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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, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-11967
ASTORIA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 11-3170868
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
One Astoria Federal Plaza, Lake Success, New York 11042-1085
------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(516) 327-3000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------- ------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES X NO
------- ------
Indicate 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, 2005
----------------------- --------------------------------------------
.01 Par Value 109,171,544
------------- -----------
PART I -- FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements (Unaudited):
Consolidated Statements of Financial Condition at March 31, 2005 2
and December 31, 2004
Consolidated Statements of Income for the Three Months Ended 3
March 31, 2005 and March 31, 2004
Consolidated Statement of Changes in Stockholders' Equity for the 4
Three Months Ended March 31, 2005
Consolidated Statements of Cash Flows for the Three Months Ended 5
March 31, 2005 and March 31, 2004
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 31
Item 4. Controls and Procedures 34
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 34
Item 3. Defaults Upon Senior Securities 35
Item 4. Submission of Matters to a Vote of Security Holders 35
Item 5. Other Information 35
Item 6. Exhibits 35
Signatures 35
1
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Unaudited)
At At
(In Thousands, Except Share Data) March 31, 2005 December 31, 2004
- ------------------------------------------------------------------------------------------------------------------------
ASSETS:
Cash and due from banks $ 120,110 $ 138,809
Repurchase agreements 219,500 267,578
Available-for-sale securities:
Encumbered 2,007,593 2,104,239
Unencumbered 234,055 302,644
- ------------------------------------------------------------------------------------------------------------------------
2,241,648 2,406,883
Held-to-maturity securities, fair value of $6,000,015 and $6,306,760,
respectively:
Encumbered 5,941,289 5,273,385
Unencumbered 139,276 1,029,551
- ------------------------------------------------------------------------------------------------------------------------
6,080,565 6,302,936
Federal Home Loan Bank of New York stock, at cost 124,300 163,700
Loans held-for-sale, net 32,549 23,802
Loans receivable:
Mortgage loans, net 13,039,149 12,746,134
Consumer and other loans, net 521,327 517,145
- ------------------------------------------------------------------------------------------------------------------------
13,560,476 13,263,279
Allowance for loan losses (82,730) (82,758)
- ------------------------------------------------------------------------------------------------------------------------
Loans receivable, net 13,477,746 13,180,521
Mortgage servicing rights, net 18,535 16,799
Accrued interest receivable 80,291 79,144
Premises and equipment, net 155,402 157,107
Goodwill 185,151 185,151
Bank owned life insurance 378,894 374,719
Other assets 135,732 118,720
- ------------------------------------------------------------------------------------------------------------------------
Total assets $23,250,423 $23,415,869
========================================================================================================================
LIABILITIES:
Deposits:
Savings $ 2,848,135 $ 2,929,120
Money market 885,278 965,288
NOW and demand deposit 1,575,204 1,580,714
Liquid certificates of deposit 265,720 -
Certificates of deposit 6,995,032 6,848,135
- ------------------------------------------------------------------------------------------------------------------------
Total deposits 12,569,369 12,323,257
Reverse repurchase agreements 7,580,000 7,080,000
Federal Home Loan Bank of New York advances 944,000 1,934,000
Other borrowings, net 457,441 455,835
Mortgage escrow funds 168,991 122,088
Accrued expenses and other liabilities 164,120 130,925
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 21,883,921 22,046,105
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 5,000,000 shares authorized:
Series A (1,800,000 shares authorized and -0- shares issued and outstanding) - -
Series B (2,000,000 shares authorized and -0- shares issued and outstanding) - -
Common stock, $.01 par value; (200,000,000 shares authorized; 166,494,888 shares
issued; and 109,465,965 and 110,304,669 shares outstanding, respectively) 1,665 1,665
Additional paid-in capital 815,153 811,777
Retained earnings 1,661,275 1,623,571
Treasury stock (57,028,923 and 56,190,219 shares, at cost, respectively) (1,037,160) (1,013,726)
Accumulated other comprehensive loss (49,897) (28,592)
Unallocated common stock held by ESOP (6,696,140 and 6,802,146
shares, respectively) (24,534) (24,931)
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,366,502 1,369,764
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $23,250,423 $23,415,869
========================================================================================================================
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) 2005 2004
- -----------------------------------------------------------------------------------------------------------------------
Interest income:
Mortgage loans:
One-to-four family $ 111,582 $ 111,350
Multi-family, commercial real estate and construction 58,196 53,631
Consumer and other loans 6,781 4,890
Mortgage-backed and other securities 93,922 90,131
Federal funds sold and repurchase agreements 1,449 154
Federal Home Loan Bank of New York stock 1,173 938
- -----------------------------------------------------------------------------------------------------------------------
Total interest income 273,103 261,094
- -----------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 64,960 54,230
Borrowed funds 82,930 92,351
- -----------------------------------------------------------------------------------------------------------------------
Total interest expense 147,890 146,581
- -----------------------------------------------------------------------------------------------------------------------
Net interest income 125,213 114,513
Provision for loan losses - -
- -----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 125,213 114,513
- -----------------------------------------------------------------------------------------------------------------------
Non-interest income:
Customer service fees 14,946 13,749
Other loan fees 1,164 1,262
Net gain on sales of securities - 2,372
Mortgage banking income (loss), net 2,946 (1,118)
Income from bank owned life insurance 4,175 4,450
Other 1,511 1,424
- -----------------------------------------------------------------------------------------------------------------------
Total non-interest income 24,742 22,139
- -----------------------------------------------------------------------------------------------------------------------
Non-interest expense:
General and administrative:
Compensation and benefits 30,790 31,464
Occupancy, equipment and systems 16,025 16,717
Federal deposit insurance premiums 448 449
Advertising 3,905 1,709
Other 9,344 6,704
- -----------------------------------------------------------------------------------------------------------------------
Total non-interest expense 60,512 57,043
- -----------------------------------------------------------------------------------------------------------------------
Income before income tax expense 89,443 79,609
Income tax expense 29,964 26,196
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 59,479 $ 53,413
========================================================================================================================
Basic earnings per common share $ 0.58 $ 0.48
========================================================================================================================
Diluted earnings per common share $ 0.57 $ 0.47
========================================================================================================================
Dividends per common share $ 0.20 $ 0.16
========================================================================================================================
Basic weighted average common shares 103,160,491 110,874,674
Diluted weighted average common and common equivalent shares 104,957,469 113,014,577
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, 2005
Additional
Common Paid-in Retained
(In Thousands, Except Share Data) Total Stock Capital Earnings
- -----------------------------------------------------------------------------------------------------
Balance at December 31, 2004 $1,369,764 $1,665 $811,777 $1,623,571
Comprehensive income:
Net income 59,479 - - 59,479
Other comprehensive (loss) income, net of tax:
Net unrealized loss on securities (21,353) - - -
Reclassification of net unrealized loss
on cash flow hedge 48 - - -
---------
Comprehensive income 38,174
---------
Common stock repurchased
(1,110,000 shares) (28,344) - - -
Dividends on common stock ($0.20 per share) (20,624) - - (20,624)
Exercise of stock options and
related tax benefit (271,296 shares issued) 4,770 - 1,011 (1,151)
Amortization relating to allocation
of ESOP stock 2,762 - 2,365 -
- -----------------------------------------------------------------------------------------------------
Balance at March 31, 2005 $1,366,502 $1,665 $815,153 $1,661,275
=====================================================================================================
Unallocated
Accumulated Common
Other Stock
Treasury Comprehensive Held
(In Thousands, Except Share Data) Stock Loss by ESOP
- -----------------------------------------------------------------------------------------
Balance at December 31, 2004 $(1,013,726) $(28,592) $(24,931)
Comprehensive income:
Net income - - -
Other comprehensive (loss) income, net of tax:
Net unrealized loss on securities - (21,353) -
Reclassification of net unrealized loss
on cash flow hedge - 48 -
Comprehensive income
Common stock repurchased
(1,110,000 shares) (28,344) - -
Dividends on common stock ($0.20 per share) - - -
Exercise of stock options and
related tax benefit (271,296 shares issued) 4,910 - -
Amortization relating to allocation
of ESOP stock - - 397
- -----------------------------------------------------------------------------------------
Balance at March 31, 2005 $(1,037,160) $(49,897) $(24,534)
==========================================================================================
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) 2005 2004
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 59,479 $ 53,413
Adjustments to reconcile net income to net cash provided
by operating activities:
Net premium amortization on mortgage loans and
mortgage-backed securities 4,344 8,330
Net amortization on consumer and other loans,
other securities and borrowings 1,088 885
Net provision for real estate losses 56 -
Depreciation and amortization 3,456 3,333
Net gain on sales of loans and securities (694) (3,073)
Originations of loans held-for-sale (76,417) (64,749)
Proceeds from sales and principal repayments of loans held-for-sale 68,364 57,331
Amortization relating to allocation of ESOP stock 2,762 2,832
Increase in accrued interest receivable (1,147) (388)
Mortgage servicing rights amortization and valuation
allowance adjustments, net of capitalized amounts (1,736) 2,625
Income from bank owned life insurance, net of insurance proceeds received (4,175) (200)
(Increase) decrease in other assets (531) 1,419
Increase in accrued expenses and other liabilities 34,206 23,154
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 89,055 84,912
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Originations of loans receivable (722,408) (660,341)
Loan purchases through third parties (285,463) (230,919)
Principal payments on loans receivable 705,523 834,306
Purchases of securities held-to-maturity (177,599) (307,001)
Purchases of securities available-for-sale (25) (99,874)
Principal payments on securities held-to-maturity 399,717 392,624
Principal payments on securities available-for-sale 128,449 141,295
Proceeds from sales of securities available-for-sale - 22,692
Net redemptions of FHLB-NY stock 39,400 44,750
Proceeds from sales of real estate owned, net 519 297
Purchases of premises and equipment, net of proceeds from sales (1,751) (2,088)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 86,362 135,741
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 246,112 322,086
Net (decrease) increase in borrowings with original terms of three months or less (490,000) 165,000
Proceeds from borrowings with original terms greater than three months 300,000 2,400,000
Repayments of borrowings with original terms greater than three months (300,000) (2,810,000)
Net increase in mortgage escrow funds 46,903 40,357
Common stock repurchased (28,344) (39,809)
Cash dividends paid to stockholders (20,624) (18,503)
Cash received for stock options exercised 3,759 10,740
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (242,194) 69,871
- ---------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (66,777) 290,524
Cash and cash equivalents at beginning of period 406,387 239,754
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 339,610 $ 530,278
===========================================================================================================================
Supplemental disclosures:
Cash paid during the period:
Interest $ 147,283 $ 156,918
===========================================================================================================================
Income taxes $ 913 $ 2,074
===========================================================================================================================
Additions to real estate owned $ 106 $ 533
===========================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
5
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Astoria Financial Corporation and its wholly-owned subsidiaries Astoria Federal
Savings and Loan Association and its subsidiaries, referred to as Astoria
Federal, and AF Insurance Agency, Inc. As used in this quarterly report, "we,"
"us" and "our" refer to Astoria Financial Corporation and its consolidated
subsidiaries, including Astoria Federal and AF Insurance Agency, Inc. All
significant inter-company accounts and transactions have been eliminated in
consolidation.
In addition to Astoria Federal and AF Insurance Agency, Inc., we have another
subsidiary, Astoria Capital Trust I, which is not consolidated with Astoria
Financial Corporation for financial reporting purposes in accordance with U.S.
generally accepted accounting principles, or GAAP. Astoria Capital Trust I was
formed in 1999 for the purpose of issuing $125.0 million aggregate liquidation
amount of 9.75% Capital Securities due November 1, 2029, or Capital Securities,
and $3.9 million of common securities which are 100% owned by Astoria Financial
Corporation, and using the proceeds to acquire Junior Subordinated Debentures
issued by Astoria Financial Corporation. The Junior Subordinated Debentures
total $128.9 million, have an interest rate of 9.75%, mature on November 1, 2029
and are the sole assets of Astoria Capital Trust I. The Junior Subordinated
Debentures are prepayable, in whole or in part, at our option on or after
November 1, 2009 at declining premiums to November 1, 2019, after which the
Junior Subordinated Debentures are prepayable at par value. The Capital
Securities have substantially identical repayment provisions as the Junior
Subordinated Debentures. Astoria Financial Corporation has fully and
unconditionally guaranteed the Capital Securities along with all obligations of
Astoria Capital Trust I under the trust agreement relating to the Capital
Securities. See Note 9 of Notes to Consolidated Financial Statements included in
Item 8, "Financial Statements and Supplementary Data" of our 2004 Annual Report
on Form 10-K for restrictions on our subsidiaries' ability to pay dividends to
us.
In our opinion, the accompanying consolidated financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of our financial condition as of March 31, 2005 and December
31, 2004, our results of operations for the three months ended March 31, 2005
and 2004, changes in our stockholders' equity for the three months ended March
31, 2005 and our cash flows for the three months ended March 31, 2005 and 2004.
In preparing the consolidated financial statements, we are required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities for the consolidated statements of financial condition as of March
31, 2005 and December 31, 2004, and amounts of revenues and expenses in the
consolidated statements of income for the three months ended March 31, 2005 and
2004. The results of operations for the three months ended March 31, 2005 are
not necessarily indicative of the results of operations to be expected for the
remainder of the year. Certain information and note disclosures normally
included in financial statements prepared in accordance with GAAP have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission, or SEC. Certain reclassifications have been made to prior
period amounts to conform to the current period presentation.
6
These consolidated financial statements should be read in conjunction with our
December 31, 2004 audited consolidated financial statements and related notes
included in our 2004 Annual Report on Form 10-K.
2. Earnings Per Share, or EPS
The following table is a reconciliation of basic and diluted EPS.
For the Three Months Ended March 31,
-------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------
Basic Diluted Basic Diluted
(In Thousands, Except Per Share Data) EPS EPS (1) EPS EPS
- --------------------------------------------------------------------------------------------------------------------
Net income available to common shareholders $ 59,479 $ 59,479 $ 53,413 $ 53,413
====================================================================================================================
Total weighted average basic
common shares outstanding 103,160 103,160 110,875 110,875
Effect of dilutive securities:
Options - 1,797 - 2,140
- ---------------------------------------------------------------------------------------------------------------------
Total weighted average diluted
common shares outstanding 103,160 104,957 110,875 113,015
=====================================================================================================================
Net earnings per common share $ 0.58 $ 0.57 $ 0.48 $ 0.47
=====================================================================================================================
(1) Options to purchase 2,008,800 shares of common stock at prices between
$26.23 per share and $26.63 per share were outstanding as of March 31,
2005, 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, 2005.
3. Stock Option Plans
We apply the intrinsic value method of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations in
accounting for our stock option plans. Accordingly, no stock-based employee
compensation cost is reflected in net income, as all options granted under our
stock option plans had an exercise price equal to the market value of the
underlying common stock on the date of grant.
The following table illustrates the effect on net income and EPS if we had
applied the fair value recognition provisions of Statement of Financial
Accounting Standards, or SFAS, No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation.
For the Three Months Ended March 31,
------------------------------------
(In Thousands, Except Per Share Data) 2005 2004
- ----------------------------------------------------------------------------------------------------------
Net income:
As reported $ 59,479 $53,413
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effect 1,850 1,456
-------- --------
Pro forma $57,629 $51,957
======= =======
Basic earnings per common share:
As reported $0.58 $0.48
===== =====
Pro forma $0.56 $0.47
===== =====
Diluted earnings per common share:
As reported $0.57 $0.47
===== =====
Pro forma $0.55 $0.46
===== =====
7
4. 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) 2005 2004 2005 2004
- ----------------------------------------------------------------------------- -------------------------------------
Service cost $ 897 $ 839 $ 137 $ 117
Interest cost 2,512 2,444 261 243
Expected return on plan assets (2,994) (2,906) - -
Amortization of prior service cost 40 40 10 10
Recognized net actuarial loss (gain) 695 619 - (2)
Amortization of transition asset - (9) - -
- -----------------------------------------------------------------------------------------------------------------------
Net periodic cost $ 1,150 $1,027 $ 408 $ 368
=======================================================================================================================
The net periodic cost of our other postretirement benefit plan for the three
months ended March 31, 2005 has been reduced as a result of our adoption of
Financial Accounting Standards Board, or FASB, Staff Position No. 106-2,
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003," in 2004. The reduction was not
material to the net periodic cost of our other postretirement benefit plan for
the three months ended March 31, 2005.
5. Impact of Accounting Standards and Interpretations
In December 2004, the FASB issued revised SFAS No. 123, "Share-Based Payment,"
or SFAS No. 123(R), which requires public entities to recognize the cost of
employee services received in exchange for awards of equity instruments based on
the grant-date fair value of those awards (with limited exceptions). The
fair-value-based method in SFAS No. 123(R) is similar to the fair-value-based
method in SFAS No. 123 in most respects. SFAS No. 123(R) applies to all awards
granted after the required effective date and to awards modified, repurchased,
or cancelled after that date. Additionally, beginning on the required effective
date, public entities will recognize compensation cost for the portion of
outstanding awards for which the requisite service has not yet been rendered,
based on the grant-date fair value of those awards calculated under SFAS No. 123
for either recognition or pro forma disclosures. The cumulative effect of
initially applying SFAS No. 123(R), if any, is recognized as of the required
effective date. For periods before the required effective date, public entities
may elect, although they are not required, to retroactively restate financial
statements for prior periods to recognize compensation cost on a basis
consistent with the pro forma disclosures required for those periods by SFAS No.
123. SFAS No. 123(R) was originally effective as of the beginning of the first
interim or annual reporting period beginning after June 15, 2005 with early
adoption encouraged. However, on April 14, 2005, the SEC adopted a new rule
which changed the effective date of SFAS No. 123(R) to the beginning of the
first annual reporting period beginning after June 15, 2005, which for us is
January 1, 2006. The impact of our adoption of SFAS No. 123(R) on our results of
operations for 2006 is expected to be a reduction in net income comparable to
the reduction shown in the 2004 pro forma disclosures under SFAS No. 123, which
are included in Note 1 of Notes to Consolidated Financial Statements included in
Item 8, "Financial Statements and Supplementary Data" of our 2004 Annual Report
on Form 10-K.
On September 30, 2004, the FASB issued Staff Position No. EITF Issue 03-1-1,
"Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, The Meaning of
Other-Than-Temporary
8
Impairment and Its Application to Certain Investments," which delays the
effective date for the measurement and recognition guidance contained in
Emerging Issues Task Force, or EITF, Issue No. 03-1. EITF Issue No. 03-1
provides guidance for evaluating whether an investment is other-than-temporarily
impaired and was originally effective for other-than-temporary impairment
evaluations made in reporting periods beginning after June 15, 2004. The delay
in the effective date for the measurement and recognition guidance contained in
paragraphs 10 through 20 of EITF Issue No. 03-1 does not suspend the requirement
to recognize other-than-temporary impairments as required by existing
authoritative literature. The disclosure guidance in paragraphs 21 and 22 of
EITF Issue No. 03-1 remains effective. Subsequent to the issuance of Staff
Position No. EITF Issue 03-1-1, the FASB announced plans for a full
reconsideration of existing authoritative literature concerning
other-than-temporary impairment of securities.
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;
o changes in the interest rate environment may reduce interest margins
or affect the value of our investments;
o changes in deposit flows, loan demand or real estate values may
adversely affect our business;
o changes in accounting principles, policies or guidelines may cause our
financial condition to be perceived differently;
o general economic conditions, either nationally or locally in some or
all areas in which we do business, or conditions in the securities
markets or the banking industry may be less favorable than we
currently anticipate;
o legislative or regulatory changes may adversely affect our business;
o technological changes may be more difficult or expensive than we
anticipate;
o success or consummation of new business initiatives may be more
difficult or expensive than we anticipate; or
o litigation or other matters before regulatory agencies, whether
currently existing or commencing in the future, may delay the
occurrence or non-occurrence of events longer than we anticipate.
9
We have no obligation to update any forward-looking statements to reflect events
or circumstances after the date of this document.
Executive Summary
The following overview should be read in conjunction with our Management's
Discussion and Analysis of Financial Condition and Results of Operations, or
MD&A, in its entirety.
Astoria Financial Corporation is a Delaware corporation organized as the unitary
savings and loan association holding company of Astoria Federal. Our primary
business is the operation of Astoria Federal. Astoria Federal's principal
business is attracting retail deposits from the general public and investing
those deposits, together with funds generated from operations, principal
repayments on loans and securities and borrowed funds, primarily in one-to-four
family mortgage loans, mortgage-backed securities, multi-family mortgage loans
and commercial real estate loans. Our results of operations are dependent
primarily on our net interest income, which is the difference between the
interest earned on our assets, primarily our loan and securities portfolios, and
the interest paid on our deposits and borrowings. Our earnings are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates and U.S. Treasury yield curves,
government policies and actions of regulatory authorities.
As a premier Long Island community bank, our goal is to enhance shareholder
value while building a solid banking franchise. We focus on growing our core
businesses of mortgage lending and retail banking while maintaining superior
asset quality and controlling operating expenses. Additionally, we continue to
provide returns to shareholders through dividends and stock repurchases. We have
been successful in achieving this goal over the past several years and that
trend has continued into 2005.
During the three months ended March 31, 2005, the national and local real estate
markets remained strong and continued to support new and existing home sales.
The Federal Open Market Committee, or FOMC, raised the federal funds rate twice
during the three months ended March 31, 2005 and five times in the latter half
of 2004. As a result, U.S. Treasury yields at March 31, 2005 have increased from
both March 31, 2004 and December 31, 2004, with the exception of the thirty year
U.S. Treasury yield which is down slightly. The overall increase in U.S.
Treasury yields has further slowed mortgage refinance activity and related cash
flows from that of the prior year. Although U.S. Treasury yields have risen,
yields on the longer end of the U.S. Treasury yield curve have not risen to the
same degree as shorter term yields which has resulted in a significant
flattening of the U.S. Treasury yield curve which began in the latter half of
2004 and continued during the first quarter of 2005.
Our total loan portfolio increased during the three months ended March 31, 2005.
This increase was primarily in our one-to-four family and multi-family and
commercial real estate loan portfolios. Our one-to-four family mortgage loan
portfolio increased as a result of the continued reduction in repayment
activity, which began in the 2004 fourth quarter, coupled with continued strong
loan origination volume resulting from the strength of the purchase mortgage
market. The increase in our multi-family and commercial real estate loan
portfolio is attributable to our continued emphasis on the origination of these
loans over the past several years. Our total non-performing assets declined from
December 31, 2004 to March 31, 2005.
10
Total deposits increased during the three months ended March 31, 2005. This
increase was primarily attributable to our new Liquid certificate of deposit
which was introduced in January of this year. Liquid certificates of deposit
have maturities of three months, require the maintenance of a minimum balance
and allow depositors the ability to make periodic deposits to and withdrawals
from their account. We consider Liquid certificates of deposit as part of our
core deposits, along with savings accounts, money market accounts and NOW and
demand deposit accounts, due to their depositor flexibility. In addition,
certificates of deposit, excluding Liquid certificates of deposit, increased as
a result of the continued success of our marketing campaigns which have focused
on attracting medium-term certificates of deposit. Growth in our certificates of
deposit continues to produce new customers from our communities, creating
relationship development opportunities, as well as contributing to the
management of interest rate risk.
Our securities and borrowings portfolios decreased from December 31, 2004, which
is consistent with our strategy of reducing these portfolios through normal cash
flow in response to the continued flattening of the U.S. Treasury yield curve.
Net income for the three months ended March 31, 2005 increased compared to the
three months ended March 31, 2004. The increase in net income was primarily due
to increases in net interest income and non-interest income, partially offset by
an increase in non-interest expense. The increase in net interest income was
primarily the result of an increase in interest income. The increase in interest
income was primarily due to the increase in the average balance of
interest-earning assets, in substantially all asset categories, coupled with a
decrease in net premium amortization on our mortgage-backed securities and
mortgage loan portfolios. The decrease in net premium amortization was primarily
due to the reduction in repayment levels during 2005, as well as the reduced
amount of unamortized premium remaining in our mortgage-backed securities
portfolio. The increase in non-interest income relates primarily to increases in
mortgage banking income, net and customer service fees, partially offset by a
decrease in net gain on sales of securities. The increase in non-interest
expense relates primarily to increases in advertising and other expense,
partially offset by a decrease in compensation and benefits expense.
Our net interest rate spread and our net interest margin for the three months
ended March 31, 2005 increased compared to the three months ended March 31,
2004, primarily due to a decrease in the average cost of interest-bearing
liabilities, as higher cost borrowings were repriced at lower rates.
We continue to face a challenging operating environment as a result of rising
short-term interest rates and a continuing flattening of the U.S. Treasury yield
curve. Accordingly, we anticipate a continued shrinkage of the balance sheet
with the reduction in borrowings and securities through normal cash flow, while
we continue to grow deposits and loans, all of which will continue to improve
the quality of the balance sheet and earnings. This strategy should better
position us to take advantage of more profitable asset growth opportunities when
the yield curve steepens.
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
11
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, 2004 included in our 2004 Annual Report on Form 10-K, 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 mortgage servicing
rights, or MSR, and judgments regarding goodwill and securities impairment are
our most critical accounting policies because they are important to the
presentation of our financial condition and results of operations, involve a
higher degree of complexity and require management to make difficult and
subjective judgments which often require assumptions or estimates about highly
uncertain matters. The use of different judgments, assumptions and estimates
could result in material differences in our results of operations or financial
condition. These critical accounting policies and their application are reviewed
quarterly with the Audit Committee of our Board of Directors. The following
description of these policies should be read in conjunction with the
corresponding section of our 2004 Annual Report on Form 10-K.
Allowance for Loan Losses
Our allowance for loan losses is established and maintained through a provision
for loan losses based on our evaluation of the risks inherent in our loan
portfolio. We evaluate the adequacy of our allowance on a quarterly basis. The
allowance is comprised of both specific valuation allowances and general
valuation allowances.
Specific valuation allowances are established in connection with individual loan
reviews and the asset classification process, including the procedures for
impairment recognition under SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan, an Amendment of FASB Statements No. 5 and 15," and SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures, an Amendment of FASB Statement No. 114." Such evaluation, which
includes a review of loans on which full collectibility is not reasonably
assured, considers the estimated fair value of the underlying collateral, if
any, current and anticipated economic and regulatory conditions, current and
historical loss experience of similar loans and other factors that determine
risk exposure to arrive at an adequate loan loss allowance.
Individual loan loss reviews are completed quarterly for all classified loans.
Individual loan loss reviews are generally completed annually for multi-family,
commercial real estate and construction loans which exceed $2.5 million at
origination, commercial business loans which exceed $200,000 at origination,
one-to-four family loans which exceed $1.0 million at origination and debt
restructurings. In addition, we generally review annually at least fifty percent
of the outstanding balances of multi-family, commercial real estate and
construction loans to single borrowers with concentrations in excess of $2.5
million.
The primary considerations in establishing specific valuation allowances are the
appraised value of a loan's underlying collateral and the loan's payment
history. Other current and anticipated economic conditions on which our specific
valuation allowances rely are the impact that national and/or local economic and
business conditions may have on borrowers, the impact that local real
12
estate markets may have on collateral values and the level and direction of
interest rates and their combined effect on real estate values and the ability
of borrowers to service debt. We also review all regulatory notices, bulletins
and memoranda with the purpose of identifying upcoming changes in regulatory
conditions which may impact our calculation of specific valuation allowances.
The Office of Thrift Supervision, or OTS, periodically reviews our specific
reserve methodology during regulatory examinations and any comments regarding
changes to reserves are considered by management in determining specific
allowances.
Pursuant to our policy, loan losses are charged-off in the period the loans, or
portions thereof, are deemed uncollectible. The determination of the loans on
which full collectibility is not reasonably assured, the estimates of the fair
value of the underlying collateral and the assessments of economic and
regulatory conditions are subject to assumptions and judgments by management.
Specific valuation allowances could differ materially as a result of changes in
these assumptions and judgments.
General valuation allowances represent loss allowances that have been
established to recognize the inherent risks associated with our lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem loans. The determination of the adequacy of the valuation
allowance takes into consideration a variety of factors. We segment our loan
portfolio into like categories by composition and size and perform analyses
against each category. These include historical loss experience and delinquency
levels and trends. We analyze our historical loan loss experience by category
(loan type) over 5, 10, and 12-year periods. Losses within each loan category
are stress tested by applying the highest level of charge-offs and the lowest
amount of recoveries as a percentage of the average portfolio balance during
those respective time horizons. The resulting allowance percentages are used as
an integral part of our judgment in developing estimated loss percentages to
apply to the portfolio. We also consider the growth in the portfolio as well as
our credit administration and asset management philosophies and procedures. In
addition, we evaluate and consider the impact that existing and projected
economic and market conditions may have on the portfolio as well as known and
inherent risks in the portfolio. We also evaluate and consider the allowance
ratios and coverage percentages of both peer group and regulatory agency data;
however, our focus is primarily on our historical loss experience and the impact
of current economic conditions. After evaluating these variables, we determine
appropriate allowance coverage percentages for each of our portfolio segments
and the appropriate level of our allowance for loan losses.
Our allowance coverage percentages are used to estimate the amount of probable
losses inherent in our loan portfolio in determining our general valuation
allowances. Our evaluations of general valuation allowances are inherently
subjective because, even though they are based on objective data, it is
management's interpretation of that data that determines the amount of the
appropriate allowance. Therefore, we periodically review the actual performance
and charge-off history of our portfolio and compare that to our previously
determined allowance coverage percentages. In doing so, we evaluate the impact
the previously mentioned variables may have had on the portfolio to determine
which changes, if any, should be made to our assumptions and analyses.
Our loss experience in 2005 has been consistent with our experience over the
past several years. Our 2005 analyses did not result in any change in our
methodology for determining our general and specific valuation allowances or our
emphasis on the factors that we consider in establishing such allowances.
Accordingly, such analyses did not indicate that changes in our allowance
coverage percentages were required. Our allowance for loan losses to total loans
was 0.61% at March 31, 2005 and 0.62% at December 31, 2004. We believe our
current allowance for loan losses is adequate to reflect the risks inherent in
our loan portfolio.
13
As indicated above, actual results could differ from our estimates as a result
of changes in economic or market conditions. Changes in estimates could result
in a material change in the allowance for loan losses. While we believe that the
allowance for loan losses has been established and maintained at levels that
reflect the risks inherent in our loan portfolio, future adjustments may be
necessary if economic or market conditions differ substantially from the
conditions that existed at the time of the initial determinations.
For additional information regarding our allowance for loan losses, see
"Provision for Loan Losses" and "Asset Quality" in this document and Part II,
Item 7, "MD&A," in our 2004 Annual Report on Form 10-K.
Valuation of MSR
MSR are carried at cost and amortized over the estimated remaining lives of the
loans serviced. Impairment, if any, is recognized through a valuation allowance.
Impairment exists if the carrying value of MSR exceeds the estimated fair value.
The estimated fair value of MSR is obtained through independent third party
valuations.
At March 31, 2005, our MSR, net, had an estimated fair value of $18.5 million
and were valued based on expected future cash flows considering a weighted
average discount rate of 9.09%, a weighted average constant prepayment rate on
mortgages of 13.56% and a weighted average life of 5.3 years. At December 31,
2004, our MSR, net, had an estimated fair value of $16.8 million and were valued
based on expected future cash flows considering a weighted average discount rate
of 9.10%, a weighted average constant prepayment rate on mortgages of 15.33% and
a weighted average life of 4.8 years. The decrease in the weighted average
constant prepayment rate from December 31, 2004 to March 31, 2005 reflects the
increase in interest rates from December 31, 2004 to March 31, 2005 and the
projected decrease in future prepayments as of March 31, 2005.
The fair value of MSR is highly sensitive to changes in assumptions. Changes in
prepayment speed assumptions have the most significant impact on the fair value
of our MSR. Generally, as interest rates decline, mortgage loan prepayments
accelerate due to increased refinance activity, which results in a decrease in
the fair value of MSR. As interest rates rise, mortgage loan prepayments slow
down, which results in an increase in the fair value of MSR. Assuming an
increase in interest rates of 100 basis points at March 31, 2005, the estimated
fair value of our MSR would have been $4.2 million greater. Assuming a decrease
in interest rates of 100 basis points at March 31, 2005, the estimated fair
value of our MSR would have been $7.2 million lower.
Goodwill Impairment
Goodwill is presumed to have an indefinite useful life and is tested, at least
annually, for impairment at the reporting unit level. Impairment exists when the
carrying amount of goodwill exceeds its implied fair value. As of March 31,
2005, the carrying amount of our goodwill totaled $185.2 million. When
performing the impairment test, if the fair value of a reporting unit exceeds
its carrying amount, goodwill of the reporting unit is not considered impaired.
On September 30, 2004 we performed our annual goodwill impairment test. We
determined the fair value of our reporting unit to be in excess of its carrying
amount by $1.27 billion, using the quoted market price of our common stock on
our impairment testing date as the basis for determining the fair value.
Accordingly, as of our annual impairment test date, there was no
14
indication of goodwill impairment. We would test our goodwill for impairment
between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of our reporting unit below its carrying
amount. No events have occurred and no circumstances have changed since our
annual impairment test date that would more likely than not reduce the fair
value of our reporting unit below its carrying amount. The identification of
additional reporting units or the use of other valuation techniques could result
in materially different evaluations of impairment.
Securities Impairment
Our available-for-sale securities portfolio is carried at estimated fair value,
with any unrealized gains and losses, net of taxes, reported as accumulated
other comprehensive loss/income in stockholders' equity. Debt securities which
we have the positive intent and ability to hold to maturity are classified as
held-to-maturity and are carried at amortized cost. The fair values of our
securities, which are primarily fixed rate mortgage-backed securities at March
31, 2005, 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 cost basis is other-than-temporary. We generally
view changes in fair value caused by changes in interest rates as temporary,
which is consistent with our experience. If we deem such decline to be
other-than-temporary, the security is written down to a new cost basis and the
resulting loss is charged to earnings. There were no securities write-downs
during the three months ended March 31, 2005. At March 31, 2005, we had 200
securities with an estimated fair value totaling $7.11 billion which had an
unrealized loss totaling $171.7 million. Of the securities in an unrealized loss
position at March 31, 2005, $1.07 billion, with an unrealized loss of $63.8
million, have been in a continuous unrealized loss position for more than twelve
months. At March 31, 2005, the impairments are deemed temporary based on the
direct relationship of the decline in fair value to movements in interest rates,
the life of the investments and the high credit quality. As previously
discussed, during the 2004 fourth quarter, the FASB announced plans for a full
reconsideration of existing authoritative literature concerning
other-than-temporary impairment of securities. See Note 5, "Impact of Accounting
Standards and Interpretations," in Part I, Item 1, "Financial Statements
(Unaudited)."
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 securities totaled
$1.23 billion for the three months ended March 31, 2005 and $1.37 billion for
the three months ended March 31, 2004. The decrease in loan and securities
repayments was primarily the result of the continued decrease in mortgage loan
refinance activity we experienced during the three months ended March 31, 2005
compared to the three months ended March 31, 2004. The decreased level of
mortgage loan refinance activity is primarily the result of rising interest
rates. Medium- and long-term U.S. Treasury yields (maturities of two to ten
years) increased 156 basis points on average from March 31, 2004 to March 31,
2005 and 56 basis points on average from December 31, 2004 to March 31, 2005.
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 $89.1 million during the three months ended March 31, 2005 and $84.9
million during the three months ended March 31, 2004. Deposits increased $246.1
million during the three months ended March 31, 2005 and $322.1 million during
the
15
three months ended March 31, 2004. The net increases in deposits for the
three months ended March 31, 2005 and 2004 reflect our continued emphasis on
attracting customer deposits through competitive rates, extensive product
offerings and quality service. As previously discussed, the net increase in
deposits for the three months ended March 31, 2005 is primarily attributable to
an increase in certificates of deposit as a result of the success of our new
short-term Liquid certificates of deposit and our marketing campaigns which have
focused on attracting medium-term certificates of deposit. During the three
months ended March 31, 2005, $1.02 billion of certificates of deposit, with a
weighted average rate of 3.10% and a weighted average maturity at inception of
twenty-five months, matured and $1.37 billion of certificates of deposit were
issued or repriced, with a weighted average rate of 2.90% and a weighted average
maturity at inception of sixteen months.
Net borrowings decreased $488.4 million during the three months ended March 31,
2005 and $237.2 million during the three months ended March 31, 2004. The
decrease in net borrowings during the three months ended March 31, 2005 reflects
our strategy of reducing the securities and borrowings portfolios through normal
cash flow in response to the continued flattening of the U.S. Treasury yield
curve. The decrease in net borrowings during the three months ended March 31,
2004 was the result of the repayment of certain high cost borrowings as they
matured.
Our primary use of funds is for the origination and purchase of mortgage loans.
Gross mortgage loans originated and purchased during the three months ended
March 31, 2005 totaled $1.01 billion, of which $726.7 million were originations
and $282.9 million were purchases. This compares to gross mortgage loans
originated and purchased during the three months ended March 31, 2004 totaling
$867.3 million, of which $638.7 million were originations and $228.6 million
were purchases. Total mortgage loans originated include originations of loans
held-for-sale totaling $75.3 million during the three months ended March 31,
2005 and $63.3 million during the three months ended March 31, 2004. The
increase in loan originations and purchases for the three months ended March 31,
2005 compared to the three months ended March 31, 2004 reflects the continued
strong purchase mortgage activity during 2005. Purchases of securities totaled
$177.6 million during the three months ended March 31, 2005 and $406.9 million
during the three months ended March 31, 2004. The decrease in securities
purchases during the three months ended March 31, 2005 reflects our previously
discussed strategy of reducing the securities and borrowings portfolios.
We maintain liquidity levels to meet our operational needs in the normal course
of our business. The levels of our liquid assets during any given period are
dependent on our operating, investing and financing activities. Cash and due
from banks and repurchase agreements, our most liquid assets, totaled $339.6
million at March 31, 2005 and $406.4 million at December 31, 2004. Borrowings
maturing over the next twelve months total $2.66 billion with a weighted average
rate of 3.12%. We have the flexibility to either repay or rollover these
borrowings as they mature. In addition, we have $2.94 billion in certificates of
deposit with a weighted average rate of 2.77% 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.
16
The following table details our borrowing and certificate of deposit maturities
and their weighted average rates as of March 31, 2005:
Borrowings Certificates of Deposit
------------------------ ------------------------------
Weighted Weighted
Average Average
(Dollars in Millions) Amount Rate Amount Rate
- ------------------------------------------------------------------------- ------------------------------
Contractual Maturity:
Within twelve months $ 2,664 (1) 3.12% $2,936 2.77%
Thirteen to twenty-four months 1,620 2.77 2,179 3.61
Twenty-five to thirty-six months 1,720 (2) 3.31 1,245 3.99
Thirty-seven to forty-eight months 2,300 (3) 4.93 496 3.99
Forty-nine to sixty months - - 333 4.21
Over five years 679 (4) 4.80 72 4.73
- ----------------------------------------------------------------------------------------------------------
Total $ 8,983 3.68% $7,261 3.40%
==========================================================================================================
(1) Includes $1.69 billion of overnight and other short-term borrowings with a
weighted average rate of 2.83%.
(2) Includes $300.0 million of borrowings which are callable by the
counterparty within the next twelve months and at various times thereafter.
(3) Includes $1.88 billion of borrowings which are callable by the counterparty
within the next twelve months and at various times thereafter.
(4) Includes $300.0 million of borrowings which are callable by the
counterparty in 2007 and at various times thereafter.
Additional sources of liquidity at the holding company level have included
issuances of securities into the capital markets, including private issuances of
trust preferred securities through our subsidiary, Astoria Capital Trust I, and
senior debt. Holding company debt obligations are included in other borrowings.
Our ability to continue to access the capital markets for additional financing
at favorable terms may be limited by, among other things, market demand,
interest rates, our capital levels, Astoria Federal's ability to pay dividends
to Astoria Financial Corporation, our credit profile and our business model.
Astoria Financial Corporation's primary uses of funds include payment of
dividends, payment of principal and interest on its debt obligations and
repurchases of common stock. Astoria Financial Corporation paid interest on its
debt obligations totaling $3.1 million during the three months ended March 31,
2005. Our payment of dividends and repurchases of our common stock totaled $48.9
million during the three months ended March 31, 2005. Our ability to pay
dividends, service our debt obligations and repurchase common stock is dependent
primarily upon receipt of capital distributions from Astoria Federal. Since
Astoria Federal is a federally chartered savings association, there are limits
on its ability to make distributions to Astoria Financial Corporation.
On March 1, 2005, we paid a quarterly cash dividend of $0.20 per share on shares
of our common stock outstanding as of the close of business on February 15, 2005
totaling $20.6 million. In addition, on March 1, 2005, stockholders received one
additional share of our common stock for every two shares owned as a result of
the three-for-two common stock split in the form of a 50% stock dividend
declared on January 19, 2005. On April 20, 2005, we declared a quarterly cash
dividend of $0.20 per share on shares of our common stock payable on June 1,
2005 to stockholders of record as of the close of business on May 16, 2005.
On May 19, 2004, our Board of Directors approved our tenth stock repurchase plan
authorizing the purchase, at management's discretion, of 12,000,000 shares, or
approximately 10% of our common stock then outstanding, over a two year period
in open-market or privately negotiated transactions. During the three months
ended March 31, 2005, we repurchased 1,110,000 shares of our common stock at an
aggregate cost of $28.3 million. In total, as of March 31, 2005, we
17
repurchased 6,265,200 shares of our common stock, at an aggregate cost of $156.0
million, under the tenth stock repurchase plan. For further information on our
common stock repurchases, see Part II, Item 2, "Unregistered Sales of Equity
Securities and Use of Proceeds."
See "Financial Condition" for a further discussion of the changes in
stockholders' equity.
At March 31, 2005, Astoria Federal's capital levels exceeded all of its
regulatory capital requirements with a tangible capital ratio of 6.31%, leverage
capital ratio of 6.31% and total risk-based capital ratio of 12.82%. The minimum
regulatory requirements are a tangible capital ratio of 1.50%, leverage capital
ratio of 4.00% and total risk-based capital ratio of 8.00%. As of March 31,
2005, Astoria Federal continues to be a well capitalized institution.
Off-Balance Sheet Arrangements and Contractual Obligations
We are a party to financial instruments with off-balance sheet risk in the
normal course of our business in order to meet the financing needs of our
customers and in connection with our overall interest rate risk management
strategy. These instruments involve, to varying degrees, elements of credit,
interest rate and liquidity risk. In accordance with GAAP, these instruments are
either not recorded in the consolidated financial statements or are recorded in
amounts that differ from the notional amounts. Such instruments primarily
include lending commitments, lease commitments and derivative instruments.
Lending commitments include commitments to originate and purchase loans and
commitments to fund unused lines of credit. Derivative instruments may include
interest rate caps, locks and swaps which are recorded as either assets or
liabilities in the consolidated statements of financial condition at fair value.
Additionally, in connection with our mortgage banking activities, we have
commitments to fund loans held-for-sale and commitments to sell loans which are
considered derivative instruments. Commitments to sell loans totaled $97.5
million at March 31, 2005. The fair values of our mortgage banking derivative
instruments are immaterial to our financial condition and results of operations.
We also have contractual obligations related to operating lease commitments
which have not changed significantly from December 31, 2004.
The following table details our contractual obligations as of March 31, 2005.
Payments due by period
-----------------------------------------------------------------
Less than One to Three to More than
(In Thousands) Total One Year Three Years Five Years Five Years
- ----------------------------------------------------------------------------------------------------------------------------
Contractual Obligations:
Borrowings with original terms greater than three months $7,292,866 $ 974,000 $3,340,000 $2,300,000 $678,866
Commitments to originate and purchase loans (1) 626,078 626,078 - - -
Commitments to fund unused lines of credit (2) 411,806 411,806 - - -
- ----------------------------------------------------------------------------------------------------------------------------
Total $8,330,750 $2,011,884 $3,340,000 $2,300,000 $678,866
============================================================================================================================
(1) Commitments to originate and purchase loans include commitments to
originate loans held-for-sale.
(2) Unused lines of credit relate primarily to home equity lines of credit.
In addition to the contractual obligations previously discussed, we have
contingent liabilities related to assets sold with recourse and standby letters
of credit. Contingent liabilities related to assets sold with recourse and
standby letters of credit as of March 31, 2005 have not changed significantly
from December 31, 2004.
For further information regarding our off-balance sheet arrangements and
contractual obligations, see Part II, Item 7, "MD&A," in our 2004 Annual Report
on Form 10-K.
18
Loan Portfolio
The following table sets forth the composition of our loans receivable portfolio
in dollar amounts and in percentages of the portfolio at the dates indicated.
At March 31, 2005 At December 31, 2004
---------------------------------------------------------------
Percent Percent
(Dollars in Thousands) Amount of Total Amount of Total
- --------------------------------------------------------------------------------------------------------------
Mortgage loans (gross):
One-to-four family $ 9,232,357 68.51% $ 9,054,747 68.68%
Multi-family 2,653,094 19.68 2,558,935 19.41
Commercial real estate 961,029 7.13 944,859 7.17
Construction 120,232 0.89 117,766 0.89
- --------------------------------------------------------------------------------------------------------------
Total mortgage loans 12,966,712 96.21 12,676,307 96.15
- --------------------------------------------------------------------------------------------------------------
Consumer and other loans (gross):
Home equity 470,872 3.49 466,087 3.53
Commercial 22,384 0.17 21,819 0.17
Other 18,103 0.13 19,382 0.15
- --------------------------------------------------------------------------------------------------------------
Total consumer and other loans 511,359 3.79 507,288 3.85
- --------------------------------------------------------------------------------------------------------------
Total loans (gross) 13,478,071 100.00% 13,183,595 100.00%
Net unamortized premiums and
deferred loan costs 82,405 79,684
- --------------------------------------------------------------------------------------------------------------
Total loans 13,560,476 13,263,279
Allowance for loan losses (82,730) (82,758)
- ---------------------------------------------------------------------------------------------------------------
Total loans, net $ 13,477,746 $13,180,521
===============================================================================================================
19
Securities Portfolio
The following table sets forth the amortized cost and estimated fair value of
mortgage-backed and other securities available-for-sale and held-to-maturity at
the dates indicated.
At March 31, 2005 At December 31, 2004
------------------------------------------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
(In Thousands) Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------------
Securities available-for-sale:
Mortgage-backed securities:
REMICs and CMOs:
GSE (1) issuance $ 2,011,754 $ 1,929,281 $2,125,549 $2,077,902
Non-GSE issuance 74,595 70,782 78,974 75,715
GSE pass-through certificates 113,094 116,048 123,029 126,570
- -------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 2,199,443 2,116,111 2,327,552 2,280,187
- -------------------------------------------------------------------------------------------------------------------
Other securities:
FNMA and FHLMC preferred stock 123,495 122,403 123,495 123,548
Other securities 3,155 3,134 3,152 3,148
- -------------------------------------------------------------------------------------------------------------------
Total other securities 126,650 125,537 126,647 126,696
- -------------------------------------------------------------------------------------------------------------------
Total securities available-for-sale $2,326,093 $2,241,648 $2,454,199 $2,406,883
===================================================================================================================
Securities held-to-maturity:
Mortgage-backed securities:
REMICs and CMOs:
GSE issuance $5,587,673 $5,512,990 $5,772,676 $5,778,885
Non-GSE issuance 450,056 443,600 480,053 476,707
GSE pass-through certificates 8,135 8,497 9,154 9,691
- -------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 6,045,864 5,965,087 6,261,883 6,265,283
Obligations of states and
political subdivisions and
corporate debt securities 34,701 34,928 41,053 41,477
- -------------------------------------------------------------------------------------------------------------------
Total securities held-to-maturity $6,080,565 $6,000,015 $6,302,936 $6,306,760
===================================================================================================================
(1) Government-sponsored enterprise
20
Comparison of Financial Condition as of March 31, 2005 and December 31, 2004 and
Operating Results for the Three Months Ended March 31, 2005 and 2004
Financial Condition
Total assets decreased $165.4 million to $23.25 billion at March 31, 2005, from
$23.42 billion at December 31, 2004. The primary reason for the decrease in
total assets was a decrease in mortgage-backed and other securities, coupled
with decreases in repurchase agreements and Federal Home Loan Bank of New York,
or FHLB-NY, stock, partially offset by an increase in loans receivable.
Mortgage loans, net, increased $293.0 million to $13.04 billion at March 31,
2005, from $12.75 billion at December 31, 2004. This increase was primarily due
to increases in our one-to-four family and multi-family mortgage loan
portfolios. Gross mortgage loans originated and purchased during the three
months ended March 31, 2005 totaled $1.01 billion, of which $726.7 million were
originations and $282.9 million were purchases. This compares to gross mortgage
loans originated and purchased during the three months ended March 31, 2004
totaling $867.3 million, of which $638.7 million were originations and $228.6
million were purchases. Total mortgage loans originated include originations of
loans held-for-sale totaling $75.3 million during the three months ended March
31, 2005 and $63.3 million during the three months ended March 31, 2004.
Mortgage loan repayments decreased to $638.4 million for the three months ended
March 31, 2005, from $777.3 million for the three months ended March 31, 2004.
The increase in the levels of mortgage loan originations and purchases reflect
the continued strong purchase mortgage activity as a result of the strong
housing market and continued relatively low interest rate environment. The
decrease in the levels of repayments reflect the 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 increased $177.6 million to $9.23 billion at March 31,
2005, from $9.05 billion at December 31, 2004, and represented 68.5% of our
total loan portfolio at March 31, 2005. The strength of the purchase mortgage
market and reduced levels of loan prepayments resulted in continued strong
one-to-four family mortgage loan portfolio growth which began in the 2004 fourth
quarter.
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 over the past several years. Our multi-family mortgage loan
portfolio increased $94.2 million to $2.65 billion at March 31, 2005, from $2.56
billion at December 31, 2004. Our commercial real estate loan portfolio
increased $16.1 million to $961.0 million at March 31, 2005, from $944.9 million
at December 31, 2004. Multi-family and commercial real estate loan originations
totaled $256.6 million for the three months ended March 31, 2005 and $240.0
million for the three months ended March 31, 2004. The average loan balance
within our combined multi-family and commercial real estate portfolio continues
to be less than $1.0 million and the average loan-to-value ratio, based on
current principal balance and original appraised value, continues to be less
than 65%.
Mortgage-backed and other securities decreased $387.6 million to $8.32 billion
at March 31, 2005, from $8.71 billion at December 31, 2004. This decrease was
primarily the result of principal payments received of $528.2 million and an
increase of $37.1 million in the net unrealized loss on our available-for-sale
portfolio, partially offset by purchases of $177.6 million, and reflects our
previously discussed strategy of reducing the securities and borrowings
portfolios through normal cash flow in the current interest rate environment. At
March 31, 2005, our
21
securities portfolio is comprised primarily of fixed rate real estate mortgage
investment conduit, or REMIC, and collateralized mortgage obligation, or CMO,
mortgage-backed securities with a weighted average life of 3.7 years. The
amortized cost of our fixed rate REMICs and CMOs totaled $8.11 billion at March
31, 2005. Included in this total is $1.35 billion of securities which have a
remaining gross premium of $10.2 million, a weighted average current coupon of
4.93%, a weighted average collateral coupon of 5.98% and a weighted average life
of 2.9 years. The remaining $6.76 billion of these securities have a remaining
gross discount of $24.0 million, a weighted average current coupon of 4.21%, a
weighted average collateral coupon of 5.73% and a weighted average life of 3.9
years. Included in the totals for discount securities are $759.8 million of
securities at par.
Deposits increased $246.1 million to $12.57 billion at March 31, 2005, from
$12.32 billion at December 31, 2004, primarily due to an increase in
certificates of deposit, partially offset by decreases in savings, money market
and NOW and demand deposit accounts. Certificates of deposit increased $412.6
million to $7.26 billion at March 31, 2005, from $6.85 billion at December 31,
2004. This increase was primarily due to our new short-term Liquid certificates
of deposit which totaled $265.7 million at March 31, 2005, coupled with the
continued success of our certificate of deposit marketing campaigns previously
discussed. We continue to experience intense competition for deposits,
particularly money market and checking accounts. Savings accounts decreased
$81.0 million to $2.85 billion at March 31, 2005. Money market accounts
decreased $80.0 million to $885.3 million at March 31, 2005. NOW and demand
deposit accounts also decreased slightly at March 31, 2005 compared to December
31, 2004.
Total borrowings, net, decreased $488.4 million to $8.98 billion at March 31,
2005, from $9.47 billion at December 31, 2004. This decrease is primarily the
result of a decrease of $990.0 million in FHLB-NY advances, partially offset by
an increase of $500.0 million in reverse repurchase agreements. The net decrease
in total borrowings reflects our previously discussed strategy of reducing the
securities and borrowings portfolios. For additional information, see "Liquidity
and Capital Resources."
Stockholders' equity totaled $1.37 billion at March 31, 2005 and December 31,
2004. Stockholders' equity decreased as a result of common stock repurchased of
$28.3 million, dividends declared of $20.6 million and an increase in
accumulated other comprehensive loss, net of tax, of $21.3 million, which was
primarily due to a net decrease in the fair value of our securities
available-for-sale. These decreases were substantially offset by net income of
$59.5 million, the effect of stock options exercised and related tax benefit of
$4.8 million and the amortization of the allocated portion of shares held by the
employee stock ownership plan, or ESOP, of $2.8 million.
Results of Operations
General
Net income for the three months ended March 31, 2005 increased $6.1 million to
$59.5 million, from $53.4 million for the three months ended March 31, 2004.
Diluted earnings per common share totaled $0.57 per share for the three months
ended March 31, 2005 and $0.47 per share for the three months ended March 31,
2004. Return on average assets increased to 1.02% for the three months ended
March 31, 2005, from 0.95% for the three months ended March 31, 2004. Return on
average stockholders' equity increased to 17.42% for the three months ended
March 31, 2005, from 15.05% for the three months ended March 31, 2004. Return on
average tangible stockholders' equity, which represents average stockholders'
equity less average goodwill, increased to 20.15% for the three months ended
March 31, 2005, from 17.31% for the three months ended March 31, 2004. The
increases in these returns were primarily due to the increase in net income.
22
Net Interest Income
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
primarily upon the volume of interest-earning assets and interest-bearing
liabilities and the corresponding interest rates earned or paid. Our net
interest income is significantly impacted by changes in interest rates and
market yield curves 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, 2005, net interest income increased $10.7
million to $125.2 million, from $114.5 million for the three months ended March
31, 2004. The increase in net interest income for the three months ended March
31, 2005 was primarily the result of an increase in interest income. The
increase in interest income was primarily due to the increase in the average
balance of interest-earning assets, coupled with a $4.0 million decrease in net
premium amortization on our mortgage-backed securities and mortgage loan
portfolios to $4.3 million for the three months ended March 31, 2005. The
decrease in net premium amortization was primarily due to the reduction in
repayment levels during 2005, as well as the reduced amount of unamortized
premium remaining in our mortgage-backed securities portfolio. The average
balance of net interest-earning assets decreased $21.2 million to $649.6 million
for the three months ended March 31, 2005, from $670.8 million for the three
months ended March 31, 2004. The decrease in the average balance of net
interest-earning assets was primarily the result of an increase of $1.00 billion
in the average balance of total interest-bearing liabilities to $21.73 billion
for the three months ended March 31, 2005, from $20.73 billion for the three
months ended March 31, 2004, partially offset by an increase of $982.0 million
in the average balance of total interest-earning assets to $22.38 billion for
the three months ended March 31, 2005, from $21.40 billion for the three months
ended March 31, 2004.
The net interest margin increased to 2.24% for the three months ended March 31,
2005, from 2.14% for the three months ended March 31, 2004. The net interest
rate spread increased to 2.16% for the three months ended March 31, 2005, from
2.05% for the three months ended March 31, 2004. The increases in the net
interest margin and the net interest rate spread are primarily due to a decrease
in the average cost of interest-bearing liabilities to 2.72% for the three
months ended March 31, 2005, from 2.83% for the three months ended March 31,
2004, as higher cost borrowings were repriced at lower rates. The yield on
interest-earning assets remained at 4.88% for both the three months ended March
31, 2005 and 2004.
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, 2005 and 2004. Average yields are derived by dividing
income by the average balance of the related assets and average costs are
derived by dividing expense by the average balance of the related liabilities,
for the periods shown. Average balances are derived from average daily balances.
The yields and costs include amortization of fees, costs, premiums and discounts
which are considered adjustments to interest rates.
23
For the Three Months Ended March 31,
-------------------------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Cost Balance Interest Cost
- -----------------------------------------------------------------------------------------------------------------------------------
(Annualized) (Annualized)
Assets:
Interest-earning assets:
Mortgage loans (1):
One-to-four family $ 9,270,153 $ 111,582 4.81% $ 9,041,043 $ 111,350 4.93%
Multi-family, commercial
real estate and construction 3,680,918 58,196 6.32 3,253,227 53,631 6.59
Consumer and other loans (1) 522,515 6,781 5.19 450,098 4,890 4.35
----------- --------- ------------ ---------
Total loans 13,473,586 176,559 5.24 12,744,368 169,871 5.33
Mortgage-backed and
other securities (2) 8,524,571 93,922 4.41 8,365,022 90,131 4.31
Federal funds sold and
repurchase agreements 243,598 1,449 2.38 64,895 154 0.95
FHLB-NY stock 142,347 1,173 3.30 227,810 938 1.65
------------ -------- ------------ ---------
Total interest-earning assets 22,384,102 273,103 4.88 21,402,095 261,094 4.88
--------- ---------
Goodwill 185,151 185,151
Other non-interest-earning assets 863,209 854,561
------------ ------------
Total assets $ 23,432,462 $ 22,441,807
============ ============
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings $ 2,870,120 2,842 0.40 $ 2,960,199 2,945 0.40
Money market 915,147 1,922 0.84 1,188,176 1,608 0.54
NOW and demand deposit 1,560,087 230 0.06 1,466,733 221 0.06
Liquid certificates of deposit 176,275 1,073 2.43 - - -
------------ -------- ------------ ---------
Total core deposits 5,521,629 6,067 0.44 5,615,108 4,774 0.34
Certificates of deposit 6,933,248 58,893 3.40 5,644,019 49,456 3.51
------------ -------- ------------ ---------
Total deposits 12,454,877 64,960 2.09 11,259,127 54,230 1.93
Borrowed funds 9,279,580 82,930 3.57 9,472,213 92,351 3.90
------------ --------- ------------ ---------
Total interest-bearing liabilities 21,734,457 147,890 2.72 20,731,340 146,581 2.83
--------- ---------
Non-interest-bearing liabilities 331,872 290,865
------------ ------------
Total liabilities 22,066,329 21,022,205
Stockholders' equity 1,366,133 1,419,602
------------ ------------
Total liabilities and stockholders'
equity $ 23,432,462 $ 22,441,807
============ ============
Net interest income/net interest
rate spread (3) $ 125,213 2.16% $ 114,513 2.05%
======== ==== ========= ====
Net interest-earning assets/net
interest margin (4) $ 649,645 2.24% $ 670,755 2.14%
============ ==== ============ ====
Ratio of interest-earning assets
to interest-bearing liabilities 1.03x 1.03x
===== =====
- -------------------------------
(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) Net interest rate spread represents the difference between the average
yield on average interest-earning assets and the average cost of average
interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
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, 2005
Compared to
Three Months Ended March 31, 2004
-------------------------------------------
Increase (Decrease)
-------------------------------------------
(In Thousands) Volume Rate Net
- -----------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Mortgage loans:
One-to-four family $ 2,885 $(2,653) $ 232
Multi-family, commercial
real estate and construction 6,829 (2,264) 4,565
Consumer and other loans 860 1,031 1,891
Mortgage-backed and other securities 1,710 2,081 3,791
Federal funds sold and
repurchase agreements 837 458 1,295
FHLB-NY stock (449) 684 235
- -----------------------------------------------------------------------------------------------------------------
Total 12,672 (663) 12,009
- ----------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings (103) - (103)
Money market (430) 744 314
NOW and demand deposit 9 - 9
Liquid certificates of deposit 1,073 - 1,073
Certificates of deposit 11,028 (1,591) 9,437
Borrowed funds (1,825) (7,596) (9,421)
- -----------------------------------------------------------------------------------------------------------------
Total 9,752 (8,443) 1,309
- ----------------------------------------------------------------------------------------------------------------
Net change in net interest income $ 2,920 $7,780 $10,700
================================================================================================================
Interest Income
Interest income for the three months ended March 31, 2005 increased $12.0
million to $273.1 million, from $261.1 million for the three months ended March
31, 2004. This increase was primarily the result of an increase of $982.0
million in the average balance of interest-earning assets to $22.38 billion for
the three months ended March 31, 2005, from $21.40 billion for the three months
ended March 31, 2004. The increase in the average balance of interest-earning
assets was primarily due to the increases in the average balances of
multi-family, commercial real estate and construction loans, one-to-four family
mortgage loans, federal funds sold and repurchase agreements and mortgage-backed
and other securities. The average yield on interest-earning assets remained at
4.88%.
Interest income on one-to-four family mortgage loans increased $232,000 to
$111.6 million for the three months ended March 31, 2005, from $111.4 million
for the three months ended March 31, 2004, which was primarily the result of an
increase of $229.1 million in the average balance of such loans, substantially
offset by a decrease in the average yield to 4.81% for the three months ended
March 31, 2005, from 4.93% for the three months ended March 31, 2004. The
increase in the average balance of one-to-four family mortgage loans is the
result of the strong levels of originations and purchases which have outpaced
the levels of repayments over the past
25
six months. The decrease in the average yield on one-to-four family mortgage
loans reflects the impact of the low interest rate environment as higher rate
loans were repaid and replaced with lower yielding new originations and
purchases throughout most of 2004. However, the yield was positively impacted by
a reduction in loan premium amortization as a result of the decreased refinance
activity during the three months ended March 31, 2005 compared to the three
months ended March 31, 2004.
Interest income on multi-family, commercial real estate and construction loans
increased $4.6 million to $58.2 million for the three months ended March 31,
2005, from $53.6 million for the three months ended March 31, 2004, which was
primarily the result of an increase of $427.7 million in the average balance of
such loans, partially offset by a decrease in the average yield to 6.32% for the
three months ended March 31, 2005, from 6.59% for the three months ended March
31, 2004. The increase in the average balance of multi-family, commercial real
estate and construction loans reflects our increased emphasis on originations of
such loans over the past several years, coupled with the fact that repayment
activity within this portfolio is generally not as significant as that which we
have experienced in our one-to-four family mortgage loan portfolio in part due
to the prepayment penalties associated with these loans. The decrease in the
average yield on multi-family, commercial real estate and construction loans
reflects the significant growth in the portfolio in the relatively low interest
rate environment, partially offset by an increase of $1.2 million in prepayment
penalties for the three months ended March 31, 2005 compared to the three months
ended March 31, 2004.
Interest income on consumer and other loans increased $1.9 million to $6.8
million for the three months ended March 31, 2005, from $4.9 million for the
three months ended March 31, 2004, primarily due to an increase in the average
yield to 5.19% for the three months ended March 31, 2005, from 4.35% for the
three months ended March 31, 2004, coupled with an increase of $72.4 million in
the average balance of the portfolio. The changes in interest income on consumer
and other loans were primarily attributable to home equity lines of credit which
represented 92.1% of this portfolio at March 31, 2005. The increase in the
average yield on consumer and other loans was primarily the result of an
increase in the average yield on our home equity lines of credit which are
adjustable rate loans which generally reset monthly and are indexed to the prime
rate. The prime rate increased 125 basis points during the latter half of 2004
and 50 basis points during the three months ended March 31, 2005. The increase
in the average balance of consumer and other loans w