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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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)
Delaware 11-3170868
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Astoria Federal Plaza, Lake Success, New York 11042
(Address of principal executive offices)
(516) 327-3000
(Registrant's telephone number, including area code)
(Securities registered pursuant to Section 12(b) of the Act):
None
(Securities registered pursuant to Section 12(g) of the Act):
Common Stock $.01 par value
(Title of class)
Preferred Stock, Purchase Rights
(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. YES X 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 the 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 )
The aggregate market value of voting stock held by non-affiliates of the
registrant as of February 28, 1997: Common stock par value $.01 per share,
$792,467,640. This figure is based on the closing price by the Nasdaq National
Market for a share of the registrant's common stock on February 28, 1997, which
was $43.00 as reported in the Wall Street Journal on March 3, 1997. The number
of shares of the registrant's Common Stock outstanding as of February 28, 1997
was 21,356,196 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into this Form 10-K and
the part into which such document is so incorporated are as follows: (1) the
Annual Report to Stockholders for the fiscal year ended December 31, 1996 (Parts
I, II and IV) and (2) the definitive Proxy Statement dated April 7, 1997 to be
distributed on behalf of the Board of Directors of Registrant in connection with
the Annual Meeting of Stockholders to be held on May 21, 1997 and any
adjournment thereof and which is expected to be filed with the Securities and
Exchange Commission on or about April 10, 1997 (Part III).
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FORM 10-K CROSS-REFERENCE INDEX
PART I PAGE
- ------ ----
ITEM 1. BUSINESS
DESCRIPTION OF BUSINESS............................ 1
STATISTICAL DATA:
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS'
EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL 24
SECURITIES PORTFOLIO............................... 25
LOAN PORTFOLIO..................................... 27
ALLOWANCE FOR LOAN, INVESTMENTS IN REAL ESTATE
AND REAL ESTATE OWNED LOSSES...................... 33
DEPOSITS........................................... 35
RETURN ON EQUITY AND ASSETS........................ 38
BORROWINGS......................................... 38
ITEM 2. PROPERTIES.......................................... 39
ITEM 3. LEGAL PROCEEDINGS................................... 43
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 44
PART II
- -------
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS........................ 45
ITEM 6. SELECTED FINANCIAL DATA............................. 45
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................ 45
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY:
INDEPENDENT AUDITORS' REPORT.................. 45
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 45
CONSOLIDATED STATEMENTS OF OPERATIONS......... 45
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 45
CONSOLIDATED STATEMENTS OF CASH FLOWS......... 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................ 45
PART III
- --------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 46
ITEM 11. EXECUTIVE COMPENSATION.............................. 46
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT..................................... 46
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 46
PART IV
- -------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K........................................... 47
SIGNATURES . . . . . . ............................................... 53
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PART I
ITEM 1. BUSINESS
Astoria Financial Corporation (the "Company") is a Delaware Corporation
organized on June 14, 1993, for the purpose of becoming a holding company to own
all of the outstanding capital stock of Astoria Federal Savings and Loan
Association ("the Association") upon the Association's conversion from the
mutual to the stock form of organization. The stock conversion and the Company's
initial public offering were completed on November 18, 1993, at which time, the
Company purchased all of the outstanding stock of the Association.
In addition to directing, planning and coordinating the business
activities of the Association, the Company invests primarily in U.S. Government
and federal agency securities, mortgage-backed and mortgage-related securities
and other securities. The Company has acquired, and may continue to acquire or
organize other operating subsidiaries, including other financial institutions.
GENERAL. The primary business of the Company is the operation of its
wholly owned subsidiary, the Association. The Association's principal business
is attracting retail deposits from the general public and investing those
deposits, together with funds generated from operations, principal repayments
and borrowings, primarily in one-to-four family residential mortgage loans and
mortgage-backed and mortgage-related securities and, to a lesser extent,
multi-family residential mortgage loans, commercial real estate loans and
consumer loans. In addition, the Association invests in securities issued by the
U.S. Government and agencies thereof and other investments permitted by federal
laws and regulations. The Association's revenues are derived principally from
interest on its mortgage loan and mortgage-backed and mortgage-related
securities portfolios and interest and dividends on its other securities
portfolio. The Association's cost of funds consists of interest expense on
deposits and borrowings.
The information presented in the financial statements and in this Form
10-K reflects the financial condition and results of operations of the Company,
as consolidated with the Association, its wholly-owned subsidiary.
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
This Form 10-K contains 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,
but are not limited to, changes in general economic, market,
legislative and regulatory conditions, and the development of an interest rate
environment that affects the interest rate spread or other income anticipated
from the Company's operations and investments.
MARKET AREA AND COMPETITION
The Company has been, and continues to be, a community-oriented federally
chartered savings association offering a variety of financial services to meet
the needs of the communities it serves. The Company's deposit gathering and
lending markets are primarily concentrated in the communities surrounding its
banking offices in Queens, Nassau, Suffolk and Westchester counties in the New
York City metropolitan area and Chenango and Otsego counties in upstate New
York. The Company's third party loan origination
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program and bulk loan purchase transactions increased its volume of one-to-four
family residential mortgage loans outside its primary lending market, thus
helping to reduce its geographical loan concentration. See "Lending Activities."
The New York City metropolitan area has a high density of financial
institutions, a number of which are significantly larger and have greater
financial resources than the Company. All are competitors of the Company to
varying degrees. The Company's competition for loans comes principally from
mortgage banking companies, commercial banks, savings banks, and savings and
loan associations. The Company's most direct competition for deposits comes from
commercial banks, savings banks, savings and loan associations and credit
unions. The Company faces increasing competition for deposits from money market
mutual funds and other corporate and government securities funds as well as from
other financial intermediaries such as brokerage firms and insurance companies.
See "Regulation and Supervision Federally Chartered Savings Association
Regulation - "Insurance of Deposit Accounts."
The New York City metropolitan area economy, during the last three years,
has shown modest growth as evidenced by the gradual decrease in the area's
unemployment rate. Improvement can also be seen in the local real estate market,
as reflected in increased existing home sales during the past few years and the
stabilization of local real estate values. The Company's third party loan
origination program and bulk purchase transactions increased its volume of
one-to-four family residential loans outside its primary lending market, thus
mitigating the Company's potential exposure to a concentration of credit risk.
At December 31, 1996, $592.2 million or 22.8% of the Company's total loan
portfolio was secured by properties located in 42 states other than New York
State. However, the Company does not have a concentration of lending in any
state, other than New York, that comprises more than 5% of the total loan
portfolio.
The Company serves its market areas with a wide selection of loan products
and other retail financial services. Management considers the Company's strong
banking office network, together with its reputation for financial strength and
customer service, as its major competitive advantage in attracting and retaining
customers in its market areas. The Company also believes it benefits from its
community orientation as well as its established deposit base and levels of core
deposits.
FIDELITY ACQUISITION. After the close of business on January 31, 1995, the
Company completed the acquisition of Fidelity New York F.S.B. ("Fidelity") in a
transaction which was accounted for as a purchase. The cost of the acquisition
was $157.8 million and the Company incurred approximately $21.3 million of
acquisition-related costs. The acquisition of Fidelity strengthened the
Company's deposit market share of the Long Island market (Queens, Nassau and
Suffolk counties). The excess of cost over the fair value of net assets acquired
generated in the transaction was $112.1 million, which is being amortized on a
straight line basis over 15 years.
LENDING ACTIVITIES
GENERAL. The Company offers a variety of loan products to serve the credit
needs of its communities. The Company's loan portfolio is comprised primarily of
mortgage loans, most of which are conventional loans secured by one-to-four
family residences and, to a lesser extent, by multi-family residences,
commercial real estate, and land. The remainder of the portfolio, consists of a
variety of consumer and other loans.
At December 31, 1996, $140.1 million, or 5.3% of the Company's total loan
portfolio consisted of purchased mortgage loans and loan participations,
serviced by others, which consisted primarily of one-to-four
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family residential mortgage loans. The Company generally only purchases loans
which are underwritten in accordance with guidelines that meet or exceed the
Company's underwriting guidelines.
From December 31, 1992 to December 31, 1993, the Company's total net loan
portfolio decreased from $1.7 billion, or 49.5% of total assets, to $1.5
billion, or 36.6% of total assets. This decrease resulted from refinances of
loans in a low interest rate environment, principally to 30 year fixed rate
loans, a product not emphasized by the Company during that time, and
management's decision to reduce the Company's level of loans originated
primarily based on loan to appraised value ratios with limited emphasis on
credit verification. From December 31, 1993 to December 31, 1996, the Company's
total net loan portfolio increased to $2.6 billion, or 36.3% of total assets.
The increase resulted primarily from the Company's initiation, during 1994, of a
third party loan origination program and a broker loan program, the acquisition
of Fidelity and from bulk purchases made during the years ended December 31,
1995 and 1996. The Company originates mortgage loans locally, either directly
(from existing or past customers, members of the local communities served, or
referrals from local real estate agents, attorneys and builders), or through
brokers. The retail loan origination program accounted for approximately $234.6
million and $121.3 million of originations during 1996 and 1995, respectively.
The broker loan program includes relationships with local mortgage brokers and
accounted for approximately $378.1 million and $81.4 million of originations
during 1996 and 1995, respectively. The Company's correspondent loan program
(third party originated loans) includes relationships with other financial
institutions, mortgage brokers, and mortgage-bankers; it was initiated in 1994
to increase loan volume and, to a lesser degree, reduce the Company's
geographical loan concentration. Under this program loans are solicited,
committed for and closed by the third party and subsequently purchased by the
Company. This program accounted for approximately $255.8 million and $122.4
million of loan purchases during 1996 and 1995, respectively, of which $192.7
million and $96.6 million, respectively, were outside of New York State.
Additionally, the Company purchases loans in bulk, which totaled $60.2 million
in 1996 compared to $128.3 million in 1995. See Loan Composition table on page
27 and Loan Activity table on page 29.
ONE -TO-FOUR FAMILY MORTGAGE LENDING. The Company's primary lending
emphasis is on the origination and purchase of first mortgage loans secured by
one-to-four family residences that serve as the primary residence of the owner.
To a much lesser degree, the Company makes loans secured by non-owner occupied
one-to-four family properties acquired as an investment by the borrower. The
Company also offers, but has originated a limited number of, second mortgage
loans which are underwritten according to the same standards as first mortgage
loans.
At December 31, 1996, $2.3 billion, or 85.2% of the Company's total loan
portfolio consisted of one-to-four family residential loans, of which $1.1
billion, or 49.2%, were Adjustable Rate Mortgage ("ARM") loans. The Company
currently offers one-year and three-year ARM loans with terms of up to 40 years
and loans with terms of up to 30 years which are fixed for five, seven and ten
years and convert into one-year ARM loans at the end of the initial fixed
period. One-year ARM loans and, to a lesser extent, other ARM loans may carry an
initial interest rate which is less than the fully indexed rate for the loan.
The initial discounted rate is determined by the Company in accordance with
market and competitive factors. All ARM loans offered by the Company have annual
and lifetime ceilings. Generally, ARM loans pose credit risks somewhat greater
than the risk posed by fixed-rate loans primarily because, as interest rates
rise, the underlying payments of the borrower rise, increasing the potential for
default. To recognize the credit risks associated with ARM loans offered at
initial discounts substantially below market interest rates, the Company
generally underwrites its one-year ARM loans assuming a rate equal to 200 basis
points over the initial discounted rate, but not less than 7.0%. For ARM loans
with longer adjustment periods, and therefore, less
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risk due to the longer period for the borrower's income to adjust to anticipated
higher future payments, the Company underwrites the loans using the initial
rate, which may be a discounted rate.
In recent years, the Company has originated a greater number of
one-to-four family residential mortgage loans due to the strengthening of the
economy within the Company's market area as well as the expansion of various
delivery channels. With the growth of the third party loan origination program
and bulk loan purchase transactions, which continued to elevate the volume of
loans outside the Company's historical lending area, along with the broker and
retail programs, the Company was able to increase loan production since 1995.
One-to-four family mortgage loan originations and purchases increased $417.6
million, from $394.0 million in 1995 to $811.6 million in 1996.
The Company's policy on owner-occupied, one-to-four family residential
mortgage loans is to lend up to 80% of the appraised value of the property
securing the loan, or over 80% if private mortgage insurance is obtained. In the
case of cash-out refinancing for owner occupied one-to-four family residential
mortgage loans, the Company allows a maximum 75% loan-to-appraised value ratio.
The Company originates most 30-year fixed-rate loans for immediate sale to
the Federal National Mortgage Association ("FNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC") or other investors, with servicing retained.
Generally, the sale of such loans is arranged through a master delivery
commitment with the investor on a mandatory basis. Additionally, student loans
are sold to the Student Loan Marketing Association generally before repayment
begins during the grace period of the loan.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 122 "Accounting for Mortgage Servicing Rights," ("SFAS
No. 122"), which standardized the treatment of the capitalization of Mortgage
Servicing Rights ("MSRs") by eliminating the difference between purchased MSRs
and originated MSRs. Prior to SFAS No. 122, entities were only allowed to
capitalize MSRs that were purchased and were precluded from capitalizing MSRs
that were originated. SFAS No. 122 provides for the capitalization of MSRs when
mortgage loans are originated and subsequently sold or securitized where the
right to service the loans is retained. The Company's adoption of SFAS No. 122
did not have a material impact on its financial condition or results of
operations.
COMMERCIAL REAL ESTATE AND MULT-FAMILY LENDING. As of December 31, 1996,
the Company's total loan portfolio contained $158.1 million, or 6.0%, of
commercial real estate loans and $166.8 million, or 6.3%, of multi-family loans.
During 1996, the Company originated $108.7 million of commercial, multi-family
and mixed use loans. Mixed use loans are secured by properties which are
constructed for both business and residential use and are classified as
commercial or multi-family based on the greater number of commercial versus
residential units.
The commercial real estate and multi-family loans in the Company's
portfolio consist of both fixed-rate and adjustable rate loans which were
originated at prevailing market rates. If a commercial real estate or
multi-family loan is originated or modified, the Company generally will provide
a five to fifteen year term balloon loan amortized over 15 to 25 years. The
Company's policy has been to originate commercial real estate or multi-family
loans generally in its market areas. In making such loans, the Company primarily
considers the ability of the net operating income generated by the real estate
to support the debt service, the financial resources, income level and
managerial expertise of the borrower, the marketability of the property, and the
Company's lending experience with the borrower.
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Commercial real estate loans typically are secured by properties such as
retail stores, office buildings and other mixed use (more business than
residential units) properties. The single largest commercial real estate loan at
December 31, 1996, had an outstanding principal balance of $21.2 million, was
current and was secured by an office building in Queens, New York.
The majority of the multi-family loans in the Company's portfolio are
secured by six to forty unit apartment buildings and other mixed use (more
residential than business units) properties. The single largest multi-family
loan at December 31, 1996 had an outstanding balance of $5.4 million, was
current and was secured by a ninety-nine unit apartment building located in
Manhattan, New York.
Loans secured by commercial real estate and multi-family properties
generally involve a greater degree of risk than one-to-four family residential
loans. This has been particularly true for commercial real estate loans during
recent years due to a sharp increase in available space and a decrease in demand
for commercial properties in the Company's general market area. The Company
continues to provide multi-family and commercial real estate loans, using
prudent underwriting standards which include consideration of the demand for
such properties and the general economic conditions in its market area.
CONSTRUCTION LENDING. In the past, the Company originated loans to finance
the construction of multi-family and commercial real estate properties, and to a
lesser degree, one-to-four family homes, as well as for the acquisition and
development of land (referred to in the aggregate as construction loans). At
December 31, 1996, construction loans totaled $10.1 million, or 0.38% of the
Company's total loan portfolio. During the past few years, the Company has
virtually ceased construction lending and has reduced its level of construction
loans due to the higher risk associated with this type of lending. The Company
currently does not intend to make construction loans except on a selective basis
and in limited amounts.
Construction loans generally provide for interest-only payments with a
balloon payment at maturity, and are originated for short-terms. The Company's
policy is to allow consideration of loans to purchase land with loan to
appraised value ratios of up to 65%. Construction and land acquisition and
development loans may be considered for loan to value ratios of up to 75%. The
Company generally requires personal guarantees from the principals of the
borrowing entity.
CONSUMER AND OTHER LOANS. At December 31, 1996, $58.1 million, or 2.2%, of
the Company's total loan portfolio consisted of consumer loans, primarily home
equity, passbook loans and credit cards. Consumer loans, with the exception of
home equity lines of credit, are offered primarily on a fixed-rate, short-term
basis. The underwriting standards employed by the Company for consumer loans
include a determination of the applicant's payment history on other debts and an
assessment of the borrower's ability to make payments on the proposed loan and
other indebtedness. In addition to the credit worthiness of the applicant, the
underwriting process also includes a review of the value of the security, if
any, in relation to the proposed loan amount. The Company's consumer loans tend
to have higher interest rates and shorter maturities than one-to-four family
residential mortgage loans, but are considered to entail a greater risk of
default than such loans. The Company, historically, has experienced few losses
on its consumer loan portfolio. There can be no assurance, however, that this
experience will continue in the future.
The Company's home equity lines of credit are originated on one-to-four
family residential properties. These loans are generally limited to aggregate
outstanding indebtedness on the property securing the loan up to 80% of the
appraised value of the property. Such lines of credit are underwritten based
upon guidelines established by the Company in order to evaluate the borrower's
ability and willingness to repay the debt.
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LOAN APPROVAL PROCEDURES AND AUTHORITY. Mortgage loan approval has been
granted by the Board of Directors to the Company's Loan Committee, which
consists of certain members of executive management and other officers.
One-to-four family residential mortgage loans, up to the FNMA guidelines must be
approved by a residential underwriter. For one-to-four family loans over the
FNMA limit and up to $500,000, approval is required from a residential
underwriter and one senior member of the Loan Committee. One-to-four family
residential mortgage loans greater than $500,000 and up to $2.0 million, require
the approval of a residential underwriter and two senior members of the Loan
Committee. For commercial, multi-family, mixed-use and construction loans up to
$250,000 approval by a commercial underwriter is required. For loans of these
types greater than $250,000 and up to $500,000 approval by a commercial
underwriter and one senior member of the Loan Committee is required. For
commercial, multi-family, mixed-use and construction loans greater than $500,000
and up to $2.0 million, approval by two senior members of the Loan Committee is
required. The Company also has a Large Loan/Joint Venture Committee, which
consists of Messrs. Engelke and Drennan and at least two members of the Board of
Directors, which is authorized to approve large loans (any loan greater than
$2.0 million) and participations in joint ventures up to $10.0 million. Any loan
applications or joint venture participations over $10.0 million must be approved
by the Board of Directors. In the first quarter of 1997, the Company amended the
Loan Approval Authority limits as follows: for commercial, multi-family,
mixed-use and construction loans greater than $2.0 million and up to $5.0
million, approval by three senior members of the Loan Committee is required. In
addition, any one loan exceeding $10.0 million, or any loan that will create or
add to an aggregate loan balance in excess of $20.0 million to a single borrower
and/or borrowing entity must be approved by the Board of Directors.
Upon receipt of a completed application from a prospective borrower, for
mortgage loans secured by one-to-four family properties, the Company generally
orders a credit report, verifies income and other information and, if necessary,
obtains additional financial or credit related information. An appraisal of the
real estate used for collateral is also obtained. For mortgage loans secured by
commercial, multi-family and construction properties, appraisals are obtained as
part of the final underwriting process. All appraisals are performed by licensed
or certified appraisers. Most appraisals are currently performed by licensed
independent third party appraisers. The Board of Directors annually approves the
independent appraisers used by the Company and reviews the Company's appraisal
policy.
The Company's policy, for mortgage loans secured by one-to-four family
properties, is to require either title insurance or an attorney's opinion of
title, and hazard insurance. Borrowers generally are required, in addition to
making payments of principal and interest, to advance funds to a mortgage escrow
account from which the Company makes disbursements for items such as real estate
taxes, hazard insurance premiums and private mortgage insurance premiums, if
required.
DELINQUENCIES. When a borrower fails to make a required payment on a loan,
the Company takes a number of steps to induce the borrower to cure the
delinquency and restore the loan to a current status. In the case of mortgage
loans and consumer loans, the Company generally sends the borrower a written
notice of non-payment when the loan is first past due. In the event payment is
not then received, additional letters and phone calls generally are made. In
certain circumstances, on rental properties, the Company may institute
proceedings to seize the rental payments. If the loan is still not brought
current and it becomes necessary for the Company to take legal action, which
typically occurs after a loan is delinquent 90 days or more, the Company may
commence foreclosure proceedings against real property that secures the mortgage
loan and attempt to repossess personal property that secures a consumer loan. If
a foreclosure action is instituted and the loan is not brought current, paid in
full, or refinanced before the foreclosure sale, the real property securing the
loan is generally sold at foreclosure or by the Company as soon thereafter as
practicable. Decisions as to when to commence foreclosure actions for
multi-family, commercial real estate and
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construction and land loans are made on a case by case basis. Since foreclosure
typically halts the sale of the collateral and is generally a lengthy procedure
in New York State, the Company may consider loan work-out arrangements or work
with construction and land, multi-family or commercial real estate borrowers in
an effort to sell or operate the collateral rather than foreclose, particularly
if the borrower is, in the opinion of management, able to effectively manage the
project. For mortgage loans or loan participations serviced by others, the
Company receives monthly reports from its loan servicers with which it monitors
the loan portfolio. Based upon servicing agreements with the servicers of the
loans, the Company relies upon the servicer to contact delinquent borrowers,
collect delinquent amounts and to initiate foreclosure proceedings, when
necessary, all in accordance with applicable laws, regulations and the terms of
the servicing agreements between the Company and its servicing agents. See table
on page 30 for delinquencies.
NON-PERFORMING ASSETS. The Company does not accrue interest on loans past
due 90 days or more, with the exception of selected mortgage loans delinquent 90
days or more as to their maturity date on which the Company has continued to
accept monthly interest payments as if the loan had not matured. Such loans are
primarily balloon loans consisting of smaller commercial and multi-family loans
or are construction loans initially entered into as interest-only loans. In
general, 90 days prior to a loan's maturity, the borrower is reminded of the
maturity date and is sent an application to refinance the loan. Follow up
contacts are made with the borrowers. Although the majority of the loans
typically are refinanced, primarily by the Company, or in the alternative, by
other financial institutions, this process frequently can take longer than 90
days past the loan's original maturity date. Where the borrower has continued to
make timely interest payments to the Company under the terms of the original
note in effect prior to its maturity and where the Company does not have a
reason to believe that any loss will be incurred on the loan, the Company has
treated these loans as current and has continued to accrue interest. Such loans
are classified as non-performing loans. When a loan is placed on non-accrual
status, previous accrued but unpaid interest is deducted from interest income.
Included in the Company's non-performing assets are real estate owned ("REO")
and investments in real estate.
REAL ESTATE OWNED - The net carrying value of the Company's REO totaled
$7.4 million at December 31, 1996. The REO portfolio consists of $5.5 million,
or 74.0%, of residential real estate and $1.9 million, or 26.0%, of
non-residential properties. The Company aggressively markets its REO properties.
During 1996, the combination of sales and additional write-downs, totaling $19.2
million, and continued foreclosures of $8.9 million, resulted in a decrease in
REO, net, of $10.3 million from $17.7 million at December 31, 1995 to $7.4
million at December 31, 1996.
CLASSIFIED ASSETS - The Company's Asset Review Department reviews and
classifies the Company's assets and independently reports the results of its
reviews to the Board of Directors quarterly. The Company's Asset Classification
Committee establishes policy relating to the internal classification of loans
and also provides input to the Asset Review Department in its review of the
Company's classified assets.
Federal regulations and Company policy require the classification of loans
and other assets, such as debt and equity securities considered to be of lesser
quality, as "substandard," "doubtful" or "loss" assets. An asset is considered
"substandard" if it is inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the institution will sustain "some loss" if the deficiencies are not
corrected. Assets classified as "doubtful" have all of the weaknesses inherent
in those classified "substandard," with the added characteristic that the
weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted.
A federally chartered savings association's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the Office of Thrift Supervison ("OTS") which can order the
establishment of additional general or specific loss allowances. The OTS, in
conjunction with the
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other federal banking agencies, provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation allowances. It is required that
all institutions have effective systems and controls to identify, monitor and
address asset quality problems; have analyzed all significant factors that
affect the collectibility of the portfolio in a reasonable manner; and have
established acceptable allowance evaluation processes that meet the objectives
of the Federal regulatory agencies.
Total non-performing assets declined $22.2 million to $45.6 million, or
0.63% of total assets, at December 31, 1996, from $67.8 million, or 1.02% of
total assets, at December 31, 1995. Non-performing loans, declined to $33.5
million at December 31, 1996, from $44.5 million reported at December 31, 1995.
For the year ended December 31, 1996, provision for loan losses increased to
$4.0 million from $2.0 million for the year-ago period. The year-to-year
increase reflects the increase in the mortgage loan portfolio. The allowance for
loan losses as a percentage of total non-performing loans was 42.11% at December
31, 1996, compared to 30.34% at December 31, 1995. The allowance for loan losses
as a percentage of total non-accrual loans was 54.06% at December 31, 1996,
compared to 34.90% at December 31, 1995.
Set forth below is a brief description of each classified asset or group of
assets with a gross carrying value of $3.0 million or more at December 31, 1996.
The carrying value of REO, and investments in real estate is the lower of cost
or fair value less estimated selling costs.
- - The Company holds a restructured substandard loan on a three-story office
building in Queens, New York which continues to perform. The building generates
adequate cash flow to support the 9 1/4% non-amortizing balloon payment mortgage
maturing in 1999. The net book value was $17.6 million at
December 31, 1996.
- - One of the Company's wholly-owned subsidiaries, AF Staten Island Development
Corp., has classified assets with a gross carrying value of $5.8 million at
December 31, 1996. The asset is a parcel of raw land located in Staten Island,
New York. See "Subsidiary Activities."
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
("SFAS No. 114") and Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures" ("SFAS No. 118"). Under SFAS No. 114, a loan is considered
impaired, when based upon current information and events, it is probable that
the creditor will be unable to collect all amounts due including principal and
interest, according to the contractual terms of the loan agreement. Interest
income on impaired loans is recognized on a cash basis. In connection with the
adoption of SFAS No. 114, the Company has, for all years prior to its adoption,
reclassified in-substance foreclosed loans, net of the related allowance for
losses, from real estate owned to loans receivable in the Company's statements
of financial condition and has reclassified provision for losses on in-substance
foreclosed loans from provision for real estate losses to provision for loan
losses in the statements of operations. SFAS No. 114 does not apply to large
groups of smaller-balance homogeneous loans that are collectively evaluated for
impairment, such as one-to-four family mortgage loans and consumer loans. Loans
individually reviewed for impairment by the Company are limited to multi-family
loans, commercial loans, construction and land loans, loans modified in a
troubled debt restructuring and selected large one-to-four family loans.
Examples of measurement techniques utilized by the Company include present
value of expected future cash flows, the loan's market value, if one exists,
and the estimated fair value of the collateral. In addition, SFAS No. 114
amended SFAS No. 15 to limit the application of the concept of an in-substance
foreclosure to those situations where the creditor has obtained physical
possession of the loan collateral, regardless of whether formal foreclosure
proceedings have occurred.
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<PAGE> 11
The Company's total impaired loans at December 31, 1996, net of general
allowance for loan losses of $1.1 million, was $5.9 million, of which $2.1
million are classified as non-performing and $3.8 are current. The Company's
average recorded investment in impaired loans for the year ended December 31,
1996 was $8.9 million. Interest income recognized on impaired loans, which was
not materially different from cash-basis interest income, amounted to $947,000
for the year ended December 31, 1996.
ALLOWANCE FOR LOAN, INVESTMENTS IN REAL ESTATE AND REAL ESTATE OWNED LOSSES.
The Company's allowance for loan losses is established and maintained through a
provision for loan losses based on management's evaluation of the risks inherent
in the Company's loan portfolio including the condition of the economy in which
the Company's loans are located. Such evaluation, which includes a review of all
loans on which full collectibility is not reasonably assured, considers among
other matters, the estimated fair value of the underlying collateral, economic
and regulatory conditions, current and historical loss experience and other
factors to arrive at an adequate loan loss allowance. Although management
believes that the allowance for loan losses has been established and maintained
at adequate levels, future adjustments may be necessary if economic and other
conditions differ substantially from the estimates used in making the initial
determinations. REO and investments in real estate, are carried net of all
allowances for losses, at the lower of cost or fair value less estimated selling
costs. Pursuant to the Company's policy, loan losses must be charged-off in the
period the loans, or portions thereof, are deemed uncollectible.
If an asset is classified, an estimated value of the property securing the
loan is determined through an appraisal, where possible. In instances where the
Company has not taken possession of the property or does not otherwise have
access to the premises and, therefore, cannot obtain an appraisal, a broker's
opinion as to the value of the property is obtained based primarily on a
drive-by inspection and a comparison of the property securing the loan with
similar properties in the area. If the unpaid balance of the loan is greater
than such estimated fair value, a specific reserve is established for the
difference between the carrying value and the estimated fair value. General
valuation allowances are also established and represent loss allowances that
have been established to recognize the inherent risk associated with lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem assets.
A review of the loan portfolio is undertaken as part of the examination of
the Company by the OTS. While the Association believes it has established an
adequate allowance for loan losses, there can be no assurance that regulators,
as a result of reviewing the Association's loan portfolio, will not request the
Association to increase its allowance for loan losses, thereby negatively
affecting the Association's and the Company's financial condition and earnings.
INVESTMENT ACTIVITIES
GENERAL. The investment policy of the Company is designed primarily to
enable the Company to manage the interest rate sensitivity of its overall assets
and liabilities, to generate a favorable return without incurring undue interest
rate and credit risk, to complement the Company's lending activities and to
provide and maintain liquidity primarily through cash flow. In establishing its
investment strategies, the Company considers its business and growth plans, the
economic environment, its interest rate sensitivity "gap" position, the types of
securities to be held and other factors. Federally chartered savings
associations have authority to invest in various types of assets, including U.S.
Treasury obligations, securities of various federal agencies, mortgage-backed
and mortgage-related securities, including Collateralized Mortgage Obligations
("CMOs") and Real Estate Mortgage Investment Conduits ("REMICs"), certain
certificates of deposit of insured banks and federally chartered savings
associations, certain bankers acceptances, repurchase agreements, loans of
federal funds and subject to certain limits, corporate securities, commercial
paper and mutual funds.
CMOs and REMICs are typically issued by a special purpose entity, which may
be organized in a variety of legal forms, such as a trust, a corporation or a
partnership. The entity aggregates pools of loans or pass-through securities,
which are used to collateralize the mortgage-related securities. Once combined,
the cash
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<PAGE> 12
flows are divided into "tranches" or classes of individual securities, thereby
creating more predictable average lives for each security than the underlying
collateral. Accordingly, under this security structure, loan principal and
interest payments are allocated to a mortgage-related securities class or
classes structured to have priority until it has been paid off.
The Company's and the Association's Investment Committees, which are
comprised of three senior officers, meet at least monthly to monitor the
Company's and the Association's investment transactions and to review and amend
as necessary, investment strategy. The Boards of Directors of the Company and
the Association review the Company's and the Association's investment policy,
respectively, at a minimum, on an annual basis and the Company's and the
Association's investment activities on a monthly basis.
Thrift Bulletin Number 52 ("TB-52"), the OTS Policy Statement on securities
portfolio policies and unsuitable investment practices, requires that
institutions classify mortgage derivative products acquired, including certain
tranches of REMICs and CMOs, as "high-risk mortgage securities" if such products
exhibit greater price volatility, assuming certain interest rate scenarios, than
a benchmark fixed-rate 30-year mortgage-backed pass-through security.
Institutions may only hold high-risk mortgage securities to reduce interest-rate
risk in accordance with safe and sound practices and must also follow certain
prudential safeguards in the purchase and retention of such securities. At
December 31, 1996, the Company had $2.3 million of such high-risk mortgage
securities, which are classified as available-for-sale.
The Company's investment policy also permits it to invest in certain
derivative financial instruments. These instruments consist of interest rate
swaps and options and are generally used to hedge against interest rate
exposure. See "Notes to Consolidated Financial Statements" included in Item 8 -
Financial Statements and Supplementary Data, for further discussion of such
derivative financial instruments.
SECURITIES COMPOSITION. At December 31, 1996, the Company had $681.1
million, or 9.4% of total assets, in mortgage-backed securities, insured or
guaranteed by either the FNMA, FHLMC or the Government National Mortgage
Association ("GNMA"). In addition, the Company had $2.3 billion in REMICs and
CMOs, or 32.2% of total assets, of which 90% had fixed rates. The remaining
balance had floating rates, which adjust quarterly with floors ranging from 0%
to 1.5% and caps ranging from 9.0% to 13.0%. The Company's REMICs and CMOs had
coupon rates ranging from 5.0% to 10.3% and a weighted average yield of 6.65% at
December 31, 1996. Of the REMICs and CMOs portfolio, $2.1 billion, or 88.7%, are
insured or guaranteed, either directly or indirectly, by the FNMA, FHLMC or
GNMA, as issuer, or through mortgage-backed securities underlying the
obligations. Management believes these securities represent attractive and
limited risk alternatives to other investments due to the wide variety of
maturity and repayment options available. These investments are a complement and
a supplement to portfolio lending opportunities. At December 31, 1996, the
Company also had $404.9 million of AA-rated ARM certificates, which have
interest rate caps ranging from 10.0% to 23.0%, coupon rates ranging from 5.6%
to 8.4% and a weighted average yield of 7.49%. The remaining securities
portfolio of $836.4 million, or 11.5% of total assets, consists of obligations
of U.S. Government and agencies, obligations of state and political subdivisions
and equity and corporate debt securities. See tables on pages 25 and 26.
SECURITIES AVAILABLE-FOR-SALE. The Company follows Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). SFAS No. 115 generally requires that equity
securities that have readily determinable fair values or debt securities that
may be sold in response to or in anticipation of changes in interest or
prepayment rates, or other factors, be classified as available-for-sale and
carried at estimated fair value. The Company has held a portfolio of securities
classified as available-for-sale beginning January 1, 1994, which are carried at
estimated fair value, with unrealized gains and losses, net of taxes, reported
as a separate component of stockholders' equity. For further information on the
Company's available-for-sale portfolio, see "Notes to Consolidated Financial
Statements" included in Item 8 - Financial Statements and Supplementary Data.
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<PAGE> 13
SECURITIES HELD-TO-MATURITY. The Company's held-to-maturity portfolio
consists primarily of seasoned fixed-rate mortgage-backed and mortgage-related
securities and U.S. government and agency securities. These securities represent
those which management has both the ability and positive intent to hold to
maturity, and are carried at their amortized cost. At December 31, 1996, the
Company's total held-to-maturity portfolio was $2.0 billion, or 27.0% of total
assets.
SOURCES OF FUNDS
GENERAL. The Company's primary source of funds are provided by investing
activities which include principal and interest payments on loans and
mortgage-backed, mortgage-related and other securities. The Company's other
sources of funds are provided by operating activities (primarily net income) and
financing activities, primarily from deposits, Federal Home Loan Bank of New
York ("FHLB-NY") advances and reverse repurchase agreements.
DEPOSITS. The Company offers a variety of deposit accounts with a range of
interest rates and terms. The Company presently offers passbook and statement
savings, NOW accounts, money market accounts and certificates of deposit. Of the
total deposit balance, $730.1 million, or 16.2%, represent Individual Retirement
Accounts ("IRAs"). During the first quarter of 1996, the Company implemented a
program which converted its NOW accounts to a master account consisting of a NOW
sub-account and a money market sub-account (money manager account). The result
of this change was a substantial shift of deposits from NOW accounts to money
manager accounts.
The flow of deposits is influenced significantly by general economic
conditions, changes in prevailing interest rates, pricing of deposits and
competition. The Company's deposits are primarily obtained from areas
surrounding its banking offices. The Company relies primarily on marketing, new
products, service and long-standing relationships with customers to attract and
retain these deposits. The Company does not use brokers to obtain deposits. At
December 31, 1996, the Company had $298.5 million in certificate of deposit
accounts in amounts of $100,000 or more.
When management determines the levels of the Company's deposit rates,
consideration is given to local competition, yields of U.S. Treasury securities
and the rates charged on other sources of funds. The Company has maintained a
high level of core deposits, which has contributed to its low cost-of-funds.
Core deposits include savings, money market, money manager and NOW accounts,
which, in aggregate, represented 38.5%, 39.6% and 38.7% of total deposits at
December 31, 1996, 1995 and 1994, respectively.
BORROWINGS. The Company obtains advances from the FHLB-NY which are
generally secured by a blanket lien against, among other things, the Company's
mortgage portfolio and the Company's investment in the stock of the FHLB-NY. See
"Regulation and Supervision - Federal Home Loan Bank System." The maximum amount
that the FHLB-NY will advance, for purposes other than for meeting withdrawals,
fluctuates from time to time in accordance with the policies of the FHLB-NY. At
December 31, 1996, the Company had an overnight line of credit with the FHLB-NY
available for up to $50.0 million for a twelve month period, priced at the
federal funds rate plus 12.5 basis points. The Company also enters into reverse
repurchase agreements with nationally recognized primary securities dealers and
the FHLB-NY. Reverse repurchase agreements are accounted for as borrowings and
are secured by the securities sold with agreements to repurchase. In order to
fund its asset growth during 1996, as well as being a part of its interest rate
risk management strategy, the Company increased its borrowings by $406.8
million, or 23.9%, to $2.1 billion at December 31, 1996 from $1.7 billion at
December 31, 1995. The increase was primarily in the form of callable reverse
repurchase agreements. At December 31, 1996, $600.0 million of borrowing
agreements were callable within one year. See table on page 38.
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SUBSIDIARY ACTIVITIES
The Association has formed or acquired a number of subsidiaries. At
December 31, 1996, the following were wholly-owned subsidiaries of the
Association:
AF Agency, Inc. was formed in 1990 to offer tax-deferred annuities
through its licensed agents who are also employees of the Association. The
Association is reimbursed for expenses and administrative services it provides
to AF Agency, Inc. The subsidiary's agents are paid on a commission basis.
During 1995, AF Agency, Inc. began selling Savings Banks Life Insurance as an
agent for another issuing New York State chartered thrift.
AF Cortlandt Corp. was formed in 1987 to enter into a joint venture to
acquire land located in Cortlandt, New York and develop lots for the
construction of 119 single-family homes. The Association provided a construction
loan to the joint venture. In September 1990, the joint venture partnership was
dissolved and AF Cortlandt Corp. assumed responsibility for the project. As of
December 31, 1992, all site development had been completed, and during 1996 all
remaining lots were sold, finalizing the project.
AF Staten Island Development Corp. was formed in 1985 to enter into a
joint venture with another New York City metropolitan area financial institution
and a real estate developer to acquire and develop raw land in Staten Island,
New York. This joint venture has experienced significant delays in obtaining
required approvals from the City of New York to develop the land and, as such,
development has not yet commenced. At December 31, 1996, the gross carrying
value in the project of $5.8 million, was classified as substandard.
Shoratlantic Development Co., Inc. and Shorham Development Co., Inc.,
acquired in 1995 as part of the Fidelity acquisition, are inactive except for
certain litigation in which they are involved, the outcome of which is not
expected to have a material impact on the Company's financial condition or
results of operations.
Dollar Service Corporation, acquired in 1995 as part of the Fidelity
acquisition, is primarily a holding company of second tier subsidiaries. These
include 420 East 58th Street Service Corporation, 420 East 58th Street
Corporation and Bayside Mall Real Property Holding Corporation, all of which are
inactive with carrying values of $ -0-. Dollar Service Corporation is also the
holding company for Gram Corporation and 14th Street Real Property Holding
Corporation. These companies each held single parcels of real estate either
under development or acquired through foreclosure. At December 31, 1995 the
aggregate carrying values of the real estate reported in REO were $4.8 million.
During the first quarter of 1996, all such parcels were liquidated.
AF Roosevelt Ave. Corp., AF Glen Cove Corp., SFS Resources Corp., 3
Belmont Corp., FNY Service Corp. and Fidata Service Corp. are all currently
inactive.
During the first quarter of 1997, the Association created a new operating
subsidiary, Astoria Preferred Funding Corporation, intended to qualify as a real
estate investment trust, which may, among other things, be utilized by the
Association to raise capital in the future. Upon formation of Astoria Preferred
Funding Corporation, the Association transferred approximately $1.6 billion of
mortgage loans to this subsidiary.
PERSONNEL
As of December 31, 1996, the Association had 828 full-time employees and
204 part-time employees. The employees are not represented by a collective
bargaining unit and the Association considers its relationship with its
employees to be good.
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<PAGE> 15
REGULATION AND SUPERVISION
GENERAL
The Association is subject to extensive regulation, examination and
supervision by the OTS, as its chartering agency, and by the FDIC, as the
deposit insurer. The Association is a member of the Federal Home Loan Bank
("FHLB") System, and its deposit accounts are insured up to applicable limits by
the FDIC under the Savings Association Insurance Fund ("SAIF"). The Association
must file reports with the OTS and the FDIC concerning its activities and
financial condition in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers with, or acquisitions of,
other financial institutions. There are periodic examinations by the OTS and the
FDIC to test the Association's compliance with various regulatory requirements.
The OTS has primary enforcement responsibility over federally chartered savings
associations and has substantial discretion to impose enforcement action on an
institution that fails to comply with its regulatory requirements, particularly
with respect to its capital requirements. In addition, the FDIC has the
authority to recommend to the Director of the OTS that enforcement action be
taken with respect to a particular federally chartered savings association and,
if action is not taken by the Director, the FDIC has authority to take such
action under certain circumstances.
This regulation and supervision establish a comprehensive framework of
activities in which an institution can engage and is intended primarily for the
protection of the insurance fund and depositors. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
regulation, whether by the OTS, FDIC or Congress, could have a material adverse
impact on the Company, the Association and their operations. The Company, as a
savings and loan holding company, is required to file certain reports with, and
otherwise comply with the rules and regulations of the OTS and of the Securities
and Exchange Commission ("SEC") under the federal securities laws. Certain of
the regulatory requirements applicable to the Association and to the Company are
referred to below or elsewhere herein.
The description of statutory provisions and regulations applicable to
federally chartered savings associations set forth in this document do not
purport to be complete descriptions of such statutes and regulations and their
effects on the Association.
FEDERALLY CHARTERED SAVINGS ASSOCIATION REGULATION
BUSINESS ACTIVITIES. The activities of federally chartered savings
associations are governed by the Home Owner's Loan Act, as amended ("HOLA") and,
in certain respects, by the Federal Deposit Insurance Act ("FDI Act"). The HOLA
and the FDI Act were amended significantly by the Financial Institution Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") and the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"). Both FIRREA and FDICIA
contain provisions affecting numerous aspects of the operations and regulations
of federally-insured savings associations and empowers the OTS and the FDIC,
among other agencies, to promulgate regulations implementing its provisions.
The federal banking statutes as amended by FIRREA and FDICIA, among other
things, (l) restrict the use of brokered deposits by federally chartered savings
associations that are not well-capitalized, (2) prohibit the acquisition of any
corporate debt security that is not rated in one of the four highest rating
categories, (3)
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<PAGE> 16
restrict the aggregate amount of loans secured by non-residential real estate
property, (4) permit savings and loan holding companies to acquire up to 5% of
the voting shares of non-subsidiary federally chartered savings associations or
savings and loan holding companies without prior approval of the OTS, (5) permit
bank holding companies to acquire healthy federally chartered savings
associations and (6) require the federal banking agencies to establish by
regulation uniform standards for real estate lending. Under HOLA, the
Association has the authority to make certain loans or investments not exceeding
5.0% of its total assets on each of (i) non-conforming loans (loans in excess of
the specific limitations of the HOLA) and (ii) construction loans without
security for the purpose of financing what is or is expected to be residential
property. To assure repayment of such loans, an association would rely
substantially on the borrower's general credit standing, personal guarantees and
projected future income on the properties.
CAPITAL REQUIREMENTS. The OTS capital regulations require federally
chartered savings associations to meet three capital ratios: a 1.5% tangible
capital ratio, a 3% leverage (core capital) ratio and an 8% risk-based capital
ratio. Core capital is defined as common stockholders' equity (including
retained earnings but excluding net unrealized gains and losses from
available-for-sale debt securities), certain noncumulative perpetual preferred
stock and related surplus, minority interests in equity accounts of consolidated
subsidiaries, less intangibles other than certain qualifying supervisory
intangible assets, certain MSRs and certain other assets as defined by OTS
capital regulations. The OTS regulations also require that, in meeting the
tangible, leverage, and risk-based capital ratios, institutions must deduct
investments in and loans to subsidiaries engaged in activities not permissible
for a national bank.
The risk-based capital standard for federally chartered savings
associations requires the maintenance of total risk-based capital (which is
defined as core capital plus supplementary capital less certain adjustments) to
risk weighted assets of 8%. In determining the amount of risk-weighted assets,
all assets, including certain off balance sheet assets, are multiplied by a
risk-weight of 0% to 100%, as assigned by the OTS capital regulation based on
the risks the OTS believes are inherent in the type of asset. The components of
core capital are equivalent to those discussed earlier under the 3% leverage
ratio. The components of supplementary capital currently include cumulative
preferred stock, long-term perpetual preferred stock, mandatory convertible
securities, subordinated debt and intermediate preferred stock and allowance for
loan and lease losses. Allowance for loan and lease losses includable in
supplementary capital is limited to a maximum of 1.25% of risk-weighted assets.
Overall, the amount of supplementary capital counted toward total capital cannot
exceed 100% of core capital. In addition, certain assets are required to be
deducted from risk-based capital such as certain equity investments and
construction loans with loan-to-value ratios exceeding 80%.
FDICIA requires that the OTS and other federal banking agencies revise
risk-based capital standards, with appropriate transition rules, to ensure that
they take into account interest rate risk ("IRR"), concentration of risk and the
risks of non-traditional activities. The OTS adopted regulations, effective
January 1, 1994, that set forth the methodology for calculating an interest rate
risk component to be incorporated into the OTS risk-based capital regulations.
The OTS has indefinitely deferred its requirement of the interest rate risk
component in the calculation of an institution's risk-based capital calculation.
The OTS continues to monitor the IRR of individual institutions and retains the
right to impose minimum capital on individual institutions. Based on the
Association's IRR profile and the level of interest rates at December 31, 1996,
as well as the Association's level of risk-based capital at December 31, 1996,
management believes that the Association does not have a greater than normal
level of IRR as measured under the OTS rule and would not be required to
increase its capital as a result of the rule.
At December 31, 1996, the Association met each of its capital
requirements. The following table sets forth the regulatory capital calculations
of the Association at December 31, 1996, calculated in accordance with
applicable requirements of the OTS. At December 31, 1996, the Association is a
"well capitalized" institution.
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<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
---------------------------------------------------------------------------
CAPITAL ACTUAL EXCESS
REQUIREMENT CAPITAL CAPITAL
----------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible ...... $107,214 1.5% $404,016 5.65% $296,802 4.15%
Leverage ...... 214,428 3.0 404,016 5.65 189,588 2.65
Risk-based..... 203,773 8.0 418,038 16.41 214,265 8.41
</TABLE>
PROMPT CORRECTIVE REGULATORY ACTION. FDICIA establishes a system of prompt
corrective action to resolve the problems of undercapitalized institutions.
Under this system, the banking regulators are required to take certain
supervisory actions against undercapitalized institutions, the severity of which
depends upon the institution's degree of capitalization. Generally, subject to a
narrow exception, FDICIA requires the applicable banking regulator to appoint a
receiver or conservator for an institution that is critically undercapitalized.
Under the OTS regulations, generally, a federally chartered savings
association is treated as well capitalized if its total risk-based capital ratio
is 10% or greater, its Tier 1 risk-based capital ratio is 6% or greater, and its
leverage ratio is 5% or greater, and it is not subject to any order or directive
by the OTS to meet a specific capital level. A federally chartered savings
association will be adequately capitalized if its ratio of risk-based capital to
risk-weighted assets is at least 8%, its Tier 1 risk-based capital ratio is at
least 4%, and its leverage ratio is at least 4% (3% if the institution receives
the highest rating on the CAMEL rating system). A federally chartered savings
association that has a total risk-based capital ratio of less than 8% or a
leverage ratio or a Tier 1 risk-based capital ratio of less than 4% is
considered to be "undercapitalized." A federally chartered savings association
that has a total risk-based capital ratio of less than 6%, a Tier I risk-based
capital ratio of less than 3% or a leverage ratio of less than 3% is considered
to be "significantly undercapitalized," and a federally chartered savings
association that has a tangible-capital to assets ratio equal to or less than 2%
is deemed to be "critically undercapitalized." Generally, a capital restoration
plan must be filed with the OTS within 45 days of the date an association
receives notice that it is "undercapitalized," "significantly undercapitalized"
or "critically undercapitalized." In addition, various mandatory supervisory
actions become immediately applicable to the institution, including restrictions
on growth of assets and other forms of expansion. The OTS could also take any
one of a number of discretionary supervisory actions, including the issuance of
a capital directive and the replacement of senior executive officers and
directors. As of December 31, 1996, the Association was considered "well
capitalized" by the OTS.
INSURANCE OF DEPOSIT ACCOUNTS. Pursuant to FDICIA, the FDIC established a
risk-based assessment system for insured depository institutions that takes into
account the risks attributable to different categories and concentrations of
assets and liabilities. Under the risk-based assessment system, the average
assessment rate paid by institutions insured under the SAIF and the Banking
Insurance Fund ("BIF") was increased. Under the risk-based assessment system,
the FDIC assigns an institution to one of three capital categories based on the
institution's financial information as of the reporting period ending seven
months before the assessment period, consisting of (1) well capitalized, (2)
adequately capitalized or (3) undercapitalized. The FDIC also assigns an
institution to one of three supervisory subcategories within each capital group.
The supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation provided to the FDIC by the institution's primary federal
regulator and information that the FDIC determines to be relevant to the
institution's financial conditions and the risk posed to the deposit insurance
funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's assessment rate depends on the
capital category and supervisory category to which it is assigned. Under the
risk-based assessment system, there are nine assessment risk classifications
(i.e., combinations of capital groups and supervisory subgroups) to which
different assessment rates are applied. For the first three quarters of 1996,
SAIF-insured
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institutions paid deposit insurance assessment rates of $0.23 to $0.31 per $100
of deposits (annualized). As a well capitalized institution, the Association
paid deposit insurance assessment rates of $0.23 per $100 of deposits or $7.4
million. In contrast, BIF-insured institutions that were well capitalized and
without any significant supervisory concerns paid the minimum annual assessment
of $2,000, and all other BIF-insured institutions paid deposit insurance
assessment rates of $0.03 to $0.27 per $100 of deposits. In response to the
SAIF/BIF assessment disparity, the Deposit Funds Insurance Act of 1996 (the
"Funds Act") was enacted into law on September 30, 1996. For further information
on the Funds Act and its impact on the Company's 1996 results of operations and
estimated impact on the Company's 1997 results of operations, see Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LOANS TO ONE BORROWER. Under the HOLA, savings associations are generally
subject to the national bank limits on loans to one borrower. Generally, savings
associations may not make a loan or extend credit to a single or related group
of borrowers in excess of 15% of the institution's unimpaired capital and
surplus. An additional amount may be loaned, equal to 10% of unimpaired capital
and surplus, if such loan is secured by readily-marketable collateral, which is
defined to include certain securities and bullion, but generally does not
include real estate. At December 31, 1996, the Association's largest aggregate
amount of loan(s) to one borrower totaled $21.2 million, and the second largest
borrower had an aggregate balance totaling $13.0 million. All of the loans for
the largest and second largest borrowers were current. These borrowers had no
affiliation with the Association.
QUALIFIED THRIFT LENDER ("QTL") TEST. The HOLA requires savings associations
to meet a QTL test. Under the QTL test, as modified by FDICIA, a savings
association is required to maintain at least 65% of its "portfolio assets"
(total assets less (i) specified liquid assets up to 20% of total assets, (ii)
intangibles, including goodwill, and (iii) the value of property used to conduct
business) in certain "qualified thrift investments" (primarily residential
mortgages and related investments, including certain mortgage-backed and
mortgage-related securities) on a monthly basis in 9 out of every 12 months.
A savings association that fails the QTL test and does not convert to a bank
charter generally will be prohibited from: (i) engaging in any new activity not
permissible for a national bank, (ii) paying dividends not permissible under
national bank regulations, (iii) obtaining advances from any FHLB, and (iv)
establishing any new branch office in a location not permissible for a national
bank in the association's home state. In addition, beginning three years after
the association failed the QTL test, the association would be prohibited from
engaging in any activity not permissible for a national bank and would have to
repay any outstanding advances from the FHLB as promptly as possible. On
September 30, 1996, as part of the omnibus appropriations bill, Congress enacted
the Economic Growth and Paperwork Reduction Act of 1996 ("Regulatory Paperwork
Reduction Act"), modifying and expanding the investment authority of federal
savings associations under the QTL test. Prior to the enactment of the
Regulatory Paperwork Reduction Act, commercial, corporate, business, or
agricultural loans were limited in the aggregate to 10% of a thrift's assets and
education loans were limited to 5% of a thrift's assets. Further, in order to
qualify for favorable tax treatment, federal savings associations also had to
meet a different asset test under the Internal Revenue Code (the "domestic
building and loan association test"). The amendments permit federal thrifts to
invest in, sell, or otherwise deal in education and credit card loans without
limitation and raise from 10 to 20 percent of total assets the aggregate amount
of commercial, corporate, business, or agricultural loans or investments that
may be made by a thrift, subject to a requirement that amounts in excess of 10%
of total assets be used only for small business loans. In addition, the
legislation defines "qualified thrift investment" to include, without limit,
education, small business, and credit card loans; and removes the 10% limit on
personal, family, or household loans for purposes of the QTL test. The
legislation also provides that a thrift meets the QTL test if it qualifies as a
domestic building and loan association under the Internal Revenue Code. As of
December 31, 1996, the Association maintained its portfolio assets in qualified
thrift investments in excess of 85% and had more than 65% of its portfolio
assets in qualified thrift investments for each of the 12 months ending December
31, 1996. Therefore, the Association qualified under the QTL test.
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LIMITATION ON CAPITAL DISTRIBUTIONS. The OTS regulations impose limitations
upon all capital distributions by federally chartered savings associations, such
as cash dividends, payments to repurchase or otherwise acquire its shares,
payments to shareholders of another institution in a cash-out merger and other
distributions charged against capital. The rule establishes three tiers of
institutions, which are based primarily on an institution's capital level. An
institution that exceeds all fully phased-in capital requirements before and
after a proposed capital distribution ("Tier I Association") and has not been
advised by the OTS that it is in need of more than normal supervision, could,
after prior notice but without the approval of the OTS, make capital
distributions during a calendar year equal to the greater of: (i) 100% of its
net income to date during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" (the excess capital over its fully
phased-in capital requirements) at the beginning of the calendar year or (ii)
75% of its net income for the previous four quarters. Any additional capital
distributions would require prior regulatory approval. As of December 31, 1996,
the Association was a Tier I Association. In the event the Association's capital
fell below its fully-phased in requirement or the OTS notified the Association
that it was in need of more than normal supervision, the Association's ability
to make capital distributions could be restricted. In addition, the OTS could
prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice. Furthermore, under
the OTS' prompt corrective action regulations, the Association would be
prohibited from making any capital distributions if, after the distribution, the
Association would not comply with applicable minimum capital requirements. See
"Regulation and Supervision--Capital Requirements." At the time of the
conversion to stock form, the Association was required to establish a
liquidation account in an amount equal to its capital as of June 30, 1993. As
part of the acquisition of Fidelity, the Association established a similar
liquidation account equal to the remaining liquidation account balance
previously maintained by Fidelity as a result of its conversion from mutual to
stock form of ownership. The liquidation account 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 may not declare or pay cash dividends on or repurchase any of its
shares of common stock if the effect thereof would cause stockholders' equity to
be reduced below the amount required for the liquidation account.
LIQUIDITY. The Association is required to maintain an average daily balance of
liquid assets (cash, certain time deposits, bankers' acceptances, specified
United States Government, state or federal agency obligations, shares of certain
mutual funds and certain corporate debt securities and commercial paper) equal
to a monthly average of not less than a specified percentage of its net
withdrawable deposit accounts plus short-term borrowings. This liquidity
requirement may be changed from time to time by the OTS to any amount within the
range of 4% to 10% depending upon economic conditions and the savings flows of
member institutions, and is currently 5%. The OTS regulations also require each
federally chartered savings association to maintain an average daily balance of
short-term liquid assets at a specified percentage (currently 1%) of the total
of its net withdrawable deposit accounts and borrowings payable in one year or
less. Monetary penalties may be imposed for failure to meet these liquidity
requirements. The Association's liquidity and short-term liquidity ratios for
December 31, 1996 were 8.60% and 3.76%. The Association has never failed to meet
its liquidity requirements.
ASSESSMENTS. Federally chartered savings associations are required by the OTS
regulations to pay assessments to the OTS to fund the operations of the OTS. The
general assessment, paid on a semi-annual basis, is computed upon the federally
chartered savings association's total assets, including consolidated
subsidiaries, as reported in the association's latest quarterly thrift financial
report. The assessment recorded by the Association for the year ended December
31, 1996 totaled $917,200.
BRANCHING. The OTS regulations authorize federally chartered savings
associations to branch nationwide to the extent allowed by federal statute. This
permits federal savings and loan associations with interstate networks to
diversify more easily their loan portfolios and lines of business
geographically. The OTS' authority preempts any state law purporting to regulate
branching by federal savings associations. The
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branching powers afforded federal savings associations are broader than the
branching authority currently available to national banks and state chartered
institutions, which generally lack the authority to branch outside their state
of domicile. However, national banks and state chartered banks and savings banks
will have increased authority under 1995 legislation to establish interstate
branches beginning in June 1997.
COMMUNITY REINVESTMENT. Under the Community Reinvestment Act ("CRA"), as
implemented by the OTS regulations, a federally chartered savings association
has a continuing and affirmative obligation, consistent with its safe and sound
operation, to meet the credit needs of its entire community, including low and
moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OTS, in connection with its examination of a federally
chartered savings association, to assess the institution's record of meeting the
credit needs of its community and to take such record into account in its
evaluation of certain applications by such institution. The CRA also requires
all institutions to make public disclosure of their CRA ratings. The Association
has been rated as "outstanding" as of the most recent examination.
In April 1995, the OTS and the other federal banking agencies amended their
CRA regulations, effective July 1, 1997. Among other things, the amended
regulations substitute for the current process-based assessment factors a new
evaluation system that rates an institution based on its actual performance in
meeting community needs. In particular, the amended system focuses on three
tests: (a) a lending test, to evaluate the institution's record of making loans
in its assessment areas; (b) an investment test, to evaluate the institution's
record of investing in community development projects, affordable housing, and
programs benefiting low or moderate income individuals and businesses; and (c) a
service test, to evaluate the institution's delivery of services through its
branches, ATMs and other offices. The amended regulations also clarify how an
institution's CRA performance would be considered in the application process and
seek to make the CRA regulations more enforceable.
FINANCIAL MANAGEMENT REQUIREMENTS. FDIC regulations adopted pursuant to FDICIA
impose stringent reporting requirements and require the establishment and
maintenance of internal control structures and procedures. Certain of the FDIC
regulations are applicable to any insured depository institution having assets
of $500 million or more as of the beginning of a fiscal year and require
management to prepare annual and agency reports on the financial condition and
management of the institution, which would be filed with the FDIC and the OTS in
the case of a federally chartered savings association. The annual report must
contain financial statements prepared in accordance with generally accepted
accounting principles and be audited by the institution's independent public
accountant. This report also must contain management's assertions concerning the
effectiveness of the institution's internal control structure and procedures and
its compliance with designated laws and regulations. Additionally, the FDIC
regulations require that the independent public accountant attest to
management's assertions concerning the institution's internal control structure.
In addition, the FDIC regulations require that an insured depository
institution have an independent audit committee comprised of outside directors
that, in the case of an institution with total assets of more than $3 billion,
includes members with banking or related financial management expertise, has
access to outside counsel, and does not include any large customer of the
institution.
TRANSACTIONS WITH RELATED PARTIES. The Association's authority to engage in
transactions with "affiliates" (i.e., any company that controls or is under
common control with an institution, which for the Association would include the
Company and its non-federally chartered savings association subsidiaries, if
any) is limited by Sections 23A and 23B of the Federal Reserve Act ("FRA").
Section 23A limits the aggregate amount of transactions with any individual
affiliate to 10% of the capital and surplus of the federally chartered savings
association and also limits the aggregate amount of transactions with all
affiliates to 20% of the federally chartered savings association's capital and
surplus. A loan or other extension of credit to an affiliate must be secured by
collateral in an amount and of a type described in Section 23A, and the purchase
of low quality
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assets from an affiliate is generally prohibited. Section 23B requires that a
wide range of transactions with affiliates, including loans and asset
transactions, be on terms and under circumstances, including credit standards,
that are substantially the same or at least as favorable to the institution as
those prevailing at the time for comparable transactions with nonaffiliated
companies. In the absence of comparable transactions, such transactions may only
occur under terms and circumstances, including credit standards that in good
faith would be offered to or would apply to nonaffiliated companies.
Notwithstanding Sections 23A and 23B, the OTS regulations prohibit federally
chartered savings associations from lending to any affiliate that is engaged in
activities that are not permissible for bank holding companies under Section
4(c) of the Bank Holding Company Act ("BHC Act"). Further, no federally
chartered savings association may purchase the securities of any affiliate other
than a subsidiary.
The Association's authority to extend credit to its executive officers,
directors and 10% shareholders, as well as to entities controlled by such
persons, is currently governed by Sections 22(g) and 22(h) of the FRA, and
Regulation O promulgated thereunder. Among other things, these regulations
require that such loans be made on substantially the same terms as those offered
to unaffiliated individuals or in the case of officers and directors on the same
basis made to the institutions employees generally on a non-discriminatory
basis, place limits on the amount of loans the Association may make to such
persons based, in part, on the Association's capital, and require certain
approval procedures to be followed. The OTS regulations, with certain minor
variances, apply Regulation O to federally chartered savings associations.
STANDARDS FOR SAFETY AND SOUNDNESS. FDICIA, as amended by the Riegle Community
Development and Regulatory Improvement Act of 1994 ("Community Development
Act"), requires the OTS, together with the other federal bank regulatory
agencies, to prescribe standards, by regulations or guidelines, relating to
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate risk exposure, asset growth,
asset quality, earnings, stock valuation, and compensation, fees and benefits
and such other operational and managerial standards as the agencies deem
appropriate. The OTS, together with the other federal bank regulatory agencies,
has adopted guidelines prescribing safety and soundness standards pursuant to
FDICIA, as amended. The guidelines establish general standards relating to
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, asset
quality, earnings and employee compensation. In general, the guidelines require,
among other things, appropriate systems and practices to identify and manage the
risks and exposures specified in the guidelines. The guidelines prohibit
excessive compensation as an unsafe and unsound practice and described
compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director or principal shareholder. In addition, regulations were adopted
pursuant to FDICIA to require a savings association that is given notice by the
OTS that it is not satisfying any of such safety and soundness standards to
submit a compliance plan to the OTS. If, after being so notified, a savings
association fails to submit an acceptable compliance plan or fails in any
material respect to implement an accepted compliance plan, the OTS may issue an
order directing corrective and other actions of the types to which a
significantly undercapitalized institution is subject under the "prompt
corrective action" provisions of FDICIA. If a savings association fails to
comply with such an order, the OTS may seek to enforce such order in judicial
proceedings and to impose civil money penalties.
REAL ESTATE LENDING STANDARDS. FDICIA also requires each federal banking
agency to adopt uniform regulations prescribing standards for extensions of
credit (i) secured by real estate or (ii) made for the purpose of financing the
construction of improvements on real estate. In prescribing these standards, the
banking agencies must consider the risk posed to the deposit insurance funds by
real estate loans, the need for safe and sound operation of insured depository
institutions and the availability of credit. The OTS and the other federal
banking agencies adopted uniform regulations, effective March 19, 1993,
implementing such standards. The OTS regulation requires each savings
association to establish and maintain written internal real estate lending
standards consistent with safe and sound banking practices and appropriate to
the size of the institution and the nature and scope of its real estate lending
activities.
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FEDERAL HOME LOAN BANK SYSTEM
The Association is a member of the FHLB System, which consists of 12 regional
FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Association, as a member of the FHLB-NY, is required to
acquire and hold shares of capital stock in FHLB-NY in an amount at least equal
to 1% of the aggregate principal amount of its unpaid residential mortgage loans
and similar obligations at the beginning of each year, 0.3% of total assets, or
1/20 of its advances from the FHLB-NY, whichever is greater. The Association was
in compliance with this requirement with an investment in FHLB-NY stock at
December 31, 1996, of $32.4 million.
For each of the years ended December 31, 1996 and 1995, dividends from the
FHLB-NY to the Association amounted to $2.0 million, and for the year ended
December 31, 1994, dividends amounted to $1.5 million. If dividends were
reduced, or interest on future FHLB advances was increased, the Association's
net interest income would likely also be reduced.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require federally chartered savings
associations to maintain non-interest-earning reserves against their transaction
accounts (primarily NOW and regular checking accounts). The Federal Reserve
Board regulations generally require that reserves of 3% be maintained against
aggregate transaction accounts (begining January 1997) of $44.9 million or less
(subject to adjustment by the Federal Reserve Board) and a reserve of 10%
(subject to adjustment by the Federal Reserve Board between 8% and 14%) against
that portion of total transaction accounts in excess of $44.9 million. The
first $4.4 million of otherwise reservable balances (subject to adjustments by
the Federal Reserve Board) is exempted from the reserve requirements. The
Association is in compliance with the foregoing requirements. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve
Board may be used to satisfy liquidity requirements imposed by the OTS. Because
required reserves must be maintained in the form of either vault cash, a
non-interest-bearing account at a Federal Reserve Bank or a pass-through
account as defined by the Federal Reserve Board, the effect of this reserve
requirement is to reduce the Association's interest-earning assets. FHLB System
members are also authorized to borrow from the Federal Reserve "discount
window," but Federal Reserve Board regulations require institutions to exhaust
all FHLB sources before borrowing from a Federal Reserve Bank.
HOLDING COMPANY REGULATION
The Company, is a non-diversified savings and loan holding company within the
meaning of the HOLA, as amended. As such, the Company is registered with the OTS
and is subject to the OTS regulations, examinations, supervision and reporting
requirements. In addition, the OTS has enforcement authority over the Company
and its non-federally chartered savings association subsidiaries, of which there
currently are none. Among other things, this authority permits the OTS to
restrict or prohibit activities that are determined to be a serious risk to the
subsidiary federally chartered savings association. The Association must notify
the OTS at least 30 days before declaring any dividend to the Company. Such
notification has been complied with for each dividend declared in 1996 to the
Company, for which the Association has received OTS approval. The OTS has
approved the Association's declaration and payment of up to $71.2 million of
dividends during 1997.
The HOLA prohibits a savings and loan holding company (directly or indirectly)
or through one or more subsidiaries from acquiring another federally chartered
savings association or holding company thereof without prior written approval of
the OTS; acquiring or retaining, with certain exceptions, more than 5% of a
non-subsidiary federally chartered savings association, a nonsubsidiary holding
company, or a nonsubsidiary company engaged in activities other than those
permitted by the HOLA or acquiring or retaining control of
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an institution that is not federally insured. In evaluating applications by
holding companies to acquire federally chartered savings associations, the OTS
must consider the financial and managerial resources and future prospects of the
company and institution involved, the effect of the acquisition on the risk to
the insurance funds, the convenience and needs of the community and competitive
factors.
As a unitary savings and loan holding company, the Company generally is not
restricted under existing laws as to the types of business activities in which
it may engage; provided that the Association continues to be a QTL. Upon any
non-supervisory acquisition by the Company of another savings association or
savings bank that meets the QTL test and is deemed to be a federally chartered
savings association by the OTS, the Company would become a multiple savings and
loan holding company (if the acquired institution is held as a separate
subsidiary) and would be subject to extensive limitations on the types of
business activities in which it could engage. The HOLA limits the activities of
a multiple savings and loan holding company and its non-insured institution
subsidiaries primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the BHC Act, subject to the prior approval of the OTS,
and activities authorized by the OTS regulations, which activities include
mortgage banking, consumer finance, operation of a trust company, and certain
types of securities brokerage activities.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling federally chartered
savings associations in more than one state, subject to two exceptions: (i) the
approval of interstate supervisory acquisitions by savings and loan holding
companies, and (ii) the acquisition of a federally chartered savings association
in another state if the laws of the state of the target federally chartered
savings association specifically permit such acquisitions. Although the
conditions imposed upon acquisitions in those states that have enacted such
legislation vary, many such statutes are of the "reciprocity" type and a number
are limited by regional restrictions, which require that the acquiring holding
company be located (as defined by the location of its subsidiary federally
chartered savings associations) in a state within a defined geographic region
and that the state in which the acquiring holding company is located has enacted
reciprocal legislation allowing federally chartered savings associations in the
target state to purchase federally chartered savings associations in the
acquiror's home state on terms no more restrictive than those imposed by the
target state on the acquiror. Some states authorize acquisition by out-of-state
holding companies only in supervisory cases, and certain states do not authorize
interstate acquisitions under any circumstances.
Federal law generally provides that no "person," acting directly or indirectly
or through or in concert with one or more other persons, may acquire "control"
as that term is defined in the OTS regulations, of a federally-insured federally
chartered savings association without giving at least 60 days' written notice to
the OTS and providing the OTS an opportunity to disapprove the proposed
acquisition. Such acquisitions of control may be disapproved if it is
determined, among other things, that (i) the acquisition would substantially
lessen competition; (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the federally chartered savings
association or prejudice the interests of its depositors; or (iii) the
competency, experience or integrity of the acquiring person or the proposed
management personnel indicates that it would not be in the interest of the
depositors or the public to permit the acquisition of control by such person.
FEDERAL SECURITIES LAWS
The Company's Common Stock is registered with the SEC under Section 12(g) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company is subject to the information, proxy solicitation, insider trading
restrictions and other requirements under the Exchange Act.
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DELAWARE CORPORATION LAW
The Company is incorporated under the laws of the State of Delaware. Thus, the
Company is subject to regulation by the State of Delaware and the rights of its
shareholders are governed by the Delaware General Corporation Law.
On July 18, 1996, the Company adopted a Stockholder Rights Plan (the "Rights
Plan") and declared a dividend of one preferred share purchase right ("Right")
for each outstanding share of common stock of the Company. For further
information on the Rights Plan, see "Notes to Consolidated Financial Statements"
included in Item 8 - Financial Statements and Supplementary Data.
FEDERAL TAXATION
GENERAL. The Company and the Association report their income on a calendar
year basis using the accrual method of accounting and are subject to Federal
income taxation in the same manner as other corporations. Prior to January 1,
1996, the Association was entitled to establish a reserve for bad debts under
Section 593 ("IRC 593") of the Internal Revenue Code of 1986, as amended
("Code"). IRC 593 was amended in August 1996 as part of the Small Business Job
Protection Act of 1996 (the "1996 Act"). The following discussion of tax matters
is intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to the Association or the Company. The
Company and the Association have not been audited by the Internal Revenue
Service during the last five years.
TAX BAD DEBT RESERVES. Prior to the enactment, on August 20, 1996, of the
1996 Act, for federal income tax purposes, thrift institutions such as the
Association, which met certain definitional tests primarily relating to their
assets and the nature of their business, were permitted to establish tax
reserves for bad debts and to make annual additions thereto, which additions
could, within specified limitations, be deducted in arriving at their taxable
income. The Association's deduction with respect to "qualifying loans," which
are generally loans secured by certain interest in real property, could be
computed using an amount based on the Association's actual loss experience (the
"Experience Method"), or a percentage equal to 8.0% of the Association's taxable
income (the "PTI Method"), computed without regard to this deduction and with
additional modifications and reduced by the amount of any permitted addition to
the non-qualifying reserve. Similar deductions for additions to the
Association's bad debt reserve were permitted under the New York State Franchise
Tax and the New York City Financial Corporation Tax; however, for purposes of
these taxes, the effective allowable percentage under the PTI method was 32%
rather than 8%. For further information on the 1996 Act, and its impact on the
Association, see Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The New York State and New York City tax laws have been amended to prevent
a similar recapture of the Association's bad debt reserve, and to permit
continued future use of the bad debt reserve method for purposes of determining
the Association's New York State and New York City tax liabilities, in either
case so long as the Association continues to satisfy the New York State and New
York City definitional tests related to its assets and the nature of its
business, which are similar to the former federal income tax tests. For further
information see Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
CORPORATE ALTERNATIVE MINIMUM TAX. In addition to the regular income tax,
corporations (including savings banks) generally are subject to an alternative
minimum tax ("AMT") in an amount equal to 20% of alternative minimum taxable
income ("AMTI") to the extent the AMT exceeds the corporation's regular tax.
AMTI is regular taxable income as modified by certain adjustments and increased
by certain tax preference items. AMTI includes an amount equal to three-quarters
of the excess of adjusted current earnings over such specially computed AMTI.
Only 90% of AMTI can be offset by net operating loss carryovers. AMTI is
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offset by a $40,000 exemption; however, the exemption is reduced by an amount
equal to 25% of AMTI in excess of $150,000 and is, therefore, completely phased
out when AMTI equals $310,000. The AMT is available as a credit against future
regular income tax. In addition, for taxable years beginning after December 31,
1986, and before January 1, 1996, corporations (including savings banks) are
subject to an environmental tax equal to .12% of the excess of AMTI for the
taxable year (with certain modifications) over $2 million, whether or not an AMT
is paid. The Company does not expect to be subject to the AMT, but may be
subject to the environmental tax. Under President Clinton's fiscal year 1998
budget proposal, as submitted to Congress February 6, 1997 ("President Clinton's
Proposal"), the corporate environmental tax would be reinstated for taxable
years beginning after December 31, 1996 and before January 1, 2008.
DIVIDENDS RECEIVED DEDUCTION AND OTHER MATTERS. The Company may exclude
from its income 100% of dividends received from the Association as a member of
the same affiliated group of corporations. The corporate dividends received
deduction is generally 70% in the case of dividends received from unaffiliated
corporations with which the Company and the Association will not file a
consolidated tax return, except that if the Company and the Association own more
than 20% of the stock of a corporation distributing a dividend, 80% of any
dividends received may be deducted. Under President Clinton's Proposal, the 70%
dividends-received deduction would be reduced to 50% with respect to dividends
paid after enactment of any such legislation.
STATE AND LOCAL TAXATION
NEW YORK STATE TAXATION. The Association is subject to New York State
franchise tax on net income or one of several alternative bases, whichever
results in the highest tax. The Company and Association will file a combined tax
return in the same manner as other corporations with some exceptions, including
the Association's reserve for bad debts as discussed below.
New York State passed legislation that incorporated the former provisions
of IRC 593 into New York State tax law. The impact of this legislation enabled
the Association to defer the recapture of the New York State tax bad debt
reserves that would have occurred as a result of the federal amendment to IRC
593. The legislation also enabled the Association to continue to utilize the
reserve method for computing its bad debt deduction. The following discussion of
the reserve for bad debts is intended only as a summary and does not purport to
be a comprehensive description of the New York State tax rules applicable to the
Association or the Company.
BAD DEBT DEDUCTION. Federally chartered savings associations such as the
Association which meet certain definition tests primarily relating to their
assets and the nature of their business ("qualifying thrifts") are permitted to
establish a reserve for bad debts and to make annual additions thereto, which
additions may, within specified formula limits, be deducted in arriving at their
taxable income. The Association will be a qualifying thrift only if, among other
requirements, at least 60% of its assets are assets described in Section
1453(h)(1) of the New York State Tax Law. The Association presently satisfies
the 60% test. Although there can be no assurance that the Association will
satisfy the 60% test in the future, management believes that this level of
qualifying assets can be maintained by the Association. The Association's
deduction for additions to its bad debt reserve with respect to qualifying loans
may be computed using the experience method or a percentage equal to 32% of the
Association's taxable income, computed with certain modifications, without
regard to the Association's actual loss experience, and reduced by the amount of
any addition permitted to the reserve for non-qualifying loans ("NYS percentage
of taxable income method"). The Association's deduction with respect to
non-qualifying loans must be computed under the experience method which is based
on the qualifying thrift's actual loss experience. Under the experience method,
the amount of a reasonable addition, in general, equals the amount necessary to
increase the balance of the bad debt reserve at
23
<PAGE> 26
the close of the taxable year to the greater of (i) the amount that bears the
same ratio to loans outstanding at the close of the taxable year as the total
net bad debts sustained during the current and five preceding taxable years
bears to the sum of the loans outstanding at the close of those six years, or
(ii) the balance of the bad debt reserve at the close of the base year (assuming
that the loans outstanding have not declined since then). The "base year" for
these purposes is the last taxable year beginning before the NYS percentage of
income bad debt deduction was taken. Any deduction for the addition to the
reserve for non-qualifying loans reduces the taxable addition to the reserve for
qualifying real property loans calculated under the NYS percentage of taxable
income method. Each year the Association reviews the most favorable way to
calculate the deduction attributable to an addition to the bad debt reserve.
The amount of the addition to the reserve for losses on qualifying real
property loans under the NYS percentage of taxable income method cannot exceed
the amount necessary to increase the balance of the reserve for losses on
qualifying real property loans at the close of the taxable year to 6% of the
balance of the qualifying real property loans outstanding at the end of the
taxable year. Also, if the qualifying thrift uses the NYS percentage of taxable
income method, then the qualifying thrift's aggregate addition to its reserve
for losses on qualifying real property loans cannot, when added to the addition
to the reserve for losses on non-qualifying loans, exceed the amount by which
(i) 12% of the amount that the total deposits or withdrawable accounts of
depositors of the qualifying thrift at the close of the taxable year exceeded
(ii) the sum of the qualifying thrift's surplus, undivided profits and reserves
at the beginning of such year.
NEW YORK CITY TAXATION. The Association is also subject to the New York
City Financial Corporation Tax calculated, subject to a New York City income and
expense allocation, on a similar basis as the New York State Franchise Tax. In
this connection, legislation was recently enacted regarding the use and
treatment of tax bad debt reserves that is substantially similar to the New York
State legislation described above.
A significant portion of the Association's entire net income for New York
City purposes is allocated outside the jurisdiction which has the effect of
significantly reducing the New York City taxable income of the Association.
DELAWARE TAXATION. As a Delaware holding company not earning income in
Delaware, the Company is exempted from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
STATISTICAL DATA
The detailed statistical data which follows is presented in accordance
with Guide 3, prescribed by the SEC. This data should be read in conjunction
with the financial statements and related notes and the Managements Discussion
and Analysis of Financial Condition and Results of Operations incorporated
herein by reference to the 1996 Annual Report to Stockholders filed as Exhibit
13.1 ("1996 Annual Report").
I. Distribution of Assets, Liabilities and Stockholders' Equity: Interest
Rates and Interest Differential.
Page 25 of the Company's 1996 Annual Report presents the distribution of
assets, liabilities and stockholders' equity under the caption "Analysis of Net
Interest Income" and is incorporated herein by reference. Page 26 of the
Company's 1996 Annual Report presents the interest differential under the
caption "Rate/Volume Analysis" and is incorporated herein by reference.
24
<PAGE> 27
II. SECURITIES PORTFOLIO
The following table sets forth the composition of the Company's
available-for-sale (at estimated fair value) and held-to-maturity securities
portfolios in dollar amounts and in percentages of the portfolios at the dates
indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------------
1996 1995 1994
---------------------- ---------------------- ----------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
Mortgage-Backed and Mortgage-
Related Securities:
FHLMC .......................... $ 261,597 11.39% $ 335,837 13.35% $ -- --%
GNMA ........................... 236,688 10.31 159,412 6.34 -- --
FNMA ........................... 46,114 2.01 148,424 5.90 -- --
REMICs:
Agency issuance .............. 1,135,607 49.45 1,120,676 44.54 27,892 50.21
Private issuance ............. 15,455 0.67 22,401 0.89 -- --
Other Mortgage-Related ......... 404,915 17.63 546,072 21.71 -- --
Obligations of U.S. Government and
Agencies ...................... 127,602 5.56 150,567 5.98 -- --
Equity Securities ................ 68,620 2.98 32,503 1.29 27,658 49.79
Other ............................ 64 -- 76 -- -- --
---------- ------ ---------- ------ ---------- ------
Total Securities
Available-for-Sale .... $2,296,662 100.00% $2,515,968 100.00% $ 55,550 100.00%
========== ====== ========== ====== ========== ======
SECURITIES HELD-TO-MATURITY:
Mortgage-Backed and Mortgage-
Related Securities:
FHLMC ........................... $ 28,181 1.43% $ 36,490 2.25% $ 122,900 4.60%
GNMA ............................ 86,457 4.40 105,281 6.49 123,113 4.61
FNMA ............................ 22,056 1.12 24,615 1.52 69,788 2.61
CMOs ............................ 6,484 0.33 10,694 0.66 10,440 0.39
REMICs:
Agency issuance .............. 940,657 47.84 994,373 61.27 1,902,915 71.16
Private issuance ............. 242,480 12.33 168,639 10.39 151,437 5.66
Other Mortgage-Related .......... 351 0.02 354 0.02 369 0.01
Obligations of U.S. Government
and Agencies ................... 578,485 29.42 220,200 13.57 240,200 8.98
Obligations of States and
Political Subdivisions ......... 51,206 2.60 52,019 3.21 52,797 1.97
Corporate Debt Securities ........ 10,093 0.51 10,140 0.62 312 0.01
---------- ------ ---------- ------ ---------- ------
Total Securities
Held-to-Maturity ....... 1,966,450 100.00% 1,622,805 100.00% 2,674,271 100.00%
---------- ====== ---------- ====== ---------- ======
Net discount ............. (5,435) (7,263) (14,738)
---------- ---------- ----------
Net Securities
Held-to-Maturity ....... $1,961,015 $1,615,542 $2,659,533
========== ========== ==========
</TABLE>
25
<PAGE> 28
The table below sets forth certain information regarding the carrying value,
weighted average yields and contractual maturities of the Company's federal
funds sold and repurchase agreements, FHLB stock and mortgage-backed,
mortgage-related and other securities available-for-sale and held-to-maturity
portfolios at December 31, 1996.
<TABLE>
<CAPTION>
ONE YEAR ONE TO FIVE TO
OR LESS FIVE YEARS TEN YEARS
---------------------- ---------------------- ----------------------
ANNUALIZED ANNUALIZED ANNUALIZED
WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FEDERAL FUNDS SOLD AND
REPURCHASE AGREEMENTS ......... $ 56,000 6.68% $ -- --% $ -- --%
======== ======== ========
FHLB STOCK(1) .................. $ -- --% $ -- --% $ -- --%
======== ======== ========
MORTGAGE-BACKED, MORTGAGE-
RELATED AND OTHER SECURITIES
AVAILABLE-FOR-SALE:
Pass-throughs guaranteed by
FHLMC .................... $ 69,054 6.32% $ -- --% $ -- --%
GNMA ..................... -- -- -- -- -- --
FNMA ..................... 147 8.99 2,944 7.69 -- --
REMICs:
Agency issuance ........ 985 30.00 -- -- 187,815 6.18
Private issuance ....... 1,294 30.00 -- -- -- --
Other pass-throughs(2) ... -- -- -- -- -- --
Obligations of the U.S. ....
Government and agencies .... 45,057 6.42 82,545 6.35 -- --
Equity securities(1) ......... -- -- -- -- -- --
Other securities ............. -- -- -- -- 20 9.00
-------- -------- --------
TOTAL AVAILABLE-FOR-
SALE SECURITIES: ......... $116,537 6.83 $ 85,489 6.40 $187,835 6.18
======== ======== ========
MORTGAGE-BACKED, MORTGAGE-
RELATED AND OTHER SECURITIES
HELD-TO-MATURITY:
Pass-throughs guaranteed by
FHLMC .................. $ -- --% $ 1,463 8.54% $ 5,119 6.87%
GNMA ................... 13 10.46 1,396 9.98 11,372 7.56
FNMA ................... -- -- 7 12.00 788 9.38
CMOs ........................ -- -- 1,513 8.84 -- --
REMICs:
Agency issuance ........ -- -- -- -- 87,910 6.35
Private issuance ....... -- -- -- -- -- --
Other pass-throughs(2) .... -- -- -- -- -- --
Obligations of the U.S. .....
Government and agencies . -- -- 105,200 5.67 370,043 7.52
Obligations of states and
political subdivisions .. 540 3.25 2,566 3.39 1,791 3.71
Other securities ............ -- 9,953 6.09 93 6.50
-------- -------- --------
TOTAL HELD-TO-MATURITY
SECURITIES: .............. $ 553 3.42 $122,098 5.78 $477,116 7.28
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MORE THAN TOTAL SECURITIES
TEN YEARS ----------------------------------------------------
----------------------- AVERAGE
ANNUALIZED LIFE BY ANNUALIZED
WEIGHTED CONTRACTUAL ESTIMATED WEIGHTED
CARRYING AVERAGE MATURITY CARRYING FAIR AVERAGE
VALUE YIELD (IN YEARS) VALUE VALUE YIELD
---------- ---------- ----------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FEDERAL FUNDS SOLD AND
REPURCHASE AGREEMENTS ......... $ -- --% 0.01 $ 56,000 $ 56,000 6.68%
========== ========== ==========
FHLB STOCK(1) .................. $ 32,354 6.61 -- $ 32,354 $ 32,354 6.61
========== ========== ==========
MORTGAGE-BACKED, MORTGAGE-
RELATED AND OTHER SECURITIES
AVAILABLE-FOR-SALE:
Pass-throughs guaranteed by
FHLMC .................... $ 192,543 7.24% 18.14 $ 261,597 $ 261,597 7.00%
GNMA ..................... 236,688 6.96 27.71 236,688 236,688 6.96
FNMA ..................... 43,023 7.47 18.41 46,114 46,114 7.49
REMICs:
Agency issuance ........ 946,807 6.32 19.65 1,135,607 1,135,607 6.32
Private issuance ....... 14,161 7.02 24.89 15,455 15,455 8.94
Other pass-throughs(2) ... 404,915 7.49 24.82 404,915 404,915 7.49
Obligations of the U.S. ....
Government and agencies .... -- 1.73 127,602 127,602 6.38
Equity securities(1) ......... 68,620 6.50 -- 68,620 68,620 6.50
Other securities ............. 44 9.47 15.86 64 64 9.34
---------- ---------- ----------
TOTAL AVAILABLE-FOR-
SALE SECURITIES: ......... $1,906,801 6.78 19.65 $2,296,662 $2,296,662 6.72
========== ========== ==========
MORTGAGE-BACKED, MORTGAGE-
RELATED AND OTHER SECURITIES
HELD-TO-MATURITY:
Pass-throughs guaranteed by
FHLMC .................. $ 21,607 8.56% 11.02 $ 28,189 $ 29,194 8.25%
GNMA ................... 73,952 8.42 13.26 86,733 90,455 8.33
FNMA ................... 21,249 6.36 15.34 22,044 21,508 6.47
CMOs ...................... 4,937 6.64 16.80 6,450 6,451 7.16
REMICs:
Agency issuance ........ 848,782 6.52 21.12 936,692 926,095 6.50
Private issuance ....... 241,154 6.57 23.10 241,154 234,953 6.57
Other pass-throughs(2) .... 351 8.14 20.09 351 351 6.47
Obligations of the U.S. .....
Government and agencies . 103,050 8.00 8.73 578,293 576,290 7.27
Obligations of states and
political subdivisions .. 46,166 6.69 19.64 51,063 50,982 6.38
Other securities ............ -- -- 1.98 10,046 10,066 6.09
---------- ---------- ----------
TOTAL HELD-TO-MATURITY
SECURITIES: .............. $1,361,248 6.80 17.00 $1,961,015 $1,946,345 6.84
========== ========== ==========
</TABLE>
(1) As equity securities have no maturities, they are classified in the more
than ten year category.
(2) Other pass-throughs are principally composed of aa arm mortgage-related
securities available-for-sale and conventional mortgage-backed securities
held-to-maturity.
26
<PAGE> 29
III. LOAN PORTFOLIO
LOAN PORTFOLIO COMPOSITION
The following table sets forth the composition of the Company's loan
portfolio in dollar amounts and in percentages of the portfolio at the dates
indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------------
1996 1995 1994
----------------------- ----------------------- -----------------------
PERCENT PERCENT PERCENT
OF OF OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
----------- ------- ----------- ------- ----------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE LOANS (GROSS):
One-to-four family ........... $ 2,259,409 85.18% $ 1,748,284 84.82% $ 1,345,936 84.49%
Multi-family ................. 166,836 6.29 109,944 5.34 92,506 5.81
Commercial real estate ....... 158,100 5.96 128,668 6.24 87,557 5.50
Construction and land ........ 10,129 0.38 12,598 0.61 19,373 1.22
----------- ------- ----------- ------- ----------- -------
Total mortgage loans ....... 2,594,474 97.81 1,999,494 97.01 1,545,372 97.02
----------- ------- ----------- ------- ----------- -------
CONSUMER AND OTHER LOANS (GROSS):
Home equity .................. 34,895 1.32 38,761 1.88 27,225 1.71
Passbook ..................... 4,022 0.15 2,915 0.14 1,979 0.12
Credit card .................. 8,431 0.32 8,578 0.42 8,635 0.54
Other ........................ 10,761 0.40 11,420 0.55 9,704 0.61
----------- ------- ----------- ------- ----------- -------
Total other loans .......... 58,109 2.19 61,674 2.99 47,543 2.98
----------- ------- ----------- ------- ----------- -------
Total loans ................ 2,652,583 100.00% 2,061,168 100.00% 1,592,915 100.00%
----------- ======= ----------- ======= ----------- =======
LESS:
Unearned discount, premium,
deferred loan fees, net .... (1,167) (4,030) (5,982)
Allowance for loan losses .... (14,089) (13,495) (12,173)
----------- ----------- -----------
Total loans, net ........... $ 2,637,327 $ 2,043,643 $ 1,574,760
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------
1993 1992
----------------------- -----------------------
PERCENT PERCENT
OF OF
AMOUNT TOTAL AMOUNT TOTAL
----------- ------- ----------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
MORTGAGE LOANS (GROSS):
One-to-four family ........... $ 1,259,808 82.20% $ 1,393,343 81.00%
Multi-family ................. 99,108 6.47 106,477 6.19
Commercial real estate ....... 66,492 4.34 78,881 4.59
Construction and land ........ 44,757 2.92 70,505 4.10
----------- ------- ----------- -------
Total mortgage loans ....... 1,470,165 95.93 1,649,206 95.88
----------- ------- ----------- -------
CONSUMER AND OTHER LOANS (GROSS):
Home equity .................. 31,885 2.08 33,911 1.97
Passbook ..................... 7,676 0.50 8,846 0.51
Credit card .................. 9,385 0.61 8,440 0.49
Other ........................ 13,404 0.88 19,678 1.15
----------- ------- ----------- -------
Total other loans .......... 62,350 4.07 70,875 4.12
----------- ------- ----------- -------
Total loans ................ 1,532,515 100.00% 1,720,081 100.00%
----------- ======= ----------- =======
LESS:
Unearned discount, premium,
deferred loan fees, net .... (8,877) (11,392)
Allowance for loan losses .... (16,672) (15,750)
----------- -----------
Total loans, net ........... $ 1,506,966 $ 1,692,939
=========== ===========
</TABLE>
27
<PAGE> 30
LOAN MATURITY, REPRICING AND ACTIVITY
The following table shows the maturity of the Company's loans at December
31, 1996. The table does not include the effect of prepayments or scheduled
principal amortization. Prepayments and scheduled principal amortization on
loans totaled $343.4 million, $245.7 million and $317.0 million for the years
ended December 31, 1996, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-----------------------------------------------------------------------------
ONE-TO CONSUMER TOTAL
-FOUR MULTI- COMMERCIAL CONSTRUCTION AND LOANS
FAMILY FAMILY REAL ESTATE AND LAND OTHER RECEIVABLE
----------- -------- ----------- ------------ -------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Amounts due:
Within one year ......................... $ 2,757 $ 4,354 $ 3,138 $ 5,057 $10,708 $ 26,014
After one year:
One to three years ................... 11,568 14,224 16,568 4,730 5,993 53,083
Three to five years .................. 17,116 12,797 42,545 283 2,574 75,315
Five to 10 years ..................... 303,819 33,436 26,940 59 1,130 365,384
10 to 20 years ....................... 964,566 93,517 67,132 -- 37,704 1,162,919
Over 20 years ........................ 959,583 8,508 1,777 -- -- 969,868
----------- -------- -------- ------- ------- ----------
Total due after one year ...... 2,256,652 162,482 154,962 5,072 47,401 2,626,569
----------- -------- -------- ------- ------- ----------
Total amounts due ............. $ 2,259,409 $166,836 $158,100 $10,129 $58,109 $2,652,583
=========== ======== ======== ======= ======= ==========
Unearned discounts, premiums and deferred
loan fees, net ....................... (1,167)
Allowance for loan losses ............... (14,089)
----------
Loans receivable, net ................ $2,637,327
==========
</TABLE>
28
<PAGE> 31
The following table sets forth at December 31, 1996, the dollar
amount of all loans due after December 31, 1997, and whether such loans have
fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
Due After December 31, 1997
--------------------------------------
Fixed Adjustable Total
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
MORTGAGE LOANS:
One-to-four family.... $1,145,084 $1,111,568 $2,256,652
Multi-family.......... 60,370 102,112 162,482
Commercial real estate 95,935 59,027 154,962
Construction and land. 2,334 2,738 5,072
CONSUMER AND OTHER LOANS 9,701 37,700 47,401
---------- ---------- ----------
Total loans........... $1,313,424 $1,313,145 $2,626,569
========== ========== ==========
</TABLE>
The following table sets forth the Company's loan originations, loan purchases,
sales and principal repayments for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C>
MORTGAGE LOANS (GROSS):
At beginning of year............... $ 1,999,494 $ 1,545,372 $ 1,470,165
Mortgage loans originated:
One-to-four family................ 502,814 142,559 166,570
Multi-family...................... 66,213 28,915 20,740
Commercial ....................... 42,508 29,061 29,665
Construction and land loans....... 1,200 2,171 4,396
----------- ----------- -----------
Total mortgage loans
originated..................... 612,735 202,706 221,371
Purchases of mortgage loans:
Bulk purchases................... 60,228 128,280 10,907
Third party loan origination
program (1).................... 255,761 122,364 151,946
Fidelity mortgage loans acquired... -- 236,961 --
Sales of mortgage loans............ (9,740) (3,606) (176)
Transfer of loans to REO........... (6,842) (10,296) (15,318)
Principal repayments............... (313,158) (217,735) (285,596)
Loans charged off.................. (4,004) (4,552) (7,927)
----------- ----------- -----------
At end of year..................... $ 2,594,474 $ 1,999,494 $ 1,545,372
=========== =========== ===========
CONSUMER AND OTHER LOANS (GROSS):
At beginning of period............. $ 61,674 $ 47,543 $ 62,350
Other loans originated....... 29,115 22,446 17,986
Fidelity consumer loans acquired -- 21,508 --
Sales of other loans......... (1,503) (1,155) (936)
Transfer of loans to REO........ (211) -- --
Principal repayments......... (30,477) (27,936) (31,448)
Loans charged off............ (489) (732) (409)
----------- ----------- -----------
At end of year..................... $ 58,109 $ 61,674 $ 47,543
=========== =========== ===========
</TABLE>
(1) All third party loan originations for the years ended December 31, 1996,
1995 and 1994 were secured by one-to-four family properties.
29
<PAGE> 32
DELINQUENT LOANS AND CLASSIFIED ASSETS. At December 31, 1996, 1995 and 1994,
delinquencies in the Company's loan portfolio were as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 AT DECEMBER 31, 1995
------------------------------------------ --------------------------------------------
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 ...... 73 $3,901 276 $25,098 118 $8,173 366 $33,384
Multi-family ............ 6 1,226 13 3,651 3 336 17 2,851
Commercial real estate .. 2 823 13 3,301 3 384 21 4,698
Construction ............ -- -- 4 251 -- -- 10 2,271
Consumer and other loans 52 337 92 1,159 47 622 65 1,276
--- ------ --- ------- --- ------ --- -------
Total loans ............. 133 $6,287 398 $33,460 171 $9,515 479 $44,480
=== ====== === ======= === ====== === =======
Delinquent loans to total
loans .................. 0.24% 1.26% 0.46% 2.16%
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
-----------------------------------------------------
60-89 DAYS 90 DAYS OR MORE
---------------------- -----------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF BALANCE OF BALANCE
LOANS OF LOANS LOANS OF LOANS
------ --------- ------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
One-to-four family ...... 142 $8,002 272 $29,326
Multi-family ............ 3 540 35 6,784
Commercial real estate .. 2 198 18 23,009
Construction ............ 1 7 21 6,899
Consumer and other loans 31 97 67 920
--- ------ --- -------
Total loans ............. 179 $8,844 413 $66,938
=== ====== === =======
Delinquent loans to total
loans .................. 0.56% 4.20%
</TABLE>
-30-
<PAGE> 33
The following table sets forth information regarding non-performing assets. In
addition to the non-performing loans, the Company has approximately $6.3 million
of potential problem loans at December 31, 1996. Such loans are 60-89 days
delinquent as shown on page 30.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
1996(1) 1995(1) 1994(1) 1993 1992
------- ------- ------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual delinquent mortgage loans (2) ..... $24,905 $37,394 $56,037 $ 76,322 $103,211
Non-accrual delinquent consumer and other loans 1,159 1,276 920 1,335 835
Mortgage loans delinquent 90 days or more (3) . 7,396 5,810 9,981 21,159 23,751
------- ------- ------- -------- --------
Total non-performing loans ............. 33,460 44,480 66,938 98,816 127,797
------- ------- ------- -------- --------
Real estate owned, net (4) .................... 7,421 17,677 18,898 24,863 21,262
Investments in real estate, net (5) ........... 4,708 5,654 7,480 7,278 15,166
------- ------- ------- -------- --------
Total real estate owned and
investments in real estate, net ........ 12,129 23,331 26,378 32,141 36,428
------- ------- ------- -------- --------
Total non-performing assets ................... $45,589 $67,811 $93,316 $130,957 $164,225
======= ======= ======= ======== ========
</TABLE>
(1) If all non-accrual loans had been performing in accordance with their
original terms, the Company would have recorded interest income of $2.4
million and $4.0 million for the years ended December 31, 1996 and 1995,
respectively. This compares to $934,000 and $1.3 million, respectively, of
actual payments recorded to interest income. For the year ended December
31, 1994, the net amount of foregone interest income on the Company's
non-accrual loans amounted to $7.1 million.
(2) Total non-accrual delinquent mortgage loans include 3.8%, 15.4% and 49.7%
of mortgage loans secured by other than one-to-four family properties at
December 31, 1996, 1995 and 1994, respectively.
(3) Mortgage 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 properties.
(4) 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.
(5) Investments in real estate are recorded at the lower of cost or estimated
fair value.
31
<PAGE> 34
The following table sets forth at December 31, 1996 the Company's carrying
value of the assets, exclusive of general valuation allowances, classified as
substandard or doubtful, or categorized as special mention:
<TABLE>
<CAPTION>
SPECIAL MENTION SUBSTANDARD DOUBTFUL
-------------------- ----------------------- -------------------
NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT
------ ------ ------ ------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
LOANS:
One-to-four family ........... -- $ -- 260 $30,537 8 $560
Multi-family ................. 11 3,831 13 3,359 - --
Commercial ................... -- -- 15 24,355 - --
Construction and land ........ -- -- 1 230 - --
Consumer and other loans ... -- -- 91 1,151 1 8
-- ------ ----- ------- - ----
Total .................... 11 3,831 380 59,632 9 568
-- ------ ----- ------- - ----
REAL ESTATE OWNED AND INVESTMENTS
IN REAL ESTATE:
One-to-four family ........... -- -- 71 6,546 - --
Multi-family ................. -- -- 1 68 - --
Commercial ................... -- -- 3 695 - --
Construction and land ........ -- -- 3 6,864 - --
-- ------ ----- ------- - ----
Total ...................... -- -- 78 14,173 - --
-- ------ ----- ------- - ----
TOTAL ........................ 11 $3,831 458 $73,805 9 $568
== ====== ===== ======= = ====
</TABLE>
Note: There were no assets classified as loss at December 31, 1996.
32
<PAGE> 35
IV. ALLOWANCE FOR LOAN, INVESTMENTS IN REAL ESTATE AND REAL ESTATE OWNED ("REO")
LOSSES. The following table sets forth the Company's allowance for loan,
investments in real estate and REO losses at the dates indicated.
<TABLE>
<CAPTION>
At or For the Years Ended December 31,
----------------------------------------------------------------
(Dollars in Thousands)
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of year ................ $ 13,495 $ 12,173 $ 16,672 $ 15,750 $ 14,789
Allowance of acquired institution ......... -- 3,528 -- -- --
Provision charged to operations ........... 3,963 2,007 3,733 6,959 11,553
Charge-offs:
One-to-four family ...................... (2,634) (3,213) (4,928) (19) (5,571)
Multi-family ............................ (115) (330) (615) -- (217)
Commercial .............................. (1,254) (455) (1,750) (365) (562)
Construction and land ................... (1) (554) (634) (5,200) (4,440)
Consumer and other ...................... (489) (732) (409) (490) (810)
-------- -------- -------- -------- --------
Total charge-offs ................. (4,493) (5,284) (8,336) (6,074) (11,600)
Recoveries:
One-to-four family ...................... 381 552 6 -- 59
Multi-family ............................ 22 -- -- -- --
Commercial .............................. 96 -- -- -- 834
Construction and land ................... 531 259 -- -- 87
Consumer and other ...................... 94 260 98 37 28
-------- -------- -------- -------- --------
Total recoveries ...................... 1,124 1,071 104 37 1,008
Balance at end of year ....................... $ 14,089 $ 13,495 $ 12,173 $ 16,672 $ 15,750
======== ======== ======== ======== ========
Ratio of net charge-offs during the year
to average loans outstanding during the year . 0.14% 0.22% 0.55% 0.37% 0.58%
Ratio of allowance for loan losses to total
loans at end of the year ..................... 0.53 0.65 0.76 1.09 0.92
Ratio of allowance for loan losses to
non-performing loans at end of the
year ......................................... 42.11 30.34 18.19 16.87 12.32
ALLOWANCE FOR INVESTMENTS
IN REAL ESTATE AND REO LOSSES:
Balance at beginning of year ................. $ 3,746 $ 5,250 $ 4,741 $ 1,898 $ 2,252
Allowance of acquired institution ......... -- 1,144 -- -- --
(Recovery)/provision recorded to operations (1,747) 259 3,017 6,020 3,546
Charge-offs ............................... (1,620) (3,997) (3,744) (3,744) (5,217)
Recoveries ................................ 1,666 1,090 1,236 567 1,317
-------- -------- -------- -------- --------
Balance at end of year ....................... $ 2,045 $ 3,746 $ 5,250 $ 4,741 $ 1,898
======== ======== ======== ======== ========
</TABLE>
33
<PAGE> 36
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 at the dates indicated. 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 DECEMBER 31,
-----------------------------------------------------------------------------
1996 1995 1994
----------------------- ----------------------- -----------------------
% of Loans % of Loans % of Loans
in Category in Category in Category
to to to
Amount Total Loans Amount Total Loans Amount Total Loans
------- ----------- ------- ----------- ------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One-to-four family ........ $ 8,002 85.18% $ 7,164 84.82% $ 5,278 84.49%
Multi-family .............. 1,214 6.29 593 5.34 492 5.81
Commercial ................ 3,903 5.96 4,694 6.24 5,077 5.50
Construction and land .... 215 0.38 269 0.61 674 1.22
Consumer and other loans... 755 2.19 775 2.99 652 2.98
------- ------ ------- ------ ------- ------
Total allowances ........ $14,089 100.00% $13,495 100.00% $12,173 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------
1993 1992
----------------------- -----------------------
% of Loans % of Loans
in Category in Category
to to
Amount Total Loans Amount Total Loans
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
One-to-four family ........ $ 8,903 82.20% $ 9,145 81.00%
Multi-family .............. 743 6.47 1,206 6.19
Commercial ................ 4,751 4.34 2,782 4.59
Construction and land .... 1,621 2.92 2,057 4.10
Consumer and other loans... 654 4.07 560 4.12
------- ------ ------- ------
Total allowances ........ $16,672 100.00% $15,750 100.00%
======= ====== ======= ======
</TABLE>
34
<PAGE> 37
V. DEPOSITS
The following table presents the deposit activity of the Company for the years
indicated:
<TABLE>
<CAPTION>
For the years ending December 31,
------------------------------------------
1996 1995 1994
---------- ----------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Opening balance.............. $4,263,421 $ 3,280,652 $2,898,372
Fidelity deposits assumed.... -- 1,053,440 --
Net deposits (withdrawals)... 58,425 (254,212) 266,612
Interest credited (1)........ 191,247 183,541 115,668
---------- ----------- ----------
$4,513,093 $ 4,263,421 $3,280,652
Ending balance............... ========== =========== ==========
Net increase................. $ 249,672 $ 982,769 $ 382,280
========== =========== ==========
Percentage increase.......... 5.86% 29.96% 13.19%
</TABLE>
- ----------------
(1) Net of penalties.
At December 31, 1996, the Company had $298.5 million in certificate of
deposit accounts in amounts of $100,000 or more as follows:
<TABLE>
<CAPTION>
Amount
--------
(In Thousands)
<S> <C>
MATURITY PERIOD
Three months or less............. $ 98,516
Over three through six months.... 49,097
Over six through twelve months... 51,399
Over twelve months............... 99,467
--------
Total....................... $298,479
========
</TABLE>
35
<PAGE> 38
The following table sets forth the distribution of the Company's average
deposit balances for the periods indicated and the weighted average nominal
interest rates on each category of deposit presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------- -------------------------------- --------------------------------
(Dollars in Thousands)
Weighted Weighted Weighted
Percent Average Percent Average Percent Average
Average Of Total Nominal Average Of Total Nominal Average Of Total Nominal
Balance Deposits Rate Balance Deposits Rate Balance Deposits Rate
---------- -------- -------- ---------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Savings ................... $1,146,243 25.98% 2.50% $1,176,433 28.03% 2.50% $1,095,827 35.82% 2.50%
NOW ....................... 114,110 2.59 1.98 240,032 5.72 2.00 128,653 4.21 2.02
Non-Interest Bearing ...... 57,511 1.31 -- 39,267 0.93 -- 20,054 0.65 --
Money market .............. 237,709 5.40 3.78 196,767 4.69 3.58 100,896 3.30 2.49
Money manager ............. 148,871 3.38 1.97 -- -- -- -- -- --
---------- ------ ---------- ------ --------- ------
Total .............. 1,704,444 38.66 2.51 1,652,499 39.37 2.50 1,345,430 43.98 2.42
---------- ------ ---------- ------ --------- ------
Certificates of Deposit(1):
3 month ............... 36,808 0.84 3.28 37,137 0.89 3.90 43,124 1.41 2.78
6 month ............... 148,646 3.38 3.78 166,458 3.97 4.42 113,912 3.73 2.93
9 month ............... 134,786 3.06 4.30 275,674 6.57 5.93 51,629 1.69 3.13
1 year ................ 272,114 6.18 4.69 350,154 8.34 4.92 390,482 12.76 3.80
13 month .............. -- -- -- 23,144 0.55 5.47 -- -- --
15 month .............. 178,927 4.06 5.35 17,393 0.42 5.48 -- -- --
1 1/2 year ............ 347,098 7.89 5.55 612,897 14.60 5.52 350,528 11.46 4.57
18 month variable IRA . 5,828 0.13 3.74 6,700 0.16 4.47 8,620 0.28 3.13
2 year ................ 498,908 11.34 5.77 1,519 0.04 4.32 -- -- --
2 1/2 year ............ 345,402 7.85 5.87 379,206 9.04 5.61 228,857 7.48 5.18
3 1/2 year ............ 45,695 1.04 5.35 55,576 1.32 5.40 61,558 2.01 6.08
5 year ................ 548,198 12.46 6.18 504,487 12.02 6.37 420,388 13.74 6.69
6 year ................ 26,651 0.60 6.77 31,599 0.75 6.99 -- -- --
Jumbo ................. 109,765 2.49 5.10 79,487 1.89 5.49 42,476 1.39 3.91
Other CDS ............. 714 0.02 6.52 3,111 0.07 5.31 2,114 0.07 7.55
---------- ------ ---------- ------ ---------- ------
Total .............. 2,699,540 61.34 5.46 2,544,542 60.63 5.58 1,713,688 56.02 4.83
---------- ------ ---------- ------ ---------- ------
Total deposits . $4,403,984 100.00% 4.32 $4,197,041 100.00% 4.37 $3,059,118 100.00% 3.77
========== ====== ========== ====== ========== ======
</TABLE>
(1) Terms indicated are original, not term remaining to maturity.
36
<PAGE> 39
The following table presents, by rate categories, the balances of the
Company's certificates of deposit outstanding at December 31, 1996, 1995 and
1994, and the remaining periods to maturity of the certificate of deposit
accounts outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Period to maturity from December 31, 1996 At December 31,
----------------------------------------------- --------------------------------------
Within One-two Two-three Over three
one year years years years 1996 1995 1994
---------- -------- --------- ---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT:
2.99% or less ........ $ 10,801 $ -- $ -- $ 45 $ 10,846 $ 8,600 $ 4,087
3.00% to 3.99% ....... 262,023 2,203 2 -- 264,228 198,717 372,703
4.00% to 4.99% ....... 310,835 24,392 289 31 335,547 365,264 472,324
5.00% to 5.99% ....... 673,402 586,365 80,333 38,588 1,378,688 1,160,889 602,235
6.00% to 6.99% ....... 307,935 206,171 23,395 222,820 760,321 713,922 441,427
7.00% to 7.99% ....... 17,916 208 4,198 2,122 24,444 104,005 91,588
8.00% to 8.99% ....... 73 46 -- 25 144 23,518 26,325
9.00% to 9.99% ....... -- -- 532 -- 532 788 33
10.00% and over ....... -- -- -- -- -- -- 55
---------- -------- -------- -------- ---------- ---------- ----------
Total ....... $1,582,985 $819,385 $108,749 $263,631 $2,774,750 $2,575,703 $2,010,777
========== ======== ======== ======== ========== ========== ==========
</TABLE>
37
<PAGE> 40
VI. RETURN ON EQUITY AND ASSETS
Information regarding return on equity and assets appears on page 18 of
the Company's 1996 Annual Report under the caption "Selected Financial Ratios
and Other Data" and is incorporated herein by reference.
VII. BORROWINGS
The following table sets forth certain information regarding the Company's
borrowed funds at or for the years ended on the dates indicated:
<TABLE>
<CAPTION>
At or For the Years Ended December 31,
--------------------------------------
1996 1995 1994
---------- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
FHLB-NY ADVANCES:
Average balance ......................... $ 203,819 $ 423,617 $355,771
Maximum balance outstanding at any month
end during the year ................. 266,562 650,349 366,849
Balance outstanding at end of year ...... 266,514 221,362 351,849
Weighted average interest rate
during the year ..................... 6.26% 5.64% 4.71%
Weighted average interest rate at end
of year ............................. 6.13 6.25 5.03
REVERSE REPURCHASE AGREEMENTS:
Average balance ......................... $1,744,830 $ 978,653 $406,154
Maximum balance of outstanding agreements
at any month end during the year .... 1,910,801 1,510,530 435,000
Balance outstanding at end of year ...... 1,845,000 1,483,329 415,000
Weighted average interest rate
during the year ..................... 5.58% 5.69% 4.30%
Weighted average interest rate at end
of year ............................. 5.65 5.69 5.07
TOTAL BORROWINGS:
Average balance ......................... $1,948,649 $1,402,270 $761,925
Maximum balance outstanding at any month
end during the year ................. 2,111,514 1,751,637 801,849
Balance outstanding at end of year ...... 2,111,514 1,704,691 766,849
Weighted average interest rate
during the year ..................... 5.65% 5.67% 4.49%
Weighted average interest rate at end
of year ............................. 5.71 5.76 5.05
</TABLE>
38
<PAGE> 41
ITEM 2. PROPERTIES
The Company conducts its business at its executive office building, 45
banking offices and one mortgage servicing and training center. Loan
originations are processed at the executive office building and one of the
banking offices. The following list of properties represent those from which the
Company conducts its business which were owned or leased by the Company as of
December 31, 1996.
<TABLE>
<CAPTION>
ORIGINAL DATE DATE OF
LEASED OR LEASED OR LEASE
LOCATION OWNED ACQUIRED EXPIRATION(1)
- -------- --------- ------------- -------------
<S> <C> <C> <C>
EXECUTIVE OFFICE:
One Astoria Federal Plaza (2) Owned 1990
Lake Success, NY 11042-1085
BANKING OFFICES:
37-16 30th Avenue Owned 1938
Long Island City, NY 11103
31-24 Ditmars Boulevard Owned 1952
Long Island City, NY 11105
63-72 108th Street Leased 1956 Jan. 31, 2024
Forest Hills, NY 11375
46-08 Francis Lewis Boulevard Leased 1966 Dec. 31, 2018
Flushing, NY 11361
75-25 Metropolitan Avenue Owned 1973
Middle Village, NY 11379
116-22 Metropolitan Avenue Owned 1973
Kew Gardens, NY 11418
29-34 30th Avenue Owned 1975
Long Island City, NY 11102
60-20 Woodside Avenue Owned 1979
Woodside, NY 11377
71-20 Kissena Boulevard Leased 1979 April 30, 2008
Flushing, NY 11367
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
ORIGINAL DATE DATE OF
LEASED OR LEASED OR LEASE
LOCATION OWNED ACQUIRED EXPIRATION(1)
- -------- --------- ------------- -------------
<S> <C> <C> <C>
68-17 Myrtle Avenue Owned 1979
Glendale, NY 11385
30-33 Stratton Street Leased 1979 July 31, 2004
Pathmark Shopping Center
Flushing, NY 11354
153-17 Cross Island Parkway Leased 1990 June 30, 1998
Whitestone, NY 11357
57-07 Junction Boulevard Leased 1990 April 30, 1997(3)
Elmhurst, NY 11373
955 Hempstead Turnpike Owned 1958
Franklin Square, NY 11010
114 Northern Boulevard (4) Leased 1971 Sept. 30, 2046
Greenvale, NY 11548
44 Cedar Swamp Road Owned 1975
Glen Cove, NY 11542
995 Hicksville Road Leased 1977 Sept. 30, 2035
Massapequa, NY 11758
Gr. So. Bay Shopping Center Leased 1979 July 31, 2009
861 Montauk Highway
West Babylon, NY 11704
4 Great Neck Road Leased 1990 May 31, 2002
Great Neck, NY 11021
162 Hillside Avenue Owned 1995
Williston Park, NY 11596
360 Merrick Road Owned 1995
Lynbrook, NY 11563
1000 Franklin Avenue Leased 1995 Dec. 31, 2011
Garden City, NY 11530
320 Walt Whitman Road Leased 1995 August 31, 2004
Huntington Station, NY 11746
</TABLE>
40
<PAGE> 43
<TABLE>
<CAPTION>
ORIGINAL DATE DATE OF
LEASED OR LEASED OR LEASE
LOCATION OWNED ACQUIRED EXPIRATION(1)
- -------- --------- ------------- -------------
<S> <C> <C> <C>
33 Main Street Owned 1995
Kings Park, NY 11754
363 Hempstead Avenue Owned 1995
Malverne, NY 11565
361 Sunrise Highway Leased 1995 May 31, 2027
Patchogue, NY 11772
464 Atlantic Avenue Owned 1995
East Rockaway, NY 11518
490 Hempstead Turnpike Leased 1995 June 30, 2019
West Hempstead, NY 11552
52 Manetto Hill Road Leased 1995 Sept. 30, 2005
Plainview, NY 11801
1622 Hempstead Turnpike Leased 1995 Oct. 31, 2005
East Meadow, NY 11554
1015 Route 112 Leased 1995 June 30, 2026
Port Jefferson Station, NY 11776
1880 Middle Country Road Owned 1995
Ridge, NY 11961
600 Northern Boulevard (5) Leased 1995 Dec. 31, 2002
Great Neck, NY 11021
155 Jericho Turnpike Owned 1995
Floral Park, NY 11001
99 Covert Avenue Owned 1995
Floral Park, NY 11001
955 Hempstead Turnpike Owned 1995
Franklin Square, NY 11010
260 Glen Head Road Leased 1995 Dec. 31, 2000
Glen Head, NY 11545
</TABLE>
41
<PAGE> 44
<TABLE>
<CAPTION>
ORIGINAL DATE DATE OF
LEASED OR LEASED OR LEASE
LOCATION OWNED ACQUIRED EXPIRATION(1)
- -------- --------- ------------- -------------
<S> <C> <C> <C>
1585 Dutch Broadway Leased 1995 July 31, 2009
Elmont, NY 11003
560 Warburton Avenue Owned 1982
Hastings-on-Hudson, NY 10706
731 Saw Mill River Road Owned 1982
Ardsley, NY 10502
Towne Centre at Somers Leased 1992 August 1, 2028
Somers, NY 10589
18 South Broad Street Owned 1985
Norwich, NY 13815
One Wall Street Owned 1988
Oneonta, NY 13820
62 Pioneer Street Owned 1988
Cooperstown, NY 13326
107 Oneida Street Owned 1988
Oneonta, NY 13820
Southside Mall Leased 1988 June 30, 2003
Oneonta, NY 13820
MORTGAGE SERVICING
AND TRAINING CENTER:
5 Dakota Drive Leased 1992 Dec. 31, 1998
New Hyde Park, NY 11042
</TABLE>
- -------------------
(1) Leased property includes all option periods.
(2) Also includes loan origination facility.
(3) The Association is, as of March 10, 1997, in negotiations with the
landlord to extend this lease
(4) Land lease only. The building on this property is owned.
(5) Closed January 31, 1997.
42
<PAGE> 45
ITEM 3. LEGAL PROCEEDINGS
On July 21, 1995, the Association commenced an action, Astoria Federal
Savings and Loan Association v. United States, No. 95-468C, in the United States
Court of Federal Claims against the United States seeking in excess of $250
million in damages arising from the breach of an assistance agreement entered
into by the Association's predecessor in interest, Fidelity, in connection with
its acquisition in October 1984 of Suburbia Federal Savings and Loan
Association, and the Government's subsequent enactment and implementation of the
FIRREA in 1989. The case was stayed by the court throughout most of 1996
awaiting the decision of the United States Supreme Court in U.S. v. Winstar
Corp. 116 S.Ct.2432 (1996) which held the Government liable for breach of
contract to the plaintiffs in three similar cases and remanded such cases to the
Court of Federal Claims to ascertain damage, and while a case management order
was finalized in October 1996 which established procedures for a more efficient
prosecution of the approximately 125 similar cases pending before the court. In
November 1996, the Association moved for partial summary judgment against the
government on the issues of whether Fidelity had a contract with the government
and whether the enactment of FIRREA was contrary to the terms of such contract.
The government is contesting such motion and has cross-moved for summary
judgment to dismiss the Association's complaint. The issue with respect to the
motion is not expected to be fully joined until May 1997. While management is
confident that it will be successful in the pursuit of its motion and intends to
aggressively pursue its claim against the government, no assurance can be given
as to the result of such claim or the timing of the recovery, if any, with
respect thereto. The costs incurred with respect to this litigation in 1996 were
not material to the Association's results of operations. While such costs are
expected to increase during 1997, they are also, at this time, not expected to
be material to the Association's results of operations for 1997.
During 1994, an action was commenced against AF Roosevelt Avenue
Corporation, a wholly owned subsidiary of the Association, 149 Roosevelt Avenue
Associates, a joint venture in which AF Roosevelt Avenue Corporation was a joint
venture partner, Henry Drewitz, Chairman of the Board of the Association, and
George L. Engelke, Jr., President and Chief Executive Officer of the Association
and a director and officer of AF Roosevelt Avenue Corporation, among others. The
litigation, which seeks damages in excess of $20,000,000, arises from the
development by 149 Roosevelt Avenue Associates of a condominium project
commencing in the mid 1980's. The development consists of 134 residential units,
25 medical facility units, and associated parking and other facilities located
in Flushing, New York. The litigation, commenced by the Board of Managers of the
condominium, alleges that there are various defects in the condominium buildings
with respect to the roof, certain masonry work and structural components and
seeks damages based upon breach of contract, fraud, misrepresentation, breach of
warranty, violations of Articles 23A and 36B of the General Business Law of the
State of New York, recklessness and negligence. The above listed defendants have
appeared in the litigation, which is in the preliminary stages of discovery. The
Association has notified its liability and director and officer liability
insurance carriers of the action. 149 Roosevelt Avenue Associates, with the
acquiescence of AF Roosevelt Avenue Corporation and the Plaintiff, have selected
a mutually satisfactory engineer to inspect and test the development and report
on its condition. As of December 31, 1996, the analysis of the structure is
continuing. Management is continuing to pursue additional information at this
time to determine whether remedial action will be required on the part of the
sponsor.
Management believes that this litigation presents a number of substantive
legal issues which may render such claims substantially without merit.
Management intends to aggressively defend this litigation. Management, based
upon the current advice of its experts, does not believe any loss sustained as a
result of this litigation would be material to the financial condition or
results of operations of the Company. As of December 31, 1996, the Association
holds, within the development, 93 mortgage loans to condominium unit purchasers
aggregating $6.7 million, 4 of which, aggregating $466,600, are currently on
non-accrual, and 6 of which , aggregating $322,400, are real estate owned.
With the exception of the litigation discussed above, the Company is not
involved in any pending legal proceedings other than legal proceedings incident
to the Company's business, which involve amounts in the
43
<PAGE> 46
aggregate which management believes are immaterial to the financial condition
and results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year ended
December 31, 1996 to a vote of security holders of the Company, through the
solicitation of proxies or otherwise.
44
<PAGE> 47
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
That section of the Company's Annual Report to Shareholders for the
fiscal year ended December 31, 1996 entitled "Market for Common Stock", page 68,
is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
That section of the Company's Annual Report to Shareholders for the
fiscal year ended December 31, 1996 entitled "Selected Consolidated Financial
and Other Data of the Company", pages 17 and 18, is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
That section of the Company's Annual Report to Shareholders for the
fiscal year ended December 31, 1996 entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations", pages 20 through 36
inclusive, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Those sections of the Company's Annual Report to Shareholders for the
fiscal year ended December 31, 1996 Entitled "Independent Auditors' Report",
page 37, "Consolidated Statements of Financial Condition", page 38,
"Consolidated Statements of Operations", page 39, "Consolidated Statements of
Changes in Stockholders' Equity, page 40, "Consolidated Statements of Cash
Flows", page 41, "Notes to Consolidated Financial Statements", pages 42 through
66, inclusive, and "Quarterly Results of Operations (Unaudited)", page 67, are
incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
45
<PAGE> 48
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information regarding directors and executive officers who are not
directors of the Registrant, is presented in the tables under the heading "Board
Nominees, Directors and Executive Officers" and under the heading "Committees
and Meetings of the Board of Directors of Astoria Financial Corporation" in the
Company's definitive Proxy Statement to be dated April 7, 1997, for its Annual
Meeting of Shareholders to be held on May 21, 1997, which will be filed with the
SEC within 120 days from December 31, 1996, and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive (and director) compensation is included
under the headings "Summary Compensation Table", "Fiscal Year End Option/SAR
Values", "Pension Plans", "Director Compensation", "Employment Agreements",
"Incentive Option Plans," that portion of the "Report of the Compensation
Committee on Executive Compensation" entitled "Long-term Incentive
Compensation", and "Compensation Committee Interlocks and Insider Participation
in Compensation Decisions" in the Company's definitive Proxy Statement to be
dated April 7,1997 for its Annual Meeting of Shareholders to be held on May 21,
1997, which will be filed with the SEC within 120 days from December 31, 1996,
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership of certain beneficial owners
and management is included under the headings "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" is in the Company's
definitive Proxy Statement to be dated April 7, 1997 for its Annual Meeting of
Shareholders to be held on May 21, 1997, which will be filed with the SEC within
120 days from December 31, 1996, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
included under the headings "Transactions with Certain Related Persons" and
"Compensation Committee Interlocks and Insider Participation in Compensation
Decisions" in the Company's definitive Proxy Statement to be dated April 7, 1997
for its Annual Meeting of Shareholders to be held on May 21, 1997, which will be
filed with the SEC within 120 days from December 31, 1996, and is incorporated
herein by reference.
46
<PAGE> 49
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements and schedules of the
Company, its subsidiary, Astoria Federal Savings and Loan Company, and the
independent auditors' report thereon, included on pages 37 through 67 of the
Company's 1996 Annual Report, are being filed as a part of this Form 10-K
through their incorporation herein by reference:
- Independent Auditors' Report
- Consolidated Statements of Financial Condition at December 31, 1996
and 1995
- Consolidated Statements of Operations for each of the years in the
three year period ended December 31, 1996
- Consolidated Statements of Changes in Stockholders' Equity for each
of the years in the three year period ended December 31, 1996
- Consolidated Statements of Cash Flows for each of the years in the
three year period ended December 31, 1996
- Notes to the Consolidated Financial Statements
- Quarterly Results of Operations (Unaudited) for each of the years in
the two year period ended December 31, 1996
Information appearing in the Annual Report to Shareholders is not deemed to be
filed as part of this report, except as expressly incorporated by reference
herein.
2. Financial Statement Schedules
Financial Statement Schedules have been omitted because they are not
applicable or the required information is shown in the Consolidated Financial
Statements or Notes thereto.
(b) Exhibits Required by Item 601 of Securities and Exchange Commission
Regulation S-K:
EXHIBIT IDENTIFICATION OF EXHIBIT
------- -------------------------
3.1 Articles of Incorporation of Astoria Financial Corporation (1)
3.2 By laws of Astoria Financial Corporation (1)
4.1 Astoria Financial Corporation Specimen Stock Certificate *
4.2 Federal Stock Charter of Astoria Federal Savings and Loan
Association (2)
4.3 By-laws of Astoria Federal Savings and Loan Association *
4.4 Certificate of Designations, Preferences and Rights of Series A
Junior Participating Preferred Stock (4)
47
<PAGE> 50
EXHIBIT IDENTIFICATION OF EXHIBIT
------- -------------------------
4.5 Rights Agreement between Astoria Financial Corporation and Chase
Mellon Shareholder Services, L.L.C., as Rights Agent, Dated as of
July 17, 1996 (4)
4.6 Form of Rights Certificate (4)
4.7 Astoria Financial Corporation Automatic Dividend Reinvestment and
Stock Purchase Plan (6)
10.1 Astoria Federal Savings and Loan Association Employee Stock
Ownership Trust Loan and Security Agreement (1)
10.2 Amendment to Astoria Federal Savings and Loan Association Employee
Stock Ownership Trust Loan and Security Agreement, Promissory Note,
and Security Agreement Re Instruments or Negotiable Documents to be
Deposited (1)
10.3 Astoria Federal Savings and Loan Association and Astoria Financial
Corporation Directors' Retirement Plan, as amended and restated
effective February 21, 1996. This exhibit is a management contract
or compensatory plan or arrangement required to be filed as an
exhibit to this Form 10-K pursuant to Item 14(c) of this report. (3)
10.4 Astoria Financial Corporation Death Benefit Plan for Outside
Directors - This exhibit is a management contract or compensatory
plan or arrangement required to be filed as an exhibit to this Form
10-K pursuant to Item 14(c) of this report. (3)
10.5 Deferred Compensation Plan for Directors of Astoria Financial
Corporation - This exhibit is a management contract or compensatory
plan or arrangement required to be filed as an exhibit to this Form
10-K pursuant to Item 14(c) of this report. (3)
10.6 1996 Stock Option Plan for Officers and Employees of Astoria
Financial Corporation - This exhibit is a management contract or
compensatory plan or arrangement required to be filed as an exhibit
to this Form 10-K pursuant to Item 14(c) of this report. (3)
10.7 1996 Stock Option Plan for Outside Directors of Astoria Financial
Corporation - This exhibit is a management contract or compensatory
plan or arrangement required to be filed as an exhibit to this Form
10-K pursuant to Item 14(c) of this report. (3)
10.8 Astoria Federal Savings and Loan Association Recognition and
Retention Plan for Outside Directors as amended March 1, 1996 - This
exhibit is a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-K pursuant to
Item 14(c) of this report. (3)
10.9 Astoria Federal Savings and Loan Association Annual Incentive Plan
for Selected Executives - This exhibit is a management contract or
compensatory plan or arrangement required to be filed as an exhibit
to this Form 10-K pursuant to Item 14(c) of this report. (1)
48
<PAGE> 51
EXHIBIT IDENTIFICATION OF EXHIBIT
------- -------------------------
10.10 Astoria Financial Corporation Employment Agreement with George L.
Engelke, Jr. - This exhibit is a management contract or compensatory
plan or arrangement required to be filed as an exhibit to this Form
10-K pursuant to Item 14(c) of this report. (3)
10.11 Astoria Federal Savings and Loan Association Employment Agreement
with George L. Engelke, Jr. - This exhibit is a management contract
or compensatory plan or arrangement required to be filed as an
exhibit to this Form 10-K pursuant to Item 14(c) of this report. (3)
10.12 Astoria Financial Corporation Employment Agreement with Senior Vice
President by and between Astoria Financial Corporation and Arnold K.
Greenberg - This exhibit is a management contract or compensatory
plan or arrangement required to be filed as an exhibit to this Form
10-K pursuant to Item 14(c) of this report. (3)
10.13 Astoria Federal Savings and Loan Association Employment Agreement
with Senior Vice President by and between Astoria Federal Savings
and Loan Association and Arnold K. Greenberg - This exhibit is a
management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of
this report. (3)
10.14 Astoria Financial Corporation Employment Agreement with Senior Vice
President by and between Astoria Financial Corporation and Thomas W.
Drennan - This exhibit is a management contract or compensatory plan
or arrangement required to be filed as an exhibit to this Form 10-K
pursuant to Item 14(c) of this report. (3)
10.15 Astoria Federal Savings and Loan Association Employment Agreement
with Senior Vice President by and between Astoria Federal Savings
and Loan Association and Thomas W. Drennan - This exhibit is a
management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of
this report. (3)
10.16 Astoria Financial Corporation Employment Agreement with Senior Vice
President by and between Astoria Financial Corporation and Monte N.
Redman - This exhibit is a management contract or compensatory plan
or arrangement required to be filed as an exhibit to this Form 10-K
pursuant to Item 14(c) of this report. (3)
10.17 Astoria Federal Savings and Loan Association Employment Agreement
with Senior Vice President by and between Astoria Federal Savings
and Loan Association and Monte N. Redman - This exhibit is a
management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of
this report. (3)
49
<PAGE> 52
EXHIBIT IDENTIFICATION OF EXHIBIT
------- -------------------------
10.18 Astoria Financial Corporation Employment Agreement with Senior Vice
President by and between Astoria Financial Corporation and William
K. Sheerin - This exhibit is a management contract or compensatory
plan or arrangement required to be filed as an exhibit to this Form
10-K pursuant to Item 14(c) of this report. (3)
10.19 Astoria Federal Savings and Loan Association Employment Agreement
with Senior Vice President by and between Astoria Federal Savings
and Loan Association and William K. Sheerin - This exhibit is a
management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of
this report. (3)
10.20 Astoria Financial Corporation Employment Agreement with Senior Vice
President by and between Astoria Financial Corporation and Alan P.
Eggleston - This exhibit is a management contract or compensatory
plan or arrangement required to be filed as an exhibit to this Form
10-K pursuant to Item 14(c) of this report. (3)
10.21 Astoria Federal Savings and Loan Association Employment Agreement
with Senior Vice President by and between Astoria Federal Savings
and Loan Association and Alan P. Eggleston - This exhibit is a
management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of
this report. (3)
10.22 Memorandum For the Record dated June 11, 1993 regarding Increased
Health Benefits for Senior Officers - This exhibit is a management
contract or compensatory plan or arrangement required to be filed as
an exhibit to this Form 10-K pursuant to Item 14(c) of this report.
(1)
10.23 Consulting and Other Arrangements Concerning Messrs. Drewitz and
Bolton - This exhibit is a management contract or compensatory plan
or arrangement required to be filed as an exhibit to this Form 10-K
pursuant to Item 14(c) of this report. (1)
10.24 Amended and Restated Agreement and Plan of Merger, dated as of July
12, 1994, by and among Astoria Financial Corporation, Astoria
Federal Savings and Loan Association and Fidelity New York F.S.B.
(5)
10.25 Amendment No. 1 to the Amended and Restated Agreement and Plan of
Merger, dated as of January 27, 1995, by and among Astoria Financial
Corporation, Astoria Federal Savings and Loan Association and
Fidelity New York F.S.B. (5)
10.26 Form of Option Conversion Agreement by and between Astoria Financial
Corporation and each of Mr. Thomas V. Powderly, Mr. William A. Wesp
and Frederick J. Meyer, respectively. (5)
50
<PAGE> 53
EXHIBIT IDENTIFICATION OF EXHIBIT
------- -------------------------
10.27 Consulting Agreement by and between Astoria Financial Corporation
and Mr. Thomas V. Powderly dated January 31, 1995. (5)
10.28 Trust Agreement, dated as of January 31, 1995 between Astoria
Financial Corporation and State Street Bank and Trust Company. (5)
10.29 Astoria Financial Corporation 1993 Incentive Stock Option Plan -
This exhibit is a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this Form 10-K
pursuant to Item 14(c) of this report. (1)
10.30 Astoria Financial Corporation 1993 Stock Option Plan For Outside
Directors - This exhibit is a management contract or compensatory
plan or arrangement required to be filed as an exhibit to this Form
10-K pursuant to Item 14(c) of this report. (1)
10.31 Astoria Federal Savings and Loan Association Recognition and
Retention Plan for Officers and Employees - This exhibit is a
management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of
this report. (1)
11.1 Statement regarding computation of earnings per share.*
13.1 1996 Annual Report to Stockholders. *
21.1 Subsidiaries of Astoria Financial Corporation. *
23 Consent of Independent Auditors. *
27 Financial Data Schedule. *
99.1 Proxy Statement for the Annual Meeting of Shareholders to be held on
May 21, 1997, which will be filed with the SEC within 120 days from
December 31, 1996, is incorporated herein by reference.
* Filed herewith
(1) Incorporated by reference to Astoria Financial Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993,
filed with the Securities and Exchange Commission on March 30, 1994.
(2) Incorporated by reference to Astoria Financial Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994,
filed with the Securities and Exchange Commission on March 15, 1995.
(3) Incorporated by reference to Astoria Financial Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995
filed with the Securities and Exchange Commission on March 29, 1996.
(4) Incorporated by reference to Astoria Financial Corporation's
Registration Statement on Form 8-A dated July 17, 1996 and filed
with the Securities and Exchange Commission in August 1996.
51
<PAGE> 54
(5) Incorporated by reference to Astoria Financial Corporation's Current
Report on Form 8-K, dated January 31, 1995 and filed with the
Securities and Exchange Commission on February 9, 1995.
(6) Incorporated by reference to Form S-3 Registration Statement as
filed with the Securities and Exchange Commission on October 23,
1995.
(c) Reports on Form 8-K filed during the last quarter of the Registrant's
fiscal year ended December 31, 1996. No reports on Form 8-K have been
filed by the Company during the fourth quarter of its fiscal year ended
December 31, 1996.
52
<PAGE> 55
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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
/s/ George L. Engelke, Jr. Date: March 19, 1997
------------------------------------- ------------------------------
George L. Engelke, Jr.
President and Chief Executive Officer
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:
NAME DATE
/s/ George L. Engelke, Jr. March 19, 1997
-------------------------------------------------- --------------
George L. Engelke, Jr.
President, Chief Executive Officer and Director
/s/ Henry Drewitz March 19, 1997
-------------------------------------------------- --------------
Henry Drewitz
Chairman of the Board and Director
/s/ Monte N. Redman March 19, 1997
-------------------------------------------------- --------------
Monte N. Redman
Senior Vice President, Treasurer and
Chief Financial Officer
/s/ Robert G. Bolton March 19, 1997
-------------------------------------------------- --------------
Robert G. Bolton
Director
/s/ Andrew M. Burger March 19, 1997
-------------------------------------------------- --------------
Andrew M. Burger
Director
/s/ Denis J. Connors March 19, 1997
-------------------------------------------------- --------------
Denis J. Connors
Director
/s/ Thomas J. Donahue March 19, 1997
-------------------------------------------------- --------------
Thomas J. Donahue
Director
/s/ William J. Fendt March 19, 1997
-------------------------------------------------- --------------
William J. Fendt
Director
/s/ Ralph F. Palleschi March 19, 1997
-------------------------------------------------- --------------
Ralph F. Palleschi
Director
/s/ Thomas V. Powderly March 19, 1997
-------------------------------------------------- --------------
Thomas V. Powderly
Director
53
<PAGE> 56
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT NO. IDENTIFICATION OF EXHIBIT NUMBER
----------- ------------------------- ----------
<S> <C> <C>
3.1 Articles of Incorporation of Astoria Financial Corporation (1)
3.2 By laws of Astoria Financial Corporation (1)
4.1 Astoria Financial Corporation Specimen Stock Certificate *
4.2 Federal Stock Charter of Astoria Federal Savings and Loan
Association (2)
4.3 By-laws of Astoria Federal Savings and Loan Association *
4.4 Certificate of Designations, Preferences and Rights of Series A
Junior Participating Preferred Stock (4)
4.5 Rights Agreement between Astoria Financial Corporation and Chase
Mellon Shareholder Services, L.L.C., as Rights Agent, Dated as of
July 17, 1996 (4)
4.6 Form of Rights Certificate (4)
4.7 Astoria Financial Corporation Automatic Dividend Reinvestment and
Stock Purchase Plan (6)
10.1 Astoria Federal Savings and Loan Association Employee Stock
Ownership Trust Loan and Security Agreement (1)
10.2 Amendment to Astoria Federal Savings and Loan Association Employee
Stock Ownership Trust Loan and Security Agreement, Promissory Note,
and Security Agreement Re Instruments or Negotiable Documents to be
Deposited (1)
10.3 Astoria Federal Savings and Loan Association and Astoria Financial
Corporation Directors' Retirement Plan, as amended and restated
effective February 21, 1996. This exhibit is a management contract
or compensatory plan or arrangement required to be filed as an
exhibit to this Form 10-K pursuant to Item 14(c) of this report. (3)
10.4 Astoria Financial Corporation Death Benefit Plan for Outside
Directors. (3)
10.5 Deferred Compensation Plan for Directors of Astoria Financial
Corporation. (3)
10.6 1996 Stock Option Plan for Officers and Employees of Astoria
Financial Corporation. (3)
10.7 1996 Stock Option Plan for Outside Directors of Astoria Financial
Corporation. (3)
10.8 Astoria Federal Savings and Loan Association Recognition and
Retention Plan for Outside Directors as amended March 1, 1996. (3)
10.9 Astoria Federal Savings and Loan Association Annual Incentive Plan
for Selected Executives. (1)
</TABLE>
54
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT NO. IDENTIFICATION OF EXHIBIT NUMBER
----------- ------------------------- ----------
<S> <C> <C>
10.10 Astoria Financial Corporation Employment Agreement with George L.
Engelke, Jr. (3)
10.11 Astoria Federal Savings and Loan Association Employment Agreement
with George L. Engelke, Jr. (3)
10.12 Astoria Financial Corporation Employment Agreement with Senior Vice
President by and between Astoria Financial Corporation and Arnold K.
Greenberg. (3)
10.13 Astoria Federal Savings and Loan Association Employment Agreement
with Senior Vice President by and between Astoria Federal Savings
and Loan Association and Arnold K. Greenberg. (3)
10.14 Astoria Financial Corporation Employment Agreement with Senior Vice
President by and between Astoria Financial Corporation and Thomas W.
Drennan. (3)
10.15 Astoria Federal Savings and Loan Association Employment Agreement
with Senior Vice President by and between Astoria Federal Savings
and Loan Association and Thomas W. Drennan. (3)
10.16 Astoria Financial Corporation Employment Agreement with Senior Vice
President by and between Astoria Financial Corporation and Monte N.
Redman. (3)
10.17 Astoria Federal Savings and Loan Association Employment Agreement
with Senior Vice President by and between Astoria Federal Savings
and Loan Association and Monte N. Redman. (3)
10.18 Astoria Financial Corporation Employment Agreement with Senior Vice
President by and between Astoria Financial Corporation and William
K. Sheerin. (3)
10.19 Astoria Federal Savings and Loan Association Employment Agreement
with Senior Vice President by and between Astoria Federal Savings
and Loan Association and William K. Sheerin. (3)
</TABLE>
55
<PAGE> 58
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT NO. IDENTIFICATION OF EXHIBIT NUMBER
----------- ------------------------- ----------
<S> <C> <C>
10.20 Astoria Financial Corporation Employment Agreement with Senior Vice
President by and between Astoria Financial Corporation and Alan P.
Eggleston. (3)
10.21 Astoria Federal Savings and Loan Association Employment Agreement
with Senior Vice President by and between Astoria Federal Savings
and Loan Association and Alan P. Eggleston. (3)
10.22 Memorandum For the Record dated June 11, 1993 regarding Increased
Health Benefits for Senior Officers. (1)
10.23 Consulting and Other Arrangements Concerning Messrs. Drewitz and
Bolton. (1)
10.24 Amended and Restated Agreement and Plan of Merger, dated as of July
12, 1994, by and among Astoria Financial Corporation, Astoria
Federal Savings and Loan Association and Fidelity New York F.S.B.
(5)
10.25 Amendment No. 1 to the Amended and Restated Agreement and Plan of
Merger, dated as of January 27, 1995, by and among Astoria Financial
Corporation, Astoria Federal Savings and Loan Association and
Fidelity New York F.S.B. (5)
10.26 Form of Option Conversion Agreement by and between Astoria Financial
Corporation and each of Mr. Thomas V. Powderly, Mr. William A. Wesp
and Frederick J. Meyer, respectively. (5)
10.27 Consulting Agreement by and between Astoria Financial Corporation
and Mr. Thomas V. Powderly dated January 31, 1995. (5)
10.28 Trust Agreement, dated as of January 31, 1995 between Astoria
Financial Corporation and State Street Bank and Trust Company. (5)
10.29 Astoria Financial Corporation 1993 Incentive Stock Option Plan. (1)
10.30 Astoria Financial Corporation 1993 Stock Option Plan For Outside
Directors. (1)
10.31 Astoria Federal Savings and Loan Association Recognition and
Retention Plan for Officers and Employees. (1)
11.1 Statement regarding computation of earnings per share. *
13.1 1996 Annual Report to Stockholders. *
</TABLE>
56
<PAGE> 59
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT NO. IDENTIFICATION OF EXHIBIT NUMBER
----------- ------------------------- ----------
<S> <C> <C>
21.1 Subsidiaries of Astoria Financial Corporation. *
23 Consent of Independent Auditors. *
27 Financial Data Schedule. *
99.1 Proxy Statement for the Annual Meeting of Shareholders to be held on
May 21, 1997, which will be filed with the SEC within 120 days from
December 31, 1996, is incorporated herein by reference.
* Filed herewith
(1) Incorporated by reference to Astoria Financial Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993,
filed with the Securities and Exchange Commission on March 30, 1994.
(2) Incorporated by reference to Astoria Financial Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994
filed with the Securities and Exchange Commission on March 15, 1995.
(3) Incorporated by reference to Astoria Financial Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995
filed with the Securities and Exchange Commission on March 29, 1996.
(4) Incorporated by reference to Astoria Financial Corporation's
Registration Statement on Form 8-A dated July 17, 1996 and filed
with the Securities and Exchange Commission in August 1996.
(5) Incorporated by reference to Astoria Financial Corporation's Current
Report on Form 8-K, dated January 31, 1995 and filed with the
Securities and Exchange Commission on February 9, 1995.
(6) Incorporated by reference to Form S-3 Registration Statement as
filed with the Securities and Exchange Commission on October 23,
1995.
</TABLE>
(c) Reports on Form 8-K filed during the last quarter of the Registrant's
fiscal year ended December 31, 1996. No reports on Form 8-K have been
filed by the Company during the fourth quarter of its fiscal year ended
December 31, 1996.
57
<PAGE> 1
EXHIBIT 4.1 ASTORIA FINANCIAL CORPORATION SPECIMEN STOCK CERTIFICATE
<TABLE>
<S> <C> <C>
COMMON STOCK This certificate also evidences and entitles the holder COMMON STOCK
PAR VALUE $0.01 hereof to certain rights as set forth in a Rights Agreement PAR
between Astoria Financial Corporation and ChaseMellon VALUE $0.01
Shareholder Services, L.L.C., as Rights Agent, dated as of
July 17, 1996, as the same may be amended from time to time,
(the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on
file at the principal executive offices of Astoria Financial
Corporation. Under certain circumstance s, as set forth in
the Rights Agreement, such Rights will be evidenced by
separate certificates and will no longer be evidenced by this
certificate. Astoria Financial Corporation will mail to the
holder of this certificate a copy of the Rights Agreement
without charge after receipt of a written request therefor.
As described in the Rights Agreement, Rights owned by any
Person who is or becomes an Acquiring Person (as defined in
the Rights Agreement) and certain transfers thereof shall SEE REVERSE FOR
become null and void. CERTAIN DEFINITIONS
</TABLE>
Astoria Financial Corporation
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies That [BLANK]
is the owner of: [BLANK]
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE,
OF ASTORIA FINANCIAL CORPORATION
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record thereof, or by his
duly authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and any amendments thereto
(copies of which are on file with the Transfer Agent), to all of which
provisions the holder by acceptance hereof, assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar. The shares represented by this Certificate are not
insured by the Federal Deposit Insurance Corporation or any other government
agency.
In Witness Thereof, Astoria Financial Corporation has caused this certificate
to be executed by the facsimile signature of its duly authorized officers and
has caused a facsimile of its corporate seal to be hereunto affixed.
Dated: [BLANK]
COUNTERSIGNED AND REGISTERED:
CHEMICAL BANK
(New York, New York)
By Transfer Agent and Registrar President and Chief Executive Officer
[FACSIMILE
CORPORATE
SEAl] (1)
Authorized Signature Secretary
<PAGE> 2
ASTORIA FINANCIAL CORPORATION
The shares represented by this certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect that in no event
shall any record owner of any outstanding common stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the outstanding shares of common stock (the "Limit") be entitled or
permitted to any vote in respect of shares held in excess of the Limit.
The Board of Directors of the corporation is authorized by resolution(s),
from time to time adopted, to provide for the issuance of serial preferred stock
in series and to fix and state the voting powers, designations, preferences and
relative, participating, optional, or other special rights of the shares of each
such series and the qualifications, limitations and restrictions thereof. The
corporation will furnish to any shareholder upon request and without charge a
full description of each class of stock and any series thereof.
The shares represented by this certificate may not be cumulatively voted on
any matter. The affirmative vote of the holders of at least 80% of the voting
stock of the corporation, voting together as a single class, shall be required
to approve certain provisions of the Certificate of Incorporation.
- --------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM- as tenants in common UNIF GIFT MIN ACT-______________Custodian_______________
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN- as joint tenants with under Uniform Gift to Minors
right of survivorship and Act________________________________
not as tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value received,______________________________________hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the common stock represented by the within certificate, and do hereby
irrevocably constitute and appoint______________________________________________
__________________________________________Attorney to transfer the said Stock on
the books of the within-named Corporation with full power of substitution in the
premises.
Dated,____________________ X_________________________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon the face
of the certificate in every particular without
alteration or enlargement or any change whatever.
SIGNATURE GUARANTEED:______________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION. (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 13Ad-15.
<PAGE> 3
________________________________________________________________________________
Graphics Description
1. Facsimile corporate seal consists of two concentric circles. Within the inner
circle on four lines the top and bottom of which follow the curves of the circle
are the following words centered, one word per line: Corporate, Seal, 1993, and
Delaware. Between the inner circle and the outer circle, centered at the top of
the circle is the words: Astoria Financial Corporation. Centered at the bottom
between the inner circle and the outer circle, is a dot.
<PAGE> 1
EXHIBIT 4.3
BYLAWS
OF
ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION
Amended and Restated Effective as of January 31, 1995
As Amended Effective July 17, 1996
<PAGE> 2
BYLAWS OF
ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION
ARTICLE I. HOME OFFICE
The home office of Astoria Federal Savings and Loan ("ASSOCIATION") is 37-16
30th Avenue, Long Island City, New York 11103.
ARTICLE II. SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of shareholders
shall be held at the administrative office of the ASSOCIATION located at One
Astoria Federal Plaza, Lake Success, New York or at such other place in the
State in which the principal place of business of the ASSOCIATION is located as
the board of directors
may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the ASSOCIATION
for the election of directors and for the transaction of any other business of
the ASSOCIATION shall be held annually within 120 days after the end of the
ASSOCIATION's fiscal year.
SECTION 3. SPECIAL MEETINGS. For a period of five years from the date of the
completion of the conversion of the ASSOCIATION from mutual to stock form,
special meetings of the shareholders relating to a change in control of the
ASSOCIATION or to an amendment of the Charter of the ASSOCIATION may be called
only by the board of directors. Thereafter, special meetings of the shareholders
for any purpose or purposes, unless otherwise prescribed by the regulations of
the Office of Thrift Supervision ("OTS"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president or the secretary
upon the written request of the holders of not less than one-tenth of all the
outstanding capital stock of the ASSOCIATION entitled to vote at the meeting.
Such written request shall state the purpose or purposes of the meeting and
shall be delivered at the home office of the ASSOCIATION addressed to the
chairman of the board, the president or the secretary.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the OTS or these bylaws. The board
of directors shall designate, when present, either the chairman of the board or
president to preside at such meetings.
SECTION 5. NOTICE OF MEETINGS. Written notice stating the place, day and hour
of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the
-2-
<PAGE> 3
board, the president, the secretary, or the directors calling the meeting, to
each shareholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the mail, addressed to
the shareholder at the address as it appears on the stock transfer books or
records of the ASSOCIATION as of the record date prescribed in Section 6 of this
Article II, with postage prepaid. When any shareholders' meeting, either annual
or special, is adjourned for 30 days or more, notice of the adjourned meeting
shall be given as in the case of an original meeting. It shall not be necessary
to give any notice of the time and place of any meeting adjourned for less than
30 days or of the business to be transacted at the meeting, other than an
announcement at the meeting at which such adjournment is taken.
SECTION 6. FIXING OF RECORD DATE. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment, or shareholders entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purpose, the
board of directors shall fix in advance a date as the record date for any such
determination of shareholders. Such date in any case shall be not more than 60
days and, in case of a meeting of shareholders, not fewer than 10 days prior to
the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
SECTION 7. VOTING LISTS. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the ASSOCIATION shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the ASSOCIATION and
shall be subject to inspection by any shareholder at any time during usual
business hours, for a period of 20 days prior to such meeting. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection by any shareholder during the entire time of the
meeting. The original stock transfer book shall constitute prima facie evidence
of the shareholders entitled to examine such list or transfer books or to vote
at any meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures prescribed in Section 552.6(d) of the OTS's
Regulations as now or hereafter in effect.
SECTION 8. QUORUM. A majority of the outstanding shares of the ASSOCIATION
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders
-3-
<PAGE> 4
to constitute less than a quorum.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid more
than eleven months from the date of its execution except for a prosy coupled
with an interest.
SECTION 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When
ownership stands in the name of two or more persons, in the absence of written
directions to the ASSOCIATION to the contrary, at any meeting of the
shareholders of the ASSOCIATION any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
SECTION 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name
of another corporation may be voted by any officer, agent or proxy as the bylaws
of such corporation may prescribe, or, in the absence of such provision, as the
board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a receiver
may be voted by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer into his name if
authority to do so is contained in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such shares
until the shares have been transferred into the name of the pledgee and
thereafter the pledgee, shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the ASSOCIATION, nor shares
held by another corporation, if a majority of the shares entitled to vote for
the election of directors of such other corporation are held by the ASSOCIATION,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
SECTION 12. CUMULATIVE VOTING. Shareholders shall not be entitled to cumulate
their votes for election of directors.
SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall
-4-
<PAGE> 5
not be altered at the meeting. If inspectors of election are not so appointed,
the chairman of the board or the president may, or on the request of not fewer
than 10 percent of the votes represented at the meeting shall, make such
appointment at the meeting. If appointed at the meeting, the majority of the
votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting, or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the OTS, the duties of such
inspectors shall include: determining the number of shares and the voting power
of each share, the shares represented at the meeting, the existence of a quorum,
and the authenticity, validity and effect of proxies; receiving votes, ballots,
or consents; hearing and determining all challenges and questions in any way
arising in connection with the rights to vote; counting and tabulating all votes
or consents; determining the result; and such acts as may be proper to conduct
the election or vote with fairness to all shareholders.
SECTION 14. NOMINATING COMMITTEE. The board of directors shall act as a
nominating committee for selecting the nominees for election as directors.
Except in the case of a nominee substituted as a result of the death or other
incapacity of a nominee, the nominating committee shall deliver written
nominations to the secretary at least 20 days prior to the date of the annual
meeting. Upon delivery, such nominations shall be posted in a conspicuous place
in each office of the ASSOCIATION. No nominations for directors except those
made by the nominating committee shall be voted upon at the annual meeting
unless other nominations by shareholders are made in writing and delivered to
the secretary of the ASSOCIATION at least five days prior to the date of the
annual meeting. Upon delivery, such nominations shall be posted in a conspicuous
place in each office of the ASSOCIATION. Ballots bearing the names of all
persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 20 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
SECTION 15. NEW BUSINESS. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the
ASSOCIATION at least five days before the date of the annual meeting, and all
business so stated, proposed, and filed shall be considered at the annual
meeting, but no other proposal shall be acted upon at the annual meeting. Any
shareholder may make any other proposal at the annual meeting and the same may
be discussed and considered, but unless stated in writing and filed with the
secretary at least five days before the meeting, such proposal shall be laid
over for action at an adjourned, special, or annual meeting of the shareholders
taking place 30 days or more thereafter. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors and committees; but in connection with such reports no new
business shall be acted upon at such annual meeting unless stated and filed as
herein provided.
SECTION 16. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be taken
at a meeting of shareholders, or any other action which may be taken at a
meeting of the shareholders, may be taken
-5-
<PAGE> 6
without a meeting if consent in writing, setting forth the action so taken,
shall be given by all of the shareholders entitled to vote with respect to the
subject matter.
ARTICLE III. BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the ASSOCIATION shall
be under the direction of its board of directors. The board of directors shall
annually elect a chairman of the board and a president from among its members
and shall designate, when present, either the chairman of the board or the
president to preside at its meetings.
SECTION 2. NUMBER AND TERM. The board of directors shall consist of ten
members and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be elected
by ballot annually.
SECTION 3. REGULAR MEETINGS. A regular meeting of the board of directors
shall be held without other notice than this bylaw immediately after, and at the
same place as, the annual meeting of shareholders. The board of directors may
provide, by resolution, the time and place, within the ASSOCIATION's normal
lending territory, for the holding of additional regular meetings without other
notice than such resolution.
SECTION 4. QUALIFICATION. Each director shall at all times be the beneficial
owner of not less than 100 shares of capital stock of the ASSOCIATION unless the
ASSOCIATION is a wholly owned subsidiary of a holding company.
SECTION 5. SPECIAL MEETINGS. Special meetings of the board of directors may
be called by or at the request of the chairman of the board, the president or
one-third of the directors. The persons authorized to call special meetings of
the board of directors may fix any place, within the ASSOCIATION's normal
lending territory, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone, or by means of similar communications equipment
by which all persons participating in the meeting can hear each other. Such
participation shall constitute presence in person but shall not constitute
attendance for the purpose of compensation pursuant to Section 12 of this
Article.
SECTION 6. NOTICE. Written notice of any special meeting shall be given to
each director at least two days prior thereto when delivered personally or by
telegram, or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver
-6-
<PAGE> 7
of notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 7. QUORUM. A majority of the number of directors fixed by Section 2
of this Article III shall constitute a quorum for the transaction of business at
any meeting of the board of directors, but if less than such majority is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time. Notice of any adjourned meeting shall be given in the same manner
as prescribed by Section 6 of this Article III.
SECTION 8. MANNER OF ACTING. The act of the majority of the directors present
at a meeting at which a quorum is present shall be the act of the board of
directors, unless a greater number is prescribed by regulation of the OTS or by
these bylaws.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or permitted to be
taken by the board of directors at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors.
SECTION 10. RESIGNATION. Any director may resign at any time by sending a
written notice of such resignation to the home office of the ASSOCIATION
addressed to the chairman of the board or president. Unless otherwise specified
such resignation shall take effect upon receipt by the chairman of the board or
president. More than three consecutive absences from regular meetings of the
board of directors, unless excused by resolution of the board of directors,
shall automatically constitute a resignation, effective when such resignation is
accepted by the board of directors.
SECTION 11. VACANCIES. Any vacancy occurring in the board of directors may be
filled by the affirmative vote of a majority of the remaining directors,
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the board of directors for a
term of office continuing only until the next election of directors by the
shareholders.
SECTION 12. COMPENSATION. Directors, as such, may receive a stated salary for
their services. By resolution of the board of directors, a reasonable fixed sum,
and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the board of directors. Members
of either standing or special committees may be allowed such compensation for
actual attendance at committee meetings as the board of directors may determine.
SECTION 13. PRESUMPTION OF ASSENT. A director of the ASSOCIATION who is
present at a meeting of the board of directors at which action on any
ASSOCIATION matter is taken shall be presumed to have assented to the action
taken unless his dissent or abstention shall be entered in the minutes of the
meeting
-7-
<PAGE> 8
or unless he shall file a written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the ASSOCIATION within five
days after the date a copy of the minutes of the meeting is received. Such right
to dissent shall not apply to a director who voted in favor of such action.
SECTION 14. REMOVAL OF DIRECTORS. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. Whenever the holders of the shares of any class are entitled to elect
one or more directors by the provisions of the Charter or supplemental sections
thereto, the provisions of this section shall apply, in respect to the removal
of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
SECTION 15. AGE LIMITATION OF DIRECTORS. No person 75 or above years of age
shall be eligible for election, reelection, appointment, or reappointment to the
board of directors of the ASSOCIATION. No director shall serve as such beyond
the regular meeting of the ASSOCIATION which immediately precedes the director
becoming 75 years of age. This age limitation does not apply to an advisory
director.
ARTICLE IV. EXECUTIVE AND OTHER COMMITTEES
SECTION 1. APPOINTMENT. The board of directors, by resolution adopted by a
majority of the full board, may designate the chief executive officer and two or
more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
SECTION 2. AUTHORITY. The executive committee, when the board of directors is
not in session, shall have and may exercise all of the authority of the board of
directors except to the extent, if any, that such authority shall be limited by
the resolution appointing the executive committee; and except also that the
executive committee shall not have the authority of the board of directors with
reference to: the declaration of dividends; the amendment of the Charter or
bylaws of the ASSOCIATION, or recommending to the shareholders a plan of merger,
consolidation, or conversion; the sale, lease or other disposition of all or
substantially all of the property and assets of the ASSOCIATION otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
ASSOCIATION; a revocation of any of the foregoing; or the approval of a
transaction in which any member of the executive committee, directly or
indirectly, has any material beneficial interest.
SECTION 3. TENURE. Subject to the provisions of Section 8 of this Article IV,
each member of the executive committee shall hold office until the next regular
annual meeting of the board of directors following his or her designation and
until a successor is designated as a member of the executive committee.
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<PAGE> 9
SECTION 4. MEETINGS. Regular meetings of the executive committee may be held
without notice at such times and places as the executive committee may fix from
time to time by resolution. Special meetings of the executive committee may be
called by any member thereof upon not less than one day's notice stating the
place, date and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
SECTION 5. QUORUM. A majority of the members of the executive committee shall
constitute a quorum for the transaction of business at any meeting thereof, and
action of the executive committee must be authorized by the affirmative vote of
a majority of the members present at a meeting at which a quorum is present.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to be
taken by the executive committee at a meeting may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the members of the executive committee.
SECTION 7. VACANCIES. Any vacancy in the executive committee may be filled by
a resolution adopted by a majority of the full board of directors.
SECTION 8. RESIGNATIONS AND REMOVAL. Any member of the executive committee
may be removed at any time with or without cause by resolution adopted by a
majority of the full board of directors. Any member of the executive committee
may resign from the executive committee at any time by giving written notice to
the president or secretary of the ASSOCIATION. Unless otherwise specified, such
resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 9. PROCEDURE. The executive committee shall elect a presiding officer
from its members and may fix its own rules of procedure which shall not be
inconsistent with these bylaws. It shall keep regular minutes of its proceedings
and report the same to the board of directors for its information at the meeting
held next after the proceedings shall have occurred.
SECTION 10. OTHER COMMITTEES. The board of directors may by resolution
establish an audit, loan, or other committees composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
ASSOCIATION and may prescribe the duties, constitution and procedures thereof.
ARTICLE V. OFFICERS
SECTION 1. POSITIONS. The officers of the ASSOCIATION shall be a president,
one or more vice presidents, a secretary and a treasurer, each of whom shall be
elected by the board of directors. The
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<PAGE> 10
board of directors may also designate the chairman of the board as an officer.
The president shall be the chief executive officer, unless the board of
directors designates the chairman of the board as chief executive officer. The
president shall be a director of the ASSOCIATION. The offices of the secretary
and treasurer may be held by the same person and a vice president may also be
either the secretary or the treasurer. The board of directors may designate one
or more vice presidents as executive vice president or senior vice president.
The board of directors may also elect or authorize the appointment of such other
officers as the business of the ASSOCIATION may require. The officers shall have
such authority and perform such duties as the board of directors may from time
to time authorize or determine. In the absence of action by the board of
directors, the officers shall have such powers and duties as generally pertain
to their respective offices.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the ASSOCIATION shall
be elected annually at the first meeting of the board of directors held after
each annual meeting of the shareholders. If the election of officers is not held
at such meeting, such election shall be held as soon thereafter as possible.
Each officer shall hold office until a successor has been duly elected and
qualified or until the officer's death, resignation or removal in the manner
hereinafter provided. Election or appointment of an officer, employee or agent
shall not of itself create contractual rights. The board of directors may
authorize the ASSOCIATION to enter into an employment contract with any officer
in accordance with regulations of the OTS; but no such contract shall impair the
right of the board of directors to remove any officer at any time in accordance
with Section 3 of this Article V.
SECTION 3. REMOVAL. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the ASSOCIATION will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contractual rights, if any, of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise, may be filled by the board of directors
for the unexpired portion of the term.
SECTION 5. REMUNERATION. The remuneration of the officers shall be fixed from
time to time by the board of directors.
ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by regulations of the OTS, and
except as otherwise prescribed by these bylaws with respect to certificates for
shares, the board of directors may authorize any officer, employee, or agent of
the ASSOCIATION to enter into any contract or execute and deliver any instrument
in the name of and on behalf of the ASSOCIATION. Such authority may be general
or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the ASSOCIATION
and no evidence of indebtedness shall be issued in its name unless authorized by
the board of directors. Such authority may be general or confined to specific
instances.
-10-
<PAGE> 11
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the ASSOCIATION shall be signed by one or more officers, employees or agents of
the ASSOCIATION in such manner as shall from time to time be determined by the
board of directors.
SECTION 4. DEPOSITS. All funds of the ASSOCIATION not otherwise employed
shall be deposited from time to time to the credit of the ASSOCIATION in any
duly authorized depositories as the board of directors may select.
ARTICLE VII. CERTIFICATES FOR SHARES
AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
capital stock of the ASSOCIATION shall be in such form as shall be determined by
the board of directors and approved by the OTS. Such certificates shall be
signed by the chief executive officer or by any other officer of the ASSOCIATION
authorized by the board of directors, attested by the secretary or an assistant
secretary, and sealed with the corporate seal or a facsimile thereof. The
signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar,
other than the ASSOCIATION itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued, with the
number of shares and date of issue, shall be entered on the stock transfer books
of the ASSOCIATION. All certificates surrendered to the ASSOCIATION for transfer
shall be cancelled and no new certificate shall be issued until the former
certificate for a like number of shares has been surrendered and cancelled,
except that in case of a lost or destroyed certificate, a new certificate may be
issued upon such terms and indemnity to the ASSOCIATION as the board of
directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of the
ASSOCIATION shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
ASSOCIATION. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the ASSOCIATION shall be deemed by the ASSOCIATION
to be the owner for all purposes.
ARTICLE VIII. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the ASSOCIATION shall end on December 31 of each year. The
ASSOCIATION shall be subject to an annual audit as of the end of its fiscal year
by independent public accountants appointed by and responsible to the board of
directors. The appointment of such accountants shall be subject to annual
ratification by the shareholders.
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<PAGE> 12
ARTICLE IX. DIVIDENDS
Subject to the terms of the ASSOCIATION's Charter and the regulations and
orders of the OTS, the board of directors may, from time to time, declare, and
the ASSOCIATION may pay, dividends on its outstanding shares of capital stock.
ARTICLE X. CORPORATE SEAL
The board of directors shall provide an ASSOCIATION seal, which shall be two
concentric circles between which shall be the name of the ASSOCIATION. The year
of incorporation or an emblem may appear in the center.
ARTICLE XI. AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
OTS at any time by a majority vote of the full board of directors, or by a
majority vote of the votes cast by the shareholders of the ASSOCIATION at any
legal meeting.
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<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING
COMPUTATION OF EARNINGS PER SHARE
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRIMARY FULLY DILUTED
EPS EPS
---------- -------------
<S> <C> <C> <C>
Weighted average shares of Common
Stock outstanding 21,779,110 21,779,110
ESOP:
Total ESOP shares available 2,642,354
Weighted average shares committed to be released 577,801
----------
(2,064,553) (2,064,553)
RRPs
Weighted average shares not yet allocated (31,284) (31,284)
---------- ----------
Total weighted average shares outstanding 19,683,273 19,683,273
DILUTIVE EFFECT OF STOCK OPTIONS:
Incremental shares under treasury stock method: 1,189,506 1,898,497
---------- ----------
Total average common and common stock equivalents 20,872,779 21,581,770
Net Income $36,852,864 $36,852,864
---------- ----------
Earnings Per Share $ 1.765595 $ 1.707592
========== ==========
</TABLE>
(1)
<PAGE> 2
TREASURY STOCK METHOD FOR STOCK OPTIONS OUTSTANDING
PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRIMARY FULLY DILUTED
<S> <C> <C>
Quarter ending 3/31/96 1,405,128 1,471,700
Quarter ending 6/30/96 1,520,651 1,552,712
Quarter ending 9/30/96 0 0
Quarter ending 12/31/96 1,832,246 1,898,497
--------- ---------
Total 4,758,025 4,922,909
--------- ---------
Average 1,189,506 1,230,727
--------- ---------
> Qtrly or Avg. (for fully diluted) 1,898,497
---------
</TABLE>
(2)
<PAGE> 1
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE COMPANY
Set forth below are selected consolidated financial and other data of the
Company. This financial data is derived in part from, and should be read in
conjunction with, the Company's consolidated financial statements and related
notes.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------
(In Thousands) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Financial Data:
Total assets $7,272,763 $6,620,102 $4,642,547 $4,121,280 $3,418,924
Federal funds sold and
repurchase agreements 56,000 100,000 198,490 229,820 150,000
Mortgage-backed, mortgage-related and
other securities available-for-sale 2,296,662 2,515,968 55,550 -- --
Mortgage-backed, mortgage-related and
other securities held-to-maturity 1,961,015 1,615,542 2,659,533 2,227,402 1,404,020
Loans receivable, net 2,637,327 2,043,643 1,574,760 1,506,966 1,692,939
Real estate owned and investments
in real estate, net 12,129 23,331 26,378 32,141 36,428
Deposits 4,513,093 4,263,421 3,280,652 2,898,372 2,877,843
Borrowed funds 2,111,514 1,704,691 766,849 652,849 265,500
Stockholders' equity (1) 588,829 590,685 550,575 537,349 242,219
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------------------
(In Thousands, Except Per Share Data) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Interest income $ 491,174 $ 434,976 $ 301,387 $ 266,983 $ 266,119
Interest expense 304,481 265,705 150,527 140,406 155,692
- ------------------------------------------------------------------------------------------------------
Net interest income 186,693 169,271 150,860 126,577 110,427
Provision for loan losses 3,963 2,007 3,733 6,959 11,553
- ------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 182,730 167,264 147,127 119,618 98,874
Non-interest income 13,722 9,466 6,218 6,374 5,759
Non-interest expense:
General and administrative 96,165 90,344 72,089 61,877 59,500
Real estate operations, net (2,723) (3,344) 1,894 3,557 2,218
(Recovery of)/provision for
real estate losses (1,747) 259 3,017 6,020 3,546
Amortization of excess of cost over
fair value of net assets acquired 8,684 8,307 1,788 2,250 2,895
SAIF recapitalization assessment 28,545 -- -- -- --
Provision for restructuring -- -- -- 8,325 --
- ------------------------------------------------------------------------------------------------------
Total non-interest expense 128,924 95,566 78,788 82,029 68,159
- ------------------------------------------------------------------------------------------------------
Income before income taxes,
extraordinary item and cumulative
effect of accounting changes 67,528 81,164 74,557 43,963 36,474
Income tax expense 30,675 35,743 30,880 18,677 17,502
- ------------------------------------------------------------------------------------------------------
Income before extraordinary item
and cumulative effect of
accounting changes 36,853 45,421 43,677 25,286 18,972
Extraordinary item:
Penalty on prepayment of FHLB-NY
advances, net of income tax benefit -- -- -- (3,499) --
Cumulative effect of accounting changes -- -- -- 2,881 --
- ------------------------------------------------------------------------------------------------------
Net income $ 36,853 $ 45,421 $ 43,677 $ 24,668 $ 18,972
======================================================================================================
Primary earnings per
common share (2), (3) $ 1.77 $ 2.07 $ 1.85 $ 0.19 N/A
Fully diluted earnings per
common share (2), (3) $ 1.71 $ 2.06 $ 1.85 $ 0.19 N/A
Fully diluted earnings per
common share excluding
SAIF recapitalization assessment,
net of tax (2), (3) $ 2.49 $ 2.06 $ 1.85 $ 0.19 N/A
</TABLE>
(See footnotes on the following page)
17
<PAGE> 2
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other Data:
Return on average assets 0.53% 0.73% 0.99% 0.67% 0.57%
Return on average stockholders' equity 6.38 8.01 7.95 8.37 8.14
Return on average stockholders' tangible equity 7.79 9.81 8.04 8.61 8.54
Average stockholders' equity to average assets 8.25 9.09 12.44 7.99 7.02
Average tangible stockholders' equity
to average tangible assets 6.86 7.55 12.32 7.79 6.69
Stockholders' equity to total assets 8.10 8.92 11.86 13.04 7.08
Core deposits to total deposits (4) 38.52 39.59 38.71 47.56 45.49
Net interest spread 2.45 2.55 3.04 3.29 3.20
Net interest margin (5) 2.77 2.85 3.51 3.55 3.45
Operating income to average assets (6) 0.17 0.15 0.14 0.17 0.17
General and administrative expense to average assets 1.37 1.45 1.63 1.68 1.79
Cash general and administrative expense
to average assets (7) 1.21 1.31 1.46 1.68 1.79
Efficiency ratio (8) 48.37 50.55 45.89 46.54 51.21
Cash efficiency ratio (7) 42.58 45.88 40.95 46.54 51.21
Average interest-earning assets to
average interest-bearing liabilities 1.07x 1.07x 1.13x 1.07x 1.05x
Book value per common share $ 27.42 $ 26.13 $ 22.87 $ 20.39 $ --
Tangible book value per common share 22.75 21.30 22.65 20.12 --
Cash dividends paid per common share 0.43 0.20 -- -- --
Selected Financial Ratios, Excluding SAIF
Recapitalization Assessment:
Return on average assets 0.77% 0.73% 0.99% 0.67% 0.57%
Cash return on average assets (9) 1.06 0.99 1.20 0.73 0.66
Return on average stockholders' equity 9.28 8.01 7.95 8.37 8.14
Cash return on average stockholders' equity (9) 12.76 10.94 9.68 9.14 9.39
Return on average stockholders' tangible equity 11.33 9.81 8.04 8.61 8.54
Cash return on average stockholders'
tangible equity (9) 15.58 13.40 9.79 9.39 9.84
Asset Quality Ratios:
Non-performing loans to total loans (10) 1.26% 2.16% 4.20% 6.45% 7.43%
Non-performing loans to total assets 0.46 0.67 1.44 2.40 3.74
Non-performing assets to total assets (11) 0.63 1.02 2.01 3.18 4.80
Allowance for loan losses to non-performing loans 42.11 30.34 18.19 16.87 12.32
Allowance for loan losses to non-accrual loans 54.06 34.90 21.37 21.47 15.14
Allowance for loan losses to total loans 0.53 0.65 0.76 1.09 0.92
Other Data:
Number of deposit accounts 461,044 439,681 308,218 284,334 297,941
Mortgage loans serviced for others (in thousands) $109,521 $123,931 $ 54,157 $ 67,791 $ 87,070
Number of full service banking offices (12) 46 46 28 28 30
Full time equivalent employees 930 954 751 788 791
</TABLE>
(1) Balance at December 31, 1992 represents only retained earnings,
substantially restricted.
(2) 1993 based on net income from November 18, 1993 to December 31, 1993.
(3) Prior periods adjusted for two-for-one stock split on June 3, 1996.
(4) Core deposits are comprised of savings, money market, money manager and NOW
accounts.
(5) Net interest margin represents net interest income divided by average
interest-earning assets.
(6) Operating income represents total non-interest income less net gains on
sales of securities, loans and premises and equipment of $1,614,000,
$11,000 and $165,000, for 1996, 1995 and 1993, respectively.
(7) Excluding non-cash charge for amortization relating to allocation of ESOP
stock and earned portion of RRP stock, and related tax benefit.
(8) Efficiency ratio represents general and administrative expense divided by
the sum of net interest income plus operating income.
(9) Excluding non-cash charge for amortization of excess of cost over fair
value of net assets acquired and amortization relating to allocation of
ESOP stock and earned portion of RRP stock, and related tax benefit.
(10) Non-performing loans consist of all non-accrual loans and all mortgage
loans delinquent 90 days or more as to their maturity date but not their
interest payments.
(11) Non-performing assets consist of all non-performing loans, real estate
owned and investments in real estate, net.
(12) As of February 1, 1997, the number of banking offices totaled 45.
18
<PAGE> 3
CONSOLIDATED SCHEDULE OF CASH EARNINGS
Astoria Financial Corporation and Subsidiary
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1996 December 31, 1995
-------------------------------------------------------------------------------------
Reported Cash Reported Cash
(In Thousands, Except Share Data) Earnings (1) Adjustments Earnings Earnings (1) Adjustments Earnings
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total interest income $ 491,174 $ -- $ 491,174 $ 434,976 $ -- $ 434,976
Total interest expense 304,481 -- 304,481 265,705 -- 265,705
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 186,693 -- 186,693 169,271 -- 169,271
Provision for loan losses 3,963 -- 3,963 2,007 -- 2,007
- ------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 182,730 -- 182,730 167,264 -- 167,264
- ------------------------------------------------------------------------------------------------------------------------
Total non-interest income 13,722 -- 13,722 9,466 -- 9,466
- ------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
General and administrative:
Compensation and benefits 50,130 (11,509)(2) 38,621 45,412 (8,346)(2) 37,066
Other general and
administrative 46,035 -- 46,035 44,932 -- 44,932
- ------------------------------------------------------------------------------------------------------------------------
Total general and
administrative 96,165 (11,509) 84,656 90,344 (8,346) 81,998
Real estate operations, net (2,723) -- (2,723) (3,344) -- (3,344)
(Recovery of)/provision for
real estate losses (1,747) -- (1,747) 259 -- 259
Amortization of excess of
cost over fair value of net
assets acquired 8,684 (8,684)(3) -- 8,307 (8,307)(3) --
SAIF recapitalization
assessment 28,545 -- 28,545 -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Total non-interest
expense 128,924 (20,193) 108,731 95,566 (16,653) 78,913
- ------------------------------------------------------------------------------------------------------------------------
Income before income
tax expense 67,528 20,193 87,721 81,164 16,653 97,817
Income tax expense 30,675 -- 30,675 35,743 -- 35,743
- ------------------------------------------------------------------------------------------------------------------------
Net income $ 36,853 $ 20,193 $ 57,046 $ 45,421 $ 16,653 $ 62,074
========================================================================================================================
Primary earnings per
common share (4) $ 1.77 $ 0.96 $ 2.73 $ 2.07 $ 0.76 $ 2.83
========================================================================================================================
Fully diluted earnings per
common share (4) $ 1.71 $ 0.93 $ 2.64 $ 2.06 $ 0.76 $ 2.82
========================================================================================================================
</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).
(4) 1995 figures adjusted for two-for-one stock split on June 3, 1996.
For the Year Ended
December 31, 1996
- --------------------------------------------------------------------------
Reported Cash
(In Thousands, Except Share Data) Earnings Adjustments Earnings
- --------------------------------------------------------------------------
Net income, excluding SAIF
recapitalization assessment $ 53,727 $ 20,193 $ 73,920
==========================================================================
Fully diluted earnings per common
share, excluding SAIF
recapitalization assessment(a) $ 2.49 $ 0.94 $ 3.43
==========================================================================
Note: SAIF recapitalization assessment was $16.9 million, net of tax.
(a) Calculation based on inclusion of dilutive effect of common stock
equivalents.
19
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
Astoria Financial Corporation (the " Company") was incorporated on June 14,
1993, and 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 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 had no operations prior to November 18, 1993, the
date on which the Association completed its conversion from mutual to stock
form of ownership, and, accordingly, the results of operations prior to
that date reflect only those of the Association and its subsidiaries.
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 its non-interest income, general and administrative expense,
other non-interest expense, and income tax expense. General and
administrative expense consists of compensation and benefits, occupancy,
equipment and systems expenses, federal deposit insurance premiums,
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 the 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.
- --------------------------------------------------------------------------------
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 years
ended December 31, 1996 and 1995, principal payments on loans and
mortgage-backed, mortgage-related and other securities totaled $835.4
million and $624.4 million, respectively. The Company also received $521.1
million of proceeds from the sale of securities acquired through the
acquisition of Fidelity New York, F.S.B. ("Fidelity") during the year ended
December 31, 1995. The Company's other sources of funds are provided by
operating and financing activities. Cash provided from operating activities
during the years ended December 31, 1996 and 1995 totaled $62.3 million and
$72.9 million, respectively, of which $36.9 million and $45.4 million,
respectively, represented net income of the Company. The net increases in
borrowings and deposits during 1996 totaled $406.7 million and $249.2
million, respectively. Net increases in borrowings during 1995 were $227.5
million. The Company's primary uses of funds in its investing activities
are for the purchase and origination of mortgage loans and the purchase of
mortgage-backed, mortgage-related and other securities. During the year
ended December 31, 1996, the Company's gross purchases and originations of
mortgage loans totaled $928.7 million, compared to $453.3 million during
the year ended December 31, 1995. The Company's purchases of
mortgage-backed, mortgage-related and other securities during the year
ended December 31, 1996 totaled $788.5 million. Mortgage-backed,
mortgage-related and other securities purchased during the year ended
December 31, 1995 totaled $935.8 million.
Stockholders' equity totaled $588.8 million at December 31, 1996 compared
to $590.7 million at December 31, 1995. The decrease reflects the combined
effect of the Company's earnings for the year ended December 31, 1996 of
$36.9 million, the amortization for the allocated portion of shares held by
the Employee Stock Ownership Plan ("ESOP") and the earned portion of the
shares held by the Recognition and Retention Plans ("RRP") and related tax
benefit, totaling $11.5 million and the net gain on the issuance of
treasury stock for option exercises and the sale of unearned RRP shares
totaling $625,000 all of which were offset by stock repurchases totaling
$31.7 million, the change in the unrealized gain on securities, net of
taxes, of $11.0 million and the declaration of dividends of $8.2 million.
Tangible stockholders' equity (stockholders' equity less the excess of cost
over fair value of net assets acquired ("goodwill")) totaled $488.5 million
at December 31, 1996 compared to $481.7 million at December 31, 1995. 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, not equity as defined by
20
<PAGE> 5
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 exclude the effects of various non-cash expenses such as the
amortization for the allocation of ESOP and RRP stock as well as the
amortization of goodwill. 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. For the year ended December 31, 1996, cash
earnings totaled $57.0 million, or $20.1 million more than reported
earnings, representing a cash return on average tangible equity of 12.06%.
Excluding the one time Savings Association Insurance Fund ("SAIF")
recapitalization assessment, the cash earnings and cash return on tangible
equity for the year ended December 31, 1996 were $73.9 million and 15.58%,
respectively. For the year ended December 31, 1995, cash earnings totaled
$62.1 million, or $16.7 million more than reported earnings, representing a
cash return on average tangible equity of 13.40%. Management also believes
that since cash earnings represents the Company's tangible capital growth,
various other performance measures should also be analyzed utilizing cash
earnings. Excluding the SAIF recapitalization assessment, the cash return
on average assets was 1.06% and 0.99% for the years ended December 31, 1996
and 1995, respectively. Additionally, the cash general and administrative
expense to average assets ratios and cash efficiency ratios decreased to
1.21% and 42.58%, respectively, for the year ended December 31, 1996 from
1.31% and 45.88% for the year ended December 31, 1995 reflecting similar
trends to those noted in these ratios based on GAAP earnings. For more
details on cash versus reported earnings, see the "Consolidated Schedule of
Cash Earnings" on page 19.
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 5.0% and 1.0%, respectively.
The Association's liquidity ratios were 8.60% and 7.09% at December 31,
1996 and 1995, respectively. The Association's short-term liquidity ratios
were 3.76% and 2.50% at December 31, 1996 and 1995, respectively. The
Association's short-term liquid assets consist primarily of cash and
short-term investments. At December 31, 1996 and 1995, assets qualifying
for short-term liquidity totaled $183.0 million and $130.0 million,
respectively. The levels of the Association's short-term liquid assets are
dependent on the Association's operating, investing and financing
activities during any given period.
In the normal course of its business, the Company routinely enters into
various commitments, primarily relating to the origination and purchase of
loans and the leasing of certain office facilities. Total commitments
outstanding, at December 31, 1996, to originate and purchase loans were
$85.4 million and $18.6 million, respectively. Rental payments under lease
commitments totaled $25.5 million at December 31, 1996. The Company
anticipates that it will have sufficient funds available to meet its
current commitments in the normal course of its business.
During the years ended December 31, 1996 and 1995, the Company repurchased
1,205,496 and 1,471,752 common shares, respectively, for an aggregate cost
of $31.7 million and $26.6 million, respectively, bringing the cumulative
total of common shares repurchased as of December 31, 1996 to 4,965,332 for
an aggregate cost of $92.5 million. Of the total shares repurchased in
1996, 1,130,496 shares represented the completion of the Company's fourth
5% stock repurchase program, at an aggregate cost of $29.1 million, and
75,000 shares were purchased, at an aggregate cost of $2.6 million, as part
of the Company's fifth stock repurchase plan approved by the Board of
Directors on November 26, 1996. This fifth stock repurchase plan authorizes
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.
On July 19, 1995, the Company declared its first quarterly cash dividend
and adopted a dividend reinvestment and stock purchase plan. The dividend
reinvestment and stock purchase plan which became effective on December 1,
1995, has to date, required no additional shares to be issued out of
authorized and unissued shares. During the years ended December 31, 1996
and 1995, the Company declared cash dividends totaling $8.2 million and
$4.0 million, respectively. On April 17, 1996, the Company declared a
two-for-one stock split in the form of a 100% stock dividend and on June 3,
1996, shareholders received one additional share of the Company's common
stock for each share of common stock owned as of May 15, 1996. On January
22, 1997, the Company declared a quarterly cash dividend of $0.11 per share
payable on March 3, 1997 to shareholders of record as of the close of
business on February 15, 1997.
On July 18, 1996, the Company adopted a Stockholder Rights Plan (the
"Rights Plan") and declared a dividend of one preferred share purchase
right ("Right") for each outstanding share of common stock of the Company.
Each Right entitles stockholders to buy one one-hundredth interest in a
share of a new series of preferred stock of the Company, at an exercise
price of $100.00 upon the occurrence of certain events described in the
Rights Plan. The Rights Plan was not adopted in response to any specific
event, but is intended to help ensure that all stockholders of the Company
receive fair and equitable treatment in the
21
<PAGE> 6
event of any proposed acquisition of the Company and guards against partial
tender offers, squeeze-outs and other tactics to gain control of the
Company without paying all stockholders a fair and full value for their
investment in the Company. The Rights Plan will not prevent the Company
from being acquired, but rather encourages potential acquirors to negotiate
any such proposed transaction with the Board of Directors, who has the
responsibility to act in the best interest of all who own the Company's
stock.
At the time of the conversion to stock form, the Association was required
to establish a liquidation account in an amount equal to its capital as of
June 30, 1993. As part of the acquisition of Fidelity, the Association
established a similar liquidation account equal to the remaining
liquidation account balance previously maintained by Fidelity as a result
of its conversion from mutual to stock form of ownership. 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
stockholders' equity to be reduced below the amounts required for the
liquidation accounts or applicable regulatory capital requirements.
At December 31, 1996, the Association exceeded all of its regulatory
capital requirements with tangible, core, and risk-based capital ratios of
5.65%, 5.65%, and 16.41%, respectively. The respective minimum regulatory
requirements were 1.50%, 3.00%, and 8.00%. During the first quarter of
1997, the Association created a new operating subsidiary, intended to
qualify as a real estate investment trust, which may, among other things,
be utilized by the Association to raise capital in the future.
Retained earnings at December 31, 1996 and 1995 includes approximately
$65,000,000 for which no Federal income tax liability has been recognized.
This amount represents the balance of the bad debt reserves (other than
supplemental reserves) created for tax purposes as of December 31, 1987.
These amounts are subject to recapture in the unlikely event that the
Association (i) makes distributions in excess of earnings and profits, (ii)
redeems its stock, or (iii) liquidates. See "Impact of New
Legislation--Recapture of Bad Debt Reserves."
- --------------------------------------------------------------------------------
SAIF
Recapitalization
In response to the disparity in deposit insurance assessment rates that
existed between banks insured by the Bank Insurance Fund ("BIF") and
thrifts insured by the SAIF, the Deposit Funds Insurance Act of 1996 (the
"Funds Act") was enacted into law on September 30, 1996. The Funds Act
authorized the Federal Deposit Insurance Corporation ("FDIC") to impose a
special assessment on all institutions with SAIF-assessable deposits in the
amount necessary to recapitalize the SAIF. This special SAIF assessment for
the Association of $28.5 million, or $16.9 million net of taxes was charged
against income in the third quarter of 1996 and paid in November 1996. In
view of the recapitalization of the SAIF, the FDIC reduced the assessment
rates for SAIF-assessable deposits beginning on October 1, 1996. The
Company expects to incur approximately $2.9 million of assessments (based
on the Association's December 31, 1996 deposit insurance assessment base)
for the year ending December 31, 1997. As a result of the lower assessment
rates, the expected 1997 expense, based on the December 31, 1996 deposit
insurance assessment base, would be $6.7 million lower than the expense
incurred in 1996. See "Impact of New Legislation--Deposit Insurance--SAIF
Recapitalization" for further discussion.
- --------------------------------------------------------------------------------
Lending and
Investing
Activities
The primary lending and investing activities of the Company include the
origination of mortgage, consumer and other loans and the purchase of
mortgage loans and mortgage-backed, mortgage-related and other securities.
The Company's lending and investing activities in 1996 reflect the
Company's emphasis on building its loan portfolio, supplemented by
purchases of mortgage-backed, mortgage-related and other securities, in
order to provide and enhance a stable earnings stream. The Company
originates loans locally, either directly or through mortgage brokers who
obtain applications and process loans, which are underwritten, committed
for and closed by the Company. During the years ended December 31, 1996 and
1995, the Company originated gross mortgage loans totaling $612.7 million
and $202.7 million, respectively, of which $378.1 million and $81.4
million, respectively, were originated through mortgage brokers. The
Company expanded its loan production in 1996 by focusing on its external
delivery channels, in particular, the purchase of mortgage loans through
its third-party loan origination program, as well as through bulk loan
purchase transactions. During the years ended December 31, 1996 and 1995,
gross mortgage loan purchases totaled $316.0 million and $250.6 million,
respectively, of which $60.2 million and $128.3 million, respectively, were
bulk purchases. Of the total mortgage loans purchased or originated during
the years ended December 31, 1996 and 1995, $303.7 million and $229.4
million,
22
<PAGE> 7
respectively, were secured by properties located outside New York State. As
of December 31, 1996, $592.2 million, or 22.8% of the Company's total loan
portfolio, was secured by properties located in 42 states other than New
York State. The Company does not have a concentration of lending in any
state other than New York that comprises more than 5% of the total loan
portfolio. For the years ended December 31, 1996 and 1995, purchases of
mortgage-backed and mortgage-related securities totaled $336.7 million and
$703.0 million, respectively, and purchases of other securities totaled
$451.8 million and $232.8 million, respectively.
- --------------------------------------------------------------------------------
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 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. As discussed more fully below, there are a variety of factors
which influence the repricing characteristics of any given asset or
liability.
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 its 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. A gap is considered positive when the amount
of interest rate sensitive assets maturing or repricing within a specific
time frame exceeds the amount of interest rate sensitive liabilities
maturing or repricing within that same time frame. Conversely, a gap is
considered negative when the amount of interest rate sensitive liabilities
maturing or repricing within a specific time frame exceeds the amount of
interest rate sensitive assets maturing or repricing within that same time
frame. In a rising interest rate environment, an institution with a
negative gap would generally be expected, absent the effects of other
factors, to experience a greater increase in the costs of its liabilities
relative to the yields of its assets and thus a decrease in the
institution's net interest income, whereas an institution with a positive
gap would generally be expected to experience the opposite results.
Conversely, during a period of falling interest rates, a negative gap would
tend to result in an increase in net interest income while a positive gap
would tend to adversely affect net interest income.
The Company has attempted to limit its exposure to interest rate risk
through the origination and purchase of adjustable-rate mortgage loans
("ARMs") and through purchases of adjustable-rate mortgage-backed and
mortgage-related securities and fixed-rate mortgage-backed and
mortgage-related securities with short- and medium-term average lives.
The actual duration of mortgage loans and mortgage-backed and
mortgage-related securities, can be significantly impacted by changes in
mortgage prepayment and market interest rates. Mortgage prepayment rates
will vary due to a number of factors, including the regional economy in the
area where the underlying mortgages were originated, seasonal factors,
demographic variables and the assumability of the underlying mortgages.
However, the largest determinants of prepayment rates are prevailing
interest rates and related mortgage refinancing opportunities. Management
monitors interest rate sensitivity so that adjustments in the asset and
liability mix, when deemed appropriate, can be made on a timely basis.
At December 31, 1996, 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 $1.3 billion, representing a
positive cumulative one-year gap of 17.9% 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 $1.4 billion, representing a positive cumulative one-year gap of
21.7% of total assets at December 31, 1995. The Company's December 31, 1996
and 1995 cumulative one-year gap positions, however, reflect the
classification of available-for-sale securities within the one-year
maturing or repricing category. If those securities, at December 31, 1996,
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 $31.7 million,
representing a negative cumulative one-year gap of 0.44% of total assets.
Using this method, at December 31, 1995, net interest-earning assets would
have exceeded net interest-bearing liabilities by $9.9 million,
representing a positive cumulative one-year gap of 0.15%.
The following table sets forth the amount of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1996, 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
23
<PAGE> 8
movements on the Company's net interest income because the actual repricing
dates of various assets and liabilities are 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. 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.
<TABLE>
<CAPTION>
At December 31, 1996
---------------------------------------------------------------------------------
More than More than
One Year Three Years
One Year to to More than
(Dollars in Thousands) or Less(1) Three Years(1) Five Years Five Years(1) Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (2) $ 852,670 $ 840,797 $ 232,070 $ 636,636 $ 2,562,173
Consumer and other loans (2) 37,541 8,642 10,767 -- 56,950
Federal funds sold and
repurchase agreements 56,000 -- -- -- 56,000
Mortgage-backed, mortgage-
related and other securities
available-for-sale 2,296,662 -- -- -- 2,296,662
Mortgage-backed, mortgage-
related and other securities
held-to-maturity 387,369 169,962 183,023 1,258,450 1,998,804
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 3,630,242 1,019,401 425,860 1,895,086 6,970,589
Less:
Unearned discount, premium
and deferred fees (3) 2,196 2,167 598 1,641 6,602
- ----------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets 3,628,046 1,017,234 425,262 1,893,445 6,963,987
- ----------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings 168,000 288,000 240,000 438,038 1,134,038
NOW 22,548 15,048 7,524 30,039 75,159
Money market and money
manager 138,550 138,552 92,360 92,351 461,813
Certificates of deposit 1,582,985 928,134 263,631 -- 2,774,750
Borrowed funds 411,514 1,590,000 100,000 10,000 2,111,514
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 2,323,597 2,959,734 703,515 570,428 6,557,274
- ----------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap $ 1,304,449 $(1,942,500) $ (278,253) $1,323,017$ 406,713
============================================================================================================================
Cumulative interest sensitivity gap $ 1,304,449 $ (638,051) $ (916,304) $ 406,713
============================================================================================================================
Cumulative interest sensitivity gap
as a percentage of total assets 17.94% (8.77)% (12.60)% 5.59%
Cumulative net interest-earning
assets as a percentage of
interest-bearing liabilities 156.14% 87.92% 84.69% 106.20%
</TABLE>
(1) For purposes of this analysis, $257.4 million of debt and mortgage-related
securities and $600.0 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.
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. 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. Additionally,
certain assets, such as ARMs, have contractual features which restrict changes
in interest rates on a short-term basis and over the life of the asset. Finally,
the ability of borrowers to service their ARMs 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 change. As a result, different assumptions may be used
at different points in time.
The Company, from time to time, in an attempt to further reduce volatility in
its earnings caused by changes in interest rates will enter into financial
derivative agreements with third parties. See Note 12 of the
24
<PAGE> 9
"Notes to the Consolidated Financial Statements" for a description of such
transactions. The Company has not entered into any such transactions during
1996.
- --------------------------------------------------------------------------------
Analysis of
Net Interest
Income
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends primarily upon the volume of interest-earning
assets and interest-bearing liabilities and the corresponding interest
rates earned or paid.
The following table sets forth certain information relating to the Company
for the years ended December 31, 1996, 1995 and 1994. Yields and costs are
derived by dividing income or expense by the average balance of the related
assets or liabilities, respectively, for the periods shown, except where
otherwise noted. Average balances are derived from month-end balances.
Management does not believe that the use of average monthly balances
instead of average daily balances causes material differences in the
information presented. The average balance of loans receivable includes
loans on which the Company has discontinued accruing interest. The yields
and costs include fees, premiums and discounts which are considered
adjustments to interest rates.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------------
1996 1995 1994
-----------------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Cost Balance Interest Cost Balance Interest Cost
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans $2,317,574 $187,219 8.08% $1,828,152 $153,262 8.38% $1,442,932 $121,209 8.40%
Consumer and other loans 58,753 6,021 10.25 61,480 6,496 10.57 52,510 4,983 9.49
Mortgage-backed and
mortgage-related
securities (1) 3,592,606 246,761 6.87 3,448,205 238,232 6.91 2,266,729 145,559 6.42
Federal funds sold and
repurchase agreements 55,255 2,978 5.39 153,972 9,021 5.86 157,044 7,170 4.57
Other securities (1) 709,433 48,195 6.79 438,693 27,965 6.37 383,351 22,466 5.86
---------- -------- ---------- -------- ---------- --------
Total interest-earning assets 6,733,621 491,174 7.29 5,930,502 434,976 7.33 4,302,566 301,387 7.00
-------- -------- --------
Non-interest-earning assets 272,034 308,095 117,239
---------- ---------- ----------
Total assets $7,005,655 $6,238,597 $4,419,805
========== ========== ==========
Liabilities and
Stockholders' equity:
Interest-bearing liabilities:
Savings $1,146,243 29,000 2.53 $1,176,433 29,764 2.53 $1,095,827 27,466 2.51
Certificates of deposit 2,699,540 148,335 5.49 2,544,542 142,052 5.58 1,713,688 83,051 4.85
NOW 114,110 2,282 2.00 240,032 4,841 2.02 128,653 2,612 2.03
Money manager 148,871 2,977 2.00 -- -- -- -- -- --
Money market 237,709 9,152 3.85 196,767 7,300 3.71 100,896 2,539 2.52
Borrowed funds 1,948,649 112,735 5.79 1,402,270 81,748 5.83 761,925 34,859 4.58
---------- -------- ---------- -------- ---------- --------
Total interest-
bearing liabilities 6,295,122 304,481 4.84 5,560,044 265,705 4.78 3,800,989 150,527 3.96
-------- -------- --------
Non-interest-bearing liabilities 132,747 111,225 69,150
---------- ---------- ----------
Total liabilities 6,427,869 5,671,269 3,870,139
Stockholders' equity 577,786 567,328 549,666
---------- ---------- ----------
Total liabilities and
stockholders' equity $7,005,655 $6,238,597 $4,419,805
========== ========== ==========
Net interest income/net
interest rate spread (2) $186,693 2.45% $169,271 2.55% $150,860 3.04%
======== ==== ======== ==== ======== ====
Net interest-earning assets/
net interest margin (3) $ 438,499 2.77% $ 370,458 2.85% $ 501,577 3.51%
========== ==== ========== ==== ========== ====
Ratio of interest-earnings assets
to interest-bearing liabilities 1.07x 1.07x 1.13x
========== ========== ==========
</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.
25
<PAGE> 10
- --------------------------------------------------------------------------------
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) the changes attributable to changes in volume
(changes in volume multiplied by prior rate), (ii) the changes attributed
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>
Year Ended December 31, 1996 Year Ended December 31, 1995
Compared to Compared to
Year Ended December 31, 1995 Year Ended December 31, 1994
- -----------------------------------------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
---------------------------------------------------------------------------
(In Thousands) Volume Rate Net Volume Rate Net
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans $39,627 $(5,670) $33,957 $ 32,342 $ (289) $ 32,053
Consumer and other loans (282) (193) (475) 908 605 1,513
Mortgage-backed and
mortgage-related securities 9,916 (1,387) 8,529 80,836 11,837 92,673
Federal funds sold and
repurchase agreements (5,371) (672) (6,043) (142) 1,993 1,851
Other securities 18,277 1,953 20,230 3,431 2,068 5,499
- -----------------------------------------------------------------------------------------------------------------
Total 62,167 (5,969) 56,198 117,375 16,214 133,589
- -----------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings (764) -- (764) 2,074 224 2,298
Certificates of deposit 8,589 (2,306) 6,283 45,023 13,978 59,001
NOW (2,512) (47) (2,559) 2,242 (13) 2,229
Money manager 2,977 -- 2,977 -- -- --
Money market 1,568 284 1,852 3,180 1,581 4,761
Borrowed funds 31,553 (566) 30,987 35,395 11,494 46,889
- -----------------------------------------------------------------------------------------------------------------
Total 41,411 (2,635) 38,776 87,914 27,264 115,178
- -----------------------------------------------------------------------------------------------------------------
Net change in net interest income $20,756 $(3,334) $17,422 $ 29,461 $(11,050) $ 18,411
=================================================================================================================
</TABLE>
26
<PAGE> 11
- --------------------------------------------------------------------------------
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
$22.2 million, or 32.8%, from $67.8 million at December 31, 1995 to $45.6
million at December 31, 1996. During the year ended December 31, 1996, net
loan charge-offs totaled $3.4 million, of which $1.2 million related to
five large commercial properties, compared to net loan charge-offs of $4.2
million for the year ended December 31, 1995. The reduction in
non-performing assets was primarily due to decreases in non-accrual loans
of $12.6 million, or 32.6%, and real estate owned, net of $10.3 million, or
58.0%. The significant reduction in real estate owned during the year ended
December 31, 1996 was primarily a result of the Company's continued
aggressive marketing of such properties, with net charge-offs on
properties totaling only $881,000 for the year ended December 31, 1996. The
following set of tables shows a comparison of delinquent loans and
non-performing assets at December 31, 1996, 1995 and 1994.
Delinquent Loans At December 31, 1996
-------------------------------------------
60-89 Days 90 Days or More
-------------------------------------------
Number Principal Number Principal
of Balance of Balance
(Dollars in Thousands) Loans of Loans Loans of Loans
--------------------------------------------------------------------------
One-to-four family 73 $3,901 276 $25,098
Multi-family 6 1,226 13 3,651
Commercial real estate 2 823 13 3,301
Construction -- -- 4 251
Consumer and other loans 52 337 92 1,159
--------------------------------------------------------------------------
Total delinquent loans 133 $6,287 398 $33,460
--------------------------------------------------------------------------
Delinquent loans to total loans 0.24% 1.26%
At December 31, 1995
-------------------------------------------
60-89 Days 90 Days or More
-------------------------------------------
Number Principal Number Principal
of Balance of Balance
(Dollars in Thousands) Loans of Loans Loans of Loans
--------------------------------------------------------------------------
One-to-four family 118 $8,173 366 $33,384
Multi-family 3 336 17 2,851
Commercial real estate 3 384 21 4,698
Construction -- -- 10 2,271
Consumer and other loans 47 622 65 1,276
--------------------------------------------------------------------------
Total delinquent loans 171 $9,515 479 $44,480
--------------------------------------------------------------------------
Delinquent loans to total loans 0.46% 2.16%
At December 31, 1994
-------------------------------------------
60-89 Days 90 Days or More
-------------------------------------------
Number Principal Number Principal
of Balance of Balance
(Dollars in Thousands) Loans of Loans Loans of Loans
--------------------------------------------------------------------------
One-to-four family 142 $8,002 272 $29,326
Multi-family 3 540 35 6,784
Commercial real estate 2 198 18 23,009
Construction 1 7 21 6,899
Consumer and other loans 31 97 67 920
--------------------------------------------------------------------------
Total delinquent loans 179 $8,844 413 $66,938
--------------------------------------------------------------------------
Delinquent loans to total loans 0.56% 4.20%
The underlying credit quality of the loan portfolio is dependent primarily
on each borrower's ability to continue to make required loan payments and,
in the event that a borrower is unable to continue to do so, the value of
the collateral, if any, securing the loan. A borrower's ability to pay is
typically dependent primarily on employment and other sources of income,
which in turn is impacted by general economic conditions, although other
factors, such as unanticipated expenditures or changes in the financial
markets may also impact a borrower's ability to pay. Collateral values,
particularly real estate values, are also impacted by a variety of factors
including general economic conditions, demographics, maintenance and
collection or foreclosure delays.
27
<PAGE> 12
Non-Performing Assets
<TABLE>
<CAPTION>
At December 31,
-----------------------------
(Dollars in Thousands) 1996(1) 1995(1) 1994(1)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual delinquent mortgage loans (2) $24,905 $37,394 $56,037
Non-accrual delinquent consumer and other loans 1,159 1,276 920
Mortgage loans delinquent 90 days or more (3) 7,396 5,810 9,981
----------------------------------------------------------------------------------------------
Total non-performing loans 33,460 44,480 66,938
----------------------------------------------------------------------------------------------
Real estate owned, net (4) 7,421 17,677 18,898
Investment in real estate, net (5) 4,708 5,654 7,480
----------------------------------------------------------------------------------------------
Total real estate owned and investment in real estate, net 12,129 23,331 26,378
----------------------------------------------------------------------------------------------
Total non-performing assets $45,589 $67,811 $93,316
==============================================================================================
Allowance for loan losses to non-performing loans (6) 42.11% 30.34% 18.19%
Allowance for loan losses to total loans (6) 0.53% 0.65% 0.76%
</TABLE>
(1) If all non-accrual loans had been performing in accordance with their
original terms, the Company would have recorded interest income of
$2.4 million and $4.0 million for the years ended December 31, 1996
and 1995, respectively. This compares to $934,000 and $1.3 million,
respectively, of actual payments recorded to interest income. For the
year ended December 31, 1994, the net amount of foregone interest
income on the Company's non-accrual loans amounted to $7.1 million.
(2) Total non-accrual delinquent mortgage loans include 3.8%, 15.4% and
49.7% of mortgage loans secured by other than one-to-four family
properties at December 31, 1996, 1995 and 1994, respectively
(3) 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 properties.
(4) 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.
(5) Investment in real estate is recorded at the lower of cost or fair
value.
(6) For the activity in the allowance for loan losses, refer to Note 7 of
the "Notes to Consolidated Financial Statements."
Comparison of Financial Condition and Operating Results for the Years Ended
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
Changes in
Financial
Condition
Total assets increased $652.7 million, or 9.9%, from $6.6 billion at
December 31, 1995 to $7.3 billion at December 31, 1996. The growth in
assets was primarily attributable to an increase in loans receivable, net,
of $593.7 million, from $2.0 billion at December 31, 1995, to $2.6 billion
at December 31, 1996. The growth in total loans receivable reflects the
Company's continued emphasis on residential lending. See "Lending and
Investing Activities" for further discussion. During the year ended
December 31, 1996, gross mortgage loan originations totaled $612.7 million
and purchases totaled $316.0 million. This compares to 1995 gross mortgage
loan originations of $202.7 million and purchases of $250.6 million.
Additionally, other securities available-for-sale and held-to-maturity
increased $370.7 million, from $465.0 million at December 31, 1995, to
$835.7 million at December 31, 1996. Purchases of these securities totaled
$451.8 million for 1996 compared to $232.8 million for 1995. The Company's
purchases of such other securities during the year ended December 31, 1996
were primarily callable government agency notes classified as
held-to-maturity. The purchases of such securities resulted in the average
yield of other securities increasing from 6.37% for the year ended December
31, 1995 to 6.79% for the year ended December 31, 1996. Asset growth in
1996 was funded through increased borrowings and deposits. Deposits
increased $249.7 million, from $4.3 billion at December 31, 1995, to $4.5
billion at December 31, 1996. The increase in deposits was concentrated in
certificates of deposit which increased $199.0 million, from $2.6 billion
at December 31, 1995 to $2.8 billion at December 31, 1996. Borrowed funds
increased $406.8 million, from $1.7 billion at December 31, 1995 to $2.1
billion at December 31, 1996, primarily reverse repurchase agreements which
increased $361.7 million, from $1.5 billion at December 31, 1995 to $1.8
billion at December 31, 1996.
Real estate owned and investments in real estate decreased $11.2 million,
or 48.0%, from $23.3 million at December 31, 1995 to $12.1 million at
December 31, 1996. This decrease was primarily the result of aggressive
marketing of the Company's real estate owned properties. During the year
ended December 31, 1996, the net book value of properties sold totaled
$16.6 million, while additions to real estate owned properties through
foreclosures and deeds in lieu of foreclosure totaled $8.9 million.
Stockholders' equity totaled $588.8 million at December 31, 1996 compared
to $590.7 million at December 31, 1995. The decrease reflects the combined
effect of the Company's earnings for the year ended December 31, 1996 of
$36.9 million, the amortization for the allocated portion of shares held by
the ESOP and the earned portion of the shares held by the RRPs, and related
tax benefit, totaling $11.5 million and the net gain on the issuance of
treasury stock for option exercises and the sale of unearned RRP shares
totaling $625,000 all of which were offset by stock repurchases totaling
$31.7 million, the change in the unrealized gain on securities, net of
taxes, of $11.0 million and the declaration of dividends of $8.2 million.
28
<PAGE> 13
- --------------------------------------------------------------------------------
Results of
Operations
General
Net income for the year ended December 31, 1996 was $36.9 million compared
to $45.4 million for the year ended December 31, 1995. This $8.5 million
decrease was the result of the SAIF recapitalization assessment of $16.9
million, net of tax, recorded in the third quarter. Although net income
decreased from the prior year, net income, excluding the SAIF
recapitalization assessment, for the year ended December 31, 1996, would
have been $53.7 million, which represents an increase of $8.3 million, or
18.3% over net income for the year ended December 31, 1995. During 1996,
net interest income increased $17.4 million and non-interest income
increased $4.3 million, which were partially offset by an increase in
general and administrative expense of $5.8 million and an increase in the
provision for loan losses of $2.0 million.
The return on average equity decreased from 8.01% for the year ended
December 31, 1995 to 6.38% for the year ended December 31, 1996. Excluding
the one-time SAIF recapitalization assessment, the return on average equity
would have increased to 9.28% for the year ended December 31, 1996,
representing a 15.9% increase from the prior year. The return on average
tangible equity decreased from 9.81% for the year ended December 31, 1995
to 7.79% for the year ended December 31, 1996. Excluding the one-time SAIF
recapitalization assessment, the return on average tangible equity would
have increased to 11.33% for the year ended December 31, 1996, representing
a 15.5% increase from the prior year. The return on average assets
decreased 20 basis points, from 0.73% for the year ended December 31, 1995,
to 0.53% for the year ended December 31, 1996. Excluding the one-time SAIF
recapitalization assessment, the return on average assets would have
increased to 0.77% for the year ended December 31, 1996, a 5.5% increase
from the prior year.
Interest Income
Interest income for the year ended December 31, 1996 totaled $491.2 million
compared to $435.0 million for the year ended December 31, 1995. This
increase of $56.2 million, or 12.9%, was the result of an increase in total
average interest-earning assets of $803.1 million, partially offset by a
decrease in the average yield on interest-earning assets. The growth in
total interest-earning assets was concentrated in mortgage loans and other
securities. Interest income on mortgage loans increased $33.9 million, or
22.2%, to $187.2 million for the year ended December 31, 1996 which was the
result of an increase in the average balance of $489.4 million, partially
offset by a decrease in the average yield on mortgage loans from 8.38% for
the year ended December 31, 1995 to 8.08% for the year ended December 31,
1996. Interest income on mortgage-backed and mortgage-related securities
increased $8.6 million, from $238.2 million for the year ended December 31,
1995 to $246.8 million for the year ended December 31, 1996, which was the
result of an increase in the average balance of such securities of $144.4
million and a decrease in the average yield of such securities from 6.91%
for the year ended December 31, 1995 to 6.87% for the year ended December
31, 1996. Interest income on other securities increased $20.2 million from
the combined effect of an increase in the average portfolio of $270.7
million and an increase in the average yield from 6.37% for the year ended
December 31, 1995 to 6.79% for the year ended December 31, 1996. These
increases were primarily the result of the Company's purchase of
higher-yielding, callable agency-issued notes classified as
held-to-maturity. Interest income on federal funds sold and repurchase
agreements decreased $6.0 million due to decreases in both the average
balance of $98.7 million and the average yield, from 5.86% for the year
ended December 31, 1995 to 5.39% for the year ended December 31, 1996. The
overall increase in the volume of average interest-earning assets resulted
in a $62.2 million increase in interest income, whereas the overall
reduction in the average yields on average interest-earning assets resulted
in a $6.0 million decrease in interest income.
Interest Expense
Interest expense for the year ended December 31, 1996 totaled $304.5
million, representing an increase of $38.8 million from $265.7 million for
the year ended December 31, 1995. This increase was attributable to
increases in both the average balance of interest-bearing liabilities of
$735.1 million and the average cost of such liabilities from 4.78% for the
year ended December 31, 1995 to 4.84% for the year ended December 31, 1996.
This growth in average interest-bearing liabilities was primarily used to
fund the purchase and origination of mortgage loans. The Company's ability
to leverage its asset growth through lower cost medium-term borrowings
controlled the increase of interest expense on total interest-bearing
liabilities. The increase in the average balances of total interest-bearing
liabilities was concentrated in borrowed funds and certificates of deposit.
29
<PAGE> 14
Interest expense on deposit accounts increased $7.7 million, from $184.0
million for the year ended December 31, 1995 to $191.7 million for the year
ended December 31, 1996. Although the average cost of deposits was
relatively unchanged at 4.41% for the year ended December 31, 1996, the
average balance increased $188.7 million. Interest expense on savings
accounts decreased $764,000 as a result of a decrease in the average
balance of $30.2 million. Interest expense on certificates of deposit
increased $6.3 million, from $142.0 million for the year ended December 31,
1995 to $148.3 million for the year ended December 31, 1996. This increase
reflects the impact of an increase in the average balance of certificates
of deposits of $155.0 million, offset in part, by a decrease in the average
cost from 5.58% during the year ended December 31, 1995 to 5.49% during the
year ended December 31, 1996. During the first quarter of 1996, the Company
implemented a program which converted its NOW accounts to a master account
consisting of a NOW sub-account and a money market sub-account (money
manager account). This resulted in a substantial shift of deposits from NOW
accounts to money manager accounts. Total interest expense for NOW and
money manager accounts for the year ended December 31, 1996 was $5.3
million, with a combined average balance for these accounts of $263.0
million for the same period. This compares to total interest expense for
NOW accounts of $4.8 million and an average balance of $240.0 million for
the year ended December 31, 1995, representing a $418,000 and $23.0 million
increase in interest expense and average balance, respectively, from 1995
to 1996. Total interest expense on money market accounts increased $1.9
million, from $7.3 million for the year ended December 31, 1995 to $9.2
million for the year ended December 31, 1996. The average balance of money
market accounts increased $40.9 million from 1995 to 1996 and the average
cost of such accounts increased 14 basis points, from 3.71% for the year
ended December 31, 1995 to 3.85% for the year ended December 31, 1996.
Interest expense on borrowed funds increased $31.0 million, from $81.7
million for the year ended December 31, 1995 to $112.7 million for the year
ended December 31, 1996. While the average balance increased $546.4
million, from $1.4 billion for the year ended December 31, 1995 to $1.9
billion for the year ended December 31, 1996, the average cost of
borrowings decreased from 5.83% in 1995 to 5.79% in 1996. While the average
cost of borrowings is generally higher than the average cost of core
deposits, the Company's utilization of such funding sources provides
greater flexibility in managing cash flow and interest rate risk, primarily
through the use of two to three year borrowings. The cost of these
medium-term borrowings has generally been less than the all-inclusive cost
associated with certificates of deposit for the same terms.
Net Interest Income
Net interest income increased $17.4 million, or 10.3%, from $169.3 million
for the year ended December 31, 1995 to $186.7 million for the year ended
December 31, 1996. This change was the result of an increase in total
average interest-earning assets of $803.1 million, or 13.5%, offset by an
increase in total average interest-bearing liabilities of $735.1 million.
The Company's net interest margin decreased from 2.85% during the year
ended December 31, 1995 to 2.77% during the year ended December 31, 1996.
The Company's net interest spread decreased from 2.55% for the year ended
December 31, 1995 to 2.45% for the year ended December 31, 1996. This
decrease in net interest spread was due to a slight reduction in the
average yield on total average interest-earning assets of 4 basis points,
from 7.33% for the year ended December 31, 1995 to 7.29% for the year ended
December 31, 1996, coupled with a slight increase in the average cost of
total average interest-bearing liabilities of 6 basis points from 4.78% to
4.84% for the same periods above.
Provision for Loan Losses
The provision for loan losses increased $2.0 million, from $2.0 million for
the year ended December 31, 1995 to $4.0 million for the year ended
December 31, 1996. The increase in the provision was primarily attributable
to the growth in the Company's loan portfolio as a result of record loan
originations and purchases during 1996, primarily in one-to-four family
mortgage loans. Total net loan charge-offs during the year ended December
31, 1996, were $3.4 million, which included $1.2 million relating to five
large commercial properties. The net effect of the provision for loan
losses together with the 1996 charge-offs, resulted in an increase in the
allowance for loan losses of $594,000, from $13.5 million at December 31,
1995 to $14.1 million at December 31, 1996. The reduction in non-performing
loans, in addition to the slight increase in the allowance for loan losses,
improved the Company's percentage of allowance for loan losses to
non-performing loans from 30.34% at December 31, 1995 to 42.11% at December
31, 1996. See "Asset Quality."
30
<PAGE> 15
Non-Interest Income
Non-interest income increased $4.2 million, or 45.0%, from $9.5 million for
the year ended December 31, 1995 to $13.7 million for the year ended
December 31, 1996. This increase was due to net gains recognized on sales
of securities and loans of $1.6 million for the year ended December 31,
1996, compared to $11,000 for the year ended December 31, 1995, and an
increase of $2.1 million in customer service fees, which principally
reflects new service fees introduced in the fourth quarter of 1995 as well
as continued efforts toward increasing the collection percentage of fees
charged.
Non-Interest Expense
Non-interest expense increased $33.3 million, from $95.6 million for the
year ended December 31, 1995 to $128.9 million for the year ended December
31, 1996. This increase includes a one-time charge of $28.5 million for the
SAIF recapitalization assessment. Excluding the SAIF recapitalization
assessment, non-interest expense increased $4.8 million, or 5.0%. General
and administrative expense increased $5.9 million, from $90.3 million for
1995 to $96.2 million for 1996, which includes an increase of $2.3 million
for the amortization relating to the allocation of ESOP stock due to a
higher average fair market value of the Company's stock as well as
additional compensation and benefits expense, relating to normal salary
increases. In addition, occupancy, equipment and systems expense increased
$2.4 million, which reflects increases in banking office renovation
expenses and additional information services-related expenditures. Despite
these increases, the Company continued to increase efficiencies as
evidenced by the decrease in general and administrative expense as a
percentage of average assets from 1.45% for the year ended December 31,
1995 to 1.37% for the year ended December 31, 1996, as well as a decrease
in the efficiency ratio from 50.55% to 48.37% for the same comparable
periods. Real estate operations, net, and recoveries of provision for real
estate losses increased $1.4 million, from a net recovery during the year
ended December 31, 1995 of $3.1 million to a net recovery during the year
ended December 31, 1996 of $4.5 million, which resulted from gains on
dispositions of both real estate owned and investments in real estate. See
"Impact of New Legislation" for discussion of the SAIF recapitalization
assessment and the relative impact on future federal deposit insurance
premiums.
Income Tax Expense
Income tax expense decreased $5.0 million, from $35.7 million for the year
ended December 31, 1995 to $30.7 million for the year ended December 31,
1996, primarily due to the decrease in income before taxes of $13.6
million.
Supervisory Goodwill Action
On July 21, 1995, the Association commenced an action, Astoria Federal
Savings and Loan Association v. United States, No. 95-468C, in the United
States Court of Federal Claims against the United States seeking in excess
of $250 million in damages arising from the breach of an assistance
agreement entered into by the Association's predecessor in interest,
Fidelity, in connection with its acquisition in October 1984 of Suburbia
Federal Savings and Loan Association, and the Government's subsequent
enactment and implementation of the Financial Institutions Reform, Recovery
and Enforcement Act ("FIRREA") in 1989. The case was stayed by the court
throughout most of 1996 awaiting the decision of the United States Supreme
Court in U.S. v. Winstar Corp. 116 S.Ct.2432 (1996) which held the
Government liable for breach of contract to the plaintiffs in three similar
cases and remanded such cases to the Court of Federal Claims to ascertain
damage, and while a case management order was finalized in October 1996
which established procedures for a more efficient prosecution of the
approximately 125 similar cases pending before the court. In November 1996,
the Association moved for partial summary judgment against the government
on the issues of whether Fidelity had a contract with the government and
whether the enactment of FIRREA was contrary to the terms of such contract.
The government is contesting such motion and has cross-moved for summary
judgment to dismiss the Association's complaint. The issue with respect to
the motion is not expected to be fully joined until May 1997. While
management is confident that it will be successful in the pursuit of its
motion and intends to aggressively pursue its claim against the government,
no assurance can be given as to the result of such claim or the timing of
the recovery, if any, with respect thereto. The costs incurred with respect
to this litigation in 1996 were not material to the Association's results
of operations. While such costs are expected to increase during 1997, they
are also, at this time, not expected to be material to the Association's
results of operations for 1997.
31
<PAGE> 16
Comparison of Financial Condition and Operating Results for the Years Ended
December 31, 1995 and 1994
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Changes in
Financial
Condition
Total assets increased $2.0 billion to $6.6 billion at December 31, 1995,
from $4.6 billion at December 31, 1994. This increase primarily reflects
the addition of $1.8 billion of Fidelity assets as of the acquisition date.
Deposits increased $1.0 billion to $4.3 billion at December 31, 1995, from
$3.3 billion at December 31, 1994, primarily due to the assumption of $1.1
billion of Fidelity deposits. Borrowed funds increased $937.8 million, from
$766.8 million at December 31, 1994 to $1.7 billion at December 31, 1995.
The increase was due to the $707.8 million of borrowings assumed in the
Fidelity acquisition which were subsequently reduced by $417.0 million,
using proceeds received by the Company as a result of the restructuring of
the Fidelity portfolio, and additional borrowings by the Company of $647.0
million.
Asset growth was concentrated in mortgage-backed, mortgage-related and
other securities which increased $1.4 billion to $4.1 billion at December
31, 1995, from $2.7 billion at December 31, 1994. This increase was
partially due to the Fidelity acquisition, which added $1.5 billion of such
securities, of which, $521.1 million were sold immediately subsequent to
the acquisition. Additionally, during the year ended December 31, 1995, the
Company purchased $703.0 million of mortgage-backed and mortgage-related
securities. Loans receivable, net, increased $468.9 million to $2.0 billion
at December 31, 1995, from $1.6 billion at December 31, 1994. Gross
mortgage loan originations totaled $202.7 million for the year ended
December 31, 1995, compared to $221.4 million for the year ended December
31, 1994. The decrease in mortgage originations was more than offset by an
increase in loan purchases through the Company's third party loan
origination program and bulk purchase transactions. Gross mortgage loan
purchases totaled $250.6 million for 1995 compared to $162.9 million for
1994. The Fidelity acquisition added $255.8 million to loans receivable,
net.
Real estate owned and investments in real estate decreased $3.1 million to
$23.3 million at December 31, 1995, from $26.4 million at December 31,
1994. This decrease was primarily the result of aggressive marketing of the
Company's real estate owned properties, as well as additional write-downs
to fair value as a result of reappraisals. Sales and write-downs of real
estate owned were offset by the addition of $12.6 million of REO properties
acquired from Fidelity and an additional $12.7 million of loans foreclosed
during 1995.
Stockholders' equity increased $40.1 million to $590.7 million at December
31, 1995 due to earnings for the year, the amortization of the ESOP and
RRPs, the change in the net unrealized gain (loss) on securities, net of
taxes, and the conversion of Fidelity common stock options into options to
purchase Company common stock. Other effects on stockholders' equity
included the repurchase of the Company's common stock and dividends paid on
common stock.
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Results of
Operations
General
Net income for the year ended December 31, 1995 was $45.4 million compared
to $43.7 million for the 1994 year. The $1.7 million, or 4.0% increase, is
primarily attributable to an increase of $18.4 million in net interest
income, a decrease in the provisions for loan and real estate losses of
$4.5 million, and a decrease in real estate operations, net, of $5.2
million. These increases in net income were partially offset by the
increase in general and administrative expense of $18.2 million, from $72.1
million for the year ended December 31, 1994, to $90.3 million for the year
ended December 31, 1995, which reflects the added operating costs relating
to the Fidelity acquisition. In addition, amortization of excess of cost
over fair value of net assets acquired increased $6.5 million, also a
result of the Fidelity acquisition.
Interest Income
Interest income totaled $435.0 million for the year ended December 31, 1995
compared to $301.4 million for the year ended December 31, 1994, primarily
due to the increase in total average interest-earning assets of $1.6
billion for the 1995 period which was partially offset by the decrease in
net interest margin from 3.51% to 2.85%. The increase in average
interest-earning assets was primarily due to the acquisition of Fidelity,
which, on the date of acquisition, provided $255.8 million in net loans and
$1.5 billion of mortgage-backed, mortgage-related and other securities.
Interest income from mortgage loans increased $32.1 million, or 26.4%, to
$153.3 million for the year ended December 31, 1995. While the yield on
mortgage loans decreased from 8.40% in 1994 to 8.38% in 1995, the average
mortgage loan portfolio increased by $385.2 million for the 1995 year. The
increase in the average portfolio was due to the acquisition of loans from
Fidelity coupled with loan originations and purchases. Interest income on
mortgage-backed and mortgage-related securities increased $92.7 million, or
63.7%, to $238.2 million for the year ended December 31, 1995. This
increase resulted from the combined effect of a 49 basis point increase in
yield, from 6.42% in 1994 to 6.91% in 1995, and an increase in the average
portfolio balance of 52.1%, or $1.2 billion, resulting from the Fidelity
acquisition and purchases. Interest income from other securities increased
$5.5 million, or 24.5%, to $28.0 million due to a 51 basis point increase
in yield, from 5.86% in 1994 to 6.37% in 1995, and an average balance
increase of $55.3 million to $438.7 million.
32
<PAGE> 17
Interest Expense
Interest expense increased $115.2 million, or 76.5%, from $150.5 million
for the year ended December 31, 1994, to $265.7 million for the year ended
December 31, 1995. The cost of average interest-bearing liabilities
increased 82 basis points, from 3.96% in 1994 to 4.78% in 1995, and the
average balance increased 46.3%, or $1.8 billion, during 1995. These
increases were due to the Company's additional borrowings during 1995,
bearing higher interest rates, coupled with the increase in deposits,
primarily from the Fidelity acquisition, and a shift of deposits from
passbook savings to higher-yielding certificates of deposit. Deposits and
borrowed funds assumed from Fidelity totaled $1.8 billion, of which $417.0
million in borrowings was subsequently repaid.
Interest expense on deposits increased $68.3 million from $115.7 million
for the year ended December 31, 1994, to $184.0 million for the year ended
December 31, 1995, reflecting an increase in the average cost of deposits
from 3.81% to 4.42% and an increase in the average balance of total
deposits of $1.1 billion. Interest expense on certificates of deposit
increased $59.0 million from $83.1 million for the year ended December 31,
1994, to $142.1 million for the year ended December 31, 1995. The increase
resulted from the combined effect of a 73 basis point increase in the
average cost, from 4.85% in 1994 to 5.58% in 1995, and a $830.9 million
increase in the average balance of certificates outstanding for 1995 as
compared to 1994. Interest expense on passbook accounts increased $2.3
million, from $27.5 million in 1994 to $29.8 million in 1995, due to the
increase in the average balance of $80.6 million. Interest expense on money
market accounts increased $4.8 million from $2.5 million in 1994 to $7.3
million in 1995. The average cost increased 119 basis points from 2.52% to
3.71%, which was the result of higher interest rates offered on large
balance accounts, and the average balance increased $95.9 million. Interest
expense on NOW accounts increased $2.2 million, from $2.6 million in 1994,
to $4.8 million in 1995 as a result of the average balance increasing by
$111.4 million. The significant deposit balance and related expense
increases are primarily due to the Fidelity acquisition, which provided
$1.1 billion in deposits.
Interest expense on borrowed funds increased $46.8 million, from $34.9
million for the year ended December 31, 1994, to $81.7 million for the year
ended December 31, 1995. This resulted from an increase in the average cost
of borrowings of 125 basis points, from 4.58% in 1994 to 5.83% in 1995, and
an increase in the average balance from $761.9 million for the year ended
December 31, 1994, to $1.4 billion for the year ended December 31, 1995.
During the year ended December 31, 1995, the Company incurred additional
borrowings, primarily to fund the purchases of higher-yielding
mortgage-backed and mortgage-related securities. Borrowed funds assumed
from Fidelity totaled $707.8 million, of which $417.0 million were
subsequently repaid.
Net Interest Income
Net interest income for the year ended December 31, 1995 increased $18.4
million, or 12.2%, to $169.3 million from $150.9 million for the year ended
December 31, 1994, primarily due to an increase in average interest-earning
assets, significantly offset by the decrease in the net interest margin
from 3.51% for the year ended December 31, 1994, to 2.85% for the year
ended December 31, 1995. The decrease in the net interest margin reflects
the impact of the volatile interest rate environment over the past two
years on the Company. Seven Federal Reserve Board rate increases during
1994 and the first quarter of 1995 resulted in the Company's cost of funds
rising faster than the yield on interest-earning assets. The slower
increase in the yield on assets is a result of the repricing
characteristics of the portfolio combined with the flattening of the yield
curve during 1995 which reduced the ability to obtain adequate spreads
through the investment of cash flow produced from operations and new funds
acquired. The subsequent rate decreases by the Federal Reserve Board in
1995 have provided some relief as evidenced by the slowing of the decrease
in the net interest margin and the passbook savings decay rate throughout
1995.
Provision for Loan Losses
The provision for loan losses decreased $1.7 million, to $2.0 million for
the year ended December 31, 1995, from $3.7 million for the year ended
December 31, 1994. This is attributable to the significant decrease in
non-performing loans from $66.9 million at December 31, 1994 to $44.5
million at December 31, 1995, despite the addition of $7.0 million of
non-performing loans from the Fidelity acquisition. The significant
decrease was primarily due to management's extensive workout and collection
efforts with its borrowers, which resulted in a significant number of loans
being satisfied and/or brought current. At December 31, 1995, the Company's
percentage of allowance for loan losses to non-performing loans increased
to 30.34% from 18.19% at December 31, 1994. In addition, the Company's
percentage of non-performing loans to total loans decreased from 4.20% at
December 31, 1994, to 2.16% at December 31, 1995.
Non-Interest Income
Non-interest income increased $3.3 million, from $6.2 million for the year
ended December 31, 1994, to $9.5 million for 1995. The increase primarily
reflects increased customer services fees related to the eighteen Fidelity
banking offices acquired, along with new service fees introduced during the
fourth quarter of 1995 and an increased effort toward the collection of
fees charged.
33
<PAGE> 18
Non-Interest Expense
Total non-interest expense increased $16.8 million, or 21.3%, from $78.8
million for the year ended December 31, 1994, to $95.6 million for the year
ended December 31, 1995. The increase is primarily due to an $18.2 million
increase in general and administrative expense, from $72.1 million in 1994
to $90.3 million in 1995, relating, in large part, to the Fidelity
acquisition. Although the dollar total increased, the ratio of general and
administrative expense to average assets decreased from 1.63% in 1994 to
1.45% in 1995. Real estate operations, net, and the provision for real
estate losses decreased $8.0 million, from $4.9 million for the year ended
December 31, 1994, to a recovery of $3.1 million for the year ended
December 31, 1995. This decrease reflects management's efforts to dispose
of real estate owned properties, which also reduced the expense of
maintaining them, and the stabilization of the real estate market. In
addition, the real estate operations net recovery for 1995 includes the
recognition of a $3.1 million profit on the sale of one REO land parcel.
Non-interest expense also includes the amortization of excess of cost over
fair value of net assets acquired which increased $6.5 million, from $1.8
million for the year ended December 31, 1994, to $8.3 million for the year
ended December 31, 1995, due to the acquisition of Fidelity.
Income Tax Expense
Income tax expense increased $4.8 million, from $30.9 million for the year
ended December 31, 1994, to $35.7 million for the year ended December 31,
1995. The increase reflects the higher effective tax rate in 1995 due
primarily to the increase in the amortization of excess of cost over fair
value of net assets acquired, which is not deductible for tax purposes.
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Impact of New
Legislation
Deposit Insurance--SAIF Recapitalization. For the first three quarters of
1996, SAIF-insured institutions paid deposit insurance assessment rates of
$0.23 to $0.31 per $100 of deposits. As a well capitalized institution, the
Association paid deposit insurance assessment rates of $0.23 per $100 of
deposits or $7.4 million for the first three quarters of 1996. In contrast,
BIF-insured institutions that were well capitalized and without any
significant supervisory concerns paid the minimum annual assessment of
$2,000, and all other BIF-insured institutions paid deposit insurance
assessment rates of $0.03 to $0.27 per $100 of deposits.
In response to the SAIF/BIF assessment disparity, the Funds Act was enacted
into law on September 30, 1996. The Funds Act amended the Federal Deposit
Insurance Act (the "FDIA") in several ways to recapitalize the SAIF and
reduce the disparity in the assessment rates for the BIF and the SAIF. The
Funds Act authorized the FDIC to impose a special one-time assessment on
all institutions with SAIF-assessable deposits in the amount necessary to
recapitalize the SAIF. As implemented by the FDIC, institutions with
SAIF-assessable deposits paid a special assessment, subject to adjustment,
of 65.7 basis points per $100 of the institution's SAIF-assessable
deposits. The special assessment was based on the amount of SAIF-assessable
deposits held on March 31, 1995. The Funds Act provided that the amount of
the special assessment is deductible for federal income tax purposes for
the taxable year in which the special assessment is paid. Based on the
foregoing, the special assessment for the Association of $28.5 million
(before taxes) was charged against income during the quarter ended
September 30, 1996 and paid in November 1996.
In view of the recapitalization of the SAIF, the FDIC reduced the
assessment rates for SAIF-assessable deposits. For periods beginning on
October 1, 1996 the rates were reduced to a range of 18 to 27 basis points,
and beginning on January 1, 1997, the effective rates were reduced to a
range of 0 to 27 basis points. The Funds Act also provides that the FDIC
cannot assess regular insurance assessments for an insurance fund unless
required to maintain or to achieve the designated reserve ratio of 1.25% of
insured deposits, except on those of its member institutions that are not
classified as "well capitalized" or that have been found to have
"moderately severe" or "unsatisfactory" financial, operational or
compliance weaknesses. The Association has not been so classified by the
FDIC or the OTS.
In addition, the Funds Act expanded the assessment base for the payments on
the bonds issued in the late 1980s by the Financing Corporation (the "FICO
bonds") to recapitalize the now defunct Federal Savings and Loan Insurance
Corporation to include the deposits of both BIF- and SAIF-insured
institutions beginning January 1, 1997. Until December 31, 1999, or such
earlier date on which the last savings association ceases to exist
(relative to charter form), the rate of assessment for BIF-assessable
deposits will be one-fifth of the rate imposed on SAIF-assessable deposits.
The FDIC has reported that the rates of assessment for the payment of
interest on the FICO bonds will be 1.3 basis points for BIF-assessable
deposits and 6.48 basis points for SAIF-assessable deposits beginning on
January 1, 1997. Assuming that the designated reserve ratio is maintained
by the SAIF, the Association, as long as it maintains its regulatory
status, will pay substantially lower regular assessments compared to those
paid by the Association in recent years. Based on the foregoing, the
Company's SAIF assessment rate was 4.5 basis points for the last quarter of
1996, and the Company's annual SAIF assessment rate for 1997 is zero basis
points. As a result, the Company expects a reduction in its total 1997
expense for the assessment for deposit insurance and FICO obligations of
$6.7 million from the 1996 expense incurred.
34
<PAGE> 19
The Funds Act also provides for the merger of the BIF and SAIF on January
1, 1999, with such merger being conditioned upon the prior elimination of
the thrift charter and the development of a new common charter. The
Secretary of the Treasury is required to conduct a study of relevant
factors with respect to the development of a common charter for all insured
depository institutions and to report the Secretary's conclusions and
findings to the Congress on or before March 31, 1997. Two bills to
eliminate the federal thrift charter have been introduced in Congress in
advance of this report. Although no assurances can be given as to whether
legislation will be enacted to eliminate the thrift charter or if enacted,
what powers would be available to the Association under any new or revised
depository institution charter, management believes that such legislation
will not significantly impact the core business activities of the
Association. Management intends to continue to closely monitor such
developments.
Recapture of Bad Debt Reserves. Prior to the enactment, on August 20, 1996,
of the Small Business Job Protection Act of 1996 (the "1996 Act"), for
federal income tax purposes, thrift institutions such as the Association,
which met certain definitional tests primarily relating to their assets and
the nature of their business, were permitted to establish tax reserves for
bad debts and to make annual additions thereto, which additions could,
within specified limitations, be deducted in arriving at their taxable
income. The Association's deduction with respect to "qualifying loans,"
which are generally loans secured by certain interest in real property,
could be computed using an amount based on the Association's actual loss
experience (the "Experience Method"), or a percentage equal to 8.0% of the
Association's taxable income (the "PTI Method"), computed without regard to
this deduction and with additional modifications and reduced by the amount
of any permitted addition to the non-qualifying reserve. Similar deductions
for additions to the Association's bad debt reserve were permitted under
the New York State Franchise Tax and the New York City Financial
Corporation Tax; however, for purposes of these taxes, the effective
allowable percentage under the PTI method was 32% rather than 8%.
Under the 1996 Act, the PTI Method was repealed and the Association, as a
"large bank" (one with assets having an adjusted basis of more than $500
million), will be unable to make additions to its tax bad debt reserve,
will be permitted to deduct bad debts only as they occur and will be
required to recapture (that is, take into taxable income) over a six-year
period, beginning with the Association's taxable year beginning January 1,
1996, the excess of the balance of such reserves (other than the
supplemental reserve) as of December 31, 1995 over the balance of such
reserves as of December 31, 1987. However, under the 1996 Act, such
recapture requirements will be suspended for each of the two successive
taxable years beginning January 1, 1996 in which the Association originates
a minimum amount of certain residential loans during such years that is not
less than the average of the principal amounts of such loans made by the
Association during its six taxable years preceding January 1, 1996. Since
the Association has already provided a deferred income tax liability for
financial reporting purposes, there will be no adverse impact to the
Association's financial condition or results of operations from the
enactment of this legislation.
The New York State and New York City tax laws have been amended to prevent
a similar recapture of the Association's bad debt reserve, and to permit
continued future use of the bad debt reserve method for purposes of
determining the Association's New York State and New York City tax
liabilities, in either case so long as the Association continues to satisfy
the New York State and New York City definitional tests related to its
assets and the nature of its business, which are similar to the former
federal income tax tests, discussed above.
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Impact of New
Accounting
Standards
In June 1996, the FASB issued Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125"). SFAS No. 125 establishes
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on consistent application
of a financial components approach that focuses on control. Under this
approach, an entity, subsequent to a transfer of financial assets, must
recognize the financial and servicing assets it controls and the
liabilities when extinguished. Standards for distinguishing transfer of
financial assets that are sales from those that are secured borrowings are
provided in SFAS No. 125. A transfer not meeting the criteria for a sale
must be accounted for as a secured borrowing with a pledge of collateral.
SFAS No. 125 requires that liabilities and derivatives incurred or obtained
by transferors as part of a transfer of financial assets be initially
measured at fair value, if practicable. SFAS No. 125 also requires that
servicing assets and other retained interests in transferred assets be
measured by allocating the previous carrying amount between the assets
sold, if any, and retained interests, if any, based on their relative fair
values at the date of transfer. Servicing assets and liabilities must be
subsequently measured by amortization in proportion to and over the period
of estimated net servicing income or loss and assessed for asset
impairment, or increased obligation, based on their fair value.
35
<PAGE> 20
SFAS No. 125 supersedes the FASB's Statement of Financial Accounting
Standards No. 76, "Extinguishment of Debt", and Statement of Financial
Accounting Standards No. 77, "Reporting by Transferors for Transfers of
Receivables with Recourse." SFAS No. 125 amends Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," ("SFAS No. 115") to prohibit the classification of
a debt security as held to maturity if it can be prepaid or otherwise
settled in such a way that the holder of the security would not recover
substantially all of its recorded investment. It further requires that
loans and other assets that can be prepaid or otherwise settled in such a
way that the holder would not recover substantially all of its recording
investment shall be subsequently measured like debt securities classified
as available-for-sale or trading under SFAS No. 115, as amended by SFAS No.
125. SFAS No. 125 also amends and extends to all servicing assets and
liabilities the accounting standards for mortgage servicing rights now in
Statement of Financial Accounting Standards No. 65, "Accounting for Certain
Mortgage Banking Activities," and supersedes Statement of Financial
Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights."
SFAS No. 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, and
is to be applied prospectively. Earlier or retroactive application is not
permitted. However, in December 1996, the FASB issued Statement of
Financial Accounting Standards No. 127, "Deferral of Effective Date of
Certain Provisions of FASB Statement No. 125" ("SFAS No. 127"). SFAS No.
127 defers the effective date of certain transfer and collateral provisions
of SFAS No. 125 for one year. Repurchase agreements, dollar-rolls,
securities lending and similar transactions (SFAS No. 125, paragraphs 9-12
and 237(b)) in addition to secured borrowings and collateral (SFAS No. 125,
paragraph 15), shall be effective for all transfers of financial assets
occurring after December 31, 1997. The Company does not anticipate a
material impact from the implementation of SFAS No. 125 and/or SFAS No. 127
on its consolidated financial statements.
- --------------------------------------------------------------------------------
Impact of
Inflation and
Changing
Prices
The consolidated financial statements and notes thereto presented herein
have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the
changes in the relative purchasing power of money over time due to
inflation. The impact of inflation is reflected in the increased cost of
the Company's operations. Unlike industrial companies, nearly all of the
assets and liabilities of the Company are monetary in nature. As a result,
interest rates have a greater impact on the Company's performance than do
the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or, to the same extent, as the price
of goods and services.
- --------------------------------------------------------------------------------
Private
Securities
Litigation
Reform Act
Safe Harbor
Statement
This annual report contains certain forward-looking statements consisting
of estimates with respect to 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, but are not limited to, changes in general economic,
market, 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.
36
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To The Board
of Directors
and
Shareholders
of Astoria
Financial
Corporation
We have audited the accompanying consolidated statements of financial
condition of Astoria Financial Corporation and subsidiary as of December
31, 1996 and 1995, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for each of the years in
the three-year period ended December 31, 1996. 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 consolidated 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 Astoria
Financial Corporation and subsidiary as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
January 23, 1997
37
<PAGE> 22
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Astoria Financial Corporation and Subsidiary
<TABLE>
<CAPTION>
At December 31,
--------------------------
(In Thousands, Except Share Data) 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 18,923 $ 33,869
Federal funds sold and repurchase agreements 56,000 100,000
Mortgage-backed and mortgage-related securities available-for-sale
(at estimated fair value) 2,100,376 2,332,822
Other securities available-for-sale (at estimated fair value) 196,286 183,146
Mortgage-backed and mortgage-related securities held-to-maturity
(estimated fair value of $1,309,007 and $1,340,588, respectively) 1,321,613 1,333,644
Other securities held-to-maturity (estimated fair value of
$637,338 and $280,192, respectively) 639,402 281,898
Federal Home Loan Bank of New York stock 32,354 24,975
Loans receivable 2,651,416 2,057,138
Less allowance for loan losses 14,089 13,495
-----------------------------------------------------------------------------------------------
Loans receivable, net 2,637,327 2,043,643
Real estate owned and investments in real estate, net 12,129 23,331
Accrued interest receivable 43,976 35,931
Premises and equipment, net 83,424 80,083
Excess of cost over fair value of net assets
acquired and other intangibles 100,267 109,022
Other assets 30,686 37,738
-----------------------------------------------------------------------------------------------
$ 7,272,763 $ 6,620,102
===============================================================================================
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 4,513,093 $ 4,263,421
Reverse repurchase agreements 1,845,000 1,483,329
Federal Home Loan Bank of New York advances 266,514 221,362
Mortgage escrow funds 26,520 22,585
Accrued expenses and other liabilities 32,807 38,720
-----------------------------------------------------------------------------------------------
Total liabilities 6,683,934 6,029,417
Commitments and contingencies
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;
21,472,886 and 22,609,940 outstanding, respectively) 264 264
Additional paid-in capital 330,398 325,992
Retained earnings--substantially restricted 379,876 351,923
Treasury stock (4,888,818 and 3,751,764 shares,
at cost, respectively) (91,188) (60,693)
Net unrealized gains on securities, net of taxes 156 11,126
Unallocated common stock held by ESOP (24,489) (27,355)
Unearned common stock held by RRPs (6,188) (10,572)
-----------------------------------------------------------------------------------------------
Total stockholders' equity 588,829 590,685
-----------------------------------------------------------------------------------------------
$ 7,272,763 $ 6,620,102
===============================================================================================
</TABLE>
Shares and related amounts for 1995 adjusted for two-for-one stock split on
June 3, 1996.
See accompanying Notes to Consolidated Financial Statements.
38
<PAGE> 23
CONSOLIDATED STATEMENTS OF OPERATIONS
Astoria Financial Corporation and Subsidiary
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
(In Thousands, Except Share Data) 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Mortgage loans $187,219 $153,262 $121,209
Consumer and other loans 6,021 6,496 4,983
Mortgage-backed and mortgage-related securities 246,761 238,232 145,559
Federal funds sold and repurchase agreements 2,978 9,021 7,170
Other securities 48,195 27,965 22,466
--------------------------------------------------------------------------------------
Total interest income 491,174 434,976 301,387
--------------------------------------------------------------------------------------
Interest expense:
Deposits 191,746 183,957 115,668
Borrowed funds 112,735 81,748 34,859
--------------------------------------------------------------------------------------
Total interest expense 304,481 265,705 150,527
--------------------------------------------------------------------------------------
Net interest income 186,693 169,271 150,860
Provision for loan losses 3,963 2,007 3,733
--------------------------------------------------------------------------------------
Net interest income after provision for loan losses 182,730 167,264 147,127
--------------------------------------------------------------------------------------
Non-interest income:
Customer service fees 7,329 5,260 2,835
Loan fees 1,755 1,679 1,305
Net gain on sales of securities and loans 1,604 11 --
Other 3,034 2,516 2,078
--------------------------------------------------------------------------------------
Total non-interest income 13,722 9,466 6,218
--------------------------------------------------------------------------------------
Non-interest expense:
General and administrative:
Compensation and benefits 50,130 45,412 38,792
Occupancy, equipment and systems 23,155 20,753 15,325
Federal deposit insurance premiums 9,573 9,713 6,773
Advertising 3,379 4,091 3,296
Other 9,928 10,375 7,903
--------------------------------------------------------------------------------------
Total general and administrative 96,165 90,344 72,089
Real estate operations, net (2,723) (3,344) 1,894
(Recovery of)/provision for real estate losses (1,747) 259 3,017
Amortization of excess of cost over fair value
of net assets acquired 8,684 8,307 1,788
SAIF recapitalization assessment 28,545 -- --
--------------------------------------------------------------------------------------
Total non-interest expense 128,924 95,566 78,788
--------------------------------------------------------------------------------------
Income before income tax expense 67,528 81,164 74,557
Income tax expense 30,675 35,743 30,880
--------------------------------------------------------------------------------------
Net income $ 36,853 $ 45,421 $ 43,677
======================================================================================
Primary earnings per common share $ 1.77 $ 2.07 $ 1.85
======================================================================================
Fully diluted earnings per common share $ 1.71 $ 2.06 $ 1.85
======================================================================================
Primary weighted average common stock and
common stock equivalents outstanding 20,872,779 21,941,052 23,633,440
Fully diluted weighted average common stock and
common stock equivalents outstanding 21,581,770 22,023,342 23,633,440
</TABLE>
Shares and related amounts for 1995 and 1994 adjusted for two-for-one stock
split on June 3, 1996.
See accompanying Notes to Consolidated Financial Statements.
39
<PAGE> 24
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
Astoria Financial Corporation and Subsidiary
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
(In Thousands, Except Share Data) 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock
Balance at beginning and end of year $ 264 $ 264 $ 264
---------------------------------------------------------------------------------------
Additional Paid-In Capital
Balance at beginning of year 325,992 322,913 322,320
Conversion of Fidelity stock options
into Astoria stock options -- 1,755 --
Amortization relating to allocation of
ESOP stock and earned portion of RRP stock
and related tax benefit 4,406 1,324 593
---------------------------------------------------------------------------------------
Balance at end of year 330,398 325,992 322,913
---------------------------------------------------------------------------------------
Retained Earnings--Substantially Restricted
Balance at beginning of year 351,923 310,564 266,887
Net Income 36,853 45,421 43,677
Cash dividends declared on common stock (8,201) (4,018) --
Loss on issuance of treasury stock (68,442 shares
and 8,072 shares, respectively) (699) (44) --
---------------------------------------------------------------------------------------
Balance at end of year 379,876 351,923 310,564
---------------------------------------------------------------------------------------
Treasury Stock
Balance at beginning of year (60,693) (34,252) --
Common stock repurchased
(1,205,496 shares, 1,471,752 shares and
2,288,084 shares, respectively) (31,672) (26,592) (34,252)
Treasury stock issued for options exercised
(68,442 shares and 8,072 shares, respectively) 1,177 151 --
---------------------------------------------------------------------------------------
Balance at end of year (91,188) (60,693) (34,252)
---------------------------------------------------------------------------------------
Net Unrealized Gains (Losses) on
Securities, Net of Taxes
Balance at beginning of year 11,126 (3,965) --
Net unrealized gains on securities
available-for-sale at January 1, 1994 -- -- 2,613
Change in unrealized gains (losses) on
securities available-for-sale (10,970) 15,091 (6,578)
---------------------------------------------------------------------------------------
Balance at end of year 156 11,126 (3,965)
---------------------------------------------------------------------------------------
Unallocated Common Stock Held by ESOP
Balance at beginning of year (27,355) (30,126) (33,029)
Amortization relating to allocation of
ESOP stock 2,866 2,771 2,903
---------------------------------------------------------------------------------------
Balance at end of year (24,489) (27,355) (30,126)
---------------------------------------------------------------------------------------
Unearned Common Stock Held by RRPs
Balance at beginning of year (10,572) (14,823) (19,093)
Sale of unearned RRP stock (10,176 shares) 147 -- --
Amortization relating to earned portion of
RRP stock and related tax benefit 4,237 4,251 4,270
---------------------------------------------------------------------------------------
Balance at end of year (6,188) (10,572) (14,823)
---------------------------------------------------------------------------------------
Total stockholders' equity $ 588,829 $ 590,685 $ 550,575
=======================================================================================
</TABLE>
Shares and related amounts for 1995 and 1994 adjusted for two-for-one stock
split on June 3, 1996.
See accompanying Notes to Consolidated Financial Statements.
40
<PAGE> 25
CONSOLIDATED STATEMENTS OF CASH FLOWS
Astoria Financial Corporation and Subsidiary
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
(In Thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 36,853 $ 45,421 $ 43,677
----------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of net deferred loan origination
fees, discounts, and premiums (6,447) (6,776) (933)
Provision for loan and real estate losses 2,216 2,266 6,750
Depreciation and amortization 5,662 5,021 3,610
Net gain on sales of securities and loans (1,604) (11) --
Amortization of excess of cost over fair value of net assets acquired 8,684 8,307 1,788
Allocated and earned shares from ESOP and RRPs 10,674 8,346 7,766
Increase in accrued interest receivable (8,045) (4,324) (54)
Increase in mortgage escrow funds 3,935 2,366 2,372
Net change in other assets, accrued expenses and other liabilities 10,334 12,284 8,284
----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 62,262 72,900 73,260
----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Loan originations (642,836) (225,152) (239,357)
Loan purchases through third parties (256,646) (123,860) (152,600)
Bulk loan purchases (60,534) (130,201) (10,907)
Principal repayments on loans 346,924 250,472 319,682
Principal payments on mortgage-backed and mortgage-related
securities held-to-maturity and available-for-sale 488,487 373,898 342,946
Purchases of mortgage-backed and mortgage-related
securities held-to-maturity and available-for-sale (336,711) (702,975) (876,519)
Purchases of other securities (451,841) (232,825) (67,457)
Proceeds from maturities of other securities
and redemption of FHLB stock 70,869 129,538 112,997
Decrease in federal funds sold -- -- 185,000
Proceeds from the sales of securities and loans 95,295 4,772 1,112
Proceeds from sales of real estate owned 16,925 24,209 15,323
Proceeds from sales, net of costs and advances, related to
investment in real estate 1,164 2,172 (222)
Purchases of premises and equipment, net of proceeds from sales (8,901) (6,713) (10,614)
Proceeds from sales of securities acquired from Fidelity -- 521,087 --
Cash paid for Fidelity, net of cash and cash equivalents acquired -- (158,491) --
----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (737,805) (274,069) (380,616)
----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits 249,174 (71,129) 382,280
Net increase in reverse repurchase agreements 361,671 682,016 85,000
Proceeds from FHLB of New York advances 135,000 50,000 55,000
Payments of FHLB of New York advances (90,000) (504,549) (26,000)
Costs to repurchase common stock (31,672) (26,592) (34,252)
Cash dividends paid to stockholders (8,201) (4,018) --
Cash received for options exercised,
net of loss on issuance of treasury stock 478 107 --
Cash received from sale of unallocated RRP stock 147 -- --
----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 616,597 125,835 462,028
----------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (58,946) (75,334) 154,672
Cash and cash equivalents at beginning of year 133,869 209,203 54,531
----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 74,923 $ 133,869 $ 209,203
================================================================================================================
Supplemental disclosures:
Cash paid during the year:
Interest $ 296,555 $ 262,418 $ 150,549
Income taxes 26,065 31,460 27,596
Additions to real estate owned 8,896 12,732 14,711
Transfers of securities from held-to-maturity to
available-for-sale, net -- 2,437,151 20,284
================================================================================================================
</TABLE>
Supplemental Information to the Consolidated Statement of Cash Flows
Relating to Fidelity Acquisition
Noncash investing and financing transactions relating to the Fidelity
acquisition that are not reflected in the Consolidated Statement of Cash
Flows for the year ended December 31, 1995 are listed below:
<TABLE>
<CAPTION>
(In Thousands)
----------------------------------------------------------------------------------------------------------------
<S> <C>
Fair value of assets acquired, excluding cash and cash equivalents acquired $ 1,824,776
Liabilities assumed (1,772,060)
Conversion of Fidelity stock options and Fidelity common stock previously acquired (6,367)
Excess of cost over fair value of net assets acquired 112,142
----------------------------------------------------------------------------------------------------------------
Cash paid for Fidelity, net of cash and cash equivalents acquired $ 158,491
================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
41
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Astoria Financial Corporation and Subsidiary
- --------------------------------------------------------------------------------
1
Summary of
Significant
Accounting
Policies
The accounting and reporting policies of Astoria Financial Corporation (the
"Company") and subsidiary subsidiary conform to generally accepted
accounting principles. The following are the significant accounting and
reporting policies that the Company follows in preparing and presenting
their consolidated financial statements:
(a) Basis of Presentation
The accompanying consolidated financial statements of the Company include
the accounts of its wholly-owned subsidiary, Astoria Federal Savings and
Loan Association (the "Association"). All significant intercompany
transactions and balances are eliminated in consolidation.
As more fully described in Note 2, the Company, a Delaware corporation, was
organized in 1993 for the purpose of acquiring and holding all of the
outstanding stock of the Association in connection with the conversion of
the Association from a federally-chartered mutual savings and loan
association to a federally-chartered stock savings and loan association.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results may differ from
those estimates. Certain reclassifications have been made to the prior year
financial statements to conform to the current year presentation.
(b) Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents include
cash and due from banks, federal funds sold and repurchase agreements with
original maturities of three months or less.
(c) Securities
The Company follows Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
No. 115"). The Company's available-for-sale portfolio is carried at
estimated fair value, with any unrealized gains and losses, net of taxes,
reported as a separate component of stockholders' equity. The securities
which the Company has the positive intent and ability to hold to maturity
are classified as held-to-maturity and are carried at amortized cost.
Additions to the Company's portfolios are classified at the time of
acquisition. Transfers of securities between held-to-maturity and
available-for-sale portfolios are recorded at their estimated fair value at
the time of transfer. Gains and losses on the sale of all securities are
determined using the specific identification method and are reflected in
earnings when realized. For the years ending December 31, 1996 and 1995,
the Company did not maintain a trading portfolio.
The Company's available-for-sale and held-to-maturity portfolios consist
primarily of mortgage-backed securities and mortgage-related securities.
Mortgage-backed securities represent participating interests in pools of
long-term mortgage loans. Mortgage-related securities consist of
collateralized mortgage obligations ("CMOs") and real estate investment
conduits ("REMICs"), which are securities that are collateralized by
mortgage loans and other mortgage-backed securities. Other securities
consist of government and corporate bonds and notes.
Premiums and discounts are recognized as adjustments to interest income
using the interest method over the remaining period to contractual maturity
adjusted for estimated prepayments. Other securities held-to-maturity are
carried at amortized cost, with related premiums and discounts recognized
as adjustments to interest income using the interest method over the
remaining period to contractual maturity.
Management conducts a periodic review and evaluation of the securities
portfolio to determine if the value of any security has declined below its
carrying value, and whether such decline is other than temporary.
(d) Loans Receivable
Loans receivable are carried at their unpaid principal balances, net of
unamortized discounts and premiums and net deferred loan origination fees.
42
<PAGE> 27
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Company's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect a borrower's ability to repay, the estimated
fair value of any underlying collateral and current and prospective
economic conditions.
When loans become ninety days delinquent, with the exception of loans
delinquent 90 days or more as to their maturity date but not their interest
payment, the Company will discontinue accruing interest, which results in a
charge to interest income equal to all interest previously accrued and not
collected. While loans are in non-accrual status, interest due is monitored
and income is recognized only to the extent cash is received, until a
return to accrual status is warranted. Loan origination and commitment fees
and certain direct loan origination costs are deferred and amortized to
income using the interest method. Discounts and premiums on mortgage loans
purchased are deferred and amortized using the interest method. The Company
is generally amortizing these amounts over the contractual life of the
related loans, adjusted for prepayments.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan" ("SFAS No. 114") and Statement of Financial Accounting Standards No.
118, "Accounting by Creditors for Impairment of a Loan--Income Recognition
and Disclosures" ("SFAS No. 118"). Under SFAS No. 114 and SFAS No. 118, a
loan is considered impaired when, based upon current information and
events, it is probable that a creditor will be unable to collect all
amounts due, including principal and interest, according to the contractual
terms of the loan agreement. In connection with the adoption of SFAS No.
114, the Company has, for all years prior to its adoption, reclassified
in-substance foreclosed loans, net of the related allowance for losses,
from real estate owned to loans receivable in the Company's statements of
financial condition and has reclassified provision for losses on
in-substance foreclosed loans from provision for real estate losses to
provision for loan losses in the statements of operations. Interest income
received on impaired loans is recognized on a cash basis. The adoption of
SFAS No. 114 and No. 118 had no impact on 1996 and 1995 net income.
In May 1995, the FASB issued Statement of Financial Accounting Standards
No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS No. 122"). SFAS
No. 122 amends FASB Statement No. 65 "Accounting for Certain Mortgage
Banking Activities", to require that a company recognize, as a separate
asset, rights to service mortgage loans for others, however those servicing
rights are acquired. A company that acquires mortgage servicing rights
through either a purchase or origination of mortgage loans and sells or
securitizes those loans with servicing rights retained should allocate the
total cost of the mortgage loans to the mortgage servicing rights and the
loans (without the mortgage servicing rights) based on their relative fair
values, if it is practicable to estimate those fair values. The statement
also requires that a company periodically assess its capitalized mortgage
service rights for impairment based on the estimated fair value of those
rights. The Company's adoption of SFAS No. 122 on January 1, 1996 did not
have a material impact on its financial condition or results of operations.
(e) Real Estate Owned and Investments in Real Estate
Real estate acquired through loan foreclosure is carried at the lower of
cost or estimated fair value at the date of foreclosure, and at the lower
of the new cost basis or estimated fair value less estimated selling costs
thereafter. Write-downs required at the time of acquisition are charged to
the allowance for loan losses. Subsequent to acquisition, the Company
maintains an allowance for actual and potential future declines in value.
Investments in unconsolidated real estate joint ventures are accounted for
using the equity method of accounting. Interest and other carrying charges
are capitalized on projects in process of development. The recognition of
gains on sale of real estate is dependent upon the terms of sale and
various other factors. Valuation allowances for estimated losses are
charged to income when the carrying value of real estate held for
investment exceeds its estimated fair value.
(f) Premises and Equipment
Land is carried at cost. Buildings and improvements, leasehold improvements
and furniture, fixtures and equipment are carried at cost, less accumulated
depreciation and amortization. Buildings and improvements and furniture,
fixtures and equipment are depreciated using the straight-line method over
the estimated useful lives of the assets. Leasehold improvements are being
amortized using the straight-line method over the shorter of the term of
the related leases or the estimated useful lives.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"). SFAS
No. 121 established accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those
assets to be held and used for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events
43
<PAGE> 28
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment loss, measured by the difference
between the carrying amount of the asset and its fair value, must be
recognized in the event that the sum of the expected future cash flows
(undiscounted and without interest charges) from the use and eventual
disposition of the asset are less than the carrying value of the asset. In
addition, SFAS No. 121 requires that long-lived assets and certain
identified intangibles intended to be disposed of be reported at the lower
of carrying amount or fair value less selling costs. The Company's adoption
of SFAS No. 121 on January 1, 1996, did not have a material impact on its
financial condition or results of operations.
(g) Excess of Cost Over Estimated Fair Value of Net Assets Acquired
The portion, if any, of the excess of cost over the estimated fair value of
net assets acquired in acquisitions identified as core deposit intangible
is amortized using the interest method over the estimated lives of the
related liabilities. The remaining portions are amortized using a straight
line method over varying periods up to fifteen years. The excess of cost
over the estimated fair value of net assets acquired is evaluated
periodically by the Company for impairment in response to changes in
circumstances or events.
(h) Interest Rate Caps and Interest Rate Swaps
As part of its asset/liability management program, the Company from
time-to-time utilizes interest rate caps and interest rate swaps to reduce
the Company's sensitivity to interest rate fluctuations. Premiums paid for
interest rate caps are amortized to interest expense over the term of the
agreements. Interest expense is decreased or increased on a current basis
by amounts receivable or payable with respect to the rate caps purchased or
sold. The net interest differential, resulting from the difference between
exchanging variable and fixed rate interest payments as part of an interest
rate swap is recorded as a component of net interest income.
(i) Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109") which requires the asset and
liability method of accounting for income taxes. Under the asset and
liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax
rates, applicable to future years, to differences between the financial
statement carrying amounts and tax basis of existing assets and
liabilities. Under SFAS No. 109, the effect on deferred taxes of a change
in tax rates is recognized in income in the period that includes the
enactment date.
(j) Earnings Per Share ("EPS") and Stock Split
Primary and fully diluted earnings per common share are computed by
dividing net income by the weighted-average number of shares of common
stock and common stock equivalents outstanding during the year.
For the primary earnings per common share 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 earnings per common share calculation, the weighted
average number of shares of common stock and common stock equivalents
include the same components used in the primary earnings per common share
calculation; however, the maximum dilutive effect for the 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.
On April 17, 1996, the Company's Board of Directors approved a two-for-one
stock split, in the form of a 100% stock dividend, which was paid on June
3, 1996. Accordingly, all capital accounts, share and per common share data
have been restated for all reported periods to reflect the stock split.
(k) Employee Benefits
The Company follows the provisions of the AICPA's Statement of Position
93-6, "Employers' Accounting for Employee Stock Ownership Plans" ("SOP
93-6"). In accordance with SOP 93-6, compensation expense is recorded at an
amount equal to the shares allocated by the ESOP multiplied by the average
fair value of the common stock during the year. For EPS and other per-share
disclosure, ESOP shares that have been committed to be released are
considered outstanding. ESOP shares that have not been committed to be
released (unallocated shares) are excluded from outstanding shares on a
weighted average basis for EPS calculations. The difference between the
fair value of shares for the period and the $12.50 per share cost of the
shares allocated by the ESOP is recorded as an adjustment to additional
paid-in capital.
The Company follows Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
("SFAS No. 106") for medical and dental coverage provided to select
individuals upon retirement. This statement requires that the cost of
postretirement benefits, primarily health care benefits, be accrued during
an employee's active working career.
44
<PAGE> 29
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") was issued. SFAS
No. 123 applies to all transactions in which an entity acquires goods or
services by issuing equity instruments or by incurring liabilities where
the payment amounts are based on the entity's common stock price, except
for employee stock ownership plans. SFAS No. 123 established a fair
value-based method of accounting for stock-based compensation arrangements
with employees, rather than the intrinsic value-based method that is
contained in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"). SFAS No. 123 does not require an
entity to adopt the new fair value-based method for purposes of preparing
its basic financial statements. While the SFAS No. 123 fair value-based
method is considered by the FASB to be preferable to the APB No. 25 method,
an entity is allowed to continue to use the APB No. 25 method for preparing
its basic financial statements. The Company has chosen to continue to use
the APB No. 25 method, however, SFAS No. 123 requires presentation 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.
The disclosure requirements are effective for financial statements for
fiscal years beginning after December 15, 1995; however, the pro forma
disclosures are required to include the effects of all awards granted in
fiscal years that begin after December 15, 1994. Pro forma disclosures for
awards granted in the first fiscal year beginning after December 15, 1994
need to be included whenever financial statements for that fiscal year are
presented for comparative purposes with financial statements for a later
fiscal year.
(l) Treasury Stock
Repurchases of common stock are accounted for under the cost method,
whereby shares repurchased are recorded in a contra-equity account.
- --------------------------------------------------------------------------------
2
Stockholders'
Equity
On May 19, 1993, the Board of Directors of the Association adopted a Plan
of Conversion to convert from a federally chartered mutual savings and loan
association to a federally chartered capital stock savings and loan
association. On November 18, 1993, the conversion was completed and the
Company completed its initial public offering and issued 26,361,704 shares
of common stock (par value $.01 per share) at a price of $12.50 per share
resulting in proceeds, net of costs related to the conversion, of
approximately $322,584,000. The Company retained $105,000,000 of the net
proceeds and used the remaining net proceeds to purchase all of the
outstanding stock of the Association. Parent company-only financial
information is presented in Note 19.
At the time of conversion, the Association established a liquidation
account with a balance equal to the retained earnings reflected in its June
30, 1993 statement of financial condition. As part of its acquisition of
Fidelity New York, F.S.B. ("Fidelity"), (see Note 3), the Association
established a liquidation account equal to the account balance previously
maintained by Fidelity for its eligible account holders. These liquidation
accounts will be reduced annually to the extent that eligible account
holders reduce their qualifying deposits as of each anniversary date. In
the event of a complete liquidation, each eligible account holder will be
entitled to receive a distribution from the liquidation account in an
amount proportionate to the current adjusted qualifying balances for
accounts then held.
During the three years ended December 31, 1996, the Company repurchased
4,965,332 shares of its common stock for an aggregate cost of $92.5
million.
The Company may not declare or pay cash dividends on or repurchase any of
its shares of common stock if the effect thereof would cause stockholders'
equity to be reduced below the Association's applicable regulatory capital
maintenance requirements or the amount required for the liquidation
accounts, or if such declaration and payment would otherwise violate
regulatory requirements. While the payment of the cash dividend by the
Company is not subject to the payment of a dividend to the Company by the
Association, the ability of the Company to continue to fund the payment of
future cash dividends could be dependent upon the Association continuing to
declare and pay cash dividends to the Company.
On July 19, 1995, the Company adopted a dividend reinvestment and stock
purchase plan. The dividend reinvestment and stock purchase plan, which
became effective on December 1, 1995, required no additional shares to be
issued out of authorized and unissued shares, although 300,000 shares of
authorized and unissued shares were reserved for use by the plan, should
the need arise.
On July 18, 1996, the Company adopted a Stockholders Rights Plan (the
"Rights Plan") and declared a dividend of one preferred share purchase
right ("Right") for each outstanding share of common stock of the Company.
Each Right, initially, will entitle stockholders to buy a one one-hundredth
interest in a share of a new series of preferred stock of the Company at an
exercise price of $100.00 upon the occurrence of certain events described
in the Rights Plan. The Company reserved 325,000 shares of its available
preferred stock for such series. The Rights Plan was not adopted in
response to any specific event, but is intended to help ensure that all
stockholders of the Company receive fair and equitable treatment in the
event of any proposed acquisition of the Company and guards against partial
tender offers, squeeze-outs and other
45
<PAGE> 30
tactics to gain control of the Company without paying all stockholders a
fair and full value for their investment in the Company. The Rights Plan
will not prevent the Company from being acquired, but rather encourages
potential acquirors to negotiate any such proposed transaction with the
Board of Directors, who has the responsibility to act in the best interest
of all who own the Company's stock.
- --------------------------------------------------------------------------------
3
Fidelity
Acquisition
After the close of business on January 31, 1995, the Company completed the
acquisition of Fidelity, with Fidelity ultimately merging with and into the
Association, in a transaction which was accounted for as a purchase. The
cost of the acquisition was $157.8 million and the Company incurred
approximately $21.3 million of acquisition-related costs. The total excess
of cost over estimated fair value of net assets acquired generated by the
acquisition was $112.1 million, which is being amortized to expense on a
straight line basis over 15 years. The Company's consolidated results of
operations include Fidelity's results of operations commencing February 1,
1995.
The following summarizes the actual and projected amortization of discount
and premium relating to the fair market value adjustments and the excess of
cost over estimated fair value of net assets acquired:
<TABLE>
<CAPTION>
Excess of Cost Total
over Fair Value Net Net Discount Net Discount Net Decrease
of Net Assets Discount on on on in Income
(In Thousands) Acquired Securities Other Assets Liabilities Before Taxes
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total at acquisition date $ 112,142 $ (42,478) $ (272) $ 4,926 $ --
Adjustment for sales of securities -- 37,037 -- -- --
-----------------------------------------------------------------------------------------------------------------
Balance after sales 112,142 (5,441) (272) 4,926 --
Amortization:
1995 actual (6,853) 5,294 (57) (3,084) (4,700)
1996 actual (7,476) 814 (60) (651) (7,373)
1997 estimated (7,476) (667) (58) (352) (8,553)
1998 estimated (7,476) -- (56) (352) (7,884)
1999 estimated (7,476) -- (54) (352) (7,882)
thereafter estimated (75,385) -- 557 (135) (74,963)
</TABLE>
- --------------------------------------------------------------------------------
4
Repurchase
Agreements
The Company and the Association purchase securities under agreements to
resell (repurchase agreements). These agreements represent short-term
loans and are reflected as an asset in the consolidated statements of
financial condition. The same securities are to be resold at maturity of
the repurchase agreements. There were no such repurchase agreements
outstanding as of December 31, 1996 or 1995.
Securities purchased under repurchase agreements averaged $13,736,000 per
month for two months during 1996 and $8,063,000 per month for eight months
during 1995. The maximum amount of such agreements outstanding at any month
end, during the years ended December 31, 1996 and 1995, were $17,064,000
and $10,558,000, respectively.
- --------------------------------------------------------------------------------
5
Securities
The amortized cost and estimated fair values of mortgage-backed,
mortgage-related and other securities available-for-sale and
held-to-maturity at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
At December 31, 1996
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
------------------------------------------------------------------------------------------------------------------------
<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
========================================================================================================================
</TABLE>
46
<PAGE> 31
<TABLE>
<CAPTION>
At December 31, 1996
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
========================================================================================================================
<CAPTION>
At December 31, 1995
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-Sale:
Mortgage-backed and mortgage-related securities:
GNMA certificates $ 156,330 $ 3,082 $ -- $ 159,412
FHLMC certificates 332,109 4,363 (635) 335,837
FNMA certificates 147,016 1,425 (17) 148,424
REMICs:
Agency issuance 1,116,842 9,418 (5,584) 1,120,676
Private issuance 19,788 41 (58) 19,771
Residuals 2,645 -- (15) 2,630
Other mortgage-related 540,565 5,900 (393) 546,072
------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed and mortgage-related securities 2,315,295 24,229 (6,702) 2,332,822
------------------------------------------------------------------------------------------------------------------------
Other securities:
Obligations of the U.S. Government and agencies 149,990 1,023 (446) 150,567
Equity securities 30,885 1,719 (101) 32,503
Other 76 -- -- 76
------------------------------------------------------------------------------------------------------------------------
Total other securities 180,951 2,742 (547) 183,146
------------------------------------------------------------------------------------------------------------------------
Total Available-for-Sale $2,496,246 $ 26,971 $ (7,249) $2,515,968
========================================================================================================================
Held-to-Maturity:
Mortgage-backed and mortgage-related securities:
GNMA certificates $ 105,589 $ 4,566 $ (22) $ 110,133
FHLMC certificates 36,503 1,406 (16) 37,893
FNMA certificates 24,613 150 (476) 24,287
CMOs 10,638 119 (46) 10,711
REMICs:
Agency issuance 961,536 9,169 (4,396) 966,309
Private issuance 194,411 412 (3,922) 190,901
Other mortgage-related 354 -- -- 354
------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed and mortgage-related securities 1,333,644 15,822 (8,878) 1,340,588
------------------------------------------------------------------------------------------------------------------------
Other securities:
Obligations of the U.S. Government and agencies 220,181 1,022 (2,460) 218,743
Obligations of states and political subdivisions 51,753 2 (96) 51,659
Corporate debt securities 9,964 -- (174) 9,790
------------------------------------------------------------------------------------------------------------------------
Total other securities 281,898 1,024 (2,730) 280,192
------------------------------------------------------------------------------------------------------------------------
Total Held-to-Maturity $1,615,542 $ 16,846 $ (11,608) $1,620,780
========================================================================================================================
</TABLE>
47
<PAGE> 32
In November 1995, the FASB issued a Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in
Debt and Equity Securities", which granted institutions a one-time
opportunity to reassess securities classifications by December 31, 1995.
The Company reassessed its entire portfolio and transferred $2,434,202,000
of mortgage-backed, mortgage-related and other securities from
held-to-maturity to available-for-sale as of December 31, 1995. The total
estimated fair value of the securities transferred was $2,452,911,000,
which resulted in the recognition of an unrealized gain of $12,107,000, net
of taxes of $9,261,000. As a result of this transfer, coupled with
securities already classified available-for-sale, the total net unrealized
gains on securities reported as a separate component of stockholders'
equity was $11,126,000, net of taxes of $8,512,000, at December 31, 1995.
At December 31, 1996, the net unrealized gains on securities reported as a
separate component of stockholder's equity was $156,000, net of taxes of
$115,000.
During the year ended December 31, 1996, the Company's proceeds from sales
of securities available-for-sale totaled $84,073,000. Gross gains
recognized on such sales of debt and equity securities were $1,529,000 and
$37,000, respectively. There were no gross losses recorded on sales of
securities available-for-sale during the year ended December 31, 1996.
During the year ended December 31, 1995, subsequent to the Fidelity
acquisition, the Company sold approximately $521,087,000 of securities
acquired in the transaction; as these securities were already recorded at
their estimated fair values, no gain or loss was recorded. There were no
other sales of securities available-for-sale during the years ended
December 31, 1995 and 1994 and there were no sales of securities
held-to-maturity during any of the three years ended December 31, 1996.
Included in the obligations of states and political subdivisions are New
York City Housing Development Corporation Bonds which are tax-exempt FHA
mortgage-backed bonds with an amortized cost of approximately $45,105,000
and $45,902,000 at December 31, 1996 and 1995, respectively. The fair value
of these bonds is not readily available and, therefore, they are reported
as having an estimated fair value equal to their amortized cost.
The amortized cost and estimated fair values of debt securities at December
31, 1996, by contractual maturity, excluding mortgage-backed securities,
are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. As of December
31, 1996, the amortized cost of such callable securities totaled
$533,093,000.
At December 31, 1996
----------------------
Estimated
Amortized Fair
(In Thousands) Cost Value
---------------------------------------------------------------------------
Available-for-Sale:
Due in one year or less $ 45,000 $ 45,057
Due after one year through five years 83,999 82,545
Due after five years through ten years 19 20
Due after ten years 48 44
---------------------------------------------------------------------------
Total Available-for-Sale $129,066 $127,666
===========================================================================
Held-to-Maturity:
Due in one year or less $ 540 $ 535
Due after one year through five years 117,719 116,396
Due after five years through ten years 371,927 371,840
Due after ten years 149,216 148,567
---------------------------------------------------------------------------
Total Held-to-Maturity $639,402 $637,338
===========================================================================
48
<PAGE> 33
- --------------------------------------------------------------------------------
6
Loans
Receivable
Loans receivable, net, are summarized as follows:
At December 31,
----------------------------
(In Thousands) 1996 1995
---------------------------------------------------------------------------
Mortgage loans (primarily conventional):
Secured by one-to-four family residences $ 2,259,409 $ 1,748,284
Secured by multi-family properties 166,836 109,944
Secured by commercial properties 158,100 128,668
Construction and land loans 10,129 12,598
---------------------------------------------------------------------------
2,594,474 1,999,494
Net deferred loan origination fees (5,923) (5,657)
Net unamortized premium 4,756 1,638
---------------------------------------------------------------------------
Total mortgage loans 2,593,307 1,995,475
---------------------------------------------------------------------------
Consumer and other loans:
Home equity 34,895 38,761
Passbook 4,022 2,915
Credit card 8,431 8,578
Other 10,761 11,420
---------------------------------------------------------------------------
58,109 61,674
Unearned discount -- (11)
---------------------------------------------------------------------------
Total consumer and other loans 58,109 61,663
---------------------------------------------------------------------------
Total loans 2,651,416 2,057,138
Allowance for loan losses (14,089) (13,495)
---------------------------------------------------------------------------
Loans receivable, net $ 2,637,327 $ 2,043,643
===========================================================================
As of December 31, 1996 and 1995, the Company had loans in non-accrual
status, included in loans receivable, of approximately $26,064,000 and
$38,670,000, respectively. If all non-accrual loans had been performing in
accordance with their original terms, the Company would have recorded
interest income of $2.4 million and $4.0 million for the years ended
December 31, 1996 and 1995, respectively. This compares to $934,000 and
$1.3 million, respectively, of actual payments recorded as interest income.
For the year ended December 31, 1994, the net amount of foregone interest
income on non-accrual loans amounted to $7.1 million.
Under SFAS No. 114, a loan is considered impaired when, based upon current
information and events, it is probable that a creditor will be unable to
collect all amounts due, including principal and interest, according to the
contractual terms of the loan agreement. SFAS No. 114 does not apply to
large groups of smaller balance homogeneous loans that are collectively
evaluated for impairment, such as one-to-four family mortgage loans and
consumer loans. Loans individually reviewed for impairment by the Company
are limited to multi-family loans, commercial loans, construction and land
loans, loans modified in a troubled debt restructuring and selected large
one-to-four family loans. Examples of measurement techniques utilized by
the Company include present value of expected future cash flows, the loan's
market price if one exists, and the estimated fair value of the collateral.
The following table summarizes information regarding the Company's impaired
loans:
At December 31, 1996
--------------------------------
Allowance
Recorded for Loan Net
(In Thousands) Investment Losses Investment
---------------------------------------------------------------------------
One-to-four family loans:
With a related allowance $1,383 $ 372 $1,011
Without a related allowance 161 -- 161
---------------------------------------------------------------------------
Total one-to-four family loans 1,544 372 1,172
---------------------------------------------------------------------------
Commercial and multi-family mortgage loans:
With a related allowance 5,285 729 4,556
Without a related allowance 124 -- 124
---------------------------------------------------------------------------
Total commercial and multi-family loans 5,409 729 4,680
---------------------------------------------------------------------------
Construction and land loans:
With a related allowance -- -- --
Without a related allowance 8 -- 8
---------------------------------------------------------------------------
Total construction and land loans 8 -- 8
---------------------------------------------------------------------------
Total impaired loans $6,961 $1,101 $5,860
===========================================================================
49
<PAGE> 34
At December 31, 1995
--------------------------------
Allowance
Recorded for Loan Net
(In Thousands) Investment Losses Investment
---------------------------------------------------------------------------
One-to-four family loans:
With a related allowance $ 2,321 $ 992 $ 1,329
Without a related allowance 353 -- 353
---------------------------------------------------------------------------
Total one-to-four family loans 2,674 992 1,682
---------------------------------------------------------------------------
Commercial and multi-family mortgage loans:
With a related allowance 6,636 1,777 4,859
Without a related allowance 283 -- 283
---------------------------------------------------------------------------
Total commercial and multi-family loans 6,919 1,777 5,142
---------------------------------------------------------------------------
Construction and land loans:
With a related allowance 825 59 766
Without a related allowance 687 -- 687
---------------------------------------------------------------------------
Total construction and land loans 1,512 59 1,453
---------------------------------------------------------------------------
Total impaired loans $11,105 $ 2,828 $ 8,277
---------------------------------------------------------------------------
The Company's average recorded investment in impaired loans for the years
ended December 31, 1996 and 1995 was $8,860,000 and $11,839,000,
respectively. Interest income recognized on impaired loans, which was not
materially different from cash-basis interest income, amounted to $947,000
and $608,000 for the years ended December 31, 1996 and 1995, respectively.
The Company services mortgage loans for investors with unpaid principal
balances of approximately $109,521,000 and $123,931,000 at December 31,
1996 and 1995, respectively, which are not reflected in the accompanying
consolidated statements of financial condition.
- --------------------------------------------------------------------------------
7
Allowance for
Loan Losses
Activity in the allowance for loan losses is summarized as follows:
Year Ended December 31,
-------------------------------------
(In Thousands) 1996 1995 1994
---------------------------------------------------------------------------
Balance at beginning of year $ 13,495 $ 12,173 $ 16,672
Allowance of acquired institution -- 3,528 --
Provision charged to operations 3,963 2,007 3,733
Charge-offs (4,493) (5,284) (8,336)
Recoveries 1,124 1,071 104
---------------------------------------------------------------------------
Balance at end of year $ 14,089 $ 13,495 $ 12,173
===========================================================================
- --------------------------------------------------------------------------------
8
Real Estate
Real estate owned and investments in real estate are summarized as follows:
At December 31,
-----------------------
(In Thousands) 1996 1995
---------------------------------------------------------------------------
One-to-four family $ 5,809 $ 8,779
Multi-family 68 359
Co-op and Condo 737 1,934
Commercial 695 6,996
Land 6,865 9,009
---------------------------------------------------------------------------
14,174 27,077
Allowance for losses (2,045) (3,746)
---------------------------------------------------------------------------
$12,129 $23,331
===========================================================================
Activity in the allowance for losses on real estate owned and investments
in real estate is summarized as follows:
Year Ended December 31,
------------------------------
(In Thousands) 1996 1995 1994
---------------------------------------------------------------------------
Balance at beginning of year $ 3,746 $ 5,250 $ 4,741
Allowance of acquired institution -- 1,144 --
(Recovery)/provision recorded to operations (1,747) 259 3,017
Charge-offs (1,620) (3,997) (3,744)
Recoveries 1,666 1,090 1,236
---------------------------------------------------------------------------
Balance at end of year $ 2,045 $ 3,746 $ 5,250
===========================================================================
50
<PAGE> 35
- --------------------------------------------------------------------------------
9
Accrued
Interest
Receivable
Accrued interest receivable is summarized as follows:
At December 31,
-------------------
(In Thousands) 1996 1995
---------------------------------------------------------------------------
Mortgage-backed and mortgage-related securities $18,973 $20,551
Other securities 14,502 8,276
Loans receivable 10,501 7,104
---------------------------------------------------------------------------
$43,976 $35,931
===========================================================================
- --------------------------------------------------------------------------------
10
Deposits
Deposits are summarized as follows:
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------
1996 1995
------------------------------------------------------------------
Weighted Weighted
Average Average
(Dollars in Thousands) Rate Balance Percent Rate Balance Percent
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Core Deposits:
Savings 2.50% $1,134,038 25.12% 2.50% $1,154,777 27.09%
Money market 3.99 260,739 5.78 3.80 218,653 5.13
Money manager 1.22 201,074 4.46 -- -- --
NOW 1.24 75,159 1.67 2.00 267,339 6.27
Non-interest bearing NOW -- 67,333 1.49 -- 46,949 1.10
--------------------- ---------------------
1,738,343 38.52 1,687,718 39.59
Certificates of deposit 5.44 2,774,750 61.48 5.56 2,575,703 60.41
--------------------- ---------------------
$4,513,093 100.00% $4,263,421 100.00%
===================== =====================
</TABLE>
During the first quarter of 1996, the Company implemented a program
which converted its NOW accounts to a master account consisting of a
NOW sub-account and a money market sub-account (money manager
account). The result of this change was a substantial shift of
deposits from NOW accounts to money manager accounts.
The aggregate amount of certificates of deposit with balances equal to
or greater than $100,000 was $298,479,000 and $239,287,000 at December
31, 1996 and 1995, respectively.
At December 31, 1996 and 1995, scheduled maturities of certificates of
deposit are as follows:
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------
1996 1995
------------------------------------------------------------------
Weighted Weighted
Average Average
(Dollars in Thousands) Rate Balance Percent Rate Balance Percent
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Six months or less 5.04% $1,014,273 36.55% 5.36% $1,005,429 39.03%
Greater than six months
through one year 5.29 568,712 20.50 5.33 513,818 19.95
Greater than one year
through three years 5.72 928,134 33.45 5.84 913,825 35.48
Greater than three years 6.31 263,631 9.50 6.01 142,631 5.54
--------------------- ---------------------
$2,774,750 100.00% $2,575,703 100.00%
===================== =====================
</TABLE>
Interest expense on deposits for the years ended December 31, 1996, 1995
and 1994 is summarized as follows:
Year ended December 31,
----------------------------------
(In Thousands) 1996 1995 1994
---------------------------------------------------------------------------
Savings $ 29,000 $ 29,764 $ 27,466
Money market 9,152 7,300 2,539
Money manager 2,977 -- --
NOW 2,282 4,841 2,612
Certificates of deposit 148,335 142,052 83,051
---------------------------------------------------------------------------
$191,746 $183,957 $115,668
===========================================================================
51
<PAGE> 36
- --------------------------------------------------------------------------------
11
Borrowed
Funds
Borrowed funds are summarized as follows:
At December 31,
------------------------------------------
1996 1995
------------------------------------------
Weighted Weighted
Average Average
(Dollars in Thousands) Amount Rate Amount Rate
---------------------------------------------------------------------------
Reverse repurchase agreements $1,845,000 5.65% $1,483,329 5.69%
Advances from the FHLB-NY 266,514 6.13 221,362 6.25
---------- ----------
$2,111,514 5.71 $1,704,691 5.76
========== ==========
The Company enters into sales of securities under agreements to repurchase
(reverse repurchase agreements). These agreements are recorded as financing
transactions, and the obligations to repurchase are reflected as a
liability in the consolidated statements of financial condition. The
securities underlying the agreements are delivered to the dealer with whom
each transaction is executed. The dealers, who may sell, loan or otherwise
dispose of such securities to other parties in the normal course of their
operations, agree to resell to the Company the same securities at the
maturities of the agreements. The Company retains the right of substitution
of collateral throughout the terms of the agreements.
At December 31, 1996 and 1995, all of the outstanding reverse repurchase
agreements had original contractual maturities between one and five years,
with the exception of one agreement outstanding at December 31, 1996 with a
contractual maturity of 60 days and one agreement outstanding at December
31, 1995 with a contractual maturity of 30 days. All of the outstanding
agreements with contractual maturities between one and five years were
secured by U.S. Treasury, Government agency notes and mortgage-backed and
mortgage-related securities held-to-maturity and available-for-sale. The
agreement outstanding at December 31, 1996 with a contractual maturity of
60 days was secured by a mortgage-related security classified as
held-to-maturity with an estimated fair value of $54,711,000. The agreement
outstanding at December 31, 1995 with a contractual maturity of 30 days was
secured by a mortgage-related security classified as available-for-sale
with an estimated fair value of $8,581,000. Other information relating to
these agreements are summarized as follows:
<TABLE>
<CAPTION>
At or for the year ended
December 31,
--------------------------
(Dollars in Thousands) 1996 1995
----------------------------------------------------------------------------------------
<S> <C> <C>
Book value of collateral (including accrued interest):
U.S. Treasury notes $ 62,467 $ 146,342
Government agency notes 305,358 --
Mortgage-backed and mortgage-related
securities available-for-sale and held-to-maturity 1,627,246 1,474,650
Estimated fair value of collateral:
U.S. Treasury notes 61,611 144,468
Government agency notes 304,261 --
Mortgage-backed and mortgage-related
securities available-for-sale and held-to-maturity 1,605,054 1,472,157
Average balance of outstanding agreements during the year 1,744,830 978,653
Maximum balance of outstanding agreements at a month
end during the year 1,910,801 1,510,530
Average interest rate for the year 5.58% 5.69%
</TABLE>
Reverse repurchase agreements at December 31, 1996 have contractual
maturities as follows: 1997: $345,000,000, 1998: $600,000,000, 1999:
$800,000,000 and 2001: $100,000,000. At December 31, 1996, $600,000,000,
$620,000,000 and $100,000,000 of such agreements were callable during
various months in 1997, 1998, and 1999, respectively.
Pursuant to a blanket collateral agreement with the FHLB-NY, advances are
secured by all of the Company's stock in the FHLB-NY, certain qualifying
mortgage loans, mortgage-backed and mortgage-related securities and other
securities not otherwise pledged in an amount at least equal to 110% of the
advances outstanding. Advances at December 31, 1996 mature as follows:
1997: $31,000,000, 1998: $65,000,000, 1999: $160,000,000, and 2004:
$10,000,000.
At December 31, 1996, the Company had available an overnight line of credit
with the FHLB-NY for $50,000,000 for a term of 12 months, to be priced at
the federal funds rate plus 12.5 basis points.
52
<PAGE> 37
- --------------------------------------------------------------------------------
12
Interest Rate
Caps and
Interest Rate
Swaps
Interest Rate Caps
During the year ended December 31, 1994, the Company, as part of its
overall interest rate risk management strategy, purchased an interest
rate cap on $105,000,000 notional amount on which the Company received a
payment, based on the notional amount, equal to the three month LIBOR in
excess of 5% on any reset date for that reset period, and simultaneously
sold an interest rate cap on the same notional amount whereby the Company
made payments, based on the notional amount, equal to the three month LIBOR
in excess of 7% on any reset date for that reset period. These
transactions, referred to, in the aggregate, as a corridor, were structured
to reprice on the same dates and mature on the same dates as a $105,000,000
reverse repurchase agreement bearing interest based on the three month
LIBOR that matured on March 15, 1996. As of December 31, 1995, the three
month LIBOR was 5.625%. Interest expense on borrowed funds was decreased by
$312,000, during the year ended December 31, 1995, and increased by $48,800
and $369,000 during the years ended December 31, 1996 and 1994,
respectively, as a result of these agreements. There were no such
agreements outstanding as of December 31, 1996.
Interest Rate Swaps
During the year ended December 31, 1996, the Company had an interest rate
swap with a notional amount of $50,000,000 that, in effect, converted a
medium term $50,000,000 variable rate borrowing into a fixed rate
borrowing. The interest rate swap requires the Company to pay a fixed rate
of interest equal to 6.632% and receive three month LIBOR. The agreement
matures on April 21, 1997. As of December 31, 1996, three month LIBOR was
5.563%. Interest expense on borrowed funds was increased $477,000 and
$168,000 during the years ended December 31, 1996 and 1995, respectively,
as a result of this agreement.
- --------------------------------------------------------------------------------
13
Income Taxes
The Company files a consolidated federal income tax return on a
calendar-year basis.
Prior to the enactment of the Small Business Job Protection Act of 1996
(the "1996 Act"), for federal income tax purposes, the Association met
certain definitional tests primarily relating to its assets and the nature
of its business, and was permitted to establish tax reserves for bad debts
and to make annual additions thereto, which additions could, within
specified limitations, be deducted in arriving at its taxable income. The
Association's deduction with respect to "qualifying loans," which are
generally loans secured by certain interest in real property, could be
computed using an amount based on the Association's actual loss experience
(the "Experience Method"), or a percentage equal to 8.0% of the
Association's taxable income (the "PTI Method"), computed without regard to
this deduction and with additional modifications and reduced by the amount
of any permitted addition to the non-qualifying reserve. Similar deductions
for additions to the Association's bad debt reserve were permitted under
the New York State Franchise Tax and the New York City Financial
Corporation Tax; however, for purposes of these taxes, the effective
allowable percentage under the PTI method was 32% rather than 8%.
Under the 1996 Act, the PTI Method was repealed and the Association, as a
"large bank" (one with assets having an adjusted basis of more than $500
million), will be unable to make additions to its tax bad debt reserve,
will be permitted to deduct bad debts only as they occur and will be
required to recapture (that is, take into taxable income) over a six-year
period, beginning with the Association's taxable year beginning January 1,
1996, the excess of the balance of its bad debt reserves (other than the
supplemental reserve) as of December 31, 1995 over the balance of such
reserves as of December 31, 1987. However, under the 1996 Act, such
recapture requirements will be suspended for each of the two successive
taxable years beginning January 1, 1996 in which the Association originates
a minimum amount of certain residential loans during such years that is not
less than the average of the principal amounts of such loans made by the
Association during its six taxable years preceding January 1, 1996. Since
the Association has already provided a deferred income tax liability for
financial reporting purposes, there will be no adverse impact to the
Association's financial condition or results of operations from the
enactment of this legislation. Retained earnings at December 31, 1996 and
1995 includes approximately $65,000,000 for which no Federal income tax
liability has been recognized. This amount represents the balance of the
bad debt reserves (other than supplemental reserves) created for tax
purposes as of December 31, 1987. These amounts are subject to recapture in
the unlikely event that the Association (i) makes distributions in excess
of earnings and profits, (ii) redeems its stock, or (iii) liquidates.
The New York State and New York City tax laws have been amended to prevent
a similar recapture of the Association's bad debt reserve, and to permit
continued future use of the bad debt reserve method for purposes of
determining the Association's New York State and New York City tax
liabilities, in either case so long as the Association continues to satisfy
the New York State and New York City definitional tests related to its
assets and the nature of its business, which are similar to the former
federal income tax tests, discussed above.
53
<PAGE> 38
The significant components of income tax expense attributable to income
before income taxes, for the years ended December 31, 1996, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
(In Thousands) 1996 1995 1994
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current income tax expense $ 14,668 $ 28,204 $ 31,268
Deferred income tax expense (benefit) (exclusive of
the effect of other components listed below) 15,824 7,409 (123)
Adjustments to deferred tax assets and liabilities
for enacted changes in tax laws and rates 183 130 (4)
Decrease in valuation allowance for deferred tax assets -- -- (261)
----------------------------------------------------------------------------------------------
Total income tax expense $ 30,675 $ 35,743 $ 30,880
==============================================================================================
</TABLE>
Income tax expense for the years ended December 31, 1996, 1995 and 1994 is
summarized as follows:
At December 31,
-----------------------------------
(In Thousands) 1996 1995 1994
---------------------------------------------------------------------------
Federal
Current $ 10,876 $ 21,155 $ 22,522
Deferred 11,908 5,311 (180)
---------------------------------------------------------------------------
22,784 26,466 22,342
State and local
Current 3,792 7,049 8,746
Deferred 4,099 2,228 (208)
---------------------------------------------------------------------------
7,891 9,277 8,538
---------------------------------------------------------------------------
Total income tax expense $ 30,675 $ 35,743 $ 30,880
===========================================================================
For the years ended December 31, 1996 and 1995, the Federal deferred tax
expense resulted primarily from the partial deferral of losses, for tax
purposes only, on the sale of securities acquired in the Fidelity
acquisition. The tax losses deferred resulted from the carrying basis
differential between book and tax and are deferred due to limitations on
loss recognition for tax purposes. For the year ended December 31, 1994,
the Federal deferred tax benefit resulted primarily from deferred net loan
origination fees and accretion of discounts on investments.
The total income tax expense attributable to income before income taxes
differed from the amounts computed by applying the Federal income tax rate
of 35% for the years ended December 31, 1996, 1995 and 1994 as a result of
the following:
At December 31,
-------------------------------------
(In Thousands) 1996 1995 1994
---------------------------------------------------------------------------
Expected income tax expense
at statutory Federal tax rate $ 23,635 $ 28,407 $ 26,095
State and local taxes,
net of Federal income tax benefit 5,129 6,030 5,550
Tax exempt income (1,153) (1,743) (1,601)
Amortization of intangibles 2,797 2,580 180
Other, net 267 469 656
---------------------------------------------------------------------------
Total income tax expense $ 30,675 $ 35,743 $ 30,880
===========================================================================
The Company also files state and local tax returns on a calendar-year
basis. State and local taxes imposed on the Company consist of New York
State Franchise tax, New York City Financial Corporation tax and Delaware
Franchise tax. The Company's annual tax liability to New York State and New
York City is the greater of a tax on income or an alternative tax based on
a specified formula. The Company's liability for Delaware Franchise tax is
the lesser of a tax based on an authorized shares method or an assumed par
value capital method; however, under either method, the Company's total tax
will not exceed $150,000.
The Company provided for New York State and New York City taxes based on
taxable income for the years ended December 31, 1996, 1995 and 1994. For
the years ended December 31, 1996, 1995 and 1994, the Company's Delaware
Franchise tax was based on the authorized shares method.
54
<PAGE> 39
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
At December 31,
-----------------------
(In Thousands) 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Mortgages and other loans receivable, primarily
due to allowances for losses and deferred loan fees $ 13,247 $ 13,650
Real estate owned, primarily due to allowance for losses -- 1,765
Deferred tax losses on securities sold 9,767 14,775
Alternative minimum tax credit 1,625 1,625
Compensation and benefits 5,926 8,940
Other 235 899
---------------------------------------------------------------------------------------------------
Total gross deferred tax assets 30,800 41,654
Less valuation allowance (1,819) (1,819)
---------------------------------------------------------------------------------------------------
Deferred tax assets 28,981 39,835
---------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Unearned discount on investments, not yet recognized for tax purposes (5,005) (665)
Net unrealized gains on securities available-for-sale (115) (8,512)
Other (4,342) (3,529)
---------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (9,462) (12,706)
---------------------------------------------------------------------------------------------------
Net deferred tax asset $ 19,519 $ 27,129
===================================================================================================
</TABLE>
The valuation allowance for deferred tax assets relates primarily to
uncertainties of realization under the New York State and New York City tax
codes which do not allow for net operating loss carryforwards or
carrybacks.
- --------------------------------------------------------------------------------
14
Commitments
and
Contingencies
Lease Commitments
At December 31, 1996, the Company was obligated under several
non-cancelable operating leases on buildings and land used for office space
and banking purposes through 2035. These operating leases contain
escalation clauses which provide for increased rental expense based
primarily on increases in real estate taxes and cost-of living indices.
Rent expense under these operating leases was approximately $3,108,000,
$2,677,000 and $1,910,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
The minimum rental payments under the terms of the non-cancelable operating
leases as of December 31, 1996, are summarized below:
Years Ending
December 31, Amount
------------------------------------
(In Thousands)
1997 $ 2,853
1998 2,742
1999 1,881
2000 1,757
2001 1,714
Thereafter 14,515
------------------------------------
$25,462
====================================
Loan Commitments
The Company had outstanding commitments to originate and/or purchase loans
as follows:
At December 31,
----------------------------------------------
1996 1995
----------------------------------------------
Fixed Variable Fixed Variable
(In Thousands) Rate Rate Rate Rate
---------------------------------------------------------------------------
Mortgage loans $45,868 $56,115 $38,148 $51,742
Home equity loans 665 998 503 1,565
Consumer and other loans -- 340 -- 330
---------------------------------------------------------------------------
$46,533 $57,453 $38,651 $53,637
===========================================================================
Commitments outstanding in the above table to purchase loans as of December
31, 1996 and 1995 totaled $18,600,000 and $22,317,000, respectively. At
December 31, 1996, commitments to originate residential mortgage loans and
commercial mortgage loans at fixed rates had stated rates ranging from
6.50% to 9.88% and 8.38% to 9.88%, respectively.
55
<PAGE> 40
The Company uses the same credit policies and underwriting standards in
making loan commitments and lines of credit (off balance sheet financial
instruments) as it does for on balance sheet financial instruments. The
Company's maximum exposure to credit risk is represented by the contractual
amount of the instruments. For loan commitments, the Company would
generally be exposed to interest rate risk from the time a commitment, with
a defined contractual interest rate, is issued until such commitment
expires or is exercised.
Litigation
In the normal course of business there are various outstanding legal
proceedings. In the opinion of management, after consultation with legal
counsel, the financial position, operating results and liquidity of the
Company will not materially be adversely affected by the outcome of such
legal proceedings.
- --------------------------------------------------------------------------------
15
Benefit
Plans
Pension Plan
The Association has a qualified, non-contributory defined benefit pension
plan ("the Plan"), covering substantially all of its eligible employees.
The Association's policy is to fund pension costs in accordance with the
minimum funding requirement. Contributions are intended to provide not only
for benefits attributed to service to date, but also for those expected to
be earned in the future. In addition, the Association has non-qualified,
unfunded and supplemental retirement plans covering certain officers and
directors.
As of December 31, 1996 and 1995, the Plan held 100,000 shares of the
Company's common stock. As of December 31, 1996 and 1995, the Company's
common stock was valued at a market price of $36.88 and $22.81 per share,
respectively. Shares of stock held by the Plan are voted by the trustees of
the Plan, three of whom are executive officers of the Company and the
Association, and one of whom is an officer of the Association.
Pursuant to the acquisition of Fidelity, the Pension Plan for employees of
Fidelity was merged into the Plan effective April 30, 1995. As a result of
the merger of the plans, additional participants became enrolled in the
Plan and the assets of Fidelity's plan of approximately $8,000,000 were
transferred to the Plan.
The following is a reconciliation of the status of the plans and the amount
of prepaid (accrued) pension cost recognized in the consolidated statements
of financial condition:
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------
1996 1995
----------------------------------------------------
Non-Qualified Non-Qualified
Qualified Supplemental Qualified Supplemental
(In Thousands) Plan Plans Plan Plans
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation:
Vested $ 18,348 $ 2,524 $ 18,161 $ 2,112
Non-vested 615 64 907 51
---------------------------------------------------------------------------------------------------------
18,963 2,588 19,068 2,163
Effect of projected future compensation 2,591 2,431 2,434 2,063
---------------------------------------------------------------------------------------------------------
Projected benefit obligation for service
rendered to date 21,554 5,019 21,502 4,226
Estimated plan assets, at fair value 25,606 -- 22,953 --
---------------------------------------------------------------------------------------------------------
Excess (deficiency) of plan assets over (under)
projected benefit obligation 4,052 (5,019) 1,451 (4,226)
Unrecognized net loss (gain) from past experience
different from that assumed and effects
of changes in assumptions (438) (103) 2,595 (485)
Prior service cost not yet recognized
in periodic pension cost (512) 1,031 (558) 1,147
Unrecognized net transition (asset) obligation
(from adoption of SFAS No. 87) being amortized
over 17 years and 11 years for qualified plan
and unfunded supplemental plan, respectively (763) 18 (867) 50
Additional minimum liability -- (179) -- (250)
---------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 2,339 $ (4,252) $ 2,621 $ (3,764)
=========================================================================================================
</TABLE>
56
<PAGE> 41
The components of net pension expense are as follows:
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------------------------
Non-Qualified Non-Qualified Non-Qualified
Qualified Supplemental Qualified Supplemental Qualified Supplemental
(Dollars in Thousands) Plan Plans Plan Plans Plan Plans
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost (benefits earned
during the period) $ 618 $ 218 $ 447 $ 214 $ 534 $ 217
Interest cost on projected
benefit obligation 1,512 256 1,339 229 840 207
Expected return on plan assets (1,797) -- (1,512) -- (1,018) --
Net amortization and deferral (51) 147 (150) 133 (132) 131
-------------------------------------------------------------------------------------------------------------------------
Net pension expense $ 282 $ 621 $ 124 $ 576 $ 224 $ 555
=========================================================================================================================
Assumptions utilized in the
actuarial valuations are as follows:
Discount rate (pre-tax for
qualified plan; after-tax for
supplemental plan) 7.5% 6.0% 7.0% 6.0% 8.5% 6.0%
Expected long-term rate
of return on assets 8.0% -- 8.0% -- 8.0% --
Rate of increase in
compensation levels 5.0% 8.0% 5.0% 8.0% 5.0% 8.0%
</TABLE>
Incentive Savings Plan
The Association maintains a 401K incentive savings plan which provides for
contributions to trust funds by both the Association and its participating
employees. Under the plan, participants may contribute up to 10% of their
pre-tax base salary, not to exceed $9,500 for the calendar year ending
December 31, 1996. Matching contributions, if any, will be made at the
discretion of the Association. No such contributions were made for 1996,
1995 and 1994. Participants vest immediately in their own contributions and
after a period of five years for Association contributions.
During 1993, an employer stock fund was established as an investment
alternative for participants in connection with the conversion of the
Association to stock form of ownership. As of December 31, 1996 and 1995,
the fund held 250,767 and 229,734 shares, respectively, of the Company's
common stock valued at $36.88 and $22.82, respectively, on behalf of
participants. Shares held by the fund are voted by the fund trustee as
directed by the participants for whose accounts the shares are held.
Employee Stock Ownership Plan and Trust
The Association established the ESOP for eligible employees of the Company
or the Association. To fund the purchase of 2,642,354 shares of the
Company's common stock issued in the conversion, the ESOP borrowed funds
from the Company. The loan to the ESOP is being repaid principally from the
Association's contributions to the ESOP over a period of 12 years and the
collateral for the loan is the common stock purchased by the ESOP. The
Association's contributions are reduced by any investment earnings realized
and any dividends paid on unallocated shares. During the years ended
December 31, 1996 and 1995, a total of $187,000 and $44,000, respectively,
in dividends were paid on allocated shares, which increased total shares
allocated in those years, and $961,000 and $486,000 respectively, in
dividends were paid on unallocated shares which reduced the Association's
contribution to the ESOP. At December 31, 1996 and 1995, the loan from the
Company had an outstanding balance of $26,586,464, and $28,951,955,
respectively and an interest rate of 6.00%.
Shares purchased by the ESOP are held by a trustee for allocation among
participants as the loan is repaid. The number of shares released annually
is based upon the ratio that the current principal and interest payment
bears to the current and all remaining scheduled future principal and
interest payments. For the years ended December 31, 1996, 1995 and 1994,
229,250 shares, 221,728 shares and 232,264 shares, respectively, were
allocated to participants. As of December 31, 1996, 1995 and 1994,
1,959,112 shares, 2,188,362 shares and 2,410,090 shares, respectively,
remain unallocated.
In accordance with SOP 93-6, for the years ended December 31, 1996, 1995
and 1994, the Company recorded compensation expense of $6,437,000,
$4,095,000 and $3,496,000, respectively, which was equal to the shares
allocated by the ESOP multiplied by the average estimated fair value of the
common stock during the year of allocation. For the years ended December
31, 1996, 1995 and 1994, the average quoted price of a share of the
Company's common stock was $28.08, $18.47 and $15.06, respectively.
57
<PAGE> 42
Other Postretirement Benefits
In accordance with SFAS No. 106, costs of postretirement benefits,
primarily health care benefits, are accrued during an employee's active
working career. The Company provides medical and dental coverage to select
individuals upon retirement. Postretirement benefit expense recorded for
the years ended December 31, 1996, 1995 and 1994 was $313,000, $188,000 and
$255,000, respectively.
The following table sets forth the accumulated postretirement benefit
obligation (APBO):
At December 31,
------------------------------------
(In Thousands) 1996 1995 1994
---------------------------------------------------------------------------
Retirees $ 289 $ (92) $ 387
Fully eligible active participants 754 693 397
Other active participants 1,052 1,080 799
---------------------------------------------------------------------------
Total $ 2,095 $ 1,681 $ 1,583
===========================================================================
The following is a reconciliation between the APBO and accrued
postretirement benefit cost:
<TABLE>
<CAPTION>
At December 31,
---------------------------------
(In Thousands) 1996 1995 1994
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation $ 2,095 $ 1,681 $ 1,583
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions (391) (252) (405)
Unrecognized prior service cost (69) (76) --
-----------------------------------------------------------------------------------
Accrued postretirement benefit cost $ 1,635 $ 1,353 $ 1,178
===================================================================================
</TABLE>
The assumed medical cost trend rates used in computing the APBO was 12% in
1996 and was assumed to decrease gradually to 6% in 2002 and to remain at
that level thereafter. Increasing the assumed medical care cost trend rates
by one percentage point in each year would decrease the accumulated
postretirement benefit obligation as of December 31, 1996 by $417,800 and
increase the aggregate of service and interest cost components of the net
periodic postretirement benefit cost for 1996 by $61,100.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.50%, 7.00% and 8.50% as of December
31, 1996, 1995 and 1994, respectively.
- --------------------------------------------------------------------------------
16
Stock
Benefit
Plans
The Incentive Stock Option Plan ("1993 Employee Option Plan"), the Stock
Option Plan for Outside Directors ("1993 Directors' Option Plan") and the
Recognition and Retention Plan for Outside Directors and the Recognition
and Retention Plan for Officers and Employees ("RRPs") were adopted and
implemented in 1993 upon the conversion of the Association from a mutual
to stock form. In 1995, pursuant to the Fidelity Merger Plan, certain
options were granted to former officers and directors of Fidelity. In 1996,
the Company adopted the 1996 Stock Option Plan for Officers and Employees
("1996 Employee Option Plan"), and the 1996 Stock Option Plan for Outside
Directors ("1996 Directors Option Plan"). The Company applies APB No. 25
and related Interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its fixed stock option plans. Had
compensation cost for these stock-based compensation plans and grants been
determined consistent with SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the proforma amounts
indicated below:
Year Ended December 31,
-----------------------
(In Thousands, Except Per Share Data) 1996 1995
---------------------------------------------------------------------------
Net Income:
As Reported $36,853 $45,421
Pro forma $36,605 $44,076
Primary earnings per common share:
As Reported $ 1.77 $ 2.07
Pro forma $ 1.76 $ 2.01
Fully diluted earnings per common share:
As Reported $ 1.71 $ 2.06
Pro forma $ 1.70 $ 2.00
58
<PAGE> 43
Incentive Stock Option Plans
Pursuant to the terms of the 1993 Employee Option Plan, the number of
shares reserved for issuance was 2,068,058. In 1996, the Company adopted
the 1996 Employee Option Plan. Pursuant to the 1996 Employee Option Plan,
the number of shares reserved for issuance was 950,000. Under both plans,
the exercise price of each option granted was equal to the market price of
the Company's stock on the grant date. Options under each of the two plans
vest and are exercisable as determined by the Compensation Committee at the
time of grant. All options granted will be immediately vested and
exercisable in the event the optionee terminates his/her employment due to
death, disability or retirement, or in the event of a change of control of
the Association or the Company and, in the case of the 1996 Employee Option
Plan, in the event of a threatened change of control of the Association or
the Company, as defined in the plans. All options expire no later than ten
years following the date of grant. The 1993 and 1996 Employee Option Plans
do not provide for the granting of stock appreciation rights; however, all
options granted were granted in tandem with limited stock appreciation
rights exercisable in the event of a change of control of the Association
or the Company as defined by the plans, and in the case of the 1996
Employee Option Plan, in the event of a threatened change of control of the
Association or the Company, as defined by the plans.
A summary of the status of the Company's 1993 and 1996 Employee Option
Plans as of December 31, 1996, 1995 and 1994, and changes during the years
ended on those dates is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of the year: 2,064,774 $13.11 1,974,996 $12.51 1,975,174 $12.50
Granted 195,500 35.12 158,786 20.41 10,000 13.59
Canceled -- -- (64,936) 12.50 (10,178) 12.50
Exercised (10,000) 12.50 (4,072) 12.50 -- --
---------- ---------- ----------
Outstanding at end of year 2,250,274 15.03 2,064,774 13.11 1,974,996 12.51
========== ========== ==========
Options exercisable at year-end 430,604 217,302 4,072
</TABLE>
Options to purchase 755,748 shares, 1,248 shares and 95,098 shares were
available for future grants under the Employee Option Plans at December 31,
1996, 1995 and 1994, respectively.
Stock Option Plans for Outside Directors
The 1993 Directors' Option Plan provided for the fixed granting of
non-statutory options to purchase up to 574,906 shares of the Company's
common stock. Contemporaneously, with the conversion, outside directors
received fixed grants of options to purchase 534,198 shares. After the
close of business on January 31, 1995, options to purchase an additional
20,354 shares of the Company's common stock were granted pursuant to the
Directors' Option Plan with the addition of a director to the Board of
Directors of the Company and the Association. The 1993 Directors' Option
Plan was frozen in 1996, so no further grants will be made thereunder. The
1996 Directors' Option Plan provides for the fixed granting of
non-statutory options to purchase up to 120,000 shares of the Company's
stock. Under both plans, the exercise price of each option equals the
market price of the Company's stock on the grant date.
All options granted under the 1993 Directors' Option Plan became
exercisable in three equal annual installments and expire upon the earlier
of ten years following their grant or one year following the date the
optionee ceases to be a director. All options granted under the 1996
Directors' Option Plan are exercisable immediately on their grant date. The
Directors' Option Plans do not provide for the granting of stock
appreciation rights; however, all options were granted in tandem with
limited stock appreciation rights exercisable in the event of a change of
control of the Association or the Company, as defined by the plans.
59
<PAGE> 44
A summary of the status of the Company's 1993 and 1996 Directors' Option
Plans as of December 31, 1996, 1995 and 1994, and changes during the years
ended on those dates is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of the year: 554,552 $12.59 534,198 $12.50 534,198 $12.50
Granted 20,000 26.18 20,354 14.86 -- --
Canceled -- -- -- -- -- --
Exercised -- -- -- -- -- --
------- ------- -------
Outstanding at end of year 574,552 13.06 554,552 12.59 534,198 12.50
======= ======= =======
Options exercisable at year-end 408,354 178,066 --
</TABLE>
Options to purchase 100,000 shares, 20,354 shares and 40,708 shares were
available for future grants under the Directors' Option Plans at December
31, 1996, 1995 and 1994, respectively.
Other Stock Option Grants
Pursuant to the Fidelity Merger Plan, the Company, upon consummation of the
transaction, granted certain executive officers of Fidelity options to
purchase 276,036 shares of the Company's common stock. Such options, which
represent the conversion of Fidelity options previously granted, have a
weighted average exercise price of $8.145 per share. The Company also
granted to Fidelity's former Board of Directors, excluding former employee
directors, options, pursuant to the Fidelity Merger Plan to acquire 40,000
shares of the Company's common stock at an exercise price of $13.93 per
share. The maximum term of the options granted is ten years and the options
were immediately exercisable at the grant date.
A summary of the status of the Company's Other Stock Option Grants as of
December 31, 1996 and 1995, and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1996 1995
-------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of the year: 312,036 $8.81 -- $ --
Granted -- -- 316,036 8.88
Canceled -- -- -- --
Exercised (62,000) 7.69 (4,000) 13.93
-------- --------
Outstanding at end of year 250,036 9.09 312,036 8.81
======== ========
Options exercisable at year-end 250,036 312,036
</TABLE>
60
<PAGE> 45
The fair value of each option grant for each of the aforementioned plans
were estimated on the date of grant using the Black-Scholes option pricing
model in accordance with the disclosure requirements of SFAS No. 123. A
summary of the weighted-average fair values and assumptions used to
determine such values for grants in each individual plan during each of the
years ended December 31, 1996, 1995 and 1994 is presented below:
1996 1995 1994
- --------------------------------------------------------------------------------
Incentive Stock Option Plans:
Weighted-average assumptions:
Dividend yield 1.25% 1.25% 1.25%
Expected stock price volatility 17.65% 16.26% 17.30%
Risk-free interest rate 5.60% 6.59% 6.56%
Expected option lives 6 years 6 years 6 years
Weighted-average fair value of options
granted during the year $11.81 $ 7.72 $ 5.31
Stock Option Plans for Outside Directors:
Weighted-average assumptions:
Dividend yield 1.25% 1.25% --
Expected stock price volatility 17.65% 16.26% --
Risk-free interest rate 5.52% 6.56% --
Expected option lives 5 years 5 years --
Weighted-average fair value of options
granted during the year $ 6.32 $ 4.62 --
Other Stock Option Grants:
Weighted-average assumptions:
Dividend yield -- 1.25% --
Expected stock price volatility -- 16.26% --
Risk-free interest rate -- 6.51% --
Expected option lives -- 4 years --
Weighted-average fair value of options
granted during the year -- $ 7.31 --
The weighted-average fair value of options was calculated using the above
assumptions, based on management's judgments regarding future option
exercise experience and market conditions. These assumptions are subjective
in nature, involve uncertainties and therefore cannot be determined with
precision.
The following table summarizes information about the stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------- ------------------------------------
Weighted Weighted Weighted
Range Of Number of Options Average Remaining Average Number of Options Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
------------------------------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
$ 7.21 to $12.00 216,036 8.1 years $ 8.33 216,036 $ 8.33
12.50 to 22.44 2,643,326 7.0 years 13.02 852,958 12.65
26.13 to 36.00 215,500 9.9 years 34.29 20,000 26.18
--------- ---------
7.21 to 36.00 3,074,862 7.3 years 14.18 1,088,994 12.04
========= =========
</TABLE>
Recognition and Retention Plans
The Association established the RRPs as a method of providing officers,
employees and non-employee directors of the Company and the Association
with a proprietary interest in the Company in a manner designed to
encourage such persons to remain with the Company and the Association. The
Association contributed funds from available liquid assets to the RRPs to
enable the trusts to acquire 1,322,500 shares of common stock in the
conversion and in open market transactions following the conversion. This
contribution represents deferred compensation which is initially recorded
as a reduction of stockholders' equity and ratably charged to compensation
expense over the vesting period of the actual stock awards. The RRPs
acquired the shares at an average price of $14.435 per share. During 1993,
all of the shares were awarded under the RRP for Officers and Employees
(1,035,042 shares), while 267,106 shares of the 287,458 shares available
under the RRP for Outside Directors were awarded. After the close of
business on January 31, 1995, 10,176 additional shares were awarded under
the terms of the RRP for Outside Directors. During the year ended December
31, 1996, the Company amended the RRP so that no future awards would be
made and the
61
<PAGE> 46
RRP Trustee sold, in the open market, the remaining 10,176 of unallocated
shares remaining in the RRP for Outside Directors. During the year ended
December 31, 1996, no shares were forfeited under the RRP for Officers and
Employees. During the years ended December 31, 1995 and 1994, awards for
23,392 and 2,554 shares, respectively, were forfeited under the RRP for
Officers and Employees. As of December 31, 1996, 25,946 shares remain
unallocated under the RRPs for Officers and Employees.
Under the RRPs, awards are granted in the form of shares of common stock
held by the RRPs. Awards to outside directors vest in three equal annual
installments. For the years ended December 31, 1996 and 1995, the RRP
distributed to outside directors totaled 105,152 shares and 89,026 shares,
respectively. Awards to executive officers vest in five equal annual
installments commencing January 1995. During the years ended December 31,
1996 and 1995, 123,894 shares and 123,886 shares, respectively were
distributed to executive officers. Awards to other officers and employees
vest in three equal annual installments commencing on the tenth business
day of January 1997. Awards will be 100% vested upon termination of
employment due to death, disability or retirement of the participant or
following a change in the control of the Association or the Company. For
the years ended December 31, 1996, 1995 and 1994, the Company recorded
$4,237,000, $4,251,000 and $4,270,000, respectively, of compensation
expense relating to the RRPs.
- --------------------------------------------------------------------------------
17
Regulatory
Matters
The Financial Institutions Reform, Recovery and Enforcement Act was signed
into law on August 9, 1989; regulations for savings institutions minimum
capital requirements went into effect on December 7, 1989. The capital
standards are also required to be no less stringent than standards
applicable to national banks. At December 31, 1996, the Association was in
compliance with all regulatory capital requirements.
The following table sets forth the regulatory capital calculations for the
Association.
<TABLE>
<CAPTION>
At December 31, 1996
--------------------------------------------------------------------
Capital Actual Excess
(Dollars in Thousands) Requirement % Capital % Capital %
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tangible $107,214 1.5% $404,016 5.65% $296,802 4.15%
Leverage 214,428 3.0 404,016 5.65 189,588 2.65
Risk-based 203,773 8.0 418,038 16.41 214,265 8.41
<CAPTION>
At December 31, 1995
--------------------------------------------------------------------
Capital Actual Excess
(Dollars in Thousands) Requirement % Capital % Capital %
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tangible $ 97,523 1.5% $395,565 6.08% $298,042 4.58%
Leverage 195,045 3.0 395,565 6.08 200,520 3.08
Risk-based 173,995 8.0 407,209 18.72 233,214 10.72
</TABLE>
On December 31, 1996 and 1995, the Association's Tier 1 risk-based capital
ratios were 15.86% and 18.19%, respectively.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. The regulators adopted rules
which require them to take action against undercapitalized institutions,
based upon the five categories of capitalization which the FDICIA created:
"well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized" and "critically undercapitalized".
The rules adopted generally provide that an insured institution whose total
risk-based capital ratio is 10% or greater, Tier 1 risk-based capital ratio
is 6% or greater, leverage ratio is 5% or greater and is not subject to any
written agreement, order, capital directive or prompt corrective action
directive issued by the FDIC shall be considered a "well capitalized"
institution. As of December 31, 1996 and 1995, the Association is a "well
capitalized" institution.
62
<PAGE> 47
- --------------------------------------------------------------------------------
18
Fair Value
of Financial
Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" ("SFAS No. 107"), requires disclosure
of estimated fair value information for the Company's financial
instruments. Fair values are most commonly derived from quoted market
prices available in the formal trading marketplaces. In many cases, the
Company's financial instruments are not bought or sold in formal trading
marketplaces. Accordingly, in cases where quoted market prices are not
available, fair values are derived or estimated based on a variety of
valuation techniques. These techniques are sensitive to the various
assumptions and estimates used and the resulting fair value estimates may
be materially affected by minor variations in those assumptions or
estimates. In that regard, it is likely that amounts different from the
fair value estimates would be realized by the Company in an immediate
settlement of the financial instruments.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates
do not reflect any possible tax ramifications, estimated transaction costs,
or any premium or discount that could result from offering for sale at one
time the Company's entire holdings of a particular financial instrument.
Because no market exists for a certain portion of the Company's financial
instruments, fair value estimates are based on judgments regarding future
loss experience, current economic conditions, risk characteristics, and
other such factors. These estimates are subjective in nature, involve
uncertainties and, therefore, cannot be determined with precision. Changes
in assumptions could significantly affect the estimates. The Company has
also not included certain material items in its disclosure as such items
are not considered financial instruments. The Company believes these items
have significant value. For these reasons, the estimated fair value
disclosures presented herein do not represent the entire underlying value
of the Company.
The following table summarizes the carrying values and estimated fair
values of the Company's on and off balance sheet financial instruments at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------
1996 1995
----------------------------------------------------------
Carrying Estimated Carrying Estimated
(In Thousands) Amount Fair Value Amount Fair Value
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
On Balance Sheet:
Federal funds sold and
repurchase agreements $ 56,000 $ 56,000 $ 100,000 $ 100,000
Mortgage-backed, mortgage-related
and other securities available-
for-sale 2,296,662 2,296,662 2,515,968 2,515,968
Mortgage-backed, mortgage-related
and other securities
held-to-maturity 1,961,015 1,946,345 1,615,542 1,620,780
Loans receivable, net 2,637,327 2,678,789 2,043,643 2,089,209
Deposits 4,513,093 4,510,740 4,263,421 4,264,555
Borrowed funds 2,111,514 2,113,384 1,704,691 1,708,234
Off Balance Sheet:
Outstanding commitments 103,986 103,986 92,288 92,288
Interest rate swaps (a) -- 252 -- 887
Interest rate caps (a) -- -- -- (213)
</TABLE>
(a) See Note 12.
63
<PAGE> 48
Methods and assumptions used to estimate fair values are stated below:
Federal Funds Sold and Repurchase Agreements
The carrying amounts of federal funds sold and repurchase agreements
approximate fair values since all mature in six months or less.
Mortgage-Backed, Mortgage-Related and Other Securities Available-for-Sale
and Held-to-Maturity
Fair values for all securities are based on published or securities
dealers' market values.
Loans Receivable, Net
Fair values are calculated by discounting the expected future cash flows of
pools of loans with similar characteristics. The loans are first segregated
by type, such as one-to-four family residential, other residential,
commercial, construction, and consumer and other, and then further
segregated into fixed and adjustable rate and seasoned and nonseasoned
categories. Expected future cash flows are then projected based on
contractual cash flows, adjusted for prepayments. Prepayment estimates are
based on a variety of factors including the Company's experience with
respect to each loan category, the effect of current economic and lending
conditions and regional statistics for each loan category, if available.
The discount rates used are based on market rates for new loans of similar
type and purpose, adjusted, when necessary, for factors such as servicing
cost, credit risk and term.
As mentioned previously, this technique of estimating fair value is
extremely sensitive to the assumptions and estimates used. While management
has attempted to use assumptions and estimates which are the most
reflective of the loan portfolio and the current market, a greater degree
of subjectivity is inherent in these values than those determined in formal
trading marketplaces. As such, readers are again cautioned in using this
information for purposes of evaluating the financial condition and/or value
of the Company in and of itself or in comparison with any other company.
Deposits
SFAS No. 107 stipulates that the fair values of deposits with no stated
maturity, such as demand deposits, savings, NOW accounts, money manager
accounts and money market accounts, are equal to the amount payable on
demand. The related insensitivity of the majority of these deposits to
interest rate changes creates a significant inherent value which is not
reflected in the fair value reported.
The fair values of certificates of deposit are based on discounted
contractual cash flows using rates which approximate the rates offered by
the Company for deposits of similar remaining maturities.
Borrowed Funds
Fair value estimates are based on discounted contractual cash flows using
rates which approximate the rates offered for borrowings of similar
remaining maturities.
Outstanding Commitments
Fair value of commitments outstanding are estimated based on the rates that
would be charged for similar agreements, considering the remaining term of
the agreement, the rate offered and the creditworthiness of the parties.
Interest Rate Caps and Interest Rate Swaps
Fair values for interest rate caps and interest rate swaps are based on
securities dealers' estimated market values.
64
<PAGE> 49
- --------------------------------------------------------------------------------
19
Condensed
Parent
Company Only
Financial
Statements
The following condensed statements of financial condition as of December
31, 1996 and 1995 and condensed statements of operations and cash flows for
the years ended December 31, 1996, 1995 and 1994, for Astoria Financial
Corporation (parent company only) reflect the Company's investment in its
wholly-owned subsidiary, the Association, using the equity method of
accounting.
Condensed Statements of Financial Condition At December 31,
(In Thousands) 1996 1995
---------------------------------------------------------------------------
Assets:
Cash $ 78 $ 44
Mortgage-backed and mortgage-related securities
available-for-sale 23,590 27,924
Other securities available-for-sale 7,148 --
ESOP loan receivable 26,586 28,952
Accrued interest receivable 116 136
Deferred tax asset -- 251
Dividends receivable 25,000 25,000
Investment in the Association 507,114 518,791
---------------------------------------------------------------------------
Total assets $589,632 $601,098
===========================================================================
Liabilities and stockholders' equity:
Reverse repurchase agreements $ -- $ 8,329
Other liabilities 299 111
Amounts due the Association 429 1,973
Deferred tax liability 75 --
Stockholders' equity 588,829 590,685
---------------------------------------------------------------------------
Total liabilities and stockholders' equity $589,632 $601,098
===========================================================================
Condensed Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
(In Thousands) 1996 1995 1994
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Mortgage-related and other securities $ 1,621 $ 1,997 $ 2,840
ESOP loan receivable 1,761 1,864 1,982
--------------------------------------------------------------------------------------------------
Total interest income 3,382 3,861 4,822
Interest expense on borrowed funds 318 228 --
--------------------------------------------------------------------------------------------------
Net interest income 3,064 3,633 4,822
--------------------------------------------------------------------------------------------------
Cash dividends from the Association 49,362 4,520 --
--------------------------------------------------------------------------------------------------
Non-interest expense:
Compensation and benefits 1,159 1,054 623
Other 749 846 854
--------------------------------------------------------------------------------------------------
Total non-interest expense 1,908 1,900 1,477
--------------------------------------------------------------------------------------------------
Income before income taxes and equity in (overdistributed)
undistributed earnings of the Association 50,518 6,253 3,345
Income tax expense 583 835 1,516
--------------------------------------------------------------------------------------------------
Income before equity in (overdistributed) undistributed
earnings of the Association 49,935 5,418 1,829
Equity in (overdistributed) undistributed earnings
of the Association (1) (13,082) 40,003 41,848
--------------------------------------------------------------------------------------------------
Net income $ 36,853 $ 45,421 $ 43,677
==================================================================================================
</TABLE>
(1) The equity in overdistributed earnings of the Association for the year
ended December 31 1996 represents dividends paid to the Company in
excess of the Association's current year's earnings.
65
<PAGE> 50
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
(In Thousands) 1996 1995 1994
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 36,853 $ 45,421 $ 43,677
Adjustments to reconcile net income to
cash provided by operating activities:
Equity in overdistributed (undistributed) earnings
of the Association 13,082 (40,003) (41,848)
Increase in accrued interest receivable 20 19 123
Accretion of discount on other securities (12) (12) (650)
(Decrease) increase in other liabilities and amounts
due the Association (1,356) (1,141) 2,992
-------------------------------------------------------------------------------------------------
Net cash provided by operating activities 48,587 4,284 4,294
-------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of other securities held-to-maturity -- -- (9,974)
Maturities of other securities held-to-maturity -- -- 50,000
Purchase of other securities available-for-sale (6,359) -- (37,437)
Principal payments on securities available-for-sale 4,325 2,849 1,482
Acquisition of Fidelity stock by the Association -- 4,612 --
Principal payment on ESOP loan receivable 2,366 2,120 1,957
-------------------------------------------------------------------------------------------------
Net cash provided by investing activities 332 9,581 6,028
-------------------------------------------------------------------------------------------------
Cash flows from financing activities:
(Decrease) increase in reverse repurchase agreements (8,329) 8,329 --
Repurchase of Company common stock (31,672) (26,592) (34,252)
Cash received for options exercised net of loss
on issuance of treasury stock 478 107 --
Cash dividends paid to stockholders (9,362) (4,555) --
-------------------------------------------------------------------------------------------------
Net cash used in financing activities (48,885) (22,711) (34,252)
-------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 34 (8,846) (23,930)
Cash and cash equivalents at the beginning of the year 44 8,890 32,820
-------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year $ 78 $ 44 $ 8,890
=================================================================================================
</TABLE>
66
<PAGE> 51
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Astoria Financial Corporation and Subsidiary
<TABLE>
<CAPTION>
Year Ended December 31, 1996
-----------------------------------------------------
First Second Third Fourth
(In Thousands, Except Per Share Amounts) Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 115,834 $ 121,242 $ 126,716 $ 127,382
Interest expense 71,100 74,418 79,112 79,851
-----------------------------------------------------------------------------------------------------------
Net interest income 44,734 46,824 47,604 47,531
Provision for loan losses 522 2,042 958 441
-----------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 44,212 44,782 46,646 47,090
Non-interest income 3,558 3,439 3,374 3,351
-----------------------------------------------------------------------------------------------------------
Total income 47,770 48,221 50,020 50,441
-----------------------------------------------------------------------------------------------------------
General and administrative expense 23,927 24,674 23,872 23,692
Real estate operations, net (3,255) 339 176 17
(Recovery of) provision for real estate losses (1,397) 65 (202) (213)
Amortization of excess of cost over
fair value of net assets acquired 2,171 2,171 2,171 2,171
SAIF recapitalization assessment -- -- 28,545 --
-----------------------------------------------------------------------------------------------------------
Income (loss) before income tax expense (benefit) 26,324 20,972 (4,542) 24,774
Income tax expense (benefit) 11,606 9,262 (1,320) 11,127
-----------------------------------------------------------------------------------------------------------
Net income (loss) $ 14,718 $ 11,710 $ (3,222) $ 13,647
===========================================================================================================
Primary earnings (loss) per common share $ 0.68 $ 0.56 $ (0.17) $ 0.64
Fully diluted earnings (loss) per common share 0.68 0.55 (0.17) 0.64
Fully diluted earnings per common share excluding
SAIF recapitalization assessment, net of tax 0.68 0.55 0.65 0.64
<CAPTION>
Year Ended December 31, 1995
------------------------------------------------------
First Second Third Fourth
(In Thousands, Except Per Share Amounts) Quarter Quarter Quarter Quarter
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 97,883 $ 107,883 $ 113,369 $ 115,841
Interest expense 55,095 65,953 71,401 73,256
---------------------------------------------------------------------------------------------------------
Net interest income 42,788 41,930 41,968 42,585
Provision for (recovery of) loan losses 1,001 827 349 (170)
---------------------------------------------------------------------------------------------------------
Net interest income after provision
for (recovery of) loan losses 41,787 41,103 41,619 42,755
Non-interest income 1,986 2,625 2,332 2,523
---------------------------------------------------------------------------------------------------------
Total income 43,773 43,728 43,951 45,278
---------------------------------------------------------------------------------------------------------
General and administrative expense 21,476 23,163 22,842 22,863
Real estate operations, net 362 (876) (2,251) (579)
(Recovery of) provision for real estate losses (56) (681) 704 292
Amortization of excess of cost over
fair value of net assets acquired 1,611 2,232 2,232 2,232
---------------------------------------------------------------------------------------------------------
Income before income taxes 20,380 19,890 20,424 20,470
Income tax expense 8,786 8,801 9,035 9,121
---------------------------------------------------------------------------------------------------------
Net income $ 11,594 $ 11,089 $ 11,389 $ 11,349
=========================================================================================================
Primary earnings per common share $ 0.52 $ 0.50 $ 0.52 $ 0.53
Fully diluted earnings per common share 0.52 0.50 0.52 0.52
</TABLE>
67
<PAGE> 1
Exhibit 21.1 Subsidiaries of Astoria Financial Corporation - The following
are the significant subsidiaries of Astoria Financial Corporation:
Name: Astoria Federal Savings and Loan Association
Jurisdiction of incorporation: United States of America
Names under which it does business:
(a) Astoria Federal Savings and Loan Association, and
(b) Astoria Federal Savings
The remaining subsidiaries, which are all subsidiaries of Astoria
Federal Savings and Loan Association would not, when considered in
the aggregate as a single subsidiary, constitute a significant
subsidiary as defined in 17 C.F.R. 210.1-02 (w), Rule 1-02(w) of
Regulation S-X as of December 31, 1996. For a description of the
Registrant's subsidiaries, see Item 1 of "Business" of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
<PAGE> 1
Exhibit 23 Consent of Independent Auditors.
KPMG Peat Marwick LLP Letterhead
345 Park Avenue
New York, NY 10154
Independent Auditors' Consent
Board of Directors of
Astoria Financial Corporation:
We consent to incorporation by reference in the Registration Statements (Nos.
33-86248, 33-86250 and 33-98500) on Form S-8 and (No. 33-98532) on Form S-3 of
Astoria Financial Corporation of our report dated January 23, 1997, relating to
the consolidated statements of financial condition of Astoria Financial
Corporation and subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996,
which report is incorporated by reference in the December 31, 1996 Annual Report
on Form 10-K of Astoria Financial Corporation.
KPMG PEAT MARWICK LLP
New York, New York
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition as of December 31, 1996
and the Condensed Consolidated Statement of Operations for the twelve months
ended December 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 18,923
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 56,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,296,662
<INVESTMENTS-CARRYING> 1,961,015
<INVESTMENTS-MARKET> 1,946,345
<LOANS> 2,651,416
<ALLOWANCE> 14,089
<TOTAL-ASSETS> 7,272,763
<DEPOSITS> 4,513,093
<SHORT-TERM> 376,000
<LIABILITIES-OTHER> 59,327
<LONG-TERM> 1,735,514
0
0
<COMMON> 264
<OTHER-SE> 588,565
<TOTAL-LIABILITIES-AND-EQUITY> 7,272,763
<INTEREST-LOAN> 193,240
<INTEREST-INVEST> 297,934
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 491,174
<INTEREST-DEPOSIT> 191,746
<INTEREST-EXPENSE> 112,735
<INTEREST-INCOME-NET> 186,693
<LOAN-LOSSES> 3,963
<SECURITIES-GAINS> 1,618
<EXPENSE-OTHER> 8,837
<INCOME-PRETAX> 67,528
<INCOME-PRE-EXTRAORDINARY> 36,853
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,853
<EPS-PRIMARY> 1.77
<EPS-DILUTED> 1.71
<YIELD-ACTUAL> 2.77
<LOANS-NON> 26,064
<LOANS-PAST> 7,396
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 6,287
<ALLOWANCE-OPEN> 13,495
<CHARGE-OFFS> 4,493
<RECOVERIES> 1,124
<ALLOWANCE-CLOSE> 14,089
<ALLOWANCE-DOMESTIC> 14,089
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
