-----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, HBdVMoSIJHAiZCQ0heMbyUomeHeVU8AAB2U0u4wxPlKQed0SeGHZPmcovBb1/mK/ UN/P4cqKkApKlDL3QZAc0w== 0000950123-02-007629.txt : 20020809 0000950123-02-007629.hdr.sgml : 20020809 20020809123106 ACCESSION NUMBER: 0000950123-02-007629 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASTORIA FINANCIAL CORP CENTRAL INDEX KEY: 0000910322 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 113170868 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11967 FILM NUMBER: 02724203 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 y62848e10vq.txt ASTORIA FINANCIAL CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 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, July 31, 2002 - ----------------------- ------------------------------------------- .01 Par Value 88,654,038 ------------- ---------- PART I -- FINANCIAL INFORMATION
Page ---- Item 1. Financial Statements (Unaudited): Consolidated Statements of Financial Condition at June 30, 2002 2 and December 31, 2001 Consolidated Statements of Income for the Three and Six Months 3 Ended June 30, 2002 and June 30, 2001 Consolidated Statement of Changes in Stockholders' Equity for the 4 Six Months Ended June 30, 2002 Consolidated Statements of Cash Flows for the Six Months Ended 5 June 30, 2002 and June 30, 2001 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 32
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 35 Item 2. Changes in Securities and Use of Proceeds 35 Item 3. Defaults Upon Senior Securities 35 Item 4. Submission of Matters to a Vote of Security Holders 36 Item 5. Other Information 36 Item 6. Exhibits and Reports on Form 8-K 36 Signatures 37
1 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
AT AT JUNE 30, DECEMBER 31, (In Thousands, Except Share Data) 2002 2001 - ----------------------------------------------------------------------------------------------------------------- ASSETS: Cash and due from banks $ 176,241 $ 144,694 Federal funds sold and repurchase agreements 603,819 1,309,164 Available-for-sale securities: Encumbered 2,245,197 3,176,977 Unencumbered 359,361 372,206 - ----------------------------------------------------------------------------------------------------------------- 2,604,558 3,549,183 Held-to-maturity securities, fair value of $5,008,153 and $4,468,200, respectively: Encumbered 4,725,552 4,201,503 Unencumbered 220,846 262,425 - ----------------------------------------------------------------------------------------------------------------- 4,946,398 4,463,928 Federal Home Loan Bank of New York stock, at cost 225,473 250,450 Loans held-for-sale 18,917 43,390 Loans receivable: Mortgage loans, net 12,221,223 11,924,134 Consumer and other loans, net 298,870 243,127 - ----------------------------------------------------------------------------------------------------------------- 12,520,093 12,167,261 Allowance for loan losses (83,605) (82,285) - ----------------------------------------------------------------------------------------------------------------- Total loans receivable, net 12,436,488 12,084,976 Mortgage servicing rights, net 33,261 35,295 Accrued interest receivable 95,505 96,273 Premises and equipment, net 152,418 149,753 Goodwill 185,151 185,151 Bank owned life insurance 352,995 242,751 Other assets 147,061 112,698 - ----------------------------------------------------------------------------------------------------------------- Total assets $ 21,978,285 $ 22,667,706 ================================================================================================================= LIABILITIES: Deposits: Savings $ 2,791,019 $ 2,588,143 Money market 1,919,402 1,955,286 NOW 1,261,824 1,199,966 Certificates of deposit 5,265,157 5,160,298 - ----------------------------------------------------------------------------------------------------------------- Total deposits 11,237,402 10,903,693 Reverse repurchase agreements 6,885,000 7,385,000 Federal Home Loan Bank of New York advances 1,664,450 1,914,000 Other borrowings, net 99,168 399,587 Mortgage escrow funds 133,477 116,395 Accrued expenses and other liabilities 249,493 281,445 - ----------------------------------------------------------------------------------------------------------------- Total liabilities 20,268,990 21,000,120 Guaranteed preferred beneficial interest in junior subordinated debentures (capital trust securities) 125,000 125,000 STOCKHOLDERS' EQUITY: Preferred stock, $1.00 par value; 5,000,000 shares authorized: Series A (1,225,000 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; 110,996,592 shares issued; and 88,766,247 and 90,766,744 shares outstanding, respectively) 1,110 1,110 Additional paid-in capital 830,755 822,652 Retained earnings 1,289,560 1,207,742 Treasury stock (22,230,345 and 20,229,848 shares, at cost, respectively) (528,857) (459,471) Accumulated other comprehensive income (loss): Net unrealized gain (loss) on securities, net of taxes 18,426 (1,967) Unallocated common stock held by ESOP (28,699) (29,480) - ----------------------------------------------------------------------------------------------------------------- Total stockholders' equity 1,584,295 1,542,586 - ----------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 21,978,285 $ 22,667,706 =================================================================================================================
See accompanying notes to consolidated financial statements. 2 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE FOR THE THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------- -------- (In Thousands, Except Share Data) 2002 2001 2002 2001 - ----------------------------------------------------------------------------------------------------------------------------------- Interest income: Mortgage loans $ 202,230 $ 203,692 $ 405,028 $ 406,883 Consumer and other loans 4,117 4,470 7,919 9,349 Mortgage-backed securities 97,225 117,729 197,721 245,445 Other securities 19,449 28,498 39,105 60,587 Federal funds sold and repurchase agreements 3,254 8,600 7,392 13,278 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest income 326,275 362,989 657,165 735,542 - ----------------------------------------------------------------------------------------------------------------------------------- Interest expense: Deposits 75,543 104,580 153,770 210,144 Borrowed funds 125,258 140,296 259,890 283,924 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest expense 200,801 244,876 413,660 494,068 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income 125,474 118,113 243,505 241,474 Provision for loan losses 1,002 1,023 2,006 2,025 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 124,472 117,090 241,499 239,449 - ----------------------------------------------------------------------------------------------------------------------------------- Non-interest income: Customer service fees 15,347 12,988 29,278 24,562 Other loan fees 1,558 1,541 3,680 3,034 Loan servicing fees 3,070 4,020 6,303 8,000 Net gain on sales of loans 1,297 1,392 2,846 1,725 Income from bank owned life insurance 5,982 4,304 10,244 8,486 Other 841 1,377 4,058 2,527 - ----------------------------------------------------------------------------------------------------------------------------------- Total non-interest income 28,095 25,622 56,409 48,334 - ----------------------------------------------------------------------------------------------------------------------------------- Non-interest expense: General and administrative: Compensation and benefits 26,289 22,471 52,357 45,578 Occupancy, equipment and systems 13,052 12,971 26,227 25,952 Federal deposit insurance premiums 499 493 1,004 990 Advertising 1,531 1,675 2,558 3,529 Other 8,623 6,826 15,698 13,046 - ----------------------------------------------------------------------------------------------------------------------------------- Total general and administrative 49,994 44,436 97,844 89,095 Net amortization of mortgage servicing rights 3,767 1,836 5,121 4,951 Goodwill litigation 281 852 560 1,873 Capital trust securities 3,105 3,104 6,209 6,208 Amortization of goodwill -- 4,810 -- 9,621 - ----------------------------------------------------------------------------------------------------------------------------------- Total non-interest expense 57,147 55,038 109,734 111,748 - ----------------------------------------------------------------------------------------------------------------------------------- Income before income tax expense and cumulative effect of accounting change 95,420 87,674 188,174 176,035 Income tax expense 31,489 30,489 63,025 62,140 - ----------------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting change 63,931 57,185 125,149 113,895 Cumulative effect of accounting change, net of tax -- -- -- (2,294) - ----------------------------------------------------------------------------------------------------------------------------------- Net income 63,931 57,185 125,149 111,601 Preferred dividends declared (1,500) (1,500) (3,000) (3,000) - ----------------------------------------------------------------------------------------------------------------------------------- Net income available to common shareholders $ 62,431 $ 55,685 $ 122,149 $ 108,601 =================================================================================================================================== Basic earnings per common share: Income before accounting change $ 0.74 $ 0.61 $ 1.44 $ 1.20 Cumulative effect of accounting change, net of tax -- -- -- (0.03) - ----------------------------------------------------------------------------------------------------------------------------------- Net basic earnings per common share $ 0.74 $ 0.61 $ 1.44 $ 1.17 =================================================================================================================================== Diluted earnings per common share: Income before accounting change $ 0.73 $ 0.59 $ 1.41 $ 1.18 Cumulative effect of accounting change, net of tax -- -- -- (0.03) - ----------------------------------------------------------------------------------------------------------------------------------- Net diluted earnings per common share $ 0.73 $ 0.59 $ 1.41 $ 1.15 =================================================================================================================================== Dividends per common share $ 0.20 $ 0.16 $ 0.37 $ 0.29 =================================================================================================================================== Basic weighted average common shares 84,216,057 91,960,376 84,843,610 92,730,590 Diluted weighted average common and common equivalent shares 85,946,408 93,757,020 86,490,683 94,572,576
See accompanying notes to consolidated financial statements. 3 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2002
ADDITIONAL PREFERRED COMMON PAID-IN RETAINED TREASURY (In Thousands, Except Share Data) TOTAL STOCK STOCK CAPITAL EARNINGS STOCK - ------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2001 $ 1,542,586 $2,000 $1,110 $ 822,652 $ 1,207,742 $(459,471) Comprehensive income: Net income 125,149 -- -- -- 125,149 -- Other comprehensive income, net of tax: Net unrealized gain on securities 16,901 -- -- -- -- -- Amortization of unrealized loss on securities transferred to held-to-maturity 3,492 -- -- -- -- -- ----------- Comprehensive income 145,542 ----------- Common stock repurchased (2,665,400 shares) (84,587) -- -- -- -- (84,587) Dividends on common and preferred stock and amortization of purchase premium (34,373) -- -- (652) (33,721) -- Exercise of stock options and related tax benefit (664,903 shares issued) 10,738 -- -- 5,147 (9,610) 15,201 Amortization relating to allocation of ESOP stock 4,389 -- -- 3,608 -- -- - ------------------------------------------------------------------------------------------------------------------- Balance at June 30, 2002 $ 1,584,295 $2,000 $1,110 $ 830,755 $ 1,289,560 $(528,857) ===================================================================================================================
ACCUMULATED UNALLOCATED OTHER COMMON COMPREHENSIVE STOCK (LOSS) HELD (In Thousands, Except Share Data) INCOME BY ESOP - ----------------------------------------------------------------------- Balance at December 31, 2001 $ (1,967) $(29,480) Comprehensive income: Net income -- -- Other comprehensive income, net of tax: Net unrealized gain on securities 16,901 -- Amortization of unrealized loss on securities transferred to held-to-maturity 3,492 -- Comprehensive income Common stock repurchased (2,665,400 shares) -- -- Dividends on common and preferred stock and amortization of purchase premium -- -- Exercise of stock options and related tax benefit (664,903 shares issued) -- -- Amortization relating to allocation of ESOP stock -- 781 - ----------------------------------------------------------------------- Balance at June 30, 2002 $ 18,426 $(28,699) =======================================================================
See accompanying notes to consolidated financial statements. 4 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, ------------------------ (In Thousands) 2002 2001 - --------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 125,149 $ 111,601 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Net accretion of discounts, premiums and deferred loan costs (3,083) (20,604) Net provision for loan and real estate losses 2,006 1,961 Depreciation and amortization 5,462 6,434 Net gain on sales of loans (2,846) (1,725) Proceeds from sales of loans held-for-sale, net of originations 27,319 (20,174) Amortization of goodwill -- 9,621 Cumulative effect of accounting change, net of tax -- 2,294 Amortization of allocated ESOP stock 4,389 3,310 Decrease in accrued interest receivable 768 5,917 Mortgage servicing rights amortization and valuation allowance, net of capitalized amounts 2,034 2,970 Income from bank owned life insurance, net of insurance proceeds received (10,244) (4,178) Increase in other assets (52,650) (7,376) Decrease in accrued expenses and other liabilities (26,805) (95,613) - --------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 71,499 (5,562) - --------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Origination of loans held-for-investment (1,891,187) (1,174,839) Loan purchases through third parties (752,523) (588,867) Principal payments on loans held-for-investment 2,269,757 1,512,278 Principal payments on mortgage-backed securities held-to-maturity 1,340,028 470,828 Principal payments on mortgage-backed securities available-for-sale 986,294 555,676 Purchases of mortgage-backed securities held-to-maturity (1,912,575) (97,884) Purchases of mortgage-backed securities available-for-sale -- (174,098) Purchases of other securities available-for-sale (502) (2,005) Proceeds from maturities of other securities available-for-sale 675 28,165 Proceeds from maturities of other securities held-to-maturity 107,158 383,975 Redemption of FHLB stock 24,977 -- Proceeds from sales of real estate owned, net 2,856 1,844 Purchases of premises and equipment, net of proceeds from sales (8,127) (4,087) Purchase of bank owned life insurance (100,000) -- - --------------------------------------------------------------------------------------------------------------- Net cash provided by investing activities 66,831 910,986 - --------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net increase in deposits 333,709 562,325 Net decrease in reverse repurchase agreements (500,000) (300,000) Net (decrease) increase in FHLB of New York advances (249,550) 54,000 Net decrease in other borrowings (300,000) (203,122) Increase in mortgage escrow funds 17,082 18,064 Cost to repurchase common stock (84,587) (118,375) Cash dividends paid to stockholders (34,373) (31,164) Cash received for options exercised 5,591 15,518 - --------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (812,128) (2,754) - --------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (673,798) 902,670 Cash and cash equivalents at beginning of period 1,453,858 307,251 - --------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 780,060 $ 1,209,921 =============================================================================================================== Supplemental disclosures: Cash paid during the period: Interest $ 424,130 $ 501,102 =============================================================================================================== Income taxes $ 57,246 $ 47,122 =============================================================================================================== Additions to real estate owned $ 1,068 $ 3,450 =============================================================================================================== 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 June 30, 2002 and December 31, 2001, our results of operations for the three and six months ended June 30, 2002 and 2001, changes in our stockholders' equity for the six months ended June 30, 2002 and our cash flows for the six months ended June 30, 2002 and 2001. In preparing the consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities for the consolidated statements of financial condition as of June 30, 2002 and December 31, 2001, and amounts of revenues and expenses in the consolidated statements of income for the three and six months ended June 30, 2002 and 2001. The results of operations for the three and six months ended June 30, 2002 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 period amounts to conform to the current period presentation. These consolidated financial statements should be read in conjunction with our December 31, 2001 audited consolidated financial statements and related notes included in our 2001 Annual Report on Form 10-K. 6 2. EARNINGS PER SHARE, OR EPS The following table is a reconciliation of basic and diluted EPS.
FOR THE THREE MONTHS ENDED JUNE 30, ------------------------------------------------------------------ 2002 2001 ------------------------------------------------------------------ BASIC DILUTED BASIC DILUTED (In Thousands, Except Per Share Data) EPS EPS EPS EPS (1) - --------------------------------------------------------------------------------------------------------------------- Net income $ 63,931 $ 63,931 $57,185 $57,185 Preferred dividends declared (1,500) (1,500) (1,500) (1,500) - --------------------------------------------------------------------------------------------------------------------- Net income available to common shareholders $ 62,431 $ 62,431 $55,685 $55,685 - --------------------------------------------------------------------------------------------------------------------- Total weighted average basic common shares outstanding 84,216 84,216 91,960 91,960 Effect of dilutive securities: Options - 1,730 - 1,797 - --------------------------------------------------------------------------------------------------------------------- Total weighted average diluted common shares outstanding 84,216 85,946 91,960 93,757 - --------------------------------------------------------------------------------------------------------------------- Net earnings per common share $ 0.74 $ 0.73 $ 0.61 $ 0.59 - ---------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, ----------------------------------------------------------------- 2002 2001 ----------------------------------------------------------------- BASIC DILUTED BASIC DILUTED (In Thousands, Except Per Share Data) EPS EPS EPS EPS (1) - -------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting change $ 125,149 $ 125,149 $ 113,895 $ 113,895 Preferred dividends declared (3,000) (3,000) (3,000) (3,000) - -------------------------------------------------------------------------------------------------------------------- 122,149 122,149 110,895 110,895 Cumulative effect of accounting change, net of tax -- -- (2,294) (2,294) - -------------------------------------------------------------------------------------------------------------------- Net income available to common shareholders $ 122,149 $ 122,149 $ 108,601 $ 108,601 ==================================================================================================================== Total weighted average basic common shares outstanding 84,844 84,844 92,731 92,731 Effect of dilutive securities: Options -- 1,647 -- 1,842 - -------------------------------------------------------------------------------------------------------------------- Total weighted average diluted common shares outstanding 84,844 86,491 92,731 94,573 - -------------------------------------------------------------------------------------------------------------------- Earnings per common share: Income before cumulative effect of accounting change $ 1.44 $ 1.41 $ 1.20 $ 1.18 Cumulative effect of accounting change, net of tax -- -- (0.03) (0.03) - -------------------------------------------------------------------------------------------------------------------- Net earnings per common share $ 1.44 $ 1.41 $ 1.17 $ 1.15 ====================================================================================================================
(1) Options to purchase 514,304 shares of common stock at prices between $28.31 per share and $29.88 per share were outstanding as of June 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 three and six months ended June 30, 2001. 7 3. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." 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 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. Effective January 1, 2002, we ceased recording goodwill amortization amounting to approximately $19.1 million annually, or approximately $0.21 per diluted common share, based on diluted weighted average common and common equivalent shares outstanding for the year ended December 31, 2001. Upon adoption of SFAS No. 142, we performed a transitional goodwill impairment evaluation. We identified a single reporting unit, for purposes of our goodwill impairment testing, and determined the fair value of this reporting unit to be in excess of its carrying value. As such, at the date of our adoption of SFAS No. 142, there was no indication of goodwill impairment. The following table reconciles reported net income and earnings per share to net income and earnings per share excluding the amortization of goodwill.
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------------------------------------------------------ (In Thousands, Except Per Share Data) 2002 2001 2002 2001 - --------------------------------------------------------------------------------------------------------------- Net income: Reported net income $ 63,931 $ 57,185 $ 125,149 $ 111,601 Add back: goodwill amortization -- 4,810 -- 9,621 - --------------------------------------------------------------------------------------------------------------- Adjusted net income $ 63,931 $ 61,995 $ 125,149 $ 121,222 =============================================================================================================== Basic earnings per common share: Reported net income $ 0.74 $ 0.61 $ 1.44 $ 1.17 Goodwill amortization -- 0.05 -- 0.10 - --------------------------------------------------------------------------------------------------------------- Adjusted net income $ 0.74 $ 0.66 $ 1.44 $ 1.27 =============================================================================================================== Diluted earnings per common share: Reported net income $ 0.73 $ 0.59 $ 1.41 $ 1.15 Goodwill amortization -- 0.05 -- 0.10 - --------------------------------------------------------------------------------------------------------------- Adjusted net income $ 0.73 $ 0.64 $ 1.41 $ 1.25 ===============================================================================================================
In addition to the changes in the accounting and disclosure requirements for goodwill, SFAS No. 142 also requires additional disclosures related to other intangible assets, including mortgage servicing rights, or MSR. MSR, net totaled $33.3 million at June 30, 2002 and $35.3 million at December 31, 2001. MSR amortization totaled $1.9 million for the three months ended June 30, 2002 and $4.0 million for the six months ended June 30, 2002. As of June 30, 2002, estimated future MSR amortization through 2007 is as follows: $4.1 million for the remainder of 2002, $7.5 million for 2003, $5.9 million for 2004, $4.6 million for 2005, $3.6 million for 2006 and $2.8 million for 2007. Actual results may vary depending upon the level of repayments on the loans currently serviced. 8 In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which replaced 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 were effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, were to be applied prospectively. The adoption of SFAS No. 144 did not have a material impact on our financial condition or results of operations. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," which required gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. Upon adoption of SFAS No. 145, companies will be required to apply the criteria in Accounting Principles Board, or APB, Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" in determining the classification of gains and losses resulting from the extinguishment of debt. Upon adoption, companies must reclassify prior period items that do not meet the extraordinary item classification criteria in APB Opinion No. 30. Additionally, SFAS No. 145 amends SFAS No. 13, "Accounting for Leases," to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 are effective for fiscal years beginning after May 15, 2002. All other provisions of SFAS No. 145 are effective for transactions occurring and/or financial statements issued on or after May 15, 2002. The implementation of SFAS No. 145 provisions, which were effective May 15, 2002, did not have a material impact on our financial condition or results of operations. The implementation of the remaining provisions is not expected to have a material impact on our financial condition or results of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q contains a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may be identified by the use of the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "outlook," "plan," potential," "predict," "project," "should," "will," "would" and similar terms and phrases, including references to assumptions. Forward-looking statements are based on various assumptions and analyses made by us in light of our management's experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate under the circumstances. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors (many of which are beyond our control) that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These factors include, without limitation, the following: - the timing and occurrence or non-occurrence of events may be subject to circumstances beyond our control; 9 - there may be increases in competitive pressure among financial institutions or from non-financial institutions; - changes in the interest rate environment may reduce interest margins; - changes in deposit flows, loan demand or real estate values may adversely affect our business; - changes in accounting principles, policies or guidelines may cause our financial condition to be perceived differently; - general economic conditions, either nationally or locally in some or all areas in which we do business, or conditions in the securities markets or the banking industry may be less favorable than we currently anticipate; - legislation or regulatory changes may adversely affect our business; - technological changes may be more difficult or expensive than we anticipate; - success or consummation of new business initiatives may be more difficult or expensive than we anticipate; or - litigation or other matters before regulatory agencies, whether currently existing or commencing in the future, may delay the occurrence or non-occurrence of events longer than we anticipate. We have no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document. CRITICAL ACCOUNTING POLICIES Note 1 to our Audited Consolidated Financial Statements for the year ended December 31, 2001 included in our Annual Report on Form 10-K for the year ended December 31, 2001, as supplemented by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 and this report, contains a summary of our significant accounting policies. We believe our policies with respect to the methodology for our determination of the allowance for loan losses, the valuation of mortgage servicing rights and asset impairment judgments, including the recoverability of goodwill and other than temporary declines in the value of our securities, involve a higher degree of complexity and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could cause reported results to differ materially. These critical policies and their application are periodically reviewed with the Audit Committee and our Board of Directors. GENERAL We are a Delaware corporation organized as the unitary savings and loan association holding company of Astoria Federal. We are headquartered in Lake Success, New York and our primary business is the operation of our wholly-owned subsidiary, Astoria Federal. Astoria Federal's principal business is attracting retail deposits from the general public and investing those deposits, together with funds generated from operations, principal repayments on loans and securities, and borrowed funds, primarily in one-to-four family mortgage loans and mortgage-backed securities, and, to a lesser extent, multi-family mortgage loans and commercial real estate loans. To a much smaller degree, we also invest in construction loans and consumer and other loans. In addition, Astoria Federal invests in U.S. Government and federal agency securities and other investments permitted by federal laws and regulations. 10 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, prior to January 1, 2002, 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 contractual agreements with The Treiber Group LLC and IFS Agencies, Inc., AF Insurance Agency, Inc. provides insurance products to the customers of Astoria Federal. Astoria Capital Trust I was formed in 1999 for the purpose of issuing $125.0 million aggregate liquidation amount of 9.75% Capital Securities due November 1, 2029 and prepayable at our option on or after November 1, 2009. 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 $4.70 billion for the six months ended June 30, 2002 and $2.95 billion for the six months ended June 30, 2001. During the year ended December 31, 2001, the Federal Open Market Committee, or FOMC, reduced the federal funds rate on eleven separate occasions by a total of 475 basis points, resulting in a lower interest rate environment during the first half of 2002 compared to the same period in 2001. The increase in loan and security repayments was primarily the result of the increase in mortgage loan refinance activity caused by this lower interest rate environment. Net cash provided by operating activities totaled $71.5 million during the six months ended June 30, 2002. During the six months ended June 30, 2001, net cash used in operating activities totaled $5.6 million. During the six months ended June 30, 2002, net borrowings decreased $1.05 billion, while net deposits increased $333.7 million. During the six months ended June 30, 2001, net borrowings decreased $447.4 million, while net deposits increased $562.3 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 toward lower costing and less interest rate sensitive core deposits, consisting of savings, money market and NOW accounts. The net increases in deposits for the six months ended June 30, 2002 and 2001 reflect our continued emphasis on attracting customer deposits through competitive rates, extensive product offerings and quality service. Despite increased local competition for checking accounts, we have been successful in increasing the number of NOW accounts opened in 2002 due in large part to a carefully integrated checking account promotion initiated in the second quarter of 2002 and our "PEAK Process," an interactive, disciplined sales and service approach, which we introduced in the first quarter of 2002. 11 Our primary use of funds is for the origination and purchase of mortgage loans. During the six months ended June 30, 2002, our gross originations and purchases of mortgage loans totaled $2.71 billion, compared to $1.85 billion during the six months ended June 30, 2001. This increase was primarily attributable to the lower interest rate environment during the first half of 2002 compared to the first half of 2001, which resulted in an increase in mortgage refinance activity. Our loan originations and purchases have outpaced the increased level of repayments during the six months ended June 30, 2002, resulting in an overall increase in our loan portfolio from December 31, 2001 to June 30, 2002. For the first half of 2002, cash flow in excess of mortgage and other loan fundings and excess liquidity at December 31, 2001 were primarily utilized for the purchase of mortgage-backed securities and the repayment of borrowings. Purchases of mortgage-backed securities totaled $1.91 billion and purchases of other securities totaled $502,000 during the six months ended June 30, 2002. In addition, we paid off $1.05 billion of borrowings during the same period. During the six months ended June 30, 2001 purchases of mortgage-backed securities totaled $272.0 million, purchases of other securities totaled $2.0 million, and net borrowings decreased by $447.4 million. The rapid decline in interest rates in 2001 resulted in a significant increase in loan and mortgage-backed securities repayments which has continued during the first half of 2002. Should the pace of repayment activity remain at its recent levels and cash inflows continue to exceed mortgage and other loan fundings, we will continue to purchase mortgage-backed securities and consider a further reduction in our borrowings outstanding, as we have done in the latter half of 2001 and through the first half of 2002. If repayment activity declines in the future, we will likely reduce our purchases of mortgage-backed securities and/or reduce the repayment of borrowings. This activity is consistent with our strategy of repositioning the balance sheet with an emphasis on mortgage lending and utilization of core deposits to fund our investing activities. We maintain liquidity levels to meet our operational needs in the normal course of our business. The levels of our liquid assets during any given period are dependent on our operating, investing and financing activities. Cash and due from banks and federal funds sold and repurchase agreements, our most liquid assets, totaled $780.1 million at June 30, 2002, compared to $1.45 billion at December 31, 2001. The decrease in our liquidity was primarily the result of the repayment of $1.05 billion of borrowings, with a weighted average rate of 7.01%, which matured during the six months ended June 30, 2002. Borrowings maturing in the second half of 2002 total $750.5 million with a weighted average rate of 6.53%. We have the flexibility to either repay or rollover such borrowings as they mature. In addition, we have $1.46 billion in certificates of deposit with a weighted average rate of 3.11% maturing in the second half of 2002. We expect to retain a significant portion of such deposits based on our competitive pricing and historical experience. Retained deposits and refinanced borrowings during the remainder of 2002 should carry lower weighted average rates than those they replace, assuming that interest rates remain at or near their current levels. The most significant liquidity challenge we face is the variability in cash flows as a result of mortgage refinance activity. As mortgage interest rates decline, customers' refinance activities tend to accelerate, causing the cash flow from both our mortgage loan portfolio and our mortgage-backed securities portfolio to accelerate. When mortgage interest rates increase, the opposite effect tends to occur. In addition, as mortgage interest rates decrease, customers generally tend to prefer fixed rate mortgage loan products over variable rate products. Since we generally sell our fifteen year and thirty year fixed rate loan production into the secondary 12 mortgage market, the origination of such products for sale does not significantly reduce our liquidity. Stockholders' equity increased to $1.58 billion at June 30, 2002 from $1.54 billion at December 31, 2001. The increase in stockholders' equity was the result of net income of $125.1 million, net unrealized gains on securities, net of tax, of $20.4 million, the effect of stock options exercised and related tax benefit of $10.7 million and the amortization of the allocated portion of shares held by the employee stock ownership plan, or ESOP, of $4.4 million. These increases were partially offset by repurchases of our common stock of $84.6 million and dividends declared of $34.4 million. On June 3, 2002, we paid a quarterly cash dividend of $0.20 per share on shares of our common stock outstanding as of the close of business on May 15, 2002, totaling $16.8 million. During the three months ended June 30, 2002, we declared a cash dividend on our Series B Preferred Stock aggregating $1.5 million. On July 17, 2002, we declared a quarterly cash dividend of $0.20 per share on shares of our common stock payable on September 3, 2002 to stockholders of record as of the close of business on August 15, 2002. On September 17, 2001, our Board of Directors approved our eighth stock repurchase plan authorizing the purchase, at management's discretion, of 10,000,000 shares, or approximately 11% of our common stock then outstanding, over a two year period in open-market or privately negotiated transactions. During the six months ended June 30, 2002, we repurchased 2,665,400 shares of our common stock at an aggregate cost of $84.6 million. In total, 5,700,000 shares have been purchased under the eighth stock repurchase plan. At June 30, 2002, Astoria Federal's capital levels exceeded all of its regulatory capital requirements with a tangible capital ratio of 6.70%, leverage capital ratio of 6.70% and risk-based capital ratio of 14.74%. The minimum regulatory requirements are a tangible capital ratio of 1.50%, leverage capital ratio of 4.00% and risk-based capital ratio of 8.00%. 13 LOAN PORTFOLIO The following table sets forth the composition of our loans receivable and loans held-for-sale portfolios at June 30, 2002 and December 31, 2001.
AT JUNE 30, 2002 AT DECEMBER 31, 2001 --------------------------------------------------------- PERCENT PERCENT (Dollars in Thousands) AMOUNT OF TOTAL AMOUNT OF TOTAL - ----------------------------------------------------------------------------------------------------------- MORTGAGE LOANS (1): One-to-four family $10,102,597 81.09% $ 10,146,555 83.63% Multi-family 1,331,009 10.68 1,094,312 9.02 Commercial real estate 676,108 5.43 598,334 4.93 Construction 53,593 0.43 50,739 0.42 - ----------------------------------------------------------------------------------------------------------- Total mortgage loans 12,163,307 97.63 11,889,940 98.00 - ----------------------------------------------------------------------------------------------------------- CONSUMER AND OTHER LOANS (2): Home equity 246,622 1.98 189,259 1.56 Passbook 8,635 0.07 9,012 0.07 Other 39,566 0.32 43,821 0.37 - ----------------------------------------------------------------------------------------------------------- Total consumer and other loans 294,823 2.37 242,092 2.00 - ----------------------------------------------------------------------------------------------------------- TOTAL LOANS 12,458,130 100.00% 12,132,032 100.00% Net unamortized premiums and deferred loan costs 80,880 78,619 Allowance for loan losses (83,605) (82,285) - ----------------------------------------------------------------------------------------------------------- TOTAL LOANS, NET $12,455,405 $ 12,128,366 ===========================================================================================================
(1) Includes loans classified as held-for-sale totaling $18.0 million at June 30, 2002 and $41.5 million at December 31, 2001. (2) Includes loans classified as held-for-sale totaling $940,000 at June 30, 2002 and $1.9 million at December 31, 2001. 14 SECURITIES PORTFOLIO The following table sets forth the amortized cost and estimated fair value of mortgage-backed securities and other securities available-for-sale and held-to-maturity at June 30, 2002 and December 31, 2001.
AT JUNE 30, 2002 AT DECEMBER 31, 2001 --------------------------------------------------------------- ESTIMATED ESTIMATED AMORTIZED FAIR AMORTIZED FAIR (In Thousands) COST VALUE COST VALUE - ------------------------------------------------------------------------------------------------------------------ AVAILABLE-FOR-SALE: Mortgage-backed securities: Agency pass-through certificates $ 367,812 $ 380,460 $ 450,742 $ 462,748 REMICs and CMOs: Agency issuance 827,768 839,972 1,402,241 1,402,093 Non-agency issuance 803,991 822,315 1,132,384 1,150,122 - ------------------------------------------------------------------------------------------------------------------ Total mortgage-backed securities 1,999,571 2,042,747 2,985,367 3,014,963 - ------------------------------------------------------------------------------------------------------------------ Other securities: Obligations of the U.S. Government and agencies 375,701 381,208 362,888 359,561 FNMA and FHLMC preferred stock 120,015 113,992 120,015 111,276 Corporate debt and other securities 68,054 66,611 68,292 63,383 - ------------------------------------------------------------------------------------------------------------------ Total other securities 563,770 561,811 551,195 534,220 - ------------------------------------------------------------------------------------------------------------------ Total securities available-for-sale $2,563,341 $2,604,558 $3,536,562 $3,549,183 - ------------------------------------------------------------------------------------------------------------------ HELD-TO-MATURITY: Mortgage-backed securities: Agency pass-through certificates $ 30,026 $ 31,614 $ 36,620 $ 37,543 REMICs and CMOs: Agency issuance 2,803,657 2,844,277 2,979,357 2,975,780 Non-agency issuance 1,802,655 1,819,477 1,043,110 1,049,426 - ------------------------------------------------------------------------------------------------------------------ Total mortgage-backed securities 4,636,338 4,695,368 4,059,087 4,062,749 - ------------------------------------------------------------------------------------------------------------------ Other securities: Obligations of the U.S. Government and agencies 267,887 270,609 362,034 362,628 Obligations of states and political subdivisions 42,173 42,176 42,807 42,823 - ------------------------------------------------------------------------------------------------------------------ Total other securities 310,060 312,785 404,841 405,451 - ------------------------------------------------------------------------------------------------------------------ Total securities held-to-maturity $4,946,398 $5,008,153 $4,463,928 $4,468,200 ==================================================================================================================
15 COMPARISON OF FINANCIAL CONDITION AS OF JUNE 30, 2002 AND DECEMBER 31, 2001 AND OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001 FINANCIAL CONDITION Total assets decreased $689.4 million to $21.98 billion at June 30, 2002, from $22.67 billion at December 31, 2001. We continued our strategy of repositioning the balance sheet through increases in deposits and loans and decreases in securities and borrowings. The primary reason for the decrease in total assets was the decrease in federal funds sold and repurchase agreements which were utilized for the repayment of various borrowings which matured during the six months ended June 30, 2002. Mortgage loans, net, including mortgage loans held-for-sale, increased $273.6 million to $12.24 billion at June 30, 2002, from $11.97 billion at December 31, 2001. Gross mortgage loans originated and purchased during the six months ended June 30, 2002 totaled $2.71 billion, of which $1.96 billion were originations and $746.7 million were purchases. This compares to $1.27 billion of originations and $576.5 million of purchases for a total of $1.85 billion during the six months ended June 30, 2001. The increase in mortgage loan originations and purchases was primarily a result of the lower interest rate environment during the first six months of 2002 compared to the first six months of 2001, which has increased the level of mortgage refinance activity. The increase in originations and purchases was partially offset by an increase in mortgage loan repayments to $2.19 billion for the six months ended June 30, 2002, from $1.45 billion for the six months ended June 30, 2001, which was also primarily a result of the lower interest rates in the first half of 2002 over the comparable 2001 period. Our mortgage loan portfolios, as well as our originations and purchases, continue to consist primarily of one-to-four family mortgage loans. Our one-to-four family mortgage loans, which represent 81.1% of our total loan portfolio at June 30, 2002, decreased $44.0 million to $10.10 billion at June 30, 2002, from $10.15 billion at December 31, 2001. This decrease was due primarily to the high level of loan repayments as a result of refinance activity in the prevailing interest rate environment, despite strong loan originations. Our multi-family mortgage loans, which tend to be less susceptible to prepayment, increased $236.7 million to $1.33 billion at June 30, 2002, from $1.09 billion at December 31, 2001. Similarly, our commercial real estate loans increased $77.8 million to $676.1 million at June 30, 2002, from $598.3 million at December 31, 2001. While we continue to be primarily a one-to-four family mortgage lender, we have increased our emphasis on multi-family and commercial real estate loan originations. Our new multi-family and commercial real estate loan originations continue to be similar in size and type to the loans currently in our portfolio and we have not changed our underwriting standards with respect to such loans. Mortgage-backed securities decreased $395.0 million to $6.68 billion at June 30, 2002, from $7.07 billion at December 31, 2001. This decrease was primarily the result of principal payments received of $2.33 billion, partially offset by purchases of $1.91 billion of REMICs and CMOs classified as held-to-maturity and an increase of $13.6 million in the net unrealized gain on securities available-for-sale. 16 In addition to the changes noted above in the mortgage loan and mortgage-backed securities portfolios, other securities decreased $67.2 million to $871.9 million at June 30, 2002, from $939.1 million at December 31, 2001, primarily due to $107.8 million in securities which were called or matured, partially offset by the net accretion of discounts of $25.1 million and a decrease of $15.0 million in the net unrealized loss on securities available-for-sale. The improvement in the market values of our available-for-sale portfolios was related to the decrease in medium term market interest rates that occurred from December 31, 2001 to June 30, 2002. Federal funds sold and repurchase agreements decreased $705.3 million to $603.8 million at June 30, 2002, from $1.31 billion at December 31, 2001. This decrease was primarily attributable to the repayment of $1.05 billion of borrowings which matured during the six months ended June 30, 2002. In addition, Bank Owned Life Insurance, or BOLI, was increased $110.2 million to $353.0 million at June 30, 2002, from $242.8 million at December 31, 2001, primarily as a result of an additional $100.0 million purchase made in the first quarter of 2002. The BOLI is classified as a non-interest earning asset. Consistent with our strategy of repositioning the balance sheet, we also continued shifting our liability emphasis from borrowings to deposits, particularly lower costing core deposits. Deposits increased $333.7 million to $11.24 billion at June 30, 2002, from $10.90 billion at December 31, 2001. The increase in deposits was primarily due to an increase of $228.9 million in core deposits to $5.97 billion at June 30, 2002, from $5.74 billion at December 31, 2001, which was attributable to our continued emphasis on deposit generation through competitive rates, extensive product offerings and quality service. Our certificates of deposit also increased $104.9 million to $5.27 billion at June 30, 2002, from $5.16 billion at December 31, 2001. This increase is reflective of our desire to extend the maturities of our liabilities, which we have been successfully achieving through various product promotions. Reverse repurchase agreements decreased $500.0 million to $6.89 billion at June 30, 2002, from $7.39 billion at December 31, 2001. Federal Home Loan Bank of New York advances decreased $249.6 million to $1.66 billion at June 30, 2002, from $1.91 billion at December 31, 2001. Other borrowings, net, decreased $300.4 million to $99.2 million at June 30, 2002, from $399.6 million at December 31, 2001. The decreases in borrowings reflect management's decision to utilize excess cash flows to repay various borrowings which matured during the six months ended June 30, 2002. Stockholders' equity increased to $1.58 billion at June 30, 2002, from $1.54 billion at December 31, 2001. The increase in stockholders' equity was the result of net income of $125.1 million, net unrealized gains on securities, net of tax, of $20.4 million, the effect of stock options exercised and related tax benefit of $10.7 million and the amortization of the allocated portion of shares held by the ESOP of $4.4 million. These increases were partially offset by repurchases of our common stock of $84.6 million and dividends declared of $34.4 million. RESULTS OF OPERATIONS GENERAL Net income for the three months ended June 30, 2002 increased $6.7 million to $63.9 million, from $57.2 million for the three months ended June 30, 2001. For the three months ended June 30, 2002, diluted earnings per common share increased to $0.73 per share, as compared to 17 $0.59 per share for the three months ended June 30, 2001. Return on average assets increased to 1.16% for the three months ended June 30, 2002, from 1.02% for the three months ended June 30, 2001. Return on average stockholders' equity increased to 16.32% for the three months ended June 30, 2002, from 14.33% for the three months ended June 30, 2001. Return on average tangible stockholders' equity increased to 18.50% for the three months ended June 30, 2002, from 16.36% for the three months ended June 30, 2001. Net income for the six months ended June 30, 2002 increased $13.5 million to $125.1 million, from $111.6 million for the six months ended June 30, 2001. For the six months ended June 30, 2002, diluted earnings per common share increased to $1.41 per share, as compared to $1.15 per share for the six months ended June 30, 2001. Return on average assets increased to 1.12% for the six months ended June 30, 2002, from 1.00% for the six months ended June 30, 2001. Return on average stockholders' equity increased to 16.01% for the six months ended June 30, 2002, from 14.14% for the six months ended June 30, 2001. Return on average tangible stockholders' equity increased to 18.16% for the six months ended June 30, 2002, from 16.19% for the six months ended June 30, 2001. The results of operations for the three and six month periods ended June 30, 2002 include the benefit derived from the adoption of SFAS No. 142. SFAS No. 142 eliminated goodwill amortization, which totaled $4.8 million, or $0.05 per diluted common share, for the three months ended June 30, 2001 and $9.6 million, or $0.10 per diluted common share, for the six months ended June 30, 2001. The results of operations for the six months ended June 30, 2001 also include a $2.3 million, after tax, charge for the cumulative effect of accounting change related to the adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of FASB Statement No. 133," effective January 1, 2001. 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 can be significantly impacted by changes in interest rates and market yield curves. See Item 3, "Quantitative and Qualitative Disclosures About Market Risk," for further discussion of the potential impact of changes in interest rates on our results of operations. For the three months ended June 30, 2002, net interest income increased $7.4 million to $125.5 million, from $118.1 million for the three months ended June 30, 2001. This increase was primarily attributable to an increase in the net interest margin to 2.40% for the three months ended June 30, 2002, from 2.21% for the three months ended June 30, 2001, partially offset by a decrease of $207.7 million in the average balance of net interest-earning assets to $882.2 million for the three months ended June 30, 2002, from $1.09 billion for the three months ended June 30, 2001. The increase in the net interest margin is primarily due to the decrease in the cost of funds due to the downward repricing of deposits as a result of the lower interest rate environment which has persisted since June of 2001, along with the repayment of various higher cost borrowings. The decrease in the average balance of net interest-earning assets was the result of a $407.8 million decrease in the average balance of total interest-earning assets to $20.94 billion for the three months ended June 30, 2002, from $21.34 billion 18 for the three months ended June 30, 2001, partially offset by a $200.1 million decrease in the average balance of total interest-bearing liabilities to $20.05 billion for the three months ended June 30, 2002, from $20.25 billion for the three months ended June 30, 2001. The net interest rate spread increased to 2.22% for the three months ended June 30, 2002, from 1.96% for the three months ended June 30, 2001. The change in the net interest rate spread was the result of a decrease in the average cost of interest-bearing liabilities to 4.01% for the three months ended June 30, 2002, from 4.84% for the three months ended June 30, 2001, partially offset by a decrease in the average yield on interest-earning assets to 6.23% for the three months ended June 30, 2002, from 6.80% for the three months ended June 30, 2001. For the six months ended June 30, 2002, net interest income increased $2.0 million to $243.5 million, from $241.5 million for the six months ended June 30, 2001. This increase was primarily the result of an increase in the net interest margin to 2.31% for the six months ended June 30, 2002, from 2.25% for the six months ended June 30, 2001, partially offset by a decrease of $288.2 million in the average balance of net interest-earning assets to $865.3 million for the six months ended June 30, 2002, from $1.15 billion for the six months ended June 30, 2001. The increase in the net interest margin is primarily due to the decrease in the cost of funds, as previously discussed. The decrease in the average balance of net interest-earning assets was the result of a $316.2 million decrease in the average balance of total interest-earning assets to $21.10 billion for the six months ended June 30, 2002, from $21.42 billion for the six months ended June 30, 2001, partially offset by a $28.0 million decrease in the average balance of total interest-bearing liabilities to $20.24 billion for the six months ended June 30, 2002, from $20.27 billion for the six months ended June 30, 2001. The net interest rate spread increased to 2.14% for the six months ended June 30, 2002, from 1.99% for the six months ended June 30, 2001. The change in the net interest rate spread was the result of a decrease in the average cost of interest-bearing liabilities to 4.09% for the six months ended June 30, 2002, from 4.88% for the six months ended June 30, 2001, partially offset by a decrease in the average yield on interest-earning assets to 6.23% for the six months ended June 30, 2002, from 6.87% for the six months ended June 30, 2001. 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." ANALYSIS OF NET INTEREST INCOME The following tables set forth certain information about the average balances of our assets and liabilities and the related yields and costs for the three and six month periods ended June 30, 2002 and 2001. Average yields are derived by dividing income by the average balance of the related assets and average costs are derived by dividing expense by the average balance of the related liabilities, for the periods shown. Average balances are derived primarily from average daily balances. The average balance of loans receivable includes loans on which we have discontinued accruing interest. The yields and costs include amortization of fees, costs, premiums and discounts which are considered adjustments to interest rates. 19
FOR THE THREE MONTHS ENDED JUNE 30, -------------------------------------------------------------------------------------------- 2002 2001 -------------------------------------------------------------------------------------------- AVERAGE AVERAGE AVERAGE YIELD/ AVERAGE YIELD/ (Dollars in Thousands) BALANCE INTEREST COST BALANCE INTEREST COST - ------------------------------------------------------------------------------------------------------------------------------------ (ANNUALIZED) (ANNUALIZED) ASSETS: Interest-earning assets: Mortgage loans (1): One-to-four family $ 10,259,961 $ 163,449 6.37% $ 9,976,888 $ 174,172 6.98% Multi-family, commercial and construction 1,967,805 38,781 7.88 1,407,856 29,520 8.39 Consumer and other loans (1) 282,510 4,117 5.83 195,510 4,470 9.15 ------------- --------- ------------- ---------- Total loans 12,510,276 206,347 6.60 11,580,254 208,162 7.19 Mortgage-backed securities (2) 6,508,577 97,225 5.98 7,337,926 117,729 6.42 Other securities (2)(3) 1,163,408 19,449 6.69 1,618,634 28,498 7.04 Federal funds sold and repurchase agreements 753,410 3,254 1.73 806,686 8,600 4.26 ------------- --------- ------------- ---------- Total interest-earning assets 20,935,671 326,275 6.23 21,343,500 362,989 6.80 --------- ---------- Non-interest-earning assets 1,192,272 1,021,255 ------------- ------------- Total assets $ 22,127,943 $ 22,364,755 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing liabilities: Savings $ 2,751,167 8,566 1.25 $ 2,477,134 12,471 2.01 Certificates of deposit 5,224,909 56,588 4.33 5,232,180 72,708 5.56 NOW 1,252,742 894 0.29 1,080,284 1,462 0.54 Money market 1,935,305 9,495 1.96 1,667,494 17,939 4.30 ------------- --------- ------------- ---------- Total deposits 11,164,123 75,543 2.71 10,457,092 104,580 4.00 Borrowed funds 8,889,386 125,258 5.64 9,796,500 140,296 5.73 ------------- --------- ------------- ---------- Total interest-bearing liabilities 20,053,509 200,801 4.01 20,253,592 244,876 4.84 --------- --------- Non-interest-bearing liabilities 507,314 515,376 ------------- ------------- Total liabilities 20,560,823 20,768,968 Stockholders' equity 1,567,120 1,595,787 ------------- ------------- Total liabilities and stockholders' equity $ 22,127,943 $ 22,364,755 ============= ============= Net interest income/net interest rate spread $ 125,474 2.22% $ 118,113 1.96% ========= ==== ========== ==== Net interest-earning assets/net interest margin $ 882,162 2.40% $ 1,089,908 2.21% ============= ==== ============= ==== Ratio of interest-earning assets to interest-bearing liabilities 1.04x 1.05x ============= =============
- ---------- (1) Mortgage loans and 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. 20
FOR THE SIX MONTHS ENDED JUNE 30, -------------------------------------------------------------------------------------------- 2002 2001 -------------------------------------------------------------------------------------------- AVERAGE AVERAGE AVERAGE YIELD/ AVERAGE YIELD/ (Dollars in Thousands) BALANCE INTEREST COST BALANCE INTEREST COST - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS: (ANNUALIZED) (ANNUALIZED) Interest-earning assets: Mortgage loans (1): One-to-four family $ 10,328,441 $ 329,958 6.39% $ 9,981,678 $ 349,692 7.01% Multi-family, commercial and construction 1,889,347 75,070 7.95 1,370,319 57,191 8.35 Consumer and other loans (1) 268,858 7,919 5.89 192,087 9,349 9.73 ------------- --------- ------------- ---------- Total loans 12,486,646 412,947 6.61 11,544,084 416,232 7.21 Mortgage-backed securities (2) 6,567,934 197,721 6.02 7,591,708 245,445 6.47 Other securities (2)(3) 1,175,753 39,105 6.65 1,706,803 60,587 7.10 Federal funds sold and repurchase agreements 872,582 7,392 1.69 576,572 13,278 4.61 ------------- --------- ------------- ---------- Total interest-earning assets 21,102,915 657,165 6.23 21,419,167 735,542 6.87 --------- ---------- Non-interest-earning assets 1,200,294 947,877 ------------- ------------- Total assets $ 22,303,209 $ 22,367,044 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing liabilities: Savings $ 2,692,454 16,669 1.24 $ 2,457,518 24,632 2.00 Certificates of deposit 5,187,287 115,527 4.45 5,197,593 146,395 5.63 NOW 1,222,915 1,719 0.28 1,041,815 2,855 0.55 Money market 1,945,914 19,855 2.04 1,594,515 36,262 4.55 ------------- --------- ------------- ---------- Total deposits 11,048,570 153,770 2.78 10,291,441 210,144 4.08 Borrowed funds 9,189,090 259,890 5.66 9,974,227 283,924 5.69 ------------- --------- ------------- ---------- Total interest-bearing liabilities 20,237,660 413,660 4.09 20,265,668 494,068 4.88 --------- ---------- Non-interest-bearing liabilities 502,326 522,356 ------------- ------------- Total liabilities 20,739,986 20,788,024 Stockholders' equity 1,563,223 1,579,020 ------------- ------------- Total liabilities and stockholders' equity $ 22,303,209 $ 22,367,044 ============= ============= Net interest income/net interest rate spread $ 243,505 2.14% $ 241,474 1.99% ========= ==== ========== ==== Net interest-earning assets/net interest margin $ 865,255 2.31% $ 1,153,499 2.25% ========== ==== ============ ==== Ratio of interest-earning assets to interest-bearing liabilities 1.04x 1.06x ===== =====
(1) Mortgage loans and 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. 21 RATE/VOLUME ANALYSIS The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated. Information is provided in each category with respect to (1) the changes attributable to changes in volume (changes in volume multiplied by prior rate), (2) the changes attributable to changes in rate (changes in rate multiplied by prior volume), and (3) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
THREE MONTHS ENDED JUNE 30, 2002 SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO COMPARED TO THREE MONTHS ENDED JUNE 30, 2001 SIX MONTHS ENDED JUNE 30, 2001 INCREASE (DECREASE) INCREASE (DECREASE) (In Thousands) VOLUME RATE NET VOLUME RATE NET - ------------------------------------------------------------------------------------------------------------------------------------ Interest-earning assets: One-to-four family loans $ 4,830 $(15,553) $(10,723) $ 11,887 $(31,621) $(19,734) Multi-family, commercial and construction loans 11,147 (1,886) 9,261 20,738 (2,859) 17,879 Consumer and other loans 1,593 (1,946) (353) 2,992 (4,422) (1,430) Mortgage-backed securities (12,764) (7,740) (20,504) (31,485) (16,239) (47,724) Other securities (7,690) (1,359) (9,049) (17,847) (3,635) (21,482) Federal funds sold and repurchase agreements (535) (4,811) (5,346) 4,902 (10,788) (5,886) - ------------------------------------------------------------------------------------------------------------------------------------ Total (3,419) (33,295) (36,714) (8,813) (69,564) (78,377) - ------------------------------------------------------------------------------------------------------------------------------------ Interest-bearing liabilities: Savings 1,247 (5,152) (3,905) 2,153 (10,116) (7,963) Certificates of deposit (101) (16,019) (16,120) (289) (30,579) (30,868) NOW 201 (769) (568) 438 (1,574) (1,136) Money market 2,522 (10,966) (8,444) 6,741 (23,148) (16,407) Borrowed funds (12,857) (2,181) (15,038) (22,525) (1,509) (24,034) - ------------------------------------------------------------------------------------------------------------------------------------ Total (8,988) (35,087) (44,075) (13,482) (66,926) (80,408) - ------------------------------------------------------------------------------------------------------------------------------------ Net change in net interest income $ 5,569 $ 1,792 $ 7,361 $ 4,669 $ (2,638) $ 2,031 ====================================================================================================================================
INTEREST INCOME Interest income for the three months ended June 30, 2002 decreased $36.7 million to $326.3 million, from $363.0 million for the three months ended June 30, 2001. This decrease was the result of a decrease in the average yield on interest-earning assets to 6.23% for the three months ended June 30, 2002, from 6.80% for the three months ended June 30, 2001, coupled with a decrease of $407.8 million in the average balance of interest-earning assets to $20.94 billion for the three months ended June 30, 2002, from $21.34 billion for the three months ended June 30, 2001. The decrease in the average yield on interest-earning assets was due to the decreases in the average yields on all asset categories, which reflects the lower interest rate environment during the second quarter of 2002 compared to the second quarter of 2001. The decrease in the average balance of 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. Also contributing to the decrease in the average balance of interest-earning assets was the 22 purchase of an additional $100.0 million of BOLI in the first quarter of 2002. The shift in the average balances of interest-earning assets reflects our decision over the past several years to reposition the balance sheet while continuing to emphasize mortgage lending. Interest income on one-to-four family mortgage loans decreased $10.8 million to $163.4 million for the three months ended June 30, 2002, from $174.2 million for the three months ended June 30, 2001, which was primarily the result of a decrease in the average yield to 6.37% for the three months ended June 30, 2002, from 6.98% for the three months ended June 30, 2001, partially offset by a $283.1 million increase in the average balance of such loans. The increase in the average balance of one-to-four family mortgage loans reflects the strong level of originations and purchases, offset in part by the increased level of repayment activity due to refinancings in the prevailing interest rate environment. Interest income on multi-family, commercial real estate and construction loans increased $9.3 million to $38.8 million for the three months ended June 30, 2002, from $29.5 million for the three months ended June 30, 2001, which was primarily the result of a $559.9 million increase in the average balance of such loans, partially offset by a decrease in the average yield to 7.88% for the three months ended June 30, 2002, from 8.39% for the three months ended June 30, 2001. The increase in the average balance of multi-family, commercial real estate and construction loans reflects the increase in originations of such loans, coupled with the fact that we have not experienced significant repayment activity within this portfolio primarily due to the prepayment penalties associated with early repayment of these loans. The increase in the average balance of total mortgage loans reflects our continued emphasis on the origination of mortgage loans. The decrease in the average yields reflects the lower interest rate environment during the second quarter of 2002 as compared to the second quarter of 2001 as higher rate loans are prepaid and replaced with lower yielding new originations and purchases. Interest income on consumer and other loans decreased $353,000 for the three months ended June 30, 2002 compared to the three months ended June 30, 2001 resulting from a decrease in the average yield to 5.83% for the three months ended June 30, 2002, from 9.15% for the three months ended June 30, 2001, partially offset by an increase of $87.0 million in the average balance of this portfolio. The decrease in the average yield on consumer and other loans was primarily the result of a decrease in the average yield on our home equity loans, which represent 83.7% of our consumer and other loan portfolio at June 30, 2002. Home equity loans are adjustable rate loans which generally reset monthly and are indexed to the prime rate. The prime rate decreased 475 basis points during the year ended December 31, 2001 in response to the FOMC rate reductions discussed previously. Interest income on mortgage-backed securities decreased $20.5 million to $97.2 million for the three months ended June 30, 2002, from $117.7 million for the three months ended June 30, 2001. This decrease was the result of a $829.3 million decrease in the average balance of this portfolio, coupled with a decrease in the average yield to 5.98% for the three months ended June 30, 2002, from 6.42% for the three months ended June 30, 2001. The decrease in the average balance of mortgage-backed securities is a result of both our strategy of repositioning the balance sheet and increased levels of principal repayments due to the lower interest rate environment which has existed since June 2001. Interest income on other securities decreased $9.0 million, resulting from a decrease of $455.2 million in the average balance of this portfolio, primarily due to higher yielding securities being called throughout 2001 and 2002 as a result of the declining interest rate environment. As a result of the decrease in the balance of higher yielding securities, the average yield on other securities decreased to 6.69% for the three months ended June 30, 2002, from 7.04% for the three months ended June 30, 2001. 23 Interest income on federal funds sold and repurchase agreements decreased $5.3 million as a result of a decrease in the average yield to 1.73% for the three months ended June 30, 2002, from 4.26% for the three months ended June 30, 2001, coupled with a decrease of $53.3 million in the average balance of the portfolio. Interest income for the six months ended June 30, 2002 decreased $78.3 million to $657.2 million, from $735.5 million for the six months ended June 30, 2001. This decrease was the result of a decrease in the average yield on interest-earning assets to 6.23% for the six months ended June 30, 2002, from 6.87% for the six months ended June 30, 2001, coupled with a decrease of $316.2 million in the average balance of interest-earning assets to $21.10 billion for the six months ended June 30, 2002, from $21.42 billion for the six months ended June 30, 2001. The decrease in the average yield on interest-earning assets was due to the decreases in the average yields on all asset categories, which reflects the lower interest rate environment. The decrease in the average balance of interest-earning assets was primarily due to decreases in the average balances of mortgage-backed securities 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 repurchase agreements. Also contributing to the decrease in the average balance of interest-earning assets was the purchase of an additional $100.0 million of BOLI during the first quarter of 2002. The shift in the average balances of interest-earning assets reflects our decision over the past several years to reposition the balance sheet by emphasizing mortgage lending. Interest income on one-to-four family mortgage loans decreased $19.7 million to $330.0 million for the six months ended June 30, 2002, from $349.7 million for the six months ended June 30, 2001, which was primarily the result of a decrease in the average yield to 6.39% for the six months ended June 30, 2002, from 7.01% for the six months ended June 30, 2001, partially offset by a $346.8 million increase in the average balance of such loans. Interest income on multi-family, commercial real estate and construction loans increased $17.9 million to $75.1 million for the six months ended June 30, 2002, from $57.2 million for the six months ended June 30, 2001, which was primarily the result of a $519.0 million increase in the average balance of such loans, partially offset by a decrease in the average yield to 7.95% for the six months ended June 30, 2002, from 8.35% for the six months ended June 30, 2001. As previously discussed, the increases in the average balances of our mortgage loans and the decreases in the average yields for the six months ended June 30, 2002 as compared to the six months ended June 30, 2001 reflect our continued emphasis on mortgage lending and the lower interest rate environment. Interest income on consumer and other loans decreased $1.4 million during the six months ended June 30, 2002 as compared to the six months ended June 30, 2001 resulting from a decrease in the average yield to 5.89% for the six months ended June 30, 2002, from 9.73% for the six months ended June 30, 2001, partially offset by an increase of $76.8 million in the average balance of this portfolio. The decrease in the average yield on consumer and other loans was primarily the result of a decrease in the average yield on our home equity loans, which are adjustable rate loans indexed to the prime rate, as previously discussed. Interest income on mortgage-backed securities decreased $47.7 million to $197.7 million for the six months ended June 30, 2002, from $245.4 million for the six months ended June 30, 2001. This decrease was the result of a $1.02 billion decrease in the average balance of the portfolio, due to principal repayments as previously discussed, coupled with a decrease in the average yield to 6.02% for the six months ended June 30, 2002, from 6.47% for the six 24 months ended June 30, 2001. Interest income on other securities decreased $21.5 million, resulting from a decrease of $531.1 million in the average balance of this portfolio, primarily due to higher yielding securities being called throughout 2001 and 2002 as a result of the declining interest rate environment. As a result of the decrease in the balance of higher yielding securities, the average yield on other securities decreased to 6.65% for the six months ended June 30, 2002, from 7.10% for the six months ended June 30, 2001. Interest income on federal funds sold and repurchase agreements decreased $5.9 million as a result of a decrease in the average yield to 1.69% for the six months ended June 30, 2002, from 4.61% for the six months ended June 30, 2001, partially offset by an increase of $296.0 million in the average balance of the portfolio. Despite strong loan originations and purchases, and the reduction of borrowings, our cash flows from operations, loan and securities repayments and deposit growth exceeded loan originations and purchases and other investment purchases, resulting in the increase in the average balance of federal funds sold and repurchase agreements for the six months ended June 30, 2002 compared to the six months ended June 30, 2001. INTEREST EXPENSE Interest expense for the three months ended June 30, 2002 decreased $44.1 million to $200.8 million, from $244.9 million for the three months ended June 30, 2001. This decrease was primarily the result of a decrease in the average cost of interest-bearing liabilities to 4.01% for the three months ended June 30, 2002, from 4.84% for the three months ended June 30, 2001, coupled with a $200.1 million decrease in the average balance of interest-bearing liabilities. The decrease in the overall average cost of our interest-bearing liabilities reflects the impact of the lower interest rate environment, which has prevailed since 2001, on the cost of our deposits. The decrease in the average balance of interest-bearing liabilities was attributable to a decrease in borrowings, due to the repayment of matured borrowings, partially offset by an increase in deposits, which is consistent with our strategy of repositioning the balance sheet. Interest expense on deposits decreased $29.1 million, to $75.5 million for the three months ended June 30, 2002, from $104.6 million for the three months ended June 30, 2001, reflecting a decrease in the average cost of deposits to 2.71% for the three months ended June 30, 2002, from 4.00% for the three months ended June 30, 2001, partially offset by an increase of $707.0 million in the average balance of total deposits. The decrease in the average cost of total deposits was driven by decreases in rates, primarily on our certificates of deposit and money market accounts, as a result of the lower interest rate environment which has continued into 2002. The increase in the average balance of total deposits was primarily the result of increases in the average balances of savings and money market accounts. Interest expense on certificates of deposit decreased $16.1 million resulting from a decrease in the average cost to 4.33% for the three months ended June 30, 2002, from 5.56% for the three months ended June 30, 2001, coupled with a decrease of $7.3 million in the average balance. The decrease in the average cost of certificates of deposit was due to the effect of the lower interest rate environment which has prevailed since 2001. Interest expense on money market accounts decreased $8.4 million reflecting a decrease in the average cost to 1.96% for the three months ended June 30, 2002, from 4.30% for the three months ended June 30, 2001, partially offset by an increase of $267.8 million in the average balance of such accounts. Interest paid on money market accounts is on a tiered basis with 89.17% of the balance at June 30, 2002 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- 25 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 lower market interest rates in the second quarter of 2002 compared to the second quarter of 2001. Interest expense on savings accounts decreased $3.9 million which was attributable to a decrease in the average cost to 1.25% for the three months ended June 30, 2002, from 2.01% for the three months ended June 30, 2001, partially offset by an increase of $274.0 million in the average balance. Interest expense on NOW accounts decreased $568,000 as a result of a decrease in the average cost to 0.29% for the three months ended June 30, 2002, from 0.54% for the three months ended June 30, 2001, partially offset by an increase of $172.5 million in the average balance. Interest expense on borrowed funds for the three months ended June 30, 2002 decreased $15.0 million to $125.3 million, from $140.3 million for three months ended June 30, 2001, resulting from a decrease of $907.1 million in the average balance, coupled with a decrease in the average cost of borrowings to 5.64% for the three months ended June 30, 2002, from 5.73% for the three months ended June 30, 2001. During the six months ended June 30, 2002, $1.05 billion in borrowings with an average rate of 7.01% were repaid. Interest expense for the six months ended June 30, 2002 decreased $80.4 million to $413.7 million, from $494.1 million for the six months ended June 30, 2001. This decrease was primarily the result of a decrease in the average cost of interest-bearing liabilities to 4.09% for the six months ended June 30, 2002, from 4.88% for the six months ended June 30, 2001, coupled with a $28.0 million decrease in the average balance of interest-bearing liabilities. The decrease in the overall average cost of our interest-bearing liabilities reflects the impact of the lower interest rate environment, which has prevailed since 2001, on the cost of our deposits. The decrease in the average balance of interest-bearing liabilities was attributable to a decrease in borrowings, partially offset by an increase in deposits, which is consistent with our strategy of repositioning the balance sheet. Interest expense on deposits decreased $56.3 million, to $153.8 million for the six months ended June 30, 2002, from $210.1 million for the six months ended June 30, 2001, reflecting a decrease in the average cost of deposits to 2.78% for the six months ended June 30, 2002, from 4.08% for the six months ended June 30, 2001, partially offset by an increase of $757.1 million in the average balance of total deposits. The decrease in the average cost of total deposits was driven by decreases in rates, primarily on our certificates of deposit, money market and savings accounts, as a result of the lower interest rate environment which has continued into 2002. The increase in the average balance of total deposits was primarily the result of increases in the average balances of money market and savings accounts. Interest expense on certificates of deposit decreased $30.9 million resulting from a decrease in the average cost to 4.45% for the six months ended June 30, 2002, from 5.63% for the six months ended June 30, 2001, coupled with a decrease of $10.3 million in the average balance. The decrease in the average cost of certificates of deposit was due to the effect of the lower interest rate environment which has prevailed since 2001. Interest expense on money market accounts decreased $16.4 million reflecting a decrease in the average cost to 2.04% for the six months ended June 30, 2002, from 4.55% for the six months ended June 30, 2001, partially offset by an increase of $351.4 million in the average balance of such accounts. The decrease in the average cost of these deposits is reflective of the lower 26 market interest rates in the first half of 2002 compared to the first half of 2001 as previously discussed. Interest expense on savings accounts decreased $8.0 million which was attributable to a decrease in the average cost to 1.24% for the six months ended June 30, 2002, from 2.00% for the six months ended June 30, 2001, partially offset by an increase of $234.9 million in the average balance. Interest expense on NOW accounts decreased $1.1 million as a result of a decrease in the average cost to 0.28% for the six months ended June 30, 2002, from 0.55% for the six months ended June 30, 2001, partially offset by an increase of $181.1 million in the average balance. Interest expense on borrowed funds for the six months ended June 30, 2002 decreased $24.0 million to $259.9 million, from $283.9 million for six months ended June 30, 2001, resulting from a decrease of $785.1 million in the average balance, coupled with a slight decrease in the average cost of borrowings to 5.66% for the six months ended June 30, 2002, from 5.69% for the six months ended June 30, 2001. PROVISION FOR LOAN LOSSES Provision for loan losses totaled $1.0 million for the three months ended June 30, 2002 and 2001. For the six months ended June 30, 2002 and 2001, provision for loan losses totaled $2.0 million. The allowance for loan losses increased to $83.6 million at June 30, 2002, from $82.3 million at December 31, 2001. The increase in the allowance for loan losses and the resultant provision for loan losses for 2002 reflect the overall increase in our loan portfolio, particularly increases in our multi-family and commercial real estate loan portfolios, which generally involve greater credit risk than one-to-four family mortgage loans. Net loan charge-offs totaled $344,000 for the three months ended June 30, 2002 compared to $281,000 for the three months ended June 30, 2001. For the six months ended June 30, 2002, net loan charge-offs totaled $686,000 compared to $580,000 for the six months ended June 30, 2001. Non-performing loans decreased $4.7 million to $32.4 million at June 30, 2002, from $37.1 million at December 31, 2001. The allowance for loan losses as a percentage of non-performing loans increased to 258.09% at June 30, 2002, from 221.70% at December 31, 2001 primarily due to the decrease in non-performing loans from December 31, 2001 to June 30, 2002. The allowance for loan losses as a percentage of total loans decreased slightly to 0.67% at June 30, 2002, from 0.68% at December 31, 2001 due to the increase in the loan portfolio. For further discussion of non-performing loans and allowance for loan losses, see "Asset Quality." NON-INTEREST INCOME Non-interest income for the three months ended June 30, 2002 increased $2.5 million, or 9.7%, to $28.1 million, from $25.6 million for the three months ended June 30, 2001 and increased $8.1 million, or 16.7%, to $56.4 million for the six months ended June 30, 2002, from $48.3 million for the six months ended June 30, 2001. These increases in non-interest income were primarily due to increases in customer service fees and income from BOLI, partially offset by decreases in loan servicing fees. Customer service fees increased $2.3 million to $15.3 million for the three months ended June 30, 2002, from $13.0 million for the three months ended June 30, 2001 and increased $4.7 million to $29.3 million for the six months ended June 30, 2002, from $24.6 for the six months ended June 30, 2001. The increase in customer service fees was primarily attributable 27 to an increase in the number of NOW accounts, which was due primarily to an integrated checking account promotion initiated in the second quarter of 2002 and continued focus on our retail sales initiatives, including the introduction of our "PEAK Process" in the first quarter of 2002. Income from BOLI increased $1.7 million to $6.0 million for the three months ended June 30, 2002, from $4.3 million for the three months ended June 30, 2001 and increased $1.7 million to $10.2 million for the six months ended June 30, 2002, from $8.5 million for the six months ended June 30, 2001. As discussed previously, during the first quarter of 2002 we purchased an additional $100.0 million of BOLI. Increases in the cash surrender value of BOLI are recorded as income. Loan servicing fees decreased $950,000 to $3.1 million for the three months ended June 30, 2002, from $4.0 million for the three months ended June 30, 2001 and decreased $1.7 million to $6.3 million for the six months ended June 30, 2002, from $8.0 million for the six months ended June 30, 2001. Loan servicing fees include all contractual and ancillary servicing revenue we receive. The decrease in loan servicing fees was the result of a decrease in the balance of loans serviced for others to $3.10 billion at June 30, 2002, from $3.62 billion at June 30, 2001. The decrease in the balance of loans serviced for others was the result of runoff in that portfolio, due to repayments exceeding the level of new servicing volume from loan sales. Net gain on sales of loans decreased $95,000 to $1.3 million for the three months ended June 30, 2002, from $1.4 million for the three months ended June 30, 2001 and increased $1.1 million to $2.8 million for the six months ended June 30, 2002, from $1.7 million for the six months ended June 30, 2001. The increase in the net gain on sales of loans for the six months ended June 30, 2002 was primarily due to an increase in the volume of fixed rate loans originated and sold into the secondary market during the quarter ended March 31, 2002. Other loan fees increased during the three months ended June 30, 2002 to $1.6 million compared to $1.5 million for the three months ended June 30, 2001 and increased to $3.7 million for the six months ended June 30, 2002 compared to $3.0 million for the six months ended June 30, 2001. Other non-interest income decreased $536,000 to $841,000 for the three months ended June 30, 2002, compared to $1.4 million for the three months ended June 30, 2001. For the six months ended June 30, 2002, other non-interest income increased $1.6 million to $4.1 million, from $2.5 million for the six months ended June 30, 2001. The increase for the six months ended June 30, 2002 was primarily due to income in the first quarter of 2002 related to the sale of Prudential Financial, Inc. stock, which was received as a result of the conversion of Prudential Financial, Inc. from a mutual company to a stock company, and income from an investment in a limited partnership. NON-INTEREST EXPENSE Non-interest expense for the three months ended June 30, 2002 was $57.1 million, an increase of $2.1 million from $55.0 million for the three months ended June 30, 2001. This increase was primarily due to increases in general and administrative expense and net amortization of MSR, partially offset by the elimination of goodwill amortization, which totaled $4.8 million for the three months ended June 30, 2001, effective January 1, 2002 upon adoption of SFAS No. 142. For the six months ended June 30, 2002, non-interest expense decreased $2.0 million to $109.7 million, from $111.7 million for the six months ended June 30, 2001. This 28 decrease was primarily due to the elimination of goodwill amortization, which totaled $9.6 million for the six months ended June 30, 2001, and a decrease in goodwill litigation expense, partially offset by an increase in general and administrative expense. General and administrative expense increased $5.6 million to $50.0 million for the three months ended June 30, 2002, from $44.4 million for the three months ended June 30, 2001. For the six months ended June 30, 2002, general and administrative expense increased $8.7 million to $97.8 million, from $89.1 million for the comparable 2001 period. These increases in general and administrative expense were primarily due to increases in compensation and benefits expense and other expense, partially offset by decreases in advertising expense. Compensation and benefits expense increased $3.8 million to $26.3 million for the three months ended June 30, 2002, from $22.5 million for the three months ended June 30, 2001. For the six months ended June 30, 2002, compensation and benefits expense increased $6.8 million to $52.4 million, from $45.6 million for the six months ended June 30, 2001. The increase was attributable to staff additions, primarily in our retail banking network, and normal performance increases in salaries, coupled with an increase in net employee benefit plan expense of $1.0 million for the three months ended June 30, 2002 and $1.8 million for the six months ended June 30, 2002 over the comparable 2001 periods. Also included was an increase in ESOP expense of $353,000 for the three months ended June 30, 2002 and $1.1 million for the six months ended June 30, 2002 over the comparable 2001 periods, which was due to the effect of the higher average market value of our common stock during the first half of 2002 compared to the first half of 2001, coupled with the increase in compensation. Advertising expense decreased $144,000 to $1.5 million for the three months ended June 30, 2002, from $1.7 million for the three months ended June 30, 2001, and decreased $971,000 to $2.6 million for the six months ended June 30, 2002, from $3.5 million for the six months ended June 30, 2001, primarily due to our continued focus in 2002 on our sales and service efforts and limited print advertising during the first quarter of 2002. Other expense increased $1.8 million to $8.6 million for the three months ended June 30, 2002, from $6.8 million for the three months ended June 30, 2001, and increased $2.7 million to $15.7 million for the six months ended June 30, 2002, from $13.0 million for the six months ended June 30, 2001, primarily due to amortization of purchase premiums and market value adjustments on $300.0 million notional amount of interest rate cap agreements. The interest rate cap agreements were purchased primarily in the second half of 2001 as protection against interest rate increases during the next several years as part of management's interest rate risk strategy. Occupancy, equipment and systems expense increased to $13.1 million for the three months ended June 30, 2002, from $13.0 million for the three months ended June 30, 2001. For the six months ended June 30, 2002 occupancy, equipment and systems expense increased to $26.2 million, from $26.0 million for the comparable 2001 period. Federal deposit insurance premiums increased slightly to $499,000 for the three months ended June 30, 2002, from $493,000 for the three months ended June 30, 2001. For the six months ended June 30, 2002, federal deposit insurance premiums increased slightly to $1.0 million, from $990,000 for the six months ended June 30, 2001. For the three months ended June 30, 2002, net amortization of mortgage servicing rights increased $2.0 million to $3.8 million, from $1.8 million for the three months ended June 30, 29 2001. For the six months ended June 30, 2002, net amortization of mortgage servicing rights increased $170,000 to $5.1 million, from $5.0 million for the comparable 2001 period. Net amortization of mortgage servicing rights, as reported in the consolidated statements of income, includes valuation allowance adjustments for the impairment of mortgage servicing rights. These increases in the net amortization of mortgage servicing rights were due to changes in the provision for the valuation allowance of mortgage servicing rights, slightly offset by decreases in the amortization of mortgage servicing rights. For the three months ended June 30, 2002, we recorded a provision of $1.9 million compared to a $370,000 recovery recorded for the three months ended June 30, 2001. This increase in the provision was partially offset by a $352,000 decrease in amortization expense to $1.9 million for the three months ended June 30, 2002, from $2.2 million for the three months ended June 30, 2001. For the six months ended June 30, 2002, we recorded a provision of $1.1 million compared to a provision of $655,000 for the six months ended June 30, 2001. This increase in the provision was partially offset by a decrease of $289,000 in amortization expense to $4.0 million for the six months ended June 30, 2002, from $4.3 million for the six months ended June 30, 2001. The provision for the valuation allowance of mortgage servicing rights was primarily the result of an increase in prepayment speed assumptions due to the current and forecasted lower interest rate environment. Goodwill litigation expense decreased $571,000 to $281,000 for the three months ended June 30, 2002, from $852,000 for the three months ended June 30, 2001 and decreased $1.3 million to $560,000 for the six months ended June 30, 2002, from $1.9 million for the six months ended June 30, 2001, reflecting the completion of discovery regarding our claims. Our percentage of general and administrative expense to average assets was 0.90% for the three months ended June 30, 2002 and 0.88% for the six months ended June 30, 2002, compared to 0.79% for the three months ended June 30, 2001 and 0.80% for the six months ended June 30, 2001. The efficiency ratio was 32.56% for the three months ended June 30, 2002 and 32.67% for the six months ended June 30, 2002, compared to 30.92% for the three months ended June 30, 2001 and 30.74% for the six months ended June 30, 2001. The increases in these ratios were attributable to the increase in general and administrative expense for the three and six month periods ended June 30, 2002 compared to the same periods in 2001 discussed previously. INCOME TAX EXPENSE For the three months ended June 30, 2002, income tax expense was $31.5 million, representing an effective tax rate of 33.0%, compared to $30.5 million, representing an effective tax rate of 34.8%, for the three months ended June 30, 2001. For the six months ended June 30, 2002, income tax expense was $63.0 million, representing an effective tax rate of 33.5%, as compared to $62.1 million, representing an effective tax rate of 35.3%, for the six months ended June 30, 2001. The reduction in the effective tax rate for the three and six month periods ended June 30, 2002 was primarily due to the adoption of SFAS No. 142, which eliminated the amortization of goodwill which was not deductible for tax purposes. ASSET QUALITY One of our key operating objectives has been and continues to be to maintain a high level of asset quality. Through a variety of strategies, including, but not limited to, borrower workout arrangements and aggressive marketing of foreclosed properties, we have been proactive in 30 addressing problem and non-performing assets which, in turn, has helped to build the strength of our financial condition. Such strategies, as well as our concentration on one-to-four family mortgage lending, the maintenance of sound credit standards for new loan originations, and a strong real estate market, have resulted in our maintaining a very low level of non-performing assets in relation to both the size of our loan portfolio and relative to our peers. Non-performing assets decreased to $33.4 million at June 30, 2002, from $40.1 million at December 31, 2001. The ratio of non-performing loans to total loans decreased to 0.26% at June 30, 2002, from 0.31% at December 31, 2001. The ratio of non-performing assets to total assets decreased to 0.15% at June 30, 2002, from 0.18% at December 31, 2001. DELINQUENT LOANS The following table shows a comparison of delinquent loans at June 30, 2002 and December 31, 2001.
AT JUNE 30, 2002 AT DECEMBER 31, 2001 -------------------------------------------------------------------------------------------------- 60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE -------------------------------------------------------------------------------------------------- NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL OF BALANCE OF BALANCE OF BALANCE OF BALANCE (Dollars in Thousands) LOANS OF LOANS LOANS OF LOANS LOANS OF LOANS LOANS OF LOANS - ----------------------------------------------------------------------------------------------------------------------------------- Mortgage loans: One-to-four family 5 $ 207 188 $27,505 20 $1,269 222 $31,991 Multi-family 2 311 4 2,302 1 84 5 1,860 Commercial real estate 5 1,278 2 1,914 5 1,395 4 1,752 Construction -- -- -- -- -- -- 1 522 Consumer and other loans 96 378 91 673 102 491 104 991 - ----------------------------------------------------------------------------------------------------------------------------------- Total delinquent loans 108 $2,174 285 $32,394 128 $3,239 336 $37,116 =================================================================================================================================== Delinquent loans to total loans 0.02% 0.26% 0.03% 0.31%
NON-PERFORMING ASSETS The following table sets forth information regarding non-performing assets at June 30, 2002 and December 31, 2001. In addition to the non-performing loans, we had approximately $2.2 million of potential problem loans at June 30, 2002 compared to $3.2 million at December 31, 2001. Such loans are 60-89 days delinquent as shown above.
AT JUNE 30, AT DECEMBER 31, (Dollars in Thousands) 2002 2001 - ---------------------------------------------------------------------------------------- Non-accrual delinquent mortgage loans (1) $30,327 $34,848 Non-accrual delinquent consumer and other loans 673 991 Mortgage loans delinquent 90 days or more and still accruing interest (2) 1,394 1,277 - ---------------------------------------------------------------------------------------- Total non-performing loans 32,394 37,116 Real estate owned, net (3) 1,036 2,987 - ---------------------------------------------------------------------------------------- Total non-performing assets $33,430 $40,103 ======================================================================================== Allowance for loan losses to non-performing loans 258.09% 221.70% Allowance for loan losses to total loans 0.67% 0.68%
- ---------- (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 due, and are primarily 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 selling costs. 31 We discontinue accruing interest when loans become 90 days delinquent as to their interest due, even though in some instances the borrower has only missed two payments. As of June 30, 2002, $6.8 million of loans classified as non-performing had missed only two payments. In addition, we reverse all previously accrued and uncollected interest through a charge to interest income. While loans are in non-accrual status, interest due is monitored and income is recognized only to the extent cash is received until a return to accrual status is warranted. If all non-accrual loans had been performing in accordance with their original terms, we would have recorded interest income, with respect to such loans, of $1.2 million for the six months ended June 30, 2002 and $2.3 million for the year ended December 31, 2001. This compares to actual payments recorded as interest income, with respect to such loans, of $634,000 for the six months ended June 30, 2002, and $1.8 million for the year ended December 31, 2001. 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 $4.9 million at June 30, 2002 and $5.4 million at December 31, 2001. ALLOWANCE FOR LOAN LOSSES The following table sets forth the change in our allowance for loan losses for the six months ended June 30, 2002.
(In Thousands) Balance at December 31, 2001 $ 82,285 Provision charged to operations 2,006 Charge-offs: One-to-four family (224) Multi-family (83) Construction (266) Consumer and other (777) ------------------------------------------------------------------------------------- Total charge-offs (1,350) ------------------------------------------------------------------------------------- Recoveries: One-to-four family 168 Commercial 251 Consumer and other 245 ------------------------------------------------------------------------------------- Total recoveries 664 ------------------------------------------------------------------------------------- Net charge-offs (686) ------------------------------------------------------------------------------------- Balance at June 30, 2002 $ 83,605 -------------------------------------------------------------------------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a financial institution, the primary component of our market risk is interest rate risk, or IRR. Net interest income is the primary component of our net income. Net interest income is the difference between the interest earned on our loans, securities and other interest-earning assets and the interest expense incurred on our deposits and borrowings. The yields, costs, and volumes of loans, securities, deposits and borrowings are directly affected by the levels of and changes in market interest rates. Additionally, changes in interest rates also affect the related cash flows of our assets and liabilities as the option to prepay assets or withdraw liabilities remains with our customers, in most cases without penalty. The objective of our IRR management policy is to maintain an appropriate mix and level of assets, liabilities and off-balance sheet items to enable us to meet our growth and/or earnings objectives, while 32 maintaining specified minimum capital levels as required by the Office of Thrift Supervision, or OTS, in the case of Astoria Federal, and as established by our Board of Directors. We use a variety of analyses to monitor, control and adjust our asset and liability positions, primarily interest rate sensitivity gap analysis, or gap analysis, and Net Interest Income Sensitivity, or NII Sensitivity, analysis. Additional IRR modeling is done by Astoria Federal in conformity with OTS requirements. In conjunction with performing these analyses we also consider related factors including, but not limited to, our overall credit profile, non-interest income and non-interest expense. We do not enter into financial transactions or hold financial instruments for trading purposes. GAP ANALYSIS Gap analysis measures the difference between the amount of interest-earning assets anticipated to mature or reprice within specific time periods and the amount of interest-bearing liabilities anticipated to mature or reprice within the same time periods. The table on page 34, referred to as the Gap Table, sets forth the amount of interest-earning assets and interest-bearing liabilities outstanding at June 30, 2002 that we anticipate will reprice or mature in each of the future time periods shown using certain assumptions based on our historical experience and other market-based data available to us. The actual duration of mortgage loans and mortgage-backed securities can be significantly impacted by changes in mortgage prepayment activity. The major factors affecting mortgage prepayment rates are prevailing interest rates and related mortgage refinancing opportunities. Prepayment rates will also vary due to a number of other factors, including the regional economy in the area where the underlying collateral is located, seasonal factors and demographic variables. The Gap Table does not indicate the impact of general interest rate movements on our net interest income because the actual repricing dates of various assets and liabilities will differ from our estimates and it does not give consideration to the yields and costs of the assets and liabilities or the projected yields and costs to replace or retain those assets and liabilities. Callable features of certain assets and liabilities, in addition to the foregoing, may also cause actual experience to vary from that indicated. 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. Among the factors considered in our estimates 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. The Gap Table includes $5.94 billion of callable borrowings classified according to their maturity dates, primarily in the one to three years category, which are callable within one year and at various times thereafter. In addition, the Gap Table includes callable securities with an amortized cost of $824.0 million classified according to their maturity dates, primarily in the more than five years category, $643.0 million of which are callable within one year and at various times thereafter. As indicated in the Gap Table, our one-year cumulative gap at June 30, 2002 was 4.36%. This compares to a one-year cumulative gap of negative 0.34% at December 31, 2001. The increase in our one-year cumulative gap is primarily attributable to an extension of certificate of deposit maturities, coupled with a reduction in borrowings from December 31, 2001 to June 30, 2002. 33
AT JUNE 30, 2002 ---------------------------------------------------------------------------------------- MORE THAN MORE THAN ONE YEAR THREE YEARS ONE YEAR TO TO MORE THAN (Dollars in Thousands) OR LESS THREE YEARS FIVE YEARS FIVE YEARS TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ Interest-earning assets: Mortgage loans (1) $3,336,943 $ 3,753,959 $3,322,771 $ 1,717,913 $12,131,586 Consumer and other loans (1) 263,633 30,517 -- -- 294,150 Federal funds sold and repurchase agreements 603,819 -- -- -- 603,819 Mortgage-backed and other securities available-for-sale and FHLB stock 892,476 511,468 288,421 1,137,666 2,830,031 Mortgage-backed and other securities held-to-maturity 1,590,932 1,420,143 723,311 1,191,270 4,925,656 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest-earning assets 6,687,803 5,716,087 4,334,503 4,046,849 20,785,242 Net unamortized purchase premiums and deferred costs (2) 30,137 30,613 24,674 16,198 101,622 - ------------------------------------------------------------------------------------------------------------------------------------ Net interest-earning assets 6,717,940 5,746,700 4,359,177 4,063,047 20,886,864 - ------------------------------------------------------------------------------------------------------------------------------------ Interest-bearing liabilities: Savings 153,634 307,268 307,268 2,022,849 2,791,019 Money market 1,748,728 17,966 17,966 134,742 1,919,402 NOW 34,441 68,886 68,886 1,089,611 1,261,824 Certificates of deposit 2,421,656 1,954,248 808,833 80,420 5,265,157 Borrowed funds 1,400,450 4,865,000 104,000 2,279,168 8,648,618 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities 5,758,909 7,213,368 1,306,953 5,606,790 19,886,020 - ------------------------------------------------------------------------------------------------------------------------------------ Interest sensitivity gap 959,031 (1,466,668) 3,052,224 (1,543,743) $ 1,000,844 ==================================================================================================================================== Cumulative interest sensitivity gap $ 959,031 $ (507,637) $2,544,587 $ 1,000,844 ==================================================================================================================================== Cumulative interest sensitivity gap as a percentage of total assets 4.36% (2.31)% 11.58% 4.55% Cumulative net interest-earning assets as a percentage of interest-bearing liabilities 116.65% 96.09% 117.82% 105.03%
- ---------- (1) Mortgage loans and consumer and other loans include loans held-for-sale and exclude non-performing loans and the allowance for loan losses. (2) Net unamortized purchase premiums and deferred costs are prorated. NII SENSITIVITY ANALYSIS In managing IRR, we also use an internal income simulation model for our NII Sensitivity analyses. These analyses measure changes in projected net interest income over various time periods resulting from hypothetical changes in interest rates. The interest rate scenarios most commonly analyzed reflect gradual and reasonable changes over a specified time period, which is typically one year. The base net interest income projection utilizes similar assumptions as those reflected in the Gap Table, assumes that cash flows are reinvested in similar assets and liabilities and that interest rates as of the reporting date remain constant over the projection period. For each alternative interest rate scenario, corresponding changes in the cash flow and repricing assumptions of each financial instrument are made to determine the impact on net interest income. Assuming the entire yield curve was to increase 200 basis points, through quarterly parallel increments of 50 basis points, and remain at that level thereafter, our projected net interest 34 income for the twelve month period beginning July 1, 2002 would increase by approximately 0.75% from the base projection. At December 31, 2001, in the up 200 basis point scenario, our projected net interest income for the twelve month period beginning January 1, 2002 would have increased by approximately 0.85% from the base projection. The current low interest rate environment prevents us from performing an income simulation for a decline in interest rates of the same magnitude and timing as our rising interest rate simulation, since certain asset yields, liability costs, and related indexes are below 2.00%. However, assuming the entire yield curve was to decrease 100 basis points, through quarterly parallel decrements of 25 basis points, and remain at that level thereafter, our projected net interest income for the twelve month period beginning July 1, 2002 would decrease by approximately 0.19% from the base projection. At December 31, 2001, in the down 100 basis point scenario, our projected net interest income for the twelve month period beginning January 1, 2002 would have decreased by approximately 0.10% from the base projection. Various shortcomings are inherent in both the Gap Table and NII Sensitivity analyses. Certain assumptions may not reflect the manner in which actual yields and costs respond to market changes. Similarly, prepayment estimates and similar assumptions are subjective in nature, involve uncertainties and, therefore, cannot be determined with precision. Changes in interest rates may also affect our operating environment and operating strategies as well as those of our competitors. In addition, certain adjustable rate assets have limitations on the magnitude of rate changes over specified periods of time. Accordingly, although our NII Sensitivity analyses may provide an indication of our IRR exposure, such analyses are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and our actual results will differ. Additionally, certain assets, liabilities and items of income and expense which may be affected by changes in interest rates, albeit to a much lesser degree, and which do not affect net interest income, are excluded from this analysis. These include, but are not limited to, BOLI, MSR, defined benefit pension costs and the mark to market adjustments on certain derivative instruments, specifically our interest rate caps. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS For a discussion of Legal Proceedings, see our Annual Report on Form 10-K for the year ended December 31, 2001, Item 3, Legal Proceedings, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, Part II, Item 1, Legal Proceedings. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable 35 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Our Annual Meeting of shareholders was held May 15, 2002, referred to as the Annual Meeting. At the Annual Meeting, our shareholders re-elected George L. Engelke, Jr., Robert J. Conway, Peter C. Haeffner, Jr., Ralph F. Palleschi and Leo J. Waters as directors, each to serve for a three year term and, in any case, until the election and qualification of their respective successors. The shareholders also ratified our appointment of KPMG LLP as our independent auditors for our 2002 fiscal year. The number of votes cast as to each matter acted upon at the Annual Meeting was as follows: (a) Election of Directors:
For Withheld --- -------- George L. Engelke, Jr. 82,452,356 694,886 Robert J. Conway 82,162,326 984,916 Peter C. Haeffner, Jr. 82,210,818 936,424 Ralph F. Palleschi 82,219,766 927,476 Leo J. Waters 82,183,581 963,661
There were no broker held non-voted shares represented at the meeting with respect to this proposal. (b) Ratification of the appointment of KPMG LLP as independent auditors of Astoria Financial Corporation for the 2002 fiscal year: For: 80,395,022 Against: 2,590,648 Abstained: 161,572
There were no broker held non-voted shares represented at the meeting with respect to this proposal. ITEM 5. OTHER INFORMATION On May 17, 2002, our common stock began trading on the New York Stock Exchange under the symbol "AF." Previously, our common stock traded on The Nasdaq Stock Market under the symbol "ASFC." ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit No. Identification of Exhibit ----------- ------------------------- 10.1 Astoria Federal Savings and Loan Association Amended and Restated Severance Compensation Plan. 11 Statement Regarding Computation of Per Share Earnings.
36 99.1 Written Statement of Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. 99.2 Written Statement of Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
(b) Reports on Form 8-K 1. Report on Form 8-K dated April 18, 2002 which includes a press release dated April 18, 2002 announcing plans for Astoria Financial Corporation to list its common stock on the New York Stock Exchange under the new symbol "AF." This report has been furnished but not filed pursuant to Regulation FD. 2. Report on Form 8-K dated May 28, 2002 which includes a written presentation of financial results and trends through the period ended March 31, 2002. This report has been furnished but not filed pursuant to Regulation FD. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Astoria Financial Corporation Dated: August 9, 2002 By: /s/ Monte N. Redman ---------------------- ------------------------------- Monte N. Redman Executive Vice President and Chief Financial Officer (Principal Accounting Officer)
37 Exhibit Index
Exhibit No. Identification of Exhibit - ----------- ------------------------- 10.1 Astoria Federal Savings and Loan Association Amended and Restated Severance Compensation Plan. This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-Q pursuant to Item 6(a) of this report. 11 Statement Regarding Computation of Per Share Earnings. 99.1 Written Statement of Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. 99.2 Written Statement of Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
38 EX-10.1 3 y62848exv10w1.txt MANAGEMENT CONTRACT EXHIBIT 10.1 ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION AMENDED AND RESTATED SEVERANCE COMPENSATION PLAN PLAN PURPOSE The purpose of the Astoria Federal Savings and Loan Association Severance Compensation Plan is to assure for Astoria Federal Savings and Loan Association (the "Association") the services of Officers of the Association in the event of a Change in Control (capitalized terms are defined in section 2.1) of Astoria Financial Corporation or the Association. The benefits contemplated by the Plan recognize the value to the Association of the services and contributions of the officers of the Association and the effect upon the Association resulting from the uncertainties of continued employment, reduced employee benefits, management changes and relocations that may arise in the event of a Change in Control of the Association or its holding company, Astoria Financial Corporation, (the "Holding Company"). The Association's and the Holding Company's Boards of Directors believe that it is in the best interests of the Association and the Holding Company to provide Officers of the Association with such benefits in order to defray the costs and changes in employee status that could follow a Change in Control. The Board of Directors believes that the Plan will also aid the Association in attracting and retaining highly qualified individuals who are essential to its success and the Plan's assurance of fair treatment of the Association's Officers will reduce the distractions and other adverse effects on Officers' performance in the event of a Change in Control. ARTICLE I ESTABLISHMENT OF PLAN 1.1 Establishment of Plan As of the Effective Date of the Plan as defined herein, the Association hereby establishes a severance compensation plan to be known as the "Astoria Federal Savings and Loan Association Amended and Restated Severance Compensation Plan." The purposes of the Plan are as set forth above. 1.2 Applicability of Plan The benefits provided by this Plan shall be available to all Officers of the Association, who, at or after the Effective Date, meet the eligibility requirements of Article III, except for those executive officers who have entered into, or who enter into in the future, and continue to be subject to an employment or change in control agreement with the Employer. 1 1.3 Contractual Right to Benefits This Plan establishes and vests in each Participant a contractual right to the benefits to which each Participant is entitled hereunder, enforceable by the Participant against the Employer, Association, or both. ARTICLE II DEFINITIONS AND CONSTRUCTION 2.1 Definitions Whenever used in the Plan, the following terms shall have the meanings set forth below. (a) "Annual Compensation" of a Participant means and includes all wages, salary, bonus, and incentive compensation, if any, paid (including accrued amounts) by an Employer as consideration for the Participant's service during the 12 months ended the date as of which Annual Compensation is to be determined which are or would be included in the gross income of the Participant receiving the same for federal income tax purposes, excluding any amounts included in gross income as a result of the exercise of one or more options to acquire Astoria Financial Corporation common stock granted to the Participant and/or the disposition of shares of Astoria Financial Corporation common stock acquired pursuant thereto and further excluding any amounts included in gross income as a result of the receipt of shares distributed pursuant to an award under the Association's Recognition and Retention Plan for Officers and Employees. If a Participant entitled to the payment of a benefit pursuant to the terms of the Plan has less than 12 months of service with an Employer as of the date as of which Annual Compensation is to be determined, then "Annual Compensation" as to such Participant means and includes the amount of all wages, salary, bonus and incentive compensation, if any, paid during the actual period of service of such Participant to an Employer ending on the date as of which Annual Compensation is to be determined which are or would be included in the gross income of the Participant receiving the same for federal income tax purposes, and excluding those amounts excluded pursuant to the first sentence of this subsection (a), annualized so as to equal an amount equivalent to the amount that would have been paid to the Participant over a 12 month period of service by such Participant. (b) "Association" means Astoria Federal Savings and Loan Association or any successor as provided for in Article VII hereof. (c) "Change in Control" shall mean an event of a nature that; (i) would be required to be reported in response to Item 1 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange 2 Act"); or (ii) results in a Change in Control of the Association or the Company within the meaning of the Home Owners' Loan Act of 1933, as amended, and the Rules and Regulations promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the date hereof (provided, that in applying the definition of change in control as set forth under the rules and regulations of the OTS, the Board shall substitute its judgment for that of the OTS); or (iii) without limitation such a Change in Control shall be deemed to have occurred at such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Association or the Company representing 25% or more of the Association's or the Company's outstanding securities except for any securities of the Association purchased by the Company in connection with the conversion of the Association to the stock form and any securities purchased by any tax-qualified employee benefit plan of the Association; or (B) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company's stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (B), considered as though he were a member of the Incumbent Board; or (C) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Association or the Company or similar transaction occurs in which the Association or Company is not the resulting entity. (d) "Effective Date" means the date the Plan is approved by the Board of Directors of the Association, or such other date as the Board shall designate in its resolution approving the Plan. (e) "Employer" means the Association or a subsidiary of the Association or a parent of the Association which has adopted the Plan pursuant to Article VI hereof. (f) "Holding Company" means Astoria Financial Corporation, the holding company of the Association. (g) "Just Cause" with respect to termination of employment means an act or acts of personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order. In determining incompetence, the acts or omissions shall be measured against standards generally prevailing in the savings institution industry. (h) "Officer" means an officer employed by the Employer on a full-time basis, and having an officer's title as determined by the Board of Directors; provided, however, that any officer who is covered or hereinafter becomes covered by an employment contract or a change in control agreement with the Employer shall not be considered to be an Officer for purposes of this Plan. 3 (i) "Payment" means the payment of severance compensation as provided in Article IV hereof. (j) "Participant" means an Officer who meets the eligibility requirements of Article III. (k) "Plan" means the Astoria Federal Savings and Loan Association Amended and Restated Severance Compensation Plan. The Plan replaces the Astoria Federal Savings and Loan Association Severance Compensation Plan. 2.2 Applicable Law The laws of the State of New York shall be the controlling law in all matters relating to the Plan to the extent not preempted by Federal law. 2.3 Severability If a provision of this Plan shall be held illegal or invalid, the illegality or invalidity shall not affect the remaining parts of the Plan and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. ARTICLE III ELIGIBILITY 3.1 Participation The term Participant shall include all Officers at the time of any termination pursuant to Section 4.2 herein. Notwithstanding the foregoing, persons who have entered into and continue to be covered by an employment contract or change in control agreement with the Employer shall not be entitled to participate in this Plan. 3.2 Duration of Participation A Participant shall cease to be a Participant in the Plan when the Participant ceases to be an Officer of an Employer, unless such Participant is entitled to a Payment as provided in the Plan. A Participant entitled to receipt of a Payment shall remain a Participant in this Plan until the full amount of such Payment has been paid to the Participant. 4 ARTICLE IV PAYMENTS 4.1 Right to Payment A Participant shall be entitled to receive from its respective Employer a Payment in the amount provided in Section 4.3 if there has been a Change in Control of the Association or the Holding Company and if, within one (1) year thereafter, the Participant's employment by an Employer shall terminate for any reason specified in Section 4.2, whether the termination is voluntary or involuntary. A Participant shall not be entitled to a Payment if termination occurs by reason of death, voluntary retirement, voluntary termination other than for reasons specified in Section 4.2, total and permanent disability, or for Just Cause. 4.2 Reasons for Termination Following a Change in Control, a Participant shall be entitled to a Payment if employment by an Employer is terminated, voluntarily or involuntarily, for any one or more of the following reasons: (a) The Employer reduces the Participant's base salary or rate of compensation as in effect immediately prior to the Change in Control, or as the same may have been increased thereafter. (b) The Employer materially changes Participant's function, duties or responsibilities which would cause Participant's position to be one of lesser responsibility, importance or scope with the Employer than immediately prior to the Change in Control. (c) The Employer requires the Participant to change the location of the Participant's job or office, so that such Participant will be based at a location more than thirty (30) miles from the location of the Participant's job or office immediately prior to the Change in Control provided that such new location is not closer to Participant's home. (d) The Employer materially reduces the benefits and perquisites available to the Participant immediately prior to the Change in Control, provided, however, that a material reduction in benefits and perquisites generally provided to all employees of the Association on a nondiscriminatory basis would not trigger a payment pursuant to this Plan. (e) A successor Association or company fails or refuses to assume the Association's obligations under this Plan, as required by Article VII. (f) The Association or any successor company breaches any other provisions of this Plan. (g) The Employer terminates the employment of a Participant at or after a Change in Control other than for Just Cause. 5 4.3 Amount of Payment Each Participant entitled to a Payment under this Plan shall receive from the Association a lump sum cash payment, in an amount determined as follows: (a) Each Officer with the title of First Vice President or above with the Association shall receive a payment equal to one hundred fifty percent (150%) of such Officer's Annual Compensation determined as of the date of termination pursuant to Section 4.2. Each Officer with the title of Vice President with the Association shall receive a payment equal to one hundred percent (100%) of such Officer's Annual Compensation determined as of the date of termination pursuant to Section 4.2. Each Officer with the title of First Assistant Vice President with the Association shall receive a payment equal to eighty percent (80%) of such Officer's Annual Compensation determined as of the date of termination pursuant to Section 4.2. Each Officer with the title of Assistant Vice President and three years of service with the Association shall receive a payment equal to sixty percent (60%) of such Officer's Annual Compensation determined as of the date of termination pursuant to Section 4.2. Each Officer with the title of Assistant Treasurer or Assistant Secretary and three years of service with the Association shall receive a payment equal to forty percent (40%) of such Officer's Annual Compensation determined as of the date of termination pursuant to Section 4.2. (b) Notwithstanding the provisions of (a) above, if a Payment to a Participant who is a Disqualified Individual shall be in an amount which includes an Excess Parachute Payment, the Payment hereunder to that Participant shall be reduced to the maximum amount which does not include an Excess Parachute Payment. The terms "Disqualified Individual" and "Excess Parachute Payment" shall have the same meaning as defined in Section 28OG of the Internal Revenue Code of 1986, as amended, or any successor section of similar import. The Participant shall not be required to mitigate damages on the amount of the Payment by seeking other employment or otherwise, nor shall the amount of such Payment be reduced by any compensation earned by the Participant as a result of employment after termination of employment hereunder. 4.4 Time of Payment The Payment to which a Participant is entitled shall be paid to the Participant by the Employer or the successor to the Employer, in cash and in full, not later than twenty (20) business days after the termination of the Participant's employment. If any Participant should die after termination of the employment but before all amounts have been paid, such unpaid amounts shall be paid to the Participant's named beneficiary, if living, otherwise to the personal representative on behalf of or for the benefit of the Participant's estate. 4.5 Suspension of Payment Notwithstanding the foregoing, no payments or portions thereof shall be made under this Plan, if such payment or portion would result in the Association failing to meet its minimum 6 regulatory capital requirements as required by 12 C.F.R. Section 567.2 of the Office of Thrift Supervision Regulations. Any payments or portions thereof not paid shall be suspended until such time as their payment would not result in a failure to meet the Association's minimum regulatory capital requirements. Any portion of benefit payments which have not been suspended will be paid on an equitable basis, pro rata based upon amounts due each Participant, among all eligible Participants. ARTICLE V OTHER RIGHTS AND BENEFITS NOT AFFECTED 5.1 Other Benefits Neither the provisions of this Plan nor the Payment provided for hereunder shall reduce any amounts otherwise payable, or in any way diminish the Participant's rights as an Officer of an Employer, whether existing now or hereafter, under any benefit, incentive, retirement, stock option, stock bonus, stock ownership or any employment agreement or other plan or arrangement. 5.2 Employment Status This Plan does not constitute a contract of employment or impose on the Participant or the Participant's Employer any obligation to retain the Participant as an Officer, to change the status of the Participant's employment, or to change the Employer's policies regarding termination of employment. ARTICLE VI PARTICIPATING EMPLOYERS 6.1 Upon approval by the Board of Directors of the Association, this Plan may be adopted by any Subsidiary or Parent of the Association. Upon such adoption, the Subsidiary or Parent shall become an Employer hereunder and the provisions of the Plan shall be fully applicable to the Officers of that Subsidiary or Parent. The term "Subsidiary" means any corporation in which the Association, directly or indirectly, holds a majority of the voting power of its outstanding shares of capital stock. The term "Parent" means any corporation which holds a majority of the voting power of the Association's outstanding shares of capital stock. 7 ARTICLE VII SUCCESSOR TO THE ASSOCIATION 7.1 The Association shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Association, expressly and unconditionally to assume and agree to perform the Association's obligations under this plan, in the same manner and to the same extent that the Association would be required to perform if no such succession or assignment had taken place. ARTICLE VIII AMENDMENT AND TERMINATION 8.1 Amendment and Termination The Plan may be terminated or amended in any respect by resolution adopted by a majority of the Board of Directors of the Association, unless a Change in Control has previously occurred. If a Change in Control occurs, the Plan no longer shall be subject to amendment, change, substitution, deletion, revocation or termination in any respect whatsoever, until such date as all Participants who become entitled to Payments hereunder shall have received such Payments in full. 8.2 Form of Amendment The form of any proper amendment or termination of the Plan shall be a written instrument signed by a duly authorized officer or officers of the Association, certifying that the amendment or termination has been approved by the Board of Directors. A proper amendment of the Plan automatically shall effect a corresponding amendment to each Participant's rights hereunder. A proper termination of the Plan automatically shall effect a termination of all Participants' rights and benefits hereunder. ARTICLE IX ARBITRATION 9.1 Any dispute or controversy arising under or in connection with the Plan shall be settled exclusively by arbitration, conducted before a panel of three arbitrators sitting in a location selected by the Participant within fifty (50) miles from the location of the Association, in accordance with rules of the American Arbitration Association then in effect. Judgment may be entered on the award of the arbitrator in any court having jurisdiction. 8 ARTICLE X LEGAL FEES AND EXPENSES 10.1 Subject to the notice provision in section 10.2 hereof, all reasonable legal fees and other expenses paid or incurred by Participant pursuant to any dispute or question of interpretation relating to this Plan shall be paid or reimbursed by the Association, if Participant is successful pursuant to a legal judgment, arbitration or settlement. 10.2 A Participant must provide the Association with 10 (ten) business days notice of a complaint of entitlement under this Plan before the Association shall be liable for the payment of any legal fees or other expenses referred to in section 10.1 hereof. ARTICLE XI REQUIRED PROVISIONS 11.1 The Association may terminate the Officer's employment at any time, but any termination by the Association, other than termination for Just Cause, shall not prejudice Officer's right to compensation or other benefits under this Plan. Officer shall not have the right to receive compensation or other benefits for any period after termination for Just Cause as defined in Section 2.1 herein above. 11.2 If the Officer is suspended from office and/or temporarily prohibited from participating in the conduct of the Association's affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(e)(3) or (g)(1), the Association's obligations under this Plan shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Association may in its discretion (i) pay the Officer all or part of the compensation withheld while their contract obligations were suspended and (ii) reinstate (in whole or in part) any of the obligations which were suspended. 11.3 If the Officer is removed and/or permanently prohibited from participating in the conduct of the Association's affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(e)(4) or (g)(1), all obligations of the Association under this Plan shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected. 11.4 If the Association is in default as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1813(x)(1), all obligations of the Association under this contract shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the Participants. 11.5 All obligations of the Association under this Plan shall be terminated, except to the extent determined that continuation of the Plan is necessary for the continued operation of the 9 institution, (i) by the Director of the OTS (or his designee), the Federal Deposit Insurance Corporation ("FDIC") or the Resolution Trust Corporation ("RTC"), at the time FDIC enters into an agreement to provide assistance to or on behalf of the Association under the authority contained in Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. Section I 823(c); or (ii) by the Director of the OTS (or his designee) at the time the Director (or his designee) approves a supervisory merger to resolve problems related to the operations of the Association or when the Association is determined by the Director to be in an unsafe or unsound condition. Any rights of the Participants that have already vested, however, shall not be affected by such action. This Plan is executed by its duly authorized officers this 15th day of May, 2002, the provisions and amendments set forth herein being hereby certified as having been adopted by its Board of Directors on May 15, 2002. Attest: ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION /S/ Alan P. Eggleston /S/ George L. Engelke, Jr. - --------------------------------------------- --------------------------------------------- Alan P. Eggleston George L. Engelke, Jr. Executive Vice President, Secretary and Chairman, President and Chief Executive General Counsel Officer
This Plan is executed by its duly authorized officers this 15th day of May, 2002, the provisions and amendments set forth herein being hereby certified as having been adopted by its Board of Directors on May 15, 2002. Attest: ASTORIA FINANCIAL CORPORATION /S/ Alan P. Eggleston /S/ George L. Engelke, Jr. - --------------------------------------------- --------------------------------------------- Alan P. Eggleston George L. Engelke, Jr. Executive Vice President, Secretary and Chairman, President and Chief Executive General Counsel Officer
10 EX-11 4 y62848exv11.txt STATEMENT REGARDING COMPUTATION EXHIBIT 11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
For the Six Months Ended June 30, 2002 ------------- (In Thousands, Except Per Share Data) 1. Net income $ 125,149 Preferred stock dividends declared (3,000) ---------- Net income available to common shareholders $ 122,149 ========== 2. Weighted average common shares outstanding 90,116 3. ESOP shares not committed to be released (5,272) ---------- 4. Total weighted average common shares outstanding 84,844 ========== 5. Basic earnings per common share $ 1.44 ========== 6. Total weighted average common shares outstanding 84,844 7. Dilutive effect of stock options using the treasury stock method 1,647 ---------- 8. Total weighted average common and common equivalent shares outstanding 86,491 ========== 9. Diluted earnings per common share $ 1.41 ==========
EX-99.1 5 y62848exv99w1.txt WRITTEN STATEMENT OF CEO Exhibit 99.1 STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350 The undersigned, George L. Engelke, Jr., is the Chairman, President and Chief Executive Officer of Astoria Financial Corporation (the "Company"). This statement is being furnished in connection with the filing by the Company of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (the "Report"). By execution of this statement, I certify that: A) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and B) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report. This statement is authorized to be attached as an exhibit to the Report so that this statement will accompany the Report at such time as the Report is filed with the Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934, as amended. August 9, 2002 /s/ George L. Engelke, Jr. - --------------------- --------------------------------- Dated George L. Engelke, Jr. EX-99.2 6 y62848exv99w2.txt WRITTEN STATEMENT OF CFO Exhibit 99.2 STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350 The undersigned, Monte N. Redman, is the Executive Vice President and Chief Financial Officer of Astoria Financial Corporation (the "Company"). This statement is being furnished in connection with the filing by the Company of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (the "Report"). By execution of this statement, I certify that: A) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and B) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report. This statement is authorized to be attached as an exhibit to the Report so that this statement will accompany the Report at such time as the Report is filed with the Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934, as amended. August 9, 2002 /s/ Monte N. Redman - ---------------------- ----------------------------- Dated Monte N. Redman -----END PRIVACY-ENHANCED MESSAGE-----