-----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, Ulo6CnM75YTrHllPuVDZMuANZ1ThgaK7vNDni8ai9NnSvIZjvyFyQWkO7nTx1XoY SRl2SeZ8zefZxif7Fb5igw== 0000950123-01-508427.txt : 20020410 0000950123-01-508427.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950123-01-508427 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 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: 000-22228 FILM NUMBER: 1786652 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 y54838e10-q.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 September 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-22228 ASTORIA FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 11-3170868 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) One Astoria Federal Plaza, Lake Success, New York 11042-1085 (Address of principal executive offices) (Zip Code) (516) 327-3000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all the reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------ ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Classes of Common Stock Number of Shares Outstanding, October 31, 2001 ----------------------- ---------------------------------------------- .01 Par Value 46,129,019 ------------- ----------
PART I -- FINANCIAL INFORMATION
Page Item 1. Financial Statements (Unaudited): Consolidated Statements of Financial Condition at September 30, 2001 2 and December 31, 2000 Consolidated Statements of Income for the Three Months and 3 Nine Months Ended September 30, 2001 and September 30, 2000 Consolidated Statement of Changes in Stockholders' Equity for the 4 Nine Months Ended September 30, 2001 Consolidated Statements of Cash Flows for the Nine Months Ended 5 September 30, 2001 and September 30, 2000 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and 9 Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk 37 PART II -- OTHER INFORMATION Item 1. Legal Proceedings 37 Item 2. Changes in Securities and Use of Proceeds 38 Item 3. Defaults Upon Senior Securities 38 Item 4. Submission of Matters to a Vote of Security Holders 38 Item 5. Other Information 38 Item 6. Exhibits and Reports on Form 8-K 39 (a) Exhibits (11) Statement Regarding Computation of Per Share Earnings (b) Reports on Form 8-K Signatures 40
1 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
AT AT SEPTEMBER 30, DECEMBER 31, (In Thousands, Except Share Data) 2001 2000 - ---------------------------------------------------------------------------------------------------------------------- Assets Cash and due from banks $ 135,807 $ 135,726 Federal funds sold and repurchase agreements 1,272,313 171,525 Available-for-sale securities: Encumbered 3,835,740 6,983,481 Unencumbered 467,850 719,741 ------------ ------------ 4,303,590 7,703,222 Held-to-maturity securities, fair value of $4,025,206 and $1,697,417, respectively: Encumbered 3,651,564 1,396,213 Unencumbered 320,272 315,978 ------------ ------------ 3,971,836 1,712,191 Federal Home Loan Bank of New York stock 250,450 285,250 Loans held-for-sale 24,713 15,699 Loans receivable: Mortgage loans, net 11,772,428 11,239,141 Consumer and other loans, net 219,718 183,154 ------------ ------------ 11,992,146 11,422,295 Less allowance for loan losses 82,005 79,931 ------------ ------------ Total loans receivable, net 11,910,141 11,342,364 Mortgage servicing rights, net 36,917 40,962 Accrued interest receivable 105,721 109,439 Premises and equipment, net 150,441 154,582 Goodwill 190,217 204,649 Bank owned life insurance 242,747 251,565 Other assets 96,120 209,628 ------------ ------------ Total assets $ 22,691,013 $ 22,336,802 ============ ============ Liabilities and Stockholders' Equity Liabilities: Deposits: Savings $ 2,526,943 $ 2,434,387 Money market 1,877,493 1,482,615 NOW and money manager 1,079,586 1,004,950 Certificates of deposit 5,309,435 5,149,735 ------------ ------------ Total deposits 10,793,457 10,071,687 Reverse repurchase agreements 7,385,000 7,785,000 Federal Home Loan Bank of New York advances 2,064,000 1,910,000 Other borrowings, net 399,797 502,371 Mortgage escrow funds 151,787 116,487 Accrued expenses and other liabilities 223,001 313,094 ------------ ------------ Total liabilities 21,017,042 20,698,639 ------------ ------------ Guaranteed preferred beneficial interest in junior subordinated debentures 125,000 125,000 Stockholders' equity: Preferred stock, $1.00 par value; 5,000,000 shares authorized: Series A (325,000 shares authorized and -0- shares issued and outstanding) -- -- Series B (2,000,000 shares authorized, issued and outstanding) 2,000 2,000 Common stock, $.01 par value; (200,000,000 shares authorized; 55,498,296 shares issued; and 46,106,599 and 49,643,554 shares outstanding, respectively) 555 555 Additional paid-in capital 820,829 807,357 Retained earnings 1,167,354 1,059,048 Treasury stock (9,391,697 and 5,854,742 shares, at cost, respectively) (421,808) (203,632) Accumulated other comprehensive income: Net unrealized gain (loss) on securities, net of taxes 10,165 (121,043) Unallocated common stock held by ESOP (30,124) (31,122) ------------ ------------ Total stockholders' equity 1,548,971 1,513,163 ------------ ------------ Total liabilities and stockholders' equity $ 22,691,013 $ 22,336,802 ============ ============
Capital accounts and share data have not been adjusted to reflect the two-for-one stock split occurring on December 3, 2001. See accompanying notes to consolidated financial statements. 2 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, (In Thousands, Except Share Data) 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------- Interest income: Mortgage loans $207,014 $ 194,874 $ 613,897 $ 566,587 Consumer and other loans 4,364 4,817 13,713 13,385 Mortgage-backed securities 109,556 141,394 355,001 443,419 Other securities 25,705 33,663 86,292 98,763 Federal funds sold and repurchase agreements 12,082 5,251 25,360 13,920 -------- ---------- ------------ ------------- Total interest income 358,721 379,999 1,094,263 1,136,074 -------- ---------- ------------ ------------- Interest expense: Deposits 101,687 104,889 311,831 301,216 Borrowed funds 142,809 150,550 426,733 450,164 -------- ---------- ------------ ------------- Total interest expense 244,496 255,439 738,564 751,380 -------- ---------- ------------ ------------- Net interest income 114,225 124,560 355,699 384,694 Provision for loan losses 1,001 1,003 3,026 3,008 -------- ---------- ------------ ------------- Net interest income after provision for loan losses 113,224 123,557 352,673 381,686 -------- ---------- ------------ ------------- Non-interest income: Customer service and other loan fees 15,129 12,933 42,725 36,164 Loan servicing fees 3,595 4,197 11,595 13,032 Net gain on sales of loans 877 273 2,602 568 Net gain on disposition of banking offices -- -- -- 3,976 Income from bank owned life insurance 4,098 -- 12,584 -- Other 3,216 951 5,743 3,111 -------- ---------- ------------ ------------- Total non-interest income 26,915 18,354 75,249 56,851 -------- ---------- ------------ ------------- Non-interest expense: General and administrative: Compensation and benefits 22,466 20,319 68,044 63,628 Occupancy, equipment and systems 13,371 12,451 39,323 39,763 Federal deposit insurance premiums 503 528 1,493 1,568 Advertising 730 2,756 4,259 6,992 Other 6,292 7,493 19,338 21,439 -------- ---------- ------------ ------------- Total general and administrative 43,362 43,547 132,457 133,390 Net amortization of mortgage servicing rights 2,825 2,036 7,776 5,329 Goodwill litigation 243 2,149 2,116 6,436 Capital trust securities 3,104 3,108 9,312 9,324 Amortization of goodwill 4,811 4,824 14,432 14,472 -------- ---------- ------------ ------------- Total non-interest expense 54,345 55,664 166,093 168,951 -------- ---------- ------------ ------------- Income before income tax expense and cumulative effect of accounting change 85,794 86,247 261,829 269,586 Income tax expense 29,342 32,558 91,482 104,540 -------- ---------- ------------ ------------- Income before cumulative effect of accounting change 56,452 53,689 170,347 165,046 Cumulative effect of accounting change, net of tax -- -- (2,294) -- -------- ---------- ------------ ------------- Net income 56,452 53,689 168,053 165,046 Preferred dividends declared (1,500) (1,500) (4,500) (4,500) -------- ---------- ------------ ------------- Net income available to common shareholders $ 54,952 $ 52,189 $ 163,553 $ 160,546 ======== ========== ============ ============= Basic earnings per common share: Income before accounting change $ 1.22 $ 1.09 $ 3.61 $ 3.33 Cumulative effect of accounting change, net of tax -- -- 0.05 -- -------- ---------- ------------ ------------- Net earnings per common share $ 1.22 $ 1.09 $ 3.56 $ 3.33 ======== ========== ============ ============= Diluted earnings per common share: Income before accounting change $ 1.20 $ 1.07 $ 3.54 $ 3.28 Cumulative effect of accounting change, net of tax -- -- 0.05 -- -------- ---------- ------------ ------------- Net earnings per common share $ 1.20 $ 1.07 $ 3.49 $ 3.28 ======== ========== ============ ============= Dividends per common share $ 0.31 $ 0.26 $ 0.88 $ 0.76 ======== ========== ============ ============= Basic weighted average common shares 45,061,516 47,784,283 45,925,927 48,252,725 Diluted weighted average common and common equivalent shares 45,934,594 48,573,327 46,830,948 48,967,347
Share and per share data have not been adjusted to reflect the two-for-one stock split occurring on December 3, 2001. See accompanying notes to consolidated financial statements. 3 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
Unallocated Accumulated Common Additional Other Stock (In Thousands, Preferred Common Paid-In Retained Treasury Comprehensive Held Except Share Data) Total Stock Stock Capital Earnings Stock Income by ESOP - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 $ 1,513,163 $2,000 $555 $ 807,357 $ 1,059,048 $(203,632) $(121,043) $(31,122) Comprehensive income: Net income 168,053 -- -- -- 168,053 -- -- -- Other comprehensive income, net of tax: Net unrealized gain on securities 128,799 -- -- -- -- -- 128,799 -- Amortization of unrealized loss on securities transferred to held-to-maturity 2,409 -- -- -- -- -- 2,409 -- ----------- Total comprehensive income 299,261 ----------- Common stock repurchased (4,390,200 shares) (249,698) -- -- -- -- (249,698) -- -- Dividends on common and preferred stock and amortization of purchase premium (47,603) -- -- (978) (46,625) -- -- -- Exercise of stock options and related tax benefit (853,245 shares issued) 28,974 -- -- 10,574 (13,122) 31,522 -- -- Amortization relating to allocation of ESOP stock 4,874 -- -- 3,876 -- -- -- 998 ----------- ------ ---- --------- ----------- --------- --------- -------- Balance at September 30, 2001 $ 1,548,971 $2,000 $555 $ 820,829 $ 1,167,354 $(421,808) $ 10,165 $(30,124) =========== ====== ==== ========= =========== ========= ========= ========
Capital accounts and share data have not been adjusted to reflect the two-for-one stock split occurring on December 3, 2001. See accompanying notes to consolidated financial statements. 4 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, (IN THOUSANDS) 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 168,053 $ 165,046 Adjustments to reconcile net income to net cash provided by operating activities: Net accretion of discounts, premiums and deferred loan fees (29,397) (44,305) Provision for loan and real estate losses 2,962 2,917 Depreciation and amortization 9,708 9,656 Net gain on sales of loans (2,602) (568) Net gain on disposition of banking offices -- (3,976) Originations of loans held-for-sale, net of proceeds from sales (7,235) 6,916 Amortization of goodwill 14,432 14,472 Cumulative effect of accounting change, net of tax 2,294 -- Amortization of allocation of ESOP stock 4,874 5,339 Decrease (increase) in accrued interest receivable 3,718 (5,430) Mortgage servicing rights amortization and valuation allowance, net of capitalized amounts 4,045 4,639 Insurance proceeds received, net of income from bank owned life insurance 8,818 -- Decrease in other assets 16,649 8,320 Decrease in accrued expenses and other liabilities (79,519) (32,519) ----------- ----------- Net cash provided by operating activities 116,800 130,507 ----------- ----------- Cash flows from investing activities: Origination of loans held-for-investment (1,897,874) (1,386,905) Loan purchases through third parties (1,072,123) (571,653) Principal repayments on loans 2,379,478 1,145,426 Principal payments on mortgage-backed securities held-to-maturity 880,382 152,710 Principal payments on mortgage-backed securities available-for-sale 983,368 1,250,463 Purchases of mortgage-backed securities held-to-maturity (650,927) -- Purchases of mortgage-backed securities available-for-sale (288,811) -- Purchases of other securities available-for-sale (2,005) (5,040) Proceeds from maturities of other securities available-for-sale 69,868 302 Proceeds from maturities of other securities held-to-maturity 421,048 8,772 Redemption (purchases) of FHLB stock 34,800 (20,000) Proceeds from sales of real estate owned and investments in real estate, net 4,367 7,156 Proceeds from disposition of banking offices -- 21,293 Purchases of premises and equipment, net of proceeds from sales (5,567) (5,227) ----------- ----------- Net cash provided by investing activities 856,004 597,297 ----------- ----------- Cash flows from financing activities: Net increase in deposits 721,758 296,902 Net decrease in reverse repurchase agreements (400,000) (1,341,800) Net increase in FHLB of New York advances 154,000 400,000 Net decrease in other borrowings (104,092) (8,698) Increase in mortgage escrow funds 35,300 23,630 Costs to repurchase common stock (249,698) (52,493) Cash dividends paid to stockholders (47,603) (42,143) Cash received for options exercised 18,400 2,381 ----------- ----------- Net cash provided by (used in) financing activities 128,065 (722,221) ----------- ----------- Net increase in cash and cash equivalents 1,100,869 5,583 Cash and cash equivalents at beginning of period 307,251 490,571 ----------- ----------- Cash and cash equivalents at end of period $ 1,408,120 $ 496,154 =========== =========== Supplemental disclosures: Cash paid during the period: Interest $ 742,913 $ 758,863 =========== =========== Income taxes $ 47,153 $ 73,009 =========== =========== Additions to real estate owned $ 4,077 $ 6,826 =========== =========== Securities transferred from available-for-sale to held-to-maturity $ 2,878,767 $ -- =========== ===========
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; Astoria Capital Trust I; 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, Astoria Capital Trust I and AF Insurance Agency, Inc., depending on the context. All significant inter-company accounts and transactions have been eliminated in consolidation. In our opinion, the accompanying consolidated financial statements contain all adjustments necessary for a fair presentation of our financial condition as of September 30, 2001 and December 31, 2000, our results of operations for the three months and nine months ended September 30, 2001 and 2000, changes in our stockholders' equity for the nine months ended September 30, 2001 and our cash flows for the nine months ended September 30, 2001 and 2000. In preparing the consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities in the consolidated statements of financial condition as of September 30, 2001 and December 31, 2000, and amounts of revenues and expenses in the consolidated statements of income for the three and nine months ended September 30, 2001 and 2000. The results of operations for the three and nine months ended September 30, 2001 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 accounting principles generally accepted in the United States of America, or GAAP, have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. These consolidated financial statements should be read in conjunction with our December 31, 2000 audited consolidated financial statements and related notes included in our 2000 Annual Report on Form 10-K. 6 2. EARNINGS PER SHARE, OR EPS The following table is a reconciliation of basic and diluted EPS. Share and per share data have not been adjusted to reflect the two-for-one stock split occurring on December 3, 2001.
For the Three Months Ended September 30, ------------------------------------------------------------------------------------------ 2001 2000 ------------------------------------------------------------------------------------------ (In Thousands, Average Per Share Average Per Share Except Share Data) Income Shares Amount Income Shares Amount - ----------------------------------------------------------------------------------------------------------------------------------- Net income $ 56,452 $ 53,689 Less: preferred stock dividends 1,500 1,500 --------- --------- Basic EPS: Income available to common stockholders 54,952 45,061,516 $ 1.22 52,189 47,784,283 $ 1.09 ======== ======== Effect of dilutive unexercised stock options 873,078(1) 789,044(2) ---------- ---------- Diluted EPS: Income available to common stockholders plus assumed conversions $ 54,952 45,934,594 $ 1.20 $ 52,189 48,573,327 $ 1.07 ======== ========== ======== =========== ========== ========
For the Nine Months Ended September 30, ---------------------------------------------------------------------------------------------- 2001 2000 ---------------------------------------------------------------------------------------------- (In Thousands, Average Per Share Average Per Share Except Share Data) Income Shares Amount Income Shares Amount - ----------------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting change $170,347 $ 165,046 Less: preferred stock dividends 4,500 4,500 -------- ----------- Basic EPS: Income available to common stockholders 165,847 45,925,927 $ 3.61 160,546 48,252,725 $ 3.33 ======== ======== Effect of dilutive unexercised stock options 905,021(3) 714,622(4) ---------- ---------- Diluted EPS: Income available to common stockholders plus assumed conversions $165,847 46,830,948 $ 3.54 $ 160,546 48,967,347 $ 3.28 ======== ========== ======== =========== ========== ========
(1) Options to purchase 15,000 shares of common stock at $59.75 per share were outstanding as of September 30, 2001, 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 September 30, 2001. (2) Options to purchase 1,001,803 shares of common stock at prices between $36.00 per share and $59.75 per share were outstanding as of September 30, 2000, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the common shares for the three months ended September 30, 2000. (3) Options to purchase 257,152 shares of common stock at prices between $56.63 per share and $59.75 per share were outstanding as of September 30, 2001, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the common shares for the nine months ended September 30, 2001. (4) Options to purchase 1,640,153 shares of common stock at prices between $29.24 per share and $59.75 per share were outstanding as of September 30, 2000, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the common shares for the nine months ended September 30, 2000. 7 3. GUARANTEED PREFERRED BENEFICIAL INTEREST IN JUNIOR SUBORDINATED DEBENTURES On October 28, 1999, our wholly-owned finance subsidiary, Astoria Capital Trust I, issued $125.0 million aggregate liquidation amount of 9.75% Capital Securities due November 1, 2029, Series A, referred to as the Series A Capital Securities. Effective April 26, 2000, $120.0 million aggregate liquidation amount of the Series A Capital Securities were exchanged for a like amount of 9.75% Capital Securities due November 1, 2029, Series B, also issued by Astoria Capital Trust I, referred to as the Series B Capital Securities. The Series A Capital Securities and Series B Capital Securities have substantially identical terms except that the Series B Capital Securities have been registered with the Securities and Exchange Commission. Together they are referred to as the Capital Securities. We have fully and unconditionally guaranteed the Capital Securities along with all obligations of Astoria Capital Trust I under the trust agreement. Astoria Capital Trust I was formed for the exclusive purpose of issuing the Capital Securities and common securities and using the proceeds to acquire an aggregate principal amount of $128.9 million of our 9.75% Junior Subordinated Debentures due November 1, 2029 (which aggregate amount is equal to the aggregate liquidation amount of the Capital Securities and common securities), referred to as the Junior Subordinated Debentures. The sole assets of Astoria Capital Trust I are the Junior Subordinated Debentures. The Junior Subordinated Debentures are prepayable, in whole or in part, at our option on or after November 1, 2009 at declining premiums to maturity. The balance outstanding on the Capital Securities was $125.0 million at September 30, 2001 and December 31, 2000. The costs associated with the Capital Securities issuance have been capitalized and are being amortized over a period of ten years. Distributions on the Capital Securities are payable semi-annually, on May 1 and November 1, and are reflected in our Consolidated Statements of Income as a component of non-interest expense under the caption "Capital trust securities." 4. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," or SFAS No. 133. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. The accounting for changes in the fair value of a derivative (that is, unrealized gains and losses) depends on the intended use of the derivative and the resulting designation. Restatement of prior periods is not permitted. In June 2000, the FASB issued Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of FASB Statement No. 133," or SFAS No. 138. SFAS No. 138 amends the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and certain hedging activities. Upon adoption of SFAS No. 133 and SFAS No. 138 on January 1, 2001, we held interest rate swaps with a notional amount of $450.0 million hedging the fair value of our medium term notes totaling $450.0 million. We also have commitments to fund loans held-for-sale and commitments to sell loans, which are considered derivative instruments under SFAS No. 133, as well as other derivative instruments. These commitments (derivative instruments) are immaterial to our financial condition. As a result of the implementation of SFAS No. 133 and SFAS No. 138, we recognized a $2.3 million charge, net of taxes, in January 2001 as a cumulative 8 effect of a change in accounting principle. In April 2001, $150.0 million of our medium term notes matured and $450.0 million of interest rate swaps were terminated. Gains and losses recognized on the interest rate swaps for the nine months ended September 30, 2001 were immaterial. In September 2000, the FASB issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," or SFAS No. 140. SFAS No. 140 supercedes and replaces the guidance in SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," and rescinds SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125." SFAS No. 140 provides accounting and reporting standards for securitization transactions involving financial assets, sales of financial assets such as receivables, loans and securities, factoring transactions, wash sales, servicing assets and liabilities, collateralized borrowing arrangements, securities lending transactions, repurchase agreements, loan participations, and extinguishment of liabilities. Certain provisions of this Statement including relevant disclosures are effective for fiscal years ending after December 15, 2000. The remaining provisions were effective for transfer transactions occurring after March 31, 2001. SFAS No. 140 does not require restatement of prior periods. In July 2001, the FASB issued Technical Bulletin No. 01-1, "Effective Date for Certain Financial Institutions of Certain Provisions of Statement 140 Related to the Isolation of Transferred Financial Assets," which delays the effective date for the isolation standards and related guidance under SFAS No. 140 to transfers of financial assets occurring after December 31, 2001, instead of March 31, 2001. The implementation of SFAS No. 140 provisions did not have a material impact on our financial condition or results of operations. The implementation of the remaining provisions, subsequent to December 31, 2001, is not expected to have a material impact on our financial condition or results of operations. 5. SUBSEQUENT EVENTS On October 17, 2001, our Board of Directors approved a two-for-one stock split, in the form of a 100% stock dividend, which is payable on December 3, 2001 to stockholders of record as of the close of business on November 15, 2001. As a result of the stock split, the number of common shares outstanding will increase to approximately 92.2 million, based on shares outstanding at September 30, 2001. Capital accounts, share and per share data have not been adjusted to reflect the stock split. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q may contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, and may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated" and "potential." Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, general economic conditions; changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies or guidelines; changes in legislation or regulation; 9 and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services. GENERAL We are headquartered in Lake Success, New York and our principal business consists of the operation of our wholly-owned subsidiary, Astoria Federal. Astoria Federal's primary business is attracting retail deposits from the general public and investing those deposits, together with funds generated from operations, principal repayments on loans and securities, and borrowed funds, primarily in one-to-four family residential mortgage loans, mortgage-backed securities and, to a lesser extent, commercial real estate loans, multi-family mortgage loans and consumer and other loans. In addition, Astoria Federal invests in securities issued by the U.S. Government and federal agencies and other securities. Our results of operations are dependent primarily on our net interest income, which is the difference between the interest earned on our assets, primarily our loan and securities portfolios, and our cost of funds, which consists of the interest paid on our deposits and borrowings. Our net income is also affected by our provision for loan losses, non-interest income, general and administrative expense, other non-interest expense, and income tax expense. General and administrative expense consists of compensation and benefits, occupancy, equipment and systems expense, federal deposit insurance premiums, advertising and other operating expenses. Other non-interest expense consists of net amortization of mortgage servicing rights, goodwill litigation expense, capital trust securities expense and amortization of goodwill. Our earnings are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates and U.S. Treasury yield curves, government policies and actions of regulatory authorities. In addition to Astoria Federal, we have two other wholly-owned subsidiaries, AF Insurance Agency, Inc. and Astoria Capital Trust I. AF Insurance Agency, Inc. is a life insurance and variable annuity agent and property and casualty insurance broker. Through a contractual agreement with Treiber Insurance and IFS Agencies, AF Insurance Agency, Inc. provides insurance products to the customers of Astoria Federal. See "Notes to Consolidated Financial Statements" for a discussion of Astoria Capital Trust I. LIQUIDITY AND CAPITAL RESOURCES Our primary source of funds is cash provided by principal and interest payments on loans and mortgage-backed and other securities. Principal payments on loans and mortgage-backed securities and proceeds from maturities of other securities totaled $4.73 billion for the nine months ended September 30, 2001 and $2.56 billion for the nine months ended September 30, 2000. The increase in loan and security repayments was primarily the result of the increase in refinance activity due to the lower interest rate environment during the nine months ended September 30, 2001. Net cash provided by operating activities totaled $116.8 million during the nine months ended September 30, 2001 and $130.5 million for the nine months ended September 30, 2000. During the nine months ended September 30, 2001, net borrowings decreased $350.1 million, while net deposits increased $721.8 million. During the nine months ended September 30, 2000, net borrowings decreased $950.5 million, while net deposits increased $296.9 million. The changes in borrowings and deposits are consistent with our strategy of repositioning the balance sheet through, in part, a shift in our liability mix. 10 The net increases in deposits for the nine months ended September 30, 2001 and 2000 reflect our continued emphasis on attracting customer deposits through competitive rates and product offerings. Our primary use of funds is for the origination and purchase of mortgage loans and the purchase of mortgage-backed and other securities, with an emphasis on the origination and purchase of mortgage loans. During the nine months ended September 30, 2001, our gross originations and purchases of mortgage loans totaled $3.06 billion, compared to $1.94 billion during the nine months ended September 30, 2000. This increase was primarily attributable to the lower interest rate environment during the nine months ended September 30, 2001 which resulted in an increase in mortgage refinance activity. Purchases of mortgage-backed securities totaled $939.7 million and purchases of other securities totaled $2.0 million during the nine months ended September 30, 2001. For the nine months ended September 30, 2000, there were no purchases of mortgage-backed securities and purchases of other securities totaled $5.0 million. The securities purchases during the nine months ended September 30, 2001 are a result of our redeployment of a portion of our cash flows in excess of our mortgage and other loan fundings. As previously mentioned, the rapid decline in interest rates in 2001 has resulted in a significant increase in loan and security repayments. Should the pace of repayment activity remain at its recent levels and cash inflows continue to exceed mortgage and other loan fundings, we may continue to purchase additional mortgage-backed and other securities as we have done in the 2001 second and third quarters. 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. Increased loan and security repayments provided additional liquidity which we held at September 30, 2001, which will be used to fund our approximately $1.5 billion mortgage pipeline and for the potential repayment of borrowings which are maturing over the next six months. Cash and due from banks and federal funds sold and repurchase agreements, our most liquid assets, totaled $1.41 billion at September 30, 2001, compared to $307.3 million at December 31, 2000. On July 3, 2001, we issued $100.0 million of senior unsecured notes. The notes, which were issued in a private placement, mature in 2008, bear a fixed interest rate of 7.67%, were placed with a limited number of institutional investors and will not be registered with the Securities and Exchange Commission. The net proceeds from the note placement will be used for general corporate purposes. Stockholders' equity increased to $1.55 billion at September 30, 2001, from $1.51 billion at December 31, 2000. The increase in stockholders' equity was the result of net income of $168.1 million, a $131.2 million decrease in the net unrealized loss on securities available-for-sale, net of taxes, which includes amortization of the net unrealized loss on securities transferred to held-to-maturity, the effect of stock options exercised and related tax benefit of $29.0 million, and the amortization of the allocated portion of shares held by the employee stock ownership plan, or ESOP, of $4.9 million. These increases were partially offset by repurchases of our common stock of $249.7 million and dividends declared of $47.6 million. On August 16, 2000, our Board of Directors approved our seventh stock repurchase plan authorizing the purchase, at management's discretion, of 5,000,000 shares, or approximately 10% of our common stock then outstanding, over a two year period in open-market or 11 privately negotiated transactions. During the quarter ended September 30, 2001, we completed our seventh stock repurchase plan. On September 17, 2001, our Board of Directors approved our eighth stock repurchase plan authorizing the purchase, at management's discretion, of 5,000,000 shares, or approximately 11% of our common stock then outstanding, over a two year period in open-market or privately negotiated transactions. During the nine months ended September 30, 2001, 4,390,200 shares of our common stock were repurchased at an aggregate cost of $249.7 million, of which 755,700 shares were acquired pursuant to our eighth stock repurchase plan. On September 4, 2001, we paid a quarterly cash dividend equal to $0.31 per share on shares of our common stock outstanding as of the close of business on August 15, 2001, totaling $14.9 million. On October 17, 2001, we declared a quarterly cash dividend of $0.34 per share on shares of our common stock and a two-for-one stock split in the form of a 100% stock dividend. The cash dividend will be paid on the total number of shares held before the stock split. Shareholders will receive one additional share of our common stock for each share of our common stock owned as of the close of business on the record date. The new shares will be distributed and the cash dividend is payable on December 3, 2001 to stockholders of record as of the close of business on November 15, 2001. During the three months ended September 30, 2001, we declared a cash dividend on our Series B Preferred Stock aggregating $1.5 million. At September 30, 2001, Astoria Federal's capital levels exceeded all of its regulatory capital requirements with a tangible capital ratio of 6.77%, leverage capital ratio of 6.77%, and risk-based capital ratio of 16.00%. The minimum regulatory requirements were a tangible capital ratio of 1.50%, leverage capital ratio of 4.00% and risk-based capital ratio of 8.00%. INTEREST RATE SENSITIVITY ANALYSIS As a financial institution, the primary component of our market risk is interest rate risk. Our net interest income, the primary component of our net income, is subject to substantial risk due to changes in interest rates or changes in market yield curves, particularly if there is a substantial variation in the timing between the repricing of our assets and the liabilities which fund them. We seek to manage interest rate risk by monitoring and controlling the variation in repricing intervals between our assets and liabilities, i.e., our interest rate sensitivity gap. We also monitor our interest rate sensitivity by analyzing the estimated changes in market value of our assets and liabilities assuming various interest rate scenarios, so that adjustments in the asset and liability mix, when deemed appropriate, can be made on a timely basis. The interest rate sensitivity gap is the difference between the amount of interest-earning assets anticipated to mature or reprice within a specific time period and the amount of interest-bearing liabilities anticipated to mature or reprice within that same time period. A gap is considered positive when the amount of interest rate sensitive assets maturing or repricing within a specific time frame exceeds the amount of interest rate sensitive liabilities maturing or repricing within that same time frame. Conversely, a gap is considered negative when the amount of interest rate sensitive liabilities maturing or repricing within a specific time frame exceeds the amount of interest rate sensitive assets maturing or repricing within that same time frame. In a rising interest rate environment, an institution with a positive gap would generally be expected, absent the effects of other factors, to experience a greater increase in the yields of its assets relative to the costs of its liabilities and thus an increase in the institution's net 12 interest income, whereas an institution with a negative gap would generally be expected to experience the opposite results. Conversely, during a period of falling interest rates, a positive gap would tend to result in a decrease in net interest income while a negative gap would tend to result in an increase in net interest income. The table on page 14, referred to as the Gap Table, sets forth the amount of interest-earning assets and interest-bearing liabilities outstanding at September 30, 2001, that we anticipate, using certain assumptions based on our historical experience and other data available to us, to reprice or mature in each of the future time periods shown. The actual duration of mortgage loans and mortgage-backed securities can be significantly impacted by changes in mortgage prepayments. The major factors affecting mortgage prepayment rates are prevailing interest rates and related mortgage refinancing opportunities. In addition, prepayment rates will vary due to a number of other factors, including the regional economy in the area where the underlying mortgages were originated, seasonal factors, demographic variables and the assumability of the underlying mortgages. The Gap Table does not necessarily indicate the impact of general interest rate movements on our net interest income because the actual repricing dates of various assets and liabilities are subject to customer discretion and competitive and other pressures. Callable features of certain assets and liabilities, in addition to the foregoing, may cause actual experience to vary from that indicated. The uncertainty and volatility of interest rates, economic conditions and other markets which affect the value of these call options, as well as the financial condition and strategies of the holders of the options, increase the difficulty and uncertainty in predicting when they may be exercised. The Gap Table reflects our estimates as to periods to repricing at a particular point in time. Among the factors considered are current trends and historical repricing experience with respect to similar products. As a result, different assumptions may be used at different points in time. During the nine months ended September 30, 2001, the Federal Open Market Committee, or FOMC, reduced the federal funds rate on eight separate occasions by a total of 350 basis points. (On October 2, 2001 and November 6, 2001 the FOMC announced additional federal funds rate reductions of 50 basis points each.) These reductions have created a significantly different interest rate environment than that which existed at December 31, 2000. In the December 31, 2000 Gap Table, callable borrowings were classified according to their call dates and callable securities were classified according to their maturity dates. This classification was reflective of our experience throughout 2000 which indicated that, in a rising interest rate environment, issuers of callable borrowings were exercising their rights whereas issuers of callable securities were not. However, in a falling interest rate environment, the likelihood that our callable borrowings will not be called and that our callable securities will begin to be called increases. To a certain degree, we have experienced this during 2001. As a result, we have modified our Gap Table assumptions to reflect the interest rate environment at September 30, 2001. In the September 30, 2001 Gap Table, callable borrowings have been classified according to their maturity dates and callable securities have been classified according to their call dates. At September 30, 2001, callable securities classified according to their call dates totaled $1.07 billion, of which $910.3 million are callable within one year and at various times thereafter. During the nine months ended September 30, 2001, $474.3 million in securities were called. Also included in this table are $5.94 billion of fixed-rate callable borrowings, classified according to their maturity dates, which are primarily within the more than one to three years category. Of such borrowings, $5.78 billion are callable within one year and at various times thereafter. During the nine months ended September 30, 2001, 13 $200.0 million in borrowings were called in the first quarter. The classification of callable borrowings by maturity date is based upon our experience which, in the current interest rate environment, has indicated that the issuers of these borrowings have not been exercising their call options. At September 30, 2001, net interest-earning assets maturing or repricing within one year exceeded interest-bearing liabilities maturing or repricing within the same time period by $957.8 million, representing a positive cumulative one-year gap of 4.22% of total assets. This compares to net interest-earning assets maturing or repricing within one year exceeding interest-bearing liabilities maturing or repricing within the same time period by $1.18 billion, representing a positive cumulative one-year gap of 5.28% of total assets at December 31, 2000, using the same set of assumptions which were used in the September 30, 2001 Gap Table. At December 31, 2000, with callable borrowings classified according to their call dates and callable securities classified according to their maturity dates, as previously reported, our interest-bearing liabilities maturing or repricing within one year exceeded net interest-earning assets maturing or repricing within the same time period by $3.74 billion, representing a negative cumulative one-year gap of 16.75% of total assets.
AT SEPTEMBER 30, 2001 - ----------------------------------------------------------------------------------------------------------------------------------- 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) $2,693,220 $ 3,419,661 $3,262,422 $2,312,501 $11,687,804 Consumer and other loans (1) 181,068 31,047 5,975 -- 218,090 Federal funds sold and repurchase agreements 1,272,313 -- -- -- 1,272,313 Mortgage-backed and other securities available-for-sale and FHLB stock 1,977,537 1,000,488 538,588 1,037,427 4,554,040 Mortgage-backed and other securities held-to-maturity 1,371,090 1,066,327 631,356 926,555 3,995,328 --------- --------- --------- --------- ---------- Total interest-earning assets 7,495,228 5,517,523 4,438,341 4,276,483 21,727,575 Add: Net unamortized purchase premiums and deferred costs (2) 13,047 16,181 17,553 7,190 53,971 --------- --------- --------- --------- ---------- Net interest-earning assets 7,508,275 5,533,704 4,455,894 4,283,673 21,781,546 --------- --------- --------- --------- ---------- Interest-bearing liabilities: Savings 139,097 278,196 278,196 1,831,454 2,526,943 Money market 1,727,491 15,790 15,790 118,422 1,877,493 NOW and money manager 28,623 57,241 57,241 464,261 607,366 Certificates of deposit 3,204,541 1,155,817 873,880 75,197 5,309,435 Borrowed funds 1,450,733 5,710,000 409,000 2,279,064 9,848,797 --------- --------- --------- --------- ---------- Total interest-bearing liabilities 6,550,485 7,217,044 1,634,107 4,768,398 20,170,034 --------- --------- --------- --------- ---------- Interest sensitivity gap 957,790 (1,683,340) 2,821,787 (484,725) $ 1,611,512 ========= ========= ========= ========= ========== Cumulative interest sensitivity gap $ 957,790 $ (725,550) $2,096,237 $1,611,512 ========= ========= ========= ========= Cumulative interest sensitivity gap as a percentage of total assets 4.22% 3.20% 9.24% 7.10% Cumulative net interest-earning assets as a percentage of interest-bearing liabilities 114.62% 94.73% 113.61% 107.99%
(1) Mortgage, 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. 14 Certain shortcomings are inherent in the method of analysis presented in the Gap Table. For example, although certain assets and liabilities may have similar contractual maturities or periods to repricing, they may react in different ways to changes in market interest rates. Additionally, certain assets, such as adjustable-rate mortgage, or ARM, loans have contractual features which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. We also monitor Astoria Federal's interest rate sensitivity through analysis of the change in the net portfolio value, or NPV. NPV is defined as the net present value of the expected future cash flows of an entity's assets and liabilities and, therefore, hypothetically represents the value of an institution's net worth. Increases in the value of assets will increase the NPV whereas decreases in the value of assets will decrease the NPV. Increases in the value of liabilities will increase the NPV whereas decreases in the value of the liabilities will decrease the NPV. The changes in the value of the assets and liabilities due to changes in interest rates reflect the interest sensitivity of those assets and liabilities. The NPV ratio under any interest rate scenario is defined as the NPV in that scenario divided by the value of assets in the same scenario. This analysis, presented in the table on page 16, or the NPV Table, measures percentage changes from the value of projected NPV in a given rate scenario, and then measures interest rate sensitivity by the change in the NPV ratio, over a range of interest rate change scenarios. The Office of Thrift Supervision, or OTS, also produces a similar analysis using its own model based upon data submitted on Astoria Federal's quarterly Thrift Financial Reports, the results of which typically vary from our internal model primarily because of differences in assumptions utilized between our internal model and the OTS model, including estimated loan prepayment rates, reinvestment rates and deposit decay rates. For purposes of the NPV Table, prepayment speeds and deposit decay rates similar to the Gap Table were used, except for the scenarios which involve increases in interest rates, for which we have assumed, in the NPV Table, that securities with embedded call options will not be called at their next available call date. The NPV Table is based on simulations which utilize institution specific assumptions with regard to future cash flows, including customer options such as loan prepayments, period and lifetime caps, puts and calls, and deposit withdrawal estimates. The NPV Table uses discount rates derived from various sources including, but not limited to, U.S. Treasury yield curves, thrift retail certificate of deposit curves, national and local secondary mortgage markets, brokerage security pricing services and various alternative funding sources. Specifically, for mortgage loans receivable, the discount rates used were based on market rates for new loans of similar type and purpose, adjusted, when necessary, for factors such as servicing cost, credit risk and term. The discount rates used for certificates of deposit and borrowings were based on rates which approximate those we would incur to replace such funding of similar remaining maturities. Certain assets, including fixed assets and real estate held for investment, are assumed to remain at book value (net of valuation allowance) regardless of interest rate scenario. 15 The following represents Astoria Federal's NPV Table as of September 30, 2001:
NET PORTFOLIO VALUE ("NPV") PORTFOLIO VALUE OF NET ASSETS RATES IN --------------------------- ----------------------------- BASIS POINTS DOLLAR DOLLAR PERCENTAGE NPV SENSITIVITY (RATE SHOCK) AMOUNT CHANGE CHANGE RATIO MEASURE ------------ ------ ------ ------ ----- ------- (Dollars in Thousands) +200 $2,042,382 $(194,316) (8.69)% 9.40% (0.32)% +100 2,196,852 (39,846) (1.78) 9.81 0.09 -0- 2,236,698 -- -- 9.72 -- -100 2,069,344 (167,354) (7.48) 8.85 (0.87) -200 1,722,328 (514,370) (23.00) 7.28 (2.44)
In the NPV Table above, we have assumed that in all interest rate scenarios, borrowings with embedded call options would not be called at their next call date. We also assumed that in the flat, down 100 and down 200 basis point rate shock scenarios, securities with embedded call options would be called. This is based on our recent experience in the current low interest rate environment. These assumptions differ in several ways from those assumptions used at December 31, 2000 due to the dramatic changes in interest rates and the yield curve. In our December 31, 2000 NPV Table, as previously reported, we assumed that borrowings with embedded call options would be called in the flat, up 100 and up 200 basis point rate shock scenarios. Additionally, we assumed that securities with embedded call options would only be called in the down 100 and down 200 basis point rate shock scenarios, which reflected our experience in the then higher interest rate environment. The NPV Table above indicates an NPV ratio of 9.72% in the flat rate scenario representing a decrease from the December 31, 2000 result of 11.56% in the flat rate scenario, using substantially the same set of assumptions which were used in the September 30, 2001 NPV Table (i.e. callable borrowings not called and callable securities called in the flat interest rate scenario). The decrease in NPV reflects the significant reduction in interest rates during the past nine months, resulting in a decrease in the value of the liabilities. Despite this decrease in base NPV, our continued efforts to reposition the balance sheet by growing core deposits, emphasizing ARM products and reducing callable borrowings coupled with the low level of interest rates have resulted in a significant reduction in our Sensitivity Measure (the change in NPV) in a rising interest rate environment. The NPV Table above indicates an NPV of 9.40% in the up 200 basis point rate shock scenario resulting in a Sensitivity Measure of negative 0.32%. At December 31, 2000, using the September 30, 2001 assumptions, with the primary exception that in the up 100 and up 200 basis point rate shock scenarios callable borrowings were assumed to be called at their next call date, the NPV in the up 200 basis point rate shock scenario was 8.10%, resulting in a Sensitivity Measure of negative 3.46%. This significant decrease in the Sensitivity Measure between September 30, 2001 and December 31, 2000 in the up 200 basis point rate shock scenario, is primarily due to the changes in assumptions with respect to callable borrowings. As previously mentioned in our discussion of the Gap Table, our experience in the higher interest rate environment which existed at December 31, 2000 indicated that borrowings would be called in a flat and rising rate environment. The substantial decline in interest rates through September 30, 2001 and our experience with callable borrowings in a lower interest rate environment supports our current assumption that even after a rate shock of 200 basis points, those borrowings would not be called. The change in interest rates has also affected our interest rate sensitivity, as measured by NPV, in a falling interest rate environment. As indicated in the NPV Table above, our Sensitivity Measure in the 16 down 200 basis point rate shock scenario was negative 2.44% at September 30, 2001, representing a slight increase from the negative 2.26% at December 31, 2000 in the down 200 basis point rate shock scenario. As is the case with the Gap Table, certain shortcomings are inherent in the methodology used in the NPV Table. Modeling of changes in NPV requires the making of certain assumptions which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the NPV model assumes that the composition of our interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is immediate and is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. In addition, prepayment estimates and other assumptions within the NPV Table are subjective in nature, involve uncertainties and, therefore, cannot be determined with precision. Accordingly, although the NPV measurements, in theory, may provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide for a precise forecast of the effect of changes in market interest rates on Astoria Federal's NPV and will differ from actual results. LOAN PORTFOLIO The following table sets forth the composition of our loans receivable and loans held-for-sale portfolios at September 30, 2001 and December 31, 2000.
At September 30, 2001 At December 31, 2000 -------------------------- ---------------------------- Percent Percent (Dollars in Thousands) Amount of Total Amount of Total - ----------------------------------------------------------------------------------------------------------------- MORTGAGE LOANS: One-to-four family (1) .......... $ 10,107,183 84.65% $ 9,863,935 86.79% Multi-family .................... 1,002,528 8.40 801,917 7.05 Commercial real estate .......... 610,717 5.12 514,810 4.53 ------------ ---------- ----------- --------- Total mortgage loans .................. 11,720,428 98.17 11,180,662 98.37 ------------ ---------- ----------- --------- CONSUMER AND OTHER LOANS: Home equity ..................... 167,190 1.40 133,748 1.18 Passbook ........................ 9,475 0.08 8,710 0.08 Other (2) ....................... 42,303 0.35 42,252 0.37 ------------ ---------- ----------- --------- Total consumer and other loans ........ 218,968 1.83 184,710 1.63 ------------ ---------- ----------- --------- TOTAL LOANS ........................... 11,939,396 100.00% 11,365,372 100.00% ------------ ========== ----------- ========= Unamortized premiums, discounts and deferred loan costs and fees, net 77,463 72,622 Allowance for loan losses ............. (82,005) (79,931) ------------ ----------- TOTAL LOANS, NET ...................... $ 11,934,854 $ 11,358,063 ============ ==============
(1) Includes loans classified as held-for-sale totaling $23.3 million at September 30, 2001 and $13.5 million at December 31, 2000. (2) Includes loans classified as held-for-sale totaling $1.4 million at September 30, 2001 and $2.2 million at December 31, 2000. 17 SECURITIES PORTFOLIO The following tables set forth the amortized cost and estimated fair value of mortgage-backed securities and other securities available-for-sale and held-to-maturity at September 30, 2001 and December 31, 2000. During the quarter ended June 30, 2001, we transferred agency REMIC and CMO securities with an amortized cost of $2.90 billion and a market value of $2.88 billion from available-for-sale to held-to-maturity. The net unrealized loss, which is being amortized over the life of the securities transferred, was $22.6 million at the date of the transfer and is included in the net unrealized gain on securities, net of taxes, in accumulated other comprehensive income at September 30, 2001.
At September 30, 2001 --------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair (In Thousands) Cost Gains Losses Value - ----------------------------------------------------------------------------------------------------------------------------------- AVAILABLE-FOR-SALE: Mortgage-backed securities: GNMA pass-through certificates $ 76,730 $ 1,747 $ (1) $ 78,476 FHLMC pass-through certificates 144,489 3,404 (35) 147,858 FNMA pass-through certificates 279,344 7,146 (214) 286,276 REMICS and CMOs: Agency issuance 1,772,104 23,102 (2,346) 1,792,860 Non agency issuance 1,300,079 25,454 (234) 1,325,299 ---------- ------- -------- ---------- Total mortgage-backed securities 3,572,746 60,853 (2,830) 3,630,769 ---------- ------- -------- ---------- Other securities: Obligations of the U.S. Government and agencies 506,992 387 (5,406) 501,973 Corporate debt securities 66,151 445 (4,754) 61,842 FNMA and FHLMC preferred stock 120,015 61 (13,300) 106,776 Asset-backed and other securities 2,233 -- (3) 2,230 ---------- ------- -------- ---------- Total other securities 695,391 893 (23,463) 672,821 ---------- ------- -------- ---------- Total available-for-sale $4,268,137 $61,746 $(26,293) $4,303,590 ========== ======= ======== ========== HELD-TO-MATURITY: Mortgage-backed securities: GNMA pass-through certificates $ 2,737 $ 210 $ -- $ 2,947 FHLMC pass-through certificates 27,409 821 -- 28,230 FNMA pass-through certificates 9,906 110 -- 10,016 REMICs and CMOs: Agency issuance 2,832,246 45,595 (1,947) 2,875,894 Non agency issuance 646,945 5,505 (2) 652,448 ---------- ------- -------- ---------- Total mortgage-backed securities 3,519,243 52,241 (1,949) 3,569,535 ---------- ------- -------- ---------- Other securities: Obligations of the U.S. Government and agencies 409,478 3,517 (455) 412,540 Obligations of states and political subdivisions 43,115 16 -- 43,131 ---------- ------- -------- ---------- Total other securities 452,593 3,533 (455) 455,671 ---------- ------- -------- ---------- Total held-to-maturity $3,971,836 $55,774 $ (2,404) $4,025,206 ========== ======= ======== ==========
18 SECURITIES PORTFOLIO, CONTINUED
At December 31, 2000 ---------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair (In Thousands) Cost Gains Losses Value - --------------------------------------------------------------------------------------------------- AVAILABLE-FOR-SALE: Mortgage-backed securities: GNMA pass-through certificates $ 103,716 $ 916 $ (368) $ 104,264 FHLMC pass-through certificates 187,768 2,169 (569) 189,368 FNMA pass-through certificates 363,842 6,561 (694) 369,709 REMICs and CMOs: Agency issuance 5,096,905 1,421 (144,178) 4,954,148 Non agency issuance 1,416,104 1,360 (23,768) 1,393,696 ---------- ------- --------- ---------- Total mortgage-backed securities 7,168,335 12,427 (169,577) 7,011,185 ---------- ------- --------- ---------- Other securities: Obligations of the U.S. Government and agencies 528,905 4 (29,341) 499,568 Corporate debt securities 66,242 -- (10,064) 56,178 FNMA and FHLMC preferred stock 147,515 68 (13,794) 133,789 Asset-backed and other securities 2,506 -- (4) 2,502 ---------- ------- --------- ---------- Total other securities 745,168 72 (53,203) 692,037 ---------- ------- --------- ---------- Total available-for-sale $7,913,503 $12,499 $(222,780) $7,703,222 ========== ======= ========= ========== HELD-TO-MATURITY: Mortgage-backed securities: GNMA pass-through certificates $ 3,302 $ 198 $ -- $ 3,500 FHLMC pass-through certificates 34,955 745 (7) 35,693 FNMA pass-through certificates 11,490 32 (112) 11,410 REMICs and CMOs: Agency issuance 517,626 3,143 (1,219) 519,550 Non agency issuance 296,156 1,525 (896) 296,785 ---------- ------- --------- ---------- Total mortgage-backed securities 863,529 5,643 (2,234) 866,938 ---------- ------- --------- ---------- Other securities: Obligations of the U.S. Government and agencies 804,659 442 (18,605) 786,496 Obligations of states and political subdivisions 44,003 -- (20) 43,983 ---------- ------- --------- ---------- Total other securities 848,662 442 (18,625) 830,479 ---------- ------- --------- ---------- Total held-to-maturity $1,712,191 $ 6,085 $ (20,859) $1,697,417 ========== ======= ========= ==========
19 COMPARISON OF FINANCIAL CONDITION AS OF SEPTEMBER 30, 2001 AND DECEMBER 31, 2000 AND OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 FINANCIAL CONDITION Total assets increased $354.2 million to $22.69 billion at September 30, 2001, from $22.34 billion at December 31, 2000. We continued our strategy of repositioning the balance sheet through increases in deposits and loans and decreases in securities and borrowings, while limiting growth. Mortgage loans, net, increased $533.3 million, from $11.24 billion at December 31, 2000 to $11.77 billion at September 30, 2001. Gross mortgage loans originated and purchased during the nine months ended September 30, 2001 totaled $2.78 billion (excluding $281.1 million in originations of mortgage loans held-for-sale) of which $1.76 billion were originations and $1.02 billion were purchases. These originations and purchases consisted primarily of one-to-four family residential mortgage loans. This compares to $1.29 billion of originations and $567.7 million of purchases for a total of $1.86 billion during the nine months ended September 30, 2000 (excluding $81.1 million in originations of mortgage loans held-for-sale). The increase in mortgage loan originations was primarily a result of the general decrease in market interest rates, which has increased the level of mortgage refinance activity. This increase was partially offset by an increase in mortgage loan repayments to $2.29 billion for the nine months ended September 30, 2001, from $1.07 billion for the nine months ended September 30, 2000, which also was primarily a result of the decrease in market interest rates. Mortgage-backed securities decreased $724.7 million to $7.15 billion at September 30, 2001, from $7.87 billion at December 31, 2000. This decrease was the result of principal payments received of $1.86 billion, offset by purchases of $939.7 million and a decrease in the net unrealized loss on securities available-for-sale of $215.2 million. Other securities decreased $415.3 million to $1.13 billion at September 30, 2001, from $1.54 billion at December 31, 2000, primarily due to $490.9 million in securities which were called or matured, partially offset by a decrease in the net unrealized loss on securities available-for-sale of $30.6 million, the net accretion of discounts, primarily on our U.S. Government and agency securities, of $43.0 million, and purchases of other securities totaling $2.0 million for the nine months ended September 30, 2001. Federal funds sold and repurchase agreements increased $1.10 billion from $171.5 million at December 31, 2000, to $1.27 billion at September 30, 2001. The increase in loan and security repayments provided additional liquidity which we held at September 30, 2001, which will be used to fund our mortgage pipeline and for the potential repayment of borrowings which are maturing over the next six months. Other assets decreased $113.5 million from $209.6 million at December 31, 2000 to $96.1 million at September 30, 2001, primarily due to the decrease in the deferred tax asset which was directly related to the decrease in the net unrealized loss on securities available-for-sale. Consistent with our strategy of repositioning the balance sheet, we also continued shifting our liability emphasis from borrowings to deposits. Deposits increased $721.8 million from $10.07 billion at December 31, 2000 to $10.79 billion at September 30, 2001, primarily due to our current emphasis on deposit generation through competitive rates and product offerings. Borrowings decreased $348.6 million to $9.85 billion at September 30, 2001, from $10.20 20 billion at December 31, 2000, as a result of the repayment of various borrowings which matured or were called in 2001, net of our issuance of $100.0 million of senior unsecured notes. For additional information on the senior unsecured notes see "Liquidity and Capital Resources." Stockholders' equity increased to $1.55 billion at September 30, 2001, from $1.51 billion at December 31, 2000. The increase in stockholders' equity was the result of net income of $168.1 million, a $131.2 million decrease in the net unrealized loss on securities available-for-sale, net of taxes, which includes amortization of the net unrealized loss on securities transferred to held-to-maturity, the effect of stock options exercised and related tax benefit of $29.0 million, and the amortization of the allocated portion of shares held by the ESOP of $4.9 million. These increases were partially offset by repurchases of our common stock of $249.7 million and dividends declared of $47.6 million. RESULTS OF OPERATIONS GENERAL Net income for the three months ended September 30, 2001 increased $2.8 million to $56.5 million, from $53.7 million for the three months ended September 30, 2000. For the three months ended September 30, 2001, diluted earnings per common share increased to $1.20 per share, as compared to $1.07 per share for the three months ended September 30, 2000. Return on average assets increased to 1.00% for the three months ended September 30, 2001, from 0.97% for the three months ended September 30, 2000. Return on average stockholders' equity decreased to 14.17% for the three months ended September 30, 2001, from 16.31% for the three months ended September 30, 2000. Return on average tangible stockholders' equity decreased to 16.12% for the three months ended September 30, 2001, from 19.45% for the three months ended September 30, 2000. Net income for the nine months ended September 30, 2001 increased $3.1 million to $168.1 million, from $165.0 million for the nine months ended September 30, 2000. For the nine months ended September 30, 2001, diluted earnings per common share increased to $3.49 per share, as compared to $3.28 per share for the nine months ended September 30, 2000. Return on average assets increased to 1.00% for the nine months ended September 30, 2001, from 0.99% for the nine months ended September 30, 2000. Return on average stockholders' equity decreased to 14.15% for the nine months ended September 30, 2001, from 17.59% for the nine months ended September 30, 2000. Return on average tangible stockholders' equity decreased to 16.18% for the nine months ended September 30, 2001, from 21.28% for the nine months ended September 30, 2000. The decreases in the returns on equity, for both the three- and nine-month periods ended September 30, 2001, are the result of a significantly higher level of average equity. The increase in equity is primarily due to the decrease in the net unrealized loss on securities available-for-sale, net of taxes, which is a result of the general decline in market interest rates that occurred in response to the previously mentioned actions of the FOMC during the nine months ended September 30, 2001. The results of operations for the nine months ended September 30, 2001 include a $2.3 million, after-tax, charge for the cumulative effect of accounting change related to the adoption 21 of SFAS No. 133 and SFAS No. 138 on January 1, 2001. See "Notes to Consolidated Financial Statements" for further discussion of the impact of the implementation of SFAS No. 133 and SFAS No. 138. The results of operations for the nine months ended September 30, 2000 include a $2.4 million, after-tax, net gain on the disposition of banking offices. The following comparison of net operating earnings, diluted operating earnings per common share and related operating returns for the nine months ended September 30, 2001 and 2000 exclude the cumulative effect of accounting change and the net gains on the disposition of banking offices. For the nine months ended September 30, 2001, net operating earnings increased $7.7 million to $170.3 million, from $162.6 million for the nine months ended September 30, 2000. Diluted operating earnings per common share for the nine months ended September 30, 2001 increased to $3.54 per share, from $3.23 per share for the nine months ended September 30, 2000. The operating return on average assets for the nine months ended September 30, 2001 increased to 1.01%, from 0.97% for the nine months ended September 30, 2000. The operating return on average stockholders' equity for the nine months ended September 30, 2001 decreased to 14.35%, from 17.33% for the nine months ended September 30, 2000. The operating return on average tangible stockholders' equity for the nine months ended September 30, 2001 decreased to 16.40%, from 20.97% for the nine months ended September 30, 2000. As previously discussed, the decreases in the returns on equity are primarily the result of the decrease in the net unrealized loss on securities available-for-sale, net of taxes, which significantly contributed to the increase in stockholders' equity. See "Consolidated Schedules of Operating Earnings and Operating Cash Earnings" on page 34 for more information. 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. For the three months ended September 30, 2001, net interest income decreased $10.4 million to $114.2 million, from $124.6 million for the three months ended September 30, 2000. This decrease was the result of a decrease in average net interest-earning assets, coupled with a decrease in the net interest rate spread. Average net interest-earning assets decreased $329.9 million, from $1.39 billion for the three months ended September 30, 2000, to $1.06 billion for the three months ended September 30, 2001. The decrease in average net interest-earning assets was the result of a decrease in total average interest-earning assets of $112.4 million, from $21.71 billion for the three months ended September 30, 2000, to $21.60 billion for the three months ended September 30, 2001, coupled with an increase in total average interest-bearing liabilities of $217.5 million, from $20.32 billion for the three months ended September 30, 2000 to $20.54 billion for the three months ended September 30, 2001. During the fourth quarter of 2000, we implemented a Bank Owned Life Insurance, or BOLI program which decreased interest-earning assets by approximately $250.0 million. 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." The net interest rate spread decreased from 1.97% for the three months ended September 30, 2000, to 1.88% for the three months ended September 30, 2001. The decrease in the net interest rate 22 spread is primarily the result of a decrease in the average yield on interest-earning assets from 7.00% for the three months ended September 30, 2000, to 6.64% for the three months ended September 30, 2001, partially offset by a decrease in the average cost of interest-bearing liabilities from 5.03% for the three months ended September 30, 2000, to 4.76% for the three months ended September 30, 2001. The net interest margin was 2.12% for the three months ended September 30, 2001 and 2.29% for the three months ended September 30, 2000. For the nine months ended September 30, 2001, net interest income decreased $29.0 million, to $355.7 million, from $384.7 million for the nine months ended September 30, 2000. This decrease was the result of a decrease in the net interest rate spread to 1.95% for the nine months ended September 30, 2001, from 2.04% for the nine months ended September 30, 2000, coupled with a decrease in average net interest-earning assets. The decrease in the net interest rate spread resulted from a decrease in the average yield on total interest-earning assets to 6.79% for the nine months ended September 30, 2001, from 6.92% for the nine months ended September 30, 2000, partially offset by a decrease in the average cost of interest-bearing liabilities to 4.84% for the nine months ended September 30, 2001, from 4.88% for the nine months ended September 30, 2000. Average net interest-earning assets decreased $226.1 million, from $1.35 billion for the nine months ended September 30, 2000, to $1.12 billion for the nine months ended September 30, 2001. The decrease in average net interest-earning assets was the result of a decrease in average total interest-earning assets of $405.9 million, from $21.89 billion for the nine months ended September 30, 2000, to $21.48 billion for the nine months ended September 30, 2001, partially offset by a decrease in average total interest-bearing liabilities of $179.8 million, from $20.54 billion for the nine months ended September 30, 2000, to $20.36 billion for the nine months ended September 30, 2001. As previously discussed, during the fourth quarter of 2000, we implemented a BOLI program which decreased interest-earning assets by approximately $250.0 million. The net interest margin was 2.21% for the nine months ended September 30, 2001 and 2.34% for the nine months ended September 30, 2000. ANALYSIS OF NET INTEREST INCOME The following tables set forth certain information for the three and nine months ended September 30, 2001 and 2000. Yields are derived by dividing income by the average balance of the related assets and costs are derived by dividing expense by the average balance of the related liabilities, for the periods shown. Average balances are derived from average daily balances. The average balance of loans receivable includes loans on which we have discontinued accruing interest. The yields and costs include the amortization of fees, premiums and discounts which are considered adjustments to interest rates. 23
Three Months Ended September 30, ------------------------------------------------------------------------------------------- 2001 2000 ------------------------------------------------------------------------------------------- Average Average (Dollars Average Yield/ Average Yield/ in Thousands) Balance Interest Cost Balance Interest Cost - ----------------------------------------------------------------------------------------------------------------------------------- ASSETS: (Annualized) (Annualized) Interest-earning assets: Mortgage loans (1) $11,629,197 $207,014 7.12% $10,772,053 $194,874 7.24% Consumer and other loans (1) 208,686 4,364 8.36 176,353 4,817 10.93 Mortgage-backed securities (2) 6,935,545 109,556 6.32 8,552,747 141,394 6.61 Other securities (2)(3) 1,458,258 25,705 7.05 1,897,138 33,663 7.10 Federal funds sold and repurchase agreements 1,369,769 12,082 3.53 315,569 5,251 6.66 ----------- -------- ----------- -------- Total interest-earning assets 21,601,455 358,721 6.64 21,713,860 379,999 7.00 -------- -------- Non-interest-earning assets 1,033,327 449,125 ----------- ----------- Total assets $22,634,782 $22,162,985 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing liabilities: Savings $ 2,507,045 $ 12,537 2.00% $ 2,530,207 $ 12,864 2.03% Certificates of deposit 5,284,102 71,149 5.39 4,940,325 71,739 5.81 NOW and money manager 1,081,815 1,446 0.53 947,451 1,366 0.58 Money market 1,817,718 16,555 3.64 1,378,638 18,920 5.49 ----------- -------- ----------- -------- Total deposits 10,690,680 101,687 3.80 9,796,621 104,889 4.28 Borrowed funds 9,847,116 142,809 5.80 10,523,713 150,550 5.72 ----------- -------- ----------- -------- Total interest-bearing liabilities 20,537,796 244,496 4.76 20,320,334 255,439 5.03 -------- -------- Non-interest-bearing liabilities 503,401 526,135 ----------- ----------- Total liabilities 21,041,197 20,846,469 Stockholders' equity 1,593,585 1,316,516 ----------- ----------- Total liabilities and stockholders' equity $22,634,782 $22,162,985 =========== =========== Net interest income/net interest rate spread $ 114,225 1.88% $124,560 1.97% ======= ===== ======== ===== Net interest-earning assets/net interest margin $ 1,063,659 2.12% $ 1,393,526 2.29% ========= ===== =========== ===== Ratio of interest- earning assets to interest-bearing liabilities 1.05x 1.07x ===== =====
- ----------- (1) Mortgage, consumer and other loans include non-performing loans and exclude the allowance for loan losses. (2) Securities available-for-sale are reported at average amortized cost. (3) Other securities include Federal Home Loan Bank of New York stock. 24
Nine Months Ended September 30, ------------------------------------------------------------------------------------------- 2001 2000 ------------------------------------------------------------------------------------------- Average Average (Dollars Average Yield/ Average Yield/ in Thousands) Balance Interest Cost Balance Interest Cost - --------------------------------------------------------------------------------------------------------------------------------- ASSETS: (Annualized) (Annualized) Interest-earning assets: Mortgage loans (1) $11,445,412 $ 613,897 7.15% $10,510,923 $ 566,587 7.19% Consumer and other loans (1) 197,681 13,713 9.25 174,778 13,385 10.21 Mortgage-backed securities (2) 7,370,584 355,001 6.42 9,028,021 443,419 6.55 Other securities (2)(3) 1,623,044 86,292 7.09 1,876,043 98,763 7.02 Federal funds sold and repurchase agreements 843,876 25,360 4.01 296,785 13,920 6.25 ----------- ----------- ----------- ---------- Total interest-earning assets 21,480,597 1,094,263 6.79 21,886,550 1,136,074 6.92 ----------- ---------- Non-interest-earning assets 975,791 433,497 ----------- ----------- Total assets $22,456,388 $22,320,047 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing liabilities: Savings $ 2,474,209 $ 37,169 2.00% $ 2,557,121 $ 38,659 2.02% Certificates of deposit 5,226,746 217,544 5.55 4,941,305 207,461 5.60 NOW and money manager 1,055,295 4,301 0.54 930,113 4,049 0.58 Money market 1,669,733 52,817 4.22 1,298,538 51,047 5.24 ----------- ----------- ----------- ---------- Total deposits 10,425,983 311,831 3.99 9,727,077 301,216 4.13 Borrowed funds 9,931,390 426,733 5.73 10,810,106 450,164 5.55 ----------- ----------- ----------- ---------- Total interest-bearing liabilities 20,357,373 738,564 4.84 20,537,183 751,380 4.88 ----------- ---------- Non-interest-bearing liabilities 515,969 531,597 ----------- ----------- Total liabilities 20,873,342 21,068,780 Stockholders' equity 1,583,046 1,251,267 ----------- ----------- Total liabilities and stockholders' equity $22,456,388 $22,320,047 =========== =========== Net interest income/net interest rate spread $ 355,699 1.95% $ 384,694 2.04% =========== ====== ========== ===== Net interest-earning assets/net interest margin $ 1,123,224 2.21% $ 1,349,367 2.34% =============== ====== =========== ===== Ratio of interest-earning assets to interest-bearing liabilities 1.06x 1.07x ====== =======
- ------- (1) Mortgage, consumer and other loans include non-performing loans and exclude the allowance for loan losses. (2) Securities available-for-sale are reported at average amortized cost. (3) Other securities include Federal Home Loan Bank of New York stock. 25 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 September 30, 2001 Nine Months Ended September 30, 2001 Compared to Compared to Three Months Ended September 30, 2000 Nine Months Ended September 30, 2000 --------------------------------------------------------------------------- (In Thousands) Increase (Decrease) Increase (Decrease) - --------------------------------------------------------------------------------------------------------------------- Volume Rate Net Volume Rate Net ------ ---- --- ------ ---- --- Interest earning assets: Mortgage loans $ 15,396 $ (3,256) $ 12,140 $ 50,459 $ (3,149) $ 47,310 Consumer and other loans 794 (1,247) (453) 1,656 (1,328) 328 Mortgage-backed securities (25,842) (5,996) (31,838) (79,792) (8,626) (88,418) Other securities (7,723) (235) (7,958) (13,447) 976 (12,471) Federal funds sold and repurchase agreements 10,318 (3,487) 6,831 17,927 (6,487) 11,440 -------- -------- -------- -------- -------- -------- Total (7,057) (14,221) (21,278) (23,197) (18,614) (41,811) -------- -------- -------- -------- -------- -------- Interest-bearing liabilities: Savings (125) (202) (327) (1,141) (349) (1,490) Certificates of deposit 4,799 (5,389) (590) 11,943 (1,860) 10,083 NOW and money manager 197 (117) 80 536 (284) 252 Money market 5,047 (7,412) (2,365) 12,872 (11,102) 1,770 Borrowed funds (9,815) 2,074 (7,741) (37,612) 14,181 (23,431) -------- -------- -------- -------- -------- -------- Total 103 (11,046) (10,943) (13,402) 586 (12,816) -------- -------- -------- -------- -------- -------- Net change in net interest income $ (7,160) $ (3,175) $(10,335) $ (9,795) $(19,200) $(28,995) ======== ======== ======== ======== ======== ========
INTEREST INCOME Interest income for the three months ended September 30, 2001 decreased $21.3 million to $358.7 million, from $380.0 million for the three months ended September 30, 2000. This decrease was the result of a decrease in the average yield of interest-earning assets from 7.00% for the three months ended September 30, 2000, to 6.64% for the three months ended September 30, 2001, coupled with a decrease in the average balance of interest-earning assets from $21.71 billion for the three months ended September 30, 2000 to $21.60 billion for the three months ended September 30, 2001. The decrease in the average yield on interest-earning assets is primarily due to the decreases in the average yields on mortgage-backed securities, federal funds sold and repurchase agreements and mortgage loans which reflect the declining interest rate environment which we have experienced during 2001. The decrease in average interest-earning assets was primarily due to decreases in the average balances of mortgage-backed and other securities resulting from principal repayments, maturities and calls, partially offset by increases in the average balances of mortgage loans and federal funds sold and 26 repurchase agreements. The decrease and shift in assets reflect our decision to limit balance sheet growth while continuing to emphasize one-to-four family mortgage lending. As previously discussed, the FOMC rate reductions have created a significantly different interest rate environment than that which existed at December 31, 2000. Despite strong loan originations, cash flows from operations, loan and securities repayments and deposit growth exceeded loan originations and other investment purchases, resulting in the significant increase in federal funds sold and repurchase agreements at September 30, 2001. We held this additional liquidity at September 30, 2001, which will be used to fund our mortgage pipeline of approximately $1.5 billion and for the potential repayment of borrowings which are maturing over the next six months. Additionally, as previously discussed, during the fourth quarter of 2000, we implemented a BOLI program which decreased interest-earning assets by approximately $250.0 million. The earnings impact of this program is reflected in non-interest income. Interest income on mortgage loans increased $12.1 million to $207.0 million for the three months ended September 30, 2001, from $194.9 million for the three months ended September 30, 2000. This increase was the result of an $857.1 million increase in the average balance of mortgage loans partially offset by a decrease in the average yield to 7.12% for the three months ended September 30, 2001, from 7.24% for the three months ended September 30, 2000. Interest income on consumer and other loans decreased $453,000 resulting from a decrease in the average yield to 8.36% for the three months ended September 30, 2001, from 10.93% for the three months ended September 30, 2000, offset by an increase in the average balance of this portfolio of $32.3 million. Interest income on mortgage-backed securities decreased $31.8 million to $109.6 million for the three months ended September 30, 2001, from $141.4 million for the three months ended September 30, 2000. This decrease was the result of a $1.62 billion decrease in the average balance of the mortgage-backed securities portfolio, coupled with a decrease in the average yield to 6.32% for the three months ended September 30, 2001, from 6.61% for the three months ended September 30, 2000. Interest income on other securities decreased $8.0 million resulting from a decrease in the average balance of this portfolio of $438.9 million, primarily due to securities being called as a result of the declining interest rate environment, coupled with a decrease in the average yield to 7.05% for the three months ended September 30, 2001, from 7.10% for the three months ended September 30, 2000. Interest income on federal funds sold and repurchase agreements increased $6.8 million, to $12.1 million, as a result of a $1.05 billion increase in the average balance to $1.37 billion, partially offset by a decrease in the average yield to 3.53% for the three months ended September 30, 2001, from 6.66% for the three months ended September 30, 2000. For the nine months ended September 30, 2001, interest income decreased $41.8 million, to $1.09 billion, from $1.14 billion for the nine months ended September 30, 2000. This decrease was the result of a $405.9 million decrease in average total interest-earning assets to $21.48 billion for the nine months ended September 30, 2001, from $21.89 billion for the comparable period in 2000, coupled with a decrease in the average yield on interest-earning assets to 6.79% for the nine months ended September 30, 2001, from 6.92% for the nine months ended September 30, 2000. Interest income on mortgage loans increased $47.3 million to $613.9 million for the nine months ended September 30, 2001, from $566.6 million for the nine months ended September 30, 2000, which was primarily the result of a $934.5 million increase in the average balance of 27 mortgage loans, partially offset by a decrease in the average yield on mortgage loans to 7.15% for the nine months ended September 30, 2001, from 7.19% for the comparable period in 2000. Interest income on consumer and other loans increased $328,000 resulting from an increase in the average balance of this portfolio of $22.9 million, partially offset by a decrease in the average yield to 9.25% for the nine months ended September 30, 2001, from 10.21% for the nine months ended September 30, 2000. Interest income on mortgage-backed securities decreased $88.4 million to $355.0 million for the nine months ended September 30, 2001, from $443.4 million for the nine months ended September 30, 2000. This decrease was the result of a $1.66 billion decrease in the average balance of the portfolio, coupled with a decrease in the average yield to 6.42% for the nine months ended September 30, 2001, from 6.55% for the nine months ended September 30, 2000. Interest income on other securities decreased $12.5 million resulting from a $253.0 million decrease in the average balance of this portfolio, slightly offset by an increase in the average yield to 7.09% for the nine months ended September 30, 2001, from 7.02% for the comparable period in 2000. Interest income on federal funds sold and repurchase agreements increased $11.4 million as a result of a $547.1 million increase in the average balance, partially offset by a decrease in the average yield to 4.01% for the nine months ended September 30, 2001, from 6.25% for the nine months ended September 30, 2000. INTEREST EXPENSE Interest expense for the three months ended September 30, 2001 decreased $10.9 million, to $244.5 million, from $255.4 million for the three months ended September 30, 2000. This decrease was primarily the result of a decrease in the average cost of interest-bearing liabilities to 4.76% for the three months ended September 30, 2001, from 5.03% for the three months ended September 30, 2000, slightly offset by a $217.5 million increase in the average balance of interest-bearing liabilities. The decrease in the average cost of interest-bearing liabilities is primarily due to a decrease in the average cost of deposits, partially offset by an increase in the average cost of borrowings. The increase in the average balance of interest-bearing liabilities was attributable to an increase in deposits, partially offset by a decrease in borrowings, which is consistent with our strategy of repositioning the balance sheet. Interest expense on deposits decreased $3.2 million, to $101.7 million for the three months ended September 30, 2001, from $104.9 million for the three months ended September 30, 2000, reflecting a decrease in the average cost of deposits to 3.80% for the three months ended September 30, 2001, from 4.28% for the three months ended September 30, 2000, partially offset by an $894.1 million increase in the average balance of total deposits. The decrease in the average cost and increase in the average balance of total deposits were primarily driven by decreases in our rates and increases in the average balances of money market accounts and certificates of deposit. Interest expense on money market accounts decreased $2.4 million, reflecting a decrease in the average cost to 3.64% for the three months ended September 30, 2001, from 5.49% for the three months ended September 30, 2000, partially offset by a $439.1 million increase in the average balance. Interest paid on money market accounts is on a tiered basis with 91.10% of the balance in the highest tier (accounts with balances of $50,000 and higher). The yield on the highest tier is priced relative to the discount rate for the three-month U.S. Treasury bill, which provides an attractive short-term yield for our customers. The decrease in the average cost of these deposits is reflective of the declining interest rate environment. 28 Interest expense on certificates of deposit decreased $590,000 resulting from a decrease in the average cost to 5.39% for the three months ended September 30, 2001, from 5.81% for the three months ended September 30, 2000, partially offset by a $343.8 million increase in the average balance. The decrease in the average cost of certificates of deposit is due to the effect of the lower interest rate environment in 2001. The increase in the average balance of certificates of deposit reflects our commitment to offer competitive rates to our customers. Interest expense on savings accounts decreased $327,000, which was attributable to a slight decrease in the average cost coupled with a decrease in the average balance of $23.2 million. Interest expense on NOW and money manager accounts increased $80,000 as a result of a $134.4 million increase in the average balance, partially offset by a decrease in the average cost. Interest expense on borrowed funds for the three months ended September 30, 2001 decreased $7.8 million, to $142.8 million, from $150.6 million for the three months ended September 30, 2000, resulting from a decrease in the average balance of $676.6 million, to $9.85 billion for the three months ended September 30, 2001, from $10.52 billion for the three months ended September 30, 2000, partially offset by an increase in the average cost of borrowings to 5.80% for the three months ended September 30, 2001, from 5.72% for the three months ended September 30, 2000. The rising interest rate environment which prevailed throughout most of 2000 resulted in most of our borrowings being called upon reaching their call dates during the year ended December 31, 2000. While a portion of the called borrowings were repaid, the remainder of the called borrowings were rolled over into short- and medium-term borrowings without call features at higher rates, thereby increasing the overall cost of our borrowings. However, $1.15 billion in borrowings with an average rate of 7.01% will mature in the first half of 2002, at which time we expect to experience a reduction in our cost of borrowings through either the refinancing of those borrowings at lower rates, assuming that interest rates remain near their current levels, or the repayment of those borrowings. Interest expense for the nine months ended September 30, 2001 decreased $12.8 million, to $738.6 million, from $751.4 million for the nine months ended September 30, 2000. This decrease was the result of a decrease of $179.8 million in the average balance of interest-bearing liabilities. The average cost of interest-bearing liabilities decreased to 4.84% for the nine months ended September 30, 2001, from 4.88% for the nine months ended September 30, 2000. Interest expense on deposits increased $10.6 million, to $311.8 million for the nine months ended September 30, 2001, from $301.2 million for the nine months ended September 30, 2000, primarily due to a $698.9 million increase in the average balance of total deposits, partially offset by a decrease in the average cost of deposits to 3.99% for the nine months ended September 30, 2001, from 4.13% for the same period in 2000. The increase in the average balance of deposits was primarily driven by increases in the average balances of certificates of deposit and money market accounts. Interest expense on certificates of deposit increased $10.1 million reflecting a $285.4 million increase in the average balance, partially offset by a decrease in the average cost to 5.55% for the nine months ended September 30, 2001, from 5.60% for the nine months ended September 30, 2000. Interest expense on money market accounts increased $1.8 million reflecting a $371.2 million increase in the average balance, offset by a decrease in the average cost to 4.22% for the nine months ended September 30, 2001, from 5.24% for the comparable 2000 period. 29 Interest expense on savings accounts decreased $1.5 million which was attributable to an $82.9 million decrease in the average balance, coupled with a decrease in the average cost to 2.00% for the nine months ended September 30, 2001, from 2.02% for the nine months ended September 30, 2000. Interest expense on NOW and money manager accounts increased $252,000 as a result of a $125.2 million increase in the average balance, partially offset by a decrease in the average cost to 0.54% for the nine months ended September 30, 2001, from 0.58% for the same period in 2000. Interest expense on borrowed funds for the nine months ended September 30, 2001 decreased $23.5 million, to $426.7 million, from $450.2 million for the nine months ended September 30, 2000, resulting from an $878.7 million decrease in the average balance, partially offset by an increase in the average cost of borrowings to 5.73% for the nine months ended September 30, 2001, from 5.55% for the comparable 2000 period. PROVISION FOR LOAN LOSSES Provision for loan losses totaled $1.0 million for the three months ended September 30, 2001 and 2000 and $3.0 million for the nine months ended September 30, 2001 and 2000. Net loan charge-offs totaled $372,000 for the three months ended September 30, 2001 compared to $66,000 for the three months ended September 30, 2000. For the nine months ended September 30, 2001, net loan charge-offs totaled $952,000 compared to $629,000 for the nine months ended September 30, 2000. Non-performing loans decreased $2.7 million to $33.5 million at September 30, 2001, from $36.2 million at December 31, 2000. This reduction in non-performing loans improved the percentage of allowance for loan losses to non-performing loans from 220.88% at December 31, 2000 to 244.78% at September 30, 2001. The allowance for loan losses increased $2.1 million to $82.0 million at September 30, 2001, from $79.9 million at December 31, 2000. The allowance for loan losses as a percentage of total loans decreased to 0.68% at September 30, 2001, from 0.70% at December 31, 2000. For further discussion on non-performing loans and allowance for loan losses see "Asset Quality." NON-INTEREST INCOME Non-interest income for the three months ended September 30, 2001 increased $8.5 million, or 46.6%, to $26.9 million, from $18.4 million for the three months ended September 30, 2000 and $18.3 million, or 32.4% to $75.2 million for the nine months ended September 30, 2001, from $56.9 million for the nine months ended September 30, 2000. Excluding the net gain on the disposition of banking offices of $4.0 million for the nine months ended September 30, 2000, non-interest income for the nine months ended September 30, 2001 increased $22.3 million, or 42.3%, to $75.2 million, from $52.9 million for the nine months ended September 30, 2000. Customer service and other loan fees increased $2.2 million to $15.1 million for the three months ended September 30, 2001, from $12.9 million for the three months ended September 30, 2000 and $6.5 million to $42.7 million for the nine months ended September 30, 2001, from $36.2 million for the nine months ended September 30, 2000. The increase in customer service fees was primarily attributable to an increase in deposit accounts coupled with an increase in customer service fees which became effective during the first quarter of 2001. Loan servicing fees decreased $602,000 to $3.6 million for the three months ended September 30, 2001, from $4.2 million for the three months ended September 30, 2000 and $1.4 million 30 to $11.6 million for the nine months ended September 30, 2001, from $13.0 million for the nine months ended September 30, 2000. Loan servicing fees include all contractual and ancillary servicing revenue we receive. This decrease is due to a decrease in the balance of loans serviced for others from $4.04 billion at September 30, 2000 to $3.52 billion at September 30, 2001. Income from BOLI, which was purchased in November 2000, was $4.1 million for the three months ended September 30, 2001 and $12.6 million for the nine months ended September 30, 2001. Net gains on sales of loans totaled $877,000 for the three months ended September 30, 2001 and $2.6 million for the nine months ended September 30, 2001, compared to $273,000 for the three months ended September 30, 2000 and $568,000 for the nine months ended September 30, 2000. The increase in net gain on sales of loans is primarily due to an increase in the volume of loans sold into the secondary market. The current interest rate environment has resulted in a significant increase in refinance activity and greater demand for fixed-rate loans, the majority of which are not retained for our portfolio. Other income totaled $3.2 million for the three months ended September 30, 2001 and $5.7 million for the nine months ended September 30, 2001, compared to $951,000 for the three months ended September 30, 2000 and $3.1 million for the nine months ended September 30, 2000. This increase is primarily due to income related to the dissolution of a trust account previously established for certain former executives. NON-INTEREST EXPENSE For the three months ended September 30, 2001, non-interest expense decreased $1.4 million to $54.3 million, compared to $55.7 million for the three months ended September 30, 2000. For the nine months ended September 30, 2001, non-interest expense decreased $2.9 million to $166.1 million, from $169.0 million for the nine months ended September 30, 2000. General and administrative expense decreased $185,000 to $43.4 million for the three months ended September 30, 2001, from $43.5 million for the three months ended September 30, 2000. For the nine months ended September 30, 2001, general and administrative expense decreased $933,000 to $132.5 million, from $133.4 million for the comparable 2000 period. Compensation and benefits increased $2.2 million to $22.5 million for the three months ended September 30, 2001, from $20.3 million for the three months ended September 30, 2000. For the nine months ended September 30, 2001, compensation and benefits increased $4.4 million to $68.0 million, from $63.6 million for the nine months ended September 30, 2000. These increases in compensation and benefits are principally due to normal performance increases in salaries coupled with an increase in net employee benefit plan expense. Occupancy, equipment and systems expense increased to $13.4 million for the three months ended September 30, 2001, from $12.5 million for the three months ended September 30, 2000. For the nine months ended September 30, 2001 occupancy, equipment and systems expense decreased $440,000 to $39.3 million, from $39.8 million for the comparable 2000 period. Advertising expense totaled $730,000 for the three months ended September 30, 2001 and $4.3 million for the nine months ended September 30, 2001, compared to $2.8 million for the three months ended September 30, 2000 and $7.0 million for the nine months ended September 30, 2000, as a result of modifying our marketing efforts for the 2001 third quarter. Other general and administrative expense decreased $1.2 million to $6.3 million for the three months ended September 30, 2001, from $7.5 million for the three months ended September 30, 2000. For the nine months ended September 30, 2001, other general and administrative expense 31 decreased $2.1 million to $19.3 million, from $21.4 million for the nine months ended September 30, 2000. For the three months ended September 30, 2001, net amortization of mortgage servicing rights increased $789,000 to $2.8 million, from $2.0 million for the three months ended September 30, 2000. For the nine months ended September 30, 2001, net amortization of mortgage servicing rights increased by $2.5 million to $7.8 million, from $5.3 million for the comparable 2000 period. Net amortization of mortgage servicing rights, as reported on the consolidated statements of income, includes valuation allowance adjustments for the impairment of mortgage servicing rights. For the three months ended September 30, 2001, the increase in the net amortization of mortgage servicing rights is due to a $492,000 increase in the amortization of mortgage servicing rights, coupled with a $297,000 increase in the provision for the valuation allowance of mortgage servicing rights. For the nine months ended September 30, 2001, the increase in the net amortization of mortgage servicing rights is due to a $1.5 million increase in the amortization of mortgage servicing rights, coupled with a $938,000 increase in the provision for the valuation allowance of mortgage servicing rights. The increases in the amortization of mortgage servicing rights and provision for the valuation allowance are due to the increases in prepayment speeds and refinance activity which is a result of the declining interest rate environment during 2001. Goodwill litigation expense decreased $1.9 million to $243,000 for the three months ended September 30, 2001, from $2.1 million for the three months ended September 30, 2000, and decreased $4.3 million to $2.1 million for the nine months ended September 30, 2001, from $6.4 million for the nine months ended September 30, 2000 reflecting the completion of fact based discovery regarding our claims. For further discussion on the goodwill litigation proceedings, see Part II - Item 1, "Legal Proceedings." Our percentage of general and administrative expense to average assets was 0.77% for the three months ended September 30, 2001 and 0.79% for the nine months ended September 30, 2001, compared to 0.79% for the three months ended September 30, 2000 and 0.80% for the nine months ended September 30, 2000. The efficiency ratio was 30.72% for the three months ended September 30, 2001 and 30.74% for the nine months ended September 30, 2001, compared to 30.47% for the three months ended September 30, 2000 and 30.48% for the nine months ended September 30, 2000. INCOME TAX EXPENSE For the three months ended September 30, 2001, income tax expense was $29.3 million, representing an effective tax rate of 34.2%, as compared to $32.6 million, representing an effective tax rate of 37.7%, for the three months ended September 30, 2000. For the nine months ended September 30, 2001, income tax expense was $91.5 million, representing an effective tax rate of 34.9%, as compared to $104.5 million, representing an effective tax rate of 38.8% for the nine months ended September 30, 2000. The reduction in the effective tax rate was due primarily to tax benefits associated with the implementation of the BOLI program in November 2000. CASH EARNINGS Tangible stockholders' equity (stockholders' equity less goodwill) totaled $1.36 billion at September 30, 2001, compared to $1.31 billion at December 31, 2000. Tangible equity is a 32 critical measure of a company's ability to repurchase shares, pay dividends and continue to grow. Astoria Federal is subject to various capital requirements which affect its classification for safety and soundness purposes, as well as for deposit insurance premium purposes. These requirements utilize, subject to further adjustments, tangible equity as a base component, not equity as defined by GAAP. Although reported earnings and return on equity are traditional measures of a company's performance, we believe that the change in tangible equity, or "cash earnings," and related return measures are also a significant measure of a company's performance. Cash earnings exclude the effects of various non-cash expenses, such as the amortization for the allocation of ESOP stock and the amortization of goodwill. In the case of tangible equity, these items have either been previously charged to equity, as in the case of ESOP charges, through a contra-equity account, or do not affect tangible equity, such as the market appreciation of allocated ESOP shares, for which the operating charge is offset by a credit to additional paid-in capital, and goodwill amortization, for which the related intangible asset has already been deducted in the calculation of tangible equity. The following comparisons exclude the $2.3 million, after-tax, charge for the cumulative effect of accounting change for the nine months ended September 30, 2001 and the net gain on the disposition of banking offices of $2.4 million, after tax, for the nine months ended September 30, 2000. For the three months ended September 30, 2001, operating cash earnings totaled $62.8 million, compared to $60.4 million for the three months ended September 30, 2000. For the nine months ended September 30, 2001, operating cash earnings totaled $189.7 million, compared to $182.5 million for the nine months ended September 30, 2000. Operating cash return on average tangible stockholders' equity was 17.94% for the three months ended September 30, 2001 and 21.87% for the three months ended September 30, 2000. Operating cash return on average assets was 1.11% for the three months ended September 30, 2001 and 1.09% for the three months ended September 30, 2000. For the nine months ended September 30, 2001, the operating cash return on average tangible stockholders' equity was 18.26%, as compared to 23.53% for the nine months ended September 30, 2000. The operating cash return on average assets was 1.13% for the nine months ended September 30, 2001 and 1.09% for the nine months ended September 30, 2000. Additionally, the operating cash general and administrative expense (general and administrative expense, excluding non-cash amortization expense relating to certain employee stock plans) to average assets ratio decreased to 0.74% for the three months ended September 30, 2001, from 0.75% for the three months ended September 30, 2000. For each of the nine month periods ended September 30, 2001 and 2000, the cash general and administrative expense to average assets ratio was 0.76%. The operating cash efficiency ratio was 29.61% for the three months ended September 30, 2001 and 29.18% for the three months ended September 30, 2000. The operating cash efficiency ratio was 29.60% for the nine months ended September 30, 2001 versus 29.26% for the nine months ended September 30, 2000. For more details on operating earnings and operating cash earnings, see "Consolidated Schedules of Operating Earnings and Operating Cash Earnings" on page 34. 33 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF OPERATING EARNINGS AND OPERATING CASH EARNINGS - ------------------------------------------------------------------------ (In Thousands, Except Per Share Data)
For The For The Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------- 2001 2000 2001 2000 --------------------------------------------------- Net income $ 56,452 $ 53,689 $ 168,053 $165,046 Add back: Cumulative effect of accounting change, net of tax -- - 2,294 -- Less: Net gain on disposition of banking offices, net of tax - - - 2,434 --------- --------- ------------ -------- Operating earnings 56,452 53,689 170,347 162,612 Preferred dividends declared (1,500) (1,500) (4,500) (4,500) --------- --------- ------------ -------- Operating earnings available to common shareholders $ 54,952 $ 52,189 $ 165,847 $158,112 ========= ========= ============ ======== Basic operating earnings per common share (1) $ 1.22 $ 1.09 $ 3.61 $ 3.28 ========= ========= ============ ======== Diluted operating earnings per common share (1) $ 1.20 $ 1.07 $ 3.54 $ 3.23 ========= ========= ============ ======== Operating earnings $ 56,452 $ 53,689 $ 170,347 $162,612 Add back: Employee stock plans amortization expense 1,564 1,839 4,874 5,378 Amortization of goodwill 4,811 4,824 14,432 14,472 --------- --------- ------------ -------- Operating cash earnings 62,827 60,352 189,653 182,462 Preferred dividends declared (1,500) (1,500) (4,500) (4,500) --------- --------- ------------ -------- Operating cash earnings available to common shareholders $ 61,327 $ 58,852 $ 185,153 $177,962 ========= ========= ============ ======== Basic operating cash earnings per common share (1) $ 1.36 $ 1.23 $ 4.03 $ 3.69 ========= ========= ============ ======== Diluted operating cash earnings per common share (1) $ 1.34 $ 1.21 $ 3.95 $ 3.63 ========= ========= ============ ========
(1) Per share data has not been adjusted to reflect the two-for-one stock split occurring on December 3, 2001. 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, maintaining sound credit standards for new loan originations and a generally stable real estate market, have resulted in a steady reduction in non-performing assets to total assets from December 31, 1995 through September 30, 2001. Through a variety of strategies, including but not limited to borrower workout arrangements and aggressive marketing of foreclosed properties, we have been proactive in addressing problem and non-performing assets which, in turn, has helped strengthen our financial condition. Non-performing assets decreased from $40.0 million at December 31, 2000 to $37.0 million at September 30, 2001. The ratio of non-performing assets to total assets decreased from 0.18% at December 31, 2000 to 0.16% at September 30, 2001. The table on page 35 shows a comparison of delinquent loans as of September 30, 2001 and December 31, 2000. 34
Delinquent Loans ---------------- At September 30, 2001 At December 31, 2000 -------------------------------------------- ---------------------------------------------- 60-89 Days 90 Days or More 60-89 Days 90 Days or More -------------------- --------------------- ---------------------- --------------------- Number Principal Number Principal Number Principal Number Principal (Dollars of Balance of Balance of Balance of Balance in Thousands) Loans of Loans Loans of Loans Loans of Loans Loans of Loans -------------------- --------------------- --------------------- -------------------- One-to-four family............ 23 $ 993 220 $30,392 31 $1,459 284 $32,529 Multi-family.................. -- -- 2 595 -- -- 2 990 Commercial real estate........ 4 628 2 1,637 2 791 3 1,765 Consumer and other loans...... 88 553 107 878 125 728 99 903 ---- ------ --- ------- --- ------ ---- ------- Total delinquent loans........ 115 $2,174 331 $33,502 158 $2,978 388 $36,187 === ===== === ====== === ===== === ====== Delinquent loans to total loans....................... 0.02% 0.28% 0.03% 0.32%
The following table sets forth information regarding non-performing assets at September 30, 2001 and December 31, 2000. In addition to the non-performing loans, we had approximately $2.2 million of potential problem loans at September 30, 2001 and $3.0 million at December 31, 2000. Such loans are 60-89 days delinquent as shown above. Non-Performing Assets ---------------------
At At September 30, December 31, 2001 2000 ------------- ------------ (Dollars in Thousands) Non-accrual delinquent mortgage loans (1)......................................... $31,427 $34,332 Non-accrual delinquent consumer and other loans................................... 878 903 Mortgage loans delinquent 90 days or more and still accruing interest (2).................................................... 1,197 952 --------- -------- Total non-performing loans................................................... 33,502 36,187 Real estate owned, net (3)........................................................ 3,456 3,801 --------- -------- Total non-performing assets.................................................. $36,958 $39,988 ========= ======== Allowance for loan losses to non-performing loans.................................... 244.78% 220.88% Allowance for loan losses to total loans............................................. 0.68% 0.70%
(1) Consists primarily of loans secured by one-to-four family properties. (2) Loans delinquent 90 days or more and still accruing interest consist solely of loans delinquent 90 days or more as to their maturity date but not their interest payments and are secured by one-to-four family properties. (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 costs to sell. 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 $1.9 million for the nine months ended September 30, 2001 and $2.9 million for the year ended December 31, 2000. Actual payments recorded to interest income, with respect to such loans, totaled $1.1 million 35 for the nine months ended September 30, 2001 and $1.6 million for the year ended December 31, 2000. Excluded from non-performing assets are restructured loans that have complied with the terms of their restructure agreement for a satisfactory period and have, therefore, been returned to performing status. Restructured loans that are in compliance with their restructured terms totaled $4.8 million at September 30, 2001 and $5.2 million at December 31, 2000. The following table sets forth the change in allowance for loan losses. (In Thousands)
Allowance for Loan Losses: Balance at December 31, 2000............................................................. $79,931 Provision charged to operations.................................................... 3,026 Charge-offs: One-to-four family......................................................... (368) Consumer and other......................................................... (1,235) ---------- Total charge-offs.................................................................. (1,603) ---------- Recoveries: One-to-four family......................................................... 118 Commercial................................................................. 9 Consumer and other......................................................... 524 --------- Total recoveries................................................................... 651 --------- Total net charge-offs.............................................................. (952) ---------- Balance at September 30, 2001................................................................ $82,005 ==========
RECENT TERRORIST ATTACK ON THE WORLD TRADE CENTER On September 11, 2001, a severe terrorist attack destroyed several buildings in the New York City financial district, most notably both the north and south towers of the World Trade Center. As a result of this attack, many local businesses have been significantly disrupted. Our retail banking and lending operations were not disrupted by these events. We do not have significant real estate lending or other operations in the immediate area of the attack. This event has not had, to date, a material adverse impact on our financial condition or results of operations. We expect that any possible future impact caused by this event will result from its impact on overall economic conditions, nationally and locally, and its effect on the actions of our customers. IMPACT OF NEW AND PROPOSED ACCOUNTING STANDARDS In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations," or SFAS No. 141, and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," or SFAS No. 142. SFAS No. 141 requires that all business combinations in the scope of SFAS No. 141 are to be accounted for using one method, the purchase method, and that goodwill and other intangible assets acquired in a 36 business combination shall be accounted for in accordance with the provisions of SFAS No. 142. SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. Previously, goodwill and other intangible assets were amortized in determining net income. SFAS No. 142 assumes goodwill has an indefinite useful life and should not be amortized, but rather tested, at least annually, for impairment. SFAS No. 142 also provides specific guidance for testing goodwill for impairment. The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001. SFAS No. 142 is applicable to fiscal years beginning after December 15, 2001 and is required to be applied at the beginning of an entity's fiscal year to all goodwill and other intangible assets recognized in its financial statements at that date. Impairment losses for goodwill and indefinite-lived intangible assets that arise due to the initial application of SFAS No. 142 are to be reported as resulting from a change in accounting principle. We do not expect to recognize impairment losses upon adoption of SFAS No. 142. Effective January 1, 2002, we will cease recording goodwill amortization amounting to approximately $19.1 million annually, or approximately $0.42 per diluted common share, based on diluted weighted average common and common equivalent shares outstanding for the three months ended September 30, 2001. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, are to be applied prospectively. We do not believe that there will be a material impact on our financial condition or results of operations upon adoption of SFAS No. 144. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For a description of our quantitative and qualitative disclosures about market risk, see the information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Sensitivity Analysis." PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS With respect to the case entitled Astoria Federal Savings and Loan Association vs. United States, or the Astoria Goodwill Litigation, which is pending in the United States Court of Federal Claims, we previously reported that expert discovery resumed in the Astoria Goodwill Litigation on or about May 3, 2001 and is continuing. With respect to the case entitled The Long Island Savings Bank, FSB et al. vs. The United States, or the LISB Goodwill Litigation, which is also pending in the United States Court of Federal Claims, the Government, on or about April 4, 2001, filed a motion of summary judgment with respect to the counterclaims set forth in its answer. We cross moved for 37 summary judgment with respect to such counterclaims on May 2, 2001. These motions have been briefed and are currently pending before the Court. Based upon our review of these decisions and other decisions rendered in the Winstar related cases, we are unable to predict with any degree of certainty the outcome of our claims against the United States and the amount of damages that may be awarded in connection with either the LISB Goodwill Litigation or the Astoria Goodwill Litigation, if any. No assurance can be given as to the results of these claims or the timing of any proceedings in relation hereto. With respect to the litigation entitled Ronnie Weil also known as Ronnie Moore, for Herself and on Behalf of all Other Persons Who Obtained Mortgage Loans from The Long Island Savings Bank, FSB during the period January 1, 1983 through December 31, 1992 vs. The Long Island Savings Bank, FSB, et al., the Court by order dated May 7, 2001, granted Plaintiff's Class Action Motion and denied defendants' request that Plaintiff's co-counsel be disqualified. The Order certified a class consisting of all persons who obtained mortgage loans from the Long Island Savings Bank, FSB, or LISB, during the period January 1, 1983 through December 31, 1992 and paid LISB's attorneys' fees in connection with such mortgages. On May 24, 2001, Astoria Federal filed a Petition for Permission to Appeal with the United States Court of Appeals for the Second Circuit. The determination of the Second Circuit regarding this petition is pending. On September 14, 2001, the Plaintiffs moved the Court to approve procedures to be utilized to notify putative class members of the pendency of the action and to provide an opportunity to opt out of participation in the class. Oral arguments on the motion were held on October 18, 2001. The motion remains pending before the Court. For further information regarding legal proceedings see Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2000 and Part II, Item 1 of our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2001 and March 31, 2001. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable ITEM 5. OTHER INFORMATION Not applicable 38 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 11. Statement Regarding Computation of Per Share Earnings. (b) Reports on Form 8-K 1. Report on Form 8-K dated August 27, 2001 which includes a written presentation of financial results and trends through the period ended June 30, 2001 which was made available to interested investors, and a press release dated August 27, 2001 which incorporates earnings guidance for 2001 and 2002. 2. Report on Form 8-K dated September 17, 2001 which includes a press release dated September 17, 2001 announcing our eighth stock repurchase program. 39 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Astoria Financial Corporation Dated: November 14, 2001 By: /s/Monte N. Redman -------------------- -------------------------------- Monte N. Redman Executive Vice President and Chief Financial Officer (Principal Accounting Officer) 40 Exhibit Index Exhibit No. Identification of Exhibit - ----------- ------------------------- 11 Statement Regarding Computation of Per Share Earnings 41 EX-11 3 y54838ex11.txt STATEMENT REGARDING COMPUTATION EXHIBIT 11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Nine Months Ended September 30, 2001 ------------------------ (In Thousands, Except Per Share Data) 1. Net Income $168,053 Less: Preferred stock dividends declared 4,500 -------- Net income available to common shareholders $163,553 ======== 2. Weighted average common shares outstanding 48,704 3. ESOP shares not committed to be released 2,778 -------- 4. Total weighted average common shares outstanding 45,926 ======== 5. Basic earnings per common share $ 3.56 ======== 6. Total weighted average common shares outstanding 45,926 7. Dilutive effect of stock options using the treasury stock method 905 -------- 8. Total average common and common equivalent shares 46,831 ======== 9. Diluted earnings per common share $ 3.49 ========
Share data and per share data have not been adjusted to reflect the two-for-one stock split occurring on December 3, 2001. 42 -----END PRIVACY-ENHANCED MESSAGE-----