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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 0-22228
ASTORIA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 11-3170868
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
One Astoria Federal Plaza, Lake Success, New York 11042-1085
(Address of principal executive offices) (Zip Code)
(516) 327-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Classes of Common Stock Number of Shares Outstanding, July 31, 1998
----------------------- -------------------------------------------
.01 Par Value 26,593,495
------------- ----------
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PART I -- FINANCIAL INFORMATION
Page
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Item 1. Financial Statements.
Consolidated Statements of Financial Condition at June 30, 1998 and 2
December 31, 1997.
Consolidated Statements of Income for the Three and Six Months Ended 3
June 30, 1998 and June 30, 1997.
Consolidated Statement of Stockholders' Equity for the Six Months 4
Ended June 30, 1998.
Consolidated Statements of Cash Flows for the Six Months Ended 5
June 30, 1998 and June 30, 1997.
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 29
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 2. Changes in Securities and Use of Proceeds (Not Applicable)
Item 3. Defaults Upon Senior Securities (Not Applicable)
Item 4. Submission of Matters to a Vote of Security Holders 32
Item 5. Other Information (Not Applicable)
Item 6. Exhibits and Reports on Form 8-K 33
(a) Exhibits
(11) Statement Regarding Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K 34
Signatures
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ASTORIA FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
Assets 1998 1997
- ------ ---- ----
Cash and due from banks $ 23,120 $ 31,780
Federal funds sold and repurchase agreements 161,704 110,550
Mortgage-backed securities available-for-sale (at estimated fair value) 3,174,963 2,700,920
Other securities available-for-sale (at estimated fair value) 270,363 159,336
Mortgage-backed securities held-to-maturity (estimated fair value of
$1,312,092 and $1,369,738, respectively) 1,300,542 1,361,404
Other securities held-to-maturity (estimated fair value
of $1,186,390 and $1,255,097, respectively) 1,179,347 1,249,045
Federal Home Loan Bank of New York stock 73,750 60,050
Loans receivable:
Mortgage loans 4,841,571 4,291,720
Consumer and other loans 49,401 53,286
------------ ------------
4,890,972 4,345,006
Less allowance for loan losses 37,861 40,039
------------ ------------
Loans receivable, net 4,853,111 4,304,967
Real estate owned and investments in real estate, net 11,763 16,264
Accrued interest receivable 62,758 60,318
Premises and equipment, net 116,036 113,727
Goodwill 253,043 258,159
Other assets 95,051 101,873
------------ ------------
Total assets $ 11,575,551 $ 10,528,393
============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Deposits:
Savings $ 1,703,438 $ 1,717,784
Money market 982,192 823,214
NOW 179,659 163,756
Certificates of deposit 3,227,424 3,516,164
------------ ------------
Total deposits 6,092,713 6,220,918
Reverse repurchase agreements 4,120,000 2,882,765
Federal Home Loan Bank of New York advances 270,114 390,016
Mortgage escrow funds 55,994 45,217
Accrued expenses and other liabilities 94,254 90,053
------------ ------------
Total liabilities 10,633,075 9,628,969
------------ ------------
Stockholders' Equity:
Preferred stock, $1.00 par value; 5,000,000 shares authorized:
Series A (325,000 shares authorized and -0- 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 and 70,000,000 shares authorized,
respectively; 26,531,645 and 26,451,252 issued, respectively;
26,530,706 and 26,197,768 outstanding, respectively) 265 265
Additional paid-in capital 509,479 497,284
Retained earnings - substantially restricted 445,399 430,549
Treasury stock (939 and 253,484 shares, at cost, respectively) (53) (13,867)
Accumulated other comprehensive income:
Net unrealized gains on securities, net of taxes 7,099 7,918
Unallocated common stock held by ESOP (19,988) (21,488)
Unearned common stock held by RRPs (1,725) (3,237)
------------ ------------
Total stockholders' equity 942,476 899,424
------------ ------------
Total liabilities and stockholders' equity $ 11,575,551 $ 10,528,393
============ ============
See accompanying notes to consolidated financial statements.
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ASTORIA FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Interest income:
Mortgage loans $ 89,815 $ 56,831 $ 174,607 $ 109,385
Consumer and other loans 1,187 1,404 2,415 2,850
Mortgage-backed securities 71,341 56,536 141,199 115,461
Other securities 26,405 16,662 53,963 31,942
Federal funds sold and repurchase agreements 3,060 3,979 4,554 4,847
----------- ----------- ----------- -----------
Total interest income 191,808 135,412 376,738 264,485
----------- ----------- ----------- -----------
Interest expense:
Deposits 63,282 48,935 127,277 96,494
Borrowed funds 57,718 37,032 108,793 69,090
----------- ----------- ----------- -----------
Total interest expense 121,000 85,967 236,070 165,584
----------- ----------- ----------- -----------
Net interest income 70,808 49,445 140,668 98,901
Provision for loan losses 314 1,414 614 1,914
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 70,494 48,031 140,054 96,987
----------- ----------- ----------- -----------
Non-interest income:
Customer service and loan fees 4,316 2,620 8,093 5,235
Net gain on sales of securities and loans 3,324 1,138 5,427 1,516
Other 1,344 903 2,853 1,381
----------- ----------- ----------- -----------
Total non-interest income 8,984 4,661 16,373 8,132
----------- ----------- ----------- -----------
Non-interest expense:
General and administrative:
Compensation and benefits 17,667 13,121 35,576 26,285
Occupancy, equipment and systems 8,623 5,919 18,380 11,917
Federal deposit insurance premiums 976 762 1,752 1,572
Advertising 732 1,146 1,392 2,060
Other 4,433 3,178 8,700 6,051
----------- ----------- ----------- -----------
Total general and administrative 32,431 24,126 65,800 47,885
Real estate operations and provision for losses, net 218 306 218 482
Amortization of goodwill 4,865 2,110 9,653 4,220
----------- ----------- ----------- -----------
Total non-interest expense 37,514 26,542 75,671 52,587
----------- ----------- ----------- -----------
Income before income tax expense 41,964 26,150 80,756 52,532
Income tax expense 18,301 10,943 34,824 21,891
----------- ----------- ----------- -----------
Net income $ 23,663 $ 15,207 $ 45,932 $ 30,641
=========== =========== =========== ===========
Net income available to common shareholders - diluted $ 22,163 $ 15,207 $ 42,932 $ 30,641
=========== =========== =========== ===========
Basic earnings per common share (1) $ 0.89 $ 0.79 $ 1.73 $ 1.59
=========== =========== =========== ===========
Diluted earnings per common share (1) $ 0.85 $ 0.74 $ 1.65 $ 1.48
=========== =========== =========== ===========
Dividends per common share $ 0.20 $ 0.15 $ 0.40 $ 0.26
=========== =========== =========== ===========
Basic weighted average common shares (1) 24,856,243 19,205,852 24,746,998 19,311,107
Diluted weighted average common and common equivalent shares (1) 26,111,418 20,545,394 26,079,264 20,683,968
(1) Prior year amounts have been restated as a result of the implementation
of Statement of Financial Accounting Standards No. 128, "Earnings Per
Share."
See accompanying notes to consolidated financial statements.
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
For The Six Months Ended June 30, 1998
(In Thousands, Except Share Data)
Retained
Additional Earnings
Preferred Common Paid-In Substantially Treasury
Total Stock Stock Capital Restricted Stock
----- ----- ----- ------- ---------- -----
Balance at December 31, 1997 $ 899,424 $2,000 $265 $ 497,284 $ 430,549 $(13,867)
Net income 45,932 -- -- -- 45,932 --
Other comprehensive income, net of tax:
Net unrealized loss on securities, net
of reclassification adjustment (819) -- -- -- -- --
Common stock repurchased
(181,192 shares) (9,739) -- -- -- -- (9,739)
Dividends on common and preferred stock
and amortization of purchase premium (13,411) -- -- (652) (12,759) --
Exercise of stock options and
related tax benefit 10,812 -- -- 5,582 (18,323) 23,553
Amortization relating to allocation
of ESOP stock and earned portion
of RRP stock and related tax benefit 10,277 -- -- 7,265 -- --
--------- ------ ---- --------- --------- --------
Balance at June 30, 1998 $ 942,476 $2,000 $265 $ 509,479 $ 445,399 $ (53)
========= ====== ==== ========= ========= ========
Accumulated Unallocated Unearned
Other Common Common
Comprehensive Stock Held Stock Held
Income by ESOP by RRPs
------ ------- -------
Balance at December 31, 1997 $ 7,918 $(21,488) $(3,237)
Net income -- -- --
Other comprehensive income, net of tax:
Net unrealized loss on securities, net
of reclassification adjustment (819) -- --
Common stock repurchased
(181,192 shares) -- -- --
Dividends on common and preferred stock
and amortization of purchase premium -- -- --
Exercise of stock options and
related tax benefit -- -- --
Amortization relating to allocation
of ESOP stock and earned portion
of RRP stock and related tax benefit -- 1,500 1,512
------- -------- -------
Balance at June 30, 1998 $ 7,099 $(19,988) $(1,725)
======= ======== =======
See accompany notes to consolidated financial statements.
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ASTORIA FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE SIX MONTHS ENDED
JUNE 30,
1998 1997
----------- ---------
Cash flows from operating activities:
Net income $ 45,932 $ 30,641
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of net deferred loan origination fees,
discounts and premiums (16,939) (1,691)
Provision for loan and real estate losses 1,533 2,205
Depreciation and amortization 4,322 3,126
Net gain on sales of securities and loans (5,427) (1,516)
Amortization of goodwill 9,653 4,220
Allocated and earned shares from ESOP and RRPs 8,201 6,208
Increase in accrued interest receivable (2,440) (3,137)
Increase in mortgage escrow funds 10,777 6,547
Decrease in other assets 7,785 9,102
Increase in accrued expenses and other liabilities 11,100 11,344
----------- ---------
Net cash provided by operating activities 74,497 67,049
----------- ---------
Cash flows from investing activities:
Loan originations (1,012,300) (529,642)
Loan purchases through third parties (97,542) (97,508)
Principal repayments on loans 500,750 184,591
Principal payments on mortgage-backed securities held-to-maturity 134,015 36,061
Principal payments on mortgage-backed securities available-for-sale 473,363 174,666
Purchases of mortgage-backed securities held-to-maturity (72,651) --
Purchases of mortgage-backed securities available-for-sale (1,145,014) (282,190)
Purchases of other securities held-to-maturity and FHLB stock (227,156) (315,534)
Purchases of other securities available-for-sale (121,008) (23,694)
Proceeds from maturities of other securities held-to-maturity 299 70,476
Proceeds from maturities of other securities available-for-sale 301,373 45,001
Proceeds from sales of securities available-for-sale and loans 258,366 437,631
Proceeds from sales of real estate owned and investments
in real estate 9,770 5,141
Purchases of premises and equipment, net of proceeds from sale (6,631) (2,504)
----------- ---------
Net cash used in investing activities (1,004,366) (297,505)
----------- ---------
Cash flows from financing activities:
Net (decrease) increase in deposits (127,711) 31,898
Net increase in reverse repurchase agreements 1,237,235 355,577
Net decrease in FHLB of New York advances (120,000) (21,000)
Costs to repurchase common stock (9,739) (28,570)
Cash dividends paid to stockholders (13,411) (5,345)
Cash received for options exercised, net of loss on issuance
of treasury stock 5,989 2,585
----------- ---------
Net cash provided by financing activities 972,363 335,145
----------- ---------
Net increase in cash and cash equivalents 42,494 104,689
Cash and cash equivalents at beginning of period 142,330 74,923
----------- ---------
Cash and cash equivalents at end of period $ 184,824 $ 179,612
=========== =========
Supplemental disclosures:
Cash paid during the year:
Interest $ 230,512 $ 163,275
=========== =========
Income taxes $ 20,569 $ 1,189
=========== =========
Additions to real estate owned $ 6,712 $ 4,519
=========== =========
See accompanying notes to consolidated financial statements.
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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Astoria Financial Corporation (the "Company") and its wholly-owned
subsidiary, Astoria Federal Savings and Loan Association (the "Association")
and the Association's wholly-owned subsidiaries. Significant intercompany
accounts and transactions have been eliminated in consolidation.
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Company's financial
condition as of June 30, 1998 and December 31, 1997 and its results of
operations for the three and six months ended June 30, 1998 and 1997, cash
flows for the six months ended June 30, 1998 and 1997 and stockholders'
equity for the six months ended June 30, 1998. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities of the consolidated
statements of financial condition as of June 30, 1998 and December 31, 1997
and amounts of revenues and expenses for the three and six month periods
ended June 30, 1998 and 1997. The results of operations for the three and
six months ended June 30, 1998 are not necessarily indicative of the results
of operations to be expected for the remainder of the year. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles, 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 the December 31, 1997 audited consolidated financial statements,
interim financial statements and notes thereto of the Company.
2. EARNINGS PER SHARE ("EPS")
During the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128"). The Company has applied the provisions of SFAS No. 128 in its
calculation of EPS, and has restated all prior-period EPS data presented.
SFAS No. 128 simplified the standards for computing EPS previously found in
Accounting Principles Board Opinion No. 15, and replaced the presentation of
primary EPS and fully diluted EPS with the presentation of basic EPS and
diluted EPS, respectively. Upon adoption of SFAS No. 128, the change from
primary EPS to basic EPS and from fully diluted EPS to diluted EPS resulted
in modest increases in both EPS presentations.
Basic EPS is computed by dividing net income less preferred dividends by
the weighted-average common shares outstanding during the year. The
weighted-average common shares outstanding includes the average number of
shares of common stock outstanding adjusted for the weighted-average number
of unallocated shares held by the Astoria Federal Savings and Loan
Association Employee Stock Ownership Plan (the "ESOP") and the Recognition
and Retention Plans ("RRPs").
Diluted EPS is computed by dividing net income less preferred dividends
by the weighted-average common shares and common equivalent shares
outstanding during the year. For the diluted EPS calculation, the
weighted-average common shares and common equivalent shares outstanding
include the average number of shares of common stock outstanding adjusted
for the weighted-average number of unallocated shares held by the ESOP and
the RRPs and the dilutive effect of unexercised stock options using the
treasury stock method. When applying the treasury stock method, the
Company's average stock price is utilized, and the Company adds to the
proceeds, the tax benefit that would have been credited to additional
paid-in capital assuming exercise of non-qualified stock options.
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The following table is a reconciliation of basic and diluted EPS as
required under SFAS No. 128:
For the Three Months Ended June 30,
---------------------------------------------------------------------------------------
1998 1997
----------------------------------------- -----------------------------------------
(In Thousands, Average Per Share Average Per Share
Except Share Data) Income Shares Amount Income Shares Amount
- ------------------ ------ ------ ------ ------ ------ ------
Net income $23,663 $15,207
Less: preferred stock dividends 1,500 --
------- -------
Basic EPS:
Income available to common
stockholders 22,163 24,856,243 $0.89 15,207 19,205,852 $0.79
===== =====
Effect of dilutive unexercised
stock options 1,255,175 (1) 1,339,542
---------- ----------
Diluted EPS:
Income available to common
stockholders plus assumed
conversions $22,163 26,111,418 $0.85 $15,207 20,545,394 $0.74
======= ========== ===== ======= ========== =====
For the Six Months Ended June 30,
---------------------------------------------------------------------------------------
1998 1997
----------------------------------------- -----------------------------------------
(In Thousands, Average Per Share Average Per Share
Except Share Data) Income Shares Amount Income Shares Amount
- ------------------ ------ ------ ------ ------ ------ ------
Net income $45,932 $30,641
Less: preferred stock dividends 3,000 --
------- -------
Basic EPS:
Income available to common
stockholders 42,932 24,746,998 $1.73 30,641 19,311,107 $1.59
===== =====
Effect of dilutive unexercised
stock options 1,332,266 (1) 1,372,861
---------- ----------
Diluted EPS:
Income available to common
stockholders plus assumed
conversions $42,932 26,079,264 $1.65 $30,641 20,683,968 $1.48
======= ========== ===== ======= ========== =====
(1) Options to purchase 277,000 shares of common stock at prices between
$56.63 per share and $59.75 per share were outstanding as of June 30,
1998 but were not included in the computation of diluted EPS because
the options' exercise prices were greater than the average market
prices of the common shares.
3. CASH EQUIVALENTS
For the purpose of reporting cash flows, cash and cash equivalents
include cash and due from banks and federal funds sold with original
maturities of three months or less.
4. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 requires that all items that are
components of "comprehensive income" be reported in a financial statement
that is displayed with the same prominence as other financial statements.
Comprehensive income is defined as "the change in equity [net assets] of a
business enterprise during a period from transactions and other events and
circumstances from nonowner sources." It includes all changes in equity
during a period except those resulting from investments by owners and
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distributions to owners. The Company adopted the provisions of SFAS No. 130
during the first quarter of 1998 and as such was required to (a) classify
items of other comprehensive income by their nature in a financial statement;
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section
in the statement of financial condition and (c) reclassify prior periods
presented. As the requirements of SFAS No. 130 are disclosure-related, its
implementation had no impact on the Company's financial condition or results
of operations.
Comprehensive income for the three and six months ended June 30, 1998 and
1997 is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
Net income $ 23,663 $ 15,207 $ 45,932 $ 30,641
Net unrealized gains (losses) on securities,
net of reclassification adjustment (a) 525 11,298 (819) 1,671
-------- -------- -------- --------
Comprehensive income $ 24,188 $ 26,505 $ 45,113 $ 32,312
======== -------- ======== ========
- ----------
(a) Disclosure of reclassification adjustment:
Net unrealized gains arising during period $ 2,059 $ 11,953 1,887 $ 2,548
Less: reclassification adjustment for net gains
included in net income (1,534) (655) (2,706) (877)
-------- -------- -------- --------
Net unrealized gains (losses) on securities $ 525 $ 11,298 $ (819) $ 1,671
======== ======== ======== ========
5. IMPACT OF NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("SFAS No. 131"). SFAS No. 131 requires that enterprises report
certain financial and descriptive information about operating segments in
complete sets of financial statements of the Company and in condensed
financial statements of interim periods issued to stockholders. SFAS No. 131
also requires that enterprises report certain information about their
products and services, geographic areas in which they operate, and their
major customers. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997 but does not have to be applied to interim financial
statements in the initial year of application. As the requirements of SFAS
No. 131 are disclosure-related, its implementation will have no impact on
the Company's financial condition or results of operations.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS No. 132"). SFAS No.132 revises employers'
disclosures about pension and other postretirement benefit plans, but does
not change the measurement or recognition of those plans. SFAS No. 132
standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis, and eliminates certain
disclosures that are not considered useful. SFAS No. 132 is effective for
fiscal years beginning after December 15, 1997 and requires restatement of
prior periods presented. As the requirements of SFAS No. 132 are disclosure
related, its implementation will have no impact on the Company's financial
condition or results of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("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, gains and losses) depends on the intended use of the derivative and the
resulting designation. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999
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and does not require restatement of prior periods. Management of the Company
believes the implementation of SFAS No. 133 will not have a material impact
on the Company's 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 consisting of estimates with respect to the financial condition,
results of operations and business of the Company 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 the
Company's operations, pricing, products and services.
GENERAL
The Company was incorporated on June 14, 1993, and is the holding company
for the Association. The Company is headquartered in Lake Success, New York and
its principal business currently consists of the operation of its wholly-owned
subsidiary, the Association. The Association's primary business is attracting
retail deposits from the general public and investing those deposits, together
with funds generated from operations, principal repayments 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 loans. In addition, the Association invests in
securities issued by the U.S. Government and federal agencies and other
securities.
The Company's results of operations are dependent primarily on its net
interest income, which is the difference between the interest earned on its
assets, primarily its loan and securities portfolios, and its cost of funds,
which consists of the interest paid on its deposits and borrowings. The
Company's net income is also affected by its provision for loan losses as well
as 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 premium, advertising and other operating expenses. Other
non-interest expense generally consists of real estate operations and provision
for real estate losses, net and amortization of goodwill. The earnings of the
Company 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.
MERGERS AND ACQUISITIONS
The Company continues to consider merger and acquisition activity part of
its long-term growth strategy. Following the close of business on September 30,
1997, the Company completed the acquisition of The Greater New York Savings Bank
("The Greater"), by merger of The Greater with and into the Association, in a
transaction ("The Greater Acquisition"), that was accounted for as a purchase.
The total consideration paid was $399.5 million, which included $38.2 million of
transaction costs. Goodwill generated in the transaction is being amortized on a
straight line basis over 15 years.
On April 2, 1998, the Company entered into a definitive agreement and plan
of merger (the "Merger Agreement") pursuant to which Long Island Bancorp, Inc.
("LIB"), the holding company of The Long Island Savings Bank, FSB ("LISB"), will
merge with and into the Company. LISB, a federally chartered savings bank, will
merge with and into the Association pursuant to a related plan of bank merger.
At June 30, 1998, LIB had total assets of $6.48 billion. The Merger Agreement is
subject to approval of the shareholders of both the Company and LIB, approval of
the Office of Thrift Supervision ("OTS") and the satisfaction of certain other
conditions. Special meetings of the shareholders of LIB and the Company are
scheduled for August 19, 1998, and a proxy statement/prospectus with respect to
such meetings
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has been mailed to each such shareholder. Under the terms of the Merger
Agreement, holders of LIB common stock, par value $0.01 per share ("LIB Common
Stock"), will receive 1.15 shares of the Company's common stock ("Common Stock")
for each share of LIB Common Stock. The total transaction value is estimated to
be $1.80 billion. The transaction is expected to be accounted for as a pooling
of interests, and is expected to close following the close of business on
September 30, 1998. See Item 6 - Exhibits and Reports on Form 8-K.
INFORMATION SERVICES YEAR 2000 PROJECT
The Year 2000 Problem centers on the inability of some computer systems to
recognize the year 2000. Many existing computer programs and systems were
originally programmed with six digit dates that provided only two digits to
identify the calendar year in the date field, without considering the upcoming
change in the century. With the impending millennium, these programs and
computers may recognize "00" as the year 1900 rather than the year 2000. Like
most financial service providers, the Company and its operations may be
significantly affected by the Year 2000 Problem due to the nature of financial
information. Software, hardware, and equipment both within and outside the
Company's direct control and with which the Company electronically or
operationally interfaces (e.g. third party vendors providing data processing,
information system management, maintenance of computer systems, and credit
bureau information) are likely to be affected. Furthermore, if computer systems
are not adequately changed to identify the year 2000, many computer applications
could fail or create erroneous results. As a result, many calculations which
rely on the date field information, such as interest, payment or due dates and
other operating functions, will generate results which could be significantly
misstated, and the Company could experience a temporary inability to process
transactions, send invoices or engage in similar normal business activities. In
addition, under certain circumstances, failure to adequately address the Year
2000 Problem could adversely affect the viability of the Company's suppliers and
creditors and the creditworthiness of its borrowers. Thus, if not adequately
addressed, the Year 2000 Problem could result in a material adverse impact on
the Company's products, services and competitive condition and therefore, its
results of operations.
The Company has developed and is implementing a Year 2000 Project Plan (the
"Plan") to address the Year 2000 Problem and its effects on the Company. The
Plan includes five components which address issues involving awareness,
assessment, renovation, validation and implementation. As part of the Plan, the
Company has initiated formal communications with all of its significant
suppliers to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 Problem. The Company
presently believes that with modifications to existing software and conversions
to new software and hardware where necessary, the Year 2000 Problem will be
mitigated without causing a material adverse impact on the operations of the
Company. However, if such modifications and conversions are not made or are not
completed timely, the Year 2000 Problem could have an adverse impact on the
operations of the Company.
Monitoring and managing the Year 2000 Project Plan will result in additional
direct and indirect costs to the Company. Direct costs include potential charges
by third party software vendors for product enhancements, costs involved in
testing software products for Year 2000 compliance, and costs for developing and
implementing contingency plans for critical software products which are not
enhanced. Indirect costs will principally consist of the time devoted by
existing employees in monitoring software vendor progress, testing enhanced
software products and developing and implementing any necessary contingency
plans. Both direct and indirect costs of addressing the Year 2000 Problem will
be charged to earnings as incurred. Such costs have not been material to date.
The Company does not believe that such costs will have a material effect on
results of operations, although there can be no assurance that such costs would
not become material in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of funds is cash provided by investing
activities and includes principal and interest payments on loans,
mortgage-backed securities and other securities. During the six months ended
June 30, 1998 and 1997, principal payments on loans and mortgage-backed
securities and proceeds from maturities of other securities
10
12
totaled $1.41 billion and $510.8 million, respectively. The increase in
principal payments received is primarily a result of significant acceleration of
prepayments of mortgage loans and mortgage-backed securities. Additionally,
during the six months ended June 30, 1998 and 1997, the Company received $258.4
million and $437.6 million of funds from the sale of securities
available-for-sale and loans. The Company's other sources of funds are provided
by operating and financing activities. Net cash provided from operating
activities during the six months ended June 30, 1998 and 1997 totaled $74.5
million and $67.0 million, respectively, of which $45.9 million and $30.6
million, respectively, represented net income of the Company. Net cash provided
by financing activities during the six months ended June 30, 1998 and 1997
totaled $972.4 million and $335.1 million, respectively, primarily due to net
increases in borrowings totaling $1.12 billion and $334.6 million, respectively.
The Company's primary uses of funds in its investing activities are for the
purchase and origination of loans and the purchase of mortgage-backed securities
and other securities. During the six months ended June 30, 1998 and 1997, the
Company's purchases and originations of loans totaled $1.11 billion and $627.2
million, respectively, and purchases of mortgage-backed securities and other
securities totaled $1.57 billion and $621.4 million, respectively.
The Association is required by the OTS to maintain a minimum liquidity ratio
of 4.0%. The Association's liquidity ratios were 4.67% and 4.73% at June 30,
1998 and December 31, 1997, respectively. The levels of the Association's liquid
assets are dependent on the Association's operating, investing and financing
activities during any given period. In the normal course of its business, the
Association routinely enters into various commitments, primarily relating to the
origination and purchase of loans, purchase of securities and the leasing of
certain office facilities. The Association anticipates that it will have
sufficient funds available to meet its current commitments in the normal course
of its business.
Stockholders' equity totaled $942.5 million at June 30, 1998, compared to
$899.4 million at December 31, 1997, reflecting the Company's earnings for the
first six months of 1998, the amortization of the unallocated portion of shares
held by the ESOP and the unearned portion of shares held by the RRPs and related
tax benefit, the effect of the treasury stock purchases in the first quarter of
1998, the effect of exercises of stock options and related tax benefit,
dividends paid on common and preferred stock and the change in the net
unrealized gains on securities.
Tangible stockholders' equity (stockholders' equity less goodwill) totaled
$689.4 million at June 30, 1998, compared to $641.3 million at December 31,
1997. This increase reflects the change in the Company's stockholders' equity
noted above, plus the reduction in the balance of goodwill. Tangible equity is a
critical measure of a company's ability to pay dividends and continue to grow.
The Association is subject to various capital requirements which affect its
classification for safety and soundness purposes, as well as for deposit
insurance purposes. These requirements utilize tangible equity as a base
component, not equity as defined by generally accepted accounting principles
("GAAP"). Although reported earnings and return on equity are traditional
measures of a company's performance, management believes that the growth in
tangible equity, or "cash earnings," is also a significant measure of a
company's performance. Cash earnings include reported earnings plus the non-cash
charges for goodwill amortization and amortization relating to certain employee
stock plans and related tax benefit. These items have either been previously
charged to equity, as in the case of ESOP and RRP charges, through contra-equity
accounts, 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. Management believes that cash earnings and cash returns on average
tangible equity reflect the Company's ability to generate tangible capital that
can be leveraged for future growth. See "Cash Earnings."
During the first quarter of 1998, as part of the Company's fifth stock
repurchase plan, the Company repurchased 181,192 shares of Common Stock for an
aggregate cost of $9.7 million. In connection with the acquisition of LIB, the
fifth stock repurchase plan was terminated. The Company has since reissued
treasury shares for option exercises, and at June 30, 1998, 939 treasury shares
are remaining at an aggregate cost of $53,000.
On June 1, 1998, the Company paid a quarterly cash dividend equal to $0.20
per share on shares of Common Stock outstanding as of the close of business on
May 15, 1998, aggregating $5.3 million. On July 15, 1998, the Company declared a
quarterly cash dividend of $0.20 per share payable on September 1, 1998 to
common stockholders of record
11
13
as of the close of business on August 14, 1998. On January 15, 1998, April 15,
1998, and July 15, 1998, the Company paid quarterly cash dividends equal to
$0.75 per share on shares of its 12% Noncumulative Perpetual Preferred Stock,
Series B, aggregating $1.5 million per quarter.
At the time of conversion from mutual to stock form of ownership, the
Association was required to establish a liquidation account equal to its
retained earnings as of June 30, 1993. As part of the acquisitions of Fidelity
New York, F.S.B. ("Fidelity") after the close of business on January 31, 1995
and The Greater after the close of business on September 30, 1997, the
Association established similar liquidation accounts equal to the remaining
liquidation account balances previously maintained by Fidelity and The Greater.
These liquidation accounts are reduced to the extent that eligible account
holders reduce their qualifying deposits. In the unlikely event of a complete
liquidation of the Association, each eligible account holder will be entitled to
receive a distribution from the liquidation accounts. The Association is not
permitted to declare or pay dividends on its capital stock, or repurchase any of
its outstanding stock, if the effect thereof would cause its stockholders'
equity to be reduced below the amount required for the liquidation accounts or
applicable regulatory capital requirements. As of June 30, 1998, the
Association's total capital exceeded the amount of the combined liquidation
accounts, and also exceeded all of its regulatory capital requirements with
tangible and core (leverage) ratios of 5.39% and a risk-based capital ratio of
14.92%. The respective minimum regulatory requirements were 1.50%, 3.00% and
8.00%.
INTEREST RATE SENSITIVITY ANALYSIS
As a financial institution, the Company's primary component of market risk
is interest rate volatility. The Company's net interest income, the primary
component of its 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 its assets and the
liabilities which fund them. The Company seeks to manage this risk by monitoring
and controlling the variation in repricing intervals between its assets and
liabilities. To a lesser extent, the Company also monitors its interest rate
sensitivity by analyzing the estimated changes in market value of its assets and
liabilities assuming various interest rate scenarios.
The matching of the repricing characteristics of assets and liabilities may
be analyzed by examining the extent to which such assets and liabilities are
"interest rate sensitive" and by monitoring an institution's interest rate
sensitivity "gap." An asset or liability is said to be interest rate sensitive
within a specific time period if it will mature or reprice, either by
contractual terms or based upon certain assumptions made by management, within
that time period. The interest rate sensitivity gap is defined as 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.
At June 30, 1998, the Company's net interest-earning assets maturing or
repricing within one year exceeded interest-bearing liabilities maturing or
repricing within the same time period by $557.4 million, representing a positive
cumulative one-year gap of 4.82% of total assets. This compares to
interest-bearing liabilities maturing or repricing within one year exceeding net
interest-earning assets maturing or repricing within the same time period by
$286.2 million, representing a negative cumulative one-year gap of 2.72% of
total assets at December 31, 1997. The Company's June 30, 1998 and December 31,
1997 cumulative one-year gap positions reflect the classification of
available-for-sale securities within repricing periods based on their
contractual maturities adjusted for estimated prepayments, if any. If those
securities at June 30, 1998 were classified within the one-year maturing or
repricing category, net interest-earning assets maturing or repricing within one
year would have exceeded interest-bearing liabilities maturing or repricing
within the same time period by $2.52 billion, representing a positive cumulative
one-year gap of 21.74% of total assets. Using this method at December 31, 1997,
net interest-earning assets maturing or repricing within one year would have
exceeded interest-bearing liabilities maturing or repricing within the same time
period by $1.21 billion, representing a positive cumulative one-year gap of
11.48% of total assets.
The following table (the "Gap Table") sets forth the amount of
interest-earning assets and interest-bearing liabilities
12
14
outstanding at June 30, 1998, that are anticipated by the Company using certain
assumptions based on its historical experience and other data available to
management 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 the Company's 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. Included in the Gap Table are $1.22 billion of callable
other securities, classified according to their maturity dates, which are
primarily within the more than five years maturity category. Of such securities,
$523.3 million are callable within one year and at various times thereafter.
Also included in the Gap Table are $4.26 billion of callable borrowings,
classified according to their maturity dates, which are primarily within the
more than one year to three years category and the more than five years
category. Of such borrowings, $1.73 billion are callable within one year and at
various times thereafter.
At June 30, 1998
------------------------------------------------------------------------------
More than More than
One Year Three Years
One Year to to More than
(Dollars in Thousands) or Less Three Years (1) Five Years (1) Five Years (1) Total
- ---------------------- ------- --------------- -------------- -------------- -----
Interest-earning assets:
Mortgage loans (2) $1,159,564 $1,170,427 $1,065,973 $1,380,507 $ 4,776,471
Consumer and other loans (2) 38,765 10,075 -- -- 48,840
Federal funds sold and
repurchase agreements 161,704 -- -- -- 161,704
Mortgage-backed and other securities
available-for-sale 1,559,484 626,341 225,604 1,107,647 3,519,076
Mortgage-backed and other securities
held-to-maturity 495,829 291,606 190,714 1,505,612 2,483,761
---------- ---------- ---------- ---------- -----------
Total interest-earning assets 3,415,346 2,098,449 1,482,291 3,993,766 10,989,852
Add:
Net unamortized purchase premiums
and deferred fees (3) 4,738 5,263 5,019 6,111 21,131
---------- ---------- ---------- ---------- -----------
Net interest-earning assets 3,420,084 2,103,712 1,487,310 3,999,877 11,010,983
---------- ---------- ---------- ---------- -----------
Interest-bearing liabilities:
Savings 204,413 391,791 340,688 766,546 1,703,438
NOW 17,865 17,865 17,865 35,730 89,325
Money manager 50,496 50,496 50,496 100,993 252,481
Money market 547,533 17,252 17,252 51,755 633,792
Certificates of deposit 1,957,353 961,326 308,645 100 3,227,424
Borrowed funds 85,000 1,010,114 1,580,000 1,715,000 4,390,114
---------- ---------- ---------- ---------- -----------
Total interest-bearing liabilities $2,862,660 $2,448,844 $2,314,946 $2,670,124 $10,296,574
---------- ---------- ---------- ---------- -----------
Interest sensitivity gap $ 557,424 $ (345,132) $ (827,636) $1,329,753 $ 714,409
========== ========== ========== ========== ===========
Cumulative interest sensitivity gap $ 557,424 $ 212,292 $ (615,344) $ 714,409
========== ========== ========== ========== ===========
Cumulative interest sensitivity gap
as a percentage of total assets 4.82% 1.83% (5.32)% 6.17%
Cumulative net interest-earning assets
as a percentage of interest-bearing liabilities 119.47% 104.00% 91.93% 106.94%
(1) Includes $523.3 million of other securities and $1.73 billion of
borrowings, which are callable within one year and at various times
thereafter, which are classified according to their contractual
maturity dates (primarily in the more than five years category for
other securities and the more than one year to three years and the more
than five years categories for borrowings).
(2) Mortgage, consumer and other loans exclude non-performing loans, but
are not reduced for the allowance for loan losses.
(3) Net unamortized purchase premiums and deferred fees are prorated.
13
15
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 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. The Gap
Table reflects the estimates of management 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. For example,
the Company has a number of deposit accounts, including savings, NOW, money
market and money manager accounts which, subject to certain regulatory
exceptions not relevant here, may be withdrawn at any time. The Company, based
upon its historical experience, assumes that while all customers in these
account categories could withdraw their funds on any given day, they will not do
so, even if market interest rates were to change. As a result, different
assumptions may be used at different points in time. The majority of the
certificates of deposit projected to mature within the next year have original
terms of one and one-half to two and one-half years. The Company has and
currently offers competitive market rates for products with these terms. Based
upon historical experience, as well as current and projected economic
conditions, the Company believes it can continue to offer competitive market
rates and, therefore, while there is no assurance of renewal, the Company
believes a significant amount of the balance will be renewed.
The Company's interest rate sensitivity is also monitored by management
through analysis of the change in the net portfolio value ("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
market value of an institution's net worth. Increases in the market value of
assets will increase the NPV whereas decreases in market value of assets will
decrease the NPV. Conversely, increases in the market value of liabilities will
decrease NPV whereas decreases in the market value of liabilities will increase
the NPV. The changes in market value of assets and liabilities due to changes in
interest rates reflect the interest sensitivity of those assets and liabilities
as their values are derived from the characteristics of the asset or liability
(i.e. fixed rate, adjustable rate, caps, floors) relative to the interest rate
environment. For example, in a rising interest rate environment, the fair market
value of a fixed rate asset will decline, whereas the fair market value of an
adjustable rate asset, depending on its repricing characteristics, may not
decline. The NPV ratio under any interest rate scenario is defined as the NPV in
that scenario divided by the market value of assets in the same scenario. This
analysis, referred to in the following NPV table (the "NPV Table"), initially
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 OTS also produces a
similar analysis using its own model based upon data submitted on the
Association's quarterly Thrift Financial Reports, the results of which may vary
from the Company's internal model primarily because of differences in
assumptions utilized between the Company's 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 those used in the Gap Table were used. In addition, the
available-for-sale securities were classified based on contractual maturities
and estimated prepayments.
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, 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 the rates offered by the Company for deposits and
borrowings of similar remaining maturities. The NPV Table calculates the NPV at
a flat rate scenario by computing the present value of cash flows of interest
earning assets less the present value of interest bearing liabilities. Certain
assets, including fixed assets and real estate held for development, are assumed
to remain at book value (net of valuation allowance) regardless of interest rate
scenario. Other non-interest earning assets and non-interest bearing
14
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liabilities such as deferred fees, unamortized premiums, goodwill and accrued
expenses and other liabilities are excluded from the NPV calculation.
The following represents the Company's NPV table as of June 30 1998.
Changes in Net Portfolio Value ("NPV") Portfolio Value of Assets
Rates in --------------------------- -------------------------
Basis Points Dollar Dollar Percentage NPV Percentage
(Rate Shock) Amount Change Change Ratio Change
------------ ------ ------ ------ ----- ------
(Dollars in Thousands)
+200 $ 861,202 $(200,763) (18.90)% 8.07% (13.23)%
+100 998,266 (63,699) (6.00) 9.02 (3.01)
-0- 1,061,965 -- -- 9.30 --
-100 1,124,269 62,303 5.87 9.59 3.12
-200 1,172,533 110,568 10.41 9.75 4.84
As with the Gap Table, certain shortcomings are inherent in the
methodology used in the above interest rate risk measurements. 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 Table assumes that the composition of
the Company's 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 the
Company's 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 the Company's net portfolio
value and will differ from actual results.
The Company, from time to time, in an attempt to further reduce
volatility in its earnings caused by changes in interest rates will enter into
financial derivative agreements with third parties. The Company did not enter
into any such transactions during 1997 or the first six months of 1998, except
for outstanding interest rate cap and floor agreements acquired in The Greater
Acquisition in 1997. Additionally, the Company is not subject to foreign
currency exchange or commodity price risk and does not own any trading assets.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. The
following table sets forth certain information relating to the Company for the
quarters and six months ended June 30, 1998 and 1997. Yields and costs are
derived by dividing income or expense by the average balance of related assets
or liabilities, respectively, for the periods shown, and annualized, except
where noted otherwise. This table should be analyzed in conjunction with
management's discussion of the comparison of operating results for the quarters
and six months ended June 30, 1998 and 1997.
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Quarter Ended June 30,
----------------------------------------------------------------------------------------
1998 1997
------------------------------------------ ------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Cost Balance Interest Cost
- ---------------------- ------- -------- ---- ------- -------- ----
ASSETS: (Annualized) (Annualized)
Interest-earning assets:
Mortgage loans $ 4,730,204 $ 89,815 7.60% $ 2,865,678 $ 56,831 7.93%
Consumer and other loans 50,847 1,187 9.34 57,138 1,404 9.83
Mortgage-backed securities (1) 4,264,573 71,341 6.69 3,364,564 56,536 6.72
Other securities (1) 1,478,334 26,405 7.14 975,430 16,662 6.83
Federal funds sold and
repurchase agreements 215,902 3,060 5.67 287,357 3,979 5.54
----------- ----------- ----------- -----------
Total interest-earning assets 10,739,860 191,808 7.14 7,550,167 135,412 7.17
----------- -----------
Non-interest-earning assets 533,818 170,284
----------- -----------
Total assets $11,273,678 $ 7,720,451
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Savings 1,707,314 10,884 2.55% $ 1,125,850 7,121 2.53%
Certificates of deposit 3,297,075 44,093 5.35 2,731,311 37,253 5.46
NOW 90,823 284 1.25 40,320 126 1.25
Money manager 257,103 804 1.25 209,259 565 1.08
Money market 598,921 7,217 4.82 336,522 3,870 4.60
Borrowed funds 4,060,028 57,718 5.69 2,518,102 37,032 5.88
----------- ----------- ----------- -----------
Total interest-bearing liabilities 10,011,264 121,000 4.83 6,961,364 85,967 4.94
----------- -----------
Non-interest-bearing liabilities 332,984 168,806
----------- -----------
Total liabilities 10,344,248 7,130,170
Stockholders' equity 929,430 590,281
----------- -----------
Total liabilities and stockholders'
equity $11,273,678 $ 7,720,451
=========== ===========
Net interest income/net interest
rate spread (2) $ 70,808 2.31% $ 49,445 2.23%
=========== ==== =========== ====
Net interest-earning assets/net
interest margin (3) $ 728,596 2.64% $ 588,803 2.62%
=========== ==== =========== ====
Ratio of interest-earning assets
to interest-bearing liabilities 1.07x 1.08x
=========== ===========
(1) Securities available-for-sale are reported at average amortized cost.
(2) Net interest rate spread represents the difference between the average
yield on average interest-earning assets and the average cost of
average interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
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Six Months Ended June 30,
----------------------------------------------------------------------------------------
1998 1997
------------------------------------------ ------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Cost Balance Interest Cost
- ---------------------- ------- -------- ---- ------- -------- ----
ASSETS: (Annualized) (Annualized)
Interest-earning assets:
Mortgage loans $ 4,573,383 $ 174,607 7.64% $ 2,763,686 $ 109,385 7.92%
Consumer and other loans 51,917 2,415 9.30 57,534 2,850 9.91
Mortgage-backed securities (1) 4,215,532 141,199 6.70 3,396,579 115,461 6.80
Other securities (1) 1,495,507 53,963 7.22 926,397 31,942 6.90
Federal funds sold and
repurchase agreements 162,371 4,554 5.61 177,317 4,847 5.47
----------- ----------- ----------- -----------
Total interest-earning assets 10,498,710 376,738 7.18 7,321,513 264,485 7.22
----------- -----------
Non-interest-earning assets 537,584 223,812
----------- -----------
Total assets $11,036,294 $ 7,545,325
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Savings $ 1,705,501 $ 21,745 2.55% $ 1,128,860 14,280 2.53%
Certificates of deposit 3,369,520 89,838 5.33 2,727,418 73,934 5.42
NOW 86,354 540 1.25 55,512 347 1.25
Money manager 255,772 1,599 1.25 212,942 1,182 1.11
Money market 564,777 13,555 4.80 304,769 6,751 4.43
Borrowed funds 3,811,478 108,793 5.71 2,368,845 69,090 5.83
----------- ----------- ----------- -----------
Total interest-bearing liabilities 9,793,402 236,070 4.82 6,798,346 165,584 4.87
----------- -----------
Non-interest-bearing liabilities 323,617 157,689
----------- -----------
Total liabilities 10,117,019 6,956,035
Stockholders' equity 919,275 589,290
----------- -----------
Total liabilities and stockholders'
equity $11,036,294 $ 7,545,325
=========== ===========
Net interest income/net interest
rate spread (2) $ 140,668 2.36% $ 98,901 2.35%
=========== ==== =========== ====
Net interest-earning assets/net
interest margin (3) $ 705,308 2.68% $ 523,167 2.70%
=========== ==== =========== ====
Ratio of interest-earning assets to
interest-bearing liabilities 1.07x 1.08x
=========== ===========
(1) Securities available-for-sale are reported at average amortized cost.
(2) Net interest rate spread represents the difference between the average
yield on average interest-earning assets and the average cost of
average interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
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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 the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
Quarter Ended June 30, 1998 Six Months Ended June 30, 1998
Compared to Compared to
Quarter Ended June 30, 1997 Six Months Ended June 30, 1997
----------------------------------- -------------------------------------
(In Thousands) Increase (Decrease) Increase (Decrease)
- -------------- ------------------- -------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
Interest-earning assets:
Mortgage loans ...................... $ 35,445 $(2,461) $ 32,984 $ 69,223 $(4,001) $ 65,222
Consumer and other loans ............ (149) (68) (217) (267) (168) (435)
Mortgage-backed securities .......... 15,058 (253) 14,805 27,459 (1,721) 25,738
Other securities .................... 8,955 788 9,743 20,475 1,546 22,021
Federal funds sold and repurchase
agreements ....................... (1,010) 91 (919) (415) 122 (293)
-------- ------- -------- --------- ------- ---------
Total .................................. 58,299 (1,903) 56,396 116,475 (4,222) 112,253
-------- ------- -------- --------- ------- ---------
Interest-bearing liabilities:
Savings ............................. 3,707 56 3,763 7,351 114 7,465
Certificates of deposit ............. 7,603 (763) 6,840 17,149 (1,245) 15,904
NOW ................................. 158 -- 158 193 -- 193
Money manager ....................... 141 98 239 256 161 417
Money market ........................ 3,154 193 3,347 6,197 607 6,804
Borrowed funds ...................... 21,921 (1,235) 20,686 41,154 (1,451) 39,703
-------- ------- -------- --------- ------- ---------
Total .................................. 36,684 (1,651) 35,033 72,300 (1,814) 70,486
-------- ------- -------- --------- ------- ---------
Net change in net interest
income .............................. $ 21,615 $ (252) $ 21,363 $ 44,175 $(2,408) $ 41,767
======== ======= ======== ========= ======= =========
18
20
ASSET QUALITY
One of the Company's key operating objectives has been and continues to
be to maintain a high level of asset quality. Through a variety of strategies,
including, but not limited to, the sale of problem assets or potential problem
assets, borrower workout arrangements and aggressive marketing of owned
properties, the Company has been proactive in addressing problem and
non-performing assets which, in turn, has helped to build the strength of the
Company's financial condition. Such strategies, as well as the Company's
concentration on one-to-four family mortgage lending and maintenance of sound
credit standards for new loan originations, have resulted in a reduction in
non-performing assets from December 31, 1992 through the third quarter of 1997.
Included in the balance of non-performing assets at December 31, 1997 are
mortgage loans, real estate owned and real estate investments totaling $11.8
million, acquired from The Greater which the Company intends to sell. During the
first six months of 1998, $6.2 million of such properties were sold. Of the
remaining $5.6 million, the Company has a contract for the sale of a $4.0
million property and is actively seeking a buyer for the $1.6 million property.
Non-performing assets decreased $6.7 million, from $59.1 million at December 31,
1997 to $52.4 million at June 30, 1998. The following table shows a comparison
of delinquent loans as of June 30, 1998 and December 31, 1997.
DELINQUENT LOANS
AT JUNE 30, 1998 AT DECEMBER 31, 1997
----------------------------------------------- --------------------------------------------
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 ............ 65 $ 2,593 352 $29,232 85 $ 3,741 365 $27,960
Multi-family .................. 4 2,402 24 5,040 2 480 20 7,089
Commercial real estate ........ -- -- 14 5,826 -- -- 12 7,076
Consumer and other loans ...... 25 517 24 561 30 299 35 696
------- ------- ------- ------- ------- ------- ------- -------
Total delinquent loans ... 94 $ 5,512 414 $40,659 117 $ 4,520 432 $42,821
======= ======= ======= ======= ======= ======= ======= =======
Delinquent loans to total
loans .................... 0.11% 0.84% 0.10% 0.99%
19
21
The following table sets forth information regarding non-performing
assets at June 30, 1998 and December 31, 1997. In addition to the non-performing
loans, the Company has approximately $5.5 million and $4.5 million of potential
problem loans at June 30, 1998 and December 31, 1997, respectively. Such loans
are 60-89 days delinquent as shown on page 19.
NON-PERFORMING ASSETS
AT AT
JUNE 30, DECEMBER 31,
1998 (1) 1997 (1)
-------- --------
Non-accrual delinquent mortgage loans (2) ................ $31,242 $37,397
Non-accrual delinquent consumer
and other loans ..................................... 561 696
Mortgage loans delinquent 90 days or more (3) ............ 8,856 4,728
------- -------
Total non-performing loans .......................... 40,659 42,821
------- -------
Real estate owned, net (4) ............................... 2,885 6,091
Investments in real estate, net (5) ...................... 8,878 10,173
------- -------
Total real estate owned and investments
in real estate, net ............................... 11,763 16,264
------- -------
Total non-performing assets (6) ..................... $52,422 $59,085
======= =======
Allowance for loan losses to non-performing loans ........ 93.12% 93.50%
Allowance for loan losses to total loans ................. 0.78% 0.93%
- ----------
(1) If all non-accrual loans had been performing in accordance
with their original terms, the Company would have recorded
interest income of $1.3 million for the six months ended June
30, 1998 and $2.9 million for the year ended December 31,
1997. Actual payments recorded to interest income totaled
$432,000 for the six months ended June 30, 1998 and $1.2
million for the year ended December 31, 1997.
(2) 13.4% and 27.6% are secured by other than one-to-four family
properties at June 30, 1998 and December 31, 1997,
respectively.
(3) 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
primarily secured by multi-family and commercial properties.
(4) Real estate acquired by the Company 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.
(5) Investments in real estate are recorded at the lower of cost
or fair value.
(6) Balance includes $5.6 million and $11.8 million at June 30,
1998 and December 31, 1997, respectively, of non-performing
assets acquired from The Greater. See page 19.
20
22
The following table sets forth the Company's change in allowance for loan,
investments in real estate and REO losses.
(Dollars in Thousands)
Allowance for Loan Losses:
Balance at December 31, 1997 ..................... $ 40,039
Provision charged to operations .................. 614
Charge-offs:
One-to-four family ...................... (765)
Multi-family ............................ (769)
Commercial .............................. (1,528)
Consumer and other ...................... (149)
--------
Total charge-offs ................................ (3,211)
--------
Recoveries:
One-to-four family ...................... 275
Multi-family ............................ 71
Consumer and other ...................... 73
--------
Total recoveries ................................. 419
--------
Total net charge-offs ............................ (2,792)
--------
Balance at June 30, 1998 ......................... $ 37,861
========
Ratio of net charge-offs during the period to average loans outstanding during the period 0.06%
Ratio of allowance for loan losses to total loans at end of the period 0.78%
Ratio of allowance for loan losses to non-performing loans at end of the period 93.12%
Allowance for Investments in Real Estate and REO Losses:
Balance at December 31, 1997 .......................... $ 1,493
Provision charged to operations ................... 919
Charge-offs ....................................... (427)
Recoveries ........................................ 63
-------
Balance at June 30, 1998 .............................. $ 2,048
=======
The following table sets forth the Company's allocation of the allowance for
loan losses by loan category and the percent of loans in each category to total
loans receivable. The portion of the allowance for loan losses allocated to each
loan category does not represent the total available for future losses which may
occur within the loan category since the total loan loss reserve is a valuation
reserve applied to the entire loan portfolio.
At June 30, 1998
------------------------
% of Loans
in Category to
Amount Total Loans
------ -----------
One-to-four family $26,981 84.48%
Multi-family 3,515 7.54
Commercial 6,578 6.96
Consumer and other loans 787 1.02
------- ------
Total allowances $37,861 100.00%
======= ======
21
23
The following table sets forth the composition of the Company's loan portfolio
at June 30, 1998 and December 31, 1997.
At June 30, 1998 At December 31, 1997
---------------------- ----------------------
Percent Percent
of of
(Dollars in Thousands) Amount Total Amount Total
- ---------------------- ------ ----- ------ -----
MORTGAGE LOANS:
One-to-four family ................. $4,111,060 84.48% $3,561,673 82.34%
Multi-family ....................... 367,003 7.54 331,968 7.68
Commercial real estate ............. 338,506 6.96 378,558 8.75
---------- ------ ---------- ------
Total mortgage loans ................... 4,816,569 98.98 4,272,199 98.77
---------- ------ ---------- ------
CONSUMER AND OTHER LOANS:
Home equity ........................ 30,064 0.62 32,652 0.76
Passbook ........................... 5,526 0.11 4,956 0.11
Other .............................. 13,811 0.29 15,678 0.36
---------- ------ ---------- ------
Total consumer and other loans ......... 49,401 1.02 53,286 1.23
---------- ------ ---------- ------
Total loans ............................ 4,865,970 100.00% 4,325,485 100.00%
---------- ====== ---------- ======
LESS:
Unearned discounts, premiums and
deferred loan fees, net ........ 25,002 19,521
Allowance for loan losses .......... (37,861) (40,039)
---------- ----------
Total loans, net ....................... $4,853,111 $4,304,967
========== ==========
22
24
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, 1998 and December 31, 1997.
At June 30, 1998
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
- -------------- ---- ----- ------ -----
AVAILABLE-FOR-SALE:
Mortgage-backed securities:
GNMA pass-through certificates $ 263,713 $ 3,302 $ (384) $ 266,631
FHLMC pass-through certificates 299,103 2,735 (950) 300,888
FNMA pass-through certificates 101,237 217 (889) 100,565
Other pass-through certificates 385,508 6,795 (1,132) 391,171
REMICs and CMOs:
Agency issuance 1,902,979 4,883 (6,742) 1,901,120
Non agency issuance 196,839 1,679 (194) 198,324
Other 16,096 195 (27) 16,264
---------- ------- -------- ----------
Total mortgage-backed securities 3,165,475 19,806 (10,318) 3,174,963
---------- ------- -------- ----------
Other securities:
Obligations of the U.S.
Government and agencies 203,761 680 (192) 204,249
FNMA and FHLMC preferred stock 53,415 2,760 -- 56,175
Equity and other securities 10,050 -- (111) 9,939
---------- ------- -------- ----------
Total other securities 267,226 3,440 (303) 270,363
---------- ------- -------- ----------
Total Available-for-Sale $3,432,701 $23,246 $(10,621) $3,445,326
========== ======= ======== ==========
HELD-TO-MATURITY:
Mortgage-backed securities:
GNMA pass-through certificates $ 62,192 $ 3,439 $ (1) $ 65,630
FHLMC pass-through certificates 17,986 804 (2) 18,788
FNMA pass-through certificates 17,746 72 (87) 17,731
REMICs and CMOs:
Agency issuance 871,581 8,946 (1,820) 878,707
Non agency issuance 331,037 1,059 (860) 331,236
---------- ------- -------- ----------
Total mortgage-backed securities 1,300,542 14,320 (2,770) 1,312,092
---------- ------- -------- ----------
Other securities:
Obligations of the U.S.
Government and agencies 1,120,077 8,370 (1,361) 1,127,086
Obligations of states and
political subdivisions 49,284 -- (21) 49,263
Corporate debt securities 9,986 55 -- 10,041
---------- ------- -------- ----------
Total other securities 1,179,347 8,425 (1,382) 1,186,390
---------- ------- -------- ----------
Total Held-to-Maturity $2,479,889 $22,745 $ (4,152) $2,498,482
========== ======= ======== ==========
23
25
At December 31, 1997
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
- -------------- ---- ----- ------ -----
AVAILABLE-FOR-SALE:
Mortgage-backed securities:
GNMA pass-through certificates $ 316,726 $ 2,716 $ (440) $ 319,002
FHLMC pass-through certificates 362,570 3,852 (768) 365,654
FNMA pass-through certificates 122,864 361 (715) 122,510
Other pass-through certificates 497,976 8,365 (2,970) 503,371
REMICs and CMOs:
Agency issuance 1,164,895 2,845 (5,924) 1,161,816
Non agency issuance 209,082 1,346 (69) 210,359
Other 18,208 14 (14) 18,208
---------- ------- -------- ----------
Total mortgage-backed securities 2,692,321 19,499 (10,900) 2,700,920
---------- ------- -------- ----------
Other securities:
Obligations of the U.S.
Government and agencies 83,023 32 (298) 82,757
FNMA and FHLMC preferred stock 56,915 3,086 -- 60,001
Equity and other securities 14,063 2,538 (23) 16,578
---------- ------- -------- ----------
Total other securities 154,001 5,656 (321) 159,336
---------- ------- -------- ----------
Total Available-for-Sale $2,846,322 $25,155 $(11,221) $2,860,256
========== ======= ======== ==========
HELD-TO-MATURITY:
Mortgage-backed securities:
GNMA pass-through certificates $ 71,321 $ 4,171 $ -- $ 75,492
FHLMC pass-through certificates 21,308 969 (4) 22,273
FNMA pass-through certificates 19,425 104 (130) 19,399
REMICs and CMOs:
Agency issuance 926,779 6,597 (2,404) 930,972
Non agency issuance 322,571 594 (1,563) 321,602
---------- ------- -------- ----------
Total mortgage-backed securities 1,361,404 12,435 (4,101) 1,369,738
---------- ------- -------- ----------
Other securities:
Obligations of the U.S.
Government and agencies 1,189,300 7,282 (1,223) 1,195,359
Obligations of states and
political subdivisions 49,725 -- (34) 49,691
Corporate debt securities 10,020 28 (1) 10,047
---------- ------- -------- ----------
Total other securities 1,249,045 7,310 (1,258) 1,255,097
---------- ------- -------- ----------
Total Held-to-Maturity $2,610,449 $19,745 $ (5,359) $2,624,835
========== ======= ======== ==========
24
26
COMPARISON OF FINANCIAL CONDITION AS OF
JUNE 30, 1998 AND DECEMBER 31, 1997
AND OPERATING RESULTS FOR THE QUARTERS AND SIX MONTHS ENDED
JUNE 30, 1998 AND 1997
FINANCIAL CONDITION
Total assets increased $1.05 billion, to $11.58 billion at June 30,1998, from
$10.53 billion at December 31, 1997. This increase was primarily due to
increases in the mortgage loan and mortgage-backed securities portfolios.
Mortgage loans increased $549.9 million from $4.29 billion at December 31, 1997
to $4.84 billion at June 30, 1998. Gross mortgage loans originated and purchased
during the first six months of 1998 totaled $1.09 billion, of which $991.5
million were originations and $96.9 million were purchases. This compares to
$512.9 million of originations and $97.0 million of purchases for a total of
$609.9 million during the first six months of 1997. The increase in the mortgage
loan originations was partially offset by loan prepayments, as well as normal
principal repayments. Mortgage-backed securities increased $413.2 million to
$4.48 billion at June 30, 1998, from $4.06 billion at December 31, 1997. The
growth in the loan and mortgage-backed securities portfolios was funded
primarily through additional medium- and long-term callable reverse repurchase
agreements, which increased $1.24 billion, to $4.12 billion at June 30, 1998,
from $2.88 billion at December 31, 1997. In addition to the increases in the
mortgage loan and mortgage-backed securities portfolios, federal funds sold and
repurchase agreements increased $51.1 million to $161.7 million at June 30,
1998, from $110.6 million at December 31, 1997. Deposits decreased slightly by
$128.2 million to $6.09 billion, at June 30, 1998, from $6.22 billion at
December 31, 1997, reflecting a decrease in certificates of deposit from $3.52
billion at December 31, 1997 to $3.23 billion at June 30, 1998, offset, in part
by an increase in money market accounts from $823.2 million at December 31, 1997
to $982.2 million at June 30, 1998.
Stockholders' equity increased to $942.5 million at June 30, 1998 from $899.4
million at December 31, 1997, which reflects net income of $45.9 million, the
amortization relating to the allocation of ESOP stock and earned portion of RRP
stock and related tax benefit of $10.3 million and the effect of stock options
exercised and related tax benefit of $10.8 million, offset by dividends paid of
$13.4 million, repurchases of common stock in the first quarter of $9.7 million
and the change in net unrealized gains on securities, net of taxes, of $819,000.
RESULTS OF OPERATIONS
GENERAL
Net income increased 55.6%, to $23.7 million, or diluted earnings per
common share of $0.85 for the second quarter of 1998, from $15.2 million, or
diluted earnings per common share of $0.74, for the comparable period in 1997.
The return on average assets increased to 0.84% for the second quarter of 1998
from 0.79% for the second quarter of 1997. The return on average equity and the
return on average common equity both decreased to 10.18% and 10.08%,
respectively, for the second quarter of 1998, from 10.30% for the second quarter
of 1997. The return on average tangible equity increased to 14.06% for the
second quarter of 1998, from 12.33% for the second quarter of 1997.
Net income increased 49.9%, to $45.9 million, or diluted earnings per
common share of $1.65 for the first six months of 1998, from $30.6 million, or
diluted earnings per common share of $1.48 for the comparable period in 1997.
The return on average assets increased to 0.83% for the first six months of 1998
from 0.81% for the comparable 1997 period. The return on average equity for the
six months ended June 30, 1998 and 1997 was 9.99% and 10.40%, respectively. The
return on average common equity decreased to 9.88% for the first six months of
1998, from 10.40% for the first six months of 1997. The return on average
tangible equity increased to 13.86% for the six months ended June 30, 1998, from
12.48% for the same period in 1997.
The decreases in both the return on average equity and the return on
average common equity for the three and
25
27
six month periods ended June 30, 1998 were primarily the result of an increase
in stockholders' equity of $342.7 million, or 57.1%, from $599.8 million at June
30, 1997 to $942.5 million at June 30, 1998, as a result of The Greater
Acquisition.
NET INTEREST INCOME
Net interest income increased $21.4 million, or 43.2%, from $49.4
million in the second quarter of 1997 to $70.8 million in the second quarter of
1998. The increase is due to the growth in total average interest-earning assets
of $3.19 billion, primarily as a result of The Greater Acquisition, which, after
the close of business on September 30, 1997, provided $689.8 million of loans
held for investment and $1.29 billion of mortgage-backed securities and other
securities available-for-sale. During 1998, the Company has continued to
emphasize the origination of mortgage loans. Average mortgage loans for the
second quarter increased $1.86 billion from $2.87 billion at June 30, 1997 to
$4.73 billion at June 30, 1998. Despite the continued flat U.S. Treasury yield
curve, the Company has achieved slight increases in its second quarter 1998 net
interest spread and net interest margin as compared to the second quarter of
1997. The Company's net interest spread increased from 2.23% for the quarter
ended June 30, 1997 to 2.31% for the quarter ended June 30, 1998, which was
primarily the result of a decrease in the average cost of total average
interest-bearing liabilities, from 4.94% for the quarter ended June 30, 1997 to
4.83% for the quarter ended June 30, 1998 offset by the decrease in the average
yield on total average interest-earning assets, from 7.17% for the quarter ended
June 30, 1997 to 7.14% for the quarter ended June 30, 1998. The net interest
margin increased from 2.62% for the second quarter of 1997 to 2.64% for the
second quarter of 1998 which was the result of the increase in the net interest
rate spread coupled with the increase in total average interest-earning assets.
The average yield on mortgage loans decreased 33 basis points from
7.93% for the second quarter of 1997 to 7.60% for the second quarter of 1998 due
to a general decline in market rates. The impact of this decrease on the average
yield on total interest earning assets was offset in part by the increase in the
average volume of such loans which generally have a higher average yield than
many of the Company's other interest-earning assets. Additionally, the average
yield on consumer and other loans decreased 49 basis points, from 9.83% for the
second quarter of 1997 to 9.34% for the second quarter of 1998, partially as a
result of the sale of the Company's $8.1 million credit card portfolio in the
third quarter of 1997, which had an average yield of 12.61% for the second
quarter of 1997. The average yield of federal funds sold and repurchase
agreements increased from 5.54% for the second quarter of 1997 to 5.67% for the
second quarter of 1998. The average yield on other securities increased 31 basis
points from 6.83% for the second quarter of 1997 to 7.14% for the second quarter
of 1998 as a result of the Company purchasing higher-yielding long-term U.S.
Government and agency securities with non-callable features between one to three
years. The increase in total average interest-earning assets of $3.19 billion
was offset by an increase in total average interest-bearing liabilities of $3.05
billion, also as a result of The Greater Acquisition, which after the close of
business on September 30, 1997 provided an additional $493.5 million and $1.60
billion of borrowings and deposits, respectively. The Company also significantly
increased borrowings with lower interest rates which were primarily utilized to
fund the asset growth discussed above. The average cost of borrowed funds
decreased from 5.88% for the second quarter of 1997 to 5.69% for the second
quarter of 1998. The average cost of money market accounts increased from 4.60%
for the second quarter of 1997 to 4.82% for the second quarter of 1998, which
was the result of the Company increasing the rates offered on high balance money
market accounts at the end of the first quarter of 1997. Interest rates on the
money market accounts are tiered based on account balance. Customers shifting
deposits into the money market accounts to obtain the higher rates offered,
contributed to an increase in the average balance of money market accounts by
$262.4 million to $598.9 million for the second quarter of 1998 from $336.5
million for the second quarter of 1997. Offsetting these increases was a
decrease in the average cost of certificates of deposit from 5.46% to 5.35% for
the quarters ended June 30, 1997 and 1998, respectively.
For the six months ended June 30, 1998, net interest income increased
$41.8 million, or 42.2%, to $140.7 million from $98.9 million for the six months
ended June 30, 1997. Total net interest earning assets increased $182.1 million
to $705.3 million for the six months ended June 30, 1998 from $523.2 million for
the comparable 1997 period. The Company's net interest spread for the six months
ended June 30, 1998 increased slightly to
26
28
2.36% from 2.35% for the same period in 1997, which was the result of the
decrease in the average yield on total average interest-earning assets, from
7.22% for the six months ended June 30, 1997 to 7.18% for the six months ended
June 30, 1998 offset by a decrease in the average cost of total average
interest-bearing liabilities, from 4.87% for the six months ended June 30, 1997
to 4.82% for the six months ended June 30, 1998. The net interest margin
decreased slightly from 2.70% for the first six months of 1997 to 2.68% for the
first six months of 1998. The average yield on mortgage loans decreased 28 basis
points from 7.92% for the first half of 1997 to 7.64% for the first half of
1998. Additionally, the average yield on consumer and other loans decreased 61
basis points, from 9.91% for the first half of 1997 to 9.30% for the first half
of 1998, partially as a result of the sale of the Company's credit card
portfolio as mentioned previously.
As a result of the Federal Reserve increasing rates offered on
overnight federal funds by 25 basis points in March 1997, the average yield of
federal funds sold and repurchase agreements increased from 5.47% for the first
six months of 1997 to 5.61% for the first six months of 1998. The average yield
on other securities increased 32 basis points from 6.90% for the six months
ended June 30, 1997 to 7.22% for the six months ended June 30, 1998 as a result
of the Company's purchases of higher-yielding securities, as mentioned above.
The average cost of borrowed funds decreased from 5.83% for the six months ended
June 30, 1997 to 5.71% for the six months ended June 30, 1998. The average cost
of money market accounts increased from 4.43% for the six months ended June 30,
1997 to 4.80% for the six months ended June 30, 1998, as a result of the Company
increasing the rates offered at the end of the first quarter of 1997. Offsetting
these increases was a decrease in the average cost of certificates of deposit
from 5.42% to 5.33% for the six months ended June 30, 1997 and 1998,
respectively. These changes are reflective of the second quarter changes
discussed above.
PROVISION FOR LOAN LOSSES
Provision for loan losses decreased to $314,000 for the second quarter
of 1998 from $1.4 million for the comparable 1997 period. For the six months
ended June 30, 1998 and 1997, the provision for loan losses was $614,000 and
$1.9 million, respectively. The allowance for loan losses decreased from $40.0
million at December 31, 1997 to $37.9 million at June 30, 1998 reflecting, in
part, net charge-offs of $2.2 million and $2.8 million during the three and six
months ended June 30, 1998, respectively. For the three and six months ended
June 30, 1997, net charge-offs totaled $510,000 and $1.1 million, respectively.
Non-performing loans decreased from $42.8 million at December 31, 1997 to $40.7
million at June 30, 1998. The reduction in non-performing loans, coupled with
the decrease in the allowance for loan losses resulted in a slight reduction in
the Company's percentage of allowance for loan losses to non-performing loans
from 93.50% at December 31, 1997 to 93.12% at June 30, 1998. In addition, the
allowance for loan losses as a percentage of total loans decreased from 0.93% at
December 31, 1997 to 0.78% at June 30, 1998 primarily as a result of the $540.5
million increase in gross loans receivable from December 31, 1997 to June 30,
1998. The decreases in the provision primarily reflect the improvement in
non-performing loans. See "Asset Quality."
NON-INTEREST INCOME
Non-interest income for the quarter ended June 30, 1998, exclusive of
net gain on sales of securities and loans of $3.3 million, increased $2.2
million to $5.7 million compared to $3.5 million, exclusive of net gain on sales
of securities and loans of $1.1 million for the quarter ended June 30, 1997. For
the six months ended June 30, 1998, non-interest income, exclusive of net gain
on sales of securities and loans of $5.4 million, increased 65.4% or $4.3
million to $10.9 million from $6.6 million, exclusive of net gain on sales of
securities and loans of $1.5 million for the comparable 1997 period. The
increases are primarily in customer service and loan fees, from the addition of
The Greater's operations in the fourth quarter of 1997, which totaled $4.3
million and $8.1 million for the three and six months ended June 30, 1998,
respectively, compared to $2.6 million and $5.2 million for the three and six
months ended June 30, 1997, respectively. Other non-interest income also
increased to $1.3 million and $2.9 million for the three and six months ended
June 30, 1998, respectively, from $903,000 and $1.4 million for the three and
six months ended June 30, 1997, respectively. These increases were primarily a
result of increased rental income generated from The Greater's properties
acquired.
27
29
NON-INTEREST EXPENSE
Non-interest expense for the quarter ended June 30, 1998 increased
$11.0 million, to $37.5 million, from $26.5 million for the quarter ended June
30, 1997, primarily as a result of the addition of The Greater's operations in
the 1997 fourth quarter. For the first half of 1998 non-interest expense
increased $23.1 million, to $75.7 million from $52.6 million for the first half
of 1997. General and administrative expense increased $8.3 million, from $24.1
million for the second quarter of 1997 to $32.4 million for the second quarter
of 1998. For the six months ended June 30, 1998, general and administrative
expense increased $17.9 million to $65.8 million from $47.9 million for the
comparable period in 1997. Compensation and benefits increased $4.5 million and
$9.3 million for the three and six months ended June 30, 1998, respectively, as
compared to the respective 1997 periods. The increases in compensation and
benefits were partially due to an increase in amortization expense relating to
employee stock plans which increased $706,000 and $2.0 million for the three and
six months ended June 30, 1998, respectively, as compared to the respective
prior year periods. The change in amortization expense relating to employee
stock plans includes an increase relating to the allocation of ESOP stock due to
a higher average market value of the Common Stock from $40.13 per share for the
second quarter of 1997 to $56.11 per share for the second quarter of 1998. The
average market value of the Company's Common Stock increased from $39.79 for the
six months ended June 30, 1997 to $55.74 for the six months ended June 30, 1998.
Occupancy, equipment and systems expense also increased $2.7 million
and $6.5 million, respectively, for the three and six months ended June 30, 1998
as compared to the same periods in 1997. In addition, goodwill amortization
increased $2.8 million and $5.4 million as a result of The Greater Acquisition,
to $4.9 million and $9.7 million for the three and six months ended June 30,
1998 from $2.1 million and $4.2 million for the comparable 1997 periods. The
Company's percentage of general and administrative expense to average assets
improved to 1.15% and 1.19% for the three and six months ended June 30, 1998,
respectively, from 1.25% and 1.27% for the three and six months ended June 30,
1997, respectively. For the quarter ended June 30, 1998, the Company's
efficiency ratio improved to 42.41% from 45.55% for the quarter ended June 30,
1997. The Company's efficiency ratio also improved for the first half of 1998 to
43.41% from 45.38% for the first half of 1997.
INCOME TAX EXPENSE
Income tax expense increased $7.4 million to $18.3 million for the
second quarter of 1998 from $10.9 million for the comparable quarter in 1997,
primarily due to the increase in income before taxes of $15.8 million. Income
tax expense for the six months ended June 30, 1998 increased $12.9 million to
$34.8 million from $21.9 million for the comparable 1997 period, primarily due
to the increase in income before taxes of $28.2 million.
CASH EARNINGS
Management believes that cash earnings and cash returns on average
tangible equity reflect the Company's ability to generate tangible capital that
can be leveraged for future growth. Cash earnings for the second quarter of 1998
totaled $33.4 million, an increase of $12.2 million over $21.2 million cash
earnings for the second quarter of 1997. For the six month period ended June 30,
1998, cash earnings increased $23.3 million to $65.9 million from $42.6 million
for the six months ended June 30, 1997. Cash returns on average tangible equity
and average assets for the second quarter of 1998 were 19.86% and 1.19%,
respectively, compared to 17.23% and 1.10%, respectively, for the comparable
1997 period. Cash returns on average tangible equity and average assets for the
first half of 1998 were 19.87% and 1.19%, respectively, compared to 17.37% and
1.13%, respectively for the same period in 1997. The cash efficiency ratio also
improved to 37.36% and 38.00% for the three and six months ended June 30, 1998,
respectively, from 39.59% and 39.50% for the three and six months ended June 30,
1997, respectively.
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Presented below are the Company's Condensed Consolidated Schedules of
Cash Earnings for the three and six months ended June 30, 1998 and 1997.
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED SCHEDULES OF CASH EARNINGS
(In Thousands, Except Per Share Data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
Net Income $23,663 $15,207 $45,932 $30,641
Add back:
Employee stock plans amortization expense 3,862 3,156 8,201 6,208
Amortization of goodwill 4,865 2,110 9,653 4,220
Income tax benefit on amortization expense of
earned portion of RRP stock 1,038 766 2,076 1,573
------- ------- ------- -------
Cash Earnings 33,428 21,239 65,862 42,642
------- ------- ------- -------
Preferred dividends declared 1,500 -- 3,000 --
------- ------- ------- -------
Cash earnings available to common shareholders $31,928 $21,239 $62,862 $42,642
======= ======= ======= =======
Basic earnings per common share (1) $ 1.28 $ 1.11 $ 2.54 $ 2.21
======= ======= ======= =======
Diluted earnings per common share (1) $ 1.22 $ 1.03 $ 2.41 $ 2.06
======= ======= ======= =======
(1) Based on the weighted average shares used to calculate
earnings per share on the Consolidated Statements of Income.
Prior year amounts have been restated as a result of the
implementation of SFAS No. 128.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a description of the Company's quantitative and qualitative
disclosures about market risk, see the information set forth under the caption
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations - Interest Rate Sensitivity Analysis."
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 21, 1995, the Association commenced an action, Astoria Federal
Savings and Loan Association v. United States, No. 95-468C, in the United States
Court of Federal Claims against the United States seeking in excess of $250
million in damages arising from the government's breach of an assistance
agreement entered into by the Association's predecessor in interest, Fidelity
New York, FSB, in connection with its acquisition in October 1984 of Suburbia
Federal Savings and Loan Association, and the government's subsequent enactment
and implementation of the Financial Institutions Reform, Recovery and
Enforcement Act ("FIRREA") in 1989. The case was stayed throughout most of 1996
awaiting the decision of the United States Supreme Court in United States v.
Winstar Corp., 116 S.Ct. 2432 (1996), which held the government liable for
breach of contract to the Plaintiffs in three similar cases and remanded such
cases to the Court of Federal Claims to ascertain damage. In November 1996, the
Association moved for partial summary judgment against the government on the
issues of whether Fidelity had
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a contract with the government and whether the enactment of FIRREA was contrary
to the terms of such contract. The government contested such motion and
cross-moved for summary judgment seeking to dismiss the Association's contract
claims. (The Association's complaint also asserts claims based on promissory
estoppel, failure of consideration and frustration of purpose, and a taking of
the Association's property without just compensation in violation of the Fifth
Amendment to the United States Constitution.)
On August 7 and 8, 1997, the United States Court of Federal Claims
heard oral arguments on 11 common issues raised by the government in the various
partial summary judgment motions filed by the Plaintiffs in the goodwill cases.
The Court heard argument on these common issues in the context of 4 specific
summary judgment motions, not including the Association's. In an opinion filed
December 22, 1997, all such common issues were found in favor of the Plaintiffs
and the government was ordered to show cause within 60 days why partial summary
judgment should not be entered in all cases which have partial summary judgment
motions pending, including the Association's. The government has responded in
the Association's case that if the Court will not consider case specific facts,
then it has no defense to the Association's motion. The government further
indicated that if the Court will consider case specific facts, then it asserts
that the relevant portion of the Assistance Agreement with Fidelity did not
authorize the use of its capital credit as a permanent addition to regulatory
capital. In this response, the government did not raise any issues related to
the supervisory goodwill portion of the Association's motion. The Association
has responded to the government's response indicating in substance that the
issue raised by the government was specifically addressed and decided by the
United States Supreme Court in the Winstar cases cited above, that the
contractual language in the Association's Assistance Agreement and other
operative documents is factually indistinguishable from that ruled upon in the
Winstar cases, and thus, that the Association's motion for partial summary
judgment should be granted. The Association's response further requests
reimbursement of the Association's attorneys' fees from the government for
seeking to relitigate the capital credit issue. By motion dated July 15, 1998,
the government has moved to stay further proceedings related to the
Association's motion for partial summary judgment which has been granted through
August 11, 1998. The Association intends to aggressively object to any further
stay. The Association's motion for partial summary judgment remains pending
before the Court.
While management is confident that it will be successful in the pursuit
of its motion and intends to aggressively pursue its claim against the
government, no assurance can be given as to the result of such claim or the
timing of the recovery, if any, with respect thereto. The costs incurred with
respect to this litigation to date have not been material to the Association's
results of operations. Based upon the current scheduling by the Court, the
Association does not expect to commence significant discovery in its case until
1999.
On July 18, 1997, a purported class action (the "Federal Action") was
commenced in the United States District Court for the Eastern District of New
York entitled Leonard Minzer, et ano. v. Gerard C. Keegan, et al. (Index No. 97
Civ. 4077 (CPS)) against The Greater, The Greater's directors and certain of its
executive officers, the Company and the Association. The suit alleges, among
other things, that The Greater, The Greater's directors and certain of its
executive officers solicited proxies in violation of Section 14(a) of the
Securities Exchange Act of 1934 and Rule 14a-9, promulgated thereunder, by
failing to disclose certain allegedly material facts in the proxy statement, as
amended, that was circulated to The Greater stockholders in connection with The
Greater Acquisition, and that The Greater's directors and certain of its
executive officers have breached their fiduciary duties by entering into The
Greater Acquisition and related arrangements. The suit further alleges, without
specification, that the Company and the Association participated in the
preparation and distribution of The Greater's proxy materials and/or aided and
abetted the alleged breaches of fiduciary duty by The Greater defendants.
Plaintiffs sought, among other things, a preliminary and permanent injunction
against consummation of The Greater Acquisition and the related transactions, an
order directing that the directors and executive officers of The Greater
carry-out their fiduciary duties, and unspecified damages and costs.
On September 2, 1997, plaintiffs filed an amended complaint and an
Application for a preliminary injunction (the "Application"). An evidentiary
hearing on plaintiffs' Application was held on September 10, 1997. On September
22, 1997, the Court issued a written decision denying plaintiffs' Application in
all respects. Upon stipulation of the parties, all claims against the
non-director, executive officers of The Greater, except one, have been
dismissed. The remaining defendants moved to dismiss the amended complaint. On
June 1, 1998 the Court
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granted defendant's motion to dismiss the amended complaint without prejudice.
On or about July 1, 1998, the plaintiffs filed a pleading styled "Second Amended
Class Action Complaint," without making a formal motion for leave to amend. The
defendants, which include The Greater, the Association, the Company and the
directors of The Greater, moved to strike on or about July 21, 1998 the
complaint or in the alternative to deny leave to amend or to dismiss it for
failure to state a claim on which relief may be granted. The Court has indicated
that it will treat the filing of such complaint and defendants' objections
thereto as a motion by plaintiff for leave of the Court to file such amended
complaint. The matter remains pending. On July 27, 1998, the Court notified the
parties that the plaintiffs' letter to the Court dated July 1, 1998 accompanying
the amended complaint would be deemed a motion for leave to file an amended
complaint and that defendants' motions would be treated as opposition to
plaintiffs' request for leave. The matter is presently scheduled to be heard by
the Court on September 17, 1998.
The Company and the Association believe the allegations made in the
second amended complaint in the Federal Action are without merit and intend to
aggressively defend their interests with respect to such matters.
During 1994, an action was commenced against the Association, AF
Roosevelt Avenue Corporation, a wholly owned subsidiary of the Association, 149
Roosevelt Avenue Associates, a joint venture in which AF Roosevelt Avenue
Corporation was a joint venture partner, Henry Drewitz, then Chairman of the
Board of the Association, and George L. Engelke, Jr., Chairman, President and
Chief Executive Officer of Astoria Federal and a director and officer of AF
Roosevelt Avenue Corporation, among others. The litigation arises from the
development by 149 Roosevelt Avenue Associates of a condominium project ("Vista
Tower") commencing in the mid 1980's. The development consists of 134
residential units, 25 medical facility units, and associated parking and other
facilities located in Flushing, New York. The litigation, commenced by the Board
of Managers of the condominium, alleges that there are various defects in the
condominium buildings with respect to the roof, certain masonry work and
structural components and seeks damages based upon breach of contract, fraud,
misrepresentation, breach of warranty, violations of Articles 23A and 36B of the
General Business Law of the State of New York, recklessness and negligence. The
above listed defendants have served their answers in the litigation. The
Association has notified its liability and director and officer liability
insurance carriers of the action. Although extremely limited discovery was taken
in the matter, the plaintiff, in January 1998 filed a note of issue alleging
damages of at least $340 million with respect to this matter. The Association,
AF Roosevelt Avenue Corporation, Messrs. Drewitz and Engelke and certain other
defendants have moved for summary judgment to dismiss all claims against them.
These motions are pending.
On September 19, 1997, the Queens Buildings Department ordered the
partial evacuation of the condominium. The Association, in meetings with the
Buildings Department and the New York State Attorney General's office, has
agreed to pay the cost of design work and repairs necessary to render the
building both temporarily and permanently safe and habitable. The Board of
Managers has recently begun the temporary repair work.
On October 2, 1997, the City of New York commenced an action and sought
injunctive relief by order to show cause against Vista Tower, The Board of
Managers of the condominium, the individual members of the Board of Managers and
the Association. The Association is named in such action solely as an owner of
units and holder of mortgages in the condominium. The action sets forth two
causes of action pursuant to the New York City Administrative Code and seeks
injunctive relief directing the defendants to take all steps necessary to make
the premises safe, certain civil penalties for violations of the building code,
a declaration that the premises constitute a public nuisance and directing the
abatement of such nuisance, certain damages, costs and attorneys fees. The
Association answered such action, denying the allegations of the complaint and
has asserted cross claims against the Board of Managers and its members for
waste, breach of fiduciary duty, indemnification and contribution. The Board of
Managers and its members similarly cross claimed against the Association.
Through a series of stipulations and interim orders, the parties agreed to a
plan of remediation and interim repair to the premises to allow the building to
be re-inhabited. In the interim, both the City of New York and the Association
have moved for appointment of a receiver to take control of the management and
repair of the property. The Board of Managers has opposed such motions which are
pending.
On November 18, 1997, The Board of Managers of Vista Tower commenced an
action against the Association
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in Supreme Court, Queens County. The complaint set forth causes of action based
upon alleged discrimination against the purchasers of the units in Vista Tower
under the New York State Executive Law purportedly due to the national origin of
a number of such unit owners, unjust enrichment for receiving mortgage loan
payments with respect to the mortgage loans held by the Association and seeks
injunctive relief to prevent the Association from foreclosing on the mortgage
loans it holds in such building. The plaintiffs have granted the Association an
open ended extension of the Association's time to answer such complaint. In
addition, on or about December 4, 1997, The Board of Managers commenced suit in
the United States District Court for the Southern District of New York against
New York State, the New York State Attorney General, the City of New York, the
New York City Building Department, the New York City Department of Housing
Preservation and Development, the Association, Henry Drewitz, George L. Engelke,
Jr., AF Roosevelt and 149 Roosevelt Avenue Associates and others. As to the
Association related defendants, the complaint alleged discrimination claims
based upon the national origin of the unit owners at Vista Tower under both New
York State and federal law. The summons and complaint in this action, while
filed with the Court, has not been served on any Association related defendant
and, therefore, under Federal law is deemed dismissed.
The Association has commenced settlement discussions with the Board of
Managers and unit owners at Vista Tower which are continuing. Recently, based
upon these discussions, plaintiffs reported to the Court and held a press
conference indicating that a settlement had been reached. As of July 29, 1998,
no settlement agreement had been executed by the parties although an agreement
was being circulated for execution by the Condominium Board and the Astoria
related defendants. Based upon current available information, management does
not believe that a resolution based upon these discussions would have a material
adverse impact on the results of operations or the financial condition of the
Company. Management of the Association is continuing to work with the Attorney
General's office, the Queens Buildings Department and the Board of Managers in
an attempt to remedy the situation. In the event such a remedy is not found, the
Association intends to continue to defend the actions vigorously.
No other material events occurred with respect to legal proceedings
during the quarter ended June 30, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 6, 1998 (the
"Annual Meeting").
At the Annual Meeting, the shareholders of the Company elected William J. Fendt,
Robert G. Bolton and Thomas V. Powderly as directors of the Company each to
serve for a three year term and, in any case, until the election and
qualification of their respective successors.
The number of votes cast as to each matter acted upon at the Annual Meeting was
as follows:
(a) Election of Directors:
For Withheld
--- --------
William J. Fendt 23,719,022 810,183
Robert G. Bolton 23,730,513 798,692
Thomas V. Powderly 23,693,531 835,674
There were no broker held non-voted shares represented at the
meeting with respect to this proposal.
(b) The approval of an amendment to the Certificate of
Incorporation of Astoria Financial Corporation to
increase the authorized Common Stock of Astoria
Financial Corporation to 200,000,000 shares;
For 17,514,206
Against 6,893,505
Abstained 121,494
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There were no broker held non-voted shares represented at the
meeting with respect to this proposal.
(c) Ratification of the appointment of KPMG Peat Marwick
LLP as independent auditors of Astoria Financial
Corporation for its 1998 fiscal year:
For 24,335,467
Against 103,337
Abstained 90,401
There were no broker held non-voted shares represented at the
meeting with respect to this proposal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Statement Regarding Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
The following reports on Form 8-K have been filed with the
Securities and Exchange Commission since the beginning of the
quarter ended June 30, 1998:
1) Form 8-K, dated April 2, 1998 (filed April 3, 1998),
which includes the description of the definitive
agreement and plan of merger pursuant to which the
Company proposes to acquire Long Island Bancorp, Inc.
2) Form 8-K/A, dated April 2, 1998 (filed April 10,
1998), which includes the definitive agreement and
plan of merger and related documents pursuant to
which the Company proposes to acquire Long Island
Bancorp, Inc.
3) Form 8-K, dated May 20, 1998 (filed May 29, 1998),
which includes the first amendment to the agreement
and plan of merger pursuant to which the Company
proposes to acquire Long Island Bancorp, Inc.
4) Form 8-K, dated July 9, 1998 (filed July 10, 1998),
which includes the second amendment to the agreement
and plan of merger pursuant to which the Company
proposes to acquire Long Island Bancorp, Inc.
5) Form 8-K, dated July 17, 1998 (filed July 20, 1998),
which includes the Company's announcement of its
earnings for the quarter ended June 30, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Astoria Financial Corporation
Dated: August 11, 1998 By: /s/ Monte N. Redman
--------------- ----------------------------------
Monte N. Redman
Executive Vice President
and Chief Financial Officer
(Principal Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Identification of Exhibit
- ----------- -------------------------
11. Statement Regarding Computation of Per Share Earnings
27. Financial Data Schedule
35