-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K//4rfP0V+2YhnodDJ2dZPkBrhGrEl7QdIQCErlymCkJ/tBeutnOiGteXzN8+IMd 1JHo4mrL5yEH8Bsx/YYx2g== 0000950117-05-003097.txt : 20050804 0000950117-05-003097.hdr.sgml : 20050804 20050804111636 ACCESSION NUMBER: 0000950117-05-003097 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050804 DATE AS OF CHANGE: 20050804 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASTORIA FINANCIAL CORP CENTRAL INDEX KEY: 0000910322 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 113170868 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11967 FILM NUMBER: 05998142 BUSINESS ADDRESS: STREET 1: ONE ASTORIA FEDERAL PLAZA CITY: LAKE SUCCESS STATE: NY ZIP: 11042-1085 BUSINESS PHONE: 5163273000 MAIL ADDRESS: STREET 1: ONE ASTORIA FEDERAL PLAZA CITY: LAKE SUCCESS STATE: NY ZIP: 11042-1085 10-Q 1 a40284.txt ASTORIA FINANCIAL CORPORATION 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 June 30, 2005 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 001-11967 ASTORIA FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 11-3170868 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) One Astoria Federal Plaza, Lake Success, New York 11042-1085 - ------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (516) 327-3000 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all the reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Classes of Common Stock Number of Shares Outstanding, July 31, 2005 - ----------------------- ------------------------------------------- .01 Par Value 107,912,127 ------------- -----------
Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited): Consolidated Statements of Financial Condition at June 30, 2005 and December 31, 2004 2 Consolidated Statements of Income for the Three and Six Months Ended June 30, 2005 and June 30, 2004 3 Consolidated Statement of Changes in Stockholders' Equity for the Six Months Ended June 30, 2005 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and June 30, 2004 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures about Market Risk 37 Item 4. Controls and Procedures 40 PART II - OTHER INFORMATION Item 1. Legal Proceedings 40 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 41 Item 3. Defaults Upon Senior Securities 41 Item 4. Submission of Matters to a Vote of Security Holders 41 Item 5. Other Information 42 Item 6. Exhibits 42 Signatures 43
1 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Financial Condition
(Unaudited) At At (In Thousands, Except Share Data) June 30, 2005 December 31, 2004 - ----------------------------------------------------------------------------------- ------------- ----------------- ASSETS: Cash and due from banks $ 142,796 $ 138,809 Repurchase agreements 154,264 267,578 Available-for-sale securities: Encumbered 1,922,681 2,104,239 Unencumbered 223,847 302,644 ----------- ----------- 2,146,528 2,406,883 Held-to-maturity securities, fair value of $5,602,104 and $6,306,760, respectively: Encumbered 5,274,297 5,273,385 Unencumbered 348,571 1,029,551 ----------- ----------- 5,622,868 6,302,936 Federal Home Loan Bank of New York stock, at cost 123,145 163,700 Loans held-for-sale, net 31,080 23,802 Loans receivable: Mortgage loans, net 13,218,349 12,746,134 Consumer and other loans, net 531,766 517,145 ----------- ----------- 13,750,115 13,263,279 Allowance for loan losses (82,519) (82,758) ----------- ----------- Loans receivable, net 13,667,596 13,180,521 Mortgage servicing rights, net 15,415 16,799 Accrued interest receivable 80,032 79,144 Premises and equipment, net 153,313 157,107 Goodwill 185,151 185,151 Bank owned life insurance 374,532 374,719 Other assets 129,329 118,720 ----------- ----------- Total assets $22,826,049 $23,415,869 =========== =========== LIABILITIES: Deposits: Savings $ 2,779,265 $ 2,929,120 Money market 811,836 965,288 NOW and demand deposit 1,571,911 1,580,714 Liquid certificates of deposit 331,746 -- Certificates of deposit 7,090,469 6,848,135 ----------- ----------- Total deposits 12,585,227 12,323,257 Reverse repurchase agreements 6,980,000 7,080,000 Federal Home Loan Bank of New York advances 1,129,000 1,934,000 Other borrowings, net 459,796 455,835 Mortgage escrow funds 139,359 122,088 Accrued expenses and other liabilities 140,026 130,925 ----------- ----------- Total liabilities 21,433,408 22,046,105 STOCKHOLDERS' EQUITY: Preferred stock, $1.00 par value; 5,000,000 shares authorized: Series A (1,800,000 shares authorized and -0- shares issued and outstanding) -- -- Series B (2,000,000 shares authorized and -0- shares issued and outstanding) -- -- Common stock, $.01 par value; (200,000,000 shares authorized; 166,494,888 shares issued; and 108,208,696 and 110,304,669 shares outstanding, respectively) 1,665 1,665 Additional paid-in capital 817,964 811,777 Retained earnings 1,697,453 1,623,571 Treasury stock (58,286,192 and 56,190,219 shares, at cost, respectively) (1,073,435) (1,013,726) Accumulated other comprehensive loss (26,795) (28,592) Unallocated common stock held by ESOP (6,608,064 and 6,802,146 shares, respectively) (24,211) (24,931) ----------- ----------- Total stockholders' equity 1,392,641 1,369,764 ----------- ----------- Total liabilities and stockholders' equity $22,826,049 $23,415,869 =========== ===========
See accompanying Notes to Consolidated Financial Statements. 2 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Income (Unaudited)
For the For the Three Months Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- (In Thousands, Except Share Data) 2005 2004 2005 2004 - ------------------------------------------------------------ ------------ ------------ ------------ ------------ Interest income: Mortgage loans: One-to-four family $ 112,898 $ 104,205 $ 224,480 $ 215,555 Multi-family, commercial real estate and construction 58,300 54,634 116,496 108,265 Consumer and other loans 7,475 4,798 14,256 9,688 Mortgage-backed and other securities 88,526 87,809 182,448 177,940 Federal funds sold and repurchase agreements 1,361 222 2,810 376 Federal Home Loan Bank of New York stock 1,650 895 2,823 1,833 ------------ ------------ ------------ ------------ Total interest income 270,210 252,563 543,313 513,657 ------------ ------------ ------------ ------------ Interest expense: Deposits 67,065 56,902 132,025 111,132 Borrowed funds 81,798 82,345 164,728 174,696 ------------ ------------ ------------ ------------ Total interest expense 148,863 139,247 296,753 285,828 ------------ ------------ ------------ ------------ Net interest income 121,347 113,316 246,560 227,829 Provision for loan losses -- -- -- -- ------------ ------------ ------------ ------------ Net interest income after provision for loan losses 121,347 113,316 246,560 227,829 ------------ ------------ ------------ ------------ Non-interest income: Customer service fees 16,305 14,554 31,251 28,303 Other loan fees 1,082 1,188 2,246 2,450 Net gain on sales of securities -- -- -- 2,372 Mortgage banking (loss) income, net (1,582) 6,251 1,364 5,133 Income from bank owned life insurance 4,190 4,228 8,365 8,678 Other 2,531 1,645 4,042 3,069 ------------ ------------ ------------ ------------ Total non-interest income 22,526 27,866 47,268 50,005 ------------ ------------ ------------ ------------ Non-interest expense: General and administrative: Compensation and benefits 29,967 29,582 60,757 61,046 Occupancy, equipment and systems 15,787 15,774 31,812 32,491 Federal deposit insurance premiums 447 441 895 890 Advertising 1,870 1,701 5,775 3,410 Other 9,492 7,862 18,836 14,566 ------------ ------------ ------------ ------------ Total non-interest expense 57,563 55,360 118,075 112,403 ------------ ------------ ------------ ------------ Income before income tax expense 86,310 85,822 175,753 165,431 Income tax expense 28,914 28,321 58,878 54,517 ------------ ------------ ------------ ------------ Net income $ 57,396 $ 57,501 $ 116,875 $ 110,914 ============ ============ ============ ============ Basic earnings per common share $ 0.56 $ 0.53 $ 1.14 $ 1.01 ============ ============ ============ ============ Diluted earnings per common share $ 0.55 $ 0.52 $ 1.12 $ 0.99 ============ ============ ============ ============ Dividends per common share $ 0.20 $ 0.17 $ 0.40 $ 0.33 ============ ============ ============ ============ Basic weighted average common shares 102,253,984 109,429,328 102,704,734 110,152,001 Diluted weighted average common and common equivalent shares 104,184,538 111,189,914 104,568,500 112,102,245
See accompanying Notes to Consolidated Financial Statements. 3 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statement of Changes in Stockholders' Equity (Unaudited) For the Six Months Ended June 30, 2005
Unallocated Accumulated Common Additional Other Stock Common Paid-in Retained Treasury Comprehensive Held (In Thousands, Except Share Data) Total Stock Capital Earnings Stock Loss by ESOP - ---------------------------------------- ---------- ------ ---------- ---------- ----------- ------------- ----------- Balance at December 31, 2004 $1,369,764 $1,665 $811,777 $1,623,571 $(1,013,726) $(28,592) $(24,931) Comprehensive income: Net income 116,875 -- -- 116,875 -- -- -- Other comprehensive income, net of tax: Net unrealized gain on securities 1,701 -- -- -- -- 1,701 -- Reclassification of net unrealized loss on cash flow hedge 96 -- -- -- -- 96 -- ---------- Comprehensive income 118,672 ---------- Common stock repurchased (2,610,000 shares) (69,053) -- -- -- (69,053) -- -- Dividends on common stock ($0.40 per share) (41,099) -- -- (41,099) -- -- -- Exercise of stock options and related tax benefit (514,027 shares issued) 9,212 -- 1,762 (1,894) 9,344 -- -- Amortization relating to allocation of ESOP stock 5,145 -- 4,425 -- -- -- 720 ---------- ------ -------- ---------- ----------- -------- -------- Balance at June 30, 2005 $1,392,641 $1,665 $817,964 $1,697,453 $(1,073,435) $(26,795) $(24,211) ========== ====== ======== ========== =========== ======== ========
See accompanying Notes to Consolidated Financial Statements. 4 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, ------------------------- (In Thousands) 2005 2004 - ------------------------------------------------------------------------------- ----------- ----------- Cash flows from operating activities: Net income $ 116,875 $ 110,914 Adjustments to reconcile net income to net cash provided by operating activities: Net premium amortization on mortgage loans and mortgage-backed securities 8,776 20,976 Net amortization on consumer and other loans, other securities and borrowings 2,313 1,905 Net provision for real estate losses 56 -- Depreciation and amortization 6,955 6,666 Net gain on sales of loans and securities (1,628) (4,489) Originations of loans held-for-sale (183,008) (192,494) Proceeds from sales and principal repayments of loans held-for-sale 177,358 186,072 Amortization relating to allocation of ESOP stock 5,145 5,204 Increase in accrued interest receivable (888) (794) Mortgage servicing rights amortization and valuation allowance adjustments, net of capitalized amounts 1,384 (2,085) Income from bank owned life insurance, net of insurance proceeds received 187 (4,428) (Increase) decrease in other assets (8,753) 6,294 Increase in accrued expenses and other liabilities 10,863 5,033 ----------- ----------- Net cash provided by operating activities 135,635 138,774 ----------- ----------- Cash flows from investing activities: Originations of loans receivable (1,554,555) (1,576,826) Loan purchases through third parties (414,951) (506,393) Principal payments on loans receivable 1,470,856 2,127,155 Purchases of securities held-to-maturity (177,599) (1,124,019) Purchases of securities available-for-sale (25) (398,593) Principal payments on securities held-to-maturity 857,438 1,123,394 Principal payments on securities available-for-sale 264,336 399,187 Proceeds from sales of securities available-for-sale -- 22,692 Net redemptions of FHLB-NY stock 40,555 59,750 Proceeds from sales of real estate owned, net 605 1,554 Purchases of premises and equipment, net of proceeds from sales (3,161) (4,662) ----------- ----------- Net cash provided by investing activities 483,499 123,239 ----------- ----------- Cash flows from financing activities: Net increase in deposits 261,970 709,120 Net (decrease) increase in borrowings with original terms of three months or less (1,005,000) 85,000 Proceeds from borrowings with original terms greater than three months 600,000 2,400,000 Repayments of borrowings with original terms greater than three months (500,000) (3,310,000) Net increase in mortgage escrow funds 17,271 12,020 Common stock repurchased (69,053) (95,347) Cash dividends paid to stockholders (41,099) (36,766) Cash received for stock options exercised 7,450 13,335 ----------- ----------- Net cash used in financing activities (728,461) (222,638) ----------- ----------- Net (decrease) increase in cash and cash equivalents (109,327) 39,375 Cash and cash equivalents at beginning of period 406,387 239,754 ----------- ----------- Cash and cash equivalents at end of period $ 297,060 $ 279,129 =========== =========== Supplemental disclosures: Cash paid during the period: Interest $ 298,246 $ 298,637 =========== =========== Income taxes $ 57,829 $ 47,121 =========== =========== Additions to real estate owned $ 1,154 $ 594 =========== ===========
See accompanying Notes to Consolidated Financial Statements. 5 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) 1. Basis of Presentation The accompanying consolidated financial statements include the accounts of Astoria Financial Corporation and its wholly-owned subsidiaries Astoria Federal Savings and Loan Association and its subsidiaries, referred to as Astoria Federal, and 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 and AF Insurance Agency, Inc. All significant inter-company accounts and transactions have been eliminated in consolidation. In addition to Astoria Federal and AF Insurance Agency, Inc., we have another subsidiary, Astoria Capital Trust I, which is not consolidated with Astoria Financial Corporation for financial reporting purposes in accordance with U.S. generally accepted accounting principles, or GAAP. Astoria Capital Trust I was formed in 1999 for the purpose of issuing $125.0 million aggregate liquidation amount of 9.75% Capital Securities due November 1, 2029, or Capital Securities, and $3.9 million of common securities which are 100% owned by Astoria Financial Corporation, and using the proceeds to acquire Junior Subordinated Debentures issued by Astoria Financial Corporation. The Junior Subordinated Debentures total $128.9 million, have an interest rate of 9.75%, mature on November 1, 2029 and are the sole assets of Astoria Capital Trust I. The Junior Subordinated Debentures are prepayable, in whole or in part, at our option on or after November 1, 2009 at declining premiums to November 1, 2019, after which the Junior Subordinated Debentures are prepayable at par value. The Capital Securities have substantially identical repayment provisions as the Junior Subordinated Debentures. Astoria Financial Corporation has fully and unconditionally guaranteed the Capital Securities along with all obligations of Astoria Capital Trust I under the trust agreement relating to the Capital Securities. See Note 9 of Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of our 2004 Annual Report on Form 10-K for restrictions on our subsidiaries' ability to pay dividends to us. In our opinion, the accompanying consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of our financial condition as of June 30, 2005 and December 31, 2004, our results of operations for the three and six months ended June 30, 2005 and 2004, changes in our stockholders' equity for the six months ended June 30, 2005 and our cash flows for the six months ended June 30, 2005 and 2004. In preparing the consolidated 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 June 30, 2005 and December 31, 2004, and amounts of revenues and expenses in the consolidated statements of income for the three and six months ended June 30, 2005 and 2004. The results of operations for the three and six months ended June 30, 2005 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 GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. 6 These consolidated financial statements should be read in conjunction with our December 31, 2004 audited consolidated financial statements and related notes included in our 2004 Annual Report on Form 10-K. 2. Earnings Per Share, or EPS The following table is a reconciliation of basic and diluted EPS.
For the Three Months Ended June 30, ----------------------------------------- 2005 2004 ------------------- ------------------- Basic Diluted Basic Diluted (In Thousands, Except Per Share Data) EPS EPS EPS EPS (1) - ------------------------------------- -------- -------- -------- -------- Net income $ 57,396 $ 57,396 $ 57,501 $ 57,501 ======== ======== ======== ======== Total weighted average basic common shares outstanding 102,254 102,254 109,429 109,429 Effect of dilutive securities: Options -- 1,931 -- 1,761 -------- -------- -------- -------- Total weighted average diluted common shares outstanding 102,254 104,185 109,429 111,190 ======== ======== ======== ======== Net earnings per common share $ 0.56 $ 0.55 $ 0.53 $ 0.52 ======== ======== ======== ========
For the Six Months Ended June 30, ----------------------------------------- 2005 2004 ------------------- ------------------- Basic Diluted Basic Diluted (In Thousands, Except Per Share Data) EPS EPS (2) EPS EPS - ------------------------------------- -------- -------- -------- -------- Net income $116,875 $116,875 $110,914 $110,914 ======== ======== ======== ======== Total weighted average basic common shares outstanding 102,705 102,705 110,152 110,152 Effect of dilutive securities: Options -- 1,864 -- 1,950 -------- -------- -------- -------- Total weighted average diluted common shares outstanding 102,705 104,569 110,152 112,102 ======== ======== ======== ======== Net earnings per common share $ 1.14 $ 1.12 $ 1.01 $ 0.99 ======== ======== ======== ========
(1) Options to purchase 1,455,450 shares of common stock at a price of $24.40 per share were outstanding as of June 30, 2004, but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares for the three months ended June 30, 2004. (2) Options to purchase 1,995,150 shares of common stock at prices between $26.23 per share and $26.63 per share were outstanding as of June 30, 2005, 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 six months ended June 30, 2005. 3. Stock Option Plans We apply the intrinsic value method of Accounting Principles Board, or APB, Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for our stock option plans. Accordingly, no stock-based employee compensation cost is reflected in net income, as all options granted under our stock option plans had an exercise price equal to the market value of the underlying common stock on the date of grant. 7 The following table illustrates the effect on net income and EPS if we had applied the fair value recognition provisions of Statement of Financial Accounting Standards, or SFAS, No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.
For the Three Months Ended For the Six Months Ended June 30, June 30, -------------------------- ------------------------ (In Thousands, Except Per Share Data) 2005 2004 2005 2004 - --------------------------------------------- ------- ------- -------- -------- Net income: As reported $57,396 $57,501 $116,875 $110,914 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effect 1,460 1,258 3,310 2,714 ------- ------- -------- -------- Pro forma $55,936 $56,243 $113,565 $108,200 ======= ======= ======== ======== Basic earnings per common share: As reported $ 0.56 $ 0.53 $ 1.14 $ 1.01 ======= ======= ======== ======== Pro forma $ 0.55 $ 0.51 $ 1.11 $ 0.98 ======= ======= ======== ======== Diluted earnings per common share: As reported $ 0.55 $ 0.52 $ 1.12 $ 0.99 ======= ======= ======== ======== Pro forma $ 0.54 $ 0.50 $ 1.08 $ 0.96 ======= ======= ======== ========
4. Pension Plans and Other Postretirement Benefits The following tables set forth information regarding the components of net periodic cost for our defined benefit pension plans and other postretirement benefit plan.
Other Postretirement Pension Benefits Benefits -------------------------- -------------------------- For the Three Months Ended For the Three Months Ended June 30, June 30, -------------------------- -------------------------- (In Thousands) 2005 2004 2005 2004 - ---------------------------------- ------- ------- ---- ---- Service cost $ 811 $ 758 $137 $139 Interest cost 2,590 2,425 261 300 Expected return on plan assets (3,112) (2,918) -- -- Amortization of prior service cost 131 40 10 11 Recognized net actuarial loss 654 628 -- 2 Amortization of transition asset -- (8) -- -- ------- ------- ---- ---- Net periodic cost $ 1,074 $ 925 $408 $452 ======= ======= ==== ====
Other Postretirement Pension Benefits Benefits ------------------------ ------------------------ For the Six Months Ended For the Six Months Ended June 30, June 30, ------------------------ ------------------------ (In Thousands) 2005 2004 2005 2004 - ---------------------------------- ------- ------- ---- ---- Service cost $ 1,708 $ 1,597 $274 $256 Interest cost 5,102 4,869 522 543 Expected return on plan assets (6,106) (5,824) -- -- Amortization of prior service cost 171 80 20 21 Recognized net actuarial loss 1,349 1,247 -- -- Amortization of transition asset -- (17) -- -- ------- ------- ---- ---- Net periodic cost $ 2,224 $ 1,952 $816 $820 ======= ======= ==== ====
The net periodic cost of our other postretirement benefit plan for the three and six months ended June 30, 2005 has been reduced as a result of our adoption of Financial Accounting Standards Board, or FASB, Staff Position No. 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003," in 2004. The reduction was not material to the net periodic cost of our other postretirement benefit plan for the three and six months ended June 30, 2005. 8 5. Impact of Accounting Standards and Interpretations In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections," which replaces APB Opinion No. 20, "Accounting Changes," and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements," and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle and to changes required by an accounting pronouncement when the pronouncement does not include specific transition provisions. SFAS No. 154 requires retrospective application of changes in accounting principle to prior periods' financial statements unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. APB Opinion No. 20 previously required that most voluntary changes in accounting principle be recognized by including the cumulative effect of the change in net income for the period of the change in accounting principle. SFAS No. 154 carries forward without change the guidance contained in APB Opinion No. 20 for reporting the correction of an error in previously issued financial statements and a change in accounting estimate. SFAS No. 154 also carries forward the guidance in APB Opinion No. 20 requiring justification of a change in accounting principle on the basis of preferability. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, with early adoption permitted. Our adoption of SFAS No. 154 will not have an impact on our financial condition or results of operations. In December 2004, the FASB issued revised SFAS No. 123, "Share-Based Payment," or SFAS No. 123(R), which requires public entities to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions). The fair-value-based method in SFAS No. 123(R) is similar to the fair-value-based method in SFAS No. 123 in most respects. SFAS No. 123(R) applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. Additionally, beginning on the required effective date, public entities will recognize compensation cost for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS No. 123 for either recognition or pro forma disclosures. The cumulative effect of initially applying SFAS No. 123(R), if any, is recognized as of the required effective date. For periods before the required effective date, public entities may elect, although they are not required, to retroactively restate financial statements for prior periods to recognize compensation cost on a basis consistent with the pro forma disclosures required for those periods by SFAS No. 123. SFAS No. 123(R) is effective as of the beginning of the first annual reporting period beginning after June 15, 2005 with early adoption encouraged. The impact of our adoption of SFAS No. 123(R) on our results of operations for 2006 is expected to be a reduction in net income comparable to the reduction shown in the 2004 pro forma disclosures under SFAS No. 123, which are included in Note 1 of Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of our 2004 Annual Report on Form 10-K. On June 29, 2005, the FASB directed its Staff to issue proposed Staff Position No. 03-1-a, "Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1," which provides implementation guidance on matters such as impairment evaluations for declines in fair value caused by increases in interest rates and/or sector spreads, as final. The final Staff Position, to be retitled Staff Position No. FAS 115-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments," or FSP No. 115-1, will supersede Emerging Issues Task Force, or EITF, Issue No. 03-1, "The Meaning of Other- 9 Than-Temporary Impairment and Its Application to Certain Investments," and EITF Topic No. D-44, "Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value," and is expected to be issued in August 2005. FSP No. 115-1 will replace the guidance set forth in paragraphs 10-18 of EITF Issue No. 03-1 with references to existing other-than-temporary guidance and will codify the guidance set forth in EITF Topic No. D-44 and clarify that an investor should recognize an impairment loss no later than when the impairment is deemed other-than-temporary, even if a decision to sell has not been made. FSP No. 115-1 is to be effective for other-than-temporary impairment analysis conducted in periods beginning after September 15, 2005. We do not expect the final issuance of FSP No. 115-1 to have a material impact on our financial condition or results of operations. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This Quarterly Report on Form 10-Q contains a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements may be identified by the use of the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "outlook," "plan," "potential," "predict," "project," "should," "will," "would" and similar terms and phrases, including references to assumptions. Forward-looking statements are based on various assumptions and analyses made by us in light of our management's experience and its perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors (many of which are beyond our control) that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These factors include, without limitation, the following: o the timing and occurrence or non-occurrence of events may be subject to circumstances beyond our control; o there may be increases in competitive pressure among financial institutions or from non-financial institutions; o changes in the interest rate environment may reduce interest margins or affect the value of our investments; o changes in deposit flows, loan demand or real estate values may adversely affect our business; o changes in accounting principles, policies or guidelines may cause our financial condition to be perceived differently; o general economic conditions, either nationally or locally in some or all areas in which we do business, or conditions in the securities markets or the banking industry may be less favorable than we currently anticipate; o legislative or regulatory changes may adversely affect our business; o technological changes may be more difficult or expensive than we anticipate; o success or consummation of new business initiatives may be more difficult or expensive than we anticipate; or o litigation or other matters before regulatory agencies, whether currently existing or commencing in the future, may delay the occurrence or non-occurrence of events longer than we anticipate. 10 We have no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document. Executive Summary The following overview should be read in conjunction with our Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, in its entirety. Astoria Financial Corporation is a Delaware corporation organized as the unitary savings and loan association holding company of Astoria Federal. Our primary business is the operation of Astoria Federal. Astoria Federal's principal business is attracting retail deposits from the general public and investing those deposits, together with funds generated from operations, principal repayments on loans and securities and borrowed funds, primarily in one-to-four family mortgage loans, mortgage-backed securities, multi-family mortgage loans and commercial real estate loans. 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 the interest paid on our deposits and borrowings. 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. As a premier Long Island community bank, our goal is to enhance shareholder value while building a solid banking franchise. We focus on growing our core businesses of mortgage lending and retail banking while maintaining superior asset quality and controlling operating expenses. Additionally, we continue to provide returns to shareholders through dividends and stock repurchases. We have been successful in achieving these goals over the past several years and that trend has continued into 2005. During the six months ended June 30, 2005, the national and local real estate markets remained strong and continued to support new and existing home sales. The Federal Open Market Committee, or FOMC, raised the federal funds rate four times during the six months ended June 30, 2005. Although the FOMC raised the federal funds rate during the 2005 second quarter, resulting in an increase in the three and six month U.S. Treasury yields, medium- and long-term U.S. Treasury yields decreased. This has resulted in a further flattening of the U.S. Treasury yield curve, which began in the latter half of 2004 and continued during the first six months of 2005, and an increase in refinance activity during the 2005 second quarter, as compared to the 2005 first quarter. Our total loan portfolio increased during the first half of 2005. This increase was primarily in our one-to-four family and multi-family and commercial real estate loan portfolios. Our one-to-four family mortgage loan portfolio increased due to the overall reduction in repayment activity in the first six months of 2005, coupled with continued strong loan origination volume resulting from the strength of the purchase mortgage market. Similarly, our multi-family and commercial real estate loan portfolios increased due to the continued strong origination volume. Our total non-performing assets declined from December 31, 2004 to June 30, 2005. Total deposits increased during the six months ended June 30, 2005. This increase was primarily attributable to our new Liquid certificate of deposit, or Liquid CD, which was introduced in January of this year. Liquid CDs have maturities of three months, require the maintenance of a minimum balance and allow depositors the ability to make periodic deposits 11 to and withdrawals from their account. We consider Liquid CDs as part of our core deposits, along with savings accounts, money market accounts and NOW and demand deposit accounts, due to their depositor flexibility. In addition, certificates of deposit, excluding Liquid CDs, increased as a result of the continued success of our marketing campaigns which have focused on attracting medium-term certificates of deposit. Growth in our certificates of deposit contributes to the management of interest rate risk, enables us to reduce our borrowing levels and continues to produce new customers from our communities, creating relationship development opportunities. Our securities and borrowings portfolios decreased from December 31, 2004, which is consistent with our strategy of reducing these portfolios through normal cash flow in response to the continued flattening of the U.S. Treasury yield curve. Net income for the three months ended June 30, 2005 decreased slightly compared to the three months ended June 30, 2004. The decrease in net income was due to a decrease in non-interest income, coupled with an increase in non-interest expense, substantially offset by an increase in net interest income. The decrease in non-interest income was primarily due to the decrease in mortgage banking income, net, partially offset by an increase in customer service fees. The increase in non-interest expense was primarily attributable to an increase in legal fees related to our goodwill litigation trial. The increase in net interest income was primarily the result of an increase in interest income, partially offset by an increase in interest expense. The increase in interest income was primarily due to the increase in the average balance of interest-earning assets, coupled with a decrease in net premium amortization on our mortgage-backed securities and mortgage loan portfolios. The decrease in net premium amortization was primarily due to the reduction in repayment levels during 2005, as well as the reduced amount of unamortized premium remaining in our mortgage-backed securities portfolio. The increase in interest expense is primarily due to an increase in interest expense on certificates of deposit, including Liquid CDs, as a result of the increase in the average balances of these deposits. Net income for the six months ended June 30, 2005 increased compared to the six months ended June 30, 2004. The increase in net income was primarily due to an increase in net interest income, partially offset by an increase in non-interest expense and a decrease in non-interest income. The principal reasons for the increase in net interest income for the six months ended June 30, 2005 are consistent with the principal reasons for the changes noted for the three months ended June 30, 2005. The increase in non-interest expense relates primarily to increases in advertising expense and legal fees related to our goodwill litigation trial. The decrease in non-interest income relates primarily to decreases in mortgage banking income, net and net gain on sales of securities, partially offset by an increase in customer service fees. Our net interest rate spread and our net interest margin for the three and six months ended June 30, 2005 increased compared to the three and six months ended June 30, 2004, primarily due to an increase in the yield on average interest-earning assets, primarily due to the decrease in net premium amortization discussed previously. We continue to face a challenging operating environment as a result of rising short-term interest rates and a continuing flattening of the U.S. Treasury yield curve. Accordingly, we expect to continue our strategy of reducing the securities and borrowings portfolios through normal cash flow, while we emphasize deposit and loan growth, all of which will continue to improve the quality of the balance sheet and earnings and should help maintain the net interest margin at current to slightly lower levels in the second half of 2005. This strategy should 12 better position us to take advantage of more profitable asset growth opportunities when the yield curve steepens. Available Information Our internet website address is www.astoriafederal.com. Financial information, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, can be obtained free of charge from our investor relations website at http://ir.astoriafederal.com. The aforementioned reports are available on our website immediately after they are electronically filed with or furnished to the SEC. Such reports are also available on the SEC's website at www.sec.gov. Critical Accounting Policies Note 1 of Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of our 2004 Annual Report on Form 10-K, as supplemented by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 and this report, contains a summary of our significant accounting policies. Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. Our policies with respect to the methodologies used to determine the allowance for loan losses, the valuation of mortgage servicing rights, or MSR, and judgments regarding goodwill and securities impairment are our most critical accounting policies because they are important to the presentation of our financial condition and results of operations, involve a higher degree of complexity and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions and estimates could result in material differences in our results of operations or financial condition. These critical accounting policies and their application are reviewed quarterly with the Audit Committee of our Board of Directors. The following description of these policies should be read in conjunction with the corresponding section of our 2004 Annual Report on Form 10-K. Allowance for Loan Losses Our allowance for loan losses is established and maintained through a provision for loan losses based on our evaluation of the risks inherent in our loan portfolio. We evaluate the adequacy of our allowance on a quarterly basis. The allowance is comprised of both specific valuation allowances and general valuation allowances. Specific valuation allowances are established in connection with individual loan reviews and the asset classification process including the procedures for impairment recognition under SFAS No. 114, "Accounting by Creditors for Impairment of a Loan, an Amendment of FASB Statements No. 5 and 15," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures, an Amendment of FASB Statement No. 114." Such evaluation, which includes a review of loans on which full collectibility is not reasonably assured, considers the estimated fair value of the underlying collateral, if any, current and anticipated economic and regulatory conditions, current and historical loss experience of similar loans and other factors that determine risk exposure to arrive at an adequate loan loss allowance. Individual loan loss reviews are completed quarterly for all classified loans. Individual loan loss reviews are generally completed annually for multi-family, commercial real estate and construction loans which exceed $2.5 million at origination, commercial business loans which exceed $200,000 at origination, one-to-four family loans which exceed $1.0 million at 13 origination and debt restructurings. In addition, we generally review annually at least fifty percent of the outstanding balances of multi-family, commercial real estate and construction loans to single borrowers with concentrations in excess of $2.5 million. The primary considerations in establishing specific valuation allowances are the appraised value of a loan's underlying collateral and the loan's payment history. Other current and anticipated economic conditions on which our specific valuation allowances rely are the impact that national and/or local economic and business conditions may have on borrowers, the impact that local real estate markets may have on collateral values and the level and direction of interest rates and their combined effect on real estate values and the ability of borrowers to service debt. We also review all regulatory notices, bulletins and memoranda with the purpose of identifying upcoming changes in regulatory conditions which may impact our calculation of specific valuation allowances. The Office of Thrift Supervision, or OTS, periodically reviews our specific reserve methodology during regulatory examinations and any comments regarding changes to reserves are considered by management in determining specific valuation allowances. Pursuant to our policy, loan losses are charged-off in the period the loans, or portions thereof, are deemed uncollectible. The determination of the loans on which full collectibility is not reasonably assured, the estimates of the fair value of the underlying collateral and the assessments of economic and regulatory conditions are subject to assumptions and judgments by management. Specific valuation allowances could differ materially as a result of changes in these assumptions and judgments. General valuation allowances represent loss allowances that have been established to recognize the inherent risks associated with our lending activities, but which, unlike specific allowances, have not been allocated to particular problem loans. The determination of the adequacy of the valuation allowance takes into consideration a variety of factors. We segment our loan portfolio into like categories by composition and size and perform analyses against each category. These include historical loss experience and delinquency levels and trends. We analyze our historical loan loss experience by category (loan type) over 5, 10, and 12-year periods. Losses within each loan category are stress tested by applying the highest level of charge-offs and the lowest amount of recoveries as a percentage of the average portfolio balance during those respective time horizons. The resulting allowance percentages are used as an integral part of our judgment in developing estimated loss percentages to apply to the portfolio. We also consider the growth in the portfolio as well as our credit administration and asset management philosophies and procedures. In addition, we evaluate and consider the impact that existing and projected economic and market conditions may have on the portfolio as well as known and inherent risks in the portfolio. We also evaluate and consider the allowance ratios and coverage percentages set forth in both peer group and regulatory agency data; however, our focus is primarily on our historical loss experience and the impact of current economic conditions. After evaluating these variables, we determine appropriate allowance coverage percentages for each of our portfolio segments and the appropriate level of our allowance for loan losses. Our allowance coverage percentages are used to estimate the amount of probable losses inherent in our loan portfolio in determining our general valuation allowances. Our evaluations of general valuation allowances are inherently subjective because, even though they are based on objective data, it is management's interpretation of that data that determines the amount of the appropriate allowance. Therefore, we periodically review the actual performance and charge-off history of our portfolio and compare that to our previously determined allowance coverage percentages. In doing so, we evaluate the impact the previously mentioned variables may have had on the portfolio to determine which changes, if any, should be made to our assumptions and analyses. 14 Our loss experience in 2005 has been consistent with our loss experience over the past several years. Our 2005 analyses did not result in any change in our methodology for determining our general and specific valuation allowances or our emphasis on the factors that we consider in establishing such allowances. Accordingly, such analyses did not indicate that changes in our allowance coverage percentages were required. Our allowance for loan losses to total loans was 0.60% at June 30, 2005 and 0.62% at December 31, 2004. We believe our current allowance for loan losses is adequate to reflect the risks inherent in our loan portfolio. As indicated above, actual results could differ from our estimates as a result of changes in economic or market conditions. Changes in estimates could result in a material change in the allowance for loan losses. While we believe that the allowance for loan losses has been established and maintained at levels that reflect the risks inherent in our loan portfolio, future adjustments may be necessary if economic or market conditions differ substantially from the conditions that existed at the time of the initial determinations. For additional information regarding our allowance for loan losses, see "Provision for Loan Losses" and "Asset Quality" in this document and Part II, Item 7, "MD&A," in our 2004 Annual Report on Form 10-K. Valuation of MSR MSR are carried at cost and amortized over the estimated remaining lives of the loans serviced. Impairment, if any, is recognized through a valuation allowance. Impairment exists if the carrying value of MSR exceeds the estimated fair value. The estimated fair value of MSR is obtained through independent third party valuations. At June 30, 2005, our MSR, net, had an estimated fair value of $15.4 million and were valued based on expected future cash flows considering a weighted average discount rate of 9.08%, a weighted average constant prepayment rate on mortgages of 17.41% and a weighted average life of 4.3 years. At December 31, 2004, our MSR, net, had an estimated fair value of $16.8 million and were valued based on expected future cash flows considering a weighted average discount rate of 9.10%, a weighted average constant prepayment rate on mortgages of 15.33% and a weighted average life of 4.8 years. The increase in the weighted average constant prepayment rate from December 31, 2004 to June 30, 2005 reflects the decrease in long-term interest rates from December 31, 2004 to June 30, 2005. The fair value of MSR is highly sensitive to changes in assumptions. Changes in prepayment speed assumptions have the most significant impact on the fair value of our MSR. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of MSR. As interest rates rise, mortgage loan prepayments slow down, which results in an increase in the fair value of MSR. Assuming an increase in interest rates of 100 basis points at June 30, 2005, the estimated fair value of our MSR would have been $5.9 million greater. Assuming a decrease in interest rates of 100 basis points at June 30, 2005, the estimated fair value of our MSR would have been $7.0 million lower. Goodwill Impairment Goodwill is presumed to have an indefinite useful life and is tested, at least annually, for impairment at the reporting unit level. Impairment exists when the carrying amount of goodwill exceeds its implied fair value. As of June 30, 2005, the carrying amount of our goodwill totaled 15 $185.2 million. When performing the impairment test, if the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. On September 30, 2004 we performed our annual goodwill impairment test. We determined the fair value of our reporting unit to be in excess of its carrying amount by $1.27 billion, using the quoted market price of our common stock on our impairment testing date as the basis for determining the fair value. Accordingly, as of our annual impairment test date, there was no indication of goodwill impairment. We would test our goodwill for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of our reporting unit below its carrying amount. No events have occurred and no circumstances have changed since our annual impairment test date that would more likely than not reduce the fair value of our reporting unit below its carrying amount. The identification of additional reporting units or the use of other valuation techniques could result in materially different evaluations of impairment. Securities Impairment Our available-for-sale securities portfolio is carried at estimated fair value, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income/loss in stockholders' equity. Debt securities which we have the positive intent and ability to hold to maturity are classified as held-to-maturity and are carried at amortized cost. The fair values of our securities, which are primarily fixed rate mortgage-backed securities at June 30, 2005, are based on published or securities dealers' market values and are affected by changes in interest rates. In general, as interest rates rise, the fair value of fixed rate securities will decrease; as interest rates fall, the fair value of fixed rate securities will increase. We conduct a periodic review and evaluation of the securities portfolio to determine if the decline in the fair value of any security below its cost basis is other-than-temporary. We generally view changes in fair value caused by changes in interest rates as temporary, which is consistent with our experience. If we deem such decline to be other-than-temporary, the security is written down to a new cost basis and the resulting loss is charged to earnings. There were no securities write-downs during the six months ended June 30, 2005. At June 30, 2005, we had 178 securities with an estimated fair value totaling $5.72 billion which had an unrealized loss totaling $78.9 million. Of the securities in an unrealized loss position at June 30, 2005, $2.02 billion, with an unrealized loss of $52.8 million, have been in a continuous unrealized loss position for more than twelve months. At June 30, 2005, the impairments are deemed temporary based on the direct relationship of the decline in fair value to movements in interest rates, the life of the investments and the high credit quality. 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. The most significant liquidity challenge we face is the variability in cash flows as a result of mortgage refinance activity. Principal payments on loans and securities totaled $2.59 billion for the six months ended June 30, 2005 and $3.65 billion for the six months ended June 30, 2004. The decrease in loan and securities repayments was primarily the result of the lower levels of mortgage loan refinance activity we experienced during the six months ended June 30, 2005, compared to the six months ended June 30, 2004. In addition to cash provided by principal and interest payments on loans and securities, our other sources of funds include cash provided by operating activities, deposits and borrowings. Net cash provided by operating activities totaled $135.6 million during the six months ended June 30, 2005 and $138.8 million during the six months ended June 30, 2004. Deposits increased $262.0 16 million during the six months ended June 30, 2005 and $709.1 million during the six months ended June 30, 2004. The net increases in deposits for the six months ended June 30, 2005 and 2004 reflect our continued emphasis on attracting customer deposits through competitive rates, extensive product offerings and quality service. As previously discussed, the net increase in deposits for the six months ended June 30, 2005 is primarily attributable to an increase in certificates of deposit as a result of the success of our new Liquid CDs and our marketing campaigns which have focused on attracting medium-term certificates of deposit. During the six months ended June 30, 2005, $2.09 billion of certificates of deposit, including Liquid CDs, with a weighted average rate of 2.80% and a weighted average maturity at inception of nineteen months, matured and $2.54 billion of certificates of deposit, including Liquid CDs, were issued or repriced, with a weighted average rate of 2.94% and a weighted average maturity at inception of fourteen months. Net borrowings decreased $901.0 million during the six months ended June 30, 2005 and $828.3 million during the six months ended June 30, 2004. The decrease in net borrowings during the six months ended June 30, 2005 reflects our strategy of reducing the securities and borrowings portfolios through normal cash flow in response to the continued flattening of the U.S. Treasury yield curve. The decrease in net borrowings during the six months ended June 30, 2004 was the result of the repayment of certain high cost borrowings as they matured. Our primary use of funds is for the origination and purchase of mortgage loans. Gross mortgage loans originated and purchased during the six months ended June 30, 2005 totaled $1.99 billion, of which $1.58 billion were originations and $411.1 million were purchases. This compares to gross mortgage loans originated and purchased during the six months ended June 30, 2004 totaling $2.10 billion, of which $1.60 billion were originations and $501.5 million were purchases. Total mortgage loans originated include originations of loans held-for-sale totaling $181.7 million during the six months ended June 30, 2005 and $190.7 million during the six months ended June 30, 2004. Purchases of securities totaled $177.6 million during the six months ended June 30, 2005 and $1.52 billion during the six months ended June 30, 2004. The decrease in securities purchases during the six months ended June 30, 2005 reflects our previously discussed strategy of reducing the securities and borrowings portfolios. We maintain liquidity levels to meet our operational needs in the normal course of our business. The levels of our liquid assets during any given period are dependent on our operating, investing and financing activities. Cash and due from banks and repurchase agreements, our most liquid assets, totaled $297.1 million at June 30, 2005 and $406.4 million at December 31, 2004. Borrowings maturing over the next twelve months total $2.35 billion with a weighted average rate of 2.95%. We have the flexibility to either repay or rollover these borrowings as they mature. In addition, we have $3.67 billion in certificates of deposit, including Liquid CDs, with a weighted average rate of 2.92% maturing over the next twelve months. We expect to retain or replace a significant portion of such deposits based on our competitive pricing and historical experience. 17 The following table details our borrowing and certificate of deposit maturities and their weighted average rates as of June 30, 2005:
Borrowings Certificates of Deposit ------------------- ----------------------- Weighted Weighted Average Average (Dollars in Millions) Amount Rate Amount Rate - ------------------------------------- ------- ------- ------ -------- Contractual Maturity: Within twelve months $2,349(1) 2.95% $3,667 2.92% Thirteen to twenty-four months 1,720 2.85 1,770 3.85 Twenty-five to thirty-six months 1,900(2) 4.22 1,071 3.89 Thirty-seven to forty-eight months 1,720(3) 4.69 534 4.13 Forty-nine to sixty months -- -- 320 4.24 Over five years 879(4) 4.35 60 4.64 ------ ---- ------ ---- Total $8,568 3.70% $7,422 3.44% ====== ==== ====== ====
(1) Includes $1.18 billion of overnight and other short-term borrowings with a weighted average rate of 3.35%. (2) Includes $980.0 million of borrowings, with a weighted average rate of 5.30%, which are callable by the counterparty within the next twelve months and at various times thereafter. (3) Includes $1.20 billion of borrowings, with a weighted average rate of 5.21%, which are callable by the counterparty within the next twelve months and at various times thereafter. (4) Includes $500.0 million of borrowings, with a weighted average rate of 2.25%, which are callable by the counterparty in 2007 and at various times thereafter. Additional sources of liquidity at the holding company level have included issuances of securities into the capital markets, including private issuances of trust preferred securities through our subsidiary, Astoria Capital Trust I, and senior debt. Holding company debt obligations are included in other borrowings. Our ability to continue to access the capital markets for additional financing at favorable terms may be limited by, among other things, market demand, interest rates, our capital levels, Astoria Federal's ability to pay dividends to Astoria Financial Corporation, our credit profile and our business model. Astoria Financial Corporation's primary uses of funds include payment of dividends, payment of principal and interest on its debt obligations and repurchases of common stock. Astoria Financial Corporation paid interest on its debt obligations totaling $16.5 million during the six months ended June 30, 2005. Our payment of dividends and repurchases of our common stock totaled $110.2 million during the six months ended June 30, 2005. Our ability to pay dividends, service our debt obligations and repurchase common stock is dependent primarily upon receipt of capital distributions from Astoria Federal. Since Astoria Federal is a federally chartered savings association, there are limits on its ability to make distributions to Astoria Financial Corporation. On June 1, 2005, we paid a quarterly cash dividend of $0.20 per share on shares of our common stock outstanding as of the close of business on May 16, 2005 totaling $20.5 million. On July 20, 2005, we declared a quarterly cash dividend of $0.20 per share on shares of our common stock payable on September 1, 2005 to stockholders of record as of the close of business on August 15, 2005. On May 19, 2004, our Board of Directors approved our tenth stock repurchase plan authorizing the purchase, at management's discretion, of 12,000,000 shares, or approximately 10% of our common stock then outstanding, over a two year period in open-market or privately negotiated transactions. During the six months ended June 30, 2005, we repurchased 2,610,000 shares of our common stock at an aggregate cost of $69.1 million. In total, as of June 30, 2005, we repurchased 7,765,200 shares of our common stock, at an aggregate cost of $196.7 million, 18 under the tenth stock repurchase plan. For further information on our common stock repurchases, see Part II, Item 2, "Unregistered Sales of Equity Securities and Use of Proceeds." See "Financial Condition" for a further discussion of the changes in stockholders' equity. At June 30, 2005, Astoria Federal's capital levels exceeded all of its regulatory capital requirements with a tangible capital ratio of 6.71%, leverage capital ratio of 6.71% and total risk-based capital ratio of 13.33%. The minimum regulatory requirements are a tangible capital ratio of 1.50%, leverage capital ratio of 4.00% and total risk-based capital ratio of 8.00%. As of June 30, 2005, Astoria Federal continues to be a well capitalized institution. Off-Balance Sheet Arrangements and Contractual Obligations We are a party to financial instruments with off-balance sheet risk in the normal course of our business in order to meet the financing needs of our customers and in connection with our overall interest rate risk management strategy. These instruments involve, to varying degrees, elements of credit, interest rate and liquidity risk. In accordance with GAAP, these instruments are either not recorded in the consolidated financial statements or are recorded in amounts that differ from the notional amounts. Such instruments primarily include lending commitments, lease commitments and derivative instruments. Lending commitments include commitments to originate and purchase loans and commitments to fund unused lines of credit. Derivative instruments may include interest rate caps, locks and swaps which are recorded as either assets or liabilities in the consolidated statements of financial condition at fair value. Additionally, in connection with our mortgage banking activities, we have commitments to fund loans held-for-sale and commitments to sell loans which are considered derivative instruments. Commitments to sell loans totaled $99.2 million at June 30, 2005. The fair values of our mortgage banking derivative instruments are immaterial to our financial condition and results of operations. We also have contractual obligations related to operating lease commitments which have not changed significantly from December 31, 2004. The following table details our contractual obligations as of June 30, 2005.
Payments due by period --------------------------------------------------------------- Less than One to Three to More than (In Thousands) Total One Year Three Years Five Years Five Years - ---------------------------------------------------- ---------- ---------- ----------- ---------- ---------- Contractual Obligations: Borrowings with original terms greater than three months $7,392,866 $1,174,000 $3,620,000 $1,720,000 $878,866 Commitments to originate and purchase loans (1) 678,001 678,001 -- -- -- Commitments to fund unused lines of credit (2) 421,583 421,583 -- -- -- ---------- ---------- ---------- ---------- -------- Total $8,492,450 $2,273,584 $3,620,000 $1,720,000 $878,866 ========== ========== ========== ========== ========
(1) Commitments to originate and purchase loans include commitments to originate loans held-for-sale. (2) Unused lines of credit relate primarily to home equity lines of credit. In addition to the contractual obligations previously discussed, we have contingent liabilities related to assets sold with recourse and standby letters of credit. Contingent liabilities related to assets sold with recourse and standby letters of credit as of June 30, 2005 have not changed significantly from December 31, 2004. 19 For further information regarding our off-balance sheet arrangements and contractual obligations, see Part II, Item 7, "MD&A," in our 2004 Annual Report on Form 10-K. Loan Portfolio The following table sets forth the composition of our loans receivable portfolio in dollar amounts and in percentages of the portfolio at the dates indicated.
At June 30, 2005 At December 31, 2004 ---------------------- ---------------------- Percent Percent (Dollars in Thousands) Amount of Total Amount of Total - --------------------------------- ----------- -------- ----------- -------- Mortgage loans (gross): One-to-four family $ 9,267,038 67.81% $ 9,054,747 68.68% Multi-family 2,725,621 19.94 2,558,935 19.41 Commercial real estate 1,018,998 7.46 944,859 7.17 Construction 132,589 0.97 117,766 0.89 ----------- ------ ----------- ------ Total mortgage loans 13,144,246 96.18 12,676,307 96.15 ----------- ------ ----------- ------ Consumer and other loans (gross): Home equity 479,638 3.51 466,087 3.53 Commercial 24,070 0.18 21,819 0.17 Other 17,823 0.13 19,382 0.15 ----------- ------ ----------- ------ Total consumer and other loans 521,531 3.82 507,288 3.85 ----------- ------ ----------- ------ Total loans (gross) 13,665,777 100.00% 13,183,595 100.00% Net unamortized premiums and deferred loan costs 84,338 79,684 ----------- ----------- Total loans 13,750,115 13,263,279 Allowance for loan losses (82,519) (82,758) ----------- ----------- Total loans, net $13,667,596 $13,180,521 =========== ===========
20 Securities Portfolio The following table sets forth the amortized cost and estimated fair value of mortgage-backed and other securities available-for-sale and held-to-maturity at the dates indicated.
At June 30, 2005 At December 31, 2004 ----------------------- ----------------------- Estimated Estimated Amortized Fair Amortized Fair (In Thousands) Cost Value Cost Value - ------------------------------------ ---------- ---------- ---------- ---------- Securities available-for-sale: Mortgage-backed securities: REMICs and CMOs: GSE (1) issuance $1,890,112 $1,849,030 $2,125,549 $2,077,902 Non-GSE issuance 69,824 66,730 78,974 75,715 GSE pass-through certificates 104,554 107,316 123,029 126,570 ---------- ---------- ---------- ---------- Total mortgage-backed securities 2,064,490 2,023,076 2,327,552 2,280,187 ---------- ---------- ---------- ---------- Other securities: FNMA and FHLMC preferred stock 123,495 120,956 123,495 123,548 Other securities 2,507 2,496 3,152 3,148 ---------- ---------- ---------- ---------- Total other securities 126,002 123,452 126,647 126,696 ---------- ---------- ---------- ---------- Total securities available-for-sale $2,190,492 $2,146,528 $2,454,199 $2,406,883 ========== ========== ========== ========== Securities held-to-maturity: Mortgage-backed securities: REMICs and CMOs: GSE issuance $5,168,283 $5,151,000 $5,772,676 $5,778,885 Non-GSE issuance 419,556 415,482 480,053 476,707 GSE pass-through certificates 7,186 7,520 9,154 9,691 ---------- ---------- ---------- ---------- Total mortgage-backed securities 5,595,025 5,574,002 6,261,883 6,265,283 Obligations of states and political subdivisions and corporate debt securities 27,843 28,102 41,053 41,477 ---------- ---------- ---------- ---------- Total securities held-to-maturity $5,622,868 $5,602,104 $6,302,936 $6,306,760 ========== ========== ========== ==========
(1) Government-sponsored enterprise 21 Comparison of Financial Condition as of June 30, 2005 and December 31, 2004 and Operating Results for the Three and Six Months Ended June 30, 2005 and 2004 Financial Condition Total assets decreased $589.8 million to $22.83 billion at June 30, 2005, from $23.42 billion at December 31, 2004. The primary reasons for the decrease in total assets were decreases in mortgage-backed and other securities and repurchase agreements, partially offset by an increase in loans receivable. Mortgage loans, net, increased $472.2 million to $13.22 billion at June 30, 2005, from $12.75 billion at December 31, 2004. This increase was due to increases in each of our mortgage loan portfolios. Gross mortgage loans originated and purchased during the six months ended June 30, 2005 totaled $1.99 billion, of which $1.58 billion were originations and $411.1 million were purchases. This compares to gross mortgage loans originated and purchased during the six months ended June 30, 2004 totaling $2.10 billion, of which $1.60 billion were originations and $501.5 million were purchases. Total mortgage loans originated include originations of loans held-for-sale totaling $181.7 million during the six months ended June 30, 2005 and $190.7 million during the six months ended June 30, 2004. Mortgage loan repayments decreased to $1.33 billion for the six months ended June 30, 2005, from $2.00 billion for the six months ended June 30, 2004. The declines in the levels of mortgage loan originations, purchases and repayments for the six months ended June 30, 2005, as compared to the six months ended June 30, 2004, were primarily the result of the lower levels of refinance activity previously discussed. Our mortgage loan portfolio, as well as our originations and purchases, continues to consist primarily of one-to-four family mortgage loans. Our one-to-four family mortgage loans increased $212.3 million to $9.27 billion at June 30, 2005, from $9.05 billion at December 31, 2004, and represented 67.8% of our total loan portfolio at June 30, 2005. The lower levels of loan prepayments and continued strength of the purchase mortgage market resulted in continued one-to-four family mortgage loan portfolio growth, which began in the 2004 fourth quarter. Our multi-family mortgage loan portfolio increased $166.7 million to $2.73 billion at June 30, 2005, from $2.56 billion at December 31, 2004. Our commercial real estate loan portfolio increased $74.1 million to $1.02 billion at June 30, 2005, from $944.9 million at December 31, 2004. Multi-family and commercial real estate loan originations totaled $498.5 million for the six months ended June 30, 2005 and $514.1 million for the six months ended June 30, 2004. The average loan balance within our combined multi-family and commercial real estate portfolio continues to be less than $1.0 million and the average loan-to-value ratio, based on current principal balance and original appraised value, continues to be less than 65%. Mortgage-backed and other securities decreased $940.4 million to $7.77 billion at June 30, 2005, from $8.71 billion at December 31, 2004. This decrease was primarily the result of principal payments received of $1.12 billion, partially offset by purchases during the first quarter totaling $177.6 million, and reflects our previously discussed strategy of reducing the securities and borrowings portfolios through normal cash flow in the current interest rate environment. At June 30, 2005, our securities portfolio is comprised primarily of fixed rate real estate mortgage investment conduit, or REMIC, and collateralized mortgage obligation, or 22 CMO, mortgage-backed securities with a weighted average life of 2.8 years. The amortized cost of our fixed rate REMICs and CMOs totaled $7.53 billion at June 30, 2005. Included in this total is $1.21 billion of securities which have a remaining gross premium of $8.7 million, a weighted average current coupon of 4.92%, a weighted average collateral coupon of 5.98% and a weighted average life of 2.1 years. The remaining $6.32 billion of these securities have a remaining gross discount of $22.2 million, a weighted average current coupon of 4.20%, a weighted average collateral coupon of 5.72% and a weighted average life of 2.9 years. Included in the totals for discount securities are $690.2 million of securities at par. Deposits increased $262.0 million to $12.59 billion at June 30, 2005, from $12.32 billion at December 31, 2004, primarily due to increases in Liquid CDs and certificates of deposit, partially offset by decreases in money market, savings and NOW and demand deposit accounts. Our new Liquid CDs totaled $331.7 million at June 30, 2005. Certificates of deposit increased $242.3 million to $7.09 billion at June 30, 2005, from $6.85 billion at December 31, 2004, primarily due to the continued success of our certificate of deposit marketing campaigns previously discussed. We continue to experience intense competition for deposits, particularly money market and checking accounts. Savings accounts decreased $149.9 million since December 31, 2004 to $2.78 billion at June 30, 2005. Money market accounts decreased $153.5 million since December 31, 2004 to $811.8 million at June 30, 2005. NOW and demand deposit accounts also decreased slightly at June 30, 2005 compared to December 31, 2004. Total borrowings, net, decreased $901.0 million to $8.57 billion at June 30, 2005, from $9.47 billion at December 31, 2004, which was primarily the result of a decrease in Federal Home Loan Bank of New York, or FHLB-NY, advances. The net decrease in total borrowings reflects our previously discussed strategy of reducing the securities and borrowings portfolios. For additional information, see "Liquidity and Capital Resources." Stockholders' equity increased to $1.39 billion at June 30, 2005, from $1.37 billion at December 31, 2004. The increase in stockholders' equity was the result of net income of $116.9 million, the effect of stock options exercised and related tax benefit of $9.2 million and the amortization of the allocated portion of shares held by the employee stock ownership plan, or ESOP, of $5.1 million. These increases were partially offset by common stock repurchased of $69.1 million and dividends declared of $41.1 million. Results of Operations General Net income for the three months ended June 30, 2005 totaled $57.4 million, compared to $57.5 million for the three months ended June 30, 2004. Diluted earnings per common share increased to $0.55 per share for the three months ended June 30, 2005, from $0.52 per share for the three months ended June 30, 2004. Return on average assets decreased to 1.00% for the three months ended June 30, 2005, from 1.03% for the three months ended June 30, 2004. Return on average stockholders' equity increased to 16.66% for the three months ended June 30, 2005, from 16.55% for the three months ended June 30, 2004. Return on average tangible stockholders' equity, which represents average stockholders' equity less average goodwill, increased to 19.24% for the three months ended June 30, 2005, from 19.09% for the three months ended June 30, 2004. 23 Net income for the six months ended June 30, 2005 increased $6.0 million to $116.9 million, from $110.9 million for the six months ended June 30, 2004. Diluted earnings per common share increased to $1.12 per share for the six months ended June 30, 2005, from $0.99 per share for the six months ended June 30, 2004. Return on average assets increased to 1.01% for the six months ended June 30, 2005, from 0.99% for the six months ended June 30, 2004, primarily due to the increase in net income, partially offset by an increase in the average balance of total assets. Return on average stockholders' equity increased to 17.02% for the six months ended June 30, 2005, from 15.85% for the six months ended June 30, 2004. Return on average tangible stockholders' equity increased to 19.68% for the six months ended June 30, 2005, from 18.27% for the six months ended June 30, 2004. The increases in the returns on average stockholders' equity and average tangible stockholders' equity were primarily due to the increase in net income, coupled with a decrease in the average balance of stockholders' equity for the six months ended June 30, 2005, compared to the six months ended June 30, 2004. 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 and their related impact on cash flows. See Item 3, "Quantitative and Qualitative Disclosures About Market Risk," for further discussion of the potential impact of changes in interest rates on our results of operations. For the three months ended June 30, 2005, net interest income increased $8.0 million to $121.3 million, from $113.3 million for the three months ended June 30, 2004. For the six months ended June 30, 2005, net interest income increased $18.8 million to $246.6 million, from $227.8 million for the six months ended June 30, 2004. The increases in net interest income for the three and six months ended June 30, 2005 were primarily the result of increases in interest income, partially offset by increases in interest expense. The increases in interest income were primarily due to increases in the average balances of interest-earning assets, coupled with decreases in net premium amortization on our mortgage-backed securities and mortgage loan portfolios. Net premium amortization on our mortgage-backed securities and mortgage loan portfolios decreased $8.2 million to $4.5 million for the three months ended June 30, 2005, from $12.7 million for the three months ended June 30, 2004, and decreased $12.2 million to $8.8 million for the six months ended June 30, 2005, from $21.0 million for the six months ended June 30, 2004. The decreases in net premium amortization were primarily due to the lower repayment levels during 2005 as compared to 2004, as well as the reduced amount of unamortized net premium remaining in our mortgage-backed securities portfolio. The increases in interest expense were primarily due to increases in the average balances of our certificates of deposit and our new Liquid CDs. The average balance of net interest-earning assets increased $105.9 million to $685.2 million for the three months ended June 30, 2005, from $579.3 million for the three months ended June 30, 2004. The average balance of net interest-earning assets increased $42.5 million to $667.5 million for the six months ended June 30, 2005, from $625.0 million for the six months ended June 30, 2004. The increase in the average balance of net interest-earning assets for both the three and six months ended June 30, 2005 was primarily the result of an increase in 24 the average balance of total interest-earning assets, partially offset by an increase in the average balance of total interest-bearing liabilities. The net interest margin increased to 2.21% for the three months ended June 30, 2005, from 2.13% for the three months ended June 30, 2004, and increased to 2.22% for the six months ended June 30, 2005, from 2.14% for the six months ended June 30, 2004. The net interest rate spread increased to 2.12% for the three months ended June 30, 2005, from 2.06% for the three months ended June 30, 2004, and increased to 2.14% for the six months ended June 30, 2005, from 2.06% for the six months ended June 30, 2004. The increases in the net interest margin and net interest rate spread were primarily due to an increase in the yield on interest-earning assets, primarily due to the decline in net premium amortization on our mortgage-backed securities and mortgage loan portfolios, previously discussed. The changes in average interest-earning assets and interest-bearing liabilities and their related yields and costs are discussed in greater detail under "Interest Income" and "Interest Expense." Average Balance Sheet The following tables set forth certain information about the average balances of our assets and liabilities and their related yields and costs for the three and six months ended June 30, 2005 and 2004. Average yields are derived by dividing income by the average balance of the related assets and average costs are derived by dividing expense by the average balance of the related liabilities, for the periods shown. Average balances are derived from average daily balances. The yields and costs include amortization of fees, costs, premiums and discounts which are considered adjustments to interest rates. 25
For the Three Months Ended June 30, ----------------------------------------------------------------------------- 2005 2004 ------------------------------------- ------------------------------------- Average Average Average Yield/ Average Yield/ (Dollars in Thousands) Balance Interest Cost Balance Interest Cost - ------------------------------------------- ----------- -------- ------------ ----------- -------- ------------ (Annualized) (Annualized) Assets: Interest-earning assets: Mortgage loans (1): One-to-four family $ 9,342,312 $112,898 4.83% $ 8,862,057 $104,205 4.70% Multi-family, commercial real estate and construction 3,827,458 58,300 6.09 3,350,010 54,634 6.52 Consumer and other loans (1) 529,679 7,475 5.64 466,745 4,798 4.11 ----------- -------- ----------- -------- Total loans 13,699,449 178,673 5.22 12,678,812 163,637 5.16 Mortgage-backed and other securities (2) 7,997,687 88,526 4.43 8,337,650 87,809 4.21 Federal funds sold and repurchase agreements 189,058 1,361 2.88 94,515 222 0.94 FHLB-NY stock 126,518 1,650 5.22 155,471 895 2.30 ----------- -------- ----------- -------- Total interest-earning assets 22,012,712 270,210 4.91 21,266,448 252,563 4.75 -------- -------- Goodwill 185,151 185,151 Other non-interest-earning assets 851,531 938,614 ----------- ----------- Total assets $23,049.394 $22,390,213 =========== =========== Liabilities and stockholders' equity: Interest-bearing liabilities: Savings $ 2,827,699 2,831 0.40 $ 3,003,085 2,988 0.40 Money market 848,457 2,037 0.96 1,119,810 1,510 0.54 NOW and demand deposit 1,597,270 235 0.06 1,556,821 230 0.06 Liquid certificates of deposit 291,669 1,872 2.57 -- -- -- ----------- -------- ----------- -------- Total core deposits 5,565,095 6,975 0.50 5,679,716 4,728 0.33 Certificates of deposit 7,004,979 60,090 3.43 6,018,057 52,174 3.47 ----------- -------- ----------- -------- Total deposits 12,570,074 67,065 2.13 11,697,773 56,902 1.95 Borrowed funds 8,757,467 81,798 3.74 8,989,389 82,345 3.66 ----------- -------- ----------- -------- Total interest-bearing liabilities 21,327,541 148,863 2.79 20,687,162 139,247 2.69 -------- -------- Non-interest-bearing liabilities 343,422 312,905 ----------- ----------- Total liabilities 21,670,963 21,000,067 Stockholders' equity 1,378,431 1,390,146 ----------- ----------- Total liabilities and stockholders' equity $23,049,394 $22,390,213 =========== =========== Net interest income/net interest rate spread (3) $121,347 2.12% $113,316 2.06% ======== ==== ======== ==== Net interest-earning assets/net interest margin (4) $ 685,171 2.21% $ 579,286 2.13% =========== ==== =========== ==== Ratio of interest-earning assets to interest-bearing liabilities 1.03x 1.03x =========== ===========
- ---------- (1) Mortgage loans and consumer and other loans include loans held-for-sale and non-performing loans and exclude the allowance for loan losses. (2) Securities available-for-sale are reported at average amortized cost. (3) Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities. (4) Net interest margin represents net interest income divided by average interest-earning assets. 26
For the Six Months Ended June 30, ----------------------------------------------------------------------------- 2005 2004 ------------------------------------- ------------------------------------- Average Average Average Yield/ Average Yield/ (Dollars in Thousands) Balance Interest Cost Balance Interest Cost - ------------------------------------------- ----------- -------- ------------ ----------- -------- ------------ (Annualized) (Annualized) Assets: Interest-earning assets: Mortgage loans (1): One-to-four family $ 9,306,432 $224,480 4.82% $ 8,951,550 $215,555 4.82% Multi-family, commercial real estate and construction 3,754,593 116,496 6.21 3,301,619 108,265 6.56 Consumer and other loans (1) 526,117 14,256 5.42 458,421 9,688 4.23 ----------- -------- ----------- -------- Total loans 13,587,142 355,232 5.23 12,711,590 333,508 5.25 Mortgage-backed and other securities (2) 8,259,673 182,448 4.42 8,351,335 177,940 4.26 Federal funds sold and repurchase agreements 216,177 2,810 2.60 79,704 376 0.94 FHLB-NY stock 134,388 2,823 4.20 191,641 1,833 1.91 ----------- -------- ----------- -------- Total interest-earning assets 22,197,380 543,313 4.90 21,334,270 513,657 4.82 -------- -------- Goodwill 185,151 185,151 Other non-interest-earning assets 858,133 891,331 ----------- ----------- Total assets $23,240,664 $22,410,752 =========== =========== Liabilities and stockholders' equity: Interest-bearing liabilities: Savings $ 2,848,793 5,673 0.40 $ 2,981,642 5,933 0.40 Money market 881,618 3,959 0.90 1,153,993 3,118 0.54 NOW and demand deposit 1,578,781 465 0.06 1,511,777 451 0.06 Liquid certificates of deposit 234,291 2,945 2.51 -- -- -- ----------- -------- ----------- -------- Total core deposits 5,543,483 13,042 0.47 5,647,412 9,502 0.34 Certificates of deposit 6,969,312 118,983 3.41 5,831,038 101,630 3.49 ----------- -------- ----------- -------- Total deposits 12,512,795 132,025 2.11 11,478,450 111,132 1.94 Borrowed funds 9,017,082 164,728 3.65 9,230,800 174,696 3.79 ----------- -------- ----------- -------- Total interest-bearing liabilities 21,529,877 296,753 2.76 20,709,250 285,828 2.76 -------- -------- Non-interest-bearing liabilities 337,679 301,887 ----------- ----------- Total liabilities 21,867,556 21,011,137 Stockholders' equity 1,373,108 1,399,615 ----------- ----------- Total liabilities and stockholders' equity $23,240,664 $22,410,752 =========== =========== Net interest income/net interest rate spread (3) $246,560 2.14% $227,829 2.06% ======== ==== ======== ==== Net interest-earning assets/net interest margin (4) $ 667,503 2.22% $ 625,020 2.14% =========== ==== =========== ==== Ratio of interest-earning assets to interest-bearing liabilities 1.03x 1.03x =========== ===========
- ---------- (1) Mortgage loans and consumer and other loans include loans held-for-sale and non-performing loans and exclude the allowance for loan losses. (2) Securities available-for-sale are reported at average amortized cost. (3) Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities. (4) Net interest margin represents net interest income divided by average interest-earning assets. 27 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) the changes attributable to changes in volume (changes in volume multiplied by prior rate), (2) the 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.
Three Months Ended June 30, 2005 Six Months Ended June 30, 2005 Compared to Compared to Three Months Ended June 30, 2004 Six Months Ended June 30, 2004 -------------------------------- ------------------------------ Increase (Decrease) Increase (Decrease) -------------------------------- ------------------------------ (In Thousands) Volume Rate Net Volume Rate Net - --------------------------------------- ------- ------- ------- ------- ------- ------- Interest-earning assets: Mortgage loans: One-to-four family $ 5,756 $ 2,937 $ 8,693 $ 8,925 $ -- $ 8,925 Multi-family, commercial real estate and construction 7,430 (3,764) 3,666 14,247 (6,016) 8,231 Consumer and other loans 712 1,965 2,677 1,572 2,996 4,568 Mortgage-backed and other securities (3,706) 4,423 717 (2,002) 6,510 4,508 Federal funds sold and repurchase agreements 372 767 1,139 1,197 1,237 2,434 FHLB-NY stock (193) 948 755 (678) 1,668 990 ------- ------- ------- ------- ------- ------- Total 10,371 7,276 17,647 23,261 6,395 29,656 ------- ------- ------- ------- ------- ------- Interest-bearing liabilities: Savings (157) -- (157) (260) -- (260) Money market (433) 960 527 (866) 1,707 841 NOW and demand deposit 5 -- 5 14 -- 14 Liquid certificates of deposit 1,872 -- 1,872 2,945 -- 2,945 Certificates of deposit 8,521 (605) 7,916 19,704 (2,351) 17,353 Borrowed funds (2,243) 1,696 (547) (3,840) (6,128) (9,968) ------- ------- ------- ------- ------- ------- Total 7,565 2,051 9,616 17,697 (6,772) 10,925 ------- ------- ------- ------- ------- ------- Net change in net interest income $ 2,806 $ 5,225 $ 8,031 $ 5,564 $13,167 $18,731 ======= ======= ======= ======= ======= =======
Interest Income Interest income for the three months ended June 30, 2005 increased $17.6 million to $270.2 million, from $252.6 million for the three months ended June 30, 2004. This increase was primarily the result of an increase of $746.3 million in the average balance of interest-earning assets to $22.01 billion for the three months ended June 30, 2005, from $21.27 billion for the three months ended June 30, 2004, coupled with an increase in the average yield on interest-earning assets to 4.91% for the three months ended June 30, 2005, from 4.75% for the three months ended June 30, 2004. The increase in the average balance of interest-earning assets was primarily due to increases in the average balances of loans and federal funds sold and repurchase agreements, partially offset by a decrease in the average balance of mortgage-backed and other securities. The increase in the average yield on interest-earning assets was primarily the result of the decrease in net premium amortization on our mortgage-backed securities and mortgage loan portfolios, previously discussed. 28 Interest income on one-to-four family mortgage loans increased $8.7 million to $112.9 million for the three months ended June 30, 2005, from $104.2 million for the three months ended June 30, 2004, which was primarily the result of an increase of $480.3 million in the average balance of such loans, coupled with an increase in the average yield to 4.83% for the three months ended June 30, 2005, from 4.70% for the three months ended June 30, 2004. The increase in the average balance of one-to-four family mortgage loans is the result of the strong levels of originations and purchases which have outpaced the levels of repayments over the past nine months. The increase in the average yield on one-to-four family mortgage loans reflects the impact of the previously discussed reduction in loan premium amortization, partially offset by the impact of the low interest rate environment as higher rate loans were repaid and replaced with lower yielding new originations and purchases throughout most of 2004 and 2005. Interest income on multi-family, commercial real estate and construction loans increased $3.7 million to $58.3 million for the three months ended June 30, 2005, from $54.6 million for the three months ended June 30, 2004, which was primarily the result of an increase of $477.4 million in the average balance of such loans, partially offset by a decrease in the average yield to 6.09% for the three months ended June 30, 2005, from 6.52% for the three months ended June 30, 2004. The increase in the average balance of multi-family, commercial real estate and construction loans reflects the continued strong levels of originations, coupled with the fact that repayment activity within this portfolio is generally not as significant as that which we have experienced in our one-to-four family mortgage loan portfolio in part due to the prepayment penalties associated with these loans. The decrease in the average yield on multi-family, commercial real estate and construction loans reflects the significant growth in the portfolio in the relatively low interest rate environment, coupled with a decrease of $1.1 million in prepayment penalties for the three months ended June 30, 2005 compared to the three months ended June 30, 2004. Interest income on consumer and other loans increased $2.7 million to $7.5 million for the three months ended June 30, 2005, from $4.8 million for the three months ended June 30, 2004, primarily due to an increase in the average yield to 5.64% for the three months ended June 30, 2005, from 4.11% for the three months ended June 30, 2004, coupled with an increase of $62.9 million in the average balance of the portfolio. The increase in the average yield on consumer and other loans was primarily the result of an increase in the average yield on our home equity lines of credit which are adjustable rate loans which generally reset monthly and are indexed to the prime rate. The prime rate increased 125 basis points during the latter half of 2004 and 100 basis points during the first half of 2005. The increase in the average balance of consumer and other loans was due to the increase in home equity lines of credit as a result of the continued strong housing market and relatively low interest rate environment. Home equity lines of credit represented 92.0% of this portfolio at June 30, 2005. Interest income on mortgage-backed and other securities increased $717,000 to $88.5 million for the three months ended June 30, 2005, from $87.8 million for the three months ended June 30, 2004. This increase was primarily the result of an increase in the average yield to 4.43% for the three months ended June 30, 2005, from 4.21% for the three months ended June 30, 2004, partially offset by a decrease of $340.0 million in the average balance of the portfolio. The increase in the average yield on mortgage-backed and other securities reflects the previously discussed reduction in net premium amortization. Net premium amortization on mortgage-backed and other securities decreased $4.3 million to net discount accretion of $310,000 for the three months ended June 30, 2005, from net premium amortization of $4.0 million for the three months ended June 30, 2004. The decrease in the average balance of mortgage-backed and other securities reflects our previously discussed strategy of reducing the securities and borrowings portfolios. 29 Interest income on federal funds sold and repurchase agreements increased $1.1 million to $1.4 million for the three months ended June 30, 2005, as a result of an increase in the average yield to 2.88% for the three months ended June 30, 2005, from 0.94% for the three months ended June 30, 2004, coupled with an increase of $94.5 million in the average balance of the portfolio. The increase in the average yield reflects the FOMC federal funds rate increases previously discussed totaling 125 basis points in the latter half of 2004 and 100 basis points in the first half of 2005. Interest income on FHLB-NY stock increased $755,000 to $1.7 million for the three months ended June 30, 2005, from $895,000 for the three months ended June 30, 2004, primarily as a result of increases in the dividend rate paid by the FHLB-NY. Interest income for the six months ended June 30, 2005 increased $29.6 million to $543.3 million, from $513.7 million for the six months ended June 30, 2004. This increase was primarily the result of an increase of $863.1 million in the average balance of interest-earning assets to $22.20 billion for the six months ended June 30, 2005, from $21.33 billion for the six months ended June 30, 2004, coupled with an increase in the average yield on interest-earning assets to 4.90% for the six months ended June 30, 2005, from 4.82% for the six months ended June 30, 2004. The increase in the average balance of interest-earning assets was primarily due to increases in the average balances of loans and federal funds sold and repurchase agreements, partially offset by decreases in the average balances of mortgage-backed and other securities and FHLB-NY stock. Interest income on one-to-four family mortgage loans increased $8.9 million to $224.5 million for the six months ended June 30, 2005, from $215.6 million for the six months ended June 30, 2004, which was primarily the result of an increase of $354.9 million in the average balance of such loans. As previously discussed, the average yield on our one-to-four family mortgage loan portfolio has been positively impacted by the reduction in loan premium amortization. However, for the six months ended June 30, 2005, this benefit was offset by the previously discussed impact of the low interest rate environment and, as a result, the average yield on our one-to-four family mortgage loan portfolio remained at 4.82% for the six months ended June 30, 2005 and 2004. Interest income on multi-family, commercial real estate and construction loans increased $8.2 million to $116.5 million for the six months ended June 30, 2005, from $108.3 million for the six months ended June 30, 2004, which was primarily the result of an increase of $453.0 million in the average balance of such loans, partially offset by a decrease in the average yield to 6.21% for the six months ended June 30, 2005, from 6.56% for the six months ended June 30, 2004. Prepayment penalties were substantially the same for the six months ended June 30, 2005 compared to the six months ended June 30, 2004. Interest income on consumer and other loans increased $4.6 million to $14.3 million for the six months ended June 30, 2005, from $9.7 million for the six months ended June 30, 2004, primarily due to an increase in the average yield to 5.42% for the six months ended June 30, 2005, from 4.23% for the six months ended June 30, 2004, coupled with an increase of $67.7 million in the average balance of the portfolio. Interest income on mortgage-backed and other securities increased $4.5 million to $182.4 million for the six months ended June 30, 2005, from $177.9 million for the six months ended June 30, 2004. This increase was primarily the result of an increase in the average yield to 4.42% for the six months ended June 30, 2005, from 4.26% for the six months ended June 30, 2004, partially offset by a decrease of $91.7 million in the average balance of the portfolio. Net premium amortization on mortgage-backed and other securities decreased $7.3 million to net discount 30 accretion of $375,000 for the six months ended June 30, 2005, from net premium amortization of $6.9 million for the six months ended June 30, 2004. Interest income on federal funds sold and repurchase agreements increased $2.4 million to $2.8 million for the six months ended June 30, 2005 as a result of an increase in the average yield to 2.60% for the six months ended June 30, 2005, from 0.94% for the six months ended June 30, 2004, coupled with an increase of $136.5 million in the average balance of the portfolio. Interest income on FHLB-NY stock increased $990,000 to $2.8 million for the six months ended June 30, 2005, from $1.8 million for the six months ended June 30, 2004. The principal reasons for the changes in the average yields and average balances of the various assets noted above for the six months ended June 30, 2005 are consistent with the principal reasons for the changes noted for the three months ended June 30, 2005, previously discussed. Interest Expense Interest expense for the three months ended June 30, 2005 increased $9.7 million to $148.9 million, from $139.2 million for the three months ended June 30, 2004. This increase was primarily the result of an increase of $640.4 million in the average balance of interest-bearing liabilities to $21.33 billion for the three months ended June 30, 2005, from $20.69 billion for the three months ended June 30, 2004, coupled with an increase in the average cost of interest-bearing liabilities to 2.79% for the three months ended June 30, 2005, from 2.69% for the three months ended June 30, 2004. The increase in the average balance of interest-bearing liabilities was primarily due to an increase in the average balance of deposits, partially offset by a decrease in the average balance of borrowed funds. The increase in the average cost of interest-bearing liabilities reflects the impact of the significant increases in the average balances of certificates of deposit and our new Liquid CDs, which have a higher average cost than our other deposit products, coupled with the impact of the increase in short-term interest rates over the past year on our short-term borrowings. Interest expense on deposits increased $10.2 million, to $67.1 million for the three months ended June 30, 2005, from $56.9 million for the three months ended June 30, 2004, primarily due to an increase of $872.3 million in the average balance of total deposits. The increase in the average balance of total deposits was primarily the result of increases in the average balances of certificates of deposit and Liquid CDs, partially offset by decreases in the average balances of money market and savings accounts, primarily as a result of continued intense competition for these types of deposits. The average cost of total deposits increased to 2.13% for the three months ended June 30, 2005, from 1.95% for the three months ended June 30, 2004, primarily due to the previously discussed significant increases in the average balances of certificates of deposit and Liquid CDs. Interest expense on certificates of deposit, excluding Liquid CDs, increased $7.9 million to $60.1 million for the three months ended June 30, 2005, from $52.2 million for the three months ended June 30, 2004, primarily due to an increase of $986.9 million in the average balance, slightly offset by a decrease in the average cost to 3.43% for the three months ended June 30, 2005, from 3.47% for the three months ended June 30, 2004. The increase in the average balance of certificates of deposit was primarily a result of the success of our marketing campaigns which focused on attracting medium-term certificates of deposit as part of our interest rate risk management strategy to extend liabilities as well as to enable us to reduce borrowings. During the three months ended June 30, 2005, excluding Liquid CDs, $804.4 million of certificates of deposit, with a weighted average rate of 2.54% and a weighted average maturity at inception of 31 seventeen months, matured and $839.4 million of certificates of deposit were issued or repriced, with a weighted average rate of 3.09% and a weighted average maturity at inception of sixteen months. Interest expense on Liquid CDs totaled $1.9 million for the three months ended June 30, 2005. Our new Liquid CDs had an average balance of $291.7 million and an average cost of 2.57% for the three months ended June 30, 2005. Interest expense on borrowed funds for the three months ended June 30, 2005 decreased $547,000 to $81.8 million, from $82.3 million for the three months ended June 30, 2004, resulting from a decrease of $231.9 million in the average balance, partially offset by an increase in the average cost to 3.74% for the three months ended June 30, 2005, from 3.66% for the three months ended June 30, 2004. The decrease in the average balance of borrowed funds was primarily the result of our previously discussed strategy of reducing the securities and borrowings portfolios. The increase in the average cost of borrowed funds reflects the impact of the increase in short-term interest rates over the past year on our short-term borrowings. Interest expense for the six months ended June 30, 2005 increased $11.0 million to $296.8 million, from $285.8 million for the six months ended June 30, 2004. This increase was primarily the result of an increase of $820.6 million in the average balance of interest-bearing liabilities to $21.53 billion for the six months ended June 30, 2005, from $20.71 billion for the six months ended June 30, 2004, partially offset by decreases in the average cost of borrowed funds and certificates of deposit, excluding Liquid CDs. The increase in the average balance of interest-bearing liabilities was primarily due to an increase in the average balance of deposits, partially offset by a decrease in the average balance of borrowed funds. Although the average cost of borrowed funds and certificates of deposit decreased, the average cost of total interest-bearing liabilities remained at 2.76% for the six months ended June 30, 2005 as compared to the six months ended June 30, 2004, primarily due to the impact of the significant increases in the average balances of certificates of deposit and Liquid CDs, which have a higher average cost than our other deposit products. Interest expense on deposits increased $20.9 million to $132.0 million for the six months ended June 30, 2005, from $111.1 million for the six months ended June 30, 2004, primarily due to an increase of $1.03 billion in the average balance of total deposits. The average cost of total deposits increased to 2.11% for the six months ended June 30, 2005, from 1.94% for the six months ended June 30, 2004. The principal reasons for the changes in the average balance and average cost of total deposits for the six months ended June 30, 2005 are consistent with the principal reasons for the changes noted for the three months ended June 30, 2005, previously discussed. Interest expense on certificates of deposit, excluding Liquid CDs, increased $17.4 million to $119.0 million for the six months ended June 30, 2005, from $101.6 million for the six months ended June 30, 2004, primarily due to an increase of $1.14 billion in the average balance, partially offset by a decrease in the average cost to 3.41% for the six months ended June 30, 2005, from 3.49% for the six months ended June 30, 2004. The increase in the average balance of certificates of deposit is primarily due to the success of our marketing campaigns, previously discussed. During the six months ended June 30, 2005, excluding Liquid CDs, $1.82 billion of certificates of deposit, with a weighted average rate of 2.85% and a weighted average maturity at inception of twenty-one months, matured and $1.95 billion of certificates of deposit were issued or repriced, with a weighted average rate of 3.04% and a weighted average maturity at inception of eighteen months. Interest expense on Liquid CDs totaled $2.9 million for the six months ended June 30, 2005. Our new Liquid CDs had an average balance of $234.3 million and an average cost of 2.51% for the six months ended June 30, 2005. 32 Interest expense on borrowed funds for the six months ended June 30, 2005 decreased $10.0 million to $164.7 million, from $174.7 million for the six months ended June 30, 2004, resulting from a decrease in the average cost to 3.65% for the six months ended June 30, 2005, from 3.79% for the six months ended June 30, 2004, coupled with a decrease of $213.7 million in the average balance. The decrease in the average cost of borrowed funds reflects the impact of the repayment and refinancing of higher cost borrowings as they matured at substantially lower rates during the six months ended June 30, 2004, coupled with the use of short-term borrowings. The decrease in the average balance of borrowed funds was primarily the result of our previously discussed strategy of reducing the securities and borrowings portfolios. Provision for Loan Losses During the three and six months ended June 30, 2005 and 2004, no provision for loan losses was recorded. We review our allowance for loan losses on a quarterly basis. Our 2005 analyses did not indicate that a change in our allowance for loan losses was warranted. Our net charge-off experience for the six months ended June 30, 2005 remained at an annualized rate of less than one basis point of average loans outstanding and was one basis point of average loans outstanding, annualized, for the three months ended June 30, 2005. We believe our current allowance for loan losses is adequate to reflect the risks inherent in our loan portfolio. The allowance for loan losses totaled $82.5 million at June 30, 2005 and $82.8 million at December 31, 2004. Net loan charge-offs totaled $211,000 for the three months ended June 30, 2005, compared to $148,000 for the three months ended June 30, 2004, and $239,000 for the six months ended June 30, 2005, compared to $303,000 for the six months ended June 30, 2004. Non-performing loans decreased $3.9 million to $28.7 million at June 30, 2005, from $32.6 million at December 31, 2004. The allowance for loan losses as a percentage of non-performing loans increased to 287.86% at June 30, 2005, from 254.02% at December 31, 2004, primarily due to the decrease in non-performing loans from December 31, 2004 to June 30, 2005. The allowance for loan losses as a percentage of total loans was 0.60% at June 30, 2005 and 0.62% at December 31, 2004. For further discussion of non-performing loans and the allowance for loan losses, see "Critical Accounting Policies" and "Asset Quality." Non-Interest Income Non-interest income for the three months ended June 30, 2005 decreased $5.4 million to $22.5 million, from $27.9 million for the three months ended June 30, 2004, primarily due to a decrease in mortgage banking income, net. For the six months ended June 30, 2005, non-interest income decreased $2.7 million to $47.3 million, from $50.0 million for the six months ended June 30, 2004, primarily due to a decrease in mortgage banking income, net, coupled with a decrease in net gain on sales of securities. These decreases in non-interest income for the three and six months ended June 30, 2005, compared to the three and six months ended June 30, 2004, were partially offset by increases in customer service fees and other non-interest income. Mortgage banking income, net, which includes loan servicing fees, net gain on sales of loans, amortization of MSR and valuation allowance adjustments for the impairment of MSR, decreased $7.9 million to a mortgage banking loss, net of $1.6 million for the three months ended June 30, 2005, compared to mortgage banking income, net of $6.3 million for the three months ended June 30, 2004. For the six months ended June 30, 2005, mortgage banking income, net, decreased $3.7 million to mortgage banking income, net of $1.4 million, compared to mortgage banking income, net of $5.1 million for the six months ended June 30, 2004. These decreases were primarily due to changes in the valuation allowance for the impairment of MSR. We recorded provisions in the valuation allowance for the impairment of MSR of $2.5 million 33 for the three months ended June 30, 2005 and $67,000 for the six months ended June 30, 2005, compared to recoveries of $5.2 million for the three months ended June 30, 2004 and $3.8 million for the six months ended June 30, 2004. The provisions recorded during the three and six months ended June 30, 2005 were primarily due to an increase in projected loan prepayment speeds as of June 30, 2005, which was a result of the decrease in medium- and long-term interest rates from March 31, 2005 to June 30, 2005. The recoveries recorded during the three and six months ended June 30, 2004 reflect a decrease in projected loan prepayment speeds as of June 30, 2004, which was a result of the increase in interest rates from March 31, 2004 to June 30, 2004. Customer service fees increased $1.7 million to $16.3 million for the three months ended June 30, 2005, from $14.6 million for the three months ended June 30, 2004 and increased $3.0 million to $31.3 million for the six months ended June 30, 2005, from $28.3 million for the six months ended June 30, 2004. The increases were primarily due to increases in insufficient fund fees related to transaction accounts, commissions on sales of annuities and an increase in the monthly service fees charged to customers for membership in our Plus Package program, which offers credit card protection and purchase discounts, among other benefits. Other non-interest income increased $886,000 to $2.5 million for the three months ended June 30, 2005, from $1.6 million for the three months ended June 30, 2004 and $973,000 to $4.0 million for the six months ended June 30, 2005, from $3.1 million for the six months ended June 30, 2004. These increases were primarily due to a gain recognized on the sale of an inactive subsidiary in the 2005 second quarter. There were no sales of securities during the six months ended June 30, 2005. During the six months ended June 30, 2004, we sold other securities with an amortized cost of $20.3 million for a net gain of $2.4 million. Gains on sales of securities have been used in the past as a natural hedge to offset MSR valuation allowance adjustments caused by the impairment of MSR. Non-Interest Expense Non-interest expense increased $2.2 million to $57.6 million for the three months ended June 30, 2005, from $55.4 million for the three months ended June 30, 2004, primarily due to an increase in other expense. For the six months ended June 30, 2005, non-interest expense increased $5.7 million to $118.1 million, from $112.4 million for the six months ended June 30, 2004, primarily due to increases in other expense and advertising expense, partially offset by decreases in compensation and benefits expense and occupancy, equipment and systems expense. Other expense increased $1.6 million to $9.5 million for the three months ended June 30, 2005, from $7.9 million for the three months ended June 30, 2004 and increased $4.2 million to $18.8 million for the six months ended June 30, 2005, from $14.6 million for the six months ended June 30, 2004, primarily due to increased legal fees and other costs as a result of the trial in the action entitled The Long Island Savings Bank, FSB et al. vs. The United States pending in the United States Court of Federal Claims. See Part II, Item 1, "Legal Proceedings" for further discussion of this action. As a result of the completion of the trial phase of this lawsuit, we anticipate a significant reduction in legal fees related to the goodwill litigation in the second half of 2005 as compared to the first half of 2005. Advertising expense increased $2.4 million to $5.8 million for the six months ended June 30, 2005, from $3.4 million for the six months ended June 30, 2004, primarily due to increased advertising related to, among other things, the introduction of a business banking marketing campaign in the 2005 first quarter. 34 Our percentage of general and administrative expense to average assets was 1.00% for the three months ended June 30, 2005 and 1.02% for the six months ended June 30, 2005, compared to 0.99% for the three months ended June 30, 2004 and 1.00% for the six months ended June 30, 2004. The efficiency ratio, which represents general and administrative expense divided by the sum of net interest income plus non-interest income, was 40.01% for the three months ended June 30, 2005 and 40.19% for the six months ended June 30, 2005, compared to 39.21% for the three months ended June 30, 2004 and 40.46% for the six months ended June 30, 2004. Income Tax Expense Income tax expense totaled $28.9 million for the three months ended June 30, 2005 and $58.9 million for the six months ended June 30, 2005, representing an effective tax rate of 33.5% for the three and six months ended June 30, 2005. Income tax expense totaled $28.3 million for the three months ended June 30, 2004 and $54.5 million for the six months ended June 30, 2004, representing an effective tax rate of 33.0% for the three and six months ended June 30, 2004. Asset Quality One of our key operating objectives has been and continues to be to maintain a high level of asset quality. Our concentration on one-to-four family mortgage lending, the maintenance of sound credit standards for new loan originations and a strong real estate market have resulted in our maintaining a very low level of non-performing assets. Through a variety of strategies, including, but not limited to, aggressive collection efforts and marketing of foreclosed properties, we have been proactive in addressing problem and non-performing assets which, in turn, has helped to strengthen our financial condition. Non-Performing Assets The following table sets forth information regarding non-performing assets at the dates indicated.
At June 30, At December 31, (Dollars in Thousands) 2005 2004 - ------------------------------------------------- ----------- --------------- Non-accrual delinquent mortgage loans (1) $26,193 $31,462 Non-accrual delinquent consumer and other loans 589 544 Mortgage loans delinquent 90 days or more and still accruing interest (2) 1,884 573 ------- ------- Total non-performing loans 28,666 32,579 Real estate owned, net (3) 1,414 920 ------- ------- Total non-performing assets $30,080 $33,499 ======= ======= Non-performing loans to total loans 0.21% 0.25% Non-performing loans to total assets 0.13 0.14 Non-performing assets to total assets 0.13 0.14 Allowance for loan losses to non-performing loans 287.86 254.02 Allowance for loan losses to total loans 0.60 0.62
(1) Includes multi-family and commercial real estate loans totaling $5.4 million at June 30, 2005 and $11.5 million at December 31, 2004. (2) Mortgage loans delinquent 90 days or more and still accruing interest consist solely of loans delinquent 90 days or more as to their maturity date but not their interest due. (3) Real estate 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. 35 We discontinue accruing interest on mortgage loans when such loans become 90 days delinquent as to their interest due, even though in some instances the borrower has only missed two payments. As of June 30, 2005, $6.8 million of mortgage loans classified as non-performing had missed only two payments. We discontinue accruing interest on consumer and other loans when such loans become 90 days delinquent as to their payment due. In addition, we reverse all previously accrued and uncollected interest through a charge to interest income. While loans are in non-accrual status, interest due is monitored and income is recognized only to the extent cash is received until a return to accrual status is warranted. If all non-accrual loans had been performing in accordance with their original terms, we would have recorded interest income, with respect to such loans, of $855,000 for the six months ended June 30, 2005 and $884,000 for the six months ended June 30, 2004. This compares to actual payments recorded as interest income, with respect to such loans, of $325,000 for the six months ended June 30, 2005 and $368,000 for the six months ended June 30, 2004. In addition to the non-performing loans, we had $1.5 million of potential problem loans at June 30, 2005, compared to $4.1 million at December 31, 2004. Such loans are 60-89 days delinquent as shown in the following table. Delinquent Loans The following table shows a comparison of delinquent loans at the dates indicated.
At June 30, 2005 At December 31, 2004 ---------------------------------- ---------------------------------- 60-89 Days 90 Days or More 60-89 Days 90 Days or More --------------- ---------------- --------------- ---------------- Number Number Number Number of of of of (Dollars in Thousands) Loans Amount Loans Amount Loans Amount Loans Amount - ------------------------------- ------ ------ ------ ------- ------ ------ ------ ------- Mortgage loans: One-to-four family 5 $ 422 92 $20,757 6 $ 805 98 $20,497 Multi-family -- -- 9 2,979 4 460 12 8,843 Commercial real estate -- -- 5 3,107 -- -- 4 2,695 Construction 1 490 2 1,234 2 1,994 -- -- Consumer and other loans 57 555 54 589 56 880 57 544 --- ------ --- ------- --- ------ --- ------- Total delinquent loans 63 $1,467 162 $28,666 68 $4,139 171 $32,579 === ====== === ======= === ====== === ======= Delinquent loans to total loans 0.01% 0.21% 0.03% 0.25%
36 Allowance for Loan Losses The following table sets forth the change in our allowance for losses on loans for the six months ended June 30, 2005.
(In Thousands) -------------- Balance at December 31, 2004 $82,758 Provision charged to operations -- Charge-offs: One-to-four family (163) Consumer and other loans (294) ------- Total charge-offs (457) ------- Recoveries: One-to-four family 8 Multi-family 34 Consumer and other loans 176 ------- Total recoveries 218 ------- Net charge-offs (239) ------- Balance at June 30, 2005 $82,519 =======
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk As a financial institution, the primary component of our market risk is interest rate risk, or IRR. The objective of our IRR management policy is to maintain an appropriate mix and level of assets, liabilities and off-balance sheet items to enable us to meet our earnings and/or growth objectives, while maintaining specified minimum capital levels as required by the OTS, in the case of Astoria Federal, and as established by our Board of Directors. We use a variety of analyses to monitor, control and adjust our asset and liability positions, primarily interest rate sensitivity gap analysis, or gap analysis, and net interest income sensitivity, or NII sensitivity, analysis. Additional IRR modeling is done by Astoria Federal in conformity with OTS requirements. Gap Analysis Gap analysis measures the difference between the amount of interest-earning assets anticipated to mature or reprice within specific time periods and the amount of interest-bearing liabilities anticipated to mature or reprice within the same time periods. The following table, referred to as the Gap Table, sets forth the amount of interest-earning assets and interest-bearing liabilities outstanding at June 30, 2005 that we anticipate will reprice or mature in each of the future time periods shown using certain assumptions based on our historical experience and other market-based data available to us. As indicated in the Gap Table, our one-year cumulative gap at June 30, 2005 was negative 6.01%. This compares to a one-year cumulative gap of negative 2.87% at December 31, 2004. The Gap Table does not indicate the impact of general interest rate movements on our net interest income because the actual repricing dates of various assets and liabilities will differ from our estimates and it does not give consideration to the yields and costs of the assets and liabilities or the projected yields and costs to replace or retain those assets and liabilities. Callable features of certain assets and liabilities, in addition to the foregoing, may also cause actual experience to vary from that indicated. 37
At June 30, 2005 -------------------------------------------------------------------- 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 - --------------------------------------- ----------- ----------- ----------- ----------- ----------- Interest-earning assets: Mortgage loans (1) $ 3,463,808 $4,936,206 $4,356,466 $ 390,149 $13,146,629 Consumer and other loans (1) 488,692 21,986 10,884 -- 521,562 Repurchase agreements 154,264 -- -- -- 154,264 Mortgage-backed and other securities available-for-sale 423,345 677,669 602,611 491,830 2,195,455 Mortgage-backed and other securities held-to-maturity 1,445,988 2,015,262 1,538,336 631,660 5,631,246 FHLB-NY stock -- -- -- 123,145 123,145 ----------- ---------- ---------- ----------- ----------- Total interest-earning assets 5,976,097 7,651,123 6,508,297 1,636,784 21,772,301 Net unamortized purchase premiums and deferred costs (2) 21,202 26,004 23,299 492 70,997 ----------- ---------- ---------- ----------- ----------- Net interest-earning assets (3) 5,997,299 7,677,127 6,531,596 1,637,276 21,843,298 ----------- ---------- ---------- ----------- ----------- Interest-bearing liabilities: Savings 152,986 305,974 305,974 2,014,331 2,779,265 Money market 655,571 16,449 16,449 123,367 811,836 NOW and demand deposit 43,802 87,600 87,600 1,352,909 1,571,911 Liquid certificates of deposit 331,746 -- -- -- 331,746 Certificates of deposit 3,336,757 2,840,613 853,477 59,622 7,090,469 Borrowed funds, net (4) 2,848,252 3,618,680 1,718,952 378,029 8,563,913 ----------- ---------- ---------- ----------- ----------- Total interest-bearing liabilities 7,369,114 6,869,316 2,982,452 3,928,258 21,149,140 ----------- ---------- ---------- ----------- ----------- Interest sensitivity gap (1,371,815) 807,811 3,549,144 (2,290,982) $ 694,158 =========== ========== ========== =========== =========== Cumulative interest sensitivity gap $(1,371,815) $ (564,004) $2,985,140 $ 694,158 =========== ========== ========== =========== Cumulative interest sensitivity gap as a percentage of total assets (6.01)% (2.47)% 13.08% 3.04% Cumulative net interest-earning assets as a percentage of interest-bearing liabilities 81.38% 96.04% 117.33% 103.28%
(1) Mortgage loans and consumer and other loans include loans held-for-sale and exclude non-performing loans and the allowance for loan losses. (2) Net unamortized purchase premiums and deferred costs are prorated. (3) Includes securities available-for-sale at amortized cost. (4) Excludes the hedge accounting adjustment on our Junior Subordinated Debentures. 38 NII Sensitivity Analysis In managing IRR, we also use an internal income simulation model for our NII sensitivity analyses. These analyses measure changes in projected net interest income over various time periods resulting from hypothetical changes in interest rates. The interest rate scenarios most commonly analyzed reflect gradual and reasonable changes over a specified time period, which is typically one year. The base net interest income projection utilizes similar assumptions as those reflected in the Gap Table, assumes that cash flows are reinvested in similar assets and liabilities and that interest rates as of the reporting date remain constant over the projection period. For each alternative interest rate scenario, corresponding changes in the cash flow and repricing assumptions of each financial instrument are made to determine the impact on net interest income. Assuming the entire yield curve was to increase 200 basis points, through quarterly parallel increments of 50 basis points and remain at that level thereafter, our projected net interest income for the twelve month period beginning July 1, 2005 would decrease by approximately 4.61% from the base projection. At December 31, 2004, in the up 200 basis point scenario, our projected net interest income for the twelve month period beginning January 1, 2005 would have decreased by approximately 4.50% from the base projection. Assuming the entire yield curve was to decrease 200 basis points, through quarterly parallel decrements of 50 basis points and remain at that level thereafter, our projected net interest income for the twelve month period beginning July 1, 2005 would increase by approximately 1.34% from the base projection. The interest rate environment which existed at December 31, 2004 prevented us from performing an income simulation for a decline in interest rates of the same magnitude and timing as our rising interest rate simulation since the assumptions which would have been used for a down 200 basis point interest rate scenario related to asset and liability pricing, market yields and customer behavior, given the low level of interest rates, would not have produced reasonable and meaningful results. However, assuming the entire yield curve was to decrease 100 basis points, through quarterly parallel decrements of 25 basis points, and remain at that level thereafter, our projected net interest income for the twelve month period beginning January 1, 2005 would have decreased by approximately 1.12% from the base projection. At June 30, 2005, in the down 100 basis point scenario, our projected net interest income for the twelve month period beginning July 1, 2005 would increase by approximately 0.62% from the base projection. Various shortcomings are inherent in both the Gap Table and NII sensitivity analyses. Certain assumptions may not reflect the manner in which actual yields and costs respond to market changes. Similarly, prepayment estimates and similar assumptions are subjective in nature, involve uncertainties and, therefore, cannot be determined with precision. Changes in interest rates may also affect our operating environment and operating strategies as well as those of our competitors. In addition, certain adjustable rate assets have limitations on the magnitude of rate changes over specified periods of time. Accordingly, although our NII sensitivity analyses may provide an indication of our IRR exposure, such analyses are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and our actual results will differ. Additionally, certain assets, liabilities and items of income and expense which may be affected by changes in interest rates, albeit to a much lesser degree, and which do not affect net interest income, are excluded from the NII sensitivity analysis. These include income from bank owned life insurance, changes in the fair value of MSR and the mark-to-market adjustments on certain derivative instruments. With respect to these items alone, and assuming the entire yield curve was to increase 200 basis points, through quarterly parallel increments of 50 basis points and remain at that level thereafter, our projected net income for the twelve month period beginning July 1, 2005 would increase by 39 approximately $6.3 million. Conversely, assuming the entire yield curve was to decrease 200 basis points, through quarterly parallel decrements of 50 basis points, and remain at that level thereafter, our projected net income for the twelve month period beginning July 1, 2005 would decrease by approximately $8.2 million with respect to these items alone. For further information regarding our market risk and the limitations of our gap analysis and NII sensitivity analysis, see Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," included in our 2004 Annual Report on Form 10-K. ITEM 4. Controls and Procedures George L. Engelke, Jr., our Chairman, President and Chief Executive Officer, and Monte N. Redman, our Executive Vice President and Chief Financial Officer, conducted an evaluation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2005. Based upon their evaluation, they each found that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required and that such information is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure. There were no changes in our internal controls over financial reporting that occurred during the three months ended June 30, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings In the ordinary course of our business, we are routinely made defendant in or a party to a number of pending or threatened legal actions or proceedings which, in some cases, seek substantial monetary damages from or other forms of relief against us. In our opinion, after consultation with legal counsel, we believe it unlikely that such actions or proceedings will have a material adverse affect on our financial condition, results of operations or liquidity. We are a party to two actions pending against the United States, involving assisted acquisitions made in the early 1980's and supervisory goodwill accounting utilized in connection therewith, which could result in a gain. The ultimate outcomes of such actions and the timing of such outcomes are uncertain and there can be no assurance that we will benefit financially from such litigation. The trial in the action entitled The Long Island Savings Bank, FSB et al vs. The United States commenced on January 18, 2005 and concluded on July 7, 2005. In our closing argument on July 7, 2005, we asked the Court to award damages totaling $594.0 million from the U.S. government for breach of contract in connection with a 1983 Assistance Agreement between the Long Island Savings Bank, FSB, which was acquired by us in 1998, and the Federal Savings and Loan Insurance Corporation. The United States is contesting both their liability and the extent of damages. We are currently awaiting the decision of the Court. No assurance can be given as to the timing or content of the Court's decision or the ultimate outcome in this matter. 40 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds The following table sets forth the repurchases of our common stock by month during the three months ended June 30, 2005.
Total Number Maximum Total of Shares Number of Shares Number of Average Purchased as Part that May Yet Be Shares Price Paid of Publicly Purchased Under the Period Purchased per Share Announced Plans Plans - --------------------- --------- ---------- ----------------- ------------------- April 1, 2005 through April 30, 2005 335,000 $25.52 335,000 5,399,800 May 1, 2005 through May 31, 2005 780,000 $27.40 780,000 4,619,800 June 1, 2005 through June 30, 2005 385,000 $28.02 385,000 4,234,800 --------- ------ --------- Total 1,500,000 $27.14 1,500,000 ========= ====== =========
All of the shares repurchased during the three months ended June 30, 2005 were repurchased under our tenth stock repurchase plan, approved by our Board of Directors on May 19, 2004, which authorized the purchase, at management's discretion, of 12,000,000 shares, or approximately 10% of our common stock then outstanding, over a two year period in open-market or privately negotiated transactions. ITEM 3. Defaults Upon Senior Securities Not applicable. ITEM 4. Submission of Matters to a Vote of Security Holders Our Annual Meeting of shareholders, referred to as the Annual Meeting, was held May 18, 2005. At the Annual Meeting, our shareholders re-elected George L. Engelke, Jr., Peter C. Haeffner, Jr., Ralph F. Palleschi and Leo J. Waters as directors, each to serve for a three year term, and Robert J. Conway as director to serve for a two year term. In all cases, directors serve until their respective successors are duly elected and qualified. The shareholders also approved the 2005 Re-designated, Amended and Restated Stock Incentive Plan for Officers and Employees of Astoria Financial Corporation and ratified our appointment of KPMG LLP as our independent registered public accounting firm for our 2005 fiscal year. The number of votes cast with respect to each matter acted upon at the Annual Meeting was as follows: (a) Election of Directors:
For Withheld ---------- --------- George L. Engelke, Jr. 94,596,232 7,651,366 Robert J. Conway 98,568,398 3,679,200 Peter C. Haeffner, Jr. 98,808,005 3,439,593 Ralph F. Palleschi 98,504,280 3,743,318 Leo J. Waters 98,746,837 3,500,761
There were no broker held non-voted shares represented at the meeting with respect to this proposal. 41 (b) Approval of the 2005 Re-designated, Amended and Restated Stock Incentive Plan for Officers and Employees of Astoria Financial Corporation: For: 64,360,408 Against: 21,841,058 Abstained: 620,043
There were 15,426,089 broker held non-voted shares represented at the meeting with respect to this proposal. (c) Ratification of the appointment of KPMG LLP as the independent registered public accounting firm of Astoria Financial Corporation for the 2005 fiscal year: For: 100,611,862 Against: 1,271,512 Abstained: 364,224
There were no broker held non-voted shares represented at the meeting with respect to this proposal. ITEM 5. Other Information Not applicable. ITEM 6. Exhibits
Exhibit No. Identification of Exhibit - ----------- ------------------------- 10.1 2005 Re-designated, Amended and Restated Stock Incentive Plan for Officers and Employees of Astoria Financial Corporation (Incorporated by reference to Astoria Financial Corporation's Form 14-A Definitive Proxy Statement filed on April 11, 2005 (File Number 001-11967)). 31.1 Certifications of Chief Executive Officer. 31.2 Certifications of Chief Financial Officer. 32.1 Written Statement of Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. Pursuant to SEC rules, this exhibit will not be deemed filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. 32.2 Written Statement of Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. Pursuant to SEC rules, this exhibit will not be deemed filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section.
42 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: August 4, 2005 By: /s/ Monte N. Redman ----------------------------------- Monte N. Redman Executive Vice President and Chief Financial Officer (Principal Accounting Officer) 43 Exhibit Index
Exhibit No. Identification of Exhibit - ----------- ------------------------- 10.1 2005 Re-designated, Amended and Restated Stock Incentive Plan for Officers and Employees of Astoria Financial Corporation (Incorporated by reference to Astoria Financial Corporation's Form 14-A Definitive Proxy Statement filed on April 11, 2005 (File Number 001-11967)). 31.1 Certifications of Chief Executive Officer. 31.2 Certifications of Chief Financial Officer. 32.1 Written Statement of Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. Pursuant to SEC rules, this exhibit will not be deemed filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. 32.2 Written Statement of Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. Pursuant to SEC rules, this exhibit will not be deemed filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section.
44 EX-31 2 ex31-1.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATIONS I, George L. Engelke, Jr., certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Astoria Financial Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 4, 2005 /s/ George L. Engelke, Jr. - ----------------------------------------------- George L. Engelke, Jr. Chairman, President and Chief Executive Officer Astoria Financial Corporation EX-31 3 ex31-2.txt EXHIBIT 31.2 Exhibit 31.2 CERTIFICATIONS I, Monte N. Redman, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Astoria Financial Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 4, 2005 /s/ Monte N. Redman - ---------------------------------------------------- Monte N. Redman Executive Vice President and Chief Financial Officer Astoria Financial Corporation EX-32 4 ex32-1.txt EXHIBIT 32.1 Exhibit 32.1 STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350 The undersigned, George L. Engelke, Jr., is the Chairman, President and Chief Executive Officer of Astoria Financial Corporation (the "Company"). This statement is being furnished in connection with the filing by the Company of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (the "Report"). By execution of this statement, I certify that: (A) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and (B) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report. August 4, 2005 /s/ George L. Engelke, Jr. - -------------- ----------------------------- Dated George L. Engelke, Jr. EX-32 5 ex32-2.txt EXHIBIT 32.2 Exhibit 32.2 STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350 The undersigned, Monte N. Redman, is the Executive Vice President and Chief Financial Officer of Astoria Financial Corporation (the "Company"). This statement is being furnished in connection with the filing by the Company of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (the "Report"). By execution of this statement, I certify that: (A) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and (B) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report. August 4, 2005 /s/ Monte N. Redman - -------------- ---------------------------- Dated Monte N. Redman -----END PRIVACY-ENHANCED MESSAGE-----