1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-22228
ASTORIA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 11-3170868
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
One Astoria Federal Plaza, Lake Success, New York 11042-1085
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(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, July 31, 2001
- ----------------------- -------------------------------------------
.01 Par Value 48,178,309
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PART I -- FINANCIAL INFORMATION
Page
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Item 1. Financial Statements (Unaudited).
Consolidated Statements of Financial Condition at June 30, 2001 2
and December 31, 2000.
Consolidated Statements of Income for the Three Months and Six 3
Months Ended June 30, 2001 and June 30, 2000.
Consolidated Statement of Changes in Stockholders' Equity for the 4
Six Months Ended June 30, 2001.
Consolidated Statements of Cash Flows for the Six Months Ended 5
June 30, 2001 and June 30, 2000.
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk. 36
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 36
Item 2. Changes in Securities and Use of Proceeds 37
Item 3. Defaults Upon Senior Securities 37
Item 4. Submission of Matters to a Vote of Security Holders 38
Item 5. Other Information 39
Item 6. Exhibits and Reports on Form 8-K 39
(a) Exhibits
(11) Statement Regarding Computation of Per Share Earnings
(b) Reports on Form 8-K
Signatures 40
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
AT AT
JUNE 30, DECEMBER 31,
(In Thousands, Except Share Data) 2001 2000
- ----------------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks $ 140,512 $ 135,726
Federal funds sold and repurchase agreements 1,069,409 171,525
Available-for-sale securities:
Encumbered 3,952,205 6,983,481
Unencumbered 640,026 719,741
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4,592,231 7,703,222
Held-to-maturity securities, fair value of $3,831,230 and $1,697,417,
respectively:
Encumbered 3,683,135 1,396,213
Unencumbered 171,918 315,978
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3,855,053 1,712,191
Federal Home Loan Bank of New York stock 285,250 285,250
Loans held-for-sale 37,598 15,699
Loans receivable:
Mortgage loans, net 11,457,775 11,239,141
Consumer and other loans, net 198,198 183,154
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11,655,973 11,422,295
Less allowance for loan losses 81,376 79,931
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Total loans receivable, net 11,574,597 11,342,364
Mortgage servicing rights, net 37,992 40,962
Accrued interest receivable 103,522 109,439
Premises and equipment, net 152,235 154,582
Goodwill 195,028 204,649
Bank owned life insurance 255,743 251,565
Other assets 150,866 209,628
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Total assets $ 22,450,036 $ 22,336,802
============ ============
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Savings $ 2,497,460 $ 2,434,387
Money market 1,749,881 1,482,615
NOW and money manager 1,090,280 1,004,950
Certificates of deposit 5,296,402 5,149,735
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Total deposits 10,634,023 10,071,687
Reverse repurchase agreements 7,485,000 7,785,000
Federal Home Loan Bank of New York advances, net 1,964,000 1,910,000
Other borrowings, net 300,978 502,371
Mortgage escrow funds 134,551 116,487
Accrued expenses and other liabilities 209,466 313,094
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Total liabilities 20,728,018 20,698,639
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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 48,187,963 and 49,643,554 shares
outstanding, respectively) 555 555
Additional paid-in capital 817,327 807,357
Retained earnings 1,130,582 1,059,048
Treasury stock (7,310,333 and 5,854,742 shares, at cost, respectively) (296,934) (203,632)
Accumulated other comprehensive income:
Net unrealized loss on securities, net of taxes (26,093) (121,043)
Unallocated common stock held by ESOP (30,419) (31,122)
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Total stockholders' equity 1,597,018 1,513,163
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Total liabilities and stockholders' equity $ 22,450,036 $ 22,336,802
============ ============
See accompanying notes to consolidated financial statements.
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
(In Thousands, Except Share Data) 2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Interest income:
Mortgage loans $ 203,692 $ 188,001 $ 406,883 $ 371,713
Consumer and other loans 4,470 4,274 9,349 8,568
Mortgage-backed securities 117,729 148,001 245,445 302,025
Other securities 28,498 32,710 60,587 65,100
Federal funds sold and repurchase agreements 8,600 4,570 13,278 8,669
------------- ------------- ------------- -------------
Total interest income 362,989 377,556 735,542 756,075
------------- ------------- ------------- -------------
Interest expense:
Deposits 104,580 100,229 210,144 196,327
Borrowed funds 140,296 149,395 283,924 299,614
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Total interest expense 244,876 249,624 494,068 495,941
------------- ------------- ------------- -------------
Net interest income 118,113 127,932 241,474 260,134
Provision for loan losses 1,023 1,005 2,025 2,005
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Net interest income after provision for loan losses 117,090 126,927 239,449 258,129
------------- ------------- ------------- -------------
Non-interest income:
Customer service and other loan fees 14,529 12,022 27,596 23,231
Loan servicing fees 4,020 4,297 8,000 8,835
Net gain on sales of loans 1,392 178 1,725 295
Net gain on disposition of banking offices -- 2,794 -- 3,976
Income from bank owned life insurance 4,304 -- 8,486 --
Other 1,377 861 2,527 2,160
------------- ------------- ------------- -------------
Total non-interest income 25,622 20,152 48,334 38,497
------------- ------------- ------------- -------------
Non-interest expense:
General and administrative:
Compensation and benefits 22,471 21,130 45,578 43,309
Occupancy, equipment and systems 12,971 13,081 25,952 27,312
Federal deposit insurance premiums 493 523 990 1,040
Advertising 1,675 2,190 3,529 4,236
Other 6,826 6,638 13,046 13,946
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Total general and administrative 44,436 43,562 89,095 89,843
Net amortization of mortgage servicing rights 1,836 1,871 4,951 3,293
Goodwill litigation 852 1,774 1,873 4,287
Capital trust securities 3,104 3,104 6,208 6,216
Amortization of goodwill 4,810 4,824 9,621 9,648
------------- ------------- ------------- -------------
Total non-interest expense 55,038 55,135 111,748 113,287
------------- ------------- ------------- -------------
Income before income tax expense and cumulative effect
of accounting change 87,674 91,944 176,035 183,339
Income tax expense 30,489 36,084 62,140 71,982
------------- ------------- ------------- -------------
Income before cumulative effect of accounting change 57,185 55,860 113,895 111,357
Cumulative effect of accounting change, net of tax -- -- (2,294) --
------------- ------------- ------------- -------------
Net income 57,185 55,860 111,601 111,357
Preferred dividends declared (1,500) (1,500) (3,000) (3,000)
------------- ------------- ------------- -------------
Net income available to common shareholders $ 55,685 $ 54,360 $ 108,601 $ 108,357
============= ============= ============= =============
Basic earnings per common share:
Income before accounting change $ 1.21 $ 1.13 $ 2.39 $ 2.23
============= ============= ============= =============
Cumulative effect of accounting change, net of tax $ -- $ -- $ 0.05 $ --
============= ============= ============= =============
Net earnings per common share $ 1.21 $ 1.13 $ 2.34 $ 2.23
============= ============= ============= =============
Diluted earnings per common share:
Income before accounting change $ 1.19 $ 1.11 $ 2.35 $ 2.20
============= ============= ============= =============
Cumulative effect of accounting change, net of tax $ -- $ -- $ 0.05 $ --
============= ============= ============= =============
Net earnings per common share $ 1.19 $ 1.11 $ 2.30 $ 2.20
============= ============= ============= =============
Dividends per common share $ 0.31 $ 0.26 $ 0.57 $ 0.50
============= ============= ============= =============
Basic weighted average common shares 45,980,188 48,273,799 46,365,295 48,489,519
Diluted weighted average common and common equivalent shares 46,878,510 48,946,209 47,286,288 49,166,931
See accompanying notes to consolidated financial statements.
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2001
Additional
Preferred Common Paid-In Retained Treasury
(In Thousands, Except Share Data) Total Stock Stock Capital Earnings Stock
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $ 1,513,163 $ 2,000 $ 555 $ 807,357 $ 1,059,048 $ (203,632)
Comprehensive income:
Net income 111,601 -- -- -- 111,601 --
Other comprehensive income, net of tax:
Net unrealized gain on securities 93,177 -- -- -- -- --
Amortization of unrealized loss
on securities transferred to
held-to-maturity 1,773 -- -- -- -- --
-----------
Total comprehensive income 206,551
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Common stock repurchased
(2,150,700 shares) (118,375) -- -- -- -- (118,375)
Dividends on common and preferred
stock and amortization of purchase
premium (31,164) -- -- (652) (30,512) --
Exercise of stock options and
related tax benefit
(695,109 shares issued) 23,533 -- -- 8,015 (9,555) 25,073
Amortization relating to allocation
of ESOP stock 3,310 -- -- 2,607 -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 2001 $ 1,597,018 $ 2,000 $ 555 $ 817,327 $ 1,130,582 $ (296,934)
=========== =========== =========== =========== =========== ===========
Unallocated
Accumulated Common
Other Stock
Comprehensive Held
(In Thousands, Except Share Data) Income by ESOP
- --------------------------------------------------------------------
Balance at December 31, 2000 $ (121,043) $ (31,122)
Comprehensive income:
Net income -- --
Other comprehensive income, net of tax:
Net unrealized gain on securities 93,177 --
Amortization of unrealized loss
on securities transferred to
held-to-maturity 1,773 --
Total comprehensive income
Common stock repurchased
(2,150,700 shares) -- --
Dividends on common and preferred
stock and amortization of purchase
premium -- --
Exercise of stock options and
related tax benefit
(695,109 shares issued) -- --
Amortization relating to allocation
of ESOP stock -- 703
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Balance at June 30, 2001 $ (26,093) $ (30,419)
=========== ===========
See accompanying notes to consolidated financial statements.
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------------------
(IN THOUSANDS) 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 111,601 $ 111,357
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Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Net accretion of discounts, premiums and deferred loan fees (20,604) (29,687)
Provision for loan and real estate losses 1,961 1,900
Depreciation and amortization 6,434 6,550
Net gain on sales of loans (1,725) (295)
Net gain on disposition of banking offices -- (3,976)
Originations of loans held-for-sale, net of proceeds from sales (20,891) 4,601
Amortization of goodwill 9,621 9,648
Cumulative effect of accounting change, net of tax 2,294 --
Amortization of allocation of ESOP stock 3,310 3,513
Decrease in accrued interest receivable 5,917 2,481
Mortgage servicing rights amortization and valuation
allowance, net of capitalized amounts 2,970 3,026
Income from bank owned life insurance, net of insurance proceeds received (4,178) --
(Increase) decrease in other assets (6,659) 4,775
Decrease in accrued expenses and other liabilities (95,613) (73,305)
----------- -----------
Net cash (used in) provided by operating activities (5,562) 40,588
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Cash flows from investing activities:
Origination of loans held-for-investment (1,174,839) (882,839)
Loan purchases through third parties (588,867) (386,352)
Principal repayments on loans 1,512,278 711,515
Principal payments on mortgage-backed securities held-to-maturity 470,828 88,295
Principal payments on mortgage-backed securities available-for-sale 555,676 816,914
Purchases of mortgage-backed securities held-to-maturity (97,884) --
Purchases of mortgage-backed securities available-for-sale (174,098) --
Purchases of other securities available-for-sale (2,005) (5,040)
Proceeds from maturities of other securities available-for-sale 28,165 219
Proceeds from maturities of other securities held-to-maturity 383,975 548
Purchases of FHLB stock, net -- (20,000)
Proceeds from sales of real estate owned and investments in
real estate, net 1,844 5,621
Proceeds from disposition of banking offices -- 21,293
Purchases of premises and equipment, net of proceeds from sales (4,087) (2,535)
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Net cash provided by investing activities 910,986 347,639
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Cash flows from financing activities:
Net increase in deposits 562,325 260,073
Net decrease in reverse repurchase agreements (300,000) (1,175,000)
Net increase in FHLB of New York advances 54,000 400,000
Net decrease in other borrowings (203,122) (5,530)
Increase in mortgage escrow funds 18,064 16,344
Costs to repurchase common stock (118,375) (26,382)
Cash dividends paid to stockholders (31,164) (27,923)
Cash received for options exercised 15,518 1,918
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Net cash used in financing activities (2,754) (556,500)
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Net increase (decrease) in cash and cash equivalents 902,670 (168,273)
Cash and cash equivalents at beginning of period 307,251 490,571
----------- -----------
Cash and cash equivalents at end of period $ 1,209,921 $ 322,298
=========== ===========
Supplemental disclosures:
Cash paid during the period:
Interest $ 501,102 $ 507,927
=========== ===========
Income taxes $ 47,122 $ 59,973
=========== ===========
Additions to real estate owned $ 3,450 $ 5,444
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Securities transferred from available-for-sale to
held-to-maturity $ 2,878,767 $ --
=========== ===========
See accompanying notes to consolidated financial statements.
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Astoria Financial Corporation and its wholly-owned subsidiaries: 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 June 30, 2001 and December 31, 2000, our results of operations for the three
months and six months ended June 30, 2001 and 2000, changes in our stockholders'
equity for the six months ended June 30, 2001 and our cash flows for the six
months ended June 30, 2001 and 2000. In preparing the consolidated financial
statements, we are required to make estimates and assumptions that affect the
reported amounts of assets and liabilities in the consolidated statements of
financial condition as of June 30, 2001 and December 31, 2000, and amounts of
revenues and expenses in the consolidated statements of income for the three and
six month periods ended June 30, 2001 and 2000. The results of operations for
the three and six months ended June 30, 2001 are not necessarily indicative of
the results of operations to be expected for the remainder of the year. Certain
information and note disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America, or GAAP, have been condensed or omitted pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
reclassifications have been made to prior year amounts to conform to the current
year presentation.
These consolidated financial statements should be read in conjunction with
our December 31, 2000 audited consolidated financial statements and related
notes, included in our 2000 Annual Report on Form 10-K.
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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 June 30,
--------------------------------------------------------------------------------------------
2001 2000
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(In Thousands, Average Per Share Average Per Share
Except Share Data) Income Shares Amount Income Shares Amount
- -------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect
of accounting change $ 57,185 $ 55,860
Less: preferred stock dividends 1,500 1,500
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Basic EPS:
Income available to common
stockholders 55,685 45,980,188 $ 1.21 54,360 48,273,799 $ 1.13
======== =======
Effect of dilutive unexercised
stock options 898,322(1) 672,410(2)
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Diluted EPS:
Income available to common
stockholders plus assumed
conversions $ 55,685 46,878,510 $ 1.19 $ 54,360 48,946,209 $ 1.11
=========== ========== ======== =========== ========== =======
For the Six Months Ended June 30,
----------------------------------------------------------------------------------------
2001 2000
----------------------------------------------------------------------------------------
(In Thousands, Average Per Share Average Per Share
Except Share Data) Income Shares Amount Income Shares Amount
- -------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect
of accounting change $ 113,895 $ 111,357
Less: preferred stock dividends 3,000 3,000
------------ ----------
Basic EPS:
Income available to common
stockholders 110,895 46,365,295 $ 2.39 108,357 48,489,519 $ 2.23
========= =======
Effect of dilutive unexercised
stock options 920,993(1) 677,412(2)
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Diluted EPS:
Income available to common
stockholders plus assumed
conversions $ 110,895 47,286,288 $ 2.35 $ 108,357 49,166,931 $ 2.20
============ ========== ========= ========== ========== =======
(1) Options to purchase 257,152 shares of common stock at prices between $56.63
per share and $59.75 per share were outstanding as of June 30, 2001, but
were not included in the computation of diluted EPS because the options'
exercise prices were greater than the average market price of the common
shares for the three and six months ended June 30, 2001.
(2) Options to purchase 1,669,453 shares of common stock at prices between
$27.88 per share and $59.75 per share were outstanding as of June 30, 2000
but were not included in the computation of diluted EPS because the options'
exercise prices were greater than the average market price of the common
shares for the three and six months ended June 30, 2000.
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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 June
30, 2001 and December 31, 2000. The costs associated with the Capital Securities
issuance have been capitalized and are being amortized over a period of ten
years. Distributions on the Capital Securities are payable semi-annually, on May
1 and November 1, and are reflected in our Consolidated Statements of Income as
a component of non-interest expense under the caption "Capital trust
securities."
4. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," or SFAS No. 133. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial condition and measure those
instruments at fair value. The accounting for changes in the fair value of a
derivative (that is, unrealized gains and losses) depends on the intended use of
the derivative and the resulting designation. Restatement of prior periods is
not permitted. In June 2000, the FASB issued Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities - an amendment of FASB Statement No. 133," or SFAS No. 138.
SFAS No. 138 amends the accounting and reporting standards of SFAS No. 133 for
certain derivative instruments and certain hedging activities. Upon adoption of
SFAS No. 133 and SFAS No. 138 on January 1, 2001, we held interest rate swaps
with a notional amount of $450.0 million hedging the fair value of our medium
term notes totaling $450.0 million. We also have commitments to fund loans
held-for-sale and commitments to sell loans which, 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. In April
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2001, $150.0 million of our medium term notes matured and $450.0 million of
interest rate swaps were terminated. Gains and losses recognized on the interest
rate swaps for the three and six months ended June 30, 2001 were immaterial.
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities," or SFAS No. 140. SFAS No. 140 supercedes and
replaces the guidance in SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," and rescinds SFAS No.
127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125." SFAS No. 140 provides accounting and reporting standards for
securitization transactions involving financial assets, sales of financial
assets such as receivables, loans and securities, factoring transactions, wash
sales, servicing assets and liabilities, collateralized borrowing arrangements,
securities lending transactions, repurchase agreements, loan participations, and
extinguishment of liabilities. Certain provisions of this Statement including
relevant disclosures are effective for fiscal years ending after December 15,
2000. The remaining provisions 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 or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q 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 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,
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and our cost of funds, which consists of the interest paid on our deposits and
borrowings. Our net income is also affected by our provision for loan losses,
non-interest income, general and administrative expense, other non-interest
expense, and income tax expense. General and administrative expense consists of
compensation and benefits, occupancy, equipment and systems expense, federal
deposit insurance premiums, advertising and other operating expenses. Other
non-interest expense consists of net amortization of mortgage servicing rights,
goodwill litigation expense, capital trust securities expense and amortization
of goodwill. Our earnings are also significantly affected by general economic
and competitive conditions, particularly changes in market interest rates and
U.S. Treasury yield curves, government policies and actions of regulatory
authorities.
In addition to Astoria Federal, we have two other wholly-owned subsidiaries,
AF Insurance Agency, Inc. and Astoria Capital Trust I. AF Insurance Agency, Inc.
is a 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 $2.95 billion for the six months ended June 30, 2001 and
$1.62 billion for the six months ended June 30, 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 half of 2001. Net cash
provided by operating activities totaled $40.6 million during the six months
ended June 30, 2000 and net cash used in operating activities totaled $5.6
million for the six months ended June 30, 2001. During the six months ended June
30, 2001, net borrowings decreased $449.1 million, while net deposits increased
$562.3 million. During the six months ended June 30, 2000, net borrowings
decreased $780.5 million, while net deposits increased $260.1 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 increases in deposits for the six months ended June 30, 2001 and 2000
reflect 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 over
the past two years our emphasis has been on the origination and purchase of
mortgage loans. During the six months ended June 30, 2001, our gross
originations and purchases of mortgage loans totaled $1.85 billion, compared to
$1.26 billion during the six months ended June 30, 2000. This increase was
attributable primarily to the lower interest rate environment during the first
half of 2001 which resulted in an increase in mortgage refinance activity.
Purchases of mortgage-backed securities totaled $272.0 million and purchases of
other securities totaled $2.0 million during the six months ended June 30, 2001.
Purchases of other securities totaled $5.0 million for the six months ended June
30, 2000. The securities purchases during the first half of 2001 are a result of
our redeployment of a portion of our cash flows in excess of our mortgage and
other loan fundings. The rapid decline in interest rates in 2001 has resulted in
a significant increase in loan and security repayments.
10
12
Should the pace of prepayment activity remain at its recent levels and cash
inflows continue to exceed mortgage fundings, we may continue to purchase
additional mortgage-backed and other securities as we have done in the current
quarter.
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 June
30, 2001 in anticipation of funding the approximately $500 million increase in
our mortgage pipeline from the comparable 2000 period.
Stockholders' equity increased $83.8 million to $1.60 billion at June 30,
2001, from $1.51 billion at December 31, 2000. The increase in stockholders'
equity was the result of net income of $111.6 million, a $93.2 million decrease
in the net unrealized loss on securities available-for- sale, net of taxes, the
effect of stock options exercised and related tax benefit of $23.5 million, the
amortization of the allocated portion of shares held by the employee stock
ownership plan, or ESOP, of $3.3 million and the amortization of the net
unrealized loss on securities, net of taxes, transferred to held-to-maturity of
$1.8 million. This increase was partially offset by repurchases of our common
stock of $118.4 million and dividends declared of $31.2 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 six months ended June 30, 2001, 2,150,700 shares of our common stock
were repurchased at an aggregate cost of $118.4 million. As of June 30, 2001,
3,516,200 shares have been purchased under the seventh stock repurchase plan.
On June 1, 2001, we paid a quarterly cash dividend equal to $0.31 per share
on shares of our common stock outstanding as of the close of business on May 15,
2001, totaling $15.2 million. On July 18, 2001, we declared a quarterly cash
dividend of $0.31 per share on shares of our common stock payable on September
4, 2001 to stockholders of record as of the close of business on August 15,
2001. During the three months ended June 30, 2001, we declared a cash dividend
on our Series B Preferred Stock aggregating $1.5 million.
At June 30, 2001, Astoria Federal's total capital exceeded all of its
regulatory capital requirements with a tangible capital ratio of 6.67%, leverage
capital ratio of 6.67%, and risk- based capital ratio of 15.79%. The minimum
regulatory requirements were a tangible capital ratio of 1.50%, leverage capital
ratio of 4.00%, and risk-based capital ratio of 8.00%.
INTEREST RATE SENSITIVITY ANALYSIS
As a financial institution, the primary component of our market risk is
interest rate risk. Our net interest income, the primary component of our net
income, is subject to substantial risk due to changes in interest rates or
changes in market yield curves, particularly if there is a substantial variation
in the timing between the repricing of our assets and the liabilities which fund
them. We seek to manage interest rate risk by monitoring and controlling the
variation in repricing intervals between our assets and liabilities, i.e., our
interest rate sensitivity gap. We also monitor our interest rate sensitivity by
analyzing the estimated changes in market value of our assets and liabilities
assuming various interest rate scenarios, so that adjustments in the asset and
liability mix, when deemed appropriate, can be made on a timely basis.
11
13
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 14, referred to as the Gap Table, sets forth the amount of
interest-earning assets and interest-bearing liabilities outstanding at June 30,
2001 that we anticipate, using certain assumptions based on our historical
experience and other data available to us, to reprice or mature in each of the
future time periods shown. The Gap Table does not necessarily indicate the
impact of general interest rate movements on our net interest income because the
actual repricing dates of various assets and liabilities are subject to customer
discretion and competitive and other pressures. Callable features of certain
assets and liabilities, in addition to the foregoing, may cause actual
experience to vary from that indicated. The uncertainty and volatility of
interest rates, economic conditions and other markets which affect the value of
these call options, as well as the financial condition and strategies of the
holders of the options, increase the difficulty and uncertainty in determining
if and when the call options 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 half of 2001, the Federal Open Market Committee, or FOMC,
reduced the federal funds rate on six separate occasions by a total of 275 basis
points. These reductions have created a significantly different interest rate
environment than that which existed at December 31, 2000. In the December 31,
2000 Gap Table, callable borrowings were classified according to their call
dates and callable securities were classified according to their maturity dates.
This classification was reflective of our experience throughout 2000 which
indicated that, in a rising interest rate environment, issuers of callable
borrowings were exercising their rights whereas issuers of callable securities
were not. However, in a falling interest rate environment, the likelihood that
our callable borrowings will not be called and that our callable securities will
begin to be called increases. To a certain degree, we have experienced this
during the first half of 2001. As a result, we have modified our Gap Table
assumptions to reflect the interest rate environment at
12
14
June 30, 2001. In the June 30, 2001 Gap Table, callable borrowings have been
classified according to their maturity dates and callable securities have been
classified according to their call dates. At June 30, 2001, callable securities
classified according to their call dates totaled $1.14 billion, of which $973.2
million are callable within one year and at various times thereafter. During the
six months ended June 30, 2001, $395.9 million in securities were called. Also
included in this table are $5.64 billion of fixed-rate callable borrowings,
classified according to their maturity dates, which are primarily within the one
to three years category. Of such borrowings, $5.48 billion are callable within
one year and at various other times thereafter. Total callable borrowings were
$5.94 billion at June 30, 2001. During the six months ended June 30, 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 June 30, 2001, net interest-earning assets maturing or repricing within
one year exceeded interest-bearing liabilities maturing or repricing within the
same time period by $401.2 million, representing a positive cumulative one-year
gap of 1.79% 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 June 30, 2001 Gap
Table. At December 31, 2000, with callable borrowings classified according to
their call dates and callable securities classified according to their maturity
dates, as previously reported, our interest-bearing liabilities maturing or
repricing within one year exceeded net interest-earning assets maturing or
repricing within the same time period by $3.74 billion, representing a negative
cumulative one-year gap of 16.75% of total assets.
13
15
AT JUNE 30, 2001
----------------------------------------------------------------------------
MORE THAN MORE THAN
ONE YEAR THREE YEARS
ONE YEAR TO TO MORE THAN
(Dollars in Thousands) OR LESS THREE YEARS FIVE YEARS FIVE YEARS TOTAL
- ----------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Mortgage loans (1) $ 2,631,113 $ 3,191,010 $ 3,098,693 $ 2,475,206 $11,396,022
Consumer and other loans (1) 162,417 29,211 4,177 -- 195,805
Federal funds sold and
repurchase agreements 1,069,409 -- -- -- 1,069,409
Mortgage-backed and other securities
available-for-sale and FHLB stock 2,013,546 900,140 541,925 1,421,870 4,877,481
Mortgage-backed and other securities
held-to-maturity 1,174,946 779,944 519,964 1,409,031 3,883,885
- ----------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 7,051,431 4,900,305 4,164,759 5,306,107 21,422,602
Add:
Net unamortized purchase premiums
and deferred costs (2) 12,068 14,417 15,610 1,811 43,906
- ----------------------------------------------------------------------------------------------------------------------
Net interest-earning assets 7,063,499 4,914,722 4,180,369 5,307,918 21,466,508
- ----------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings 137,474 274,950 274,950 1,810,086 2,497,460
Money market 1,607,746 14,962 14,962 112,211 1,749,881
NOW and money manager 27,419 54,839 54,839 451,284 588,381
Certificates of deposit 3,288,698 1,038,022 890,342 79,340 5,296,402
Borrowed funds 1,600,983 5,859,995 409,000 1,880,000 9,749,978
- ----------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 6,662,320 7,242,768 1,644,093 4,332,921 19,882,102
- ----------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap 401,179 (2,328,046) 2,536,276 974,997 $ 1,584,406
- ----------------------------------------------------------------------------------------------------------------------
Cumulative interest sensitivity gap $ 401,179 $(1,926,867) $ 609,409 $ 1,584,406
- ----------------------------------------------------------------------------------------------------------------------
Cumulative interest sensitivity
gap as a percentage of total assets 1.79% (8.58)% 2.71% 7.06%
Cumulative net interest-earning
assets as a percentage of
interest-bearing liabilities 106.02% 86.14% 103.92% 107.97%
(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
14
16
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 June 30, 2001:
NET PORTFOLIO VALUE ("NPV") PORTFOLIO VALUE OF ASSETS
RATES IN ----------------------------------------- --------------------------
BASIS POINTS DOLLAR DOLLAR PERCENTAGE NPV SENSITIVITY
(RATE SHOCK) AMOUNT CHANGE CHANGE RATIO MEASURE
- ------------ ------ ------ ------ ----- -------
(Dollars in Thousands)
+200 $1,379,672 $(693,915) (33.46)% 6.55% (2.69)%
+100 1,756,508 (317,079) (15.29) 8.07 (1.17)
-0- 2,073,587 - - 9.24 -
-100 1,915,427 (158,160) (7.63) 8.38 (0.86)
-200 1,586,190 (487,397) (23.51) 6.84 (2.40)
Our NPV ratios of 9.24% in the flat rate scenario and 6.55% 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
June 30, 2001 NPV Table. The decrease in the NPV ratios reflects the significant
reduction in interest rates which occurred during the first half 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 June 30, 2001 was negative 2.69%
compared to negative 3.46% at December 31, 2000, utilizing the June set of
assumptions.
15
17
As discussed previously in the Gap analysis, the reductions in the federal
funds rate during the six months ended June 30, 2001 have created a
significantly different interest rate environment than that which existed at
December 31, 2000. In our December 31, 2000 NPV Table, as previously reported,
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 and
8.10% in the up 200 basis point rate shock scenario. The sensitivity measure was
negative 2.59% in the up 200 basis point rate shock scenario at December 31,
2000, as previously reported.
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.
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LOAN PORTFOLIO
- --------------
The following table sets forth the composition of our loans receivable and
loans held-for-sale portfolios at June 30, 2001 and December 31, 2000.
At June 30, 2001 At December 31, 2000
----------------------------- ----------------------------
Percent Percent
(Dollars in Thousands) Amount of Total Amount of Total
- ----------------------------------------------------------------------- ----------------------------
MORTGAGE LOANS:
One-to-four family (1) $ 9,921,534 85.38% $ 9,863,935 86.79%
Multi-family 917,499 7.89 801,917 7.05
Commercial real estate 584,200 5.03 514,810 4.53
------------ ------- ------------ -------
Total mortgage loans 11,423,233 98.30 11,180,662 98.37
------------ ------- ------------ -------
CONSUMER AND OTHER LOANS:
Home equity 150,657 1.30 133,748 1.18
Passbook 9,292 0.08 8,710 0.08
Other (2) 37,651 0.32 42,252 0.37
------------ ------- ------------ -------
Total consumer and other loans 197,600 1.70 184,710 1.63
------------ ------- ------------ -------
TOTAL LOANS 11,620,833 100.00% 11,365,372 100.00%
------------ ======= ------------ =======
Unamortized premiums, discounts and
deferred loan costs and fees, net 72,738 72,622
Allowance for loan losses (81,376) (79,931)
------------ ------------
TOTAL LOANS, NET $ 11,612,195 $ 11,358,063
============ ============
(1) Includes loans classified as held-for-sale totaling $36.7 million at June
30, 2001 and $13.5 million at December 31, 2000.
(2) Includes student loans classified as held-for-sale totaling $912,000 at June
30, 2001 and $2.2 million at December 31, 2000.
17
19
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 June 30, 2001 and December 31, 2000. During the quarter
ended June 30, 2001, we transferred agency REMIC and CMO securities with an
amortized cost of $2.90 billion and a market value of $2.88 billion from
available-for-sale to held-to- maturity. The net unrealized loss, which is being
amortized over the life of the securities transferred, was $22.6 million at the
date of the transfer and is included in the net unrealized loss on securities,
net of taxes, in accumulated other comprehensive income.
At June 30, 2001
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE:
Mortgage-backed securities:
GNMA pass-through certificates $ 85,906 $ 1,154 $ (301) $ 86,759
FHLMC pass-through certificates 162,001 2,311 (236) 164,076
FNMA pass-through certificates 309,345 7,699 (341) 316,703
REMICs and CMOs:
Agency issuance 2,008,930 4,683 (20,187) 1,993,426
Non agency issuance 1,319,429 9,134 (3,948) 1,324,615
---------- ---------- ---------- ----------
Total mortgage-backed securities 3,885,611 24,981 (25,013) 3,885,579
---------- ---------- ---------- ----------
Other securities:
Obligations of the U.S.
Government and agencies 542,373 148 (7,443) 535,078
Corporate debt securities 66,185 98 (5,824) 60,459
FNMA and FHLMC preferred stock 120,015 66 (11,300) 108,781
Asset-backed and other securities 2,337 -- (3) 2,334
---------- ---------- ---------- ----------
Total other securities 730,910 312 (24,570) 706,652
---------- ---------- ---------- ----------
Total available-for-sale $4,616,521 $ 25,293 $ (49,583) $4,592,231
========== ========== ========== ==========
HELD-TO-MATURITY:
Mortgage-backed securities:
GNMA pass-through certificates $ 2,935 $ 196 $ -- $ 3,131
FHLMC pass-through certificates 29,994 966 -- 30,960
FNMA pass-through certificates 10,451 30 (106) 10,375
REMICs and CMOs
Agency issuance 3,014,103 3,821 (32,227) 2,985,697
Non agency issuance 314,913 3,309 (7) 318,215
---------- ---------- ---------- ----------
Total mortgage-backed securities 3,372,396 8,322 (32,340) 3,348,378
---------- ---------- ---------- ----------
Other securities:
Obligations of the U.S.
Government and agencies 439,241 2,579 (2,403) 439,417
Obligations of states and
political subdivisions 43,416 19 -- 43,435
---------- ---------- ---------- ----------
Total other securities 482,657 2,598 (2,403) 482,852
---------- ---------- ---------- ----------
Total held-to-maturity $3,855,053 $ 10,920 $ (34,743) $3,831,230
========== ========== ========== ==========
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20
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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21
COMPARISON OF FINANCIAL CONDITION AS OF
JUNE 30, 2001 AND DECEMBER 31, 2000
AND OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2001 AND 2000
FINANCIAL CONDITION
Total assets increased $113.2 million to $22.45 billion at June 30, 2001, from
$22.34 billion at December 31, 2000. We continued our strategy of repositioning
the balance sheet through increases in deposits and loans and decreases in
securities and borrowings, while limiting growth. Mortgage loans, net, increased
$218.6 million, from $11.24 billion at December 31, 2000 to $11.46 billion at
June 30, 2001. Gross mortgage loans originated and purchased during the six
months ended June 30, 2001 totaled $1.67 billion (excluding $175.9 million in
originations of mortgage loans held-for-sale) of which $1.09 billion were
originations and $576.5 million were purchases. These originations and purchases
consisted primarily of one-to-four family residential mortgage loans. This
compares to $824.5 million of originations and $383.8 million of purchases for a
total of $1.21 billion during the six months ended June 30, 2000 (excluding
$47.7 million in originations of mortgage loans held-for-sale). 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 mortgage loan
repayments to $1.45 billion for the six months ended June 30, 2001, from $659.9
million for the six months ended June 30, 2000, which also was primarily a
result of the decrease in market interest rates. Mortgage-backed securities
decreased $616.7 million to $7.26 billion at June 30, 2001, from $7.87 billion
at December 31, 2000. This decrease was the result of principal payments
received of $1.03 billion, offset by purchases of $272.0 million and a decrease
in the net unrealized loss on securities available-for-sale of $157.1 million.
Other securities decreased $351.4 million to $1.19 billion at June 30, 2001,
from $1.54 billion at December 31, 2000, primarily due to $411.4 million in
securities which were called or matured, partially offset by a decrease in the
net unrealized loss on securities available-for-sale of $28.9 million, the net
accretion of discounts, primarily on our U.S. Government and agency securities,
of $29.9 million, and purchases of other securities totaling $2.0 million for
the six months ended June 30, 2001. Federal funds sold and repurchase agreements
increased $897.9 million from $171.5 million at December 31, 2000, to $1.07
billion at June 30, 2001. The increase in loan and securities repayments
provided additional liquidity which we held at June 30, 2001 in anticipation of
funding the significant increase in our outstanding mortgage pipeline. Other
assets decreased $58.7 million from $209.6 million at December 31, 2000 to
$150.9 million at June 30, 2001, primarily due to the decrease in the deferred
tax asset which was directly related to the decrease in the net unrealized loss
on securities available-for-sale.
Consistent with our strategy of repositioning the balance sheet, we also
continued shifting our liability emphasis from borrowings to deposits. Deposits
increased $562.3 million from $10.07 billion at December 31, 2000 to $10.63
billion at June 30, 2001, primarily due to our current emphasis on deposit
generation through competitive rates and new product offerings. Borrowings
decreased $447.4 million to $9.75 billion at June 30, 2001, from $10.20 billion
at December 31, 2000, as a result of the repayment of various borrowings which
matured or were called in 2001.
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22
Stockholders' equity increased to $1.60 billion at June 30, 2001, from $1.51
billion at December 31, 2000. The increase in stockholders' equity was the
result of net income of $111.6 million, a $93.2 million decrease in the net
unrealized loss on securities available-for-sale, net of taxes, the effect of
stock options exercised and related tax benefit of $23.5 million, the
amortization of the allocated portion of shares held by the ESOP of $3.3 million
and the amortization of the net unrealized loss on securities, net of taxes,
transferred to held-to-maturity of $1.8 million. This increase was partially
offset by repurchases of our common stock of $118.4 million and dividends
declared of $31.2 million.
RESULTS OF OPERATIONS
GENERAL
Net income for the three months ended June 30, 2001 increased $1.3 million to
$57.2 million, from $55.9 million for the three months ended June 30, 2000. For
the three months ended June 30, 2001, diluted earnings per common share
increased to $1.19 per share, as compared to $1.11 per share for the three
months ended June 30, 2000. Return on average assets increased to 1.02% for the
three months ended June 30, 2001, from 1.00% for the three months ended June 30,
2000. Return on average stockholders' equity decreased to 14.33% for the three
months ended June 30, 2001, from 17.94% for the three months ended June 30,
2000. Return on average tangible stockholders' equity decreased to 16.36% for
the three months ended June 30, 2001, from 21.73% for the three months ended
June 30, 2000.
Net income for the six months ended June 30, 2001 increased $244,000 to $111.6
million, from $111.4 million for the six months ended June 30, 2000. For the six
months ended June 30, 2001, diluted earnings per common share increased to $2.30
per share, as compared to $2.20 per share for the six months ended June 30,
2000. Return on average assets increased to 1.00% for the six months ended June
30, 2001, from 0.99% for the six months ended June 30, 2000. Return on average
stockholders' equity decreased to 14.14% for the six months ended June 30, 2001,
from 18.29% for the six months ended June 30, 2000. Return on average tangible
stockholders' equity decreased to 16.19% for the six months ended June 30, 2001,
from 22.31% for the six months ended June 30, 2000.
The decreases in the returns on equity, for both the three and six month periods
ended June 30, 2001, 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 half of 2001.
The results of operations for the six months ended June 30, 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 June 30, 2000 include a $1.7 million,
after-tax, net gain on the disposition of a banking office and for the six
months ended June 30, 2000 include a $2.4 million, after-tax, net gain on the
disposition of banking offices.
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23
The following comparison of net operating earnings, diluted operating earnings
per common share and related operating returns for the three and six months
ended June 30, 2001 and 2000 exclude the cumulative effect of accounting change
and the net gains on the disposition of banking offices. For the three months
ended June 30, 2001, net operating earnings increased $3.0 million to $57.2
million, from $54.2 million for the three months ended June 30, 2000. Diluted
operating earnings per common share for the three months ended June 30, 2001
increased to $1.19 per share from $1.08 per share for the three months ended
June 30, 2000. The operating return on average assets for the three months ended
June 30, 2001 increased to 1.02%, from 0.97% for the three months ended June 30,
2000. The operating return on average stockholders' equity for the three months
ended June 30, 2001 decreased to 14.33%, from 17.40% for the three months ended
June 30, 2000. The operating return on average tangible stockholders' equity for
the three months ended June 30, 2001 decreased to 16.36%, from 21.07% for the
three months ended June 30, 2000.
For the six months ended June 30, 2001, net operating earnings increased $5.0
million to $113.9 million, from $108.9 million for the six months ended June 30,
2000. Diluted operating earnings per common share for the six months ended June
30, 2001 increased to $2.35 per share from $2.15 per share for the six months
ended June 30, 2000. The operating return on average assets for the six months
ended June 30, 2001 increased to 1.02%, from 0.97% for the six months ended June
30, 2000. The operating return on average stockholders' equity for the six
months ended June 30, 2001 decreased to 14.43%, from 17.89% for the six months
ended June 30, 2000. The operating return on average tangible stockholders'
equity for the six months ended June 30, 2001 decreased to 16.52%, from 21.82%
for the six months ended June 30, 2000. As previously discussed, the decreases
in the returns on equity are primarily the result of the decrease in the net
unrealized loss on securities available-for-sale, net of taxes, which
significantly contributed to the increase in stockholders' equity.
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 June 30, 2001, net interest income decreased $9.8
million to $118.1 million, from $127.9 million for the three months ended June
30, 2000. This decrease was the result of a decrease in the net interest rate
spread, coupled with a decrease in net interest-earning assets. The net interest
rate spread decreased from 2.04% for the three months ended June 30, 2000, to
1.96% for the three months ended June 30, 2001. The decrease in the net interest
rate spread is the result of a decrease in the average yield on interest-earning
assets from 6.90% for the three months ended June 30, 2000, to 6.80% for the
three months ended June 30, 2001, slightly offset by a decrease in the average
cost of interest-bearing liabilities from 4.86% for the three months ended June
30, 2000, to 4.84% for the three months ended June 30, 2001. Average net
interest-earning assets decreased $266.7 million, from $1.36 billion for the
three months ended June 30, 2000, to $1.09 billion for the three months ended
June 30, 2001. The decrease in average net interest-earning assets was the
result of a decrease in total average interest-earning assets of $542.0 million,
from $21.89 billion for the three months ended June 30, 2000, to $21.34 billion
for the three months ended June 30, 2001, partially offset by a decrease in
total average
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interest-bearing liabilities of $275.4 million, from $20.53 billion for the
three months ended June 30, 2000 to $20.25 billion for the three months ended
June 30, 2001. The changes in average interest-earning assets and
interest-bearing liabilities and their related yields and costs are discussed in
greater detail under "Interest Income" and "Interest Expense." The net interest
margin was 2.21% for the three months ended June 30, 2001 and 2.34% for the
three months ended June 30, 2000.
For the six months ended June 30, 2001, net interest income decreased $18.6
million, to $241.5 million, from $260.1 million for the six months ended June
30, 2000. This decrease was the result of a decrease in the net interest rate
spread to 1.99% for the six months ended June 30, 2001, from 2.08% for the six
months ended June 30, 2000, coupled with a decrease in average net
interest-earning assets. The decrease in the net interest rate spread resulted
from an increase in the average cost of interest-bearing liabilities to 4.88%
for the six months ended June 30, 2001, from 4.80% for the six months ended June
30, 2000, coupled with a decrease in the average yield on total interest-earning
assets to 6.87% for the six months ended June 30, 2001, from 6.88% for the six
months ended June 30, 2000. Average net interest-earning assets decreased $170.6
million, from $1.32 billion for the six months ended June 30, 2000, to $1.15
billion for the six months ended June 30, 2001. The decrease in average net
interest-earning assets was the result of a decrease in average total
interest-earning assets of $551.7 million, from $21.97 billion for the six
months ended June 30, 2000, to $21.42 billion for the six months ended June 30,
2001, partially offset by a decrease in average total interest-bearing
liabilities of $381.1 million, from $20.65 billion for the six months ended June
30, 2000, to $20.27 billion for the six months ended June 30, 2001. The net
interest margin was 2.25% for the six months ended June 30, 2001 and 2.37% for
the six months ended June 30, 2000.
ANALYSIS OF NET INTEREST INCOME
The following table sets forth certain information for the three months and six
months ended June 30, 2001 and 2000. Yields are derived by dividing income by
the average balance of the related assets and costs are derived by dividing
expense by the average balance of the related liabilities, for the periods
shown. Average balances are derived from average daily balances. The average
balance of loans receivable includes loans on which we have discontinued
accruing interest. The yields and costs include the amortization of fees,
premiums and discounts which are considered adjustments to interest rates.
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Three Months Ended June 30,
--------------------------------------------------------------------------------
2001 2000
--------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Cost Balance Interest Cost
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS: (Annualized) (Annualized)
Interest-earning assets:
Mortgage loans (1) $11,384,744 $203,692 7.16% $10,497,498 $188,001 7.16%
Consumer and other loans (1) 195,510 4,470 9.15 168,476 4,274 10.15
Mortgage-backed securities (2) 7,337,926 117,729 6.42 9,045,349 148,001 6.54
Other securities (2)(3) 1,618,634 28,498 7.04 1,881,543 32,710 6.95
Federal funds sold and
repurchase agreements 806,686 8,600 4.26 292,681 4,570 6.25
----------- -------- ----------- --------
Total interest-earning assets 21,343,500 362,989 6.80 21,885,547 377,556 6.90
Non-interest-earning assets 1,021,255 -------- 431,402 --------
----------- -----------
Total assets $22,364,755 $22,316,949
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Savings $ 2,477,134 $ 12,471 2.01% $ 2,568,512 $ 12,882 2.01%
Certificates of deposit 5,232,180 72,708 5.56 4,947,759 69,088 5.59
NOW and money manager 1,080,284 1,462 0.54 949,505 1,366 0.58
Money market 1,667,494 17,939 4.30 1,300,576 16,893 5.20
----------- -------- ----------- --------
Total deposits 10,457,092 104,580 4.00 9,766,352 100,229 4.11
Borrowed funds 9,796,500 140,296 5.73 10,762,595 149,395 5.55
----------- -------- 4.84 ----------- --------
Total interest-bearing liabilities 20,253,592 244,876 20,528,947 249,624 4.86
Non-interest-bearing liabilities 515,376 -------- 542,527 --------
----------- -----------
Total liabilities 20,768,968 21,071,474
Stockholders' equity 1,595,787 1,245,475
----------- -----------
Total liabilities and stockholders'
equity $22,364,755 $22,316,949
=========== ===========
Net interest income/net interest
rate spread $118,113 1.96% $127,932 2.04%
======== ==== ======== ====
Net interest-earning assets/net
interest margin $ 1,089,908 2.21% $ 1,356,600 2.34%
=========== ==== =========== ====
Ratio of interest-earning assets
to interest-bearing liabilities 1.05x 1.07x
===== =====
(1) Mortgage, consumer and other loans include non-performing loans and exclude
the allowance for loan losses.
(2) Securities available-for-sale are reported at average amortized cost.
(3) Other securities include Federal Home Loan Bank of New York stock.
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Six Months Ended June 30,
------------------------------------------------------------------------------------------
2001 2000
------------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Cost Balance Interest Cost
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS: (Annualized) (Annualized)
Interest-earning assets:
Mortgage loans (1) $11,351,997 $ 406,883 7.17% $10,378,924 $ 371,713 7.16%
Consumer and other loans (1) 192,087 9,349 9.73 170,990 8,568 10.02
Mortgage-backed securities (2) 7,591,708 245,445 6.47 9,268,270 302,025 6.52
Other securities (2)(3) 1,706,803 60,587 7.10 1,865,379 65,100 6.98
Federal funds sold and
repurchase agreements 576,572 13,278 4.61 287,291 8,669 6.03
----------- ----------- ----------- ---------
Total interest-earning assets 21,419,167 735,542 6.87 21,970,854 756,075 6.88
Non-interest-earning assets 947,877 ----------- 428,276 ---------
----------- -----------
Total assets $22,367,044 $22,399,130
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Savings $ 2,457,518 $ 24,632 2.00% $ 2,570,726 $ 25,795 2.01%
Certificates of deposit 5,197,593 146,395 5.63 4,941,800 135,722 5.49
NOW and money manager 1,041,815 2,855 0.55 921,348 2,683 0.58
Money market 1,594,515 36,262 4.55 1,258,047 32,127 5.11
----------- ---------- ----------- ---------
Total deposits 10,291,441 210,144 4.08 9,691,921 196,327 4.05
Borrowed funds 9,974,227 283,924 5.69 10,954,875 299,614 5.47
----------- ---------- ----------- ---------
Total interest-bearing liabilities 20,265,668 494,068 4.88 20,646,796 495,941 4.80
Non-interest-bearing liabilities 522,356 ---------- 534,376 ---------
----------- -----------
Total liabilities 20,788,024 21,181,172
Stockholders' equity 1,579,020 1,217,958
----------- -----------
Total liabilities and stockholders'
equity $22,367,044 $22,399,130
=========== ===========
Net interest income/net interest
rate spread $ 241,474 1.99% $ 260,134 2.08%
=========== ==== ========= ====
Net interest-earning assets/net
interest margin $ 1,153,499 2.25% $ 1,324,058 2.37%
=========== ==== =========== ====
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) Other securities include Federal Home Loan Bank of New York stock.
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RATE/VOLUME ANALYSIS
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected our interest income and interest expense during the
periods indicated. Information is provided in each category with respect to (1)
the changes attributable to changes in volume (changes in volume multiplied by
prior rate), (2) the changes attributable to changes in rate (changes in rate
multiplied by prior volume), and (3) the net change. The changes attributable to
the combined impact of volume and rate have been allocated proportionately to
the changes due to volume and the changes due to rate.
Three Months Ended June 30, 2001 Six Months Ended June 30, 2001
Compared to Compared to
Three Months Ended June 30, 2000 Six Months Ended June 30, 2000
--------------------------------------------------------------------------------
(In Thousands) Increase (Decrease) Increase (Decrease)
- --------------------------------------------------------------------------------------------------------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
Interest-earning assets:
Mortgage loans.......................... $ 15,691 $ - $ 15,691 $ 34,654 $ 516 $ 35,170
Consumer and other loans................ 643 (447) 196 1,034 (253) 781
Mortgage-backed securities.............. (27,590) (2,682) (30,272) (54,279) (2,301) (56,580)
Other securities........................ (4,629) 417 (4,212) (5,616) 1,103 (4,513)
Federal funds sold and repurchase
agreements........................... 5,877 (1,847) 4,030 7,042 (2,433) 4,609
-------- ------ -------- ------- --------- -------
Total...................................... (10,008) (4,559) (14,567) (17,165) (3,368) (20,533)
-------- ------ -------- ------- --------- -------
Interest-bearing liabilities:
Savings................................. (411) - (411) (1,045) (118) (1,163)
Certificates of deposit ................ 3,990 (370) 3,620 7,151 3,522 10,673
NOW and money manager................... 193 (97) 96 321 (149) 172
Money market ........................... 4,275 (3,229) 1,046 7,931 (3,796) 4,135
Borrowed funds.......................... (13,799) 4,700 (9,099) (27,455) 11,765 (15,690)
------- ------ -------- ------- --------- -------
Total...................................... (5,752) 1,004 (4,748) (13,097) 11,224 (1,873)
-------- ------ -------- -------- --------- -------
Net change in net interest
income.................................. $ (4,256) $(5,563) $ (9,819) $ (4,068) $ (14,592) $(18,660)
======== ====== ======== ======== ========= ========
INTEREST INCOME
Interest income for the three months ended June 30, 2001 decreased $14.6 million
to $363.0 million, from $377.6 million for the three months ended June 30, 2000.
This decrease was the result of a decrease in the average balance of
interest-earning assets from $21.89 billion for the three months ended June 30,
2000 to $21.34 billion for the three months ended June 30, 2001, coupled with a
decrease in the average yield of interest-earning assets from 6.90% for the
three months ended June 30, 2000, to 6.80% for the three months ended June 30,
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 impact of this program is reflected in
non-interest income. The decrease in the average yield on
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interest-earning assets is primarily due to the decreases in the average yields
on mortgage-backed securities and federal funds sold and repurchase agreements
which reflects the declining interest rate environment which we have experienced
during 2001.
Interest income on mortgage loans increased $15.7 million to $203.7 million for
the three months ended June 30, 2001, from $188.0 million for the three months
ended June 30, 2000. This increase was the result of an $887.2 million increase
in the average balance of mortgage loans. The stability in the average yield of
mortgage loans reflects the loan origination activity that occurred during the
higher interest rate environment of the latter half of 2000 and the current
relative stability of market interest rates for mortgage loans. Interest income
on consumer and other loans increased $196,000 resulting from an increase in the
average balance of this portfolio of $27.0 million, offset by a decrease in the
average yield to 9.15% for the three months ended June 30, 2001, from 10.15% for
the three months ended June 30, 2000. Interest income on mortgage-backed
securities decreased $30.3 million to $117.7 million for the three months ended
June 30, 2001, from $148.0 million for the three months ended June 30, 2000.
This decrease was the result of a $1.71 billion decrease in the average balance
of the mortgage-backed securities portfolio, coupled with a decrease in the
average yield to 6.42% for the three months ended June 30, 2001, from 6.54% for
the three months ended June 30, 2000. Interest income on other securities
decreased $4.2 million resulting from a decrease in the average balance of this
portfolio of $262.9 million, primarily due to securities being called as a
result of the declining interest rate environment, slightly offset by an
increase in the average yield to 7.04% for the three months ended June 30, 2001,
from 6.95% for the three months ended June 30, 2000. Interest income on federal
funds sold and repurchase agreements increased $4.0 million, to $8.6 million, as
a result of an increase in the average balance of $514.0 million, to $806.7
million, resulting from cash flow from operations, loan and securities
repayments and deposit growth exceeding loan originations and other investments.
We held this additional liquidity at June 30, 2001 in anticipation of funding
the approximately $500 million increase in our mortgage pipeline. This increase
was partially offset by a decrease in the average yield to 4.26% for the three
months ended June 30, 2001, from 6.25% for the three months ended June 30, 2000,
consistent with the decline in interest rates experienced during 2001.
For the six months ended June 30, 2001, interest income decreased $20.6 million,
to $735.5 million, from $756.1 million for the six months ended June 30, 2000.
This decrease was the result of a $551.7 million decrease in average
interest-earning assets to $21.42 billion for the six months ended June 30,
2001, from $21.97 billion for the comparable period in 2000, coupled with a
decrease in the average yield on interest-earning assets to 6.87% for the six
months ended June 30, 2001, from 6.88% for the six months ended June 30, 2000.
Interest income on mortgage loans increased $35.2 million to $406.9 million for
the six months ended June 30, 2001, from $371.7 million for the six months ended
June 30, 2000, which was primarily the result of an increase in the average
balance of mortgage loans of $973.1 million. In addition, the average yield on
mortgage loans increased slightly to 7.17% for the six months ended June 30,
2001, from 7.16% for the comparable period in 2000. Interest income on consumer
and other loans increased $781,000 resulting from an increase in the average
balance of this portfolio of $21.1 million, partially offset by a decrease in
the average yield to 9.73% for the six months ended June 30, 2001, from 10.02%
for the six months ended June 30, 2000.
Interest income on mortgage-backed securities decreased $56.6 million to $245.4
million for the six months ended June 30, 2001, from $302.0 million for the six
months ended June 30, 2000.
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This decrease was the result of a $1.68 billion decrease in the average balance
of the portfolio, coupled with a decrease in the average yield to 6.47% for the
six months ended June 30, 2001, from 6.52% for the six months ended June 30,
2000. Interest income on other securities decreased $4.5 million resulting from
a decrease in the average balance of this portfolio of $158.6 million, partially
offset by an increase in the average yield to 7.10% for the six months ended
June 30, 2001, from 6.98% for the comparable period in 2000. The increase in the
average yield on other securities is related primarily to an increase in the
Federal Home Loan Bank, or FHLB, stock dividend. Interest income on federal
funds sold and repurchase agreements increased $4.6 million as a result of an
increase in the average balance of $289.3 million, partially offset by a
decrease in the average yield to 4.61% for the six months ended June 30, 2001,
from 6.03% for the six months ended June 30, 2000.
INTEREST EXPENSE
Interest expense for the three months ended June 30, 2001 decreased $4.7
million, to $244.9 million, from $249.6 million for the three months ended June
30, 2000. This decrease was primarily the result of a $275.4 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 average cost of
interest-bearing liabilities decreased to 4.84% for the three months ended June
30, 2001, from 4.86% for the three months ended June 30, 2000 due to a decrease
in the average cost of deposits, partially offset by an increase in the average
cost of borrowings.
Interest expense on deposits increased $4.4 million, to $104.6 million for the
three months ended June 30, 2001, from $100.2 million for the three months ended
June 30, 2000, reflecting an increase in the average balance of total deposits
of $690.7 million, partially offset by a decrease in the average cost of
deposits to 4.00% for the three months ended June 30, 2001, from 4.11% for the
three months ended June 30, 2000. The increase in the average balance and
decrease in the average cost of total deposits were primarily driven by
increases in the average balances of money market accounts and certificates of
deposit and a decrease in our rates on our money market accounts. Interest
expense on certificates of deposit increased $3.6 million resulting from an
increase in the average balance of $284.4 million, partially offset by a
decrease in the average cost to 5.56% for the three months ended June 30, 2001,
from 5.59% for the three months ended June 30, 2000. The increase in the average
balance of certificates of deposit reflects our commitment to offer competitive
rates to our customers. The slight decrease in the average cost of certificates
of deposit is due to the effect of the lower interest rate environment in 2001.
Interest expense on money market accounts increased $1.0 million, reflecting an
increase in the average balance of $366.9 million, partially offset by a
decrease in the average cost to 4.30% for the three months ended June 30, 2001,
from 5.20% for the three months ended June 30, 2000. Interest paid on money
market accounts is on a tiered basis with 90.94% of the balance in the highest
tier (accounts with balances of $50,000 and higher). The yield on the highest
tier is priced relative to the discount rate for the three-month U.S. Treasury
bill, which provides an attractive short-term yield for our customers. The
decrease in the average cost of these deposits is reflective of the declining
interest rate environment. Interest expense on savings accounts decreased
$411,000, which was attributable to a decrease in the average balance of $91.4
million. Interest expense on NOW and money manager accounts increased $96,000 as
a result of an increase in the average balance of $130.8 million, partially
offset by a decrease in the average cost.
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30
Interest expense on borrowed funds for the three months ended June 30, 2001
decreased $9.1 million, to $140.3 million, from $149.4 million for the three
months ended June 30, 2000, resulting from a decrease in the average balance of
$966.1 million, to $9.80 billion for the three months ended June 30, 2001, from
$10.76 billion for the three months ended June 30, 2000, partially offset by an
increase in the average cost of borrowings to 5.73% for the three months ended
June 30, 2001, from 5.55% for the three months ended June 30, 2000. The rising
interest rate environment which prevailed throughout most of 2000 resulted in
most of our borrowings being called upon reaching their call dates during the
year ended December 31, 2000. While a portion of the called borrowings were
repaid, the remainder of the called borrowings were rolled over into short- and
medium-term borrowings without call features at higher rates, thereby increasing
the overall cost of our borrowings. However, $1.15 billion in borrowings with an
average rate of 7.00% will mature in the first half of 2002, at which time we
expect to experience a reduction in our cost of borrowings through either the
refinancing of those borrowings at lower rates, assuming that interest rates
remain near their current levels, or the repayment of those borrowings.
Interest expense for the six months ended June 30, 2001 decreased $1.8 million,
to $494.1 million, from $495.9 million for the six months ended June 30, 2000.
This decrease was the result of a decrease of $381.1 million in the average
balance of interest-bearing liabilities, partially offset by an increase in the
average cost of these liabilities to 4.88% for the six months ended June 30,
2001, from 4.80% for the six months ended June 30, 2000.
Interest expense on deposits increased $13.8 million, to $210.1 million for the
six months ended June 30, 2001, from $196.3 million for the six months ended
June 30, 2000, primarily due to an increase in the average balance of total
deposits of $599.5 million. The increase in the average balance of deposits was
primarily driven by increases in the average balances of certificates of deposit
and money market accounts. In addition, the average cost of deposits increased
to 4.08% for the six months ended June 30, 2001, from 4.05% for the same period
in 2000. Interest expense on certificates of deposit increased $10.7 million
reflecting an increase in the average balance of $255.8 million, coupled with an
increase in the average cost to 5.63% for the six months ended June 30, 2001,
from 5.49% for the six months ended June 30, 2000. During 2000, particularly the
second half of the year, we experienced significant growth and extension of
retail liabilities by offering highly competitive rates on medium- and long-term
certificates of deposit. The increase in the average cost of certificates of
deposit is a result of the rising interest rate environment which existed during
2000.
Interest expense on money market accounts increased $4.1 million reflecting an
increase in the average balance of $336.5 million, offset by a decrease in the
average cost to 4.55% for the six months ended June 30, 2001, from 5.11% for the
comparable 2000 period. Interest expense on savings accounts decreased $1.2
million which was attributable to a decrease in the average balance of $113.2
million, coupled with a decrease in the average cost to 2.00% for the six months
ended June 30, 2001, from 2.01% for the six months ended June 30, 2000. Interest
expense on NOW and money manager accounts increased $172,000 as a result of an
increase in the average balance of $120.5 million, partially offset by a
decrease in the average cost to 0.55% for the six months ended June 30, 2001,
from 0.58% for the same period in 2000.
Interest expense on borrowed funds for the six months ended June 30, 2001
decreased $15.7 million, to $283.9 million, from $299.6 million for the six
months ended June 30, 2000, resulting
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from a decrease in the average balance of $980.6 million, partially offset by an
increase in the average cost of borrowings to 5.69% for the six months ended
June 30, 2001, from 5.47% for the comparable 2000 period.
PROVISION FOR LOAN LOSSES
Provision for loan losses totaled $1.0 million for the three months ended June
30, 2001 and 2000 and $2.0 million for the six months ended June 30, 2001 and
2000. Net loan charge-offs totaled $281,000 for the three months ended June 30,
2001 compared to $358,000 for the three months ended June 30, 2000. For the six
months ended June 30, 2001, net loan charge-offs totaled $580,000 compared to
$563,000 for the six months ended June 30, 2000. Non-performing loans decreased
$7.2 million to $29.0 million at June 30, 2001, from $36.2 million at December
31, 2000. This reduction in non-performing loans improved the percentage of
allowance for loan losses to non-performing loans from 220.88% at December 31,
2000 to 280.54% at June 30, 2001. The allowance for loan losses increased to
$81.4 million at June 30, 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. The allowance for loan losses as a percentage of total
loans was 0.70% at June 30, 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 June 30, 2001 increased $5.4
million, or 27.1%, to $25.6 million from $20.2 million for the three months
ended June 30, 2000 and $9.8 million, or 25.6%, to $48.3 million for the six
months ended June 30, 2001 from $38.5 million for the six months ended June 30,
2000. Excluding the net gain on the disposition of banking offices of $2.8
million for the three months ended June 30, 2000 and $4.0 million for the six
months ended June 30, 2000, non-interest income for the three months ended June
30, 2001 increased $8.2 million, or 47.6%, to $25.6 million, from $17.4 million
for the three months ended June 30, 2000 and $13.8 million, or 40.0%, to $48.3
million for the six months ended June 30, 2001, from $34.5 million for the six
months ended June 30, 2000.
Customer service and other loan fees increased $2.5 million to $14.5 million for
the three months ended June 30, 2001, from $12.0 million for the three months
ended June 30, 2000 and $4.4 million to $27.6 million for the six months ended
June 30, 2001, from $23.2 million for the six months ended June 30, 2000. The
increase in customer service fees was primarily attributable to an increase in
deposit accounts coupled with an increase in customer service fees which became
effective during the first quarter of 2001. Loan servicing fees decreased
$277,000 to $4.0 million for the three months ended June 30, 2001, from $4.3
million for the three months ended June 30, 2000 and $835,000 to $8.0 million
for the six months ended June 30, 2001, from $8.8 million for the six months
ended June 30, 2000. Loan servicing fees include all contractual and ancillary
servicing revenue we receive. This decrease is due to a decrease in the balance
of loans serviced for others from $4.18 billion at June 30, 2000 to $3.62
billion at June 30, 2001. Income from BOLI, which was purchased in November
2000, was $4.3 million for the three months ended June 30, 2001 and $8.5 million
for the six months ended June 30, 2001.
Net gains on sales of loans totaled $1.4 million for the three months ended June
30, 2001 and $1.7 million for the six months ended June 30, 2001, compared to
$178,000 for the three months ended
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June 30, 2000 and $295,000 for the six months ended June 30, 2000. The increase
in net gain on sales of loans is primarily due to an increase in the volume of
loans sold into the secondary market. The current interest rate environment has
resulted in a significant increase in refinance activity and greater demand for
fixed-rate loans, the majority of which are not retained for our portfolio.
Other income totaled $1.4 million for the three months ended June 30, 2001 and
$2.5 million for the six months ended June 30, 2001, compared to $861,000 for
the three months ended June 30, 2000 and $2.2 million for the six months ended
June 30, 2000.
NON-INTEREST EXPENSE
Non-interest expense for the three months ended June 30, 2001 was $55.0 million,
compared to $55.1 million for the three months ended June 30, 2000. For the six
months ended June 30, 2001, non-interest expense decreased $1.6 million to
$111.7 million, from $113.3 million for the six months ended June 30, 2000.
General and administrative expense increased $874,000 to $44.4 million for the
three months ended June 30, 2001, from $43.6 million for the three months ended
June 30, 2000. For the six months ended June 30, 2001, general and
administrative expense decreased $748,000 to $89.1 million, from $89.8 million
for the comparable 2000 period. Compensation and benefits increased $1.4 million
to $22.5 million for the three months ended June 30, 2001, from $21.1 million
for the three months ended June 30, 2000. For the six months ended June 30,
2001, compensation and benefits increased $2.3 million to $45.6 million, from
$43.3 million for the six months ended June 30, 2000. Occupancy, equipment and
systems expense decreased to $13.0 million for the three months ended June 30,
2001, from $13.1 million for the three months ended June 30, 2000. For the six
months ended June 30, 2001 occupancy, equipment and systems expense decreased
$1.3 million to $26.0 million, from $27.3 million for the comparable 2000
period. Advertising expense totaled $1.7 million for the three months ended June
30, 2001 and $3.5 million for the six months ended June 30, 2001, compared to
$2.2 million for the three months ended June 30, 2000 and $4.2 million for the
six months ended June 30,2000. Other general and administrative expense
increased to $6.8 million for the three months ended June 30, 2001, from $6.6
million for the three months ended June 30, 2000. For the six months ended June
30, 2001, other general and administrative expense decreased $900,000 to $13.0
million, from $13.9 million for the six months ended June 30, 2000.
Net amortization of mortgage servicing rights totaled $1.8 million for the three
months ended June 30, 2001, compared to $1.9 million for the three months ended
June 30, 2000. For the six months ended June 30, 2001, net amortization of
mortgage servicing rights increased by $1.7 million to $5.0 million, from $3.3
million for the comparable 2000 period. Net amortization of mortgage servicing
rights, as reported on the consolidated statements of income, includes valuation
allowance adjustments for the impairment of mortgage servicing rights. For the
six months ended June 30, 2001, the increase in the net amortization of mortgage
servicing rights is due to a $1.0 million increase in the amortization of
mortgage servicing rights, coupled with a $641,000 increase in the provision for
the valuation allowance 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 declining interest rate
environment which prevailed during the first half of 2001. The changes in the
valuation allowance are reflective of the projected prepayment speeds utilized
at the valuation dates. Goodwill litigation expense decreased $922,000 to
$852,000 for the three months ended June 30, 2001, from $1.8 million for the
three months ended June 30, 2000, and decreased $2.4 million to $1.9 million for
the six months ended June 30, 2001, from $4.3 million for the six months ended
June 30, 2000 reflecting the
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completion of fact based discovery regarding our claims. For further discussion
on the goodwill litigation proceedings, see Part II - Item 1, "Legal
Proceedings."
Our percentage of general and administrative expense to average assets was 0.79%
for the three months ended June 30, 2001 and 0.80% for the six months ended June
30, 2001, compared to 0.78% for the three months ended June 30, 2000 and 0.80%
for the six months ended June 30, 2000. The efficiency ratio was 30.92% for the
three months ended June 30, 2001 and 30.74% for the six months ended June 30,
2001, compared to 29.98% for the three months ended June 30, 2000 and 30.49% for
the six months ended June 30, 2000.
INCOME TAX EXPENSE
For the three months ended June 30, 2001, income tax expense was $30.5 million,
representing an effective tax rate of 34.8%, as compared to $36.1 million,
representing an effective tax rate of 39.2%, for the three months ended June 30,
2000. For the six months ended June 30, 2001, income tax expense was $62.1
million, representing an effective tax rate of 35.3%, as compared to $72.0
million, representing an effective tax rate of 39.3% for the six months ended
June 30, 2000. The reduction in the effective tax rate was due primarily to tax
benefits associated with the implementation of the BOLI program in November
2000.
CASH EARNINGS
Tangible stockholders' equity (stockholders' equity less goodwill) totaled $1.40
billion at June 30, 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 for the six months ended June 30, 2001
and the net gain on the disposition of banking offices of $1.7 million, after
tax, for the three months ended June 30, 2000 and $2.4 million, after tax, for
the six months ended June 30, 2000. For the three months ended June 30, 2001,
operating cash earnings totaled $63.7 million, compared to $60.6 million for the
three months ended June 30, 2000. For the six months ended June 30, 2001,
operating cash earnings totaled $126.8 million, compared to $122.1 million for
the six months ended June 30, 2000. Operating cash return on average tangible
equity was 18.23% for the three months ended June 30,
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2001 and 23.58% for the three months ended June 30, 2000. Operating cash return
on average assets was 1.14% for the three months ended June 30, 2001 and 1.09%
for the three months ended June 30, 2000. For the six months ended June 30,
2001, the operating cash return on average tangible equity was 18.40%, as
compared to 24.47% for the comparable 2000 period. The operating cash return on
average assets was 1.13% for the six months ended June 30, 2001 and 1.09% for
the six months ended June 30, 2000. Additionally, the operating cash general and
administrative expense (general and administrative expense, excluding non-cash
amortization expense relating to certain employee stock plans) to average assets
ratio increased to 0.76% for the three months ended June 30, 2001, from 0.75%
for the three months ended June 30, 2000. For each of the six month periods
ended June 30, 2001 and 2000, the cash general and administrative expense to
average assets ratio was 0.77%. The operating cash efficiency ratio was 29.73%
for the three months ended June 30, 2001 and 28.86% for the three months ended
June 30, 2000. The operating cash efficiency ratio was 29.60% for the six months
ended June 30, 2001 versus 29.30% for the six months ended June 30, 2000. For
more details on operating earnings and operating cash earnings, see
"Consolidated Schedules of Operating Earnings and Operating Cash Earnings"
below.
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF OPERATING EARNINGS AND OPERATING CASH EARNINGS
- ------------------------------------------------------------------------
(In Thousands, Except Per Share Data)
For The For The
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2001 2000 2001 2000
---- ---- ---- ----
Net income $ 57,185 $ 55,860 $ 111,601 $ 111,357
Add back: Cumulative effect of accounting change, net of tax -- -- 2,294 --
Less: Net gain on disposition of banking offices, net of tax -- 1,697 -- 2,415
--------- --------- --------- ---------
Operating earnings 57,185 54,163 113,895 108,942
Preferred dividends declared (1,500) (1,500) (3,000) (3,000)
--------- --------- --------- ---------
Operating earnings available to common shareholders $ 55,685 $ 52,663 $ 110,895 $ 105,942
========= ========= ========= =========
Basic operating earnings per common share $ 1.21 $ 1.09 $ 2.39 $ 2.18
========= ========= ========= =========
Diluted operating earnings per common share $ 1.19 $ 1.08 $ 2.35 $ 2.15
========= ========= ========= =========
Operating earnings $ 57,185 $ 54,163 $ 113,895 $ 108,942
Add back:
Employee stock plans amortization expense 1,708 1,639 3,310 3,539
Amortization of goodwill 4,810 4,824 9,621 9,648
--------- --------- --------- ---------
Operating cash earnings 63,703 60,626 126,826 122,129
Preferred dividends declared (1,500) (1,500) (3,000) (3,000)
--------- --------- --------- ---------
Operating cash earnings available to common shareholders $ 62,203 $ 59,126 $ 123,826 $ 119,129
========= ========= ========= =========
Basic operating cash earnings per common share $ 1.35 $ 1.22 $ 2.67 $ 2.46
========= ========= ========= =========
Diluted operating cash earnings per common share $ 1.33 $ 1.21 $ 2.62 $ 2.42
========= ========= ========= =========
ASSET QUALITY
One of our key operating objectives has been and continues to be to maintain a
high level of asset quality. Our concentration on one-to-four family mortgage
lending, maintaining sound credit standards for new loan originations and a
generally stable economy and real estate market, have
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resulted in a steady reduction in non-performing assets to total assets from
December 31, 1995 through June 30, 2001. Through a variety of strategies,
including but not limited to borrower workout arrangements and aggressive
marketing of foreclosed properties, we have been proactive in addressing problem
and non-performing assets which, in turn, has helped strengthen our financial
condition. Non-performing assets decreased from $40.0 million at December 31,
2000 to $34.4 million at June 30, 2001. The ratio of non-performing assets to
total assets decreased from 0.18% at December 31, 2000 to 0.15% at June 30,
2001. The table below shows a comparison of delinquent loans as of June 30, 2001
and December 31, 2000.
Delinquent Loans
----------------
At June 30, 2001 At December 31, 2000
-------------------------------------------- ---------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
---------------------- ------------------- ---------------------- -------------------
Number Principal Number Principal Number Principal Number Principal
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 $ 681 209 $26,124 31 $ 1,459 284 $32,529
Multi-family 3 866 2 690 -- -- 2 990
Commercial real estate 1 71 2 1,311 2 791 3 1,765
Consumer and other loans 90 554 100 882 125 728 99 903
------- ------- ------- ------- ------- ------- ------- -------
Total delinquent loans 109 $ 2,172 313 $29,007 158 $ 2,978 388 $36,187
======= ======= ======= ======= ======= ======= ======= =======
Delinquent loans to total
loans 0.02% 0.25% 0.03% 0.32%
The following table sets forth information regarding non-performing assets at
June 30, 2001 and December 31, 2000. In addition to the non-performing loans, we
had approximately $2.2 million of potential problem loans at June 30, 2001 and
$3.0 million at December 31, 2000. Such loans are 60-89 days delinquent as shown
above.
Non-Performing Assets
---------------------
At At
June 30, December 31,
2001 2000
-------- --------
(Dollars in Thousands)
Non-accrual delinquent mortgage loans (1) $26,976 $34,332
Non-accrual delinquent consumer and other loans 882 903
Mortgage loans delinquent 90 days or more and
still accruing interest (2) 1,149 952
------- -------
Total non-performing loans 29,007 36,187
Real estate owned, net (3) 5,367 3,801
------- -------
Total non-performing assets $34,374 $39,988
======= =======
Allowance for loan losses to non-performing loans 280.54% 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.
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If all non-accrual loans had been performing in accordance with their original
terms, we would have recorded interest income, with respect to such loans, of
$1.1 million for the six months ended June 30, 2001 and $2.9 million for the
year ended December 31, 2000. Actual payments recorded to interest income, with
respect to such loans, totaled $540,000 for the six months ended June 30, 2001
and $1.6 million for the year ended December 31, 2000.
Excluded from non-performing assets are restructured loans that have complied
with the terms of their restructure agreement for a satisfactory period and
have, therefore, been returned to performing status. Restructured loans that
are in compliance with their restructured terms totaled $4.5 million at June
30, 2001 and $5.2 million at December 31, 2000.
The following table sets forth the change in allowance for loan losses.
(In Thousands)
Allowance for Loan Losses:
Balance at December 31, 2000............................................. $79,931
Provision charged to operations..................................... 2,025
Charge-offs:
One-to-four family........................................... (182)
Multi-family................................................. -
Commercial................................................... -
Consumer and other........................................... (910)
-------
Total charge-offs................................................... (1,092)
-------
Recoveries:
One-to-four family........................................... 94
Multi-family................................................. -
Commercial................................................... 9
Consumer and other .......................................... 409
-------
Total recoveries.................................................... 512
-------
Total net charge-offs............................................... (580)
-------
Balance at June 30, 2001................................................. $81,376
======
IMPACT OF NEW ACCOUNTING STANDARDS
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
141, "Business Combinations," or SFAS No. 141, and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets," or SFAS
No. 142. SFAS No. 141 requires that all business combinations in the scope of
SFAS No. 141 are to be accounted for using one method, the purchase method, and
that goodwill and other intangible assets acquired in a business combination
shall be accounted for in accordance with the provisions of SFAS No. 142. SFAS
No. 142 addresses financial accounting and reporting for acquired goodwill and
other intangible assets. Previously, goodwill and other intangible assets were
amortized in determining net income. SFAS No. 142 assumes goodwill has an
indefinite useful life and should not be amortized, but rather tested, at least
annually, for impairment. SFAS No. 142 also provides specific guidance for
testing goodwill for impairment.
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The provisions of SFAS No. 141 apply to all business combinations initiated
after June 30, 2001. SFAS No. 142 is applicable to fiscal years beginning after
December 15, 2001 and is required to be applied at the beginning of an entity's
fiscal year to all goodwill and other intangible assets recognized in its
financial statements at that date. Impairment losses for goodwill and
indefinite- lived intangible assets that arise due to the initial application of
SFAS No. 142 are to be reported as resulting from a change in accounting
principle.
Effective January 1, 2002, we will cease recording goodwill amortization
amounting to approximately $19.1 million annually, or approximately $0.40 per
diluted common share, based on weighted average shares outstanding for the six
months ended June 30, 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a description of our quantitative and qualitative disclosures about
market risk, see the information set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Interest Rate Sensitivity Analysis."
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
With respect to the case entitled Astoria Federal Savings and Loan
Association vs. United States, or the Astoria Goodwill Litigation, which is
pending in the United States Court of Federal Claims, we previously reported
that expert discovery 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 and is continuing.
With respect to the case entitled The Long Island Savings Bank, FSB et al.
vs. The United States, or the LISB Goodwill Litigation, which is also pending in
the United States Court of Federal Claims, we 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 our breach of contract claim.
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On or about April 4, 2001, the Government filed a motion for summary
judgment with respect to the counterclaims set forth in its answer. We cross
moved for summary judgment with respect to such counterclaims on May 2, 2001.
These motions have been briefed and are currently pending before the Court.
Based upon our review of these decisions and other decisions rendered in the
Winstar related cases, 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 Litigation, if
any. No assurance can be given as to the results of these claims or the timing
of any proceedings in relation thereto.
With respect to the litigation entitled Ronnie Weil also known as Ronnie
Moore, for Herself and on Behalf of all Other Persons Who Obtained Mortgage
Loans from The Long Island Savings Bank, FSB during the period January 1, 1983
through December 31, 1992 vs. The Long Island Savings Bank, FSB, et al., the
Court by order dated May 7, 2001, granted Plaintiffs' Class Action Motion and
denied defendants' request that Plaintiffs' co-counsel be disqualified. The
Order certified a class consisting of all persons who obtained mortgage loans
from LISB during the period January 1, 1983 through December 31, 1992 and paid
LISB's attorneys' fees in connection with such mortgages. On May 24, 2001,
Astoria Federal filed a Petition for Permission to Appeal with the United States
Court of Appeals for the Second Circuit. The determination of the Second Circuit
regarding this petition is pending.
On May 29, 2001 and June 25, 2001, Magistrate Judge Wall of the Eastern
District issued scheduling orders addressing the completion of discovery and
preparation for trial. The scheduling orders, among other things, provide for
the Defendants to move, if at all, for summary judgment on or before September
14, 2001 with final responsive papers due by October 31, 2001 and sets the date
for a pre-trial conference on December 4, 2001.
For further information regarding legal proceedings see Part I, Item 3 of
our Annual Report on Form 10-K for the year ended December 31, 2000 and Part II,
Item 1 of our Quarterly Report on Form 10-Q for the quarter ended March 31,
2001.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------
Our Annual Meeting of shareholders was held May 16, 2001, referred to as the
Annual Meeting. At the Annual Meeting, our shareholders elected John J.
Conefry, Jr., Lawrence W. Peters, and Thomas V. Powderly as directors each
to serve for a three year term and, in any case, until the election and
qualification of their respective successors. The shareholders ratified our
appointment of KPMG LLP as our independent auditors for our 2001 fiscal
year. In addition, the shareholders approved the proposal of Jewelcor
Management, Inc., as the text of such proposal was set forth in our
proxy statement dated April 16, 2001.
The number of votes cast as to each matter acted upon at the Annual Meeting
was as follows:
(a) Election of Directors:
For Withheld
--- --------
John J. Conefry, Jr. 43,564,830 1,291,089
Lawrence W. Peters 44,067,998 787,921
Thomas V. Powderly 44,055,819 800,100
There were no broker held non-voted shares represented at the meeting with
respect to this proposal.
(b) Ratification of the appointment of KPMG LLP as independent auditors of
Astoria Financial Corporation for the 2001 fiscal year:
For: 44,342,047
Against: 443,615
Abstained: 70,257
There were no broker held non-voted shares represented at the meeting with
respect to this proposal.
(c) Proposal of Jewelcor Management, Inc., as the text of such proposal was
set forth in Astoria Financial Corporation's proxy statement dated April
16, 2001:
For: 23,940,133
Against: 14,679,378
Abstained: 813,718
There were 5,422,690 broker held non-voted shares represented at the meeting
with respect to this proposal.
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ITEM 5. OTHER INFORMATION
On July 3, 2001 we completed the private placement of $100 million of senior
unsecured notes due in 2008 bearing a fixed interest rate of 7.67%. The
notes were placed with a limited number of institutional investors and will
not be registered with the Securities and Exchange Commission. The net
proceeds from the note placement will be used for general corporate
purposes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Statement Regarding Computation of Per Share Earnings.
(b) Reports on Form 8-K
1. Report on Form 8-K dated April 19, 2001 which includes a press
release dated April 19, 2001 which highlights reported financial
results for the quarter ended March 31, 2001.
2. Report on Form 8-K dated May 4, 2001 which includes a written
presentation of financial results through the period ended March 31,
2001 which was made available to interested investors.
3. Report on Form 8-K dated May 16, 2001 which includes a slide
presentation which was delivered at the Annual Meeting of
Shareholders held on May 16, 2001 highlighting financial results
through the period ended March 31, 2001.
4. Report on Form 8-K dated May 16, 2001 which includes a press release
dated May 16, 2001 announcing the voting results of the Annual
Meeting of Shareholders held on May 16, 2001.
39
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Astoria Financial Corporation
Dated: August 13, 2001 By:/s/ Monte N. Redman
---------------- -----------------------------
Monte N. Redman
Executive Vice President
and Chief Financial Officer
(Principal Accounting Officer)
40
42
Exhibit Index
Exhibit No Identification of Exhibit
- ---------- -------------------------
11. Statement Regarding Computation of Per Share Earnings
41