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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, 1998
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 17, 1999: Common stock par value $.01 per share,
$2,606,409,394. This figure is based on the closing price by the Nasdaq National
Market for a share of the registrant's common stock on March 17, 1999, which was
$50.06 as reported in the Wall Street Journal on March 18, 1999. The number of
shares of the registrant's Common Stock outstanding as of March 17, 1999 was
55,189,197 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement dated April 9, 1999 in connection
with the Annual Meeting of Stockholders to be held on May 19, 1999 and any
adjournment thereof and which is expected to be filed with the Securities and
Exchange Commission on or about April 9, 1999, are incorporated by reference
into Part III.
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ASTORIA FINANCIAL CORPORATION
1998 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PART I PAGE
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ITEM 1. BUSINESS
DESCRIPTION OF BUSINESS............................................................ 1
SUBSIDIARY ACTIVITIES.............................................................. 9
MARKET AREA AND COMPETITION........................................................ 10
REGULATION AND SUPERVISION......................................................... 11
STATISTICAL DATA:
SECURITIES PORTFOLIO............................................................... 20
LOAN PORTFOLIO..................................................................... 22
DELINQUENT LOANS AND CLASSIFIED ASSETS............................................. 25
DEPOSITS........................................................................... 26
BORROWINGS......................................................................... 28
ITEM 2. PROPERTIES.......................................................................... 28
ITEM 3. LEGAL PROCEEDINGS................................................................... 29
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ................................ 33
PART II
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ITEM 5. MARKET FOR ASTORIA FINANCIAL CORPORATION'S COMMON
STOCK AND RELATED STOCKHOLDER MATTERS.............................................. 33
ITEM 6. SELECTED FINANCIAL DATA............................................................. 35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................................ 37
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK ............................................................. 66
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................................... 66
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................................................ 66
PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ASTORIA
FINANCIAL CORPORATION.............................................................. 67
ITEM 11. EXECUTIVE COMPENSATION.............................................................. 67
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT..................................................................... 67
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................... 67
PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K........................................................................... 67
SIGNATURES ................................................................................... 69
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PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
This Annual Report on Form 10-K contains certain forward- looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, and may be identified by the use of such words as "believe," "expect,"
"anticipate," "should," "planned," "estimated" and "potential." Examples of
forward- looking statements include, but are not limited to, estimates with
respect to the financial condition, results of operations and business of
Astoria Financial Corporation (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, general economic
conditions, changes in interest rates, deposit flows, loan demand, real estate
values, and competition; changes in accounting principles, policies, or
guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory, and technological factors affecting the
Company's operations, pricing, products and services.
PART I
ITEM 1. BUSINESS
GENERAL
The Company is a Delaware corporation organized on June 14, 1993, and
is a unitary savings and loan association holding company for Astoria Federal
Savings and Loan Association (the "Association"). At December 31, 1998, the
Company had assets of $20.59 billion, deposits of $9.67 billion, and
stockholders' equity of $1.46 billion.
The primary business of the Company is the operation of its wholly
owned subsidiary, 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.
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 U.S.
Government and federal agency securities and in 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.
MERGERS AND ACQUISITIONS
The Company continues to consider mergers and acquisitions of other
financial institutions as an integral part of its strategic objective for
long-term growth. Since 1995, the Company has completed the acquisitions of
Fidelity New York, FSB ("Fidelity"), The Greater New York Savings Bank, FSB
("The Greater") and Long Island Bancorp, Inc. ("LIB"). Following the close of
business of September 30, 1998, LIB and its wholly-owned savings bank
subsidiary, The Long Island Savings Bank, FSB ("LISB") merged with and into the
Company and the Association, respectively, (the "LIB Acquisition"), which were
the surviving entities. LIB had $6.58 billion in total assets, $3.58 billion in
deposits and $581.0 million of stockholders' equity at September 30, 1998. The
LIB Acquisition was accounted for as a pooling-of-interests and accordingly, the
Company's financial information for all prior periods has been restated to
include LIB's results of operations. See Item 7, "Management's Discussion and
Analysis of Financial
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Condition and Results of Operations ("MD&A") and Note 2 of Notes to Consolidated
Financial Statements in Item 8, "Financial Statements and Supplementary Data,"
for further discussion of the LIB Acquisition.
These acquisitions have enabled the Company to expand its operations by
increasing deposits and loan originations and providing customers with a broader
array of financial products. Acquisition candidates have been selected based on,
among other factors, the extent to which the candidates could enhance the
Company's retail presence in new or existing markets. The acquisition of The
Greater, following the close of business on September 30, 1997, increased the
Company's banking offices and provided the Company a substantial market presence
in Brooklyn, New York. The acquisitions of Fidelity and LIB strengthened the
Company's deposit market share located in Queens, Nassau and Suffolk Counties.
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.
From December 31, 1994 to December 31, 1998, the Company's total net
loan portfolio increased from $3.21 billion, or 35.2% of total assets, to $8.95
billion, or 43.5% of total assets. The amount at December 31, 1998, includes
$212.9 million of real estate loans held-for-sale. 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, which were
accounted for as purchase transactions, 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 communities served, real estate agents, attorneys
and builders, or indirectly through brokers. The retail loan origination program
accounted for approximately $2.59 billion and $1.73 billion of originations
during 1998 and 1997, respectively. The broker loan program consists of
relationships with mortgage brokers and accounted for approximately $2.41
billion and $1.74 billion of originations during 1998 and 1997, respectively. In
1997, the Company expanded its relationships with mortgage brokers outside its
local area, through additional networks located in Connecticut, Delaware,
Maryland, Pennsylvania 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 in the New York metropolitan area. This program
accounted for approximately $187.5 million and $562.4 million of loan
originations during 1998 and 1997, respectively. There were no bulk loan
purchases in 1998 or 1997. See Loan Portfolio Composition table on page 22 and
Loan Maturity, Repricing and Activity tables on page 23 and 24.
At December 31, 1998, $221.3 million, or 2.6% 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
minimum underwriting guidelines.
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, although has originated only a limited number of, second
mortgage loans which are underwritten according to the same standards as first
mortgage loans.
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At December 31, 1998, $7.86 billion, or 87.4%, of the Company's total
loan portfolio consisted of one-to-four family residential loans, of which $5.45
billion, or 69.4%, were adjustable rate mortgage ("ARM") loans. The Company
currently offers ARM loans which are fixed for one, three, five, seven and ten
years and convert into one-year ARM loans at the end of the initial fixed
period. The one-year, three-year, five-year and seven-year ARM loans have terms
of up to 40 years, and the ten-year ARM loans have terms of up to 30 years.
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 have elevated 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 $1.09 billion, from $3.85 billion in 1997 to $4.94 billion in 1998.
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 of 75% loan-to-appraised value
ratio.
The Company originates most 30-year fixed-rate loans for immediate sale
to Fannie Mae ("FNMA"), Freddie Mac ("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.
Commercial Real Estate and Multi-Family Lending. As of December 31,
1998, the Company's total loan portfolio contained $454.0 million, or 5.1%, of
commercial real estate loans and $452.9 million, or 5.0%, of multi-family loans.
During 1998, the Company originated $251.5 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.
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.
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Commercial real estate loans typically are secured by properties such
as retail stores, office buildings and mixed use (more business than residential
units) properties. The single largest commercial real estate loan at December
31, 1998, had an outstanding principal balance of $14.1 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, 1998 had an outstanding balance of $6.2 million, was
current and was secured by an apartment building containing 1,592 residential
units and 22 retail outlets 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 provides 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, 1998, $229.4 million, or
2.6%, of the Company's total loan portfolio consisted of consumer loans which
were primarily home equity loans. 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's home equity lines of credit are originated on one-to-four
family owner-occupied residential properties. These loans are generally limited
to aggregate outstanding indebtedness secured by 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. Except for loans in excess of
$5.0 million, 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.
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.
ASSET QUALITY
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
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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. 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. Where the borrower has continued to make
monthly payments to the Company 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.
Total non-performing assets increased $5.1 million, to $120.4 million
at December 31, 1998, from $115.3 million at December 31, 1997. Non-performing
loans, a component of non-performing assets, increased by $21.2 million to
$111.1 million at December 31, 1998, from $89.9 million at December 31, 1997.
The percentage of non-performing loans to total loans increased from 1.12% in
1997 to 1.23% in 1998. Despite the increases in non-performing assets, the
Company's percentages of non-performing assets to total assets decreased from
0.70% in 1997 to 0.58% in 1998. The allowance for loan losses as a percentage of
total non-performing loans was 66.99% at December 31, 1998 compared to 82.23% at
December 31, 1997. The allowance for loan losses as a percentage of total
non-accrual loans was 70.00% at December 31, 1998, compared to 86.79% at
December 31, 1997. For a further discussion of the allowance for loan losses,
non-performing assets and loans, see Item 7, "MD&A."
Real Estate Owned - The net carrying value of the Company's REO totaled
$6.1 million at December 31, 1998. The REO portfolio consists of $5.7 million,
or 94%, of residential real estate and $0.4 million of non-residential
properties. The REO balance decreased $6.6 million, from $12.7 million at
December 31, 1997.
Investments in Real Estate - The net carrying value of the Company's
investments in real estate at December 31, 1998 totaled $3.3 million, which
consisted of three properties.
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. An asset
is considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or 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. Those assets
classified "substandard," "doubtful," or "loss" are considered adversely
classified. See page 25 for additional information on the Company's classified
assets.
The Company's total impaired loans at December 31, 1998, net of
allowance for loan losses of $3.3 million, was $23.6 million, of which $2.3
million are classified as non-performing and $21.3 million are current. The
Company's average recorded investment in impaired loans for the year ended
December 31,
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1998 was $25.1 million. Interest income recognized on impaired loans, which was
not materially different from cash-basis income, amounted to $2.3 million for
the year ended December 31, 1998. For further detail on the Company's impaired
loans, see Note 5 of Notes to Consolidated Financial Statements in Item 8,
"Financial Statements and Supplementary Data."
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, but is not limited to, a review of 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. Unallocated reserves are established for
loss exposure that may exist in the remainder of the loan portfolio but has not
yet been identified. In determining the adequacy of the unallocated reserves,
management considers changes in the size and composition of the loan portfolio,
historical loan loss experience, current and anticipated economic conditions,
and the Company's credit administration and asset management philosophies and
procedures. During the fourth quarter of 1998, subsequent to the consummation of
the LIB Acquisition, the Company recorded an additional $5.6 million of
provision for loan losses for unallocated reserves. This provision was recorded
to conform LIB's previous accounting practices and asset review methodologies to
those of the Company which included more conservative general valuation
percentages applied by the Company to its one-to-four family and consumer loan
portfolios. 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
conditions 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 a loan 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 real estate
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.
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"). 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; analyze all significant factors that affect the collectibility
of the portfolio in a reasonable manner; and establish acceptable allowance
evaluation processes that meet the objectives of the federal regulatory
agencies.
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
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not request the Company to increase its allowance for loan losses, thereby
negatively affecting the Company's financial condition and earnings.
INVESTMENT ACTIVITIES
GENERAL. The investment policy of the Company is designed primarily to
enable the Company to manage the interest rate sensitivity of its overall assets
and liabilities, to generate a favorable return without incurring undue interest
rate and credit risk, to complement the Company's lending activities and to
provide and maintain liquidity primarily through cash flow. In establishing its
investment strategies, the Company considers its business and growth plans, the
economic environment, its interest rate sensitivity "gap" position, the types of
securities to be held and other factors.
SECURITIES. The Company generally invests in certain securities
available-for-sale, securities held-to-maturity and money market instruments.
Such investments are made in conjunction with the Company's overall liquidity,
interest rate risk and credit risk management processes and complement the
Company's lending activities. In addition, as a member of the Federal Home Loan
Bank of New York ("FHLB-NY"), the Association is required to maintain a
specified investment in the capital stock of the FHLB-NY. (See "Regulation and
Supervision - Federal Home Loan Bank System.") 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.
For a further discussion of the Company's securities portfolios, see
Item 7, "MD&A" and Note 4 of Notes to Consolidated Financial Statements in Item
8, "Financial Statements and Supplementary Data."
FEDERAL FUNDS SOLD AND REPURCHASE AGREEMENTS. The Company invests in a
wide range of money market instruments, including overnight and term federal
funds and securities purchased under agreements to resell. Money market
instruments are used to invest the Company's available funds resulting from
deposit-taking operations and normal cash flow and to help satisfy both internal
liquidity needs and the Association's regulatory liquidity requirements. (See
"Regulation and Supervision - Liquidity.")
For a further discussion of the Company's federal funds sold and
repurchase agreements, see Note 1 and Note 3 of Notes to Consolidated Financial
Statements in Item 8, "Financial Statements and Supplementary Data."
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 risk
exposure. See Note 10 of Notes to Consolidated Financial Statements in Item 8,
"Financial Statements and Supplementary Data," for further discussion of such
derivative financial instruments.
SECURITIES COMPOSITION. At December 31, 1998, the Company had $1.21
billion, or 5.9% of total assets, in mortgage-backed securities, insured or
guaranteed by either the FNMA, FHLMC or GNMA. In
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addition, the Company had $7.48 billion in REMICs and CMOs, or 36.4% of total
assets, of which 86.6% had fixed rates. The Company's REMICs and CMOs had coupon
rates ranging from 4.38% to 10.25% and a weighted average yield of 6.37% at
December 31, 1998. Of the REMICs and CMOs portfolio, $5.71 billion, or 76.3%,
are insured or guaranteed, either directly or indirectly, by the FNMA, FHLMC or
GNMA, as issuer, or through mortgage-backed securities underlying the
obligations. Management believes these securities represent attractive and
limited risk alternatives to other investments due to the wide variety of
maturity and repayment options available. The remaining securities portfolio of
$1.61 billion, or 7.8% of total assets, consists of obligations of U.S.
Government and agencies, obligations of state and political subdivisions and
equity and corporate debt securities. Included in the total securities portfolio
are various callable securities, which generally possess higher yields than
those securities of similar contractual terms to maturity without callable
features. As of December 31, 1998, the amortized cost of such callable
securities totaled $1.33 billion. Securities called during the year ended
December 31, 1998 totaled $738.5 million. The Company's held-to-maturity
portfolio consists primarily of seasoned fixed-rate mortgage-backed securities
and U.S. Government and agency securities. At December 31, 1998, the Company's
total portfolio of securities available-for-sale and securities held-to-
maturity was $8.20 billion and $2.11 billion, respectively. See Securities
Portfolio tables on pages 20 and 21.
SOURCES OF FUNDS
GENERAL. The Company's primary source of funds is the cash flow
provided by its investing activities, including 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, including borrowings through the use of reverse repurchase
agreements and FHLB-NY advances.
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, money market accounts and certificates of deposit. Of the total
deposit balance, $1.37 billion, or 14.1%, represent Individual Retirement
Accounts ("IRAs").
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 1994 to the present was primarily due to
mergers and acquisitions. At December 31, 1998, the Company's deposits totaled
$9.67 billion. Acquisitions of Fidelity and The Greater during 1995 and 1997,
respectively, added $1.05 billion and $1.60 billion of deposits, respectively.
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 47.8% and 43.4% of total deposits at December
31, 1998 and 1997, respectively.
BORROWINGS. The Company 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 under agreements to repurchase. The Company also 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
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accordance with the policies of the FHLB-NY. As a result of the LIB Acquisition,
the Company assumed a funding note, a three year medium-term note and a five
year medium-term note. The outstanding balance of these notes was $520.8 million
at December 31, 1998.
In order to fund its asset growth during 1998, as well as being a part
of its interest rate risk management strategy, the Company increased its
borrowings by $4.25 billion, or 89.0%, to $9.02 billion at December 31, 1998
from $4.77 billion at December 31, 1997. The increase was primarily in the form
of callable reverse repurchase agreements. At December 31, 1998, the Company had
$8.63 billion of callable borrowings of which $2.07 billion were callable within
one year. These callable borrowings had contractual maturities of primarily
three to ten years. At December 31, 1998, 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. See Borrowings
table on page 28.
For a further discussion of the Company's borrowings, see Note 8 of
Notes to Consolidated Financial Statements in Item 8, "Financial Statements and
Supplementary Data."
SUBSIDIARY ACTIVITIES
At December 31, 1998, 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. During 1995, AF Agency, Inc. began selling Savings
Bank 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.
Astoria Federal Mortgage Corp. is an operating subsidiary through which
the Association engages in lending activities outside the State of New York.
Astoria Preferred Funding Corporation ("APFC") and Starline Development
Corp. ("Starline") are real estate investment trusts pursuant to the Internal
Revenue Code of 1986, as amended. The Association intends to merge Starline with
and into APFC. APFC may, among other things, be utilized by the Association to
raise capital in the future.
Suffco Development Corp. serves as document custodian to facilitate
operations with FNMA.
201 Old Country Road Inc. was formed as a special purpose subsidiary
which currently holds mortgage loans that serve as collateral for a funding
note.
Mortgage Headquarters, Inc., was formed primarily for the purpose of
serving as a holding company for lower tier subsidiary operations. It is,
however, also a partner in a joint venture called Entrust Mortgage Headquarters,
a licensed mortgage broker, which originates residential mortgage loans.
Dollar Service Corp., Fidata Service Corp., 3 Belmont Corporation and
Zythum Realty, Inc. may qualify for special tax treatment under Article 9A of
the New York State Tax Law and therefore, although inactive, will be retained by
the Association.
FNY Service Corp., a subsidiary also established pursuant to Article 9A
of the New York State Tax Law was sold on February 26, 1999.
Infoserve Corporation provides research information services for the
Association and other financial
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institutions. This research provided stems from services Infoserve Corporation
offered in the past for check clearing and processing as well as check and money
order issuances.
Longco Investors, Inc. is part of a joint venture which developed Avery
Village, an FHA subsidized senior citizen apartment complex. Longco Investors,
Inc. retains an interest in the cash flow from the project.
Longpond Investors, Inc. is part of a joint venture which developed The
Towers Office Building located in Great Neck, New York.
Longrich Investors, Inc., Oldfield Realty, Inc. and Syosset N.J. Realty
Inc. were all formed for the sole purpose of holding title to foreclosed
property. Currently, the combined net book value of these properties is $2.5
million.
1780 Ocean Avenue Corp. holds title to the Association's banking office
located at 1780 Ocean Avenue, Brooklyn, New York.
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. Four of these projects were sold in 1998. The
remaining project has a carrying value of $4.0 million.
S.H.I. Corp., Greater Port Regalle Corp. Greater Lake Pointe Corp.,
14th Street Real Property Holding Corp. and AF Cortlandt Corp. are all inactive
but have been retained by the Association due to their involvement in various
litigation matters. Once the litigation is resolved, the Association intends to
dissolve each subsidiary.
1401 Avenue M Associates Ltd. which holds title to the Association's
banking office located at 1401 Avenue M, Brooklyn, New York, is also involved in
litigation. Once the litigation is resolved, the subsidiary intends to transfer
title to the property to the Association and the Association intends to dissolve
the subsidiary.
The Association has forty additional subsidiaries, all of which are
inactive and which the Association intends to dissolve or are in the process of
being dissolved.
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 sources 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. The Association's loan originations are
within the New York City metropolitan area as well as in loan production offices
located in New Jersey, Connecticut, Delaware, Maryland, Virginia and
Pennsylvania.
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.
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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, 1998, $3.94 billion or 45.0% of the Company's total
mortgage loan portfolio was secured by properties located in 45 states other
than New York. The Company has a concentration of lending in Connecticut, New
Jersey and Maryland, each comprising 5.0% or more of the Company's total
mortgage 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.
PERSONNEL
As of December 31, 1998, the Association had 1,786 full-time employees
and 402 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 Company, as a unitary savings and loan holding company, is
regulated, examined and supervised by the OTS. 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") except for those deposits acquired from The Greater, which are insured
by the Bank Insurance Fund ("BIF"). The Association and Company must file
reports with the OTS concerning its activities and financial condition in
addition to obtaining regulatory approvals prior to entering into certain
transactions such as mergers with, or acquisitions of, other financial
institutions. There are periodic examinations by the OTS and the FDIC to test
the Association's compliance with various regulatory requirements. The OTS has
primary enforcement responsibility over federally chartered savings associations
and has substantial discretion to impose enforcement action on an institution
that fails to comply with its regulatory requirements, particularly with respect
to its capital requirements. In addition, the FDIC has the authority to
recommend to the Director of the OTS that enforcement action be taken with
respect to a particular federally chartered savings association and, if action
is not taken by the Director, the FDIC has authority to take such action under
certain circumstances.
This regulation and supervision establish a comprehensive framework of
activities in which an institution can engage and is intended primarily for the
protection of the insurance fund and depositors. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
regulation, whether by the OTS, FDIC or Congress, could have a material adverse
impact on the Company and 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.
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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 Association 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 Association may
invest in mortgage loans secured by residential and non-residential real estate,
commercial and consumer loans, certain types of debt securities and certain
other assets. The Association may also establish service corporations that may
engage in activities not otherwise permissible for the Association, including
certain real estate equity investments and securities and insurance brokerage
activities. 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 20% of an
association's assets on commercial loans, with the amount of commercial loans in
excess of 10% of assets being limited to small business 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. Effective April 1, 1999, the OTS and the federal banking regulators
have amended 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, 1998, the Association exceeded each of its capital
requirements. The Association's tangible, leverage and risk-based capital ratios
were 5.34%, 5.34% and 13.53%, respectively at December 31, 1998.
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA")
requires that the OTS and other federal banking agencies revise their 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 requirements on individual institutions. Based on the Association's IRR
profile and the level of interest rates at December 31, 1998, as well as the
Association's level of risk-based capital at December 31, 1998, management
believes that the Association would not be required to increase its capital as a
result of the rule.
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PROMPT CORRECTIVE REGULATORY ACTION. FDICIA established 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. 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, 1998, 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 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 condition and the risk posed to the deposit insurance
funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's assessment rate depends on the
capital category and supervisory category to which it is assigned. Under the
risk-based assessment system, there are nine assessment risk classifications
(i.E., Combinations of capital groups and supervisory subgroups) to which
different assessment rates are applied.
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
since 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") to recapitalize the now defunct
Federal Savings and Loan Insurance Corporation. The company's total expense in
1998 for the assessment for deposit insurance and the FICO payments was $5.9
Million.
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, 1998, the Association's largest aggregate
amount of loan(s) to one borrower totaled $18.7 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
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residential mortgages and related investments, including certain mortgage-backed
securities, credit card loans, student loans, and small business loans) on a
monthly basis in 9 out of every 12 months. As of December 31, 1998, the
Association maintained its portfolio assets in qualified thrift investments in
excess of 91% and had more than 65% of its portfolio assets in qualified thrift
investments for each of the 12 months ending December 31, 1998. 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 certain 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. Effective April 1, 1999, the OTS amended
its capital distribution regulations to reduce regulatory burdens on savings
associations. The prior regulations, which were effective throughout 1998
established three tiers of institutions, which were based primarily on an
institution's capital ratios. An institution that exceeded all fully phased-in
capital requirements before and after a proposed capital distribution ("Tier 1
Association") and had not been advised by the OTS that it was in need of more
than normal supervision, could, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of: (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year or (ii) 75% of its net income for the previous four quarters. Any
additional capital distributions would require prior regulatory approval. As of
December 31, 1998, the Association was a Tier 1 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
acquisitions of Fidelity and The Greater. For further discussion on the
liquidation accounts, see Note 9 of Notes to Consolidated Financial Statements
in Item 8, "Financial Statements and Supplementary Data."
Under the amended OTS regulations governing capital distributions, certain
savings associations will be permitted to pay capital distributions during a
calendar year that do not exceed the association's net income for the year plus
its retained net income for the prior two years, 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. These
new regulations are more restrictive to the Association than regulations being
replaced based upon the Association's historical dividend declaration
activities.
LIQUIDITY. The Association is required to maintain an average daily
balance of liquid assets (cash, certain time deposits, bankers' acceptances,
specified U.S. Government, state or federal agency obligations, shares of
certain mutual funds and certain corporate debt securities and commercial paper)
equal to a
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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.
The OTS' current minimum required liquidity is 4.0%. Monetary penalties may be
imposed for failure to meet liquidity requirements. The Association's liquidity
ratio at December 31, 1998 was 11.29%. For additional information on the
Association's regulatory liquid assets, see Item 7, "MD&A - Liquidity."
ASSESSMENTS. The OTS has adopted amendments to its regulations,
effective January 1, 1999, that are intended to assess savings associations on a
more equitable basis. The new regulations will base the assessment for an
individual savings association on three components: the size of the association,
on which the basic assessment would be based; the association's supervisory
condition, which would result in an additional assessment based on a percentage
of the basic assessment for any savings institution with a composite rating of
3, 4 or 5 in its most recent safety and soundness examination; and the
complexity of the association's operations, which would result in an additional
assessment based on a percentage of the basic assessment for any savings
association that managed over $1.00 billion in trust assets, serviced for others
loans aggregating more than $1.00 billion, or had certain off-balance sheet
assets aggregating more than $1.00 billion. In order to avoid a disproportionate
impact on the smaller savings institutions, which are those whose total assets
never exceeded $100.0 million, the new regulations provide that the portion of
the assessment based on assets size will be the lesser of the assessment under
the amended regulations or the regulations before the amendment. Management
believes that any change in its rate of OTS assessments under the amended
regulations will not be material to the Company's financial condition or results
of operations.
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 (the
"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 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.
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 the Company's 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
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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-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, 1998, of $210.3 million. For the years ended December 31, 1998,
1997 and 1996, dividends from the FHLB-NY to the Association amounted to $9.5
million, $5.7 million and $4.5 million, respectively.
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 between $4.9 million and $46.5 million
(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 $46.5 million. The first
$4.9 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. 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
16
<PAGE> 19
Association must notify the OTS at least 30 days before declaring any dividend
to the Company. The Association has given notice to, and received approval from
the OTS for each dividend declared in 1998 to the Company.
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 is subject to the periodic reporting, proxy solicitation,
tender offer, insider trading restrictions and other requirements under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
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.
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.
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.
TAX BAD DEBT RESERVES. Effective for 1996, federal tax legislation
modified the methods by which a thrift computes its bad debt deduction. As a
result, "large thrifts," including the association, are required to claim a
deduction equal to their actual loss experience, and the "reserve method" is no
longer available. Any cumulative reserve additions (i.E., Bad debt deductions)
in excess of actual loss experience for tax years 1988 through 1995 are subject
to recapture over a six year period. Generally, reserve balances as of December
31, 1987 will only be subject to recapture upon distribution of such reserves to
shareholders.
In New York State and New York City, legislation was enacted during
1996 and in early 1997, respectively, that allows thrift institutions to
continue to use the reserve method of tax accounting for bad debts and to
determine a deduction for bad debts in a manner similar to prior law. See the
discussion below under "State and Local Taxation."
17
<PAGE> 20
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," (i.e., Its reserve
as of december 1987), 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.
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. New York State imposes an annual franchise tax
on banking corporations, based on net income allocable to New York State, at a
rate of 9%. If, however, the application of an alternative minimum tax (based on
taxable assets allocated to New York, "alternative" net income, or a flat
minimum fee) results in a greater tax, an alternative minimum tax will be
imposed. In addition, New York State imposes a tax surcharge of 17% of the New
York State franchise tax allocable to business activities carried on in the
Metropolitan Commuter Transportation District. These taxes apply to the Company,
the Association and certain of the Association's subsidiaries. Certain
subsidiaries of a banking corporation may be subject to a general business
corporation tax in lieu of the tax on banking corporations. The rules regarding
the determination of income allocated to New York and alternative minimum taxes
differ for these subsidiaries.
New York State passed legislation that incorporated the former
provisions of Internal Revenue Code ("IRC") Section 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
18
<PAGE> 21
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 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 Item 8, "Financial Statements and Supplementary Data" and Item 7, "MD&A."
Information regarding distribution of assets, liabilities and
stockholders' equity; interest rates and interest differential appears under
Item 7, "MD&A." Page 48 presents the distribution of assets, liabilities and
stockholders' equity under the caption "Analysis of Net Interest Income," and
page 49 presents the interest differential under the caption "Rate/Volume
Analysis."
19
<PAGE> 22
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,
-----------------------------------------------------------------------------------
1998 1997 1996
------------------------ ------------------------ -------------------------
PERCENT PERCENT PERCENT
(DOLLARS IN THOUSANDS) AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
Mortgage-backed securities:
GNMA pass-through certificates . $ 166,516 2.03% $ 612,310 12.74% $ 292,751 6.98%
FHLMC pass-through certificates 342,722 4.18 755,402 15.71 915,812 21.83
FNMA pass-through certificates . 615,794 7.51 1,143,950 23.80 925,670 22.07
REMICs and CMOs:
Agency issuance .............. 4,920,500 60.04 1,216,283 25.30 1,184,010 28.24
Non-agency issuance .......... 1,508,302 18.40 781,446 16.26 499,239 11.90
Obligations of U.S. Government and
agencies ....................... 467,199 5.71 178,836 3.72 227,089 5.41
FNMA and FHLMC preferred stock ... 128,840 1.57 64,988 1.35 66,449 1.58
Asset-backed securities .......... 15,824 0.19 11,753 0.24 40,369 0.96
Equity and other securities ...... 10,021 0.12 42,337 0.88 43,029 1.03
Corporate debt securities ........ 20,726 0.25 -- -- -- --
---------- ---- ---------- ----- ---------- ----
Total Securities
Available-for-Sale ... $8,196,444 100.00% $4,807,305 100.00% $4,194,418 100.00%
========== ====== ========== ====== ========== ======
SECURITIES HELD-TO-MATURITY:
Mortgage-backed securities:
GNMA pass-through certificates . $ 53,258 2.52% $ 71,075 2.69% $ 86,457 4.35%
FHLMC pass-through certificates 14,726 0.70 21,303 0.81 28,181 1.42
FNMA pass-through certificates . 15,975 0.76 19,445 0.74 22,056 1.11
REMICs and CMOs:
Agency issuance .............. 787,255 37.28 929,588 35.25 940,657 47.27
Non-agency issuance .......... 268,270 12.70 346,073 13.12 272,411 13.69
Obligations of U.S. Government
and agencies ................... 925,355 43.82 1,190,101 45.12 578,485 29.08
Obligations of states and
political subdivisions ......... 46,961 2.22 49,787 1.89 51,206 2.57
Corporate debt securities ........ -- -- 10,048 0.38 10,093 0.51
---------- ---- ---------- ----- ---------- ----
Total Securities
Held-to-Maturity ..... 2,111,800 100.00% 2,637,420 100.00% 1,989,546 100.00%
---------- ====== ---------- ====== ---------- ======
Net discount ........... (2,989) (4,748) (5,435)
---------- ---------- ----------
Net Securities
Held-to-Maturity $2,108,811 $2,632,672 $1,984,111
========== ========== ==========
</TABLE>
20
<PAGE> 23
The table below sets forth certain information regarding the book
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, 1998.
<TABLE>
<CAPTION>
ONE YEAR ONE TO FIVE TO MORE THAN
OR LESS FIVE YEARS TEN YEARS TEN YEARS
------------------------ --------------------- -------------------- -----------------------
ANNUALIZED ANNUALIZED ANNUALIZED ANNUALIZED
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
BOOK AVERAGE BOOK AVERAGE BOOK AVERAGE BOOK AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
FEDERAL FUNDS SOLD AND
REPURCHASE AGREEMENTS......... $266,437 4.96% $ - -% $ - -% $ - -%
======== ======= ======== ==========
FHLB STOCK (1)................ $ - -% $ - -% $ - -% $ 210,250 7.00%
======== ======= ======== ==========
MORTGAGE-BACKED AND OTHER
SECURITIES AVAILABLE-FOR-SALE:
GNMA pass-through certificates $ - -% $ - -% $ - -% $ 163,731 6.74%
FHLMC pass-through certificates 3,561 5.76 354 7.27 22,222 5.67 316,174 6.33
FNMA pass-through certificates - - 3,118 5.49 14,248 5.47 591,476 6.63
REMICs and CMOs:
Agency issuance...... 650 7.13 - - 69,160 5.91 4,891,347 6.29
Non-agency certificates 400 8.45 - - 3,259 6.82 1,505,743 6.56
Obligations of the U.S.
Government and agencies.. 11,992 5.23 92,301 6.06 129 5.75 357,880 6.95
Corporate debt.............. - - - - - - 21,048 7.43
Asset-backed securities..... - - - - - - 15,815 6.09
Equity securities (1)....... - - - - - - 127,613 5.38
Other securities............ 9,989 5.55 - - - - 2 9.50
-------- ------- -------- ----------
TOTAL SECURITIES
AVAILABLE-FOR-SALE: $ 26,592 5.52% $95,773 6.05% $109,018 5.83% $7,990,829 6.39%
======== ======= ======== ==========
MORTGAGE-BACKED AND OTHER
SECURITIES HELD-TO-MATURITY:
GNMA pass-through certificates $ 10 10.92% $ 2,243 7.36% $ 33,404 7.94% $ 17,798 8.37%
FHLMC pass-through certificates - - 836 8.72 4,091 7.86 9,811 8.39
FNMA pass-through certificates - - 19 6.10 3,094 7.38 12,841 6.15
REMICs and CMOs:
Agency issuance....... - - - - 136,362 6.44 648,952 6.61
Non-agency issuance .. - - - - 47,175 6.45 220,163 6.08
Obligations of the U.S.
Government and agencies.. - - - - 175,110 7.61 749,964 7.38
Obligations of states and
political subdivisions... 800 3.25 1,877 3.89 - - 44,261 6.68
-------- ------- -------- ----------
TOTAL SECURITIES
HELD-TO-MATURITY: $ 810 3.34% $ 4,975 6.27% $399,236 7.10% $1,703,790 6.91%
======== ======= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
TOTAL SECURITIES
-------------------------------------------------------
AVERAGE
LIFE BY
CONTRACTUAL ESTIMATED WEIGHTED
MATURITY BOOK FAIR AVERAGE
(IN YEARS) VALUE VALUE YIELD
---------- ----- ----- -----
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
FEDERAL FUNDS SOLD AND
REPURCHASE AGREEMENTS......... 0.01 $ 266,437 $ 266,437 4.96%
========== ============
FHLB STOCK (1)................ - $ 210,250 $ 210,250 7.00%
========== ============
MORTGAGE-BACKED AND OTHER
SECURITIES AVAILABLE-FOR-SALE:
GNMA pass-through certificates 21.37 $ 163,731 $ 166,516 6.74%
FHLMC pass-through certificates 23.51 342,311 342,722 6.28
FNMA pass-through certificates 30.04 608,842 615,794 6.60
REMICs and CMOs:
Agency issuance...... 28.13 4,961,157 4,920,500 6.28
Non-agency certificates 27.22 1,509,402 1,508,302 6.56
Obligations of the U.S.
Government and agencies.. 15.13 462,302 467,199 6.73
Corporate debt.............. 28.98 21,048 20,726 7.43
Asset-backed securities..... 16.32 15,815 15,824 6.09
Equity securities (1)....... - 127,613 128,939 5.38
Other securities............ 0.76 9,991 9,922 5.55
---------- ----------
TOTAL SECURITIES
AVAILABLE-FOR-SALE: 26.56 $8,222,212 $8,196,444 6.38%
========== ==========
MORTGAGE-BACKED AND OTHER
SECURITIES HELD-TO-MATURITY:
GNMA pass-through certificates 11.36 $ 53,455 $ 55,577 8.06%
FHLMC pass-through certificates 9.84 14,738 15,227 8.26
FNMA pass-through certificates 13.54 15,954 16,089 6.39
REMICs and CMOs:
Agency issuance....... 19.43 785,314 787,603 6.58
Non-agency issuance .. 21.90 267,338 266,649 6.15
Obligations of the U.S.
Government and agencies.. 14.59 925,074 935,358 7.42
Obligations of states and
political subdivisions... 18.49 46,938 46,937 6.51
---------- ----------
TOTAL SECURITIES
HELD-TO-MATURITY: 17.28 $2,108,811 $2,123,440 6.94%
========== ==========
</TABLE>
(1) As equity securities have no maturities, they are classified in the more
than ten year category. Equity securities include FNMA and FHLMC preferred
stock which had a book and market value of $127,515 and $128,840,
respectively, at December 31, 1998.
21
<PAGE> 24
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,
--------------------------------------------------------------------------------------------
1998 1997 1996 1995
--------------------- --------------------- --------------------- --------------------
PERCENT PERCENT PERCENT PERCENT
OF OF OF OF
(DOLLARS IN THOUSANDS) AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MORTGAGE LOANS (GROSS)(1):
One-to-four family .............. $7,857,964 87.37% $6,904,114 86.37% $5,107,371 88.32% $3,571,222 86.13%
Multi-family .................... 452,854 5.03 377,292 4.72 201,719 3.49 145,652 3.51
Commercial real estate .......... 453,973 5.05 456,194 5.70 245,584 4.24 221,533 5.34
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total mortgage loans ..... 8,764,791 97.45 7,737,600 96.79 5,554,674 96.05 3,938,407 94.98
---------- ----- ---------- ----- ---------- ----- ---------- -----
CONSUMER AND OTHER LOANS (GROSS):
Home equity ................. 142,437 1.58 130,665 1.63 105,475 1.82 88,508 2.13
Passbook .................... 6,653 0.07 7,207 0.09 6,497 0.11 5,564 0.13
Home Improvement ............ 5,992 0.07 8,283 0.11 10,133 0.18 12,354 0.30
Student (2) ................. 4,118 0.05 13,212 0.17 9,904 0.17 5,739 0.14
Line of Credit, Overdraft ... 24,846 0.28 37,057 0.46 40,734 0.70 48,288 1.16
Credit card ................. -- -- -- -- 8,431 0.15 8,578 0.21
Other ....................... 39,758 0.44 51,800 0.65 37,333 0.65 27,573 0.67
Commercial .................. 5,573 0.06 8,136 0.10 9,826 0.17 11,649 0.28
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total other loans ........ 229,377 2.55 256,360 3.21 228,333 3.95 208,253 5.02
---------- ----- ---------- ----- ---------- ----- ---------- -----
TOTAL LOANS ..................... 8,994,168 100.00% 7,993,960 100.00% 5,783,007 100.00% 4,146,660 100.00%
--------- ====== --------- ====== --------- ====== --------- ======
LESS:
Unearned discounts, premiums
and deferred loan fees, net 32,463 26,638 1,127 (11,051)
Allowance for loan losses (74,403) (73,920) (48,001) (47,853)
---------- ---------- ---------- ----------
TOTAL LOANS, NET $8,952,228 $7,946,678 $5,736,133 $4,087,756
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1994
-----------------------
PERCENT
OF
(DOLLARS IN THOUSANDS) AMOUNT TOTAL
------ -----
<S> <C> <C>
MORTGAGE LOANS (GROSS)(1):
One-to-four family .............. $2,735,422 83.42%
Multi-family .................... 138,559 4.23
Commercial real estate .......... 192,290 5.86
---------- ------
Total mortgage loans ..... 3,066,271 93.51
---------- ------
CONSUMER AND OTHER LOANS (GROSS):
Home equity ................. 72,798 2.22
Passbook .................... 4,903 0.15
Home Improvement ............ 14,051 0.43
Student (2) ................. 17,753 0.54
Line of Credit, Overdraft ... 52,099 1.59
Credit card ................. 8,635 0.26
Other ....................... 27,861 0.85
Commercial .................. 14,722 0.45
---------- ------
Total other loans ........ 212,822 6.49
---------- ------
TOTAL LOANS ..................... 3,279,093 100.00%
--------- ======
LESS:
Unearned discounts, premiums
and deferred loan fees, net (17,643)
Allowance for loan losses (47,914)
----------
TOTAL LOANS, NET $3,213,536
==========
</TABLE>
(1) These amounts include $212.9 million, $163.7 million, $58.5 million, $49.9
million and $8.0 million of mortgage loans held-for-sale at December 31,
1998, 1997, 1996, 1995 and 1994, respectively.
(2) Includes $252,000, $108,000 and $30,000 of student loans held-for-sale at
December 31, 1997, 1996 and 1995, respectively. There were no student
loans held-for-sale at December 31, 1998 and 1994.
22
<PAGE> 25
LOAN MATURITY, REPRICING AND ACTIVITY
The following table shows the maturity of the Company's loans
receivable held-for-investment at December 31, 1998. The table does not include
the effect of prepayments or scheduled principal amortization.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
--------------------------------------------------------------------------------------
TOTAL LOANS
ONE-TO CONSUMER RECEIVABLE
-FOUR MULTI- COMMERCIAL AND HELD-FOR-
(In Thousands) FAMILY FAMILY REAL ESTATE OTHER INVESTMENT
------ ------ ----------- ----- ----------
<S> <C> <C> <C> <C> <C>
Amounts due:
Within one year..................... $ 7,967 $ 16,583 $111,133 $ 38,294 $ 173,977
After one year:
One to three years................ 55,793 23,877 69,856 21,012 170,538
Three to five years............... 165,339 24,011 53,802 52,720 295,872
Five to ten years ................ 463,308 136,752 112,550 27,413 740,023
Ten to twenty years .............. 2,197,592 234,225 91,381 50,610 2,573,808
Over twenty years ................ 4,756,642 17,406 13,665 39,328 4,827,041
---------- -------- -------- -------- ---------
Total due after one year 7,638,674 436,271 341,254 191,083 8,607,282
---------- -------- -------- -------- ---------
Total amounts due...................... $7,646,641 $452,854 $452,387 $229,377 8,781,259
========== ======== ======== ======== =========
Unearned discounts, premiums
and deferred loan fees, net 32,463
Allowance for loan losses (74,403)
----------
Loans receivable held-for-investment, net $8,739,319
==========
</TABLE>
The following table sets forth at December 31, 1998, the dollar amount of all
loans receivable held-for-investment due after December 31, 1999, and whether
such loans have fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
DUE AFTER DECEMBER 31, 1999
----------------------------------------------------------------
(In Thousands) FIXED ADJUSTABLE TOTAL
----- ---------- -----
<S> <C> <C> <C>
Mortgage Loans:
One-to-four family.................................. $2,187,784 $5,450,890 $7,638,674
Multi-family........................................ 139,956 296,315 436,271
Commercial real estate.............................. 152,315 188,939 341,254
Consumer and Other Loans............................... 75,762 115,321 191,083
---------- ---------- ----------
Total loans receivable held-for-investment.......... $2,555,817 $6,051,465 $8,607,282
========== ========== ==========
</TABLE>
23
<PAGE> 26
The following table sets forth the Company's loan originations,
purchases, sales and principal repayments for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
(IN THOUSANDS)
MORTGAGE LOANS (GROSS):
At beginning of year .............. $ 7,737,600 $ 5,554,674 $ 3,938,407
Mortgage loans originated:
One-to-four family ........... 4,747,609 3,292,451 1,894,674
Multi-family ................. 158,849 120,874 76,319
Commercial ................... 92,666 61,197 60,841
----------- ----------- -----------
Total mortgage loans originated 4,999,124 3,474,522 2,031,834
----------- ----------- -----------
Purchases of mortgage loans:
Bulk purchases ............... -- -- 60,228
Third party loan origination
program (1) ................ 187,519 562,408 1,205,198
Loans from acquired institutions -- 872,970 --
Sales of mortgage loans ........ (1,428,646) (969,187) (658,804)
Transfer of loans to REO ....... (14,350) (15,775) (16,843)
Principal repayments ........... (2,349,832) (1,056,003) (638,687)
Loans charged off .............. (8,148) (5,120) (7,873)
Securitized loans .............. (387,071) (680,889) (358,786)
Adjustment to conform fiscal
year of LIB to the Company .. 28,595 -- --
----------- ----------- -----------
At end of year (2) ................ $ 8,764,791 $ 7,737,600 $ 5,554,674
=========== =========== ===========
CONSUMER AND OTHER LOANS (GROSS):
At beginning of year .............. $ 256,360 $ 228,333 $ 208,253
Other loans originated ......... 114,433 123,176 125,542
Purchases ...................... 6,008 18,190 --
Loans from acquired institutions -- 8,208 --
Sales of other loans ........... (17,618) (14,369) (4,388)
Transfer of loans to REO ....... (67) -- (211)
Principal repayments ........... (131,707) (102,577) (96,044)
Loans charged off .............. (3,809) (4,601) (4,819)
Adjustment to conform fiscal
year of LIB to the Company .. 5,777 -- --
----------- ----------- -----------
At end of year (3) ................ $ 229,377 $ 256,360 $ 228,333
=========== =========== ===========
</TABLE>
(1) All third party loan originations for the years ended December 31, 1998,
1997 and 1996 were predominantly secured by one-to-four family properties.
(2) Includes $212.9 million, $163.7 million and $58.5 million in real estate
loans held-for-sale at December 31, 1998, 1997 and 1996, respectively.
(3) Includes $0, $252,000 and $108,000 in student loans held-for-sale at
December 31, 1998, 1997 and 1996, respectively.
24
<PAGE> 27
DELINQUENT LOANS AND CLASSIFIED ASSETS.
Information regarding delinquent loans and non-performing assets
appears under Item 7, "MD&A - Asset Quality."
The following table sets forth at December 31, 1998, 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................ 1 $ 166 732 $ 91,695 8 $ 476
Multi-family...................... 9 4,290 21 4,245 - -
Commercial ....................... 21 21,291 30 26,970 1 572
Consumer and other loans ......... - - 279 6,010 1 2
-- ------- ----- -------- -- ------
Total.......................... 31 25,747 1,062 128,920 10 1,050
-- ------- ----- -------- -- ------
REAL ESTATE OWNED AND INVESTMENTS
IN REAL ESTATE:
One-to-four family................ - - 74 6,364 - -
Multi-family...................... - - 1 33 - -
Commercial........................ - - 3 4,269 - -
-- ------- ----- -------- -- ------
Total.......................... - - 78 10,666 - -
-- ------- ----- -------- -- ------
TOTAL ................................ 31 $25,747 1,140 $139,586 10 $1,050
== ======= ===== ======== == ======
</TABLE>
Note: There were no assets classified as loss at December 31, 1998.
25
<PAGE> 28
DEPOSITS
The following table presents the deposit activity of the Company for the years
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Opening balance .............. $ 9,951,421 $ 8,146,103 $ 7,836,950
Net withdrawals .............. (694,666) (167,537) (38,109)
Interest credited ............ 399,602 371,543 347,262
Deposits assumed from acquired
institution ............... -- 1,601,312 --
Adjustment to conform fiscal
year of LIB to the Company 11,929 -- --
----------- ----------- -----------
Ending balance ............... $ 9,668,286 $ 9,951,421 $ 8,146,103
=========== =========== ===========
Net (decrease) increase ...... $ (283,135) $1,805,318$ 309,153
=========== =========== ===========
Percentage (decrease) increase (2.85)% 22.16% 3.94%
</TABLE>
The following table sets forth the maturity periods of the Company's
certificate of deposit accounts in amounts of $100,000 or more at December 31,
1998.
<TABLE>
<CAPTION>
AMOUNT
(IN THOUSANDS)
<S> <C>
MATURITY PERIOD
Three months or less................................ $152,158
Over three through six months 133,182
Over six through twelve months 126,668
Over twelve months.................................. 156,724
--------
Total....................................... $568,732
========
</TABLE>
26
<PAGE> 29
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,
-----------------------------------------------------------------------------
1998 1997
------------------------------------ --------------------------------------
(Dollars in Thousands)
Weighted Weighted
Percent Average Percent Average
Average Of Total Nominal Average Of Total Nominal
Balance Deposits Rate Balance Deposits Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Savings .......................... $2,889,510 29.45% 2.47% $2,560,738 29.59% 2.75%
NOW .............................. 130,476 1.33 1.29 105,930 1.22 1.51
Money market ..................... 729,106 7.43 4.31 484,599 5.60 4.08
Money manager .................... 366,957 3.74 1.25 312,662 3.61 1.56
Non-interest bearing ............. 399,568 4.07 -- 263,436 3.05 --
---------- ----- ---------- -----
Total ..................... 4,515,617 46.02 2.42 3,727,365 43.07 2.60
---------- ----- ---------- ----- -
Certificates of Deposit(1):
Within one year ............... 2,096,650 21.37 4.52 1,420,788 16.42 4.97
One to three years ............ 1,922,096 19.58 5.65 2,266,128 26.18 5.75
Three to five years ........... 1,085,050 11.06 6.14 1,047,035 12.10 6.16
Five or more years ............ 71,595 0.73 6.20 77,670 0.90 6.05
Jumbo ......................... 121,918 1.24 4.85 114,867 1.33 5.09
---------- ----- ---------- -----
Total ..................... 5,297,309 53.98 5.40 4,926,488 56.93 5.60
---------- ----- ---------- -----
Total deposits ........... $9,812,926 100.00% $8,653,853 100.00%
========== ====== ========== ======
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------
Weighted
Percent Average
Average of Total Nominal
Balance Deposits Rate
------- -------- ----
<S> <C> <C> <C>
Savings .......................... $2,497,554 30.98% 2.76%
NOW .............................. 201,847 2.50 2.07
Money market ..................... 379,901 4.71 3.39
Money manager .................... 193,124 2.40 2.02
Non-interest bearing ............. 193,927 2.41 --
---------- -----
Total ..................... 3,466,353 43.00 2.60
---------- -----
Certificates of Deposit(1):
Within one year ............... 1,445,676 17.93 4.77
One to three years ............ 1,958,650 24.30 5.72
Three to five years ........... 971,659 12.05 6.21
Five or more years ............ 92,179 1.14 6.13
Jumbo ......................... 126,970 1.58 5.09
---------- -----
Total ..................... 4,595,134 57.00 5.52
---------- -----
Total deposits ........... $8,061,487 100.00%
========== ======
</TABLE>
(1) Terms indicated are original, not term remaining to maturity.
The following table presents, by rate categories, the balances of the
Company's certificates of deposit outstanding at December 31, 1998, 1997 and
1996, and the remaining periods to maturity of the certificate of deposit
accounts outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Period to maturity from December 31, 1998 At December 31,
Within One to two Two to three Over three
(In Thousands) one year years years years 1998 1997 1996
-------- ----- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT:
3.99% or less............... $ 267,690 $ - $ 78 $ - $ 267,768 $ 270,026 $ 275,110
4.00% to 4.99%.............. 1,376,445 80,699 7,788 15,309 1,480,241 430,877 628,058
5.00% to 5.99%.............. 1,588,729 462,697 103,215 71,744 2,226,385 3,497,581 2,539,356
6.00% to 6.99%.............. 367,505 170,183 215,450 210,415 963,553 1,270,595 1,154,078
7.00% and over ............ 675 104,130 - - 104,805 163,904 136,939
----------- -------- -------- -------- ---------- ---------- ----------
Total..... $ 3,601,044 $817,709 $326,531 $297,468 $5,042,752 $5,632,983 $4,733,541
=========== ======== ======== ======== ========== ========== ==========
</TABLE>
27
<PAGE> 30
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) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
FHLB-NY ADVANCES:
Average balance.............................................. $ 360,233 $ 369,374 $ 206,280
Maximum balance outstanding at any month
end during the year...................................... 1,210,170 426,932 266,562
Balance outstanding at end of year........................... 1,210,170 423,136 266,514
Weighted average interest rate during the year 5.78% 6.00% 6.25%
Weighted average interest rate at end of the year 4.94 6.16 6.13
REVERSE REPURCHASE AGREEMENTS:
Average balance ............................................. $5,767,274 $3,334,692 $2,419,934
Maximum balance of outstanding agreements at any
month end during the year.................................. 7,491,800 3,896,165 2,645,000
Balance outstanding at end of year........................... 7,291,800 3.896,165 2,645,000
Weighted average interest rate during the year .............. 5.50% 5.73% 5.61%
Weighted average interest rate at end of the year ........... 5.27 5.78 5.61
OTHER BORROWINGS:
Average balance.............................................. $ 514,945 $ 259,256 $ 46,883
Maximum balance outstanding at any month
end during the year....................................... 566,697 462,758 181,370
Balance outstanding at end of year........................... 520,827 454,936 178,023
Weighted average interest rate during the year .............. 6.66% 6.44% 6.11%
Weighted average interest rate at end of the year ........... 6.66 6.66 6.00
TOTAL BORROWINGS:
Average balance ............................................. $6,642,452 $3,963,322 $2,673,097
Maximum balance outstanding at any month
end during the year...................................... 9,022,797 4,774,237 3,089,537
Balance outstanding at end of year........................... 9,022,797 4,774,237 3,089,537
Weighted average interest rate during the year .............. 5.61% 5.77% 5.67%
Weighted average interest rate at end of the year ........... 5.31 5.90 5.68
</TABLE>
Item 2. PROPERTIES
At December 31, 1998, the Company operated 96 full-service banking
offices, of which 53 were owned and 43 were leased. During February 1999, the
Company closed five of the former LIB's banking offices and opened one
additional banking office. At December 31, 1998, the Company owned its
principal executive offices and leased the office for its mortgage operations,
both located in Lake Success, New York. In February 1999, the Company purchased
the office for its mortgage operations.
For further information regarding the Company's lease obligations, see
Note 11 of Notes to Consolidated Financial Statements in Item 8, "Financial
Statements and Supplementary Data."
In addition, at December 31, 1998, the Company owned the former main
operating headquarters of LIB located in Melville, New York. The Company has
abandoned this facility and intends to sell this
28
<PAGE> 31
facility by December 31, 1999. Also, at December 31, 1998, the Company leased
and sub-leased its previous mortgage operating facility in Mineola, New York and
abandoned this facility on February 1, 1999. For additional information on these
facilities, see Note 2 of Notes to Consolidated Financial Statements in Item 8,
"Financial Statements and Supplementary Data."
ITEM 3. LEGAL PROCEEDINGS
On February 27, 1998 a class action complaint against LIB and the
members of the Board of Directors of LIB was filed in the Chancery Court of
Delaware. The lawsuit is entitled Miriam Simon and Stewart Simon vs. Long Island
Bancorp, Inc., et al. The complaint (the "Simon Complaint") alleges that on
February 25, 1998 it was announced that the Company made an offer to acquire LIB
for $55 per share and that LIB made a counteroffer of $60 per share. The
complaint alleges that the alleged counterproposal capped the bidding price for
LIB's shares and impeded maximization of shareholder value. The complaint
further alleges that the directors violated their fiduciary duties because they
failed to 1) undertake an adequate evaluation of LIB's worth as a potential
merger/acquisition candidate, 2) take adequate steps to enhance LIB's value as a
merger/acquisition candidate, or 3) effectively expose LIB to the marketplace to
create an active and open auction of LIB. The complaint seeks a judgment 1)
enjoining the directors to maximize shareholder value and consider and negotiate
all bona fide offers, 2) compensating class members for losses and damages
suffered, and 3) awarding plaintiffs costs and attorneys' fees.
On March 6, 1998 a class action complaint against LIB and the members
of the Board of Directors of LIB was filed in the Chancery Court of Delaware.
The lawsuit is entitled Murray Zucker and Deborah Dyckman vs. Long Island
Bancorp, Inc., et al. An amended complaint was filed in the action on April 6,
1998. The amended complaint alleges that the transaction encompassed by the
merger agreement between LIB and AFC is unfair to LIB's shareholders, does not
reflect the intrinsic value of LIB's assets, as allegedly reflected by a
competing offer to acquire LIB by North Fork Bancorporation, and is the result
of unfair dealing by the individual defendants in an attempt to benefit
themselves. The amended complaint alleges further, inter alia, that the
transaction breaches the individual defendants' fiduciary duties to take all
necessary steps to ensure that the stockholders will receive the maximum value
realizable for their shares, including the implementation of a bidding mechanism
to foster a fair auction of LIB to the highest bidder or the exploration of
strategic alternatives that will return greater or equivalent value to the
plaintiffs and the class. The amended complaint seeks injunctive relief and the
costs and disbursements of the action, including attorneys' and expert fees.
On March 13, 1998 a class action complaint was filed in Delaware
Chancery Court against LIB and the Board of Directors of LIB. This complaint is
entitled Lawrence Berman vs. John J. Conefry, Jr., et al. The complaint is
substantially similar to the Simon Complaint and alleges that the Company made
an informal offer of $55 per share for LIB and LIB replied with a
counterproposal of $60 per share. The complaint further alleges, inter alia,
that defendants breached their fiduciary duties by capping the price of LIB
without taking all appropriate steps to initiate a market check or auction and
maximize shareholder value. The complaint seeks injunctive relief, damages in an
unstated amount, and costs and disbursements, including attorneys' and expert
fees.
The three cases were consolidated under the Murray Zucker and Deborah
Dyckman vs. Long Island Bancorp, Inc., et al. heading and a stipulation was
entered extending the defendants' time to answer indefinitely. Following
December 31, 1998, the plaintiffs offered to stipulate with the Defendants that
the actions be dismissed without payment or compensation. AFC, as successor to
LIB, has agreed to such offer.
On March 24, 1994, LISB received notice that it had been named as a
defendant in a class action lawsuit filed in the United States District Court
for the Eastern District of New York against James J. Conway, Jr., former
Chairman and Chief Executive Officer of LISB who resigned from LISB in June
1992, his former law firm, certain predecessor firms of that law firm, certain
partners of that law firm and LISB.
29
<PAGE> 32
The lawsuit is entitled Ronnie Weil Also Known as Ronnie Moore, for Herself and
on Behalf of All Other Persons Who Attained Mortgage Loans from The Long Island
Savings Bank, FSB during the period January 1, 1983 through December 31, 1992
vs. The Long Island Savings Bank, FSB, et al. The complaint alleges that the
defendants caused mortgage loan commitments to be issued to mortgage loan
borrowers, and submitted legal invoices to the borrowers at the closing of
mortgage loans, which falsely represented the true legal fees charged for
representing LISB in connection with the mortgage loans and failed to advise
that a part of the listed legal fee would be paid to Mr. Conway, thereby
defrauding the borrowers. The complaint does not specify the amount of damages
sought.
On or about June 9, 1994, the Bank was served with an Amended Summons
and Amended Complaint adding LISB's directors as individual defendants. On or
about July 29, 1994, LISB and the individual director defendants served on
plaintiffs a motion to dismiss the Amended Complaint. On or about August 29,
1994, the plaintiffs served papers in response to the motion. The remaining
schedule on the motion was been held in abeyance pending certain discovery.
On January 4, 1999, the Company was served with a second amended
complaint alleging essentially the same claims and adding as additional
defendants, the Company and the Association, as successor to LISB, and certain
members of Mr. James J. Conway, Jr.'s family. The second amended complaint seeks
damages of at least $11 million trebled. On or about February 22, 1999, the
Company, the Association, for themselves and on behalf of LISB, and the
individual directors of LISB filed a motion to dismiss the second amended
complaint.
Management believes that the likelihood is remote that this case will
have a material adverse impact on the Company's consolidated financial condition
and results of operations.
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. 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 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, were dismissed. The
remaining defendants moved to dismiss the amended complaint. On June 1, 1998 the
Court granted defendant's motion to dismiss the amended complaint without
prejudice. On or about July 1, 1998, the plaintiffs filed a pleading styled
"Second Amended Class Action Complaint," without making a formal motion for
leave to amend. The defendants, which include The Greater, the Association, the
Company and the directors of The Greater, moved, on or about July 21, 1998, to
strike the complaint or in the alternative to deny leave to amend or to dismiss
it for failure to state a claim on which relief may be granted. On July 27,
1998, the Court notified the parties that the plaintiffs' letter to the Court
dated July 1, 1998 accompanying the amended complaint would be deemed a motion
for leave to file an
30
<PAGE> 33
amended complaint and that defendants' motions would be treated as opposition to
plaintiffs' request for leave. The motion was argued before the Court on October
21, 1998 and after supplemental submissions by the parties, the Court on January
25, 1999 dismissed the second amended complaint in all respects.
On or about February 18, 1999, plaintiffs filed a Notice of Appeal to
the United States Court of Appeals for the Second Circuit from each and every
part of: (1) the lower court's January 25, 1999 decision dismissing the second
amended complaint and the corresponding judgment entered pursuant thereto; (2)
the lower court's June 1, 1998 decision dismissing the first amended complaint
and the corresponding judgment entered pursuant thereto; and (3) such and
further orders or decisions for which error may be assigned, including any error
of law contained in the lower court's September 22, 1997 decision denying the
Application.
The Company believes the allegations made in the second amended
complaint in the Federal Action are without merit and intends to aggressively
defend its interests with respect to such matters.
On August 15, 1989 LISB, and its former wholly owned subsidiary, The
Long Island Savings Bank of Centereach, FSB ("Centereach"), filed suit against
the United States seeking damages and/or other appropriate relief on the
grounds, among others, that the government had breached the terms of the 1983
assistance agreement between LISB and the Federal Savings and Loan Insurance
Corporation pursuant to which LISB acquired Centereach ("Assistance Agreement").
The Assistance Agreement, among other things, provided for the inclusion of
supervisory goodwill as an asset on Centereach's balance sheet to be included in
capital and amortized over 40 years for regulatory purposes.
The suit is pending before Chief Judge Loren Smith in the United States
Court of Federal Claims and is entitled The Long Island Savings Bank, FSB et al.
vs. The United States (the "LISB Goodwill Litigation").
Similarly, on July 21, 1995, the Association commenced an action,
Astoria Federal Savings and Loan Association vs. United States, (the "Astoria
Goodwill Litigation") 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 New York, FSB, 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. In
addition to its breach of contract claim, 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.
Both the LISB Goodwill Litigation and the Astoria Goodwill Litigation had
been stayed pending disposition by the United States Supreme Court of three
related supervisory goodwill cases (the "Winstar Cases"). On July 1, 1996, the
Supreme Court ruled in the Winstar Cases that the government had breached its
contracts in the Winstar Cases and was liable in damages for those breaches.
On September 18, 1996, Judge Smith issued an Omnibus Management Order ("Case
Management Order") applicable to all Winstar-related cases. The Case Management
Order addresses certain timing and procedural matters with respect to the
administration of the Winstar-related cases, including organization of the
parties, initial discovery, initial determinations regarding liability, and the
resolution of certain common issues. The Case Management Order provides that the
parties will attempt to agree upon a Master Litigation Plan, which may be in
phases, to govern all further proceedings, including the resolution of common
issues (other than common issues covered by the Case Management Order),
dispositive motions, trials, discovery schedules, protocols for depositions,
document production, expert witnesses, and other matters.
31
<PAGE> 34
On November 1, 1996, LISB filed a motion for partial summary judgment
against the government on the issues of whether LISB had a contract with the
government and whether the enactment of FIRREA was contrary to the terms of such
contract. The government responded in the LISB Goodwill Litigation that if the
Court will not consider case specific facts, then it has no defense to LISB's
motion. The government further indicated that if the Court will consider case
specific facts, then it asserts among other things that there are factual issues
in dispute concerning the assistance agreement regarding Centereach which render
the granting of partial summary judgment inappropriate. LISB's motion for
partial summary judgment remains pending before the Court. The Court has not yet
ruled on the motion in the LISB Goodwill Litigation.
On November 6, 1996, the Association also 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.
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 LISB Goodwill Litigation or the
Astoria Goodwill Litigation. 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 LISB Goodwill Litigation and the Astoria Goodwill Litigation.
The government has responded in the Astoria Goodwill Litigation 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 responded to the government's
response indicating in substance that the issue raised by the government was
specifically addressed and decided by the United States Supreme Court in the
Winstar Cases, that the contractual language in the Fidelity's Assistance
Agreement and other operative documents is factually indistinguishable from that
ruled upon in the Winstar Cases, and thus, that the Association's motion for
partial summary judgment should be granted. The Association's response further
requests reimbursement of the Association's attorneys' fees from the government
for seeking to relitigate the capital credit issue. By motion dated July 16,
1998, the government moved to stay further proceedings related to the
Association's motion which has been granted through April 5, 1999 for partial
summary judgment. The Association's motion for partial summary judgment remains
pending before the Court.
Pursuant to the Case Management Order, the LISB Goodwill Litigation has
been designated as one of the "First Thirty Cases". As a result of this
designation, discovery is underway. Both sides have exchanged documents and
directed interrogatories to each other which have been answered. The Company's
attorneys have begun taking depositions of key former government regulators who
had supervisory authority over LISB. The government has noticed depositions of
13 former LISB officers and employees which are to be taken in Spring 1999.
The Court has indicated that it will issue its first ruling on damages
in one of the Winstar Cases on April 9, 1999. The Company is unable to predict
the outcome of its claims against the United States and the amount of damages
that may be awarded to LISB or the Association, if any, in the event that
judgments are rendered in LISB's or the Association's favor. Consequently, no
assurances can be given as to the results of this claim or the timing of any
proceedings in relation thereto.
32
<PAGE> 35
The costs incurred with respect to the LISB Goodwill Litigation and the
Astoria Goodwill Litigation to date have not been material to the Company's
results of operations. It is expected, however, that as these cases proceed
through discovery, trial and possible appeal, the costs associated with them
will accelerate significantly.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the quarter ended December 31, 1998 to a vote
of security holders of the Company through the solicitation of proxies or
otherwise.
PART II
ITEM 5. MARKET FOR ASTORIA FINANCIAL CORPORATION'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's 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 closing price of the common stock during the periods
indicated in 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $62.50 $46.88 $43.13 $36.00
Second Quarter 62.38 51.56 47.50 34.75
Third Quarter 55.25 35.94 50.31 45.38
Fourth Quarter 48.13 30.13 58.13 50.75
</TABLE>
As of March 2, 1999, the Company had 4,724 shareholders of record. As of
December 31, 1998, there were 54,655,095 shares of common stock outstanding.
The following schedule summarizes the cash dividends paid per common
share for 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
First Quarter $0.20 $0.11
Second Quarter 0.20 0.15
Third Quarter 0.20 0.15
Fourth Quarter 0.20 0.15
</TABLE>
On January 20, 1999, the Board of Directors declared a quarterly cash
dividend of $0.24 per common share, payable on March 1, 1999, to common
stockholders of record at the close of business on February 12, 1999. 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.
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.
33
<PAGE> 36
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 "Regulation and Supervision" in Item 1 and Note 9 of Notes to
Consolidated Financial Statements in Item 8, "Financial Statements and
Supplementary Data" for an explanation of the liquidation accounts and
regulatory capital requirements on the Association's ability to pay dividends.
See "Regulation and Supervision" in Item 1 and Note 12 of Notes to Consolidated
Financial Statements in Item 8, "Financial Statements and Supplementary Data"
concerning the tax effect of paying a portion of the retained earnings for
dividends rather than absorbing tax bad debt losses.
Following the close of business on September 30, 1997, in connection
with The Greater Acquisition, the Company issued 2,000,000 shares of 12%
Noncumulative Perpetual Preferred Stock, Series B ("Series B Preferred Stock")
in exchange for all of the outstanding 12% Noncumulative Perpetual 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.
34
<PAGE> 37
ITEM 6. SELECTED FINANCIAL DATA
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. Following the close of business on September 30, 1998, Long Island
Bancorp, Inc. ("LIB") was merged with and into the Company. The merger has been
accounted for as a pooling-of-interests and, accordingly, the financial results
for all periods reported have been restated to include LIB. See Note 1 and Note
2 of Notes to Consolidated Financial Statements in Item 8, "Financial Statements
and Supplementary Data."
<TABLE>
<CAPTION>
AT DECEMBER 31,
(IN THOUSANDS) 1998 1997 1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Total assets $20,587,741 $16,432,337 $12,586,694 $11,478,912 $9,133,804
Federal funds sold and repurchase
agreements 266,437 110,550 89,480 110,100 324,140
Mortgage-backed and other securities
available-for-sale 8,196,444 4,807,305 4,194,418 3,688,223 1,222,038
Mortgage-backed and other securities
held-to-maturity 2,108,811 2,632,672 1,984,111 3,009,284 3,987,678
Loans held-for-sale 212,909 163,962 58,643 49,901 7,956
Loans receivable held-for-investment, net 8,739,319 7,782,716 5,677,490 4,037,855 3,205,580
Mortgage servicing rights, net 50,237 41,789 29,687 11,328 759
Deposits 9,668,286 9,951,421 8,146,103 7,836,950 6,848,467
Borrowed funds 9,022,797 4,774,237 3,089,537 2,338,366 1,091,871
Stockholders' equity 1,462,384 1,445,799 1,107,923 1,116,859 1,044,284
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income $ 1,224,448 $ 978,155 $ 842,469 $ 755,896 $ 573,483
Interest expense 775,465 603,591 501,343 433,294 280,302
- - -------------------------------------------------------------------------------------------------------------------------------
Net interest income 448,983 374,564 341,126 322,602 293,181
Provision for loan losses 15,380 9,061 10,163 8,477 15,688
- - -------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 433,603 365,503 330,963 314,125 277,493
Non-interest income 60,528 61,477 50,674 37,391 29,887
Non-interest expense:
General and administrative 234,553 213,671 208,547 191,384 172,821
Real estate operations and provision
for real estate losses, net (1,854) 1,863 (6,643) (2,963) 9,281
Amortization of goodwill 19,754 11,722 8,968 8,518 1,788
Acquisition costs and restructuring charges 124,168 - - - -
SAIF recapitalization assessment - - 47,202 - -
- - -------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 376,621 227,256 258,074 196,939 183,890
- - -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes, extraordinary item
and cumulative effect of accounting changes 117,510 199,724 123,563 154,577 123,490
Income tax expense 61,825 81,840 54,435 65,640 48,926
- - -------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item and cumulative
effect of accounting changes 55,685 117,884 69,128 88,937 74,564
Extraordinary item, net of tax (10,637) - - - -
Cumulative effect of accounting changes - - - - 8,648
- - -------------------------------------------------------------------------------------------------------------------------------
Net income 45,048 117,884 69,128 88,937 83,212
Preferred dividends declared 6,000 1,500 - - -
- - -------------------------------------------------------------------------------------------------------------------------------
Net income available to common
shareholders $ 39,048 $ 116,384 $ 69,128 $ 88,937 $ 83,212
===============================================================================================================================
Basic earnings per common share $ 0.77 $ 2.51 $ 1.49 $ 1.81 $ 1.62
Diluted earnings per common share $ 0.74 $ 2.39 $ 1.44 $ 1.76 $ 1.61
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Return on average assets 0.25% 0.84% 0.58% 0.82% 0.95%
Return on average stockholders' equity 3.02 9.83 6.27 8.25 9.29
Return on average common stockholders' equity 2.71 9.81 6.27 8.25 9.29
Return on average tangible stockholders' equity 3.65 11.16 6.95 9.16 9.35
Average stockholders' equity to average assets 8.13 8.56 9.18 9.89 10.23
Average tangible stockholders' equity
to average tangible assets 6.83 7.62 8.36 9.00 10.16
Stockholders' equity to total assets 7.10 8.80 8.80 9.73 11.43
Core deposits to total deposits (1) 47.84 43.40 41.89 43.65 50.34
Net interest spread 2.20 2.38 2.56 2.70 3.10
Net interest margin (2) 2.58 2.78 2.96 3.09 3.48
Operating income to average assets (3) 0.27 0.34 0.36 0.33 0.32
General and administrative expense to average
assets 1.28 1.53 1.74 1.76 1.97
Efficiency ratio (4) 47.05 50.68 54.28 53.41 53.81
Average interest-earning assets to average
interest-bearing liabilities 1.09x 1.09x 1.09x 1.10x 1.11x
Book value per common share $ 25.84 $ 25.93 $ 22.24 $ 21.23 $ 19.02
Tangible book value per common share 21.34 21.04 20.13 19.11 18.93
Cash dividends paid per common share 0.80 0.56 0.43 0.20 -
Dividend payout ratio 108.11% 23.43% 29.86% 11.36% -
ASSET QUALITY RATIOS:
Non-performing loans to total loans (5)(6) 1.23 1.12 1.50 2.42 3.69
Non-performing loans to total assets (5)(6) 0.54 0.55 0.69 0.87 1.32
Non-performing assets to total assets (6)(7) 0.58 0.70 0.87 1.15 1.69
Allowance for loan losses to non-performing loans 66.99 82.23 55.41 47.78 39.58
Allowance for loan losses to non-accrual loans 70.00 86.79 60.58 50.72 43.14
Allowance for loan losses to total loans 0.83 0.93 0.83 1.15 1.46
OTHER DATA:
Number of deposit accounts 980,307 1,044,390 858,030 830,898 689,824
Mortgage loans serviced for others (in thousands) $4,944,176 $4,690,746 $3,791,920 $2,687,797 $1,741,669
Number of full service banking offices (8) 96 96 82 82 65
Regional lending offices 12 22 25 16 5
OTHER NON-GAAP DISCLOSURES (9)
Return on average assets 0.79% 0.84% 0.81% 0.82% 0.95%
Cash return on average assets (10) 1.05 1.09 1.04 1.01 1.07
Return on average stockholders' equity 9.76 9.83 8.76 8.25 9.29
Cash return on average stockholders' equity (10) 12.86 12.77 11.35 10.22 10.51
Return on average common stockholders' equity 9.68 9.81 8.76 8.25 9.29
Cash return on average common stockholders'
equity (10) 12.89 12.78 11.35 10.22 10.51
Return on average tangible stockholders' equity 11.78 11.16 9.71 9.16 9.35
Cash return on average tangible
stockholders' equity (10) 15.53 14.49 12.57 11.34 10.58
Cash general and administrative expense to average
assets (11) 1.18 1.39 1.59 1.64 1.87
Cash efficiency ratio (4)(11) 43.40 46.09 49.67 49.95 50.96
</TABLE>
(1) Core deposits are comprised of savings, money market, money manager and NOW
accounts.
(2) Net interest margin represents net interest income divided by average
interest-earning assets.
(3) Operating income represents total non-interest income less net gains on
sales of securities. Operating income totaled $49.6 million, $47.1 million,
$43.1 million, $35.7 million and $28.0 million for 1998, 1997, 1996, 1995
and 1994, respectively.
(4) Efficiency ratio represents general and administrative expense divided by
the sum of net interest income plus operating income.
(5) 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.
(6) Non-performing loans and assets exclude loans which have been restructured
and are accruing and performing in accordance with the restructured terms.
Restructured accruing loans totaled $6.9 million, $9.1 million, $11.8
million, $12.1 million and $12.8 million at December 31, 1998, 1997, 1996,
1995 and 1994, respectively.
(7) Non-performing assets consist of all non-performing loans, real estate
owned and investments in real estate, net.
(8) As of February 28, 1999, the number of banking offices totaled 92.
(9) The information presented is not in conformity with GAAP. The following
infrequently occurring items have been excluded from the return
calculations: For 1998, $89.7 million, after tax, for costs associated with
the acquisition of LIB and $10.6 million, after tax, of other infrequently
occurring charges. For 1996, $27.6 million, after tax, special assessment
for the recapitalization of the SAIF was excluded. This information is
being presented since management of the Company considers it a more
accurate presentation of the Company's actual results of operations.
(10) Excludes non-cash charge for amortization of goodwill and amortization
relating to allocation of Employee Stock Ownership Plan ("ESOP") stock and
earned portion of the Recognition and Retention Plan ("RRP") stock, and
related tax benefit.
(11) Excludes non-cash charge for amortization relating to allocation of ESOP
stock and earned portion of RRP stock.
36
<PAGE> 39
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto presented elsewhere in this
report.
GENERAL
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 on loans and securities 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'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, 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 and provision for real estate
losses and amortization of 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.
MERGERS AND ACQUISITIONS
The Company continues to consider merger and acquisition activity as an integral
part of its strategic objective for its long-term growth. Since its
incorporation in 1993, the Company has been successful in expanding its
operations through business combinations with other financial institutions as
follows:
Long Island Bancorp, Inc. Acquisition
Following the close of business on September 30, 1998, the Company completed the
acquisition of LIB, the holding company of LISB, a federally chartered savings
bank, with LIB merging with and into the Company and LISB merging with and into
the Association. The transaction was accounted for as a pooling-of-interests.
Accordingly, the assets, liabilities and stockholders' equity as reported by LIB
immediately prior to consummation, were recorded by the Company. No goodwill was
created as a result of the LIB Acquisition. Under the terms of the merger
agreement, holders of LIB common stock, par value $.01 per share ("LIB Common
Stock"), received 1.15 shares of the Company's common stock, par value $.01 per
share ("Common Stock"), for each share of LIB Common Stock resulting in the
issuance of 27,876,636 shares of Common Stock. As a result of the completion of
the LIB Acquisition, after the close of business on September 30, 1998, the
Company had total assets of $19.22 billion, total deposits of $9.68 billion and
total stockholders' equity of $1.45 billion.
LIB's fiscal year had been as of and for the year ended September 30, whereas
the Company utilizes a calendar year basis. LIB's financial results for 1998
have been conformed to the calendar year reporting period of the Company. All
prior year consolidated financial results of the Company have been restated and
combine the Company with LIB utilizing their respective fiscal reporting
periods. As a result, LIB's
37
<PAGE> 40
operating results for the three-month period ended December 31, 1997 have been
set forth separately as a component of consolidated stockholders' equity and are
not included in the Company's consolidated statements of operations.
The Greater Acquisition
Following the close of business on September 30, 1997, the Company completed the
acquisition of 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,
stockholders of The Greater received 0.50 shares of 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. In addition, the
Company issued 2,000,000 shares of Series B Preferred Stock, in exchange for all
of the outstanding 12% Noncumulative Perpetual 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. The addition of The
Greater's fourteen banking offices, and two new offices opened shortly after The
Greater Acquisition, provided the Company a substantial market presence in
Brooklyn, New York. At December 31, 1998, the remaining goodwill balance
generated in the transaction was $159.5 million.
The Fidelity Acquisition
Following the close of business on January 31, 1995, the Company completed the
acquisition of Fidelity in a transaction which was accounted for as a purchase.
At December 31, 1998, the remaining goodwill balance generated in the
transaction was $82.9 million.
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, 1998 and
1997, principal payments on loans, mortgage-backed securities and proceeds from
maturities of other securities totaled $6.05 billion and $2.40 billion,
respectively. During the year ended December 31, 1998, the Company received
$1.92 billion of funds from the sale of securities available-for-sale, loans and
real estate versus $1.59 billion from sales during the year ended December 31,
1997. 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, 1998 and 1997 totaled $302.4 million and $53.9 million,
respectively, of which $45.0 million and $117.9 million, respectively,
represented net income of the Company. The net increase in borrowings during
1998 totaled $4.12 billion and the net decrease in deposits totaled $294.1
million. The net increase in borrowings and deposits during 1997 totaled $1.19
billion and $203.9 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, 1998, the
Company's gross purchases and originations of mortgage loans totaled $5.19
billion, compared to $4.04 billion during the year ended December 31, 1997. The
Company's purchases of mortgage-backed securities and other securities during
the year ended December 31, 1998 and 1997 totaled $7.85 billion and $1.84
billion, respectively. See "Lending and Investing Activities" for further
discussion.
Stockholders' equity totaled $1.46 billion at December 31, 1998, compared to
$1.45 billion at December 31, 1997. The $16.7 million increase is attributable
to $45.0 million of net income, the amortization for the allocated portion of
shares held by the Employee Stock Ownership Plan ("ESOP") and the earned
38
<PAGE> 41
portion of the shares held by the Recognition and Retention Plans ("RRP") and
related tax benefit of $26.5 million and the effect of options exercised and
related tax benefit of $24.4 million. In addition, in order to conform LIB's
financial results to the calendar year reporting period of the Company, LIB's
operating results and other changes in stockholders' equity for the three-month
period ended December 31, 1997 totaling $10.9 million, are included as an
increase to the Company's total stockholders' equity. These increases were
offset by the declaration of dividends of $38.6 million, the change in the
unrealized loss on securities, net of taxes, of $34.9 million and Common Stock
repurchases in the first quarter of 1998, totaling $16.6 million.
The Association is required by the OTS to maintain a minimum liquidity ratio,
calculated as an average daily balance of liquid assets as a percentage of net
withdrawable deposit accounts plus short-term borrowings, of 4.00%. The
Association's liquidity ratios were 11.29% and 5.52% at December 31, 1998 and
1997, 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, the
purchase of securities and the leasing of certain office facilities. Total
commitments outstanding at December 31, 1998 to originate and purchase loans
were $639.3 million. In addition, the Company had outstanding commitments to
purchase $785.7 million of mortgage-backed securities at December 31, 1998.
Rental payments under non-cancelable lease commitments totaled $91.1 million at
December 31, 1998. 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, 1998 and 1997, the Company repurchased
339,892 and 2,224,372 shares of Common Stock, respectively, for an aggregate
cost of $16.6 million and $85.7 million, respectively. The Company's fifth stock
repurchase plan was terminated on April 2, 1998 as a result of the LIB
Acquisition.
During the years ended December 31, 1998 and 1997, the Company declared cash
dividends on its Common Stock totaling $32.6 million and $24.5 million,
respectively. On January 20, 1999, the Company declared a quarterly cash
dividend of $0.24 per share of Common Stock payable on March 1, 1999 to
stockholders of record as of the close of business on February 12, 1999.
Beginning October 15, 1997, the Company has paid quarterly cash dividends equal
to $0.75 per share on shares of its Series B Preferred Stock, aggregating $1.5
million per quarter. During the years ended December 31, 1998 and 1997, the
Company declared cash dividends on its Series B Preferred Stock totaling $6.0
million and $1.5 million, respectively.
In 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. 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 from mutual to stock form of ownership, the
Association was required to establish a liquidation account in an amount equal
to its capital as of June 30, 1993. As part of its acquisitions of Fidelity and
The Greater, the Association established similar liquidation accounts equal to
39
<PAGE> 42
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.
At December 31, 1998, the Association exceeded all of its regulatory capital
requirements with tangible, leverage, and risk-based capital ratios of 5.34%,
5.34%, and 13.53%, respectively. The respective minimum regulatory requirements
were 1.50%, 3.00%, and 8.00%. During 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. LISB also
created a similar subsidiary in September 1997, which the Association acquired
in connection with the LIB Acquisition.
Retained earnings at December 31, 1998 and 1997 include approximately $159.1
million for which no Federal income tax liability has been recognized. These
amounts 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. 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 1998 reflect the Company's objective to prudently
and effectively deploy its capital through asset growth, with continued emphasis
on one-to-four family mortgage lending and purchases of mortgage-backed
securities. Management of the Company believes that these investment choices
generate additional earnings with minimal credit risk and have substantial
liquidity. In fulfilling this objective as well as managing excess cash flows
resulting from higher than normal prepayments, the Company has experienced
record volumes of loan originations and security purchases. These record volumes
of originations and purchases reflect the Company's ability to effectively
manage its cash flow which has been significantly impacted by the declines in
interest rates, causing increased mortgage demand and extremely high levels of
prepayments over the past two years.
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, 1998 and 1997, the
Company originated gross mortgage loans totaling $5.00 billion and $3.47
billion, respectively, of which $2.41 billion and $1.74 billion, respectively,
were originated through mortgage brokers. In addition, for the years ended
December 31, 1998 and 1997, gross mortgage loan purchases totaled $187.5 million
and $562.4 million, respectively. The Company sells a significant portion of its
mortgage originations, on both a servicing retained and servicing released
basis. During the years ended December 31, 1998 and 1997, the Company sold
mortgage loans totaling $1.43 billion and $969.2 million, respectively,
consisting primarily of FHA/VA and thirty-year conforming conventional loans. As
of December 31, 1998, $3.94 billion, or 45.0% of the Company's total mortgage
loan portfolio were secured by properties located in 45 states other than New
York State. The Company has a concentration of lending in Connecticut, New
Jersey and Maryland, each comprising 5.0% or more of the Company's total
mortgage loan portfolio.
The Company utilizes mortgage-backed and other securities purchases as a
complement to its mortgage
40
<PAGE> 43
lending activities. Purchases during 1998 primarily consisted of U.S. Government
and agency obligations (CMOs, REMICs and debentures) or other AAA- rated issues.
For the years ended December 31, 1998 and 1997, purchases of mortgage-backed
securities totaled $6.58 billion and $918.3 million, respectively, and purchases
of other securities totaled $1.27 billion and $924.3 million, respectively. The
substantial increase in the Company's purchases of mortgage-backed securities
during the year ended December 31, 1998 reflects the Company's growth in
interest-earning assets and interest-bearing liabilities as well as the cash
management objectives as discussed above. Agency and AAA-rated mortgage-backed
securities provide liquidity, collateral for borrowings and minimal credit risk
while providing appropriate returns.
Asset growth was primarily funded through increases in borrowed funds. For the
years ended December 31, 1998 and 1997, net borrowings increased $4.12 billion
and $1.19 billion, respectively. Reverse repurchase agreements increased by
$3.22 billion and $912.2 million, during 1998 and 1997, respectively. FHLB-NY
advances increased by $820.0 million and $2.1 million during 1998 and 1997,
respectively. Management believes that currently, borrowings provide lower
all-in cost effectiveness than deposit generation. The low levels of interest
rates, a flat U.S. Treasury yield curve and continued attractiveness of the
equity markets combined to make significant deposit generation almost
unattainable without incurring unacceptable increases in interest expense.
Despite the attraction of alternate investment choices by the Company's
customers, the Company has been successful in avoiding a relatively significant
outflow of its deposit base. More importantly, core deposits have increased to
47.8% of total deposits at December 31, 1998 from 43.4% at December 31, 1997.
Interest Rate Sensitivity Analysis
The Company's primary component of market risk is interest rate volatility
(which is the sensitivity of income to variations in interest rates). The
Company's market rate sensitive instruments consist of interest-earning assets
and interest-bearing liabilities. Accordingly, 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 interest rate 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 the market value of its assets and liabilities assuming various
interest rate scenarios. As discussed more fully below, a variety of factors
influence the repricing characteristics and the market value of any given asset
or liability.
The matching of the repricing characteristics of assets and liabilities may be
analyzed by examining the extent to which such assets and liabilities are
"interest rate sensitive" and by monitoring an institution's interest rate
sensitivity "gap." An asset or liability is said to be interest rate sensitive
within a specific time period if it will mature or reprice, either by its
contractual terms or based upon certain assumptions, including, but not limited
to, estimated prepayments, made by management, within that time period. The
interest rate sensitivity gap is 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.
41
<PAGE> 44
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, as was the case
during 1998.
Management monitors interest rate sensitivity so that adjustments in the asset
and liability mix, when deemed appropriate, can be made on a timely basis.
Purchases of fixed-rate mortgage-backed securities are concentrated on those
securities with short-and medium-term average lives and originations of
thirty-year fixed rate mortgages are originated and sold in the secondary
market.
During the fourth quarter of 1998, subsequent to the consummation of the LIB
Acquisition, the Company prepaid $1.41 billion of reverse repurchase agreements
and FHLB-NY advances with a weighted average maturity of 1.07 years, a weighted
average initial call date of 0.27 years, and a weighted average rate of 5.83%.
As a result of these prepayments, the Company incurred a prepayment penalty of
$10.6 million, net of tax. The Company subsequently borrowed $1.41 billion of
new funds having a weighted average maturity date of 4.52 years, a weighted
average initial call date of 2.46 years and a weighted average rate of 4.86%.
At December 31, 1998, the Company's net interest-earning assets maturing or
repricing within one year exceeded interest-bearing liabilities maturing or
repricing within the same time period by $1.07 billion, representing a positive
cumulative one-year gap of 5.18% of total assets. This compares to a negative
cumulative one-year gap of 4.41% of total assets at December 31, 1997 due to
interest-bearing liabilities maturing or repricing within one year exceeding net
interest-earning assets maturing or repricing within the same time period by
$724.1 million. The Company's December 31, 1998 and 1997 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, 1998 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 $6.46 billion, representing
a positive cumulative one-year gap of 31.39% of total assets. Using this method
at December 31, 1997, 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 $1.53 billion, representing a positive cumulative
one-year gap of 9.33% of total assets. The available-for-sale securities may or
may not be sold, or effectively repriced, since that activity is subject to
management's discretion.
The following table ("the Gap Table") sets forth the amount of interest-earning
assets and interest-bearing liabilities outstanding at December 31, 1998 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 $1.33 billion of callable other securities
at their amortized cost, classified according to their maturity dates, which are
primarily within the more than five years maturity category. Of such securities,
$890.3 million are callable within one year. Also included in this table are
$8.63 billion of callable borrowings, classified according to their maturity
dates, which are primarily within the more than three years to five years
maturity category and the more than five years maturity category. Of such
borrowings, $2.07 billion are initially callable within one year.
42
<PAGE> 45
<TABLE>
<CAPTION>
At December 31, 1998
-----------------------------------------------------------------------------------
More than More than
One Year Three Years
One Year to to More than
(Dollars in Thousands) or Less Three Years Five Years Five Years Total
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (1) $2,493,928 $2,198,541 $2,027,472 $1,940,877 $ 8,660,818
Consumer and other loans (1) 179,438 43,713 - - 223,151
Federal funds sold and
repurchase agreements 266,437 - - - 266,437
Mortgage-backed securities
and other securities available-
for-sale (2) 2,801,386 1,405,645 633,791 3,355,622 8,196,444
Mortgage-backed securities
and other securities held-to-
maturity (2) 437,836 225,273 169,007 1,489,935 2,322,051
- - --------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 6,179,025 3,873,172 2,830,270 6,786,434 19,668,901
Add:
Net unamortized purchase premiums
and deferred fees (3) 8,201 7,650 7,161 6,461 29,473
- - --------------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets 6,187,226 3,880,822 2,837,431 6,792,895 19,698,374
- - --------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings 281,568 563,136 563,136 1,407,841 2,815,681
NOW 8,784 17,568 17,568 131,720 175,640
Money manager 17,832 35,664 35,664 267,569 356,729
Money market 707,526 29,952 29,952 89,865 857,295
Certificates of deposit 3,601,044 1,144,240 291,580 5,888 5,042,752
Borrowed funds (2) 503,190 649,984 4,379,623 3,490,000 9,022,797
- - --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 5,119,944 2,440,544 5,317,523 5,392,883 18,270,894
- - --------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap 1,067,282 1,440,278 (2,480,092) 1,400,012 $ 1,427,480
- - --------------------------------------------------------------------------------------------------------------------------------
Cumulative interest sensitivity gap $1,067,282 $2,507,560 $ 27,468 $1,427,480
- - --------------------------------------------------------------------------------------------------------------------------------
Cumulative interest sensitivity
gap as a percentage of total assets 5.18% 12.18% 0.13% 6.93%
Cumulative net interest-earning
assets as a percentage of
interest-bearing liabilities 120.85% 133.17% 100.21% 107.81%
</TABLE>
(1) Mortgage, consumer and other loans exclude non-performing loans, but are
not reduced for the allowance for loan losses.
(2) Includes $890.3 million of other securities and $2.07 billion of
borrowings, which are callable within one year and at various times
thereafter, which are classified above according to their contractual
maturity dates (primarily in the more than five years category for other
securities and the more than three years to five years and the more than
five years categories for borrowings).
(3) Net unamortized purchase premiums and deferred fees are prorated.
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, 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 less than one year. The
Company has offered and currently offers
43
<PAGE> 46
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 rate 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 (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, U.S. 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 those the Company would incur to replace such funding of
similar remaining maturities. The NPV 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.
44
<PAGE> 47
The following represents the Company's NPV Table as of December 31, 1998:
<TABLE>
<CAPTION>
Net Portfolio Value ("NPV") Portfolio Value of Assets
Rates in ---------------------------------------- --------------------------
Basis Points Dollar Dollar Percentage NPV Sensitivity
(Rate Shock) Amount Change Change Ratio Change
------------ ------ ------ ------ ----- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
+200 $1,186,946 $(692,110) (36.83)% 6.15% (3.01)%
+100 1,602,635 (276,421) (14.71) 8.03 (1.13)
-0- 1,879,056 - - 9.16 -
-100 1,697,986 (181,069) (9.64) 8.16 (1.00)
-200 1,517,028 (362,028) (19.27) 7.20 (1.95)
</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 NPV Table 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 NPV 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. See Note 10 of Notes to Consolidated
Financial Statements in Item 8, "Financial Statements and Supplementary Data"
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.
COMPARISON OF FINANCIAL CONDITION AND OPERATING RESULTS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
FINANCIAL CONDITION
Total assets increased $4.16 billion or 25.3%, to $20.59 billion at December 31,
1998, from $16.43 billion at December 31, 1997. This increase was primarily due
to the Company's short-term objective of effectively deploying capital through
asset growth, which resulted in increases in the mortgage-backed securities and
mortgage loan portfolios. Mortgage-backed securities increased $2.80 billion to
$8.69 billion at December 31, 1998, from $5.89 billion at December 31, 1997.
This increase was attributable to $6.58 billion of purchases during 1998,
partially offset by $1.64 billion of sales. The Company's objective to deploy
capital through asset growth during 1998 was concentrated in the purchases of
agency REMICs, which combined with the growth in the Company's loan portfolio,
reflected its continued emphasis on residential lending. The Company's net loan
portfolio increased $1.00 billion, to $8.95 billion at December 31, 1998, from
$7.95 billion at December 31, 1997. During the year ended December 31, 1998,
gross mortgage loans originated and purchased totaled $5.19 billion, of which
$5.00 billion were originations and $187.5 million were third party purchases.
This compares to $3.47 billion and $562.4 million of originations and purchases,
respectively, for the year ended December 31, 1997. The increase in mortgage
loan originations was partially offset by loan prepayments, as well as normal
principal repayments. Loan originations were primarily in seven- and ten-year
adjustable rates and fifteen- and
45
<PAGE> 48
thirty-year fixed rate products. The Company sells all thirty-year fixed-rate
mortgage loans in the secondary market. See "Lending and Investing Activities"
for further discussion.
In addition to the increases in the mortgaged-backed securities and mortgage
loan portfolios, federal funds sold and repurchase agreements increased $155.8
million to $266.4 million at December 31, 1998, from $110.6 million at December
31, 1997. Other securities also increased $67.7 million to $1.61 billion at
December 31, 1998, from $1.55 billion at December 31, 1997.
The growth in the mortgage-backed securities and mortgage loan portfolios was
funded primarily through additional medium-term and long-term callable reverse
repurchase agreements and FHLB-NY advances. Reverse repurchase agreements
increased $3.39 billion to $7.29 billion at December 31, 1998, from $3.90
billion at December 31, 1997. Federal Home Loan Bank advances increased $787.0
million to $1.21 billion at December 31, 1998, from $423.1 million at December
31, 1997. Deposits, another source of funds, decreased $283.1 million to $9.67
billion at December 31, 1998, from $9.95 billion at December 31, 1997 as
competition with equity markets, coupled with a low interest rate environment,
creates minimal opportunities for deposit growth.
Accrued expenses and other liabilities increased $171.9 million, from $146.3
million at December 31, 1997 to $318.2 million at December 31, 1998. The
increase was a result of the Company's accrued acquisition costs and
restructuring charges for the LIB Acquisition coupled with accrued interest
payable, which increased in direct relation to the increase in borrowed funds.
Stockholders' equity increased to $1.46 billion at December 31, 1998, from $1.45
billion at December 31, 1997. The $16.7 million increase in stockholders' equity
reflects net income of $45.0 million, the amortization relating to the
allocation of ESOP stock and earned portion of RRP stock and related tax benefit
of $26.5 million, the effect of stock options exercised and related tax benefit
of $24.4 million and the adjustment to conform the fiscal year of LIB to the
Company of $10.9 million. These increases were offset by dividends declared of
$38.6 million, the change in unrealized losses on securities, net of taxes, of
$34.9 million and the repurchases of Common Stock, in the first quarter of 1998,
of $16.6 million.
RESULTS OF OPERATIONS
GENERAL
The following comparison of net income, earnings per common share and related
returns reflect 1998 results exclusive of infrequently occurring charges related
to the LIB Acquisition of $89.7 million, after-tax and penalties related to
prepaid borrowings of $10.6 million, after-tax. See Consolidated Schedule of
Core Earnings on page 54 for details of these charges. For the year ended
December 31, 1998, net income increased $27.5 million, or 23.4%, to $145.4
million, from $117.9 million for the year ended December 31, 1997. Diluted
earnings per common share for the year ended December 31, 1998 increased to
$2.64 per share, or 10.5%, from $2.39 for the year ended December 31, 1997. The
return on average assets for the year ended December 31, 1998 decreased to
0.79%, from 0.84% for the year ended December 31, 1997. The return on average
common stockholders' equity for the year ended December 31, 1998 decreased to
9.68%, from 9.81% for the year ended December 31, 1997. The return on average
tangible stockholders' equity for the year ended December 31, 1998 increased to
11.78%, from 11.16% for the year ended December 31, 1997.
Net income, including the infrequently occurring charges for the 1998 period,
decreased $72.9 million to $45.0 million for the year ended December 31, 1998,
from $117.9 million for the year ended December 31, 1997. For the year ended
December 31, 1998, diluted earnings per common share decreased to $0.74, as
compared to $2.39 per share for the year ended December 31, 1997. Return on
average assets decreased to 0.25% for the year ended December 31, 1998, from
0.84% for the year ended December 31,
46
<PAGE> 49
1997. Return on average common stockholders' equity decreased to 2.71% for the
year ended December 31, 1998, from 9.81% for the year ended December 31, 1997.
Return on average tangible stockholders' equity decreased to 3.65% for the year
ended December 31, 1998, from 11.16% for the year ended December 31, 1997.
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 Company's net interest income is significantly impacted by changes in
interest rates and changes in market yield curves. Over the past two years,
interest rates have declined significantly, and the markets for which related
financial instruments trade have become increasingly volatile. In addition, the
decline in interest rates on long-term instruments has been greater than the
decline in rates on short-term instruments, accentuating the flatness of the
U.S. Treasury yield curve. As such, the Company has continued to experience
compression on its net interest spread and net interest margin.
Net interest income increased $74.4 million, or 19.9%, to $449.0 million for the
year ended December 31, 1998, from $374.6 million for the year ended December
31, 1997. This change was the result of an increase in total average
interest-earning assets of $3.98 billion, offset by an increase in total average
interest-bearing liabilities of $3.71 billion. The effect of the growth in
average net interest-earning assets was partially offset by the decrease in the
Company's net interest rate spread to 2.20% for 1998, from 2.38% for 1997. This
decrease in net interest rate spread was the result of the average yield on
total interest-earning assets decreasing to 7.03% for 1998 from 7.27% for 1997,
partially offset by the average cost of interest-bearing liabilities decreasing
to 4.83% for 1998, from 4.89% for 1997. The Company's net interest margin
decreased to 2.58% for 1998, from 2.78% for 1997.
ANALYSIS OF NET INTEREST INCOME
The following table sets forth certain information relating to the Company for
the years ended December 31, 1998, 1997 and 1996. 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 average daily balances. 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.
47
<PAGE> 50
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------
1998 1997
---------------------------------------------------------------------------------
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 (1) $ 8,321,732 $ 612,606 7.36% $ 6,568,162 $503,504 7.67%
Consumer and other loans (1) 260,615 24,422 9.37 237,580 23,981 10.09
Mortgage-backed securities (2) 6,662,882 438,934 6.59 5,178,752 352,841 6.81
Other securities (2) 1,885,438 132,414 7.02 1,253,939 85,968 6.86
Federal funds sold and repurchase
agreements 296,516 16,072 5.42 213,502 11,861 5.56
----------- ---------- ----------- --------
Total interest-earning assets 17,427,183 1,224,448 7.03 13,451,935 978,155 7.27
---------- --------
Non-interest-earning assets 893,388 555,483
----------- -----------
Total assets $18,320,571 $14,007,418
=========== ===========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings $ 2,889,510 $ 72,243 2.50% $ 2,560,738 $ 70,755 2.76
Certificates of deposit 5,297,309 288,914 5.45 4,926,488 274,042 5.56
NOW 130,476 1,696 1.30 105,930 1,700 1.60
Money market 729,106 32,108 4.40 484,599 20,121 4.15
Money manager 366,957 4,641 1.26 312,662 4,925 1.58
Borrowed funds 6,642,452 375,863 5.66 3,963,322 232,048 5.85
----------- ---------- ----------- --------
Total interest-bearing
liabilities 16,055,810 775,465 4.83 12,353,739 603,591 4.89
---------- --------
Non-interest-bearing liabilities 774,538 454,903
----------- -----------
Total liabilities 16,830,348 12,808,642
Stockholders' equity 1,490,223 1,198,776
----------- -----------
Total liabilities and
stockholders' equity $18,320,571 $14,007,418
=========== ===========
Net interest income/net
interest rate spread (3) $ 448,983 2.20% $374,564 2.38%
========= ==== ======== ====
Net interest-earning assets/
net interest margin (4) $ 1,371,373 2.58% $ 1,098,196 2.78%
=========== ==== =========== ====
Ratio of interest-earnings assets
to interest-bearing liabilities 1.09x 1.09x
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1996
-------------------------------------
Average
Average Yield/
(Dollars in Thousands) Balance Interest Cost
------- -------- ----
<S> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans (1) $ 4,700,520 $370,867 7.89%
Consumer and other loans (1) 216,504 23,164 10.70
Mortgage-backed securities (2) 5,530,547 380,825 6.89
Other securities (2) 979,359 62,932 6.43
Federal funds sold and repurchase
agreements 87,364 4,681 5.36
----------- --------
Total interest-earning assets 11,514,294 842,469 7.32
--------
Non-interest-earning assets 485,325
-----------
Total assets $11,999,619
===========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings $ 2,497,554 $ 69,019 2.76
Certificates of deposit 4,595,134 256,814 5.59
NOW 201,847 4,413 2.19
Money market 379,901 13,065 3.44
Money manager 193,124 3,951 2.05
Borrowed funds 2,673,097 154,081 5.76
----------- --------
Total interest-bearing
liabilities 10,540,657 501,343 4.76
--------
Non-interest-bearing liabilities 356,822
-----------
Total liabilities 10,897,479
Stockholders' equity 1,102,140
-----------
Total liabilities and
stockholders' equity $11,999,619
===========
Net interest income/net
interest rate spread (3) $341,126 2.56%
======== ====
Net interest-earning assets/
net interest margin (4) $ 973,637 2.96%
=========== ====
Ratio of interest-earnings assets
to interest-bearing liabilities 1.09x
</TABLE>
(1) Mortgage and consumer loans include non-performing loans and exclude the
allowance for loan losses.
(2) Securities available-for-sale are reported at average amortized cost.
(3) 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.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
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.
48
<PAGE> 51
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Year Ended December 31, 1997
Compared to Compared to
Year Ended December 31, 1997 Year Ended December 31, 1996
------------------------------------- ------------------------------------
Increase (Decrease) Increase (Decrease)
------------------------------------- ------------------------------------
(In Thousands) Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans $130,125 $(21,023) $109,102 $143,265 $(10,628) $132,637
Consumer and other loans 2,225 (1,784) 441 2,181 (1,364) 817
Mortgage-backed securities 97,849 (11,756) 86,093 (23,665) (4,319) (27,984)
Other securities 44,390 2,056 46,446 18,600 4,436 23,036
Federal funds sold and
repurchase agreements 4,516 (305) 4,211 6,999 181 7,180
-------- -------- -------- -------- -------- --------
Total 279,105 (32,812) 246,293 147,380 (11,694) 135,686
-------- -------- -------- -------- -------- --------
Interest-bearing liabilities:
Savings 8,539 (7,051) 1,488 1,736 - 1,736
Certificates of deposit 20,359 (5,487) 14,872 18,601 (1,373) 17,228
NOW 349 (353) (4) (1,731) (982) (2,713)
Money market 10,709 1,278 11,987 4,035 3,021 7,056
Money manager 793 (1,077) (284) 2,036 (1,062) 974
Borrowed funds 151,592 (7,777) 143,815 75,522 2,445 77,967
-------- -------- -------- -------- -------- --------
Total 192,341 (20,467) 171,874 100,199 2,049 102,248
-------- -------- -------- -------- -------- --------
Net change in net interest
income $ 86,764 $(12,345) $ 74,419 $ 47,181 $(13,743) $ 33,438
======== ======== ======== ======== ======== ========
</TABLE>
INTEREST INCOME
Interest income for the year ended December 31, 1998 increased $246.3 million,
or 25.2%, to $1.22 billion, from $978.2 million for the year ended December 31,
1997. This increase was the result of a $3.98 billion increase in average
interest-earning assets to $17.43 billion for the year ended December 31, 1998,
from $13.45 billion for 1997. This increase was partially offset by a decrease
in the average yield of interest-earning assets to 7.03% for 1998 from 7.27% for
1997. The increase in average interest-earning assets was primarily due to
increases in mortgage loans and mortgage-backed and other securities.
During 1998, the Company continued to emphasize the origination of mortgage
loans. Interest income on mortgage loans increased $109.1 million to $612.6
million for 1998, which was the result of an increase in the average balance of
$1.75 billion for 1998, partially offset by a decrease in the average yield on
mortgage loans to 7.36% for 1998, from 7.67% for 1997. The decrease of the
average yield was due to the flattening of the U.S. Treasury yield curve and the
significant decline in market rates, which has resulted in increased prepayments
and refinancing activity.
Interest income on mortgage-backed securities increased $86.1 million to $438.9
million for 1998, from $352.8 million for 1997 reflecting the Company's strategy
of effectively deploying its capital through asset growth. This increase was the
result of a $1.48 billion increase in the average balance of this portfolio,
partially offset by a decrease in the average yield to 6.59% for 1998, from
6.81% for 1997. The decrease in yield on the mortgage-backed portfolio is a
result of overall decreases in market rates coupled with accelerated
prepayments, resulting in reinvestments at lower rates. Interest income on other
securities increased $46.4 million to $132.4 million for 1998, from $86.0
million for 1997. The increase was a result of the combined effect of an
increase in the average balance of this portfolio of $631.5 million and
49
<PAGE> 52
an increase in the average yield to 7.02% for 1998, from 6.86% for 1997
primarily resulting from the Company's purchases of higher-yielding long-term
U.S. government agency securities with call features during the second half of
1997 and first half of 1998. Interest income on federal funds sold and
repurchase agreements increased $4.2 million as a result of an increase in the
average balance of $83.0 million, partially offset by a decrease in the average
yield to 5.42% for 1998, from 5.56% for 1997.
INTEREST EXPENSE
Interest expense for the year ended December 31, 1998 increased $171.9 million,
or 28.5%, to $775.5 million, from $603.6 million for the year ended December 31,
1997. This increase was attributable to an increase in the average balance of
interest-bearing liabilities of $3.71 billion, to $16.06 billion for the year
ended December 31, 1998 from $12.35 billion for the year ended December 31,
1997, partially offset by a decrease in the average cost of such liabilities to
4.83% for 1998 from 4.89% for 1997. The increase in average interest-bearing
liabilities was attributable to increases in the average balances of both
borrowings and deposits. The Company significantly increased borrowings with
lower interest rates during 1998 which were primarily utilized to fund the asset
growth discussed above.
Interest expense on borrowed funds increased $143.9 million, or 62.0%, to $375.9
million for the year ended December 31, 1998, from $232.0 million for the year
ended December 31, 1997. This increase was attributable to an increase in the
average balance of borrowings of $2.68 billion, to $6.64 billion for 1998, from
$3.96 billion for 1997, partially offset by a decrease in the average cost of
borrowings to 5.66% for 1998, from 5.85% for 1997. The Company continues to
utilize medium-term and long-term callable borrowings as a funding source for
asset growth, which provide the Company with flexibility and efficiency which
cannot be obtained through deposit growth.
Interest expense on deposits increased $28.1 million to $399.6 million for 1998,
from $371.5 million for 1997, reflecting an increase in the average balance of
total interest-bearing deposits of $1.02 billion, offset by a decrease in the
average cost of interest-bearing deposits to 4.25% in 1998 from 4.43% in 1997.
The increase in the average balance of deposits reflects the addition of
deposits from The Greater Acquisition which was completed following the close of
business on September 30, 1997. Interest expense on savings accounts increased
$1.5 million as a result of an increase in the average balance of $328.8
million, offset by a decrease in the average cost to 2.50% for 1998, from 2.76%
for 1997. This decrease in average cost is a result of the Company lowering the
rates offered on savings accounts during 1998. Interest expense on certificates
of deposit increased $14.9 million to $288.9 million for 1998, from $274.0
million for 1997. This increase was the result of the average balance of these
accounts increasing $370.8 million, offset in part by a decrease in the average
cost to 5.45% for 1998, from 5.56% for 1997.
Interest expense on money market accounts increased $12.0 million to $32.1
million for 1998, from $20.1 million for 1997, due to an increase in both the
average cost and average balance of such accounts. The average cost of money
market accounts increased to 4.40% for year ended December 31, 1998 from 4.15%
for the year ended December 31, 1997. Interest paid on money market accounts is
on a tiered basis with over 82.2% of the balance in the highest tier. The yield
on this top tier will be at least equal to the discount rate for the three-month
U.S. Treasury bill. While interest rates have fallen, the short end of the yield
curve, reflecting short-term rates, has been the least affected and has not
always moved as quickly as the remaining portion of the yield curve, reflecting
long-term rates. Additionally, the Company has not always reduced the interest
rate on such accounts with the yield curve, thereby attracting new deposits.
Interest expense on money manager accounts decreased $284,000 which was
attributable to a decrease in the average cost of these accounts to 1.26% for
1998, from 1.58% for 1997, partially offset by an increase in average balance of
$54.3 million. Interest expense on NOW accounts remained unchanged at $1.7
million for 1998 and 1997. This was attributable to the combined effect of the
increase in the average balance of $24.5 million, offset by a decrease in the
average cost of these accounts to 1.30% for 1998, from 1.60% for 1997. The
decrease in the average cost of NOW and money manager accounts is a result of
the Company lowering the rates offered on these accounts during 1998.
50
<PAGE> 53
PROVISION FOR LOAN LOSSES
Provision for loan losses increased $6.3 million, to $15.4 million for the year
ended December 31, 1998, from $9.1 million for the year ended December 31, 1997.
Of the $6.3 million increase in the provision for loan losses, $5.6 million was
recorded for nonspecific loan losses to conform LIB's previous accounting
practices and asset review methodologies to those of the Company. Net loan
charge-offs for the year ended December 31, 1998 totaled $14.8 million, which
included $9.2 million in charge-offs relating to one property, compared to $8.6
million in net loan charge-offs for the year ended December 31, 1997. The net
effect of the provision for loan losses and total 1998 net loan charge-offs, in
addition to the $146,000 adjustment to conform the fiscal year of LIB to the
Company, increased the Company's allowance for loan losses by $483,000, to $74.4
million at December 31, 1998, from $73.9 million at December 31, 1997.
Non-performing loans increased to $111.1 million at December 31, 1998, from
$89.9 million at December 31, 1997. The allowance for loan losses to
non-performing loans and the allowance for loan losses to total loans decreased
to 66.99% and 0.83%, respectively, at December 31, 1998, from 82.23% and 0.93%,
respectively, at December 31, 1997. The Company's percentage of non-performing
loans to total loans increased to 1.23% at December 31, 1998, from 1.12% at
December 31, 1997. For further discussion on non-performing loans and allowance
for loan losses, see "Asset Quality."
NON-INTEREST INCOME
Non-interest income for the year ended December 31, 1998, excluding net gain on
sales of securities, increased $2.5 million, or 5.3%, to $49.6 million, from
$47.1 million for the year ended December 31, 1997. Customer service and other
loan fees increased $11.3 million to $34.6 million for 1998 from $23.3 million
for 1997 primarily as a result of the additional banking offices acquired from
The Greater in the fourth quarter of 1997. The increases in customer service and
other loan fees are also due in part to the Company's increasing customer
service fees in June 1998, record loan originations and overall growth in the
loan portfolio during 1998. Loan servicing fees include all contractual and
ancillary servicing revenue received by the Company net of amortization of
mortgage servicing rights and valuation allowance adjustments for the impairment
in mortgage servicing rights. Loan servicing fees decreased $7.3 million to $5.2
million for 1998, from $12.5 million for 1997. This decrease is primarily
attributable to a $5.8 million increase in the amortization of mortgage
servicing rights and a $3.1 million impairment provision due to accelerated loan
prepayments given the interest rate environment for 1998.
Net gain on sales of loans decreased to $2.0 million for the year ended December
31, 1998, from $4.0 million for the year ended December 31, 1997. Included in
those gains for 1997 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. Net gains on sales of securities decreased $3.4 million to $11.0
million for the year ended December 31, 1998 from $14.4 million for the year
ended December 31, 1997. The decrease was primarily attributable to a $4.0
million loss, recorded in the fourth quarter of 1998, on the sale of
mortgage-backed securities held by the former LIB at premiums, where the book
values of such securities exceeded their par values. The securities were sold as
part of the Company's asset/liability management process which includes certain
portfolio restructurings.
NON-INTEREST EXPENSE
Non-interest expense for the year ended December 31, 1998 was $376.6 million, an
increase of $149.3 million, or 65.7%, from $227.3 million for the year ended
December 31, 1997. Of this increase, $124.2 million was attributable to
acquisition costs and restructuring charges related to the LIB Acquisition. For
a detailed description of these acquisition costs and restructuring charges, see
Note 2 of Notes to Consolidated Financial Statements in Item 8, "Financial
Statements and Supplementary Data." Excluding this infrequently occurring
charge, non-interest expense for the year ended December 31, 1998 was $252.4
million, or an increase of $25.1 million over the prior year. The amortization
of goodwill increased $8.1 million to $19.8 million for 1998, from $11.7 million
for 1997, due to a full year of amortization of
51
<PAGE> 54
goodwill generated from The Greater Acquisition incurred during 1998, versus one
quarter of amortization incurred during 1997.
General and administrative expense also increased $20.9 million, to $234.6
million for 1998, from $213.7 for 1997. The increase in general and
administrative expense was primarily the result of increases in occupancy,
equipment and systems expense and other expense. Occupancy, equipment and
systems expense increased $9.6 million, or 20.0%, to $57.7 million for 1998,
from $48.1 million for 1997. This increase was primarily a result of the full
year effect of the additional banking offices acquired from The Greater
Acquisition in the fourth quarter of 1997. Other non-interest expense increased
$12.9 million to $46.9 million for 1998, from $34.0 million for 1997. Of this
increase, $8.4 million was attributable to various accruals recorded by the
former LIB for expenses incurred during their quarter ended September 30, 1998
and for differences between the former LIB's general ledger and various
subsidiary ledgers. These increases were partially offset by a decrease of $4.2
million in advertising expense to $4.8 million for 1998 from $9.0 million for
1997. The Company's percentage of general and administrative expense to average
assets improved to 1.28% for the year ended December 31, 1998, from 1.53% for
the year ended December 31, 1997. The Company's efficiency ratio also improved
to 47.05% for the year ended December 31, 1998 from 50.68% for the year ended
December 31, 1997.
INCOME TAX EXPENSE
For the year ended December 31, 1998, income tax expense was $61.8 million,
representing an effective tax rate of 52.6%, as compared to $81.8 million,
representing an effective tax rate of 41.0%, for the 1997 period. The increase
in the Company's effective tax rate was primarily attributable to the
infrequently occurring charges related to the LIB Acquisition which included
approximately $24.0 million of charges which are not deductible for income tax
purposes.
CASH EARNINGS
Tangible stockholders' equity (stockholders' equity less goodwill) totaled $1.22
billion at December 31, 1998, compared to $1.18 billion at December 31, 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 GAAP.
Although reported earnings and return on equity are traditional measures of a
company's performance, management believes that the increase 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. The following comparisons exclude acquisition costs
and other infrequently occurring charges incurred during 1998. For the year
ended December 31, 1998, core cash earnings totaled $191.7 million, or $46.3
million more than core earnings, representing a cash return on average tangible
equity of 15.53%. For the year ended December 31, 1997, core cash earnings
totaled $153.1 million, or $35.2 million more than reported net income,
representing a cash return on average tangible equity of 14.49%. Management
believes that various other performance measures should also be analyzed
utilizing cash earnings. The cash return on average assets
52
<PAGE> 55
was 1.05% and 1.09% for the years ended December 31, 1998 and 1997,
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 1.18% and 43.40%, respectively, for the year ended December
31, 1998, from 1.39% and 46.09%, respectively, for the year ended December 31,
1997. For more details on core cash earnings and core earnings, see
"Consolidated Schedule of Core Earnings and Core Cash Earnings" on the following
page.
53
<PAGE> 56
CONSOLIDATED SCHEDULE OF CORE EARNINGS AND CORE CASH EARNINGS (1)
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
--------------------------------------
SCHEDULE OF CORE EARNINGS 1998 1997
---- ----
<S> <C> <C>
Interest income $ 1,224,448 $ 978,155
Interest expense 775,465 603,591
- - -------------------------------------------------------------------------------------------------------------------
Net interest income 448,983 374,564
Provision for loan losses (1) 9,780 9,061
- - -------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 439,203 365,503
- - -------------------------------------------------------------------------------------------------------------------
Total non-interest income (1) 64,483 61,477
Non-interest expense:
Total general and administrative 234,553 213,671
Total real estate operations and provision for losses, net (1,854) 1,863
Amortization of goodwill 19,754 11,722
- - -------------------------------------------------------------------------------------------------------------------
Total non-interest expense (1) 252,453 227,256
- - -------------------------------------------------------------------------------------------------------------------
Core earnings before income tax expense (1) 251,233 199,724
Provision for income taxes (1) 105,810 81,840
- - -------------------------------------------------------------------------------------------------------------------
Core earnings 145,423 117,884
- - -------------------------------------------------------------------------------------------------------------------
Preferred dividends declared (6,000) (1,500)
- - -------------------------------------------------------------------------------------------------------------------
Core earnings available to common shareholders $ 139,423 $ 116,384
===================================================================================================================
Basic core earnings per common share $ 2.74 $ 2.51
===================================================================================================================
Diluted core earnings per common share $ 2.64 $ 2.39
===================================================================================================================
SCHEDULE OF CORE CASH EARNINGS
Core earnings $ 145,423 $ 117,884
Add back:
Employee stock plans amortization expense (2) 18,195 19,338
Amortization of goodwill (3) 19,754 11,722
Income tax benefit on amortization expense of
earned portion RRP stock (4) 8,302 4,116
- - -------------------------------------------------------------------------------------------------------------------
Core cash earnings 191,674 153,060
- - -------------------------------------------------------------------------------------------------------------------
Preferred dividends declared (6,000) (1,500)
- - -------------------------------------------------------------------------------------------------------------------
Core cash earnings available to common shareholders $ 185,674 $ 151,560
===================================================================================================================
Basic core cash earnings per common share $ 3.65 $ 3.27
===================================================================================================================
Diluted core cash earnings per common share $ 3.51 $ 3.11
===================================================================================================================
Basic weighted average common shares 50,801,598 46,362,179
Diluted weighted average common and common
equivalent shares 52,886,191 48,765,698
</TABLE>
(1) Acquisition, restructuring and other infrequently occurring charges have
been excluded for purposes of displaying core earnings. The following
details such charges:
<TABLE>
<CAPTION>
Before Tax Tax Effect After Tax
---------- ---------- ---------
<S> <C> <C> <C>
Acquisition-related costs $124,168 $40,317 $ 83,851
Additional loan loss reserves 5,600 1,960 3,640
Asset/liability management actions:
Penalties related to borrowings prepaid 18,547 7,910 10,637
Losses on securities sold 3,955 1,708 2,247
--------------------------------------------
Total $152,270 $51,895 $100,375
--------------------------------------------
</TABLE>
(2) Non-cash amortization expenses 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.
54
<PAGE> 57
COMPARISON OF FINANCIAL CONDITION AND OPERATING RESULTS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
FINANCIAL CONDITION
Total assets increased $3.84 billion or 30.6%, to $16.43 billion at December 31,
1997, from $12.59 billion at December 31, 1996, primarily due to The Greater
Acquisition which added $2.37 billion in assets. The asset growth was
concentrated in the mortgage loan and securities portfolios. The Company's net
loan portfolio increased $2.21 billion, to $7.95 billion at December 31, 1997,
from $5.74 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. During the
year ended December 31, 1997, gross mortgage loans originated and purchased
totaled $4.04 billion, of which $3.47 billion were originations and $562.4
million were third party purchases. This compares to $2.03 billion and $1.27
billion of originations and purchases (of which $60.2 million were bulk
purchases), respectively, for the year ended December 31, 1996. See "Lending and
Investing Activities" for further discussion. Mortgage-backed securities
increased $730.8 million to $5.89 billion at December 31, 1997, from $5.16
billion at December 31, 1996. This increase was primarily attributable to the
addition of $1.15 billion of such securities acquired from The Greater and
$918.3 million of purchases, partially offset by $1.17 billion of sales during
1997. Other securities increased $530.6 million to $1.55 billion at December 31,
1997, from $1.02 billion at December 31, 1996. This increase was attributable to
purchases of $924.3 million and $116.9 million of securities acquired from the
Greater, partially offset by maturities of $360.4 million.
The growth in the mortgage loan and securities portfolios was funded primarily
through medium-term (two to five years) reverse repurchase agreements, which
increased $1.25 billion, of which $339.0 million was a result of The Greater
Acquisition, to $3.90 billion at December 31, 1997, from $2.65 billion at
December 31, 1996. Federal Home Loan Bank advances increased $156.6 million,
which included $154.5 million assumed from The Greater. Other borrowings
increased $276.9 million from $178.0 million at December 31, 1996 to $454.9
million at December 31, 1997 due to the addition of a $300.0 million medium term
note during 1997. Deposits increased $1.80 billion to $9.95 billion at December
31, 1997 from $8.15 billion at December 31, 1996, which was primarily a result
of the $1.60 billion of deposits acquired from The Greater.
Stockholders' equity increased to $1.45 billion at December 31, 1997, from $1.11
billion 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 $117.9 million, the
amortization relating to the allocation of ESOP stock and earned portion of RRP
stock and related tax benefit of $23.5 million, the effect of stock options
exercised and related tax benefit of $8.9 million and the change in unrealized
gains on securities, net of taxes, of $14.1 million. These increases were
partially offset by the repurchases of Common Stock of $85.7 million and
dividends declared of $26.0 million.
RESULTS OF OPERATIONS
GENERAL
The following comparison of net income, earnings per common share and related
returns reflect 1996 results exclusive of the SAIF recapitalization assessment
of $27.6 million after-tax. For the year ended December 31, 1997, net income
increased $21.2 million, or 21.8%, to $117.9 million, from $96.7 million for the
year ended December 31, 1996. Diluted earnings per common share for the year
ended December 31, 1997 increased to $2.39 per share, or 19.5%, from $2.00 for
the year ended December 31, 1996. The return on average assets for the year
ended December 31, 1997 increased to 0.84% from 0.81% for the
55
<PAGE> 58
year ended December 31, 1996. The return on average stockholders' equity for the
year ended December 31, 1997 increased to 9.83% from 8.76% for the year ended
December 31, 1996. The return on average tangible stockholders' equity for the
year ended December 31, 1997 increased to 11.16% from 9.71% for the year ended
December 31, 1996.
Net income, including the SAIF recapitalization assessment for the 1996 period,
increased $48.8 million, to $117.9 million for the year ended December 31, 1997,
from $69.1 million for the year ended December 31, 1996. For the year ended
December 31, 1997, diluted earnings per common share increased to $2.39, as
compared to $1.44 per share for the year ended December 31, 1996. Return on
average assets increased to 0.84% for the year ended December 31, 1997, from
0.58% for the year ended December 31, 1996. Return on average stockholders'
equity increased to 9.83% for the year ended December 31, 1997, from 6.27% for
the year ended December 31, 1996. Return on average tangible stockholders'
equity increased to 11.16% for the year ended December 31, 1997, from 6.95% for
the year ended December 31, 1996.
NET INTEREST INCOME
Net interest income increased $33.5 million, or 9.8%, to $374.6 million for the
year ended December 31, 1997, from $341.1 million for the year ended December
31, 1996. This change was the result of an increase in total average
interest-earning assets of $1.94 billion, offset by an increase in total average
interest-bearing liabilities of $1.81 billion. In addition, the Company's net
interest income for 1997 was significantly impacted by the Company's response to
the flattening of the U.S. Treasury yield curve. The Company's net interest
spread decreased to 2.38% for 1997, from 2.56% for 1996. This decrease in net
interest spread was the result of the average cost of interest-bearing
liabilities increasing to 4.89% for 1997, from 4.76% for 1996, while the average
yield on total interest-earning assets decreased to 7.27% for 1997, from 7.32%
for 1996. During 1997, the decline in the interest rate spread reflects the
funding of asset growth through increased borrowings and the flattening of the
U.S. Treasury yield curve. The Company's net interest margin decreased to 2.78%
for 1997, from 2.96% for 1996 as a result of the decrease in the net interest
rate spread.
INTEREST INCOME
Interest income for the year ended December 31, 1997 increased $135.7 million,
or 16.1%, to $978.2 million, from $842.5 million for the year ended December 31,
1996. This increase was the result of a $1.94 billion increase in average
interest-earning assets to $13.45 billion for the year ended December 31, 1997,
from $11.51 billion for 1996, which was slightly offset by the decrease in
average yield on interest-earning assets from 7.32% in 1996 to 7.27% in 1997.
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. In addition, average interest-earning assets increased due
to the increases in the average balances of mortgage loans and other securities,
while the average balance of mortgage-backed securities, which provided a lower
yield in 1997 than mortgage loans or other securities, declined. These movements
in average balances reflect the Company's continued emphasis on residential
lending and its response to the steady flattening of the U.S. Treasury yield
curve, which included purchases of higher-yielding long-term U.S. Government
agency securities with callable features and maturities over three years. These
activities in the context of the interest rate environment in 1997 resulted in
the decrease in average yield on interest-earning assets.
Interest income on mortgage loans increased $132.6 million to $503.5 million for
1997, which was the result of an increase in the average balance of $1.87
billion for 1997, partially offset by a decrease in the average yield on
mortgage loans to 7.67% for 1997, from 7.89% for 1996. Interest income on
mortgage-backed securities decreased $28.0 million, to $352.8 million for 1997,
from $380.8 million for 1996. This decrease was the result of a $351.8 million
decrease in the average balance of this portfolio, coupled with a decrease in
the average yield to 6.81% for 1997 from 6.89% for 1996. Interest income on
other
56
<PAGE> 59
securities increased $23.1 million to $86.0 million for 1997, from $62.9 million
for 1996. The increase was a result of the combined effect of an increase in the
average balance of this portfolio of $274.6 million and an increase in the
average yield to 6.86% for 1997, from 6.43% for 1996. Interest income on federal
funds sold and repurchase agreements increased $7.2 million as a result of the
combined effect of an increase in the average balance of $126.1 million and an
increase in the average yield to 5.56% for 1997 from 5.36% for 1996.
INTEREST EXPENSE
Interest expense for the year ended December 31, 1997 increased $102.3 million,
or 20.4%, to $603.6 million, from $501.3 million for the year ended December 31,
1996. This increase was partially attributable to increases in both the average
balance of interest-bearing liabilities of $1.81 billion to $12.35 billion for
1997, from $10.54 billion for 1996, and the average cost of such liabilities to
4.89% for 1997, from 4.76% for 1996. The increase in average 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, which have a higher cost of funds than deposits, during
1997 which were primarily utilized to fund the asset growth discussed above.
Interest expense on interest-bearing deposits increased $24.2 million to $371.5
million for 1997, from $347.3 million for 1996, reflecting an increase in the
average balance of total interest-bearing deposits of $522.9 million, coupled
with an increase in the average cost of deposits to 4.43% from 4.41%. Interest
expense on savings accounts increased $1.7 million as a result of an increase in
the average balance of $63.2 million, while the average cost remained constant
at 2.76%. Interest expense on certificates of deposit increased $17.2 million to
$274.0 million for 1997, from $256.8 million for 1996. This increase was the
result of the average balance of these accounts increasing $331.4 million,
offset in part by a decrease in the average cost to 5.56% for 1997, from 5.59%
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 $2.7 million to $1.7
million for 1997, from $4.4 million for 1996. This decrease was attributable to
the combined effect of the decrease in the average balance of $95.9 million and
a decrease in the average cost of these accounts to 1.60% for 1997, from 2.19%
for 1996. Interest expense on money manager accounts increased $974,000 which
was attributable to an increase in average balance of $119.5 million offset by a
decrease in the average cost of these accounts to 1.58% for 1997, from 2.05% for
1996. Interest expense on money market accounts increased $7.1 million. The
average balance of money market accounts increased $104.7 million from 1996 to
1997 and the average cost of such accounts increased to 4.15% for 1997, from
3.44% 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.
Interest expense on borrowed funds increased $77.9 million, or 50.6%, to $232.0
million for the year ended December 31, 1997, from $154.1 million for the year
ended December 31, 1996. This increase was attributable to an increase in the
average balance of borrowings of $1.29 billion, to $3.96 billion for 1997, from
$2.67 billion for 1996, coupled with an increase in the average cost of
borrowings to 5.85% for 1997, from 5.76% 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 including the
issuance of a $300.0 million medium-term note. 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.
57
<PAGE> 60
PROVISION FOR LOAN LOSSES
Provision for loan losses decreased $1.1 million, to $9.1 million for the year
ended December 31, 1997, from $10.2 million for the year ended December 31,
1996. Non-performing loans increased from $86.6 million at December 31, 1996 to
$89.9 million at December 31, 1997 as a result of the growth in the loan
portfolio. As a result of The Greater Acquisition, 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 1.12% at December 31, 1997 from 1.50% at December 31, 1996.
The Company's percentage of non-performing loans to total assets also decreased
to 0.55% at December 31, 1997 from 0.69% at December 31, 1996. Total net loan
charge-offs for the year ended December 31, 1997 were $8.6 million, compared to
$10.0 million for the year ended December 31, 1996. 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 $73.9 million at
December 31, 1997, from $48.0 million at December 31, 1996. For further
discussion of non-performing loans, see "Asset Quality."
NON-INTEREST INCOME
Non-interest income for the year ended December 31, 1997 was $47.1 million,
excluding net gain on sales of securities of $14.4 million, an increase of $4.0
million, or 9.3%, as compared to $43.1 million, excluding net gain on sales of
securities of $7.6 million for the year ended December 31, 1996. Customer
service and other loan fees increased $3.2 million to $23.3 million for 1997
from $20.1 million for 1996 primarily as a result of the additional banking
offices acquired from The Greater. Loan servicing fees decreased $1.8 million,
or 12.9%, to $12.5 million for the year ended December 31, 1997 from $14.3
million for the year ended December 31, 1996 primarily due to the runoff of
higher yielding fees from previously securitized home equity loans and the
replacement with lower yielding fees from one-to-four family loans serviced for
others. The net gain on sales of loans increased $1.7 million to $4.0 million
for 1997, from $2.3 million for 1996. Included in net gain on sales of loans,
for the year ended December 31, 1997, was a $1.0 million gain from the sale of
the Company's credit card portfolio and a $2.1 million gain relating to the
satisfaction of a former problem loan.
NON-INTEREST EXPENSE
Non-interest expense for the year ended December 31, 1997 was $227.3 million,
which decreased $30.8 million, or 11.9%, from $258.1 million for the year ended
December 31, 1996. Excluding the SAIF recapitalization assessment of $47.2
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 $216.2 million. Excluding these one-time
items in the 1996 total, non-interest expense increased $11.1 million to $227.3
million for 1997 as compared to 1996. The increase was attributable primarily to
the addition of The Greater's operations in the fourth quarter of 1997, 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.
General and administrative expense increased to $213.7 million for the year
ended December 31, 1997, from $208.5 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 6.9%, to $116.1 million for 1997, from $108.5 million for 1996. This was
partially due to a $2.2 million increase in the amortization relating to the
allocation of ESOP stock for 1997, as compared to 1996. Occupancy, equipment and
systems expense increased $4.6 million, or 10.4%, to $48.1 million for 1997,
from $43.5 million for 1996. This increase was attributable to the additional
branches acquired from The Greater and the Company's continued technological
investments to improve its information and communication systems, coupled with
its expanded mortgage business in the mid-Atlantic states. These increases were
offset by a decrease of $11.3 million in the Company's federal deposit insurance
premium
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<PAGE> 61
to $6.6 million for 1997 from $17.9 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 1.53% for the year ended
December 31, 1997, from 1.74% for the year ended December 31, 1996. The
Company's efficiency ratio also improved to 50.68% for the year ended December
31, 1997 from 54.28% for the year ended December 31, 1996.
INCOME TAX EXPENSE
For the year ended December 31, 1997, income tax expense was $81.8 million,
representing an effective tax rate of 41.0%, as compared to $54.4 million,
representing an effective tax rate of 44.1%, for the 1996 period. The reduction
in the Company's effective tax rate was attributable to certain tax benefits
associated with the creation of subsidiaries of the Association in 1997 and
changes made to the New York State and City tax bad debt regulations.
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 foreclosed 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, 1994 through the third quarter of
1997. At December 31, 1998, non-performing assets totaled $120.4 million as
compared to $115.3 million at December 31, 1997. Total loans delinquent 90 days
or more increased $21.2 million from $89.9 million at December 31, 1997 to
$111.1 million at December 31, 1998, offset by reductions in REO and investments
in real estate of $16.1 million. The increase in non-performing assets of $5.1
million was primarily a result of the LIB Acquisition and differences in
non-accrual loan policies between the Company and LIB. LIB's non-accrual loan
policy classified loans which are one day less than three months delinquent as
60-89 days delinquent. However, the Company classifies such loans as 90 days or
more delinquent, and thus such loans are non-accrual under the Company's more
conservative non-accrual policy. As such, total loans delinquent 60-89 days
decreased $14.5 million from $19.4 million at December 31, 1997 to $4.9 million
at December 31, 1998.
The following table sets forth information regarding non-performing assets. In
addition to the non-performing loans, the Company had approximately $4.9 million
of potential problem loans at December 31, 1998. Such loans are 60-89 days
delinquent as shown on page 60.
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<PAGE> 62
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998(1) 1997(1) 1996(1) 1995 1994
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual delinquent mortgage loans (2) $100,302 $80,604 $71,630 $85,747 $99,968
Non-accrual delinquent consumer and other loans 5,995 4,563 7,600 8,599 11,025
Mortgage loans delinquent 90 days or more (3) 4,776 4,728 7,396 5,810 9,981
---------------------------------------------------------------------------
Total non-performing loans 111,073 89,895 86,626 100,156 120,974
---------------------------------------------------------------------------
Real estate owned, net (4) 6,071 12,734 15,576 26,570 26,085
Investment in real estate, net (5) 3,266 12,633 7,233 5,654 7,480
---------------------------------------------------------------------------
Total real estate owned and investment in
real estate, net 9,337 25,367 22,809 32,224 33,565
---------------------------------------------------------------------------
Total non-performing assets (6) $120,410 $115,262 $109,435 $132,380 $154,539
===========================================================================
Allowance for loan losses to non-performing loans 66.99% 82.23% 55.41%
Allowance for loan losses to total loans 0.83% 0.93% 0.83%
</TABLE>
(1) If all non-accrual loans had been performing in accordance with their
original terms, the Company would have recorded interest income of $6.8
million, $5.2 million and $5.3 million for the years ended December 31,
1998, 1997 and 1996, respectively. This compares to $1.6 million, $1.2
million and $934,000, respectively, of actual payments recorded to
interest income.
(2) Consists primarily of loans secured by one-to-four family properties.
(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) Excluded from non-performing assets are $6.9 million, $9.1 million, $11.8
million, $12.1 million and $12.8 million at December 31, 1998, 1997, 1996,
1995 and 1994, respectively, of restructured loans that have complied with
the terms of their restructure agreement for a satisfactory period and
have, therefore, been returned to performing status.
The following set of tables shows a comparison of delinquent loans at December
31, 1998, 1997 and 1996.
Delinquent Loans
<TABLE>
<CAPTION>
At December 31, 1998
60-89 Days 90 Days or More
--------------------------------------
Principal Principal
Balance Balance
(Dollars in Thousands) of Loans of Loans
- - ----------------------------------------------------------------------------------
<S> <C> <C>
One-to-four family $2,422 $94,078
Multi-family 203 2,224
Commercial real estate 221 8,776
Consumer and other loans 2,058 5,995
---------------------------------
Total delinquent loans $4,904 $111,073
---------------------------------
Delinquent loans to total loans 0.05% 1.23%
</TABLE>
60
<PAGE> 63
<TABLE>
<CAPTION>
At December 31, 1997
60-89 Days 90 Days or More
--------------------------------------
Principal Principal
Balance Balance
(Dollars in Thousands) of Loans of Loans
- - ----------------------------------------------------------------------------------
<S> <C> <C>
One-to-four family $17,516 $66,960
Multi-family 578 7,335
Commercial real estate 90 11,037
Consumer and other loan 1,178 4,563
---------------------------------
Total delinquent loans $19,362 $89,895
---------------------------------
Delinquent loans to total loans 0.24% 1.12%
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1996
60-89 Days 90 Days or More
--------------------------------------
Principal Principal
Balance Balance
(Dollars in Thousands) of Loans of Loans
- - ----------------------------------------------------------------------------------
<S> <C> <C>
One-to-four family $13,753 $65,463
Multi-family 1,226 4,547
Commercial real estate 952 9,016
Consumer and other loans 1,294 7,600
---------------------------------
Total delinquent loans $17,225 $86,626
---------------------------------
Delinquent loans to total loans 0.30% 1.50%
</TABLE>
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.
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, 1998, the Company's balance of impaired loans was $26.8 million.
For further discussion of impaired loans, see Note 5 of Notes of Consolidated
Financial Statements in Item 8, "Financial Statements and Supplementary Data".
The provision for loan losses is based upon management's estimate of the amount
necessary to maintain adequate reserves for losses inherent in the Company's
loan portfolio. The estimate of inherent losses is developed by management
considering a number of factors, including matters pertinent to the underlying
quality of the loan portfolio. Management of the Company reviews its loan
receivable portfolio on at least a quarterly basis, which includes, but is not
limited to, the size, composition and risk profile of the
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<PAGE> 64
portfolio, delinquency levels, historical loss experience, cure rates on
delinquent loans, economic conditions and other pertinent factors, such as
assumptions and projections of future conditions. 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.
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) 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOSSES ON LOANS:
Balance at beginning of year ..................... $73,920 $48,001 $47,853 $47,886 $50,623
Allowance of acquired institution ............. -- 25,433 -- 3,528 --
Provision charged to operations ............... 15,380 9,061 10,163 8,477 15,688
Charge-offs:
One-to-four family ......................... (13,039) (3,971) (5,179) (6,465) (8,566)
Multi-family ............................... (769) (2,059) (226) (664) (1,069)
Commercial ................................. (1,528) (72) (2,468) (2,031) (4,144)
Consumer and other ......................... (3,824) (4,726) (4,819) (5,747) (6,268)
-------- -------- -------- -------- --------
Total charge-offs .................... (19,160) (10,828) (12,692) (14,907) (20,047)
Recoveries:
One-to-four family ......................... 1,616 728 637 1,237 488
Multi-family ............................... 516 -- 37 -- --
Commercial ................................. 1,788 617 1,047 580 --
Consumer and other ......................... 489 908 956 1,052 1,134
-------- -------- -------- -------- --------
Total recoveries ...................... 4,409 2,253 2,677 2,869 1,622
Adjustment to conform fiscal year of LIB to
the Company (146) -- -- -- --
-------- -------- -------- -------- --------
Balance at end of year ............................ $74,403 $73,920 $48,001 $47,853 $47,886
======== ======== ======== ======== ========
Ratio of net charge-offs during the year
to average loans outstanding during the year ...... 0.17% 0.13% 0.20% 0.32% 0.56%
Ratio of allowance for loan losses to total
loans at end of the year .......................... 0.83% 0.93% 0.83% 1.15% 1.46%
Ratio of allowance for loan losses to
non-performing loans at end of the year ........... 66.99% 82.23% 55.41% 47.78% 39.58%
ALLOWANCE FOR LOSSES ON INVESTMENTS
IN REAL ESTATE AND REO:
Balance at beginning of year ...................... $1,493 $2,045 $3,746 $5,250 $4,741
Allowance of acquired institution ............. -- 94 -- 1,144 --
Provision (recovery) recorded to operations ... 1,108 1,035 (1,257) 813 3,808
Charge-offs ................................... (2,835) (1,726) (2,110) (4,551) (4,535)
Recoveries .................................... 241 45 1,666 1,090 1,236
Adjustment to conform fiscal year of LIB to
the Company 682 -- -- -- --
-------- -------- -------- -------- --------
Balance at end of year ............................ $689 $1,493 $2,045 $3,746 $5,250
======== ======== ======== ======== ========
</TABLE>
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<PAGE> 65
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,
---------------------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------ -------------------------
% 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 $42,084 87.37% $40,715 86.37% $20,139 88.32%
Multi-family ..... 3,426 5.03 5,305 4.72 3,057 3.49
Commercial ....... 10,537 5.05 13,676 5.70 10,364 4.24
Consumer and other 18,356 2.55 14,224 3.21 14,441 3.95
------- ------ ------- ------ ------- ------
Total allowances . $74,403 100.00% $73,920 100.00% $48,001 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------
1995 1994
-------------------------- --------------------------
% OF LOANS % OF LOANS
TO TO
(DOLLARS IN THOUSANDS) AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
One-to-four family $18,740 86.13% $15,760 83.42%
Multi-family ..... 1,551 3.51 1,469 4.23
Commercial ....... 12,983 5.34 17,173 5.86
Consumer and other 14,579 5.02 13,484 6.49
------- ------ ------- ------
Total allowances . $47,853 100.00% $47,886 100.00%
======= ====== ======= ======
</TABLE>
IMPACT OF 1996 LEGISLATION
Deposit Insurance - SAIF Recapitalization. The Deposit Funds Insurance Act of
1996 was enacted on September 30, 1996 and authorized the Federal Deposit
Insurance Corporation ("FDIC") to impose a special assessment on all
institutions with SAIF-assessable deposits in order to recapitalize the SAIF.
This special SAIF assessment for the Company of $47.2 million, or $27.6 million
net of taxes, was charged against income in the third quarter of 1996.
As a result of the recapitalization of the SAIF in 1996, 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 since 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 ("FICO") to recapitalize the now defunct Federal Savings and Loan
Insurance Corporation. The Company's total expense in 1998, 1997 and 1996 for
deposit insurance and the FICO payment assessment was $5.9 million, $6.6 million
and $17.9 million, respectively.
Recapture of Bad Debt Reserves. Prior to the enactment of the Small Business Job
Protection Act of 1996 (the "1996 Act"), for federal income tax purposes, thrift
institutions were permitted to establish tax reserves for bad debts and to make
annual additions thereto that, within specified limitations, could 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 bad
debt reserve, and to permit continued future use of the bad debt reserve method
for purposes
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<PAGE> 66
of determining 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.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial condition and measure those instruments at fair value. The accounting
for changes in the fair value of a derivative (that is, unrealized gains and
losses) depends on the intended use of the derivative and the resulting
designation. SFAS No. 133 is effective for fiscal quarters of fiscal years
beginning after June 15, 1999 and does not require restatement of prior periods.
Management of the Company believes the implementation of SFAS No. 133 will not
have a material impact on the Company's financial condition or results of
operations.
In October 1998, the FASB issued Statement of Financial Accounting Standards No.
134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise"
("SFAS No. 134"). SFAS No. 134 conforms the accounting for securities retained
after the securitization of mortgage loans by a mortgage banking enterprise with
the accounting for securities retained after the securitization of other types
of assets by a nonmortgage banking enterprise. SFAS No. 134 is effective for the
first fiscal quarter beginning after December 15, 1998. Management of the
Company believes the implementation of SFAS No. 134 will not have a material
impact on the Company's financial condition or results of operations.
THE YEAR 2000 PROBLEM
The "Year 2000 Problem" centers on the inability of some 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 may recognize "00" as the year 1900 rather than the year 2000. Like
most financial service providers, the Company and its operations may be
significantly and adversely 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 which the Company electronically
or operationally interfaces (e.g. including, but not limited to, 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, may generate
results which could be significantly misstated, and the Company could experience
an inability for a temporary, but unknown duration, 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 material adverse impact on the Company's
products, services and competitive condition and therefore, its results of
operations and could be deemed to imperil the safety and soundness of the
Association. There has been limited litigation filed against corporations
regarding the Year 2000 Problem and their compliance efforts. Nonetheless, the
law in this area will likely continue to develop well into the new millennium.
Should the Company experience a Year 2000 failure, exposure of the Company could
be significant and material, unless there is legislative action to limit such
liability. Legislation has been introduced in several jurisdictions regarding
the Year 2000 Problem. However, no assurance can be given that legislation will
be enacted in jurisdictions where the Company does business that will have the
effect of limiting any potential liability.
64
<PAGE> 67
The Office of Thrift Supervision ("OTS"), the Company's primary federal bank
regulatory agency, along with the other federal bank regulatory agencies has
published substantive guidance on the Year 2000 Problem and has included Year
2000 compliance as a substantive area of examination for both regularly
scheduled and special examinations. These publications, in addition to providing
guidance as to examination criteria, have outlined requirements for creation and
implementation of a compliance plan and target dates for testing and
implementation of corrective action, as discussed below. As a result of the
oversight by and authority vested in the federal bank regulatory agencies, a
financial institution that does not become Year 2000 compliant could become
subject to administrative remedies similar to those imposed on financial
institutions otherwise found not to be operating in a safe and sound manner,
including remedies available under prompt corrective action regulations.
The Company has developed and is implementing a Year 2000 Project Plan (the
"Plan") to address the Year 2000 Problem and its effects on the Company. The
Plan includes five components which address issues involving awareness,
assessment, renovation, validation and implementation. The Company has completed
the awareness, assessment and renovation phases of the Plan. During the
awareness, assessment and renovation phases of the Plan, the Company inventoried
all material information systems and reviewed them for Year 2000 readiness.
Among the systems reviewed were computer hardware and systems software,
applications software and communications hardware and software as well as
embedded or automated devices. As noted below, this review included both
internal systems and those of third party vendors which provide systems such as
retail deposit processing, loan origination processing, loan servicing and
general ledger and accounting systems and software. Following awareness and
assessment, the Company then renovated or replaced the systems that may have
posed a Year 2000-related problem. Following renovation, the functionality of
new systems were validated. The validation phase is approximately 95% complete
and the implementation phase is approximately 70% complete.
The Company has complied with federal banking regulatory guidelines, completing
testing of its mission critical systems prior to September 1, 1998 and its
customer systems prior to September 30, 1998. The Company has met federal
banking regulatory guidelines stating that the Association and the Company must
substantially complete testing of core mission critical internal systems by
December 31, 1998. The Company and the Association are on target for
substantially completing testing renovation of both internally and externally
supplied systems, by June 30, 1999. The Company has arranged to establish
end-to-end Year 2000 tests with its business partners allowing the Company an
additional opportunity to test and stress such systems.
As part of the Plan, the Company has had 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 and has
been following the progress of those vendors with their Year 2000 compliance
status. The Company presently believes that with modifications to existing
software and conversions to new software and hardware where necessary, the Year
2000 Problem will be mitigated without causing a material adverse impact on the
operations of the Company. At this time, the Company anticipates most of its
hardware and software systems to become Year 2000 compliant, tested and
operational within the OTS's suggested time frame. However, if such
modifications and conversions are not successfully made or are not completed on
a timely basis, the Year 2000 Problem could have an adverse impact on the
operations of the Company.
Despite its best efforts to ensure Year 2000 compliance, it is possible that one
or more of the Company's internal or external systems may fail to operate. At
this time, while the Company expects to become Year 2000 compliant, the
probability of such likelihood cannot be determined. As a result, the Company
expects to formulate contingency plans for its mission critical systems where
possible. These systems include retail deposit processing, check clearing and
wire transfer capabilities, loan origination processing, loan servicing,
investment monitoring and accounting, general ledger and accounting systems and
payroll processing. The Company maintains a disaster recovery program designed
to deal with similar failures on an ongoing basis. All business units have been
directed to update and review their existing recovery plans in addition to
developing contingency plans prior to March 31, 1999 to address the possible
failure
65
<PAGE> 68
of one or more mission critical systems.
The Company has reviewed its customer base to determine whether they pose
significant Year 2000 risks. The Company's customer base consists primarily of
individuals who utilize the Company's services for personal, household or
consumer uses. Individually such customers are not likely to pose significant
year 2000 risks directly. It is not possible at this time to gauge the indirect
risks which could be faced if the employers of such customers encounter
unresolved Year 2000 issues.
Monitoring and managing the Year 2000 Project Plan 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 for Year 2000 compliance, and costs for developing and implementing
contingency plans for critical systems which fail. Indirect costs will
principally consist of the time devoted by existing employees in monitoring
software vendor progress, testing and developing and implementing any necessary
contingency plans. 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. The Company does not believe that such costs will have a
material effect on results of operations, although there can be no assurance
that such costs would not become material in the future. It is currently
estimated that total Year 2000 compliance efforts will cost, excluding
reallocation of internal resources, approximately $1,500,000 which includes
$750,000 expensed by LISB prior to the LIB Acquisition.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information regarding quantitative and qualitative disclosures about market risk
appears under Item 7, "MD&A" on pages 41 through 45 under the caption "Interest
Rate Sensitivity Analysis," and pages 59 through 63 under the caption "Asset
Quality."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For the Company's Consolidated Financial Statements, see index on page 71.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
66
<PAGE> 69
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ASTORIA FINANCIAL CORPORATION
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 9, 1999, for its Annual Meeting of
Shareholders to be held on May 19, 1999, which will be filed with the SEC within
120 days from December 31, 1998, 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 9,1999
for its Annual Meeting of Shareholders to be held on May 19, 1999, which will be
filed with the SEC within 120 days from December 31, 1998, 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 9, 1999 for its Annual Meeting of
Shareholders to be held on May 19, 1999, which will be filed with the SEC within
120 days from December 31, 1998, 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 9, 1999 for its Annual
Meeting of Shareholders to be held on May 19, 1999, which will be filed with the
SEC within 120 days from December 31, 1998, and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements on page 71.
67
<PAGE> 70
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 under Item 8, "Financial
Statements and Supplementary Data."
(b) REPORTS ON FORM 8-K FILED DURING THE LAST QUARTER OF THE REGISTRANT'S
FISCAL YEAR ENDED DECEMBER 31, 1998
The following reports on Form 8-K were filed by the Company during the
fourth quarter of its fiscal year ended December 31, 1998:
(1) Astoria Financial Corporation's Current Report on Form 8-K
filed with the Securities and Exchange Commission on October
5, 1998, announcing that as of the close of business on
September 30, 1998, the acquisition of LIB by the Company was
completed.
(2) Astoria Financial Corporation's Current Report on Form 8-K
filed with the Securities and Exchange Commission on November
30, 1998 announcing the unaudited financial results, including
at least 30 days of post-merger combined results of
operations.
(3) Astoria Financial Corporation's Amendment No. 1 to the Current
Report on Form 8-K filed with the Securities and Exchange
Commission on October 5, 1998 on Current Report 8-K/A filed
with the Securities and Exchange Commission on December 11,
1998 which included financial statements and pro forma
financial information concerning the acquisition of LIB by the
Company.
(c) EXHIBITS:
See Index of Exhibits on page 114.
68
<PAGE> 71
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Astoria Financial Corporation
/s/ George L. Engelke, Jr. Date: March 17, 1999
------------------------------------ -------------------
George L. Engelke, Jr.
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME DATE
---- ----
<S> <C>
/s/ George L. Engelke, Jr. March 17, 1999
-------------------------------------------------------
George L. Engelke, Jr.
Chairman, President and Chief Executive Officer
/s/ John J. Conefry, Jr. March 17, 1999
-------------------------------------------------------
John J. Conefry, Jr.
Vice Chairman and Director
/s/ Gerard C. Keegan March 17, 1999
-------------------------------------------------------
Gerard C. Keegan
Vice Chairman, Chief Administrative
Officer and Director
/s/ Monte N. Redman March 17, 1999
-------------------------------------------------------
Monte N. Redman
Executive Vice President and Chief Financial Officer
/s/ Robert G. Bolton March 17, 1999
-------------------------------------------------------
Robert G. Bolton
Director
/s/ Denis J. Connors March 17, 1999
-------------------------------------------------------
Denis J. Connors
Director
/s/ Robert J. Conway March 17, 1999
-------------------------------------------------------
Robert J. Conway
Director
/s/ Thomas J. Donahue March 17, 1999
-------------------------------------------------------
Thomas J. Donahue
Director
</TABLE>
69
<PAGE> 72
<TABLE>
<S> <C>
/s/ William J. Fendt March 17, 1999
-------------------------------------------------------
William J. Fendt
Director
/s/ Peter C. Haeffner, Jr. March 17, 1999
-------------------------------------------------------
Peter C. Haeffner, Jr.
Director
/s/ Ralph F. Palleschi March 17, 1999
-------------------------------------------------------
Ralph F. Palleschi
Director
/s/ Lawrence W. Peters March 17, 1999
-------------------------------------------------------
Lawrence W. Peters
Director
/s/ Thomas V. Powderly March 17, 1999
-------------------------------------------------------
Thomas V. Powderly
Director
/s/ Donald D. Wenk March 17, 1999
-------------------------------------------------------
Donald D. Wenk
Director
</TABLE>
70
<PAGE> 73
CONSOLIDATED FINANCIAL STATEMENTS OF
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998, 1997 AND 1996
Independent Auditors' Report .................................................. 72
Consolidated Statements of Financial Condition as of December 31, 1998 and 1997 73
Consolidated Statements of Operations for the years ended December 31, 1998,
1997 and 1996 ............................................................... 74
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996 ............................................ 75
Consolidated Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996 ............................................................... 76
Notes to Consolidated Financial Statements .................................... 78
</TABLE>
71
<PAGE> 74
I N D E P E N D E N T A U D I T O R S ' R E P O R T
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, 1998 and
1997, 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, 1998. 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, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
KPMG LLP
New York, New York
January 21, 1999
72
<PAGE> 75
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------
(In Thousands, Except Share Data) 1998 1997
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks $126,945 $48,645
Federal funds sold and repurchase agreements 266,437 110,550
Mortgage-backed securities available-for-sale 7,553,834 4,509,391
Other securities available-for-sale 642,610 297,914
Mortgage-backed securities held-to-maturity
(estimated fair value of $1,141,145 and $1,389,926, respectively) 1,136,799 1,383,627
Other securities held-to-maturity (estimated fair value of
$982,295 and $1,255,097, respectively) 972,012 1,249,045
Federal Home Loan Bank of New York stock 210,250 108,774
Loans held-for-sale 212,909 163,962
Loans receivable held-for-investment 8,813,722 7,856,636
Less allowance for loan losses 74,403 73,920
- - -----------------------------------------------------------------------------------------------------------------------------
Loans receivable held-for-investment, net 8,739,319 7,782,716
Mortgage servicing rights, net 50,237 41,789
Accrued interest receivable 102,288 95,652
Premises and equipment, net 161,629 202,193
Goodwill 245,862 263,228
Other assets 166,610 174,851
- - -----------------------------------------------------------------------------------------------------------------------------
Total assets $20,587,741 $16,432,337
=============================================================================================================================
LIABILITIES:
Deposits $9,668,286 $9,951,421
Reverse repurchase agreements 7,291,800 3,896,165
Federal Home Loan Bank of New York advances 1,210,170 423,136
Other borrowings 520,827 454,936
Mortgage escrow funds 116,106 114,570
Accrued expenses and other liabilities 318,168 146,310
- - -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 19,125,357 14,986,538
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 5,000,000 shares authorized:
Series A (325,000 shares authorized and -0- shares issued and outstanding) - -
Series B (2,000,000 shares authorized, issued and outstanding) 2,000 2,000
Common stock, $.01 par value;
(200,000,000 and 70,000,000 shares authorized; 54,655,095 and
57,290,186 shares issued and; 54,655,095 and 53,824,131 shares
outstanding at December 31, 1998 and 1997, respectively) 547 533
Additional paid-in capital 767,846 806,656
Retained earnings - substantially restricted 742,679 750,305
Treasury stock (3,466,055 shares, at cost) - (87,940)
Accumulated other comprehensive income:
Net unrealized (loss) gain on securities, net of taxes (14,566) 20,865
Unallocated common stock held by ESOP (35,908) (39,567)
Unearned common stock held by RRPs (214) (7,053)
- - -----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,462,384 1,445,799
- - -----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $20,587,741 $16,432,337
=============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
73
<PAGE> 76
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
(In Thousands, Except Share Data) 1998 1997 1996
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Mortgage loans $612,606 $503,504 $370,867
Consumer and other loans 24,422 23,981 23,164
Mortgage-backed securities 438,934 352,841 380,825
Other securities 132,414 85,968 62,932
Federal funds sold and repurchase agreements 16,072 11,861 4,681
- - --------------------------------------------------------------------------------------------------------------------------------
Total interest income 1,224,448 978,155 842,469
- - --------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 399,602 371,543 347,262
Borrowed funds 375,863 232,048 154,081
- - --------------------------------------------------------------------------------------------------------------------------------
Total interest expense 775,465 603,591 501,343
- - --------------------------------------------------------------------------------------------------------------------------------
Net interest income 448,983 374,564 341,126
Provision for loan losses 15,380 9,061 10,163
- - --------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 433,603 365,503 330,963
- - --------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Customer service and other loan fees 34,619 23,298 20,097
Loan servicing fees 5,162 12,481 14,337
Net gain on sales of securities 10,976 14,400 7,605
Net gain on sales of loans 1,990 4,044 2,332
Other 7,781 7,254 6,303
- - --------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 60,528 61,477 50,674
- - --------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
General and administrative:
Compensation and benefits 119,240 116,076 108,542
Occupancy, equipment and systems 57,688 48,069 43,545
Federal deposit insurance premiums 5,931 6,589 17,946
Advertising 4,782 8,969 9,319
Other 46,912 33,968 29,195
- - --------------------------------------------------------------------------------------------------------------------------------
Total general and administrative 234,553 213,671 208,547
Real estate operations and provision for
real estate losses, net (1,854) 1,863 (6,643)
Amortization of goodwill 19,754 11,722 8,968
Acquisition costs and restructuring charges 124,168 - -
SAIF recapitalization assessment - - 47,202
- - --------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 376,621 227,256 258,074
- - --------------------------------------------------------------------------------------------------------------------------------
Income before income tax expense and extraordinary item 117,510 199,724 123,563
Income tax expense 61,825 81,840 54,435
- - --------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 55,685 117,884 69,128
Extraordinary item, net of tax (10,637) - -
- - --------------------------------------------------------------------------------------------------------------------------------
NET INCOME $45,048 $117,884 $69,128
================================================================================================================================
Basic earnings per common share:
Income before extraordinary item $0.98 $2.51 $1.49
Extraordinary item, net of tax (0.21) - -
Net earnings per common share $0.77 $2.51 $1.49
================================================================================================================================
Diluted earnings per common share:
Income before extraordinary item $0.94 $2.39 $1.44
Extraordinary item, net of tax (0.20) - -
Net earnings per common share $0.74 $2.39 $1.44
================================================================================================================================
Basic weighted average common shares 50,801,598 46,362,179 46,267,304
Diluted weighted average common and
common equivalent shares 52,886,191 48,765,698 48,085,820
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
74
<PAGE> 77
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
PREFERRED COMMON PAID-IN SUBSTANTIALLY
(In Thousands, Except Share Data) TOTAL STOCK STOCK CAPITAL RESTRICTED
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 .................... $1,116,859 -- $532 $624,510 $616,028
Comprehensive income:
Net income ................................... 69,128 -- -- -- 69,128
Other comprehensive income, net of tax:
Net unrealized loss on securities, net
of reclassification adjustment ......... (18,018) -- -- -- --
Net unrealized gain on securities
reclassified from held-to-maturity to
available for sale ....................... 6,734 -- -- -- --
-----------
Comprehensive income ............................ 57,844
-----------
Common stock repurchased (3,058,783 shares) ..... (73,715) -- -- -- --
Dividends on common stock ....................... (17,372) -- -- -- (17,372)
Exercise of stock options and related tax benefit 4,560 -- -- 1,151 (2,597)
Sale of unearned RRP stock (10,176 shares) ...... 147 -- -- -- --
Amortization relating to allocation of ESOP
stock and earned portion of RRP stock and
related tax benefit ......................... 19,600 -- -- 8,764 --
--------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 .................... 1,107,923 -- 532 634,425 665,187
Comprehensive income:
Net income ................................... 117,884 -- -- -- 117,884
Other comprehensive income, net of tax:
Net unrealized loss on securities, net
of reclassification adjustment ......... 14,076 -- -- -- --
-----------
Comprehensive income ............................ 131,960
-----------
Issuance of Series B, preferred stock
(2,000,000 shares) to effect acquisition
of The Greater New York Savings Bank ....... 62,000 2,000 -- 60,000 --
Issuance of common stock (89,548 shares)
to effect acquisition of The Greater New
York Savings Bank ......................... 84,192 -- 1 84,191 --
Conversion of The Greater New York
Savings Bank stock options into Astoria
Financial Corporation stock options ....... 8,572 -- -- 8,572 --
Common stock repurchased (2,224,372 shares) ..... (85,735) -- -- -- --
Dividends on common and preferred stock ......... (25,965) -- -- -- (25,965)
Issuance of treasury stock (5,695,827 shares)
to effect acquisition of The Greater New
York Savings Bank .......................... 130,465 -- -- -- --
Exercise of stock options and related tax benefit 8,933 -- -- 4,852 (6,801)
Amortization relating to allocation of ESOP
stock and earned portion of RRP stock and
related tax benefit ......................... 23,454 -- -- 14,616 --
--------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 .................... 1,445,799 2,000 533 806,656 750,305
Comprehensive income:
Net income ................................... 45,048 -- -- -- 45,048
Other comprehensive income, net of tax:
Net unrealized loss on securities, net
of reclassification adjustment ......... (34,928) -- -- -- --
Comprehensive income ............................ 10,120
Adjustments to stockholders' equity to effect the
acquisition of Long Island Bancorp, Inc. .. -- -- 11 (69,667) --
Common stock repurchased (339,892 shares) ....... (16,633) -- -- -- --
Dividends on common and preferred stock
and amortization of purchase premium ....... (38,631) -- -- (1,304) (37,327)
Exercise of stock options and related tax benefit 24,357 -- 3 13,630 (25,113)
Amortization relating to allocation of ESOP
stock and earned portion of RRP stock and
related tax benefit ......................... 26,496 -- -- 17,665 --
Adjustment to conform fiscal year of Long
Island Bancorp, Inc. to Astoria Financial
Corporation ................................. 10,876 -- -- 866 9,766
--------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 .................... $1,462,384 $2,000 $547 $767,846 $742,679
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED UNALLOCATED UNEARNED
OTHER COMMON COMMON
TREASURY COMPREHENSIVE STOCK HELD STOCK HELD
STOCK INCOME BY ESOP BY RRPS
---------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 .................... $ (75,843) $18,073 $(48,798) $(17,643)
Comprehensive income:
Net income ................................... -- -- -- --
Other comprehensive income, net of tax:
Net unrealized loss on securities, net
of reclassification adjustment ......... -- (18,018) -- --
Net unrealized gain on securities
reclassified from held-to-maturity to
available for sale ....................... -- 6,734 -- --
Comprehensive income ............................
Common stock repurchased (3,058,783 shares) ..... (73,715) -- -- --
Dividends on common stock ....................... --
Exercise of stock options and related tax benefit 6,006 -- -- --
Sale of unearned RRP stock (10,176 shares) ...... -- -- -- 147
Amortization relating to allocation of ESOP
stock and earned portion of RRP stock and
related tax benefit ......................... -- -- 5,079 5,757
---------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 .................... (143,552) 6,789 (43,719) (11,739)
Comprehensive income:
Net income ................................... -- -- -- --
Other comprehensive income, net of tax:
Net unrealized loss on securities, net
of reclassification adjustment ......... -- 14,076 -- --
Comprehensive income ............................
Issuance of Series B, preferred stock
(2,000,000 shares) to effect acquisition
of The Greater New York Savings Bank ....... -- -- -- --
Issuance of common stock (89,548 shares)
to effect acquisition of The Greater New
York Savings Bank ......................... -- -- -- --
Conversion of The Greater New York
Savings Bank stock options into Astoria
Financial Corporation stock options ....... -- -- -- --
Common stock repurchased (2,224,372 shares) ..... (85,735) -- -- --
Dividends on common and preferred stock ......... -- -- -- --
Issuance of treasury stock (5,695,827 shares)
to effect acquisition of The Greater New
York Savings Bank .......................... 130,465 -- -- --
Exercise of stock options and related tax benefit 10,882 -- -- --
Amortization relating to allocation of ESOP
stock and earned portion of RRP stock and
related tax benefit ......................... -- -- 4,152 4,686
---------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 .................... (87,940) 20,865 (39,567) (7,053)
Comprehensive income:
Net income ................................... -- -- -- --
Other comprehensive income, net of tax:
Net unrealized loss on securities, net
of reclassification adjustment ......... -- (34,928) -- --
Comprehensive income ............................
Adjustments to stockholders' equity to effect the
acquisition of Long Island Bancorp, Inc. .. 68,586 -- -- 1,070
Common stock repurchased (339,892 shares) ....... (16,633) -- -- --
Dividends on common and preferred stock
and amortization of purchase premium ....... -- -- -- --
Exercise of stock options and related tax benefit 35,837 -- -- --
Amortization relating to allocation of ESOP
stock and earned portion of RRP stock and
related tax benefit ......................... -- -- 3,467 5,364
Adjustment to conform fiscal year of Long
Island Bancorp, Inc. to Astoria Financial
Corporation ................................. 150 (503) 192 405
---------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 .................... -- $(14,566) $(35,908) $ (214)
===============================================================
</TABLE>
See accompany Notes to Consolidated Financial Statements.
75
<PAGE> 78
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
(In Thousands) 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 45,048 $ 117,884 $ 69,128
-------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Net accretion of discounts, premiums
and deferred loan fees (25,939) (20,401) (12,522)
Provision for loan and real estate losses 16,489 9,886 8,906
Depreciation and amortization 16,959 23,591 16,650
Net gain on sales of securities and loans (12,966) (18,444) (9,937)
Originations of loans held-for-sale, net of proceeds
from sales (22,175) (105,071) (2,448)
Amortization of goodwill 19,754 11,722 8,968
Allocated and earned shares from ESOP and RRPs 18,195 19,663 18,005
Increase in accrued interest receivable (8,671) (5,874) (9,255)
Capitalized mortgage servicing rights, net of amortization
and valuation allowance (6,061) (8,036) (3,200)
Loss on early extinguishment of debt 18,547 -- --
Decrease (increase) in other assets 24,930 62,928 (1,333)
Increase (decrease) in accrued expenses and other liabilities 131,236 (33,933) 60,533
Acquisition costs and restructuring charges 87,101 -- --
-------------------------------------------------------
Net cash provided by operating activities 302,447 53,915 143,495
-------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Origination of loans held for investment, net of principal
payments (1,260,776) (1,591,419) (759,796)
Loan purchases through third parties (195,336) (581,794) (1,266,617)
Principal payments on mortgage-backed
securities held-to-maturity 319,212 80,635 101,063
Principal payments on mortgage-backed
securities available-for-sale 1,964,457 800,946 953,845
Purchases of mortgage-backed securities
held-to-maturity (72,651) (119,080) (87,069)
Purchases of mortgage-backed securities
available-for-sale (6,505,183) (799,257) (403,827)
Purchases of other securities held-to-maturity (213,456) (743,799) (415,482)
Purchases of other securities available-for-sale (1,061,236) (180,550) (477,718)
Proceeds from maturities of other securities
available-for-sale 755,248 220,853 431,328
Proceeds from maturities of other securities
held-to-maturity 527,527 139,514 50,860
Purchases of FHLB stock, net (101,476) (7,970) (5,622)
Proceeds from sales of securities available-for-sale and loans 1,903,658 1,556,073 719,589
Proceeds from sales of real estate owned and
investments in real estate, net 20,524 37,303 30,719
Purchases of premises and equipment, net of proceeds
from sales (27,677) (18,233) (23,924)
Purchase of mortgage servicing rights -- (4,066) (15,159)
Acquisitions net of cash and cash
equivalents acquired -- (82,202) --
-------------------------------------------------------
Net cash used in investing activities (3,947,165) (1,293,046) (1,167,810)
-------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits (294,106) 203,912 308,655
Net increase in reverse repurchase agreements 3,219,488 912,166 537,996
Net increase in FHLB of New York advances 820,000 2,120 35,000
Net increase in other borrowings 77,855 276,913 178,023
Increase (decrease) in mortgage escrow funds 22,720 8,376 (3,233)
Costs to repurchase common stock (16,633) (85,735) (73,715)
Cash dividends paid to stockholders (42,754) (25,797) (18,162)
Cash received for options exercised 15,012 4,960 2,548
Cash received from sale of unallocated RRP stock -- -- 147
-------------------------------------------------------
Net cash provided by financing activities 3,801,582 1,296,915 967,259
-------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 156,864 57,784 (57,056)
Adjustment to conform fiscal year of LIB to the Company 77,323 -- --
Cash and cash equivalents at beginning of year 159,195 101,411 158,467
-------------------------------------------------------
Cash and cash equivalents at end of year $ 393,382 $ 159,195 $ 101,411
=======================================================
</TABLE>
76
<PAGE> 79
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
(In Thousands) 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosures:
Cash paid during the year:
Interest $738,271 $593,880 $ 491,644
=======================================================
Income taxes $ 25,078 $ 42,570 $ 53,530
=======================================================
Additions to real estate owned $ 15,955 $ 16,511 $ 18,897
=======================================================
Securitization of loans $387,071 $680,889 $ 358,786
=======================================================
Transfers of securities from held-to-maturity to available-
for-sale, net $ -- $ -- $1,307,472
=======================================================
</TABLE>
SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS RELATING
TO THE GREATER ACQUISITION
Noncash investing and financing transactions relating to The Greater acquisition
that are not reflected in the Consolidated Statement of Cash Flows for the year
ended December 31, 1997 are listed below:
<TABLE>
<CAPTION>
(In Thousands)
- - ------------------------------------------------------------------------------------
<S> <C>
Fair value of assets acquired, excluding cash and cash
equivalents acquired $ 2,340,822
Liabilities assumed (2,140,102)
Conversion of stock options and common stock
previously acquired from acquiree (13,132)
Goodwill 169,335
75% stock consideration (274,721)
- - ------------------------------------------------------------------------------------
Cash paid for acquiree, net of cash and cash equivalents
acquired $ 82,202
====================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
77
<PAGE> 80
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting and reporting policies of Astoria Financial
Corporation (the "Company") and subsidiary conform to generally accepted
accounting principles ("GAAP") and are used in preparing and presenting these
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") and its subsidiaries. All significant
intercompany transactions and balances are eliminated in consolidation.
After the close of business on September 30, 1998, Long Island Bancorp, Inc.
("LIB") merged with and into the Company and LIB's subsidiary, The Long Island
Savings Bank, FSB ("LISB"), merged with and into the Association (the "LIB
Acquisition"). All subsidiaries of LISB became subsidiaries of the Association.
The acquisition was accounted for as a pooling-of-interests, and accordingly,
all historical financial information for the Company has been restated to
include LIB's historical information for the earliest periods presented. The
Company reports its financial results on a calendar year basis, whereas LIB had
reported its financial results on a fiscal year basis which ended on September
30. The consolidated financial results for years prior to 1998 reflect the
combination of the Company at and for the years ended December 31 with LIB at
and for the fiscal years ended September 30. The consolidated financial results
for 1998 reflect the combination of the Company at and for the year ended
December 31, 1998 with LIB at and for the calendar nine months ended September
30, 1998. LIB's operating results for the three-month period ended December 31,
1997 have been included as a separate component of consolidated stockholders'
equity and are not included in the Company's consolidated statement of
operations for the year ended December 31, 1998.
Results of operations of companies acquired and accounted for as purchases are
included from the dates of acquisition. When the Company acquires a company
through a pooling-of-interests, current and prior-period financial statements
are restated to include the accounts of the acquired companies. Previously
reported balances of the acquired companies have been reclassified to conform to
the Company's presentation and restated to give effect to the combinations.
Certain reclassifications have been made to 1997 and 1996 financial statements
to conform them to the 1998 presentation.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates.
(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." 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, 1998 and 1997, the Company did not maintain a trading
portfolio. 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.
78
<PAGE> 81
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
(d) Loans Held-for-Sale
Loans held-for-sale are carried at the lower of cost or estimated fair value, as
determined on an aggregate basis. Net unrealized losses are recognized in a
valuation allowance by charges to operations. Premiums, discounts and
origination fees and costs on loans held-for-sale are deferred and recognized as
a component of the gain or loss on sale. Gains and losses on sales of loans
held-for-sale are recognized on settlement dates and are determined by the
difference between the sale proceeds and the carrying value of the loans.
(e) Loans Receivable Held-for-Investment
Loans receivable held-for-investment are carried at the unpaid principal
balances, net of unamortized discounts and premiums and deferred loan
origination fees and costs which are recognized as yield adjustments over the
lives of the loans using the interest method.
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,
trends in portfolio volume, quality, maturity and composition, the status and
amount of non-performing and past-due loans, 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,
as well as specific and general, 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. The Company will return loans to an accrual status when principal
and interest payments are current, full collection of principal and interest is
reasonably assured and a consistent record of performance has been demonstrated.
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 also 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.
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. The Company reviews larger
balance loans for individual impairment and groups smaller balance loans based
on homogeneous pools. 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.
(f) Mortgage Servicing Rights ("MSR")
The Company recognizes, as separate assets, the rights to service mortgage loans
whether those rights are acquired through loan purchase or loan origination
activities. MSR are amortized in proportion to and over the estimated period of
net servicing income.
The Company stratifies its MSR by underlying loan type (primarily fixed and
adjustable) and interest rate. The estimated fair value of each MSR stratum is
determined through a discounted cash flow analysis of future cash flows,
incorporating numerous assumptions including servicing income, servicing costs,
market discount rates, prepayment speeds and default rates.
The Company assesses impairment of the MSR based on the fair value of those
rights on a stratum-by-stratum basis with any impairment recognized through a
valuation allowance for each impaired stratum. Individual allowances for each
stratum are then adjusted in subsequent periods to reflect changes in the
measurement of impairment.
79
<PAGE> 82
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
(g) 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 estimated 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. Real estate owned and investments in real estate, which are included in
other assets, amounted to $9.3 million and $25.4 million at December 31, 1998
and 1997, respectively.
(h) 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 amortized using
the straight-line method over the shorter of the term of the related leases or
the estimated useful lives.
(i) 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 the 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.
(j) 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 Company follows Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," which provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. Under this approach, 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.
(k) 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 an accrual 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.
80
<PAGE> 83
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
(l) Income Taxes
The Company uses 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. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
(m) Earnings Per Common Share ("EPS")
The Company follows Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128"). 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.
(n) 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 of the Company's common stock during the reporting
period. For EPS and other per-share disclosure, ESOP shares that have been
committed to be released are considered outstanding. ESOP shares that have not
been committed to be released (unallocated shares) are excluded from outstanding
shares on a weighted average basis for EPS calculations. The difference between
the fair value of shares for the period and the 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.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("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. 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 16 for the presentation of this pro forma information.
Effective for the year ended December 31, 1998, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" ("SFAS No. 132").
SFAS No. 132 supersedes the disclosure requirements of Statement of Financial
Accounting Standards No. 87, "Employers' Accounting for Pensions," ("SFAS No.
87") and SFAS No. 106. This standard requires additional information on the
changes in the benefit obligations and plan assets and eliminates certain
disclosures to facilitate the financial analysis of these plans. This standard
is limited to issues of reporting and presentation and does not address
recognition or measurement; therefore, its adoption did not affect the Company's
financial condition or results of operations. All periods presented have been
restated to conform to the new requirements. See Note 15 for the presentation of
this information.
81
<PAGE> 84
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
(o) Segment Reporting
During 1998, the Company adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 requires public companies to report certain financial information about
significant revenue-producing segments of the business for which such
information is available and utilized by the chief operating decision maker.
Specific information to be reported for individual operating segments includes a
measure of profit and loss, certain revenue and expense items, and total assets.
As a community-oriented financial institution, substantially all of the
Company's operations involve the delivery of loan and deposit products to
customers. Management makes operating decisions and assesses performance based
on an ongoing review of these community banking operations, which constitute the
Company's only operating segment for financial reporting purposes under SFAS No.
131.
(2) BUSINESS COMBINATIONS
LIB Acquisition
Following the close of business on September 30, 1998 ("the consummation date"),
the Company completed the acquisition of LIB, the holding company of LISB, a
federally chartered savings bank, with LIB merging with and into the Company and
LISB merging with and into the Association (the "LIB Acquisition"). The
transaction was accounted for as a pooling-of-interests. Accordingly, under
GAAP, the assets, liabilities and stockholders' equity as reported by LIB
immediately prior to consummation, were recorded by the Company. No goodwill was
created as a result of the LIB Acquisition. Under the terms of the merger
agreement, holders of LIB common stock, par value $.01 per share ("LIB Common
Stock"), received 1.15 shares of the Company's common stock, par value $.01 per
share ("Common Stock"), for each share of LIB Common Stock. The Company issued
27,876,636 shares of Common Stock to complete the LIB Acquisition. LIB had $6.58
billion in total assets, $3.58 billion in deposits, and $581.0 million in
stockholders' equity at September 30, 1998. The results of operations previously
reported by the separate entities and the combined amounts presented in the
accompanying consolidated financial statements are summarized below.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended December 31,
(In Thousands) September 30, 1998 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Interest Income:
The Company $213,006 $215,051 $186,693
LIB 120,117 159,561 154,395
-------- -------- --------
Combined (1) $333,123 $374,612 $341,088
======== ======== ========
Net Income:
The Company $ 71,335 $ 68,464 $ 36,853
LIB 29,254 49,420 32,275
-------- -------- --------
Combined $100,589 $117,884 $ 69,128
======== ======== ========
</TABLE>
(1) Certain reclassifications were made to conform LIB's reporting
presentation to the Company's. As a result, combined net interest
income as presented in the accompanying consolidated statements of
operations totals $333.2 million, $374.6 million and $341.1 million for
the nine months ended September 30, 1998 and the years ended December
31, 1997 and 1996, respectively.
LIB's reporting period had been as of and for the fiscal year ended September
30, whereas the Company utilizes a calendar year reporting period. LIB's
financial results for 1998 have been conformed to the calendar year reporting
period of the Company. All prior year consolidated financial results combine the
Company with LIB utilizing their respective reporting periods. As a result,
LIB's operating results for the three-month period ended December 31, 1997 have
been set forth separately in the Company's consolidated statement of changes in
stockholders' equity and are not included in the Company's consolidated
statements of operations.
82
<PAGE> 85
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
The following is a summary of LIB's results of operations and cash flows for the
three months ended December 31, 1997.
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Statement of Operations Data:
Interest income $ 104,517
Interest expense 65,550
---------
Net interest income 38,967
Provision for loan losses 1,500
---------
Net interest income after provision for loan losses 37,467
Non-interest income 10,293
Non-interest expense 26,179
Income tax expense 8,399
---------
Net income 13,182
=========
Statement of Cash Flows Data:
Cash provided by operating activities $ 16,195
Cash used in investing activities (38,596)
Cash provided by financing activities 99,724
---------
Net increase in cash and cash equivalents $ 77,323
=========
</TABLE>
Acquisition Costs and Restructuring Charges
From the period between initiation of the LIB Acquisition and the consummation
date, the Company developed formal plans to integrate the businesses of LIB and
the Company. Such plans included, among other things, the termination of
employees, disposal of duplicate facilities, consolidation and relocation of
equipment and facilities, integration of information systems and cancellation of
lease contracts and other executory contracts. The Company has recognized as
liabilities only those items that qualify for recognition under the consensus
reached on Issue No. 94-3 by the Emerging Issues Task Force ("EITF"), "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit An
Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3").
The Company has recorded all direct costs related to the LIB Acquisition as
liabilities as of the consummation date, and the total pre-tax charge of $124.2
million has been classified as acquisition costs and restructuring charges in
the Company's consolidated statement of operations for the year ended December
31, 1998. Such costs relate to restructuring plans and/or exit plans formally
adopted by the Company. Four general plans were adopted by the Company as
follows:
1. Plan of termination for former LIB employees.
2. Plan to close "duplicate" banking office facilities including review of
lease contracts.
3. Plan to consolidate main operating facilities which included the
headquarters of LIB and the relocation of the Company's mortgage operation
facilities including review of lease contracts.
4. Plan to integrate information systems including review of lease contracts
and other executory contracts.
83
<PAGE> 86
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
The following table sets forth, in detail, the components of the Company's
acquisition costs and restructuring charges:
<TABLE>
<CAPTION>
PROVISION CHARGED CASH PAYMENTS/ ACCRUED
TO OPERATIONS WRITE-OFFS IN BALANCE AT
(IN THOUSANDS) OCTOBER 1, 1998 4TH QUARTER 1998 DECEMBER 31, 1998
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EMPLOYEE TERMINATION COSTS:
a) Executive employment contracts $10,592 $10,592 $ --
b) Severance & retention bonuses and salaries 11,107 6,309 4,798
c) Termination benefits 6,001 5,359 642
d) Voluntary early retirement charges 4,886 -- 4,886
e) Vested RRPs 3,439 3,439 --
-------- ------- -------
Subtotal 36,025 25,699 10,326
-------- ------- -------
FACILITIES, EQUIPMENT AND SYSTEMS COSTS:
f) Asset write-offs/write-downs 51,679 51,679 -
g) Lease/contract terminations and
facilities restructuring 14,482 3,203 11,279
h) Conversion of information systems 2,917 1,768 1,149
-------- ------- -------
Subtotal 69,078 56,650 12,428
-------- ------- -------
i) TRANSACTION FEES & OTHER COSTS:
Investment banking fees 13,363 6,827 6,536
Legal fees 3,071 1,897 1,174
Other professional fees 1,199 795 404
Printing/filing fees 937 904 33
Other 495 85 410
-------- ------- -------
Subtotal 19,065 10,508 8,557
-------- ------- -------
Total $124,168 $92,857 $31,311
======== ======= =======
</TABLE>
All of the aforementioned costs result from plans to exit activities that will
have no future economic benefit. The following represent general descriptions of
these costs:
a) Executive employment contracts were primarily severance, bonus and benefit
payments made to the top eight former senior executives of LIB, pursuant to the
merger agreement. Such payments were made by LIB prior to the consummation date.
b) Severance and retention bonuses represent amounts for 444 involuntarily
terminated LIB employees (excluding executive officers). Individual amounts were
based on years of service, base salary, and period of time to be retained. The
Company retained 282 former LIB employees from the consummation date, primarily
to engage in transition and exit activities. Such employees will not be retained
as permanent employees of the Company. The majority of these individuals were
retained through January 31, 1999. The remaining accrued balance is expected to
be paid by the end of the second quarter of 1999. Retention salaries represent
amounts for these same 282 terminated LIB employees. Although these salaries
were for future services to be rendered by terminated employees subsequent to
the consummation date, these employees were engaged in exit activities. As such,
these costs were recorded as liabilities as of the consummation date.
84
<PAGE> 87
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
c) Termination benefits represent amounts for vacation pay and life insurance
benefits for involuntarily and voluntarily terminated LIB employees, including
the top eight senior executive officers. Such benefits were based on years of
service and were primarily paid by LIB prior to the consummation date.
Additional benefits accrued by the Company as of the consummation date, included
benefits for those involuntarily terminated LIB employees who were engaged in
exit activities and were being retained by the Company for a specific period.
These benefits included medical, dental and disability coverage.
d) Voluntary early retirement charge represents pension and postretirement
benefits for 61 former LIB employees. These accelerated employee benefits and
reduction in force charges for these former LIB employees totaled $3.0 million
for pension benefits and $1.9 million for postretirement benefits. The
incremental voluntary pension benefits were recognized in accordance with
Statement of Financial Accounting Standards No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits." Such benefits will remain as accrued pension and
postretirement benefit costs to the Company until all such benefits are paid
during these former LIB employees' lifetimes.
e) All restricted stock awarded under LIB's Management Recognition and Retention
Plan for Executive Officers and LIB Management Recognition and Retention Plan
for Non-Employee Directors became fully vested upon approval of the acquisition.
This amount was paid by LIB prior to the consummation date.
f) Asset write-offs/write-downs represent: $26.7 million for the write-down of
LIB's main operating headquarters to its estimated fair value; $17.5 million for
complete write-offs for unusable data processing equipment; $2.0 million for
write-offs of LIB's book value of unusable furnitures, fixtures, and equipment;
$3.1 million for write-offs for unusable furnitures, fixtures, equipment and
construction in progress for the Company's abandoned mortgage facility; and $1.6
million for goodwill previously recorded by LIB for Loan Processing Offices
("LPOs") purchased by LIB and closed by the Company. The Company has the intent
to sell LIB's main operating headquarters by December 31, 1999 and the current
estimated fair value of this facility, which is vacant, is included in the
balance of premises and equipment in the Company's statement of financial
condition as of December 31, 1998. As of the consummation date, the Company
suspended depreciation of this building, as it is held-for-sale, and began to
aggressively market this facility.
g) Lease/contract terminations and facilities restructurings primarily represent
those costs incurred as a result of exit plans for closing offices and
consolidating facilities. The Company initiated plans to close 5 banking office
facilities, 5 LPOs and eliminate LIB's main operating headquarters. In addition,
due to significant growth in the Company's mortgage operations as a result of
the LIB acquisition, the Company was required to relocate its entire mortgage
operating facility. Approximately $1.8 million represented lease buyout costs
for 4 of the 5 banking office closings and all the LPO closings. These lease
obligations existed prior to the consummation date and resulted in penalties for
the Company to cancel such obligations. Approximately $1.1 million represented
overhead costs for the continued maintenance of LIB's main operating
headquarters. This facility has been completely abandoned, effective February 1,
1999. As such, the Company has included its future overhead costs to maintain
this facility as part of restructuring charges as no future economic benefit
will be obtained from this facility. Approximately $6.8 million represented the
present value of net operating costs for the Company's former mortgage operating
facility. This operating facility was also abandoned, effective February 1, 1999
as a result of significant growth in volume and resources needed to support such
volume in the Company's mortgage loan originations, secondary marketing and
mortgage servicing departments. Approximately $2.5 million represented other
lease/contract termination costs for various data processing equipment and
banking office facility equipment and insurance adjustments. These
leases/contracts existed prior to the consummation date. Approximately $1.7
million of the remaining total costs were accrued for clean-up or demolition
costs for these closed facilities.
h) Information systems conversion costs primarily represent outside vendor
charges for integration of LIB's retail, mortgage, and financial systems to the
Company's systems.
i) Transaction fees and other costs primarily represent investment banking and
legal fees. The Company has paid
85
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
the remaining investment banking fees in January 1999 and expects to pay
substantially all legal and other professional fees and other costs by December
31, 1999.
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"), with The
Greater merging with and into the Association in a transaction which was
accounted for as a purchase ("The Greater Acquisition"). Accordingly, the assets
and liabilities of The Greater were recorded on the books of the Company at
their fair market values of $2.37 billion and $2.14 billion, respectively. The
cost of The Greater Acquisition was $399.5 million, including approximately
$38.2 million of acquisition-related costs. The balance of goodwill generated by
The Greater Acquisition at December 31, 1998 was $159.5 million. The Company's
consolidated results of operations include The Greater's results of operations
commencing October 1, 1997.
Fidelity Acquisition
Following the close of business on January 31, 1995, the Company acquired
Fidelity New York, FSB ("Fidelity") in a transaction which was accounted for as
a purchase ("Fidelity Acquisition"). The balance of goodwill generated by the
Fidelity Acquisition at December 31, 1998 was $82.9 million.
(3) 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, 1998 and
1997, one repurchase agreement for $66.4 million and $1.6 million, respectively,
was outstanding.
Repurchase agreements averaged $29.5 million during the year ended December 31,
1998 and $11.5 million during the year ended December 31, 1997. The maximum
amounts of such agreements outstanding at any month end, during the years ended
December 31, 1998 and 1997, were $100.8 million and $26.5 million, respectively.
(4) SECURITIES
The amortized cost and estimated fair value of securities available-for-sale and
held-to-maturity at December 31, 1998 and 1997 are as follows:
86
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
<TABLE>
<CAPTION>
At December 31, 1998
---------------------------------------------------------
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 $ 163,731 $ 2,795 $ (10) $ 166,516
FHLMC pass-through certificates 342,311 2,079 (1,668) 342,722
FNMA pass-through certificates 608,842 8,513 (1,561) 615,794
REMICs and CMOs:
Agency issuance 4,961,157 1,363 (42,020) 4,920,500
Non agency issuance 1,509,402 3,689 (4,789) 1,508,302
- - ------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 7,585,443 18,439 (50,048) 7,553,834
- - ------------------------------------------------------------------------------------------------------------------------
Other securities:
Obligations of the U.S. Government and agencies 462,302 4,910 (13) 467,199
Corporate debt securities 21,048 -- (322) 20,726
FNMA and FHLMC preferred stock 127,515 1,325 -- 128,840
Asset-backed securities 15,815 41 (32) 15,824
Equity and other securities 10,089 -- (68) 10,021
- - ------------------------------------------------------------------------------------------------------------------------
Total other securities 636,769 6,276 (435) 642,610
- - ------------------------------------------------------------------------------------------------------------------------
Total available-for-sale $8,222,212 $24,715 $(50,483) $8,196,444
=======================================================================================================================
Held-to-maturity:
Mortgage-backed securities:
GNMA pass-through certificates $ 53,455 $ 2,122 $ -- $ 55,577
FHLMC pass-through certificates 14,738 493 (4) 15,227
FNMA pass-through certificates 15,954 135 -- 16,089
REMICs and CMOs:
Agency issuance 785,314 3,427 (1,138) 787,603
Non agency issuance 267,338 1,404 (2,093) 266,649
- - ------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 1,136,799 7,581 (3,235) 1,141,145
- - ------------------------------------------------------------------------------------------------------------------------
Other securities:
Obligations of the U.S. Government and agencies 925,074 10,412 (128) 935,358
Obligations of states and political subdivisions 46,938 -- (1) 46,937
- - ------------------------------------------------------------------------------------------------------------------------
Total other securities 972,012 10,412 (129) 982,295
- - ------------------------------------------------------------------------------------------------------------------------
Total held-to-maturity $2,108,811 $17,993 $ (3,364) $2,123,440
=======================================================================================================================
</TABLE>
87
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
<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 $ 609,864 $ 3,238 $ (792) $ 612,310
FHLMC pass-through certificates 747,572 9,214 (1,384) 755,402
FNMA pass-through certificates 1,125,553 19,276 (879) 1,143,950
REMICs and CMOs:
Agency issuance 1,219,231 2,989 (5,937) 1,216,283
Non agency issuance 775,101 9,784 (3,439) 781,446
- - ------------------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 4,477,321 44,501 (12,431) 4,509,391
- - ------------------------------------------------------------------------------------------------------------------------------------
Other securities:
Obligations of the U.S. Government and agencies 179,716 41 (921) 178,836
FNMA and FHLMC preferred stock 61,915 3,086 (13) 64,988
Asset-backed securities 11,797 33 (77) 11,753
Equity and other securities 39,821 2,539 (23) 42,337
- - ------------------------------------------------------------------------------------------------------------------------------------
Total other securities 293,249 5,699 (1,034) 297,914
- - ------------------------------------------------------------------------------------------------------------------------------------
Total available-for-sale $4,770,570 $50,200 $(13,465) $4,807,305
====================================================================================================================================
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 344,794 594 (3,598) 341,790
- - ------------------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 1,383,627 12,435 (6,136) 1,389,926
- - ------------------------------------------------------------------------------------------------------------------------------------
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 $2,632,672 $19,745 $ (7,394) $2,645,023
====================================================================================================================================
</TABLE>
Sales of securities from the available-for-sale portfolio during the years ended
December 31, are summarized as follows:
<TABLE>
<CAPTION>
(In Thousands) 1998 1997 1996
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sale $1,811,686 $1,327,250 $708,367
Gross gains 16,353 16,504 8,926
Gross losses 5,377 2,104 1,321
</TABLE>
The amortized cost and estimated fair value of debt securities at December 31,
1998, 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, 1998, the amortized cost of such
callable securities totaled $1.33 billion of which $890.3 million are callable
within a year and $442.6 million are callable in one to three years. Securities
called during the years ended December 31, 1998 and 1997 totaled $738.5 million
and $138.1 million, respectively.
88
<PAGE> 91
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
<TABLE>
<CAPTION>
At December 31, 1998
--------------------------------
Estimated
Amortized Fair
(In Thousands) Cost Value
- - -------------------------------------------------------------------------------------
<S> <C> <C>
Available-for-sale:
Due in one year or less $ 21,981 $ 21,949
Due after one year through five years 92,302 93,274
Due after five years through ten years 129 137
Due after ten years 394,745 398,312
- - -------------------------------------------------------------------------------------
Total available-for-sale $509,157 $513,672
- - -------------------------------------------------------------------------------------
Held-to-maturity:
Due in one year or less $ 800 $ 800
Due after one year through five years 1,877 1,876
Due after five years through ten years 175,110 176,425
Due after ten years 794,225 803,194
- - -------------------------------------------------------------------------------------
Total held-to-maturity $972,012 $982,295
=====================================================================================
</TABLE>
The balance of accrued interest receivable for mortgage-backed securities
totaled $48.0 million and $36.0 million at December 31, 1998 and 1997,
respectively. The balance of accrued interest receivable for other securities
totaled $10.6 million and $16.9 million at December 31, 1998 and 1997,
respectively.
(5) LOANS RECEIVABLE HELD-FOR-INVESTMENT, LOANS HELD-FOR-SALE AND MORTGAGE LOAN
SERVICING
Loans receivable held-for-investment, net, are summarized as follows:
<TABLE>
<CAPTION>
At December 31,
---------------------------------
(In Thousands) 1998 1997
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans:
Secured by one-to-four family residences $ 7,646,641 $ 6,745,039
Secured by multi-family properties 452,854 377,292
Secured by commercial properties 452,387 451,559
- - ---------------------------------------------------------------------------------------------------
8,551,882 7,573,890
Net deferred loan origination (fees) costs (5,049) 838
Net unamortized premium 36,522 23,661
- - ---------------------------------------------------------------------------------------------------
Total mortgage loans 8,583,355 7,598,389
===================================================================================================
Consumer and other loans:
Home equity 142,437 130,665
Passbook 6,653 7,207
Other 80,287 118,236
- - ---------------------------------------------------------------------------------------------------
229,377 256,108
Net deferred loan origination costs 1,921 2,495
Net unamortized discount (931) (356)
- - ---------------------------------------------------------------------------------------------------
Total consumer and other loans 230,367 258,247
- - ---------------------------------------------------------------------------------------------------
Total loans 8,813,722 7,856,636
Allowance for loan losses (74,403) (73,920)
- - ---------------------------------------------------------------------------------------------------
Loans receivable held-for-investment, net $ 8,739,319 $ 7,782,716
===================================================================================================
</TABLE>
Accrued interest receivable on all loans receivable totaled $43.7 million and
$42.8 million at December 31, 1998 and 1997, respectively.
As of December 31, 1998 and 1997, the Company had loans in non-accrual status,
included in loans receivable held-for-investment, of approximately $106.3
million and $73.0 million, 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 $6.8 million, $5.2
million and $5.3 million for the years ended December 31, 1998, 1997 and 1996,
respectively. This compares to $1.6 million, $1.2 million and $934,000,
respectively, of actual payments recorded as
89
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
interest income with respect to such loans.
Loans individually reviewed for impairment by the Company are limited to
multi-family mortgage loans, commercial loans, loans modified in a troubled debt
restructuring and selected large one-to-four family residential mortgage loans.
Examples of measurement techniques utilized by the Company in determining the
book value of an impaired loan include the market price of the loan, if one
exists, the estimated fair value of the collateral and present value of expected
future cash flows.
The following table summarizes information regarding the Company's impaired
mortgage loans:
<TABLE>
<CAPTION>
At December 31, 1998
-----------------------------------------------------
Allowance
Recorded for Loan Net
(In Thousands) Investment Losses Investment
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
One-to-four family:
With a related allowance $ 1,993 $ (378) $ 1,615
Without a related allowance 3,376 -- 3,376
- - ------------------------------------------------------------------------------------------------------
Total one-to-four family 5,369 (378) 4,991
- - ------------------------------------------------------------------------------------------------------
Commercial and multi-family:
With a related allowance 21,385 (2,901) 18,484
Without a related allowance 94 -- 94
- - ------------------------------------------------------------------------------------------------------
Total commercial and multi-family 21,479 (2,901) 18,578
- - ------------------------------------------------------------------------------------------------------
Total impaired mortgage loans $26,848 $(3,279) $23,569
=====================================================================================================
</TABLE>
<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 $ 890 $ (178) $ 712
Without a related allowance 10,932 -- 10,932
- - ------------------------------------------------------------------------------------------------------
Total one-to-four family 11,822 (178) 11,644
- - ------------------------------------------------------------------------------------------------------
Commercial and multi-family:
With a related allowance 15,735 (3,023) 12,712
Without a related allowance 3,894 -- 3,894
- - ------------------------------------------------------------------------------------------------------
Total commercial and multi-family 19,629 (3,023) 16,606
- - ------------------------------------------------------------------------------------------------------
Total impaired mortgage loans $31,451 $(3,201) $28,250
======================================================================================================
</TABLE>
The Company's average recorded investment in impaired loans for the years ended
December 31, 1998 and 1997 was $25.1 million and $19.0 million, respectively.
Interest income recognized on impaired loans, which was not materially different
from cash-basis interest income, amounted to $2.3 million, $1.7 million and $1.3
million for the years ended December 31, 1998, 1997 and 1996, respectively.
Mortgage Loan Servicing
The Company services mortgage loans for investors with unpaid principal balances
of approximately $4.94 billion and $4.68 billion at December 31, 1998 and 1997,
respectively, which are not reflected in the accompanying consolidated
statements of financial condition.
The right to service loans for others is generally obtained by either the sale
of loans with servicing retained or the open market purchase of MSR.
90
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
MSR activity is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
(In Thousands) 1998 1997 1996
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 41,839 $ 29,769 $ 11,328
Purchased MSR -- 4,066 15,159
Capitalized MSR 22,217 15,385 5,982
Amortization of MSR (13,218) (7,381) (2,700)
Adjustment to conform fiscal
year of LIB to the Company 2,500 -- --
- - --------------------------------------------------------------------------------------------------------------
53,338 41,839 29,769
Less: Valuation allowance for MSR 3,101 50 82
- - --------------------------------------------------------------------------------------------------------------
Balance at end of year $ 50,237 $ 41,789 $ 29,687
==============================================================================================================
</TABLE>
Fees earned for servicing loans are reported as income when the related mortgage
loan payments are collected. MSR are amortized as a reduction to loan service
fee income on a level-yield basis over the estimated remaining life of the
underlying mortgage loans. MSR are carried at fair value and impairment, if any,
is recognized through a valuation allowance.
Loan servicing income is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
(In Thousands) 1998 1997 1996
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Servicing fees $ 21,431 $ 19,830 $ 17,119
Amortization of MSR (13,218) (7,381) (2,700)
(Provision for) recovery of valuation
allowance for MSR (3,051) 32 (82)
- - --------------------------------------------------------------------------------------------------------------
Total servicing income $ 5,162 $ 12,481 $ 14,337
==============================================================================================================
</TABLE>
Loans Held-for-Sale
The Company originates most 30-year fixed rate loans for immediate sale to
Fannie Mae ("FNMA"), Freddie Mac ("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. In addition, student loans are sold to the
Student Loan Marketing Association generally before repayment begins during the
grace period of the loan. The Company's balance of loans held-for-sale was
$212.9 million and $164.0 million at December 31, 1998 and 1997, respectively.
(6) ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
(In Thousands) 1998 1997 1996
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 73,920 $ 48,001 $ 47,853
Allowance of acquired institution -- 25,433
Provision charged to operations 15,380 9,061 10,163
Charge-offs (net of recoveries of $4,409,
$2,253 and $2,677, respectively) (14,751) (8,575)
(10,015)
Adjustment to conform fiscal year of
LIB to the Company (146) -- --
- - --------------------------------------------------------------------------------------------------------------
Balance at end of year $ 74,403 $ 73,920 $ 48,001
==============================================================================================================
</TABLE>
91
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
The $15.4 million provision charged to operations during the year ended December
31, 1998 included $4.0 million recorded by LIB prior to consummation of the
acquisition, primarily for increased consumer loan delinquencies. In addition,
$5.6 million was provided by the Company in the 1998 fourth quarter, primarily
to conform LIB's credit administration, asset management philosophies and
accounting methodologies to those of the Company.
(7) DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------------------------
1998 1997
-----------------------------------------------------------------------------------------
Weighted Weighted
Average Average
(Dollars in Thousands) Rate Balance Percent Rate Balance Percent
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Core deposits:
Savings 2.00% $2,815,681 29.12% 2.72% $2,960,270 29.75%
Money market 4.17 857,295 8.87 4.38 600,160 6.03
Money manager 1.00 356,729 3.69 1.52 352,618 3.55
Now 1.00 175,640 1.82 1.44 113,807 1.14
Non-interest bearing NOW
and money manager -- 420,189 4.34 -- 291,583 2.93
---------- ------ ---------- ------
Total core deposits 4,625,534 47.84 4,318,438 43.40
Certificates of deposit 5.31 5,042,752 52.16 5.61 5,632,983 56.60
---------- ------ ---------- ------
Total deposits $9,668,286 100.00% $9,951,421 100.00%
========== ====== ========== ======
</TABLE>
The aggregate amount of certificates of deposit with balances equal to or
greater than $100,000 was $568.7 million and $565.2 million at December 31, 1998
and 1997, respectively.
At December 31, 1998 and 1997, scheduled maturities of certificates of deposit
are as follows:
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------------------------
1998 1997
-----------------------------------------------------------------------------------------
Weighted Weighted
Average Average
(Dollars in Thousands) Rate Balance Percent Rate Balance Percent
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
One year or less 5.10% $3,601,044 71.41% 5.32% $3,415,679 60.64%
Greater than one year
through three years 5.85 1,144,240 22.69 6.03 1,652,643 29.34
Greater than three years 5.88 297,468 5.90 6.14 564,661 10.02
---------- ------ ---------- ------
Total certificates of deposit $5,042,752 100.00% $5,632,983 100.00%
========== ====== ========== ======
</TABLE>
Interest expense on deposits for the years ended December 31, 1998, 1997 and
1996 is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
(In Thousands) 1998 1997 1996
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Savings $ 72,243 $ 70,755 $ 69,019
Money market 32,108 20,121 13,065
Money manager 4,641 4,925 3,951
NOW 1,696 1,700 4,413
Certificates of deposit 288,914 274,042 256,814
- - -----------------------------------------------------------------------------------------------
Total interest expense on deposits $399,602 $371,543 $347,262
===============================================================================================
</TABLE>
92
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
(8) BORROWED FUNDS
Borrowed funds are summarized as follows:
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------
1998 1997
-----------------------------------------------------------------------
Weighted Weighted
Average Average
(Dollars in Thousands) Amount Rate Amount Rate
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reverse repurchase agreements $7,291,800 5.27% $3,896,165 5.78%
Advances from the FHLB-NY, net 1,210,170 4.94 423,136 6.16
Other borrowings, net 520,827 6.66 454,936 6.66
- - -----------------------------------------------------------------------------------------------------------------
Total borrowed funds, net $9,022,797 5.31 $4,774,237 5.90
=================================================================================================================
</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.
At December 31, 1998 and 1997, 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 $12.8
million with a contractual maturity of seven days. All of the outstanding
agreements were secured by U.S. Treasury securities, U.S. Government agency
securities or 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) 1998 1997
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Book value of collateral (including accrued interest):
U.S. Treasury securities $ 33,266 $ 39,340
U. S. Government agency securities 1,191,916 1,001,347
Mortgage-backed securities 6,557,070 3,097,729
Estimated fair value of collateral:
U.S. Treasury securities 33,550 38,880
U.S. Government agency securities 1,195,696 995,038
Mortgage-backed securities 6,501,087 3,097,638
Average balance of outstanding agreements during the year 5,767,274 3,334,692
Maximum balance of outstanding agreements at any month
end during the year 7,491,800 3,896,165
Average interest rate for the year 5.50 % 5.73%
</TABLE>
Reverse repurchase agreements at December 31, 1998 have contractual maturities
as follows: 1999: $65.0 million, 2000: $100.0 million, 2001: $100.0 million,
2002: $1.68 billion, 2003: $1.50 billion, 2004: $405.0 million, 2007: 50.0
million and 2008: $3.39 billion. At December 31, 1998, $2.07 billion, $2.52
billion, $2.53 billion and $155.0 million of such agreements were initially
callable during various months in 1999, 2000, 2001 and 2002, respectively.
Pursuant to a blanket collateral agreement with the Federal Home Loan Bank of
New York ("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, 1998 mature as follows: 2000:
$150.0 million, 2001: $150.0 million, 2003: $900.0 million and 2004: $10.0
million. At December 31, 1998, $200.0 million, $450.0 million and $250.0 million
of such advances were initially callable during various months in 2000, 2001 and
2002, respectively.
At December 31, 1998, the Company had available an overnight line of credit with
the FHLB-NY for $50.0 million for a term of 12 months, to be priced at the
federal funds rate plus 12.5 basis points.
93
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
As part of the Company's interest rate risk management and subsequent to the
consummation of the LIB Acquisition, $1.41 billion of reverse repurchase
agreements and FHLB-NY advances were restructured during the fourth quarter of
1998. As a result, the Company prepaid $1.41 billion of borrowed funds with a
weighted average maturity of 1.07 years, a weighted average initial call date of
0.27 years and a weighted average rate of 5.83%. The Company then borrowed new
funds having a weighted average maturity date of 4.52 years, a weighted average
initial call date of 2.46 years and a weighted average rate of 4.86%. The
prepayment penalty incurred in connection therewith totaled $18.5 million ($10.6
million net of taxes), and is reflected as an extraordinary item in the
Company's consolidated statement of operations for the year ended December 31,
1998.
A funding note was issued during the year ended December 31, 1996 in the amount
of $181.4 million and is collateralized by a pool of adjustable rate residential
mortgage loans. The interest on the funding note changes monthly and is subject
to a maximum rate of 11% through June 2001. Thereafter, the interest on the
funding note is subject to further adjustments. The Company has the option to
redeem the funding note in whole on or after June 2001 or when the principal
balance of the collateral pool is less than $13.5 million. At December 31, 1998,
the outstanding principal balance of the funding note collateral pool was $159.9
million. The outstanding balance of the funding note was $71.4 million and
$155.5 million at December 31, 1998 and 1997, respectively.
During the year ended December 31, 1998, the Company issued a three year
medium-term note in the amount of $150.0 million. During the year ended December
31, 1997, the Company issued a five year medium-term note in the amount of
$300.0 million. The medium-term notes are part of a $1.00 billion medium-term
note program the Company established in 1997 in which medium-term notes can be
issued bearing interest at either a fixed or floating rate and have maturities
ranging from nine months to 30 years from their respective issue dates. At
December 31, 1998, the Company has available $550.0 million under this borrowing
program. The outstanding balance of the net medium-term notes was $449.4 and
$299.4 at December 31, 1998 and 1997, respectively.
Interest expense on borrowed funds is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
(In Thousands) 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reverse repurchase agreements $322,647 $193,419 $138,131
Advances from the FHLB-NY 21,820 22,794 13,073
Other borrowings 31,396 15,835 2,877
- - ----------------------------------------------------------------------------------------------------
Total interest expense on borrowed funds $375,863 $232,048 $154,081
====================================================================================================
</TABLE>
(9) STOCKHOLDERS' EQUITY
At the time of its conversion from a federally-chartered mutual savings and loan
association to a federally-chartered capital stock savings and loan association,
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 and The Greater, (see Note
2), the Association established liquidation accounts equal to the account
balances previously maintained by these acquired institutions 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.
At December 31, 1998, the Company is authorized to issue 200,000,000 shares of
Common Stock, an increase from 70,000,000 shares of Common Stock the Company was
authorized to issue at December 31, 1997. At December 31, 1998, the Company had
54,655,095 shares of Common Stock issued and outstanding.
In connection with the LIB Acquisition, the Company issued, 27,876,636 shares of
Common Stock in exchange for all of the outstanding LIB Common Stock using an
exchange rate of 1.15 shares of Common Stock for each share of LIB Common Stock.
In connection with The Greater Acquisition, the Company issued 5,785,375 shares
of 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
94
<PAGE> 97
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
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.
Common stock 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's
fifth stock repurchase plan was terminated in April 1998 in connection with the
LIB Acquisition. As a result of the LIB Acquisition, the Company retired LIB's
previously held treasury shares totaling 2,482,667 which had a cost of $68.6
million.
The Company has 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.
In 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. 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
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.
(10) INTEREST RATE CAPS/FLOORS AND INTEREST RATE SWAPS
Interest Rate Caps/Floors
At December 31, 1998 and 1997, the Company had $60.0 million (based upon
contractual notional principal) of interest rate floor agreements outstanding,
resulting from The Greater Acquisition. The agreements had a weighted-average
floor rate of 6.08%, and expire in February 2000. The carrying amount
(unamortized premium) of interest rate floor agreements in the consolidated
statements of financial condition at December 31, 1998 and 1997 aggregated
$147,000 and $275,000, respectively. The estimated fair value of these
instruments aggregated $769,000 and $593,000 at December 31, 1998 and 1997,
respectively. The estimated fair value represents the approximate amount the
Company would have received upon termination of the agreements at December 31,
1998 and 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 $172,000 and $31,000 for the years
ended December 31, 1998 and 1997, respectively.
Interest Rate Swaps
During the year ended December 31, 1998, the Company entered into three interest
rate swap agreements aggregating $450.0 million (contractual notional
principal). The swap agreements converted the three medium-term fixed rate
borrowings into floating rate borrowings. The interest rate swaps of $300.0
million, $75.0 million and $75.0 million require the Company to pay a floating
interest rate tied to the three month LIBOR minus 3 basis points, 18 basis
points and 38 basis points, respectively, and receive a fixed rate of interest
of 7.00%, 6.20% and 6.20%, respectively. The swaps mature on January 16, 2008,
April 2, 2003 and April 2, 2005, respectively. Interest expense on borrowed
funds decreased $4.1 million for the year ended December 31, 1998 as a result of
these swaps. As of December 31, 1998, the interest rate swaps had a gross
positive market value of $7.1 million.
During the year ended December 31, 1997, the Company entered into a five year
interest rate swap agreement, with a
95
<PAGE> 98
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
notional amount of $300.0 million. The swap agreement converted the medium-term
note issued in 1997 from a fixed rate obligation of 7.00% into a variable rate
of LIBOR minus 3 basis points. As of December 31, 1997, the interest rate swap
had a gross positive market value of $1.7 million. During the year ended
December 31, 1998, this interest rate swap agreement was terminated. Interest
expense on borrowed funds was reduced by $137,000 and $1.9 million for the years
ended December 31, 1998 and 1997, respectively, as a result of this interest
rate swap.
(11) COMMITMENTS AND CONTINGENCIES
Lease Commitments
At December 31, 1998, 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 $9.1 million, $6.8 million and $5.1 million for the years ended
December 31, 1998, 1997 and 1996, respectively. Included in the minimum rental
payments below are amounts obligated under an operating lease for the Company's
mortgage operating facility which the Company has abandoned effective February
1, 1999. The Company does not have the intent to utilize this facility for any
continuing operations. As such, the present value of the net expenses for this
facility including rent expense, totaling $5.5 million has been included in
acquisition costs and restructuring charges. However, the Company was still
obligated under this lease agreement at December 31, 1998.
The minimum rental payments under the terms of the non-cancelable operating
leases as of December 31, 1998, are summarized below:
<TABLE>
<CAPTION>
Years Ending
December 31, Amount
-----------------------------------------------------
(In Thousands)
<S> <C>
1999 $7,773
2000 7,698
2001 7,385
2002 6,586
2003 6,520
Thereafter 55,119
-----------------------------------------------------
$91,081
=====================================================
</TABLE>
Outstanding Commitments
The Company had outstanding commitments as follows:
<TABLE>
<CAPTION>
At December 31,
----------------------------
(In Thousands) 1998 1997
- - -----------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans - commitments to extend credit $563,818 $556,479
Commitments to purchase mortgage loans 75,481 32,212
Home equity loans - unused lines of credit 58,729 67,085
Consumer and commercial loans - unused lines of credit 95,086 113,388
Commitments to sell loans 229,598 231,277
Commitments to purchase securities 785,720 316,539
</TABLE>
The Company uses the same credit policies and underwriting standards in making
loan commitments and extending 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.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
96
<PAGE> 99
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis.
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 $1.07 billion and $511.8 million at December 31,
1998 and 1997, respectively. Although the Company does not believe that its
recourse obligations subject it to risk of material loss in the future, the
Company has established recourse reserves totaling $1.2 million and $560,000 at
December 31, 1998 and 1997, respectively.
The Company has two collateralized repurchase obligations due to the sale of
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, 1998 and 1997 the outstanding
option balance on the two agreements totaled $58.5 million and $60.1 million,
respectively, and various securities have been pledged as collateral.
Litigation
Certain other claims, suits, complaints and investigations involving the Company
arising in the ordinary course of business, have been filed or are pending. In
the opinion of management, after consultation with legal counsel, the financial
position, operating results and liquidity of the Company will not be materially
affected by the outcome of such legal proceedings.
(12) 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"), thrift institutions such as the Association which met certain
definitional tests primarily relating to their assets and the nature of their
business, for Federal income tax purposes, were permitted to establish tax
reserves for bad debts. Such thrift institutions were also permitted to make
annual additions to the reserve, to be deducted in arriving at its taxable
income within specified limitations. 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 unable to make additions to the tax bad
debt reserve but is permitted to deduct bad debts as they occur. Additionally,
the 1996 Act required institutions to recapture over a six-year period,
beginning with the Association's taxable year commencing 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 ("base year").
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 are 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.
The Association's tax bad debt reserves at December 31, 1995 exceeded its base
year reserves. The remaining balance at December 31, 1998, to be recaptured into
taxable income is $1.8 million.
In response to the Federal legislation, the New York State and New York City tax
laws have been amended to prevent a similar recapture of the Association's bad
debt reserve. The amendment permitted the 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, 1998 and 1997 included base year bad debt
reserves, which amounted to approximately $159.1 million, for which no Federal
income tax liability has been recognized. This represents the
97
<PAGE> 100
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
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 attributable to income before extraordinary item for the
years ended December 31, 1998, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
(In Thousands) 1998 1997 1996
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 56,011 $36,592 $35,192
State and local 10,042 8,829 13,667
- - -----------------------------------------------------------------------------------------------------------
66,053 45,421 48,859
- - -----------------------------------------------------------------------------------------------------------
Deferred
Federal (2,342) 30,422 4,208
State and local (1,886) 5,997 1,368
- - -----------------------------------------------------------------------------------------------------------
(4,228) 36,419 5,576
- - -----------------------------------------------------------------------------------------------------------
Total income tax expense attributable to income
before extraordinary item $ 61,825 $81,840 $54,435
===========================================================================================================
</TABLE>
The total income tax expense differed from the amounts computed by applying the
Federal income tax rate to income before extraordinary item, for the years ended
December 31, 1998, 1997 and 1996, as a result of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
(In Thousands) 1998 1997 1996
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected income tax expense at statutory Federal rate $ 41,128 $ 69,903 $ 43,247
State and local taxes, net of Federal tax benefit 5,301 9,636 9,773
Amortization of goodwill 6,677 3,737 2,797
Acquisition costs 8,400 -- --
Non-deductible expense of ESOP 3,645 2,795 1,250
Tax exempt income (1,090) (2,099) (1,153)
Reversal of deferred tax valuation allowance (592) -- (2,328)
Other, net (1,644) (2,132) 849
- - -----------------------------------------------------------------------------------------------------------
Total income tax expense attributable to income
before extraordinary item $ 61,825 $ 81,840 $ 54,435
===========================================================================================================
</TABLE>
98
<PAGE> 101
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
At December 31,
-------------------------------
(In Thousands) 1998 1997
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 40,226 $ 47,846
Allowances and tax reserves 44,938 43,313
Deferred losses on securities sold 6,218 10,918
Compensation and benefits 20,942 18,993
Tax credits 3,129 3,129
Mark-to-market recognition on securities under
IRC Section 475 2,782 4,429
Unrealized loss on securities available-for-sale 11,202 --
Accrued acquisition related expenses 16,064 --
Other 3,001 3,903
- - -------------------------------------------------------------------------------------------------
Total gross deferred tax assets 148,502 132,531
Valuation allowance (11,014) (11,606)
- - -------------------------------------------------------------------------------------------------
Deferred tax assets 137,488 120,925
- - -------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Book premiums in excess of tax (7,707) (8,657)
Unrealized gains on securities available-for-sale -- (5,973)
Mortgage loans (6,023) (9,230)
Premises and equipment (11,343) (7,505)
Basis difference in home equity investment (1,500) (1,592)
Mortgage servicing rights (6,742) (106)
Other (2,570) (1,417)
- - -------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (35,885) (34,480)
- - -------------------------------------------------------------------------------------------------
Net deferred tax assets $ 101,603 $ 86,445
=================================================================================================
</TABLE>
The valuation allowance for deferred tax assets, of $11.0 million at December
31, 1998, 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,
1998, the Company had alternative minimum tax credit carryforwards, for Federal
tax purposes, of approximately $3.1 million. Federal income tax net operating
loss carryforwards of approximately $114.9 million will expire in the year 2012.
(13) EARNINGS PER COMMON SHARE
Basic EPS is computed by dividing income before extraordinary item 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 Company's and LIB's ESOP and the Recognition
and Retention Plans ("RRPs").
Diluted EPS is computed by dividing income before extraordinary item 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 ESOPs 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.
99
<PAGE> 102
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
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,
---------------------------------------------------------------------------------------
1998 1997
---------------------------------------------------------------------------------------
(In Thousands, Average Per-share Average Per-share
Except Share Data) Income Shares Amount Income Shares Amount
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before extra-
ordinary item (1) $ 55,685 $117,884
Less: preferred stock
dividends 6,000 1,500
---------- --------
Basic EPS:
Income available to
common stockholders 49,685 50,801,598 $ 0.98 116,384 46,362,179 $ 2.51
============= =============
Effect of dilutive securities:
Options 2,084,593 2,403,519
---------- ----------
Diluted EPS:
Income available to common
stockholders plus assumed
conversions $ 49,685 52,886,191 $ 0.94 $116,384 48,765,698 $ 2.39
========== =========== ============= ======== ========== =============
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------
1996
-------------------------------------------
(In Thousands, Average Per-share
Except Share Data) Income Shares Amount
- - ----------------------------------------------------------------------------
<S> <C> <C> <C>
Income before extra-
ordinary item (1) $69,128
Less: preferred stock
dividends --
-------
Basic EPS:
Income available to
common stockholders 69,128 46,267,304 $ 1.49
=============
Effect of dilutive securities:
Options 1,818,516
----------
Diluted EPS:
Income available to common
stockholders plus assumed
conversions $69,128 48,085,820 $ 1.44
======= ========== =============
</TABLE>
(1) Extraordinary item applies to the year ended December 31, 1998 only.
(14) COMPREHENSIVE INCOME
On January 1, 1998, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130") became effective. 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. The Company adopted the provisions of SFAS
No. 130 during the first quarter of 1998 and, as such, was required to: (a)
classify items of other comprehensive income by their nature in a financial
statement; (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section in the statement of financial condition; and (c) reclassify prior
periods presented. As the requirements of SFAS No. 130 are disclosure-related,
its implementation had no impact on the Company's financial condition or results
of operations.
The components of comprehensive income, other than net income, are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------------------------
Before-Tax Tax Net-of-Tax
(In Thousands) Amount Benefit Amount
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized losses arising during period $(50,640) $21,916 $(28,724)
Less: reclassification adjustment for gains
included in net income (10,976) 4,772 (6,204)
-------- ------- --------
Net unrealized losses on securities $(61,616) $26,688 $(34,928)
======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------------------------
Before-Tax Tax (Expense) Net-of-Tax
(In Thousands) Amount Benefit Amount
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized gains arising during period $ 38,988 $(16,733) $ 22,255
Less: reclassification adjustment for gains
included in net income (14,400) 6,221 (8,179)
-------- -------- --------
Net unrealized gains on securities $ 24,588 $(10,512) $ 14,076
======== ======== ========
</TABLE>
100
<PAGE> 103
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
----------------------------------------------
Tax
Before-Tax Benefit Net-of-Tax
(In Thousands) Amount (Expense) Amount
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized losses arising during period $(21,896) $ 8,128 $(13,768)
Less: reclassification adjustment for gains
included in net income (7,605) 3,355 (4,250)
Add: net unrealized gain on securities
reclassified as available-for-sale 9,704 (2,970) 6,734
-------- ------- --------
Net unrealized losses on securities $(19,797) $ 8,513 $(11,284)
======== ======= ========
</TABLE>
(15) BENEFIT PLANS
Pension Plans and Other Postretirement Benefits
The Association has a qualified, non-contributory defined benefit pension plan
("the Pension 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. As a result of The Greater Acquisition, the pension plan for employees
of The Greater was merged into the Pension Plan in the first quarter of 1998 and
plan assets of $48.6 million were transferred to the Pension Plan. In addition,
the retirement plan of The Greater for non-employee directors was merged into
the Association's retirement plan for its non-employee directors during the
fourth quarter of 1997. As a result of the LIB Acquisition, the pension plan for
employees of LIB was merged into the Pension Plan as of December 31, 1998 and
plan assets of $71.8 million were transferred to the Pension Plan.
In addition, the Association has non-qualified, unfunded and supplemental
retirement plans covering certain officers and directors. Pursuant to the LIB
Acquisition, the Company assumed a non-qualified unfunded retirement plan for
former directors of LIB. The Company also sponsors a defined health care plan
that provides postretirement medical and dental coverage to select individuals.
In accordance with SFAS No. 106, costs of postretirement benefits are accrued
during an employee's active working career. The Company also continues to
provide health care and life insurance benefits for former LIB retirees and
their eligible dependents. Also pursuant to the LIB Acquisition, former LIB
employees were granted an early retirement window which accelerated their
pension and postretirement benefits. As a result, costs for these accelerated
pension benefits and postretirement benefits totaled $3.0 million and $1.9
million, respectively. The Company charged these costs as acquisition expenses
and restructuring charges for the year ended December 31, 1998.
101
<PAGE> 104
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
In accordance with SFAS No. 132, the following tables set forth the Company's
and LIB's defined benefit pension plans' and postretirement plans' benefit
obligations, fair values of plan assets and funded status as of December 31,
1998 and 1997:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
--------------------------- -----------------------------
(IN THOUSANDS) 1998 1997 1998 1997
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 81,298 $ 70,979 $ 8,783 $ 7,351
Service cost 2,637 1,963 434 311
Interest cost 7,550 5,235 1,094 535
Actuarial (gain) loss 10,425 3,627 (1,010) 1,105
The Greater Acquisition 27,654 3,737 6,971 --
Curtailments 706 -- 1,577 --
Special termination benefits 4,903 -- 1,994 --
Benefits paid (7,285) (4,243) (1,258) (519)
--------- -------- -------- --------
Benefit obligation at end of year $ 127,888 $ 81,298 $ 18,585 $ 8,783
========= ======== ======== ========
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year $ 97,227 $ 84,882 -- --
Actual return on plan assets 20,505 16,495 -- --
The Greater Acquisition 48,401 -- -- --
Employer contribution 1,835 93 1,258 519
Benefits paid (7,285) (4,243) (1,258) (519)
--------- -------- -------- --------
Fair value of plan assets at end of year $ 160,683 $ 97,227 $ -- $ --
========= ======== ======== ========
Funded status $ 32,795 $ 15,929 $(18,585) $ (8,783)
Unrecognized net actuarial gain (12,844) (16,187) (2,148) (4,335)
Unrecognized prior service (cost) benefit (1,670) (4,854) 55 (71)
Unrecognized transition asset (555) (659) -- --
--------- -------- -------- --------
Net amount recognized $ 17,726 $ (5,771) $(20,678) $(13,189)
========= ======== ======== ========
Amounts recognized in the consolidated
statements of financial condition consist of:
Prepaid benefit cost $ 25,878 $ 2,726 $ -- $ --
Accrued benefit liability (8,228) (8,641) (20,678) (13,189)
Intangible asset 76 144 -- --
--------- -------- -------- --------
Net amount recognized $ 17,726 $ (5,771) $(20,678) $(13,189)
========= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
EXPECTED RETURN RATE OF
DISCOUNT RATE ON PLAN ASSETS COMPENSATION INCREASE
WEIGHTED-AVERAGE ASSUMPTIONS -------------------- -------------------- ----------------------
ON PENSION BENEFIT PLANS: 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
The Association Employees' Pension Plan 6.75% 7.00% 8.00% 8.00% 5.00% 5.00%
The Association Excess Benefit and
Supplemental Benefit Plans 6.00% 6.00% N/A N/A 8.00% 8.00%
The Association Directors' Retirement Plan 6.00% 6.00% N/A N/A 4.00% 4.00%
Retirement Plan of The Greater for
Non-employee Directors 6.00% 6.00% N/A -- N/A --
The Retirement Plan of LIB 6.50% 7.50% 8.00% 8.00% 5.50% 5.50%
</TABLE>
<TABLE>
<CAPTION>
DISCOUNT RATE
WEIGHTED-AVERAGE ASSUMPTIONS ON ---------------------------
OTHER POSTRETIREMENT BENEFIT PLANS: 1998 1997
------- -------
<S> <C> <C>
The Association Retiree Health Care Plan 6.75% 7.00%
LIB Postretirement Benefit Plan 6.50% 7.50%
</TABLE>
102
<PAGE> 105
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
For measurement purposes for the Association's Retiree Health Care Plan, an 11%
annual rate of increase in the per capita cost of covered health care benefits
was assumed for 1997. The rate was assumed to decrease gradually to 6% for 2002
and remain at that level thereafter. For measurement purposes for the LIB
Postretirement Benefit Plan, an 8.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1997. The rate was assumed
to decrease gradually to 4.5% for 2009 and remain at that level thereafter.
The components of net periodic benefit costs are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
OTHER POST RETIREMENT
PENSION BENEFITS BENEFITS
----------------------------------- --------------------------------
(IN THOUSANDS) 1998 1997 1996 1998 1997 1996
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 2,637 $ 1,963 $ 2,035 $ 434 $ 311 $ 298
Interest cost 7,550 5,235 5,008 1,094 535 537
Expected return on plan assets (11,399) (6,620) (6,049) -- -- --
Amortization of prior service (cost) benefit (691) (717) (724) 10 10 10
Recognized net actuarial (gain)/loss (732) (350) 98 (171) (307) (294)
Amortization of transition (asset)/obligation (104) (412) (501) -- -- --
-------- ------- ------- ------- ----- -----
Net periodic (benefit) cost (2,739) (901) (133) 1,367 549 551
-------- ------- ------- ------- ----- -----
Curtailment (gain) loss (1,875) -- -- (136) -- --
Special termination benefit cost 4,903 -- -- 1,994 -- --
-------- ------- ------- ------- ----- -----
Total cost $ 289 $ (901) $ (133) $ 3,225 $ 549 $ 551
======== ======= ======= ======= ===== =====
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plan with accumulated benefit obligations in
excess of plan assets were $9.3 million, $6.7 million, and $0, respectively, as
of December 31, 1998, and $9.3 million, $6.8 million, $0, respectively, as of
December 31, 1997.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage Point 1-Percentage Point
(In Thousands) Increase Decrease
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost components $ 147 $ (125)
Effect on the post retirement benefit obligation $1,366 $(1,207)
</TABLE>
Incentive Savings Plan
The Association maintains a 401(K) 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 $10,000 for the calendar year ending December
31, 1998. Matching contributions, if any, will be made at the discretion of the
Association. No such contributions were made for 1998, 1997 and 1996.
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, 1998 and 1997, the fund held 297,941 and
272,019 shares, respectively, of Common Stock valued at $45.75 and $55.75,
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.
Pursuant to the LIB Acquisition, the Company assumed sponsorship of the 401(K)
plan for former LIB employees. This participant-directed, individual account
plan was frozen effective December 31, 1998, and eligible employees were
enrolled in the Company's 401(K) incentive savings plan. As of December 31,
1998, the LIB 401(K) plan held 292,446 shares of Common Stock, valued at $45.75,
on behalf of participants. Shares held on behalf of participants are voted by
the plan trustee as directed by the participants for whose accounts the shares
are held.
103
<PAGE> 106
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
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 Common Stock issued
in the conversion, the ESOP borrowed funds from the Company. The loan to the
ESOP is being repaid principally from the Association's contributions to the
ESOP over a period of 12 years and the collateral for the loan is the Common
Stock purchased by the ESOP. The Association's contributions are reduced by any
investment earnings realized and any dividends paid on unallocated shares. Prior
to June 1, 1998, dividends on allocated shares were used to make voluntary
prepayments of additional principal, resulting in the allocation of additional
shares to participants' accounts. Effective June 1, 1998, dividends paid on
allocated shares are no longer being utilized to make additional loan principal
payments. During the years ended December 31, 1998 and 1997, a total of $172,000
and $358,000, respectively, in dividends were paid on allocated shares, which
increased total shares allocated in those years, and $1.4 million and $1.1
million, respectively, in dividends were paid on unallocated shares which
reduced the Association's contribution to the ESOP. At December 31, 1998 and
1997, the loan from the Company had an outstanding balance of $21.3 million and
$23.9 million, 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, 1998, 1997 and 1996, 230,514 shares, 240,086
shares and 229,250 shares, respectively, were allocated to participants. As of
December 31, 1998, 1,490,057 shares remain unallocated.
Pursuant to the LIB merger agreement, the Company maintains a separate ESOP for
former employees of LIB. The ESOP previously established by LIB ("the LIB ESOP")
borrowed $23.8 million from LIB and used the funds to purchase 2,070,000 shares
of the then LIB Common Stock. All unallocated and allocated shares from the LIB
ESOP were converted to shares of Common Stock at the exchange ratio of 1.15. The
loan has a scheduled maturity date of 15 years from its origination date and has
an amortization schedule that is tied to the aggregate payroll for its covered
employees. Participants continue to vest in the shares allocated to their
respective accounts over a period not to exceed 5 years. The trustee for the LIB
ESOP must vote all allocated shares held in the LIB ESOP trust in accordance
with the instructions of the participants. Unallocated shares held by the LIB
ESOP trust are voted by the trustee in a manner calculated to most accurately
reflect the results of the allocated LIB ESOP shares voted, subject to the
requirements of the Employee Retirement Income Security Act of 1974, as amended.
As of December 31, 1998, the LIB ESOP loan had an outstanding balance of $19.7
million and an interest rate of 6.15% and 551,170 shares have been allocated to
participants of the LIB ESOP.
In accordance with SOP 93-6, for the years ended December 31, 1998, 1997 and
1996, the Company recorded compensation expense relating to the Association's
ESOP, of $11.6 million, $11.0 million and $6.4 million, 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, 1998, 1997 and 1996, the average quoted price of a share of
Common Stock was $50.30, $45.76 and $28.08, respectively. In addition, included
in the Company's total compensation and benefits expense for the years ended
December 31, 1998, 1997 and 1996 was $2.0 million, $2.4 million and $4.8 million
of compensation expense related to the LIB ESOP.
(16) 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. In 1998, pursuant to
the LIB merger agreement, options outstanding as of the close of business on
September 30, 1998 for various executive officers, employees and directors of
LIB were converted into options on the Common Stock and certain options were
granted to former officers and directors of LIB.
104
<PAGE> 107
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
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. Under
both plans, the exercise price of each option granted was equal to the market
price of the Common Stock on the grant date. All options granted immediately
vest and are exercisable in the event the optionee terminates his/her employment
due to death, disability retirement, or in the event of a change of control of
the Association or the Company. As a result, all options outstanding pursuant to
the 1996 Employee Option Plan became immediately vested and exercisable as a
result of the LIB Acquisition. All options granted under the 1993 and 1996
Employee Option Plans were granted in tandem with limited stock appreciation
rights exercisable only in the event of a change of control of the Association
or the Company as defined by the plans. As a result, all rights became
immediately vested and exercisable as a result of the LIB Acquisition.
The 1993 Directors' Option Plan provided for the fixed granting of non-statutory
options to purchase up to 574,906 shares of Common Stock. Contemporaneously,
with the Association's conversion to stock form of ownership, outside directors
received fixed grants of options to purchase 534,198 shares. The 1996 Directors'
Option Plan provides for the fixed granting of non-statutory options to purchase
up to 120,000 shares of Common Stock. Under both plans, the exercise price of
each option equals the market price of the Common Stock on the grant date. All
options granted under the 1993 Directors' Option Plan vested and became
exercisable in three equal annual installments and expire upon the earlier of
ten years following their grant or one year following the date the optionee
ceases to be a director. All options granted under the 1996 Directors' Option
Plan are exercisable immediately on their grant date. All options granted under
the 1993 and 1996 Directors' Option Plans 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.
Upon consummation of the acquisitions of Fidelity and The Greater, the Company
granted certain executive officers of Fidelity and The Greater, options to
purchase 276,036 shares and 241,840, shares, respectively, of Common Stock. Such
options represented the conversion of options previously granted, are
non-qualified stock options and have a weighted average exercise price of $8.15
per share and $14.93 per share for the Fidelity grants and The Greater grants,
respectively. Additionally, the Company also granted to Fidelity's and The
Greater's former Board of Directors, options to acquire 40,000 shares and 32,000
shares, respectively of Common Stock at exercise prices of $13.93 per share and
$50.31 per share, respectively. As a result of the conversion of the stock
options outstanding under the LIB stock option plans, 1,609,329 options were
converted to options on Common Stock at an average exercise price of $13.98
based on the LIB Acquisition exchange ratio of 1.15. Such options became 100%
exercisable upon the consummation of the acquisition by the Company. All options
expire no later than ten years following the date of grant with the exception of
terminated employees, whose options expire one year after their termination
dates. Also pursuant to the LIB merger agreement, the Company granted to former
members of LIB's Board of Directors, options to acquire 40,000 shares Common
Stock at an exercise price of $42.13 per share. For all options granted to
former Board of Directors and certain executive officers of Fidelity, The
Greater and LIB, the maximum term of the options granted is ten years and the
options were immediately exercisable at the grant date.
Activity in the Company's option plans is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------
1998 1997 1996
--------------------------------------------------------------------------------------
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: 5,305,763 $ 16.08 5,145,154 $ 12.72 5,279,807 $ 11.62
Granted 515,648 45.20 713,386 35.17 223,840 33.90
Canceled (19,805) (19.24) (92,622) (12.81) (80,384) (10.23)
Exercised (1,287,685) (13.26) (460,155) (11.92) (278,109) (9.61)
Adjustment to conform fiscal year
of LIB to the Company 126,816 38.37 -- -- -- --
--------- --------- ---------
Outstanding at end of year 4,640,737 20.70 5,305,763 16.08 5,145,154 12.72
--------- --------- ---------
Options exercisable at end of year 3,726,720 2,768,885 1,796,762
</TABLE>
Options to purchase 109,248 shares, 691,907 shares, and 1,038,831 shares were
available for future grants under the Employee Option Plans at December 31,
1998, 1997 and 1996, respectively.
105
<PAGE> 108
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
The following table summarizes information about the stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------- ------------------------------------
Number Weighted Weighted Number Weighted
of Options Average Remaining Average of Options Average
Exercise Prices at 12/31/98 Contractual Life Exercise Price at 12/31/98 Exercise Price
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.06 to $11.50 1,429,869 5.0 years $ 9.63 1,429,869 $9.63
12.50 to 23.81 1,970,755 5.2 years 13.85 1,443,238 14.35
26.13 to 36.00 306,025 8.0 years 32.98 306,025 32.98
36.75 to 59.75 934,088 8.5 years 48.06 547,588 50.18
--------- ---------
3.06 to 59.75 4,640,737 6.0 years 20.70 3,726,720 19.31
========= =========
</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 common share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
(In Thousands, Except Per Share Data) 1998 1997 1996
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $ 45,048 $ 117,884 $ 69,128
Pro forma $ 38,019 $ 111,543 $ 68,863
Basic earnings per common share:
As reported $ 0.77 $ 2.51 $ 1.49
Pro forma $ 0.63 $ 2.37 $ 1.49
Diluted earnings per common share:
As reported $ 0.74 $ 2.39 $ 1.44
Pro forma $ 0.61 $ 2.26 $ 1.43
</TABLE>
The fair value of the option grants, excluding options from LIB for prior years,
was estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions used for grants in 1998, 1997
and 1996, respectively:
- - - Dividend yield of 1.25% for all three years.
- - - Expected stock price volatility of 24.35%, 18.80% and 17.65%.
- - - Risk-free interest rates based upon equivalent-term U.S. Treasury rates of
4.75%, 5.98%, and 5.59%.
- - - Expected option lives of 5.78 years, 4.97 years, and 5.91 years.
The fair value of LIB's stock options for prior years was estimated on the date
of grant using the Black-Scholes option pricing model based upon the following
assumptions: dividend yield of 1.35%; expected stock price volatility of 24.07%;
risk free interest rates of 6.04% and 6.03% for fiscal 1997 and 1996,
respectively; and expected option lives of 6.90 years and 8.60 years for fiscal
1997 and 1996, respectively.
The following table summarizes the weighted average fair value of the stock
options granted:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------
1998 1997 1996
-----------------------------------------------------------------------------------------
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 437,691 413,589 197,287
Outside directors 37,957 25,957 26,553
Other 40,000 273,840 -
------- ------- -------
515,648 $15.06 713,386 $23.10 223,840 $11.23
======= ====== ======= ====== ======= ======
</TABLE>
106
<PAGE> 109
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
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 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. In 1995, 10,176 additional shares
were awarded under the terms of the RRP for Outside Directors. In 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. Prior to January 1, 1996, a total of 25,946
shares were forfeited under the RRP for Officers and Employees. In 1997 and
1998, 15,000 and 10,000 additional shares, respectively, were awarded under the
terms of the RRP for Officers and Employees, and as of December 31, 1998, 946
shares remain unallocated under the RRP for Officers and Employees.
Awards to outside directors vested and were distributed in three equal annual
installments. For the years ended December 31, 1998, 1997 and 1996, the RRP
distributions to outside directors totaled 3,392 shares, 79,712 shares and
105,152 shares , respectively. Initial awards to executive officers vested in
five equal annual installments commencing January 1995. Distributions to
executive officers totaled 128,894 shares during the year ended December 31,
1998 and 123,894 shares for each year in the years ended December 31, 1997 and
1996. Initial awards to other officers and employees vest in three equal annual
installments commencing January 1997. During the years ended December 31, 1998
and 1997, 129,896 shares and 129,834 shares, respectively, were distributed to
other officers and employees. 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. LIB had
also maintained similar RRPs which enabled its plans to acquire 776,250 shares
of LIB Common Stock at their then average price of $11.50 per share. Pursuant to
the LIB Acquisition, 91,763 shares of LIB Common Stock representing unallocated
RRPs were canceled. For the years ended December 31, 1998, 1997 and 1996, the
Company recorded $4.6 million, $5.5 million and $6.0 million, respectively, of
compensation expense relating to the RRPs.
(17) 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, 1998, the Association was in compliance with all regulatory capital
requirements.
The following table sets forth the regulatory capital calculations for the
Association:
<TABLE>
<CAPTION>
At December 31, 1998
--------------------------------------------------------------------------------
Capital Actual Excess
(Dollars in Thousands) Requirement % Capital % Capital %
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tangible $303,854 1.5% $1,080,837 5.34% $776,983 3.84%
Leverage 607,709 3.0 1,080,837 5.34 473,128 2.34
Risk-based 683,458 8.0 1,155,836 13.53 472,378 5.53
</TABLE>
107
<PAGE> 110
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
<TABLE>
<CAPTION>
At December 31, 1997
--------------------------------------------------------------------------------
Capital Actual Excess
(Dollars in Thousands) Requirement % Capital % Capital %
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tangible $240,922 1.5% $1,004,296 6.25% $763,374 4.75%
Leverage 481,844 3.0 1,004,296 6.25 522,452 3.25
Risk-based 553,850 8.0 1,078,216 15.57 524,366 7.57
</TABLE>
At December 31, 1998 and 1997, the Association's Tier 1 risked-based capital
ratios were 12.65% and 14.51%, 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, 1998 and 1997, the Association was
a "well capitalized" institution.
(18) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("SFAS No. 107"), requires disclosure of
estimated fair value information for the Company's financial instruments. Fair
values are most commonly derived from quoted market prices available in the
formal trading marketplaces. In many cases, the Company's financial instruments
are not bought or sold in formal trading marketplaces. Accordingly, in cases
where quoted market prices are not available, fair values are derived or
estimated based on a variety of valuation techniques. These techniques are
sensitive to the various assumptions and estimates used and the resulting fair
value estimates may be materially affected by minor variations in those
assumptions or estimates. In that regard, it is likely that amounts different
from the fair value estimates would be realized by the Company in an immediate
settlement of the financial instruments.
Fair value estimates are made at a specific point in time, based on relevant
market information about the financial instrument. These estimates do not
reflect any possible tax ramifications, estimated transaction costs, or any
premium or discount that could result from offering for sale at one time the
Company's entire holdings of a particular financial instrument. Because no
market exists for a certain portion of the Company's financial instruments, fair
value estimates are based on judgments regarding future loss experience, current
economic conditions, risk characteristics, and other such factors. These
estimates are subjective in nature, involve uncertainties and, therefore, cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates. For these reasons, the estimated fair value disclosures presented
herein do not represent the entire underlying value of the Company.
The following table summarizes the carrying values and estimated fair values of
the Company's on and off balance sheet financial instruments at December 31,
1998 and 1997:
108
<PAGE> 111
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------
1998 1997
------------------------------------------------------------------
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 $ 266,437 $ 266,437 $ 110,550 $ 110,550
Securities available-for-sale 8,196,444 8,196,444 4,807,305 4,807,305
Securities held-to-maturity 2,108,811 2,123,440 2,632,672 2,645,023
Loans held-for-sale 212,909 213,316 163,962 164,681
Loans receivable held-for-investment, net 8,739,319 8,917,560 7,782,716 8,126,062
Mortgage servicing rights 50,237 63,140 41,789 45,673
Financial Liabilities:
Deposits 9,668,286 9,697,799 9,951,421 9,961,991
Borrowed funds 9,022,797 9,047,953 4,774,237 4,769,620
OFF BALANCE SHEET:
Outstanding commitments to originate
or purchase loans 639,299 639,299 588,691 588,691
Outstanding commitments to sell loans 229,598 229,598 231,277 231,277
Outstanding commitments to purchase
investment securities 785,720 785,720 316,539 316,539
Commitment to fund unused lines of credit 153,815 153,815 180,473 180,473
Interest rate swaps (a) -- 7,125 -- 1,741
Interest rate caps and floors (a) 147 769 315 595
</TABLE>
(a) See Note 10
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 Held-for-Sale
The fair value of loans held-for-sale was determined by outstanding investor
commitments, or in the absence of such commitments, current investor yield
requirements.
Loans Receivable Held-for-Investment, 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
109
<PAGE> 112
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
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.
Mortgage Servicing Rights
The fair value of mortgage servicing rights is estimated using projected cash
flows, adjusted for the effects of anticipated prepayments, using a market
discount rate.
Deposits
SFAS No. 107 stipulates that the fair values of deposits with no stated
maturity, such as savings accounts, NOW accounts, money manager accounts and
money market accounts, are equal to the amount payable on demand. The related
insensitivity of the majority of these deposits to interest rate changes creates
a significant inherent value which is not reflected in the fair value reported.
The fair values of certificates of deposit are based on discounted contractual
cash flows using rates which approximate the rates offered by the Company for
deposits of similar remaining maturities.
Borrowed Funds
Fair value estimates are based on discounted contractual cash flows using rates
which approximate the rates offered for borrowings of similar remaining
maturities.
Outstanding Commitments
Fair value of commitments outstanding are estimated based on the rates that
would be charged for similar agreements, considering the remaining term of the
agreement, the rate offered and the creditworthiness of the parties.
Interest Rate Caps/Floors and Interest Rate Swaps
Fair values for interest rate caps/floors and interest rate swaps are based on
securities dealers' estimated market values.
(19) CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed statements of financial condition as of December 31,
1998 and 1997 and condensed statements of operations and cash flows for the
years ended December 31, 1998, 1997 and 1996, for the Company (parent company
only) reflect the Company's investment in its wholly-owned subsidiary, the
Association, using the equity method of accounting:
110
<PAGE> 113
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
ASTORIA FINANCIAL CORPORATION
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
At December 31,
----------------------------------
(In Thousands) 1998 1997
- - -----------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash $ 645 $ 6,508
Federal funds sold and repurchase agreements 66,437 1,550
Mortgage-backed securities available-for-sale 4,207 29,053
Other securities available-for-sale 647 47,299
ESOP loan receivable 40,980 43,715
Accrued interest receivable 49 164
Amounts due from the Association 629 --
Deferred tax asset 215 --
Other assets 3,169 3,242
Investment in the Association 1,348,829 1,336,124
- - -----------------------------------------------------------------------------------------------
Total assets $1,465,807 $1,467,655
- - -----------------------------------------------------------------------------------------------
Liabilities and stockholders' equity:
Reverse repurchase agreements $ -- $ 12,765
Other liabilities 1,423 5,982
Dividends payable 2,000 2,000
Amounts due to the Association -- 457
Deferred tax liability -- 652
Stockholders' equity 1,462,384 1,445,799
- - -----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,465,807 $1,467,655
===============================================================================================
</TABLE>
ASTORIA FINANCIAL CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December
------------------------------------------------
(In Thousands) 1998 1997 1996
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Mortgage-backed and other securities $ 4,560 $ 5,141 $ 5,860
ESOP loan receivable 2,661 2,834 3,045
- - -----------------------------------------------------------------------------------------------------------------------
Total interest income 7,221 7,975 8,905
Interest expense on borrowed funds 131 108 318
- - -----------------------------------------------------------------------------------------------------------------------
Net interest income 7,090 7,867 8,587
- - -----------------------------------------------------------------------------------------------------------------------
Non-interest income 3,879 -- --
Cash dividends from the Association 50,000 65,562 59,862
- - -----------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Acquisition costs and restructuring charges 10,745 -- --
Compensation and benefits 1,066 1,359 1,213
Other 1,646 1,697 1,488
- - -----------------------------------------------------------------------------------------------------------------------
Total non-interest expense 13,457 3,056 2,701
- - -----------------------------------------------------------------------------------------------------------------------
Income before income taxes and equity in (overdistributed)
undistributed earnings of the Association 47,512 70,373 65,748
Income tax (benefit) expense (1,080) 1,960 2,136
- - -----------------------------------------------------------------------------------------------------------------------
Income before equity in (overdistributed) undistributed
earnings of the Association 48,592 68,413 63,612
Equity in (overdistributed) undistributed earnings
of the Association (1) (3,544) 49,471 5,516
- - -----------------------------------------------------------------------------------------------------------------------
Net income $ 45,048 $117,884 $69,128
=======================================================================================================================
</TABLE>
(1) The equity in overdistributed earnings of the Association for the year ended
December 31, 1998 represents dividends paid to the Company in excess of the
Association's current year's earnings.
111
<PAGE> 114
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
ASTORIA FINANCIAL CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
(In Thousands) 1998 1997 1996
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 45,048 $ 117,884 $ 69,128
Adjustments to reconcile net income to cash provided by
operating activities:
Equity in overdistributed (undistributed) earnings of
the Association 3,544 (49,471) (5,516)
Decrease (increase) in accrued interest receivable 175 184 (8)
Accretion of discount net of amortization of premium
on securities (8) (641) (1,035)
Net gain on sales of securities (3,848) -- --
(Decrease) Increase in other assets, other liabilities
and amounts due the Association (3,921) 3,992 (4,567)
- - --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 40,990 71,948 58,002
- - --------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Increase in repurchase agreements (64,887) (1,550) --
Purchases of securities available-for-sale (526,938) (144,695) (271,710)
Proceeds from maturities and principal payments on
securities available-for-sale 536,336 139,933 286,883
Proceeds from sale of securities available-for-sale 66,606 25,000 15,485
Redemption of acquiree stock -- 4,560 --
Principal payments on ESOP loan receivable 2,735 2,660 3,999
- - --------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 13,852 25,908 34,657
- - --------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
(Decrease) increase in reverse repurchase agreements (12,765) 12,765 (8,329)
Repurchase of Company common stock (16,633) (85,735) (73,715)
Cash received for options exercised 15,012 4,960 2,548
Cash dividends paid to stockholders (42,754) (27,287) (17,886)
- - --------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (57,140) (95,297) (97,382)
- - --------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (2,298) 2,559 (4,723)
Adjustment to conform fiscal year of LIB to the Company (3,565) -- --
Cash and cash equivalents at the beginning of the year 6,508 3,949 8,672
- - --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year $ 645 $ 6,508 $ 3,949
====================================================================================================================
</TABLE>
112
<PAGE> 115
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------------------------------------------
First Second Third Fourth
(In Thousands, Except Per Share Data) Quarter Quarter Quarter Quarter
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 289,847 $ 299,121 $ 313,042 $ 322,438
Interest expense 179,622 188,457 200,772 206,614
- - -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 110,225 110,664 112,270 115,824
Provision for loan losses 1,800 1,814 5,166 6,600
- - -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 108,425 108,850 107,104 109,224
Non-interest income 17,252 20,883 8,279 14,114
- - -----------------------------------------------------------------------------------------------------------------------------------
Total income 125,677 129,733 115,383 123,338
- - -----------------------------------------------------------------------------------------------------------------------------------
General and administrative expense 59,010 57,767 67,388 50,388
Real estate operations and provision for (recovery
of) real estate losses 237 (1,290) (646) (155)
Amortization of goodwill 4,885 4,962 4,962 4,945
Acquisition costs and restructuring charges - - - 124,168
- - -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income tax expense (benefit) and
extraordinary item 61,545 68,294 43,679 (56,008)
Income tax expense (benefit) 25,339 28,775 18,815 (11,104)
- - -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item 36,206 39,519 24,864 (44,904)
Extraordinary item, net of tax - - - 10,637
- - -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 36,206 $ 39,519 $ 24,864 $ (55,541)
===================================================================================================================================
Basic earnings (loss) per common share:
Income (loss) before extraordinary item $ 0.69 $ 0.75 $ 0.46 $ (0.90)
Extraordinary item, net of tax - - - (0.21)
Net earnings (loss) per common share $ 0.69 $ 0.75 $ 0.46 $ (1.11)
Diluted earnings (loss) per common share:
Income (loss) before extraordinary item $ 0.66 $ 0.72 $ 0.44 $ (0.90)
Extraordinary item, net of tax - - - (0.21)
Net earnings (loss) per common share $ 0.66 $ 0.72 $ 0.44 $ (1.11)
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------------------------------------------
First Second Third Fourth
(In Thousands, Except Per Share Data) Quarter Quarter Quarter Quarter (1)
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 224,995 $ 234,621 $ 237,294 $ 281,245
Interest expense 135,249 145,050 147,194 176,098
- - -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 89,746 89,571 90,100 105,147
Provision for loan losses 2,000 2,914 2,395 1,752
- - -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 87,746 86,657 87,705 103,395
Non-interest income 12,877 13,980 15,959 18,661
- - -----------------------------------------------------------------------------------------------------------------------------------
Total income 100,623 100,637 103,664 122,056
- - -----------------------------------------------------------------------------------------------------------------------------------
General and administrative expense 51,188 51,180 52,222 59,081
Real estate operations and provision for (recovery
of) real estate losses 651 812 (627) 1,027
Amortization of goodwill 2,220 2,219 2,235 5,048
- - -----------------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 46,564 46,426 49,834 56,900
Income tax expense 19,196 19,102 20,516 23,026
- - -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 27,368 $ 27,324 $ 29,318 $ 33,874
===================================================================================================================================
Basic earnings per common share $ 0.60 $ 0.61 $ 0.66 $ 0.64
Diluted earnings per common share $ 0.57 $ 0.58 $ 0.62 $ 0.61
</TABLE>
(1)Results of operations for the fourth quarter of 1997 reflect The Greater
Acquisition.
113
<PAGE> 116
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT IDENTIFICATION OF EXHIBIT
------- -------------------------
<S> <C>
2.1 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. (10)
2.2 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. (10)
2.3 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. (6)
2.4 Agreement and Plan of Merger dated as of the 2nd day of April, 1998 by and between
Astoria Financial Corporation and Long Island Bancorp, Inc., as amended. (11)
3.1 Certificate of Incorporation of Astoria Financial Corporation, as amended effective as of
June 3, 1998. (1)
3.2 Bylaws of Astoria Financial Corporation. (*)
4.1 Astoria Financial Corporation Specimen Stock Certificate. (2)
4.2 Federal Stock Charter of Astoria Federal Savings and Loan Association. (3)
4.3 Bylaws of Astoria Federal Savings and Loan Association. (4)
4.4 Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred
Stock. (5)
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, as amended. (5)
4.6 Amendment No. 1 to Rights Agreement, dated as of April 2, 1998 by and between
Astoria Financial Corporation and Chase Mellon Shareholder Services L.L.C. (11)
4.7 Form of Rights Certificate. (5)
4.8 Certificate of Designations, Preferences and Rights of 12% Noncumulative, Perpetual
Preferred Stock, Series B. (6)
4.9 Astoria Financial Corporation Specimen 12% Noncumulative, Perpetual Preferred Stock,
Series B Certificate. (7)
4.10 Astoria Financial Corporation Automatic Dividend Reinvestment and Stock Purchase Plan.
(8)
10.1 Astoria Federal Savings and Loan Association Employee Stock Ownership Trust Loan and
Security Agreement. (*)
</TABLE>
114
<PAGE> 117
<TABLE>
<CAPTION>
EXHIBIT IDENTIFICATION OF EXHIBIT
------- -------------------------
<S> <C>
10.2 Amendment to Astoria Federal Savings and Loan Association Employee Stock OwnershipTrust
Loan and Security Agreement, Promissory Note, and Security Agreement Re
Instruments of Negotiable Documents to be Deposited. (*)
10.3 Loan Agreement among Long Island Bancorp, Inc., The Long Island Savings Bank,
FSB and United States Trust Company of New York, solely as trustee of The LISB
Employee Stock Ownership Plan. (*)
10.4 Amendment No. 1 to Loan Agreement among Long Island Bancorp, Inc., The Long Island
Savings Bank, FSB and United States Trust Company of New York, solely as trustee
of The LISB Employee Stock Ownership Plan. (*)
10.5 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. (9)
10.6 The Long Island Bancorp, Inc., Non-Employee Director Retirement Benefit 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. (*)
10.7 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. (9)
10.8 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. (9)
10.9 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. (7)
10.10 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. (7)
10.11 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. (9)
10.12 Astoria Federal Savings and Loan Association Annual Incentive Plan for Select
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. (*)
</TABLE>
115
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT IDENTIFICATION OF EXHIBIT
------- -------------------------
<S> <C>
10.13 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. (9)
10.14 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. (9)
10.15 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. (7)
10.16 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. (7)
10.17 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. (7)
10.18 Astoria Financial Corporation Employment Agreement with John J. Conefry, 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
the report. (*)
10.19 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. (9)
10.20 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. (9)
10.21 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. (9)
10.22 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. (9)
10.23 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. (9)
</TABLE>
116
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT IDENTIFICATION OF EXHIBIT
------- -------------------------
<S> <C>
10.24 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. (9)
10.25 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. (9)
10.26 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. (9)
10.27 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. (9)
10.28 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. (9)
10.29 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. (7)
10.30 Form of Option Conversion Agreement by and between Astoria Financial Corporation
and each of Mr. Thomas V. Powderly. (10)
10.31 Form of Option Conversion Agreement by and between Astoria Financial Corporation
and Former Officer or Director of Long Island Bancorp, Inc. dated September 30, 1998.
(12)
10.32 Option Conversion Certificates of John J. Conefry, Robert J. Conway, Lawrence W.
Peters, Leo J. Waters and Donald D. Wenk. (*)
10.33 Trust Agreement, dated as of January 31, 1995 between Astoria Financial Corporation and
State Street Bank and Trust Company. (10)
10.34 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. (7)
10.35 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. (7)
</TABLE>
117
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT IDENTIFICATION OF EXHIBIT
------- -------------------------
<S> <C>
10.36 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. (*)
10.37 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. (7)
10.38 Astoria Financial Corporation Litigation Advisory Committee Consulting Agreement
with John J. Conefry, Jr. (*)
10.39 Consulting Agreement by and between Astoria Financial Corporation and Lawrence
W. Peters. (*)
10.40 Letter Agreement dated April 2, 1998 by and between John J. Conefry, Jr. and
Astoria Financial Corporation. (*)
10.41 Letter Agreement dated April 2, 1998 by and between Lawrence W. Peters and
Astoria Financial Corporation. (*)
11.1 Statement regarding computation of earnings per share. (*)
21.1 Subsidiaries of Astoria Financial Corporation. (*)
23 Consent of Independent Auditors. (*)
27 Financial Data Schedule. (*)
27.1 Restated Financial Data Schedule - Nine Months Ended September 30, 1998. (*)
27.2 Restated Financial Data Schedule - Six Months Ended June 30, 1998. (*)
27.3 Restated Financial Data Schedule - Three Months Ended March 31, 1998. (*)
27.4 Restated Financial Data Schedule - Year Ended December 31, 1997. (*)
27.5 Restated Financial Data Schedule - Nine Months Ended September 30, 1997. (*)
27.6 Restated Financial Data Schedule - Six Months Ended June 30, 1997. (*)
27.7 Restated Financial Data Schedule - Three Months Ended March 31, 1997. (*)
27.8 Restated Financial Data Schedule -Year Ended December 31, 1996. (*)
27.9 Restated Financial Data Schedule -Nine Months Ended September 30, 1996. (*)
27.10 Restated Financial Data Schedule - Six Months Ended June 30, 1996. (*)
</TABLE>
118
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT IDENTIFICATION OF EXHIBIT
------- -------------------------
<S> <C>
27.11 Restated Financial Data Schedule - Three Months Ended March 31, 1996. (*)
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 Quarterly Report on
Form 10-Q/A for the quarter ended June 30, 1998, and filed with the Securities and
Exchange Commission on September 10, 1998.
(2) 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.
(3) 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.
(4) Incorporated by reference to Astoria Financial Corporation's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, and filed with the Securities
and Exchange Commission on November 13, 1998.
(5) Incorporated by reference to Astoria Financial Corporation's Registration Statement
on Form 8-K/A dated July 17, 1996 and filed with the Securities and Exchange
Commission in August 1996.
(6) Incorporated by reference to Form S-4 Registration Statement as filed with the Securities
and Exchange Commission on June 24, 1997.
(7) Incorporated by reference to Astoria Financial Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1997,filed with the Securities and
Exchange Commission on March 25, 1998.
(8) Incorporated by reference to Form S-3 Registration Statement as filed with the Securities and
Exchange Commission on October 23, 1995.
(9) 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.
(10) 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.
</TABLE>
119
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT IDENTIFICATION OF EXHIBIT
------- -------------------------
<S> <C>
(11) Incorporated by reference to Astoria Financial Corporation's Current Report on Form
8-K/A, dated April 2, 1998, and filed with the Securities And Exchange Commission
on April 10, 1998, as amended by the First Amendment,
incorporated by reference to the Registrant's Current Report on
Form 8-K, dated May 29, 1998 and the Second Amendment,
incorporated by reference to the Registrant's Current Report on
Form 8-K, dated July 10, 1998.
(12) Incorporated by reference to Astoria Financial Corporation's Registration Statement
On Form S-8, dated September 30, 1998, and filed with the Securities and Exchange
Commission on September 30, 1998.
</TABLE>
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ASTORIA FINANCIAL CORPORATION
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, 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 total number of Directors which the
Corporation would have if there were no vacancies on the Board of Directors
(hereinafter the "Whole Board").
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
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When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of a majority of all of
the shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article FOURTH of the
Corporation's Certificate of Incorporation), shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law. Where a separate vote by a class or classes is required,
a majority of the shares of such class or classes present in person or
represented by proxy (after giving effect to the provisions of Article FOURTH of
the Corporation's Certificate of Incorporation) shall constitute a quorum
entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date, or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present in person or by proxy constituting a quorum, then except as
otherwise required by law, those present in person or by
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proxy at such adjourned meeting shall constitute a quorum, and all matters shall
be determined by a majority of the votes cast at such meeting.
Section 5. Organization.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6. Conduct of Business.
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedures at the meeting, including such regulation
of the manner of voting and the conduct of discussion as seem to him or her in
order. The date and time of the opening and closing of the polls for each matter
upon which the stockholders will vote at the meeting shall be announced at the
meeting.
(b) At any annual meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or
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mailed to and received at the principal executive offices of the Corporation not
less than ninety (90) days prior to the date of the annual meeting; provided,
however, that in the event that less than one hundred (100) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. A stockholder's notice to the Secretary shall set forth as to each
matter such stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the Corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such stockholder and
(iv) any material interest of such stockholder in such business. Notwithstanding
anything in these Bylaws to the contrary, no business shall be brought before or
conducted at an annual meeting except in accordance with the provisions of this
Section 6(b). The Officer of the Corporation or other person presiding over the
annual meeting shall, if the facts so warrant, determine and declare to the
meeting that business was not properly brought before the meeting in accordance
with the provisions of this Section 6(b) and, if he should so determine, he
shall so declare to the meeting and any such business so determined to be not
properly brought before the meeting shall not be transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
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(c) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders at which directors are to be elected
only (i) by or at the direction of the Board of Directors or (ii) by any
stockholder of the Corporation entitled to vote for the election of Directors at
the meeting who complies with the notice procedures set forth in this Section
6(c). Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made by timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered or
mailed to and received at the principal executive offices of the Corporation not
less than ninety (90) days prior to the date of the meeting; provided, however,
that in the event that less than one hundred (100) days' notice or prior
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth (i) as to each person whom such stockholder proposes to
nominate for election or re-election as a Director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (ii) as to the stockholder giving
the notice (a) the name and address, as they appear on the Corporation's books,
of such stockholder and (b) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder. At the request of
the Board of Directors
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any person nominated by the Board of Directors for election as a Director shall
furnish to the Secretary of the Corporation that information required to be set
forth in a stockholder's notice of nomination which pertains to the nominee. No
person shall be eligible for election as a Director of the Corporation unless
nominated in accordance with the provisions of this Section 6(c). The Officer of
the Corporation or other person presiding at the meeting shall, if the facts so
warrant, determine that a nomination was not made in accordance with such
provisions and, if he or she shall so determine, he or she shall so declare to
the meeting and the defective nomination shall be disregarded.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any
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meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 8. Stock List.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
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Section 9. Consent of Stockholders in Lieu of Meeting.
Subject to the rights of the holders of any class of series of
preferred stock of the Corporation, any action required or permitted to be taken
by the stockholders of the Corporation must be effected at an annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
The business and affairs of the Corporation shall be under the
direction of its Board of Directors. The number of Directors who shall
constitute the Whole Board shall be such number as the Board of Directors shall
from time to time have designated except in the absence of such designation
shall be eight. The Board of Directors shall annually elect a Chairman of the
Board from among its members who shall, when present, preside at its meetings.
The Directors, other than those who may be elected by the holders of
any class or series of Preferred Stock, shall be divided, with respect to the
time for which they severally hold office, 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, Directors elected to
succeed those Directors whose terms then expire shall be elected for a term of
office to expire
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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.
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any class or series of
Preferred Stock, and unless the Board of Directors otherwise determines, 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 elected expires and until such Director's
successor shall have been duly elected and qualified. No decrease in the number
of authorized directors constituting the Board shall shorten the term of any
incumbent Director.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by one-third
(1/3) of the Directors then in office (rounded up to the nearest whole number),
by the Chairman of the Board or the President and shall be held at such place,
on such date, and at such time as they, or he or she, shall fix. Notice of the
place, date, and time of each such special meeting shall be given each Director
by whom it is not waived by mailing written notice not less than five (5) days
before the
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meeting or by telegraphing or telexing or by facsimile transmission of the same
not less than twenty-four (24) hours before the meeting. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at a
special meeting.
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend any
meeting, a majority of those present may adjourn the meeting to another place,
date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. Powers.
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The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, including, without limiting the generality of the
foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or privileges on
such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it may
determine, of written obligations of every kind, negotiable or non-negotiable,
secured or unsecured, and to do all things necessary in connection therewith;
(4) To remove any Officer of the Corporation with or without cause, and
from time to time to devolve the powers and duties of any Officer upon any other
person for the time being;
(5) To confer upon any Officer of the Corporation the power to appoint,
remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase, bonus or
other compensation plans for Directors, Officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for Directors, Officers, employees and agents of the Corporation
and its subsidiaries as it may determine; and,
(8) To adopt from time to time regulations, not inconsistent with these
Bylaws, for the management of the Corporation's business and affairs.
Section 9. Compensation of Directors.
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Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
Section 10. 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
Corporation. No director shall serve as such beyond the regular meeting of the
Corporation which immediately precedes the director becoming 75 years of age.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Board of
Directors, may from time to time designate committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for these committees and any others provided
for herein, elect a Director or Directors to serve as the member or members,
designating, if it desires, other Directors as alternate members who may replace
any absent or disqualified member at any meeting of the committee. Any committee
so designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any
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member of any committee and any alternate member in his or her place, the member
or members of the committee present at the meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may by unanimous
vote appoint another member of the Board of Directors to act at the meeting in
the place of the absent or disqualified member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
Section 3. Nominating Committee
The Board of Directors shall appoint a Nominating Committee of the
Board, consisting of not less than three (3) members. The Nominating Committee
shall have authority (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii)
of Article I of these By-laws in order to determine compliance with such By-law
and (b) to recommend to the Whole Board nominees for election to the Board of
Directors to replace those Directors whose terms expire at the annual meeting of
stockholders next ensuing.
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ARTICLE IV - OFFICERS
Section 1. Generally.
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a Chairman of the Board, a Chief
Executive Officer and President, one or more Vice Presidents, a Secretary and a
Treasurer and from time to time may choose such other officers as it may deem
proper. The Chairman of the Board shall be chosen from among the Directors. Any
number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next annual
election of Officers and until their respective successors are chosen but any
Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors.
(c) All Officers chosen by the Board of Directors shall have such
powers and duties as generally pertain to their respective Offices, subject to
the specific provisions of this ARTICLE IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
Section 2. Chairman of the Board of Directors.
The Chairman of the Board shall, subject to the provisions of these
Bylaws and to the direction of the Board of Directors, perform all duties and
have all powers which are commonly incident to the office of Chairman of the
Board or which are delegated to him or her by the Board of Directors. He or she
shall have power to sign all stock certificates, contracts and other instruments
of the Corporation which are authorized.
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Section 3. President and Chief Executive Officer.
The President and Chief Executive Officer (the "President") shall have
general responsibility for the management and control of the business and
affairs of the Corporation and shall perform all duties and have all powers
which are commonly incident to the offices of President and Chief Executive
Officer or which are delegated to him or her by the Board of Directors. Subject
to the direction of the Board of Directors, the President shall have power to
sign all stock certificates, contracts and other instruments of the Corporation
which are authorized and shall have general supervision of all of the other
Officers (other than the Chairman of the Board), employees and agents of the
Corporation.
Section 4. Vice President.
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his disability to act. In addition, the Vice
Presidents shall perform the duties and exercise the powers usually incident to
their respective offices and/or such other duties and powers as may be properly
assigned to them by the Board of Directors, the Chairman of the Board or the
President. A Vice President or Vice Presidents may be designated as Executive
Vice President or Senior Vice President.
Section 5. Secretary.
The Secretary or Assistant Secretary shall issue notices of meetings,
shall keep their minutes, shall have charge of the seal and the corporate books,
shall perform such other duties and exercise such other powers as are usually
incident to such office and/or such other duties and powers as are properly
assigned thereto by the Board of Directors, the Chairman of the Board or
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the President. Subject to the direction of the Board of Directors, the Secretary
shall have the power to sign all stock certificates.
Section 6. Treasurer.
The Treasurer shall be the Chief Financial Officer of the Corporation
and shall have the responsibility for maintaining the financial records of the
Corporation. He or she shall make such disbursements of the funds of the
Corporation as are authorized and shall render from time to time an account of
all such transactions and of the financial condition of the Corporation. The
Treasurer shall also perform such other duties as the Board of Directors may
from time to time prescribe.
Section 7. Assistant Secretaries and Other Officers.
The Board of Directors may appoint one or more Assistant Secretaries
and such other Officers who shall have such powers and shall perform such duties
as are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 8. Assign with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or
any Officer of the Corporation authorized by the President shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of stockholders of or with respect to any action of stockholders of
any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other corporation.
ARTICLE V - STOCK
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Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in
the name of the Corporation by, the Chairman of the Board or the President, and
by the Secretary certifying the number of shares owned by him or her. Any or all
of the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice
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of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given or, if notice is waived,
at the close of business on the next day preceding the day on which the meeting
is held, and, for determining stockholders entitled to receive payment of any
dividend or other distribution or allotment or rights or to exercise any rights
of change, conversion or exchange of stock or for any other purpose, the record
date shall be at the close of business on the day on which the Board of
Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
Section 1. Notices.
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Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, Director, Officer, employee
or agent shall be in writing and may in every instance be effectively given by
hand delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
Section 2. Waivers. A written waiver of any notice, signed by a
stockholder, Director, Officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, Director, Officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
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The Board of Directors may provide a suitable seal, containing the name
of the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
an assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records.
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE VIII - AMENDMENTS
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The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not less
than two days prior to the meeting. The stockholders shall also have power to
amend, alter or repeal these Bylaws at any meeting of stockholders provided
notice of the proposed change was given in the notice of the meeting; provided,
however, that, notwithstanding any other provisions of the Bylaws 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, the Certificate of Incorporation,
any Preferred Stock Designation or these Bylaws, the affirmative votes of the
holders of at least 80% of the voting power of all the then-outstanding shares
of the Voting Stock, voting together as a single class, shall be required to
alter, amend or repeal any provisions of these Bylaws.
The above Bylaws are effective as of June 16, 1993, the date of
incorporation of Astoria Financial Corporation.
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ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION
EMPLOYEE STOCK OWNERSHIP TRUST
LOAN AND SECURITY AGREEMENT
Astoria Financial Corporation
Lake Success, New York
November 18, 1993
Gentlemen:
The undersigned, Nationar, not individually but solely as Trustee under
the Astoria Federal Savings and Loan Association Employee Stock Ownership Trust
(the "Trust") effective November 18, 1993 (the "Borrower"), applies to you for
your commitment, subject to all of the terms and conditions hereof and on the
basis of the representations hereinafter set forth, to make a loan available to
the Borrower as hereinafter set forth. Astoria Financial Corporation is
hereinafter referred to as the "Lender". The term "Company" as used herein
refers to Astoria Federal Savings and Loan Association, as the sponsoring
employer of the Astoria Federal Savings and Loan Association Employee Stock
Ownership Plan (the "ESOP").
SECTION ONE. THE TERM LOAN.
1.1 Amount and Terms. By its acceptance hereof the Lender agrees,
subject to all of the terms and conditions hereof and on the basis of the
representations hereinafter set forth, to make a loan (the "Loan") of up to
thirty-three million, twenty-nine thousand, four hundred and twenty-five dollars
($33,029,425) (the "Commitment"), such proceeds to be used by the Borrower
entirely to acquire shares (the "Shares") of the common stock, par value $.01 of
Astoria Financial Corporation, a Delaware corporation.
The Loan is intended to be an "exempt loan" as described in Section
4975(d) of the Internal Revenue Code of 1986 (the "Code"), as defined in Section
54.4975-7(b) of the Treasury Regulations (the "Regulations"), as described in
Section 408(b)(3) of the Employee Retirement Income Security Act of 1974, as
amended, ("ERISA") and as described in Department of Labor Regulations Section
2550.408b-3 (collectively, the "Exempt Loan Rules").
1.2 The Note. The disbursement of the Loan pursuant to Section 1.1
hereof shall be made against and evidenced by a promissory note of the Borrower
in the form annexed hereto as Exhibit A (the "Note"), such Note to bear interest
as hereinafter provided, and to mature in consecutive annual principal
installments commencing on December 31, 1994 and on the last day of each
December each year thereafter, each such installment to be in an amount equal to
1/12th of the outstanding principal amount of the Loan made under Section 1.1
hereof, except that the final installment in the amount of all principal and
interest not sooner paid shall be due on December 31, 2005, the final maturity
thereof.
<PAGE> 2
Without regard to the principal amount of the Note stated on its face,
the actual principal amount at any time outstanding and owed by the Borrower on
account of the Note shall be the amount of the disbursement of the Loan made by
the Lender under Section 1.1 hereof less all payments of principal actually
received by the Lender. The amount of such disbursement made by the Lender and
any repayments of principal thereof shall be recorded by the Lender on its books
or records or, at its option, endorsed on the reverse side of the Note by the
Lender and the unpaid principal balance at any time so recorded or endorsed by
the Lender shall be prima facie evidence in any court or other proceedings
brought to enforce the Note of the principal amount remaining unpaid thereon.
1.3 Notwithstanding anything to the contrary contained in this
Agreement or in the Note, the Borrower shall be obligated to make repayments of
the Loan only to the extent that such repayments when added to the repayments
theretofore made during the applicable plan year would not exceed an amount
which would cause the limitations of Section 415 of the Code to be exceeded for
any ESOP participant.
Except as set forth in the next succeeding sentence and to the extent
permitted by applicable law, including, without limitation, the Exempt Loan
Rules, the principal amount of the Loan and any interest thereon shall be
payable solely from contributions (other than contributions of employer
securities) made to the Trust in accordance with the ESOP, and cash dividends
received on the Shares, to enable the Borrower to pay its obligations under the
Loan and from earnings attributable to the Shares and the investment of such
contributions and dividends.
The Lender acknowledges and agrees that it shall have no other recourse
against the Borrower for repayment of the Loan and that it shall have no
recourse against assets of the ESOP included in the Trust other than pursuant to
Sections 3 and 8 hereof.
SECTION TWO. INTEREST AND FEES.
2.1 Interest Rate. The Loan shall bear interest (which the Borrower
hereby promises to pay) prior to maturity (whether by lapse of time,
acceleration otherwise) at a rate per annum equal at all times to 6.0%.
2.2 Basis and Payment Dates. All interest accruing on the Note prior to
maturity shall be due and payable on an annual basis and on the last day of each
December in each year (commencing December 31, 1994) and at maturity (unless
prepaid in whole prior to such date, then on the date of such prepayment in
whole) and interest accruing after maturity shall be due and payable upon
demand. All interest on the Note shall be computed on the basis of a year of 360
days for the actual number of days elapsed.
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<PAGE> 3
SECTION THREE. COLLATERAL.
3.1 Grant of Security Interest-Pledged Shares. The Borrower hereby
grants, pledges and assigns to the Lender 1,321,177 shares of the issued and
outstanding common stock, par value $.01 per share all of which were either (i)
purchased by the Borrower from the proceeds of the disbursement of the Loan;
(ii) acquired by the Borrower with the proceeds of a prior exempt loan within
the meaning of Section 54.4975-7(b) of the Treasury Regulations, and pledged as
collateral for such prior exempt loan, where the balance of such prior exempt
loan has been repaid with the proceeds of the disbursement of the Loan (the
"Pledged Shares" being hereinafter referred to as the "Collateral"). The Pledged
Shares shall be evidenced by a stock certificate. The assignment and pledge
herein granted and provided for is made and given to secure and shall secure the
prompt payment of principal of and interest on the Note as and when the same
becomes due and payable and the payment, observance and performance of any and
all obligations and liabilities arising under or provided for in this Loan and
Security Agreement (the "Agreement") or the Note or any of them in each instance
as the same may be amended modified and whether now existing hereafter arising.
3.2 Further Assurances. The Borrower covenants and agrees that it will
at any time and from time to time as requested by the Lender execute and deliver
such further instruments and do and perform such other acts as the Lender may
reasonably deem necessary or desirable to provide for or perfect the lien of the
Lender in the Collateral hereunder.
3.3 Voting. Upon the occurrence of a Default or an Event of Default
hereunder, the Lender sh all have the right to transfer the Collateral or any
part thereof into its name or into the name of its nominee. The Lender shall not
be entitled to vote the Pledged Shares unless and until an Event of Default has
occurred and so long as the same shall not have been waived by the Lender.
3.4 Partial Releases. The Lender agrees, provided always that no Default
or Event of Default shall have occurred and be continuing, as promptly as is
practicable after December 31 in each year (the period commencing the date
hereof and ending December 31, 1994 and each subsequent 12-month period ending
on December 31 being hereinafter referred to as a "Plan Year"), to release that
number of Pledged Shares then being held to secure the Loan which is equal to
the number of such Pledged Shares held as of the last day of the Plan Year
multiplied by a fraction, the numerator of which is the aggregate amount of all
principal payments made on the Note during the Plan Year and the denominator of
which is the sum of the numerator plus the principal to be paid for all future
years under the Note.
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<PAGE> 4
SECTION FOUR. PAYMENTS.
4.1 Place and Application. All payments of principal, interest, fees
and all other amounts payable hereunder shall be made to the Lender at One
Astoria Federal Plaza, Lake Success, New York 11042-1085 for the account of the
Lender ( or at such other place for the account of the Lender as the Lender may
from time to time in writing specify to the Borrower) in immediately available
and freely transferable funds at the place of payment. All payments shall be
paid in full without setoff or counterclaim and without reduction for and free
from any and all taxes, levies, duties, fees, charges, deductions, withholdings,
restrictions or conditions of any nature imposed by any government or any
political subdivision or taxing authority thereof.
4.2 Prepayments. The Borrower shall have the privilege of prepaying in
whole or in part the Note at any time upon giving five (5) Business Days' prior
notice to the Lender, each such prepayment to be made by the payment of the
principal amount to be prepaid and accrued interest thereon to the date fixed
for prepayment. All such prepayments shall be made without premium or penalty.
SECTION FIVE. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lender as follows:
5.1 The Trust is a duly organized, validly existing employee
stock ownership trust.
5.2 The proceeds of the disbursement of the Loan shall be applied in
their entirety to the payment of the purchase price for the Pledged Shares.
5.3 The Borrower has full right, power and authority to enter into this
Agreement, to make the borrowings hereunder provided for, to issue the Note in
evidence thereof and to perform each and all of the matters and things herein
and therein provided for and this Agreement does not, and the Note when issued
will not, nor will the performance or observance by the Borrower of any of the
matters or things herein or therein provided, contravene any provision of law or
the Trust or any other covenant or agreement affecting the Trust or any of its
assets. As of the date of the disbursement of the Loan, the Pledged Shares will
be fully paid and non-assessable and the Pledged Shares will be owned by the
Borrower free and clear of all liens, charges and encumbrances whatsoever,
except for any lien of Lender provided for herein.
5.4 Except as disclosed to the Lender in writing, there is no
litigation or governmental proceeding pending, nor to the knowledge of the
Borrower threatened, against the ESOP and Trust.
5.5 The ESOP and Trust have no material liabilities, whether absolute
or contingent, except for those heretofore disclosed to the Lender.
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<PAGE> 5
SECTION SIX. REPRESENTATIONS AND WARRANTIES OF THE LENDER
The Lender represents and warrants that:
6.1 The Lender is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has full power and
authority and legal right to make and perform this Agreement.
6.2 The execution, delivery and performance by the Lender of this
Agreement have been duly authorized by all necessary action by the Lender and is
not and will not violate any provisions of law applicable to the Lender, any
rules, regulations or orders applicable to the Lender or any judgments or
decrees binding upon the Lender. This Agreement is a valid and legally binding
obligation of the Lender enforceable against the Lender in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, motorium and similar laws affecting credits' rights generally
and the general principles of equity (regardless of whether considered in a
proceeding at law or in equity).
6.3 No authorizations, approvals or consents of, and no filings or
registrations with, any governmental regulatory authority or agency are required
for the execution, delivery performance by the Lender of this Agreement, or any
transaction contemplated hereby, or for the validity or enforceability against
the Lender hereof except as have already been received or accomplished.
6.4 The execution, delivery and performance of the Agreement and the
consummation of the transactions contemplated hereby will not violate, conflict
with or constitute a default under (i) any of the provisions of the Company's
Certificate of Incorporation or Bylaws, (ii) any provision of any agreement,
instrument, order, arbitration award, judgment or decree to which the Company is
a party or by which it is or its assets are bound, (iii) any statute, rule or
regulation of any federal, state or local government or agency applicable to the
Company, except in any such case (i), (ii) or (iii) above, for any such
conflicts, violations or defaults which either individually or in the aggregate
do not have a material adverse effect on the business properties of the Company
and its subsidiaries, taken as a whole.
6.5 The Company has taken such actions as are required by applicable
law to be taken by it to establish the ESOP and the Trust.
6.6 There is no action, suit, investigation or proceeding pending, or
to the best knowledge of the Company, threatened against or affecting the ESOP
or the Trust before any court or governmental department, agency or
instrumentality.
6.7 The Loan will be an "exempt loan" as that term is defined under
Regulation Section 54.4975-7(b)(1)(iii), provided the Borrower determines that
the interest rate is not more than reasonable; and the transactions contemplated
by this Agreement are not "prohibited transactions" within the meaning of
Section 4975 of Code Section 406(a) of ERISA.
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<PAGE> 6
6.8 Except as otherwise provided in this Agreement, the Shares are not
subject to any restriction on transfer under applicable Federal securities law
and may be freely traded over-the-counter.
SECTION SEVEN. CONDITIONS PRECEDENT.
The obligation of the Lender to make the Loan shall be subject to
satisfaction of the following conditions precedent:
7.1 The Lender shall have received executed originals of this Agreement
and the Note duly signed and properly completed.
7.2 The Lender shall have received either (i) the certificate
evidencing all the Pledged Shares together with duly executed blank stock power
therefore or (ii) if such Pledged Shares are not yet available, a duly executed
agreement to pledge such stock in the form attached hereto as Exhibit B (in
which event such certificate and stock power will be delivered within 10 days of
the date of the Lender makes the Loan).
7.3 The Lender shall have received copies (executed or certified, as
may be appropriate) of all legal documents or proceedings taken in connection
with the execution and delivery of this Agreement and the Note.
SECTION EIGHT. COVENANTS.
The Borrower covenants and agrees that so long as any amount remains
unpaid on the Note or the Commitment is outstanding, except to the extent
compliance in any case or cases is waived in writing by the Lender:
8.1 Compliance.
The Borrower will comply with all requirements of the Code, ERISA and
any other law, rule or regulation applicable to it as such laws, rules or
regulations affect the Plan or the Trust.
8.2 Reports.
(a) The Borrower will maintain a system of accounting for the Plan and
the Trust in accordance with sound accounting practice and will, from time to
time, furnish to the Lender and its duly authorized representatives, such
information and data with respect to the financial condition of the Plan and the
Trust as the Lender may reasonably request.
(b) Without any request the Borrower will furnish to the Lender
promptly after knowledge thereof shall have come to the attention of the
Borrower, written notice of the occurrence of any
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<PAGE> 7
Default or Event of Default hereunder or of any threatened or pending litigation
or governmental proceeding against the Plan or the Trust.
8.3 Determination Letter. The Company shall apply for a determination
letter from the Internal Revenue Service that the Plan and the Trust, taken
together, qualify as an employee stock ownership plan for purposes of Section
4975(e)(7) of the Code and the rules and regulations thereunder.
SECTION NINE. EVENTS OF DEFAULT AND REMEDIES.
9.1 Any one or more of the following shall constitute an Event of
Default hereunder:
(a) The Borrower shall default in the payment of principal
interest in respect of the Note or any other amounts payable under this
Agreement when due;
(b) Any representation, warranty or statement made by the
Borrower herein or in connection with the making of the Loan proves to
be incorrect in any material respect as of the date of the issuance or
making thereof,
(c) The Borrower shall default in the due performance or
observance by it of any term, covenant or agreement (other than those
referred to in subparts (a) and (b), inclusive, of this Section 9.1)
contained in this Agreement and such default shall continue unremedied
for a period of 30 days after notice to the Borrower by the Lender or
any other holder of the Note;
9.2 When any Event of Default described in subsections (a) to (c), of
Section 9.1 has occurred and is continuing, the Lender or the holder of the Note
shall have no rights to assets of the Trust other than (i) contributions (other
than contributions of employer securities) that are made by the Lender to enable
the Borrower to meet its obligations pursuant to the Loan, cash dividends
received by the Borrower on the Shares and earnings attributable to the
investment of such contributions and dividends and (ii) the Pledged Stock;
provided further, however, that the value of Trust assets transferred to the
Lender as a result of an Event of Default shall not exceed the amount of the
repayment then in default, and, provided further, that so long as the Lender is
a "party in interest" within the meaning of ERISA Section 3(14) and a
"disqualified person" within the meaning of Section 4975(e)(2) of the Code, a
transfer of Trust assets upon default shall be made only if, and to the extent
of, the Borrower's failure to meet the loan's payment schedule.
9.3 When any Event of Default has occurred and is continuing the Lender
may, in addition to such other rights or remedies as it may have, then or at any
time or times thereafter exercise with respect to the Collateral any and all of
the rights, options and remedies of a secured party under the Uniform Commercial
Code of New York (the "UCC") including without limitation the sale of all or any
part of the Collateral at any brokers' board any public or private
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<PAGE> 8
sale, provided, however that the Lender shall only be able to exercise such
rights and remedies to the extent of all interest and principal payments which
are due and payable as of the date of the Event of Default and provided further
that prior to such exercise the Lender shall release from the Collateral so much
thereof as it would have been required to release under Section 3.4 hereof if
the period from the previous December 31 to the date of such release constituted
a Plan Year and no Event of Default had occurred. The net proceeds of any such
sale, after deducting all costs and expenses incurred in the collection,
protection, sale and delivery of the Collateral (which expenses the Borrower
promises to pay) shall be applied first to the payment of any costs and expenses
incurred by the Lender in selling or otherwise disposing of the Collateral;
second, to the payment of the principal of and the interest on the Note; and,
third, ratably as among any other items of the indebtedness hereby secured. Any
surplus remaining after the full payment and satisfaction of the foregoing shall
be returned to the Borrower or to whomsoever a court of competent jurisdiction
shall determine to be entitled thereto. Any requirement of said UCC as to
reasonable notice shall be met by the Lender personally delivering mailing
notice (by certified mail - return receipt requested) to the Borrower at its
address as provided in Section 11.6 hereof at least ten (10) days prior to the
event giving rise to the requirement of such notice. In connection with any
offer, solicitation or sale of the Collateral, the Lender may restrict bidders
and otherwise proceed in whatever manner it reasonably believes appropriate in
order to comply or assure compliance with applicable legal requirements
pertaining to the offer and sale of securities of the same type as the
Collateral.
9.4 The number of shares of Pledged Stock as to which the Lender may
exercise the rights set forth in this Section 9 may not exceed that number of
shares (then remaining subject to pledge hereunder) which is then equal in
current value to the amount in default under the Note. The remedies set forth in
this Section 8 may only be exercised to the extent consistent with the
restrictions on remedies set forth in Section 408(b)(3) of ERISA and the
regulations thereunder and Section 4975(d)(3) of the Code and the regulations
thereunder.
SECTION TEN. DEFINITIONS.
10.1 The term "Business Day" shall mean any day on which the banks are
generally open for business in New York other than a Saturday or Sunday.
10.2 The term "Event of Default" shall mean any event or condition
specified as such in Section 9.1 hereof and the term "Default" shall mean any
event or condition which, with the lapse of time, the giving of notice, or both
would constitute an Event of Default.
Capitalized terms defined elsewhere in this Agreement shall have the
meanings as defined in all provisions hereof.
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SECTION ELEVEN. MISCELLANEOUS
11.1 Holidays. If any principal of the Note shall fall due on Saturday,
Sunday or on another day which is a legal holiday for banks in the State of New
York, interest at the rate the Note bears for the period prior to maturity shall
continue to accrue on such principal from the stated due date thereof to and
including the next succeeding Business Day on which the same is payable.
11.2 No Waiver, Cumulative Remedies. No delay failure on the part of
the Lender on the part of the holder of the Note in the exercise of any power or
right shall preclude any other or further exercise thereof, or the exercise of
any other power or right, and the rights and remedies hereunder of the Lender
and of any holder of the Note are cumulative to, and not exclusive of, any
rights or remedies which any of them would otherwise have.
11.3 Amendments, Etc. No amendment, modification, termination or waiver
of any provision of this Agreement or of the Note nor consent to any departure
by the Borrower therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Lender, and then such consent, modification or
waiver shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other further notice or demand in similar or
other circumstances.
11.4. Survival of Representations. All representations and warranties
made herein in certificates given in connection with the Loan shall survive the
execution and delivery of this Agreement and of the Note, and shall continue in
full force and effect with respect to the date as of which they were made as
long as any credit is in use or available hereunder.
11.5 Payments. So long as the Lender is the holder of the Note, the
Borrower will promptly and punctually pay the principal of and interest on the
Note without presentment of the Note and without any notation of any such
payment being made on the Note.
11.6 Addresses for Notices. All communications provided for herein
shall be in writing and shall be deemed to have been given or made when served
personally when deposited in the United States mail addressed if to the Borrower
to Donna Holmes, Pryor, Cashman, Sherman & Flynn, 410 Park Avenue, New York, New
York 10022-4441; if to the Lender at One Astoria Federal Plaza, Lake Success,
New York 11042-1085, Attention: Monte N. Redman, at such other address as shall
be designated by any party hereto in a written notice to each other party
pursuant to this Section 11.6.
11.7 Headings. Article and Section headings used in this Agreement are
for convenience or reference only and are not a part of this Agreement for any
other purpose.
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<PAGE> 10
11.8 Severability of Provisions. Any provision of this Agreement which
is unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such unenforceability without impairing the
enforceability of the remaining provisions hereof affecting the enforceability
of such provision in any other jurisdiction.
11.9 Counterparts. This Agreement may be executed in any number of
counterparts, and by different parties hereto on separate counterparts, and all
such counterparts taken together shall be deemed to constitute one and the same
instrument.
11.10 Binding Nature, Governing Law, Etc. This Agreement shall be
binding upon the Borrower and its success and assigns and shall inure to the
benefit of the Lender and the benefit of its successes and assigns, including
any subsequent holder of the Note. To the extent not preempted by Federal law,
this Agreement and the rights and duties of the parties hereto shall be
construed and determined in accordance with the laws of the State of New York
without regard to principles of conflicts of laws. This Agreement constitutes
the entire understanding of the parties with respect to the subject matter
hereof and any prior agreements, whether written or oral, with respect thereto
are superseded hereby.
11.11 Concerning the Borrower. The term "Borrower" as used herein shall
mean and include the undersigned as trustee of the Trust and their successes in
trust not individually but solely as Trustee under that certain Astoria Federal
Savings and Loan Association Employee Stock Ownership Trust effective November
18, 1993, by and between the undersigned and Astoria Federal Savings and Loan
Association and this Agreement shall be binding upon the undersigned and its
successes and assigns and upon the trust estate. The undersigned assumes no
personal or individual liability or responsibility for payment of the
indebtedness evidenced by the Note or for observance or performance of the
covenants and agreements herein contained or for the truthfulness of the
representations and warranties herein contained, the undersigned having executed
this Agreement and the Note solely in its capacity as trustee as aforesaid to
bind the undersigned, its successes in trust and the trust estates.
11.12 Limited Liability. Anything contained herein or in the Note to
the contrary notwithstanding, the sole and only recourse of the Lender and any
other holder of the Note for payment of the obligations hereunder and under the
Note , as against the Borrower for the payment of the obligations hereunder and
under the Note shall be to (i) the Collateral, (ii) contributions, other than
employer securities not constituting Collateral hereunder, made to the Plan and
the Trust by sponsoring employers to enable the Borrower to meet its obligations
hereunder and under the Note, and (iii) earnings attributable to the Pledged
Shares and to the investment of such employer contributions, but only to the
extent of the failure of the Borrower to meet the payment schedule of the Loan
provided for herein.
11.13 Lender's Duty of Care. It is agreed and understood that the
Lender's duty with respect to the Collateral shall be solely to use reasonable
care in the custody and preservation of the Collateral in the Lender's
possession, which shall not include any steps necessary to preserve
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rights against prior parties.
11
<PAGE> 12
All provisions in this Agreement shall be construed so as to maintain
(i) the ESOP as a qualified leveraged employee stock ownership plan under
Sections 401 (a) and 4975(e)(7) of the Code, (ii) the Trust as exempt from
taxation under Section 501(a) of the Code, and (iii) the Loan as an "exempt
loan" under the Exempt Loan Rules.
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
Dated as of this 18 day of November 1993.
Nationar, and its successes in trust, as trustee under that certain
Astoria Federal Savings and Loan Association Employee Stock Ownership
Trust effective Nov 18, 1993 by and between the undersigned and Astoria
Federal Savings and Loan Association.
By__________________
Accepted and agreed to at Lake Success, New York as of the date last
above written Astoria Financial Corporation
By /S/ George L. Engelke, Jr.
George L. Engelke, Jr.
President, Chief Executive Officer
and Director
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All provisions in this Agreement shall be construed so as to maintain
(i) the ESOP as a qualified leveraged employee stock ownership plan under
Sections 401 (a) and 4975(e)(7) of the Code, (ii) the Trust as exempt from
taxation under Section 501(a) of the Code, and (iii) the Loan as an "exempt
loan" under the Exempt Loan Rules.
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
Dated as of this 18 day of November 1993.
Nationar, and its successes in trust, as trustee under that certain
Astoria Federal Savings and Loan Association Employee Stock Ownership
Trust effective Nov 18, 1993 by and between the undersigned and Astoria
Federal Savings and Loan Association.
By /S/ John J. McCabe By: /S/ Alan S. Colodner
John J. McCabe Alan S. Colodner
Senior Vice President Vice President
Accepted and agreed to at Lake Success, New York as of the date last
above written Astoria Financial Corporation
By_____________________
George L. Engelke, Jr.
President, Chief Executive Officer
and Director
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EXHIBIT A
PROMISSORY NOTE
$33,029,425
Lake Success, New York
November 18, 1993
For VALUE RECEIVED, the undersigned, Nationar, not individually but
solely as trustee under that certain Astoria Federal Savings and Loan
Association Employee Stock Ownership Trust effective November 18, 1993 by and
between the undersigned and Astoria Federal Savings and Loan Association (the
"Borrower") promises to pay to the order of Astoria Financial Corporation, a
Delaware Corporation (the "Lender") at its office at One Astoria Federal Plaza,
Lake Success, New York 11042-1085, the principal sum of thirty-three million,
twenty-nine thousand, four hundred and twenty-five dollars ($33,029,425), if
less, the aggregate principal amount of the Loan made to the Borrower under
Section 1.1 of the Loan and Security Agreement hereinafter referred to in
consecutive annual principal installments each in an amount equal to 1/12th of
the original principal amount of such Loan, together with all accrued interest
on the unpaid principal sum, payable commencing on December 31, 1994, and on the
last day of each December in each year thereafter, except that the final
installment in the amount of all principal and interest not sooner paid shall be
due on December 31, 2005, the final maturity hereof.
The Borrower promises to pay interest (computed on the basis of a year
of 360 days for the actual number of days elapsed) at said office on the balance
of principal from time to time remaining outstanding and unpaid hereon at the
rate per annum equal at all times to 6.0% annually on the last day of each
December, commencing December 31, 1994, and in each year thereafter and on the
final maturity date of this Note. On demand, the Borrower promises to pay
interest on any overdue principal hereof (whether by lapse of time, acceleration
otherwise) until paid at the stated rate.
This Note is issued under the terms and provisions of that certain
Astoria Federal Savings and Loan Association Employee Stock Ownership Trust Loan
and Security Agreement bearing even date herewith by and between the Borrower
and the Lender (the "Loan and Security Agreement") and this Note and the holder
hereof are entitled to all the benefits and security provided for thereby
referred to therein to which Loan and Security Agreement reference is hereby
made for a statement thereof.
This Note may be declared due prior to its express maturity and
voluntary prepayments may be made hereon, all in the events, on the terms and in
the manner as provided in such Loan and Security Agreement.
13
<PAGE> 15
Recourse for the payment of this Note has been limited by the
provisions of the Loan and Security Agreement and this Note is expressly made
subject to such provisions. This Note shall be governed by and construed in
accordance with the laws of New York without regard to principles of conflicts
of laws. The Borrower hereby waives presentment for payment and demand.
Upon the occurrence of an Event of Default as such term is defined in
the Loan and Security Agreement at the option of the Lender, all amounts payable
by the Borrower to the Lender under the terms of this Note may immediately
become due and payable by the Borrower to the Lender pursuant to the provisions
of Section 9.2 of the Loan and Security Agreement, and the Lender shall have all
of the rights, powers, and remedies available under the terms of this Note, any
of the other documents evidencing and securing this Loan and all applicable
laws. The Borrower and all endorsers, guarantors, and other parties who may now
in the future be primarily secondarily liable for the payment of the
indebtedness evidenced by this Note hereby severally waive presentment, protest
and demand, notice of protest, notice of demand and of dishonor and non-payment
of this Note and expressly agree that this Note any payment hereunder may be
extended from time to time without in any way affecting the liability of the
Borrower, guarantors and endorsers.
Nationar, and its successes in trust, as trustee under that certain Astoria
Federal Savings and Loan Association Employee Stock Ownership Trust effective
November 18, 1993 by and between the undersigned and Astoria Federal Savings and
Loan Association.
By /S/ John J. McCabe
For Nationar, the Trustee for Astoria Federal
Savings and Loan Association Employee
Stock Ownership Trust
John J. McCabe
Senior Vice President
By: /S/ Alan S. Colodner
Alan S. Colodner
Vice President
14
<PAGE> 16
EXHIBIT B
SECURITY AGREEMENT
RE
INSTRUMENTS OR NEGOTIABLE DOCUMENTS TO BE DEPOSITED
For new value contemporaneously given by Astoria Financial Corporation,
the undersigned ("debt"), the receipt whereof is hereby acknowledged, the debt
does hereby grant a security interest to said Lender in the instruments or
negotiable documents hereafter described ("Collateral"), in all of which
Collateral the debt warrants that the debt has good, valid and effective rights
to the ownership and possession thereof and to the grant of the security
interest hereby made:
1,321,172 shares of the common stock, par value $.01 per share, of
Astoria Financial Corporation, a Delaware corporation.
Debt agrees to deliver said collateral to said Lender not later than the
close of business on Nov 26, 1993, said date being within 10 days from the date
hereof.
Said security interest secures the payment of all indebtedness and
liabilities, now existing or hereafter arising, and the Lender has all the
rights with respect to said Collateral and said security interest as more fully
set forth in the form of secured note or notes executed and delivered by the
undersigned to said Lender prior hereto or contemporaneously herewith.
[Remainder of this page intentionally left blank]
15
<PAGE> 17
This agreement, including matters of interpretation and construction, and
the rights of the Lender and the duties and obligations of the debt hereunder
are to be determined in accordance with the laws of the State of New York,
particularly the Uniform Commercial Code, except where preempted by federal law.
Dated at Lake Success, New York, November 18, 1993.
Nationar and its successes in trust, as trustee under that certain Astoria
Federal Savings and Loan Association Employee Stock Ownership Trust effective
November 18, 1993 by and between the undersigned and Astoria Federal Savings and
Loan Association
By /S/ John J. McCabe
For Nationar, the Trustee for Astoria Federal
Savings and Loan Association Employee Stock
Ownership Trust
John J. McCabe
Senior Vice President
By: /S/ Alan S. Colodner
Alan S. Colodner
Vice President
16
<PAGE> 18
PROMISSORY NOTE
$33,029,425
Lake Success, New York
November 18, 1993
For VALUE RECEIVED, the undersigned, Nationar, not individually but
solely as trustee under that certain Astoria Federal Savings and Loan
Association Employee Stock Ownership Trust effective November 18, 1993 by and
between the undersigned and Astoria Federal Savings and Loan Association (the
"Borrower") promises to pay to the order of Astoria Financial Corporation, a
Delaware Corporation (the "Lender") at its office at One Astoria Federal Plaza,
Lake Success, New York 11042-1085, the principal sum of thirty-three million,
twenty-nine thousand, four hundred and twenty-five dollars ($33,029,425), if
less, the aggregate principal amount of the Loan made to the Borrower under
Section 1.1 of the Loan and Security Agreement hereinafter referred to in
consecutive annual principal installments each in an amount equal to 1/12th of
the original principal amount of such Loan, together with all accrued interest
on the unpaid principal sum, payable commencing on December 31, 1994, and on the
last day of each December in each year thereafter, except that the final
installment in the amount of all principal and interest not sooner paid shall be
due on December 31, 2005, the final maturity hereof.
The Borrower promises to pay interest (computed on the basis of a year
of 360 days for the actual number of days elapsed) at said office on the balance
of principal from time to time remaining outstanding and unpaid hereon at the
rate per annum equal at all times to 6.0% annually on the last day of each
December, commencing December 31, 1994, and in each year thereafter and on the
final maturity date of this Note. On demand, the Borrower promises to pay
interest on any overdue principal hereof (whether by lapse of time, acceleration
otherwise) until paid at the stated rate.
This Note is issued under the terms and provisions of that certain
Astoria Federal Savings and Loan Association Employee Stock Ownership Trust Loan
and Security Agreement bearing even date herewith by and between the Borrower
and the Lender (the "Loan and Security Agreement") and this Note and the holder
hereof are entitled to all the benefits and security provided for thereby
referred to therein to which Loan and Security Agreement reference is hereby
made for a statement thereof.
This Note may be declared due prior to its express maturity and
voluntary prepayments may be made hereon, all in the events, on the terms and in
the manner as provided in such Loan and Security Agreement.
Recourse for the payment of this Note has been limited by the
provisions of the Loan and Security Agreement and this Note is expressly made
subject to such provisions. This Note shall be governed by and construed in
accordance with the laws of New York without regard to
17
<PAGE> 19
principles of conflicts of laws. The Borrower hereby waives presentment for
payment and demand.
Upon the occurrence of an Event of Default as such term is defined in
the Loan and Security Agreement at the option of the Lender, all amounts payable
by the Borrower to the Lender under the terms of this Note may immediately
become due and payable by the Borrower to the Lender pursuant to the provisions
of Section 9.2 of the Loan and Security Agreement, and the Lender shall have all
of the rights, powers, and remedies available under the terms of this Note, any
of the other documents evidencing and securing this Loan and all applicable
laws. The Borrower and all endorsers, guarantors, and other parties who may now
in the future be primarily secondarily liable for the payment of the
indebtedness evidenced by this Note hereby severally waive presentment, protest
and demand, notice of protest, notice of demand and of dishonor and non-payment
of this Note and expressly agree that this Note any payment hereunder may be
extended from time to time without in any way affecting the liability of the
Borrower, guarantors and endorsers.
Nationar, and its successes in trust, as trustee under that certain Astoria
Federal Savings and Loan Association Employee Stock Ownership Trust effective
November 18, 1993 by and between the undersigned and Astoria Federal Savings and
Loan Association.
By /S/ John J. McCabe
For Nationar, theTrustee for Astoria Federal
Savings and Loan Association Employee
Stock Ownership Trust
John J. McCabe
Senior Vice President
By: /S/ Alan S. Colodner
Alan S. Colodner
Vice President
18
<PAGE> 20
SECURITY AGREEMENT
RE
INSTRUMENTS OR NEGOTIABLE DOCUMENTS TO BE DEPOSITED
For new value contemporaneously given by Astoria Financial Corporation,
the undersigned ("debt"), the receipt whereof is hereby acknowledged, the debt
does hereby grant a security interest to said Lender in the instruments or
negotiable documents hereafter described ("Collateral"), in all of which
Collateral the debt warrants that the debt has good, valid and effective rights
to the ownership and possession thereof and to the grant of the security
interest hereby made:
1,321,172 shares of the common stock, par value $.0l per share, of
Astoria Financial Corporation, a Delaware corporation.
Debt agrees to deliver said collateral to said Lender not later than the
close of business on Nov 26, 1993, said date being within 10 days from the date
hereof.
Said security interest secures the payment of all indebtedness and
liabilities, now existing or hereafter arising, and the Lender has all the
rights with respect to said Collateral and said security interest as more fully
set forth in the form of secured note or notes executed and delivered by the
undersigned to said Lender prior hereto or contemporaneously herewith.
[Remainder of this page intentionally left blank]
19
<PAGE> 21
This agreement, including matters of interpretation and construction, and
the rights of the Lender and the duties and obligations of the debt hereunder
are to be determined in accordance with the laws of the State of New York,
particularly the Uniform Commercial Code, except where preempted by federal law.
Dated at Lake Success, New York, November 18, 1993.
Nationar and its successes in trust, as trustee under that certain Astoria
Federal Savings and Loan Association Employee Stock Ownership Trust effective
November 18, 1993 by and between the undersigned and Astoria Federal Savings and
Loan Association
By /S/ John J. McCabe
For Nationar, the Trustee for Astoria Federal
Savings and Loan Association Employee Stock
Ownership Trust
John J. McCabe
Senior Vice President
By: /S/ Alan S. Colodner
Alan S. Colodner
Vice President
20
<PAGE> 1
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 Document to be
Deposited
Whereas Nationar, not individually, but solely as Trustee under the Astoria
Federal Savings and Loan Association Employee stock Ownership Trust (the
"Trust") effective November 18, 1993 (the "Borrower") on or about November 18,
1993 entered into certain agreements entitled the 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 (the Loan Documents) by and between Borrower and/or for the
benefit of Astoria Financial Corporation (the "Lender") and,
Whereas the Borrower and Lender wish to amend the Loan Documents to conform to
the terms and provisions of the Astoria Federal Savings and Loan Association
Employee Stock Ownership Plan (the "ESOP"), to correct certain errors and to
conform the Loan Documents to the intention of the Borrower and Lender.
Now therefore in consideration of one dollar ($1.00) each to the other in hand
paid, the mutual covenants contained herein and other good and valuable
consideration, the Borrower and Lender agree as follows:
A) Section 1.2 of the Astoria Federal Savings and Loan
Association Employee Stock Ownership Trust Loan and Security
Agreement is hereby amended in its entirety to state as
follows:
1.2 The Note. The disbursement of the Loan pursuant to Section 1. 1
hereof shall be made against and evidenced by a promissory note of
the Borrower in the form annexed hereto as Exhibit A (the"Note"),
such note to bear interest on the unpaid balance thereof to be
computed from the date of such disbursement as hereinafter provided
and which note shall also provide for annual payments of principal
and interest as determined by a schedule annexed hereto as Schedule C
at the time of the execution of such note commencing however, no
later than December 31, 1994 and continuing as provided in such
Schedule C, except that the final installment in the amount of all
principal and interest then remaining unpaid shall be due and payable
in full on December 31, 2005, the final maturity thereof.
B) Section 3.4 of the Astoria Federal Savings and Loan
Association Employee Stock Ownership Trust Loan and Security
Agreement is amended in its entirety to state as follows:
1
<PAGE> 2
3.4 Partial Releases. The Lender agrees, provided that no Default or
Event of Default shall have occurred and be continuing, as promptly as
is practicable after December 31 in each year (the period commencing
the date hereof and ending December 31, 1994 and each subsequent
12-month period ending on December 31 being hereinafter referred to as
a "Plan Year"), to release as of the last day of such Plan Year that
number of pledged shares then being held to secure the loan which is
equal to that certain number of shares of the Stock acquired with the
Stock Obligation which is then held in the Unallocated Stock Fund
determined pursuant to Section 4.2 of the ESOP, the terms Stock, Stock
Obligation and Unallocated Stock Fund for purposes of this paragraph
having the meanings respectively, as set forth in the ESOP.
C) The first full paragraph of Exhibit A of the Astoria Federal
Savings and Loan Association Employee Stock Ownership Trust Loan
and Security Agreement and the first full paragraph of the
Promissory Note are each amended in their entirely to each state
as follows.
FOR VALUE RECEIVED, the undersigned, Nationar, not individually, but
solely as trustee under that certain Astoria Federal Savings and Loan
Association Employee Stock Ownership Trust effective November 18, 1993,
by and between the undersigned and Astoria Federal Savings and Loan
Association ("Borrower"), promises to pay to the order of Astoria
Financial Corporation, a Delaware Corporation (the "Lender") at its
office at One Astoria Federal Plaza, Lake Success, New York 11042-1085,
the principal sum of thirty-three million, twenty-nine thousand, four
hundred and twenty-five dollars ($33,029,425) or, if less, the
aggregate principal amount of the loan made to the Borrower under
Section 1.1 of the Loan and Security Agreement hereinafter referred to,
in consecutive annual installments of principal and interest, each in
the amount set forth in Schedule C to the Loan and Security Agreement
for such year, payable commencing on December 31, 1994 and continuing
on the last day of each December and in each year thereafter, except
that the final installment in the amount of all principal and interest
then outstanding and not sooner paid shall be due and payable on
December 31, 2005, the final maturity hereof.
D) Exhibit B of the Astoria Federal Savings and Loan Association
Employee Stock Ownership Trust Loan and Security Agreement and
the Security Agreement Re Instruments or Negotiable Documents To
Be Deposited are each amended in their entirely to each state as
follows:
SECURITY AGREEMENT
RE
INSTRUMENTS OR NEGOTIABLE DOCUMENTS TO BE DEPOSITED
For new value contemporaneously given by Astoria Financial Corporation (
"Lender"), the receipt whereof is hereby acknowledged, Nationar, not
individually, but solely as Trustee under the Astoria Federal Savings and Loan
Association Employee Stock Ownership Trust effective
2
<PAGE> 3
November 18, 1993 ("Debtor"), does hereby grant a security interest to said
Lender in the instruments or negotiable documents hereafter described
("Collateral"), in all of which Collateral the Debtor warrants that the Debtor
has good, valid and effective rights to the ownership and possession thereof and
to the grant of the security interest hereby made:
1,321,177 shares of the common stock, par value $.0l per share, of
Astoria Financial Corporation, a Delaware corporation.
Debtor agrees to deliver said collateral to said Lender not later than the close
of business on November 26, 1993, said date being within 10 days from the the
date hereof.
Said Security interest secures the payment of all indebtedness and liabilities,
now existing or hereafter arising, and the Lender has all the rights with
respect to said Collateral and said security interest as more fully set forth in
the form of secured note or notes executed and delivered by the undersigned to
said Lender prior hereto or contemporaneously herewith.
This agreement, including matters of interpretation and construction, and the
rights of the Lender and the duties and obligations of the Debtor hereunder are
to be determined in accordance with the laws of the State of New York,
particularly the Uniform Commercial Code, except where preempted by federal law.
Dated at Lake Success, New York _________________ 1993.
Nationar and its successes in trust, as trustee under that certain Astoria
Federal Savings and Loan Association Employee Stock Ownership Trust effective
November 18, 1993 by and between the undersigned and Astoria Federal Savings and
Loan Association.
By /S/ John J. McCabe
For Nationar, the Trustee for Astoria Federal Savings
and Loan Association Employee
Stock Owner Trust
John J. McCabe
Senior Vice President
By /S/ Alan S. Colodner
Alan S. Colodner
Vice President
E) Schedule C is hereby annexed and affixed to the Astoria
Federal Savings and Loan Association Employee Stock Ownership
Trust Loan and Security Agreement, which said Schedule C shall
state in its entirely as follows:
Schedule C
Payment schedule for Astoria Federal Savings and Loan Association Employee Stock
3
<PAGE> 4
Ownership Trust Loan and Security Agreement.
Original Principal Balance: $33,029,425.00
Annual Interest Rate: 6.00%
Commencement Date: 11/18/93
Payment Interest Total
Date Principal Payment Payment Principal and
Interest Payment
Dec 31, 1994 $1,957,886.20 $2,218,476.38 $4,176,362.58
Dec 31, 1995 $2,075,359.37 $1,864,292.33 $3,939,651.70
Dec 31, 1996 $2,199,880.93 $1,739,770.77 $3,939,651.70
Dec 31, 1997 $2,331,873.79 $1,607,777.91 $3,939,651.70
Dec 31, 1998 $2,471,786.21 $1,467,865.49 $3,939,651.70
Dec 31, 1999 $2,620,093.39 $1,319,558.31 $3,939,651.70
Dec 31, 2000 $2,777,298.99 $1,162,352.71 $3,939,651.70
Dec 31, 2001 $2,943,936.93 $ 995,714.77 $3,939,651.70
Dec 31, 2002 $3,120,573.14 $ 819,078.56 $3,939,651.70
Dec 31, 2003 $3,307,807.53 $ 631,844.17 $3,939,651.70
Dec 31, 2004 $3,506,275.98 $ 433,375.72 $3,939,651.70
Dec 31, 2005 $3,716,652.54 $ 222,999.16 $3,939,651.70
In witness whereof, the undersigned agree to the amendments set forth herein as
if the Loan Documents as originally executed had set forth such amendments in
full and the Loan Documents, except as specifically amended hereby, are in all
other respects confirmed and ratified. This Amendment is effective as of
November 18, 1993 and shall be binding upon the respective successors and
assigns of the undersigned. This amendment shall be construed under the laws of
the State of New York except where preempted by federal law.
Nationar, and its successors in trust, as
trustee under that certain Astoria Federal
Savings and Loan Association Employee
Stock Ownership Trust effective November 18,
1993 by and between the undersigned and Astoria
Federal Savings and Loan Association.
By /S/ John J. McCabe /S/ Alan S. Colodner
Alan S. Colodner
Vice President
Astoria Financial Corporation
By /S/ George L. Engelke, Jr.
George L. Engelke, Jr.
President & Chief Executive Officer
4
<PAGE> 1
Loan Agreement
among
Long Island Bancorp, Inc.,
The Long Island Savings Bank, FSB
and
United States Trust Company Of New York,
solely as trustee Of
The LISB Employee Stock Ownership Plan
WHEREAS, in connection with the conversion of The Long Island
Savings Bank, FSB (the "Bank") from a federal mutual savings bank to a federal
stock savings bank in accordance with the Plan of Conversion for the Bank dated
November 16, 1993, as amended as of February 7, 1994 (the "Conversion"), the
Bank has established The LISB Employee Stock ownership Plan for the benefit of
all employees eligible to participate therein (such plan, as amended from time
to time, hereinafter referred to as the "ESOP");
WHEREAS, the ESOP is intended to constitute a qualified plan
under section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and an "employee stock ownership plan" within the meaning of section
4975(e)(7) of the Code;
WHEREAS, the agreement of trust, dated as of March 31, 1994 (as
amended from time to time, hereinafter referred to as the "Trust Agreement"),
between the Bank and United States Trust Company of New York, as trustee
(together with its successors in such capacity, the "Trustee"), provides that
the assets of the trust created thereunder (the "Trust") shall be primarily
invested in shares of the outstanding common stock, par value $0.01 per share of
Long Island Bancorp, Inc. (the "Common Stock");
WHEREAS, the Bank has determined it to be in the best interests
of the participants in the ESOP and their beneficiaries to borrow funds from
Long Island Bancorp, Inc. pursuant to this Agreement and to purchase shares of
Common Stock with the proceeds of such borrowing, and the Trustee has further
determined that the execution, delivery and performance of this Agreement and
such purchase of shares of Common Stock are not inconsistent with its fiduciary
responsibilities under the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"); and
WHEREAS, Long Island Bancorp, Inc. wishes to loan
funds to the Trust pursuant to this Agreement.
<PAGE> 2
- 2 -
NOW, THEREFORE, in consideration of these premises and the
mutual promises contained herein, the parties hereto agree as follows:
Section 1. The Loan and Related Matters.
1.1. The Loan. Subject to the terms and conditions of this
Agreement, Long Island Bancorp, Inc. agrees to make a loan to the Trust in a
principal equal to $23,784,300.00 (the "Loan"). The Loan shall be made and
maintained at the principal office of Long Island Bancorp,
Inc. in Melville, New York.
1.2. The Borrowing. Amounts borrowed under this Section 1 shall
be made available to the Trust by remitting the same to the Trustee in the
manner the Trustee shall direct.
1.3. The Note. The Loan shall be evidenced by a single
promissory note of the Trust (as modified and supplemented and in effect from
time to time, the "Note") in substantially the form of Exhibit A attached
hereto, dated the date of the delivery of the Note to Long Island Bancorp, Inc.,
payable to Long Island Bancorp, Inc. in equal quarterly installments, on March
31, June 30, September 30 and December 31, during the period from, and
including, the date of the Note to, but excluding, the tenth anniversary of such
date, subject to any prepayment made pursuant to Section 1.6 hereof. Without
regard to the principal amount of the Note stated on its face, the actual
principal amount at any time outstanding and owed by the Trust on account of the
Note shall be the amount of the disbursement of the Loan made by Long Island
Bancorp, Inc. under Section 1.1 hereof less all payments of principal actually
received by Long Island Bancorp, Inc.
1.4. Use of Proceeds. The proceeds of the Loan shall be applied
by the Trustee, within a reasonable period of time after the receipt thereof, to
purchase shares of Common Stock.
1.5. Exempt Loan. The obligation of Long Island Bancorp, Inc. to
make a loan under Section 1.1 hereof and the Trust's obligation to borrow under
Section 1.2 hereof are conditioned, in either case, upon the Loan satisfying the
requirements of an "exempt loan" within the meaning of section
54.4975-7(b)(1)(iii) of the Department of Treasury regulations.
1.6. Prepayments. The Trust shall have the right
to prepay the Loan in whole or in part at any time or from
<PAGE> 3
- 3 -
time to time without premium or penalty; provided, however, that (i) unless
waived by Long Island Bancorp, Inc., the Trustee shall give Long Island Bancorp
Inc. notice (which notice shall be irrevocable) of each prepayment not later
than 10:00 a.m., Eastern Standard Time, at least three business days prior to
the date of such prepayment, specifying the amount of the Loan to be prepaid and
the date of such prepayment (which shall be a business day) and (ii) upon
prepayment of any principal amount of the Loan, the Trust shall pay any accrued
interest on the amount so prepaid.
1.7. Interest. The Trust shall pay to Long Island Bancorp, Inc.
interest on the unpaid principal amount of the Loan for the period from, and
including, the date of the Note (as provided in Section 1.3 hereof) to, but
excluding, the date such borrowing shall be paid in full at the rate of 6.15%
per annum, payable quarterly on March 31, June 30, September 30 and December 31,
and computed on the basis of a 360-day year and actual days elapsed. To the
extent the Trust fails to make any interest payment on the due date for such
payment hereunder, the Trust's obligation to make such payment shall continue
until such interest is paid in full.
1.8. Form of Payment. All payments of principal, interest and
other amounts to be made by the Trust under this Section 1 and the Note shall be
made in lawful currency of the United States of America, in immediately
available funds, without deduction, set-off or counterclaim to Long Island
Bancorp, Inc. at its principal office in Melville, New York, no later than 1:00
p.m., Eastern Standard Time, on the date on which such payment shall become due
(each such payment made after such time on the due date to be deemed to have
been made on the next succeeding business day). If the due date of any payment
under this Section 1 or the Note would otherwise fall on a day that is not a
business day such due date shall be deemed to be the next preceding business
day.
1.9. Limited Recourse. Long Island Bancorp, Inc. will have no
recourse against (i) the Trustee, in its individual capacity, (ii) the assets of
the Trust or (iii) any other assets related to the ESOP, except that, to the
extent not prohibited by ERISA or the Code, Long Island Bancorp, Inc. shall have
recourse against any unallocated shares of Common Stock held in the ESOP
suspense account (as described in Paragraph 2.2(d) hereof) that were acquired
with the proceeds of the Loan and any earnings thereon.
Section 2. Representations and Warranties.
2.1. Representations and Warranties of Long Island Bancorp, Inc.
Long Island Bancorp, Inc. hereby represents, warrants and covenants to the
Trust as follows:
<PAGE> 4
- 4 -
(a) Organization and Corporate Power. Long
Island Bancorp, Inc. has been duly incorporated and is validly existing in good
standing under the laws of the State of Delaware; Long Island Bancorp, Inc. has
the corporate power and authority to own and lease its property and to conduct
its business as it is currently being conducted and to perform this Agreement,
the Pledge Agreement by and between the Trustee and Long Island Bancorp, Inc.
dated the date hereof (the "Pledge Agreement") and the Stock Order and
Acknowledgment Form, as amended, by and between the Trustee and Long Island
Bancorp, Inc. (the "Stock Order Form"). The Bank, as of the date hereof, is duly
organized and in existence under the laws of the United States of America as a
federally chartered savings bank of stock form, with its charter in full force
and effect; the Office of Thrift Supervision has not appointed a conservator or
receiver for the Bank; and the Bank has the corporate power and authority to own
and lease its property and to conduct its business as it is currently being
conducted and to perform this Agreement and the Trust Agreement. (This
Agreement, the Pledge Agreement, the Stock Order Form and the Trust Agreement
are hereinafter collectively referred to as the "ESOP Documents.")
(b) Authorization and Enforceability. The
ESOP Documents have been duly authorized, executed and delivered by Long Island
Bancorp, Inc. and the Bank, as applicable, and constitute valid and binding
agreements enforceable against Long Island Bancorp, Inc. and the Bank, as
applicable, in accordance with their terms and conditions, except that (i) the
enforceability of the ESOP Documents may be limited by bankruptcy,
reorganization, insolvency, moratorium or other similar laws of general
applicability affecting the enforcement of creditors' rights generally and
general principles of equity regardless of whether considered in a proceeding at
law or in equity and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(c) Governmental Consents. No consent,
approval, authorization or order of, or notification to or filing with, any
court or governmental agency or body is required to be obtained or made by the
Trust, Long Island Bancorp, Inc. and the Bank, as applicable, in connection with
the execution, delivery and performance by Long Island Bancorp, Inc. and the
Bank, as applicable, of the ESOP Documents or the consummation of any
transaction contemplated by the ESOP Documents, except such as have been, or
prior to the date of the consummation of the Conversion will have been,
obtained or made, as required.
<PAGE> 5
- 5 -
(d) Conflicting Agreements, etc. None of the
execution, delivery and performance of the ESOP Documents or the consummation of
any transaction contemplated by the ESOP Documents, or the fulfillment of the
terms of the ESOP Documents will (i) conflict with, result in a breach of, or
constitute a default under, the charter or by-laws of Long Island Bancorp, Inc.
and the Bank, as applicable, or the terms of any indenture or other agreement or
instrument to which Long Island Bancorp, Inc. or the Bank, as applicable, is a
party or by which either is bound or any statute, rule, approval, order or
regulation applicable to Long Island Bancorp, Inc. and the Bank, as applicable,
of any court, regulatory body, or arbitrator having jurisdiction over Long
Island Bancorp, Inc. and the Bank, as applicable, or any state or federal
statute applicable to Long Island Bancorp, Inc. and the Bank, as applicable, or
(ii) require the consent of any shareholder of Long Island Bancorp, Inc. and the
Bank, as applicable, or other person (except as provided in Paragraph 2.1(c)
hereof).
(e) Litigation. Except as may be disclosed
in information made available to the public by Long Island Bancorp, Inc. as
reflected in filings and disclosures required by Federal, state or local
statutes, rules, orders or regulations or as otherwise made available to the
public, there is no pending or, to the best knowledge of Long Island Bancorp,
Inc. threatened action, suit or proceeding before any court or government
agency, authority or body or any arbitrator involving Long Island Bancorp, Inc.
or the Bank that can be reasonably expected to result, either individually or in
the aggregate, in any material adverse change in the financial position,
stockholders' equity or results of operations of Long Island Bancorp, Inc.
(f) Underwriters Not Fiduciaries. No
underwriter with respect to the subscription and community offering of the
Common Stock is a fiduciary with respect to the ESOP.
(g) No Commissions. No commissions (within the
meaning of section 408(e) of ERISA) is payable by the Trust in connection
with its acquisition of Common Stock with the proceeds of the Loan.
(h) Exempt Loan. The Loan will be an "exempt
loan" as the term is defined under section 54.4975-7(b)(1)(iii) of the
Department of Treasury regulations,
<PAGE> 6
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provided the Trustee determines that the Interest rate is not more than a
reasonable rate of interest (within the meaning of section 54.4975-7(b)(7) of
the Department of Treasury regulations); and the transactions contemplated by
this Agreement are not "prohibited transactions" with the meaning of section
4975 of the Code or section 406(a) of ERISA.
(i) No Restrictions on Transfer of Common Stock.
The Common Stock is not subject to any restriction on transfer by the
Trustee under applicable Federal securities law.
2.2. Representations and Warranties of the Trustee. The Trustee,
solely in its capacity as Trustee and not individually, hereby represents,
warrants and covenants to Long Island Bancorp, Inc. as follows:
(a) Purchase of Common Stock. Within a
reasonable period of time after the receipt of the proceeds of the Loan, the
Trust will apply such proceeds to the purchase of shares of Common Stock.
(b) Investment. The Trust is acquiring the
shares of Common Stock solely for investment purposes and not with a view to any
distribution thereof or sale in connection therewith; provided, however, that
the acquisition, holding, transfer and distribution of shares of Common Stock is
governed by, and subject to, the terms of the Trust Agreement, the ESOP, ERISA
and the Code.
(c) Trust Administration. The Trustee,
solely within the responsibilities allocated to it pursuant to the Trust
Agreement, will administer the Trust according to the terms of the Trust
Agreement, unless to do so would contravene applicable law.
(d) Suspense Account. Until payment in full
of the principal amount of the Loan, all interest thereon and all other amounts
payable by the Trust under Section 1 hereof, all shares of Common Stock
purchased by the Trust with the proceeds of the Loan shall be added to and
maintained in a suspense account and will be withdrawn therefrom only as
provided under the applicable provisions of the ESOP and the Trust Agreement.
(e) ESOP Matters. The Trustee, to the extent
within the responsibilities allocated to it pursuant to the Trust Agreement ,
(i) will cause (A) the ESOP to be operated and administered as a qualified plan
under section 401(a) of the Code and as an "employee stock ownership plan" under
section 4975(e)(7) of the Code and (B) the Trust to be exempt from federal
income taxation under section 501(a) of the Code
<PAGE> 7
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and, in connection with each of the foregoing, will comply and will cause the
ESOP and the Trust to comply, in all material respects, with the requirements of
the Code and ERISA applicable to the Trustee, the ESOP and the Trust and (ii)
will not take or fail to take any action that, in either case, would adversely
affect the status of (A) the ESOP as a qualified plan under section 401(a) of
the Code or as an "employee stock ownership plan" within the meaning of section
4975(e)(7) of the Code, (B) the Trust as tax-exempt under section 501(a) of the
Code or (C) the Loan as an "exempt loan" within the meaning of section
54.4975-7(b)(1)(iii) of the Department of Treasury regulations.
Section 3. Representations and Warranties of
United States Trust Company of New York ("U.S. Trust"), in its
individual capacity.
U.S. Trust, not as Trustee, but solely in its
individual capacity, represents and warrants to Long Island
Bancorp, Inc. that:
3.1. U.S. Trust has full power, authority and
legal right to make and perform the Trust Agreement and (with
respect to this Section 3) this Agreement.
3.2. The execution, delivery and performance by (i) U.S. Trust
of the Trust Agreement and (with respect to this Section 3) this Agreement and
(ii) U.S. Trust, as trustee under the Trust Agreement, of this Agreement and the
Note, do not violate any provision of law, any rules, regulations or orders
applicable to U.S. Trust; provided, however, that U.S. Trust makes no
representation or warranty in this Section 3.2 as to whether its execution,
delivery or performance of this Agreement (other than this Section 3) or the
Note complies with or violates any provision of ERISA or the Code or the
Securities Act of 1933 and the rules and regulations thereunder or any Federal
or state statute or regulation applicable to Long island Bancorp, Inc. or the
Bank.
3.3. No authorization, approvals or consents of, and no filings
or registrations with, any governmental or regulatory authority or agency are
necessary for the execution, delivery or performance by (i) U.S. Trust of the
Trust Agreement or (with respect to this Section 3) this Agreement or (ii) U.S.
Trust, as trustee under the Trust Agreement, this Agreement and the Note, or any
transaction contemplated hereby or thereby, or for the validity or
enforceability against U.S. Trust hereof or thereof, except for filings with the
Internal Revenue Service, the Department of Labor or the Securities and Exchange
Commission that may from time to time be required by ERISA, the code or other
applicable law.
<PAGE> 8
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3.4. The Trust Agreement and (with respect to this Section 3)
this Agreement have each been duly authorized, executed and delivered by U.S.
Trust and each constitutes a valid and binding agreement, in each case,
enforceable against U.S. Trust, in accordance with its terms and conditions,
except as enforceability may be limited by bankruptcy, reorganization,
insolvency, fraudulent conveyance, moratorium or other similar laws relating to
creditors' rights or general principals of equity now or hereafter in effect
(regardless of whether enforcement is sought in a proceeding at law or in
equity).
Section 4. Conditions Precedent.
The obligations of the Trust to borrow pursuant to Section 1.2
hereof shall be subject to the satisfaction of the following conditions
precedent:
4.1. The Trustee shall have received from outside counsel for
Long Island Bancorp, Inc. an opinion satisfactory in form and substance to the
Trustee, bearing even date herewith, to the effect that:
(a) as of the effective date of the ESOP, the
ESOP is qualified under sections 401(a) of the Code and constitutes an "employee
stock ownership plan" (within the meaning of section 4975(e)(7) of the Code and
section 407(d)(6) of ERISA), provided that in rendering such opinion such
counsel may rely on certain representations of the Bank;
(b) the Common stock to be purchased by the
Trustee on behalf of the Trust constitutes "employer securities" (within the
meaning of section 409(1) of the Code and section 407(d)(1) Of ERISA) and
"qualifying employer securities" (within the meaning of section 407(d)(5) of of
ERISA);
(c) the Loan constitutes an "exempt loan"
(within the meaning of section 54.4975-7(b)(1)(iii) of the Department of
Treasury regulations), provided that in rendering such opinion such counsel may
rely on certain representations of the Bank and provided further, that such
counsel may assume the Trustee has determined that (I) the interest rate payable
on the Loan is not in excess of a reasonable rate of interest (within the
meaning of section 54.4975-7(b)(7) of the Department of Treasury regulations)
and (ii) the other terms of the Loan, taken as a whole, are at least as
favorable to the Trust as could reasonably be expected to result from an arm's
length negotiation between independent parties; and
<PAGE> 9
- 9 -
(d) no portion of the amount paid by the
Trust in connection with its acquisition of Common Stock constitutes a
commission (within the meaning of section 408(e) of ERISA).
4.2. The Borrower shall have received from counsel for Long
Island Bancorp, Inc. a favorable opinion satisfactory in form and substance to
the Trustee, bearing even date herewith to the effect that:
(a) Long Island Bancorp, Inc. has been duly
incorporated and is validly existing in good standing under the laws Of the
State of Delaware; Long Island Bancorp, Inc. has the corporate power and
authority to own and lease its property and to conduct its business as it is
currently being conducted; Long Island Bancorp, Inc. is duly qualified as a
foreign corporation to transact business and is in good standing in the State of
New York; Long Island Bancorp, Inc. has the corporate power and authority to
issue and deliver the Common Stock to the ESOP; and the issuance and delivery of
the Common Stock to the ESOP has been duly authorized by all requisite corporate
action;
(b) the Bank, as of the date hereof, is duly
organized and in existence under the laws of the United States of America as a
federally chartered savings bank of stock form, with its charter in full force
and effect; the Office of Thrift Supervision has not appointed a receiver or
conservator for the Bank; the Bank has the corporate power and authority to own
and lease its property and to conduct its business as it is currently being
conducted;
(c) each of Long island Bancorp, Inc. and the
Bank has the corporate power and authority to enter into and perform each of the
ESOP Documents to which it is a party and to carry out the transactions
contemplated by the ESOP Documents, including the establishment of the ESOP;
(d) the execution and delivery by each of
Long Island Bancorp, Inc. and the Bank of the ESOP Documents to which it is a
party, and the performance by it of its obligations under the ESOP Documents,
have been duly authorized by all requisite corporate action on its part;
(e) each of Long Island Bancorp, Inc. and the
Bank has duly executed and delivered each of the ESOP Documents to which it
is a party; and
(f) each of the ESOP Documents to which Long
Island Bancorp, Inc. or the Bank is a party constitutes the legal, valid and
binding obligation of Long Island Bancorp, Inc. or the Bank, as the case may
be, enforceable against Long Island Bancorp, Inc. or the Bank, as the
<PAGE> 10
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case may be, in accordance with its respective terms.
The opinions of counsel for Long Island Bancorp, Inc. described
above as to the enforceability in accordance with their respective terms of any
of the ESOP Documents may be subject to the exceptions that (i) such
enforceability may be limited by (A) bankruptcy, insolvency reorganization,
moratorium or other similar laws of general applicability affecting the
enforcement of creditors' rights generally and (B) general principles of equity
regardless of whether considered in a proceeding in equity or at law and (ii)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
4.3. The Trustee shall have received from a financial advisor
selected by it an opinion satisfactory in form and substance to the Trustee,
bearing even date herewith, to the effect that the price to be paid for the
Common Stock to be purchased by the Trustee on behalf of the Trust using the
proceeds of the Loan is not in excess of "adequate consideration" (within the
meaning of section 3(18) of ERISA). The Trustee shall use its best efforts to
obtain such an opinion.
4.4. The Trustee shall have determined that the interest rate
payable on the Loan is not in excess of a reasonable rate Of interest (within
the meaning of section 54.4975-7(b)(7) of the Department of Treasury
regulations).
4.5. The Bank shall have provided the Trustee with copies of all
legal documents and proceedings the Trustee has requested in connection with the
execution and delivery of this Agreement and the Note.
4.6 The Trustee shall have received payment of the expenses
incurred by it to the date of the closing of the Loan including, but not limited
to, its reasonable legal fees and fees incurred in connection with the valuation
of the Common Stock and the determination of the fairness of the terms of the
Loan.
Section 5. Covenants of the Bank.
The Bank agrees that for as long as the Trust holds any shares
of Common Stock purchased with the proceeds of the Loan (unless the Trustee
shall otherwise consent in writing):
5.1. ESOP Matters. The Bank (i) will cause (A) the ESOP to be
operated and administered as a qualified plan
<PAGE> 11
- 11 -
under section 401(a) of the Code and as an "employee stock ownership plan" under
section 4975(e)(7) of the Code and (B) the Trust to be exempt from federal
income taxation under section 501(a) of the Code and, in connection with each of
the foregoing, will comply and will cause the ESOP and the Trust to comply with
any changes in sections 401(a), 501(a) or 4975(e)(7) or any other applicable
sections of the Code or ERISA, (ii) will make all necessary filings with respect
to the ESOP and the Trust, including, without limitation, the filings required
to be made with the Internal Revenue Service and the Department of Labor, (iii)
will file on a timely basis with the Internal Revenue Service for a
determination letter that (A) the ESOP, as of the date of such letter, meets the
requirements for qualification under section 401(a) of the Code and constitutes
an "employee stock ownership plan" within the meaning of section 4975(e)(7) of
the Code and (B) the Trust is exempt from federal income taxation under section
501(a) of the Code and, in the event that the Internal Revenue Service imposes
conditions for the issuance of such a letter, will comply with all such
conditions, including, without limitation amending or otherwise modifying the
ESOP and (iv) will not take or fail to take any action that, in either case,
would adversely affect the status of (A) the ESOP as a qualified plan under
section 401(a) of the Code or as an "employee stock ownership plan" within the
meaning of section 4975(e)(7) of the Code, (B) the Trust as tax-exempt under
section 501(a) of the Code or (C) the Loan as an "exempt loan" within the
meaning of section 54.4975-7(b)(1)(iii) of the Department of Treasury
regulations.
5.2. ESOP Compliance. The Bank shall furnish to the Trustee (i)
copies of each annual report or return relating to the ESOP, as well as all
schedules and attachments thereto, within thirty days after the filing thereof
and (ii) such additional information concerning the ESOP as the Trustee may
reasonably request.
Section 6. Covenant of Long Island Bancorp, Inc.
So long as any amount remains unpaid on the Note, to the extent
the Bank has not made contributions to the Trust in amounts and at times
sufficient to enable the Trustee to make payments required under the terms of
this Agreement and the Note and such payments have not otherwise been made, Long
Island Bancorp, Inc. shall cause the Bank to make such contributions.
Section 7. Remedies Upon Default.
If (i) at any time during the term of the Loan the ESOP is terminated
or (ii) the Trust shall default in the
<PAGE> 12
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payment of the principal amount of the Loan when due as provided in Section 1.3
hereof and in the Note and such default shall have continued for two business
days and shall be continuing, then, in either case, the entire amount of any
unpaid principal and interest in respect of the Loan shall immediately become
due and payable. If such unpaid amounts are not immediately paid by the Trust to
Long island Bancorp, Inc., then Long island Bancorp, Inc. may exercise any or
all of the rights and remedies available to it under any applicable law;
provided, however, that the number of shares of Common Stock held in the Trust
as to which Long Island Bancorp, Inc. may exercise any such rights and remedies
may not exceed the number of shares held in the ESOP suspense account (as
described in Paragraph 2.2(d) hereof) which is then equal in current value to
the amount of the default under the Note. Remedies may only be exercised to the
extent consistent with the restrictions on remedies set forth in section
408(b)(3) Of ERISA and the regulations thereunder and section 4975(d)(3) of the
Code and the regulations thereunder.
Section 8. Miscellaneous.
8.1 Expenses. Except as otherwise provided in this Agreement,
Long Island Bancorp, Inc. shall pay all of its own expenses incurred in
connection with this Agreement. To the extent not paid from the Trust, the Bank
shall pay directly, or make contributions to the Trust in an amount sufficient
to enable the Trust to pay, all of the expenses of the Trust in connection with
the negotiation, authorization, preparation, execution, delivery and performance
of this Agreement, including, without limitation, the fees and expenses
reasonably incurred by the agents, representatives, counsel, financial advisors
and consultants of the Trust and the Trustee.
8.2. Representations and Warranties. The representations,
warranties, covenants and agreements made in this Agreement shall survive the
date hereof and the date amounts are remitted to the Trust in accordance with
Section 1.2 hereof.
8.3. Trust Agreement. Unless the context otherwise requires, the
terms and provisions of the Trust Agreement relating to the nature of the
responsibilities of the Trustee are incorporated herein by reference and made
applicable to this Agreement. To the extent that any of the provisions of this
Agreement are inconsistent with the provisions of the Trust Agreement, the
provisions of the Trust Agreement shall control.
<PAGE> 13
- 13 -
8.4. Applicable Law. This Agreement and the Note shall be
governed by and construed in accordance with the laws of the State of New York
(without regard to conflicts of law), to the extent not preempted by applicable
Federal law.
8.5. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Trust may not assign its rights or
obligations hereunder or under the Note without the prior written consent of
Long Island Bancorp, Inc.
8.6. Enforceability. In the event that any provision of this
Agreement shall be declared unenforceable by a court of competent jurisdiction,
the provision shall be stricken herefrom and the remainder of this Agreement
shall remain binding on the parties hereto. In the event any provision of this
Agreement shall be so declared unenforceable due to its scope or breadth, then
the provision shall be narrowed to the scope or breadth permitted by law.
8.7. Recapitalizations, Exchanges, Etc. Affecting Common Stock.
All of the provisions of this Agreement shall apply, to the full extent set
forth herein with respect to the shares of Common Stock purchased by the Trustee
on behalf of the Trust from Long Island Bancorp, Inc. using the proceeds of the
Loan, to any and all shares of capital stock of Long Island Bancorp, Inc. or any
successor or assign of Long Island Bancorp, Inc. (whether by merger,
consolidation, sale of assets or otherwise) that may be issued in respect of, in
exchange for, or in substitution of, such shares of Common Stock, by reason of
any stock dividend, split, reverse split, combination, recapitalization,
reclassification, merger, consolidation or otherwise.
8.8. The Code and ERISA Compliance. It is hereby intended by the
parties that the transactions contemplated by this Agreement will comply with
sections 409(.1) and 4975 of the Code and section 406 of ERISA. The parties
hereto hereby agree that the provisions of this Agreement will be interpreted so
as to ensure such compliance.
8.9. Counterparts. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and
the same instrument.
8.10. Amendments. This Agreement may not be modified, amended,
supplemented or waived with respect to the obligations of a party hereto, except
by an instrument in writing signed by that party.
<PAGE> 14
- 14 -
8.11. Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to a party hereto upon any breach or default
under this Agreement of the other party hereto shall impair any such right,
power or remedy of the non-breaching or non-defaulting party nor shall it be
construed to be a waiver of any such breach or default, or any acquiescence
therein, or in any similar breach or default thereafter occurring; nor shall any
waiver of any single breach of default be deemed a waiver of any other breach or
default theretofore or thereafter occurring.
8.12. Descriptive Headings. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted for convenience
only and do not constitute a part of this Agreement.
8.13. Notices. All communications hereunder shall be in writing
and effective only upon receipt and, if sent to Long Island Bancorp, Inc., shall
be mailed, telecopied, delivered or telegraphed and confirmed to it at 201 Old
Country Road, Melville, New York 11747; Attention: Mark Fuster, Executive Vice
President & Treasurer, and Thomas E. Lavery, First Vice President-Legal, or if
sent to the Trust, shall be mailed, telecopied, delivered or telegraphed and
confirmed to it at 114 West 47th street, New York, New York 10036-1532;
Attention: Schuyler V. Grant, Senior Vice President.
8.14. Further Assurances. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable efforts
to take or cause to be taken all action and to do or cause to be done all things
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement.
8.15. Certain Limitations. Except with respect to Section 3
hereof, U.S. Trust is executing and delivering this Agreement and the Note
solely as trustee under the Trust Agreement and not in its individual capacity
and in no case whatsoever shall U.S. Trust (or any person or entity acting as
successor trustee under the Trustee Agreement) be personally liable for the
obligations of the Trust hereunder or under the Note.
8.16. Rescission. The parties hereto agree that the purpose of
this Agreement is to provide for the making of an "exempt loan" (within the
meaning of section 54.4975 7(b)(1)(iii) of the Department of Treasury
regulations) to the Trust to enable the Trustee to purchase shares of Common
Stock on behalf of the Trust. If:
<PAGE> 15
- 15 -
(a) the Bank shall notify the Trustee that,
in the Bank's determination, it is not possible practicable or desirable to
revise the ESOP or the Trust Agreement in a manner that will enable the Bank to
obtain a favorable determination letter from the Internal Revenue Service that
the ESOP, as of the date of such letter, meets the requirements for
qualification under section 401(a) of the Code and constitutes an "employee
stock ownership plan" within the meaning of section 4975(e)(7) of the Code; or
(b) the purchase of shares of Common Stock
with the proceeds of the Loan is rescinded pursuant to any governmental
requirement, prohibition or decree of any court order, writ or judgment, then
this Agreement shall be considered null and void abinitio and, if the Loan shall
have been made, the Trustee shall transfer to Long Island Bancorp, Inc. all
shares of Common Stock purchased with the proceeds of the Loan and the Trust
shall have no further obligations under this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of this 14th day of April, 1994.
LONG ISLAND BANCORP, INC.
By /S/ Mark Fuster
Mark Fuster
Treasurer
THE LONG ISLAND SAVINGS BANK, FSB
By /S/ Mark Fuster
Mark Fuster
EVP & Treasurer
UNITED STATES TRUST COMPANY OF NEW
YORK, solely as trustee under the
trust agreement referred to above
By /S/ Schuyler V. Grant
Schuyler V. Grant
Senior Vice President
<PAGE> 16
- 16 -
UNITED STATES TRUST COMPANY OF NEW
YORK, in its individual capacity
By: /S/ Schuyler V. Grant
Schuyler V. Grant
Senior Vice President
<PAGE> 1
Amendment No. 1
to
Loan Agreement
among
Long Island Bancorp, Inc.,
The Long Island Savings Bank, FSB
and
United States Trust Company of New York,
solely as trustee of
The LISB Employee Stock Ownership Plan
WHEREAS, the parties hereto have entered into a loan agreement,
dated as of April 14, 1994 (the "Loan Agreement"), pursuant to which Long Island
Bancorp, Inc. loaned funds to the trust created under The LISB Employee Stock
Ownership Plan (the "ESOP") for the purpose of purchasing shares of the
outstanding common stock, par value, $0.01 per share of Long Island Bancorp,
Inc.;
WHEREAS, pursuant to Section 8.10 of the Loan Agreement, the
Loan Agreement may be amended by a written instrument; and
NOW, THEREFORE, the parties hereto agree to amend the Loan
Agreement, effective as of April 14, 1994, as follows:
The first sentence of Section 1.3 shall be deleted in its
entirety and replaced with the following:
The Loan shall be evidenced by a single promissory note of the
Trust (as modified and supplemented and in effect from time to
time, the "Note") in substantially the form of Exhibit A
attached hereto, dated the date of the delivery of the Note to
Long Island Bancorp, Inc., payable to Long Island Bancorp,
Inc. in installments, on March 31, June 30, September 30 and
December 31, during the period from, and including, the date
of the Note to, but excluding, the fifteenth anniversary of
such date, subject to any prepayment made pursuant to Section
1.6 hereof. The amount of each such installment shall be based
upon an estimate of the total (dividing such total into
substantially equal parts of a number equal to the number of
installments payable for the applicable calendar year) of the
contribution described in Section 3.2 of the ESOP, as in
effect as of the date hereof, for the Plan Year (as defined in
Section 1 of the ESOP) during which such installment is
payable, without regard to any reduction provided under
<PAGE> 2
- 2 -
Section 3.5 of the ESOP for contributions made pursuant to
Section 3.3 of the ESOP but taking into account the reduction
provided under Section 3.5 of the ESOP for forfeitures under
Section 8.5 of the ESOP; provided, however, that the total
amount of any installments payable in any calendar year shall
be at least equal to the amount of such contribution.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of this 28 day of June, 1994.
LONG ISLAND BANCORP, INC.
By /S/ Mark Fuster
Mark Fuster
Treasurer
THE LONG ISLAND SAVINGS BANK, FSB
By /S/ Mark Fuster
Mark Fuster
EVP & Treasurer
UNITED STATES TRUST COMPANY OF NEW
YORK, solely as trustee under the
trust agreement referred to above
By /S/ Schuyler V. Grant
Schuyler V. Grant
Senior Vice President
UNITED STATES TRUST COMPANY OF NEW
YORK, in its individual capacity
By /S/ Schuyler V. Grant
Schuyler V. Grant
Senior Vice President
<PAGE> 3
EXHIBIT A
PROMISSORY NOTE
$23,784,300.00 April 14, 1994
---------------
FOR VALUE RECEIVED, the undersigned (the "Borrower") and its
successors in trust, not individually but solely as trustee under the agreement
of trust between such trustee and The Long Island Savings Bank, FSB (the
"Bank"), dated as of March 31, 1994, as amended from time to time, hereby
promises to pay to Long Island Bancorp, Inc. at the principal office of Long
Island Bancorp, Inc. in Melville, New York, the unpaid principal amount of the
loan made by Long Island Bancorp, Inc. to the Borrower under the loan agreement
referred to below (the "Loan Agreement"), in lawful money of the United States
of America and in immediately available funds, on such dates as required by
Section 1.3 of the Loan Agreement, and to pay interest on the unpaid principal
amount from time to time outstanding on such loan, at such office, in like money
and funds, for the period commencing on the date such loan is made until such
loan is paid in full, at the rate and on the dates as provided in Section 1.7 of
the Loan Agreement.
This Note is the Note referred to in, and is subject to the terms and
conditions of, the loan agreement (as modified and supplemented and in effect
from time to time) dated as of April 14, 1994 among Long island Bancorp, Inc.,
The Long Island Savings Bank, FSB, the Borrower and United States Trust Company
of New York, in its individual capacity, and evidences the loan made by Long
Island Bancorp, Inc. to the Borrower thereunder. The Loan Agreement and this
Note are each binding on the parties thereto and hereto.
UNITED STATES TRUST COMPANY OF NEW YORK,
solely as trustee under the Trust
agreement referred to above
By /S/
<PAGE> 1
LONG ISLAND BANCORP, INC.
- - --------------------------------------------------------------------------------
Non-Employee Directors Retirement Benefit Plan
- - --------------------------------------------------------------------------------
October 21, 1994
As amended June 24, 1997
<PAGE> 2
LONG ISLAND BANCORP, INC.
- - --------------------------------------------------------------------------------
Non-Employee Directors Retirement Benefit Plan
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Topic Page
Purpose..........................................1
Definitions .....................................1
Retirement Benefits .............................3
Plan Administration .............................4
General Provisions ..............................5
<PAGE> 3
-1-
LONG ISLAND BANCORP, INC.
Non-Employee Directors Retirement Benefit Plan
* * * * *
1. Purpose. The purpose of the Non-Employee Directors Retirement
Benefit Plan (the "Plan") is to strengthen the ability of Long Island Bancorp,
Inc. (the "Company") to attract and retain the services of experienced and
knowledgeable non-employee directors through the provision of reasonable and
competitive benefits upon the retirement of such directors from the Company's
Board of Directors (the "Board").
2. Definitions. For purposes of the Plan, the following terms shall
have the meanings set forth below:
2.1 "Bank" means The Long Island Savings Bank, FSB.
2.2 "Beneficiary" means the person or persons designated by
the Eligible Director to receive benefits under this Plan in the event of the
Eligible Director's death.
2.3 "Board" means the Board of Directors of the Company,
as constituted from time to time.
2.4 "Change of Control" means (a) a change in control of the
Bank or the Company of a nature that 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 Exchange Act, other than any
change in control directly related to or in connection with the conversion of
the Bank from a federally chartered mutual savings bank to a federally chartered
stock savings bank; (b) a change in control of the Bank or the Company within
the meaning of 12 U.S.C. ss. 1817(i), the Change in Bank Control Act, and 12
C.F.R. ss. 574.4 of the Acquisition of Control of Savings Association
regulations of the office of Control of Savings Association regulations of the
Office of Thrift Supervision, other than any change in control directly related
to or in connection with the conversion of the Bank from a federally chartered
mutual savings bank to a federally chartered stock savings bank; (c) individuals
who constitute the Board as of the effective date of the Plan (the "Incumbent.
Board") cease for any reason, including in connection with the conversion of the
Bank from a federally chartered mutual savings bank to a federally chartered
stock savings bank, to constitute at least a majority thereof, provided that any
person becoming a director subsequent to the effective date of the Plan whose
election was approved by a vote of at least three-quarters of the directors then
comprising the Incumbent Board, or whose nomination for election by the
Company's shareholders, as the case may be, was approved by the Company's
nominating committee then serving under the Board, shall be, for purposes of
this clause (c), considered as though he or she was a member of the Incumbent
Board (but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either
<PAGE> 4
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an actual or threatened election contest (as such terms are used in Rule 14a-l1I
of Regulation 14A promulgated under the Exchange Act) or other actual threatened
solicitation of proxies or consents); (d) approval by the shareholders of the
Bank or the Company, as the case may be, of a reorganization, merger or
consolidation, or the consummation of any such reorganization, merger or
consolidation, other than, in any case (i) any such transaction occurring in
connection with or directly related to the conversion of the Bank from a
federally chartered mutual savings bank to a federally chartered stock savings
bank, or (ii) a reorganization, merger or consolidation with respect to which
all or substantially all of the individuals and entities who were the beneficial
owners, immediately prior to such reorganization, merger or consolidation, of
the Voting Interest in the Company beneficially own, directly or indirectly,
immediately after such reorganization, merger or consolidation more than eighty
percent (80%) of the Voting Interest of the corporation or other entity
resulting from such reorganization, merger or consolidation in substantially the
same proportions as their respective ownership, immediately prior to such
reorganization, merger or consolidation, of the Voting Interest in the Company;
(e) approval by the shareholders of the Bank or the Company, as the case may be,
of (i) a complete liquidation or dissolution of the Bank or the Company, or (ii)
the sale or other disposition of all or substantially all of the assets of the
Company, or the occurrence of any such liquidation, dissolution, sale or other
disposition, other than, in any case, to a Subsidiary, directly or indirectly,
of the Company, or any Affiliate, or in connection with or directly related to
any conversion of the Bank from a federally chartered mutual savings bank to a
federally chartered stock savings bank; and/or (f) the solicitation of proxies
from shareholders of the Company, by someone other than the current management
of the Company and without the approval of the Board, seeking shareholder
approval of a plan of reorganization, merger or consolidation of the Bank and/or
the Company with one or more corporations as a result of which the shareholders'
interests in the Bank and/or the Company are actually exchanged for or converted
into securities not issued by the Bank and/or the Company.
2.5 "Company" means Long Island Bancorp, Inc., a Delaware
corporation, or any successor corporation.
2.6 "Credited Service" means the number of years (rounded up
to the next whole number) which represents an Eligible Director's years of
service as a director of the Bank or the Company (including partial years of
service and service as a trustee or director of the Bank or the Company prior to
the implementation of this Plan).
2.7 "Eligible Director" means any non-employee Director of the
Company (i) who is not and has never been an employee of the Company or the
Bank; (ii) who is or becomes a member of the Board and whose subsequent
retirement from the Board is in accordance with the requirements and provisions
of this Plan; and (iii) who has not accrued and is not eligible to receive
retirement benefits under any other qualified or non-qualified pension ' or
retirement benefit plan of the Bank or the Company; provided, that anything in
this paragraph to the contrary notwithstanding, the term "Eligible Director"
shall include any person serving as Director Emeritus of the Company or the Bank
as of the Effective Date of the Plan. Upon a Change of Control, any director of
the Company with five (5) or more years of Board service shall be deemed an
Eligible
<PAGE> 5
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Director.
2.8 "Exchange Act" means the Securities Exchange Act of 1934,
as in effect and as amended from time to time, or any successor statute thereto,
together with any rules, regulations and interpretations promulgated thereunder
or with respect thereto, as the same may be in effect from time to time.
2.9 "Meeting Fee" means the fee paid to an Eligible Director
for attendance at any regular meeting of the Board in effect at the time of such
Eligible Director's retirement.
2.10 "Payment Date" means the date of the Company's monthly
board of directors meetings, or such other date in the month as may be
determined by the Company.
2.11 "Plan" means the Long Island Bancorp, Inc.
Non-Employee Directors Retirement Benefit Plan, as set forth herein.
2.12 "Retainer" means the annual retainer fee paid to each
non-employee Director in effect at the time of an Eligible Director's
retirement.
2.13 "Retirement" means the voluntary or involuntary
termination of an Eligible Director from active service on the Board on or after
the attainment of age 65, except in the event of a Change of Control in which
case any termination of an Eligible Director shall be deemed a Retirement.
3. Retirement Benefits.
3.1 The full retirement benefit (the "full benefit") payable
under the Plan shall be equal to the sum of (a) the annual retainer in effect on
the date of the Eligible Director's retirement from the Board and (b) the
product of the Board meeting fee in effect on that date multiplied by the number
of regular Board meetings then scheduled within a calendar year. Such retirement
benefit shall be payable on each Payment Date beginning with the Payment Date
immediately following the Eligible Director's retirement and ending with the
120th payment.
3.2 No Eligible Director shall receive the full benefit under
this Plan until such Eligible Director completes fifteen years of Credited
Service on the Board. In the case of any breaks in service, all periods of
service shall be aggregated to determine the length of Credited Service. Upon
the Eligible Director's retirement after completion of the required period of
Credited Service, the Eligible Director's full benefit shall be deemed to have
been earned and is thereafter payable in accordance with Paragraph 3.1 and the
other provisions of the Plan.
3.3 In the event that an Eligible Director retires from the
Board with a minimum of five but less than fifteen years of Credited Service,
such Eligible Director shall receive a reduced annual retirement benefit (the
"reduced benefit") equal to the product of (a) the full annual
<PAGE> 6
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retirement benefit as determined in Paragraph 3.1 and (b) a fraction, the
numerator of which is the Eligible Director's number of years of Credited
Service and the denominator of which is fifteen. Such reduced benefit shall be
paid in the manner described in Paragraph 3.1 and in accordance with the other
provisions of the Plan.
3.4 In the event of the death of the Eligible Director after
payments have commenced under this Plan, any remaining unpaid retirement benefit
payments shall be paid to the beneficiary or beneficiaries most recently
designated by the Eligible Director prior to his or her death, or in the absence
of such designation, to the Eligible Director's estate. The remaining payments
shall be made to the designated beneficiary in the same amount(s) and at the
same time(s) that such payments would have been made to the Eligible Director.
In the event of the death of an Eligible Director while still serving on the
Board, such Eligible Director will be deemed to have retired from Board service
for purposes of this Plan and any payment(s) that would have inured to the
benefit of such Eligible Director under Paragraphs 3.1 and 3.2 and the other
provisions of the Plan, will be paid to such Eligible Director's beneficiaries
or estate as set forth above.
3.5 In the event that an Eligible Director who is receiving
retirement benefits under the Plan returns to serve as an active Director,
payments under the Plan shall be suspended until the Payment Date immediately
following the termination of such additional Board service. Upon the termination
of such additional Board service, the retirement benefit shall be adjusted (if
necessary) to reflect the Board retainer and meeting fees in effect at the time
of such termination, and the duration of the retirement benefit shall be
extended (if necessary) to reflect the period of suspension. In the event that
an Eligible Director becomes an employee of the Bank or the Company, retirement
benefit payments hereunder shall cease and the Eligible Director shall have no
further rights to such benefits under the Plan.
4. Plan Administration.
4.1 The Plan shall be administered by the Board of Directors
of the Company. The Board shall have full power and authority to interpret,
construe and administer the Plan and to review each director's eligibility for
benefits under the Plan, and the Board's interpretations and constructions of
the Plan and actions thereunder shall be binding and conclusive on all persons
and for all purposes.
4.2 The Board shall establish and maintain Plan records and
may arrange for the engagement of consultants or legal counsel, and make use of
such agents and other Company personnel, as it requires or deems advisable for
purposes of the Plan. The Board may rely upon the written opinion of such
consultants and counsel and may delegate to any agent, member of the Board or
employee of the Company, its authority to perform any act hereunder, including
without limitation, those matters involving the exercise of discretion, provided
that such delegation shall be subject to revocation at any time.
<PAGE> 7
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5. General Provisions.
5.1 Amendment and Termination. The Plan may be amended,
suspended or terminated, in whole or in part, by the Board, but no such action
shall retroactively impair or otherwise adversely affect the rights of any
person to receive benefits under the Plan which have accrued prior to the date
of such action. Upon a Change of Control, this plan may not be amended or
terminated.
5.2 Assignment. No right to any amount payable at any time
under the Plan may be assigned, transferred, pledged, or encumbered, either
voluntarily or by operation of law, except as provided expressly herein. This
Plan shall be binding upon and inure to the benefit of the Company and its
successors and assigns, and the Participant, his or her Beneficiary and estate.
5.3 Beneficiary Designation. Each Eligible Director may
designate a beneficiary or beneficiaries to receive any payments which under the
terms of the Plan may be or may become payable on or after the Eligible
Director's death. At any time, and from time to time, such designation may be
changed or canceled by the Eligible Director without the consent of any such
beneficiary. Any such designation, change or cancellation must be on a form
provided for that purpose by the Company and shall not be effective until
actually received by the Company. If no beneficiary has been properly designated
by a deceased Eligible Director, the beneficiary shall be the Eligible
Director's estate.
5.4 Consulting Arrangements. An Eligible Director who enters
into a consulting arrangement with the Bank or the Company subsequent to his or
her retirement from the Board, and who would otherwise be eligible to receive
benefits under this Plan, shall continue to be eligible to receive such benefits
provided, however, that such consulting arrangement does not constitute
employment by the Bank or the Company.
5.5 Governing Law. The Plan and all actions taken thereunder
shall be governed by and construed in accordance within the laws of the State of
New York, without reference to the principles of conflict of laws thereof. Any
titles and headings herein are for reference purposes only, and shall in no way
limit, define or otherwise affect the meaning, construction or interpretation of
any provisions of the Plan.
5.6 Source of Payments. All payments provided for under the
Plan shall be paid from the general assets of the Company. Nothing contained in
this Plan, and no action taken pursuant to its provisions, shall create or be
construed to create a trust of any kind between the Company and any Eligible
Director or Beneficiary. To the extent that any Eligible Director or Beneficiary
acquires a right to receive payment(s) from the Company hereunder, such right
shall be no greater than the right of an unsecured creditor of the Company.
5.7 Withholding. The Company may withhold from any benefits
payable under this Plan all Federal, state, city or other taxes as shall be
required pursuant to any applicable law or
<PAGE> 8
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Governmental regulation or ruling.
5.8 Effective Date. The Plan shall be effective
upon the date of its adoption by the Board, which date shall be recorded in the
Board's minutes.
<PAGE> 1
ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION
ANNUAL INCENTIVE PLAN FOR SELECT EXECUTIVES
(ADOPTED BY BOARD OF DIRECTORS 12-21-88)
(AMENDED 7-18-90)
1. Purpose. The purpose of this Plan is to provide incentive to key
executives who contribute to the successful financial performance of the
Association by making them participants in that success.
2. Definitions. The following terms shall have the meanings set forth
below when used in this Plan:
(a) "Plan" shall mean the Annual Incentive Plan for Select Executives of
Astoria Federal Savings and Loan Association.
(b) "Committee" shall mean the Compensation Committee of the Board of
Directors.
(c) "Association" shall mean Astoria Federal Savings and Loan
Association.
(d) "Performance Target(s)" shall mean financial objectives for the
Association developed at the beginning of each calendar year by
management and approved by the Committee. The Performance Target(s)
shall stipulate the planned levels of Association performance,
expressed in terms of specific performance measures, such as return
on assets, operating earnings, return on net worth, etc., or other
appropriate financial objectives that shall be measured for
incentive award purposes during each calendar year.
3. Administration. The Committee, appointed by the Board of Directors,
shall have full power and authority to interpret and administer the Plan
and any rules and regulations relating to it.
4. Eligibility and Selection. Eligibility for incentive payments under the
Plan shall be limited to select executives of the Association approved
by the Committee at the beginning of a calendar year from among those
who, in the opinion of the Committee, are in a position to materially
improve the financial performance of the Association. Any employee
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<PAGE> 2
who is a participant in one year may be excluded from participation in
any other year. The Committee may, in its discretion, also make an
award to any other employee who has made an unusual contribution
outside the ordinary course of his/her duties.
5. Determination of Annual Incentive Target Awards. At the beginning of
the calendar year each participant shall be assigned a Target Award,
expressed as a percentage of base salary, based on his/her duties and
responsibilities, subject to the approval of the Committee. The Target
Award represents the amount which shall be paid when: (i) the
Association's actual financial results meet the Performance Target(s)
set for a given calendar year; and (ii) the participant's individual
performance meets expectation.
6. Annual Incentive Pool Funding. The size of the Annual Incentive Pool
shall be based on the Association's actual financial performance for
the year compared to the Performance Target(s). Association performance
shall be measured in accordance with generally accepted accounting
principles for any calendar year excluding, however, such unusual terms
of income or loss which, in the discretion of the Committee, shall not
be included in the current year's results for such purposes. No
Incentive Pool shall be created if the Association is not in full
compliance with regulatory capital requirements or higher standards as
approved by the Compensation Committee.
At the beginning of the calendar year the Committee shall approve a
performance scale which shall specify the relationship between actual
Association performance, the Performance Target(s) and size of the Annual
Incentive Pool which shall be available. The Performance Target(s) and
the performance scale shall be communicated to Plan participants as soon
as practical after the Committee's approval is secured.
In general, when Performance Target(s) are met, the size of the Annual
Incentive Pool available shall be equal to the sum of the Target Awards
-2-
<PAGE> 3
of all participants in the Plan. In a year when actual results are less
than the Performance Target(s), the Annual Incentive Pool shall be
correspondingly decreased as specified in the performance scale
approved for that year. In a year when actual results exceed
Performance Target(s), the Annual Incentive Pool will be increased at
the Board's discretion up to a maximum level specified in the
pre-determined performance scale approved for that year. The
performance scale shall also specify a minimal level of financial
performance below which the Committee may elect not to pay Annual
Incentive Awards, but may make special recognition awards to any
participant whose performance warrants.
7. Annual Incentive Award Determination. The Committee shall determine
participant's Annual Incentive Awards as soon as practicable after the
size of the Annual Incentive Pool is determined.
The size of the actual Annual Incentive Awards shall depend on the level
of performance which is achieved for the year. The Association
performance portion of each participant's Awards shall be paid to the
degree that the Performance Target(s) are met. The remaining portion of
the Award shall be paid based on the achievement of individual goals.
8. Annual Incentive Award Payments. Payment of Awards shall be made in cash.
Payment of the Annual Incentive Award to each recipient shall typically
be made within ninety (90) days following the end of the calendar year
for which the Award was made.
The Committee may, in its discretion, award all or any part of the amount
in respect of a calendar year which otherwise would have been awarded to
a participant in the Plan but for the fact that his employment with the
Association terminated prior to the end of such calendar year by reason
of retirement, total and permanent disability, death, resignation, or for
any other reason other than dismissal for cause.
In case of death, all amounts awarded to an executive not previously paid
shall be payable in one sum to the beneficiary whom the executive
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<PAGE> 4
designated under the Association's Life Insurance Plan. If an executive
fails effectively to designate a beneficiary, then his estate shall be
deemed to be the beneficiary. Notwithstanding the foregoing, an
executive terminated for cause at any time shall forfeit all amounts
allocated to him and not previously paid.
9. Withholding of Taxes. There shall be deducted from each Award the
amount of any tax required by any governmental authority to be
withheld.
10. Expenses of the Plan. All expenses incurred in the administration of
the Plan shall be borne by the Association and not charged against the
Annual Incentive Pool.
11. Amendments. The Board of Directors shall have the power to amend the
Plan or to suspend or terminate the Plan in whole or in part.
12. Effective Date. The Plan shall become effective for the calendar year
beginning January 1, 1989.
13. Miscellaneous Provisions. In administering the Plan neither the
Committee, the Board of Directors of the Association, any member thereof,
the Association, nor any officers or employees thereof, shall be liable
for any acts of omission or commission, except for his or its own
individual, willful and intentional malfeasance or misfeasance. The
Association, its officers and directors and any member of the Committee
shall be entitled to rely conclusively on all valuations, certifications,
opinions and reports which shall be furnished by any counsel, public
accountant, or other expert who shall be employed or engaged by the
Association or the Committee.
No benefit which shall be payable under the Plan shall be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge.
The Plan shall not be deemed to constitute a contract of employment
between the Association and any executive; all executives shall remain
subject to discharge to the same extent as if the Plan had not been put
into effect. This Plan shall be construed and its provisions enforced
and administered in accordance with the laws of the State of New York.
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<PAGE> 1
ASTORIA FINANCIAL CORPORATION
EMPLOYMENT AGREEMENT WITH JOHN J. CONEFRY, JR.
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
April 2, 1998 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 JOHN J. CONEFRY, JR., an individual residing at 5 Butler Place,
Garden City, New York 11530 ("Executive").
WITNESSETH:
WHEREAS, upon the effective date set forth in section 30 of this Agreement,
Long Island Bancorp, Inc. ("Seller") will merge with and into the Company and
The Long Island Savings Bank, FSB, a wholly owned subsidiary of the Seller
("Seller Bank"), will merge with and into the Company's wholly owned subsidiary,
Astoria Federal Savings and Loan Association ("Association"), all pursuant to or
as contemplated by an Agreement and Plan of Merger between the Company and
Seller dated April 2, 1998 ("Agreement and Plan of Merger"); and
WHEREAS, the Executive has served as Chairman and Chief Executive Officer
of the Seller and the Seller Bank and possesses valuable knowledge and
experience concerning their respective assets, businesses and operations; and
WHEREAS, in the course of his employment with the Seller and the Seller
Bank, the Executive was instrumental in conceiving, planning and implementing
the strategic expansion of the Seller Bank's businesses both on a regional and
nationwide basis; and
WHEREAS, the terms of the Executive's employment contracts with the Seller
and the Seller Bank give the Executive a financial incentive to terminate his
employment with the Seller and the Seller Bank upon the closing of the
transactions contemplated by the Agreement and Plan of Merger; and
WHEREAS, the Company desires to assure for itself the continued
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 continue 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:
Page 1 of 20
<PAGE> 2
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 (as defined in section 30 of this
Agreement) and ending on the day before the third anniversary date 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 (as defined in section 30 of this
Agreement), the Employment Period shall automatically be extended for one (1)
additional day each day until ninety (90) days after the second anniversary of
the Effective Date (as defined in section 30 of this Agreement), unless either
the Company or the Executive makes an earlier election not to extend the
Agreement further by giving written notice to the other party. The Employment
Period shall end automatically and without further act on the part of the
Executive or the Company on the earlier of (i) the third anniversary of the
earliest date on which any such written notice is given or (ii) ninety (90) days
after the fifth anniversary of the Effective Date (as defined in section 30 of
this Agreement). 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, (A) if the date of
determination is before ninety (90) days after the second anniversary of the
Effective Date (as defined in section 30 of this Agreement), the third
anniversary of the date as of which the Remaining Unexpired Employment Period is
being determined and (B) if the date of determination is on or after ninety (90)
days after the second anniversary of the Effective Date (as defined in section
30 of this Agreement), ninety (90) days after the fifth anniversary of the
Effective Date (as defined in section 30 of this Agreement). 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.
(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.
Page 2 of 20
<PAGE> 3
Section 3. Duties.
The Executive shall serve as a Vice Chairman of the Company and the
Chairman of the Litigation Advisory Committee, 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 positions.
The Executive's functional responsibilities shall include, but may not be
limited to, assisting the Company in the conversion of the Seller Bank's
business to that of the Association including, but not limited to, assisting in
the conversion of the Seller Bank's data processing system to the Association's
data processing system; assisting in the conversion of the Seller Bank's branch
offices to branch offices of the Association; assisting in the integration of
the Seller Bank's employees with those of the Association; preserving the Seller
Bank's franchise by promoting the Association and its products and services in
communities previously served by the Seller Bank; promoting the recognition and
acceptance of the Association as the Seller Bank's successor among the Seller
Bank's customers; advising the Association with respect to the management of the
loan and investment portfolios and the development and expansion of the Seller
Bank's mortgage origination enterprise for the benefit of the Company and
assisting the Company in identifying, evaluating and implementing other business
expansion strategies and other strategic initiatives. 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. The Executive shall report directly to the
chief executive officer of the Company.
Section 4. Cash Compensation.
(a) In consideration for the services to be rendered by the Executive
during the Employment Period, the Company shall pay to him a salary at an
initial annual rate of SEVEN HUNDRED THOUSAND DOLLARS ($700,000), 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; provided, however, that at all
times during the Employment Period, the Executive's annual rate of salary shall
not be less than SEVEN HUNDRED THOUSAND DOLLARS ($700,000) and shall be at least
eighty percent (80%) of the rate of base salary then payable by the Company to
its Chief Executive Officer.
(b) The Executive shall participate in the Company's annual bonus plan as
the same may be in effect from time to time on such terms and conditions as may
be prescribed by or pursuant to the provisions of such plan; provided, however,
that for each bonus period the Executive shall receive a bonus in an amount not
less than eighty percent (80%) of the amount paid as a bonus to the Company's
Chief Executive Officer for the corresponding bonus period. The bonus amount
shall be pro-rated for the fiscal year of the Company that includes the
Effective Date of this Agreement as defined in section 30 and for any short or
stub years commencing after 1998.
Page 3 of 20
<PAGE> 4
(c) 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.
(d) In addition to the above, the Executive shall be entitled to receive,
on the Effective Date (as defined in section 30 of this Agreement), an option to
acquire 25,000 shares of the Company's common stock granted under the Company's
1996 Stock Option Plan for Officers and Employees of Astoria Financial
Corporation, with an exercise price per share equal to the closing bid quotation
of the Company's common stock on such date and having a ten year option period;
provided, however, that during each fiscal year during the Employment Period the
Executive shall receive an additional option grant or grants to acquire a number
of shares of the common stock of the Company such that the Executive receives,
in respect of each fiscal year during the Employment Period, options to acquire
a number of shares of the Company's common stock equal to at least 80% of the
number of shares which the Chief Executive Officer may acquire under stock
options granted to the Chief Executive Officer during any such fiscal year, such
options having terms and provisions substantially similar to those contained in
the Chief Executive Officer's option grants. All such options shall vest upon
the third anniversary of the date of grant and shall thereafter be exercisable;
provided, however, that in the event of the termination of the Executive's
employment for any reason (other than for cause or due to the Executive's
voluntary resignation for reasons other than those specified in Section 9(a) or
11 (b)), all such options shall immediately become 100% vested and exercisable.
Such vested and exercisable options shall remain exercisable for one year after
any such termination.
(e) In addition to the above, the Executive shall be entitled to receive,
on the Effective Date (as defined in section 30 of this Agreement), a grant of
10,000 shares of restricted Common Stock of the Company. 5,000 of such shares
shall vest on January 10, 1999 and the remaining 5,000 shares shall vest on
January 10, 2000.
Section 5. Employee Benefit Plans and Programs.
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,
but not limited to, 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.
Section 6. Indemnification and Insurance.
(a) During the Employment Period and for a period of six (6) years
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<PAGE> 5
thereafter,the 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 of the same scope and on
the same terms and conditions as the coverage (if any) provided to other
officers or directors 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
director or officer 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 disclosed in the attached
Schedule 7(a) and other such organizations as he may disclose to and as may be
approved by the Board (which approval shall not be unreasonably withheld or
delayed); 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
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<PAGE> 6
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 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 (or a more senior office) of the Company;
(B) 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 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 sole 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
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<PAGE> 7
(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 sole discretion, to be satisfactory;
or
(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;
(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, as modified, where applicable, by this Agreement and
Plan of Merger;
(iii) continued group life, health (including without
limitation 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
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<PAGE> 8
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 as
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 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, as 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 PBGCRate");
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<PAGE> 9
(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,
the Company as 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 (with the
written consent of the Executive in the case of options or appreciation
rights resulting from
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<PAGE> 10
the conversion of options granted by Seller pursuant to the Agreement
and Plan of Merger), 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 exer cise 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 otherwise 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 unvested 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 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 otherwise 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
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<PAGE> 11
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 from which he has not been
terminated and 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; provided, however, that the foregoing shall not preclude the Executive
from performing services and receiving compensation and any other benefits under
the Astoria Financial Corporation Litigation Committee Consulting Agreement by
and between the Executive and the Company dated April 2, 1998.
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 11 (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
(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
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
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<PAGE> 12
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 vote
generally in the election of directors of the Company;
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<PAGE> 13
(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 date of this Agreement; or
(B) individuals who first became members of the Board
of the Company after the 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 1 l(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
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<PAGE> 14
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" 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 of 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 28OG 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
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<PAGE> 15
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;
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.
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<PAGE> 16
(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, for a period of one (1)
year following the date of his termination of employment with the Company, 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(a)(iv) 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 proceed ing 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 the date of his termination of employment with the Company, he
shall not, without the
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<PAGE> 17
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 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 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 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 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.
Page 17 of 20
<PAGE> 18
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:
If to the Executive:
John J. Conefry, Jr.
5 Butler Place
Garden City, New York 11530
with a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Attention: Mel M. Immergut, Esq.
If to the Company:
Astoria Financial Corporation
One Astoria Federal Plaza
Lake Success, New York 11042-1085
Attention: General Counsel
Page 18 of 20
<PAGE> 19
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 without limitation 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 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
Page 19 of 20
<PAGE> 20
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, other than the Employment Agreements, each dated September 19, 1994, by
and between Executive and Seller Bank and Seller, respectively (the "Employment
Agreements"); the Astoria Financial Corporation Litigation Committee Consulting
Agreement between the Company and the Executive dated as of April 2, 1998; and
the Letter Agreement dated April 2, 1998 between the Executive, the Company and
the Association pursuant to section 4.16(b) of the Agreement and Plan of Merger.
No modifications of this Agreement shall be valid unless made in writing and
signed by the parties hereto.
Section 26. 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 27. Survival.
The provisions of sections 6, 9, 11, 12, 13, 14, 15, 18, 20, and 28 shall
survive the expiration of the Employment Period or termination of this
Agreement.
Section 28. 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 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 29. 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
Page 20 of 20
<PAGE> 21
conditioned upon their compliance with section 18(k) of the Federal Deposit
Insurance Act, 12 U.S.C. ss.1828(k), and any regulations promulgated thereunder.
Section 30. Effective Date.
The effective date of this Agreement shall be the date of closing of the
merger of the Seller with and into the Company as contemplated by the Agreement
and Plan of Merger dated April 2, 1998 ("Effective Date"). In the event that the
merger contemplated by the Agreement and Plan of Merger is not consummated, this
Agreement shall have no force or effect.
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 /S/ William K. Sheerin
By /S/ George L. Engelke, Jr.
Name: George L. Engelke, Jr.
Title: Chairman of the Board,
President and Chief Executive
Officer
[Seal]
/S/ John J. Conefry, Jr.
JOHN J. CONEFRY, JR.
Page 21 of 20
<PAGE> 22
SCHEDULE 7A
JOHN J. CONEFRY, JR.-BOARD MEMBERSHIPS
- - -------------------------------------------------------------------------------
NYC and National MS Societies
Board of directors 1979 - Present
New York Foundling Hospital
Advisory Board - 1989 - Present
Wheelchair Charities
Advisory Board 1994 - Present
Telicare
Board of Trustees 1995 - Present
St. Vincent's Services
Board of Directors 1995 - Present
Hofstra University
Board of Trustees 1996 - Present
Help for the Poor
Board Member January 1998 - Present
Page 22 of 20
<PAGE> 1
EXHIBIT 10.32
ASTORIA FINANCIAL CORPORATION
STOCK OPTIONS ASSUMED PURSUANT TO SECTION
1.04 OF THE AGREEMENT AND PLAN OF MERGER DATED APRIL
2, 1998 (AS AMENDED)
BETWEEN ASTORIA FINANCIAL CORPORATION AND LONG ISLAND BANCORP, INC.
OPTION CONVERSION CERTIFICATE
JOHN CONEFRY JR ###-##-####
Name of Option Holder Social Security Number
5 BUTLER PLACE
Street Address
GARDEN CITY NY 11530
City State ZIP Code
This Option Conversion Certificate sets forth the terms and conditions on which
options to purchase common stock of Long Island Bancorp, Inc. ("LISB Options")
granted to the Option Holder named above by Long Island Bancorp, Inc. ("LISB")
and outstanding at the Effective Time of the merger of LISB into Astoria
Financial Corporation ("AFC") have been converted into options to purchase
common stock of AFC ("Converted Options") pursuant to section 1.04 of the
Agreement and Plan of Merger dated as of April 2, 1998, as amended, by and
between AFC and LISB (the "Merger Agreement"). Below are specific terms and
conditions applicable to this Converted Option. Attached as Exhibit A are its
general terms and conditions.
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
LISB OPTION
Grant Date: 12/19/96 03/29/94 03/29/94 03/29/94 N/A
Class of Optioned Shares Common Common Common Common Common
No. of Shares 30,000 8,695 34,780 230,800 N/A
Exercise Price Per Share $33.6250 $11.5000 $11.5000 $11.5000 N/A
Option Type (ISO or NQSO) NQ NQ ISO NQ N/A
Plan (Employee or Director) Employee Employee Employee Employee Employee
Option Expiration Date 12/19/06 03/29/04 03/29/04 03/29/04 N/A
CONVERTED OPTION
Class of Optioned Shares* Common Common Common Common Common
No. of Shares* 34,500 10,000 39,997 265,420 N/A
Exercise Price Per Share* $29.24 $10.00 $10.00 $10.00 N/A
Option Type (ISO or NQSO) NQ NQ ISO NQ N/A
Option Expiration Date* 12/19/06 03/29/04 03/29/04 03/29/04 N/A
</TABLE>
*Subject to adjustment as provided in the General Terms and Conditions.
By signing where indicated below, AFC grants this Converted Option upon the
specified terms and conditions, and the Option Holder (1) acknowledges receipt
of this Option Conversion Certificate, including Exhibit A and Appendices A and
B thereto, and agrees to observe and be bound by the terms and conditions set
forth herein,(2) acknowledges receipt of the Prospectus dated September 30, 1998
pursuant to which shares of common stock of AFC which may be acquired upon
exercise of Converted Options are being offered and (3) agrees that this Option
Conversion Certificate and the attached Exhibit A (and Appendices A and B
attached thereto) supersedes, in their entirety, any and all prior terms and
conditions, agreements, understandings and arrangements, whether or not in
writing, with respect to his or her LISB Options.
ASTORIA FINANCIAL CORPORATION OPTION HOLDER
By /S/ Alan P. Eggleston /S/ John J. Conefry, Jr.
--------------------------------- ------------------------
Name: Alan P. Eggleston JOHN CONEFRY JR
Title: Executive Vice President
<PAGE> 2
ASTORIA FINANCIAL CORPORATION
STOCK OPTIONS ASSUMED PURSUANT TO SECTION
1.04 OF THE AGREEMENT AND PLAN OF MERGER DATED APRIL
2, 1998 (AS AMENDED)
BETWEEN ASTORIA FINANCIAL CORPORATION AND LONG ISLAND BANCORP, INC.
OPTION CONVERSION CERTIFICATE
ROBERT CONWAY ###-##-####
Name of Option Holder Social Security Number
P.O. BOX 245
Street Address
REHOBOTH BEACH DE 19971
City State ZIP Code
This Option Conversion Certificate sets forth the terms and conditions on which
options to purchase common stock of Long Island Bancorp, Inc. ("LISB Options")
granted to the Option Holder named above by Long Island Bancorp, Inc. ("LISB")
and outstanding at the Effective Time of the merger of LISB into Astoria
Financial Corporation ("AFC") have been converted into options to purchase
common stock of AFC ("Converted Options") pursuant to section 1.04 of the
Agreement and Plan of Merger dated as of April 2, 1998, as amended, by and
between AFC and LISB (the "Merger Agreement"). Below are specific terms and
conditions applicable to this Converted Option. Attached as Exhibit A are its
general terms and conditions.
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
LISB OPTION
Grant Date: 03/29/98 03/29/97 03/29/96 03/29/95 03/29/94
Class of Optioned Shares Common Common Common Common Common
No. of Shares 518 518 518 518 52,785
Exercise Price Per Share $65.3800 $34.8000 $27.3800 $17.9000 $11.5000
Option Type (ISO or NQSO) NQ NQ NQ NQ NQ
Plan (Employee or Director) Director Director Director Director Director
Option Expiration Date 03/29/08 03/29/07 03/29/06 03/29/05 03/29/04
CONVERTED OPTION
Class of Optioned Shares* Common Common Common Common Common
No. of Shares* 596 596 596 596 60,703
Exercise Price Per Share* $56.85 $30.26 $23.81 $15.57 $10.00
Option Type (ISO or NQSO) NQ NQ NQ NQ NQ
Option Expiration Date* 03/29/08 03/29/07 03/29/06 03/29/05 03/29/04
</TABLE>
*Subject to adjustment as provided in the General Terms and Conditions.
By signing where indicated below, AFC grants this Converted Option upon the
specified terms and conditions, and the Option Holder (1) acknowledges receipt
of this Option Conversion Certificate, including Exhibit A and Appendices A and
B thereto, and agrees to observe and be bound by the terms and conditions set
forth herein,(2) acknowledges receipt of the Prospectus dated September 30, 1998
pursuant to which shares of common stock of AFC which may be acquired upon
exercise of Converted Options are being offered and (3) agrees that this Option
Conversion Certificate and the attached Exhibit A (and Appendices A and B
attached thereto) supersedes, in their entirety, any and all prior terms and
conditions, agreements, understandings and arrangements, whether or not in
writing, with respect to his or her LISB Options.
ASTORIA FINANCIAL CORPORATION OPTION HOLDER
By /S/ Alan P. Eggleston /S/ Robert Conway
--------------------------------- -----------------
Name: Alan P. Eggleston ROBERT CONWAY
Title: Executive Vice President
<PAGE> 3
ASTORIA FINANCIAL CORPORATION
STOCK OPTIONS ASSUMED PURSUANT TO SECTION
1.04 OF THE AGREEMENT AND PLAN OF MERGER DATED APRIL
2, 1998 (AS AMENDED)
BETWEEN ASTORIA FINANCIAL CORPORATION AND LONG ISLAND BANCORP, INC.
OPTION CONVERSION CERTIFICATE
LAWRENCE PETERS ###-##-####
Name of Option Holder Social Security Number
143 CABOT ROAD
Street Address
MASSAPEQUA NY 11758
City State ZIP Code
This Option Conversion Certificate sets forth the terms and conditions on which
options to purchase common stock of Long Island Bancorp, Inc. ("LISB Options")
granted to the Option Holder named above by Long Island Bancorp, Inc. ("LISB")
and outstanding at the Effective Time of the merger of LISB into Astoria
Financial Corporation ("AFC") have been converted into options to purchase
common stock of AFC ("Converted Options") pursuant to section 1.04 of the
Agreement and Plan of Merger dated as of April 2, 1998, as amended, by and
between AFC and LISB (the "Merger Agreement"). Below are specific terms and
conditions applicable to this Converted Option. Attached as Exhibit A are its
general terms and conditions.
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
LISB OPTION
Grant Date: 11/25/97 11/25/97 N/A N/A N/A
Class of Optioned Shares Common Common Common Common Common
No. of Shares 2,266 17,734 N/A N/A N/A
Exercise Price Per Share $44.1250 $44.1250 N/A N/A N/A
Option Type (ISO or NQSO) ISO NQ N/A N/A N/A
Plan (Employee or Director) Employee Employee Employee Employee Employee
Option Expiration Date 11/25/07 11/25/07 N/A N/A N/A
CONVERTED OPTION
Class of Optioned Shares* Common Common Common Common Common
No. of Shares* 2,606 20,395 N/A N/A N/A
Exercise Price Per Share* $38.37 $38.37 N/A N/A N/A
Option Type (ISO or NQSO) ISO NQ N/A N/A N/A
Option Expiration Date* 11/25/07 11/25/07 N/A N/A N/A
</TABLE>
*Subject to adjustment as provided in the General Terms and Conditions.
By signing where indicated below, AFC grants this Converted Option upon the
specified terms and conditions, and the Option Holder (1) acknowledges receipt
of this Option Conversion Certificate, including Exhibit A and Appendices A and
B thereto, and agrees to observe and be bound by the terms and conditions set
forth herein,(2) acknowledges receipt of the Prospectus dated September 30, 1998
pursuant to which shares of common stock of AFC which may be acquired upon
exercise of Converted Options are being offered and (3) agrees that this Option
Conversion Certificate and the attached Exhibit A (and Appendices A and B
attached thereto) supersedes, in their entirety, any and all prior terms and
conditions, agreements, understandings and arrangements, whether or not in
writing, with respect to his or her LISB Options.
ASTORIA FINANCIAL CORPORATION OPTION HOLDER
By /S/ Alan P. Eggleston /S/ Lawrence Peters
--------------------------------- -------------------
Name: Alan P. Eggleston LAWRENCE PETERS
Title: Executive Vice President
<PAGE> 4
ASTORIA FINANCIAL CORPORATION
STOCK OPTIONS ASSUMED PURSUANT TO SECTION
1.04 OF THE AGREEMENT AND PLAN OF MERGER DATED APRIL
2, 1998 (AS AMENDED)
BETWEEN ASTORIA FINANCIAL CORPORATION AND LONG ISLAND BANCORP, INC.
OPTION CONVERSION CERTIFICATE
LEO WATERS ###-##-####
Name of Option Holder Social Security Number
29 NOTAMSEIT ROAD
Street Address
WESTHAMPTON BEACH NY 11978
City State ZIP Code
This Option Conversion Certificate sets forth the terms and conditions on which
options to purchase common stock of Long Island Bancorp, Inc. ("LISB Options")
granted to the Option Holder named above by Long Island Bancorp, Inc. ("LISB")
and outstanding at the Effective Time of the merger of LISB into Astoria
Financial Corporation ("AFC") have been converted into options to purchase
common stock of AFC ("Converted Options") pursuant to section 1.04 of the
Agreement and Plan of Merger dated as of April 2, 1998, as amended, by and
between AFC and LISB (the "Merger Agreement"). Below are specific terms and
conditions applicable to this Converted Option. Attached as Exhibit A are its
general terms and conditions.
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
LISB OPTION
Grant Date: 03/29/98 03/29/97 03/29/96 03/29/95 03/29/94
Class of Optioned Shares Common Common Common Common Common
No. of Shares 518 518 518 518 27,324
Exercise Price Per Share $65.3800 $34.8000 $27.3800 $17.9000 $11.5000
Option Type (ISO or NQSO) NQ NQ NQ NQ NQ
Plan (Employee or Director) Director Director Director Director Director
Option Expiration Date 03/29/08 03/29/07 03/29/06 03/29/05 03/29/04
CONVERTED OPTION
Class of Optioned Shares* Common Common Common Common Common
No. of Shares* 596 596 596 596 31,423
Exercise Price Per Share* $56.85 $30.26 $23.81 $15.57 $10.00
Option Type (ISO or NQSO) NQ NQ NQ NQ NQ
Option Expiration Date* 03/29/08 03/29/07 03/29/06 03/29/05 03/29/04
</TABLE>
*Subject to adjustment as provided in the General Terms and Conditions.
By signing where indicated below, AFC grants this Converted Option upon the
specified terms and conditions, and the Option Holder (1) acknowledges receipt
of this Option Conversion Certificate, including Exhibit A and Appendices A and
B thereto, and agrees to observe and be bound by the terms and conditions set
forth herein,(2) acknowledges receipt of the Prospectus dated September 30, 1998
pursuant to which shares of common stock of AFC which may be acquired upon
exercise of Converted Options are being offered and (3) agrees that this Option
Conversion Certificate and the attached Exhibit A (and Appendices A and B
attached thereto) supersedes, in their entirety, any and all prior terms and
conditions, agreements, understandings and arrangements, whether or not in
writing, with respect to his or her LISB Options.
ASTORIA FINANCIAL CORPORATION OPTION HOLDER
By /S/ Alan P. Eggleston /S/ Leo Waters
--------------------------------- --------------
Name: Alan P. Eggleston LEO WATERS
Title: Executive Vice President
<PAGE> 5
ASTORIA FINANCIAL CORPORATION
STOCK OPTIONS ASSUMED PURSUANT TO SECTION
1.04 OF THE AGREEMENT AND PLAN OF MERGER DATED APRIL
2, 1998 (AS AMENDED)
BETWEEN ASTORIA FINANCIAL CORPORATION AND LONG ISLAND BANCORP, INC.
OPTION CONVERSION CERTIFICATE
DONALD WENK ###-##-####
Name of Option Holder Social Security Number
AMERICAN CASTING AND MANUFACTURING CORP. 51 COMMERCIAL STREET
Street Address
PLAINVIEW NY 11803
City State ZIP Code
This Option Conversion Certificate sets forth the terms and conditions on which
options to purchase common stock of Long Island Bancorp, Inc. ("LISB Options")
granted to the Option Holder named above by Long Island Bancorp, Inc. ("LISB")
and outstanding at the Effective Time of the merger of LISB into Astoria
Financial Corporation ("AFC") have been converted into options to purchase
common stock of AFC ("Converted Options") pursuant to section 1.04 of the
Agreement and Plan of Merger dated as of April 2, 1998, as amended, by and
between AFC and LISB (the "Merger Agreement"). Below are specific terms and
conditions applicable to this Converted Option. Attached as Exhibit A are its
general terms and conditions.
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
LISB OPTION
Grant Date: 06/24/97 07/09/96 04/19/95 03/29/94 N/A
Class of Optioned Shares Common Common Common Common Common
No. of Shares 518 518 518 93,150 N/A
Exercise Price Per Share $34.8000 $27.3800 $17.9000 $11.5000 N/A
Option Type (ISO or NQSO) NQ NQ NQ NQ N/A
Plan (Employee or Director) Director Director Director Director Director
Option Expiration Date 06/24/07 07/09/06 04/19/05 03/29/04 N/A
CONVERTED OPTION
Class of Optioned Shares* Common Common Common Common Common
No. of Shares* 596 596 596 107,123 N/A
Exercise Price Per Share* $30.26 $23.81 $15.57 $10.00 N/A
Option Type (ISO or NQSO) NQ NQ NQ NQ N/A
Option Expiration Date* 06/24/07 07/09/06 04/19/05 03/29/04 N/A
</TABLE>
*Subject to adjustment as provided in the General Terms and Conditions.
By signing where indicated below, AFC grants this Converted Option upon the
specified terms and conditions, and the Option Holder (1) acknowledges receipt
of this Option Conversion Certificate, including Exhibit A and Appendices A and
B thereto, and agrees to observe and be bound by the terms and conditions set
forth herein,(2) acknowledges receipt of the Prospectus dated September 30, 1998
pursuant to which shares of common stock of AFC which may be acquired upon
exercise of Converted Options are being offered and (3) agrees that this Option
Conversion Certificate and the attached Exhibit A (and Appendices A and B
attached thereto) supersedes, in their entirety, any and all prior terms and
conditions, agreements, understandings and arrangements, whether or not in
writing, with respect to his or her LISB Options.
ASTORIA FINANCIAL CORPORATION OPTION HOLDER
By /S/ Alan P. Eggleston /S/ Donald Wenk
--------------------------------- ---------------
Name: Alan P. Eggleston DONALD WENK
Title: Executive Vice President
<PAGE> 1
ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION
RECOGNITION AND RETENTION PLAN FOR OFFICERS AND EMPLOYEES
ARTICLE I
ESTABLISHMENT OF THE PLAN
1.01 Astoria Federal Savings and Loan Association hereby establishes the
Recognition and Retention Plan for Officers and Employees (the "Plan") upon the
terms and conditions hereinafter stated in this Recognition and Retention Plan.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to retain Executive Officers and
Employees of experience and ability by providing such persons with a proprietary
interest in the Company as compensation for their contributions to the
Association and its Affiliates and as an incentive to make such contributions
and to promote the Association's growth and profitability in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
3.01 "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).
3.02 "Association" means Astoria Federal Savings and Loan Association.
1
<PAGE> 2
3.03 "Beneficiary" means the person or persons designated by a Recipient
to receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any
or if none, his estate.
3.04 "Board" means the Board of Directors of the Association.
3.05 "Committee" means the Committee of the Board administering this
Plan, which shall be comprised of those members of the Compensation Committee of
the Board of the Association who are non-employee directors and "disinterested
directors" as that term is defined under Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, (the "Exchange Act") promulgated by the
Securities and Exchange Commission.
3.06 "Common Stock" means shares of the common stock, $.01 par value per
share, of the Company.
3.07 "Company" shall mean Astoria Financial Corporation.
3.08 "Conversion" means the conversion of the Association from the
mutual to the stock form of organization and the acquisition of the Association
by the Company.
3.09 "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of a Recipient 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.
3.10 "Employee" means any person who is currently employed by the
Association or an Affiliate, including officers, but such term shall not include
Executive Officers.
3.11 "Executive Officer" means those employees of the Association or the
Company designated as Executive Officers by the Board.
3.12 "Plan Share Award" means a right granted under this Plan to earn
Plan Shares.
3.13 "Plan Shares" means shares of Common Stock held in the Trust and
issued or issuable to a Recipient pursuant to the Plan.
3.14 "Plan Share Reserve" means the shares of Common Stock held by the
Trustee pursuant to Sections 5.03 and 5.04.
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3.15 "Recipient" means an Executive Officer or an Employee who receives
a Plan Share Award under the Plan.
3.16 "Retirement" with respect to a Recipient means termination of
employment which constitutes retirement under any tax qualified plan maintained
by the Association or by reaching age 65.
3.17 "Trust" means a trust established by the Board in connection with
this Plan to hold Plan assets for the purposes set forth herein.
3.18 "Trustee" means that person or persons and entity or entities
approved by the Board pursuant to Sections 4.01 and 4.02 to hold legal title to
any of the Plan assets for the purposes set forth herein.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Role of the Committee. The Plan shall be administered and
interpreted by the Committee, which shall have all of the powers allocated to it
in this and other Sections of the Plan. The interpretation and construction by
the Committee of any provisions of the Plan or of any Plan Share Award granted
hereunder shall be final and binding. The Committee shall act by vote or written
consent of a majority of its members. Subject to the express provisions and
limitations of the Plan, the Committee may adopt such rules, regulations and
procedures as it deems appropriate for the conduct of its affairs. The Committee
shall report its actions and decisions with respect to the Plan to the Board at
appropriate times, but in no event less than one time per calendar year. The
Committee shall recommend to the Board one or more person(s) or entity to act as
Trustee(s) in accordance with the provisions of this Plan and the terms of any
trust agreement.
4.02 Role of the Board. The members of the Committee shall be appointed
or approved by, and will serve at the pleasure of, the Board. The Board may in
its discretion from time to time remove members from, or add members to, the
Committee, and may remove, replace or add any Trustees. The Board shall have all
of the powers allocated to it in this and other Sections of the Plan.
4.03 Limitation on Liability. No member of the Board or the Committee
shall be liable for any determination made in good faith with respect to the
Plan or any Plan Shares or Plan Share Awards granted under it. If a member of
the Board or the Committee is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of anything done or not
done by him in such capacity under or with respect to the Plan, the Association
shall indemnify such member against expense (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or
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proceeding if he acted in good faith and in a manner he reasonably believed to
be in the best interests of the Association and its Affiliates and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
ARTICLE V
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 Amount and Timing of Contributions. The Association shall
contribute to the Trust an amount sufficient to purchase up to 517,521 shares of
Common Stock. No contributions by Employees shall be permitted. The Trustee may
hold and commingle contributions to the Plan and earnings thereon with the
assets of any other Recognition and Retention Plan maintained by the
Association.
5.02 Initial Investment. Any amounts held by the Trust prior to the
conversion of the Association from a mutual to a stock savings Association shall
be invested by the Trustee in such interest-bearing account or accounts at the
Association as the Trustee shall determine to be appropriate.
5.03 Investment of Trust Assets Upon the Conversion, Creation of Plan
Share Reserve. Upon the Conversion, the Trustee shall invest all of the Trust's
assets exclusively in Common Stock except as otherwise provided below; provided,
however, that the Trust shall not invest in more than 517,521 shares of Common
Stock which shall constitute the "Plan Share Reserve." In the event that all or
a portion of the designated number of the shares of Common Stock are not
available for purchase by the Trust in the Conversion, the Trustee in accordance
with applicable rules and regulations shall purchase shares of Common Stock in
the open market or, in the alternative, shall purchase authorized but unissued
shares of the Common Stock from the Company sufficient to fund the Plan Share
Reserve. Any earnings received with respect to Common Stock held in the Reserve
shall be held in an interest bearing account. Any earnings received with respect
to Common Stock subject to a Plan Share Award shall be held in an interest
bearing account on behalf of the individual Recipient.
5.04 Effect of Allocations and Forfeitures Upon Plan Share Reserves.
Upon the allocation of Plan Share Awards under Section 6.02, or the decision of
the Committee to sell Plan Shares and return the proceeds to the Association,
the Plan Share Reserve shall be reduced by the number of Shares subject to the
Awards so allocated or sold. Any Shares subject to an Award which may not be
earned because of a forfeiture by the Recipient pursuant to Section 7.01 shall
be returned (added) to the Plan Share Reserve.
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ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 Eligibility. Executive Officers and Employees of the Association
and its Affiliates are eligible to receive Plan Share Awards.
6.02 Allocations.
(a) The Committee may determine which of the Executive Officers and
Employees referenced in Section 6.01 above shall be granted Plan Share Awards,
the number of shares covered by each Award and the manner in which Plan shares
shall be earned (vested) under each award.
(b) Notwithstanding anything contained herein to the contrary, the
number of Shares covered by Awards may not exceed the number of Shares in the
Plan Share Reserve immediately prior to the grant of such Awards, and provided
further, that in no event shall any Awards be made which will violate the
Charter, Bylaws or Plan of Conversion of the Association or any applicable
federal or state law or regulation. In the event Plan Shares are forfeited for
any reason, such shares shall remain in the Plan Share Reserve until used to
satisfy subsequent Awards or until the termination of the Plan. At that time any
remaining Plan Shares shall be sold by the Trustee and the proceeds of such sale
shall be returned to the Association.
6.03 Form of Allocation. As promptly as practicable after a
determination is made pursuant to Section 6.02 that a Plan Share Award has been
granted, the recipient shall be notified in writing of the grant of a Plan Share
Award. Such notice shall include the number of Plan Shares covered by the Award,
and the terms upon which the Plan Shares subject to the Award may be earned. The
date on which the Committee so notifies the Recipient shall be considered the
date of grant of the Plan Share Award. The Committee shall maintain records as
to all grants of Plan Share Awards under the Plan.
6.04 Allocations Not Required. Notwithstanding anything to the contrary
in Sections 6.01 and 6.02, no Employee shall have any right or entitlement to
receive a Plan Share Award hereunder, such Awards being at the total discretion
of the Committee, nor shall the Executive Officers or the salaried Employees as
a group have such a right. The Committee may, with the approval of the Board
(or, if so directed by the Board, may) direct the Trustee to sell all Common
Stock in the Plan Share Reserve and return the proceeds from such sale to the
Association at any time. The Company shall have the right of first refusal upon
the sale of any Common Stock by the Trustee.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earning Plan Shares; Forfeitures.
(a) General Rules. Unless the Committee shall
specifically state to the contrary at the time a Plan Share Award is granted,
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Plan Shares subject to an Award shall be earned annually by the Executive
Officers at the rate of twenty percent (20%) of the aggregate number of Shares
covered by the Award on the tenth business day of January 1995 and thereafter at
the rate of twenty percent (20%) on the tenth business day of each January
thereafter during which the Executive Officer is an employee of the Association
or an Affiliate. Plan Shares granted to other Employees pursuant to a Plan Share
Award shall be earned at the rate of thirty-three and one-third percent (33
1/3%) of the aggregate number of Shares covered by the Award on the tenth
business day of January 1997 and thereafter at the rate of thirty-three and
one-third percent (33 1/3%) on the tenth business day of each January thereafter
during which the Employee is an employee of the Association or an Affiliate.
Notwithstanding the foregoing, the Committee may provide for a less or more
rapid earnings rate than that set forth herein. If the employment of a Recipient
is terminated prior to the time the Plan Share Award is completely earned for
any reason (except as specifically provided in Subsections (b) and (c) below),
the Recipient shall forfeit the right to earn any Shares subject to the Award
which have not theretofore been earned.
In determining the number of Plan Shares which are earned, fractional
shares shall be rounded down to the nearest whole number, provided that such
fractional shares shall be aggregated and earned, on the last anniversary in
which the Plan Share Award vests.
(b) Exception for Terminations Due to Death, Disability and
Retirement. Notwithstanding the general rule contained in Section 7.01(a) above,
all Plan Shares subject to a Plan Share Award held by a Recipient whose
employment with the Association or an Affiliate terminates due to death,
Disability or Retirement, shall be deemed earned as of the Recipient's last day
of employment with the Association or an Affiliate. Provided, however, that if
the Recipients' last day of employment terminates due to Retirement or
Disability within one year of the date of Conversion, the shares earned by the
Recipient may not be disposed of by the Recipient during the one-year period
following the Conversion.
(c) Exception for Terminations After a Change in Control.
Notwithstanding the general rule contained in Section 7.01(a) above, all Plan
Shares subject to a Plan Share Award held by a Recipient whose employment with
the Association or an Affiliate terminates following a change in control of the
Association or Company, shall be deemed earned as of the Recipient's last day of
employment with the Association or an Affiliate. 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 I 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, as amended (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)
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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.
(d) Revocation for Misconduct. Notwithstanding anything herein
to the contrary, the Committee may by resolution immediately revoke, rescind and
terminate any Plan Share Award, or portion thereof, previously awarded under
this Plan, to the extent Plan Shares have not been delivered thereunder to the
Recipient, whether or not yet earned, in the case of an Employee who is
discharged from the Association or an Affiliate for cause (as hereinafter
defined), or who is discovered after termination of employment or service to
have engaged in conduct that would have justified termination for cause. "Cause"
is defined as personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties, or
the willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) which results in a material loss to the
Association or final cease and desist order.
7.02 Accrual of Dividends. Whenever Plan Shares are paid to a Recipient
or Beneficiary under Section 7.03, such Recipient or Beneficiary shall also be
entitled to receive, with respect to each Plan Share paid, an amount
attributable to any cash dividends and a number of shares of Common Stock equal
to any stock dividends declared and paid with respect to a share of Common Stock
between the date the relevant Plan Share Award was granted and the date the Plan
Shares are being distributed. There shall also be distributed an appropriate
amount of net earnings, if any, of the Trust with respect to any dividends so
paid out.
7.03 Distribution of Plan Shares.
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(a) Timing of Distributions: General Rule. Plan Shares shall
be distributed to the Recipient or his Beneficiary, as the case may be, as soon
as practicable after they have been earned.
(b) Form of Distribution. All Plan Shares, together with any
shares representing stock dividends, shall be distributed in the form of Common
Stock. One share of Common Stock shall be given for each Plan Share earned and
payable. Payments representing accumulated dividends (and earnings thereon, if
any) shall be made in cash or Common Stock.
(c) Withholding. The Trustee shall withhold from any payment
or distribution made under this Plan sufficient amounts of cash or shares of
Common Stock to cover any applicable withholding and employment taxes, and if
the amount of such payment is insufficient, the Trustee may require the
Recipient or Beneficiary to pay to the Trustee the amount required to be
withheld as a condition of delivering the Plan Shares. The Trustee shall pay
over to the Association or Affiliate which employs or employed such Recipient
any such amount withheld from or paid by the Recipient or Beneficiary. If this
Plan is qualified under 17 C.F.R. ss.240.16b-3 of the Exchange Act Rules, then
any withholding shall comply with 17 C.F.R. ss.240.16b-3(e).
7.03 Voting of Plan Shares. After a Plan Share Award has been granted,
the Recipient shall be entitled to direct the Trustee as to the voting of the
Plan Shares which are covered by the Plan Share Award and which have not yet
been earned and distributed to him pursuant to Section 7.03, subject to rules
and procedures adopted by the Committee for this purpose. All shares of Common
Stock held by the Trust as to which Recipients are not entitled to direct, or
have not directed, the voting, shall be voted by the Trustee in the same
proportion as Plan Shares which have been awarded and voted.
ARTICLE VIII
MISCELLANEOUS
8.01 Adjustments for Capital Changes. In the event of any change in the
outstanding shares of Common Stock of the 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 effected without receipt or
payment of consideration by the Company, the Committee shall adjust the
aggregate number of Plan Shares available for issuance pursuant to the Plan and
shall adjust the number of shares to which any Plan Share Award relates to
prevent dilution or enlargement of the rights granted to the Recipient under the
Plan.
8.02 Amendment and Termination of Plan. The Board may, by resolution, at
any time amend or terminate the Plan . Except as otherwise provided, rights and
obligations under any Plan Share Award granted before an amendment shall not be
altered or impaired by such amendment without the written consent of the
Recipient. If the Plan becomes qualified under 17 C.F.R. ss.16b-3 of the rules
and regulations promulgated under the Exchange Act and an
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amendment would require shareholder approval under such Rule 16b-3 to retain the
Plan's qualification, then such amendment shall be presented to shareholders for
ratification, provided, however, that the failure to obtain shareholder
ratification shall not affect the validity of the Plan as so amended and the
Plan Share Awards granted thereunder. The power to amend or terminate shall
include the power to direct the Trustee to return to the Association all or any
part of the assets of the Trust, including proceeds from the sale of shares of
Common Stock held in the Plan Share Reserve, as well as shares of Common Stock
and other assets subject to Plan Share Awards but not yet earned by the
Recipients to whom they are awarded. However, the termination of the Trust shall
not affect a Recipient's right to earn Plan Share Awards and to the distribution
of Common Stock relating thereto, including earnings thereon, in accordance with
the terms of this Plan and the grant by the Committee or Board.
8.03 Nontransferable. Plan Share Awards and rights to Plan Shares shall
not be transferable by a Recipient, and during the lifetime of the Recipient,
Plan Shares may only be earned by and paid to the Recipient who was notified in
writing of the Award by the Committee pursuant to Section 6.03.
8.04 Employment Rights. Neither the Plan nor any grant of a Plan Share
Award or Plan Shares hereunder nor any action taken by the Trustee, the
Committee or the Board in connection with the Plan shall create any right on the
part of any Executive Officer or Employee to continue in the employ of the
Association or an Affiliate thereof, or the Company.
8.05 Voting and Dividend Rights. No Recipient shall have any voting or
dividend rights or other rights of a shareholder in respect of any Plan Shares
covered by a Plan Share Award, except as expressly provided in Sections 7.02 and
7.04 above, prior to the time said Plan Shares are actually distributed to him
or her.
8.06 Governing Law. The Plan and Trust shall be governed by the laws of
the State of New York to the extent not preempted by the laws of the United
States.
8.07 Effective Date. This Plan is effective as of the effective date of
the Conversion. Following Conversion, the 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 National Association of Securities Dealers Automated
Quotation ("NASDAQ") National Market System; provided, however, that the failure
to obtain shareholder ratification will not affect the validity of the Plan and
the Plan Share Awards thereunder.
8.08 Term of Plan. This Plan shall remain in effect until the earlier of
(1) 21 years from the Effective Date, (2) termination by the Board, or (3) the
distribution of all assets of the Trust. Termination of the Plan shall not
affect any Plan Share Awards previously granted, and such Awards shall remain
valid and in effect until they have been earned and paid, or by their terms
expire or are forfeited.
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9.01 Compliance with Section 16. If this Plan is qualified under 17
C.F.R. ss.240.16b-3 of the Exchange Act Rules, 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 provision of the Plan fails to so comply, it
shall be deemed null and void, to the extent permitted by law.
IN WITNESS WHEREOF, the Association has established this Plan
to be executed by its duly authorized executive officer and the corporate seal
to be affixed and duly attested, effective as of the 18th day of November, 1993.
By:__________________________
George L. Engelke, Jr.
Attest:
- - --------------------------------
William K. Sheerin
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ASTORIA FINANCIAL CORPORATION
LITIGATION ADVISORY COMMITTEE CONSULTING AGREEMENT
This CONSULTING AGREEMENT ("Agreement") is made and entered
into as of April 2, 1998 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 JOHN J. CONEFRY, JR., an individual residing at
5 Butler Place, Garden City, New York 11530 ("Consultant").
WITNESETH:
WHEREAS, pursuant to an Agreement and Plan of Merger by and
between the Company and Long Island Bancorp, Inc. ("Seller") dated April 2, 1998
("Agreement and Plan of Merger"), the Company and Seller have agreed to a merger
of the Seller with the Company, effective as of the closing date specified in
the Agreement and Plan of Merger ("Closing Date"); and
WHEREAS, the Consultant is the Chief Executive Officer of the
Seller and is familiar with its business, operations and properties; and
WHEREAS, The Long Island Savings Bank, FSB ("Seller Bank") is
the plaintiff in the case resulting from a complaint filed by the Seller Bank in
the United States Court of Federal Claims entitled The Long Island Savings Bank
FSB v. The United States (the "Case"); and
WHEREAS, if successful on the merits, the Case could result in
a substantial recovery to Astoria Federal Savings and Loan Association, as
successor by merger to Seller Bank ("Association"); and
WHEREAS, pursuant to section 4.13(d) of the Agreement and Plan
of Merger, the Corporation has established a Litigation Advisory Committee to
preserve the knowledge and experience of certain officers of the Seller in
connection with the Case and to assist the Company in evaluating and managing
the progress thereof (hereinafter referred to as the "Litigation Advisory
Committee"); and
WHEREAS, the Consultant possesses specialized knowledge and
experience as the chief executive officer of the Seller and the Seller Bank and
as a result of his involvement with the Case; and
WHEREAS, the Company desires to assure the availability of the
Consultant's services in furthering the objectives of the Litigation Advisory
Committee; and
WHEREAS, the Consultant is willing to serve the Company on the
terms and conditions hereinafter set forth;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Company and the
Consultant hereby agree as follows:
Section 1. Service.
The Company agrees to engage the Consultant's services as a
member and the Chairman of the Litigation Advisory Committee, and the Consultant
hereby agrees to hold himself available and to provide such services, during the
period and upon the terms and conditions set forth in this Agreement.
Section 2. Consulting Period.
The terms and conditions of this Agreement shall be and remain
in effect during the period of service established under this section 2
("Consulting Period"). The Consulting Period shall be for a term beginning on
the day after the Consultant's termination of employment with the Company for
any reason other than death, disability or "cause", in each case as defined in
the Employment Agreement between the Consultant and the Company dated April 2,
1998 ("Employment Agreement"), and ending on the third anniversary of the
Closing Date, extended as hereinafter provided. On the third anniversary of the
Closing Date, the Consulting Period shall automatically be extended for one (1)
additional year, unless either the Company or the Consultant elects not to
extend this Agreement further by giving prior written notice to the other party
at least ninety (90) days in advance of the then-applicable expiration date, in
which case the Consulting Period shall end on the third anniversary of the
Closing Date. If the Consulting Period is extended as aforesaid, on the fourth
anniversary of the Closing Date, the Consulting Period shall be extended for one
(1) additional year unless either the Company or the Consultant elects not to
extend this Agreement further by giving prior written notice to the other party
at least ninety (90) days in advance of the then-applicable expiration date, in
which case the Consulting Period shall end on the fourth anniversary of the
Closing Date. Notwithstanding anything contained herein to the contrary, in all
cases the Consulting Period shall end no later than the earliest of (i) the
fifth anniversary of the Closing Date; (ii) the date of a final, unappealable
judgment in the Case or any final settlement of the Case; or (iii) termination
of this Agreement pursuant to section 7. If the Consultant terminates employment
with the Company under the Employment Agreement due to death, disability or
"cause" under the Employment Agreement or the expiration of the Consulting
Period, this Agreement shall cease.
Section 3. Extent of Services.
(a) The Consultant shall serve as a member and the Chairman of
the Litigation Advisory Committee, having such power, authority and
responsibility and performing such duties as are prescribed by the Company in
order to provide advisory services to the Company regarding the Case. These
duties shall include, but not be limited to, advising Seller and the Company
exclusively on the prosecution and settlement of the Case, including but not
limited to testimony as a witness, the evaluation of any settlement proposals,
the making of and responses to motions to dismiss, proposals to terminate or
cease prosecuting the Case, and the pursuit or abandonment of
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any appeals. The Consultant shall use his best efforts to advance the interests
of the Company in every aspect of the Case. As Chairman of the Litigation
Advisory Committee, the Consultant shall also manage the activities of the
Litigation Advisory Committee in a manner consistent with section 4.13(d) of the
Agreement and Plan of Merger and with the purpose of assisting the Company and
the Association in achieving an early and favorable resolution to the Case and
shall report directly to the Company's Chief Executive Officer or a designee of
the Company's Chief Executive Officer.
(b) Subject to the requirements of the Company consistent with
the efficient management of the Case, in the performance of any services
required of him hereunder, the Consultant shall have exclusive control over the
manner of performance of such services, including without limitation: the
selection, supervision and compensation of personnel, if any, in addition to the
Consultant to be involved in the performance of such services; the selection of
methods, procedures, strategies and equipment to be employed in the performance
of such services; and determination of the time, places and dates at which such
services will be performed.
(c) The Consultant may engage in business activities and may
perform services as an employee or independent contractor (other than for the
Company) to the extent that such business activities and/or the performance of
such services does not impair the Consultant's availability to perform services
for the Company as contemplated by this Agreement or contravene the provisions
of section 6.
Section 4. Cash Compensation.
In consideration for his availability to perform services
hereunder, as well as the services actually rendered by the Consultant
hereunder, the Company shall pay to him during the Consulting Period a retainer
fee at an annual rate of FOUR HUNDRED THOUSAND DOLLARS ($400,000), payable in
advance in monthly installments commencing on the first day of the Consulting
Period; provided, however, that this retainer fee shall only be paid for the
portion of the Consulting Period during which the Consultant is not an officer
or employee of the Company or Association. If the Consultant performs services
for the Company with respect to the Case after the expiration of the Consulting
Period, the Company shall pay him an hourly fee in the amount of TWO HUNDRED
DOLLARS ($200) per hour, payable monthly in arrears upon presentation of time
records in such form and manner as the Company may reasonably require, and shall
continue to observe the provisions of section 5 with respect to the Consultant.
Section 5. Facilities and Expenses.
(a) The Company shall provide the Consultant with office
facilities and secretarial and other support services on its premises to the
extent required to perform the services contemplated in section 3 of this
Agreement, as determined by the Company in its discretion.
(b) If, in connection with the performance of service
hereunder at the request of the Company, the Consultant incurs out-of-pocket
costs for travel, meals, lodging and other
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reasonable expenses of a type for which other providers of professional services
to the Company would be reimbursed by the Company, he shall be entitled to
reimbursement therefor by the Company in accordance with the reasonable
standards and procedures established by the Company and communicated to the
Consultant.
Section 6. Confidentiality; Nonsolicitation.
(a) During the Consulting Period and at all times thereafter,
the Consultant, except as previously authorized by the Company in writing, shall
keep confidential and shall refrain from using or disclosing for the benefit of
any person or entity other than the Company or the Association any document or
information obtained in the course of performing services under this Agreement
or as an officer, employee, or director of Seller or Seller Bank prior to the
Closing Date. The preceding sentence shall not apply to the use or disclosure of
any such document or information: (i) on or following the date on which such
information or document is first readily ascertainable from public or published
information or trade sources; or (ii) in connection with any judicial or
administrative investigation, inquiry or proceeding to the extent compelled
pursuant to applicable law and as to which, unless expressly prohibited by
applicable law, the Consultant has given notice to the Company as soon as
reasonably practicable after such compulsion.
(b) The Consultant acknowledges that during the course of his
performance of service for the Seller, Seller Bank, Company, or Association he
may develop or otherwise acquire papers, files or other records involving or
relating to confidential or secret plans, design information of any kind,
devices, material, research, new product development, customers or customer
lists. All such papers, files and other records identified by the Company as
confidential shall be the exclusive property of the Company and shall, together
with any and all copies thereof, be returned to the Company (or the Executive
shall certify to the Company that any such materials not returned have been
destroyed) upon the earliest to occur of the termination of this Agreement, the
expiration of the Consulting Period, and a request in writing by the Company for
the return thereof.
(c) The Consultant hereby covenants and agrees that, during
the Consulting Period, and for a period of six months thereafter, he shall not,
without the written consent of the Company, either directly or indirectly:
(i) solicit, offer employment to, or take any other action
intended to cause, any officer or employee of the Company or any
affiliate to terminate his or her employment and accept employment or
become affiliated with, or provide services for compensation in any
capacity whatsoever to, any entity that directly or indirectly competes
with this Company in any market area in which it is then active;
(ii) provide any information, advice or recommendation with
respect to any such officer or employee of any entity engaged or to be
engaged in the same or a competing business with the Company or any
affiliate that is intended to cause any officer or employee of the
Company or any affiliate to terminate his or her
4
<PAGE> 5
employment and accept employment or become affiliated with, or provide
services for compensation in any capacity whatsoever to, any entity
that directly or indirectly competes with the Company or any affiliate
in any market area in which it is then active;
(iii) solicit, provide any information, advice or
recommendation or take any other action intended to have the effect of
causing any customer of the Company or any affiliate to terminate an
existing business or commercial relationship with the Company or any
affiliate.
(v) take any action intended to impair or otherwise impose a
detriment upon relations between the Company and its affiliates and
their customers or others or upon the business of the Company and its
affiliates as then conducted.
(d) The duties and obligations imposed on the Consultant under
this section 6 are intended to be in addition to, and not in limitation or
exclusion of, any duties and obligations which the Consultant may owe to the
Company or its affiliates under applicable law. This section 6 shall be
construed and enforced so as to give effect to this intent. The Consultant
hereby stipulates that the Company has a legitimate business interest in
restricting the Consultant's activities in the manner provided herein, and that
the compensation paid to him hereunder is adequate compensation to him for the
imposition and observance of such restrictions.
Section 7. Termination of Agreement.
This Agreement and the Consulting Period established hereunder
shall terminate immediately upon the occurrence of any of the following events:
(i) the Consultant's death; (ii) a determination by the Company, on the basis of
a report from a competent medical doctor (to which the Consultant should have
reasonable access), that the Consultant is mentally or physically unable to
perform the services which may be required of him hereunder for a period of at
least 180 consecutive days; (iii) the Consultant's material breach of his
obligations under sections 3 or 6 hereof and a subsequent failure to
substantially cure such breach after receiving notice thereof from the Company;
(iv) the Consultant has been convicted of a felony; or (v) the Consultant's
voluntary termination, upon 30 days written notice to the Company, of this
Agreement. Following the termination of this Agreement, the Company shall have
no further obligations hereunder, but the Consultant shall continue to be bound
by the provisions of sections 6, 8 and 17.
Section 8. No Employment Relationship Created.
The relationship between the Company and the Consultant shall
be that of client and independent contractor. The Company shall not assume, and
specifically disclaims, any obligations of an employer to an employee which may
exist under applicable law. The Consultant shall not have any of the rights of
an employee with respect to the Company, and specifically waives any and all
such rights. The Consultant hereby agrees to take any and all such actions as
the Company may reasonably request in order to establish that no employment
relationship exists
5
<PAGE> 6
between the parties. The Consultant shall be treated as an independent
contractor for all purposes of federal, state and local income taxes and payroll
taxes.
Section 9. Successors and Assigns.
This Agreement will inure to the benefit of and be binding
upon the Consultant, his legal representatives and testate or intestate
distributees, and the Company, and their respective successors and assigns,
including, in the case of the Company, 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 respective assets and business of the Company may be
sold or otherwise transferred. Notwithstanding the foregoing, the availability
of the personal services of the Consultant is an integral part of this
Agreement. The Consultant's duty of performance hereunder shall not be subject
to assignment, and the rights, if any, of the Consultant hereunder shall inure
to the benefit of his legal representatives and testate or intestate
distributees only to the extent that such rights shall have accrued prior to the
date of the Consultant's death or legal incapacity.
Section 10. 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 Consultant:
John J. Conefry, Jr.
5 Butler Place
Garden City, New York 11530
With a copy to:
Milbank Tweed Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Attention: Mel M. Immergut, Esq.
If to the Company:
Astoria Financial Corporation
One Astoria Federal Plaza
Lake Success, New York 11042-1085
6
<PAGE> 7
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 11. 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 12. 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 13. 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 14. Governing Law.
This Agreement shall be governed by and construed and enforced
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.
Notwithstanding anything herein contained to the contrary, any payments to the
Consultant by the Company, whether pursuant to this Agreement or otherwise, are
subject to and conditioned upon their compliance with section 18(k) of the
Federal Deposit Insurance Act, 12 U.S.C. ss.1828(k), and any regulations
promulgated thereunder.
Section 15. 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.
7
<PAGE> 8
Section 16. 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. This Agreement does not supercede the Letter Agreement dated
April 2, 1998 between the Consultant, the Company and the Association pursuant
to section 4.16(b) of the Agreement and Plan of Merger. No modifications of this
Agreement shall be valid unless made in writing and signed by the parties
hereto.
Section 17. 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 the 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. The prevailing
party shall be entitled to an award of reasonable attorneys' fees.
Section 18. Survival.
The provisions of sections 4, 6, 8-17, 19 and 20 shall survive
the expiration of the Consulting Period or termination of this Agreement.
Section 19. Equitable Remedies.
The Company and the Consultant hereby stipulate that money
damages are an inadequate remedy for violations of section 3, 6, 7, 8 and 17 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 20. Indemnification.
To the maximum extent permitted under applicable law, during
8
<PAGE> 9
the period beginning on the first day of the Consulting Period and ending
six (6) years after the later of (a) the last day of the Consulting Period or
(b) the last day on which the Consultant performs services for which an
hourly fee is payable under section 4 hereof, the Company shall indemnify the
Consultant 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 director or officer
of the Company or any subsidiary or affiliate thereof.
Section 21. Effective Date.
The Effective Date of this Agreement shall be the Closing
Date. In the event that the merger contemplated by the Agreement and Plan of
Merger is not consummated, this Agreement shall have no force or effect.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed and the Consultant has hereunto set his hand, all as of the day and
year first above written.
ATTEST: ASTORIA FINANCIAL CORPORATION
By /S/ William K. Sheerin
By /S/ George L. Engelke, Jr.
Name: George L. Engelke, Jr.
Title: Chairman, President and
Chief Executive Officer
[Seal]
9
<PAGE> 1
CONSULTING AGREEMENT
This CONSULTING AGREEMENT ("Agreement") is made and entered
into as of April 2, 1998 by and between ASTORIA FINANCIAL CORPORATION, a
corporation organized and existing under the laws of the State of Delaware and
having its executive offices at One Astoria Federal Plaza, Lake Success, New
York 11042-1085 ("Corporation") and LAWRENCE W. PETERS, residing at 143 CABOT
ROAD, MASSAPEQUA, NEW YORK 11758 ("Consultant").
WITNESSETH:
WHEREAS, pursuant to an Agreement and Plan of Merger by and
between the Corporation and Long Island Bancorp, Inc. ('Seller") dated April 2,
1998 ("Agreement and Plan of Merger"), the Corporation and the Seller have
agreed to a merger of the Seller with the Corporation, effective as of the
closing date specified in the Agreement and Plan of Merger ("Closing Date"); and
WHEREAS, the Consultant is a senior executive officer of the
Seller and is familiar with its business, operations and properties; and
WHEREAS, the Consultant is a party to Employment Agreements
with the Seller and The Long Island Savings Bank, FSB ('Seller Bank") which
provide a financial incentive for him to resign from employment with the Seller
and the Seller Bank or their successors upon consummation of a transaction of
the nature contemplated by the Agreement and Plan of Merger; and
WHEREAS, for purposes of facilitating a smooth transition in
ownership and control, and an effective consolidation of the Seller's operations
with those of the Corporation, the Corporation wishes to secure for itself and
its wholly owned subsidiary, Astoria Federal Savings and Loan Association
("Association"), the services of the Consultant for a period of one year
following the Closing Date; and
WHEREAS, the Consultant is willing to make his services
available to the Corporation on the terms and conditions hereinafter set forth;
NOW, THEREFORE, the Corporation and the Consultant hereby
agree as follows:
Section 1. Engagement; Period of Engagement.
(a) The Corporation offers to engage the Consultant, and the
Consultant hereby accepts such engagement, to provide services to the
Corporation as a consultant for the period established under this section 1
("Period of Engagement"). The Period of Engagement shall be for one year
beginning on the Closing Date and ending on the first anniversary date of
<PAGE> 2
the Closing Date.
(b) Notwithstanding anything herein to the contrary, the
Period of Engagement shall end upon any termination of this Agreement pursuant
to section 6.
Section 2. Extent of Services.
(a) During the Period of Engagement, the Consultant shall hold
himself available during regular business hours to perform such services in
connection with the transition of the ownership and operation of the businesses
and assets acquired by the Corporation pursuant to the Agreement and Plan of
Merger and the other businesses of the Corporation and its affiliates as the
Corporation may reasonably request; provided, however, that the Corporation
shall have no obligation to avail itself of the Consultant's services. The
services which may be required of the Consultant hereunder may include, but are
not limited to, preserving the Seller Bank's franchise by promoting the
Association and its products and services in communities previously served by
the Seller Bank; promoting the recognition and acceptance of the Association as
the Seller Bank's successor among the Seller Bank's customers; and otherwise
facilitating the transition of ownership and control and an effective
consolidation of the Seller's operations with those of the Corporation. The
Corporation may, in its sole and absolute discretion, engage other employees or
independent contractors to perform any or all of the services for which the
Consultant is available under this section 2(a). The Consultant may engage in
business activities and perform services as an employee or independent
contractor (other than for the Corporation) to the extent that such business
activities and/or the performance of such services does not impair the
Consultant's availability to perform services for the Corporation as
contemplated by this Agreement or contravene the provisions of section 5 of this
Agreement.
(b) In the performance of any services required of him
hereunder, the Consultant shall have exclusive control over the manner of
performance of such services, including, without limitation: the selection,
supervision and compensation of personnel, if any, in addition to the Consultant
to be involved in the performance of such services; the selection of methods,
procedures, strategies and equipment to be employed in the performance of such
services; and determination of the times, places and dates at which such
services will be performed. The Consultant shall provide his consulting services
under this Agreement to the Chairman of the Corporation or a designee of the
Chairman of the Corporation.
Section 3. Compensation.
In consideration for the availability of the Consultant's
services hereunder, as well as for any services to be provided under section
2(a), the Corporation shall pay to the Consultant a retainer at the annual rate
of FIVE HUNDRED THOUSAND DOLLARS ($500,000), payable in advance in monthly
installments, the first such installment to be paid on the first business day of
the first calendar month following the Closing Date; provided, however, that no
payment shall be made for any month after the month in which this Agreement
terminates as provided in section 6 hereof.
<PAGE> 3
Section 4. Expenses.
(a) The Corporation shall provide the Consultant with office
facilities and secretarial and other support services on its premises to the
extent required to perform the consulting services contemplated herein, as
determined by the Corporation in its discretion.
(b) If, in connection with the performance of service
hereunder at the request of the Corporation, the Consultant incurs out-of-pocket
costs for expenses for travel, meals and lodging or other reasonable expenses of
a type for which other providers of professional services to the Corporation
would be reimbursed by the Corporation, he shall be entitled to reimbursement
therefor by the Corporation in accordance with the reasonable standards and
procedures established by the Corporation and communicated to the Consultant.
Section 5. Confidentiality; Nonsolicitation.
(a) During the Period of Engagement and at all times
thereafter, the Consultant, except as previously authorized by the Corporation
in writing, shall keep confidential and shall refrain from using or disclosing
for the benefit of any person or entity other than the Corporation or the
Association any document or information obtained in the course of performing
services under this Agreement or as an officer, employee, or director of Seller
or Seller Bank prior to the Closing Date. The preceding sentence shall not apply
to the use or disclosure of any such document or information: (i) on or
following the date on which such information or document is first readily
ascertainable from public or published information or trade sources; or (ii) in
connection with any judicial or administrative investigation, inquiry or
proceeding to the extent compelled pursuant to applicable law and as to which,
unless expressly prohibited by applicable law, the Consultant has given notice
to the Corporation as soon as reasonably practicable after such compulsion.
(b) The Consultant acknowledges that during the course of his
employment with the Seller or Seller Bank and performance of service for the
Corporation he may develop or otherwise acquire papers, files or other records
involving or relating to confidential or secret plans, design information of any
kind, devices, material, research, new product development, customers or
customer lists. All such papers, files and other records identified as
confidential by the Corporation shall be the exclusive property of the
Corporation and shall, together with any and all copies thereof, be returned to
the Corporation (or the Consultant shall certify to the Company that any such
materials not returned have been destroyed) upon the earliest to occur of the
termination of this Agreement, the expiration of the Period of Engagement, and a
request by the Corporation for the return thereof.
(c) The Consultant hereby covenants and agrees that, during
the Period of Engagement and for six months thereafter, he shall not, without
the written consent of the Corporation, either directly or indirectly:
(i) solicit, offer employment to, or take any other action
intended to cause any officer or employee of the Corporation or any
affiliate to terminate his
<PAGE> 4
or her employment and accept employment or become affiliated with, or
provide services for compensation in any capacity whatsoever to, any
entity that directly or indirectly competes with this Corporation in
any market area in which it is then active;
(ii) provide any information, advice or recommendation with
respect to any such officer or employee of any entity engaged or to be
engaged in the same or a competing business with the Corporation or any
affiliate that is intended to cause any officer or employee of the
Corporation or any affiliate to terminate his or her employment and
accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any entity that directly or
indirectly competes with the Corporation or any affiliate in any market
area in which it is then active;
(iii) solicit, provide any information, advice or
recommendation or take any other action intended, or to cause any
customer of the Corporation or any affiliate to terminate an existing
business or commercial relationship with the Corporation or any
affiliate; or
(iv) take any action as a result of which the relations
between the Corporation and its affiliates and their customers or
others are impaired or which is otherwise detrimental to the business
of the Corporation and its affiliates as then conducted.
(d) The duties and obligations imposed on the Consultant under
this section 5 are intended to be in addition to, and not in limitation or
exclusion of, any duties and obligations which the Consultant may owe to the
Corporation or its affiliates under applicable law. This section 5 shall be
construed and enforced so as to give effect to this intent. The Consultant
hereby stipulates that the Corporation has a legitimate business interest in
restricting the Consultant's activities in the manner provided herein, and that
the compensation paid to him hereunder is adequate compensation to him for the
imposition and observance of such restrictions.
Section 6. Termination of Agreement.
This Agreement and the Period of Engagement established
hereunder shall terminate immediately upon the occurrence of any of the
following events: (i) the Consultant's death; (ii) a determination by the
Corporation, on the basis of a report from a competent medical doctor (to which
the Consultant shall have access), that the Consultant is mentally or physically
unable to perform the services which may be required of him hereunder for a
period of at least 180 consecutive days; (iii) the Consultant's material breach
of his obligations under sections 2 or 5 hereof and subsequent failure to
substantially cure such breach after notice of such breach; (iv) the Consultant
has been convicted of a felony; or (v) the Consultant's voluntary termination,
upon 30 days notice to the Corporation, of this Agreement. Following the
termination of this Agreement, the Corporation shall have no further obligations
hereunder, but the Consultant shall continue to be bound by the provisions of
sections 5, 7 and 17.
<PAGE> 5
Section 7. No Employment Relationship Created.
The relationship between the Corporation and the Consultant
shall be that of client and independent contractor. The Corporation shall not
assume, and specifically disclaims, any obligations of an employer to an
employee which may exist under applicable law. The Consultant shall not have any
of the rights of an employee with respect to the Corporation, and specifically
waives any and all such rights. The Consultant hereby agrees to take any and all
such actions as the Corporation may reasonably request in order to establish
that no employment relationship exists between the parties. The Consultant shall
be treated as an independent contractor for all purposes of federal, state and
local income taxes and payroll taxes.
Section 8. Right to Specific Performance.
The Consultant hereby agrees that any breach of his covenants
and agreements under sections 5, 7 or 17 of this Agreement will cause
irreparable injury to the Corporation for which the Corporation has no adequate
remedy at law. Therefore, the Consultant agrees that each and every covenant and
agreement set forth in section 5, 7 and 17 shall, in addition to and not by way
of limitation of any other remedy (including money damages) which may be
available, be specifically enforceable against him by any party entitled to
enforcement thereof.
Section 9. Successors and Assigns.
This Agreement will inure to the benefit of and be binding
upon the Consultant, his legal representatives and testate or intestate
distributees, and the Corporation, and their respective successors and assigns,
including, in the case of the Corporation, 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 respective assets and business of the
Corporation may be sold or otherwise transferred. Notwithstanding the foregoing,
the availability of the personal services of the Consultant is an integral part
of this Agreement. The Consultant's duty of performance hereunder shall not be
subject to assignment, and the rights, if any, of the Consultant hereunder shall
inure to the benefit of his legal representatives and testate or intestate
distributees only to the extent that such rights shall have accrued prior to the
date of the Consultant's death or legal incapacity.
Section 10. 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> 6
If to the Consultant:
Lawrence W. Peters
143 Cabot Road
Massapequa, New York 11758
with a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Attention: Frederick C. Kneip, Esq.
If to the Corporation:
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 11. 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 12. 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 13. 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
<PAGE> 7
constitute one and the same Agreement.
Section 14. 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. Notwithstanding anything herein
contained to the contrary, any payments to the Consultant by the Corporation,
whether pursuant to this Agreement or otherwise, are subject to and conditioned
upon their compliance with section 18(k) of the Federal Deposit Insurance Act,
12 U.S.C. ss.1828(k), and any regulations promulgated thereunder.
Section 15. 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 16. 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. This Agreement does not supercede the Letter Agreement dated
April 2, 1998 between the Consultant, the Corporation and the Association
pursuant to section 4.16(b) of the Agreement and Plan of Merger. No
modifications of this Agreement shall be valid unless made in writing and signed
by the parties hereto.
Section 1 7. 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 the 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. The prevailing
party shall be entitled to an award of reasonable attorneys' fees.
<PAGE> 8
Section 18. Indemnification.
To the maximum extent permitted under applicable law, during
the Period of Engagement and for a period of six (6) years thereafter, the
Corporation shall indemnify the Consultant 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 director, officer or former director or officers of the Corporation or any
subsidiary or affiliate thereof.
Section 19. Survival.
The provisions of sections 5, 7, 8, 9, 10, 17, and 18 of this
Agreement shall survive the termination of this Agreement or the expiration of
the Period of Engagement.
Section 20. Effective Date.
The effective date of this Agreement shall be the Closing
Date. In the event that the merger contemplated by the Agreement and Plan of
Merger is not consummated, this Agreement shall have no force or effect.
IN WITNESS WHEREOF, the Corporation has caused this Agreement
to be executed and the Consultant has hereunto set his hand, all as of the day
and year first above written.
/S/ Lawrence W. Peters
LAWRENCE W. PETERS
ASTORIA FINANCIAL CORPORATION
By: /S/ George L. Engelke, Jr.
Title: Chairman, President and Chief
Executive Officer
ATTEST:
By /S/ William K. Sheerin
Secretary
<PAGE> 1
John J. Conefry, Jr.
5 Butler Place
Garden City, New York 11530
April 2, 1998
Astoria Financial Corporation
One Astoria Federal Plaza
Lake Success, New York
Gentlemen:
The purpose of this letter is to set forth the agreement that
we have reached concerning the settlement of certain obligations of Long Island
Bancorp, Inc. ("LISB") and The Long Island Savings Bank FSB ("LISB Bank") to me
in connection with the merger of LISB with and into Astoria Financial
Corporation ("AFC") and LISB Bank with and into Astoria Federal Savings and Loan
Association ("AFSL") pursuant to the Agreement and Plan of Merger dated as of
April 2, 1998 by and between AFC and LISB (the "Merger Agreement").
1. My Agreement.
Section 2.03(o) of the Merger Agreement provides for a
schedule showing a good faith estimate of the present value as of September 30,
1998 of the monetary amounts (including tax indemnification payments in respect
of income and/or excise taxes) and identifying the in-kind benefits due to me
under, and in accordance with the terms and provisions of, all employment
agreements, change in control agreements, severance agreements, termination
agreements, severance plans, pension, retirement or deferred compensation plans
for non-employee directors, supplemental executive retirement programs, tax
indemnification agreements, outplacement programs, cash bonus programs, stock
appreciation rights, phantom stock or stock unit plans, and health, life,
disability and other insurance or welfare plans or other arrangements, but
excluding any tax-qualified pension, profit-sharing or employee stock ownership
plans and any stock option or restricted stock plan (the "Specified Compensation
and Benefit Programs"), in the event of my discharge other than for cause or in
the event of my resignation for good reason at or following the date of the
closing of the transactions contemplated by the Merger Agreement (the "Closing
Date"). The Specified Compensation and Benefit Programs shall include but not be
limited to the employment agreement between LISB and myself and the employment
agreement between LISB Bank and myself (collectively the "Employment
Agreement"), the LISB Bank Severance Benefits Plan ("Severance Benefits Plan"),
the LISB Bank Deferred Income Plan ("Deferred Pension Plan") and the LISB
Non-Employee Directors Retirement Benefit Plan ("Retirement Plan for
Non-Employee Directors"). I hereby acknowledge and agree (A) that the Specified
Compensation and Benefit Programs listed on Schedules A and B attached are the
only Specified Compensation and Benefit Programs under which I am entitled in
connection with the transactions contemplated by the Merger Agreement to receive
any compensation payments or benefits and that the amounts actually paid to or
in respect of me, in the aggregate, shall not exceed 111 % of the aggregate
amount shown on such Schedule A and (B) to deliver in exchange for such
compensation and benefits a written release, in the form attached hereto as
Exhibit A (the "Release"), of any further claim in respect of compensatory
monetary amounts and in-kind benefits under the Specified Compensation and
Benefit Programs. These good faith estimates are based upon the provisions of
the Specified Compensation and Benefits Programs as of April 2, 1998 and my
compensation as of April 2, 1998, adjusted for anticipated increases in base
salary.
2. AFC's Agreement.
AFC acknowledges that the consummation of the transactions
contemplated by the Merger Agreement shall, upon consummation, constitute a
"change of control" and "good reason" event under the existing terms of the
Specified Compensation and Benefit Programs and that, if I am an employee of
LISB and/or LISB Bank as of the Closing Date, AFC will provide, subject to the
aggregate limitations imposed
Page 1 of 2
<PAGE> 2
by paragraph 1 hereof, to me all of the payments and benefits for which
estimates and/or descriptions are provided under paragraph 1 hereof as if I
resigned for good reason on the Closing Date, whether or not I continue to
provide services to AFC or AFSL after the Closing Date. All cash payments shall
be made to me (or, if payable in installments, shall begin) within 5 days after
the Closing Date and all in-kind or other benefits shall be provided to me in
accordance with the terms and provisions of the Specified Compensation and
Benefits Programs. It is understood and agreed that whether a Section 28OG
Gross-up payment will be paid by AFC will be determined by KPMG Peat Marwick LLP
or by legal counsel reasonably acceptable to me (which determination, if I so
request, shall be in the form of a written opinion reasonably satisfactory to my
legal counsel), and that the calculation of the amount of any such Section 28OG
Gross-up payment will be made as of the Closing Date by KPMG Peat Marwick LLP,
subject to review by the parties hereto. All other estimates provided under
paragraph I hereof shall be adjusted only to the extent necessary to correct any
manifest error(s).
Notwithstanding anything in this letter agreement to the
contrary, the determination of whether a Section 28OG Gross up Payment is
payable to me, and the amount of any such payment (including, but not limited
to, additional payments by AFC or refunds of overpayments to AFC), shall be
subject to change after the Closing Date, to the extent and in the manner
provided in Sections 6.9.1, 6.9.3 and 6.9.4 of the Employment Agreement, with
any additional payments or refunds to be paid at the time provided in such
Section 6.9.4 or in Section 6. 10 of the Employment Agreement, as applicable.
3. Other Matters.
This letter agreement, when signed by me and countersigned by
AFC and AFSL below, will constitute the entire agreement between the parties
with regard to the subject matter hereof and will supersede, to the extent
payments and benefits are paid or provided hereunder, in their entirety any and
all prior agreements, understandings and undertakings, whether or not in
writing, with regard to the subject matter hereof. This letter agreement will be
construed and enforced in accordance with the laws of the State of New York
applicable to contracts between parties all of whom are citizens and residents
of New York and which are to be performed wholly within the boundaries of the
State of New York. This letter agreement may be executed to two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument.
Very truly yours,
/S/ John J. Conefry, Jr.
John J. Conefry, Jr.
ACCEPTED AND AGREED TO:
ASTORIA FINANCIAL CORPORATION
By /S/ George L. Engelke, Jr. Dated: July 8. 1998
----------------------------------------------- ------------
Name: George L. Engelke, Jr.
Title: Chairman, President and
Chief Executive Officer
ACCEPTED AND AGREED TO:
ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION
By /S/ George L. Engelke, Jr. Dated: July 8. 1998
------------------------------------------------ ------------
Name: George L. Engelke, Jr.
Title: Chairman, President and
Chief Executive Officer
Page 2 of 2
<PAGE> 3
Exhibit A
FORM OF RELEASE
1. In consideration of the payment by Astoria Financial Corporation ("AFC")
of $ ______________ the receipt of which is hereby acknowledged, I,
______________ for myself and my heirs, executors, administrators, successors
and assigns, hereby irrevocably and unconditionally release and forever
discharge AFC, Astoria Federal Savings and Loan Association ("Association"),
Long Island Bancorp, Inc. ("LISB") and The Long Island Savings Bank, FSB ("LISB
Bank"), the stockholders, subsidiaries, affiliates, officers, directors,
employees and agents of either of them, and their respective heirs, executors,
administrators, successors and assigns (collectively, the "Releasee") of and
from all actions, causes of action, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments, extents,
executions, claims, and demands whatsoever, in law, admiralty or equity, which
against the Releasee, I or my heirs, executors, administrators, successors or
assigns ever had, now have or hereafter can, shall or may, have by reason of any
matter, cause or thing whatsoever for payment of any amount owed pursuant to the
Specified Compensation and Benefit Programs (as defined in the Agreement and
Plan of Merger, dated April 2, 1998, by and between AFC and LISB), except for
any continuing obligations of AFC or the Association under (i) the Employment
Agreement dated ____________, 199__ among LISB and me, (ii) the Employment
Agreement dated ________________, 199__ among LISB Bank and me (collectively the
"Employment Agreements") the obligations of which have been assumed by AFC and
the Association (as more particularly described in paragraph 2 below), (iii) any
Employment Agreement and/or Consulting Agreement among AFC, the Association and
me, and (iv) any additional benefits set forth on Schedule A to the letter
agreement among AFC and me, dated April 2, 1998, pursuant to section 4.16(b) of
the Agreement and Plan of Merger (the "Letter Agreement").
2. 1 acknowledge that such payment will constitute, and agree to accept it
as, full settlement of any and all rights which I may have pursuant to the
Specified Compensation and Benefits Programs, except for any continuing
obligations of AFC or the Association under the Employment Agreements dated
__________ , 199__ among LISB, LISB Bank and me, the obligations of which have
been assumed by AFC and the Association, which shall be: (a) continued welfare
benefits in accordance with section 6.4(e) of the Employment Agreements, as
amended, between LISB, LISB Bank and me; (b) a tax reimbursement payment
(including without limitation any subsequent adjustments) in accordance with
section 6.9 of the Employment Agreements; (c) indemnification for legal fees,
expenses, liabilities and losses relating to or in connection with my employment
with LISB and LISB Bank in accordance with section 11 of the Employment
Agreements; (d) reimbursement for all reasonable fees and expenses in accordance
with Section 8 of the Employment Agreements; (e) any rights under Section 6.7 of
the Employment Agreements; (f) quarterly payments of Vested Deferred Income
pursuant to The Long Island Savings Bank, FSB Deferred Pension Plan; (g) welfare
benefits under any "Rule of 75" retiree provisions; and (h) any additional
benefits set forth on Schedule A to the Letter Agreement.
3. This instrument may not be changed orally.
IN WITNESS WHEREOF, I have executed this Instrument
this_________ day of 1998.
_______________________________________________
[Settling Party]
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On _______________, 1998, before me personally came_______________ to me
known, and known to me to be the person named in the above instrument, who did
depose and say that he is the person referred to as the undersigned in the above
instrument and that he signed his name thereto as his free act and deed.
____________________________
Notary Public
<PAGE> 4
Conefry
- - ------------------------------------------------------------------
SCHEDULE A
------------------
Contract Pay-out
3 times highest Salary $2,100,000
3 times highest Bonus $1,200,000
3 years of Welfare Benefits $37,480
28OG Gross-Up $2,082,343
Prior Year Bonus $400,000
Severance $350,000
Vacation (# of Weeks X Salary) $80,769
Split Dollar $345,000
Deferred Pension Payout --
Computer $7,000
Car (estimate) $40,000
Outplacement Services $50,000
Waiver of Non-Compete --
Maintain Life Insurance --
Maintain Health for Spouse --
Retire Under Rule of 75 --
(open window)
*** Schedule A does not include ( i ) stock options and/or shares received
under the LISB Stock Option Plan or the LISB Management Retention and
Recognition Plan for Executive Officers and ( ii ) benefits under the
other LISB plans that are specifically excluded from the definition of
" Specified Compensation and Benefits Programs" contained in Section
2.03 ( o ) of the Agreement and the Plan of Merger.
<PAGE> 5
Schedule B
CONEFRY
Co. Cost Participates Paid By
Medical $8,388 Yes Shared
Dental $565 Yes Shared
Long Term Disability $540 Yes LISB
Life Insurance $2,640 Yes LISB
Accidental Death & $360 Yes LISB
Dismemberment
_________
$12,493.3
Agreement Coverage 3
__________
$37,479.96
__________
The company costs set forth above reflect LISB's out of pocket premium, not
including employee contributions, for welfare benefits, and does not reflect the
full costs for benefits coverage.
6/12/98
<PAGE> 1
Lawrence W. Peters
143 Cabot Road
Massapequa, New York 11758
April 2, 1998
Astoria Financial Corporation
One Astoria Federal Plaza
Lake Success, New York
Gentlemen:
The purpose of this letter is to set forth the agreement that we have
reached concerning the settlement of certain obligations of Long Island Bancorp,
Inc. ("LISB") and The Long Island Savings Bank FSB ("LISB Bank") to me in
connection with the merger of LISB with and into Astoria Financial Corporation
("AFC") and LISB Bank with and into Astoria Federal Savings and Loan Association
("AFSL") pursuant to the Agreement and Plan of Merger dated as of April 2, 1998
by and between AFC and LISB (the "Merger Agreement").
1. My Agreement.
Section 2.03(o) of the Merger Agreement provides for a schedule showing a
good faith estimate of the present value as of September 30, 1998 of the
monetary amounts (including tax indemnification payments in respect of income
and/or excise taxes) and identifying the in-kind benefits due to me under, and
in accordance with the terms and provisions of, all employment agreements,
change in control agreements, severance agreements, termination agreements,
severance plans, pension, retirement or deferred compensation plans for
non-employee directors, supplemental executive retirement programs, tax
indemnification agreements, outplacement programs, cash bonus programs, stock
appreciation rights, phantom stock or stock unit plans, and health, life,
disability and other insurance or welfare plans or other arrangements, but
excluding any tax-qualified pension, profit-sharing or employee stock ownership
plans and any stock option or restricted stock plan (the "Specified Compensation
and Benefit Programs"), in the event of my discharge other than for cause or in
the event of my resignation for good reason at or following the date of the
closing of the transactions contemplated by the Merger Agreement (the "Closing
Date"). The Specified Compensation and Benefit Programs shall include but not be
limited to the employment agreement between LISB and myself and the employment
agreement between LISB Bank and myself (collectively the "Employment
Agreement"), the LISB Bank Severance Benefits Plan ("Severance Benefits Plan"),
the LISB Bank Deferred Income Plan ("Deferred Pension Plan") and the LISB
Non-Employee Directors Retirement Benefit Plan ("Retirement Plan for
Non-Employee Directors"). I hereby acknowledge and agree (A) that the Specified
Compensation and Benefit Programs listed on Schedules A and B attached are the
only Specified Compensation and Benefit Programs under which I am entitled in
connection with the transactions contemplated by the Merger Agreement to receive
any compensation payments or benefits and that the amounts actually paid to or
in respect of me, in the aggregate, shall not exceed 111 % of the aggregate
amount shown on such Schedule A and (B) to deliver in exchange for such
compensation and benefits a written release, in the form attached hereto as
Exhibit A (the "Release"), of any further claim in respect of compensatory
monetary amounts and in-kind benefits under the Specified Compensation and
Benefit Programs. These good faith estimates are based upon the provisions of
the Specified Compensation and Benefits Programs as of April 2, 1998 and my
compensation as of April 2, 1998, adjusted for anticipated increases in base
salary.
2. AFC's Agreement.
AFC acknowledges that the consummation of the transactions contemplated by
the Merger Agreement shall, upon consummation, constitute a "change of control"
and "good reason" event under the existing terms of the Specified Compensation
and Benefit Programs and that, if I am an employee of LISB and/or LISB Bank as
of the Closing Date, AFC will, subject to the aggregate limitations imposed
under
Page 1 of 2
<PAGE> 2
paragraph 1 hereof, provide to me all of the payments and benefits for which
estimates and/or descriptions are provided under paragraph 1 hereof as if I
resigned for good reason on the Closing Date, whether or not I continue to
provide services to AFC or AFSL after the Closing Date. All cash payments shall
be made to me (or, if payable in installments, shall begin) within 5 days after
the Closing Date and all in-kind or other benefits shall be provided to me in
accordance with the terms and provisions of the Specified Compensation and
Benefits Programs. It is understood and agreed that whether a Section 28OG
Gross-up payment will be paid by AFC will be determined by KPMG Peat Marwick LLP
or by legal counsel reasonably acceptable to me (which determination, if I so
request, shall be in the form of a written opinion reasonably satisfactory to my
legal counsel), and that the calculation of the amount of any such Section 28OG
Gross-up payment will be made as of the Closing Date by KPMG Peat Marwick LLP,
subject to review by the parties hereto. All other estimates provided under
paragraph I hereof shall be adjusted only to the extent necessary to correct any
manifest error(s).
Notwithstanding anything in this letter agreement to the contrary, the
determination of whether a Section 28OG Gross up Payment is payable to me, and
the amount of any such payment (including, but not limited to, additional
payments by AFC or refunds of overpayments to AFC), shall be subject to change
after the Closing Date, to the extent and in the manner provided in Sections
6.8.1, 6.8.3 and 6.8.4 of the Employment Agreement, with any additional payments
or refunds to be paid at the time provided in such Section 6.8.4 or in Section
6.9 of the Employment Agreement, as applicable.
3. Other Matters.
This letter agreement, when signed by me and countersigned by AFC and AFSL
below, will constitute the entire agreement between the parties with regard to
the subject matter hereof and will supersede, to the extent payments and
benefits are paid or provided hereunder, in their entirety any and all prior
agreements, understandings and undertakings, whether or not in writing, with
regard to the subject matter hereof. This letter agreement will be construed and
enforced in accordance with the laws of the State of New York applicable to
contracts between parties all of whom are citizens and residents of New York and
which are to be performed wholly within the boundaries of the State of New York.
This letter agreement may be executed to two or more counterparts, each of which
shall be deemed an original and all of which shall constitute one and the same
instrument.
Very truly yours,
/S/ Lawrence W. Peters
Lawrence W. Peters
ACCEPTED AND AGREED TO:
ASTORIA FINANCIAL CORPORATION
By /S/ George L. Engelke, Jr. Dated: July 8. 1998
--------------------------------------------------- ------------
Name: George L. Engelke, Jr.
Title: Chairman, President and
Chief Executive Officer
ACCEPTED AND AGREED TO:
ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION
By /S/ George L. Engelke, Jr. Dated: July 8. 1998
--------------------------------------------------- ------------
Name: George L. Engelke, Jr.
Title: Chairman, President and
Chief Executive Officer
Page 2 of 2
<PAGE> 3
Exhibit A
FORM OF RELEASE
1. In consideration of the payment by Astoria Financial Corporation ("AFC")
of $ ______________ the receipt of which is hereby acknowledged, I,
_________________ for myself and my heirs, executors, administrators, successors
and assigns, hereby irrevocably and unconditionally release and forever
discharge AFC, Astoria Federal Savings and Loan Association ("Association"),
Long Island Bancorp, Inc. ("LISB") and The Long Island Savings Bank, FSB ("LISB
Bank"), the stockholders, subsidiaries, affiliates, officers, directors,
employees and agents of either of them, and their respective heirs, executors,
administrators, successors and assigns (collectively, the "Releasee") of and
from all actions, causes of action, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments, extents,
executions, claims, and demands whatsoever, in law, admiralty or equity, which
against the Releasee, I or my heirs, executors, administrators, successors or
assigns ever had, now have or hereafter can, shall or may, have by reason of any
matter, cause or thing whatsoever for payment of any amount owed pursuant to the
Specified Compensation and Benefit Programs (as defined in the Agreement and
Plan of Merger, dated April 2, 1998, by and between AFC and LISB), except for
any continuing obligations of AFC or the Association under (i) the Employment
Agreement dated ________, 199__ among LISB and me, (ii) the Employment Agreement
dated _________, 199__ among LISB Bank and me (collectively the "Employment
Agreements") the obligations of which have been assumed by AFC and the
Association (as more particularly described in paragraph 2 below), (iii) any
Employment Agreement and/or Consulting Agreement among AFC, the Association and
me, and (iv) any additional benefits set forth on Schedule A to the letter
agreement among AFC and me, dated April 2, 1998, pursuant to section 4.16(b) of
the Agreement and Plan of Merger (the "Letter Agreement").
2. 1 acknowledge that such payment will constitute, and agree to accept it
as, full settlement of any and all rights which I may have pursuant to the
Specified Compensation and Benefits Programs, except for any continuing
obligations of AFC or the Association under the Employment Agreements dated
________, 199__ among LISB, LISB Bank and me, the obligations of which have been
assumed by AFC and the Association, which shall be: (a) continued welfare
benefits in accordance with section 6.4(e) of the Employment Agreements, as
amended, between LISB, LISB Bank and me; (b) a tax reimbursement payment
(including without limitation any subsequent adjustments) in accordance with
section 6.9 of the Employment Agreements; (c) indemnification for legal fees,
expenses, liabilities and losses relating to or in connection with my employment
with LISB and LISB Bank in accordance with section 11 of the Employment
Agreements; (d) reimbursement for all reasonable fees and expenses in accordance
with Section 8 of the Employment Agreements; (e) any rights under Section 6.7 of
the Employment Agreements; (f) quarterly payments of Vested Deferred Income
pursuant to The Long Island Savings Bank, FSB Deferred Pension Plan; (g) welfare
benefits under any "Rule of 75" retiree provisions; and (h) any additional
benefits set forth on Schedule A to the Letter Agreement.
3. This instrument may not be changed orally.
IN WITNESS WHEREOF, I have executed this Instrument this day of 1998.
_________________________________________
[Settling Party]
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On ____________ , 1998, before me personally came _______________ to me
known, and known to me to be the person named in the above instrument, who did
depose and say that he is the person referred to as the undersigned in the above
instrument and that he signed his name thereto as his free act and deed.
______________________________________
Notary Public
<PAGE> 4
Peters
- - ------------------------------------------------------------------
SCHEDULE A
------------------
Contract Pay-out
3 times highest Salary $750,000
3 times highest Bonus $400,000
3 years of Welfare Benefits $13,343
28OG Gross-Up $1,213,130
Prior Year Bonus $200,000
Severance $250,000
Vacation (# of Weeks X Salary) $36,060
Split Dollar --
Deferred Pension Payout $525,000
Computer $7,000
Car (estimate) $40,000
Outplacement Services --
Waiver of Non-Compete YES**
Maintain Life Insurance $33,000 per year - Board approved
Maintain Health for Spouse Included above until age 65 - currently 62
Retirement plan for non employee (PV) $264,963
Deferred Stock Unit Plan $55,110
** A waiver by AFC, LIB, The Long Island Savings Bank, FSB and Astoria
Federal Savings and Loan Association of the "non-compete" provision
contained in Section 4.03(b) of The Long Island Savings Bank, FSB
Deferred Pension Plan.
*** Schedule A does not include ( i ) stock options and/or shares received
under the LISB Stock Option Plan or the LISB Management Retention and
Recognition Plan for Executive Officers and ( ii ) benefits under the
other LISB plans that are specifically excluded from the definition of
" Specified Compensation and Benefits Programs" contained in Section
2.03 ( o ) of the Agreement and the Plan of Merger.
<PAGE> 5
Schedule B
LARRY PETERS Co. Cost Participates Paid By
Medical $0 No
Dental $0 No
Long Term Disability $375 Yes LISB
Life Insurance $858 Yes LISB
Accidental Death & $117 Yes LISB
Dismemberment
SELMA PETERS
Medical $2,533 Yes Shared
Dental $565 Yes Shared
Long Term Disability $0 No
Life Insurance $0 No
Accidental Death & $0 No
Dismemberment
__________
$8,447.8
Agreement Coverage __________3
$13,343.40
__________
The company costs set forth above reflect LISB's out of pocket premium, not
including employee contributions, for welfare benefits, and does not reflect the
full costs for benefits coverage.
6/12/98
<PAGE> 1
STATEMENT REGARDING
COMPUTATION OF EARNINGS PER SHARE
FOR THE YEAR ENDED DECEMBER 31, 1998
BASIC Diluted
EPS EPS
------- ---------
Weighted average shares of Common
Stock outstanding 54,177,609 54,177,609
ESOP:
- - -----------
Total ESOP shares available 5,022,854
Shares committed to be released 1,655,268
-----------
(3,367,586) (3,367,586)
RRPs
- - -----------
Shares purchased, but not yet allocated .......... (8,425) (8,425)
------------ -----------
Total weighted average shares outstanding ........ 50,801,598 50,801,598
Dilutive effect of Stock Options:
Incremental shares under treasury stock method: .. -- 2,084,593
----------- -----------
Total average common and common stock equivalents 50,801,598 52,886,191
Net Income ....................................... 45,047,610 45,047,610
Less: Preferred Stock dividends declared ......... (6,000,000) (6,000,000)
----------- -----------
39,047,610 39,047,610
----------- -----------
EARNINGS PER SHARE ............................... $ 0.77 $ 0.74
----------- -----------
<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
Name: Starline Development Corp.
Jurisdiction of incorporation: New York
Names under which it does business:
(a) Starline Development Corp.
Name: 201 Old Country Road Inc.
Jurisdiction of incorporation: New York
Names under which it does business:
(a) 201 Old Country Road Inc.
Name: Astoria Federal Mortgage Corp.
Jurisdiction of incorporation: New York
Names under which it does business:
(a) Astoria Federal Mortgage Corp.
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 (w) Rule 1- 02(w) of Regulation S-X as of December
31, 1998. 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, 1998.
<PAGE> 1
KPMG 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, 33-98500, 333-36807 and 333-64895) on Form S-8 and
(No. 33-98532) on Form S-3 of Astoria Financial Corporation of our report
dated January 21, 1999, relating to the consolidated statements of financial
condition of Astoria Financial Corporation and subsidiary as of December 31,
1998 and 1997, 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, 1998, which report appears in the December
31, 1998 Annual Report on Form 10-K of Astoria Financial Corporation.
/s/ KPMG LLP
New York, New York
March 24, 1999
<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, 1998
AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 126,945
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 266,437
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,196,444
<INVESTMENTS-CARRYING> 2,108,811
<INVESTMENTS-MARKET> 2,123,440
<LOANS> 9,026,631
<ALLOWANCE> 74,403
<TOTAL-ASSETS> 20,587,741
<DEPOSITS> 9,668,286
<SHORT-TERM> 65,000
<LIABILITIES-OTHER> 434,274
<LONG-TERM> 8,957,797
0
2,000
<COMMON> 547
<OTHER-SE> 1,459,837
<TOTAL-LIABILITIES-AND-EQUITY> 20,587,741
<INTEREST-LOAN> 637,028
<INTEREST-INVEST> 587,420
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,224,448
<INTEREST-DEPOSIT> 399,602
<INTEREST-EXPENSE> 775,465
<INTEREST-INCOME-NET> 448,983
<LOAN-LOSSES> 15,380
<SECURITIES-GAINS> 10,976
<EXPENSE-OTHER> 46,912
<INCOME-PRETAX> 117,510
<INCOME-PRE-EXTRAORDINARY> 55,685
<EXTRAORDINARY> (10,637)
<CHANGES> 0
<NET-INCOME> 45,048
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.74
<YIELD-ACTUAL> 2.58
<LOANS-NON> 106,297
<LOANS-PAST> 4,776
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,904
<ALLOWANCE-OPEN> 73,920
<CHARGE-OFFS> 19,160
<RECOVERIES> 4,409
<ALLOWANCE-CLOSE> 74,403
<ALLOWANCE-DOMESTIC> 74,403
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AS OF SEPTEMBER 30, 1998
AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 110,122
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 339,956
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,994,102
<INVESTMENTS-CARRYING> 2,280,464
<INVESTMENTS-MARKET> 2,300,838
<LOANS> 8,783,840
<ALLOWANCE> 76,421
<TOTAL-ASSETS> 19,321,130
<DEPOSITS> 9,676,488
<SHORT-TERM> 628,000
<LIABILITIES-OTHER> 222,019
<LONG-TERM> 7,118,839
0
2,000
<COMMON> 534
<OTHER-SE> 1,539,431
<TOTAL-LIABILITIES-AND-EQUITY> 19,321,130
<INTEREST-LOAN> 476,555
<INTEREST-INVEST> 425,455
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 902,010
<INTEREST-DEPOSIT> 306,134
<INTEREST-EXPENSE> 568,851
<INTEREST-INCOME-NET> 333,159
<LOAN-LOSSES> 8,780
<SECURITIES-GAINS> 15,253
<EXPENSE-OTHER> 39,767
<INCOME-PRETAX> 173,518
<INCOME-PRE-EXTRAORDINARY> 100,589
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100,589
<EPS-PRIMARY> 1.90
<EPS-DILUTED> 1.82
<YIELD-ACTUAL> 2.62
<LOANS-NON> 83,426
<LOANS-PAST> 2,637
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,280
<ALLOWANCE-OPEN> 73,920
<CHARGE-OFFS> 7,782
<RECOVERIES> 1,649
<ALLOWANCE-CLOSE> 76,421
<ALLOWANCE-DOMESTIC> 76,421
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AS OF JUNE 30, 1998
AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 111,399
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 275,529
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,724,728
<INVESTMENTS-CARRYING> 2,500,941
<INVESTMENTS-MARKET> 2,517,646
<LOANS> 8,660,977
<ALLOWANCE> 72,138
<TOTAL-ASSETS> 18,094,136
<DEPOSITS> 9,770,908
<SHORT-TERM> 271,000
<LIABILITIES-OTHER> 370,608
<LONG-TERM> 6,161,648
0
2,000
<COMMON> 533
<OTHER-SE> 1,517,439
<TOTAL-LIABILITIES-AND-EQUITY> 18,094,136
<INTEREST-LOAN> 314,539
<INTEREST-INVEST> 274,428
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 588,968
<INTEREST-DEPOSIT> 205,604
<INTEREST-EXPENSE> 368,079
<INTEREST-INCOME-NET> 220,889
<LOAN-LOSSES> 3,614
<SECURITIES-GAINS> 11,789
<EXPENSE-OTHER> 20,227
<INCOME-PRETAX> 129,839
<INCOME-PRE-EXTRAORDINARY> 75,725
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,725
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.38
<YIELD-ACTUAL> 2.67
<LOANS-NON> 82,502
<LOANS-PAST> 8,856
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,512
<ALLOWANCE-OPEN> 73,920
<CHARGE-OFFS> 6,123
<RECOVERIES> 701
<ALLOWANCE-CLOSE> 72,138
<ALLOWANCE-DOMESTIC> 72,138
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AS OF MARCH 31, 1998
AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 102,781
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 191,703
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,099,583
<INVESTMENTS-CARRYING> 2,610,526
<INVESTMENTS-MARKET> 2,618,754
<LOANS> 8,401,774
<ALLOWANCE> 73,749
<TOTAL-ASSETS> 17,221,576
<DEPOSITS> 9,967,758
<SHORT-TERM> 554,318
<LIABILITIES-OTHER> 342,192
<LONG-TERM> 4,876,715
0
2,000
<COMMON> 533
<OTHER-SE> 1,478,060
<TOTAL-LIABILITIES-AND-EQUITY> 17,221,576
<INTEREST-LOAN> 154,531
<INTEREST-INVEST> 135,316
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 289,847
<INTEREST-DEPOSIT> 103,482
<INTEREST-EXPENSE> 179,622
<INTEREST-INCOME-NET> 110,225
<LOAN-LOSSES> 1,800
<SECURITIES-GAINS> 5,176
<EXPENSE-OTHER> 9,861
<INCOME-PRETAX> 61,545
<INCOME-PRE-EXTRAORDINARY> 36,206
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,206
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.66
<YIELD-ACTUAL> 2.73
<LOANS-NON> 83,493
<LOANS-PAST> 6,019
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,345
<ALLOWANCE-OPEN> 73,920
<CHARGE-OFFS> 2,279
<RECOVERIES> 454
<ALLOWANCE-CLOSE> 73,749
<ALLOWANCE-DOMESTIC> 73,749
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<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 YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 48,645
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 110,550
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,807,305
<INVESTMENTS-CARRYING> 2,632,672
<INVESTMENTS-MARKET> 2,645,023
<LOANS> 8,020,598
<ALLOWANCE> 73,920
<TOTAL-ASSETS> 16,432,337
<DEPOSITS> 9,951,421
<SHORT-TERM> 1,120,821
<LIABILITIES-OTHER> 260,880
<LONG-TERM> 3,653,416
0
2,000
<COMMON> 533
<OTHER-SE> 1,443,266
<TOTAL-LIABILITIES-AND-EQUITY> 16,432,337
<INTEREST-LOAN> 527,485
<INTEREST-INVEST> 450,670
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 978,155
<INTEREST-DEPOSIT> 371,543
<INTEREST-EXPENSE> 603,591
<INTEREST-INCOME-NET> 374,564
<LOAN-LOSSES> 9,061
<SECURITIES-GAINS> 14,400
<EXPENSE-OTHER> 33,968
<INCOME-PRETAX> 199,724
<INCOME-PRE-EXTRAORDINARY> 117,884
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117,884
<EPS-PRIMARY> 2.51
<EPS-DILUTED> 2.39
<YIELD-ACTUAL> 2.78
<LOANS-NON> 85,167
<LOANS-PAST> 4,728
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 19,362
<ALLOWANCE-OPEN> 48,001
<CHARGE-OFFS> 10,828
<RECOVERIES> 2,253
<ALLOWANCE-CLOSE> 73,920
<ALLOWANCE-DOMESTIC> 73,920
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AS OF SEPTEMBER 30, 1997
AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 130,494
<INT-BEARING-DEPOSITS> 129,513
<FED-FUNDS-SOLD> 67,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,702,982
<INVESTMENTS-CARRYING> 2,280,497
<INVESTMENTS-MARKET> 2,286,212
<LOANS> 7,009,900
<ALLOWANCE> 48,087
<TOTAL-ASSETS> 13,813,100
<DEPOSITS> 8,265,952
<SHORT-TERM> 577,731
<LIABILITIES-OTHER> 254,712
<LONG-TERM> 3,573,540
0
0
<COMMON> 532
<OTHER-SE> 1,140,633
<TOTAL-LIABILITIES-AND-EQUITY> 13,813,100
<INTEREST-LOAN> 372,845
<INTEREST-INVEST> 324,065
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 696,910
<INTEREST-DEPOSIT> 264,302
<INTEREST-EXPENSE> 427,493
<INTEREST-INCOME-NET> 269,417
<LOAN-LOSSES> 7,309
<SECURITIES-GAINS> 12,354
<EXPENSE-OTHER> 161,264
<INCOME-PRETAX> 142,824
<INCOME-PRE-EXTRAORDINARY> 84,010
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,010
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.77
<YIELD-ACTUAL> 2.81
<LOANS-NON> 74,738
<LOANS-PAST> 5,159
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,894
<ALLOWANCE-OPEN> 48,001
<CHARGE-OFFS> 9,023
<RECOVERIES> 1,800
<ALLOWANCE-CLOSE> 48,087
<ALLOWANCE-DOMESTIC> 48,087
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AS OF JUNE 30, 1997
AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 52,885
<INT-BEARING-DEPOSITS> 93,841
<FED-FUNDS-SOLD> 162,586
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,787,968
<INVESTMENTS-CARRYING> 2,190,127
<INVESTMENTS-MARKET> 2,178,742
<LOANS> 6,674,059
<ALLOWANCE> 48,881
<TOTAL-ASSETS> 13,478,791
<DEPOSITS> 8,212,425
<SHORT-TERM> 750,577
<LIABILITIES-OTHER> 251,496
<LONG-TERM> 3,140,673
0
0
<COMMON> 532
<OTHER-SE> 1,123,088
<TOTAL-LIABILITIES-AND-EQUITY> 13,478,791
<INTEREST-LOAN> 241,292
<INTEREST-INVEST> 218,324
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 459,616
<INTEREST-DEPOSIT> 174,634
<INTEREST-EXPENSE> 280,299
<INTEREST-INCOME-NET> 179,317
<LOAN-LOSSES> 4,914
<SECURITIES-GAINS> 5,852
<EXPENSE-OTHER> 106,807
<INCOME-PRETAX> 92,990
<INCOME-PRE-EXTRAORDINARY> 54,692
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,692
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.15
<YIELD-ACTUAL> 2.83
<LOANS-NON> 75,259
<LOANS-PAST> 4,980
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,683
<ALLOWANCE-OPEN> 48,001
<CHARGE-OFFS> 5,390
<RECOVERIES> 1,356
<ALLOWANCE-CLOSE> 48,881
<ALLOWANCE-DOMESTIC> 48,881
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AS OF MARCH 31, 1997
AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 79,067
<INT-BEARING-DEPOSITS> 110,429
<FED-FUNDS-SOLD> 81,518
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,313,884
<INVESTMENTS-CARRYING> 2,103,673
<INVESTMENTS-MARKET> 2,061,279
<LOANS> 6,233,819
<ALLOWANCE> 47,512
<TOTAL-ASSETS> 13,448,749
<DEPOSITS> 8,155,355
<SHORT-TERM> 630,006
<LIABILITIES-OTHER> 241,888
<LONG-TERM> 3,311,421
0
0
<COMMON> 532
<OTHER-SE> 1,109,547
<TOTAL-LIABILITIES-AND-EQUITY> 13,448,749
<INTEREST-LOAN> 117,241
<INTEREST-INVEST> 107,754
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 224,995
<INTEREST-DEPOSIT> 86,915
<INTEREST-EXPENSE> 135,249
<INTEREST-INCOME-NET> 89,746
<LOAN-LOSSES> 2,000
<SECURITIES-GAINS> 2,541
<EXPENSE-OTHER> 53,408
<INCOME-PRETAX> 46,564
<INCOME-PRE-EXTRAORDINARY> 27,368
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,368
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.57
<YIELD-ACTUAL> 2.91
<LOANS-NON> 75,714
<LOANS-PAST> 5,208
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,115
<ALLOWANCE-OPEN> 48,001
<CHARGE-OFFS> 3,228
<RECOVERIES> 739
<ALLOWANCE-CLOSE> 47,512
<ALLOWANCE-DOMESTIC> 47,512
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31, 1996
AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,931
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 89,480
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,194,418
<INVESTMENTS-CARRYING> 1,984,111
<INVESTMENTS-MARKET> 1,967,465
<LOANS> 5,784,134
<ALLOWANCE> 48,001
<TOTAL-ASSETS> 12,586,694
<DEPOSITS> 8,146,103
<SHORT-TERM> 562,000
<LIABILITIES-OTHER> 243,131
<LONG-TERM> 2,527,537
0
0
<COMMON> 532
<OTHER-SE> 1,107,391
<TOTAL-LIABILITIES-AND-EQUITY> 12,586,694
<INTEREST-LOAN> 394,031
<INTEREST-INVEST> 448,438
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 842,469
<INTEREST-DEPOSIT> 347,262
<INTEREST-EXPENSE> 501,343
<INTEREST-INCOME-NET> 341,126
<LOAN-LOSSES> 10,163
<SECURITIES-GAINS> 7,605
<EXPENSE-OTHER> 29,195
<INCOME-PRETAX> 123,563
<INCOME-PRE-EXTRAORDINARY> 69,128
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,128
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.44
<YIELD-ACTUAL> 2.96
<LOANS-NON> 79,230
<LOANS-PAST> 7,396
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 17,225
<ALLOWANCE-OPEN> 47,853
<CHARGE-OFFS> 12,692
<RECOVERIES> 2,677
<ALLOWANCE-CLOSE> 48,001
<ALLOWANCE-DOMESTIC> 48,001
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AS OF SEPTEMBER 30, 1996
AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 102,459
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 44,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,339,624
<INVESTMENTS-CARRYING> 2,001,701
<INVESTMENTS-MARKET> 1,970,132
<LOANS> 5,481,510
<ALLOWANCE> 48,129
<TOTAL-ASSETS> 12,487,204
<DEPOSITS> 8,152,305
<SHORT-TERM> 687,847
<LIABILITIES-OTHER> 242,716
<LONG-TERM> 2,316,381
0
0
<COMMON> 532
<OTHER-SE> 1,087,423
<TOTAL-LIABILITIES-AND-EQUITY> 12,487,204
<INTEREST-LOAN> 283,325
<INTEREST-INVEST> 340,618
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 623,943
<INTEREST-DEPOSIT> 259,244
<INTEREST-EXPENSE> 369,112
<INTEREST-INCOME-NET> 254,831
<LOAN-LOSSES> 8,222
<SECURITIES-GAINS> 7,076
<EXPENSE-OTHER> 187,959
<INCOME-PRETAX> 101,717
<INCOME-PRE-EXTRAORDINARY> 57,383
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,383
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.20
<YIELD-ACTUAL> 3.00
<LOANS-NON> 79,128
<LOANS-PAST> 5,874
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,854
<ALLOWANCE-OPEN> 47,853
<CHARGE-OFFS> 9,698
<RECOVERIES> 1,752
<ALLOWANCE-CLOSE> 48,129
<ALLOWANCE-DOMESTIC> 48,129
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AS OF JUNE 30, 1996
AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 169,446
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 22,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,548,584
<INVESTMENTS-CARRYING> 1,872,153
<INVESTMENTS-MARKET> 1,833,695
<LOANS> 4,776,307
<ALLOWANCE> 47,684
<TOTAL-ASSETS> 11,912,788
<DEPOSITS> 8,098,109
<SHORT-TERM> 781,349
<LIABILITIES-OTHER> 108,089
<LONG-TERM> 1,215,541
0
0
<COMMON> 532
<OTHER-SE> 1,078,005
<TOTAL-LIABILITIES-AND-EQUITY> 11,912,788
<INTEREST-LOAN> 179,218
<INTEREST-INVEST> 230,147
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 409,365
<INTEREST-DEPOSIT> 171,487
<INTEREST-EXPENSE> 241,277
<INTEREST-INCOME-NET> 168,088
<LOAN-LOSSES> 5,664
<SECURITIES-GAINS> 4,661
<EXPENSE-OTHER> 105,815
<INCOME-PRETAX> 87,047
<INCOME-PRE-EXTRAORDINARY> 49,311
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,311
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.03
<YIELD-ACTUAL> 3.01
<LOANS-NON> 86,903
<LOANS-PAST> 6,619
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 8,095
<ALLOWANCE-OPEN> 47,853
<CHARGE-OFFS> 5,901
<RECOVERIES> 68
<ALLOWANCE-CLOSE> 47,684
<ALLOWANCE-DOMESTIC> 47,684
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AS OF MARCH 31, 1996
AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
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0
0
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