<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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 Identification
incorporation or organization) Number)
One Astoria Federal Plaza, Lake Success, New York 11042-1085
- ------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(516) 327-3000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Classes of Common Stock Number of Shares Outstanding, April 28, 2000
----------------------- --------------------------------------------
.01 Par Value 51,373,373
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<PAGE> 2
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition at March 31, 2000
and December 31, 1999. 2
Consolidated Statements of Income for the Three Months
Ended March 31, 2000 and March 31, 1999. 3
Consolidated Statement of Changes in Stockholders' Equity for the 4
Three Months Ended March 31, 2000.
Consolidated Statements of Cash Flows for the Three Months Ended 5
March 31, 2000 and March 31, 1999.
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial Condition and 7
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk. 24
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 26
(a) Exhibits
(11) Statement Regarding Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K
Signatures 27
</TABLE>
1
<PAGE> 3
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AT AT
MARCH 31, DECEMBER 31,
(In Thousands, Except Share Data) 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Assets
- ------
<S> <C> <C>
Cash and due from banks $ 117,972 $ 154,918
Federal funds sold and repurchase agreements 405,176 335,653
Mortgage-backed securities available-for-sale 7,851,452 8,204,977
Other securities available-for-sale 673,167 657,772
Mortgage-backed securities held-to-maturity (fair value of
$1,030,987 and $1,071,251, respectively) 1,044,025 1,082,261
Other securities held-to-maturity (fair value of
$767,398 and $772,356, respectively) 827,116 817,696
Federal Home Loan Bank of New York stock 275,250 265,250
Loans held-for-sale 7,047 11,376
Loans receivable:
Mortgage loans, net 10,372,619 10,113,216
Consumer and other loans, net 172,309 175,858
------------ ------------
10,544,928 10,289,074
Less allowance for loan losses 77,373 76,578
------------ ------------
Total loans receivable, net 10,467,555 10,212,496
Mortgage servicing rights, net 47,018 48,369
Accrued interest receivable 113,414 110,668
Premises and equipment, net 174,399 176,813
Goodwill 219,121 223,945
Other assets 367,057 394,342
------------ ------------
Total assets $ 22,589,769 $ 22,696,536
============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Deposits:
Savings $ 2,576,481 $ 2,581,442
Money market 1,273,041 1,165,734
NOW and money manager 945,212 877,715
Certificates of deposit 4,986,167 4,929,643
------------ ------------
Total deposits 9,780,901 9,554,534
Reverse repurchase agreements 8,786,800 9,276,800
Federal Home Loan Bank of New York advances 1,710,029 1,610,058
Other borrowings 513,019 514,663
Mortgage escrow funds 165,550 120,350
Accrued expenses and other liabilities 254,136 298,219
------------ ------------
Total liabilities 21,210,435 21,374,624
------------ ------------
Guaranteed preferred beneficial interest in junior subordinated debentures 125,000 125,000
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 shares authorized; 55,498,296
shares issued; and 51,332,117 and 51,730,959 shares
outstanding, respectively) 555 555
Additional paid-in capital 801,776 800,414
Retained earnings 948,396 908,236
Treasury stock (4,166,179 and 3,767,337 shares, at cost, respectively) (145,240) (137,071)
Accumulated other comprehensive income:
Net unrealized loss on securities, net of taxes (320,801) (344,198)
Unallocated common stock held by ESOP (32,300) (32,955)
Unearned common stock held by RRP (52) (69)
------------ ------------
Total stockholders' equity 1,254,334 1,196,912
------------ ------------
Total liabilities and stockholders' equity $ 22,589,769 $ 22,696,536
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
(In Thousands, Except Share Data) 2000 1999
- ----------------------------------------------------------------------------------------------------------------
Interest income:
<S> <C> <C>
Mortgage loans $ 183,712 $ 161,887
Consumer and other loans 4,294 5,277
Mortgage-backed securities 154,024 158,877
Other securities 32,390 33,032
Federal funds sold and repurchase agreements 4,099 1,822
------------ ------------
Total interest income 378,519 360,895
------------ ------------
Interest expense:
Deposits 96,098 89,566
Borrowed funds 150,219 135,534
------------ ------------
Total interest expense 246,317 225,100
------------ ------------
Net interest income 132,202 135,795
Provision for loan losses 1,000 1,061
------------ ------------
Net interest income after provision for loan losses 131,202 134,734
------------ ------------
Non-interest income:
Customer service and other loan fees 11,209 9,428
Loan servicing fees 3,116 5,249
Loss on sales of securities - (125)
Net gain on sales of loans 117 2,273
Net gain (loss) on disposition of banking and loan production offices 1,182 (1,241)
Other 1,299 1,131
------------ ------------
Total non-interest income 16,923 16,715
------------ ------------
Non-interest expense:
General and administrative:
Compensation and benefits 20,292 24,692
Employee stock plans amortization 1,887 2,972
Occupancy, equipment and systems 14,231 14,073
Federal deposit insurance premiums 517 1,329
Advertising 2,046 1,230
Other 7,403 7,681
------------ ------------
Total general and administrative 46,376 51,977
Real estate operations and provision for losses, net (95) (1)
Goodwill litigation 2,513 1,149
Capital trust securities 3,112 -
Amortization of goodwill 4,824 4,906
------------ ------------
Total non-interest expense 56,730 58,031
------------ ------------
Income before income tax expense 91,395 93,418
Income tax expense 35,898 39,964
------------ ------------
Net income $ 55,497 $ 53,454
============ ============
Net income available to common shareholders $ 53,997 $ 51,954
============ ============
Basic earnings per common share $ 1.11 $ 1.00
============ ============
Diluted earnings per common share $ 1.09 $ 0.97
============ ============
Dividends per common share $ 0.24 $ 0.24
============ ============
Basic weighted average common shares 48,705,240 51,827,679
Diluted weighted average common and common equivalent shares 49,387,654 53,367,006
</TABLE>
See accompanying notes to consolidated financial statements.
3
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-In Retained
(In Thousands, Except Share Data) Total Stock Stock Capital Earnings
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ 1,196,912 $ 2,000 $ 555 $ 800,414 $ 908,236
Comprehensive income:
Net income 55,497 - - - 55,497
Other comprehensive income, net of tax:
Net unrealized gain on securities,
net of reclassification adjustment 23,397 - - - -
-----------
Total comprehensive income 78,894
Common stock repurchased
(489,500 shares) (11,401) - - - -
Dividends on common and preferred
stock and amortization of purchase
premium (13,511) - - (326) (13,185)
Exercise of stock options and
related tax benefit 1,540 - - 460 (2,152)
Amortization relating to allocation
of ESOP stock and earned portion
of RRP stock and related tax benefit 1,900 - - 1,228 -
----------- ----------- ----------- ----------- -----------
Balance at March 31, 2000 $ 1,254,334 $ 2,000 $ 555 $ 801,776 $ 948,396
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Unallocated Unearned
Accumulated Common Common
Other Stock Stock
Treasury Comprehensive Held Held
(In Thousands, Except Share Data) Stock Income by ESOP by RRP
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 $ (137,071) $ (344,198) $ (32,955) $ (69)
Comprehensive income:
Net income - - - -
Other comprehensive income, net of tax:
Net unrealized gain on securities,
net of reclassification adjustment - 23,397 - -
Total comprehensive income
Common stock repurchased
(489,500 shares) (11,401) - - -
Dividends on common and preferred
stock and amortization of purchase
premium - - - -
Exercise of stock options and
related tax benefit 3,232 - - -
Amortization relating to allocation
of ESOP stock and earned portion
of RRP stock and related tax benefit - - 655 17
----------- ----------- ----------- -----------
Balance at March 31, 2000 $ (145,240) $ (320,801) $ (32,300) $ (52)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
-------------------------------
(IN THOUSANDS) 2000 1999
- ------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 55,497 $ 53,454
----------- -----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Net accretion of discounts, premiums and deferred loan fees (15,246) (13,238)
Provision for loan and real estate losses 930 1,119
Depreciation and amortization 3,239 3,498
Net gain on sales of securities and loans (117) (2,148)
Net gain on sales of premises and equipment - (489)
Net (gain) loss on disposition of banking and loan production offices (1,182) 1,241
Proceeds from sales of loans held-for-sale, net of originations 1,923 63,563
Amortization of goodwill 4,824 4,906
Allocated and earned shares from ESOP and RRP 1,887 2,972
Increase in accrued interest receivable (2,746) (15,767)
Capitalized mortgage servicing rights, net of amortization
and valuation allowance 1,351 (1,188)
Decrease (increase) in other assets 863 (27,550)
Decrease in accrued expenses and other liabilities (43,610) (50,259)
----------- -----------
Net cash provided by operating activities 7,613 20,114
----------- -----------
Cash flows from investing activities:
Origination of loans held-for-investment, net of principal payments (83,789) (371,369)
Loan purchases through third parties (173,764) (123,669)
Principal payments on mortgage-backed securities held-to-maturity 38,469 114,081
Principal payments on mortgage-backed securities available-for-sale 395,014 761,400
Purchases of mortgage-backed securities available-for-sale - (3,103,969)
Purchases of other securities available-for-sale (40) (106,276)
Proceeds from maturities of other securities available-for-sale 131 51,382
Proceeds from maturities of other securities held-to-maturity 270 36,958
Purchases of FHLB stock, net (10,000) (50,000)
Proceeds from sales of securities available-for-sale - 162,378
Proceeds from sales of real estate owned and investments in
real estate, net 2,449 2,593
Proceeds from disposition of banking and loan production offices 1,308 4,208
Purchases of premises and equipment, net of proceeds from sales (951) (20,487)
----------- -----------
Net cash provided by (used in) investing activities 169,097 (2,642,770)
----------- -----------
Cash flows from financing activities:
Net increase in deposits 226,383 1,246
Net (decrease) increase in reverse repurchase agreements (490,000) 2,535,000
Net increase (decrease) in FHLB of New York advances 100,000 (100,000)
Net decrease in other borrowings (1,884) (17,391)
Increase in mortgage escrow funds 45,200 48,004
Costs to repurchase common stock (11,401) -
Cash dividends paid to stockholders (13,511) (14,311)
Cash received for options exercised 1,080 7,956
----------- -----------
Net cash (used in) provided by financing activities (144,133) 2,460,504
----------- -----------
Net increase (decrease) in cash and cash equivalents 32,577 (162,152)
Cash and cash equivalents at beginning of period 490,571 393,382
=========== ===========
Cash and cash equivalents at end of period $ 523,148 $ 231,230
=========== ===========
Supplemental disclosures:
Cash paid during the period:
Interest $ 250,314 $ 225,317
=========== ===========
Income taxes $ 4,034 $ 39,776
=========== ===========
Additions to real estate owned $ 3,328 $ 3,026
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 7
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Astoria Financial Corporation and its wholly-owned subsidiaries, Astoria
Federal Savings and Loan Association, and its subsidiaries, or Astoria Federal,
and Astoria Capital Trust I. As used in this quarterly report, "we," "us" and
"our" refer to Astoria Financial Corporation and its consolidated subsidiaries,
including Astoria Federal and Astoria Capital Trust I, depending on the context.
All significant inter-company accounts and transactions have been eliminated in
consolidation.
In our opinion, the accompanying consolidated financial statements
contain all adjustments necessary for a fair presentation of our financial
condition as of March 31, 2000 and December 31, 1999, and our results of
operations for the three months ended March 31, 2000 and 1999, changes in
stockholders' equity for the three months ended March 31, 2000 and cash flows
for the three months ended March 31, 2000 and 1999. In preparing the financial
statements, we are required to make estimates and assumptions that affect the
reported amounts of assets and liabilities for the consolidated statements of
financial condition as of March 31, 2000 and December 31, 1999, and amounts of
revenues and expenses for the consolidated statements of income for the three
months ended March 31, 2000 and 1999. The results of operations for the three
months ended March 31, 2000 are not necessarily indicative of the results of
operations to be expected for the remainder of the year. Certain information and
note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles, or GAAP, have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain reclassifications have been made to prior year
amounts to conform to the current year presentation.
These consolidated financial statements should be read in conjunction
with our December 31, 1999 audited consolidated financial statements and related
notes, included in our 1999 Annual Report on Form 10-K.
2. EARNINGS PER SHARE, OR EPS
The following table is a reconciliation of basic and diluted EPS:
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
--------------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------------
(In Thousands, Average Per Share Average Per Share
Except Share Data) Income Shares Amount Income Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $55,497 $53,454
Less: preferred stock dividends 1,500 1,500
------ ------
Basic EPS:
Income available to common
stockholders 53,997 48,705,240 $1.11 51,954 51,827,679 $1.00
===== ====
Effect of dilutive unexercised
stock options 682,414 (1) 1,539,327 (2)
---------- ----------
Diluted EPS:
Income available to common
stockholders plus assumed
conversions $ 53,997 49,387,654 $ 1.09 $51,954 53,367,006 $0.97
======= ========== ===== ====== ========== ====
</TABLE>
(1) Options to purchase 1,683,698 shares of common stock at prices between
$27.88 per share and $59.75 per share were outstanding as of March 31, 2000
but were not included in the computation of diluted EPS because the options'
exercise prices were greater than the average market price of the common
shares.
(2) Options to purchase 356,152 shares of common stock at prices between $49.25
per share and $59.75 per share were outstanding as of March 31, 1999 but
were not included in the computation of diluted EPS because the options'
exercise prices were greater than the average market price of the common
shares.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q may contain certain "forward-looking
statements" 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 our financial condition, results of operations and business 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 our
operations, pricing, products and services.
GENERAL
We are headquartered in Lake Success, New York and our principal business
currently consists of the operation of our wholly-owned subsidiary, Astoria
Federal. Astoria Federal's primary business is attracting retail deposits from
the general public and investing those deposits, together with borrowed funds,
funds generated from operations and principal repayments, 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. Astoria Federal also invests in securities issued by the
U.S. Government and federal agencies and other securities.
Our results of operations are dependent primarily on our net interest
income, which is the difference between the interest earned on our assets,
primarily our loan and securities portfolios, and our cost of funds, which
consists of the interest paid on our deposits and borrowings. Our net income is
also affected by our provision for loan losses as well as non-interest income,
general and administrative expense, other non-interest expense, and income tax
expense. General and administrative expense consists of compensation and
benefits, employee stock plans amortization, occupancy, equipment and systems
expense, federal deposit insurance premiums, advertising and other operating
expenses. Other non-interest expense generally consists of real estate
operations and provision for losses, net, goodwill litigation expense, capital
trust securities expense and amortization of goodwill. Our earnings are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates and U.S. Treasury yield curves,
government policies and actions of regulatory authorities.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of funds is cash provided by investing activities,
which includes principal and interest payments on loans, mortgage-backed
securities and other securities. Principal payments on loans and mortgage-backed
securities and proceeds from maturities of other securities totaled $752.8
million for the three months ended March 31, 2000 and $1.66 billion for the
three months ended March 31, 1999. During the three months ended March 31, 2000,
we received $2.4 million of funds from the sale of real estate versus $165.0
million from the sale of securities and real estate during the three months
ended March 31, 1999. There were no sales of securities for the three months
ended March 31, 2000. Our other sources of funds are provided by operating and
financing activities. Net cash provided from operating activities totaled $7.6
million during the three months ended March 31, 2000, and $20.1 million during
the three months ended March 31, 1999. During the three months ended March 31,
2000, net borrowings decreased $391.9 billion, whereas the net increase in
deposits totaled $226.4 million. During the three months ended March 31, 1999,
the net increase in borrowings totaled $2.42 billion while deposits remained
constant at $9.67 billion. The increase in borrowings for the quarter ended
March 31, 1999 was used to fund our asset growth during that period.
Our primary use of funds in our investing activities is for the
origination and purchase of mortgage loans and the purchase of mortgage-backed
and other securities, although currently our emphasis has been on the
origination and purchase of mortgage loans. During the three months ended March
31, 2000, our gross originations and purchases of mortgage loans totaled $570.7
million, compared to $1.32 billion during the three months ended March 31, 1999.
This decrease was attributable to the current rising interest rate environment,
which has resulted in a significant decrease in mortgage refinance activity, and
the disposition of certain loan production offices in March 1999. Our purchases
of other securities totaled $40,000 during the three months ended March 31, 2000
versus purchases of mortgage-backed and other securities of $3.21 billion during
the comparable 1999 period. There were no purchases of mortgage-backed
securities during the three months ended March 31, 2000.
Stockholders equity totaled $1.25 billion at March 31, 2000 and $1.20
billion at December 31, 1999. Increases to
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<PAGE> 9
stockholders' equity included net income of $55.5 million, a $23.4 million
decrease in the unrealized loss on securities available-for-sale, net of taxes,
the effect of stock options exercised and related tax benefit totaling $1.5
million and the amortization for the allocated portion of shares held by the
Employee Stock Ownership Plans, or ESOP, and the related tax benefit on the
earned portion of the shares held by the Recognition and Retention Plan, or RRP,
totaling $1.9 million. These increases were partially offset by repurchases of
our common stock of $11.4 million and dividends declared of $13.5 million.
On April 21, 1999, our Board of Directors approved our sixth stock
repurchase plan authorizing the purchase, at management's discretion, of up to
10% of our common stock then outstanding, or 5,528,000 shares, over a two year
period in open-market or privately negotiated transactions. Under this plan,
489,500 shares of our common stock were repurchased during the first quarter of
2000 at an aggregate cost of $11.4 million. To date, 4,746,700 shares have been
repurchased under this plan at an aggregate cost of $170.8 million.
On March 1, 2000, we paid a quarterly cash dividend equal to $0.24 per
share on shares of our common stock outstanding as of the close of business on
February 15, 2000, totaling $12.0 million. On April 19, 2000, we declared a
quarterly cash dividend of $0.26 per share on shares of our common stock payable
on June 1, 2000 to stockholders of record as of the close of business on May 15,
2000. During each of the three month periods ended March 31, 2000 and 1999, we
declared cash dividends on our Series B Preferred Stock aggregating $1.5
million.
Astoria Federal 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%.
Astoria Federal's liquidity ratios were 5.27% at March 31, 2000 and 6.28% at
December 31, 1999. The levels of Astoria Federal's liquid assets are dependent
on Astoria Federal's operating, investing and financing activities during any
given period.
At March 31, 2000, Astoria Federal's total capital exceeded all of its
regulatory capital requirements with a tangible ratio of 6.28%, leverage ratio
of 6.28%, and risk-based capital ratio of 15.86%. The minimum regulatory
requirements were a tangible ratio of 1.50%, leverage ratio of 4.00%, and
risk-based capital ratio of 8.00%.
On October 28, 1999, our wholly-owned subsidiary, Astoria Capital Trust
I, issued $125.0 million aggregate liquidation amount of 9.75% Capital
Securities due November 1, 2029, Series A, referred to as Series A Capital
Securities. Astoria Capital Trust I was formed for the exclusive purpose of
issuing the Series A Capital Securities and $3.9 million of 9.75% Common
Securities, Series A, purchased by us, and using the proceeds to acquire Junior
Subordinated Debentures, Series A, issued by us. The Junior Subordinated
Debentures totaled $128.9 million, have an interest rate of 9.75%, mature on
November 1, 2029 and are the sole assets of Astoria Capital Trust I. We have
fully and unconditionally guaranteed the Series A Capital Securities along with
all obligations of Astoria Capital Trust I under the trust agreements pursuant
to which it was organized.
On March 10, 2000, we commenced an exchange offer, which expired on April
21, 2000, providing for the exchange of any and all of the Series A Capital
Securities for $125.0 million aggregate liquidation amount of 9.75% Capital
Securities due November 1, 2029, Series B, referred to as Series B Capital
Securities. The terms of the Series B Capital Securities are identical in all
material respects to the Series A Capital Securities, except that the Series B
Capital Securities have been registered pursuant to the Securities Act of 1933,
as amended.
INTEREST RATE SENSITIVITY ANALYSIS
As a financial institution, our primary component of market risk is
interest rate risk. Our net interest income, the primary component of our 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 our assets and the liabilities which fund
them. We seek to manage interest rate risk by monitoring and controlling the
variation in repricing intervals between our assets and liabilities. We also
monitor our interest rate sensitivity by analyzing the estimated changes in
market value of our assets and liabilities assuming various interest rate
scenarios, so that adjustments in the asset and liability mix, when deemed
appropriate, can be made on a timely basis.
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
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<PAGE> 10
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 positive gap would generally be expected, absent the effects
of other factors, to experience a greater increase in the yields of its assets
relative to the costs of its liabilities and thus an increase in the
institution's net interest income, whereas an institution with a negative gap
would generally be expected to experience the opposite results. Conversely,
during a period of falling interest rates, a positive gap would tend to result
in a decrease in net interest income while a negative gap would tend to increase
net interest income.
The actual duration of mortgage loans and mortgage-backed securities can
be significantly impacted by changes in mortgage prepayments. 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 major factors affecting prepayment rates are prevailing interest
rates and related mortgage refinancing opportunities.
At March 31, 2000, our net interest-earning assets maturing or repricing
within one year exceeded interest-bearing liabilities maturing or repricing
within the same time period by $169.1 million, representing a positive
cumulative one-year gap of 0.75% of total assets. This compares to net
interest-earning assets maturing or repricing within one year exceeding
interest-bearing liabilities maturing or repricing within the same time period
by $434.2 million, representing a positive cumulative one-year gap of 1.91% of
total assets at December 31, 1999. Our March 31, 2000 and December 31, 1999
cumulative one-year gap positions reflect the classification of
available-for-sale securities within repricing periods based on their
contractual maturities adjusted for estimated prepayments, if any. If those
securities at March 31, 2000 were classified within the one-year or less
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 $6.50 billion, representing
a positive cumulative one-year gap of 28.80% of total assets. Using this method
at December 31, 1999, 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 $6.75 billion, representing a positive cumulative
one-year gap of 29.74% of total assets. The available-for-sale securities may or
may not be sold, subject to our discretion.
The following table, referred to as the Gap Table, sets forth the amount
of interest-earning assets and interest-bearing liabilities outstanding at March
31, 2000, that we anticipate, using certain assumptions based on our historical
experience and other data available to us, 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 our 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 $1.36 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, $1.14 billion are callable within one
year and at various other times thereafter. Also included in this table are
$7.64 billion of callable borrowings, classified according to their maturity
dates, which are primarily within the more than three years to five years
category and the more than five years category. Of such borrowings, $3.74
billion are callable within one year and at various other times thereafter.
If those borrowings had been categorized according to their call dates, our
cumulative one-year gap would have been a negative 15.79% at March 31, 2000.
During the quarter ended March 31, 2000, $1.34 billion in borrowings were
called. Of the called borrowings, $390.0 million were paid off and the remaining
balance was rolled into short- and medium-term borrowings without call features.
In our past experience, even though callable borrowings were at below market
rates and callable, a significant portion were not called, and therefore, were
included in the Gap Table based on their contractual maturity. The recent
increases in interest rates have resulted in a majority of the holders of these
call options exercising their rights. However, the uncertainty and volatility of
interest rates, economic conditions and other markets which affect the value of
these call options, as well as the financial condition of the holders of the
options, increase the difficulty and uncertainty, going forward, in determining
if and when they may be exercised. Should the holders of these call options
continue exercising their rights, the assumption in this regard embedded in the
Gap Table may need to be adjusted in the future.
9
<PAGE> 11
<TABLE>
<CAPTION>
At March 31, 2000
---------------------------------------------------------------------------------
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) $ 2,237,551 $ 2,676,375 $ 2,483,549 $ 2,875,757 $10,273,232
Consumer and other loans (1) 155,412 14,751 - - 170,163
Federal funds sold and
repurchase agreements 405,176 - - - 405,176
Mortgage-backed and other
securities available-for-sale 2,189,006 1,887,859 1,576,531 2,871,223 8,524,619
Mortgage-backed and other
securities held-to-maturity 340,340 216,014 172,779 1,420,990 2,150,123
---------------------------------------------------------------------------------
Total interest-earning assets 5,327,485 4,794,999 4,232,859 7,167,970 21,523,313
Add:
Net unamortized purchase
premiums and deferred costs (2) 12,161 15,287 14,227 15,992 57,667
---------------------------------------------------------------------------------
Net interest-earning assets $ 5,339,646 $ 4,810,286 $ 4,247,086 $ 7,183,962 $21,580,980
---------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings $ 154,589 $ 309,178 $ 309,178 $ 1,803,536 $ 2,576,481
NOW and money manager 27,610 55,222 55,222 414,162 552,216
Money market 1,134,083 14,627 14,627 109,704 1,273,041
Certificates of deposit 2,924,197 1,412,647 649,323 - 4,986,167
Borrowed funds 930,034 2,229,814 5,165,000 2,685,000 11,009,848
---------------------------------------------------------------------------------
Total interest-bearing liabilities $ 5,170,513 $ 4,021,488 $ 6,193,350 $ 5,012,402 $20,397,753
---------------------------------------------------------------------------------
Interest sensitivity gap $ 169,133 $ 788,798 $(1,946,264) $ 2,171,560 $ 1,183,227
---------------------------------------------------------------------------------
Cumulative interest sensitivity gap $ 169,133 $ 957,931 $ (988,333) $ 1,183,227
---------------------------------------------------------------------------------
Cumulative interest sensitivity gap
as a percentage of total assets 0.75% 4.24% (4.38)% 5.24%
Cumulative net interest-earning assets
as a percentage of interest-bearing
liabilities 103.27% 110.42% 93.58% 105.80%
</TABLE>
(1) Mortgage, consumer and other loans exclude non-performing loans, but are not
reduced for the allowance for loan losses.
(2) Net unamortized purchase premiums and deferred costs 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. Additionally, certain
assets, such as adjustable-rate mortgage loans, or ARM loans, have contractual
features which restrict changes in interest rates on a short-term basis and
over the life of the asset. Further, in the event of a change in interest
rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in calculating the table. Finally, the ability
of borrowers to service their ARM loans or other loan obligations may decrease
in the event of an interest rate increase. The Gap Table reflects our estimates
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. As a result, different assumptions may be used at
different points in time.
We also monitor Astoria Federal's interest rate sensitivity through
analysis of the change in the net portfolio value, or 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 value of an
institution's net worth. Increases in the value of assets will increase the NPV
whereas decreases in the value of assets will decrease the NPV. Conversely,
increases in the value of liabilities will decrease NPV whereas decreases in the
value of liabilities will increase the NPV. The changes in value of assets and
liabilities due to changes in interest rates reflect the interest sensitivity of
those assets
10
<PAGE> 12
and liabilities. The NPV ratio under any interest rate scenario is defined as
the NPV in that scenario divided by the value of assets in the same scenario.
This analysis, presented in the following table, or the NPV Table, 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 Astoria Federal's
quarterly Thrift Financial Reports, the results of which may vary from our
internal model primarily because of differences in assumptions utilized between
our 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 the Gap Table were used.
However, we have utilized different assumptions with respect to the borrowings
with imbedded call features for the NPV Table. Specifically, for the scenarios
involving no change or an increase in interest rates, we have assumed that those
borrowings with imbedded call options will be called at their next available
call date. Since the NPV Table reflects a hypothetical value of net assets based
on present value of cash flows, utilizing the shorter life by call date instead
of maturity date would result in the most conservative value of Astoria
Federal's borrowings and, therefore, the most conservative view of its NPV
ratio.
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 we 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.
The following represents Astoria Federal's NPV Table as of March 31,
2000:
<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 $1,445,790 $(770,925) (34.78)% 7.01% (3.04)%
+100 1,872,231 (344,484) (15.54) 8.76 (1.29)
-0- 2,216,715 - - 10.05 -
-100 2,297,501 580,786 26.20 12.27 2.22
-200 2,566,434 349,719 15.78 11.04 0.99
</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
our 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 our 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 Astoria Federal's NPV and will differ from actual results.
11
<PAGE> 13
LOAN PORTFOLIO
The following table sets forth the composition of our loans receivable
and loans held-for-sale portfolios at March 31, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
At March 31, 2000 At December 31, 1999
-------------------------- ----------------------------
Percent Percent
of of
(Dollars in Thousands) Amount Total Amount Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MORTGAGE LOANS (GROSS) (1):
One-to-four family ...................... $ 9,218,462 87.87% $ 9,018,270 88.05%
Multi-family ............................ 644,828 6.15 615,438 6.01
Commercial real estate .................. 455,849 4.35 433,035 4.23
---------- ------ ---------- ------
Total mortgage loans ................. 10,319,139 98.37 10,066,743 98.29
---------- ------ ---------- ------
CONSUMER AND OTHER LOANS (GROSS):
Home equity ............................. 115,278 1.10 116,726 1.14
Passbook ................................ 7,840 0.07 7,481 0.07
Other ................................... 48,319 0.46 50,697 0.50
---------- ------ ---------- ------
Total consumer and other loans ....... 171,437 1.63 174,904 1.71
---------- ------ ---------- ------
TOTAL LOANS ................................. 10,490,576 100.00% 10,241,647 100.00%
---------- ====== ---------- ======
LESS:
Unamortized premiums, discounts and
deferred loan costs and fees, net .... 61,399 58,803
Allowance for loan losses ............... (77,373) (76,578)
---------- ----------
TOTAL LOANS, NET ............................ $10,474,602 $10,223,872
========== ==========
</TABLE>
- -------------------
(1) These amounts include $7.0 million and $11.4 million of mortgage loans
classified as held-for-sale at March 31, 2000 and December 31, 1999,
respectively.
12
<PAGE> 14
SECURITIES PORTFOLIO
The following tables set forth the amortized cost and estimated fair
value of mortgage-backed securities and other securities available-for-sale and
held-to-maturity at March 31, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
At March 31, 2000
---------------------------------------------------------------------------
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 $ 124,044 $ 535 $ (3,225) $ 121,354
FHLMC pass-through certificates 219,509 1,527 (3,450) 217,586
FNMA pass-through certificates 427,211 4,879 (2,644) 429,446
REMICs and CMOs:
Agency issuance 5,982,565 320 (384,431) 5,598,454
Non agency issuance 1,562,706 527 (78,621) 1,484,612
--------- ----- --------- ---------
Total mortgage-backed securities 8,316,035 7,788 (472,371) 7,851,452
--------- ----- --------- ---------
Other securities:
Obligations of the U.S.
Government and agencies 552,359 - (62,727) 489,632
Corporate debt securities 61,321 - (7,692) 53,629
FNMA and FHLMC preferred stock 147,515 314 (19,698) 128,131
Asset-backed and other securities 1,776 - (1) 1,775
--------- ----- --------- ---------
Total other securities 762,971 314 (90,118) 673,167
--------- ----- --------- ---------
Total available-for-sale $9,079,006 $8,102 $(562,489) $8,524,619
========= ===== ========= =========
HELD-TO-MATURITY:
Mortgage-backed securities:
GNMA pass-through certificates $ 3,972 $ 160 $ (7) $ 4,125
FHLMC pass-through certificates 42,414 299 (81) 42,632
FNMA pass-through certificates 12,760 17 (773) 12,004
REMICs and CMOs:
Agency issuance 643,982 2,154 (7,156) 638,980
Non agency issuance 340,897 68 (7,719) 333,246
--------- ----- --------- ---------
Total mortgage-backed securities 1,044,025 2,698 (15,736) 1,030,987
--------- ------ --------- ---------
Other securities:
Obligations of the U.S.
Government and agencies 782,273 - (59,675) 722,598
Obligations of states and
political subdivisions 44,843 - (43) 44,800
--------- ----- --------- ---------
Total other securities 827,116 - (59,718) 767,398
--------- ----- --------- ---------
Total held-to-maturity $1,871,141 $2,698 $ (75,454) $1,798,385
========= ===== ========= =========
</TABLE>
13
<PAGE> 15
SECURITIES PORTFOLIO, CONTINUED
<TABLE>
<CAPTION>
At December 31, 1999
--------------------------------------------------------------------------
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 $ 129,029 $ 658 $ (3,986) $ 125,701
FHLMC pass-through certificates 228,904 917 (3,407) 226,414
FNMA pass-through certificates 443,639 6,068 (2,202) 447,505
REMICs and CMOs:
Agency issuance 6,304,417 454 (435,093) 5,869,778
Non agency issuance 1,604,335 366 (69,122) 1,535,579
--------- ------ -------- ---------
Total mortgage-backed securities 8,710,324 8,463 (513,810) 8,204,977
--------- ------ -------- ---------
Other securities:
Obligations of the U.S.
Government and agencies 547,082 - (72,878) 474,204
Corporate debt securities 61,349 - (7,168) 54,181
FNMA and FHLMC preferred stock 147,515 44 (20,080) 127,479
Asset-backed and other securities 1,907 1 - 1,908
--------- ------ -------- ---------
Total other securities 757,853 45 (100,126) 657,772
--------- ------ -------- ---------
Total available-for-sale $9,468,177 $ 8,508 $(613,936) $8,862,749
========= ====== ======== =========
HELD-TO-MATURITY:
Mortgage-backed securities:
GNMA pass-through certificates $ 4,247 $ 220 $ (1) $ 4,466
FHLMC pass-through certificates 45,287 719 (42) 45,964
FNMA pass-through certificates 13,083 16 (648) 12,451
REMICs and CMOs:
Agency issuance 667,249 1,308 (6,390) 662,167
Non agency issuance 352,395 121 (6,313) 346,203
--------- ------ -------- ---------
Total mortgage-backed securities 1,082,261 2,384 (13,394) 1,071,251
--------- ------ -------- ---------
Other securities:
Obligations of the U.S.
Government and agencies 772,584 17,384 (62,684) 727,284
Obligations of states and
political subdivisions 45,112 - (40) 45,072
--------- ------ -------- ---------
Total other securities 817,696 17,384 (62,724) 772,356
--------- ------ -------- ---------
Total held-to-maturity $1,899,957 $19,768 $ (76,118) $1,843,607
========= ====== ======== =========
</TABLE>
14
<PAGE> 16
COMPARISON OF FINANCIAL CONDITION AS OF
MARCH 31, 2000 AND DECEMBER 31, 1999
AND OPERATING RESULTS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999
FINANCIAL CONDITION
We believe that we were successful in achieving our strategy of growth
through deployment of our excess capital, and as such we have de-emphasized
growth and have been focused on maintaining or growing our capital ratio levels,
which are currently at "well capitalized" levels for all regulatory purposes. We
expect to continue to emphasize the origination of one-to-four family mortgage
loans in an effort to utilize funds from anticipated mortgage loan and
mortgage-backed security repayments. We continue to sell our 15-year and
30-year fixed-rate mortgage loan production, but retain for portfolio our ARM
loan production. By doing so, we are shifting our asset mix towards growth in
mortgage loans, primarily ARM loans, versus growth in securities.
Total assets decreased $106.8 million, to $22.59 billion at March 31,
2000, from $22.70 billion at December 31, 1999. Mortgage-backed securities
decreased $391.8 million to $8.90 billion at March 31, 2000, from $9.29 billion
at December 31, 1999, due to principal payments of $433.5 million, slightly
offset by a decrease in the net unrealized loss on securities available-for-sale
of $40.8 million. Mortgage loans, net, increased $259.4 million, from $10.11
billion at December 31, 1999 to $10.37 billion at March 31, 2000. Gross mortgage
loans originated and purchased during the three months ended March 31, 2000
totaled $570.7 million, of which $397.4 million were originations and $173.3
million were purchases. These originations and purchases consisted primarily of
one-to-four family residential mortgage loans. This compares to $1.20 billion of
originations and $122.7 million of purchases for a total of $1.32 billion during
the three months ended March 31, 1999. The decrease in the mortgage loan
originations was primarily a result of the general increase in market interest
rates during the past year, which has significantly decreased the level of
mortgage refinance activity as well as prepayments on mortgage loans and
mortgage-backed securities. Additionally, the closing and disposition of certain
LPOs in March 1999 contributed to the significant reduction in our volume of
loan originations. There were no purchases of mortgage-backed securities during
the three months ended March 31, 2000.
In addition to the changes noted above in the mortgage-backed securities
and mortgage loan portfolios, federal funds sold and repurchase agreements
increased $69.5 million from $335.7 million at December 31, 1999, to $405.2
million at March 31, 2000. Other securities also increased $24.8 million to
$1.50 billion at March 31, 2000, from $1.48 billion at December 31, 1999,
primarily due to the accretion of discounts on our U.S. Government and agency
securities coupled with a decrease in the net unrealized loss on securities
available-for-sale. Other assets decreased $27.2 million to $367.1 million at
March 31, 2000 from $394.3 million at December 31, 1999, primarily due to the
decrease in the deferred tax asset which was directly related to the decrease in
the net unrealized loss on securities available-for-sale.
Reverse repurchase agreements decreased $490.0 million, to $8.79 billion
at March 31, 2000, from $9.28 billion at December 31, 1999. Federal Home Loan
Bank of New York advances increased $100.0 million to $1.71 billion at March 31,
2000 from $1.61 billion at December 31, 1999. The net decrease in borrowings is
a result of the repayment of a portion of the $1.34 billion in borrowings which
were called in the first quarter of 2000. The remaining balance of the called
borrowings was rolled into short- and medium-term borrowings without call
features. Deposits increased $226.4 million from $9.55 billion at December 31,
1999 to $9.78 billion at March 31, 2000 primarily due to our current emphasis on
deposit generation through competitive rates and new product offerings such as
business checking.
Stockholders' equity totaled $1.25 billion at March 31, 2000 and $1.20
billion at December 31, 1999. Increases to stockholders' equity included net
income of $55.5 million, a $23.4 million decrease in the unrealized loss on
securities available-for-sale, net of taxes, the effect of stock options
exercised and related tax benefit totaling $1.5 million and the amortization for
the allocated portion of shares held by the ESOP and the related tax benefit on
the earned portion of the shares held by the RRP totaling $1.9 million. These
increases were partially offset by repurchases of our common stock of $11.4
million and dividends declared of $13.5 million.
15
<PAGE> 17
RESULTS OF OPERATIONS
GENERAL
Net income for the three months ended March 31, 2000 increased $2.0
million to $55.5 million, from $53.5 million for the three months ended March
31, 1999. For the three months ended March 31, 2000, diluted earnings per common
share increased to $1.09 per share, as compared to $0.97 per share for the three
months ended March 31, 1999. Return on average assets increased to 0.99% for the
three months ended March 31, 2000, from 0.97% for the three months ended March
31, 1999. Return on average stockholders' equity increased to 18.51% for the
three months ended March 31, 2000, from 14.72% for the three months ended March
31, 1999. Return on average tangible stockholders' equity increased to 22.71%
for the three months ended March 31, 2000, from 17.69% for the three months
ended March 31, 1999.
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. Our net interest income is significantly impacted by changes in interest
rates and market yield curves. In the current rising interest rate environment,
we continue to experience compression on our net interest rate spread and net
interest margin.
For the three months ended March 31, 2000, net interest income decreased
$3.6 million, or 2.6%, to $132.2 million, from $135.8 million for the three
months ended March 31, 1999. This decrease was the result of a decrease in the
net interest rate spread to 2.03% for the three months ended March 31, 2000,
from 2.27% for the three months ended March 31, 1999, partially offset by the
growth in average interest-earning assets of $954.9 million and the growth in
average interest-bearing liabilities of $695.1 million. The change in the net
interest rate spread resulted from an increase in the average cost of
interest-bearing liabilities to 4.83% for the three months ended March 31, 2000,
from 4.57% for the three months ended March 31, 1999, slightly offset by an
increase in the average yield on total interest-earning assets to 6.86% for the
three months ended March 31, 2000, from 6.84% for the three months ended March
31, 1999. The net interest margin was 2.40% for the three months ended March 31,
2000 and 2.57% for the three months ended March 31, 1999.
ANALYSIS OF NET INTEREST INCOME
The following table sets forth certain information for the three months
ended March 31, 2000 and 1999. Yields are derived by dividing income by the
average daily balance of the related assets and costs are derived by dividing
expense by the average daily balance of the related liabilities, for the periods
shown, except where otherwise noted. The average balance of loans receivable
includes loans on which we have discontinued accruing interest. The yields and
costs include fees, premiums and discounts which are considered adjustments to
interest rates.
16
<PAGE> 18
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Cost Balance Interest Cost
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS: (Annualized) (Annualized)
Interest-earning assets:
Mortgage loans (1) $10,260,349 $183,712 7.16% $ 9,002,736 $161,887 7.19%
Consumer and other loans (1) 173,505 4,294 9.90 223,038 5,277 9.46
Mortgage-backed securities (2) 9,491,191 154,024 6.49 9,832,450 158,877 6.46
Other securities (2) 1,849,215 32,390 7.01 1,889,222 33,032 6.99
Federal funds sold and
repurchase agreements 281,900 4,099 5.82 153,772 1,822 4.74
---------- ------- ---------- -------
Total interest-earning assets 22,056,160 378,519 6.86 21,101,218 360,895 6.84
------- -------
Non-interest-earning assets 438,466 896,291
---------- ----------
Total assets $22,494,626 $21,997,509
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Savings $ 2,573,434 $ 12,913 2.01% $ 2,763,565 $ 13,685 1.98%
Certificates of deposit 4,935,841 66,634 5.40 5,021,838 65,192 5.19
NOW and money manager 533,609 1,317 0.99 511,526 1,248 0.98
Money market 1,215,519 15,234 5.01 909,269 9,441 4.15
---------- ------- ---------- -------
Total deposits 9,258,403 96,098 4.15 9,206,198 89,566 3.89
Borrowed funds 11,147,156 150,219 5.39 10,504,289 135,534 5.16
---------- ------- ---------- -------
Total interest-bearing liabilities 20,405,559 246,317 4.83 19,710,487 225,100 4.57
------- -------
Non-interest-bearing liabilities 889,532 834,562
---------- ----------
Total liabilities 21,295,091 20,545,049
Stockholders' equity 1,199,535 1,452,460
---------- ----------
Total liabilities and stockholders'
equity $22,494,626 $21,997,509
========== ==========
Net interest income/net interest
rate spread $132,202 2.03% $135,795 2.27%
======= ==== ======= ====
Net interest-earning assets/net
interest margin $ 1,650,601 2.40% $ 1,390,731 2.57%
========== ==== ========= ====
Ratio of interest-earning assets
to interest-bearing liabilities 1.08x 1.07x
===== =====
</TABLE>
- --------------------
(1) Mortgage, consumer and other loans include non-performing loans and exclude
the allowance for loan losses.
(2) Securities available-for-sale are reported at average amortized cost.
17
<PAGE> 19
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 our interest income and interest expense during the
periods indicated. Information is provided in each category with respect to: (1)
changes attributable to changes in volume (changes in volume multiplied by prior
rate), (2) changes attributable to changes in rate (changes in rate multiplied
by prior volume), and (3) the net change. The changes attributable to the
combined impact of volume and rate have been allocated proportionately to the
changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
Quarter Ended March 31, 2000
Compared to
Quarter Ended March 31, 1999
-------------------------------------------------
(In Thousands) Increase (Decrease)
- ---------------------------------------------------------------------------------------------------
Volume Rate Net
------ ---- ---
<S> <C> <C> <C>
Interest-earning assets:
Mortgage loans .......................... $22,503 $ (678) $21,825
Consumer and other loans ................ (1,219) 236 (983)
Mortgage-backed securities .............. (5,581) 728 (4,853)
Other securities ........................ (732) 90 (642)
Federal funds sold and repurchase
agreements .......................... 1,788 489 2,277
------ ---- ------
Total ...................................... 16,759 865 17,624
------ ---- ------
Interest-bearing liabilities:
Savings ................................. (972) 200 (772)
Certificates of deposit ................. (1,139) 2,581 1,442
NOW and money manager ................... 56 13 69
Money market ............................ 3,586 2,207 5,793
Borrowed funds .......................... 8,497 6,188 14,685
------ ------ ------
Total ...................................... 10,028 11,189 21,217
------ ------ ------
Net change in net interest
income .................................. $ 6,731 $(10,324) $(3,593)
====== ======= ======
</TABLE>
INTEREST INCOME
Interest income for the three months ended March 31, 2000 increased $17.6
million, or 4.9%, to $378.5 million, from $360.9 million for the three months
ended March 31, 1999. This increase was the result of a $954.9 million increase
in average interest-earning assets to $22.06 billion for the three months ended
March 31, 2000, from $21.10 billion for the three months ended March 31, 1999,
coupled with an increase in the average yield of interest-earning assets to
6.86% for the three months ended March 31, 2000, from 6.84% for the three months
ended March 31, 1999. The increase in average interest-earning assets was
primarily due to increases in the average balance of mortgage loans partially
offset by decreases in the average balance of mortgage-backed securities
resulting from principal repayments.
Interest income on mortgage loans increased $21.8 million to $183.7
million for the three months ended March 31, 2000, from $161.9 million for the
three months ended March 31, 1999, which was the result of an increase in the
average balance of $1.26 billion, partially offset by a decrease in the average
yield on mortgage loans to 7.16% for the three months ended March 31, 2000, from
7.19% for the three months March 31, 1999. The increase in the average balance
of mortgage loans reflects our continued emphasis on the origination of
primarily one-to-four family residential mortgage loans. Although interest rates
have increased from the comparable 1999 period, we experienced a slight decrease
in the average yield on mortgage loans. The rising interest rate environment has
created a shift in consumer demand from fixed rate products to adjustable rate
products which we currently offer at rates below their fully indexed rate for an
introductory period which generally runs from three to five years. Accordingly,
the impact of rising rates has not yet been fully reflected in the overall
average yield on our mortgage
18
<PAGE> 20
loan portfolio. Interest income on consumer and other loans decreased $983,000
resulting from a decrease in the average balance of $49.5 million, partially
offset by an increase in the yield to 9.90% for the three months ended March 31,
2000, from 9.46% for the three months ended March 31, 1999.
Interest income on mortgage-backed securities decreased $4.9 million to
$154.0 million for the three months ended March 31, 2000, from $158.9 million
for the three months ended March 31, 1999. This decrease was the result of a
$341.3 million decrease in the average balance of this portfolio, partially
offset by an increase in the average yield to 6.49% for the three months ended
March 31, 2000 from 6.46% for three months ended March 31, 1999. Interest income
on other securities decreased $642,000 to $32.4 million for the three months
ended March 31, 2000, from $33.0 million for the three months ended March 31,
1999. This was the result of a decrease in the average balance of this portfolio
of $40.0 million, partially offset by an increase in the average yield to 7.01%
for the three months ended March 31, 2000, from 6.99% for the three months ended
March 31, 1999. Interest income on federal funds sold and repurchase agreements
increased $2.3 million as a result of an increase in the average balance of
$128.1 million coupled with an increase in the average yield to 5.82% for the
three months ended March 31, 2000, from 4.74% for the three months ended March
31, 1999. The significant increase in the average yield on federal funds sold
and repurchase agreements is a direct result of the rising interest rate
environment.
INTEREST EXPENSE
Interest expense for the three months ended March 31, 2000 increased
$21.2 million, to $246.3 million, from $225.1 million for the three months ended
March 31, 1999. This increase was attributable to an increase in the average
cost of interest-bearing liabilities to 4.83% for the three months ended March
31, 2000, from 4.57% for the three months ended March 31, 1999, coupled with an
increase in the average balance of interest-bearing liabilities of $695.1
million, to $20.41 billion for the three months ended March 31, 2000, from
$19.71 billion for the three months ended March 31, 1999. The increase in
average interest-bearing liabilities was primarily attributable to increases in
borrowings. The increase in the overall average cost of our interest-bearing
liabilities reflects the higher interest rate environment that has prevailed
since the middle of 1999.
Interest expense on borrowings increased $14.7 million, to $150.2 million
for the three months ended March 31, 2000, from $135.5 million for the three
months ended March 31, 1999. This increase was attributable to an increase in
the average balance of borrowings of $642.9 million, coupled with an increase in
the average cost of borrowings to 5.39% for the three months ended March 31,
2000, from 5.16% for the three months ended March 31, 1999. Previous asset
growth was primarily funded through callable borrowings which, in a lower
interest rate environment, was the most cost effective way to fund our growth.
The rising interest rate environment has resulted in most of our borrowings
being called upon reaching their call dates. While a portion of the called
borrowings are being repaid, the remainder are being rolled over into short-and
medium-term borrowings without call features at higher rates.
Interest expense on deposits increased $6.5 million to $96.1 million for
the three months ended March 31, 2000, from $89.6 million for the three months
ended March 31, 1999, reflecting an increase in the average cost of
interest-bearing deposits to 4.15% for the three months ended March 31, 2000
from 3.89% for the three months ended March 31, 1999, coupled with an increase
in the average balance of interest-bearing deposits of $52.2 million. Interest
expense on savings accounts decreased $772,000 as a result of a decrease in the
average balance of $190.1 million slightly offset by an increase in the average
cost to 2.01% for the three months ended March 31, 2000, from 1.98% for the
three months ended March 31, 1999. Interest expense on certificates of deposit
increased $1.4 million as a result of an increase in the average cost to 5.40%
for the three months ended March 31, 2000 from 5.19% for the three months ended
March 31, 1999, slightly offset by a decrease in the average balance of $86.0
million. The increase in the average cost of certificates of deposit reflects
our commitment to offer competitive rates to our customers. Interest expense on
money market accounts increased $5.8 million to $15.2 million for the three
months ended March 31, 2000, from $9.4 million for the three months ended March
31, 1999, as a result of an increase in the average balance of $306.3 million
coupled with an increase in the average cost to 5.01% for the three months ended
March 31, 2000, from 4.15% for the three months ended March 31, 1999. Interest
is paid on money market accounts on a tiered basis with 87.8% of the total
balances in the highest tier (accounts with balances of $50,000 and higher). The
yield on the highest tier is priced relative to the discount rate for the
three-month U.S. Treasury bill, which provides an attractive short-term yield
for our customers. Interest expense on NOW and money manager accounts decreased
$69,000.
19
<PAGE> 21
PROVISION FOR LOAN LOSSES
Provision for loan losses decreased $61,000, to $1.0 million for the
three months ended March 31, 2000, from $1.1 million for the three months ended
March 31, 1999. The allowance for loan losses increased to $77.4 million at
March 31, 2000, from $76.6 million at December 31, 1999. Net loan charge-offs
totaled $205,000 for the three months ended March 31, 2000 compared to $230,000
for the three months ended March 31, 1999. Non-performing loans decreased $6.2
million to $47.2 million at March 31, 2000, from $53.4 million at December 31,
1999. This reduction in non-performing loans improved the percentage of
allowance for loan losses to non-performing loans to 163.99% at March 31, 2000,
from 143.49% at December 31, 1999. The allowance for loan losses as a percentage
of total loans decreased slightly from 0.75% at December 31, 1999 to 0.74% at
March 31, 2000 primarily due to the increase of $248.9 million in gross total
loans from December 31, 1999 to March 31, 2000. For further discussion of
non-performing loans and allowance for loan losses, see "Asset Quality."
NON-INTEREST INCOME
Non-interest income for the quarter ended March 31, 2000 increased
$208,000 to $16.9 million, from $16.7 million for the quarter ended March 31,
1999. Customer service and other loan fees increased $1.8 million to $11.2
million for the first quarter of 2000, from $9.4 million for the first quarter
of 1999. This increase is due in part to increases in customer service fees
during the third quarter of 1999. Loan servicing fees decreased $2.1 million to
$3.1 million for the quarter ended March 31, 2000, from $5.2 million for the
quarter ended March 31, 1999. Loan servicing fees include all contractual and
ancillary servicing revenue we receive, net of amortization of mortgage
servicing rights and valuation allowance adjustments for the impairment of
mortgage servicing rights. The decrease in loan servicing fees was the result of
a decrease in the recovery of a portion of the valuation allowance for mortgage
servicing rights of $1.5 million and a decrease in fees received of $1.4
million, partially offset by a decrease in the amortization of mortgage
servicing rights of $736,000.
Net gains on sales of loans decreased $2.2 million to $117,000 for the
quarter ended March 31, 2000, from $2.3 million for the quarter ended March 31,
1999. Net gain (loss) on disposition of banking and loan production offices, or
LPOs, for the three months ended March 31, 2000 increased $2.4 million, from the
three months ended March 31, 1999. The $1.2 million loss during the first
quarter of 1999 resulted from the closing and disposition of certain LPOs, and
the $1.2 million gain during the first quarter of 2000 resulted from the sale of
a former Long Island Savings Bank banking office.
NON-INTEREST EXPENSE
Non-interest expense for the quarter ended March 31, 2000 was $56.7
million, a decrease of $1.3 million, from $58.0 million for the quarter ended
March 31, 1999. General and administrative expense decreased $5.6 million to
$46.4 million for the first quarter of 2000, from $52.0 million for the
comparable 1999 period. The decrease in general and administrative expense was
primarily the result of a decrease in compensation and benefits of $4.4 million
to $20.3 million for the quarter March 31, 2000, from $24.7 million for the
quarter ended March 31, 1999. This decrease was primarily attributable to the
cost savings attained following the acquisition of Long Island Bancorp, Inc.,
coupled with reductions in commissions expense due to decreased mortgage
origination volume. Employee stock plans amortization expense decreased to $1.9
million for the first quarter of 2000, from $3.0 million for the first quarter
of 1999 due primarily to the effect of the lower average market value of our
common stock on ESOP expense.
Goodwill litigation expense increased $1.4 million to $2.5 million for
the first quarter of 2000, from $1.1 million for the first quarter of 1999. For
further discussion on the goodwill litigation proceedings, see "Part II - Item 1
- - Legal Proceedings." For the quarter ended March 31, 2000, non-interest expense
includes $3.1 million of capital trust securities expense related to the
issuance of $125.0 million of Series A Capital Securities by our wholly owned
subsidiary, Astoria Capital Trust I, in the fourth quarter of 1999. For further
discussion of the Series A Capital Securities, see "Liquidity and Capital
Resources." Our percentage of general and administrative expense to average
assets improved to 0.82% for the quarter ended March 31, 2000, from 0.95% for
the quarter ended March 31, 1999. The efficiency ratio also improved to 31.35%
for the quarter ended March 31, 2000, from 33.89% for the quarter ended March
31, 1999.
20
<PAGE> 22
INCOME TAX EXPENSE
For the quarter ended March 31, 2000, income tax expense was $35.9
million, representing an effective tax rate of 39.3%, as compared to $40.0
million, representing an effective tax rate of 42.8%, for the quarter ended
March 31, 1999. The decrease in our effective tax rate was attributable to a tax
benefit derived from a 1999 corporate restructuring of certain subsidiaries of
Astoria Federal.
CASH EARNINGS
Tangible stockholders' equity (stockholders' equity less goodwill)
totaled $1.04 billion at March 31, 2000, compared to $973.0 million at December
31, 1999. Tangible equity is a critical measure of a company's ability to
repurchase shares, pay dividends and continue to grow. Astoria Federal 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, subject to further adjustments, 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, we believe that the change 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.
We believe that cash earnings and cash returns on average tangible equity
reflect our ability to generate tangible capital that can be leveraged for
future growth. For the quarter ended March 31, 2000, cash earnings totaled $62.2
million, or $6.7 million more than net income, representing a cash return on
average tangible equity of 25.46%. For the quarter ended March 31, 1999, cash
earnings totaled $62.3 million, or $8.8 million more than net income,
representing a cash return on average tangible equity of 20.62%. We believe that
various other performance measures should also be analyzed utilizing cash
earnings. The cash return on average assets was 1.11% for the quarter ended
March 31, 2000 and 1.13% for the quarter ended March 31, 1999. 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 ratio decreased to 0.79% for the quarter ended March
31, 2000, from 0.89% for the quarter ended March 31, 1999. The cash efficiency
ratio was 30.07% for the quarter ended March 31, 2000 and 31.95% for the quarter
ended March 31, 1999. For more details on cash earnings, see "Condensed
Consolidated Schedules of Cash Earnings" on the following page.
21
<PAGE> 23
Presented below are our Condensed Consolidated Schedules of Cash Earnings
for the three months March 31, 2000 and 1999.
<TABLE>
<CAPTION>
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULES OF CASH EARNINGS
- -------------------------------------------------
(In Thousands, Except Per Share Data)
Three Months Ended
March 31,
--------------------------
2000 1999
---- ----
<S> <C> <C>
Net income $55,497 $53,454
Add back:
Employee stock plans amortization expense 1,887 2,972
Amortization of goodwill 4,824 4,906
Income tax benefit on amortization expense of
earned portion of RRP stock 13 967
------- --------
Cash earnings 62,221 62,299
Preferred dividends declared 1,500 1,500
------- --------
Cash earnings available to common shareholders $60,721 $60,799
====== =======
Basic cash earnings per common share (1) $ 1.25 $ 1.17
====== =======
Diluted cash earnings per common share (1) $ 1.23 $ 1.14
====== =======
</TABLE>
- -------------------
(1) Based on the weighted average shares used to calculate earnings per share on
the Consolidated Statements of Income.
ASSET QUALITY
One of our 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, we have been proactive in addressing problem
and non-performing assets which, in turn, has helped strengthen our financial
condition. Such strategies, as well as our concentration on one-to-four family
mortgage lending, maintaining sound credit standards for new loan originations
and a generally strong and stable economy and real estate market, have resulted
in a steady reduction in non-performing assets to total assets from December 31,
1995 through March 31, 2000. Non-performing assets decreased from $58.4 million
at December 31, 1999 to $52.9 million at March 31, 2000. The ratio of
non-performing assets to total assets decreased from 0.26% at December 31, 1999
to 0.23% at March 31, 2000. The following table shows a comparison of delinquent
loans as of March 31, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
Delinquent Loans
----------------
At March 31, 2000 At December 31, 1999
---------------------------------------- ------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
----------------- ----------------- ------------------ -----------------
Number Principal Number Principal Number Principal Number Principal
of Balance of Balance of Balance of Balance
(Dollars in Thousands) Loans of Loans Loans of Loans Loans of Loans Loans of Loans
- ---------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One-to-four family ......... 29 $ 924 373 $43,571 45 $2,202 390 $48,610
Multi-family ............... 2 478 2 635 - - 5 802
Commercial real estate ..... 1 179 5 1,701 3 2,369 8 2,331
Consumer and other loans ... 110 667 120 1,274 162 1,033 148 1,626
--- ----- --- ------ --- ----- --- ------
Total delinquent loans ..... 142 $2,248 500 $47,181 210 $5,604 551 $53,369
=== ===== === ====== === ===== === ======
Delinquent loans to total
loans ................... 0.02% 0.45% 0.05% 0.52%
</TABLE>
22
<PAGE> 24
The following table sets forth information regarding non-performing
assets at March 31, 2000 and December 31, 1999. In addition to the
non-performing loans, we had approximately $2.2 million of potential problem
loans at March 31, 2000 and $5.6 million at December 31, 1999. Such loans are
60-89 days delinquent as shown on page 22.
<TABLE>
<CAPTION>
Non-Performing Assets
---------------------
At At
March 31, December 31,
2000 1999
----------- ------------
(Dollars in Thousands)
<S> <C> <C>
Non-accrual delinquent mortgage loans (1) .......... $43,994 $48,830
Non-accrual delinquent consumer and other loans .... 1,274 1,626
Mortgage loans delinquent 90 days or more and
still accruing interest (2) .................... 1,913 2,913
------ ------
Total non-performing loans .................. 47,181 53,369
------ ------
Real estate owned, net (3) ......................... 5,703 5,080
------ ------
Total non-performing assets ................. $52,884 $58,449
====== ======
Allowance for loan losses to non-performing loans ..... 163.99% 143.49%
Allowance for loan losses to total loans .............. 0.74% 0.75%
</TABLE>
- ----------------------
(1) Consists primarily of loans secured by one-to-four family properties.
(2) Loans delinquent 90 days or more and still accruing interest consist solely
of loans delinquent 90 days or more as to their maturity date but not their
interest payments, and are primarily secured by multi-family and commercial
properties.
(3) Real estate we acquired 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.
If all non-accrual loans had been performing in accordance with their
original terms, we would have recorded interest income of $1.0 million for the
three months ended March 31, 2000 and $3.8 million for the year ended December
31, 1999. Actual payments recorded to interest income totaled $321,000 for the
three months ended March 31, 2000 and $1.9 million for the year ended December
31, 1999.
Excluded from non-performing assets are restructured loans that have
complied with the terms of their restructure agreement for a satisfactory period
and have, therefore, been returned to performing status. Restructured loans that
are in compliance with their restructured terms totaled $6.4 million at March
31, 2000 and $6.7 million at December 31, 1999.
23
<PAGE> 25
The following table sets forth the change in allowance for loan losses.
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
Allowance for Loan Losses:
Balance at December 31, 1999 ....................... $76,578
Provision charged to operations ................ 1,000
Charge-offs:
One-to-four family ....................... (627)
Multi-family ............................. (8)
Commercial ............................... -
Consumer and other ....................... (560)
------
Total charge-offs .............................. (1,195)
------
Recoveries:
One-to-four family ....................... 265
Multi-family ............................. 136
Commercial ............................... 465
Consumer and other ....................... 124
------
Total recoveries ............................... 990
------
Total net charge-offs .......................... (205)
------
Balance at March 31, 2000 .......................... $77,373
======
</TABLE>
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," or 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. In June 1999, the FASB issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," or SFAS No. 137. SFAS No.137 defers the effective date of
SFAS No. 133 from fiscal quarters of fiscal years beginning after June 15, 1999
to June 15, 2000. SFAS No. 133 does not require restatement of prior periods. We
believe the implementation of SFAS No. 133 will not have a material impact on
our financial condition or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a description of our quantitative and qualitative disclosures about
market risk, see the information set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Interest Rate Sensitivity Analysis."
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
With respect to the action entitled Ronnie Weil, also known as Ronnie
Moore, for Herself and on Behalf of All Other Persons Who Obtained Mortgage
Loans from The Long Island Savings Banks, FSB during the period January 1, 1983
through December 31, 1992 vs. The Long Island Savings Bank, FSB, et al., which
is pending in the United States District Court for the Eastern District of New
York, discovery has commenced. On February 28, 2000, Astoria Federal, as
successor to The Long Island Savings Bank, FSB, on behalf of itself and the
former directors of The Long Island Savings Bank, FSB, filed a motion to
bifurcate discovery such that discovery with respect to class certification
issues would proceed and other merit discovery would be held in abeyance until
such time as the Plaintiffs were certified as a proper class. On April 11,
2000, the Court denied such motion
24
<PAGE> 26
and ordered that discovery proceed according to the following schedule.
Defendants' depositions of the putative class Plaintiffs are to be completed by
May 15, 2000. Written responses to Plaintiffs' discovery requests are to be
provided by June 2, 2000, with document discovery made available by June 9,
2000. Depositions of the Defendants and discovery from non-parties may commence
on the later of June 19, 2000 or two weeks after Plaintiffs transmit their
class certification moving papers to Defendants' counsels. A conference with
the Court was also ordered to be held on August 11, 2000.
We believe that the likelihood is remote that this case will have a
material adverse impact on our consolidated financial condition or results of
operations.
With respect to the case entitled The Long Island Savings Bank, FSB et
al. vs. The United States, or the LISB Goodwill Litigation, which is pending in
the United States Court of Federal Claims, Chief Judge Smith, by order filed
March 27, 2000, indicated that the Court's first order of business should be the
prompt resolution of the pending partial summary judgment motions in the 26 of
the 27 "first-thirty" cases in which such motions are pending, including the
LISB Goodwill Litigation, and that it will not be possible for the Court to
prepare for and conduct more than 20 damage trials in a calendar year. Judge
Smith also indicated that it was the Court's understanding that some parties in
the "first-thirty" cases may be interested in delaying trials on damages and
conserving resources until the pending appeals in the goodwill litigation cases
are resolved. Based upon this, the Court indicated that parties could request to
defer assignment to a trial judge. Based upon this invitation by the Court,
Astoria Federal requested such a deferral in the LISB Goodwill Litigation. By
motion dated April 21, 2000, the Government requested leave to respond to
Plaintiffs' requests to forego assignment, objecting to the deferral, which
leave was granted by the Court. Astoria Federal has filed a response indicating
that it requested the deferral at the Court's invitation and that if the Court
determines that the LISB Goodwill Case should be assigned to a trial judge,
Astoria Federal is prepared to proceed to trial at this time.
The Court also indicated in its order filed March 27, 2000 that
resolution of the partial summary judgment motions in the "second-thirty" cases
was not a priority of the Court at this time. The action entitled, Astoria
Federal Savings and Loan Association vs. United States, or the Astoria Goodwill
Litigation, which is also pending in the United States Court of Federal Claims
and with respect to which a partial summary judgment motion is pending, is among
the "second-thirty cases".
With respect to both the LISB Goodwill Litigation and the Astoria
Goodwill Litigation, no assurance can be given as to the results of these claims
or the timing of any proceedings in relation thereto.
For further information regarding legal proceedings see Part I, Item 3 of
our Annual Report on Form 10-K for the year ended December 31, 1999.
<TABLE>
<S> <C>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
</TABLE>
25
<PAGE> 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Statement Regarding Computation of Per Share Earnings.
27. Financial Data Schedule.
(b) Reports on Form 8-K
1. Form 8-K dated February 16, 2000 which includes our
announcement of earnings for the quarter ended December 31,
1999.
2. Form 8-K dated April 12, 2000 which extended the response
date for the exchange of the Series A Capital Securities of
Astoria Capital Trust I.
26
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Astoria Financial Corporation
Dated: May 15, 2000 By: /s/ Monte N. Redman
-------------------- -------------------------
Monte N. Redman
Executive Vice President
and Chief Financial Officer
(Principal Accounting Officer)
27
<PAGE> 29
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No Identification of Exhibit
- ---------- -------------------------
<S> <C>
11. Statement Regarding Computation of Per Share Earnings
27. Financial Data Schedule
</TABLE>
28
<PAGE> 1
EXHIBIT 11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
March 31, 2000
---------------------
(In Thousands, Except
Per Share Data)
<S> <C>
1. Net Income $55,497
Less: Preferred stock dividends declared 1,500
------
Net income available to common shareholders $53,997
======
2. Weighted average common shares outstanding 51,667
3. ESOP shares not committed to be released (2,962)
------
4. Total weighted average common shares outstanding 48,705
======
5. Basic earnings per common share $ 1.11
======
6. Total weighted average common shares outstanding 48,705
7. Dilutive effect of stock options using the treasury
stock method 683
------
8. Total average common and common equivalent
shares 49,388
======
9. Diluted earnings per common share $ 1.09
======
</TABLE>
-29-
<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, 2000 and
the Condensed Consolidated Statement of Income for the three months ended March
31, 2000 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 117,972
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 405,176
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,524,619
<INVESTMENTS-CARRYING> 1,871,141
<INVESTMENTS-MARKET> 1,798,385
<LOANS> 10,551,975
<ALLOWANCE> 77,373
<TOTAL-ASSETS> 22,589,769
<DEPOSITS> 9,780,901
<SHORT-TERM> 339,673
<LIABILITIES-OTHER> 419,686
<LONG-TERM> 10,670,175
0
2,000
<COMMON> 555
<OTHER-SE> 1,251,779
<TOTAL-LIABILITIES-AND-EQUITY> 22,589,769
<INTEREST-LOAN> 188,006
<INTEREST-INVEST> 190,513
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 378,519
<INTEREST-DEPOSIT> 96,098
<INTEREST-EXPENSE> 246,317
<INTEREST-INCOME-NET> 132,202
<LOAN-LOSSES> 1,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,403
<INCOME-PRETAX> 91,395
<INCOME-PRE-EXTRAORDINARY> 55,497
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,497
<EPS-BASIC> 1.11
<EPS-DILUTED> 1.09
<YIELD-ACTUAL> 2.40
<LOANS-NON> 45,268
<LOANS-PAST> 1,913
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,248
<ALLOWANCE-OPEN> 76,578
<CHARGE-OFFS> 1,195
<RECOVERIES> 990
<ALLOWANCE-CLOSE> 77,373
<ALLOWANCE-DOMESTIC> 77,373
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
