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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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-22228
ASTORIA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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 March 2, 1998: Common stock par value $.01 per share,
$1,330,759,575. This figure is based on the closing price by the Nasdaq National
Market for a share of the registrant's common stock on March 2, 1998, which was
$56.25 as reported in the Wall Street Journal on March 3, 1998. The number of
shares of the registrant's Common Stock outstanding as of March 2, 1998 was
26,398,340 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, 1997 (Parts
I, II and IV) and (2) the definitive Proxy Statement dated April 2, 1998 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 6, 1998 and any adjournment
thereof and which is expected to be filed with the Securities and Exchange
Commission on or about April 3, 1998 (Part III).
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FORM 10-K CROSS-REFERENCE INDEX
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Part I Page
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Item 1. Business
Description of Business................................................... 1
Statistical Data:
Distribution of Assets, Liabilities and Stockholders'
Equity; Interest Rates and Interest Differential ......................... 22
Securities Portfolio...................................................... 23
Loan Portfolio............................................................ 25
Allowance for Losses on Loans, Investments in
Real Estate and Real Estate Owned ....................................... 31
Deposits.................................................................. 33
Return on Equity and Assets............................................... 36
Borrowings................................................................ 36
Item 2. Properties................................................................. 37
Item 3. Legal Proceedings.......................................................... 42
Item 4. Submission of Matters to a Vote of Security Holders ....................... 44
Part II
Item 5. Market for the Registrant'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 7A. Quantitative and Qualitative Disclosures about Market Risk ................ 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 Changes in
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 Registrant ........................ 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 ............................................................................... 54
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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 ownership. 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 securities and other securities.
The Company has acquired, and may continue to acquire or organize either
directly or indirectly through the Association 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 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 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.
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
adversely affects the interest rate spread, other income, or cash flow
anticipated from the Company's operations and investments.
MARKET AREA AND COMPETITION
The Association 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 Association's deposit
gathering and direct loan originations are primarily concentrated in the
communities surrounding the Association's banking offices in Queens, Kings
(Brooklyn), Nassau, Suffolk and Westchester counties in the New York City
metropolitan area and Chenango and Otsego counties in upstate New York.
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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, both locally and in the
aggregate, 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 also faces intense 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 increased growth as evidenced by local employment growth
statistics. Improvement can also be seen in the local real estate market, as
reflected in increased existing home sales during the past few years and an
increase in local real estate values. The Company's broker and third party loan
origination programs increased its volume of one-to-four family residential
loans outside its primary lending market, thereby reducing its geographical loan
concentration as well as its potential exposure to a concentration of credit
risk. At December 31, 1997, $999.7 million or 23.3% of the Company's total
mortgage loan portfolio was secured by properties located in 42 states other
than New York. However, the Company does not have a concentration of lending in
any state, other than New York, that comprises more than 10% of the total loan
portfolio.
The Company serves its local 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.
ACQUISITIONS
THE GREATER ACQUISITION. Following the close of business on September
30, 1997, the Company completed the acquisition of The Greater New York Savings
Bank ("The Greater"), by merger of The Greater with and into the Association in
a transaction ("The Greater Acquisition"), that was accounted for as a purchase.
Pursuant to the terms of The Greater Acquisition, the aggregate consideration
paid to stockholders of The Greater's common stock consisted of 0.50 shares of
the Company's common stock (the "Common Stock") per share of The Greater's
common stock for 75% of the shares of The Greater's common stock outstanding and
$19.00 per share of The Greater's common stock for the remaining 25% of the
shares of The Greater's common stock outstanding. The actual consideration
received by a stockholder for shares of The Greater's common stock depended on
certain election, allocation and proration procedures. In addition, the Company
issued 2,000,000 shares of 12% Noncumulative Perpetual Preferred Stock, Series B
(the "Series B Preferred Stock"), in exchange for all of the outstanding 12%
Noncumulative Preferred Stock, Series B of The Greater at the time of The
Greater Acquisition.
The total consideration paid in The Greater Acquisition was $399.5 million,
which included $38.2 million of transaction costs. As a result of The Greater
Acquisition, after the close of business on September 30, 1997, the Company had
assets of $10.31 billion, deposits of $6.16 billion, net loans, real estate
owned and investments in real estate of $4.29 billion and stockholders equity of
$893.1 million. The addition of The Greater's fourteen banking offices, and two
new offices opened shortly after The Greater Acquisition, increased the number
of the Company's banking offices to sixty-one, but more importantly, provided
the Company a substantial market presence in Brooklyn, New York. The excess of
cost over fair value of net
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assets acquired ("goodwill") generated in the transaction was $169.3 million,
which is being amortized on a straight line basis over 15 years. As of the
completion of The Greater Acquisition, through the date of this report, the
Association has continued to exceed each of its regulatory capital requirements.
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 (the "Fidelity Acquisition") which was accounted for as a
purchase. The cost of the Fidelity Acquisition was $157.8 million including
approximately $21.3 million of acquisition-related costs. The Fidelity
Acquisition strengthened the Company's deposit market share of the Long Island
market (Queens, Nassau and Suffolk counties). Goodwill 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'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 and
commercial real estate. The remainder of the portfolio consists of a variety of
consumer and other loans.
At December 31, 1997, $128.6 million, or 3.0% 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 family residential
mortgage loans. Currently, 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, 1993 to December 31, 1997, the Company's total net
loan portfolio increased from $1.51 billion, or 36.6% of total assets, to $4.30
billion, or 40.9% 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 coupled with a strengthening of the mortgage market, the
acquisitions of Fidelity and The Greater and from bulk purchases made during the
years ended December 31, 1995 and 1996. The Company originates mortgage loans,
either directly from existing or past customers, members of the local
communities served, or local real estate agents, attorneys and builders, or
indirectly through brokers. The retail loan origination program accounted for
approximately $283.5 million and $234.6 million of originations during 1997 and
1996, respectively. The broker loan program consists of relationships with
mortgage brokers and accounted for approximately $996.9 million and $378.1
million of originations during 1997 and 1996, respectively. In 1997, the Company
further expanded its relationships with mortgage brokers outside its local area,
through additional networks located in Connecticut, Maryland and Virginia. The
Company's correspondent loan program (third party originated loans), which
includes relationships with other financial institutions, mortgage brokers, and
mortgage-bankers, 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 underwritten by the Company, solicited, committed for and
closed by the third party and subsequently purchased by the Company. This
program accounted for approximately $200.1 million and $255.8 million of loan
purchases during 1997 and 1996, respectively, of which $135.7 million and $192.7
million, respectively, were outside of New York State. There were no bulk loan
purchases in 1997 and $60.2 million were purchased in 1996. See Loan Portfolio
Composition table on page 25 and Loan Maturity, Repricing and Activity tables on
page 26 and 27.
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,
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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, 1997, $3.56 billion, or 82.3% of the Company's total
loan portfolio consisted of one-to-four family residential loans, of which $2.15
billion, or 60.3%, 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 interest rate 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 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 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 volume of
one-to-four family residential mortgage loans due to the strengthening of the
economy both within the Company's market area as well as through the expansion
of its various delivery channels. With the growth of the broker loan program
along with 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, the Company has been able to increase loan
production since 1995. One-to-four family mortgage loan originations and
purchases increased $525.0 million, from $811.6 million in 1996 to $1.34 billion
in 1997.
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"), the Federal Home Loan
Mortgage Corporation ("FHLMC"), the State of New York Mortgage Agency ("SONYMA")
or other investors on a servicing released or retained basis. Generally, the
sale of such loans is arranged through a master commitment with the agencies on
a mandatory or best efforts basis. The sale of loans to other investors are also
arranged with specific contractual commitments on a mandatory or best efforts
basis. Additionally, student loans are sold to the Student Loan Marketing
Association generally before repayment begins during the grace period of the
loan.
Commercial Real Estate and Multi-Family Lending. As of December 31,
1997, the Company's total loan portfolio contained $378.6 million, or 8.8%, of
commercial real estate loans and $332.0 million, or 7.7%, of multi-family loans.
During 1997, the Company originated $143.9 million of commercial, multi-family
and mixed use loans. Mixed use loans are secured by properties which are
intended for both business and residential use and are classified as commercial
or multi-family based on the greater number of commercial versus residential
units.
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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. Commercial real estate and multi-family
loans generally are provided as five to fifteen year term balloon loans
amortized over 15 to 25 years. The Company's policy has been to originate
commercial real estate or multi-family loans generally in its local 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.
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, 1997, had an outstanding principal balance of $14.4 million, was
current and was secured by a hotel in Garden City, 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, 1997 had an outstanding balance of $6.1 million, was
current and was secured by a complex consisting of 12 apartment buildings
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. 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.
Consumer and Other Loans. At December 31, 1997, $53.3 million, or 1.2%,
of the Company's total loan portfolio consisted of consumer loans, primarily
home equity and passbook loans. During the quarter ended September 30, 1997, the
Company sold its $8.1 million credit card portfolio recognizing a net gain of
$1.0 million. 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.
Loan Approval Procedures and Authority. Mortgage loan approval
authority has been delegated by the Board of Directors to the Company's
underwriters and Loan Committee, which consists of certain members of executive
management and other Association 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 member of
the Loan Committee. One-to-four family residential mortgage loans greater than
$500,000 and
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up to $2.0 million, require the approval of a residential underwriter and two
members of the Loan Committee. For commercial, multi-family and mixed-use loans
up to $250,000, approval by a commercial underwriter is required and for such
loans of these types greater than $250,000 and up to $500,000, approval by a
commercial underwriter and one member of the Loan Committee is required. For
commercial, multi-family and mixed-use loans greater than $500,000 and up to
$2.0 million, approval by two members of the Loan Committee is required and for
such loans of these types greater than $2.0 million and up to $5.0 million,
approval by three 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 $5.0 million) and participations
in joint ventures up to $10.0 million. 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 and multi-family 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, where title insurance is
unavailable, 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 required payments 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 and commercial real estate loans are made on a case by case basis.
Since foreclosure typically halts the private sale of the collateral, is
generally a lengthy procedure, particularly in New York State, and often results
in bankruptcy procedures being instituted which further delays the collection
process, the Company may consider loan work-out arrangements or work with
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
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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 28 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 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. When a loan is
placed on non-accrual status, previously 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
$6.1 million at December 31, 1997. The REO portfolio consists of $4.3 million,
or 70.3%, of residential real estate and $1.8 million, or 29.7%, of
non-residential properties. The Company aggressively markets its REO properties.
The decrease in the REO balance of $1.3 million, from $7.4 million at December
31, 1996, was primarily the result of additional sales and write-downs of $11.7
million, offset by new foreclosures of $6.9 million. In addition, the Company
acquired $11.1 million of properties from The Greater Acquisition and sold $7.6
million and $1.8 million of these properties in the fourth quarter of 1997 and
first quarter of 1998, respectively.
Investments in Real Estate - The net carrying value of the Company's
investments in real estate at December 31, 1997 totaled $10.2 million, which
consisted of three properties. The Company acquired $13.3 million in real estate
from The Greater, of which $7.9 million was sold during the fourth quarter of
1997 and $1.4 million of the remaining $5.4 million was sold during the first
quarter of 1998.
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 "special mention," "substandard," "doubtful" or "loss" assets. An
asset classified as "special mention" has "potential weaknesses," which, if
uncorrected, may result in the deterioration of the repayment prospects or in
the institution's credit position at some future date. These assets are not
adversely classified and do not expose the institution to sufficient risk to
warrant adverse classification. 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.
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In addition to the requirements of Generally Accepted Accounting
Principles ("GAAP") related to loss contingencies, 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
Supervision ("OTS") which can order the establishment of additional general or
specific loss allowances. The OTS, in conjunction with the 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 increased $13.5 million, to $59.1 million at
December 31, 1997, from $45.6 million at December 31, 1996. Non-performing
loans, a component of non-performing assets, increased by $9.3 million, to $42.8
million, at December 31, 1997, from $33.5 million at December 31, 1996. Despite
the increases in non-performing assets and loans, which were primarily a result
of The Greater Acquisition, the Company's percentages of non-performing assets
to total assets decreased from 0.63% in 1996 to 0.56% in 1997 and non-performing
loans to total loans decreased from 1.26% in 1996 to 0.99% in 1997. The
allowance for loan losses as a percentage of total non-performing loans was
93.50% at December 31, 1997, compared to 42.11% at December 31, 1996. The
allowance for loan losses as a percentage of total non-accrual loans was 105.11%
at December 31, 1997, compared to 54.06% at December 31, 1996.
Set forth below is a brief description of each classified asset or group
of assets with a carrying value of $3.0 million or more at December 31, 1997.
The carrying value of REO, and investments in real estate is the lower of cost
or fair value less estimated selling costs.
- - One of the Company's wholly-owned subsidiaries, AF Staten Island Development
Corp., has a classified asset with a carrying value of $5.9 million at December
31, 1997. The asset is a parcel of raw land located in Staten Island, New York.
This parcel is under contract to be sold subject to certain conditions. See
"Subsidiary Activities."
- - The Company acquired a joint venture partnership, a wholly owned subsidiary,
Carborundum Realty Ltd., formerly a subsidiary of The Greater. The asset, with a
carrying value of $4.0 million, is a parcel of raw land in Manorville, New York.
- - The Company is a participant in a construction loan acquired from The Greater.
This asset, which has a carrying value of $3.3 million, is a condominium and
marina project located in Staten Island, New York.
- - The Company acquired a substandard loan from The Greater secured by a retail
office building in the village of Great Neck, New York with a carrying value of
$5.4 million at December 31, 1997.
- - The Company acquired a substandard loan from The Greater secured by 10
two-story frame and brick apartment buildings containing 228 units in Fairless
Hills, Pennsylvania with a carrying value of $4.1 million at December 31, 1997.
- - The Company holds 83 substandard mortgages with outstanding balances totaling
$5.6 million at December 31, 1997 on condominiums in a 15 story building in
Flushing, New York (Vista Tower). See Item 3 - Legal Proceedings for further
discussion.
- - The Company holds six special mention loans to one borrower for mixed use
properties located in Astoria, New York. These loans are cross collateralized
and have a carrying value of $3.0 million.
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<PAGE> 11
- - The Company acquired a special mention loan from The Greater secured by a
six-story office building located in Brooklyn, New York with a carrying value of
$9.7 million.
The Company follows 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 non-accrual
loans is recognized on a cash basis. Interest income on other impaired loans is
recognized on an accrual basis. 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, 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.
The Company's total impaired loans at December 31, 1997, net of allowance
for loan losses of $2.9 million, was $22.2 million, of which $11.8 million are
classified as non-performing and $13.3 million are current. Of the impaired
loans at December 31, 1997, $9.7 million were acquired from The Greater. The
Company's average recorded investment in impaired loans for the year ended
December 31, 1997 was $11.7 million. Interest income recognized on impaired
loans, which was not materially different from cash-basis interest income,
amounted to $1.2 million for the year ended December 31, 1997.
Allowance for Losses on Loans, Investments in Real Estate and Real Estate
Owned. 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 of the area 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 is carried net of all
allowances for losses at the lower of cost or fair value less estimated selling
costs, and investments in real estate are carried at the lower of cost or fair
value. 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 and the Association by the OTS. While the Company believes it has
established an adequate allowance for loan losses, there can be no assurance
that regulators, as a result of reviewing the Company's loan portfolio, will not
request the Company to increase its allowance for loan losses, thereby
negatively affecting the Company's
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<PAGE> 12
financial condition and earnings. Since its conversion to stock form of
ownership, the Company has not been requested by the OTS to increase its
allowance for loan losses.
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
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-backed securities. Once combined,
the cash 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-backed securities
class or classes structured to have priority until it has been paid off.
The Company's Investment Committee, which is comprised of three senior
officers, meets at least monthly to monitor the Company's investment
transactions and to review and amend as necessary, investment strategy. The
Board of Directors of the Company reviews the investment policy, at a minimum,
on an annual basis and the Company's investment activities on a monthly basis.
Thrift Bulletin Number 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
prudent safeguards in the purchase and retention of such securities. At December
31, 1997, the Company had $54.7 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 Note 12 of "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, 1997, the Company had $919.2
million, or 8.7% 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 $2.62 billion in REMICs and
CMOs, or 24.9% of total assets, of which 81.9% had fixed rates. The remaining
balance had floating rates, which adjust quarterly with floors ranging from 0%
to 1.5% and caps ranging from 7.1% to 11.0%. The Company's REMICs and CMOs had
coupon rates ranging from 5.0% to 10.3% and a weighted average yield of 6.71% at
December 31, 1997. Of the REMICs and CMOs portfolio, $2.09 billion, or 79.7%,
are insured or guaranteed, either directly or indirectly, by the FNMA, FHLMC or
GNMA, as issuer, or through
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<PAGE> 13
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, 1997, the Company also had $503.4 million of
other pass-through ARM certificates, which have interest rate caps ranging from
9.9% to 23.2%, coupon rates ranging from 5.6% to 8.6% and a weighted average
yield of 7.30%. The remaining securities portfolio of $1.43 billion, or 13.5% of
total assets, consists of obligations of U.S. Government and agencies,
obligations of state and political subdivisions and equity and corporate debt
securities. The Company has also invested in various callable securities, which
generally possess higher yields than those securities of similar contractual
terms to maturity without callable features. As of December 31, 1997, the
amortized cost of such callable securities totaled $1.12 billion. Securities
called during the year ended December 31, 1997 totaled $138.1 million. See
tables on pages 23 and 24.
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. At December 31, 1997, the
Company's total securities available-for-sale portfolio was $2.86 billion, or
27.2% of total assets.
SECURITIES HELD-TO-MATURITY. The Company's held-to-maturity portfolio
consists primarily of seasoned fixed-rate mortgage-backed 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, 1997, the Company's total
securities held-to-maturity portfolio was $2.61 billion, or 24.8% 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 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, $931.0 million, or 15.0%, 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. The
Association's growth in deposits from 1993 to the present was primarily due to
the acquisitions of Fidelity and The Greater. At December 31, 1997, the Company
had $367.4 million in certificate of deposit accounts in amounts of $100,000 or
more.
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<PAGE> 14
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 43.5% and 38.5% of total deposits at December
31, 1997 and 1996, respectively.
BORROWINGS. The Company obtains advances from the FHLB-NY which are
generally secured by a blanket lien against, among other things, the
Association's mortgage portfolio and the Association'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, 1997, 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
1997, as well as being a part of its interest rate risk management strategy, the
Company increased its borrowings by $1.16 billion, or 55.0%, to $3.27 billion at
December 31, 1997 from $2.11 billion at December 31, 1996. Included in this
increase is $493.5 million of borrowings assumed in The Greater Acquisition. The
remaining increase was primarily in the form of callable reverse repurchase
agreements. At December 31, 1997, $1.08 billion of borrowing agreements were
callable within one year. In addition, $2.61 billion of callable borrowings had
contractual maturities within the more than one year to five year term. See
table on page 36.
SUBSIDIARY ACTIVITIES
The Association has formed or acquired a number of subsidiaries. At
December 31, 1997, 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 were also employees of the Association. During
1995, AF Agency, Inc. began selling Savings Banks Life Insurance as an agent for
another issuing New York State chartered thrift. Upon the acquisition of The
Greater, AF Agency, Inc. was authorized by the OTS to engage indirectly in the
sale of tax deferred annuities, a variety of mutual funds and the offering of
stock brokerage services through an unaffiliated third party vendor. The
Association is reimbursed for expenses and administrative services it provides
to AF Agency, Inc.
Greater Investment Service, Inc. ("GIS"), acquired in 1997 from The
Greater, offered tax-deferred annuities and a variety of mutual funds. These
products were sold by licensed and registered investment consultants.
Infoserve, also acquired from The Greater, provides research information
services for the Association and other financial institutions. This research
provided stems from services Infoserve offered in the past for check clearing
and processing, as well as check and money order issuances.
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. At December 31, 1997, the carrying value of the project of $5.9
million was classified as substandard. This parcel is under contract to be sold
subject to certain conditions.
Shoratlantic Development Co., Inc. and Shorham Development Co., Inc.,
acquired in 1995 as part of the Fidelity Acquisition, are inactive except for
certain litigation which has been settled.
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<PAGE> 15
Five subsidiaries acquired from The Greater were formed prior to 1990 to
enter into joint venture projects for the development of real estate located on
Long Island, New York. As of February 27, 1998, four of these projects had been
sold. The remaining project has a carrying value of $4.0 million.
Various other subsidiaries acquired from The Greater either hold title
to parcels of real estate acquired through foreclosure or are currently
non-operating. Once foreclosed real estate is sold, these subsidiaries are
dissolved. Of the 51 such subsidiaries acquired, 37 are expected to be dissolved
during 1998.
AF Cortlandt Corp., AF Glen Cove Corp., Dollar Service Corp., SFS
Resources Corp., 3 Belmont Corp., FNY Service Corp. and Fidata Service Corp. are
all currently inactive and are also in the process of dissolution.
AF Roosevelt Ave. Corp. is inactive; however, an action was commenced
against this subsidiary, which is discussed in further detail in Item 3 - Legal
Proceedings.
During the first quarter of 1997, the Association created a new
operating subsidiary, Astoria Preferred Funding Corporation, which qualifies as
a real estate investment trust pursuant to the Internal Revenue Code of 1986, as
amended (the "Code"). This subsidiary 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 $1.61
billion of mortgage loans to this subsidiary.
Also during 1997, the Association completed the formation of Astoria
Federal Mortgage Corporation. This operating subsidiary has been established as
a vehicle through which the Association will engage in lending activities
outside of its local market.
PERSONNEL
As of December 31, 1997, the Association had 1,083 full-time employees
and 316 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.
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") and with respect
to deposits acquired in The Greater Acquisition, the Bank Insurance Fund
("BIF"). 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.
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<PAGE> 16
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 Bank derives its lending and investment powers
from the Home Owner's Loan Act, as amended ("HOLA"), and the regulations of the
OTS thereunder. Under these laws and regulations, the Company may invest in
mortgage loans secured by residential and commercial real estate, commercial and
consumer loans, certain types of debt securities, and certain other assets. The
Company may also establish service corporations that may engage in activities
not otherwise permissible for the Company, including certain real estate equity
investments and securities and insurance brokerage. These investment powers are
subject to various limitations, including (a) a prohibition against the
acquisition of any corporate debt security that is not rated in one of the four
highest rating categories; (b) a limit of 400% of an association's capital on
the aggregate amount of loans secured by non-residential real estate property;
(c) a limit of 10% of an association's assets on commercial loans; (d) a limit
of 35% of an association's assets on the aggregate amount of consumer loans and
acquisitions of certain debt securities; (e) a limit of 5% of assets on
non-conforming loans (loans in excess of the specific limitations of HOLA); and
(f) a limit of the greater of 5% of assets or an association's capital on
certain construction loans made for the purpose of financing what is or is
expected to become residential property.
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. In assessing an institution's capital adequacy, the OTS takes into
consideration not only these numeric factors but also qualitative factors as
well, and has the authority to establish higher capital requirements for
individual institutions where necessary. The Association, as a matter of prudent
management, targets as its goal the maintenance of capital ratios which exceed
these minimum requirements and that are consistent with the Association's risk
profile. The OTS and the federal banking regulators have proposed amendments to
their minimum capital regulations to provide that the minimum leverage capital
ratio for a depository institution that has been assigned the highest composite
rating of 1 under the Uniform Financial Institutions Ratings System will be 3%
and that the minimum leverage capital ratio for any other depository institution
will be 4%, unless a higher leverage capital ratio is warranted by the
particular circumstances or risk profile of the depository institution.
At December 31, 1997, the Association met each of its capital
requirements. The following table sets forth the regulatory capital calculations
of the Association at December 31, 1997, calculated in accordance with
applicable requirements of the OTS.
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<TABLE>
<CAPTION>
At December 31, 1997
-------------------------------------------------------------------------
Capital Actual Excess
Requirement Capital Capital
----------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible..................... $152,775 1.5% $550,780 5.41% $398,005 3.91%
Leverage..................... 305,549 3.0 550,780 5.41 245,231 2.41
Risk-based................... 313,486 8.0 590,819 15.08 277,333 7.08
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act ("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 IRR component to be
incorporated into the OTS risk-based capital regulations. The OTS has
indefinitely deferred its requirement of the IRR 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, 1997, as well as the Association's
level of risk-based capital at December 31, 1997, 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.
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, based upon five
categories of capitalization which FDICIA created: "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
and "critically undercapitalized," the severity of which depends upon the
institution's degree of capitalization. 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. 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. As of December 31, 1997, 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 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
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<PAGE> 18
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.
As a result of the recapitalization of the SAIF in 1996 after the enactment
of the Deposit Funds Insurance Act of 1996, the FDIC reduced the assessment
rates for deposit insurance for BIF-assessable and for SAIF-assessable deposits
for 1997 to a range of 0 to 27 basis points. The assessment rates for the
Company's BIF-assessable and SAIF-assessable deposits for 1997 were each 0 basis
points. In addition, SAIF-assessable deposits are also subject to assessments
for 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. The Company's total expense in 1997 for the assessment
for deposit insurance and the FICO payments was $3.1 million, which was a
substantial reduction from the total amount of $9.6 million paid in 1996.
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. The
Association is in compliance with applicable loans to one borrower limitations.
At December 31, 1997, the Association's largest aggregate amount of loan(s) to
one borrower totaled $19.0 million. All of the loans for the largest borrower
were current and the borrower 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, 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. Recent legislation broadened the scope of
"qualified thrift investments" to include 100% of an institution's credit card
loans, student loans, and small business loans. The legislation also provides
that a thrift meets the QTL test if it qualifies as a domestic building and loan
association under the Code. As of December 31, 1997, the Association maintained
its portfolio assets in qualified thrift investments in excess of 82% and had
more than 65% of its portfolio assets in qualified thrift investments for each
of the 12 months ending December 31, 1997. Therefore, the Association qualified
under the QTL test.
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.
LIMITATION ON CAPITAL DISTRIBUTIONS. The OTS regulations impose limitations
upon all capital distributions by 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 regulations establish three tiers of institutions, which
are based primarily on an institution's capital ratios. 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
16
<PAGE> 19
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, 1997, 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, if the OTS
determines that such distribution would constitute an unsafe or unsound
practice. A savings association is 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." In addition, 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 amounts
required for the liquidation accounts which were established as a result of the
Association's conversion from mutual to stock form of ownership and the Fidelity
Acquisition and The Greater Acquisition. For further discussion on the
liquidation accounts, see Note 2 of "Notes to the Consolidated Financial
Statements" - included in Item 8 - "Financial Statements and Supplementary
Data."
The OTS has proposed amendments of its capital distribution regulations to
reduce regulatory burdens on savings associations. If adopted as proposed,
certain savings associations will be permitted to pay capital distributions
within the amounts described above for Tier 1 Associations without notice to, or
the approval of, the OTS. However, a savings association subsidiary of a savings
and loan holding company, such as the Association, will continue to have to file
a notice unless the specific capital distribution requires an application. If
adopted, such regulations would, based upon the Association's historical
dividend declaration activities, be more restrictive to the Association than
existing regulations.
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. During the fourth quarter of 1997, the OTS revised its
liquidity requirements, which reduced the minimum required liquidity from 5.0%
to 4.0% and eliminated the 1% short-term liquidity requirement. Monetary
penalties may be imposed for failure to meet liquidity requirements. The
Association's liquidity ratio for December 31, 1997 was 4.73%.
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 based upon the
federally chartered savings association's total assets.
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. OTS authority preempts any state law purporting to regulate
branching by federal savings associations.
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 help 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
17
<PAGE> 20
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 CRA 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 prior 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. Management believes that
obtaining an "outstanding" rating under the revised regulations during future
examinations will be more difficult for the Association.
TRANSACTIONS WITH RELATED PARTIES. The Association is subject to the
affiliate and insider transaction rules set forth in Sections 23A, 23B, 22(g)
and 22(h) of the Federal Reserve Act, as well as additional limitations as may
be adopted by the OTS Director. These provisions, among other things, prohibit
or limit a savings institution from extending credit to, or entering into
certain transactions with, its affiliates (which for the Association would
include the Company and its non-federally chartered savings association
subsidiaries, if any) and principal stockholders, directors and executive
officers of the Association and its affiliates.
STANDARDS FOR SAFETY AND SOUNDNESS. Pursuant to the requirements of FDICIA,
as amended by the Riegle Community Development and Regulatory Improvement Act of
1994 ("Community Development Act"), the OTS, together with the other federal
bank regulatory agencies, adopted guidelines establishing general standards,
relating to internal controls, information systems and internal audit systems,
loan documentation, credit underwriting, interest rate risk exposure, asset
growth, asset quality, earnings, and compensation, fees and benefits. 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 describe 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.
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 of New York ("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 5% of its borrowings 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, 1997, of $60.1 million. For the year ended
December 31,
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<PAGE> 21
1997, dividends from the FHLB-NY to the Association amounted to $2.7 million,
and for each of the years ended December 31, 1996 and 1995, dividends amounted
to $2.0 million.
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 (beginning January 1998) of $47.8 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 $47.8 million. The first
$4.7 million of otherwise reservable balances (subject to adjustments by the
Federal Reserve Board) is exempt 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. See "Source of Funds Deposits" above.
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 unitary savings and loan holding company within the
meaning of the HOLA. 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 savings association subsidiaries. Among other things, this authority permits
the OTS to restrict or prohibit activities that are determined to be a serious
risk to the subsidiary 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 1997 to the Company, for
which the Association has received OTS approval. The OTS has approved the
Association's declaration and payment of up to $60.0 million of dividends during
1998.
The HOLA prohibits a savings and loan holding company (directly or
indirectly) or through one or more subsidiaries from acquiring another 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 savings association, a non-subsidiary holding company, or a
non-subsidiary company engaged in activities other than those permitted by the
HOLA or acquiring or retaining control of an institution that is not federally
insured. In evaluating applications by holding companies to acquire 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.
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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<PAGE> 22
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 Note 2 of "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. 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 of the Small Business Job
Protection Act of 1996 (the "1996 Act"), on August 20, 1996, for federal income
tax purposes, thrift institutions such as the Association, were permitted under
Section 593 of the Code ("IRC 593"), to establish tax reserves for bad debts and
to make annual additions thereto, which additions could, within specified
limitations, be deducted in arriving at taxable income. Similar deductions for
additions to the Association's bad debt reserves were permitted under the New
York State Franchise Tax and the New York City Financial Corporation Tax. Under
the 1996 Act, the Association, as a "large bank" (one with assets having an
adjusted base of more than $500 million), is unable to make additions to its tax
bad debt reserves, is permitted to deduct bad debts only as they occur and is
required to recapture 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 (or over a lesser amount if the Association's
loan portfolio decreased since 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.
DISTRIBUTIONS. To the extent that the Association makes "nondividend
distributions" to shareholders, such distributions will be considered to result
in distributions from the Association's base year reserve to the extent thereof
and then from its supplemental reserve for losses on loans, and an amount based
on the amount distributed will be included in the Association's taxable income.
Nondividend distributions include distributions in excess of the Association's
current and accumulated earnings and profits, as calculated for federal income
tax purposes, distributions in redemption of stock and distributions in partial
or complete liquidation. However, dividends paid out of the Association's
current or accumulated earnings and profits will not constitute nondividend
distributions and, therefore, will not be included in the Association's income.
The amount of additional taxable income created from a nondividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, approximately one and
one-half times the nondividend distribution would be includable in gross income
for federal income tax purposes, assuming a 35% federal corporate income tax
rate.
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<PAGE> 23
CORPORATE ALTERNATIVE MINIMUM TAX. In addition to the regular income tax,
corporations (including savings and loan associations) 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. 90% of AMTI can be offset by net operating loss carryovers. The
AMT is available as a credit against future regular income tax. The Company does
not expect to be subject to the AMT.
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.
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 otherwise 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 "60% Test"). 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
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
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<PAGE> 24
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 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 Management's Discussion and Analysis
of Financial Condition and Results of Operations incorporated herein by
reference to the 1997 Annual Report to Stockholders filed as Exhibit 13.1 ("1997
Annual Report").
I. Distribution of Assets, Liabilities and Stockholders' Equity: Interest Rates
and Interest Differential.
Page 27 of the Company's 1997 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 29 of the
Company's 1997 Annual Report presents the interest differential under the
caption "Rate/Volume Analysis" and is incorporated herein by reference.
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<PAGE> 25
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,
----------------------------------------------------------------------
1997 1996 1995
--------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS) 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 securities:
FHLMC pass-through certificates .......... $ 365,654 12.79% $ 261,597 11.39% $ 335,837 13.35%
GNMA pass-through certificates ........... 319,002 11.15 236,688 10.30 159,412 6.34
FNMA pass-through certificates ........... 122,510 4.28 46,114 2.01 148,424 5.90
Other pass-through certificates .......... 503,371 17.60 404,915 17.63 546,072 21.71
REMICs and CMOs:
Agency issuance ........................ 1,161,816 40.62 1,134,622 49.40 1,120,676 44.54
Non agency issuance .................... 210,359 7.35 16,440 0.72 22,401 0.89
Other .................................... 18,208 0.64 -- -- -- --
Obligations of U.S. Government and
agencies .............................. 82,757 2.89 127,602 5.56 150,567 5.98
FNMA and FHLMC preferred stock ........... 60,001 2.10 61,472 2.68 32,320 1.28
Equity and other securities .............. 16,578 0.58 7,212 0.31 259 0.01
----------- ------ ----------- ------ ----------- ------
Total Securities
Available-for-Sale .. $ 2,860,256 100.00% $ 2,296,662 100.00% $ 2,515,968 100.00%
=========== ====== =========== ====== =========== ======
SECURITIES HELD-TO-MATURITY:
Mortgage-backed securities:
FHLMC pass-through certificates ............. $ 21,303 0.81% $ 28,181 1.43% $ 36,490 2.25%
GNMA pass-through certificates .............. 71,075 2.72 86,457 4.40 105,281 6.49
FNMA pass-through certificates .............. 19,445 0.74 22,056 1.12 24,615 1.52
REMICs and CMOs:
Agency issuance ......................... 929,588 35.55 940,657 47.84 994,373 61.27
Non agency issuance ..................... 323,850 12.39 249,315 12.68 179,687 11.07
Obligations of U.S. Government and agencies ... 1,190,101 45.51 578,485 29.42 220,200 13.57
Obligations of states and political
subdivisions .............................. 49,787 1.90 51,206 2.60 52,019 3.21
Corporate debt securities ..................... 10,048 0.38 10,093 0.51 10,140 0.62
----------- ------ ----------- ------ ----------- ------
Total Securities
Held-to-Maturity ..... 2,615,197 100.00% 1,966,450 100.00% 1,622,805 100.00%
----------- ====== ----------- ====== ----------- ======
Net discount ........... (4,748) (5,435) (7,263)
----------- ----------- -----------
Net Securities
Held-to-Maturity ..... $ 2,610,449 $ 1,961,015 $ 1,615,542
=========== =========== ===========
</TABLE>
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<PAGE> 26
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 and other
securities available-for-sale and held-to-maturity portfolios at December 31,
1997.
<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. $110,550 6.37% $ - -% $ - -%
======== ======= ========
FHLB STOCK (1) $ - - $ - - $ - -
======== ======= ========
MORTGAGE-BACKED AND OTHER
SECURITIES AVAILABLE-FOR-SALE:
FHLMC pass-through certificates $ - -% $ 982 7.03% $ 4,016 7.39%
GNMA pass-through certificates - - - - -
FNMA pass-through certificates 1,724 7.27 - - 6,702 7.45
Other pass-through certificates - - - - - -
REMICs and CMOs:
Agency issuance...... - - - - 105,524 6.16
Non agency certificates 118 30.00 1,997 7.66 791 7.83
Other mortgage-backed securities - - - - - -
Obligations of the U.S.
Government and agencies 39,825 4.96 42,932 5.35 - -
Equity securities (1)....... - - - - - -
Other securities............ - - 10,020 6.20 - -
-------- ------- --------
TOTAL SECURITIES
AVAILABLE-FOR-SALE:.... $ 41,667 5.13% $55,931 5.61% $117,033 6.29%
======== ======= ========
MORTGAGE-BACKED AND OTHER
SECURITIES HELD-TO-MATURITY
FHLMC pass-through certificates $ - -% $ 3,882 7.70% $ 1,529 7.47%
GNMA pass-through certificates 9 9.75 1,652 8.87 27,550 7.82
FNMA pass-through certificates - - 26 6.21 4,102 7.34
REMICs and CMOs:
Agency issuance....... - - - - 121,279 6.49
Non agency issuance .. - - - - - -
Obligations of the U.S.
Government and agencies 55,200 4.77 25,000 6.55 389,902 7.52
Obligations of states and
political subdivisions 1,800 5.98 2,638 6.25 - -
Other securities............ 9,972 6.32 - - 48 6.50
-------- ------- --------
TOTAL SECURITIES
HELD-TO-MATURITY:.... $ 66,981 5.03% $33,198 6.78% $544,410 7.30%
======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
TOTAL SECURITIES
---------------------------------------------------------
MORE THAN
TEN YEARS
------------------------- AVERAGE
ANNUALIZED LIFE BY
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 $ 110,550 $ 110,550 6.37%
========== ========== ==========
FHLB STOCK (1) $ 60,050 7.05% - $ 60,050 $ 60,050 7.05%
========== ========== ==========
MORTGAGE-BACKED AND OTHER
SECURITIES AVAILABLE-FOR-SALE:
FHLMC pass-through certificates $ 360,656 7.11% 24.18 $ 365,654 $ 365,654 7.11%
GNMA pass-through certificates 319,002 6.97 24.59 319,002 319,002 6.97
FNMA pass-through certificates 114,084 7.19 19.01 122,510 122,510 7.21
Other pass-through certificates 503,371 7.30 23.96 503,371 503,371 7.30
REMICs and CMOs:
Agency issuance...... 1,056,292 6.67 22.84 1,161,816 1,161,816 6.62
Non agency certificates 207,453 7.03 27.12 210,359 210,359 7.05
Other mortgage-backed securities 18,208 6.83 17.81 18,208 18,208 6.83
Obligations of the U.S.
Government and agencies - - 1.63 82,757 82,757 5.16
Equity securities (1)....... 66,526 5.99 - 66,526 66,526 5.99
Other securities............ 33 9.50 1.67 10,053 10,053 6.21
---------- ---------- ----------
TOTAL SECURITIES
AVAILABLE-FOR-SALE:.... $2,645,625 6.92% 22.18 $2,860,256 $2,860,256 6.84%
========== ========== ==========
MORTGAGE-BACKED AND OTHER
SECURITIES HELD-TO-MATURITY
FHLMC pass-through certificates $ 15,897 8.55% 10.15 $ 21,308 $ 22,273 8.32%
GNMA pass-through certificates 42,110 8.53 12.35 71,321 75,492 8.26
FNMA pass-through certificates 15,297 6.15 14.36 19,425 19,399 6.40
REMICs and CMOs:
Agency issuance....... 805,500 6.74 20.30 926,779 930,972 6.71
Non agency issuance .. 322,571 6.77 23.30 322,571 321,602 6.77
Obligations of the U.S.
Government and agencies 719,198 7.64 29.64 1,189,300 1,195,359 7.44
Obligations of states and
political subdivisions 45,287 6.69 18.70 49,725 49,691 6.64
Other securities............ - - 0.86 10,020 10,047 6.32
---------- ---------- ----------
TOTAL SECURITIES
HELD-TO-MATURITY:.... $1,965,860 7.12% 21.63 $2,610,449 $2,624,835 7.10%
========== ========== ==========
</TABLE>
(1) As equity securities have no maturities, they are classified in the more
than ten year category. Equity securities include $60,001,000 of FNMA and FHLMC
preferred stock.
24
<PAGE> 27
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,
1997 1996 1995
Percent Percent Percent
of of of
(Dollars in Thousands) Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE LOANS (GROSS):
One-to-four family .............. $ 3,561,673 82.34% $ 2,259,409 85.18% $ 1,748,284 84.82%
Multi-family .................... 331,968 7.68 166,836 6.29 109,944 5.34
Commercial real estate .......... 378,558 8.75 168,229 6.34 141,266 6.85
----------- ------ ----------- ------ ----------- ------
Total mortgage loans ......... 4,272,199 98.77 2,594,474 97.81 1,999,494 97.01
----------- ------ ----------- ------ ----------- ------
CONSUMER AND OTHER LOANS (GROSS):
Home equity ..................... 32,652 0.76 34,895 1.32 38,761 1.88
Passbook ........................ 4,956 0.11 4,022 0.15 2,915 0.14
Credit card ..................... -- -- 8,431 0.32 8,578 0.42
Other ........................... 15,678 0.36 10,761 0.40 11,420 0.55
----------- ------ ----------- ------ ----------- ------
Total other loans ............ 53,286 1.23 58,109 2.19 61,674 2.99
----------- ------ ----------- ------ ----------- ------
TOTAL LOANS ......................... 4,325,485 100.00% 2,652,583 100.00% 2,061,168 100.00%
----------- ====== ----------- ====== ----------- ======
LESS:
Unearned discounts, premiums, and
deferred loan fees, net ...... 19,521 (1,167) (4,030)
Allowance for loan losses ....... (40,039) (14,089) (13,495)
----------- ----------- -----------
TOTAL LOANS, NET .................... $ 4,304,967 $ 2,637,327 $ 2,043,643
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
1994 1993
Percent Percent
of of
(Dollars in Thousands) Amount Total Amount Total
------ ----- ------ -----
<S> <C> <C> <C> <C>
MORTGAGE LOANS (GROSS):
One-to-four family .............. $1,345,936 84.49% $ 1,259,808 82.20%
Multi-family .................... 92,506 5.81 99,108 6.47
Commercial real estate .......... 106,930 6.72 111,249 7.26
---------- ------- ----------- ------
Total mortgage loans ......... 1,545,372 97.02 1,470,165 95.93
---------- ------- ----------- ------
CONSUMER AND OTHER LOANS (GROSS):
Home equity ..................... 27,225 1.71 31,885 2.08
Passbook ........................ 1,979 0.12 7,676 0.50
Credit card ..................... 8,635 0.54 9,385 0.61
Other ........................... 9,704 0.61 13,404 0.88
---------- ------- ----------- ------
Total other loans ............ 47,543 2.98 62,350 4.07
---------- ------- ----------- ------
TOTAL LOANS ......................... 1,592,915 100.00% 1,532,515 100.00%
---------- ======= ----------- ======
LESS:
Unearned discounts, premiums, and
deferred loan fees, net ...... (5,982) (8,877)
Allowance for loan losses ....... (12,173) (16,672)
---------- -----------
TOTAL LOANS, NET .................... $1,574,760 $ 1,506,966
========== ===========
</TABLE>
25
<PAGE> 28
LOAN MATURITY, REPRICING AND ACTIVITY
The following table shows the maturity of the Company's loans at December
31, 1997. The table does not include the effect of prepayments or scheduled
principal amortization. Prepayments and scheduled principal amortization on
loans totaled $480.4 million for the year ended December 31, 1997.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
ONE-TO CONSUMER TOTAL
-FOUR MULTI- COMMERCIAL AND LOANS
(In Thousands) FAMILY FAMILY REAL ESTATE OTHER RECEIVABLE
------ ------ ----------- ----- ----------
<S> <C> <C> <C> <C> <C>
Amounts due:
Within one year ......................... $ 8,337 $ 27,134 $ 73,546 $ 3,741 $ 112,758
After one year:
One to three years ................... 14,418 23,775 117,767 7,374 163,334
Three to five years .................. 82,011 39,378 38,161 3,818 163,368
Five to 10 years ..................... 256,941 96,628 68,887 972 423,428
10 to 20 years ....................... 1,319,278 134,172 79,253 37,381 1,570,084
Over 20 years ........................ 1,880,688 10,881 944 -- 1,892,513
----------- -------- -------- ------- ----------
Total due after one year ......... 3,553,336 304,834 305,012 49,545 4,212,727
----------- -------- -------- ------- ----------
Total amounts due .......................... $ 3,561,673 $331,968 $378,558 $53,286 $4,325,485
=========== ======== ======== ======= ----------
Unearned discounts, premiums and deferred
loan fees, net ....................... 19,521
Allowance for loan losses ............... (40,039)
----------
Loans receivable, net ...................... $4,304,967
==========
</TABLE>
26
<PAGE> 29
The following table sets forth at December 31, 1997, the dollar amount of all
loans due after December 31, 1998, and whether such loans have fixed interest
rates or adjustable interest rates.
<TABLE>
<CAPTION>
Due After December 31, 1998
(In Thousands) Fixed Adjustable Total
----- ---------- -----
<S> <C> <C> <C>
MORTGAGE LOANS:
One-to-four family.................... $1,407,678 $2,145,658 $3,553,336
Multi-family.......................... 94,980 209,854 304,834
Commercial real estate 107,139 197,873 305,012
CONSUMER AND OTHER LOANS 12,187 37,358 49,545
---------- ---------- ----------
Total loans........................... $1,621,984 $2,590,743 $4,212,727
========== ========== ==========
</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,
(In Thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
MORTGAGE LOANS (GROSS):
At beginning of year........................ $2,594,474 $1,999.494 $1,545,372
Mortgage loans originated:
One-to-four family.................. 1,136,481 502,814 142,559
Multi-family........................ 105,089 66,213 28,915
Commercial ......................... 38,809 43,708 31,232
---------- ---------- ----------
Total mortgage loans
originated............................. 1,280,379 612,735 202,706
---------- ---------- ----------
Purchases of mortgage loans:
Bulk purchases........................ - 60,228 128,280
Third party loan origination
program (1)......................... 200,079 255,761 122,364
Loans from acquired institutions 872,970 - 236,961
Sales of mortgage loans (219,247) (9,740) (3,606)
Transfer of loans to REO (6,176) (6,842) (10,296)
Principal repayments.................... (448,037) (313,158) (217,735)
Loans charged off....................... (2,243) (4,004) (4,552)
---------- ---------- ----------
At end of year............................. $4,272,199 $2,594,474 $1,999,494
========== ========== ==========
CONSUMER AND OTHER LOANS (GROSS):
At beginning of year....................... $ 58,109 $ 61,674 $ 47,543
Other loans originated.................. 29,470 29,115 22,446
Loans from acquired institutions 8,208 - 21,508
Sales of other loans.................... (9,555) (1,503) (1,155)
Transfer of loans to REO - (211) -
Principal repayments.................... (32,384) (30,477) (27,936)
Loans charged off....................... (562) (489) (732)
---------- ---------- ----------
At end of year............................. $ 53,286 $ 58,109 $ 61,674
========== =========== ==========
</TABLE>
(1) All third party loan originations for the years ended December 31, 1997,
1996 and 1995 were underwritten by the Company and secured by one-to-four family
properties.
27
<PAGE> 30
DELINQUENT LOANS AND CLASSIFIED ASSETS. At December 31, 1997, 1996, and 1995,
delinquencies in the Company's loan portfolio were as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997 AT DECEMBER 31, 1996
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF BALANCE OF BALANCE OF BALANCE OF BALANCE
(Dollars in Thousands) LOANS OF LOANS LOANS OF LOANS LOANS OF LOANS LOANS OF LOANS
----- -------- ----- -------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One-to-four family.............. 85 $3,741 365 $27,960 73 $3,901 276 $25,098
Multi-family.................... 2 480 20 7,089 6 1,226 13 3,651
Commercial real estate - - 12 7,076 2 823 17 3,552
Consumer and other loans 30 299 35 696 52 337 92 1,159
--- ------ ---- ------- --- ------ --- -------
Total loans..................... 117 $4,520 432 $42,821 133 $6,287 398 $33,460
=== ====== === ======= === ====== === =======
Delinquent loans to total
loans.......................... 0.10% 0.99% 0.24% 1.26%
</TABLE>
<TABLE>
<CAPTION>
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
----- -------- ----- --------
<S> <C> <C> <C> <C>
One-to-four family ...... 118 $8,173 366 $33,384
Multi-family ............ 3 336 17 2,851
Commercial real estate .. 3 384 31 6,969
Consumer and other loans 47 622 65 1,276
--- ------ --- -------
Total loans ............. 171 $9,515 479 $44,480
=== ====== === =======
Delinquent loans to total
loans .................. 0.46% 2.16%
</TABLE>
28
<PAGE> 31
The following table sets forth information regarding non-performing assets. In
addition to the non-performing loans, the Company had approximately $4.5 million
of potential problem loans at December 31, 1997. Such loans are 60-89 days
delinquent as shown on page 28.
<TABLE>
<CAPTION>
AT DECEMBER 31,
(In Thousands) 1997(1) 1996(1) 1995(1) 1994 1993
------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Non-accrual delinquent mortgage loans (2) ..... $37,397 $24,905 $37,394 $56,037 $ 76,322
Non-accrual delinquent consumer and other loans 696 1,159 1,276 920 1,335
Mortgage loans delinquent 90 days or more (3) . 4,728 7,396 5,810 9,981 21,159
------- ------- ------- ------- --------
Total non-performing loans ............ 42,821 33,460 44,480 66,938 98,816
------- ------- ------- ------- --------
Real estate owned, net (4) .................... 6,091 7,421 17,677 18,898 24,863
Investments in real estate, net (5) ........... 10,173 4,708 5,654 7,480 7,278
------- ------- ------- ------- --------
Total real estate owned and
investments in real estate, net ...... 16,264 12,129 23,331 26,378 32,141
------- ------- ------- ------- --------
Total non-performing assets (6) ............... $59,085 $45,589 $67,811 $93,316 $130,957
======= ======= ======= ======= ========
</TABLE>
(1) If all non-accrual loans had been performing in accordance with their
original terms, the Company would have recorded interest income of $2.9
million, $2.4 million and $4.0 million for the years ended December 31,
1997, 1996 and 1995, respectively. This compares to $1.2 million,
$934,000 and $1.3 million, respectively, of actual payments recorded to
interest income.
(2) 27.6%, 3.8% and 15.4% are secured by other than one-to-four family
properties at December 31, 1997, 1996 and 1995, 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) Investments in real estate are recorded at the lower of cost or fair
value.
(6) At December 31, 1997, balance includes $11.8 million of non-performing
assets acquired from The Greater, which the Company intends to sell.
29
<PAGE> 32
The following table sets forth at December 31, 1997 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
(Dollars in Thousands) NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
LOANS:
One-to-four family ............ -- $ -- 313 $32,505 8 $521
Multi-family .................. 15 8,654 23 10,254 - --
Commercial .................... 15 23,480 21 23,406 - --
Consumer and other loans ...... -- -- 34 690 1 6
-- ------- --- ------- - ----
Total ...................... 30 32,134 391 66,855 9 527
-- ------- --- ------- - ----
REAL ESTATE OWNED AND INVESTMENTS
IN REAL ESTATE:
One-to-four family ............ -- -- 61 9,860 - --
Multi-family .................. -- -- 1 201 - --
Commercial .................... -- -- 4 7,696 - --
-- ------- --- ------- - ----
Total ...................... -- -- 66 17,757 - --
-- ------- --- ------- - ----
TOTAL ........................... 30 $32,134 457 $84,612 9 $527
== ======= === ======= = ====
</TABLE>
Note: There were no assets classified as loss at December 31, 1997.
30
<PAGE> 33
IV. ALLOWANCE FOR LOSSES ON LOANS, INVESTMENTS IN REAL ESTATE AND REAL ESTATE
OWNED ("REO"). The following table sets forth the Company's allowance for losses
on loans, investments in real estate and REO at the dates indicated.
<TABLE>
<CAPTION>
At or For the Years Ended December 31,
(Dollars in Thousands) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOSSES ON LOANS:
Balance at beginning of year .............. $ 14,089 $ 13,495 $ 12,173 $ 16,672 $ 15,750
Allowance of acquired institution ......... 25,433 -- 3,528 -- --
Provision charged to operations ........... 3,061 3,963 2,007 3,733 6,959
Charge-offs:
One-to-four family ..................... (2,099) (2,634) (3,213) (4,928) (19)
Multi-family ........................... (1,088) (115) (330) (615) --
Commercial ............................. (38) (1,255) (1,009) (2,384) (5,565)
Consumer and other ..................... (687) (489) (732) (409) (490)
-------- -------- -------- -------- --------
Total charge-offs ................ (3,912) (4,493) (5,284) (8,336) (6,074)
Recoveries:
One-to-four family ..................... 641 381 552 6 --
Multi-family ........................... -- 22 -- -- --
Commercial ............................. 543 627 259 -- --
Consumer and other ..................... 184 94 260 98 37
-------- -------- -------- -------- --------
Total recoveries .................... 1,368 1,124 1,071 104 37
-------- -------- -------- -------- --------
Balance at end of year .................... $ 40,039 $ 14,089 $ 13,495 $ 12,173 $ 16,672
======== ======== ======== ======== ========
Ratio of net charge-offs during the year
to average loans outstanding during the year 0.08% 0.14% 0.22% 0.55% 0.37%
Ratio of allowance for loan losses to total
loans at end of the year 0.93 0.53 0.65 0.76 1.09
Ratio of allowance for loan losses to
non-performing loans at end of the
year 93.50 42.11 30.34 18.19 16.87
ALLOWANCE FOR LOSSES ON INVESTMENTS
IN REAL ESTATE AND REO:
Balance at beginning of year ............... $ 2,045 $ 3,746 $ 5,250 $ 4,741 $ 1,898
Allowance of acquired institution ......... 94 -- 1,144 -- --
Provision (recovery) recorded to operations 359 (1,747) 259 3,017 6,020
Charge-offs ............................... (1,050) (1,620) (3,997) (3,744) (3,744)
Recoveries ................................ 45 1,666 1,090 1,236 567
-------- -------- -------- -------- --------
Balance at end of year ..................... $ 1,493 $ 2,045 $ 3,746 $ 5,250 $ 4,741
======== ======== ======== ======== ========
</TABLE>
31
<PAGE> 34
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,
1997 1996 1995
% of Loans % of Loans % of Loans
to to to
(Dollars in Thousands) Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
One-to-four family............ $26,727 82.34% $ 8,002 85.18% $ 7,164 84.82%
Multi-family.................. 3,482 7.68 1,214 6.29 593 5.34
Commercial ................... 8,977 8.75 4,118 6.34 4,963 6.85
Consumer and other loans...... 853 1.23 755 2.19 775 2.99
------- ------ ------- ------ ------- ------
Total allowances.............. $40,039 100.00% $14,089 100.00% $13,495 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
1994 1993
% of Loans % of Loans
to to
(Dollars in Thousands) Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
One-to-four family............ $ 5,278 84.49% $ 8,903 82.20%
Multi-family.................. 492 5.81 743 6.47
Commercial ................... 5,751 6.72 6,372 7.26
Consumer and other loans...... 652 2.98 654 4.07
------- ------ ------- ------
Total allowances.............. $12,173 100.00% $16,672 100.00%
======= ====== ======= ======
</TABLE>
32
<PAGE> 35
V. DEPOSITS
The following table presents the deposit activity of the Company for the
years indicated:
<TABLE>
<CAPTION>
For the years ending December 31,
(Dollars in Thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Opening balance .................... $ 4,513,093 $4,263,421 $ 3,280,652
Deposits assumed from acquired
institution ..................... 1,601,312 -- 1,053,440
Net deposits (withdrawals) ......... (105,470) 57,926 (254,628)
Interest credited .................. 211,983 191,746 183.957
----------- ---------- -----------
Ending balance ..................... $ 6,220,918 $4,513,093 $ 4,263,421
=========== ========== ===========
Net increase ....................... $ 1,707,825 $ 249,672 $ 982,769
=========== ========== ===========
Percentage increase ................ 37.84% 5.86% 29.96%
</TABLE>
----------------
At December 31, 1997, the Company had $367.4 million in certificate of
deposit accounts in amounts of $100,000 or more as follows:
<TABLE>
<CAPTION>
Amount
------
(In Thousands)
MATURITY PERIOD
<S> <C>
Three months or less........................... $ 99,833
Over three through six months 82,074
Over six through twelve months 54,707
Over twelve months............................. 130,834
--------
Total....................................... $367,448
========
</TABLE>
33
<PAGE> 36
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,
1997 1996 1995
Weighted Weighted Weighted
Percent Average Percent Average Percent Average
Average Of Total Nominal Average Of Total Nominal Average Of Total Nominal
(Dollars in Thousands) Balance Deposits Rate Balance Deposits Rate Balance Deposits Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Savings ............... $1,269,356 25.77% 2.51% $1,146,243 25.98% 2.50% $1,176,433 28.03 2.50%
NOW ................... 75,711 1.54 1.24 114,110 2.59 1.98 240,032 5.72 2.00
Money market .......... 363,339 7.37 4.52 237,709 5.40 3.78 196,767 4.69 3.58
Money manager ......... 205,570 4.17 1.24 148,871 3.38 1.97 -- -- --
Non-interest bearing .. 97,399 1.98 -- 57,511 1.31 -- 39,267 0.93 --
---------- ------ ---------- ------ ---------- ------
Total ............. 2,011,375 40.83 2.56 1,704,444 38.66 2.51 1,652,499 39.37 2.50
---------- ------ ---------- ------ ---------- ------
Certificates of Deposit (1):
3 month .............. 37,820 0.77 3.23 36,808 0.84 3.28 37,137 0.89 3.90
6 month .............. 165,315 3.36 3.94 148,646 3.38 3.78 166,458 3.97 4.42
7 month .............. 6,109 0.13 4.72 -- -- -- -- -- --
9 month .............. 84,745 1.72 4.02 134,786 3.06 4.30 275,674 6.57 5.93
1 year ............... 236,486 4.80 4.33 272,114 6.18 4.69 350,154 8.34 4.92
13 month ............. 10,399 0.21 5.31 -- -- -- 23,144 0.55 5.47
15 month ............. 127,732 2.59 5.29 178,927 4.06 5.35 17,393 0.42 5.48
11/2year ............. 277,203 5.63 5.27 347,098 7.89 5.55 612,897 14.60 5.52
18 month variable IRA 5,025 0.10 5.41 5,828 0.13 3.74 6,700 0.16 4.47
2 year ............... 973,096 19.75 5.84 498,908 11.34 5.77 1,519 0.04 4.32
21/2year ............. 173,084 3.51 5.94 345,402 7.85 5.87 379.206 9.04 5.61
3 year ............... 7,247 0.15 5.78 -- -- -- -- -- --
31/2year ............. 38,924 0.79 5.62 45,695 1.04 5.35 55,576 1.32 5.40
5 year ............... 644,851 13.09 6.11 548,198 12.46 6.18 504,487 12.02 6.37
6 year ............... 19,316 0.39 6.44 26,651 0.60 6.77 31,599 0.75 6.99
Jumbo ................ 105,034 2.13 5.12 109,765 2.49 5.10 79,487 1.89 5.49
Other CDs ............ 2,481 0.05 5.83 714 0.02 6.52 3,111 0.07 5.31
---------- ------ ---------- ------ ---------- ------
Total ............. 2,914,867 59.17 5.48 2,699,540 61.34 5.46 2,544,542 60.63 5.58
---------- ------ ---------- ------ ---------- ------
Total deposits $4,926,242 100.00% 4.29 $4,403,984 100.00% 4.32 $4,197,041 100.00% 4.37
========== ====== ========== ====== ========== ======
</TABLE>
(1) Terms indicated are original, not term remaining to maturity.
34
<PAGE> 37
The following table presents, by rate categories, the balances of the
Company's certificates of deposit outstanding at December 31, 1997, 1996 and
1995, and the remaining periods to maturity of the certificate of deposit
accounts outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Period to maturity from December 31, 1997 At December 31,
Within One-two Two-three Over three
(In Thousands) one year years years years 1997 1996 1995
-------- ----- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT:
2.99% or less ......... $ 9,839 $ 16 $ -- $ 90 $ 9,945 $ 10,846 $ 8,600
3.00% to 3.99% ........ 258,826 1,255 -- -- 260,081 264,228 198,717
4.00% to 4.99% ........ 372,395 1,862 -- 3,713 377,970 335,547 365,264
5.00% to 5.99% ........ 1,182,820 682,366 49,920 73,283 1,988,389 1,378,688 1,160,889
6.00% to 6.99% ........ 228,973 190,276 65,723 328,299 813,271 760,321 713,922
7.00% to 7.99% ........ 1,357 26,748 37,282 487 65,874 24,444 104,005
8.00% to 8.99% ........ 42 -- 33 -- 75 144 23,518
9.00% and over ........ -- 559 -- -- 559 532 788
---------- -------- -------- -------- ---------- ---------- ----------
Total $2,054,252 $903,082 $152,958 $405,872 $3,516,164 $2,774,750 $2,575,703
========== ======== ======== ======== ========== ========== ==========
</TABLE>
35
<PAGE> 38
VI. RETURN ON EQUITY AND ASSETS
Information regarding return on equity and assets appears on page 18 of
the Company's 1997 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,
(Dollars in Thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
FHLB-NY ADVANCES:
Average balance ......................... $ 284,726 $ 203,819 $ 423,617
Maximum balance outstanding at any month
end during the year ................ 390,016 266,562 650,349
Balance outstanding at end of year ...... 390,016 266,514 221,362
Weighted average interest rate
during the year .................... 6.01% 6.26% 5.64%
Weighted average interest rate at end
of year ............................ 6.12 6.13 6.25
REVERSE REPURCHASE AGREEMENTS:
Average balance ......................... $2,309,614 $1,744,830 $ 978,653
Maximum balance of outstanding agreements
at any month end during the year ... 2,882,765 1,910,801 1,510,530
Balance outstanding at end of year ...... 2,882,765 1,845,000 1,483,329
Weighted average interest rate
during the year .................... 5.72% 5.58% 5.69%
Weighted average interest rate at end
of year ............................ 5.80 5.65 5.69
TOTAL BORROWINGS:
Average balance ......................... $2,594,340 $1,948,649 $1,402,270
Maximum balance outstanding at any month
end during the year ................ 3,272,781 2,111,514 1,751,637
Balance outstanding at end of year ...... 3,272,781 2,111,514 1,704,691
Weighted average interest rate
during the year .................... 5.75% 5.65% 5.67%
Weighted average interest rate at end
of year ............................ 5.84 5.71 5.76
</TABLE>
36
<PAGE> 39
ITEM 2. PROPERTIES
The Company conducts its business at its executive office
building, 61 banking offices, one mortgage origination center and one mortgage
servicing and training center. 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, 1997.
<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 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>
37
<PAGE> 40
<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, 1999
Whitestone, NY 11357
57-07 Junction Boulevard Leased 1990 April 30, 2012
Elmhurst, NY 11373
955 Hempstead Turnpike Owned 1958
Franklin Square, NY 11010
114 Northern Boulevard (2) 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>
38
<PAGE> 41
<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
164 Manetto Hill Road Leased 1997 Sept. 30, 2015
Plainview, NY 11803
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
155 Jericho Turnpike Owned 1995
Floral Park, NY 11001
99 Covert Avenue Owned 1995
Floral Park, NY 11001
711 Franklin Avenue Owned 1995
Franklin Square, NY 11010
260 Glen Head Road Leased 1995 Dec. 31, 2000
Glen Head, NY 11545
1585 Dutch Broadway Leased 1995 July 31, 2009
Elmont, NY 11003
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
ORIGINAL DATE DATE OF
LEASED OR LEASED OR LEASE
LOCATION OWNED ACQUIRED EXPIRATION(1)
-------- ----- -------- -------------
<S> <C> <C> <C>
102 Broadway Mall Leased 1997 Feb. 28, 2019
Hicksville, NY 11801
451 5th Avenue Leased 1997 Sept. 30, 2043
Brooklyn, NY 11215
101 Church Avenue Owned 1997
Brooklyn, NY 11218
4302 18th Avenue Owned 1997
Brooklyn, NY 11218
489 Neptune Avenue Leased 1997 Aug. 2, 2028
Brooklyn, NY 11224
110 7th Avenue Owned 1997
Brooklyn, NY 11215
2241 65th Street Leased 1997 Jan. 31, 2004
Brooklyn, NY 11204
5220 13th Avenue Leased 1997 May 21, 1998
Brooklyn, NY 11219
179-25 Hillside Avenue Leased 1997 April 14, 2026
Hillside, NY 11432
2775 Route 112 Leased 1997 May 31, 2020
Medford, NY 11763
1672 Sheepshead Bay Rd. Owned 1997
Brooklyn, NY 11235
1045 Flatbush Avenue Owned 1997
Brooklyn, NY 11226
1550 Flatbush Avenue Owned 1997
Brooklyn, NY 11210
222 Station Plaza North Leased 1997 June 30, 2012
Mineola, NY 11501
</TABLE>
40
<PAGE> 43
<TABLE>
<CAPTION>
ORIGINAL DATE DATE OF
LEASED OR LEASED OR LEASE
LOCATION OWNED ACQUIRED EXPIRATION(1)
-------- ----- -------- -------------
<S> <C> <C> <C>
3535 Long Beach Road Leased 1997 Sept. 30, 2020
Oceanside, NY 11572
2133 Knapp St. Leased 1997 Dec. 31, 2043
Brooklyn, NY 11229
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, 2008
Oneonta, NY 13820
MORTGAGE SERVICING, TRAINING CENTER
AND MORTGAGE ORIGINATIONS:
5 Dakota Drive (3) Leased 1992 Mar. 31, 1998
New Hyde Park, NY 11042
211 Station Rd. Leased 1997 Mar. 31, 2017
Mineola, NY 11501
</TABLE>
-----------------
(1) Leased property includes all option periods.
(2) Land lease only. The building on this property is owned.
(3) Office to relocate to 211 Station Road, Mineola.
41
<PAGE> 44
ITEM 3. LEGAL PROCEEDINGS
On April 3, 1997, a purported class action (the "Action") was commenced
in the Supreme Court of the State of New York (Kings County) entitled Leonard
Minzer, et ano. v. Gerard C. Keegan, et al. (Index No. 11546/1997) against The
Greater and its directors and certain executive officers. The suit alleges,
among other things, that the directors and executive officers of The Greater
breached their fiduciary duties in entering into The Greater Acquisition and
related arrangements. The complaint sought, among other things, a preliminary
and permanent injunction against The Acquisition and the related transactions,
an order directing the directors and executive officers of The Greater to
carry-out their fiduciary duties, and unspecified damages and costs. Upon
stipulation of the parties dated November 17, 1997 which was "so ordered" by the
Court on December 10, 1997, the Action has been dismissed, without prejudice.
On July 18, 1997, a purported class action (the "Federal Action") was
commenced in the United States District Court for the Eastern District of New
York entitled Leonard Minzer, et ano. v. Gerard C. Keegan, et al. (Index No. 97
Civ. 4077 (CPS)) against The Greater, The Greater's directors and certain of its
executive officers, the Company and the Association. The suit alleges, among
other things, that The Greater, The Greater's directors and certain of its
executive officers solicited proxies in violation of Section 14(a) of the
Securities Exchange Act of 1934 and Rule 14a-9, promulgated thereunder, by
failing to disclose certain allegedly material facts in the proxy statement, as
amended, that was circulated to The Greater stockholders in connection with The
Greater Acquisition, and that The Greater's directors and certain of its
executive officers have breached their fiduciary duties by entering into The
Greater Acquisition and related arrangements. The suit further alleges, without
specification, that the Company and the Association participated in the
preparation, specification and distribution of The Greater's proxy materials
and/or aided and abetted the alleged breaches of fiduciary duty by The Greater
defendants. Plaintiffs sought, among other things, a preliminary and permanent
injunction against consummation of The Greater Acquisition and the related
transactions, an order directing that the directors and executive officers of
The Greater carry-out their fiduciary duties, and unspecified damages and costs.
On September 2, 1997, plaintiffs filed an amended complaint and an
Application for a preliminary injunction (the "Application"). An evidentiary
hearing on plaintiffs' Application was held on September 10, 1997. On September
22, 1997, the Court issued a written decision denying plaintiffs' Application in
all respects. Upon stipulation of the parties, all claims against the
non-director, executive officers of The Greater, except one, have been
dismissed. The remaining defendants have moved to dismiss the amended complaint.
The motion is pending.
The Company and the Association believe the allegations made in the
amended complaint in the Federal Action are without merit and intend to
aggressively defend their interests with respect to such matters.
During 1994, an action was commenced against the Association, 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, then Chairman of the
Board of the Association, and George L. Engelke, Jr., Chairman, President and
Chief Executive Officer of Astoria Federal and a director and officer of AF
Roosevelt Avenue Corporation, among others. The litigation arises from the
development by 149 Roosevelt Avenue Associates of a condominium project ("Vista
Tower") 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 served their answers in the litigation. The
Association has notified its liability and director and officer liability
insurance carriers of the action. Although extremely limited discovery was taken
in the matter, the plaintiff, in January 1998 filed a note of issue alleging
damages of at least $340.0 million with respect to this matter. Several
defendants have moved to strike the note of issue. Messrs. Drewitz and Engelke
have moved for summary judgment to dismiss all claims against them.
42
<PAGE> 45
On September 19, 1997, the Queens Buildings Department ordered the
partial evacuation of the condominium. The Association, in meetings with the
Buildings Department and the New York State Attorney General's office, has
agreed to pay the cost of design work and repairs necessary to render the
building both temporarily and permanently safe and habitable. The Board of
Managers has thus far not carried out such repairs.
On October 2, 1997, the City of New York commenced an action and sought
injunctive relief by order to show cause against Vista Tower, The Board of
Managers of the condominium, the individual members of the Board of Managers and
the Association. The Association is named in such action solely as an owner of
units and holder of mortgages in the condominium. The action sets forth two
causes of action pursuant to the New York City Administrative Code and seeks
injunctive relief directing the defendants to take all steps necessary to make
the premises safe, certain civil penalties for violations of the building code,
a declaration that the premises constitute a public nuisance and directing the
abatement of such nuisance, certain damages, costs and attorneys fees. The
Association answered such action, denying the allegations of the complaint and
has asserted cross claims against the Board of Managers and its members for
waste, breach of fiduciary duty, indemnification and contribution. The Board of
Managers and its members similarly cross claimed against the Association.
Through a series of stipulations and interim orders, the parties agreed to a
plan of remediation and interim repair to the premises to allow the building to
be re-inhabited. In the interim, both the City of New York and the Association
have moved for appointment of a receiver to take control of the management and
repair of the property. The Board of Managers has opposed such motions which are
pending.
On November 18, 1997, The Board of Managers of Vista Tower commenced an
action against the Association in Supreme Court, Queens County. The complaint
set forth causes of action based upon alleged discrimination against the
purchasers of the units in Vista Tower under the New York State Executive Law
purportedly due to the national origin of a number of such unit owners, unjust
enrichment for receiving mortgage loan payments with respect to the mortgage
loans held by the Association and seeks injunctive relief to prevent the
Association from foreclosing on the mortgage loans it holds in such building.
The plaintiffs have granted the Association an open ended extension of the
Association's time to answer such complaint. In addition, on or about December
4, 1997, The Board of Managers commenced suit in the United States District
Court for the Southern District of New York against New York State, the New York
State Attorney General, the City of New York, the New York City Building
Department, the New York City Department of Housing Preservation and
Development, the Association, Henry Drewitz, George Engelke, Jr., AF Roosevelt
and 149 Roosevelt Avenue Associates and others. As to the Association related
defendants, the complaint alleged discrimination claims based upon the national
origin of the unit owners at Vista Tower under both New York State and federal
law. The summons and complaint in this action, while filed with the Court, has
not been served on any Association related defendant.
The Association has commenced settlement discussions with the Board of
Managers and unit owners at Vista Tower which are continuing. Based upon current
available information, management does not believe that a resolution based upon
these discussions would have a material adverse impact on the results of
operations or the financial condition of the Company. Management of the
Association is continuing to work with the Attorney General's office, the Queens
Buildings Department and the Board of Managers in an attempt to remedy the
situation. In the event such a remedy is not found, the Association intends to
continue to defend the actions vigorously.
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 government's
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 throughout most of 1996
awaiting the decision of the United States Supreme Court in United States 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.
43
<PAGE> 46
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 contested such motion and cross-moved for summary judgment
seeking to dismiss the Association's contract claims. (The Association's
complaint also asserts claims based on promissory estoppel, failure of
consideration and frustration of purpose, and a taking of the Association's
property without just compensation in violation of the Fifth Amendment to the
United States Constitution.)
On August 7 and 8, 1997, the United States Court of Federal Claims heard
oral arguments on 11 common issues raised by the government in the various
partial summary judgment motions filed by the Plaintiffs in the goodwill cases.
The Court heard arguments on these common issues in the context of 4 specific
summary judgment motions, not including the Association's. In an opinion filed
December 22, 1997, all such common issues were found in favor of the Plaintiffs,
and the government was ordered to show cause within 60 days why partial summary
judgment should not be entered in all cases which have partial summary judgment
motions pending, including the Association's. The government has responded in
the Association's case that if the Court will not consider case specific facts,
then it has no defense to the Association's motion. The government further
indicated that if the Court will consider case specific facts, then it asserts
that the relevant portion of the Assistance Agreement with Fidelity did not
authorize the use of its capital credit as a permanent addition to regulatory
capital. In this response, the government did not raise any issues related to
the supervisory goodwill portion of the Association's motion. The Association
has not yet responded to the government's response pending further instructions
from the Court.
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 to date are not material to the Association's results
of operations. Based upon the current scheduling by the Court, the Association
does not expect to commence significant discovery in its case until 1999.
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, 1997 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, 1997 entitled "Market for Common Stock", page 75,
is incorporated herein by reference.
In addition, on September 30, 1997, in connection with The Greater
Acquisition, the Company issued 2,000,000 shares of the Series B Preferred Stock
in exchange for all of the outstanding 12% Noncumulative Preferred Stock, Series
B of The Greater. The shares of the Series B Preferred Stock so issued were
exempt from registration under the Securities Act pursuant to Section 4(2) of
the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
That section of the Company's Annual Report to Shareholders for the
fiscal year ended December 31, 1997 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, 1997 entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations", pages 20 through 40
inclusive, is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Those sections of the Company's Annual Report to Shareholders for the
fiscal year ended December 31, 1997 entitled "Interest Rate Sensitivity
Analysis," pages 23 through 27 and "Asset Quality" pages 30 and 31, inclusive,
are 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, 1997 entitled "Independent Auditors' Report",
page 41, "Consolidated Statements of Financial Condition", page 42,
"Consolidated Statements of Operations", page 43, "Consolidated Statements of
Changes in Stockholders' Equity, page 44, "Consolidated Statements of Cash
Flows", page 45, "Notes to Consolidated Financial Statements", pages 46 through
73, inclusive, and "Quarterly Results of Operations (Unaudited)", page 74, 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 REGISTRANT
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 2, 1998, for its Annual
Meeting of Shareholders to be held on May 6, 1998, which will be filed with the
SEC within 120 days from December 31, 1997, 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 2, 1998 for its Annual Meeting of Shareholders to be held on May 6,
1998, which will be filed with the SEC within 120 days from December 31, 1997,
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 2, 1998 for its Annual
Meeting of Shareholders to be held on May 6, 1998, which will be filed with the
SEC within 120 days from December 31, 1997, 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 2, 1998
for its Annual Meeting of Shareholders to be held on May 6, 1998, which will be
filed with the SEC within 120 days from December 31, 1997, 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 41 through 74 of the
Company's 1997 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,
1997 and 1996
- Consolidated Statements of Operations for each of the years in
the three year period ended December 31, 1997
- Consolidated Statements of Changes in Stockholders' Equity for
each of the years in the three year period ended December 31, 1997
- Consolidated Statements of Cash Flows for each of the years in the
three year period ended December 31, 1997
- Notes to the Consolidated Financial Statements
- Quarterly Results of Operations (Unaudited) for each of the years
in the two year period ended December 31, 1997
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, as
amended effective following the close of business on
September 30, 1997 *
3.2 Bylaws of Astoria Financial Corporation (1)
4.1 Astoria Financial Corporation Specimen Stock Certificate (7)
4.2 Federal Stock Charter of Astoria Federal Savings and Loan
Association (2)
4.3 Bylaws 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 Certificate of Designations, Preferences and Rights of 12%
Noncumulative, Perpetual Preferred Stock, Series B (8)
4.8 Astoria Financial Corporation Specimen 12% Noncumulative,
Perpetual Preferred Stock, Series B Certificate *
4.9 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, as amended - 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. *
10.7 1996 Stock Option Plan for Outside Directors of Astoria
Financial Corporation, as amended - 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. *
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)
48
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT IDENTIFICATION OF EXHIBIT
------- -------------------------
<S> <C>
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)
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
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 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
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 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 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 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)
10.18 Astoria Financial Corporation Employment Agreement with
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)
</TABLE>
49
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT IDENTIFICATION OF EXHIBIT
------- -------------------------
<S> <C>
10.19 Astoria Federal Savings and Loan Association Employment
Agreement with William K. Sheerin - This exhibit is a
management contract or compensatory plan or arrangement
required to be filed as an exhibit this Form 10-K pursuant to
Item 14(c) of this report. (3)
10.20 Astoria Financial Corporation Employment Agreement with 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 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 Retirement Medical and Dental Benefit Policy 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. *
10.23 Consulting and Other Arrangements Concerning Mr. 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)
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, as amended - 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. *
</TABLE>
50
<PAGE> 53
<TABLE>
<CAPTION>
EXHIBIT IDENTIFICATION OF EXHIBIT
------- -------------------------
<S> <C>
10.30 Astoria Financial Corporation 1993 Stock Option Plan For
Outside Directors, as amended - 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. *
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)
10.32 Astoria Financial Corporation Employment Agreement with
Gerard C. Keegan 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. *
10.33 Astoria Federal Savings and Loan Association Employment
Agreement with Gerard C. Keegan - 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. *
10.34 Amendment No. 1 to the Astoria Federal Savings and Loan Association
Employment Agreement with Gerard C. Keegan - 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. *
10.35 Option Conversion Agreement by and between Astoria Financial
Corporation and Mr. Gerard C. Keegan - 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. *
10.36 Option Conversion Agreement by and between Astoria Financial
Corporation and Mr. Michael J. Henchy - 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. *
10.37 Option Conversion Agreement by and between Astoria Financial
Corporation and Mr. Daniel J. Harris - 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. *
10.38 Option Conversion Agreement by and between Astoria Financial
Corporation and Mr. Franklyn Berkowitz - 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. *
10.39 Agreement and Plan of Merger Dated as of the 29th day of
March, 1997, as amended, by and among Astoria Financial
Corporation, Astoria Federal Savings and Loan Association and
The Greater New York Savings Bank. (9)
11.1 Statement regarding computation of earnings per share.*
13.1 1997 Annual Report to Stockholders. *
</TABLE>
51
<PAGE> 54
<TABLE>
<CAPTION>
<S> <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 6, 1998, which will be filed with the SEC within
120 days from December 31, 1997, 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.
(7) Incorporated by reference to Astoria Financial Corporation's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996, filed with the Securities and Exchange Commission on
March 28, 1997.
(8) Incorporated by reference to Form S-4 Registration Statement as
filed with the Securities and Exchange Commission on June 24,
1997.
(9) Incorporated by reference to Astoria Financial Corporation's
Current Report on Form 8-K, dated March 31, 1997 as filed with
the Securities and Exchange Commission on March 31, 1997.
(c) Reports on Form 8-K filed during the last quarter of the
Registrant's fiscal year ended December 31, 1997.
The following reports on Form 8-K were filed by the Company
during the fourth quarter of its fiscal year ended December 31,
1997:
(1) Astoria Financial Corporation's Current Report on Form 8-K filed
with the Securities and Exchange Commission on October 3, 1997
announcing that as of the close of business on September 30,
1997 (the "Effective Time"), Astoria Financial Corporation
("AFC"),
</TABLE>
52
<PAGE> 55
acquired The Greater New York Savings Bank, a New York State
chartered savings bank ("GNYSB"), pursuant to an Agreement and
Plan of Merger entered into by AFC, Astoria Federal Savings and
Loan Association ("AFSL"), and GNYSB on March 29, 1997, as
amended, and the related Plan of Bank Merger (together, the
"Merger Agreement"), which provided for the merger of GNYSB with
and into AFSL with AFSL being the surviving corporation (the
"Merger") and the appointment of Mr. Gerard C. Keegan, the
former Chairman, President and Chief Executive Officer of GNYSB,
and Mr. Peter C. Haeffner, Jr., a former director of GNYSB to
the Boards of Directors of AFC and AFSL.
(2) Astoria Financial Corporation's Amendment No. 1 to the Current
Report on Form 8-K Filed with the Securities and Exchange
Commission on October 3, 1997 on Current Report 8-K/A filed with
the Securities and Exchange Commission on December 12, 1997
which included Pro-forma financial information concerning the
merger of The Greater New York Savings Bank with and into
Astoria Federal Savings and Loan Association.
53
<PAGE> 56
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
<TABLE>
<CAPTION>
<S> <C>
/s/ George L. Engelke, Jr. Date: March 18, 1998
--------------------------------------------------------------------- --------------------
George L. Engelke, Jr.
Chairman, President and Chief Executive Officer
</TABLE>
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:
<TABLE>
<CAPTION>
NAME DATE
---- ----
<S> <C>
/s/ George L. Engelke, Jr. March 18, 1998
----------------------------------------------------------- --------------
George L. Engelke, Jr.
Chairman, President and Chief Executive Officer
/s/ Gerard C. Keegan March 18, 1998
----------------------------------------------------------- --------------
Gerard C. Keegan
Vice Chairman, Chief Administrative
Officer and Director
/s/ Monte N. Redman March 18, 1998
----------------------------------------------------------- --------------
Monte N. Redman
Executive Vice President and Chief Financial Officer
/s/ Andrew M. Burger March 18, 1998
----------------------------------------------------------- --------------
Andrew M. Burger
Director
/s/ Denis J. Connors March 18, 1998
----------------------------------------------------------- --------------
Denis J. Connors
Director
/s/ Thomas J. Donahue March 18, 1998
----------------------------------------------------------- --------------
Thomas J. Donahue
Director
/s/ William J. Fendt March 18, 1998
----------------------------------------------------------- --------------
William J. Fendt
Director
/s/ Peter C. Haeffner, Jr. March 18, 1998
----------------------------------------------------------- --------------
Peter C. Haeffner, Jr.
Director
/s/ Ralph F. Palleschi March 18, 1998
----------------------------------------------------------- --------------
Ralph F. Palleschi
Director
/s/ Thomas V. Powderly March 18, 1998
----------------------------------------------------------- --------------
Thomas V. Powderly
Director
</TABLE>
54
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT NO. IDENTIFICATION OF EXHIBIT NUMBER
- ----------- ------------------------- ------
<S> <C> <C>
3.1 Articles of Incorporation of Astoria Financial Corporation, as
amended effective following the close of business on September
30, 1997 *
3.2 By laws of Astoria Financial Corporation (1)
4.1 Astoria Financial Corporation Specimen Stock Certificate (7)
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 Certificate of Designations, Preferences and Rights of 12%
Noncumulative, Perpetual Preferred Stock, Series B (8)
4.8 Astoria Financial Corporation Specimen 12% Noncumulative,
Perpetual Preferred Stock, Series B Certificate *
4.9 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)
</TABLE>
55
<PAGE> 58
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT NO. IDENTIFICATION OF EXHIBIT NUMBER
- ----------- ------------------------- ------
<S> <C> <C>
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, as amended - 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. *
10.7 1996 Stock Option Plan for Outside Directors of Astoria Financial
Corporation, as amended - 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.*
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 4(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)
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 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 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)
</TABLE>
56
<PAGE> 59
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT NO. IDENTIFICATION OF EXHIBIT NUMBER
- ----------- ------------------------- ------
<S> <C> <C>
10.14 Astoria Financial Corporation Employment Agreement with 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 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 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 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)
10.18 Astoria Financial Corporation Employment Agreement with 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 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 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 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 Retirement Medical and Dental Benefit Policy 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. *
10.23 Consulting and Other Arrangements Concerning Mr. 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)
</TABLE>
57
<PAGE> 60
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT NO. IDENTIFICATION OF EXHIBIT NUMBER
- ----------- ------------------------- ------
<S> <C> <C>
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,
as amended - 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.
*
10.30 Astoria Financial Corporation 1993 Stock Option Plan For Outside
Directors, as amended - 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.
*
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)
10.32 Astoria Financial Corporation Employment Agreement with Gerard C.
Keegan - 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. *
10.33 Astoria Federal Savings and Loan Association Employment Agreement
with Gerard C. Keegan - 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.
*
10.34 Amendment No. 1 to the Astoria Federal Savings and Loan
Association Employment Agreement with Gerard C. Keegan - 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. *
</TABLE>
58
<PAGE> 61
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT NO. IDENTIFICATION OF EXHIBIT NUMBER
- ----------- ------------------------- ------
<S> <C> <C>
10.35 Option Conversion Agreement by and between Astoria Financial
Corporation and Mr. Gerard C. Keegan - 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. *
10.36 Option Conversion Agreement by and between Astoria Financial
Corporation and Mr. Michael J. Henchy - 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. *
10.37 Option Conversion Agreement by and between Astoria Financial
Corporation and Mr. Daniel J. Harris - 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. *
10.38 Option Conversion Agreement by and between Astoria Financial
Corporation and Mr. Franklyn Berkowitz - 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. *
10.39 Agreement and Plan of Merger dated as of the 29th Day of March,
1997, as amended, by and among Astoria Financial Corporation,
Astoria Federal Savings and Loan Association and The Greater New
York Savings Bank. (9)
11.1 Statement regarding computation of earnings per share. *
13.1 1997 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 6, 1998, which will be filed with the SEC within 120 days
from December 31, 1997, 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.
</TABLE>
59
<PAGE> 62
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT NO. IDENTIFICATION OF EXHIBIT NUMBER
- ----------- ------------------------- ------
<S> <C> <C>
(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.
(7) Incorporated by reference to Astoria Financial Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996, filed with the Securities and Exchange Commission on March
28, 1997.
(8) Incorporated by reference to Form S-4 Registration Statement as
filed with the Securities and Exchange Commission on June 24,
1997.
(9) Incorporated by reference to Astoria Financial Corporation's
Current Report on Form 8-K, dated March 31, 1997 as filed with
the Securities and Exchange Commission on March 31, 1997.
</TABLE>
60
<PAGE> 1
EXHIBIT 3.1
As Amended as of September 30, 1997:
CERTIFICATE OF INCORPORATION
OF
ASTORIA FINANCIAL CORPORATION
FIRST: The name of the Corporation is Astoria Financial Corporation
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Seventy-five million (75,000,000)
consisting of:
1. Five million (5,000,000 shares of Preferred Stock, par
value one dollar ($1.00) per share (the "Preferred Stock"); provided,
however, that at such time as the Astoria Financial Corporation 12%
Noncumulative Perpetual Preferred Stock, Series B, issued pursuant to
the terms of the Agreement and Plan of Merger, dated as of March 29,
1997, by and among Astoria Financial Corporation, Astoria Federal
Savings and Loan Association and The Greater New York Savings Bank, is
no longer outstanding, then section Fourth A.1. of the Certificate of
Incorporation shall automatically, and without any further action of
the stockholders of Astoria Financial Corporation, be restated in its
entirety as follows:
1. Five million (5,000,000) shares of Preferred Stock, par
value one cent ($0.01) per share (the "Preferred Stock"); and
2. Seventy million (70,000,000) shares of Common Stock, par
value one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred Stock
in series, and by filing a certificate pursuant to the applicable law of the
State of Delaware (such certificate being hereinafter referred to as a
"Preferred Stock Designation"), to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number
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of authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the Common Stock, without a vote of the holders of
the Preferred Stock, or of any series thereof, unless a vote of any such holders
is required pursuant to the terms of any Preferred Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any outstanding Common
Stock which is beneficially owned, directly or indirectly, by a person who, as
of any record date for the determination of stockholders entitled to vote on any
matter, beneficially owns in excess of 10% of the then-outstanding shares of
Common Stock (the "Limit"), be entitled, or permitted to any vote in respect of
the shares held in excess of the Limit. The number of votes which may be cast by
any record owner by virtue of the provision hereof in respect of Common Stock
beneficially owned by such person beneficially owning shares in excess of the
Limit shall be a number equal to the total number of votes which a single record
owner of all Common Stock owned by such person would be entitled to cast,
(subject to the provisions of this Article FOURTH) multiplied by a fraction, the
numerator of which is the number of shares of such class or series which are
both beneficially owned by such person and owned of record by such record owner
and the denominator of which is the total number of shares of Common Stock
beneficially owned by such person owning shares in excess of the Limit.
2. The following definitions shall apply to this Section C of the
Article FOURTH:
(a) "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended, as in effect on the date of filing of
this Certificate of Incorporation.
(b) "Beneficial ownership" shall be determined pursuant to
Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended, (or any successor rule or statutory
provision), or, if said Rule 13d-3 shall be rescinded and there shall
be no successor rule or provision thereto, pursuant to said Rule 13d-3
as in effect on the date of filing of this Certificate of
Incorporation; provided, however, that a person shall, in any event,
also be deemed the "beneficial owner" of any Common Stock:
(1) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(2) which such person or any of its affiliates has
(i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to
any agreement, arrangement or understanding (but shall not be
deemed to be the beneficial owner of any voting shares solely
by reason of any agreement, contract, or other arrangement
with this Corporation to effect any transaction which is
described in any one or more of clauses 1 through 5 of Section
A of Article EIGHTH), or upon the exercise of conversion
rights, exchange rights,
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<PAGE> 3
warrants, or options or otherwise, or (ii) sole or shared
voting or investment power with respect thereto pursuant to
any agreement, arrangement, understanding, relationship or
otherwise (but shall not be deemed to be the beneficial owner
of any voting shares solely by reason of a revocable proxy
granted for a particular meeting of stockholders, pursuant to
a public solicitation of proxies for such meeting, with
respect to shares of which neither such person nor any such
Affiliate is otherwise deemed the beneficial owner); or
(3) which are beneficially owned, directly or
indirectly, by any other person with which such first
mentioned person or any of its Affiliates acts as a
partnership, limited partnership, syndicate or other group
pursuant to any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of any
shares of capital stock of this Corporation;
and provided further, however, that (1) no Director or Officer of this
Corporation (or any Affiliate of any such Director or Officer) shall,
solely by reason of any or all of such Directors or Officers acting in
their capacities as such, be deemed, for any purposes hereof, to
beneficially own any Common Stock beneficially owned by any other such
Director or Officer (or any Affiliate thereof), and (2) neither any
employee stock ownership or similar plan of this Corporation or any
subsidiary of this Corporation, nor any trustee with respect thereto or
any Affiliate of such trustee (solely by reason of such capacity of
such trustee), shall be deemed, for any purpose hereof, to beneficially
own any Common Stock held under any such plan. For purposes only of
computing the percentage beneficial ownership of Common Stock of a
person, the outstanding Common Stock shall include shares deemed owned
by such person through application of this subsection but shall not
include any other Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon exercise of conversion
rights, warrants or options, or otherwise. For all other purposes, the
outstanding Common Stock shall include only Common Stock than
outstanding and shall not include any Common Stock which may be
issuable by this Corporation pursuant to any agreement, or upon the
exercise of conversion rights, warrants or options, or otherwise.
(c) The "Limit" shall mean 10% of the
then-outstanding shares of Common Stock.
(d) A "person" shall include an individual, firm, a
group acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock company, a
trust, an unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities or any other
entity.
3. The Board of Directors shall have the power to construe and
apply the provisions of this section and to make all determinations
necessary or desirable to implement such provisions, including but not
limited to matters with respect to (i) the number of shares of Common
Stock beneficially owned by any person, (ii) whether a
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<PAGE> 4
person is an affiliate of another, (iii) whether a person has an
agreement, arrangement, or understanding with another as to the matters
referred to in the definition of beneficial ownership, (iv) the
application of any other definition or operative provision of the
section to the given facts, or (v) any other matter relating to the
applicability or effect of this section.
4. The Board of Directors shall have the right to demand that
any person who is reasonably believed to beneficially own Common Stock
in excess of the Limit (or holds of record Common Stock beneficially
owned by any person in excess of the Limit) supply the Corporation with
complete information as to (i) the record owner(s) of all shares
beneficially owned by such person who is reasonably believed to own
shares in excess of the Limit, and (ii) any other factual matter
relating to the applicability or effect of this section as may
reasonably be requested of such person.
5. Except as otherwise provided by law or expressly provided
in this Section C, the presence, in person or by proxy, of the holders
of record of shares of capital stock of the Corporation entitling the
holders thereof to cast a majority of the votes (after giving effect,
if required, to the provisions of this Section C) entitled to be cast
by the holders of shares of capital stock of the Corporation entitled
to vote shall constitute a quorum at all meeting of the stockholders,
and every reference in this Certificate of Incorporation to a majority
or other proportion of capital stock (or the holders thereof) for
purposes of determining any quorum requirement or any requirement for
stockholder consent or approval shall be deemed to refer to such
majority or other proportion of the votes (or the holders thereof) then
entitled to be cast in respect of such capital stock.
6. Any constructions, applications, or determinations made by
the Board of Directors pursuant to this section in good faith and on
the basis of such information and assistance as was then reasonably
available for such purpose shall be conclusive and binding upon the
Corporation and its stockholders.
7. In the event any provision (or portion thereof) of this
Section C shall be found to be invalid, prohibited or unenforceable for
any reason, the remaining provisions (or portions thereof) of this
Section shall remain in full force and effect, and shall be construed
as if such invalid, prohibited or unenforceable provision had been
stricken herefrom or otherwise rendered inapplicable, it being the
intent of this Corporation and its stockholders that each such
remaining provision (or portion thereof) of this Section C remain, to
the fullest extent permitted by law, applicable and enforceable as to
all stockholders, including stockholders owning an amount of stock over
the Limit, notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
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<PAGE> 5
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Certificate of
Incorporation or the Bylaws of the Corporation, the Directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation.
B. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
C. Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a majority of
the whole Board or as otherwise provided in the Bylaws. The term "Whole Board"
shall mean the total number of authorized directorships (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption).
SIXTH: A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The Directors shall be divided into three classes,
with the term of office of the first class to expire at the first annual meeting
of stockholders, the term of office of the second class to expire at the annual
meeting of stockholders one year thereafter and the term of office of the third
class to expire at the annual meeting of stockholders two years thereafter with
each Director to hold office until his or her successor shall have been duly
elected and qualified. At each annual meeting of stockholders following such
initial classification and election, Directors elected to succeed those
Directors whose terms expire shall be elected for a term of office to expire at
the third succeeding annual meeting of stockholders after their election with
each Director to hold office until his or her successor shall have been duly
elected and qualified.
B. Subject to the rights of holders of any series of Preferred Stock
outstanding, newly created directorships resulting from any increase in the
authorized number of Directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the Directors
then in office, though less than a quorum, and Directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been chosen expires. No decrease
in the number of Directors constituting the Board of Directors shall shorten the
term of any incumbent Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
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<PAGE> 6
D. Subject to the rights of holders for any series of Preferred stock
then outstanding, any directors, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the affirmative
vote of the holders of at least 80 percent of the voting power of all of the
then-outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of Directors (after giving effect to the provisions of
Article FOURTH of this Certificate of Incorporation ("Article FOURTH")), voting
together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend
or repeal Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to adopt, amend or repeal any provisions of the Bylaws of the
Corporation.
EIGHTH: A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in this
Article EIGHTH:
1. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested Stockholder
(as hereinafter defined) or (ii) any other corporation (whether or not
itself an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter defined) of an
Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any Interested Stockholder, or any Affiliate of any Interested
Stockholder, of any assets of the Corporation or any Subsidiary having
an aggregate Fair Market Value (as hereinafter defined) equaling or
exceeding 25% or more of the combined assets of the Corporation and its
Subsidiaries; or
3. the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Stockholder or any Affiliate of any Interested Stockholder in exchange
for cash, securities or other property (or a combination thereof)
having an aggregate Fair Market Value (as hereinafter defined) equaling
or exceeding 25% of the combined Fair Market Value of the outstanding
common stock of the Corporation and its Subsidiaries, except for any
issuance or transfer pursuant to an employee benefit plan of the
Corporation or any Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of
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<PAGE> 7
the Corporation proposed by or on behalf of an Interested Stockholder
or any Affiliate of any Interested Stockholder; or
5. any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise involving
an Interested Stockholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the
Corporation or any Subsidiary which is directly or indirectly owned by
any Interested Stockholder or any Affiliate of any Interested
Stockholder;
shall require the affirmative vote of the holders of at least 80% of the voting
power of the then-outstanding shares of stock of the Corporation entitled to
vote in the election of Directors (the "Voting Stock") (after giving effect to
the provisions of Article FOURTH), voting together as a single class. Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law or by any other
provisions of this Certificate of Incorporation or any Preferred Stock
Designation in any agreement with any national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of paragraphs 1
through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only the affirmative vote of the majority of the outstanding
shares of capital stock entitled to vote after giving effect to the provisions
of Article FOURTH, or such vote (if any), as is required by law or by this
Certificate of Incorporation, if, in the case of any Business Combination that
does not involve any cash or other consideration being received by the
stockholders of the Corporation solely in their capacity as stockholders of the
Corporation, the condition specified in the following paragraph 1 is met or, in
the case of any other Business Combination, all of the conditions specified in
either of the following paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a
majority of the Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
(a) The aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the
Business Combination of consideration other than cash to be
received per share by the holders of Common Stock in such
Business Combination shall at least be equal to the higher of
the following
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<PAGE> 8
(1) (if applicable) the Highest Per Share
Price (as hereinafter defined), including any
brokerage commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Stockholder or
any of its Affiliates for any shares of Common Stock
acquired by it (i) within the two-year period
immediately prior to the first public announcement of
the proposal of the Business Combination (the
"Announcement Date") or (ii) in the transaction in
which it became an Interested Stockholder, whichever
is higher.
(2) the Fair Market Value per share of
Common Stock on the Announcement Date or on the date
on which the Interested Stockholder became an
Interested Stockholder (such latter date is referred
to in this Article EIGHTH as the "Determination
Date"), whichever is higher.
(b) The aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the
Business Combination of consideration other than cash to be
received per share by holders of shares of any class of
outstanding Voting Stock other than Common Stock shall be at
least equal to the highest of the following (it being intended
that the requirements of this subparagraph (b) shall be
required to be met with respect to every such class of
outstanding Voting Stock, whether or not the Interested
Stockholder has previously acquired any shares of a particular
class of Voting Stock):
(1) (if applicable) the Highest Per Share
Price (as hereinafter defined), including any
brokerage commissions, transfers taxes and soliciting
dealers' fees, paid by the Interested Stockholder for
any shares of such class of Voting Stock acquired by
it (i) within the two-year period immediately prior
to the Announcement Date, or (ii) in the transaction
in which it became an Interested Stockholder,
whichever is higher;
(2) (if applicable) the highest preferential
amount per share to which the holders of shares of
such class of Voting Stock are entitled in the event
of any voluntary or involuntary liquidation,
dissolution or winding up the Corporation; and
(3) the Fair Market Value per share of such
class of Voting Stock on the Announcement Date or on
the Determinate Date, whichever is higher.
(c) The consideration to be received by holders of a
particular class of outstanding Voting Stock (including Common
Stock) shall be in cash or in the same form as the Interested
Stockholder has previously paid for shares of such class of
Voting Stock. If the Interested Stockholder has paid for
shares of any class of Voting Stock with varying forms of
consideration, the form of consideration to be received per
share by holders of shares of such class of Voting Stock shall
be either cash or the form used to acquire the largest number
of shares of such class of Voting Stock previously acquired by
the Interest Stockholder.
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The price determined in accordance with subparagraph B.2 of
this Article EIGHTH shall be subject to appropriate adjustment
in the event of any stock dividend, stock split, combination
of shares or similar event.
(d) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination:
(1) except as approved by a majority of the
Disinterested Directors (as hereinafter defined),
there shall have been no failure to declare and pay
at the regular date therefor any full quarterly
dividends (whether or not cumulative) on any
outstanding stock having preference over the Common
Stock as to dividends or liquidation;
(2) there shall have been (i) no reduction
in the annual rate of dividends paid on the Common
Stock (except as necessary to reflect any subdivision
of the Common Stock), except as approved by a
majority of the Disinterested Directors, and (ii) an
increase in such annual rate of dividends as
necessary to reflect any reclassification (including
any reverse stock split), recapitalization,
reorganization or any similar transaction which has
the effect of reducing the number of outstanding
shares of the Common Stock, unless the failure to so
increase such annual rate is approved by a majority
of the Disinterested Directors, and
(3) neither such Interested Stockholder or
any of its Affiliates shall have become the
beneficial owner of any additional shares of Voting
Stock except as part of the transaction which results
in such Interested Stockholder becoming an Interested
Stockholder.
(e) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided, directly or
indirectly, by the Corporation, whether in anticipation of or
in connection with such Business Combination or otherwise.
(f) A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, and the rules or
regulations thereunder) shall be mailed to stockholders of the
Corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or
subsequent provisions).
C. For the purpose of this Article EIGHTH:
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<PAGE> 10
1. A "Person" shall include an individual, a group acting in
concert, a corporation, a partnership, an association, a joint venture,
a pool, a joint stock company, a trust, an unincorporated organization
or similar company, a syndicate or any other group formed for the
purpose of acquiring, holding or disposing of securities or any other
entity.
2. "Interested Stockholder" shall mean any person (other than
the Corporation or any Holding Company or Subsidiary thereof) who or
which:
(a) is the beneficial owner, directly or indirectly,
of more than 10% of the outstanding Voting Stock; or
(b) is an Affiliate of the Corporation and at any
time within the two-year period immediately prior to the date
in question was the beneficial owner, directly or indirectly,
of 10% or more of the voting power of the then outstanding
Voting Stock; or
(c) is an assignee of or has otherwise succeeded to
any shares of Voting Stock which were at any time within the
two-year period immediately prior to the date in question
beneficially owned by any Interested Stockholder, if such
assignment or succession shall have occurred in the course of
a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933, as
amended.
3. For purposes of the Article EIGHTH, "beneficial ownership"
shall be determined in the manner provided in Section C of Article
FOURTH hereof.
4. "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended, as
in effect on the date of filing of this Certificate of Incorporation.
5. "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition
of Interested Stockholder set forth in Paragraph 2 of this Section C,
the term "Subsidiary" shall mean only a corporation of which a majority
of each class of equity security is owned, directly or indirectly, by
the Corporation.
6. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Stockholder and was a
member of the Board of Directors prior to the time that the Interested
Stockholder became an Interested Stockholder, and any Director who is
thereafter chosen to fill any vacancy of the Board of Directors or who
is elected and who, in either event, is unaffiliated with the
Interested Stockholder and in connection with his or her initial
assumption of office is recommended
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for appointment or election by a majority of Disinterested Directors
then on the Board of Directors.
7. "Fair Market Value: means:
(a) in the case of stock, the highest closing sales
price of the stock during the 30-day period immediately
preceding the date in question of a share of such stock on the
National Association of Securities Dealers Automated Quotation
System or any system then in use, or, if such stock is
admitted to trading on a principal United States securities
exchange registered under the Securities Exchange Act of 1934,
as amended, Fair Market Value shall be the highest sale price
reported during the 30-day period preceding the date in
question, or, if no such quotations are available, the Fair
Market Value on the date in question of a share of such stock
as determined by the Board of Directors in good faith, in each
case with respect to any class of stock, appropriately
adjusted for any dividend or distribution in shares of such
stock or any stock split or reclassification of outstanding
shares of such stock into a greater number of shares of such
stock or any combination or reclassification of such stock
into a smaller number of shares of such stock, and
(b) in the case of property other than cash or stock,
the Fair Market Value of such property on the date in question
as determined by the Board of Directors in good faith.
8. Reference to "Highest Per Share Price" shall in each case
with respect to any class of stock reflect an appropriate adjustment
for any dividend or distribution in shares of such stock or any stock
split or reclassification of outstanding shares of such stock into a
greater number of shares of such stock or any combination or
reclassification of outstanding shares of such stock into a smaller
number of shares of such stock.
9. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in Subparagraphs (a) and (b) of Paragraph 2 of
Section B of this Article EIGHTH shall include the shares of Common
Stock and/or the shares of any other class of outstanding Voting Stock
retained by the holders of such shares.
D. A majority of the Directors of the Corporation shall have the power
and duty to determine for the purposes of this Article EIGHTH, on the basis of
information known to them after reasonable inquiry: (a) whether a person is an
Interested Stockholder; (b) the number of shares of Voting Stock beneficially
owned by any person; (c) whether a person is an Affiliate or Associate of
another; and (d) whether the assets which are the subject of any Business
Combination have, or the consideration to be received for the issuance or
transfer of securities by the Corporation or any Subsidiary in any Business
Combination has an aggregate Fair Market
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Value equaling or exceeding 25% of the combined Fair Market Value of the common
stock of the Corporation and its subsidiaries. A majority of the Disinterested
Directors shall have the further power to interpret all of the terms and
provisions of this Article EIGHTH.
E. Nothing contained in the Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least 80 percent of the voting power of all of the
then-outstanding shares of the Voting Stock, voting together as a single class,
shall be required to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
offer of another Person (as defined in Article EIGHTH hereof) to (A) make a
tender or exchange offer for any equity security of the Corporation, (B) merge
or consolidate the Corporation with another corporation or entity or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, those factors that Directors of any subsidiary of the Corporation
may consider in evaluating any action that may result in a change or potential
change in the control of the subsidiary, and the social and economic effect of
acceptance of such offer: on the Corporation's present and future customers and
employees and those of its Subsidiaries (as defined in Article EIGHTH hereof);
on the communities in which the Corporation and its Subsidiaries operate or are
located; on the ability of the Corporation to fulfill its corporate objective as
a savings and loan company under applicable laws and regulations; and on the
ability of its subsidiary savings and loan association to fulfill the objectives
of a stock form savings and loan association under applicable statutes and
regulations.
TENTH: A. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a Director or an
Officer of the Corporation or is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action in an official capacity as a
Director, Officer, employee or agent or in any other capacity while serving as a
Director, Officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or any hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law
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<PAGE> 13
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that,
except as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article
TENTH shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter and "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a Director or Officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, services to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if its shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Section or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections A and B of this Article TENTH shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to a Director, Officer, employee or agent and shall inure to the benefit
of the indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in
full by the Corporation within Sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expenses of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the indemnitee has not met such
applicable standard of
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<PAGE> 14
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article TENTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
Disinterest Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the advancement
of expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ELEVENTH: A Director of this Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except for liability (i) for any breach of the
Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the Director derived an
improper personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a Director of the Corporation existing at the time of such repeal
or modification.
TWELFTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation;
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<PAGE> 15
provided, however, that, notwithstanding any other provision of this Certificate
of Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any vote of the holders of any class or
series of the stock of this Corporation required by law or by this Certificate
of Incorporation, the affirmative vote of the holders of at least 80 percent of
the voting power of all of the then-outstanding shares of the capital stock of
the Corporation entitled to vote generally in the election of Directors (after
giving effect to the provisions of Article FOURTH), voting together as a single
class, shall be required to amend or repeal this Article TWELFTH, Section C of
Article FOURTH, Sections C or D of Article FIFTH, Article SIXTH, Article
SEVENTH, Article EIGHTH or Article TENTH.
THIRTEENTH: The name and mailing address of the sole incorporator are
as follows:
Name Mailing Address
Siobain M. Perkins 1201 N. Market Street
P.O. Box 1347
Wilmington, DE 19899
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<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
As Amended Effective September 30, 1997
<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
<PAGE> 3
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direction of the chairman of the 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
<PAGE> 4
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shareholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders 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 proxy 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.
<PAGE> 5
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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 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
<PAGE> 6
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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 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
eleven 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
<PAGE> 7
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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 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
<PAGE> 8
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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 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.
<PAGE> 9
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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.
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
<PAGE> 10
-9-
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 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,
<PAGE> 11
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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.
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.
<PAGE> 12
-11-
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.
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.
<PAGE> 1
EXHIBIT 4.8
12% NONCUMULATIVE PERPETUAL SEE REVERSE FOR
PREFERRED STOCK, SERIES B CERTAIN DEFINITIONS
Astoria Financial
Corporation
SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies That
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF 12% NONCUMULATIVE PERPETUAL, PREFERRED
STOCK, SERIES B, $1.00 PAR VALUE PER SHARE, OF
ASTORIA FINANCIAL CORPORATION (the "Corporation"), a corporation formed
under the laws of the State of Delaware. 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. Such
shares are not insured by the Federal Deposit Insurance Corporation or any other
governmental entity. This certificate is not valid unless countersigned and
registered by the Transfer Agent and Registrar.
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:
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
(New York, New York)
Transfer Agent and Registrar Chairman, President and Chief Executive Officer
By
Authorized Signature Secretary
<PAGE> 2
ASTORIA FINANCIAL CORPORATION
The shares represented by this certificate are subject to all of the
provisions of the Certificate of Incorporation and By-Laws of Astoria Financial
Corporation (the "Corporation") as from time to time amended (copies of which
are on file at the Corporation's administrative office), to all of which the
holder by acceptance hereof assents.
The Corporation will furnish to any stockholder, upon written request and
without charge, a full statement of the designation, relative rights,
preferences and limitations of the shares of each class authorized to be issued
by the Corporation, the designation, relative rights, preferences and
limitations of each series of preferred stock so far as the same have been fixed
and a statement of the authority of the Board of Directors to designate and fix
the relative rights, preferences and limitations of other series of preferred
stock.
The Certificate of Incorporation and By-Laws contain provisions which
require the affirmative vote of the holders of at least 80% of the voting stock
of the Corporation, voting together as a single class to approve certain
business combinations and other transactions and to amend certain provisions of
the Certificate of Incorporation.
<TABLE>
<CAPTION>
__________________________________________________________________________________________________________________
<S> <C>
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:
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
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 17Ad-15.
</TABLE>
<PAGE> 1
EXHIBIT 10.6
1996 STOCK OPTION PLAN FOR OFFICERS AND EMPLOYEES
OF
ASTORIA FINANCIAL CORPORATION
(AS AMENDED DECEMBER 17, 1997)
ARTICLE I
PURPOSE
SECTION 1.1 GENERAL PURPOSE OF THE PLAN.
The purpose of the Plan is to promote the growth and
profitability of Astoria Financial Corporation, to provide certain key officers
and employees of Astoria Financial Corporation and affiliates with an incentive
to achieve corporate objectives, to attract and retain key individuals of
outstanding competence and to provide such individuals with an equity interest
in Astoria Financial Corporation.
ARTICLE II
DEFINITIONS
The following definitions shall apply for the purposes of this
Plan, unless a different meaning is plainly indicated by the context:
SECTION 2.1 ASSOCIATION means Astoria Federal Savings and Loan
Association, a federally chartered savings institution, and any successor
thereto.
SECTION 2.2 BOARD means the board of directors of Astoria
Financial Corporation.
SECTION 2.3 CHANGE IN CONTROL OF THE COMPANY means any of the
following events:
(a) approval by the stockholders of Astoria Financial
Corporation of a transaction that would result in the reorganization,
merger or consolidation of Astoria Financial Corporation with one or
more other persons, other than a transaction following which:
(i) at least 51% of the equity ownership interests of
the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions
by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) at least 51% of the
outstanding equity ownership interests in Astoria Financial
Corporation; and
(ii) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the securities entitled to vote
generally in the election of directors of Astoria Financial
Corporation;
1
<PAGE> 2
(b) the acquisition of all or substantially all of the assets
of Astoria Financial Corporation or beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of the outstanding securities of Astoria Financial Corporation
entitled to vote generally in the election of directors by any person
or by any persons acting in concert, or approval by the stockholders of
Astoria Financial Corporation of any transaction which would result in
such an acquisition;
(c) a complete liquidation or dissolution of Astoria Financial
Corporation, or approval by the stockholders of Astoria Financial
Corporation of a plan for such liquidation or dissolution;
(d) the occurrence of any event if, immediately following such
event, at least 50% of the members of the Board of Directors of Astoria
Financial Corporation do not belong to any of the following groups:
(i) individuals who were members of the Board of
Directors of Astoria Financial Corporation on the date of this
Agreement; or
(ii) individuals who first became members of the
Board of Directors of Astoria Financial Corporation after the
date of this Agreement either:
(A) upon election to serve as a member of
the Board of Directors of Astoria Financial
Corporation by affirmative vote of three-quarters of
the members of such Board, or of a nominating
committee thereof, in office at the time of such
first election; or
(B) upon election by the stockholders of
Astoria Financial Corporation to serve as a member of
the Board of Astoria Financial Corporation, but only
if nominated for election by affirmative vote of
three-quarters of the members of the Board of
Directors of Astoria Financial Corporation, or of a
nominating committee thereof, in office at the time
of such first nomination;
provided, however, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf
of the Board of Astoria Financial Corporation; or
(e) any event which would be described in section 2.3(a), (b),
(c) or (d) if the term "Association" were substituted for the term
"Company" therein.
In no event, however, shall a Change in Control be deemed to have occurred as a
result of any acquisition of securities or assets of Astoria Financial
Corporation, the Association, or a subsidiary of either of them, by Astoria
Financial Corporation, the Association, or a subsidiary of either of them, or by
any employee benefit plan maintained by any of them. For purposes of this
section 2.3, the term "person" shall have the meaning assigned
2
<PAGE> 3
to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
SECTION 2.4 CODE means the Internal Revenue Code of 1986
(including the corresponding provisions of any succeeding law).
SECTION 2.5 COMMITTEE means the Committee described in section
3.1.
SECTION 2.6 COMPANY means Astoria Financial Corporation, a
corporation organized and existing under the laws of the State of Delaware, and
any successor thereto, the Association and any successor thereto and, with the
prior approval of the Board, and subject to such terms and conditions as may be
imposed by the Board, any other savings bank, savings and loan association,
bank, corporation, financial institution or other business organization or
institution.
SECTION 2.7 DISABILITY means a condition of total incapacity,
mental or physical, for further performance of duty with the Company which the
Committee shall have determined, on the basis of competent medical evidence, is
likely to be permanent.
SECTION 2.8 DISINTERESTED BOARD MEMBER means a member of the
Board who (a) is not a current employee of the Company, (b) is not a former
employee of the Company who receives compensation for prior services (other than
benefits under a tax-qualified retirement plan) during the taxable year, (c) has
not been an officer of the Company, (d) does not receive remuneration from the
Company, either directly or indirectly, in any capacity other than as a director
and (e) is not currently and for a period of at least one year has not been
eligible for discretionary awards under any stock compensation plan of the
Company. The term Disinterested Board Member shall be interpreted in such manner
as shall be necessary to conform to the requirements of section 162(m) of the
Code and Rule 16b-3 promulgated under the Exchange Act.
SECTION 2.9 ELIGIBLE INDIVIDUAL means any individual whom the
Committee may determine to be a key officer or employee of the Company and
select to receive a grant of an Option pursuant to the Plan.
SECTION 2.10 EXCHANGE ACT means the Securities Exchange Act of
1934.
SECTION 2.11 EXERCISE PRICE means the price per Share at which
Shares subject to an Option may be purchased upon exercise of the Option,
determined in accordance with section 4.4.
SECTION 2.12 FAIR MARKET VALUE means, with respect to a Share
on a specified date:
(a) the final quoted sales price on the date in question (or
if there is no reported sale on such date, on the last preceding date
on which any reported sale occurred) as reported in the principal
consolidated reporting system with respect to securities listed or
admitted to trading on the principal United States securities exchange
on which the Shares are listed or admitted to trading; or
(b) if the Shares are not listed or admitted to trading on any
such exchange, the closing bid quotation with respect to a Share on
such date on the National Association of Securities Dealers Automated
Quotations System, or, if no such quotation is provided, on another
similar system, selected by the Committee, then in use; or
3
<PAGE> 4
(c) if sections 2.12(a) and (b) are not applicable, the fair
market value of a Share as the Committee may determine.
SECTION 2.13 INCENTIVE STOCK OPTION means a right to purchase
Shares that is granted pursuant to section 4.1, that is designated by the
Committee to be an Incentive Stock Option and that is intended to satisfy the
requirements of section 422A of the Code.
SECTION 2.14 LIMITED STOCK APPRECIATION RIGHT means a right
granted pursuant to section 4.9.
SECTION 2.15 NON-QUALIFIED STOCK OPTION means a right to
purchase Shares that is granted pursuant to section 4.1, that is designated by
the Committee to be a Non-Qualified Stock Option and that is not intended to
satisfy the requirements of section 422A of the Code.
SECTION 2.16 OPTION means either an Incentive Stock Option or
a Non-Qualified Stock Option.
SECTION 2.17 OPTION PERIOD means the period during which an
Option may be exercised, determined in accordance with section 4.5.
SECTION 2.18 PERSON means an individual, a corporation, a
bank, a savings bank, a savings and loan association, a financial institution, a
partnership, an association, a joint-stock company, a trust, an estate, an
unincorporated organization and any other business organization or institution.
SECTION 2.19 PLAN means the 1996 Stock Option Plan for
Officers and Employees of Astoria Financial Corporation, as amended from time to
time.
SECTION 2.20 QUALIFIED DOMESTIC RELATIONS ORDER means a
Domestic Relations Order that: (a) clearly specifies (i) the name and last known
mailing address of the Option holder and of each person given rights under such
Domestic Relations Order, (ii) the amount or percentages of the Option holder's
benefits under this Plan to be paid to each person covered by such Domestic
Relations Order, (iii) the number of payments or the period to which such
Domestic Relations Order applies, and (iv) the name of this Plan; and (b) does
not require the payment of a benefit in a form or amount that is (i) not
otherwise provided for under the Plan, or (ii) inconsistent with a previous
Qualified Domestic Relations Order. For the purposes of this Plan, a "Domestic
Relations Order" means a judgment, decree or order (including the approval of a
property settlement) that is made pursuant to a state domestic relations or
community property law and relates to the provision of child support, alimony
payments, or marital property rights to a spouse, child or other dependent of an
Option holder.
SECTION 2.21 RETIREMENT means retirement at the normal or
early retirement date as set forth in any tax-qualified retirement/pension plan
of the Association.
SECTION 2.22 SHARE means a share of Common Stock, par value
$.01 per share, of Astoria Financial Corporation.
SECTION 2.23 TERMINATION FOR CAUSE means the termination upon
an intentional failure to perform stated duties, breach of a fiduciary duty
involving personal dishonesty, which results in material loss to the Company or
one of its affiliates or willful violation of any law, rule or regulation (other
than traffic violations
4
<PAGE> 5
or similar offenses) or final case-and-desist order which results in material
loss to the Company or one of its affiliates.
SECTION 2.24 THREATENED CHANGE IN CONTROL means (a) the
circulation of a proxy statement by any Person other than management of Astoria
Financial Corporation seeking stockholder approval of a transaction that would
result in a Change in Control of the Company or (b) the commencement of a tender
offer (within the meaning of section 14 of the Exchange Act) which, if
consummated, would result in a Change in Control of the Company.
ARTICLE III
ADMINISTRATION
SECTION 3.1 COMMITTEE.
The Plan shall be administered by a Committee consisting of
the members of the Compensation Committee of Astoria Financial Corporation who
are Disinterested Board Members. If fewer than three members of the Compensation
Committee are Disinterested Board Members, then the Board shall appoint to the
Committee such additional Disinterested Board Members as shall be necessary to
provide for a Committee consisting of at least three Disinterested Board
Members.
SECTION 3.2 COMMITTEE ACTION.
The Committee shall hold such meetings, and may make such
administrative rules and regulations, as it may deem proper. A majority of the
members of the Committee shall constitute a quorum, and the action of a majority
of the members of the Committee present at a meeting at which a quorum is
present, as well as actions taken pursuant to the unanimous written consent of
all of the members of the Committee without holding a meeting, shall be deemed
to be actions of the Committee. All actions of the Committee shall be final and
conclusive and shall be binding upon the Company and all other interested
parties. Any Person dealing with the Committee shall be fully protected in
relying upon any written notice, instruction, direction or other communication
signed by the secretary of the Committee and one member of the Committee, by two
members of the Committee or by a representative of the Committee authorized to
sign the same in its behalf.
SECTION 3.3 COMMITTEE RESPONSIBILITIES.
Subject to the terms and conditions of the Plan and such
limitations as may be imposed from time to time by the Board, the Committee
shall be responsible for the overall management and administration of the Plan
and shall have such authority as shall be necessary or appropriate in order to
carry out its responsibilities, including, without limitation, the authority:
(a) to interpret and construe the Plan, and to determine all
questions that may arise under the Plan as to eligibility for
participation in the Plan, the number of Shares subject to the Options,
if any, to be granted, and the terms and conditions thereof;
(b) to adopt rules and regulations and to prescribe forms for
the operation and administration of the Plan; and
(c) to take any other action not inconsistent with the
provisions of the Plan that it may deem necessary or appropriate.
5
<PAGE> 6
ARTICLE IV
STOCK OPTIONS
SECTION 4.1 IN GENERAL.
Subject to the limitations of the Plan, the Committee may, in
its discretion, grant to an Eligible Individual an Option to purchase Shares.
Any such Option shall be evidenced by a written agreement which shall:
(a) designate the Option as either an Incentive Stock Option
or a Non-Qualified Stock Option;
(b) specify the number of Shares covered by the Option;
(c) specify the Exercise Price, determined in accordance with
section 4.4, for the Shares subject to the Option;
(d) specify the Option Period determined in accordance with
section 4.5;
(e) set forth specifically or incorporate by reference the
applicable provisions of the Plan; and
(f) contain such other terms and conditions not inconsistent
with the Plan as the Committee may, in its discretion, prescribe with
respect to an Option granted to an Eligible Individual.
SECTION 4.2 AVAILABLE SHARES.
Subject to section 5.3, the maximum aggregate number of Shares
with respect to which Options may be granted at any time shall be equal to the
excess of:
(a) 475,000 Shares; over
(b) the sum of:
(i) the number of Shares with respect to which
previously granted Options may then or may in the future be
exercised; plus
(ii) the number of Shares with respect to which
previously granted Options have been exercised.
For purposes of this section 4.2, an Option shall not be considered as having
been exercised to the extent that such Option terminates by reason other than
the purchase of the related Shares.
SECTION 4.3 SIZE OF OPTION.
Subject to section 4.2 and such limitations as the Board may
from time to time impose, the number of Shares as to which an Eligible
Individual may be granted Options shall be determined by the Committee, in its
discretion. The maximum number of Shares that may be granted to any one
individual under this Plan shall be the entire number of Shares then available
under the Plan.
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<PAGE> 7
SECTION 4.4 EXERCISE PRICE.
The price per Share at which an Option granted to an Eligible
Individual may be exercised shall be determined by the Committee, in its
discretion; provided, however, that the Exercise Price shall not be less than
(a) the Fair Market Value of a Share on the date on which the Option is granted
and (b) in the case of an Option intended to be an Incentive Stock Option that
is granted to an Eligible Individual who, at the time the Option is granted,
owns Shares comprising more than 10% of the total combined voting power of all
classes of stock of the Company, shall not be less than 110% of the Fair Market
Value of a Share.
SECTION 4.5 OPTION PERIOD.
The Option Period during which an Option granted to an
Eligible Individual may be exercised shall commence on the date specified by the
Committee in the Option agreement and shall expire on the earliest of:
(a) the date specified by the Committee in the Option
agreement;
(b) the last day of the three-month period commencing on the
date of the Eligible Individual's termination of employment with the
Company, other than on account of death or Disability, Retirement or a
Termination for Cause;
(c) the last day of the one-year period commencing on the date
of the Eligible Individual's termination of employment due to death,
Disability or Retirement;
(d) as of the time and on the date the Eligible Individual
ceases to be an employee of the Company due to a Termination for Cause;
(e) the last day of the ten-year period commencing on the date
on which the Option was granted; and
(f) for an Option intended to be an Incentive Stock Option
that is granted to an Eligible Individual who, at the time the Option
is granted, owns Shares comprising more than 10% of the total combined
voting power of all classes of stock of the Company, the last day of
the five-year period commencing on the date on which the Option was
granted;
provided, however, that in the event of a Threatened Change in Control or a
Change in Control of the Company while there is outstanding any Option whose
Option Period has not commenced, such Option Period shall automatically commence
on the earliest date on which the Threatened Change in Control or Change in
Control of the Company is deemed to have occurred.
SECTION 4.6 METHOD OF EXERCISE.
(a) Subject to the limitations of the Plan and the Option
agreement, an Option holder may, at any time during the Option Period, exercise
his right to purchase all or any part of the Shares to which the Option relates;
provided, however, that the minimum number of Shares which may be purchased
shall be 100, or, if less, the total number of Shares relating to the Option
which remain unpurchased. An Option holder shall exercise an Option to purchase
Shares by:
(i) giving written notice to the Committee, in such form and
manner as the Committee may prescribe, of his intent to exercise the
Option;
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<PAGE> 8
(ii) delivering to the Committee full payment, consistent with
section 4.6(b), for the Shares as to which the Option is to be
exercised; and
(iii) satisfying such other conditions as may be prescribed in
the Option agreement.
(b) The Exercise Price of Shares to be purchased upon exercise
of any Option shall be paid in full in cash (by certified or bank check or such
other instrument as the Company may accept) or, if and to the extent permitted
by the Committee, by one or more of the following: (i) in the form of Shares
already owned beneficially for a period of more than six months by the Option
Holder having an aggregate Fair Market Value on the date the Option is exercised
equal to the aggregate Exercise Price to be paid; (ii) after a period of six
months from the date of grant of any such Option, by requesting the Company to
cancel without payment Options outstanding to such Person for that number of
Shares whose aggregate Fair Market Value on the date of exercise, when reduced
by their aggregate Exercise Price, equals the aggregate Exercise Price of the
Options being exercised; or (iii) by a combination thereof. Payment for any
Shares to be purchased upon exercise of an Option may also be made by delivering
a properly executed exercise notice to the Company, together with a copy of
irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds to pay the purchase price. To facilitate the
foregoing, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
(c) When the requirements of section 4.6(a) and (b) have been
satisfied, the Committee shall take such action as is necessary to cause the
issuance of a stock certificate evidencing the Option holder's ownership of such
Shares. The Person exercising the Option shall have no right to vote or to
receive dividends, nor have any other rights with respect to the Shares, prior
to the date as of which such Shares are transferred to such Person on the stock
transfer records of the Company, and no adjustments shall be made for any
dividends or other rights for which the record date is prior to the date as of
which such transfer is effected, except as may be required under section 5.3.
SECTION 4.7 LIMITATIONS ON OPTIONS.
(a) An Option by its terms shall not be transferable by the
Option holder other than by will or the laws of descent and distribution, or
pursuant to the terms of a Qualified Domestic Relations Order, and shall be
exercisable, during the life of the Option holder, only by the Option holder or
an alternate payee designated pursuant to such a Qualified Domestic Relations
Order; provided, however, that an Eligible Individual may, at any time at or
after the grant of a Non-Qualified Stock Option under the Plan, apply to the
Committee for approval to transfer all or any portion of such Non-Qualified
Stock Option which is then unexercised to such Eligible Individual's spouse, and
the lineal ascendents and lineal descendants of such Eligible Individual or his
spouse, or any one or more of them, or to an entity wholly owned by (including
but not limited to a trust the exclusive beneficiaries of which are) one or more
of them or wholly owned jointly by one or more of them and the Eligible
Individual. The Committee may approve or withhold approval of such transfer in
its sole and absolute discretion. If such transfer is approved, it shall be
effected by written notice to the Company given in such form and manner as the
Committee may prescribe and actually received by the Company prior to the death
of the person giving it. Thereafter, the transferee shall have with respect to
such Non-Qualified Stock Option, all of the rights, privileges and obligations
which would attach thereunder to the transferor. If a privilege of the Option
depends on the life, employment or other status of the transferor, such
privilege of the Option for the transferee shall continue to depend upon the
life, employment or other status of the transferor. The Committee shall have
full and exclusive authority to interpret and apply the provisions of the Plan
to transferees to the extent not specifically addressed herein.
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(b) The Company's obligation to deliver Shares with respect to
an Option shall, if the Committee so requests, be conditioned upon the receipt
of a representation as to the investment intention of the Option holder to whom
such Shares are to be delivered, in such form as the Committee shall determine
to be necessary or advisable to comply with the provisions of applicable
federal, state or local law. It may be provided that any such representation
shall become inoperative upon a registration of the Shares or upon the
occurrence of any other event eliminating the necessity of such representation.
The Company shall not be required to deliver any Shares under the Plan prior to
(i) the admission of such Shares to listing on any stock exchange on which
Shares may then be listed, or (ii) the completion of such registration or other
qualification under any state or federal law, rule or regulation as the
Committee shall determine to be necessary or advisable.
SECTION 4.8 ADDITIONAL RESTRICTIONS ON INCENTIVE STOCK
OPTIONS.
In addition to the limitations of section 4.7, an Option
designated by the Committee to be an Incentive Stock Option shall be subject to
the following limitations:
(a) If, for any calendar year, the sum of (i) plus (ii)
exceeds $100,000, where (i) equals the Fair Market Value (determined as
of the date of the grant) of Shares subject to an Option intended to be
an Incentive Stock Option which first become available for purchase
during such calendar year, and (ii) equals the Fair Market Value
(determined as of the date of grant) of Shares subject to any other
options intended to be Incentive Stock Options and previously granted
to the same Eligible Individual which first become exercisable in such
calendar year, then that portion of the Shares granted pursuant to such
options which cause the sum of (i) and (ii) to exceed $100,000 shall be
deemed to be Shares granted pursuant to a Non-Qualified Stock Option or
Non-Qualified Stock Options, with the same terms as the Option or
Options intended to be an Incentive Stock Option;
(b) Except with the prior written approval of the Committee,
no individual shall dispose of Shares acquired pursuant to the exercise
of an Incentive Stock Option until after the later of (i) the second
anniversary of the date on which the Incentive Stock Option was
granted, or (ii) the first anniversary of the date on which the Shares
were acquired.
SECTION 4.9 CHANGE IN CONTROL CASH OUT.
(a) Each Option granted under this Plan shall be accompanied
by a Limited Stock Appreciation Right that is exercisable at the times
and upon the terms and conditions set forth herein. Each Limited Stock
Appreciation Right granted hereunder shall be exercisable for a period
commencing on the date on which a Change in Control of the Company
occurs and ending six (6) months after such date or, if later in the
case of any Person, thirty (30) days after the earliest date on which
such Person may exercise the Limited Stock Appreciation Right without
subjecting himself to liability under section 16 of the Securities
Exchange Act of 1934, as amended. A Person in possession of a Limited
Stock Appreciation Right granted hereunder may exercise such Limited
Stock Appreciation Right by:
(i) giving written notice to the Committee, in such form and
manner as the Committee may prescribe, of his intent to exercise the
Limited Stock Appreciation Right; and
(ii) agreeing in such written notice to the cancellation of
Options then outstanding to him for a number of Shares equal to the
number of Shares for which the Limited Stock Appreciation Right is
being exercised.
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Except as provided in section 4.9(c), within ten (10) days after the giving of
such a notice, the Committee shall cause the Company to deliver to such Person a
monetary payment in an amount per Share equal to the amount by which the Change
in Control Consideration exceeds the Exercise Price per Share of each of the
Options being canceled.
(b) For purposes of section 4.9(a), the term Change in Control
Consideration shall mean the greater of (i) the highest price per Share paid by
any Person who initiated or sought to effect the Change in Control for a Share
during the period of one (1) year ending on the date of the relevant Change in
Control of the Company; and (ii) the average Fair Market Value of a Share over
the last ten (10) trading days preceding the date of exercise of the Limited
Stock Appreciation Right.
(c) Notwithstanding anything herein contained to the contrary,
the Limited Stock Appreciation Rights granted hereunder shall be canceled
immediately prior to the effective time of a Change in Control of the Company
resulting from a transaction between the Company and another party pursuant to a
written agreement whereby the consummation of the transaction is conditioned
upon the availability of "pooling of interests" accounting treatment (within the
meaning of A.P.B. No. 16 or any successor thereto); provided, however, that the
cancellation of such Limited Stock Appreciation Rights shall be subject to the
following conditions:
(i) the existence of the Limited Stock Appreciation Rights
would (in the opinion of the firm of independent certified public
accountants regularly engaged to audit the Company's financial
statements) render the transaction ineligible for pooling of interests
accounting treatment;
(ii) the cancellation of the Limited Stock Appreciation Rights
would (in the opinion of the firm of independent certified public
accountants regularly engaged to audit the Company's financial
statements) render the transaction eligible for pooling of interests
accounting treatment;
(iii) the transaction is, in fact, consummated; and
(iv) the written agreement providing for the transaction
provides for each Person to whom a Limited Stock Appreciation Right has
been granted to receive, upon the effective date of such transaction,
property with a fair market value at least equal to the monetary
payment that would be made upon exercise of the Limited Stock
Appreciation Right.
ARTICLE V
AMENDMENT AND TERMINATION
SECTION 5.1 TERMINATION.
The Board may suspend or terminate the Plan in whole or in
part at any time prior to the tenth anniversary of the Effective Date by giving
written notice of such suspension or termination to the Committee. Unless sooner
terminated, the Plan shall terminate automatically on the day preceding the
tenth anniversary of the Effective Date. In the event of any suspension or
termination of the Plan, all Options theretofore granted under the Plan that are
outstanding on the date of such suspension or termination of the Plan shall
remain outstanding under the terms of the Option agreements granting such
Options.
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SECTION 5.2 AMENDMENT.
The Board may amend or revise the Plan in whole or in part at
any time; provided, however, that if the amendment or revision:
(a) materially increases the benefits accruing under the Plan;
(b) materially increases the number of Shares which may be
issued under the Plan; or
(c) materially modifies the requirements as to eligibility for
Options under the Plan;
such amendment or revision shall be subject to approval by the shareholders of
the Company.
SECTION 5.3 ADJUSTMENTS IN THE EVENT OF A BUSINESS
REORGANIZATION.
(a) In the event of any merger, consolidation, or other
business reorganization in which the Company is the surviving entity, and in the
event of any stock split, stock dividend or other event generally affecting the
number of Shares held by each Person who is then a holder of record of Shares,
the number of Shares covered by each outstanding Option and the number of Shares
available pursuant to section 4.2 shall be adjusted to account for such event.
Such adjustment shall be effected by multiplying such number of Shares by an
amount equal to the number of Shares that would be owned after such event by a
Person who, immediately prior to such event, was the holder of record of one
Share, and the Exercise Price of the Options shall be adjusted by dividing the
Exercise Price by such number of Shares; provided, however, that the Committee
may, in its discretion, establish another appropriate method of adjustment.
(b) In the event of any merger, consolidation, or other
business reorganization in which the Company is not the surviving entity:
(i) any Options granted under the Plan which remain
outstanding may be canceled as of the effective date of such merger,
consolidation, business reorganization, liquidation or sale by the
Board upon 30 days' written notice to each Option holder in advance of
the effective date of such event; and
(ii) any Option which is not canceled pursuant to section
5.3(b)(i) shall be adjusted in such manner as the Committee shall deem
appropriate to account for such merger, consolidation or other
business reorganization.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 STATUS AS AN EMPLOYEE BENEFIT PLAN.
This Plan is not intended to satisfy the requirements for
qualification under section 401(a) of the Code or to satisfy the definitional
requirements for an "employee benefit plan" under section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended. It is intended to be a
non-qualified incentive compensation program that is exempt from the regulatory
requirements of the Employee Retirement Income Security Act of 1974, as amended.
The Plan shall be construed and administered so as to effectuate this intent.
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SECTION 6.2 NO RIGHT TO CONTINUED EMPLOYMENT.
Neither the establishment of the Plan nor any provisions of
the Plan nor any action of the Board or the Committee with respect to the Plan
shall be held or construed to confer upon any Eligible Individual any right to a
continuation of employment by the Company. The Company reserves the right to
dismiss any Eligible Individual or otherwise deal with any Eligible Individual
to the same extent as though the Plan had not been adopted.
SECTION 6.3 CONSTRUCTION OF LANGUAGE.
Whenever appropriate in the Plan, words used in the singular
may be read in the plural, words used in the plural may be read in the singular,
and words importing the masculine gender may be read as referring equally to the
feminine or the neuter. Any reference to an Article or section number shall
refer to an Article or section of this Plan unless otherwise indicated.
SECTION 6.4 GOVERNING LAW.
The Plan shall be construed, administered and enforced
according to the laws of the State of New York without giving effect to the
conflict of laws principles thereof, except to the extent that such laws are
preempted by federal law.
SECTION 6.5 HEADINGS.
The headings of Articles and sections are included solely for
convenience of reference. If there is any conflict between such headings and the
text of the Plan, the text shall control.
SECTION 6.6 NON-ALIENATION OF BENEFITS.
The right to receive a benefit under the Plan shall not be
subject in any manner to anticipation, alienation or assignment, nor shall such
right be liable for or subject to debts, contracts, liabilities, engagements or
torts, except as required pursuant to a Qualified Domestic Relations Order or as
otherwise permitted pursuant to section 4.7(a).
SECTION 6.7 TAXES.
The Company shall have the right to deduct from all amounts
paid by the Company in cash with respect to an Option under the Plan any taxes
required by law to be withheld with respect to such Option. Where any Person is
entitled to receive Shares pursuant to the exercise of an Option, the Company
shall have the right to require such Person to pay the Company the amount of any
tax which the Company is required to withhold with respect to such Shares, or,
in lieu thereof, to retain, or to sell without notice, a sufficient number of
Shares to cover the amount required to be withheld.
SECTION 6.8 APPROVAL OF SHAREHOLDERS.
The Plan and all Options and Limited Stock Appreciation Rights
granted hereunder shall be conditioned on the approval of the Plan by the
shareholders of Astoria Financial Corporation. No Option or Limited Stock
Appreciation Rights granted under the Plan shall be effective, nor shall any
such Option or Limited Stock Appreciation Rights be exercised or any Shares
issued or purchased, prior to such approval.
SECTION 6.9 NOTICES.
Any communication required or permitted to be given under the
Plan, including any notice, direction, designation, comment, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below, or at such
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other address as one such party may by written notice specify to the other
party:
(a) If to the Committee:
Astoria Financial Company
One Astoria Federal Plaza
Lake Success, New York 11042-1085
Attention: Corporate Secretary
(b) If to an Option holder, to the Option holder's
address as shown in the Company's personnel records.
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EXHIBIT 10.7
1996 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
OF
ASTORIA FINANCIAL CORPORATION
(AS AMENDED DECEMBER 17, 1997)
ARTICLE I
PURPOSE
SECTION 1.1 GENERAL PURPOSE OF THE PLAN.
The purpose of the Plan is to promote the growth and
profitability of Astoria Financial Corporation, to provide Eligible Directors of
Astoria Financial Corporation and affiliates with an incentive to achieve
corporate objectives, to attract and retain key directors of outstanding
competence and to provide such Eligible Directors with an equity interest in
Astoria Financial Corporation.
ARTICLE II
DEFINITIONS
The following definitions shall apply for the purposes of this
Plan, unless a different meaning is plainly indicated by the context:
SECTION 2.1 ASSOCIATION means Astoria Federal Savings and Loan
Association, a federally chartered savings institution, and any successor
thereto.
SECTION 2.2 BOARD means the board of directors of Astoria
Financial Corporation.
SECTION 2.3 CHANGE IN CONTROL OF THE COMPANY means any of the
following events:
(a) approval by the stockholders of Astoria Financial
Corporation of a transaction that would result in the reorganization,
merger or consolidation of Astoria Financial Corporation with one or
more other persons, other than a transaction following which:
(i) at least 51% of the equity ownership interests of
the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions
by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) at least 51% of the
outstanding equity ownership interests in Astoria Financial
Corporation; and
(ii) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the securities entitled to vote
generally in the election of directors of Astoria Financial
Corporation;
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(b) the acquisition of all or substantially all of the assets
of Astoria Financial Corporation or beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of the outstanding securities of Astoria Financial Corporation
entitled to vote generally in the election of directors by any person
or by any persons acting in concert, or approval by the stockholders of
Astoria Financial Corporation of any transaction which would result in
such an acquisition;
(c) a complete liquidation or dissolution of Astoria Financial
Corporation, or approval by the stockholders of Astoria Financial
Corporation of a plan for such liquidation or dissolution;
(d) the occurrence of any event if, immediately following such
event, at least 50% of the members of the Board of Directors of Astoria
Financial Corporation do not belong to any of the following groups:
(i) individuals who were members of the Board of
Directors of Astoria Financial Corporation on the date of this
Agreement; or
(ii) individuals who first became members of the
Board of Directors of Astoria Financial Corporation after the
date of this Agreement either:
(A) upon election to serve as a member of
the Board of Directors of Astoria Financial
Corporation by affirmative vote of three-quarters of
the members of such Board, or of a nominating
committee thereof, in office at the time of such
first election; or
(B) upon election by the stockholders of
Astoria Financial Corporation to serve as a member of
the Board of Directors of Astoria Financial
Corporation, but only if nominated for election by
affirmative vote of three-quarters of the members of
the Board of Directors of Astoria Financial
Corporation, or of a nominating committee thereof, in
office at the time of such first nomination;
provided, however, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf
of the Board of Directors of Astoria Financial Corporation; or
(e) any event which would be described in section 2.3(a), (b),
(c) or (d) if the term "Association" were substituted for the term
"Astoria Financial Corporation" therein.
In no event, however, shall a Change in Control be deemed to have occurred as a
result of any acquisition of securities or assets of Astoria Financial
Corporation, the Association, or a subsidiary of either of them, by Astoria
Financial Corporation, the Association, or a subsidiary of either of them, or by
any employee benefit plan maintained by any of them. For purposes of this
section 2.4, the term "person" shall have the meaning
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assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
SECTION 2.4 CODE means the Internal Revenue Code of 1986
(including the corresponding provisions of any succeeding law).
SECTION 2.5 COMMITTEE means the Committee described in section
3.1.
SECTION 2.6 COMPANY means Astoria Financial Corporation, a
corporation organized and existing under the laws of the State of Delaware, and
any successor thereto, the Association and any successor thereto and, with the
prior approval of the Board, and subject to such terms and conditions as may be
imposed by the Board, any other savings bank, savings and loan association,
bank, corporation, financial institution or other business organization or
institution.
SECTION 2.7 DISABILITY means a condition of total incapacity,
mental or physical, for further performance of duty with the Company which the
Committee shall have determined, on the basis of competent medical evidence, is
likely to be permanent.
SECTION 2.8 EFFECTIVE DATE means the date on which the Plan is
approved by the holders of a majority of the Shares represented in person or by
proxy at a meeting duly called and held.
SECTION 2.9 ELIGIBLE DIRECTOR means a member of the Board who
is not also an employee or an officer of the Company.
SECTION 2.10 EXCHANGE ACT means the Securities Exchange Act of
1934.
SECTION 2.11 EXERCISE PRICE means the price per Share at which
Shares subject to an Option may be purchased upon exercise of the Option,
determined in accordance with section 4.3.
SECTION 2.12 FAIR MARKET VALUE means, with respect to a Share
on a specified date:
(a) the final quoted sales price on the date in question (or
if there is no reported sale on such date, on the last preceding date
on which any reported sale occurred) as reported in the principal
consolidated reporting system with respect to securities listed or
admitted to trading on the principal United States securities exchange
on which the Shares are listed or admitted to trading; or
(b) if the Shares are not listed or admitted to trading on any
such exchange, the closing bid quotation with respect to a Share on
such date on the National Association of Securities Dealers Automated
Quotations System, or, if no such quotation is provided, on another
similar system, selected by the Committee, then in use; or
(c) if sections 2.12(a) and (b) are not applicable, the fair
market value of a Share as the Committee may determine.
SECTION 2.13 LIMITED STOCK APPRECIATION RIGHT means a right
granted pursuant to section 4.7.
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SECTION 2.14 OPTION means a right to purchase Shares that is
granted pursuant to section 4.1.
SECTION 2.15 OPTION PERIOD means the period during which an
Option may be exercised, determined in accordance with section 4.4.
SECTION 2.16 PERSON means an individual, a corporation, a
bank, a savings bank, a savings and loan association, a financial institution, a
partnership, an association, a joint-stock company, a trust, an estate, an
unincorporated organization and any other business organization or institution.
SECTION 2.17 PLAN means the 1996 Stock Option Plan for Outside
Directors of Astoria Financial Corporation, as amended from time to time.
SECTION 2.18 QUALIFIED DOMESTIC RELATIONS ORDER means a
Domestic Relations Order that: (a) clearly specifies (i) the name and last known
mailing address of the Option holder and of each person given rights under such
Domestic Relations Order, (ii) the amount or percentages of the Option holder's
benefits under this Plan to be paid to each person covered by such Domestic
Relations Order, (iii) the number of payments or the period to which such
Domestic Relations Order applies, and (iv) the name of this Plan; and (b) does
not require the payment of a benefit in a form or amount that is (i) not
otherwise provided for under the Plan, or (ii) inconsistent with a previous
Qualified Domestic Relations Order. For the purposes of this Plan, a "Domestic
Relations Order" means a judgment, decree or order (including the approval of a
property settlement) that is made pursuant to a state domestic relations or
community property law and relates to the provision of child support, alimony
payments, or marital property rights to a spouse, child or other dependent of an
Option holder.
SECTION 2.19 SHARE means a share of Common Stock, par value
$.01 per share of Astoria Financial Corporation.
ARTICLE III
ADMINISTRATION
SECTION 3.1 COMMITTEE.
The Plan shall be administered by a Committee which shall be
the Compensation Committee of Astoria Financial Corporation.
SECTION 3.2 COMMITTEE ACTION.
The Committee shall hold such meetings, and may make such
administrative rules and regulations, as it may deem proper. A majority of the
members of the Committee shall constitute a quorum, and the action of a majority
of the members of the Committee present at a meeting at which a quorum is
present, as well as actions taken pursuant to the unanimous written consent of
all of the members of the Committee without holding a meeting, shall be deemed
to be actions of the Committee. All actions of the Committee shall be final and
conclusive and shall be binding upon the Company and all other interested
parties. Any Person dealing with the Committee shall be fully protected in
relying upon any written notice, instruction, direction or other communication
signed by the secretary of the Committee and one member of the Committee, by two
members of the Committee or by a representative of the Committee authorized to
sign the same in its behalf.
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SECTION 3.3 COMMITTEE RESPONSIBILITIES.
Subject to the terms and conditions of the Plan and such
limitations as may be imposed from time to time by the Board, the Committee
shall be responsible for the overall management and administration of the Plan
and shall have such authority as shall be necessary or appropriate in order to
carry out its responsibilities, including, without limitation, the authority:
(a) to interpret and construe the Plan, and to determine all
questions that may arise under the Plan as to eligibility for
participation in the Plan, the number of Shares subject to the Options
to be granted, and the terms and conditions thereof;
(b) to adopt rules and regulations and to prescribe forms for
the operation and administration of the Plan; and
(c) to take any other action not inconsistent with the
provisions of the Plan that it may deem necessary or appropriate.
ARTICLE IV
OPTION GRANTS
SECTION 4.1 AVAILABLE SHARES.
Subject to section 5.3, the maximum aggregate number of Shares
with respect to which Options may be granted at any time shall be equal to the
excess of:
(a) 60,000 Shares; over
(b) the sum of:
(i) the number of Shares with respect to which
previously granted Options may then or may in the future be
exercised; plus
(ii) the number of Shares with respect to which
previously granted Options have been exercised.
For purposes of this section 4.1, an Option shall not be considered as having
been exercised to the extent that such Option terminates by reason other than
the purchase of the related Shares.
SECTION 4.2 OPTION GRANTS.
(a) On the Effective Date, each Person who is then an Eligible
Director shall be granted an Option to purchase 1,000 Shares. A Person who
becomes an Eligible Director subsequent to the Effective Date shall be granted,
on the 15th day of the month following the month in which such individual
becomes an Eligible Director (or, if such date is not a business day, the first
business day thereafter), an Option to purchase 2,000 Shares. No Eligible
Director shall be granted more than one Option pursuant to this section 4.2(a).
(b) Subject to sections 4.2(c) and 4.1, on January 15, 1997
and on January 15 of each calendar year during which the Plan is in effect (or,
if such date is not a business day, the first business day thereafter), each
Person who is an Eligible Director on such date shall be granted an Option to
purchase 1,000
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Shares.
(c) Notwithstanding sections 4.2(a) and (b), in the event
that, as of the first business day of any calendar month, the number of
available Shares determined under section 4.1 is less than the total number of
Shares with respect to which Options would be granted under sections 4.2(a) and
(b) during such month, each Eligible Director scheduled to receive a grant of
Options during such month shall be granted an Option for the number of whole
Shares determined by multiplying (i) the number of Shares with respect to which
the Eligible Director would have been granted an Option on such date by (ii) a
fraction, the numerator of which is the number of Shares that are then available
under section 4.1 and the denominator of which is the total number of Shares
that would have to have been available under section 4.1 in order to grant all
of the Options that would otherwise have been granted under sections 4.2(a) and
(b) during such month, and rounding to the nearest whole Share; provided,
however, that if rounding will require more Shares to be available than provided
in section 4.1, then the amount determined pursuant to this section 4.2(c) will
be calculated by rounding down to the lesser whole number.
(d) Any Option granted under this section 4.2 shall be
evidenced by a written agreement which shall specify the number of Shares
covered by the Option, the Exercise Price for the Shares subject to the Option,
the Option Period, all as determined pursuant to this Article IV. The Option
agreement shall also set forth specifically or incorporate by reference the
applicable provisions of the Plan.
SECTION 4.3 EXERCISE PRICE.
The price per Share at which an Option granted to an Eligible
Director under section 4.2 may be exercised shall be the Fair Market Value of a
Share on the date on which the Option is granted.
SECTION 4.4 OPTION PERIOD.
The Option Period during which an Option granted to an
Eligible Director under section 4.2 may be exercised shall commence on the date
the Option is granted and shall expire on the earliest of:
(i) the last day of the one-year period commencing on the date
the Eligible Director ceases to be a director of the Company for any
reason other than removal for cause in accordance with the Company's
bylaws;
(ii) removal for cause in accordance with the Company's
bylaws; or
(iii) the last day of the ten-year period commencing on the
date on which the Option was granted.
SECTION 4.5 METHOD OF EXERCISE.
(a) Subject to the limitations of the Plan and the Option
agreement, an Option holder may, at any time during the Option Period, exercise
his right to purchase all or any part of the Shares to which the Option relates;
provided, however, that the minimum number of Shares which may be purchased at
any time shall be 100, or, if less, the total number of Shares relating to the
Option which remain unpurchased. An Option holder shall exercise an Option to
purchase Shares by:
(i) giving written notice to the Committee, in such form and
manner as the Committee may prescribe, of his intent to exercise the
Option;
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(ii) delivering to the Committee full payment, consistent with
section 4.5(b), for the Shares as to which the Option is to be
exercised; and
(iii) satisfying such other conditions as may be prescribed in
the Option agreement.
(b) The Exercise Price of Shares to be purchased upon exercise
of any Option shall be paid in full in cash (by certified or bank check or such
other instrument as the Company may accept) or by one or more of the following:
(i) in the form of Shares already owned beneficially for a period of more than
six months by the Option holder having an aggregate Fair Market Value on the
date the Option is exercised equal to the aggregate Exercise Price to be paid;
(ii) after a period of six months from the date of grant of any such Option, by
requesting the Company to cancel without payment Options outstanding to such
Person for that number of Shares whose aggregate Fair Market Value on the date
of exercise, when reduced by their aggregate Exercise Price, equals the
aggregate Exercise Price of the Options being exercised; or (iii) by a
combination thereof. Payment for any Shares to be purchased upon exercise of an
Option may also be made by delivering a properly executed exercise notice to the
Company, together with a copy of irrevocable instructions to a broker to deliver
promptly to the Company the amount of sale or loan proceeds to pay the purchase
price. To facilitate the foregoing, the Company may enter into agreements for
coordinated procedures with one or more brokerage firms.
(c) When the requirements of section 4.5(a) and (b) have been
satisfied, the Committee shall take such action as is necessary to cause the
issuance of a stock certificate evidencing the Option holder's ownership of such
Shares. The Person exercising the Option shall have no right to vote or to
receive dividends, nor have any other rights with respect to the Shares, prior
to the date as of which such Shares are transferred to such Person on the stock
transfer records of the Company, and no adjustments shall be made for any
dividends or other rights for which the record date is prior to the date as of
which such transfer is effected, except as may be required under section 5.3.
SECTION 4.6 LIMITATIONS ON OPTIONS.
(a) An Option by its terms shall not be transferable by the
Option holder other than by will or the laws of descent and distribution, or
pursuant to the terms of a Qualified Domestic Relations Order, and shall be
exercisable, during the life of the Option holder, only by the Option holder or
an alternate payee designated pursuant to such a Qualified Domestic Relations
Order; provided, however, that an Eligible Director may, at any time at or after
the grant of an Option under the Plan, apply to the Committee for approval to
transfer all or any portion of such Option which is then unexercised to such
Eligible Director's spouse, and the lineal ascendents and lineal descendants of
such Eligible Director or his spouse, or any one or more of them, or to an
entity wholly owned by (including but not limited to a trust the exclusive
beneficiaries of which are) one or more of them or wholly owned jointly by one
or more of them and the Eligible Director. The Committee may approve or withhold
approval of such transfer in its sole and absolute discretion. If such transfer
is approved, it shall be effected by written notice to the Company given in such
form and manner as the Committee may prescribe and actually received by the
Company prior to the death of the person giving it. Thereafter, the transferee
shall have with respect to such Option, all of the rights, privileges and
obligations which would attach thereunder to the transferor. If a privilege of
the Option depends on the life, employment or other status of the transferor,
such privilege of the Option for the transferee shall continue to depend upon
the life, employment or other status of the transferor. The Committee shall have
full and exclusive authority to interpret and apply the provisions of the Plan
to transferees to the extent not specifically addressed herein.
7
<PAGE> 8
(b) The Company's obligation to deliver Shares with respect to
an Option shall, if the Company so requests, be conditioned upon the receipt of
a representation as to the investment intention of the Person to whom such
Shares are to be delivered, in such form as the Committee shall determine to be
necessary or advisable to comply with the provisions of applicable federal,
state or local law. It may be provided that any such representation shall become
inoperative upon a registration of the Shares or upon the occurrence of any
other event eliminating the necessity of such representation. The Company shall
not be required to deliver any Shares under the Plan prior to (i) the admission
of such Shares to listing on any stock exchange on which Shares may then be
listed, or (ii) the completion of such registration or other qualification under
any state or federal law, rule or regulation as the Company shall determine to
be necessary or advisable.
SECTION 4.7 CHANGE IN CONTROL CASH OUT.
(a) Each Option granted under this Plan shall be accompanied
by a Limited Stock Appreciation Right that is exercisable at the times and upon
the terms and conditions set forth herein. Each Limited Stock Appreciation Right
granted hereunder shall be exercisable for a period commencing on the date on
which a Change in Control of the Company occurs and ending six (6) months after
such date or, if later in the case of any Person, thirty (30) days after the
earliest date on which such Person may exercise the Limited Stock Appreciation
Right without subjecting himself to liability under section 16 of the Securities
Exchange Act of 1934, as amended. A Person in possession of a Limited Stock
Appreciation Right granted hereunder may exercise such Limited Stock
Appreciation Right by:
(i) giving written notice to the Committee, in such form and
manner as the Committee may prescribe, of his intent to exercise the
Limited Stock Appreciation Right; and
(ii) agreeing in such written notice to the cancellation of
Options then outstanding to him for a number of Shares equal to the
number of Shares for which the Limited Stock Appreciation Right is
being exercised.
Except as provided in section 4.7(c), within ten (10) days after the giving of
such a notice, the Committee shall cause the Company to deliver to such Person a
monetary payment in an amount per Share equal to the amount by which the Change
in Control Consideration exceeds the Exercise Price per Share of each of the
Options being canceled.
(b) For purposes of section 4.7(a), the term Change in Control
Consideration shall mean the greater of (i) the highest price per Share paid by
any Person who initiated or sought to effect the Change in Control for a Share
during the period of one (1) year ending on the date of the relevant Change in
Control of the Company; and (ii) the average Fair Market Value of a Share over
the last ten (10) trading days preceding the date of exercise of the Limited
Stock Appreciation Right.
(c) Notwithstanding anything herein contained to the contrary,
the Limited Stock Appreciation Rights granted hereunder shall be canceled
immediately prior to the effective time of a Change in Control of the Company
resulting from a transaction between the Company and another party pursuant to a
written agreement whereby the consummation of the transaction is conditioned
upon the availability of "pooling of interests" accounting treatment (within the
meaning of A.P.B. No. 16 or any successor thereto); provided, however, that the
cancellation of such Limited Stock Appreciation Rights shall be subject to the
following conditions:
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<PAGE> 9
(i) the existence of the Limited Stock Appreciation Rights
would (in the opinion of the firm of independent certified public
accountants regularly engaged to audit the Company's financial
statements) render the transaction ineligible for pooling of interests
accounting treatment;
(ii) the cancellation of the Limited Stock Appreciation Rights
would (in the opinion of the firm of independent certified public
accountants regularly engaged to audit the Company's financial
statements) render the transaction eligible for pooling of interests
accounting treatment;
(iii) the transaction is, in fact, consummated; and
(iv) the written agreement providing for the transaction
provides for each Person to whom a Limited Stock Appreciation Right has
been granted to receive, upon the effective date of such transaction,
property other than cash with a fair market value at least equal to the
monetary payment that would be made upon exercise of the Limited Stock
Appreciation Right.
ARTICLE V
AMENDMENT AND TERMINATION
SECTION 5.1 TERMINATION.
The Board may suspend or terminate the Plan in whole or in
part at any time prior to the tenth anniversary of the Effective Date by giving
written notice of such suspension or termination to the Committee. Unless sooner
terminated, the Plan shall terminate automatically on the day preceding the
tenth anniversary of the Effective Date. In the event of any suspension or
termination of the Plan, all Options theretofore granted under the Plan that are
outstanding on the date of such suspension or termination of the Plan shall
remain outstanding under the terms of the Option agreements evidencing such
Options.
SECTION 5.2 AMENDMENT.
The Board may amend or revise the Plan in whole or in part at
any time; provided, however, that if the amendment or revision:
(a) materially increases the benefits accruing under the Plan;
(b) materially increases the number of Shares which may be
issued under the Plan; or
(c) materially modifies the requirements as to eligibility for
Options under the Plan;
such amendment or revision shall be subject to approval by the shareholders of
the Company.
SECTION 5.3 ADJUSTMENTS IN THE EVENT OF A BUSINESS
REORGANIZATION.
(a) In the event of any merger, consolidation, or other
business reorganization in which the Company is the surviving entity, and in the
event of any stock split, stock dividend or other event generally affecting the
number of Shares held by each Person who is then a holder of record of Shares,
the number of
9
<PAGE> 10
Shares covered by each outstanding Option and the number of Shares available
pursuant to section 4.1 shall be adjusted to account for such event. Such
adjustment shall be effected by multiplying such number of Shares by an amount
equal to the number of Shares that would be owned after such event by a Person
who, immediately prior to such event, was the holder of record of one Share, and
the Exercise Price of the Options shall be adjusted by dividing the Exercise
Price by such number of Shares; provided, however, that the Committee may, in
its discretion, establish another appropriate method of adjustment.
(b) In the event of any merger, consolidation, or other
business reorganization in which the Company is not the surviving entity:
(i) any Options granted under the Plan which remain
outstanding may be canceled as of the effective date of such
merger, consolidation, business reorganization, liquidation or
sale by the Board upon 30 days' written notice to each Option
holder in advance of the effective date of such event; and
(ii) any Option which is not canceled pursuant to
section 5.3(b)(i) shall be adjusted in such manner as the
Committee shall deem appropriate to account for such merger,
consolidation or other business reorganization.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 STATUS AS AN EMPLOYEE BENEFIT PLAN.
This Plan is not intended to satisfy the requirements for
qualification under section 401(a) of the Code or to satisfy the definitional
requirements for an "employee benefit plan" under section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended. It is intended to be a
non-qualified incentive compensation program for self-employed individuals that
is exempt from the regulatory requirements of the Employee Retirement Income
Security Act of 1974, as amended. The Plan shall be construed and administered
so as to effectuate this intent.
SECTION 6.2 NO RIGHT TO CONTINUED EMPLOYMENT.
Neither the establishment of the Plan nor any provisions of
the Plan nor any action of the Board or the Committee with respect to the Plan
shall be held or construed to confer upon any Eligible Director any right to a
continuation of his position as a director of the Company. The Company reserves
the right to remove any Eligible Director or otherwise deal with any Eligible
Director to the same extent as though the Plan had not been adopted.
SECTION 6.3 CONSTRUCTION OF LANGUAGE.
Whenever appropriate in the Plan, words used in the singular
may be read in the plural, words used in the plural may be read in the singular,
and words importing the masculine gender may be read as referring equally to the
feminine or the neuter. Any reference to an Article or section number shall
refer to an Article or section of this Plan unless otherwise indicated.
SECTION 6.4 GOVERNING LAW.
The Plan shall be construed, administered and enforced
according to the laws of the State of New York without giving effect to the
conflict of laws principles thereof, except to the extent that such laws are
preempted by federal law.
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<PAGE> 11
SECTION 6.5 HEADINGS.
The headings of Articles and sections are included solely for
convenience of reference. If there is any conflict between such headings and the
text of the Plan, the text shall control.
SECTION 6.6 NON-ALIENATION OF BENEFITS.
The right to receive a benefit under the Plan shall not be
subject in any manner to anticipation, alienation or assignment, nor shall such
right be liable for or subject to debts, contracts, liabilities, engagements or
torts, except as required by a Qualified Domestic Relations Order or as
otherwise permitted pursuant to section 4.6(a).
SECTION 6.7 TAXES.
The Company shall have the right to deduct from all amounts
paid by the Company in cash with respect to an Option under the Plan any taxes
required by law to be withheld with respect to such Option. Where any Person is
entitled to receive Shares pursuant to the exercise of an Option, the Company
shall have the right to require such Person to pay the Company the amount of any
tax which the Company is required to withhold with respect to such Shares, or,
in lieu thereof, to retain, or to sell without notice, a sufficient number of
Shares to cover the amount required to be withheld.
SECTION 6.8 APPROVAL OF SHAREHOLDERS.
The Plan and all Options and Limited Stock Appreciation Rights
granted hereunder shall be conditioned on the approval of the Plan by the
shareholders of Astoria Financial Corporation. No Option or Limited Stock
Appreciation Right granted under the Plan shall be effective, nor shall any such
Option or Limited Stock Appreciation Right be exercised or any Shares issued or
purchased, prior to such approval.
SECTION 6.9 NOTICES.
Any communication required or permitted to be given under the
Plan, including any notice, direction, designation, comment, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below, or at such other
address as one such party may by written notice specify to the other party:
(a) If to the Compensation Committee:
Astoria Financial Company
One Astoria Federal Plaza
Lake Success, New York 11042-1085
Attention: Corporate Secretary
(b) If to an Option holder, to the Option holder's address as
shown in the Company's records.
11
<PAGE> 1
EXHIBIT 10.22
ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION'S
RETIREMENT MEDICAL AND DENTAL BENEFIT POLICY FOR SENIOR OFFICERS
(VICE PRESIDENTS & ABOVE)
Statement of Policy
Effective July l, 1993, Astoria Federal will provide retirement medical and
dental insurance benefits for senior officers (Vice Presidents and above),
spouse and family, subject to the eligibility provisions of the plan. The
benefits provided would be the standard options defined as the primary plans
reported on IRS Form 5500 filed annually.
The guidelines are as follows:
o Retirement of Officer - must be at least 55 years or age with at least
ten (10) years or service. Coverage will be provided for officer and
spouse for life or until the officer dies and the spouse remarries.
Dependent children are covered subject to the eligibility provisions of
the Plan. Coverage will not be provided for the spouse and for
dependents arising from the post-retirement marriage or remarriage of
the retiree.
If retirement occurs prior to age 65, refer to chart below for percentage of
benefit to be paid by the Association.
<TABLE>
<CAPTION>
Retirement Age Percentage Paid by Association
- -------------- ------------------------------
<S> <C> <C>
55 . . . 50%
56 . . . 55%
57 . . . 60%
58 . . . 65%
59 . . . 70%
60 . . . 75%
61 . . . 80%
62 . . . 85%
63 . . . 90%
64 . . . 95%
65 and older . . . 100%
</TABLE>
If any other insurance option is selected from plans offered by the Association
which is more expensive than the standard option, the Association will pay 30%
of the cost difference between the two options multiplied by the above
percentage.
- - Death of an Officer prior to retirement - spouse covered 100% under the
plans in effect at the time of officer's death or similar plans
selected from future Association plans offered. Coverage remains in
effect until spouse dies or remarries. Dependent children are covered
subject to the eligibility provisions of the policy.
<PAGE> 2
Page 2
Retirement Medical and Dental Benefits
Policy for Senior Officers
July l, 1993
EXAMPLES (Retirement before age 55)
1) Retires at age 62 and selects standard medical and dental options:
<TABLE>
<CAPTION>
Association Officer
Monthly Cost Cost Cost
- ------------ ---- ----
<S> <C> <C> <C>
$600.00 x .85 = $510.00 $90.00
</TABLE>
2) Retiree chooses the more expensive medical and dental options, $900.00
per month.
<TABLE>
<CAPTION>
Standard Association Officer
Cost Supplement * Cost Cost
- ---- ------------ ---- ----
<S> <C> <C> <C>
$510.00 + (.30 x 300 x .85) = $586.50 $313.50
</TABLE>
* 30% - Additional cost paid by the Association.
$300 - Difference between standard options and the higher options.
85% - Early retirement percentage from the chart.
EXAMPLES (Retirement on or after age 65)
1 Retiree selects the standard medical and dental options.
Association pays the full monthly cost of $600.00.
2) Retiree chooses the more expensive medical and dental options, $900 per
month.
<TABLE>
<CAPTION>
Standard Association Officer
Cost Supplement Cost Cost
- ---- ---------- ---- ----
<S> <C> <C> <C>
$600.00 + (.30 x 300) = $690.00 $210.00
</TABLE>
Astoria Federal reserves the right to amend or terminate this policy at any
time.
<PAGE> 1
EXHIBIT 10.29
As Amended December 17, 1997
ASTORIA FINANCIAL CORPORATION
1993 INCENTIVE STOCK OPTION PLAN
1. PURPOSE. The purpose of the Astoria Financial Corporation (the "Holding
Company") 1993 Incentive Stock Option Plan (the "Plan") is to advance the
interests of the Holding Company and its shareholders by providing those key
employees of the Holding Company and its Affiliates, including Astoria Federal
Savings and Loan Association (the "Association"), upon whose judgment,
initiative and efforts the successful conduct of the business of the Holding
Company and its affiliates largely depends, with additional incentive to perform
in a superior manner. A purpose of the Plan is also to attract people of
experience and ability to the service of the Holding Company and its Affiliates.
2. DEFINITIONS.
(a) "Affiliate" means (i) a member of a controlled group of
corporations of which the Holding Company is a member or (ii) an unincorporated
trade or business which is under common control with the Holding Company as
determined in accordance with Section 414(c) of the Internal Revenue Code of
1986, as amended, (the "Code") and the regulations issued thereunder. For
purposes hereof, a "controlled group of corporations" shall mean a controlled
group of corporations as defined in Section 1563(a) of the Code determined
without regard to Section 1563(a)(4) and (e)(3)(C).
(b) "Award" means a grant of Non-statutory Stock Options, Incentive
Stock Options, and/or Limited Rights under the provisions of this Plan.
(c) "Board of Directors" or "Board" means the board of directors of the
Holding Company.
(d) "Change in Control" for purposes of this Plan, a "Change in
Control" of the Association or Company shall mean an event of a nature that; (i)
would be required to be reported in response to Item 1 of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Association or the Company within the meaning of the
Home Owners' Loan Act of 1933, as amended and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), as in effect on the date hereof (provided, that in applying the
definition of change in control as set forth under the rules and regulations of
the OTS, the Board shall substitute its judgment for that of the OTS); or (iii)
without limitation such a Change in Control shall be deemed to have occurred at
such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly,
1
<PAGE> 2
of securities of the Association or the Company representing 20% or more of the
Association's or the Company's outstanding securities except for any securities
of the Association purchased by the Company in connection with the conversion of
the Association to the stock form and any securities purchased by any tax
qualified employee benefit plan of the Association; or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Company's stockholders was
approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he were a member
of the Incumbent Board; or (C) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Association or the Company or
similar transaction occurs in which the Association or Company is not the
resulting entity; or (D) a proxy statement soliciting proxies from shareholders
of the Company, by someone other than the current management of the Company,
seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or Association or similar transaction with one or
more corporations as a result of which the outstanding shares of the class of
securities then subject to the plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Association or
the Company shall be distributed; or (E) a tender offer is made for 20% or more
of the voting securities of the Association of the Company.
(e) "Committee" means a committee consisting of those members of the
Compensation Committee of the Association (until such time as the Holding
Company has a Compensation Committee) who are non-employee members of the Board
of Directors, all of whom are "disinterested directors" as such term is defined"
under Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as promulgated by the Securities and Exchange Commission.
(f) "Common Stock" means the Common Stock of the Holding Company, par
value, $.01 per share.
(g) "Date of Grant" means the date an Award granted by the Committee is
effective pursuant to the terms hereof.
(h) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him. Additionally, a medical doctor selected or approved
by the Board of Directors must advise the Committee that it is either not
possible to determine when such Disability will terminate or that it appears
probable that such Disability will be permanent during the remainder of said
participant's lifetime.
(i) "Fair Market Value" means, when used in connection with the Common
Stock on a certain date, the average of the reported bid and ask price of the
Common Stock as reported by the National Association of Securities Dealers
Automated Quotation System (as published by the
2
<PAGE> 3
Wall Street Journal, if published) on such date or if the Common Stock was not
traded on such date, on the next preceding day on which the Common Stock was
traded thereon or the last previous date on which a sale is reported. For
purposes of the grant of options in the conversion of the Association, Fair
Market Value shall mean the initial public offering price of the Common Stock
which was $25.00 per share.
(j) "Incentive Stock Option means an Option granted by the Committee to
a Participant, which Option is designed as an Incentive Stock Option pursuant to
Section 8.
(k) "Limited Right" means the right to receive an amount of cash based
upon the terms set forth in Section 9.
(l) "Non-statutory Stock Option" means an Option granted by the
Committee to a participant and which is not designated by the Committee as an
Incentive Stock Option.
(m) "Normal Retirement" means retirement at the normal or early
retirement date as set forth in any tax-qualified retirement/pension plan of the
Association.
(n) "Option" means Award granted under Section 7 or Section 8.
(o) "Participant" means an employee of the Holding Company or its
affiliates chosen by the Committee to participate in the Plan.
(p) "Plan Year(s)" means a calendar year or years commencing on or
after January 1, 1994.
(q) "Termination for Cause" means the termination upon an intentional
failure to perform stated duties, breach of a fiduciary duty involving personal
dishonesty, which results in material loss to the Holding Company or one of its
affiliates or willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or final cease-and-desist order which
results in material loss to the Holding Company or one of its affiliates.
3. ADMINISTRATION.
The Plan shall be administered by the Committee. The Committee is
authorized, subject to the provisions of the Plan, to establish such rules and
regulations as it sees necessary for the proper administration of the Plan and
to make whatever determinations and interpretations in connection with the Plan
it sees as necessary or advisable. All determinations and interpretations made
by the Committee shall be binding and conclusive on all Participants in the Plan
and on their legal representatives and beneficiaries.
3
<PAGE> 4
4. TYPES OF AWARDS.
Awards under the Plan may be granted in any one or a combination of:
(a) Non-statutory Stock Options;
(b) Incentive Stock Options; and
(c) Limited Rights
as defined below in paragraphs 7 through 9 of the Plan.
5. STOCK SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section 13, the maximum number of
shares reserved for purchase pursuant to the exercise of options granted under
the Plan shall not exceed 1,035,047 of the shares of Common Stock of the Holding
Company, par value $.01 per share, subject to adjustments pursuant to this
Section 5. These shares of Common Stock may be either authorized but unissued
shares or shares previously issued and reacquired by the Holding Company. To the
extent that options or Limited Rights are granted under the Plan, the shares
underlying such options will be unavailable for future grants under the Plan
except that, to the extent that options together with any related Limited Rights
granted under the Plan terminate, expire or are cancelled without having been
exercised (in the case of Limited Rights, exercised for cash) new awards may be
made with respect to these shares.
6. ELIGIBILITY.
Officers and other employees of the Holding Company or its affiliates
shall be eligible to receive Incentive Stock Options, Non-statutory Stock
Options and/or Limited Rights under the Plan. Directors who are not employees or
officers of the Holding Company or its affiliates shall not be eligible to
receive Awards under the Plan.
7. NON-STATUTORY STOCK OPTIONS.
7.1 Grant of Non-statutory Stock Options.
The Committee may, from time to time, grant Non-statutory
Stock Options to eligible employees and, upon such terms and conditions as the
Committee may determine, grant Non-statutory options in exchange for and upon
surrender of previously granted Awards under this Plan. Non-statutory Stock
Options granted under this Plan are subject to the following terms and
conditions:
(a) Price. The purchase price per share of Common Stock deliverable
upon the exercise of each Non-statutory Stock Option shall be determined by the
Committee on the date the option is granted. In general, such purchase price
shall not be less than 100% of the Fair
4
<PAGE> 5
Market Value of the Holding Company's Common Stock on the Date of Grant. Shares
may be purchased only upon full payment of the purchase price. Payment of the
purchase price may be made, in whole or in part, through the surrender of shares
of the Common Stock of the Holding Company at the Fair Market Value of such
shares on the date of surrender determined in the manner described in Section
2(i).
(b) Terms of Options. The term during which each Non-statutory Stock
Option may be exercised shall be determined by the Committee, but in no event
shall a Non-statutory Stock Option be exercisable in whole or in part more than
10 years from the Date of Grant. The Committee shall determine the date on which
each Non-statutory Stock Option shall become exercisable and may provide that a
Non-statutory Stock Option shall become exercisable in installments. The shares
comprising each installment may be purchased in whole or in part at any time
after such installment becomes purchasable. The Committee may, in its sole
discretion, accelerate the time at which any Non-statutory Stock Option may be
exercised in whole or in part. Notwithstanding the above, in the event of a
Change in Control of the Holding Company, all Non-statutory Stock Options shall
become immediately exercisable.
(c) Termination of Employment. Unless otherwise determined by the
Committee at the time a Stock Option is granted, upon the termination of a
Participant's service for any reason other than Disability, Normal Retirement,
change in control death or Termination for Cause, the Participant's
Non-statutory Stock Options shall be exercisable only as to those shares which
were immediately purchasable by the Participant at the date of termination and
only for a period of three months following termination. Notwithstanding any
provision set forth herein nor contained in any Agreement relating to the award
of a Stock Option, in the event of Termination for Cause, all rights under the
Participant's Non-statutory Stock Options shall expire upon termination. Unless
otherwise determined by the Committee at the time a Stock Option is granted, in
the event of the death, Disability or Normal Retirement of any Participant, all
Non-statutory Stock Options held by the Participant, whether or not exercisable
at such time, shall be exercisable by the Participant or his legal
representatives or beneficiaries of the Participant for one year or such longer
period as determined by the Committee following the date of the Participant's
death, Normal Retirement or cessation of employment due to Disability, provided
that in no event shall the period extend beyond the expiration of the
Non-statutory Stock Option term. Notwithstanding the foregoing, shares acquired
pursuant to the exercise of options following Normal Retirement or Disability
within one year of the date of the Conversion may not be sold until the
anniversary date of the Conversion.
8. INCENTIVE STOCK OPTIONS.
8.1 Grant of Incentive Stock Options.
The Committee may, from time to time, grant Incentive Stock
Options to eligible employees. Incentive Stock Options granted pursuant to the
Plan shall be subject to the following terms and conditions:
5
<PAGE> 6
(a) Price. The purchase price per share of Common Stock
deliverable upon the exercise of each Incentive Stock Option shall be not less
than 100% of the Fair Market Value of the Holding Company's Common Stock on the
Date of Grant. However, if a Participant owns stock possessing more than 10% of
the total combined voting power of all classes of Common Stock of the Holding
Company, the purchase price per share of Common Stock deliverable upon the
exercise of each Incentive Stock Option shall not be less than 110% of the Fair
Market Value of the Holding Company's Common Stock on the Date of Grant. Shares
may be purchased only upon payment of the full purchase price. Payment of the
purchase price may be made, in whole or in part, through the surrender of shares
of the Common Stock of the Holding Company at the Fair Market Value of such
shares on the date of surrender determined in the manner described in Section
2(h).
(b) Amounts of Options. Incentive Stock Options may be granted to any
eligible employee in such amounts as determined by the Committee. In the case of
an option intended to qualify as an Incentive Stock Option, the aggregate Fair
Market Value (determined as of the time the option is granted) of the Common
Stock with respect to which Incentive Stock Options granted are exercisable for
the first time by the Participant during any calendar year (under all plans of
the Participant's employer corporation and its parent and subsidiary
corporations) shall not exceed $100,000. The provisions of this Section 8.1(b)
shall be construed and applied in accordance with Section 422(d) of the Code and
the regulations, if any, promulgated thereunder. To the extent an award under
this Section 8.1 exceeds this $100,000 limit, the portion of the award in excess
of such limit shall be deemed a Non-statutory Option.
(c) Terms of Options. The term during which each Incentive Stock Option
may be exercised shall be determined by the Committee, but in no event shall an
Incentive Stock Option be exercisable in whole or in part more than 10 years
from the Date of Grant. If at the time an Incentive Stock Option is granted to
an employee, the employee owns Common Stock representing more than 10% of the
total combined voting power of the Holding Company (or, under Section 425(d) of
the Code, is deemed to own Common Stock representing more than 10% of the total
combined voting power of all such classes of Common Stock, by reason of the
ownership of such classes of Common Stock, directly or indirectly, by or for any
brother, sister, spouse, ancestor or lineal descendent of such employee, or by
or for any corporation, partnership, estate or trust of which such employee is a
shareholder, partner or beneficiary), the Incentive Stock Option granted to such
employee shall not be exercisable after the expiration of five years from the
Date of Grant. No Incentive Stock Option granted under this Plan is transferable
except by will or the laws of descent and distribution and is exercisable in his
lifetime only by the employee to whom it is granted.
The Committee shall determine the date on which each Incentive Stock
Option shall become exercisable and may provide that an Incentive Stock Option
shall become exercisable in installments. The shares comprising each installment
may be purchased in whole or in part at any time after such installment becomes
purchasable, provided that the amount able to be first exercised in a given year
is consistent with the terms of Section 422 of the Code. The Committee
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may, in its sole discretion, accelerate the time at which any Incentive Stock
Option may be exercised in whole or in part, provided that it is consistent with
the terms of Section 422 of the Code. Notwithstanding the above, in the event of
a Change in Control of the Holding Company, all Incentive Stock Options shall
become immediately exercisable.
(d) Termination of Employment. Upon the termination of a Participant's
service for any reason other than Disability, Normal Retirement, Change in
Control, death or Termination for Cause, the Participant's Incentive Stock
Options shall be exercisable only as to those shares which were immediately
purchasable by the Participant at the date of termination and only for a period
of three months following termination. In the event of Termination for Cause all
rights under the Participant's Incentive Stock Options shall expire upon
termination.
In the event of death or Disability of any employee, all Incentive
Stock Options held by such Participant, whether or not exercisable at such time,
shall be exercisable by the Participant or the Participant's legal
representatives or beneficiaries for one year following the date of the
Participant's death or cessation of employment due to Disability. Upon
termination of the Participant's service due to Normal Retirement, or a Change
in Control, all Incentive Stock Options held by such Participant, whether or not
exercisable at such time, shall be exercisable for a period of one year
following the date of Participant's cessation of employment, provided however,
that such option shall not be eligible for treatment as an Incentive Stock
Option in the event such option is exercised more than three months following
the date of the Participant's Normal Retirement. In no event shall the exercise
period extend beyond the expiration of the Incentive Stock Option term.
Notwithstanding the foregoing, shares acquired pursuant to the exercise of
options following Normal Retirement or Disability within one year of the date of
the conversion may not be sold until the anniversary date of the Conversion.
(e) Compliance with Code. The options granted under this Section 8 of
the Plan are intended to qualify as incentive stock options within the meaning
of Section 422 of the Code, but the Company makes no warranty as to the
qualification of any option as an incentive stock option within the meaning of
Section 422 of the Code.
9. LIMITED RIGHTS.
9.1 Grant of Limited Rights.
Simultaneously with the grant of any option, the Committee may
grant a Limited Right with respect to all or some of the shares covered by such
option. Limited Rights granted under this Plan are subject to the following
terms and conditions:
(a) Terms of Rights. In no event shall a Limited Right be exercisable
in whole or in part before the expiration of six months from the Date of Grant
of the Limited Right. A Limited Right may be exercised only in the event of a
Change in Control of the Holding Company.
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The Limited Right may be exercised only when the underlying option is
eligible to be exercised, and only when the Fair Market Value of the underlying
shares on the day of exercise is greater than the exercise price of the related
option.
Upon exercise of a Limited Right, the related option shall cease to be
exercisable. Upon exercise or termination of an option, any related Limited
Rights shall terminate. The Limited Rights may be for no more than 100% of the
difference between the exercise price and the Fair Market Value of the Common
Stock subject to the underlying option. The Limited Right is transferable only
when the underlying option is transferable and under the same conditions.
(b) Payment. Upon exercise of a Limited Right, the holder shall
promptly receive from the Holding Company an amount of cash equal to the
difference between the Fair Market Value on the Date of Grant of the related
option and the Fair Market Value of the underlying shares on the date the
Limited Right is exercised, multiplied by the number of shares with respect to
which such Limited Right is being exercised.
(c) Termination of Employment. Upon the termination of a Participant's
service for any reason other than Termination for Cause, any Limited Rights held
by the Participant shall then be exercisable for a period of one year following
termination. In the event of Termination for Cause, all Limited Rights held by
the Participant shall expire immediately. Upon termination of the Participant's
employment for reason of death, Normal Retirement or Disability, all Limited
Rights held by such Participant shall be exercisable by the Participant or the
Participant's legal representative or beneficiaries for a period of one year
from the date of such termination. In no event shall the period extend beyond
the expiration of the term of the related option.
10. SURRENDER OPTION.
In the event of a Participant's termination of employment as a result
of death, disability or Normal Retirement, the Participant (or the Participant's
personal representative(s), heir(s), or devisee(s)) may, in a form acceptable to
the Committee make application to surrender all or part of options held by such
Participant in exchange for a cash payment from the Holding Company of an amount
equal to the difference between the Fair Market Value of the Common Stock on the
date of termination of employment and the exercise price per share of the option
on the Date of Grant. Whether the Committee accepts such application or
determines to make payment, in whole or part, is within its absolute and sole
discretion, it being expressly understood that the Committee is under no
obligation to any Participant whatsoever to make such payments. In the event
that the Committee accepts such application and the Company determines to make
payment, such payment shall be in lieu of the exercise of the underlying option
and such option shall cease to be exercisable.
11. RIGHTS OF A SHAREHOLDER: NONTRANSFERABILITY.
An Option by its terms shall not be transferable by the optionee other
than by will or the
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laws of descent and distribution, and shall be exercisable, during the life of
the Option holder, only by the Option holder or by his guardian or legal
representative; provided, however, that an optionee may, at any time at or after
the grant of a Non-statutory Stock Option under the Plan, apply to the Committee
for approval to transfer all or any portion of such Non-statutory Stock Option
which is then unexercised to such optionee's spouse, and the lineal ascendents
and lineal descendants of such optionee or his spouse, or any one or more of
them, or to an entity wholly owned by (including but not limited to a trust the
exclusive beneficiaries of which are) one or more of them or wholly owned
jointly by one or more of them and the optionee The Committee may approve or
withhold approval of such transfer in its sole and absolute discretion. If such
transfer is approved, it shall be effected by written notice to the Holding
Company given in such form and manner as the Committee may prescribe and
actually received by the Holding Company prior to the death of the person giving
it. Thereafter, the transferee shall have with respect to such Non-statutory
Stock Option, all of the rights, privileges and obligations which would attach
thereunder to the transferor. If a privilege of the option depends on the life,
employment or other status of the transferor, such privilege of the option for
the transferee shall continue to depend upon the life, employment or other
status of the transferor. The Committee shall have full and exclusive authority
to interpret and apply the provisions of the Plan to transferees to the extent
not specifically addressed herein.
12. AGREEMENT WITH GRANTEES.
Each Award of Options, and/or Limited Rights will be evidenced by a
written agreement, executed by the Participant and the Holding Company or its
Affiliates which describes the conditions for receiving the Awards including the
date of Award, the purchase price if any, applicable periods, and any other
terms and conditions as may be required by the Board of Directors or applicable
securities law.
13. DESIGNATION OF BENEFICIARY.
A Participant may, with the consent of the Committee, designate a
person or persons to receive, in the event of death, any stock option or Limited
Rights Award to which the Participant would then be entitled. Such designation
will be made upon forms supplied by and delivered to the Holding Company and may
be revoked in writing. If a Participant fails effectively to designate a
beneficiary, then the Participant's estate will be deemed to be the beneficiary.
14. DILUTION AND OTHER ADJUSTMENTS.
In the event of any change in the outstanding shares of Common Stock of
the Holding Company by reason of any stock dividend or split, recapitalization,
merger, consolidation, spin-off, reorganization, combination or exchange of
shares, or other similar corporate change, or other increase or decrease in such
shares without receipt or payment of consideration by the Company, the Committee
will make such adjustments to previously granted Awards, to prevent dilution or
enlargement of the rights of the Participant, including any or all of the
following:
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(a) adjustments in the aggregate number or kind of shares of
Common Stock which may be awarded under the Plan;
(b) adjustments in the aggregate number or kind of shares of
Common Stock covered by Awards already made under the Plan;
(c) adjustments in the purchase price of outstanding Incentive
and/or Non-statutory Stock Options, or any Limited Rights
attached to such options.
No such adjustments may, however, materially change the value of
benefits available to a Participant under a previously granted Award.
15. TAX WITHHOLDING.
There shall be deducted from each distribution of cash and/or Common
Stock under the Plan the amount required by any governmental authority to be
withheld for income tax purposes. If this Plan is qualified under 17 C.F.R.
Section 240.16b-3 under the Exchange Act ("Rule 16b-3") , then any withholding
shall comply with 17 C.F.R. Section 240.16b-3(e).
16. AMENDMENT OF THE PLAN.
The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect; provided further that if it has been
determined to continue to qualify the Plan under Rule 16b-3, shareholder
approval shall be required for any such modification or amendment which:
(a) increases the maximum number of shares for which options may
be granted under the Plan (subject, however, to the provisions
of Section 13 hereof);
(b) reduces the exercise price at which Awards may be granted
subject, however, to the provisions of Section 13 hereof):
(c) extends the period during which options may be granted or
exercised beyond the times originally prescribed; or
(d) changes the persons eligible to participate in the Plan.
Failure to ratify or approve amendments or modifications to subsections
(a) through (d) of this Section by shareholders shall be effective only as to
the specific amendment or modification requiring such ratification. Other
provisions, sections, and subsections of this Plan will remain in full force and
effect.
No such termination, modification or amendment may affect the rights of
a Participant
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under an outstanding Award.
17. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon the consummation of the conversion
of Astoria Federal Savings and Loan Association from the mutual to capital stock
form of ownership (the "Effective Date") on November 18, 1993. The Plan shall be
presented to shareholders of the Holding Company for ratification for purposes
of: (i) obtaining favorable treatment under Section 16(b) of the Exchange Act ;
(ii) satisfying one of the requirements of Section 422 of the Code governing the
tax treatment for Incentive Stock Options; and (iii) maintaining listing on the
Nasdaq National Market. The failure to obtain shareholder ratification will not
effect the validity of the Plan and the options thereunder, provided, however,
that if the Plan is not ratified, the Plan shall remain in full force and
effect, and any Incentive Stock Options granted under the Plan shall be deemed
to be Non-statutory Stock Options.
18. TERMINATION OF THE PLAN.
The right to grant Awards under the Plan will terminate upon the
earlier of ten (10) years after the Effective Date of the Plan or the issuance
of Common Stock or the exercise of options or related Limited Rights equivalent
to the maximum number of shares reserved under the Plan as set forth in Section
5. The Board of Directors has the right to suspend or terminate the Plan at any
time, provided that no such action will, without the consent of a Participant,
adversely affect his rights under a previously granted Award.
19. APPLICABLE LAW.
The Plan will be administered in accordance with the laws of the State
of New York to the extent not preempted by Federal law.
20. COMPLIANCE WITH SECTION 16.
If this Plan is qualified under Rule 16b-3 , with respect to persons
subject to Section 16 of the Exchange Act, transactions under this Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent any provisions of the Plan or
action by the Committee fail to so comply, it shall be deemed null and void, to
the extent permitted by law and deemed advisable by the Committee.
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EXHIBIT 10.30
ASTORIA FINANCIAL CORPORATION
1993 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
(AS AMENDED DECEMBER 17, 1997)
I. PURPOSE
The purpose of the Astoria Financial Corporation (the "Holding
Company") 1993 Stock Option Plan for Outside Directors of the Holding Company
and its affiliates, including the outside directors of Astoria Federal Savings
and Loan Association (the "Association") (the "Directors' Option Plan" or the
"Plan") is to promote the growth and profitability of the Holding Company and
the Association by providing outside directors of the Holding Company and its
affiliates with an incentive to achieve long-term objectives of the Holding
Company and to attract and retain non-employee directors of outstanding
competence by providing such outside directors with an opportunity to acquire an
equity interest in the Holding Company.
II. GRANT OF OPTIONS
(a) Initial Grant. Each outside director with service in excess of two
years (for purposes of this Directors' Option Plan, the term "Outside Director"
shall mean a member of the Board of Directors of the Holding Company or any of
its affiliates not also serving as a full-time employee of the Holding Company
or any of its affiliates), who is serving in such capacity on the date of the
Holding Company's initial public offering and at the effective date of this
Directors' Option Plan, is hereby granted non-statutory stock options to
purchase 38,157 shares of the common stock of the Holding Company ("Common
Stock"), subject to adjustment as provided in Section IV hereof. Each Outside
Director with less than two years of service at the time of the Conversion is
hereby granted non-statutory stock options to purchase 10,177 shares of Common
Stock, subject to adjustment as provided in Section IV hereof.
The purchase price per share of the Common Stock deliverable upon the
exercise of each non-statutory stock option shall be the initial public offering
price of the Common Stock sold in connection with the conversion of the
Association to the stock form. The effective date of these initial grants shall
be the effective date of the Directors' Option Plan as defined in Section V
hereof ("Effective Date").
(b) Grants to Subsequent Outside Directors. To the extent options are
available for grant under the Directors' Option Plan, each Outside Director who
is first appointed as a director subsequent to the Effective Date ("Subsequent
Outside Director") is hereby granted, as of the date on which such Subsequent
Outside Director is qualified and first begins to serve as an Outside Director,
non-statutory stock options to purchase 10,177 shares of Common Stock, subject
to adjustment pursuant to Section IV, or to purchase such lesser number of
shares of
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Common Stock as remain in this Directors' Option Plan.
The purchase price per share of the Common Stock deliverable upon
exercise of such option shall equal the Fair Market Value of the Common Stock on
the date of the grant of this option as determined under paragraph (d) of this
Section II.
If options for sufficient shares are not available under the Directors'
Option Plan to fulfill the grant of options under Section II(b) hereof to any
Subsequent Outside Director first elected subsequent to the Effective Date, and
thereafter options become available, such Subsequent Outside Director shall then
receive options to purchase an amount of shares of Common Stock, determined by
dividing pro rata among each Subsequent Outside Director, options for the number
of shares then available under the Outside Directors' Plan, not to exceed
options for shares with the values set forth in the preceding two paragraphs
with respect to Subsequent Outside Directors, subject to adjustment under
Section IV as appropriate. The date of grant shall be the date options for such
shares become available. The purchase price per share of the Common Stock
deliverable upon exercise of such options shall equal the Fair Market Value of
the Common Stock on the date the option is granted as determined under paragraph
(d) of this Section II.
(c) Ineligibility. An option under the Directors' Option Plan shall not
be granted to any Outside Director who at any previous time was an employee of
either the Company or the Association and in such capacity was eligible to
receive any options to purchase Common Stock.
(d) Fair Market Value. For purposes of the Directors' Option Plan, when
used in connection with Common Stock on a certain date, Fair Market Value means
the average of the bid and ask prices of the Common Stock as reported by the
National Association of Securities Dealers Automated Quotation System (as
published by the Wall Street Journal, if published) on the effective date of the
grant, or if the Common Stock was not traded on such date, on the next preceding
day on which the Common Stock was traded thereon. For purposes of the grant of
options in the Conversion as defined in Section V hereof, of the Association,
Fair Market Value shall mean the initial public offering price of the Common
Stock ($25.00 per share).
III. TERMS AND CONDITIONS
(a) Option Agreement. Each option shall be evidenced by a written
option agreement between the Holding Company and the recipient specifying the
number of shares of Common Stock that may be acquired through its exercise and
containing such other terms and conditions which are not inconsistent with the
terms of this grant.
(b) Vesting. Each option granted pursuant to Section II(a) or (b)
hereof shall become exercisable in three annual installments of thirty-three and
one-third percent (33 1/3%). The first installment of options granted pursuant
to Section II(a) shall vest on the tenth business day of January 1995. The first
installment of options granted pursuant to Section II(b) shall vest on the tenth
business day of the January following that date on which such Subsequent Outside
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Director is qualified and first begins to serve as an Outside Director.
(c) Manner of Exercise. The option when exercisable may be exercised
from time to time, in whole or in part, by delivering a written notice of
exercise to the Chief Executive Officer of the Holding Company signed by the
recipient. Such notice is irrevocable and must be accompanied by full payment of
the exercise price (as determined in Section II(a) or (b) hereof) in cash or
shares of previously acquired Common Stock of the Holding Company at the Fair
Market Value of such shares determined on the exercise date by the manner
described in Section II(d) above.
(d) Transferability. Each option granted hereby may be exercised only
by the recipient to whom it is issued, or in the event of the Outside Director's
death, his or her personal representative(s) or designee(s), heir(s) or
devisee(s) pursuant to the terms of Section III hereof; provided, however, that
an optionee may, at any time at or after the grant of an option under the Plan,
apply to the Compensation Committee of the Board of Directors ("Committee") for
approval to transfer all or any portion of such option which is then unexercised
to such optionee's spouse, and the lineal ascendents and lineal descendants of
such optionee or his spouse, or any one or more of them, or to an entity wholly
owned by (including but not limited to a trust the exclusive beneficiaries of
which are) one or more of them or wholly owned jointly by one or more of them
and the optionee The Committee may approve or withhold approval of such transfer
in its sole and absolute discretion. If such transfer is approved, it shall be
effected by written notice to the Holding Company given in such form and manner
as the Committee may prescribe and actually received by the Holding Company
prior to the death of the person giving it. Thereafter, the transferee shall
have with respect to such option, all of the rights, privileges and obligations
which would attach thereunder to the transferor. If a privilege of the option
depends on the life, employment or other status of the transferor, such
privilege of the option for the transferee shall continue to depend upon the
life, employment or other status of the transferor. The Committee shall have
full and exclusive authority to interpret and apply the provisions of the Plan
to transferees to the extent not specifically addressed herein.
(e) Termination of Service. Upon the termination of a recipient's
service for any reason other than disability, retirement, Change in Control,
death or removal for cause, the participant's stock options shall be exercisable
only as to those shares which were immediately purchasable by the recipient at
the date of termination.
In the event of death or disability of any recipient, all stock options
held by such recipient, whether or not exercisable at such time, shall become
immediately exercisable by the recipient or the recipient's legal
representatives or beneficiaries. Upon termination of the recipient's service
due to retirement, or a Change in Control, all stock options held by such
recipient, whether or not exercisable at such time, shall become immediately
exercisable. However, shares of Common Stock acquired through the exercise of
options granted under Section II may not be sold or otherwise disposed of for a
period of one year from the date of grant of the option. For purposes of this
plan the following terms are defined:
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(i) "Change in Control" for purposes of this Plan, a "Change
in Control" of the Association or Company shall mean an event of a
nature that; (1) would be required to be reported in response to Item 1
of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act"); or (2) results in a Change in Control of the
Association or the Company within the meaning of the Home Owners' Loan
Act of 1933, as amended and the Rules and Regulations promulgated by
the Office of Thrift Supervision ("OTS") (or its predecessor agency),
as in effect on the date hereof (provided, that in applying the
definition of change in control as set forth under the rules and
regulations of the OTS, the Board shall substitute its judgment for
that of the OTS); or (3) without limitation such a Change in Control
shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Association
or the Company representing 20% or more of the Association's or the
Company's outstanding securities except for any securities of the
Association purchased by the Company in connection with the conversion
of the Association to the stock form and any securities purchased by
any tax-qualified employee benefit plan of the Association; or (B)
individuals who constitute the Board on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters
of the directors comprising the Incumbent Board, or whose nomination
for election by the Company's stockholders was approved by the same
Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (B), considered as though he were a member of
the Incumbent Board; or (C) a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the
Association or the Company or similar transaction occurs in which the
Association or Company is not the resulting entity; or (D) a proxy
statement soliciting proxies from shareholders of the Company, by
someone other than the current management of the Company, seeking
stockholder approval of a plan of reorganization, merger or
consolidation of the Company or Association or similar transaction with
one or more corporations as a result of which the outstanding shares of
the class of securities then subject to the plan or transaction are
exchanged for or converted into cash or property or securities not
issued by the Association or the Company shall be distributed; or (E) a
tender offer is made for 20% or more of the voting securities of the
Association or the Company.
(ii) "Disability" means the permanent and total inability by
reason of mental or physical infirmity, or both, of an outside director
to perform the work customarily assigned to him. Additionally, a
medical doctor selected or approved by the Board of Directors must
advise the Board that it is either not possible to determine when such
disability will terminate or that it appears probable that such
disability will be permanent during the remainder of said recipient's
lifetime.
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(iii) "Retirement" means the termination of service from the
board of directors of the Association and/or the Company following
written notice to the Board as a whole of such Director's intention to
retire or retirement as determined by the Association's bylaws.
(f) Termination of Option. Each option shall expire upon the earlier of
(i) one hundred and twenty (120) months following the date of grant, or (ii) one
(1) year following the date on which the Outside Director ceases to serve in
such capacity for any reason other than removal for cause. Provided, however,
that if the recipient's service on the Board of Directors is terminated for any
reason other than being removed for cause prior to the date the Plan is
presented to the shareholders of the Company for ratification, the option may
not be exercised prior to the date of the shareholders' meeting regarding such
ratification but shall remain exercisable for a period of one year from the date
of such meeting. If the Outside Director dies before fully exercising any
portion of an option then exercisable, such option may be exercised by such
Outside Director's beneficiary, personal representative(s), heir(s) or
devisee(s) at any time within the one (1) year period following his or her
death; provided, however, that in no event shall the option be exercisable more
than one hundred and twenty (120) months after the date of its grant. If the
Outside Director is removed for cause, all options awarded to him shall expire
upon such removal.
IV. COMMON STOCK SUBJECT TO THE DIRECTORS' OPTION PLAN
The shares which shall be issued and delivered upon exercise of options
granted under the Directors' Option Plan may be either authorized and unissued
shares of Common Stock or authorized and issued shares of Common Stock held by
the Holding Company as treasury stock. The number of shares of Common Stock
reserved for issuance under the Directors' Option Plan shall not exceed 286,983
shares of the Common Stock of the Holding Company, par value $.01 per share,
subject to adjustments pursuant to this Section IV. Any shares of Common Stock
subject to an option which for any reason either terminates unexercised or
expires, shall again be available for issuance under the Directors' Option Plan.
In the event of any change or changes in the outstanding Common Stock
of the Holding Company by reason of any stock dividend or split,
recapitalization, reorganization, merger, consolidation, spin-off, combination
or any similar corporate change, or other increase or decrease in such shares
effected without receipt or payment of consideration by the Company, the number
of shares of Common Stock which may be issued under this Directors' Option Plan,
the number of shares of Common Stock subject to options granted under this
Directors' Option Plan and the option price of such options, shall be
automatically adjusted to prevent dilution or enlargement of the rights granted
to recipient under the Directors' Option Plan.
V. EFFECTIVE DATE OF THE PLAN; SHAREHOLDER RATIFICATION
The Directors' Option Plan after adoption by the Board of Directors
shall become effective
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upon the conversion of the Association from the mutual to capital stock form of
ownership and the acquisition of the Association by the Holding Company (the
"Conversion"). Following Conversion, the Directors' Option Plan shall be
presented to shareholders of the Company for ratification for purposes of (i)
obtaining favorable treatment under Section 16(b) of the Exchange Act; and (ii)
maintaining listing on the Nasdaq National Market; provided, however, that the
failure to obtain shareholder ratification shall not affect the validity of this
Plan and the options granted hereunder.
VI TERMINATION OF THE PLAN
The right to grant options under the Directors' Option Plan will
terminate automatically upon the earlier of ten years after the Effective Date
of the Plan or the issuance 287,453 shares of Common Stock (the maximum number
of shares of Common Stock reserved for under this Plan) subject to adjustment
pursuant to Section IV hereof. A majority of the outstanding shares of the
Common Stock entitled to vote is required to terminate the Directors' Option
Plan for any other reason; provided, however, no such termination shall, without
the consent of the affected recipient, affect such recipient's rights under a
previously granted option.
VII. AMENDMENT OF THE PLAN
The Directors' Option Plan may be amended from time to time by the
Board of Directors of the Company provided that Section II and III hereof shall
not be amended more than once every six months other than to comport with the
Internal Revenue Code of 1986, as amended, or the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder. Except as provided in
Section IV hereof, rights and obligations under any option granted before an
amendment shall not be altered or impaired by such amendment without the written
consent of the optionee. If the Directors' Option Plan becomes qualified under
17 C.F.R. Section 240.16(b)-3 ("Rule 16(b)-3") of the rules and regulations
promulgated under the Exchange Act and an amendment would require shareholder
approval under such Rule 16(b)-3 to retain the Plan's qualification, then
subject to the discretion of the Board of Directors of the Holding Company, such
amendment shall be presented to shareholders for ratification, provided,
however, that the failure to obtain shareholder ratification shall not affect
the validity of this Plan as so amended and the options granted thereunder.
VIII. APPLICABLE LAW
The Plan will be administered in accordance with the laws of the State
of New York to the extent not preempted by federal law.
IX. COMPLIANCE WITH SECTION 16
If this Plan is qualified under Rule 16b-3 transactions under this Plan
are intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To
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the extent that any provision of the Plan fails to so comply, such provision
shall be deemed null and void, to the extent permitted by law.
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EXHIBIT 10.32
ASTORIA FINANCIAL CORPORATION
EMPLOYMENT AGREEMENT WITH GERARD C. KEEGAN
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of March 29, 1997, by and between ASTORIA FINANCIAL CORPORATION, a
business corporation organized and operating under the laws of the State of
Delaware and having an office at One Astoria Federal Plaza, Lake Success, New
York 11042-1085 ("Company") and, Gerard C. Keegan an individual ("Executive").
WITNESSETH:
WHEREAS, the Company desires to assure for itself the
availability of the Executive's services as Vice Chairman and Chief
Administrative Officer and the ability of the Executive to perform such services
with a minimum of personal distraction in the event of a pending or threatened
Change of Control (as hereinafter defined); and
WHEREAS, the Executive is willing to serve the Company on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Company and the
Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Company agrees to employ the Executive, and the Executive
hereby agrees to such employment, during the period and upon the terms and
conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD: REMAINING UNEXPIRED
EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and
remain in effect during the period of employment established under this section
2 ("Employment Period"). The Employment Period shall be for an initial term of
three years beginning on the effective date of this Agreement as provided in
section 31 ("Effective Date") and ending on the third anniversary of the
Effective Date, plus such extensions, if any, as are provided by the Board of
Directors of the Company ("Board") pursuant to section 2(b).
(b) Beginning on the Effective Date of this Agreement, the
Employment Period shall automatically be extended for one (1) additional day
each day, unless either the Company or the Executive elects not to extend the
Agreement further by giving written notice to the other party, in which case the
Employment Period shall end on the third anniversary of the date on which such
written notice is given. For all purposes of this Agreement, the term "Remaining
Unexpired Employment Period" as of any date shall mean the period beginning on
such date and ending on: (i) if a notice of non-extension has been given in
accordance with this section 2(b), the third anniversary of the date on which
such notice is given; and (ii) in all other cases, the third anniversary of the
date as of which the Remaining Unexpired Employment Period is being determined.
Upon termination of the Executive's employment with the Company for any reason
whatsoever, any daily extensions provided pursuant to this section 2(b), if not
therefore discontinued, shall automatically cease.
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(c) Nothing in this Agreement shall be deemed to prohibit the
Company from terminating the Executive's employment at any time during the
Employment Period with or without notice for any reason; provided, however, that
the relative rights and obligations of the Company and the Executive in the
event of any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
The Executive shall serve as Vice Chairman and Chief
Administrative Officer of the Company, having such power, authority and
responsibility and performing such duties as are prescribed by or under the
By-Laws of the Company and as are customarily associated with such position. The
Executive shall devote his full business time and attention (other than during
weekends, holidays, approved vacation periods, and periods of illness or
approved leaves of absence) to the business and affairs of the Company and shall
use his best efforts to advance the interests of the Company.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the
Executive hereunder, the Company shall pay to him a salary at an initial annual
rate of THREE HUNDRED FIFTY THOUSAND DOLLARS ($350,000), payable in
approximately equal installments in accordance with the Company's customary
payroll practices for senior officers. At least annually during the Employment
Period, the Board shall review the Executive's annual rate of salary and may, in
its discretion, approve an increase therein. In no event shall the Executive's
annual rate of salary under this Agreement in effect at a particular time be
reduced without his prior written consent. In addition to salary, the Executive
may receive other cash compensation from the Company for services hereunder at
such times, in such amounts and on such terms and conditions as the Board may
determine from time to time.
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
(a) During the Employment Period, the Executive shall be
treated as an employee of the Company and shall be entitled to participate in
and receive benefits under any and all qualified or non-qualified retirement,
pension, savings, profit-sharing or stock bonus plans, any and all group life,
health (including hospitalization, medical and major medical), dental, accident
and long term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Company, in accordance with the terms and conditions of such employee
benefit plans and programs and compensation plans and programs and consistent
with the Company's customary practices.
(b) As of the effective date of this agreement, the Company
shall award to the Executive 15,000 shares of restricted stock under the Astoria
Federal Savings and Loan Association (the "Association") Recognition and
Retention Plan for Selected Executives; Five Thousand (5,000) of such shares
shall vest on January 10, 1998, Five Thousand shall vest on January 10, 1999,
and the remaining Five Thousand shall vest on January 10, 2000.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six (6)
years thereafter, the
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Company shall cause the Executive to be covered by and named as an insured under
any policy or contract of insurance obtained by it to insure its directors and
officers against personal liability for acts or omissions in connection with
service as an officer or director of the Company or service in other capacities
at the request of the Company. The coverage provided to the Executive pursuant
to this section 6 shall be no less favorable in scope or terms and conditions as
the coverage (if any) provided to Senior Vice Presidents of the Company.
(b) To the maximum extent permitted under applicable law,
during the Employment Period and for a period of six (6) years thereafter, the
Company shall indemnify the Executive against, and hold him harmless from any
costs, liabilities, losses and exposures to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
Senior Vice President of the Company or any subsidiary or affiliate thereof.
SECTION 7. OTHER ACTIVITIES.
(a) The Executive may serve as a member of the boards of
directors of such business, community and charitable organizations as he may
disclose to and as may be approved by the Board (which approval shall not be
unreasonably withheld); provided, however, that such service shall not
materially interfere with the performance of his duties under this Agreement.
The Executive may also engage in personal business and investment activities
which do not materially interfere with the performance of his duties hereunder;
provided, however, that such activities are not prohibited under any code of
conduct or investment or securities trading policy established by the Company
and generally applicable to all similarly situated executives.
(b) The Executive may also serve as an officer or director of
the Association on such terms and conditions as the Company and the Association
may mutually agree upon, and such service shall not be deemed to materially
interfere with the Executive's performance of his duties hereunder or otherwise
result in a material breach of this Agreement. If the Executive is discharged or
suspended, or is subject to any regulatory prohibition or restriction with
respect to participation in the affairs of the Association, he shall (subject to
the Company's powers of termination hereunder) continue to perform services for
the Company in accordance with this Agreement but shall not directly or
indirectly provide services to or participate in the affairs of the Association
in a manner inconsistent with the terms of such discharge or suspension or any
applicable regulatory order.
SECTION 8. WORKING FACILITIES AND EXPENSES.
The Executive's principal place of employment shall be at the
Company's executive offices at the address first above written, or at such other
location within Queens County or Nassau County, New York at which the Company
shall maintain its principal executive offices, or at such other location as the
Company and the Executive may mutually agree upon. The Company shall provide the
Executive at his principal place of employment with a private office,
secretarial services and other support services and facilities suitable to his
position with the Company and necessary or appropriate in connection with the
performance of his assigned duties under this Agreement. The Company shall
provide to the Executive for his exclusive use an automobile owned or leased by
the Company and appropriate to his position, to be used in the performance of
his duties hereunder, including commuting to and from his personal residence.
The Company shall reimburse the Executive for his ordinary and necessary
business expenses, including, without limitation, all expenses associated with
his business use of the
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aforementioned automobile, fees for memberships in such clubs and organizations
as the Executive and the Company shall mutually agree are necessary and
appropriate for business purposes, and his travel and entertainment expenses
incurred in connection with the performance of his duties under this Agreement,
in each case upon presentation to the Company of an itemized account of such
expenses in such form as the Company may reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE BENEFITS.
(a) The Executive shall be entitled to the severance benefits
described herein in the event that his employment with the Company terminates
during the Employment Period under any of the following circumstances:
(i) the Executive's voluntary resignation from employment with
the Company within ninety (90) days following:
(A) the failure of the Board to appoint or re-appoint
or elect or re-elect the Executive to the office of Vice
Chairman and Chief Administrative Officer (or a more senior
office) of the Company;
(B) if the Executive is a member of the Board, the
failure of the stockholders of the Company to elect or
re-elect the Executive to the Board or the failure of the
Board (or the nominating committee thereof) to nominate the
Executive for such election or re-election if the Executive is
a member of the Board on the Effective Date of this Agreement
or thereafter becomes a member of the Board;
(C) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Company of its material failure, whether by amendment
of the Company's Organization Certificate or By-laws, action
of the Board or the Company's stockholders or otherwise, to
vest in the Executive the functions, duties, or
responsibilities prescribed in section 3 of this Agreement as
of the date hereof, unless, during such thirty (30) day
period, the Company cures such failure in a manner determined
by the Executive, in his discretion, to be satisfactory;
(D) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Company of its material breach of any term, condition
or covenant contained in this Agreement (including, without
limitation, any reduction of the Executive's rate of base
salary in effect from time to time and any change in the terms
and conditions of any compensation or benefit program in which
the Executive participates which, either individually or
together with other changes, has a material adverse effect on
the aggregate value of his total compensation package),
unless, during such thirty (30) day period, the Company cures
such failure in a manner determined by the Executive, in his
discretion, to be satisfactory; or
(E) the relocation of the Executive's principal place
of employment,
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without his written consent, to a location outside of Nassau
County and Queens County, New York;
(ii) the termination of the Executive's employment with the
Company for any other reason not described in section 10(a).
In such event, the Company shall provide the benefits and pay to the Executive
the amounts described in section 9(b).
(b) Upon the termination of the Executive's employment with
the Company under circumstances described in section 9(a) of this Agreement, the
Company shall pay and provide to the Executive (or, in the event of his death,
to his estate):
(i) his earned but unpaid compensation (including, without
limitation, all items which constitute wages under section 190.1 of the
New York Labor Law and the payment of which is not otherwise provided
for under this section 9(b)) as of the date of the termination of his
employment with the Company, such payment to be made at the time and in
the manner prescribed by law applicable to the payment of wages but in
no event later than thirty (30) days after termination of employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and programs maintained for the benefit of the Company's officers
and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to section
9(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Executive, for the Remaining Unexpired Employment Period, coverage
equivalent to the coverage to which he would have been entitled under
such plans (as in effect on the date of his termination of employment,
or, if his termination of employment occurs after a Change of Control,
on the date of such Change of Control, whichever benefits are greater),
if he had continued working for the Company during the Remaining
Unexpired Employment Period at the highest annual rate of compensation
achieved during that portion of the Employment Period which is prior to
the Executive's termination of employment with the Company;
(iv) within thirty (30) days following his termination of
employment with the Company, a lump sum payment in an amount equal to
the present value of the salary that the Executive would have earned if
he had continued working for the Company during the Remaining Unexpired
Employment Period at the highest annual rate of salary achieved during
that portion of the Employment Period which is prior to the Executive's
termination of employment with the Company, where such present value is
to be determined using a discount rate equal to the applicable
short-term federal rate prescribed under section 1274(d) of the
Internal Revenue Code of 1986 ("Code"), compounded using the
compounding period corresponding to the Company's regular payroll
periods for its officers, such lump sum to be paid in lieu of all other
payments of
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salary provided for under this Agreement in respect of the period
following any such termination;
(v) within thirty (30) days following his termination of
employment with the Company, a lump sum payment in an amount equal to
the excess, if any, of:
(A) the present value of the aggregate benefits to
which he would be entitled under any and all qualified and
non-qualified defined benefit pension plans maintained by, or
covering employees of, the Company, if he were 100% vested
thereunder and had continued working for the Company during
the Remaining Unexpired Employment Period, such benefits to be
determined as of the date of termination of employment by
adding to the service actually recognized under such plans an
additional period equal to the Remaining Unexpired Employment
Period and by adding to the compensation recognized under such
plans for the most recent year recognized all amounts payable
under sections 9(b)(i), (iv), (vii), (viii) and (ix); over
(B) the present value of the benefits to which he is
actually entitled under such defined benefit pension plans as
of the date of his termination:
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly, equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Executive's termination of employment occurs ("Applicable PBGC Rate");
(vi) within thirty (30) days following his termination of
employment with the Company, a lump sum payment in an amount equal to
the present value of the additional employer contributions (or if
greater in the case of a leveraged employee stock ownership plan or
similar arrangement, the additional assets allocable to him through
debt service, based on the fair market value of such assets at
termination of employment) to which he would have been entitled under
any and all qualified and non-qualified defined contribution plans
maintained by, or covering employees of, the Company, as if he were
100% vested thereunder and had continued working for the Company during
the Remaining Unexpired Employment Period at the highest annual rate of
compensation achieved during that portion of the Employment Period
which is prior to the Executive's termination of employment with the
Company, and making the maximum amount of employee contributions, if
any, required under such plan or plans, such present value to be
determined on the basis of a discount rate, compounded using the
compounding period that corresponds to the frequency with which
employer contributions are made to the relevant plan, equal to the
Applicable PBGC Rate;
(vii) within thirty (30) days following his termination of
employment with the Company, a lump sum payment in an amount equal to
the present value of the payments that would have been made to the
Executive under any cash bonus or long-term or short-term cash
incentive compensation plan maintained by, or covering employees of,
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the Company if he had continued working for the Company during the
Remaining Unexpired Employment Period and had earned the maximum bonus
or incentive award in each calendar year that ends during the Remaining
Unexpired Employment Period, such payments to be equal to the product
of:
(A) the maximum percentage rate of annual salary at
which an award was ever available to the Executive under such
incentive compensation plan; multiplied by
(B) the salary that would have been paid to the
Executive during each such calendar year at the highest annual
rate of salary achieved during that portion of the Employment
Period which is prior to the Executive's termination of
employment with the Company:
Where such present value is to be determined using a discount rate
equal to the applicable short-term federal rate prescribed under
section 1274(d) of the Code, compounded annually;
(viii) at the election of the Company made within thirty (30)
days following his termination of employment with the Company, upon the
surrender of options or appreciation rights issued to the Executive
under any stock option and appreciation rights plan or program
maintained by, or covering employees of, the Company, a lump sum
payment in an amount equal to the product of:
(A) the excess of (I) the fair market value of a
share of stock of the same class as the stock subject to the
option or appreciation right, determined as of the date of
termination of employment, over (II) the exercise price per
share for such option or appreciation right, as specified in
or under the relevant plan or program; multiplied by
(B) the number of shares with respect to which
options or appreciation rights are being surrendered.
For purposes of this section 9(b)(viii) and for purposes of determining
the Executive's right following his termination of employment with the
Company to exercise any options or appreciation rights not surrendered
pursuant hereto, the Executive shall be deemed fully vested in all
options and appreciation rights under any stock option or appreciation
rights plan or program maintained by, or covering employees of, the
Company, even if he is not vested under such plan or program;
(ix) at the election of the Company made within thirty (30)
days following the Executive's termination of employment with the
Company, upon the surrender of any shares awarded to the Executive
under any restricted stock plan maintained by, or covering employees
of, the Company, a lump sum payment in an amount equal to the product
of:
(A) the fair market value of a share of stock of the
same class of stock
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granted under such plan, determined as of the date of the
Executive's termination of employment; multiplied by
(B) the number of shares which are being
surrendered.
For purposes of this section 9(b)(ix) and for purposes of determining
the Executive's right following his termination of employment with the
Company to any stock not surrendered pursuant hereto, the Executive
shall be deemed fully vested in all shares awarded under any restricted
stock plan maintained by, or covering employees of, the Company, even
if he is not vested under such plan.
The Company and the Executive hereby stipulate that the damages which may be
incurred by the Executive following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 9(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Executive' s efforts, if any,
to mitigate damages. The Company and the Executive further agree that the
Company may condition the payments and benefits (if any) due under sections
9(b)(iii), (iv), (v), (vi) and (vii) on the receipt of the Executive's
resignation from any and all positions which he holds as an officer, director or
committee member with respect to the Company, the Association or any subsidiary
or affiliate of either of them.
SECTION 10. TERMINATION WITHOUT ADDITIONAL COMPANY LIABILITY.
(a) In the event that the Executive's employment with the
Company shall terminate during the Employment Period on account of:
(i) the discharge of the Executive for "cause," which, for
purposes of this Agreement shall mean: (A) the Executive intentionally
engages in dishonest conduct in connection with his performance of
services for the Company resulting in his conviction of a felony; (B)
the Executive is convicted of, or pleads guilty or nolo contendere to,
a felony or any crime involving moral turpitude; (C) the Executive
willfully fails or refuses to perform his duties under this Agreement
and fails to cure such breach within sixty (60) days following written
notice thereof from the Company; (D) the Executive breaches his
fiduciary duties to the Company for personal profit; or (E) the
Executive's willful breach or violation of any law, rule or regulation
(other than traffic violations or similar offenses), or final cease and
desist order in connection with his performance of services for the
Company.
(ii) the Executive's voluntary resignation from employment
with the Company for reasons other than those specified in section 9(a)
or ll(b);
(iii) the Executive's death;
(iv) a determination that the Executive is eligible for
long-term disability benefits under the Company's long-term disability
insurance program or, if there is no such program, under the federal
Social Security Act; or
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(v) the Executive's termination of employment for any reason
at or after attainment of mandatory retirement age under the Company's
mandatory retirement policy for executive officers in effect as of the
Effective Date of this Agreement;
then the Company shall have no further obligations under this Agreement, other
than the payment to the Executive (or, in the event of his death, to his estate)
of his earned but unpaid compensation as of the date of the termination of his
employment, and the provision of such other benefits, if any, to which he is
entitled as a former employee under the employee benefit plans and programs and
compensation plans and programs maintained by, or covering employees of, the
Company.
(b) For purposes of section 10(a)(i), no act or failure to
act, on the part of the Executive, shall be considered "intentional" or
"willful" unless it is done, or omitted to be done, by the Executive in bad
faith or without reasonable belief that the Executive's action or omission was
in the best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or based upon
the written advice of counsel for the Company shall be conclusively presumed to
be done, or omitted to be done, by the Executive in good faith and in the best
interests of the Company. The cessation of employment of the Executive shall not
be deemed to be for "cause" within the meaning of section 10(a)(i) unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of three-fourths of the members of the
Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive is guilty of the conduct
described in section 10(a)(i) above, and specifying the particulars thereof in
detail.
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE OF CONTROL.
(a) A Change of Control of the Company ("Change of Control")
shall be deemed to have occurred upon the happening of any of the following
events:
(i) approval by the stockholders of the Company of a
transaction that would result in the reorganization, merger or
consolidation of the Company with one or more other persons, other than
a transaction following which:
(A) at least 51% of the equity ownership interests of
the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions
by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) at least 51% of the
outstanding equity ownership interests in the Company; and
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the securities entitled to
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vote generally in the election of directors of the Company;
(ii) the acquisition of all or substantially all of the assets
of the Company or beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of the
outstanding securities of the Company entitled to vote generally in the
election of directors by any person or by any persons acting in
concert, or approval by the stockholders of the Company of any
transaction which would result in such an acquisition;
(iii) a complete liquidation or dissolution of the Company, or
approval by the stockholders of the Company of a plan for such
liquidation or dissolution;
(iv) the occurrence of any event if, immediately following
such event, at least 50% of the members of the board of directors of
the Company do not belong to any of the following groups:
(A) individuals who were members of the Board of the
Company on the Effective Date of this Agreement; or
(B) individuals who first became members of the Board
of the Company after the Effective Date of this Agreement
either:
(I) upon election to serve as a member of
the Board of directors of the Company by affirmative
vote of three-quarters of the members of such Board,
or of a nominating committee thereof, in office at
the time of such first election; or
(II) upon election by the stockholders of
the Company to serve as a member of the Board of the
Company, but only if nominated for election by
affirmative vote of three-quarters of the members of
the board of directors of the Company, or of a
nominating committee thereof, in office at the time
of such first nomination;
provided, however, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf
of the Board of the Company; or
(v) any event which would be described in section ll(a)(i),
(ii), (iii) or (iv) if the term "Association" were substituted for the
term "Company" therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the
Association, or a subsidiary of either of them, by the Company, the Association,
or a subsidiary of either of them, or by any employee benefit plan maintained by
any of them. For purposes of this section 11(a), the term "person"
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shall have the meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the
Exchange Act.
(b) In the event of a Change of Control, the Executive shall
be entitled to the payments and benefits contemplated by section 9(b) in the
event of his termination employment with the Company under any of the
circumstances described in section 9(a) of this Agreement or under any of the
following circumstances:
(i) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following his demotion, loss of
title, office or significant authority or responsibility, or following
any reduction in any element of his package of compensation and
benefits;
(ii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following any relocation of his
principal place of employment or any change in working conditions at
such principal place of employment which the Executive, in his
reasonable discretion, determines to be embarrassing, derogatory or
otherwise adverse;
(iii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following the failure of any
successor to the Company in the Change of Control to include the
Executive in any compensation or benefit program maintained by it or
covering any of its executive officers, unless the Executive is already
covered by a substantially similar plan of the Company which is at
least as favorable to him; or
(iv) resignation, voluntary or otherwise, for any reason
whatsoever following the effective date of the Change of Control.
SECTION 12. TAX INDEMNIFICATION.
(a) This section 12 shall apply if the Executive's employment
is terminated upon or following (i) a Change of Control (as defined in section
11 of this Agreement); or (ii) a change "in the ownership or effective control"
of the Company or the Association or "in the ownership of a substantial portion
of the assets" of the Company or the Association within the meaning of section
280G of the Code. If this section 12 applies, then, if for any taxable year, the
Executive shall be liable for the payment of an excise tax under section 4999 of
the Code with respect to any payment in the nature of compensation made by the
Company, the Association or any direct or indirect subsidiary or affiliate of
the Company or the Association to (or for the benefit of) the Executive, the
Company shall pay to the Executive an amount equal to X determined under the
following formula:
X = E x P
------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M]
where
E = the rate at which the excise tax is assessed under
section 4999 of the Code;
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P = the amount with respect to which such excise tax is
assessed, determined without regard to this section
12;
FI = the highest marginal rate of income tax applicable to
the Executive under the Code for the taxable year in
question;
SLI = the sum of the highest marginal rates of income tax
applicable to the Executive under all applicable
state and local laws for the taxable year in
question; and
M = the highest marginal rate of Medicare tax applicable
to the Executive under the Code for the taxable year
in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) the Executive under the terms of this Agreement, or
otherwise, and on which an excise tax under section 4999 of the Code will be
assessed, the payment determined under this section 12(a) shall be made to the
Executive on the earlier of (i) the date the Company, the Association or any
direct or indirect subsidiary or affiliate of the Company or the Association is
required to withhold such tax, or (ii) the date the tax is required to be paid
by the Executive.
(b) Notwithstanding anything in this section 12 to the
contrary, in the event that the Executive's liability for the excise tax under
section 4999 of the Code for a taxable year is subsequently determined to be
different than the amount determined by the formula (X + P) x E, where X, P and
E have the meanings provided in section 12(a), the Executive or the Company, as
the case may be, shall pay to the other party at the time that the amount of
such excise tax is finally determined, an appropriate amount, plus interest,
such that the payment made under section 12(a), when increased by the amount of
the payment made to the Executive under this section 12(b) by the Company, or
when reduced by the amount of the payment made to the Company under this section
12(b) by the Executive, equals the amount that should have properly been paid to
the Executive under section 12(a). The interest paid under this section 12(b)
shall be determined at the rate provided under section 1274(b)(2)(B) of the
Code. To confirm that the proper amount, if any, was paid to the Executive under
this section 12, the Executive shall furnish to the Company a copy of each tax
return which reflects a liability for an excise tax payment made by the Company,
at least 20 days before the date on which such return is required to be filed
with the Internal Revenue Service.
(c) The provisions of this section 12 are designed to reflect
the provisions of applicable federal, state and local tax laws in effect on the
date of this Agreement. If, after the date hereof, there shall be any change in
any such laws, this section 12 shall be modified in such manner as the Executive
and the Company may mutually agree upon if and to the extent necessary to assure
that the Executive is fully indemnified against the economic effects of the tax
imposed under section 4999 of the Code or any similar federal, state or local
tax.
SECTION 13. COVENANT NOT TO COMPETE.
The Executive hereby covenants and agrees that, in the event
of his termination of employment with the Company prior to the expiration of the
Employment Period, for a period of one (1) year following the date of his
termination of employment with the Company (or, if less, for the
<PAGE> 13
Remaining Unexpired Employment Period), he shall not, without the written
consent of the Company, become an officer, employee, consultant, director or
trustee of any savings bank, savings and loan association, savings and loan
holding company, bank or bank holding Company, or any direct or indirect
subsidiary or affiliate of any such entity, that entails working in any city,
town or county in which the Association or the Company has an office or has
filed an application for regulatory approval to establish an office, determined
as of the effective date of the Executive's termination of employment; provided,
however, that this section 13 shall not apply if the Executive's employment is
terminated for the reasons set forth in section 9(a); and provided, further,
that if the Executive's employment shall be terminated on account of disability
as provided in section 10(d) of this Agreement, this section 13 shall not
prevent the Executive from accepting any position or performing any services if
(a) he first offers, by written notice, to accept a similar position with, or
perform similar services for, the Company on substantially the same terms and
conditions and (b) the Company declines to accept such offer within ten (10)
days after such notice is given.
SECTION 14. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Company,
the Executive shall keep confidential and shall refrain from using for the
benefit of himself, or any person or entity other than the Company or any entity
which is a subsidiary of the Company or of which the Company is a subsidiary,
any material document or information obtained from the Company, or from its
parent or subsidiaries, in the course of his employment with any of them
concerning their properties, operations or business (unless such document or
information is readily ascertainable from public or published information or
trade sources or has otherwise been made available to the public through no
fault of his own) until the same ceases to be material (or becomes so
ascertainable or available); provided, however, that nothing in this section 14
shall prevent the Executive, with or without the Company's consent, from
participating in or disclosing documents or information in connection with any
judicial or administrative investigation, inquiry or proceeding to the extent
that such participation or disclosure is required under applicable law.
SECTION 15. SOLICITATION.
The Executive hereby covenants and agrees that, for a period
of one (1) year following his termination of employment with the Company, he
shall not, without the written consent of the Company, either directly or
indirectly:
(a) solicit, offer employment to, or take any other action
intended, or that a reasonable person acting in like circumstances would expect,
to have the effect of causing any officer or employee of the Company, the
Association or any affiliate, as of the Effective Date of this Agreement, of
either of them, to terminate his or her employment and accept employment or
become affiliated with, or provide services for compensation in any capacity
whatsoever to, any savings bank, savings and loan association, bank, bank
holding company, savings and loan holding company, or other institution engaged
in the business of accepting deposits and making loans, doing business in any
city, town or county in which the Association or the Company has an office or
has filed an application for regulatory approval to establish an office,
determined as of the Effective Date of this Agreement;
(b) provide any information, advice or recommendation with
respect to any such officer or employee to any savings bank, savings and loan
association, bank, bank holding company, savings and loan holding company, or
other institution engaged in the business of accepting deposits and
<PAGE> 14
making loans, doing business in any city, town or county in which the
Association or the Company has an office or has filed an application for
regulatory approval to establish an office, determined as of the Effective Date
of this Agreement, that is intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any officer or
employee of the Company, the Association, or any affiliate, as of the Effective
Date of this Agreement, of either of them, to terminate his or her employment
and accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any such savings bank, savings and
loan association, bank, bank holding company, savings and loan holding company,
or other institution engaged in the business of accepting deposits and making
loans; or
(c) solicit, provide any information, advice or recommendation
or take any other action intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any customer of the
Company to terminate an existing business or commercial relationship with the
Company.
SECTION 16. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Executive's employment during the term
of this Agreement or thereafter, whether by the Company or by the Executive,
shall have no effect on the rights and obligations of the parties hereto under
the Company's qualified or non-qualified retirement, pension, savings, thrift,
profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Company from time to time.
SECTION 17. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon the Executive, his legal representatives and testate or intestate
distributees, and the Company and its successors and assigns, including any
successor by merger or consolidation or a statutory receiver or any other person
or firm or corporation to which all or substantially all of the assets and
business of the Company may be sold or otherwise transferred. Failure of the
Company to obtain from any successor its express written assumption of the
Company's obligations hereunder at least sixty (60) days in advance of the
scheduled effective date of any such succession shall be deemed a material
breach of this Agreement.
SECTION 18. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
<PAGE> 15
If to the Executive:
Mr. Gerard C. Keegan
19 Brixton Road
Garden City, New York
If to the Company:
Astoria Financial Corporation
One Astoria Federal Plaza
Lake Success, New York 11042-1085
Attention: General Counsel
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. Edward Bright. Esq.
SECTION 19. INDEMNIFICATION FOR ATTORNEYS ' FEES.
The Company shall indemnify, hold harmless and defend the
Executive against reasonable costs, including legal fees, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement; provided, however, that the Executive shall have
substantially prevailed on the merits pursuant to a judgment, decree or order of
a court of competent jurisdiction or of an arbitrator in an arbitration
proceeding, or in a settlement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the
Company's obligations hereunder shall be conclusive evidence of the Executive's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.
SECTION 20. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 21. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or
<PAGE> 16
more times shall not be deemed a waiver or relinquishment of such right or power
at any other time or times.
SECTION 22. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 23. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.
SECTION 24. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 25. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
SECTION 26. GUARANTEE.
The Company hereby agrees to guarantee the payment by the
Association of any benefits and compensation to which the Executive is or may be
entitled to under the terms and conditions of the employment agreement dated as
of the 29th day of March, 1997 between the Association and the Executive, a copy
of which is attached hereto as Exhibit A ("Association Agreement").
SECTION 27. NON-DUPLICATION.
In the event that the Executive shall perform services for the
Association or any other direct or indirect subsidiary of the Company, any
compensation or benefits provided to the Executive by such other employer shall
be applied to offset the obligations of the Company hereunder, it being intended
that this Agreement set forth the aggregate compensation and benefits payable to
the Executive for all services to the Company and all of its direct or
indirect subsidiaries.
SECTION 28. SURVIVAL.
The provisions of sections 6, 9, 10, 11, 12, 13, 14, 15, 17,
18, 19, 21, 26, 29 and 30 shall survive the expiration of the Employment Period
or termination of this Agreement.
<PAGE> 17
SECTION 29. EQUITABLE REMEDIES.
The Company and the Executive hereby stipulate that money
damages are an inadequate remedy for violations of sections 6(a), 13, 14 or 15
or this Agreement and agree that equitable remedies, including, without
limitations, the remedies of specific performance and injunctive relief, shall
be available with respect to the enforcement of such provisions.
SECTION 30. REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any
payments to the Executive by the Company, whether pursuant to this Agreement or
otherwise, are subject to and conditioned upon their compliance with section
18(k) of the Federal Deposit Insurance Act, 12 U.S.C.
1828(k), and any regulations promulgated thereunder.
SECTION 31. EFFECTIVE DATE.
The Effective Date of this Agreement shall be the date of
closing of the merger of The Greater New York Savings Bank with and into Astoria
Federal Savings and Loan Association by the Agreement and Plan of Merger dated
March 29, 1997 by and among the Company, the Association and The Greater New
York Savings Bank ("Merger Agreement"). This Agreement shall have no force or
effect prior to the Effective Date and, on the Effective Date, shall not take
effect until the Effective Time (as such term is defined in the Merger
Agreement). In the event that the merger contemplated by the Merger Agreement is
not consummated, this Agreement shall have no force or effect.
<PAGE> 18
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed and the Executive has hereunto set his hand, all as of the day and
year first above written.
ATTEST: ASTORIA FINANCIAL CORPORATION
By By/s/ George L. Engelke, Jr.
----------------- ------------------------------------------
Secretary Name: George L. Engelke, Jr.
Title: President and Chief
Executive Officer
[Seal]
/s/ Gerard C. Keegan
---------------------------
GERARD C. KEEGAN
<PAGE> 19
STATE OF NEW YORK )
:ss.:
COUNTY OF NASSAU )
On this ____ day of _____, 1997, before me personally came
Gerard C. Keegan, to me known, and known to me to be the individual described in
the foregoing instrument, who, being by me duly sworn, did depose and say that
he resides at the address set forth in said instrument, and that he signed his
name to the foregoing instrument.
_______________________
Notary Public
STATE OF NEW YORK )
:ss.:
COUNTY OF NASSAU )
On this____________day of____________________________, 1997,
before me personally came George L. Engelke, Jr., to me known, who, being by me
duly sworn, did depose and say that he resides at ______________________, that
he is President and Chief Executive Officer of ASTORIA FINANCIAL CORPORATION,
the Delaware corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such seal; that it was so affixed by order of the Board of
Directors of said corporation; and that he signed his name thereto by like
order.
_______________________
Notary Public
<PAGE> 20
EXHIBIT A
ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION
EMPLOYMENT AGREEMENT WITH GERARD C. KEEGAN
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of March 29, 1997, by and between ASTORIA FEDERAL SAVINGS AND LOAN
ASSOCIATION, a savings institution organized and operating under the federal
laws of the United States and having an office at One Astoria Federal Plaza,
Lake Success, New York 11042-1085 ("Association") and GERARD C. KEEGAN, an
individual ("Executive").
WITNESSETH:
WHEREAS, the Association is a wholly owned subsidiary of
Astoria Financial Corporation ("Company"), a publicly held business corporation
organized and operating under the laws of the State of Delaware; and
WHEREAS, the Association desires to assure for itself the
availability of the Executive's services and the ability of the Executive to
perform such services with a minimum of personal distraction in the event of a
pending or threatened Change of Control (as hereinafter defined); and
WHEREAS, the Executive is willing to serve the Association on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Association and the
Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Association agrees to employ the Executive, and the
Executive hereby agrees to such employment, during the period and upon the terms
and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED
EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and
remain in effect during the period of employment established under this section
2 ("Employment Period"). The Employment Period shall be for an initial term of
three years beginning on the Effective Date of this Agreement as provided in
section 28 ("Effective Date"). Prior to the first anniversary of the Effective
Date of this Agreement and on each anniversary date thereafter (each, an
"Anniversary Date"), the Board of Directors of the Association ("Board") shall
review the terms of this Agreement and the Executive's performance of services
hereunder and may, in the absence of objection from the Executive, approve an
extension of the Employment Period. In such event, the Employment Period shall
be extended to the third anniversary of the relevant Anniversary Date.
(b) For all purposes of this Agreement, the term "Remaining
Unexpired Employment Period" as of any date shall mean the period beginning on
such date and ending on the Anniversary Date on which the Employment Period (as
extended pursuant to section 2(a) of this Agreement) is then
<PAGE> 21
scheduled to expire.
(c) Nothing in this Agreement shall be deemed to prohibit the
Association from terminating the Executive's employment at any time during the
Employment Period with or without notice for any reason; provided, however, that
the relative rights and obligations of the Association and the Executive in the
event of any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
The Executive shall serve as Vice Chairman and Chief
Administrative Officer of the Association, having such power, authority and
responsibility and performing such duties as are prescribed by or under the
By-Laws of the Association and as are customarily associated with such position.
The Executive shall devote his full business time and attention (other than
during weekends, holidays, approved vacation periods, and periods of illness or
approved leaves of absence) to the business and affairs of the Association and
shall use his best efforts to advance the interests of the Association.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the
Executive hereunder, the Association shall pay to him a salary at an initial
annual rate of THREE HUNDRED FIFTY THOUSAND DOLLARS ($350,000), payable in
approximately equal installments in accordance with the Association's customary
payroll practices for senior officers. Prior to each Anniversary Date occurring
during the Employment Period, the Board shall review the Executive's annual rate
of salary and may, in its discretion, approve an increase therein. In addition
to salary, the Executive may receive other cash compensation from the
Association for services hereunder at such times, in such amounts and on such
terms and conditions as the Board may determine from time to time.
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated
as an employee of the Association and shall be entitled to participate in and
receive benefits under any and all qualified or non-qualified retirement,
pension, savings, profit-sharing or stock bonus plans, any and all group life,
health (including hospitalization, medical and major medical), dental, accident
and long term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Association, in accordance with the terms and conditions of such employee
benefit plans and programs and compensation plans and programs and consistent
with the Association's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six (6)
years thereafter, the Association shall cause the Executive to be covered by and
named as an insured under any policy or contract of insurance obtained by it to
insure its directors and officers against personal liability for acts or
omissions in connection with service as an officer or director of the
Association or service in other capacities at the request of the Association.
The coverage provided to the Executive pursuant to this
<PAGE> 22
section 6 shall be no less favorable in scope or terms and conditions as the
coverage (if any) provided to other Senior Vice Presidents of the Association.
(b) To the maximum extent permitted under applicable law,
during the Employment Period and for a period of six (6) years thereafter, the
Association shall indemnify the Executive, against and hold him harmless from
any costs, liabilities, losses and exposures to the fullest extent and on the
most favorable terms and conditions that similar indemnification is offered to
any Senior Vice President of the Association or any subsidiary or affiliate
thereof. This section 6(b) shall not be applicable where section 18 is
applicable.
SECTION 7. OUTSIDE ACTIVITIES.
The Executive may serve as a member of the boards of directors
of such business, community and charitable organizations as he may disclose to
and as may be approved by the Board (which approval shall not be unreasonably
withheld); provided, however, that such service shall not materially interfere
with the performance of his duties under this Agreement. The Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; provided, however, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Association and generally
applicable to all similarly situated executives. The Executive may also serve as
an officer or director of the Company on such terms and conditions as the
Association and the Company may mutually agree upon, and such service shall not
be deemed to materially interfere with the Executive's performance of his duties
hereunder or otherwise to result in a material breach of this Agreement.
SECTION 8. WORKING FACILITIES AND EXPENSES.
The Executive's principal place of employment shall be at the
Association's executive offices at the address first above written, or at such
other location within Queens County or Nassau County, New York at which the
Association shall maintain its principal executive offices, or at such other
location as the Association and the Executive may mutually agree upon. The
Association shall provide the Executive at his principal place of employment
with a private office, secretarial services and other support services and
facilities suitable to his position with the Association and necessary or
appropriate in connection with the performance of his assigned duties under this
Agreement. The Association shall provide to the Executive for his exclusive use
an automobile owned or leased by the Association and appropriate to his
position, to be used in the performance of his duties hereunder, including
commuting to and from his personal residence. The Association shall reimburse
the Executive for his ordinary and necessary business expenses, including,
without limitation, all expenses associated with his business use of the
aforementioned automobile, fees for memberships in such clubs and organizations
as the Executive and the Association shall mutually agree are necessary and
appropriate for business purposes, and his travel and entertainment expenses
incurred in connection with the performance of his duties under this Agreement,
in each case upon presentation to the Association of an itemized account of such
expenses in such form as the Association may reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE
BENEFITS.
(a) The Executive shall be entitled to the severance benefits
described herein in the event that his employment with the Association
terminates during the Employment Period under any of
<PAGE> 23
the following circumstances:
(i) the Executive's voluntary resignation from employment with
the Association within ninety (90) days following:
(A) the failure of the Board to appoint or re-appoint
or elect or re-elect the Executive to the office of Vice
Chairman and Chief Administrative Officer (or a more senior
office) of the Association;
(B) if the Executive is a member of the Board, the
failure of the stockholders of the Association to elect or
re-elect the Executive to the Board or the failure of the
Board (or the nominating committee thereof) to nominate the
Executive for such election or re-election if the Executive is
a member of the Board on the Effective Date of this Agreement
or thereafter becomes a member of the Board;
(C) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Association of its material failure, whether by
amendment of the Association's Organization Certificate or
By-laws, action of the Board or the Association's stockholders
or otherwise, to vest in the Executive the functions, duties,
or responsibilities prescribed in section 3 of this Agreement
as of the date hereof, unless, during such thirty (30) day
period, the Association fully cures such failure;
(D) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Association of its material breach of any term,
condition or covenant contained in this Agreement (including,
without limitation any reduction of the Executive's rate of
base salary in effect from time to time and any change in the
terms and conditions of any compensation or benefit program in
which the Executive participates which, either individually or
together with other changes, has a material adverse effect on
the aggregate value of his total compensation package),
unless, during such thirty (30) day period, the Association
fully cures such failure;
(E) the relocation of the Executive's principal place
of employment, without his written consent, to a location
outside of Nassau County and Queens County, New York; or
(ii) the termination of the Executive's employment with the
Association for any other reason not described in section 10(a).
In such event, subject to section 25, the Association shall provide the benefits
and pay to the Executive the amounts described in section 9(b).
(b) Upon the termination of the Executive's employment with
the Association under circumstances described in section 9(a) of this Agreement,
the Association shall pay and provide to the Executive (or, in the event of his
death, to his estate):
<PAGE> 24
(i) his earned but unpaid compensation (including, without
limitation, all items which constitute wages under section 190.1 of the
New York Labor Law and the payment of which is not otherwise provided
for under this section 9(b)) as of the date of the termination of his
employment with the Association, such payment to be made at the time
and in the manner prescribed by law applicable to the payment of wages
but in no event later than thirty (30) days after termination of
employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and programs maintained for the benefit of the Association's
officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to section
9(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Executive, for the Remaining Unexpired Employment Period, coverage
equivalent to the coverage to which he would have been entitled under
such plans (as in effect on the date of his termination of employment,
or, if his termination of employment occurs after a Change of Control,
on the date of such Change of Control, whichever benefits are greater)
if he had continued working for the Association during the Remaining
Unexpired Employment Period at the highest annual rate of compensation
achieved during that portion of the Employment Period which is prior to
the Executive's termination of employment with the Association;
(iv) within thirty (30) days following his termination of
employment with the Association, a lump sum payment, in an amount equal
to the present value of the salary that the Executive would have earned
if he had continued working for the Association during the Remaining
Unexpired Employment Period at the highest annual rate of salary
achieved during that portion of the Employment Period which is prior to
the Executive's termination of employment with the Association, where
such present value is to be determined using a discount rate equal to
the applicable short-term federal rate prescribed under section 1274(d)
of the Internal Revenue Code of 1986 ("Code"), compounded using the
compounding period corresponding to the Association's regular payroll
periods for its officers, such lump sum to be paid in lieu of all other
payments of salary provided for under this Agreement in respect of the
period following any such termination;
(v) within thirty (30) days following his termination of
employment with the Association, a lump sum payment in an amount equal
to the excess, if any, of:
(A) the present value of the aggregate benefits to
which he would be entitled under any and all qualified and
non-qualified defined benefit pension plans maintained by, or
covering employees of, the Association) if he were 100% vested
thereunder and had continued working for the Association
during the Remaining Unexpired Employment Period (such
benefits to be determined as of the date of termination of
employment by adding to the service actually recognized under
such plans an additional period equal to the Remaining
<PAGE> 25
Unexpired Employment Period and by adding to the compensation
recognized under such plans for the most recent year
recognized all amounts payable under sections 9(b)(i), (iv),
(vii), (viii) and (ix); over
(B) the present value of the benefits to which he is
actually entitled under such defined benefit pension plans as
of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly, equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Executive's termination of employment occurs ("Applicable PBGC Rate").
(vi) within thirty (30) days following his termination of
employment with the Association, a lump sum payment in an amount equal
to the present value of the additional employer contributions (or if
greater in the case of a leveraged employee stock ownership plan or
similar arrangement, the additional assets allocable to him through
debt service, based on the fair market value of such assets at
termination of employment) to which he would have been entitled under
any and all qualified and non-qualified defined contribution plans
maintained by, or covering employees of, the Association, as if he were
100% vested thereunder and had continued working for the Association
during the Remaining Unexpired Employment Period at the highest annual
rate of compensation achieved during that portion of the Employment
Period which is prior to the Executive's termination of employment with
the Association, and making the maximum amount of employee
contributions, if any, required under such plan or plans, such present
value to be determined on the basis of a discount rate, compounded
using the compounding period that corresponds to the frequency with
which employer frequency with which employer contributions are made to
the relevant plan, equal to the Applicable PBGC Rate;
(vii) within thirty (30) days following his termination of
employment with the Company, a lump sum payment in an amount equal to
the present value of the payments that would have been made to the
Executive under any cash bonus or long-term or short-term cash
incentive compensation plan maintained by, or covering employees of,
the Association if he had continued working for the Association during
the Remaining Unexpired Employment Period and had earned the maximum
bonus or incentive award in each calendar year that ends during the
Remaining Unexpired Employment Period, such payments to be equal to the
product of:
(A) the maximum percentage rate of annual salary at
which an award was ever available to the Executive under such
incentive compensation plan; multiplied by
(B) the salary that would have been paid to the
Executive during each such calendar year at the highest annual
rate of salary achieved during that portion of the Employment
Period which is prior to the Executive's termination
<PAGE> 26
of employment with the Association:
Where such present value is to be determined using a discount rate
equal to the applicable short-term federal rate prescribed under
section 1274(d) of the Code, compounded annually;
(viii) at the election of the Association made within thirty
(30) days following his termination of employment with the Association,
upon the surrender of options or appreciation rights issued to the
Executive under any stock option and appreciation rights plan or
program maintained by, or covering employees of, the Association, a
lump sum payment in an amount equal to the product of:
(A) the excess of (I) the fair market value of a
share of stock of the same class as the stock subject to the
option or appreciation right, determined as of the date of
termination of employment, over (II) the exercise price per
share for such option or appreciation right, as specified in
or under the relevant plan or program; multiplied by
(B) the number of shares with respect to which
options or appreciation rights are being surrendered.
For purposes of this section 9(b)(viii) and for purposes of determining
the Executive's right following his termination of employment with the
Association to exercise any options or appreciation rights not
surrendered pursuant hereto, the Executive shall be deemed fully vested
in all options and appreciation rights under any stock option or
appreciation rights plan or program maintained by, or covering
employees of, the Association, even if he is not vested under such plan
or program;
(ix) at the election of the Association made within thirty
(30) days following the Executive's termination of employment with the
Association, upon the surrender of any shares awarded to the Executive
under any restricted stock plan maintained by, or covering employees
of, the Association, a lump sum payment in an amount equal to the
product of:
(A) the fair market value of a share of stock of the
same class of stock granted under such plan, determined as of
the date of the Executive's termination of employment;
multiplied by
(B) the number of shares which are being surrendered.
For purposes of this section 9(b)(ix) and for purposes of determining
the Executive's right following his termination of employment with the
Association to any stock not surrendered pursuant hereto, the Executive
shall be deemed fully vested in all shares awarded under any restricted
stock plan maintained by, or covering employees of, the Association,
even if he is not vested under such plan.
The Association and the Executive hereby stipulate that the damages which may be
incurred by the
<PAGE> 27
Executive following any such termination of employment are not capable of
accurate measurement as of the date first above written and that the payments
and benefits contemplated by this section 9(b) constitute reasonable damages
under the circumstances and shall be payable without any requirement of proof of
actual damage and without regard to the Executive's efforts, if any, to mitigate
damages. The Association and the Executive further agree that the Association
may condition the payments and benefits (if any) due under sections 9(b)(iii),
(iv), (v), (vi) and (vii) on the receipt of the Executive's resignation from any
and all positions which he holds as an officer, director or committee member
with respect to the Association, the Company or any subsidiary or affiliate of
either of them.
SECTION 10. TERMINATION WITHOUT ADDITIONAL ASSOCIATION
LIABILITY.
In the event that the Executive's employment with the
Association shall terminate during the Employment Period on account of:
(a) the discharge of the Executive for "cause," which, for purposes of
this Agreement shall mean personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or final cease and desist order, or
any material breach of this Agreement, in each case as measured against
standards generally prevailing at the relevant time in the savings and community
banking industry; provided, however, that the Executive shall not be deemed to
have been discharged for cause unless and until he shall have received a written
notice of termination from the Board, accompanied by a resolution duly adopted
by affirmative vote of a majority of the entire Board at a meeting called and
held for such purpose (after reasonable notice to the Executive and a reasonable
opportunity for the Executive to make oral and written presentations to the
members of the Board, on his own behalf, or through a representative, who may be
his legal counsel, to refute the grounds for the proposed determination) finding
that in the good faith opinion of the Board grounds exist for discharging the
Executive for cause; or
(b) the Executive's voluntary resignation from employment with
the Association for reasons other than those specified in section 9(a)(i);
(c) the Executive's death;
(d) a determination that the Executive is eligible for
long-term disability benefits under the Association's long-term disability
insurance program or, if there is no such program, under the federal Social
Security Act; or
(e) the Executive's termination of employment for any reason
at or after attainment of mandatory retirement age under the Association's
mandatory retirement policy for executive officers in effect as of the Effective
Date of this Agreement;
then the Association shall have no further obligations under this Agreement,
other than the payment to the Executive (or, in the event of his death, to his
estate) of his earned but unpaid compensation as of the date of the termination
of his employment, and the provision of such other benefits, if any, to which he
is entitled as a former employee under the employee benefit plans and programs
and compensation plans and programs maintained by, or covering employees of, the
Association.
<PAGE> 28
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE OF CONTROL.
(a) A Change of Control of the Association ("Change of
Control") shall be deemed to have occurred upon the happening of any of the
following events:
(i) approval by the stockholders of the Association of a
transaction that would result in the reorganization, merger or
consolidation of the Association, respectively, with one or more other
persons, other than a transaction following which:
(A) at least 51% of the equity ownership interests
of the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions
by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) at least 51% of the
outstanding equity ownership interests in the Association; and
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the securities entitled to vote
generally in the election of directors of the Association;
(ii) the acquisition of all or substantially all of the assets
of the Association or beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of the
outstanding securities of the Association entitled to vote generally in
the election of directors by any person or by any persons acting in
concert, or approval by the stockholders of the Association of any
transaction which would result in such an acquisition; or
(iii) a complete liquidation or dissolution of the
Association, or approval by the stockholders of the Association of a
plan for such liquidation or dissolution; or
(iv) the occurrence of any event if, immediately following
such event, at least 50% of the members of the board of directors of
the Association do not belong to any of the following groups:
(A) individuals who were members of the Board of the
Association on the Effective Date of this Agreement; or
(B) individuals who first became members of the Board
of the Association after the Effective Date of this Agreement
either:
(I) upon election to serve as a member of
the Board of directors of the Association by
affirmative vote of three-quarters of the
<PAGE> 29
members of such board, or of a nominating committee
thereof, in office at the time of such first
election; or
(II) upon election by the stockholders of
the Board to serve as a member of the board of
directors of the Board, but only if nominated for
election by affirmative vote of three-quarters of the
members of the board of directors of the Board, or of
a nominating committee thereof, in office at the time
of such first nomination;
provided, however, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf
of the Board of the Association;
(v) any event which would be described in section 11(a)(i),
(ii), (iii) or (iv) if the term "Company" were substituted for the term
"Association" therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the
Association, or any subsidiary of any of them, by the Company, the Association,
or a subsidiary of either of them, or by any employee benefit plan maintained by
any of them. For purposes of this section 11 the term "person" shall have the
meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) In the event of a Change of Control, the Executive shall
be entitled to the payments and benefits contemplated by section 9(b) in the
event of his termination employment with the Association under any of the
circumstances described in section 9(a) of this Agreement or under any of the
following circumstances:
(i) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period and within ninety (90) days
following his demotion, loss of title, office or significant authority
or responsibility, or following any reduction in any element of his
package of compensation and benefits;
(ii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period and within ninety (90) days
following any relocation of his principal place of employment or any
change in working conditions at such principal place of employment
which is embarrassing, derogatory or otherwise materially adverse;
(iii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following the failure of any
successor to the Association in the Change of Control to include the
Executive in any compensation or benefit program maintained by it or
covering any of its executive officers, unless the Executive is already
covered by a substantially similar plan of the Association which is at
least as favorable to him; or
<PAGE> 30
(iv) resignation, voluntary or otherwise, for any reason
whatsoever following the expiration of a transition period of thirty
days beginning on the effective date of the Change of Control (or such
longer period, not to exceed ninety (90) days beginning on the
effective date of the Change in Control, as the Association or its
successor may reasonably request) to facilitate a transfer of
management responsibilities.
SECTION 12. COVENANT NOT TO COMPETE.
The Executive hereby covenants and agrees that, in the event
of his termination of employment with the Association prior to the expiration of
the Employment Period, for a period of one (1) year following the date of his
termination of employment with the Association (or, if less, for the Remaining
Unexpired Employment Period), he shall not, without the written consent of the
Association, become an officer, employee, consultant, director or trustee of any
savings bank, savings and loan association, savings and loan holding company,
bank or bank holding company, or any direct or indirect subsidiary or affiliate
of any such entity, that entails working in any city, town or county in which
the Association or the Company has an office or has filed an application for
regulatory approval to establish an office, determined as of the effective date
of the Executive's termination of employment; provided, however, that this
section 12 shall not apply if the Executive's employment is terminated for the
reasons set forth in section 9(a); and provided, further, that if the
Executive's employment shall be terminated on account of disability as provided
in section 10(d) of this Agreement, this section 12 shall not prevent the
Executive from accepting any position or performing any services if (a) he first
offers, by written notice, to accept a similar position with, or perform similar
services for, the Association on substantially the same terms and conditions and
(b) the Association declines to accept such offer within ten (10) days after
such notice is given.
SECTION 13. CONFIDENTIALITY.
Unless he obtains the prior written consent of the
Association, the Executive shall keep confidential and shall refrain from using
for the benefit of himself, or any person or entity other than the Association
or any entity which is a subsidiary of the Association or of which the
Association is a subsidiary, any material document or information obtained from
the Association, or from its parent or subsidiaries, in the course of his
employment with any of them concerning their properties, operations or business
(unless such document or information is readily ascertainable from public or
published information or trade sources or has otherwise been made available to
the public through no fault of his own) until the same ceases to be material (or
becomes so ascertainable or available); provided, however, that nothing in this
section 13 shall prevent the Executive, with or without the Association's
consent, from participating in or disclosing documents or information in
connection with any judicial or administrative investigation, inquiry or
proceeding to the extent that such participation or disclosure is required under
applicable law.
SECTION 14. SOLICITATION.
The Executive hereby covenants and agrees that, for a period
of one (1) year following his termination of employment with the Association, he
shall not, without the written consent of the Association, either directly or
indirectly:
(a) solicit, offer employment to, or take any other action
intended, or that a
<PAGE> 31
reasonable person acting in like circumstances would expect, to have the effect
of causing any officer or employee of the Association, the Company or any
affiliate, as of the Effective Date of this Agreement, of either of them to
terminate his or her employment and accept employment or become affiliated with,
or provide services for compensation in any capacity whatsoever to, any savings
bank, savings and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of accepting
deposits and making loans, doing business in any city, town or county in which
the Association or the Company has an office or has filed an application for
regulatory approval to establish an office, determined as of the Effective Date
of this Agreement;
(b) provide any information, advice or recommendation with
respect to any such officer or employee to any savings bank, savings and loan
association, bank, bank holding company, savings and loan holding company, or
other institution engaged in the business of accepting deposits and making
loans, doing business in any city, town or county in which the Association or
the Company has an office or has filed an application for regulatory approval to
establish an office, determined as of the Effective Date of this Agreement, of
either of them that is intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any officer or
employee of the Association, the Company or any affiliate, as of the Effective
Date of this Agreement, of either of them to terminate his or her employment and
accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, such savings bank, savings and loan
association, bank, bank holding company, savings and loan holding company, or
other institution;
(c) solicit, provide any information, advice or recommendation
or take any other action intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any customer of the
Association to terminate an existing business or commercial relationship with
the Association.
SECTION 15. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR
PROGRAMS.
The termination of the Executive's employment during the term
of this Agreement or thereafter, whether by the Association or by the Executive,
shall have no effect on the rights and obligations of the parties hereto under
the Association's qualified or non-qualified retirement, pension, savings,
thrift, profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Association from time to time.
SECTION 16. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon the Executive, his legal representatives and testate or intestate
distributees, and the Association and its successors and assigns, including any
successor by merger or consolidation or any other person or firm or corporation
to which all or substantially all of the assets and business of the Association
may be sold or otherwise transferred. Failure of the Association to obtain from
any successor its express written assumption of the Association's obligations
hereunder at least sixty (60) days in advance of the scheduled effective date of
any such succession shall be deemed a material breach of this Agreement unless
cured within ten (10) days after notice thereof by the Executive to the
Association.
<PAGE> 32
SECTION 17. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to the Executive:
Mr. Gerard C. Keegan
19 Brixton Road
Garden City, New York
If to the Association:
Astoria Federal Savings and Loan Association
One Astoria Federal Plaza
Lake Success, New York 11042-1085
Attention: General Counsel
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. Edward Bright, Esq.
SECTION 18. INDEMNIFICATION FOR ATTORNEYS ' FEES.
The Association shall indemnify, hold harmless and defend the
Executive against reasonable costs, including legal fees, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement; provided, however, that the Executive shall have
substantially prevailed on the merits pursuant to a judgment, decree or order of
a court of competent jurisdiction or of an arbitrator in an arbitration
proceeding, or in a settlement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the
Association's obligations hereunder shall be conclusive evidence of the
Executive's entitlement to indemnification hereunder, and any such
indemnification payments shall be in addition to amounts payable pursuant to
such settlement agreement, unless such settlement agreement expressly provides
otherwise.
SECTION 19. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not
<PAGE> 33
affect the validity or enforceability of any other provision hereof.
SECTION 20. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 21. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 22. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.
SECTION 23. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 24. ENTIRE AGREEMENT: MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
SECTION 25. SURVIVAL.
The provisions of sections 6, 9, 10, 11, 12, 13, 14, 15, 17,
18, 20 and 27 shall survive the expiration of the Employment Period or
termination of this Agreement.
SECTION 26. EQUITABLE REMEDIES.
The Company and the Executive hereby stipulate that money
damages are an inadequate remedy for violations of sections 6(a), 12, 13 or 14
or this Agreement and agree that equitable remedies, including, without
limitations, the remedies of specific performance and injunctive relief, shall
be
<PAGE> 34
available with respect to the enforcement of such provisions.
SECTION 27. REQUIRED REGULATORY PROVISIONS.
The following provisions are included for the purposes of
complying with various laws, rules and regulations applicable to the
Association:
(a) Notwithstanding anything herein contained to the contrary,
in no event shall the aggregate amount of compensation payable to the Executive
under section 9(b) hereof (exclusive of amounts described in section 9(b)(i),
(viii) and (ix)) exceed the three times the Executive's average annual total
compensation for the last five consecutive calendar years to end prior to his
termination of employment with the Association (or for his entire period of
employment with the Association if less than five calendar years).
(b) Notwithstanding anything herein contained to the contrary,
any payments to the Executive by the Association, whether pursuant to this
Agreement or otherwise, are subject to and conditioned upon their compliance
with section 18(k) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C.
Section 1828(k), and any regulations promulgated thereunder.
(c) Notwithstanding anything herein contained to the contrary,
if the Executive is suspended from office and/or temporarily prohibited from
participating in the conduct of the affairs of the Association pursuant to a
notice served under section 8(e)(3) or 8(g)(1) of the FDI Act, 12 U.S.C. Section
1818(e)(3) or Section 1818(g)(1), the Association's obligations under this
Agreement shall be suspended as of the date of service of such notice, unless
stayed by appropriate proceedings. If the charges in such notice are dismissed,
the Association, in its discretion, may (i) pay to the Executive all or part of
the compensation withheld while the Association's obligations hereunder were
suspended and (ii) reinstate, in whole or in part, any of the obligations which
were suspended.
(d) Notwithstanding anything herein contained to the contrary,
if the Executive is removed and/or permanently prohibited from participating in
the conduct of the Association's affairs by an order issued under section
8(e)(4) or 8(g)(1) of the FDI Act, 12 U.S.C Section 1818(e)(4) or (g)(1), all
prospective obligations of the Association under this Agreement shall terminate
as of the effective date of the order, but vested rights and obligations of the
Association and the Executive shall not be affected.
(e) Notwithstanding anything herein contained to the contrary,
if the Association is in default (within the meaning of section 3(x)(1) of the
FDI Act, 12 U.S.C. Section 1813(x)(1), all prospective obligations of the
Association under this Agreement shall terminate as of the date of default, but
vested rights and obligations of the Association and the Executive shall not be
affected.
(f) Notwithstanding anything herein contained to the contrary,
all prospective obligations of the Association hereunder shall be terminated,
except to the extent that a continuation of this Agreement is necessary for the
continued operation of the Association: (i) by the Director of the Office of
Thrift Supervision ("OTS") or his designee or the Federal Deposit Insurance
Corporation ("FDIC"), at the time the FDIC enters into an agreement to provide
assistance to or on behalf of the Association under the authority contained in
section 13(c) of the FDI Act, 12 U.S.C. Section 1823(c); (ii) by the Director of
the OTS or his designee at the time such Director or designee approves a
supervisory merger to resolve problems related to the operation of the
Association or when the Association is
<PAGE> 35
determined by such Director to be in an unsafe or unsound condition. The vested
rights and obligations of the parties shall not be affected.
If and to the extent that any of the foregoing provisions shall cease to be
required or by applicable law, rule or regulation, the same shall become
inoperative as though eliminated by formal amendment of this Agreement.
SECTION 28. EFFECTIVE DATE.
The Effective Date of this Agreement shall be the date of
closing of the merger of The Greater New York Savings Bank with and into the
Association pursuant to the Agreement and Plan of Merger dated March 29, 1997 by
and among the Company, the Association and The Greater New York Savings Bank
("Merger Agreement"). This Agreement shall have no force or effect prior to the
Effective Date and, on the Effective Date, shall not take effect until the
Effective Time (as such term is defined in the Merger Agreement). In the event
that the merger contemplated by the Merger Agreement is not consummated, this
Agreement shall have no force or effect.
<PAGE> 36
IN WITNESS WHEREOF, the Association has caused this Agreement
to be executed and the Executive has hereunto set his hand, all as of the day
and year first above written.
ATTEST: ASTORIA FEDERAL SAVINGS
AND LOAN ASSOCIATION
By ---------------------------
Secretary By ---------------------------------------
Name: George L. Engelke, Jr.
Title: President and Chief
Executive Officer
[Seal]
----------------------------------------
GERARD C. KEEGAN
<PAGE> 37
STATE OF NEW YORK )
:ss.:
COUNTY OF NASSAU )
On this ____ day of ________, 1997, before me personally came
Gerard C. Keegan, to me known, and known to me to be the individual described in
the foregoing instrument, who, being by me duly sworn, did depose and say that
he resides at the address set forth in said instrument, and that he signed his
name to the foregoing instrument.
__________________
Notary Public
STATE OF NEW YORK )
:ss.:
COUNTY OF NASSAU )
On this __________ day of ___________________________, 1997,
before me personally came George L. Engelke, Jr., to me known, who, being by me
duly sworn, did depose and say that he resides at ____________________________,
that he is President and Chief Executive Officer of ASTORIA FEDERAL SAVINGS AND
LOAN ASSOCIATION, the savings institution described in and which executed the
foregoing instrument; that he knows the seal of said institution; that the seal
affixed to said instrument is such seal; that it was so affixed by order of the
Board of Directors of said institution; and that he signed his name thereto by
like order.
__________________
Notary Public
<PAGE> 1
EXHIBIT 10.33
ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION
EMPLOYMENT AGREEMENT WITH GERARD C. KEEGAN
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of March 29, 1997, by and between ASTORIA FEDERAL SAVINGS AND LOAN
ASSOCIATION, a savings institution organized and operating under the federal
laws of the United States and having an office at One Astoria Federal Plaza,
Lake Success, New York 11042-1085 ("Association") and GERARD C. KEEGAN, an
individual ("Executive").
WITNESSETH:
WHEREAS, the Association is a wholly owned subsidiary of
Astoria Financial Corporation ("Company"), a publicly held business corporation
organized and operating under the laws of the State of Delaware; and
WHEREAS, the Association desires to assure for itself the
availability of the Executive's services and the ability of the Executive to
perform such services with a minimum of personal distraction in the event of a
pending or threatened Change of Control (as hereinafter defined); and
WHEREAS, the Executive is willing to serve the Association on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Association and the
Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Association agrees to employ the Executive, and the
Executive hereby agrees to such employment, during the period and upon the terms
and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED
EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and
remain in effect during the period of employment established under this section
2 ("Employment Period"). The Employment Period shall be for an initial term of
three years beginning on the Effective Date of this Agreement as provided in
section 28 ("Effective Date"). Prior to the first anniversary of the Effective
Date of this Agreement and on each anniversary date thereafter (each, an
"Anniversary Date"), the Board of Directors of the Association ("Board") shall
review the terms of this Agreement and the Executive's performance of services
hereunder and may, in the absence of objection from the Executive, approve an
extension of the Employment Period. In such event, the Employment Period shall
be extended to the third anniversary of the relevant Anniversary Date.
(b) For all purposes of this Agreement, the term "Remaining
Unexpired
<PAGE> 2
Employment Period" as of any date shall mean the period beginning on such date
and ending on the Anniversary Date on which the Employment Period (as extended
pursuant to section 2(a) of this Agreement) is then scheduled to expire.
(c) Nothing in this Agreement shall be deemed to prohibit the
Association from terminating the Executive's employment at any time during the
Employment Period with or without notice for any reason; provided, however, that
the relative rights and obligations of the Association and the Executive in the
event of any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
The Executive shall serve as Vice Chairman and Chief
Administrative Officer of the Association, having such power, authority and
responsibility and performing such duties as are prescribed by or under the
By-Laws of the Association and as are customarily associated with such position.
The Executive shall devote his full business time and attention (other than
during weekends, holidays, approved vacation periods, and periods of illness or
approved leaves of absence) to the business and affairs of the Association and
shall use his best efforts to advance the interests of the Association.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the
Executive hereunder, the Association shall pay to him a salary at an initial
annual rate of THREE HUNDRED FIFTY THOUSAND DOLLARS ($350,000), payable in
approximately equal installments in accordance with the Association's customary
payroll practices for senior officers. Prior to each Anniversary Date occurring
during the Employment Period, the Board shall review the Executive's annual rate
of salary and may, in its discretion, approve an increase therein. In addition
to salary, the Executive may receive other cash compensation from the
Association for services hereunder at such times, in such amounts and on such
terms and conditions as the Board may determine from time to time.
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated
as an employee of the Association and shall be entitled to participate in and
receive benefits under any and all qualified or non-qualified retirement,
pension, savings, profit-sharing or stock bonus plans, any and all group life,
health (including hospitalization, medical and major medical), dental, accident
and long term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Association, in accordance with the terms and conditions of such employee
benefit plans and programs and compensation plans and programs and consistent
with the Association's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
<PAGE> 3
(a) During the Employment Period and for a period of six (6)
years thereafter, the Association shall cause the Executive to be covered by and
named as an insured under any policy or contract of insurance obtained by it to
insure its directors and officers against personal liability for acts or
omissions in connection with service as an officer or director of the
Association or service in other capacities at the request of the Association.
The coverage provided to the Executive pursuant to this section 6 shall be no
less favorable in scope or terms and conditions as the coverage (if any)
provided to other Senior Vice Presidents of the Association.
(b) To the maximum extent permitted under applicable law,
during the Employment Period and for a period of six (6) years thereafter, the
Association shall indemnify the Executive, against and hold him harmless from
any costs, liabilities, losses and exposures to the fullest extent and on the
most favorable terms and conditions that similar indemnification is offered to
any Senior Vice President of the Association or any subsidiary or affiliate
thereof. This section 6(b) shall not be applicable where section 18 is
applicable.
SECTION 7. OUTSIDE ACTIVITIES.
The Executive may serve as a member of the boards of directors
of such business, community and charitable organizations as he may disclose to
and as may be approved by the Board (which approval shall not be unreasonably
withheld); provided, however, that such service shall not materially interfere
with the performance of his duties under this Agreement. The Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; provided, however, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Association and generally
applicable to all similarly situated executives. The Executive may also serve as
an officer or director of the Company on such terms and conditions as the
Association and the Company may mutually agree upon, and such service shall not
be deemed to materially interfere with the Executive's performance of his duties
hereunder or otherwise to result in a material breach of this Agreement.
SECTION 8. WORKING FACILITIES AND EXPENSES.
The Executive's principal place of employment shall be at the
Association's executive offices at the address first above written, or at such
other location within Queens County or Nassau County, New York at which the
Association shall maintain its principal executive offices, or at such other
location as the Association and the Executive may mutually agree upon. The
Association shall provide the Executive at his principal place of employment
with a private office, secretarial services and other support services and
facilities suitable to his position with the Association and necessary or
appropriate in connection with the performance of his assigned duties under this
Agreement. The Association shall provide to the Executive for his exclusive use
an automobile owned or leased by the Association and appropriate to his
position, to be used in the performance of his duties hereunder, including
commuting to and from his personal residence. The Association shall reimburse
the Executive for his ordinary and necessary business expenses, including,
without limitation, all expenses associated with his business use of the
aforementioned automobile, fees for memberships in such clubs and organizations
as the Executive and the Association shall mutually agree are necessary and
appropriate for business purposes, and his travel and entertainment expenses
incurred in connection
<PAGE> 4
with the performance of his duties under this Agreement, in each case upon
presentation to the Association of an itemized account of such expenses in such
form as the Association may reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE
BENEFITS.
(a) The Executive shall be entitled to the severance benefits
described herein in the event that his employment with the Association
terminates during the Employment Period under any of the following
circumstances:
(i) the Executive's voluntary resignation from employment with
the Association within ninety (90) days following:
(A) the failure of the Board to appoint or re-appoint
or elect or re-elect the Executive to the office of Vice
Chairman and Chief Administrative Officer (or a more senior
office) of the Association;
(B) if the Executive is a member of the Board, the
failure of the stockholders of the Association to elect or
re-elect the Executive to the Board or the failure of the
Board (or the nominating committee thereof) to nominate the
Executive for such election or re-election if the Executive is
a member of the Board on the Effective Date of this Agreement
or thereafter becomes a member of the Board;
(C) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Association of its material failure, whether by
amendment of the Association's Organization Certificate or
By-laws, action of the Board or the Association's stockholders
or otherwise, to vest in the Executive the functions, duties,
or responsibilities prescribed in section 3 of this Agreement
as of the date hereof, unless, during such thirty (30) day
period, the Association fully cures such failure;
(D) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Association of its material breach of any term,
condition or covenant contained in this Agreement (including,
without limitation any reduction of the Executive's rate of
base salary in effect from time to time and any change in the
terms and conditions of any compensation or benefit program in
which the Executive participates which, either individually or
together with other changes, has a material adverse effect on
the aggregate value of his total compensation package),
unless, during such thirty (30) day period, the Association
fully cures such failure;
(E) the relocation of the Executive's principal place
of employment, without his written consent, to a location
outside of Nassau
<PAGE> 5
County and Queens County, New York; or
(ii) the termination of the Executive's employment with the
Association for any other reason not described in section 10(a).
In such event, subject to section 25, the Association shall provide the benefits
and pay to the Executive the amounts described in section 9(b).
(b) Upon the termination of the Executive's employment with
the Association under circumstances described in section 9(a) of this Agreement,
the Association shall pay and provide to the Executive (or, in the event of his
death, to his estate):
(i) his earned but unpaid compensation (including, without
limitation, all items which constitute wages under section 190.1 of the
New York Labor Law and the payment of which is not otherwise provided
for under this section 9(b)) as of the date of the termination of his
employment with the Association, such payment to be made at the time
and in the manner prescribed by law applicable to the payment of wages
but in no event later than thirty (30) days after termination of
employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and programs maintained for the benefit of the Association's
officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to section
9(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Executive, for the Remaining Unexpired Employment Period, coverage
equivalent to the coverage to which he would have been entitled under
such plans (as in effect on the date of his termination of employment,
or, if his termination of employment occurs after a Change of Control,
on the date of such Change of Control, whichever benefits are greater)
if he had continued working for the Association during the Remaining
Unexpired Employment Period at the highest annual rate of compensation
achieved during that portion of the Employment Period which is prior to
the Executive's termination of employment with the Association;
(iv) within thirty (30) days following his termination of
employment with the Association, a lump sum payment, in an amount equal
to the present value of the salary that the Executive would have earned
if he had continued working for the Association during the Remaining
Unexpired Employment Period at the highest annual rate of salary
achieved during that portion of the Employment Period which is prior to
the Executive's termination of employment with the Association, where
such present value is to be determined using a discount rate equal to
the applicable short-term federal rate prescribed under section 1274(d)
of the Internal Revenue Code of 1986 ("Code"), compounded using the
compounding period corresponding to the
<PAGE> 6
Association's regular payroll periods for its officers, such lump sum
to be paid in lieu of all other payments of salary provided for under
this Agreement in respect of the period following any such termination;
(v) within thirty (30) days following his termination of
employment with the Association, a lump sum payment in an amount equal
to the excess, if any, of:
(A) the present value of the aggregate benefits to
which he would be entitled under any and all qualified and
non-qualified defined benefit pension plans maintained by, or
covering employees of, the Association) if he were 100% vested
thereunder and had continued working for the Association
during the Remaining Unexpired Employment Period (such
benefits to be determined as of the date of termination of
employment by adding to the service actually recognized under
such plans an additional period equal to the Remaining
Unexpired Employment Period and by adding to the compensation
recognized under such plans for the most recent year
recognized all amounts payable under sections 9(b)(i), (iv),
(vii), (viii) and (ix); over
(B) the present value of the benefits to which he is
actually entitled under such defined benefit pension plans as
of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly, equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Executive's termination of employment occurs ("Applicable PBGC Rate").
(vi) within thirty (30) days following his termination of
employment with the Association, a lump sum payment in an amount equal
to the present value of the additional employer contributions (or if
greater in the case of a leveraged employee stock ownership plan or
similar arrangement, the additional assets allocable to him through
debt service, based on the fair market value of such assets at
termination of employment) to which he would have been entitled under
any and all qualified and non-qualified defined contribution plans
maintained by, or covering employees of, the Association, as if he were
100% vested thereunder and had continued working for the Association
during the Remaining Unexpired Employment Period at the highest annual
rate of compensation achieved during that portion of the Employment
Period which is prior to the Executive's termination of employment with
the Association, and making the maximum amount of employee
contributions, if any, required under such plan or plans, such present
value to be determined on the basis of a discount rate, compounded
using the compounding period that corresponds to the frequency with
which employer frequency with which employer contributions are made to
the relevant plan, equal to the Applicable PBGC Rate;
<PAGE> 7
(vii) within thirty (30) days following his termination of
employment with the Company, a lump sum payment in an amount equal to
the present value of the payments that would have been made to the
Executive under any cash bonus or long-term or short-term cash
incentive compensation plan maintained by, or covering employees of,
the Association if he had continued working for the Association during
the Remaining Unexpired Employment Period and had earned the maximum
bonus or incentive award in each calendar year that ends during the
Remaining Unexpired Employment Period, such payments to be equal to the
product of:
(A) the maximum percentage rate of annual salary at
which an award was ever available to the Executive under such
incentive compensation plan; multiplied by
(B) the salary that would have been paid to the
Executive during each such calendar year at the highest annual
rate of salary achieved during that portion of the Employment
Period which is prior to the Executive's termination of
employment with the Association:
Where such present value is to be determined using a discount rate
equal to the applicable short-term federal rate prescribed under
section 1274(d) of the Code, compounded annually;
(viii) at the election of the Association made within thirty
(30) days following his termination of employment with the Association,
upon the surrender of options or appreciation rights issued to the
Executive under any stock option and appreciation rights plan or
program maintained by, or covering employees of, the Association, a
lump sum payment in an amount equal to the product of:
(A) the excess of (I) the fair market value of a
share of stock of the same class as the stock subject to the
option or appreciation right, determined as of the date of
termination of employment, over (II) the exercise price per
share for such option or appreciation right, as specified in
or under the relevant plan or program; multiplied by
(B) the number of shares with respect to which
options or appreciation rights are being surrendered.
For purposes of this section 9(b)(viii) and for purposes of determining
the Executive's right following his termination of employment with the
Association to exercise any options or appreciation rights not
surrendered pursuant hereto, the Executive shall be deemed fully vested
in all options and appreciation rights under any stock option or
appreciation rights plan or program maintained by, or covering
employees of, the Association, even if he is not vested under such plan
or program;
(ix) at the election of the Association made within thirty
(30) days
<PAGE> 8
following the Executive's termination of employment with the
Association, upon the surrender of any shares awarded to the Executive
under any restricted stock plan maintained by, or covering employees
of, the Association, a lump sum payment in an amount equal to the
product of:
(A) the fair market value of a share of stock of the
same class of stock granted under such plan, determined as of
the date of the Executive's termination of employment;
multiplied by
(B) the number of shares which are being
surrendered.
For purposes of this section 9(b)(ix) and for purposes of determining
the Executive's right following his termination of employment with the
Association to any stock not surrendered pursuant hereto, the Executive
shall be deemed fully vested in all shares awarded under any restricted
stock plan maintained by, or covering employees of, the Association,
even if he is not vested under such plan.
The Association and the Executive hereby stipulate that the damages which may be
incurred by the Executive following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 9(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Executive's efforts, if any, to
mitigate damages. The Association and the Executive further agree that the
Association may condition the payments and benefits (if any) due under sections
9(b)(iii), (iv), (v), (vi) and (vii) on the receipt of the Executive's
resignation from any and all positions which he holds as an officer, director or
committee member with respect to the Association, the Company or any subsidiary
or affiliate of either of them.
SECTION 10. TERMINATION WITHOUT ADDITIONAL ASSOCIATION
LIABILITY.
In the event that the Executive's employment with the
Association shall terminate during the Employment Period on account of:
(a) the discharge of the Executive for "cause," which, for purposes of
this Agreement shall mean personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or final cease and desist order, or
any material breach of this Agreement, in each case as measured against
standards generally prevailing at the relevant time in the savings and community
banking industry; provided, however, that the Executive shall not be deemed to
have been discharged for cause unless and until he shall have received a written
notice of termination from the Board, accompanied by a resolution duly adopted
by affirmative vote of a majority of the entire Board at a meeting called and
held for such purpose (after reasonable notice to the Executive and a reasonable
opportunity for the Executive to make oral and written presentations to the
members of the Board, on his own behalf, or through a representative, who may be
his legal counsel, to refute the grounds for the proposed determination) finding
that in the good faith opinion of the Board grounds exist for discharging the
Executive for
<PAGE> 9
cause; or
(b) the Executive's voluntary resignation from employment with
the Association for reasons other than those specified in section 9(a)(i);
(c) the Executive's death;
(d) a determination that the Executive is eligible for
long-term disability benefits under the Association's long-term disability
insurance program or, if there is no such program, under the federal Social
Security Act; or
(e) the Executive's termination of employment for any reason
at or after attainment of mandatory retirement age under the Association's
mandatory retirement policy for executive officers in effect as of the Effective
Date of this Agreement;
then the Association shall have no further obligations under this Agreement,
other than the payment to the Executive (or, in the event of his death, to his
estate) of his earned but unpaid compensation as of the date of the termination
of his employment, and the provision of such other benefits, if any, to which he
is entitled as a former employee under the employee benefit plans and programs
and compensation plans and programs maintained by, or covering employees of, the
Association.
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE OF
CONTROL.
(a) A Change of Control of the Association ("Change of
Control") shall be deemed to have occurred upon the happening of any of the
following events:
(i) approval by the stockholders of the Association of a
transaction that would result in the reorganization, merger or
consolidation of the Association, respectively, with one or more other
persons, other than a transaction following which:
(A) at least 51 % of the equity ownership interests
of the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions
by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) at least 51% of the
outstanding equity ownership interests in the Association; and
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the
<PAGE> 10
securities entitled to vote generally in the election of
directors of the Association;
(ii) the acquisition of all or substantially all of the assets
of the Association or beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of the
outstanding securities of the Association entitled to vote generally in
the election of directors by any person or by any persons acting in
concert, or approval by the stockholders of the Association of any
transaction which would result in such an acquisition; or
(iii) a complete liquidation or dissolution of the
Association, or approval by the stockholders of the Association of a
plan for such liquidation or dissolution; or
(iv) the occurrence of any event if, immediately following
such event, at least 50% of the members of the board of directors of
the Association do not belong to any of the following groups:
(A) individuals who were members of the Board of the
Association on the Effective Date of this Agreement; or
(B) individuals who first became members of the Board
of the Association after the Effective Date of this Agreement
either:
(I) upon election to serve as a member of
the Board of directors of the Association by
affirmative vote of three-quarters of the members of
such board, or of a nominating committee thereof, in
office at the time of such first election; or
(II) upon election by the stockholders of
the Board to serve as a member of the board of
directors of the Board, but only if nominated for
election by affirmative vote of three-quarters of the
members of the board of directors of the Board, or of
a nominating committee thereof, in office at the time
of such first nomination;
provided, however, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf
of the Board of the Association;
(v) any event which would be described in section 11(a)(i),
(ii), (iii) or (iv) if the term "Company" were substituted for the term
"Association" therein.
<PAGE> 11
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the
Association, or any subsidiary of any of them, by the Company, the Association,
or a subsidiary of either of them, or by any employee benefit plan maintained by
any of them. For purposes of this section 11 the term "person" shall have the
meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) In the event of a Change of Control, the Executive shall
be entitled to the payments and benefits contemplated by section 9(b) in the
event of his termination employment with the Association under any of the
circumstances described in section 9(a) of this Agreement or under any of the
following circumstances:
(i) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period and within ninety (90) days
following his demotion, loss of title, office or significant authority
or responsibility, or following any reduction in any element of his
package of compensation and benefits;
(ii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period and within ninety (90) days
following any relocation of his principal place of employment or any
change in working conditions at such principal place of employment
which is embarrassing, derogatory or otherwise materially adverse;
(iii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following the failure of any
successor to the Association in the Change of Control to include the
Executive in any compensation or benefit program maintained by it or
covering any of its executive officers, unless the Executive is already
covered by a substantially similar plan of the Association which is at
least as favorable to him; or
(iv) resignation, voluntary or otherwise, for any reason
whatsoever following the expiration of a transition period of thirty
days beginning on the effective date of the Change of Control (or such
longer period, not to exceed ninety (90) days beginning on the
effective date of the Change in Control, as the Association or its
successor may reasonably request) to facilitate a transfer of
management responsibilities.
SECTION 12. COVENANT NOT TO COMPETE.
The Executive hereby covenants and agrees that, in the event
of his termination of employment with the Association prior to the expiration of
the Employment Period, for a period of one (1) year following the date of his
termination of employment with the Association (or, if less, for the Remaining
Unexpired Employment Period), he shall not, without the written consent of the
Association, become an officer, employee, consultant, director or trustee of any
savings bank, savings and loan association, savings and loan holding company,
bank or bank holding company, or any direct or indirect subsidiary or affiliate
of any such entity, that entails working in any city, town or county
<PAGE> 12
in which the Association or the Company has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of the Executive's termination of employment; provided, however,
that this section 12 shall not apply if the Executive's employment is terminated
for the reasons set forth in section 9(a); and provided, further, that if the
Executive's employment shall be terminated on account of disability as provided
in section 10(d) of this Agreement, this section 12 shall not prevent the
Executive from accepting any position or performing any services if (a) he first
offers, by written notice, to accept a similar position with, or perform similar
services for, the Association on substantially the same terms and conditions and
(b) the Association declines to accept such offer within ten (10) days after
such notice is given.
SECTION 13. CONFIDENTIALITY.
Unless he obtains the prior written consent of the
Association, the Executive shall keep confidential and shall refrain from using
for the benefit of himself, or any person or entity other than the Association
or any entity which is a subsidiary of the Association or of which the
Association is a subsidiary, any material document or information obtained from
the Association, or from its parent or subsidiaries, in the course of his
employment with any of them concerning their properties, operations or business
(unless such document or information is readily ascertainable from public or
published information or trade sources or has otherwise been made available to
the public through no fault of his own) until the same ceases to be material (or
becomes so ascertainable or available); provided, however, that nothing in this
section 13 shall prevent the Executive, with or without the Association's
consent, from participating in or disclosing documents or information in
connection with any judicial or administrative investigation, inquiry or
proceeding to the extent that such participation or disclosure is required under
applicable law.
SECTION 14. SOLICITATION.
The Executive hereby covenants and agrees that, for a period
of one (1) year following his termination of employment with the Association, he
shall not, without the written consent of the Association, either directly or
indirectly:
(a) solicit, offer employment to, or take any other action
intended, or that a reasonable person acting in like circumstances would expect,
to have the effect of causing any officer or employee of the Association, the
Company or any affiliate, as of the Effective Date of this Agreement, of either
of them to terminate his or her employment and accept employment or become
affiliated with, or provide services for compensation in any capacity whatsoever
to, any savings bank, savings and loan association, bank, bank holding company,
savings and loan holding company, or other institution engaged in the business
of accepting deposits and making loans, doing business in any city, town or
county in which the Association or the Company has an office or has filed an
application for regulatory approval to establish an office, determined as of the
Effective Date of this Agreement;
(b) provide any information, advice or recommendation with
respect to any such officer or employee to any savings bank, savings and loan
association, bank, bank holding company, savings and loan holding company, or
other institution engaged in the business of accepting deposits
<PAGE> 13
and making loans, doing business in any city, town or county in which the
Association or the Company has an office or has filed an application for
regulatory approval to establish an office, determined as of the Effective Date
of this Agreement, of either of them that is intended, or that a reasonable
person acting in like circumstances would expect, to have the effect of causing
any officer or employee of the Association, the Company or any affiliate, as of
the Effective Date of this Agreement, of either of them to terminate his or her
employment and accept employment or become affiliated with, or provide services
for compensation in any capacity whatsoever to, such savings bank, savings and
loan association, bank, bank holding company, savings and loan holding company,
or other institution;
(c) solicit, provide any information, advice or recommendation
or take any other action intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any customer of the
Association to terminate an existing business or commercial relationship with
the Association.
SECTION 15. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR
PROGRAMS.
The termination of the Executive's employment during the term
of this Agreement or thereafter, whether by the Association or by the Executive,
shall have no effect on the rights and obligations of the parties hereto under
the Association's qualified or non-qualified retirement, pension, savings,
thrift, profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Association from time to time.
SECTION 16. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon the Executive, his legal representatives and testate or intestate
distributees, and the Association and its successors and assigns, including any
successor by merger or consolidation or any other person or firm or corporation
to which all or substantially all of the assets and business of the Association
may be sold or otherwise transferred. Failure of the Association to obtain from
any successor its express written assumption of the Association's obligations
hereunder at least sixty (60) days in advance of the scheduled effective date of
any such succession shall be deemed a material breach of this Agreement unless
cured within ten (10) days after notice thereof by the Executive to the
Association.
SECTION 17. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
<PAGE> 14
If to the Executive:
Mr. Gerard C. Keegan
19 Brixton Road
Garden City, New York
If to the Association:
Astoria Federal Savings and Loan Association
One Astoria Federal Plaza
Lake Success, New York 11042-1085
Attention: General Counsel
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. Edward Bright, Esq.
SECTION 18. INDEMNIFICATION FOR ATTORNEYS' FEES.
The Association shall indemnify, hold harmless and defend the
Executive against reasonable costs, including legal fees, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement; provided, however, that the Executive shall have
substantially prevailed on the merits pursuant to a judgment, decree or order of
a court of competent jurisdiction or of an arbitrator in an arbitration
proceeding, or in a settlement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the
Association's obligations hereunder shall be conclusive evidence of the
Executive's entitlement to indemnification hereunder, and any such
indemnification payments shall be in addition to amounts payable pursuant to
such settlement agreement, unless such settlement agreement expressly provides
otherwise.
SECTION 19. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 20. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision
<PAGE> 15
of this Agreement must be made in writing, designated as a waiver, and signed by
the party against whom its enforcement is sought. Any waiver or relinquishment
of any right or power hereunder at any one or more times shall not be deemed a
waiver or relinquishment of such right or power at any other time or times.
SECTION 21. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 22. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.
SECTION 23. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 24. ENTIRE AGREEMENT: MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
SECTION 25. SURVIVAL.
The provisions of sections 6, 9, 10, 11, 12, 13, 14, 15, 17,
18, 20 and 27 shall survive the expiration of the Employment Period or
termination of this Agreement.
SECTION 26. EQUITABLE REMEDIES.
The Company and the Executive hereby stipulate that money
damages are an inadequate remedy for violations of sections 6(a), 12, 13 or 14
of this Agreement and agree that equitable remedies, including, without
limitations, the remedies of specific performance and injunctive relief, shall
be available with respect to the enforcement of such provisions.
SECTION 27. REQUIRED REGULATORY PROVISIONS.
<PAGE> 16
The following provisions are included for the purposes of
complying with various laws, rules and regulations applicable to the
Association:
(a) Notwithstanding anything herein contained to the contrary,
in no event shall the aggregate amount of compensation payable to the Executive
under section 9(b) hereof (exclusive of amounts described in section 9(b)(i),
(viii) and (ix)) exceed the three times the Executive's average annual total
compensation for the last five consecutive calendar years to end prior to his
termination of employment with the Association (or for his entire period of
employment with the Association if less than five calendar years).
(b) Notwithstanding anything herein contained to the contrary,
any payments to the Executive by the Association, whether pursuant to this
Agreement or otherwise, are subject to and conditioned upon their compliance
with section 18(k) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C.
ss.1828(k), and any regulations promulgated thereunder.
(c) Notwithstanding anything herein contained to the contrary,
if the Executive is suspended from office and/or temporarily prohibited from
participating in the conduct of the affairs of the Association pursuant to a
notice served under section 8(e)(3) or 8(g)(1) of the FDI Act, 12 U.S.C. section
1818(e)(3) or section 1818(g)(1), the Association's obligations under this
Agreement shall be suspended as of the date of service of such notice, unless
stayed by appropriate proceedings. If the charges in such notice are dismissed,
the Association, in its discretion, may (i) pay to the Executive all or part of
the compensation withheld while the Association's obligations hereunder were
suspended and (ii) reinstate, in whole or in part, any of the obligations which
were suspended.
(d) Notwithstanding anything herein contained to the contrary,
if the Executive is removed and/or permanently prohibited from participating in
the conduct of the Association's affairs by an order issued under section
8(e)(4) or 8(g)(1) of the FDI Act, 12 U.S.C sections 1818(e)(4) or (g)(1), all
prospective obligations of the Association under this Agreement shall terminate
as of the effective date of the order, but vested rights and obligations of the
Association and the Executive shall not be affected.
(e) Notwithstanding anything herein contained to the contrary,
if the Association is in default (within the meaning of section 3(x)(1) of the
FDI Act, 12 U.S.C. section 1813(x)(1), all prospective obligations of the
Association under this Agreement shall terminate as of the date of default, but
vested rights and obligations of the Association and the Executive shall not be
affected.
(f) Notwithstanding anything herein contained to the contrary,
all prospective obligations of the Association hereunder shall be terminated,
except to the extent that a continuation of this Agreement is necessary for the
continued operation of the Association: (i) by the Director of the Office of
Thrift Supervision ("OTS") or his designee or the Federal Deposit Insurance
Corporation ("FDIC"), at the time the FDIC enters into an agreement to provide
assistance to or on behalf of the Association under the authority contained in
section 13(c) of the FDI Act, 12 U.S.C. ss.1823(c); (ii) by the Director of the
OTS or his designee at the time such Director or designee approves a supervisory
merger to resolve problems related to the operation of the Association or when
the Association is determined by such Director to be in an unsafe or unsound
condition. The
<PAGE> 17
vested rights and obligations of the parties shall not be affected.
If and to the extent that any of the foregoing provisions shall cease to be
required or by applicable law, rule or regulation, the same shall become
inoperative as though eliminated by formal amendment of this Agreement.
SECTION 28. EFFECTIVE DATE.
The Effective Date of this Agreement shall be the date of
closing of the merger of The Greater New York Savings Bank with and into the
Association pursuant to the Agreement and Plan of Merger dated March 29, 1997 by
and among the Company, the Association and The Greater New York Savings Bank
("Merger Agreement"). This Agreement shall have no force or effect prior to the
Effective Date and, on the Effective Date, shall not take effect until the
Effective Time (as such term is defined in the Merger Agreement). In the event
that the merger contemplated by the Merger Agreement is not consummated, this
Agreement shall have no force or effect.
<PAGE> 18
IN WITNESS WHEREOF, the Association has caused this Agreement
to be executed and the Executive has hereunto set his hand, all as of the day
and year first above written.
ATTEST: ASTORIA FEDERAL SAVINGS
AND LOAN ASSOCIATION
By
- --------------------
Secretary By /s/ George L. Engelke, Jr.
---------------------------------
Name: George L. Engelke, Jr.
Title: President and Chief Executive Officer
[Seal]
/s/ Gerard C. Keegan
-------------------------------
GERARD C. KEEGAN
<PAGE> 19
STATE OF NEW YORK )
:ss.:
COUNTY OF NASSAU )
On this ---- day of ---------, 1997, before me personally came
Gerard C. Keegan, to me known, and known to me to be the individual described in
the foregoing instrument, who, being by me duly sworn, did depose and say that
he resides at the address set forth in said instrument, and that he signed his
name to the foregoing instrument.
--------------------
Notary Public
STATE OF NEW YORK )
:ss.:
COUNTY OF NASSAU )
On this ---- day of ---------, 1997, before me personally came
George L. Engelke, Jr., to me known, who, being by me duly sworn, did depose and
say that he resides at , that he is President and Chief Executive Officer
of ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION, the savings institution
described in and which executed the foregoing instrument; that he knows the seal
of said institution; that the seal affixed to said instrument is such seal; that
it was so affixed by order of the Board of Directors of said institution; and
that he signed his name thereto by like order.
--------------------
Notary Public
<PAGE> 1
EXHIBIT 10.34
ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT WITH GERARD C. KEEGAN
This AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT WITH GERARD C.
KEEGAN ("Amendment No. 1") is made and entered into as of March 29, 1997, by and
between ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION, a savings institution
organized and operating under the federal laws of the United States and having
an office at One Astoria Federal Plaza, Lake Success, New York 11042-1085
("Association") and GERARD C. KEEGAN, an individual ("Executive").
WITNESSETH:
WHEREAS, the Association and the Executive have entered into
an Employment Agreement as of March 29, 1997 (the "Existing Agreement") in
connection with the merger of The Greater New York Savings Bank with and into
the Association (the "Merger"); and
WHEREAS, the consummation of the Merger is contingent upon the
approval thereof by the Office of Thrift Supervision (the "OTS"); and
WHEREAS, as a condition of approval, the OTS requires certain
changes in the terms of the Existing Agreement; and
WHEREAS, in order to facilitate the consummation of the
Merger, the Association and the Executive are willing to amend the Existing
Agreement in the manner hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Association and the
Executive hereby agree that the Existing Agreement shall be amended, effective
as of March 29, 1997, in the following respects:
1. Section 9(a)(ii) of the Existing Agreement shall be amended
to read in its entirety as follows:
(ii) the termination of the Executive's employment with the
Association for any other reason not described in section 10.
2. Sections 9(b)(v) and 9(b)(vi) of the Existing Agreement
shall be amended to read in their entirety as follows:
(v) within thirty (30) days following his termination of
employment with the Association, a lump sum payment in an amount equal
to the excess, if any, of:
(A) the present value of the aggregate benefits which
he would have accrued under any and all qualified and
non-qualified defined benefit pension plans maintained by, or
covering employees of, the Association) if he
<PAGE> 2
had continued working for the Association during the Remaining
Unexpired Employment Period (such benefits to be determined as
of the date of termination of employment by adding to the
service actually recognized under such plans an additional
period equal to the Remaining Unexpired Employment Period and
by adding to the compensation recognized under such plans for
the most recent year recognized all amounts payable under
sections 9(b)(i), (iv) and (vii); over
(B) the present value of the benefits to which he is
actually entitled under such defined benefit pension plans as
of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly, equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Executive's termination of employment occurs ("Applicable PBGC Rate");
(vi) within thirty (30) days following his termination of
employment with the Association, a lump sum payment in an amount equal
to the present value of the additional employer contributions (or if
greater in the case of a leveraged employee stock ownership plan or
similar arrangement, the additional assets allocable to him through
debt service, based on the fair market value of such assets at
termination of employment) which he would have accrued under any and
all qualified and non-qualified defined contribution plans maintained
by, or covering employees of, the Association, as if he had continued
working for the Association during the Remaining Unexpired Employment
Period at the highest annual rate of compensation achieved during that
portion of the Employment Period which is prior to the Executive's
termination of employment with the Association, and making the maximum
amount of employee contributions, if any, required under such plan or
plans, such present value to be determined on the basis of a discount
rate, compounded using the compounding period that corresponds to the
frequency with which employer contributions are made to the relevant
plan, equal to the Applicable PBGC Rate;
3. Section 9(b) of the Existing Agreement shall be further
amended by adding the word "and" after the semicolon at the end of section
9(b)((vii) and deleting sections 9(b)(viii) and (ix) in their entirety.
4. Section 11(b) of the Existing Agreement shall be amended by
adding the word "or" after the semicolon at the end of section 11(b)(ii),
substituting a period for "; or" at the end of section 11(b)(iii), and deleting
section 11(b)(iv) in its entirety.
5. Section 27 of the Existing Agreement shall be amended to
read in its entirety as follows:
<PAGE> 3
(a) Notwithstanding anything herein contained to the contrary,
in no event shall the aggregate amount of compensation payable to the
Executive under section 9(b) hereof (exclusive of amounts described in
section 9(b)(i)) exceed the three times the Executive's average annual
total compensation for the last five consecutive calendar years to end
prior to his termination of employment with the Association (or for his
entire period of employment with the Association if less than five
calendar years).
IN WITNESS WHEREOF, the Association has caused this Amendment
No. 1 to be executed and the Executive has hereunto set his hand, all as of the
day and year first above written.
ATTEST: ASTORIA FEDERAL SAVINGS
AND LOAN ASSOCIATION
By /S/ Alan P. Eggleston
------------------------
Asst Secretary By /S/ George L. Engelke, Jr.
----------------------------------------
Name: George L. Engelke, Jr.
Title: President and Chief Executive
Officer
[Seal]
/S/ Gerard C. Keegan
---------------------------
GERARD C. KEEGAN
<PAGE> 4
STATE OF NEW YORK )
: ss.:
COUNTY OF NASSAU )
On this 30th day of, September, 1997, before me personally
came Gerard C. Keegan, to me known, and known to me to be the individual
described in the foregoing instrument, who, being by me duly sworn, did depose
and say that he resides at the address set forth in said instrument, and that he
signed his name to the foregoing instrument.
/S/ Anna Knice
---------------------------
Notary Public
ANNA KNICE
Notary Public, State of New York
No. 4980431
Qualified in Suffolk County
Commission Expires April 22, 1999
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 29th day of September, 1997, before me personally came
George L. Engelke, Jr., to me known, who, being by me duly sworn, did depose and
say that he resides at ---------------------------------------, that he is
President and Chief Executive Officer of ASTORIA FEDERAL SAVINGS AND LOAN
ASSOCIATION, the savings institution described in and which executed the
foregoing instrument; that he knows the seal of said institution; that the seal
affixed to said instrument is such seal; that it was so affixed by order of the
Board of Directors of said institution; and that he signed his name thereto by
like order.
/S/ Elizabeth M. Keogh
-------------------------------
Notary Public
ELIZABETH KEOGH
NOTARY PUBLIC, State of New York
No. 31-4978470
Qualified in New York County
Commission Expires March 4, 1999
<PAGE> 1
EXHIBIT 10.35
OPTION CONVERSION AGREEMENT
This OPTION CONVERSION AGREEMENT ("Agreement") is made and
entered into as of the 30th day of September, 1997 by and between ASTORIA
FINANCIAL CORPORATION, a corporation organized and existing under the laws of
the State of Delaware and having an office at One Astoria Federal Plaza, Lake
Success, New York 11042-1085 ("Corporation") and GERARD C. KEEGAN residing at
151 Brixton Road, Garden City, New York 11530 ("Option Holder").
WITNESSETH:
WHEREAS, the Option Holder holds certain options to purchase
shares of common stock of The Greater New York Savings Bank ("Existing
Options"); and
WHEREAS, pursuant to an Agreement and Plan of Merger dated as
of March 29, 1997 by and among the Corporation, Astoria Federal Savings and Loan
Association ("Association") and The Greater New York Savings Bank ("Merger
Agreement"), the Corporation will purchase all of the outstanding common stock
of The Greater New York Savings Bank ("Seller") and will cause the Seller to be
merged with and into the Association; and
WHEREAS, pursuant to the Merger Agreement, the Option Holder
may elect to cause all or any portion of the Existing Options to be converted
into an option to purchase shares of the common stock of the Corporation
("Converted Option"); and
WHEREAS, the Option Holder has made such an election, and the
Option Holder and the Corporation desire to set forth the terms and conditions
of the Converted Option;
NOW, THEREFORE, the Option Holder and the Corporation agree as
follows:
SECTION 1. GRANT OF CONVERTED OPTION.
The Corporation hereby grants, and the Option Holder hereby
accepts the Corporation's grant of, a Converted Option, on the terms and
conditions hereinafter set forth, to purchase the number of shares of the
Corporation's Common Stock (each, an "Optioned Share"), at the exercise price(s)
per share (each, an "Applicable Exercise Price"), and generally for the period
beginning on the date hereof and ending on the expiration date(s) (each, an
"Applicable Expiration Date") set forth in columns (4), (5) and (6),
respectively, of the table set forth below:
<PAGE> 2
<TABLE>
<CAPTION>
EXISTING OPTION CONVERTED OPTION
- ---------------------------------------------------------- --------------------------------------------------------------
(1) (2) (3) (4) (5) (6)
No. Of Shares Exercise Price Expiration Date No. Of Shares Exercise Price Expiration Date
================ ==================== ================== ================ ================== ========================
<S> <C> <C> <C> <C> <C>
7,680 $ 10.375 8/4/98 3,840 $ 20.75 Same as Column (3)
15,000 $ 8.750 12/15/98 7,500 $ 17.50 Same as Column (3)
22,500 $ 5.750 7/12/00 11,250 $ 11.50 Same as Column (3)
75,000 $ 1.531 1/9/02 37,500 $ 3.0625 Same as Column (3)
25,000 $ 3.750 1/14/03 12,500 $ 7.50 Same as Column (3)
50,000 $ 9.875 6/21/05 25,000 $ 19.75 Same as Column (3)
100,000 $ 11.125 6/26/06 50,000 $ 22.25 Same as Column (3)
</TABLE>
It is not intended that any of the Converted Options granted hereunder qualify
as incentive stock options described in section 422 of the Internal Revenue Code
of 1986 ("Code").
SECTION 2. TERM AND EXERCISE OF OPTIONS.
(a) Each Converted Option shall be exercisable as to an
Optioned Share at any time beginning on the date of this Agreement and ending on
the Applicable Expiration Date for such Optioned Share; PROVIDED, HOWEVER, that
the Converted Option shall be subject to earlier expiration as provided in
section 2(f) hereof.
(b) The Converted Option shall be exercisable in whole or in
part; PROVIDED HOWEVER, that no partial exercise of the Converted Option shall
be for an aggregate Applicable Exercise Price of less than One Thousand Dollars
($1,000). The partial exercise of a Converted Option shall not cause the
expiration, termination or cancellation of the remaining portion thereof. Upon
the partial exercise of the Converted Option, this Agreement, marked with any
notations deemed appropriate by the Corporation, shall be returned to the Option
Holder together with the delivery of the certificates described in section 2(e)
hereof.
(c) The Converted Option shall be exercised by delivering
notice to the Corporation's principal office, to the attention of its Corporate
Secretary, no less than three (3) business days in advance of the effective date
of the proposed exercise. Such notice shall be accompanied by this Agreement,
shall specify the number of Optioned Shares with respect to which the Converted
Option is being exercised and the effective date of the proposed exercise, and
shall be signed by the Option Holder. The Option Holder may withdraw such notice
at any time prior to the close of business on the business day immediately
preceding the effective date of the proposed exercise, in which case the
Agreement shall be returned to him. Payment for Optioned Shares purchased upon
the exercise of the Converted Option shall be made on the effective date of such
exercise either (i) in cash, by certified check, bank cashier's check or wire
transfer or (ii) subject to the approval of the Corporation, in shares of common
stock of the Corporation ("Common Stock") owned by the Option Holder and valued
at their Fair Market Value (as defined in section 8 hereof)
<PAGE> 3
on the effective date of such exercise, or partly in shares of Common Stock with
the balance in cash, by certified check, bank cashier's check or wire transfer.
Any payment in shares of Common Stock shall be effected by the delivery of such
shares to the Corporate Secretary of the Corporation, duly endorsed in blank or
accompanied by stock powers duly executed in blank, together with any other
documents and evidences as the Corporate Secretary of the Corporation shall
require from time to time.
(d) During the life of the Option Holder, the Converted Option
shall be exercisable only by him. The Converted Option shall not be assignable
or transferable otherwise than by will or by the laws of descent and
distribution.
(e) Certificates for shares of Common Stock purchased upon the
exercise of the Converted Option shall be issued in the name of the Option
Holder and delivered to the Option Holder as soon as practicable following the
effective date on which the Converted Option is exercised
(f) In the event of the death of the Option Holder, the
Converted Option shall remain exercisable until the expiration of one year after
such death, on which date the Converted Option shall expire; PROVIDED, HOWEVER,
that the Converted Option shall not be exercisable as to any Optioned Share
after the Applicable Expiration Date for such Optioned Share.
(g) The exercise of all or any portion of the Converted Option
shall have the effect of reducing the number of Optioned Shares available for
purchase at the Applicable Exercise Price by the number of shares of Common
Stock acquired upon such exercise. At the close of business on any Applicable
Expiration Date, the number of Optioned Shares available for purchase at the
Applicable Exercise Price for the Optioned Shares subject to such Applicable
Expiration Date shall be reduced to zero. At the close of business on the first
anniversary of the Option Holder's death, the total number of Optioned Shares
available for purchase hereunder shall be reduced to zero.
SECTION 3. CERTAIN ADJUSTMENTS IN THE CONVERTED OPTION.
(a) Subject to any required action by the shareholders of the
Corporation, in the event of any increase or decrease in the number of issued
shares of Common Stock resulting from a subdivision or consolidation or shares
of Common Stock or the payment of a stock dividend (but only on the shares of
Common Stock), or any other increase or decrease in the number of such shares
effected without receipt of consideration by the Corporation, the Corporation
shall proportionally adjust the number of shares of Common Stock subject to the
Converted Option and the Applicable Exercise Price per Optioned Share.
(b) Subject to any required action by the shareholders of the
Corporation, in the event that the Corporation shall be the surviving
corporation in any merger or consolidation (except a merger or consolidation as
a result of which the holders of shares of Common Stock receive securities of
another corporation), the Converted Option, to the extent outstanding on the
date of such merger or consolidation, shall pertain to and apply to the
securities which a holder of the number of shares of Common Stock subject to
such Converted Option on such date would have received in such merger or
consolidation, and an appropriate adjustment shall be made in the Applicable
Exercise
<PAGE> 4
Price.
(c) In the event of (i) a dissolution or liquidation of the
Corporation, (ii) a sale of all or substantially all of the Corporation's
assets, (iii) a merger or consolidation involving the Corporation in which the
Corporation is not the surviving corporation or (iv) a merger or consolidation
involving the Corporation in which the Corporation is the surviving corporation
but the holders of shares of Common Stock receive securities of another
corporation and/or other property, including cash, the Corporation shall either:
(A) cancel, effective immediately prior to the occurrence of
such event, the Converted Option and, in full consideration of such
cancellation, pay to the Option Holder an amount in cash, for each
Optioned Share then subject to the Converted Option, equal to the
excess of (I) the value, as determined by the Corporation in its
absolute discretion, of the property (including cash) received by the
holder of a share of Common Stock as a result of such event over (II)
the Applicable Exercise Price; or
(B) provide for the exchange of the Converted Option for an
option on some or all of the property for which the Common Stock of the
Corporation is exchanged and, incident thereto, make an equitable
adjustment as determined by the Corporation in its absolute discretion
in the Applicable Exercise Price, or the number of shares or amount of
property subject to the Option, or both, or, if appropriate, provide
for a cash payment to the Option Holder in partial consideration for
the exchange of the Converted Option.
The Corporation shall take the same action under this section 3(c) as it takes
under any similar provisions of stock options granted to executive officers of
the Corporation.
(d) In the event of any change in the capitalization of the
Corporation or corporate change other than those specifically referred to in
sections 3(a), (b), or (c) hereof, the Corporation shall make such adjustments
in the number and class of shares subject to the Converted Option outstanding on
the date on which such change occurs and in the Applicable Exercise Price of
each Optioned Share then subject to the Converted Option as is appropriate to
prevent dilution or enlargement of rights.
(e) Except as expressly provided herein, the Option Holder
shall have no rights by reason of any subdivision or consolidation of shares of
stock of any class, the payment of any dividend, any increase or decrease in the
number of shares of stock of any class or any dissolution, liquidation, merger
or consolidation of the Corporation or any other corporation. Except as
expressly provided herein, no issuance by the Corporation of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number of Optioned Shares.
SECTION 4. RIGHTS AS A STOCKHOLDER.
<PAGE> 5
No person shall have any rights as a stockholder with respect
to any shares of Common Stock covered by or relating to the Converted Option
until the date of the issuance of a stock certificate with respect to such
shares. Except as otherwise expressly provided in section 3 hereof, no
adjustment to the Converted Option shall be made for dividends or other rights
for which the record date occurs prior to the date such stock certificate is
issued.
SECTION 5. WITHHOLDING TAXES.
(a) Whenever shares of Common Stock are to be issued upon the
exercise of the Converted Option, the Corporation shall have the right to
require the Option Holder to remit to the Corporation in cash an amount
sufficient to satisfy federal, state and local withholding tax requirements, if
any, attributable to such exercise payment prior to the delivery of any
certificate or certificates for such shares.
(b) At the election of the Option Holder, but subject to the
approval of the Corporation, when shares of Common Stock are to be issued upon
the exercise of the Converted Option, in lieu of the remittance required by
section 5(a) hereof, the Option Holder may tender to the Corporation a number of
shares of Common Stock determined by him, the Fair Market Value (as defined in
section 8 hereof) of which at the tender date the Corporation determines to be
sufficient to satisfy the federal, state and local withholding tax requirements,
if any, attributable to such exercise, occurrence or grant and not greater than
the Participant's estimated total federal, state and local tax obligations
associated with such exercise.
(c) At the election of the Option Holder, but subject to the
approval of the Corporation, when shares of Common Stock are to be issued upon
the exercise of the Converted Option, in lieu of the remittance required by
section 5(a) hereof, the Corporation shall withhold a number of such shares
determined by the Option Holder, the Fair Market Value (as defined in section 8
hereof) of which at the exercise date the Corporation determines to be
sufficient to satisfy the federal, state and local withholding tax requirements,
if any, attributable to such exercise and not greater than the Option Holder's
estimated total federal, state and local tax obligations associated with such
exercise.
SECTION 6. NO OBLIGATION TO EXERCISE.
The grant to the Option Holder of the Converted Option shall
impose no obligation to exercise such Converted Option.
SECTION 7. TRANSFERS UPON DEATH.
Upon the death of the Option Holder, the Converted Option may
be exercised only by the executors or administrators of Option Holder's estate
or by any person or persons who shall have acquired such right to exercise by
will or by the laws of descent and distribution. No transfer by will or the laws
of descent and distribution shall be effective to bind the Corporation unless
the Corporation shall have been furnished with (a) written notice thereof and
with a copy of the will and/or such evidence as the Corporation may deem
necessary to establish the validity of the transfer
<PAGE> 6
and (b) an agreement by the transferee to comply with all the terms and
conditions of the Converted Option that are or would have been applicable to the
Option Holder and to be bound by the acknowledgments made by the Option Holder
in connection with the grant of the Converted Option. Except as provided in this
section 7, the Converted Option shall not be transferable and may only be
exercised during the Option Holder's lifetime by the Option Holder.
SECTION 8. DEFINITION OF FAIR MARKET VALUE.
The "Fair Market Value" of a share of Common Stock with
respect to any day shall be (a) the closing sales price on the immediately
preceding business day of a share of Common Stock as reported on the principal
securities exchange on which shares of Common Stock are then listed or admitted
to trading (including as a securities exchange for this purpose the NASDAQ
National Market System) or (b) if not so reported, the average of the closing
bid and ask prices on the immediately preceding business day as reported on the
National Association of Securities Dealers, Inc. Automated Quotations System or
(c) if not so reported, as furnished by any member of the National Association
of Securities Dealers, Inc., selected by the Corporation. In the event that the
price of a share of Common Stock shall not be so reported, the Fair Market Value
of a share of Common Stock shall be determined by the Corporation in its
absolute discretion.
SECTION 9. REGISTRATION AND DELIVERY OF OPTIONED SHARES.
The Corporation's obligation to deliver shares of Common Stock
under this Agreement shall, if the Corporation so requests, be conditioned upon
the receipt of a representation as to the investment intention of the person to
whom such shares are to be delivered, in such form as the Corporation shall
determine to be necessary or advisable to comply with the provisions of
applicable federal, state or local law. It may be provided that any such
representation shall become inoperative upon a registration of the shares of
Common Stock or upon the occurrence of any other event eliminating the necessity
of such representation. The Corporation shall not be required to deliver any
shares of Common Stock under this Agreement prior to (a) the admission of such
shares of Common Stock to listing on any stock exchange on which Common Stock
may then be listed, or (b) the completion of such registration or other
qualification under any state or federal law, rule or regulations as the
Corporation shall determine to be necessary or advisable. In the event that the
Corporation refuses, pursuant to the preceding sentence, to deliver shares of
its Common Stock upon the exercise of the Converted Option, the Corporation
shall pay to the Option Holder in a lump sum in cash not later than the proposed
exercise date an amount, for each share of Common Stock with respect to which
the Converted Option was proposed to be exercised, equal to the excess of (i)
the Fair Market Value (determined pursuant to section 8) of a share of Common
Stock on the proposed exercise date over (ii) the Exercise Price of the
Converted Option.
SECTION 10. REGISTRATION RIGHTS.
At or as soon as practicable following the effective date
provided for in the Merger Agreement, the Corporation shall prepare and file
with the Securities and Exchange Commission on Form S-8 (or another
substantially equivalent form promulgated by the Securities and Exchange
Commission and available to the Corporation) a registration statement covering
the issuance of the
<PAGE> 7
Optioned Shares in compliance with applicable laws, rules and regulations.
Following such filing, the Corporation shall take such actions as are necessary
to maintain the effectiveness of such registration through the Applicable
Expiration Date or, if earlier, the date on which no Optioned Shares remain
available for purchase hereunder. Notwithstanding anything contained herein to
the contrary, the Corporation's obligations under this section will not require
the Corporation to incur any unreasonable expenses.
SECTION 11. NOTICES.
Any communication required or permitted to be given hereunder,
including any notice, direction, designation, comment, instruction, objection or
waiver, shall be in writing and shall be deemed to have been given at such time
as it is delivered personally or five (5) days after mailing if mailed, postage
prepaid, by registered or certified mail, return receipt requested, addressed to
such party at the address listed below, or at such other address as one such
party may by written notice specify to the other party:
(a) If to the Corporation
Astoria Financial Corporation
One Astoria Federal Plaza
Lake Success, New York 11042-1085
Attention: Corporate Secretary
(b) If to the Option Holder, to the Option Holder's address
first above written.
No notice given to any party shall be deemed effective as to such party until
actually received.
SECTION 12. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and shall be
binding upon the Corporation and the Option Holder and their respective heirs,
successors and assigns.
SECTION 13. CONSTRUCTION OF LANGUAGE.
Whenever appropriate in the Agreement, words used in the
singular may be read in the plural, words used in the plural may be read in the
singular, and words importing the masculine gender may be read as referring
equally to the feminine or the neuter. Any reference to a section shall be a
reference to a section of this Agreement, unless the context clearly indicates
otherwise.
SECTION 14. GOVERNING LAW.
This Agreement shall be construed, administered and enforced
according to the laws of the State of New York without giving effect to the
conflict of laws principles thereof, except to the extent that such laws are
preempted by the federal law.
<PAGE> 8
SECTION 15. AMENDMENT.
This Agreement may be amended, in whole or in part, at any
time and from time to time, by written agreement between the Corporation and the
Option Holder.
SECTION 16. SEVERABILITY.
A determination that any provision of this Agreement, in whole
or in part, is invalid or unenforceable shall not affect the validity or
enforceability of any other provision hereof or of any part of the provision in
question not determined to be unenforceable.
SECTION 17. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 18. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 19. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York without giving effect to
the conflict of law principles of such laws.
SECTION 20. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 21. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
SECTION 22. DISPUTE RESOLUTION.
<PAGE> 9
Any controversy or claim arising out of or relating to this
Agreement, or the breach hereof, shall be settled by arbitration in accordance
with the Commercial Rules of the American Arbitration Association and judgment
upon the award rendered by the arbitral tribunal may be entered in any court
having jurisdiction thereof. The arbitration shall be held in Nassau County, New
York, or at such other place as may be selected by mutual agreement. The
arbitration shall be conducted before a panel of three neutral arbitrators, all
of whom shall be members of the Bar of the State of New York, actively engaged
in practice of law for at least ten (10) years. Within fifteen (15) days after
the commencement of the arbitration, each party shall select one person to act
as arbitrator, and the two selected shall select a third arbitrator within ten
(10) days after their appointment; if the arbitrators selected by the parties
hereto are unable or fail to agree upon the third arbitrator, the third
arbitrator shall be selected by the President of the American Arbitration
Association or his designee. Either party may, without inconsistency with this
Agreement, seek from a court any interim or provisional relief that may be
necessary to protect the rights or property of that party pending the arbitral
tribunal's determination of the merits of the controversy. Neither party nor the
arbitrators may disclose the existence, content, or results of any arbitration
hereunder without the prior written consent of both parties. Each party shall
bear its own costs and expenses in any such Proceeding.
IN WITNESS WHEREOF, the Option Holder has executed, and the
Corporation has caused its duly authorized representative to execute, this
Agreement as of the date first above written.
ASTORIA FINANCIAL CORPORATION
By: /S/ George L. Engelke, Jr.
----------------------------------
Signature
Title: Chairman, President and Chief
Executive Officer
Date: Sept 29, 1997
ATTEST:
/S/ Alan P. Eggleston
- --------------------------------
Asst Secretary
[SEAL]
GERARD C. KEEGAN
/S/ Gerard C. Keegan
------------------------------------
Signature
Date: Sept 30, 1997
------------------------------
<PAGE> 1
EXHIBIT 10.36
OPTION CONVERSION AGREEMENT
This OPTION CONVERSION AGREEMENT ("Agreement") is made and
entered into as of the 30th day of September, 1997 by and between ASTORIA
FINANCIAL CORPORATION, a corporation organized and existing under the laws of
the State of Delaware and having an office at One Astoria Federal Plaza, Lake
Success, New York 11042-1085 ("Corporation") and MICHAEL J. HENCHY residing at
119 Tullamore Road, Garden City, New York 11530 ("Option Holder").
WITNESSETH:
WHEREAS, the Option Holder holds certain options to purchase
shares of common stock of The Greater New York Savings Bank ("Existing
Options"); and
WHEREAS, pursuant to an Agreement and Plan of Merger dated as
of March 29, 1997 by and among the Corporation, Astoria Federal Savings and Loan
Association ("Association") and The Greater New York Savings Bank ("Merger
Agreement"), the Corporation will purchase all of the outstanding common stock
of The Greater New York Savings Bank ("Seller") and will cause the Seller to be
merged with and into the Association; and
WHEREAS, pursuant to the Merger Agreement, the Option Holder
may elect to cause all or any portion of the Existing Options to be converted
into an option to purchase shares of the common stock of the Corporation
("Converted Option"); and
WHEREAS, the Option Holder has made such an election, and the
Option Holder and the Corporation desire to set forth the terms and conditions
of the Converted Option;
NOW, THEREFORE, the Option Holder and the Corporation agree as
follows:
SECTION 1. GRANT OF CONVERTED OPTION.
The Corporation hereby grants, and the Option Holder hereby
accepts the Corporation's grant of, a Converted Option, on the terms and
conditions hereinafter set forth, to purchase the number of shares of the
Corporation's Common Stock (each, an "Optioned Share"), at the exercise price(s)
per share (each, an "Applicable Exercise Price"), and generally for the period
beginning on the date hereof and ending on the expiration date(s) (each, an
"Applicable Expiration Date") set forth in columns (4), (5) and (6),
respectively, of the table set forth below:
<PAGE> 2
<TABLE>
<CAPTION>
EXISTING OPTION CONVERTED OPTION
- ---------------------------------------------------------- --------------------------------------------------------------
(1) (2) (3) (4) (5) (6)
No. Of Shares Exercise Price Expiration Date No. Of Shares Exercise Price Expiration Date
================ ==================== ================== ================ ================== ========================
<S> <C> <C> <C> <C> <C>
5,000 $ 10.375 8/4/98 2,500 $ 20.75 Same as Column (3)
5,000 $ 8.750 12/15/98 2,500 $ 17.50 Same as Column (3)
11,000 $ 5.750 7/12/00 5,500 $ 11.50 Same as Column (3)
20,000 $ 1.53125 1/9/02 10,000 $ 3.0625 Same as Column (3)
10,000 $ 3.750 1/14/03 5,000 $ 7.50 Same as Column (3)
20,000 $ 9.875 6/21/05 10,000 $ 19.75 Same as Column (3)
20,000 $ 11.125 6/26/06 10,000 $ 22.25 Same as Column (3)
</TABLE>
It is not intended that any of the Converted Options granted hereunder qualify
as incentive stock options described in section 422 of the Internal Revenue Code
of 1986 ("Code").
SECTION 2. TERM AND EXERCISE OF OPTIONS.
(a) Each Converted Option shall be exercisable as to an
Optioned Share at any time beginning on the date of this Agreement and ending on
the Applicable Expiration Date for such Optioned Share; PROVIDED, HOWEVER, that
the Converted Option shall be subject to earlier expiration as provided in
section 2(f) hereof.
(b) The Converted Option shall be exercisable in whole or in
part; PROVIDED HOWEVER, that no partial exercise of the Converted Option shall
be for an aggregate Applicable Exercise Price of less than One Thousand Dollars
($1,000). The partial exercise of a Converted Option shall not cause the
expiration, termination or cancellation of the remaining portion thereof. Upon
the partial exercise of the Converted Option, this Agreement, marked with any
notations deemed appropriate by the Corporation, shall be returned to the Option
Holder together with the delivery of the certificates described in section 2(e)
hereof.
(c) The Converted Option shall be exercised by delivering
notice to the Corporation's principal office, to the attention of its Corporate
Secretary, no less than three (3) business days in advance of the effective date
of the proposed exercise. Such notice shall be accompanied by this Agreement,
shall specify the number of Optioned Shares with respect to which the Converted
Option is being exercised and the effective date of the proposed exercise, and
shall be signed by the Option Holder. The Option Holder may withdraw such notice
at any time prior to the close of business on the business day immediately
preceding the effective date of the proposed exercise, in which case the
Agreement shall be returned to him. Payment for Optioned Shares purchased upon
the exercise of the Converted Option shall be made on the effective date of such
exercise either (i) in cash, by certified check, bank cashier's check or wire
transfer or (ii) subject to the approval of the Corporation, in shares of common
stock of the Corporation ("Common Stock") owned by the Option Holder and valued
at their Fair Market Value (as defined in section 8 hereof)
<PAGE> 3
on the effective date of such exercise, or partly in shares of Common Stock with
the balance in cash, by certified check, bank cashier's check or wire transfer.
Any payment in shares of Common Stock shall be effected by the delivery of such
shares to the Corporate Secretary of the Corporation, duly endorsed in blank or
accompanied by stock powers duly executed in blank, together with any other
documents and evidences as the Corporate Secretary of the Corporation shall
require from time to time.
(d) During the life of the Option Holder, the Converted Option
shall be exercisable only by him. The Converted Option shall not be assignable
or transferable otherwise than by will or by the laws of descent and
distribution.
(e) Certificates for shares of Common Stock purchased upon the
exercise of the Converted Option shall be issued in the name of the Option
Holder and delivered to the Option Holder as soon as practicable following the
effective date on which the Converted Option is exercised.
(f) In the event of the death of the Option Holder, the
Converted Option shall remain exercisable until the expiration of one year after
such death, on which date the Converted Option shall expire; PROVIDED, HOWEVER,
that the Converted Option shall not be exercisable as to any Optioned Share
after the Applicable Expiration Date for such Optioned Share.
(g) The exercise of all or any portion of the Converted Option
shall have the effect of reducing the number of Optioned Shares available for
purchase at the Applicable Exercise Price by the number of shares of Common
Stock acquired upon such exercise. At the close of business on any Applicable
Expiration Date, the number of Optioned Shares available for purchase at the
Applicable Exercise Price for the Optioned Shares subject to such Applicable
Expiration Date shall be reduced to zero. At the close of business on the first
anniversary of the Option Holder's death, the total number of Optioned Shares
available for purchase hereunder shall be reduced to zero.
SECTION 3. CERTAIN ADJUSTMENTS IN THE CONVERTED OPTION.
(a) Subject to any required action by the shareholders of the
Corporation, in the event of any increase or decrease in the number of issued
shares of Common Stock resulting from a subdivision or consolidation or shares
of Common Stock or the payment of a stock dividend (but only on the shares of
Common Stock), or any other increase or decrease in the number of such shares
effected without receipt of consideration by the Corporation, the Corporation
shall proportionally adjust the number of shares of Common Stock subject to the
Converted Option and the Applicable Exercise Price per Optioned Share.
(b) Subject to any required action by the shareholders of the
Corporation, in the event that the Corporation shall be the surviving
corporation in any merger or consolidation (except a merger or consolidation as
a result of which the holders of shares of Common Stock receive securities of
another corporation), the Converted Option, to the extent outstanding on the
date of such merger or consolidation, shall pertain to and apply to the
securities which a holder of the number of shares of Common Stock subject to
such Converted Option on such date would have received in such merger or
consolidation, and an appropriate adjustment shall be made in the Applicable
Exercise
<PAGE> 4
Price.
(c) In the event of (i) a dissolution or liquidation of the
Corporation, (ii) a sale of all or substantially all of the Corporation's
assets, (iii) a merger or consolidation involving the Corporation in which the
Corporation is not the surviving corporation or (iv) a merger or consolidation
involving the Corporation in which the Corporation is the surviving corporation
but the holders of shares of Common Stock receive securities of another
corporation and/or other property, including cash, the Corporation shall either:
(A) cancel, effective immediately prior to the occurrence of
such event, the Converted Option and, in full consideration of such
cancellation, pay to the Option Holder an amount in cash, for each
Optioned Share then subject to the Converted Option, equal to the
excess of (I) the value, as determined by the Corporation in its
absolute discretion, of the property (including cash) received by the
holder of a share of Common Stock as a result of such event over (II)
the Applicable Exercise Price; or
(B) provide for the exchange of the Converted Option for an
option on some or all of the property for which the Common Stock of the
Corporation is exchanged and, incident thereto, make an equitable
adjustment as determined by the Corporation in its absolute discretion
in the Applicable Exercise Price, or the number of shares or amount of
property subject to the Option, or both, or, if appropriate, provide
for a cash payment to the Option Holder in partial consideration for
the exchange of the Converted Option.
The Corporation shall take the same action under this section 3(c) as it takes
under any similar provisions of stock options granted to executive officers of
the Corporation.
(d) In the event of any change in the capitalization of the
Corporation or corporate change other than those specifically referred to in
sections 3(a), (b), or (c) hereof, the Corporation shall make such adjustments
in the number and class of shares subject to the Converted Option outstanding on
the date on which such change occurs and in the Applicable Exercise Price of
each Optioned Share then subject to the Converted Option as is appropriate to
prevent dilution or enlargement of rights.
(e) Except as expressly provided herein, the Option Holder
shall have no rights by reason of any subdivision or consolidation of shares of
stock of any class, the payment of any dividend, any increase or decrease in the
number of shares of stock of any class or any dissolution, liquidation, merger
or consolidation of the Corporation or any other corporation. Except as
expressly provided herein, no issuance by the Corporation of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number of Optioned Shares.
SECTION 4. RIGHTS AS A STOCKHOLDER.
<PAGE> 5
No person shall have any rights as a stockholder with respect
to any shares of Common Stock covered by or relating to the Converted Option
until the date of the issuance of a stock certificate with respect to such
shares. Except as otherwise expressly provided in section 3 hereof, no
adjustment to the Converted Option shall be made for dividends or other rights
for which the record date occurs prior to the date such stock certificate is
issued.
SECTION 5. WITHHOLDING TAXES.
(a) Whenever shares of Common Stock are to be issued upon the
exercise of the Converted Option, the Corporation shall have the right to
require the Option Holder to remit to the Corporation in cash an amount
sufficient to satisfy federal, state and local withholding tax requirements, if
any, attributable to such exercise payment prior to the delivery of any
certificate or certificates for such shares.
(b) At the election of the Option Holder, but subject to the
approval of the Corporation, when shares of Common Stock are to be issued upon
the exercise of the Converted Option, in lieu of the remittance required by
section 5(a) hereof, the Option Holder may tender to the Corporation a number of
shares of Common Stock determined by him, the Fair Market Value (as defined in
section 8 hereof) of which at the tender date the Corporation determines to be
sufficient to satisfy the federal, state and local withholding tax requirements,
if any, attributable to such exercise, occurrence or grant and not greater than
the Participant's estimated total federal, state and local tax obligations
associated with such exercise.
(c) At the election of the Option Holder, but subject to the
approval of the Corporation, when shares of Common Stock are to be issued upon
the exercise of the Converted Option, in lieu of the remittance required by
section 5(a) hereof, the Corporation shall withhold a number of such shares
determined by the Option Holder, the Fair Market Value (as defined in section 8
hereof) of which at the exercise date the Corporation determines to be
sufficient to satisfy the federal, state and local withholding tax requirements,
if any, attributable to such exercise and not greater than the Option Holder's
estimated total federal, state and local tax obligations associated with such
exercise.
SECTION 6. NO OBLIGATION TO EXERCISE.
The grant to the Option Holder of the Converted Option shall
impose no obligation to exercise such Converted Option.
SECTION 7. TRANSFERS UPON DEATH.
Upon the death of the Option Holder, the Converted Option may
be exercised only by the executors or administrators of Option Holder's estate
or by any person or persons who shall have acquired such right to exercise by
will or by the laws of descent and distribution. No transfer by will or the laws
of descent and distribution shall be effective to bind the Corporation unless
the Corporation shall have been furnished with (a) written notice thereof and
with a copy of the will and/or such evidence as the Corporation may deem
necessary to establish the validity of the transfer
<PAGE> 6
and (b) an agreement by the transferee to comply with all the terms and
conditions of the Converted Option that are or would have been applicable to the
Option Holder and to be bound by the acknowledgments made by the Option Holder
in connection with the grant of the Converted Option. Except as provided in this
section 7, the Converted Option shall not be transferable and may only be
exercised during the Option Holder's lifetime by the Option Holder.
SECTION 8. DEFINITION OF FAIR MARKET VALUE.
The "Fair Market Value" of a share of Common Stock with
respect to any day shall be (a) the closing sales price on the immediately
preceding business day of a share of Common Stock as reported on the principal
securities exchange on which shares of Common Stock are then listed or admitted
to trading (including as a securities exchange for this purpose the NASDAQ
National Market System) or (b) if not so reported, the average of the closing
bid and ask prices on the immediately preceding business day as reported on the
National Association of Securities Dealers, Inc. Automated Quotations System or
(c) if not so reported, as furnished by any member of the National Association
of Securities Dealers, Inc., selected by the Corporation. In the event that the
price of a share of Common Stock shall not be so reported, the Fair Market Value
of a share of Common Stock shall be determined by the Corporation in its
absolute discretion.
SECTION 9. REGISTRATION AND DELIVERY OF OPTIONED SHARES.
The Corporation's obligation to deliver shares of Common Stock
under this Agreement shall, if the Corporation so requests, be conditioned upon
the receipt of a representation as to the investment intention of the person to
whom such shares are to be delivered, in such form as the Corporation shall
determine to be necessary or advisable to comply with the provisions of
applicable federal, state or local law. It may be provided that any such
representation shall become inoperative upon a registration of the shares of
Common Stock or upon the occurrence of any other event eliminating the necessity
of such representation. The Corporation shall not be required to deliver any
shares of Common Stock under this Agreement prior to (a) the admission of such
shares of Common Stock to listing on any stock exchange on which Common Stock
may then be listed, or (b) the completion of such registration or other
qualification under any state or federal law, rule or regulations as the
Corporation shall determine to be necessary or advisable. In the event that the
Corporation refuses, pursuant to the preceding sentence, to deliver shares of
its Common Stock upon the exercise of the Converted Option, the Corporation
shall pay to the Option Holder in a lump sum in cash not later than the proposed
exercise date an amount, for each share of Common Stock with respect to which
the Converted Option was proposed to be exercised, equal to the excess of (i)
the Fair Market Value (determined pursuant to section 8) of a share of Common
Stock on the proposed exercise date over (ii) the Exercise Price of the
Converted Option.
SECTION 10. REGISTRATION RIGHTS.
At or as soon as practicable following the effective date
provided for in the Merger Agreement, the Corporation shall prepare and file
with the Securities and Exchange Commission on Form S-8 (or another
substantially equivalent form promulgated by the Securities and Exchange
Commission and available to the Corporation) a registration statement covering
the issuance of the
<PAGE> 7
Optioned Shares in compliance with applicable laws, rules and regulations.
Following such filing, the Corporation shall take such actions as are necessary
to maintain the effectiveness of such registration through the Applicable
Expiration Date or, if earlier, the date on which no Optioned Shares remain
available for purchase hereunder. Notwithstanding anything contained herein to
the contrary, the Corporation's obligations under this section will not require
the Corporation to incur any unreasonable expenses.
SECTION 11. NOTICES.
Any communication required or permitted to be given hereunder,
including any notice, direction, designation, comment, instruction, objection or
waiver, shall be in writing and shall be deemed to have been given at such time
as it is delivered personally or five (5) days after mailing if mailed, postage
prepaid, by registered or certified mail, return receipt requested, addressed to
such party at the address listed below, or at such other address as one such
party may by written notice specify to the other party:
(a) If to the Corporation
Astoria Financial Corporation
One Astoria Federal Plaza
Lake Success, New York 11042-1085
Attention: Corporate Secretary
(b) If to the Option Holder, to the Option Holder's address
first above written.
No notice given to any party shall be deemed effective as to such party until
actually received.
SECTION 12. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and shall be
binding upon the Corporation and the Option Holder and their respective heirs,
successors and assigns.
SECTION 13. CONSTRUCTION OF LANGUAGE.
Whenever appropriate in the Agreement, words used in the
singular may be read in the plural, words used in the plural may be read in the
singular, and words importing the masculine gender may be read as referring
equally to the feminine or the neuter. Any reference to a section shall be a
reference to a section of this Agreement, unless the context clearly indicates
otherwise.
SECTION 14. GOVERNING LAW.
This Agreement shall be construed, administered and enforced
according to the laws of the State of New York without giving effect to the
conflict of laws principles thereof, except to the extent that such laws are
preempted by the federal law.
<PAGE> 8
SECTION 15. AMENDMENT.
This Agreement may be amended, in whole or in part, at any
time and from time to time, by written agreement between the Corporation and the
Option Holder.
SECTION 16. SEVERABILITY.
A determination that any provision of this Agreement, in whole
or in part, is invalid or unenforceable shall not affect the validity or
enforceability of any other provision hereof or of any part of the provision in
question not determined to be unenforceable.
SECTION 17. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 18. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 19. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York without giving effect to
the conflict of law principles of such laws.
SECTION 20. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 21. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
SECTION 22. DISPUTE RESOLUTION.
<PAGE> 9
Any controversy or claim arising out of or relating to this
Agreement, or the breach hereof, shall be settled by arbitration in accordance
with the Commercial Rules of the American Arbitration Association and judgment
upon the award rendered by the arbitral tribunal may be entered in any court
having jurisdiction thereof. The arbitration shall be held in Nassau County, New
York, or at such other place as may be selected by mutual agreement. The
arbitration shall be conducted before a panel of three neutral arbitrators, all
of whom shall be members of the Bar of the State of New York, actively engaged
in practice of law for at least ten (10) years. Within fifteen (15) days after
the commencement of the arbitration, each party shall select one person to act
as arbitrator, and the two selected shall select a third arbitrator within ten
(10) days after their appointment; if the arbitrators selected by the parties
hereto are unable or fail to agree upon the third arbitrator, the third
arbitrator shall be selected by the President of the American Arbitration
Association or his designee. Either party may, without inconsistency with this
Agreement, seek from a court any interim or provisional relief that may be
necessary to protect the rights or property of that party pending the arbitral
tribunal's determination of the merits of the controversy. Neither party nor the
arbitrators may disclose the existence, content, or results of any arbitration
hereunder without the prior written consent of both parties. Each party shall
bear its own costs and expenses in any such Proceeding.
IN WITNESS WHEREOF, the Option Holder has executed, and the
Corporation has caused its duly authorized representative to execute, this
Agreement as of the date first above written.
ASTORIA FINANCIAL CORPORATION
By: /S/ George L. Engelke, Jr.
------------------------------------
Signature
Title: Chairman, President and Chief
Executive Officer
Date: Sept 29, 1997
ATTEST:
/S/ Alan P. Eggleston
- ----------------------------
Asst Secretary
[SEAL]
MICHAEL J. HENCHY
/S/ Michael J. Henchy
----------------------------
Signature
Date: 9/30/97
<PAGE> 1
EXHIBIT 10.37
OPTION CONVERSION AGREEMENT
This OPTION CONVERSION AGREEMENT ("Agreement") is made and
entered into as of the 30th day of September, 1997 by and between ASTORIA
FINANCIAL CORPORATION, a corporation organized and existing under the laws of
the State of Delaware and having an office at One Astoria Federal Plaza, Lake
Success, New York 11042-1085 ("Corporation") and DANIEL J. HARRIS residing at 92
East Brookside, Larchmont, New York 10538 ("Option Holder").
WITNESSETH:
WHEREAS, the Option Holder holds certain options to purchase
shares of common stock of The Greater New York Savings Bank ("Existing
Options"); and
WHEREAS, pursuant to an Agreement and Plan of Merger dated as
of March 29, 1997 by and among the Corporation, Astoria Federal Savings and Loan
Association ("Association") and The Greater New York Savings Bank ("Merger
Agreement"), the Corporation will purchase all of the outstanding common stock
of The Greater New York Savings Bank ("Seller") and will cause the Seller to be
merged with and into the Association; and
WHEREAS, pursuant to the Merger Agreement, the Option Holder
may elect to cause all or any portion of the Existing Options to be converted
into an option to purchase shares of the common stock of the Corporation
("Converted Option"); and
WHEREAS, the Option Holder has made such an election, and the
Option Holder and the Corporation desire to set forth the terms and conditions
of the Converted Option;
NOW, THEREFORE, the Option Holder and the Corporation agree as
follows:
SECTION 1. GRANT OF CONVERTED OPTION.
The Corporation hereby grants, and the Option Holder hereby
accepts the Corporation's grant of, a Converted Option, on the terms and
conditions hereinafter set forth, to purchase the number of shares of the
Corporation's Common Stock (each, an "Optioned Share"), at the exercise price(s)
per share (each, an "Applicable Exercise Price"), and generally for the period
beginning on the date hereof and ending on the expiration date(s) (each, an
"Applicable Expiration Date") set forth in columns (4), (5) and (6),
respectively, of the table set forth below:
<PAGE> 2
<TABLE>
<CAPTION>
EXISTING OPTION CONVERTED OPTION
- ---------------------------------------------------------- --------------------------------------------------------------
(1) (2) (3) (4) (5) (6)
No. Of Shares Exercise Price Expiration Date No. Of Shares Exercise Price Expiration Date
================ ==================== ================== ================ ================== ========================
<S> <C> <C> <C> <C> <C>
25,000 $ 3.8125 6/24/02 12,500 $ 7.625 Same as Column (3)
7,500 $ 3.750 1/14/03 3,750 $ 7.5 Same as Column (3)
20,000 $ 9.875 6/21/05 10,000 $ 19.75 Same as Column (3)
20,000 $ 11.125 6/26/06 10,000 $ 22.25 Same as Column (3)
</TABLE>
It is not intended that any of the Converted Options granted hereunder qualify
as incentive stock options described in section 422 of the Internal Revenue Code
of 1986 ("Code").
SECTION 2. TERM AND EXERCISE OF OPTIONS.
(a) Each Converted Option shall be exercisable as to an
Optioned Share at any time beginning on the date of this Agreement and ending on
the Applicable Expiration Date for such Optioned Share; PROVIDED, HOWEVER, that
the Converted Option shall be subject to earlier expiration as provided in
section 2(f) hereof.
(b) The Converted Option shall be exercisable in whole or in
part; PROVIDED HOWEVER, that no partial exercise of the Converted Option shall
be for an aggregate Applicable Exercise Price of less than One Thousand Dollars
($1,000). The partial exercise of a Converted Option shall not cause the
expiration, termination or cancellation of the remaining portion thereof. Upon
the partial exercise of the Converted Option, this Agreement, marked with any
notations deemed appropriate by the Corporation, shall be returned to the Option
Holder together with the delivery of the certificates described in section 2(e)
hereof.
(c) The Converted Option shall be exercised by delivering
notice to the Corporation's principal office, to the attention of its Corporate
Secretary, no less than three (3) business days in advance of the effective date
of the proposed exercise. Such notice shall be accompanied by this Agreement,
shall specify the number of Optioned Shares with respect to which the Converted
Option is being exercised and the effective date of the proposed exercise, and
shall be signed by the Option Holder. The Option Holder may withdraw such notice
at any time prior to the close of business on the business day immediately
preceding the effective date of the proposed exercise, in which case the
Agreement shall be returned to him. Payment for Optioned Shares purchased upon
the exercise of the Converted Option shall be made on the effective date of such
exercise either (i) in cash, by certified check, bank cashier's check or wire
transfer or (ii) subject to the approval of the Corporation, in shares of common
stock of the Corporation ("Common Stock") owned by the Option Holder and valued
at their Fair Market Value (as defined in section 8 hereof) on the effective
date of such exercise, or partly in shares of Common Stock with the balance in
cash, by certified check, bank cashier's check or wire transfer. Any payment in
shares of Common Stock shall be effected by the delivery of such shares to the
Corporate Secretary of the Corporation, duly endorsed in blank or accompanied by
stock powers duly executed in blank, together with any other
<PAGE> 3
documents and evidences as the Corporate Secretary of the Corporation shall
require from time to time.
(d) During the life of the Option Holder, the Converted Option
shall be exercisable only by him. The Converted Option shall not be assignable
or transferable otherwise than by will or by the laws of descent and
distribution.
(e) Certificates for shares of Common Stock purchased upon the
exercise of the Converted Option shall be issued in the name of the Option
Holder and delivered to the Option Holder as soon as practicable following the
effective date on which the Converted Option is exercised.
(f) In the event of the death of the Option Holder, the
Converted Option shall remain exercisable until the expiration of one year after
such death, on which date the Converted Option shall expire; PROVIDED, HOWEVER,
that the Converted Option shall not be exercisable as to any Optioned Share
after the Applicable Expiration Date for such Optioned Share.
(g) The exercise of all or any portion of the Converted Option
shall have the effect of reducing the number of Optioned Shares available for
purchase at the Applicable Exercise Price by the number of shares of Common
Stock acquired upon such exercise. At the close of business on any Applicable
Expiration Date, the number of Optioned Shares available for purchase at the
Applicable Exercise Price for the Optioned Shares subject to such Applicable
Expiration Date shall be reduced to zero. At the close of business on the first
anniversary of the Option Holder's death, the total number of Optioned Shares
available for purchase hereunder shall be reduced to zero.
SECTION 3. CERTAIN ADJUSTMENTS IN THE CONVERTED OPTION.
(a) Subject to any required action by the shareholders of the
Corporation, in the event of any increase or decrease in the number of issued
shares of Common Stock resulting from a subdivision or consolidation or shares
of Common Stock or the payment of a stock dividend (but only on the shares of
Common Stock), or any other increase or decrease in the number of such shares
effected without receipt of consideration by the Corporation, the Corporation
shall proportionally adjust the number of shares of Common Stock subject to the
Converted Option and the Applicable Exercise Price per Optioned Share.
(b) Subject to any required action by the shareholders of the
Corporation, in the event that the Corporation shall be the surviving
corporation in any merger or consolidation (except a merger or consolidation as
a result of which the holders of shares of Common Stock receive securities of
another corporation), the Converted Option, to the extent outstanding on the
date of such merger or consolidation, shall pertain to and apply to the
securities which a holder of the number of shares of Common Stock subject to
such Converted Option on such date would have received in such merger or
consolidation, and an appropriate adjustment shall be made in the Applicable
Exercise Price.
(c) In the event of (i) a dissolution or liquidation of the
Corporation, (ii) a sale of all or substantially all of the Corporation's
assets, (iii) a merger or consolidation involving the
<PAGE> 4
Corporation in which the Corporation is not the surviving corporation or (iv) a
merger or consolidation involving the Corporation in which the Corporation is
the surviving corporation but the holders of shares of Common Stock receive
securities of another corporation and/or other property, including cash, the
Corporation shall either:
(A) cancel, effective immediately prior to the occurrence of
such event, the Converted Option and, in full consideration of such
cancellation, pay to the Option Holder an amount in cash, for each
Optioned Share then subject to the Converted Option, equal to the
excess of (I) the value, as determined by the Corporation in its
absolute discretion, of the property (including cash) received by the
holder of a share of Common Stock as a result of such event over (II)
the Applicable Exercise Price; or
(B) provide for the exchange of the Converted Option for an
option on some or all of the property for which the Common Stock of the
Corporation is exchanged and, incident thereto, make an equitable
adjustment as determined by the Corporation in its absolute discretion
in the Applicable Exercise Price, or the number of shares or amount of
property subject to the Option, or both, or, if appropriate, provide
for a cash payment to the Option Holder in partial consideration for
the exchange of the Converted Option.
The Corporation shall take the same action under this section 3(c) as it takes
under any similar provisions of stock options granted to executive officers of
the Corporation.
(d) In the event of any change in the capitalization of the
Corporation or corporate change other than those specifically referred to in
sections 3(a), (b), or (c) hereof, the Corporation shall make such adjustments
in the number and class of shares subject to the Converted Option outstanding on
the date on which such change occurs and in the Applicable Exercise Price of
each Optioned Share then subject to the Converted Option as is appropriate to
prevent dilution or enlargement of rights.
(e) Except as expressly provided herein, the Option Holder
shall have no rights by reason of any subdivision or consolidation of shares of
stock of any class, the payment of any dividend, any increase or decrease in the
number of shares of stock of any class or any dissolution, liquidation, merger
or consolidation of the Corporation or any other corporation. Except as
expressly provided herein, no issuance by the Corporation of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number of Optioned Shares.
SECTION 4. RIGHTS AS A STOCKHOLDER.
No person shall have any rights as a stockholder with respect
to any shares of Common Stock covered by or relating to the Converted Option
until the date of the issuance of a stock certificate with respect to such
shares. Except as otherwise expressly provided in section 3 hereof, no
adjustment to the Converted Option shall be made for dividends or other rights
for which
<PAGE> 5
the record date occurs prior to the date such stock certificate is issued.
SECTION 5. WITHHOLDING TAXES.
(a) Whenever shares of Common Stock are to be issued upon the
exercise of the Converted Option, the Corporation shall have the right to
require the Option Holder to remit to the Corporation in cash an amount
sufficient to satisfy federal, state and local withholding tax requirements, if
any, attributable to such exercise payment prior to the delivery of any
certificate or certificates for such shares.
(b) At the election of the Option Holder, but subject to the
approval of the Corporation, when shares of Common Stock are to be issued upon
the exercise of the Converted Option, in lieu of the remittance required by
section 5(a) hereof, the Option Holder may tender to the Corporation a number of
shares of Common Stock determined by him, the Fair Market Value (as defined in
section 8 hereof) of which at the tender date the Corporation determines to be
sufficient to satisfy the federal, state and local withholding tax requirements,
if any, attributable to such exercise, occurrence or grant and not greater than
the Participant's estimated total federal, state and local tax obligations
associated with such exercise.
(c) At the election of the Option Holder, but subject to the
approval of the Corporation, when shares of Common Stock are to be issued upon
the exercise of the Converted Option, in lieu of the remittance required by
section 5(a) hereof, the Corporation shall withhold a number of such shares
determined by the Option Holder, the Fair Market Value (as defined in section 8
hereof) of which at the exercise date the Corporation determines to be
sufficient to satisfy the federal, state and local withholding tax requirements,
if any, attributable to such exercise and not greater than the Option Holder's
estimated total federal, state and local tax obligations associated with such
exercise.
SECTION 6. NO OBLIGATION TO EXERCISE.
The grant to the Option Holder of the Converted Option shall
impose no obligation to exercise such Converted Option.
SECTION 7. TRANSFERS UPON DEATH.
Upon the death of the Option Holder, the Converted Option may
be exercised only by the executors or administrators of Option Holder's estate
or by any person or persons who shall have acquired such right to exercise by
will or by the laws of descent and distribution. No transfer by will or the laws
of descent and distribution shall be effective to bind the Corporation unless
the Corporation shall have been furnished with (a) written notice thereof and
with a copy of the will and/or such evidence as the Corporation may deem
necessary to establish the validity of the transfer and (b) an agreement by the
transferee to comply with all the terms and conditions of the Converted Option
that are or would have been applicable to the Option Holder and to be bound by
the acknowledgments made by the Option Holder in connection with the grant of
the Converted Option. Except as provided in this section 7, the Converted Option
shall not be transferable and may only be
<PAGE> 6
exercised during the Option Holder's lifetime by the Option Holder.
SECTION 8. DEFINITION OF FAIR MARKET VALUE.
The "Fair Market Value" of a share of Common Stock with
respect to any day shall be (a) the closing sales price on the immediately
preceding business day of a share of Common Stock as reported on the principal
securities exchange on which shares of Common Stock are then listed or admitted
to trading (including as a securities exchange for this purpose the NASDAQ
National Market System) or (b) if not so reported, the average of the closing
bid and ask prices on the immediately preceding business day as reported on the
National Association of Securities Dealers, Inc. Automated Quotations System or
(c) if not so reported, as furnished by any member of the National Association
of Securities Dealers, Inc., selected by the Corporation. In the event that the
price of a share of Common Stock shall not be so reported, the Fair Market Value
of a share of Common Stock shall be determined by the Corporation in its
absolute discretion.
SECTION 9. REGISTRATION AND DELIVERY OF OPTIONED SHARES.
The Corporation's obligation to deliver shares of Common Stock
under this Agreement shall, if the Corporation so requests, be conditioned upon
the receipt of a representation as to the investment intention of the person to
whom such shares are to be delivered, in such form as the Corporation shall
determine to be necessary or advisable to comply with the provisions of
applicable federal, state or local law. It may be provided that any such
representation shall become inoperative upon a registration of the shares of
Common Stock or upon the occurrence of any other event eliminating the necessity
of such representation. The Corporation shall not be required to deliver any
shares of Common Stock under this Agreement prior to (a) the admission of such
shares of Common Stock to listing on any stock exchange on which Common Stock
may then be listed, or (b) the completion of such registration or other
qualification under any state or federal law, rule or regulations as the
Corporation shall determine to be necessary or advisable. In the event that the
Corporation refuses, pursuant to the preceding sentence, to deliver shares of
its Common Stock upon the exercise of the Converted Option, the Corporation
shall pay to the Option Holder in a lump sum in cash not later than the proposed
exercise date an amount, for each share of Common Stock with respect to which
the Converted Option was proposed to be exercised, equal to the excess of (i)
the Fair Market Value (determined pursuant to section 8) of a share of Common
Stock on the proposed exercise date over (ii) the Exercise Price of the
Converted Option.
SECTION 10. REGISTRATION RIGHTS.
At or as soon as practicable following the effective date
provided for in the Merger Agreement, the Corporation shall prepare and file
with the Securities and Exchange Commission on Form S-8 (or another
substantially equivalent form promulgated by the Securities and Exchange
Commission and available to the Corporation) a registration statement covering
the issuance of the Optioned Shares in compliance with applicable laws, rules
and regulations. Following such filing, the Corporation shall take such actions
as are necessary to maintain the effectiveness of such registration through the
Applicable Expiration Date or, if earlier, the date on which no Optioned Shares
remain available for purchase hereunder. Notwithstanding anything contained
herein to the contrary, the
<PAGE> 7
Corporation's obligations under this section will not require the Corporation to
incur any unreasonable expenses.
SECTION 11. NOTICES.
Any communication required or permitted to be given hereunder,
including any notice, direction, designation, comment, instruction, objection or
waiver, shall be in writing and shall be deemed to have been given at such time
as it is delivered personally or five (5) days after mailing if mailed, postage
prepaid, by registered or certified mail, return receipt requested, addressed to
such party at the address listed below, or at such other address as one such
party may by written notice specify to the other party:
(a) If to the Corporation
Astoria Financial Corporation
One Astoria Federal Plaza
Lake Success, New York 11042-1085
Attention: Corporate Secretary
(b) If to the Option Holder, to the Option Holder's address
first above written.
No notice given to any party shall be deemed effective as to such party until
actually received.
SECTION 12. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and shall be
binding upon the Corporation and the Option Holder and their respective heirs,
successors and assigns.
SECTION 13. CONSTRUCTION OF LANGUAGE.
Whenever appropriate in the Agreement, words used in the
singular may be read in the plural, words used in the plural may be read in the
singular, and words importing the masculine gender may be read as referring
equally to the feminine or the neuter. Any reference to a section shall be a
reference to a section of this Agreement, unless the context clearly indicates
otherwise.
SECTION 14. GOVERNING LAW.
This Agreement shall be construed, administered and enforced
according to the laws of the State of New York without giving effect to the
conflict of laws principles thereof, except to the extent that such laws are
preempted by the federal law.
SECTION 15. AMENDMENT.
This Agreement may be amended, in whole or in part, at any
time and from time to
<PAGE> 8
time, by written agreement between the Corporation and the Option Holder.
SECTION 16. SEVERABILITY.
A determination that any provision of this Agreement, in whole
or in part, is invalid or unenforceable shall not affect the validity or
enforceability of any other provision hereof or of any part of the provision in
question not determined to be unenforceable.
SECTION 17. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 18. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 19. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York without giving effect to
the conflict of law principles of such laws.
SECTION 20. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 21. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
SECTION 22. DISPUTE RESOLUTION.
Any controversy or claim arising out of or relating to this
Agreement, or the breach hereof, shall be settled by arbitration in accordance
with the Commercial Rules of the American Arbitration Association and judgment
upon the award rendered by the arbitral tribunal may be entered
<PAGE> 9
in any court having jurisdiction thereof. The arbitration shall be held in
Nassau County, New York, or at such other place as may be selected by mutual
agreement. The arbitration shall be conducted before a panel of three neutral
arbitrators, all of whom shall be members of the Bar of the State of New York,
actively engaged in practice of law for at least ten (10) years. Within fifteen
(15) days after the commencement of the arbitration, each party shall select one
person to act as arbitrator, and the two selected shall select a third
arbitrator within ten (10) days after their appointment; if the arbitrators
selected by the parties hereto are unable or fail to agree upon the third
arbitrator, the third arbitrator shall be selected by the President of the
American Arbitration Association or his designee. Either party may, without
inconsistency with this Agreement, seek from a court any interim or provisional
relief that may be necessary to protect the rights or property of that party
pending the arbitral tribunal's determination of the merits of the controversy.
Neither party nor the arbitrators may disclose the existence, content, or
results of any arbitration hereunder without the prior written consent of both
parties. Each party shall bear its own costs and expenses in any such
Proceeding.
IN WITNESS WHEREOF, the Option Holder has executed, and the
Corporation has caused its duly authorized representative to execute, this
Agreement as of the date first above written.
ASTORIA FINANCIAL CORPORATION
By: /S/ George L. Engelke, Jr.
------------------------------------
Signature
Title: Chairman, President and Chief
Executive Officer
Date: Sept 29, 1997
ATTEST:
/S/ Alan P. Eggleston
- ----------------------------
Asst Secretary
[SEAL]
DANIEL J. HARRIS
/S/ Daniel J. Harris
------------------------------------
Signature
Date: Sept 30, 1997
<PAGE> 1
EXHIBIT 10.38
OPTION CONVERSION AGREEMENT
This OPTION CONVERSION AGREEMENT ("Agreement") is made and
entered into as of the 30th day of September, 1997 by and between ASTORIA
FINANCIAL CORPORATION, a corporation organized and existing under the laws of
the State of Delaware and having an office at One Astoria Federal Plaza, Lake
Success, New York 11042-1085 ("Corporation") and FRANKLYN BERKOWITZ residing at
2631 Silver Court, East Meadow, New York 11554 ("Option Holder").
WITNESSETH:
WHEREAS, the Option Holder holds certain options to purchase
shares of common stock of The Greater New York Savings Bank ("Existing
Options"); and
WHEREAS, pursuant to an Agreement and Plan of Merger dated as
of March 29, 1997 by and among the Corporation, Astoria Federal Savings and Loan
Association ("Association") and The Greater New York Savings Bank ("Merger
Agreement"), the Corporation will purchase all of the outstanding common stock
of The Greater New York Savings Bank ("Seller") and will cause the Seller to be
merged with and into the Association; and
WHEREAS, pursuant to the Merger Agreement, the Option Holder
may elect to cause all or any portion of the Existing Options to be converted
into an option to purchase shares of the common stock of the Corporation
("Converted Option"); and
WHEREAS, the Option Holder has made such an election, and the
Option Holder and the Corporation desire to set forth the terms and conditions
of the Converted Option;
NOW, THEREFORE, the Option Holder and the Corporation agree as
follows:
SECTION 1. GRANT OF CONVERTED OPTION.
The Corporation hereby grants, and the Option Holder hereby
accepts the Corporation's grant of, a Converted Option, on the terms and
conditions hereinafter set forth, to purchase the number of shares of the
Corporation's Common Stock (each, an "Optioned Share"), at the exercise price(s)
per share (each, an "Applicable Exercise Price"), and generally for the period
beginning on the date hereof and ending on the expiration date(s) (each, an
"Applicable Expiration Date") set forth in columns (4), (5) and (6),
respectively, of the table set forth below:
<PAGE> 2
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
EXISTING OPTION CONVERTED OPTION
(1) (2) (3) (4) (5) (6)
No. Of Shares Exercise Price Expiration Date No. Of Shares Exercise Price Expiration Date
================ ==================== ================== ================ ================== ========================
<S> <C> <C> <C> <C> <C>
10,000 $ 9.875 6/21/05 5,000 $ 19.75 Same as Column (3)
15,000 $ 11.125 6/26/06 7,500 $ 22.25 Same as Column (3)
</TABLE>
It is not intended that any of the Converted Options granted hereunder qualify
as incentive stock options described in section 422 of the Internal Revenue Code
of 1986 ("Code").
SECTION 2. TERM AND EXERCISE OF OPTIONS.
(a) Each Converted Option shall be exercisable as to an
Optioned Share at any time beginning on the date of this Agreement and ending on
the Applicable Expiration Date for such Optioned Share; PROVIDED, HOWEVER, that
the Converted Option shall be subject to earlier expiration as provided in
section 2(f) hereof.
(b) The Converted Option shall be exercisable in whole or in
part; PROVIDED HOWEVER, that no partial exercise of the Converted Option shall
be for an aggregate Applicable Exercise Price of less than One Thousand Dollars
($1,000). The partial exercise of a Converted Option shall not cause the
expiration, termination or cancellation of the remaining portion thereof. Upon
the partial exercise of the Converted Option, this Agreement, marked with any
notations deemed appropriate by the Corporation, shall be returned to the Option
Holder together with the delivery of the certificates described in section 2(e)
hereof.
(c) The Converted Option shall be exercised by delivering
notice to the Corporation's principal office, to the attention of its Corporate
Secretary, no less than three (3) business days in advance of the effective date
of the proposed exercise. Such notice shall be accompanied by this Agreement,
shall specify the number of Optioned Shares with respect to which the Converted
Option is being exercised and the effective date of the proposed exercise, and
shall be signed by the Option Holder. The Option Holder may withdraw such notice
at any time prior to the close of business on the business day immediately
preceding the effective date of the proposed exercise, in which case the
Agreement shall be returned to him. Payment for Optioned Shares purchased upon
the exercise of the Converted Option shall be made on the effective date of such
exercise either (i) in cash, by certified check, bank cashier's check or wire
transfer or (ii) subject to the approval of the Corporation, in shares of common
stock of the Corporation ("Common Stock") owned by the Option Holder and valued
at their Fair Market Value (as defined in section 8 hereof) on the effective
date of such exercise, or partly in shares of Common Stock with the balance in
cash, by certified check, bank cashier's check or wire transfer. Any payment in
shares of Common Stock shall be effected by the delivery of such shares to the
Corporate Secretary of the Corporation, duly endorsed in blank or accompanied by
stock powers duly executed in blank, together with any other documents and
evidences as the Corporate Secretary of the Corporation shall require from time
to time.
<PAGE> 3
(d) During the life of the Option Holder, the Converted Option
shall be exercisable only by him. The Converted Option shall not be assignable
or transferable otherwise than by will or by the laws of descent and
distribution.
(e) Certificates for shares of Common Stock purchased upon the
exercise of the Converted Option shall be issued in the name of the Option
Holder and delivered to the Option Holder as soon as practicable following the
effective date on which the Converted Option is exercised.
(f) In the event of the death of the Option Holder, the
Converted Option shall remain exercisable until the expiration of one year after
such death, on which date the Converted Option shall expire; PROVIDED, HOWEVER,
that the Converted Option shall not be exercisable as to any Optioned Share
after the Applicable Expiration Date for such Optioned Share.
(g) The exercise of all or any portion of the Converted Option
shall have the effect of reducing the number of Optioned Shares available for
purchase at the Applicable Exercise Price by the number of shares of Common
Stock acquired upon such exercise. At the close of business on any Applicable
Expiration Date, the number of Optioned Shares available for purchase at the
Applicable Exercise Price for the Optioned Shares subject to such Applicable
Expiration Date shall be reduced to zero. At the close of business on the first
anniversary of the Option Holder's death, the total number of Optioned Shares
available for purchase hereunder shall be reduced to zero.
SECTION 3. CERTAIN ADJUSTMENTS IN THE CONVERTED OPTION.
(a) Subject to any required action by the shareholders of the
Corporation, in the event of any increase or decrease in the number of issued
shares of Common Stock resulting from a subdivision or consolidation or shares
of Common Stock or the payment of a stock dividend (but only on the shares of
Common Stock), or any other increase or decrease in the number of such shares
effected without receipt of consideration by the Corporation, the Corporation
shall proportionally adjust the number of shares of Common Stock subject to the
Converted Option and the Applicable Exercise Price per Optioned Share.
(b) Subject to any required action by the shareholders of the
Corporation, in the event that the Corporation shall be the surviving
corporation in any merger or consolidation (except a merger or consolidation as
a result of which the holders of shares of Common Stock receive securities of
another corporation), the Converted Option, to the extent outstanding on the
date of such merger or consolidation, shall pertain to and apply to the
securities which a holder of the number of shares of Common Stock subject to
such Converted Option on such date would have received in such merger or
consolidation, and an appropriate adjustment shall be made in the Applicable
Exercise Price.
(c) In the event of (i) a dissolution or liquidation of the
Corporation, (ii) a sale of all or substantially all of the Corporation's
assets, (iii) a merger or consolidation involving the Corporation in which the
Corporation is not the surviving corporation or (iv) a merger or consolidation
involving the Corporation in which the Corporation is the surviving corporation
but the holders of shares of Common Stock receive securities of another
corporation and/or other property,
<PAGE> 4
including cash, the Corporation shall either:
(A) cancel, effective immediately prior to the occurrence of
such event, the Converted Option and, in full consideration of such
cancellation, pay to the Option Holder an amount in cash, for each
Optioned Share then subject to the Converted Option, equal to the
excess of (I) the value, as determined by the Corporation in its
absolute discretion, of the property (including cash) received by the
holder of a share of Common Stock as a result of such event over (II)
the Applicable Exercise Price; or
(B) provide for the exchange of the Converted Option for an
option on some or all of the property for which the Common Stock of the
Corporation is exchanged and, incident thereto, make an equitable
adjustment as determined by the Corporation in its absolute discretion
in the Applicable Exercise Price, or the number of shares or amount of
property subject to the Option, or both, or, if appropriate, provide
for a cash payment to the Option Holder in partial consideration for
the exchange of the Converted Option.
The Corporation shall take the same action under this section 3(c) as it takes
under any similar provisions of stock options granted to executive officers of
the Corporation.
(d) In the event of any change in the capitalization of the
Corporation or corporate change other than those specifically referred to in
sections 3(a), (b), or (c) hereof, the Corporation shall make such adjustments
in the number and class of shares subject to the Converted Option outstanding on
the date on which such change occurs and in the Applicable Exercise Price of
each Optioned Share then subject to the Converted Option as is appropriate to
prevent dilution or enlargement of rights.
(e) Except as expressly provided herein, the Option Holder
shall have no rights by reason of any subdivision or consolidation of shares of
stock of any class, the payment of any dividend, any increase or decrease in the
number of shares of stock of any class or any dissolution, liquidation, merger
or consolidation of the Corporation or any other corporation. Except as
expressly provided herein, no issuance by the Corporation of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number of Optioned Shares.
SECTION 4. RIGHTS AS A STOCKHOLDER.
No person shall have any rights as a stockholder with respect
to any shares of Common Stock covered by or relating to the Converted Option
until the date of the issuance of a stock certificate with respect to such
shares. Except as otherwise expressly provided in section 3 hereof, no
adjustment to the Converted Option shall be made for dividends or other rights
for which the record date occurs prior to the date such stock certificate is
issued.
SECTION 5. WITHHOLDING TAXES.
<PAGE> 5
(a) Whenever shares of Common Stock are to be issued upon the
exercise of the Converted Option, the Corporation shall have the right to
require the Option Holder to remit to the Corporation in cash an amount
sufficient to satisfy federal, state and local withholding tax requirements, if
any, attributable to such exercise payment prior to the delivery of any
certificate or certificates for such shares.
(b) At the election of the Option Holder, but subject to the
approval of the Corporation, when shares of Common Stock are to be issued upon
the exercise of the Converted Option, in lieu of the remittance required by
section 5(a) hereof, the Option Holder may tender to the Corporation a number of
shares of Common Stock determined by him, the Fair Market Value (as defined in
section 8 hereof) of which at the tender date the Corporation determines to be
sufficient to satisfy the federal, state and local withholding tax requirements,
if any, attributable to such exercise, occurrence or grant and not greater than
the Participant's estimated total federal, state and local tax obligations
associated with such exercise.
(c) At the election of the Option Holder, but subject to the
approval of the Corporation, when shares of Common Stock are to be issued upon
the exercise of the Converted Option, in lieu of the remittance required by
section 5(a) hereof, the Corporation shall withhold a number of such shares
determined by the Option Holder, the Fair Market Value (as defined in section 8
hereof) of which at the exercise date the Corporation determines to be
sufficient to satisfy the federal, state and local withholding tax requirements,
if any, attributable to such exercise and not greater than the Option Holder's
estimated total federal, state and local tax obligations associated with such
exercise.
SECTION 6. NO OBLIGATION TO EXERCISE.
The grant to the Option Holder of the Converted Option shall
impose no obligation to exercise such Converted Option.
SECTION 7. TRANSFERS UPON DEATH.
Upon the death of the Option Holder, the Converted Option may
be exercised only by the executors or administrators of Option Holder's estate
or by any person or persons who shall have acquired such right to exercise by
will or by the laws of descent and distribution. No transfer by will or the laws
of descent and distribution shall be effective to bind the Corporation unless
the Corporation shall have been furnished with (a) written notice thereof and
with a copy of the will and/or such evidence as the Corporation may deem
necessary to establish the validity of the transfer and (b) an agreement by the
transferee to comply with all the terms and conditions of the Converted Option
that are or would have been applicable to the Option Holder and to be bound by
the acknowledgments made by the Option Holder in connection with the grant of
the Converted Option. Except as provided in this section 7, the Converted Option
shall not be transferable and may only be exercised during the Option Holder's
lifetime by the Option Holder.
SECTION 8. DEFINITION OF FAIR MARKET VALUE.
<PAGE> 6
The "Fair Market Value" of a share of Common Stock with
respect to any day shall be (a) the closing sales price on the immediately
preceding business day of a share of Common Stock as reported on the principal
securities exchange on which shares of Common Stock are then listed or admitted
to trading (including as a securities exchange for this purpose the NASDAQ
National Market System) or (b) if not so reported, the average of the closing
bid and ask prices on the immediately preceding business day as reported on the
National Association of Securities Dealers, Inc. Automated Quotations System or
(c) if not so reported, as furnished by any member of the National Association
of Securities Dealers, Inc., selected by the Corporation. In the event that the
price of a share of Common Stock shall not be so reported, the Fair Market Value
of a share of Common Stock shall be determined by the Corporation in its
absolute discretion.
SECTION 9. REGISTRATION AND DELIVERY OF OPTIONED SHARES.
The Corporation's obligation to deliver shares of Common Stock
under this Agreement shall, if the Corporation so requests, be conditioned upon
the receipt of a representation as to the investment intention of the person to
whom such shares are to be delivered, in such form as the Corporation shall
determine to be necessary or advisable to comply with the provisions of
applicable federal, state or local law. It may be provided that any such
representation shall become inoperative upon a registration of the shares of
Common Stock or upon the occurrence of any other event eliminating the necessity
of such representation. The Corporation shall not be required to deliver any
shares of Common Stock under this Agreement prior to (a) the admission of such
shares of Common Stock to listing on any stock exchange on which Common Stock
may then be listed, or (b) the completion of such registration or other
qualification under any state or federal law, rule or regulations as the
Corporation shall determine to be necessary or advisable. In the event that the
Corporation refuses, pursuant to the preceding sentence, to deliver shares of
its Common Stock upon the exercise of the Converted Option, the Corporation
shall pay to the Option Holder in a lump sum in cash not later than the proposed
exercise date an amount, for each share of Common Stock with respect to which
the Converted Option was proposed to be exercised, equal to the excess of (i)
the Fair Market Value (determined pursuant to section 8) of a share of Common
Stock on the proposed exercise date over (ii) the Exercise Price of the
Converted Option.
SECTION 10. REGISTRATION RIGHTS.
At or as soon as practicable following the effective date
provided for in the Merger Agreement, the Corporation shall prepare and file
with the Securities and Exchange Commission on Form S-8 (or another
substantially equivalent form promulgated by the Securities and Exchange
Commission and available to the Corporation) a registration statement covering
the issuance of the Optioned Shares in compliance with applicable laws, rules
and regulations. Following such filing, the Corporation shall take such actions
as are necessary to maintain the effectiveness of such registration through the
Applicable Expiration Date or, if earlier, the date on which no Optioned Shares
remain available for purchase hereunder. Notwithstanding anything contained
herein to the contrary, the Corporation's obligations under this section will
not require the Corporation to incur any unreasonable expenses.
SECTION 11. NOTICES.
<PAGE> 7
Any communication required or permitted to be given hereunder,
including any notice, direction, designation, comment, instruction, objection or
waiver, shall be in writing and shall be deemed to have been given at such time
as it is delivered personally or five (5) days after mailing if mailed, postage
prepaid, by registered or certified mail, return receipt requested, addressed to
such party at the address listed below, or at such other address as one such
party may by written notice specify to the other party:
(a) If to the Corporation
Astoria Financial Corporation
One Astoria Federal Plaza
Lake Success, New York 11042-1085
Attention: Corporate Secretary
(b) If to the Option Holder, to the Option Holder's address
first above written.
No notice given to any party shall be deemed effective as to such party until
actually received.
SECTION 12. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and shall be
binding upon the Corporation and the Option Holder and their respective heirs,
successors and assigns.
SECTION 13. CONSTRUCTION OF LANGUAGE.
Whenever appropriate in the Agreement, words used in the
singular may be read in the plural, words used in the plural may be read in the
singular, and words importing the masculine gender may be read as referring
equally to the feminine or the neuter. Any reference to a section shall be a
reference to a section of this Agreement, unless the context clearly indicates
otherwise.
SECTION 14. GOVERNING LAW.
This Agreement shall be construed, administered and enforced
according to the laws of the State of New York without giving effect to the
conflict of laws principles thereof, except to the extent that such laws are
preempted by the federal law.
SECTION 15. AMENDMENT.
This Agreement may be amended, in whole or in part, at any
time and from time to time, by written agreement between the Corporation and the
Option Holder.
SECTION 16. SEVERABILITY.
A determination that any provision of this Agreement, in whole
or in part, is invalid
<PAGE> 8
or unenforceable shall not affect the validity or enforceability of any other
provision hereof or of any part of the provision in question not determined to
be unenforceable.
SECTION 17. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 18. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 19. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York without giving effect to
the conflict of law principles of such laws.
SECTION 20. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 21. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
SECTION 22. DISPUTE RESOLUTION.
Any controversy or claim arising out of or relating to this
Agreement, or the breach hereof, shall be settled by arbitration in accordance
with the Commercial Rules of the American Arbitration Association and judgment
upon the award rendered by the arbitral tribunal may be entered in any court
having jurisdiction thereof. The arbitration shall be held in Nassau County, New
York, or at such other place as may be selected by mutual agreement. The
arbitration shall be conducted before a panel of three neutral arbitrators, all
of whom shall be members of the Bar of the State of New York, actively engaged
in practice of law for at least ten (10) years. Within fifteen (15) days after
the commencement of the arbitration, each party shall select one person to act
as arbitrator, and
<PAGE> 9
the two selected shall select a third arbitrator within ten (10) days after
their appointment; if the arbitrators selected by the parties hereto are unable
or fail to agree upon the third arbitrator, the third arbitrator shall be
selected by the President of the American Arbitration Association or his
designee. Either party may, without inconsistency with this Agreement, seek from
a court any interim or provisional relief that may be necessary to protect the
rights or property of that party pending the arbitral tribunal's determination
of the merits of the controversy. Neither party nor the arbitrators may disclose
the existence, content, or results of any arbitration hereunder without the
prior written consent of both parties. Each party shall bear its own costs and
expenses in any such Proceeding.
IN WITNESS WHEREOF, the Option Holder has executed, and the
Corporation has caused its duly authorized representative to execute, this
Agreement as of the date first above written.
ASTORIA FINANCIAL CORPORATION
By: /S/ George L. Engelke, Jr.
----------------------------------
Signature
Title: Chairman, President and Chief
Executive Officer
Date: Sept 29, 1997
ATTEST:
/S/ Alan P. Eggleston
- ---------------------------
Asst Secretary
[SEAL]
FRANKLYN BERKOWITZ
/S/ Franklyn Berkowitz
-----------------------------------
Signature
Date: Oct 1, 1997
<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING
COMPUTATION OF EARNINGS PER SHARE
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
BASIC DILUTED
EPS EPS
------------ -----------
<S> <C> <C> <C>
Weighted average shares of Common
Stock outstanding 22,405,760 22,405,760
ESOP:
Total ESOP shares available 2,642,354 -- --
Shares committed to be released 811,333 -- --
-----------
(1,831,021) (1,831,021)
RRPs
Shares purchased, but not yet allocated (22,165) (22,165)
------------ -----------
Total weighted average shares outstanding 20,552,574 20,552,574
Dilutive effect of Stock Options:
Incremental shares under treasury stock method: N/A 1,441,809
------------ -----------
Total average common and common equivalent shares 20,552,574 21,994,383
Net Income $ 68,464,000 $68,464,000
------------ -----------
Less: Preferred stock dividends declared ($ 1,500,000) ($ 1,500,000)
------------ -----------
$ 66,964,000 $66,964,000
------------ -----------
Earnings Per Share $ 3.26 $ 3.04
============ ===========
</TABLE>
INCREMENTAL SHARES UNDER TREASURY STOCK METHOD
FOR THE PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DILUTED EPS
-----------
<S> <C>
Quarter ending 3/31/97 1,406,180
Quarter ending 6/30/97 1,339,542
Quarter ending 9/30/97 1,438,637
Quarter ending 12/31/97 1,582,877
---------
Total 5,767,236
Average for the period ended December 31, 1997 1,441,809
=========
</TABLE>
<PAGE> 1
Astoria Financial Corporation and Subsidiary
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) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Financial Data:
Total assets $10,528,393 $ 7,272,763 $ 6,620,102 $ 4,642,547 $ 4,121,280
Federal funds sold and
repurchase agreements 110,550 56,000 100,000 198,490 229,820
Mortgage-backed and other
securities available-for-sale 2,860,256 2,296,662 2,515,968 55,550 --
Mortgage-backed and other
securities held-to-maturity 2,610,449 1,961,015 1,615,542 2,659,533 2,227,402
Loans receivable, net 4,304,967 2,637,327 2,043,643 1,574,760 1,506,966
Deposits 6,220,918 4,513,093 4,263,421 3,280,652 2,898,372
Borrowed funds 3,272,781 2,111,514 1,704,691 766,849 652,849
Stockholders' equity 899,424 588,829 590,685 550,575 537,349
<CAPTION>
For the Year Ended December 31,
----------------------------------------------------------------------
(In Thousands, Except Per Share Data) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Interest income $ 579,401 $ 491,174 $ 434,976 $ 301,387 $ 266,983
Interest expense 364,350 304,481 265,705 150,527 140,406
- ------------------------------------------------------------------------------------------------------------------
Net interest income 215,051 186,693 169,271 150,860 126,577
Provision for loan losses 3,061 3,963 2,007 3,733 6,959
- ------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 211,990 182,730 167,264 147,127 119,618
Non-interest income 22,263 13,722 9,466 6,218 6,374
Non-interest expense:
General and administrative 104,075 96,165 90,344 72,089 61,877
Real estate operations, net 463 (2,723) (3,344) 1,894 3,557
Provision for (recovery of)
real estate losses 359 (1,747) 259 3,017 6,020
Amortization of goodwill 11,264 8,684 8,307 1,788 2,250
SAIF recapitalization assessment -- 28,545 -- -- --
Provision for restructuring -- -- -- -- 8,325
- ------------------------------------------------------------------------------------------------------------------
Total non-interest expense 116,161 128,924 95,566 78,788 82,029
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes,
extraordinary item and cumulative
effect of accounting changes 118,092 67,528 81,164 74,557 43,963
Income tax expense 49,628 30,675 35,743 30,880 18,677
- ------------------------------------------------------------------------------------------------------------------
Income before extraordinary item and
cumulative effect of accounting changes 68,464 36,853 45,421 43,677 25,286
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 $ 68,464 $ 36,853 $ 45,421 $ 43,677 $ 24,668
Preferred dividend requirements 1,500 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Net income available to
common shareholders $ 66,964 $ 36,853 $ 45,421 $ 43,677 $ 24,668
==================================================================================================================
Basic earnings per common share (1), (2) $ 3.26 $ 1.87 $ 2.16 $ 1.88 $ 0.19
Diluted earnings per
common share (1), (2) $ 3.04 $ 1.79 $ 2.10 $ 1.86 $ 0.19
Diluted earnings per common share
excluding SAIF recapitalization
assessment, net of tax (1), (2), (3) $ 3.04 $ 2.58 $ 2.10 $ 1.86 $ 0.19
</TABLE>
(See footnotes on the following page)
17
<PAGE> 2
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other Data:
Return on average assets 0.83% 0.53% 0.73% 0.99% 0.67%
Return on average stockholders' equity 10.23 6.38 8.01 7.95 8.37
Return on average tangible
stockholders' equity 12.87 7.79 9.81 8.04 8.61
Average stockholders' equity
to average assets 8.06 8.25 9.09 12.44 7.99
Average tangible stockholders' equity
to average tangible assets 6.52 6.86 7.55 12.32 7.79
Stockholders' equity to total assets 8.54 8.10 8.92 11.86 13.04
Core deposits to total deposits (4) 43.48 38.52 39.59 38.71 47.56
Net interest spread 2.38 2.45 2.55 3.04 3.29
Net interest margin (5) 2.71 2.77 2.85 3.51 3.55
Operating income to average assets (6) 0.18 0.17 0.15 0.14 0.17
General and administrative
expense to average assets 1.25 1.37 1.45 1.63 1.68
Cash general and administrative expense
to average assets (7) 1.09 1.22 1.31 1.46 1.68
Efficiency ratio (8) 45.20 48.37 50.55 45.89 46.54
Cash efficiency ratio (7) 39.15 43.00 45.88 40.95 46.54
Average interest-earning assets to
average interest-bearing liabilities 1.07x 1.07x 1.07x 1.13x 1.07x
Book value per common share $ 32.42 $ 27.42 $ 26.13 $ 22.87 $ 20.39
Tangible book value per common share 22.57 22.75 21.30 22.65 20.12
Cash dividends paid per common share 0.56 0.43 0.20 -- --
Selected Financial Ratios, Excluding SAIF
Recapitalization Assessment (3):
Return on average assets 0.83% 0.77% 0.73% 0.99% 0.67%
Cash return on average assets (9) 1.17 1.06 0.99 1.20 0.73
Return on average stockholders' equity 10.23 9.28 8.01 7.95 8.37
Cash return on average stockholders' equity (9) 14.47 12.76 10.94 9.68 9.14
Return on average tangible stockholders' equity 12.87 11.33 9.81 8.04 8.61
Cash return on average tangible
stockholders' equity (9) 18.20 15.58 13.40 9.79 9.39
Asset Quality Ratios:
Non-performing loans to total loans (10) 0.99% 1.26% 2.16% 4.20% 6.45%
Non-performing loans to total assets (10) 0.41 0.46 0.67 1.44 2.40
Non-performing assets to total assets (11) 0.56 0.63 1.02 2.01 3.18
Allowance for loan losses to non-performing loans (10) 93.50 42.11 30.34 18.19 16.87
Allowance for loan losses to non-accrual loans 105.11 54.06 34.90 21.37 21.47
Allowance for loan losses to total loans 0.93 0.53 0.65 0.76 1.09
Other Data:
Number of deposit accounts 659,054 461,044 439,681 308,218 284,334
Mortgage loans serviced for others (in thousands) $142,584 $109,521 $123,931 $ 54,157 $ 67,791
Number of full service banking offices 61 46 46 28 28
Full time equivalent employees 1,241 930 954 751 788
</TABLE>
(1) 1993 based on net income from November 18, 1993 to December 31, 1993.
(2) Prior periods restated as a result of the implementation of SFAS No. 128.
(3) For 1996, the one-time $16.9 million, after tax, special assessment for
the recapitalization of the SAIF, was excluded.
(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 $7,050,000,
$1,614,000, $11,000, $0 and $165,000, for 1997, 1996, 1995, 1994 and 1993,
respectively.
(7) Excluding non-cash charge for amortization relating to allocation of ESOP
stock and earned portion of RRP stock.
(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 goodwill 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.
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
18
<PAGE> 3
Astoria Financial Corporation and Subsidiary
consolidated schedule of cash earnings
<TABLE>
<CAPTION>
For the Year Ended
---------------------------------------------------------------------------------
December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------------------------------------------
(In Thousands, Reported Cash Reported Cash
Except Per Share Data) Earnings (1) Adjustments Earnings Earnings (1) Adjustments Earnings
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total interest income $ 579,401 $ -- $ 579,401 $ 491,174 $ -- $ 491,174
Total interest expense 364,350 -- 364,350 304,481 -- 304,481
- --------------------------------------------------------------------------------------------------------------------
Net interest income 215,051 -- 215,051 186,693 -- 186,693
Provision for loan losses 3,061 -- 3,061 3,963 -- 3,963
- --------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 211,990 -- 211,990 182,730 -- 182,730
- --------------------------------------------------------------------------------------------------------------------
Total non-interest income 22,263 -- 22,263 13,722 -- 13,722
- --------------------------------------------------------------------------------------------------------------------
Non-interest expense:
General and administrative:
Compensation and benefits 57,235 (13,937)(2) 43,298 49,587 (10,674)(2) 38,913
Other general and
administrative 46,840 -- 46,840 46,578 -- 46,578
- --------------------------------------------------------------------------------------------------------------------
Total general and
administrative 104,075 (13,937) 90,138 96,165 (10,674) 85,491
Real estate operations, net 463 -- 463 (2,723) -- (2,723)
Provision for (recovery of)
real estate losses 359 -- 359 (1,747) -- (1,747)
Amortization of goodwill 11,264 (11,264)(3) -- 8,684 (8,684)(3) --
SAIF recapitalization
assessment -- -- -- 28,545 -- 28,545
- --------------------------------------------------------------------------------------------------------------------
Total non-interest expense 116,161 (25,201) 90,960 128,924 (19,358) 109,566
- --------------------------------------------------------------------------------------------------------------------
Income before income
tax expense 118,092 25,201 143,293 67,528 19,358 86,886
Income tax expense 49,628 (3,184)(4) 46,444 30,675 (835)(4) 29,840
- --------------------------------------------------------------------------------------------------------------------
Net income $ 68,464 $ 28,385 $ 96,849 $ 36,853 $ 20,193 $ 57,046
====================================================================================================================
Basic earnings per
common share (5) $ 3.26 $ 1.38 $ 4.64 $ 1.87 $ 1.03 $ 2.90
====================================================================================================================
Diluted earnings per
common share (5) $ 3.04 $ 1.30 $ 4.34 $ 1.79 $ 0.99 $ 2.78
====================================================================================================================
Net income, excluding SAIF
recapitalization assessment (6) $ 53,727 $ 20,193 $ 73,920
======================================
Diluted earnings per common
share, excluding SAIF
recapitalization assessment,
net of taxes (5), (6), (7) $ 2.58 $ 0.97 $ 3.55
======================================
</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.
(3) Non-cash amortization expense of goodwill.
(4) Related tax benefit on non-cash amortization expense of earned portion of
RRP stock.
(5) Prior periods restated as a result of the implementation of SFAS No. 128.
(6) Excluding SAIF recapitalization assessment of $16.9 million, after tax.
(7) Calculation based on inclusion of dilutive effect of common equivalent
shares.
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 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 is also 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 ("goodwill"). 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.
- --------------------------------------------------------------------------------
The Greater Acquisition
The Company continues to consider merger and acquisition activity part of its
long-term growth strategy. Following the close of business on
September 30, 1997, the Company completed the acquisition of The Greater New
York Savings Bank ("The Greater"), by merger of The Greater with and into the
Association, in a transaction ("The Greater Acquisition"), that was accounted
for as a purchase. Pursuant to the terms of The Greater Acquisition, the
aggregate consideration paid to stockholders of The Greater's common stock
consisted of 0.50 shares of the Company's common stock (the "Common Stock") per
share of The Greater's common stock for 75% of the shares of The Greater's
common stock outstanding and $19.00 per share of The Greater's common stock for
the remaining 25% of the shares of The Greater's common stock outstanding. The
actual consideration received by a stockholder for shares of The Greater's
common stock depended on certain election, allocation and proration procedures.
In addition, the Company issued 2,000,000 shares of 12% Noncumulative Perpetual
Preferred Stock, Series B (the "Series B Preferred Stock"), in exchange for all
of the outstanding 12% Noncumulative Preferred Stock, Series B of The Greater.
The total consideration paid in The Greater Acquisition was $399.5 million,
which included $38.2 million of transaction costs. As a result of The Greater
Acquisition, after the close of business on September 30, 1997, the Company had
assets of $10.31 billion, deposits of $6.16 billion, net loans, real estate
owned and investments in real estate of $4.29 billion and stockholders' equity
of $893.1 million. The addition of The Greater's fourteen banking offices, and
two new offices opened shortly after The Greater Acquisition, increased the
number of the Company's banking offices to sixty-one, but more importantly,
provided the Company a substantial market presence in Brooklyn, New York.
Goodwill generated in the transaction was $169.3 million, which is being
amortized on a straight line basis over 15 years. As of the completion of The
Greater Acquisition, the Association continued to exceed each of its regulatory
capital requirements. See Note 3 of "Notes to Consolidated Financial
Statements."
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
20
<PAGE> 5
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
The Company's primary source of funds is cash provided by investing activities,
which includes principal and interest payments on loans, mortgage-backed
securities and other securities. During the years ended December 31, 1997 and
1996, principal payments on loans, mortgage-backed securities and proceeds from
maturities of other securities totaled $1.21 billion and $906.3 million,
respectively. During the year ended December 31, 1997, the Company received
$989.0 million of funds from the sale of securities available-for-sale, loans
and real estate, of which $437.6 million was received in the second quarter as
part of the Company's restructuring of its securities portfolio and $216.5
million from the bulk sale of The Greater's non-performing loans and real
estate. The Company's other sources of funds are provided by operating and
financing activities. Net cash provided from operating activities during the
years ended December 31, 1997 and 1996 totaled $160.1 million and $62.3 million,
respectively, of which $68.5 million and $36.9 million, respectively,
represented net income of the Company. The net increases in borrowings and
deposits (excluding balances assumed from The Greater), during 1997 totaled
$837.8 million and $106.4 million, respectively. 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 securities and other
securities. During the year ended December 31, 1997, the Company's gross
purchases and originations of mortgage loans totaled $1.48 billion, compared to
$928.7 million during the year ended December 31, 1996. The Company's purchases
of mortgage-backed securities and other securities during the year ended
December 31, 1997 totaled $1.38 billion. Mortgage-backed securities and other
securities purchased during the year ended December 31, 1996 totaled $788.6
million.
Stockholders' equity totaled $899.4 million at December 31, 1997, compared to
$588.8 million at December 31, 1996. The $310.6 million increase is primarily
attributable to, in addition to net income of $68.5 million, the issuance of
5,785,375 common shares and 2,000,000 preferred shares associated with The
Greater Acquisition, totaling $285.2 million. The increase also reflects 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 $17.1
million, the effect of options exercised and related tax benefit of $6.3 million
and the change in the unrealized gain on securities, net of taxes, of $7.8
million, all of which were partially offset by Common Stock repurchases totaling
$61.7 million and the declaration of dividends of $12.6 million.
Tangible stockholders' equity (stockholders' equity less goodwill) totaled
$641.3 million at December 31, 1997, compared to $488.7 million at December 31,
1996. This increase reflects the change in the Company's stockholders' equity
noted above, less the net increase in goodwill of $158.0 million ($169.3 million
from The Greater Acquisition less amortization of goodwill of $11.3 million for
1997). 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 premium
purposes. These requirements utilize tangible equity as a base component, not
equity as defined by generally accepted accounting principles ("GAAP"). Although
reported earnings and return on equity are traditional measures of a company's
performance, management believes that the growth in tangible equity, or "cash
earnings," is also a significant measure of a company's performance. Cash
earnings exclude the effects of various non-cash expenses, such as the
amortization for the allocation of ESOP and RRP stock and related tax benefit,
as well as the amortization of goodwill. In the case of tangible equity, 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, 1997, cash earnings
totaled $96.8 million, or $28.3 million more than reported earnings,
representing a cash return on average tangible equity of 18.20%. 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
average tangible equity for the year ended December 31, 1996 were $73.9 million
and 15.58%, respectively. Management believes that various other performance
measures should also be analyzed utilizing cash earnings. Excluding the SAIF
recapitalization assessment in 1996, the cash return on average assets was 1.17%
and 1.06% for the
21
<PAGE> 6
years ended December 31, 1997 and 1996, respectively. Additionally, the cash
general and administrative expense (general and administrative expense,
excluding non-cash amortization expense relating to certain employee stock
plans) to average assets ratios and cash efficiency ratios decreased to 1.09%
and 39.15%, respectively, for the year ended December 31, 1997, from 1.22% and
43.00% for the year ended December 31, 1996, reflecting similar trends to those
noted in these ratios based on GAAP earnings. For more details on cash versus
reported earnings, see "Consolidated Schedule of Cash Earnings."
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"). During the fourth quarter of 1997, the OTS
revised its liquidity requirements, which reduced the minimum required liquidity
from 5.0% to 4.0% and eliminated the 1% short-term liquidity requirement. The
Association's liquidity ratios were 4.73% and 8.60% at December 31, 1997 and
1996, respectively. The levels of the Association's 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, 1997 to originate and purchase loans were $221.5 million and $30.5 million,
respectively. In addition, the Company had outstanding commitments to purchase
$116.4 million of mortgage-backed securities at December 31, 1997. Rental
payments under non-cancelable lease commitments totaled $80.0 million at
December 31, 1997. 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, 1997 and 1996, the Company repurchased
1,381,997 and 1,205,496 shares of Common Stock, respectively, for an aggregate
cost of $61.7 million and $31.7 million, respectively. During the years ended
December 31, 1997 and 1996, a total of 1,456,997 shares were purchased, at an
aggregate cost of $64.3 million, as part of the Company's fifth stock repurchase
plan, approved by the Board of Directors on November 27, 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. Following the close of business on September 30, 1997, as part of the
stock consideration for The Greater Acquisition, the Company issued 5,695,827
treasury shares, at a total cost of $130.5 million. During the year ended
December 31, 1997, 321,504 treasury shares were issued for stock options
exercised.
During the years ended December 31, 1997 and 1996, the Company declared cash
dividends on its Common Stock totaling $11.1 million and $8.2 million,
respectively. During the year ended December 31, 1997, the Company declared cash
dividends on its Series B Preferred Stock totaling $1.5 million. On January 21,
1998, the Company declared a quarterly cash dividend of $0.20 per share of
Common Stock payable on March 2, 1998 to stockholders of record as of the close
of business on February 13, 1998. On October 15, 1997 and January 15, 1998, the
Company paid quarterly cash dividends equal to $0.75 per share on shares of its
Series B Preferred Stock, aggregating $1.5 million per quarter.
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
event of any proposed acquisition of the Company and guards against partial
tender offers, squeeze-outs and other tactics that may be used 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 the Company's stockholders.
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 New York, F.S.B. ("Fidelity") and
The Greater Acquisition, the Association established similar liquidation
accounts equal to the remaining liquidation account balances previously
maintained by those entities as a result of their conversions 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
accounts. 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.
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
22
<PAGE> 7
At December 31, 1997, the Association exceeded all of its regulatory capital
requirements with tangible, leverage, and risk-based capital ratios of 5.41%,
5.41%, and 15.08%, 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 under the Internal Revenue Code of 1986, as amended, which may,
among other things, be utilized by the Association to raise capital in the
future.
Retained earnings at December 31, 1997 and 1996 include approximately $99.0
million and $62.0 million, respectively, for which no Federal income tax
liability has been recognized. These amounts represent the balance of the bad
debt 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 1996 Legislation--Recapture of Bad Debt
Reserves."
- --------------------------------------------------------------------------------
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, mortgage-backed securities and other securities. The Company's lending
and investing activities in 1997 reflect the Company's emphasis on building its
loan portfolio, supplemented by purchases of mortgage-backed securities and
other securities, in order to provide and enhance a stable earnings stream. The
Company originates loans, 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, 1997 and 1996, the Company
originated gross mortgage loans totaling $1.28 billion and $612.7 million,
respectively, of which $996.9 million and $378.1 million, respectively, were
originated through mortgage brokers. In 1997, the Company expanded its loan
production through additional mortgage broker networks located in Connecticut,
Maryland and Virginia. During the years ended December 31, 1997 and 1996, gross
mortgage loan purchases totaled $200.1 million and $316.0 million, respectively.
Bulk loan purchases of $60.2 million were included in the gross mortgage loan
purchases in 1996. With the exception of bulk loan purchases, all mortgage loan
purchases are underwritten by the Company. Of the total mortgage loans purchased
or originated during the years ended December 31, 1997 and 1996, $584.9 million
and $303.7 million, respectively, were secured by properties located outside of
New York State. As of December 31, 1997, $999.7 million, or 23.3% of the
Company's total mortgage loan portfolio were secured by properties located in 42
states other than New York State. As of December 31, 1996, $592.2 million, or
22.8% of the Company's total mortgage loan portfolio, were 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 10% of the Company's total loan portfolio. For the years ended December 31,
1997 and 1996, purchases of mortgage-backed securities totaled $615.8 million
and $336.7 million, respectively, and purchases of other securities totaled
$767.5 million and $451.8 million, respectively. The Company, from time to time,
will restructure its securities portfolios and borrowing positions as part of
its interest rate risk management. Proceeds from sales of securities will be
used to purchase additional securities, satisfy certain borrowing obligations,
or a combination thereof. During the year ended December 31, 1997, the Company
sold $729.6 million of securities for a net gain of $3.8 million.
- --------------------------------------------------------------------------------
Interest Rate Sensitivity Analysis
As a financial institution, the Company's primary component of market risk is
interest rate volatility. 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 the Company's
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. To a lesser extent, the Company also monitors its
interest rate sensitivity by analyzing the estimated changes in market value of
its assets and liabilities assuming various interest rate scenarios. As
discussed more fully below, there are a variety of factors which influence the
repricing characteristics and market values of any given asset or liability.
23
<PAGE> 8
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 securities and fixed-rate
mortgage-backed securities with short-and medium-term average lives.
The actual duration of mortgage loans and mortgage-backed 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. The
Company's interest rate sensitivity was reduced during the fourth quarter of
1997 as a result of The Greater's portfolio, which contained a significant
amount of adjustable rate mortgage-backed securities.
At December 31, 1997, the Company's interest-bearing liabilities maturing or
repricing within one year exceeded net interest-earning assets maturing or
repricing within the same time period by $286.2 million, representing a negative
cumulative one-year gap of 2.72% of total assets. This compares to
interest-bearing liabilities maturing or repricing within one year exceeding 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 at December 31, 1996. The Company's December 31, 1997 and 1996 cumulative
one-year gap positions reflect the classification of available-for-sale
securities according to repricing periods based on their estimated prepayments
and contractual maturities. If those securities at December 31, 1997 were
classified within the one-year maturing or repricing category, net
interest-earning assets maturing or repricing within one year would have
exceeded interest-bearing liabilities maturing or repricing within the same time
period by $1.21 billion, representing a positive cumulative one-year gap of
11.48% of total assets. Using this method at December 31, 1996, net
interest-earning assets maturing or repricing within one year would have
exceeded interest-bearing liabilities maturing or repricing within the same time
period by $1.30 billion, representing a positive cumulative one-year gap of
17.94% of total assets.
The following table ("the Gap table") sets forth the amount of interest-earning
assets and interest-bearing liabilities outstanding at December 31, 1997, that
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. The Gap table does not necessarily indicate
the impact of general interest rate movements on the Company's net interest
income because the actual repricing dates of various assets and liabilities 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. Included in this table are
$1.16 billion of callable mortgage-backed securities and other
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
24
<PAGE> 9
securities, classified according to their maturity dates, which are primarily
within the more than five years maturity category. Of such securities, $487.6
million are callable within one year. Also included in this table are $2.61
billion of callable borrowings, classified according to their maturity dates,
which are primarily within the more than one year to three years category and
the more than three years to five years category for borrowings. Of such
borrowings, $1.08 billion are callable within one year. In addition, the
available-for-sale securities may or may not be sold, or effectively repriced,
since that activity is subject to management's discretion.
<TABLE>
<CAPTION>
At December 31, 1997
--------------------------------------------------------------------------------
More than More than
One Year Three Years
One Year to to More than
(Dollars in Thousands) or Less Three Years (1) Five Years (1) Five Years (1) Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (2) $1,237,616 $ 1,090,128 $ 941,821 $ 960,509 $4,230,074
Consumer and other loans (2) 41,792 10,798 -- -- 52,590
Federal funds sold and
repurchase agreements 110,550 -- -- -- 110,550
Mortgage-backed securities
and other securities
available-for-sale 1,365,397 404,995 263,709 826,155 2,860,256
Mortgage-backed securities
and other securities
held-to-maturity 440,409 202,740 195,526 1,836,573 2,675,248
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 3,195,764 1,708,661 1,401,056 3,623,237 9,928,718
Add:
Net unamortized purchase
premiums and deferred fees (3) 4,412 4,329 3,759 2,272 14,772
- ---------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets $3,200,176 $ 1,712,990 $ 1,404,815 $3,625,509 $9,943,490
- ---------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings $ 257,664 $ 429,456 $ 343,560 $ 687,104 $1,717,784
NOW 27,046 18,031 18,031 27,045 90,153
Money manager 74,165 49,443 49,443 74,165 247,216
Money market 405,516 19,008 19,008 46,754 490,286
Certificates of deposit 2,054,252 1,056,040 405,872 -- 3,516,164
Borrowed funds 667,765 1,059,649 1,380,367 165,000 3,272,781
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $3,486,408 $ 2,631,627 $ 2,216,281 $1,000,068 $9,334,384
- ---------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap $ (286,232) $ (918,637) $ (811,466) $2,625,441 $ 609,106
===========================================================================================================================
Cumulative interest sensitivity gap $ (286,232) $(1,204,869) $(2,016,335) $ 609,106
===========================================================================================================================
Cumulative interest sensitivity
gap as a percentage of total assets (2.72)% (11.44)% (19.15)% 5.79%
Cumulative net interest-earning
assets as a percentage of
interest-bearing liabilities 91.79% 80.31% 75.81% 106.53%
</TABLE>
(1) For purposes of this analysis, $487.6 million of mortgage-backed
securities and other securities and $1.08 billion of borrowings, which are
callable within one year and at various times thereafter, are classified
above according to their contractual maturity dates (primarily in the more
than five years category for mortgage-backed securities and other
securities and the more than one year to three years and the more than
three years to five years categories 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, net unamortized purchase premiums and
deferred fees are prorated.
25
<PAGE> 10
Certain shortcomings are inherent in the method of analysis presented in the Gap
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 Gap 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 majority of the certificates of deposit
projected to mature within the next year have original terms of one and one-half
to two and one-half years. The Company has and currently offers competitive
market rates for products with these terms. Based upon historical experience, as
well as current and projected economic conditions, the Company believes it can
continue to offer competitive market rates and therefore, while there is no
assurance of renewal, the Company believes a significant amount of the balance
of certificates of deposit maturing will be renewed.
The Company's interest rate sensitivity is also monitored by management through
analysis of the change in the net portfolio value ("NPV"). NPV is defined as the
net present value of the expected future cash flows of an entity's assets and
liabilities and, therefore, hypothetically represents the market value of an
institution's net worth. Increases in the market value of assets will increase
the NPV whereas decreases in market value of assets will decrease the NPV.
Conversely, increases in the market value of liabilities will decrease NPV
whereas decreases in the market value of liabilities will increase the NPV. The
changes in market value of assets and liabilities due to changes in interest
rates reflect the interest sensitivity of those assets and liabilities as their
values are derived from the characteristics of the asset or liability (i.e.
fixed rate, adjustable rate, caps, floors) relative to the interest rate
environment. For example, in a rising interest rate environment the fair market
value of a fixed rate asset will decline, whereas the fair market value of an
adjustable rate asset, depending on its repricing characteristics, may not
decline. The NPV ratio, under any interest rate scenario, is defined as the NPV
in that scenario divided by the market value of assets in the same scenario.
This analysis, referred to in the NPV table, initially measures percentage
changes from the value of projected NPV in a given rate scenario, and then
measures interest rate sensitivity by the change in the NPV ratio, over a range
of interest rate change scenarios. The OTS also produces a similar analysis
using its own model based upon data submitted on the Association's quarterly
Thrift Financial Reports, the results of which may vary from the Company's
internal model primarily because of differences in assumptions utilized between
the Company's internal model and the OTS model, including estimated loan
prepayment rates, reinvestment rates and deposit decay rates. For purposes of
the NPV table, prepayment speeds and deposit decay rates similar to those used
in the Gap table were used. In addition, the available-for-sale securities were
classified according to repricing periods based on contractual maturities and
estimated prepayments.
The NPV table is based on simulations which utilize institution specific
assumptions with regard to future cash flows, including customer options such as
loan prepayments, period and lifetime caps, puts and calls, and deposit
withdrawal estimates. The NPV table uses discount rates derived from various
sources including, but not limited to, treasury yield curves, thrift retail
certificate of deposit curves, national and local secondary mortgage markets,
brokerage security pricing services and various alternative funding sources.
Specifically, for mortgage loans receivable, the discount rates used were 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. The
discount rates used for certificates of deposit and borrowings were based on
rates which approximate the rates offered by the Company for deposits and
borrowings of similar remaining maturities. The table calculates the NPV at a
flat rate scenario by computing the present value of cash flows of interest
earning assets less the present value of interest bearing liabilities. Certain
assets, including fixed assets and real estate held for development, are assumed
to remain at book value (net of valuation allowance) regardless of interest rate
scenario. Other non-interest earning assets and non-interest bearing liabilities
such as deferred fees, unamortized premiums, goodwill and accrued expenses and
other liabilities are excluded from the NPV calculation.
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
26
<PAGE> 11
The following represents the Company's NPV table as of December 31, 1997:
<TABLE>
<CAPTION>
Net Portfolio Value ("NPV") Portfolio Value of Assets
Rates in ------------------------------------------------------------------
Basis Points Dollar Dollar Percentage NPV Percentage
(Rate Shock) Amount Change Change Ratio Change
- --------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
+200 $ 777,883 $(262,251) (25.21)% 7.99% (20.42)%
+100 933,167 (106,967) (10.28)% 9.28% (7.57)%
- -0- 1,040,134 -- -- 10.04% --
- -100 1,183,513 143,379 13.78% 11.13% 10.86%
- -200 1,310,851 270,717 26.03% 12.04% 19.92%
</TABLE>
As with the Gap table, certain shortcomings are inherent in the methodology used
in the above interest rate risk measurements. Modeling of changes in NPV
requires the making of certain assumptions which may or may not reflect the
manner in which actual yields and costs respond to changes in market interest
rates. In this regard, the NPV model assumes that the composition of the
Company's interest sensitive assets and liabilities existing at the beginning of
a period remains constant over the period being measured and also assumes that a
particular change in interest rates is immediate and is reflected uniformly
across the yield curve regardless of the duration to maturity or repricing of
specific assets and liabilities. In addition, prepayment estimates and other
assumptions within the model are subjective in nature, involve uncertainties
and, therefore, cannot be determined with precision. Accordingly, although the
NPV measurements in theory, may provide an indication of the Company's interest
rate risk exposure at a particular point in time, such measurements are not
intended to and do not provide for a precise forecast of the effect of changes
in market interest rates on the Company's net portfolio value and will differ
from actual results.
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. The Company did not enter into any
such transactions during 1997, except for interest rate cap and floor agreements
acquired from The Greater. See Note 12 of the "Notes to the Consolidated
Financial Statements" for a description of such transactions. Additionally, the
Company is not subject to foreign currency exchange or commodity price risk and
does not own any trading assets.
- --------------------------------------------------------------------------------
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, 1997, 1996 and 1995. 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.
27
<PAGE> 12
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1997 1996
---------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Cost Balance Interest Cost
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans $3,227,702 $ 255,803 7.93% $2,317,574 $ 187,219 8.08%
Consumer and other loans 54,944 5,418 9.86 58,753 6,021 10.25
Mortgage-backed securities (1) 3,470,879 235,731 6.79 3,592,606 246,761 6.87
Federal funds sold and
repurchase agreements 147,455 8,184 5.55 55,255 2,978 5.39
Other securities (1) 1,049,585 74,265 7.08 709,433 48,195 6.79
---------- ---------- ---------- ----------
Total interest-earning assets 7,950,565 579,401 7.29 6,733,621 491,174 7.29
---------- ----------
Non-interest-earning assets 348,510 272,034
---------- ----------
Total assets $8,299,075 $7,005,655
========== ==========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings $1,269,356 32,242 2.54 $1,146,243 29,000 2.53
Certificates of deposit 2,914,867 159,439 5.47 2,699,540 148,335 5.49
NOW 75,711 946 1.25 114,110 2,282 2.00
Money manager 205,570 2,570 1.25 148,871 2,977 2.00
Money market 363,339 16,786 4.62 237,709 9,152 3.85
Borrowed funds 2,594,340 152,367 5.87 1,948,649 112,735 5.79
---------- ---------- ---------- ----------
Total interest-bearing liabilities 7,423,183 364,350 4.91 6,295,122 304,481 4.84
---------- ----------
Non-interest-bearing liabilities 206,677 132,747
---------- ----------
Total liabilities 7,629,860 6,427,869
Stockholders' equity 669,215 577,786
Total liabilities and
stockholders' equity $8,299,075 $7,005,655
========== ==========
Net interest income/net
interest rate spread (2) $ 215,051 2.38% $ 186,693 2.45%
========== ==== ========== ====
Net interest-earning assets/
net interest margin (3) $ 527,382 2.71% $ 438,499 2.77%
========== ==== ========== ====
Ratio of interest-earnings assets
to interest-bearing liabilities 1.07x 1.07x
<CAPTION>
--------------------------------
1995
--------------------------------
Average
Average Yield/
(Dollars in Thousands) Balance Interest Cost
- --------------------------------------------------------------------------
Assets:
Interest-earning assets:
Mortgage loans $1,828,152 $ 153,262 8.38%
Consumer and other loans 61,480 6,496 10.57
Mortgage-backed securities (1) 3,448,205 238,232 6.91
Federal funds sold and
repurchase agreements 153,972 9,021 5.86
Other securities (1) 438,693 27,965 6.37
---------- ----------
Total interest-earning assets 5,930,502 434,976 7.33
----------
Non-interest-earning assets 308,095
----------
Total assets $6,238,597
==========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings $1,176,433 29,764 2.53
Certificates of deposit 2,544,542 142,052 5.58
NOW 240,032 4,841 2.02
Money manager -- -- --
Money market 196,767 7,300 3.71
Borrowed funds 1,402,270 81,748 5.83
---------- ----------
Total interest-bearing liabilities 5,560,044 265,705 4.78
----------
Non-interest-bearing liabilities 111,225
----------
Total liabilities 5,671,269
Stockholders' equity 567,328
Total liabilities and
stockholders' equity $6,238,597
==========
Net interest income/net
interest rate spread (2) $ 169,271 2.55%
========== ====
Net interest-earning assets/
net interest margin (3) $ 370,458 2.85%
========== ====
Ratio of interest-earnings assets
to interest-bearing liabilities 1.07x
</TABLE>
(1) Securities available-for-sale are reported at average amortized cost.
(2) Net interest rate spread represents the difference between the average
yield on average interest-earning assets and the average cost of average
interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
28
<PAGE> 13
- --------------------------------------------------------------------------------
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, 1997 Year Ended December 31, 1996
Compared to Compared to
Year Ended December 31, 1996 Year Ended December 31, 1995
---------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
---------------------------------------------------------------------------------
(In Thousands) Volume Rate Net Volume Rate Net
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans $72,127 $(3,543) $68,584 $39,627 $(5,670) $33,957
Consumer and other loans (380) (223) (603) (282) (193) (475)
Mortgage-backed securities (8,209) (2,821) (11,030) 9,916 (1,387) 8,529
Federal funds sold and
repurchase agreements 5,115 91 5,206 (5,371) (672) (6,043)
Other securities 23,938 2,132 26,070 18,277 1,953 20,230
- ----------------------------------------------------------------------------------------------------------------------------
Total 92,591 (4,364) 88,227 62,167 (5,969) 56,198
- ----------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings 3,127 115 3,242 (764) -- (764)
Certificates of deposit 11,652 (548) 11,104 8,589 (2,306) 6,283
NOW (632) (704) (1,336) (2,512) (47) (2,559)
Money manager 920 (1,327) (407) 2,977 -- 2,977
Money market 5,539 2,095 7,634 1,568 284 1,852
Borrowed funds 38,046 1,586 39,632 31,553 (566) 30,987
- ----------------------------------------------------------------------------------------------------------------------------
Total 58,652 1,217 59,869 41,411 (2,635) 38,776
- ----------------------------------------------------------------------------------------------------------------------------
Net change in net interest income $33,939 $(5,581) $28,358 $20,756 $(3,334) $17,422
============================================================================================================================
</TABLE>
29
<PAGE> 14
- --------------------------------------------------------------------------------
Asset Quality
One of the Company's key operating objectives has been and continues to be to
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 from December 31, 1992 through the third quarter of
1997. During the fourth quarter of 1997, the Company completed the bulk sale of
$216.5 million of non-performing assets acquired from The Greater, which
included substantially all of The Greater's troubled debt restructurings, real
estate owned and investments in real estate. Included in the balance of
non-performing assets at December 31, 1997 are mortgage loans, real estate owned
and real estate investments totaling $11.8 million, acquired from The Greater,
the majority of which the Company has entered into sales contracts for, which
are anticipated to close during 1998. If these loans and properties under
contract had been sold prior to December 31, 1997, the balance of non-performing
assets would have increased only $1.7 million from $45.6 million, at December
31, 1996, to $47.3 million at December 31, 1997 instead of being at $59.1
million at December 31, 1997.
The following set of tables shows a comparison of delinquent loans and
non-performing assets at December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Delinquent Loans At December 31, 1997
--------------------------------------------------------
60-89 Days 90 Days or More
--------------------------------------------------------
Number Principal Number Principal
of Balance of Balance
(Dollars in Thousands) Loans of Loans Loans of Loans
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-to-four family 85 $3,741 365 $27,960
Multi-family 2 480 20 7,089
Commercial real estate -- -- 12 7,076
Consumer and other loans 30 299 35 696
- -----------------------------------------------------------------------------------------
Total delinquent loans 117 $4,520 432 $42,821
- -----------------------------------------------------------------------------------------
Delinquent loans to total loans 0.10% 0.99%
<CAPTION>
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
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-to-four family 73 $3,901 276 $25,098
Multi-family 6 1,226 13 3,651
Commercial real estate 2 823 17 3,552
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%
<CAPTION>
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
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-to-four family 118 $8,173 366 $33,384
Multi-family 3 336 17 2,851
Commercial real estate 3 384 31 6,969
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%
</TABLE>
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
30
<PAGE> 15
The underlying credit quality of the Company's loan portfolio is dependent
primarily on each borrower's ability to continue to make required loan payments
and, in the event 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 typically is
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.
Non-Performing Assets
<TABLE>
<CAPTION>
At December 31,
-------------------------------
(Dollars in Thousands) 1997 (1) 1996 (1) 1995 (1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual delinquent mortgage loans (2) $37,397 $24,905 $37,394
Non-accrual delinquent consumer and other loans 696 1,159 1,276
Mortgage loans delinquent 90 days or more (3) 4,728 7,396 5,810
- -----------------------------------------------------------------------------------------------
Total non-performing loans 42,821 33,460 44,480
- -----------------------------------------------------------------------------------------------
Real estate owned, net (4) 6,091 7,421 17,677
Investment in real estate, net (5) 10,173 4,708 5,654
- -----------------------------------------------------------------------------------------------
Total real estate owned and investment in real estate, net 16,264 12,129 23,331
- -----------------------------------------------------------------------------------------------
Total non-performing assets (6) $59,085 $45,589 $67,811
===============================================================================================
Allowance for loan losses to non-performing loans 93.50% 42.11% 30.34%
Allowance for loan losses to total loans 0.93% 0.53% 0.65%
</TABLE>
(1) If all non-accrual loans had been performing in accordance with their
original terms, the Company would have recorded interest income of $2.9
million, $2.4 million and $4.0 million for the years ended December 31,
1997, 1996 and 1995, respectively. This compares to $1.2 million, $934,000
and $1.3 million, respectively, of actual payments recorded to interest
income.
(2) 27.6%, 3.8% and 15.4% are secured by other than one-to-four family
properties at December 31, 1997, 1996 and 1995, 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) At December 31, 1997, balance includes $11.8 million of non-performing
assets acquired from The Greater which the Company intends to sell.
Under the provisions of Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114"), a loan is
normally deemed impaired when it is probable the Company will be unable to
collect both principal and interest due according to the contractual terms.
Loans that were restructured prior to January 1, 1995 and performing in
accordance with their restructured terms are not considered impaired loans under
SFAS No. 114. Loans restructured after December 31, 1994 are considered
impaired. A valuation allowance is established (with a corresponding charge to
the provision for loan losses) when the fair value of the property that
collateralizes the impaired loan is less than the recorded investment in the
loan. The Company's procedure for identifying impaired loans is conducted in
conjunction with the review of the adequacy of the allowance for loan losses. At
December 31, 1997, the Company's balance of impaired loans was $25.1 million, of
which $9.7 million were loans acquired from the Greater. For a further
discussion of impaired loans, see Note 6 of "Notes to Consolidated Financial
Statements."
The Company determines loan loss provisions by reviewing individual loans as
well as an overall assessment of the loan portfolio in view of the state of the
regional economies, trends in the real estate market of the Company's primary
lending areas and trends in the level of the Company's non-performing loans and
assets. The Company's provision for loan losses was $3.1 million for the year
ended December 31, 1997, compared to $4.0 million for the year ended December
31, 1996. During the year ended December 31, 1997, net loan charge-offs totaled
$2.5 million, compared to $3.4 million for the year ended December 31, 1996, of
which $1.2 million related to five large commercial properties. The Company's
addition of $25.4 million of allowance for loan losses acquired from The
Greater, significantly improved the Company's percentages of allowance for loan
losses to non-performing loans and allowance for loan losses to total loans from
the prior year. The Company's allowance for loan losses to non-performing loans
improved to 93.50% at December 31, 1997, from 42.11% at December 31, 1996. The
Company's allowance for loan losses to total loans improved to 0.93% at December
31, 1997, from 0.53% at December 31, 1996. For the activity in the allowance for
loan losses, refer to Note 7 of the "Notes to Consolidated Financial
Statements."
31
<PAGE> 16
Comparison of Financial Condition and Operating Results for the Years Ended
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
Financial Condition
Total assets increased $3.26 billion or 44.8%, to $10.53 billion at December 31,
1997, from $7.27 billion at December 31, 1996, primarily due to The Greater
Acquisition which added $2.37 billion in assets. The growth was concentrated in
the mortgage loan and securities portfolios. The Company's net loan portfolio
increased $1.66 billion, to $4.30 billion at December 31, 1997, from $2.64
billion at December 31, 1996. In addition to the $664.4 million of net loans
acquired from The Greater, the growth in the Company's loan portfolio reflects
the Company's continued emphasis on residential lending. See "Lending and
Investing Activities" for further discussion. Mortgage-backed securities
increased $640.3 million to $4.06 billion at December 31, 1997, from $3.42
billion at December 31, 1996. This increase was attributable to the addition of
$1.15 billion of such securities acquired from The Greater, offset by $610.9
million of sales during 1997. Other securities increased $572.7 million, of
which $116.9 million were acquired from The Greater, to $1.41 billion at
December 31, 1997 from $835.7 million at December 31, 1996. During the year
ended December 31, 1997, the Company purchased $1.38 billion of mortgage-backed
and other securities.
During the year ended December 31, 1997, gross mortgage loans originated and
purchased totaled $1.48 billion, of which $1.28 billion were originations and
$200.1 million were third party purchases. This compares to $612.7 million and
$316.0 million of originations and purchases (of which $60.2 million were bulk
purchases), respectively, for the year ended December 31, 1996. The growth in
these portfolios was funded primarily through medium-term (two to five years)
reverse repurchase agreements, which increased $1.03 billion, of which $339.0
million was a result of The Greater Acquisition, to $2.88 billion at December
31, 1997, from $1.85 billion at December 31, 1996. Federal Home Loan Bank
advances increased $123.5 million, which included $154.5 million assumed from
The Greater. Deposits increased $1.71 billion to $6.22 billion at December 31,
1997 from $4.51 billion at December 31, 1996, which was primarily a result of
the $1.60 billion of deposits acquired from The Greater. Additional funding
sources, during the year ended December 31, 1997, included proceeds from various
sales of securities and loans totaling $977.8 million.
Stockholders' equity increased to $899.4 million at December 31, 1997, from
$588.8 million at December 31, 1996. The most significant impact on the increase
was the issuance of 5,785,375 shares of Common Stock and 2,000,000 shares of
Series B Preferred Stock to effect The Greater Acquisition. The stock portion of
the consideration to acquire The Greater totaled $285.2 million. The increase in
stockholders' equity also reflects net income of $68.5 million, the amortization
relating to the allocation of ESOP stock and earned portion of RRP stock and
related tax benefit of $17.1 million, the effect of stock options exercised and
related tax benefit of $6.3 million and the change in unrealized gains on
securities, net of taxes, of $7.8 million. These increases were partially offset
by the repurchases of Common Stock of $61.7 million and dividends declared of
$12.6 million.
- --------------------------------------------------------------------------------
Results of Operations
General
The following comparisons of net income, earnings per common share and related
returns reflect 1996 results exclusive of the one-time SAIF recapitalization
assessment of $16.9 million, after-tax. For the year ended December 31, 1997,
net income increased $14.7 million, or 27.4%, to $68.5 million, from $53.8
million for the year ended December 31, 1996. Diluted earnings per common share
for the year ended December 31, 1997 increased to $3.04 per share, or 17.8%,
from $2.58 for the year ended December 31, 1996. The return on average assets
for the year ended December 31, 1997 increased to 0.83% from 0.77% for the year
ended December 31, 1996. The return on average stockholders' equity for the year
ended December 31, 1997 increased to 10.23% from 9.28% for the year ended
December 31, 1996. The return on average tangible stockholders' equity for the
year ended December 31, 1997 increased to 12.87% from 11.33% for the year ended
December 31, 1996.
Net income, including the SAIF recapitalization assessment for the 1996 period,
increased $31.6 million, to $68.5 million for the year ended December 31, 1997,
from $36.9 million for the year ended December 31, 1996. For the year ended
December 31, 1997, diluted earnings per common share increased to $3.04, as
compared to $1.79 per share for the year ended December 31, 1996. Return on
average assets increased to 0.83% for the year ended December 31, 1997, from
0.53% for the year ended December 31, 1996. Return on average stockholders'
equity increased to 10.23% for the year ended December 31, 1997, from 6.38% for
the year ended December 31, 1996. Return on average tangible stockholders'
equity increased to 12.87% for the year ended December 31, 1997, from 7.79% for
the year ended December 31, 1996.
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
32
<PAGE> 17
Interest Income
Interest income for the year ended December 31, 1997 increased $88.2 million, or
18.0%, to $579.4 million, from $491.2 million for the year ended December 31,
1996. This increase was the result of a $1.22 billion increase in average
interest-earning assets to $7.95 billion for the year ended December 31, 1997,
from $6.73 billion for 1996. The increase in average interest-earning assets was
primarily due to The Greater Acquisition, which provided $689.8 million of loans
held for investment and $1.29 billion of mortgage-backed securities and other
securities available-for-sale. Prior to The Greater Acquisition, the Company's
growth of interest-earning assets was concentrated in mortgage loans and other
securities. The Company has continued to emphasize the origination of mortgage
loans and, in addition, purchased higher-yielding long-term U.S. Government and
agency securities with non-callable features between one to three years.
Interest income on mortgage loans increased $68.6 million to $255.8 million for
1997, which was the result of an increase in the average balance of $910.l
million for 1997, partially offset by a decrease in the average yield on
mortgage loans to 7.93% for 1997, from 8.08% for 1996. Interest income on
mortgage-backed securities decreased $11.1 million, to $235.7 million for 1997,
from $246.8 million for 1996. This decrease was the result of a $121.7 million
decrease in the average balance of this portfolio, coupled with a decrease in
the average yield to 6.79% for 1997 from 6.87% for 1996. Interest income on
other securities increased $26.1 million to $74.3 million for 1997, from $48.2
million for 1996. The increase was a result of the combined effect of an
increase in the average balance of this portfolio of $340.2 million and an
increase in the average yield to 7.08% for 1997, from 6.79% for 1996, primarily
resulting from the callable securities purchased during 1997. Interest income on
federal funds sold and repurchase agreements increased $5.2 million as a result
of the combined effect of an increase in the average balance of $92.2 million
and an increase in the average yield to 5.55% for 1997 from 5.39% for 1996. The
changes in volume and rate discussed above, reflect the Company's strategies
executed with respect to the steady flattening of the U.S. Treasury yield curve,
during 1997, when long-term rates declined more than short-term rates. The
increase in interest income of $88.2 million was primarily a result of the
increase in the volume of average interest-earning assets during 1997.
Interest Expense
Interest expense for the year ended December 31, 1997 increased $59.9 million,
or 19.7%, to $364.4 million, from $304.5 million for the year ended December 31,
1996. This increase was attributable to increases in both the average balance of
interest-bearing liabilities of $1.13 billion and the average cost of such
liabilities to 4.91% for 1997, from 4.84% for 1996. The increase in
interest-bearing liabilities was attributable to borrowings and deposits assumed
from The Greater of $493.5 million and $1.60 billion, respectively.
Additionally, the Company increased borrowings with higher interest rates during
1997 which were primarily utilized to fund the asset growth discussed above.
Interest expense on deposits increased $20.3 million to $212.0 million for 1997,
from $191.7 million for 1996, reflecting an increase in the average balance of
total deposits of $482.4 million, offset by a decrease in the average cost of
deposits to 4.39% from 4.41%. Interest expense on savings accounts increased
$3.2 million as a result of an increase in the average balance of $123.1
million, coupled with a slight increase in the average cost to 2.54% for 1997,
from 2.53% for 1996. Interest expense on certificates of deposit increased $11.1
million to $159.4 million for 1997, from $148.3 million for 1996. This increase
was the result of the average balance of these accounts increasing $215.3
million, offset in part by a decrease in the average cost to 5.47% for 1997,
from 5.49% for 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 during
1996 and 1997. Interest expense on NOW accounts decreased $1.3 million to
$946,000 for 1997, from $2.3 million for 1996. This decrease was attributable to
the combined effect of the decrease in the average balance of $38.4 million and
a decrease in the average cost of these accounts to 1.25% for 1997, from 2.00%
for 1996. Interest expense on money manager accounts decreased only $407,000
which was attributable to a decrease in the average cost of these accounts to
1.25% for 1997, from 2.00% for 1996, offset by an increase in average balance of
$56.7 million. Interest expense on money market accounts increased $7.6 million.
The average balance of money market accounts increased $125.6 million from 1996
to 1997 and the average cost of such accounts increased to 4.62% for 1997, from
3.85% for 1996. The increase in the average cost was the result of the Company
increasing the rates offered on high balance money market accounts during 1997.
33
<PAGE> 18
Interest expense on borrowed funds increased $39.7 million, or 35.2%, to $152.4
million for the year ended December 31, 1997, from $112.7 million for the year
ended December 31, 1996. This increase was attributable to an increase in the
average balance of borrowings of $645.7 million, to $2.59 billion for 1997, from
$1.95 billion for 1996, coupled with an increase in the average cost of
borrowings to 5.87% for 1997, from 5.79% for 1996. In addition to $323.5 million
of borrowings assumed from The Greater (net of $170.0 million repaid), the
Company incurred additional medium-term borrowings during 1997. The Company
continues to utilize medium-term borrowings as a funding source for asset
growth, since certificates of deposit with similar rates and terms are not
readily attainable.
Net Interest Income
Net interest income increased $28.4 million, or 15.2%, to $215.1 million for the
year ended December 31, 1997, from $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 $1.22 billion, offset by an increase in total average
interest-bearing liabilities of $1.13 billion. The effect of the growth in
average net interest-earning assets was offset by the decrease in the Company's
net interest spread to 2.38% for 1997, from 2.45% for 1996. This decrease in net
interest spread was the result of the average cost of interest-bearing
liabilities increasing to 4.91% for 1997, from 4.84% for 1996, while the average
yield on total interest-earning assets remained at 7.29% for 1997 and 1996. The
Company's net interest margin decreased to 2.71% for 1997, from 2.77% for 1996.
Provision for Loan Losses
Provision for loan losses decreased $902,000, to $3.1 million for the year ended
December 31, 1997, from $4.0 million for the year ended December 31, 1996.
Despite record loan originations in 1997 of $1.48 billion, the Company's
non-performing loans continued to decline through the nine months ended
September 30, 1997. Non-performing loans decreased from $33.5 million at
December 31, 1996 to $26.6 million at September 30, 1997. As a result of The
Greater Acquisition, non-performing loans increased $16.2 million in the fourth
quarter of 1997 to $42.8 million at December 31, 1997, and the Company recorded
an additional $25.4 million of allowance for loan losses. Despite the increase
in non-performing loans, the Company's percentage of non-performing loans to
total loans decreased to 0.99% at December 31, 1997 from 1.26% at December 31,
1996. The Company's percentage of non-performing loans to total assets also
decreased to 0.41% at December 31, 1997 from 0.46% at December 31, 1996. Total
net loan charge-offs for the year ended December 31, 1997 was $2.5 million,
compared to $3.4 million for the year ended December 31, 1996, which included
$1.2 million relating to five large commercial properties. The net effect of the
provision for loan losses and total 1997 net loan charge-offs, together with the
additional loan loss allowance recorded from The Greater Acquisition, increased
the Company's allowance for loan losses by $25.9 million, to $40.0 million at
December 31, 1997, from $14.1 million at December 31, 1996. For further
discussion on non-performing loans, see "Asset Quality."
Non-Interest Income
Non-interest income for the year ended December 31, 1997, exclusive of net gain
on sales of securities and loans of $7.0 million, was $15.2 million, an increase
of $3.1 million, or 25.6%, as compared to $12.1 million, exclusive of net gain
on sales of securities and loans of $1.6 million for the year ended December 31,
1996. Customer service and loan fees increased $2.1 million to $11.2 million for
1997 from $9.1 million for 1996 primarily as a result of the additional banking
offices acquired from The Greater. Additionally, included in net gain on sales
of securities and loans was a $1.0 million gain from the sale of the Company's
credit card portfolio and $2.1 million relating to the satisfaction of a former
problem loan.
Non-Interest Expense
Non-interest expense for the year ended December 31, 1997 was $116.2 million,
which decreased $12.7 million, or 9.9%, from $128.9 million for the year ended
December 31, 1996. Exclusive of the SAIF recapitalization assessment of $28.5
million and $5.3 million of non-recurring recoveries from gains on dispositions
of real estate owned and investments in real estate, non-interest expense for
the year ended December 31, 1996 was $105.7 million. Excluding these one-time
items in the 1996 total, non-interest expense increased $10.5 million to $116.2
million for 1997 as compared to 1996. The increase was attributable primarily to
the addition of The Greater's operations in the fourth quarter, a $2.8 million
increase in the amortization of goodwill created from The Greater Acquisition,
and increased ESOP and RRP expense, due to an increase in the Company's Common
Stock price.
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
34
<PAGE> 19
General and administrative expense increased to $104.1 million for the year
ended December 31, 1997, from $96.2 million for the comparable 1996 period. This
was the result of increases in compensation and benefits and occupancy,
equipment and systems expense. Compensation and benefits increased $7.6 million,
or 15.4%, to $57.2 million for 1997, from $49.6 million for 1996. This was
primarily due to a $4.5 million increase in the amortization relating to the
allocation of ESOP stock for 1997, as compared to 1996, resulting from the
increase in the average market value of the Company's Common Stock from $28.08
per share for 1996 to $45.76 per share for 1997. Occupancy, equipment and
systems expense increased $3.4 million, or 14.7%, to $26.6 million for 1997,
from $23.2 million for 1996. This increase was primarily incurred in the fourth
quarter of 1997 as a result of The Greater Acquisition. These increases were
offset by a decrease of $6.5 million in the Company's federal deposit insurance
premium to $3.1 million for 1997 from $9.6 million for 1996, as a result of the
1996 legislation to recapitalize the SAIF. The Company's percentage of general
and administrative expense to average assets improved to 1.25% for the year
ended December 31, 1997, from 1.37% for the year ended December 31, 1996. The
Company's efficiency ratio also improved to 45.20% for the year ended December
31, 1997 from 48.37% for the year ended December 31, 1996.
Income Tax Expense
For the year ended December 31, 1997, income tax expense was $49.6 million,
representing an effective tax rate of 42.0%, as compared to $30.7 million,
representing an effective tax rate of 45.4%, for the 1996 period. The reduction
in the Company's effective tax rate was primarily attributable to certain tax
benefits associated with the creation of a subsidiary of the Association in
1997.
Comparison of Financial Condition and Operating Results for the Years Ended
December 31, 1996 and 1995
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Changes in Financial Condition
Total assets increased $652.7 million, or 9.9%, from $6.62 billion at December
31, 1995 to $7.27 billion at December 31, 1996. The growth in assets was
primarily attributable to an increase in loans receivable, net, of $593.7
million, from $2.04 billion at December 31, 1995, to $2.64 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 $4.26 billion at December 31, 1995, to $4.51 billion at December 31, 1996.
The increase in deposits was concentrated in certificates of deposit, which
increased $199.0 million, from $2.58 billion at December 31, 1995, to $2.77
billion at December 31, 1996. Borrowed funds increased $406.8 million, from
$1.70 billion at December 31, 1995, to $2.11 billion at December 31, 1996,
primarily reverse repurchase agreements which increased $361.7 million, from
$1.48 billion at December 31, 1995 to $1.85 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 benefits,
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.
35
<PAGE> 20
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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
taxes, 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
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
interest-earnings 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 balance of total interest-bearing liabilities was concentrated in
borrowed funds and certificates of deposit.
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
36
<PAGE> 21
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
$1.40 billion for the year ended December 31, 1995 to $1.95 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."
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.
37
<PAGE> 22
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 included 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
Common 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 reflect 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 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.
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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 government's 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 throughout most of 1996 awaiting the decision of the United
States Supreme Court in United States 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. 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 contested such motion and cross-moved for
summary judgment seeking to dismiss the Association's contract claims. (The
Association's complaint also asserts claims based on promissory estoppel,
failure of consideration and frustration of purpose, and a taking of the
Association's property without just compensation in violation of the Fifth
Amendment to the United States Constitution.)
On August 7 and 8, 1997, the United States Court of Federal Claims heard oral
arguments on 11 common issues raised by the government in the various partial
summary judgment motions filed by the Plaintiffs in the goodwill cases. The
Court heard argument on these common issues in the context of 4 specific summary
judgment motions, not including the Association's. In an opinion filed December
22, 1997, all such common issues were found in favor of the Plaintiffs and the
government was ordered to show cause within 60 days why partial summary judgment
should not be entered in all cases which have partial summary judgment motions
pending, including the Association's. The government has responded in the
Association's case that if the Court will not consider case specific facts, then
it has no defense to the Association's motion. The government further indicated
that if the Court will consider case specific facts, then it asserts that the
relevant portion of the Assistance Agreement with Fidelity did not authorize the
use of its capital credit as a permanent addition to regulatory capital. In this
response, the government did not raise any issues related to the supervisory
goodwill portion of the Association's motion. The Association has not yet
responded to the government's response pending further instructions from the
Court.
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
38
<PAGE> 23
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 to date have not been material to the Association's results of
operations. Based upon the current scheduling by the Court, the Association does
not expect to commence significant discovery in its case until 1999.
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Impact of 1996 Legislation
Deposit Insurance--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 "1996 Act") was enacted 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 Company 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.
As a result of the recapitalization of the SAIF in 1996 after the enactment of
the 1996 Act, the FDIC reduced the assessment rates for deposit insurance for
SAIF-assessable deposits for 1997 to a range of 0 to 27 basis points. The
Company's SAIF assessment rates for deposit insurance for 1997 were 0 basis
points. In addition, SAIF-assessable deposits are also subject to assessments
for 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. The Company's total expense in 1997 for the assessments
for deposit insurance and the FICO payments was $3.1 million, which was a
substantial reduction from the total amount of $9.6 million paid in 1996.
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, were permitted
to establish tax reserves for bad debts and to make annual additions thereto.
Such additions could, within specified limitations, be deducted in arriving at
taxable income. 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. Under the 1996 Act, the Association is unable to
make additions to its tax bad debt reserve, is permitted to deduct bad debts
only as they occur and is required to recapture the excess of the balance of
such reserves as of December 31, 1995 over the balance of such reserves as of
December 31, 1987.
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, so long as the
Association continues to satisfy certain New York State and New York City
definitional tests.
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Impact of New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 requires that all items that are
components of "comprehensive income" be reported in a financial statement that
is displayed with the same prominence as other financial statements.
Comprehensive income is defined as "the change in equity [net assets] of a
business enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners. Companies will be required to (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997, and requires reclassification of prior periods presented. As the
requirements of SFAS No. 130 are disclosure-related, its implementation will
have no impact on the Company's financial condition or results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
No. 131"). SFAS No. 131 requires that enterprises report certain financial and
descriptive information about operating segments in complete sets of financial
statements of the Company and in condensed financial statements of interim
periods issued to stockholders. SFAS No. 131 also requires that enterprises
report certain information about their products and services, geographic areas
in which they operate, and their major customers. SFAS No. 131 is effective for
fiscal years beginning after December 15, 1997. As the requirements of SFAS No.
131 are disclosure-related, its implementation will have no impact on the
Company's financial condition or results of operations.
39
<PAGE> 24
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The Year 2000 Problem
The Year 2000 Problem centers on the inability of computer systems to recognize
the year 2000. Many existing computer programs and systems were originally
programmed with six digit dates that provided only two digits to identify the
calendar year in the date field, without considering the upcoming change in the
century. With the impending millennium, these programs and computers will
recognize "00" as the year 1900 rather than the year 2000. Like most financial
service providers, the Company and its operations may be significantly affected
by the Year 2000 Problem due to the nature of financial information. Software,
hardware, and equipment both within and outside the Company's direct control and
with whom the Company electronically or operationally interfaces (e.g. third
party vendors providing data processing, information system management,
maintenance of computer systems, and credit bureau information) are likely to be
affected. Furthermore, if computer systems are not adequately changed to
identify the Year 2000, many computer applications could fail or create
erroneous results. As a result, many calculations which rely on the date field
information, such as interest, payment or due dates and other operating
functions, will generate results which could be significantly misstated, and the
Company could experience a temporary inability to process transactions, send
invoices or engage in similar normal business activities. In addition, under
certain circumstances, failure to adequately address the Year 2000 Problem could
adversely affect the viability of the Company's suppliers and creditors and the
creditworthiness of its borrowers. Thus, if not adequately addressed, the Year
2000 Problem could result in a significant adverse impact on the Company's
products, services and competitive condition.
The Company has initiated formal communications with all of its significant
suppliers to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 Problem. The Company
presently believes that with modifications to existing software and conversions
to new software, the Year 2000 Problem will be mitigated without causing a
material adverse impact on the operations of the Company. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Problem could have an impact on the operations of the Company. At this
time, management does not believe that the impact and any resulting costs will
be material.
Monitoring and managing the year 2000 project will result in additional direct
and indirect costs to the Company. Direct costs include potential charges by
third party software vendors for product enhancements, costs involved in testing
software products for year 2000 compliance, and any resulting costs for
developing and implementing contingency plans for critical software products
which are not enhanced. Indirect costs will principally consist of the time
devoted by existing employees in monitoring software vendor progress, testing
enhanced software products and implementing any necessary contingency plans. The
Company does not believe that such costs will have a material effect on results
of operations. Both direct and indirect costs of addressing the Year 2000
Problem will be charged to earnings as incurred. Such costs have not been
material to date.
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Impact of Inflation and Changing Prices
The consolidated financial statements and notes thereto presented herein have
been prepared in accordance with GAAP, 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.
Astoria Financial Corporation 1997 Annual Report
40
<PAGE> 25
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, 1997 and
1996, 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, 1997. 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, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
January 22, 1998
41
<PAGE> 26
Astoria Financial Corporation and Subsidiary
consolidated statements of financial condition
<TABLE>
<CAPTION>
At December 31,
-------------------------------
(In Thousands, Except Share Data) 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 31,780 $ 18,923
Federal funds sold and repurchase agreements 110,550 56,000
Mortgage-backed securities available-for-sale (at estimated fair value) 2,700,920 2,100,376
Other securities available-for-sale (at estimated fair value) 159,336 196,286
Mortgage-backed securities held-to-maturity
(estimated fair value of $1,369,738 and $1,309,007, respectively) 1,361,404 1,321,613
Other securities held-to-maturity (estimated fair value of
$1,255,097 and $637,338, respectively) 1,249,045 639,402
Federal Home Loan Bank of New York stock 60,050 32,354
Loans receivable 4,345,006 2,651,416
Less allowance for loan losses 40,039 14,089
- --------------------------------------------------------------------------------------------------------------------------
Loans receivable, net 4,304,967 2,637,327
Real estate owned and investments in real estate, net 16,264 12,129
Accrued interest receivable 60,318 43,976
Premises and equipment, net 113,727 83,424
Goodwill 258,159 100,088
Other assets 101,873 30,865
- --------------------------------------------------------------------------------------------------------------------------
Total assets $10,528,393 $7,272,763
==========================================================================================================================
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 6,220,918 $4,513,093
Reverse repurchase agreements 2,882,765 1,845,000
Federal Home Loan Bank of New York advances 390,016 266,514
Mortgage escrow funds 45,217 26,520
Accrued expenses and other liabilities 90,053 32,807
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 9,628,969 6,683,934
Stockholders' Equity:
Preferred stock, $1.00 par value; 5,000,000 shares authorized:
Series A (325,000 authorized and -0- shares issued and
outstanding) -- --
Series B (2,000,000 and -0- shares authorized,
issued and outstanding, respectively) 2,000 --
Common stock, $.01 par value;
(70,000,000 shares authorized; 26,451,252 and
26,361,704 issued, respectively; 26,197,768 and
21,472,886 outstanding, respectively) 265 264
Additional paid-in capital 497,284 330,398
Retained earnings--substantially restricted 430,549 379,876
Treasury stock (253,484 and 4,888,818 shares,
at cost, respectively) (13,867) (91,188)
Net unrealized gains on securities, net of taxes 7,918 156
Unallocated common stock held by ESOP (21,488) (24,489)
Unearned common stock held by RRPs (3,237) (6,188)
- --------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 899,424 588,829
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $10,528,393 $7,272,763
==========================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
42
<PAGE> 27
Astoria Financial Corporation and Subsidiary
consolidated statements of operations
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
(In Thousands, Except Share Data) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Mortgage loans $ 255,803 $ 187,219 $ 153,262
Consumer and other loans 5,418 6,021 6,496
Mortgage-backed securities 235,731 246,761 238,232
Federal funds sold and repurchase agreements 8,184 2,978 9,021
Other securities 74,265 48,195 27,965
- ------------------------------------------------------------------------------------------------------
Total interest income 579,401 491,174 434,976
- ------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 211,983 191,746 183,957
Borrowed funds 152,367 112,735 81,748
- ------------------------------------------------------------------------------------------------------
Total interest expense 364,350 304,481 265,705
- ------------------------------------------------------------------------------------------------------
Net interest income 215,051 186,693 169,271
Provision for loan losses 3,061 3,963 2,007
- ------------------------------------------------------------------------------------------------------
Net interest income after provision for loan
losses 211,990 182,730 167,264
- ------------------------------------------------------------------------------------------------------
Non-interest income:
Customer service and loan fees 11,247 9,084 6,939
Net gain on sales of securities and loans 7,045 1,604 11
Other 3,971 3,034 2,516
- ------------------------------------------------------------------------------------------------------
Total non-interest income 22,263 13,722 9,466
- ------------------------------------------------------------------------------------------------------
Non-interest expense:
General and administrative:
Compensation and benefits 57,235 49,587 45,412
Occupancy, equipment and systems 26,550 23,155 20,753
Federal deposit insurance premiums 3,068 9,573 9,713
Advertising 3,942 3,379 4,091
Other 13,280 10,471 10,375
- ------------------------------------------------------------------------------------------------------
Total general and administrative 104,075 96,165 90,344
Real estate operations, net 463 (2,723) (3,344)
Provision for (recovery of) real estate losses 359 (1,747) 259
Amortization of goodwill 11,264 8,684 8,307
SAIF recapitalization assessment -- 28,545 --
- ------------------------------------------------------------------------------------------------------
Total non-interest expense 116,161 128,924 95,566
- ------------------------------------------------------------------------------------------------------
Income before income tax expense 118,092 67,528 81,164
Income tax expense 49,628 30,675 35,743
- ------------------------------------------------------------------------------------------------------
Net income $ 68,464 $ 36,853 $ 45,421
======================================================================================================
Basic earnings per common share $ 3.26 $ 1.87 $ 2.16
======================================================================================================
Diluted earnings per common share $ 3.04 $ 1.79 $ 2.10
======================================================================================================
Basic weighted average common shares 20,552,574 19,683,273 21,017,742
Diluted weighted average common
and common equivalent shares 21,994,383 20,545,205 21,678,872
</TABLE>
Shares and related amounts for prior periods have been restated as a result of
the implementation of SFAS No. 128.
See accompanying Notes to Consolidated Financial Statements.
43
<PAGE> 28
Astoria Financial Corporation and Subsidiary
consolidated statements of changes in stockholders' equity
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
(In Thousands, Except Share Data) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock
Balance at beginning of year $ -- $ -- $ --
Issuance of Series B, preferred stock (2,000,000 shares)
to effect acquisition of The Greater New York Savings Bank 2,000 -- --
- --------------------------------------------------------------------------------------------------------
Balance at end of year 2,000 -- --
- --------------------------------------------------------------------------------------------------------
Common Stock
Balance at beginning of year 264 264 264
Issuance of common stock (89,548 shares) to effect
acquisition of The Greater New York Savings Bank 1 -- --
- --------------------------------------------------------------------------------------------------------
Balance at end of year 265 264 264
- --------------------------------------------------------------------------------------------------------
Additional Paid-In Capital
Balance at beginning of year 330,398 325,992 322,913
Conversion of acquiree stock options into Astoria
Financial Corporation stock options 8,572 -- 1,755
Issuance of common stock and Series B, preferred stock to
effect acquisition of The Greater New York Savings Bank 144,191 -- --
Amortization relating to allocation of
ESOP stock and tax benefit of RRP stock 11,169 4,406 1,324
Tax benefit on exercise of stock options 2,954 -- --
- --------------------------------------------------------------------------------------------------------
Balance at end of year 497,284 330,398 325,992
- --------------------------------------------------------------------------------------------------------
Retained Earnings--Substantially Restricted
Balance at beginning of year 379,876 351,923 310,564
Net income 68,464 36,853 45,421
Cash dividends declared on common stock
($0.56, $0.43 and $0.20 per share, respectively) (11,087) (8,201) (4,018)
Cash dividends declared on preferred stock (1,500) -- --
Loss on issuance of treasury stock (321,504 shares,
68,442 shares and 8,072 shares, respectively) (5,204) (699) (44)
- --------------------------------------------------------------------------------------------------------
Balance at end of year 430,549 379,876 351,923
- --------------------------------------------------------------------------------------------------------
Treasury Stock
Balance at beginning of year (91,188) (60,693) (34,252)
Common stock repurchased (1,381,997 shares,
1,205,496 shares and 1,471,752 shares, respectively) (61,718) (31,672) (26,592)
Treasury stock issued for options exercised (321,504 shares,
68,442 shares and 8,072 shares, respectively) 8,574 1,177 151
Issuance of treasury stock (5,695,827 shares) to effect
acquisition of The Greater New York Savings Bank 130,465 -- --
- --------------------------------------------------------------------------------------------------------
Balance at end of year (13,867) (91,188) (60,693)
- --------------------------------------------------------------------------------------------------------
Net Unrealized Gains (Losses) on Securities, Net of Taxes
Balance at beginning of year 156 11,126 (3,965)
Change in unrealized gains (losses) on
securities available-for-sale 7,762 (10,970) 15,091
- --------------------------------------------------------------------------------------------------------
Balance at end of year 7,918 156 11,126
- --------------------------------------------------------------------------------------------------------
Unallocated Common Stock Held by ESOP
Balance at beginning of year (24,489) (27,355) (30,126)
Amortization relating to allocation of ESOP stock 3,001 2,866 2,771
- --------------------------------------------------------------------------------------------------------
Balance at end of year (21,488) (24,489) (27,355)
- --------------------------------------------------------------------------------------------------------
Unearned Common Stock Held by RRPs
Balance at beginning of year (6,188) (10,572) (14,823)
Sale of unearned RRP stock (10,176 shares) -- 147 --
Amortization relating to earned portion of RRP stock 2,951 4,237 4,251
- --------------------------------------------------------------------------------------------------------
Balance at end of year (3,237) (6,188) (10,572)
- --------------------------------------------------------------------------------------------------------
Total stockholders' equity $899,424 $588,829 $590,685
========================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Astoria Financial Corporation 1997 Annual Report
44
<PAGE> 29
Astoria Financial Corporation and Subsidiary
consolidated statements of cash flows
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
(In Thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 68,464 $ 36,853 $ 45,421
- -----------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of net deferred loan origination fees,
discounts, and premiums (10,385) (6,447) (6,776)
Provision for loan and real estate losses 3,420 2,216 2,266
Depreciation and amortization 6,835 5,662 5,021
Net gain on sales of securities and loans (7,045) (1,604) (11)
Amortization of goodwill 11,264 8,684 8,307
Allocated and earned shares from ESOP and RRPs 13,937 10,674 8,346
Increase in accrued interest receivable (3,502) (8,045) (4,324)
Increase in mortgage escrow funds 3,255 3,935 2,366
Decrease in other assets 43,345 15,341 25,335
Increase (decrease) in accrued expenses and other
liabilities 30,521 (5,007) (13,051)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 160,109 62,262 72,900
- -----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Loan originations (1,316,392) (642,836) (225,152)
Loan purchases through third parties (201,275) (317,180) (254,061)
Principal repayments on loans 481,505 346,924 250,472
Principal payments on mortgage-backed securities
held-to-maturity 80,635 101,063 370,898
Principal payments on mortgage-backed securities
available-for-sale 461,397 387,424 3,000
Purchases of mortgage-backed securities
held-to-maturity (119,080) (87,069) (702,975)
Purchases of mortgage-backed securities
available-for-sale (496,686) (249,642) --
Purchases of other securities held-to-maturity (743,799) (415,482) (232,310)
Purchases of other securities available-for-sale (23,694) (36,359) (515)
Proceeds from maturities of other securities
available-for-sale 45,001 20,009 --
Proceeds from maturities of other securities
held-to-maturity 139,514 50,860 129,538
Proceeds from sales of securities available-for-sale
and loans 962,211 95,295 525,859
Proceeds from sales of real estate owned and investments
in real estate 26,740 18,089 26,381
Purchases of premises and equipment, net of proceeds
from sales (9,827) (8,901) (6,713)
Cash paid for acquiree, net of cash and cash equivalents
acquired (82,202) -- (158,491)
- -----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (795,952) (737,805) (274,069)
- -----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits 106,419 249,174 (71,129)
Net increase in reverse repurchase agreements 698,766 361,671 682,016
Net (decrease) increase in FHLB of New York advances (31,000) 45,000 (454,549)
Costs to repurchase common stock (61,718) (31,672) (26,592)
Cash dividends paid to stockholders (12,587) (8,201) (4,018)
Cash received for options exercised, net of loss on
issuance of treasury stock 3,370 478 107
Cash received from sale of unallocated RRP stock -- 147 --
- -----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 703,250 616,597 125,835
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 67,407 (58,946) (75,334)
Cash and cash equivalents at beginning of year 74,923 133,869 209,203
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 142,330 $ 74,923 $ 133,869
===========================================================================================================
Supplemental disclosures:
Cash paid during the year:
Interest $ 358,263 $ 296,555 $ 262,418
===========================================================================================================
Income taxes $ 11,003 $ 26,065 $ 31,460
===========================================================================================================
Additions to real estate owned $ 6,912 $ 8,896 $ 12,732
===========================================================================================================
Transfers of securities from held-to-maturity to
available-for-sale, net $ -- $ -- $2,437,151
===========================================================================================================
</TABLE>
Supplemental Information to the Consolidated Statements of Cash Flows Relating
to The Greater and Fidelity Acquisitions
Noncash investing and financing transactions relating to The Greater and
Fidelity acquisitions that are not reflected in the Consolidated Statements of
Cash Flows for the years ended December 31, 1997 and 1995, respectively, are
listed below:
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fair value of assets acquired, excluding cash and cash
equivalents acquired $ 2,340,822 $ 1,824,776
Liabilities assumed (2,140,102) (1,772,060)
Conversion of stock options and common stock previously
acquired from acquiree (13,132) (6,367)
Goodwill 169,335 112,142
75% stock consideration (274,721) --
- -----------------------------------------------------------------------------------------------------------
Cash paid for acquiree, net of cash and cash equivalents
acquired $ 82,202 $ 158,491
============================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
45
<PAGE> 30
Astoria Financial Corporation and Subsidiary
notes to consolidated financial statements
- --------------------------------------------------------------------------------
1
Summary of Significant Accounting Policies
The accounting and reporting policies of Astoria Financial Corporation (the
"Company") and 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.
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 at
the date of the consolidated financial statements, 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 carried at amortized cost. 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
when applicable. 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, 1997 and 1996, the Company did not
maintain a trading portfolio.
The Company's available-for-sale and held-to-maturity portfolios consist
primarily of mortgage pass-through certificates, collateralized mortgage
obligations ("CMOs"), real estate investment conduits ("REMICs") and U.S.
Government bonds and notes.
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.
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.
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
46
<PAGE> 31
The Company follows 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. Interest income received on
impaired non-accrual loans is recognized on a cash basis. Interest income on
other impaired loans is recognized on an accrual basis.
(e) Real Estate Owned and Investments in Real Estate
Real estate acquired through foreclosure or the collection process is carried at
the lower of cost or estimated fair value at the date of acquisition, and at the
lower of the new cost basis or estimated fair value, less estimated selling
costs, thereafter. Fair value is determined through current appraisals.
Write-downs required at the time of acquisition are charged to the allowance for
loan losses. Thereafter, 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
the 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 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 is 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 an
impact on its financial condition or results of operations.
(g) Excess of Cost Over Estimated Fair Value of Net Assets Acquired ("Goodwill")
The portion, if any, of intangible assets generated in acquisitions identified
as core deposit intangible is amortized using the interest method over the
estimated lives of the related liabilities. The remaining portion is considered
goodwill and is amortized using a straight line method over varying periods up
to fifteen years. Goodwill is evaluated periodically by the Company for
impairment in response to changes in circumstances or events.
(h) Reverse Repurchase Agreements (Securities Sold Under Agreements to
Repurchase)
The Company enters into sales of securities under agreements to repurchase with
selected dealers and banks. Such agreements are treated as financings and the
obligations to repurchase securities sold are reflected as a liability in the
Company's consolidated statements of financial condition. The securities
underlying the agreements remain in the asset accounts.
Effective January 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("SFAS No. 125"), except for those
transactions that are governed by Statement of Financial Accounting Standards
No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125" ("SFAS No. 127"). SFAS No. 127 was issued in December 1996 to extend
the effective date of the provisions of SFAS No. 125 as they relate to secured
borrowings, collateral and repurchase agreements, dollar rolls, securities
lending and similar transactions for one year. SFAS No. 125 provides accounting
and reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 based on
consistent application of a financial-components approach that focuses on
control. Under this
47
<PAGE> 32
approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered and
derecognizes liabilities when extinguished. This statement provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. The Company does not expect SFAS No.
125, as amended by SFAS No. 127, to have a material effect on its financial
condition or results of operations.
(i) Interest Rate Caps/Floors and Interest Rate Swaps
As part of its asset/liability management program, the Company from time-to-time
utilizes interest rate caps and floors and interest rate swaps to reduce the
Company's sensitivity to interest rate fluctuations. Premiums paid for interest
rate caps and floors are amortized to interest expense over the terms of the
agreements. Net interest income is decreased or increased on a current basis by
amounts receivable or payable with respect to the rate caps and floors 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.
(j) 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.
(k) Earnings Per Share ("EPS") and Stock Split
During the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"). The Company
has applied the provisions of SFAS No. 128 in its calculation of EPS for the
year ended December 31, 1997, and has restated all prior-period EPS data
presented. SFAS No. 128 simplified the standards for computing EPS previously
found in Accounting Principles Board Opinion No. 15, and replaced the
presentation of primary EPS and fully diluted EPS with the presentation of basic
EPS and diluted EPS, respectively. Upon adoption of SFAS No. 128, the change
from primary EPS to basic EPS and from fully diluted EPS to diluted EPS resulted
in modest increases in both EPS presentations.
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.
(l) 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 Employee Stock Ownership Plan ("ESOP") multiplied by
the average fair value during the year of the Company's common stock. 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 average
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.
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
48
<PAGE> 33
its basic financial statements. The Company has chosen to continue to use the
APB No. 25 method, however, SFAS No. 123 requires the presentation of pro forma
net income and EPS information, in the notes to the financial statements, as if
the fair value-based method had been adopted. See Note 17 for the presentation
of this pro forma information.
(m) 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 20.
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 acquisitions of Fidelity New
York, F.S.B. ("Fidelity"), and The Greater New York Savings Bank ("The
Greater"), (see Note 3), the Association established liquidation accounts equal
to the account balances previously maintained by Fidelity and The Greater for
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
accounts in an amount proportionate to the current adjusted qualifying balances
for accounts then held.
In connection with the acquisition of The Greater ("The Greater Acquisition"),
the Company issued 5,785,375 shares of its common stock, of which 5,695,827 were
treasury shares. In addition, the Company issued 2,000,000 shares of 12%
Noncumulative Perpetual Preferred Stock, Series B (the "Series B Preferred
Stock") in exchange for all of the outstanding 12% Noncumulative Preferred
Stock, Series B of The Greater. The Series B Preferred Stock, which has a par
value of $1.00 per share and a liquidation preference of $25.00 per share, may
be redeemed at the option of the Company, in whole or in part, on or after
October 1, 2003, at an initial price of $27.25 per share and declining ratably
to $25.00 per share on October 1, 2013. Dividends on the Series B Preferred
Stock are not cumulative but, if declared by the Company, are payable quarterly.
During the years ended December 31, 1997, 1996 and 1995, the Company repurchased
1,381,997, 1,205,496 and 1,471,752 shares, respectively, of its common stock for
an aggregate cost of $61.7 million, $31.7 million and $26.6 million,
respectively. These repurchases may be used to, among other things, satisfy
obligations arising from the Company's stock option plans. During 1997, these
repurchases were primarily used as consideration for The Greater Acquisition.
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 a 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,
which is subject to regulatory requirements including in certain instances prior
notice to or approval of the OTS.
On July 19, 1995, the Company adopted a dividend reinvestment and stock purchase
plan (the "Plan"). The 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 tactics that may be
used to gain control of the Company without paying all stockholders a fair and
full
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
49
<PAGE> 34
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 the Company's stockholders.
- --------------------------------------------------------------------------------
3
Acquisitions
The Greater Acquisition
After the close of business on September 30, 1997, the Company successfully
completed The Greater Acquisition, with The Greater merging with and into the
Association in a transaction which was accounted for as a purchase. The cost of
The Greater Acquisition was $399.5 million, including approximately $38.2
million of acquisition-related costs. The aggregate consideration paid to
holders of The Greater's common stock consisted of 0.50 shares of the Company's
common stock per share of The Greater's common stock for 75% of the shares of
The Greater's common stock and $19.00 per share of The Greater's common stock
for the remaining 25% of the shares of The Greater's common stock. In addition,
the Company issued 2,000,000 shares of 12% Noncumulative Perpetual Preferred
Stock, Series B, in exchange for all of the outstanding 12% Noncumulative
Preferred Stock, Series B of The Greater.
As a result of The Greater Acquisition, after the close of business on September
30, 1997, the Company had $10.31 billion in assets and $6.16 billion in
deposits. Pursuant to Accounting Principles Board Opinion No. 16, fair market
value adjustments were made to the carrying value of The Greater's assets and
liabilities as of September 30, 1997, with the resultant discounts and premiums
being amortized to income over the expected lives of the related assets and
liabilities. Goodwill generated by The Greater Acquisition was $169.3 million,
which is being amortized to expense on a straight line basis over 15 years. The
Company provided funds for The Greater Acquisition from its normal cash flow. As
of the completion of The Greater Acquisition, the Association continued to
exceed each of its regulatory capital requirements. The Company's consolidated
results of operations include The Greater's results of operations commencing
October 1, 1997.
A summary of the net assets acquired (at their estimated fair values) in The
Greater Acquisition is as follows:
<TABLE>
<CAPTION>
After the Close of Business
(In Thousands) on September 30, 1997
- --------------------------------------------------------------------------------
(Unaudited)
<S> <C>
Assets acquired:
Cash and cash equivalents $ 29,422
Other securities 141,178
Mortgage-backed securities 1,148,076
Loans and real estate held for sale, net 228,353
Loans receivable, net 664,406
Net deferred tax asset 70,702
Other assets 88,107
- --------------------------------------------------------------------------------
Total assets acquired 2,370,244
- --------------------------------------------------------------------------------
Liabilities assumed:
Deposits 1,601,312
Borrowed funds 493,515
Other liabilities 45,275
- --------------------------------------------------------------------------------
Total liabilities assumed 2,140,102
- --------------------------------------------------------------------------------
Net assets acquired $ 230,142
================================================================================
</TABLE>
The following summarizes the actual and projected amortization of net premiums
relating to the fair market value adjustments and goodwill:
<TABLE>
<CAPTION>
Total
Net Net Net Decrease
Premium on Premium Net Premium in Income
(In Thousands) Goodwill Securities on Loans on Liabilities Before Taxes
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total as of acquisition date $ 169,335 $13,803 $ 13,014 $(2,755) $ --
Adjustment for sale of securities -- 2,364 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Balance after sale 169,335 16,167 13,014 (2,755) --
Amortization:
1997 actual (2,822) (544) (122) 272 (3,216)
1998 estimated (11,289) (3,618) (498) 1,155 (14,250)
1999 estimated (11,289) (3,277) (511) 1,146 (13,931)
2000 estimated (11,289) (2,871) (525) 155 (14,530)
2001 estimated (11,289) (2,393) (544) 23 (14,203)
thereafter estimated (121,357) (3,464) (10,814) 4 (135,631)
</TABLE>
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
50
<PAGE> 35
Set forth below is the pro forma unaudited combined condensed consolidated
results of operations of the Company and The Greater for the years ended
December 31, 1997 and 1996. This information was prepared as if The Greater
Acquisition had been consummated at the beginning of each year and is based on
the historical financial statements of the Company and The Greater after giving
effect to The Greater Acquisition under the purchase method of accounting.
Subjective estimates have been utilized in determining the pro forma adjustments
applied to the historical results of operations of the Company and The Greater.
Accordingly, the following pro forma unaudited combined condensed consolidated
financial information is not intended to be indicative of the results of
operations which would have been attained had The Greater Acquisition been
consummated at either of the foregoing dates or which may be attained in the
future. The pro forma unaudited combined condensed consolidated financial
information should be read in conjunction with the historical consolidated
financial statements of the Company and the historical financial statements of
The Greater.
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------------------------------------------------------------------------
(Unaudited)
For the Nine Months For the Three
Ended September 30, 1997 Months Ended
----------------------------------------------- December 31, 1997 For the
Historical Historical Historical Year Ended
Astoria Financial The Greater Astoria Financial December 31, 1997
(In Thousands, Corporation and and Pro Forma Corporation and Pro Forma
Except Per Share Data) Subsidiary Subsidiaries Adjustments Subsidiary Combined
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $401,460 $130,323 $ (4,973) $177,941 $704,751
Interest expense 252,467 76,150 (879) 111,883 439,621
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 148,993 54,173 (4,094) 66,058 265,130
Provision for loan losses 2,809 21,500 -- 252 24,561
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 146,184 32,673 (4,094) 65,806 240,569
Non-interest income (loss) 14,861 (1,289) -- 7,402 20,974
Non-interest expense 78,969 41,200 8,467 37,192 165,828
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) before
income taxes 82,076 (9,816) (12,561) 36,016 95,715
Income tax
expense (benefit) 34,543 (3,668) (5,659) 15,085 40,301
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 47,533 $ (6,148) $ (6,902) $ 20,931 $ 55,414
===========================================================================================================================
Diluted earnings (loss)
per common share (1) $ 2.35 $ (0.79) $ 0.74 $ 2.12
===========================================================================================================================
<CAPTION>
Year Ended December 31, 1996
--------------------------------------------------------------------------------------
Historical Historical
Astoria Financial The Greater
(In Thousands, Corporation and and Pro Forma Pro Forma
Except Per Share Data) Subsidiary Subsidiaries Adjustments Combined
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Interest income $491,174 $176,934 $ (6,619) $661,489
Interest expense 304,481 104,577 (1,144) 407,914
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 186,693 72,357 (5,475) 253,575
Provision for loan losses 3,963 1,500 -- 5,463
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 182,730 70,857 (5,475) 248,112
Non-interest income 13,722 10,797 -- 24,519
Non-interest expense 128,924 52,108 11,289 192,321
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 67,528 29,546 (16,764) 80,310
Income taxes 30,675 11,047 (5,131) 36,591
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 36,853 $ 18,499 $(11,633) $ 43,719
===========================================================================================================================
Diluted earnings per
common share (1) $ 1.79 $ 0.83 $ 1.66
===========================================================================================================================
</TABLE>
(1) Historical amounts have been restated as a result of the implementation of
SFAS No. 128. The December 31, 1997 pro forma combined diluted earnings
per common share calculation used the Company's historical diluted
weighted average common and common equivalent shares for the quarter ended
December 31, 1997. The December 31, 1996 pro forma combined diluted
earnings per common share calculation used the Company's historical
diluted weighted average common and common equivalent shares for the year
ended December 31, 1996 plus 5,785,375 shares issued to The Greater's
stockholders under the terms of The Greater Acquisition.
51
<PAGE> 36
The pro forma unaudited combined condensed consolidated results of operations
for the year ended December 31, 1997 were calculated based upon actual results
of operations of the individual institutions for the nine months ended September
30, 1997 and applying pro forma unaudited purchase accounting adjustments and
actual results of operations of the combined institutions for the months of
October through December 1997. The pro forma unaudited combined condensed
consolidated results of operations for the year ended December 31, 1996 were
calculated based upon actual results of operations of the individual
institutions for the year ended December 31, 1996 and applying pro forma
unaudited purchase accounting adjustments. Shortly after The Greater
Acquisition, the Company restructured the resulting portfolio by selling $239.0
million of securities with a purchased discount of $2.4 million and utilized the
proceeds from the sale to satisfy $170.0 million of short-term borrowings. In
addition, during the fourth quarter of 1997, the Company sold $216.5 million of
real estate assets and loans which were primarily non-performing assets.
Fidelity Acquisition
After the close of business on January 31, 1995, the Company completed the
acquisition of Fidelity, with Fidelity merging with and into the Association, in
a transaction which was accounted for as a purchase (the "Fidelity
Acquisition"). The cost of the acquisition was $157.8 million including
approximately $21.3 million of acquisition-related costs. Goodwill generated by
the acquisition was $112.1 million, which is being amortized to expense on a
straight line basis over 15 years. The balance of goodwill at December 31, 1997
is $90.3 million. The Company's consolidated results of operations include
Fidelity's results of operations commencing February 1, 1995.
- --------------------------------------------------------------------------------
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
Company may sell, loan or otherwise dispose of such securities to other parties
in the normal course of operations. Substantially the same securities are to be
resold at maturity of the repurchase agreements. As of December 31, 1997, one
repurchase agreement for $1,550,000 was outstanding. There were no such
repurchase agreements outstanding as of December 31, 1996.
Securities purchased under repurchase agreements averaged $11,510,000 during
1997 and $13,736,000 per month for two months during 1996. The maximum amounts
of such agreements outstanding at any month end, during the years ended December
31, 1997 and 1996, were $26,518,000 and $17,064,000, respectively.
Astoria Financial Corporation 1997 Annual Report
52
<PAGE> 37
- --------------------------------------------------------------------------------
5
Securities
The amortized cost and estimated fair value of securities available-for-sale
and held-to-maturity at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
At December 31, 1997
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
Mortgage-backed securities:
GNMA pass-through certificates $ 316,726 $ 2,716 $ (440) $ 319,002
FHLMC pass-through certificates 362,570 3,852 (768) 365,654
FNMA pass-through certificates 122,864 361 (715) 122,510
Other pass-through certificates 497,976 8,365 (2,970) 503,371
REMICs and CMOs:
Agency issuance 1,164,895 2,845 (5,924) 1,161,816
Non agency issuance 209,082 1,346 (69) 210,359
Other 18,208 14 (14) 18,208
- ---------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 2,692,321 19,499 (10,900) 2,700,920
- ---------------------------------------------------------------------------------------------------------
Other securities:
Obligations of the U.S. Government and agencies 83,023 32 (298) 82,757
FNMA and FHLMC preferred stock 56,915 3,086 -- 60,001
Equity and other securities 14,063 2,538 (23) 16,578
- ---------------------------------------------------------------------------------------------------------
Total other securities 154,001 5,656 (321) 159,336
- ---------------------------------------------------------------------------------------------------------
Total available-for-sale $2,846,322 $ 25,155 $ (11,221) $2,860,256
=========================================================================================================
Held-to-maturity:
Mortgage-backed securities:
GNMA pass-through certificates $ 71,321 $ 4,171 $ -- $ 75,492
FHLMC pass-through certificates 21,308 969 (4) 22,273
FNMA pass-through certificates 19,425 104 (130) 19,399
REMICs and CMOs:
Agency issuance 926,779 6,597 (2,404) 930,972
Non agency issuance 322,571 594 (1,563) 321,602
- ---------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 1,361,404 12,435 (4,101) 1,369,738
- ---------------------------------------------------------------------------------------------------------
Other securities:
Obligations of the U.S. Government and agencies 1,189,300 7,282 (1,223) 1,195,359
Obligations of states and political subdivisions 49,725 -- (34) 49,691
Corporate debt securities 10,020 28 (1) 10,047
- ---------------------------------------------------------------------------------------------------------
Total other securities 1,249,045 7,310 (1,258) 1,255,097
- ---------------------------------------------------------------------------------------------------------
Total held-to-maturity $2,610,449 $ 19,745 $ (5,359) $2,624,835
=========================================================================================================
</TABLE>
53
<PAGE> 38
<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 securities:
GNMA pass-through certificates $ 235,751 $ 2,256 $ (1,319) $ 236,688
FHLMC pass-through certificates 262,044 1,338 (1,785) 261,597
FNMA pass-through certificates 46,364 69 (319) 46,114
Other pass-through certificates 398,014 7,340 (439) 404,915
REMICs and CMOs:
Agency issuance 1,142,349 4,225 (11,952) 1,134,622
Non agency issuance 15,764 924 (248) 16,440
- ---------------------------------------------------------------------------------------------------------
Total mortgage-backed 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
FNMA and FHLMC preferred stock 60,600 872 -- 61,472
Equity and other securities 6,426 790 (4) 7,212
- ---------------------------------------------------------------------------------------------------------
Total other securities 196,025 1,719 (1,458) 196,286
- ---------------------------------------------------------------------------------------------------------
Total available-for-sale $2,296,311 $ 17,871 $ (17,520) $2,296,662
=========================================================================================================
Held-to-maturity:
Mortgage-backed securities:
GNMA pass-through certificates $ 86,733 $ 3,795 $ (73) $ 90,455
FHLMC pass-through certificates 28,189 1,021 (16) 29,194
FNMA pass-through certificates 22,044 75 (611) 21,508
REMICs and CMOs:
Agency issuance 936,692 2,315 (12,912) 926,095
Non agency issuance 247,955 186 (6,386) 241,755
- ---------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 1,321,613 7,392 (19,998) 1,309,007
- ---------------------------------------------------------------------------------------------------------
Other securities:
Obligations of the U.S. Government and agencies 578,293 1,810 (3,813) 576,290
Obligations of states and political subdivisions 51,063 -- (81) 50,982
Corporate debt securities 10,046 22 (2) 10,066
- ---------------------------------------------------------------------------------------------------------
Total other securities 639,402 1,832 (3,896) 637,338
- ---------------------------------------------------------------------------------------------------------
Total held-to-maturity $1,961,015 $ 9,224 $ (23,894) $1,946,345
=========================================================================================================
</TABLE>
The total net unrealized gains on securities reported as a separate component of
stockholders' equity was $7,918,000, net of taxes of $5,941,000 at December 31,
1997. 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, 1997, the Company's proceeds from sales of
securities available-for-sale totaled $733,388,000. Gross gains and gross losses
recognized on such sales were $5,817,000 and $2,024,000, respectively. 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 were $1,566,000. 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, immediately subsequent to the close of 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 year ended December 31, 1995.
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 $44,245,000 and
$45,105,000 at December 31, 1997 and 1996, 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 value of debt securities at December 31,
1997, 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, 1997, the amortized cost of such
callable securities totaled $1,123,743,000 of which $466,738,000 are callable
within a year and $657,005,000 are callable in one to three years. Securities
called during the year ended December 31, 1997 totaled $138,095,000.
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
54
<PAGE> 39
<TABLE>
<CAPTION>
At December 31, 1997
--------------------------
Estimated
Amortized Fair
(In Thousands) Cost Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Available-for-sale:
Due in one year or less $ 40,023 $ 39,825
Due after one year through five years 52,986 52,952
Due after ten years 48 33
- --------------------------------------------------------------------------------
Total available-for-sale $ 93,057 $ 92,810
================================================================================
Held-to-maturity:
Due in one year or less $ 66,972 $ 66,407
Due after one year through five years 27,638 27,611
Due after five years through ten years 389,950 395,725
Due after ten years 764,485 765,354
- --------------------------------------------------------------------------------
Total held-to-maturity $1,249,045 $1,255,097
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
6
Loans Receivable
Loans receivable, net, are summarized as follows:
<TABLE>
<CAPTION>
At December 31,
----------------------------
(In Thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans:
Secured by one-to-four family residences $ 3,561,673 $ 2,259,409
Secured by multi-family properties 331,968 166,836
Secured by commercial properties 378,558 168,229
- --------------------------------------------------------------------------------
4,272,199 2,594,474
Net deferred loan origination fees (6,011) (5,923)
Net unamortized premium 25,532 4,756
- --------------------------------------------------------------------------------
Total mortgage loans 4,291,720 2,593,307
- --------------------------------------------------------------------------------
Consumer and other loans:
Home equity 32,652 34,895
Passbook 4,956 4,022
Credit card -- 8,431
Other 15,678 10,761
- --------------------------------------------------------------------------------
Total consumer and other loans 53,286 58,109
- --------------------------------------------------------------------------------
Total loans 4,345,006 2,651,416
Allowance for loan losses (40,039) (14,089)
- --------------------------------------------------------------------------------
Loans receivable, net $ 4,304,967 $ 2,637,327
================================================================================
</TABLE>
As of December 31, 1997 and 1996, the Company had loans in non-accrual status,
included in loans receivable, of approximately $38,093,000 and $26,064,000,
respectively. If all non-accrual loans had been performing in accordance with
their original terms, the Company would have recorded interest income, with
respect to such loans, of $2.9 million, $2.4 million and $4.0 million for the
years ended December 31, 1997, 1996 and 1995, respectively. This compares to
$1.2 million, $934,000 and $1.3 million, respectively, of actual payments
recorded, with respect to such loans, as interest income.
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.
55
<PAGE> 40
The following table summarizes information regarding the Company's impaired
mortgage loans:
<TABLE>
<CAPTION>
At December 31, 1997
----------------------------------
Allowance
Recorded for Loan Net
(In Thousands) Investment Losses Investment
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
One-to-four family:
With a related allowance $ 777 $ (156) $ 621
Without a related allowance 8,014 -- 8,014
- --------------------------------------------------------------------------------
Total one-to-four family 8,791 (156) 8,635
- --------------------------------------------------------------------------------
Commercial and multi-family:
With a related allowance 14,967 (2,725) 12,242
Without a related allowance 1,317 -- 1,317
- --------------------------------------------------------------------------------
Total commercial and multi-family 16,284 (2,725) 13,559
- --------------------------------------------------------------------------------
Total impaired loans $25,075 $(2,881) $22,194
================================================================================
<CAPTION>
At December 31, 1996
----------------------------------
Allowance
Recorded for Loan Net
(In Thousands) Investment Losses Investment
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
One-to-four family:
With a related allowance $ 1,383 $ (372) $ 1,011
Without a related allowance 161 -- 161
- --------------------------------------------------------------------------------
Total one-to-four-family 1,544 (372) 1,172
- --------------------------------------------------------------------------------
Commercial and multi-family:
With a related allowance 5,285 (729) 4,556
Without a related allowance 132 -- 132
- --------------------------------------------------------------------------------
Total commercial and multi-family 5,417 (729) 4,688
- --------------------------------------------------------------------------------
Total impaired loans $ 6,961 $(1,101) $ 5,860
================================================================================
</TABLE>
The Company's average recorded investment in impaired loans for the years ended
December 31, 1997 and 1996 was $11,662,000 and $8,860,000, respectively.
Interest income recognized on impaired loans, which was not materially different
from cash-basis interest income, amounted to $1,203,000, $947,000 and $608,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
The Company services mortgage loans for investors with unpaid principal balances
of approximately $142,584,000 and $109,521,000 at December 31, 1997 and 1996,
respectively, which are not reflected in the accompanying consolidated
statements of financial condition. In addition, no servicing right asset has
been recognized in the consolidated statements of financial condition.
- --------------------------------------------------------------------------------
7
Allowance for Loan Losses
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
(In Thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $14,089 $13,495 $12,173
Allowance of acquired institution 25,433 -- 3,528
Provision charged to operations 3,061 3,963 2,007
Charge-offs (net of recoveries of $1,368, $1,124
and $1,071, respectively) (2,544) (3,369) (4,213)
- --------------------------------------------------------------------------------
Balance at end of year $40,039 $14,089 $13,495
================================================================================
</TABLE>
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
56
<PAGE> 41
- --------------------------------------------------------------------------------
8
Real Estate
Real estate owned and investments in real estate are summarized as follows:
<TABLE>
<CAPTION>
At December 31,
-------------------------
(In Thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
One-to-four-family, co-op and condo $ 9,860 $ 6,546
Multi-family and commercial 2,001 763
Land 5,896 6,865
- --------------------------------------------------------------------------------
17,757 14,174
Allowance for losses (1,493) (2,045)
- --------------------------------------------------------------------------------
$ 16,264 $ 12,129
================================================================================
</TABLE>
Activity in the allowance for losses on real estate owned and investments in
real estate is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
(In Thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 2,045 $ 3,746 $ 5,250
Allowance of acquired institution 94 -- 1,144
Provision (recovery) recorded to operations 359 (1,747) 259
Charge-offs (net of recoveries of $45, $1,666
and $1,090, respectively) (1,005) 46 (2,907)
- --------------------------------------------------------------------------------
Balance at end of year $ 1,493 $ 2,045 $ 3,746
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
9
Accrued Interest Receivable
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
At December 31,
------------------------
(In Thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Mortgage-backed securities $23,537 $18,973
Other securities 16,371 14,502
Loans receivable 20,410 10,501
- --------------------------------------------------------------------------------
$60,318 $43,976
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
10
Deposits
Deposits are summarized as follows:
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------
1997 1996
----------------------------------------------------------------------------
Weighted Weighted
Average Average
(Dollars in Thousands) Rate Balance Percent Rate Balance Percent
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Core Deposits:
Savings 2.52% $1,717,784 27.61% 2.50% $1,134,038 25.12%
Money market 4.75 490,286 7.88 3.99 260,739 5.78
Money manager 1.24 247,216 3.98 1.22 201,074 4.46
NOW 1.24 90,153 1.45 1.24 75,159 1.67
Non-interest bearing NOW
and money manager -- 159,315 2.56 67,333 1.49
---------------------- ---------------------
2,704,754 43.48 1,738,343 38.52
Certificates of deposit 5.51 3,516,164 56.52 5.44 2,774,750 61.48
---------------------- ---------------------
$6,220,918 100.00% $4,513,093 100.00%
====================== =====================
</TABLE>
The aggregate amount of certificates of deposit with balances equal to or
greater than $100,000 was $367,448,000 and $298,479,000 at December 31, 1997 and
1996, respectively.
57
<PAGE> 42
At December 31, 1997 and 1996, scheduled maturities of certificates of deposit
are as follows:
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------
1997 1996
----------------------------------------------------------------------------
Weighted Weighted
Average Average
(Dollars in Thousands) Rate Balance Percent Rate Balance Percent
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Six months or less 5.08% $1,485,263 42.25% 5.04% $1,014,273 36.55%
Greater than six months
through one year 5.36 568,989 16.18 5.29 568,712 20.50
Greater than one year
through three years 5.93 1,056,040 30.03 5.72 928,134 33.45
Greater than three years 6.18 405,872 11.54 6.31 263,631 9.50
----------------------- ---------------------
$3,516,164 100.00% $2,774,750 100.00%
======================= =====================
</TABLE>
Interest expense on deposits for the years ended December 31, 1997, 1996 and
1995 is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
(In Thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Savings $ 32,242 $ 29,000 $ 29,764
Money market 16,786 9,152 7,300
Money manager 2,570 2,977 --
NOW 946 2,282 4,841
Certificates of deposit 159,439 148,335 142,052
- --------------------------------------------------------------------------------
$211,983 $191,746 $183,957
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
11
Borrowed Funds
Borrowed funds are summarized as follows:
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------
1997 1996
---------------------------------------------
Weighted Weighted
Average Average
(Dollars in Thousands) Amount Rate Amount Rate
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reverse repurchase agreements $2,882,765 5.80% $1,845,000 5.65%
Advances from the FHLB-NY 390,016 6.12 266,514 6.13
---------- ----------
$3,272,781 5.84 $2,111,514 5.71
========== ==========
</TABLE>
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, substantially the same securities at the maturities of
the agreements. The Company retains the right of substitution of collateral
throughout the terms of the agreements.
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
58
<PAGE> 43
At December 31, 1997 and 1996, all of the outstanding reverse repurchase
agreements had original contractual maturities between one and ten years, with
the exception of one agreement outstanding at December 31, 1997 for $12,765,000
with a contractual maturity of seven days and one agreement outstanding at
December 31, 1996 for $50,000,000 with a contractual maturity of 60 days. All of
the outstanding agreements were secured by U.S. Treasury and Government agency
securities and mortgage-backed securities. The following is a summary of
information relating to these agreements:
<TABLE>
<CAPTION>
At or for the year ended
December 31,
------------------------
(Dollars in Thousands) 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Book value of collateral (including accrued interest):
U.S. Treasury securities $ 32,572 $ 62,467
Government agency securities 1,001,347 305,358
Mortgage-backed securities 2,056,036 1,627,246
Estimated fair value of collateral:
U.S. Treasury securities 32,114 61,611
Government agency securities 995,038 304,261
Mortgage-backed securities 2,044,492 1,605,054
Average balance of outstanding agreements during the year 2,309,614 1,744,830
Maximum balance of outstanding agreements at a month end during the year 2,882,765 1,910,801
Average interest rate for the year 5.72% 5.58%
</TABLE>
Reverse repurchase agreements at December 31, 1997 have contractual maturities
as follows: 1998: $512,765,000, 1999: $535,000,000, 2000: $300,000,000, 2001:
$100,000,000, 2002: $1,280,000,000, 2004: $105,000,000 and 2007: $50,000,000. At
December 31, 1997, $1,075,000,000, $1,230,000,000, $150,000,000 and $155,000,000
of such agreements were callable during various months in 1998, 1999, 2000 and
2002, 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 securities and other securities not otherwise
pledged in an amount at least equal to 110% of the advances outstanding.
Advances at December 31, 1997 mature as follows: 1998: $120,000,000, 1999:
$160,000,000, 2000: $100,000,000 and 2004: $10,000,000.
At December 31, 1997, 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.
Interest expense on borrowings for the years ended December 31, 1997, 1996 and
1995 is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
(In Thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Reverse repurchase agreements $134,624 $ 99,803 $ 55,826
Advances from the FHLB-NY 17,743 12,932 25,922
- --------------------------------------------------------------------------------
$152,367 $112,735 $ 81,748
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
12
Interest Rate Caps/Floors and Interest Rate Swaps
Interest Rate Caps/Floors
At December 31, 1997, the Company had $20,000,000 and $60,000,000 (based upon
contractual notional principal) of interest rate cap and interest rate floor
agreements, respectively, outstanding, resulting from The Greater Acquisition.
The agreements had a weighted-average cap and floor rate of 6.94% and 6.08%,
respectively, and expire in December 1998 for caps and in February 2000 for
floors. The carrying amount (unamortized premium) of interest rate cap and floor
agreements in the consolidated statement of financial condition at December 31,
1997 aggregated $315,000. The estimated fair value of these instruments
aggregated $595,000 at December 31, 1997. The estimated fair value represents
the approximate amount the Company would have received upon termination of the
agreements at December 31, 1997, considering the then current levels of interest
rates. The amortization of premium paid for the agreements, net of contractual
amounts received, increased net interest income by $21,000 for the period from
October 1, 1997 through December 31, 1997.
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 and simultaneously sold an interest rate cap on the
same notional amount. These transactions were structured to reprice on the same
dates and mature on the same dates as a $105,000,000 reverse repurchase
agreement that matured on March 15, 1996. Interest expense on borrowed funds
was increased by $49,000 during the year ended December 31, 1996 and decreased
by $312,000 during the year ended December 31, 1995 as a result of these
agreements.
59
<PAGE> 44
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 required the Company to pay a fixed rate of interest equal to 6.632%
and receive the three month LIBOR. The agreement matured on April 21, 1997.
Interest expense on borrowed funds was increased $176,000, $477,000 and $168,000
during the years ended December 31, 1997, 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"), the Association, for Federal income tax purposes, was permitted to
establish tax reserves for bad debts and to make annual additions thereto which
could be deducted in arriving at its taxable income. 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
regulations. Under the 1996 Act, the Association is permitted to deduct bad
debts only as they occur and is required to recapture over a six-year period,
beginning with the Association's taxable year beginning January 1, 1996, the
excess, if any, of the balance of its bad debt reserves 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. At December
31, 1997 and 1996, the Association had no such liability outstanding. 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, so long as the Association
continues to satisfy certain New York State and New York City definitional
tests.
Retained earnings at December 31, 1997 and 1996 include approximately
$99,000,000 and $62,000,000, respectively, for which no Federal income tax
liability has been recognized. This amount represents the balance of the bad
debt 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.
Income tax expense for the years ended December 31, 1997, 1996 and 1995 is
summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
(In Thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $26,244 $10,876 $21,155
State and local 5,903 3,792 7,049
- --------------------------------------------------------------------------------
32,147 14,668 28,204
- --------------------------------------------------------------------------------
Deferred
Federal 15,197 11,908 5,311
State and local 2,284 4,099 2,228
- --------------------------------------------------------------------------------
17,481 16,007 7,539
- --------------------------------------------------------------------------------
Total income tax expense $49,628 $30,675 $35,743
================================================================================
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, deferred tax expense
resulted primarily from the deferral of losses, for tax purposes only, on the
sale of securities.
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
60
<PAGE> 45
The total income tax expense differed from the amounts computed by applying the
Federal income tax rate, for the years ended December 31, 1997, 1996 and 1995,
as a result of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
(In Thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected income tax expense
at statutory Federal rate $ 41,332 $ 23,635 $ 28,407
State and local taxes,
net of Federal tax benefit 5,321 5,129 6,030
Amortization of goodwill 3,737 2,797 2,580
Non-deductible expense of ESOP 2,795 1,250 707
Tax exempt income (2,099) (1,153) (1,743)
Other, net (1,458) (983) (238)
- --------------------------------------------------------------------------------
Total income tax expense $ 49,628 $ 30,675 $ 35,743
================================================================================
</TABLE>
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 tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
At December 31,
-----------------------
(In Thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 47,846 $ --
Allowances and tax reserves 28,813 6,071
Mortgage loans -- 1,673
Deferred losses on securities sold 10,918 15,469
Compensation and benefits 11,971 5,926
Tax credits 3,129 1,625
Other 3,149 36
- --------------------------------------------------------------------------------
Total gross deferred tax assets 105,826 30,800
Valuation allowance (11,606) (1,819)
- --------------------------------------------------------------------------------
Deferred tax assets 94,220 28,981
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Book premiums in excess of tax (8,657) (5,005)
Unrealized gains on securities available-for-sale (5,941) (115)
Mortgage loans (5,517) --
Premises and equipment (4,174) (2,921)
Other (32) (1,421)
- --------------------------------------------------------------------------------
Total gross deferred tax liabilities (24,321) (9,462)
- --------------------------------------------------------------------------------
Net deferred tax assets $ 69,899 $ 19,519
================================================================================
</TABLE>
The valuation allowance for deferred tax assets, of $11.6 million at December
31, 1997, relates primarily to the portion of the tax reserves which may not be
realized for New York State and New York City tax purposes, as they do not
provide for net operating loss carryforwards or carrybacks. At December 31,
1997, the Company had alternative minimum tax credit carryforwards, for Federal
tax purposes, of approximately $3.1 million. Federal income tax net operating
loss carryforwards will expire as follows:
<TABLE>
<CAPTION>
Year Amount
----------------------------------
(In Thousands)
<S> <C>
2009 $ 1,662
2010 11,715
2011 1,055
2012 122,272
----------------------------------
$136,704
==================================
</TABLE>
61
<PAGE> 46
- --------------------------------------------------------------------------------
14
Earnings Per Share
Basic EPS is computed by dividing net income less preferred dividends by the
weighted-average common shares outstanding during the year. The weighted-average
common shares outstanding includes the average number of shares of common stock
outstanding adjusted for the weighted average number of unallocated shares held
by the ESOP and the Recognition and Retention Plans ("RRPs").
Diluted EPS is computed by dividing net income less preferred dividends by the
weighted-average common shares and common equivalent shares outstanding during
the year. For the diluted EPS calculation, the weighted average common shares
and common equivalent shares outstanding include the average number of shares of
common stock outstanding adjusted for the weighted average number of unallocated
shares held by the ESOP and the RRPs and the dilutive effect of unexercised
stock options using the treasury stock method. When applying the treasury stock
method, the Company's average stock price is utilized, and the Company adds to
the proceeds, the tax benefit that would have been credited to additional
paid-in capital assuming exercise of non-qualified stock options.
The following table is a reconciliation of basic and diluted EPS as required
under SFAS No. 128:
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------------------------
(In Thousands, Average Per-share Average Per-share Average Per-share
Except Share Data) Income Shares Amount Income Shares Amount Income Shares Amount
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income $68,464 $36,853 $45,421
Less: preferred
stock dividends 1,500 -- --
------- ------- -------
Basic EPS:
Income available
to common
stockholders 66,964 20,552,574 $3.26 36,853 19,683,273 $1.87 45,421 21,017,742 $2.16
===== ===== =====
Effect of dilutive
securities:
Options 1,441,809(1) 861,932(2) 661,130(3)
--------- ------- -------
Diluted EPS:
Income available
to common
stockholders
plus assumed
conversions $66,964 21,994,383 $3.04 $36,853 20,545,205 $1.79 $45,421 21,678,872 $2.10
======= ========== ===== ======= ========== ===== ======= ========== =====
</TABLE>
(1) Options to purchase 4,000 shares of common stock at $56.63 per share and
258,000 shares of common stock at $58.13 were outstanding as of December
31, 1997 but were not included in the computation of diluted EPS because
the options' exercise prices were greater than the average market price of
the common shares.
(2) The dilutive potential common shares of 1,112,349 in the third quarter of
1996 were not included in the computation of diluted EPS due to the third
quarter net operating loss due to the SAIF assessment.
(3) Options to purchase 123,468 shares of common stock at $22.44 per share
were outstanding as of December 31, 1995 but were not included in the
computation of diluted EPS because the options' exercise price was greater
than the average market price of the common shares.
- --------------------------------------------------------------------------------
15
Commitments and Contingencies
Lease Commitments
At December 31, 1997, the Company was obligated under several non-cancelable
operating leases on buildings and land used for office space and banking
purposes through 2043. 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 $4,300,000, $3,108,000 and $2,677,000 for the years ended December
31, 1997, 1996 and 1995, respectively.
The minimum rental payments under the terms of the non-cancelable operating
leases as of December 31, 1997, are summarized below:
<TABLE>
<CAPTION>
Years Ending
December 31, Amount
---------------------------------------
(In Thousands)
<S> <C>
1998 $5,670
1999 5,413
2000 5,320
2001 5,345
2002 4,970
Thereafter 53,309
---------------------------------------
$80,027
=======================================
</TABLE>
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
62
<PAGE> 47
Loan Commitments
The Company had outstanding commitments to originate and/or purchase loans as
follows:
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------
1997 1996
---------------------------------------------
Fixed Variable Fixed Variable
(In Thousands) Rate Rate Rate Rate
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage loans $77,589 $173,306 $45,868 $56,115
Home equity loans 495 270 665 998
Consumer and other loans -- 340 -- 340
- ------------------------------------------------------------------------------
$78,084 $173,916 $46,533 $57,453
==============================================================================
</TABLE>
Commitments outstanding in the above table to purchase loans as of December 31,
1997 and 1996 totaled $30,536,000 and $18,600,000, respectively. At December 31,
1997, commitments to originate residential mortgage loans and commercial
mortgage loans at fixed rates had stated rates ranging from 6.50% to 8.50% and
7.88% to 9.38%, respectively. In addition, the Company had outstanding
commitments to purchase $116,359,000 of mortgage-backed securities at December
31, 1997. There were no such commitments to purchase securities at December 31,
1996.
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.
Assets Sold with Recourse
The Company is obligated under various recourse provisions associated with
certain first mortgage loans sold in past years. The principal balance of loans
sold with recourse amounted to $24,714,000 and $33,084,000 at December 31, 1997
and 1996, respectively.
As a result of The Greater Acquisition, the Company acquired two collateralized
repurchase obligations with the Municipal Investment Trust Fund. Originally The
Greater sold certain long-term fixed-rate municipal revenue bonds and FHA
project loans to investment trust funds for proceeds that approximated par
value. The trust funds have put options that require the Company to repurchase
the securities or loans for specified amounts prior to maturity under certain
specified circumstances, as defined in the agreements. As of December 31, 1997
the outstanding option balance on the two agreements totaled $60,096,000. In
addition, various securities have been pledged as collateral, as required under
the terms of these agreements.
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.
- --------------------------------------------------------------------------------
16
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, 1997 and 1996, the Plan held 60,000 and 100,000 shares,
respectively, of the Company's common stock. As of December 31, 1997, and 1996,
the Company's common stock was valued at a market price of $55.75 and $36.88 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 Greater Acquisition, the Pension Plan for employees of The
Greater will be merged into the Plan effective the first quarter of 1998. As a
result of the merger of the plans, additional participants will become enrolled
in the Plan and the assets of The Greater's plan of $48,620,000 will be
transferred to the Plan and are included in the reconciliation of the status of
the Plan set forth below.
63
<PAGE> 48
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,
-----------------------------------------------------
1997 1996
-----------------------------------------------------
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 $45,687 $ 2,955 $18,348 $ 2,524
Non-vested 694 155 615 64
- -----------------------------------------------------------------------------------------------------------
46,381 3,110 18,963 2,588
Effect of projected future compensation 3,230 2,499 2,591 2,431
- -----------------------------------------------------------------------------------------------------------
Projected benefit obligation for service
rendered to date 49,611 5,609 21,554 5,019
Estimated plan assets, at fair value 78,221 -- 25,606 --
- -----------------------------------------------------------------------------------------------------------
Excess (deficiency) of plan assets over (under)
projected benefit obligation 28,610 (5,609) 4,052 (5,019)
Unrecognized net (gain) loss from past experience
different from that assumed and effects
of changes in assumptions (3,276) 41 (438) (103)
Prior service cost not yet recognized
in periodic pension cost (465) 972 (512) 1,031
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 (659) (80) (763) 18
Additional minimum liability -- (144) -- (179)
- -----------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost $24,210 $(4,820) $ 2,339 $(4,252)
===========================================================================================================
</TABLE>
The components of net pension expense are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------
1997 1996 1995
--------------------------------------------------------------------------------
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) $ 625 $ 248 $ 618 $ 218 $ 447 $ 214
Interest cost on projected
benefit obligation 1,613 306 1,512 256 1,339 229
Expected return on plan assets (2,008) -- (1,797) -- (1,512) --
Net amortization and deferral (150) 142 (51) 147 (150) 133
- -------------------------------------------------------------------------------------------------------------------------
Net pension expense $ 80 $ 696 $ 282 $ 621 $ 124 $ 576
=========================================================================================================================
Assumptions utilized in the
actuarial valuations are as follows:
Discount rate (pre-tax for
qualified plan; after-tax for
supplemental plan) 7.0% 6.0% 7.5% 6.0% 7.0% 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%
Assumptions utilized in The Greater
actuarial valuations as of
September 30, 1997 are as follows:
Discount rate (pre-tax for
qualified plan) 7.5% -- -- -- -- --
Rate of increase in
compensation levels 4.0% -- -- -- -- --
</TABLE>
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
64
<PAGE> 49
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, 1997. Matching contributions, if any, will be made at the discretion of the
Association. No such contributions were made for 1997, 1996 and 1995.
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, 1997 and 1996, the fund held 272,019 and
250,767 shares, respectively, of the Company's common stock valued at $55.75 and
$36.88, 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 of the Company 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, 1997 and 1996, a
total of $358,000 and $187,000 respectively, in dividends were paid on allocated
shares, which increased total shares allocated in those years, and $1,121,000
and $961,000 respectively, in dividends were paid on unallocated shares which
reduced the Association's contribution to the ESOP. At December 31, 1997 and
1996, the loan from the Company had an outstanding balance of $23,898,000 and
$26,586,000, 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, 1997, 1996 and 1995, 240,086 shares, 229,250
shares and 221,728 shares, respectively, were allocated to participants. As of
December 31, 1997, 1996 and 1995, 1,719,026 shares, 1,959,112 shares and
2,188,362 shares, respectively, remain unallocated.
In accordance with SOP 93-6, for the years ended December 31, 1997, 1996 and
1995, the Company recorded compensation expense of $10,986,000, $6,437,000 and
$4,095,000, 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, 1997, 1996 and 1995, the
average quoted price of a share of the Company's common stock was $45.76, $28.08
and $18.47, respectively.
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. Pursuant to The Greater Acquisition, the Company also provides
medical and dental coverage to retirees of The Greater. Postretirement benefit
expense recorded for the years ended December 31, 1997, 1996 and 1995 was
$313,000, $313,000 and $188,000, respectively.
The following table sets forth the accumulated postretirement benefit obligation
("APBO"):
<TABLE>
<CAPTION>
At December 31,
--------------------------------
(In Thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Retirees $ 5,559 $ 289 $ (92)
Fully eligible active participants 1,828 754 693
Other active participants 2,267 1,052 1,080
- --------------------------------------------------------------------------------
Total $ 9,654 $ 2,095 $ 1,681
================================================================================
</TABLE>
The following is a reconciliation between the APBO and accrued postretirement
benefit cost:
<TABLE>
<CAPTION>
At December 31,
--------------------------------
(In Thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation $ 9,654 $ 2,095 $ 1,681
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumptions (2,159) (391) (252)
Unrecognized prior service cost (62) (69) (76)
- --------------------------------------------------------------------------------
Accrued postretirement benefit cost $ 7,433 $ 1,635 $ 1,353
================================================================================
</TABLE>
65
<PAGE> 50
For the Company's calculations, the assumed medical cost trend rates used in
computing the APBO was 11% in 1997 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 increase the
accumulated postretirement benefit obligation as of December 31, 1997 by
$467,000 and increase the aggregate of service and interest cost components of
the net periodic postretirement benefit cost for 1997 by $59,000.
For The Greater's calculations, the assumed medical cost trend rates used in
computing the APBO was 13% in 1997 and was assumed to decrease gradually to 6%
in 2007 and to remain at that level thereafter. Increasing the assumed medical
care cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of September 30, 1997 by
$7,000.
The weighted average discount rate used in determining the Company's accumulated
postretirement benefit obligation was 7.00%, 7.50% and 7.00% as of December 31,
1997, 1996 and 1995, respectively. The weighted average discount rate used in
determining The Greater's accumulated postretirement benefit obligation was
7.50% as of September 30, 1997.
- --------------------------------------------------------------------------------
17
Stock Option 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 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 of ownership. In 1995,
pursuant to the Fidelity Merger Agreement, 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"). In 1997, pursuant to The Greater Acquisition, certain options were
granted to former officers and directors of The Greater.
Stock Option Plans For Employees
Pursuant to the terms of the 1993 and 1996 Employee Option Plans, the number of
shares reserved for issuance were 2,068,058 and 950,000, respectively. Options
under these plans are either non-statutory stock options or incentive stock
options. Under both plans, the exercise price of each option granted was equal
to the market price of the Company's common 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.
Activity in the Company's 1993 and 1996 Employee Option Plans is summarized as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------
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 year: 2,250,274 $15.03 2,064,774 $13.11 1,974,996 $12.51
Granted 258,000 58.13 195,500 35.12 158,786 20.41
Canceled -- -- -- -- (64,936) 12.50
Exercised (180,302) 12.50 (10,000) 12.50 (4,072) 12.50
--------- --------- ---------
Outstanding at end of year 2,327,972 20.00 2,250,274 15.03 2,064,774 13.11
========= ========= =========
Options exercisable at end of year 743,404 430,604 217,302
</TABLE>
Options to purchase 497,748 shares, 755,748 shares and 1,248 shares were
available for future grants under the Employee Option Plans at December 31,
1997, 1996 and 1995, respectively.
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
66
<PAGE> 51
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 are 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.
Activity in the Company's 1993 and 1996 Directors' Option Plans is summarized as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1997 1996 1995
---------------------------------------------------------
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 year: 574,552 $13.06 554,552 $12.59 534,198 $12.50
Granted 20,000 40.73 20,000 26.18 20,354 14.86
Exercised (78,314) 12.85 -- -- -- --
------- ------- -------
Outstanding at end of year 516,238 14.16 574,552 13.06 554,552 12.59
======= ======= =======
Options exercisable at end of year 509,453 408,354 178,066
</TABLE>
Options to purchase 80,000 shares, 100,000 shares and 20,354 shares were
available for future grants under the Directors' Option Plans at December 31,
1997, 1996 and 1995, respectively.
Other Stock Option Grants
Pursuant to the Fidelity Merger Agreement, 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 represented
the conversion of Fidelity options previously granted, are non-qualified stock
options and have a weighted average exercise price of $8.15 per share. The
Company also granted to Fidelity's former Board of Directors, excluding former
employee directors, options, pursuant to the Fidelity Merger Agreement 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.
Pursuant to The Greater Acquisition, the Company, upon consummation of the
acquisition, granted certain executive officers of The Greater, options to
purchase 241,840 shares of the Company's common stock. All options granted were
non-qualified stock options and represented the conversion of The Greater
options previously granted, having a weighted average exercise price of $14.93
per share. An additional 32,000 options were granted to The Greater's former
Board of Directors at an exercise price of $50.31 per share. The maximum term of
the options granted is ten years and the options were immediately exercisable at
the grant date.
67
<PAGE> 52
Activity in the Company's Other Stock Option Grants is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1997 1996 1995
--------------------------------------------------------
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 year: 250,036 $9.09 312,036 $8.81 -- $ --
Granted 273,840 19.07 -- -- 316,036 8.88
Exercised (73,582) 8.64 (62,000) 7.69 (4,000) 13.93
------- ------- -------
Outstanding at end of year 450,294 15.23 250,036 9.09 312,036 8.81
======= ======= =======
Options exercisable at end of year 450,294 250,036 312,036
</TABLE>
The following table summarizes information about the stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ --------------------------------
Number Weighted Weighted Number Weighted
Range Of of Options Average Remaining Average of Options Average
Exercise Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
- -------------------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.06 to $11.50 242,454 8.2 years $ 7.35 242,454 $ 7.35
12.50 to 22.44 2,528,550 6.3 years 13.52 1,390,697 13.52
26.13 to 36.00 213,500 8.9 years 34.36 18,000 26.17
36.75 to 58.13 310,000 9.9 years 56.20 52,000 46.63
--------- ---------
3.06 to 58.13 3,294,504 6.9 years 18.43 1,703,151 13.79
========= =========
</TABLE>
Pro Forma Net Income and Earnings Per Share--SFAS No. 123
The Company applies APB No. 25 and related interpretations in accounting for its
stock option plans. Accordingly, no compensation cost has been recognized for
its fixed stock option plans. Had compensation cost for these stock-based
compensation plans 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:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
(In Thousands, Except Per Share Data) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $68,464 $36,853 $45,421
Pro forma $62,395 $36,605 $44,076
Basic earnings per common share:
As reported $ 3.26 $ 1.87 $ 2.16
Pro forma $ 2.96 $ 1.86 $ 2.10
Diluted earnings per common share:
As reported $ 3.04 $ 1.79 $ 2.10
Pro forma $ 2.77 $ 1.78 $ 2.03
</TABLE>
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995, respectively:
- -- Dividend yield of 1.25% for all three years.
- -- Expected stock price volatility of 18.80%, 17.65% and 16.26%.
- -- Risk-free interest rates based upon equivalent-term U.S. Treasury rates of
5.98%, 5.59% and 6.54%.
- -- Expected option lives of 4.97 years, 5.91 years and 4.68 years.
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
68
<PAGE> 53
The following table summarizes the weighted average fair value of the stock
options granted:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------
Weighted Weighted Weighted
Options Average Options Average Options Average
Granted Fair Value Granted Fair Value Granted Fair Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Employees 258,000 195,500 158,786
Outside directors 20,000 20,000 20,354
Other 273,840 -- 316,036
------- ------- -------
551,840 $26.96 215,500 $11.30 495,176 $7.35
======= ======= =======
</TABLE>
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
Black-Scholes option pricing model also contains certain inherent limitations
when applied to options which are not immediately exercisable and are not traded
on public markets.
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 to the RRPs to enable the trusts to acquire 1,322,500 shares
of common stock of the Company 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 $14.44 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 for Outside Directors so that no future awards would
be made and the RRP Trustee sold, in the open market, the remaining 10,176 of
unallocated shares in such plan. During the years ended December 31,
1997 and 1996, no shares were forfeited and a total of 25,946 shares were
forfeited during the years ended December 31, 1995 and 1994 under the RRP for
Officers and Employees. After the close of business on September 30, 1997,
15,000 additional shares were awarded under the terms of the RRPs for Officers
and Employees. As of December 31, 1997, 10,946 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 vested in three equal annual installments.
For the years ended December 31, 1997, 1996 and 1995, the RRP distributions to
outside directors totaled 79,712 shares, 105,152 shares and 89,026 shares,
respectively. Initial awards to executive officers vest in five equal annual
installments commencing January 1995. Distributions to executive officers
totaled 123,894 shares for each year during the years ended December 31, 1997
and 1996, and 123,886 shares during the year ended December 31, 1995. Initial
awards to other officers and employees vest in three equal annual installments
commencing January 1997. During the year ended December 31, 1997, 129,834 shares
were distributed to other officers. 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, 1997, 1996 and 1995, the Company recorded $2,951,000,
$4,237,000 and $4,251,000, respectively, of compensation expense relating to the
RRPs.
- --------------------------------------------------------------------------------
18
Regulatory Matters
Federal law requires that savings associations, such as the Association,
maintain minimum capital requirements. These capital standards are required to
be no less stringent than standards applicable to national banks. At December
31, 1997, the Association was in compliance with all regulatory capital
requirements.
69
<PAGE> 54
The following table sets forth the regulatory capital calculations for the
Association:
<TABLE>
<CAPTION>
At December 31, 1997
-----------------------------------------------------
Capital Actual Excess
(Dollars in Thousands) Requirement % Capital % Capital %
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tangible $152,775 1.5% $550,780 5.41% $398,005 3.91%
Leverage 305,549 3.0 550,780 5.41 245,231 2.41
Risk-based 313,486 8.0 590,819 15.08 277,333 7.08
<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
</TABLE>
At December 31, 1997 and 1996, the Association's Tier 1 risked-based capital
ratios were 14.06% and 15.86%, 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, 1997 and 1996, the Association was
a "well capitalized" institution.
- --------------------------------------------------------------------------------
19
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.
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
70
<PAGE> 55
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,
1997 and 1996:
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------
1997 1996
-------------------------------------------------
Carrying Estimated Carrying Estimated
(In Thousands) Amount Fair Value Amount Fair Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
On Balance Sheet:
Financial assets:
Federal funds sold and
repurchase agreements $ 110,550 $ 110,550 $ 56,000 $ 56,000
Securities available-for-sale 2,860,256 2,860,256 2,296,662 2,296,662
Securities held-to-maturity 2,610,449 2,624,835 1,961,015 1,946,345
Loans receivable, net 4,304,967 4,385,106 2,637,327 2,678,789
Financial Liabilities:
Deposits 6,220,918 6,234,821 4,513,093 4,510,740
Borrowed funds 3,272,781 3,259,701 2,111,514 2,113,384
Off Balance Sheet:
Outstanding commitments 368,359 368,359 103,986 103,986
Interest rate swaps (a) -- -- -- 252
Interest rate caps and floors (a) 315 595 -- --
</TABLE>
(a) See Note 12
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.
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 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 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.
71
<PAGE> 56
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/Floors and Interest Rate Swaps
Fair values for interest rate caps/floors and interest rate swaps are based on
securities dealers' estimated market values.
- --------------------------------------------------------------------------------
20
Condensed Parent Company Only Financial Statements
The following condensed statements of financial condition as of December 31,
1997 and 1996 and condensed statements of operations and cash flows for the
years ended December 31, 1997, 1996 and 1995, for the Company (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
<TABLE>
<CAPTION>
At December 31,
---------------------
(In Thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash $ 5 $ 78
Federal funds sold and repurchase agreements 1,550 --
Mortgage-backed securities available-for-sale 19,334 23,590
Other securities available-for-sale 6,525 7,148
ESOP loan receivable 23,898 26,586
Accrued interest receivable 93 116
Dividends receivable -- 25,000
Other assets 1,616 --
Investment in the Association 863,599 507,114
- --------------------------------------------------------------------------------
Total assets $916,620 $589,632
================================================================================
Liabilities and stockholders' equity:
Reverse repurchase agreements $ 12,765 $ --
Other liabilities 958 299
Dividends payable 2,000 --
Amounts due the Association 508 429
Deferred tax liability 965 75
Stockholders' equity 899,424 588,829
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $916,620 $589,632
================================================================================
</TABLE>
Condensed Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
(In Thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Mortgage-backed and other securities $ 2,009 $ 1,621 $ 1,997
ESOP loan receivable 1,610 1,761 1,864
- -----------------------------------------------------------------------------------------
Total interest income 3,619 3,382 3,861
Interest expense on borrowed funds 108 318 228
- -----------------------------------------------------------------------------------------
Net interest income 3,511 3,064 3,633
- -----------------------------------------------------------------------------------------
Cash dividends from the Association 45,562 49,362 4,520
- -----------------------------------------------------------------------------------------
Non-interest expense:
Compensation and benefits 1,311 1,159 1,054
Other 899 749 846
- -----------------------------------------------------------------------------------------
Total non-interest expense 2,210 1,908 1,900
- -----------------------------------------------------------------------------------------
Income before income taxes and equity in undistributed
(overdistributed) earnings of the Association 46,863 50,518 6,253
Income tax expense 644 583 835
- -----------------------------------------------------------------------------------------
Income before equity in undistributed (overdistributed)
earnings of the Association 46,219 49,935 5,418
Equity in undistributed (overdistributed) earnings
of the Association (1) 22,245 (13,082) 40,003
- -----------------------------------------------------------------------------------------
Net income $ 68,464 $ 36,853 $ 45,421
=========================================================================================
</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.
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
72
<PAGE> 57
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
(In Thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 68,464 $ 36,853 $ 45,421
Adjustments to reconcile net income to cash
provided by operating activities:
Equity in (undistributed) overdistributed
earnings of the Association (22,245) 13,082 (40,003)
Decrease in accrued interest receivable 23 20 19
Accretion of discount on other securities (12) (12) (12)
Increase (decrease) in other assets, other liabilities
and amounts due the Association 3,264 (1,356) (1,141)
- ------------------------------------------------------------------------------------------------
Net cash provided by operating activities 49,494 48,587 4,284
- ------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Increase in repurchase agreements (1,550) -- --
Purchases of other securities available-for-sale (294) (6,359) --
Principal payments on securities available-for-sale 4,689 4,325 2,849
Redemption of acquiree stock 4,560 -- 4,612
Principal payments on ESOP loan receivable 2,688 2,366 2,120
- ------------------------------------------------------------------------------------------------
Net cash provided by investing activities 10,093 332 9,581
- ------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase (decrease) in reverse repurchase agreements 12,765 (8,329) 8,329
Repurchase of Company common stock (61,718) (31,672) (26,592)
Cash received for options exercised net of loss
on issuance of treasury stock 3,370 478 107
Cash dividends paid to stockholders (14,077) (9,362) (4,555)
- ------------------------------------------------------------------------------------------------
Net cash used in financing activities (59,660) (48,885) (22,711)
- ------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (73) 34 (8,846)
Cash and cash equivalents at the beginning of the year 78 44 8,890
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year $ 5 $ 78 $ 44
================================================================================================
</TABLE>
73
<PAGE> 58
quarterly results of operations (unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
-----------------------------------------------
First Second Third Fourth
(In Thousands, Except Per Share Data) Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 129,073 $ 135,412 $ 136,975 $ 177,941
Interest expense 79,617 85,967 86,883 111,883
- ---------------------------------------------------------------------------------------------------
Net interest income 49,456 49,445 50,092 66,058
Provision for loan losses 500 1,414 895 252
- ---------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 48,956 48,031 49,197 65,806
Non-interest income 3,471 4,661 6,729 7,402
- ---------------------------------------------------------------------------------------------------
Total income 52,427 52,692 55,926 73,208
- ---------------------------------------------------------------------------------------------------
General and administrative expense 23,759 24,126 24,091 32,099
Real estate operations, net 112 79 85 187
Provision for (recovery of) real estate losses 64 227 96 (28)
Amortization of goodwill 2,110 2,110 2,110 4,934
- ---------------------------------------------------------------------------------------------------
Income before income taxes 26,382 26,150 29,544 36,016
Income tax expense 10,948 10,943 12,652 15,085
- ---------------------------------------------------------------------------------------------------
Net income $ 15,434 $ 15,207 $ 16,892 $ 20,931
===================================================================================================
Basic earnings per common share $ 0.79 $ 0.79 $ 0.89 $ 0.79
Diluted earnings per common share 0.74 0.74 0.83 0.74
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
-----------------------------------------------
First Second Third Fourth
(In Thousands, Except Per Share Data) 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 goodwill 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
===================================================================================================
Basic earnings (loss) per common share $ 0.73 $ 0.60 $ (0.17) $ 0.70
Diluted earnings (loss) per common share 0.69 0.57 (0.17) 0.65
Diluted earnings per common share, excluding
SAIF recapitalization assessment, net of tax 0.69 0.57 0.66 0.65
</TABLE>
Per share amounts have been restated as a result of the implementation of SFAS
No. 128.
ASTORIA FINANCIAL CORPORATION 1997 Annual Report
74
<PAGE> 59
market for common stock
Astoria Financial Corporation common stock trades on the Nasdaq National Market
tier of the Nasdaq Stock Market under the symbol "ASFC." The table below shows
the reported high and low sale price of the common stock during the periods
indicated in 1997 and 1996, as adjusted for the two-for-one stock split on June
3, 1996.
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------------
High Low High Low
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $43 1/8 $36 $25 15/16 $22 5/16
Second Quarter 47 1/2 34 3/4 28 1/8 23 5/16
Third Quarter 50 5/16 45 3/8 29 1/8 24 5/8
Fourth Quarter 58 1/8 50 3/4 38 29 3/8
</TABLE>
As of March 2, 1998, the Company had 2,758 shareholders of record. As of
December 31, 1997, there were 26,197,768 shares of common stock outstanding.
The following schedule summarizes the cash dividends paid per common share for
1996 and 1997:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
First Quarter $ 0.11 $ 0.10
Second Quarter 0.15 0.11
Third Quarter 0.15 0.11
Fourth Quarter 0.15 0.11
</TABLE>
On January 21, 1998, the Board of Directors declared a quarterly cash dividend
of $0.20 per common share, payable on March 2, 1998, to common stockholders of
record at the close of business on February 13, 1998. The Board of Directors
intends to review the payment of dividends quarterly and plans to continue to
maintain a regular quarterly dividend in the future, dependent upon the
Company's earnings, financial condition and other factors.
On April 17, 1996, the Board of Directors declared a two-for-one stock split in
the form of a 100% stock dividend and on June 3, 1996, stockholders received one
additional share of the Company's common stock for each share of common stock
owned as of May 15, 1996.
The Company is subject to the laws of the state of Delaware which generally
limit dividends to an amount equal to the excess of the net assets of the
Company (the amount by which total assets exceed total liabilities) over its
statutory capital, or if there is no such excess, to its net profits for the
current and/or immediately preceding fiscal year.
The payment of dividends by the Company could be dependent, in large part, upon
receipt of dividends from the Association. The Association is subject to certain
restrictions which may limit its ability to pay dividends to the Company. See
Note 2 to the Consolidated Financial Statements for an explanation of the
liquidation accounts and regulatory capital requirements on the Association's
ability to pay dividends. See Note 13 to the Consolidated Financial Statements
concerning the tax effect of paying a portion of the retained earnings for
dividends rather than absorbing tax bad debt losses.
75
<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
Subsidiaries of Astoria Federal Savings and Loan Association - The following
are the significant subsidiaries of Astoria Federal Savings and Loan
Association:
Name: Astoria Preferred Funding Corporation
Jurisdiction of incorporation: Delaware
Names under which it does business:
(a) Astoria Preferred Funding Corporation
The remaining subsidiaries, which are all direct or indirect 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 (v) Rule 1-02(v) of Regulation S-X as of December 31,
1997. 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, 1997.
<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, (No. 33-98532) on Form S-3 and
(No. 33-29901) on Form S-4 of Astoria Financial Corporation of our report
dated January 22, 1998, relating to the consolidated statements of financial
condition of Astoria Financial Corporation and subsidiary as of December 31,
1997 and 1996, 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, 1997, which report is incorporated by reference in
the December 31, 1997 Annual Report on Form 10-K of Astoria Financial
Corporation.
/s/ KPMG PEAT MARWICK LLP
New York, New York
March 25, 1998
<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, 1997
AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 31,780
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 110,550
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,860,256
<INVESTMENTS-CARRYING> 2,610,449
<INVESTMENTS-MARKET> 2,624,835
<LOANS> 4,345,006
<ALLOWANCE> 40,039
<TOTAL-ASSETS> 10,528,393
<DEPOSITS> 6,220,918
<SHORT-TERM> 632,765
<LIABILITIES-OTHER> 135,270
<LONG-TERM> 2,640,016
0
2,000
<COMMON> 265
<OTHER-SE> 897,159
<TOTAL-LIABILITIES-AND-EQUITY> 10,528,393
<INTEREST-LOAN> 261,221
<INTEREST-INVEST> 318,180
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 579,401
<INTEREST-DEPOSIT> 211,983
<INTEREST-EXPENSE> 152,367
<INTEREST-INCOME-NET> 215,051
<LOAN-LOSSES> 3,061
<SECURITIES-GAINS> 3,794
<EXPENSE-OTHER> 13,280
<INCOME-PRETAX> 118,092
<INCOME-PRE-EXTRAORDINARY> 68,464
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,464
<EPS-PRIMARY> 3.26<F1>
<EPS-DILUTED> 3.04
<YIELD-ACTUAL> 2.71
<LOANS-NON> 38,093
<LOANS-PAST> 4,728
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,520
<ALLOWANCE-OPEN> 14,089
<CHARGE-OFFS> 3,912
<RECOVERIES> 1,368
<ALLOWANCE-CLOSE> 40,039
<ALLOWANCE-DOMESTIC> 40,039
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> THE AMOUNT IS REPORTED AS EPS BASIC AND IS NOT FOR EPS PRIMARY.
</FN>
</TABLE>
