<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 0-22228
ASTORIA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 11-3170868
<S> <C>
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
One Astoria Federal Plaza, Lake Success, New York 11042-1085
(Address of principal executive offices) (Zip Code)
</TABLE>
(516) 327-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Classes of Common Stock Number of Shares Outstanding, July 31, 1997
----------------------- ------------------------------------------
.01 Par Value 20,829,020
------------- ----------
<PAGE> 2
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Financial Statements.
Consolidated Statements of Financial Condition at June 30, 1997 and 2
December 31, 1996.
Consolidated Statements of Operations for the Three and Six Months 3
Ended June 30, 1997 and June 30, 1996.
Consolidated Statement of Stockholders' Equity for the Six Months 4
Ended June 30, 1997.
Consolidated Statements of Cash Flows for the Six Months Ended 5
June 30, 1997 and June 30, 1996.
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial Condition and 7
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk (Not Applicable)
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 2. Changes in Securities (Not Applicable)
Item 3. Defaults Upon Senior Securities (Not Applicable)
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 5. Other Information (Not Applicable)
Item 6. Exhibits and Reports on Form 8-K 28
(a) Exhibits
(11) Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K
Signatures 29
</TABLE>
1
<PAGE> 3
ASTORIA FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
Assets 1997 1996
----------- -----------
<S> <C> <C>
Cash and due from banks $ 17,026 $ 18,923
Federal funds sold and repurchase agreements 162,586 56,000
Mortgage-backed and mortgage-related securities
available-for-sale (at estimated fair value) 1,803,216 2,100,376
Other securities available-for-sale (at estimated fair value) 151,830 196,286
Mortgage-backed and mortgage-related securities
held-to-maturity (estimated fair value of $1,296,408
and $1,309,007, respectively) 1,306,209 1,321,613
Other securities held-to-maturity (estimated fair value
of $861,628 and $637,338, respectively) 861,100 639,402
Federal Home Loan Bank of New York stock 35,800 32,354
Loans receivable:
Mortgage loans 3,028,898 2,593,307
Consumer and other loans 56,424 58,109
----------- -----------
3,085,322 2,651,416
Less allowance for loan losses 14,927 14,089
----------- -----------
Loans receivable, net 3,070,395 2,637,327
Real estate owned and investments in real estate, net 10,473 12,129
Accrued interest receivable 47,113 43,976
Premises and equipment, net 82,802 83,424
Excess of cost over fair value of net assets acquired
and other intangibles 96,047 100,267
Other assets 19,898 30,686
----------- -----------
Total Assets $ 7,664,495 $ 7,272,763
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Savings $ 1,123,763 $ 1,134,038
Money market 592,135 461,813
NOW 113,541 142,492
Certificates of deposit 2,715,802 2,774,750
----------- -----------
Total deposits 4,545,241 4,513,093
Reverse repurchase agreements 2,200,577 1,845,000
Federal Home Loan Bank of New York advances 245,440 266,514
Mortgage escrow funds 33,067 26,520
Accrued expenses and other liabilities 40,403 32,807
----------- -----------
Total liabilities 7,064,728 6,683,934
----------- -----------
Stockholders' Equity:
Preferred stock, $.01 par value; (5,000,000 shares
authorized; none issued) -- --
Common stock, $.01 par value; (70,000,000 shares authorized: 26,361,704
issued; 20,978,152 and 21,472,886 shares outstanding, respectively) 264 264
Additional paid-in capital 337,391 330,398
Retained earnings - substantially restricted 403,136 379,876
Treasury stock (5,383,552 and 4,888,818 shares, at cost, respectively) (115,137) (91,188)
Net unrealized gains on securities, net of taxes 1,827 156
Unallocated common stock held by ESOP (23,001) (24,489)
Unearned common stock held by RRPs (4,713) (6,188)
----------- -----------
Total stockholders' equity 599,767 588,829
----------- -----------
Total Liabilities and Stockholders' Equity $ 7,664,495 $ 7,272,763
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE> 4
ASTORIA FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ --------------------------
1997 1996 1997 1996
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Interest income:
Mortgage loans $ 56,831 $ 44,962 $109,385 $ 87,486
Consumer and other loans 1,404 1,516 2,850 3,041
Mortgage-backed and mortgage-related securities 56,536 62,660 115,461 125,576
Federal funds sold and repurchase agreements 3,979 893 4,847 1,948
Other securities 16,662 11,211 31,942 19,025
-------- -------- -------- ---------
Total interest income 135.412 121,242 264,485 237,076
-------- -------- -------- ---------
Interest expense:
Deposits 48,935 47,088 96,494 93,129
Borrowed funds 37,032 27,330 69,090 52,389
-------- -------- -------- ---------
Total interest expense 85,967 74,418 165,584 145,518
-------- -------- -------- ---------
Net interest income 49,445 46,824 98,901 91,558
Provision for loan losses 1,414 2,042 1,914 2,564
-------- -------- -------- ---------
Net interest income after provision for loan losses 48,031 44,782 96,987 88,994
-------- -------- -------- ---------
Non-interest income:
Customer service and loan fees 2,534 2,246 4,978 4,327
Net gain on sales of securities and loans 1,138 507 1,516 1,269
Other 989 686 1,638 1,401
-------- -------- -------- ---------
Total non-interest income 4,661 3,439 8,132 6,997
-------- -------- -------- ---------
Non-interest expense:
General and administrative:
Compensation and benefits 12,913 12,478 26,285 24,907
Occupancy, equipment and systems 5,919 5,892 11,917 11,697
Federal deposit insurance premiums 762 2,455 1,572 4,919
Advertising 1,146 1,346 2,060 2,093
Other 3,386 2,503 6,051 4,985
-------- -------- -------- ---------
Total general and administrative 24,126 24,674 47,885 48,601
Real estate operations, net 79 339 191 (2,916)
Provision for (recovery of) real estate losses 227 65 291 (1,332)
Amortization of excess of cost over fair value of
net assets acquired 2,110 2,171 4,220 4,342
-------- -------- -------- ---------
Total non-interest expense 26,542 27,249 52,587 48,695
-------- -------- -------- ---------
Income before income tax expense 26,150 20,972 52,532 47,296
Income tax expense 10,943 9,262 21,891 20,868
-------- -------- -------- ---------
Net income $ 15,207 $ 11,710 $ 30,641 $ 26,428
======== ======== ======== =========
Primary earnings per common share $ 0.72 $ 0.56 $ 1.45 $ 1.24
======== ======== ======== =========
Fully diluted earnings per common share $ 0.72 $ 0.55 $ 1.44 $ 1.23
======== ======== ======== =========
Dividends per common share $ 0.15 $ 0.11 $ 0.26 $ 0.21
======= ======== ======== =========
Primary weighted average common shares and equivalents 21,041,675 21,096,987 21,177,749 21,348,175
Fully diluted weighted average common shares and equivalents 21,202,313 21,129,049 21,307,568 21,437,997
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Net
Unrealized
Retained Gains Unallocated
Additional Earnings on Common
Common Paid-In Substantially Treasury Securities, Stock Held
Stock Capital Restricted Stock Net of Taxes by ESOP
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 264 $ 330,398 $ 379,876 $ (91,188) $ 156 $ (24,489)
Net income -- -- 30,641 -- -- --
Change in unrealized gains
on securities available-for-sale -- -- -- -- 1,671 --
Common stock repurchased
(730,497 shares) -- -- -- (28,570) -- --
Cash dividends declared and paid
on common stock -- -- (5,345) -- -- --
Exercise of stock options and
related tax benefit -- 2,175 (2,036) 4,621 -- --
Amortization relating to allocation
of ESOP stock and earned portion
of RRP stock and related tax benefit -- 4,818 -- -- -- 1,488
--------- --------- --------- --------- --------- ---------
Balance at June 30, 1997 $ 264 $ 337,391 $ 403,136 $(115,137) $ 1,827 $ (23,001)
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Unearned
Common
Stock Held
by RRP's Total
---------------------------
<S> <C> <C>
Balance at December 31, 1996 $ (6,188) $ 588,829
Net income -- 30,641
Change in unrealized gains
on securities available-for-sale -- 1,671
Common stock repurchased
(730,497 shares) -- (28,570)
Cash dividends declared and paid
on common stock -- (5,345)
Exercise of stock options and
related tax benefit -- 4,760
Amortization relating to allocation
of ESOP stock and earned portion
of RRP stock and related tax benefit 1,475 7,781
--------- ---------
Balance at June 30, 1997 $ (4,713) $ 599,767
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
ASTORIA FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
---------------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 30,641 $ 26,428
--------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of net deferred loan origination
fees, discounts and premiums (1,691) (3,139)
Provision for loan and real estate losses 2,205 1,232
Depreciation and amortization 3,126 2,757
Net gain on sales of securities and loans (1,516) (1,269)
Amortization of excess of cost over fair value
of net assets acquired 4,220 4,342
Allocated and earned shares from ESOP and RRPs 6,849 5,039
Increase in accrued interest receivable (3,137) (3,974)
Increase in mortgage escrow funds 6,547 2,944
Net changes in other assets, accrued expenses
and other liabilities 19,805 (17,142)
--------- ---------
Net cash provided by operating activities 67,049 17,218
--------- ---------
Cash flows from investing activities:
Loan originations (529,642) (346,737)
Loan purchases through third parties (97,508) (132,204)
Bulk loan purchases -- (59,574)
Principal repayments on loans 184,591 179,799
Principal payments on mortgage-backed and mortgage-related
securities held-to-maturity 36,061 63,126
Principal payments on mortgage-backed and mortgage-related
securities available-for-sale 174,666 209,405
Purchases of mortgage-backed and mortgage-related securities
held-to-maturity -- (87,069)
Purchases of mortgage-backed and mortgage-related securities
available-for-sale (282,190) (249,642)
Purchases of other securities held-to-maturity (315,534) (265,585)
Purchases of other securities available-for-sale (23,694) (30,000)
Proceeds from maturities of other securities held-to-maturity
and redemption of FHLB-NY stock 70,476 50,446
Proceeds from maturities of other securities available-for-sale 45,001 2
Proceeds from sale of securities and loans 437,631 87,123
Proceeds from sale of real estate owned and investments in real estate 5,141 10,676
Purchases of premises and equipment, net of proceeds from sales (2,504) (4,701)
--------- ---------
Net cash used in investing activities (297,505) (574,935)
--------- ---------
Cash flows from financing activities:
Net increase in deposits 31,898 214,477
Net increase in reverse repurchase agreements 355,577 372,021
Payments of FHLB of New York advances (21,000) (80,000)
Costs to repurchase common stock (28,570) (29,055)
Cash dividends paid to stockholders (5,345) (4,525)
Cash received for options exercised, net of loss on issuance
of treasury stock 2,585 216
--------- ---------
Net cash provided by financing activities 335,145 473,134
--------- ---------
Net increase (decrease) in cash and cash equivalents 104,689 (84,583)
Cash and cash equivalents at beginning of period 74,923 133,869
--------- ---------
Cash and cash equivalents at end of period $ 179,612 $ 49,286
========= =========
Supplemental disclosures:
Cash paid during the year:
Interest $ 163,275 $ 121,393
========= =========
Income taxes $ 1.189 $ 16,343
========= =========
Additions to real estate owned $ 4,519 $ 5,341
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 7
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Astoria Financial Corporation (the "Company") and its wholly-owned subsidiary,
Astoria Federal Savings and Loan Association (the "Association") and the
Association's wholly-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Company's financial
condition as of June 30, 1997 and December 31, 1996, its results of operations
for the three and six months ended June 30, 1997 and 1996. In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities of the consolidated
statements of financial condition as of June 30, 1997 and December 31, 1996
and amounts of revenues and expenses of the results of operations for the
three and six month periods ended June 30, 1997 and 1996. The results of
operations for the three and six months ended June 30, 1997 are not
necessarily indicative of the results of operations to be expected for the
remainder of 1997. Certain information and note disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission.
These consolidated financial statements should be read in conjunction with the
December 31, 1996 audited consolidated financial statements, interim financial
statements and notes thereto of the Company.
2. EARNINGS PER SHARE
Primary and fully diluted earnings per share ("EPS") are computed by dividing
net income by the weighted-average number of common stock and common stock
equivalents outstanding during this year.
For the primary EPS calculation, the weighted-average number of shares of
common stock and common stock equivalents outstanding includes the average
number of shares of common stock outstanding adjusted for the weighted average
number of unallocated shares held by the Employee Stock Ownership Plan
("ESOP") and the Recognition and Retention Plans ("RRPs") and the dilutive
effect of unexercised stock options using the treasury stock method.
For the fully diluted EPS calculation, the weighted average number of shares
of common stock and common stock equivalents includes the same components used
in the primary earnings per share calculation; however, the maximum dilutive
effect for unexercised stock options is computed using the period-end market
price of the Company's common stock if it is higher than the average market
price used in calculating primary earnings per share.
3. CASH EQUIVALENTS
For the purpose of reporting cash flows, cash and cash equivalents include
cash and due from banks and federal funds sold with original maturities of
three months or less, which in the aggregate amounted to $162,586,000 and
$22,200,000 at June 30, 1997 and 1996, respectively.
4. IMPACT OF NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS No. 128"). SFAS No. 128 specifies the computation, presentation, and
disclosure requirements for EPS for entities with publicly held common stock
or potential common stock. This statement simplifies the standards for
computing EPS previously found in Accounting Principles Board Opinion No. 15
("APB No. 15"). It replaces the presentation of primary EPS with a
presentation of basic EPS and the presentation of fully diluted EPS with a
presentation of diluted EPS. Basic EPS is computed by dividing net income by
the weighted
6
<PAGE> 8
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 exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the entity.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997 and requires the restatement of all prior-period EPS
data presented. Upon adoption of SFAS No. 128, the change from primary EPS to
basic EPS will result in a modest increase in this EPS presentation, but will
not result in a material change in the EPS presentation from fully diluted to
diluted EPS.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 requires
that all items that are components of "comprehensive income" be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is defined as "the change in equity
[net assets] of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners." Companies will be required to (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997, and requires reclassification of prior
periods presented. As the requirements of SFAS No. 130 are disclosure-related,
its implementation will have no impact on the Company's financial condition or
results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
No. 131"). SFAS No. 131 requires that enterprises report certain financial and
descriptive information about operating segments in complete sets of financial
statements of the Company and in condensed financial statements of interim
periods issued to shareholders. It also requires that a Company report certain
information about their products and services, geographic areas in which they
operate, and their major customers. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. As the requirements of SFAS No. 131 are
disclosure-related, its implementation will have no impact on the Company's
financial condition or results of operations.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Quarterly Report on Form 10-Q may contain certain forward-looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of the Company that are subject to various
factors which could cause actual results to differ materially from these
estimates. These factors include, changes in general, economic and market, and
legislative and regulatory conditions, and the development of an interest rate
environment that adversely affects the interest rate spread or other income
anticipated from the Company's operations and investments.
GENERAL
Astoria Financial Corporation (the "Company") is the holding company for
Astoria Federal Savings and Loan Association ("the Association"). The Company is
headquartered in Lake Success, New York and its principal business currently
consists of the operation of its wholly-owned subsidiary, the Association. The
Association's primary business is attracting retail deposits from the general
public and investing those deposits, together with funds generated from
operations, principal repayments and borrowed funds, primarily in one-to-four
family residential mortgage loans, mortgage-backed and mortgage-related
securities and, to a lesser extent, commercial real estate loans, multi-family
mortgage loans and consumer loans. In addition, the Association invests in
securities issued by the U.S. Government and federal agencies and other
securities.
The Company's results of operations are dependent primarily on its net
interest income, which is the difference between the interest earned on its
assets, primarily its loan and securities portfolios, and its cost of funds,
which consists of the interest paid on its deposits and borrowings. The
Company's net income also is affected by its provision for loan losses as well
as non-interest income, general and administrative expense, other non-interest
expense, and
7
<PAGE> 9
income tax expense. General and administrative expense consists of compensation
and benefits, occupancy, equipment and systems expense, federal deposit
insurance premium, advertising and other operating expenses. Other non-interest
expense generally consists of real estate operations, net, provision for real
estate losses and amortization of excess of cost over fair value of net assets
acquired. The earnings of the Company are also significantly affected by general
economic and competitive conditions, particularly changes in market interest
rates and U.S. Treasury yield curves, government policies and actions of
regulatory authorities.
PROPOSED ACQUISITION
On March 29, 1997, the Company entered into a definitive agreement
pursuant to which the Company agreed to acquire The Greater New York Savings
Bank (the "Greater"), with Greater ultimately merging with the Association.
Greater is a $2.6 billion New York State chartered stock savings bank (the
"Merger"). The transactions contemplated by the definitive agreement have been
approved by the shareholders of both the Company and Greater at special
shareholder meetings held on August 1, 1997, and remains subject to the approval
of the appropriate regulatory authorities and the satisfaction of certain other
conditions. Under the terms of the definitive agreement, holders of Greater
common stock will receive either 0.50 shares of the Company's common stock or
$19.00 in cash for each share, pursuant to an election procedure as described in
the agreement, subject to 75% of Greater shares being exchanged for the
Company's common stock and 25% being exchanged for cash. In addition, the
2,000,000 shares of Greater 12% Noncumulative Preferred Stock, Series B, will be
exchanged for shares of a newly created series of preferred stock of the Company
having substantially identical and no less favorable terms. The transaction is
expected to close after the close of business on September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of funds is cash provided by investing
activities and includes principal and interest payments on loans and
mortgage-backed, mortgage-related and other securities. During the six months
ended June 30, 1997 and 1996, principal payments on loans, mortgage-backed and
mortgage-related and other securities totaled $395.3 million and $452.3 million,
respectively. Additionally, during the six months ended June 30, 1997, the
Company received $437.6 million of funds from the sale of securities
available-for-sale, as part of a restructuring of its statement of condition.
The Company's other sources of funds are provided by operating and financing
activities. Net cash provided from operating activities during the six months
ended June 30, 1997 and 1996 totaled $67.0 million and $17.2 million,
respectively, of which $30.6 million and $26.4 million, respectively,
represented net income of the Company. Net cash provided by financing activities
during the six months ended June 30, 1997 and 1996 totaled $335.1 million and
$473.1 million, respectively, primarily due to the net increases in borrowings
and deposits during the six months ended June 30, 1997 and 1996 which totaled
$366.5 million and $506.5 million, respectively. The Company's primary uses of
funds in its investing activities are for the purchase and origination of loans
and the purchase of mortgage-backed, mortgage-related and other securities.
During the six months ended June 30, 1997 and 1996, the Company's purchases and
originations of loans totaled $627.2 million and $538.5 million, respectively,
and purchases of mortgage-backed, mortgage-related and other securities totaled
$621.4 million and $632.3 million, respectively.
The Association is required to maintain an average daily balance of liquid
assets and short-term liquid assets as a percentage of net withdrawable deposit
accounts plus short-term borrowings as defined by the regulations of the Office
of Thrift Supervision ("OTS"). The minimum required liquidity and short-term
liquidity ratios are currently 5% and 1%, respectively. The Association's
liquidity ratios were 9.78% and 8.60% at June 30, 1997 and December 31, 1996,
respectively, while its short-term liquidity ratios were 7.32% and 3.76% at June
30, 1997 and December 31, 1996, respectively.
In the normal course of its business, the Association routinely enters
into various commitments, primarily relating to the origination and purchase of
loans and the leasing of certain office facilities. The Association anticipates
that it will have sufficient funds available to meet its current commitments in
the normal course of its business. The Company also anticipates it will have
sufficient funds available to meet its commitments with respect to the Merger in
the normal course of its business.
8
<PAGE> 10
Stockholders' equity totaled $599.8 million at June 30, 1997 compared to
$588.8 million at December 31, 1996, reflecting the Company's earnings for the
six months, the amortization of the unallocated portion of shares held by the
ESOP and the unearned portion of shares held by the RRPs and related tax
benefit, the effect of treasury stock purchases, the effect of exercises of
stock options and related tax benefit, dividends paid on common stock and the
change in the net unrealized gains on securities, net of taxes.
Tangible stockholders' equity (stockholders' equity less the excess of
cost over fair value of net assets acquired ("goodwill")) totaled $503.7 million
at June 30, 1997 compared to $488.5 million at December 31, 1996. This increase
reflects the change in the Company's stockholders' equity noted above, plus the
reduction in the balance of goodwill. Tangible equity is a critical measure of a
company's ability to repurchase shares, pay dividends and continue to grow. The
Association is subject to various capital requirements which affect its
classification for safety and soundness purposes, as well as for deposit
insurance purposes. These requirements utilize tangible equity as a base
component, rather than equity as defined by generally accepted accounting
principles ("GAAP"). Although reported earnings and return on equity are
traditional measures of a company's performance, management believes that the
growth in tangible equity, or "cash earnings" is also a significant measure of a
company's performance. Cash earnings include reported earnings plus the non-cash
charges for goodwill amortization and amortization relating to certain employee
stock plans and related tax benefit. These items have either been previously
charged to equity, as in the case of ESOP and RRP charges, through contra-equity
accounts, or do not affect tangible equity, such as the market appreciation of
allocated ESOP shares, for which the operating charge is offset by a credit to
additional paid-in capital, and goodwill amortization, for which the related
intangible asset has already been deducted in the calculation of tangible
equity. Management believes that cash earnings and cash returns on average
tangible equity reflect the Company's ability to generate tangible capital that
can be leveraged for future growth. See pages 24 through 26.
On November 26, 1996, the Board of Directors of the Company approved the
Company's fifth stock repurchase plan authorizing the purchase, at the
discretion of management, of up to 2,500,000 shares of the Company's outstanding
common stock, over a two year period, in open-market or privately negotiated
transactions. During the first six months of 1997, the Company repurchased
730,497 common shares of the Company's common stock for an aggregate cost of
$28.6 million, bringing the total number of common shares purchased under this
plan to 805,497 shares at an aggregate cost of $31.2 million. At June 30, 1997,
the Company's cumulative total of treasury shares (net of reissues for stock
options exercised) was 5,383,552 shares at an aggregate cost of $115.1 million.
On June 2, 1997, the Company paid a quarterly cash dividend equal to $0.15
per share on 21,126,300 shares of common stock outstanding as of the close of
business on May 15, 1997, aggregating $3.2 million. On July 16, 1997, the
Company declared a quarterly cash dividend of $0.15 per share payable on
September 2, 1997 to shareholders of record as of the close of business on
August 15, 1997, aggregating $3.2 million.
At the time of conversion from mutual to stock form of ownership, the
Association was required to establish a liquidation account equal to its capital
as of June 30, 1993. As part of the acquisition of Fidelity New York, F.S.B.
("Fidelity"), the Association established a similar liquidation account equal to
the remaining liquidation account balance previously maintained by Fidelity.
These liquidation accounts will be reduced to the extent that eligible account
holders reduce their qualifying deposits. In the unlikely event of a complete
liquidation of the Association, each eligible account holder will be entitled to
receive a distribution from the liquidation account. The Association is not
permitted to declare or pay dividends on its capital stock, or repurchase any of
its outstanding stock, if the effect thereof would cause its stockholder's
equity to be reduced below the amount required for the liquidation account or
applicable regulatory capital requirements. As of June 30, 1997, the
Association's total capital exceeded the amount of the combined liquidation
accounts, and also exceeded all of its regulatory capital requirements with
tangible and core ratios of 5.69% and a risk-based capital ratio of 15.98%. The
respective minimum regulatory requirements were 1.50%, 3.00% and 8.00%.
INTEREST RATE SENSITIVITY ANALYSIS
The Company's net interest income, the primary component of its net
income, is subject to substantial risk due to changes in interest rates or
changes in market yield curves, particularly if there is a substantial variation
in the timing
9
<PAGE> 11
between the repricing of its assets and the liabilities which fund them. The
Company seeks to manage this risk by monitoring and controlling the variation in
repricing intervals between its assets and liabilities.
The matching of the repricing characteristics of assets and liabilities
may be analyzed by examining the extent to which such assets and liabilities are
"interest rate sensitive" and by monitoring an institution's interest rate
sensitivity "gap." An asset or liability is said to be interest rate sensitive
within a specific time period if it will mature or reprice, either by
contractual terms or based upon certain assumptions made by management, within
that time period. The interest rate sensitivity gap is defined as the difference
between the amount of interest-earning assets anticipated to mature or reprice
within a specific time period and the amount of interest-bearing liabilities
anticipated to mature or reprice within that same time period.
At June 30, 1997, the Company's net interest-earning assets maturing or
repricing within one year exceeded interest-bearing liabilities maturing or
repricing within the same time period by $872.6 million, representing a positive
cumulative one-year gap of 11.39% of total assets. This compares to net
interest-earning assets maturing or repricing within one year exceeding
interest-bearing liabilities maturing or repricing within the same time period
by $1.3 billion, representing a positive cumulative one-year gap of 17.9% of
total assets at December 31, 1996. Included in interest-earning assets repricing
or maturing in one year or less are mortgage-backed, mortgage-related and other
securities classified available-for-sale. If those securities, at June 30, 1997,
were classified according to repricing periods based on their estimated
prepayments and maturities, interest-bearing liabilities maturing or repricing
within one year would have exceeded net interest-earning assets maturing or
repricing within the same time period by $311.7 million, representing a negative
cumulative one-year gap of 4.07% of total assets. Using this method, at December
31, 1996, interest-bearing liabilities maturing or repricing within one year
would have exceeded net interest-earning assets maturing or repricing within the
same time period by $31.7 million, representing a negative cumulative one-year
gap of 0.44% of total assets.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at June 30, 1997, which are anticipated
by the Company, using certain assumptions based on its historical experience and
other data available to management, to reprice or mature in each of the future
time periods shown. This table does not necessarily indicate the impact of
general interest rate movements on the Company's net interest income because the
actual repricing dates of various assets and liabilities is subject to customer
discretion and competitive and other pressures. Callable features of certain
assets and liabilities, in addition to the foregoing, may cause actual
experience to vary from that indicated. The table includes $401.0 million of
debt securities and $730.0 million of borrowings, classified according to their
maturity dates, which are callable within one year. In addition, the
available-for-sale securities may or may not be sold, or effectively repriced,
since that activity is subject to management's discretion.
10
<PAGE> 12
<TABLE>
<CAPTION>
At June 30, 1997
----------------------------------------------------------------------------
More Than More Than
One Year Three Years
One Year to to More than
or Less(1) Three Years(1) Five Years Five Years(1) Total
----------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (2) $ 914,436 $ 639,676 $ 530,313 $ 915,315 $ 2,999,740
Consumer and other loans (2) 43,005 12,301 -- -- 55,306
Federal funds sold and
repurchase agreements 162,586 -- -- -- 162,586
Mortgage-backed, mortgage-related
and other securities available-for-sale 1,955,046 -- -- -- 1,955,046
Mortgage-backed and mortgage-
related securities held-to-maturity 394,181 188,199 151,449 403,111 1,136,940
Other securities held-to-maturity 55,740 12,600 50,000 952,168 1,070,508
----------------------------------------------------------------------------
Total interest-earning assets 3,524,994 852,776 731,762 2,270,594 7,380,126
Less:
Unearned discount, premium
and deferred fees (3) (1,130) (443) (349) (993) (2,915)
----------------------------------------------------------------------------
Net interest-earning assets $ 3,523,864 $ 852,333 $ 731,413 $ 2,269,601 $ 7,377,211
----------------------------------------------------------------------------
Interest-bearing liabilities:
Savings $ 170,400 $ 288,000 $ 240,000 $ 425,363 $ 1,123,763
NOW 9,930 6,620 4,965 10,509 32,024
Money manager accounts 71,083 71,083 47,391 47,389 236,946
Money market 106,565 106,565 71,049 71,010 355,189
Certificates of deposit 1,647,263 763,985 304,554 -- 2,715,802
Borrowed funds 646,017 1,140,000 650,000 10,000 2,446,017
----------------------------------------------------------------------------
Total interest-bearing liabilities $ 2,651,258 $ 2,376,253 $ 1,317,959 $ 564,271 $ 6,909,741
----------------------------------------------------------------------------
Interest sensitivity gap $ 872,606 ($1,523,920) ($ 586,546) $ 1,705,330 $ 467,470
----------------------------------------------------------------------------
Cumulative interest sensitivity gap $ 872,606 ($ 651,314) ($1,237,860) $ 467,470
----------------------------------------------------------------------------
Cumulative interest sensitivity gap
as a percentage of total assets 11.39% (8.50)% (16.15)% 6.10%
Cumulative net interest-earning assets
as a percentage of interest-bearing liabilities 132.91% 87.05% 80.49% 106.77%
</TABLE>
(1) For purposes of this analysis, $401.0 million of debt and
mortgage-related securities and $730.0 million of borrowings,
which are callable within one year, are classified above
according to their contractual maturity dates (primarily in the
more than five year category for debt and mortgage-related
securities and the more than one year to three year category for
borrowings).
(2) For purposes of this analysis, mortgage, consumer and other loans
exclude non-performing loans, but are not reduced for the
allowance for loan losses.
(3) For purposes of this analysis, unearned discount, premium and
deferred fees are prorated.
11
<PAGE> 13
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar contractual maturities or periods to repricing, they may react in
different ways to changes in market interest rates. Additionally, certain
assets, such as ARM loans, have features which restrict changes in interest
rates on a short-term basis and over the life of the asset. Further, in the
event of a change in interest rates, prepayment and early withdrawal levels
would likely deviate significantly from those assumed in calculating the table.
Finally, the ability of borrowers to service their ARM loans or other loan
obligations may decrease in the event of an interest rate increase. The table
reflects the estimates of management as to periods to repricing at a particular
point in time. Among the factors considered, are current trends and historical
repricing experience with respect to similar products. For example, the Company
has a number of deposit accounts, including savings, NOW accounts, money market
and money manager accounts which, subject to certain regulatory exceptions not
relevant here, may be withdrawn at any time. The Company, based upon its
historical experience, assumes that while all customers in these account
categories could withdraw their funds on any given day, they will not do so,
even if market interest rates were to change. As a result, different assumptions
may be used at different points in time. The majority of the certificates of
deposit projected to mature within the next year, have original terms of one and
one-half to two and one-half years. The Company has and will continue to offer
competitive market rates for products with these terms; therefore, the Company
expects a significant amount of the balance to be renewed.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. The following tables set
forth certain information relating to the Company for the quarters and six
months ended June 30, 1997 and 1996. Yields and costs are derived by dividing
income or expense by the average balance of related assets or liabilities,
respectively, for the periods shown, and annualized, except where noted
otherwise. This table should be analyzed in conjunction with management's
discussion of the comparison of operating results for the quarters and six
months ended June 30, 1997 and 1996.
12
<PAGE> 14
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30,
------------------------------------------------------------------------------
1997 1996
---------------------------------- -----------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
ASSETS: BALANCE INTEREST COST BALANCE INTEREST COST
---------------------------------- ------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans $2,865,678 $56,831 7.93% $2,230,189 $44,962 8.06%
Consumer and other loans 57,138 1,404 9.83 58,742 1,516 10.32
Mortgage-backed and mortgage-
related securities (1) 3,364,564 56,536 6.72 3,656,621 62,660 6.85
Federal funds sold and
repurchase agreements 287,357 3,979 5.54 67,619 893 5.28
Other securities (1) 975,430 16,662 6.83 662,029 11,211 6.77
---------- ------- ---------- -------
Total interest-earning assets 7,550,167 135,412 7.17 6,675,200 121,242 7.27
---------- ------- ---------- -------
Non-interest-earning assets 170,284 255,162
---------- ----------
Total assets $7,720,451 $6,930,362
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Savings $1,125,850 $ 7,121 2.53% $1,155,189 $ 7,299 2.53%
Certificates of deposit 2,731,311 37,253 5.46 2,673,656 36,338 5.44
NOW 40,320 126 1.25 87,129 440 2.02
Money manager accounts 209,259 565 1.08 185,583 937 2.02
Money market 336,522 3,870 4.60 221,084 2,074 3.75
Borrowed funds 2,518,102 37,032 5.88 1,914,593 27,330 5.71
---------- -------- ---------- --------
Total interest-bearing liabilities 6,961,364 85,967 4.94 6,237,234 74,418 4.77
-------- --------
Non-interest-bearing liabilities 168,806 127,622
---------- ----------
Total liabilities 7,130,170 6,364,856
Stockholders' equity 590,281 565,506
---------- ----------
Total liabilities and stockholders' equity $7,720,451 $6,930,362
========== ==========
Net interest income/net interest rate spread (2) $49,445 2.23% $46,824 2.50%
======== ===== ======== =====
Net interest-earning assets/net interest margin (3) $ 588,803 2.62% $ 437,966 2.81%
========== ===== ========== =====
Ratio of interest-earning assets to interest-
bearing liabilities 1.08x 1.07x
====== ======
</TABLE>
(1) Securities available-for-sale are reported at average amortized cost.
(2) Net interest rate spread represents the difference between the average yield
on average interest-earning assets and the average cost of average
interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
13
<PAGE> 15
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------------------------
1997 1996
------------------------------------ -------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
ASSETS: BALANCE INTEREST COST BALANCE INTEREST COST
------------------------------------ -------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans $2,763,686 $109,385 7.92% $2,148,986 $ 87,486 8.14%
Consumer and other loans 57,534 2,850 9.91 59,697 3,041 10.19
Mortgage-backed and mortgage-
related securities (1) 3,396,579 115,461 6.80 3,665,786 125,576 6.85
Federal funds sold and
repurchase agreements 177,317 4,847 5.47 72,502 1,948 5.37
Other securities (1) 926,397 31,942 6.90 581,228 19,025 6.55
---------- -------- ---------- -------
Total interest-earning assets 7,321,513 264,485 7.22 6,528,199 237,076 7.26
-------- -------
Non-interest-earning assets 223,812 270,518
---------- ----------
Total assets $7,545,325 $6,798,717
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Savings $1,128,860 $ 14,280 2.53% $1,152,858 $ 14,584 2.53%
Certificates of deposit 2,727,418 73,934 5.42 2,628,796 71,599 5.45
NOW 55,512 347 1.25 154,957 1,565 2.02
Money manager accounts 212,942 1,182 1.11 106,047 1,071 2.02
Money market 304,769 6,751 4.43 227,484 4,310 3.79
Borrowed funds 2,368,845 69,090 5.83 1,828,002 52,389 5.73
---------- ------- --------- -------
Total interest-bearing liabilities 6,798,346 165,584 4.87 6,098,144 145,518 4.77
------- -------
Non-interest-bearing liabilities 157,689 122,393
---------- ----------
Total liabilities 6,956,035 6,220,537
Stockholders' equity 589,290 578,180
---------- ----------
Total liabilities and stockholders' equity $7,545,325 $6,798,717
========== ==========
Net interest income/net interest rate spread (2) $ 98,901 2.35% $ 91,558 2.49
======= ==== ========= ====
Net interest-earning assets/net interest margin (3) $ 523,167 2.70% $ 430,055 2.81
========== ==== ========== ====
Ratio of interest-earning assets to interest-
bearing liabilities 1.08x 1.07x
===== =====
</TABLE>
(1) Securities available-for-sale are reported at average amortized cost.
(2) Net interest rate spread represents the difference between the average yield
on average interest-earning assets and the average cost of average
interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
14
<PAGE> 16
RATE/VOLUME ANALYSIS
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
Quarter Ended June 30, 1997 Six Months Ended June 30, 1997
Compared to Compared to
Quarter Ended June 30, 1996 Six Months Ended June 30, 1996
Increase (Decrease) Increase (Decrease)
-------------------------------------- --------------------------------------
Volume Rate Net Volume Rate Net
-------- -------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans .................. $ 12,605 ($ 736) $ 11,869 $ 24,328 ($ 2,429) $ 21,899
Consumer and other loans ........ (41) (71) (112) (108) (83) (191)
Mortgage-backed and mortgage-
related securities ....... (4,948) (1,176) (6,124) (9,201) (914) (10,115)
Federal funds sold and repurchase
agreements ................ 3,040 46 3,086 2,862 37 2,899
Other securities ................ 5,351 100 5,451 11,851 1,066 12,917
-------- -------- -------- -------- -------- --------
Total .................... 16,007 (1,837) 14,170 29,732 (2,323) 27,409
-------- -------- -------- -------- -------- --------
Interest-bearing liabilities:
Savings ......................... (178) -- (178) (304) -- (304)
Certificates of deposit ......... 781 134 915 2,724 (389) 2,335
NOW ............................. (183) (131) (314) (764) (454) (1,218)
Money manager ................... 108 (480) (372) 744 (633) 111
Money market .................... 1,252 544 1,796 1,631 810 2,441
Borrowed funds .................. 8,864 838 9,702 15,772 929 16,701
-------- -------- -------- -------- -------- --------
Total ..................... 10,644 905 11,549 19,803 263 20,066
-------- -------- -------- -------- -------- --------
Net change in net interest
income ....................... $ 5,363 ($ 2,742) $ 2,621 $ 9,929 ($ 2,586) $ 7,343
======== ======== ======== ======== ======== ========
</TABLE>
15
<PAGE> 17
ASSET QUALITY
One of the Company's key operating objectives has been and continues to be
to obtain and maintain a high level of asset quality. Through a variety of
strategies, including, but not limited to, borrower workout arrangements and
aggressive marketing of owned properties, the Company has been proactive in
addressing problem and non-performing assets which, in turn, has helped to build
the strength of the Company's financial condition. Such strategies, as well as
the Company's concentration on one-to-four family mortgage lending and
maintaining sound credit standards for new loan originations, have resulted in a
reduction in non-performing assets of $6.3 million, which was primarily from
non-performing loans and sales of real estate owned. The following tables show a
comparison of delinquent loans as of June 30, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
Delinquent Loans
--------------------------------------------------------------------------------------------------
AT JUNE 30, 1997 AT DECEMBER 31, 1996
---------------------------------------------- ----------------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
-------------------- -------------------- -------------------- --------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF BALANCE OF BALANCE OF BALANCE OF BALANCE
LOANS OF LOANS LOANS OF LOANS LOANS OF LOANS LOANS OF LOANS
------- ------- ------- ------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One-to-four family ........ 56 $ 3,226 242 $21,411 73 $ 3,901 276 $25,098
Multi-family .............. 4 602 16 3,724 6 1,226 13 3,651
Commercial real estate .... 1 356 8 2,354 2 823 13 3,301
Construction and land ..... -- -- 3 244 -- -- 4 251
Consumer and other loans .. 77 499 85 1,118 52 337 92 1,159
------- ------- ------- ------- ------- ------- ------- -------
Total delinquent loans 138 $ 4,683 354 $28,851 133 $ 6,287 398 $33,460
======= ======= ======= ======= ======= ======= ======= =======
Delinquent loans to total
loans.............. 0.15% 0.94% 0.24% 1.26%
</TABLE>
16
<PAGE> 18
The following table sets forth information regarding non-performing assets. In
addition to the non-performing loans, the Company has approximately $4.7 million
and $6.3 million of potential problem loans at June 30, 1997 and December 31,
1996, respectively. Such loans are 60-89 days delinquent as shown on page 16.
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
AT AT
JUNE 30, DECEMBER 31,
1997 1996
------- -------
(Dollars in Thousands)
<S> <C> <C>
Non-accrual delinquent mortgage loans(1) .......... $22,753 $24,905
Non-accrual delinquent consumer
and other loans .............................. 1,118 1,159
Mortgage loans delinquent 90 days or more(2) ...... 4,980 7,396
------- -------
Total non-performing loans ................... 28,851 33,460
------- -------
Real estate owned, net(3) ......................... 5,715 7,421
Investment in real estate, net(4) ................. 4,758 4,708
------- -------
Total real estate owned and investment
in real estate, net ...................... 10,473 12,129
------- -------
Total non-performing assets ....................... $39,324 $45,589
======= =======
Allowance for loan losses to non-performing loans.. 51.74% 42.11%
Allowance for loan losses to total loans .......... 0.48% 0.53%
</TABLE>
(1) Mortgage loans secured by other than one-to-four family properties
represent 9.3% and 3.8% of the balance of non-accrual delinquent
mortgage loans at June 30, 1997 and December 31, 1996, respectively.
(2) Loans delinquent 90 days or more and still accruing interest consist
solely of loans delinquent 90 days or more as to their maturity date
but not their interest payments, and are primarily secured by
multi-family and commercial loans.
(3) Real estate acquired by the Company as a result of foreclosure or by
deed-in-lieu of foreclosure is recorded at the lower of cost or fair
value less estimated costs to sell.
(4) Investment in real estate is recorded at the lower of cost or fair
value.
17
<PAGE> 19
The following table sets forth the Company's change in allowance for loan,
investments in real estate and REO losses.
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
ALLOWANCE FOR LOAN LOSSES:
Balance at December 31, 1996 .......... $ 14,089
Provision charged to operations.. 1,914
Charge-offs:
One-to-four family ........ (1,391)
Multi-family .............. (88)
Commercial ................ (26)
Consumer and other ........ (430)
--------
Total charge-offs .. (1,935)
--------
Recoveries:
One-to-four family ........ 322
Commercial ................ 493
Consumer and other ........ 44
--------
Total recoveries .... 859
--------
Total net charge-offs ........... (1,076)
--------
Balance at June 30, 1997 .............. $ 14,927
========
</TABLE>
<TABLE>
<S> <C>
Ratio of net charge-offs during the year to average loans outstanding during the period 0.04%
Ratio of allowance for loan losses to total loans at end of the period 0.48
Ratio of allowance for loan losses to non-performing loans at end of the period 51.74
</TABLE>
<TABLE>
<S> <C>
ALLOWANCE FOR INVESTMENTS
IN REAL ESTATE AND REO LOSSES:
Balance at December 31, 1996 .......... $ 2,045
Provision charged to operations.. 291
Charge-offs ..................... (743)
Recoveries ...................... 45
-------
Balance at June 30, 1997 .............. $ 1,638
=======
</TABLE>
The following table sets forth the Company's allocation of the allowance for
loan losses by loan category and the percent of loans in each category to total
loans receivable. The portion of the allowance for loan losses allocated to each
loan category does not represent the total available for future losses which may
occur within the loan category since the total loan loss reserve is a valuation
reserve applicable to the entire loan portfolio.
<TABLE>
<CAPTION>
At June 30, 1997
-------------------
% of Loans
In Category to
Amount Total Loans
<S> <C> <C>
One-to-four family ....... $ 8,471 85.56%
Multi-family ............. 1,597 6.90
Commercial ............... 3,948 5.45
Construction ............. 175 0.26
Consumer and other loans.. 736 1.83
------- ------
Total allowances ......... $14,927 100.00%
======= ======
</TABLE>
18
<PAGE> 20
the following table sets forth the composition of the Company's loan portfolio
at June 30, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
At June 30, At December 31,
1997 1996
-------------------------------- --------------------------------
Percent Percent
of of
Amount Total Amount Total
------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
MORTGAGE LOANS:
One-to-four family................ $ 2,638,534 85.56% $ 2,259,409 85.18%
Multi-family...................... 212,762 6.90 166,836 6.29
Commercial real estate............ 168,267 5.45 158,100 5.96
Construction...................... 7,911 0.26 10,129 0.38
----------- ------ ----------- -----------
Total mortgage loans............ 3,027,474 98.17 2,594,474 97.81
----------- ------ ----------- -----------
CONSUMER AND OTHER LOANS:
Home equity....................... 32,814 1.06 34,895 1.32
Passbook.......................... 4,328 0.14 4,022 0.15
Credit card....................... 8,343 0.27 8,431 0.32
Other............................. 10,939 0.36 10,761 0.40
----------- ------ ----------- -----------
Total consumer and other loans.. 56,424 1.83 58,109 2.19
----------- ------ ----------- -----------
Total loans.................... 3,083,898 100.00% 2,652,583 100.00%
----------- ====== ----------- ===========
LESS:
Unearned discount, premium and
deferred loan fees, net......... 1,424 (1,167)
Allowance for loan losses......... (14,927) (14,089)
----------- -----------
Total loans, net............... $ 3,070,395 $ 2,637,327
=========== ===========
</TABLE>
19
<PAGE> 21
SECURITIES PORTFOLIO
The following tables set forth the amortized cost and estimated fair values of
mortgage-backed, mortgage-related and other securities available-for-sale and
held-to-maturity at June 30, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
At June 30, 1997
----------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ------- -------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
Mortgage-backed and mortgage-related securities:
GNMA certificates $ 221,492 $ 3,778 $ (891) $ 224,379
FHLMC certificates 325,726 1,258 (1,598) 325,386
FNMA certificates 42,092 93 (204) 41,981
REMICs:
Agency issuance 851,575 1,759 (13,131) 840,203
Private issuance 13,722 -- (118) 13,604
Residuals
Other mortgage-related 350,102 7,964 (403) 357,663
---------- ------- -------- ----------
Total mortgage-backed and
mortgage-related securities 1,804,709 14,852 (16,345) 1,803,216
---------- ------- -------- ----------
Other securities:
Obligations of the U.S.
Government and agencies 83,493 -- (1,351) 82,142
Equity securities 63,633 6,060 (5) 69,688
---------- ------- -------- ----------
Total other securities 147,126 6,060 (1,356) 151,830
---------- ------- -------- ----------
Total Available-for-Sale $1,951,835 $20,912 $(17,701) $1,955,046
========== ======= ======== ==========
HELD-TO-MATURITY:
Mortgage-backed and mortgage-related securities:
GNMA certificates $ 79,283 $ 3,636 $ (43) $ 82,876
FHLMC certificates 24,509 885 (39) 25,355
FNMA certificates 20,946 78 (769) 20,255
CMOs 4,310 57 (11) 4,356
REMICs:
Agency issuance 944,018 2,184 (10,360) 935,842
Private issuance 232,885 14 (5,433) 227,466
Other mortgage-related 258 -- -- 258
---------- ------- -------- ----------
Total mortgage-backed and
mortgage-related securities 1,306,209 6,854 (16,655) 1,296,408
---------- ------- -------- ----------
Other securities:
Obligations of the U.S.
Government and agencies 800,409 3,882 (3,291) 801,000
Obligations of states and
political subdivisions 50,680 -- (75) 50,605
Corporate debt securities 10,011 12 -- 10,023
---------- ------- -------- ----------
Total other securities 861,100 3,894 (3,366) 861,628
---------- ------- -------- ----------
Total Held-to-Maturity $2,167,309 $10,748 $(20,021) $2,158,036
========== ======= ======== ==========
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
At December 31, 1996
----------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ------- -------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
Mortgage-backed and mortgage-related securities:
GNMA certificates $ 235,751 $ 2,256 $ (1,319) $ 236,688
FHLMC certificates 262,044 1,338 (1,785) 261,597
FNMA certificates 46,364 69 (319) 46,114
REMICs:
Agency issuance 1,142,349 4,225 (11,952) 1,134,622
Private issuance 14,307 -- (146) 14,161
Residuals 1,457 924 (102) 2,279
Other mortgage-related 398,014 7,340 (439) 404,915
---------- ------- -------- ----------
Total mortgage-backed and
mortgage-related securities 2,100,286 16,152 (16,062) 2,100,376
---------- ------- -------- ----------
Other securities:
Obligations of the U.S.
Government and agencies 128,999 57 (1,454) 127,602
Equity securities 66,959 1,662 (1) 68,620
Other 67 -- (3) 64
---------- ------- -------- ----------
Total other securities 196,025 1,719 (1,458) 196,286
---------- ------- -------- ----------
Total Available-for-Sale $2,296,311 $17,871 $(17,520) $2,296,662
========== ======= ======== ==========
HELD-TO-MATURITY:
Mortgage-backed and mortgage-related securities:
GNMA certificates $ 86,733 $ 3,795 $ (73) $ 90,455
FHLMC certificates 28,189 1,021 (16) 29,194
FNMA certificates 22,044 75 (611) 21,508
CMOs 6,450 61 (60) 6,451
REMICs:
Agency issuance 936,692 2,315 (12,912) 926,095
Private issuance 241,154 125 (6,326) 234,953
Other mortgage-related 351 -- -- 351
---------- ------- -------- ----------
Total mortgage-backed and
mortgage-related securities 1,321,613 7,392 (19,998) 1,309,007
---------- ------- -------- ----------
Other securities:
Obligations of the U.S.
Government and agencies 578,293 1,810 (3,813) 576,290
Obligations of states and
political subdivisions 51,063 -- (81) 50,982
Corporate debt securities 10,046 22 (2) 10,066
---------- ------- -------- ----------
Total other securities 639,402 1,832 (3,896) 637,338
---------- ------- -------- ----------
Total Held-to-Maturity $1,961,015 $ 9,224 $(23,894) $1,946,345
========== ======= ======== ==========
</TABLE>
21
<PAGE> 23
COMPARISON OF FINANCIAL CONDITION AS OF
JUNE 30, 1997 AND DECEMBER 31, 1996
AND OPERATING RESULTS FOR THE QUARTERS ENDED
AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
FINANCIAL CONDITION
Total assets increased $391.7 million, to $7.7 billion at June 30,1997,
from $7.3 billion at December 31, 1996. This increase was primarily due to
growth in the mortgage loan and other securities portfolios. Gross mortgage
loans originated and purchased during the six months ended June 30, 1997 totaled
$609.9 million, of which $512.9 were originations and $97.0 million were
purchases. This compares to $332.7 million of originations and $190.7 million of
purchases, for a total of $523.4 million during the six months ended June 30,
1996. Other securities held-to-maturity increased $221.7 million, from $639.4
million at December 31, 1996 to $861.1 million at June 30, 1997. The growth in
these portfolios was funded primarily through additional medium-term reverse
repurchase agreements, which increased $355.6 million, to $2.2 billion at June
30, 1997, from $1.8 billion at December 31, 1996. Additional funding sources,
during the six months ended June 30, 1997, included proceeds from the Company's
restructuring of its statement of condition during the second quarter of 1997,
through the disposition of mortgage-backed and mortgage-related securities
available-for-sale totaling $435.3 million. For further discussion see "Results
of Operations - Net Interest Income."
Stockholders' equity increased to $599.8 million at June 30, 1997 from
$588.8 million at December 31, 1996, which reflects net income of $30.6 million,
the amortization relating to the allocation of ESOP stock and earned portion of
RRP stock and related tax benefit of $7.8 million, the effect of stock options
exercised and related tax benefit of $4.8 million and the change in unrealized
gains on securities, net of taxes, of $1.7 million, offset by repurchases of
common stock of $28.6 million, and dividends paid of $5.3 million.
RESULTS OF OPERATIONS
GENERAL
Net income for the second quarter of 1997 increased 29.9%, to $15.2
million, from $11.7 million, for the second quarter of 1996. Earnings per share
for the second quarter of 1997 increased to $0.72 per share, or 30.9% from $0.55
for the comparable period in 1996. The return on average assets increased to
0.79% for the second quarter of 1997 from 0.68% for the second quarter of 1996.
The return on average equity increased to 10.30% for the second quarter of 1997
from 8.28% for the second quarter of 1996. The return on average tangible equity
increased to 12.33% for the second quarter of 1997 from 10.19% for the second
quarter of 1996.
Net income for the six months ended June 30, 1997 increased $4.2
million, or 15.9%, to $30.6 million compared to $26.4 million for the six months
ended June 30, 1996 and earnings per share increased 17.1%, to $1.44 from $1.23,
respectively. The return on average assets increased to 0.81% for the six months
ended June 30, 1997 from 0.78% for the six months ended June 30, 1996. The
return on average equity increased to 10.40% for the six months ended June 30,
1997 from 9.14% for the comparable 1996 period. The return on average tangible
equity increased to 12.48% for the six months ended June 30, 1997 from 11.21%
for the comparable 1996 period. The increases in both the return on average
equity and return on average tangible equity were primarily the result of the
increases in net income.
NET INTEREST INCOME
Net interest income increased $2.6 million or 5.6% to $49.4 million for
the second quarter of 1997 from $46.8 million for the second quarter of 1996.
This increase was attributable to continued growth in total net average
interest- earnings assets. For the second quarter of 1997 as compared to the
second quarter of 1996, total net average interest- earning assets increased
$150.8 million, to $588.8 million from $438.0 million, respectively. The net
22
<PAGE> 24
interest spread decreased to 2.23% for the second quarter of 1997 from 2.50% for
the second quarter of 1996. This decrease was the result of a 10 basis point
decrease in the yield on average interest-earning assets to 7.17% for the second
quarter of 1997, from 7.27% for the second quarter of 1996, coupled with the
cost of total average interest-bearing liabilities increasing 17 basis points to
4.94% for the 1997 second quarter from 4.77% for the 1996 second quarter. These
changes, combined with the continued growth of interest-earning assets,
primarily funded through additional borrowings, resulted in a decrease in the
net interest margin from 2.81% in the second quarter of 1996 to 2.62% in the
1997 period. During the second quarter of 1997, the Company restructured its
statement of condition through the disposition of $435.3 million of
mortgage-backed and mortgage-related securities available-for-sale with a
weighted average yield of 6.90%. The proceeds were used to fund continued
mortgage portfolio growth and to purchase U.S. Government and agency notes
held-to-maturity, with a yield of 8.0%. The remaining proceeds, awaiting
redeployment, increased the average balance of Federal funds and repurchase
agreements to $287.4 million for the second quarter of 1997, from $67.6 million
for the second quarter of 1996, reducing the yield on average interest-earning
assets. While long term rates have declined slightly, short term costs have not
followed suit. To protect against this flattening, the Company has attempted to
"lock-in" available spreads by moderately extending borrowing terms, some with
attached call provisions. These extensions, along with the continuance of the
Company's money market campaign, have contributed to the noted increase in cost
of funds over the comparable periods.
For the six month period ended June 30, 1997 as compared to the six month period
ended June 30, 1996, net interest income increased $7.3 million or 8.02%, to
$98.9 million from $91.6 million, respectively. Total net average
interest-earning assets increased $93.1 million, to $523.2 million for the six
months ended June 30, 1997 from $430.1 million for the six months ended June 30,
1996. For the six months ended June 30, 1997, the net interest spread was 2.35%,
which decreased 14 basis points from 2.49% for the comparable 1996 period. The
14 basis point decrease was the result of the yield on average interest-earning
assets for the six month period ended June 30, 1997, decreasing to 7.22% from
7.26% for the comparable 1996 six month period, coupled with a 10 basis point
increase in the cost of interest-bearing liabilities to 4.87% from 4.77% for the
six month periods ended June 30, 1997 as compared to 1996, respectively. These
changes are reflective of the second quarter changes discussed above.
PROVISION FOR LOAN LOSSES
Provision for loan losses decreased to $1.4 million for the quarter
ended June 30, 1997 from $2.0 million for the comparable period in 1996. For the
six months ended June 30, 1997, the provision was $1.9 million, compared to $2.6
million for the comparable 1996 period. The allowance for loan losses increased
from $14.1 million at December 31, 1996 to $14.9 million at June 30, 1997
reflecting the growth in the portfolio during the six months ended June 30,
1997. Non-performing loans decreased from $33.5 million at December 31, 1996 to
$28.9 million at June 30, 1997 despite continued growth in the mortgage loan
portfolio. The reduction in non-performing loans improved the Company's
percentage of allowance for loan losses to non-performing loans to 51.74% at
June 30, 1997 from 42.11% at December 31, 1996. Net charge-offs for the quarter
and six months ended June 30, 1997 were $510,000 and $1.1 million, respectively
as compared to $2.1 million and $2.7 million for the quarter and six months
ended June 30, 1996, respectively. For further discussion of non-performing
loans, see "Asset Quality."
NON-INTEREST INCOME
Non-interest income for the quarter ended June 30, 1997, exclusive of
net gains on sales of securities and loans of $1.1 million, increased 20.2% to
$3.5 million, compared to $2.9 million, exclusive of net gains on sales of
securities and loans of $507,000 for the comparable quarter of 1996.
Non-interest income, exclusive of net gains on sales of securities and loans of
$1.5 million, increased 15.5% in the first half of 1997 to $6.6 million,
compared to $5.7 million, exclusive of net gains on sales of securities and
loans of $1.3 million for the 1996 period. The increases are primarily
attributable to customer service and loan fees, which totaled $2.5 million and
$5.0 million for the second quarter of 1997 and six months ended June 30, 1997,
respectively, representing increases of $288,000 and $651,000, respectively,
from the comparable periods in 1996.
23
<PAGE> 25
NON-INTEREST EXPENSE
Non-interest expense decreased $707,000 to $26.5 million for the
quarter ended June 30, 1997, from $27.2 million for the quarter ended June 30,
1996. Non-interest expense increased $3.9 million to $52.6 million for the six
months ended June 30, 1997 from $48.7 million for the six months ended June 30,
1996. Included in non-interest expense for the six months ended June 30, 1996
were $5.3 million, before taxes, of non-recurring recoveries from gains on
dispositions of real estate owned and investments in real estate. Excluding
these recoveries, non-interest expense for the six months ended June 30, 1997
decreased $1.4 million from the comparable period in 1996.
General and administrative expense decreased $548,000 to $24.1 million for the
second quarter of 1997 from $24.7 million for the second quarter of 1996.
General and administrative expense decreased $716,000 to $47.9 million for the
six month period ended June 30, 1997 from $48.6 million for the six month period
ended June 30, 1996. These decreases resulted primarily from a reduction in
Federal deposit insurance premium of $1.7 million for the second quarter of 1997
and $3.3 million for the six months ended June 30, 1997 as compared to their
respective prior year periods, as a result of 1996 legislation to recapitalize
the Savings Association Insurance Fund. These decreases were partially offset by
an increase in compensation and benefits of $435,000 and $1.4 million for the
quarter and six months ended June 30, 1997 as compared to their respective 1996
periods, primarily due to an increase in the amortization relating to the
allocation of ESOP stock resulting from the higher average fair market value of
the Company's stock during the period.
INCOME TAX EXPENSE
Income tax expense increased $1.6 million to $10.9 million for the
second quarter of 1997 from $9.3 million for the comparable quarter in 1996. For
the six months ended June 30, 1997, income tax expense was $21.9 million, an
increase of $1.0 million from $20.9 million for the six months ended June 30,
1996. The reduction in the Company's effective tax rates from 44.2% and 44.1%
for the three and six months ended June 30, 1996, respectively, to 41.8% and
41.7% for the three and six months ended June 30, 1997 was primarily attributed
to certain tax benefits associated with a subsidiary of the Association.
CASH EARNINGS
Management believes that cash earnings and cash returns on average
tangible equity reflect the Company's ability to generate tangible capital that
can be leveraged for future growth. Cash earnings for the second quarter of 1997
totaled $21.2 million, an increase of $4.5 million, compared to cash earnings of
$16.7 million for the second quarter of 1996. For the six months ended June 30,
1997, cash earnings were $42.6 million, an increase of $6.4 million, compared to
$36.2 million for the comparable 1996 period.
The cash returns on average tangible equity for the second quarter and
six months ended June 30, 1997 were 17.23% and 17.37%, respectively, compared to
14.50% and 15.35%, respectively, for the 1996 periods. The cash returns on
average assets for the second quarter and six months ended June 30, 1997 were
1.10% and 1.13%, respectively, compared to 0.96% and 1.06%, respectively, for
the 1996 periods.
Presented below are the Company's Consolidated Schedules of Cash
Earnings for the three months and six months ended June 30, 1997 and 1996.
24
<PAGE> 26
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF CASH EARNINGS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
----------------------------------------- --------------------------------------------
Reported Cash Report Cash
Earnings(1) Adjustments Earnings Earnings(1) Adjustments Earnings
----------- ------------ -------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Total interest income $ 135,412 -- $135,412 $ 121,242 -- $121,242
Total interest expense 85,967 -- 85,967 74,418 -- 74,418
----------- -------- ----------- --------
Net interest income 49,445 -- 49,445 46,824 -- 46,824
Provision for loan losses 1,414 -- 1,414 2,042 -- 2,042
----------- -------- ----------- --------
Net interest income after
provision for loan losses 48,031 -- 48,031 44,782 -- 44,782
----------- -------- ----------- --------
Total non-interest income 4,661 -- 4,661 3,439 -- 3,439
----------- -------- ----------- --------
Non-interest expense:
General and administrative:
Compensation and benefits 12,913 (3,922)(2) 8,991 12,478 (2,785)(2) 9,693
Other general and
administrative 11,213 -- 11,213 12,196 -- 12,196
----------- ------- -------- ----------- ------- --------
Total general and administrative 24,126 (3,922) 20,204 24,674 (2,785) 21,889
Real estate operations, net 79 -- 79 339 -- 339
Provision for real estate losses 227 -- 227 65 -- 65
Amortization of excess of cost
over fair value of net assets
acquired 2,110 (2,110)(3) -- 2,171 (2,171)(3) --
----------- ------- -------- ----------- ------- --------
Total non-interest expense 26,542 (6,032) 20,510 27,249 (4,956) 22,293
----------- ------- -------- ----------- ------- --------
Income before income
tax expense 26,150 6,032 32,182 20,972 4,956 25,928
Income tax expense 10,943 -- 10,943 9,262 -- 9,262
----------- ------- -------- ----------- ------- --------
Net Income $ 15,207 $ 6,032 $ 21,239 $ 11,710 $ 4,956 $ 16,666
=========== ======= ======== =========== ======= ========
Primary earnings per common share $ 0.72 $ 0.29 $ 1.01 $ .56 $ .23 $ .79
=========== ======= ======== =========== ======= ========
Fully diluted earnings per common
share $ 0.72 $ 0.28 $ 1.00 $ .55 $ .24 $ .79
=========== ======= ======== =========== ======= ========
Primary weighted average
common stock and common
stock equivalents 21,041,675 21,096,987
Fully diluted weighted average
common stock and common
stock equivalents 21,202,313 21,129,049
</TABLE>
(1) Results of operations reported in conformity with generally accepted
accounting principles.
(2) Non-cash amortization expense relating to allocation of ESOP stock and
earned portion of RRP stock, and related tax benefit.
(3) Non-cash amortization expense of excess of cost over fair value of net
assets acquired (goodwill).
25
<PAGE> 27
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF CASH EARNINGS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
----------------------------------------- -------------------------------------------
Reported Cash Report Cash
Earnings (1) Adjustments Earnings Earnings (1) Adjustments Earnings
----------- ----------- -------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total interest income $ 264,485 -- $264,485 $ 237,076 -- $ 237,076
Total interest expense 165,584 -- 165,584 145,518 -- 145,518
----------- -------- ------------ ---------
Net interest income 98,901 -- 98,901 91,558 -- 91,558
Provision for loan losses 1,914 -- 1,914 2,564 -- 2,564
----------- -------- ------------ ---------
Net interest income after
provision for loan losses 96,987 -- 96,987 88,994 -- 88,994
----------- -------- ------------ ---------
Total non-interest income 8,132 -- 8,132 6,997 -- 6,997
----------- -------- ------------ ---------
Non-interest expense:
General and administrative:
Compensation and benefits 26,285 (7,781)(2) 18,504 24,907 (5,406)(2) 19,501
Other general and
administrative 21,600 -- 21,600 23,694 -- 23,694
----------- -------- -------- ------------ ------- ---------
Total general and administrative 47,885 (7,781) 40,104 48,601 (5,406) 43,195
Real estate operations, net 191 -- 191 (2,916) -- (2,916)
Provision for (recovery of) real
estate losses 291 -- 291 (1,332) -- (1,332)
Amortization of excess of cost
over fair value of net assets
acquired 4,220 (4,220)(3) -- 4,342 (4,342)(3) --
----------- -------- -------- ------------ ------- ---------
Total non-interest expense 52,587 (12,001) 40,586 48,695 (9,748) 38,947
----------- -------- -------- ------------ ------- ---------
Income before income
tax expense 52,532 12,001 64,533 47,296 9,748 57,044
Income tax expense 21,891 -- 21,891 20,868 -- 20,868
----------- -------- -------- ------------ ------- ---------
Net Income $ 30,641 $ 12,001 $ 42,642 $ 26,428 $ 9,748 $ 36,176
=========== ======== ======== ============ ======= =========
Primary earnings per common share $ 1.45 $ 0.57 $ 2.02 $ 1.24 $ 0.46 $ 1.70
=========== ======== ======== ============ ======= =========
Fully diluted earnings per common
share $ 1.44 $ 0.57 $ 2.01 $ 1.23 $ 0.46 $ 1.69
=========== ======== ======== ============ ======= =========
Primary weighted average
common stock and common
stock equivalents 21,177,749 21,348,175
Fully diluted weighted average
common stock and common
stock equivalents 21,307,568 21,437,997
</TABLE>
(1) Results of operations reported in conformity with generally accepted
accounting principles.
(2) Non-cash amortization expense relating to allocation of ESOP stock and
earned portion of RRP stock, and related tax benefit.
(3) Non-cash amortization expense of excess of cost over fair value of net
assets acquired (goodwill).
26
<PAGE> 28
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as set forth below, no material events occurred with respect to
legal proceedings during the quarter ended June 30, 1997, not previously
reported.
On April 3, 1997, a purported class action (the "Action") was commenced
in the Supreme Court of the State of New York (Kings County) entitled Leonard
Minzer et ano. v. Gerard C. Keegan, et al. (Index No.11546/1997) against The
Greater New York Savings Bank (the "Greater") and its directors and certain
executive officers. The suit alleges, among other things, that the directors and
executive officers of Greater have breached their fiduciary duties in entering
into the Agreement and Plan of Merger dated as of the 29th day of March, 1997 by
and among Astoria Financial Corporation, Astoria Federal Savings and Loan
Association and Greater (the "Merger Agreement") and related arrangements. The
complaint seeks, among other things, a preliminary and permanent injunction
against the merger of Greater with and into Astoria Federal Savings and Loan
Association (the "Merger") and the related transactions, an order to the
directors and executive officers of Greater to carry-out their fiduciary duties
and unspecified damages and costs. The Greater has indicated that it believes
that the allegations made in the Action are without merit and, on May 16, 1997,
Mr. Keegan and Greater filed a motion to dismiss the Action. Neither Astoria
Financial Corporation nor Astoria Federal Savings and Loan Association is,
pending completion of the Merger, a party to such action. Upon completion of the
Merger, Astoria Federal Savings and Loan Association, as successor to Greater,
intends to aggressively defend its interests with respect to such matter.
On July 18, 1997, a purported class action (the "Federal Action") was
commenced in the United States District Court of the Eastern District of New
York entitled Leonard Minzer et ano. v. Gerard C. Keegan, et al. (Index No. 97
Civ. 4077 (CPS)) against Greater, Greater's directors and certain of its
executive officers, Astoria Financial Corporation and Astoria Federal Savings
and Loan Association. The suit alleges, among other things, that Greater,
Greater's directors and certain of its executive officers solicited proxies in
violation of Section 14(a) of the Securities Exchange Act of 1934 and Rule
14a-9, promulgated thereunder, by failing to disclose certain allegedly material
facts in the proxy statement, as amended, that was circulated to Greater
stockholders in connection with the Merger, and that Greater's directors and
certain of its executive officers have breached their fiduciary duties by
entering into the Merger Agreement and related arrangements. The suit further
alleges, without any specification, that Astoria Financial Corporation and
Astoria Federal Savings and Loan Association participated in the preparation,
specification and distribution of Greater's proxy materials and/or aided and
abetted the alleged breaches of fiduciary duty by Greater defendants. The
complaint seeks, among other things, a preliminary and permanent injunction
against consummation of the Merger and the related transactions, an order
directing that the directors and executive officers of Greater carry-out their
fiduciary duties and unspecified damages and costs. Astoria Financial
Corporation and Astoria Federal Savings and Loan Association were served with
the complaint in the Federal Action on July 30, 1997. On July 31, 1997,
plaintiffs made an application to the Court for expedited discovery and to set a
hearing on their apparently forthcoming application for a preliminary injunction
(the "Application"). Shortly thereafter, all defendants in the Action filed
motions to dismiss the Complaint in the Federal Action. The Court set an
expedited briefing schedule on the defendants' motions to dismiss and the
Application. Astoria Financial Corporation and Astoria Federal Savings and Loan
Association believe the allegations made in the complaint and in the Application
in the Federal Action are without merit and intend to aggressively defend their
interests with respect to such matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 21, 1997
(the "Annual Meeting").
At the Annual Meeting, the shareholders of the Company elected Andrew
M. Burger, Denis J. Connors and Thomas J. Donahue as directors of the Company
each to serve for a three year term and, in any case, until the election and
qualification of their respective successors. Pursuant to the Bylaws of the
Company, no person is eligible for election or appointment as a director who is
seventy-five (75) years of age or older, and no person shall continue to serve
as a director after the regular meeting immediately preceding his seventy-fifth
(75th) birthday. As a result, Mr. Henry Drewitz retired from the Board of
Directors of the Company and the Association on April 16, 1997.
27
<PAGE> 29
The number of votes cast as to each matter acted upon at the Annual
Meeting was as follows:
(a) Election of Directors:
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Andrew M. Burger 18,138,698 1,697,988
Denis J. Connors 18,137,679 1,699,007
Thomas J. Donahue 18,139,720 1,696,966
</TABLE>
There were no broker held non-voted shares represented at the meeting
with respect to this proposal.
(b) Ratification of the appointment of KPMG Peat Marwick LLP
as independent auditors of Astoria Financial Corporation
for its 1997 fiscal year:
<TABLE>
<S> <C>
For 19,661,886
Against 68,638
Abstained 106,182
</TABLE>
There were no broker held non-voted shares represented at the meeting
with respect to this proposal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Statement Re: Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
The following reports on Form 8-K have been filed with the
Securities and Exchange Commission since the beginning of the
quarter ended June 30, 1997:
1) Form 8-K/A dated April 8, 1997 which included the definitive
agreement pursuant to which the Company proposes to acquire The
Greater New York Savings Bank;
2) Form 8-K dated June 30, 1997 which included the First Amendment to
the definitive agreement pursuant to which the Company proposes to
acquire The Greater New York Savings Bank;
3) Form 8-K dated July 17, 1997 which included a copy of the
Company's press release announcing its earnings for the quarter
ended June 30, 1997 and the declaration of a quarterly cash
dividend payable on September 2, 1997; and
4) Form 8-K dated July 24, 1997 which announced the commencement of a
purported class action in United States District Court of the
Eastern District of New York entitled Leonard Minzer and Harry
Schipper v. Gerard C. Keegan, et al (Index No. 97 Civ. 4077 (CPS))
against Astoria Financial Corporation, Astoria Federal Savings and
Loan Association and others.
5) Form 8-K dated August 7, 1997 which announced the results of the
Company's Special Meeting of Stockholders held on August 1, 1997.
28
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Astoria Financial Corporation
Dated: August 12, 1997 By: /s/ Monte N. Redman
--------------------- -------------------------
Monte N. Redman
Senior Vice President and Chief
Financial Officer
Dated: August 12, 1997
---------------------
By: /s/ Frank E. Fusco
-------------------------
Frank E. Fusco
First Vice President, Chief Accounting
Officer and Controller
29
<PAGE> 31
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Identification of Exhibit
- ----------- -------------------------
<S> <C>
11. Statement Re: Computation of Per Share Earnings
27. Financial Data Schedule
</TABLE>
30
<PAGE> 1
(a) EXHIBIT 11. STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997
-------------
(In Thousands
Except Per Share Data)
<S> <C> <C>
1. Net Income $ 30,641
========
2. Weighted average common
shares outstanding 21,229
3. ESOP shares not committed to be released (1,892)
4. RRP shares purchased but unallocated (26)
5. Common stock equivalents due to dilutive
effect of stock options 1,867
--------
6. Total weighted average common shares
and equivalents outstanding 21,178
========
7. Primary earnings per share: $ 1.45
========
8. Total weighted average common shares and
equivalents outstanding 21,178
9. Additional dilutive common stock equivalents due to
effect of stock options 130
--------
10. Total outstanding shares for fully diluted earnings
per share computation 21,308
========
11. Fully diluted earnings per share: $ 1.44
========
</TABLE>
31
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AS OF JUNE 30, 1996
(UNAUDITED) AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 30, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 17,026
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 162,586
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,955,046
<INVESTMENTS-CARRYING> 2,167,309
<INVESTMENTS-MARKET> 2,158,036
<LOANS> 3,085,322
<ALLOWANCE> 14,927
<TOTAL-ASSETS> 7,664,495
<DEPOSITS> 4,545,241
<SHORT-TERM> 525,577
<LIABILITIES-OTHER> 73,470
<LONG-TERM> 1,920,440
264
0
<COMMON> 0
<OTHER-SE> 599,503
<TOTAL-LIABILITIES-AND-EQUITY> 7,664,495
<INTEREST-LOAN> 112,235
<INTEREST-INVEST> 152,250
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 264,485
<INTEREST-DEPOSIT> 96,494
<INTEREST-EXPENSE> 165,584
<INTEREST-INCOME-NET> 98,901
<LOAN-LOSSES> 1,914
<SECURITIES-GAINS> 1,516
<EXPENSE-OTHER> 52,105
<INCOME-PRETAX> 52,532
<INCOME-PRE-EXTRAORDINARY> 30,641
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,641
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 1.44
<YIELD-ACTUAL> 2.70
<LOANS-NON> 23,871
<LOANS-PAST> 4,980
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,683
<ALLOWANCE-OPEN> 14,089
<CHARGE-OFFS> 1,934
<RECOVERIES> 859
<ALLOWANCE-CLOSE> 14,927
<ALLOWANCE-DOMESTIC> 14,927
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
