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, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-11967
ASTORIA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 11-3170868
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
One Astoria Federal Plaza, Lake Success, New York 11042-1085
------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(516) 327-3000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES [X] NO [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
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, 2005
----------------------- ----------------------------------------------
.01 Par Value 106,424,350
------------- -----------
PART I -- FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements (Unaudited):
Consolidated Statements of Financial Condition at September 30, 2005
and December 31, 2004 2
Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 2005 and September 30, 2004 3
Consolidated Statement of Changes in Stockholders' Equity for the
Nine Months Ended September 30, 2005 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2005 and September 30, 2004 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 39
Item 4. Controls and Procedures 42
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 43
Item 3. Defaults Upon Senior Securities 44
Item 4. Submission of Matters to a Vote of Security Holders 44
Item 5. Other Information 44
Item 6. Exhibits 44
Signatures 44
1
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Unaudited)
At At
(In Thousands, Except Share Data) September 30, 2005 December 31, 2004
- --------------------------------------------------------------------------------------------------------------------------
ASSETS:
Cash and due from banks $ 149,443 $ 138,809
Repurchase agreements 272,505 267,578
Available-for-sale securities:
Encumbered 1,632,166 2,104,239
Unencumbered 344,448 302,644
- ------------------------------------------------------------------------------------------------------------------------
1,976,614 2,406,883
Held-to-maturity securities, fair value of $5,040,661 and $6,306,760,
respectively:
Encumbered 4,836,190 5,273,385
Unencumbered 275,711 1,029,551
- ------------------------------------------------------------------------------------------------------------------------
5,111,901 6,302,936
Federal Home Loan Bank of New York stock, at cost 123,145 163,700
Loans held-for-sale, net 28,120 23,802
Loans receivable:
Mortgage loans, net 13,579,487 12,746,134
Consumer and other loans, net 527,433 517,145
- ------------------------------------------------------------------------------------------------------------------------
14,106,920 13,263,279
Allowance for loan losses (82,047) (82,758)
- ------------------------------------------------------------------------------------------------------------------------
Loans receivable, net 14,024,873 13,180,521
Mortgage servicing rights, net 17,214 16,799
Accrued interest receivable 80,251 79,144
Premises and equipment, net 151,183 157,107
Goodwill 185,151 185,151
Bank owned life insurance 378,601 374,719
Other assets 131,677 118,720
- ------------------------------------------------------------------------------------------------------------------------
Total assets $22,630,678 $23,415,869
========================================================================================================================
LIABILITIES:
Deposits:
Savings $ 2,636,201 $ 2,929,120
Money market 729,552 965,288
NOW and demand deposit 1,547,769 1,580,714
Liquid certificates of deposit 479,372 -
Certificates of deposit 7,412,756 6,848,135
- ------------------------------------------------------------------------------------------------------------------------
Total deposits 12,805,650 12,323,257
Reverse repurchase agreements 6,280,000 7,080,000
Federal Home Loan Bank of New York advances 1,381,000 1,934,000
Other borrowings, net 438,498 455,835
Mortgage escrow funds 164,441 122,088
Accrued expenses and other liabilities 174,345 130,925
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 21,243,934 22,046,105
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 5,000,000 shares authorized:
Series A (1,800,000 shares authorized and -0- shares issued and outstanding) - -
Series B (2,000,000 shares authorized and -0- shares issued and outstanding) - -
Common stock, $.01 par value; (200,000,000 shares authorized;
166,494,888 shares issued; and 106,929,850 and 110,304,669 shares
outstanding, respectively) 1,665 1,665
Additional paid-in capital 821,265 811,777
Retained earnings 1,735,962 1,623,571
Treasury stock (59,565,038 and 56,190,219 shares, at cost, respectively) (1,110,830) (1,013,726)
Accumulated other comprehensive loss (37,452) (28,592)
Unallocated common stock held by ESOP (6,513,854 and 6,802,146
shares, respectively) (23,866) (24,931)
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,386,744 1,369,764
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $22,630,678 $23,415,869
========================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
2
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------------
(In Thousands, Except Share Data) 2005 2004 2005 2004
- ----------------------------------------------------------------------------------------------------------------------
Interest income:
Mortgage loans:
One-to-four family $ 115,118 $ 105,299 $ 339,598 $ 320,854
Multi-family, commercial real estate and construction 60,951 56,617 177,447 164,882
Consumer and other loans 8,199 5,385 22,455 15,073
Mortgage-backed and other securities 82,072 95,650 264,520 273,590
Federal funds sold and repurchase agreements 1,056 325 3,866 701
Federal Home Loan Bank of New York stock 1,577 804 4,400 2,637
- ----------------------------------------------------------------------------------------------------------------------
Total interest income 268,973 264,080 812,286 777,737
- ----------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 71,903 62,116 203,928 173,248
Borrowed funds 78,534 80,106 243,262 254,802
- ----------------------------------------------------------------------------------------------------------------------
Total interest expense 150,437 142,222 447,190 428,050
- ----------------------------------------------------------------------------------------------------------------------
Net interest income 118,536 121,858 365,096 349,687
Provision for loan losses - - - -
- ----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 118,536 121,858 365,096 349,687
- ----------------------------------------------------------------------------------------------------------------------
Non-interest income:
Customer service fees 17,798 15,316 49,049 43,619
Other loan fees 1,397 1,186 3,643 3,636
Net gain on sales of securities - 2,279 - 4,651
Mortgage banking income (loss), net 3,703 (1,229) 5,067 3,904
Income from bank owned life insurance 4,070 4,208 12,435 12,886
Other 1,404 2,276 5,446 5,345
- ----------------------------------------------------------------------------------------------------------------------
Total non-interest income 28,372 24,036 75,640 74,041
- ----------------------------------------------------------------------------------------------------------------------
Non-interest expense:
General and administrative:
Compensation and benefits 31,060 30,500 91,817 91,546
Occupancy, equipment and systems 15,978 15,943 47,790 48,434
Federal deposit insurance premiums 432 439 1,327 1,329
Advertising 1,765 1,652 7,540 5,062
Other 8,680 10,634 27,516 25,200
- ----------------------------------------------------------------------------------------------------------------------
Total non-interest expense 57,915 59,168 175,990 171,571
- ----------------------------------------------------------------------------------------------------------------------
Income before income tax expense 88,993 86,726 264,746 252,157
Income tax expense 29,814 28,619 88,692 83,136
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 59,179 $ 58,107 $ 176,054 $ 169,021
======================================================================================================================
Basic earnings per common share $ 0.59 $ 0.54 $ 1.72 $ 1.55
======================================================================================================================
Diluted earnings per common share $ 0.57 $ 0.53 $ 1.69 $ 1.52
======================================================================================================================
Dividends per common share $ 0.20 $ 0.17 $ 0.60 $ 0.50
======================================================================================================================
Basic weighted average common shares 101,058,022 107,072,907 102,149,797 109,118,145
Diluted weighted average common and common equivalent shares 103,088,233 108,728,370 104,069,045 110,970,129
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, 2005
Unallocated
Accumulated Common
Additional Other Stock
Common Paid-in Retained Treasury Comprehensive Held
(In Thousands, Except Share Data) Total Stock Capital Earnings Stock Loss by ESOP
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2004 $1,369,764 $1,665 $811,777 $1,623,571 $(1,013,726) $(28,592) $(24,931)
Comprehensive income:
Net income 176,054 - - 176,054 - - -
Other comprehensive (loss) income, net of tax:
Net unrealized loss on securities (9,003) - - - - (9,003) -
Reclassification of net unrealized loss
on cash flow hedge 143 - - - - 143 -
----------
Comprehensive income 167,194
----------
Common stock repurchased
(4,082,500 shares) (110,030) - - - (110,030) - -
Dividends on common stock ($0.60 per share) (61,309) - - (61,309) - - -
Exercise of stock options and
related tax benefit (707,681 shares issued) 13,351 - 2,779 (2,354) 12,926 - -
Amortization relating to allocation
of ESOP stock 7,774 - 6,709 - - - 1,065
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2005 $1,386,744 $1,665 $821,265 $1,735,962 $(1,110,830) $(37,452) $(23,866)
==================================================================================================================================
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) 2005 2004
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 176,054 $ 169,021
Adjustments to reconcile net income to net cash provided
by operating activities:
Net premium amortization on mortgage loans and
mortgage-backed securities 13,336 26,678
Net amortization on consumer and other loans,
other securities and borrowings 3,550 3,046
Net provision for real estate losses 56 -
Depreciation and amortization 10,488 10,024
Net gain on sales of loans and securities (2,750) (7,488)
Originations of loans held-for-sale (286,632) (251,602)
Proceeds from sales and principal repayments of loans held-for-sale 285,064 260,330
Amortization relating to allocation of ESOP stock 7,774 7,719
Increase in accrued interest receivable (1,107) (2,363)
Mortgage servicing rights amortization, valuation
allowance adjustments and capitalized amounts, net (415) 577
Income from bank owned life insurance, net of insurance proceeds received (3,882) (4,396)
Increase in other assets (5,494) (11,506)
Increase in accrued expenses and other liabilities 46,199 17,597
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 242,241 217,637
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Originations of loans receivable (2,594,658) (2,379,456)
Loan purchases through third parties (642,358) (746,388)
Principal payments on loans receivable 2,375,145 2,985,557
Purchases of securities held-to-maturity (177,599) (1,978,887)
Purchases of securities available-for-sale (25) (498,249)
Principal payments on securities held-to-maturity 1,368,629 1,529,630
Principal payments on securities available-for-sale 415,953 548,807
Proceeds from sales of securities available-for-sale - 170,189
Net redemptions of FHLB-NY stock 40,555 68,500
Proceeds from sales of real estate owned, net 1,263 2,093
Purchases of premises and equipment, net of proceeds from sales (4,564) (7,362)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 782,341 (305,566)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 482,393 983,275
Net (decrease) increase in borrowings with original terms of three months
or less (1,303,000) 212,592
Proceeds from borrowings with original terms greater than three months 700,000 2,400,000
Repayments of borrowings with original terms greater than three months (770,000) (3,330,000)
Net increase in mortgage escrow funds 42,353 40,636
Common stock repurchased (110,030) (166,569)
Cash dividends paid to stockholders (61,309) (54,610)
Cash received for stock options exercised 10,572 16,903
- ------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (1,009,021) 102,227
- ------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 15,561 14,298
Cash and cash equivalents at beginning of period 406,387 239,754
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 421,948 $ 254,052
========================================================================================================================
Supplemental disclosures:
Cash paid during the period:
Interest $ 448,222 $ 438,473
========================================================================================================================
Income taxes $ 75,262 $ 67,579
========================================================================================================================
Additions to real estate owned $ 1,695 $ 836
========================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
5
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Astoria Financial Corporation and its wholly-owned subsidiaries Astoria Federal
Savings and Loan Association and its subsidiaries, referred to as Astoria
Federal, and AF Insurance Agency, Inc. As used in this quarterly report, "we,"
"us" and "our" refer to Astoria Financial Corporation and its consolidated
subsidiaries, including Astoria Federal and AF Insurance Agency, Inc. All
significant inter-company accounts and transactions have been eliminated in
consolidation.
In addition to Astoria Federal and AF Insurance Agency, Inc., we have another
subsidiary, Astoria Capital Trust I, which is not consolidated with Astoria
Financial Corporation for financial reporting purposes in accordance with U.S.
generally accepted accounting principles, or GAAP. Astoria Capital Trust I was
formed in 1999 for the purpose of issuing $125.0 million aggregate liquidation
amount of 9.75% Capital Securities due November 1, 2029, or Capital Securities,
and $3.9 million of common securities which are 100% owned by Astoria Financial
Corporation, and using the proceeds to acquire Junior Subordinated Debentures
issued by Astoria Financial Corporation. The Junior Subordinated Debentures
total $128.9 million, have an interest rate of 9.75%, mature on November 1, 2029
and are the sole assets of Astoria Capital Trust I. The Junior Subordinated
Debentures are prepayable, in whole or in part, at our option on or after
November 1, 2009 at declining premiums to November 1, 2019, after which the
Junior Subordinated Debentures are prepayable at par value. The Capital
Securities have substantially identical repayment provisions as the Junior
Subordinated Debentures. Astoria Financial Corporation has fully and
unconditionally guaranteed the Capital Securities along with all obligations of
Astoria Capital Trust I under the trust agreement relating to the Capital
Securities. See Note 9 of Notes to Consolidated Financial Statements included in
Item 8, "Financial Statements and Supplementary Data," of our 2004 Annual Report
on Form 10-K for restrictions on our subsidiaries' ability to pay dividends to
us.
In our opinion, the accompanying consolidated financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of our financial condition as of September 30, 2005 and
December 31, 2004, our results of operations for the three and nine months ended
September 30, 2005 and 2004, changes in our stockholders' equity for the nine
months ended September 30, 2005 and our cash flows for the nine months ended
September 30, 2005 and 2004. In preparing the consolidated financial statements,
we are required to make estimates and assumptions that affect the reported
amounts of assets and liabilities for the consolidated statements of financial
condition as of September 30, 2005 and December 31, 2004, and amounts of
revenues and expenses in the consolidated statements of income for the three and
nine months ended September 30, 2005 and 2004. The results of operations for the
three and nine months ended September 30, 2005 are not necessarily indicative of
the results of operations to be expected for the remainder of the year. Certain
information and note disclosures normally included in financial statements
prepared in accordance with GAAP have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission, or SEC. Certain
reclassifications have been made to prior period amounts to conform to the
current period presentation.
6
These consolidated financial statements should be read in conjunction with our
December 31, 2004 audited consolidated financial statements and related notes
included in our 2004 Annual Report on Form 10-K.
2. Earnings Per Share, or EPS
The following table is a reconciliation of basic and diluted EPS.
For the Three Months Ended September 30,
------------------------------------------------
2005 2004
------------------------------------------------
Basic Diluted Basic Diluted
(In Thousands, Except Per Share Data) EPS EPS EPS EPS (1)
- ------------------------------------------------------------------------------------------------------
Net income $ 59,179 $ 59,179 $ 58,107 $ 58,107
======================================================================================================
Total weighted average basic
common shares outstanding 101,058 101,058 107,073 107,073
Effect of dilutive securities:
Options - 2,030 - 1,655
- ------------------------------------------------------------------------------------------------------
Total weighted average basic and diluted
common shares outstanding 101,058 103,088 107,073 108,728
======================================================================================================
Net earnings per common share $ 0.59 $ 0.57 $ 0.54 $ 0.53
======================================================================================================
For the Nine Months Ended September 30,
------------------------------------------------
2005 2004
------------------------------------------------
Basic Diluted Basic Diluted
(In Thousands, Except Per Share Data) EPS EPS EPS EPS
- ------------------------------------------------------------------------------------------------------
Net income $ 176,054 $ 176,054 $ 169,021 $ 169,021
======================================================================================================
Total weighted average basic
common shares outstanding 102,150 102,150 109,118 109,118
Effect of dilutive securities:
Options - 1,919 - 1,852
- ------------------------------------------------------------------------------------------------------
Total weighted average basic and diluted
common shares outstanding 102,150 104,069 109,118 110,970
======================================================================================================
Net earnings per common share $ 1.72 $ 1.69 $ 1.55 $ 1.52
======================================================================================================
(1) Options to purchase 1,498,800 shares of common stock at prices between
$24.17 per share and $24.40 per share were outstanding as of September 30,
2004, but were not included in the computation of diluted EPS because the
options' exercise prices were greater than the average market price of the
common shares for the three months ended September 30, 2004.
3. Stock Option Plans
We apply the intrinsic value method of Accounting Principles Board, or APB,
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for our stock option plans. Accordingly, no
stock-based employee compensation cost is reflected in net income, as all
options granted under our stock option plans had an exercise price equal to the
market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income and EPS if we had
applied the fair value recognition provisions of Statement of Financial
Accounting Standards, or SFAS, No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation.
7
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
(In Thousands, Except Per Share Data) 2005 2004 2005 2004
- -------------------------------------------------------------------------------------------------------
Net income:
As reported $ 59,179 $ 58,107 $ 176,054 $ 169,021
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effect 1,501 1,171 4,811 3,885
----------- ----------- ----------- -----------
Pro forma $ 57,678 $ 56,936 $ 171,243 $ 165,136
=========== =========== =========== ===========
Basic earnings per common share:
As reported $ 0.59 $ 0.54 $ 1.72 $ 1.55
=========== =========== =========== ===========
Pro forma $ 0.57 $ 0.53 $ 1.68 $ 1.51
=========== =========== =========== ===========
Diluted earnings per common share:
As reported $ 0.57 $ 0.53 $ 1.69 $ 1.52
=========== =========== =========== ===========
Pro forma $ 0.56 $ 0.52 $ 1.64 $ 1.48
=========== =========== =========== ===========
4. Pension Plans and Other Postretirement Benefits
The following tables set forth information regarding the components of net
periodic cost for our defined benefit pension plans and other postretirement
benefit plan.
Other Postretirement
Pension Benefits Benefits
----------------------------------- -------------------------------
For the Three Months Ended For the Three Months Ended
September 30, September 30,
----------------------------------- -------------------------------
(In Thousands) 2005 2004 2005 2004
- -----------------------------------------------------------------------------------------------------------------------
Service cost $ 821 $ 834 $ 137 $ 128
Interest cost 2,460 2,458 261 272
Expected return on plan assets (2,932) (2,912) - -
Amortization of prior service cost 126 40 10 10
Recognized net actuarial loss 644 647 - -
Amortization of transition asset - (9) - -
- -----------------------------------------------------------------------------------------------------------------------
Net periodic cost $ 1,119 $ 1,058 $ 408 $ 410
=======================================================================================================================
Other Postretirement
Pension Benefits Benefits
----------------------------------- -------------------------------
For the Nine Months Ended For the Nine Months Ended
September 30, September 30,
----------------------------------- -------------------------------
(In Thousands) 2005 2004 2005 2004
- -----------------------------------------------------------------------------------------------------------------------
Service cost $ 2,529 $ 2,431 $ 411 $ 384
Interest cost 7,562 7,327 783 815
Expected return on plan assets (9,038) (8,736) - -
Amortization of prior service cost 297 120 30 31
Recognized net actuarial loss 1,993 1,894 - -
Amortization of transition asset - (26) - -
- -----------------------------------------------------------------------------------------------------------------------
Net periodic cost $ 3,343 $ 3,010 $ 1,224 $ 1,230
=======================================================================================================================
The net periodic cost of our other postretirement benefit plan for the three and
nine months ended September 30, 2005 has been reduced as a result of our
adoption of Financial Accounting Standards Board, or FASB, Staff Position No.
106-2, "Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003," effective
December 31, 2004. The reduction was not material to the net periodic cost of
our other postretirement benefit plan for the three and nine months ended
September 30, 2005.
8
5. Goodwill Litigation
We are a party to two actions pending in the U.S. Court of Federal Claims
against the United States, involving assisted acquisitions made in the early
1980's and supervisory goodwill accounting utilized in connection therewith,
which could result in a gain.
The trial in one of the actions, which is entitled The Long Island
Savings Bank, FSB et al vs. The United States, or the LISB goodwill litigation,
commenced on January 18, 2005 and concluded on July 7, 2005. We asked the
Court to award damages totaling $594.0 million from the U.S. government
for breach of contract in connection with a 1983 Assistance Agreement between
the Long Island Savings Bank, FSB, which was acquired by us in 1998, and the
Federal Savings and Loan Insurance Corporation. The Court rendered a decision on
September 15, 2005 awarding us $435.8 million in damages from the U.S.
government in this action. The decision is available on the Court's website at
http://www.uscfc.uscourts.gov/Opinions/Lettow/05/LETTOW.LongIsland0905.pdf. We
anticipate that the United States will file an appeal, given its previous
practice in similar cases. No assurance can be given as to the timing, content
or ultimate outcome of any such appeal.
The other action, entitled Astoria Federal Savings and Loan Association vs.
United States, has not yet been scheduled for trial. The Court is currently
considering a summary judgment motion filed by the U.S. government.
The ultimate outcomes of the two actions pending against the United States and
the timing of such outcomes are uncertain and there can be no assurance that we
will benefit financially from such litigation.
6. Impact of Accounting Standards and Interpretations
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections," which replaces APB Opinion No. 20, "Accounting Changes," and SFAS
No. 3, "Reporting Accounting Changes in Interim Financial Statements," and
changes the requirements for the accounting for and reporting of a change in
accounting principle. SFAS No. 154 applies to all voluntary changes in
accounting principle and to changes required by an accounting pronouncement when
the pronouncement does not include specific transition provisions. SFAS No. 154
requires retrospective application of changes in accounting principle to prior
periods' financial statements unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change. APB Opinion No.
20 previously required that most voluntary changes in accounting principle be
recognized by including the cumulative effect of the change in net income for
the period of the change in accounting principle. SFAS No. 154 carries forward
without change the guidance contained in APB Opinion No. 20 for reporting the
correction of an error in previously issued financial statements and a change in
accounting estimate. SFAS No. 154 also carries forward the guidance in APB
Opinion No. 20 requiring justification of a change in accounting principle on
the basis of preferability. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005,
with early adoption permitted. Our adoption of SFAS No. 154 will not have an
impact on our financial condition or results of operations.
In December 2004, the FASB issued revised SFAS No. 123, "Share-Based Payment,"
or SFAS No. 123(R), which requires public entities to recognize the cost of
employee services received in exchange for awards of equity instruments based on
the grant-date fair value of
9
those awards (with limited exceptions). The fair-value-based method in SFAS No.
123(R) is similar to the fair-value-based method in SFAS No. 123 in most
respects. SFAS No. 123(R) applies to all awards granted after the required
effective date and to awards modified, repurchased, or cancelled after that
date. Additionally, beginning on the required effective date, public entities
will recognize compensation cost for the portion of outstanding awards for which
the requisite service has not yet been rendered, based on the grant-date fair
value of those awards calculated under SFAS No. 123 for either recognition or
pro forma disclosures. The cumulative effect of initially applying SFAS No.
123(R), if any, is recognized as of the required effective date. For periods
before the required effective date, public entities may elect, although they are
not required, to retroactively restate financial statements for prior periods to
recognize compensation cost on a basis consistent with the pro forma disclosures
required for those periods by SFAS No. 123. SFAS No. 123(R) is effective as of
the beginning of the first annual reporting period beginning after June 15, 2005
with early adoption encouraged. The impact of our adoption of SFAS No. 123(R) on
our results of operations for 2006, before the effect of any additional equity
based grants, if any, that may be made in 2006, is expected to be a reduction in
net income comparable to the reduction shown in Note 3 herein for the nine
months ended September 30, 2005 on an annualized basis.
On June 29, 2005, the FASB directed its Staff to issue proposed Staff Position
No. 03-1-a, "Implementation Guidance for the Application of Paragraph 16 of EITF
Issue No. 03-1," which provides implementation guidance on matters such as
impairment evaluations for declines in fair value caused by increases in
interest rates and/or sector spreads, as final. The final Staff Position, to be
retitled Staff Position No. FAS 115-1, "The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments," or FSP No. 115-1, will
supersede Emerging Issues Task Force, or EITF, Issue No. 03-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments," and
EITF Topic No. D-44, "Recognition of Other-Than-Temporary Impairment upon the
Planned Sale of a Security Whose Cost Exceeds Fair Value," and is expected to be
issued in the fourth quarter of 2005. FSP No. 115-1 will replace the guidance
set forth in paragraphs 10-18 of EITF Issue No. 03-1 with references to existing
other-than-temporary guidance and will codify the guidance set forth in EITF
Topic No. D-44 and clarify that an investor should recognize an impairment loss
no later than when the impairment is deemed other-than-temporary, even if a
decision to sell has not been made. FSP No. 115-1 is to be effective for
other-than-temporary impairment analysis conducted in periods beginning after
December 15, 2005. We do not expect the final issuance of FSP No. 115-1 to have
a material impact on our financial condition or results of operations.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Quarterly Report on Form 10-Q contains a number of forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, or the Securities Act, and Section 21E of the Securities Exchange Act
of 1934, as amended, or the Exchange Act. These statements may be identified by
the use of the words "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "outlook," "plan," "potential," "predict," "project," "should,"
"will," "would" and similar terms and phrases, including references to
assumptions.
Forward-looking statements are based on various assumptions and analyses made by
us in light of our management's experience and its perception of historical
trends, current conditions and expected future developments, as well as other
factors we believe are appropriate under the
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circumstances. These statements are not guarantees of future performance and are
subject to risks, uncertainties and other factors (many of which are beyond our
control) that could cause actual results to differ materially from future
results expressed or implied by such forward-looking statements. These factors
include, without limitation, the following:
o the timing and occurrence or non-occurrence of events may be subject
to circumstances beyond our control;
o there may be increases in competitive pressure among financial
institutions or from non-financial institutions;
o changes in the interest rate environment may reduce interest margins
or affect the value of our investments;
o changes in deposit flows, loan demand or real estate values may
adversely affect our business;
o changes in accounting principles, policies or guidelines may cause our
financial condition to be perceived differently;
o general economic conditions, either nationally or locally in some or
all areas in which we do business, or conditions in the securities
markets or the banking industry may be less favorable than we
currently anticipate;
o legislative or regulatory changes may adversely affect our business;
o technological changes may be more difficult or expensive than we
anticipate;
o success or consummation of new business initiatives may be more
difficult or expensive than we anticipate; or
o litigation or other matters before regulatory agencies, whether
currently existing or commencing in the future, may delay the
occurrence or non-occurrence of events longer than we anticipate.
We have no obligation to update any forward-looking statements to reflect events
or circumstances after the date of this document.
Executive Summary
The following overview should be read in conjunction with our Management's
Discussion and Analysis of Financial Condition and Results of Operations, or
MD&A, in its entirety.
Astoria Financial Corporation is a Delaware corporation organized as the unitary
savings and loan association holding company of Astoria Federal. Our primary
business is the operation of Astoria Federal. Astoria Federal's principal
business is attracting retail deposits from the general public and investing
those deposits, together with funds generated from operations, principal
repayments on loans and securities and borrowed funds, primarily in one-to-four
family mortgage loans, mortgage-backed securities, multi-family mortgage loans
and commercial real estate loans. Our results of operations are dependent
primarily on our net interest income, which is the difference between the
interest earned on our assets, primarily our loan and securities portfolios, and
the interest paid on our deposits and borrowings. Our earnings are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates and U.S. Treasury yield curves,
government policies and actions of regulatory authorities.
As a premier Long Island community bank, our goal is to enhance shareholder
value while building a solid banking franchise. We focus on growing our core
businesses of mortgage lending and retail banking while maintaining superior
asset quality and controlling operating expenses. Additionally, we continue to
provide returns to shareholders through dividends and
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stock repurchases. We have been successful in achieving these goals over the
past several years and that trend has continued into 2005.
During the nine months ended September 30, 2005, the national and local real
estate markets remained strong and continued to support new and existing home
sales. The Federal Open Market Committee, or FOMC, raised the federal funds rate
six times during the nine months ended September 30, 2005. As a result, U.S.
Treasury yields at September 30, 2005 have increased from December 31, 2004,
with the exception of the thirty year U.S. Treasury yield, which has decreased.
Although U.S. Treasury yields have risen, yields on the longer end of the U.S.
Treasury yield curve have not risen to the same degree as shorter term yields.
This has resulted in a significant flattening of the U.S. Treasury yield curve,
which began in the latter half of 2004 and continued during the first nine
months of 2005. In addition, changes in medium- and long-term yields within
individual quarters have resulted in variability in cash flows and refinance
activity during 2005.
Our total loan portfolio increased during the nine months ended September 30,
2005. This increase was primarily in our mortgage loan portfolio due to the
overall reduction in repayment activity in the first nine months of 2005,
coupled with continued strong loan origination volume.
Total deposits increased during the nine months ended September 30, 2005. This
increase was primarily attributable to our new Liquid certificate of deposit, or
Liquid CD, and our certificates of deposit, which include all time deposits
other than Liquid CDs. Liquid CDs, which were introduced in January of this
year, have maturities of three months, require the maintenance of a minimum
balance and allow depositors the ability to make periodic deposits to and
withdrawals from their account. We consider Liquid CDs as part of our core
deposits, along with savings accounts, money market accounts and NOW and demand
deposit accounts, due to their depositor flexibility. Certificates of deposit
and Liquid CDs increased as a result of the continued success of our marketing
campaigns which have focused on attracting these types of deposits. Growth in
our certificates of deposit and Liquid CDs contributes to the management of
interest rate risk, enables us to reduce our borrowing levels and continues to
produce new customers from our communities, creating relationship development
opportunities.
Our securities and borrowings portfolios decreased from December 31, 2004, which
is consistent with our strategy of reducing these portfolios through normal cash
flow in response to the continued flattening of the U.S. Treasury yield curve.
During the third quarter of 2005 we entered into an agreement with Dovenmuehle
Mortgage, Inc., or DMI, to outsource our mortgage servicing. Pursuant to the
agreement, DMI will undertake the servicing of Astoria Federal's loan portfolio
effective December 2005. The decision to take this action was driven by
economics as we continue to strive to increase operating efficiency in all
aspects of our operations. While our individual mortgage loan balances are
currently larger than in prior years, the number of loans we service has
decreased over the past several years, thereby lowering operating efficiency. In
addition, we implemented other company-wide cost saving initiatives in an effort
to improve future operating efficiency. Our results of operations for the three
and nine months ended September 30, 2005 include $1.9 million, before tax, in
charges related to the outsourcing of our mortgage servicing and other
company-wide cost saving initiatives. These initiatives, which resulted in staff
reductions primarily in our mortgage servicing, retail banking and loan
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origination areas, are expected to result in annual net expense savings of
approximately $5.0 million, before tax, beginning in 2006.
Net income for the three months ended September 30, 2005 increased compared to
the three months ended September 30, 2004. The increase in net income was
primarily due to an increase in non-interest income and a decrease in
non-interest expense, substantially offset by a decrease in net interest income.
The increase in non-interest income was primarily due to the increase in
mortgage banking income, net, and customer service fees, partially offset by a
decrease in net gain on sales of securities. The decrease in non-interest
expense was primarily attributable to an arbitration award settlement during the
2004 third quarter, partially offset by charges related to the outsourcing of
our mortgage servicing and other company-wide cost saving initiatives during the
2005 third quarter. The decrease in net interest income was the result of an
increase in interest expense, partially offset by an increase in interest
income. The increase in interest expense is primarily due to an increase in
interest expense on certificates of deposit and Liquid CDs as a result of the
increases in the average balances of these deposits. The increase in interest
income was primarily due to the increase in interest income on our loan
portfolio, partially offset by the decrease in interest income on our securities
portfolio.
Net income for the nine months ended September 30, 2005 increased compared to
the nine months ended September 30, 2004. The increase in net income was
primarily due to increases in net interest income and non-interest income,
partially offset by an increase in non-interest expense. The increase in net
interest income is attributable to an increase in interest income, partially
offset by an increase in interest expense. The increase in interest income was
primarily due to the increase in the average balance of interest-earning assets,
coupled with a decrease in net premium amortization on our mortgage-backed
securities and mortgage loan portfolios. The decrease in net premium
amortization was primarily due to the reduction in repayment levels during 2005,
as well as the reduced amount of unamortized premium remaining in our
mortgage-backed securities portfolio. The increase in interest expense is
primarily due to an increase in interest expense on certificates of deposit and
Liquid CDs as a result of the increases in the average balances of these
deposits. The increase in non-interest expense relates primarily to increases in
advertising expense and other non-interest expense, including legal fees and
other costs related to the LISB goodwill litigation, charges related to the
outsourcing of our mortgage servicing and other company-wide cost saving
initiatives and charitable contributions, partially offset by an arbitration
award settlement in the 2004 third quarter. The increase in non-interest income
relates primarily to an increase in customer service fees and mortgage banking
income, net, partially offset by a decrease in net gain on sales of securities.
We continue to face a challenging operating environment as a result of rising
short-term interest rates and a continuing flattening of the U.S. Treasury yield
curve. Accordingly, we expect to continue our strategy of reducing the
securities and borrowings portfolios through normal cash flow, while we
emphasize deposit and loan growth, all of which will continue to improve the
quality of the balance sheet and earnings and should help maintain the net
interest margin at current to slightly lower levels during the remainder of 2005
and 2006. This strategy should better position us to take advantage of more
profitable asset growth opportunities when the yield curve steepens.
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Available Information
Our internet website address is www.astoriafederal.com. Financial
information, including our annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and all amendments to those reports,
can be obtained free of charge from our investor relations website at
http://ir.astoriafederal.com. The aforementioned reports are available on our
website immediately after they are electronically filed with or furnished to the
SEC. Such reports are also available on the SEC's website at www.sec.gov.
Critical Accounting Policies
Note 1 of Notes to Consolidated Financial Statements included in Item 8,
"Financial Statements and Supplementary Data," of our 2004 Annual Report on Form
10-K, as supplemented by our Quarterly Reports on Form 10-Q for the quarters
ended March 31, 2005 and June 30, 2005 and this report, contains a summary of
our significant accounting policies. Various elements of our accounting
policies, by their nature, are inherently subject to estimation techniques,
valuation assumptions and other subjective assessments. Our policies with
respect to the methodologies used to determine the allowance for loan losses,
the valuation of mortgage servicing rights, or MSR, and judgments regarding
goodwill and securities impairment are our most critical accounting policies
because they are important to the presentation of our financial condition and
results of operations, involve a higher degree of complexity and require
management to make difficult and subjective judgments which often require
assumptions or estimates about highly uncertain matters. The use of different
judgments, assumptions and estimates could result in material differences in our
results of operations or financial condition. These critical accounting policies
and their application are reviewed quarterly with the Audit Committee of our
Board of Directors. The following description of these policies should be read
in conjunction with the corresponding section of our 2004 Annual Report on Form
10-K.
Allowance for Loan Losses
Our allowance for loan losses is established and maintained through a provision
for loan losses based on our evaluation of the risks inherent in our loan
portfolio. We evaluate the adequacy of our allowance on a quarterly basis. The
allowance is comprised of both specific valuation allowances and general
valuation allowances.
Specific valuation allowances are established in connection with individual loan
reviews and the asset classification process including the procedures for
impairment recognition under SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan, an Amendment of FASB Statements No. 5 and 15," and SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures, an Amendment of FASB Statement No. 114." Such evaluation, which
includes a review of loans on which full collectibility is not reasonably
assured, considers the estimated fair value of the underlying collateral, if
any, current and anticipated economic and regulatory conditions, current and
historical loss experience of similar loans and other factors that determine
risk exposure to arrive at an adequate loan loss allowance.
Individual loan loss reviews are completed quarterly for all classified loans.
Individual loan loss reviews are generally completed annually for multi-family,
commercial real estate and construction loans which exceed $2.5 million at
origination, commercial business loans which exceed $200,000 at origination,
one-to-four family loans which exceed $1.0 million at origination and debt
restructurings. In addition, we generally review annually at least fifty percent
of the outstanding balances of multi-family, commercial real estate and
construction loans to single borrowers with concentrations in excess of $2.5
million.
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The primary considerations in establishing specific valuation allowances are the
appraised value of a loan's underlying collateral and the loan's payment
history. Other current and anticipated economic conditions on which our specific
valuation allowances rely are the impact that national and/or local economic and
business conditions may have on borrowers, the impact that local real estate
markets may have on collateral values and the level and direction of interest
rates and their combined effect on real estate values and the ability of
borrowers to service debt. We also review all regulatory notices, bulletins and
memoranda with the purpose of identifying upcoming changes in regulatory
conditions which may impact our calculation of specific valuation allowances.
The Office of Thrift Supervision, or OTS, periodically reviews our specific
reserve methodology during regulatory examinations and any comments regarding
changes to reserves are considered by management in determining specific
valuation allowances.
Pursuant to our policy, loan losses are charged-off in the period the loans, or
portions thereof, are deemed uncollectible. The determination of the loans on
which full collectibility is not reasonably assured, the estimates of the fair
value of the underlying collateral and the assessments of economic and
regulatory conditions are subject to assumptions and judgments by management.
Specific valuation allowances could differ materially as a result of changes in
these assumptions and judgments.
General valuation allowances represent loss allowances that have been
established to recognize the inherent risks associated with our lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem loans. The determination of the adequacy of the valuation
allowance takes into consideration a variety of factors. We segment our loan
portfolio into like categories by composition and size and perform analyses
against each category. These include historical loss experience and delinquency
levels and trends. We analyze our historical loan loss experience by category
(loan type) over 3, 5, 10 and 12-year periods. Losses within each loan category
are stress tested by applying the highest level of charge-offs and the lowest
amount of recoveries as a percentage of the average portfolio balance during
those respective time horizons. The resulting allowance percentages are used as
an integral part of our judgment in developing estimated loss percentages to
apply to the portfolio. We also consider the growth in the portfolio as well as
our credit administration and asset management philosophies and procedures. In
addition, we evaluate and consider the impact that existing and projected
economic and market conditions may have on the portfolio as well as known and
inherent risks in the portfolio. We also evaluate and consider the allowance
ratios and coverage percentages set forth in both peer group and regulatory
agency data; however, our focus is primarily on our historical loss experience
and the impact of current economic conditions. After evaluating these variables,
we determine appropriate allowance coverage percentages for each of our
portfolio segments and the appropriate level of our allowance for loan losses.
Our allowance coverage percentages are used to estimate the amount of probable
losses inherent in our loan portfolio in determining our general valuation
allowances. Our evaluations of general valuation allowances are inherently
subjective because, even though they are based on objective data, it is
management's interpretation of that data that determines the amount of the
appropriate allowance. Therefore, we periodically review the actual performance
and charge-off history of our portfolio and compare that to our previously
determined allowance coverage percentages. In doing so, we evaluate the impact
the previously mentioned variables may have had on the portfolio to determine
which changes, if any, should be made to our assumptions and analyses.
Our loss experience in 2005 has been consistent with our loss experience over
the past several years. Our 2005 analyses did not result in any change in our
methodology for determining our general and specific valuation allowances or our
emphasis on the factors that we consider in
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establishing such allowances. Accordingly, such analyses did not indicate that
changes in our allowance coverage percentages were required. We believe our
current allowance for loan losses is adequate to reflect the risks inherent in
our loan portfolio.
As indicated above, actual results could differ from our estimates as a result
of changes in economic or market conditions. Changes in estimates could result
in a material change in the allowance for loan losses. While we believe that the
allowance for loan losses has been established and maintained at levels that
reflect the risks inherent in our loan portfolio, future adjustments may be
necessary if economic or market conditions differ substantially from the
conditions that existed at the time of the initial determinations.
For additional information regarding our allowance for loan losses, see
"Provision for Loan Losses" and "Asset Quality" in this document and Part II,
Item 7, "MD&A," in our 2004 Annual Report on Form 10-K.
Valuation of MSR
MSR are carried at cost and amortized over the estimated remaining lives of the
loans serviced. Impairment, if any, is recognized through a valuation allowance.
Impairment exists if the carrying value of MSR exceeds the estimated fair value.
The estimated fair value of MSR is obtained through independent third party
valuations.
At September 30, 2005, our MSR, net, had an estimated fair value of $17.2
million and were valued based on expected future cash flows considering a
weighted average discount rate of 9.06%, a weighted average constant prepayment
rate on mortgages of 14.59% and a weighted average life of 5.0 years. At
December 31, 2004, our MSR, net, had an estimated fair value of $16.8 million
and were valued based on expected future cash flows considering a weighted
average discount rate of 9.10%, a weighted average constant prepayment rate on
mortgages of 15.33% and a weighted average life of 4.8 years.
The fair value of MSR is highly sensitive to changes in assumptions. Changes in
prepayment speed assumptions have the most significant impact on the fair value
of our MSR. Generally, as interest rates decline, mortgage loan prepayments
accelerate due to increased refinance activity, which results in a decrease in
the fair value of MSR. As interest rates rise, mortgage loan prepayments slow
down, which results in an increase in the fair value of MSR. Assuming an
increase in interest rates of 100 basis points at September 30, 2005, the
estimated fair value of our MSR would have been $4.8 million greater. Assuming a
decrease in interest rates of 100 basis points at September 30, 2005, the
estimated fair value of our MSR would have been $7.0 million lower.
Goodwill Impairment
Goodwill is presumed to have an indefinite useful life and is tested, at least
annually, for impairment at the reporting unit level. Impairment exists when the
carrying amount of goodwill exceeds its implied fair value. As of September 30,
2005, the carrying amount of our goodwill totaled $185.2 million. When
performing the impairment test, if the fair value of a reporting unit exceeds
its carrying amount, goodwill of the reporting unit is not considered impaired.
On September 30, 2005 we performed our annual goodwill impairment test. We
determined the fair value of our reporting unit to be in excess of its carrying
amount by $1.44 billion, using the quoted market price of our common stock on
our impairment testing date as the basis for determining the fair value.
Accordingly, as of our annual impairment test date, there was no
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indication of goodwill impairment. We would test our goodwill for impairment
between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of our reporting unit below its carrying
amount. The identification of additional reporting units or the use of other
valuation techniques could result in materially different evaluations of
impairment.
Securities Impairment
Our available-for-sale securities portfolio is carried at estimated fair value,
with any unrealized gains and losses, net of taxes, reported as accumulated
other comprehensive income/loss in stockholders' equity. Debt securities which
we have the positive intent and ability to hold to maturity are classified as
held-to-maturity and are carried at amortized cost. The fair values of our
securities, which are primarily fixed rate mortgage-backed securities at
September 30, 2005, are based on published or securities dealers' market values
and are affected by changes in interest rates. In general, as interest rates
rise, the fair value of fixed rate securities will decrease; as interest rates
fall, the fair value of fixed rate securities will increase. We conduct a
periodic review and evaluation of the securities portfolio to determine if the
decline in the fair value of any security below its cost basis is
other-than-temporary. We generally view changes in fair value caused by changes
in interest rates as temporary, which is consistent with our experience. If we
deem such decline to be other-than-temporary, the security is written down to a
new cost basis and the resulting loss is charged to earnings. There were no
securities write-downs during the nine months ended September 30, 2005. At
September 30, 2005, we had 218 securities with an estimated fair value totaling
$6.46 billion which had an unrealized loss totaling $138.2 million. Of the
securities in an unrealized loss position at September 30, 2005, $1.93 billion,
with an unrealized loss of $76.4 million, have been in a continuous unrealized
loss position for more than twelve months. At September 30, 2005, the
impairments are deemed temporary based on the direct relationship of the decline
in fair value to movements in interest rates, the life of the investments and
the high credit quality.
Liquidity and Capital Resources
Our primary source of funds is cash provided by principal and interest payments
on loans and mortgage-backed and other securities. The most significant
liquidity challenge we face is the variability in cash flows as a result of
changes in mortgage refinance activity. Principal payments on loans and
securities totaled $4.16 billion for the nine months ended September 30, 2005
and $5.06 billion for the nine months ended September 30, 2004. The decrease in
loan and securities repayments was primarily the result of the lower levels of
mortgage loan refinance activity we experienced during the nine months ended
September 30, 2005, compared to the nine months ended September 30, 2004.
In addition to cash provided by principal and interest payments on loans and
securities, our other sources of funds include cash provided by operating
activities, deposits and borrowings. Net cash provided by operating activities
totaled $242.2 million during the nine months ended September 30, 2005 and
$217.6 million during the nine months ended September 30, 2004. Deposits
increased $482.4 million during the nine months ended September 30, 2005 and
$983.3 million during the nine months ended September 30, 2004. The net
increases in deposits for the nine months ended September 30, 2005 and 2004
reflect our continued emphasis on attracting customer deposits through
competitive rates, extensive product offerings and quality service. As
previously discussed, the net increase in deposits for the nine months ended
September 30, 2005 is primarily attributable to an increase in certificates of
deposit and our new Liquid CDs as a result of the success of our marketing
campaigns which have focused on attracting these types of deposits. During the
nine months ended September 30, 2005, $2.53 billion of certificates of
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deposit, with a weighted average rate of 2.70% and a weighted average maturity
at inception of nineteen months, matured and $2.91 billion of certificates of
deposit were issued or repriced, with a weighted average rate of 3.23% and a
weighted average maturity at inception of fifteen months.
Net borrowings decreased $1.37 billion during the nine months ended September
30, 2005 and $712.1 million during the nine months ended September 30, 2004. The
decreases in net borrowings during the nine months ended September 30, 2005 and
2004 reflect our strategy of reducing the securities and borrowings portfolios
through normal cash flow in response to the continued flattening of the U.S.
Treasury yield curve.
Our primary use of funds is for the origination and purchase of mortgage loans.
Gross mortgage loans originated and purchased during the nine months ended
September 30, 2005 totaled $3.28 billion, of which $2.64 billion were
originations and $636.4 million were purchases. This compares to gross mortgage
loans originated and purchased during the nine months ended September 30, 2004
totaling $3.12 billion, of which $2.38 billion were originations and $739.3
million were purchases. Total mortgage loans originated include originations of
loans held-for-sale totaling $284.7 million during the nine months ended
September 30, 2005 and $249.0 million during the nine months ended September 30,
2004. Purchases of securities totaled $177.6 million during the nine months
ended September 30, 2005 and $2.48 billion during the nine months ended
September 30, 2004. The decrease in securities purchases during the nine months
ended September 30, 2005 reflects our previously discussed strategy of reducing
the securities and borrowings portfolios.
We maintain liquidity levels to meet our operational needs in the normal course
of our business. The levels of our liquid assets during any given period are
dependent on our operating, investing and financing activities. Cash and due
from banks and repurchase agreements, our most liquid assets, totaled $421.9
million at September 30, 2005 and $406.4 million at December 31, 2004.
Borrowings maturing over the next twelve months total $2.20 billion with a
weighted average rate of 3.08%. We have the flexibility to either repay or
rollover these borrowings as they mature. In addition, we have $4.81 billion in
certificates of deposit and Liquid CDs with a weighted average rate of 3.25%
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.
The following table details our borrowing, certificate of deposit and Liquid CD
maturities and their weighted average rates as of September 30, 2005:
Certificates of Deposit
Borrowings and Liquid CDs
------------------------- ----------------------------
Weighted Weighted
Average Average
(Dollars in Millions) Amount Rate Amount Rate
- ----------------------------------------------------------------------- ----------------------------
Contractual Maturity:
Within twelve months $2,201(1) 3.08% $4,813 3.25%
Thirteen to twenty-four months 1,720 2.95 1,362 4.04
Twenty-five to thirty-six months 2,800(2) 4.83 884 3.90
Thirty-seven to forty-eight months 500 3.31 525 4.20
Forty-nine to sixty months - - 266 4.21
Over five years 879(3) 4.64 42 4.34
- ---------------------------------------------------------------------------------------------------------
Total $8,100 3.84% $7,892 3.56%
=========================================================================================================
(1) Includes $877.0 million of overnight and other short-term borrowings with a
weighted average rate of 3.88%.
(2) Includes $2.18 billion of borrowings, with a weighted average rate of 5.26%,
which are callable by the counterparty within the next twelve months and at
various times thereafter.
(3) Includes $500.0 million of borrowings, with a weighted average rate of
2.77%, which are callable by the counterparty in 2007 and at various times
thereafter.
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Additional sources of liquidity at the holding company level have included
issuances of securities into the capital markets, including private issuances of
trust preferred securities through our subsidiary, Astoria Capital Trust I, and
senior debt. Holding company debt obligations are included in other borrowings.
Our ability to continue to access the capital markets for additional financing
at favorable terms may be limited by, among other things, market demand,
interest rates, our capital levels, Astoria Federal's ability to pay dividends
to Astoria Financial Corporation, our credit profile and our business model.
Astoria Financial Corporation's primary uses of funds include payment of
dividends, payment of principal and interest on its debt obligations and
repurchases of common stock. Astoria Financial Corporation paid principal and
interest on its debt obligations totaling $39.9 million during the nine months
ended September 30, 2005. Our payment of dividends and repurchases of our common
stock totaled $171.3 million during the nine months ended September 30, 2005.
Our ability to pay dividends, service our debt obligations and repurchase common
stock is dependent primarily upon receipt of capital distributions from Astoria
Federal. Since Astoria Federal is a federally chartered savings association,
there are limits on its ability to make distributions to Astoria Financial
Corporation. During the nine months ended September 30, 2005, Astoria Federal
paid dividends to Astoria Financial Corporation totaling $200.0 million.
On September 1, 2005, we paid a quarterly cash dividend of $0.20 per share on
shares of our common stock outstanding as of the close of business on August 15,
2005 totaling $21.6 million. On October 19, 2005, we declared a quarterly cash
dividend of $0.20 per share on shares of our common stock payable on December 1,
2005 to stockholders of record as of the close of business on November 15, 2005.
On May 19, 2004, our Board of Directors approved our tenth stock repurchase plan
authorizing the purchase, at management's discretion, of 12,000,000 shares, or
approximately 10% of our common stock then outstanding, over a two year period
in open-market or privately negotiated transactions. During the nine months
ended September 30, 2005, we repurchased 4,082,500 shares of our common stock at
an aggregate cost of $110.0 million. In total, as of September 30, 2005, we
repurchased 9,237,700 shares of our common stock, at an aggregate cost of $237.6
million, under the tenth stock repurchase plan. For further information on our
common stock repurchases, see Part II, Item 2, "Unregistered Sales of Equity
Securities and Use of Proceeds."
See "Financial Condition" for a further discussion of the changes in
stockholders' equity.
At September 30, 2005, Astoria Federal's capital levels exceeded all of its
regulatory capital requirements with a tangible capital ratio of 6.20%, leverage
capital ratio of 6.20% and total risk-based capital ratio of 12.11%. The minimum
regulatory requirements are a tangible capital ratio of 1.50%, leverage capital
ratio of 4.00% and total risk-based capital ratio of 8.00%. As of September 30,
2005, Astoria Federal continues to be a well capitalized institution.
Off-Balance Sheet Arrangements and Contractual Obligations
We are a party to financial instruments with off-balance sheet risk in the
normal course of our business in order to meet the financing needs of our
customers and in connection with our overall interest rate risk management
strategy. These instruments involve, to varying degrees, elements of credit,
interest rate and liquidity risk. In accordance with GAAP, these instruments are
either not recorded in the consolidated financial statements or are recorded in
amounts that differ from the notional amounts. Such instruments primarily
include lending commitments, lease commitments and derivative instruments.
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Lending commitments include commitments to originate and purchase loans and
commitments to fund unused lines of credit. Derivative instruments may include
interest rate caps, locks and swaps which are recorded as either assets or
liabilities in the consolidated statements of financial condition at fair value.
Additionally, in connection with our mortgage banking activities, we have
commitments to fund loans held-for-sale and commitments to sell loans which are
considered derivative instruments. Commitments to sell loans totaled $77.8
million at September 30, 2005. The fair values of our mortgage banking
derivative instruments are immaterial to our financial condition and results of
operations. We also have contractual obligations related to operating lease
commitments which have not changed significantly from December 31, 2004.
The following table details our contractual obligations as of September 30,
2005.
Payments due by period
-------------------------------------------------------------
Less than One to Three to More than
(In Thousands) Total One Year Three Years Five Years Five Years
- -----------------------------------------------------------------------------------------------------------------------------
Contractual Obligations:
Borrowings with original terms greater than three months $7,222,866 $1,324,000 $4,520,000 $500,000 $878,866
Commitments to originate and purchase loans (1) 587,825 587,825 - - -
Commitments to fund unused lines of credit (2) 427,587 427,587 - - -
- -----------------------------------------------------------------------------------------------------------------------------
Total $8,238,278 $2,339,412 $4,520,000 $500,000 $878,866
=============================================================================================================================
(1) Commitments to originate and purchase loans include commitments to originate
loans held-for-sale.
(2) Unused lines of credit relate primarily to home equity lines of credit.
In addition to the contractual obligations previously discussed, we have
contingent liabilities related to assets sold with recourse and standby letters
of credit. Contingent liabilities related to assets sold with recourse and
standby letters of credit as of September 30, 2005 have not changed
significantly from December 31, 2004.
For further information regarding our off-balance sheet arrangements and
contractual obligations, see Part II, Item 7, "MD&A," in our 2004 Annual Report
on Form 10-K.
20
Loan Portfolio
The following table sets forth the composition of our loans receivable portfolio
in dollar amounts and in percentages of the portfolio at the dates indicated.
At September 30, 2005 At December 31, 2004
---------------------------------------------------------------
Percent Percent
(Dollars in Thousands) Amount of Total Amount of Total
- --------------------------------------------------------------------------------------------------------------
Mortgage loans (gross):
One-to-four family $ 9,509,514 67.84% $9,054,747 68.68%
Multi-family 2,805,517 20.01 2,558,935 19.41
Commercial real estate 1,052,092 7.51 944,859 7.17
Construction 133,420 0.95 117,766 0.89
- --------------------------------------------------------------------------------------------------------------
Total mortgage loans 13,500,543 96.31 12,676,307 96.15
- --------------------------------------------------------------------------------------------------------------
Consumer and other loans (gross):
Home equity 474,099 3.38 466,087 3.53
Commercial 24,951 0.18 21,819 0.17
Other 18,174 0.13 19,382 0.15
- --------------------------------------------------------------------------------------------------------------
Total consumer and other loans 517,224 3.69 507,288 3.85
- --------------------------------------------------------------------------------------------------------------
Total loans (gross) 14,017,767 100.00% 13,183,595 100.00%
Net unamortized premiums and
deferred loan costs 89,153 79,684
- --------------------------------------------------------------------------------------------------------------
Total loans 14,106,920 13,263,279
Allowance for loan losses (82,047) (82,758)
- --------------------------------------------------------------------------------------------------------------
Total loans, net $14,024,873 $13,180,521
==============================================================================================================
21
Securities Portfolio
The following table sets forth the amortized cost and estimated fair value of
mortgage-backed and other securities available-for-sale and held-to-maturity at
the dates indicated.
At September 30, 2005 At December 31, 2004
-----------------------------------------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
(In Thousands) Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------
Securities available-for-sale:
Mortgage-backed securities:
REMICs and CMOs:
GSE (1) issuance $1,750,399 $1,690,077 $2,125,549 $2,077,902
Non-GSE issuance 65,499 61,886 78,974 75,715
GSE pass-through certificates 97,285 99,522 123,029 126,570
- ------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 1,913,183 1,851,485 2,327,552 2,280,187
- ------------------------------------------------------------------------------------------------------------------
Other securities:
FNMA and FHLMC preferred stock 123,495 122,643 123,495 123,548
Other securities 2,505 2,486 3,152 3,148
- ------------------------------------------------------------------------------------------------------------------
Total other securities 126,000 125,129 126,647 126,696
- ------------------------------------------------------------------------------------------------------------------
Total securities available-for-sale $2,039,183 $1,976,614 $2,454,199 $2,406,883
==================================================================================================================
Securities held-to-maturity:
Mortgage-backed securities:
REMICs and CMOs:
GSE issuance $4,697,341 $4,633,132 $5,772,676 $5,778,885
Non-GSE issuance 380,486 373,081 480,053 476,707
GSE pass-through certificates 6,433 6,677 9,154 9,691
- ------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 5,084,260 5,012,890 6,261,883 6,265,283
Obligations of states and
political subdivisions and
corporate debt securities 27,641 27,771 41,053 41,477
- ------------------------------------------------------------------------------------------------------------------
Total securities held-to-maturity $5,111,901 $5,040,661 $6,302,936 $6,306,760
==================================================================================================================
(1) Government-sponsored enterprise
22
Comparison of Financial Condition as of September 30, 2005 and December 31, 2004
and Operating Results for the Three and Nine Months Ended September 30, 2005 and
2004
Financial Condition
Total assets decreased $785.2 million to $22.63 billion at September 30, 2005,
from $23.42 billion at December 31, 2004. The primary reason for the decrease in
total assets was a decrease in mortgage-backed and other securities, partially
offset by an increase in loans receivable.
Mortgage loans, net, increased $833.4 million to $13.58 billion at September 30,
2005, from $12.75 billion at December 31, 2004. This increase was due to
increases in each of our mortgage loan portfolios. Gross mortgage loans
originated and purchased during the nine months ended September 30, 2005 totaled
$3.28 billion, of which $2.64 billion were originations and $636.4 million were
purchases. This compares to gross mortgage loans originated and purchased during
the nine months ended September 30, 2004 totaling $3.12 billion, of which $2.38
billion were originations and $739.3 million were purchases. Total mortgage
loans originated include originations of loans held-for-sale totaling $284.7
million during the nine months ended September 30, 2005 and $249.0 million
during the nine months ended September 30, 2004. Mortgage loan repayments
decreased to $2.15 billion for the nine months ended September 30, 2005, from
$2.80 billion for the nine months ended September 30, 2004. The reduction in
mortgage loan repayments for the nine months ended September 30, 2005, compared
to the nine months ended September 30, 2004, reflects the lower levels of
refinance activity previously discussed.
Our mortgage loan portfolio, as well as our originations and purchases,
continues to consist primarily of one-to-four family mortgage loans. Our
one-to-four family mortgage loans increased $454.8 million to $9.51 billion at
September 30, 2005, from $9.05 billion at December 31, 2004, and represented
67.8% of our total loan portfolio at September 30, 2005. The lower levels of
loan prepayments and continued strength of the purchase mortgage market resulted
in continued one-to-four family mortgage loan portfolio growth, which began in
the 2004 fourth quarter.
Our multi-family mortgage loan portfolio increased $246.6 million to $2.81
billion at September 30, 2005, from $2.56 billion at December 31, 2004. Our
commercial real estate loan portfolio increased $107.2 million to $1.05 billion
at September 30, 2005, from $944.9 million at December 31, 2004. These increases
were the result of continued strong origination volume. Multi-family and
commercial real estate loan originations totaled $769.0 million for the nine
months ended September 30, 2005 and $863.8 million for the nine months ended
September 30, 2004. The average loan balance within our combined multi-family
and commercial real estate portfolio continues to be less than $1.0 million and
the average loan-to-value ratio, based on current principal balance and original
appraised value, continues to be less than 65%.
Mortgage-backed and other securities decreased $1.62 billion to $7.09 billion at
September 30, 2005, from $8.71 billion at December 31, 2004. This decrease was
primarily the result of principal payments received of $1.78 billion, partially
offset by purchases during the first quarter totaling $177.6 million, and
reflects our previously discussed strategy of reducing the securities and
borrowings portfolios through normal cash flow in the current interest rate
environment. At September 30, 2005, our securities portfolio is comprised
primarily of fixed
23
rate real estate mortgage investment conduit, or REMIC, and collateralized
mortgage obligation, or CMO, securities with a weighted average life of 3.3
years. The amortized cost of our fixed rate REMICs and CMOs totaled $6.88
billion at September 30, 2005. Included in this total is $1.07 billion of
securities which have a remaining gross premium of $7.4 million, a weighted
average current coupon of 4.91%, a weighted average collateral coupon of 5.97%
and a weighted average life of 2.6 years. The remaining $5.81 billion of these
securities have a remaining gross discount of $20.4 million, a weighted average
current coupon of 4.19%, a weighted average collateral coupon of 5.72% and a
weighted average life of 3.4 years. Included in the totals for discount
securities are $609.2 million of securities at par.
Deposits increased $482.4 million to $12.81 billion at September 30, 2005, from
$12.32 billion at December 31, 2004, primarily due to increases in certificates
of deposit and Liquid CDs, partially offset by decreases in savings, money
market and NOW and demand deposit accounts. Certificates of deposit increased
$564.6 million to $7.41 billion at September 30, 2005, from $6.85 billion at
December 31, 2004. Our new Liquid CDs totaled $479.4 million at September 30,
2005. Our certificates of deposit and Liquid CDs increased primarily as a result
of the continued success of our marketing campaigns previously discussed. We
continue to experience intense competition for deposits. Savings accounts
decreased $292.9 million since December 31, 2004 to $2.64 billion at September
30, 2005. Money market accounts decreased $235.7 million since December 31, 2004
to $729.6 million at September 30, 2005. NOW and demand deposit accounts
decreased $32.9 million since December 31, 2004 to $1.55 billion at September
30, 2005.
Total borrowings, net, decreased $1.37 billion to $8.10 billion at September 30,
2005, from $9.47 billion at December 31, 2004, primarily due to decreases in
reverse repurchase agreements and Federal Home Loan Bank of New York, or
FHLB-NY, advances. The net decrease in total borrowings reflects our previously
discussed strategy of reducing the securities and borrowings portfolios. For
additional information, see "Liquidity and Capital Resources."
Stockholders' equity increased to $1.39 billion at September 30, 2005, from
$1.37 billion at December 31, 2004. The increase in stockholders' equity was the
result of net income of $176.1 million, the effect of stock options exercised
and related tax benefit of $13.4 million and the amortization of the allocated
portion of shares held by the employee stock ownership plan, or ESOP, of $7.8
million. These increases were partially offset by common stock repurchased of
$110.0 million, dividends declared of $61.3 million and an increase in
accumulated other comprehensive loss, net of tax, of $8.9 million, which was
primarily due to the net decrease in the fair value of our securities
available-for-sale.
Results of Operations
General
Net income for the three months ended September 30, 2005 increased $1.1 million
to $59.2 million, from $58.1 million for the three months ended September 30,
2004. Diluted earnings per common share increased to $0.57 per share for the
three months ended September 30, 2005, from $0.53 per share for the three months
ended September 30, 2004. Return on average assets increased to 1.05% for the
three months ended September 30, 2005, from 1.02% for the three months ended
September 30, 2004. Return on average stockholders' equity increased to 17.09%
for the three months ended September 30, 2005, from 16.82% for the three months
ended September 30, 2004. Return on average tangible stockholders' equity, which
represents average stockholders' equity less average goodwill, increased to
19.73% for
24
the three months ended September 30, 2005, from 19.42% for the three months
ended September 30, 2004.
Net income for the nine months ended September 30, 2005 increased $7.1 million
to $176.1 million, from $169.0 million for the nine months ended September 30,
2004. Diluted earnings per common share increased to $1.69 per share for the
nine months ended September 30, 2005, from $1.52 per share for the nine months
ended September 30, 2004. Return on average assets increased to 1.02% for the
nine months ended September 30, 2005, from 1.00% for the nine months ended
September 30, 2004. Return on average stockholders' equity increased to 17.06%
for the nine months ended September 30, 2005, from 16.15% for the nine months
ended September 30, 2004. Return on average tangible stockholders' equity
increased to 19.71% for the nine months ended September 30, 2005, from 18.62%
for the nine months ended September 30, 2004. The increases in the returns on
average assets, average stockholders' equity and average tangible stockholders'
equity for the three and nine months ended September 30, 2005, compared to the
three and nine months ended September 30, 2004, were primarily due to the
increases in net income.
As previously discussed, during the 2005 third quarter, we entered into an
agreement with DMI to outsource our mortgage servicing and implemented other
company-wide cost saving initiatives to improve future operating efficiency. Our
results of operations for the three and nine months ended September 30, 2005
include $1.9 million, before tax, in charges related to the outsourcing of our
mortgage servicing and other company-wide cost saving initiatives. These
initiatives, which resulted in staff reductions primarily in our mortgage
servicing, retail banking and loan origination areas, are expected to result in
annual net expense savings of approximately $5.0 million, before tax, beginning
in 2006.
Net Interest Income
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
primarily upon the volume of interest-earning assets and interest-bearing
liabilities and the corresponding interest rates earned or paid. Our net
interest income is significantly impacted by changes in interest rates and
market yield curves and their related impact on cash flows. See Item 3,
"Quantitative and Qualitative Disclosures About Market Risk," for further
discussion of the potential impact of changes in interest rates on our results
of operations.
For the three months ended September 30, 2005, net interest income decreased
$3.4 million to $118.5 million, from $121.9 million for the three months ended
September 30, 2004. The decrease in net interest income for the three months
ended September 30, 2005 was the result of an increase in interest expense,
partially offset by an increase in interest income. The increase in interest
expense was primarily due to the increase in the average balance of our
certificates of deposit and our new Liquid CDs. The increase in interest income
was primarily due to an increase in the average balance of our mortgage loans
and a decrease in net premium amortization on our mortgage-backed securities and
mortgage loan portfolios, partially offset by a decrease in the average balance
of mortgage-backed and other securities.
The average balance of net interest-earning assets decreased $14.2 million to
$648.3 million for the three months ended September 30, 2005, from $662.5
million for the three months ended September 30, 2004. The decrease in the
average balance of net interest-earning assets for the three months ended
September 30, 2005 was primarily the result of a decrease in the
25
average balance of total interest-earning assets, partially offset by a decrease
in the average balance of total interest-bearing liabilities.
The net interest margin decreased to 2.20% for the three months ended September
30, 2005, from 2.25% for the three months ended September 30, 2004. The net
interest rate spread decreased to 2.11% for the three months ended September 30,
2005 from 2.17% for the three months ended September 30, 2004. The decreases in
the net interest margin and net interest rate spread were primarily due to the
increase in the average cost of our interest-bearing liabilities resulting from
the increase in the average balances of our certificates of deposit and new
Liquid CDs, coupled with the impact of the increase in short-term interest rates
on our short-term borrowings.
For the nine months ended September 30, 2005, net interest income increased
$15.4 million to $365.1 million, from $349.7 million for the nine months ended
September 30, 2004. The increase in net interest income for the nine months
ended September 30, 2005 was the result of an increase in interest income,
partially offset by an increase in interest expense. The increase in interest
income was primarily due to an increase in the average balance of
interest-earning assets, coupled with a decrease in net premium amortization on
our mortgage-backed securities and mortgage loan portfolios. Net premium
amortization on our mortgage-backed securities and mortgage loan portfolios
decreased $13.4 million to $13.3 million for the nine months ended September 30,
2005, from $26.7 million for the nine months ended September 30, 2004. The
decrease in net premium amortization was primarily due to the lower repayment
levels during 2005 as compared to 2004, as well as the reduced amount of
unamortized premium remaining in our mortgage-backed securities portfolio. The
increase in interest expense was primarily due to increases in the average
balances of our certificates of deposit and our new Liquid CDs.
The average balance of net interest-earning assets increased $23.4 million to
$661.0 million for the nine months ended September 30, 2005, from $637.6 million
for the nine months ended September 30, 2004. The increase in the average
balance of net interest-earning assets for the nine months ended September 30,
2005 was primarily the result of an increase in the average balance of total
interest-earning assets, partially offset by an increase in the average balance
of total interest-bearing liabilities.
The net interest margin increased to 2.21% for the nine months ended September
30, 2005 from 2.17% for the nine months ended September 30, 2004. The net
interest rate spread increased to 2.13% for the nine months ended September 30,
2005, from 2.09% for the nine months ended September 30, 2004. The increases in
the net interest margin and net interest rate spread were primarily due to the
increase in the average yield on interest-earning assets, resulting primarily
from the declines in net premium amortization on our mortgage-backed securities
and mortgage loan portfolios, previously discussed.
The changes in average interest-earning assets and interest-bearing liabilities
and their related yields and costs are discussed in greater detail under
"Interest Income" and "Interest Expense."
26
Average Balance Sheet
The following tables set forth certain information about the average balances of
our assets and liabilities and their related yields and costs for the three and
nine months ended September 30, 2005 and 2004. Average yields are derived by
dividing income by the average balance of the related assets and average costs
are derived by dividing expense by the average balance of the related
liabilities, for the periods shown. Average balances are derived from average
daily balances. The yields and costs include amortization of fees, costs,
premiums and discounts which are considered adjustments to interest rates.
27
For the Three Months Ended September 30,
-----------------------------------------------------------------------------------------
2005 2004
-----------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Cost Balance Interest Cost
- ---------------------------------------------------------------------------------------------------------------------------------
(Annualized) (Annualized)
Assets:
Interest-earning assets:
Mortgage loans (1):
One-to-four family $ 9,471,378 $115,118 4.86% $ 8,717,579 $105,299 4.83%
Multi-family, commercial
real estate and construction 3,930,711 60,951 6.20 3,490,790 56,617 6.49
Consumer and other loans (1) 529,622 8,199 6.19 487,294 5,385 4.42
----------- -------- ----------- --------
Total loans 13,931,711 184,268 5.29 12,695,663 167,301 5.27
Mortgage-backed and
other securities (2) 7,378,492 82,072 4.45 8,763,907 95,650 4.37
Federal funds sold and
repurchase agreements 122,585 1,056 3.45 94,472 325 1.38
FHLB-NY stock 123,199 1,577 5.12 149,826 804 2.15
----------- -------- ----------- --------
Total interest-earning assets 21,555,987 268,973 4.99 21,703,868 264,080 4.87
-------- --------
Goodwill 185,151 185,151
Other non-interest-earning assets 878,590 837,763
----------- -----------
Total assets $22,619,728 $22,726,782
=========== ===========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings $ 2,710,873 2,744 0.40 $ 2,990,457 3,017 0.40
Money market 767,711 1,866 0.97 1,058,120 1,473 0.56
NOW and demand deposit 1,565,633 233 0.06 1,545,845 233 0.06
Liquid certificates of deposit 393,735 3,053 3.10 - - -
----------- -------- ----------- --------
Total core deposits 5,437,952 7,896 0.58 5,594,422 4,723 0.34
Certificates of deposit 7,222,728 64,007 3.54 6,449,625 57,393 3.56
----------- -------- ----------- --------
Total deposits 12,660,680 71,903 2.27 12,044,047 62,116 2.06
Borrowed funds 8,247,037 78,534 3.81 8,997,278 80,106 3.56
----------- -------- ----------- --------
Total interest-bearing liabilities 20,907,717 150,437 2.88 21,041,325 142,222 2.70
-------- --------
Non-interest-bearing liabilities 326,857 303,582
----------- -----------
Total liabilities 21,234,574 21,344,907
Stockholders' equity 1,385,154 1,381,875
----------- -----------
Total liabilities and stockholders'
equity $22,619,728 $22,726,782
=========== ===========
Net interest income/net interest
rate spread (3) $118,536 2.11% $121,858 2.17%
======== ==== ======== ====
Net interest-earning assets/net
interest margin (4) $ 648,270 2.20% $ 662,543 2.25%
=========== ==== =========== ====
Ratio of interest-earning assets
to interest-bearing liabilities 1.03x 1.03x
==== ====
- -----------------------
(1) Mortgage loans and consumer and other loans include loans held-for-sale and
non-performing loans and exclude the allowance for loan losses.
(2) Securities available-for-sale are reported at average amortized cost.
(3) Net interest rate spread represents the difference between the average
yield on average interest-earning assets and the average cost of average
interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
28
For the Nine Months Ended September 30,
-----------------------------------------------------------------------------------------
2005 2004
-----------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Cost Balance Interest Cost
- ---------------------------------------------------------------------------------------------------------------------------------
(Annualized) (Annualized)
Assets:
Interest-earning assets:
Mortgage loans (1):
One-to-four family $ 9,362,018 $339,598 4.84% $ 8,872,991 $320,854 4.82%
Multi-family, commercial
real estate and construction 3,813,944 177,447 6.20 3,365,136 164,882 6.53
Consumer and other loans (1) 527,298 22,455 5.68 468,116 15,073 4.29
----------- -------- ----------- --------
Total loans 13,703,260 539,500 5.25 12,706,243 500,809 5.26
Mortgage-backed and
other securities (2) 7,962,719 264,520 4.43 8,489,863 273,590 4.30
Federal funds sold and
repurchase agreements 184,637 3,866 2.79 84,662 701 1.10
FHLB-NY stock 130,618 4,400 4.49 177,601 2,637 1.98
----------- -------- ----------- --------
Total interest-earning assets 21,981,234 812,286 4.93 21,458,369 777,737 4.83
-------- --------
Goodwill 185,151 185,151
Other non-interest-earning assets 863,831 874,952
----------- -----------
Total assets $23,030,216 $22,518,472
=========== ===========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings $ 2,802,298 8,417 0.40 $ 2,984,602 8,950 0.40
Money market 843,232 5,825 0.92 1,121,802 4,591 0.55
NOW and demand deposit 1,574,350 698 0.06 1,523,215 684 0.06
Liquid certificates of deposit 288,023 5,998 2.78 - - -
----------- -------- ----------- --------
Total core deposits 5,507,903 20,938 0.51 5,629,619 14,225 0.34
Certificates of deposit 7,054,729 182,990 3.46 6,038,738 159,023 3.51
----------- -------- ----------- -------
Total deposits 12,562,632 203,928 2.16 11,668,357 173,248 1.98
Borrowed funds 8,757,579 243,262 3.70 9,152,391 254,802 3.71
----------- -------- ----------- --------
Total interest-bearing liabilities 21,320,211 447,190 2.80 20,820,748 428,050 2.74
-------- --------
Non-interest-bearing liabilities 334,032 302,456
----------- -----------
Total liabilities 21,654,243 21,123,204
Stockholders' equity 1,375,973 1,395,268
----------- -----------
Total liabilities and stockholders'
equity $23,030,216 $22,518,472
=========== ===========
Net interest income/net interest
rate spread (3) $365,096 2.13% $349,687 2.09%
======== ==== ======== ====
Net interest-earning assets/net
interest margin (4) $ 661,023 2.21% $ 637,621 2.17%
=========== ==== =========== ====
Ratio of interest-earning assets
to interest-bearing liabilities 1.03x 1.03x
==== ====
- -----------------------
(1) Mortgage loans and consumer and other loans include loans held-for-sale and
non-performing loans and exclude the allowance for loan losses.
(2) Securities available-for-sale are reported at average amortized cost.
(3) Net interest rate spread represents the difference between the average
yield on average interest-earning assets and the average cost of average
interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
29
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, 2005 Nine Months Ended September 30, 2005
Compared to Compared to
Three Months Ended September 30, 2004 Nine Months Ended September 30, 2004
--------------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
--------------------------------------------------------------------------------------
(In Thousands) Volume Rate Net Volume Rate Net
- --------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Mortgage loans:
One-to-four family $ 9,161 $ 658 $ 9,819 $ 17,432 $ 1,312 $ 18,744
Multi-family, commercial
real estate and construction 6,936 (2,602) 4,334 21,192 (8,627) 12,565
Consumer and other loans 502 2,312 2,814 2,072 5,310 7,382
Mortgage-backed and other securities (15,311) 1,733 (13,578) (17,234) 8,164 (9,070)
Federal funds sold and repurchase
agreements 121 610 731 1,376 1,789 3,165
FHLB-NY stock (165) 938 773 (850) 2,613 1,763
- --------------------------------------------------------------------------------------------------------------------------------
Total 1,244 3,649 4,893 23,988 10,561 34,549
- --------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings (273) - (273) (533) - (533)
Money market (485) 878 393 (1,346) 2,580 1,234
NOW and demand deposit - - - 14 - 14
Liquid certificates of deposit 3,053 - 3,053 5,998 - 5,998
Certificates of deposit 6,934 (320) 6,614 26,272 (2,305) 23,967
Borrowed funds (6,958) 5,386 (1,572) (10,862) (678) (11,540)
- ---------------------------------------------------------------------------------------------------------------------------------
Total 2,271 5,944 8,215 19,543 (403) 19,140
- --------------------------------------------------------------------------------------------------------------------------------
Net change in net interest income $ (1,027) $(2,295) $ (3,322) $ 4,445 $10,964 $ 15,409
================================================================================================================================
Interest Income
Interest income for the three months ended September 30, 2005 increased $4.9
million to $269.0 million, from $264.1 million for the three months ended
September 30, 2004. This increase was primarily the result of an increase in the
average yield on interest-earning assets to 4.99% for the three months ended
September 30, 2005, from 4.87% for the three months ended September 30, 2004,
partially offset by a decrease of $147.9 million in the average balance of
interest-earning assets to $21.56 billion for the three months ended September
30, 2005, from $21.70 billion for the three months ended September 30, 2004. The
increase in the average yield on interest-earning assets was primarily the
result of rising interest rates, coupled with the decrease in premium
amortization on our mortgage-backed securities portfolio, previously discussed.
The decrease in the average balance of interest-earning assets was primarily due
to a decrease in the average balance of mortgage-backed and other securities,
substantially offset by an increase in the average balance of loans.
30
Interest income on one-to-four family mortgage loans increased $9.8 million to
$115.1 million for the three months ended September 30, 2005, from $105.3
million for the three months ended September 30, 2004, which was primarily the
result of an increase of $753.8 million in the average balance of such loans,
coupled with an increase in the average yield to 4.86% for the three months
ended September 30, 2005, from 4.83% for the three months ended September 30,
2004. The increase in the average balance of one-to-four family mortgage loans
is the result of the strong levels of originations and purchases which have
outpaced the levels of repayments over the past year.
Interest income on multi-family, commercial real estate and construction loans
increased $4.4 million to $61.0 million for the three months ended September 30,
2005, from $56.6 million for the three months ended September 30, 2004, which
was primarily the result of an increase of $439.9 million in the average balance
of such loans, partially offset by a decrease in the average yield to 6.20% for
the three months ended September 30, 2005, from 6.49% for the three months ended
September 30, 2004. The increase in the average balance of multi-family,
commercial real estate and construction loans reflects the continued strong
levels of originations, coupled with the fact that repayment activity within
this portfolio is generally not as significant as that which we have experienced
in our one-to-four family mortgage loan portfolio in part due to the prepayment
penalties associated with these loans. The decrease in the average yield on
multi-family, commercial real estate and construction loans reflects the
significant growth in the portfolio in the relatively low interest rate
environment, coupled with a decrease of $1.0 million in prepayment penalties to
$3.2 million for the three months ended September 30, 2005, from $4.2 million
for the three months ended September 30, 2004.
Interest income on consumer and other loans increased $2.8 million to $8.2
million for the three months ended September 30, 2005, from $5.4 million for the
three months ended September 30, 2004, primarily due to an increase in the
average yield to 6.19% for the three months ended September 30, 2005, from 4.42%
for the three months ended September 30, 2004, coupled with an increase of $42.3
million in the average balance of the portfolio. The increase in the average
yield on consumer and other loans was primarily the result of an increase in the
average yield on our home equity lines of credit which are adjustable rate loans
which generally reset monthly and are indexed to the prime rate. The prime rate
increased 125 basis points during the latter half of 2004 and 150 basis points
during the first nine months of 2005. The increase in the average balance of
consumer and other loans was due to the increase in home equity lines of credit
as a result of the continued strong housing market and relatively low interest
rate environment. Home equity lines of credit represented 91.7% of this
portfolio at September 30, 2005.
Interest income on mortgage-backed and other securities decreased $13.6 million
to $82.1 million for the three months ended September 30, 2005, from $95.7
million for the three months ended September 30, 2004. This decrease was
primarily the result of a decrease of $1.39 billion in the average balance of
the portfolio, partially offset by an increase in the average yield to 4.45% for
the three months ended September 30, 2005, from 4.37% for the three months ended
September 30, 2004. The decrease in the average balance of mortgage-backed and
other securities reflects our previously discussed strategy of reducing the
securities and borrowings portfolios. The increase in the average yield on
mortgage-backed and other securities reflects the previously discussed reduction
in premium amortization. Premium amortization and discount accretion on
mortgage-backed and other securities changed by $1.4 million to net discount
accretion of $532,000 for the three months ended September 30, 2005, from net
premium amortization of $878,000 for the three months ended September 30, 2004.
Interest income on federal funds sold and repurchase agreements increased
$731,000 to $1.1 million for the three months ended September 30, 2005, as a
result of an increase in the average
31
yield to 3.45% for the three months ended September 30, 2005, from 1.38% for the
three months ended September 30, 2004, coupled with an increase of $28.1 million
in the average balance of the portfolio. The increase in the average yield
reflects the FOMC federal funds rate increases previously discussed totaling 125
basis points in the latter half of 2004 and 150 basis points in the first nine
months of 2005. Dividend income on FHLB-NY stock increased $773,000 to $1.6
million for the three months ended September 30, 2005, from $804,000 for the
three months ended September 30, 2004, primarily as a result of increases in the
dividend rate paid by the FHLB-NY.
Interest income for the nine months ended September 30, 2005 increased $34.6
million to $812.3 million, from $777.7 million for the nine months ended
September 30, 2004. This increase was primarily the result of an increase in the
average balance of interest-earning assets to $21.98 billion for the nine months
ended September 30, 2005, from $21.46 billion for the nine months ended
September 30, 2004, coupled with an increase in the average yield on
interest-earning assets to 4.93% for the nine months ended September 30, 2005,
from 4.83% for the nine months ended September 30, 2004. The increase in the
average balance of interest-earning assets was primarily due to increases in the
average balances of loans and federal funds sold and repurchase agreements,
partially offset by decreases in the average balances of mortgage-backed and
other securities and FHLB-NY stock.
Interest income on one-to-four family mortgage loans increased $18.7 million to
$339.6 million for the nine months ended September 30, 2005, from $320.9 million
for the nine months ended September 30, 2004, which was primarily the result of
an increase of $489.0 million in the average balance of such loans, coupled with
an increase in the average yield to 4.84% for the nine months ended September
30, 2005, from 4.82% for the nine months ended September 30, 2004.
Interest income on multi-family, commercial real estate and construction loans
increased $12.5 million to $177.4 million for the nine months ended September
30, 2005, from $164.9 million for the nine months ended September 30, 2004,
which was primarily the result of an increase of $448.8 million in the average
balance of such loans, partially offset by a decrease in the average yield to
6.20% for the nine months ended September 30, 2005, from 6.53% for the nine
months ended September 30, 2004. Prepayment penalties decreased $849,000 to $9.1
million for the nine months ended September 30, 2005, from $10.0 million for the
nine months ended September 30, 2004.
Interest income on consumer and other loans increased $7.4 million to $22.5
million for the nine months ended September 30, 2005, from $15.1 million for the
nine months ended September 30, 2004, primarily due to an increase in the
average yield to 5.68% for the nine months ended September 30, 2005, from 4.29%
for the nine months ended September 30, 2004, coupled with an increase of $59.2
million in the average balance of the portfolio.
Interest income on mortgage-backed and other securities decreased $9.1 million
to $264.5 million for the nine months ended September 30, 2005, from $273.6
million for the nine months ended September 30, 2004. This decrease was
primarily the result of a decrease of $527.1 million in the average balance of
the portfolio, partially offset by an increase in the average yield to 4.43% for
the nine months ended September 30, 2005, from 4.30% for the nine months ended
September 30, 2004. Premium amortization and discount accretion on
mortgage-backed and other securities changed by $8.7 million to net discount
accretion of $907,000 for the nine months ended September 30, 2005, from net
premium amortization of $7.8 million for the nine months ended September 30,
2004.
32
Interest income on federal funds sold and repurchase agreements increased $3.2
million to $3.9 million for the nine months ended September 30, 2005 as a result
of an increase in the average yield to 2.79% for the nine months ended September
30, 2005, from 1.10% for the nine months ended September 30, 2004, coupled with
an increase of $100.0 million in the average balance of the portfolio. Dividend
income on FHLB-NY stock increased $1.8 million to $4.4 million for the nine
months ended September 30, 2005, from $2.6 million for the nine months ended
September 30, 2004.
The principal reasons for the changes in the average yields and average balances
of the various assets noted above for the nine months ended September 30, 2005
are consistent with the principal reasons for the changes noted for the three
months ended September 30, 2005, previously discussed.
Interest Expense
Interest expense for the three months ended September 30, 2005 increased $8.2
million to $150.4 million, from $142.2 million for the three months ended
September 30, 2004. This increase was primarily the result of an increase in the
average cost of interest-bearing liabilities to 2.88% for the three months ended
September 30, 2005, from 2.70% for the three months ended September 30, 2004.
The increase in the average cost of interest-bearing liabilities reflects the
impact of the significant increases in the average balances of certificates of
deposit and our new Liquid CDs, which have a higher average cost than our other
deposit products, coupled with the impact of the increase in short-term interest
rates over the past year on our short-term borrowings. The average balance of
interest-bearing liabilities decreased $133.6 million to $20.91 billion for the
three months ended September 30, 2005, from $21.04 billion for the three months
ended September 30, 2004. The decrease in the average balance of
interest-bearing liabilities was primarily due to a decrease in the average
balance of borrowed funds, substantially offset by an increase in the average
balance of deposits.
Interest expense on deposits increased $9.8 million to $71.9 million for the
three months ended September 30, 2005, from $62.1 million for the three months
ended September 30, 2004, primarily due to an increase of $616.6 million in the
average balance of total deposits. The increase in the average balance of total
deposits was primarily the result of increases in the average balances of
certificates of deposit and Liquid CDs, partially offset by decreases in the
average balances of money market and savings accounts, primarily as a result of
continued intense competition for these types of deposits. The average cost of
total deposits increased to 2.27% for the three months ended September 30, 2005,
from 2.06% for the three months ended September 30, 2004, primarily due to the
previously discussed significant increases in the average balances of
certificates of deposit and Liquid CDs.
Interest expense on certificates of deposit increased $6.6 million to $64.0
million for the three months ended September 30, 2005, from $57.4 million for
the three months ended September 30, 2004, primarily due to an increase of
$773.1 million in the average balance, slightly offset by a decrease in the
average cost to 3.54% for the three months ended September 30, 2005, from 3.56%
for the three months ended September 30, 2004. During the three months ended
September 30, 2005, $705.8 million of certificates of deposit, with a weighted
average rate of 2.29% and a weighted average maturity at inception of eleven
months, matured and $962.8 million of certificates of deposit were issued or
repriced, with a weighted average rate of 3.62% and a weighted average maturity
at inception of nine months. Interest expense on Liquid CDs totaled $3.1 million
for the three months ended September 30, 2005. Our new Liquid CDs had an average
balance of $393.7 million and an average cost of 3.10% for the three months
ended September 30, 2005. The increases in the average balances of certificates
of deposit and Liquid
33
CDs were primarily a result of the success of our marketing campaigns which have
focused on attracting these types of deposits. Growth in our certificates of
deposit and Liquid CDs contributes to the management of interest rate risk,
enables us to reduce our borrowing levels and continues to produce new customers
from our communities, creating relationship development opportunities.
Interest expense on borrowed funds for the three months ended September 30, 2005
decreased $1.6 million to $78.5 million, from $80.1 million for the three months
ended September 30, 2004, resulting from a decrease of $750.2 million in the
average balance, partially offset by an increase in the average cost to 3.81%
for the three months ended September 30, 2005, from 3.56% for the three months
ended September 30, 2004. The decrease in the average balance of borrowed funds
was primarily the result of our previously discussed strategy of reducing the
securities and borrowings portfolios. The increase in the average cost of
borrowed funds reflects the impact of the increase in short-term interest rates
over the past year on our short-term borrowings.
Interest expense for the nine months ended September 30, 2005 increased $19.1
million to $447.2 million, from $428.1 million for the nine months ended
September 30, 2004. This increase was primarily the result of an increase of
$499.5 million in the average balance of interest-bearing liabilities to $21.32
billion for the nine months ended September 30, 2005, from $20.82 billion for
the nine months ended September 30, 2004. The increase in the average balance of
interest-bearing liabilities was due to an increase in the average balance of
deposits, partially offset by a decrease in the average balance of borrowed
funds. The average cost of total interest-bearing liabilities increased to 2.80%
for the nine months ended September 30, 2005, from 2.74% for the nine months
ended September 30, 2004, primarily due to the impact of the significant
increases in the average balances of certificates of deposit and Liquid CDs,
which have a higher average cost than our other deposit products.
Interest expense on deposits increased $30.7 million to $203.9 million for the
nine months ended September 30, 2005, from $173.2 million for the nine months
ended September 30, 2004, primarily due to an increase of $894.3 million in the
average balance of total deposits. The average cost of total deposits increased
to 2.16% for the nine months ended September 30, 2005, from 1.98% for the nine
months ended September 30, 2004. The principal reasons for the changes in the
average balance and average cost of total deposits for the nine months ended
September 30, 2005 are consistent with the principal reasons for the changes
noted for the three months ended September 30, 2005, previously discussed.
Interest expense on certificates of deposit increased $24.0 million to $183.0
million for the nine months ended September 30, 2005, from $159.0 million for
the nine months ended September 30, 2004, primarily due to an increase of $1.02
billion in the average balance, partially offset by a decrease in the average
cost to 3.46% for the nine months ended September 30, 2005, from 3.51% for the
nine months ended September 30, 2004. During the nine months ended September 30,
2005, $2.53 billion of certificates of deposit, with a weighted average rate of
2.70% and a weighted average maturity at inception of nineteen months, matured
and $2.91 billion of certificates of deposit were issued or repriced, with a
weighted average rate of 3.23% and a weighted average maturity at inception of
fifteen months. Interest expense on Liquid CDs totaled $6.0 million for the nine
months ended September 30, 2005. Our new Liquid CDs had an average balance of
$288.0 million and an average cost of 2.78% for the nine months ended September
30, 2005. The increases in the average balances of certificates of deposit and
Liquid CDs were primarily due to the success of our marketing campaigns,
previously discussed.
34
Interest expense on borrowed funds for the nine months ended September 30, 2005
decreased $11.5 million to $243.3 million, from $254.8 million for the nine
months ended September 30, 2004, primarily due to a decrease of $394.8 million
in the average balance. The decrease in the average balance of borrowed funds
was primarily the result of our previously discussed strategy of reducing the
securities and borrowings portfolios. The average cost of borrowed funds
decreased slightly to 3.70% for the nine months ended September 30, 2005, from
3.71% for the nine months ended September 30, 2004.
Provision for Loan Losses
During the three and nine months ended September 30, 2005 and 2004, no provision
for loan losses was recorded. We review our allowance for loan losses on a
quarterly basis. Our 2005 analyses did not indicate that a change in our
allowance for loan losses was warranted. Our net charge-off experience for the
three and nine months ended September 30, 2005 was one basis point of average
loans outstanding, annualized, compared to less than one basis point of average
loans outstanding, annualized, for the three and nine months ended September 30,
2004. We believe our current allowance for loan losses is adequate to reflect
the risks inherent in our loan portfolio.
The allowance for loan losses totaled $82.0 million at September 30, 2005 and
$82.8 million at December 31, 2004. Net loan charge-offs totaled $472,000 for
the three months ended September 30, 2005, compared to $15,000 for the three
months ended September 30, 2004, and totaled $711,000 for the nine months ended
September 30, 2005, compared to $318,000 for the nine months ended September 30,
2004. Non-performing loans increased $5.3 million to $37.9 million at September
30, 2005, from $32.6 million at December 31, 2004. The allowance for loan losses
as a percentage of non-performing loans decreased to 216.39% at September 30,
2005, from 254.02% at December 31, 2004, primarily due to the increase in
non-performing loans from December 31, 2004 to September 30, 2005. The allowance
for loan losses as a percentage of total loans was 0.58% at September 30, 2005
and 0.62% at December 31, 2004. For further discussion of non-performing loans
and the allowance for loan losses, see "Critical Accounting Policies" and "Asset
Quality."
Non-Interest Income
Non-interest income for the three months ended September 30, 2005 increased $4.4
million, to $28.4 million, from $24.0 million for the three months ended
September 30, 2004. For the nine months ended September 30, 2005, non-interest
income increased $1.6 million to $75.6 million, from $74.0 million for the nine
months ended September 30, 2004. The increases in non-interest income for the
three and nine months ended September 30, 2005 are primarily due to increases in
customer service fees and mortgage banking income, net, partially offset by
decreases in net gain on sales of securities.
Customer service fees increased $2.5 million to $17.8 million for the three
months ended September 30, 2005, from $15.3 million for the three months ended
September 30, 2004, and increased $5.4 million to $49.0 million for the nine
months ended September 30, 2005, from $43.6 million for the nine months ended
September 30, 2004. The increases were primarily due to increases in
insufficient fund fees related to transaction accounts resulting from the
implementation of an enhanced overdraft protection program in the 2005 first
quarter.
35
Mortgage banking income, net, which includes loan servicing fees, net gain on
sales of loans, amortization of MSR and valuation allowance adjustments for the
impairment of MSR increased $4.9 million to mortgage banking income, net, of
$3.7 million for the three months ended September 30, 2005, compared to mortgage
banking loss, net, of $1.2 million for the three months ended September 30,
2004, primarily due to the change in the valuation allowance for the impairment
of MSR. For the nine months ended September 30, 2005, mortgage banking income,
net, increased $1.2 million to mortgage banking income, net, of $5.1 million,
compared to mortgage banking income, net, of $3.9 million for the nine months
ended September 30, 2004, primarily due to a decrease in amortization of MSR and
the change in the valuation allowance for the impairment of MSR, partially
offset by a decrease in loan servicing fees. We recorded recoveries in the
valuation allowance for the impairment of MSR of $2.7 million for the three
months ended September 30, 2005 and $2.6 million for the nine months ended
September 30, 2005. The recoveries recorded for the three and nine months ended
September 30, 2005 were primarily due to a decrease in projected loan prepayment
speeds as of September 30, 2005, which was a result of the increase in interest
rates at September 30, 2005 compared to both June 30, 2005 and December 31,
2004. We recorded a provision in the valuation allowance for the impairment of
MSR of $1.9 million for the three months ended September 30, 2004 and a recovery
of $1.9 million for the nine months ended September 30, 2004. The provision
recorded for the three months ended September 30, 2004 reflected an increase in
projected loan prepayment speeds as of September 30, 2004 compared to June 30,
2004, which was a result of the decrease in interest rates during the 2004 third
quarter. However, the projected loan prepayment speeds as of September 30, 2004
were lower than December 31, 2003, as a result of the increase in interest rates
during that period, resulting in a recovery for the nine months ended September
30, 2004. Amortization of MSR decreased $1.1 million to $4.1 million for the
nine months ended September 30, 2005, from $5.2 million for the nine months
ended September 30, 2004, primarily due to the reduction in the level of
mortgage loan repayments as a result of the decrease in mortgage loan refinance
activity in 2005 as compared to 2004. Loan servicing fees decreased $540,000 to
$3.8 million for the nine months ended September 30, 2005, from $4.4 million for
the nine months ended September 30, 2004, primarily as a result of a decrease in
the balance of loans serviced for others to $1.55 billion at September 30, 2005,
from $1.71 billion at September 30, 2004. The decrease in the balance of loans
serviced for others was the result of repayments in that portfolio exceeding the
level of new servicing volume from loan sales.
There were no sales of securities during the nine months ended September 30,
2005. During 2004, we sold other securities with an amortized cost of $20.3
million for a net gain of $2.4 million during the first quarter and
mortgage-backed securities with an amortized cost of $145.2 million for a net
gain of $2.3 million during the third quarter.
Non-Interest Expense
Non-interest expense decreased $1.3 million to $57.9 million for the three
months ended September 30, 2005, from $59.2 million for the three months ended
September 30, 2004, primarily due to a decrease in other expense. For the nine
months ended September 30, 2005, non-interest expense increased $4.4 million to
$176.0 million, from $171.6 million for the nine months ended September 30,
2004, primarily due to increases in advertising expense and other expense.
Other expense decreased $1.9 million to $8.7 million for the three months ended
September 30, 2005, from $10.6 million for the three months ended September 30,
2004, primarily due to a $3.2 million arbitration award settlement in the 2004
third quarter, partially offset by various one-time charges of $581,000 in the
2005 third quarter related to the outsourcing of our
36
mortgage servicing and other company-wide cost saving initiatives, previously
discussed, and an increase in charitable contributions, primarily to the
American Red Cross Disaster Relief Fund to benefit the Gulf Coast victims of
Hurricane Katrina. For the nine months ended September 30, 2005, other expense
increased $2.3 million to $27.5 million, from $25.2 million for the nine months
ended September 30, 2004, primarily due to, among other things, increased legal
fees and other costs in the first half of 2005 as a result of the completion of
the trial phase of the LISB goodwill litigation, various one-time charges
related to the outsourcing of our mortgage servicing and other company-wide cost
saving initiatives and increased charitable contributions. The increase in
charitable contributions was the result of the aforementioned contribution to
benefit the Gulf Coast victims, coupled with the contributions in the 2005 first
quarter to support the tsunami disaster relief efforts in South Asia. These
increases were partially offset by the previously discussed arbitration award
settlement in the 2004 third quarter. See Note 5 of Notes to Consolidated
Financial Statements in Part I, Item 1, "Financial Statements (Unaudited)" for
further discussion of goodwill litigation.
Advertising expense increased $2.4 million to $7.5 million for the nine months
ended September 30, 2005, from $5.1 million for the nine months ended September
30, 2004, primarily due to increased advertising related to, among other things,
the introduction of a business banking marketing campaign in the 2005 first
quarter. The slight increases in compensation and benefits expense for the three
and nine months ended September 30, 2005, compared to the three and nine months
ended September 30, 2004, were primarily due to costs of $1.3 million associated
with the outsourcing of our mortgage servicing and other company-wide cost
saving initiatives, previously discussed, partially offset by a decrease in
estimated corporate bonuses for 2005 compared to 2004.
Our percentage of general and administrative expense to average assets was 1.02%
for the three months ended September 30, 2005, compared to 1.04% for the three
months ended September 30, 2004 and 1.02% for the nine months ended September
30, 2005 and 2004. The efficiency ratio, which represents general and
administrative expense divided by the sum of net interest income plus
non-interest income, was 39.42% for the three months ended September 30, 2005
and 39.93% for the nine months ended September 30, 2005, compared to 40.56% for
the three months ended September 30, 2004 and 40.49% for the nine months ended
September 30, 2004.
Income Tax Expense
Income tax expense totaled $29.8 million for the three months ended September
30, 2005 and $88.7 million for the nine months ended September 30, 2005,
representing an effective tax rate of 33.5% for the three and nine months ended
September 30, 2005. Income tax expense totaled $28.6 million for the three
months ended September 30, 2004 and $83.1 million for the nine months ended
September 30, 2004, representing an effective tax rate of 33.0% for the three
and nine months ended September 30, 2004.
Asset Quality
One of our key operating objectives has been and continues to be to maintain a
high level of asset quality. Our concentration on one-to-four family mortgage
lending, the maintenance of sound credit standards for new loan originations and
a strong real estate market have resulted in our maintaining a very low level of
non-performing assets. Through a variety of strategies, including, but not
limited to, aggressive collection efforts and marketing of foreclosed
37
properties, we have been proactive in addressing problem and non-performing
assets which, in turn, has helped to strengthen our financial condition.
Non-Performing Assets
The following table sets forth information regarding non-performing assets at
the dates indicated.
At September 30, At December 31,
(Dollars in Thousands) 2005 2004
- --------------------------------------------------------------------------------------------------------------
Non-accrual delinquent mortgage loans (1) $36,746 $31,462
Non-accrual delinquent consumer and other loans 680 544
Mortgage loans delinquent 90 days or more and
still accruing interest (2) 490 573
- -------------------------------------------------------------------------------------------------------------
Total non-performing loans 37,916 32,579
Real estate owned, net (3) 1,297 920
- -------------------------------------------------------------------------------------------------------------
Total non-performing assets $39,213 $33,499
=============================================================================================================
Non-performing loans to total loans 0.27% 0.25%
Non-performing loans to total assets 0.17 0.14
Non-performing assets to total assets 0.17 0.14
Allowance for loan losses to non-performing loans 216.39 254.02
Allowance for loan losses to total loans 0.58 0.62
(1) Includes multi-family and commercial real estate loans totaling $16.5
million at September 30, 2005 and $11.5 million at December 31, 2004.
(2) Mortgage loans delinquent 90 days or more and still accruing interest
consist solely of loans delinquent 90 days or more as to their maturity
date but not their interest due.
(3) Real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure is recorded at the lower of cost or fair value, less estimated
selling costs.
Non-performing loans totaled $37.9 million at September 30, 2005, compared to
$32.6 million at December 31, 2004. The increase in non-performing loans was
primarily due to an increase in non-performing multi-family mortgage loans
resulting primarily from a $5.4 million loan involving fraud. We have notified
the applicable title insurance company of the existence of this fraud. They are
defending our interest subject to a reservation of rights. The average
loan-to-value of the non-performing multi-family loans at September 30, 2005 is
63.7% with an average debt service coverage ratio of 1.60. We have not
experienced, nor do we expect to experience, a significant increase in
non-performing assets or delinquent loans resulting from the recent hurricanes
in the Gulf Coast region of the United States as we do not have a material
concentration of loans in this region.
We discontinue accruing interest on mortgage loans when such loans become 90
days delinquent as to their interest due, even though in some instances the
borrower has only missed two payments. As of September 30, 2005, $11.2 million
of mortgage loans classified as non-performing had missed only two payments. We
discontinue accruing interest on consumer and other loans when such loans become
90 days delinquent as to their payment due. In addition, we reverse all
previously accrued and uncollected interest through a charge to interest income.
While loans are in non-accrual status, interest due is monitored and income is
recognized only to the extent cash is received until a return to accrual status
is warranted.
38
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
$1.8 million for the nine months ended September 30, 2005 and $1.3 million for
the nine months ended September 30, 2004. This compares to actual payments
recorded as interest income, with respect to such loans, of $903,000 for the
nine months ended September 30, 2005 and $659,000 for the nine months ended
September 30, 2004.
In addition to non-performing assets, we had $1.4 million of potential problem
loans at September 30, 2005 compared to $4.1 million at December 31, 2004. Such
loans are 60-89 days delinquent as shown in the following table.
Delinquent Loans
The following table shows a comparison of delinquent loans at the dates
indicated.
At September 30, 2005 At December 31, 2004
-------------------------------------------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------------------------------------------------------------------------
Number Number Number Number
of of of of
(Dollars in Thousands) Loans Amount Loans Amount Loans Amount Loans Amount
---------------------------------------------------------------------------------------------------------------------
Mortgage loans:
One-to-four family 2 $ 113 87 $20,220 6 $ 805 98 $20,497
Multi-family - - 14 14,204 4 460 12 8,843
Commercial real estate - - 4 2,322 - - 4 2,695
Construction 1 1,107 1 490 2 1,994 - -
Consumer and other loans 31 194 40 680 56 880 57 544
---------------------------------------------------------------------------------------------------------------------
Total delinquent loans 34 $1,414 146 $37,916 68 $4,139 171 $32,579
====================================================================================================================
Delinquent loans to total loans 0.01% 0.27% 0.03% 0.25%
Allowance for Loan Losses
The following table sets forth the change in our allowance for losses on loans
for the nine months ended September 30, 2005.
(In Thousands)
Balance at December 31, 2004 $82,758
Provision charged to operations -
Charge-offs:
One-to-four family (647)
Consumer and other loans (412)
------------------------------------------------------------------------------------
Total charge-offs (1,059)
------------------------------------------------------------------------------------
Recoveries:
One-to-four family 43
Multi-family 34
Consumer and other loans 271
------------------------------------------------------------------------------------
Total recoveries 348
------------------------------------------------------------------------------------
Net charge-offs (711)
------------------------------------------------------------------------------------
Balance at September 30, 2005 $82,047
====================================================================================
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
As a financial institution, the primary component of our market risk is interest
rate risk, or IRR. The objective of our IRR management policy is to maintain an
appropriate mix and level of assets, liabilities and off-balance sheet items to
enable us to meet our earnings and/or growth objectives, while maintaining
specified minimum capital levels as required by the OTS, in the
39
case of Astoria Federal, and as established by our Board of Directors. We use a
variety of analyses to monitor, control and adjust our asset and liability
positions, primarily interest rate sensitivity gap analysis, or gap analysis,
and net interest income sensitivity, or NII sensitivity, analysis. Additional
IRR modeling is done by Astoria Federal in conformity with OTS requirements.
Gap Analysis
Gap analysis measures the difference between the amount of interest-earning
assets anticipated to mature or reprice within specific time periods and the
amount of interest-bearing liabilities anticipated to mature or reprice within
the same time periods. The following table, referred to as the Gap Table, sets
forth the amount of interest-earning assets and interest-bearing liabilities
outstanding at September 30, 2005 that we anticipate will reprice or mature in
each of the future time periods shown using certain assumptions based on our
historical experience and other market-based data available to us. As indicated
in the Gap Table, our one-year cumulative gap at September 30, 2005 was negative
5.57%. This compares to a one-year cumulative gap of negative 2.87% at December
31, 2004.
The Gap Table does not indicate the impact of general interest rate movements on
our net interest income because the actual repricing dates of various assets and
liabilities will differ from our estimates and it does not give consideration to
the yields and costs of the assets and liabilities or the projected yields and
costs to replace or retain those assets and liabilities. Callable features of
certain assets and liabilities, in addition to the foregoing, may also cause
actual experience to vary from that indicated.
40
At September 30, 2005
----------------------------------------------------------------------------
More than More than
One Year Three Years
One Year to to More than
(Dollars in Thousands) or Less Three Years Five Years Five Years Total
- -------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Mortgage loans (1) $4,056,485 $5,030,533 $4,036,057 $ 367,641 $13,490,716
Consumer and other loans (1) 483,211 21,987 12,057 - 517,255
Repurchase agreements 272,505 - - - 272,505
Mortgage-backed and other
securities available-for-sale 580,712 677,853 601,882 183,390 2,043,837
Mortgage-backed and other securities
held-to-maturity 1,601,794 2,015,262 1,491,978 11,022 5,120,056
FHLB-NY stock - - - 123,145 123,145
- -------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 6,994,707 7,745,635 6,141,974 685,198 21,567,514
Net unamortized purchase premiums
and deferred costs (2) 24,991 27,341 22,020 1,992 76,344
- -------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets (3) 7,019,698 7,772,976 6,163,994 687,190 21,643,858
- -------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings 145,111 290,224 290,224 1,910,642 2,636,201
Money market 580,012 15,741 15,741 118,058 729,552
NOW and demand deposit 42,770 85,533 85,533 1,333,933 1,547,769
Liquid certificates of deposit 479,372 - - - 479,372
Certificates of deposit 4,333,703 2,246,412 790,634 42,007 7,412,756
Borrowed funds, net (4) 2,700,268 4,518,701 499,009 378,122 8,096,100
- ------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 8,281,236 7,156,611 1,681,141 3,782,762 20,901,750
- ------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap (1,261,538) 616,365 4,482,853 (3,095,572) $ 742,108
========================================================================================================================
Cumulative interest sensitivity gap $ (1,261,538) $ (645,173) $3,837,680 $ 742,108
========================================================================================================================
Cumulative interest sensitivity
gap as a percentage of total assets (5.57)% (2.85)% 16.96% 3.28%
Cumulative net interest-earning
assets as a percentage of
interest-bearing liabilities 84.77% 95.82% 122.42% 103.55%
(1) Mortgage loans and consumer and other loans include loans held-for-sale and
exclude non-performing loans and the allowance for loan losses.
(2) Net unamortized purchase premiums and deferred costs are prorated.
(3) Includes securities available-for-sale at amortized cost.
(4) Excludes the hedge accounting adjustment on our Junior Subordinated
Debentures.
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, 2005 would decrease by
41
approximately 3.15% from the base projection. At December 31, 2004, in the up
200 basis point scenario, our projected net interest income for the twelve month
period beginning January 1, 2005 would have decreased by approximately 4.50%
from the base projection. Assuming the entire yield curve was to decrease 200
basis points, through quarterly parallel decrements of 50 basis points and
remain at that level thereafter, our projected net interest income for the
twelve month period beginning October 1, 2005 would decrease by approximately
1.37% from the base projection. The interest rate environment which existed at
December 31, 2004 prevented us from performing an income simulation for a
decline in interest rates of the same magnitude and timing as our rising
interest rate simulation, since the assumptions which would have been used for a
down 200 basis point interest rate scenario related to asset and liability
pricing, market yields and customer behavior, given the low level of interest
rates, would not have produced reasonable and meaningful results. However,
assuming the entire yield curve was to decrease 100 basis points, through
quarterly parallel decrements of 25 basis points, and remain at that level
thereafter, our projected net interest income for the twelve month period
beginning January 1, 2005 would have decreased by approximately 1.12% from the
base projection. At September 30, 2005, in the down 100 basis point scenario,
our projected net interest income for the twelve month period beginning October
1, 2005 would increase by approximately 0.25% from the base projection.
Various shortcomings are inherent in both the Gap Table and NII sensitivity
analyses. Certain assumptions may not reflect the manner in which actual yields
and costs respond to market changes. Similarly, prepayment estimates and similar
assumptions are subjective in nature, involve uncertainties and, therefore,
cannot be determined with precision. Changes in interest rates may also affect
our operating environment and operating strategies as well as those of our
competitors. In addition, certain adjustable rate assets have limitations on the
magnitude of rate changes over specified periods of time. Accordingly, although
our NII sensitivity analyses may provide an indication of our IRR exposure, such
analyses are not intended to and do not provide a precise forecast of the effect
of changes in market interest rates on our net interest income and our actual
results will differ. Additionally, certain assets, liabilities and items of
income and expense which may be affected by changes in interest rates, albeit to
a much lesser degree, and which do not affect net interest income, are excluded
from the NII sensitivity analysis. These include income from bank owned life
insurance, changes in the fair value of MSR and the mark-to-market adjustments
on certain derivative instruments. With respect to these items alone, and
assuming the entire yield curve was to increase 200 basis points, through
quarterly parallel increments of 50 basis points and remain at that level
thereafter, our projected net income for the twelve month period beginning
October 1, 2005 would increase by approximately $4.8 million. Conversely,
assuming the entire yield curve was to decrease 200 basis points, through
quarterly parallel decrements of 50 basis points, and remain at that level
thereafter, our projected net income for the twelve month period beginning
October 1, 2005 would decrease by approximately $9.3 million with respect to
these items alone.
For further information regarding our market risk and the limitations of our gap
analysis and NII sensitivity analysis, see Part II, Item 7A, "Quantitative and
Qualitative Disclosures about Market Risk," included in our 2004 Annual Report
on Form 10-K.
ITEM 4. Controls and Procedures
George L. Engelke, Jr., our Chairman, President and Chief Executive Officer, and
Monte N. Redman, our Executive Vice President and Chief Financial Officer,
conducted an evaluation of our disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2005.
Based upon their evaluation, they each found that our disclosure controls and
procedures were effective to ensure that information required to be
42
disclosed in the reports we file and submit under the Exchange Act is recorded,
processed, summarized and reported as and when required and that such
information is accumulated and communicated to our management as appropriate to
allow timely decisions regarding required disclosure.
There were no changes in our internal controls over financial reporting that
occurred during the three months ended September 30, 2005 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
In the ordinary course of our business, we are routinely made defendant in or a
party to a number of pending or threatened legal actions or proceedings which,
in some cases, seek substantial monetary damages from or other forms of relief
against us. In our opinion, after consultation with legal counsel, we believe it
unlikely that such actions or proceedings will have a material adverse affect on
our financial condition, results of operations or liquidity.
As previously discussed, we are a party to two actions pending against the
United States, involving assisted acquisitions made in the early 1980's and
supervisory goodwill accounting utilized in connection therewith, which could
result in a gain.
On September 15, 2005, the Court rendered a decision in the LISB goodwill
litigation awarding us $435.8 million in damages from the U.S. government. We
anticipate that the United States will file an appeal, given its previous
practice in similar cases. No assurance can be given as to the timing, content
or ultimate outcome of any such appeal. See Note 5 of Notes to Consolidated
Financial Statements in Part I, Item 1, "Financial Statements (Unaudited)" for
further discussion of goodwill litigation.
The ultimate outcomes of the two actions pending against the United States and
the timing of such outcomes are uncertain and there can be no assurance that we
will benefit financially from such litigation.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth the repurchases of our common stock by month
during the three months ended September 30, 2005.
Total Number Maximum
Total of Shares Number of Shares
Number of Average Purchased as Part that May Yet Be
Shares Price Paid of Publicly Purchased Under the
Period Purchased per Share Announced Plans Plans
- --------------------------------------------------------------------------------------------------------------
July 1, 2005 through
July 31, 2005 400,000 $28.73 400,000 3,834,800
August 1, 2005 through
August 31, 2005 680,000 $27.59 680,000 3,154,800
September 1, 2005 through
September 30, 2005 392,500 $27.33 392,500 2,762,300
- --------------------------------------------------------------------------------------------------------------
Total 1,472,500 $27.83 1,472,500
==============================================================================================================
All of the shares repurchased during the three months ended September 30, 2005
were repurchased under our tenth stock repurchase plan, approved by our Board of
Directors on May 19, 2004, which authorized the purchase, at management's
discretion, of 12,000,000 shares, or
43
approximately 10% of our common stock then outstanding, over a two year period
in open-market or privately negotiated transactions.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5. Other Information
Not applicable.
ITEM 6. Exhibits
Exhibit No. Identification of Exhibit
---------- -------------------------
31.1 Certifications of Chief Executive Officer.
31.2 Certifications of Chief Financial Officer.
32.1 Written Statement of Chief Executive Officer
furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350. Pursuant to SEC rules, this exhibit will
not be deemed filed for purposes of Section 18 of
the Exchange Act or otherwise subject to the
liability of that section.
32.2 Written Statement of Chief Financial Officer
furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350. Pursuant to SEC rules, this exhibit will
not be deemed filed for purposes of Section 18 of
the Exchange Act or otherwise subject to the
liability of that section.
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 4, 2005 By: /s/ Monte N. Redman
----------------------------------------
Monte N. Redman
Executive Vice President
and Chief Financial Officer
(Principal Accounting Officer)
44
Exhibit Index
Exhibit No. Identification of Exhibit
- ----------- -------------------------
31.1 Certifications of Chief Executive Officer.
31.2 Certifications of Chief Financial Officer.
32.1 Written Statement of Chief Executive Officer
furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350. Pursuant to SEC rules, this exhibit will
not be deemed filed for purposes of Section 18 of
the Exchange Act or otherwise subject to the
liability of that section.
32.2 Written Statement of Chief Financial Officer
furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350. Pursuant to SEC rules, this exhibit will
not be deemed filed for purposes of Section 18 of
the Exchange Act or otherwise subject to the
liability of that section.
45