-----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, BDi5T78FXxiNOzmJraT5E18Oj5WAU0SXC5n/fJV81laoRFrRLg2wTueKwzd9X+65 ZL9OD/kr+l9zxU4FHvCuGA== 0000950123-02-010595.txt : 20021112 0000950123-02-010595.hdr.sgml : 20021111 20021112163338 ACCESSION NUMBER: 0000950123-02-010595 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021112 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: 02817535 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 y65418e10vq.txt ASTORIA FINANCIAL CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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, October 31, 2002 - ----------------------- ---------------------------------------------- .01 Par Value 87,063,906 PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited): Page ---- Consolidated Statements of Financial Condition at September 30, 2002 2 and December 31, 2001 Consolidated Statements of Income for the Three and Nine Months 3 Ended September 30, 2002 and September 30, 2001 Consolidated Statement of Changes in Stockholders' Equity for the 4 Nine Months Ended September 30, 2002 Consolidated Statements of Cash Flows for the Nine Months Ended 5 September 30, 2002 and September 30, 2001 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and 10 Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk 36 Item 4. Controls and Procedures 39 PART II -- OTHER INFORMATION Item 1. Legal Proceedings 40 Item 2. Changes in Securities and Use of Proceeds 40 Item 3. Defaults Upon Senior Securities 40 Item 4. Submission of Matters to a Vote of Security Holders 40 Item 5. Other Information 40 Item 6. Exhibits and Reports on Form 8-K 40 Signatures 41 Certifications 42
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
AT AT SEPTEMBER 30, DECEMBER 31, (In Thousands, Except Share Data) 2002 2001 ------------ ------------ ASSETS: Cash and due from banks $ 144,601 $ 144,694 Federal funds sold and repurchase agreements 843,883 1,309,164 Available-for-sale securities: Encumbered 2,366,426 3,176,977 Unencumbered 536,322 372,206 ------------ ------------ 2,902,748 3,549,183 Held-to-maturity securities, fair value of $4,543,619 and $4,468,200, respectively: Encumbered 4,368,910 4,201,503 Unencumbered 117,341 262,425 ------------ ------------ 4,486,251 4,463,928 Federal Home Loan Bank of New York stock, at cost 225,473 250,450 Loans held-for-sale 32,348 43,390 Loans receivable: Mortgage loans, net 12,067,433 11,924,134 Consumer and other loans, net 353,349 243,127 ------------ ------------ 12,420,782 12,167,261 Allowance for loan losses (83,648) (82,285) ------------ ------------ Total loans receivable, net 12,337,134 12,084,976 Mortgage servicing rights, net 22,399 35,295 Accrued interest receivable 95,197 96,273 Premises and equipment, net 155,600 149,753 Goodwill 185,151 185,151 Bank owned life insurance 357,669 242,751 Other assets 115,822 112,698 ------------ ------------ Total assets $ 21,904,276 $ 22,667,706 ============ ============ LIABILITIES: Deposits: Savings $ 2,818,078 $ 2,588,143 Money market 1,816,859 1,955,286 NOW 1,306,178 1,199,966 Certificates of deposit 5,239,463 5,160,298 ------------ ------------ Total deposits 11,180,578 10,903,693 Reverse repurchase agreements 6,585,000 7,385,000 Federal Home Loan Bank of New York advances 1,964,450 1,914,000 Other borrowings, net 99,203 399,587 Mortgage escrow funds 149,772 116,395 Accrued expenses and other liabilities 215,539 281,445 ------------ ------------ Total liabilities 20,194,542 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 87,690,468 and 90,766,744 shares outstanding, respectively) 1,110 1,110 Additional paid-in capital 836,525 822,652 Retained earnings 1,327,038 1,207,742 Treasury stock (23,306,124 and 20,229,848 shares, at cost, respectively) (563,559) (459,471) Accumulated other comprehensive income (loss) 9,797 (1,967) Unallocated common stock held by ESOP (28,177) (29,480) ------------ ------------ Total stockholders' equity 1,584,734 1,542,586 ------------ ------------ Total liabilities and stockholders' equity $ 21,904,276 $ 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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- (In Thousands, Except Share Data) 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Interest income: Mortgage loans $ 196,836 $ 207,014 $ 601,864 $ 613,897 Consumer and other loans 4,792 4,364 12,711 13,713 Mortgage-backed securities 91,552 109,556 289,273 355,001 Other securities 16,629 25,705 55,734 86,292 Federal funds sold and repurchase agreements 3,571 12,082 10,963 25,360 ------------ ------------ ------------ ------------ Total interest income 313,380 358,721 970,545 1,094,263 ------------ ------------ ------------ ------------ Interest expense: Deposits 71,702 101,687 225,472 311,831 Borrowed funds 122,451 142,809 382,341 426,733 ------------ ------------ ------------ ------------ Total interest expense 194,153 244,496 607,813 738,564 ------------ ------------ ------------ ------------ Net interest income 119,227 114,225 362,732 355,699 Provision for loan losses 301 1,001 2,307 3,026 ------------ ------------ ------------ ------------ Net interest income after provision for loan losses 118,926 113,224 360,425 352,673 ------------ ------------ ------------ ------------ Non-interest income: Customer service fees 15,640 13,533 44,918 38,095 Other loan fees 2,242 1,596 5,922 4,630 Loan servicing fees 3,169 3,595 9,472 11,595 Net gain on sales of securities 8,489 -- 8,489 -- Net gain on sales of loans 1,056 877 3,902 2,602 Income from bank owned life insurance 5,683 4,098 15,927 12,584 Other 729 3,216 4,787 5,743 ------------ ------------ ------------ ------------ Total non-interest income 37,008 26,915 93,417 75,249 ------------ ------------ ------------ ------------ Non-interest expense: General and administrative: Compensation and benefits 26,645 22,466 79,002 68,044 Occupancy, equipment and systems 13,373 13,371 39,600 39,323 Federal deposit insurance premiums 492 503 1,496 1,493 Advertising 997 730 3,555 4,259 Other 6,866 6,292 22,564 19,338 ------------ ------------ ------------ ------------ Total general and administrative 48,373 43,362 146,217 132,457 Net amortization of mortgage servicing rights 11,796 2,825 16,917 7,776 Goodwill litigation 209 243 769 2,116 Capital trust securities 3,103 3,104 9,312 9,312 Amortization of goodwill -- 4,811 -- 14,432 ------------ ------------ ------------ ------------ Total non-interest expense 63,481 54,345 173,215 166,093 ------------ ------------ ------------ ------------ Income before income tax expense and cumulative effect of accounting change 92,453 85,794 280,627 261,829 Income tax expense 30,237 29,342 93,262 91,482 ------------ ------------ ------------ ------------ Income before cumulative effect of accounting change 62,216 56,452 187,365 170,347 Cumulative effect of accounting change, net of tax -- -- -- (2,294) ------------ ------------ ------------ ------------ Net income 62,216 56,452 187,365 168,053 Preferred dividends declared (1,500) (1,500) (4,500) (4,500) ------------ ------------ ------------ ------------ Net income available to common shareholders $ 60,716 $ 54,952 $ 182,865 $ 163,553 ============ ============ ============ ============ Basic earnings per common share: Income before accounting change $ 0.73 $ 0.61 $ 2.17 $ 1.81 Cumulative effect of accounting change, net of tax -- -- -- (0.03) ------------ ------------ ------------ ------------ Net basic earnings per common share $ 0.73 $ 0.61 $ 2.17 $ 1.78 ============ ============ ============ ============ Diluted earnings per common share: Income before accounting change $ 0.72 $ 0.60 $ 2.13 $ 1.78 Cumulative effect of accounting change, net of tax -- -- -- (0.03) ------------ ------------ ------------ ------------ Net diluted earnings per common share $ 0.72 $ 0.60 $ 2.13 $ 1.75 ============ ============ ============ ============ Dividends per common share $ 0.20 $ 0.16 $ 0.57 $ 0.44 ============ ============ ============ ============ Basic weighted average common shares 83,329,044 90,123,032 84,333,207 91,851,854 Diluted weighted average common and common equivalent shares 84,795,336 91,869,188 85,920,019 93,661,896
See accompanying notes to consolidated financial statements. 3 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
ADDITIONAL PREFERRED COMMON PAID-IN RETAINED (In Thousands, Except Share Data) TOTAL STOCK STOCK CAPITAL EARNINGS - --------------------------------- ----- ----- ----- ------- -------- Balance at December 31, 2001 $ 1,542,586 $ 2,000 $ 1,110 $ 822,652 $ 1,207,742 Comprehensive income: Net income 187,365 -- -- -- 187,365 Other comprehensive income, net of tax: Net unrealized gain on securities 8,534 -- -- -- -- Net unrealized loss on cash flow hedging instruments (1,970) -- -- -- -- Amortization of unrealized loss on securities transferred to held-to-maturity 5,200 -- -- -- -- ----------- Comprehensive income 199,129 ----------- Common stock repurchased (4,180,400 shares) (129,795) -- -- -- -- Dividends on common and preferred stock and amortization of purchase premium (53,607) -- -- (978) (52,629) Exercise of stock options and related tax benefit (1,104,124 shares issued) 19,111 -- -- 8,844 (15,440) Amortization relating to allocation of ESOP stock 7,310 -- -- 6,007 -- ----------- ----------- ----------- ----------- ----------- Balance at September 30, 2002 $ 1,584,734 $ 2,000 $ 1,110 $ 836,525 $ 1,327,038 =========== =========== =========== =========== ===========
UNALLOCATED ACCUMULATED COMMON OTHER STOCK TREASURY COMPREHENSIVE HELD (In Thousands, Except Share Data) STOCK (LOSS) INCOME BY ESOP - --------------------------------- ----- ------------- ------- Balance at December 31, 2001 $ (459,471) $ (1,967) $ (29,480) Comprehensive income: Net income -- -- -- Other comprehensive income, net of tax: Net unrealized gain on securities -- 8,534 -- Net unrealized loss on cash flow hedging instruments -- (1,970) -- Amortization of unrealized loss on securities transferred to held-to-maturity -- 5,200 -- Comprehensive income Common stock repurchased (4,180,400 shares) (129,795) -- -- Dividends on common and preferred stock and amortization of purchase premium -- -- -- Exercise of stock options and related tax benefit (1,104,124 shares issued) 25,707 -- -- Amortization relating to allocation of ESOP stock -- -- 1,303 ----------- ----------- ----------- Balance at September 30, 2002 $ (563,559) $ 9,797 $ (28,177) =========== =========== ===========
See accompanying notes to consolidated financial statements. 4 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------- (In Thousands) 2002 2001 ----------- ----------- Cash flows from operating activities: Net income $ 187,365 $ 168,053 Adjustments to reconcile net income to net cash provided by operating activities: Net amortization (accretion) of premiums, discounts and deferred loan costs 1,324 (29,397) Net provision for loan and real estate losses 2,311 2,962 Depreciation and amortization 8,003 9,708 Net gain on sales of loans and securities (12,391) (2,602) Proceeds from sales of loans held-for-sale, net of originations 14,944 (6,412) Amortization of goodwill -- 14,432 Cumulative effect of accounting change, net of tax -- 2,294 Amortization of allocated ESOP stock 7,310 4,874 Decrease in accrued interest receivable 1,076 3,718 Mortgage servicing rights amortization and valuation allowance, net of capitalized amounts 12,896 4,045 Income from bank owned life insurance, net of insurance proceeds received (14,918) 8,818 (Increase) decrease in other assets (19,446) 15,826 Decrease in accrued expenses and other liabilities (57,062) (79,519) ----------- ----------- Net cash provided by operating activities 131,412 116,800 ----------- ----------- Cash flows from investing activities: Origination of loans held-for-investment (2,796,246) (1,897,874) Loan purchases through third parties (1,113,285) (1,072,123) Principal payments on loans held-for-investment 3,623,342 2,379,478 Principal payments on mortgage-backed securities held-to-maturity 2,260,068 880,382 Principal payments on mortgage-backed securities available-for-sale 1,490,987 983,368 Purchases of mortgage-backed securities held-to-maturity (2,578,324) (650,927) Purchases of mortgage-backed securities available-for-sale (1,263,783) (288,811) Purchases of other securities available-for-sale (502) (2,005) Proceeds from maturities of other securities available-for-sale 77,923 69,868 Proceeds from maturities of other securities held-to-maturity 316,649 421,048 Redemption of FHLB stock 24,977 34,800 Proceeds from sale of securities available-for-sale 384,250 -- Proceeds from sales of real estate owned, net 3,431 4,367 Net purchases of premises and equipment (13,850) (5,567) Purchase of bank owned life insurance (100,000) -- ----------- ----------- Net cash provided by investing activities 315,637 856,004 ----------- ----------- Cash flows from financing activities: Net increase in deposits 276,885 721,758 Net decrease in reverse repurchase agreements (800,000) (400,000) Net increase in FHLB of New York advances 50,450 154,000 Net decrease in other borrowings (300,000) (104,092) Increase in mortgage escrow funds 33,377 35,300 Cost to repurchase common stock (129,795) (249,698) Cash dividends paid to stockholders (53,607) (47,603) Cash received for options exercised 10,267 18,400 ----------- ----------- Net cash (used in) provided by financing activities (912,423) 128,065 ----------- ----------- Net (decrease) increase in cash and cash equivalents (465,374) 1,100,869 Cash and cash equivalents at beginning of period 1,453,858 307,251 ----------- ----------- Cash and cash equivalents at end of period $ 988,484 $ 1,408,120 =========== =========== Supplemental disclosures: Cash paid during the period: Interest $ 622,823 $ 742,913 =========== =========== Income taxes $ 83,302 $ 47,153 =========== =========== Additions to real estate owned $ 1,518 $ 4,077 =========== =========== 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 (consisting only of normal recurring adjustments) necessary for a fair presentation of our financial condition as of September 30, 2002 and December 31, 2001, our results of operations for the three and nine months ended September 30, 2002 and 2001, changes in our stockholders' equity for the nine months ended September 30, 2002 and our cash flows for the nine months ended September 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 September 30, 2002 and December 31, 2001, and amounts of revenues and expenses in the consolidated statements of income for the three and nine months ended September 30, 2002 and 2001. The results of operations for the three and nine months ended September 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, or SEC. 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 SEPTEMBER 30, ----------------------------------------------------------- 2002 2001 ------------------------- ------------------------- BASIC DILUTED BASIC DILUTED (In Thousands, Except Per Share Data) EPS EPS EPS EPS (1) - ------------------------------------- -------- -------- -------- -------- Net income $ 62,216 $ 62,216 $ 56,452 $ 56,452 Preferred dividends declared (1,500) (1,500) (1,500) (1,500) -------- -------- -------- -------- Net income available to common shareholders $ 60,716 $ 60,716 $ 54,952 $ 54,952 ======== ======== ======== ======== Total weighted average basic common shares outstanding 83,329 83,329 90,123 90,123 Effect of dilutive securities: Options -- 1,466 -- 1,746 -------- -------- -------- -------- Total weighted average diluted common shares outstanding 83,329 84,795 90,123 91,869 ======== ======== ======== ======== Net earnings per common share $ 0.73 $ 0.72 $ 0.61 $ 0.60 ======== ======== ======== ========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------------------------------- 2002 2001 ------------------------- ------------------------- BASIC DILUTED BASIC DILUTED (In Thousands, Except Per Share Data) EPS EPS EPS EPS (2) - ------------------------------------- -------- -------- -------- -------- Income before cumulative effect of accounting change $187,365 $ 187,365 $ 170,347 $ 170,347 Preferred dividends declared (4,500) (4,500) (4,500) ( 4,500) -------- -------- -------- -------- 182,865 182,865 165,847 165,847 Cumulative effect of accounting change, net of tax -- -- (2,294) (2,294) -------- -------- -------- -------- Net income available to common shareholders $182,865 $ 182,865 $ 163,553 $ 163,553 ======== ======== ======== ======== Total weighted average basic common shares outstanding 84,333 84,333 91,852 91,852 Effect of dilutive securities: Options -- 1,587 -- 1,810 -------- -------- -------- -------- Total weighted average diluted common shares outstanding 84,333 85,920 91,852 93,662 ======== ======== ======== ======== Earnings per common share: Income before cumulative effect of accounting change $ 2.17 $ 2.13 $ 1.81 $ 1.78 Cumulative effect of accounting change, net of tax -- -- (0.03) (0.03) -------- -------- -------- -------- Net earnings per common share $ 2.17 $ 2.13 $ 1.78 $ 1.75 ======== ======== ======== ========
(1) Options to purchase 30,000 shares of common stock at $29.88 per share were outstanding as of September 30, 2001, but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares for the three months ended September 30, 2001. (2) Options to purchase 514,304 shares of common stock at prices between $28.31 per share and $29.88 per share were outstanding as of September 30, 2001, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the common shares for the nine months ended September 30, 2001. 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. For purposes of our goodwill impairment testing, we identified a single reporting unit and determined the fair value of this reporting unit to be in excess of its carrying value. Additionally, on September 30, 2002 we performed our first annual goodwill impairment test and determined the fair value of our one reporting unit to be in excess of its carrying value. Accordingly, both at the date of our adoption of SFAS No. 142 and as of September 30, 2002, 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 NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------- --------------------- (In Thousands, Except Per Share Data) 2002 2001 2002 2001 ------- ------- -------- -------- Net income: Reported net income $62,216 $56,452 $187,365 $168,053 Add back: goodwill amortization - 4,769 - 14,308 ------- ------- -------- -------- Adjusted net income $62,216 $61,221 $187,365 $182,361 ======= ======= ======== ======== Basic earnings per common share: Reported net income $ 0.73 $ 0.61 $ 2.17 $ 1.78 Goodwill amortization - 0.05 - 0.16 ------- ------- -------- -------- Adjusted net income $ 0.73 $ 0.66 $ 2.17 $ 1.94 ======= ======= ======== ======== Diluted earnings per common share: Reported net income $ 0.72 $ 0.60 $ 2.13 $ 1.75 Goodwill amortization - 0.05 - 0.15 ------- ------- -------- -------- Adjusted net income $ 0.72 $ 0.65 $ 2.13 $ 1.90 ======= ======= ======== ========
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 are carried at amortized cost, and impairment, if any, is recognized through a valuation allowance. MSR, at amortized cost, totaled $36.5 million at September 30, 2002 and $39.2 million at December 31, 2001. The valuation allowance totaled $14.1 million at September 30, 2002 and $3.9 million at December 31, 8 2001. The cost of MSR are amortized over the estimated remaining lives of the loans serviced. MSR amortization totaled $2.7 million for the three months ended September 30, 2002 and $6.7 million for the nine months ended September 30, 2002. As of September 30, 2002, estimated future MSR amortization through 2007 is as follows: $3.0 million for the remainder of 2002, $11.2 million for 2003, $7.6 million for 2004, $4.9 million for 2005, $3.2 million for 2006 and $2.1 million for 2007. Actual results may vary depending upon the level of repayments on the loans currently serviced. 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." SFAS No. 144 established a single accounting model for long-lived assets to be disposed of by sale based upon the framework established in SFAS No. 121. SFAS No. 144 also resolved various implementation issues related to SFAS No. 121. 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. In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial Institutions--an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9." SFAS No. 147 removes acquisitions of financial institutions, except for transactions between two or more mutual enterprises, from the scope of SFAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions" and FASB Interpretation No. 9, "Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or a Similar Institution Is Acquired in a Business Combination Accounted for by the Purchase Method," and requires that those transactions be accounted for in accordance with SFAS No. 141 and SFAS No. 142. In addition, this Statement amends SFAS No. 144 to include in its scope long-term customer-relationship intangible assets of financial institutions, such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. Consequently, 9 those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that SFAS No. 144 requires for other long-lived assets that are held and used. The provisions of SFAS No. 147 related to the purchase method of accounting are effective for acquisitions occurring on or after October 1, 2002. The provisions related to accounting for the impairment or disposal of certain long-term customer-relationship intangible assets are effective on October 1, 2002. Transition provisions for previously recognized unidentifiable intangible assets are effective on October 1, 2002, with earlier application permitted. The adoption of SFAS No. 147 did not 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; - 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. 10 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 Reports on Form 10-Q for the quarters ended June 30, 2002 and March 31, 2002 and this report, contains a summary of our significant accounting policies. Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. Our policies with respect to the methodologies used to determine the allowance for loan losses, the valuation of mortgage servicing rights and asset impairment judgments, including the value of goodwill and other than temporary declines in the value of our securities, are our most critical accounting policies because they are important to the presentation of our financial condition and results of operations and they involve a higher degree of complexity and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions and estimates could result in material differences in our results of operations or financial condition. Following is a description of our critical accounting policies and an explanation of the methods and assumptions underlying their application. These critical policies and their application are reviewed quarterly with the Audit Committee of our Board of Directors. ALLOWANCE FOR LOAN LOSSES. Our allowance for loan losses is established and maintained through a provision for loan losses based on our evaluation of the risks inherent in our loan portfolio. We evaluate the adequacy of our allowance on a quarterly basis. The allowance is comprised of both specific valuation allowances and general valuation allowances. Specific valuation allowances are established in connection with individual loan reviews and the asset classification process including the procedures for impairment testing under SFAS No. 114, "Accounting by Creditors for Impairment of a Loan, an Amendment of FASB Statements No. 5 and 15," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures, an Amendment of FASB Statement No. 114." Such evaluation, which includes a review of loans on which full collectibility is not reasonably assured, considers the estimated fair value of the underlying collateral, if any, current and anticipated economic and regulatory conditions, current and historical loss experience of similar loans and other factors that determine risk exposure to arrive at an adequate loan loss allowance. Pursuant to our policy, loan losses must be charged-off in the period the loans, or portions thereof, are deemed uncollectible. The determination of the loans on which full collectibility is not reasonably assured, the estimates of the fair value of the underlying collateral, and the assessments of economic and regulatory conditions are subject to assumptions and judgments by management. Specific valuation allowances could differ materially as a result of changes in these assumptions and judgments. General valuation allowances represent loss allowances that have been established to recognize the inherent risks associated with our lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. The determination of the adequacy of the valuation allowance is a multidimensional process which takes into consideration a variety of factors. We segment our loan portfolio into like categories by composition and size and 11 perform a variety of analyses against each category. These include, but are not limited to, historical loss experience, delinquency levels and trends and migration analysis. We also consider the growth in the portfolio as well as our credit administration and asset management philosophies and procedures. In addition, we evaluate and consider the impact that existing and projected economic and market conditions may have on the portfolio as well as known and inherent risks in the portfolio. Finally, we evaluate and consider the allowance ratios and coverage percentages of both peer group and regulatory agency data. After evaluating these variables, we determine appropriate allowance coverage percentages for each of our portfolio segments and the appropriate level of our provision for loan losses. These evaluations are inherently subjective because, even though they are based on objective data, it is management's interpretation of that data that determines the amount of the appropriate allowance. Therefore, from time to time, we review the actual performance and charge-off history of our portfolio and compare that to our previously determined allowance coverage percentages. In doing so, we evaluate the impact the previously mentioned variables may have had on the portfolio to determine which changes, if any, should be made to our assumptions and analyses. Our most recent analysis has indicated that our projection of estimated losses inherent in our portfolio has exceeded our actual charge-off history during the recent economic downturn. In response to the results of this analysis, we have lowered our projections of estimated future losses inherent in our portfolio and we have adjusted our allowance coverage percentages for our portfolio segments accordingly. As indicated above, actual results could differ from our estimate as a result of changes in economic or market conditions. Changes in estimates could result in a material change in the allowance. While we believe that the allowance for loan losses has been established and maintained at levels adequate to reflect the risks inherent in our loan portfolio, future increases may be necessary if economic or market conditions decline substantially from the conditions that existed at the time of the initial determinations. For additional information regarding our allowance for loan losses, see "Provision for Loan Losses," "Asset Quality," "Non-Performing Assets" and "Allowance for Loan Losses" in this document and "Asset Quality" under Item 1, "Business," and "Provision for Loan Losses" and "Asset Quality" under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the year ended December 31, 2001. VALUATION OF MSR. MSR are carried at cost, and impairment, if any, is recognized through a valuation allowance. Impairment exists if the carrying value of MSR exceeds the estimated fair value. We stratify our MSR by underlying loan type, primarily fixed and adjustable, and further stratify our fixed rate loans by interest rate. Individual impairment allowances for each stratum are established when necessary and then adjusted in subsequent periods to reflect changes in the measurement of impairment. The estimated fair value of each MSR stratum is determined through analyses of future cash flows, incorporating numerous assumptions including servicing income, servicing costs, market discount rates, prepayment speeds and other market driven data. The fair value of MSR is highly sensitive to changes in assumptions. Changes in prepayment speed assumptions have the most significant impact on the fair value of our MSR. Generally, as interest rates decline, prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of MSR. As interest rates rise, prepayments slow down, 12 which results in an increase in the fair value of MSR. We obtain independent appraisals in determining our MSR valuation. All assumptions are reviewed for reasonableness on a quarterly basis and adjusted as necessary to reflect current and anticipated market conditions. Thus, any measurement of the fair value of our MSR is limited by the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different point in time. ASSET IMPAIRMENT JUDGMENTS. Certain of our assets are carried in our consolidated statements of financial condition at fair value or at the lower of cost or fair value. Valuation allowances are established when necessary to recognize impairment of such assets. We periodically perform analyses to test for impairment of various assets. In addition to our impairment analyses related to loans and MSR discussed above, two other significant impairment analyses relate to the value of goodwill and other than temporary declines in the value of our securities. Goodwill is accounted for in accordance with SFAS No. 142, which was effective January 1, 2002. Under the provisions of SFAS No. 142, goodwill is assumed to have an indefinite useful life and is no longer amortized, but rather tested, at least annually, for impairment at the reporting unit level. Impairment exists when the carrying amount of goodwill exceeds its implied fair value. When performing the impairment test, if the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. We performed a transitional goodwill impairment test upon adoption of SFAS No. 142 and our first annual impairment test on September 30, 2002. For purposes of our goodwill impairment testing, we identified a single reporting unit. We used the quoted market price of our common stock on the dates of our testing as the basis for determining the fair value of the reporting unit. On both test dates we determined the fair value of our one reporting unit to be in excess of its carrying value and, as such, there was no indication of goodwill impairment. While quoted market prices in active markets are considered the best evidence of fair value, other acceptable valuation methods include present value measurement or measurements based on multiples of earnings or revenue or similar performance measures. Differences in the identification of reporting units and the use of valuation techniques can result in materially different evaluations of impairment. Our available-for-sale portfolio is carried at estimated fair value, with any unrealized gains and losses, net of taxes reported as accumulated other comprehensive income in stockholders' equity. The securities which we have the positive intent and ability to hold to maturity are classified as held-to-maturity and are carried at amortized cost. We conduct a periodic review and evaluation of the securities portfolio to determine if the value of any security has declined below its carrying value and whether such decline is other than temporary. If such decline is deemed other than temporary, we would adjust the carrying amount of the security through a valuation allowance. The market values of our securities, particularly our fixed rate mortgage-backed securities which comprise 84.3% of our total securities portfolio, are significantly affected by changes in interest rates. In general, as interest rates rise, the market value of fixed rate securities will decrease; as interest rates fall, the market value of fixed rate securities will increase. Estimated fair values for securities are based on published or securities dealers' market values. GENERAL We are a Delaware corporation organized as the unitary savings and loan association holding 13 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. 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 $7.77 billion for the nine months ended September 30, 2002 and $4.73 billion for the nine months ended September 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 nine months ended September 30, 2002 compared to the same period in 2001. In addition, during the nine months ended September 30, 2002, medium- and long-term interest rates (two to ten years) declined on average approximately 150 basis points. 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 $131.4 million during the nine months ended September 30, 2002 and $116.8 million during the nine months ended September 30, 2001. During the nine months ended September 30, 2002, net borrowings decreased $1.05 billion, while net deposits increased $276.9 million. During the 14 nine months ended September 30, 2001, net borrowings decreased $348.6 million, while net deposits increased $721.8 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 nine months ended September 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 an 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. Our primary use of funds is for the origination and purchase of mortgage loans. During the nine months ended September 30, 2002, our gross originations and purchases of mortgage loans totaled $3.98 billion, compared to $3.06 billion during the nine months ended September 30, 2001. This increase was primarily attributable to the lower interest rate environment during the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, which resulted in an increase in mortgage refinance activity. Our loan originations and purchases have outpaced the increased level of repayments during the nine months ended September 30, 2002. For the nine months ended September 30, 2002, cash flow in excess of mortgage and other loan fundings and excess liquidity were primarily utilized for the purchase of mortgage-backed securities and the repayment of borrowings. Purchases of mortgage-backed securities totaled $3.84 billion and purchases of other securities totaled $502,000 during the nine months ended September 30, 2002. In addition, we paid off $1.05 billion of borrowings during the same period. During the nine months ended September 30, 2001, purchases of mortgage-backed securities totaled $939.7 million, purchases of other securities totaled $2.0 million and net borrowings decreased by $348.6 million. The rapid decline in interest rates in 2001 resulted in a significant increase in loan and mortgage-backed securities repayments which have further increased during the nine months ended September 30, 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 nine months ended September 30, 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 $988.5 million at September 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 nine months ended September 30, 2002, partially offset by the increase in cash flow due to the high level of refinance activity we have experienced during the nine months ended September 30, 2002, particularly in the third quarter. Borrowings maturing over the next twelve months total $1.60 billion with a weighted 15 average rate of 6.28%. We have the flexibility to either repay or rollover such borrowings as they mature. In addition, we have $2.37 billion in certificates of deposit with a weighted average rate of 3.02% maturing over the next twelve months. We expect to retain or replace a significant portion of such deposits based on our competitive pricing and historical experience. Retained or replaced deposits and refinanced borrowings during the next twelve months 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 mortgage market, the origination of such products for sale does not significantly reduce our liquidity. Stockholders' equity increased to $1.58 billion at September 30, 2002 from $1.54 billion at December 31, 2001. The increase in stockholders' equity was the result of net income of $187.4 million, the effect of stock options exercised and related tax benefit of $19.1 million, other comprehensive income, net of tax, of $11.8 million, and the amortization of the allocated portion of shares held by the employee stock ownership plan, or ESOP, of $7.3 million. These increases were partially offset by repurchases of our common stock of $129.8 million and dividends declared of $53.6 million. On September 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 August 15, 2002, totaling $17.7 million. During the three months ended September 30, 2002, we declared a cash dividend on our Series B Preferred Stock aggregating $1.5 million. On October 16, 2002, we declared a quarterly cash dividend of $0.20 per share on shares of our common stock payable on December 2, 2002 to stockholders of record as of the close of business on November 15, 2002. During the nine months ended September 30, 2002, we repurchased 4,180,400 shares of our common stock at an aggregate cost of $129.8 million under our eighth stock repurchase plan. This stock repurchase plan, which was approved by our Board of Directors on September 17, 2001, authorized 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. In total, 7,215,000 shares have been purchased under the eighth stock repurchase plan. On October 16, 2002, our Board of Directors approved our ninth stock repurchase plan authorizing the purchase, at management's discretion, of an additional 10,000,000 shares, or approximately 11% of our common stock outstanding, in open-market or privately negotiated transactions over a two year period. Stock repurchases under our ninth stock repurchase plan are expected to commence immediately following the completion of the eighth stock repurchase program. At September 30, 2002, Astoria Federal's capital levels exceeded all of its regulatory capital requirements with a tangible capital ratio of 7.04%, leverage capital ratio of 7.04% and risk- 16 based capital ratio of 15.14%. 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%. On October 16, 2002, we completed the private placement of $200.0 million of senior unsecured notes due in 2012 bearing a fixed interest rate of 5.75%. We may redeem all or part of the notes at any time at a "make-whole" redemption price, together with accrued interest to the redemption date. The notes were placed with a limited number of institutional investors under Rule 144A of the Securities Act of 1933, or the Securities Act. The notes have not been registered under the Securities Act. We have agreed with the investors to file an exchange offer registration statement with the SEC no later than February 13, 2003 to allow the note holders to exchange the notes for a new issue of substantially identical notes registered under the Securities Act. The net proceeds from the note placement will be used for general corporate purposes, including stock repurchases. Additionally, we may also use the proceeds for repaying, reducing or refinancing outstanding indebtedness or preferred stock, financing possible acquisitions of branches or other financial institutions or financial service companies and extending credit to or funding investments in our subsidiaries, including possible capital contributions to Astoria Federal. LOAN PORTFOLIO The following table sets forth the composition of our loans receivable and loans held-for-sale portfolios at September 30, 2002 and December 31, 2001.
AT SEPTEMBER 30, 2002 AT DECEMBER 31, 2001 ------------------------ ---------------------------- PERCENT PERCENT (Dollars in Thousands) AMOUNT OF TOTAL AMOUNT OF TOTAL ----------- -------- ------------ ----------- MORTGAGE LOANS (1): One-to-four family $ 9,771,310 78.97% $10,146,555 83.63% Multi-family 1,489,612 12.04 1,094,312 9.02 Commercial real estate 710,189 5.74 598,334 4.93 Construction 54,072 0.43 50,739 0.42 ----------- ------- ------------ --------- Total mortgage loans 12,025,183 97.18 11,889,940 98.00 ----------- ------- ------------ --------- CONSUMER AND OTHER LOANS (2): Home equity 299,197 2.42 189,259 1.56 Passbook 7,870 0.06 9,012 0.07 Other 41,538 0.34 43,821 0.37 ----------- ------- ------------ --------- Total consumer and other loans 348,605 2.82 242,092 2.00 ----------- ------- ------------ --------- TOTAL LOANS 12,373,788 100.00% 12,132,032 100.00% Net unamortized premiums and deferred loan costs 79,342 78,619 Allowance for loan losses (83,648) (82,285) ----------- ------------ TOTAL LOANS, NET $12,369,482 $12,128,366 =========== ============
(1) Includes loans classified as held-for-sale totaling $31.1 million at September 30, 2002 and $41.5 million at December 31, 2001. (2) Includes loans classified as held-for-sale totaling $1.2 million at September 30, 2002 and $1.9 million at December 31, 2001. 17 SECURITIES PORTFOLIO The following table sets forth the amortized cost and estimated fair value of mortgage-backed and other securities available-for-sale and held-to-maturity at September 30, 2002 and December 31, 2001.
AT SEPTEMBER 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 .. $ 335,856 $ 347,675 $ 450,742 $ 462,748 REMICs and CMOs: Agency issuance ................ 1,039,360 1,050,105 1,402,241 1,402,093 Non-agency issuance ............ 1,007,425 1,010,875 1,132,384 1,150,122 ---------- ---------- ---------- ---------- Total mortgage-backed securities ...... 2,382,641 2,408,655 2,985,367 3,014,963 ---------- ---------- ---------- ---------- Other securities: Obligations of the U.S. Government and agencies .......... 305,049 309,948 362,888 359,561 FNMA and FHLMC preferred stock .... 120,015 116,138 120,015 111,276 Corporate debt and other securities 67,932 68,007 68,292 63,383 ---------- ---------- ---------- ---------- Total other securities ................ 492,996 494,093 551,195 534,220 ---------- ---------- ---------- ---------- Total securities available-for-sale ...... $2,875,637 $2,902,748 $3,536,562 $3,549,183 ========== ========== ========== ========== HELD-TO-MATURITY: Mortgage-backed securities: Agency pass-through certificates .. $ 27,349 $ 29,068 $ 36,620 $ 37,543 REMICs and CMOs: Agency issuance ................ 2,858,552 2,893,616 2,979,357 2,975,780 Non-agency issuance ............ 1,495,850 1,515,593 1,043,110 1,049,426 ---------- ---------- ---------- ---------- Total mortgage-backed securities ...... 4,381,751 4,438,277 4,059,087 4,062,749 ---------- ---------- ---------- ---------- Other securities: Obligations of the U.S. Government and agencies .......... 64,557 65,399 362,034 362,628 Obligations of states and political subdivisions ........... 39,943 39,943 42,807 42,823 ---------- ---------- ---------- ---------- Total other securities ................ 104,500 105,342 404,841 405,451 ---------- ---------- ---------- ---------- Total securities held-to-maturity ........ $4,486,251 $4,543,619 $4,463,928 $4,468,200 ========== ========== ========== ==========
18 COMPARISON OF FINANCIAL CONDITION AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001 AND OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 FINANCIAL CONDITION Total assets decreased $763.4 million to $21.90 billion at September 30, 2002, from $22.67 billion at December 31, 2001. The primary reasons for the decrease in total assets were the decrease in securities and the decrease in federal funds sold and repurchase agreements, which were utilized for the repayment of various borrowings which matured during the nine months ended September 30, 2002. We continued our strategy of repositioning the balance sheet through increases in deposits and loans and decreases in securities and borrowings. Mortgage loans, net, including mortgage loans held-for-sale, increased $133.0 million to $12.10 billion at September 30, 2002, from $11.97 billion at December 31, 2001. However, despite strong loan originations, our mortgage loan portfolio decreased during the quarter ended September 30, 2002 due to the extraordinarily high level of repayment activity. Gross mortgage loans originated and purchased during the nine months ended September 30, 2002 totaled $3.98 billion, of which $2.88 billion were originations and $1.10 billion were purchases. This compares to $2.04 billion of originations and $1.02 billion of purchases for a total of $3.06 billion during the nine months ended September 30, 2001. The increase in mortgage loan originations and purchases was primarily a result of the lower interest rate environment during the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, which has increased the level of mortgage refinance activity. The increase in originations and purchases was offset by an increase in mortgage loan repayments to $3.53 billion for the nine months ended September 30, 2002, from $2.29 billion for the nine months ended September 30, 2001, which was also primarily a result of the lower interest rates in the nine months ended September 30, 2002 over the comparable 2001 period. Our loan portfolio, 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 79.0% of our total loan portfolio at September 30, 2002, decreased $375.2 million to $9.77 billion at September 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 $395.3 million to $1.49 billion at September 30, 2002, from $1.09 billion at December 31, 2001. Similarly, our commercial real estate loans increased $111.9 million to $710.2 million at September 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 $283.6 million to $6.79 billion at September 30, 2002, from $7.07 billion at December 31, 2001. This decrease was primarily the result of principal payments received of $3.75 billion and sales of $375.8 million, partially offset by purchases of $3.84 billion of REMICs and CMOs. 19 In addition to the changes noted in the mortgage loan and mortgage-backed securities portfolios, other securities decreased $340.5 million to $598.6 million at September 30, 2002, from $939.1 million at December 31, 2001, primarily due to $394.6 million in securities which were called or matured, partially offset by the net accretion of discounts of $35.5 million and a decrease of $18.1 million in the net unrealized loss on securities available-for-sale. The improvement in the market value of our other securities available-for-sale portfolio was related to the decrease in medium term market interest rates that occurred from December 31, 2001 to September 30, 2002. Federal funds sold and repurchase agreements decreased $465.3 million to $843.9 million at September 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 nine months ended September 30, 2002, partially offset by the increase in cash flow due to the high level of refinance activity we have experienced during the nine months ended September 30, 2002, particularly in the third quarter. In addition, Bank Owned Life Insurance, or BOLI, increased $114.9 million to $357.7 million at September 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 $276.9 million to $11.18 billion at September 30, 2002, from $10.90 billion at December 31, 2001. The increase in deposits was primarily due to an increase of $197.7 million in core deposits to $5.94 billion at September 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. While total core deposits increased, our money market accounts, which are a component of core deposits, decreased $138.4 million to $1.82 billion at September 30, 2002. Our certificates of deposit also increased $79.2 million to $5.24 billion at September 30, 2002, from $5.16 billion at December 31, 2001. Reverse repurchase agreements decreased $800.0 million to $6.59 billion at September 30, 2002, from $7.39 billion at December 31, 2001. Federal Home Loan Bank of New York advances increased $50.5 million to $1.96 billion at September 30, 2002, from $1.91 billion at December 31, 2001. Other borrowings, net, decreased $300.4 million to $99.2 million at September 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 nine months ended September 30, 2002. Stockholders' equity increased to $1.58 billion at September 30, 2002, from $1.54 billion at December 31, 2001. The increase in stockholders' equity was the result of net income of $187.4 million, the effect of stock options exercised and related tax benefit of $19.1 million, other comprehensive income, net of tax, of $11.8 million and the amortization of the allocated portion of shares held by the ESOP of $7.3 million. These increases were partially offset by repurchases of our common stock of $129.8 million and dividends declared of $53.6 million. RESULTS OF OPERATIONS GENERAL Net income for the three months ended September 30, 2002 increased $5.7 million to $62.2 million, from $56.5 million for the three months ended September 30, 2001. For the three 20 months ended September 30, 2002, diluted earnings per common share increased to $0.72 per share, as compared to $0.60 per share for the three months ended September 30, 2001. Return on average assets increased to 1.14% for the three months ended September 30, 2002, from 1.00% for the three months ended September 30, 2001. Return on average stockholders' equity increased to 15.72% for the three months ended September 30, 2002, from 14.17% for the three months ended September 30, 2001. Return on average tangible stockholders' equity increased to 17.81% for the three months ended September 30, 2002, from 16.12% for the three months ended September 30, 2001. Net income for the nine months ended September 30, 2002 increased $19.3 million to $187.4 million, from $168.1 million for the nine months ended September 30, 2001. For the nine months ended September 30, 2002, diluted earnings per common share increased to $2.13 per share, as compared to $1.75 per share for the nine months ended September 30, 2001. Return on average assets increased to 1.13% for the nine months ended September 30, 2002, from 1.00% for the nine months ended September 30, 2001. Return on average stockholders' equity increased to 15.92% for the nine months ended September 30, 2002, from 14.15% for the nine months ended September 30, 2001. Return on average tangible stockholders' equity increased to 18.05% for the nine months ended September 30, 2002, from 16.18% for the nine months ended September 30, 2001. The results of operations for the three and nine months ended September 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 September 30, 2001 and $14.3 million, or $0.15 per diluted common share, for the nine months ended September 30, 2001. The results of operations for the nine months ended September 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 September 30, 2002, net interest income increased $5.0 million to $119.2 million, from $114.2 million for the three months ended September 30, 2001. This increase was primarily attributable to an increase in the net interest margin to 2.31% for the three months ended September 30, 2002, from 2.12% for the three months ended September 30, 2001, partially offset by a decrease of $286.8 million in the average balance of net interest-earning assets to $776.9 million for the three months ended September 30, 2002, from $1.06 billion for the three months ended September 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 21 with the repayment of various higher cost borrowings. The decrease in the average balance of net interest-earning assets was the result of a $967.4 million decrease in the average balance of total interest-earning assets to $20.63 billion for the three months ended September 30, 2002, from $21.60 billion for the three months ended September 30, 2001, partially offset by a $680.6 million decrease in the average balance of total interest-bearing liabilities to $19.86 billion for the three months ended September 30, 2002, from $20.54 billion for the three months ended September 30, 2001. The net interest rate spread increased to 2.16% for the three months ended September 30, 2002, from 1.88% for the three months ended September 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 3.91% for the three months ended September 30, 2002, from 4.76% for the three months ended September 30, 2001, partially offset by a decrease in the average yield on interest-earning assets to 6.07% for the three months ended September 30, 2002, from 6.64% for the three months ended September 30, 2001. The changes in such costs and yields were a result of the lower interest rate environment noted above. For the nine months ended September 30, 2002, net interest income increased $7.0 million to $362.7 million, from $355.7 million for the nine months ended September 30, 2001. This increase was primarily the result of an increase in the net interest margin to 2.31% for the nine months ended September 30, 2002, from 2.21% for the nine months ended September 30, 2001, partially offset by a decrease of $287.8 million in the average balance of net interest-earning assets to $835.5 million for the nine months ended September 30, 2002, from $1.12 billion for the nine months ended September 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 $535.7 million decrease in the average balance of total interest-earning assets to $20.94 billion for the nine months ended September 30, 2002, from $21.48 billion for the nine months ended September 30, 2001, partially offset by a $247.9 million decrease in the average balance of total interest-bearing liabilities to $20.11 billion for the nine months ended September 30, 2002, from $20.36 billion for the nine months ended September 30, 2001. The net interest rate spread increased to 2.15% for the nine months ended September 30, 2002, from 1.95% for the nine months ended September 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 4.03% for the nine months ended September 30, 2002, from 4.84% for the nine months ended September 30, 2001, partially offset by a decrease in the average yield on interest-earning assets to 6.18% for the nine months ended September 30, 2002, from 6.79% for the nine months ended September 30, 2001. The changes in such costs and yields were a result of the lower interest rate environment noted above. 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 nine month periods ended September 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 22 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.
FOR THE THREE MONTHS ENDED SEPTEMBER 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 $ 10,012,425 $ 154,192 6.16% $ 10,088,518 $ 174,641 6.92% Multi-family, commercial and construction 2,166,118 42,644 7.87 1,540,679 32,373 8.40 Consumer and other loans (1) 323,195 4,792 5.93 208,686 4,364 8.36 ------------ --------- ------------ --------- Total loans 12,501,738 201,628 6.45 11,837,883 211,378 7.14 Mortgage-backed securities (2) 6,376,544 91,552 5.74 6,935,545 109,556 6.32 Other securities (2)(3) ` 927,940 16,629 7.17 1,458,258 25,705 7.05 Federal funds sold and repurchase agreements 827,857 3,571 1.73 1,369,769 12,082 3.53 ------------ --------- ------------ --------- Total interest-earning assets 20,634,079 313,380 6.07 21,601,455 358,721 6.64 --------- --------- Non-interest-earning assets 1,286,755 1,033,327 ------------ ------------ Total assets $ 21,920,834 $ 22,634,782 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing liabilities: Savings $ 2,810,974 7,938 1.13 $ 2,507,045 12,537 2.00 Certificates of deposit 5,253,760 55,056 4.19 5,284,102 71,149 5.39 NOW 1,273,066 931 0.29 1,081,815 1,446 0.53 Money market 1,870,756 7,777 1.66 1,817,718 16,555 3.64 ------------ --------- ------------ --------- Total deposits 11,208,556 71,702 2.56 10,690,680 101,687 3.80 Borrowed funds 8,648,634 122,451 5.66 9,847,116 142,809 5.80 ------------ --------- ------------ --------- Total interest-bearing liabilities 19,857,190 194,153 3.91 20,537,796 244,496 4.76 --------- --------- Non-interest-bearing liabilities 480,880 503,401 ------------ ------------ Total liabilities 20,338,070 21,041,197 Stockholders' equity 1,582,764 1,593,585 ------------ ------------ Total liabilities and stockholders' equity $ 21,920,834 $ 22,634,782 ============ ============ Net interest income/net interest rate spread $ 119,227 2.16% $ 114,225 1.88% ========= ==== ========= ==== Net interest-earning assets/net interest margin $ 776,889 2.31% $ 1,063,659 2.12% ============ ==== ============ ==== 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. 23
FOR THE NINE MONTHS ENDED SEPTEMBER 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 $ 10,221,945 $ 484,150 6.32% $ 10,017,683 $ 524,333 6.98% Multi-family, commercial and construction 1,982,618 117,714 7.92 1,427,729 89,564 8.36 Consumer and other loans (1) 287,169 12,711 5.90 197,681 13,713 9.25 ----------- --------- ------------ ---------- Total loans 12,491,732 614,575 6.56 11,643,093 627,610 7.19 Mortgage-backed securities (2) 6,503,436 289,273 5.93 7,370,584 355,001 6.42 Other securities (2)(3) 1,092,241 55,734 6.80 1,623,044 86,292 7.09 Federal funds sold and repurchase agreements 857,510 10,963 1.70 843,876 25,360 4.01 ----------- --------- ------------ ---------- Total interest-earning assets 20,944,919 970,545 6.18 21,480,597 1,094,263 6.79 --------- ---------- Non-interest-earning assets 1,228,557 975,791 ----------- ------------ Total assets $ 22,173,476 $ 22,456,388 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing liabilities: Savings $ 2,732,395 24,607 1.20 $ 2,474,209 37,169 2.00 Certificates of deposit 5,209,688 170,583 4.37 5,226,746 217,544 5.55 NOW 1,239,817 2,650 0.28 1,055,295 4,301 0.54 Money market 1,920,586 27,632 1.92 1,669,733 52,817 4.22 ----------- --------- ------------ ---------- Total deposits 11,102,486 225,472 2.71 10,425,983 311,831 3.99 Borrowed funds 9,006,959 382,341 5.66 9,931,390 426,733 5.73 ----------- --------- ------------ ---------- Total interest-bearing liabilities 20,109,445 607,813 4.03 20,357,373 738,564 4.84 --------- ---------- Non-interest-bearing liabilities 495,098 515,969 ----------- ------------ Total liabilities 20,604,543 20,873,342 Stockholders' equity 1,568,933 1,583,046 ----------- ------------ Total liabilities and stockholders' equity $ 22,173,476 $ 22,456,388 ============ ============ Net interest income/net interest rate spread $ 362,732 2.15% $ 355,699 1.95% ======== ==== ========== ==== Net interest-earning assets/net interest margin $ 835,474 2.31% $ 1,123,224 2.21% ============ ==== ============ ==== 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. 24 RATE/VOLUME ANALYSIS The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated. Information is provided in each category with respect to (1) the changes attributable to changes in volume (changes in volume multiplied by prior rate), (2) the changes attributable to changes in rate (changes in rate multiplied by prior volume), and (3) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
THREE MONTHS ENDED SEPTEMBER 30, 2002 NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2001 NINE MONTHS ENDED SEPTEMBER 30, 2001 ------------------------------------- ------------------------------------ INCREASE (DECREASE) INCREASE (DECREASE) ------------------- ------------------- (In Thousands) VOLUME RATE NET VOLUME RATE NET - -------------- ------ ---- --- ------ ---- --- Interest-earning assets: One-to-four family loans $ (1,314) $ (19,135) $ (20,449) $ 10,465 $ (50,648) $ (40,183) Multi-family, commercial and construction loans 12,423 (2,152) 10,271 33,092 (4,942) 28,150 Consumer and other loans 1,937 (1,509) 428 4,962 (5,964) (1,002) Mortgage-backed securities (8,418) (9,586) (18,004) (39,866) (25,862) (65,728) Other securities (9,506) 430 (9,076) (27,161) (3,397) (30,558) Federal funds sold and repurchase agreements (3,718) (4,793) (8,511) 405 (14,802) (14,397) ---------- ---------- ---------- ---------- ---------- ---------- Total (8,596) (36,745) (45,341) (18,103) (105,615) (123,718) ---------- ---------- ---------- ---------- ---------- ---------- Interest-bearing liabilities: Savings 1,375 (5,974) (4,599) 3,544 (16,106) (12,562) Certificates of deposit (405) (15,688) (16,093) (710) (46,251) (46,961) NOW 220 (735) (515) 656 (2,307) (1,651) Money market 470 (9,248) (8,778) 7,005 (32,190) (25,185) Borrowed funds (16,989) (3,369) (20,358) (39,242) (5,150) (44,392) ---------- ---------- ---------- ---------- ---------- ---------- Total (15,329) (35,014) (50,343) (28,747) (102,004) (130,751) ---------- ---------- ---------- ---------- ---------- ---------- Net change in net interest income $ 6,733 $ (1,731) $ 5,002 $ 10,644 $ (3,611) $ 7,033 ========== ========== ========== ========== ========== ==========
INTEREST INCOME Interest income for the three months ended September 30, 2002 decreased $45.3 million to $313.4 million, from $358.7 million for the three months ended September 30, 2001. This decrease was the result of a decrease in the average yield on interest-earning assets to 6.07% for the three months ended September 30, 2002, from 6.64% for the three months ended September 30, 2001, coupled with a decrease of $967.4 million in the average balance of interest-earning assets to $20.63 billion for the three months ended September 30, 2002, from $21.60 billion for the three months ended September 30, 2001. The decrease in the average yield on interest-earning assets was due to the decreases in the average yields on substantially all asset categories, which reflects the lower interest rate environment during the third quarter of 2002 compared to the third 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, calls and sales, federal funds sold and repurchase agreements and one-to-four family mortgage loans, partially offset by increases in the average balances of multi-family, commercial and construction mortgage loans and consumer and other loans. Also contributing to the decrease in the average balance of interest-earning assets was the purchase of an additional $100.0 million of 25 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 $20.4 million to $154.2 million for the three months ended September 30, 2002, from $174.6 million for the three months ended September 30, 2001, which was primarily the result of a decrease in the average yield to 6.16% for the three months ended September 30, 2002, from 6.92% for the three months ended September 30, 2001, coupled with a $76.1 million decrease in the average balance of such loans. The decrease in the average balance of one-to-four family mortgage loans reflects the increased level of repayment activity due to refinancings in the prevailing interest rate environment, offset in part by the strong level of originations and purchases. Interest income on multi-family, commercial real estate and construction loans increased $10.2 million to $42.6 million for the three months ended September 30, 2002, from $32.4 million for the three months ended September 30, 2001, which was primarily the result of a $625.4 million increase in the average balance of such loans, partially offset by a decrease in the average yield to 7.87% for the three months ended September 30, 2002, from 8.40% for the three months ended September 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 in part due to the prepayment penalties associated with 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 third quarter of 2002 as compared to the third quarter of 2001 as higher rate loans were prepaid and replaced with lower yielding new originations and purchases. Interest income on consumer and other loans increased $428,000 for the three months ended September 30, 2002 compared to the three months ended September 30, 2001 resulting from an increase of $114.5 million in the average balance of this portfolio, partially offset by a decrease in the average yield to 5.93% for the three months ended September 30, 2002, from 8.36% for the three months ended September 30, 2001. The changes in interest income on consumer and other loans are primarily attributable to home equity loans which represent 85.8% of this portfolio at September 30, 2002. The increase in the average balance of consumer and other loans is due to the increase in home equity loans as a result of the strong housing market combined with low interest rates over the past two years. 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 and 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 $18.0 million to $91.6 million for the three months ended September 30, 2002, from $109.6 million for the three months ended September 30, 2001. This decrease was the result of a decrease in the average yield to 5.74% for the three months ended September 30, 2002, from 6.32% for the three months ended September 30, 2001, coupled with a $559.0 million decrease in the average balance of this portfolio. The decrease in the average balance of mortgage-backed securities is a result of our strategy of repositioning the balance sheet, increased levels of principal repayments due to the lower interest rate environment which has existed since June 2001 and sales of securities 26 during the third quarter of 2002. Interest income on other securities decreased $9.1 million to $16.6 million for the three months ended September 30, 2002, from $25.7 million for the three months ended September 30, 2001. This decrease resulted from a decrease of $530.3 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, slightly offset by an increase in the average yield to 7.17% for the three months ended September 30, 2002, from 7.05% for the three months ended September 30, 2001. The increase in the average yield is a result of prepayment penalties associated with certain callable securities which were called during the third quarter of 2002 which resulted in additional income. Interest income on federal funds sold and repurchase agreements decreased $8.5 million as a result of a decrease in the average yield to 1.73% for the three months ended September 30, 2002, from 3.53% for the three months ended September 30, 2001, coupled with a decrease of $541.9 million in the average balance of the portfolio. Interest income for the nine months ended September 30, 2002 decreased $123.7 million to $970.5 million, from $1.09 billion for the nine months ended September 30, 2001. This decrease was the result of a decrease in the average yield on interest-earning assets to 6.18% for the nine months ended September 30, 2002, from 6.79% for the nine months ended September 30, 2001, coupled with a decrease of $535.7 million in the average balance of interest-earning assets to $20.94 billion for the nine months ended September 30, 2002, from $21.48 billion for the nine months ended September 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 which has prevailed since June 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, calls and sales, partially offset by increases in the average balances of mortgage loans, consumer and other 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 $40.1 million to $484.2 million for the nine months ended September 30, 2002, from $524.3 million for the nine months ended September 30, 2001, which was primarily the result of a decrease in the average yield to 6.32% for the nine months ended September 30, 2002, from 6.98% for the nine months ended September 30, 2001, partially offset by a $204.3 million increase in the average balance of such loans. Interest income on multi-family, commercial real estate and construction loans increased $28.1 million to $117.7 million for the nine months ended September 30, 2002, from $89.6 million for the nine months ended September 30, 2001, which was primarily the result of a $554.9 million increase in the average balance of such loans, partially offset by a decrease in the average yield to 7.92% for the nine months ended September 30, 2002, from 8.36% for the nine months ended September 30, 2001. As previously discussed, the increases in the average balances of our mortgage loans and the decreases in the average yields for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001 reflect our continued emphasis on mortgage lending and the lower interest rate environment. Interest income on consumer and other loans decreased $1.0 million during the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001 27 resulting from a decrease in the average yield to 5.90% for the nine months ended September 30, 2002, from 9.25% for the nine months ended September 30, 2001, partially offset by an increase of $89.5 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 $65.7 million to $289.3 million for the nine months ended September 30, 2002, from $355.0 million for the nine months ended September 30, 2001. This decrease was the result of a $867.1 million decrease in the average balance of the portfolio, due to principal repayments and sales as previously discussed, coupled with a decrease in the average yield to 5.93% for the nine months ended September 30, 2002, from 6.42% for the nine months ended September 30, 2001. Interest income on other securities decreased $30.6 million to $55.7 million for the nine months ended September 30, 2002, from $86.3 million for the nine months ended September 30, 2001, resulting from a decrease of $530.8 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 6.80% for the nine months ended September 30, 2002, from 7.09% for the nine months ended September 30, 2001. Interest income on federal funds sold and repurchase agreements decreased $14.4 million as a result of a decrease in the average yield to 1.70% for the nine months ended September 30, 2002, from 4.01% for the nine months ended September 30, 2001, slightly offset by an increase of $13.6 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 nine months ended September 30, 2002 compared to the nine months ended September 30, 2001. INTEREST EXPENSE Interest expense for the three months ended September 30, 2002 decreased $50.3 million to $194.2 million, from $244.5 million for the three months ended September 30, 2001. This decrease was primarily the result of a decrease in the average cost of interest-bearing liabilities to 3.91% for the three months ended September 30, 2002, from 4.76% for the three months ended September 30, 2001, coupled with a $680.6 million decrease in the average balance of interest-bearing liabilities to $19.86 billion for the three months ended September 30, 2002, from $20.54 billion for the three months ended September 30, 2001. 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 June 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 $30.0 million, to $71.7 million for the three months ended September 30, 2002, from $101.7 million for the three months ended September 30, 2001, reflecting a decrease in the average cost of deposits to 2.56% for the three months ended September 30, 2002, from 3.80% for the three months ended September 30, 2001, partially offset by an increase of $517.9 million in the average balance of total deposits. The decrease 28 in the average cost of total deposits was driven by decreases in rates in all deposit categories, 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 NOW accounts. Interest expense on certificates of deposit decreased $16.1 million resulting from a decrease in the average cost to 4.19% for the three months ended September 30, 2002, from 5.39% for the three months ended September 30, 2001, coupled with a decrease of $30.3 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 $8.8 million reflecting a decrease in the average cost to 1.66% for the three months ended September 30, 2002, from 3.64% for the three months ended September 30, 2001, slightly offset by an increase of $53.0 million in the average balance of such accounts. Interest paid on money market accounts is on a tiered basis with 88.15% of the balance at September 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-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 third quarter of 2002 compared to the third quarter of 2001. Interest expense on savings accounts decreased $4.6 million which was attributable to a decrease in the average cost to 1.13% for the three months ended September 30, 2002, from 2.00% for the three months ended September 30, 2001, partially offset by an increase of $303.9 million in the average balance. Interest expense on NOW accounts decreased $515,000 as a result of a decrease in the average cost to 0.29% for the three months ended September 30, 2002, from 0.53% for the three months ended September 30, 2001, partially offset by an increase of $191.3 million in the average balance. As previously discussed, the decreases in the average costs of savings and NOW accounts are reflective of the lower interest rate environment and the increases in the average balances are consistent with our emphasis on deposit generation. Interest expense on borrowed funds for the three months ended September 30, 2002 decreased $20.3 million to $122.5 million, from $142.8 million for three months ended September 30, 2001, resulting from a decrease of $1.20 billion in the average balance, coupled with a decrease in the average cost of borrowings to 5.66% for the three months ended September 30, 2002, from 5.80% for the three months ended September 30, 2001. During the nine months ended September 30, 2002, $1.05 billion in borrowings with an average rate of 7.01% were repaid. Interest expense for the nine months ended September 30, 2002 decreased $130.8 million to $607.8 million, from $738.6 million for the nine months ended September 30, 2001. This decrease was primarily the result of a decrease in the average cost of interest-bearing liabilities to 4.03% for the nine months ended September 30, 2002, from 4.84% for the nine months ended September 30, 2001, coupled with a $247.9 million decrease in the average balance of interest-bearing liabilities to $20.11 billion for the nine months ended September 30, 2002, from $20.36 billion for the nine months ended September 30, 2001. 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 29 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 $86.3 million, to $225.5 million for the nine months ended September 30, 2002, from $311.8 million for the nine months ended September 30, 2001, reflecting a decrease in the average cost of deposits to 2.71% for the nine months ended September 30, 2002, from 3.99% for the nine months ended September 30, 2001, partially offset by an increase of $676.5 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 savings, money market and NOW accounts. Interest expense on certificates of deposit decreased $47.0 million resulting from a decrease in the average cost to 4.37% for the nine months ended September 30, 2002, from 5.55% for the nine months ended September 30, 2001, coupled with a decrease of $17.1 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 $25.2 million reflecting a decrease in the average cost to 1.92% for the nine months ended September 30, 2002, from 4.22% for the nine months ended September 30, 2001, partially offset by an increase of $250.9 million in the average balance of such accounts. The decrease in the average cost of these deposits is reflective of the lower market interest rates in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001 as previously discussed. Interest expense on savings accounts decreased $12.6 million which was attributable to a decrease in the average cost to 1.20% for the nine months ended September 30, 2002, from 2.00% for the nine months ended September 30, 2001, partially offset by an increase of $258.2 million in the average balance. Interest expense on NOW accounts decreased $1.7 million as a result of a decrease in the average cost to 0.28% for the nine months ended September 30, 2002, from 0.54% for the nine months ended September 30, 2001, partially offset by an increase of $184.5 million in the average balance. Interest expense on borrowed funds for the nine months ended September 30, 2002 decreased $44.4 million to $382.3 million, from $426.7 million for nine months ended September 30, 2001, resulting from a decrease of $924.4 million in the average balance, coupled with a decrease in the average cost of borrowings to 5.66% for the nine months ended September 30, 2002, from 5.73% for the nine months ended September 30, 2001. PROVISION FOR LOAN LOSSES Provision for loan losses totaled $301,000 for the three months ended September 30, 2002 compared to $1.0 million for the three months ended September 30, 2001. For the nine months ended September 30, 2002, provision for loan losses totaled $2.3 million compared to $3.0 million for the nine months ended September 30, 2001. The allowance for loan losses increased to $83.6 million at September 30, 2002, from $82.3 million at December 31, 2001. The increase in the allowance for loan losses reflects the overall increase in our loan portfolio, 30 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. The decrease in the provision for loan losses for the three months ended September 30, 2002 compared to the same period in 2001 is due to our change in allowance coverage ratios which is reflective of our extremely low level of historical charge-offs. Net loan charge-offs totaled $258,000 for the three months ended September 30, 2002 compared to $372,000 for the three months ended September 30, 2001. For the nine months ended September 30, 2002, net loan charge-offs totaled $944,000 compared to $952,000 for the nine months ended September 30, 2001. Non-performing loans decreased $4.8 million to $32.3 million at September 30, 2002, from $37.1 million at December 31, 2001. The allowance for loan losses as a percentage of non-performing loans increased to 259.20% at September 30, 2002, from 221.70% at December 31, 2001 primarily due to the decrease in non-performing loans from December 31, 2001 to September 30, 2002. The allowance for loan losses as a percentage of total loans decreased slightly to 0.67% at September 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 September 30, 2002 increased $10.1 million, or 37.5%, to $37.0 million, from $26.9 million for the three months ended September 30, 2001 and increased $18.2 million, or 24.1%, to $93.4 million for the nine months ended September 30, 2002, from $75.2 million for the nine months ended September 30, 2001. These increases in non-interest income were primarily due to increases in net gain on sales of securities, customer service fees and income from BOLI, partially offset by decreases in loan servicing fees and other non-interest income. Net gain on sales of securities totaled $8.5 million for the three and nine month periods ended September 30, 2002. During September 2002, we sold mortgage-backed securities with an amortized cost of $375.8 million. There were no sales of securities in 2001. These gains were used as a hedge to offset most of the increase in net amortization of mortgage servicing rights caused by a valuation adjustment of $9.1 million, recorded in the 2002 third quarter. Customer service fees increased $2.1 million to $15.6 million for the three months ended September 30, 2002, from $13.5 million for the three months ended September 30, 2001 and increased $6.8 million to $44.9 million for the nine months ended September 30, 2002, from $38.1 for the nine months ended September 30, 2001. The increase in customer service fees was primarily attributable to an increase in the number of NOW accounts, which was primarily due 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 $1.6 million to $5.7 million for the three months ended September 30, 2002, from $4.1 million for the three months ended September 30, 2001 and increased $3.3 million to $15.9 million for the nine months ended September 30, 2002, from $12.6 million for the nine months ended September 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. 31 Loan servicing fees decreased $426,000 to $3.2 million for the three months ended September 30, 2002, from $3.6 million for the three months ended September 30, 2001 and decreased $2.1 million to $9.5 million for the nine months ended September 30, 2002, from $11.6 million for the nine months ended September 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 $2.92 billion at September 30, 2002, from $3.52 billion at September 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 increased $179,000 to $1.1 million for the three months ended September 30, 2002, from $877,000 for the three months ended September 30, 2001 and increased $1.3 million to $3.9 million for the nine months ended September 30, 2002, from $2.6 million for the nine months ended September 30, 2001. The increase in the net gain on sales of loans for the nine months ended September 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 September 30, 2002 to $2.2 million compared to $1.6 million for the three months ended September 30, 2001 and increased to $5.9 million for the nine months ended September 30, 2002 compared to $4.6 million for the nine months ended September 30, 2001. Other non-interest income decreased $2.5 million to $729,000 for the three months ended September 30, 2002, compared to $3.2 million for the three months ended September 30, 2001. For the nine months ended September 30, 2002, other non-interest income decreased $956,000 to $4.8 million, from $5.7 million for the nine months ended September 30, 2001. The decrease for the three months ended September 30, 2002 is due to income recognized in the 2001 third quarter related to the dissolution of a trust account previously established for certain former executives. For the nine months ended September 30, 2002, the decrease in income was attributable to the income recognized in 2001 related to the dissolution of the trust account, partially offset by 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 The Prudential Insurance Company of America 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 September 30, 2002 was $63.5 million, an increase of $9.2 million from $54.3 million for the three months ended September 30, 2001. For the nine months ended September 30, 2002, non-interest expense increased $7.1 million to $173.2 million, from $166.1 million for the nine months ended September 30, 2001. These increases were primarily due to increases in net amortization of mortgage servicing rights and general and administrative expense, partially offset by the elimination of goodwill amortization, effective January 1, 2002 upon adoption of SFAS No. 142, which totaled $4.8 million for the three months ended September 30, 2001 and $14.3 million for the nine months ended September 30, 2001, and a decrease in goodwill litigation expense. General and administrative expense increased $5.0 million to $48.4 million for the three months ended September 30, 2002, from $43.4 million for the three months ended September 30, 2001. For the nine months ended September 30, 2002, general and administrative expense increased $13.7 million to $146.2 million, from $132.5 million for the comparable 2001 32 period. These increases in general and administrative expense were primarily due to increases in compensation and benefits expense and other expense. Compensation and benefits expense increased $4.1 million to $26.6 million for the three months ended September 30, 2002, from $22.5 million for the three months ended September 30, 2001. For the nine months ended September 30, 2002, compensation and benefits expense increased $11.0 million to $79.0 million, from $68.0 million for the nine months ended September 30, 2001. The increases were 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 $473,000 for the three months ended September 30, 2002 and $2.3 million for the nine months ended September 30, 2002 over the comparable 2001 periods. Also included was an increase in ESOP expense of $1.4 million for the three months ended September 30, 2002 and $2.6 million for the nine months ended September 30, 2002 over the comparable 2001 periods, which was due to the increase in compensation, coupled with the higher average market value of our common stock during the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001. Other expense increased $574,000 to $6.9 million for the three months ended September 30, 2002, from $6.3 million for the three months ended September 30, 2001, and increased $3.3 million to $22.6 million for the nine months ended September 30, 2002, from $19.3 million for the nine months ended September 30, 2001, primarily due to amortization 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. Advertising expense increased $267,000 to $997,000 for the three months ended September 30, 2002, from $730,000 for the three months ended September 30, 2001. For the nine months ended September 30, 2002, advertising expense decreased $704,000 to $3.6 million, from $4.3 million for the nine months ended September 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. For the three months ended September 30, 2002, net amortization of mortgage servicing rights increased $9.0 million to $11.8 million, from $2.8 million for the three months ended September 30, 2001. For the nine months ended September 30, 2002, net amortization of mortgage servicing rights increased $9.1 million to $16.9 million, from $7.8 million for the comparable 2001 period. These increases in the net amortization of mortgage servicing rights were primarily due to increases in the provision for the valuation allowance of mortgage servicing rights, coupled with increases in the amortization of mortgage servicing rights. For the three months ended September 30, 2002, we recorded a provision of $9.1 million compared to a provision of $744,000 for the three months ended September 30, 2001. This increase in the provision was coupled with an increase of $615,000 in amortization expense to $2.7 million for the three months ended September 30, 2002, from $2.1 million for the three months ended September 30, 2001. For the nine months ended September 30, 2002, we recorded a provision of $10.2 million compared to a provision of $1.4 million for the nine months ended September 30, 2001. This increase in the provision was coupled with an increase of $326,000 in amortization expense to $6.7 million for the nine months ended September 30, 2002, from $6.4 million for the nine months ended September 30, 2001. The increase in the provision for the valuation allowance of mortgage servicing rights was related 33 to the current and forecasted lower interest rate environment and projected accelerated loan prepayment speeds. Goodwill litigation expense decreased $34,000 to $209,000 for the three months ended September 30, 2002, from $243,000 for the three months ended September 30, 2001 and decreased $1.3 million to $769,000 for the nine months ended September 30, 2002, from $2.1 million for the nine months ended September 30, 2001, reflecting the completion of discovery regarding our claims. Our percentage of general and administrative expense to average assets was 0.88% for the three and nine month periods ended September 30, 2002, compared to 0.77% for the three months ended September 30, 2001 and 0.79% for the nine months ended September 30, 2001. The efficiency ratio was 32.74% for the three months ended September 30, 2002 and 32.69% for the nine months ended September 30, 2002, compared to 30.72% for the three months ended September 30, 2001 and 30.74% for the nine months ended September 30, 2001. The increases in these ratios were attributable to the increase in general and administrative expense for the three and nine month periods ended September 30, 2002 compared to the same periods in 2001 discussed previously. INCOME TAX EXPENSE For the three months ended September 30, 2002, income tax expense was $30.2 million, representing an effective tax rate of 32.7%, compared to $29.3 million, representing an effective tax rate of 34.2%, for the three months ended September 30, 2001. For the nine months ended September 30, 2002, income tax expense was $93.3 million, representing an effective tax rate of 33.2%, as compared to $91.5 million, representing an effective tax rate of 34.9%, for the nine months ended September 30, 2001. The reduction in the effective tax rate for the three and nine month periods ended September 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, aggressive collection efforts and marketing of foreclosed properties, we have been proactive in addressing problem and non-performing assets which, in turn, has helped to 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 $33.1 million at September 30, 2002, from $40.1 million at December 31, 2001. The ratio of non-performing loans to total loans decreased to 0.26% at September 30, 2002, from 0.31% at December 31, 2001. The ratio of non-performing assets to total assets decreased to 0.15% at September 30, 2002, from 0.18% at December 31, 2001. 34 DELINQUENT LOANS The following table shows a comparison of delinquent loans at September 30, 2002 and December 31, 2001.
AT SEPTEMBER 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 8 $472 186 $27,800 20 $1,269 222 $31,991 Multi-family -- -- 4 2,472 1 84 5 1,860 Commercial real estate -- -- 1 773 5 1,395 4 1,752 Construction -- -- -- -- -- -- 1 522 Consumer and other loans 95 454 110 1,226 102 491 104 991 ----- ------ ----- -------- ----- ------- ----- ------- Total delinquent loans 103 $926 301 $32,271 128 $3,239 336 $37,116 ===== ====== ===== ======== ===== ======= ===== ======= Delinquent loans to total loans 0.01% 0.26% 0.03% 0.31%
NON-PERFORMING ASSETS The following table sets forth information regarding non-performing assets at September 30, 2002 and December 31, 2001. In addition to the non-performing loans, we had approximately $926,000 of potential problem loans at September 30, 2002 compared to $3.2 million at December 31, 2001. Such loans are 60-89 days delinquent as shown above.
AT SEPTEMBER 30, AT DECEMBER 31, (Dollars in Thousands) 2002 2001 ---- ---- Non-accrual delinquent mortgage loans (1) ....... $29,936 $34,848 Non-accrual delinquent consumer and other loans . 1,226 991 Mortgage loans delinquent 90 days or more and still accruing interest (2) ................ 1,109 1,277 ------- ------- Total non-performing loans .............. 32,271 37,116 Real estate owned, net (3) ...................... 878 2,987 ------- ------- Total non-performing assets ............. $33,149 $40,103 ======= ======= Allowance for loan losses to non-performing loans 259.20% 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. 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 September 30, 2002, $9.2 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. 35 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 $1.7 million for the nine months ended September 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 $1.0 million for the nine months ended September 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 $4.5 million at September 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 nine months ended September 30, 2002.
(In Thousands) Balance at December 31, 2001 .. $ 82,285 Provision charged to operations 2,307 Charge-offs: One-to-four family ......... (274) Multi-family ............... (83) Commercial ................. (268) Construction ............... (281) Consumer and other ......... (997) -------- Total charge-offs ............. (1,903) -------- Recoveries: One-to-four family ......... 196 Multi-family ............... 83 Commercial ................. 257 Consumer and other ......... 423 -------- Total recoveries .............. 959 -------- Net charge-offs ............... (944) -------- Balance at September 30, 2002 . $ 83,648 ========
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 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 36 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 38, referred to as the Gap Table, sets forth the amount of interest-earning assets and interest-bearing liabilities outstanding at September 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. Prepayment rates will vary due to a number of factors, including the regional economy in the area where the underlying collateral is located, seasonal factors, demographic variables and the assumability of the underlying mortgages. However, the major factors affecting mortgage prepayment rates are prevailing interest rates and related mortgage refinancing opportunities. 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 $5.69 billion of callable borrowings classified according to their maturity dates, primarily in the one to three years category and the more than five 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 $555.0 million classified according to their call dates, of which $469.0 million are callable within one year and at various times thereafter. As indicated in the Gap Table, our one-year cumulative gap at September 30, 2002 was 25.36%. 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 a significant increase in mortgage loan and mortgage-backed securities repayment assumptions, which reflect the significant increase in refinance activity we have experienced in the 2002 third quarter, coupled with the classification of callable securities according to their call dates, which is consistent with our actual experience with these types of securities in the 2002 third quarter. If interest rates begin rising and repayments slow, the anticipated maturities of our mortgage loans and mortgage-backed securities would extend and our one-year cumulative gap should become less positive. 37
AT SEPTEMBER 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) $ 4,826,238 $ 2,985,508 $ 2,808,774 $ 1,373,618 $ 11,994,138 Consumer and other loans (1) 318,545 28,834 -- -- 347,379 Federal funds sold and repurchase agreements 843,883 -- -- -- 843,883 Mortgage-backed and other securities available-for-sale and FHLB stock 2,401,263 193,087 259,796 274,075 3,128,221 Mortgage-backed and other securities held-to-maturity 2,908,327 720,770 401,156 422,828 4,453,081 ------------ ------------ ------------ ------------ ------------- Total interest-earning assets 11,298,256 3,928,199 3,469,726 2,070,521 20,766,702 Net unamortized purchase premiums and deferred costs (2) 54,738 24,748 21,045 11,981 112,512 ------------ ------------ ------------ ------------ ------------- Net interest-earning assets 11,352,994 3,952,947 3,490,771 2,082,502 20,879,214 ------------ ------------ ------------ ------------ ------------- Interest-bearing liabilities: Savings 155,124 310,247 310,247 2,042,460 2,818,078 Money market 1,637,699 18,859 18,859 141,442 1,816,859 NOW 35,806 71,610 71,610 1,127,152 1,306,178 Certificates of deposit 2,370,038 1,902,548 897,902 68,975 5,239,463 Borrowed funds 1,600,450 4,665,000 104,000 2,279,203 8,648,653 ------------ ------------ ------------ ------------ ------------- Total interest-bearing liabilities 5,799,117 6,968,264 1,402,618 5,659,232 19,829,231 ------------ ------------ ------------ ------------ ------------- Interest sensitivity gap 5,553,877 (3,015,317) 2,088,153 (3,576,730) $ 1,049,983 ============ ============ ============ ============ ============= Cumulative interest sensitivity gap $ 5,553,877 $ 2,538,560 $ 4,626,713 $ 1,049,983 ============ ============ ============ ============ Cumulative interest sensitivity gap as a percentage of total assets 25.36% 11.59% 21.12% 4.79% Cumulative net interest-earning assets as a percentage of interest-bearing liabilities 195.77% 119.88% 132.65% 105.30%
(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 income for the twelve month period beginning October 1, 2002 would increase by 38 approximately 1.24% 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 October 1, 2002 would decrease by approximately 0.42% 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. During the prevailing interest rate environment of the past two years, which has been characterized by significant declines in market interest rates, we have experienced very high levels of loan and mortgage-backed securities prepayments. During the third quarter of 2002, market interest rates continued to decline, resulting in a further acceleration of loan and mortgage-backed securities prepayments. Although we have continued to reprice our interest-bearing liabilities during this time, we have not been able to do so to the same degree as our interest-earning assets. Given our current volume and mix of interest-bearing liabilities and interest-earning assets, if market interest rates remain at their present levels for a prolonged period of time or decline further, the cash flows from continued high levels of prepayments would be reinvested at lower yields while our cost of funds would remain relatively flat, resulting in an adverse impact on our results of operations. 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. ITEM 4. CONTROLS AND PROCEDURES George L. Engelke, Jr., our Chairman, President and Chief Executive Officer, and Monte N. Redman, our Executive Vice President and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of November 4, 2002. Based upon their evaluation, they each found that our disclosure controls and procedures were adequate to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. 39 There were no significant changes in our disclosure controls and procedures or internal controls for financial reporting or other factors that could significantly affect those controls subsequent to November 4, 2002, and we identified no significant deficiencies or material weaknesses requiring corrective action with respect to such controls. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS With respect to the litigation entitled Ronnie Weil also known as Ronnie Moore, for Herself and on behalf of All Other Persons Who Obtained Mortgage Loans from The Long Island Savings Bank, FSB during the period January 1, 1983 through December 31, 1992 vs. The Long Island Savings Bank, FSB, et al., which is pending in the United States District Court for the Eastern District of New York, the Court on September 26, 2002 entered an order approving the claims administrator's final report regarding claims submitted by class members through June 30, 2002. As a result, we made a final payment of $700,000, in accordance with the terms of the Stipulation of Settlement entered into on November 7, 2001, such funds to be distributed by the claims administrator to class members in settlement of all remaining claims with respect to this matter. For additional 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit No. Identification of Exhibit ----------- ------------------------- 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.
40 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 August 12, 2002 which includes under Item 9 of Form 8-K "Statements Under Oath of Principal Executive Officer and Principal Financial Officer Regarding Facts and Circumstances Relating to Exchange Act Filings," executed by George L. Engelke, Jr., Chief Executive Officer, and Monte N. Redman, Chief Financial Officer. This report has been furnished but not filed pursuant to Regulation FD. 2. Report on Form 8-K dated August 16, 2002 which includes under Item 9 of Form 8-K a written presentation of financial results and trends through the period ended June 30, 2002. This report has been furnished but not filed pursuant to Regulation FD. 3. Report on Form 8-K dated September 10, 2002 which includes under Item 9 of Form 8-K a press release dated September 10, 2002 announcing revised earnings estimates for the quarter ended September 30, 2002 and the full year 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: November 12, 2002 By: /s/ Monte N. Redman -------------------------- ------------------------------- Monte N. Redman Executive Vice President and Chief Financial Officer (Principal Accounting Officer) 41 CERTIFICATIONS I, George L. Engelke, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Astoria Financial Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent 42 evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 5, 2002 /S/ George L. Engelke, Jr. - ------------------------------------ George L. Engelke, Jr. Chairman, President and Chief Executive Officer Astoria Financial Corporation I, Monte N. Redman, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Astoria Financial Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and 43 report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 5, 2002 /S/ Monte N. Redman - -------------------------------------------- Monte N. Redman Executive Vice President and Chief Financial Officer Astoria Financial Corporation 44 Exhibit Index
Exhibit No. Identification of Exhibit - ----------- ------------------------- 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.
45 EX-11 3 y65418exv11.txt STATEMENT RE COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
For the Nine Months Ended September 30, 2002 --------------------- (In Thousands, Except Per Share Data) 1. Net income $ 187,365 Preferred stock dividends declared (4,500) --------- Net income available to common shareholders $ 182,865 ========= 2. Weighted average common shares outstanding 89,568 3. ESOP shares not committed to be released (5,235) --------- 4. Total weighted average common shares outstanding 84,333 ========= 5. Basic earnings per common share $ 2.17 ========= 6. Total weighted average common shares outstanding 84,333 7. Dilutive effect of stock options using the treasury stock method 1,587 --------- 8. Total weighted average common and common equivalent shares outstanding 85,920 ========= 9. Diluted earnings per common share $ 2.13 =========
EX-99.1 4 y65418exv99w1.txt CERTIFICATION 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 September 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. November 12, 2002 /s/ George L. Engelke, Jr. - --------------------------- ----------------------------------- Dated George L. Engelke, Jr. EX-99.2 5 y65418exv99w2.txt CERTIFICATION 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 September 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. November 12, 2002 /s/ Monte N. Redman - ---------------------------- ------------------------------- Dated Monte N. Redman -----END PRIVACY-ENHANCED MESSAGE-----