restricted Stock which is the subject of the Award, and (iii) any such modification or waiver which is adverse or arguably adverse to the interests of 4 5 the Award Holder shall not be effective unless and until the Award Holder shall consent thereto in writing. SECTION 7. AWARD AGREEMENTS As soon as practicable after the grant of an Award, the Company shall notify the recipient of such grant and thereafter shall hand deliver or mail to the recipient an Award Agreement, duly executed by and on behalf of the Company, with the request that the recipient execute the Agreement within 30 days after the date of mailing or delivery by the Company and return the same to the Company. The date of execution and return of the Award Agreement shall not necessarily be or affect the date of grant of the Award, which may precede such date of execution and return, as the Committee may determine. If the recipient shall fail to execute and return to the Company the Award Agreement within said 30-day period, the Committee may elect to treat the Award as void and never granted. If an Award granted under the Plan is eligible for transfer and the subject of a proposed eligible transfer, no such transfer shall be or become effective until and unless the permitted transferee shall have duly executed and returned to the Company an Award Agreement in a form acceptable to the Committee. SECTION 8. STOCK OPTIONS (a) Options shall consist of Options to purchase shares of Stock at an Exercise Price established by the Committee upon grant, which Exercise Price shall not be less than, but may be more than, 100 percent of the Fair Market Value of the Stock on the date of grant. (b) The Committee shall establish upon grant the period of time during which an Option will be exercisable by the Award Holder, provided that no Option shall continue to be exercisable, in whole or in part, later than ten years after the date of grant. Subject to these limitations, the Committee may provide, upon grant of an Option, that full exercisability will be phased in and/or phased out over some designated period of time. The Committee also may provide upon grant that exercisability of an Option will be accelerated, to the extent such Option is not already then exercisable, upon the subsequent occurrence of a "change in control" of the Company, as defined by the Committee, or such other occurrence as the Committee may specify. Generally, exercisability of an Option granted to an Employee also shall be conditioned upon continuity of employment by the original recipient of the Award with the Company and its Subsidiaries, provided that, if the Committee so provides upon grant, exercisability of such an Option may continue for some designated period of time after termination of employment, within the following limitations: (i) if employment is terminated other than due to the death of the original recipient, exercisability may be extended to not more than one year after termination; and (ii) if employment is terminated due to the death of the original recipient, exercisability may be extended to the normal end of the exercise period. However, in no event may any Option continue to be exercisable more than ten years after the date of grant. In addition, no Option granted to an Employee may be exercisable after Termination for Cause of such Employee. Leaves of absence granted by the Company for military service or illness and transfers of employment between the Company and any Subsidiary shall not constitute termination of employment. 5 6 (c) Upon exercise of an Option, in whole or in part, the Exercise Price with respect to the number of shares as to which the Option is then being exercised may be paid by check or, if the Award Holder so elects and the Committee shall have authorized such form of payment, in whole or in part by surrender to the Company of shares of Stock owned prior to exercise by the Award Holder. Any previously-owned shares of Stock to be used in full or partial payment of the Exercise Price shall be valued at the Fair Market Value of the Stock on the date of exercise. In lieu of the actual surrender of shares of Stock by the Award Holder to the Company in any such stock-for-stock exercise, the Award Holder may, with the consent of the Committee, in lieu of surrendering some number of previously-owned shares of Stock, affirm to the Company the Award Holder's ownership of such number of shares, in which event the Company, upon its delivery of the shares of Stock as to which the Option is being exercised, deduct from the number of shares otherwise deliverable the number of shares affirmed but not surrendered by the Award Holder. Delivery by the Company of shares of Stock upon exercise of an Option shall be made to the person exercising the Option or the designee of such person subject to such terms, conditions, restrictions and contingencies as the Committee may provide in the Award Agreement. If so provided by the Committee upon grant of the Option, the shares delivered upon exercise may be subject to certain restrictions upon subsequent transfer or sale by the Award Holder. (d) The Committee may require reasonable advance notice of exercise of an Option, normally not to exceed three calendar days, and may condition exercise of an Option upon the availability of an effective registration statement or exemption from registration under applicable federal and state securities laws relating to the Stock being issued upon exercise. SECTION 9. RESTRICTED STOCK (a) Restricted Stock shall consist of Stock or rights to Stock awarded under the Plan by the Committee which, during a Period of Restriction specified by the Committee upon grant, shall be subject to forfeiture by the Award Holder to the Company if the recipient ceases to be employed by the Company and its Subsidiaries prior to the lapse of such restrictions. Restricted Stock normally will not be transferable or assignable during the Period of Restriction. Restricted Stock may be granted at no cost to Participants or, if subject to a purchase price, such price shall not exceed the par value of the Stock and may be payable by the recipient to the Company in cash or by any other means, including recognition of past employment, as the Committee deems appropriate. The Committee may provide upon grant of an Award of Restricted Stock that any shares of Restricted Stock as may be purchased by the recipient thereunder and subsequently forfeited by the recipient prior to expiration of the Period of Restriction shall be reacquired by the Company at the purchase price originally paid in cash by the recipient therefor. (b) The minimum Period of Restriction for Restricted Stock shall be three years from the date of grant of the Award. The Committee may provide upon grant of an Award of Restricted Stock that different numbers or portions of the shares subject to the Award shall have different Periods of Restriction. The Committee also may establish upon grant of an Award of Restricted Stock that some or all of the shares subject thereto shall be subject to additional restrictions upon transfer or sale (although not to forfeiture) after expiration of the Period of Restriction. 6 7 (c) The Award Holder of Restricted Stock shall be entitled to all dividends declared and paid on Stock generally with respect to all shares of Restricted Stock held thereby, from and after the date of grant of such Award, or from and after such later date or dates as may be specified by the Committee in the Award, and the Award Holder shall not be required to return any such dividends to the Company in the event of forfeiture of the Restricted Stock. (d) The Award Holder of Restricted Stock shall be entitled to vote all shares of Restricted Stock held thereby from and after the date of grant of such Award, or from and after such later date or dates as may be specified by the Committee in the Award. (e) Pending expiration of the Period of Restriction, certificates representing shares of Restricted Stock shall be held by the Company or the transfer agent for the Stock. Upon expiration of the Period of Restriction for any such shares, certificates representing such shall be delivered to the Award Holder or the permitted transferee, assignee or beneficiary thereof. SECTION 10. ADJUSTMENT PROVISIONS (a) If the Company shall at any time change the number of issued shares of Stock without new consideration to the Company (such as by a stock dividend or stock split), the total number of shares reserved for issuance under the Plan, the maximum number of shares available for issuance as Restricted Stock, the maximum number of shares available for Award of Options to any individual under the Plan and the number of shares (and, in the case of Options, the Exercise Price) covered by each outstanding Award shall be adjusted so that the aggregate consideration payable to the Company, if any, and the value of each such Award to the Award Holder shall not be changed. Awards may also contain provisions for their continuation or for other equitable adjustments after changes in the Stock resulting from reorganization, sale, merger, consolidation, issuance of stock rights or warrants or similar occurrence. (b) Notwithstanding any other provision of this Plan, and without affecting the number of shares reserved or available for issuance hereunder, the Board of Directors shall use best efforts to authorize the issuance or assumption of benefits under the Plan in connection with any merger, consolidation, acquisition of property or stock, or reorganization involving the liquidation, discontinuation, merger out of existence or fundamental corporate restructuring of the Company, upon such terms and conditions as it may deem appropriate. SECTION 11. TRANSFERS OF AWARDS Subject to any overriding restrictions and conditions as may be established from time to time by the Board of Directors, the Committee may determine that any Award granted under the Plan may be transferable, in the case of an Option, prior to exercise thereof, and in the case of Restricted Stock, prior to expiration of the Period of Restriction therefor, under such terms and conditions as the Committee may specify. Unless the Committee shall specifically determine that an Award is thus transferable by the original recipient thereof, each Award granted under the Plan shall not be transferable by the original recipient thereof, otherwise than by will or the laws of descent and distribution, and shall be exercisable, during the recipient's lifetime, only by the recipient. In the event of the death of an Award Holder holding an unexercised Option, exercise of the Option may be made only by the executor or administrator of the estate of the Award 7 8 Holder or the person or persons to whom the deceased Award Holder's rights under the Option shall pass by will or the laws of descent and distribution, and such exercise may be made only to the extent that the deceased Award Holder was entitled to exercise such Option at the date of death. If and to the extent the Committee shall so provide upon grant, the Period of Restriction for Restricted Stock may be foreshortened upon the death of the Award Holder during the Period of Restriction, such that the Stock shall be deemed not to be forfeited and no longer to be Restricted Stock as of the date of death. SECTION 12. TAXES The Company shall be entitled to withhold, and shall withhold, the minimum amount of any federal, state or local tax attributable to any shares deliverable under the Plan, whether upon exercise of an Option or expiration of a Period of Restriction for Restricted Stock or occurrence of any other Taxable Event, after giving the person entitled to receive such delivery notice as far in advance of the Taxable Event as practicable, and the Company may defer making delivery as to any Award, if any such tax is payable, until indemnified to its satisfaction. Such withholding obligation of the Company may be satisfied by any reasonable method, including, if the Committee so provides upon grant of the Award, reducing the number of shares otherwise deliverable to or on behalf of the Award Holder on such Taxable Event by a number of shares of Stock having a fair value, based on the Fair Market Value of the Stock on the date of such Taxable Event, equal to the amount of such withholding obligation. SECTION 13. NO RIGHT TO EMPLOYMENT An Employee's right, if any, to continue to serve the Company and any Subsidiary as an officer, employee or otherwise shall not be enhanced or otherwise affected by the designation of such Employee as a recipient of an Award under the Plan. SECTION 14. DURATION, AMENDMENT AND TERMINATION No Award shall be granted under the Plan on or after the date which is the tenth anniversary date of the adoption by the Committee or the Board of this Plan. The Committee or the Board may amend the Plan from time to time or terminate the Plan at any time. By mutual agreement between the Company and an Award Holder, one or more Awards may be granted to such Award Holder in substitution and exchange for, and in cancellation of, any certain Awards previously granted such Award Holder under the Plan, provided that any such substitution Award shall be deemed a new Award for purposes of calculating any applicable exercise period for Options or Period of Restriction for Restricted Stock. To the extent that any Awards which may be granted within the terms of the Plan would qualify under present or future laws for tax treatment that is beneficial to an Award Holder, any such beneficial treatment shall be considered within the intent, purpose and operational purview of the Plan and the discretion of the Committee, and to the extent that any such Awards would so qualify within the terms of the Plan, the Committee shall have full and complete authority to grant Awards that so qualify (including the authority to grant, simultaneously or otherwise, Awards which do not so qualify) and to prescribe the terms and conditions (which need not be identical as among recipients) in respect to the grant or exercise of any such Awards under the Plan. 8 9 SECTION 15. MISCELLANEOUS PROVISIONS (a) NAMING OF BENEFICIARIES. In connection with an Award, an Award Holder may name one or more beneficiaries to receive the Award Holder's benefits, to the extent permissible pursuant to the various provisions of the Plan, in the event of the death of the Award Holder. (b) SUCCESSORS. All obligations of the Company under the Plan with respect to Awards issued hereunder shall be binding on any successor to the Company. (c) GOVERNING LAW. The provisions of the Plan and all Award Agreements under the Plan shall be construed in accordance with, and governed by, the laws of the State of Delaware without reference to conflict of laws provisions, except insofar as any such provisions may be expressly made subject to the laws of any other state or federal law. (d) APPROVAL BY THE BOARD AND THE COMMITTEE. The Plan, in order to become effective, must be approved by the Board or the Committee. Any Award granted under this Plan and any Award Agreement executed pursuant thereto prior to the submission of this Plan to the Board or the Committee for approval shall be void and of no effect if this Plan is not approved as provided above. 9 EX-10.14.A 6 1998 STOCK COMPENSATION PLAN, AS AMENDED 1 EXHIBIT 10.14(A) NORTH FORK BANCORPORATION, INC. 1998 STOCK COMPENSATION PLAN SECTION 1. ESTABLISHMENT AND PURPOSE North Fork Bancorporation, Inc. (the "Company") hereby establishes a long term incentive plan to be named the North Fork Bancorporation, Inc. 1998 Stock Compensation Plan (the "Plan"), for employees of the Company and its subsidiaries. The purpose of this Plan is to encourage those employees who are given awards by the committee administering the Plan to acquire and maintain an interest in the Common Stock of the Company and thus to have additional incentive to continue to work for the success of the Company and its subsidiaries. SECTION 2. DEFINITIONS Whenever used herein, the following terms shall have the respective meanings set forth below: (A) AWARD means any Option or Restricted Stock or right to receive either granted under the Plan. (B) AWARD AGREEMENT means the written agreement evidencing an Award under the Plan, which shall be executed by the Company and the Award Holder. Award Holder shall mean the Employee or other eligible individual designated to receive an Award under the Plan or any permitted transferee of such Award. (C) BOARD means the Board of Directors of the Company. (D) CODE means the Internal Revenue Code of 1986, as amended and in effect from time to time. (E) COMMITTEE means the Stock and Compensation Committee of the Board, or any successor to such Committee, the members of which shall be elected by the Board. (F) COMPANY means North Fork Bancorporation, Inc., a Delaware corporation. (G) EMPLOYEE means a salaried employee (including officers and directors who are also employees) of the Company or any Subsidiary. (H) EXCHANGE ACT means the Securities Exchange Act of 1934, as amended. (I) EXERCISE PRICE of an Option means a price fixed by the Committee upon grant of the Option as the purchase price for Stock under the Option, as such may be adjusted under Section 10 of the Plan. 2 (J) FAIR MARKET VALUE means, for any particular day, (i) for any period during which the Stock shall be listed for trading on a national securities exchange, the average of the high and low price per share of Stock on such exchange on such day, (ii) for any period during which the Stock shall not be listed for trading on a national securities exchange, but when prices for the Stock shall be reported by the National Market System of the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), the average of the high and low transaction price per share as quoted by the National Market System of NASDAQ for such day, (iii) for any period during which the Stock shall not be listed for trading on a national securities exchange or its price reported by the National Market System of NASDAQ, but when prices for the Stock shall be reported by NASDAQ, the average of the high and low bid price per share as reported by NASDAQ for such day, or (iv) in the event none of (i), (ii) and (iii) above shall be applicable, the fair market price per share of Stock for such day as determined by the Board of Directors. If Fair Market Value is to be determined as of a day when the securities markets are not open, the Fair Market Value on that day shall be the Fair Market Value on the nearest preceding day when the markets were open. (K) OPTION means the right to purchase Stock at the Exercise Price for a specified period of time and subject to specified conditions. For purposes of the Plan, all Options shall be so-called nonqualified (or nonstatutory) stock options, not qualifying as "incentive stock options" under Section 422 of the Code. (L) PERIOD OF RESTRICTION means the period during which Restricted Stock is subject to forfeiture under Section 9 of the Plan. (M) REPORTING PERSON means a person subject to Section 16 of the Exchange Act. (N) RESTRICTED STOCK means shares of Stock awarded under the Plan that are subject to certain risks of forfeiture during a Period of Restriction, as provided in Section 9 of the Plan, and which cease to be shares of Restricted Stock upon expiration of the Period of Restriction. (O) RULE 16B-3 means Rule 16b-3 promulgated by the Securities and Exchange Commission pursuant to the Exchange Act, or any successor regulation. (P) STOCK means the Common Stock of the Company. (Q) SUBSIDIARY means a subsidiary corporation of the Company as defined in Section 424(f) of the Code. (R) TAXABLE EVENT means an event relating to an Award granted under the Plan which requires federal, state or local tax to be withheld by the Company or a Subsidiary. (S) TERMINATED FOR CAUSE means, (i) for Employees serving under an employment agreement containing a provision for termination of employment for "cause," termination of employment of the Employee for "cause" pursuant to such Page 2 3 provision, and (ii) for other Employees, termination of employment of the Employee by a two-thirds vote of the entire Board of Directors of the Company or the Subsidiary employing such Employee, expressly for one or both of the following "causes," as evidenced in a certified resolution of the Board: (A) any willful misconduct by the Employee which is materially injurious to the Company or the Subsidiary, monetarily or otherwise; or (B) conviction of the Employee with no further possibility of appeal of any felony under applicable state or federal banking or financial institution laws, or the agreement of the Employee to plead guilty to any such felony. SECTION 3. ADMINISTRATION The Plan will be administered by the Committee. The determinations of the Committee shall be made in accordance with its judgment as to the best interests of the Company and its stockholders and in accordance with the purposes of the Plan. Notwithstanding the foregoing, the Committee in its discretion may delegate to the President or other appropriate officers of the Company or any Subsidiary the authority to make any or all determinations under the Plan (including the decision to grant Awards and types of Awards granted) with respect and only with respect to persons receiving Awards or Award Holders (other than the delegatees) who are not Reporting Persons, notwithstanding the fact that the delegatees may themselves be persons eligible to receive Awards under the Plan and/or Reporting Persons. A majority of members of the Committee shall constitute a quorum, and all determinations of the Committee shall be made by a majority of its members. Any determination of the Committee under the Plan may be made without notice or meeting of the Committee, and all actions made or taken by the Committee pursuant to the provisions of the Plan shall be final, binding and conclusive for all purposes and upon all persons. SECTION 4. SHARES AUTHORIZED FOR AWARDS The maximum number of shares available for Awards under the Plan is 1,500,000 shares of Stock, of which a maximum of 1,000,000 shares may take the form of Restricted Stock, and there is hereby reserved for issuance under the Plan an aggregate of 1,500,000 shares of Stock, subject in the case of each of the foregoing to adjustment as provided in Section 10 of the Plan. Shares of Stock underlying outstanding Options and outstanding shares of unvested Restricted Stock will be counted against the Plan maximum while such Options and shares of Restricted Stock are outstanding. Upon termination of outstanding Options that are unexercised and upon forfeiture of outstanding shares of Restricted Stock prior to vesting, the shares of Stock underlying such Awards shall be returned to the Plan and available for future grants of Awards thereunder. In addition, if payment of the Exercise Price of any Option granted under the Plan is satisfied, upon exercise of such Option, by the Award Holder by surrender to the Company of shares of Stock previously owned by the Award Holder (or, in lieu of actual surrender, by a deemed surrender of such shares), the number of shares of Stock surrendered or deemed surrendered shall be returned to the Plan and available for future grants of Awards thereunder. Page 3 4 SECTION 5. RECIPIENTS OF AWARDS Persons eligible for grants of Awards under the Plan will be those Employees of the Company or any Subsidiary whose job performance is likely to be significantly enhanced by the grant to them of such Awards, as determined by the Committee in its sole discretion and as evidenced by the decision of the Committee to grant Awards to such individuals. Designation of an Employee as a Participant to receive an Award in any year shall not require the Committee to designate such Employee to receive an Award in any other year or to designate any other Employee to receive an Award in such year or any other year. The Committee shall consider such factors as it deems pertinent in selecting Employees to receive Awards and determining the type and amount of their respective Awards. In addition, the Committee may grant Awards to any consultant, advisor or other person providing key services to the Company or a Subsidiary, but only to the extent such grant does not prohibit the Company from using a registration statement on Form S-8, or any successor form, to register with the Securities and Exchange Commission the shares of Stock authorized under the Plan. The Committee may, in its discretion, grant an Award to an individual in connection with the hiring or retention or potential hiring or retention thereof, prior to the date the individual becomes an Employee and first performs services for the Company or any Subsidiary, provided that such Awards shall not become vested or exercisable prior to the date established by the Committee, which date shall be no earlier than 60 days after the date on which the individual first is employed by or performs services for the Company or a Subsidiary. No individual may receive under the Plan Awards relating to more than 1,400,000 shares of Stock in the aggregate. SECTION 6. TYPES OF AWARDS The following Awards, and rights thereto, may be granted under the Plan in any proportion: Options and Restricted Stock, as further described below. Except as specifically limited herein, the Committee shall have complete discretion in determining the type and number of Awards to be granted to any eligible person and, subject to the provisions of the Plan, the terms and conditions of each Award, which terms and conditions need not be uniform as among different Awards. Each Award shall be evidenced by an Award Agreement, as provided in Section 7 of the Plan. From time to time, as the Committee deems appropriate and in the best long-term interests of the Company and its stockholders, the Committee may elect to modify or waive one or more terms or conditions of an outstanding Award previously granted under the Plan, provided that (i) no such modification or waiver shall give the holder of any other Award granted under the Plan any right to a similar modification or waiver, (ii) no such modification or waiver of an Award shall involve a change in the number of shares subject to the Award or a change in the Exercise Price of an Option or the purchase price, if any, of Restricted Stock which is the subject of the Award, and (iii) any such modification or waiver which is adverse or arguably adverse to the interests of the Award Holder shall not be effective unless and until the Award Holder shall consent thereto in writing. SECTION 7. AWARD AGREEMENTS Within ten business days after the grant of an Award, the Company shall notify the recipient of such grant and shall hand deliver or mail to the recipient an Award Agreement, duly executed by and on behalf of the Company, with the request that the recipient execute the Page 4 5 Agreement within 30 days after the date of mailing or delivery by the Company and return the same to the Company. The date of execution and return of the Award Agreement shall not necessarily be or affect the date of grant of the Award, which may precede such date of execution and return, as the Committee may determine. If the recipient shall fail to execute and return to the Company the Award Agreement within said 30-day period, the Committee may elect to treat the Award as void and never granted. If an Award granted under the Plan is eligible for transfer and the subject of a proposed eligible transfer, no such transfer shall be or become effective until and unless the permitted transferee shall have duly executed and returned to the Company an Award Agreement in a form acceptable to the Committee. SECTION 8. STOCK OPTIONS (a) Options shall consist of Options to purchase shares of Stock at an Exercise Price established by the Committee upon grant, which Exercise Price shall not be less than, but may be more than, 100 percent of the Fair Market Value of the Stock on the date of grant. (b) The Committee shall establish upon grant the period of time during which an Option will be exercisable by the Award Holder, provided that no Option shall continue to be exercisable, in whole or in part, later than ten years after the date of grant. Subject to these limitations, the Committee may provide, upon grant of an Option, that full exercisability will be phased in and/or phased out over some designated period of time. The Committee also may provide upon grant that exercisability of an Option will be accelerated, to the extent such Option is not already then exercisable, upon the subsequent occurrence of a "change in control" of the Company, as defined by the Committee, or such other occurrence as the Committee may specify. Generally, exercisability of an Option granted to an Employee also shall be conditioned upon continuity of employment by the original recipient of the Award with the Company and its Subsidiaries, provided that, if the Committee so provides upon grant, exercisability of such an Option may continue for some designated period of time after termination of employment, within the following limitations: (i) if employment is terminated other than due to the death of the original recipient, exercisability may be extended to not more than one year after termination; and (ii) if employment is terminated due to the death of the original recipient, exercisability may be extended to the normal end of the exercise period. However, in no event may any Option continue to be exercisable more than ten years after the date of grant. In addition, no Option granted to an Employee may be exercisable after Termination for Cause of such Employee. Leaves of absence granted by the Company for military service or illness and transfers of employment between the Company and any Subsidiary shall not constitute termination of employment. (c) Upon exercise of an Option, in whole or in part, the Exercise Price with respect to the number of shares as to which the Option is then being exercised may be paid by check or, if the Award Holder so elects and the Committee shall have authorized such form of payment, in whole or in part by surrender to the Company of shares of Stock owned prior to exercise by the Award Holder. Any previously-owned shares of Stock to be used in full or partial payment of the Exercise Price shall be valued at the Fair Market Value of the Stock on the date of exercise. In lieu of the actual surrender of shares of Stock by the Award Holder to the Company in any such stock-for-stock exercise, the Award Holder may, with the consent of the Committee, in lieu of surrendering some number of previously-owned shares of Stock, affirm to the Company the Page 5 6 Award Holder's ownership of such number of shares, in which event the Company, upon its delivery of the shares of Stock as to which the Option is being exercised, deduct from the number of shares otherwise deliverable the number of shares affirmed but not surrendered by the Award Holder. Delivery by the Company of shares of Stock upon exercise of an Option shall be made to the person exercising the Option or the designee of such person subject to such terms, conditions, restrictions and contingencies as the Committee may provide in the Award Agreement. If so provided by the Committee upon grant of the Option, the shares delivered upon exercise may be subject to certain restrictions upon subsequent transfer or sale by the Award Holder. (d) The Committee may require reasonable advance notice of exercise of an Option, normally not to exceed three calendar days, and may condition exercise of an Option upon the availability of an effective registration statement or exemption from registration under applicable federal and state securities laws relating to the Stock being issued upon exercise. SECTION 9. RESTRICTED STOCK (a) Restricted Stock shall consist of Stock or rights to Stock awarded under the Plan by the Committee which, during a Period of Restriction specified by the Committee upon grant, shall be subject to forfeiture by the Award Holder to the Company if the recipient ceases to be employed by the Company and its Subsidiaries prior to the lapse of such restrictions. Restricted Stock normally will not be transferable or assignable during the Period of Restriction. Restricted Stock may be granted at no cost to Participants or, if subject to a purchase price, such price shall not exceed the par value of the Stock and may be payable by the recipient to the Company in cash or by any other means, including recognition of past employment, as the Committee deems appropriate. The Committee may provide upon grant of an Award of Restricted Stock that any shares of Restricted Stock as may be purchased by the recipient thereunder and subsequently forfeited by the recipient prior to expiration of the Period of Restriction shall be reacquired by the Company at the purchase price originally paid in cash by the recipient therefor. (b) The minimum Period of Restriction for Restricted Stock shall be three years from the date of grant of the Award. The Committee may provide upon grant of an Award of Restricted Stock that different numbers or portions of the shares subject to the Award shall have different Periods of Restriction. The Committee also may establish upon grant of an Award of Restricted Stock that some or all of the shares subject thereto shall be subject to additional restrictions upon transfer or sale (although not to forfeiture) after expiration of the Period of Restriction. (c) The Award Holder of Restricted Stock shall be entitled to all dividends declared and paid on Stock generally with respect to all shares of Restricted Stock held thereby, from and after the date of grant of such Award, or from and after such later date or dates as may be specified by the Committee in the Award, and the Award Holder shall not be required to return any such dividends to the Company in the event of forfeiture of the Restricted Stock. (d) The Award Holder of Restricted Stock shall be entitled to vote all shares of Restricted Stock held thereby from and after the date of grant of such Award, or from and after such later date or dates as may be specified by the Committee in the Award. Page 6 7 (e) Pending expiration of the Period of Restriction, certificates representing shares of Restricted Stock shall be held by the Company or the transfer agent for the Stock. Upon expiration of the Period of Restriction for any such shares, certificates representing such shall be delivered to the Award Holder or the permitted transferee, assignee or beneficiary thereof. SECTION 10. ADJUSTMENT PROVISIONS (a) If the Company shall at any time change the number of issued shares of Stock without new consideration to the Company (such as by a stock dividend or stock split), the total number of shares reserved for issuance under the Plan, the maximum number of shares available for issuance as Restricted Stock, the maximum number of shares available for Award of Options to any individual under the Plan and the number of shares (and, in the case of Options, the Exercise Price) covered by each outstanding Award shall be adjusted so that the aggregate consideration payable to the Company, if any, and the value of each such Award to the Award Holder shall not be changed. Awards may also contain provisions for their continuation or for other equitable adjustments after changes in the Stock resulting from reorganization, sale, merger, consolidation, issuance of stock rights or warrants or similar occurrence. (b) Notwithstanding any other provision of this Plan, and without affecting the number of shares reserved or available for issuance hereunder, the Board of Directors shall use best efforts to authorize the issuance or assumption of benefits under the Plan in connection with any merger, consolidation, acquisition of property or stock, or reorganization involving the liquidation, discontinuation, merger out of existence or fundamental corporate restructuring of the Company, upon such terms and conditions as it may deem appropriate. SECTION 11. TRANSFERS OF AWARDS Subject to any overriding restrictions and conditions as may be established from time to time by the Board of Directors, the Committee may determine that any Award granted under the Plan may be transferable, in the case of an Option, prior to exercise thereof, and in the case of Restricted Stock, prior to expiration of the Period of Restriction therefor, under such terms and conditions as the Committee may specify. Unless the Committee shall specifically determine that an Award is thus transferable by the original recipient thereof, each Award granted under the Plan shall not be transferable by the original recipient thereof, otherwise than by will or the laws of descent and distribution, and shall be exercisable, during the recipient's lifetime, only by the recipient. In the event of the death of an Award Holder holding an unexercised Option, exercise of the Option may be made only by the executor or administrator of the estate of the Award Holder or the person or persons to whom the deceased Award Holder's rights under the Option shall pass by will or the laws of descent and distribution, and such exercise may be made only to the extent that the deceased Award Holder was entitled to exercise such Option at the date of death. If and to the extent the Committee shall so provide upon grant, the Period of Restriction for Restricted Stock may be foreshortened upon the death of the Award Holder during the Period of Restriction, such that the Stock shall be deemed not to be forfeited and no longer to be Restricted Stock as of the date of death. Page 7 8 SECTION 12. TAXES The Company shall be entitled to withhold, and shall withhold, the minimum amount of any federal, state or local tax attributable to any shares deliverable under the Plan, whether upon exercise of an Option or expiration of a Period of Restriction for Restricted Stock or occurrence of any other Taxable Event, after giving the person entitled to receive such delivery notice as far in advance of the Taxable Event as practicable, and the Company may defer making delivery as to any Award, if any such tax is payable, until indemnified to its satisfaction. Such withholding obligation of the Company may be satisfied by any reasonable method, including, if the Committee so provides upon grant of the Award, reducing the number of shares otherwise deliverable to or on behalf of the Award Holder on such Taxable Event by a number of shares of Stock having a fair value, based on the Fair Market Value of the Stock on the date of such Taxable Event, equal to the amount of such withholding obligation. SECTION 13. NO RIGHT TO EMPLOYMENT An Employee's right, if any, to continue to serve the Company and any Subsidiary as an officer, employee or otherwise shall not be enhanced or otherwise affected by the designation of such Employee as a recipient of an Award under the Plan. SECTION 14. DURATION, AMENDMENT AND TERMINATION No Award shall be granted under the Plan on or after the date which is the tenth anniversary date of the adoption by the Committee or the Board of this Plan. The Committee or the Board may amend the Plan from time to time or terminate the Plan at any time. By mutual agreement between the Company and an Award Holder, one or more Awards may be granted to such Award Holder in substitution and exchange for, and in cancellation of, any certain Awards previously granted such Award Holder under the Plan, provided that any such substitution Award shall be deemed a new Award for purposes of calculating any applicable exercise period for Options or Period of Restriction for Restricted Stock. To the extent that any Awards which may be granted within the terms of the Plan would qualify under present or future laws for tax treatment that is beneficial to an Award Holder, any such beneficial treatment shall be considered within the intent, purpose and operational purview of the Plan and the discretion of the Committee, and to the extent that any such Awards would so qualify within the terms of the Plan, the Committee shall have full and complete authority to grant Awards that so qualify (including the authority to grant, simultaneously or otherwise, Awards which do not so qualify) and to prescribe the terms and conditions (which need not be identical as among recipients) in respect to the grant or exercise of any such Awards under the Plan. SECTION 15. MISCELLANEOUS PROVISIONS (a) NAMING OF BENEFICIARIES. In connection with an Award, an Award Holder may name one or more beneficiaries to receive the Award Holder's benefits, to the extent permissible pursuant to the various provisions of the Plan, in the event of the death of the Award Holder. (b) SUCCESSORS. All obligations of the Company under the Plan with respect to Awards issued hereunder shall be binding on any successor to the Company. Page 8 9 (c) GOVERNING LAW. The provisions of the Plan and all Award Agreements under the Plan shall be construed in accordance with, and governed by, the laws of the State of Delaware without reference to conflict of laws provisions, except insofar as any such provisions may be expressly made subject to the laws of any other state or federal law. (d) APPROVAL BY THE BOARD AND THE COMMITTEE. The Plan, in order to become effective, must be approved by the Board or the Committee. Any Award granted under this Plan and any Award Agreement executed pursuant thereto prior to the submission of this Plan to the Board or the Committee for approval shall be void and of no effect if this Plan is not approved as provided above. As amended by the Stock and Compensation Committee on December 13, 1999. Page 9 EX-10.15.A 7 FORM OF CONSULTING AGREEMENT 1 EXHIBIT 10.15(a) CONSULTING AGREEMENT CONSULTING AGREEMENT, dated as of December 29, 1999, between North Fork Bancorporation, Inc. a Delaware corporation (the "Company"), and Raymond A. Nielsen (the "Consultant"). WHEREAS, the Consultant is employed by Reliance Bancorp, Inc., a Delaware corporation ("Reliance"), as President & Chief executive Officer of Reliance; WHEREAS, the Consultant and Reliance have entered into an Employment Agreement date as of September 11, 1996 (the "Prior Agreement"); WHEREAS, the Company and Reliance have entered into an Agreement and Plan of Merger, dated as of August 30, 1999 (the "Merger Agreement"), pursuant to which, among other things, Reliance will be merged with and into the Company as of the Effective Time (as defined in the Merger Agreement); WHEREAS, the parties desire to provide for the termination in part of the Prior Agreement as of the date on which the Effective Time occurs (the "Effective Date"); WHEREAS, the Company desires to induce the Consultant to act as a consultant to the Company as of the Effective Date in order to assist it in effectuating an orderly and efficient transition in respect of the Merger and the transactions contemplated by the Merger Agreement and to prevent the Consultant from engaging in activities which are competitive with the business of the Company, and the Consultant desires to act as a consultant to the Company as of the Effective Date and is, in consideration of the benefits to him of this Agreement, willing to restrict his ability to compete with the business of the Company. NOW THEREFORE, in order to effect the foregoing, the Company and the Consultant wish to enter into a consulting agreement upon the terms and subject to the conditions set forth below. Accordingly, in consideration of the 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: 2 1. Consulting Term and Services to be Provided. 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 as of the Effective Date and terminate on the second anniversary thereof. This Agreement shall be null and void and of no force or effect if the Effective Time does not occur. 3. Duties. From time to time during the Term, the Consultant shall perform such services as the Company shall reasonably request to assist the Company in effecting an orderly and efficient transition in respect of the Merger and the transactions contemplated by the Merger Agreement. The Consultant shall in no event be required to provide consulting services to the Company hereunder in excess of 20 hours during any calendar month in the first year of the Term or in excess of 10 hours during any calendar month in the second year of the Term. The scheduling of such time shall be mutually agreeable to the Consultant and the Company. Subject to the Consultant's obligations hereunder, the Company acknowledges that the Consultant is permitted to pursue other activities, whether of a personal or business nature, and, accordingly, may not always be immediately available to the Company. 4. Place of Performance. The Consultant shall perform his duties and conduct his business at such locations as are reasonably acceptable to him and the Company, such locations shall include the Consultant's place of residence. 5. Independent Contractor. During the term of this Agreement, the Consultant shall be an independent contractor and not an employee of the Company and is not entitled to the benefits provided by the Company and/or its affiliates to its employees, including but not limited to group insurance and coverage under any tax-qualified retirement plan. Accordingly, Consultant shall be responsible for payment of all taxes for remuneration received under this Agreement, including Federal and State income tax, Social Security tax, Unemployment Insurance tax, and any other taxes or business license fees as required. Notwithstanding any provision in this Agreement, Consultant shall remain eligible to receive any fees or benefits as a director or Advisory Board member of the Company or any of its affiliates. 3 6. Compensation. (a) Quarterly Consulting Fee. During the Term, the Company shall pay to the Consultant, as compensation for the services to be performed by the Consultant hereunder, a quarterly consulting fee of $ 167,500 during the first year of the Term and $ 82,500 during the second year of the Term, in each case, payable on or about the 90th, 180th, 270th and last day of each year during the Term. In the event this Agreement is terminated pursuant to Section 7, the Consultant shall be entitled to receive any unpaid quarterly consulting fee on a pro rata basis based upon the date of termination. In the event of a Change in Control of the Company (as defined in the Bank Change in Control Act), any remaining payments due under this Agreement shall become due and immediately payable to the Consultant. (b) Business Expenses. The Company shall reimburse the Consultant for all reasonable business expenses incurred by him in connection with his performance of consulting services hereunder upon submission by the Consultant of receipts and other documentation in accordance with the Company's normal reimbursement procedures. 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. This Agreement may also be terminated by the Company without further obligation other than for fees already earned or as set forth in the next sentence of this Section 7 if the Consultant (a) engages in any willful conduct with regard to his obligations to the Company under this Agreement which is materially injurious to the Company, (b) is convicted of a felony or (c) becomes employed on a full time basis by a depository institution having total deposits of more than $2 billion which is headquartered in Long Island, NY. This Agreement may also be terminated by the Consultant upon written notice by the Consultant. Upon any termination of the Consultant's engagement as a consultant hereunder, the parties hereto shall have no further obligation or liability under this Agreement, except that the Company shall pay the Consultant all fees or any pro rata portion thereof and reimburse the Consultant for all reasonable expenses incurred hereunder prior to the date of termination. 8. Additional Covenants. (a) The Consultant hereby agrees that during the Term the Consultant shall not be employed by any depository institution with assets of $2 billion or more which is headquartered in Long Island, NY. 3 4 (b) The Consultant and the Company acknowledge that the non competition provision contained in Section 8(a) above is reasonable and necessary, in view of the nature of the Company, its business and his knowledge thereof, in order to protect the legitimate interests of the Company. (c) The Consultant agrees that during the Term and for a period of one year thereafter, he shall not (i) solicit any employee of the Company or any of its affiliates to leave the employ of the Company or any of its affiliates or to accept any other employment or position, or (ii) assist any other person in hiring any such employee, provided, however, this provision shall not apply to any unsolicited contact by an employee of the Company or contact which is otherwise initiated by the employee. (d) The Consultant agrees that any information received by the Consultant during any furtherance of the Consultant's obligations under this Agreement, which concerns the affairs of the Company will be treated by the Consultant in full confidence and will not be revealed to any other individual, partnership, company or other organization except as may be required by law, as directed by any regulatory authority or by order of any court. (e) If any court or arbitrator determines that any covenant contained in this Agreement, or any part thereof, is unenforceable for any reason, the duration and/or scope of such provision shall be reduced so that such provision becomes enforceable and, in its reduced form, such provision shall then be enforceable and shall be enforced. (f) With respect to each calendar year during which the Consultant receive payments or benefits under the Prior Agreement, the Consultant agrees to file all tax returns required by any governmental authority with respect to each such year on or before the due respective due dates, including extensions, therefore. 9. Compliance with Law. 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 4 5 become applicable to the Consultant in connection with his services to the Company, provided, however, such noncompliance shall not represent a breach of this Agreement to the extent such noncompliance is not materially injurious to the Company and its affiliates, taken as a whole. 10. 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. 11. Notice. For the purposes of this Agreement, notices, demands and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Consultant: Mr. Raymond A. Nielson 7 Fox Meadow Lane Lloyd Harbor, New York 11743 If to the Company: North Fork Bancorporation, Inc. 275 Broad Hollow Road Melville, New York 11747 Attn: Daniel M. Healy or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 5 6 12. Disputes. (a) Any dispute, controversy or claim arising out of or relating to this Agreement, including any annexes hereto, or the breach, termination or validity hereof, shall be finally settled by arbitration by one arbitrator in 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. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. ss.ss. 1-16. (b) In no event shall the Consultant be liable to the Company on account of any breach or breaches of this Agreement for an aggregate amount that exceeds the amount paid to the Consultant during the Term under Section 6(a) hereof. 13. Modification; Waiver; Discharge. 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. 14. Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 15. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto solely in respect of the services of the Consultant as a consultant and, except as set forth below, supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties whether oral or written, by any officer, employee or representative of any party hereto, and any prior agreement of the parties hereto solely in respect of the services of the Consultant as a consultant is hereby terminated. Notwithstanding the foregoing, this Agreement shall not supersede the Prior Agreement which shall remain in full force and effect in accordance with its terms and Section 7.7(c) of the Merger Agreement. No agreements or representations, oral or otherwise, expressed or implied, solely with respect to the services of the Consultant as a consultant have been made by either party that are not set forth expressly in this Agreement. 6 7 16. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 17. Headings. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 18. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the state of New York without regard to principles of conflicts of laws. 19. Indemnification. The Company shall indemnify the Consultant for any and all losses, claims and liabilities resulting from the Consultant's performance of services for the Company under this Agreement, which such indemnification shall include any reasonable expenses, including attorneys or other professional fees, incurred as the result of any action or investigation whereby the Consultant is named as a party or is called to testify or provide information. IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written. NORTH FORK BANCORPORATION, INC. By: /s/ Daniel M. Healy Daniel M. Healy Executive Vice President and Chief Financial Officer /s/ Raymond A. Nielson Raymond A. Nielson 7 EX-10.16.A 8 FORM OF CONSULTING AGREEMENT 1 EXHIBIT 10.16(A) CONSULTING AGREEMENT THIS CONSULTING AGREEMENT, made and entered into as of the 31st day of December, 1999 (the "Agreement"), by and between North Fork Bancorporation, Inc., a Delaware corporation ("Company"), and Thomas M. O'Brien (the "Executive"). RECITALS WHEREAS, effective as of the date hereof, the Executive is resigning from his position as an executive officer of the Company and North Fork Bank, a New York trust company and wholly owned subsidiary of the Company (the "Bank"), while continuing to serve as a Director and Vice Chairman of the Company and the Bank; and WHEREAS, the Company and the Executive seek to enter into an arrangement pursuant to which the Executive, following his resignation, will make himself available to provide to the Company and the Bank advice, consultation and assistance on an as-needed basis with respect to certain matters pertaining to the overall management and business of the Company and the Bank, as may be requested from time to time by the President of the Company or its Board of Directors; and WHEREAS, the Executive is willing to make himself available for such services pursuant to, and in accordance with, the terms of this Agreement; and 2 WHEREAS, the parties intend that each will have certain other rights and responsibilities with respect to such arrangement for the duration thereof, all as more fully set forth below; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the Company and the Executive agree as follows: 1. SERVICES FURNISHED. (a) During the Services Period (as defined in Section 2, below), the Executive shall hold himself available to provide, and shall provide, such advisory services relating to aspects of the business and operations of the Company and the Bank as to which he gained specialized knowledge and experience in the course of his employment with the Company, the Bank or North Side Savings Bank prior to January 1, 2000 as the Company may reasonably request, including, but not be limited to, rendering advice and assistance in connection with litigation or threatened litigation meeting such description, as, for example, by advising the Company exclusively on the prosecution, defense and settlement of any such litigation, providing non-inculpatory testimony as a witness on behalf of the Company or the Bank, and evaluating any settlement proposal or proposals to terminate or cease prosecuting any case or to pursue or abandon any appeals. (b) The Executive may engage in business activities and may perform services, as an employee or independent contractor, other than for the Company (including but not limited to private employment with competitors of the Company and employment in the public sector as an elected or appointed official), and such business activities and/or the performance of such services shall not be deemed to impair the Executive's availability to perform services for the Company as contemplated by this Agreement so long as the Executive makes himself available on a reasonable basis outside of normal business hours, it being understood that 2 3 the Company shall not have the right to require, and shall not require, the delivery of advisory services in any manner that does, or would reasonably be expected to, interfere with the Executive's ability to engage in such other employment or self-employment described above on a substantially full-time basis during normal business hours. If as a result of any such other employment or self-employment, the Executive believes that he may be required, due to an actual or potential conflict-of-interest, to discontinue rendering particular advisory services hereunder for a period of time or to decline to render particular advisory services requested of him hereunder, he shall so advise the Company and may discontinue or decline the rendering of such services, but such discontinuance or declination shall not terminate the Services Period or adversely affect the Executive's rights under this Agreement. (c) In the performance of any services required of him hereunder, the Executive shall have exclusive control over the manner of performance of such services, including, without limitation, the selection, supervision and compensation of personnel, if any, in addition to the Executive to be involved in the performance of such services, the selection methods, procedures, strategies and equipment to be employed in the performance of such services, and determination of the times, places and dates at which such services will be performed, subject to the right of the Company, through its President or Board of Directors, to establish limitations on the amount of reasonable expenses incurred by the Executive that the Company will be obligated to reimburse, as set forth in Section 3(b). 2. TERM. The term of this Agreement and the obligation of the Executive to render services hereunder shall commence as of 12:01 a.m. on January 1, 2000, and shall continue during the period (the "Services Period") extending from such commencement until the expiration of this Agreement upon the normal expiration date of this Agreement, which shall be 3 4 December 31, 2005. This Agreement and the Services Period may be terminated prior to such normal expiration date as follows: (i) by the Company, if it obtains the express written consent of the Executive to such termination; (ii) by the Company, if it provides for the full vesting, as of or prior to such termination, of all restricted stock awards granted to the Executive prior to January 1, 2000 under the Company's 1994 Key Employee Stock Plan and 1998 Stock Compensation Plan (collectively, the "Plans") and listed on Schedule A attached to this Agreement and made a part hereof (the "Outstanding Restricted Stock"); (iii) by the Company, by written notice of termination given to the Executive, following (A) the Executive's material breach of his obligations under section 1 hereof and subsequent failure to substantially cure such breach within the 30-day period following his receipt of a written notice of breach from the Company, (B) the Executive's material breach of his obligations under Section 5 hereof, if such breach shall have materially damaged the Company, or (C) the Executive's conviction of, or plea of guilty or nolo contendere to, the commission of a felony; or (iv) by the Executive, upon 30 days' notice to the Company. 3. OFFICE SPACE; EXPENSES. (a) Office Space. If and as may be required by the Executive in order to perform services hereunder, the Company will provide the Executive with suitable office space at its main offices at 275 Broad Hollow Road, Melville, New York, and with appropriate secretarial, clerical and other administrative support and assistance. (b) Expenses. Subject to such limitations as may be established from time to time by the President of the Company or its Board of Directors, the Company will reimburse the Executive for any reasonable expenses incurred by him in connection with services rendered by him pursuant to this Agreement. 4 5 4. COMPENSATION. (a) The Company shall have no obligation to pay, and the Executive shall have no right to claim, cash compensation (other than reimbursement of expenses pursuant to section 3(b) of this Agreement) in consideration of his remaining available to provide and his provision of the services contemplated by this Agreement, it being the understanding of the parties that the sole compensation (other than reimbursement of expenses) due to the Executive under this Agreement shall be the potential vesting of the Executive's Outstanding Restricted Stock and the continuing exercisability of all stock options granted to the Executive under the Plans prior to January 1, 2000, and outstanding on such date, as listed on Schedule A attached hereto ("Outstanding Stock Options"), all of which were fully exercisable upon grant, in each case as further described in Section 4(b). (b) The Company hereby stipulates that: (i) upon commencement of the Services Period under this Agreement, the Executive's "employment" with the Company and its subsidiaries shall be deemed to have continued unbroken from prior periods, and thereafter during the Services Period the Executive's "employment" with the Company and its subsidiaries shall be deemed to continue unbroken, in each case for purposes and only for purposes of the vesting of the Outstanding Restricted Stock and the continuing exercisability of the Outstanding Stock Options, and (ii) the Executive's withdrawal from availability to provide services under this Agreement upon expiration of this Agreement on the normal expiration date hereof (December 31, 2005) shall be deemed an approved early retirement of the Executive which shall result in the full vesting of all Outstanding Restricted Stock. Attached to this Agreement as Exhibit B is a certified copy of a resolution duly adopted by the Compensation Committee of the Company (i) approving such withdrawal as an early retirement and a vesting event for all 5 6 purposes of the Outstanding Restricted Stock and the agreements between the Company and the Executive relating thereto, and (ii) exercising its powers of interpretation to cause the Services Period to be deemed a part of the Executive's period of continuous and unbroken employment for purposes of the Outstanding Restricted Stock and Outstanding Stock Options and the agreements between the Company and the Executive relating thereto (the "Awards Agreements"). Execution of this Agreement shall not constitute an amendment, modification or termination of any Stock Plan or any of the Awards Agreements. Subject to the approvals and interpretations evidenced by the resolutions of the Compensation Committee attached to this Agreement as Exhibit B, the Stock Plans and the terms of all Awards Agreements shall, insofar as they apply to the Executive, remain and continue in full force and effect. Except as provided above or in any other agreement between the Company and the Executive or any other plan of the Company covering the Executive, the Executive shall not be deemed by virtue of this Agreement or the services to be performed by him hereunder to be or to continue to be an "employee" of the Company and/or its subsidiaries under any of the Company's other employee benefit plans, or to be entitled to receive what an employee may be entitled to receive thereunder, provided, however, that nothing in the foregoing clause will limit the right of the Executive to receive or to continue to receive benefits payable or accruing to him under some or all of such other employee benefit plans of the Company as a former qualifying active employee of the Company and/or its subsidiaries thereunder. (c) Nothing in Sections 4(a) or 4(b) above shall imply or suggest that early termination of this Agreement pursuant to Sections 2(a)(i), (iii) or (iv) will constitute in and of itself an approved early retirement of the Executive within the meaning of any Award Agreement or will result in and of itself in the vesting of any Outstanding Restricted Stock. 6 7 5. Confidentiality. Except to the extent otherwise authorized by the Company, the Executive agrees to keep confidential all information coming into his possession in the course of his employment with the Company or provision of services under this Agreement that is not otherwise in the public domain and that belongs or relates to or emanates from the Company or its subsidiaries. Nothing in this Agreement, however, shall prohibit the Executive, with or without the Company's authorization, from producing documents, providing testimony or otherwise participating or cooperating in any judicial or administration action, proceeding, investigation or other activity to the extent he is advised in writing by legal counsel that such document production, testimony, participation or cooperation is required under applicable law. 6. Indemnification. To the maximum extent permitted under applicable law, during the Services Period and for a period of six (6) years thereafter, the Company shall indemnify the Executive against and hold him harmless from any and all claims, costs, liabilities, losses and exposures suffered or incurred by him as a result of his rendering services hereunder, except for any such claims, costs, liabilities, losses or exposures suffered or incurred by the Executive as a result of intentional bad acts or omissions. The Company also shall indemnify the Executive for all legal fees and expenses incurred by the Executive in contesting or disputing any termination of this Agreement or in seeking to obtain or enforce any right or benefit provided by this Agreement, unless such fees and expenses are determined by a court of competent jurisdiction to have been incurred as a result of the Executive's bad faith. The indemnification provided herein shall be in addition to, and not in lieu of, any other indemnification provided by the Company or its subsidiaries to the Executive under any other contract or agreement or under any bylaw or charter provision. The provisions of this section 6 shall be in addition to, and not 7 8 in substitution for, any rights which the Executive may now have or may in the future acquire to coverage under policies of errors and omission insurance obtained by the Company or any of its subsidiaries relating to services provided by him as any officer, employer or director of any of them or services (including service as a fiduciary) provided by him to others at the request of the Company or any of its subsidiaries. 7. Entire Agreement; Amendment; Waiver. This Agreement cancels and supersedes all previous agreements or understandings between the parties relating to the subject matter hereof, and embodies the entire agreement and understanding of the parties with respect to the subject matter hereof, and shall not be amended, modified or supplemented in any respect except by a subsequent written instrument entered into by the parties. The performance of or compliance with any covenant given herein or the satisfaction of any condition to the obligations of either party hereunder may be waived by the party to whom such covenant is given or whom such condition is intended to benefit, except to the extent any such condition is required by law; provided, however, that, no waiver of any provision of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof nor shall any such waiver constitute a continuing waiver. 8. Successors; Binding Agreement. This Agreement shall be binding upon and inure to the benefit of the Executive and his heirs and representatives and the Company and its respective successors and assigns. 9. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which shall constitute 8 9 one agreement which is binding upon all the parties hereto, notwithstanding that all parties are not signatories to the same counterpart. 10. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of the other provisions of this Agreement, which shall remain in full force and effect. 11. Governing Law. This Agreement shall be governed in all respects, including as to validity, interpretation and effect, by the internal laws of the State of New York, without giving effect to the conflict of laws rules thereof. Notwithstanding anything herein contained to the contrary, any payments to the Executive by the Company, whether pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C.ss.1828(k), and any regulations promulgated thereunder. 12. Notices. Any communication required or permitted to be given to a party under this Agreement, including any notice, direction, designation, consent, instruction, objection or waiver, shall be in writing and shall be deemed to have been given at such time as it is delivered personally, or five (5) calendar days after mailing if mailed, postage prepaid, by registered or certified mail, return receipt requested, addressed to such party at the address listed below or at such other address as either party may by written notice specify to the other party: If to the Executive: Thomas M. O'Brien 9 10 copy to Thacher Proffitt & Wood Two World Trade Center New York, New York 10048 Attention: W. Edward Bright, Esq. If to the Company: North Fork Bancorporation, Inc. 275 Broad Hollow Road Melville, New York 11747 Attention: Chief Executive Officer 13. Survival. Any provisions of this Agreement which, by its express terms or in practical effect, contemplates performance after the expiration of the Services Period or termination of this Agreement shall survive the expiration of the Services Period or termination of this Agreement. 10 11 IN WITNESS WHEREOF, the parties have executed this Agreement or caused this Agreement to be executed by their duly authorized representatives, as of the day and year first above written. NORTH FORK BANCORPORATION, INC. By: /s/ Daniel M. Healy Daniel M. Healy Executive Vice President and Chief Financial Officer "THE EXECUTIVE" /s/ Thomas M. O'Brien Thomas M. O'Brien 11 12 Exhibit A Outstanding Awards as of December 31, 1999 ----------------------- Restricted Stock - - - - ---------------- No. of Shares(1) Date of Grant ---------------- ------------- 37,500 12/09/97 25,000 12/16/98 30,000 12/13/99 Stock Options(2) - - - - ---------------- No. of Shares(1) Date of Grant Exercise Price(1) ---------------- ------------- ----------------- 30,000 12/09/97 21.15 9,774 04/23/98 26.88 48,809 04/23/98 26.88 20,000 12/16/98 20.47 25,000 12/13/99 18.1563 - - - - --------------------------------- (1) Adjusted to reflect stock dividends and stock splits post grant date. (2) All stock options granted to the Executive were fully exercisable by him immediately upon grant. EX-11 9 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
------------------------------------------------------------ DECEMBER 31, 1999 December 31, 1998 December 31, 1997 ------------------------------------------------------------ Net Income $220,368,929 $167,975,347 $170,521,287 Common Equivalent Shares: Weighted Average Common Shares Outstanding 135,025,108 140,706,044 136,760,843 Weighted Average Common Equivalent Shares - Options 385,172 675,556 2,424,623 Weighted Average Common Equivalent Shares - Restricted Stock 454,589 383,968 147,585 ---------------------------------------------------------- Weighted Average Common and Common Equivalent Shares 135,864,869 141,765,568 139,333,051 ========================================================== Net Income per Common Equivalent Share - Basic $1.63 $1.19 $1.24 Net Income per Common Equivalent Share - Diluted $1.62 $1.18 $1.22
EX-13 10 ANNUAL REPORT TO SHAREHOLDERS 1 SELECTED FINANCIAL DATA Selected financial data for each of the years in the five-year period ended December 31, 1999 are set forth below. The Company's consolidated financial statements and notes thereto as of December 31, 1999 and 1998 and for each of the years in the three-year period ended December 31, 1999 are included elsewhere herein. All prior years' financial information has been conformed to the current year presentation.
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS) 1999 1998 1997 1996 1995 ---------------------------------------------------------------------- STATEMENT OF INCOME DATA: Interest Income (tax equivalent basis)(1) ................. $ 826,499 $ 758,606 $ 731,832 $ 617,580 $ 532,209 Interest Expense .......................................... 368,440 328,456 326,803 281,107 242,129 ---------------------------------------------------------------------- Net Interest Income (tax equivalent basis) ..... 458,059 430,150 405,029 336,473 290,080 Less: Tax Equivalent Adjustment ........................... 8,753 5,506 7,408 3,818 1,970 ---------------------------------------------------------------------- Net Interest Income ............................ 449,306 424,644 397,621 332,655 288,110 Provision for Loan Losses ................................. 6,000 15,500 8,100 8,000 13,525 Non-Interest Income ....................................... 59,439 54,885 50,915 38,602 29,695 Net Securities Gains ...................................... 13,578 9,433 8,407 6,224 5,886 Other Non-Interest Expense ................................ 152,043 146,607 157,182 154,643 140,983 Capital Securities Costs .................................. 16,843 16,843 9,235 25 - Amortization & Write-down of Intangible Assets ............ 8,408 14,479 7,292 6,364 1,688 Merger Related Restructure Charges ........................ - 52,452 - 21,613 19,024 SAIF Recapitalization Charge .............................. - - - 17,782 - ---------------------------------------------------------------------- Income Before Income Taxes ..................... 339,029 243,081 275,134 169,054 148,471 Provision for Income Taxes ................................ 118,660 75,106 104,613 74,606 69,567 ---------------------------------------------------------------------- Net Income ..................................... $ 220,369 $ 167,975 $ 170,521 $ 94,448 $ 78,904 ====================================================================== PER SHARE: Net Income-Basic .......................................... $ 1.63 $ 1.19 $ 1.24 $ .69 $ .55 Net Income-Diluted ........................................ $ 1.62 $ 1.18 $ 1.22 $ .68 $ .55 Cash Dividends(2) ......................................... $ .63 $ .65 $ .38 $ .28 $ .18 Dividend Payout Ratio ..................................... 39% 55% 32% 36% 26% Book Value at December 31 ................................. $ 4.82 $ 5.89 $ 5.53 $ 4.45 $ 4.15 Market Price at December 31 ............................... $ 17.59 $ 23.94 $ 22.50 $ 11.88 $ 8.42 BALANCE SHEET DATA AT DECEMBER 31: Total Assets .............................................. $12,108,116 $10,679,556 $10,073,632 $ 8,691,434 $ 7,622,458 Securities: Available-for-Sale ............................. 3,592,917 2,980,223 2,156,624 1,301,891 1,425,868 Held-to-Maturity ............................... 1,229,703 1,571,545 1,763,308 1,851,575 1,770,734 Loans, net ................................................ 6,617,130 5,714,293 5,739,131 5,044,073 4,086,497 Demand Deposits ........................................... 1,507,162 1,263,105 948,458 771,920 520,977 Interest Bearing Deposits ................................. 5,037,588 5,164,517 5,389,481 5,427,940 4,983,498 Federal Funds Purchased & Securities Sold Under Agreements to Repurchase ....................... 2,665,200 2,955,096 2,104,036 1,075,487 987,229 Other Borrowings .......................................... 1,844,000 35,000 449,600 590,088 457,278 Capital Securities ........................................ 199,314 199,289 199,264 99,637 - Stockholders' Equity ...................................... 618,710 831,250 770,889 609,434 582,515 AVERAGE BALANCE SHEET DATA: Total Assets .............................................. 11,479,539 10,107,386 9,557,020 8,283,418 7,099,152 Securities ................................................ 4,799,458 3,835,761 3,783,276 3,346,563 2,879,863 Loans, net ................................................ 6,115,127 5,729,743 5,357,470 4,531,541 3,919,342 Total Deposits ............................................ 6,550,717 6,484,243 6,179,024 6,114,852 5,402,606 Federal Funds Purchased & Securities Sold Under Agreements to Repurchase ....................... 2,911,802 2,236,257 1,944,592 939,365 658,050 Other Borrowings .......................................... 847,386 185,783 485,200 533,516 397,830 Capital Securities ........................................ 199,302 199,277 105,646 281 - Stockholders' Equity ...................................... $ 786,590 $ 837,413 $ 667,211 $ 589,352 $ 558,816
2
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS) 1999 1998 1997 1996 1995 -------------------------------------------------------------------- SELECTED RATIOS: Return on Average Total Assets ............................ 1.92% 1.66% 1.78% 1.14% 1.11% Return on Average Stockholders' Equity(3) ................. 27.05 20.50 25.63 15.90 14.09 Core Efficiency Ratio(4) .................................. 34.34 35.03 38.22 42.61 43.95 Net Interest Margin(1) .................................... 4.16 4.48 4.42 4.24 4.24 Average Stockholders' Equity to Average Assets ............ 6.85 8.29 6.98 7.11 7.87 Tier I Capital Ratio ...................................... 11.48 15.19 15.33 13.82 14.45 Risk Adjusted Capital Ratio ............................... 12.45 16.39 16.58 15.11 15.59 Leverage Capital Ratio .................................... 6.84 9.09 8.74 7.46 7.35 Allowance for Loan Losses to Non-Performing Loans ......... 462 470 198 146 107 Non-Performing Loans to Total Loans, net .................. .22 .27 .66 1.00 1.78 Non-Performing Assets to Total Assets ..................... .13 .17 .43 .64 1.08 Weighted Average Shares-Basic ............................. 135,025 140,706 136,761 136,504 142,297 Weighted Average Shares-Diluted ........................... 135,865 141,766 139,333 138,707 144,227 Branch Offices ............................................ 154 111 85 82 67
(1) 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. (2) Cash dividends per share represent amounts for the Company on an historical basis. In December 1998, the Company declared a special cash dividend of $.15. (3) Excludes the effect of the SFAS No. 115 adjustment. (4) 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. 3 MANAGEMENT'S DISCUSSION AND ANALYSIS FORWARD LOOKING STATEMENTS Certain statements under this caption which involve risk and uncertainties constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs, assumptions, and expectations of management of the Company. 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 among financial service companies; (3) changes in the interest rate environment, which may reduce interest margins; and (4) accounting, tax, legislative or regulatory changes may adversely affect the business in which the Company is engaged. 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 $12.1 billion multi-bank holding company headquartered in Melville, New York. The Company ranks among the nation's top 50 bank holding companies when measured by performance and size. The Company's primary bank subsidiary, North Fork Bank ("North Fork"), operates through 154 full-service retail-banking facilities (inclusive of JSB and Reliance) located in the New York metropolitan area, one of the most densely populated and wealthiest markets in the nation. North Fork focuses on providing superior customer service to both personal and commercial clients by offering the convenience of telephone banking as well as an array of financial products and brokerage/investment management services through its non-bank subsidiaries, Compass Investment Services Corp. ("Compass") and Amivest Corporation ("Amivest"). The Company's other bank subsidiary, Superior Savings of New England ("Superior"), 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. On August 16, 1999, the Company entered into an Agreement and Plan of Merger with JSB Financial, Inc. ("JSB"), the parent company of Jamaica Savings Bank, whereby it would acquire JSB in a stock-for-stock merger. In connection with the merger, the Company needed to reissue a sufficient number of shares of its treasury stock prior to the consummation of the merger in order that the merger qualify for pooling-of-interest accounting treatment. The necessary treasury shares were reissued on February 18, 2000, in connection with the Reliance transaction described below. On February 29, 2000, JSB was merged with and into the Company in accordance with the pooling-of-interest method of accounting. On March 10, 2000, Jamaica Savings Bank was merged with and into North Fork Bank. Pursuant to the merger agreement, the Company issued 3.0 shares of common stock for each share of JSB's common stock outstanding. Accordingly, the Company issued 28,312,851 of its common shares and simultaneously retired 6,562,383 of JSB's common shares held in treasury. At December 31, 1999, JSB had total assets of $1.6 billion, deposits of $1.1 billion, and stockholders' equity of $380 million. Jamaica Savings Bank operated from 13 retail-banking facilities in the New York City boroughs of Manhattan and Queens and in Nassau and Suffolk counties, New York (See "Notes to Consolidated Financial Statements - Note 2 - Business Combinations"). On August 30, 1999, the Company entered into an Agreement and Plan of Merger with Reliance Bancorp, Inc. ("Reliance"), the parent company of Reliance Federal Savings Bank, whereby it would acquire Reliance in a stock-for-stock merger accounted for under the purchase method of accounting. On August 30, 1999, simultaneous with the announcement of the merger, the Company's Board of Directors formally approved the purchase of up to 50% of the common shares to be issued in the transaction, or 8.5 million shares. As of December 31, 1999, the Company completed the purchase of 7.8 million shares under the program. The program was completed subsequent to December 31, 1999. On February 18, 2000, Reliance was merged with and into the Company in accordance with the purchase method of accounting. Pursuant to the merger agreement, the Company issued 2.0 shares of its common stock for each share of Reliance's common stock outstanding (17,120,160 common shares were reissued by the Company from its treasury account in satisfaction of the Reliance exchange ratio and the JSB pooling requirement). At December 31, 1999, Reliance had total assets of 4 $2.5 billion, deposits of $1.5 billion, and stockholders' equity of $176 million. Reliance Federal Savings Bank operated from 29 retail-banking facilities throughout Suffolk and Nassau counties, New York, as well as in the New York City borough of Queens (See "Notes to Consolidated Financial Statements - - - - - Note 2 - Business Combinations"). These strategic in-market acquisitions which are expected to be earnings accretive in 2000, will provide the Company with approximately 300,000 new customers and 42 additional branch locations, while providing $2.6 billion in core deposits, and $4.1 billion in assets, which compliment the Company's current risk profile. Additionally, all data system conversions related to these transactions have been successfully completed. At December 31, 1999, the Company, inclusive of JSB and Reliance, would have pro forma assets of $16.3 billion, deposits of $9.2 billion, stockholders' equity of $1.3 billion, and would operate 154 retail-banking facilities throughout the New York metropolitan area and Connecticut. The Company believes that the aforementioned transactions mark a return to a more rationale trend in thrift consolidation and merger and acquisition pricing. During the fourth quarter of 1998, the Board of Directors, (the "Board") after considering the Company's exceptional ability to consistently generate excess capital from earnings, adopted a capital management strategy aimed at improving shareholder returns. In October 1998, a share repurchase program of up to 14.3 million or 10% of the Company's common shares was approved. At the time, seller price expectations for all potential mergers and acquisitions were unrealistic and the Board acknowledged the program as the best use of the Company's capital. On August 16, 1999, simultaneous with the announcement of the JSB merger, the Company's Board of Directors formally rescinded the 10% share repurchase program. At the date of rescission, the Company had completed the repurchase of approximately 8.1 million shares. On August 30, 1999, simultaneous with the announcement of the Reliance merger, the Company's Board of Directors formally approved the purchase of up to 50% of the common shares issuable in the Reliance transaction, or 8.5 million shares. On December 14, 1999, the Board declared a 20% increase in its quarterly cash dividend to $0.18 per common share. The Board has approved dividend increases of this magnitude on a recurring basis since June 1994. The Board believes that these increases are reflective of increasing shareholder returns and a capital management strategy commensurate with the Company's consistent earnings growth. During December 1999, the Company announced the formation of North Fork's equipment and vehicle lease finance company, All Points Capital Corp. ("All Points"). All Points provides lease financing programs and products on a national basis to qualified third party originators as well as offering existing business customers equipment leasing solutions. The Company expects that originations from this new program will be significant in the near future and will add to the diversity in the loan portfolio through the origination of quality asset based lease receivables. On March 5, 2000, the Company announced its intention to seek to acquire Dime Bancorp, Inc.. Reference is made to Note 18 in the accompanying consolidated financial statements presented herein for additional information. The discussion and analysis that follows should be read in conjunction with the consolidated financial statements and supplementary data contained elsewhere in this 1999 Annual Report to Shareholders. OVERVIEW The Company continues to be among the industry leaders in all key measures of operating performance during a year in which it did not close any merger and acquisition transactions. 1999 was highlighted by record earnings of $220.4 million, or diluted earnings per share of $1.62. In 1998, the Company's core earnings were $206.6 million, or diluted earnings per share of $1.46 exclusive of a merger related restructure charge and other special items, totaling $38.6 million after taxes, or $0.28 per share, incurred in connection with the March 1998 merger of New York Bancorp ("NYB"). (See "Notes to Consolidated Financial Statements - Note 2 - Business Combinations"). Return on average total assets and average stockholders' equity for 1999 was 1.92% and 27.05%, respectively, placing the Company, once again, in a leading position among top bank holding companies. The core efficiency ratio approximated 34%, continuing its declining trend since the early 1990's. The Company ranks among the most efficient bank holding companies in the nation, demonstrating management's ability to control operating expenses and enhance revenues, while successfully growing its core businesses. During 1998, the Company's net income, return on average assets and return on average equity, including the aforementioned charges, was $168 million, or diluted earnings per share of $1.18, 1.66% and 20.50%, respectively. The ability to grow the core business without a merger and acquisition transaction was evidenced by the continued growth in demand deposits and generation of fee income. This growth is attributable to an emphasis on developing long-term deposit relationships with borrowers, the use of incentive compensation plans to propel demand deposit growth, and the Company's de novo 5 branch strategy centered on New York City. Demand deposits increased 19.3% to $1.5 billion and represent approximately 23.0% of total deposits at December 31, 1999, as compared to $1.3 billion or 19.7% of total deposits at December 31, 1998. For the five year period ending December 31, 1999, demand deposits have increased approximately 200%. Non-interest income, excluding securities gains, increased 8.3% to $59.4 million with growth highlighted in fees and service charges on deposits and investment management, commissions and trust income. The Company continues to differentiate itself in a marketplace dominated by large nationally focused financial institutions as demonstrated by its loan portfolio growth and overall asset quality. At December 31, 1999, the loan portfolio grew by $900 million or 15.7% to $6.6 billion with increases reflected in all segments of the portfolio. Management anticipates continued growth in all segments of its loan portfolio during 2000. Asset quality remained strong with non-performing assets and restructured accruing loans declining by 19% to $15.4 million, or 0.13% of total assets, at December 31, 1999 when compared to 1998. The Company has continued to grow its loan portfolio by recognizing the needs of its individual customers while avoiding high risk, volatile lending products such as credit cards and subprime lending. Inclusive of JSB and Reliance, the Company's pro forma loan portfolio at December 31, 1999 would have been $8.9 billion. The underlying composition of the JSB and Reliance portfolios are similar to those of the Company. 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 1999, net interest income increased $24.7 million or 5.8% to $449.3 million when compared to $424.6 million in 1998. This growth was achieved through a significant increase in the level and composition of interest earning assets, offset by a 32 basis point decline in the net interest margin. The decline in the net interest margin was due in large measure to management's decision to improve net interest income and net income by adding interest earning assets and interest bearing liabilities at spreads narrower than traditionally obtained if asset growth were funded with customer deposits. As a result, the Company's net interest margin continued to decline throughout 1999 due to the aforementioned strategy. However, management believes that the net interest margin will begin to stabilize. Factors contributing to the expected stabilization include, but are not limited to: (a) the assumption of additional core deposits from the two recently completed transactions; (b) projected growth in demand deposits achieved through the successful conversion of acquired savings bank locations into full-service commercial banking locations; and (c) an emphasis on expanding its existing strategy of developing long-term deposit relationships with our borrowers to the JSB and Reliance customer base. Interest income increased $64.6 million or 8.6% to $817.7 million in 1999. This improvement resulted from a $1.4 billion, or 14.6%, increase in average interest earning assets to $11.0 billion in 1999, partially offset by a 38 basis point decline in the yield on average earning assets from 7.89% to 7.51%. Average loans grew by $385.4 million, or 6.7%, to $6.1 billion in 1999, when compared to 1998. Each component of the loan portfolio contributed to the growth, with consumer loans reflecting the largest percentage increase. However, the net interest margin and interest income were negatively impacted by a 42 basis point decline in yield on average loans to 8.22% during 1999. This decline was primarily due to competition for quality loans as well as prepayment and refinancing activity, the proceeds of which were reinvested into lower yielding loans reflecting market interest rates at the time. Loans represented 55.5% of average interest earning assets and 93.3% of average total deposits at December 31, 1999. Average securities increased $963.7 million, or 25.1% to $4.8 billion, and represented the largest component of the increase in average interest earning assets. This resulted from management's decision in early 1999 to improve net interest income and net income as previously described. The securities purchased during 1999 were principally collateralized mortgage-backed securities, which have been classified as available-for-sale. However, this positive impact on net interest income and net income was partially offset by a 21 basis point decline in the yield on average securities to 6.59% for 1999, when compared to 6.80% in the comparable prior year. This decline was due to the aforementioned growth in the securities portfolio, accelerated prepayment activity, and the reinvestment of related cash flows throughout 1999 into lower yielding securities reflecting market interest rates. 6 During 1999, interest expense increased $40.0 million, or 12.2%, over the comparable prior year to $368.4 million. This was attributable to a $1.1 billion, or 14.2%, increase in average interest bearing liabilities to $8.9 billion. The increase in interest expense due to the level of average interest bearing liabilities was partially offset by a 7 basis point decline in the Company's average cost of funds to 4.13% for 1999, as compared to 4.20% for the comparable prior year. The increase in average interest bearing liabilities resulted from management's decision to fund growth in interest earning assets with principally short term repurchase agreements and Federal Home Loan Bank ("FHLB") advances. As a result of this decision, average total borrowings increased $1.3 billion, or 55.2%, to $3.8 billion during 1999, when compared to $2.4 billion during 1998. The average cost of funds on total borrowings declined 28 basis points to 5.53% from 5.81%, reflecting market interest rates during the respective periods. Average time and savings deposits, which continue to represent a stable funding source, were $5.2 billion, reflecting an average cost of funds of 3.11% during 1999, compared to $5.4 billion, with an average cost of funds of 3.48% during 1998. The decline in the level of time deposits and certificates of deposits greater than $100,000 resulted from management's decision to reduce its reliance on these rate sensitive sources of funding. In addition, both the level and cost of all interest bearing deposits were impacted by the decision to lower rates and overlay the Company's pricing and integration strategy on liabilities assumed in the NYB merger. Average demand deposits increased $295.9 million, or 27.2%, to $1.4 billion during 1999, as compared to $1.1 billion in 1998. The growth in demand deposits has been achieved through the successful conversion of acquired savings bank locations into full-service commercial banking locations, an emphasis on developing long-term deposit relationships with borrowers, and the use of incentive compensation plans. At December 31, 1999, demand deposits represented 23.0% of total deposits, as compared to 19.7% at December 31, 1998. The use of interest rate swaps and stock indexed call options decreased interest expense by approximately $2.0 million and $.8 million during 1999 and 1998, respectively. These derivative financial instruments were immaterial to the overall cost of funds and net interest margin during these respective period ends. (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, 1999 VS. 1998 1998 VS. 1997 ------------------------------------------------------------------------------ CHANGE IN CHANGE IN AVERAGE AVERAGE NET INTEREST AVERAGE AVERAGE NET INTEREST (IN THOUSANDS) VOLUME RATE INCOME VOLUME RATE INCOME ------------------------------------------------------------------------------ Interest Income from Earning Assets: Interest Earning Deposits ................... $ (81) $ (34) $ (115) $ 324 $ (14) $ 310 Securities .................................. 62,716 (7,324) 55,392 3,678 (10,747) (7,069) Loans, net of unearned income ............... 32,368 (25,078) 7,290 32,181 430 32,611 Money Market Investments .................... 4,031 1,295 5,326 904 18 922 ------------------------------------------------------------------------------ Total Interest Income .................. 99,034 (31,141) 67,893 37,087 (10,313) 26,774 INTEREST EXPENSE ON LIABILITIES: Savings, NOW & Money Market Deposits ........ (1,367) (10,486) (11,853) 1,706 (2,142) (436) Time Deposits ............................... (8,035) (7,187) (15,222) (282) 747 465 Federal Funds Purchased and Securities Sold Under Agreements to Repurchase ......... 37,474 (5,694) 31,780 16,851 (549) 16,302 Other Borrowings ............................ 34,988 291 35,279 (18,081) 3,403 (14,678) ------------------------------------------------------------------------------ Total Interest Expense ................. 63,060 (23,076) 39,984 194 1,459 1,653 ------------------------------------------------------------------------------ Net Change in Net Interest Income ........... $ 35,974 $ (8,065) $ 27,909 $ 36,893 $(11,772) $ 25,121 ==============================================================================
(1) The above table is presented on a tax equivalent basis. (2) Non-accrual loans are included in the average outstanding loan balances. 7 NET INTEREST INCOME (continued) 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,
1999 1998 ----------------------------------------------------------------------------------------- AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE (DOLLARS IN THOUSANDS) BALANCE INTEREST RATE BALANCE INTEREST ----------------------------------------------------------------------------------------- Interest Earning Assets: Interest Earning Deposits ............. $ 7,556 $ 341 4.51% $ 9,305 $ 456 Securities ............................ 4,799,458 316,223 6.59% 3,835,761 260,831 Loans, net of unearned income(1) ...... 6,115,127 502,603 8.22% 5,729,743 495,313 Money Market Investments .............. 89,230 7,332 8.22% 36,010 2,006 ----------------------------------------------------------------------------------------- Total Interest Earning Assets ......... 11,011,371 826,499 7.51% 9,610,819 758,606 ----------------------------------------------------------------------------------------- Non-Interest Earning Assets: Cash and Due from Banks ............... 184,129 156,101 Other Assets(2) ....................... 284,039 340,466 ----------------------------------------------------------------------------------------- Total Assets .......................... $ 11,479,539 $ 10,107,386 Interest Bearing Liabilities: Savings, NOW & Money Market Deposits .................. $ 2,925,312 $ 52,704 1.80% $ 2,989,870 $ 64,557 Time Deposits ......................... 2,242,083 107,990 4.82% 2,406,901 123,212 ----------------------------------------------------------------------------------------- Total Savings and Time Deposits .. 5,167,395 160,694 3.11% 5,396,771 187,769 Federal Funds Purchased & Securities Sold Under Agreements to Repurchase ....... 2,911,802 160,963 5.53% 2,236,257 129,183 Other Borrowings ...................... 847,386 46,783 5.52% 185,783 11,504 ----------------------------------------------------------------------------------------- Total Borrowings ................. 3,759,188 207,746 5.53% 2,422,040 140,687 ----------------------------------------------------------------------------------------- Total Interest Bearing Liabilities 8,926,583 368,440 4.13% 7,818,811 328,456 Rate Spread ........................... 3.38% Non-Interest Bearing Liabilities: Demand Deposits ....................... 1,383,322 1,087,472 Other Liabilities ..................... 183,742 164,413 ----------------------------------------------------------------------------------------- Total Liabilities ................ 10,493,647 9,070,696 Capital Securities .................... 199,302 199,277 Stockholders' Equity .................. 786,590 837,413 ----------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity ........... $ 11,479,539 $ 10,107,386 Net Interest Income and Net Interest Margin(3) .............. 458,059 4.16% 430,150 Less: Tax Equivalent Adjustment ....................... (8,753) (5,506) ----------------------------------------------------------------------------------------- Net Interest Income ......... $ 449,306 $ 424,644 ========================================================================================= 1998 1997 ------------------------------------------------------------- AVERAGE AVERAGE AVERAGE AVERAGE (DOLLARS IN THOUSANDS) RATE BALANCE INTEREST RATE ------------------------------------------------------------- Interest Earning Assets: Interest Earning Deposits ............. 4.90% $ 2,718 $ 146 5.37% Securities ............................ 6.80% 3,783,276 267,900 7.08% Loans, net of unearned income(1) ...... 8.64% 5,357,470 462,702 8.64% Money Market Investments .............. 5.57% 19,780 1,084 5.48% ------------------------------------------------------------- Total Interest Earning Assets ......... 7.89% 9,163,244 731,832 7.99% ------------------------------------------------------------- Non-Interest Earning Assets: Cash and Due from Banks ............... 136,249 Other Assets(2) ....................... 257,527 ------------------------------------------------------------- Total Assets .......................... $ 9,557,020 Interest Bearing Liabilities: Savings, NOW & Money Market Deposits .................. 2.16% $ 2,912,303 $ 64,993 2.23% Time Deposits ......................... 5.12% 2,412,431 122,747 5.09% ------------------------------------------------------------- Total Savings and Time Deposits .. 3.48% 5,324,734 187,740 3.53% Federal Funds Purchased & Securities Sold Under Agreements to Repurchase ....... 5.78% 1,944,592 112,881 5.80% Other Borrowings ...................... 6.19% 485,200 26,182 5.40% ------------------------------------------------------------- Total Borrowings ................. 5.81% 2,429,792 139,063 5.72% ------------------------------------------------------------- Total Interest Bearing Liabilities 4.20% 7,754,526 326,803 4.21% Rate Spread ........................... 3.69% 3.77% Non-Interest Bearing Liabilities: Demand Deposits ....................... 854,290 Other Liabilities ..................... 175,347 ------------------------------------------------------------- Total Liabilities ................ 8,784,163 Capital Securities .................... 105,646 Stockholders' Equity .................. 667,211 ------------------------------------------------------------- Total Liabilities and Stockholders' Equity ........... $ 9,557,020 Net Interest Income and Net Interest Margin(3) .............. 4.48% 405,029 4.42% Less: Tax Equivalent Adjustment ....................... (7,408) ------------------------------------------------------------- Net Interest Income ......... $ 397,621 =============================================================
(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. 8 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 adjustable rate assets or liabilities whose yields or cost of funds 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 sources 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, 1999, management believes that a 100 basis point gradual increase in interest rates over the next twelve months would decrease net interest income by $14.7 million or 3.10% while a gradual decrease in interest rates would increase net interest income by $20.1 million or 4.25%. The JSB and Reliance transactions will add stable core deposits and assets which compliment the Company's current risk profile. As previously noted, core deposit costs are internally controlled and generally exhibit less sensitivity to changes in interest rates than the adjustable rate assets or liabilities whose yields or cost of funds are based on external indices and change in concert with market interest rates. During 2000, management anticipates continued growth in all segments of its loan portfolio. Based upon pro forma simulation modeling including the effects of the JSB and Reliance transactions, management believes that a 100 basis point gradual increase in interest rates over the next twelve months would decrease pro forma net interest income by $18.5 million or 2.9% while a gradual decrease in interest rates would increase pro forma net interest income by $15.6 million or 2.4%. 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. 9 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. 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, 1999, the combined weighted average life of securities portfolios was 4.5 years. Approximately 87% 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. During 1998 the Company, in order to maintain the interest rate risk profile which existed prior to the merger with NYB, reclassified approximately $913 million of investment securities from its held-to-maturity portfolio to its available-for-sale portfolio. 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 subsequently sold, resulting in $2.5 million of securities losses in the quarter ended March 31, 1998. At December 31, 1999, the Company had $375 million in interest rate swap agreements which extended the maturity of certain funding sources and reduced the repricing mismatches of certain interest earning assets and interest bearing liabilities. These agreements 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 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, 1999, an unrealized gain of $4.9 million was recorded relating to a $75 million interest rate swap hedging available-for-sale securities. 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"). 10 The following table reflects the repricing of the balance sheet, or "gap" position at December 31, 1999.
0-90 91-180 181-365 1-5 (DOLLARS IN THOUSANDS) DAYS DAYS DAYS YEARS ------------------------------------------------------------------- INTEREST EARNING ASSETS: Interest Earning Deposits ........................... $ 6,529 $ - $ - $ - Money Market Investments ............................ 57,238 - - - Securities(1) ....................................... 438,136 140,173 387,888 2,002,926 Loans, net of unearned income(2) (3) ................ 800,543 276,048 544,024 3,186,652 ------------------------------------------------------------------- Total Interest Earning Assets .................. $ 1,302,446 $ 416,221 $ 931,912 $ 5,189,578 ------------------------------------------------------------------- INTEREST BEARING LIABILITIES: Savings, NOW and Money Market Deposits(4) ........... $ 273,857 $ 444,769 $ 889,537 $ 1,356,961 Time Deposits ....................................... 839,091 551,073 414,493 267,402 Federal Funds Purchased and Securities Sold Under Agreements to Repurchase ............ 1,659,700 47,000 - 708,500 Other Borrowings .................................... 1,544,000 300,000 - - Capital Securities .................................. - - - - ------------------------------------------------------------------- Total Interest Bearing Liabilities ............. $ 4,316,648 $ 1,342,842 $ 1,304,030 $ 2,332,863 ------------------------------------------------------------------- Gap before Interest Rate Swaps ...................... $(3,014,202) $ (926,621) $ (372,118) $ 2,856,715 ------------------------------------------------------------------- Interest Rate Swaps ................................. $ 375,000 - $ (100,000) $ (200,000) Cumulative Difference Between Interest Earning Assets and Interest Bearing Liabilities after Interest Rate Swaps ............................ $(2,639,202) $(3,565,823) $(4,037,941) $(1,381,226) =================================================================== Cumulative Difference as a Percentage of Total Assets ................................ (21.80)% (29.45)% (33.35)% (11.41)% =================================================================== OVER 5 (DOLLARS IN THOUSANDS) YEARS TOTAL ----------------------------- INTEREST EARNING ASSETS: Interest Earning Deposits ........................... $ - $ 6,529 Money Market Investments ............................ - 57,238 Securities(1) ....................................... 1,986,496 4,955,619 Loans, net of unearned income(2) (3) ................ 1,800,865 6,608,132 ----------------------------- Total Interest Earning Assets .................. $ 3,787,361 $11,627,518 ----------------------------- INTEREST BEARING LIABILITIES: Savings, NOW and Money Market Deposits(4) ........... $ - $ 2,965,124 Time Deposits ....................................... 403 2,072,462 Federal Funds Purchased and Securities Sold Under Agreements to Repurchase ............ 250,000 2,665,200 Other Borrowings .................................... - 1,844,000 Capital Securities .................................. 199,314 199,314 ----------------------------- Total Interest Bearing Liabilities ............. $ 449,717 $ 9,746,100 ----------------------------- Gap before Interest Rate Swaps ...................... $ 3,337,644 ----------- Interest Rate Swaps ................................. $ (75,000) Cumulative Difference Between Interest Earning Assets and Interest Bearing Liabilities after Interest Rate Swaps ............................ $ 1,881,418 =========== Cumulative Difference as a Percentage of Total Assets ................................ 15.54% ===========
(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 $9.0 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 year five. The Company's pro forma gap position, when factoring in the impact of the JSB and Reliance transactions, was (12.88)% in 0-90 days, (20.19)% in 91-180 days, (24.36)% in 181-365 days, (6.55)% in 1-5 years and 18.90% over 5 years at December 31, 1999. 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, 1999, respectively: Held-to-Maturity
U.S. STATE & GOVERNMENT (DOLLARS IN THOUSANDS) MUNICIPAL AGENCIES' OTHER MATURITY OBLIGATIONS YIELD OBLIGATIONS YIELD SECURITIES YIELD TOTAL YIELD - - - - ----------------------------------------------------------------------------------------------------------------------------------- Within 1 Year ............... $ 8,504 6.85% $ - - $ - - $ 8,504 6.85% After 1 But Within 5 Years... 36,052 7.08% 51 8.88% 9,703 6.57% 45,806 6.97% After 5 But Within 10 Years.. 19,876 6.69% - - 9,269 6.17% 29,145 6.52% After 10 Years .............. 11,741 10.38% - - - - 11,741 10.38% ---------------------------------------------------------------------------------------------------- Subtotal ............... 76,173 7.46% 51 8.88% 18,972 6.37% 95,196 7.25% Mortgage-Backed Securities - - - - - - 445,413 6.65% CMO's ....................... - - - - - - 689,094 6.28% ---------------------------------------------------------------------------------------------------- Total Securities ....... $ 76,173 7.46% $ 51 8.88% $ 18,972 6.37% $1,229,703 6.49% ====================================================================================================
11 Available-for-Sale(1)
U.S. STATE & GOVERNMENT (DOLLARS IN THOUSANDS) MUNICIPAL AGENCIES' OTHER MATURITY OBLIGATIONS YIELD OBLIGATIONS YIELD SECURITIES YIELD TOTAL YIELD - - - - ---------------------------------------------------------------------------------------------------------------------------------- Within 1 Year ................ $ - - $ - - $ - - $ - - After 1 But Within 5 Years ... 20,046 6.14% - - - - 20,046 6.14% After 5 But Within 10 Years .. - - 88,709 7.15% 5,772 7.87% 94,481 7.19% Due After 10 Years ........... - - - - 193,089 8.35% 193,089 8.35% ------------------------------------------------------------------------------------------------ Subtotal ................ 20,046 6.14% 88,709 7.15% 198,861 8.34% 307,616 7.85% Mortgage-Backed Securities ... - - - - - - 895,855 7.58% CMO's ........................ - - - - - - 2,270,439 6.30% Equity Securities ............ - - - - - - 251,999 7.46% ------------------------------------------------------------------------------------------------ Total Securities ........ $ 20,046 6.14% $ 88,709 7.15% $ 198,861 8.34% $3,725,909 6.81% ================================================================================================
(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) 1999 1998 1997 ---------------------------------------- U.S. Treasury Securities ............... $ 19,978 $ 31,345 $ 33,119 U.S. Government Agencies' Obligations .. 86,261 167,485 246,035 State & Municipal Obligations .......... 76,173 71,837 114,511 Mortgage-Backed Securities ............. 1,315,295 1,292,630 1,180,087 CMO Agency Issuances ................... 478,109 233,949 384,336 CMO Private Issuances .................. 2,398,255 2,318,551 1,711,570 Other Securities ....................... 201,288 228,345 72,783 Equity Securities ...................... 247,261 207,626 177,491 ---------------------------------------- Total ............................. $4,822,620 $4,551,768 $3,919,932 ========================================
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, 1999:
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 ............. $ 79,273 $ 912,417 $ 713,213 $1,704,903 Mortgage Loans-Commercial ............... 269,667 604,716 386,035 1,260,418 Commercial & Industrial ................. 445,137 226,709 23,538 695,384 Construction & Land Loans ............... 81,171 4,813 - 85,984 ------------------------------------------------------- Total ................................. $ 875,248 $1,748,655 $1,122,786 $3,746,689 ======================================================= RATE PROVISIONS: Amounts with Fixed Interest Rates ....... $ 55,060 $1,056,459 $1,111,384 $2,222,903 Amounts with Adjustable Interest Rates .. 820,188 692,196 11,402 1,523,786 ------------------------------------------------------- Total ................................. $ 875,248 $1,748,655 $1,122,786 $3,746,689 =======================================================
12 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,
1999 1998 1997 AVERAGE AVERAGE AVERAGE (IN THOUSANDS) BALANCE RATE BALANCE RATE BALANCE RATE ---------------------------------------------------------------------- Demand Deposits .............. $1,383,322 - $1,087,472 - $ 854,290 - Savings Deposits ............. 2,053,868 1.83% 2,118,024 2.15% 2,100,664 2.28% NOW & Money Market Deposits .. 871,444 1.74% 871,846 2.18% 811,639 2.10% Time Deposits ................ 2,242,083 4.82% 2,406,901 5.12% 2,412,431 5.09% ---------------------------------------------------------------------- Total Deposits .......... $6,550,717 2.45% $6,484,243 2.90% $6,179,024 3.04% ======================================================================
At December 31, 1999, the remaining maturities of certificate of deposits in amounts of $100,000 and over were as follows:
(IN THOUSANDS) 1999 -------- 3 months and less ........ $291,853 3 to 6 months ............ 84,674 6 to 12 months ........... 45,399 Greater than one year .... 44,910 -------- $466,836 ========
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, 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 had $28.3 million of retained earnings available for dividends as of January 1, 2000. The banking 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 their unpledged securities and mortgage related loan portfolios, the sale of securities from their available-for-sale portfolios, the securitization of loans within the portfolio, whole loan sales, and growth in their core deposit base. The banking subsidiaries currently have the ability to borrow an additional $2.0 billion on a secured bases, utilizing mortgage related loans and securities as collateral. At December 31, 1999, the Company had $3.1 billion in outstanding borrowings with the FHLB. The Company and its banking subsidiary's liquidity positions are monitored daily to ensure the maintenance of an optimum level and efficient use of available funds. Management believes that the Company and its banking subsidiaries have sufficient liquidity to meet their operating requirements. 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, 1999, the loan portfolio increased $899.1 million, or 15.7%, to $6.6 billion with growth reflected in all segments of the portfolio. The growth experienced in the portfolio during 1999 was as follows: a 54.1% increase in consumer loans, a 34.2% increase in commercial & industrial loans, a 14.2% increase in commercial mortgage loans, and a 12.4% increase in residential loans. The absolute growth in the loan portfolio has been tempered by the level of prepayments experienced during 1999. The level of 13 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 (See "Net Interest Income" section of "Management's Discussion and Analysis"). During 2000, management anticipates continued growth from all segments of the portfolio. The growth experienced during recent years has resulted from both originations and acquisitions. To minimize the credit risk related to the portfolio's real estate concentration, management utilizes prudent underwriting standards as well as diversifying the type and locations of loan collateral. Multi-family mortgage loans generally are for $1-$5 million and are secured by properties located in the New York metropolitan area, where demand for such housing is strong. 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. Commercial loans consist primarily of loans to small and medium size businesses. Consumer loans represent credit to individuals for household, family, and other personal expenditures and consist primarily of loans to finance new and used automobiles. Consumer loan growth is attributable to 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-$30 thousand for periods ranging from 36-60 months. 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. 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. The Company's loan portfolio will increase by approximately $2.3 billion to $8.9 billion upon the completion of the JSB and Reliance transactions. JSB's loan portfolio, totaling $1.3 billion at December 31, 1999, is comprised principally of multi-family and residential mortgages. Reliance's loan portfolio, totaling $1.0 billion at December 31, 1999, is comprised principally of multi-family mortgages, residential mortgages, and consumer loans. The following table represents the components of the loan portfolio at December 31,
(DOLLARS IN THOUSANDS) 1999 1998 1997 1996 1995 ---------------------------------------------------------------------------------------------------- Mortgage Loans-Residential ... $2,137,739 32% $1,901,759 33% $2,144,029 37% $2,205,533 44% $1,967,873 48% Mortgage Loans-Multi-family .. 1,705,446 26% 1,651,590 29% 1,534,623 26% 1,127,817 22% 788,736 19% Mortgage Loans-Commercial .... 1,261,487 19% 1,104,228 19% 1,192,071 21% 1,010,631 20% 818,704 20% Consumer Loans and Leases .... 742,087 11% 481,691 9% 394,436 7% 306,285 6% 208,902 5% Commercial & Industrial ...... 697,763 11% 520,130 9% 444,480 8% 359,788 7% 259,876 6% Construction and Land Loans .. 85,984 1% 72,026 1% 51,052 1% 61,740 1% 65,943 2% ---------------------------------------------------------------------------------------------------- Total ................... $6,630,506 100% $5,731,424 100% $5,760,691 100% $5,071,794 100% $4,110,034 100% ====================================================================================================
ASSET QUALITY During 1999, non-performing assets, which include loans past due 90 days and still accruing interest, non-accrual loans and other real estate, declined $3.1 million, or 16.6%, to $15.4 million at year-end. The decline was achieved principally through the sales of non-performing and marginally performing assets for cash, principal repayments on loans, the workout of non-performing loans to performing status, and charge-offs. At December 31, 1999, non-performing loans were comprised of $5.8 million in consumer loans and leases, $4.0 million in residential mortgages, $2.7 million in commercial loans, $1.6 million in commercial mortgages, and $.7 million in 14 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. The components of non-performing assets and restructured, accruing loans are detailed below at December 31,
(DOLLARS IN THOUSANDS) 1999 1998 1997 1996 1995 ------------------------------------------------------------ Loans Ninety Days Past Due and Still Accruing ...... $ 5,842 $ 7,684 $ 6,414 $ 6,988 $ 6,130 Non-Accrual Loans .................................. 8,998 7,592 31,231 43,297 66,783 ------------------------------------------------------------ Non-Performing Loans .......................... 14,840 15,276 37,645 50,285 72,913 Other Real Estate .................................. 575 3,217 5,943 5,095 9,287 ------------------------------------------------------------ Non-Performing Assets ......................... $15,415 $18,493 $43,588 $55,380 $82,200 ============================================================ Restructured, Accruing Loans ....................... $ - $ 584 $14,567 $19,552 $50,420 ============================================================ Allowance for Loan Losses to Non-Performing Loans .. 462% 470% 198% 146% 107% Non-Performing Assets to Total Assets .............. .13% .17% .43% .64% 1.08%
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. The substantial decline in restructured accruing loans over the past five years is a result of principal repayments, maturities, and the satisfaction of the performance requirements on certain of these loans. 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, 1999, 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: - 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. - 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. - 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. 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 15 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 1990's 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: - Regulatory examinations - The amount and trend of criticized loans - Actual losses - Peer comparisons with other financial institutions - Economic data associated with the real estate market in the Company's market area - 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 1999 TOTAL 1998 TOTAL 1997 TOTAL 1996 TOTAL 1995 TOTAL (DOLLARS IN THOUSANDS) AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS ------------------------------------------------------------------------------------------------- Mortgage Loans-Residential ... $14,964 32% $14,278 33% $ 9,776 37% $11,195 44% $ 8,053 48% Mortgage Loans-Multi-family .. 4,367 26% 5,985 29% 6,904 26% 5,543 22% 6,461 19% Mortgage Loans-Commercial .... 20,100 19% 22,423 19% 23,928 21% 24,684 20% 22,506 20% Consumer Loans and Leases .... 14,100 11% 9,634 9% 6,886 8% 5,028 7% 3,479 6% Commercial & Industrial ...... 8,990 11% 11,408 9% 11,513 7% 14,790 6% 19,215 5% Construction and Land Loans .. 2,150 1% 2,589 1% 1,829 1% 1,955 1% 3,418 2% Unallocated .................. 3,924 - 5,442 - 13,557 - 10,085 - 14,767 - ------------------------------------------------------------------------------------------------- Total ................... $68,595 100% $71,759 100% $74,393 100% $73,280 100% $77,899 100% =================================================================================================
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, 1999 to be adequate. 16 Transactions in the Allowance for Loan Losses are summarized as follows for the years ended December 31,
(DOLLARS IN THOUSANDS) 1999 1998 1997 1996 1995 -------------------------------------------------------------------- LOANS (NET OF UNEARNED INCOME & FEES): Average Balance ............................................ $6,115,127 $5,729,743 $5,357,470 $4,531,541 $3,919,342 End of Year ................................................ 6,617,130 5,714,293 5,739,131 5,044,073 4,086,497 ==================================================================== ANALYSIS OF ALLOWANCE FOR LOAN LOSSES: Balance at Beginning of Year ............................... $ 71,759 $ 74,393 $ 73,280 $ 77,899 $ 86,952 Loans Charged-Off: Mortgage Loans-Commercial .................................. $ 1,104 $ 5,225 $ 3,932 $ 7,022 $ 7,668 Consumer Loans and Leases .................................. 9,736 6,439 3,014 1,126 778 Commercial & Industrial .................................... 2,382 2,567 1,888 2,623 3,215 Mortgage Loans-Residential ................................. 1,012 6,482 2,908 6,014 5,402 Mortgage Loans-Multi-family ................................ 100 287 191 548 4,456 Construction and Land Loans ................................ - 896 121 1,237 5,631 -------------------------------------------------------------------- Total Charge-Offs ....................................... $ 14,334 $ 21,896 $ 12,054 $ 18,570 $ 27,150 RECOVERIES OF LOANS CHARGED-OFF: Mortgage Loans-Commercial .................................. $ 690 $ 153 $ 634 $ 513 $ 1,660 Consumer Loans and Leases .................................. 3,194 2,312 640 507 525 Commercial & Industrial .................................... 1,151 1,149 1,114 544 1,377 Mortgage Loans-Residential ................................. 105 51 71 97 237 Mortgage Loans-Multi-family ................................ 30 95 19 724 100 Construction and Land Loans ................................ - 57 95 284 94 -------------------------------------------------------------------- Total Recoveries ........................................ $ 5,170 $ 3,817 $ 2,573 $ 2,669 $ 3,993 NET LOANS CHARGED-OFF: ....................................... $ 9,164 $ 18,079 $ 9,481 $ 15,901 $ 23,157 Provision for Loan Losses .................................. 6,000 15,500 8,100 8,000 13,525 Merger and Acquisition Activity: Net Merger Activity for the Quarter Ended December 31,(1) .. - (55) - 190 87 Additional Allowance Acquired in Purchase Acquisitions ..... - - 2,494 3,092 492 -------------------------------------------------------------------- Balance at End of Year ..................................... $ 68,595 $ 71,759 $ 74,393 $ 73,280 $ 77,899 ==================================================================== Ratio of Net Charge-Offs to Average Loans .................. .15% .32% .18% .35% .59% ==================================================================== Ratio of Allowance for Loan Losses to Non-performing Loans .................................... 462% 470% 198% 146% 107% ====================================================================
(1) Represents the activity of the NYB, North Side, and Hamilton mergers for the quarters ended December 31, 1997, 1995 and 1994, respectively. During 1999, the provision for loan losses decreased by $9.5 million to $6.0 million as compared to $15.5 million in 1998. Reflected in 1998 was a special provision of $11.5 million. This additional provision was due to the sale of $32 million in non-performing and marginally performing loans, at amounts below the loans carrying values, acquired in the NYB merger. Due to the aforementioned sale, the Company recognized a corresponding charge to the allowance for loan losses. This decision was predicated on the fact that management could sell these loans into a liquid market, reinvest the cash into other interest earning assets, and mitigate potential carrying costs associated with their future workout and resolution. Historically, NYB did not actively sell non-performing and marginally performing loans as part of its workout and recovery process. Subsequent to these sales, the Company restored its post-merger reserve coverage ratios to approximate pre-merger levels. NON-INTEREST INCOME During 1999, non-interest income, exclusive of net securities gains, increased $4.6 million, or 8.3%, to $59.4 million. This increase in non-interest income resulted from a $3.3 million, or 12.5% increase in fees and service charges on deposit accounts to $29.2 million and a $3.0 million, or 22.3% increase in investment management, commissions and trust fees to $16.2 million. The increase in fees and service charges on deposits was attributable to increased levels of demand deposits, revisions to deposit fee structures, and management's deposit integration strategy implemented on liabilities assumed in the NYB merger. Contributing to the growth in 17 investment management, commissions and trust fees are the operating results of Amivest, which was acquired in a purchase transaction in June 1998. Other contributing factors are the approximately 220 thousand new customers and market areas provided in the NYB merger to which the Company's financial service products have been provided. These improvements were partially offset by a $1.2 million, or 10.3% decrease in other operating income to $10.4 million. During 1999, net securities gains increased to $13.6 million, when compared with net securities gains of $9.4 million in 1998. Gross realized gains in 1999 and 1998 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 transferred from held-to-maturity to available-for-sale resulted in $2.5 million of security losses in the first quarter of 1998. (See "Asset/Liability Management" section of "Management's Discussion and Analysis"). NON-INTEREST EXPENSE During 1999, non-interest expense increased $7.2 million, or 4.2%, to $177.3 million. Non-interest expense during 1998 totaled $170.1 million, excluding the merger related restructure charge and other special items totaling $52.5 million and $7.8 million, respectively, incurred in connection with the NYB merger. The increase in non-interest expense is attributable to a $6.8 million increase in compensation and employee benefits and a $1.7 million increase in occupancy and equipment, excluding the aforementioned special charges. The increase in compensation and employee benefit costs was due primarily to the Company's entrance into new markets, expanded use of incentive compensation plans to achieve its objective of growing demand deposits and generating non-interest income, annual merit increases, and increased costs associated with employee benefits. Occupancy and equipment expense increased due in part to costs associated with the entrance into new markets and the opening of de novo branches in the New York City market. In 1998, the Company recorded a $6 million intangible asset write-down associated with a purchase transaction of a predecessor acquired business. This asset was reviewed for possible impairment due to the Company's acquisition of NYB and the consolidation of certain overlapping branch locations. The remaining assets and liabilities associated with the acquired business were branch facilities and customer deposit liabilities. The impact of the branch facilities was reviewed and determined to have a de minimis effect on the overall analysis. As of March 1998, the unamortized balance of the intangible asset was $11.2 million and the remaining customer deposit balances were $73.2 million. The Company utilized quoted market prices for branch purchase and sale transactions at the time of the analysis to evaluate the intangible asset's remaining value and, consequently, a $6 million charge was taken for the amount in excess of the current fair market value. The Company's 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 and losses and other non-recurring income, was 34.3% in 1999, as compared with 35.0% for the comparable prior year. The core efficiency ratio demonstrates management's ability to maintain a disciplined approach to monitoring its operating structure and controlling related costs. INCOME TAXES For 1999, the effective tax rate was 35.0% compared to 30.9% for the year ended 1998. During 1998, the effective tax rate was positively effected by 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 during 1998 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. 18 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 I capital to total risk weighted assets of 4% and a Tier I capital to average assets of 4% ("Leverage Ratio"). Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators, that, if undertaken, could have a direct material effect on the Company's financial statements. As of December 31, 1999, the most recent notification from the various banking 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 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 two issuances of approximately $100 million in capital securities. At December 31, 1999, 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, 1999, 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 ............... $ 811,977 11.48% Regulatory Requirement ....... 282,868 4.00% ------------------------ Excess ....................... $ 529,109 7.48% ======================== Total Risk Adjusted Capital .. $ 880,572 12.45% Regulatory Requirement ....... 565,735 8.00% ------------------------ Excess ....................... $ 314,837 4.45% ======================== Risk Weighted Assets ......... $7,071,689 ==========
The Company's Leverage Capital Ratio at December 31, 1999 was 6.84%. On a proforma basis, inclusive of JSB and Reliance, the Company's Tier 1, Total Risk Adjusted, and Leverage Capital Ratios were 12.60%, 13.83%, and 7.58%, respectively, at December 31, 1999. RECENT ACCOUNTING PRONOUNCEMENTS DISCLOSURE ABOUT SEGMENTS FOR AN ENTERPRISE AND RELATED INFORMATION In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for the way an enterprise reports information about operating segments in annual financial statements and requires that enterprises report selected information about operating segments in interim financial reports issued to shareholders. Operating segments are components of an enterprise about which separate financial information is available, that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS 131 requires a reconciliation of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments to the amounts in the enterprise's financial statements. It also requires an enterprise to report descriptive information about the way the operating segments were determined, the products and services provided by the operating segments, and any differences between the measurements used for segment reporting and financial statement reporting. SFAS 131 is effective for fiscal years beginning after December 15, 1997. 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. 19 EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POST-RETIREMENT BENEFITS In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Post-retirement Benefits" ("SFAS 132"). SFAS 132 revises employers' disclosures about pensions and other post-retirement benefit plans; it does not change the measurement or recognition under these plans. SFAS 132 standardizes the disclosure requirements for pensions and other post-retirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer useful. SFAS 132 is effective for fiscal years beginning after December 15, 1997 (See Footnote 11, "Retirement and Other Employee Benefit Plans", included herein for the required disclosure). ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign currency denominated forecasted transaction. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Under SFAS 133, an entity that elects to apply hedge accounting is required to establish, at the inception of the hedge, the method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. Those methods must be consistent with the entity's approach to managing risk. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137 "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of SFAS 133", delaying its effective date to all fiscal quarters of all fiscal years beginning after June 15, 2000. Management is currently evaluating the effect SFAS 133 will have on its financial statements. At December 31, 1999, the Company was party to three interest rate swap contracts with an aggregate notional value of $375 million. COMPARISON BETWEEN 1998 AND 1997 OVERVIEW On March 27, 1998, NYB was merged with and into the Company in a transaction accounted for in accordance with the pooling-of-interests method of accounting. 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 39.9 million shares, or 1.19 shares of common stock, for each outstanding share of NYB. 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, 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. 20 EARNINGS SUMMARY For the year ended December 31, 1998, the Company's net income was $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. 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. 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 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 yield on average loans remained constant at 8.64%. During 1998, average securities increased $52.5 million to $3.8 billion. The 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. 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 continued 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 "Notes to Consolidated Financial Statements - Note 15 - Derivative Financial Instruments"). 21 PROVISION FOR LOAN LOSSES During 1998, the provision for loan losses increased to $15.5 million as compared to $ 8.1 million in 1997. Reflected in 1998 was a special provision of $11.5 million. This additional provision was due to the sale of $32 million in non-performing and marginally performing loans, at amounts below the loans carrying values, acquired in the NYB merger. Due to the aforementioned sale, the Company recognized a corresponding charge to the allowance for loan losses. This decision was predicated on the fact that management could sell these loans into a liquid market, reinvest the cash into other interest earning assets, and mitigate potential carrying costs associated with their future workout and resolution. Historically, NYB did not actively sell non-performing and marginally performing loans as part of its workout and recovery process. Subsequent to these sales, the Company restored its post-merger reserve coverage ratios to approximate pre-merger levels. 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 are 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. Additionally, amortization of intangible assets increased $1.2 million 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 demonstrated 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 22 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 conversion 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"). 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"). SELECTED STATISTICAL DATA QUARTERLY FINANCIAL INFORMATION
(UNAUDITED) 1999 --------------------------------------------------- 1ST 2ND 3RD 4TH (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) QTR QTR QTR QTR --------------------------------------------------- Interest Income ............................. $ 193,856 $ 202,367 $ 208,221 $ 213,301 Interest Expense ............................ 83,765 88,969 94,857 100,848 --------------------------------------------------- Net Interest Income .................... 110,091 113,398 113,364 112,453 Provision for Loan Losses ................... 1,250 1,250 1,250 2,250 --------------------------------------------------- Net Interest Income after Provision for Loan Losses ...................... 108,841 112,148 112,114 110,203 Non-Interest Income ......................... 17,013 21,683 15,518 18,803 Non-Interest Expense ........................ 43,434 44,055 44,354 45,451 Merger Related Restructure Charge ........... - - - - --------------------------------------------------- Income /(Loss) Before Income Taxes ..... 82,420 89,776 83,278 83,555 Provision/(Benefit) for Income Taxes ........ 28,852 31,416 29,148 29,244 --------------------------------------------------- Net Income ............................. $ 53,568 $ 58,360 $ 54,130 $ 54,311 =================================================== PER SHARE: Earnings Per Share-Basic ............... $ .38 $ .42 $ .40 $ .42 Earnings Per Share-Diluted ............. $ .38 $ .42 $ .40 $ .42 Common Stock Price Range: High.............................. $ 23.88 $ 23.63 $ 21.81 $ 21.63 Low............................... $ 21.00 $ 20.13 $ 17.69 $ 17.13 (UNAUDITED) 1998 ---------------------------------------------------- 1ST 2ND 3RD 4TH (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) QTR QTR QTR QTR ---------------------------------------------------- Interest Income ............................. $ 190,506 $ 182,368 $ 188,110 $ 192,116 Interest Expense ............................ 86,299 77,854 81,735 82,568 ---------------------------------------------------- Net Interest Income .................... 104,207 104,514 106,375 109,548 Provision for Loan Losses ................... 12,500 1,000 1,000 1,000 ---------------------------------------------------- Net Interest Income after Provision for Loan Losses ...................... 91,707 103,514 105,375 108,548 Non-Interest Income ......................... 11,251 14,863 17,792 20,412 Non-Interest Expense ........................ 54,380 40,196 42,141 41,212 Merger Related Restructure Charge ........... 52,452 - - - ---------------------------------------------------- Income /(Loss) Before Income Taxes ..... (3,874) 78,181 81,026 87,748 Provision/(Benefit) for Income Taxes ........ (11,249) 27,285 28,359 30,711 ---------------------------------------------------- Net Income ............................. $ 7,375 $ 50,896 $ 52,667 $ 57,037 ==================================================== PER SHARE: Earnings Per Share-Basic................ $ .05 $ .36 $ .37 $ .40 Earnings Per Share-Diluted.............. $ .05 $ .36 $ .37 $ .40 Common Stock Price Range: High ............................. $ 26.33 $ 27.33 $ 27.19 $ 23.94 Low .............................. $ 20.00 $ 23.79 $ 19.00 $ 16.31
23 CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997 ---------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INTEREST INCOME: Loans ................................................ $501,627 $494,125 $461,984 Mortgage-Backed Securities ........................... 267,298 211,808 219,179 Other Securities ..................................... 30,638 24,090 13,651 U.S. Treasury & Government Agency Securities ......... 10,063 16,766 23,015 State & Municipal Obligations ........................ 3,447 3,849 5,365 Money Market Investments ............................. 4,673 2,462 1,230 ---------------------------------- Total Interest Income ........................... 817,746 753,100 724,424 ---------------------------------- INTEREST EXPENSE: Savings, NOW & Money Market Deposits ................. 52,704 64,557 64,993 Other Time Deposits .................................. 78,502 91,754 98,821 Certificates of Deposit, $100,000 & Over ............. 29,488 31,458 23,926 Federal Funds Purchased & Securities Sold Under Agreements to Repurchase .......................... 160,963 129,183 112,881 Other Borrowings ..................................... 46,783 11,504 26,182 ---------------------------------- Total Interest Expense .......................... 368,440 328,456 326,803 ---------------------------------- Net Interest Income ............................. 449,306 424,644 397,621 Provision for Loan Losses ............................ 6,000 15,500 8,100 ---------------------------------- Net Interest Income after Provision for Loan Losses .. 443,306 409,144 389,521 ---------------------------------- NON-INTEREST INCOME: Fees & Service Charges on Deposit Accounts ........... 29,235 25,981 23,921 Investment Management, Commissions & Trust Fees ...... 16,175 13,225 10,085 Mortgage Banking Operations .......................... 3,603 4,054 4,269 Other Operating Income ............................... 10,426 11,625 8,125 Interest on Tax Settlement ........................... - - 4,515 Net Securities Gains ................................. 13,578 9,433 8,407 ---------------------------------- Total Non-Interest Income ....................... 73,017 64,318 59,322 ---------------------------------- NON-INTEREST EXPENSE: Compensation & Employee Benefits ..................... 87,031 81,071 83,197 Occupancy & Equipment, net ........................... 28,505 27,095 28,865 Capital Securities Costs ............................. 16,843 16,843 9,235 Amortization & Write-down of Intangible Assets ....... 8,408 14,479 7,292 Other Operating Expenses ............................. 36,507 38,441 45,120 Merger Related Restructure Charge .................... - 52,452 - ---------------------------------- Total Non-Interest Expenses ..................... 177,294 230,381 173,709 ---------------------------------- Income Before Income Taxes ........................... 339,029 243,081 275,134 Provision for Income Taxes ........................... 118,660 75,106 104,613 ---------------------------------- Net Income ...................................... $220,369 $167,975 $170,521 ================================== EARNINGS PER SHARE-BASIC ............................. $ 1.63 $ 1.19 $ 1.24 EARNINGS PER SHARE-DILUTED ........................... $ 1.62 $ 1.18 $ 1.22
See accompanying notes to consolidated financial statements. 24
AT DECEMBER 31, 1999 1998 ------------------------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ASSETS: Cash & Due from Banks ............................... $ 299,946 $ 151,576 Money Market Investments ............................ 63,767 28,929 Securities: Available-for-Sale ................................ 3,592,917 2,980,223 Held-to-Maturity (Fair value $1,179,180 in 1999; $1,574,196 in 1998) .................... 1,229,703 1,571,545 ------------------------------ Total Securities .............................. 4,822,620 4,551,768 ------------------------------ Loans ............................................... 6,630,506 5,731,424 Less: Unearned Income ............................. 13,376 17,131 Allowance for Loan Losses ................. 68,595 71,759 ------------------------------ Net Loans ................................. 6,548,535 5,642,534 ------------------------------ Intangible Assets ................................... 79,151 84,676 Premises & Equipment ................................ 74,740 72,023 Accrued Income Receivable ........................... 70,578 66,951 Other Assets ........................................ 148,779 81,099 ------------------------------ Total Assets .................................. $ 12,108,116 $ 10,679,556 ============================== Liabilities and Stockholders' Equity: Demand Deposits ..................................... $ 1,507,162 $ 1,263,105 Savings Deposits .................................... 2,034,085 2,052,650 NOW & Money Market Deposits ......................... 931,040 897,372 Other Time Deposits ................................. 1,605,627 1,672,478 Certificates of Deposit, $100,000 & Over ............ 466,836 542,017 ------------------------------ Total Deposits ................................ 6,544,750 6,427,622 ------------------------------ Federal Funds Purchased & Securities Sold Under Agreements to Repurchase .......................... 2,665,200 2,955,096 Other Borrowings .................................... 1,844,000 35,000 Accrued Expenses & Other Liabilities ................ 236,142 231,299 ------------------------------ Total Liabilities ............................. $ 11,290,092 $ 9,649,017 ------------------------------ Capital Securities .................................. $ 199,314 $ 199,289 STOCKHOLDERS' EQUITY: Preferred Stock, par value $1.00; authorized 10,000,000 shares, unissued ....................... $ - $ - Common Stock, par value $2.50; authorized 200,000,000 shares; issued shares 145,126,522 in 1999; 144,924,714 in 1998 ........... 362,816 362,312 Additional Paid in Capital .......................... 33,381 32,044 Retained Earnings ................................... 677,853 541,967 Accumulated Other Comprehensive Income-Unrealized (Losses)/Gains on Securities Available-for-Sale, net of taxes ...................................... (75,805) 9,337 Deferred Compensation ............................... (28,007) (24,365) Treasury Stock at cost; 16,684,747 shares in 1999; 3,852,732 shares in 1998 ................. (351,528) (90,045) ------------------------------ Total Stockholders' Equity .................... 618,710 831,250 ------------------------------ Total Liabilities and Stockholders' Equity .... $ 12,108,116 $ 10,679,556 ==============================
See accompanying notes to consolidated financial statements. 25
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997 --------------------------------------------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income ....................................................... $ 220,369 $ 167,975 $ 170,521 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Provision for Loan Losses ........................................ 6,000 15,500 8,100 Depreciation and Amortization .................................... 12,245 10,846 10,485 Amortization and Write-down of Intangible Assets ................. 8,408 14,479 7,292 Amortization of Securities Premiums .............................. 9,922 12,809 9,052 Accretion of Discounts and Net Deferred Loan Fees ................ (9,126) (10,490) (6,440) Proceeds from Sales of Securities Held-for-Trading ............... - - 10,125 Purchases of Securities Held-for-Trading ......................... - - (9,670) Net Securities Gains ............................................. (13,578) (9,433) (8,407) Other, Net ....................................................... (72,375) 47,829 17,376 --------------------------------------------- Net Cash Provided by Operating Activities ............. 161,865 249,515 208,434 --------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of Securities Held-to-Maturity ......................... (27,533) (1,181,100) (107,722) Maturities, Redemptions, Calls and Principal Repayments on Securities Held-to-Maturity ........................... 367,040 424,656 253,904 Purchases of Securities Available-for-Sale ....................... (1,833,555) (2,166,825) (1,497,862) Proceeds from Sales of Securities Available-for-Sale ............. 116,923 1,021,477 271,297 Maturities and Principal Repayments on Securities Available-for-Sale .................................... 1,044,056 1,279,525 413,086 Loans Originated, Net of Principal Repayments .................... (994,882) (138,940) (653,769) Proceeds from the Sale of Loans .................................. 89,054 195,534 88,415 Purchases of Loans ............................................... - (21,344) (22,342) Transfers to Other Real Estate, Net of Sales ..................... 2,635 2,314 (1,402) Purchases of Premises and Equipment, Net ......................... (11,853) (3,444) (6,511) Purchase Acquisitions, Net of Cash Acquired ...................... - 805 56,147 --------------------------------------------- Net Cash Used in Investing Activities ................. (1,248,115) (587,342) (1,206,759) --------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Increase/(Decrease) in Customer Deposit Liabilities .......... 117,128 44,352 (21,177) Net Increase in Borrowings ....................................... 1,554,104 379,854 887,061 Net Decrease in Long-Term Debt ................................... (35,000) - - Proceeds from the Issuance of Capital Securities ................. - - 99,614 Purchase of Treasury Stock ....................................... (271,318) (56,462) (27,733) Common Stock Sold for Cash ....................................... 4,777 26,949 6,814 Cash Dividends Paid .............................................. (100,233) (67,032) (46,607) --------------------------------------------- Net Cash Provided by Financing Activities ............. 1,269,458 327,661 897,972 --------------------------------------------- Net Increase/(Decrease) in Cash and Cash Equivalents .. 183,208 (10,166) (100,353) NYB Activity for the Three Months Ended December 31, 1997 ........ - (384) - Cash and Cash Equivalents at Beginning of Year ................... 180,505 191,055 291,408 --------------------------------------------- Cash and Cash Equivalents at End of Year ......................... $ 363,713 $ 180,505 $ 191,055
26
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997 ------------------------------------- (IN THOUSANDS) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash Paid During the Period for: Interest Expense ................................................ 356,103 332,406 331,577 ===================================== Income Taxes .................................................... 159,591 19,507 55,209 ===================================== Securities Transferred from Held-to-Maturity to Available-for-Sale due to the Merger with NYB ................... - 913,598 - ===================================== Purchases of Various Securities at Year End which Settled in the Subsequent Period ............................................... 24,737 7,912 60,866 ===================================== Non-Cash Activity Related to Acquisitions Not Reflected Above for the Years ended December 31, 1998 and 1997 are as follows: .. (1) (2) Fair Value of Assets Acquired ........................................ $ 2,377 $ 177,085 Intangible Assets .................................................... 8,434 21,515 Cash Paid ............................................................ - (3,009) Common Stock Issued .................................................. (8,730) (34,420) ------------------------ Liabilities Assumed and Common Stock Issued .......................... $ 2,081 $ 161,171 ========================
(1) In June 1998, the Company acquired Amivest Corporation, a privately held investment management and broker/dealer firm. (2) In December 1997, the Company acquired all of the outstanding common stock of Superior. Each share of Superior's common stock was exchanged for .1957 shares of the Company's common stock and the Company made a cash payment to the holder of Superior's outstanding warrants. See accompanying notes to consolidated financial statements. 27 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ADDITIONAL UNREALIZED COMMON PAID IN RETAINED SECURITIES DEFERRED TREASURY THREE YEARS ENDED DECEMBER 31, 1999 STOCK CAPITAL EARNINGS GAINS/(LOSSES) COMPENSATION STOCK ---------------------------------------------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Balance, January 1, 1997 .......................... $ 125,371 $ 202,587 $ 352,581 $ (3,195) $ (5,193) $ (62,717) 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) .... - - - - - (27,733) Restricted Stock Activity, net .................... 423 11,536 - - (14,168) 3,805 Stock Based Compensation Activity, net ............ 1,200 6,519 (3,655) - - 5,512 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) $ (81,133) 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 - - - 12,214 NYB Common Stock Retirement (12,740,406 shares) ........................... (21,234) (35,398) - - - 56,632 Purchases of Treasury Stock (2,603,825 shares) .... - - - - - (56,462) Restricted Stock Activity, net .................... - (385) - - (5,004) (443) Stock Based Compensation Activity, net ............ 5,232 36,311 (11,523) - - (20,853) 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) $ (90,045) Net Income ........................................ - - 220,369 - - - Cash Dividends ($.63 per share) ................... - - (84,312) - - - Issuance of Stock (180,508 shares) ................ 260 1,974 - - - 1,659 Purchases of Treasury Stock (13,296,123 shares) ... - - - - - (271,318) Restricted Stock Activity, net .................... - (1,052) - - (3,642) (480) Stock Based Compensation Activity, net ............ 244 415 - - - 8,656 Amortization of Unrealized Loss on Securities Transferred from Available-for-Sale to Held-to-Maturity .............................. - - (171) 171 - - Adjustment to Unrealized Gains on Securities Available-for-Sale, net of taxes .............. - - - (85,313) - - -------------------------------------------------------------------------- Balance, December 31, 1999 ........................ $ 362,816 $ 33,381 $ 677,853 $ (75,805) $ (28,007) $(351,528) ========================================================================== THREE YEARS ENDED DECEMBER 31, 1999 TOTAL --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Balance, January 1, 1997 .......................... $ 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) Restricted Stock Activity, net .................... 1,596 Stock Based Compensation Activity, net ............ 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 ........................ $ 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) .............. 28,671 NYB Common Stock Retirement (12,740,406 shares) ........................... - Purchases of Treasury Stock (2,603,825 shares) .... (56,462) Restricted Stock Activity, net .................... (5,832) Stock Based Compensation Activity, net ............ 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 ........................ $ 831,250 Net Income ........................................ 220,369 Cash Dividends ($.63 per share) ................... (84,312) Issuance of Stock (180,508 shares) ................ 3,893 Purchases of Treasury Stock (13,296,123 shares) ... (271,318) Restricted Stock Activity, net .................... (5,174) Stock Based Compensation Activity, net ............ 9,315 Amortization of Unrealized Loss on Securities Transferred from Available-for-Sale to Held-to-Maturity .............................. - Adjustment to Unrealized Gains on Securities Available-for-Sale, net of taxes .............. (85,313) --------- Balance, December 31, 1999 ........................ $ 618,710 =========
See accompanying notes to consolidated financial statements. 28 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997 --------------------------------------- (IN THOUSANDS) Net Income ....................................................... $ 220,369 $ 167,975 $ 170,521 --------------------------------------- OTHER COMPREHENSIVE INCOME, NET OF INCOME TAXES: Unrealized (Losses)/Gains on Securities Available-for-Sale ....... (77,403) (2,507) 25,034 Less: Reclassification of Realized Gains Included in Net Income .. (7,739) (5,280) (4,715) --------------------------------------- Other Comprehensive (Loss)/Income ................................ (85,142) (7,787) 20,319 --------------------------------------- Comprehensive Income ............................................. $ 135,227 $ 160,188 $ 190,840 =======================================
See accompanying notes to consolidated financial statements. 29 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 non-bank subsidiaries, Compass Investment Services Corp ("Compass") and Amivest Corporation ("Amivest"), provides a variety of banking and financial services to middle market and small business organizations, local governmental units, and retail customers in the New York metropolitan area. The Company currently conducts a telebanking operation through its subsidiary, Superior Savings of New England ("Superior") located in Connecticut. The accounting and reporting policies of the Company are in conformity with generally accepted accounting principles and prevailing practices within the financial services industry. The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Such estimates are subject to change in the future as additional information becomes available or previously existing circumstances are modified. Actual results could differ from those estimates. (b) SECURITIES Securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and carried at amortized cost. Securities that may be sold in response to, or in anticipation of, changes in interest rates and resulting prepayment risk, or other factors, and marketable equity securities, are classified as available-for-sale and carried at fair value. The unrealized gains and losses on these securities are reported, net of applicable taxes, as a separate component of stockholders' equity. Debt and equity securities that are purchased and held principally for the purpose of selling them in the near term are classified as trading account assets and reported at fair value. The unrealized gains and losses on trading securities 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. (c) DERIVATIVE FINANCIAL INSTRUMENTS Periodically, the Company enters into interest rate agreements, including interest rate swaps, caps, and floors, as part of its management of interest rate exposure. These agreements are entered into as hedges against interest rate risk and are designated against specific assets and liabilities. To qualify as a hedge, the agreements must be designated as a hedge and be effective in reducing the market risk of an existing asset, liability or firm commitment. The effectiveness of the hedge is evaluated on an initial and ongoing basis. The premium paid or received for any of these agreements is amortized over the term of the agreements. These instruments are accounted for on an accrual basis in the interest income or expense category of the related hedged asset or liability. The estimated fair values of such agreements are not reflected in the Company's 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. 30 (d) LOANS Loans are carried at the principal amount outstanding, net of unearned income and net deferred loan fees. Mortgage loans held-for-sale are valued at the lower of aggregate cost or market value. Interest income is recognized using the interest method or a method that approximates a level rate of return over the loan term. Unearned income and net deferred loan fees are accreted into interest income over the loan term as a yield adjustment. (e) NON-ACCRUAL AND RESTRUCTURED LOANS Loans are placed on non-accrual status when, in the opinion of management, there is doubt as to the collectibility of interest or principal, or when principal and interest are past due 90 days or more, the loan is not well secured and in the process of collection. Interest and fees previously accrued, but not collected, are reversed and charged against interest income at the time a loan is placed on non-accrual status. Interest payments received on non-accrual loans are recorded as reductions of principal if, in management's judgment, principal repayment is doubtful. Loans may be reinstated to an accrual or performing status if future payments of principal and interest are reasonably assured and the loan has a demonstrated period of performance. Loans are classified as restructured loans when the Company has granted, for economic or legal reasons related to the borrower's financial condition, concessions to the borrower that it would not otherwise consider. Generally, this occurs when the cash flows of the borrower are insufficient to service the loan under its original terms. Restructured loans are reported as such in the year of restructuring. In subsequent reporting periods, if the loan yields a market rate of interest, is performing in accordance with the restructure terms, and management expects such performance to continue, the loan is then removed from restructured status. (f) ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is based on a periodic analysis of the loan portfolio and reflects an amount which, in management's judgment, is adequate to provide for losses inherent in the loan portfolio. In evaluating the portfolio, management takes into consideration numerous factors, such as present and potential risks inherent in the loan portfolio, loan growth, prior loss experience, current economic conditions and periodic examinations conducted by regulatory agencies. Additionally, management utilizes the guidelines established under Statement of Financial Accounting Standards ("SFAS") No.114 "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosure" to assess loan impairment. The allowance is maintained at a level considered by management to be adequate to cover reasonably foreseeable loan losses. While management uses available information to estimate possible loan losses, future additions to the allowance may be necessary based on adverse changes in economic conditions. (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 operating expenses in the Company's consolidated statements of income. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (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. (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 earnings 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 calculates Basic Earnings Per Share 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 shares 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 135,025,108, 140,706,044, and 136,760,843 for the years ended 1999, 1998, and 1997, respectively. The weighted average number of common shares outstanding used in the computation of Diluted EPS was 135,864,869, 141,765,568, and 139,333,051 for the years ended 1999, 1998 and 1997, respectively. The differential in the weighted average number of common shares outstanding used in the computation of Basic and Diluted EPS represents the average common stock equivalents of employee stock options and restricted stock grants outstanding during the periods. (m) INTANGIBLE ASSETS Intangible assets consist of goodwill and core deposit intangibles associated with purchase acquisitions. The Company records the acquired assets and liabilities assumed at fair value. The excess of the Company's cost over the fair value of the net assets acquired is recorded as an intangible asset. The Company's cost includes the consideration paid and all direct costs associated with the acquisition. Indirect costs relating to the acquisition are expensed or capitalized when incurred based on the nature of the item. Goodwill is amortized on a straight-line basis over the estimated period to be benefited. Core deposit intangibles are amortized on an accelerated method over the estimated period to be benefited. Intangible assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of the intangible asset may not be recoverable. 32 (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 Sheet under the captions "Cash & Due from Banks" and "Money Market Investments", with a contractual maturity of less than 90 days. Cash flows associated with derivative financial instruments used by the Company are classified in the accompanying Consolidated Statements of Cash Flows in the same category as the cash flows from the asset or liability being hedged. NOTE 2-BUSINESS COMBINATIONS (a) JSB FINANCIAL, INC. On August 16, 1999, the Company entered into an Agreement and Plan of Merger with JSB Financial, Inc. ("JSB"), the parent company of Jamaica Savings Bank ("Jamaica"), whereby it would acquire JSB in a stock-for-stock merger. In connection with the merger, the Company needed to reissue a sufficient number of shares of its treasury stock prior to the consummation of the merger, in order that the merger not fail to qualify for pooling-of-interests accounting treatment. The necessary treasury shares were reissued on February 18, 2000, in connection with the Reliance transaction, described below. On February 29, 2000 JSB was merged with and into the Company in accordance with the pooling-of- interests method of accounting. On March 10, 2000 Jamaica was merged with and into North Fork. Pursuant to the merger agreement, the Company issued 3.0 shares of common stock for each share of JSB's common stock outstanding. Accordingly, the Company issued 28,312,851 of its common shares, simultaneously retired 6,562,383 shares of JSB's common stock held in treasury and reserved 2,410,500 common shares for JSB's outstanding stock options at the merger date. On August 16, 1999, simultaneous with the announcement of the JSB merger, the Company's Board of Directors formally rescinded the 10% share repurchase program instituted in October 1998. At the date of recission, the Company had completed the repurchase of approximately 8.1 million shares. At December 31, 1999, JSB had total assets of $1.6 billion, deposits of $1.1 billion and Stockholder's Equity of $380 million. Jamaica operated from 13 retail-banking facilities in the New York City boroughs of Manhattan and Queens and in Nassau and Suffolk counties, New York. (b) RELIANCE BANCORP, INC. On August 30, 1999, the Company entered into an Agreement and Plan of Merger with Reliance Bancorp, Inc. ("Reliance"), the parent company of Reliance Federal Savings Bank, whereby it would acquire Reliance in a stock-for-stock merger. On August 30, 1999, simultaneous with the announcement of the merger, the Company's Board of Directors formally approved the purchase of up to 50% of the common shares to be issued in the transaction, or 8.5 million shares. As of December 31, 1999, the Company completed the purchase of 7.8 million shares under the program. The program was completed subsequent to December 31, 1999. On February 18, 2000, Reliance was merged with and into the Company in accordance with the purchase method of accounting. Pursuant to the merger agreement, the Company issued 2.0 shares of its common stock for each share of Reliance's common stock outstanding. The Company reissued from its treasury account 17,120,160 common shares in satisfaction of the Reliance exchange ratio and reserved for issuance 1,369,438 common shares for Reliance's outstanding stock options at the date of merger. At December 31, 1999, Reliance had total assets of $2.5 billion, deposits of $1.5 billion, and stockholders' equity of $176 million. Reliance Federal Savings Bank operated from 29 retail banking facilities throughout Suffolk and Nassau counties, New York, as well as in the New York City borough of Queens. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (c) PRO-FORMA FINANCIAL INFORMATION WITH ACQUISITIONS The following pro forma condensed combined financial statements are based on the historical financial statements of the Company, Reliance and JSB. The pro forma balance sheet gives effect to the transactions as if they had become effective as of December 31, 1999. The pro forma statements of income give effect to the transactions as if they had become effective as of the beginning of each of the periods for which information is presented. The pro forma information depicts the Reliance transaction using the purchase method of accounting and the JSB transaction using the pooling-of-interests method of accounting.
PRO FORMA CONDENSED COMBINED BALANCE SHEET AT DECEMBER 31, (in thousands) ASSETS 1999 --------------- Cash & Due from Banks........................................ $ 348,422 Money Market Investments..................................... 110,737 Securities................................................... 6,277,045 Loans, net................................................... 8,881,597 Allowance for Loan Losses.................................... (83,570) --------------- Net Loans.................................................... 8,798,027 --------------- Intangible Assets............................................ 339,070 Other Assets................................................. 447,759 --------------- Total Assets.......................................... $ 16,321,060 =============== LIABILITIES AND STOCKHOLDERS' EQUITY Demand Deposits.............................................. $ 1,622,242 Savings, NOW & Money Market Deposits......................... 4,238,473 Time Deposits................................................ 3,328,281 --------------- Total Deposits............................................... 9,188,996 --------------- Federal Funds Purchased & Securities Sold Under Agreements to Repurchase................................... 2,921,981 Other Borrowings............................................. 2,308,097 Accrued Expenses & Other Liabilities......................... 389,680 --------------- Total Liabilities............................................ $ 14,808,754 --------------- Capital Securities........................................... 244,314 Stockholders' Equity......................................... 1,267,992 --------------- Total Liabilities and Stockholders' Equity............ $ 16,321,060 =============== PRO FORMA CONDENSED COMBINED Statements of Income for THE YEARS ENDED DECEMBER 31, (in thousands, except per share amounts) 1999 1998 1997 ------------------------------------------------- Interest Income................................................. $ 1,081,774 $ 870,913 $ 834,035 Interest Expense................................................ 496,911 366,932 366,677 ------------------------------------------------- Net Interest Income...................................... 584,863 503,981 467,358 Provision for Loan Losses....................................... 6,163 15,551 8,748 ------------------------------------------------- Net Interest Income after Provision for Loan Losses...... 578,700 488,430 458,610 Non-Interest Income............................................. 69,883 60,019 53,542 Real Estate Operations, net..................................... 1,239 714 10,442 Net Securities Gains............................................ 13,690 9,433 15,398 Other Non-Interest Expense...................................... 215,862 174,065 184,616 Capital Securities Costs........................................ 20,929 16,843 9,235 Amortization & Write-down of Intangible Assets.................. 21,404 14,479 7,292 Merger Related Restructure Charge............................... - 52,452 - ------------------------------------------------- Income before Income Taxes............................... 405,317 300,757 336,849 Provision for Income Taxes...................................... 151,967 88,394 129,238 ------------------------------------------------- Net Income............................................... $ 253,350 $ 212,363 $ 207,611 ================================================= Earnings Per Share-Basic........................................ $ 1.49 $ 1.25 $ 1.25 Earnings Per Share-Diluted...................................... $ 1.47 $ 1.23 $ 1.22 Weighted Average Shares Outstanding-Basic....................... 170,436 170,085 166,335 Weighted Average Shares Outstanding-Diluted..................... 172,731 171,988 169,903
34 At December 31, 1999, the Company's pro forma Tier 1, Total Risk Based and Leverage Capital Ratios were 12.60%, 13.83%, and 7.58%, respectively. (d) NEW YORK BANCORP In March 1998, New York Bancorp ("NYB"), the parent company of Home Federal Savings Bank, was merged with and into the Company in a transaction accounted for in accordance with the pooling-of-interests method of accounting. Pursuant to the merger agreement, the Company issued 39.9 million shares of its common stock to NYB shareholders and simultaneously retired 12.7 million shares 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 the date of merger. In connection with the merger, the Company recorded a pre-tax charge for merger-related restructure costs of $52.5 million. As of December 31, 1999, substantially all cash payments associated with this charge have been made except for certain payments due under long-term leases. (e) AMIVEST CORPORATION In June 1998, the Company completed its purchase acquisition of Amivest, a privately held investment management and broker/dealer firm located in New York City. At the date of acquisition, Amivest had approximately $700 million in assets under management. Goodwill recognized in connection with the transaction was $10.4 million and is being amortized on a straight-line basis over 15 years. The operating results of Amivest are not significant to the consolidated financial statements of the Company. NOTE 3-SECURITIES AVAILABLE-FOR-SALE SECURITIES The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of available-for-sale securities were as follows at December 31,
1999 ----------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair (in thousands) Cost Gains (Losses) Value ----------------------------------------------------------------- CMO's Private Issuances......................... $1,781,288 $ 235 $ (57,340) $1,724,183 CMO's Agency Issuances.......................... 489,151 - (26,064) 463,087 Mortgage-Backed Securities...................... 895,855 266 (26,239) 869,882 U.S. Government Agencies' Obligations........... 88,709 - (2,499) 86,210 U.S. Treasury Securities........................ 20,046 - (68) 19,978 Equity Securities(1)............................ 251,999 1,975 (6,713) 247,261 Other Securities................................ 198,861 5,001 (21,546) 182,316 ----------------------------------------------------------------- $3,725,909 $7,477 $(140,469) $3,592,917 =================================================================
1998 ---------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair (in thousands) Cost Gains (Losses) Value ---------------------------------------------------------------- CMO's Private Issuances......................... $1,440,806 $ 5,358 $ (683) $1,445,481 CMO's Agency Issuances.......................... 190,249 1,776 (64) 191,961 Mortgage-Backed Securities...................... 728,849 4,115 (1,149) 731,815 U.S. Government Agencies' Obligations........... 162,464 4,947 - 167,411 U.S. Treasury Securities........................ 30,952 393 - 31,345 Equity Securities(1)............................ 202,815 6,922 (2,111) 207,626 Other Securities................................ 207,407 2,953 (5,776) 204,584 ---------------------------------------------------------------- $2,963,542 $26,464 $(9,783) $2,980,223 ================================================================
(1) Amortized cost and fair value includes $158.6 million and $91.9 million in Federal Home Loan Bank stock at December 31, 1999 and 1998, respectively. HELD-TO-MATURITY SECURITIES The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of held-to-maturity securities were as follows at December 31,
1999 -------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair (in thousands) Cost Gains (Losses) Value -------------------------------------------------------------- CMO's Private Issuances......................... $ 674,072 $ 30 $(28,402) $ 645,700 CMO's Agency Issuances.......................... 15,022 - (76) 14,946 Mortgage-Backed Securities...................... 445,413 72 (19,486) 425,999 State & Municipal Obligations................... 76,173 126 (2,128) 74,171 U.S. Government Agencies' Obligations........... 51 - - 51 Other Securities................................ 18,972 - (659) 18,313 -------------------------------------------------------------- $1,229,703 $228 $(50,751) $1,179,180 ==============================================================
1998 ---------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair (in thousands) Cost Gains (Losses) Value ---------------------------------------------------------------- CMO's Private Issuances......................... $ 873,070 $2,693 $(2,849) $ 872,914 CMO's Agency Issuances.......................... 41,988 147 (22) 42,113 Mortgage-Backed Securities...................... 560,815 2,140 (625) 562,330 State & Municipal Obligations....... ........... 71,837 1,301 (27) 73,111 U.S. Government Agencies' Obligations........... 74 - - 74 Other Securities................................ 23,761 29 (136) 23,654 ---------------------------------------------------------------- $ 1,571,545 $6,310 $(3,659) $1,574,196 ================================================================
35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 ("MBS") that provide stable cash flows which may be reinvested at current market interest rates. The combined weighted average life of the held-to-maturity and available-for-sale securities portfolios at December 31, 1999 and 1998 was 4.5 years and 3.4 years, respectively. Collateralized mortgage obligations (CMO's) are collateralized by either U.S. Government Agency MBS's or whole loans which are principally AAA rated conservative current pay sequentials or planned amortization class (PAC) structures with current weighted average lives of approximately 3.5 years. At December 31, 1999 and 1998, equity securities maintained in the available-for-sale portfolio were comprised principally of FHLB common stock and common and preferred stock of certain publicly traded companies. Other securities maintained in the available-for-sale portfolio consist of capital securities of certain financial institutions and corporate bonds. At December 31, 1999, securities carried at $3.4 billion were pledged to secure securities sold under agreements to repurchase, other borrowings and for other purposes as required by law. The amortized cost and estimated fair value of securities at December 31, 1999, by contractual maturity, are presented in the table below. Expected maturities will differ from contractual maturities since issuers may have the right to call or prepay obligations without call or prepayment penalties.
Held-to-Maturity Available-for-Sale ------------------------------------------------------------- Amortized Fair Amortized Fair (in thousands) Cost Value Cost Value ------------------------------------------------------------- Due in one year or less............................. 8,504 8,513 - - Due after one year through five years............... 45,806 45,372 20,046 19,978 Due after five years through ten years.............. 29,145 27,730 94,481 91,060 Due after ten years................................. 11,741 10,920 193,089 177,466 ------------------------------------------------------------- Subtotal..................................... 95,196 92,535 307,616 288,504 CMO's............................................... 689,094 660,646 2,270,439 2,187,270 Mortgage-Backed Securities.......................... 445,413 425,999 895,855 869,882 Equity Securities................................... - - 251,999 247,261 ------------------------------------------------------------- $1,229,703 $1,179,180 $3,725,909 $3,592,917 =============================================================
Prepayments on MBS's, including CMO's, are monitored as part of 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 losses on the sale of securities available-for-sale were as follows at December 31,
(in thousands) 1999 1998 1997 ------------------------------------------- Proceeds from Sales.................................. $116,923 $1,021,477 $271,297 =========================================== Gross Realized Gains................................. 13,632 12,196 9,511 Gross Realized Losses................................ (54) (2,763) (1,104) ------------------------------------------- Net Realized Gains................................... $ 13,578 $ 9,433 $ 8,407 ===========================================
Gross realized gains in 1999 and 1998 resulted principally from the sale of equity positions and capital securities of certain publicly traded companies. 36 NOTE 4-LOANS The composition of the loan portfolio is summarized as follows at December 31,
% OF % OF (DOLLARS IN THOUSANDS) 1999 TOTAL 1998 TOTAL --------------------------------------------------------------- Mortgage Loans-Residential............... $2,137,739 32% $1,901,759 33% Mortgage Loans-Multi-family.............. 1,705,446 26% 1,651,590 29% Mortgage Loans-Commercial................ 1,261,487 19% 1,104,228 19% Consumer Loans and Leases................ 742,086 11% 481,691 9% Commercial & Industrial.................. 697,763 11% 520,130 9% Construction and Land Loans.............. 85,985 1% 72,026 1% --------------------------------------------------------------- Total................................. $6,630,506 100% $5,731,424 100% Less: Unearned Income.......................... 13,376 17,131 Allowance for Loan Losses................ 68,595 71,759 --------------------------------------------------------------- Net Loans............................. $6,548,535 $5,642,534 ===============================================================
The loan portfolio is concentrated primarily in loans secured by real estate in the New York metropolitan area. The risk inherent in this portfolio is dependent not only upon regional and general economic stability which affects property values, but also the financial well-being and creditworthiness of the borrowers. To minimize the credit risk related to the portfolio's real estate concentration, management utilizes prudent underwriting standards as well as diversifying the type and locations of loan collateral. Multi-family lending includes loans on various types and geographically diverse apartment complexes. Multi-family mortgages are dependent largely on sufficient income to cover operating expenses and may be affected by government regulation, such as rent control regulations, which could impact the future cash flows of the property. Most multi-family mortgages do not fully amortize. Therefore, the principal outstanding is not significantly reduced prior to contractual maturity. The residential mortgage portfolio is comprised primarily of first mortgage loans on owner occupied 1-4 family residences located in the New York metropolitan area. The commercial mortgage portfolio contains loans secured by professional office buildings, retail stores, shopping centers and industrial developments. Land loans are used to finance the acquisition of vacant land for future residential and commercial development. Construction loans finance the construction of industrial developments and single-family subdivisions. Commercial loans consist primarily of loans to small and medium size businesses. Consumer loans and leases represent credit to individuals for household, family, and other personal expenditures and consist primarily of loans to finance new and used automobiles. The Company's real estate underwriting standards include various limits on the loan-to-value ratios based on the type of property, and management considers among other things, the creditworthiness of the borrower, the location of the real estate, the condition and value of the security property, the quality of the organization managing the property, and the viability of the project including occupancy rates, tenants and lease terms. Additionally, the underwriting standards require appraisals and periodic inspections of the properties as well as ongoing monitoring of operating results. Mortgage loans serviced for others aggregated $832.8 million and $904.6 million as of December 31, 1999 and 1998, respectively. At December 31, 1999, $1.7 million in residential mortgage loans were held-for-sale. Non-performing assets include loans ninety days past due and still accruing, non-accrual loans and other real estate. Other real estate consists of property acquired through foreclosure or deeds in lieu of foreclosure. Non-performing assets declined to $15.4 million at December 31, 1999, as compared to $18.5 million at December 31, 1998. This reduction was achieved principally through the sale of non-performing assets, principal repayments, the workout of non-performing loans to performing status, and charge-offs. 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Non-Performing Assets Non-performing assets at December 31, consisted of the following: (in thousands)
1999 1998 ------------------------- Loans Ninety Days Past Due and Still Accruing ................................ $ 5,843 $ 7,684 Non-Accrual Loans ............................................................ 8,997 7,592 ------------------------- Non-Performing Loans ......................................................... 14,840 15,276 Other Real Estate ............................................................ 575 3,217 ------------------------- Non-Performing Assets ........................................................ $15,415 $18,493 ========================= Restructured, Accruing Loans ................................................. $ - $ 584 =========================
The following table represents the components of non-performing loans at December 31,
1999 1998 ------------------------- Consumer Loans and Leases .................................................... $ 5,798 $ 4,294 Mortgage Loans-Residential ................................................... 4,022 3,511 Commercial & Industrial ...................................................... 2,693 2,485 Mortgage Loans-Commercial .................................................... 1,661 4,519 Mortgage Loans-Multi-family .................................................. 666 467 ------------------------- Total Non-Performing Loans ................................................ $14,840 $15,276 =========================
Interest foregone on non-accrual loans, or the amount of income that would have been earned had those loans remained performing, aggregated $1.0 million, $1.3 million, and $2.9 million in 1999, 1998, and 1997, respectively. At December 31, 1999, the Company had no commitments to lend additional funds to borrowers whose loans are non-performing. RELATED PARTY LOANS Loans to related parties include loans to directors and their related companies and executive officers of the Company and its subsidiaries. Such loans are made in the ordinary course of business on substantially the same terms as loans to other individuals and businesses of comparable risks. Related party loans aggregated $6.2 million and $5.6 million at December 31, 1999 and 1998, respectively. NOTE 5-ALLOWANCE FOR LOAN LOSSES A summary of changes in the allowance for loan losses is shown below for the years ended December 31,
(in thousands) 1999 1998 1997 --------------------------------------------- Balance at Beginning of Year ................................................. $ 71,759 $ 74,393 $ 73,280 Provision for Loan Losses .................................................... 6,000 15,500 8,100 Recoveries ................................................................... 5,170 3,817 2,573 --------------------------------------------- 82,929 93,710 83,953 Charge-offs .................................................................. (14,334) (21,896) (12,054) NYB Net Activity for the Three Months Ended December 31, 1997 ................ - (55) - Additional Allowance Acquired in Superior Acquisition ........................ - - 2,494 --------------------------------------------- Balance at End of Year ....................................................... $ 68,595 $ 71,759 $ 74,393 =============================================
The provision for loan losses declined to $6.0 million in 1999, when compared to $15.5 million for the prior year period. Reflected in 1998 was a special provision of $11.5 million. This additional provision was due to the sale of $32 million in non-performing and marginally performing loans, at amounts below the loans carrying values, acquired in the NYB merger. Due to the aforementioned sale, the Company recognized a corresponding charge to the allowance for loan losses. This decision was predicated on the fact that management could sell these loans into a liquid market, reinvest the cash into other interest earning assets, and mitigate potential carrying costs associated with their future workout and resolution. Historically, NYB did not actively sell non-performing and marginally performing loans as part of its workout and recovery process. Subsequent to these sales, the Company restored its post-merger reserve coverage ratios to approximate pre-merger levels. 38 NOTE 6-PREMISES AND EQUIPMENT The following is a summary of premises and equipment at December 31,
(in thousands) 1999 1998 ---------------------------------- Land ................................................................. $ 16,021 $ 15,946 Bank Premises ........................................................ 51,543 49,892 Leasehold Improvements ............................................... 20,517 18,576 Equipment ............................................................ 50,609 42,962 ---------------------------------- 138,690 127,376 Accumulated Depreciation and Amortization ............................ (63,950) (55,353) ---------------------------------- $ 74,740 $ 72,023 ==================================
Depreciation and amortization of premises and equipment charged to expense amounted to $9.1 million, $8.8 million and $9.4 million for 1999, 1998, and 1997, respectively. 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) 1999 1998 1997 ---------------------------------------------- FEDERAL FUNDS PURCHASED Period End Balance ......................................... $ 89,700 $ 70,000 $ 40,000 Maximum Amount Outstanding at Any Month End ................ $ 115,000 $ 125,000 80,000 Average Outstanding Balance ................................ $ 62,446 $ 28,766 27,563 Weighted Average Interest Rate Paid ........................ 5.15% 5.49% 5.66% Weighted Average Interest Rate at Year End ................. 5.34% 5.38% 6.81% SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Period End Balance ......................................... $2,575,500 $2,885,096 $2,064,036 Accrued Interest Payable at Period End ..................... $ 13,349 $ 14,904 10,234 Maximum Amount Outstanding at Any Month End ................ $3,291,796 $2,885,096 2,310,458 Average Outstanding Balance ................................ $2,849,356 $2,207,491 1,917,029 Weighted Average Interest Rate Paid ........................ 5.54% 5.78% 5.81% Weighted Average Interest Rate at Year End ................. 5.69% 5.57% 5.85%
Qualifying SSURA are treated as financings and the obligations to repurchase securities sold are reflected as liabilities 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) ----------------------------------------------------- Average Amortized Fair (dollars in thousands) SSURA(2) Rate Cost Value ----------------------------------------------------- Up to 30 Days ............................................. $ 300,000 5.95% $ 332,778 $ 315,602 30 to 90 Days ............................................. 1,150,000 5.79% 1,281,133 1,230,660 90 Days to 1 Year ......................................... 117,000 6.32% 94,768 91,798 In Excess of 1 Year ....................................... 971,000 5.86% 1,081,365 1,042,834 ----------------------------------------------------- Total .................................................. $2,538,000 5.86% $2,790,044 $2,680,894 ===================================================== U.S. Govt. Agencies (1) ---------------------------------------------- Average Amortized Fair (dollars in thousands) SSURA(2) Rate Cost Value ---------------------------------------------- Up to 30 Days ............................................. $ - - $ - $ - 30 to 90 Days ............................................. - - - - 90 Days to 1 Year ......................................... - - - - In Excess of 1 Year ....................................... 37,500 5.75% 39,512 38,410 ---------------------------------------------- Total .................................................. $37,500 5.75% $39,512 $38,410 ==============================================
(1) Excludes accrued interest receivable of $22.3 million and $1.1 million on MBS & CMO securities and U.S. government agencies, respectively, securing the related repurchase agreements. (2) Excludes accrued interest payable. 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8-OTHER BORROWINGS At December 31, 1999, the Company had outstanding $1.8 billion in short-term Federal Home Loan Bank ("FHLB") advances at an average cost of funds of 5.89%. Indebtedness to and outstanding commitments from the FHLB are collateralized by the Company's investment in FHLB stock, first mortgage loans, and certain mortgage-backed securities under the terms of the collateral agreement. The Company's bank subsidiaries had arrangements with various correspondent banks providing short-term credit for regulatory liquidity requirements. These lines of credit aggregated $225 million at December 31, 1999. At December 31, 1998, the Company had outstanding a $25.0 million, 7.56% Senior Note and $10 million in 10% fixed rate Federal Home Loan Bank advances. These borrowings matured in April 1999. NOTE 9-CAPITAL SECURITIES Company Obligated Mandatorily Redeemable Capital Securities of Subsidiary Trusts ("Capital Securities") are summarized as follows at December 31,
1999 1998 --------------------- 8.00% Capital Securities due December 15, 2027 ... $ 99,641 $ 99,628 8.70% Capital Securities due December 15, 2026 ... 99,673 99,661 --------------------- $199,314 $199,289 =====================
The aforementioned Capital Securities were issued in 1997 and 1996 through wholly-owned statutory business trust subsidiaries (collectively, the "Trusts"). The Trusts were formed with initial capitalizations in common stock and for the exclusive purpose of issuing the Capital Securities and using the proceeds to acquire Junior Subordinated Debt Securities ("Debt Securities") issued by the Company. The Debt Securities are due at maturity, are non-callable at any time in whole or in part for ten years from the date of issuance, except in certain circumstances, but may be redeemed annually thereafter, in whole or in part, at declining premiums to maturity. At December 31, 1999 and 1998, these Capital Securities qualified as Tier I capital for regulatory capital purposes. The costs associated with these issuances have been capitalized and are being amortized using the straight-line method to maturity. NOTE 10-INCOME TAXES The components of the consolidated provision for income taxes is shown below for the years ended December 31,
(in thousands) 1999 1998 1997 ---------------------------------- Current Tax Expense .... $ 98,891 $ 74,453 $100,113 Deferred Tax Expense ... 19,769 653 4,500 ---------------------------------- Income Tax Provision ... $118,660 $ 75,106 $104,613 ==================================
40 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,
1999 1998 1997 ----------------------------- 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 .. .79% 4.70% 3.96% Non-Taxable Distributions from Corporate Reorganizations ......... - (9.35%) - Tax Exempt Interest, Net ......................................... (.92%) (.71%) (.74%) Nondeductible Merger & Related Restructure Charge ................ - 1.38% - Valuation Allowance .............................................. - (1.14%) - Amortization of Intangible Assets ................................ .45% 2.37% .43% Dividend Received Deduction ...................................... (.28%) (.35%) (.41%) Other, Net ....................................................... (.04%) (1.00%) (.22%) ----------------------------- Effective Tax Rate ................................................... 35.00% 30.90% 38.02% =============================
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) 1999 1998 ---------------------- DEFERRED TAX ASSETS Unrealized Loss on Securities Available-For-Sale .......... $ 55,250 $ - Allowance for Loan Losses ................................. 29,342 30,698 Deferred Compensation and Other Employee Benefit Plans .... 8,101 7,948 Acquired Net Operating Loss Carry Forward ................. - 8,195 Deductible Merger Related Restructure Charges ............. 1,715 3,112 Excess of Tax Basis Over Book Basis-Premises & Equipment .. 1,241 1,583 Other ..................................................... 3,037 3,745 ---------------------- Gross Deferred Tax Asset ............................. $ 98,686 $ 55,281 Valuation Allowance ....................................... (4,567) (4,567) ---------------------- Deferred Tax Asset ................................... $ 94,119 $ 50,714 ====================== DEFERRED TAX LIABILITY Unrealized Gain on Securities Available-For-Sale .......... $ - $ (7,173) Tax Bad Debt Recapture .................................... (6,012) (6,820) Deferred Income ........................................... (11,519) (5,006) Other ..................................................... (4,417) (3,873) ---------------------- Gross Deferred Tax Liability ......................... $(21,948) $(22,872) ---------------------- Net Deferred Tax Asset ............................... $ 72,171 $ 27,842 ======================
During 1999, the Company's valuation allowance remained at $4.6 million. Management continues to reserve a portion of the New York State and City deferred tax asset due to uncertainties of realization, since New York Sate and City tax law do not provide for the utilization of net operating loss carryforwards or carrybacks. Additionally, as a result of the Company's merging with and acquiring thrifts, the retained earnings at December 31, 1999 and 1998 includes approximately $51 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 the Bank (i) makes distributions in excess of earnings and profits, (ii) redeems its stock, or (iii) liquidates. Management anticipates that the realization of the net deferred tax asset of $72.2 million is more likely than not, based on existing carryback ability, available planning strategies, and projected taxable income. 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. 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) 1999 1998 ----------------------- CHANGE IN BENEFIT OBLIGATION: Benefit Obligation at Beginning of Year .................. $ 57,223 $ 56,911 Service Cost ............................................. 1,811 1,839 Interest Cost ............................................ 3,584 3,999 Amendments ............................................... - 503 Benefits Paid ............................................ (7,256) (7,334) Actuarial (Gain)/Loss .................................... (5,135) 1,305 ----------------------- Benefit Obligation at End of Year ........................ $ 50,227 $ 57,223 ======================= CHANGE IN PLAN ASSETS: Fair Value of Plan Assets at Beginning of Year ........... $ 55,649 $ 58,478 Actual Return on Plan Assets ............................. 473 4,226 Employer Contributions ................................... - 279 Benefits Paid ............................................ (7,255) (7,334) ----------------------- Fair Value of Plan Assets at End of Year ................. $ 48,867 $ 55,649 ======================= RECONCILIATION OF FUNDED STATUS: Funded Status ............................................ $ (1,360) $ (1,574) Unrecognized Actuarial (Gain)/Loss ....................... 2,398 3,521 Unrecognized Prior Service Cost .......................... (1,614) (1,873) Unrecognized Transition Asset ............................ (59) (76) ----------------------- (Accrued)/Prepaid Benefit Cost ........................... $ (635) $ (2) ======================= ADDITIONAL YEAR-END INFORMATION FOR PENSION PLANS WITH ACCUMULATED BENEFIT OBLIGATIONS IN EXCESS OF PLAN ASSETS: 1999 1998 ----------------------- Projected Benefit Obligation ............................. 50,227 NA Accumulated Benefit Obligation ........................... 49,378 NA Fair Value of Plan Assets ................................ 48,867 NA 1999 1998 1997 -------------------------------------- WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31, Discount Rate ............................................ 7.75% 6.50% 7.00% Expected Return on Plan Assets ........................... 8.50% 8.50% 8.50% Rate of Compensation Increase ............................ 4.50% 4.50% 4.50% COMPONENTS OF NET PERIODIC BENEFIT COST: Service Cost ............................................. $ 1,811 $ 1,839 $ 1,543 Interest Cost ............................................ 3,584 3,999 3,766 Expected Return on Plan Assets ........................... (4,486) (5,051) (4,500) Amortization of Prior Service Cost ....................... (258) (316) (242) Amortization of Transition Asset ......................... (18) (32) (152) Recognized Actuarial (Gain)/Loss ......................... - 167 (290) -------------------------------------- Net Periodic Benefit Cost ................................ $ 633 $ 606 $ 125 ====================================== Additional Loss/(Gain) Recognized Due to Curtailment ....... - (201) 203 Additional Liability Recognized by NYB ..................... - - 514 -------------------------------------- Total Benefit Cost ....................................... $ 633 $ 405 $ 842 ======================================
42 The Company maintains a Supplemental Executive Retirement Plan ("SERP"), which restores to specified senior executives the full level of retirement benefits they would have been entitled to receive absent the ERISA provision limiting maximum payouts under tax qualified plans. The projected benefit obligation, which is unfunded, was $89 thousand at December 31, 1999 and $299 thousand at December 31, 1998. Net periodic pension expense incurred in 1999, 1998, and 1997, for the SERP was $68 thousand, $52 thousand, and $31 thousand, respectively. The weighted average discount rate utilized to determine the projected benefit obligation was 7.75%, 6.50%, and 7.0% for 1999, 1998, and 1997, respectively. The assumed rate of future compensation increases was 4.50% for 1999, 1998, and 1997. POST-RETIREMENT BENEFITS OTHER THAN PENSIONS The Company provides certain health care and life insurance benefits to eligible retired employees. Health care benefits received range between 0% and 100% of coverage premiums based on an employee's age, years of service and retirement date. Participants who retired after November 1, 1992 are responsible for all premium increases after 1997. The Company's plan for its post-retirement obligation is unfunded. The following table sets forth the change in post-retirement benefit obligation and amounts recognized in the accompanying consolidated financial statements at December 31,
(IN THOUSANDS) 1999 1998 ---------------------- CHANGE IN ACCUMULATED POST-RETIREMENT BENEFIT OBLIGATION ("APBO"): Accumulated Post-Retirement Benefit Obligation at Beginning of Year .. $ 11,297 $ 10,423 Service Cost ....................................................... 123 135 Interest Cost ...................................................... 706 788 Premiums Paid ...................................................... (540) (652) Actuarial (Gain)/Loss .............................................. (1,298) 603 ---------------------- Accumulated Post-Retirement Benefit Obligation at End of Year ...... $ 10,288 $ 11,297 ====================== RECONCILIATION OF FUNDED STATUS: Accumulated Post-Retirement Benefit Obligation at End of Year ...... $(10,288) $(11,297) Fair Value of Assets ............................................... - - ---------------------- Funded Status ...................................................... $(10,288) $(11,297) Unrecognized Transition Obligation/(Asset) ......................... 3,333 3,626 Unrecognized Prior Service Cost .................................... (921) (1,002) Unrecognized Net Loss .............................................. 82 1,401 ---------------------- (Accrued) Post-Retirement Benefit Cost ............................. $ (7,794) $ (7,272) ======================
The weighted average discount rate utilized to determine the accumulated post-retirement benefit obligation was 7.75% and 6.50% in 1999 and 1998, respectively. In measuring the APBO, a 6.0% annual trend rate for health care costs was assumed for the year ended December 31, 1999. These rates are assumed to remain at 6% from 2000 through 2009 and decline to 5.5% through 2020. However, for retirees after November 1, 1992, no increases in the annual trend rate are assumed for after 1997. The effect of a 1% increase in the health care cost trend rate on the aggregate of the service and interest cost components of net periodic post-retirement health care benefit cost and the APBO for health care benefits would be an increase of $46 thousand and $589 thousand, respectively, in 1999 and $44 thousand and $644 thousand, respectively, in 1998. The effect of a 1% decrease in the health care cost trend rate on the aggregate of the service and interest cost components of net periodic post-retirement health care benefit cost and the APBO for health care benefits would be a decrease of $40 thousand and $527 thousand, respectively, in 1999 and $37 thousand and $576 thousand, respectively, in 1998. 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table sets forth the components of net periodic post-retirement benefits expense for the years ended December 31,
(IN THOUSANDS) 1999 1998 1997 --------------------------------- COMPONENTS OF NET PERIODIC BENEFIT COST: Service Cost .............................. $ 123 $ 135 $ 134 Interest Cost ............................. 706 788 694 Amortization of Prior Service Cost ........ (81) (96) (90) Amortization of Transition Asset .......... 293 317 255 Recognized Actuarial (Gain)/Loss .......... 21 37 3 --------------------------------- Net Periodic Benefit Cost ................. $ 1,062 $ 1,181 $ 996 =================================
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 is 25% per year beginning the second year of participation. Participant account balances are invested at the direction of the participant into one or more investment funds, including a fund which invests in shares of the Company's common stock. The 401(k) plan expense was $1.6 million, $1.8 million, and $1.6 million for the years ended 1999, 1998, and 1997, respectively. NOTE 12-COMMON STOCK PLANS 1999 STOCK COMPENSATION PLAN The plan provides for two types of awards, non-qualified stock options and restricted stock awards, to be granted either separately or in combination to all eligible persons, including executive officers and other full-time employees of the Company. The number of shares issuable thereunder is 5,000,000 with no more than 2,500,000 authorized for restricted stock awards. Shares of restricted stock granted under the plan are forfeitable and subject to certain restrictions on the part of the recipient until ownership of the shares vest in the recipient at some dates after the date of grant, as determined by the compensation committee upon grant. Awards are granted to employees by the Compensation Committee. The Committee can, at its discretion, accelerate the removal of any and all restrictions. If the Company is 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 and cash or other consideration, all restrictions on outstanding unvested options, and restricted stock will lapse and cease to be effective as of the day on which such corporate change is consummated. Restricted stock awarded under the plan will be reflected as deferred compensation in the Company's balance sheets at the fair market value of the shares at the date of grant, and amortized to compensation expense over the vesting periods. At December 31, 1999, 5,000,000 shares remain authorized and unissued. 1998 STOCK COMPENSATION PLAN The plan provides for two types of awards, non-qualified stock options and restricted stock awards, to be granted either separately or in combination to all eligible persons, including executive officers and other full-time employees of the Company. The number of shares issuable thereunder is 1,500,000 with no more than 1,000,000 authorized for restricted stock awards. Shares of restricted stock granted under the plan contain similar restrictions and accelerated vesting provisions as those in the 1999 Stock Compensation Plan. Restricted stock awarded under the plan is reflected as deferred compensation in the Company's balance sheets at the fair market value of the shares at the date of grant, and amortized to compensation expense over the vesting periods. Awards are granted to employees by the Compensation Committee. At December 31, 1999, 427,800 shares remain authorized and unissued. 44 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 1999 Stock Compensation Plan. Awards were granted to employees by the Compensation Committee. The right to grant awards under the plan terminated in 1998. 1994 KEY EMPLOYEE STOCK PLAN The plan provides for three types of awards, incentive stock options, non-qualified stock options and restricted stock, to be granted either separately or in combination. Awards are granted to employees by the Compensation Committee. In 1996, shareholders approved an amendment to the plan to increase the number of shares issuable thereunder from 2,100,000 to 3,600,000 shares, with no more than 1,200,000 authorized for restricted stock. The Compensation Committee determines all grants of awards. Restricted stock awarded under the plan contain similar restrictions and accelerated vesting provision as those in the 1998 Stock Compensation Plan. At December 31, 1999, 111,216 shares remain authorized and unissued. NEW YORK BANCORP PLANS-PRE-MERGER NYB maintained several incentive stock option and non-qualified stock option plans for its officers, directors and other key employees. Generally, these plans granted options to individuals at a price equivalent to the fair market value of the stock at the date of grant. Options awarded under the plans generally vested over a three-year period from the date of grant and expired ten years from the grant date for employees and five years for directors. As a result of the merger, participants under the plans became fully vested with all outstanding options exercised by the merger date. Additionally, NYB had granted stock appreciation rights ("SARS") to certain key employees. SARS entitled the participant to receive cash equal to the excess of the market value of the shares at the date the right is exercised over the exercise price. An expense was accrued for the earned portion of the amount by which the market value of the stock exceeded the exercise price for each SAR outstanding. Participants became fully vested at the merger date. Compensation expense recognized under the terms of the SARS was $2.8 million in 1997. The following is a summary of the activity in the aforementioned stock option plans for the three-year period ended December 31,
1999 1998 1997 --------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price --------------------------------------------------------------------------- Outstanding at beginning of year .. 2,282,098 $16.80 5,514,363 $ 7.96 7,246,403 $ 5.53 Granted ........................... 326,900 18.29 1,002,692 25.51 1,632,752 13.05 Exercised ......................... (128,200) 6.53 (4,220,854) 7.28 (3,341,815) 5.18 Canceled .......................... (234,758) 26.54 (14,103) 26.27 (22,977) 7.64 --------------------------------------------------------------------------- Outstanding at end of year ........ 2,246,040 $16.59 2,282,098 $16.80 5,514,363 $ 7.96 =========================================================================== Options exercisable at year end ... 1,968,896 $16.64 2,030,261 $16.90 4,329,415 $ 7.56 ===========================================================================
45 The following is a summary of the information concerning currently outstanding and exercisable options as of December 31, 1999:
Weighted Weighted Weighted Range of Average Average Average Exercise Options Remaining Exercise Options Exercise Prices Outstanding Life Price Exercisable Price - - - - ------------------------------------------------------------------------------------ $ 2.29-$10.75 .... 564,255 4.7 $ 5.68 548,055 $ 5.61 $10.76-$18.81 .... 682,354 8.3 14.48 427,910 13.19 $18.82-$26.88 .... 999,431 6.6 24.18 992,931 24.21 --------------------------------------------------------------- $ 2.29-$26.88 .... 2,246,040 6.6 $ 16.59 1,968,896 $ 16.64 ===============================================================
The following is a summary of the activity in the restricted stock plans for the years ended December 31,
1999 1998 1997 --------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Grant Grant Grant Shares Price Shares Price Shares Price --------------------------------------------------------------------------- Outstanding at beginning of year .. 1,762,946 $15.32 1,489,823 $13.94 784,476 $ 8.41 Granted ........................... 378,200 18.21 324,350 20.49 746,652 19.42 Vested ............................ (31,851) 5.81 (44,626) 7.07 (6,805) 3.21 Canceled .......................... (10,850) 17.01 (6,601) 14.60 (34,500) 8.69 --------------------------------------------------------------------------- Outstanding at year end ........... 2,098,445 $16.21 1,762,946 $15.32 1,489,823 $13.94 ===========================================================================
The amount of compensation expense related to restricted stock awards included in compensation and employee benefits was $3.0 million, $2.2 million, and $1.2 million in 1999, 1998, and 1997, respectively. The Company applies APB 25 and related interpretations in accounting for its plans. Accordingly, no compensation expense has been recognized for its stock-based compensation plans, other than for restricted stock awards 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 $1.6 million, or $.01 per share in 1999, $3.4 million, or $.02 per share in 1998, and $3.8 million, or $.03 per share in 1997. The estimated fair value of the options granted during 1999, 1998, and 1997 ranged from $4.64 to $5.43, $1.19 to $8.32, and $.73 to $7.43, respectively, on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used in calculating the fair value of the options granted during 1999: a dividend yield of 3.0%, volatility ranging from 24.5% to 25.5%, risk free interest rate ranging from 5.15% to 6.15%, no assumed forfeiture, and an expected life of six years. The following assumptions were used in calculating the fair value of the options granted during 1998: a dividend yield of 2.25%, volatility ranging from 21-30%, 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 original maturity is less than six years. The following assumptions were used in calculating the fair value of the options granted during 1997: dividend yield ranging from 2.00%-2.25%, volatility ranging from 20%-40%, risk-free interest rate ranging from 5.30%-6.30%, no assumed forfeiture and an expected life of six years for options with an original term greater than six years or the options remaining term, if its original maturity is less than six years. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN The Dividend Reinvestment and Stock Purchase Plan provides stockholders with a method of investing cash dividends and/or optional cash payments in additional common stock. Under the plan, cash dividends and/or optional cash payments can be used to purchase common stock without brokerage commission. The discount can be revised by the Board of Directors at its discretion. The amount of optional cash payment allowed in any month is restricted requiring a minimum optional cash payment of $200 per month and a maximum optional cash payment for participants of $15,000 regardless of the number of shares owned. At December 31, 1999, 569,148 shares remain authorized and unissued. 46 CHANGE-IN-CONTROL ARRANGEMENTS The Company has arrangements with certain key executive officers that provide for the payment of a multiple of base salary, should a change-in-control, as defined, of the Company occur. These payments are limited under guidelines for deductibility pursuant to Internal Revenue Service regulations. Also, in connection with a potential change-in-control, the Company adopted performance plans in which substantially all employees could participate in a cash distribution. The amount of the performance plan cash fund is established when a change-in-control transaction exceeds industry averages and achieves an above average return for shareholders. A limitation is placed on the amount of the fund and no performance pool is created if the transaction does not exceed industry averages. NOTE 13-PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS DECEMBER 31, 1999 1998 -------------------------- (IN THOUSANDS) ASSETS Deposits with Bank Subsidiary ......................................... $ 809 $ 5,661 Deposits with Other Financial Institutions ............................ 1,322 1,557 Securities Purchased Under Agreements to Resell with Bank Subsidiary .. - 40,000 Securities Available-for-Sale ......................................... 151,743 192,805 Investment in Subsidiaries ............................................ 686,944 805,144 Intangible Assets ..................................................... 28,416 28,965 Other Assets .......................................................... 21,952 39,190 -------------------------- Total ............................................................... $ 891,186 $1,113,322 ========================== LIABILITIES AND STOCKHOLDERS' EQUITY Junior Subordinated Debt (See Note 9) ................................. $ 205,500 $ 205,475 Loan From Affiliate ................................................... 40,000 - Senior Note Payable ................................................... - 25,000 Dividends Payable ..................................................... 23,119 39,041 Other Liabilities ..................................................... 3,857 12,556 Stockholders' Equity .................................................. 618,710 831,250 -------------------------- Total ............................................................... $ 891,186 $1,113,322 ========================== CONDENSED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997 ----------------------------------------- (IN THOUSANDS) INCOME: Dividends from Subsidiaries ........................................... $ 263,000 $ 92,800 $ 41,600 Interest Income ....................................................... 10,853 14,496 10,869 Net Securities Gains .................................................. 13,566 9,032 6,376 Other Income .......................................................... 692 2,428 799 ----------------------------------------- Total Income ........................................................ 288,111 118,756 59,644 ----------------------------------------- EXPENSE: Interest Expense ...................................................... 1,454 2,274 2,033 Interest on Junior Subordinated Debt .................................. 17,242 17,242 9,463 Compensation and Employee Benefits .................................... 3,048 2,194 1,211 Amortization and Write-down of Intangibles ............................ 2,088 7,986 440 Other Expenses ........................................................ 1,665 1,577 1,691 ----------------------------------------- Total Expenses ...................................................... 25,497 31,273 14,838 ----------------------------------------- Income before Income Taxes and Equity in Undistributed Earnings of Subsidiaries .......................................... 262,614 87,483 44,806 Income Tax Expense .................................................... (177) 280 151 Equity in Undistributed Earnings of Subsidiaries ...................... (42,422) 80,772 125,866 ----------------------------------------- Net Income .......................................................... $ 220,369 $ 167,975 $ 170,521 =========================================
47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997 --------------------------------------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income ............................................................ $ 220,369 $ 167,975 $ 170,521 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and Amortization ..................................... 4,338 1,187 1,218 Amortization of Intangible Assets ................................. 2,088 7,986 440 Equity in Undistributed Earnings of Subsidiaries .................. 42,422 (80,772) (125,866) Proceeds from Sales of Securities Held for Trading ................ - - 10,125 Purchase of Securities Held for Trading ........................... - - (9,670) Net Securities Gains .............................................. (13,566) (9,032) (6,376) Other, Net ........................................................ 14,805 (28,049) (4,019) --------------------------------------- Net Cash Provided by Operating Activities ...................... 270,456 59,295 36,373 --------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Sales of Securities Available-for-Sale .............. 105,038 112,782 42,016 Purchases of Securities Available-for-Sale ........................ (68,807) (133,632) (161,032) Investment in Subsidiary Trusts ................................... - - (3,093) Investment in Bank Subsidiary ..................................... - - (4,000) --------------------------------------- Net Cash Provided by/(Used in) Investing Activities ............ 36,231 (20,850) (126,109) --------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Maturity of Senior Note Payable ................................... (25,000) - - Loan from Affiliate ............................................... 40,000 - - Purchase of Treasury Shares ....................................... (271,318) (56,462) (27,733) Common Stock Sold for Cash ........................................ 4,777 26,949 6,814 Dividends Paid to Shareholders .................................... (100,233) (67,032) (46,607) Proceeds from the Issuance of Junior Subordinate Debt Securities .. - - 102,713 --------------------------------------- Net Cash (Used in)/Provided by Financing Activities ............... (351,774) (96,545) 35,187 --------------------------------------- Net Decrease in Cash and Cash Equivalents ......................... (45,087) (58,100) (54,549) Cash and Cash Equivalents at Beginning of Year .................... 47,218 105,318 159,867 --------------------------------------- Cash and Cash Equivalents at End of Year ....................... $ 2,131 $ 47,218 $ 105,318 =======================================
NOTE 14-REGULATORY MATTERS The Company and its bank subsidiaries are subject to the risk based capital guidelines administered by the banking regulatory agencies. The risk based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Under these guidelines, assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk weighted assets and off-balance sheet items. The guidelines require all banks and bank holding companies to maintain a minimum ratio of total risk based capital to total risk weighted assets of 8%, including a minimum ratio of Tier 1 capital to total risk weighted assets of 4% and a Tier 1 capital to average assets of 4% ("Leverage Ratio"). Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators, that, if undertaken, could have a direct material effect on the Company's financial statements. As of December 31, 1999, the most recent notification from the various regulators categorized the Company and its bank subsidiaries as well capitalized under the regulatory framework for prompt corrective action. Under the capital adequacy guidelines, a well capitalized institution must maintain a minimum total risk based capital to total risk weighted assets ratio of at least 10%, a minimum Tier 1 capital to total risk weighted assets ratio of at least 6%, a minimum leverage ratio of at least 5% and not be subject to any written order, agreement or directive. There are no conditions or events since such notifications that management believes have changed this classification. 48 The following table sets forth the Company's regulatory capital at December 31, 1999, under the rules applicable at such date. At such date, management believes that the Company meets all capital adequacy requirements to which it is subject:
(DOLLARS IN THOUSANDS) Amount Ratio --------------------- Tier 1 Capital ............... $ 811,977 11.48% Regulatory Requirement ....... 282,868 4.00% --------------------- Excess ....................... $ 529,109 7.48% ===================== Total Risk Adjusted Capital .. $ 880,572 12.45% Regulatory Requirement ....... 565,735 8.00% --------------------- Excess ....................... $ 314,837 4.45% ===================== Risk Weighted Assets ......... $7,071,689 ==========
The Company's Leverage Capital Ratio at December 31, 1999 was 6.84%. The Tier 1, Total Risk Based and Leverage Capital Ratios of North Fork were 9.69%, 10.68%, and 5.68%, respectively, at December 31, 1999. The Tier I, Total Risk Based and Leverage Capital Ratios of Superior were 72.49%, 73.18%, and 7.36%, respectively, at December 31, 1999. Dividends from North Fork to the Company are limited by the regulations of the New York State Banking Department to North Fork's current year's earnings plus the prior two years' retained net profits. North Fork's dividend capability at January 1, 2000, pursuant to the regulations, was $28.3 million. Dividends from Superior are similarly limited by regulations of the State of Connecticut. Certain of North Fork's deposit liabilities acquired in previous thrift acquisitions are insured under the SAIF fund (SAIF insured deposits at December 31, 1999 were approximately $3.0 billion) and accordingly are subject to higher quarterly assessments. NOTE 15-DERIVATIVES FINANCIAL INSTRUMENTS Periodically, the Company enters into interest rate agreements, including interest rate swaps, caps, and floors, as part of its management of interest rate exposure. These agreements are entered into as hedges against interest rate risk and are designated against specific assets and liabilities. Interest rate swaps outstanding at December 31, 1999 are summarized as follows (dollars in thousands):
Fixed Variable Notional Interest Rate Interest Rate MATURITY Amount Paying Receiving - - - - ----------------------------------------------------------------------------------------------------- November 2000 ....................................... $100,000 4.62% 6.11% November 2001 ....................................... $100,000 4.66% 6.11% November 2001 ....................................... $100,000 4.72% 6.11% May 2008 ............................................ $ 75,000 6.14% 6.13% -------- Total Notional Amount of Interest Rate Swaps ..... $375,000 ========
These agreements require the Company to make periodic fixed rate payments while receiving periodic variable rate payments indexed to the three month London Interbank Offer Rate ("LIBOR"). At December 31, 1999 and 1998, the Company's interest rate swaps had an unrealized gain of $13.9 million and an unrealized loss of $1.0 million, respectively. NOTE 16-OTHER COMMITMENTS AND CONTINGENT LIABILITIES (a) OFF-BALANCE SHEET RISKS The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are reflected in the 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. 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Commitments to extend credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Management evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing properties. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The notional principal amount of the off-balance sheet financial instruments at December 31, is as follows:
1999 1998 Contract or Contract or (IN THOUSANDS) Amount Amount ----------- ----------- Financial instruments whose contract amounts represent credit risk: Commitments to extend credit..................................... $589,658 $468,556 Standby letters of credit........................................ 60,473 45,229
(b) LEASE COMMITMENTS At December 31, 1999, the Company was obligated under a number of non-cancelable leases for land and buildings that expire at various dates through August 2016. Minimum annual rental commitments, exclusive of taxes and other charges, under non-cancelable leases are summarized as follows:
YEAR ENDED DECEMBER 31: Minimum (IN THOUSANDS) Rentals ------- 2000......................................................... $ 8,054 2001......................................................... 7,178 2002......................................................... 6,668 2003......................................................... 5,725 2004......................................................... 4,777 Thereafter................................................... 13,349
Rent expense for the years ended December 31, 1999, 1998, and 1997 amounted to $6.9 million, $6.4 million, and $6.9 million, respectively. (c) OTHER MATTERS On February 11, 2000, shareholders approved a reduction in the par value of the Company's common stock from $2.50 per share to $0.01 per share and increased the Company's authorized common shares from 200 million to 500 million. The Company and its subsidiaries are subject to certain pending and threatened legal actions which arise out of the normal course of business. Management believes that the resolution of any pending or threatened litigation will not have a material adverse effect on its financial condition or results of operations. NOTE 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. 50 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,
1999 1998 ------------------------------------------------------- Carrying Estimated Carrying Estimated (IN THOUSANDS) Amount Fair Value Amount Fair Value ------------------------------------------------------- Cash and Cash Equivalents........................... $ 363,713 $ 363,713 $ 180,505 $ 180,505 Securities Held-to-Maturity......................... 1,229,703 1,179,181 1,571,545 1,574,196 Securities Available-for-Sale(1).................... 3,588,015 3,588,015 2,984,035 2,984,035 ------------------------------------------------------- Total Cash, Cash Equivalents and Securities..... $5,181,431 $5,130,909 $4,736,085 $4,738,736 =======================================================
(1) Excludes $4.9 million in unrealized gains and $3.8 million in unrealized losses on related interest swap agreements, used to hedge certain debt securities at December 31, 1999 and 1998, respectively. 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,
1999 1998 ---------------------------------------------------- Carrying Estimated Carrying Estimated (IN THOUSANDS) Amount Fair Value Amount Fair Value ---------------------------------------------------- Gross Loans......................................... $6,630,506 $6,530,986 $5,731,424 $5,889,662 ====================================================
DEPOSIT LIABILITIES AND BORROWINGS The carrying amount for demand deposits, savings, NOW, money market accounts and borrowings with an interest sensitive period of 90 days or less, are reasonable estimates of fair value. Fair value for certificates of deposit and other 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,
1999 1998 --------------------------------------------------- Carrying Estimated Carrying Estimated (IN THOUSANDS) Amount Fair Value Amount Fair Value --------------------------------------------------- Demand Deposits..................................................... $ 1,507,162 $ 1,507,162 $1,263,105 $1,263,105 Savings............................................................. 2,034,085 2,034,085 2,052,650 2,052,650 NOW and Money Market................................................ 931,040 931,040 897,372 897,372 Certificates of Deposit............................................. 2,072,463 2,084,178 2,214,495 2,244,254 Borrowings with an Interest Sensitive Period of 90 days or less..... 3,203,700 3,203,700 823,300 823,300 Borrowings with an Interest Sensitive Period Greater Than 90 Days... 1,305,500 1,296,578 2,166,796 2,209,348 --------------------------------------------------- Total Deposit Liabilities and Borrowings........................ $11,053,950 $11,056,743 $9,417,718 $9,490,029 ===================================================
51 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, 1999 and 1998, 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,
1999 1998 ------------------------------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ------------------------------------------------- Off Balance Sheet Instruments...................... $4,902 $13,930 $(3,812) $(957) =================================================
NOTE 18-SUBSEQUENT EVENT DIME BANCORP, INC. On March 5, 2000, the Company announced its intention to offer an exchange of the Company's common stock and cash for the common stock of Dime Bancorp, Inc. ("Dime"), the parent company of Dime Savings Bank of New York, FSB. The purpose is for the Company to acquire control of, and, thereafter the entire common equity interest in Dime. Under the terms of the proposal, each share of Dime's common stock would be exchanged for 0.9302 shares of the Company's common stock and $2.00 cash. The offer is contingent on various conditions, including (i) conditions that would require Dime's stockholders not to approve the Dime's proposed merger with another financial institution, (ii) a minimum number of shares of Dime's common stock to be tendered, (iii) making of Dime's stockholder rights plan inapplicable to the Company's offer, (iv) approval of the Company's stockholders of the issuance of the Company's common stock in the offer and the merger, and (v) receipt of required regulatory approvals. The transaction should close during the third quarter of 2000, if all of the Company's conditions are met. The transaction, as proposed, is expected to be treated as a tax-free reorganization for tax purposes and accounted as a purchase for accounting purposes. Dime had total assets of $23.9 billion, net loans of $15.2 billion, investments of $4.2 billion, deposits of $14.3 billion and stockholder's equity of $1.5 billion at December 31, 1999. Contingent on the closure of the above proposed transaction, the Company entered into a stock purchase agreement with FleetBoston Corporation ("FleetBoston"). Pursuant to this agreement, FleetBoston agreed to purchase (i) 250,000 shares of the Company's 7.5% Series B Non-Cumulative Convertible Preferred Stock, par value $1.00 per share and with a liquidation preference of $1,000.00 per share, convertible at $18.69 per share into the Company's common stock and (ii) Common Stock Purchase Rights to acquire 7,500,000 shares of the Company's common stock at an exercise price of $17.88, for an aggregate purchase price of $250 million. In connection with the Company's announcement of the aforementioned proposed acquisition, a lawsuit has been filed by Dime alleging that the Company and FleetBoston's actions violate anti-trust laws. The Company is of the opinion that the allegations raised in the Dime's complaint are without merit and intends to contest the allegations vigorously. 52 NOTE 19-RECENT ACCOUNTING PRONOUNCEMENTS DISCLOSURE ABOUT SEGMENTS FOR AN ENTERPRISE AND RELATED INFORMATION In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for the way an enterprise reports information about operating segments in annual financial statements and requires that enterprises report selected information about operating segments in interim financial reports issued to shareholders. Operating segments are components of an enterprise about which separate financial information is available, that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS 131 requires a reconciliation of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments to the amounts in the enterprise's financial statements. It also requires an enterprise to report descriptive information about the way the operating segments were determined, the products and services provided by the operating segments, and any differences between the measurements used for segment reporting and financial statement reporting. SFAS 131 is effective for fiscal years beginning after December 15, 1997. 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. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign currency denominated forecasted transaction. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Under SFAS 133, an entity that elects to apply hedge accounting is required to establish, at the inception of the hedge, the method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. Those methods must be consistent with the entity's approach to managing risk. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137 "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of SFAS 133", delaying its effective date to all fiscal quarters of all fiscal years beginning after June 15, 2000. Management is currently evaluating the effect SFAS 133 will have on its financial statements. At December 31, 1999, the Company was party to three interest rate swap contracts with an aggregate notional value of $375 million. 53 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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. New York, New York January 18, 2000, except for note 2 (a) and (b), and note 18, which is as of March 10, 2000 54 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 safe-guarded 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 and Chief Executive Officer Chief Financial Officer EX-21 11 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 Reliance Capital Trust I New York SUBSIDIARIES OF NORTH FORK BANK NFB Properties, Inc. New York Home Fed Realty Corporation Connecticut 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 Auto Group Services Corp New York All Points Capital Corp New York NFB Funding Inc. New Jersey NFB Holding Corp New York CBMC Inc. New York Reliance Preferred Funding Corp. Delaware Grandcet Realty Corp New York Litneck Realty Corp New York Before Real Estate Inc. New York Afta Real Estate Inc. New York Forty Second & Park Corp New York Lefmet Corp New York Concerned Management Corp New York Jas-Cove Realty Corp New York Avre Realty Corp New York D&D Associates New York Parkway Associates New York Elmback Associates New York EX-23 12 ACCOUNTANTS' 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. 333-64219 and 333-24419) on Form S-4 and (Nos. 33-54222, and 333-40311) on Form S-3 of North Fork Bancorporation, Inc. of our report dated January 18, 2000, except for note 2 (a) and (b), and note 18, which is as of March 10, 2000 relating to the consolidated balance sheets of North Fork Bancorporation, Inc. and subsidiaries as of December 31, 1999 and 1998 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, 1999, which report appears in the December 31, 1999 Annual Report on Form 10-K of North Fork Bancorporation, Inc. KPMG LLP New York, New York March 29, 2000 EX-27 13 FINANCIAL DATA SCHEDULE
9 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 299,946 63,767 0 0 3,592,917 1,229,703 1,179,180 6,617,130 68,595 12,108,116 6,544,750 2,908,700 435,456 1,600,500 0 0 362,816 255,894 12,108,116 501,627 311,446 4,673 817,746 160,694 368,440 449,306 6,000 13,578 177,294 339,029 339,029 0 0 220,369 1.63 1.62 4.16 8,998 5,842 0 0 71,759 14,334 5,170 68,595 64,671 0 3,924
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