<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 September 30, 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)
<TABLE>
<S> <C>
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)
</TABLE>
(516) 327-3000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Classes of Common Stock Number of Shares Outstanding, October 31, 2000
----------------------- ----------------------------------------------
.01 Par Value 49,881,861
------------- ----------
</TABLE>
<PAGE> 2
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition at September 30, 2000 2
and December 31, 1999.
Consolidated Statements of Income for the Three Months and 3
Nine Months Ended September 30, 2000 and September 30, 1999.
Consolidated Statement of Changes in Stockholders' Equity for the 4
Nine Months Ended September 30, 2000.
Consolidated Statements of Cash Flows for the Nine Months 5
Ended September 30, 2000 and September 30, 1999.
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial Condition and 8
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk. 35
</TABLE>
PART II -- OTHER INFORMATION
<TABLE>
<S> <C> <C>
Item 1. Legal Proceedings 35
Item 2. Changes in Securities and Use of Proceeds 36
Item 3. Defaults Upon Senior Securities 36
Item 4. Submission of Matters to a Vote of Security Holders 36
Item 5. Other Information 36
Item 6. Exhibits and Reports on Form 8-K 36
(a) Exhibits
(11) Statement Regarding Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K
Signatures 37
</TABLE>
1
<PAGE> 3
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AT AT
SEPTEMBER 30, DECEMBER 31,
(In Thousands, Except Share Data) 2000 1999
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
------
Cash and due from banks $ 127,678 $ 154,918
Federal funds sold and repurchase agreements 368,476 335,653
Mortgage-backed securities available-for-sale 7,106,229 8,204,977
Other securities available-for-sale 693,279 657,772
Mortgage-backed securities held-to-maturity (fair value of
$926,240 and $1,071,251, respectively) 930,435 1,082,261
Other securities held-to-maturity (fair value of
$783,586 and $772,356, respectively) 838,790 817,696
Federal Home Loan Bank of New York stock 285,250 265,250
Loans held-for-sale 10,131 11,376
Loans receivable:
Mortgage loans, net 10,905,182 10,113,216
Consumer and other loans, net 180,581 175,858
------------ ------------
11,085,763 10,289,074
Less allowance for loan losses 78,957 76,578
------------ ------------
Total loans receivable, net 11,006,806 10,212,496
Mortgage servicing rights, net 43,730 48,369
Accrued interest receivable 116,098 110,668
Premises and equipment, net 155,061 176,813
Goodwill 209,473 223,945
Other assets 310,362 394,342
------------ ------------
Total assets $ 22,201,798 $ 22,696,536
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Savings $ 2,497,295 $ 2,581,442
Money market 1,421,439 1,165,734
NOW and money manager 956,942 877,715
Certificates of deposit 4,975,838 4,929,643
------------ ------------
Total deposits 9,851,514 9,554,534
Reverse repurchase agreements 7,935,000 9,276,800
Federal Home Loan Bank of New York advances 2,010,000 1,610,058
Other borrowings 506,638 514,663
Mortgage escrow funds 143,980 120,350
Accrued expenses and other liabilities 264,585 298,219
------------ ------------
Total liabilities 20,711,717 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 50,131,861 and 51,730,959 shares
outstanding, respectively) 555 555
Additional paid-in capital 803,589 800,414
Retained earnings 1,027,799 908,236
Treasury stock (5,366,435 and 3,767,337 shares, at cost, respectively) (182,865) (137,071)
Accumulated other comprehensive income:
Net unrealized loss on securities, net of taxes (255,282) (344,198)
Unallocated common stock held by ESOPs (30,702) (32,955)
Unearned common stock held by RRP (13) (69)
------------ ------------
Total stockholders' equity 1,365,081 1,196,912
------------ ------------
Total liabilities and stockholders' equity $ 22,201,798 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -----------------------
(In Thousands, Except Share Data) 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Mortgage loans $ 194,874 $ 172,208 $ 566,587 $ 502,014
Consumer and other loans 4,817 4,726 13,385 14,797
Mortgage-backed securities 141,394 167,422 443,419 497,287
Other securities 33,663 31,854 98,763 96,871
Federal funds sold and repurchase agreements 5,251 2,237 13,920 5,586
------------ ------------ ------------ ------------
Total interest income 379,999 378,447 1,136,074 1,116,555
------------ ------------ ------------ ------------
Interest expense:
Deposits 104,889 91,496 301,216 271,103
Borrowed funds 150,550 153,714 450,164 439,630
------------ ------------ ------------ ------------
Total interest expense 255,439 245,210 751,380 710,733
------------ ------------ ------------ ------------
Net interest income 124,560 133,237 384,694 405,822
Provision for loan losses 1,003 1,026 3,008 3,119
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 123,557 132,211 381,686 402,703
------------ ------------ ------------ ------------
Non-interest income:
Customer service and other loan fees 12,933 10,435 36,164 29,310
Loan servicing fees 2,161 2,813 7,703 12,135
Net gain on sales of securities -- -- -- 714
Net gain on sales of loans 273 209 568 3,255
Net gain on disposition of banking and loan production offices -- 20,447 3,976 19,206
Other 951 2,874 3,111 5,239
------------ ------------ ------------ ------------
Total non-interest income 16,318 36,778 51,522 69,859
------------ ------------ ------------ ------------
Non-interest expense:
General and administrative:
Compensation and benefits 18,493 22,542 58,289 70,586
Employee stock plans amortization 1,826 2,234 5,339 8,075
Occupancy, equipment and systems 12,451 13,215 39,763 40,356
Federal deposit insurance premiums 528 1,055 1,568 3,452
Advertising 2,756 2,085 6,992 5,938
Other 7,461 6,862 21,696 21,944
------------ ------------ ------------ ------------
Total general and administrative 43,515 47,993 133,647 150,351
Real estate operations and provision for losses, net 32 116 (257) (60)
Goodwill litigation 2,149 1,094 6,436 4,041
Capital trust securities 3,108 -- 9,324 --
Amortization of goodwill 4,824 4,843 14,472 14,592
------------ ------------ ------------ ------------
Total non-interest expense 53,628 54,046 163,622 168,924
------------ ------------ ------------ ------------
Income before income tax expense 86,247 114,943 269,586 303,638
Income tax expense 32,558 47,995 104,540 127,514
------------ ------------ ------------ ------------
Net income $ 53,689 $ 66,948 $ 165,046 $ 176,124
============ ============ ============ ============
Net income available to common shareholders $ 52,189 $ 65,448 $ 160,546 $ 171,624
============ ============ ============ ============
Basic earnings per common share $ 1.09 $ 1.27 $ 3.33 $ 3.32
==== ==== ==== ====
Diluted earnings per common share $ 1.07 $ 1.25 $ 3.28 $ 3.24
==== ==== ==== ====
Dividends per common share $ 0.26 $ 0.24 $ 0.76 $ 0.72
==== ==== ==== ====
Basic weighted average common shares 47,784,283 51,417,820 48,252,725 51,736,485
Diluted weighted average common and common equivalent shares 48,573,327 52,376,642 48,967,347 52,988,352
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-In Retained Treasury
(In Thousands, Except Share Data) Total Stock Stock Capital Earnings Stock
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $1,196,912 $2,000 $555 $800,414 $908,236 $(137,071)
Comprehensive income:
Net income 165,046 - - - 165,046 -
Other comprehensive income, net of tax:
Net unrealized gain on securities
88,916 - - - - -
---------
Total comprehensive income 253,962
---------
Common stock repurchased
(1,790,446 shares) (52,493) - - - - (52,493)
Dividends on common and preferred
stock and amortization of purchase
premium (42,143) - - (978) (41,165) -
Exercise of stock options and
related tax benefit 3,451 - - 1,070 (4,318) 6,699
Amortization relating to allocation
of ESOP stock and earned portion
of RRP stock and related tax benefit 5,392 - - 3,083 - -
--------- ------- ----- -------- -------- --------
Balance at September 30, 2000 $ 1,365,081 $ 2,000 $ 555 $ 803,589 $ 1,027,799 $ (182,865)
========== ====== ==== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Unallocated Unearned
Accumulated Common Common
Other Stock Stock
Comprehensive Held Held
(In Thousands, Except Share Data) Income by ESOPs by RRP
----------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1999 $(344,198) $(32,955) $(69)
Comprehensive income:
Net income - - -
Other comprehensive income, net of tax:
Net unrealized gain on securities
88,916 - -
Total comprehensive income
Common stock repurchased
(1,790,446 shares) - - -
Dividends on common and preferred
stock and amortization of purchase
premium - - -
Exercise of stock options and
related tax benefit - - -
Amortization relating to allocation
of ESOP stock and earned portion
of RRP stock and related tax benefit - 2,253 56
-------- ------- ---
Balance at September 30, 2000 $ (255,282) $ (30,702) $ (13)
========== ========= =====
</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 NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
(IN THOUSANDS) 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 165,046 $ 176,124
----------- -----------
Adjustments to reconcile net income to net cash provided
by operating activities:
Net accretion of discounts, premiums and deferred loan fees (44,305) (41,718)
Provision for loan and real estate losses 2,917 3,164
Depreciation and amortization 9,656 10,471
Net gain on sales of securities and loans (568) (3,969)
Net gain on sales of premises and equipment -- (487)
Net gain on disposition of banking and loan production offices (3,976) (19,206)
Proceeds from sales of loans held-for-sale, net of originations 6,916 126,503
Amortization of goodwill 14,472 14,592
Allocated and earned shares from ESOPs and RRP 5,339 8,075
Increase in accrued interest receivable (5,430) (13,275)
Capitalized mortgage servicing rights, net of amortization
and valuation allowance 4,639 280
Decrease in other assets 8,320 12,505
Decrease in accrued expenses and other liabilities (32,519) (51,540)
----------- -----------
Net cash provided by operating activities 130,507 221,519
----------- -----------
Cash flows from investing activities:
Origination of loans held-for-investment, net of principal payments (241,479) (876,658)
Loan purchases through third parties (571,653) (279,792)
Principal payments on mortgage-backed securities held-to-maturity 152,710 287,604
Principal payments on mortgage-backed securities available-for-sale 1,250,463 2,091,974
Purchases of mortgage-backed securities held-to-maturity -- (281,165)
Purchases of mortgage-backed securities available-for-sale -- (3,869,950)
Purchases of other securities held-to-maturity -- (42,078)
Purchases of other securities available-for-sale (5,040) (158,421)
Proceeds from maturities of other securities available-for-sale 302 58,884
Proceeds from maturities of other securities held-to-maturity 8,772 212,660
Purchases of FHLB stock, net (20,000) (51,750)
Proceeds from sales of securities available-for-sale -- 176,362
Proceeds from sales of real estate owned and investments in
real estate, net 7,156 11,989
Proceeds from disposition of banking and loan production offices 21,293 4,208
Purchases of premises and equipment, net of proceeds from sales (5,227) (22,780)
----------- -----------
Net cash provided by (used in) investing activities 597,297 (2,738,913)
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in deposits 296,902 (208,584)
Net (decrease) increase in reverse repurchase agreements (1,341,800) 2,485,000
Net increase in FHLB of New York advances 400,000 200,000
Net decrease in other borrowings (8,698) (43,261)
Increase in mortgage escrow funds 23,630 26,895
Costs to repurchase common stock (52,493) (66,729)
Cash dividends paid to stockholders (42,143) (42,791)
Cash received for options exercised 2,381 15,019
----------- -----------
Net cash (used in) provided by financing activities (722,221) 2,365,549
----------- -----------
Net increase (decrease) in cash and cash equivalents 5,583 (151,845)
Cash and cash equivalents at beginning of period 490,571 393,382
----------- -----------
Cash and cash equivalents at end of period $ 496,154 $ 241,537
=========== ===========
Supplemental disclosures:
Cash paid during the period:
Interest $ 758,863 $ 698,569
=========== ===========
Income taxes $ 73,009 $ 83,447
=========== ===========
Additions to real estate owned $ 6,826 $ 9,372
=========== ===========
</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: 1) Astoria
Federal Savings and Loan Association and its subsidiaries, referred to as
Astoria Federal; 2) Astoria Capital Trust I; and 3) AF Insurance Agency, Inc. As
used in this quarterly report, "we," "us" and "our" refer to Astoria Financial
Corporation and its consolidated subsidiaries, including Astoria Federal,
Astoria Capital Trust I and AF Insurance Agency, Inc., 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 September 30, 2000 and December 31, 1999, our results of operations for the
three and nine months ended September 30, 2000 and 1999, changes in our
stockholders' equity for the nine months ended September 30, 2000 and our cash
flows for the nine months ended September 30, 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 September 30, 2000 and December 31,
1999, and amounts of revenues and expenses for the consolidated statements of
income for the three and nine month periods ended September 30, 2000 and 1999.
The results of operations for the three and nine months ended September 30, 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.
6
<PAGE> 8
2. EARNINGS PER SHARE, OR EPS
The following table is a reconciliation of basic and diluted EPS:
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
-------------------------------------------------------------------------------------
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 $ 53,689 $66,948
Less: preferred stock dividends 1,500 1,500
----- -----
Basic EPS:
Income available to common
stockholders 52,189 47,784,283 $1.09 65,448 51,417,820 $1.27
==== ====
Effect of dilutive unexercised
stock options 789,044 (1) 958,822 (2)
------- -----------
Diluted EPS:
Income available to common
stockholders plus assumed
conversions $52,189 48,573,327 $1.07 $65,448 52,376,642 $1.25
====== ========== ==== ====== ========== ====
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
-------------------------------------------------------------------------------------
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 $165,046 $176,124
Less: preferred stock dividends 4,500 4,500
----- -----
Basic EPS:
Income available to common
stockholders 160,546 48,252,725 $3.33 171,624 51,736,485 $3.32
==== ====
Effect of dilutive unexercised
stock options 714,622 (3) 1,251,867 (4)
-------- -----------
Diluted EPS:
Income available to common
stockholders plus assumed
conversions $160,546 48,967,347 $3.28 $171,624 52,988,352 $3.24
======= ========== ==== ======= ========== ====
</TABLE>
(1) Options to purchase 1,001,803 shares of common stock at prices between
$36.00 per share and $59.75 per share were outstanding as of September 30,
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 for the three months ended September 30, 2000.
(2) Options to purchase 1,051,708 shares of common stock at prices between
$36.00 per share and $59.75 per share were outstanding as of September 30,
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 for the three months ended September 30, 1999.
(3) Options to purchase 1,640,153 shares of common stock at prices between
$29.24 per share and $59.75 per share were outstanding as of September 30,
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 for the nine months ended September 30, 2000.
(4) Options to purchase 737,352 shares of common stock at prices between $45.06
per share and $59.75 per share were outstanding as of September 30, 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 for the nine months ended September 30, 1999.
7
<PAGE> 9
3. GUARANTEED PREFERRED BENEFICIAL INTEREST IN JUNIOR SUBORDINATED DEBENTURES
On October 28, 1999, our wholly-owned finance 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 the Series A Capital
Securities. Effective April 26, 2000, $120.0 million aggregate liquidation
amount of the Series A Capital Securities were exchanged for a like amount of
9.75% Capital Securities due November 1, 2029, Series B, also issued by Astoria
Capital Trust I, referred to as the Series B Capital Securities. The Series A
Capital Securities and Series B Capital Securities have substantially identical
terms except that the Series B Capital Securities have been registered with the
Securities and Exchange Commission. Together they are referred to as the Capital
Securities. We have fully and unconditionally guaranteed the Capital Securities
along with all obligations of Astoria Capital Trust I under the trust agreement.
Astoria Capital Trust I was formed for the exclusive purpose of issuing the
Capital Securities and common securities and using the proceeds to acquire an
aggregate principal amount of $128.9 million of our 9.75% Junior Subordinated
Debentures due November 1, 2029, referred to as Junior Subordinated Debentures.
The sole assets of Astoria Capital Trust I are the Junior Subordinated
Debentures. The Junior Subordinated Debentures are prepayable, in whole or in
part, at our option on or after November 1, 2009 at declining premiums to
maturity. Proceeds from the issuance of the Junior Subordinated Debentures
totaling $31.3 million were used to increase the capital level of Astoria
Federal and the remaining proceeds were used primarily for the repurchase of our
common stock.
The balance outstanding on the Capital Securities was $125.0 million at
September 30, 2000. The costs associated with the Capital Securities issuance
have been capitalized and are being amortized over a period of ten years.
Distributions on the Capital Securities are payable semi-annually, on May 1 and
November 1, and are reflected in our Consolidated Statements of Income as a
component of non-interest expense under the caption "Capital trust securities."
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
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
8
<PAGE> 10
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.
On October 28, 1999, our wholly-owned subsidiary, Astoria Capital Trust I,
issued $125.0 million of Series A Capital Securities and $3.9 million of common
securities and used the proceeds to acquire $128.9 million of Junior
Subordinated Debentures issued by us. See "Notes to Consolidated Financial
Statements" for further discussion of the Capital Securities, Junior
Subordinated Debentures and use of proceeds.
On April 1, 2000, we established our wholly-owned subsidiary AF Insurance
Agency, Inc. AF Insurance Agency, Inc. is a New York licensed life insurance and
variable annuity agent and property and casualty insurance broker. Through a
contractual arrangement with Treiber Insurance and IFS Agencies, AF Insurance
Agency, Inc. provides insurance products to the customers of Astoria Federal.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of funds is cash provided by principal and interest
payments on loans and mortgage-backed and other securities. Principal payments
on loans and mortgage-backed securities and proceeds from maturities of other
securities totaled $2.56 billion for the nine months ended September 30, 2000
and $4.39 billion for the nine months ended September 30, 1999. The reduction in
loan and security repayments is a result of the higher interest rate environment
that has prevailed since the middle of 1999. Our other sources of funds are
provided by operating and financing activities, although for the nine months
ended September 30, 2000 we have decreased our borrowings outstanding which has
resulted in the net use of funds from financing activities during this period.
Net cash provided from operating activities totaled $130.5 million during the
nine months ended September 30, 2000 and $221.5 million during the nine months
ended September 30, 1999. During the nine months ended September 30, 2000, net
borrowings decreased $950.5 million, while net deposits increased $296.9
million. During the nine months ended September 30, 1999, net borrowings
increased $2.64 billion, while net deposits decreased $208.6 million. The net
increase in deposits for the nine months ended September 30, 2000 reflects our
continued emphasis on attracting customer deposits by offering competitive
rates. The net decrease in deposits during the nine months ended September 30,
1999 was primarily due to
9
<PAGE> 11
the sale of our five upstate New York banking offices, with deposits totaling
$156.4 million, in the third quarter of 1999.
Our primary use of funds is for the origination and purchase of mortgage
loans and the purchase of mortgage-backed and other securities, although for the
past eighteen months our emphasis has been on the origination and purchase of
mortgage loans. During the nine months ended September 30, 2000, our gross
originations and purchases of mortgage loans totaled $1.94 billion, compared to
$3.11 billion during the nine months ended September 30, 1999. This decrease was
attributable to the current interest rate environment, which has resulted in a
significant decrease in mortgage refinance activity, and our disposition of
certain loan production offices, or LPOs, in March 1999. Our purchases of other
securities totaled $5.0 million during the nine months ended September 30, 2000
versus purchases of mortgage-backed and other securities of $4.35 billion during
the comparable 1999 period. There were no purchases of mortgage-backed
securities during the nine months ended September 30, 2000, which is consistent
with our objective to reposition our balance sheet through increases in loans
and decreases in securities.
Stockholders equity totaled $1.37 billion at September 30, 2000 and $1.20
billion at December 31, 1999. Increases to stockholders' equity included net
income of $165.0 million, an $88.9 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 $3.5 million and the amortization for
the allocated portion of shares held by the Employee Stock Ownership Plans, or
ESOPs, and the related tax benefit on the earned portion of the shares held by
the Recognition and Retention Plan, or RRP, totaling $5.4 million. These
increases were partially offset by repurchases of our common stock of $52.5
million and dividends declared of $42.1 million.
During the quarter ended September 30, 2000, we completed our sixth stock
repurchase plan. On August 16, 2000, our Board of Directors approved our seventh
stock repurchase plan authorizing the purchase, at management's discretion, of
5,000,000 shares, or approximately 10% of our common stock outstanding over a
two year period in open-market or privately negotiated transactions. During the
nine months ended September 30, 2000, 1,790,446 shares of our common stock were
repurchased, of which 548,000 shares were acquired pursuant to our seventh stock
repurchase plan, at an aggregate cost of $52.5 million.
On September 1, 2000, we paid a quarterly cash dividend equal to $0.26 per
share on shares of our common stock outstanding as of the close of business on
August 15, 2000, totaling $12.7 million. On October 18, 2000, we declared a
quarterly cash dividend of $0.26 per share on shares of our common stock payable
on December 1, 2000 to stockholders of record as of the close of business on
November 15, 2000. During each of the three month periods ended September 30,
2000 and 1999, we declared cash dividends on our Series B Preferred Stock
aggregating $1.5 million.
Astoria Federal is required by the Office of Thrift Supervision, or 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 ratio was 7.10% at
September 30, 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.
10
<PAGE> 12
At September 30, 2000, Astoria Federal's total capital exceeded all of its
regulatory capital requirements with a tangible ratio of 6.69%, leverage ratio
of 6.69%, and risk-based capital ratio of 16.44%. 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, Astoria Capital Trust I issued $125.0 million of
Series A Capital Securities. For further discussion of the Capital Securities
see "Notes to Consolidated Financial Statements" and "General."
INTEREST RATE SENSITIVITY ANALYSIS
As a financial institution, the primary component of our 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, i.e. our
interest rate sensitivity gap. 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 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 result in an increase in net interest income.
The actual duration of mortgage loans and mortgage-backed securities can be
significantly impacted by changes in mortgage prepayments. The major factors
affecting mortgage prepayment rates are prevailing interest rates and related
mortgage refinancing opportunities. In addition, prepayment rates will vary due
to a number of other 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.
The following table, referred to as the Gap Table, sets forth the amount of
interest-earning assets and interest-bearing liabilities outstanding at
September 30, 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
11
<PAGE> 13
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. 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 in determining if and when they
may be exercised. In our past experience, even though callable borrowings were
at or below market rates, a significant portion were not called, and therefore,
were included in the Gap Table based on their contractual maturity. The previous
increases in interest rates in the first half of 2000, have resulted in a
majority of the holders of these call options exercising their rights.
Therefore, in the June 30, 2000 Gap Table and the September 30, 2000 Gap Table,
callable borrowings have been classified according to their call dates. At
September 30, 2000, callable borrowings classified according to their call dates
totaled $6.89 billion, of which $4.58 billion are callable within one year and
at various times thereafter. During the nine months ended September 30, 2000,
$2.69 billion in borrowings were called. Also included in this table are $1.31
billion of callable other securities, classified according to their maturity
dates, which are primarily within the more than five years maturity category. Of
such securities $1.24 billion are callable within one year and at various other
times thereafter. The classification of these securities by maturity date is
based upon our experience which, in the current interest rate environment, has
indicated that the issuers of these securities have not been exercising their
call options.
At September 30, 2000, interest-bearing liabilities maturing or repricing
within one year exceeded net interest-earning assets maturing or repricing
within the same time period by $4.57 billion, representing a negative cumulative
one-year gap of 20.59% of total assets. This compares to interest-bearing
liabilities maturing or repricing within one year exceeding net interest-earning
assets maturing or repricing within the same time period by $3.64 billion,
representing a negative cumulative one-year gap of 16.04% of total assets at
December 31, 1999, using the same set of assumptions which were used in the
September 30, 2000 Gap Table. At December 31, 1999 with callable borrowings
classified according to their contractual maturity dates, as previously
reported, our net interest-earning assets maturing or repricing within one year
exceeded 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.
Our September 30, 2000 and December 31, 1999 cumulative one-year gap
positions, both as adjusted and as previously reported, 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 September 30, 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 $1.12 billion, representing
a positive cumulative one-year gap of 5.03% 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 $2.67 billion, representing a positive cumulative
one-year gap of 11.78% of total assets, as adjusted, using the same set of
assumptions which were used in the September 30, 2000 Gap Table. Using this
method at December 31, 1999 with callable borrowings classified according to
their contractual maturity dates, as previously reported, 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
12
<PAGE> 14
29.74% of total assets. The available-for-sale securities may or may not be
sold, subject to our discretion.
<TABLE>
<CAPTION>
At September 30, 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) $ 2,425,603 $ 2,960,937 $ 2,708,605 $ 2,717,718 $ 10,812,863
Consumer and other loans (1) 141,136 33,029 4,719 - 178,884
Federal funds sold and
repurchase agreements 368,476 - - - 368,476
Mortgage-backed and other
securities available-for-sale 2,111,243 1,848,033 1,153,618 2,686,614 7,799,508
Mortgage-backed and other
securities held-to-maturity 357,015 203,600 132,571 1,364,361 2,057,547
----------------------------------------------------------------------------------------
Total interest-earning assets 5,403,473 5,045,599 3,999,513 6,768,693 21,217,278
Add:
Net unamortized purchase
premiums and deferred costs (2) 14,116 17,942 16,584 16,232 64,874
----------------------------------------------------------------------------------------
Net interest-earning assets $ 5,417,589 $ 5,063,541 $ 4,016,097 $ 6,784,925 $ 21,282,152
----------------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings $ 137,465 $ 274,932 $ 274,932 $ 1,809,966 $ 2,497,295
NOW and money manager 25,477 50,951 50,951 419,079 546,458
Money market 1,286,133 14,243 14,243 106,820 1,421,439
Certificates of deposit 2,903,433 1,246,902 766,977 58,526 4,975,838
Borrowed funds 5,636,751 4,204,887 610,000 - 10,451,638
----------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 9,989,259 $ 5,791,915 $ 1,717,103 $ 2,394,391 $19,892,668
----------------------------------------------------------------------------------------
Interest sensitivity gap $ (4,571,670) $ (728,374) $ 2,298,994 $ 4,390,534 $ 1,389,484
Cumulative interest sensitivity gap ----------------------------------------------------------------------------------------
$ (4,571,670) $ (5,300,044) $ (3,001,050) $ 1,389,484
----------------------------------------------------------------------------------------
Cumulative interest sensitivity gap
as a percentage of total assets (20.59)% (23.87)% (13.52)% 6.26%
Cumulative net interest-earning assets
as a percentage of interest-bearing
liabilities 54.23% 66.42% 82.85% 106.98%
</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
13
<PAGE> 15
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 the 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 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, except for the scenarios which involve decreases in interest
rates, for which we have assumed, in the NPV Table, that those borrowings with
embedded call options will not be called at their next available call date.
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. Certain assets, including fixed assets and real estate
held for investment, 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 September 30,
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 $1,613,071 $(763,597) (32.13)% 7.85% (2.99)%
+100 2,035,176 (341,492) (14.37) 9.57 (1.27)
-0- 2,376,668 - - 10.84 -
-100 2,847,763 471,095 19.82 12.59 1.75
-200 2,617,444 240,776 10.13 11.40 0.56
</TABLE>
14
<PAGE> 16
Our NPV ratio of 10.84% in a flat rate scenario and 7.85% in the up 200
basis point rate shock, as well as the sensitivity measure of negative 2.99% in
the up 200 basis point rate shock as of September 30, 2000, have improved from
the December 31, 1999 results of 9.92% NPV ratio in a flat rate scenario, 6.24%
in the up 200 basis point rate shock and the sensitivity measure of negative
3.68% in the up 200 basis point rate shock. These improvements are a result of a
variety of factors including: capital increases from earnings, reduction in
total assets, growth of core deposits, emphasis on ARM products and a reduction
in callable borrowings.
As with the Gap Table, certain shortcomings are inherent in the methodology
used in the NPV Table. 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.
LOAN PORTFOLIO
The following table sets forth the composition of our loans receivable and
loans held-for-sale portfolios at September 30, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
At September 30, 2000 At December 31, 1999
-------------------------------- ----------------------------
Percent Percent
(Dollars in Thousands) Amount of Total Amount of Total
-------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
MORTGAGE LOANS (GROSS) (1):
One-to-four family...................... $9,608,676 87.13% $9,018,270 88.05%
Multi-family............................ 750,259 6.80 615,438 6.01
Commercial real estate.................. 489,115 4.44 433,035 4.23
----------- ----- ---------- -------
Total mortgage loans....................... 10,848,050 98.37 10,066,743 98.29
----------- ----- ---------- -------
CONSUMER AND OTHER LOANS (GROSS):
Home equity ............................ 128,002 1.16 116,726 1.14
Passbook ............................... 8,642 0.08 7,481 0.07
Other .................................. 43,254 0.39 50,697 0.50
----------- ---- ---------- -------
Total consumer and other loans.............. 179,898 1.63 174,904 1.71
----------- ---- ---------- -------
TOTAL LOANS................................. 11,027,948 100.00% 10,241,647 100.00%
---------- ====== ---------- =======
LESS:
Unamortized premiums, discounts
and deferred loan costs and
fees, net......................... 67,946 58,803
Allowance for loan losses............... (78,957) (76,578)
------------- ----------
TOTAL LOANS, NET............................ $11,016,937 $10,223,872
========== ==========
</TABLE>
--------------
(1) These amounts include mortgage loans classified as held-for-sale totaling
$10.1 million at September 30, 2000 and $11.4 million at December 31, 1999.
15
<PAGE> 17
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 September 30, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
At September 30, 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 $ 107,100 $ 560 $ (2,096) $ 105,564
FHLMC pass-through certificates 198,254 1,340 (2,387) 197,207
FNMA pass-through certificates 382,946 5,095 (1,780) 386,261
REMICs and CMOs:
Agency issuance 5,312,855 1,448 (310,477) 5,003,826
Non agency issuance 1,460,926 646 (48,201) 1,413,371
---------- ---------- ---------- ----------
Total mortgage-backed securities 7,462,081 9,089 (364,941) 7,106,229
---------- ---------- ---------- ----------
Other securities:
Obligations of the U.S.
Government and agencies 563,203 -- (60,063) 503,140
Corporate debt securities 66,268 -- (9,990) 56,278
FNMA and FHLMC preferred stock 147,515 53 (15,306) 132,262
Asset-backed and other securities 1,602 -- (3) 1,599
---------- ---------- ---------- ----------
Total other securities 778,588 53 (85,362) 693,279
---------- ---------- ---------- ----------
Total available-for-sale $8,240,669 $ 9,142 $ (450,303) $7,799,508
========== ========== ========== ==========
HELD-TO-MATURITY:
Mortgage-backed securities:
GNMA pass-through certificates $ 3,467 $ 142 $ (3) $ 3,606
FHLMC pass-through certificates 37,181 661 (37) 37,805
FNMA pass-through certificates 11,933 9 (460) 11,482
REMICs and CMOs:
Agency issuance 566,761 2,622 (3,508) 565,875
Non agency issuance 311,093 350 (3,971) 307,472
---------- ---------- ---------- ----------
Total mortgage-backed securities 930,435 3,784 (7,979) 926,240
---------- ---------- ---------- ----------
Other securities:
Obligations of the U.S.
Government and agencies 794,502 -- (55,170) 739,332
Obligations of states and
political subdivisions 44,288 -- (34) 44,254
---------- ---------- ---------- ----------
Total other securities 838,790 -- (55,204) 783,586
---------- ---------- ---------- ----------
Total held-to-maturity $1,769,225 $ 3,784 $ (63,183) $1,709,826
========== ========== ========== ==========
</TABLE>
16
<PAGE> 18
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>
17
<PAGE> 19
COMPARISON OF FINANCIAL CONDITION AS OF
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
AND OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999
FINANCIAL CONDITION
We continue to emphasize fund deployment on the origination and purchase of
one-to-four family mortgage loans. We continue to sell our conforming,
one-to-four family 15-year and 30- year fixed-rate mortgage loan production, but
retain for portfolio our ARM and other fixed-rate loan production. Additionally,
we originate for portfolio fixed- and adjustable-rate multi-family and
commercial mortgage loans. We are continuing to shift our asset mix towards
growth in mortgage loans, primarily ARM loans, versus growth in securities. If
the current interest rate environment continues and the opportunity for asset
growth with attractive interest rate spreads remains limited, we may continue to
limit our asset growth or shrink the balance sheet, as we have been doing over
the past eighteen months.
Total assets decreased $494.7 million, to $22.20 billion at September 30,
2000, from $22.70 billion at December 31, 1999. Mortgage-backed securities
decreased $1.25 billion to $8.04 billion at September 30, 2000, from $9.29
billion at December 31, 1999, due to principal payments of $1.40 billion,
slightly offset by a decrease in the net unrealized loss on securities
available-for-sale of $149.5 million. Mortgage loans, net, increased $792.0
million, from $10.11 billion at December 31, 1999 to $10.91 billion at September
30, 2000. Gross mortgage loans originated and purchased during the nine months
ended September 30, 2000 totaled $1.94 billion, of which $1.37 billion were
originations and $568.5 million were purchases. These originations and purchases
consisted primarily of one-to-four family residential mortgage loans. This
compares to $2.83 billion of originations and $280.6 million of purchases during
the nine months ended September 30, 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 reduced the level of
mortgage refinance activity, and the sale of certain LPOs in March 1999. There
were no purchases of mortgage-backed securities during the nine months ended
September 30, 2000.
In addition to the changes noted above in the mortgage-backed securities
and mortgage loan portfolios, federal funds sold and repurchase agreements
increased $32.8 million from $335.7 million at December 31, 1999, to $368.5
million at September 30, 2000. Other securities increased $56.6 million to $1.53
billion at September 30, 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. Premises and equipment, net, decreased $21.7 million from
$176.8 million at December 31, 1999 to $155.1 million at September 30, 2000,
primarily due to the completion of the sale of the former Long Island Bancorp,
Inc., or LIB, headquarters in April 2000. (See "Non-interest income.") Other
assets decreased $83.9 million to $310.4 million at September 30, 2000 from
$394.3 million at December 31, 1999, primarily due to the decrease in the
deferred tax asset of which $75.4 million resulted from the decrease in the
unrealized loss on securities available-for-sale.
18
<PAGE> 20
Reverse repurchase agreements decreased $1.34 billion, to $7.94 billion at
September 30, 2000, from $9.28 billion at December 31, 1999. Federal Home Loan
Bank of New York advances increased $400.0 million to $2.01 billion at September
30, 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 $3.2 billion in borrowings
which either matured or were called during the nine months ended September 30,
2000. The remaining balance of these borrowings was rolled into short- and
medium-term borrowings without call features. Deposits increased $297.0 million
from $9.55 billion at December 31, 1999 to $9.85 billion at September 30, 2000
primarily due to our current emphasis on deposit generation through competitive
rates and new product offerings.
Stockholders' equity totaled $1.37 billion at September 30, 2000 and $1.20
billion at December 31, 1999. Increases to stockholders' equity included net
income of $165.0 million, an $88.9 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 $3.5 million and the amortization for
the allocated portion of shares held by the ESOPs and the related tax benefit on
the earned portion of the shares held by the RRP totaling $5.4 million. These
increases were partially offset by repurchases of our common stock of $52.5
million and dividends declared of $42.1 million.
RESULTS OF OPERATIONS
GENERAL
The results of operations include net gains on disposition of banking and
loan production offices, net of taxes, totaling $2.4 million for the nine months
ended September 30, 2000, $11.9 million for the three months ended September 30,
1999 and $11.1 million for the nine months ended September 30, 1999. There were
no gains on disposition of banking and loan production offices for the quarter
ended September 30, 2000.
Net income for the three months ended September 30, 2000 decreased $13.2
million to $53.7 million, from $66.9 million for the three months ended
September 30, 1999. For the three months ended September 30, 2000, diluted
earnings per common share decreased to $1.07 per share, as compared to $1.25 per
share for the three months ended September 30, 1999. Return on average assets
decreased to 0.97% for the three months ended September 30, 2000, from 1.16% for
the three months ended September 30, 1999. Return on average stockholders'
equity decreased to 16.31% for the three months ended September 30, 2000, from
20.27% for the three months ended September 30, 1999. Return on average tangible
stockholders' equity decreased to 19.45% for the three months ended September
30, 2000, from 24.59% for the three months ended September 30, 1999.
Net income for the nine months ended September 30, 2000 decreased $11.1
million to $165.0 million, from $176.1 million for the nine months ended
September 30, 1999. For the nine months ended September 30, 2000, diluted
earnings per common share increased to $3.28 per share, as compared to $3.24 per
share for the nine months ended September 30, 1999. Return on average assets
decreased to 0.99% for the nine months ended September 30, 2000, from 1.03% for
the nine months ended September 30, 1999. Return on average stockholders' equity
increased to 17.59% for the nine months ended September 30, 2000, from 16.83%
for the nine months ended September 30, 1999. Return on average tangible
stockholders' equity increased to 21.28% for the nine months ended September 30,
2000, from 20.28% for the nine months ended September 30, 1999.
19
<PAGE> 21
The following comparisons set forth in this paragraph exclude the net gains
on disposition of banking and loan production offices. Operating income for the
three months ended September 30, 2000 totaled $53.7 million and $162.6 million
for the nine months ended September 30, 2000. Operating income for the three
months ended September 30, 1999 totaled $55.0 million and $165.0 million for
the nine months ended September 30, 1999. For the three months ended September
30, 2000, diluted operating earnings per common share totaled $1.07 per share
and $3.23 per share for the nine months ended September 30, 2000. For the three
months ended September 30, 1999, diluted operating earnings per common share
totaled $1.02 per share and $3.03 per share for the nine months ended September
30, 1999. Return on average assets was 0.97% for the three months and nine
months ended September 30, 2000, 0.96% for the three months ended September
30, 1999 and 0.97% for the nine months ended September 30, 1999. Return on
average stockholders' equity was 16.31% for the three months ended September
30, 2000 and 17.33% for the nine months ended September 30, 2000. Return on
average stockholders' equity was 16.66% for the three months ended September
30, 1999 and 15.76% for the nine months ended September 30, 1999. Return on
average tangible stockholders' equity was 19.45% for the three months ended
September 30, 2000 and 20.97% for the nine months ended September 30, 2000.
Return on average tangible stockholders' equity was 20.22% for the three months
ended September 30, 1999 and 19.00% for the nine months ended September 30,
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 interest rate environment, we
expect to continue to experience compression of our net interest rate spread and
net interest margin.
For the three months ended September 30, 2000, net interest income
decreased $8.6 million, to $124.6 million, from $133.2 million for the three
months ended September 30, 1999. This decrease was the result of a decrease in
the net interest rate spread to 1.97% for the three months ended September 30,
2000, from 2.16% for the three months ended September 30, 1999, partially offset
by an increase in average net interest-earning assets of $287.9 million. The
change in the net interest rate spread resulted from an increase in the average
cost of interest-bearing liabilities to 5.03% for the three months ended
September 30, 2000, from 4.62% for the three months ended September 30, 1999,
partially offset by an increase in the average yield on total interest-earning
assets to 7.00% for the three months ended September 30, 2000, from 6.78% for
the three months ended September 30, 1999. The net interest margin was 2.29% for
the three months ended September 30, 2000 and 2.39% for the three months ended
September 30, 1999.
For the nine months ended September 30, 2000, net interest income decreased
$21.1 million, to $384.7 million, from $405.8 million for the nine months ended
September 30, 1999. This decrease was the result of a decrease in the net
interest rate spread to 2.04% for the nine months ended September 30, 2000, from
2.26% for the nine months ended September 30, 1999, partially offset by an
increase in average net interest-earning assets of $301.3 million. The change in
the net interest rate spread resulted from an increase in the average cost of
interest-bearing liabilities to 4.88% for the nine months ended September 30,
2000, from 4.54% for the nine months ended September 30, 1999, partially offset
by an increase in the average yield on total interest-earning
20
<PAGE> 22
assets to 6.92% for the nine months ended September 30, 2000, from 6.80% for the
nine months ended September 30, 1999. The net interest margin was 2.34% for the
nine months ended September 30, 2000 and 2.47% for the nine months ended
September 30, 1999.
The increase in average net interest-earning assets for both the three and
nine month periods ended September 30, 2000 over the comparable 1999 periods is
the result of the combined effect of an increase in average mortgage loans, a
decrease in average mortgage-backed securities and a decrease in average
borrowed funds. These changes reflect our decisions to limit our balance sheet
growth, emphasize our origination of one-to-four family mortgage loans and
attract customer deposits.
ANALYSIS OF NET INTEREST INCOME
The following table sets forth certain information for the three and nine
months ended September 30, 2000 and 1999. Yields are derived by dividing income
by the average balance of the related assets and costs are derived by dividing
expense by the average balance of the related liabilities for the periods shown.
The average balance of loans receivable includes loans on which we have
discontinued accruing interest. The yields and costs include the amortization of
costs, fees, premiums and discounts which are considered adjustments to interest
rates.
21
<PAGE> 23
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Cost Balance Interest Cost
----------------------------------------------------------------------------------------------------------------------------------
ASSETS: (Annualized) (Annualized)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (1) $10,772,053 $194,874 7.24% $ 9,723,462 $172,208 7.08%
Consumer and other loans (1) 176,353 4,817 10.93 192,741 4,726 9.81
Mortgage-backed securities (2) 8,552,747 141,394 6.61 10,434,731 167,422 6.42
Other securities (2) 1,897,138 33,663 7.10 1,809,690 31,854 7.04
Federal funds sold and
repurchase agreements 315,569 5,251 6.66 171,470 2,237 5.22
---------- -------- ---------- -------
Total interest-earning assets 21,713,860 379,999 7.00 22,332,094 378,447 6.78
-------- -------
Non-interest-earning assets 449,125 656,870
---------- ----------
Total assets $22,162,985 $22,988,964
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Savings $ 2,530,207 $ 12,864 2.03% $ 2,688,840 $ 13,718 2.04%
Certificates of deposit 4,940,325 71,739 5.81 4,883,535 64,517 5.28
NOW and money manager 947,451 1,366 0.58 873,694 1,282 0.59
Money market 1,378,638 18,920 5.49 1,096,111 11,979 4.37
---------- -------- ---------- ------
Total deposits 9,796,621 104,889 4.28 9,542,180 91,496 3.84
Borrowed funds 10,523,713 150,550 5.72 11,684,305 153,714 5.26
---------- -------- ---------- -------
Total interest-bearing liabilities 20,320,334 255,439 5.03 21,226,485 245,210 4.62
-------- -------
Non-interest-bearing liabilities 526,135 441,308
---------- ----------
Total liabilities 20,846,469 21,667,793
Stockholders' equity 1,316,516 1,321,171
---------- ----------
Total liabilities and stockholders'
equity $22,162,985 $22,988,964
========== ==========
Net interest income/net interest
rate spread $124,560 1.97% $133,237 2.16%
======== ==== ======= ====
Net interest-earning assets/net
interest margin $ 1,393,526 2.29% $ 1,105,609 2.39%
========== ==== ========== ====
Ratio of interest-earning assets
to interest-bearing liabilities 1.07x 1.05x
==== ====
</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.
22
<PAGE> 24
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Cost Balance Interest Cost
-------------------------------------------------------------------------------------------------------------------------------
ASSETS: (Annualized) (Annualized)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (1) $10,510,923 $ 566,587 7.19% $ 9,374,928 $ 502,014 7.14%
Consumer and other loans (1) 174,778 13,385 10.21 207,328 14,797 9.52
Mortgage-backed securities (2) 9,028,021 443,419 6.55 10,333,972 497,287 6.42
Other securities (2) 1,876,043 98,763 7.02 1,841,231 96,871 7.01
Federal funds sold and
repurchase agreements 296,785 13,920 6.25 150,831 5,586 4.94
---------- --------- ---------- ---------
Total interest-earning assets 21,886,550 1,136,074 6.92 21,908,290 1,116,555 6.80
--------- ---------
Non-interest-earning assets 433,497 790,341
---------- ----------
Total assets $22,320,047 $22,698,631
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Savings $ 2,557,121 $ 38,659 2.02% $ 2,726,939 $ 41,085 2.01%
Certificates of deposit 4,941,305 207,461 5.60 4,964,526 194,136 5.21
NOW and money manager 930,113 4,049 0.58 893,610 3,811 0.57
Money market 1,298,538 51,047 5.24 1,004,608 32,071 4.26
---------- --------- ---------- --------
Total deposits 9,727,077 301,216 4.13 9,589,683 271,103 3.77
Borrowed funds 10,810,106 450,164 5.55 11,270,505 439,630 5.20
---------- --------- ---------- --------
Total interest-bearing liabilities 20,537,183 751,380 4.88 20,860,188 710,733 4.54
--------- --------
Non-interest-bearing liabilities 531,597 442,884
---------- ----------
Total liabilities 21,068,780 21,303,072
Stockholders' equity 1,251,267 1,395,559
---------- ----------
Total liabilities and stockholders'
equity $22,320,047 $22,698,631
========== ==========
Net interest income/net interest
rate spread $ 384,694 2.04% $405,822 2.26%
========= ==== ======= ====
Net interest-earning assets/net
interest margin $ 1,349,367 2.34% $ 1,048,102 2.47%
========== ==== ========== ====
Ratio of interest-earning assets
to interest-bearing liabilities 1.07x 1.05x
==== ====
</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.
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.
23
<PAGE> 25
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000 Nine Months Ended September 30, 2000
Compared to Compared to
Three Months Ended September 30, 1999 Nine Months Ended September 30, 1999
--------------------------------------------------------------------------------------
(In Thousands) Increase (Decrease) Increase (Decrease)
--------------------------------------------------------------------------------------------------------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans...................... $18,739 $3,927 $22,666 $61,045 $3,528 $64,573
Consumer and other loans............ (422) 513 91 (2,434) 1,022 (1,412)
Mortgage-backed securities.......... (30,874) 4,846 (26,028) (63,797) 9,929 (53,868)
Other securities.................... 1,538 271 1,809 1,759 133 1,892
Federal funds sold and repurchase
agreements....................... 2,269 745 3,014 6,541 1,793 8,334
----- --- ----- ----- ----- -----
Total.................................. (8,750) 10,302 1,552 3,114 16,405 19,519
----- ------ ----- ----- ------ ------
Interest-bearing liabilities:
Savings............................. (789) (65) (854) (2,626) 200 (2,426)
Certificates of deposit ............ 750 6,472 7,222 (924) 14,249 13,325
NOW and money manager............... 107 (23) 84 166 72 238
Money market ....................... 3,481 3,460 6,941 10,623 8,353 18,976
Borrowed funds...................... (15,974) 12,810 (3,164) (18,369) 28,903 10,534
------ ------ ------ ------ ------ ------
Total.................................. (12,425) 22,654 10,229 (11,130) 51,777 40,647
------ ------ ------ ------ ------ ------
Net change in net interest
income.............................. $3,675 $(12,352) $(8,677) $14,244 $(35,372) $(21,128)
===== ======= ====== ====== ======= =======
</TABLE>
INTEREST INCOME
Interest income for the three months ended September 30, 2000 increased
$1.6 million to $380.0 million, from $378.4 million for the three months ended
September 30, 1999. This increase was the result of an increase in the average
yield on interest-earning assets to 7.00% for the three months ended September
30, 2000, from 6.78% for the three months ended September 30, 1999, partially
offset by a $618.2 million decrease in average interest-earnings assets to
$21.71 billion for the three months ended September 30, 2000, from $22.33
billion for the three months ended September 30, 1999. The decrease in average
interest-earning assets was primarily due to a decrease in the average balance
of mortgage-backed securities resulting from principal repayments, partially
offset by an increase in the average balance of mortgage loans. The net decrease
and shift in assets reflect our decision to limit balance sheet growth while
continuing to emphasize one-to-four family mortgage lending.
Interest income on mortgage loans increased $22.7 million to $194.9 million
for the three months ended September 30, 2000, from $172.2 million for the three
months ended September 30, 1999, which was the result of a $1.05 billion
increase in the average balance of mortgage loans, coupled with an increase in
the average yield on mortgage loans to 7.24% for the three months ended
September 30, 2000, from 7.08% for the three months ended September 30, 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 coupled with a reduction in repayments.
24
<PAGE> 26
Interest income on mortgage-backed securities decreased $26.0 million to
$141.4 million for the three months ended September 30, 2000, from $167.4
million for the three months ended September 30, 1999. This decrease was the
result of a $1.88 billion decrease in the average balance of this portfolio,
partially offset by an increase in the average yield to 6.61% for the three
months ended September 30, 2000 from 6.42% for three months ended September 30,
1999. Interest income on other securities increased $1.8 million to $33.7
million for the three months ended September 30, 2000, from $31.9 million for
the three months ended September 30, 1999. This was the result of an increase in
the average balance of this portfolio of $87.4 million coupled with an increase
in the average yield to 7.10% for the three months ended September 30, 2000,
from 7.04% for the three months ended September 30, 1999. Interest income on
federal funds sold and repurchase agreements increased $3.1 million to $5.3
million for the three months ended September 30, 2000, from $2.2 million for the
three months ended September 30, 1999. This was the result of an increase in the
average balance of $144.1 million, coupled with an increase in the average yield
to 6.66% for the three months ended September 30, 2000, from 5.22% for the three
months ended September 30, 1999. The increases in the average yields on
interest-earning assets are the result of rising interest rates.
For the nine months ended September 30, 2000, interest income increased
$19.5 million, to $1.14 billion, from $1.12 billion for the nine months ended
September 30,1999. This increase was the result of an increase in the average
yield on interest-earning assets to 6.92% for the nine months ended September
30, 2000, from 6.80% for the nine months ended September 30, 1999, coupled with
the repositioning of interest-earning assets, which remained stable, from
securities to mortgages.
Interest income on mortgage loans increased $64.6 million to $566.6 million
for the nine months ended September 30, 2000, from $502.0 million for the nine
months ended September 30, 1999, which was the result of a $1.14 billion
increase in the average balance of mortgage loans, coupled with an increase in
the average yield on mortgage loans to 7.19% for the nine months ended September
30, 2000, from 7.14% for the comparable period in 1999. Although interest rates
have increased from the comparable 1999 period, we experienced only a slight
increase 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 loan portfolio. Interest income on
consumer and other loans decreased $1.4 million resulting from a decrease in the
average balance of this portfolio of $32.6 million, partially offset by an
increase in the average yield to 10.21% for the nine months ended September 30,
2000, from 9.52% for the nine months ended September 30, 1999.
Interest income on mortgage-backed securities decreased $53.9 million to
$443.4 million for the nine months ended September 30, 2000, from $497.3 million
for the nine months ended September 30, 1999. This decrease was the result of a
$1.31 billion decrease in the average balance of the portfolio, partially offset
by an increase in the average yield to 6.55% for the nine months ended September
30, 2000, from 6.42% for the nine months ended September 30, 1999. Interest
income on other securities increased $1.9 million resulting from an increase in
the average balance of this portfolio of $34.8 million, coupled with a slight
increase in the average yield to 7.02% for the nine months ended September 30,
2000, from 7.01% for the comparable period in 1999. Interest income on federal
funds sold and repurchase agreements increased $8.3 million
25
<PAGE> 27
to $13.9 million for the nine months ended September 30, 2000, from $5.6 million
for the nine months ended September 30, 1999, as a result of an increase in the
average balance of $146.0 million, coupled with an increase in the average yield
to 6.25% for the nine months ended September 30, 2000, from 4.94% for the nine
months ended September 30, 1999. As previously noted, the increases in yields on
interest-earning assets reflect the increases in interest rates.
INTEREST EXPENSE
Interest expense for the three months ended September 30, 2000 increased
$10.2 million, to $255.4 million, from $245.2 million for the three months ended
September 30, 1999. This increase was attributable to an increase in the average
cost of interest-bearing liabilities to 5.03% for the three months ended
September 30, 2000, from 4.62% for the three months ended September 30, 1999,
partially offset by a decrease in the average balance of interest-bearing
liabilities of $906.2 million, to $20.32 billion for the three months ended
September 30, 2000, from $21.23 billion for the three months ended September 30,
1999. The decrease in average interest-bearing liabilities was attributable to a
decrease in borrowings, partially offset by an increase in deposits. 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 decreased $3.1 million to $150.6 million for
the three months ended September 30, 2000, from $153.7 million for the three
months ended September 30, 1999. This decrease was attributable to a decrease in
the average balance of borrowings of $1.16 billion, offset by an increase in the
average cost of borrowings to 5.72% for the three months ended September 30,
2000, from 5.26% for the three months ended September 30, 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 $13.4 million to $104.9 million for
the three months ended September 30, 2000, from $91.5 million for the three
months ended September 30, 1999, reflecting an increase in the average cost of
deposits to 4.28% for the three months ended September 30, 2000 from 3.84% for
the three months ended September 30, 1999, coupled with an increase in the
average balance of total deposits of $254.4 million. The increases in the
average balance and average cost of total deposits were primarily driven by
increases in the average balances and rates on our money market accounts and
increases in our certificate of deposit rates. Interest expense on money market
accounts increased $6.9 million to $18.9 million for the three months ended
September 30, 2000, from $12.0 million for the three months ended September 30,
1999, as a result of an increase in the average balance of $282.5 million,
coupled with an increase in the average cost to 5.49% for the three months ended
September 30, 2000, from 4.37% for the three months ended September 30, 1999.
Interest is paid on money market accounts on a tiered basis with 89.4% 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.
26
<PAGE> 28
Interest expense on certificates of deposit increased $7.2 million as a
result of an increase in the average cost to 5.81% for the three months ended
September 30, 2000 from 5.28% for the three months ended September 30, 1999,
coupled with an increase in the average balance of $56.8 million. The increase
in the average cost of certificates of deposit reflects the higher interest rate
environment and our commitment to offer competitive rates to our customers.
Interest expense on savings accounts decreased $854,000 as a result of a
decrease in the average balance of $158.6 million, coupled with a slight
decrease in the average cost to 2.03% for the three months ended September 30,
2000, from 2.04% for the three months ended September 30, 1999.
Interest expense for the nine months ended September 30, 2000 increased
$40.7 million, to $751.4 million, from $710.7 million for the nine months ended
September 30,1999. This increase was the result of an increase in the average
cost of these liabilities to 4.88% for the nine months ended September 30, 2000,
from 4.54% for the nine months ended September 30, 1999, partially offset by a
$323.0 million decrease in the average balance of interest-bearing liabilities.
Interest expense on borrowed funds for the nine months ended September 30,
2000 increased $10.6 million, to $450.2 million, from $439.6 million for the
nine months ended September 30, 1999, resulting from an increase in the average
cost of borrowings to 5.55% for the nine months ended September 30, 2000, from
5.20% for the comparable 1999 period, partially offset by a decrease in the
average balance of $460.4 million.
Interest expense on deposits increased $30.1 million, to $301.2 million for
the nine months ended September 30, 2000, from $271.1 million for the nine
months ended September 30,1999, reflecting an increase in the average cost of
deposits to 4.13% for the nine months ended September 30, 2000, from 3.77% for
the same period in 1999, coupled with an increase in the average balance of
total deposits of $137.4 million. Interest expense on money market accounts
increased $19.0 million reflecting an increase in the average balance of $293.9
million, coupled with an increase in the average cost to 5.24% for the nine
months ended September 30, 2000, from 4.26% for the 1999 comparable period.
Interest expense on certificates of deposit increased $13.3 million
resulting from an increase in the average cost to 5.60% for the nine months
ended September 30, 2000, from 5.21% for the nine months ended September 30,
1999, slightly offset by a decrease in the average balance of $23.2 million.
Interest expense on savings accounts decreased $2.4 million which was
attributable to a decrease in the average balance of $169.8 million, slightly
offset by an increase in the average cost to 2.02% for the nine months ended
September 30, 2000, from 2.01% for the nine months ended September 30, 1999.
Interest expense on NOW and money manager accounts increased $238,000 as a
result of an increase in the average balance of $36.5 million, coupled with a
slight increase in the average cost to 0.58% for the nine months ended September
30, 2000, from 0.57% for the same period in 1999.
PROVISION FOR LOAN LOSSES
Provision for loan losses totaled $1.0 million for the three months ended
September 30, 2000 and 1999. For the nine months ended September 30, 2000,
provision for loan losses totaled $3.0 million compared to $3.1 million for the
same period in 1999. The allowance for loan losses
27
<PAGE> 29
increased to $79.0 million at September 30, 2000, from $76.6 million at December
31, 1999. The increase in the allowance for loan losses in part reflects the
overall increase in our loan portfolio despite the continued improvement of our
asset quality. Net loan charge-offs totaled $66,000 for the three months ended
September 30, 2000 and $629,000 for the nine months ended September 30, 2000.
Non-performing loans decreased $17.2 million to $36.2 million at September 30,
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 218.12% at September 30, 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 0.72% at September 30, 2000 primarily due to an
increase of $786.3 million in gross total loans from December 31, 1999 to
September 30, 2000. For further discussion of non-performing loans, see "Asset
Quality."
NON-INTEREST INCOME
Non-interest income for the quarter ended September 30, 2000 decreased to
$16.3 million from $36.8 million for the quarter ended September 30, 1999.
Non-interest income totaled $51.5 million for the nine months ended September
30, 2000 and $69.9 million for the nine months ended September 30, 1999. The
decrease in non-interest income is primarily attributable to the $20.4 million
gain on the sale of our five upstate New York banking offices in the third
quarter of 1999. Excluding the net gain on disposition of banking and loan
production offices, non-interest income totaled $16.3 million for both the
quarter ended September 30, 2000 and 1999. Excluding the net gain on disposition
of banking and loan production offices, non-interest income decreased $3.2
million to $47.5 million for the nine months ended September 30, 2000 from $50.7
million for the comparable 1999 period.
Customer service and other loan fees totaled $12.9 million for the three
months ended September 30, 2000 and $36.2 million for the nine months ended
September 30, 2000, compared to $10.4 million for the three months ended
September 30, 1999 and $29.3 million for the nine months ended September 30,
1999. The increases in customer service fees for both periods were due to
several factors. The periods ended September 30, 2000 include the full
recognition of fee income on debit cards, which were first issued during the
third quarter of 1999; an increase in customer service fees, which became
effective during the third quarter of 1999; an increase in annuity sales
commissions; and an increase in checking account fees related to the increase
in the number of checking accounts since September 30, 1999.
Loan servicing fees totaled $2.2 million for the three months ended
September 30, 2000 and $7.7 million for the nine months ended September 30,
2000, compared to $2.8 million for the three months ended September 30, 1999 and
$12.1 million for the nine months ended September 30, 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 for the three months ended September 30, 2000 was primarily the result of a
decrease in fees received of $765,000, partially offset by a decrease in the
amortization of mortgage servicing rights as compared to the corresponding
period in 1999. The decrease in loan servicing fees for the nine months ended
September 30, 2000 was the result of a decrease in fees received of $3.1 million
and a decrease in the recovery of a portion of the valuation allowance for
mortgage servicing rights of $2.9 million, partially offset by a decrease in the
amortization of mortgage servicing rights of $1.6
28
<PAGE> 30
million, as compared to the nine months ended September 30, 1999. The decrease
in fees received is due to a decrease in the balance of loans serviced for
others from $4.54 billion at September 30, 1999 to $4.04 billion at September
30, 2000 and the decrease in the amortization of mortgage servicing rights is
due to the decrease in prepayment speeds and refinance activity which is a
result of the current interest rate environment.
Net gains on sales of loans totaled $273,000 for the three months ended
September 30, 2000 and $568,000 for the nine months ended September 30, 2000,
compared to $209,000 for the three months ended September 30, 1999 and $3.3
million for the nine months ended September 30, 1999. Net gain on disposition of
banking and loan production offices totaled $4.0 million for the nine months
ended September 30, 2000, compared to a net gain of $20.4 million for the
quarter ended September 30, 1999 and a net gain of $19.2 million for the nine
months ended September 30, 1999. We recorded a net gain of $2.8 million during
the second quarter of 2000 related to the sale of the former LIB headquarters
and a net gain of $1.2 million during the first quarter of 2000 related to the
sale of a former Long Island Savings Bank banking office. The net gain for the
nine months ended September 30, 1999 resulted from the $20.4 million gain
recognized on the sale of our five upstate New York banking offices in the
third quarter of 1999 and the net loss of $1.2 million from the closing and
disposition of certain LPOs in the first quarter of 1999.
NON-INTEREST EXPENSE
Non-interest expense for the quarter ended September 30, 2000 was $53.6
million, a decrease of $418,000 from $54.0 million for the quarter ended
September 30, 1999. For the nine months ended September 30, 2000, non-interest
expense decreased $5.3 million to $163.6 million, from $168.9 million for the
nine months ended September 30, 1999. General and administrative expense
decreased $4.5 million to $43.5 million for the third quarter of 2000, from
$48.0 million for the comparable 1999 period. For the nine months ended
September 30, 2000, general and administrative expense decreased $16.8 million
to $133.6 million, from $150.4 million for the comparable 1999 period.
Compensation and benefits totaled $18.5 million for the three months ended
September 30, 2000 and $58.3 million for the nine months ended September 30,
2000, compared to $22.5 million for the three months ended September 30, 1999
and $70.6 million for the nine months ended September 30, 1999. These decreases
are primarily attributable to a decrease in salary expense, which includes a
decrease in overtime and incentives, and a decrease in net employee benefit plan
expense. Employee stock plans amortization expense totaled $1.8 million for the
three months ended September 30, 2000 and $5.3 million for the nine months ended
September 30, 2000, compared to $2.2 million for the three months ended
September 30, 1999 and $8.1 million for the nine months ended September 30,
1999. The decrease in employee stock plans amortization expense is due primarily
to the effect of the lower average market value of our common stock on ESOP
expense.
Goodwill litigation expense was $2.1 million for the three months ended
September 30, 2000, compared to $1.1 million for the three months ended
September 30, 1999 and $6.4 million for the nine months ended September 30,
2000, compared to $4.0 million for the nine months ended September 30, 1999.
Non-interest expense includes $3.1 million for the quarter ended September 30,
2000 and $9.3 million for the nine months ended September 30, 2000 of capital
trust securities
29
<PAGE> 31
expense related to the issuance of $125.0 million of Capital Securities by our
wholly-owned subsidiary, Astoria Capital Trust I, in the fourth quarter of 1999.
For further discussion of the Capital Securities, see "Notes to Consolidated
Financial Statements" and "Liquidity and Capital Resources." The Company's
percentage of general and administrative expense to average assets improved to
0.79% for the three months ended September 30, 2000 and 0.80% for the nine
months ended September 30, 2000, from 0.84% for the three months ended September
30, 1999 and 0.88% for the nine months ended September 30, 1999. The efficiency
ratios also improved to 30.89% for the three months ended September 30, 2000 and
30.92% for the nine months ended September 30, 2000, from 32.09% for the three
months ended September 30, 1999 and 33.02% for the nine months ended September
30, 1999.
INCOME TAX EXPENSE
For the quarter ended September 30, 2000, income tax expense was $32.6
million, representing an effective tax rate of 37.7%, as compared to $48.0
million, representing an effective tax rate of 41.8%, for the quarter ended
September 30, 1999. For the nine months ended September 30, 2000, income tax
expense was $104.5 million, representing an effective tax rate of 38.8%, as
compared to $127.5 million, representing an effective tax rate of 42.0%, for the
nine months ended September 30, 1999. The decrease in our effective tax rate was
attributable to a lower non-deductible ESOP expense as well as a tax benefit
derived from a corporate restructuring during the fourth quarter of 1999 of
certain subsidiaries of Astoria Federal.
CASH EARNINGS
Tangible stockholders' equity (stockholders' equity less goodwill) totaled
$1.16 billion at September 30, 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. The following comparisons exclude the net gain on disposition of
banking and loan production offices recognized during the nine months ended
September 30, 2000 and during the three and nine months ended September 30,
1999.
30
<PAGE> 32
Operating cash earnings totaled $60.4 million for the three months ended
September 30, 2000 and $182.5 million for the nine months ended September 30,
2000. Operating cash earnings for the three months ended September 30, 1999
totaled $63.1 million and for the nine months ended September 30, 1999 totaled
$190.6 million. Operating cash return on average tangible equity was 21.87% for
the third quarter of 2000 and 23.17% for the third quarter of 1999. Operating
cash return on average assets was 1.09% for the quarter ended September 30, 2000
and 1.10% for the quarter ended September 30, 1999. Operating cash return on
average tangible equity was 23.53% for the nine months ended September 30, 2000
and 21.94% for the nine months ended September 30, 1999. Operating cash return
on average assets was 1.09% for the nine months ended September 30, 2000 and
1.12% for the same period in 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 improved to 0.75% for the three months ended September 30, 2000 as
compared to 0.80% for the three months ended September 30, 1999. The cash
efficiency ratio improved to 29.59% for the third quarter of 2000 from 30.59%
for the third quarter of 1999. For the nine months ended September 30, 2000, the
cash general and administrative expense to average assets ratio was 0.77% as
compared to 0.84% for the comparable 1999 period. The cash efficiency ratio was
29.68% for the nine months ended September 30, 2000 versus 31.25% for the nine
months ended September 30, 1999.
Presented below are our Condensed Consolidated Schedules of Operating Cash
Earnings for the three and nine months ended September 30, 2000 and 1999.
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULES OF OPERATING CASH EARNINGS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $53,689 $66,948 $165,046 $176,124
Less: Net gain on disposition of banking and loan
production offices, net of tax - 11,909 2,434 11,140
------ ------ ------- -------
Operating income 53,689 55,039 162,612 164,984
Add back:
Employee stock plans amortization expense 1,826 2,234 5,339 8,075
Amortization of goodwill 4,824 4,843 14,472 14,592
Income tax benefit on amortization expense of
earned portion of RRP stock 13 968 39 2,903
------ ------ ------- -------
Operating cash earnings 60,352 63,084 182,462 190,554
Preferred dividends declared (1,500) (1,500) (4,500) (4,500)
------- ------ -------- --------
Operating cash earnings available to common
shareholders $58,852 $61,584 $177,962 $186,054
====== ====== ======= =======
Basic operating cash earnings per common share (1) $ 1.23 $ 1.20 $ 3.69 $ 3.60
====== ======= ======= ========
Diluted operating cash earnings per common share (1) $ 1.21 $ 1.18 $ 3.63 $ 3.51
====== ======= ======= ========
</TABLE>
------------------------
(1) Based on the weighted average shares used to calculate earnings per share
on the Consolidated Statements of Income.
31
<PAGE> 33
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 September 30, 2000. Non-performing assets decreased from $58.4
million at December 31, 1999 to $40.6 million at September 30, 2000 as shown on
the table on page 33. The ratio of non-performing assets to total assets
decreased from 0.26% at December 31, 1999 to 0.18% at September 30, 2000. The
following table shows a comparison of delinquent loans as of September 30, 2000
and December 31, 1999.
<TABLE>
<CAPTION>
Delinquent Loans
----------------
At September 30, 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.............. 26 $ 643 281 $31,776 45 $2,202 390 $48,610
Multi-family.................... - - 2 992 - - 5 802
Commercial real estate.......... 1 149 4 2,416 3 2,369 8 2,331
Consumer and other loans........ 126 743 107 1,015 162 1,033 148 1,626
--- ----- --- ------- --- ----- --- -------
Total delinquent loans.......... 153 $1,535 394 $36,199 210 $5,604 551 $53,369
=== ===== === ====== === ===== === ======
Delinquent loans to total
loans....................... 0.01% 0.33% 0.05% 0.52%
</TABLE>
The following table sets forth information regarding non-performing assets
at September 30, 2000 and December 31, 1999. In addition to the non-performing
loans, we had approximately $1.5 million of potential problem loans at September
30, 2000 and $5.6 million at December 31, 1999. Such loans are 60-89 days
delinquent as shown above.
32
<PAGE> 34
<TABLE>
<CAPTION>
Non-Performing Assets
---------------------
At At
September 30, December 31,
2000 1999
---------------- ---------------
(Dollars in Thousands)
<S> <C> <C>
Non-accrual delinquent mortgage loans (1)................ $34,217 $48,830
Non-accrual delinquent consumer and other loans 1,015 1,626
Mortgage loans delinquent 90 days or more and
still accruing interest (2)............................ 967 2,913
------ ------
Total non-performing loans.......................... 36,199 53,369
------ ------
Real estate owned, net (3)............................... 4,404 5,080
------ ------
Total non-performing assets......................... $40,603 $58,449
====== ======
Allowance for loan losses to non-performing loans............ 218.12% 143.49%
Allowance for loan losses to total loans..................... 0.72% 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
selling costs.
If all non-accrual loans had been performing in accordance with their
original terms, we would have recorded interest income of $2.2 million for the
nine months ended September 30, 2000 and $3.8 million for the year ended
December 31, 1999 on these loans. Actual payments recorded to interest income on
non-accrual loans totaled $1.1 million for the nine months ended September 30,
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 $5.5 million at
September 30, 2000 and $6.7 million at December 31, 1999.
33
<PAGE> 35
The following table sets forth the change in allowance for loan losses.
(In Thousands)
<TABLE>
<S> <C>
Allowance for Loan Losses:
Balance at December 31, 1999............................................. $76,578
Provision charged to operations..................................... 3,008
Charge-offs:
One-to-four family........................................... (901)
Multi-family................................................. (8)
Commercial................................................... -
Consumer and other........................................... (1,317)
-------
Total charge-offs................................................... (2,226)
-------
Recoveries:
One-to-four family........................................... 674
Multi-family................................................. 136
Commercial................................................... 465
Consumer and other .......................................... 322
------
Total recoveries.................................................... 1,597
------
Total net charge-offs............................................... (629)
-------
Balance at September 30, 2000............................................ $78,957
======
</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.
In June 2000, the FASB issued Statement of Financial Accounting Standards
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an amendment of FASB Statement No. 133," or SFAS No. 138. SFAS No.
138 amends the accounting and reporting standards of SFAS No. 133 for certain
derivative instruments and certain hedging activities. SFAS No. 138 will be
adopted concurrently with SFAS No. 133. We believe the implementation of SFAS
No. 133 and SFAS No. 138 will not have a material impact on our financial
condition.
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities," or SFAS No. 140. SFAS No. 140 supercedes and
replaces the guidance in SFAS No. 125,
34
<PAGE> 36
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," and rescinds SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125." SFAS No. 140 provides accounting
and reporting standards for securitization transactions involving financial
assets, sales of financial assets such as receivables, loans and securities,
factoring transactions, wash sales, servicing assets and liabilities,
collateralized borrowing arrangements, securities lending transactions,
repurchase agreements, loan participations, and extinguishment of liabilities.
Certain provisions of this Statement including relevant disclosures are
effective for fiscal years ending after December 15, 2000. The remaining
provisions are effective for transfer transactions entered into after March 31,
2001. SFAS No. 140 does not require restatement of prior periods. We believe the
implementation of SFAS No. 140 will not have a material impact on our financial
condition.
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 cases entitled The Long Island Savings Bank FSB et al.
vs. The United States, or the LISB Goodwill Litigation, and Astoria Federal
Savings and Loan Association vs. The United States, or the Astoria Goodwill
Litigation, both of which are pending in the United States Court of Federal
Claims, Judge Smith entered an order on September 20, 2000 indicating that he
was considering changes to the case management process. In the order, Judge
Smith indicated that he would "within the next several weeks" distribute the
remaining "first-thirty" cases, which would include the LISB Goodwill
Litigation, to judges of the court. Judge Smith indicated that he believed this
was necessary "for prompt rulings on liability and on to consideration of
damages issues." To date, no further assignment has been made, although by order
dated November 2, 2000 Judge Smith reaffirmed his intention to do so. Judge
Smith, in his September 20, 2000 order, also indicated that he was considering
distributing the remaining cases, which would include the Astoria Goodwill
Litigation which is a "second-thirty" case, back to the judges of the United
States Court of Federal Claims. He requested the coordinating committees' views
on whether the operative procedural orders, particularly the Master Litigation
Plan and the Master Discovery Plan, should continue to govern such cases upon
their distribution. He stayed expert discovery in the "second-thirty" cases,
including the Astoria Goodwill Litigation, pending further consideration of
these matters by the Court. By order dated November 2, 2000, Judge Smith further
stayed the commencement of expert discovery in the "second-thirty" cases,
including the Astoria Goodwill Litigation, until March 1, 2001.
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 proceeding in relation thereto.
35
<PAGE> 37
In the case of Leonard Minzer, et ano. v. Gerard C. Keegan, et al. which
had been commenced in the United States District Court for the Eastern District
of New York on July 18, 1997, the United States Court of Appeals for the Second
Circuit on August 24, 2000 issued a revised opinion which, like its original
decision dated July 10, 2000 affirmed the District Court's earlier ruling
dismissing Plaintiffs' second amended complaint. On September 20, 2000, the
United States Court of Appeals for the Second Circuit denied Plaintiffs'
petition for rehearing and suggestion for In Banc.
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 and Part II,
Item I of our Quarterly Reports on Forms 10-Q for the quarters ended March 31,
2000 and June 30, 2000.
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.
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
Not applicable.
36
<PAGE> 38
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: November 13, 2000 By: /s/ Monte N. Redman
----------------- -----------------------------
Monte N. Redman
Executive Vice President
and Chief Financial Officer
(Principal Accounting Officer)
37
<PAGE> 39
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No Identification of Exhibit
---------- -------------------------
<S> <C>
11. Statement Regarding Computation of Per Share Earnings
27. Financial Data Schedule
</TABLE>
38
