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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2004
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
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, April 30, 2004
- ----------------------- --------------------------------------------
.01 Par Value 78,123,795
------------- ----------
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements (Unaudited):
Consolidated Statements of Financial Condition at March 31, 2004
and December 31, 2003 2
Consolidated Statements of Income for the Three Months Ended
March 31, 2004 and March 31, 2003 3
Consolidated Statement of Changes in Stockholders' Equity for the
Three Months Ended March 31, 2004 4
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2004 and March 31, 2003 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 33
Item 4. Controls and Procedures 35
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 36
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities 36
Item 3. Defaults Upon Senior Securities 36
Item 4. Submission of Matters to a Vote of Security Holders 36
Item 5. Other Information 36
Item 6. Exhibits and Reports on Form 8-K 37
Signatures 37
1
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Unaudited)
At At
(In Thousands, Except Share Data) March 31, 2004 December 31, 2003
- --------------------------------------------------------------------------------------------------------------------
ASSETS:
Cash and due from banks $ 126,028 $ 173,828
Federal funds sold and repurchase agreements 404,250 65,926
Available-for-sale securities:
Encumbered 2,289,534 1,997,953
Unencumbered 359,298 657,039
- --------------------------------------------------------------------------------------------------------------------
2,648,832 2,654,992
Held-to-maturity securities, fair value of $5,784,103 and $5,809,117,
respectively:
Encumbered 5,120,524 5,508,864
Unencumbered 583,968 283,863
- --------------------------------------------------------------------------------------------------------------------
5,704,492 5,792,727
Federal Home Loan Bank of New York stock, at cost 168,700 213,450
Loans held-for-sale, net 31,142 23,023
Loans receivable:
Mortgage loans, net 12,281,479 12,248,772
Consumer and other loans, net 455,467 438,215
- --------------------------------------------------------------------------------------------------------------------
12,736,946 12,686,987
Allowance for loan losses (82,966) (83,121)
- --------------------------------------------------------------------------------------------------------------------
Loans receivable, net 12,653,980 12,603,866
Mortgage servicing rights, net 15,327 17,952
Accrued interest receivable 78,344 77,956
Premises and equipment, net 158,844 160,089
Goodwill 185,151 185,151
Bank owned life insurance 370,510 370,310
Other assets 105,062 122,324
- --------------------------------------------------------------------------------------------------------------------
Total assets $22,650,662 $22,461,594
====================================================================================================================
LIABILITIES:
Deposits:
Savings $ 2,973,444 $ 2,959,015
Money market 1,149,942 1,232,771
NOW and demand deposit 1,505,050 1,493,410
Certificates of deposit 5,880,244 5,501,398
- --------------------------------------------------------------------------------------------------------------------
Total deposits 11,508,680 11,186,594
Reverse repurchase agreements 7,085,000 7,235,000
Federal Home Loan Bank of New York advances 1,829,000 1,924,000
Other borrowings, net 480,797 473,037
Mortgage escrow funds 148,992 108,635
Accrued expenses and other liabilities 156,502 137,797
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 21,208,971 21,065,063
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 5,000,000 shares authorized:
Series A (1,225,000 shares authorized and -0- shares issued and outstanding) -- --
Series B (2,000,000 shares authorized and -0- shares issued and outstanding) -- --
Common stock, $.01 par value; (200,000,000 shares authorized;
110,996,592 shares issued; and 78,231,048 and 78,670,254 shares
outstanding, respectively) 1,110 1,110
Additional paid-in capital 804,822 798,583
Retained earnings 1,512,563 1,481,546
Treasury stock (32,765,544 and 32,326,338 shares, at cost, respectively) (837,169) (811,993)
Accumulated other comprehensive loss (13,830) (46,489)
Unallocated common stock held by ESOP (4,695,440 and 4,760,054
shares, respectively) (25,805) (26,226)
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,441,691 1,396,531
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $22,650,662 $22,461,594
====================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
2
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
For the Three Months Ended March 31,
------------------------------------
(In Thousands, Except Share Data) 2004 2003
- ---------------------------------------------------------------------------------------------------
Interest income:
Mortgage loans:
One-to-four family $ 111,350 $ 126,929
Multi-family, commercial real estate and construction 53,631 46,216
Consumer and other loans 4,890 4,772
Mortgage-backed securities 86,873 94,048
Other securities 4,196 9,849
Federal funds sold and repurchase agreements 154 752
- ---------------------------------------------------------------------------------------------------
Total interest income 261,094 282,566
- ---------------------------------------------------------------------------------------------------
Interest expense:
Deposits 54,230 58,241
Borrowed funds 92,351 115,317
- ---------------------------------------------------------------------------------------------------
Total interest expense 146,581 173,558
- ---------------------------------------------------------------------------------------------------
Net interest income 114,513 109,008
Provision for loan losses -- --
- ---------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 114,513 109,008
- ---------------------------------------------------------------------------------------------------
Non-interest income:
Customer service fees 13,749 14,833
Other loan fees 1,262 1,826
Net gain of sales of securities 2,372 2,136
Mortgage banking (loss) income, net (1,118) 436
Income from bank owned life insurance 4,450 5,199
Other 1,424 1,465
- ---------------------------------------------------------------------------------------------------
Total non-interest income 22,139 25,895
- ---------------------------------------------------------------------------------------------------
Non-interest expense:
General and administrative:
Compensation and benefits 31,464 28,764
Occupancy, equipment and systems 16,717 14,615
Federal deposit insurance premiums 449 492
Advertising 1,709 1,498
Other 6,704 6,597
- ---------------------------------------------------------------------------------------------------
Total non-interest expense 57,043 51,966
- ---------------------------------------------------------------------------------------------------
Income before income tax expense 79,609 82,937
Income tax expense 26,196 26,540
- ---------------------------------------------------------------------------------------------------
Net income 53,413 56,397
Preferred dividends declared -- (1,500)
- ---------------------------------------------------------------------------------------------------
Net income available to common shareholders $ 53,413 $ 54,897
===================================================================================================
Basic earnings per common share $ 0.72 $ 0.69
===================================================================================================
Diluted earnings per common share $ 0.71 $ 0.69
===================================================================================================
Dividends per common share $ 0.25 $ 0.20
===================================================================================================
Basic weighted average common shares 73,916,449 79,041,158
Diluted weighted average common and common equivalent shares 75,343,051 79,781,388
See accompanying Notes to Consolidated Financial Statements.
3
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
For the Three Months Ended March 31, 2004
Unallocated
Accumulated Common
Additional Other Stock
Common Paid-in Retained Treasury Comprehensive Held
(In Thousands, Except Share Data) Total Stock Capital Earnings Stock Loss by ESOP
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2003 $1,396,531 $1,110 $798,583 $1,481,546 $(811,993) $(46,489) $(26,226)
Comprehensive income:
Net income 53,413 -- -- 53,413 -- -- --
Other comprehensive income, net of tax:
Net unrealized gain on securities 32,611 -- -- -- -- 32,611 --
Reclassification of net unrealized
loss on cash flow hedge 48 -- -- -- -- 48 --
----------
Comprehensive income 86,072
----------
Common stock repurchased
(1,020,000 shares) (39,809) -- -- -- (39,809) -- --
Dividends on common stock (18,503) -- -- (18,503) -- -- --
Exercise of stock options and related
tax benefit (580,794 shares issued) 14,568 -- 3,828 (3,893) 14,633 -- --
Amortization relating to allocation
of ESOP stock 2,832 -- 2,411 -- -- -- 421
- -----------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2004 $1,441,691 $1,110 $804,822 $1,512,563 $(837,169) $(13,830) $(25,805)
=============================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
4
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended
March 31,
--------------------------
(In Thousands) 2004 2003
- -------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 53,413 $ 56,397
Adjustments to reconcile net income to net cash provided
by operating activities:
Net premium amortization on mortgage loans and
mortgage-backed securities 8,330 25,017
Net amortization (accretion) on other securities, consumer and
other loans and borrowings 885 (1,351)
Net provision for real estate losses -- 5
Depreciation and amortization 3,333 2,949
Net gain on sales of loans and securities (3,073) (4,989)
Originations of loans held-for-sale (64,749) (135,684)
Proceeds from sales and principal repayments of loans held-for-sale 57,331 151,767
Amortization relating to allocation of ESOP stock 2,832 2,354
Increase in accrued interest receivable (388) (4,038)
Mortgage servicing rights amortization and valuation
allowance, net of capitalized amounts 2,625 2,787
Income from bank owned life insurance, net of insurance proceeds received (200) (5,199)
Decrease (increase) in other assets 1,419 (1,273)
Increase in accrued expenses and other liabilities 23,154 11,986
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 84,912 100,728
- -------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Originations of loans receivable (660,341) (1,065,770)
Loan purchases through third parties (230,919) (348,147)
Principal payments on loans receivable 834,306 1,587,193
Purchases of mortgage-backed securities held-to-maturity (307,001) (2,762,749)
Purchases of mortgage-backed securities available-for-sale (99,366) (601,787)
Purchases of other securities available-for-sale (508) (100)
Principal payments on mortgage-backed securities held-to-maturity 388,960 1,167,004
Principal payments on mortgage-backed securities available-for-sale 141,272 541,220
Proceeds from calls and maturities of other securities held-to-maturity 3,664 66,705
Proceeds from calls and maturities of other securities available-for-sale 23 102,712
Proceeds from sales of mortgage-backed securities available-for-sale -- 201,836
Proceeds from sales of other securities available-for-sale 22,692 --
Net redemptions (purchases) of FHLB stock 44,750 (49,050)
Proceeds from sales of real estate owned, net 297 479
Purchases of premises and equipment, net of proceeds from sales (2,088) (5,551)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 135,741 (1,166,005)
- -------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 322,086 190,921
Net increase in borrowings with original terms of three months or less 165,000 410,000
Net proceeds from borrowings with original terms greater than three months 2,400,000 500,000
Repayments of borrowings with original terms greater than three months (2,810,000) (350,000)
Net increase in mortgage escrow funds 40,357 40,527
Common stock repurchased (39,809) (53,744)
Cash dividends paid to stockholders (18,503) (17,325)
Cash received for stock options exercised 10,740 1,123
- -------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 69,871 721,502
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 290,524 (343,775)
Cash and cash equivalents at beginning of period 239,754 677,857
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 530,278 $ 334,082
=============================================================================================================
Supplemental disclosures:
Cash paid during the period:
Interest $ 156,918 $ 172,866
=============================================================================================================
Income taxes $ 2,074 $ 1,821
=============================================================================================================
Additions to real estate owned $ 533 $ 325
=============================================================================================================
See accompanying Notes to Consolidated Financial Statements.
5
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Astoria Financial Corporation and its wholly-owned subsidiaries Astoria Federal
Savings and Loan Association and its subsidiaries, referred to as Astoria
Federal, and AF Insurance Agency, Inc. As used in this quarterly report, "we,"
"us" and "our" refer to Astoria Financial Corporation and its consolidated
subsidiaries, including Astoria Federal and AF Insurance Agency, Inc. All
significant inter-company accounts and transactions have been eliminated in
consolidation.
In addition to Astoria Federal and AF Insurance Agency, Inc., we have another
wholly-owned subsidiary, Astoria Capital Trust I, which is not consolidated with
Astoria Financial Corporation for financial reporting purposes as a result of
our adoption of the Financial Accounting Standards Board, or FASB, revised
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51," or FIN 46(R), effective January 1, 2004. Astoria
Capital Trust I was formed in 1999 for the purpose of issuing $125.0 million
aggregate liquidation amount of 9.75% Capital Securities due November 1, 2029,
or Capital Securities, and common securities and using the proceeds to acquire
Junior Subordinated Debentures issued by us. The Junior Subordinated Debentures
total $128.9 million, have an interest rate of 9.75%, mature on November 1, 2029
and are the sole assets of Astoria Capital Trust I. The Junior Subordinated
Debentures are prepayable, in whole or in part, at our option on or after
November 1, 2009 at declining premiums to November 1, 2019, after which the
Junior Subordinated Debentures are prepayable at par value. Astoria Financial
Corporation has fully and unconditionally guaranteed the Capital Securities
along with all obligations of Astoria Capital Trust I. See Note 6 for further
discussion of the impact of our adoption of FIN 46(R).
In our opinion, the accompanying consolidated financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of our financial condition as of March 31, 2004 and December
31, 2003, our results of operations for the three months ended March 31, 2004
and 2003, changes in our stockholders' equity for the three months ended March
31, 2004 and our cash flows for the three months ended March 31, 2004 and 2003.
In preparing the consolidated financial statements, we are required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities for the consolidated statements of financial condition as of March
31, 2004 and December 31, 2003, and amounts of revenues and expenses in the
consolidated statements of income for the three months ended March 31, 2004 and
2003. The results of operations for the three months ended March 31, 2004 are
not necessarily indicative of the results of operations to be expected for the
remainder of the year. Certain information and note disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America, or GAAP, have
been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission, or SEC. Certain reclassifications have been
made to prior period amounts to conform to the current period presentation.
These consolidated financial statements should be read in conjunction with our
December 31, 2003 audited consolidated financial statements and related notes
included in our 2003 Annual Report on Form 10-K.
6
2. Earnings Per Share, or EPS
The following table is a reconciliation of basic and diluted EPS.
For the Three Months Ended March 31,
-------------------------------------
2004 2003
- -----------------------------------------------------------------------------------
Basic Diluted Basic Diluted
(In Thousands, Except Per Share Data) EPS EPS EPS EPS (1)
- -----------------------------------------------------------------------------------
Net income $53,413 $53,413 $56,397 $56,397
Preferred dividends declared -- -- (1,500) (1,500)
- -----------------------------------------------------------------------------------
Net income available to common shareholders $53,413 $53,413 $54,897 $54,897
===================================================================================
Total weighted average basic
common shares outstanding 73,916 73,916 79,041 79,041
Effect of dilutive securities:
Options -- 1,427 -- 740
- -----------------------------------------------------------------------------------
Total weighted average diluted
common shares outstanding 73,916 75,343 79,041 79,781
===================================================================================
Net earnings per common share $ 0.72 $ 0.71 $ 0.69 $ 0.69
===================================================================================
(1) Options to purchase 1,926,484 shares of common stock at prices between
$26.24 per share and $29.88 per share were outstanding as of March 31,
2003, but were not included in the computation of diluted EPS because the
options' exercise prices were greater than the average market price of the
common shares for the three months ended March 31, 2003.
3. Mortgage Servicing Rights, or MSR
MSR are carried at amortized cost, and impairment, if any, is recognized through
a valuation allowance. MSR, at amortized cost, totaled $28.2 million at March
31, 2004 and $29.6 million at December 31, 2003. The valuation allowance totaled
$12.9 million at March 31, 2004 and $11.6 million at December 31, 2003. The cost
of MSR is amortized over the estimated remaining lives of the loans serviced.
MSR amortization totaled $2.0 million for the three months ended March 31, 2004
and $3.8 million for the three months ended March 31, 2003. As of March 31,
2004, estimated future MSR amortization through 2009, based on the prepayment
assumptions utilized in the March 31, 2004 MSR valuation, is as follows: $5.4
million for the remainder of 2004, $5.9 million for 2005, $4.3 million for 2006,
$3.2 million for 2007, $2.3 million for 2008 and $1.7 million for 2009. Actual
results will vary depending upon the level of repayments on the loans currently
serviced.
4. Stock Option Plans
We apply the intrinsic value method of Accounting Principles Board, or APB,
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for our stock option plans. Accordingly, no
stock-based employee compensation cost is reflected in net income, as all
options granted under our stock option plans have an exercise price equal to the
market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income and EPS if we had
applied the fair value recognition provisions of Statement of Financial
Accounting Standards, or SFAS, No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation.
7
For the Three Months Ended March 31,
------------------------------------
(In Thousands, Except Per Share Data) 2004 2003
- ------------------------------------------------------------------------------------
Net income:
As reported $53,413 $56,397
Deduct: Total stock-based
compensation expense determined under
fair value based method for all awards,
net of related tax effect 1,456 1,378
------- -------
Pro forma $51,957 $55,019
======= =======
Basic earnings per common share:
As reported $ 0.72 $ 0.69
======= =======
Pro forma $ 0.70 $ 0.68
======= =======
Diluted earnings per common share:
As reported $ 0.71 $ 0.69
======= =======
Pro forma $ 0.69 $ 0.67
======= =======
5. Pension Plans and Other Postretirement Benefits
The following table sets forth information regarding the components of net
periodic cost for our defined benefit pension plans and other postretirement
benefit plan.
Other Postretirement
Pension Benefits Benefits
-------------------------- --------------------------
For the Three Months Ended For the Three Months Ended
March 31, March 31,
-------------------------- --------------------------
(In Thousands) 2004 2003 2004 2003
- ----------------------------------------------------------------- --------------------------
Service cost $ 839 $ 590 $117 $ 97
Interest cost 2,444 2,094 243 269
Expected return on plan assets (2,906) (2,177) -- --
Amortization of prior service cost 40 35 10 11
Recognized net actuarial loss (gain) 619 736 (2) (41)
Amortization of transition asset (9) (23) -- --
- ----------------------------------------------------------------------------------------------
Net periodic cost $1,027 $1,255 $368 $336
==============================================================================================
During the three months ended March 31, 2004, we contributed $162,000 to our
unfunded defined benefit pension plans and $378,000 to our other postretirement
benefit plan. During the remainder of 2004, we expect to contribute
approximately $486,000 to our unfunded defined benefit pension plans and
approximately $1.1 million to our other postretirement benefit plan.
Contributions to these plans are made to cover benefit payments.
6. Impact of Accounting Standards and Interpretations
On January 12, 2004, the FASB issued Staff Position No. 106-1, "Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement
and Modernization Act of 2003," which allows companies to recognize or defer
recognizing the effects of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003, or Medicare Act, for annual financial statements of
fiscal years ending after December 7, 2003. The Medicare Act introduced both a
Medicare prescription-drug benefit and a federal subsidy to sponsors of retiree
health-care plans that provide a benefit at least "actuarially equivalent" to
the Medicare benefit. These provisions of the Medicare Act will affect
accounting measurements. We have elected to defer accounting for the effects of
the Medicare Act. The specific authoritative guidance on accounting for the
federal subsidy is pending and the issued guidance could require us to change
previously reported information. As a result, we have not yet determined the
impact of the Medicare Act on our financial condition or results of operations.
8
In December 2003, the FASB issued a revised SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits - an amendment of
FASB Statements Nos. 87, 88 and 106," or SFAS No. 132(R). SFAS No. 132(R)
requires additional disclosures to those in the original statement about defined
benefit pension plans and other defined benefit postretirement plans. SFAS No.
132(R) also amends APB Opinion No. 28, "Interim Financial Reporting," to require
interim disclosures related to pension plans and other postretirement benefit
plans. SFAS No. 132(R) was effective for financial statements for fiscal years
ending after December 15, 2003, except for disclosure of estimated future
benefit payments which is effective for fiscal years ending after June 15, 2004.
The interim-period disclosures required by SFAS No. 132(R) are effective for
interim periods beginning after December 15, 2003. As the provisions of SFAS No.
132(R) are disclosure related, the adoption of SFAS No. 132(R) had no impact on
our financial condition or results of operations. The interim disclosures are
provided in Note 5.
In December 2003, the FASB issued FIN 46(R). All public entities were required
to fully implement FIN 46(R) no later than the end of the first reporting period
ending after March 15, 2004. Effective January 1, 2004, we implemented FIN
46(R), which required us to deconsolidate our wholly-owned subsidiary Astoria
Capital Trust I. The impact of this deconsolidation on our financial statements
is to increase consolidated total assets by $3.9 million, reflecting our
investment in the common securities of Astoria Capital Trust I, and increase
consolidated total borrowings by $3.9 million, reflecting the difference between
the aggregate principal amount of the Junior Subordinated Debentures we issued
to Astoria Capital Trust I and the aggregate principal amount of Capital
Securities issued by Astoria Capital Trust I in the private placement completed
in 1999. Additionally, we redesignated two interest rate swap agreements as fair
value hedges of the debt Astoria Financial Corporation issued to Astoria Capital
Trust I. All prior period financial statements reflected herein have been
restated to reflect the deconsolidation.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report on Form 10-Q contains a number of forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, or the Securities Act, and Section 21E of the Securities Exchange Act
of 1934, as amended, or the Exchange Act. These statements may be identified by
the use of the words "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "outlook," "plan," "potential," "predict," "project," "should,"
"will," "would" and similar terms and phrases, including references to
assumptions.
Forward-looking statements are based on various assumptions and analyses made by
us in light of our management's experience and its perception of historical
trends, current conditions and expected future developments, as well as other
factors we believe are appropriate under the circumstances. These statements are
not guarantees of future performance and are subject to risks, uncertainties and
other factors (many of which are beyond our control) that could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. These factors include, without limitation, the
following:
o the timing and occurrence or non-occurrence of events may be subject
to circumstances beyond our control;
o there may be increases in competitive pressure among financial
institutions or from non-financial institutions;
9
o changes in the interest rate environment may reduce interest margins;
o changes in deposit flows, loan demand or real estate values may
adversely affect our business;
o changes in accounting principles, policies or guidelines may cause our
financial condition to be perceived differently;
o general economic conditions, either nationally or locally in some or
all areas in which we do business, or conditions in the securities
markets or the banking industry may be less favorable than we
currently anticipate;
o legislative or regulatory changes may adversely affect our business;
o technological changes may be more difficult or expensive than we
anticipate;
o success or consummation of new business initiatives may be more
difficult or expensive than we anticipate; or
o litigation or other matters before regulatory agencies, whether
currently existing or commencing in the future, may delay the
occurrence or non-occurrence of events longer than we anticipate.
We have no obligation to update any forward-looking statements to reflect events
or circumstances after the date of this document.
Executive Summary
The following overview should be read in conjunction with our Management's
Discussion and Analysis of Financial Condition and Results of Operations, or
MD&A, in its entirety.
We are a Delaware corporation organized as the unitary savings and loan
association holding company of Astoria Federal and our primary business is the
operation of Astoria Federal. Astoria Federal's principal business is attracting
retail deposits from the general public and investing those deposits, together
with funds generated from operations, principal repayments on loans and
securities and borrowed funds, primarily in one-to-four family mortgage loans,
mortgage-backed securities, multi-family mortgage loans and commercial real
estate loans. Our results of operations are dependent primarily on our net
interest income, which is the difference between the interest earned on our
assets, primarily our loan and securities portfolios, and the interest paid on
our deposits and borrowings. Our earnings are also significantly affected by
general economic and competitive conditions, particularly changes in market
interest rates and U.S. Treasury yield curves, government policies and actions
of regulatory authorities.
As a premier Long Island community bank, our goal is to enhance shareholder
value while building a solid banking franchise. We focus on growing our core
businesses of mortgage lending and retail banking while maintaining superior
asset quality and controlling operating expenses. Additionally, we continued to
provide returns to shareholders through dividends and stock repurchases. We have
been successful in achieving these goals over the past several years and that
trend has continued into the first quarter of 2004.
During the first quarter of 2004, the national and local real estate markets
remained strong and continued to support new and existing home sales. This has
helped us maintain our strong credit quality and purchase mortgage activity. The
increase in interest rates during the second half of 2003 resulted in a decrease
in refinance activity and related cash flows during the fourth quarter of 2003
which continued into the first quarter of 2004. Medium- and long-term rates
(maturities of two to ten years) declined during the first quarter of 2004 which
resulted in an
10
increase in mortgage applications received in March and an increase in cash
flows received in March and April. These increases were not as significant as
the extraordinary levels of cash flows we experienced throughout the first nine
months of 2003. Since March 31, 2004, medium- and long-term rates have risen
above their December 31, 2003 levels and the U.S. Treasury yield curve remains
steep.
We continue to experience intense competition for deposits, particularly money
market and checking accounts, from certain local competitors and new market
entrants who have offered these accounts at well above market rates. We have not
increased the rates we offer on these types of accounts as we do not consider it
a cost effective strategy in the current low interest rate environment. Despite
this intense competition, total deposits increased during the first quarter of
2004. This increase was primarily attributable to an increase in certificates of
deposit as a result of the success of our marketing campaign which focused on
attracting long-term certificates of deposit to enable us to reduce borrowings.
Our total loan portfolio grew slightly during the first quarter of 2004. This
growth was primarily in our multi-family and commercial real estate loan
portfolio, which is attributable to our increased emphasis on the origination of
these loans over the past several years. Our growth in the multi-family and
commercial real estate portfolio was slowed due to lower than anticipated
originations as a result of very competitive pricing of multi-family loans by
several local competitors, in conjunction with a reduction in refinance
activity, during the 2004 first quarter. Partially offsetting the growth in the
multi-family and commercial real estate loan portfolio was a decrease in our
one-to-four family mortgage loan portfolio where repayments continued to outpace
originations. Our total non-performing assets declined from December 31, 2003 to
March 31, 2004.
During the first quarter of 2004, due to the reduction in cash flows resulting
from the reduction in refinance activity, we significantly reduced our purchases
of mortgage-backed securities. Overall, our securities portfolio decreased
slightly from December 31, 2003. Additionally, as previously discussed, the
success of our certificate of deposit marketing campaign during the first
quarter of 2004 enabled us to repay a portion of borrowings which matured and as
a result, our borrowings also decreased from December 31, 2003.
Net income for the three months ended March 31, 2004 decreased compared to the
three months ended March 31, 2003. The decrease in net income was primarily due
to an increase in non-interest expense and a decrease in non-interest income,
partially offset by an increase in net interest income. The increase in net
interest income was primarily attributable to a decrease in interest expense on
borrowings related to the refinancing of higher cost borrowings which matured
throughout 2003 and the first quarter of 2004 at substantially lower rates.
Partially offsetting the decrease in interest expense was a decrease in interest
income, primarily on our mortgage-backed securities and mortgage loans, which
was attributable to extraordinarily high levels of repayments in 2003 and the
reinvestment of the cash flows we received in lower yielding assets due to the
low interest rate environment. The negative impact of the reinvestment in lower
yielding assets was partially offset by a decrease in net premium amortization
as a result of the reduction in refinance activity in the first quarter of 2004,
as well as the reduced amount of unamortized net premium remaining in our
mortgage-backed securities portfolio. The increase in non-interest expense
relates primarily to increases in compensation expense and office occupancy and
systems expense. The decrease in non-interest income relates to decreases in
customer service fees and mortgage banking income, net.
11
With reduced refinance activity and a projected continuation of a relatively
steep U.S. Treasury yield curve, we anticipate solid growth in our mortgage loan
portfolio, as well as growth in deposits, with a focus on long-term certificates
of deposit and checking accounts, during the remainder of 2004. Additionally, as
a result of our efforts in 2003 and the first quarter of 2004 to significantly
reduce the cost of our liabilities and lengthen the terms of both borrowings and
certificates of deposit, we expect continued growth in earnings and related
returns during the remainder of 2004.
Available Information
Our internet website address is www.astoriafederal.com. Financial information,
including our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and all amendments to those reports, can be obtained
free of charge from our investor relations website at
http://ir.astoriafederal.com. The above reports are available on our website
immediately after they are electronically filed with or furnished to the SEC.
Such reports are also available on the SEC's website at www.sec.gov.
Critical Accounting Policies
Note 1 to our audited consolidated financial statements for the year ended
December 31, 2003 included in our Annual Report on Form 10-K for the year ended
December 31, 2003, as supplemented by this report, contains a summary of our
significant accounting policies. Various elements of our accounting policies, by
their nature, are inherently subject to estimation techniques, valuation
assumptions and other subjective assessments. Our policies with respect to the
methodologies used to determine the allowance for loan losses, the valuation of
MSR and judgments regarding goodwill and securities impairment are our most
critical accounting policies because they are important to the presentation of
our financial condition and results of operations, involve a higher degree of
complexity and require management to make difficult and subjective judgments
which often require assumptions or estimates about highly uncertain matters. The
use of different judgments, assumptions and estimates could result in material
differences in our results of operations or financial condition. These critical
accounting policies and their application are reviewed quarterly with the Audit
Committee of our Board of Directors. The description of these policies should be
read in conjunction with the corresponding section of our Annual Report on Form
10-K for the year ended December 31, 2003.
Allowance for Loan Losses
Our allowance for loan losses is established and maintained through a provision
for loan losses based on our evaluation of the risks inherent in our loan
portfolio. We evaluate the adequacy of our allowance on a quarterly basis. The
allowance is comprised of both specific valuation allowances and general
valuation allowances. Specific valuation allowances are established in
connection with individual loan reviews and the asset classification process.
General valuation allowances represent loss allowances that have been
established to recognize the inherent risks associated with our lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem loans. Our allowance for loan losses to non-performing loans
was 337.27% at March 31, 2004, compared to 280.10% at December 31, 2003. Our
allowance for loan losses to total loans was 0.65% at March 31, 2004, compared
to 0.66% at December 31, 2003. We believe our current allowance for loan losses
is adequate to reflect the risks inherent in our loan portfolio.
12
For additional information regarding our allowance for loan losses, see
"Provision for Loan Losses" and "Asset Quality" in this document and Part II,
Item 7, "MD&A," in our Annual Report on Form 10-K for the year ended December
31, 2003.
Valuation of MSR
MSR are carried at cost and amortized over the estimated remaining lives of the
loans serviced. Impairment, if any, is recognized through a valuation allowance.
Impairment exists if the carrying value of MSR exceeds the estimated fair value.
The estimated fair value of MSR is obtained through independent third party
valuations.
At March 31, 2004, our MSR, net, had an estimated fair value of $15.3 million
and were valued based on expected future cash flows considering a weighted
average discount rate of 9.41%, a weighted average constant prepayment rate on
mortgages of 17.97% and a weighted average life of 4.2 years. At December 31,
2003, our MSR, net, had an estimated fair value of $18.0 million and were valued
based on expected future cash flows considering a weighted average discount rate
of 9.34%, a weighted average constant prepayment rate on mortgages of 15.82% and
a weighted average life of 4.5 years. The increase in the weighted average
constant prepayment rate from December 31, 2003 to March 31, 2004 reflects the
decrease in interest rates from December 31, 2003 to March 31, 2004 and the
projected increase in future prepayments as of March 31, 2004.
Goodwill Impairment
Goodwill is presumed to have an indefinite useful life and is tested, at least
annually, for impairment at the reporting unit level. Impairment exists when the
carrying value of goodwill exceeds its implied fair value. As of March 31, 2004,
the carrying value of our goodwill totaled $185.2 million. When performing the
impairment test, if the fair value of a reporting unit exceeds its carrying
amount, goodwill of the reporting unit is not considered impaired.
On September 30, 2003 we performed our annual goodwill impairment test. We
determined the fair value of our one reporting unit to be in excess of its
carrying value by $986.0 million, using the quoted market price of our common
stock on our impairment testing date as the basis for determining the fair
value. Accordingly, as of our annual impairment test date, there was no
indication of goodwill impairment. Goodwill would be tested for impairment
between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below its carrying
amount. As of March 31, 2004, there have been no such events or changes in
circumstances since our annual impairment test date.
Securities Impairment
Our available-for-sale securities portfolio is carried at estimated fair value,
with any unrealized gains and losses, net of taxes, reported as accumulated
other comprehensive loss/income in stockholders' equity. The fair values of our
securities, which are primarily fixed rate mortgage-backed securities at March
31, 2004, are based on published or securities dealers' market values and are
affected by changes in interest rates. We conduct a periodic review and
evaluation of the securities portfolio to determine if the decline in the fair
value of any security below its carrying value is other than temporary. We
generally view changes in fair value caused by changes in interest rates as
temporary, which is consistent with our experience. If we deem such decline to
be other than temporary, the security is written down to a new cost basis and
the resulting loss is charged to earnings. At March 31, 2004, we had 86
securities with an estimated fair value totaling $1.83 billion which had an
unrealized loss totaling $41.4 million. Of the securities in an
13
unrealized loss position at March 31, 2004, $8.8 million, with an unrealized
loss of $96,000, have been in a continuous unrealized loss position for more
than twelve months. We determined the cause of all unrealized losses at March
31, 2004 to be interest rate related, and, as such, have deemed the unrealized
losses as temporary. There were no securities write downs during the three
months ended March 31, 2004.
Liquidity and Capital Resources
Our primary source of funds is cash provided by principal and interest payments
on loans and mortgage-backed and other securities. The most significant
liquidity challenge we face is the variability in cash flows as a result of
mortgage refinance activity. Principal payments on loans and mortgage-backed
securities and proceeds from calls and maturities of other securities totaled
$1.37 billion for the three months ended March 31, 2004 and $3.46 billion for
the three months ended March 31, 2003. The decrease in loan and security
repayments was primarily the result of the decreased level of mortgage loan
refinance activity experienced in the 2003 fourth quarter which continued into
the first quarter of 2004. The decreased level of mortgage loan refinance
activity is primarily the result of an increase in interest rates during the
second half of 2003 when medium- and long-term U.S. Treasury rates increased on
average 70 basis points from June 30, 2003 to December 31, 2003. During the
three months ended March 31, 2004, medium- and long-term U.S. Treasury rates
decreased on average 37 basis points. While we have experienced an increase in
refinance activity in March and April 2004, it is not of the magnitude we
experienced in 2003.
In addition to cash provided by principal and interest payments on loans and
securities, our other sources of funds include cash provided by operating
activities, deposits and borrowings. Net cash provided by operating activities
totaled $84.9 million during the three months ended March 31, 2004 and $100.7
million during the three months ended March 31, 2003. Net deposits increased
$322.1 million during the three months ended March 31, 2004 and $190.9 million
during the three months ended March 31, 2003. The net increases in deposits for
the three months ended March 31, 2004 and 2003 reflect our continued emphasis on
attracting customer deposits through competitive rates, extensive product
offerings and quality service. Despite continued intense local competition for
checking accounts, we have been successful in growing our NOW and demand deposit
account balances, including our business checking deposits, due in large part to
our concerted sales and marketing efforts, including our PEAK sales process. See
page 27 for further detail regarding deposit activity. Net borrowings decreased
$237.2 million during the three months ended March 31, 2004 and increased $563.6
million during the three months ended March 31, 2003. The decrease in net
borrowings during the three months ended March 31, 2004 reflects the repayment
of certain high cost borrowings as they matured. During the three months ended
March 31, 2004, $4.12 billion in borrowings with a weighted average rate of
3.74% matured, of which $2.40 billion were extended through new medium-term
borrowings with a weighted average rate of 2.71% and a weighted average original
term of 3.3 years. All other borrowings that matured during the three months
ended March 31, 2004 were either repaid or rolled over into short-term
borrowings. The increase in net borrowings during the three months ended March
31, 2003 was primarily the result of additional medium-term borrowings entered
into, during the low interest rate environment, to fund asset growth in excess
of deposit growth. The use of medium-term borrowings helps protect against the
impact on interest expense of future interest rate increases.
Our primary use of funds is for the origination and purchase of mortgage loans.
During the three months ended March 31, 2004, our gross originations and
purchases of mortgage loans totaled $867.3 million, including originations of
loans held-for-sale totaling $63.3 million, compared to $1.47 billion, including
originations of loans held-for-sale totaling $134.2 million, during the
14
three months ended March 31, 2003. The decrease in loan originations and
purchases for the three months ended March 31, 2004 compared to the three months
ended March 31, 2003 reflects the reduction in the level of mortgage refinance
activity we experienced in the 2003 fourth quarter which continued into the
first quarter of 2004. Purchases of mortgage-backed securities totaled $406.4
million during the three months ended March 31, 2004 and $3.36 billion during
the three months ended March 31, 2003. The decrease in mortgage-backed
securities purchases during the three months ended March 31, 2004 reflects the
decrease in cash flows in excess of mortgage and other loan fundings resulting
from the reduced refinance activity we have experienced.
We maintain liquidity levels to meet our operational needs in the normal course
of our business. The levels of our liquid assets during any given period are
dependent on our operating, investing and financing activities. Cash and due
from banks and federal funds sold and repurchase agreements, our most liquid
assets, totaled $530.3 million at March 31, 2004, compared to $239.8 million at
December 31, 2003. This increase is primarily due to cash flows from repayments
received on mortgage loans and mortgage-backed securities which were not
redeployed into the originations and purchases of loans and security purchases
by the end of the 2004 first quarter. Borrowings maturing over the next twelve
months total $2.40 billion with a weighted average rate of 2.66%, including
$925.0 million of medium-term borrowings with a weighted average rate of 5.04%.
We have the flexibility to either repay or rollover these borrowings as they
mature. In addition, we have $2.62 billion in certificates of deposit with a
weighted average rate of 2.99% maturing over the next twelve months. We expect
to retain or replace a significant portion of such deposits based on our
competitive pricing and historical experience.
The following table details our borrowing and certificate of deposit maturities
and their weighted average rates:
Borrowings Certificates of Deposit
----------------- -----------------------
Weighted Weighted
Average Average
(Dollars in Millions) Amount Rate Amount Rate
- ------------------------------------------------------------- -----------------
Contractual Maturity:
Second quarter 2004 (1) $1,475 1.18% $ -- --%
Second quarter 2004 500 5.80 868 2.08
Third quarter 2004 20 7.67 532 2.17
Fourth quarter 2004 105 5.98 543 4.09
First quarter 2005 300 3.26 675 3.93
------ ------
Total maturing in next twelve months 2,400 2.66 2,618 2.99
Thirteen to twenty-four months 974 3.61 952 3.51
Twenty-five to thirty-six months 1,620 2.77 1,278 3.99
Thirty-seven to forty-eight months (2) 1,720 3.31 707 4.16
Forty-nine to sixty months (3) 2,300 4.93 200 3.87
Over five years 379 7.11 125 5.03
------ ------
Total $9,393 3.63 $5,880 3.51
====== ======
(1) Overnight and other short-term borrowings.
(2) Includes $300.0 million of borrowings which are callable within the next
twelve months.
(3) Includes $1.88 billion of borrowings which are callable within the next
twelve months.
Additional sources of liquidity at the holding company level have included
issuances of securities into the capital markets, including private issuances of
trust preferred securities through our wholly-owned subsidiary, Astoria Capital
Trust I, and senior debt. Holding company debt obligations are included in other
borrowings. Our ability to continue to access the capital markets for additional
financing at favorable terms may be limited by, among other
15
things, market demand, interest rates, our capital levels, our ability to pay
dividends from Astoria Federal to Astoria Financial Corporation, our credit
profile and our business model. We continue to receive periodic capital
distributions from Astoria Federal, consistent with applicable laws and
regulations.
Astoria Financial Corporation's primary uses of funds include the payment of
dividends, payment of principal and interest on its debt obligations and
repurchases of common stock. Astoria Financial Corporation paid interest on its
debt obligations totaling $3.8 million during the first quarter of 2004. Our
payment of dividends and repurchases of our common stock, which are discussed
further below, totaled $58.3 million during the first quarter of 2004. Our
ability to pay dividends, service our debt obligations and repurchase common
stock is dependent primarily upon receipt of capital distributions from Astoria
Federal. Since Astoria Federal is a federally chartered savings association,
there are limits on its ability to make distributions to Astoria Financial
Corporation. During the first quarter of 2004, Astoria Federal paid dividends to
Astoria Financial Corporation totaling $100.0 million.
Stockholders' equity increased to $1.44 billion at March 31, 2004, from $1.40
billion at December 31, 2003. The increase in stockholders' equity was the
result of net income of $53.4 million, a decrease in accumulated other
comprehensive loss, net of tax, of $32.7 million, which was primarily due to the
increase in the fair value of our mortgage-backed securities available-for-sale,
the effect of stock options exercised and related tax benefit of $14.6 million
and the amortization of the allocated portion of shares held by the employee
stock ownership plan, or ESOP, of $2.8 million. These increases were partially
offset by common stock repurchased of $39.8 million and dividends declared of
$18.5 million.
On March 1, 2004, we paid a quarterly cash dividend of $0.25 per share on shares
of our common stock outstanding as of the close of business on February 17, 2004
totaling $18.5 million. On April 21, 2004, we declared a quarterly cash dividend
of $0.25 per share on shares of our common stock payable on June 1, 2004 to
stockholders of record as of the close of business on May 17, 2004.
On October 16, 2002, our Board of Directors approved our ninth stock repurchase
plan authorizing the purchase, at management's discretion, of 10,000,000 shares,
or approximately 11% of our common stock then outstanding, over a two year
period in open-market or privately negotiated transactions. During the three
months ended March 31, 2004, we repurchased 1,020,000 shares of our common stock
at an aggregate cost of $39.8 million. In total, as of March 31, 2004, we
repurchased 8,411,800 shares of our common stock, at an aggregate cost of $243.8
million, under the ninth stock repurchase plan. For further information on our
common stock repurchases, see Part II, Item 2, "Changes in Securities, Use of
Proceeds and Issuer Purchases of Equity Securities."
At March 31, 2004, Astoria Federal's capital levels exceeded all of its
regulatory capital requirements with a tangible capital ratio of 7.19%, leverage
capital ratio of 7.19% and total risk-based capital ratio of 14.98%. The minimum
regulatory requirements are a tangible capital ratio of 1.50%, leverage capital
ratio of 4.00% and total risk-based capital ratio of 8.00%.
Off-Balance Sheet Arrangements and Contractual Obligations
We are a party to financial instruments with off-balance sheet risk in the
normal course of our business in order to meet the financing needs of our
customers and in connection with our overall interest rate risk management
strategy. These instruments involve, to varying degrees,
16
elements of credit, interest rate and liquidity risk. In accordance with GAAP,
these instruments are either not recorded in the consolidated financial
statements or are recorded in amounts that differ from the notional amounts. Our
off-balance sheet arrangements primarily include lending commitments and
derivative instruments.
Lending commitments include commitments to originate and purchase loans and
commitments to fund unused lines of credit. Derivative instruments include
interest rate caps, locks and swaps which are recorded as either assets or
liabilities in the consolidated statements of financial condition at fair value.
We also have contractual obligations related to the purchases of securities,
operating lease commitments and forward borrowing commitments. Additionally, in
connection with our mortgage banking activities, we have commitments to fund
loans held-for-sale and commitments to sell loans which are considered
derivative instruments. Commitments to sell loans totaled $98.7 million at March
31, 2004. The fair values of these derivative instruments are immaterial to our
financial condition and results of operations. There were no forward borrowing
commitments outstanding at March 31, 2004.
The following table details our contractual obligations as of March 31, 2004.
Payments due by period
---------------------------------------------------------------
Less than One to Three to More than
(In Thousands) Total One Year Three Years Five Years Five Years
- -----------------------------------------------------------------------------------------------------------------------------
Contractual Obligations:
Borrowings with original terms greater than three months $7,917,866 $ 925,000 $2,594,000 $4,020,000 $378,866
Commitments to originate and purchase loans 569,318 569,318 -- -- --
Commitments to fund unused lines of credit (1) 354,448 354,448 -- -- --
Commitments to purchase securities 199,508 199,508 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total $9,041,140 $2,048,274 $2,594,000 $4,020,000 $378,866
=============================================================================================================================
(1) Unused lines of credit relate primarily to home equity lines of credit.
In addition to the contractual obligations previously discussed, we have
contingent liabilities related to assets sold with recourse and standby letters
of credit. The principal balance of loans sold with recourse amounted to $554.5
million at March 31, 2004. We also have two collateralized repurchase
obligations due to the sale of certain long-term fixed rate municipal revenue
bonds and Federal Housing Administration project loans. The outstanding option
balance on the two agreements totaled $39.9 million at March 31, 2004.
Outstanding standby letters of credit totaled $4.5 million at March 31, 2004.
For further information regarding our off-balance sheet arrangements and
contractual obligations, see Part II, Item 7, "MD&A," included in our Annual
Report on Form 10-K for the year ended December 31, 2003.
17
Loan Portfolio
The following table sets forth the composition of our loans receivable portfolio
in dollar amounts and in percentages of the portfolio at March 31, 2004 and
December 31, 2003.
At March 31, 2004 At December 31, 2003
-----------------------------------------------
Percent Percent
(Dollars in Thousands) Amount of Total Amount of Total
- -----------------------------------------------------------------------------------
Mortgage loans (gross):
One-to-four family $ 8,900,784 70.30% $ 8,971,048 71.13%
Multi-family 2,303,535 18.19 2,230,414 17.69
Commercial real estate 906,262 7.16 880,296 6.98
Construction 103,368 0.82 99,046 0.79
- -----------------------------------------------------------------------------------
Total mortgage loans 12,213,949 96.47 12,180,804 96.59
- -----------------------------------------------------------------------------------
Consumer and other loans (gross):
Home equity 405,873 3.21 386,846 3.07
Commercial 20,779 0.16 21,937 0.17
Line of Credit, Overdraft 12,552 0.10 12,963 0.10
Other 7,718 0.06 8,400 0.07
- -----------------------------------------------------------------------------------
Total consumer and other loans 446,922 3.53 430,146 3.41
- -----------------------------------------------------------------------------------
Total loans (gross) 12,660,871 100.00% 12,610,950 100.00%
Net unamortized premiums and
deferred loan costs 76,075 76,037
- -----------------------------------------------------------------------------------
Total loans 12,736,946 12,686,987
Allowance for loan losses (82,966) (83,121)
- -----------------------------------------------------------------------------------
Total loans, net $12,653,980 $12,603,866
- -----------------------------------------------------------------------------------
18
Securities Portfolio
The following table sets forth the amortized cost and estimated fair value of
mortgage-backed and other securities available-for-sale and held-to-maturity at
March 31, 2004 and December 31, 2003.
At March 31, 2004 At December 31, 2003
-------------------------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
(In Thousands) Cost Value Cost Value
- ----------------------------------------------------------------------------------------------
Securities available-for-sale:
Mortgage-backed securities:
Agency pass-through certificates (1) $ 151,103 $ 155,808 $ 161,199 $ 166,724
REMICs and CMOs:
Agency issuance (1) 2,275,729 2,254,854 2,297,884 2,227,851
Non-agency issuance 99,775 96,716 109,669 103,740
- ----------------------------------------------------------------------------------------------
Total mortgage-backed securities 2,526,607 2,507,378 2,568,752 2,498,315
- ----------------------------------------------------------------------------------------------
Other securities:
Obligations of the U.S.
Government and agencies 2,242 2,279 1,738 1,767
FNMA and FHLMC preferred stock 140,015 137,651 140,015 131,361
Corporate debt and other securities 1,528 1,524 21,991 23,549
- ----------------------------------------------------------------------------------------------
Total other securities 143,785 141,454 163,744 156,677
- ----------------------------------------------------------------------------------------------
Total securities available-for-sale $2,670,392 $2,648,832 $2,732,496 $2,654,992
---------------------------------------------------------------------------------------------
Securities held-to-maturity:
Mortgage-backed securities:
Agency pass-through certificates (1) $ 13,043 $ 13,938 $ 14,345 $ 15,329
REMICs and CMOs:
Agency issuance (1) 4,942,820 5,008,711 4,958,633 4,974,316
Non-agency issuance 705,271 717,295 772,728 772,021
- ----------------------------------------------------------------------------------------------
Total mortgage-backed securities 5,661,134 5,739,944 5,745,706 5,761,666
- ----------------------------------------------------------------------------------------------
Other securities:
Obligations of states and political
subdivisions 33,373 33,373 37,038 37,038
Corporate debt securities 9,985 10,786 9,983 10,413
- ----------------------------------------------------------------------------------------------
Total other securities 43,358 44,159 47,021 47,451
- ----------------------------------------------------------------------------------------------
Total securities held-to-maturity $5,704,492 $5,784,103 $5,792,727 $5,809,117
- ----------------------------------------------------------------------------------------------
(1) Includes FNMA and FHLMC securities which are U.S. Government sponsored
agencies.
19
Comparison of Financial Condition as of March 31, 2004 and December 31, 2003 and
Operating Results for the Three Months Ended March 31, 2004 and 2003
Financial Condition
Total assets increased $189.1 million to $22.65 billion at March 31, 2004, from
$22.46 billion at December 31, 2003. The primary reasons for the increase in
total assets were the increases in federal funds sold and repurchase agreements
and multi-family and commercial real estate mortgage loans, partially offset by
decreases in mortgage-backed securities, one-to-four family mortgage loans and
Federal Home Loan Bank of New York, or FHLB-NY, stock. This growth was funded
primarily through an increase in deposits.
Mortgage loans increased $32.7 million to $12.28 billion at March 31, 2004, from
$12.25 billion at December 31, 2003. This increase was primarily due to an
increase in our multi-family and commercial real estate mortgage loan
portfolios, partially offset by a decrease in our one-to-four family mortgage
loan portfolio. Gross mortgage loans originated and purchased during the three
months ended March 31, 2004 totaled $867.3 million, including originations of
loans held-for-sale totaling $63.3 million, of which $638.7 million were
originations and $228.6 million were purchases. This compares to $1.13 billion
of originations and $344.7 million of purchases for a total of $1.47 billion,
including originations of loans held-for-sale totaling $134.2 million, during
the three months ended March 31, 2003. Mortgage loan repayments decreased to
$777.3 million for the three months ended March 31, 2004, from $1.54 billion for
the three months ended March 31, 2003. The decrease in the levels of mortgage
loan originations, purchases and repayments reflect the significant decline in
refinance activity previously discussed.
Our mortgage loan portfolio, as well as our originations and purchases, continue
to consist primarily of one-to-four family mortgage loans. Our one-to-four
family mortgage loans, which represented 70.3% of our total loan portfolio at
March 31, 2004, decreased $70.3 million to $8.90 billion at March 31, 2004, from
$8.97 billion at December 31, 2003. The previously discussed increase in
interest rates during the second half of 2003 resulted in a decrease in
refinance activity in the 2003 fourth quarter which has continued into the first
quarter of 2004.
While we continue to be primarily a one-to-four family mortgage lender, we have
increased our emphasis on multi-family and commercial real estate mortgage loan
originations. Our multi-family mortgage loan portfolio increased $73.1 million
to $2.30 billion at March 31, 2004, from $2.23 billion at December 31, 2003. Our
commercial real estate loan portfolio increased $26.0 million to $906.3 million
at March 31, 2004, from $880.3 million at December 31, 2003. Multi-family and
commercial real estate loan originations totaled $240.0 million for the three
months ended March 31, 2004 and $235.3 million for the three months ended March
31, 2003. Our growth in the multi-family and commercial real estate portfolio
was slowed due to lower than anticipated originations as a result of very
competitive pricing of multi-family loans by several local competitors, in
conjunction with a reduction in refinance activity, during the 2004 first
quarter. Prepayment activity within our multi-family and commercial real estate
loan portfolio is not as significant as that which we have experienced in our
one-to-four family mortgage loan portfolio due in part to the prepayment
penalties associated with these loans. Our new multi-family and commercial real
estate loan originations are similar in type to the loans currently in our
portfolio. The average loan balance of loans in our combined multi-family and
commercial real estate portfolio continues to be less than $1.0 million.
20
Mortgage-backed securities decreased $75.5 million to $8.17 billion at March 31,
2004, from $8.24 billion at December 31, 2003. This decrease was primarily the
result of principal payments received of $530.2 million, partially offset by
purchases of real estate mortgage investment conduits, or REMICs, and
collateralized mortgage obligations, or CMOs, totaling $406.4 million and a
decrease of $51.2 million in the net unrealized loss on our available-for-sale
portfolio. The decrease in mortgage-backed securities reflects the reduction in
refinance activity which reduced the need to redeploy excess cash flows into
mortgage-backed securities purchases. The decrease in the net unrealized loss on
our mortgage-backed securities available-for-sale portfolio is primarily due to
a decrease in interest rates from December 31, 2003 to March 31, 2004. Medium-
to long-term U.S. Treasury rates decreased on average 37 basis points from
December 31, 2003 to March 31, 2004.
Federal funds sold and repurchase agreements increased $338.4 million to $404.3
million at March 31, 2004, from $65.9 million at December 31, 2003, primarily
due to cash flows from repayments received on mortgage loans and mortgage-backed
securities which were not redeployed into the originations and purchases of
loans or security purchases by the end of the 2004 first quarter. FHLB-NY stock
decreased $44.8 million to $168.7 million primarily due to a reduction in
FHLB-NY borrowings. Other securities decreased $18.9 million to $184.8 million
at March 31, 2004, from $203.7 million at December 31, 2003, primarily due to
sales of $20.3 million.
Deposits increased $322.1 million to $11.51 billion at March 31, 2004, from
$11.19 billion at December 31, 2003. The increase in deposits was primarily due
to an increase of $378.8 million in certificates of deposit to $5.88 billion at
March 31, 2004, from $5.50 billion at December 31, 2003, an increase of $14.4
million in savings accounts to $2.97 billion at March 31, 2004 and an increase
of $11.6 million in NOW and demand deposit accounts to $1.51 billion at March
31, 2004. These increases were partially offset by a decrease of $82.8 million
in our money market accounts to $1.15 billion at March 31, 2004, from $1.23
billion at December 31, 2003. The increase in our certificates of deposit was
primarily the result of our efforts to extend the maturities of our certificates
of deposit through promotional rates and targeted marketing and sales efforts
during the first quarter of 2004 in the prevailing low interest rate
environment. During the three months ended March 31, 2004, $1.18 billion of
certificates of deposit, with an average rate of 2.33% and an average maturity
at inception of fourteen months, matured and $1.51 billion of certificates of
deposit were issued or repriced, with an average rate of 2.51% and an average
maturity at inception of twenty-two months. The decrease in our money market
accounts is attributable to continued intense competition for these accounts.
Certain local competitors have continued to offer above market rates for money
market and checking accounts. We have not increased the rates we offer on these
accounts because we do not consider it a cost effective strategy. However,
despite continued intense competition for checking accounts, we have been
successful in increasing our NOW and demand deposit account balances, including
our business checking deposits, due in large part to our concerted sales and
marketing efforts, including our PEAK sales process.
Reverse repurchase agreements decreased $150.0 million to $7.09 billion at March
31, 2004, from $7.24 billion at December 31, 2003. FHLB-NY advances decreased
$95.0 million to $1.83 billion at March 31, 2004, from $1.92 billion at December
31, 2003. The overall decrease in borrowings reflects the repayment of certain
high cost borrowings that matured during the three months ended March 31, 2004.
As previously discussed, during the three months ended March 31, 2004, $4.12
billion in borrowings with a weighted average rate of 3.74% matured, of which
$2.40 billion were extended through new medium-term borrowings with a weighted
average rate of 2.71% and a
21
weighted average original term of 3.3 years. All other borrowings that matured
during the three months ended March 31, 2004 were either repaid or rolled over
into short-term borrowings.
Stockholders' equity increased to $1.44 billion at March 31, 2004, from $1.40
billion at December 31, 2003. The increase in stockholders' equity was the
result of net income of $53.4 million, a decrease in accumulated other
comprehensive loss, net of tax, of $32.7 million, which was primarily due to the
increase in the fair value of our mortgage-backed securities available-for-sale,
the effect of stock options exercised and related tax benefit of $14.6 million,
and the amortization of the allocated portion of shares held by the ESOP of $2.8
million. These increases were partially offset by common stock repurchased of
$39.8 million and dividends declared of $18.5 million.
Results of Operations
General
Net income for the three months ended March 31, 2004 decreased $3.0 million to
$53.4 million, from $56.4 million for the three months ended March 31, 2003.
Diluted earnings per common share totaled $0.71 per share for the three months
ended March 31, 2004 and $0.69 per share for the three months ended March 31,
2003. Return on average assets decreased to 0.95% for the three months ended
March 31, 2004, from 1.01% for the three months ended March 31, 2003, primarily
due to the decrease in net income. Return on average stockholders' equity
increased to 15.05% for the three months ended March 31, 2004, from 14.58% for
the three months ended March 31, 2003. Return on average tangible stockholders'
equity, which represents average stockholders' equity less average goodwill,
increased to 17.31% for the three months ended March 31, 2004, from 16.56% for
the three months ended March 31, 2003. The increases in the returns on average
stockholders' equity and average tangible stockholders' equity are primarily due
to the decrease in the average balance of stockholders' equity for the three
months ended March 31, 2004 compared to the three months ended March 31, 2003.
Net Interest Income
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
primarily upon the volume of interest-earning assets and interest-bearing
liabilities and the corresponding interest rates earned or paid. Our net
interest income is significantly impacted by changes in interest rates and
market yield curves and their related impact on cash flows. See Item 3,
"Quantitative and Qualitative Disclosures About Market Risk," for further
discussion of the potential impact of changes in interest rates on our results
of operations.
For the three months ended March 31, 2004, net interest income increased $5.5
million to $114.5 million, from $109.0 million for the three months ended March
31, 2003. The net interest margin increased to 2.14% for the three months ended
March 31, 2004, from 2.09% for the three months ended March 31, 2003. The
increases in net interest income and the net interest margin were the result of
a decrease in interest expense, partially offset by a decrease in interest
income. The decrease in interest expense was attributable to the decrease in our
cost of funds, which is primarily due to the repayment and refinancing of
various higher cost borrowings, coupled with the downward repricing of deposits
in the prevailing low interest rate environment. The decrease in the yield on
interest-earning assets is primarily the result of the extraordinarily high
level of mortgage loan and mortgage-backed securities repayments we experienced
throughout 2003 as a
22
result of the low interest rate environment, as previously discussed, resulting
in reinvestment in those assets at lower rates. Partially offsetting the
negative impact of the reinvestment of assets at lower rates was a reduction in
net premium amortization resulting from the reduction in repayment levels during
the 2004 first quarter, as well as the reduced amount of unamortized net premium
remaining in our mortgage-backed securities portfolio. Net premium amortization
on our mortgage-backed securities and mortgage loan portfolios decreased $16.7
million to $8.3 million for the three months ended March 31, 2004, from $25.0
million for the three months ended March 31, 2003.
The average balance of net interest-earning assets increased $250.3 million to
$670.8 million for the three months ended March 31, 2004, from $420.5 million
for the three months ended March 31, 2003. The increase in the average balance
of net interest-earning assets was the result of an increase of $494.4 million
in the average balance of total interest-earning assets to $21.40 billion for
the three months ended March 31, 2004, from $20.91 billion for the three months
ended March 31, 2003, partially offset by an increase of $244.1 million in the
average balance of total interest-bearing liabilities to $20.73 billion for the
three months ended March 31, 2004, from $20.49 billion for the three months
ended March 31, 2003. Also contributing to the increase in net interest-earning
assets is the reduction in the monthly mortgage-backed securities principal
payments receivable due to the reduction in the mortgage-backed securities cash
flow.
The net interest rate spread increased to 2.05% for the three months ended March
31, 2004 from 2.02% for the three months ended March 31, 2003. The average yield
on interest-earning assets decreased to 4.88% for the three months ended March
31, 2004 from 5.41% for the three months ended March 31, 2003. The average cost
of interest-bearing liabilities decreased to 2.83% for the three months ended
March 31, 2004 from 3.39% for the three months ended March 31, 2003. The changes
in the yields on interest-earning assets and the costs of interest-bearing
liabilities for the three months ended March 31, 2004 were primarily a result of
the continued low interest rate environment previously discussed, coupled with
the repayment or refinancing of high cost borrowings as they matured. The
changes in average interest-earning assets and interest-bearing liabilities and
their related yields and costs are discussed in greater detail under "Interest
Income" and "Interest Expense."
Analysis of Net Interest Income
The following table sets forth certain information about the average balances of
our assets and liabilities and their related yields and costs for the three
months ended March 31, 2004 and 2003. Average yields are derived by dividing
income by the average balance of the related assets and average costs are
derived by dividing expense by the average balance of the related liabilities,
for the periods shown. Average balances are derived from average daily balances.
The yields and costs include amortization of fees, costs, premiums and discounts
which are considered adjustments to interest rates.
23
For the Three Months Ended March 31,
-----------------------------------------------------------------------------
2004 2003
-----------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Cost Balance Interest Cost
- ---------------------------------------------------------------------------------------------------------------------------
(Annualized) (Annualized)
Assets:
Interest-earning assets:
Mortgage loans (1):
One-to-four family $ 9,041,043 $111,350 4.93% $ 9,073,408 $126,929 5.60%
Multi-family, commercial
real estate and construction 3,253,227 53,631 6.59 2,438,692 46,216 7.58
Consumer and other loans (1) 450,098 4,890 4.35 390,502 4,772 4.89
----------- -------- ----------- --------
Total loans 12,744,368 169,871 5.33 11,902,602 177,917 5.98
Mortgage-backed securities (2) 8,158,911 86,873 4.26 8,137,721 94,048 4.62
Other securities (2)(3) 433,921 4,196 3.87 613,094 9,849 6.43
Federal funds sold and
repurchase agreements 64,895 154 0.95 254,406 752 1.18
----------- -------- ----------- --------
Total interest-earning assets 21,402,095 261,094 4.88 20,907,823 282,566 5.41
-------- --------
Goodwill 185,151 185,151
Other non-interest-earning assets 854,561 1,227,555
----------- -----------
Total assets $22,441,807 $22,320,529
=========== ===========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings $ 2,960,199 2,945 0.40 $ 2,836,124 3,489 0.49
Money market 1,188,176 1,608 0.54 1,570,874 3,476 0.89
NOW and demand deposit 1,466,733 221 0.06 1,385,620 490 0.14
Certificates of deposit 5,644,019 49,456 3.51 5,331,200 50,786 3.81
----------- -------- ----------- --------
Total deposits 11,259,127 54,230 1.93 11,123,818 58,241 2.09
Borrowed funds 9,472,213 92,351 3.90 9,363,466 115,317 4.93
----------- -------- ----------- --------
Total interest-bearing liabilities 20,731,340 146,581 2.83 20,487,284 173,558 3.39
-------- --------
Non-interest-bearing liabilities 290,865 286,177
----------- -----------
Total liabilities 21,022,205 20,773,461
Stockholders' equity 1,419,602 1,547,068
----------- -----------
Total liabilities and stockholders'
equity $22,441,807 $22,320,529
=========== ===========
Net interest income/net interest
rate spread (4) $114,513 2.05% $109,008 2.02%
======== ==== ======== ====
Net interest-earning assets/net
interest margin (5) $ 670,755 2.14% $ 420,539 2.09%
=========== ==== =========== ====
Ratio of interest-earning assets
to interest-bearing liabilities 1.03x 1.02x
=========== ===========
- ----------
(1) Mortgage and consumer and other loans include loans held-for-sale and
non-performing loans and exclude the allowance for loan losses.
(2) Securities available-for-sale are reported at average amortized cost.
(3) Other securities include Federal Home Loan Bank of New York stock.
(4) 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.
(5) Net interest margin represents net interest income divided by average
interest-earning assets.
24
Rate/Volume Analysis
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected our interest income and interest expense during the
periods indicated. Information is provided in each category with respect to (1)
the changes attributable to changes in volume (changes in volume multiplied by
prior rate), (2) the changes attributable to changes in rate (changes in rate
multiplied by prior volume), and (3) the net change. The changes attributable to
the combined impact of volume and rate have been allocated proportionately to
the changes due to volume and the changes due to rate.
Three Months Ended March 31, 2004
Compared to
Three Months Ended March 31, 2003
---------------------------------
Increase (Decrease)
---------------------------------
(In Thousands) Volume Rate Net
- --------------------------------------------------------------------------------
Interest-earning assets:
Mortgage loans:
One-to-four family $ (451) $(15,128) $(15,579)
Multi-family, commercial real estate
and construction 14,009 (6,594) 7,415
Consumer and other loans 680 (562) 118
Mortgage-backed securities 242 (7,417) (7,175)
Other securities (2,393) (3,260) (5,653)
Federal funds sold and repurchase
agreements (474) (124) (598)
- --------------------------------------------------------------------------------
Total 11,613 (33,085) (21,472)
- --------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings 141 (685) (544)
Money market (715) (1,153) (1,868)
NOW and demand deposit 26 (295) (269)
Certificates of deposit 2,847 (4,177) (1,330)
Borrowed funds 1,330 (24,296) (22,966)
- --------------------------------------------------------------------------------
Total 3,629 (30,606) (26,977)
- --------------------------------------------------------------------------------
Net change in net interest income $ 7,984 $ (2,479) $ 5,505
================================================================================
Interest Income
Interest income for the three months ended March 31, 2004 decreased $21.5
million to $261.1 million, from $282.6 million for the three months ended March
31, 2003. This decrease was primarily the result of a decrease in the average
yield on interest-earning assets to 4.88% for the three months ended March 31,
2004, from 5.41% for the three months ended March 31, 2003, partially offset by
an increase of $494.4 million in the average balance of interest-earning assets
to $21.40 billion for the three months ended March 31, 2004, from $20.91 billion
for the three months ended March 31, 2003. The decrease in the average yield on
interest-earning assets was due to decreases in the average yields on all asset
categories. Although medium- and long-term U.S. Treasury rates increased during
the second half of 2003, the decline during the first half of 2003 resulted in
continued high levels of repayments on our mortgage-backed securities and
one-to-four family mortgage loan portfolios, primarily during the first nine
months of 2003, resulting in reinvestment in those assets at lower rates.
Partially offsetting this decrease in coupon rates was the decrease in net
premium amortization as a result of the reduction in refinance activity in the
first quarter of 2004, as well as the reduced amount of unamortized net premium
remaining in our mortgage-backed securities portfolio. The increase in the
average balance of interest-earning assets was primarily due to the increase in
the average balances of multi-family, commercial real estate and construction
loans, partially offset by decreases in the average balances of federal funds
sold and repurchase agreements and other securities.
25
Interest income on one-to-four family mortgage loans decreased $15.5 million to
$111.4 million for the three months ended March 31, 2004, from $126.9 million
for the three months ended March 31, 2003, which was the result of a decrease in
the average yield to 4.93% for the three months ended March 31, 2004, from 5.60%
for the three months ended March 31, 2003, coupled with a decrease of $32.4
million in the average balance of such loans. The decrease in the average yield
on one-to-four family mortgage loans reflects the impact of the continued low
interest rate environment as higher rate loans were repaid and replaced with
lower yielding new originations and purchases throughout most of 2003, coupled
with the lower repricing of adjustable rate mortgage, or ARM, loans. However,
the yield has been positively impacted by a reduction in loan premium
amortization as a result of the decreased refinance activity during the three
months ended March 31, 2004. The decrease in the average balance of one-to-four
family mortgage loans reflects the extraordinarily high level of repayment
activity, due to refinancings, particularly in the first nine months of 2003,
partially offset by originations and purchases of one-to-four family mortgage
loans.
Interest income on multi-family, commercial real estate and construction loans
increased $7.4 million to $53.6 million for the three months ended March 31,
2004, from $46.2 million for the three months ended March 31, 2003, which was
primarily the result of an increase of $814.5 million in the average balance of
such loans, partially offset by a decrease in the average yield to 6.59% for the
three months ended March 31, 2004, from 7.58% for the three months ended March
31, 2003. The increase in the average balance of multi-family, commercial real
estate and construction loans reflects our increased emphasis on originations of
such loans, coupled with the fact that repayment activity within this portfolio
is not as significant as that which we have experienced on our one-to-four
family mortgage loan portfolio in part due to the prepayment penalties
associated with these loans. The decrease in the average yield on multi-family,
commercial real estate and construction loans reflects the low interest rate
environment of the past year.
Interest income on mortgage-backed securities decreased $7.1 million to $86.9
million for the three months ended March 31, 2004, from $94.0 million for the
three months ended March 31, 2003. This decrease was the result of a decrease in
the average yield to 4.26% for the three months ended March 31, 2004, from 4.62%
for the three months ended March 31, 2003, slightly offset by an increase of
$21.2 million in the average balance of the portfolio. The decrease in the
average yield on mortgage-backed securities reflects the substantial turnover we
experienced in this portfolio during 2003 as a result of the continued low
interest rate environment as higher yielding securities were repaid and replaced
with lower yielding securities, primarily during the first nine months of 2003,
partially offset by a reduction in net premium amortization during the 2004
first quarter. Net premium amortization on mortgage-backed securities decreased
$10.8 million to $2.9 million for the three months ended March 31, 2004, from
$13.7 million for the three months ended March 31, 2003. The slight increase in
the average balance of mortgage-backed securities reflects the deployment of our
cash flows in excess of mortgage and other loan fundings. At March 31, 2004, our
securities portfolio is comprised primarily of fixed rate REMIC and CMO
mortgage-backed securities. The amortized cost of our fixed rate REMICs and CMOs
totaled $8.00 billion at March 31, 2004. Included in this total is $2.27 billion
of securities which have a remaining gross premium of $22.7 million, a weighted
average current coupon of 5.01%, a weighted average collateral coupon of 6.06%
and a weighted average life of 2.0 years. The remaining $5.73 billion of these
securities have a remaining gross discount of $18.0 million, a weighted average
current coupon of 4.14%, a weighted average collateral coupon of 5.85% and a
weighted average life of 2.8 years. Included in the totals for discount
securities are $583.3 million of securities at par.
26
Interest income on other securities decreased $5.6 million to $4.2 million for
the three months ended March 31, 2004, from $9.8 million for the three months
ended March 31, 2003. This decrease resulted from a decrease in the average
yield to 3.87% for the three months ended March 31, 2004, from 6.43% for the
three months ended March 31, 2003, coupled with a decrease of $179.2 million in
the average balance of this portfolio. The decrease in the average yield and
average balance of other securities was primarily due to higher yielding
securities being called throughout the first half of 2003 as a result of the
continued low interest rate environment. Interest income on other securities
includes dividends on FHLB-NY stock. Dividends on FHLB-NY stock totaled $938,000
for the three months ended March 31, 2004 and $3.3 million for the three months
ended March 31, 2003. The FHLB-NY suspended dividend payments to stockholders in
the fourth quarter of 2003 due to losses in its securities portfolio, but
resumed payment in January 2004, at a rate of 1.45%, as compared to a rate of
5.05% paid in July 2003, the last dividend payment prior to the FHLB-NY's
dividend suspension. The FHLB-NY has indicated that the rate for FHLB-NY stock
dividend payments will remain below 2.00% for the remainder of 2004.
Interest income on federal funds sold and repurchase agreements decreased
$598,000 as a result of a decrease of $189.5 million in the average balance of
the portfolio, coupled with a decrease in the average yield to 0.95% for the
three months ended March 31, 2004, from 1.18% for the three months ended March
31, 2003.
Interest Expense
Interest expense for the three months ended March 31, 2004 decreased $27.0
million to $146.6 million, from $173.6 million for the three months ended March
31, 2003. This decrease was primarily the result of a decrease in the average
cost of interest-bearing liabilities to 2.83% for the three months ended March
31, 2004, from 3.39% for the three months ended March 31, 2003, partially offset
by an increase of $244.1 million in the average balance of interest-bearing
liabilities to $20.73 billion for the three months ended March 31, 2004, from
$20.49 billion for the three months ended March 31, 2003. The decrease in the
average cost of our interest-bearing liabilities reflects the impact of the
refinancing of higher cost borrowings as they matured at substantially lower
rates coupled with the downward repricing of our deposits in the prevailing low
interest rate environment. The increase in the average balance of
interest-bearing liabilities was attributable to increases in deposits and
borrowings.
Interest expense on deposits decreased $4.0 million, to $54.2 million for the
three months ended March 31, 2004, from $58.2 million for the three months ended
March 31, 2003, reflecting a decrease in the average cost of deposits to 1.93%
for the three months ended March 31, 2004, from 2.09% for the three months ended
March 31, 2003, partially offset by an increase of $135.3 million in the average
balance of total deposits. The decrease in the average cost of total deposits
was driven by decreases in rates in all deposit categories as a result of the
continued low interest rate environment. The increase in the average balance of
total deposits was primarily the result of increases in the average balances of
certificates of deposit, savings and NOW and demand deposit accounts, partially
offset by a decrease in the average balance of money market accounts.
Interest expense on money market accounts decreased $1.9 million reflecting a
decrease in the average cost to 0.54% for the three months ended March 31, 2004,
from 0.89% for the three months ended March 31, 2003, coupled with a decrease of
$382.7 million in the average balance of such accounts. Interest paid on money
market accounts is on a tiered basis with 81.9% of the balance at March 31, 2004
in the highest tier (accounts with balances of $50,000 and higher).
27
The decrease in the average balance of money market accounts is attributable to
continued intense competition for these accounts, as previously discussed.
Interest expense on certificates of deposit decreased $1.3 million resulting
from a decrease in the average cost to 3.51% for the three months ended March
31, 2004, from 3.81% for the three months ended March 31, 2003, partially offset
by an increase of $312.8 million in the average balance. The increase in the
average balance of certificates of deposit was primarily the result of our
efforts to extend the maturities of our certificates of deposit through
promotional rates and targeted marketing and sales efforts in the prevailing low
interest rate environment. During the three months ended March 31, 2004, $1.18
billion of certificates of deposit, with an average rate of 2.33% and an average
maturity at inception of fourteen months, matured and $1.51 billion of
certificates of deposit were issued or repriced, with an average rate of 2.51%
and an average maturity at inception of twenty-two months.
Interest expense on savings accounts decreased $544,000 which was attributable
to a decrease in the average cost to 0.40% for the three months ended March 31,
2004, from 0.49% for the three months ended March 31, 2003, partially offset by
an increase of $124.1 million in the average balance. Interest expense on NOW
and demand deposit accounts decreased $269,000 as a result of a decrease in the
average cost to 0.06% for the three months ended March 31, 2004, from 0.14% for
the three months ended March 31, 2003, partially offset by an increase of $81.1
million in the average balance of these accounts. The increases in the average
balances of savings and NOW and demand deposit accounts are consistent with our
emphasis on core deposit generation.
Interest expense on borrowed funds for the three months ended March 31, 2004
decreased $22.9 million to $92.4 million, from $115.3 million for the three
months ended March 31, 2003, resulting from a decrease in the average cost of
borrowings to 3.90% for the three months ended March 31, 2004, from 4.93% for
the three months ended March 31, 2003, partially offset by an increase of $108.7
million in the average balance. The decrease in the average cost of borrowings
is the result of the refinancing of higher cost borrowings as they matured at
substantially lower rates. The increase in the average balance of borrowed funds
was primarily the result of additional medium-term borrowings entered into,
during the low interest rate environment, to fund asset growth in excess of
deposit growth. The use of medium-term borrowings helps protect against the
impact on interest expense of future interest rate increases.
Provision for Loan Losses
During the three months ended March 31, 2004 and 2003, no provision for loan
losses was recorded. We review our allowance for loan losses on a quarterly
basis. Our 2004 analysis did not indicate that a change in our allowance for
loan losses was required. Our charge-off experience during the three months
ended March 31, 2004 remained at an annualized rate of less than one basis point
of average loans outstanding for the period. We believe our current allowance
for loan losses is adequate to reflect the risks inherent in our loan portfolio.
The allowance for loan losses totaled $83.0 million at March 31, 2004 and $83.1
million at December 31, 2003. Net loan charge-offs totaled $155,000 for the
three months ended March 31, 2004 compared to $92,000 for the three months ended
March 31, 2003. Non-performing loans decreased $5.1 million to $24.6 million at
March 31, 2004, from $29.7 million at December 31, 2003. The allowance for loan
losses as a percentage of non-performing loans increased to 337.27% at March 31,
2004, from 280.10% at December 31, 2003, primarily due to the decrease in
non-performing loans from December 31, 2003 to March 31, 2004. The allowance for
loan losses as a percentage of total loans was 0.65% at March 31, 2004 and 0.66%
28
at December 31, 2003. For further discussion of non-performing loans and
allowance for loan losses, see "Critical Accounting Policies" and "Asset
Quality."
Non-Interest Income
Non-interest income for the three months ended March 31, 2004 decreased $3.8
million, to $22.1 million, from $25.9 million for the three months ended March
31, 2003. The decrease in non-interest income was primarily due to decreases in
mortgage banking income, net, and customer service fees.
Mortgage banking income, net, which includes loan servicing fees, net gain on
sales of loans, amortization of MSR and valuation allowance adjustments for the
impairment of MSR, decreased $1.5 million to net mortgage banking loss of $1.1
million for the three months ended March 31, 2004, compared to net mortgage
banking income of $436,000 for the three months ended March 31, 2003. This
decrease was primarily due to a decrease in net gain on sales of loans,
partially offset by a decrease in amortization of MSR. Net gain on sales of
loans decreased $2.2 million to $694,000 for the three months ended March 31,
2004, from $2.8 million for the three months ended March 31, 2003. The decrease
in net gain on sales of loans was primarily due to a decrease in the volume of
fixed rate loans originated and sold into the secondary market. Amortization of
MSR decreased $1.8 million to $2.0 million for the three months ended March 31,
2004, from $3.8 million for the three months ended March 31, 2003. The decrease
in MSR amortization is attributable to the reduction in the level of mortgage
loan repayments as a result of the decrease in mortgage loan refinance activity
previously discussed. Loan servicing fees, which include all contractual and
ancillary servicing revenue we receive, decreased $753,000 to $1.5 million for
the three months ended March 31, 2004, from $2.3 million for the three months
ended March 31, 2003, primarily as a result of a decrease in the balance of
loans serviced for others to $1.82 billion at March 31, 2004, from $2.48 billion
at March 31, 2003. The decrease in the balance of loans serviced for others was
the result of repayments in that portfolio exceeding the level of new servicing
volume from loan sales. We recorded a provision of $1.3 million in the valuation
allowance of MSR for the three months ended March 31, 2004 compared to a
provision of $879,000 for the three months ended March 31, 2003.
Customer service fees decreased $1.1 million to $13.7 million for the three
months ended March 31, 2004, from $14.8 million for the three months ended March
31, 2003, primarily due to a decrease in debit card interchange fees, resulting
from a decrease in the fees we receive from our service provider on our
customers' signature based debit card transactions, and a decrease in
commissions on sales of fixed rate annuities resulting from a decrease in the
volume of such sales.
Net gain on sales of securities totaled $2.4 million for the three months ended
March 31, 2004 compared to $2.1 million for the three months ended March 31,
2003. During the three months ended March 31, 2004, we sold other securities
with an amortized cost of $20.3 million. During the three months ended March 31,
2003, we sold mortgage-backed securities with an amortized cost of $199.7
million. Gains on sales of securities are used as a natural hedge to offset MSR
valuation allowance adjustments caused by the impairment of MSR discussed
previously.
Income from bank owned life insurance, or BOLI, decreased $749,000 to $4.5
million for the three months ended March 31, 2004, from $5.2 million for the
three months ended March 31, 2003. This decrease is primarily attributable to a
reduction in the yield on the BOLI investment as a result of the low interest
rate environment.
29
Non-Interest Expense
Non-interest expense increased $5.0 million to $57.0 million for the three
months ended March 31, 2004, from $52.0 million for the three months ended March
31, 2003. The increase in non-interest expense was primarily due to increases in
compensation and benefits expense and occupancy, equipment and systems expense.
Compensation and benefits expense increased $2.7 million to $31.5 million for
the three months ended March 31, 2004, from $28.8 million for the three months
ended March 31, 2003. The increase was primarily attributable to increases in
salary expense and ESOP expense. The increase in salary expense is primarily
attributable to an increase in estimated corporate bonuses for 2004 compared to
2003 and normal staff additions and performance increases for officers and
staff. The increase in ESOP expense is primarily attributable to a higher
average market value of our common stock during the three months ended March 31,
2004 compared to the three months ended March 31, 2003.
Occupancy, equipment and systems expense increased $2.1 million to $16.7 million
for the three months ended March 31, 2004, from $14.6 million for the three
months ended March 31, 2003, due to an increase in office building expense,
resulting from increased maintenance costs, primarily snow removal due to the
recent harsh winter, and increases in data processing and computer equipment
depreciation as a result of systems enhancements over the past year.
Our percentage of general and administrative expense to average assets increased
to 1.02% for the three months ended March 31, 2004, from 0.93% for the three
months ended March 31, 2003 primarily due to the increase in general and
administrative expense. The efficiency ratio, which represents general and
administrative expense divided by the sum of net interest income plus
non-interest income, increased to 41.74% for the three months ended March 31,
2004, from 38.52% for the three months ended March 31, 2003. The increase in the
efficiency ratio is also primarily attributable to the increase in general and
administrative expense for the three months ended March 31, 2004 compared to the
three months ended March 31, 2003.
Income Tax Expense
For the three months ended March 31, 2004, income tax expense totaled $26.2
million, representing an effective tax rate of 32.9%, compared to $26.5 million,
representing an effective tax rate of 32.0%, for the three months ended March
31, 2003.
Asset Quality
One of our key operating objectives has been and continues to be to maintain a
high level of asset quality. Our concentration on one-to-four family mortgage
lending, the maintenance of sound credit standards for new loan originations and
a strong real estate market have resulted in our maintaining a very low level of
non-performing assets relative to both the size of our loan portfolio and to our
peers. Through a variety of strategies, including, but not limited to,
aggressive collection efforts and marketing of foreclosed properties, we have
been proactive in addressing problem and non-performing assets which, in turn,
has helped to strengthen our financial condition.
30
Non-Performing Assets
The following table sets forth information regarding non-performing assets at
March 31, 2004 and December 31, 2003. In addition to the non-performing loans,
we had $1.2 million of potential problem loans at March 31, 2004 compared to
$839,000 at December 31, 2003. Such loans are 60-89 days delinquent as shown on
page 32.
At March 31, At December 31,
(Dollars in Thousands) 2004 2003
- ----------------------------------------------------------------------------------
Non-accrual delinquent mortgage loans (1) $23,476 $28,321
Non-accrual delinquent consumer and other loans 727 792
Mortgage loans delinquent 90 days or more and
still accruing interest (2) 396 563
- ----------------------------------------------------------------------------------
Total non-performing loans 24,599 29,676
Real estate owned, net (3) 1,871 1,635
- ----------------------------------------------------------------------------------
Total non-performing assets $26,470 $31,311
==================================================================================
Non-performing loans to total loans 0.19% 0.23%
Non-performing loans to total assets 0.11 0.13
Non-performing assets to total assets 0.12 0.14
Allowance for loan losses to non-performing loans 337.27 280.10
Allowance for loan losses to total loans 0.65 0.66
(1) Includes multi-family and commercial real estate loans totaling $6.2
million at March 31, 2004 and $6.1 million at December 31, 2003.
(2) Loans delinquent 90 days or more and still accruing interest consist solely
of loans delinquent 90 days or more as to their maturity date but not their
interest due, and are primarily secured by one-to-four family properties.
(3) Real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure is recorded at the lower of cost or fair value, less estimated
selling costs.
31
We discontinue accruing interest when loans become 90 days delinquent as to
their interest due, even though in most instances the borrower has only missed
two payments. As of March 31, 2004, $3.8 million of loans classified as
non-performing had missed only two payments. In addition, we reverse all
previously accrued and uncollected interest through a charge to interest income.
While loans are in non-accrual status, interest due is monitored and income is
recognized only to the extent cash is received until a return to accrual status
is warranted.
If all non-accrual loans had been performing in accordance with their original
terms, we would have recorded interest income, with respect to such loans, of
$433,000 for the three months ended March 31, 2004 and $1.9 million for the year
ended December 31, 2003. This compares to actual payments recorded as interest
income, with respect to such loans, of $141,000 for the three months ended March
31, 2004, and $1.2 million for the year ended December 31, 2003.
Excluded from non-performing assets are restructured loans that have complied
with the terms of their restructure agreement for a satisfactory period and
have, therefore, been returned to performing status. Restructured loans that are
in compliance with their restructured terms totaled $3.7 million at March 31,
2004 and $3.9 million at December 31, 2003.
Delinquent Loans
The following table shows a comparison of delinquent loans at March 31, 2004 and
December 31, 2003.
At March 31, 2004 At December 31, 2003
-----------------------------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-----------------------------------------------------------------------
Number Number Number Number
of of of of
(Dollars in Thousands) Loans Amount Loans Amount Loans Amount Loans Amount
- ---------------------------------------------------------------------------------------------------------
Mortgage loans:
One-to-four family 6 $ 206 108 $17,633 5 $192 143 $22,744
Multi-family 1 263 12 3,638 1 60 10 3,448
Commercial real estate -- -- 4 2,601 -- -- 4 2,692
Consumer and other loans 74 690 93 727 83 587 90 792
- ---------------------------------------------------------------------------------------------------------
Total delinquent loans 81 $1,159 217 $24,599 89 $839 247 $29,676
=========================================================================================================
Delinquent loans to total loans 0.01% 0.19% 0.01% 0.23%
Allowance for Loan Losses
The following table sets forth the change in our allowance for losses on loans
for the three months ended March 31, 2004.
(In Thousands)
Balance at December 31, 2003 $83,121
Provision charged to operations --
Charge-offs:
One-to-four family (91)
Consumer and other loans (194)
- --------------------------------------------------------------------------------
Total charge-offs (285)
- --------------------------------------------------------------------------------
Recoveries:
One-to-four family 32
Consumer and other loans 98
- --------------------------------------------------------------------------------
Total recoveries 130
- --------------------------------------------------------------------------------
Net charge-offs (155)
- --------------------------------------------------------------------------------
Balance at March 31, 2004 $82,966
================================================================================
32
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
As a financial institution, the primary component of our market risk is interest
rate risk, or IRR. The objective of our IRR management policy is to maintain an
appropriate mix and level of assets, liabilities and off-balance sheet items to
enable us to meet our growth and/or earnings objectives, while maintaining
specified minimum capital levels as required by the Office of Thrift
Supervision, or OTS, in the case of Astoria Federal, and as established by our
Board of Directors. We use a variety of analyses to monitor, control and adjust
our asset and liability positions, primarily interest rate sensitivity gap
analysis, or gap analysis, and net interest income sensitivity, or NII
sensitivity, analysis. Additional IRR modeling is done by Astoria Federal in
conformity with OTS requirements.
Gap Analysis
Gap analysis measures the difference between the amount of interest-earning
assets anticipated to mature or reprice within specific time periods and the
amount of interest-bearing liabilities anticipated to mature or reprice within
the same time periods. The table on page 34, referred to as the Gap Table, sets
forth the amount of interest-earning assets and interest-bearing liabilities
outstanding at March 31, 2004 that we anticipate will reprice or mature in each
of the future time periods shown using certain assumptions based on our
historical experience and other market-based data available to us. As indicated
in the Gap Table, our one-year cumulative gap at March 31, 2004 was positive
0.76%. This compares to a one-year cumulative gap of negative 6.83% at December
31, 2003. The change in our one-year cumulative gap is primarily attributable to
a decrease in borrowings due in one year or less at March 31, 2004, as compared
to December 31, 2003, as a result of the repayment or refinancing of medium-term
borrowings which matured during the three months ended March 31, 2004.
The Gap Table does not indicate the impact of general interest rate movements on
our net interest income because the actual repricing dates of various assets and
liabilities will differ from our estimates and it does not give consideration to
the yields and costs of the assets and liabilities or the projected yields and
costs to replace or retain those assets and liabilities. Callable features of
certain assets and liabilities, in addition to the foregoing, may also cause
actual experience to vary from that indicated.
33
At March 31, 2004
-----------------------------------------------------------------
More than More than
One Year Three Years
One Year to to More than
(Dollars in Thousands) or Less Three Years Five Years Five Years Total
- -----------------------------------------------------------------------------------------------------------
Interest-earning assets:
Mortgage loans (1) $3,392,931 $3,328,938 $3,744,929 $1,752,030 $12,218,828
Consumer and other loans (1) 421,588 26,998 -- -- 448,586
Federal funds sold and
repurchase agreements 404,250 -- -- -- 404,250
Mortgage-backed and other
securities available-for-sale and
FHLB stock 712,966 807,464 453,580 868,975 2,842,985
Mortgage-backed and other securities
held-to-maturity 1,411,862 1,919,804 1,071,095 1,292,796 5,695,557
- -----------------------------------------------------------------------------------------------------------
Total interest-earning assets 6,343,597 6,083,204 5,269,604 3,913,801 21,610,206
Net unamortized purchase premiums
and deferred costs (2) 24,189 21,797 23,408 11,723 81,117
- -----------------------------------------------------------------------------------------------------------
Net interest-earning assets (3) 6,367,786 6,105,001 5,293,012 3,925,524 21,691,323
- -----------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings 163,675 327,352 327,352 2,155,065 2,973,444
Money market 972,199 18,710 18,710 140,323 1,149,942
NOW and demand deposit 42,475 84,949 84,949 1,292,677 1,505,050
Certificates of deposit 2,618,329 2,230,404 906,768 124,743 5,880,244
Borrowed funds 2,399,564 2,592,226 4,018,631 384,376 9,394,797
- -----------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 6,196,242 5,253,641 5,356,410 4,097,184 20,903,477
- -----------------------------------------------------------------------------------------------------------
Interest sensitivity gap 171,544 851,360 (63,398) (171,660) $ 787,846
===========================================================================================================
Cumulative interest sensitivity gap $ 171,544 $1,022,904 $ 959,506 $ 787,846
===========================================================================================================
Cumulative interest sensitivity
gap as a percentage of total assets 0.76% 4.52% 4.24% 3.48%
Cumulative net interest-earning
assets as a percentage of
interest-bearing liabilities 102.77% 108.93% 105.71% 103.77%
(1) Mortgage and consumer and other loans include loans held-for-sale and
exclude non-performing loans and the allowance for loan losses.
(2) Net unamortized purchase premiums and deferred costs are prorated.
(3) Includes securities available-for-sale at amortized cost.
NII Sensitivity Analysis
In managing IRR, we also use an internal income simulation model for our NII
sensitivity analyses. These analyses measure changes in projected net interest
income over various time periods resulting from hypothetical changes in interest
rates. The interest rate scenarios most commonly analyzed reflect gradual and
reasonable changes over a specified time period, which is typically one year.
The base net interest income projection utilizes similar assumptions as those
reflected in the Gap Table, assumes that cash flows are reinvested in similar
assets and liabilities and that interest rates as of the reporting date remain
constant over the projection period. For each alternative interest rate
scenario, corresponding changes in the cash flow and repricing assumptions of
each financial instrument are made to determine the impact on net interest
income.
Assuming the entire yield curve was to increase 200 basis points, through
quarterly parallel increments of 50 basis points and remain at that level
thereafter, our projected net interest income for the twelve month period
beginning April 1, 2004 would decrease by approximately
34
1.56% from the base projection. At December 31, 2003, in the up 200 basis point
scenario, our projected net interest income for the twelve month period
beginning January 1, 2004 would have decreased by approximately 0.54% from the
base projection. The current low interest rate environment prevents us from
performing an income simulation for a decline in interest rates of the same
magnitude and timing as our rising interest rate simulation, since certain asset
yields, liability costs, and related indexes are below 2.00%. However, assuming
the entire yield curve was to decrease 100 basis points, through quarterly
parallel decrements of 25 basis points, and remain at that level thereafter, our
projected net interest income for the twelve month period beginning April 1,
2004 would decrease by approximately 2.57% from the base projection. At December
31, 2003, in the down 100 basis point scenario, our projected net interest
income for the twelve month period beginning January 1, 2004 would have
decreased by approximately 3.46% from the base projection.
Various shortcomings are inherent in both the Gap Table and NII sensitivity
analyses. Certain assumptions may not reflect the manner in which actual yields
and costs respond to market changes. Similarly, prepayment estimates and similar
assumptions are subjective in nature, involve uncertainties and, therefore,
cannot be determined with precision. Changes in interest rates may also affect
our operating environment and operating strategies as well as those of our
competitors. In addition, certain adjustable rate assets have limitations on the
magnitude of rate changes over specified periods of time. Accordingly, although
our NII sensitivity analyses may provide an indication of our IRR exposure, such
analyses are not intended to and do not provide a precise forecast of the effect
of changes in market interest rates on our net interest income and our actual
results will differ. Additionally, certain assets, liabilities and items of
income and expense which may be affected by changes in interest rates, albeit to
a much lesser degree, and which do not affect net interest income, are excluded
from this analysis. These include, but are not limited to, BOLI, MSR, defined
benefit pension costs and the mark to market adjustments on certain derivative
instruments.
For further information regarding our market risk and the limitations of our gap
analysis and NII sensitivity analysis, see Part II, Item 7A, "Quantitative and
Qualitative Disclosures about Market Risk," included in our Annual Report
on Form 10-K for the year ended December 31, 2003.
ITEM 4. Controls and Procedures
George L. Engelke, Jr., our Chairman, President and Chief Executive Officer, and
Monte N. Redman, our Executive Vice President and Chief Financial Officer,
conducted an evaluation of our disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of March 31, 2004.
Based upon their evaluation, they each found that our disclosure controls and
procedures were effective to ensure that information required to be disclosed in
the reports we file and submit under the Exchange Act is recorded, processed,
summarized and reported as and when required and that such information is
accumulated and communicated to our management as appropriate to allow timely
decisions regarding required disclosure.
There were no changes in our internal controls over financial reporting that
occurred during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
35
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
In the ordinary course of our business, we are routinely made defendant in or a
party to a number of pending or threatened legal actions or proceedings which,
in some cases, seek substantial monetary damages from or other forms of relief
against us. In our opinion, after consultation with legal counsel, we believe it
unlikely that such actions or proceedings will have a material adverse affect on
our financial condition, results of operations or liquidity.
We are a party to two actions pending against the United States, involving
assisted acquisitions made in the early 1980's and supervisory goodwill
accounting utilized in connection therewith, which could result in a gain. The
ultimate outcomes of such actions are uncertain and there can be no assurance
that we will benefit financially from such litigation.
ITEM 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
The following table sets forth the repurchases of our common stock by month
during the three months ended March 31, 2004.
Total Number Maximum
Total of Shares Number of Shares
Number of Average Purchased as Part that May Yet Be
Shares Price Paid of Publicly Purchased Under the
Period Purchased per Share Announced Plans Plans
- -------------------------------------------------------------------------------------------
January 1, 2004 through
January 31, 2004 115,000 $37.38 115,000 2,493,200
February 1, 2004 through
February 29, 2004 440,000 40.27 440,000 2,053,200
March 1, 2004 through
March 31, 2004 465,000 38.26 465,000 1,588,200
- -------------------------------------------------------------------------------------------
Total 1,020,000 $39.03 1,020,000
===========================================================================================
All of the shares repurchased during the three months ended March 31, 2004 were
repurchased under our ninth stock repurchase plan, approved by our Board of
Directors on October 16, 2002 and announced on October 17, 2002, which
authorized the purchase, at management's discretion, of 10,000,000 shares of our
common stock over a two year period.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5. Other Information
Not applicable.
36
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Identification of Exhibit
- ----------- ------------------------------------------------------------------
31.1 Certifications of Chief Executive Officer.
31.2 Certifications of Chief Financial Officer.
32.1 Written Statement of Chief Executive Officer furnished pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350. Pursuant to SEC rules, this exhibit will not be deemed filed
for purposes of Section 18 of the Exchange Act or otherwise
subject to the liability of that section.
32.2 Written Statement of Chief Financial Officer furnished pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350. Pursuant to SEC rules, this exhibit will not be deemed filed
for purposes of Section 18 of the Exchange Act or otherwise
subject to the liability of that section.
(b) Reports on Form 8-K
1. Report on Form 8-K dated March 2, 2004, which includes under Item 9 of
Form 8-K a press release dated February 23, 2004 announcing our
participation in the Eastern Regional Bank Symposium sponsored by
Keefe, Bruyette, and Woods, Inc. on March 3, 2004 and a written
presentation which was made available at the Eastern Regional Bank
Symposium, on our investor relations website and to interested
investors and analysts during the quarter ended March 31, 2004. This
report has been furnished but not filed pursuant to Regulation FD.
2. Report on Form 8-K dated January 22, 2004 which includes under Item 12
of Form 8-K a press release dated January 22, 2004 which includes
highlights of our financial results for the quarter and year ended
December 31, 2003. This report has been furnished but not filed
pursuant to Regulation G.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Astoria Financial Corporation
Dated: May 7, 2004 By: /s/ Monte N. Redman
----------------------------------
Monte N. Redman
Executive Vice President
and Chief Financial Officer
(Principal Accounting Officer)
37
Exhibit Index
Exhibit No. Identification of Exhibit
- ----------- ------------------------------------------------------------------
31.1 Certifications of Chief Executive Officer.
31.2 Certifications of Chief Financial Officer.
32.1 Written Statement of Chief Executive Officer furnished pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350. Pursuant to SEC rules, this exhibit will not be deemed filed
for purposes of Section 18 of the Exchange Act or otherwise
subject to the liability of that section.
32.2 Written Statement of Chief Financial Officer furnished pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350. Pursuant to SEC rules, this exhibit will not be deemed filed
for purposes of Section 18 of the Exchange Act or otherwise
subject to the liability of that section.
38