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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 March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 0-22228
ASTORIA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 11-3170868
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
One Astoria Federal Plaza, Lake Success, New York 11042-1085
- ------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(516) 327-3000
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(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
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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, April 30, 2001
----------------------- --------------------------------------------
.01 Par Value 48,944,588
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PART I -- FINANCIAL INFORMATION
Page
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Item 1. Financial Statements
Consolidated Statements of Financial Condition at March 31, 2001 2
and December 31, 2000.
Consolidated Statements of Income for the Three Months 3
Ended March 31, 2001 and March 31, 2000.
Consolidated Statement of Changes in Stockholders' Equity for the 4
Three Months Ended March 31, 2001.
Consolidated Statements of Cash Flows for the Three Months 5
Ended March 31, 2001 and March 31, 2000.
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial Condition and 8
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk. 31
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 2. Changes in Securities and Use of Proceeds 32
Item 3. Defaults Upon Senior Securities 32
Item 4. Submission of Matters to a Vote of Security Holders 32
Item 5. Other Information 32
Item 6. Exhibits and Reports on Form 8-K 32
(a) Exhibits
(11) Statement Regarding Computation of Per Share Earnings
(b) Reports on Form 8-K
Signatures 33
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AT AT
MARCH 31, DECEMBER 31,
(In Thousands, Except Share Data) 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
Assets
- ------
Cash and due from banks $ 145,095 $ 135,726
Federal funds sold and repurchase agreements 729,762 171,525
Available-for-sale securities:
Encumbered 6,907,475 6,983,481
Unencumbered 717,282 719,741
----------- -----------
7,624,757 7,703,222
Held-to-maturity securities, fair value of $1,530,748 and $1,697,417,
respectively:
Encumbered 1,321,054 1,396,213
Unencumbered 196,465 315,978
----------- -----------
1,517,519 1,712,191
Federal Home Loan Bank of New York stock 285,250 285,250
Loans held-for-sale 22,191 13,545
Loans receivable:
Mortgage loans, net 11,310,286 11,239,141
Consumer and other loans, net 189,893 185,308
----------- -----------
11,500,179 11,424,449
Less allowance for loan losses 80,634 79,931
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Total loans receivable, net 11,419,545 11,344,518
Mortgage servicing rights, net 38,328 40,962
Accrued interest receivable 110,010 109,439
Premises and equipment, net 152,837 154,582
Goodwill 199,838 204,649
Bank owned life insurance 255,747 251,565
Other assets 140,869 209,628
----------- -----------
Total assets $22,641,748 $22,336,802
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Deposits:
Savings $ 2,463,395 $ 2,434,387
Money market 1,586,618 1,482,615
NOW and money manager 1,065,280 1,004,950
Certificates of deposit 5,222,399 5,149,735
----------- -----------
Total deposits 10,337,692 10,071,687
Reverse repurchase agreements 7,785,000 7,785,000
Federal Home Loan Bank of New York advances, net 1,864,000 1,910,000
Other borrowings, net 500,729 502,371
Mortgage escrow funds 159,679 116,487
Accrued expenses and other liabilities 266,931 313,094
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Total liabilities 20,914,031 20,698,639
----------- -----------
Guaranteed preferred beneficial interest in junior subordinated debentures 125,000 125,000
Stockholders' equity:
Preferred stock, $1.00 par value; 5,000,000 shares authorized:
Series A (325,000 shares authorized and -0- shares issued and outstanding) - -
Series B (2,000,000 shares authorized, issued and outstanding) 2,000 2,000
Common stock, $.01 par value; (200,000,000 shares authorized; 55,498,296
shares issued; and 48,938,303 and 49,643,554 shares
outstanding, respectively) 555 555
Additional paid-in capital 813,426 807,357
Retained earnings 1,093,974 1,059,048
Treasury stock (6,559,993 and 5,854,742 shares, at cost, respectively) (250,249) (203,632)
Accumulated other comprehensive income:
Net unrealized loss on securities, net of taxes (26,231) (121,043)
Unallocated common stock held by ESOP (30,758) (31,122)
----------- -----------
Total stockholders' equity 1,602,717 1,513,163
----------- -----------
Total liabilities and stockholders' equity $22,641,748 $22,336,802
=========== ===========
See accompanying notes to consolidated financial statements.
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
MARCH 31,
------------------------------
(In Thousands, Except Share Data) 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Interest income:
Mortgage loans $ 203,191 $ 183,712
Consumer and other loans 4,879 4,294
Mortgage-backed securities 127,716 154,024
Other securities 32,089 32,390
Federal funds sold and repurchase agreements 4,678 4,099
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Total interest income 372,553 378,519
----------- -----------
Interest expense:
Deposits 105,564 96,098
Borrowed funds 143,628 150,219
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Total interest expense 249,192 246,317
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Net interest income 123,361 132,202
Provision for loan losses 1,002 1,000
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Net interest income after provision for loan losses 122,359 131,202
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Non-interest income:
Customer service and other loan fees 13,067 11,209
Loan servicing fees 3,980 4,538
Net gain on sales of loans 333 117
Net gain on disposition of banking office - 1,182
Income from bank owned life insurance 4,182 -
Other 1,150 1,299
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Total non-interest income 22,712 18,345
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Non-interest expense:
General and administrative:
Compensation and benefits 23,107 22,179
Occupancy, equipment and systems 12,981 14,231
Federal deposit insurance premiums 497 517
Advertising 1,854 2,046
Other 6,220 7,308
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Total general and administrative 44,659 46,281
Net amortization of mortgage servicing rights 3,115 1,422
Goodwill litigation 1,021 2,513
Capital trust securities 3,104 3,112
Amortization of goodwill 4,811 4,824
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Total non-interest expense 56,710 58,152
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Income before income tax expense and cumulative effect of
accounting change 88,361 91,395
Income tax expense 31,651 35,898
----------- -----------
Income before cumulative effect of accounting change 56,710 55,497
Cumulative effect of accounting change, net of tax (2,294) -
----------- -----------
Net income 54,416 55,497
Preferred dividends declared (1,500) (1,500)
----------- -----------
Net income available to common shareholders $ 52,916 $ 53,997
=========== ===========
Basic earnings per common share:
Income before accounting change $ 1.18 $ 1.11
=========== ===========
Cumulative effect of accounting change, net of tax $ 0.05 $ -
=========== ===========
Net earnings per common share $ 1.13 $ 1.11
=========== ===========
Diluted earnings per common share:
Income before accounting change $ 1.16 $ 1.09
=========== ===========
Cumulative effect of accounting change, net of tax $ 0.05 $ -
=========== ===========
Net earnings per common share $ 1.11 $ 1.09
=========== ===========
Dividends per common share $ 0.26 $ 0.24
=========== ===========
Basic weighted average common shares 46,754,681 48,705,240
Diluted weighted average common and common equivalent shares 47,698,344 49,387,654
See accompanying notes to consolidated financial statements.
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2001
Unallocated
Accumulated Common
Additional Other Stock
Preferred Common Paid-In Retained Treasury Comprehensive Held
(In Thousands, Except Share Data) Total Stock Stock Capital Earnings Stock Income by ESOP
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $1,513,163 $2,000 $555 $807,357 $1,059,048 $(203,632) $(121,043) $(31,122)
Comprehensive income:
Net income 54,416 -- -- -- 54,416 -- -- --
Other comprehensive income, net of tax:
Net unrealized gain on securities 94,812 -- -- -- -- -- 94,812 --
-----------
Total comprehensive income 149,228
-----------
Common stock repurchased
(1,180,000 shares) (63,236) -- -- -- -- (63,236) -- --
Dividends on common and preferred
stock and amortization of purchase
premium (14,468) -- -- (326) (14,142) -- -- --
Exercise of stock options and
related tax benefit
(474,749 shares issued) 16,428 -- -- 5,157 (5,348) 16,619 -- --
Amortization relating to allocation
of ESOP stock 1,602 -- -- 1,238 -- -- -- 364
----------- -------- ------- --------- ---------- --------- --------- -----------
Balance at March 31, 2001 $1,602,717 $2,000 $555 $813,426 $1,093,974 $(250,249) $(26,231) $(30,758)
=========== ======== ======= ========= ========== ========= ========= ===========
See accompanying notes to consolidated financial statements.
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
(IN THOUSANDS) 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 54,416 $ 55,497
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Adjustments to reconcile net income to net cash provided
by operating activities:
Net accretion of discounts, premiums and deferred loan fees (10,595) (15,246)
Provision for loan and real estate losses 1,016 930
Depreciation and amortization 3,202 3,239
Net gain on sales of securities and loans (333) (117)
Net gain on disposition of banking office - (1,182)
Originations of loans held-for-sale, net of proceeds from sales (9,041) 1,923
Amortization of goodwill 4,811 4,824
Cumulative effect of accounting change 2,294 -
Amortization of allocation of ESOP stock 1,602 1,887
Increase in accrued interest receivable (571) (2,746)
Mortgage servicing rights amortization and valuation
allowance, net of capitalized amounts 2,634 1,351
Income from bank owned life insurance (4,182) -
Decrease in other assets 1,692 863
Decrease in accrued expenses and other liabilities (41,006) (43,610)
--------- ---------
Net cash provided by operating activities 5,939 7,613
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Cash flows from investing activities:
Origination of loans held-for-investment (437,433) (402,679)
Loan purchases through third parties (258,518) (173,764)
Principal repayments on loans 611,985 318,890
Principal payments on mortgage-backed securities held-to-maturity 65,790 38,469
Principal payments on mortgage-backed securities available-for-sale 220,709 395,014
Purchases of other securities available-for-sale - (40)
Proceeds from maturities of other securities available-for-sale 28,083 131
Proceeds from maturities of other securities held-to-maturity 138,297 270
Purchases of FHLB stock, net - (10,000)
Proceeds from sales of real estate owned and investments in
real estate, net 825 2,449
Proceeds from disposition of banking office - 1,308
Purchases of premises and equipment, net of proceeds from sales (1,457) (951)
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Net cash provided by investing activities 368,281 169,097
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Cash flows from financing activities:
Net increase in deposits 265,992 226,383
Net decrease in reverse repurchase agreements - (490,000)
Net (decrease) increase in FHLB of New York advances (46,000) 100,000
Net decrease in other borrowings (3,365) (1,884)
Increase in mortgage escrow funds 43,192 45,200
Costs to repurchase common stock (63,236) (11,401)
Cash dividends paid to stockholders (14,468) (13,511)
Cash received for options exercised 11,271 1,080
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Net cash provided by (used in) financing activities 193,386 (144,133)
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Net increase in cash and cash equivalents 567,606 32,577
Cash and cash equivalents at beginning of period 307,251 490,571
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Cash and cash equivalents at end of period $ 874,857 $ 523,148
========= =========
Supplemental disclosures:
Cash paid during the period:
Interest $ 253,338 $ 250,314
========= =========
Income taxes $ 62 $ 4,034
========= =========
Additions to real estate owned $ 1,413 $ 3,328
========= =========
See accompanying notes to consolidated financial statements.
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Astoria Financial Corporation and its wholly-owned subsidiaries: 1) Astoria
Federal Savings and Loan Association and its subsidiaries, referred to as
Astoria Federal; 2) Astoria Capital Trust I; and 3) AF Insurance Agency, Inc. As
used in this quarterly report, "we," "us" and "our" refer to Astoria Financial
Corporation and its consolidated subsidiaries, including Astoria Federal,
Astoria Capital Trust I and AF Insurance Agency, Inc., depending on the context.
All significant inter-company accounts and transactions have been eliminated in
consolidation.
In our opinion, the accompanying consolidated financial statements
contain all adjustments necessary for a fair presentation of our financial
condition as of March 31, 2001 and December 31, 2000, our results of operations
for the three months ended March 31, 2001 and 2000, changes in our stockholders'
equity for the three months ended March 31, 2001 and our cash flows for the
three months ended March 31, 2001 and 2000. In preparing the 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 March 31, 2001 and December 31, 2000, and amounts of
revenues and expenses for the consolidated statements of income for the three
month periods ended March 31, 2001 and 2000. The results of operations for the
three months ended March 31, 2001 are not necessarily indicative of the results
of operations to be expected for the remainder of the year. Certain information
and note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles in the United States of
America, or GAAP, have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain reclassifications
have been made to prior year amounts to conform to the current year
presentation.
These consolidated financial statements should be read in conjunction
with our December 31, 2000 audited consolidated financial statements and related
notes, included in our 2000 Annual Report on Form 10-K.
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2. EARNINGS PER SHARE, OR EPS
The following table is a reconciliation of basic and diluted EPS:
For the Three Months Ended March 31,
------------------------------------------------------------------------------------
2001 2000
------------------------------------------------------------------------------------
(In Thousands, Average Per Share Average Per Share
Except Share Data) Income Shares Amount Income Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect
of accounting change $56,710 $55,497
Less: preferred stock dividends 1,500 1,500
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Basic EPS:
Income available to common
stockholders 55,210 46,754,681 $1.18 53,997 48,705,240 $1.11
===== =====
Effect of dilutive unexercised
stock options 943,663 (1) 682,414 (2)
----------- ----------
Diluted EPS:
Income available to common
stockholders plus assumed
conversions $55,210 47,698,344 $1.16 $53,997 49,387,654 $1.09
======= ========== ===== ======= ========== =====
(1) Options to purchase 260,152 shares of common stock at prices between
$56.63 per share and $59.75 per share were outstanding as of March 31,
2001, but were not included in the computation of diluted EPS because the
options' exercise prices were greater than the average market price of the
common shares for the three months ended March 31, 2001.
(2) Options to purchase 1,683,698 shares of common stock at prices between
$27.88 per share and $59.75 per share were outstanding as of March 31,
2000 but were not included in the computation of diluted EPS because the
options' exercise prices were greater than the average market price of the
common shares for the three months ended March 31, 2000.
3. GUARANTEED PREFERRED BENEFICIAL INTEREST IN JUNIOR SUBORDINATED DEBENTURES
On October 28, 1999, our wholly-owned finance subsidiary, Astoria
Capital Trust I, issued $125.0 million aggregate liquidation amount of 9.75%
Capital Securities due November 1, 2029, Series A, referred to as the Series A
Capital Securities. Effective April 26, 2000, $120.0 million aggregate
liquidation amount of the Series A Capital Securities were exchanged for a like
amount of 9.75% Capital Securities due November 1, 2029, Series B, also issued
by Astoria Capital Trust I, referred to as the Series B Capital Securities. The
Series A Capital Securities and Series B Capital Securities have substantially
identical terms except that the Series B Capital Securities have been registered
with the Securities and Exchange Commission. Together they are referred to as
the Capital Securities. We have fully and unconditionally guaranteed the Capital
Securities along with all obligations of Astoria Capital Trust I under the trust
agreement. Astoria Capital Trust I was formed for the exclusive purpose of
issuing the Capital Securities and common securities and using the proceeds to
acquire an aggregate principal amount of $128.9 million of our 9.75% Junior
Subordinated Debentures due November 1, 2029 (which aggregate amount is equal to
the aggregate liquidation amount of the Capital Securities and common
securities), referred to as Junior Subordinated Debentures. The sole assets of
Astoria Capital Trust I are the Junior Subordinated Debentures. The Junior
Subordinated Debentures are prepayable, in whole or in part, at our option on or
after November 1, 2009 at declining premiums to maturity.
The balance outstanding on the Capital Securities was $125.0 million at
March 31, 2001 and December 31, 2000. The costs associated with the Capital
Securities issuance have been
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capitalized and are being amortized over a period of ten years. Distributions
on the Capital Securities are payable semi-annually, on May 1 and November 1,
and are reflected in our Consolidated Statements of Income as a component of
non-interest expense under the caption "Capital trust securities."
4. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," or SFAS No. 133. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial condition and measure those
instruments at fair value. The accounting for changes in the fair value of a
derivative (that is, unrealized gains and losses) depends on the intended use of
the derivative and the resulting designation. Restatement of prior periods is
not permitted. In June 2000, the FASB issued Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities - an amendment of FASB Statement No. 133," or SFAS No. 138.
SFAS No. 138 amends the accounting and reporting standards of SFAS No. 133 for
certain derivative instruments and certain hedging activities. Upon adoption of
SFAS No. 133 and SFAS No. 138 on January 1, 2001, we held interest rate swaps
with a notional amount of $450.0 million hedging the fair value of our medium
term notes totaling $450.0 million. As of April 30, 2001, $150.0 million of
medium term notes had matured and $450.0 million of interest rate swaps had been
terminated. Gains and losses recognized on the interest rate swaps for the
quarter ended March 31, 2001 were immaterial. We also have commitments to fund
loans held-for-sale and commitments to sell loans which, under SFAS No. 133, are
considered derivative instruments. These commitments (derivative instruments)
have been recorded as assets and are immaterial to our financial condition. As a
result of the implementation of SFAS No. 133 and SFAS No. 138, we recognized a
$2.3 million charge, net of taxes, in January 2001 as a cumulative effect of a
change in accounting principle.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q may contain certain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, and may be identified by the use of such words as "believe," "expect,"
"anticipate," "should," "planned," "estimated" and "potential." Examples of
forward-looking statements include, but are not limited to, estimates with
respect to our financial condition, results of operations and business that are
subject to various factors which could cause actual results to differ materially
from these estimates. These factors include, but are not limited to, general
economic conditions; changes in interest rates, deposit flows, loan demand, real
estate values, and competition; changes in accounting principles, policies, or
guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory, and technological factors affecting our
operations, pricing, products and services.
GENERAL
We are headquartered in Lake Success, New York and our principal
business consists of the operation of our wholly-owned subsidiary, Astoria
Federal. Astoria Federal's primary business
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is attracting retail deposits from the general public and investing those
deposits, together with funds generated from operations, principal repayments on
loans and securities, and borrowed funds, primarily in one-to-four family
residential mortgage loans, mortgage-backed securities and, to a lesser extent,
commercial real estate loans, multi-family mortgage loans and consumer and other
loans. In addition, Astoria Federal invests in securities issued by the U.S.
Government and federal agencies and other securities.
Our results of operations are dependent primarily on our net interest
income, which is the difference between the interest earned on our assets,
primarily our loan and securities portfolios, and our cost of funds, which
consists of the interest paid on our deposits and borrowings. Our net income is
also affected by our provision for loan losses, non-interest income, general and
administrative expense, other non-interest expense, and income tax expense.
General and administrative expense consists of compensation and benefits,
occupancy, equipment and systems expense, federal deposit insurance premiums,
advertising and other operating expenses. Other non-interest expense generally
consists of net amortization of mortgage servicing rights, goodwill litigation
expense, capital trust securities expense and amortization of goodwill. Our
earnings are also significantly affected by general economic and competitive
conditions, particularly changes in market interest rates and U.S. Treasury
yield curves, government policies and actions of regulatory authorities.
In addition to Astoria Federal, we have two other wholly-owned
subsidiaries, Astoria Capital Trust I and AF Insurance Agency, Inc. AF Insurance
Agency, Inc. is a New York licensed life insurance and variable annuity agent
and property and casualty insurance broker. Through a contractual arrangement
with Treiber Insurance and IFS Agencies, AF Insurance Agency, Inc. provides
insurance products to the customers of Astoria Federal. See "Notes to
Consolidated Financial Statements" for a discussion of Astoria Capital Trust I.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of funds is cash provided by principal and interest
payments on loans and mortgage-backed and other securities. Principal payments
on loans and mortgage-backed securities and proceeds from maturities of other
securities totaled $1.06 billion for the three months ended March 31, 2001 and
$752.8 million for the three months ended March 31, 2000. The increase in loan
and security repayments was a result of the increase in refinance activity due
to the lower interest rate environment during the first quarter of 2001. Our
other sources of funds are provided by operating and financing activities. Net
cash provided from operating activities totaled $5.9 million during the three
months ended March 31, 2001 and $7.6 million during the three months ended March
31, 2000. During the three months ended March 31, 2001, net borrowings decreased
$49.4 million, while net deposits increased $266.0 million. During the three
months ended March 31, 2000, net borrowings decreased $391.9 million, while net
deposits increased $226.4 million. The changes in borrowings and deposits are
consistent with our strategy of repositioning the balance sheet through, in
part, a shift in our liability mix. The net increase in deposits for the three
months ended March 31, 2001 reflects our continued emphasis on attracting
customer deposits through competitive rates and new product offerings.
Our primary use of funds is for the origination and purchase of mortgage
loans and the purchase of mortgage-backed and other securities, although for the
past two years our emphasis has been on the origination and purchase of mortgage
loans. During the three months ended
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March 31, 2001, our gross originations and purchases of mortgage loans totaled
$709.0 million, compared to $570.7 million during the three months ended March
31, 2000. This increase was attributable primarily to the lower interest rate
environment during the first quarter of 2001 which resulted in an increase in
mortgage refinance activity. There were no purchases of mortgage-backed or other
securities during the three months ended March 31, 2001, which is consistent
with our objective to reposition our balance sheet through, in part, increases
in loans and decreases in securities. Purchases of securities totaled $40,000
for the three months ended March 31, 2000.
We maintain liquidity levels to meet our operational needs in the normal
course of our business. The levels of our liquid assets during any given period
are dependent on our operating, investing and financing activities. Increased
loan and security repayments provided additional liquidity which we held at
March 31, 2001 in anticipation of the repayment of borrowings which were
maturing in the beginning of the second quarter, along with an increase in
mortgage fundings.
Stockholders' equity increased $89.5 million to $1.60 billion at March
31, 2001, from $1.51 billion at December 31, 2000. The increase in stockholders'
equity included a $94.8 million decrease in the net unrealized loss on
securities available-for-sale, net of taxes. Additional increases in
stockholders' equity were the result of net income of $54.4 million, the effect
of stock options exercised and related tax benefit of $16.4 million, and the
amortization for the allocated portion of shares held by the employee stock
ownership plan, or ESOP, of $1.6 million. These increases were partially offset
by repurchases of our common stock of $63.2 million and dividends declared of
$14.5 million.
On August 16, 2000, our Board of Directors approved our seventh stock
repurchase plan authorizing the purchase, at management's discretion, of
5,000,000 shares, or approximately 10% of our common stock then outstanding over
a two year period in open-market or privately negotiated transactions. During
the three months ended March 31, 2001, 1,180,000 shares of our common stock were
repurchased at an aggregate cost of $63.2 million.
On March 1, 2001, we paid a quarterly cash dividend equal to $0.26 per
share on shares of our common stock outstanding as of the close of business on
February 15, 2001, totaling $13.0 million. On April 18, 2001, we declared a
quarterly cash dividend of $0.31 per share on shares of our common stock payable
on June 1, 2001 to stockholders of record as of the close of business on May 15,
2001. During the three months ended March 31, 2001, we declared a cash dividend
on our Series B Preferred Stock aggregating $1.5 million.
At March 31, 2001, Astoria Federal's total capital exceeded all of its
regulatory capital requirements with a tangible capital ratio of 6.82%, leverage
capital ratio of 6.82%, and risk-based capital ratio of 16.46%. The minimum
regulatory requirements were a tangible capital ratio of 1.50%, leverage capital
ratio of 4.00%, and risk-based capital ratio of 8.00%.
INTEREST RATE SENSITIVITY ANALYSIS
As a financial institution, the primary component of our market risk is
interest rate risk. Our net interest income, the primary component of our net
income, is subject to substantial risk due to changes in interest rates or
changes in market yield curves, particularly if there is a substantial
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variation in the timing between the repricing of our assets and the liabilities
which fund them. We seek to manage interest rate risk by monitoring and
controlling the variation in repricing intervals between our assets and
liabilities, i.e. our interest rate sensitivity gap. We also monitor our
interest rate sensitivity by analyzing the estimated changes in market value of
our assets and liabilities assuming various interest rate scenarios, so that
adjustments in the asset and liability mix, when deemed appropriate, can be made
on a timely basis.
The interest rate sensitivity gap is the difference between the amount
of interest-earning assets anticipated to mature or reprice within a specific
time period and the amount of interest-bearing liabilities anticipated to mature
or reprice within that same time period. A gap is considered positive when the
amount of interest rate sensitive assets maturing or repricing within a specific
time frame exceeds the amount of interest rate sensitive liabilities maturing or
repricing within that same time frame. Conversely, a gap is considered negative
when the amount of interest rate sensitive liabilities maturing or repricing
within a specific time frame exceeds the amount of interest rate sensitive
assets maturing or repricing within that same time frame. In a rising interest
rate environment, an institution with a positive gap would generally be
expected, absent the effects of other factors, to experience a greater increase
in the yields of its assets relative to the costs of its liabilities and thus an
increase in the institution's net interest income, whereas an institution with a
negative gap would generally be expected to experience the opposite results.
Conversely, during a period of falling interest rates, a positive gap would tend
to result in a decrease in net interest income while a negative gap would tend
to result in an increase in net interest income.
The actual duration of mortgage loans and mortgage-backed securities can
be significantly impacted by changes in mortgage prepayments. The major factors
affecting mortgage prepayment rates are prevailing interest rates and related
mortgage refinancing opportunities. In addition, prepayment rates will vary due
to a number of other factors, including the regional economy in the area where
the underlying mortgages were originated, seasonal factors, demographic
variables and the assumability of the underlying mortgages.
The table on page 13, referred to as the Gap Table, sets forth the
amount of interest-earning assets and interest-bearing liabilities outstanding
at March 31, 2001, that we anticipate, using certain assumptions based on our
historical experience and other data available to us, to reprice or mature in
each of the future time periods shown. The Gap Table does not necessarily
indicate the impact of general interest rate movements on our net interest
income because the actual repricing dates of various assets and liabilities are
subject to customer discretion and competitive and other pressures. Callable
features of certain assets and liabilities, in addition to the foregoing, may
cause actual experience to vary from that indicated. The uncertainty and
volatility of interest rates, economic conditions and other markets which affect
the value of these call options, as well as the financial condition of the
holders of the options, increase the difficulty and uncertainty in determining
if and when they may be exercised. The Gap Table reflects our estimates as to
periods to repricing at a particular point in time. Among the factors considered
are current trends and historical repricing experience with respect to similar
products. As a result, different assumptions may be used at different points in
time.
In the first quarter of 2001, the Federal Open Market Committee, or FOMC,
reduced the federal funds rate on three separate occasions by a total of 150
basis points. These reductions have created a significantly different interest
rate environment than the one which existed at December 31, 2000. In the
December 31, 2000 Gap Table, callable borrowings were classified
11
13
according to their call dates and callable securities were classified according
to their maturity dates. This classification was reflective of our experience
throughout 2000 which indicated that, in a rising interest rate environment,
issuers of callable borrowings were exercising their rights whereas issuers of
callable securities were not. However, in a falling interest rate environment,
the likelihood that our callable borrowings will not be called and that our
callable securities will begin to be called increases. To a certain degree, we
have experienced this during the first quarter of 2001. As a result, we have
modified our Gap Table assumptions to reflect the interest rate environment at
March 31, 2001. In the March 31, 2001 Gap Table, callable borrowings have been
classified according to their maturity dates and callable securities have been
classified according to their call dates. At March 31, 2001, callable securities
classified according to their call dates totaled $1.36 billion, of which $1.19
billion are callable within one year and at various times thereafter. During the
quarter ended March 31, 2001, $165.5 million in securities were called. Also
included in this table are $5.44 billion of callable borrowings, classified
according to their maturity dates, which are primarily within the one to three
years category. Of such borrowings, $5.08 billion are callable within one year
and at various other times thereafter. During the quarter ended March 31, 2001,
$200.0 million in borrowings were called. The classification of callable
borrowings by maturity date is based upon our experience which, in the current
interest rate environment, has indicated that the issuers of these borrowings
have not been exercising their call options.
At March 31, 2001, net interest-earning assets maturing or repricing
within one year exceeded interest-bearing liabilities maturing or repricing
within the same time period by $431.1 million, representing a positive
cumulative one-year gap of 1.90% of total assets. This compares to net
interest-earning assets maturing or repricing within one year exceeding
interest-bearing liabilities maturing or repricing within the same time period
by $1.18 billion, representing a positive cumulative one-year gap of 5.28% of
total assets at December 31, 2000, using the same set of assumptions which were
used in the March 31, 2001 Gap Table. At December 31, 2000, with callable
borrowings classified according to their call dates and callable securities
classified according to their maturity dates, as previously reported, our
interest-bearing liabilities maturing or repricing within one year exceeded net
interest-earning assets maturing or repricing within the same time period by
$3.74 billion, representing a negative cumulative one-year gap of 16.75% of
total assets.
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14
AT MARCH 31, 2001
- -------------------------------------------------------------------------------------------------------------------
MORE THAN MORE THAN
ONE YEAR THREE YEARS
ONE YEAR TO TO MORE THAN
(Dollars in Thousands) OR LESS THREE YEARS FIVE YEAR FIVE YEARS TOTAL
- --------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Mortgage loans (1) $2,714,750 $ 3,143,955 $2,909,438 $2,461,121 $11,229,264
Consumer and other loans (1) 150,644 31,366 6,033 -- 188,043
Federal funds sold and
repurchase agreements 729,762 -- -- -- 729,762
Mortgage-backed and other securities
available-for-sale and FHLB stock 2,586,161 1,844,436 998,793 2,480,617 7,910,007
Mortgage-backed and other securities
held-to-maturity 1,023,363 182,051 93,086 221,447 1,519,947
- --------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 7,204,680 5,201,808 4,007,350 5,163,185 21,577,023
Add:
Net unamortized purchase premiums
and deferred costs (2) 17,271 19,489 18,013 13,922 68,695
- --------------------------------------------------------------------------------------------------------------------
Net interest-earning assets 7,221,951 5,221,297 4,025,363 5,177,107 21,645,718
- --------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings 135,599 271,200 271,200 1,785,396 2,463,395
Money market 1,450,661 14,311 14,311 107,335 1,586,618
NOW and money manager 27,379 54,759 54,759 452,566 589,463
Certificates of deposit 3,276,698 1,025,692 842,783 77,226 5,222,399
Borrowed funds 1,900,485 5,460,244 909,000 1,880,000 10,149,729
- --------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 6,790,822 6,826,206 2,092,053 4,302,523 20,011,604
- --------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap 431,129 (1,604,909) 1,933,310 874,584 $ 1,634,114
- --------------------------------------------------------------------------------------------------------------------
Cumulative interest sensitivity gap $ 431,129 $(1,173,780) $ 759,530 $1,634,114
- --------------------------------------------------------------------------------------------------------------------
Cumulative interest sensitivity
gap as a percentage of total assets 1.90% (5.18)% 3.35% 7.22%
Cumulative net interest-earning
assets as a percentage of
interest-bearing liabilities 106.35% 91.38% 104.83% 108.17%
(1) Mortgage, consumer and other loans exclude non-performing loans, but are
not reduced for the allowance for loan losses.
(2) Net unamortized purchase premiums and deferred costs are prorated.
Certain shortcomings are inherent in the method of analysis presented in
the Gap Table. For example, although certain assets and liabilities may have
similar contractual maturities or periods to repricing, they may react in
different ways to changes in market interest rates. Additionally, certain
assets, such as adjustable-rate mortgage, or ARM, loans have contractual
features which restrict changes in interest rates on a short-term basis and over
the life of the asset. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of borrowers to
service their ARM loans or other loan obligations may decrease in the event of
an interest rate increase.
We also monitor Astoria Federal's interest rate sensitivity through
analysis of the change in the net portfolio value, or NPV. NPV is defined as the
net present value of the expected future cash flows of an entity's assets and
liabilities and, therefore, hypothetically represents the value of an
institution's net worth. Increases in the value of assets will increase the NPV
whereas decreases in the value of assets will decrease the NPV. Conversely,
increases in the value of liabilities will decrease the NPV whereas decreases in
the value of liabilities will increase the NPV. The changes in the value of
assets and liabilities due to changes in interest rates reflect the interest
sensitivity of those assets and liabilities. The NPV ratio under any interest
rate scenario
13
15
is defined as the NPV in that scenario divided by the value of assets in the
same scenario. This analysis, presented in the table below, or the NPV Table,
measures percentage changes from the value of projected NPV in a given rate
scenario, and then measures interest rate sensitivity by the change in the NPV
ratio, over a range of interest rate change scenarios. The Office of Thrift
Supervision, or OTS, also produces a similar analysis using its own model based
upon data submitted on Astoria Federal's quarterly Thrift Financial Reports, the
results of which typically vary from our internal model primarily because of
differences in assumptions utilized between our internal model and the OTS
model, including estimated loan prepayment rates, reinvestment rates and deposit
decay rates. For purposes of the NPV Table, prepayment speeds and deposit decay
rates similar to the Gap Table were used, except for the scenarios which involve
increases in interest rates, for which we have assumed, in the NPV Table, that
those borrowings with embedded call options will be called at their next
available call date and securities with embedded call options will not be called
at their next available call date.
The NPV Table is based on simulations which utilize institution specific
assumptions with regard to future cash flows, including customer options such as
loan prepayments, period and lifetime caps, puts and calls, and deposit
withdrawal estimates. The NPV Table uses discount rates derived from various
sources including, but not limited to, U.S. Treasury yield curves, thrift retail
certificate of deposit curves, national and local secondary mortgage markets,
brokerage security pricing services and various alternative funding sources.
Specifically, for mortgage loans receivable, the discount rates used were based
on market rates for new loans of similar type and purpose, adjusted, when
necessary, for factors such as servicing cost, credit risk and term. The
discount rates used for certificates of deposit and borrowings were based on
rates which approximate those we would incur to replace such funding of similar
remaining maturities. Certain assets, including fixed assets and real estate
held for investment, are assumed to remain at book value (net of valuation
allowance) regardless of interest rate scenario.
The following represents Astoria Federal's NPV Table as of March 31, 2001:
NET PORTFOLIO VALUE ("NPV") PORTFOLIO VALUE OF ASSETS
RATES IN ---------------------------------------------- --------------------------
BASIS POINTS DOLLAR DOLLAR PERCENTAGE NPV SENSITIVITY
(RATE SHOCK) AMOUNT CHANGE CHANGE RATIO CHANGE
- ------------ ------ ------ ------ ----- ------
(Dollars in Thousands)
+200 $1,637,258 $(655,857) (28.60)% 7.66% (2.43)%
+100 1,978,330 (314,785) (13.73) 8.96 (1.13)
-0- 2,293,115 -- -- 10.09 --
-100 2,097,925 (195,190) (8.51) 9.07 (1.02)
-200 1,750,540 (542,575) (23.66) 7.47 (2.62)
Our NPV ratio of 10.09% in the flat rate scenario and 7.66% in the up
200 basis point rate shock scenario represent a decrease from the December 31,
2000 results of 11.56% in the flat rate scenario and 8.10% in the up 200 basis
point rate shock scenario, using the same set of assumptions which were used in
the March 31, 2001 NPV Table. The decrease in the NPV ratios reflects the
significant reduction in interest rates which occurred during the first quarter
of 2001, thereby reducing the market value of our liabilities. However, our
continued efforts to reposition the balance sheet, grow core deposits, emphasize
ARM products and reduce callable borrowings have resulted in a significant
reduction in our sensitivity measure. Our sensitivity measure (the change in
NPV) in the up 200 basis point rate shock scenario at March 31, 2001 was
negative 2.43% compared to negative 3.46% at December 31, 2000, utilizing the
March set of
14
16
assumptions. As discussed previously in the Gap analysis, the reductions in the
federal funds rate during the quarter ended March 31, 2001 have created a
significantly different interest rate environment than the one which existed at
December 31, 2000. In our December 31, 2000 NPV Table we assumed that in the
flat rate and up 100 and 200 basis point rate shock scenarios that borrowings
with embedded call options would be called at their next call date and that
securities with embedded call options would not be called at their next call
date. At December 31, 2000, with callable borrowings being called and callable
securities not being called in the flat rate scenario, as previously reported,
the NPV ratio was 10.69% in a flat rate scenario, 8.10% in the up 200 basis
point rate shock scenario and the sensitivity measure was negative 2.59% in the
up 200 basis point rate shock scenario.
As with the Gap Table, certain shortcomings are inherent in the
methodology used in the NPV Table. Modeling of changes in NPV requires the
making of certain assumptions which may or may not reflect the manner in which
actual yields and costs respond to changes in market interest rates. In this
regard, the NPV model assumes that the composition of our interest sensitive
assets and liabilities existing at the beginning of a period remains constant
over the period being measured and also assumes that a particular change in
interest rates is immediate and is reflected uniformly across the yield curve
regardless of the duration to maturity or repricing of specific assets and
liabilities. In addition, prepayment estimates and other assumptions within the
NPV Table are subjective in nature, involve uncertainties and, therefore, cannot
be determined with precision. Accordingly, although the NPV measurements, in
theory, may provide an indication of our interest rate risk exposure at a
particular point in time, such measurements are not intended to and do not
provide for a precise forecast of the effect of changes in market interest rates
on Astoria Federal's NPV and will differ from actual results.
15
17
LOAN PORTFOLIO
The following table sets forth the composition of our loans receivable
and loans held-for-sale portfolios at March 31, 2001 and December 31, 2000.
At March 31, 2001 At December 31, 2000
----------------------------- -------------------------
Percent Percent
(Dollars in Thousands) Amount of Total Amount of Total
- ------------------------------------------------------------------------------ -------------------------
MORTGAGE LOANS (GROSS):
One-to-four family (1) ........... $ 9,868,336 86.17% $ 9,863,935 86.79%
Multi-family ..................... 845,858 7.39 801,917 7.05
Commercial real estate ........... 548,082 4.79 514,810 4.53
------------ ------ ----------- ------
Total mortgage loans................... 11,262,276 98.35 11,180,662 98.37
------------ ------ ----------- ------
CONSUMER AND OTHER LOANS (GROSS):
Home equity ...................... 138,123 1.21 133,748 1.18
Passbook ......................... 9,116 0.08 8,710 0.08
Other ............................ 41,732 0.36 42,252 0.37
------------ ------ ----------- ------
Total consumer and other loans ........ 188,971 1.65 184,710 1.63
------------ ------ ----------- ------
TOTAL LOANS ........................... 11,451,247 100.00% 11,365,372 100.00%
------------ ====== ----------- ======
Unamortized premiums, discounts and
deferred loan costs and fees, net. 71,123 72,622
Allowance for loan losses ............. (80,634) (79,931)
------------ -----------
TOTAL LOANS, NET ...................... $ 11,441,736 $11,358,063
============ ===========
- ---------------
(1) Includes loans classified as held-for-sale totaling $22.2 million at
March 31, 2001 and $13.5 million at December 31, 2000.
16
18
SECURITIES PORTFOLIO
The following tables set forth the amortized cost and estimated fair value
of mortgage-backed securities and other securities available-for-sale and
held-to-maturity at March 31, 2001 and December 31, 2000.
At March 31, 2001
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE:
Mortgage-backed securities:
GNMA pass-through certificates $ 98,128 $ 1,081 $ (128) $ 99,081
FHLMC pass-through certificates 178,432 2,616 (256) 180,792
FNMA pass-through certificates 343,154 7,668 (473) 350,349
REMICs and CMOs:
Agency issuance 4,957,945 8,435 (46,632) 4,919,748
Non agency issuance 1,370,108 7,603 (3,891) 1,373,820
---------- ------- -------- ----------
Total mortgage-backed securities 6,947,767 27,403 (51,380) 6,923,790
---------- ------- -------- ----------
Other securities:
Obligations of the U.S.
Government and agencies 534,335 676 (4,210) 530,801
Corporate debt securities 66,209 50 (6,946) 59,313
FNMA and FHLMC preferred stock 120,015 460 (12,040) 108,435
Asset-backed and other securities 2,421 -- (3) 2,418
---------- ------- -------- ----------
Total other securities 722,980 1,186 (23,199) 700,967
---------- ------- -------- ----------
Total available-for-sale $7,670,747 $28,589 $(74,579) $7,624,757
========== ======= ======== ==========
HELD-TO-MATURITY:
Mortgage-backed securities:
GNMA pass-through certificates $ 3,112 $ 201 $ -- $ 3,313
FHLMC pass-through certificates 32,780 1,029 (1) 33,808
FNMA pass-through certificates 11,002 34 (248) 10,788
REMICs and CMOs
Agency issuance 471,963 4,712 (161) 476,514
Non agency issuance 279,132 3,740 (1) 282,871
---------- ------- -------- ----------
Total mortgage-backed securities 797,989 9,716 (411) 807,294
---------- ------- -------- ----------
Other securities:
Obligations of the U.S.
Government and agencies 675,818 4,433 (516) 679,735
Obligations of states and
political subdivisions 43,712 7 -- 43,719
---------- ------- -------- ----------
Total other securities 719,530 4,440 (516) 723,454
---------- ------- -------- ----------
Total held-to-maturity $1,517,519 $14,156 $ (927) $1,530,748
========== ======= ======== ==========
17
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SECURITIES PORTFOLIO, CONTINUED
At December 31, 2000
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE:
Mortgage-backed securities:
GNMA pass-through certificates $ 103,716 $ 916 $ (368) $ 104,264
FHLMC pass-through certificates 187,768 2,169 (569) 189,368
FNMA pass-through certificates 363,842 6,561 (694) 369,709
REMICs and CMOs:
Agency issuance 5,096,905 1,421 (144,178) 4,954,148
Non agency issuance 1,416,104 1,360 (23,768) 1,393,696
---------- ------- --------- ----------
Total mortgage-backed securities 7,168,335 12,427 (169,577) 7,011,185
---------- ------- --------- ----------
Other securities:
Obligations of the U.S.
Government and agencies 528,905 4 (29,341) 499,568
Corporate debt securities 66,242 -- (10,064) 56,178
FNMA and FHLMC preferred stock 147,515 68 (13,794) 133,789
Asset-backed and other securities 2,506 -- (4) 2,502
---------- ------- --------- ----------
Total other securities 745,168 72 (53,203) 692,037
---------- ------- --------- ----------
Total available-for-sale $7,913,503 $12,499 $(222,780) $7,703,222
========== ======= ========= ==========
HELD-TO-MATURITY:
Mortgage-backed securities:
GNMA pass-through certificates $ 3,302 $ 198 $ -- $ 3,500
FHLMC pass-through certificates 34,955 745 (7) 35,693
FNMA pass-through certificates 11,490 32 (112) 11,410
REMICs and CMOs:
Agency issuance 517,626 3,143 (1,219) 519,550
Non agency issuance 296,156 1,525 (896) 296,785
---------- ------- --------- ----------
Total mortgage-backed securities 863,529 5,643 (2,234) 866,938
---------- ------- --------- ----------
Other securities:
Obligations of the U.S.
Government and agencies 804,659 442 (18,605) 786,496
Obligations of states and
political subdivisions 44,003 -- (20) 43,983
---------- ------- --------- ----------
Total other securities 848,662 442 (18,625) 830,479
---------- ------- --------- ----------
Total held-to-maturity $1,712,191 $ 6,085 $ (20,859) $1,697,417
========== ======= ========= ==========
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20
COMPARISON OF FINANCIAL CONDITION AS OF
MARCH 31, 2001 AND DECEMBER 31, 2000
AND OPERATING RESULTS FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000
FINANCIAL CONDITION
Total assets increased $304.9 million to $22.64 billion at March 31, 2001, from
$22.34 billion at December 31, 2000. We continued our strategy of repositioning
the balance sheet through increases in deposits and loans and decreases in
securities and borrowings, while limiting growth. Mortgage loans, net, increased
$71.1 million, from $11.24 billion at December 31, 2000 to $11.31 billion at
March 31, 2001. Gross mortgage loans originated and purchased during the three
months ended March 31, 2001 totaled $709.0 million, of which $452.9 million were
originations and $256.1 million were purchases. These originations and purchases
consisted primarily of one-to-four family residential mortgage loans. This
compares to $397.4 million of originations and $173.3 million of purchases for a
total of $570.7 million during the three months ended March 31, 2000. The
increase in the mortgage loan originations was primarily a result of the general
decrease in market interest rates, which has increased the level of mortgage
refinance activity. This increase was partially offset by an increase in loan
repayments to $612.0 million for the quarter ended March 31, 2001, from $318.9
million for the quarter ended March 31, 2000, which also was primarily a result
of the decrease in market interest rates. Mortgage-backed securities decreased
$152.9 million to $7.72 billion at March 31, 2001, from $7.87 billion at
December 31, 2000. This decrease was the result of principal payments received
of $286.5 million, offset by a decrease in the net unrealized loss on securities
available-for-sale of $133.2 million.
In addition to the changes noted above in the mortgage-backed securities and
mortgage loan portfolios, other securities decreased $120.2 million to $1.42
billion at March 31, 2001, from $1.54 billion at December 31, 2000, primarily
due to $166.0 million in securities which were called or matured, partially
offset by a decrease in the net unrealized loss on securities available-for-sale
and the accretion of discounts on our U.S. Government and agency securities.
Federal funds sold and repurchase agreements increased $558.3 million from
$171.5 million at December 31, 2000, to $729.8 million at March 31, 2001. The
increase in loan and securities repayments provided additional liquidity which
we held primarily in federal funds sold at March 31, 2001 in anticipation of the
repayment of borrowings which were maturing in the beginning of the second
quarter, along with an increase in mortgage fundings. Other assets decreased
$68.7 million from $209.6 million at December 31, 2000 to $140.9 million at
March 31, 2001, primarily due to the decrease in the deferred tax asset which
was directly related to the decrease in the net unrealized loss on securities
available-for-sale.
Consistent with our strategy of repositioning the balance sheet, we also
continued shifting our liability emphasis from borrowings to deposits. Deposits
increased $266.0 million from $10.07 billion at December 31, 2000 to $10.34
billion at March 31, 2001, primarily due to our current emphasis on deposit
generation through competitive rates and new product offerings. Borrowings
decreased $47.6 million to $10.15 billion at March 31, 2001, from $10.20 billion
at December 31, 2000.
19
21
Stockholders' equity increased to $1.60 billion at March 31, 2001, from $1.51
billion at December 31, 2000. The increase in stockholders' equity included a
$94.8 million decrease in the net unrealized loss on securities
available-for-sale, net of taxes. Additional increases in stockholders' equity
were the result of net income of $54.4 million, the effect of stock options
exercised and related tax benefit of $16.4 million, and the amortization for the
allocated portion of shares held by the ESOP of $1.6 million. These increases
were partially offset by repurchases of our common stock of $63.2 million and
dividends declared of $14.5 million.
RESULTS OF OPERATIONS
GENERAL
Net income for the three months ended March 31, 2001 decreased $1.1 million to
$54.4 million, from $55.5 million for the three months ended March 31, 2000. For
the three months ended March 31, 2001, diluted earnings per common share
increased to $1.11 per share, as compared to $1.09 per share for the three
months ended March 31, 2000. Return on average assets decreased to 0.97% for the
three months ended March 31, 2001, from 0.99% for the three months ended March
31, 2000. Return on average stockholders' equity decreased to 13.88% for the
three months ended March 31, 2001, from 18.51% for the three months ended March
31, 2000. Return on average tangible stockholders' equity decreased to 15.94%
for the three months ended March 31, 2001, from 22.71% for the three months
ended March 31, 2000. The decreases in the returns on equity are the result of a
significantly higher level of equity. The increase in equity is primarily due to
the decrease in the net unrealized loss on securities available-for-sale, net of
taxes, which is a result of the general decline in market interest rates that
occurred in response to the previously mentioned actions of the FOMC during the
first quarter of 2001.
The results of operations for the three months ended March 31, 2001 include a
$2.3 million, after-tax, charge for the cumulative effect of accounting change
related to the adoption of SFAS No. 133 and SFAS No. 138 on January 1, 2001. See
"Notes to Consolidated Financial Statements" for further discussion of the
impact of the implementation of SFAS No. 133 and SFAS No. 138. The results of
operations for the three months ended March 31, 2000 include a $718,000,
after-tax, net gain on the disposition of a banking office.
The following comparison of net operating earnings, diluted operating earnings
per common share and related operating returns for the three months ended March
31, 2001 and 2000 exclude the cumulative effect of accounting change and the net
gain on the disposition of a banking office. For the three months ended March
31, 2001, net operating earnings increased $1.9 million to $56.7 million, from
$54.8 million for the three months ended March 31, 2000. Diluted operating
earnings per common share for the three months ended March 31, 2001 increased to
$1.16 per share from $1.08 per share for the three months ended March 31, 2000.
The operating return on average assets for the three months ended March 31, 2001
increased to 1.01%, from 0.97% for the three months ended March 31, 2000. The
operating return on average stockholders' equity for the three months ended
March 31, 2001 decreased to 14.47%, from 18.27% for the three months ended March
31, 2000. The operating return on average tangible stockholders' equity for the
three months ended March 31, 2001 decreased to 16.62%, from 22.42% for the three
months ended March 31, 2000. As previously discussed, the decreases in the
returns on equity are primarily the result of the decrease in the net unrealized
loss on securities available-for-sale, net of taxes, which significantly
contributed to the increase in stockholders' equity.
20
22
NET INTEREST INCOME
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
primarily upon the volume of interest-earning assets and interest-bearing
liabilities and the corresponding interest rates earned or paid. Our net
interest income is significantly impacted by changes in interest rates and
market yield curves.
For the three months ended March 31, 2001, net interest income decreased $8.8
million to $123.4 million, from $132.2 million for the three months ended March
31, 2000. This decrease was primarily a result of the decrease in the net
interest rate spread. The net interest rate spread decreased from 2.12% for the
three months ended March 31, 2000, to 2.01% for the three months ended March
31, 2001. The change in net interest rate spread is a result of an increase in
the average cost of interest-bearing liabilities from 4.74% for the three
months ended March 31, 2000, to 4.92% for the three months ended March 31,
2001, partially offset by an increase in the average yield on interest-earning
assets from 6.86% for the three months ended March 31, 2000, to 6.93% for the
three months ended March 31, 2001. Net interest-earning assets decreased $73.2
million, from $1.29 billion for the three months ended March 31, 2000, to $1.22
billion for the three months ended March 31, 2001. The decrease in net
interest-earning assets was the result of a decrease in total interest-earning
assets of $560.5 million, from $22.06 billion for the three months ended March
31, 2000, to $21.50 billion for the three months ended March 31, 2001,
partially offset by a decrease in total interest-bearing liabilities of $487.3
million, from $20.77 billion for the three months ended March 31, 2000 to
$20.28 billion for the three months ended March 31, 2001. The net interest
margin was 2.30% for the three months ended March 31, 2001 and 2.40% for the
three months ended March 31, 2000.
ANALYSIS OF NET INTEREST INCOME
The following table sets forth certain information for the three months ended
March 31, 2001 and 2000. Yields are derived by dividing income by the average
balance of the related assets and costs are derived by dividing expense by the
average balance of the related liabilities, for the periods shown. Average
balances are derived from average daily balances. The average balance of loans
receivable includes loans on which we have discontinued accruing interest. The
yields and costs include the amortization of fees, premiums and discounts which
are considered adjustments to interest rates.
21
23
Three Months Ended March 31,
------------------------------------------------------------------------------------
2001 2000
------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Cost Balance Interest Cost
- -----------------------------------------------------------------------------------------------------------------------------
(Annualized) (Annualized)
ASSETS:
Interest-earning assets:
Mortgage loans (1) $11,318,886 $ 203,191 7.18% $10,260,349 $ 183,712 7.16%
Consumer and other loans (1) 188,626 4,879 10.35 173,505 4,294 9.90
Mortgage-backed securities (2) 7,848,310 127,716 6.51 9,491,191 154,024 6.49
Other securities (2) 1,795,952 32,089 7.15 1,849,215 32,390 7.01
Federal funds sold and
repurchase agreements 343,900 4,678 5.44 281,900 4,099 5.82
---------- ----------- ----------- ----------
Total interest-earning assets 21,495,674 372,553 6.93 22,056,160 378,519 6.86
----------- ----------
Non-interest-earning assets 879,997 438,466
---------- -----------
Total assets $22,375,671 $22,494,626
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Savings $ 2,437,685 $ 12,161 2.00% $ 2,573,434 $ 12,913 2.01%
Certificates of deposit 5,162,621 73,687 5.71 4,935,841 66,634 5.40
NOW and money manager (3) 1,002,920 1,393 0.56 893,191 1,317 0.59
Money market 1,520,725 18,323 4.82 1,215,519 15,234 5.01
---------- ----------- ---------- ---------
Total deposits 10,123,951 105,564 4.17 9,617,985 96,098 4.00
Borrowed funds 10,153,928 143,628 5.66 11,147,156 150,219 5.39
---------- ----------- ---------- ---------
Total interest-bearing liabilities 20,277,879 249,192 4.92 20,765,141 246,317 4.74
----------- ---------
Non-interest-bearing liabilities 529,614 529,950
---------- -----------
Total liabilities 20,807,493 21,295,091
Stockholders' equity 1,568,178 1,199,535
---------- -----------
Total liabilities and stockholders'
equity $22,375,671 $22,494,626
========== ==========
Net interest income/net interest
rate spread $ 123,361 2.01% $ 132,202 2.12%
========== ==== ========== ====
Net interest-earning assets/net
interest margin $ 1,217,795 2.30% $1,291,019 2.40%
========== ==== ========= ====
Ratio of interest-earning assets
to interest-bearing liabilities 1.06x 1.06x
===== =====
- --------------------------
(1) Mortgage, consumer and other loans include non-performing loans and
exclude the allowance for loan losses.
(2) Securities available-for-sale are reported at average amortized cost.
(3) Prior period restated to include NOW and money manager accounts bearing
an interest rate of zero.
22
24
RATE/VOLUME ANALYSIS
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected our interest income and interest expense during the
periods indicated. Information is provided in each category with respect to (1)
the changes attributable to changes in volume (changes in volume multiplied by
prior rate), (2) the changes attributable to changes in rate (changes in rate
multiplied by prior volume), and (3) the net change. The changes attributable to
the combined impact of volume and rate have been allocated proportionately to
the changes due to volume and the changes due to rate.
Quarter Ended March 31, 2001
Compared to
Quarter Ended March 31, 2000
-----------------------------------
(In Thousands) Increase (Decrease)
- -----------------------------------------------------------------------------------------------
Volume Rate Net
------ ---- ---
Interest-earning assets:
Mortgage loans..................................... $ 18,966 $ 513 $ 19,479
Consumer and other loans........................... 385 200 585
Mortgage-backed securities......................... (26,781) 473 (26,308)
Other securities................................... (942) 641 (301)
Federal funds sold and repurchase
agreements...................................... 860 (281) 579
-------- ------- --------
Total................................................. (7,512) 1,546 (5,966)
-------- ------- --------
Interest-bearing liabilities:
Savings............................................ (687) (65) (752)
Certificates of deposit ........................... 3,136 3,917 7,053
NOW and money manager.............................. 149 (73) 76
Money market ...................................... 3,687 (598) 3,089
Borrowed funds..................................... (13,852) 7,261 (6,591)
-------- -------- --------
Total................................................. (7,567) 10,442 2,875
-------- -------- --------
Net change in net interest
income............................................. $ 55 $ (8,896) $ (8,841)
======== ======== ========
INTEREST INCOME
Interest income for the three months ended March 31, 2001 decreased $5.9 million
to $372.6 million, from $378.5 million for the three months ended March 31,
2000. This decrease was the result of a decrease in the average balance of
interest-earning assets from $22.06 billion for the three months ended March 31,
2000 to $21.50 billion for the three months ended March 31, 2001. The decrease
in average interest-earning assets was primarily due to a decrease in the
average balance of mortgage-backed securities resulting from principal
repayments, partially offset by an increase in the average balance of mortgage
loans. The decrease and shift in assets reflect our decision to limit balance
sheet growth while continuing to emphasize one-to-four family mortgage lending.
Additionally, during the fourth quarter of 2000, we implemented a Bank Owned
Life Insurance, or BOLI, program which decreased interest-earning assets by
approximately $250.0 million. The decrease in the average balance of
interest-earning assets was partially offset by an increase in the average yield
of interest-earning assets from 6.86% for the three months ended March 31, 2000
to 6.93% for the three months ended March 31, 2001. The increase in the average
yield on interest-earning assets is primarily due to the increases in the
average yields on mortgage-backed and other securities and mortgage loans which
reflects the higher interest rate environment which prevailed throughout 2000.
23
25
Interest income on mortgage loans increased $19.5 million to $203.2 million for
the three months ended March 31, 2001, from $183.7 million for the three months
ended March 31, 2000. This increase was primarily the result of a $1.06 billion
increase in the average balance of mortgage loans, primarily one-to-four family
loans, coupled with a slight increase in the average yield on mortgage loans to
7.18% for the three months ended March 31, 2001, from 7.16% for the three months
ended March 31, 2000. Interest income on consumer and other loans increased
$585,000 resulting from an increase in the average balance of this portfolio of
$15.1 million, coupled with an increase in the average yield to 10.35% for the
three months ended March 31, 2001, from 9.90% for the three months ended March
31, 2000. Interest income on mortgage-backed securities decreased $26.3 million
to $127.7 million for the three months ended March 31, 2001, from $154.0 million
for the three months ended March 31, 2000. This decrease was the result of a
$1.64 billion decrease in the average balance of the mortgage-backed securities
portfolio, slightly offset by an increase in the average yield to 6.51% for the
three months ended March 31, 2001, from 6.49% for the three months ended March
31, 2000. Interest income on other securities decreased $301,000 resulting from
a decrease in the average balance of this portfolio of $53.3 million, partially
offset by an increase in the average yield to 7.15% for the three months ended
March 31, 2001, from 7.01% for the three months ended March 31, 2000. Interest
income on federal funds sold and repurchase agreements increased $579,000 as a
result of an increase in the average balance of $62.0 million, partially offset
by a decrease in the average yield to 5.44% for the three months ended March 31,
2001, from 5.82% for the three months ended March 31, 2000.
INTEREST EXPENSE
Interest expense for the three months ended March 31, 2001 increased $2.9
million, to $249.2 million, from $246.3 million for the three months ended March
31, 2000. This increase was the result of an increase in the average cost of
interest-bearing liabilities to 4.92% for the three months ended March 31, 2001,
from 4.74% for the three months ended March 31, 2000, partially offset by a
$487.3 million decrease in the average balance of interest-bearing liabilities.
The decrease in average interest-bearing liabilities was attributable to a
decrease in borrowings, partially offset by an increase in deposits, which is
consistent with our strategy of repositioning the balance sheet. The increase in
the average cost of interest-bearing liabilities is primarily due to the
increase in the cost of our certificates of deposit. In addition to
repositioning the mix of liabilities, we have made efforts to extend the average
lives of our liabilities. The additional cost of the certificates of deposit
reflects our commitment to provide our customers with competitive rates and
support our objective to shift the liability mix and average life during the
rising rate environment we experienced during 2000.
Interest expense on deposits increased $9.5 million, to $105.6 million for the
three months ended March 31 2001, from $96.1 million for the three months ended
March 31, 2000, reflecting an increase in the average balance of total deposits
of $506.0 million, coupled with an increase in the average cost of deposits to
4.17% for the three months ended March 31, 2001, from 4.00% for the three months
ended March 31, 2000. The increases in the average balance and average cost of
total deposits were primarily driven by increases in the average balances of
money market accounts and certificates of deposit and an increase in rates on
our certificates of deposit. Interest expense on certificates of deposit
increased $7.1 million resulting from an increase in the average cost to 5.71%
for the three months ended March 31, 2001, from 5.40% for the three months ended
March 31, 2000, coupled with an increase in the average balance of $226.8
million. The increases in the average cost and average balance of certificates
of deposit reflect both the interest rate environment over the past year and our
commitment to offer competitive rates to our customers.
24
26
Interest expense on money market accounts increased $3.1 million, reflecting an
increase in the average balance of $305.2 million, partially offset by a
decrease in the average cost to 4.82% for the three months ended March 31, 2001,
from 5.01% for the three months ended March 31, 2000. Interest paid on money
market accounts is on a tiered basis with 90.44% of the balance in the highest
tier (accounts with balances of $50,000 and higher). The yield on the highest
tier is priced relative to the discount rate for the three-month U.S. Treasury
bill, which provides an attractive short-term yield for our customers. Interest
expense on savings accounts decreased $752,000, which was attributable to a
decrease in the average balance of $135.7 million, coupled with a slight
decrease in the average cost. Interest expense on NOW and money manager accounts
increased $76,000 as a result of an increase in the average balance of $109.7
million, partially offset by a decrease in the average cost.
Interest expense on borrowed funds for the three months ended March 31, 2001
decreased $6.6 million, to $143.6 million, from $150.2 million for the three
months ended March 31, 2000, resulting from a decrease in the average balance of
$1.0 billion to $10.15 billion for the three months ended March 31, 2001 from
$11.15 billion for the three months ended March 31, 2000, partially offset by an
increase in the average cost of borrowings to 5.66% for the three months ended
March 31, 2001, from 5.39% for the three months ended March 31, 2000. Previous
asset growth was primarily funded through callable borrowings, which, in a lower
interest rate environment, was a more cost effective way to fund our growth. The
rising interest rate environment which prevailed throughout most of 2000
resulted in most of our borrowings being called upon reaching their call dates
during the year ended December 31, 2000. While a portion of the called
borrowings were repaid, the remainder of the called borrowings were rolled over
into short- and medium-term borrowings without call features at higher rates.
PROVISION FOR LOAN LOSSES
Provision for loan losses totaled $1.0 million for the three months ended March
31, 2001 and 2000. The allowance for loan losses increased to $80.6 million at
March 31, 2001, from $79.9 million at December 31, 2000. The increase in the
allowance for loan losses in part reflects the overall increase in our loan
portfolio despite the continued improvement of our asset quality. Net loan
charge-offs totaled $299,000 for the three months ended March 31, 2001 compared
to $205,000 for the three months ended March 31, 2000. Non-performing loans
decreased $2.3 million to $33.9 million at March 31, 2001, from $36.2 million at
December 31, 2000. This reduction in non-performing loans improved the
percentage of allowance for loan losses to non-performing loans from 220.88% at
December 31, 2000 to 237.59% at March 31, 2001. The allowance for loan losses as
a percentage of total loans was 0.70% at March 31, 2001 and December 31, 2000.
For further discussion of non-performing loans and allowance for loan losses
see "Asset Quality."
NON-INTEREST INCOME
Non-interest income for the three months ended March 31, 2001 increased $4.4
million, or 23.8%, to $22.7 million from $18.3 million for the three months
ended March 31, 2000. Excluding the net gain on the disposition of a banking
office of $1.1 million in the first quarter of 2000, non-interest income for the
three months ended March 31, 2001 increased $5.5 million, or 32.3%, to $22.7
million, from $17.2 million for the three months ended March 31, 2000.
25
27
Customer service and other loan fees increased $1.9 million to $13.1 million for
the three months ended March 31, 2001, from $11.2 million for the three months
ended March 31, 2000. The increase in customer service fees was primarily
attributable to an increase in deposit accounts coupled with an increase in
customer service fees which became effective during the first quarter of 2001.
Loan servicing fees decreased $558,000 to $4.0 million for the three months
ended March 31, 2001, from $4.5 million for the three months ended March 31,
2000. Loan servicing fees include all contractual and ancillary servicing
revenue we receive. This decrease is due to a decrease in the balance of loans
serviced for others from $4.30 billion at March 31, 2000 to $3.79 billion at
March 31, 2001. The decrease in the balance of loans serviced for others is
reflective of our emphasis on originating loans to be retained for portfolio.
During the three months ended March 31, 2001, we recognized $4.2 million in
income from our BOLI which we purchased in November 2000. This income represents
the increase in the cash surrender value of the BOLI.
NON-INTEREST EXPENSE
Non-interest expense for the three months ended March 31, 2001 was $56.7
million, a decrease of $1.5 million from $58.2 million for the three months
ended March 31, 2000. General and administrative expense decreased $1.6 million
to $44.7 million for the three months ended March 31, 2001, from $46.3 million
for the three months ended March 31, 2000. Compensation and benefits increased
$928,000 to $23.1 million for the three months ended March 31, 2001, from $22.2
million for the three months ended March 31, 2000. Occupancy, equipment and
systems expense decreased $1.2 million to $13.0 million for the three months
ended March 31, 2001, from $14.2 million for the three months ended March 31,
2000. Other general and administrative expense decreased $1.1 million to $6.2
million for the three months ended March 31, 2001, from $7.3 million for the
three months ended March 31, 2000.
Net amortization of mortgage servicing rights increased $1.7 million to $3.1
million for the three months ended March 31, 2001, from $1.4 million for the
three months ended March 31, 2000. Net amortization of mortgage servicing rights
includes valuation allowance adjustments for the impairment of mortgage
servicing rights. The increase in the net amortization of mortgage servicing
rights is due to a provision for the valuation allowance for mortgage servicing
rights of $1.0 million for the three months ended March 31, 2001 versus a
recovery of $251,000 for the three months ended March 31, 2000, coupled with a
$418,000 increase in the amortization of mortgage servicing rights. The increase
in the amortization of mortgage servicing rights is due to the increase in
prepayment speeds and refinance activity which is a result of the interest rate
environment which prevailed during the three months ended March 31, 2001. The
increase in the valuation allowance is due to the increase in projected
prepayment speeds resulting from the perception of declining rates in the
future. Goodwill litigation expense decreased $1.5 million to $1.0 million for
the three months ended March 31, 2001, from $2.5 million for the three months
ended March 31, 2000. For further discussion on the goodwill litigation
proceedings, see Part II - Item 1, "Legal Proceedings."
Our percentage of general and administrative expense to average assets improved
to 0.80% for the three months ended March 31, 2001, from 0.82% for the three
months ended March 31, 2000. The efficiency ratio also improved to 30.57% for
the three months ended March 31, 2001, from 30.99% for the three months ended
March 31, 2000.
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28
INCOME TAX EXPENSE
For the three months ended March 31, 2001, income tax expense was $31.7 million,
representing an effective tax rate of 35.8%, as compared to $35.9 million,
representing an effective tax rate of 39.3%, for the three months ended March
31, 2000. The reduction in the effective tax rate was due primarily to tax
benefits associated with the implementation of the BOLI program in November
2000.
CASH EARNINGS
Tangible stockholders' equity (stockholders' equity less goodwill) totaled $1.40
billion at March 31, 2001, compared to $1.31 billion at December 31, 2000.
Tangible equity is a critical measure of a company's ability to repurchase
shares, pay dividends and continue to grow. Astoria Federal is subject to
various capital requirements which affect its classification for safety and
soundness purposes, as well as for deposit insurance premium purposes. These
requirements utilize, subject to further adjustments, tangible equity as a base
component, not equity as defined by GAAP.
Although reported earnings and return on equity are traditional measures of a
company's performance, we believe that the change in tangible equity, or "cash
earnings," and related return measures are also a significant measure of a
company's performance. Cash earnings exclude the effects of various non-cash
expenses, such as the amortization for the allocation of ESOP stock and the
amortization of goodwill. In the case of tangible equity, these items have
either been previously charged to equity, as in the case of ESOP charges,
through a contra-equity account, or do not affect tangible equity, such as the
market appreciation of allocated ESOP shares, for which the operating charge is
offset by a credit to additional paid-in capital, and goodwill amortization, for
which the related intangible asset has already been deducted in the calculation
of tangible equity.
The following comparisons exclude the $2.3 million, after-tax, charge for the
cumulative effect of accounting change recognized in the first quarter of 2001
and the $718,000, after-tax, net gain on the disposition of a banking office
recognized in the first quarter of 2000. For the three months ended March 31,
2001, operating cash earnings totaled $63.1 million, or $6.4 million more than
operating earnings, representing a cash return on average tangible equity of
18.49%. For the three months ended March 31, 2000, operating cash earnings
totaled $61.5 million, or $6.7 million more than operating earnings,
representing an operating cash return on average tangible equity of 25.17%.
Diluted operating cash earnings per common share increased to $1.29 for the
three months ended March 31, 2001 from $1.21 for the three months ended March
31, 2000. Operating cash return on average assets was 1.13% for the three months
ended March 31, 2001 and 1.09% for the three month ended March 31, 2000.
Additionally, the operating cash general and administrative expense (general and
administrative expense, excluding non-cash amortization expense relating to
certain employee stock plans) to average assets ratio decreased to 0.77% for the
three months ended March 31, 2001, from 0.79% for the three months March 31,
2000. The operating cash efficiency ratio was 29.48% for the three months ended
March 31, 2001 and 29.71% for the three months ended March 31, 2000. For more
details on operating earnings and operating cash earnings, see "Consolidated
Schedules of Operating Earnings and Operating Cash Earnings" on the following
page.
27
29
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF OPERATING EARNINGS AND OPERATING CASH EARNINGS
- ------------------------------------------------------------------------
(In Thousands, Except Per Share Data)
Three Months Ended
March 31,
--------------------
2001 2000
---- ----
Net income $ 54,416 $ 55,497
Add back: Cumulative effect of accounting change, net of tax 2,294 --
Less: Net gain on disposition of banking office, net of tax -- 718
-------- --------
Operating earnings 56,710 54,779
Preferred dividends declared (1,500) (1,500)
-------- --------
Operating earnings available to common shareholders $ 55,210 $ 53,279
======== ========
Basic operating earnings per common share $ 1.18 $ 1.09
======== ========
Diluted operating earnings per common share $ 1.16 $ 1.08
======== ========
Operating earnings available to common shareholders $ 55,210 $ 53,279
Add back:
Employee stock plans amortization expense 1,602 1,900
Amortization of goodwill 4,811 4,824
-------- --------
Operating cash earnings available to common shareholders $ 61,623 $ 60,003
======== ========
Basic operating cash earnings per common share $ 1.32 $ 1.23
======== ========
Diluted operating cash earnings per common share $ 1.29 $ 1.21
======== ========
ASSET QUALITY
One of our key operating objectives has been and continues to be to maintain a
high level of asset quality. Through a variety of strategies, including but not
limited to borrower workout arrangements and aggressive marketing of foreclosed
properties, we have been proactive in addressing problem and non-performing
assets which, in turn, has helped strengthen our financial condition. Such
strategies, as well as our concentration on one-to-four family mortgage lending,
maintaining sound credit standards for new loan originations and a generally
stable economy and real estate market, have resulted in a steady reduction in
non-performing assets to total assets from December 31, 1995 through March 31,
2001. Non-performing assets decreased from $40.0 million at December 31, 2000 to
$38.3 million at March 31, 2001. The ratio of non-performing assets to total
assets decreased from 0.18% at December 31, 2000 to 0.17% at March 31, 2001. The
following table on page 29 shows a comparison of delinquent loans as of March
31, 2001 and December 31, 2000.
28
30
Delinquent Loans
---------------
At March 31, 2001 At December 31, 2000
--------------------------------------------- --------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------- -------------------- ------------------- -------------------
Number Principal Number Principal Number Principal Number Principal
of Balance of Balance of Balance of Balance
(Dollars in Thousands) Loans of Loans Loans of Loans Loans of Loans Loans of Loans
- ---------------------- ------------------- -------------------- ------------------- -------------------
One-to-four family........ 15 $ 431 253 $30,138 31 $1,459 284 $32,529
Multi-family.............. - - 2 987 - - 2 990
Commercial real estate.... 2 312 4 1,886 2 791 3 1,765
Consumer and other loans.. 105 631 118 928 125 728 99 903
--- ------ --- ------ --- ----- --- ------
Total delinquent loans.... 122 $1,374 377 $33,939 158 $2,978 388 $36,187
=== ===== === ====== === ===== === ======
Delinquent loans to total
loans............. 0.01% 0.30% 0.03% 0.32%
The following table sets forth information regarding non-performing assets at
March 31, 2001 and December 31, 2000. In addition to the non-performing loans,
we had approximately $1.4 million of potential problem loans at March 31, 2001
and $3.0 million at December 31, 2000. Such loans are 60-89 days delinquent as
shown above.
Non-Performing Assets
At At
March 31, December 31,
2001 2000
---------- -----------
(Dollars in Thousands)
Non-accrual delinquent mortgage loans (1) $31,922 $34,332
Non-accrual delinquent consumer and other loans 928 903
Mortgage loans delinquent 90 days or more and
still accruing interest (2) 1,089 952
------- -------
Total non-performing loans 33,939 36,187
------- -------
Real estate owned, net (3) 4,373 3,801
------- -------
Total non-performing assets $38,312 $39,988
======= =======
Allowance for loan losses to non-performing loans 237.59% 220.88%
Allowance for loan losses to total loans 0.70% 0.70%
(1) Consists primarily of loans secured by one-to-four family properties.
(2) Loans delinquent 90 days or more and still accruing interest consist
solely of loans delinquent 90 days or more as to their maturity date but
not their interest payments and are secured by one-to-four family
properties.
(3) Real estate acquired as a result of foreclosure or by deed-in-lieu of
foreclosure is recorded at the lower of cost or fair value less
estimated costs to sell.
If all non-accrual loans had been performing in accordance with their original
terms, we would have recorded interest income, with respect to such loans, of
$699,000 for the three months ended March 31, 2001 and $2.9 million for the year
ended December 31, 2000. Actual payments recorded to interest income, with
respect to such loans, totaled $287,000 for the three months ended March 31,
2001 and $1.6 million for the year ended December 31, 2000.
29
31
Excluded from non-performing assets are restructured loans that have complied
with the terms of their restructure agreement for a satisfactory period and
have, therefore, been returned to performing status. Restructured loans that are
in compliance with their restructured terms totaled $4.8 million at March 31,
2001 and $5.2 million at December 31, 2000.
The following table sets forth the change in allowance for loan losses.
(In Thousands)
Allowance for Loan Losses:
Balance at December 31, 2000.............................. $ 79,931
Provision charged to operations..................... 1,002
Charge-offs:
One-to-four family........................... (144)
Multi-family................................. -
Commercial................................... -
Consumer and other........................... (386)
-------
Total charge-offs .................................. (530)
-------
Recoveries:
One-to-four family........................... 3
Multi-family................................. -
Commercial .................................. 9
Consumer and other .......................... 219
-------
Total recoveries .................................. 231
-------
Total net charge-offs............................... (299)
-------
Balance at March 31, 2001................................. $ 80,634
=======
IMPACT OF NEW AND PROPOSED ACCOUNTING STANDARDS
In September 2000, the FASB Issued Statement of Financial Accounting Standards
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," or SFAS No. 140. SFAS No. 140 supercedes and
replaces the guidance in SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," and rescinds SFAS No.
127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125." SFAS No. 140 provides accounting and reporting standards for
securitization transactions involving financial assets, sales of financial
assets such as receivables, loans and securities, factoring transactions, wash
sales, servicing assets and liabilities, collateralized borrowing arrangements,
securities lending transactions, repurchase agreements, loan participations, and
extinguishment of liabilities. Certain provisions of this Statement including
relevant disclosures are effective for fiscal years ending after December 15,
2000 and have been incorporated into our consolidated financial statements. The
remaining provisions are effective for transfer transactions entered into after
March 31, 2001. SFAS No. 140 does not require restatement of prior periods. The
implementation of SFAS No. 140 did not have a material impact on our financial
condition.
On February 14, 2001, the FASB issued a revised exposure draft "Business
Combinations and Intangible Assets - Accounting for Goodwill," or the Draft,
which is a limited revision of an exposure draft issued September 7, 1999. In
the Draft, the FASB indicated that the amortization
30
32
of goodwill created with respect to business combinations completed both before
and after the effective date of any final pronouncement would be discontinued.
Should the Draft be formally implemented, we anticipate it to be effective for
the third quarter of 2001. At such time, we would cease recording goodwill
amortization amounting to approximately $19.1 million annually, or approximately
$0.40 per diluted common share, based on shares outstanding at March 31, 2001,
which would result in the reporting of increased annual net income and earnings
per share by these amounts.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a description of our quantitative and qualitative disclosures about
market risk, see the information set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Interest Rate Sensitivity Analysis."
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
With respect to the case entitled Astoria Federal Savings and Loan
Association vs. United States, or the Astoria Goodwill Litigation, which is
pending in the United States Court of Federal Claims, the Company previously
reported that expert discovery had been stayed by the Court until 30 days
following the filing of a decision in the appeal before the United States Court
of Appeals for the Federal Circuit in the case of California Federal Bank, FSB
v. United States, Case No. 99-5108, -5199, or the Calfed decision. The United
States Court of Appeals for the Federal Circuit issued its opinion in such case
on April 3, 2001. Accordingly, expert discovery resumed in the Astoria Goodwill
Litigation on or about May 3, 2001.
With respect to the case entitled The Long Island Savings Bank, FSB et
al. vs. The United States, or the LISB Goodwill Litigation, which is also
pending in the United States Court of Federal Claims, the Company previously
reported that Senior Judge Lawrence S. Margolis, to whom the case is assigned,
ordered that oral arguments be held on April 10, 2001 with respect to our
pending motion for partial summary judgment and the Government's cross motions.
At the conclusion of oral arguments held on April 10, 2001, the Court issued
orders which denied the Government's motion to dismiss those counts of the
complaint in the LISB Goodwill Litigation based upon takings under the Fifth
Amendment of the United States Constitution and with respect to interest that
may be due as a result of any damages award arising from a taking under the
Fifth Amendment of the United States Constitution. The Court granted the
Government's motion to dismiss as to those counts of the complaint which were
based on breach of an implied contract, failure of consideration and frustration
of purpose. All other causes of action remain outstanding. Following such oral
arguments, the Court denied both our motion and the Government's motions for
partial summary judgment and summary judgment, respectively, on the basis that
there are genuine issues of material fact with respect to the Company's breach
of contract claim.
Based upon our review of these decisions and other decisions rendered in
the Winstar related cases, including but not limited to the Calfed decision, we
are unable to predict with any degree of certainty the outcome of our claims
against the United States and the amount of damages that may be awarded in
connection with either the LISB Goodwill Litigation or the Astoria Goodwill
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Litigation, if any. No assurance can be given as to the results of these claims
or the timing of any proceedings in relation thereto.
For further information regarding legal proceedings see Part I, Item 3
of our Annual Report on Form 10-K for the year ended December 31, 2000.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Statement Regarding Computation of Per Share Earnings.
(b) Reports on Form 8-K
1. Form 8-K dated January 24, 2001 which made
available the information to access a live
audio-webcast of Astoria Financial Corporation's
presentation at the Salomon Smith Barney 4th Annual
Financial Services Conference, as well as a copy of
the written material made available at the
conference.
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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: May 14, 2001 By: /s/ Monte N. Redman
---------------------- -----------------------------
Monte N. Redman
Executive Vice President
and Chief Financial Officer
(Principal Accounting Officer)
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Exhibit Index
Exhibit No Identification of Exhibit
- ---------- -------------------------
11. Statement Regarding Computation of Per Share Earnings
34