-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FW5luVTF1bI9p0mL9NlgoigCJ7ZEIdD6kWNIc7XYsN3/GXcAPbChnQbo9mCfn03Z 4pymf/42/Ir4kTIe+PExSQ== 0000950123-01-002647.txt : 20010327 0000950123-01-002647.hdr.sgml : 20010327 ACCESSION NUMBER: 0000950123-01-002647 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASTORIA FINANCIAL CORP CENTRAL INDEX KEY: 0000910322 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 113170868 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-22228 FILM NUMBER: 1579101 BUSINESS ADDRESS: STREET 1: ONE ASTORIA FEDERAL PLAZA CITY: LAKE SUCCESS STATE: NY ZIP: 11042-1085 BUSINESS PHONE: 5163273000 MAIL ADDRESS: STREET 1: ONE ASTORIA FEDERAL PLAZA CITY: LAKE SUCCESS STATE: NY ZIP: 11042-1085 10-K405 1 y46647e10-k405.txt ASTORIA FINANCIAL CORPORATION 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-22228 ASTORIA FINANCIAL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 11-3170868 ------------------------------- ---------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) ONE ASTORIA FEDERAL PLAZA, LAKE SUCCESS, NEW YORK 11042 ------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (516) 327-3000 ---------------------------------------------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) (SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT): NONE ---- (SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT): COMMON STOCK $.01 PAR VALUE --------------------------- (TITLE OF CLASS) PREFERRED STOCK, PURCHASE RIGHTS -------------------------------- (TITLE OF CLASS) Indicate by check mark whether the Registrant (1) has filed all 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by non-affiliates of the registrant as of March 14, 2001: Common stock par value $.01 per share, $2,511,928,991. This figure is based on the closing price by the Nasdaq National Market for a share of the registrant's common stock on March 14, 2001, which was $52.69 as reported in the Wall Street Journal on March 15, 2001. The number of shares of the registrant's Common Stock outstanding as of March 14, 2001 was 49,120,573 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement dated April 16, 2001 in connection with the Annual Meeting of Stockholders to be held on May 16, 2001 and any adjournment thereof and which is expected to be filed with the Securities and Exchange Commission on or about April 16, 2001, are incorporated by reference into Part III. 2 ASTORIA FINANCIAL CORPORATION 2000 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS
Part I Page Item 1. Business............................................................................ 1 Item 2. Properties.......................................................................... 28 Item 3. Legal Proceedings................................................................... 29 Item 4. Submission of Matters to a Vote of Security Holders................................. 32 Part II Item 5. Market for Astoria Financial Corporation's Common Equity and Related Stockholder Matters............................................. 33 Item 6. Selected Financial Data............................................................. 34 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................ 36 Item 7A. Quantitative and Qualitative Disclosures about Market Risk.......................... 63 Item 8. Financial Statements and Supplementary Data......................................... 63 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................................ 63 Part III Item 10. Directors and Executive Officers of Astoria Financial Corporation................... 64 Item 11. Executive Compensation.............................................................. 64 Item 12. Security Ownership of Certain Beneficial Owners and Management..................................................................... 64 Item 13. Certain Relationships and Related Transactions...................................... 64 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................................................... 64 SIGNATURES . . . . . . ................................................................................... 65
3 PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated" and "potential." Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, general economic conditions, changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services. PART I As used in this Form 10-K, "we," "us" and "our" refer to Astoria Financial Corporation and its consolidated subsidiaries, including Astoria Federal Savings and Loan Association and its subsidiaries, Astoria Capital Trust I and AF Insurance Agency, Inc. ITEM 1. BUSINESS GENERAL We are a Delaware corporation organized on June 14, 1993, as the unitary savings and loan association holding company of Astoria Federal Savings and Loan Association, or Astoria Federal. At December 31, 2000, we had assets of $22.34 billion, deposits of $10.07 billion, and stockholders' equity of $1.51 billion. Our primary business is the operation of our wholly-owned subsidiary, Astoria Federal. In addition to directing, planning and coordinating the business activities of Astoria Federal, we invest primarily in U.S. Government and federal agency securities, mortgage-backed securities and other securities. We have acquired, and may continue to acquire or organize either directly or indirectly through Astoria Federal, other operating subsidiaries including other financial institutions. 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 residential mortgage loans and mortgage-backed securities and, to a lesser extent, multi-family residential mortgage loans, commercial real estate loans and consumer and other loans. In addition, Astoria Federal invests in U.S. Government and federal agency securities and other investments permitted by federal laws and regulations. Astoria Federal's revenues are derived principally from interest on its mortgage loan and mortgage-backed securities portfolios and interest and dividends on its other securities portfolio. Astoria Federal's cost of funds consists of interest expense on deposits and borrowed funds. MERGERS AND ACQUISITIONS We continue to consider mergers and acquisitions of other financial institutions as an integral part of our strategic objective for long-term growth. Since 1995, we have completed the acquisitions of Fidelity New York, FSB, or Fidelity, The Greater New York Savings Bank, FSB, or The Greater, and Long Island Bancorp, Inc., or LIB. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," or MD&A, and Note 2 of Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data," for further discussion of our acquisitions. 1 4 These acquisitions have enabled us to expand our operations through an increased customer base thereby increasing deposits and loan originations and providing customers with a broader array of financial products and services. Acquisition candidates have been selected based on, among other factors, the extent to which the candidates could enhance our retail presence in new or existing markets. LENDING ACTIVITIES GENERAL. Our loan portfolio is comprised primarily of mortgage loans, most of which are secured by one-to-four family residences and, to a lesser extent, by multi-family residences and commercial real estate. The remainder of the loan portfolio consists of a variety of consumer and other loans. At December 31, 2000, our net loan portfolio totaled $11.36 billion, or 50.8% of total assets, which includes $13.5 million of real estate loans held-for-sale. We originate mortgage loans, either directly from existing or past customers and members of the communities served or indirectly through real estate agents, attorneys, builders and brokers. The retail loan origination program accounted for approximately $733.9 million of originations during 2000 and $1.27 billion of originations during 1999. The broker loan origination program consists of relationships with mortgage brokers and accounted for approximately $1.16 billion of originations during 2000 and $2.08 billion of originations during 1999. Astoria Federal originates mortgage loans through its banking and loan production offices in the New York metropolitan area and through an extensive broker network in fourteen states: New York, New Jersey, Connecticut, Pennsylvania, Massachusetts, Delaware, Maryland, Ohio, Virginia, North Carolina, South Carolina, Georgia, Illinois and Florida. Our third party loan origination program (correspondent loan program) which includes relationships with other financial institutions and mortgage-bankers, has contributed to the growth in our loan portfolio and the reduction in our geographical loan concentration in the New York metropolitan area. This program accounted for approximately $836.8 million of third party loan originations during 2000 and $417.6 million of third party loan originations during 1999. See Loan Portfolio Composition table on page 23 and Loan Maturity, Repricing and Activity tables on pages 24 and 25. ONE-TO-FOUR FAMILY MORTGAGE LENDING. Our primary lending emphasis is on the origination and purchase of first mortgage loans secured by one-to-four family residences that serve as the primary residence of the owner. To a much lesser degree, we make loans secured by non-owner occupied one-to-four family properties acquired as an investment by the borrower. We also offer, although we have originated only a limited number of, second mortgage loans which are underwritten according to the same standards as first mortgage loans. At December 31, 2000, $9.86 billion, or 86.8%, of our total loan portfolio consisted of one-to-four family residential mortgage loans, of which $7.46 billion, or 75.6%, were adjustable rate mortgage, or ARM, loans. We currently offer ARM loans which are initially fixed for one, three, five, seven and ten years and convert into one-year ARM loans at the end of the initial fixed period. The one-year, three-year, five-year and seven-year ARM loans have terms of up to 40 years and the ten-year ARM loans have terms of up to 30 years. ARM loans may carry, for a period of time, an initial interest rate which is less than the fully indexed rate for the loan. We determine the initial discounted rate in accordance with market and competitive factors. All ARM loans we offer have annual and lifetime interest rate ceilings. Generally, ARM loans pose credit risks somewhat greater than the risks posed by fixed-rate loans primarily because, as interest rates rise, the underlying payments of the borrower rise, increasing the potential for default. To recognize the credit risks associated with ARM loans offered at initial discounts below fully-indexed rates, we generally underwrite our one-year ARM loans assuming a rate equal to 200 basis points over the initial discounted rate, but not less than 7.0%. For ARM loans with longer adjustment periods, and therefore, less risk due to the longer period for the borrower's income to adjust to anticipated higher future payments, we underwrite the loans using the initial rate, which may be a discounted rate. 2 5 Our policy on owner-occupied, one-to-four family residential mortgage loans is to lend up to 80% of the appraised value of the property securing the loan. Generally, for mortgage loans which have a loan-to-value ratio of greater than 80%, we require the mortgagor to obtain private mortgage insurance. In addition, we offer a variety of proprietary products which allow the borrower to obtain financing of up to 90% loan-to-value without private mortgage insurance. Generally, we originate 15-year and 30-year fixed-rate mortgage loans for immediate sale to various governmental agencies or other investors on either a servicing released or retained basis. Generally, the sale of such loans is arranged through a master commitment either on a mandatory delivery or best efforts basis. One-to-four family mortgage loan originations and purchases decreased $1.03 billion, from $3.40 billion in 1999 to $2.37 billion in 2000. This reduction was the result of mortgage interest rates increasing in the second half of 1999 and throughout 2000, significantly reducing the number of mortgage loans refinanced, and the closing and disposal of certain loan production offices, or LPOs, in the first quarter of 1999. COMMERCIAL REAL ESTATE AND MULTI-FAMILY LENDING. As of December 31, 2000, our total loan portfolio contained $514.8 million, or 4.5%, of commercial real estate loans and $801.9 million, or 7.1%, of multi-family loans. During 2000, we originated $357.9 million of commercial, multi-family and mixed use loans compared to $352.4 million in 1999. Mixed use loans are secured by properties which are intended for both business and residential use and are classified as commercial or multi-family based on the greater number of commercial versus residential units. The commercial real estate and multi-family loans in our portfolio consist of both fixed-rate and adjustable-rate loans which were originated at prevailing market rates. Commercial real estate and multi-family loans generally are provided as five to fifteen year term balloon loans amortized over fifteen to thirty years. Our policy has been to originate commercial real estate and multi-family loans generally in our local market areas. In making such loans, we primarily consider the ability of the net operating income generated by the real estate to support the debt service, the financial resources, income level and managerial expertise of the borrower, the marketability of the property and our lending experience with the borrower. Our policy requires a minimum debt coverage ratio of 1.20 times for commercial real estate and multi-family loans. Additionally, on commercial real estate and multi-family loans, our policy is to finance up to 75% of the lesser of the purchase price or appraised value of the property securing the loan on purchases and up to 70% on refinances. Commercial real estate loans typically are secured by properties such as retail stores, office buildings and mixed use (more business than residential units) properties. As of December 31, 2000, our single largest commercial real estate loan had an outstanding principal balance of $9.2 million, was current and was secured by a multi-story office building in Mineola, New York. The majority of the multi-family loans in our portfolio are secured by six to forty unit apartment buildings and other mixed use (more residential than business units) properties. As of December 31, 2000, our single largest multi-family loan had an outstanding balance of $6.1 million, was current and was secured by a 300 unit senior apartment complex subsidized by the government under Section 8 regulations located in East Patchogue, New York. Loans secured by commercial real estate and multi-family properties generally involve a greater degree of risk than one-to-four family residential mortgage loans because they typically have larger balances and are more affected by adverse conditions in the economy. As such, these loans require more ongoing evaluation and monitoring. Because payments on loans secured by commercial and multi-family properties often depend upon the successful operation and management of the properties and the businesses which 3 6 operate from within them, repayment of such loans may be affected by factors outside the borrower's control such as adverse conditions in the real estate market or the economy or changes in government regulation. We provide multi-family and commercial real estate loans using prudent underwriting standards, which include consideration of the demand for such properties and the general economic conditions in our market area. Our commercial real estate and multi-family loans are concentrated in the New York metropolitan area. CONSUMER AND OTHER LOANS. At December 31, 2000, $184.7 million, or 1.6%, of our total loan portfolio consisted of consumer and other loans which were primarily home equity loans. Consumer loans, with the exception of home equity lines of credit, are offered primarily on a fixed-rate, short-term basis. The underwriting standards we employ for consumer loans include a determination of the borrower's payment history on other debts and an assessment of the borrower's ability to make payments on the proposed loan and other indebtedness. In addition to the credit worthiness of the borrower, the underwriting process also includes a review of the value of the collateral, if any, in relation to the proposed loan amount. Our consumer loans tend to have higher interest rates and shorter maturities than one-to-four family residential mortgage loans, but are considered to entail a greater risk of default than such loans. Our home equity lines of credit are originated on one-to-four family owner-occupied residential properties. These loans are generally limited to aggregate outstanding indebtedness secured by up to 80% of the appraised value of the property. Such lines of credit are underwritten based upon our internal guidelines in order to evaluate the borrower's ability and willingness to repay the debt. Included in consumer and other loans were $8.8 million of commercial loans at December 31, 2000. These loans are underwritten based upon the earnings of the borrower and the value of the collateral, if any, securing such loans. LOAN APPROVAL PROCEDURES AND AUTHORITY. Except for loans in excess of $5.0 million, mortgage loan approval authority has been delegated by the Board of Directors to our underwriters and Loan Committee, which consists of certain members of executive management and other Astoria Federal officers. Upon receipt of a completed application from a prospective borrower, for mortgage loans secured by one-to-four family properties, we generally order a credit report, verify income and other information and, if necessary, obtain additional financial or credit related information. An appraisal of the real estate used for collateral is also obtained. For mortgage loans secured by commercial and multi-family properties, appraisals are obtained as part of the final underwriting process. All appraisals are performed by licensed or certified appraisers. Most appraisals are performed by licensed independent third party appraisers. The Board of Directors reviews all changes to our appraisal policy. ASSET QUALITY NON-PERFORMING ASSETS. We do not accrue interest on loans past due 90 days or more, with the exception of selected mortgage loans delinquent 90 days or more as to their maturity date on which we have continued to accept monthly payments as if the loan had not matured. Such loans consist primarily of one-to-four family loans and totaled $952,000 at December 31, 2000. In general, 90 days prior to a loan's maturity, the borrower is reminded of the maturity date and is sent an application to refinance the loan. Where the borrower has continued to make monthly payments to us and where we do not have a reason to believe that any loss will be incurred on the loan, we have treated these loans as current and have continued to accrue interest. When a loan is placed on non-accrual status, previously accrued but unpaid interest is deducted from interest income. Included in our non-performing assets are real estate owned, or REO, and non-performing investments in real estate. Total non-performing assets decreased $18.4 million, to $40.0 million at December 31, 2000, from $58.4 million at December 31, 1999. Non-performing loans, a component of non-performing assets, decreased 4 7 by $17.2 million to $36.2 million at December 31, 2000, from $53.4 million at December 31, 1999. The percentage of non-performing loans to total loans decreased from 0.52% at December 31, 1999, to 0.32% at December 31, 2000. Our percentages of non-performing assets to total assets decreased from 0.26% at December 31, 1999, to 0.18% at December 31, 2000. The allowance for loan losses as a percentage of total non-performing loans was 220.88% at December 31, 2000, compared to 143.49% at December 31, 1999. The allowance for loan losses as a percentage of total non-accrual loans was 226.85% at December 31, 2000, compared to 151.77% at December 31, 1999. For a further discussion of the allowance for loan losses and non-performing assets and loans, see Item 7, "MD&A." REAL ESTATE OWNED. The net carrying value of our REO totaled $3.8 million at December 31, 2000 and consisted of residential properties. The REO balance decreased $1.3 million, from $5.1 million at December 31, 1999. CLASSIFIED ASSETS. Our Asset Review Department reviews and classifies our assets and independently reports the results of its reviews to the Board of Directors quarterly. Our Asset Classification Committee establishes policy relating to the internal classification of loans and also provides input to the Asset Review Department in its review of our classified assets. Federal regulations and our policy require the classification of loans and other assets, such as debt and equity securities considered to be of lesser quality, as "special mention," "substandard," "doubtful" or "loss" assets. An asset classified as "special mention" has "potential weaknesses," which, if uncorrected, may result in the deterioration of the repayment prospects or in the institution's credit position at some future date. An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses inherent in those classified "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions, and values, "highly questionable and improbable." Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Those assets classified "substandard," "doubtful," or "loss" are considered adversely classified. See the table on page 26 for additional information on our classified assets. A loan is considered impaired when, based upon current information and events, it is probable that we will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan agreement. Our impaired loans at December 31, 2000, net of allowance for loan losses of $2.1 million, totaled $15.4 million, of which $1.7 million were classified as non-performing and $13.7 million were current. Interest income recognized on impaired loans, which was not materially different from cash-basis income, amounted to $1.3 million for the year ended December 31, 2000. For further detail on our impaired loans, see Note 5 of Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data." ALLOWANCE FOR LOSSES ON LOANS, REAL ESTATE OWNED AND INVESTMENTS IN REAL ESTATE. 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. Such evaluation, which includes, but is not limited to, a review of loans on which full collectibility is not reasonably assured, considers among other matters the estimated fair value of the underlying collateral, economic and regulatory conditions, current and historical loss experience and other factors to arrive at an adequate loan loss allowance. General valuation allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. In determining the adequacy of the general valuation allowance, we consider changes in the size and composition of the loan portfolio, historical loan loss experience, current and anticipated economic 5 8 conditions, and our credit administration and asset management philosophies and procedures. Although we believe that the allowance for loan losses has been established and maintained at adequate levels, future adjustments may be necessary if economic or other conditions differ substantially from the conditions used in making the initial determinations. Pursuant to our policy, loan losses must be charged-off in the period the loans, or portions thereof, are deemed uncollectible. If a loan is classified, an estimated value of the property securing the loan is determined through an appraisal, where possible. In instances where we have not taken possession of the property or do not otherwise have access to the premises and, therefore, cannot obtain an appraisal, a real estate broker's opinion as to the value of the property is obtained based primarily on a drive-by inspection and a comparison of the property securing the loan with similar properties in the area. If the unpaid balance of the loan is greater than such estimated fair value, a specific valuation allowance is established for the difference between the carrying value and the estimated fair value. In addition to the requirements of Generally Accepted Accounting Principles in the United States of America, or GAAP, related to loss contingencies, a federally chartered savings association's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the Office of Thrift Supervision, or OTS. The OTS, in conjunction with the other federal banking agencies, provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation allowances. It is required that all institutions have effective systems and controls to identify, monitor and address asset quality problems; analyze all significant factors that affect the collectibility of the portfolio in a reasonable manner; and establish acceptable allowance evaluation processes that meet the objectives of the federal regulatory agencies. While we believe we have established an adequate allowance for loan losses, there can be no assurance that the OTS or other regulators, as a result of reviewing our loan portfolio and/or allowance, will not request us to alter our allowance for loan losses, thereby affecting our financial condition and earnings. REO is carried net of all allowances for losses at the lower of cost or fair value less estimated selling costs, and investments in real estate are carried at the lower of cost or fair value. INVESTMENT ACTIVITIES GENERAL. Our investment policy is designed primarily to complement our lending activities, to generate a favorable return without incurring undue interest rate and credit risk, to enable us to manage the interest rate sensitivity of our overall assets and liabilities and to provide and maintain liquidity primarily through cash flow. In establishing our investment strategies, we consider our business and growth plans, the economic environment, our interest rate sensitivity position, the types of securities held and other factors. SECURITIES. Federally chartered savings associations have authority to invest in various types of assets, including U.S. Treasury obligations, securities of various federal agencies, mortgage-backed securities, including Collateralized Mortgage Obligations, or CMOs, and Real Estate Mortgage Investment Conduits, or REMICs, certain certificates of deposit of insured banks and federally chartered savings associations, certain bankers acceptances and, subject to certain limits, corporate securities, commercial paper and mutual funds. We utilize mortgage-backed and other securities purchases as a complement to our mortgage lending activities. Such investments are made in conjunction with our overall liquidity, interest rate risk and credit risk management processes. Our focus over the last twenty-one months has been to maintain or reduce the balance sheet in response to the interest rate environment which prevailed during the second half of 1999 and throughout 2000, while emphasizing the origination of one-to-four family mortgage loans. As a result 6 9 of this strategy, there were no purchases of mortgage-backed securities in 2000 and purchases of other securities totaled $6.0 million. Mortgage-backed securities generally yield less than the loans that underlie such securities because of the cost of payment guarantees or credit enhancements that reduce credit risk. However, mortgage-backed securities are more liquid than individual mortgage loans and more easily used to collateralize our borrowings. In general, mortgage-backed securities issued or guaranteed by the Federal National Mortgage Association, or FNMA, the Federal Home Loan Mortgage Corporation, or FHLMC, and the Government National Mortgage Association, or GNMA, are weighted at no more than 20% for risk-based capital purposes, compared to the 50% risk weighting assigned to most non-securitized residential mortgage loans. While mortgage-backed securities carry a reduced credit risk as compared to whole loans, they remain subject to the risk of a fluctuating interest rate environment. Along with other factors, such as the geographic distribution of the underlying mortgage loans, changes in interest rates may alter the prepayment rate of those mortgage loans and affect both the prepayment rate and estimated market value of mortgage-backed securities. As a member of the Federal Home Loan Bank of New York, or FHLB-NY, Astoria Federal is required to maintain a specified investment in the capital stock of the FHLB-NY. See "Regulation and Supervision - Federal Home Loan Bank System." FEDERAL FUNDS SOLD AND REPURCHASE AGREEMENTS. We invest in a wide range of money market instruments, including overnight and term federal funds and securities purchased under agreements to resell. Money market instruments are used to invest our available funds resulting from cash flow and to help satisfy liquidity needs. See "Regulation and Supervision - Liquidity." For a further discussion of our federal funds sold and repurchase agreements, see Note 1 and Note 3 of Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data." Our investment policy also permits us to invest in certain derivative financial instruments. At December 31, 2000, these instruments consist only of interest rate swaps. See Note 11 of Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data," for further discussion of such derivative financial instruments. SECURITIES COMPOSITION. At December 31, 2000, we had $7.16 billion in REMIC and CMO mortgage-backed securities, or 32.1% of total assets, of which 87.6% had fixed rates. Of the REMICs and CMOs portfolio, $5.47 billion, or 76.4%, are insured or guaranteed, either directly or indirectly, by FNMA, FHLMC or GNMA, as issuer. Our REMICs and CMOs had coupon rates ranging from 5.00% to 10.24% and a weighted average yield of 6.54% at December 31, 2000. We believe these securities represent attractive and limited risk alternatives to other investments due to the wide variety of maturity and repayment options available. In addition, we had $713.1 million, or 3.2% of total assets in mortgage-backed security pass-through certificates insured or guaranteed by either FNMA, FHLMC or GNMA. The remaining securities portfolio of $1.54 billion, or 6.9% of total assets, consists of obligations of U.S. Government and agencies, obligations of state and political subdivisions and equity and corporate debt securities. Included in the total securities portfolio are various callable securities, which generally possess higher yields than those securities of similar contractual terms to maturity without call features. As of December 31, 2000, the amortized cost of such callable securities totaled $1.40 billion. Securities called during the year ended December 31, 2000 totaled $7.9 million. Our held-to-maturity portfolio consists primarily of seasoned fixed-rate mortgage-backed securities and U.S. Government and agency securities. At December 31, 2000, our securities available-for-sale totaled $7.70 billion and our securities held-to-maturity totaled $1.71 billion. 7 10 For a further discussion of our securities portfolio, see the tables on pages 21 and 22, Item 7, "MD&A" and Note 4 of Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data." SOURCES OF FUNDS GENERAL. Our primary source of funds is the cash flow provided by our investing activities, including principal and interest payments on loans and mortgage-backed and other securities. Our other sources of funds are provided by operating activities (primarily net income) and financing activities, including borrowings and deposits. DEPOSITS. We offer a variety of deposit accounts with a range of interest rates and terms. We presently offer passbook and statement savings accounts, NOW and money manager accounts, money market accounts, demand deposit accounts and certificates of deposit. Of the total deposit balance, $1.34 billion, or 13.3%, represent Individual Retirement Accounts. The flow of deposits is influenced significantly by general economic conditions, changes in prevailing interest rates, pricing of deposits and competition. Our deposits are primarily obtained from areas surrounding our banking offices. We rely primarily on marketing, new products, service and long-standing relationships with customers to attract and retain these deposits. At December 31, 2000, our deposits totaled $10.07 billion. Occasionally brokered deposits are used to supplement retail customer deposits in raising funds for financing and liquidity purposes. Included in our deposits at December 31, 2000 were $17.7 million of brokered certificates of deposit. When we determine the levels of our deposit rates, consideration is given to local competition, yields of U.S. Treasury securities and the rates charged for other sources of funds. We have maintained a high level of core deposits, which has contributed to our low cost-of-funds. Core deposits include savings, money market, NOW and money manager and demand deposit accounts, which, in aggregate, represented 48.9% of total deposits at December 31, 2000 and 48.4% of total deposits at December 31, 1999. BORROWINGS. We enter into reverse repurchase agreements with nationally recognized primary securities dealers and the FHLB-NY. Reverse repurchase agreements are accounted for as borrowings and are secured by the securities sold under agreements to repurchase. We also obtain advances from the FHLB-NY which are generally secured by a blanket lien against, among other things, Astoria Federal's mortgage portfolio and Astoria Federal's investment in the stock of the FHLB-NY. See "Regulation and Supervision - Federal Home Loan Bank System." The maximum amount that the FHLB-NY will advance, for purposes other than for meeting withdrawals, fluctuates from time to time in accordance with the policies of the FHLB-NY. Prior to 1999, we issued a funding note, a three-year medium-term note and a five year medium-term note. The outstanding balance of these notes totaled $462.9 million at December 31, 2000. During the year ended December 31, 2000, as part of our strategy to maintain or reduce the balance sheet while emphasizing deposit generation, as well as part of our interest rate risk management strategy, we decreased our borrowings by $1.20 billion, or 10.6%, to $10.20 billion at December 31, 2000, from $11.40 billion at December 31, 1999. The decrease was primarily in callable reverse repurchase agreements. At December 31, 2000, we had $6.14 billion of callable borrowings of which $4.13 billion were callable within one year. The callable borrowings had contractual maturities of up to eight years. At December 31, 2000, we had available a 12-month commitment for overnight and one month lines of credit with the FHLB-NY totaling $100.0 million. Both lines of credit are priced at the federal funds rate plus 10.0 basis points and reprice daily. For a further discussion of our borrowings, see the table on page 28, Item 7, "MD&A" and Note 8 of Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data." 8 11 NON-INTEREST REVENUE. We have continued to focus on building sources of non-interest revenue, including expanding our checking account base and growing our mutual fund, deferred annuities and insurance sales. Our mutual fund, deferred annuities and insurance sales are operated out of our wholly-owned subsidiaries. See "Subsidiary Activities." SUBSIDIARY ACTIVITIES We have three wholly-owned subsidiaries, Astoria Federal, Astoria Capital Trust I and AF Insurance Agency, Inc. Astoria Capital Trust I was formed in October 1999 in connection with the issuance of $125.0 million of Series A Capital Securities. See Item 7, "MD&A" and Note 9 of Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data" for further discussion of the Capital Securities. AF Insurance Agency, Inc. is a New York licensed life insurance and variable annuity agent and property and casualty insurance broker. The name of this subsidiary was changed in April 2000 from Long Island Savings Agency, Inc. which was originally incorporated in January 1990. Through a contractual arrangement with Treiber Insurance and IFS Agencies, AF Insurance Agency, Inc. provides insurance products to the customers of Astoria Federal. At December 31, 2000, the following were wholly-owned subsidiaries of Astoria Federal: AF Agency, Inc. was formed in 1990 to offer tax-deferred annuities and a variety of mutual funds through its licensed agents and stock brokerage services through an unaffiliated third party vendor. Astoria Federal is reimbursed for expenses and administrative services it provides to AF Agency, Inc. Fees generated by AF Agency, Inc. totaled $6.1 million for the year ended December 31, 2000, which represented 8.8% of non-interest income. Astoria Federal Savings and Loan Association Revocable Grantor Trust, or AFS Grantor Trust, was formed in November 2000 in connection with the establishment of a bank owned life insurance, or BOLI, program by Astoria Federal. The initial premium paid was $250.0 million. Astoria Federal Mortgage Corp. is an operating subsidiary through which Astoria Federal engages in lending activities outside the State of New York. Star Preferred Holding Corporation, or Star Preferred, was incorporated in the State of New Jersey in November 1999, to function as a holding company for Astoria Preferred Funding Corporation, or APFC, and Starline Development Corp., or Starline. APFC and Starline, which hold $4.28 billion of mortgage loans as of December 31, 2000, qualify as real estate investment trusts created pursuant to the Internal Revenue Code of 1986, as amended. Suffco Service Corporation serves as document custodian in connection with mortgage loans being serviced for FNMA and certain other investors. 201 Old Country Road Inc. was formed as a special purpose subsidiary which currently holds mortgage loans, with an aggregate principal balance of $101.6 million as of December 31, 2000, that serve as collateral for a funding note. Infoserve Corporation provides research information services for Astoria Federal and other financial institutions. The research provided stems from services Infoserve Corporation offered in the past, as a subsidiary of The Greater, for check clearing and processing as well as check and money order issuances. 9 12 Entrust Holding Corp., formerly known as 35 East 75th Street Associates Ltd., is the owner of a fifty percent (50%) interest in Entrust Title Agency, LLC, which sells mortgage title insurance. The name of this subsidiary was changed in April 2000. AF Roosevelt Avenue is inactive but has been retained by Astoria Federal due to its involvement in a litigation matter. Once the litigation is resolved, Astoria Federal intends to dissolve this subsidiary. Astoria Federal has four subsidiaries which may qualify for alternative tax treatment under Article 9A of the New York State Tax Law and therefore, although inactive, are retained by Astoria Federal. Astoria Federal has seven subsidiaries, four of which are single purpose entities that have interests in individual real estate investments, which individually and in the aggregate are not material to our financial condition, and two of which have no assets or operations but may be used to acquire interests in real estate in the future. The seventh such subsidiary serves as a holding company for one of the other six. Astoria Federal has five additional subsidiaries, all of which are inactive and which Astoria Federal intends to dissolve or is in the process of dissolving. MARKET AREA AND COMPETITION Astoria Federal has been, and continues to be, a community-oriented federally chartered savings association offering a variety of financial services to meet the needs of the communities it serves. Astoria Federal's deposit gathering sources are primarily concentrated in the communities surrounding Astoria Federal's banking offices in Queens, Kings (Brooklyn), Nassau, Suffolk and Westchester counties in the New York metropolitan area. At December 31, 2000, Astoria Federal ranked third in deposit market share, or 8.6% of market share, for the Long Island market which includes the combined counties of Nassau, Suffolk, Queens and Brooklyn, based on the "FDIC Deposit Market Share Report" dated June 30, 2000, excluding any pending acquisitions. Astoria Federal originates mortgage loans through its banking and loan production offices in the New York metropolitan area and through an extensive broker network in fourteen states: New York, New Jersey, Connecticut, Pennsylvania, Massachusetts, Delaware, Maryland, Ohio, Virginia, North Carolina, South Carolina, Georgia, Illinois and Florida. The New York metropolitan area has a high density of financial institutions, a number of which are significantly larger and have greater financial resources than we have. All are our competitors to varying degrees. Our competition for loans, both locally and in the aggregate, comes principally from mortgage banking companies, commercial banks, savings banks and savings and loan associations. Our most direct competition for deposits comes from commercial banks, savings banks, savings and loan associations and credit unions. We also face intense competition for deposits from money market mutual funds and other corporate and government securities funds as well as from other financial intermediaries such as brokerage firms and insurance companies. The New York metropolitan area economy has experienced increased growth over the past several years as evidenced by local employment growth statistics. Improvement has also been seen in the local real estate market, as reflected in increased existing home sales during the past few years and an increase in local real estate values. More recently, however, this region along with the rest of the nation has experienced a significant reduction in its economic growth. This economic slowing has been challenged by aggressive and forceful action by the Federal Open Market Committee, or FOMC, which has lowered the federal funds rate 100 basis points in January 2001. These cuts along with the economic slowdown have led to a decrease in general interest rates, which typically results in an increase in mortgage refinance activity. While it appears that the FOMC is actively evaluating the economic slowdown, we cannot accurately project what additional actions, if any, they may take nor the impact those actions would have on the local and national economies. Our broker and third party loan origination programs increased our 10 13 volume of one-to-four family residential loans outside our primary lending market, thereby reducing our geographical loan concentration as well as our potential exposure to a concentration of credit risk. At December 31, 2000, $5.70 billion, or 51.0%, of our total mortgage loan portfolio was secured by properties located in 47 states other than New York. Excluding New York, we have a concentration of lending of greater than 5% in three states. These states are Connecticut, which comprises 11.9% of our total mortgage loan portfolio, New Jersey, which comprises 9.2% of our total mortgage loan portfolio, and Maryland, which comprises 6.5% of our total mortgage loan portfolio. We serve our local market areas with a wide selection of loan products and other retail financial services. We consider our strong banking office network, together with our reputation for financial strength and customer service, as our major competitive advantage in attracting and retaining customers in our market areas. PERSONNEL As of December 31, 2000, we had 1,698 full-time employees and 327 part-time employees, or 1,862 full time equivalents. The employees are not represented by a collective bargaining unit and we consider our relationship with our employees to be good. REGULATION AND SUPERVISION GENERAL. Astoria Federal is subject to extensive regulation, examination and supervision by the OTS, as its chartering agency, and by the Federal Deposit Insurance Corporation, or FDIC, as deposit insurer. We, as a unitary savings and loan holding company, are regulated, examined and supervised by the OTS. Astoria Federal is a member of the Federal Home Loan Bank, or FHLB, System and its deposit accounts are insured up to applicable limits by the FDIC under the Savings Association Insurance Fund, or SAIF, except for those deposits acquired from The Greater, which are insured by the FDIC under the Bank Insurance Fund, or BIF. We and Astoria Federal must file reports with the OTS concerning our activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other financial institutions. The OTS and the FDIC periodically perform safety and soundness examinations of Astoria Federal and us and test our compliance with various regulatory requirements. The OTS has primary enforcement responsibility over federally chartered savings associations and has substantial discretion to impose enforcement action on an institution that fails to comply with applicable regulatory requirements, particularly with respect to its capital requirements. In addition, the FDIC has the authority to recommend to the Director of the OTS that enforcement action be taken with respect to a particular federally chartered savings association and, if action is not taken by the Director, the FDIC has authority to take such action under certain circumstances. This regulation and supervision establish a comprehensive framework to regulate and control the activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulation, whether by the OTS, FDIC or Congress, could have a material adverse impact on Astoria Federal and us and our respective operations. The description of statutory provisions and regulations applicable to federally chartered savings associations and their holding companies and of tax matters set forth in this document does not purport to be a complete description of such statutes and regulations and their effects on Astoria Federal and us. 11 14 GRAMM-LEACH-BLILEY ACT On November 12, 1999, President Clinton signed the Gramm-Leach-Bliley Act, or Gramm-Leach, which among other things, establishes a comprehensive framework to permit affiliations among commercial banks, insurance companies and securities firms. As part of this framework, generally, the law (1) repeals the historical restrictions and eliminates many federal and state law barriers to affiliations among banks and securities firms, insurance companies and other financial service providers, (2) provides a uniform framework for the activities of banks, savings institutions and their holding companies, and (3) broadens the activities that may be conducted by subsidiaries of national banks and state banks. Gramm-Leach also restricts the powers of new unitary savings and loan association holding companies. Unitary savings and loan holding companies that are "grandfathered," i.e., unitary savings and loan association holding companies in existence or with applications filed with the OTS on or before May 4, 1999, such as us, retain their authority under the prior law. All other unitary savings and loan association holding companies are limited to financially related activities permissible for bank holding companies, as defined under Gramm-Leach. Gramm-Leach also prohibits non-financial companies from acquiring grandfathered unitary savings and loan association holding companies. Gramm-Leach allows bank holding companies to engage in a wider variety of financial activities than permitted under the prior law, particularly with respect to insurance and securities activities. In addition, in a change from the prior law, bank holding companies are in a position to be owned, controlled or acquired by any company engaged in financially related activities. We do not believe that the law has to date had a material adverse affect upon our operations. The law permits banks, securities firms and insurance companies to affiliate, and as a result the financial services industry has and may continue to experience further consolidation. This type of consolidation could result in a growing number of larger financial institutions that offer a wider variety of financial services than we currently offer and that can aggressively compete in the markets we currently serve. FEDERALLY CHARTERED SAVINGS ASSOCIATION REGULATION BUSINESS ACTIVITIES. Astoria Federal derives its lending and investment powers from the Home Owner's Loan Act, as amended, or HOLA, and the regulations of the OTS thereunder. Under these laws and regulations, Astoria Federal may invest in mortgage loans secured by residential and non-residential real estate, commercial and consumer loans, certain types of debt securities and certain other assets. Astoria Federal may also establish service corporations that may engage in activities not otherwise permissible for Astoria Federal, including certain real estate equity investments and securities and insurance brokerage activities. These investment powers are subject to various limitations, including (1) a prohibition against the acquisition of any corporate debt security that is not rated in one of the four highest rating categories, (2) a limit of 400% of an association's capital on the aggregate amount of loans secured by non-residential real estate property, (3) a limit of 20% of an association's assets on commercial loans, with the amount of commercial loans in excess of 10% of assets being limited to small business loans, (4) a limit of 35% of an association's assets on the aggregate amount of consumer loans and acquisitions of certain debt securities, (5) a limit of 5% of assets on non-conforming loans (loans in excess of the specific limitations of HOLA), and (6) a limit of the greater of 5% of assets or an association's capital on certain construction loans made for the purpose of financing what is or is expected to become residential property. CAPITAL REQUIREMENTS. The OTS capital regulations require federally chartered savings associations to meet three capital ratios: a 1.5% tangible capital ratio, a 4% leverage (core capital) ratio and an 8% risk-based capital ratio. In assessing an institution's capital adequacy, the OTS takes into consideration not only these numeric factors but also qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where necessary. Astoria Federal, as a matter of prudent 12 15 management, targets as its goal the maintenance of capital ratios which exceed these minimum requirements and that are consistent with Astoria Federal's risk profile. At December 31, 2000, Astoria Federal exceeded each of its capital requirements with tangible and leverage capital ratios of 6.74% and a risk-based capital ratio of 16.12%. The Federal Deposit Insurance Corporation Improvement Act, or FDICIA, requires that the OTS and other federal banking agencies revise their risk-based capital standards, with appropriate transition rules, to ensure that they take into account interest rate risk, or IRR, concentration of risk and the risks of non-traditional activities. The OTS adopted regulations, effective January 1, 1994, that set forth the methodology for calculating an IRR component to be incorporated into the OTS risk-based capital regulations. The OTS has indefinitely deferred its requirement of the IRR component in the calculation of an institution's risk-based capital calculation. The OTS continues to monitor the IRR of individual institutions through analysis of the change in net portfolio value, or NPV. The OTS has also used this NPV analysis as part of its evaluation of certain applications or notices submitted by thrift institutions. For a more complete discussion of NPV analysis, see Item 7, "MD&A - Interest Rate Sensitivity Analysis." The OTS, through its general oversight of the safety and soundness of savings associations, retains the right to impose minimum capital requirements on individual institutions to the extent the institution is not in compliance with certain written guidelines established by the OTS regarding NPV analysis. The OTS has not imposed any such requirements on Astoria Federal. PROMPT CORRECTIVE REGULATORY ACTION. FDICIA established a system of prompt corrective action to resolve the problems of undercapitalized institutions. Under this system, the banking regulators are required to take certain supervisory actions against undercapitalized institutions, based upon five categories of capitalization which FDICIA created: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized," the severity of which depends upon the institution's degree of capitalization. Generally, a capital restoration plan must be filed with the OTS within 45 days of the date an association receives notice that it is "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." In addition, various mandatory supervisory actions become immediately applicable to the institution, including restrictions on growth of assets and other forms of expansion. Under the OTS regulations, generally, a federally chartered savings association is treated as well capitalized if its total risk-based capital ratio is 10% or greater, its Tier 1 risk-based capital ratio is 6% or greater, and its leverage ratio is 5% or greater, and it is not subject to any order or directive by the OTS to meet a specific capital level. As of December 31, 2000, Astoria Federal was considered "well capitalized" by the OTS. INSURANCE OF DEPOSIT ACCOUNTS. Pursuant to FDICIA, the FDIC established a risk-based assessment system for insured depository institutions that takes into account the risks attributable to different categories and concentrations of assets and liabilities. Under the risk-based assessment system, the FDIC assigns an institution to one of three capital categories based on the institution's financial information as of the reporting period ending seven months before the assessment period, consisting of (1) well capitalized, (2) adequately capitalized or (3) undercapitalized. The FDIC also assigns an institution to one of three supervisory subcategories within each capital group. The supervisory subgroup to which an institution is assigned is based on a supervisory evaluation provided to the FDIC by the institution's primary federal regulator and information that the FDIC determines to be relevant to the institution's financial condition and the risk posed to the deposit insurance funds. An institution's deposit insurance assessment rate depends on the capital category and supervisory category to which it is assigned. Under the risk-based assessment system, there are nine assessment risk classifications (i.e., combinations of capital groups and supervisory subgroups) to which different assessment rates are applied, ranging from 0 to 27 basis points. The assessment rates for our BIF-assessable and SAIF-assessable deposits since 1997 were each 0 basis points. In addition, SAIF-assessable deposits are also subject to assessments for payments on the bonds issued in the late 1980s by the Financing Corporation, or FICO, to recapitalize the now defunct Federal Savings and Loan Insurance Corporation. Our total expense in 2000 for the assessment for the FICO payments was $2.1 million. 13 16 LOANS TO ONE BORROWER. Under the HOLA, savings associations are generally subject to the national bank limits on loans to one borrower. Generally, savings associations may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of the institution's unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if such loan is secured by readily-marketable collateral. Astoria Federal is in compliance with applicable loans to one borrower limitations. At December 31, 2000, Astoria Federal's largest aggregate amount of loans to one borrower totaled $29.5 million. All of the loans for the largest borrower were performing in accordance with their terms and the borrower had no affiliation with Astoria Federal. QUALIFIED THRIFT LENDER, OR QTL, TEST. The HOLA requires savings associations to meet a QTL test. Under the QTL test, a savings association is required to maintain at least 65% of its "portfolio assets" (total assets less (1) specified liquid assets up to 20% of total assets, (2) intangibles, including goodwill, and (3) the value of property used to conduct business) in certain "qualified thrift investments" (primarily residential mortgages and related investments, including certain mortgage-backed securities, credit card loans, student loans, and small business loans) on a monthly basis in 9 out of every 12 months. As of December 31, 2000, Astoria Federal maintained in excess of 90% of its portfolio assets in qualified thrift investments and had more than 65% of its portfolio assets in qualified thrift investments for each of the 12 months ending December 31, 2000. Therefore, Astoria Federal qualified under the QTL test. A savings association that fails the QTL test and does not convert to a bank charter generally will be prohibited from: (1) engaging in any new activity not permissible for a national bank, (2) paying dividends not permissible under national bank regulations, (3) obtaining advances from any FHLB, and (4) establishing any new branch office in a location not permissible for a national bank in the association's home state. In addition, beginning three years after the association failed the QTL test, the association would be prohibited from engaging in any activity not permissible for a national bank and would have to repay any outstanding advances from the FHLB as promptly as possible. LIMITATION ON CAPITAL DISTRIBUTIONS. The OTS regulations impose limitations upon certain capital distributions by savings associations, such as certain cash dividends, payments to repurchase or otherwise acquire its shares, payments to shareholders of another institution in a cash-out merger and other distributions charged against capital. The OTS regulates all capital distributions by Astoria Federal directly or indirectly to us, including dividend payments. As the subsidiary of a savings and loan holding company, Astoria Federal currently must file a notice with the OTS for each capital distribution. However, if the total amount of all capital distributions (including each proposed capital distribution) for the applicable calendar year exceeds net income for that year to date plus the retained net income for the preceding two years, then Astoria Federal must file an application to receive the approval of the OTS for the proposed capital distribution. Astoria Federal may not pay dividends to us if, after paying those dividends, it would fail to meet the required minimum levels under risk-based capital guidelines and the minimum leverage and tangible capital ratio requirements or the OTS notified Astoria Federal that it was in need of more than normal supervision. Under the Federal Deposit Insurance Act, or FDIA, an insured depository institution such as Astoria Federal is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become "undercapitalized" (as such term is used in the FDIA). Payment of dividends by Astoria Federal also may be restricted at any time at the discretion of the appropriate regulator if it deems the payment to constitute an unsafe and unsound banking practice. In addition, Astoria Federal may not declare or pay cash dividends on or repurchase any of its shares of common stock if the effect thereof would cause stockholders' equity to be reduced below the amounts required for the liquidation accounts which were established as a result of Astoria Federal's conversion from mutual to stock form of ownership and the acquisitions of Fidelity, The Greater and LIB. For further 14 17 discussion on the liquidation accounts, see Note 10 of Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data." LIQUIDITY. Astoria Federal was required to maintain an average daily balance of liquid assets (cash, certain time deposits, bankers' acceptances, specified U.S. Government, state or federal agency obligations, shares of certain mutual funds and certain corporate debt securities and commercial paper) equal to a quarterly average of not less than a specified percentage of its net withdrawable deposit accounts plus short-term borrowings. The OTS' minimum required liquidity was 4.0% during 2000, which Astoria Federal exceeded with a liquidity ratio at December 31, 2000 of 6.96%. On December 27, 2000, Section 6 of the HOLA was repealed and, therefore, Astoria Federal is no longer subject to this liquidity requirement. For additional information on Astoria Federal's regulatory liquid assets, see Item 7, "MD&A - Liquidity and Capital Resources." ASSESSMENTS. The OTS charges assessments to recover the costs of examining savings associations and their affiliates. These assessments are based on three components: the size of the association, on which the basic assessment is based; the association's supervisory condition, which results in an additional assessment based on a percentage of the basic assessment for any savings institution with a composite rating of 3, 4 or 5 in its most recent safety and soundness examination; and the complexity of the association's operations, which results in an additional assessment based on a percentage of the basic assessment for any savings association that managed over $1.00 billion in trust assets, serviced for others loans aggregating more than $1.00 billion, or had certain off-balance sheet assets aggregating more than $1.00 billion. In order to avoid a disproportionate impact on the smaller savings institutions, which are those whose total assets never exceeded $100.0 million, the OTS regulations provide that the portion of the assessment based on asset size be the lesser of the assessment under the amended regulations or the regulations before the amendment. For the year ended December 31, 2000, we paid $2.7 million in assessments. BRANCHING. The OTS regulations authorize federally chartered savings associations to branch nationwide to the extent allowed by federal statute. This permits federal savings and loan associations with interstate networks to more easily diversify their loan portfolios and lines of business geographically. OTS authority preempts any state law purporting to regulate branching by federal savings associations. COMMUNITY REINVESTMENT. Under the Community Reinvestment Act, or CRA, as implemented by the OTS regulations, a federally chartered savings association has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community. The CRA requires the OTS, in connection with its examination of a federally chartered savings association, to assess the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution. The assessment focuses on three tests: (1) a lending test, to evaluate the institution's record of making loans in its service areas; (2) an investment test, to evaluate the institution's record of investing in community development projects, affordable housing, and programs benefiting low or moderate income individuals and businesses; and (3) a service test, to evaluate the institution's delivery of services through its branches, ATMs, and other offices. The CRA also requires all institutions to make public disclosure of their CRA ratings. In addition, in May 2000, the OTS proposed regulations implementing the requirements under Gramm-Leach that insured depository institutions publicly disclose certain agreements that are in fulfillment of the CRA. Astoria Federal has been rated as "outstanding" as of its most recent CRA examination and has been rated as "outstanding" over its last three examinations. TRANSACTIONS WITH RELATED PARTIES. Astoria Federal is subject to the affiliate and insider transaction rules set forth in Sections 23A, 23B, 22(g) and 22(h) of the Federal Reserve Act, as well as additional limitations 15 18 as may be adopted by the OTS Director. These provisions, among other things, prohibit, limit or place restriction upon a savings institution extending credit to, or entering into certain transactions with, its affiliates (which for Astoria Federal would include us and our non-federally chartered savings association subsidiaries, if any) and principal stockholders, directors and executive officers. STANDARDS FOR SAFETY AND SOUNDNESS. Pursuant to the requirements of FDICIA, as amended by the Riegle Community Development and Regulatory Improvement Act of 1994, or Community Development Act, the OTS, together with the other federal bank regulatory agencies, adopted guidelines establishing general standards, relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. In addition, regulations were adopted pursuant to FDICIA to require a savings association that is given notice by the OTS that it is not satisfying any of such safety and soundness standards to submit a compliance plan to the OTS. If, after being so notified, a savings association fails to submit an acceptable compliance plan or fails in any material respect to implement an accepted compliance plan, the OTS may issue an order directing corrective and other actions of the types to which a significantly undercapitalized institution is subject under the "prompt corrective action" provisions of FDICIA. If a savings association fails to comply with such an order, the OTS may seek to enforce such order in judicial proceedings and to impose civil money penalties. INSURANCE ACTIVITIES. Astoria Federal is generally permitted to engage in certain insurance activities through its subsidiaries. In August 2000, the OTS and the other federal banking agencies proposed regulations pursuant to Gramm-Leach which would prohibit depository institutions from conditioning the extension of credit to individuals upon either the purchase of an insurance product or annuity or an agreement by the consumer not to purchase an insurance product or annuity from an entity that is not affiliated with the depository institution. The proposed regulations would also require prior disclosure of this prohibition to potential insurance product or annuity customers. We do not believe that these regulations, if adopted as proposed, would have a material impact on our operations. PRIVACY PROTECTION The OTS has released final regulations implementing the privacy protection provisions of Gramm-Leach. Although the final regulations became effective November 13, 2000, financial institutions have been granted an extension until July 1, 2001 to fully comply with the final regulations. The final regulations require Astoria Federal to disclose its privacy policy, including identifying with whom it shares "nonpublic personal information," to customers at the time of establishing the customer relationship and annually thereafter. The regulations also require Astoria Federal to provide its customers with initial and annual notices that accurately reflect its privacy policies and practices. In addition, to the extent its sharing of such information is not exempted, Astoria Federal is required to provide its customers with the ability to "opt-out" of having Astoria Federal share their non-public personal information with unaffiliated third parties. Astoria Federal is currently in the process of implementing these requirements so as to bring itself into full compliance with the final regulations by July 1, 2001. Gramm-Leach also provides for the ability of each state to enact legislation that is more protective of consumers' personal information. Currently there are a number of privacy bills pending in the New York legislature. No action has been taken on any of these bills, and we cannot predict whether any of them will become law or what impact, if any, these bills will have if enacted into law. In June 2000, the OTS and other federal banking agencies proposed guidelines establishing standards for safeguarding customer information to implement certain provisions of Gramm-Leach. These guidelines 16 19 were finalized and adopted in final form on February 1, 2001. The guidelines describe the agencies' expectations for the creation, implementation and maintenance of an information security program, which would include administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities. The standards set forth in the guidelines are intended to insure the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or integrity of such records and protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer. We expect that we will implement the guidelines by their effective date of July 1, 2001 and that such implementation will not have a material adverse effect on our operations. FEDERAL HOME LOAN BANK SYSTEM Astoria Federal is a member of the FHLB System, which consists of 12 regional FHLBs. The FHLB provides a central credit facility primarily for member institutions. Astoria Federal, as a member of the FHLB-NY, is required to acquire and hold shares of capital stock in the FHLB-NY in an amount at least equal to 1% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year, 0.3% of total assets, or 5% of its borrowings from the FHLB-NY, whichever is greater. Astoria Federal was in compliance with this requirement with an investment in FHLB-NY stock at December 31, 2000, of $285.3 million. Dividends from the FHLB-NY to Astoria Federal amounted to $19.2 million for the year ended December 31, 2000, $17.4 million for the year ended December 31, 1999 and $9.5 million for the year ended December 31, 1998. Pursuant to Gramm-Leach, the foregoing minimum share ownership requirements will be replaced by regulations to be promulgated by the Federal Housing Finance Board. Gramm-Leach specifically provides that the minimum requirements in existence immediately prior to adoption of Gramm-Leach shall remain in effect until such regulations are adopted. Formerly, federal savings associations were required to be members of the FHLB System. The new law removed the mandatory membership requirement and authorized voluntary membership for federal savings associations, as is the case for all other eligible institutions. FEDERAL RESERVE SYSTEM Federal Reserve Board regulations require federally chartered savings associations to maintain non-interest-earning cash reserves against their transaction accounts (primarily NOW and regular checking accounts). A reserve of 3% is to be maintained against aggregate transaction accounts between $5.5 million and $42.8 million (subject to adjustment by the Federal Reserve Board) and a reserve of 10% (subject to adjustment by the Federal Reserve Board between 8% and 14%) against that portion of total transaction accounts in excess of $42.8 million. The first $5.5 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) is exempt from the reserve requirements. Astoria Federal is in compliance with the foregoing requirements. Because required reserves must be maintained in the form of either vault cash, a non-interest-bearing account at a Federal Reserve Bank or a pass-through account as defined by the Federal Reserve Board, the effect of this reserve requirement is to reduce Astoria Federal's interest-earning assets. FHLB System members are also authorized to borrow from the Federal Reserve "discount window," but Federal Reserve Board regulations require institutions to exhaust all FHLB sources before borrowing from a Federal Reserve Bank. HOLDING COMPANY REGULATION We are a unitary savings and loan holding company within the meaning of the HOLA. As such, we are registered with the OTS and are subject to the OTS regulations, examinations, supervision and reporting requirements. In addition, the OTS has enforcement authority over us and our savings association subsidiary. Among other things, this authority permits the OTS to restrict or prohibit activities that are 17 20 determined to be a serious risk to the subsidiary savings association. Astoria Federal must notify the OTS at least 30 days before declaring any dividend to us. Astoria Federal has given notice to, and received approval from the OTS, for each dividend declared to us in 2000. The HOLA prohibits a savings and loan holding company (directly or indirectly, or through one or more subsidiaries) from acquiring another savings association or holding company thereof without prior written approval of the OTS; acquiring or retaining, with certain exceptions, more than 5% of a non-subsidiary savings association, a non-subsidiary holding company, or a non-subsidiary company engaged in activities other than those permitted by the HOLA or acquiring or retaining control of an institution that is not federally insured. In evaluating applications by holding companies to acquire savings associations, the OTS must consider the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the community and competitive factors. FEDERAL SECURITIES LAWS We are subject to the periodic reporting, proxy solicitation, tender offer, insider trading restrictions and other requirements under the Securities Exchange Act of 1934, as amended, or the Exchange Act. DELAWARE CORPORATION LAW We are incorporated under the laws of the State of Delaware. Thus, we are subject to regulation by the State of Delaware and the rights of our shareholders are governed by the Delaware General Corporation Law. FEDERAL TAXATION GENERAL. We report our income on a calendar year basis using the accrual method of accounting and are subject to federal income taxation in the same manner as other corporations. CORPORATE ALTERNATIVE MINIMUM TAX. In addition to the regular income tax, corporations (including savings and loan associations) generally are subject to an alternative minimum tax, or AMT, in an amount equal to 20% of alternative minimum taxable income, or AMTI, to the extent the AMT exceeds the corporation's regular tax. AMTI is regular taxable income as modified by certain adjustments and increased by certain tax preference items. AMTI includes an amount equal to three-quarters of the excess of adjusted current earnings over such specially computed AMTI. Only 90% of AMTI can be offset by net operating loss carryovers. The AMT is available as a credit against future regular income tax. We do not expect to be subject to the AMT. TAX BAD DEBT RESERVES. Effective 1996, federal tax legislation modified the methods by which a thrift computes its bad debt deduction. As a result, Astoria Federal is required to claim a deduction equal to its actual loss experience, and the "reserve method" is no longer available. Any cumulative reserve additions (i.e., bad debt deductions) in excess of actual loss experience for tax years 1988 through 1995 are subject to recapture over a six year period. Generally, reserve balances as of December 31, 1987 will only be subject to recapture upon distribution of such reserves to shareholders. See "Distributions." New York State and New York City tax laws allow thrift institutions to continue to use the reserve method of tax accounting for bad debts and to determine a deduction for bad debts in a manner similar to prior law. See "State and Local Taxation." DISTRIBUTIONS. To the extent that Astoria Federal makes "nondividend distributions" to shareholders, such distributions will be considered to result in distributions from Astoria Federal's "base year reserve," (i.e., 18 21 its reserve as of December 1987), to the extent thereof and then from its supplemental reserve for losses on loans, and an amount based on the amount distributed will be included in Astoria Federal's taxable income. Nondividend distributions include distributions in excess of Astoria Federal's current and accumulated earnings and profits, as calculated for federal income tax purposes, distributions in redemption of stock and distributions in partial or complete liquidation. However, dividends paid out of Astoria Federal's current or accumulated earnings and profits will not constitute nondividend distributions and, therefore, will not be included in Astoria Federal's income. The amount of additional taxable income created from a nondividend distribution is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Thus, approximately one and one-half times the nondividend distribution would be includable in gross income for federal income tax purposes, assuming a 35% federal corporate income tax rate. DIVIDENDS RECEIVED DEDUCTION AND OTHER MATTERS. We may exclude from our income 100% of dividends received from Astoria Federal as a member of the same affiliated group of corporations. The corporate dividends received deduction is generally 70% in the case of dividends received from unaffiliated corporations with which we will not file a consolidated tax return, except that if we own more than 20% of the stock of a corporation distributing a dividend, 80% of any dividends received may be deducted. STATE AND LOCAL TAXATION NEW YORK STATE TAXATION. New York State imposes an annual franchise tax on banking corporations, based on net income allocable to New York State, at a rate of 9%, (8.5% effective for taxable years beginning after July 1, 2000; 8% effective for taxable years beginning after July 1, 2001; and 7.5% effective for taxable years beginning after July 1, 2002). If, however, the application of an alternative minimum tax (based on taxable assets allocated to New York, "alternative" net income, or a flat minimum fee) results in a greater tax, an alternative minimum tax will be imposed. In addition, New York State imposes a tax surcharge of 17% of the New York State franchise tax allocable to business activities carried on in the Metropolitan Commuter Transportation District. These taxes apply to us, Astoria Federal and certain of Astoria Federal's subsidiaries. Certain subsidiaries of a banking corporation may be subject to a general business corporation tax in lieu of the tax on banking corporations. The rules regarding the determination of income allocated to New York and alternative minimum taxes differ for these subsidiaries. New York State passed legislation that incorporated the former provisions of Internal Revenue Code, or IRC, Section 593 into New York State tax law. The impact of this legislation enabled Astoria Federal to defer the recapture of the New York State tax bad debt reserves that would have otherwise occurred as a result of the federal amendment to IRC 593. The legislation also enabled Astoria Federal to continue to utilize the reserve method for computing its bad debt deduction. BAD DEBT DEDUCTION. Federally chartered savings associations such as Astoria Federal which meet certain definition tests primarily relating to their assets and the nature of their business, or qualifying thrifts, are permitted to establish a reserve for bad debts and to make annual additions thereto, which additions may, within specified formula limits, be deducted in arriving at their taxable income. Astoria Federal will be a qualifying thrift only if, among other requirements, at least 60% of its assets are assets described in Section 1453(h)(1) of the New York State tax law, or the 60% Test. Astoria Federal presently satisfies the 60% Test. Although there can be no assurance that Astoria Federal will satisfy the 60% Test in the future, we believe that this level of qualifying assets can be maintained by Astoria Federal. Astoria Federal's deduction for additions to its bad debt reserve with respect to qualifying loans may be computed using the experience method or a percentage equal to 32% of Astoria Federal's taxable income, computed with certain modifications, without regard to Astoria Federal's actual loss experience, and reduced by the amount of any addition permitted to the reserve for non-qualifying loans, or NYS Percentage of Taxable Income Method. Astoria Federal's deduction with respect to non-qualifying loans must be computed under the experience method which is based on its actual loss experience. 19 22 Under the experience method, the amount of a reasonable addition, in general, equals the amount necessary to increase the balance of the bad debt reserve at the close of the taxable year to the greater of (1) the amount that bears the same ratio to loans outstanding at the close of the taxable year as the total net bad debts sustained during the current and five preceding taxable years bears to the sum of the loans outstanding at the close of those six years, or (2) the balance of the bad debt reserve at the close of the base year (assuming that the loans outstanding have not declined since then). The "base year" for these purposes is the last taxable year beginning before the NYS percentage of income bad debt deduction was taken. Any deduction for the addition to the reserve for non-qualifying loans reduces the addition to the reserve for qualifying real property loans calculated under the NYS Percentage of Taxable Income Method. Each year Astoria Federal reviews the most favorable way to calculate the deduction attributable to an addition to the bad debt reserve. The amount of the addition to the reserve for losses on qualifying real property loans under the NYS Percentage of Taxable Income Method cannot exceed the amount necessary to increase the balance of the reserve for losses on qualifying real property loans at the close of the taxable year to 6% of the balance of the qualifying real property loans outstanding at the end of the taxable year. Also, if the qualifying thrift uses the NYS Percentage of Taxable Income Method, then the qualifying thrift's aggregate addition to its reserve for losses on qualifying real property loans cannot, when added to the addition to the reserve for losses on non-qualifying loans, exceed the amount by which 12% of the amount that the total deposits or withdrawable accounts of depositors of the qualifying thrift at the close of the taxable year exceeded the sum of the qualifying thrift's surplus, undivided profits and reserves at the beginning of such year. NEW YORK CITY TAXATION. Astoria Federal is also subject to the New York City Financial Corporation Tax calculated, subject to a New York City income and expense allocation, on a similar basis as the New York State Franchise Tax. In this connection, legislation was enacted regarding the use and treatment of tax bad debt reserves that is substantially similar to the New York State legislation described above. A significant portion of Astoria Federal's entire net income for New York City purposes is allocated outside the jurisdiction which has the effect of significantly reducing the New York City taxable income of Astoria Federal. DELAWARE TAXATION. As a Delaware holding company not earning income in Delaware, we are exempt from Delaware corporate income tax but are required to file an annual report with and pay an annual franchise tax to the State of Delaware. STATISTICAL DATA The detailed statistical data which follows is presented in accordance with Guide 3, prescribed by the Securities and Exchange Commission, or SEC. This data should be read in conjunction with Item 7, "MD&A" and Item 8, "Financial Statements and Supplementary Data." Information regarding distribution of assets, liabilities and stockholders' equity; interest rates and interest differential appears under Item 7, "MD&A." Pages 46 and 47 present the distribution of assets, liabilities and stockholders' equity under the caption "Analysis of Net Interest Income," and the interest differential under the caption "Rate/Volume Analysis." 20 23 SECURITIES PORTFOLIO The following table sets forth the composition of our available-for-sale (at fair value) and held-to-maturity securities portfolios in dollar amounts and in percentages of the portfolios at the dates indicated:
AT DECEMBER 31, --------------------------------------------------------------------------- 2000 1999 1998 --------------------------------------------------------------------------- PERCENT PERCENT PERCENT (Dollars in Thousands) AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL - ----------------------------------------------------------------------------------------------------------------------- SECURITIES AVAILABLE-FOR-SALE: Mortgage-backed securities: GNMA pass-through certificates..... $ 104,264 1.35% $ 125,701 1.42% $ 166,516 2.03% FHLMC pass-through certificates.... 189,368 2.46 226,414 2.55 342,722 4.18 FNMA pass-through certificates..... 369,709 4.80 447,505 5.05 615,794 7.51 REMICs and CMOs: Agency issuance.................. 4,954,148 64.31 5,869,778 66.23 4,920,500 60.04 Non-agency issuance.............. 1,393,696 18.09 1,535,579 17.33 1,508,302 18.40 Obligations of U.S. Government and agencies........................... 499,568 6.49 474,204 5.35 467,199 5.71 FNMA and FHLMC preferred stock....... 133,789 1.74 127,479 1.44 128,840 1.57 Asset-backed and other securities.... 2,502 0.03 1,908 0.02 25,845 0.31 Corporate debt securities............ 56,178 0.73 54,181 0.61 20,726 0.25 -------- ------ ---------- ----- --------- ----- Total securities available-for-sale..... $7,703,222 100.00% $8,862,749 100.00% $8,196,444 100.00% ========== ====== ========== ====== ========== ====== SECURITIES HELD-TO-MATURITY: Mortgage-backed securities: GNMA pass-through certificates..... $ 3,300 0.19% $ 4,245 0.22% $ 53,258 2.52% FHLMC pass-through certificates.... 34,829 2.03 45,128 2.37 14,726 0.70 FNMA pass-through certificates..... 11,512 0.67 13,106 0.69 15,975 0.76 REMICs and CMOs: Agency issuance.................. 518,534 30.24 668,823 35.13 787,255 37.28 Non-agency issuance.............. 298,024 17.38 354,766 18.63 268,270 12.70 Obligations of U.S. Government and agencies....................... 804,793 46.92 772,733 40.59 925,355 43.82 Obligations of states and political subdivisions............ 44,013 2.57 45,128 2.37 46,961 2.22 --------- ----- ------ ---- ------ ----- Total securities held-to-maturity....... 1,715,005 100.00% 1,903,929 100.00% 2,111,800 100.00% --------- ====== --------- ====== --------- ====== Net discount.......................... (2,814) (3,972) (2,989) --------- ----- --------- Net securities held-to-maturity....... $1,712,191 $1,899,957 $2,108,811 ========== ========== ==========
21 24 The table below sets forth certain information regarding the book value, weighted average yields and contractual maturities of our federal funds sold and repurchase agreements, FHLB-NY stock and mortgage-backed and other securities available-for-sale and held-to-maturity portfolios at December 31, 2000.
ONE YEAR ONE TO FIVE TO OR LESS FIVE YEARS TEN YEARS ------------------- -------------------- -------------------- ANNUALIZED ANNUALIZED ANNUALIZED WEIGHTED WEIGHTED WEIGHTED BOOK AVERAGE BOOK AVERAGE BOOK AVERAGE (Dollars in Thousands) VALUE YIELD VALUE YIELD VALUE YIELD - -------------------------------------------------------------------------------------------------------------------- FEDERAL FUNDS SOLD AND REPURCHASE AGREEMENTS ................... $171,525 6.15% $ -- - % $ -- --% ======== ====== ===== FHLB-NY STOCK (1),(2) .................. $ -- --% $ -- --% $ -- --% ======== ====== ===== MORTGAGE-BACKED AND OTHER SECURITIES AVAILABLE-FOR-SALE: GNMA pass-through certificates ........ $ -- --% $ -- --% $ -- --% FHLMC pass-through certificates ....... 182 7.34 898 5.93 14,640 5.91 FNMA pass-through certificates ........ -- -- 1,230 6.75 7,479 6.52 REMICs and CMOs: Agency issuance ................. -- -- -- -- 18,448 6.21 Non-agency issuance ............. -- -- -- -- 5,549 7.48 Obligations of the U.S. Government and agencies ............. 500 5.50 -- 49,956 6.31 Corporate debt securities ............. -- -- -- -- 5,000 9.25 Asset-backed and other securities -- -- 1 -- 1,000 -- Equity securities (1), (3) ............ -- -- -- -- -- -- -------- ------ -------- Total securities available-for-sale: $ 682 5.99% $2,129 6.40% $102,072 6.40% ======== ====== ======== MORTGAGE-BACKED AND OTHER SECURITIES HELD-TO-MATURITY: GNMA pass-through certificates ........ $ 4 8.92% $ 474 7.73% $ 1,136 9.07% FHLMC pass-through certificates ....... 259 9.59 1,286 6.72 10,275 8.19 FNMA pass-through certificates ........ -- -- 220 9.29 1,412 7.17 REMICs and CMOs: Agency issuance ................. -- -- 4,830 6.61 78,694 6.25 Non-agency issuance ............. -- -- -- -- 35,096 6.43 Obligations of the U.S. Government and agencies ............ 14,999 5.74 -- -- -- Obligations of states and political subdivisions ............. -- -- 1,890 3.86 -- -- -------- ------ -------- Total securities held-to-maturity: ....... $ 15,262 5.81% $8,700 6.16% $126,613 6.49% ======== ====== ========
MORE THAN TEN YEARS TOTAL SECURITIES -------------------- -------------------------------------------------- AVERAGE ANNUALIZED LIFE BY WEIGHTED CONTRACTUAL WEIGHTED BOOK AVERAGE MATURITY BOOK FAIR AVERAGE (Dollars in Thousands) VALUE YIELD (IN YEARS) VALUE VALUE YIELD - --------------------------------------------------------------------------------------------------------------------------- FEDERAL FUNDS SOLD AND REPURCHASE AGREEMENTS ................... $ -- -- % 0.01 $ 171,525 $ 171,525 6.15% ========== ========== ========== FHLB-NY STOCK (1), (2) .................. $ 285,250 7.30% -- $ 285,250 $ 285,250 7.30% ========== ========== ========== MORTGAGE-BACKED AND OTHER SECURITIES AVAILABLE-FOR-SALE: GNMA pass-through certificates ........ $ 103,716 7.26% 19.54 $ 103,716 $ 104,264 7.26% FHLMC pass-through certificates ....... 172,048 7.33 21.46 187,768 189,368 7.21 FNMA pass-through certificates ........ 355,133 7.09 28.84 363,842 369,709 7.08 REMICs and CMOs: Agency issuance ................. 5,078,457 6.44 24.92 5,096,905 4,954,148 6.44 Non-agency issuance ............. 1,410,555 6.63 25.29 1,416,104 1,393,696 6.63 Obligations of the U.S. Government and agencies ............. 478,449 6.94 16.32 528,905 499,568 6.88 Corporate debt securities ............. 61,242 7.95 25.24 66,242 56,178 8.05 Asset-backed and other securities ..... 1,405 7.74 12.89 2,406 2,402 4.52 Equity securities (1), (3) ............ 147,615 5.46 -- 147,615 133,889 5.46 ---------- ---------- ---------- Total securities available-for-sale: $7,808,620 6.56% 23.97 $7,913,503 $7,703,222 6.56% ========== ========== ========== MORTGAGE-BACKED AND OTHER SECURITIES HELD-TO-MATURITY: GNMA pass-through certificates ........ 1,688 9.85% 12.47 $ 3,302 $ 3,500 9.27% FHLMC pass-through certificates ....... 23,135 8.21 13.16 34,955 35,693 8.16 FNMA pass-through certificates ........ 9,858 6.13 11.91 11,490 11,410 6.31 REMICs and CMOs: Agency issuance ................. 434,102 7.13 19.16 517,626 519,550 6.99 Non-agency issuance ............. 261,060 7.14 24.46 296,156 296,785 7.06 Obligations of the U.S. Government and agencies ............ 789,660 7.40 14.15 804,659 786,496 7.37 Obligations of states and political subdivisions ............. 42,113 6.69 16.75 44,003 43,983 6.57 ---------- ---------- ---------- Total securities held-to-maturity: ....... $1,561,616 7.27% 17.48 $1,712,191 $1,697,417 7.19% ========== ========== ==========
(1) As equity securities have no maturities, they are classified in the more than ten years category. (2) The carrying amount of FHLB-NY stock equals cost. (3) Equity securities include FNMA and FHLMC preferred stock which had a book value of $147.5 million and a market value of $133.8 million at December 31, 2000. 22 25 LOAN PORTFOLIO LOAN PORTFOLIO COMPOSITION The following table sets forth the composition of our loans receivable and loans held-for-sale portfolios in dollar amounts and in percentages of the portfolio at the dates indicated.
AT DECEMBER 31, ------------------------------------------------------------------------------ 2000 1999 1998 ----------------------- ----------------------- ---------------------- PERCENT PERCENT PERCENT OF OF OF (Dollars in Thousands) AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL - ---------------------- ------ ----- ------ ----- ------ ----- MORTGAGE LOANS (GROSS) (1): One-to-four family .................. $ 9,863,935 86.79% $ 9,018,270 88.05% $ 7,857,964 87.37% Multi-family ........................ 801,917 7.05 615,438 6.01 452,854 5.03 Commercial real estate .............. 514,810 4.53 433,035 4.23 453,973 5.05 ------------ ------ ------------ ------ ----------- ------ Total mortgage loans .................... 11,180,662 98.37 10,066,743 98.29 8,764,791 97.45 ------------ ------ ------------ ------ ----------- ------ CONSUMER AND OTHER LOANS (GROSS): Home equity ......................... 133,748 1.18 116,726 1.14 142,437 1.58 Passbook ............................ 8,710 0.08 7,481 0.07 6,653 0.07 Home Improvement .................... 2,437 0.02 3,787 0.04 5,992 0.07 Student (2) ......................... 2,154 0.02 2,780 0.03 4,118 0.05 Line of Credit, Overdraft ........... 20,603 0.18 23,186 0.23 24,846 0.28 Other (3) ........................... 8,236 0.07 16,413 0.16 39,758 0.44 Commercial .......................... 8,822 0.08 4,531 0.04 5,573 0.06 ------------ ------ ------------ ------ ----------- ------ Total consumer and other loans .......... 184,710 1.63 174,904 1.71 229,377 2.55 ------------ ------ ------------ ------ ----------- ------ Total loans ............................. 11,365,372 100.00% 10,241,647 100.00% 8,994,168 100.00% ------------ ====== ------------ ====== ----------- ====== Unamortized premiums, discounts and deferred loan costs and fees 72,622 58,803 32,463 Allowance for loan losses ........... (79,931) (76,578) (74,403) ------------ ------------ ----------- Total loans, net ........................ $ 11,358,063 $ 10,223,872 $ 8,952,228 ============ ============ ===========
AT DECEMBER 31, ------------------------------------------------- 1997 1996 ---------------------- ---------------------- PERCENT PERCENT OF OF (Dollars in Thousands) AMOUNT TOTAL AMOUNT TOTAL - ---------------------- ----------- ------ ----------- ------ MORTGAGE LOANS (GROSS) (1): One-to-four family .................. $ 6,904,114 86.37% $ 5,107,371 88.32% Multi-family ........................ 377,292 4.72 201,719 3.49 Commercial real estate .............. 456,194 5.70 245,584 4.24 ----------- ------ ----------- ------ Total mortgage loans .................... 7,737,600 96.79 5,554,674 96.05 ----------- ------ ----------- ------ CONSUMER AND OTHER LOANS (GROSS): Home equity ......................... 130,665 1.63 105,475 1.82 Passbook ............................ 7,207 0.09 6,497 0.11 Home Improvement .................... 8,283 0.11 10,133 0.18 Student (2) ......................... 13,212 0.17 9,904 0.17 Line of Credit, Overdraft ........... 37,057 0.46 40,734 0.70 Other (3) ........................... 51,800 0.65 45,764 0.80 Commercial .......................... 8,136 0.10 9,826 0.17 ----------- ------ ----------- ------ Total consumer and other loans .......... 256,360 3.21 228,333 3.95 ----------- ------ ----------- ------ Total loans ............................. 7,993,960 100.00% 5,783,007 100.00% ----------- ====== ----------- ====== Unamortized premiums, discounts and deferred loan costs and fees 26,638 1,127 Allowance for loan losses ........... (73,920) (48,001) ----------- ----------- Total loans, net ......................... $ 7,946,678 $ 5,736,133 =========== ===========
(1) These amounts include $13.5 million, $11.4 million, $212.9 million, $163.7 million, and $58.5 million of mortgage loans classified as held-for-sale at December 31, 2000, 1999, 1998, 1997, and 1996, respectively. (2) Includes $252,000 and $108,000 of student loans classified as held-for-sale at December 31, 1997 and 1996, respectively. (3) Includes automobile, personal unsecured and credit card loans. 23 26 LOAN MATURITY, REPRICING AND ACTIVITY The following table shows the maturity of our loans receivable at December 31, 2000. The table does not include loans held-for-sale, which totaled $13.5 million at December 31, 2000, and the effect of prepayments or scheduled principal amortization.
AT DECEMBER 31, 2000 -------------------------------------------------------------------------------------- ONE-TO CONSUMER -FOUR MULTI- COMMERCIAL AND TOTAL LOANS (In Thousands) FAMILY FAMILY REAL ESTATE OTHER RECEIVABLE ------ ------ ----------- ----- ---------- Amounts due: Within one year ................ $ 6,055 $ 4,577 $ 37,577 $ 25,153 $ 73,362 After one year: One to three years ........... 39,110 19,450 68,099 22,699 149,358 Three to five years .......... 36,530 11,131 34,169 7,966 89,796 Five to ten years ............ 409,371 249,771 188,430 14,372 861,944 Ten to twenty years .......... 2,143,762 481,324 184,359 40,543 2,849,988 Over twenty years ............ 7,215,562 35,664 2,176 73,977 7,327,379 ---------- -------- -------- -------- ------------ Total due after one year ....... 9,844,335 797,340 477,233 159,557 11,278,465 ---------- -------- -------- -------- ------------ Total amounts due ................. $9,850,390 $801,917 $514,810 $184,710 $ 11,351,827 ========== ======== ======== ======== ============ Unearned premiums (discounts) and deferred costs (fees), net 72,622 Allowance for loan losses ...... (79,931) ------------ Loans receivable, net ............. $ 11,344,518 ============
The following table sets forth at December 31, 2000, the dollar amount of all loans receivable due after December 31, 2001, and whether such loans have fixed interest rates or adjustable interest rates.
DUE AFTER DECEMBER 31, 2001 ------------------------------------------------------- (In Thousands) FIXED ADJUSTABLE TOTAL ------------------------------------------------------- Mortgage loans: One-to-four family ... $2,384,581 $7,459,754 $ 9,844,335 Multi-family ......... 245,695 551,645 797,340 Commercial real estate 153,334 323,899 477,233 Consumer and other loans 40,579 118,978 159,557 ---------- ---------- ----------- Total loans receivable .. $2,824,189 $8,454,276 $11,278,465 ========== ========== ===========
24 27 The following table sets forth our loan originations, purchases, sales and principal repayments for the periods indicated:
YEAR ENDED DECEMBER 31, ------------------------------------------------------------- (In Thousands) 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------- MORTGAGE LOANS (GROSS): At beginning of year ..................... $ 10,066,743 $ 8,764,791 $ 7,737,600 Mortgage loans originated: One-to-four family .................. 1,533,299 2,986,529 4,747,609 Multi-family ........................ 204,948 231,740 158,849 Commercial real estate .............. 152,982 120,636 92,666 ------------ ------------ ----------- Total mortgage loans originated ....... 1,891,229 3,338,905 4,999,124 ------------ ------------ ----------- Purchases of mortgage loans: Third party loan origination program (1) ....................... 836,782 417,641 187,519 Sales of mortgage loans ............... (125,086) (490,687) (1,428,646) Transfer of loans to REO .............. (8,146) (10,580) (14,350) Principal repayments .................. (1,480,354) (1,951,994) (2,349,832) Loans charged off ..................... (506) (1,333) (8,148) Securitized loans ..................... -- -- (387,071) Adjustment to conform fiscal year of Long Island Bancorp, Inc. to Astoria Financial Corporation .............. -- -- 28,595 ------------ ------------ ----------- At end of year (2) ....................... $ 11,180,662 $ 10,066,743 $ 8,764,791 ============ ============ =========== CONSUMER AND OTHER LOANS (GROSS): At beginning of year ..................... $ 174,904 $ 229,377 $ 256,360 Consumer and other loans originated ... 118,286 72,938 114,433 Purchases ............................. -- -- 6,008 Sales of consumer and other loans ..... (5,261) (7,357) (17,618) Transfer of loans to REO .............. -- -- (67) Principal repayments .................. (101,541) (115,756) (131,707) Loans charged off ..................... (1,678) (4,298) (3,809) Adjustment to conform fiscal year of Long Island Bancorp, Inc. to Astoria Financial Corporation .............. -- -- 5,777 ------------ ------------ ----------- At end of year ........................... $ 184,710 $ 174,904 $ 229,377 ============ ============ ===========
(1) Third party loan originations for the years ended December 31, 2000, 1999 and 1998 were predominantly secured by one-to-four family properties. (2) Includes $13.5 million, $11.4 million, and $212.9 million in real estate loans classified as held-for-sale at December 31, 2000, 1999 and 1998, respectively. 25 28 DELINQUENT LOANS AND CLASSIFIED ASSETS - -------------------------------------- Information regarding delinquent loans and non-performing assets appears under Item 7, "MD&A - Asset Quality." The following table sets forth at December 31, 2000, our carrying value of the assets, exclusive of general valuation allowances, classified as special mention, substandard or doubtful:
SPECIAL MENTION SUBSTANDARD DOUBTFUL ------------------------------------------------------------------- (Dollars in Thousands) NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT - -------------------------------------------------------------------------------------------------------------- LOANS: One-to-four family ............ 1 $ 147 279 $35,531 6 $333 Multi-family .................. 3 359 13 3,444 -- -- Commercial real estate ........ 8 10,240 15 12,439 -- -- Consumer and other loans ...... -- -- 99 903 -- -- ------ ------- ------- ------- ------ ------ Total ............................. 12 $10,746 406 $52,317 6 $333 ------ ------- ------- ------- ------ ------ REAL ESTATE OWNED: One-to-four family ............ -- -- 25 3,801 -- -- ------ ------- ------- ------- ------ ------ Total ............................. 12 $10,746 431 $56,118 6 $333 ====== ======= ======= ======= ====== ======
Note: There were no assets classified as loss at December 31, 2000. DEPOSITS - -------- The following table presents our deposit activity for the years indicated:
YEAR ENDED DECEMBER 31, ---------------------------------------------------- (Dollars in Thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------- Opening balance .......................... $ 9,554,534 $ 9,668,286 $ 9,951,421 Net deposits (withdrawals) ............... 107,052 (320,467) (694,666) Interest credited ........................ 410,101 363,156 399,602 Sale of upstate New York banking offices ....................... -- (156,441) -- Adjustment to conform fiscal year of Long Island Bancorp, Inc. to Astoria Financial Corporation ..... -- -- 11,929 ----------- ----------- ----------- Ending balance ....................... $10,071,687 $ 9,554,534 $ 9,668,286 =========== =========== =========== Net increase (decrease) .............. $ 517,153 $ (113,752) $ (283,135) =========== =========== =========== Percentage increase (decrease) ....... 5.41% (1.18)% (2.85)%
The following table sets forth the maturity periods of our certificate of deposit accounts in amounts of $100,000 or more at December 31, 2000.
AMOUNT (In Thousands) MATURITY PERIOD Three months or less ......... $168,117 Over three through six months 141,679 Over six through twelve months 141,093 Over twelve months ........... 292,459 -------- Total ........................ $743,348 ========
26 29 The following table sets forth the distribution of our average deposit balances for the periods indicated and the weighted average nominal interest rates on each category of deposit presented.
Year Ended December 31, - ----------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- WEIGHTED WEIGHTED WEIGHTED PERCENT AVERAGE PERCENT AVERAGE PERCENT AVERAGE AVERAGE OF TOTAL NOMINAL AVERAGE OF TOTAL NOMINAL AVERAGE OF TOTAL NOMINAL (Dollars in Thousands) BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE - ----------------------------------------------------------------------------------------------------------------------------------- Savings .................... $2,529,448 25.88% 2.00% $2,697,726 28.19% 2.00% $2,889,510 29.45% 2.47% Money market ............... 1,337,754 13.68 5.19 1,038,765 10.86 4.27 729,106 7.43 4.31 NOW and money manager ...... 548,022 5.61 1.00 516,010 5.39 1.00 497,433 5.07 1.26 Non-interest bearing ....... 391,693 4.01 -- 372,359 3.89 -- 399,568 4.07 -- --------- ----- --------- ----- --------- ----- Total ...................... 4,806,917 49.18 2.61 4,624,860 48.33 2.24 4,515,617 46.02 2.42 ========= ===== ========= ===== ========= ===== Certificates of Deposit (1): Within one year .......... 1,788,655 18.30 5.08 2,030,613 21.22 4.50 2,096,650 21.37 4.52 One to three years ....... 1,616,331 16.53 5.45 1,624,501 16.98 5.24 1,922,096 19.58 5.65 Three to five years ...... 1,340,468 13.71 6.13 1,108,682 11.59 6.04 1,085,050 11.06 6.14 Five or more years ....... 71,504 0.73 6.62 64,692 0.68 5.87 71,595 0.73 6.20 Jumbo .................... 151,193 1.55 5.56 115,184 1.20 4.49 121,918 1.24 4.85 --------- ----- --------- ----- --------- ----- Total ...................... 4,968,151 50.82 5.52 4,943,672 51.67 5.10 5,297,309 53.98 5.40 --------- ----- --------- ----- --------- ----- Total deposits ............. $9,775,068 100.00% $9,568,532 100.00% $9,812,926 100.00% ========= ===== ========= ===== ========= =====
(1) Terms indicated are original, not term remaining to maturity. The following table presents, by rate categories, the remaining periods to maturity of the certificate of deposit accounts outstanding at December 31, 2000 and the balances of our certificates of deposit outstanding at December 31, 2000, 1999 and 1998:
PERIOD TO MATURITY FROM DECEMBER 31, 2000 AT DECEMBER 31, --------------------------------------------------- ------------------------------------------- WITHIN ONE TO TWO TWO TO THREE OVER THREE (In Thousands) ONE YEAR YEARS YEARS YEARS 2000 1999 1998 - -------------------------------------------------------------------------------------- -------------------------------------------- CERTIFICATES OF DEPOSIT: 3.99% or less............... $150,043 $ -- $-- $-- $150,043 $287,739 $267,768 4.00% to 4.99%.............. 115,665 2,080 9,677 -- 127,422 1,057,652 1,480,241 5.00% to 5.99%.............. 2,377,436 83,428 47,672 80,857 2,589,393 2,526,491 2,226,385 6.00% to 6.99%.............. 411,982 930,866 178,505 613,279 2,134,632 954,287 963,553 7.00% and over.............. -- -- -- 148,245 148,245 103,474 104,805 ------- ------- ------- ------- --------- ------- ------- Total ........................ $3,055,126 $1,016,374 $235,854 $842,381 $5,149,735 $4,929,643 $5,042,752 ========== ========== ======== ======== ========== ========== ==========
27 30 BORROWINGS - ---------- The following table sets forth certain information regarding our borrowed funds at or for the years ended on the dates indicated:
AT OR FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------- (Dollars in Thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ FHLB-NY ADVANCES: Average balance ................................. $ 1,911,928 $ 1,265,968 $ 360,233 Maximum balance outstanding at any month end during the year ......................... 2,110,010 1,610,058 1,210,170 Balance outstanding at end of year ................ 1,910,000 1,610,058 1,210,170 Weighted average interest rate during the year .. 5.70% 5.00% 5.78% Weighted average interest rate at end of the year 5.79 5.25 4.94 REVERSE REPURCHASE AGREEMENTS: Average balance ................................. $ 8,280,005 $ 9,561,718 $5,767,274 Maximum balance outstanding at any month end during the year .......................... 8,986,800 10,026,800 7,491,800 Balance outstanding at end of year .............. 7,785,000 9,276,800 7,291,800 Weighted average interest rate during the year .. 5.41% 5.17% 5.50% Weighted average interest rate at end of the year 5.68 5.24 5.27 OTHER BORROWINGS: Average balance ................................. $ 509,556 $ 493,711 $ 514,945 Maximum balance outstanding at any month end during the year .......................... 514,224 514,663 566,697 Balance outstanding at end of year .............. 502,371 514,663 520,827 Weighted average interest rate during the year .. 6.93% 6.67% 6.66% Weighted average interest rate at end of the year 6.91 6.86 6.66 TOTAL BORROWINGS: Average balance ................................. $10,701,489 $11,321,397 $6,642,452 Maximum balance outstanding at any month end during the year ......................... 11,211,072 11,744,333 9,022,797 Balance outstanding at end of year .............. 10,197,371 11,401,521 9,022,797 Weighted average interest rate during the year .. 5.53% 5.22% 5.61% Weighted average interest rate at end of the year 5.76 5.31 5.31
ITEM 2. PROPERTIES At December 31, 2000, we operated 86 full-service banking offices, of which 50 were owned and 36 were leased. At December 31, 2000, we owned our principal executive office and the office for our mortgage operations, both located in Lake Success, New York. For further information regarding our obligations, see Note 12 of Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data." At December 31, 2000, we leased our previous mortgage operating facility in Mineola, New York which we no longer occupy. Approximately two-thirds of this facility was sublet at December 31, 2000. In addition, in the second quarter of 2000, we sold the former main operating headquarters of LIB located in Melville, New York. 28 31 ITEM 3. LEGAL PROCEEDINGS On March 24, 1994, our predecessor, LISB, received notice that it had been named as a defendant in a class action lawsuit filed in the United States District Court for the Eastern District of New York. Other Defendants included James J. Conway, Jr., former Chairman and Chief Executive Officer of LISB who resigned from LISB in June 1992, his former law firm, certain predecessor firms of that law firm and certain partners of that law firm. The lawsuit is entitled Ronnie Weil also known as Ronnie Moore, for Herself and on Behalf of All Other Persons Who Obtained Mortgage Loans from The Long Island Savings Bank, FSB during the period January 1, 1983 through December 31, 1992 vs. The Long Island Savings Bank, FSB, et al., or the Weil Litigation. The complaint alleged that the Defendants caused mortgage loan commitments to be issued to mortgage loan borrowers, submitted legal invoices to the borrowers at the closing of mortgage loans which falsely represented the true legal fees charged for representing LISB in connection with the mortgage loans and failed to advise that a part of the listed legal fee would be paid to Mr. Conway, thereby defrauding the borrowers. The complaint did not specify the amount of damages sought. On or about June 9, 1994, LISB was served with an Amended Summons and Amended Complaint adding LISB's directors as individual Defendants. On or about July 29, 1994, LISB and the individual director Defendants served on Plaintiffs a motion to dismiss the Amended Complaint. On or about August 29, 1994, the Plaintiffs served papers in response to the motion. The remaining schedule on the motion was held in abeyance pending certain discovery. On January 4, 1999, we were served with a second amended complaint alleging essentially the same claims and adding as additional Defendants, us, as successor to LISB, and certain members of James J. Conway, Jr.'s family. The second amended complaint seeks damages of at least $11.0 million trebled. On or about February 22, 1999, we, on behalf of ourselves and LISB, and the individual directors of LISB filed motions to dismiss the second amended complaint. On or about November 15, 1999, the Court denied our motion to dismiss the second amended complaint as to ourselves, LISB and the individual directors of LISB. On or about May 24, 2000, Plaintiffs submitted a motion seeking to have the Court certify a class consisting of all persons who obtained mortgage loans from LISB during the period January 1, 1983 through December 31, 1992 and paid LISB's attorneys' fees in connection with such mortgages, and for such other relief as the Court deemed just and proper. By response dated July 10, 2000, Astoria Federal submitted its opposition to such motion on the basis that Plaintiffs failed to meet the requirements for class certification and that one of Plaintiffs' counsel is inadequate to serve as class counsel. Fact discovery has been concluded in this matter and expert discovery is now underway. We believe that the likelihood is remote that this case will have a material adverse impact on our consolidated financial condition and results of operations. On July 18, 1997, a purported class action, or the Federal Action, was commenced in the United States District Court for the Eastern District of New York entitled Leonard Minzer, et ano. v. Gerard C. Keegan, et al. against The Greater, The Greater's directors and certain of its executive officers, and us. The suit alleges, among other things, that The Greater, The Greater's directors and certain of its executive officers solicited proxies in violation of Section 14(a) of the Securities Exchange Act of 1934 and Rule 14a-9, promulgated thereunder, by failing to disclose certain allegedly material facts in the proxy statement, as amended, that was circulated to The Greater stockholders in connection with our acquisition of The Greater, or The Greater Acquisition, and that The Greater's directors and certain of its executive officers breached their fiduciary duties by entering into The Greater Acquisition and related arrangements. The suit further alleged, without specification, that we participated in the preparation and distribution of The Greater's proxy materials and/or aided and abetted the alleged breaches of fiduciary duty by The Greater 29 32 Defendants. Plaintiffs sought, among other things, a preliminary and permanent injunction against consummation of The Greater Acquisition and the related transactions, an order directing that the directors and executive officers of The Greater carry-out their fiduciary duties, and unspecified damages and costs. On September 2, 1997, Plaintiffs filed an amended complaint and, on June 1, 1998, the Court granted Defendants' motion to dismiss the amended complaint without prejudice. In July 1998, the Plaintiffs filed a second amended complaint, which the Court, on January 25, 1999, dismissed in all respects. On or about February 18, 1999, Plaintiffs filed a Notice of Appeal to the United States Court of Appeals for the Second Circuit. On July 10, 2000, the United States Court of Appeals for the Second Circuit affirmed the District Court's dismissal. The United States Court of Appeals for the Second Circuit issued a revised opinion on August 24, 2000, which again affirmed the District Court's dismissal of the action, and, on September 26, 2000, denied Plaintiffs' motion for rehearing and request for hearing en banc. On December 22, 2000, Plaintiffs filed a petition for writ of certiorari with the United States Supreme Court asking the Supreme Court to consider overturning the Court of Appeals' affirmance. The petition was fully briefed February 5, 2001 and, on February 26, 2001, the petition was denied. On August 15, 1989, LISB, and its former wholly owned subsidiary, The Long Island Savings Bank of Centereach, FSB, or Centereach, filed suit against the United States seeking damages and/or other appropriate relief on the grounds, among others, that the Government had breached the terms of the 1983 assistance agreement between LISB and the Federal Savings and Loan Insurance Corporation pursuant to which LISB acquired Centereach, or the Assistance Agreement. The Assistance Agreement, among other things, provided for the inclusion of supervisory goodwill as an asset on Centereach's balance sheet to be included in capital and amortized over 40 years for regulatory purposes. The suit is pending in the United States Court of Federal Claims and is entitled The Long Island Savings Bank, FSB, et al. vs. The United States, or the LISB Goodwill Litigation. Similarly, on July 21, 1995, we commenced an action, Astoria Federal Savings and Loan Association vs. United States, or the Astoria Goodwill Litigation, in the United States Court of Federal Claims against the United States seeking in excess of $250.0 million in damages arising from the Government's breach of an assistance agreement entered into by our predecessor in interest, Fidelity, in connection with its acquisition in October 1984 of Suburbia Federal Savings and Loan Association, and the Government's subsequent enactment and implementation of the Financial Institutions Reform, Recovery and Enforcement Act, or FIRREA, in 1989. In addition to its breach of contract claim, Astoria Federal's complaint also asserts claims based on promissory estoppel, failure of consideration and frustration of purpose, and a taking of Astoria Federal's property without just compensation in violation of the Fifth Amendment to the United States Constitution. Initially, both the LISB Goodwill Litigation and the Astoria Goodwill Litigation were stayed pending disposition by the United States Supreme Court of three related supervisory goodwill cases, or the Winstar Cases. On July 1, 1996, the Supreme Court ruled in the Winstar Cases that the Government had breached its contracts in the Winstar Cases and was liable in damages for those breaches. On September 18, 1996, then Chief Judge Loren Smith issued an Omnibus Case Management Order, or Case Management Order, applicable to all Winstar-related cases. The Case Management Order addresses certain timing and procedural matters with respect to the administration of the Winstar-related cases, including organization of the parties, initial discovery, initial determinations regarding liability, and the resolution of certain common issues. The Case Management Order provides that the parties will attempt to agree upon a Master Litigation Plan, which may be in phases, to govern all further proceedings, including the resolution of common issues (other than common issues covered by the Case Management Order), dispositive motions, trials, discovery schedules, protocols for depositions, document production, expert witnesses, and other matters. 30 33 On November 1, 1996, LISB filed a motion for partial summary judgment against the Government on the issues of whether LISB had a contract with the Government and whether the enactment of FIRREA was contrary to the terms of such contract. The Government contested such motion and cross-moved for summary judgment seeking to dismiss LISB's contract claims. On November 6, 1996, we also moved for partial summary judgment against the Government on the issues of whether Fidelity had a contract with the Government and whether the enactment of FIRREA was contrary to the terms of such contract. The Government contested such motion and cross-moved for summary judgment seeking to dismiss our contract claims in that case as well. On August 7 and 8, 1997, the United States Court of Federal Claims heard oral arguments on eleven common issues raised by the Government in the various partial summary judgment motions filed by the Plaintiffs in the goodwill cases. The Court heard argument on these common issues in the context of four specific summary judgment motions, not including the LISB Goodwill Litigation or the Astoria Goodwill Litigation. In an opinion filed December 22, 1997, all such common issues were found in favor of the Plaintiffs and the Government was ordered to show cause within sixty days why partial summary judgment should not be entered in all cases which have partial summary judgment motions pending, including the LISB Goodwill Litigation and the Astoria Goodwill Litigation. The Government responded in the LISB Goodwill Litigation that if the Court will not consider case specific facts, then it has no defense to LISB's motion for partial summary judgment. The Government further indicated that if the Court will consider case specific facts, then it asserts among other things that there are factual issues in dispute concerning the Assistance Agreement regarding Centereach which render the granting of partial summary judgment inappropriate. The Government has responded in the Astoria Goodwill Litigation that if the Court will not consider case specific facts, then it has no defense to Astoria Federal's motion for partial summary judgment. The Government further indicated that if the Court will consider case specific facts, then it asserts that the relevant portion of the Assistance Agreement with Fidelity did not authorize the use of its capital credit as a permanent addition to regulatory capital. In this response, the Government did not raise any issues related to the supervisory goodwill portion of Astoria Federal's motion. Astoria Federal has responded to the Government's response indicating in substance that the issue raised by the Government was specifically addressed and decided by the United States Supreme Court in the Winstar Cases, that the contractual language in the Fidelity's Assistance Agreement and other operative documents is factually indistinguishable from that ruled upon in the Winstar Cases, and thus, that Astoria Federal's motion for partial summary judgment should be granted. Astoria Federal's response further requests reimbursement of Astoria Federal's attorneys' fees from the Government for seeking to relitigate the capital credit issue. Astoria Federal's motion for partial summary judgment remains pending before the Court. On September 14, 1999, the Government moved to dismiss Counts II through V of the complaint in the LISB Goodwill Litigation. These Counts are based on breach of implied contract, promissory estoppel, failure of consideration and frustration of purpose, and takings under the Fifth Amendment of the United States Constitution. The Defendants also sought to supplement their cross motion for summary judgment. On September 20, 2000, Judge Smith indicated that in order to get the most advanced of the Winstar cases to trial judges for prompt rulings on liability and on to the consideration of damages, he intended to distribute all of the "first-thirty' cases, including the LISB Goodwill Litigation, to other judges of the Court of Federal Claims. Judge Smith reaffirmed that decision by order dated November 2, 2000. He subsequently ordered the LISB Goodwill Litigation transferred to Senior Judge Lawrence S. Margolis. Judge Margolis presided over the trial in the Winstar case entitled Bobby J. Glass , et al. and the Federal Deposit Insurance Corp. vs. The United States, Index No. 92-428C. Judge Margolis has ordered that oral arguments be held with respect to our pending motion for partial summary judgment and the Government's cross motions on April 10, 2001. 31 34 Although the Court has not yet ruled on the parties' motions, the Government on February 8, 2001 served its answer to our complaint in the LISB Goodwill Litigation. The Government in its answer in substance denies our claims based upon breach of contract, breach of implied-in-fact contract, promissory estoppel, failure of consideration and frustration of purpose and based upon a Fifth Amendment Taking. The Government asserts a number of affirmative defenses based upon fraud in the inducement, fraud in performing the contract, that the contract is unenforceable due to a "conflict-of-interest taint," common law fraud, unclean hands, forfeiture, estoppel, failure to satisfy material conditions precedent, prior material breach, lack of causation, lack of standing, unjust enrichment, illegality, failure to mitigate, assumption of risk, recoupment, and the "claims are barred as there was no agreement, in unmistakable terms, to relax regulatory requirements." In addition, the Government asserted in its answer two counterclaims: that our claim should be forfeited pursuant to 28 U.S.C. Section 2514 and that because the Government alleges that the Assistance Agreement with the Government are void or voidable the Government should be entitled to restitution of $122.2 million in the aggregate. The Government bases its counterclaims on the same factual allegations contained in the Weil Litigation. On October 10, 2000, the Government moved to dismiss various portions of our complaint in the Fidelity Goodwill Litigation, specifically those relating to promissory estoppel, failure of consideration and frustration of purpose and the Fifth Amendment Taking. The Government in such motion has also requested dismissal of our motion for partial summary judgment referenced above alleging that we bore the risk of any regulatory changes with respect to the capital credits and that we are not entitled to interest. We have contested such motion. Discovery with respect to our complaint in the LISB Goodwill Litigation is now complete. The Astoria Goodwill Litigation has been designated as one of the "second-thirty cases." As a result, discovery in such case commenced on August 23, 1999. Fact witness discovery has been concluded. Judge Smith has stayed expert discovery until 30 days following the filing of a decision in the appeal before the United States Court of Appeals for the Federal Circuit of the decision rendered in the Court of Federal Claims in the case of California Federal Bank v. United States of America, Case No. 92-138C. The United States Court of Appeals for the Federal Circuit on February 16, 2001 rendered a decision in the case of Glendale Federal Bank, FSB v. The United States, Case No. 99-5103, 99-5113. The Court vacated in part the damage award rendered by Judge Smith following the trial of such case and remanded the case for further proceedings. Based upon our review of these decisions and other decisions rendered in the Winstar related cases, we are unable to predict with any degree of certainty the outcome of our claims against the United States and the amount of damages that may be awarded in connection with either the LISB Goodwill Litigation or the Astoria Goodwill Litigation, if any. No assurance can be given as to the results of these claims or the timing of any proceedings in relation thereto. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted during the quarter ended December 31, 2000 to a vote of our security holders through the solicitation of proxies or otherwise. 32 35 PART II ITEM 5. MARKET FOR ASTORIA FINANCIAL CORPORATION'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock trades on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol "ASFC." The table below shows the reported high and low closing price of our common stock during the periods indicated in 2000 and 1999.
2000 1999 -------------------------------------------------------- HIGH LOW HIGH LOW - ------------------------------------------------------------------------------- First Quarter $29.81 $22.13 $50.50 $44.00 Second Quarter 30.75 25.00 51.06 41.25 Third Quarter 39.06 26.38 42.44 28.94 Fourth Quarter 54.44 32.56 38.19 28.50
As of March 14, 2001, we had 4,211 shareholders of record. As of December 31, 2000, there were 49,643,554 shares of common stock outstanding. The following schedule summarizes the cash dividends paid per common share for 2000 and 1999:
2000 1999 - -------------------------------------------------------------------------------- First Quarter $ 0.24 $ 0.24 Second Quarter 0.26 0.24 Third Quarter 0.26 0.24 Fourth Quarter 0.26 0.24
On January 24, 2001, our Board of Directors declared a quarterly cash dividend of $0.26 per common share, payable on March 1, 2001, to common stockholders of record at the close of business on February 15, 2001. Our Board of Directors intends to review the payment of dividends quarterly and plans to continue to maintain a regular quarterly dividend in the future, dependent upon our earnings, financial condition and other factors. We are subject to the laws of the State of Delaware which generally limit dividends to an amount equal to the excess of our net assets (the amount by which total assets exceed total liabilities) over our statutory capital, or if there is no such excess, to our net profits for the current and/or immediately preceding fiscal year. Our payment of dividends is dependent, in large part, upon receipt of dividends from Astoria Federal. Astoria Federal is subject to certain restrictions which may limit its ability to pay us dividends. See Item 1, "Business - Regulation and Supervision" and Note 10 of Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data" for an explanation of the impact of the liquidation accounts and regulatory capital requirements on Astoria Federal's ability to pay dividends. See Item 1, "Business - Federal Taxation" and Note 13 of Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data" for an explanation of the tax impact of (1) distributions in excess of current and accumulated earnings and profits, as calculated for federal income tax purposes; (2) distributions in redemption of stock; and (3) distributions in partial or complete liquidation. 33 36 ITEM 6. SELECTED FINANCIAL DATA Set forth below are our selected consolidated financial and other data. This financial data is derived in part from, and should be read in conjunction with, our consolidated financial statements and related notes.
AT DECEMBER 31, ----------------------------------------------------------------------------------- (In Thousands) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ SELECTED FINANCIAL DATA: Total assets $22,336,802 $22,696,536 $20,587,741 $16,432,337 $12,586,694 Federal funds sold and repurchase agreements 171,525 335,653 266,437 110,550 89,480 Mortgage-backed and other securities available-for-sale 7,703,222 8,862,749 8,196,444 4,807,305 4,194,418 Mortgage-backed and other securities held-to-maturity 1,712,191 1,899,957 2,108,811 2,632,672 1,984,111 Loans held-for-sale 13,545 11,376 212,909 163,962 58,643 Loans receivable, net 11,344,518 10,212,496 8,739,319 7,782,716 5,677,490 Mortgage servicing rights, net 40,962 48,369 50,237 41,789 29,687 Deposits 10,071,687 9,554,534 9,668,286 9,951,421 8,146,103 Borrowed funds 10,197,371 11,401,521 9,022,797 4,774,237 3,089,537 Capital trust securities 125,000 125,000 - - - Stockholders' equity 1,513,163 1,196,912 1,462,384 1,445,799 1,107,923
FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------------------- (In Thousands, Except Per Share Data) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ SELECTED OPERATING DATA: Interest income $1,517,934 $1,495,279 $1,224,448 $978,155 $842,469 Interest expense 1,010,918 955,331 775,465 603,591 501,343 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income 507,016 539,948 448,983 374,564 341,126 Provision for loan losses 4,014 4,119 15,380 9,061 10,163 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 503,002 535,829 433,603 365,503 330,963 Non-interest income 69,246 86,696 62,263 62,686 51,917 Non-interest expense: General and administrative 181,692 195,266 232,888 212,570 208,177 Real estate operations and provision for losses, net (450) (186) (119) 3,072 (5,400) Goodwill litigation 8,580 6,417 1,665 1,101 370 Capital trust securities 12,435 2,169 - - - Amortization of goodwill 19,296 19,425 19,754 11,722 8,968 Acquisition costs and restructuring charges - - 124,168 - - SAIF recapitalization assessment - - - - 47,202 - ---------------------------------------------------------------------------------------------------------------------------------- Total non-interest expense 221,553 223,091 378,356 228,465 259,317 - ---------------------------------------------------------------------------------------------------------------------------------- Income before income tax expense and extraordinary item 350,695 399,434 117,510 199,724 123,563 Income tax expense 134,146 163,764 61,825 81,840 54,435 - ---------------------------------------------------------------------------------------------------------------------------------- Income before extraordinary item 216,549 235,670 55,685 117,884 69,128 Extraordinary item, net of tax - - (10,637) - - - ---------------------------------------------------------------------------------------------------------------------------------- Net income 216,549 235,670 45,048 117,884 69,128 Preferred dividends declared 6,000 6,000 6,000 1,500 - - ---------------------------------------------------------------------------------------------------------------------------------- Net income available to common shareholders $210,549 $229,670 $39,048 $116,384 $69,128 ================================================================================================================================== Basic earnings per common share $4.39 $4.47 $0.77 $2.51 $1.49 Diluted earnings per common share $4.32 $4.37 $0.74 $2.39 $1.44
34 37
AT OR FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------- 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ SELECTED FINANCIAL RATIOS AND OTHER DATA: Return on average assets 0.97 % 1.04 % 0.25 % 0.84 % 0.58 % Return on average stockholders' equity 16.70 17.31 3.02 9.83 6.27 Return on average tangible stockholders' equity 20.02 20.92 3.65 11.16 6.95 Average stockholders' equity to average assets 5.81 5.99 8.13 8.56 9.18 Average tangible stockholders' equity to average tangible assets 4.89 5.01 6.83 7.62 8.36 Stockholders' equity to total assets 6.77 5.27 7.10 8.80 8.80 Core deposits to total deposits (1) 48.87 48.41 47.84 43.40 41.89 Net interest rate spread 2.01 2.23 2.32 2.49 2.65 Net interest margin 2.32 2.46 2.58 2.78 2.96 Operating non-interest income to average assets (2) 0.29 0.29 0.28 0.34 0.37 General and administrative expense to average assets 0.81 0.86 1.27 1.52 1.73 Efficiency ratio (3) 31.75 32.21 46.56 50.27 54.01 Average interest-earning assets to average interest-bearing liabilities 1.07 x 1.05 x 1.06 x 1.07 x 1.07 x Book value per common share $ 29.47 $ 22.17 $ 25.84 $ 25.93 $ 22.24 Tangible book value per common share 25.35 17.84 21.34 21.04 20.13 Cash dividends paid per common share 1.02 0.96 0.80 0.56 0.43 Dividend payout ratio 23.61 % 21.97 % 108.11 % 23.43 % 29.86 % ASSET QUALITY RATIOS: Non-performing loans to total loans (4)(5) 0.32 0.52 1.23 1.12 1.50 Non-performing loans to total assets (4)(5) 0.16 0.24 0.54 0.55 0.69 Non-performing assets to total assets (5)(6) 0.18 0.26 0.58 0.70 0.87 Allowance for loan losses to non-performing loans 220.88 143.49 66.99 82.23 55.41 Allowance for loan losses to non-accrual loans 226.85 151.77 70.00 86.79 60.58 Allowance for loan losses to total loans 0.70 0.75 0.83 0.93 0.83 OTHER DATA: Number of deposit accounts 972,777 952,514 980,307 1,044,390 858,030 Mortgage loans serviced for others (in thousands) $ 3,929,483 $ 4,414,684 $4,944,176 $4,690,746 $3,791,920 Number of full service banking offices 86 87 96 96 82 Regional lending offices 1 1 12 22 25 Full time equivalent employees 1,862 1,914 1,987 2,664 2,347 OTHER NON-GAAP DISCLOSURES (7) Operating return on average assets 0.97 % 0.99 % 0.79 % 0.84 % 0.81 % Operating cash return on average assets (8) 1.09 1.13 1.05 1.09 1.04 Operating return on average stockholders' equity 16.77 16.48 9.76 9.83 8.76 Operating cash return on average stockholders' equity (8) 18.76 18.92 12.86 12.77 11.35 Operating return on average tangible stockholders' equity 20.10 19.91 11.78 11.16 9.71 Operating cash return on average tangible stockholders' equity (8) 22.48 22.86 15.53 14.49 12.57 Operating cash general and administrative expense to average assets (9) 0.76 0.82 1.17 1.38 1.59 Operating cash efficiency ratio (3)(9) 29.69 30.57 42.92 45.70 49.41
(1) Core deposits are comprised of savings, money market, NOW and money manager and demand deposit accounts. (2) Operating non-interest income represents total non-interest income less net gains on sales of securities, premises and equipment, and for 2000 and 1999, the net gain on sale and disposition of banking and loan production offices. Operating non-interest income totaled $65.3 million, $66.2 million, $51.2 million, $48.3 million and $44.3 million for 2000, 1999, 1998, 1997 and 1996, respectively. (3) Efficiency ratio represents general and administrative expense divided by the sum of net interest income plus operating non-interest income. (4) Non-performing loans consist of all non-accrual loans and all mortgage loans delinquent 90 days or more as to their maturity date but not their interest payments. (5) Non-performing loans and assets exclude loans which have been restructured and are accruing and performing in accordance with the restructured terms. Restructured accruing loans totaled $5.2 million, $6.7 million, $6.9 million, $9.1 million and $11.8 million at December 31, 2000, 1999, 1998, 1997, and 1996, respectively. (6) Non-performing assets consist of all non-performing loans, real estate owned and non-performing investments in real estate, net. (7) The information presented is not in conformity with GAAP. The following items have been excluded from the return calculations: For 2000, $2.5 million, after tax, for net gain on sale and disposition of banking and loan production offices and $3.4 million, after tax, for an executive severance payment. For 1999, $11.3 million, after tax, for net gain on sale and disposition of banking and loan production offices. For 1998, $100.3 million, after tax, for costs associated with the acquisition of LIB and other infrequently occurring charges. For 1996, $27.6 million, after tax, for a special assessment for the recapitalization of the SAIF. This information is being presented since we consider it a more accurate presentation of our operating results and related returns. (8) Excludes non-cash charge for amortization of goodwill and amortization relating to allocation of Employee Stock Ownership Plan, or ESOP, stock and earned portion of the Recognition and Retention Plan, or RRP, stock, and related tax benefit. (9) Excludes non-cash charge for amortization relating to allocation of ESOP stock and earned portion of RRP stock. 35 38 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and Notes to the Consolidated Financial Statements presented elsewhere in this report. GENERAL We are headquartered in Lake Success, New York and our principal business consists of the operation of our wholly-owned subsidiary, Astoria Federal. Astoria Federal's primary business is attracting retail deposits from the general public and investing those deposits, together with funds generated from operations, principal repayments on loans and securities, and borrowed funds, primarily in one-to-four family residential mortgage loans, mortgage-backed securities and, to a lesser extent, commercial real estate loans, multi-family mortgage loans and consumer and other loans. In addition, Astoria Federal invests in securities issued by the U.S. Government and federal agencies and other securities. Our results of operations are dependent primarily on our net interest income, which is the difference between the interest earned on our assets, primarily our loan and securities portfolios, and our cost of funds, which consists of the interest paid on our deposits and borrowings. Our net income is also affected by our provision for loan losses, non-interest income, general and administrative expense, other non-interest expense and income tax expense. General and administrative expense consists of compensation and benefits, occupancy, equipment and systems expense, federal deposit insurance premiums, advertising and other operating expenses. Other non-interest expense generally consists of real estate operations and provision for losses, net, goodwill litigation expense, capital trust securities expense and amortization of goodwill. Our earnings are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates and U.S. Treasury yield curves, government policies and actions of regulatory authorities. MERGERS AND ACQUISITIONS We continue to consider merger and acquisition activity as an integral part of our strategic objective for long-term growth. Since our incorporation in 1993, we have been successful in expanding our operations through three business combinations with other financial institutions, two of which were accounted for as purchases and the other as a pooling-of-interest. The combined effect of these business combinations resulted in an increase in assets of $10.79 billion, an increase in deposits of $6.24 billion and an increase in stockholders' equity of $857.7 million. Goodwill created in the two purchase accounting transactions totaled $281.5 million. The balance of goodwill related to these transactions was $204.2 million at December 31, 2000. LIQUIDITY AND CAPITAL RESOURCES Our primary source of funds is cash provided by principal and interest payments on loans and mortgage-backed and other securities. Principal payments on loans and mortgage-backed securities and proceeds from maturities of other securities totaled $3.40 billion for the year ended December 31, 2000 and $5.31 billion for the year ended December 31, 1999. The reduction in loan and security repayments was a result of the higher interest rate environment that has prevailed since the middle of 1999. Our other sources of funds are provided by operating and financing activities although for the year ended December 31, 2000 we decreased our borrowings outstanding which resulted in a net use of funds from financing activities during this period. Net cash provided from operating activities totaled $230.6 million during the year ended December 31, 2000 and $340.0 million during the year ended December 31, 1999. During the year ended December 31, 2000, net borrowings decreased $1.20 billion, while net deposits increased $517.1 million. During the year ended December 31, 1999, net borrowings increased $2.38 billion and net deposits increased $42.7 million, excluding the effect of the sale of our five upstate New York banking 36 39 offices with deposits totaling $156.4 million. The changes in borrowings and deposits during 2000 are consistent with our strategy of repositioning the balance sheet through a shift in our liability mix. The net increase in deposits for the year ended December 31, 2000 reflects our continued emphasis on attracting customer deposits by offering competitive rates. Our primary use of funds is for the origination and purchase of mortgage loans and the purchase of mortgage-backed and other securities, although for the past twenty-one months our emphasis has been on the origination and purchase of mortgage loans. During the year ended December 31, 2000, our gross originations and purchases of mortgage loans totaled $2.73 billion, compared to $3.76 billion during the year ended December 31, 1999. This decrease was attributable to the higher interest rate environment during the 2000 period which resulted in a significant decrease in mortgage refinance activity, and our disposition of certain loan production offices, or LPOs, in March 1999. Our purchases of other securities totaled $6.0 million during the year ended December 31, 2000 compared to purchases of mortgage-backed and other securities of $4.37 billion during the year ended December 31, 1999. There were no purchases of mortgage-backed securities during the year ended December 31, 2000, which is consistent with our objective to reposition our balance sheet through increases in loans and decreases in securities. See "Lending and Investing Activities" for further discussion. Stockholders' equity increased $316.2 million to $1.51 billion at December 31, 2000, from $1.20 billion at December 31, 1999. Increases to stockholders' equity included a $223.2 million decrease in the net unrealized loss on securities available-for-sale, net of taxes. Additional increases in stockholders' equity were the result of net income of $216.5 million, the effect of stock options exercised and related tax benefit of $10.5 million, and the amortization for the allocated portion of shares held by the ESOP and the related tax benefit on the earned portion of the shares held by the RRP of $5.4 million. These increases were partially offset by repurchases of our common stock of $84.6 million and dividends declared of $54.8 million. During 1999 and 2000 Astoria Federal was required by the OTS to maintain a minimum liquidity ratio, calculated as the average daily balance of liquid assets as a percentage of net withdrawable deposit accounts plus short-term borrowings, of 4.00%. Astoria Federal's liquidity ratio was 6.96% at December 31, 2000 and 6.28% at December 31, 1999. On December 27, 2000, Section 6 of the Home Owners' Loan Act was repealed and, therefore, Astoria Federal is no longer subject to this liquidity requirement. The levels of Astoria Federal's liquid assets are dependent on Astoria Federal's operating, investing and financing activities during any given period. In the normal course of business, we routinely enter into various commitments, primarily relating to the origination and purchase of loans, the purchase of securities and the leasing of certain office facilities. At December 31, 2000, total commitments outstanding to originate and purchase loans were $407.0 million. There were no outstanding commitments to purchase securities at December 31, 2000. Minimum rental payments due under non-cancelable operating leases for 2001 totaled $6.0 million at December 31, 2000. We anticipate that we will have sufficient funds available to meet our current commitments in the normal course of our business. During the year ended December 31, 2000, we completed our sixth stock repurchase plan. On August 16, 2000, our Board of Directors approved our seventh stock repurchase plan authorizing the purchase, at management's discretion, of 5,000,000 shares, or approximately 10% of our common stock then outstanding over a two year period in open-market or privately negotiated transactions. During the year ended December 31, 2000, 2,607,946 shares of our common stock were repurchased, of which 1,365,500 shares were acquired pursuant to our seventh stock repurchase plan, at an aggregate cost of $84.6 million. We declared cash dividends on our common stock totaling $48.8 million during the year ended December 31, 2000 and $49.2 million during the year ended December 31, 1999. On January 24, 2001, we declared a quarterly cash dividend of $0.26 per share on shares of our common stock payable on March 1, 2001 37 40 to stockholders of record as of the close of business on February 15, 2001. During each of the years ended December 31, 2000 and 1999, we declared cash dividends on our Series B Preferred Stock totaling $6.0 million. On October 28, 1999, our wholly-owned finance subsidiary, Astoria Capital Trust I, issued $125.0 million aggregate liquidation amount of 9.75% Capital Securities due November 1, 2029, Series A, referred to as the Series A Capital Securities. Effective April 26, 2000, $120.0 million aggregate liquidation amount of the Series A Capital Securities were exchanged for a like amount of 9.75% Capital Securities due November 1, 2029, Series B, also issued by Astoria Capital Trust I, referred to as the Series B Capital Securities. The Series A Capital Securities and Series B Capital Securities have substantially identical terms except that the Series B Capital Securities have been registered with the Securities and Exchange Commission. Together they are referred to as the Capital Securities. We have fully and unconditionally guaranteed the Capital Securities along with all obligations of Astoria Capital Trust I under the trust agreement. The Capital Securities are rated "BBB" by Fitch Inc., "BB" by Standard & Poor's Credit Rating Company and "ba2" by Moody's Investor Service. Astoria Capital Trust I was formed for the exclusive purpose of issuing the Capital Securities and common securities and using the proceeds to acquire an aggregate principal amount of $128.9 million of our 9.75% Junior Subordinated Debentures due November 1, 2029, referred to as the Junior Subordinated Debentures. The sole assets of Astoria Capital Trust I are the Junior Subordinated Debentures. The Junior Subordinated Debentures are prepayable, in whole or in part, at our option on or after November 1, 2009 at declining premiums to maturity. Proceeds from the issuance of the Junior Subordinated Debentures totaling $31.3 million were used to increase the capital level of Astoria Federal and the remaining proceeds were used primarily for the repurchase of our common stock. In 1996, we adopted a Stockholder Rights Plan, or the Rights Plan, and declared a dividend of one preferred share purchase right, or Right, for each outstanding share of our common stock. Each Right entitles stockholders to buy a one one-hundredth interest in a share of a new series of our preferred stock, at an exercise price of $100.00 upon the occurrence of certain events described in the Rights Plan. We reserved 325,000 shares of our Series A Preferred Stock for the Rights Plan. At the time of the conversion from mutual to stock form of ownership, Astoria Federal was required to establish a liquidation account in an amount equal to its capital as of June 30, 1993. As part of its acquisitions of LIB, The Greater and Fidelity, Astoria Federal established similar liquidation accounts equal to the remaining liquidation account balances previously maintained by those entities as a result of their conversions from mutual to stock form of ownership. These liquidation accounts will be reduced to the extent that eligible account holders reduce their qualifying deposits. In the unlikely event of a complete liquidation of Astoria Federal, each eligible account holder will be entitled to receive a distribution from the liquidation accounts. Astoria Federal is not permitted to declare or pay dividends on its capital stock or repurchase any of its outstanding stock if it would cause stockholders' equity to be reduced below the amounts required for the liquidation accounts or applicable regulatory capital requirements. At December 31, 2000, Astoria Federal exceeded all of its regulatory capital requirements with tangible and leverage capital ratios of 6.74% and a risk-based capital ratio of 16.12%. The minimum regulatory requirements were 1.50% tangible capital ratio, 4.00% leverage capital ratio and 8.00% risk-based capital ratio. LENDING AND INVESTING ACTIVITIES Our primary lending and investing activities include the origination of mortgage, consumer and other loans and the purchase of mortgage loans, mortgage-backed securities and other securities. Our lending and investing activities throughout 2000 were reflective of our objective to reposition our balance sheet by focusing our fund deployment on the origination and purchase of one-to-four family mortgage loans. Generally, we sell our one-to-four family fifteen-year and thirty-year fixed-rate mortgage loan 38 41 production, but retain for portfolio our ARM and other fixed-rate loan production. Additionally, we originate for portfolio fixed- and adjustable-rate multi-family and commercial mortgage loans. We are continuing to shift our asset mix towards growth in mortgage loans, primarily ARM loans, versus growth in securities. During the past twenty-one months, the opportunity for asset growth with attractive interest rate spreads was limited, and, therefore, we reduced the balance sheet. As the interest rate environment changes and spread opportunities change, we will reevaluate our strategies. At December 31, 2000, our net loan portfolio totaled $11.36 billion, or 50.8% of total assets, which includes $13.5 million of real estate loans held-for-sale. We originate mortgage loans, either directly from existing or past customers and members of the communities served or indirectly through real estate agents, attorneys, builders and brokers. The retail loan origination program accounted for approximately $733.9 million of originations during 2000 and $1.27 billion of originations during 1999. The broker loan program consists of relationships with mortgage brokers and accounted for approximately $1.16 billion of originations during 2000 and $2.08 billion of originations during 1999. Astoria Federal originates mortgage loans through its banking and loan production offices in the New York metropolitan area and through an extensive broker network in fourteen states: New York, New Jersey, Connecticut, Pennsylvania, Massachusetts, Delaware, Maryland, Ohio, Virginia, North Carolina, South Carolina, Georgia, Illinois and Florida. Our third party loan origination program (correspondent loan program) which includes relationships with other financial institutions and mortgage-bankers, has contributed to the growth in our loan portfolio and the reduction in our geographical loan concentration in the New York metropolitan area. This program accounted for approximately $836.8 million of third party loan originations during 2000 and $417.6 million of third party loan originations during 1999. We utilize mortgage-backed and other securities purchases as a complement to our mortgage lending activities. During 2000, purchases of investment securities were minimal with cash flows from the existing portfolio being applied primarily to mortgage loan originations. For the year ended December 31, 2000, there were no purchases of mortgage-backed securities and purchases of other securities totaled $6.0 million. For the year ended December 31, 1999, purchases of mortgage-backed securities totaled $4.15 billion and purchases of other securities totaled $221.1 million. The existing portfolio continues to provide liquidity, collateral for borrowings and minimal credit risk while providing appropriate returns. INTEREST RATE SENSITIVITY ANALYSIS As a financial institution, the primary component of our market risk is interest rate risk. Our net interest income, the primary component of our net income, is subject to substantial risk due to changes in interest rates or changes in market yield curves, particularly if there is a substantial variation in the timing between the repricing of our assets and the liabilities which fund them. We seek to manage interest rate risk by monitoring and controlling the variation in repricing intervals between our assets and liabilities, i.e. our interest rate sensitivity gap. We also monitor our interest rate sensitivity by analyzing the estimated changes in market value of our assets and liabilities assuming various interest rate scenarios, so that adjustments in the asset and liability mix, when deemed appropriate, can be made on a timely basis. The interest rate sensitivity gap is the difference between the amount of interest-earning assets anticipated to mature or reprice within a specific time period and the amount of interest-bearing liabilities anticipated to mature or reprice within that same time period. A gap is considered positive when the amount of interest rate sensitive assets maturing or repricing within a specific time frame exceeds the amount of interest rate sensitive liabilities maturing or repricing within that same time frame. Conversely, a gap is considered negative when the amount of interest rate sensitive liabilities maturing or repricing within a specific time frame exceeds the amount of interest rate sensitive assets maturing or repricing within that same time frame. In a rising interest rate environment, an institution with a positive gap would generally be expected, absent the effects of other factors, to experience a greater increase in the yields of its assets relative to the costs of its liabilities and thus an increase in the institution's net interest income, whereas an institution with a negative gap would generally be expected to experience the opposite results. 39 42 Conversely, during a period of falling interest rates, a positive gap would tend to result in a decrease in net interest income while a negative gap would tend to increase net interest income. The actual duration of mortgage loans and mortgage-backed securities can be significantly impacted by changes in the rate of mortgage prepayments. The major factors affecting mortgage prepayment rates are prevailing interest rates and related mortgage refinancing opportunities. In addition, prepayment rates will vary due to a number of other factors, including the regional economy in the area where the underlying mortgages were originated, seasonal factors, demographic variables and the assumability of the underlying mortgages. The table on page 41, referred to as the Gap Table, sets forth the amount of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2000, that we anticipate, using certain assumptions based on our historical experience and other data available to us, to reprice or mature in each of the future time periods shown. The Gap Table does not necessarily indicate the impact of general interest rate movements on our net interest income because the actual repricing dates of various assets and liabilities are subject to customer discretion and competitive and other pressures. Callable features of certain assets and liabilities, in addition to the foregoing, may cause actual experience to vary from that indicated. The uncertainty and volatility of interest rates, economic conditions and other markets which affect the value of these call options, as well as the financial condition of the holders of the options, increase the difficulty and uncertainty in determining if and when they may be exercised. In our past experience, even though callable borrowings were at or below market rates, a significant portion were not called, and therefore, were included in the Gap Table based on their contractual maturity. The increases in interest rates in the first half of 2000, resulted in a majority of the holders of these call options exercising their rights throughout 2000. Therefore, in the December 31, 2000 Gap Table, callable borrowings have been classified according to their call dates. At December 31, 2000, callable borrowings classified according to their call dates totaled $4.89 billion, of which $3.63 billion are callable within one year and at various times thereafter. During the year ended December 31, 2000, $3.94 billion in borrowings were called. Also included in this table are $1.36 billion of callable other securities, classified according to their maturity dates, which are primarily within the more than five years category. Of such securities $1.29 billion are callable within one year and at various other times thereafter. The classification of these securities by maturity date is based upon our experience which, in the current interest rate environment, has indicated that the issuers of these securities have not been exercising their call options. At December 31, 2000, interest-bearing liabilities maturing or repricing within one year exceeded net interest-earning assets maturing or repricing within the same time period by $3.74 billion, representing a negative cumulative one-year gap of 16.75% of total assets. This compares to interest-bearing liabilities maturing or repricing within one year exceeding net interest-earning assets maturing or repricing within the same time period by $3.64 billion, representing a negative cumulative one-year gap of 16.04% of total assets at December 31, 1999, using the same set of assumptions which were used in the December 31, 2000 Gap Table. At December 31, 1999 with callable borrowings classified according to their contractual maturity dates, as previously reported, our net interest-earning assets maturing or repricing within one year exceeded interest-bearing liabilities maturing or repricing within the same time period by $434.2 million, representing a positive cumulative one-year gap of 1.91% of total assets. 40 43
AT DECEMBER 31, 2000 -------------------------------------------------------------------------------- MORE THAN MORE THAN ONE YEAR THREE YEARS ONE YEAR TO TO MORE THAN (Dollars in Thousands) OR LESS THREE YEARS FIVE YEAR FIVE YEARS TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ Interest-earning assets: Mortgage loans (1) $ 2,600,948 $ 3,155,773 $ 2,847,453 $2,541,199 $11,145,373 Consumer and other loans (1) 146,302 31,456 6,048 -- 183,806 Federal funds sold and repurchase agreements 171,525 -- -- -- 171,525 Mortgage-backed and other securities available-for-sale 2,061,100 1,600,300 1,048,942 3,278,130 7,988,472 Mortgage-backed and other securities held-to-maturity 363,079 179,544 115,721 1,056,661 1,715,005 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest-earning assets 5,342,954 4,967,073 4,018,164 6,875,990 21,204,181 Add: Net unamortized purchase premiums and deferred costs (2) 17,015 20,136 18,101 14,556 69,808 - ------------------------------------------------------------------------------------------------------------------------------------ Net interest-earning assets 5,359,969 4,987,209 4,036,265 6,890,546 21,273,989 - ------------------------------------------------------------------------------------------------------------------------------------ Interest-bearing liabilities: Savings 134,003 268,006 268,006 1,764,372 2,434,387 Money market 1,351,768 13,774 13,774 103,299 1,482,615 Now and money manager 26,969 53,940 53,940 444,182 579,031 Certificates of deposit 3,055,126 1,252,228 772,565 69,816 5,149,735 Borrowed funds 4,532,449 5,154,922 510,000 -- 10,197,371 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities 9,100,315 6,742,870 1,618,285 2,381,669 19,843,139 - ------------------------------------------------------------------------------------------------------------------------------------ Interest sensitivity gap (3,740,346) (1,755,661) 2,417,980 4,508,877 $ 1,430,850 - ------------------------------------------------------------------------------------------------------------------------------------ Cumulative interest sensitivity gap $(3,740,346) $(5,496,007) $(3,078,027) $1,430,850 - ------------------------------------------------------------------------------------------------------------------------------------ Cumulative interest sensitivity gap as a percentage of total assets (16.75)% (24.61)% (13.78)% 6.41% Cumulative net interest-earning assets as a percentage of interest-bearing liabilities 58.90% 65.31% 82.37% 107.21%
(1) Mortgage, consumer and other loans exclude non-performing loans, but are not reduced for the allowance for loan losses. (2) Net unamortized purchase premiums and deferred costs are prorated. Certain shortcomings are inherent in the method of analysis presented in the Gap Table. For example, although certain assets and liabilities may have similar contractual maturities or periods to repricing, they may react in different ways to changes in market interest rates. Additionally, certain assets, such as ARM loans, have contractual features which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally, the ability of borrowers to service their ARM loans or other loan obligations may decrease in the event of an interest rate increase. The Gap Table reflects our estimates as to periods to repricing at a particular point in time. Among the factors considered are current trends and historical repricing experience with respect to similar products. As a result, different assumptions may be used at different points in time. On January 3, 2001, the FOMC reduced the federal funds rate by 50 basis points. On January 31, 2001, at their regularly scheduled meeting, the FOMC reduced the federal funds rate an additional 50 basis points. These reductions have created a significantly different interest rate environment than the one existing at December 31, 2000. While short term interest rates declined in January 2001, the U.S. Treasury yield curve remained flat to inverted and spread opportunity for asset growth remained narrow. While the perception is that short term rates will continue to decrease during 2001, the actual level of interest rate decreases as well as the degree of steepening of the yield curve, will be the major determinants of the extent of the positive impact on our 41 44 net interest margin and net interest income. Unless or until such events actually occur, we may, in the current yield curve environment, continue to limit our asset growth or reduce the balance sheet as we have been doing over the past twenty-one months. We also expect to continue to reposition the balance sheet, focusing primarily on one-to-four family loan originations and deposit generation while reducing our securities and borrowings portfolios. Certain analyses presented in this report utilize assumptions and estimates based on our judgment and experience. Although our assumptions and estimates at December 31, 2000 considered a decline in interest rates, they were not as rapid nor of the magnitude we experienced in January 2001. This rapid reduction in interest rates may affect the actual behavior of the repricing of our assets and liabilities. For example, in the December 31, 2000 Gap Table, as presented on page 41, we have classified callable borrowings according to their call dates and callable securities according to their maturity dates. This is consistent with our experience over the last twelve months. However, in a falling interest rate environment, the likelihood that our callable borrowings will not be called and that our callable securities will begin to be called increases. We have seen evidence of this during the month of January 2001. For the month ended January 31, 2001, of the $700.0 million of borrowings which were callable, $200.0 million were called. In addition, of the $573.7 million of securities which were callable in January 2001, $52.8 million were called. While there is no assurance that this trend will continue, if interest rates continue to decrease, and/or we continue to experience these changes in behavior relating to the exercise of the options embedded in these assets and liabilities, we would most likely utilize different assumptions in various analyses as well as different business strategies. For example, if we had reported the December 31, 2000 Gap Table with callable borrowings classified according to their maturity dates and callable securities according to their call dates, the cumulative one-year interest sensitivity gap as a percentage of total assets would have been a positive 5.28% as compared to the negative 16.75% reported. We also monitor Astoria Federal's interest rate sensitivity through analysis of the change in the net portfolio value, or NPV. NPV is defined as the net present value of the expected future cash flows of an entity's assets and liabilities and, therefore, hypothetically represents the value of an institution's net worth. Increases in the value of assets will increase the NPV whereas decreases in the value of assets will decrease the NPV. Conversely, increases in the value of liabilities will decrease the NPV whereas decreases in the value of liabilities will increase the NPV. The changes in the value of assets and liabilities due to changes in interest rates reflect the interest sensitivity of those assets and liabilities. The NPV ratio under any interest rate scenario is defined as the NPV in that scenario divided by the value of assets in the same scenario. This analysis, presented in the table on page 43, or the NPV Table, measures percentage changes from the value of projected NPV in a given rate scenario, and then measures interest rate sensitivity by the change in the NPV ratio, over a range of interest rate change scenarios. The OTS also produces a similar analysis using its own model based upon data submitted on Astoria Federal's quarterly Thrift Financial Reports, the results of which typically vary from our internal model primarily because of differences in assumptions utilized between our internal model and the OTS model, including estimated loan prepayment rates, reinvestment rates and deposit decay rates. For purposes of the NPV Table, prepayment speeds and deposit decay rates similar to the Gap Table were used, except for the scenarios which involve decreases in interest rates, for which we have assumed, in the NPV Table, that those borrowings with embedded call options will not be called at their next available call date and securities with embedded call options will be called at their next available call date. The NPV Table is based on simulations which utilize institution specific assumptions with regard to future cash flows, including customer options such as loan prepayments, period and lifetime caps, puts and calls, and deposit withdrawal estimates. The NPV Table uses discount rates derived from various sources including, but not limited to, U.S. Treasury yield curves, thrift retail certificate of deposit curves, national and local secondary mortgage markets, brokerage security pricing services and various alternative funding sources. Specifically, for mortgage loans receivable, the discount rates used were based on market rates for new loans of similar type and purpose, adjusted, when necessary, for factors such as servicing cost, credit risk and term. The discount rates used for certificates of deposit and borrowings were based on rates 42 45 which approximate those we would incur to replace such funding of similar remaining maturities. Certain assets, including fixed assets and real estate held for investment, are assumed to remain at book value (net of valuation allowance) regardless of interest rate scenario. The following represents Astoria Federal's NPV Table as of December 31, 2000:
NET PORTFOLIO VALUE ("NPV") PORTFOLIO VALUE OF ASSETS RATES IN -------------------------------------------- ------------------------- BASIS POINTS DOLLAR DOLLAR PERCENTAGE NPV SENSITIVITY (RATE SHOCK) AMOUNT CHANGE CHANGE RATIO CHANGE - ------------ ------ ------ ------ ----- ------ (Dollars in Thousands) +200 $1,694,258 $ (686,242) (28.83)% 8.10% (2.59)% +100 2,076,810 (303,690) (12.76) 9.61 (1.08) -0- 2,380,500 -- -- 10.69 -- -100 2,454,205 73,705 3.10 10.78 0.09 -200 2,145,174 (235,326) (9.89) 9.30 (1.39)
Our NPV ratio of 10.69% in a flat rate scenario and 8.10% in the up 200 basis point rate shock scenario, as well as the sensitivity measure of negative 2.59% in the up 200 basis point rate shock scenario as of December 31, 2000, have improved from the December 31, 1999 results of 9.92% NPV ratio in a flat rate scenario, 6.24% in the up 200 basis point rate shock scenario and the sensitivity measure of negative 3.68% in the up 200 basis point rate shock scenario. These improvements are a result of a variety of factors including: capital increases from earnings, reduction in total assets, growth of core deposits, emphasis on ARM products and a reduction in callable borrowings. As with the Gap Table, certain shortcomings are inherent in the methodology used in the NPV Table. Modeling of changes in NPV requires the making of certain assumptions which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the NPV model assumes that the composition of our interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is immediate and is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. In addition, prepayment estimates and other assumptions within the NPV Table are subjective in nature, involve uncertainties and, therefore, cannot be determined with precision. Accordingly, although the NPV measurements, in theory, may provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide for a precise forecast of the effect of changes in market interest rates on Astoria Federal's NPV and will differ from actual results. As discussed previously in the Gap analysis, the 100 basis point reduction in the federal funds rate during January 2001 has created a significantly different interest rate environment than the one existing at December 31, 2000. In our December 31, 2000 NPV Table we assumed that in the scenarios involving a decrease in interest rates that borrowings with embedded call options would not be called at their next call date and that securities with embedded call options would be called at their next call date. We did not, however, use this assumption in the flat rate scenario. If we had used this assumption in the flat rate scenario for the December 31, 2000 NPV Table, the NPV ratio in the flat rate scenario would have been 11.56% as compared to the 10.69% reported. The NPV ratios in the other rate shock scenarios would not have changed and, therefore, the sensitivity levels would have changed accordingly. 43 46 COMPARISON OF FINANCIAL CONDITION AND OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 FINANCIAL CONDITION Total assets decreased $359.7 million or 1.6%, to $22.34 billion at December 31, 2000, from $22.70 billion at December 31, 1999. This decrease is consistent with our strategy to maintain or shrink the balance sheet in response to the interest rate environment which prevailed during the second half of 1999 and throughout 2000. Mortgage loans, net, increased $1.13 billion, from $10.11 billion at December 31, 1999 to $11.24 billion at December 31, 2000. Gross mortgage loans originated and purchased during the year ended December 31, 2000 totaled $2.73 billion, of which $1.89 billion were originations and $836.8 million were purchases. These originations and purchases consisted primarily of one-to-four family residential mortgage loans. This compares to $3.34 billion of originations and $417.6 million of purchases for a total of $3.76 billion during the year ended December 31, 1999. The decrease in the mortgage loan originations was primarily a result of the general increase in market interest rates, which has significantly decreased the level of mortgage refinance activity, and the sale of certain LPOs in March 1999. This reduction was offset by a slowdown in loan prepayments, also a result of the increase in interest rates. Mortgage-backed securities decreased $1.41 billion to $7.87 billion at December 31, 2000, from $9.29 billion at December 31, 1999. This decrease was the result of principal payments received of $1.76 billion, offset by a decrease in the net unrealized loss on securities available-for-sale of $348.2 million. See "Lending and Investing Activities" for further discussion. In addition to the changes noted above in the mortgage-backed securities and mortgage loan portfolios, other securities increased $65.2 million to $1.54 billion at December 31, 2000, from $1.48 billion at December 31, 1999, primarily due to the accretion of discounts on our U.S. government and agency securities coupled with a decrease in the net unrealized loss on securities available-for-sale. Federal funds sold and repurchase agreements decreased $164.2 million from $335.7 million at December 31, 1999, to $171.5 million at December 31, 2000. Other assets decreased $184.7 million from $394.3 million at December 31, 1999 to $209.6 million at December 31, 2000, primarily due to the decrease in the deferred tax asset which was directly related to the decrease in the net unrealized loss on securities available-for-sale. Premises and equipment, net, decreased $22.2 million from $176.8 million at December 31, 1999 to $154.6 million at December 31, 2000, primarily due to the completion of the sale of the former Long Island Bancorp, Inc., or LIB, headquarters in April 2000. See "Non-interest Income." During the year ended December 31, 2000, the Company established a Bank Owned Life Insurance, or BOLI, program. The initial premium paid was $250.0 million. The BOLI is classified as a non-interest earning asset and increases in the cash surrender value are recorded as non-interest income. Consistent with our strategy of repositioning the balance sheet, we also continued shifting our liability emphasis from borrowings to deposits. As a result, reverse repurchase agreements decreased $1.49 billion, to $7.79 billion at December 31, 2000, from $9.28 billion at December 31, 1999. Federal Home Loan Bank of New York advances increased $299.9 million to $1.91 billion at December 31, 2000 from $1.61 billion at December 31, 1999. The net decrease in borrowings is a result of the repayment of a portion of the $4.57 billion in borrowings which either matured or were called during the year ended December 31, 2000. The remaining balance of these borrowings was rolled into short- and medium-term borrowings without call features. Deposits increased $517.2 million from $9.55 billion at December 31, 1999 to $10.07 billion at December 31, 2000, primarily due to our current emphasis on deposit generation through competitive rates and new product offerings. Stockholders' equity totaled $1.51 billion at December 31, 2000 and $1.20 billion at December 31, 1999. Increases to stockholders' equity included a $223.2 million decrease in the unrealized loss on securities available-for-sale, net of taxes. Additional increases in stockholders' equity were the result of net income of $216.5 million, the effect of stock options exercised and related tax benefit of $10.5 million, and the amortization for the allocated portion of shares held by the ESOP and the related tax benefit on the earned 44 47 portion of the shares held by the RRP of $5.4 million. These increases were partially offset by repurchases of our common stock of $84.6 million and dividends declared of $54.8 million. RESULTS OF OPERATIONS GENERAL Net income for the year ended December 31, 2000 decreased $19.2 million to $216.5 million for the year ended December 31, 2000, from $235.7 million for the year ended December 31, 1999. For the year ended December 31, 2000, diluted earnings per common share decreased to $4.32 per share, as compared to $4.37 per share for the year ended December 31, 1999. Return on average assets decreased to 0.97% for the year ended December 31, 2000, from 1.04% for the year ended December 31, 1999. Return on average stockholders' equity decreased to 16.70% for the year ended December 31, 2000, from 17.31% for the year ended December 31, 1999. Return on average tangible stockholders' equity decreased to 20.02% for the year ended December 31, 2000, from 20.92% for the year ended December 31, 1999. The results of operations for the year ended December 31, 2000 include a $2.5 million, after-tax, net gain on the disposition of banking and loan production offices and a $3.4 million, after-tax, charge for a severance payment made upon the resignation of one of our executive officers. The results of operations for the year ended December 31, 1999 include an $11.3 million, after-tax, net gain on the disposition of banking and loan production offices. The following comparison of net operating income, diluted operating earnings per common share and related operating returns reflect the 2000 and 1999 results exclusive of the net gains and the 2000 executive severance payment. For the year ended December 31, 2000, net operating income decreased $6.9 million to $217.4 million, from $224.3 million for the year ended December 31, 1999. Diluted operating earnings per common share for the year ended December 31, 2000 increased to $4.34 per share from $4.16 per share for the year ended December 31, 1999. The operating return on average assets for the year ended December 31, 2000 decreased to 0.97%, from 0.99% for the year ended December 31, 1999. The operating return on average stockholders' equity for the year ended December 31, 2000 increased to 16.77%, from 16.48% for the year ended December 31, 1999. The operating return on average tangible stockholders' equity for the year ended December 31, 2000 increased to 20.10%, from 19.91% for the year ended December 31, 1999. NET INTEREST INCOME Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends primarily upon the volume of interest-earning assets and interest-bearing liabilities and the corresponding interest rates earned or paid. Our net interest income is significantly impacted by changes in interest rates and market yield curves. For the year ended December 31, 2000, net interest income decreased $32.9 million, or 6.1%, to $507.0 million, from $539.9 million for the year ended December 31, 1999. This decrease was a result of the decrease in the net interest rate spread from 2.23% for the year ended December 31, 1999, to 2.01% for the year ended December 31, 2000. The change in net interest rate spread is a result of an increase in the average cost of interest-bearing liabilities from 4.57% for the year ended December 31, 1999, to 4.94% for the year ended December 31, 2000, partially offset by an increase in the average yield on interest-earning assets from 6.80% for the year ended December 31, 1999, to 6.95% for the year ended December 31, 2000. This decrease in the net interest rate spread was partially offset by an increase in net interest-earning assets of $254.1 million, from $1.10 billion at December 31, 1999, to $1.36 billion at December 31, 2000. The increase in net interest-earning assets was the result of a decrease in total interest-bearing liabilities of $413.4 million, from $20.89 billion for the year ended December 31, 1999, to $20.48 billion at December 31, 2000, and a decrease in total interest-earning assets of $159.3 million, from $21.99 billion 45 48 for the year ended December 31, 1999, to $21.83 billion for the year ended December 31, 2000. The net interest margin was 2.32% for the year ended December 31, 2000 and 2.46% for the year ended December 31, 1999. ANALYSIS OF NET INTEREST INCOME The following table sets forth certain information for the years ended December 31, 2000, 1999 and 1998. Yields are derived by dividing income by the average balance of the related assets and costs are derived by dividing expense by the average balance of the related liabilities, for the periods shown. Average balances are derived from average daily balances. The average balance of loans receivable includes loans on which we have discontinued accruing interest. The yields and costs include fees, premiums and discounts which are considered adjustments to interest rates.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- 2000 1999 ------------------------------------------------------------------- AVERAGE AVERAGE AVERAGE YIELD/ AVERAGE YIELD/ (Dollars in Thousands) BALANCE INTEREST COST BALANCE INTEREST COST - ----------------------------------------------------------------------------------------------------------------------------- Assets: Interest-earning assets: Mortgage loans (1) $10,656,963 $769,544 7.22% $9,531,892 $679,623 7.13% Consumer and other loans (1) 177,075 18,237 10.30 200,178 19,285 9.63 Mortgage-backed securities (2) 8,805,772 577,808 6.56 10,242,306 658,140 6.43 Other securities (2) 1,878,922 132,426 7.05 1,837,254 129,030 7.02 Federal funds sold and repurchase agreements 313,053 19,919 6.36 179,408 9,201 5.13 ----------- ------- --------- ------- Total interest-earning assets 21,831,785 1,517,934 6.95 21,991,038 1,495,279 6.80 --------- --------- Non-interest-earning assets 480,997 726,644 ----------- ----------- Total assets $22,312,782 $22,717,682 =========== =========== Liabilities and stockholders' equity: Interest-bearing liabilities: Savings $2,529,448 $51,112 2.02 $2,697,726 54,341 2.01 Certificates of deposit 4,968,151 282,260 5.68 4,943,672 258,389 5.23 NOW and money manager 939,715 5,439 0.58 888,369 5,110 0.58 Money market 1,337,754 71,290 5.33 1,038,765 45,316 4.36 ---------- -------- ---------- -------- Total deposits 9,775,068 410,101 4.20 9,568,532 363,156 3.80 Borrowed funds 10,701,489 600,817 5.61 11,321,397 592,175 5.23 ---------- -------- ---------- -------- Total interest-bearing liabilities 20,476,557 1,010,918 4.94 20,889,929 955,331 4.57 Non-interest-bearing liabilities 539,821 --------- 466,207 -------- ----------- ---------- Total liabilities 21,016,378 21,356,136 Stockholders' equity 1,296,404 1,361,546 ----------- ---------- Total liabilities and stockholders' equity $22,312,782 $22,717,682 =========== =========== Net interest income/net interest rate spread $507,016 2.01% $539,948 2.23% ========= ==== ======== ==== Net interest-earning assets/ net interest margin $1,355,228 2.32% $1,101,109 ========== ==== ========== 2.46% ==== Ratio of interest-earnings assets to interest-bearing liabilities 1.07x 1.05x
YEAR ENDED DECEMBER 31, --------------------------------------- 1998 --------------------------------------- AVERAGE AVERAGE YIELD/ (Dollars in Thousands) BALANCE INTEREST COST - ---------------------------------------------------------------------------------------------------------------------------- Assets: Interest-earning assets: Mortgage loans (1) $8,321,732 $612,606 7.36% Consumer and other loans (1) 260,615 24,422 9.37 Mortgage-backed securities (2) 6,662,882 438,934 6.59 Other securities (2) 1,885,438 132,414 7.02 Federal funds sold and repurchase agreements 296,516 16,072 5.42 --------- ------- Total interest-earning assets 17,427,183 1,224,448 7.03 --------- Non-interest-earning assets 893,388 ---------- Total assets $18,320,571 =========== Liabilities and stockholders' equity: Interest-bearing liabilities: Savings $2,889,510 72,243 2.50 Certificates of deposit 5,297,309 288,914 5.45 NOW and money manager 897,001 6,337 0.71 Money market 729,106 32,108 4.40 ---------- ------- Total deposits 9,812,926 399,602 4.07 Borrowed funds 6,642,452 375,863 5.66 ---------- ------- Total interest-bearing liabilities 16,455,378 775,465 4.71 Non-interest-bearing liabilities 374,970 ------- ---------- Total liabilities 16,830,348 Stockholders' equity 1,490,223 ---------- Total liabilities and stockholders' equity $18,320,571 =========== Net interest income/net interest rate spread $448,983 2.32% ======== ==== Net interest-earning assets/ net interest margin $971,805 2.58% ======== ==== Ratio of interest-earnings assets to interest-bearing liabilities 1.06x
(1) Mortgage and consumer loans include non-performing loans and exclude the allowance for loan losses. (2) Securities available-for-sale are reported at average amortized cost. 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. 46 49
YEAR ENDED DECEMBER 31, 2000 YEAR ENDED DECEMBER 31, 1999 COMPARED TO COMPARED TO YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998 ------------------------------------------------------------------------------------------------ INCREASE (DECREASE) INCREASE (DECREASE) ------------------------------------------------------------------------------------------------ (In Thousands) VOLUME RATE NET VOLUME RATE NET - ------------------------------------------------------------------------------------------------------------------------------------ Interest-earning assets: Mortgage loans $ 81,233 $ 8,688 $ 89,921 $ 86,672 $(19,655) $ 67,017 Consumer and other loans (2,327) 1,279 (1,048) (5,799) 662 (5,137) Mortgage-backed securities (93,486) 13,154 (80,332) 230,127 (10,921) 219,206 Other securities 2,858 538 3,396 (3,384) -- (3,384) Federal funds sold and repurchase agreements 8,108 2,610 10,718 (6,051) (820) (6,871) ------- ------ ------- ------- ------- ------- Total (3,614) 26,269 22,655 301,565 (30,734) 270,831 ------- ------ ------- ------- ------- ------- Interest-bearing liabilities: Savings (3,490) 261 (3,229) (4,529) (13,373) (17,902) Certificates of deposit 1,299 22,572 23,871 (19,022) (11,503) (30,525) NOW and money manager 329 -- 329 (61) (1,166) (1,227) Money market 14,650 11,324 25,974 13,503 (295) 13,208 Borrowed funds (33,262) 41,904 8,642 246,818 (30,506) 216,312 ------- ------ ------- ------- ------- ------- Total (20,474) 76,061 55,587 236,709 (56,843) 179,866 ------- ------ ------- ------- ------- ------- Net change in net interest income $ 16,860 $(49,792) $(32,932) $ 64,856 $ 26,109 $ 90,965 ======== ======== ======== ========= ======== =========
INTEREST INCOME Interest income for the year ended December 31, 2000 increased $22.7 million, or 1.5%, to $1.52 billion, from $1.50 billion for the year ended December 31, 1999. This increase was the result of an increase in the average yield on interest-earning assets from 6.80% for the year ended December 31, 1999, to 6.95% for the year ended December 31, 2000 reflecting the generally higher interest rate environment that prevailed since the middle of 1999. The increase in the average yield on interest-earning assets is primarily due to an increase in the average yield on mortgage-backed securities coupled with an increase in the average yield on mortgage loans. This increase was partially offset by a decrease in the average balance of interest-earning assets of $159.3 million from $21.99 billion for 1999, to $21.83 billion for 2000. The decrease in average interest-earning assets was primarily due to a decrease in the average balance of mortgage-backed securities resulting from principal repayments, partially offset by an increase in the average balance of mortgage loans. The decrease and shift in assets reflect our decision to limit balance sheet growth while continuing to emphasize one-to-four family mortgage lending. Interest income on mortgage loans increased $89.9 million to $769.5 million for the year ended December 31, 2000, from $679.6 million for the year ended December 31, 1999, which was primarily the result of a $1.13 billion increase in the average balance of mortgage loans, coupled with an increase in the average yield on mortgage loans to 7.22% for the year ended December 31, 2000, from 7.13% for the year ended December 31, 1999. The increase in the average balance of mortgage loans reflects our continued emphasis on the origination of primarily one-to-four family residential mortgage loans coupled with a reduction in repayments. The increase in the average yield on mortgage loans reflects the increase in interest rates during the period as well as the effect of the upward repricing of ARM loans. Interest income on consumer and other loans decreased $1.0 million resulting from a decrease in the average balance of this portfolio of $23.1 million, partially offset by an increase in the average yield to 10.30% for the year ended December 31, 2000, from 9.63% for the year ended December 31, 1999. Interest income on mortgage-backed securities decreased $80.3 million to $577.8 million for the year ended December 31, 2000, from $658.1 million for the year ended December 31, 1999. This decrease was the 47 50 result of a $1.44 billion decrease in the average balance of the portfolio, partially offset by an increase in the average yield to 6.56% for the year ended December 31, 2000, from 6.43% for the year ended December 31, 1999. Interest income on other securities increased $3.4 million resulting from an increase in the average balance of this portfolio of $41.7 million, coupled with a slight increase in the average yield to 7.05% for the year ended December 31, 2000, from 7.02% for the year ended December 31, 1999. The decrease in the average balance of mortgage-backed securities reflects our objective of repositioning the balance sheet, while the increase in the average balance of other securities is primarily due to the accretion of unearned discounts. Interest income on federal funds sold and repurchase agreements increased $10.7 million as a result of an increase in the average balance of $133.6 million, coupled with an increase in the average yield to 6.36% for the year ended December 31, 2000, from 5.13% for the year ended December 31, 1999. INTEREST EXPENSE Interest expense for the year ended December 31, 2000 increased $55.6 million, to $1.01 billion, from $955.3 million for the year ended December 31, 1999. This increase was the result of an increase in the average cost of interest-bearing liabilities to 4.94% for the year ended December 31, 2000, from 4.57% for the year ended December 31, 1999, partially offset by a $413.4 million decrease in the average balance of interest-bearing liabilities. The decrease in average interest-bearing liabilities was attributable to a decrease in borrowings, partially offset by an increase in deposits. The increase in the overall average cost of our interest-bearing liabilities reflects the higher interest rate environment that prevailed since the middle of 1999. Interest expense on deposits increased $46.9 million, to $410.1 million for the year ended December 31, 2000, from $363.2 million for the year ended December 31, 1999, reflecting an increase in the average cost of deposits to 4.20% for the year ended December 31, 2000, from 3.80% for the year ended December 31, 1999, coupled with an increase in the average balance of total deposits of $206.5 million. The increases in the average balance and average cost of total deposits were primarily driven by increases in the average balances and rates on our money market accounts and certificates of deposit. Interest expense on money market accounts increased $26.0 million reflecting an increase in the average balance of $299.0 million, coupled with an increase in the average cost to 5.33% for the year ended December 31, 2000, from 4.36% for the year ended December 31, 1999. Interest paid on money market accounts is on a tiered basis with 90.02% of the balance in the highest tier (accounts with balances of $50,000 and higher). The yield on the highest tier is priced relative to the discount rate for the three-month U.S. Treasury bill, which provides an attractive short-term yield for our customers. Interest expense on certificates of deposit increased $23.9 million resulting from an increase in the average cost to 5.68% for the year ended December 31, 2000, from 5.23% for the year ended December 31, 1999, coupled with a slight increase in the average balance of $24.5 million. The increase in the average cost of certificates of deposit reflects the higher interest rate environment and our commitment to offer competitive rates to our customers. Interest expense on savings accounts decreased $3.2 million which was attributable to a decrease in the average balance of $168.3 million. Interest expense on NOW and money manager accounts increased $329,000 as a result of an increase in the average balance of $51.3 million. Interest expense on borrowed funds for the year ended December 31, 2000 increased $8.6 million, to $600.8 million, from $592.2 million for year ended December 31, 1999, resulting from an increase in the average cost of borrowings to 5.61% for the year ended December 31, 2000, from 5.23% for the year ended December 31, 1999, partially offset by a decrease in the average balance of $619.9 million. Previous asset growth was primarily funded through callable borrowings, which in a lower interest rate environment, was the most cost effective way to fund our growth. The rising interest rate environment has resulted in most of our borrowings being called upon reaching their call dates. While a portion of the called borrowings are being repaid, the remainder are being rolled over into short- and medium-term borrowings without call features at higher rates. 48 51 PROVISION FOR LOAN LOSSES Provision for loan losses decreased $105,000, to $4.0 million for the year ended December 31, 2000, from $4.1 million for the year ended December 31, 1999. The allowance for loan losses increased to $79.9 million at December 31, 2000, from $76.6 million at December 31, 1999. The increase in the allowance for loan losses in part reflects the overall increase in our loan portfolio despite the continued improvement of our asset quality. Net loan charge-offs totaled $661,000 for the year ended December 31, 2000 compared to $1.9 million for the year ended December 31, 1999. Non-performing loans decreased $17.2 million to $36.2 million at December 31, 2000, from $53.4 million at December 31, 1999. This reduction in non-performing loans improved the percentage of allowance for loan losses to non-performing loans from 143.49% at December 31, 1999 to 220.88% at December 31, 2000. The allowance for loan losses as a percentage of total loans decreased from 0.75% at December 31, 1999 to 0.70% at December 31, 2000 primarily due to the increase of $1.12 billion in gross total loans from December 31, 1999 to December 31, 2000. For further discussion of non-performing loans and allowance for loan losses, see "Asset Quality." NON-INTEREST INCOME Non-interest income for the year ended December 31, 2000 decreased $17.5 million, or 20.1%, to $69.2 million from $86.7 million for the year ended December 31, 1999. Excluding gains on sales of securities of $739,000 in 1999 and the net gain on disposition of banking and loan production offices of $4.0 million in 2000 and $19.2 million in 1999, non-interest income for 2000 decreased $1.5 million, or 2.2%, to $65.3 million, from $66.8 million for 1999. Customer service and other loan fees increased $8.8 million to $48.8 million for the year ended December 31, 2000, from $40.0 million for the year ended December 31, 1999. The increase in customer service fees was due to several factors. The year ended December 31, 2000 includes the full recognition of fee income on debit cards, which were first issued during the third quarter of 1999; an increase in customer service fees which became effective during the third quarter of 1999; an increase in annuity sales commissions; and an increase in checking account fees related to the increase in the number of checking accounts since December 31, 1999. Loan servicing fees decreased $6.8 million to $8.6 million for 2000, from $15.4 million for 1999. Loan servicing fees include all contractual and ancillary servicing revenue we receive, net of amortization of mortgage servicing rights and valuation allowance adjustments for the impairment of mortgage servicing rights. The decrease in loan servicing fees was the result of a decrease in fees received of $4.0 million and a provision for the valuation allowance for mortgage servicing rights of $1.9 million for the year ended December 31, 2000 versus a recovery of $2.5 million for the year ended December 31, 1999, partially offset by a decrease in the amortization of mortgage servicing rights of $1.7 million. The decrease in fees received is due to a decrease in the balance of loans serviced for others from $4.41 billion at December 31, 1999 to $3.93 billion at December 31, 2000 and the decrease in the amortization of mortgage servicing rights is due to the decrease in prepayment speeds and refinance activity which is a result of the interest rate environment which prevailed during 2000. The increase in the valuation allowance is due to the increase in projected prepayment speeds resulting from the perception of declining rates in the future. Net gains on sales of loans decreased $2.5 million to $866,000 for the year ended December 31, 2000, from $3.3 million for the year ended December 31, 1999. The decrease in the net gains on sales of loans was a result of the decrease in loan sale activity, resulting primarily from the sale and disposition of our LPOs and the higher interest rate environment which shifted consumer demands to adjustable rate loans which we retain for portfolio. During the year ended December 31, 2000, we recognized $1.6 million in income from our BOLI which we purchased in November 2000. This income represents the increase in the cash surrender value of the BOLI. Other non-interest income decreased $2.7 million to $5.4 million for the year ended December 31, 2000, from $8.1 million for the year ended December 31, 1999. This 49 52 decrease is partially the result of a $981,000 gain we recognized in 1999 on the sale of one of our joint venture properties. Net gains on disposition of banking and loan production offices totaled $4.0 million for the year ended December 31, 2000, compared to $19.2 million for the year ended December 31, 1999. We recorded a net gain of $2.8 million during the second quarter of 2000 related to the sale of the former LIB headquarters and a net gain of $1.2 million during the first quarter of 2000 related to the sale of a former Long Island Savings Bank banking office. The net gain for the year ended December 31, 1999 resulted from the $20.4 million gain recognized on the sale of our five upstate New York banking offices in the third quarter of 1999 and the net loss of $1.2 million from the closing and disposition of certain LPOs in the first quarter of 1999. NON-INTEREST EXPENSE Non-interest expense for the year ended December 31, 2000 was $221.6 million, a decrease of $1.5 million from $223.1 million for the year ended December 31, 1999. Included in non-interest expense is a $5.4 million charge for a severance payment made upon the resignation of one of our executive officers in the fourth quarter of 2000. Excluding the $5.4 million severance payment, non-interest expense for the year ended December 31, 2000 was $216.2 million, a decrease of $6.9 million from $223.1 million for the year ended December 31, 1999. General and administrative expense decreased $13.6 million to $181.7 million for the year ended December 31, 2000, from $195.3 million for the year ended December 31, 1999. Excluding the $5.4 million severance payment, general and administrative expense totaled $176.3 million for the year ended December 31, 2000, a $19.0 million decrease from 1999. The decrease was primarily concentrated in compensation and benefits expense. Compensation and benefits decreased $12.2 million to $87.7 million for the year ended December 31, 2000, from $99.9 million for the year ended December 31, 1999. Excluding the $5.4 million severance payment, compensation and benefits decreased $17.6 million for the year ended December 31, 2000 compared to the year ended December 31, 1999. The decrease is primarily attributable to a decrease in salary expense, which includes a decrease in overtime and incentives, and a decrease in net employee benefit plan expense. Also included in this decrease was a $3.6 million decrease in employee stock plans amortization expense for the year ended December 31, 2000 compared to the year ended December 31, 1999. The decrease in employee stock plans amortization expense is due primarily to the effect of the lower average market value of our common stock on ESOP expense. Occupancy, equipment and systems expense decreased $2.7 million to $51.0 million for the year ended December 31, 2000, from $53.7 million for the year ended December 31, 1999 due in large part to $1.5 million in expense recorded in 1999, which related to the testing of our computer systems for the ability to recognize the date change to the year 2000. Federal deposit insurance premiums decreased $2.4 million, from $4.5 million for the year ended December 31, 1999, to $2.1 million for the year ended December 31, 2000 as a result of an assessment rate decrease. Advertising expense increased $1.3 million to $8.2 million for 2000, from $6.9 million for 1999. Other expenses increased $2.4 million to $32.6 million for 2000, from $30.2 million for 1999. Goodwill litigation expense increased $2.2 million to $8.6 million for 2000, from $6.4 million for 1999. For further discussion on the goodwill litigation proceedings, see Item 3, "Legal Proceedings." Capital trust securities expense increased $10.2 million to $12.4 million for the year ended December 31, 2000 from $2.2 million for the year ended December 31, 1999 reflecting a full year's expense of the Capital Securities issued in the fourth quarter of 1999. For further discussion of the Capital Securities, see "Liquidity and Capital Resources" and Note 9 of Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data." 50 53 Our percentage of general and administrative expense to average assets improved to 0.81% for the year ended December 31, 2000, from 0.86% for the year ended December 31, 1999. The efficiency ratio also improved to 31.75% for the year ended December 31, 2000, from 32.21% for the year ended December 31, 1999. Excluding the $5.4 million severance payment, our percentage of general and administrative expense to average assets improved to 0.79% and our efficiency ratio improved to 30.80% for the year ended December 31, 2000. INCOME TAX EXPENSE For the year ended December 31, 2000, income tax expense was $134.1 million, representing an effective tax rate of 38.3%, as compared to $163.8 million, representing an effective tax rate of 41.0%, for the year ended December 31, 1999. The reduction in the effective tax rate from December 31, 1999 to December 31, 2000 was due to additional tax benefits associated with the corporate restructuring completed in 1999. CASH EARNINGS Tangible stockholders' equity (stockholders' equity less goodwill) totaled $1.31 billion at December 31, 2000, compared to $973.0 million at December 31, 1999. Tangible equity is a critical measure of a company's ability to repurchase shares, pay dividends and continue to grow. Astoria Federal is subject to various capital requirements which affect its classification for safety and soundness purposes, as well as for deposit insurance premium purposes. These requirements utilize, subject to further adjustments, tangible equity as a base component, not equity as defined by GAAP. Although reported earnings and return on equity are traditional measures of a company's performance, we believe that the change in tangible equity, or "cash earnings," and related return measures are also a significant measure of a company's performance. Cash earnings exclude the effects of various non-cash expenses, such as the amortization for the allocation of ESOP and RRP stock and related tax benefit, as well as the amortization of goodwill. In the case of tangible equity, these items have either been previously charged to equity, as in the case of ESOP and RRP charges, through contra-equity accounts, or do not affect tangible equity, such as the market appreciation of allocated ESOP shares, for which the operating charge is offset by a credit to additional paid-in capital, and goodwill amortization for which the related intangible asset has already been deducted in the calculation of tangible equity. The following comparisons exclude the net gain on disposition of banking and loan production offices recognized in 2000 and 1999 and the executive severance payment in 2000. For the year ended December 31, 2000, operating cash earnings totaled $243.2 million, or $25.7 million more than operating earnings, representing a cash return on average tangible equity of 22.48%. For the year ended December 31, 1999, operating cash earnings totaled $257.6 million, or $33.2 million more than operating earnings, representing an operating cash return on average tangible equity of 22.86%. Diluted operating cash earnings per common share increased to $4.87 for the year ended December 31, 2000 from $4.79 for the year ended December 31, 1999. Operating cash return on average assets was 1.09% for the year ended December 31, 2000 and 1.13% for the year ended December 31,1999. Additionally, the operating cash general and administrative expense (general and administrative expense, excluding non-cash amortization expense relating to certain employee stock plans) to average assets ratio decreased to 0.76% for the year ended December 31, 2000, from 0.82% for the year ended December 31, 1999. The operating cash efficiency ratio was 29.69% for the year ended December 31, 2000 and 30.57% for the year ended December 31, 1999. For more details on operating earnings and operating cash earnings, see "Consolidated Schedules of Operating Earnings and Operating Cash Earnings" on the following page. 51 54 CONSOLIDATED SCHEDULES OF OPERATING EARNINGS AND OPERATING CASH EARNINGS (In Thousands, Except Share Data)
YEAR ENDED DECEMBER 31, ------------------------------------------------------ SCHEDULE OF OPERATING EARNINGS 2000 (1) 1999 (2) 1998 (3) - ------------------------------ ------------------------------------------------------ Net interest income $ 507,016 $ 539,948 $ 448,983 Provision for loan losses 4,014 4,119 9,780 - -------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 503,002 535,829 439,203 - -------------------------------------------------------------------------------------------------------------------- Total non-interest income 65,270 67,490 66,218 - -------------------------------------------------------------------------------------------------------------------- Total non-interest expense 216,127 223,091 254,188 - -------------------------------------------------------------------------------------------------------------------- Operating earnings before income tax expense 352,145 380,228 251,233 Provision for income taxes 134,701 155,890 105,810 - -------------------------------------------------------------------------------------------------------------------- Operating earnings 217,444 224,338 145,423 - -------------------------------------------------------------------------------------------------------------------- Preferred dividends declared (6,000) (6,000) (6,000) - -------------------------------------------------------------------------------------------------------------------- Operating earnings available to common shareholders $ 211,444 $ 218,338 $ 139,423 ==================================================================================================================== Basic operating earnings per common share $ 4.41 $ 4.25 $ 2.74 ==================================================================================================================== Diluted operating earnings per common share $ 4.34 $ 4.16 $ 2.64 ====================================================================================================================
SCHEDULE OF OPERATING CASH EARNINGS - ----------------------------------- Operating earnings $ 217,444 $ 224,338 $ 145,423 Add back: Employee stock plans amortization expense (4) 6,372 9,927 18,195 Amortization of goodwill 19,296 19,425 19,754 Income tax benefit on amortization expense of earned portion of RRP stock 52 3,870 8,302 - -------------------------------------------------------------------------------------------------------------------- Operating cash earnings 243,164 257,560 191,674 - -------------------------------------------------------------------------------------------------------------------- Preferred dividends declared (6,000) (6,000) (6,000) - -------------------------------------------------------------------------------------------------------------------- Operating cash earnings available to common shareholders $ 237,164 $ 251,560 $ 185,674 ==================================================================================================================== Basic operating cash earnings per common share $ 4.95 $ 4.90 $ 3.65 ==================================================================================================================== Diluted operating cash earnings per common share $ 4.87 $ 4.79 $ 3.51 ==================================================================================================================== Basic weighted average common shares 47,952,856 51,351,355 50,801,598 Diluted weighted average common and common equivalent shares 48,717,339 52,506,962 52,886,191
(1) For the year ended December 31, 2000, the net gain on the sale of the former LIB headquarters and other bank real estate of $4.0 million, with a tax effect of $1.5 million, and a charge related to an executive severance payment of $5.4 million, with a tax effect of $2.0 million, have been excluded for purposes of displaying operating earnings. (2) For the year ended December 31, 1999, the net gain on sale and disposition of five upstate New York banking offices and certain loan production offices of $19.2 million, with a tax effect of $7.9 million, has been excluded for purposes of displaying operating earnings. (3) For the year ended December 31, 1998, acquisition, restructuring and other infrequently occurring charges have been excluded for purposes of displaying operating earnings. The following details such charges:
Before Tax Tax Effect After Tax ------------------------------------------ Acquisition-related costs $124,168 $40,317 $ 83,851 Additional loan loss reserves 5,600 1,960 3,640 Asset/liability management actions: Penalties related to borrowings prepaid 18,547 7,910 10,637 Losses on securities sold 3,955 1,708 2,247 ------------------------------------------ Total $152,270 $51,895 $100,375 ------------------------------------------
(4) Non-cash amortization expenses relating to allocation of ESOP stock and earned portion of RRP stock. 52 55 COMPARISON OF FINANCIAL CONDITION AND OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 FINANCIAL CONDITION Total assets increased $2.11 billion or 10.2%, to $22.70 billion at December 31, 1999, from $20.59 billion at December 31, 1998. This increase reflects our objective of effectively deploying capital through asset growth, which resulted in increases in the mortgage loan and mortgage-backed securities portfolios, primarily during the first quarter of 1999. Mortgage loans, net, increased $1.53 billion, from $8.58 billion at December 31, 1998 to $10.11 billion at December 31, 1999. Gross mortgage loans originated and purchased during the year ended December 31, 1999 totaled $3.76 billion, of which $3.34 billion were originations and $417.6 million were purchases. These originations and purchases consisted primarily of one-to-four family residential mortgage loans. This compares to $5.00 billion of originations and $187.5 million of purchases for a total of $5.19 billion during the year ended December 31, 1998. The decrease in the mortgage loan originations was primarily a result of the general increase in market interest rates, which decreased the levels of mortgage refinance activity. Additionally, the closing and disposal of certain LPOs acquired from LIB also contributed to the significant reduction in our volume of loan originations. This reduction was offset by a slowdown in loan prepayments, also a result of the increase in interest rates. Mortgage-backed securities increased $596.6 million to $9.29 billion at December 31, 1999, from $8.69 billion at December 31, 1998. This increase was the result of purchases totaling $4.15 billion, consisting primarily of agency-issued REMICs and CMOs purchased in the first quarter of 1999, offset by principal payments received of $2.94 billion, sales of $146.8 million and an increase in the net unrealized loss on securities available-for-sale of $473.7 million. In addition to the increases in the mortgaged-backed securities and mortgage loan portfolios, other assets increased $227.7 million from $166.6 million at December 31, 1998 to $394.3 million at December 31, 1999, primarily due to the increase in the deferred tax asset directly related to the increase in the unrealized loss on securities available-for-sale. Federal funds sold and repurchase agreements also increased $69.3 million to $335.7 million at December 31, 1999, from $266.4 million at December 31, 1998. These increases were slightly offset by a decrease in loans held-for-sale of $201.5 million to $11.4 million at December 31, 1999, from $212.9 million at December 31, 1998, which is reflective of our focus on originating loans for portfolio rather than for sale in the secondary market, as mentioned above. Other securities also decreased $139.2 million to $1.48 billion at December 31, 1999, from $1.61 billion at December 31, 1998. The growth in the loan and mortgage-backed securities portfolios was funded primarily through additional medium-term borrowings, which is consistent with our strategy of complementing our growth through acquisitions by leveraging our excess capital. Reverse repurchase agreements increased $1.99 billion, to $9.28 billion at December 31, 1999, from $7.29 billion at December 31, 1998. Federal Home Loan Bank of New York advances increased $400.0 million to $1.61 billion at December 31, 1999 from $1.21 billion at December 31, 1998. Deposits decreased $113.8 million from $9.67 billion at December 31, 1998 to $9.55 billion at December 31, 1999 primarily due to the sale of our five upstate New York banking offices with deposits totaling $156.4 million in the third quarter of 1999. On October 28, 1999, our wholly owned subsidiary, Astoria Capital Trust I issued $125.0 million of Capital Securities which are fully and unconditionally guaranteed by us. For further discussion of the Capital Securities, see "Liquidity and Capital Resources." Stockholders' equity totaled $1.20 billion at December 31, 1999 and $1.46 billion at December 31, 1998. Decreases to stockholders' equity included a $329.6 million increase in the unrealized loss on securities available-for-sale, net of taxes, primarily due to increases in interest rates during the year ended December 31, 1999, which adversely affected the market values of our available-for-sale securities. Additional decreases in stockholders' equity were the result of repurchases of our common stock of $159.4 million 53 56 and dividends declared of $55.2 million. These decreases were partially offset by $235.7 million of net income, the effect of options exercised and related tax benefit of $29.3 million and the amortization for the allocated portion of shares held by the ESOP and the related tax benefit on the earned portion of the shares held by the RRP of $13.8 million. RESULTS OF OPERATIONS GENERAL Net income for the year ended December 31, 1999 increased $190.7 million to $235.7 million for the year ended December 31, 1999, from $45.0 million for the year ended December 31, 1998. For the year ended December 31, 1999, diluted earnings per common share increased to $4.37 per share, as compared to $0.74 per share for the year ended December 31, 1998. Return on average assets increased to 1.04% for the year ended December 31, 1999, from 0.25% for the year ended December 31, 1998. Return on average stockholders' equity increased to 17.31% for the year ended December 31, 1999, from 3.02% for the year ended December 31, 1998. Return on average tangible stockholders' equity increased to 20.92% for the year ended December 31, 1999, from 3.65% for the year ended December 31, 1998. The results of operations for the year ended December 31, 1999 include an $11.3 million, after-tax, net gain on the disposition of banking and loan production offices. The results of operations for the year ended December 31, 1998 include infrequently occurring charges related to the LIB Acquisition of $89.7 million, after-tax, and penalties related to prepaid borrowings of $10.6 million, after-tax. See "Consolidated Schedules of Operating Earnings and Operating Cash Earnings" on page 52 for details of these charges. The following comparison of net operating income, diluted operating earnings per common share and related operating returns reflect the 1999 results exclusive of the net gain and the 1998 results exclusive of the infrequently occurring charges. For the year ended December 31, 1999, net operating income increased $78.9 million, or 54.3%, to $224.3 million, from $145.4 million for the year ended December 31, 1998. Diluted operating earnings per common share for the year ended December 31, 1999 increased to $4.16 per share, or 57.6%, from $2.64 per share for the year ended December 31, 1998. The operating return on average assets for the year ended December 31, 1999 increased to 0.99%, from 0.79% for the year ended December 31, 1998. The operating return on average stockholders' equity for the year ended December 31, 1999 increased to 16.48%, from 9.76% for the year ended December 31, 1998. The operating return on average tangible stockholders' equity for the year ended December 31, 1999 increased to 19.91%, from 11.78% for the year ended December 31, 1998. NET INTEREST INCOME Our net interest income is significantly impacted by changes in interest rates and market yield curves. During 1998 and 1999, interest rates fluctuated significantly, and various financial instrument markets became increasingly volatile. During the year ended December 31, 1998, interest rates, in general, steadily declined. Conversely, 1999 represented a year of rising interest rates. However, the overall levels of interest rates did not surpass prior year levels until late in the second quarter of 1999. For the year ended December 31, 1999, net interest income increased $90.9 million, or 20.3%, to $539.9 million, from $449.0 million for the year ended December 31, 1998. This increase was a result of the growth in average interest-earning assets of $4.56 billion partially offset by the growth in average interest-bearing liabilities of $4.43 billion. This increase in average interest-earning assets was partially offset by a decrease in the net interest rate spread to 2.23% for the year ended December 31, 1999, from 2.32% for the year ended December 31, 1998. The change in the net interest rate spread resulted from a decrease in the average yield on total interest-earning assets to 6.80% for the year ended December 31, 1999, from 7.03% for the year ended December 31, 1998, partially offset by a decrease in the average cost of interest- 54 57 bearing liabilities to 4.57% for the year ended December 31, 1999, from 4.71% for 1998. The net interest margin was 2.46% for the year ended December 31, 1999 and 2.58% for the year ended December 31, 1998. INTEREST INCOME Interest income for the year ended December 31, 1999 increased $270.8 million, or 22.1%, to $1.50 billion, from $1.22 billion for the year ended December 31, 1998. This increase was the result of a $4.56 billion increase in average interest-earning assets to $21.99 billion for the year ended December 31, 1999, from $17.43 billion for 1998. This increase was partially offset by a decrease in the average yield of interest-earning assets to 6.80% for 1999, from 7.03% for 1998. The increase in average interest-earning assets was primarily due to increases in mortgage loans and mortgage-backed securities resulting from our strategy of deploying excess capital through growth. Interest income on mortgage loans increased $67.0 million to $679.6 million for 1999, from $612.6 million for 1998, which was the result of an increase in the average balance of $1.21 billion, partially offset by a decrease in the average yield on mortgage loans to 7.13% for 1999, from 7.36% for 1998. The increase in the average balance of mortgage loans reflects our continued emphasis on originations of primarily one-to-four family residential mortgage loans. The decrease in the average yield was due to the continued decline in market interest rates during the latter half of 1998, coupled with the accelerated prepayments and refinancing activity during 1998, which continued through the first quarter of 1999. Although rising interest rates during 1999 have caused a deceleration of this prepayment and refinancing activity, the overall levels of interest rates did not surpass prior year levels until late in the second quarter of 1999. Additionally, the rising interest rate environment has created a shift in consumer demand from fixed rate products to adjustable rate products which are initially offered at rates below their fully indexed rate. Accordingly, the impact of these rising rates has not yet been fully reflected in the overall average yield on our mortgage loan portfolio. Interest income on consumer and other loans decreased $5.1 million resulting from a decrease in the average balance of $60.4 million, partially offset by an increase in the yield to 9.63% for 1999, from 9.37% for 1998. Interest income on mortgage-backed securities increased $219.2 million to $658.1 million for 1999, from $438.9 million for 1998. This increase was the result of a $3.58 billion increase in the average balance of this portfolio, partially offset by a decrease in the average yield to 6.43% for 1999, from 6.59% for 1998. The decrease in the average yield of our mortgage-backed securities portfolio is reflective of the changes in the interest rate environment discussed above. Interest income on other securities decreased $3.4 million to $129.0 million for 1999, from $132.4 million for 1998. This was the result of a decrease in the average balance of this portfolio of $48.2 million, while the average yield remained constant at 7.02% for both the years ended December 31, 1999 and 1998. Interest income on federal funds sold and repurchase agreements decreased $6.9 million as a result of a decrease in the average balance of $117.1 million and a decrease in the average yield to 5.13% for 1999, from 5.42% for 1998. INTEREST EXPENSE Interest expense for the year ended December 31, 1999 increased $179.8 million, to $955.3 million, from $775.5 million for the year ended December 31, 1998. This increase was attributable to an increase in the average balance of interest-bearing liabilities of $4.43 billion, to $20.89 billion for the year ended December 31, 1999, from $16.46 billion for the year ended December 31, 1998, partially offset by a decrease in the average cost of such liabilities to 4.57% for 1999, from 4.71% for 1998. The significant increase in average interest-bearing liabilities, particularly borrowed funds, was primarily attributable to the previously mentioned growth strategy deployed during the latter portion of 1998 and the beginning of 1999. The decline in the overall average costs of our interest-bearing liabilities reflects the lower interest rate environment that prevailed in the first half of 1999 versus the comparable 1998 period. 55 58 Interest expense on borrowed funds increased $216.3 million, to $592.2 million for the year ended December 31, 1999, from $375.9 million for the year ended December 31, 1998. This increase was attributable to an increase in the average balance of borrowed funds of $4.68 billion, partially offset by a decrease in the average cost of borrowed funds to 5.23% for 1999, from 5.66% for 1998. The significant growth we experienced during the second half of 1998 and the first quarter of 1999 was funded primarily through medium-term callable borrowings, which provide us with flexibility and efficiency which could not be obtained through deposit growth. Interest expense on deposits decreased $36.4 million to $363.2 million for the year ended December 31, 1999, from $399.6 million for the year ended December 31, 1998, reflecting a decrease in the average cost of interest-bearing deposits to 3.80% for 1999 from 4.07% for 1998 coupled with a decrease in the average balance of interest-bearing deposits of $244.4 million. Interest expense on savings accounts decreased $17.9 million as a result of a decrease in the average cost to 2.01% for 1999, from 2.50% for 1998 and a decrease in the average balance of $191.8 million. The decrease in average cost of savings accounts was a result of us lowering the rates paid on these accounts during the fourth quarter of 1998. Interest expense on certificates of deposit decreased $30.5 million from the combined effect of a decrease in the average balance of $353.6 million and a decrease in the average cost to 5.23% for 1999, from 5.45% for 1998. Interest expense on money market accounts increased $13.2 million to $45.3 million for 1999, from $32.1 million for 1998, as a result of an increase in the average balance of $309.7 million, offset by a decrease in the average cost to 4.36% for 1999, from 4.40% for 1998. Interest paid on money market accounts is on a tiered basis with 86.53% of the balance in the highest tier (accounts with balances of $50,000 and higher). The yield on the top tier is by policy at least equal to the discount rate for the three-month U.S. Treasury bill. As previously mentioned, despite the increase in rates during 1999, the actual levels of interest rates did not surpass those of the prior year until late in the second quarter of 1999. Interest expense on NOW and money manager accounts decreased $1.2 million as a result of us lowering the rates paid on these accounts during the third quarter of 1998. PROVISION FOR LOAN LOSSES Provision for loan losses decreased $11.3 million, to $4.1 million for the year ended December 31, 1999, from $15.4 million for the year ended December 31, 1998. The $15.4 million recorded in 1998 included $5.6 million to conform LIB's previous accounting practices and asset review methodologies to ours, as well as a $4.0 million charge due to increased delinquencies experienced in the consumer loan portfolio in 1998. The allowance for loan losses increased to $76.6 million at December 31, 1999, from $74.4 million at December 31, 1998. Net loan charge-offs totaled $1.9 million for the year ended December 31, 1999 compared to $14.8 million for the year ended December 31, 1998, which included $9.2 million in charge-offs relating to one property. Non-performing loans decreased $57.7 million to $53.4 million at December 31, 1999, from $111.1 million at December 31, 1998. This reduction in non-performing loans improved the percentage of allowance for loan losses to non-performing loans from 66.99% at December 31, 1998 to 143.49% at December 31, 1999. The allowance for loan losses as a percentage of total loans decreased from 0.83% at December 31, 1998 to 0.75% at December 31, 1999 primarily due to the increase of $1.25 billion in gross total loans from December 31, 1998 to December 31, 1999. The decline in the provision generally reflects the decline in non-performing loans. For further discussion of non-performing loans and allowance for loan losses, see "Asset Quality." NON-INTEREST INCOME Non-interest income for the year ended December 31, 1999 increased $24.4 million, or 39.2%, to $86.7 million from $62.3 million for the year ended December 31, 1998. Excluding gains on sales of securities and the net gain on disposition of banking and loan production offices, non-interest income for 1999 increased $15.5 million, or 30.2%, to $66.8 million, from $51.3 million for 1998. Customer service and other loan fees increased $5.4 million to $40.0 million for the year ended December 31, 1999, from $34.6 million for the year ended December 31, 1998. This increase is due in part to our 56 59 changes in customer service fees in 1998 and the overall growth in the loan portfolio. Loan servicing fees increased $10.2 million to $15.4 million for 1999, from $5.2 million for 1998. Loan servicing fees include all contractual and ancillary servicing revenue we receive net of the amortization of mortgage servicing rights and valuation allowance adjustments for the impairment of mortgage servicing rights. The increase in loan servicing fees was the result of a $5.0 million decrease in the amortization of servicing rights coupled with changes in the market valuation of servicing rights. As a result of a change in prepayment speeds in 1999, we recognized a recovery of portions of the valuation allowance for mortgage servicing rights of $2.5 million for the year ended December 31, 1999. In contrast, for the year ended December 31, 1998, we recorded a $3.1 million provision for impairment on our mortgage servicing rights due to increased mortgage refinance activity and accelerated prepayment speeds. Net gains on sales of loans increased $1.3 million to $3.3 million for the year ended December 31, 1999, from $2.0 million for the year ended December 31, 1998. Other non-interest income decreased $1.4 million to $8.1 million for the year ended December 31, 1999, from $9.5 million for the year ended December 31, 1998. The decrease is primarily due to a $1.6 million gain on the settlement of a real estate dispute recorded in the second quarter of 1998. For the year ended December 31, 1999, net gain on sales of securities decreased $10.2 million to $739,000, from $11.0 million for the year ended December 31, 1998. The activity in 1998 was concentrated on the sale of mortgage-backed securities created from the securitizations of mortgage loans. During 1999, however, production of thirty-year and fifteen-year fixed rate loans declined as consumers shifted to adjustable rate mortgage loans which we retain for portfolio. During the year ended December 31, 1999, we recognized a $1.2 million ($732,000, net of taxes) loss on the closing and disposition of certain LPOs and a $20.4 million ($12.0 million, net of taxes) gain on the sale of our five upstate New York banking offices. NON-INTEREST EXPENSE Non-interest expense for the year ended December 31, 1999 was $223.1 million, a decrease of $155.3 million, or 41.0%, from $378.4 million for the year ended December 31, 1998. Included in 1998 non-interest expense was $124.2 million of acquisition costs and restructuring charges related to the LIB Acquisition. Excluding this infrequently occurring charge, non-interest expense for the year ended December 31, 1998 was $254.2 million, resulting in a $31.1 million decrease in non-interest expense from 1998 to 1999. General and administrative expense decreased $37.6 million to $195.3 million for 1999, from $232.9 million for 1998. Included in other general and administrative expense during the third quarter of 1998, was $8.4 million of various accruals for expenses incurred and for differences between the general ledger and various subsidiary ledgers relating to the LIB Acquisition. The remaining reduction in non-interest expense was primarily the result of the consolidation of LIB's operations into ours which resulted in significant cost savings. Compensation and benefits decreased $19.3 million to $99.9 million for the year ended December 31, 1999, from $119.2 million for the year ended December 31, 1998. Included in this $19.3 million decrease was an $8.3 million decrease in employee stock plans amortization expense to $9.9 million for the year ended December 31, 1999, from $18.2 million for the year ended December 31, 1998. The decrease in employee stock plans amortization expense includes a decrease relating to the allocation of ESOP stock due to a lower average market value of our common stock from $50.30 per share for 1998 to $40.75 per share for 1999. In addition, our vesting period for the majority of shares granted under the RRP was completed in January 1999. The amortization period for these grants was primarily completed in fiscal 1998, resulting in a decrease in amortization expense to $145,000 for 1999, compared to $5.4 million for 1998. Occupancy, equipment and systems expense decreased $4.0 million to $53.7 million for the year ended December 31, 1999, from $57.7 million for the year ended December 31, 1998. Advertising expense 57 60 increased $2.1 million to $6.9 million for 1999, from $4.8 million for 1998. Other expenses decreased $15.0 million to $30.2 million for 1999, from $45.2 million for 1998. This decrease is primarily a result of $8.4 million of various accruals for expenses incurred and for differences between the general ledger and various subsidiary ledgers relating to the LIB Acquisition, as previously mentioned. Goodwill litigation expense increased $4.7 million to $6.4 million for 1999, from $1.7 million for 1998. Our percentage of general and administrative expense to average assets improved to 0.86% for the year ended December 31, 1999, from 1.27% for the year ended December 31, 1998. The efficiency ratio also improved to 32.21% for the year ended December 31, 1999, from 46.56% for the year ended December 31, 1998. INCOME TAX EXPENSE For the year ended December 31, 1999, income tax expense was $163.8 million, representing an effective tax rate of 41.0%, as compared to $61.8 million, representing an effective tax rate of 52.6%, for the 1998 period. The decrease in our effective tax rate was attributable to the 1998 infrequently occurring charges related to the LIB Acquisition which included approximately $24.0 million of charges which were not deductible for income tax purposes and a tax benefit derived from a 1999 corporate restructuring of certain subsidiaries of Astoria Federal. CASH EARNINGS Tangible stockholders' equity (stockholders' equity less goodwill) totaled $973.0 million at December 31, 1999, compared to $1.22 billion at December 31, 1998. The following comparisons exclude the net gain on disposition of banking and loan production offices recognized in 1999 and acquisition costs and other infrequently occurring charges incurred during 1998. For the year ended December 31, 1999, operating cash earnings totaled $257.6 million, or $33.2 million more than operating earnings, representing a cash return on average tangible equity of 22.86%. For the year ended December 31, 1998, operating cash earnings totaled $191.7 million, or $46.3 million more than operating earnings, representing a cash return on average tangible equity of 15.53%. We believe that various other performance measures should also be analyzed utilizing cash earnings. The cash return on average assets was 1.13% for the year ended December 31, 1999 and 1.05% for the year ended December 31, 1998. Additionally, the cash general and administrative expense (general and administrative expense, excluding non-cash amortization expense relating to certain employee stock plans) to average assets ratio decreased to 0.82% for the year ended December 31, 1999, from 1.17% for the year ended December 31, 1998. The operating cash efficiency ratio was 30.57% for the year ended December 31, 1999 and 42.92% for the year ended December 31, 1998. For more details on operating earnings and operating cash earnings, see "Consolidated Schedules of Operating Earnings and Operating Cash Earnings" on page 52. ASSET QUALITY One of our key operating objectives has been and continues to be to maintain a high level of asset quality. Through a variety of strategies, including, but not limited to borrower workout arrangements and aggressive marketing of foreclosed properties, we have been proactive in addressing problem and non-performing assets which, in turn, has helped to build the strength of our financial condition. Such strategies, as well as our concentration on one-to-four family mortgage lending and maintaining sound credit standards for new loan originations, and in particular a generally strong and stable economy and real estate market, have resulted in a steady reduction in non-performing assets to total assets from December 31, 1996 through December 31, 2000. Non-performing assets decreased from $58.4 million at December 31, 1999 to $40.0 million at December 31, 2000. The ratio of non-performing assets to total assets decreased from 0.26% at December 31, 1999 to 0.18% at December 31, 2000. The decrease in non-performing assets was primarily due to a $17.2 million decrease in non-performing loans from $53.4 million at December 31, 1999 to $36.2 million at December 31, 2000. 58 61 The following table sets forth information regarding non-performing assets. In addition to the non-performing loans, we had approximately $3.0 million of potential problem loans at December 31, 2000. Such loans are 60-89 days delinquent as shown on page 60. NON-PERFORMING ASSETS
AT DECEMBER 31, ------------------------------------------------------------------------ (Dollars in Thousands) 2000 1999 1998 1997 1996 ------------------------------------------------------------------------ Non-accrual delinquent mortgage loans (1) $ 34,332 $ 48,830 $100,302 $ 80,604 $ 71,630 Non-accrual delinquent consumer and other loans 903 1,626 5,995 4,563 7,600 Mortgage loans delinquent 90 days or more and still accruing interest (2) 952 2,913 4,776 4,728 7,396 ------------------------------------------------------------------------ Total non-performing loans 36,187 53,369 111,073 89,895 86,626 ------------------------------------------------------------------------ Real estate owned, net (3) 3,801 5,080 6,071 12,734 15,576 Investment in real estate, net (4) -- -- 3,266 12,633 7,233 ------------------------------------------------------------------------ Total real estate owned and investment in real estate, net 3,801 5,080 9,337 25,367 22,809 ------------------------------------------------------------------------ Total non-performing assets $ 39,988 $ 58,449 $120,410 $115,262 $109,435 ======================================================================== Allowance for loan losses to non-performing loans 220.88% 143.49% 66.99% 82.23% 55.41% Allowance for loan losses to total loans 0.70% 0.75% 0.83% 0.93% 0.83%
(1) Consists primarily of loans secured by one-to-four family properties. (2) Loans delinquent 90 days or more and still accruing interest consist solely of loans delinquent 90 days or more as to their maturity date but not their interest payments, and are primarily secured by one-to-four family properties. (3) Real estate acquired by us as a result of foreclosure or by deed in lieu of foreclosure is recorded at the lower of cost or fair value, less estimated selling costs. (4) Investment in real estate is recorded at the lower of cost or fair value. If all non-accrual loans had been performing in accordance with their original terms, we would have recorded interest income, with respect to such loans, of $2.9 million for the year ended December 31, 2000, $3.8 million for the year ended December 31, 1999 and $6.8 million for the year ended December 31, 1998. This compares to actual payments recorded as interest income, with respect to such loans, of $1.6 million for the year ended December 31, 2000, $1.9 million for the year ended December 31, 1999 and $1.6 million for the year ended December 31, 1998. Excluded from non-performing assets are restructured loans that have complied with the terms of their restructure agreement for a satisfactory period and have, therefore, been returned to performing status. Restructured loans that are in compliance with their restructured terms totaled $5.2 million at December 31, 2000, $6.7 million at December 31, 1999, $6.9 million at December 31, 1998, $9.1 million at December 31, 1997 and $11.8 million at December 31, 1996. 59 62 The following set of tables shows a comparison of delinquent loans at December 31, 2000, 1999 and 1998.
DELINQUENT LOANS AT DECEMBER 31, 2000 60-89 DAYS 90 DAYS OR MORE PRINCIPAL PRINCIPAL BALANCE BALANCE (Dollars in Thousands) OF LOANS OF LOANS - ----------------------------------------------------------------- One-to-four family $ 1,459 $32,529 Multi-family -- 990 Commercial real estate 791 1,765 Consumer and other loans 728 903 --------------------------- Total delinquent loans $ 2,978 $36,187 --------------------------- Delinquent loans to total loans 0.03% 0.32%
AT DECEMBER 31, 1999 60-89 DAYS 90 DAYS OR MORE PRINCIPAL PRINCIPAL BALANCE BALANCE (Dollars in Thousands) OF LOANS OF LOANS - ----------------------------------------------------------------- One-to-four family $ 2,202 $48,610 Multi-family -- 802 Commercial real estate 2,369 2,331 Consumer and other loans 1,033 1,626 --------------------------- Total delinquent loans $ 5,604 $53,369 --------------------------- Delinquent loans to total loans 0.05% 0.52%
AT DECEMBER 31, 1998 60-89 DAYS 90 DAYS OR MORE PRINCIPAL PRINCIPAL BALANCE BALANCE (Dollars in Thousands) OF LOANS OF LOANS - ----------------------------------------------------------------- One-to-four family $ 2,422 $ 94,078 Multi-family 203 2,224 Commercial real estate 221 8,776 Consumer and other loans 2,058 5,995 --------------------------- Total delinquent loans $ 4,904 $111,073 --------------------------- Delinquent loans to total loans 0.05% 1.23%
The underlying credit quality of our loan portfolio is dependent primarily on each borrower's ability to continue to make required loan payments and, in the event a borrower is unable to continue to do so, the value of the collateral, if any, securing the loan. A borrower's ability to pay typically is dependent primarily on employment and other sources of income, which in turn is impacted by general economic conditions, although other factors, such as unanticipated expenditures or changes in the financial markets may also impact a borrower's ability to pay. Collateral values, particularly real estate values, are also impacted by a variety of factors including general economic conditions, demographics, maintenance and collection or foreclosure delays. A loan is normally deemed impaired when it is probable we will be unable to collect both principal and interest due according to the contractual terms of the loan agreement. A valuation allowance is established (with a corresponding charge to the provision for loan losses) when the fair value of the property that 60 63 collateralizes the impaired loan is less than the recorded investment in the loan. At December 31, 2000, our balance of impaired loans was $17.4 million compared to $24.3 million at December 31, 1999. For further discussion of impaired loans, see Note 5 of Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data." The provision for loan losses is based upon management's estimate of the amount necessary to maintain adequate reserves for losses inherent in our loan portfolio. The estimate of inherent losses is developed considering a number of factors, including matters pertinent to the underlying quality of the loan portfolio. We review our loans receivable portfolio quarterly including, but not limited to, the size, composition and risk profile of the portfolio, delinquency levels, historical loss experience, cure rates on delinquent loans, economic conditions and other pertinent factors, such as assumptions and projections of future conditions. We determine loan loss provisions by reviewing individual loans as well as an overall assessment of the loan portfolio in view of the state of the regional economies, trends in the real estate market of our lending areas and trends in the level of our non-performing loans. The following table sets forth our allowance for losses on loans, REO and investments in real estate at the dates indicated.
AT OR FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------------------------------- (Dollars in Thousands) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- ALLOWANCE FOR LOSSES ON LOANS: Balance at beginning of year ........................ $ 76,578 $ 74,403 $ 73,920 $ 48,001 $ 47,853 Allowance of acquired institution ............... -- -- -- 25,433 -- Provision charged to operations ................. 4,014 4,119 15,380 9,061 10,163 Charge-offs: One-to-four family ........................... (963) (1,554) (13,039) (3,971) (5,179) Multi-family ................................. (8) (12) (769) (2,059) (226) Commercial real estate ....................... -- (845) (1,528) (72) (2,468) Consumer and other ........................... (1,678) (4,298) (3,824) (4,726) (4,819) -------- -------- -------- -------- -------- Total charge-offs ............................... (2,649) (6,709) (19,160) (10,828) (12,692) Recoveries: One-to-four family ........................... 802 1,540 1,616 728 637 Multi-family ................................. 136 270 516 -- 37 Commercial real estate ....................... 575 1,591 1,788 617 1,047 Consumer and other ........................... 475 1,364 489 908 956 -------- -------- -------- -------- -------- Total recoveries ................................ 1,988 4,765 4,409 2,253 2,677 -------- -------- -------- -------- -------- Net charge-offs ................................. (661) (1,944) (14,751) (8,575) (10,015) Adjustment to conform fiscal year of Long Island Bancorp, Inc. to Astoria Financial Corporation -- -- (146) -- -- -------- -------- -------- -------- -------- Balance at end of year .............................. $ 79,931 $ 76,578 $ 74,403 $ 73,920 $ 48,001 ======== ======== ======== ======== ======== Ratio of net charge-offs during the year to average loans outstanding during the year ..... 0.01% 0.02% 0.17% 0.13% 0.20% Ratio of allowance for loan losses to total loans at end of the year ......................... 0.70 0.75 0.83 0.93 0.83 Ratio of allowance for loan losses to non-performing loans at end of the year .......... 220.88 143.49 66.99 82.23 55.41 ALLOWANCE FOR LOSSES ON REO ......................... . AND INVESTMENTS IN REAL ESTATE: Balance at beginning of year ........................ $ 171 $ 689 $ 1,493 $ 2,045 $ 3,746 Allowance of acquired institution ............... -- -- -- 94 -- (Recovery) provision recorded to operations ..... (109) (38) 1,108 1,035 (1,257) Charge-offs ..................................... (113) (587) (2,835) (1,726) (2,110) Recoveries ...................................... 54 107 241 45 1,666 Adjustment to conform fiscal year of Long Island Bancorp, Inc. to Astoria Financial Corporation -- -- 682 -- -- -------- -------- -------- -------- -------- Balance at end of year .............................. $ 3 $ 171 $ 689 $ 1,493 $ 2,045 ======== ======== ======== ======== ========
61 64 The following table sets forth our allocation of the allowance for loan losses by loan category and the percent of loans in each category to total loans receivable at the dates indicated. The portion of the allowance for loan losses allocated to each loan category does not represent the total available for future losses which may occur within the loan category since the total loan loss reserve is a valuation reserve applicable to the entire loan portfolio.
AT DECEMBER 31, ----------------------------------------------------------------------------- 2000 1999 1998 -------------------- -------------------- ---------------------- % OF LOANS % OF LOANS % OF LOANS TO TO TO (Dollars in Thousands) AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS - ----------------------------------------------------------------------------------------------------------- One-to-four family......... $49,826 86.79% $44,556 88.05% $42,084 87.37% Multi-family............... 6,721 7.05 5,086 6.01 3,426 5.03 Commercial real estate..... 8,344 4.53 10,765 4.23 10,537 5.05 Consumer and other......... 15,040 1.63 16,171 1.71 18,356 2.55 ------- ------ ------- ------ ------- ------ Total allowances........... $79,931 100.00% $76,578 100.00% $74,403 100.00% ======= ====== ======= ====== ======= ======
AT DECEMBER 31, ---------------------------------------------------- 1997 1996 --------------------- --------------------- % OF LOANS % OF LOANS TO TO (Dollars in Thousands) AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS - ---------------------------------------------------------------------------------- One-to-four family......... $40,715 86.37% $20,139 88.32% Multi-family............... 5,305 4.72 3,057 3.49 Commercial real estate..... 13,676 5.70 10,364 4.24 Consumer and other......... 14,224 3.21 14,441 3.95 ------- ------ ------- ------ Total allowances........... $73,920 100.00% $48,001 100.00% ======= ====== ======= ======
IMPACT OF NEW AND PROPOSED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," or SFAS No. 133. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. The accounting for changes in the fair value of a derivative (that is, unrealized gains and losses) depends on the intended use of the derivative and the resulting designation. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," or SFAS No. 137. SFAS No. 137 deferred the effective date of SFAS No. 133 from fiscal quarters of fiscal years beginning after June 15, 1999 to June 15, 2000. Restatement of prior periods is not permitted. In June 2000, the FASB issued Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of FASB Statement No. 133," or SFAS No. 138. SFAS No. 138 amends the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and certain hedging activities. SFAS No. 138 will be adopted concurrently with SFAS No. 133. Upon adoption of SFAS No. 133 and SFAS No. 138 on January 1, 2001, we had three derivative instruments (interest rate swaps) with a notional amount of $450.0 million hedging the fair value of two medium term notes totaling $450.0 million. In addition, we also had commitments to fund loans held-for-sale as well as commitments to sell loans. Under SFAS No. 133, these commitments are considered derivative instruments. As a result of the implementation of SFAS No. 133 and SFAS No. 138, we recognized a $2.3 million charge, net of taxes, in January 2001 as a cumulative effect of a change in accounting principle. 62 65 In September 2000, the FASB Issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," or SFAS No. 140. SFAS No. 140 supercedes and replaces the guidance in SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," and rescinds SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125." SFAS No. 140 provides accounting and reporting standards for securitization transactions involving financial assets, sales of financial assets such as receivables, loans and securities, factoring transactions, wash sales, servicing assets and liabilities, collateralized borrowing arrangements, securities lending transactions, repurchase agreements, loan participations, and extinguishment of liabilities. Certain provisions of this Statement including relevant disclosures are effective for fiscal years ending after December 15, 2000 and have been incorporated into our consolidated financial statements. The remaining provisions are effective for transfer transactions entered into after March 31, 2001. SFAS No. 140 does not require restatement of prior periods. We believe the implementation of SFAS No. 140 will not have a material impact on our financial condition. The FASB issued an exposure draft on February 14, 2001, "Business Combinations and Intangible Assets," or the Draft, which is a limited revision of an exposure draft on the same topic issued September 7, 1999. In the Draft, the FASB indicated that the amortization of goodwill created with respect to business combinations completed both before and after the effective date of any final pronouncement would be discontinued. Should the Draft be formally implemented, we anticipate it to be effective for the third quarter of 2001. At such time, we would cease recording goodwill amortization amounting to approximately $19.3 million annually, or approximately $0.40 per diluted common share, based on shares outstanding at December 31, 2000, which would result in the reporting of increased annual net income and earnings per share by these amounts. IMPACT OF INFLATION AND CHANGING PRICES The consolidated financial statements and notes thereto presented herein have been prepared in accordance with GAAP, which require the measurement of our financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, nearly all of our assets and liabilities are monetary in nature. As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or, to the same extent, as the price of goods and services. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information regarding quantitative and qualitative disclosures about market risk appears under Item 7, "MD&A" on pages 39 through 43 under the caption "Interest Rate Sensitivity Analysis," and pages 58 through 62 under the caption "Asset Quality." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA For our Consolidated Financial Statements, see index on page 67. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 63 66 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ASTORIA FINANCIAL CORPORATION Information regarding directors and executive officers who are not directors of the Registrant, is presented in the tables under the heading "Board Nominees, Directors and Executive Officers" and under the heading "Committees and Meetings of the Board" in our definitive Proxy Statement to be dated April 16, 2001, for our Annual Meeting of Shareholders to be held on May 16, 2001, which will be filed with the SEC within 120 days from December 31, 2000, and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information relating to executive (and director) compensation is included under the headings "Summary Compensation Table," "Fiscal Year End Option/SAR Values," "Pension Plans," "Director Compensation," "Employment Agreements," "Incentive Option Plans," that portion of the "Report of the Compensation Committee on Executive Compensation" entitled "Long-term Incentive Compensation," and "Compensation Committee Interlocks and Insider Participation" in our definitive Proxy Statement to be dated April 16, 2001 for our Annual Meeting of Shareholders to be held on May 16, 2001, which will be filed with the SEC within 120 days from December 31, 2000, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information relating to security ownership of certain beneficial owners and management is included under the headings "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" in our definitive Proxy Statement to be dated April 16, 2001 for our Annual Meeting of Shareholders to be held on May 16, 2001, which will be filed with the SEC within 120 days from December 31, 2000, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions is included under the headings "Transactions with Certain Related Persons" and "Compensation Committee Interlocks and Insider Participation in Compensation Decisions" in our definitive Proxy Statement to be dated April 16, 2001 for our Annual Meeting of Shareholders to be held on May 16, 2001, which will be filed with the SEC within 120 days from December 31, 2000, and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS See Index to Consolidated Financial Statements on page 67. 2. FINANCIAL STATEMENT SCHEDULES Financial Statement Schedules have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto under Item 8, "Financial Statements and Supplementary Data." 64 67 (b) REPORTS ON FORM 8-K FILED DURING THE LAST QUARTER OF THE REGISTRANT'S FISCAL YEAR ENDED DECEMBER 31, 2000 None. (c) EXHIBITS: See Index of Exhibits on page 102. SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Astoria Financial Corporation /s/ George L. Engelke, Jr. Date: March 21, 2001 ------------------------------------------------ -------------- George L. Engelke, Jr. Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
NAME DATE ---- -------------- /s/ George L. Engelke, Jr. March 21, 2001 ----------------------------------------------------------------- -------------- George L. Engelke, Jr. Chairman, President and Chief Executive Officer /s/ Gerard C. Keegan March 21, 2001 ----------------------------------------------------------------- -------------- Gerard C. Keegan Vice Chairman, Chief Administrative Officer and Director /s/ Monte N. Redman March 21, 2001 ----------------------------------------------------------------- -------------- Monte N. Redman Executive Vice President and Chief Financial Officer /s/ Andrew M. Burger March 21, 2001 ----------------------------------------------------------------- -------------- Andrew M. Burger Director /s/ John J. Conefry, Jr. March 21, 2001 ----------------------------------------------------------------- -------------- John J. Conefry, Jr. Vice Chairman and Director /s/ Denis J. Connors March 21, 2001 ----------------------------------------------------------------- -------------- Denis J. Connors Director /s/ Robert J. Conway March 21, 2001 ----------------------------------------------------------------- -------------- Robert J. Conway Director
65 68 /s/ Thomas J. Donahue March 21, 2001 ----------------------------------------------------------------- -------------- Thomas J. Donahue Director /s/ Peter C. Haeffner, Jr. March 21, 2001 ----------------------------------------------------------------- -------------- Peter C. Haeffner, Jr. Director /s/ Ralph F. Palleschi March 21, 2001 ----------------------------------------------------------------- -------------- Ralph F. Palleschi Director /s/ Lawrence W. Peters March 21, 2001 ----------------------------------------------------------------- -------------- Lawrence W. Peters Director /s/ Thomas V. Powderly March 21, 2001 ---------------------------------------------------------------- -------------- Thomas V. Powderly Director /s/ Leo J. Waters March 21, 2001 ----------------------------------------------------------------- -------------- Leo J. Waters Director /s/ Donald D. Wenk March 21, 2001 ----------------------------------------------------------------- -------------- Donald D. Wenk Director
66 69 CONSOLIDATED FINANCIAL STATEMENTS OF ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES INDEX
Page CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2000, 1999 AND 1998 Independent Auditors' Report......................................................................... 68 Consolidated Statements of Financial Condition as of December 31, 2000 and 1999...................... 69 Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998 .......................................................................................... 70 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998................................................................... 71 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998...................................................................................... 72 Notes to Consolidated Financial Statements........................................................... 73
67 70 INDEPENDENT AUDITORS' REPORT To The Board of Directors and Stockholders of Astoria Financial Corporation We have audited the accompanying consolidated statements of financial condition of Astoria Financial Corporation and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Astoria Financial Corporation and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Melville, New York January 17, 2001 68 71 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AT DECEMBER 31, ---------------------------------- (In Thousands, Except Share Data) 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------------- ASSETS: Cash and due from banks $ 135,726 $ 154,918 Federal funds sold and repurchase agreements 171,525 335,653 Mortgage-backed securities available-for-sale ($6,508,966 and $7,829,812 pledged to creditors, respectively) 7,011,185 8,204,977 Other securities available-for-sale ($474,515 and $421,749 pledged to creditors, respectively) 692,037 657,772 Mortgage-backed securities held-to-maturity (fair value of $866,938 and $1,071,251, respectively) ($729,798 and $1,032,003 pledged to creditors, respectively) 863,529 1,082,261 Other securities held-to-maturity (fair value of $830,479 and $772,356, respectively) ($666,415 and $600,302 pledged to creditors, respectively) 848,662 817,696 Federal Home Loan Bank of New York stock 285,250 265,250 Loans held-for-sale 13,545 11,376 Loans receivable 11,424,449 10,289,074 Less allowance for loan losses 79,931 76,578 - ---------------------------------------------------------------------------------------------------------------------------------- Loans receivable, net 11,344,518 10,212,496 Mortgage servicing rights, net 40,962 48,369 Accrued interest receivable 109,439 110,668 Premises and equipment, net 154,582 176,813 Goodwill 204,649 223,945 Bank owned life insurance 251,565 - Other assets 209,628 394,342 - ---------------------------------------------------------------------------------------------------------------------------------- Total assets $22,336,802 $22,696,536 ================================================================================================================================== LIABILITIES: Deposits $10,071,687 $ 9,554,534 Reverse repurchase agreements 7,785,000 9,276,800 Federal Home Loan Bank of New York advances, net 1,910,000 1,610,058 Other borrowings, net 502,371 514,663 Mortgage escrow funds 116,487 120,350 Accrued expenses and other liabilities 313,094 298,219 - ---------------------------------------------------------------------------------------------------------------------------------- Total liabilities 20,698,639 21,374,624 Guaranteed preferred beneficial interest in junior subordinated debentures 125,000 125,000 STOCKHOLDERS' EQUITY: Preferred stock, $1.00 par value; 5,000,000 shares authorized: Series A (325,000 shares authorized and -0- shares issued and outstanding) -- -- Series B (2,000,000 shares authorized, issued and outstanding) 2,000 2,000 Common stock, $.01 par value; (200,000,000 shares authorized; 55,498,296 shares issued; and 49,643,554 and 51,730,959 shares outstanding, respectively) 555 555 Additional paid-in capital 807,357 800,414 Retained earnings 1,059,048 908,236 Treasury stock (5,854,742 and 3,767,337 shares, at cost, respectively) (203,632) (137,071) Accumulated other comprehensive income: Net unrealized loss on securities, net of taxes (121,043) (344,198) Unallocated common stock held by ESOP (31,122) (32,955) Unearned common stock held by RRP - (69) - ---------------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 1,513,163 1,196,912 - ---------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $22,336,802 $22,696,536 ==================================================================================================================================
See accompanying Notes to Consolidated Financial Statements. 69 72 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, ------------------------------------------------------- (In Thousands, Except Share Data) 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME: Mortgage loans $ 769,544 $ 679,623 $ 612,606 Consumer and other loans 18,237 19,285 24,422 Mortgage-backed securities 577,808 658,140 438,934 Other securities 132,426 129,030 132,414 Federal funds sold and repurchase agreements 19,919 9,201 16,072 - ----------------------------------------------------------------------------------------------------------------------------- Total interest income 1,517,934 1,495,279 1,224,448 - ----------------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE: Deposits 410,101 363,156 399,602 Borrowed funds 600,817 592,175 375,863 - ----------------------------------------------------------------------------------------------------------------------------- Total interest expense 1,010,918 955,331 775,465 - ----------------------------------------------------------------------------------------------------------------------------- Net interest income 507,016 539,948 448,983 Provision for loan losses 4,014 4,119 15,380 - ----------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 503,002 535,829 433,603 - ----------------------------------------------------------------------------------------------------------------------------- NON-INTEREST INCOME: Customer service and other loan fees 48,795 39,965 34,619 Loan servicing fees 8,635 15,377 5,162 Net gain on sales of securities - 739 10,976 Net gain on sales of loans 866 3,340 1,990 Net gain on disposition of banking and loan production offices 3,976 19,206 -- Income from bank owned life insurance 1,565 -- -- Other 5,409 8,069 9,516 - ----------------------------------------------------------------------------------------------------------------------------- Total non-interest income 69,246 86,696 62,263 - ----------------------------------------------------------------------------------------------------------------------------- NON-INTEREST EXPENSE: General and administrative: Compensation and benefits 87,722 99,906 119,240 Occupancy, equipment and systems 51,019 53,726 57,688 Federal deposit insurance premiums 2,079 4,537 5,931 Advertising 8,234 6,926 4,782 Other 32,638 30,171 45,247 - ----------------------------------------------------------------------------------------------------------------------------- Total general and administrative 181,692 195,266 232,888 Real estate operations and provision for losses, net (450) (186) (119) Goodwill litigation 8,580 6,417 1,665 Capital trust securities 12,435 2,169 -- Amortization of goodwill 19,296 19,425 19,754 Acquisition costs and restructuring charges -- -- 124,168 - ----------------------------------------------------------------------------------------------------------------------------- Total non-interest expense 221,553 223,091 378,356 - ----------------------------------------------------------------------------------------------------------------------------- Income before income tax expense and extraordinary item 350,695 399,434 117,510 Income tax expense 134,146 163,764 61,825 - ----------------------------------------------------------------------------------------------------------------------------- Income before extraordinary item 216,549 235,670 55,685 Extraordinary item, net of tax -- -- (10,637) - ----------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 216,549 $ 235,670 $ 45,048 ============================================================================================================================= Basic earnings per common share: Income before extraordinary item $ 4.39 $ 4.47 $ 0.98 Extraordinary item, net of tax -- -- (0.21) Net earnings per common share $ 4.39 $ 4.47 $ 0.77 ============================================================================================================================= Diluted earnings per common share: Income before extraordinary item $ 4.32 $ 4.37 $ 0.94 Extraordinary item, net of tax -- -- (0.20) Net earnings per common share $ 4.32 $ 4.37 $ 0.74 ============================================================================================================================= Basic weighted average common shares 47,952,856 51,351,355 50,801,598 Diluted weighted average common and common equivalent shares 48,717,339 52,506,962 52,886,191
See accompanying Notes to Consolidated Financial Statements. 70 73 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
ADDITIONAL PREFERRED COMMON PAID-IN RETAINED (In Thousands, Except Share Data) TOTAL STOCK STOCK CAPITAL EARNINGS - -------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1997 $ 1,445,799 $2,000 $533 $ 806,656 $ 750,305 Comprehensive income: Net income 45,048 -- -- -- 45,048 Other comprehensive income, net of tax: Net unrealized loss on securities, net of reclassification adjustment (34,928) -- -- -- -- ----------- Comprehensive income 10,120 ----------- Adjustments to stockholders' equity to effect the acquisition of Long Island Bancorp, Inc. -- -- 11 (69,667) -- Common stock repurchased (339,892 shares) (16,633) -- -- -- -- Dividends on common and preferred stock and amortization of purchase premium (38,631) -- -- (1,304) (37,327) Exercise of stock options and related tax benefit 24,357 -- 3 13,630 (25,113) Amortization relating to allocation of ESOP stock and earned portion of RRP stock and related tax benefit 26,496 -- -- 17,665 -- Adjustment to conform fiscal year of Long Island Bancorp, Inc. to Astoria Financial Corporation 10,876 -- -- 866 9,766 -------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1998 1,462,384 2,000 547 767,846 742,679 Comprehensive loss: Net income 235,670 -- -- -- 235,670 Other comprehensive income, net of tax: Net unrealized loss on securities, net of reclassification adjustment (329,632) -- -- -- -- ----------- Comprehensive loss (93,962) ----------- Common stock repurchased (4,257,200 shares) (159,367) -- -- -- -- Dividends on common and preferred stock and amortization of purchase premium (55,222) -- -- (1,304) (53,918) Exercise of stock options and related tax benefit 29,282 -- 8 23,173 (16,195) Amortization relating to allocation of ESOP stock and earned portion of RRP stock and related tax benefit 13,797 -- -- 10,699 -- -------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1999 1,196,912 2,000 555 800,414 908,236 Comprehensive income: Net income 216,549 -- -- -- 216,549 Other comprehensive income, net of tax: Net unrealized gain on securities, net of reclassification adjustment 223,155 -- -- -- -- ----------- Comprehensive income 439,704 ----------- Common stock repurchased (2,607,946 shares) (84,553) -- -- -- -- Dividends on common and preferred stock and amortization of purchase premium (54,846) -- -- (1,304) (53,542) Exercise of stock options and related tax benefit 10,509 -- -- 4,712 (12,195) Amortization relating to allocation of ESOP stock and earned portion of RRP stock and related tax benefit 5,437 -- -- 3,535 -- -------------------------------------------------------------------- BALANCE AT DECEMBER 31, 2000 $ 1,513,163 $2,000 $555 $ 807,357 $ 1,059,048 ====================================================================
ACCUMULATED UNALLOCATED UNEARNED OTHER COMMON COMMON TREASURY COMPREHENSIVE STOCK HELD STOCK HELD (In Thousands, Except Share Data) STOCK INCOME BY ESOP BY RRP - --------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1997 $ (87,940) $ 20,865 $(39,567) $(7,053) Comprehensive income: Net income -- -- -- -- Other comprehensive income, net of tax: Net unrealized loss on securities, net of reclassification adjustment -- (34,928) -- -- Comprehensive income Adjustments to stockholders' equity to effect the acquisition of Long Island Bancorp, Inc. 68,586 -- -- 1,070 Common stock repurchased (339,892 shares) (16,633) -- -- -- Dividends on common and preferred stock and amortization of purchase premium -- -- -- -- Exercise of stock options and related tax benefit 35,837 -- -- -- Amortization relating to allocation of ESOP stock and earned portion of RRP stock and related tax benefit -- -- 3,467 5,364 Adjustment to conform fiscal year of Long Island Bancorp, Inc. to Astoria Financial Corporation 150 (503) 192 405 ------------------------------------------------------ BALANCE AT DECEMBER 31, 1998 -- (14,566) (35,908) (214) Comprehensive loss: Net income -- -- -- -- Other comprehensive income, net of tax: Net unrealized loss on securities, net of reclassification adjustment -- (329,632) -- -- Comprehensive loss Common stock repurchased (4,257,200 shares) (159,367) -- -- -- Dividends on common and preferred stock and amortization of purchase premium -- -- -- -- Exercise of stock options and related tax benefit 22,296 -- -- -- Amortization relating to allocation of ESOP stock and earned portion of RRP stock and related tax benefit -- -- 2,953 145 ------------------------------------------------------ BALANCE AT DECEMBER 31, 1999 (137,071) (344,198) (32,955) (69) Comprehensive income: Net income -- -- -- -- Other comprehensive income, net of tax: Net unrealized gain on securities, net of reclassification adjustment -- 223,155 -- -- Comprehensive income Common stock repurchased (2,607,946 shares) (84,553) -- -- -- Dividends on common and preferred stock and amortization of purchase premium -- -- -- -- Exercise of stock options and related tax benefit 17,992 -- -- -- Amortization relating to allocation of ESOP stock and earned portion of RRP stock and related tax benefit -- -- 1,833 69 ------------------------------------------------------ BALANCE AT DECEMBER 31, 2000 $(203,632) $(121,043) $(31,122) $ -- ======================================================
See accompanying Notes to Consolidated Financial Statements. 71 74 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, --------------------------------------------- (In Thousands) 2000 1999 1998 - -------------------------------------------------------------------------- ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 216,549 $ 235,670 $ 45,048 ----------- ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Net accretion of discounts, premiums and deferred loan costs (58,971) (56,959) (25,939) Provision for loan and real estate losses 3,905 4,081 16,489 Depreciation and amortization 12,627 13,913 16,959 Net gain on sales of securities and loans (866) (4,079) (12,966) Net gain on disposition of banking and loan production offices (3,976) (19,206) -- Originations of loans held-for-sale, net of proceeds from sales (1,623) 140,703 (22,175) Amortization of goodwill 19,296 19,425 19,754 Allocated and earned shares from ESOP and RRP 5,372 9,927 18,195 Decrease (increase) in accrued interest receivable 1,229 (8,380) (8,671) Mortgage servicing rights amortization and valuation allowance, net of capitalized amounts 7,407 1,868 (6,061) Income from bank owned life insurance (1,565) -- -- Loss on early extinguishment of debt -- -- 18,547 Decrease in other assets 11,596 11,540 24,930 Increase (decrease) in accrued expenses and other liabilities 19,645 (8,467) 131,236 Acquisition costs and restructuring charges -- -- 87,101 --------------------------------------------- Net cash provided by operating activities 230,625 340,036 302,447 --------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Origination of loans held-for-investment, net of principal payments (307,543) (1,011,999) (1,260,776) Loan purchases through third parties (842,283) (413,573) (195,336) Principal payments on mortgage-backed securities held-to-maturity 219,869 337,081 319,212 Principal payments on mortgage-backed securities available-for-sale 1,544,673 2,599,970 1,964,457 Purchases of mortgage-backed securities held-to-maturity -- (281,165) (72,651) Purchases of mortgage-backed securities available-for-sale -- (3,869,950) (6,505,183) Purchases of other securities held-to-maturity -- (42,078) (213,456) Purchases of other securities available-for-sale (6,040) (179,018) (1,061,236) Proceeds from maturities of other securities available-for-sale 40,396 74,006 755,248 Proceeds from maturities of other securities held-to-maturity 9,059 213,723 527,527 Purchases of FHLB stock, net (20,000) (55,000) (101,476) Proceeds from sales of securities available-for-sale -- 177,825 1,903,658 Proceeds from sales of real estate owned and investments in real estate, net 9,716 14,871 20,524 Proceeds from disposition of banking and loan production offices 21,293 4,208 -- Purchases of premises and equipment, net of proceeds from sales (7,719) (27,150) (27,677) Purchase of bank owned life insurance (250,000) -- -- --------------------------------------------- Net cash provided by (used in) investing activities 411,421 (2,458,249) (3,947,165) --------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in deposits 517,073 42,689 (294,106) Net (decrease) increase in reverse repurchase agreements (1,491,800) 1,985,000 3,219,488 Net increase in FHLB of New York advances 300,000 400,000 820,000 Net (decrease) increase in other borrowings (13,174) (6,344) 77,855 (Decrease) increase in mortgage escrow funds (3,863) 4,244 22,720 Sale of upstate New York banking offices -- (135,637) -- Issuance of capital trust securities -- 125,000 -- Costs to repurchase common stock (84,553) (159,367) (16,633) Cash dividends paid to stockholders (54,846) (56,908) (42,754) Cash received for options exercised 5,797 16,725 15,012 --------------------------------------------- Net cash (used in) provided by financing activities (825,366) 2,215,402 3,801,582 --------------------------------------------- Net (decrease) increase in cash and cash equivalents (183,320) 97,189 156,864 Adjustment to conform fiscal year of Long Island Bancorp, Inc. to Astoria Financial Corporation -- -- 77,323 Cash and cash equivalents at beginning of year 490,571 393,382 159,195 --------------------------------------------- Cash and cash equivalents at end of year $ 307,251 $ 490,571 $ 393,382 ============================================= Supplemental disclosures: Cash paid during the year: Interest $ 1,016,520 $ 939,709 $ 738,271 ============================================= Income taxes $ 100,429 $ 155,395 $ 25,078 ============================================= Additions to real estate owned $ 8,940 $ 10,952 $ 15,955 ============================================= Securitization of loans $ -- $ -- $ 387,071 =============================================
See accompanying Notes to Consolidated Financial Statements. 72 75 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following significant accounting and reporting policies of Astoria Financial Corporation and our subsidiaries conform to generally accepted accounting principles in the United States of America, or GAAP, and are used in preparing and presenting these consolidated financial statements. (a) Basis of Presentation The accompanying consolidated financial statements include the accounts of Astoria Financial Corporation and our wholly-owned subsidiaries, (1) Astoria Federal Savings and Loan Association, or Astoria Federal, and its subsidiaries, (2) Astoria Capital Trust I and (3) AF Insurance Agency, Inc. As used in this annual report, "we," "us" and "our" refer to Astoria Financial Corporation and its consolidated subsidiaries, including Astoria Federal, Astoria Capital Trust I and AF Insurance Agency, Inc., depending on the context. All significant inter-company accounts and transactions have been eliminated in consolidation. The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. (b) Cash Equivalents For the purpose of reporting cash flows, cash and cash equivalents include cash and due from banks, federal funds sold and repurchase agreements with original maturities of three months or less. (c) Securities Management determines the appropriate classification of debt and equity securities at the time of purchase. Our available-for-sale portfolio is carried at estimated fair value, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income in stockholders' equity. The 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. Premiums and discounts are recognized as adjustments to interest income using the interest method over the remaining period to contractual maturity, adjusted for estimated prepayments when applicable. Gains and losses on the sale of all securities are determined using the specific identification method and are reflected in earnings when realized. For the years ended December 31, 2000 and 1999, we did not maintain a trading portfolio. We conduct a periodic review and evaluation of the securities portfolio to determine if the value of any security has declined below its carrying value and whether such decline is other than temporary. Securities pledged to creditors are reported in accordance with Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a replacement of FASB Statement No. 125," or FASB No. 140. FASB No. 140 requires that if a secured party has the right by contract or custom to sell or repledge collateral, as is the case with our reverse repurchase agreements, then the debtor shall report those pledged assets separately in the statement of financial condition. (d) Loans Held-for-Sale Generally, we originate 15-year and 30-year fixed rate loans for immediate sale to various governmental agencies or other investors on a servicing released or retained basis. Generally, the sale of such loans is arranged through a master commitment on a mandatory delivery or best efforts basis. In addition, student loans are sold to the United States Student Loan Marketing Association generally before repayment begins during the grace period of the loan. Loans held-for-sale are carried at the lower of cost or estimated fair value, as determined on an aggregate basis. Net unrealized losses are recognized in a valuation allowance by charges to operations. Premiums and discounts and origination fees and costs on loans held-for-sale are deferred and recognized as a component of the gain or loss on sale. Gains and losses on sales of loans held-for-sale are recognized on settlement dates and are determined by the difference between the sale proceeds and the carrying value of the loans. 73 76 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (e) Loans Receivable, net Loans receivable are carried at the unpaid principal balances, net of unamortized discounts and premiums and deferred loan origination fees and costs which are recognized as yield adjustments using the interest method. We generally amortize these amounts over the contractual life of the related loans, adjusted for prepayments. The allowance for loan losses is increased by charges to earnings and decreased by charge-offs (net of recoveries). Our periodic evaluation of the adequacy of the allowance is based on our past loan loss experience, trends in portfolio volume, quality, maturity and composition, the status and amount of non-performing and past-due loans, known and inherent risks in the portfolio, adverse situations that may affect a borrower's ability to repay, the estimated fair value of any underlying collateral and current and prospective, as well as specific and general, economic conditions. When loans become 90 days delinquent, with the exception of loans delinquent 90 days or more as to their maturity date but not their interest payment, we discontinue accruing interest, which results in a charge to interest income equal to all interest previously accrued and not collected. While loans are in non-accrual status, interest due is monitored and income is recognized only to the extent cash is received, until a return to accrual status is warranted. We return loans to an accrual status when principal and interest payments are current. A loan is considered impaired when, based upon current information and events, it is probable that we will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan agreement. We review larger balance loans for individual impairment and groups of smaller balance loans based on homogeneous pools. Interest income on impaired non-accrual loans is recognized on a cash basis while interest income on all other impaired loans is recognized on an accrual basis. (f) Mortgage Servicing Rights, or MSRs We recognize as separate assets the rights to service mortgage loans, whether those rights are acquired through loan purchase or loan origination activities. MSRs are amortized in proportion to and over the estimated period of net servicing income. We stratify our MSRs by underlying loan type (primarily fixed and adjustable) and interest rate. The estimated fair value of each MSRs stratum is determined through a discounted analysis of future cash flows, incorporating numerous assumptions including servicing income, servicing costs, market discount rates, prepayment speeds and default rates. We assess impairment of the MSRs based on the fair value of those rights on a stratum-by-stratum basis with any impairment recognized through a valuation allowance for each impaired stratum. Individual allowances for each stratum are then adjusted in subsequent periods to reflect changes in the measurement of impairment. (g) Real Estate Owned Real estate acquired through foreclosure or the collection process is carried (1) at the lower of cost or estimated fair value at the date of acquisition, and (2) at the lower of the new cost basis or estimated fair value, less estimated selling costs, thereafter. Fair value is estimated through current appraisals. Write-downs required at the time of acquisition are charged to the allowance for loan losses. Thereafter, we maintain an allowance for decreases in value which are charged to income along with any additional expenses incurred on the property. Real estate owned, which is included in other assets, amounted to $3.8 million at December 31, 2000 and $5.1 million at December 31, 1999. (h) Premises and Equipment Land is carried at cost. Buildings and improvements, leasehold improvements and furniture, fixtures and equipment are carried at cost, less accumulated depreciation and amortization. Buildings and improvements and furniture, fixtures and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the term of the related leases or the estimated useful lives of the improved property. 74 77 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (i) Goodwill The portion, if any, of intangible assets generated in acquisitions identified as core deposit intangible is amortized using the interest method over the estimated lives of the related liabilities. The remaining portion is considered goodwill and is amortized using the straight line method over varying periods up to fifteen years. We evaluate goodwill periodically for impairment in response to changes in circumstances or events. (j) Bank Owned Life Insurance Bank owned life insurance is carried at its cash surrender value. Increases in the cash surrender value of the insurance are reflected as non-interest income in the consolidated statements of income. (k) Reverse Repurchase Agreements (Securities Sold Under Agreements to Repurchase) We enter into sales of securities under agreements to repurchase with selected dealers and banks. Such agreements are treated as financings and the obligations to repurchase securities sold are reflected as a liability in our consolidated statements of financial condition. The securities underlying the agreements are delivered to the dealer or bank with whom each transaction is executed. The dealers or banks, who may sell, loan or otherwise dispose of such securities to other parties in the normal course of their operations, agree to resell us substantially the same securities at the maturities of the agreements. We retain the right of substitution of collateral throughout the terms of the agreements. (l) Interest Rate Swaps and Interest Rate Caps/Floors As part of our asset/liability management program, we utilize, from time-to-time, interest rate caps, floors and swaps to reduce our sensitivity to interest rate fluctuations. Premiums paid for interest rate caps and floors are amortized to interest expense over the terms of the agreements. Net interest income is increased or decreased on an accrual basis by amounts receivable or payable with respect to the rate caps and floors purchased or sold. The net interest differential resulting from the difference between exchanging variable and fixed rate interest payments as part of an interest rate swap is recorded as a component of net interest income. (m) Income Taxes Deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates, applicable to future years, to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. (n) Earnings Per Common Share, or EPS Basic EPS is computed by dividing income before extraordinary item less preferred dividends by the weighted-average common shares outstanding during the year. The weighted-average common shares outstanding includes the average number of shares of common stock outstanding adjusted for the weighted average number of unallocated shares held by the Employee Stock Ownership Plan, or ESOP, and the Recognition and Retention Plan, or RRP. Diluted EPS is computed by dividing income before extraordinary item less preferred dividends by the weighted-average common shares and common equivalent shares outstanding during the year. For the diluted EPS calculation, the weighted average common shares and common equivalent shares outstanding include the average number of shares of common stock outstanding adjusted for the weighted average number of unallocated shares held by the ESOP and the RRP and the dilutive effect of unexercised stock options using the treasury stock method. When applying the treasury stock method, our average stock price is utilized, and we add to the proceeds the tax benefit that would have been credited to additional paid-in capital assuming exercise of non-qualified stock options. 75 78 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (o) Employee Benefits Astoria Federal has a qualified, non-contributory defined benefit pension plan, or the Pension Plan, covering substantially all of its eligible employees. Astoria Federal's policy is to fund pension costs in accordance with the minimum funding requirement. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. In addition, Astoria Federal has non-qualified and unfunded supplemental retirement plans covering certain officers and directors. We also sponsor a defined health care plan that provides postretirement medical and dental coverage to select individuals. The costs of postretirement benefits are accrued during an employee's active working career. We record compensation expense related to the ESOP at an amount equal to the shares allocated by the ESOP multiplied by the average fair value of our common stock during the reporting period. For EPS and other per-share disclosure, ESOP shares that have been committed to be released are considered outstanding. ESOP shares that have not been committed to be released are excluded from outstanding shares on a weighted average basis for EPS calculations. The difference between the fair value of shares for the period and the cost of the shares allocated by the ESOP is recorded as an adjustment to additional paid-in capital. (p) Segment Reporting As a community-oriented financial institution, substantially all of our operations involve the delivery of loan and deposit products to customers. We make operating decisions and assess performance based on an ongoing review of these community banking operations, which constitute our only operating segment for financial reporting purposes. (2) BUSINESS COMBINATIONS Long Island Bancorp, Inc., or LIB, Acquisition Following the close of business on September 30, 1998, we completed the acquisition of LIB, the holding company of The Long Island Savings Bank, FSB, or LISB, a federally chartered savings bank. LIB was merged with us and LISB was merged with Astoria Federal. We refer to this transaction as the LIB Acquisition. All subsidiaries of LISB became subsidiaries of Astoria Federal. The transaction was accounted for as a pooling-of-interests. Accordingly, the assets, liabilities and stockholders' equity as reported by LIB immediately prior to consummation were recorded by us. No goodwill was created as a result of the LIB Acquisition. Under the terms of the merger agreement, holders of LIB common stock, par value $.01 per share, or LIB Common Stock, received 1.15 shares of our common stock for each share of LIB Common Stock. We issued 27,876,636 shares of our common stock to complete the LIB Acquisition. We recorded all direct costs related to the LIB Acquisition as liabilities as of the consummation date, and the total pre-tax charge of $124.2 million, substantially all of which has been paid out as of December 31, 2000, was classified as acquisition costs and restructuring charges in our consolidated statement of income for the year ended December 31, 1998. Such costs relate to restructuring plans and/or exit plans we formally adopted. LIB had $6.58 billion in total assets, $3.58 billion in deposits, and $581.0 million in stockholders' equity at September 30, 1998. (3) REPURCHASE AGREEMENTS We purchase securities under agreements to resell (repurchase agreements). These agreements represent short-term loans and are reflected as an asset in the consolidated statements of financial condition. We may sell, loan or otherwise dispose of such securities to other parties in the normal course of our operations. Substantially the same securities are to be resold at maturity of the repurchase agreements. Repurchase agreements averaged $33.9 million during the year ended December 31, 2000 and $37.9 million during the year ended December 31, 1999. The maximum amount of such agreements outstanding at any month end was $65.0 million during the year ended December 31, 2000 and $110.0 million during the year ended December 31, 1999. As of December 31, 2000, one repurchase agreement for $26.5 million was outstanding. As of December 31, 1999, one repurchase agreement for $35.7 million was outstanding. The fair value of the securities held under these 76 79 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) agreements was $27.3 million as of December 31, 2000, and $36.4 as of December 31, 1999. None of the securities held under these agreements were sold or repledged during the years ended December 31, 2000 and 1999. (4) SECURITIES The amortized cost and estimated fair value of securities available-for-sale and held-to-maturity at December 31, 2000 and 1999 are as follows:
AT DECEMBER 31, 2000 ------------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR (In Thousands) COST GAINS LOSSES VALUE - ------------------------------------------------------------------------------------------------------- Available-for-sale: Mortgage-backed securities: GNMA pass-through certificates $ 103,716 $ 916 $ (368) $ 104,264 FHLMC pass-through certificates 187,768 2,169 (569) 189,368 FNMA pass-through certificates 363,842 6,561 (694) 369,709 REMICs and CMOs: Agency issuance 5,096,905 1,421 (144,178) 4,954,148 Non agency issuance 1,416,104 1,360 (23,768) 1,393,696 - ------------------------------------------------------------------------------------------------------- Total mortgage-backed securities 7,168,335 12,427 (169,577) 7,011,185 - ------------------------------------------------------------------------------------------------------- Other securities: Obligations of the U.S. Government and agencies 528,905 4 (29,341) 499,568 Corporate debt securities 66,242 -- (10,064) 56,178 FNMA and FHLMC preferred stock 147,515 68 (13,794) 133,789 Asset-backed and other securities 2,506 -- (4) 2,502 - ------------------------------------------------------------------------------------------------------- Total other securities 745,168 72 (53,203) 692,037 - ------------------------------------------------------------------------------------------------------- Total available-for-sale $7,913,503 $ 12,499 $(222,780) $7,703,222 ======================================================================================================= Held-to-maturity: Mortgage-backed securities: GNMA pass-through certificates $ 3,302 $ 198 $ -- $ 3,500 FHLMC pass-through certificates 34,955 745 (7) 35,693 FNMA pass-through certificates 11,490 32 (112) 11,410 REMICs and CMOs: Agency issuance 517,626 3,143 (1,219) 519,550 Non agency issuance 296,156 1,525 (896) 296,785 - ------------------------------------------------------------------------------------------------------- Total mortgage-backed securities 863,529 5,643 (2,234) 866,938 - ------------------------------------------------------------------------------------------------------- Other securities: Obligations of the U.S. Government and agencies 804,659 442 (18,605) 786,496 Obligations of states and political subdivisions 44,003 -- (20) 43,983 - ------------------------------------------------------------------------------------------------------- Total other securities 848,662 442 (18,625) 830,479 - ------------------------------------------------------------------------------------------------------- Total held-to-maturity $1,712,191 $ 6,085 $ (20,859) $1,697,417 =======================================================================================================
77 80 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AT DECEMBER 31, 1999 -------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR (In Thousands) COST GAINS LOSSES VALUE - ---------------------------------------------------------------------------------------------------- Available-for-sale: Mortgage-backed securities: GNMA pass-through certificates $ 129,029 $ 658 $ (3,986) $ 125,701 FHLMC pass-through certificates 228,904 917 (3,407) 226,414 FNMA pass-through certificates 443,639 6,068 (2,202) 447,505 REMICs and CMOs: Agency issuance 6,304,417 454 (435,093) 5,869,778 Non agency issuance 1,604,335 366 (69,122) 1,535,579 - ---------------------------------------------------------------------------------------------------- Total mortgage-backed securities 8,710,324 8,463 (513,810) 8,204,977 - ---------------------------------------------------------------------------------------------------- Other securities: Obligations of the U.S. Government and agencies 547,082 -- (72,878) 474,204 Corporate debt securities 61,349 -- (7,168) 54,181 FNMA and FHLMC preferred stock 147,515 44 (20,080) 127,479 Asset-backed and other securities 1,907 1 -- 1,908 - ---------------------------------------------------------------------------------------------------- Total other securities 757,853 45 (100,126) 657,772 - ---------------------------------------------------------------------------------------------------- Total available-for-sale $9,468,177 $ 8,508 $(613,936) $8,862,749 ==================================================================================================== Held-to-maturity: Mortgage-backed securities: GNMA pass-through certificates $ 4,247 $ 220 $ (1) $ 4,466 FHLMC pass-through certificates 45,287 719 (42) 45,964 FNMA pass-through certificates 13,083 16 (648) 12,451 REMICs and CMOs: Agency issuance 667,249 1,308 (6,390) 662,167 Non agency issuance 352,395 121 (6,313) 346,203 - ---------------------------------------------------------------------------------------------------- Total mortgage-backed securities 1,082,261 2,384 (13,394) 1,071,251 - ---------------------------------------------------------------------------------------------------- Other securities: Obligations of the U.S. Government and agencies 772,584 17,384 (62,684) 727,284 Obligations of states and political subdivisions 45,112 -- (40) 45,072 - ---------------------------------------------------------------------------------------------------- Total other securities 817,696 17,384 (62,724) 772,356 - ---------------------------------------------------------------------------------------------------- Total held-to-maturity $1,899,957 $19,768 $ (76,118) $1,843,607 ====================================================================================================
Sales of securities from the available-for-sale portfolio are summarized as follows:
YEAR ENDED DECEMBER 31, ------------------------------------ (In Thousands) 2000 1999 1998 - ------------------------------------------------------------ Proceeds from sales $ -- $170,119 $1,811,686 Gross gains -- 1,017 16,353 Gross losses -- 278 5,377
The amortized cost and estimated fair value of debt securities at December 31, 2000, by contractual maturity, excluding mortgage-backed securities, are shown on page 79. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties. In addition, issuers of certain securities have the right to call obligations with or without prepayment penalties. As of December 31, 2000, the amortized cost of the callable securities in our portfolio totaled $1.40 billion of which $1.32 billion are callable within one year and at various other times thereafter. 78 81 ASTORIA FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
AT DECEMBER 31, 2000 ---------------------------- ESTIMATED AMORTIZED FAIR (In Thousands) COST VALUE - --------------------------------------------------------------------------------- Available-for-sale: Due in one year or less .............. $ 500 $ 500 Due after one year through five years 1 1 Due after five years through ten years 55,955 54,825 Due after ten years .................. 541,097 502,822 - --------------------------------------------------------------------------------- Total available-for-sale ................ $597,553 $558,148 ================================================================================== Held-to-maturity: Due in one year or less .............. $ 14,999 $ 15,000 Due after one year through five years 1,890 1,870 Due after ten years .................. 831,773 813,609 - --------------------------------------------------------------------------------- Total held-to-maturity .................. $848,662 $830,479 ==================================================================================
The balance of accrued interest receivable for mortgage-backed securities totaled $43.1 million at December 31, 2000 and $51.8 million at December 31, 1999. The balance of accrued interest receivable for other securities totaled $7.7 million at December 31, 2000 and $7.4 million at December 31, 1999. (5) LOANS RECEIVABLE, NET AND MORTGAGE LOAN SERVICING Loans receivable, net, are summarized as follows:
AT DECEMBER 31, ------------------------------------------- (In Thousands) 2000 1999 - ----------------------------------------------------------------------------------------------------- Mortgage loans: Secured by one-to-four family residences . $ 9,850,390 $ 9,006,894 Secured by multi-family properties 801,917 615,438 Secured by commercial properties 514,810 433,035 - ----------------------------------------------------------------------------------------------------- 11,167,117 10,055,367 Net deferred loan origination costs 6,905 2,957 Net unamortized premium 65,119 54,892 - ----------------------------------------------------------------------------------------------------- Total mortgage loans 11,239,141 10,113,216 - ----------------------------------------------------------------------------------------------------- Consumer and other loans: Home equity 133,748 116,726 Passbook 8,710 7,481 Other 42,252 50,697 - ----------------------------------------------------------------------------------------------------- 184,710 174,904 Net deferred loan origination costs 486 816 Net unamortized premium 112 138 - ----------------------------------------------------------------------------------------------------- Total consumer and other loans 185,308 175,858 - ----------------------------------------------------------------------------------------------------- Total loans 11,424,449 10,289,074 Allowance for loan losses (79,931) (76,578) - ----------------------------------------------------------------------------------------------------- Loans receivable, net $ 11,344,518 $ 10,212,496 =====================================================================================================
Accrued interest receivable on all loans totaled $58.6 million at December 31, 2000 and $47.0 million at December 31, 1999. Included in loans receivable were non-accrual loans totaling $35.2 million at December 31, 2000 and $50.5 million at December 31, 1999. If all non-accrual loans had been performing in accordance with their original terms, we would have recorded interest income, with respect to such loans, of $2.9 million for the year ended December 31, 2000, $3.8 million for the year ended December 31, 1999 and $6.8 million for the year ended December 31, 1998. This compares to actual payments recorded as interest income, with respect to such loans, of $1.6 million for the year ended December 31, 2000, $1.9 million for the year ended December 31, 1999 and $1.6 million for the year ended December 31, 1998. 79 82 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Loans we individually review for impairment are limited to multi-family mortgage loans, commercial mortgage loans, loans modified in a troubled debt restructuring and selected large one-to-four family residential mortgage loans. Examples of measurement techniques we utilize in determining the book value of an impaired loan include the market price of the loan, if one exists, the estimated fair value of the collateral and the present value of expected future cash flows. The following table summarizes information regarding our impaired mortgage loans:
AT DECEMBER 31, 2000 -------------------------------------- ALLOWANCE RECORDED FOR LOAN NET (In Thousands) INVESTMENT LOSSES INVESTMENT - ------------------------------------------------------------------------------- One-to-four family: With a related allowance $ 1,791 $ (341) $ 1,450 Without a related allowance 2,813 - 2,813 - ------------------------------------------------------------------------------- Total one-to-four family 4,604 (341) 4,263 - ------------------------------------------------------------------------------- Commercial and multi-family: With a related allowance 11,801 (1,747) 10,054 Without a related allowance 1,034 - 1,034 - ------------------------------------------------------------------------------- Total commercial and multi-family 12,835 (1,747) 11,088 - ------------------------------------------------------------------------------- Total impaired mortgage loans $17,439 $(2,088) $15,351 ===============================================================================
AT DECEMBER 31, 1999 ----------------------------------------- ALLOWANCE RECORDED FOR LOAN NET (In Thousands) INVESTMENT LOSSES INVESTMENT - -------------------------------------------------------------------------------- One-to-four family: With a related allowance $ 1,856 $ (351) $ 1,505 Without a related allowance 4,648 - 4,648 - -------------------------------------------------------------------------------- Total one-to-four family 6,504 (351) 6,153 - -------------------------------------------------------------------------------- Commercial and multi-family: With a related allowance 17,217 (2,315) 14,902 Without a related allowance 624 - 624 - -------------------------------------------------------------------------------- Total commercial and multi-family 17,841 (2,315) 15,526 - -------------------------------------------------------------------------------- Total impaired mortgage loans $24,345 $ (2,666) $21,679 ================================================================================
Our average recorded investment in impaired loans was $21.4 million for the year ended December 31, 2000, $25.5 million for the year ended December 31, 1999 and $25.1 million for the year ended December 31, 1998. Interest income recognized on impaired loans, which was not materially different from cash-basis interest income, amounted to $1.3 million for the year ended December 31, 2000, $1.7 million for the year ended December 31, 1999 and $2.3 million for the year ended December 31, 1998. Mortgage Loan Servicing We service for investors mortgage loans with aggregate unpaid principal balances of $3.93 billion at December 31, 2000 and $4.41 billion at December 31, 1999, which are not reflected in the accompanying consolidated statements of financial condition. The right to service loans for others is generally obtained by either the sale of loans with servicing retained or the open market purchase of MSRs. 80 83 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) MSRs activity is summarized as follows:
YEAR ENDED DECEMBER 31, ----------------------------- (In Thousands) 2000 1999 1998 - -------------------------------------------------------------------------------- Balance at beginning of year $49,008 $53,338 $ 41,839 Capitalized MSRs 1,100 3,919 22,217 Amortization of MSRs (6,576) (8,249) (13,218) Adjustment to conform fiscal year of Long Island Bancorp, Inc. to Astoria Financial Corporation - - 2,500 - -------------------------------------------------------------------------------- 43,532 49,008 53,338 Less: Valuation allowance for MSRs 2,570 639 3,101 - -------------------------------------------------------------------------------- Balance at end of year $40,962 $48,369 $ 50,237 ================================================================================
Fees earned for servicing loans are reported as income when the related mortgage loan payments are collected. MSRs are amortized as a reduction to loan servicing fee income on a level-yield basis over the estimated remaining life of the underlying mortgage loans. MSRs are carried at cost and impairment, if any, is recognized through a valuation allowance. Loan servicing income is summarized as follows:
YEAR ENDED DECEMBER 31, ----------------------------- (In Thousands) 2000 1999 1998 - ------------------------------------------------------------------------------ Servicing fees $17,142 $21,164 $21,431 Amortization of MSRs (6,576) (8,249) (13,218) (Provision for) recovery of valuation allowance for MSRs (1,931) 2,462 (3,051) - ------------------------------------------------------------------------------ Total servicing income $ 8,635 $15,377 $ 5,162 ==============================================================================
(6) ALLOWANCE FOR LOAN LOSSES Activity in the allowance for loan losses is summarized as follows:
YEAR ENDED DECEMBER 31, -------------------------------- (In Thousands) 2000 1999 1998 - -------------------------------------------------------------------------------- Balance at beginning of year $76,578 $74,403 $ 73,920 Provision charged to operations 4,014 4,119 15,380 Charge-offs (net of recoveries of $1,988 $4,765 and $4,409, respectively) (661) (1,944) (14,751) Adjustment to conform fiscal year of Long Island Bancorp, Inc. to Astoria Financial Corporation - - (146) - -------------------------------------------------------------------------------- Balance at end of year $79,931 $76,578 $ 74,403 ==============================================================================
The $15.4 million provision charged to operations during the year ended December 31, 1998 included $4.0 million recorded by LIB prior to consummation of the acquisition, primarily for increased consumer loan delinquencies. In addition, $5.6 million was provided by us in the 1998 fourth quarter, primarily to conform LIB's credit administration, asset management philosophies and accounting methodologies to ours. 81 84 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (7) DEPOSITS Deposits are summarized as follows:
AT DECEMBER 31, ------------------------------------------------------------------------------------- 2000 1999 ------------------------------------------------------------------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE (Dollars in Thousands) RATE BALANCE PERCENT RATE BALANCE PERCENT - ------------------------------------------------------------------------------------------------------------------------ Core deposits: Savings 2.00% $ 2,434,387 24.17% 2.00% $2,581,442 27.02% Money market 5.12 1,482,615 14.72 4.82 1,165,734 12.20 NOW and money manager 1.00 579,031 5.75 1.00 531,131 5.56 Non-interest bearing NOW and money manager - 425,919 4.23 - 346,584 3.63 ----------- ------ ---------- ------ Total core deposits 4,921,952 48.87 4,624,891 48.41 Certificates of deposit 5.85 5,149,735 51.13 5.34 4,929,643 51.59 ----------- ------ ---------- ------ Total deposits $10,071,687 100.00% $9,554,534 100.00% =========== ====== ========== ======
The aggregate amount of certificates of deposit with balances equal to or greater than $100,000 was $743.3 million at December 31, 2000 and $602.3 million at December 31, 1999. Broker certificates of deposit totaling $17.7 million were included in deposits at December 31, 2000. There were no broker certificates of deposit at December 31, 1999. At December 31, 2000 and 1999, scheduled maturities of certificates of deposit are as follows:
AT DECEMBER 31, -------------------------------------------------------------------------------------------- 2000 1999 -------------------------------------------------------------------------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE (Dollars in Thousands) RATE BALANCE PERCENT RATE BALANCE PERCENT - ------------------------------------------------------------------------------------------------------------------------------------ One year or less 5.48% $3,055,126 59.32% 5.05% $3,070,678 62.29% Greater than one year through three years 6.19 1,252,228 24.32 5.72 1,430,543 29.02 Greater than three years 6.69 842,381 16.36 6.13 428,422 8.69 ---------- ------ ---------- ------ Total certificates of deposit $5,149,735 100.00% $4,929,643 100.00% ========== ====== ========== ======
Interest expense on deposits for the years ended December 31, 2000, 1999 and 1998 is summarized as follows:
YEAR ENDED DECEMBER 31, -------------------------------------- (In Thousands) 2000 1999 1998 - -------------------------------------------------------------------------------- Savings $ 51,112 $ 54,341 $ 72,243 Money market 71,290 45,316 32,108 NOW and money manager 5,439 5,110 6,337 Certificates of deposit 282,260 258,389 288,914 - -------------------------------------------------------------------------------- Total interest expense on deposits $410,101 $363,156 $399,602 ================================================================================
82 85 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (8) BORROWED FUNDS Borrowed funds are summarized as follows:
AT DECEMBER 31, --------------------------------------------- 2000 1999 --------------------------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE (Dollars in Thousands) AMOUNT RATE AMOUNT RATE - -------------------------------------------------------------------------------- Reverse repurchase agreements $ 7,785,000 5.68% $ 9,276,800 5.24% Advances from the FHLB-NY, net 1,910,000 5.79 1,610,058 5.25 Other borrowings, net 502,371 6.91 514,663 6.86 ----------- ----------- Total borrowed funds, net $10,197,371 5.76% $11,401,521 5.31% =========== ===========
Reverse Repurchase Agreements At December 31, 2000 and 1999, all of the outstanding reverse repurchase agreements had original contractual maturities between one and ten years, with the exception of one agreement outstanding at December 31, 1999 for $100.0 million with an original contractual maturity of 40 days. All of the outstanding agreements were secured by U.S. Treasury securities, U.S. Government agency securities or mortgage-backed securities. The following is a summary of information relating to these agreements:
AT OR FOR THE YEAR ENDED DECEMBER 31, ------------------------------------- (Dollars in Thousands) 2000 1999 - --------------------------------------------------------------------------------------------------------------------- Book value (amortized cost) of collateral (including accrued interest): U.S. Treasury securities $ -- $ 32,453 U.S. Government agency securities 1,174,327 1,060,801 Mortgage-backed securities 7,431,824 9,407,792 Fair value of collateral (including accrued interest): U.S. Treasury securities -- 32,392 U.S. Government agency securities 1,130,365 963,754 Mortgage-backed securities 7,281,535 8,899,901 Average balance of outstanding agreements during the year 8,280,005 9,561,718 Maximum balance of outstanding agreements at any month end during the year 8,986,800 10,026,800 Average interest rate for the year 5.41% 5.17%
Reverse repurchase agreements at December 31, 2000 have contractual maturities as follows:
YEAR AMOUNT ---- ------ (In Thousands) 2002 $1,100,000 2003 1,150,000 2004 3,155,000 2005 200,000 2007 and after 2,180,000
At December 31, 2000, $3.48 billion of such reverse repurchase agreements are callable in 2001 and $1.76 billion are callable in 2002. 83 86 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Federal Home Loan Bank of New York, or FHLB-NY, Advances Pursuant to a blanket collateral agreement with the FHLB-NY, advances are secured by all of our stock in the FHLB-NY, certain qualifying mortgage loans, mortgage-backed securities and other securities not otherwise pledged in an amount at least equal to 110% of the advances outstanding. The following is a summary of information relating to these advances:
FOR THE YEAR ENDED DECEMBER 31, ---------------------------- (Dollars in Thousands) 2000 1999 - -------------------------------------------------------------------------------- Average balance of outstanding advances during the year $1,911,928 $1,265,968 Maximum balance of outstanding advances at any month end during the year 2,110,010 1,610,058 Average interest rate for the year 5.70% 5.00%
FHLB-NY advances at December 31, 2000 have contractual maturities as follows:
YEAR AMOUNT ---- ------ (In Thousands) 2001 $200,000 2002 500,000 2003 850,000 2004 260,000 2005 100,000
At December 31, 2000, $650.0 million of such advances are callable in 2001 and $250.0 million are callable in 2002. At December 31, 2000, we had available a 12-month commitment for overnight and one month lines of credit with the FHLB-NY totaling $100.0 million. Both lines of credit are priced at the federal funds rate plus 10.0 basis points and reprice daily. Other Borrowings A funding note was issued during the year ended December 31, 1996 in the amount of $181.4 million and is collateralized by a pool of adjustable rate residential mortgage loans. The interest on the funding note changes monthly and is subject to a maximum rate of 11% through June 2001. Thereafter, the interest on the funding note is subject to further adjustments. We have the option to redeem the funding note after June 2001 or when the principal balance of the collateral pool is less than $13.5 million. At December 31, 2000, the outstanding principal balance of the funding note collateral pool was $101.6 million. The outstanding balance of the funding note was $13.1 million at December 31, 2000 and $25.4 million at December 31, 1999. During the year ended December 31, 1998, we issued a three-year medium-term note in the amount of $150.0 million which matures in April 2001. During the year ended December 31, 1997, we issued a five year medium-term note in the amount of $300.0 million which matures in June 2002. The outstanding balance of the medium-term notes, net, was $449.8 million at December 31, 2000 and $449.7 million at December 31, 1999. In December 2000, we renewed $40.0 million of short-term financing with an interest rate equal to the six-month LIBOR plus 250 basis points which matures on June 22, 2001. This short-term financing is collateralized by a pledge of the notes held by us from our ESOP. The outstanding balance on the short-term financing, net of deferred costs, was $39.5 million at December 31, 2000 and $39.6 million at December 31, 1999. 84 87 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Interest expense on borrowed funds is summarized as follows:
YEAR ENDED DECEMBER 31, ----------------------------------- (In Thousands) 2000 1999 1998 - -------------------------------------------------------------------------------- Reverse repurchase agreements $455,250 $500,948 $322,647 Advances from the FHLB-NY 109,683 64,090 21,820 Other borrowings 35,884 27,137 31,396 - -------------------------------------------------------------------------------- Total interest expense on borrowed funds $600,817 $592,175 $375,863 ================================================================================
(9) GUARANTEED PREFERRED BENEFICIAL INTEREST IN JUNIOR SUBORDINATED DEBENTURES On October 28, 1999, our wholly-owned finance subsidiary, Astoria Capital Trust I, issued $125.0 million aggregate liquidation amount of 9.75% Capital Securities due November 1, 2029, Series A, referred to as the Series A Capital Securities. Effective April 26, 2000, $120.0 million aggregate liquidation amount of the Series A Capital Securities were exchanged for a like amount of 9.75% Capital Securities due November 1, 2029, Series B, also issued by Astoria Capital Trust I, referred to as the Series B Capital Securities. The Series A Capital Securities and Series B Capital Securities have substantially identical terms except that the Series B Capital Securities have been registered with the Securities and Exchange Commission. Together they are referred to as the Capital Securities. We have fully and unconditionally guaranteed the Capital Securities along with all obligations of Astoria Capital Trust I under the trust agreement. Astoria Capital Trust I was formed for the exclusive purpose of issuing the Capital Securities and common securities and using the proceeds to acquire an aggregate principal amount of $128.9 million of our 9.75% Junior Subordinated Debentures due November 1, 2029 (which aggregate amount is equal to the aggregate liquidation amount of the Capital Securities and common securities), referred to as Junior Subordinated Debentures. The sole assets of Astoria Capital Trust I are the Junior Subordinated Debentures. The Junior Subordinated Debentures are prepayable, in whole or in part, at our option on or after November 1, 2009 at declining premiums to maturity. The balance outstanding on the Capital Securities was $125.0 million at December 31, 2000 and 1999. The costs associated with the Capital Securities issuance have been capitalized and are being amortized over a period of ten years. Distributions on the Capital Securities are payable semi-annually, on May 1 and November 1, and are reflected in our Consolidated Statements of Income as a component of non-interest expense under the caption "Capital trust securities." (10) STOCKHOLDERS' EQUITY At the time of its conversion from a federally-chartered mutual savings and loan association to a federally-chartered capital stock savings and loan association, Astoria Federal established a liquidation account with a balance equal to the retained earnings reflected in its June 30, 1993 statement of financial condition. As part of the acquisitions of LIB, The Greater New York Savings Bank, FSB, or The Greater, and Fidelity New York, FSB, or Fidelity, Astoria Federal established liquidation accounts equal to the account balances previously maintained by these acquired institutions for eligible account holders. These liquidation accounts are reduced annually to the extent that eligible account holders reduce their qualifying deposits. In the event of a complete liquidation, each eligible account holder will be entitled to receive a distribution from the liquidation accounts in an amount proportionate to the current adjusted qualifying balances for accounts then held. In connection with the acquisition of The Greater, we issued 2,000,000 shares of 12% Noncumulative Perpetual Preferred Stock, Series B, or the Series B Preferred Stock. The Series B Preferred Stock, which has a par value of $1.00 per share and a liquidation preference of $25.00 per share, may be redeemed at our option, in whole or in part, on or after October 1, 2003, at an initial price of $27.25 per share and declining ratably to $25.00 per share on October 1, 2013. Dividends on the Series B Preferred Stock are not cumulative but, if declared by us, are payable quarterly. During the year ended December 31, 2000, we completed our sixth stock repurchase plan, which was approved by our Board of Directors on April 21, 1999 and authorized the purchase, at management's discretion, of up to 10% of our common stock then outstanding, or 5,528,000 shares. On August 16, 2000, our Board of Directors approved our 85 88 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) seventh stock repurchase plan authorizing the purchase, at management's discretion, of 5,000,000 shares, or approximately 10% of our common stock then outstanding over a two year period in open-market or privately negotiated transactions. Under these plans, we repurchased 2,607,946 shares of our common stock during 2000, of which 1,365,500 shares were acquired pursuant to our seventh stock repurchase plan, at an aggregate cost of $84.6 million. We have a dividend reinvestment and stock purchase plan, or the Plan. Pursuant to the Plan, which became effective on December 1, 1995, 300,000 shares of authorized and unissued shares are reserved for use by the Plan, should the need arise. To date all shares required by the Plan have been acquired in open market purchases. In 1996, we adopted a Stockholders Rights Plan, or the Rights Plan, and declared a dividend of one preferred share purchase right, or Right, for each outstanding share of our common stock. Each Right, initially, will entitle stockholders to buy a one one-hundredth interest in a share of a new series of our preferred stock at an exercise price of $100.00 upon the occurrence of certain events described in the Rights Plan. We reserved 325,000 shares of our available preferred stock for such series. (11) INTEREST RATE SWAPS Interest Rate Swaps During the year ended December 31, 1998, we entered into three interest rate swap agreements aggregating $450.0 million (contractual notional principal). The swap agreements effectively converted the medium-term fixed rate borrowings into floating rate borrowings. The following table details the terms of the swap agreements at December 31, 2000:
FIXED INTEREST RATE NOTIONAL AMOUNT FLOATING INTEREST RATE PAID RECEIVED MATURITY DATE - --------------- --------------------------- ------------------- ------------- (In Thousands) $300,000 3-month LIBOR minus 3 basis points 7.00% January 16, 2008 75,000 3-month LIBOR minus 18 basis points 6.20 April 2, 2003 75,000 3-month LIBOR minus 38 basis points 6.20 April 2, 2005
The above agreements are callable in 2001 and at various other times thereafter. Interest expense on borrowed funds decreased $1.0 million for the year ended December 31, 2000 and $6.5 million for the year ended December 31, 1999 as a result of these swaps. As of December 31, 2000, the interest rate swaps had a gross unrealized loss of $1.8 million which was fully collateralized by U.S. Treasury Notes and FNMA pass-through certificates which had a book value and market value of $10.4 million. (12) COMMITMENTS AND CONTINGENCIES Lease Commitments At December 31, 2000, we were obligated under various non-cancelable operating leases on buildings and land used for office space and banking purposes through 2043. These operating leases contain escalation clauses which provide for increased rental expense based primarily on increases in real estate taxes and cost-of living indices. Rent expense under these operating leases was $5.1 million for the year ended December 31, 2000, $6.7 million for the year ended December 31, 1999 and $9.1 million for the year ended December 31, 1998. 86 89 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The minimum rental payments under the terms of the non-cancelable operating leases as of December 31, 2000 are summarized below:
YEARS ENDING DECEMBER 31, AMOUNT -------------------------------------------------------- (In Thousands) 2001 $ 5,997 2002 5,936 2003 5,922 2004 5,702 2005 and after 56,956 -------------------------------------------------------- $80,513 ========================================================
Outstanding Commitments We had outstanding commitments as follows:
AT DECEMBER 31, ---------------------- (In Thousands) 2000 1999 - -------------------------------------------------------------------------------- Mortgage loans - commitments to extend credit $348,744 $352,267 Mortgage loans - commitments to purchase 58,275 24,162 Home equity loans - unused lines of credit 95,282 74,175 Consumer and commercial loans - unused lines of credit 96,147 95,028 Commitments to sell loans 18,926 18,011
We use the same credit policies and underwriting standards in making loan commitments and extending lines of credit (off balance sheet financial instruments) as we do for on balance sheet financial instruments. Our maximum exposure to credit risk is represented by the contractual amount of the instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate creditworthiness on a case-by-case basis. Assets Sold with Recourse We are obligated under various recourse provisions associated with certain first mortgage loans sold in past years. The principal balance of loans sold with recourse amounted to $912.4 million at December 31, 2000 and $917.4 million at December 31, 1999. Although we do not believe that our recourse obligations subject us to risk of material loss in the future, we have established recourse reserves totaling $811,000 at December 31, 2000 and 1999. We have two collateralized repurchase obligations due to the sale of certain long-term fixed-rate municipal revenue bonds and Federal Housing Administration project loans to investment trust funds for proceeds that approximated par value. The trust funds have put options that require us to repurchase the securities or loans for specified amounts prior to maturity under certain specified circumstances, as defined in the agreements. The outstanding option balance on the two agreements totaled $55.6 million at December 31, 2000 and $57.1 million at December 31, 1999. Various agency mortgage-backed securities, with a book value of $81.8 million and a market value of $81.9 million at December 31, 2000, have been pledged as collateral. Litigation Certain claims, suits, complaints and investigations arising in the ordinary course of business, have been filed or are pending. In our opinion, after consultation with legal counsel, our financial position, operating results and liquidity will not be materially affected by the outcome of such legal proceedings. 87 90 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (13) INCOME TAXES We file a consolidated federal income tax return on a calendar-year basis. Prior to the enactment of the Small Business Job Protection Act of 1996, or the 1996 Act, thrift institutions such as Astoria Federal, which met certain definitional tests primarily relating to their assets and the nature of their business, were permitted, for federal income tax purposes, to establish tax reserves for bad debts. Such thrift institutions were also permitted to make annual additions to the reserve, to be deducted in arriving at taxable income within specified limitations. Similar deductions for additions to Astoria Federal's bad debt reserve were permitted under the New York State Franchise Tax and the New York City Financial Corporation Tax regulations. Under the 1996 Act, Astoria Federal is unable to make additions to the tax bad debt reserve, but is permitted to deduct bad debts as they occur. Additionally, the 1996 Act required institutions to recapture over a six-year period, beginning with Astoria Federal's taxable year commencing January 1, 1996, the excess, if any, of the balance of its bad debt reserves as of December 31, 1995 over the balance of such reserves as of December 31, 1987. However, under the 1996 Act, such recapture requirements will be suspended for each of the two successive taxable years, beginning January 1, 1996, in which Astoria Federal originates a minimum amount of certain residential loans during such years that are not less than the average of the principal amounts of such loans made by Astoria Federal during its six taxable years preceding January 1, 1996. Astoria Federal's tax bad debt reserves at December 31, 1995 exceeded its December 31, 1987 reserves. The remaining balance at December 31, 2000, to be recaptured into taxable income is $923,000. In response to the federal legislation, the New York State and New York City tax laws have been amended to prevent a similar recapture of Astoria Federal's bad debt reserve. The amendment permitted the continued future use of the bad debt reserve method for purposes of determining Astoria Federal's New York State and New York City tax liabilities, so long as Astoria Federal continues to satisfy certain New York State and New York City definitional tests. Retained earnings at December 31, 2000 and 1999 included base year bad debt reserves, which amounted to approximately $159.1 million, for which no federal income tax liability has been recognized. This represents the balance of the bad debt reserves created for tax purposes as of December 31, 1987. These amounts are subject to recapture in the unlikely event that Astoria Federal (1) makes distributions in excess of earnings and profits, (2) redeems its stock, or (3) liquidates. Income tax expense attributable to income before extraordinary item for the years ended December 31, 2000, 1999 and 1998 is summarized as follows:
YEAR ENDED DECEMBER 31, ----------------------------- (In Thousands) 2000 1999 1998 - -------------------------------------------------------------------------------- Current Federal $ 99,248 $120,980 $ 56,011 State and local 4,010 26,835 10,042 - -------------------------------------------------------------------------------- Total current 103,258 147,815 66,053 - -------------------------------------------------------------------------------- Deferred Federal 21,115 14,547 (2,342) State and local 9,773 1,402 (1,886) - -------------------------------------------------------------------------------- Total deferred 30,888 15,949 (4,228) - -------------------------------------------------------------------------------- Total income tax expense attributable to income before extraordinary item $134,146 $163,764 $ 61,825 ================================================================================
88 91 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The total income tax expense differed from the amounts computed by applying the federal income tax rate to income before extraordinary item for the years ended December 31, 2000, 1999 and 1998 as a result of the following:
YEAR ENDED DECEMBER 31, ---------------------------------------------------- (In Thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ Expected income tax expense at statutory federal rate $ 122,742 $ 139,799 $ 41,128 State and local taxes, net of federal tax benefit 5,407 19,314 5,301 Amortization of goodwill 6,677 6,698 6,677 Acquisition costs -- -- 8,400 Non-deductible expense of ESOP 560 2,185 3,645 Tax exempt income (1,577) (1,063) (1,090) Reversal of deferred tax valuation allowance -- (1,477) (592) Other, net 337 (1,692) (1,644) - ------------------------------------------------------------------------------------------------------------------------ Total income tax expense attributable to income before extraordinary item $ 134,146 $ 163,764 $ 61,825 ========================================================================================================================
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2000 and 1999 are as follows:
AT DECEMBER 31, -------------------------- (In Thousands) 2000 1999 - ------------------------------------------------------------------------------- Deferred tax assets: Net operating loss carryforward $ 27,558 $ 32,606 Allowances and tax reserves 34,298 37,900 Compensation and benefits 16,040 19,911 Tax credits 3,129 3,129 Mark-to-market - IRC Section 475 2,579 2,721 Unrealized loss on securities available-for-sale 88,601 261,451 Accrued acquisition related expenses 2,996 11,620 Other 1,335 3,224 - ------------------------------------------------------------------------------- Total gross deferred tax assets 176,536 372,562 Valuation allowance (9,537) (9,537) - ------------------------------------------------------------------------------- Deferred tax assets 166,999 363,025 - ------------------------------------------------------------------------------- Deferred tax liabilities: Book premiums in excess of tax (7,807) (7,786) Mortgage loans (13,680) (7,833) Premises and equipment (11,736) (11,705) Basis difference in home equity investment (1,472) (1,468) Mortgage servicing rights (9,836) (6,306) Other (313) (1,660) - ------------------------------------------------------------------------------- Total gross deferred tax liabilities (44,844) (36,758) - ------------------------------------------------------------------------------- Net deferred tax assets $ 122,155 $ 326,267 ================================================================================
The valuation allowance for deferred tax assets of $9.5 million at December 31, 2000 relates primarily to the portion of the tax reserves which may not be realized for New York State and New York City tax purposes. At December 31, 2000, we had alternative minimum tax credit carryforwards for federal tax purposes of approximately $3.1 million. Federal income tax net operating loss carryforwards of approximately $78.7 million will expire in the year 2012. 89 92 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (14) EARNINGS PER COMMON SHARE The following table is a reconciliation of basic and diluted EPS:
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------------------------------------- 2000 1999 1998 ---------------------------------------------------------------------------------------------------------- (IN THOUSANDS, AVERAGE PER-SHARE AVERAGE PER-SHARE AVERAGE PER-SHARE EXCEPT SHARE DATA) INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT - ----------------------------------------------------------------------------------------------------------------------------------- Income before extra- ordinary item(1) $216,549 $235,670 $ 55,685 Less: preferred stock dividends 6,000 6,000 6,000 -------- -------- -------- Basic EPS: Income available to common stockholders 210,549 47,952,856 $ 4.39 229,670 51,351,355 $ 4.47 49,685 50,801,598 $ 0.98 ====== ====== ====== Effect of dilutive securities: Options 764,483(2) 1,155,607(3) 2,084,593(4) ---------- --------- --------- Diluted EPS: Income available to common stockholders plus assumed conversions $210,549 48,717,339 $ 4.32 $229,670 52,506,962 $ 4.37 $ 49,685 52,886,191 $ 0.94 ======== ========== ====== ======== ========== ====== ======== ========== ======
(1) Extraordinary item applies to the year ended December 31, 1998 only. (2) Options to purchase 1,548,102 shares of common stock at prices between $32.25 per share and $59.75 per share were outstanding as of December 31, 2000, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the common shares for the year ended December 31, 2000. (3) Options to purchase 799,752 shares of common stock at prices between $42.13 per share and $59.75 per share were outstanding as of December 31, 1999 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 year ended December 31, 1999. (4) Options to purchase 300,152 shares of common stock at prices between $50.88 per share and $59.75 per share were outstanding as of December 31, 1998 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 year ended December 31, 1998. (15) COMPREHENSIVE INCOME The components of comprehensive income, other than net income, are as follows:
YEAR ENDED DECEMBER 31, 2000 ----------------------------------------- BEFORE-TAX TAX NET-OF-TAX (In Thousands) AMOUNT EXPENSE AMOUNT - ----------------------------------------------------------------------------------------------------------- Unrealized gains arising during period $ 396,251 $(173,096) $ 223,155 Reclassification adjustment for gains included in net income -- -- -- --------- --------- --------- Net unrealized gains on securities $ 396,251 $(173,096) $ 223,155 ========= ========= =========
YEAR ENDED DECEMBER 31, 1999 ----------------------------------------- BEFORE-TAX TAX NET-OF-TAX (In Thousands) AMOUNT BENEFIT AMOUNT - ----------------------------------------------------------------------------------------------------------- Unrealized losses arising during period $(578,921) $ 249,709 $(329,212) Reclassification adjustment for gains included in net income (739) 319 (420) --------- --------- --------- Net unrealized losses on securities $(579,660) $ 250,028 $(329,632) ========= ========= =========
YEAR ENDED DECEMBER 31, 1998 ----------------------------------------- BEFORE-TAX TAX NET-OF-TAX (In Thousands) AMOUNT BENEFIT AMOUNT - ----------------------------------------------------------------------------------------------------------- Unrealized losses arising during period $ (50,640) $ 21,916 $ (28,724) Reclassification adjustment for gains included in net income (10,976) 4,772 (6,204) --------- --------- --------- Net unrealized losses on securities $ (61,616) $ 26,688 $ (34,928) ========= ========= =========
90 93 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (16) BENEFIT PLANS Pension Plans and Other Postretirement Benefits The following tables set forth the changes in our defined benefit pension plans' and postretirement plans' accumulated benefit obligations, fair values of plan assets and funded status as of December 31, 2000 and 1999:
AT DECEMBER 31, --------------------------------------------------------- OTHER POSTRETIREMENT PENSION BENEFITS BENEFITS (In Thousands) 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year $ 118,677 $ 130,130 $ 12,436 $ 18,585 Service cost 1,674 2,033 201 204 Interest cost 8,661 8,456 915 884 Amendments -- 539 -- -- Actuarial loss (gain) 5,634 (14,205) 225 (5,985) Benefits paid (8,109) (8,276) (1,211) (1,252) --------- --------- --------- --------- Benefit obligation at end of year $ 126,537 $ 118,677 $ 12,566 $ 12,436 ========= ========= ========= ========= CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year $ 175,236 $ 160,683 $ -- $ -- Actual return on plan assets 2,951 22,480 -- -- Employer contribution 709 349 1,211 1,252 Benefits paid (8,109) (8,276) (1,211) (1,252) --------- --------- --------- --------- Fair value of plan assets at end of year $ 170,787 $ 175,236 $ -- $ -- ========= ========= ========= ========= Funded status $ 44,250 $ 56,558 $ (12,566) $ (12,436) Unrecognized net actuarial gain (20,835) (39,387) (7,603) (8,370) Unrecognized prior service benefit 957 433 287 328 Unrecognized transition asset (347) (451) -- -- --------- --------- --------- --------- Net amount recognized $ 24,025 $ 17,153 $ (19,882) $ (20,478) ========= ========= ========= ========= Amounts recognized in the consolidated statements of financial condition consist of: Prepaid benefit cost $ 36,303 $ 28,651 $ -- $ -- Accrued benefit liability (12,278) (11,521) (19,882) (20,478) Intangible asset -- 23 -- -- --------- --------- --------- --------- Net amount recognized $ 24,025 $ 17,153 $ (19,882) $ (20,478) ========= ========= ========= =========
EXPECTED RETURN RATE OF WEIGHTED-AVERAGE ASSUMPTIONS DISCOUNT RATE ON PLAN ASSETS COMPENSATION INCREASE --------------- --------------- --------------------- ON PENSION BENEFIT PLANS: 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- Astoria Federal Pension Plan 7.50% 7.75% 8.00% 8.00% 5.00% 5.00% Astoria Federal Excess Benefit and Supplemental Benefit Plans 6.00 6.00 N/A N/A 8.00 8.00 Astoria Federal Directors' Retirement Plan 6.00 6.00 N/A N/A 4.00 4.00 The Greater Directors' Retirement Plan 6.00 6.00 N/A N/A N/A N/A LIB Directors' Retirement Plan 6.00 6.00 N/A N/A N/A N/A
WEIGHTED-AVERAGE ASSUMPTIONS ON DISCOUNT RATE OTHER POSTRETIREMENT BENEFIT PLAN: ------------- 2000 1999 ---- ---- Astoria Federal Retiree Health Care Plan 7.50% 7.75%
For measurement purposes for the Astoria Federal Retiree Health Care Plan, a 10% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1998. The rate was assumed to decrease gradually to 6% for 2002 and remain at that level thereafter. 91 94 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The components of net periodic (benefit) costs are as follows:
YEAR ENDED DECEMBER 31, --------------------------------------------------------------------------------- OTHER POSTRETIREMENT PENSION BENEFITS BENEFITS -------------------------------------- -------------------------------------- (In Thousands) 2000 1999 1998 2000 1999 1998 - ---------------------------------------------------------------------------------------- -------------------------------------- Service cost $ 1,674 $ 2,033 $ 2,669 $ 201 $ 204 $ 434 Interest cost 8,661 8,456 7,722 915 884 1,094 Expected return on plan assets (13,676) (12,570) (11,400) -- -- -- Amortization of prior service (cost) benefit (525) (525) (691) 41 40 10 Recognized net actuarial gain (2,193) (66) (774) (541) (453) (171) Amortization of transition asset (104) (104) (104) -- -- -- -------- -------- -------- -------- -------- -------- Net periodic (benefit) cost (6,163) (2,776) (2,578) 616 675 1,367 -------- -------- -------- -------- -------- -------- Curtailment gain -- -- (1,875) -- -- (136) Special termination benefit cost -- -- 4,903 -- -- 1,994 -------- -------- -------- -------- -------- -------- Total (benefit) cost $ (6,163) $ (2,776) $ 450 $ 616 $ 675 $ 3,225 ======== ======== ======== ======== ======== ========
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage point change in assumed health care cost trend rates would have the following effects:
ONE PERCENTAGE ONE PERCENTAGE (In Thousands) POINT INCREASE POINT DECREASE - ----------------------------------------------------------------------------------------------------------- Effect on total service and interest cost components $ 59 $ (49) Effect on the postretirement benefit obligation 491 (430)
Included in the tables of Pension Benefits on page 91 and above are the Astoria Federal Excess Benefit and Supplemental Benefit Plans, Astoria Federal Directors' Retirement Plan, The Greater Directors' Retirement Plan and the LIB Directors' Retirement Plan which are unfunded plans. The projected benefit obligation and accumulated benefit obligation for these plans as of December 31, 2000 and December 31, 1999 were:
AT DECEMBER 31, --------------------------- (In Thousands) 2000 1999 - -------------------------------------------------------------------------------- Projected benefit obligation $13,877 $13,255 Accumulated benefit obligation 9,804 9,197
Incentive Savings Plan Astoria Federal maintains a 401(K) incentive savings plan, or the 401(K) Plan, which provides for contributions by both Astoria Federal and its participating employees. Following the LIB Acquisition, the LISB 401(K) incentive savings plan was merged into the 401(K) Plan during the year ended December 31, 2000. Under the 401(K) Plan, which is a qualified, defined contribution pension plan, participants may contribute up to 10% of their pre-tax base salary, not to exceed $10,500 for the calendar year ending December 31, 2000. Matching contributions, if any, may be made at the discretion of Astoria Federal. No such contributions were made for 2000, 1999 and 1998. Participants vest immediately in their own contributions and after a period of five years for Astoria Federal contributions. Employee Stock Ownership Plans and Trusts Astoria Federal maintains an Employee Stock Ownership Plan, or AFS ESOP, for its eligible employees, which is also a defined contribution pension plan. To fund the purchase of 2,642,354 shares of our common stock, the AFS ESOP borrowed funds from us. Pursuant to the LIB Acquisition, we also maintained an Employee Stock Ownership Plan for former employees of LIB, or the LIB ESOP. In 1994, the LIB ESOP borrowed funds from LIB and used the proceeds to purchase 2,070,000 shares of the then LIB Common Stock. All unallocated and allocated shares from the LIB ESOP were converted to shares of our common stock at the exchange ratio of 1.15. The LIB ESOP was 92 95 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) merged into the AFS ESOP, collectively referred to as the ESOP, during the year ended December 31, 2000. The ESOP loans, which were restructured during the year ended December 31, 2000, bear an interest rate of 6.00%, mature on December 31, 2029 and are collateralized by our common stock purchased with the loan proceeds. Astoria Federal's contributions may be reduced by investment earnings realized and, prior to 2010, dividends paid on unallocated shares. Dividends paid on unallocated shares which reduced Astoria Federal's contribution to the ESOP, totaled $3.1 million for the year ended December 31, 2000 and $3.2 million for the year ended December 31, 1999. The ESOP loans had an outstanding principal balance of $38.2 million at December 31, 2000 and $39.5 million at December 31, 1999. Shares purchased by the ESOP are held in trust for allocation among participants as the loans are repaid. Pursuant to the restructured loans, the number of shares released annually is based upon a specified percentage of aggregate eligible payroll for our covered employees. Shares allocated to participants totaled 175,721 for the year ended December 31, 2000, 238,857 for the year ended December 31, 1999 and 284,165 for the year ended December 31, 1998. As of December 31, 2000, 2,830,568 shares which had a fair value of $153.7 million remain unallocated. In addition to shares allocated, as a result of the ESOP merger, Astoria Federal will make an annual cash contribution to participant accounts. This cash contribution totaled $1.0 million for the year ended December 31, 2000 and will total not less than $1.2 million each year through 2009. After 2009, an annual cash contribution equal to all dividends paid on unallocated shares remaining will be made through the maturity or repayment of the loans. We recorded compensation expense relating to the ESOP of $6.3 million for the year ended December 31, 2000, $9.8 million for the year ended December 31, 1999 and $13.6 million for the year ended December 31, 1998, which was equal to the shares allocated by the ESOP multiplied by the average estimated fair value of our common stock during the year of allocation, plus, for the year ended December 31, 2000, the cash contribution made to participant accounts. (17) STOCK AND STOCK OPTION PLANS In 1999, we adopted the 1999 Stock Option Plan for Officers and Employees of Astoria Financial Corporation, or the 1999 Employee Option Plan, and the 1999 Stock Option Plan for Outside Directors of Astoria Financial Corporation, or the 1999 Directors' Option Plan. As a result of the adoption of these option plans, all previous employee and director option plans were frozen and no further option grants will be made pursuant to those plans. The number of shares reserved for issuance under the 1999 Employee Option Plan was 2,500,000 and the number of shares reserved for issuance under the 1999 Directors' Option Plan was 175,000. In the aggregate, under all option plans and arrangements, at December 31, 2000, we had 3,828,601 options outstanding of which 2,501,801 were exercisable by directors, officers, key employees and former directors and officers of Fidelity, The Greater and LIB. Under all option plans, the exercise price of each option granted was equal to the market price of our common stock on the grant date. Options granted under the 1999 Employee Option Plan have a maximum term of ten years and vest three years after the grant date. Under option plans involving grants to employees, all options granted immediately vest and are exercisable in the event the optionee terminates his/her employment due to death, disability, retirement or in the event we experience a change of control as defined in such plans. Under option plans involving grants to outside directors, all options granted have a maximum term of ten years and are exercisable immediately on their grant date, except options granted under the 1993 Stock Option Plan for Outside Directors, which vested over three years. Options granted under all plans were granted in tandem with limited stock appreciation rights exercisable only in the event we experience a change of control, as defined by the plans. Upon consummation of the acquisitions of Fidelity, The Greater and LIB, we converted options previously granted to certain executive officers and employees of those institutions. Options converted for these three acquisitions totaled 2,127,205 and became 100% exercisable upon the consummation of the acquisition. Also, pursuant to the three merger agreements, we granted to members of their former Boards of Directors options to acquire 112,000 shares of our common stock at the then current market prices. For all options granted to members of their former Boards of Directors, the maximum term of the options granted is ten years and the options were immediately exercisable at the grant date. 93 96 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) We apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," or APB No. 25, and related interpretations in accounting for our stock option plans. Accordingly, no compensation cost has been recognized for our fixed stock option plans. Had compensation cost for these stock-based compensation plans been determined consistent with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," or SFAS No. 123, our net income and earnings per common share would have been reduced to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31, ------------------------------------- (In Thousands, Except Per Share Data) 2000 1999 1998 - -------------------------------------------------------------------------------- Net income: As reported $216,549 $235,670 $45,048 Pro forma $214,263 $234,103 $38,019 Basic earnings per common share: As reported $ 4.39 $ 4.47 $ 0.77 Pro forma $ 4.34 $ 4.44 $ 0.63 Diluted earnings per common share: As reported $ 4.32 $ 4.37 $ 0.74 Pro forma $ 4.27 $ 4.34 $ 0.61
Activity in our option plans is summarized as follows:
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------------------- 2000 1999 1998 ------------------------------------------------------------------------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE - ----------------------------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year: 3,834,615 $ 24.69 4,640,737 $ 20.70 5,305,763 $ 16.08 Granted 591,200 48.47 585,700 30.67 515,648 45.20 Canceled (70,853) (40.40) (49,014) (44.28) (19,805) (19.24) Exercised (526,361) (11.32) (1,342,808) (12.80) (1,287,685) (13.26) Adjustment to conform fiscal year of Long Island Bancorp, Inc. to Astoria Financial Corporation -- -- 126,816 38.37 --------- ---------- ---------- Outstanding at end of year 3,828,601 $ 29.91 3,834,615 $ 24.69 4,640,737 $ 20.70 --------- ---------- ---------- Options exercisable at end of year 2,501,801 2,829,043 3,726,720
Options to purchase 1,522,100 shares at December 31, 2000, 2,113,300 shares at December 31, 1999, and 109,248 shares at December 31, 1998 were available for future grants under the employee and director option plans. The following table summarizes information about our stock options outstanding at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------------- --------------------------------- NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED OF OPTIONS AVERAGE REMAINING AVERAGE OF OPTIONS AVERAGE EXERCISE PRICES AT 12/31/00 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/00 EXERCISE PRICE - ------------------------------------------------------------------------------------------------------------- $ 3.06 to $10.00 505,904 3.04 years $ 9.28 505,904 $ 9.28 12.50 835,540 2.88 years 12.50 835,540 12.50 12.97 to 29.88 920,403 7.51 years 26.96 455,503 24.07 30.16 to 45.06 679,402 7.33 years 41.55 376,702 38.72 49.25 to 59.75 887,352 8.88 years 52.20 328,152 56.49 --------- ---------- 3.06 to 59.75 3,828,601 6.20 years $ 29.91 2,501,801 $ 23.67 ========= ==========
94 97 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The fair value of the option grants was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants:
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------ 2000 1999 1998 ---------- --------- ---------- Dividend yield 2.10% 3.00% 1.25% Expected stock price volatility 26.50 24.91 24.35 Risk-free interest rates based upon equivalent-term U.S. Treasury rates 4.77 6.60 4.75 Expected option lives 5.96 years 5.96 years 5.78 years
The following table summarizes the weighted average fair value of the stock options granted:
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------------- 2000 1999 1998 ----------------------- ---------------------- ---------------------- Weighted Weighted Weighted Options Average Options Average Options Average Granted Fair Value Granted Fair Value Granted Fair Value ------- ---------- ------- ---------- ------- ---------- Employees 569,200 561,700 437,691 Outside directors 22,000 24,000 37,957 Other -- -- 40,000 ------- ------- ------- 591,200 $ 12.96 585,700 $ 8.01 515,648 $15.06 ======= ======= ======= ======= ======= ======
The weighted-average fair value of options was calculated using the above assumptions, based on our judgments regarding future option exercise experience and market conditions. These assumptions are subjective in nature, involve uncertainties and therefore cannot be determined with precision. The Black-Scholes option pricing model also contains certain inherent limitations when applied to options which are not immediately exercisable and are not traded on public markets. Recognition and Retention Plans, or RRPs Astoria Federal established the RRPs in 1993 as a method of providing our officers, employees and non-employee directors with a proprietary interest in us in a manner designed to encourage such persons to remain with us. Astoria Federal contributed funds to the RRPs to enable the trusts to acquire 1,322,500 shares of our common stock in the conversion and in open-market transactions following the conversion. This contribution represents deferred compensation which is initially recorded as a reduction of stockholders' equity and ratably charged to compensation expense over the vesting period of the actual stock awards. The RRPs acquired the shares at an average price of $14.44 per share. Final distributions of shares awarded under the RRPs were completed during the year ended December 31, 2000. Unallocated RRP shares totaling 946 were added to treasury stock during the year ended December 31, 2000. We recorded compensation expense relating to the RRPs of $55,000 for the year ended December 31, 2000, $145,000 for the year ended December 31, 1999 and $4.6 million for the year ended December 31, 1998. (18) REGULATORY MATTERS Federal law requires that savings associations, such as Astoria Federal, maintain minimum capital requirements. These capital standards are required to be no less stringent than standards applicable to national banks. At December 31, 2000, Astoria Federal was in compliance with all regulatory capital requirements. 95 98 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The following table sets forth the regulatory capital calculations for Astoria Federal:
AT DECEMBER 31, 2000 ---------------------------------------------------------------------------------------------- CAPITAL ACTUAL EXCESS (Dollars in Thousands) REQUIREMENT % CAPITAL % CAPITAL % - --------------------------------------------------------------------------------------------------------------------------------- Tangible $334,278 1.50% $1,500,998 6.74% $1,166,720 5.24% Leverage 891,409 4.00 1,500,998 6.74 609,589 2.74 Risk-based 784,689 8.00 1,580,929 16.12 796,240 8.12
AT DECEMBER 31, 1999 ---------------------------------------------------------------------------------------------- CAPITAL ACTUAL EXCESS (Dollars in Thousands) REQUIREMENT % CAPITAL % CAPITAL % - ----------------------------------------------------------------------------------------------------------------------------------- Tangible $345,110 1.50% $1,376,195 5.98% $1,031,085 4.48% Leverage 920,293 4.00 1,376,195 5.98 455,902 1.98 Risk-based 757,977 8.00 1,452,773 15.33 694,796 7.33
Astoria Federal's Tier 1 risked-based capital ratio was 15.30% at December 31, 2000 and 14.52% at December 31, 1999. The Federal Deposit Insurance Corporation Improvement Act of 1991, or FDICIA, established a system of prompt corrective action to resolve the problems of undercapitalized institutions. The regulators adopted rules which require them to take action against undercapitalized institutions, based upon the five categories of capitalization which FDICIA created: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." The rules adopted generally provide that an insured institution whose total risk-based capital ratio is 10% or greater, Tier 1 risk-based capital ratio is 6% or greater, leverage ratio is 5% or greater and is not subject to any written agreement, order, capital directive or prompt corrective action directive issued by the Federal Deposit Insurance Corporation shall be considered a "well capitalized" institution. As of December 31, 2000 and 1999, Astoria Federal was a "well capitalized" institution. (19) FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," or SFAS No. 107, requires disclosure of estimated fair value information for financial instruments we hold. Fair values are most commonly derived from quoted market prices available in formal trading marketplaces. In many cases, financial instruments we hold are not bought or sold in formal trading marketplaces. Accordingly, in cases where quoted market prices are not available, fair values are derived or estimated based on a variety of valuation techniques. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates do not reflect any possible tax ramifications, estimated transaction costs, or any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument. Because no market exists for a certain portion of our financial instruments, fair value estimates are based on judgments regarding future loss experience, current economic conditions, risk characteristics, and other such factors. These estimates are subjective in nature, involve uncertainties and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. For these reasons and others, the estimated fair value disclosures presented herein do not represent our entire underlying value. 96 99 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The following table summarizes the carrying amounts and estimated fair values of our on and off balance sheet financial instruments at December 31, 2000 and 1999:
AT DECEMBER 31, ---------------------------------------------------------------- 2000 1999 --------------------------- --------------------------- CARRYING ESTIMATED CARRYING ESTIMATED (In Thousands) AMOUNT FAIR VALUE AMOUNT FAIR VALUE - ----------------------------------------------------------------------------------------------------------------------------------- ON BALANCE SHEET: Financial assets: Federal funds sold and repurchase agreements $ 171,525 $ 171,525 $ 335,653 $ 335,653 Securities available-for-sale 7,703,222 7,703,222 8,862,749 8,862,749 Securities held-to-maturity 1,712,191 1,697,417 1,899,957 1,843,607 Federal Home Loan Bank of New York stock 285,250 285,250 265,250 265,250 Loans held-for-sale 13,545 13,711 11,376 11,377 Loans receivable, net 11,344,518 11,504,424 10,212,496 10,060,285 Mortgage servicing rights, net 40,962 55,523 48,369 65,818 Bank owned life insurance 251,565 251,565 -- -- Financial Liabilities: Deposits 10,071,687 10,117,592 9,554,534 9,545,704 Borrowed funds 10,197,371 10,244,578 11,401,521 11,233,668 OFF BALANCE SHEET: Outstanding commitments to originate or purchase loans 407,019 407,186 376,429 376,429 Outstanding commitments to sell loans 18,926 18,766 18,011 18,011 Outstanding commitments to fund unused lines of credit 197,569 197,569 169,203 169,203 Interest rate swaps -- (1,783) -- (14,017) Interest rate caps/floors -- -- 19 19
Methods and assumptions used to estimate fair values are stated below: Federal Funds Sold and Repurchase Agreements The carrying amounts of federal funds sold and repurchase agreements approximate fair values since all mature in six months or less. Securities Available-for-Sale and Held-to-Maturity Fair values for all securities are based on published or securities dealers' market values. Federal Home Loan Bank of New York Stock The carrying amount of FHLB-NY stock equals cost. The fair value of FHLB-NY stock approximates the carrying amount. Loans Held-for-Sale The fair value of loans held-for-sale was determined by outstanding investor commitments, or in the absence of such commitments, current investor yield requirements. Loans Receivable, Net Fair values of loans are calculated by discounting the expected future cash flows of pools of loans with similar characteristics. The loans are first segregated by type, such as one-to-four family residential, multi-family, commercial and consumer and other, and then further segregated into fixed and adjustable rate and seasoned and nonseasoned categories. Expected future cash flows are then projected based on contractual cash flows, adjusted for 97 100 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) prepayments. Prepayment estimates are based on a variety of factors including our experience with respect to each loan category, the effect of current economic and lending conditions and regional statistics for each loan category, if available. The discount rates used are based on market rates for new loans of similar type and purpose, adjusted, when necessary, for factors such as servicing cost, credit risk and term. As mentioned previously, this technique of estimating fair value is extremely sensitive to the assumptions and estimates used. While we have attempted to use assumptions and estimates which are the most reflective of the loan portfolio and the current market, a greater degree of subjectivity is inherent in determining these fair values than those fair values obtained from formal trading marketplaces. As such, readers are again cautioned in using this information for purposes of evaluating our financial condition and/or value either alone or in comparison with any other company. Mortgage Servicing Rights, net The fair value of mortgage servicing rights is estimated using projected cash flows, adjusted for the effects of anticipated prepayments, using a market discount rate. Bank Owned Life Insurance The fair value of bank owned life insurance approximates cash surrender value. Deposits The fair values of deposits with no stated maturity, such as savings accounts, NOW and money manager accounts, money market accounts and demand deposits, are equal to the amount payable on demand. The related insensitivity of the majority of these deposits to interest rate changes creates a significant inherent value which is not reflected in the fair value reported. The fair values of certificates of deposit are based on discounted contractual cash flows using rates which approximate the rates we offer for deposits of similar remaining maturities. Borrowed Funds Fair value estimates are based on discounted contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities. Outstanding Commitments Fair value of commitments outstanding are estimated based on the rates that would be charged for similar agreements, considering the remaining term of the agreement, the rate offered and the creditworthiness of the parties. Interest Rate Swaps and Interest Rate Caps/Floors Fair values for interest rate swaps and interest rate caps/floors are based on securities dealers' estimated market values. (20) CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS The following condensed statements of financial condition as of December 31, 2000 and 1999 and condensed statements of income and cash flows for the years ended December 31, 2000, 1999 and 1998, for us (parent company only) reflect our investments in our wholly-owned subsidiaries, Astoria Federal, Astoria Capital Trust I and AF Insurance Agency, Inc. using the equity method of accounting: 98 101 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
ASTORIA FINANCIAL CORPORATION CONDENSED STATEMENTS OF FINANCIAL CONDITION At December 31, ------------------------------ (In Thousands) 2000 1999 - --------------------------------------------------------------------------------------- Assets: Cash $ 17 $ 3,990 Federal funds sold and repurchase agreements 26,525 35,653 Other securities available-for-sale 632 620 ESOP loan receivable 38,198 39,479 Accrued interest receivable 27 28 Deferred tax asset 219 224 Other assets 11,698 6,054 Investment in Astoria Federal 1,606,409 1,281,518 Investment in Astoria Capital Trust I 3,929 3,932 Investment in AF Insurance Agency, Inc. 141 -- - --------------------------------------------------------------------------------------- Total assets $1,687,795 $1,371,498 ======================================================================================= Liabilities and stockholders' equity: Other borrowings $ 39,480 $ 39,620 Other liabilities 1,919 1,612 Dividends payable 2,000 2,000 Amounts due to subsidiaries 2,367 2,488 Junior subordinated debentures 128,866 128,866 Stockholders' equity 1,513,163 1,196,912 - --------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,687,795 $1,371,498 =======================================================================================
ASTORIA FINANCIAL CORPORATION CONDENSED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, ---------------------------------------- (In Thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------ Interest income: Mortgage-backed and other securities $ 2,171 $ 2,000 $ 4,560 ESOP loan receivable 2,533 2,508 2,661 - ------------------------------------------------------------------------------------------------------ Total interest income 4,704 4,508 7,221 Interest expense on borrowed funds 4,401 107 131 - ------------------------------------------------------------------------------------------------------ Net interest income 303 4,401 7,090 - ------------------------------------------------------------------------------------------------------ Non-interest income -- 846 3,879 Cash dividends from subsidiaries 137,630 44,000 50,000 - ------------------------------------------------------------------------------------------------------ Non-interest expense: Acquisition costs and restructuring charges -- -- 10,745 Compensation and benefits 2,058 1,062 1,066 Capital trust securities 12,812 2,235 -- Other 1,853 1,508 1,646 - ------------------------------------------------------------------------------------------------------ Total non-interest expense 16,723 4,805 13,457 - ------------------------------------------------------------------------------------------------------ Income before income taxes and equity in undistributed (overdistributed) earnings of subsidiaries 121,210 44,442 47,512 Income tax (benefit) expense (6,661) 301 (1,080) - ------------------------------------------------------------------------------------------------------ Income before equity in undistributed (overdistributed) earnings of subsidiaries 127,871 44,141 48,592 Equity in undistributed (overdistributed) earnings of subsidiaries (1) 88,678 191,529 (3,544) - ------------------------------------------------------------------------------------------------------ Net income $ 216,549 $235,670 $ 45,048 ======================================================================================================
(1) The equity in overdistributed earnings of subsidiaries for the year ended December 31, 1998 represents dividends paid to us in excess of our subsidiaries' current year earnings. 99 102 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) ASTORIA FINANCIAL CORPORATION CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------------------- (In Thousands) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 216,549 $ 235,670 $ 45,048 Adjustments to reconcile net income to cash provided by operating activities: Equity in (undistributed) overdistributed earnings of subsidiaries (88,678) (191,529) 3,544 Decrease in accrued interest receivable 1 21 175 Amortization of premium net of accretion of discount 712 16 (8) Net gain on sales of securities -- (846) (3,848) Increase in other assets net of other liabilities and amounts due subsidiaries (5,461) (834) (3,921) - ---------------------------------------------------------------------------------------------------------------- Net cash provided by investing activities 123,123 42,498 40,990 - ---------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Increase (decrease) in repurchase agreements 9,128 30,784 (64,887) Purchases of securities available-for-sale -- (6,932) (526,938) Proceeds from maturities and principal payments on securities available-for-sale -- 4,215 536,336 Proceeds from sale of securities available-for-sale -- 7,779 66,606 Investment in Astoria Federal -- (41,250) -- Investment in Astoria Capital Trust I -- (3,866) -- Investment in AF Insurance Agency, Inc. (10) -- -- Principal payments on ESOP loan receivable 1,281 2,646 2,735 - ---------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities 10,399 (6,624) 13,852 - ---------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Decrease in reverse repurchase agreements -- -- (12,765) Increase in other borrowings -- 40,000 -- Fees paid on other borrowings (850) (400) -- Issuance of junior subordinated debentures -- 128,866 -- Repurchase of common stock (84,553) (159,367) (16,633) Cash received for options exercised 5,797 16,725 15,012 Cash dividends paid to stockholders (57,889) (58,353) (42,754) - ---------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (137,495) (32,529) (57,140) - ---------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (3,973) 3,345 (2,298) Adjustment to conform fiscal year of Long Island Bancorp, Inc. to Astoria Financial Corporation -- -- (3,565) Cash and cash equivalents at the beginning of the year 3,990 645 6,508 - ---------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at the end of the year $ 17 $ 3,990 $ 645 ================================================================================================================
100 103 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) QUARTERLY RESULTS OF OPERATIONS (Unaudited)
YEAR ENDED DECEMBER 31, 2000 --------------------------------------------------------------------------- FIRST SECOND THIRD FOURTH (In Thousands, Except Per Share Data) QUARTER QUARTER QUARTER QUARTER - --------------------------------------------------------------------------------------------------------------------------------- Interest income $378,519 $377,556 $379,999 $381,860 Interest expense 246,317 249,624 255,439 259,538 - --------------------------------------------------------------------------------------------------------------------------------- Net interest income 132,202 127,932 124,560 122,322 Provision for loan losses 1,000 1,005 1,003 1,006 - --------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 131,202 126,927 123,557 121,316 Non-interest income 16,923 (1) 18,281 (2) 16,318 17,724 - --------------------------------------------------------------------------------------------------------------------------------- Total Income 148,125 145,208 139,875 139,040 - --------------------------------------------------------------------------------------------------------------------------------- General and administrative expense 46,376 43,756 43,515 48,045 (3) Real estate operations and provision for losses, net (95) (194) 32 (193) Goodwill litigation 2,513 1,774 2,149 2,144 Capital trust securities 3,112 3,104 3,108 3,111 Amortization of goodwill 4,824 4,824 4,824 4,824 - --------------------------------------------------------------------------------------------------------------------------------- Income before income tax expense 91,395 91,944 86,247 81,109 Income tax expense 35,898 36,084 32,558 29,606 - --------------------------------------------------------------------------------------------------------------------------------- Net income $ 55,497 $ 55,860 $ 53,689 $ 51,503 ================================================================================================================================= Basic earnings per common share $ 1.11 $ 1.13 $ 1.09 $ 1.06 Diluted earnings per common share $ 1.09 $ 1.11 $ 1.07 $ 1.04
YEAR ENDED DECEMBER 31, 1999 ------------------------------------------------------------------------ FIRST SECOND THIRD FOURTH (In Thousands, Except Per Share Data) QUARTER QUARTER QUARTER QUARTER - -------------------------------------------------------------------------------------------------------------------------------- Interest income $360,895 $377,213 $378,447 $378,724 Interest expense 225,100 240,423 245,210 244,598 - -------------------------------------------------------------------------------------------------------------------------------- Net interest income 135,795 136,790 133,237 134,126 Provision for loan losses 1,061 1,032 1,026 1,000 - -------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 134,734 135,758 132,211 133,126 Non-interest income 16,715 (4) 16,366 36,778 (5) 16,837 - -------------------------------------------------------------------------------------------------------------------------------- Total income 151,449 152,124 168,989 149,963 - -------------------------------------------------------------------------------------------------------------------------------- General and administrative expense 51,977 50,381 47,993 44,915 Real estate operations and provision for losses, net (1) (175) 116 (126) Goodwill litigation 1,149 1,798 1,094 2,376 Capital trust securities -- -- -- 2,169 Amortization of goodwill 4,906 4,843 4,843 4,833 - -------------------------------------------------------------------------------------------------------------------------------- Income before income tax expense 93,418 95,277 114,943 95,796 Income tax expense 39,964 39,555 47,995 36,250 - -------------------------------------------------------------------------------------------------------------------------------- Net income $ 53,454 $ 55,722 $ 66,948 $ 59,546 ================================================================================================================================ Basic earnings per common share $ 1.00 $ 1.04 $ 1.27 $ 1.16 Diluted earnings per common share $ 0.97 $ 1.02 $ 1.25 $ 1.14
(1) Includes a $1.2 million net gain on the sale of a former Long Island Savings Bank banking office. (2) Includes a $2.8 million net gain on the sale of the former LIB headquarters. (3) Includes a $5.4 million charge for an executive severance payment. (4) Includes a $1.2 million net loss on the disposition of certain loan production offices. (5) Includes a $20.4 million net gain on the sale of banking offices. 101 104 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES INDEX OF EXHIBITS
EXHIBIT IDENTIFICATION OF EXHIBIT ------- ------------------------- 2.1 Agreement and Plan of Merger, dated as of July 12, 1994, by and among Astoria Financial Corporation, Astoria Federal Savings and Loan Association and Fidelity New York F.S.B. (1) 2.2 Amendment No. 1 to the Amended and Restated Agreement and Plan of Merger, dated as of January 27, 1995, by and among Astoria Financial Corporation, Astoria Federal Savings and Loan Association and Fidelity New York F.S.B. (2) 2.3 Agreement and Plan of Merger dated as of the 29th day of March, 1997, as amended, by and among Astoria Financial Corporation, Astoria Federal Savings and Loan Association and The Greater New York Savings Bank. (3) 2.4 Agreement and Plan of Merger dated as of the 2nd day of April, 1998 by and between Astoria Financial Corporation and Long Island Bancorp, Inc., as amended. (4) 3.1 Certificate of Incorporation of Astoria Financial Corporation, as amended effective as of June 3, 1998. (5) 3.2 Bylaws of Astoria Financial Corporation. (6) 4.1 Astoria Financial Corporation Specimen Stock Certificate. (7) 4.2 Federal Stock Charter of Astoria Federal Savings and Loan Association. (*) 4.3 Bylaws of Astoria Federal Savings and Loan Association, as amended. (*) 4.4 Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred Stock. (8) 4.5 Rights Agreement between Astoria Financial Corporation and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, dated as of July 17, 1996, as amended. (8) 4.6 Amendment No. 1 to Rights Agreement, dated as of April 2, 1998 by and between Astoria Financial Corporation and ChaseMellon Shareholder Services L.L.C. (4) 4.7 Amendment No. 2 to Rights Agreement, dated as of September 15, 1999 by and between Astoria Financial Corporation and ChaseMellon Shareholder Services L.L.C., as Rights Agent. (9) 4.8 Form of Rights Certificate. (8)
102 105
EXHIBIT IDENTIFICATION OF EXHIBIT ------- ------------------------- 4.9 Certificate of Designations, Preferences and Rights of 12% Noncumulative, Perpetual Preferred Stock, Series B. (3) 4.10 Astoria Financial Corporation Specimen 12% Noncumulative, Perpetual Preferred Stock, Series B Certificate. (10) 4.11 Indenture, dated as of October 28, 1999, between Astoria Financial Corporation and Wilmington Trust Company, as Debenture Trustee, including as Exhibit A thereto the Form of Certificate of Exchange Junior Subordinated Debentures (11) 4.12 Form of Certificate of Junior Subordinated Debenture (11) 4.13 Form of Certificate of Exchange Junior Subordinated Debenture (11) 4.14 Amended and Restated Declaration of Trust of Astoria Capital Trust I, dated as of October 28, 1999 (11) 4.15 Common Securities Guarantee Agreement of Astoria Financial Corporation, dated as of October 28, 1999 (11) 4.16 Form of Certificate Evidencing Common Securities of Astoria Capital Trust I (11) 4.17 Form of Exchange Capital Security Certificate for Astoria Capital Trust I (11) 4.18 Series A Capital Securities Guarantee Agreement of Astoria Financial Corporation, dated as of October 28, 1999 (11) 4.19 Form of Series B Capital Securities Guarantee Agreement of Astoria Financial Corporation (11) 4.20 Form of Capital Security Certificate of Astoria Capital Trust I (11) 4.21 Astoria Financial Corporation Automatic Dividend Reinvestment and Stock Purchase Plan. (12) 10.1 Agreement dated as of December 28, 2000 by and between Astoria Federal Savings and Loan Association, Astoria Financial Corporation, the Astoria Federal Savings and Loan Association Employee Stock Ownership Plan Trust and The Long Island Savings Bank FSB Employee Stock Ownership Plan Trust. (*) 10.2 Amended and Restated Loan Agreement by and between Astoria Federal Savings and Loan Association Employee Stock Ownership Plan Trust and Astoria Financial Corporation made and entered into as of January 1, 2000. (*)
103 106
EXHIBIT IDENTIFICATION OF EXHIBIT ------- ------------------------- 10.3 Promissory Note of Astoria Federal Savings and Loan Association Employee Stock Ownership Plan Trust dated January 1, 2000. (*) 10.4 Pledge Agreement made as of January 1, 2000 by and between Astoria Federal Savings and Loan Association Employee Stock Ownership Plan Trust and Astoria Financial Corporation. (*) 10.5 Amended and Restated Loan Agreement by and between The Long Island Savings Bank FSB Employee Stock Ownership Plan Trust and Astoria Financial Corporation made and entered into as of January 1, 2000.(*) 10.6 Promissory Note of The Long Island Savings Bank FSB Employee Stock Ownership Plan Trust dated January 1, 2000. (*) 10.7 Pledge Agreement made as of January 1, 2000 by and between The Long Island Savings Bank FSB Employee Stock Ownership Plan Trust and Astoria Financial Corporation. (*) 10.8 Astoria Federal Savings and Loan Association and Astoria Financial Corporation Directors' Retirement Plan, as amended and restated effective February 21, 1996. This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (13) 10.9 The Long Island Bancorp, Inc., Non-Employee Director Retirement Benefit Plan, as amended. This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (6) 10.10 Astoria Financial Corporation Death Benefit Plan for Outside Directors - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (13) 10.11 Deferred Compensation Plan for Directors of Astoria Financial Corporation - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (13) 10.12 Astoria Financial Corporation 1993 Incentive Stock Option Plan, as amended - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (10)
104 107
EXHIBIT IDENTIFICATION OF EXHIBIT ------- ------------------------- 10.13 Astoria Financial Corporation 1993 Stock Option Plan For Outside Directors, as amended - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (10) 10.14 1996 Stock Option Plan for Officers and Employees of Astoria Financial Corporation, as amended - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (10) 10.15 1996 Stock Option Plan for Outside Directors of Astoria Financial Corporation, as amended - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (10) 10.16 1999 Stock Option Plan for Officers and Employees of Astoria Financial Corporation - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (14) 10.17 1999 Stock Option Plan for Outside Directors of Astoria Financial Corporation - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (14) 10.18 Amendment to Section 4.5 of the 1999 Stock Option Plan for Outside Directors of Astoria Financial Corporation - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (*) 10.19 Astoria Federal Savings and Loan Association Annual Incentive Plan for Select Executives - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (6) 10.20 Astoria Financial Corporation Executive Officer Annual Incentive Plan - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (14) 10.21 Astoria Financial Corporation Amended and Restated Employment Agreement with George L. Engelke, Jr., dated as of January 1, 2000 - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16)
105 108
EXHIBIT IDENTIFICATION OF EXHIBIT ------- ------------------------- 10.22 Astoria Federal Savings and Loan Association Amended and Restated Employment Agreement with George L. Engelke, Jr., dated as of January 1, 2000 - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16) 10.23 Astoria Financial Corporation Amended and Restated Employment Agreement with Gerard C. Keegan, dated as of January 1, 2000 - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16) 10.24 Astoria Federal Savings and Loan Association Amended and Restated Employment Agreement with Gerard C. Keegan, dated as of January 1, 2000 - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16) 10.25 Astoria Financial Corporation Employment Agreement with John J. Conefry, Jr. - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (6) 10.26 Employment Termination and Release Agreement by and among John J. Conefry, Jr., Astoria Federal Savings and Loan Association and Astoria Financial Corporation - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (*) 10.27 Astoria Financial Corporation Amended and Restated Employment Agreement with Arnold K. Greenberg, dated as of January 1, 2000 - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16) 10.28 Astoria Federal Savings and Loan Association Amended and Restated Employment Agreement with Arnold K. Greenberg, dated as of January 1, 2000 - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16) 10.29 Astoria Financial Corporation Amended and Restated Employment Agreement with Thomas W. Drennan, dated as of January 1, 2000 - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16) 10.30 Astoria Federal Savings and Loan Association Amended and Restated Employment Agreement with Thomas W. Drennan, dated as of January 1, 2000 - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16)
106 109
EXHIBIT IDENTIFICATION OF EXHIBIT ------- ------------------------- 10.31 Astoria Financial Corporation Amended and Restated Employment Agreement with Monte N. Redman, dated as of January 1, 2000 - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16) 10.32 Astoria Federal Savings and Loan Association Amended and Restated Employment Agreement with Monte N. Redman, dated as of January 1, 2000 - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16) 10.33 Astoria Financial Corporation Amended and Restated Employment Agreement with William K. Sheerin, dated as of January 1, 2000 - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16) 10.34 Astoria Federal Savings and Loan Association Amended and Restated Employment Agreement with William K. Sheerin, dated as of January 1, 2000 - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16) 10.35 Astoria Financial Corporation Amended and Restated Employment Agreement with Alan P. Eggleston, dated as of January 1, 2000 - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16) 10.36 Astoria Federal Savings and Loan Association Amended and Restated Employment Agreement with Alan P. Eggleston, dated as of January 1, 2000 - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16) 10.37 Change of Control Severance Agreement, dated as of January 1, 2000, by and among Astoria Federal Savings and Loan Association, Astoria Financial Corporation and Josie Callari - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16) 10.38 Change of Control Severance Agreement, dated as of January 1, 2000, by and among Astoria Federal Savings and Loan Association, Astoria Financial Corporation and Robert J. Destefano - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16)
107 110
EXHIBIT IDENTIFICATION OF EXHIBIT ------- ------------------------- 10.39 Change of Control Severance Agreement, dated as of January 1, 2000, by and among Astoria Federal Savings and Loan Association, Astoria Financial Corporation and Frank E. Fusco - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16) 10.40 Change of Control Severance Agreement, dated as of January 1, 2000, by and among Astoria Federal Savings and Loan Association, Astoria Financial Corporation and Gary T. McCann - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16) 10.41 Change of Control Severance Agreement, dated as of January 1, 2000, by and among Astoria Federal Savings and Loan Association, Astoria Financial Corporation and Robert T. Volk - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16) 10.42 Change of Control Severance Agreement, dated as of January 1, 2000, by and among Astoria Federal Savings and Loan Association, Astoria Financial Corporation and Ira M. Yourman - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (16) 10.43 Change of Control Severance Agreement, dated as of December 20, 2000, by and among Astoria Federal Savings and Loan Association, Astoria Financial Corporation and Harold R. Leistmann - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (*) 10.44 Change of Control Severance Agreement, dated as of December 20, 2000, by and among Astoria Federal Savings and Loan Association, Astoria Financial Corporation and Brian T. Edwards - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (*) 10.45 Retirement Medical and Dental Benefit Policy for Senior Officers - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (10) 10.46 Form of Option Conversion Agreement by and between Astoria Financial Corporation and each of Mr. Thomas V. Powderly. (2) 10.47 Form of Option Conversion Agreement by and between Astoria Financial Corporation and Former Officer or Director of Long Island Bancorp, Inc. dated September 30, 1998. (15)
108 111
EXHIBIT IDENTIFICATION OF EXHIBIT ------- ------------------------- 10.48 Option Conversion Certificates of John J. Conefry, Jr., Robert J. Conway, Lawrence W. Peters, Leo J. Waters and Donald D. Wenk. (6) 10.49 Trust Agreement, dated as of January 31, 1995 between Astoria Financial Corporation and State Street Bank and Trust Company. (2) 10.50 Astoria Federal Savings and Loan Association Recognition and Retention Plan for Officers and Employees - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (6) 10.51 Option Conversion Agreement by and between Astoria Financial Corporation and Mr. Gerard C. Keegan - This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (10) 10.52 Astoria Financial Corporation Litigation Advisory Committee Consulting Agreement with John J. Conefry, Jr. (6) 10.53 Letter Agreement dated April 2, 1998 by and between John J. Conefry, Jr. and Astoria Financial Corporation. (6) 10.54 Letter Agreement dated April 2, 1998 by and between Lawrence W. Peters and Astoria Financial Corporation. (6) 11.1 Statement regarding computation of earnings per share. (*) 21.1 Subsidiaries of Astoria Financial Corporation. (*) 23 Consent of Independent Auditors. (*) 99.1 Proxy Statement for the Annual Meeting of Shareholders to be held on May 16, 2001, which will be filed with the SEC within 120 days from December 31, 2000, is incorporated herein by reference.
* Filed herewith. Copies of exhibits will be provided to shareholders upon written request to Astoria Financial Corporation, Investor Relations Department, One Astoria Federal Plaza, Lake Success, New York 11042 at a charge of $0.10 per page. Copies are also available at no charge through the SEC website: www.sec.gov/edaux/seaches.htm 109 112 (1) Incorporated by reference to Astoria Financial Corporation's Current Report on Form 8-K dated on or about July 25, 1994 and filed with the Securities and Exchange Commission on or about July 26, 1994. (2) Incorporated by reference to Astoria Financial Corporation's Current Report on Form 8-K, dated January 31, 1995 and filed with the Securities and Exchange Commission on February 10, 1995. (3) Incorporated by reference to Form S-4 Registration Statement as filed with the Securities and Exchange Commission on June 24, 1997. (4) Incorporated by reference to Astoria Financial Corporation's Current Report on Form 8-K/A, dated April 2, 1998, and filed with the Securities and Exchange Commission on April 10, 1998, as amended by the First Amendment, incorporated by reference to the Registrant's Current Report on Form 8-K, dated May 29, 1998 and the Second Amendment, incorporated by reference to the Registrant's Current Report on Form 8-K, dated July 10, 1998. (5) Incorporated by reference to Astoria Financial Corporation's Quarterly Report on Form 10-Q/A for the quarter ended June 30, 1998, and filed with the Securities and Exchange Commission on September 10, 1998. (6) Incorporated by reference to Astoria Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 filed with the Securities and Exchange Commission on March 24, 1999. (7) Incorporated by reference to Astoria Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, filed with the Securities and Exchange Commission on March 28, 1997. (8) Incorporated by reference to Astoria Financial Corporation's Registration Statement on Form 8-K/A dated July 17, 1996 and filed with the Securities and Exchange Commission in August 1996. (9) Incorporated by reference to Astoria Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, and filed with the Securities and Exchange Commission on November 13, 1999. (10) Incorporated by reference to Astoria Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 filed with the Securities and Exchange Commission on March 25, 1998. (11) Incorporated by reference to Form S-4 Registration Statement filed with the Securities and Exchange Commission on February 18, 2000. (12) Incorporated by reference to Form 424B3 Prospectus Supplement as filed with the Securities and Exchange Commission on February 1, 2000. 110 113 (13) Incorporated by reference to Astoria Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 filed with the Securities and Exchange Commission on March 29, 1996. (14) Incorporated by reference to Astoria Financial Corporation's Form 14-A Definitive Proxy Statement filed on April 8, 1999. (15) Incorporated by reference to Astoria Financial Corporation's Registration Statement on Form S-8, dated September 30, 1998, and filed with the Securities and Exchange Commission on September 30, 1998. (16) Incorporated by reference to Astoria Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, filed with the Securities and Exchange Commission on March 24, 2000. 111 EX-4.2 2 y46647ex4-2.txt FEDERAL STOCK CHARTER 1 EXHIBIT 4.2 Charter No. 5889 FEDERAL STOCK CHARTER FOR ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION Section 1. Corporate Title. The full corporate title of the institution is Astoria Federal Savings and Loan Association (the "ASSOCIATION"). Section 2. Office. The home office shall be located at 37-16 30th Avenue, Long Island City, New York 11103, in the county of Queens, State of New York. Section 3. Duration. The duration of the ASSOCIATION is perpetual. Section 4. Purpose and Powers. The purpose of the ASSOCIATION is to pursue any or all of the lawful objectives of a federal capital stock savings and loan association chartered under Section 5 of the Home Owners' Loan Act and to exercise all the express, implied, and incidental powers conferred thereby and by all acts amendatory thereof and supplemental thereto, subject to the Constitution and laws of the United States as they are now in effect, or as they may hereafter be amended, and subject to all lawful and applicable rules, regulations, and orders of the Office of Thrift Supervision ("Office") or any successor thereto. Section 5. Capital Stock. The total number of shares of all classes of the capital stock which the ASSOCIATION has authority to issue is forty million (40,000,000), of which thirty-five million (35,000,000) shall be common stock, par value $1.00 per share and of which five million (5,000,000) shall be preferred stock, par value $1.00 per share. The shares may be issued from time to time as authorized by the Board of Directors without further approval of shareholders except as otherwise provided in this Section 5 or to the extent that such approval is required by governing law, rule, or regulation. The consideration for the issuance of the shares shall be paid in full before their issuance and shall not be less than the par value. Neither promissory notes nor future services 2 shall constitute payment or part payment for the issuance of shares of the ASSOCIATION. The consideration for the shares shall be cash, tangible or intangible property (to the extent direct investment in such property would be permitted), labor or services actually performed for the ASSOCIATION, or any combination of the foregoing. In the absence of actual fraud in the transaction, the value of such property, labor, or services, as determined by the Board of Directors of the ASSOCIATION, shall be conclusive. Upon payment of such consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, that part of the surplus of the ASSOCIATION which is transferred to stated capital upon the issuance of shares as a share dividend shall be deemed to be the consideration for their issuance. Except for shares issuable in connection with the conversion of the ASSOCIATION from the mutual to the stock form of capitalization, no shares of capital stock (including shares issuable upon conversion, exchange, or exercise of other securities) shall be issued, directly or indirectly, to officers, directors, or controlling persons of the ASSOCIATION other than as part of a general public offering or as qualifying shares to a director, unless their issuance or the plan under which they would be issued has been approved by a majority of the total votes eligible to be cast at a legal meeting. Nothing contained in this Section 5 (or in any supplementary sections hereto) shall entitle the holders of any class or series of capital stock to vote as a separate class or series or to more than one vote per share: Provided, that this restriction on voting separately by class or series shall not apply: (i) To any provision which would authorize the holders of preferred stock, voting as a class or series, to elect some members of the Board of Directors, less than a majority thereof, in the event of default in the payment of dividends on any class or series of preferred stock; (ii) To any provision which would require the holders of preferred stock, voting as a class or series, to approve the merger or consolidation of the ASSOCIATION with another corporation or the sale, lease, or conveyance (other than by mortgage or pledge) of properties or business in exchange for securities of a corporation other than the ASSOCIATION if the preferred stock is exchanged for securities of such other corporation: provided, That no provision may require such approval for transactions undertaken with the assistance or pursuant to the direction of the Office, the Federal Deposit Insurance Corporation, or the Resolution Trust Corporation; (iii) To any amendment which would adversely change the specific terms of any class or series of capital stock as set forth in this Section 5 (or in any supplementary sections hereto), including any amendment which would create or enlarge any class or series ranking prior thereto in rights and preferences. An amendment which increases the number of authorized shares of any class or series of capital stock, or substitutes the surviving ASSOCIATION in a merger or consolidation for the ASSOCIATION, shall not be considered to be such an adverse change. 3 A description of the different classes and series (if any) of the ASSOCIATION's capital stock and a statement of the designations, and the relative rights, preferences, and limitations of the shares of each class of and series (if any) of capital stock are as follows: A. Common Stock. Except as provided in this Section 5 (or in any supplementary sections hereto) the holders of the common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote for each share held by such holder. Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and of sinking fund, or retirement fund, or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock and on any class or series of stock entitled to participate therewith as to dividends out of any assets legally available for the payment of dividends. In the event of any liquidation, dissolution, or winding up of the ASSOCIATION, the holders of the common stock (and the holders of any class or series of stock entitled to participate with the common stock in the distribution of assets) shall be entitled to receive, in cash or in kind, the assets of the ASSOCIATION available for distribution remaining after: (i) payment or provision for payment of the ASSOCIATION's debts and liabilities; (ii) distributions or provision for distributions in settlement of its liquidation account; and (iii) distributions or provision for distributions to holders of any class or series of stock having preference over the common stock in the liquidation, dissolution, or winding up of the ASSOCIATION. Each share of common stock shall have the same relative rights as and be identical in all respects with all the other shares of common stock. B. Preferred Stock. The ASSOCIATION may provide in supplementary sections to its charter for one or more classes of preferred stock, which shall be separately identified. The shares of any class may be divided into and issued in series, with each series separately designated so as to distinguish the shares thereof from the shares of all other series and classes. The terms of each series shall be set forth in a supplementary section to the charter. All shares of the same class shall be identical except as to the following relative rights and preferences, as to which there may be variations between different series: (a) The distinctive serial designation and the number of shares constituting such series; (b) The dividend rate or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date(s), the payment date(s)for dividends, and the participating or other special rights, if any, with respect to dividends; 4 (c) The voting powers, full or limited, if any, of the shares of such series; (d) Whether the shares of such series shall be redeemable and, if so, the price(s) at which, and the terms and conditions on which, such shares may be redeemed; (e) The amount(s) payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution, or winding up of the ASSOCIATION; (f) Whether the shares of such series shall be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and if so entitled, the amount of such fund and the manner of its application, including the price(s) at which such shares may be redeemed or purchased through the application of such fund; (g) Whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes of stock of the ASSOCIATION and, if so, the conversion price(s) or the rate(s) of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; (h) The price or other consideration for which the shares of such series shall be issued; and (i) Whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of serial preferred stock and whether such shares may be reissued as shares of the same or any other series of serial preferred stock. Each share of each series of serial preferred stock shall have the same relative rights as and be identical in all respects with all the other shares of the same series. The Board of Directors shall have authority to divide, by the adoption of supplementary charter sections, any authorized class of preferred stock into series, and, within the limitations set forth in this section and the remainder of this charter, fix and determine the relative rights and preferences of the shares of any series so established. Prior to the issuance of any preferred shares of a series established by a supplementary charter section adopted by the Board of Directors, the ASSOCIATION shall file with the Secretary of the Office a dated copy of that supplementary section of this charter establishing and designating the series and fixing and determining the relative rights and preferences thereof. Section 6. Preemptive Rights. Holders of the capital stock of the ASSOCIATION shall not be entitled to preemptive rights with respect to any shares of the ASSOCIATION which may be issued. Section 7. Liquidation Account. 5 Pursuant to the requirements of the Office's regulations (12 C.F.R. 563b.3), the ASSOCIATION shall establish and maintain a liquidation account for the benefit of its savings account holders as of December 31, 1992 ("eligible savers"). In the event of a complete liquidation of the ASSOCIATION, it shall comply with such regulations with respect to the amount and the priorities on liquidation of each of the ASSOCIATION's eligible saver's inchoate interest in the liquidation account, to the extent it is still in existence: Provided, That an eligible saver's inchoate interest in the liquidation account shall not entitle such eligible saver to any voting rights at meetings of the ASSOCIATION's shareholders. Section 8. Certain Provisions Applicable for Five Years. Notwithstanding anything contained in the ASSOCIATION's charter or bylaws to the contrary, for a period of five years from the date of consummation of the conversion of the ASSOCIATION from mutual to stock form, the following provisions shall apply: A. Beneficial Ownership Limitation. No person shall directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10 percent of any class of any equity security of the ASSOCIATION. This limitation shall not apply to a transaction in which the ASSOCIATION forms a holding company in conjunction with a conversion, or thereafter, if such formation is without change in the respective beneficial ownership interests of the ASSOCIATION's shareholders other than pursuant to the exercise of any dissenter and appraisal rights, the purchase of shares by underwriters in connection with a public offering, or the purchase of shares by a tax-qualified employee stock benefit plan which is exempt from the approval requirements under Section 574.3(c)(1)(vi) of the Office's Regulations. In the event shares are acquired in violation of this Section 8, all shares beneficially owned by any person in excess of 10% shall be considered "excess shares" and shall not be counted as shares entitled to vote and shall not be voted by any person or counted as voting shares in connection with any matters submitted to the shareholders for a vote. For the purposes of this Section 8, the following definitions apply: (i) The term "person" includes an individual, a group acting in concert, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of the equity securities of the ASSOCIATION. (ii) The term "offer" includes every offer to buy or otherwise acquire, solicitation of an offer to sell, tender offer for, or request or invitation for tenders of, a security or interest in a security for value. (iii) The term "acquire" includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise. 6 (iv) The term "acting in concert" means (a) knowing participation in a joint activity or conscious parallel action towards a common goal whether or not pursuant to an express agreement, or (b) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. B. Cumulative Voting Limitation. Shareholders shall not be permitted to cumulate their votes for the election of directors. C. Call for Special Meetings. Special meetings of shareholders relating to changes in control of the ASSOCIATION or amendments to its charter shall be called only at the direction of the Board of Directors. Section 9. Directors. The ASSOCIATION shall be under the direction of a Board of Directors. The authorized number of directors, as stated in the ASSOCIATION's bylaws, shall not be less than five nor more than 15 except when a greater number is approved by the Office. Section 10. Amendment of Charter. Except as provided in Section 5, no amendment, addition, alteration, change, or repeal of this charter shall be made, unless such is first proposed by the Board of Directors of the ASSOCIATION, then preliminarily approved by the Office, which preliminary approval may be granted by the Office pursuant to regulations specifying pre-approved charter amendments, and thereafter approved by the shareholders by a majority of the total votes eligible to be cast at a legal meeting. Any amendment, addition, alteration, change or repeal so acted upon shall be effective upon filing with the Office in accordance with the regulatory procedures or on such other date as the Office may specify in its preliminary approval. 7 As adopted by the ASSOCIATION's members on November 10, 1993, to be effective on the date the ASSOCIATION converts from mutual to stock form of organization. ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION Attest:/S/ William K. Sheerin By:/S/ George L. Engelke,Jr. -------------------------------------- ------------------------- Secretary President OFFICE OF THRIFT SUPERVISION Attest:/S/ Nadine Y. Washington By:/S/ Thomas S. Laeffler ------------------------------------- -------------------------- Corporate Secretary to the Office Assistant Director for Supervisory Operations Declared effective on the 18th day of November, 1993 ---- -------- EX-4.3 3 y46647ex4-3.txt BYLAWS AS AMENDED 1 EXHIBIT 4.3 BYLAWS OF ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION Amended and Restated Effective as of January 31, 1995 As Amended Effective July 17, 1996 As Amended Effective September 30, 1997 As Amended Effective September 30, 1998 As Amended Effective July 21, 1999 As Amended Effective April 24, 2000 2 2- BYLAWS OF ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION ARTICLE I. HOME OFFICE The home office of Astoria Federal Savings and Loan ("ASSOCIATION") is 37-16 30th Avenue, Long Island City, New York 11103. ARTICLE II. SHAREHOLDERS Section 1. Place of Meetings. All annual and special meetings of shareholders shall be held at the administrative office of the ASSOCIATION located at One Astoria Federal Plaza, Lake Success, New York or at such other place in the State in which the principal place of business of the ASSOCIATION is located as the board of directors may determine. Section 2. Annual Meeting. A meeting of the shareholders of the ASSOCIATION for the election of directors and for the transaction of any other business of the ASSOCIATION shall be held annually within 120 days after the end of the ASSOCIATION's fiscal year. Section 3. Special Meetings. For a period of five years from the date of the completion of the conversion of the ASSOCIATION from mutual to stock form, special meetings of the shareholders relating to a change in control of the ASSOCIATION or to an amendment of the Charter of the ASSOCIATION may be called only by the board of directors. Thereafter, special meetings of the shareholders for any purpose or purposes, unless otherwise prescribed by the regulations of the Office of Thrift Supervision ("OTS"), may be called at any time by the chairman of the board, the president, or a majority of the board of directors, and shall be called by the chairman of the board, the president or the secretary upon the written request of the holders of not less than one-tenth of all the outstanding capital stock of the ASSOCIATION entitled to vote at the meeting. Such written request shall state the purpose or purposes of the meeting and shall be delivered at the home office of the ASSOCIATION addressed to the chairman of the board, the president or the secretary. Section 4. Conduct of Meetings. Annual and special meetings shall be conducted in accordance with the most current edition of Robert's Rules of Order unless otherwise prescribed by regulations of the OTS or these bylaws. The board of directors shall designate, when present, either the chairman of the board or president to preside at such meetings. Section 5. Notice of Meetings. Written notice stating the place, day and hour of the meeting and the purpose(s) for which the meeting is called shall be delivered not fewer than 20 nor more than 50 days before the date of the meeting, either personally or by mail, by or at the 3 3- direction of the chairman of the board, the president, the secretary, or the directors calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the mail, addressed to the shareholder at the address as it appears on the stock transfer books or records of the ASSOCIATION as of the record date prescribed in Section 6 of this Article II, with postage prepaid. When any shareholders' meeting, either annual or special, is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. It shall not be necessary to give any notice of the time and place of any meeting adjourned for less than 30 days or of the business to be transacted at the meeting, other than an announcement at the meeting at which such adjournment is taken. Section 6. Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors shall fix in advance a date as the record date for any such determination of shareholders. Such date in any case shall be not more than 60 days and, in case of a meeting of shareholders, not fewer than 10 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment. Section 7. Voting Lists. At least 20 days before each meeting of the shareholders, the officer or agent having charge of the stock transfer books for shares of the ASSOCIATION shall make a complete list of the shareholders entitled to vote at such meeting, or any adjournment, arranged in alphabetical order, with the address and the number of shares held by each. This list of shareholders shall be kept on file at the home office of the ASSOCIATION and shall be subject to inspection by any shareholder at any time during usual business hours, for a period of 20 days prior to such meeting. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection by any shareholder during the entire time of the meeting. The original stock transfer book shall constitute prima facie evidence of the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders. In lieu of making the shareholder list available for inspection by shareholders as provided in the preceding paragraph, the board of directors may elect to follow the procedures prescribed in ss.552.6(d) of the OTS's Regulations as now or hereafter in effect. Section 8. Quorum. A majority of the outstanding shares of the ASSOCIATION entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares is represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The 4 4- shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to constitute less than a quorum. Section 9. Proxies. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Proxies solicited on behalf of the management shall be voted as directed by the shareholder or, in the absence of such direction, as determined by a majority of the board of directors. No proxy shall be valid more than eleven months from the date of its execution except for a proxy coupled with an interest. Section 10. Voting of Shares in the Name of Two or More Persons. When ownership stands in the name of two or more persons, in the absence of written directions to the ASSOCIATION to the contrary, at any meeting of the shareholders of the ASSOCIATION any one or more of such shareholders may cast, in person or by proxy, all votes to which such ownership is entitled. In the event an attempt is made to cast conflicting votes, in person or by proxy, by the several persons in whose names shares of stock stand, the vote or votes to which those persons are entitled shall be cast as directed by a majority of those holding such and present in person or by proxy at such meeting, but no votes shall be cast for such stock if a majority cannot agree. Section 11. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by any officer, agent or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer into his name if authority to do so is contained in an appropriate order of the court or other public authority by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee and thereafter the pledgee, shall be entitled to vote the shares so transferred. Neither treasury shares of its own stock held by the ASSOCIATION, nor shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the ASSOCIATION, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting. 5 5- Section 12. Cumulative Voting. Shareholders shall not be entitled to cumulate their votes for election of directors. Section 13. Inspectors of Election. In advance of any meeting of shareholders, the board of directors may appoint any persons other than nominees for office as inspectors of election to act at such meeting or any adjournment. The number of inspectors shall be either one or three. Any such appointment shall not be altered at the meeting. If inspectors of election are not so appointed, the chairman of the board or the president may, or on the request of not fewer than 10 percent of the votes represented at the meeting shall, make such appointment at the meeting. If appointed at the meeting, the majority of the votes present shall determine whether one or three inspectors are to be appointed. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the board of directors in advance of the meeting, or at the meeting by the chairman of the board or the president. Unless otherwise prescribed by regulations of the OTS, the duties of such inspectors shall include: determining the number of shares and the voting power of each share, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; receiving votes, ballots, or consents; hearing and determining all challenges and questions in any way arising in connection with the rights to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all shareholders. Section 14. Nominating Committee. The board of directors shall act as a nominating committee for selecting the nominees for election as directors. Except in the case of a nominee substituted as a result of the death or other incapacity of a nominee, the nominating committee shall deliver written nominations to the secretary at least 20 days prior to the date of the annual meeting. Upon delivery, such nominations shall be posted in a conspicuous place in each office of the ASSOCIATION. No nominations for directors except those made by the nominating committee shall be voted upon at the annual meeting unless other nominations by shareholders are made in writing and delivered to the secretary of the ASSOCIATION at least five days prior to the date of the annual meeting. Upon delivery, such nominations shall be posted in a conspicuous place in each office of the ASSOCIATION. Ballots bearing the names of all persons nominated by the nominating committee and by shareholders shall be provided for use at the annual meeting. However, if the nominating committee shall fail or refuse to act at least 20 days prior to the annual meeting, nominations for directors may be made at the annual meeting by any shareholder entitled to vote and shall be voted upon. Section 15. New Business. Any new business to be taken up at the annual meeting shall be stated in writing and filed with the secretary of the ASSOCIATION at least five days before the date of the annual meeting, and all business so stated, proposed, and filed shall be considered at the annual meeting, but no other proposal shall be acted upon at the annual meeting. Any shareholder may make any other proposal at the annual meeting and the same may be discussed 6 6- and considered, but unless stated in writing and filed with the secretary at least five days before the meeting, such proposal shall be laid over for action at an adjourned, special, or annual meeting of the shareholders taking place 30 days or more thereafter. This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees; but in connection with such reports no new business shall be acted upon at such annual meeting unless stated and filed as herein provided. Section 16. Informal Action by Shareholders. Any action required to be taken at a meeting of shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if consent in writing, setting forth the action so taken, shall be given by all of the shareholders entitled to vote with respect to the subject matter. ARTICLE III. BOARD OF DIRECTORS Section 1. General Powers. The business and affairs of the ASSOCIATION shall be under the direction of its board of directors. The board of directors shall annually elect a chairman of the board and a president from among its members and shall designate, when present, either the chairman of the board or the president to preside at its meetings. Section 2. Number and Term. The board of directors shall consist of thirteen members and shall be divided into three classes as nearly equal in number as possible. The members of each class shall be elected for a term of three years and until their successors are elected and qualified. One class shall be elected by ballot annually. Section 3. Regular Meetings. A regular meeting of the board of directors shall be held without other notice than this bylaw immediately after, and at the same place as, the annual meeting of shareholders. The board of directors may provide, by resolution, the time and place, within the ASSOCIATION's normal lending territory, for the holding of additional regular meetings without other notice than such resolution. Section 4. Qualification. Each director shall at all times be the beneficial owner of not less than 100 shares of capital stock of the ASSOCIATION unless the ASSOCIATION is a wholly owned subsidiary of a holding company. Section 5. Special Meetings. Special meetings of the board of directors may be called by or at the request of the chairman of the board, the president or one-third of the directors. The persons authorized to call special meetings of the board of directors may fix any place, within the ASSOCIATION's normal lending territory, as the place for holding any special meeting of the board of directors called by such persons. Members of the board of directors may participate in special meetings by means of conference telephone, or by means of similar communications equipment by which all persons 7 7- participating in the meeting can hear each other. Such participation shall constitute presence in person but shall not constitute attendance for the purpose of compensation pursuant to Section 12 of this Article. Section 6. Notice. Written notice of any special meeting shall be given to each director at least two days prior thereto when delivered personally or by telegram, or at least five days prior thereto when delivered by mail at the address at which the director is most likely to be reached. Such notice shall be deemed to be delivered when deposited in the mail so addressed, with postage prepaid if mailed, or when delivered to the telegraph company if sent by telegram. Any director may waive notice of any meeting by a writing filed with the secretary. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. Section 7. Quorum. A majority of the number of directors fixed by Section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the board of directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 6 of this Article III. Section 8. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless a greater number is prescribed by regulation of the OTS or by these bylaws. Section 9. Action Without a Meeting. Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors. Section 10. Resignation. Any director may resign at any time by sending a written notice of such resignation to the home office of the ASSOCIATION addressed to the chairman of the board or president. Unless otherwise specified such resignation shall take effect upon receipt by the chairman of the board or president. More than three consecutive absences from regular meetings of the board of directors, unless excused by resolution of the board of directors, shall automatically constitute a resignation, effective when such resignation is accepted by the board of directors. Section 11. Vacancies. Any vacancy occurring in the board of directors may be filled by the affirmative vote of a majority of the remaining directors, although less than a quorum of the board of directors. A director elected to fill a vacancy shall be elected to serve until the next election of directors by the shareholders. Any directorship to be filled by reason of an increase 8 8- in the number of directors may be filled by election by the board of directors for a term of office continuing only until the next election of directors by the shareholders. Section 12. Compensation. Directors, as such, may receive a stated salary for their services. By resolution of the board of directors, a reasonable fixed sum, and reasonable expenses of attendance, if any, may be allowed for actual attendance at each regular or special meeting of the board of directors. Members of either standing or special committees may be allowed such compensation for actual attendance at committee meetings as the board of directors may determine. Section 13. Presumption of Assent. A director of the ASSOCIATION who is present at a meeting of the board of directors at which action on any ASSOCIATION matter is taken shall be presumed to have assented to the action taken unless his dissent or abstention shall be entered in the minutes of the meeting or unless he shall file a written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the ASSOCIATION within five days after the date a copy of the minutes of the meeting is received. Such right to dissent shall not apply to a director who voted in favor of such action. Section 14. Removal of Directors. At a meeting of shareholders called expressly for that purpose, any director may be removed for cause by a vote of the holders of a majority of the shares then entitled to vote at an election of directors. Whenever the holders of the shares of any class are entitled to elect one or more directors by the provisions of the Charter or supplemental sections thereto, the provisions of this section shall apply, in respect to the removal of a director or directors so elected, to the vote of the holders of the outstanding shares of that class and not to the vote of the outstanding shares as a whole. Section 15. Age Limitation of Directors. No person 75 or above years of age shall be eligible for election, reelection, appointment, or reappointment to the board of directors of the ASSOCIATION. No director shall serve as such beyond the regular meeting of the ASSOCIATION which immediately precedes the director becoming 75 years of age. This age limitation does not apply to an advisory director. ARTICLE IV. EXECUTIVE AND OTHER COMMITTEES Section 1. Appointment. The board of directors, by resolution adopted by a majority of the full board, may designate the chief executive officer and two or more of the other directors to constitute an executive committee. The designation of any committee pursuant to this Article IV and the delegation of authority shall not operate to relieve the board of directors, or any director, of any responsibility imposed by law or regulation. 9 9- Section 2. Authority. The executive committee, when the board of directors is not in session, shall have and may exercise all of the authority of the board of directors except to the extent, if any, that such authority shall be limited by the resolution appointing the executive committee; and except also that the executive committee shall not have the authority of the board of directors with reference to: the declaration of dividends; the amendment of the Charter or bylaws of the ASSOCIATION, or recommending to the shareholders a plan of merger, consolidation, or conversion; the sale, lease or other disposition of all or substantially all of the property and assets of the ASSOCIATION otherwise than in the usual and regular course of its business; a voluntary dissolution of the ASSOCIATION; a revocation of any of the foregoing; or the approval of a transaction in which any member of the executive committee, directly or indirectly, has any material beneficial interest. Section 3. Tenure. Subject to the provisions of Section 8 of this Article IV, each member of the executive committee shall hold office until the next regular annual meeting of the board of directors following his or her designation and until a successor is designated as a member of the executive committee. Section 4. Meetings. Regular meetings of the executive committee may be held without notice at such times and places as the executive committee may fix from time to time by resolution. Special meetings of the executive committee may be called by any member thereof upon not less than one day's notice stating the place, date and hour of the meeting, which notice may be written or oral. Any member of the executive committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of the executive committee need not state the business proposed to be transacted at the meeting. Section 5. Quorum. A majority of the members of the executive committee shall constitute a quorum for the transaction of business at any meeting thereof, and action of the executive committee must be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present. Section 6. Action Without a Meeting. Any action required or permitted to be taken by the executive committee at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the members of the executive committee. Section 7. Vacancies. Any vacancy in the executive committee may be filled by a resolution adopted by a majority of the full board of directors. Section 8. Resignations and Removal. Any member of the executive committee may be removed at any time with or without cause by resolution adopted by a majority of the full board of directors. Any member of the executive committee may resign from the executive committee at any time by giving written notice to the president or secretary of the ASSOCIATION. Unless 10 10- otherwise specified, such resignation shall take effect upon its receipt; the acceptance of such resignation shall not be necessary to make it effective. Section 9. Procedure. The executive committee shall elect a presiding officer from its members and may fix its own rules of procedure which shall not be inconsistent with these bylaws. It shall keep regular minutes of its proceedings and report the same to the board of directors for its information at the meeting held next after the proceedings shall have occurred. Section 10. Other Committees. The board of directors may by resolution establish an audit, loan, or other committees composed of directors as they may determine to be necessary or appropriate for the conduct of the business of the ASSOCIATION and may prescribe the duties, constitution and procedures thereof. ARTICLE V. OFFICERS Section 1. Positions. The officers of the ASSOCIATION shall be a president, one or more vice presidents, a secretary and a treasurer, each of whom shall be elected by the board of directors. The board of directors may also designate the chairman of the board as an officer. The president shall be the chief executive officer, unless the board of directors designates the chairman of the board as chief executive officer. The president shall be a director of the ASSOCIATION. The offices of the secretary and treasurer may be held by the same person and a vice president may also be either the secretary or the treasurer. The board of directors may designate one or more vice presidents as executive vice president or senior vice president. The board of directors may also elect or authorize the appointment of such other officers as the business of the ASSOCIATION may require. The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine. In the absence of action by the board of directors, the officers shall have such powers and duties as generally pertain to their respective offices. Section 2. Election and Term of Office. The officers of the ASSOCIATION shall be elected annually at the first meeting of the board of directors held after each annual meeting of the shareholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as possible. Each officer shall hold office until a successor has been duly elected and qualified or until the officer's death, resignation or removal in the manner hereinafter provided. Election or appointment of an officer, employee or agent shall not of itself create contractual rights. The board of directors may authorize the ASSOCIATION to enter into an employment contract with any officer in accordance with regulations of the OTS; but no such contract shall impair the right of the board of directors to remove any officer at any time in accordance with Section 3 of this Article V. Section 3. Removal. Any officer may be removed by the board of directors whenever in its judgment the best interests of the ASSOCIATION will be served thereby, but such removal, 11 11- other than for cause, shall be without prejudice to the contractual rights, if any, of the person so removed. Section 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term. Section 5. Remuneration. The remuneration of the officers shall be fixed from time to time by the board of directors. ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 1. Contracts. To the extent permitted by regulations of the OTS, and except as otherwise prescribed by these bylaws with respect to certificates for shares, the board of directors may authorize any officer, employee, or agent of the ASSOCIATION to enter into any contract or execute and deliver any instrument in the name of and on behalf of the ASSOCIATION. Such authority may be general or confined to specific instances. Section 2. Loans. No loans shall be contracted on behalf of the ASSOCIATION and no evidence of indebtedness shall be issued in its name unless authorized by the board of directors. Such authority may be general or confined to specific instances. Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the ASSOCIATION shall be signed by one or more officers, employees or agents of the ASSOCIATION in such manner as shall from time to time be determined by the board of directors. Section 4. Deposits. All funds of the ASSOCIATION not otherwise employed shall be deposited from time to time to the credit of the ASSOCIATION in any duly authorized depositories as the board of directors may select. ARTICLE VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 1. Certificates for Shares. Certificates representing shares of capital stock of the ASSOCIATION shall be in such form as shall be determined by the board of directors and approved by the OTS. Such certificates shall be signed by the chief executive officer or by any other officer of the ASSOCIATION authorized by the board of directors, attested by the secretary or an assistant secretary, and sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar, other than the ASSOCIATION itself or one of its employees. Each certificate for shares of capital stock shall be consecutively numbered or otherwise identified. 12 12- The name and address of the person to whom the shares are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the ASSOCIATION. All certificates surrendered to the ASSOCIATION for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares has been surrendered and canceled, except that in case of a lost or destroyed certificate, a new certificate may be issued upon such terms and indemnity to the ASSOCIATION as the board of directors may prescribe. Section 2. Transfer of Shares. Transfer of shares of capital stock of the ASSOCIATION shall be made only on its stock transfer books. Authority for such transfer shall be given only by the holder of record or by his legal representative, who shall furnish proper evidence of such authority, or by his attorney authorized by a duly executed power of attorney and filed with the ASSOCIATION. Such transfer shall be made only on surrender for cancellation of the certificate for such shares. The person in whose name shares of capital stock stand on the books of the ASSOCIATION shall be deemed by the ASSOCIATION to be the owner for all purposes. ARTICLE VIII. FISCAL YEAR; ANNUAL AUDIT The fiscal year of the ASSOCIATION shall end on December 31 of each year. The ASSOCIATION shall be subject to an annual audit as of the end of its fiscal year by independent public accountants appointed by and responsible to the board of directors. The appointment of such accountants shall be subject to annual ratification by the shareholders. ARTICLE IX. DIVIDENDS Subject to the terms of the ASSOCIATION's Charter and the regulations and orders of the OTS, the board of directors may, from time to time, declare, and the ASSOCIATION may pay, dividends on its outstanding shares of capital stock. ARTICLE X. CORPORATE SEAL The board of directors shall provide an ASSOCIATION seal, which shall be two concentric circles between which shall be the name of the ASSOCIATION. The year of incorporation or an emblem may appear in the center. ARTICLE XI. AMENDMENTS These bylaws may be amended in a manner consistent with regulations of the OTS at any time by a majority vote of the full board of directors, or by a majority vote of the votes cast by the shareholders of the ASSOCIATION at any legal meeting. EX-10.1 4 y46647ex10-1.txt AGREEMENT: ASTORIA/LONG ISLAND SAVINGS BANK 1 EXHIBIT 10.1 AGREEMENT This Agreement ("Agreement") is made and entered into as of December 28, 2000, by and between ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION, a federal savings association ("AFSL"); ASTORIA FINANCIAL CORPORATION, a Delaware corporation ("AFC"); the ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST (the "AFSL Trust"), acting by and through its trustee, State Street Bank and Trust Company ("AFSL Trustee"); and THE LONG ISLAND SAVINGS BANK FSB EMPLOYEE STOCK OWNERSHIP PLAN TRUST ("LISB Trust"), acting by and through its trustee, CG Trust Company ("LISB Trustee") (The AFSL Trust and the LISB Trust are hereinafter referred to individually as a "Trust" and collectively as the "Trusts", and the AFSL Trustee and the LISB Trustee are hereinafter referred to individually as a "Trustee" and collectively as the "Trustees"). PRELIMINARY STATEMENT AFSL adopted the Astoria Federal Savings and Loan Association Employee Stock Ownership Plan ("AFSL ESOP") and the AFSL Trust on November 18, 1993, as a tax-qualified and tax-exempt plan and trust. AFC and the AFSL Trust entered into a Loan Agreement and related documents as of November 18, 1993 (as amended, the "Existing AFSL Loan Documents") pursuant to which AFC lent $33,029,425 to the AFSL Trust ("AFSL Loan") for the purpose of acquiring 2,642,354 shares (after giving effect to stock splits and stock dividends) of common stock, par value $.01 per share, of AFC ("AFC Common Stock"). The Long Island Savings Bank FSB ("LISB") adopted The Long Island Savings Bank FSB Employee Stock Ownership Plan ("LISB ESOP") and the LISB Trust on March 31, 1994, as a tax-qualified and tax-exempt plan and trust. Long Island Bancorp, Inc. ("LIB") and the LISB Trust entered into a Loan Agreement and related documents as of April 14, 1994 (as amended, the "Existing LISB Loan Documents") pursuant to which LIB lent $23,784,300 to the LISB Trust ("LISB Loan") for the purpose of acquiring 2,070,000 shares of common stock of LIB. Pursuant to an Agreement and Plan of Merger dated as of April 2, 1998 by and between AFC and LIB, as amended ("Merger Agreement"), LIB merged into AFC, LISB merged into AFSL, each share of common stock of LIB was converted into 1.15 shares AFC Common Stock, and AFSL became the sponsor of the LISB ESOP, all as of September 30, 1998. As of the date of this Agreement, AFSL maintains both the AFSL ESOP and the LISB ESOP. At January 1, 2000, the outstanding balance due on the AFSL Loan was $18,614,833.29 (the "Initial AFSL Principal Amount") and the number of shares of AFC Common Stock pledged as collateral security therefor was 1,269,161 (the "Initial AFSL Unallocated Shares"). At January 1, 2000, the outstanding balance due on the LISB Loan was $20,978,881.02 (the "Initial LISB Principal Amount") and the number of shares of AFC Common Stock pledged as collateral security therefor was 1,728,337 (the "Initial LISB Unallocated Shares"). In furtherance of the integration of the staff and operations of AFSL and LISB, and pursuant to the Merger Agreement, AFSL wishes to provide a uniform benefits program for all employees of the combined entity, including a single, tax-qualified employee stock ownership plan with an appropriate contribution and benefit structure based on a restructuring of the Page 1 of 13 2 terms of the AFSL Loan and the LISB Loan. AFSL is willing to provide certain benefit enhancements for participants to secure the Trustees' consent to the loan restructuring. The Trustees, with the benefit of the advice of their counsel and independent financial advisors, have reviewed various proposals presented by AFSL and AFC and have negotiated with AFSL and AFC to establish terms and conditions for a loan restructuring that are mutually acceptable to the parties and considered by each Trustee to be in the interest of the participants in the AFSL ESOP and LISB ESOP and their respective beneficiaries to which such Trustee owes a fiduciary duty pursuant to the Employee Retirement Income Security Act of 1974, as amended. In consideration of the premises and the mutual covenants hereinafter set forth, AFC, AFSL and the Trustees have reached the following agreement. AGREEMENT 1. Amended and Restated Loan Agreements. (a) As soon as practicable after the execution of this Agreement, and in any event prior to December 31, 2000, AFC and the AFSL Trust shall restructure the AFSL Loan by entering into an amended and restated loan agreement, substantially in the form attached hereto as Exhibit A (the "Amended AFSL Loan Documents"), to give effect to the following: (i) The terms of the Amended AFSL Loan Documents will supersede the terms of the Existing AFSL Loan Documents, effective as of January 1, 2000. (ii) The Initial AFSL Principal Amount, plus accrued interest from December 31, 1999 at the rate of 6.00% per annum, shall be repaid in 30 annual payments, due on the last business day of December for each calendar year in which the AFSL Loan is outstanding, beginning December 2000, and each such payment (the "Minimum Scheduled AFSL Payment") shall be equal to an amount which would result in the release of a number of shares of AFC Common Stock pledged as collateral security for the AFCL Loan as of the first day of the calendar year in which the payment is made (the "AFSL Unallocated Shares") equal to the product of (A) the number of AFSL Unallocated Shares and (B) the fraction specified in Column II: Column I Column II Fraction of Year of Payment Collateral Released 2000 1/30 2001 1/29 2002 1/28 2003 1/27 2004 1/26 Page 2 of 13 3 Column I Column II Fraction of Year of Payment Collateral Released 2005 1/25 2006 1/24 2007 1/23 2008 1/22 2009 1/21 2010 1/20 2011 1/19 2012 1/18 2013 1/17 2014 1/16 2015 1/15 2016 1/14 2017 1/13 2018 1/12 2019 1/11 2020 1/10 2021 1/9 2022 1/8 2023 1/7 2024 1/6 2025 1/5 2026 1/4 2027 1/3 2028 1/2 2029 1 (iii) For each calendar year after 1999 during which the AFSL Loan is outstanding AFSL shall make a mandatory prepayment of all or part of the AFSL Loan (the "Mandatory AFSL Prepayment") if the aggregate Fair Market Value (as hereinafter defined) of the Initial AFSL Unallocated Shares and Initial LISB Unallocated Shares allocated to participant accounts as a result of the Minimum Scheduled AFSL Payment and Minimum Scheduled LISB Payment (as hereinafter defined) and the Mandatory LISB Prepayment (as hereinafter defined) for such calendar year is less than an amount equal to 14% of the total compensation taken into account under the AFSL ESOP for the purpose of allocations of Initial AFSL Unallocated Shares and Initial LISB Unallocated Shares ("Minimum Annual Release Value"). The amount of the Mandatory AFSL Prepayment for any calendar year shall be equal to that amount of principal and/or interest which, when added to the Page 3 of 13 4 Minimum Scheduled AFSL Payment and Minimum Scheduled LISB Payment and any Mandatory LISB Prepayment previously made or then being made for such calendar year, will result in the release for allocation to participant accounts of the lesser of (A) a number of Initial AFSL Unallocated Shares and Initial LISB Unallocated Shares with an aggregate Fair Market Value equal to the Minimum Annual Release Value or (B) the entire number of Initial AFSL Unallocated Shares and Initial LISB Unallocated Shares that are currently unallocated. (iv) The number of the Initial AFSL Unallocated Shares to be released annually for allocation to the accounts of participating employees in accordance with the terms of the AFSL ESOP shall be determined in accordance with 26 C.F.R. ss.54.4975-7(b)(8)(i) (the "Minimum Scheduled AFSL Share Allocation"). (v) Any mandatory or optional prepayments shall be applied to reduce the outstanding principal balance. (vi) Neither the AFSL Unallocated Shares nor the proceeds of sale thereof shall be used to make any payments due on the outstanding loan except as provided section 1(a)(vii) or in the event of a default in payment resulting from the failure of the trustee of the AFSL ESOP to use dividend income on AFSL Unallocated Shares or LISB Unallocated Shares and employer contributions made for purposes of debt service, in each case actually received by such trustee. (vii) The entire outstanding principal amount of the outstanding loan shall become immediately due and payable in the event of a termination of the AFSL ESOP or a Change in Control (as defined in the Amended AFSL Loan Documents). In such event, neither the AFSL Unallocated Shares nor the proceeds of sales thereof shall be used to repay any portion of the outstanding loan except in the event of a Change in Control (as defined in the Amended AFSL Loan Documents) prior to January 1, 2010. In the event of a Change in Control (as defined in the Amended AFSL Loan Documents) prior to January 1, 2010, the maximum number of AFSL Unallocated Shares (or proceeds of the sale thereof) that may be used to repay the outstanding loan shall be equal to the total number of AFSL Baseline Shares for the year in question, determined with reference to the table set forth in section 3(b) of this Agreement. (b) As soon as practicable after the execution of this Agreement, and in any event prior to December 31, 2000, AFC and the LISB Trust shall restructure the LISB Loan by entering into an amended and restated loan agreement, substantially in the form attached hereto as Exhibit B (the "Amended LISB Loan Documents"), to give effect to the following: (i) The terms of the Amended LISB Loan Documents will supersede the terms of the Existing LISB Loan Documents, effective as of January 1, 2000. (ii) The Initial LISB Principal Amount, plus accrued interest from December 31, 1999 at the rate of 6.00% per annum, shall be repaid in 30 annual payments, due on the last business day of December for each calendar year in which the LISB Loan is outstanding, beginning December 2000, and each such payment (the "Minimum Scheduled LISB Payment") shall be equal to or greater than an Page 4 of 13 5 amount which would result in the release of a number of shares of AFC Common Stock pledged as collateral security for the LISB Loan as of the first day of the calendar year in which the payment is made (the "LISB Unallocated Shares") equal to the product of (A) the number of LISB Unallocated Shares and (B) the fraction specified in Column II Column I Column II Fraction of Year of Payment Collateral Released 2000 1/30 2001 1/29 2002 1/28 2003 1/27 2004 1/26 2005 1/25 2006 1/24 2007 1/23 2008 1/22 2009 1/21 2010 1/20 2011 1/19 2012 1/18 2013 1/17 2014 1/16 2015 1/15 2016 1/14 2017 1/13 2018 1/12 2019 1/11 2020 1/10 2021 1/9 2022 1/8 2023 1/7 2024 1/6 2025 1/5 2026 1/4 2027 1/3 2028 1/2 2029 1 Page 5 of 13 6 (iii) For each calendar year after 1999 during which the LISB Loan is outstanding AFSL shall make a mandatory prepayment of all or part of the LISB Loan (the "Mandatory LISB Prepayment") if the aggregate Fair Market Value (as hereinafter defined) of the Initial AFSL Unallocated Shares and Initial LISB Unallocated Shares allocated to participant accounts as a result of the Minimum Scheduled AFSL Payment and Minimum Scheduled LISB Payment and the Mandatory AFSL Prepayment for such calendar year is less than the Minimum Annual Release Value. The amount of the Mandatory AFSL Prepayment for any calendar year shall be equal to that amount of principal and/or interest which, when added to the Minimum Scheduled AFSL Payment and Minimum Scheduled LISB Payment and any Mandatory AFSL Prepayment previously made or then being made for such calendar year, will result in the release for allocation to participant accounts of the lesser of (A) a number of Initial AFSL Unallocated Shares and Initial LISB Unallocated Shares with an aggregate Fair Market Value equal to the Minimum Annual Release Value or (B) the entire number Initial AFSL Unallocated Shares and Initial LISB Unallocated Shares that are currently unallocated. (iv) The number of the Initial LISB Unallocated Shares to be released annually for allocation to the accounts of participating employees in accordance with the terms of the AFSL ESOP shall be determined in accordance with 26 C.F.R. ss.54.4975-7(b)(8)(i) (the "Minimum Scheduled LISB Share Allocation"). (v) Any mandatory or optional prepayments shall be applied to reduce the outstanding principal balance. (vi) Neither the AFSL Unallocated Shares nor the proceeds of sale thereof shall be used to make any payments due on the outstanding loan except as provided section 1(a)(vii) or in the event of a default in payment resulting from the failure of the trustee of the AFSL ESOP to use dividend income on AFSL Unallocated Shares or LISB Unallocated Shares and employer contributions made for purposes of debt service, in each case actually received by such trustee. (vii) The entire outstanding principal amount of the outstanding loan shall become immediately due and payable in the event of a termination of the AFSL ESOP or a Change in Control (as defined in the Amended LISB Loan Documents). In such event, neither the LISB Unallocated Shares nor the proceeds of sales thereof shall be used to repay any portion of the outstanding loan except in the event of a Change in Control (as defined in the Amended LISB Loan Documents) prior to January 1, 2010. In the event of a Change in Control (as defined in the Amended LISB Loan Documents) prior to January 1, 2010, the maximum number of LISB Unallocated Shares (or proceeds of the sale thereof) that may be used to repay the outstanding loan shall be equal to the total number of LISB Baseline Shares for the year in question, determined with reference to the table set forth in section 3(b) of this Agreement. (vi) The Minimum Scheduled LISB Payment and the Minimum LISB prepayment for calendar year 2000 shall be reduced to the extent necessary to reflect (A) payments on the LISB Loan pursuant to the terms of the Existing LISB Loan Page 6 of 13 7 Documents during such year and (B) the value of allocations of LISB Unallocated Shares during such year to employees participating in the LISB ESOP. (c) AFC and AFSL may, in their sole and absolute discretion, direct that the transactions described in sections 1(a) and (b) be restructured as extensions of new loans by AFSL, the proceeds of which are required to be used to prepay in full the Trusts' indebtedness to AFC pursuant to the Existing AFSL Loan Documents and the Existing LISB Loan Documents. 2. Merger of AFSL ESOP and LISB ESOP. --------------------------------- As soon as practicable following the execution of this Agreement, AFSL shall take such actions as are necessary to effect the merger of the LISB ESOP with and into the Astoria ESOP, effective no later than December 31, 2000 (the "ESOP Merger Effective Date"). Effective as of the ESOP Merger Effective Date, the LISB Trust shall be deemed to form, and shall be continued as, a part of the AFSL ESOP. Nothing in this Agreement shall be construed to require or preclude the continuation of the LISB Trust and AFSL Trust as separate trusts with separate trustees or their merger into a single trust with a single trustee. In the event of a merger of the AFSL Trust with the LISB Trust, AFC and AFSL shall have the right to require that the loans described section 1 of this Agreement be combined into a single loan and that all of the collateral given for either of such loan serve as collateral for the combined loan. 3. Amendment of AFSL ESOP. ---------------------- In consideration for the execution and delivery of this Agreement by the AFSL Trust and the LISB Trust and the performance of the Trusts' respective obligations hereunder, AFSL shall adopt an amendment to the AFSL ESOP as soon as practicable after the execution of this Agreement and in no event later than the ESOP Merger Effective Date, substantially in the form attached hereto as Exhibit C, to effect the following additional benefit enhancements and protections for the benefit of participants in the AFSL ESOP: (a) On or before December 31, 2000: (i) AFSL shall cause the LISB Trustee and the AFSL Trustee to apply all dividends on AFC Common Stock held by them that have not previously been used to make loan payments on the AFSL Loan or the LISB Loan or allocated to participant accounts as investment income ("2000 Unallocated Dividends"): (A) to make Minimum Scheduled AFSL Payments and Minimum Scheduled LISB Payments, respectively; and (B) to make additional payments on the AFSL Loan and/or the LISB Loan if and to the extent necessary to satisfy section 4(c) of this Agreement for 2000; and (C) to the extent that the 2000 Unallocated Dividends exceed the aggregate of the Minimum Scheduled LISB Payment and the Minimum Scheduled AFSL Payment for 2000 and the amount applied to additional loan payments in accordance with section 4(a) of this Agreement, to the accounts of participants as additional investment income; and (ii) to the extent the dividends applied to participant accounts pursuant to clause (a)(i)(c) of this paragraph are less than one million dollars, AFSL shall make an additional contribution to participants' accounts equal to this deficit. Page 7 of 13 8 (b) On or before December 31st of 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008 and 2009, AFSL shall cause the accounts of participants in the AFSL ESOP to be credited with an aggregate amount (the "Pre-2010 Dividend Make-Whole Amount") equal to the product of (i) the aggregate dividends paid by AFC with respect to a Share of AFC Common Stock during such year, multiplied by (ii) the excess (if any) of the total number of Initial AFSL Unallocated Shares and Initial LISB Unallocated Shares that remain unallocated as of the first day of such year (the "Actual Unallocated Shares") over the total number of Initial AFSL Unallocated Shares and Initial LISB Unallocated Shares that would have been unallocated as of such date under the terms of the Existing AFSL Loan Documents and the Existing LISB Loan Documents (the "Baseline Shares"). The number of Baseline Shares for any such year shall be determined by reference to the following table: Year Baseline Shares Year Baseline Shares Total AFSL LISB Total AFSL LISB 2001 2,757,166 1,048,266 1,708,900 2006 1,611,725 0 1,611,725 2002 2,516,834 827,371 1,689,463 2007 1,592,288 0 1,592,288 2003 2,276,502 606,476 1,670,026 2008 1,572,851 0 1,572,851 2004 2,036,170 385,581 1,650,589 2009 1,553,414 0 1,553,414 2005 1,755,838 164,686 1,591,152 2010 & 0 0 0 later For calendar years 2010 through 2029, AFSL shall cause the accounts of participants in the AFSL ESOP to be credited with an amount, in cash, equal to the aggregate dividends paid by AFC with respect to the entire number of Actual Unallocated Shares (together with the Pre-2010 Dividend Make-Whole Amount, the "Dividend Make-Whole Amount"). The crediting of the Dividend Make-Whole Amount for any year shall be in the form of an allocation of dividends on Actual Unallocated Shares to participants' accounts as investment income, an additional employer contribution, or a combination thereof, as AFSL, in it sole and absolute discretion, may determine. (c) For so long as the Amended AFSL Loan or the Amended LISB Loan remains outstanding, AFSL shall take such actions as are necessary to ensure that the Fair Market Value of the AFC Common Stock allocated to participants' accounts each year as a consequence of payments on the Amended AFSL Loan and the Amended LISB Loan is no less than the lesser of 14% of the aggregate "Cash Compensation" (as defined in the AFSL ESOP) of the "Active Participants" (as defined in the AFSL ESOP) for the year in question and 100% of the Fair Market Value of the entire number of Actual Unallocated Shares. Such actions may include, but are not limited to, making additional employer contributions to be used to make partial prepayments of principal on the AFSL Loan and/or the LISB Loan and using dividends received with respect to Actual Unallocated Shares to make partial prepayments of principal on the AFSL Loan and/or the LISB Loan. For purposes of this section 4(c), the "Fair Market Value" of a share of AFC Common Stock for any year shall be equal to the average of the closing sales prices for a share of AFC Common Stock on the Nasdaq Stock Market National Market System (or other Page 8 of 13 9 principal national securities exchange on which AFC Common Stock is then listed or admitted to trading) on each of the last 20 trading days preceding December 1st of such year on which a sale of AFC Common Stock occurs, as reported in the New York City edition Wall Street Journal or such other reputable source of stock quotations as AFSL may select. (d) For calendar years 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008 and 2009, AFSL shall make a additional annual employer contribution to the AFSL ESOP of $1,200,000 in addition to the employer contributions (if any) under sections 4(a), (b) and (c) (the "Additional Contribution"). Such additional annual contribution for any year shall be reduced by the amount (if any) of the dividend income for such year with respect to Baseline Shares that is allocated to participants' accounts as investment income to the extent not in excess of payments made on the AFSL Loan and the LISB Loan for such year (the "Offsetting Dividends"). If the Astoria ESOP is terminated prior to December 31, 2009, AFSL shall, as of the date of termination of the ESOP, make an additional employer contribution in an amount equal to the excess of $10.8 million over the aggregate amount of Minimum Contributions and Offsetting Dividend Income made and allocated as of or prior to the date of termination. In no event shall the Additional Contributions be used to make payments on the AFSL Loan or the LISB Loan. (e) To the extent that dividends paid by AFC with respect to Actual Unallocated Shares for any year are allocated to participants' accounts as investment income, such dividends shall not be available for current distribution to participants and shall instead be retained in each participant's account for subsequent distribution at the same time and in the same manner as the remainder of such participant's vested account balance. (f) Neither the Actual Unallocated Shares nor the proceeds of the sale thereof shall be used to make payment of principal or interest on the AFSL Loan or the LISB Loan; provided, however, that (i) AFSL Unallocated Shares and the LISB Unallocated Shares or the proceeds of sale thereof shall be available to the lender in the event of a default in payment resulting from the failure of the trustee of the AFSL ESOP to use dividend income on AFSL Unallocated Shares or LISB Unallocated Shares and employer contributions made for purposes of debt service, in each case actually received by such trustee, if and to the extent provided under the Amended AFSL Loan Documents or the Amended LISB Loan Documents, as applicable; and (ii) in the event of a "Change in Control" (as defined in the AFSL ESOP) prior to January 1, 2010, the AFSL ESOP shall be terminated and the number of Baseline Shares for the year in which the termination occurs may be used, if and to the extent necessary, to prepay all or part of the AFSL Loan and the LISB Loan to facilitate the allocation of any Actual Unallocated Shares remaining after such prepayment to the accounts of participants as additional investment income. In the event of (i) a termination of the AFSL ESOP without a Change in Control prior to January 1, 2010 or (ii) any termination of the AFSL ESOP on or after January 1, 2010, any outstanding debt under the AFSL Loan and/or the LISB Loan shall be immediately forgiven and any AFSL Unallocated Shares and/or LISB Unallocated Shares or proceeds of the sale thereof allocated to AFSL ESOP participants. Page 9 of 13 10 (g) Dividend income on AFC Common Stock that is allocated to participants' accounts shall in no event be used to make principal or interest payments on the loans described in section 1 for any period beginning after December 31, 1999. (h) The provisions included in the AFSL ESOP in satisfaction of this Agreement shall not be subject to amendment without the written consent of the LISB Trustee and the AFSL Trustee or their respective successor. 4. Conditions of Effectiveness. (a) AFSL's and AFC's obligations under this Agreement shall be conditioned upon the following: (i) the AFSL Trust's and the LISB Trust's execution and delivery to AFSL and AFC, prior to December 31, 2000,of this Agreement; (ii) the AFSL Trust's and LISB Trust's execution and delivery to AFC, prior to December 31, 2000, of the Amended AFSL Loan Documents and the Amended LISB Loan Documents, respectively; (iii) receipt of written certification (A) from the AFSL Trustee, in form and substance satisfactory to AFSL and AFC, that such Trustee has received the opinion of its financial advisor, in form and substance satisfactory to such Trustee, substantially to the effect that: (I) the interest rate established by the Amended AFSL Loan Documents is not in excess of a reasonable rate; (II) the terms of the Amended AFSL Loan Documents are at least as favorable to the applicable Trust as would be the terms of a comparable loan resulting from arm's length negotiations between independent parties; and (III) the transactions described in this Agreement are fair to the AFSL ESOP and (B) from the LISB Trustee that it has been directed by United States Trust Company, in its capacity as investment manager to the LISB Trust, to execute this Agreement; and (iv) receipt from the AFSL Trustee and the LISB Trustee of evidence satisfactory to AFSL and AFC that the documents described in section 5(a)(i) and (ii) have been duly authorized and executed on behalf of the applicable Trust by all requisite action on the part of the applicable Trustee; (b) Each Trustee's obligations hereunder shall be conditioned on the following: (i) AFSL's and AFC's execution and delivery of this Agreement to such Trustee prior to December 31, 2000; (ii) AFC's execution and delivery to such Trustee prior to December 31, 2000 of the Amended AFSL Loan Documents or Amended LISB Loan Documents, as applicable; Page 10 of 13 11 (iii) in the case of the LISB Trust, receipt of a direction by United States Trust Company, in its capacity as investment manager to the LISB Trust, to execute this Agreement, and in the case of the AFSL Trust, receipt from its financial advisor of an opinion, in form and substance satisfactory to it, substantially to the effect that: (A) the interest rate established by the Amended AFSL Loan Documents is not in excess of a reasonable rate; (B) the terms of the Amended AFSL Loan Documents are at least as favorable to the applicable Trust as would be the terms of a comparable loan resulting from arm's length negotiations between independent parties; and (C) the transactions described in this Agreement are fair to the AFSL ESOP. 6. Changes in AFC Common Stock. In the event of any merger, consolidation, or other business reorganization in which shares of AFC Common Stock are exchanged for or converted into other securities or property, and in the event of any stock split, stock dividend or other event generally affecting the number of shares of AFC Common Stock held by each person who is then a holder of record of shares of AFC Common Stock, each reference to a number of shares of AFC Common Stock in this Agreement shall be adjusted to give effect to such event, it being intended that any such adjustment preclude the enlargement or diminution of the rights and obligations each party to this Agreement relative to the other parties to this Agreement. 7. Amendments. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof and supersedes in their entirety any and all prior agreements, understandings or arrangements, whether or not in writing, concerning the subject matter hereof, other than the engagement letters dated July 18, 2000, June 23, 2000, and June 30, 2000, between AFSL and/or AFL, on the one hand, and U. S. Trust Company, National Association, in its capacity as financial advisor to CG Trust Company, State Street Bank and Trust Company and Duff & Phelps, LLC, on the other hand. No amendment to this Agreement shall be effective unless made in a written instrument that specifically refers to this Agreement and is signed by all parties hereto. 8. Descriptive Headings. Descriptive headings are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement. 9. Counterparts. For the convenience of the parties hereto, this Agreement may be executed by the parties in two or more counterparts, all of which shall be deemed one and the same instrument and each of which shall be deemed to be an original. 10. Notices. Except as otherwise specifically provided for herein, all notices, requests, reports and other communications pursuant to this Agreement shall be in writing, either by letter (delivered by hand or commercial messenger service or sent by registered or certified mail, return receipt requested) or telex or facsimile, addressed as follows: (a) If to the AFSL Trust: State Street Bank and Trust Company Investment Services Office 200 Newport Avenue North Quincy, Massachusetts 02171 Page 11 of 13 12 (b) If to the LISB ESOP Trust CG Trust Company 525 W. Monroe, Suite 1900 Chicago, Illinois 60601 (c) If to AFSL: Astoria Federal Savings and Loan Association One Astoria Federal Plaza Lake Success, New York 11042-1085 Attention: General Counsel (d) If to AFC: Astoria Financial Corporation One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand or by commercial messenger service, or sent by telex or facsimile, to such party at its address specified above, or, if sent by mail, on the third business day after the day deposited in the mail, postage prepaid, addressed as aforesaid. Any party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; provided, however, that any such notice shall be deemed to have been given only when actually received by the party to whom it is addressed. 11. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts to be performed wholly within the State of New York entered into between parties all of whom are citizens and residents of the State of New York. Nothing contained herein shall be deemed to require any action that would cause the AFSL ESOP to lose its tax-qualified status under the Code. Nothing herein shall be deemed to confer any rights, whether as a third-party beneficiary or otherwise, on any person or entity other than the signatories to this Agreement. Page 12 of 13 13 IN WITNESS WHEREOF, the AFSL Trust, the LISB Trust, AFSL and AFC have caused this Agreement to be executed in their names and on their behalf by officers or representatives thereunto duly authorized. ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST By STATE STREET BANK AND TRUST COMPANY, solely as Trustee and not in any other capacity By: /S/ Marianne E. Sullivan ------------------------------------------ Name: Marianne E. Sullivan ----------------------------------------- Title: Vice President ----------------------------------------- THE LONG ISLAND SAVINGS BANK FSB EMPLOYEE STOCK OWNERSHIP PLAN TRUST By CG TRUST COMPANY, solely as Trustee and not in any other capacity By: /S/ Mary Lou Filiault ------------------------------------------ Name: Mary Lou Filiault ------------------------------------------ Title: Vice President ------------------------------------------ ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION By: /S/ Alan P. Eggleston -------------------------------------------- Name: Alan P. Eggleston -------------------------------------------- Title: Executive Vice President and General Counsel ------------------------------------------- ASTORIA FINANCIAL CORPORATION By: /S/ Alan P. Eggleston -------------------------------------------- Name: Alan P. Eggleston ------------------------------------------- Title: Executive Vice President and General Counsel -------------------------------------------- Page 13 of 13 14 EXHIBIT A AMENDED AND RESTATED LOAN AGREEMENT by and between ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST and ASTORIA FINANCIAL CORPORATION Made and Entered Into as of January 1, 2000 15 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS Section 1.1 Business Day....................................1 Section 1.2 Code............................................2 Section 1.3 Default.........................................2 Section 1.4 ERISA...........................................2 Section 1.5 Event of Default................................2 Section 1.6 Independent Counsel.............................2 Section 1.7 Loan............................................2 Section 1.8 Loan Documents..................................2 Section 1.9 Pledge Agreement................................2 Section 1.10 Principal Amount................................2 Section 1.11 Promissory Note.................................2 Section 1.12 Register........................................2 ARTICLE II THE LOAN; PRINCIPAL AMOUNT; INTEREST; SECURITY Section 2.1 The Loan; Principal Amount; Repayment of Outstanding Indebtedness........................2 Section 2.2 Interest........................................3 Section 2.3 Promissory Note.................................4 Section 2.4 Payment of Loan.................................4 Section 2.5 Prepayment......................................4 Section 2.6 Method of Payments..............................6 Section 2.7 Security........................................7 Section 2.8 Registration of the Promissory Note.............8 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BORROWER Section 3.1 Power, Authority, Consents......................8 Section 3.2 Due Execution, Validity, Enforceability.........8 Section 3.3 Properties, Priority of Liens...................9 Section 3.4 No Defaults, Compliance with Laws...............9 Section 3.5 Marketable Title; Legality......................9 (i) 16 Page ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE LENDER Section 4.1 Power, Authority, Consents......................9 Section 4.2 Due Execution, Validity, Enforceability........10 Section 4.3 ESOP; Contributions............................10 Section 4.4 Compliance with Laws; Actions..................10 ARTICLE V EVENTS OF DEFAULT Section 5.1 Events of Default under Loan Agreement.........10 Section 5.2 Lender's Rights upon Event of Default..........11 ARTICLE VI MISCELLANEOUS PROVISIONS Section 6.1 Payments.......................................11 Section 6.2 Survival.......................................12 Section 6.3 Modifications, Consents and Waivers; Entire Agreement......................................12 Section 6.4 Remedies Cumulative............................12 Section 6.5 Further Assurances; Compliance with Covenants..12 Section 6.6 Notices........................................13 Section 6.8 Counterparts...................................13 Section 6.9 Construction; Governing Law....................14 Section 6.10 Severability...................................14 Section 6.11 Binding Effect; No Assignment or Delegation....14 EXHIBIT 1 Form of Promissory Note.......................................1-1 EXHIBIT 2 Form of Pledge Agreement......................................2-1 (ii) 17 LOAN AGREEMENT This LOAN AGREEMENT (the "Loan Agreement") is made and entered into as of the 1st day of January, 2000, by and between ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST (the "Borrower"), a trust forming part of the ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP"), acting through and by its Trustee, STATE STREET BANK AND TRUST COMPANY (the "Trustee"), a banking corporation organized under the laws of the state of Massachusetts; and ASTORIA FINANCIAL CORPORATION (the "Lender"), a corporation organized and existing under the laws of the state of Delaware. W I T N E S S E T H : ------------------- WHEREAS, the Lender's wholly-owned subsidiary, ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION (the "Association"), maintains the ESOP for the benefit of eligible employees; and WHEREAS, the Borrower and the Lender are parties to a Loan Agreement dated November 18, 1993 (the "Prior Agreement"), pursuant to which the Borrower has borrowed funds from the Lender to finance the purchase of shares of common stock, par value $.01 per share, of the Lender ("Shares") and has an outstanding indebtedness in the amount of EIGHTEEN MILLION SIX HUNDRED FOURTEEN THOUSAND EIGHT HUNDRED THIRTY-THREE DOLLARS AND TWENTY-NINE CENTS ($18,614,833.29) (the "Outstanding Indebtedness"), plus accrued and unpaid interest from December 31, 1999; and WHEREAS, the Borrower and the Lender have determined that it is in their mutual interests to modify the terms of repayment of the Outstanding Indebtedness in the manner set forth in this Agreement; NOW, THEREFORE, the parties hereto agree that the Prior Agreement shall be amended and restated in its entirety effective as of January 1, 2000, as follows: ARTICLE I DEFINITIONS The following definitions shall apply for purposes of this Loan Agreement, except to the extent that a different meaning is plainly indicated by the context: Section 1.1 Business Day means any day other than a Saturday, Sunday or other day on which banks are authorized or required to close under federal law or the laws of the State of New York. 18 -2- Section 1.2 Code means the Internal Revenue Code of 1986 (including the cor responding provisions of any succeeding law). Section 1.3 Default means an event or condition which would constitute an Event of Default. The determination as to whether an event or condition would constitute an Event of Default shall be determined without regard to any applicable requirement of notice or lapse of time. Section 1.4 ERISA means the Employee Retirement Income Security Act of 1974, as amended (including the corresponding provisions of any succeeding law). Section 1.5 Event of Default means an event or condition described in Article V. Section 1.6 Independent Counsel means legal counsel mutually satisfactory to both the Lender and the Borrower. Section 1.7 Loan means the loan described in section 2.1. Section 1.8 Loan Documents means, collectively, this Loan Agreement, the Promissory Note and the Pledge Agreement and all other documents now or hereafter executed and delivered in connection with such documents, including all amendments, modifications and supplements of or to all such documents. Section 1.9 Pledge Agreement means the agreement described in section 2.7. Section 1.10 Principal Amount means the face amount of the Promissory Note, determined as set forth in section 2.1(a). Section 1.11 Promissory Note means the promissory note described in section 2.3. Section 1.12 Register means the register described in section 2.8. ARTICLE II THE LOAN; PRINCIPAL AMOUNT; INTEREST; SECURITY Section 2.1 The Loan; Principal Amount; Repayment of Outstanding Indebtedness. (a) The Lender hereby lends to the Borrower EIGHTEEN MILLION SIX HUNDRED FOURTEEN THOUSAND EIGHT HUNDRED THIRTY-THREE DOLLARS AND TWENTY-NINE CENTS 19 -3- ($18,614,833.29). For all purposes of this Loan Agreement, the Principal Amount on any date shall be equal to the excess, if any, of: (i) the aggregate amount lent by the Lender pursuant to this section 2.1; over (ii) the aggregate amount of any repayments of such amount made before such date. The Lender shall maintain on the Register a record of, and shall record on the Promissory Note, the Principal Amount, any changes in the Principal Amount and the effective date of any changes in the Principal Amount. (b) Concurrently with the execution and delivery of this Agreement, the Lender shall deliver to the Borrower the Borrower's original promissory note issued pursuant to the Prior Agreement and evidencing the Outstanding Indebtedness marked "PAID IN FULL". (c) The transactions contemplated by this Agreement shall be deemed a refinancing of the Outstanding Indebtedness for purposes of Treasury Regulation ss. 54.4975-7. Section 2.2 Interest. (a) The Borrower shall pay to the Lender interest on the Principal Amount, for the period commencing on the date of this Loan Agreement and continuing until the Principal Amount shall be paid in full, at the rate of six percent (6.00%) per annum. Interest payable under this Agreement for any calendar month period shall be computed on the basis of a year of 360 days and months consisting of 30 days each. For any period shorter than one calendar month, interest payable under this Loan Agreement shall be computed on the basis of a rate equal to six percent (6.00%) multiplied by a fraction equal to the actual number of days in the period (including the first day but excluding the last) divided by 360. The Lender shall remit to the Borrower, at least three (3) Business Days before the end of each calendar year, a statement of the accrued interest for such calendar year and the aggregate accrued and unpaid interest as of the last day of such calendar year; provided, however, that a delay or failure by the Lender in providing the Borrower with such statement shall not alter the Borrower's obligation to make any payment of interest that may be due but shall excuse any error in the computation of the amount of interest due that is promptly cured upon receipt of written notice of such error from the Lender. Accrued and unpaid interest shall cumulate until paid but shall not be compounded. (b) Anything in this Loan Agreement or the Promissory Note to the contrary notwithstanding, the obligation of the Borrower to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to the Lender to the extent that the Lender's receipt thereof would not be permissible under the law or laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Any such payment referred to in the preceding sentence shall be made by the Borrower to the Lender on the earliest interest payment date or dates on which the receipt thereof would be permissible under the laws 20 -4- applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Such deferred interest shall not bear interest. Section 2.3 Promissory Note. The Loan shall be evidenced by a Promissory Note of the Borrower in substantially the form of Exhibit 1 attached hereto, dated January 1, 2000, payable to the order of the Lender in the Principal Amount and otherwise duly completed. Section 2.4 Payment of Loan. The Loan shall be repaid in annual installments payable on the last Business Day of each December ending after the date of this Agreement. The amount (if any) of each such annual installment shall be equal to the maximum amount of principal and interest accrued to and including the date of the payment that may be paid without resulting in the release for allocation to participants in the ESOP, pursuant to the Pledge Agreement, of a fraction of the Shares pledged as collateral security pursuant to the Pledge Agreement as of the first day of the calendar year in which the payment is made that is greater than the fraction set forth in Column II below: Column I Column II Fraction of Year of Payment Collateral Released 2000 1/30 2001 1/29 2002 1/28 2003 1/27 2004 1/26 2005 1/25 2006 1/24 2007 1/23 2008 1/22 2009 1/21 2010 1/20 2011 1/19 2012 1/18 2013 1/17 2014 1/16 2015 1/15 2016 1/14 2017 1/13 21 -5- Column I Column II Fraction of Year of Payment Collateral Released 2018 1/12 2019 1/11 2020 1/10 2021 1/9 2022 1/8 2023 1/7 2024 1/6 2025 1/5 2026 1/4 2027 1/3 2028 1/2 2029 1 provided, however, that the Borrower shall not be required to make any payment of principal due to be made in any period to the extent that such payment would not be deductible for federal income tax purposes under section 404 of the Code. Payments may be deferred to the extent that such payments would be in excess of the amount described above or otherwise would be nondeductible for federal income tax purposes. Any payment shall be applied first to the payment of accrued interest and second, if and to the extent that all accrued interest has been or is then being paid, to the payment of all or part of the Principal Amount. Section 2.5 Prepayment. (a) The Borrower may, with the prior written consent of the Lender, prepay the Loan in whole or in part, at any time and from time to time. Any such prepayment shall be: (i) permanent and irrevocable; (ii) made without premium or penalty; and (iii) applied first to the payment of accrued interest and second, if and to the extent that all accrued interest has been or is then being paid, to the payment of all or part of the Principal Amount. (b) For each calendar year after 1999 during which the Loan is outstanding, a mandatory prepayment of all or part of the Loan (the "Mandatory Prepayment") shall be made if the aggregate Fair Market Value (as hereinafter defined) of the Shares pledged pursuant to the Pledge Agreement and pursuant to the Pledge Agreement of even date herewith between The Long Island Savings Bank FSB Employee Stock Ownership Plan Trust, acting by and through its Trustee, CG Trust Company and the Lender (the "LISB Pledge Agreement"), and released pursuant to sections 4(b) and 7 of the Pledge Agreement and pursuant to sections 4(b) and 7 of the LISB Pledge Agreement, and allocated to the accounts of participants in the ESOP as a result of the payments 22 -6- described in sections 2.4 and 2.5(a) of this Loan Agreement and the payments described in Section 2.4 and 2.5(a) of the Loan Agreement of even date herewith between The Long Island Savings Bank FSB Employee Stock Ownership Plan Trust, acting by and through its Trustee, CG Trust Company and the Lender (the "LISB Loan Agreement") for such calendar year is less than an amount equal to 14% of the total compensation taken into account under the ESOP for the purpose of allocations to the accounts of participants in the ESOP of Shares pledged pursuant to the Pledge Agreement and the LISB Pledge Agreement ("Minimum Annual Release Value"). The amount of the Mandatory Prepayment for any calendar year shall be equal to that amount of principal and/or interest which, when added to the payment described in sections 2.4 and 2.5(a) of this Loan Agreement and the payments described in sections 2.4, 2.5(a) and 2.5(b) of the LISB Loan Agreement made or then being made for such calendar year, will result in the release for allocation to participant accounts of the lesser of (A) a number of Shares pledged pursuant to the Pledge Agreement and the LISB Pledge Agreement with an aggregate Fair Market Value equal to the Minimum Annual Release Value or (B) the entire number of Shares pledged pursuant to the Pledge Agreement and the LISB Pledge Agreement that are currently unallocated. For purposes of this section 4(c), the "Fair Market Value" of a Share for any year shall be equal to the average of the closing sales prices for a share of Share on the Nasdaq Stock Market National Market System (or other principal national securities exchange on which Shares are then listed or admitted to trading) on each of the last 20 trading days preceding December 1st of such year on which a sale of a Share occurs, as reported in the New York City edition Wall Street Journal or such other reputable source of stock quotations as Astoria Federal Savings and Loan Association may select. (c) In the event of the termination of the ESOP or the occurrence of a "Change in Control (as hereinafter defined), the entire outstanding Principal Amount and all accrued but unpaid interest shall thereupon become immediately due and payable. A "Change of Control shall be deemed to have occurred upon the happening of any of the following events: (i) any event upon which any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than (A) a trustee or other fiduciary holding securities under any employee benefit plan maintained for the benefit of employees of Astoria Financial Corporation; (B) a corporation owned, directly or indirectly, by the stockholders of Astoria Financial Corporation in substantially the same proportions as their ownership of stock of Astoria Financial Corporation; or (C) any group constituting a person in which employees of Astoria Financial Corporation are substantial members, becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities issued by Astoria Financial Corporation representing 25% or more of the combined voting power of all of Astoria Financial Corporation's then outstanding securities; or (ii) any event upon which the individuals who on December 30, 2000 were members of the Board of Directors of Astoria Financial Corporation, together with individuals whose election by such Board or nomination for election by Astoria Financial Corporation's stockholders was approved by the affirmative vote of at least two-thirds of the members of such Board then in office who were either members of 23 -7- such Board on December 30, 2000 or whose nomination or election was previously so approved, cease for any reason to constitute a majority of the members of such Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of Astoria Financial Corporation (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934);as amended or (iii) the consummation of either: (A) a merger or consolidation of Astoria Financial Corporation with any other corporation, other than a merger or consolidation following which both of the following conditions are satisfied: (I) either (1) the members of the Board of Directors of Astoria Financial Corporation immediately prior to such merger or consolidation constitute at least a majority of the members of the governing body of the institution resulting from such merger or consolidation; or (2) the shareholders of Astoria Financial Corporation own securities of the institution resulting from such merger or consolidation representing 60% or more of the combined voting power of all such securities then outstanding in substantially the same proportions as their ownership of voting securities of Astoria Financial Corporation before such merger or consolidation; and (II) the entity which results from such merger or consolidation expressly agrees in writing to assume and perform Astoria Financial Corporation's obligations under the ESOP; or (B) a complete liquidation of Astoria Financial Corporation or an agreement for the sale or disposition by Astoria Financial Corporation of all or substantially all of its assets; or (iv) any event that would be described in this section if "Astoria Federal Savings and Loan Association" were substituted for "Astoria Financial Corporation." therein. Section 2.6 Method of Payments. (a) All payments of principal, interest, other charges and other amounts payable by the Borrower hereunder shall be made in lawful money of the United States, in immediately available funds, to the Lender at the address specified in or pursuant to this Loan Agreement for notices to the Lender, not later than 3:00 P.M., Eastern Standard time, on the date on which such payment shall become due. Any such payment made on such date but after such time shall, if the amount paid bears interest, and except as expressly provided to the contrary herein, be deemed to have been made on, and interest shall continue to accrue and be payable thereon until, the next 24 -8- succeeding Business Day. If any payment of principal or interest becomes due on a day other than a Business Day, such payment may be made on the next succeeding Business Day. (b) Notwithstanding anything to the contrary contained in this Loan Agreement or the Promissory Note, neither the Borrower nor the Trustee shall be obligated to make any payment, repayment or prepayment on the Promissory Note or take or refrain from taking any other action hereunder or under the Promissory Note if doing so would cause the ESOP to cease to be an employee stock ownership plan within the meaning of section 4975(e)(7) of the Code or qualified under section 401(a) of the Code or cause the Borrower to cease to be a tax exempt trust under section 501(a) of the Code or if such act or failure to act would cause the Borrower or the Trustee to engage in any "prohibited transaction" as such term is defined in section 4975(c) of the Code and the regulations promulgated thereunder which is not exempted by section 4975(c)(2) or (d) of the Code and the regulations promulgated thereunder or in section 406 of ERISA and the regulations promulgated thereunder which is not exempted by section 408(b) of ERISA and the regulations promulgated thereunder; provided, however, that in each case, the Borrower or the Trustee or both, as the case may be, shall have acted or refrained from acting pursuant to this section 2.6(b) in reliance on an opinion of Independent Counsel. Any opinion of such Independent Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by the Trustee or the Borrower hereunder in good faith and in accordance with such opinion of Independent Counsel. Nothing contained in this section 2.6(b) shall be construed as imposing a duty on either the Borrower or the Trustee to consult with Independent Counsel. Any obligation of the Borrower or the Trustee to make any payment, repayment or prepayment on the Promissory Note or to take or refrain from taking any other act hereunder or under the Promissory Note which is excused pursuant to this section 2.6(b) shall be considered a binding obligation of the Borrower or the Trustee, or both, as the case may be, for the purposes of determining whether a Default or Event of Default has occurred hereunder or under the Promissory Note and nothing in this section 2.6(b) shall be construed as providing a defense to any remedies otherwise available upon a Default or an Event of Default hereunder (other than the remedy of specific performance). Section 2.7 Security. (a) In order to secure the due payment and performance by the Borrower of all of its obligations under this Loan Agreement, simultaneously with the execution and delivery of this Loan Agreement by the Borrower, the Borrower shall: (i) pledge to the Lender as Collateral (as defined in the Pledge Agreement), and grant to the Lender a first priority lien on and security interest in, all assets pledged by the Borrower as collateral security for the Outstanding Indebtedness by the execution and delivery to the Lender of a Pledge Agreement in the form attached hereto as Exhibit 2; and (ii) execute and deliver, or cause to be executed and delivered, such other agreements, instruments and documents as the Lender may reasonably require in order to effect the purposes of the Pledge Agreement and this Loan Agreement. 25 -9- (b) The Lender shall release from encumbrance under the Pledge Agreement and transfer to the Borrower, as of the date on which any payment or prepayment is made, an amount of Collateral determined pursuant to section Treasury Regulation ss. 54.4975-7(b)(8)(i). Section 2.8 Registration of the Promissory Note. (a) The Lender shall maintain a Register providing for the registration of the Principal Amount and any stated interest and of transfer and exchange of the Promissory Note. Transfer of the Promissory Note may be effected only by the surrender of the old instrument and either the reissuance by the Borrower of the old instrument to the new holder or the issuance by the Borrower of a new instrument to the new holder. The old Promissory Note so surrendered shall be canceled by the Lender and returned to the Borrower after such cancellation. (b) Any new Promissory Note issued pursuant to section 2.8(a) shall carry the same rights to interest (unpaid and to accrue) carried by the Promissory Note so transferred or ex changed so that there will not be any loss or gain of interest on the note surrendered. Such new Promissory Note shall be subject to all of the provisions and entitled to all of the benefits of this Agreement. Prior to due presentment for registration or transfer, the Borrower may deem and treat the registered holder of any Promissory Note as the holder thereof for purposes of payment and all other purposes. A notation shall be made on each new Promissory Note of the amount of all payments of principal and interest theretofore paid. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BORROWER The Borrower hereby represents and warrants to the Lender as follows: Section 3.1 Power, Authority, Consents. The Borrower has the power to execute, deliver and perform this Loan Agreement, the Promissory Note and the Pledge Agreement, all of which have been duly authorized by all neces sary and proper corporate or other action. Section 3.2 Due Execution, Validity, Enforceability. Each of the Loan Documents, including, without limitation, this Loan Agreement, the Promissory Note and the Pledge Agreement, have been duly executed and delivered by the Borrower; and each constitutes the valid and legally binding obligation of the Borrower, enforceable in accordance with its terms. 26 -10- Section 3.3 Properties, Priority of Liens. The liens which have been created and granted by the Pledge Agreement constitute valid, first liens on the properties and assets covered by the Pledge Agreement, subject to no prior or equal lien. Section 3.4 No Defaults, Compliance with Laws. The Borrower is not in default in any material respect under any agreement, ordinance, resolution, decree, bond, note, indenture, order or judgment to which it is a party or by which it is bound, or any other agreement or other instrument by which any of the properties or assets owned by it is materially affected. Section 3.5 Marketable Title; Legality. The Borrower has valid, legal and marketable title to all of the Shares and other assets pledged as collateral pursuant to the Pledge Agreement, free and clear of any liens, other than a pledge to the Lender of such assets pursuant to the Pledge Agreement. Neither the execution and delivery of the Loan Documents nor the performance of any obligation thereunder violates any provision of law or conflicts with or results in a breach of or creates (with or without the giving of notice or lapse of time, or both) a default under any agreement to which the Borrower is a party or by which it is bound or any of its properties is affected. No consent of any federal, state or local governmental authority, agency or other regulatory body, the absence of which could have a materially adverse effect on the Borrower or the Trustee, is or was required to be obtained in connection with the execution, delivery or performance of the Loan Documents and the transactions contemplated therein or in connection therewith, including, without limitation, with respect to the transfer of the Shares purchased with the proceeds of the Loan pursuant thereto. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE LENDER The Lender hereby represents and warrants to the Borrower as follows: Section 4.1 Power, Authority, Consents. The Lender has the power to execute, deliver and perform this Loan Agreement, the Pledge Agreement and all documents executed by the Lender in connection with the Loan, all of which have been duly authorized by all necessary and proper corporate or other action. No consent, authorization or approval or other action by any governmental authority or regulatory body, and no 27 -11- notice by the Lender to, or filing by the Lender with, any governmental authority or regulatory body is required for the due execution, delivery and performance of this Loan Agreement. Section 4.2 Due Execution, Validity, Enforceability. This Loan Agreement and the Pledge Agreement have been duly executed and delivered by the Lender; and each constitutes a valid and legally binding obligation of the Lender, enforceable in accordance with its terms. Section 4.3 ESOP; Contributions. The ESOP and the Borrower have been duly created, organized and maintained by the Lender in compliance with all applicable laws, regulations and rulings. The ESOP qualifies as an "employee stock ownership plan" as defined in section 4975(e)(7) the Code. The ESOP provides that the Lender may make contributions to the ESOP in an amount necessary to enable the Trustee to amortize the Loan in accordance with the terms of the Promissory Note and this Loan Agreement, and the Lender will make such contributions; provided, however, that no such contributions shall be required if they would adversely affect the qualification of the ESOP under section 401(a) of the Code. Section 4.4 Compliance with Laws; Actions. Neither the execution and delivery by the Lender of this Loan Agreement or any instruments required thereby, nor compliance with the terms and provisions of any such documents by the Lender, constitutes a violation of any provision of any law or any regulation, order, writ, injunction or decree of any court or governmental instrumentality, or an event of default under any agreement, to which the Lender is a party or by which the Lender is bound or to which the Lender is subject, which violation or event of default would have a material adverse effect on the Lender. There is no action or proceeding pending or threatened against either of the ESOP or the Borrower before any court or administrative agency. ARTICLE V EVENTS OF DEFAULT Section 5.1 Events of Default under Loan Agreement. Each of the following events shall constitute an "Event of Default" hereunder: (a) Failure to make any payment or mandatory prepayment of principal of the Promissory Note, or failure to make any payment of interest on the Promissory Note, within five (5) 28 -12- Business Days after the date when due; provided, however, that a default shall be deemed to have occurred only if and to the extent that the Borrower has received a contribution from the Lender to be used to make such payment or the Borrower has received dividends which it is permitted to apply to make such payment and the Borrower fails to apply such contribution or dividends to such payment. Section 5.2 Lender's Rights upon Event of Default. If an Event of Default under this Loan Agreement shall occur and be continuing, the Lender shall have no rights to assets of the Borrower other than: (a) contributions (other than contributions of Common Stock) that are made by the Lender to enable the Borrower to meet its obligations pursuant to this Loan Agreement and earnings attributable to the investment of such contributions and (b) "Eligible Collateral" (as defined in the Pledge Agreement); provided, however, that: (i) the value of the Borrower's assets transferred to the Lender following an Event of Default in satisfaction of the due and unpaid amount of the Loan shall not exceed the amount in default (without regard to amounts owing solely as a result of any acceleration of the Loan); (ii) the Borrower's assets shall be transferred to the Lender following an Event of Default only to the extent of the failure of the Borrower to meet the payment schedule of the Loan resulting from the failure of the Borrower to use dividend income received by it on Pledged Shares and employer contributions received by it for purposes of debt service to make Loan payments when due; and (iii) all rights of the Lender to the Collateral covered by the Pledge Agreement following an Event of Default shall be governed by the terms of the Pledge Agreement. ARTICLE VI MISCELLANEOUS PROVISIONS Section 6.1 Payments. All payments hereunder and under the Promissory Note shall be made without set-off or counterclaim and in such amounts as may be necessary in order that all such payments shall not be less than the amounts otherwise specified to be paid under this Loan Agreement and the Promissory Note, subject to any applicable tax withholding requirements. Upon payment in full of the Promissory Note, the Lender shall mark such Promissory Note "PAID IN FULL" and return it to the Borrower. Section 6.2 Survival. All agreements, representations and warranties made herein shall survive the delivery of this Loan Agreement and the Promissory Note. 29 -13- Section 6.3 Modifications, Consents and Waivers; Entire Agreement. No modification, amendment or waiver of or with respect to any provision of this Loan Agreement, the Promissory Note, the Pledge Agreement, or any of the other Loan Documents, nor consent to any departure from any of the terms or conditions thereof, shall in any event be effective unless it shall be in writing and signed by the party against whom enforcement thereof is sought. Any such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No consent to or demand on a party in any case shall, of itself, entitle it to any other or further notice or demand in similar or other circumstances. This Loan Agreement embodies the entire agreement and understanding between the Lender and the Borrower and supersedes all prior agreements and understandings relating to the subject matter hereof. Section 6.4 Remedies Cumulative. Each and every right granted to the Lender hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of the Lender or the holder of the Promissory Note to exercise, and no delay in exercising, any right shall operate as a waiver thereof, nor shall any single or partial exercise of any right preclude any other or future exercise thereof or the exercise of any other right. The due payment and performance of the obligations under the Loan Documents shall be without regard to any counterclaim, right of offset or any other claim whatsoever which the Borrower may have against the Lender and without regard to any other obligation of any nature whatsoever which the Lender may have to the Borrower, and no such counterclaim or offset shall be asserted by the Borrower in any action, suit or proceeding instituted by the Lender for payment or performance of such obligations. Section 6.5 Further Assurances; Compliance with Covenants. At any time and from time to time, upon the request of the Lender, the Borrower shall execute, deliver and acknowledge or cause to be executed, delivered and acknowledged, such further documents and instruments and do such other acts and things as the Lender may reasonably request in order to fully effect the terms of this Loan Agreement, the Promissory Note, the Pledge Agree ment, the other Loan Documents and any other agreements, instruments and documents delivered pursuant hereto or in connection with the Loan. Section 6.6 Notices. Except as otherwise specifically provided for herein, all notices, requests, reports and other communications pursuant to this Loan Agreement shall be in writing, either by letter (delivered by hand or commercial messenger service or sent by registered or certified mail, return receipt requested, except for routine reports delivered in compliance with Article VI hereof which may be sent by ordinary first-class mail) or telex or facsimile, addressed as follows: (a) If to the Borrower: 30 -14- Astoria Federal Savings and Loan Association Employee Stock Ownership Plan Trust c/o State Street Bank and Trust Company Investment Services Office 200 Newport Avenue North Quincy, Massachusetts 02171 with copies to: Astoria Federal Savings and Loan Association Employee Stock Ownership Plan Trust c/o Astoria Federal Savings and Loan Association One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel (b) If to the Lender: Astoria Financial Corporation One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand or by commercial messenger service, or sent by telex or facsimile, to such party at its address specified above, or, if sent by mail, on the third Business Day after the day deposited in the mail, postage prepaid, addressed as aforesaid. Any party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; provided, however, that any such notice shall be deemed to have been given only when actually received by the party to whom it is addressed. Section 6.8 Counterparts. This Loan Agreement may be signed in any number of counterparts which, when taken together, shall constitute one and the same document. Section 6.9 Construction; Governing Law. The headings used in the table of contents and in this Loan Agreement are for convenience only and shall not be deemed to constitute a part hereof. All uses herein of any gender or of singular or plural terms shall be deemed to include uses of the other genders or plural or singular terms, as the context may require. All references in this Loan Agreement to an Article or section shall be to an Article or section of this Loan Agreement, unless otherwise specified. This Loan Agreement shall be governed by and construed and enforced in accordance with the laws of 31 -15- the State of New York applicable to contracts to be performed wholly within the State of New York entered into between parties all of whom are citizens and residents of the State of New York. It is intended that the transactions contemplated by this Loan Agreement constitute an "exempt loan" within the meaning of Treasury Regulation ss. 54.4975-7(b)(1)(iii) and Department of Labor Regulation ss. 2550.408b-3, and the provisions hereof shall be construed and enforced in such manner as shall be necessary to give effect to such intent. Section 6.10 Severability. Wherever possible, each provision of this Loan Agreement shall be interpreted in such manner as to be effective and valid under applicable law; however, the provisions of this Loan Agreement are severable, and if any clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision in this Loan Agreement in any jurisdiction. Each of the covenants, agreements and conditions contained in this Loan Agreement is independent, and compliance by a party with any of them shall not excuse non-compliance by such party with any other. The Borrower shall not take any action the effect of which shall constitute a breach or violation of any provision of this Loan Agreement. Section 6.11 Binding Effect; No Assignment or Delegation. This Loan Agreement shall be binding upon and inure to the benefit of the Borrower and its successors and the Lender and its successors and assigns. The rights and obligations of the Borrower under this Agreement shall not be assigned or delegated without the prior written consent of the Lender, and any purported assignment or delegation without such consent shall be void. 32 -16- IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be duly executed as of the date first above written. ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST By STATE STREET BANK AND TRUST COMPANY, solely as Trustee and not in any other capacity By: --------------------------------------- Name: --------------------------------------- Title: --------------------------------------- ASTORIA FINANCIAL CORPORATION By: --------------------------------------- Name: --------------------------------------- Title: --------------------------------------- 33 EXHIBIT 1 PROMISSORY NOTE $18,614,833.29 Lake Success, New York January 1, 2000 FOR VALUE RECEIVED, the undersigned, ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST (the "Borrower"), acting through and by its Trustee, STATE STREET BANK AND TRUST COMPANY (the "Trustee"), hereby promises to pay to the order of ASTORIA FINANCIAL CORPORATION (the "Lender") the sum of EIGHTEEN MILLION SIX HUNDRED FOURTEEN THOUSAND EIGHT HUNDRED THIRTY-THREE DOLLARS AND TWENTY-NINE CENTS ($18,614,833.29) payable in annual installments, each of which shall be in the amount determined pursuant to sections 2.4 and 2.5(b) of the Amended and Restated Loan Agreement made and entered into as of January 1, 2000 by and between the Borrower and the Lender (the "Loan Agreement"), as of the last Business Day of December, 2000 and as of the last Business Day of each December thereafter, through and including the last business day of December 2029, at which date the entire principal amount then outstanding shall be due and payable. Principal payments may be deferred, in whole or in part, to the extent provided in the Loan Agreement. This Promissory Note shall bear interest at the rate of six percent (6.00%) per annum set forth or established under the Loan Agreement from the date of the Loan Agreement, such interest to be payable at the time and in the manner set forth in the Loan Agreement commencing on the last Business Day of 2000 and thereafter on the last Business Day of each succeeding calendar year. Interest accrued shall cumulate until paid but shall not be compounded. Anything herein to the contrary notwithstanding, the obligation of the Borrower to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to the Lender to the extent that the Lender's receipt thereof would not be permissible under the law or laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Any such payments of interest which are not made as a result of the limitation referred to in the preceding sentence shall be made by the Borrower to the Lender on the earliest interest payment date or dates on which the receipt thereof would be permissible under the laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Such deferred interest shall not bear interest. Payments of both principal and interest on this Promissory Note are to be made at the principal office of the Lender at One Astoria Federal Plaza, Lake Success, New York 11042 or such other place as the holder hereof shall designate to the Borrower in writing, in lawful money of the United States of America in immediately available funds. 34 Failure to make any payment of principal on this Promissory Note, or failure to make any payment of interest on this Promissory Note, not later than five (5) Business Days after the date when due, shall constitute a default hereunder, whereupon the principal amount of and accrued interest on this Promissory Note shall immediately become due and payable in accordance with, but also subject to the limitations set forth in, the terms of the Loan Agreement. This Promissory Note is subject, in all respects, to the terms and provisions of the Loan Agreement, which is incorporated herein by this reference, and is secured by a Pledge Agreement between the Borrower and the Lender of even date herewith and is entitled to the benefits thereof. ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST By: State Street Bank and Trust Company, solely as Trustee and not in any other capacity By: --------------------------------------- Name: --------------------------------------- Title: --------------------------------------- 35 EXHIBIT 2 PLEDGE AGREEMENT This PLEDGE AGREEMENT ("Pledge Agreement") is made as of the 1st day of January, 2000, by and between the ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST, acting by and through its Trustee, STATE STREET BANK AND TRUST COMPANY, a banking corporation organized under the laws of the Massachusetts ("Pledgor"), and ASTORIA FINANCIAL CORPORATION ("Pledgee"), a corporation organized and existing under the laws of the State of Delaware. W I T N E S S E T H : -------------------- WHEREAS, this Pledge Agreement is being executed and delivered to the Pledgee pursuant to the terms of An Amended and Restated Loan Agreement of even date herewith ("Loan Agreement"), by and between the Pledgor and the Pledgee; NOW, THEREFORE, in consideration of the mutual agreements contained herein and in the Loan Agreement, the parties hereto do hereby covenant and agree as follows: Section 1. Definitions. The following definitions shall apply for purposes of this Pledge Agreement, except to the extent that a different meaning is plainly indicated by the context; all capitalized terms used but not defined herein shall have the respective meanings assigned to them in the Loan Agreement: (a) "Collateral" shall mean the Pledged Shares and the Pledged Assets and, subject to section 5 hereof, and to the extent permitted by applicable law, all rights with respect thereto, and all proceeds of such Pledged Shares, Pledged Assets and rights. (b) "Event of Default" shall mean an event so defined in the Loan Agreement. (c) "Liabilities" shall mean all the obligations of the Pledgor to the Pledgee, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under the Loan Agreement and the Promissory Note. (d) "Pledged Assets" means all assets of the Borrower pledged, as of January 1, 2000, as collateral security for the Borrower's performance of its obligations under that certain Loan Agreement between the Borrower and the Lender dated April 14, 1994, excluding any Pledged Shares. -19- 36 (e) "Pledged Shares" shall mean all the shares of common stock, par value $ .01 per share, of Astoria Financial Corporation purchased by the Pledgor with the proceeds of the loan made by the Pledgee to the Pledgor pursuant to the Loan Agreement dated April 14, 1994, but excluding any such shares previously released pursuant to section 4. Section 2. Pledge. To secure the payment of and performance of all the Liabilities, the Pledgor hereby pledges to the Pledgee, and grants to the Pledgee a security interest in and lien upon the Collateral. Section 3. Representations and Warranties of the Pledgor. The Pledgor represents, warrants, and covenants to the Pledgee as follows: (a) to the actual knowledge of the Trustee, the execution, delivery and performance of this Pledge Agreement and the pledging of the Collateral hereunder do not and will not conflict with, result in a violation of, or constitute a default under any agreement binding upon the Pledgor; (b) the Pledged Shares are and will continue to be owned by the Pledgor free and clear of any liens or rights of any other person except the lien hereunder and under the Loan Agreement in favor of the Pledgee, and the security interest of the Pledgee in the Pledged Shares and the proceeds thereof is and will continue to be prior to and senior to the rights of all others; (c) to the actual knowledge of the Trustee, this Pledge Agreement is the legal, valid and binding obligation of the Pledgor and is enforceable against the Pledgor in accordance with its terms; (d) the Pledgor shall, from time to time, upon request of the Pledgee, promptly deliver to the Pledgee such financing statements, stock powers, proxies, and similar documents, satisfactory in form and substance to the Pledgee, with respect to the Collateral as the Pledgee may reasonably request; and (e) subject to the first sentence of section 4(b), the Pledgor shall not, so long as any Liabilities are outstanding, sell, assign, exchange, pledge or otherwise transfer or encumber any of its rights in and to any of the Collateral. Section 4. Eligible Collateral. (a) As used herein the term "Eligible Collateral" shall mean that amount of Collateral which has an aggregate fair market value equal to the amount by which the Pledgor is in default (without regard to any amounts owing solely as the result of an acceleration of the Loan Agreement) or such lesser amount of Collateral as may be required pursuant to section 12 of this Pledge Agreement. -2- 37 (b) The Collateral shall be released from this Pledge Agreement in a manner conforming to the requirements of Treasury Regulation ss. 54.4975-7(b)(8)(i), as the same may be from time to time amended or supplemented. In the event of a termination of the ESOP or the occurrence of a Change in Control after December 31, 2009, all Pledged Shares shall be forthwith released from this Pledge Agreement and shall not be applied to satisfy any Liabilities. In the event of a Change in Control prior to January 1, 2010, all Pledged Shares in excess of the number determined under the following table shall be forthwith released from this Pledge Agreement and shall not be applied to satisfy any Liabilities: YEAR OF PLEDGED YEAR OF PLEDGED CHANGE SHARES CHANGE SHARES IN IN CONTROL CONTROL 2001 1,048,266 2006 0 2002 827,371 2007 0 2003 606,476 2008 0 2004 385,581 2009 0 2005 164,686 To the extent that the Collateral consists of assets other than or in addition to Pledged Shares, the provisions of such Regulations shall be applied separately to each class of security or each class or other type of asset included in the Collateral. Subject to such Regulations, the Pledgee may from time to time, after any Default or Event of Default, and without prior notice to the Pledgor, transfer all or any part of the Eligible Collateral into the name of the Pledgee or its nominee, with or without disclosing that such Eligible Collateral is subject to any rights of the Pledgor and may from time to time, whether before or after any of the Liabilities shall become due and payable, without notice to the Pledgor, take all or any of the following actions: (i) notify the parties obligated on any of the Collateral to make payment to the Pledgee of any amounts due or to become due thereunder, (ii) release or exchange all or any part of the Collateral, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, and (iii) take control of any proceeds of the Collateral. Section 5. Delivery; Further Assurances. (a) The Pledgor shall deliver to the Pledgee upon execution of this Pledge Agreement an assignment by the Pledgor of all the Pledgor's rights to and interest in the Collateral. (b) So long as no Default or Event of Default shall have occurred and be continuing, (i) the Pledgor shall be entitled to exercise any and all voting and other rights pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms of this Pledge Agreement, and (ii) the Pledgor shall be entitled to receive any and all cash dividends or other distributions paid in respect of the Collateral. -3- 38 (c) For so long as this Pledge Agreement shall be in effect, the Pledgor shall take such other actions and execute and deliver such other documents as the Pledgee may reasonably request in order to secure for the Pledgee's benefit a perfected first priority lien and security interest in any or all of the Collateral under the New York Uniform Commercial Code; provided, however, that the Pledgee shall not be required to take any action or execute or deliver any document pursuant to this section 5(c) to the extent that it determines, in reliance on an opinion of legal counsel, that the taking of such action or the execution or delivery of such document would result in a prohibited transaction under section 4975 of the Code or section 406 of ERISA, impair the status of the ESOP as a tax-qualified plan under section 401(a) of the Code or an employee stock ownership plan under section 4975 of the Code, impair the tax-exempt status of the Borrower under section 501(a) of the Code or violate any other requirement of ERISA applicable to the ESOP. Section 6. Events of Default. (a) If a Default or an Event of Default shall be existing, in addition to the rights it may have under the Loan Agreement, the Promissory Note, and this Pledge Agreement, or by virtue of any other instrument, (i) the Pledgee may exercise, with respect to Eligible Collateral, from time to time any rights and remedies available to it under the Uniform Commercial Code as in effect from time to time in the State of New York or otherwise available to it and (ii) the Pledgee shall have the right, for and in the name, place and stead of the Pledgor, to execute endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Eligible Collateral. Written notification of intended disposition of any of the Eligible Collateral shall be given by the Pledgee to the Pledgor at least three (3) Business Days before such disposition. Subject to section 13 below, any proceeds of any disposition of Eligible Collateral may be applied by the Pledgee to the payment of expenses in connection with the Eligible Collateral, including, without limitation, reasonable attorneys' fees and legal expenses, and any balance of such proceeds may be applied by the Pledgee toward the payment of such of the Liabilities as are in Default, and in such order of application, as the Pledgee may from time to time elect. No action of the Pledgee permitted hereunder shall impair or affect its rights in and to the Eligible Collateral. All rights and remedies of the Pledgee expressed hereunder are in addition to all other rights and remedies possessed by it, including, without limitation, those contained in the documents referred to in the definition of Liabilities in section 1 hereof. (b) In any sale of any of the Eligible Collateral after a Default or an Event of Default shall have occurred, the Pledgee is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers or further restrict such prospective bidders or purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Eligible Collateral), or in order to obtain such required approval of the sale or of the purchase by any governmental regulatory authority or official, and the Pledgor further agrees that such compliance shall not result in such sale's being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Pledgee be liable or accountable to the Pledgor for any discount allowed by reason of the fact that such Eligible Collateral is sold in compliance with any such limitation or -4- 39 restriction. Section 7. Payment in Full. Upon the payment in full of all outstanding Liabili ties, this Pledge Agreement shall terminate and the Pledgee shall forthwith assign, transfer and deliver to the Pledgor, against receipt and without recourse to the Pledgee, all Collateral then held by the Pledgee pursuant to this Pledge Agreement. Section 8. No Waiver. No failure or delay on the part of the Pledgee in exercising any right or remedy hereunder or under any other document which confers or grants any rights in the Pledgee in respect of the Liabilities shall operate as a waiver thereof nor shall any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy of the Pledgee. Section 9. Binding Effect; No Assignment or Delegation. This Pledge Agreement shall be binding upon and inure to the benefit of the Pledgor, the Pledgee and their respective successors and assigns, except that the Pledgor may not assign or transfer its rights hereunder without the prior written consent of the Pledgee (which consent shall not unreasonably be withheld). Each duty or obligation of the Pledgor to the Pledgee pursuant to the provisions of this Pledge Agreement shall be performed in favor of any person or entity designated by the Pledgee, and any duty or obligation of the Pledgee to the Pledgor may be performed by any other person or entity designated by the Pledgee. Section 10. Governing Law. This Pledge Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts to be performed wholly within the State of New York entered into between parties all of whom are citizens and residents of the State of New York. Section 11. Notices. All notices, requests, instructions or documents hereunder shall be in writing and delivered by hand or commercial messenger service or sent by United States mail, registered or certified, return receipt requested, with proper postage prepaid, or by telex or facsimile, addressed as follows: (a) If to the Pledgee: Astoria Financial Corporation One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel (b) If to the Pledgor: Astoria Federal Savings and Loan Association Employee Stock Ownership Plan Trust -5- 40 State Street Bank and Trust Company Investment Services Office 200 Newport Avenue North Quincy, Massachusetts 02171 with copies to: Astoria Federal Savings and Loan Association Employee Stock Ownership Plan Trust c/o Astoria Federal Savings and Loan Association One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand or by commercial messenger service, or sent by telex or facsimile, to such party at its address specified above, or, if sent by mail, on the third Business Day after the day deposited in the mail, postage prepaid, addressed as aforesaid. Any party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; provided, however, that any such notice shall be deemed to have been given only when actually received by the party to whom it is addressed. Section 12. Interpretation. Wherever possible each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision hereof shall be prohibited by or invalid under such law, such provisions shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions hereof. Section 13. Construction. All provisions hereof shall be construed so as to maintain (a) the ESOP as a qualified leveraged employee stock ownership plan under section 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986 (the "Code"), (b) the Trust as exempt from taxation under section 501(a) of the Code and (c) the loan made pursuant to the Loan Agreement as an exempt loan under Treasury Regulation ss. 54.4975-7(b) and as described in Department of Labor Regulation ss. 2550.408b-3. -6- 41 IN WITNESS WHEREOF, this Pledge Agreement has been duly executed by the parties hereto as of the day and year first above written. ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST By STATE STREET BANK AND TRUST COMPANY solely as Trustee and not in any other capacity By: -------------------------------------- Name: -------------------------------------- Title: -------------------------------------- ASTORIA FINANCIAL CORPORATION By: -------------------------------------- Name: -------------------------------------- Title: -------------------------------------- -7- 42 EXHIBIT B AMENDED AND RESTATED LOAN AGREEMENT by and between THE LONG ISLAND SAVINGS BANK EMPLOYEE STOCK OWNERSHIP PLAN TRUST and ASTORIA FINANCIAL CORPORATION Made and Entered Into as of January 1, 2000 43 TABLE OF CONTENTS . Page ARTICLE I DEFINITIONS Section 1.1 Business Day.................................................1 Section 1.2 Code.........................................................2 Section 1.3 Default......................................................2 Section 1.4 ERISA........................................................2 Section 1.5 Event of Default.............................................2 Section 1.6 Independent Counsel..........................................2 Section 1.7 Loan.........................................................2 Section 1.8 Loan Documents...............................................2 Section 1.9 Pledge Agreement.............................................2 Section 1.10 Principal Amount.............................................2 Section 1.11 Promissory Note..............................................2 Section 1.12 Register.....................................................2 ARTICLE II THE LOAN; PRINCIPAL AMOUNT; INTEREST; SECURITY Section 2.1 The Loan; Principal Amount; Repayment of Outstanding Indebtedness...................................2 Section 2.2 Interest.....................................................3 Section 2.3 Promissory Note..............................................4 Section 2.4 Payment of Loan..............................................4 Section 2.5 Prepayment...................................................5 Section 2.6 Method of Payments...........................................6 Section 2.7 Security.....................................................7 Section 2.8 Registration of the Promissory Note..........................7 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BORROWER Section 3.1 Power, Authority, Consents...................................8 Section 3.2 Due Execution, Validity, Enforceability......................8 Section 3.3 Properties, Priority of Liens................................8 (i) 44 Page Section 3.4 No Defaults, Compliance with Laws............................8 Section 3.5 Marketable Title; Legality...................................8 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE LENDER Section 4.1 Power, Authority, Consents...................................9 Section 4.2 Due Execution, Validity, Enforceability......................9 Section 4.3 ESOP; Contributions..........................................9 Section 4.4 Compliance with Laws; Actions................................9 ARTICLE V EVENTS OF DEFAULT Section 5.1 Events of Default under Loan Agreement......................10 Section 5.2 Lender's Rights upon Event of Default.......................10 ARTICLE VI MISCELLANEOUS PROVISIONS Section 6.1 Payments....................................................11 Section 6.2 Survival....................................................11 Section 6.3 Modifications, Consents and Waivers; Entire Agreement.......11 Section 6.4 Remedies Cumulative.........................................11 Section 6.5 Further Assurances; Compliance with Covenants...............12 Section 6.6 Notices.....................................................12 Section 6.7 Counterparts................................................13 Section 6.8 Construction; Governing Law.................................13 Section 6.9 Severability................................................13 Section 6.10 Binding Effect; No Assignment or Delegation.................13 EXHIBIT 1 Form of Promissory Note ...................................1-1 EXHIBIT 2 Form of Pledge Agreement ..................................2-1 (ii) 45 -1- LOAN AGREEMENT This LOAN AGREEMENT (the "Loan Agreement") is made and entered into as of the 1st day of January, 2000, by and between THE LONG ISLAND SAVINGS BANK EMPLOYEE FSB STOCK OWNERSHIP PLAN TRUST (the "Borrower"), a trust forming part of THE LONG ISLAND SAVINGS BANK FSB EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP"), acting through and by its Trustee, CG TRUST COMPANY (the "Trustee"), a banking corporation organized under the laws of the state of Illinois; and ASTORIA FINANCIAL CORPORATION (the "Lender"), a corporation organized and existing under the laws of the state of Delaware. W I T N E S S E T H: ------------------- WHEREAS, the Lender's wholly-owned subsidiary, ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION (the "Association"), maintains the ESOP for the benefit of eligible employees as successor by merger to The Long Island Savings Bank FSB; and WHEREAS, the Borrower and the Lender, in its capacity as successor by merger to Long Island Bancorp, Inc., are parties to a Loan Agreement dated April 14, 1994 (the "Prior Agreement"), pursuant to which the Borrower has borrowed funds from the Lender to finance the purchase of shares of common stock, par value $.01 per share, of the Lender ("Shares") and has an outstanding indebtedness in the amount of TWENTY MILLION NINE HUNDRED SEVENTY-EIGHT THOUSAND EIGHT HUNDRED EIGHTY-ONE DOLLARS AND TWO CENTS ($20,978,881.02) (the "Outstanding Indebtedness"), plus accrued and unpaid interest from December 31, 1999; and WHEREAS, the Borrower and the Lender have determined that it is in their mutual interests to modify the terms of repayment of the Outstanding Indebtedness in the manner set forth in this Agreement; NOW, THEREFORE, the parties hereto agree that the Prior Agreement shall be amended and restated in its entirety effective as of January 1, 2000, as follows: Article I Definitions The following definitions shall apply for purposes of this Loan Agreement, except to the extent that a different meaning is plainly indicated by the context: Section 1.1 Business Day means any day other than a Saturday, Sunday or other day on which banks are authorized or required to close under federal law or the laws of the State of New York. Section 1.2 Code means the Internal Revenue Code of 1986 (including the corresponding provisions of any succeeding law). Section 1.3 Default means an event or condition which would constitute an Event of Default. The determination as to whether an event or condition would constitute an Event of Default shall be determined without regard to any applicable requirement of notice or lapse of time. 46 -2- Section 1.4 ERISA means the Employee Retirement Income Security Act of 1974, as amended (including the corresponding provisions of any succeeding law). Section 1.5 Event of Default means an event or condition described in Article V. Section 1.6 Independent Counsel means legal counsel mutually satisfactory to both the Lender and the Borrower. Section 1.7 Loan means the loan described in section 2.1. Section 1.8 Loan Documents means, collectively, this Loan Agreement, the Promissory Note and the Pledge Agreement and all other documents now or hereafter executed and delivered in connection with such documents, including all amendments, modifications and supplements of or to all such documents. Section 1.9 Pledge Agreement means the agreement described in section 2.7. Section 1.10 Principal Amount means the face amount of the Promissory Note, determined as set forth in section 2.1(a). Section 1.11 Promissory Note means the promissory note described in section 2.3. Section 1.12 Register means the register described in section 2.8. Article II The Loan; Principal Amount; INTEREST; SECURITY Section 2.1 The Loan; Principal Amount; Repayment of Outstanding Indebtedness. (a) The Lender hereby lends to the Borrower TWENTY MILLION NINE HUNDRED SEVENTY-EIGHT THOUSAND EIGHT HUNDRED EIGHTY-ONE DOLLARS AND TWO CENTS ($20,978,881.02). For all purposes of this Loan Agreement, the Principal Amount on any date shall be equal to the excess, if any, of: (i) the aggregate amount lent by the Lender pursuant to this section 2.1; over (ii) the aggregate amount of any repayments of such amount made before such date. The Lender shall maintain on the Register a record of, and shall record on the Promissory Note, the Principal Amount, any changes in the Principal Amount and the effective date of any changes in the Principal Amount. 47 -3- (b) Concurrently with the execution and delivery of this Agreement, the Lender shall deliver to the Borrower the Borrower's original promissory note issued pursuant to the Prior Agreement and evidencing the Outstanding Indebtedness marked "PAID IN FULL". (c) The transactions contemplated by this Agreement shall be deemed a refinancing of the Outstanding Indebtedness for purposes of Treasury Regulation ss. 54.4975-7. Section 2.2 Interest. (a) The Borrower shall pay to the Lender interest on the Principal Amount, for the period commencing on the date of this Loan Agreement and continuing until the Principal Amount shall be paid in full, at the rate of six percent (6.00%) per annum. Interest payable under this Agreement for any calendar month period shall be computed on the basis of a year of 360 days and months consisting of 30 days each. For any period shorter than one calendar month, interest payable under this Loan Agreement shall be computed on the basis of a rate equal to six percent (6.00%) multiplied by a fraction equal to the actual number of days in the period (including the first day but excluding the last) divided by 360. The Lender shall remit to the Borrower, at least three (3) Business Days before the end of each calendar year, a statement of the accrued interest for such calendar year and the aggregate accrued and unpaid interest as of the last day of such calendar year; provided, however, that a delay or failure by the Lender in providing the Borrower with such statement shall not alter the Borrower's obligation to make any payment of interest that may be due but shall excuse any error in the computation of the amount of interest due that is promptly cured upon receipt of written notice of such error from the Lender. Accrued and unpaid interest shall cumulate until paid but shall not be compounded. (b) Anything in this Loan Agreement or the Promissory Note to the contrary notwithstanding, the obligation of the Borrower to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to the Lender to the extent that the Lender's receipt thereof would not be permissible under the law or laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Any such payment referred to in the preceding sentence shall be made by the Borrower to the Lender on the earliest interest payment date or dates on which the receipt thereof would be permissible under the laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Such deferred interest shall not bear interest. Section 2.3 Promissory Note. The Loan shall be evidenced by a Promissory Note of the Borrower in substantially 48 -4- the form of Exhibit 1 attached hereto, dated January 1, 2000, payable to the order of the Lender in the Principal Amount and otherwise duly completed. Section 2.4 Payment of Loan. The Loan shall be repaid in annual installments payable on the last Business Day of each December ending after the date of this Agreement. The amount (if any) of each such annual installment shall be equal to the maximum amount of principal and interest accrued to and including the date of the payment that may be paid without resulting in the release for allocation to participants in the ESOP, pursuant to the Pledge Agreement, of a fraction of the Shares pledged as collateral security pursuant to the Pledge Agreement as of the first day of the calendar year in which the payment is made that is greater than the fraction set forth in Column II below: Column I Column II Year of Payment Fraction of Collateral Released 2000 1/30 2001 1/29 2002 1/28 2003 1/27 2004 1/26 2005 1/25 2006 1/24 2007 1/23 2008 1/22 2009 1/21 2010 1/20 2011 1/19 2012 1/18 2013 1/17 2014 1/16 2015 1/15 2016 1/14 2017 1/13 2018 1/12 2019 1/11 2020 1/10 2021 1/9 2022 1/8 49 -5- Column I Column II Year of Payment Fraction of Collateral Released 2023 1/7 2024 1/6 2025 1/5 2026 1/4 2027 1/3 2028 1/2 2029 1 provided, however, that the Borrower shall not be required to make any payment of principal due to be made in any period to the extent that such payment would not be deductible for federal income tax purposes under section 404 of the Code. Payments may be deferred to the extent that such payments would be in excess of the amount described above or otherwise would be nondeductible for federal income tax purposes. Any payment shall be applied first to the payment of accrued interest and second, if and to the extent that all accrued interest has been or is then being paid, to the payment of all or part of the Principal Amount. Section 2.5 Prepayment. (a) The Borrower may, with the prior written consent of the Lender, prepay the Loan in whole or in part, at any time and from time to time. Any such prepayment shall be: (i) permanent and irrevocable: (ii) made without premium or penalty; and (iii) applied first to the payment of accrued interest and second, if and to the extent that all accrued interest has been or is then being paid, to the payment of all or part of the Principal Amount. (b) For each calendar year after 1999 during which the Loan is outstanding, a mandatory prepayment of all or part of the Loan (the "Mandatory Prepayment") shall be made if the aggregate Fair Market Value (as hereinafter defined) of the Shares pledged pursuant to the Pledge Agreement and pursuant to the Pledge Agreement of even date herewith between the Astoria Federal Savings and Loan Association Employee Stock Ownership Plan Trust, acting by and through its Trustee, State Street Bank and Trust Company and the Lender (the "ASFL Pledge Agreement"), and released pursuant to Sections 4(b) and 7 of the Pledge Agreement and pursuant to Sections 4(b) and 7 of the AFSL Pledge Agreement, and allocated to the accounts of participants in the ESOP as a result of the payments described in Sections 2.4 and 2.5(a) of this Loan Agreement and the payments described in Section 2.4 and 2.5(a) of the Loan Agreement of even date herewith between the Astoria Federal Savings and Loan Association Employee Stock Ownership Plan Trust, acting by and through its Trustee, State Street Bank and Trust Company and the Lender (the "AFSL Loan Agreement") for such calendar year is less than an amount equal to 14% of the total compensation taken into account under the ESOP for the purpose of allocations to the accounts of participants in the ESOP of Shares pledged pursuant to the Pledge Agreement and the AFSL Pledge Agreement ("Minimum Annual 50 -6- Release Value"). The amount of the Mandatory Prepayment for any calendar year shall be equal to that amount of principal and/or interest which, when added to the payment described in Sections 2.4 and 2.5(a) of this Loan Agreement and the payments described in Sections 2.4, 2.5(a) and 2.5(b) of the AFSL Loan Agreement made or then being made for such calendar year, will result in the release for allocation to participant accounts of the lesser of (A) a number of Shares pledged pursuant to the Pledge Agreement and the AFSL Pledge Agreement with an aggregate Fair Market Value equal to the Minimum Annual Release Value or (B) the entire number of Shares pledged pursuant to the Pledge Agreement and the AFSL Pledge Agreement that are currently unallocated. For purposes of this section 4(c), the "Fair Market Value" of a Share for any year shall be equal to the average of the closing sales prices for a share of Share on the Nasdaq Stock Market National Market System (or other principal national securities exchange on which Shares are then listed or admitted to trading) on each of the last 20 trading days preceding December 1st of such year on which a sale of a Share occurs, as reported in the New York City edition Wall Street Journal or such other reputable source of stock quotations as Astoria Federal Savings and Loan Association may select. (c) In the event of the termination of the ESOP or the occurrence of a "Change in Control (as hereinafter defined), the entire outstanding Principal Amount and all accrued but unpaid interest shall thereupon become immediately due and payable. A "Change of Control shall be deemed to have occurred upon the happening of any of the following events: (i) any event upon which any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than (A) a trustee or other fiduciary holding securities under any employee benefit plan maintained for the benefit of employees of Astoria Financial Corporation; (B) a corporation owned, directly or indirectly, by the stockholders of Astoria Financial Corporation in substantially the same proportions as their ownership of stock of Astoria Financial Corporation; or (C) any group constituting a person in which employees of Astoria Financial Corporation are substantial members, becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities issued by Astoria Financial Corporation representing 25% or more of the combined voting power of all of Astoria Financial Corporation's then outstanding securities; or (ii) any event upon which the individuals who on December 30, 2000 were members of the Board of Directors of Astoria Financial Corporation, together with individuals whose election by such Board or nomination for election by Astoria Financial Corporation's stockholders was approved by the affirmative vote of at least two-thirds of the members of such Board then in office who were either members of such Board on December 30, 2000 or whose nomination or election was previously so approved, cease for any reason to constitute a majority of the members of such Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of Astoria Financial Corporation (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934);as amended or 51 -7- (iii) the consummation of either: (A) a merger or consolidation of Astoria Financial Corporation with any other corporation, other than a merger or consolidation following which both of the following conditions are satisfied: (I) either (1) the members of the Board of Directors of Astoria Financial Corporation immediately prior to such merger or consolidation constitute at least a majority of the members of the governing body of the institution resulting from such merger or consolidation; or (2) the shareholders of Astoria Financial Corporation own securities of the institution resulting from such merger or consolidation representing 60% or more of the combined voting power of all such securities then outstanding in substantially the same proportions as their ownership of voting securities of Astoria Financial Corporation before such merger or consolidation; and (II) the entity which results from such merger or consolidation expressly agrees in writing to assume and perform Astoria Financial Corporation's obligations under the ESOP; or (B) a complete liquidation of Astoria Financial Corporation or an agreement for the sale or disposition by Astoria Financial Corporation of all or substantially all of its assets; or (iv) any event that would be described in this section if "Astoria Federal Savings and Loan Association" were substituted for "Astoria Financial Corporation." therein. Section 2.6 Method of Payments. (a) All payments of principal, interest, other charges and other amounts payable by the Borrower hereunder shall be made in lawful money of the United States, in immediately available funds, to the Lender at the address specified in or pursuant to this Loan Agreement for notices to the Lender, not later than 3:00 P.M., Eastern Standard time, on the date on which such payment shall become due. Any such payment made on such date but after such time shall, if the amount paid bears interest, and except as expressly provided to the contrary herein, be deemed to have been made on, and interest shall continue to accrue and be payable thereon until, the next succeeding Business Day. If any payment of principal or interest becomes due on a day other than a Business Day, such payment may be made on the next succeeding Business Day. (b) Notwithstanding anything to the contrary contained in this Loan Agreement or the Promissory Note, neither the Borrower nor the Trustee shall be 52 -8- obligated to make any payment, repayment or prepayment on the Promissory Note or take or refrain from taking any other action hereunder or under the Promissory Note if doing so would cause the ESOP to cease to be an employee stock ownership plan within the meaning of section 4975(e)(7) of the Code or qualified under section 401(a) of the Code or cause the Borrower to cease to be a tax exempt trust under section 501(a) of the Code or if such act or failure to act would cause the Borrower or the Trustee to engage in any "prohibited transaction" as such term is defined in section 4975(c) of the Code and the regulations promulgated thereunder which is not exempted by section 4975(c)(2) or (d) of the Code and the regulations promulgated thereunder or in section 406 of ERISA and the regulations promulgated thereunder which is not exempted by section 408(b) of ERISA and the regulations promulgated thereunder; provided, however, that in each case, the Borrower or the Trustee or both, as the case may be, shall have acted or refrained from acting pursuant to this section 2.6(b) in reliance on an opinion of Independent Counsel. Any opinion of such Independent Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by the Trustee or the Borrower hereunder in good faith and in accordance with such opinion of Independent Counsel. Nothing contained in this section 2.6(b) shall be construed as imposing a duty on either the Borrower or the Trustee to consult with Independent Counsel. Any obligation of the Borrower or the Trustee to make any payment, repayment or prepayment on the Promissory Note or to take or refrain from taking any other act hereunder or under the Promissory Note which is excused pursuant to this section 2.6(b) shall be considered a binding obligation of the Borrower or the Trustee, or both, as the case may be, for the purposes of determining whether a Default or Event of Default has occurred hereunder or under the Promissory Note and nothing in this section 2.6(b) shall be construed as providing a defense to any remedies otherwise available upon a Default or an Event of Default hereunder (other than the remedy of specific performance). Section 2.7 Security. In order to secure the due payment and performance by the Borrower of all of its obligations under this Loan Agreement, simultaneously with the execution and delivery of this Loan Agreement by the Borrower, the Borrower shall: (i) pledge to the Lender as Collateral (as defined in the Pledge Agreement), and grant to the Lender a first priority lien on and security interest in, all assets pledged by the Borrower as collateral security for the Outstanding Indebtedness by the execution and delivery to the Lender of a Pledge Agreement in the form attached hereto as Exhibit 2; and (ii) execute and deliver, or cause to be executed and delivered, such other agreements, instruments and documents as the Lender may reasonably require in order to effect the purposes of the Pledge Agreement and this Loan Agreement. 53 -9- (a) The Lender shall release from encumbrance under the Pledge Agreement and transfer to the Borrower, as of the date on which any payment or prepayment is made, an amount of Collateral determined pursuant to section Treasury Regulation ss. 54.4975-7(b)(8)(i). Section 2.8 Registration of the Promissory Note. (a) The Lender shall maintain a Register providing for the registration of the Principal Amount and any stated interest and of transfer and exchange of the Promissory Note. Transfer of the Promissory Note may be effected only by the surrender of the old instrument and either the reissuance by the Borrower of the old instrument to the new holder or the issuance by the Borrower of a new instrument to the new holder. The old Promissory Note so surrendered shall be canceled by the Lender and returned to the Borrower after such cancellation. (b) Any new Promissory Note issued pursuant to section 2.8(a) shall carry the same rights to interest (unpaid and to accrue) carried by the Promissory Note so transferred or exchanged so that there will not be any loss or gain of interest on the note surrendered. Such new Promissory Note shall be subject to all of the provisions and entitled to all of the benefits of this Agreement. Prior to due presentment for registration or transfer, the Borrower may deem and treat the registered holder of any Promissory Note as the holder thereof for purposes of payment and all other purposes. A notation shall be made on each new Promissory Note of the amount of all payments of principal and interest theretofore paid. Article III Representations and Warranties of the Borrower The Borrower hereby represents and warrants to the Lender as follows: Section 3.1 Power, Authority, Consents. The Borrower has the power to execute, deliver and perform this Loan Agreement, the Promissory Note and the Pledge Agreement, all of which have been duly authorized by all necessary and proper corporate or other action. Section 3.2 Due Execution, Validity, Enforceability. Each of the Loan Documents, including, without limitation, this Loan Agreement, the Promissory Note and the Pledge Agreement, have been duly executed and delivered by the Borrower; and each constitutes the valid and legally binding obligation of the Borrower, enforceable in accordance with its terms. 54 -10- Section 3.3 Properties, Priority of Liens. The liens which have been created and granted by the Pledge Agreement constitute valid, first liens on the properties and assets covered by the Pledge Agreement, subject to no prior or equal lien. Section 3.4 No Defaults, Compliance with Laws. The Borrower is not in default in any material respect under any agreement, ordinance, resolution, decree, bond, note, indenture, order or judgment to which it is a party or by which it is bound, or any other agreement or other instrument by which any of the properties or assets owned by it is materially affected. Section 3.5 Marketable Title; Legality. The Borrower has valid, legal and marketable title to all of the Shares and other assets pledged as collateral pursuant to the Pledge Agreement, free and clear of any liens, other than a pledge to the Lender of such assets pursuant to the Pledge Agreement. Neither the execution and delivery of the Loan Documents nor the performance of any obligation thereunder violates any provision of law or conflicts with or results in a breach of or creates (with or without the giving of notice or lapse of time, or both) a default under any agreement to which the Borrower is a party or by which it is bound or any of its properties is affected. No consent of any federal, state or local governmental authority, agency or other regulatory body, the absence of which could have a materially adverse effect on the Borrower or the Trustee, is or was required to be obtained in connection with the execution, delivery or performance of the Loan Documents and the transactions contemplated therein or in connection therewith, including, without limitation, with respect to the transfer of the Shares purchased with the proceeds of the Loan pursuant thereto. Article IV Representations and Warranties of the Lender The Lender hereby represents and warrants to the Borrower as follows: Section 4.1 Power, Authority, Consents. The Lender has the power to execute, deliver and perform this Loan Agreement, the Pledge Agreement and all documents executed by the Lender in connection with the Loan, all of which have been duly authorized by all necessary and proper corporate or other action. No consent, authorization or approval or other action by any governmental authority or regulatory body, and no notice by the Lender to, or filing by the Lender with, any governmental authority or regulatory body is required for the due execution, delivery and performance of this Loan Agreement. Section 4.2 Due Execution, Validity, Enforceability. This Loan Agreement and the Pledge Agreement have been duly executed and delivered by the Lender; and each constitutes a valid and legally binding obligation of the Lender, 55 -11- enforceable in accordance with its terms. Section 4.3 ESOP; Contributions. The ESOP and the Borrower have been duly created, organized and maintained by the Lender in compliance with all applicable laws, regulations and rulings. The ESOP qualifies as an "employee stock ownership plan" as defined in section 4975(e)(7) the Code. The ESOP provides that the Lender may make contributions to the ESOP in an amount necessary to enable the Trustee to amortize the Loan in accordance with the terms of the Promissory Note and this Loan Agreement, and the Lender will make such contributions; provided, however, that no such contributions shall be required if they would adversely affect the qualification of the ESOP under section 401(a) of the Code. Section 4.4 Compliance with Laws; Actions. Neither the execution and delivery by the Lender of this Loan Agreement or any instruments required thereby, nor compliance with the terms and provisions of any such documents by the Lender, constitutes a violation of any provision of any law or any regulation, order, writ, injunction or decree of any court or governmental instrumentality, or an event of default under any agreement, to which the Lender is a party or by which the Lender is bound or to which the Lender is subject, which violation or event of default would have a material adverse effect on the Lender. There is no action or proceeding pending or threatened against either of the ESOP or the Borrower before any court or administrative agency. Article V Events of Default Section 5.1 Events of Default under Loan Agreement. Each of the following events shall constitute an "Event of Default" hereunder: (a) Failure to make any payment or mandatory prepayment of principal of the Promissory Note, or failure to make any payment of interest on the Promissory Note, within five (5) Business Days after the date when due, provided, however, that a default shall be deemed to have occurred only if and to the extent that the Borrower has received a contribution from the Lender to be used to make such payment or the Borrower has received dividends which it is permitted to apply to make such payment and the Borrower fails to apply such contribution or dividends to such payment. Section 5.2 Lender's Rights upon Event of Default. If an Event of Default under this Loan Agreement shall occur and be continuing, the Lender shall have no rights to assets of the Borrower other than: (a) contributions (other than contributions of Common Stock) that are made by the Lender to enable the Borrower to meet its obligations pursuant to this Loan Agreement and earnings attributable to the investment of such 56 -12- contributions and (b) "Eligible Collateral" (as defined in the Pledge Agreement); provided, however, that: (i) the value of the Borrower's assets transferred to the Lender following an Event of Default in satisfaction of the due and unpaid amount of the Loan shall not exceed the amount in default (without regard to amounts owing solely as a result of any acceleration of the Loan); (ii) the Borrower's assets shall be transferred to the Lender following an Event of Default only to the extent of the failure of the Borrower to meet the payment schedule of the Loan resulting from the failure of the Borrower to use dividend income received by it on Pledged Shares and employer contributions received by it for purposes of debt service to make loan payments when due; and (iii) all rights of the Lender to the Collateral covered by the Pledge Agreement following an Event of Default shall be governed by the terms of the Pledge Agreement. Article VI Miscellaneous Provisions Section 6.1 Payments. All payments hereunder and under the Promissory Note shall be made without set-off or counterclaim and in such amounts as may be necessary in order that all such payments shall not be less than the amounts otherwise specified to be paid under this Loan Agreement and the Promissory Note, subject to any applicable tax withholding requirements. Upon payment in full of the Promissory Note, the Lender shall mark such Promissory Note "PAID IN FULL" and return it to the Borrower. Section 6.2 Survival. All agreements, representations and warranties made herein shall survive the delivery of this Loan Agreement and the Promissory Note. Section 6.3 Modifications, Consents and Waivers; Entire Agreement. No modification, amendment or waiver of or with respect to any provision of this Loan Agreement, the Promissory Note, the Pledge Agreement, or any of the other Loan Documents, nor consent to any departure from any of the terms or conditions thereof, shall in any event be effective unless it shall be in writing and signed by the party against whom enforcement thereof is sought. Any such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No consent to or demand on a party in any case shall, of itself, entitle it to any other or further notice or demand in similar or other circumstances. This Loan Agreement embodies the entire agreement and understanding between the Lender and the Borrower and supersedes all prior agreements and understandings relating to the subject matter hereof. Section 6.4 Remedies Cumulative. Each and every right granted to the Lender hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of the Lender or the holder of the Promissory Note to exercise, and no delay in exercising, any right shall operate as a waiver thereof, 57 -13- nor shall any single or partial exercise of any right preclude any other or future exercise thereof or the exercise of any other right. The due payment and performance of the obligations under the Loan Documents shall be without regard to any counterclaim, right of offset or any other claim whatsoever which the Borrower may have against the Lender and without regard to any other obligation of any nature whatsoever which the Lender may have to the Borrower, and no such counterclaim or offset shall be asserted by the Borrower in any action, suit or proceeding instituted by the Lender for payment or performance of such obligations. Section 6.5 Further Assurances; Compliance with Covenants. At any time and from time to time, upon the request of the Lender, the Borrower shall execute, deliver and acknowledge or cause to be executed, delivered and acknowledged, such further documents and instruments and do such other acts and things as the Lender may reasonably request in order to fully effect the terms of this Loan Agreement, the Promissory Note, the Pledge Agreement, the other Loan Documents and any other agreements, instruments and documents delivered pursuant hereto or in connection with the Loan. Section 6.6 Notices. Except as otherwise specifically provided for herein, all notices, requests, reports and other communications pursuant to this Loan Agreement shall be in writing, either by letter (delivered by hand or commercial messenger service or sent by registered or certified mail, return receipt requested, except for routine reports delivered in compliance with Article VI hereof which may be sent by ordinary first-class mail) or telex or facsimile, addressed as follows: (a) If to the Borrower: The Long Island Savings Bank FSB Employee Stock Ownership Plan Trust CG Trust Company 525 W. Monroe, Suite 1900 Chicago, Illinois 60601 with copies to: The Long Island Savings Bank FSB Employee Stock Ownership Plan Trust c/o Astoria Federal Savings and Loan Association One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel --------------- (b) If to the Lender: Astoria Financial Corporation One Astoria Federal Plaza 58 -14- Lake Success, New York 11042 Attention: General Counsel --------------- Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand or by commercial messenger service, or sent by telex or facsimile, to such party at its address specified above, or, if sent by mail, on the third Business Day after the day deposited in the mail, postage prepaid, addressed as aforesaid. Any party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; provided, however, that any such notice shall be deemed to have been given only when actually received by the party to whom it is addressed. Section 6.7 Counterparts. This Loan Agreement may be signed in any number of counterparts which, when taken together, shall constitute one and the same document. Section 6.8 Construction; Governing Law. The headings used in the table of contents and in this Loan Agreement are for convenience only and shall not be deemed to constitute a part hereof. All uses herein of any gender or of singular or plural terms shall be deemed to include uses of the other genders or plural or singular terms, as the context may require. All references in this Loan Agreement to an Article or section shall be to an Article or section of this Loan Agreement, unless otherwise specified. This Loan Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts to be performed wholly within the State of New York entered into between parties all of whom are citizens and residents of the State of New York. It is intended that the transactions contemplated by this Loan Agreement constitute an "exempt loan" within the meaning of Treasury Regulation ss. 54.4975-7(b)(1)(iii) and Department of Labor Regulation ss. 2550.408b-3, and the provisions hereof shall be construed and enforced in such manner as shall be necessary to give effect to such intent. Section 6.9 Severability. Wherever possible, each provision of this Loan Agreement shall be interpreted in such manner as to be effective and valid under applicable law; however, the provisions of this Loan Agreement are severable, and if any clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision in this Loan Agreement in any jurisdiction. Each of the covenants, agreements and conditions contained in this Loan Agreement is independent, and compliance by a party with any of them shall not excuse non- compliance by such party with any other. The Borrower shall not take any action the effect of which shall constitute a breach or violation of any provision of this Loan Agreement. Section 6.10 Binding Effect; No Assignment or Delegation. 59 -15- This Loan Agreement shall be binding upon and inure to the benefit of the Borrower and its successors and the Lender and its successors and assigns. The rights and obligations of the Borrower under this Agreement shall not be assigned or delegated without the prior written consent of the Lender, and any purported assignment or delegation without such consent shall be void. 60 -16- [This page intentionally left blank.] 61 -17- IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be duly executed as of the date first above written. THE LONG ISLAND SAVINGS BANK EMPLOYEE STOCK OWNERSHIP PLAN TRUST By CG TRUST COMPANY, solely as Trustee and not in any other capacity By: ------------------------------------ Name: ------------------------------------ Title: ------------------------------------ ASTORIA FINANCIAL CORPORATION By: ------------------------------------ Name: ------------------------------------ Title: ------------------------------------ 62 EXHIBIT 1 PROMISSORY NOTE $20,978,881.02 Lake Success, New York January 1, 2000 FOR VALUE RECEIVED, the undersigned, THE LONG ISLAND SAVINGS BANK FSB EMPLOYEE STOCK OWNERSHIP PLAN TRUST (the "Borrower"), acting by and through its Trustee, CG TRUST COMPANY (the "Trustee"), hereby promises to pay to the order of ASTORIA FINANCIAL CORPORATION (the "Lender") the sum of TWENTY MILLION NINE HUNDRED SEVENTY-EIGHT THOUSAND EIGHT HUNDRED EIGHTY-ONE DOLLARS AND TWO CENTS ($20,978,881.02) payable in annual installments, each of which shall be in the amount determined pursuant to sections 2.4 and 2.5(b) of the Amended and Restated Loan Agreement made and entered into as of January 1, 2000 by and between the Borrower and the Lender (the "Loan Agreement"), as of the last Business Day of December, 2000 and as of the last Business Day of each December thereafter, through and including the last business day of December 2029, at which date the entire principal amount then outstanding shall be due and payable. Principal payments may be deferred, in whole or in part, to the extent provided in the Loan Agreement. This Promissory Note shall bear interest at the rate of six percent (6.00%) per annum set forth or established under the Loan Agreement from the date of the Loan Agreement, such interest to be payable at the time and in the manner set forth in the Loan Agreement commencing on the last Business Day of 2000 and thereafter on the last Business Day of each succeeding calendar year. Interest accrued shall cumulate until paid but shall not be compounded. Anything herein to the contrary notwithstanding, the obligation of the Borrower to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to the Lender to the extent that the Lender's receipt thereof would not be permissible under the law or laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Any such payments of interest which are not made as a result of the limitation referred to in the preceding sentence shall be made by the Borrower to the Lender on the earliest interest payment date or dates on which the receipt thereof would be permissible under the laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Such deferred interest shall not bear interest. Payments of both principal and interest on this Promissory Note are to be made at the principal office of the Lender at One Astoria Federal Plaza, Lake Success, New York 11042 or such other place as the holder hereof shall designate to the Borrower in writing, in lawful money of the United States of America in immediately available funds. Failure to make any payment of principal on this Promissory Note, or failure to make 63 any payment of interest on this Promissory Note, not later than five (5) Business Days after the date when due, shall constitute a default hereunder, whereupon the principal amount of and accrued interest on this Promissory Note shall immediately become due and payable in accordance with, but also subject to the limitations set forth in, the terms of the Loan Agreement. This Promissory Note is subject, in all respects, to the terms and provisions of the Loan Agreement, which is incorporated herein by this reference, and is secured by a Pledge Agreement between the Borrower and the Lender of even date herewith and is entitled to the benefits thereof. THE LONG ISLAND SAVINGS BANK FSB EMPLOYEE STOCK OWNERSHIP PLAN TRUST By: CG Trust Company, solely as Trustee and not in any other capacity By: -------------------------------------- Name: -------------------------------------- Title: -------------------------------------- 64 EXHIBIT 2 PLEDGE AGREEMENT This PLEDGE AGREEMENT ("Pledge Agreement") is made as of the 1st day of January, 2000, by and between THE LONG ISLAND SAVINGS BANK FSB EMPLOYEE STOCK OWNERSHIP PLAN TRUST, acting by and through its Trustee, CG TRUST COMPANY, a banking corporation organized under the laws of the Illinois ("Pledgor"), and ASTORIA FINANCIAL CORPORATION ("Pledgee"), a corporation organized and existing under the laws of the State of Delaware. W I T N E S S E T H : -------------------- WHEREAS, this Pledge Agreement is being executed and delivered to the Pledgee pursuant to the terms of An Amended and Restated Loan Agreement of even date herewith ("Loan Agreement"), by and between the Pledgor and the Pledgee; NOW, THEREFORE, in consideration of the mutual agreements contained herein and in the Loan Agreement, the parties hereto do hereby covenant and agree as follows: Section 1. Definitions. The following definitions shall apply for purposes of this Pledge Agreement, except to the extent that a different meaning is plainly indicated by the context; all capitalized terms used but not defined herein shall have the respective meanings assigned to them in the Loan Agreement: (a) "Collateral" shall mean the Pledged Shares and the Pledged Assets and, subject to section 5 hereof, and to the extent permitted by applicable law, all rights with respect thereto, and all proceeds of such Pledged Shares, Pledged Assets and rights. (b) "Event of Default" shall mean an event so defined in the Loan Agreement. (c) "Liabilities" shall mean all the obligations of the Pledgor to the Pledgee, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under the Loan Agreement and the Promissory Note. (d) "Pledged Assets" means all assets of the Borrower pledged, as of January 1, 2000, as collateral security for the Borrower's performance of its obligations under that certain Loan Agreement between the Borrower and the Lender dated April 14, 1994, excluding any Pledged Shares. 65 (e) "Pledged Shares" shall mean all the shares of common stock, par value $ .01 per share, of Astoria Financial Corporation issued in exchange for shares of common stock of Long Island Bancorp, Inc. pursuant to the acquisition of Long Island Bancorp, Inc. by Astoria Federal Corporation, which shares of common stock of Long Island Bancorp, Inc. were purchased by the Pledgor with the proceeds of the loan made by the Pledgee to the Pledgor pursuant to the Loan Agreement dated April 14, 1994, but excluding any such shares previously released pursuant to section 4. Section 2. Pledge. To secure the payment of and performance of all the Liabilities, the Pledgor hereby pledges to the Pledgee, and grants to the Pledgee a security interest in and lien upon the Collateral. Section 3.Representations and Warranties of the Pledgor. The Pledgor represents, warrants, and covenants to the Pledgee as follows: (a) to the actual knowledge of the Trustee, the execution, delivery and performance of this Pledge Agreement and the pledging of the Collateral hereunder do not and will not conflict with, result in a violation of, or constitute a default under any agreement binding upon the Pledgor; (b) the Pledged Shares are and will continue to be owned by the Pledgor free and clear of any liens or rights of any other person except the lien hereunder and under the Loan Agreement in favor of the Pledgee, and the security interest of the Pledgee in the Pledged Shares and the proceeds thereof is and will continue to be prior to and senior to the rights of all others; (c) to the actual knowledge of the Trustee, this Pledge Agreement is the legal, valid and binding obligation of the Pledgor and is enforceable against the Pledgor in accordance with its terms; (d) the Pledgor shall, from time to time, upon request of the Pledgee, promptly deliver to the Pledgee such financing statements, stock powers, proxies, and similar documents, satisfactory in form and substance to the Pledgee, with respect to the Collateral as the Pledgee may reasonably request; and (e) subject to the first sentence of section 4(b), the Pledgor shall not, so long as any Liabilities are outstanding, sell, assign, exchange, pledge or otherwise transfer or encumber any of its rights in and to any of the Collateral. Section 4. Eligible Collateral. (a) As used herein the term "Eligible Collateral" shall mean that amount of Collateral which has an aggregate fair market value equal to the amount by which the Pledgor is in -2- 66 default (without regard to any amounts owing solely as the result of an acceleration of the Loan Agreement) or such lesser amount of Collateral as may be required pursuant to section 12 of this Pledge Agreement. (b) The Collateral shall be released from this Pledge Agreement in a manner conforming to the requirements of Treasury Regulation ss. 54.4975-7(b)(8)(i), as the same may be from time to time amended or supplemented. In the event of a termination of the ESOP or the occurrence of a Change in Control after December 31, 2009, all Pledged Shares shall be forthwith released from this Pledge Agreement and shall not be applied to satisfy any Liabilities. In the event of a Change in Control prior to January 1, 2010, all Pledged Shares in excess of the number determined under the following table shall be forthwith released from this Pledge Agreement and shall not be applied to satisfy any Liabilities: YEAR OF PLEDGED YEAR OF PLEDGED CHANGE SHARES CHANGE SHARES IN IN CONTROL CONTROL 2001 1,708,900 2006 1,611,725 2002 1,689,463 2007 1,592,288 2003 1,670,026 2008 1,572,851 2004 1,650,589 2009 1,553,414 2005 1,591,152 To the extent that the Collateral consists of assets other than or in addition to Pledged Shares, the provisions of such Regulations shall be applied separately to each class of security or each class or other type of asset included in the Collateral. Subject to such Regulations, the Pledgee may from time to time, after any Default or Event of Default, and without prior notice to the Pledgor, transfer all or any part of the Eligible Collateral into the name of the Pledgee or its nominee, with or without disclosing that such Eligible Collateral is subject to any rights of the Pledgor and may from time to time, whether before or after any of the Liabilities shall become due and payable, without notice to the Pledgor, take all or any of the following actions: (i) notify the parties obligated on any of the Collateral to make payment to the Pledgee of any amounts due or to become due thereunder, (ii) release or exchange all or any part of the Collateral, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, and (iii) take control of any proceeds of the Collateral. Section 5. Delivery; Further Assurances. (a) The Pledgor shall deliver to the Pledgee upon execution of this Pledge Agreement an assignment by the Pledgor of all the Pledgor's rights to and interest in the Collateral. (b) So long as no Default or Event of Default shall have occurred and be continuing, (i) the Pledgor shall be entitled to exercise any and all voting and other rights pertaining to the -3- 67 Collateral or any part thereof for any purpose not inconsistent with the terms of this Pledge Agreement, and (ii) the Pledgor shall be entitled to receive any and all cash dividends or other distributions paid in respect of the Collateral. (c) For so long as this Pledge Agreement shall be in effect, the Pledgor shall take such other actions and execute and deliver such other documents as the Pledgee may reasonably request in order to secure for the Pledgee's benefit a perfected first priority lien and security interest in any or all of the Collateral under the New York Uniform Commercial Code; provided, however, that the Pledgee shall not be required to take any action or execute or deliver any document pursuant to this section 5(c) to the extent that it determines, in reliance on an opinion of legal counsel, that the taking of such action or the execution or delivery of such document would result in a prohibited transaction under section 4975 of the Code or section 406 of ERISA, impair the status of the ESOP as a tax-qualified plan under section 401(a) of the Code or an employee stock ownership plan under section 4975 of the Code, impair the tax-exempt status of the Borrower under section 501(a) of the Code or violate any other requirement of ERISA applicable to the ESOP. Section 6. Events of Default. (a) If a Default or an Event of Default shall be existing, in addition to the rights it may have under the Loan Agreement, the Promissory Note, and this Pledge Agreement, or by virtue of any other instrument, (i) the Pledgee may exercise, with respect to Eligible Collateral, from time to time any rights and remedies available to it under the Uniform Commercial Code as in effect from time to time in the State of New York or otherwise available to it and (ii) the Pledgee shall have the right, for and in the name, place and stead of the Pledgor, to execute endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Eligible Collateral. Written notification of intended disposition of any of the Eligible Collateral shall be given by the Pledgee to the Pledgor at least three (3) Business Days before such disposition. Subject to section 13 below, any proceeds of any disposition of Eligible Collateral may be applied by the Pledgee to the payment of expenses in connection with the Eligible Collateral, including, without limitation, reasonable attorneys' fees and legal expenses, and any balance of such proceeds may be applied by the Pledgee toward the payment of such of the Liabilities as are in Default, and in such order of application, as the Pledgee may from time to time elect. No action of the Pledgee permitted hereunder shall impair or affect its rights in and to the Eligible Collateral. All rights and remedies of the Pledgee expressed hereunder are in addition to all other rights and remedies possessed by it, including, without limitation, those contained in the documents referred to in the definition of Liabilities in section 1 hereof. (b) In any sale of any of the Eligible Collateral after a Default or an Event of Default shall have occurred, the Pledgee is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers or further restrict such prospective bidders or purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Eligible Collateral), or in order to obtain such required approval of the sale or of the purchase by any governmental -4- 68 regulatory authority or official, and the Pledgor further agrees that such compliance shall not result in such sale's being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Pledgee be liable or accountable to the Pledgor for any discount allowed by reason of the fact that such Eligible Collateral is sold in compliance with any such limitation or restriction. Section 7. Payment in Full. Upon the payment in full of all outstanding Liabili ties, this Pledge Agreement shall terminate and the Pledgee shall forthwith assign, transfer and deliver to the Pledgor, against receipt and without recourse to the Pledgee, all Collateral then held by the Pledgee pursuant to this Pledge Agreement. Section 8. No Waiver. No failure or delay on the part of the Pledgee in exercising any right or remedy hereunder or under any other document which confers or grants any rights in the Pledgee in respect of the Liabilities shall operate as a waiver thereof nor shall any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy of the Pledgee. Section 9. Binding Effect; No Assignment or Delegation. This Pledge Agreement shall be binding upon and inure to the benefit of the Pledgor, the Pledgee and their respective successors and assigns, except that the Pledgor may not assign or transfer its rights hereunder without the prior written consent of the Pledgee (which consent shall not unreasonably be withheld). Each duty or obligation of the Pledgor to the Pledgee pursuant to the provisions of this Pledge Agreement shall be performed in favor of any person or entity designated by the Pledgee, and any duty or obligation of the Pledgee to the Pledgor may be performed by any other person or entity designated by the Pledgee. Section 10. Governing Law. This Loan Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts to be performed wholly within the State of New York entered into between parties all of whom are citizens and residents of the State of New York. Section 11. Notices. All notices, requests, instructions or documents hereunder shall be in writing and delivered by hand or commercial messenger service or sent by United States mail, registered or certified, return receipt requested, with proper postage prepaid, or by telex or facsimile, addressed as follows: (a) If to the Pledgee: Astoria Financial Corporation One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel --------------- -5- 69 (b) If to the Pledgor: The Long Island Savings Bank FSB Employee Stock Ownership Plan Trust CG Trust Company 525 W. Monroe, Suite 1900 Chicago, Illinois 60601 with copies to: The Long Island Savings Bank FSB Employee Stock Ownership Plan Trust c/o Astoria Federal Savings and Loan Association One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel --------------- Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand or by commercial messenger service, or sent by telex or facsimile, to such party at its address specified above, or, if sent by mail, on the third Business Day after the day deposited in the mail, postage prepaid, addressed as aforesaid. Any party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; provided, however, that any such notice shall be deemed to have been given only when actually received by the party to whom it is addressed. Section 12. Interpretation. Wherever possible each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision hereof shall be prohibited by or invalid under such law, such provisions shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions hereof. Section 13. Construction. All provisions hereof shall be construed so as to maintain (a) the ESOP as a qualified leveraged employee stock ownership plan under section 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986 (the "Code"), (b) the Trust as exempt from taxation under section 501(a) of the Code and (c) the loan made pursuant to the Loan Agreement as an exempt loan under Treasury Regulation ss. 54.4975-7(b) and as described in Department of Labor Regulation ss. 2550.408b-3. IN WITNESS WHEREOF, this Pledge Agreement has been duly executed by the parties hereto as of the day and year first above written. -6- 70 -7- 71 THE LONG ISLAND SAVINGS BANK FSB EMPLOYEE STOCK OWNERSHIP PLAN TRUST By CG TRUST COMPANY solely as Trustee and not in any other capacity By: -------------------------------------- Name: -------------------------------------- Title: -------------------------------------- ASTORIA FINANCIAL CORPORATION By: -------------------------------------- Name: -------------------------------------- Title: -------------------------------------- -8- EX-10.2 5 y46647ex10-2.txt A/R LOAN AGREEMENT: ASTORIA FINANCIAL/ASTORIA FED 1 EXHIBIT 10.2 AMENDED AND RESTATED LOAN AGREEMENT by and between ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST and ASTORIA FINANCIAL CORPORATION Made and Entered Into as of January 1, 2000 2 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS Section 1.1 Business Day......................................................1 Section 1.2 Code..............................................................2 Section 1.3 Default...........................................................2 Section 1.4 ERISA.............................................................2 Section 1.5 Event of Default..................................................2 Section 1.6 Independent Counsel...............................................2 Section 1.7 Loan..............................................................2 Section 1.8 Loan Documents....................................................2 Section 1.9 Pledge Agreement..................................................2 Section 1.10 Principal Amount.................................................2 Section 1.11 Promissory Note..................................................2 Section 1.12 Register.........................................................2 ARTICLE II THE LOAN; PRINCIPAL AMOUNT; INTEREST; SECURITY Section 2.1 The Loan; Principal Amount; Repayment of Outstanding Indebtedness......................................................2 Section 2.2 Interest..........................................................3 Section 2.3 Promissory Note...................................................4 Section 2.4 Payment of Loan...................................................4 Section 2.5 Prepayment........................................................4 Section 2.6 Method of Payments................................................6 Section 2.7 Security..........................................................7 Section 2.8 Registration of the Promissory Note...............................8 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BORROWER Section 3.1 Power, Authority, Consents........................................8 Section 3.2 Due Execution, Validity, Enforceability...........................8 Section 3.3 Properties, Priority of Liens.....................................9 Section 3.4 No Defaults, Compliance with Laws.................................9 Section 3.5 Marketable Title; Legality........................................9 (i) 3 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE LENDER Section 4.1 Power, Authority, Consents........................................9 Section 4.2 Due Execution, Validity, Enforceability..........................10 Section 4.3 ESOP; Contributions..............................................10 Section 4.4 Compliance with Laws; Actions....................................10 ARTICLE V EVENTS OF DEFAULT Section 5.1 Events of Default under Loan Agreement...........................10 Section 5.2 Lender's Rights upon Event of Default............................11 ARTICLE VI MISCELLANEOUS PROVISIONS Section 6.1 Payments.........................................................11 Section 6.2 Survival.........................................................12 Section 6.3 Modifications, Consents and Waivers; Entire Agreement............12 Section 6.4 Remedies Cumulative..............................................12 Section 6.5 Further Assurances; Compliance with Covenants....................12 Section 6.6 Notices..........................................................13 Section 6.8 Counterparts.....................................................13 Section 6.9 Construction; Governing Law......................................14 Section 6.10 Severability....................................................14 Section 6.11 Binding Effect; No Assignment or Delegation.....................14 EXHIBIT 1 Form of Promissory Note...........................................1-1 EXHIBIT 2 Form of Pledge Agreement..........................................2-1 (ii) 4 1- LOAN AGREEMENT This LOAN AGREEMENT (the "Loan Agreement") is made and entered into as of the 1st day of January, 2000, by and between ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST (the "Borrower"), a trust forming part of the ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP"), acting through and by its Trustee, STATE STREET BANK AND TRUST COMPANY (the "Trustee"), a banking corporation organized under the laws of the state of Massachusetts; and ASTORIA FINANCIAL CORPORATION (the "Lender"), a corporation organized and existing under the laws of the state of Delaware. W I T N E S S E T H : ------------------- WHEREAS, the Lender's wholly-owned subsidiary, ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION (the "Association"), maintains the ESOP for the benefit of eligible employees; and WHEREAS, the Borrower and the Lender are parties to a Loan Agreement dated November 18, 1993 (the "Prior Agreement"), pursuant to which the Borrower has borrowed funds from the Lender to finance the purchase of shares of common stock, par value $.01 per share, of the Lender ("Shares") and has an outstanding indebtedness in the amount of EIGHTEEN MILLION SIX HUNDRED FOURTEEN THOUSAND EIGHT HUNDRED THIRTY-THREE DOLLARS AND TWENTY-NINE CENTS ($18,614,833.29) (the "Outstanding Indebtedness"), plus accrued and unpaid interest from December 31, 1999; and WHEREAS, the Borrower and the Lender have determined that it is in their mutual interests to modify the terms of repayment of the Outstanding Indebtedness in the manner set forth in this Agreement; NOW, THEREFORE, the parties hereto agree that the Prior Agreement shall be amended and restated in its entirety effective as of January 1, 2000, as follows: ARTICLE I DEFINITIONS The following definitions shall apply for purposes of this Loan Agreement, except to the extent that a different meaning is plainly indicated by the context: 5 2- Section 1.1 Business Day means any day other than a Saturday, Sunday or other day on which banks are authorized or required to close under federal law or the laws of the State of New York. Section 1.2 Code means the Internal Revenue Code of 1986 (including the cor responding provisions of any succeeding law). Section 1.3 Default means an event or condition which would constitute an Event of Default. The determination as to whether an event or condition would constitute an Event of Default shall be determined without regard to any applicable requirement of notice or lapse of time. Section 1.4 ERISA means the Employee Retirement Income Security Act of 1974, as amended (including the corresponding provisions of any succeeding law). Section 1.5 Event of Default means an event or condition described in Article V. Section 1.6 Independent Counsel means legal counsel mutually satisfactory to both the Lender and the Borrower. Section 1.7 Loan means the loan described in section 2.1. Section 1.8 Loan Documents means, collectively, this Loan Agreement, the Promissory Note and the Pledge Agreement and all other documents now or hereafter executed and delivered in connection with such documents, including all amendments, modifications and supplements of or to all such documents. Section 1.9 Pledge Agreement means the agreement described in section 2.7. Section 1.10 Principal Amount means the face amount of the Promissory Note, determined as set forth in section 2.1(a). Section 1.11 Promissory Note means the promissory note described in section 2.3. Section 1.12 Register means the register described in section 2.8. ARTICLE II THE LOAN; PRINCIPAL AMOUNT; INTEREST; SECURITY Section 2.1 The Loan; Principal Amount; Repayment of Outstanding Indebtedness. 6 3- (a) The Lender hereby lends to the Borrower EIGHTEEN MILLION SIX HUNDRED FOURTEEN THOUSAND EIGHT HUNDRED THIRTY-THREE DOLLARS AND TWENTY-NINE CENTS ($18,614,833.29). For all purposes of this Loan Agreement, the Principal Amount on any date shall be equal to the excess, if any, of: (i) the aggregate amount lent by the Lender pursuant to this section 2.1; over (ii) the aggregate amount of any repayments of such amount made before such date. The Lender shall maintain on the Register a record of, and shall record on the Promissory Note, the Principal Amount, any changes in the Principal Amount and the effective date of any changes in the Principal Amount. (b) Concurrently with the execution and delivery of this Agreement, the Lender shall deliver to the Borrower the Borrower's original promissory note issued pursuant to the Prior Agreement and evidencing the Outstanding Indebtedness marked "PAID IN FULL". (c) The transactions contemplated by this Agreement shall be deemed a refinancing of the Outstanding Indebtedness for purposes of Treasury Regulation ss. 54.4975-7. Section 2.2 Interest. (a) The Borrower shall pay to the Lender interest on the Principal Amount, for the period commencing on the date of this Loan Agreement and continuing until the Principal Amount shall be paid in full, at the rate of six percent (6.00%) per annum. Interest payable under this Agreement for any calendar month period shall be computed on the basis of a year of 360 days and months consisting of 30 days each. For any period shorter than one calendar month, interest payable under this Loan Agreement shall be computed on the basis of a rate equal to six percent (6.00%) multiplied by a fraction equal to the actual number of days in the period (including the first day but excluding the last) divided by 360. The Lender shall remit to the Borrower, at least three (3) Business Days before the end of each calendar year, a statement of the accrued interest for such calendar year and the aggregate accrued and unpaid interest as of the last day of such calendar year; provided, however, that a delay or failure by the Lender in providing the Borrower with such statement shall not alter the Borrower's obligation to make any payment of interest that may be due but shall excuse any error in the computation of the amount of interest due that is promptly cured upon receipt of written notice of such error from the Lender. Accrued and unpaid interest shall cumulate until paid but shall not be compounded. (b) Anything in this Loan Agreement or the Promissory Note to the contrary notwithstanding, the obligation of the Borrower to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to the Lender to the extent that the Lender's receipt thereof would not be permissible under the law or laws applicable to the Lender 7 4- limiting rates of interest which may be charged or collected by the Lender. Any such payment referred to in the preceding sentence shall be made by the Borrower to the Lender on the earliest interest payment date or dates on which the receipt thereof would be permissible under the laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Such deferred interest shall not bear interest. Section 2.3 Promissory Note. The Loan shall be evidenced by a Promissory Note of the Borrower in substantially the form of Exhibit 1 attached hereto, dated January 1, 2000, payable to the order of the Lender in the Principal Amount and otherwise duly completed. Section 2.4 Payment of Loan. The Loan shall be repaid in annual installments payable on the last Business Day of each December ending after the date of this Agreement. The amount (if any) of each such annual installment shall be equal to the maximum amount of principal and interest accrued to and including the date of the payment that may be paid without resulting in the release for allocation to participants in the ESOP, pursuant to the Pledge Agreement, of a fraction of the Shares pledged as collateral security pursuant to the Pledge Agreement as of the first day of the calendar year in which the payment is made that is greater than the fraction set forth in Column II below: Column I Column II Year of Payment Fraction of Collateral Released 2000 1/30 2001 1/29 2002 1/28 2003 1/27 2004 1/26 2005 1/25 2006 1/24 2007 1/23 2008 1/22 2009 1/21 2010 1/20 2011 1/19 2012 1/18 2013 1/17 8 5- Column I Column II Year of Payment Fraction of Collateral Released 2014 1/16 2015 1/15 2016 1/14 2017 1/13 2018 1/12 2019 1/11 2020 1/10 2021 1/9 2022 1/8 2023 1/7 2024 1/6 2025 1/5 2026 1/4 2027 1/3 2028 1/2 2029 1 provided, however, that the Borrower shall not be required to make any payment of principal due to be made in any period to the extent that such payment would not be deductible for federal income tax purposes under section 404 of the Code. Payments may be deferred to the extent that such payments would be in excess of the amount described above or otherwise would be nondeductible for federal income tax purposes. Any payment shall be applied first to the payment of accrued interest and second, if and to the extent that all accrued interest has been or is then being paid, to the payment of all or part of the Principal Amount. Section 2.5 Prepayment. (a) The Borrower may, with the prior written consent of the Lender, prepay the Loan in whole or in part, at any time and from time to time. Any such prepayment shall be: (i) permanent and irrevocable; (ii) made without premium or penalty; and (iii) applied first to the payment of accrued interest and second, if and to the extent that all accrued interest has been or is then being paid, to the payment of all or part of the Principal Amount. (b) For each calendar year after 1999 during which the Loan is outstanding, a mandatory prepayment of all or part of the Loan (the "Mandatory Prepayment") shall be made if the 9 6- aggregate Fair Market Value (as hereinafter defined) of the Shares pledged pursuant to the Pledge Agreement and pursuant to the Pledge Agreement of even date herewith between The Long Island Savings Bank FSB Employee Stock Ownership Plan Trust, acting by and through its Trustee, CG Trust Company and the Lender (the "LISB Pledge Agreement"), and released pursuant to sections 4(b) and 7 of the Pledge Agreement and pursuant to sections 4(b) and 7 of the LISB Pledge Agreement, and allocated to the accounts of participants in the ESOP as a result of the payments described in sections 2.4 and 2.5(a) of this Loan Agreement and the payments described in Section 2.4 and 2.5(a) of the Loan Agreement of even date herewith between The Long Island Savings Bank FSB Employee Stock Ownership Plan Trust, acting by and through its Trustee, CG Trust Company and the Lender (the "LISB Loan Agreement") for such calendar year is less than an amount equal to 14% of the total compensation taken into account under the ESOP for the purpose of allocations to the accounts of participants in the ESOP of Shares pledged pursuant to the Pledge Agreement and the LISB Pledge Agreement ("Minimum Annual Release Value"). The amount of the Mandatory Prepayment for any calendar year shall be equal to that amount of principal and/or interest which, when added to the payment described in sections 2.4 and 2.5(a) of this Loan Agreement and the payments described in sections 2.4, 2.5(a) and 2.5(b) of the LISB Loan Agreement made or then being made for such calendar year, will result in the release for allocation to participant accounts of the lesser of (A) a number of Shares pledged pursuant to the Pledge Agreement and the LISB Pledge Agreement with an aggregate Fair Market Value equal to the Minimum Annual Release Value or (B) the entire number of Shares pledged pursuant to the Pledge Agreement and the LISB Pledge Agreement that are currently unallocated. For purposes of this section 4(c), the "Fair Market Value" of a Share for any year shall be equal to the average of the closing sales prices for a share of Share on the Nasdaq Stock Market National Market System (or other principal national securities exchange on which Shares are then listed or admitted to trading) on each of the last 20 trading days preceding December 1st of such year on which a sale of a Share occurs, as reported in the New York City edition Wall Street Journal or such other reputable source of stock quotations as Astoria Federal Savings and Loan Association may select. (c) In the event of the termination of the ESOP or the occurrence of a "Change in Control (as hereinafter defined), the entire outstanding Principal Amount and all accrued but unpaid interest shall thereupon become immediately due and payable. A "Change of Control shall be deemed to have occurred upon the happening of any of the following events: (i) any event upon which any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than (A) a trustee or other fiduciary holding securities under any employee benefit plan maintained for the benefit of employees of Astoria Financial Corporation; (B) a corporation owned, directly or indirectly, by the stockholders of Astoria Financial Corporation in substantially the same proportions as their ownership of stock of Astoria Financial Corporation; or (C) any group constituting a person in which employees of Astoria Financial Corporation are substantial members, becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities issued by Astoria Financial Corporation representing 25% or more of the combined voting power of all of Astoria Financial Corporation's then outstanding securities; or 10 7- (ii) any event upon which the individuals who on December 30, 2000 were members of the Board of Directors of Astoria Financial Corporation, together with individuals whose election by such Board or nomination for election by Astoria Financial Corporation's stockholders was approved by the affirmative vote of at least two-thirds of the members of such Board then in office who were either members of such Board on December 30, 2000 or whose nomination or election was previously so approved, cease for any reason to constitute a majority of the members of such Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of Astoria Financial Corporation (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934);as amended or (iii) the consummation of either: (A) a merger or consolidation of Astoria Financial Corporation with any other corporation, other than a merger or consolidation following which both of the following conditions are satisfied: (I) either (1) the members of the Board of Directors of Astoria Financial Corporation immediately prior to such merger or consolidation constitute at least a majority of the members of the governing body of the institution resulting from such merger or consolidation; or (2) the shareholders of Astoria Financial Corporation own securities of the institution resulting from such merger or consolidation representing 60% or more of the combined voting power of all such securities then outstanding in substantially the same proportions as their ownership of voting securities of Astoria Financial Corporation before such merger or consolidation; and (II) the entity which results from such merger or consolidation expressly agrees in writing to assume and perform Astoria Financial Corporation's obligations under the ESOP; or (B) a complete liquidation of Astoria Financial Corporation or an agreement for the sale or disposition by Astoria Financial Corporation of all or substantially all of its assets; or (iv) any event that would be described in this section if "Astoria Federal Savings and Loan Association" were substituted for "Astoria Financial Corporation." therein. Section 2.6 Method of Payments. 11 8- (a) All payments of principal, interest, other charges and other amounts payable by the Borrower hereunder shall be made in lawful money of the United States, in immediately available funds, to the Lender at the address specified in or pursuant to this Loan Agreement for notices to the Lender, not later than 3:00 P.M., Eastern Standard time, on the date on which such payment shall become due. Any such payment made on such date but after such time shall, if the amount paid bears interest, and except as expressly provided to the contrary herein, be deemed to have been made on, and interest shall continue to accrue and be payable thereon until, the next succeeding Business Day. If any payment of principal or interest becomes due on a day other than a Business Day, such payment may be made on the next succeeding Business Day. (b) Notwithstanding anything to the contrary contained in this Loan Agreement or the Promissory Note, neither the Borrower nor the Trustee shall be obligated to make any payment, repayment or prepayment on the Promissory Note or take or refrain from taking any other action hereunder or under the Promissory Note if doing so would cause the ESOP to cease to be an employee stock ownership plan within the meaning of section 4975(e)(7) of the Code or qualified under section 401(a) of the Code or cause the Borrower to cease to be a tax exempt trust under section 501(a) of the Code or if such act or failure to act would cause the Borrower or the Trustee to engage in any "prohibited transaction" as such term is defined in section 4975(c) of the Code and the regulations promulgated thereunder which is not exempted by section 4975(c)(2) or (d) of the Code and the regulations promulgated thereunder or in section 406 of ERISA and the regulations promulgated thereunder which is not exempted by section 408(b) of ERISA and the regulations promulgated thereunder; provided, however, that in each case, the Borrower or the Trustee or both, as the case may be, shall have acted or refrained from acting pursuant to this section 2.6(b) in reliance on an opinion of Independent Counsel. Any opinion of such Independent Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by the Trustee or the Borrower hereunder in good faith and in accordance with such opinion of Independent Counsel. Nothing contained in this section 2.6(b) shall be construed as imposing a duty on either the Borrower or the Trustee to consult with Independent Counsel. Any obligation of the Borrower or the Trustee to make any payment, repayment or prepayment on the Promissory Note or to take or refrain from taking any other act hereunder or under the Promissory Note which is excused pursuant to this section 2.6(b) shall be considered a binding obligation of the Borrower or the Trustee, or both, as the case may be, for the purposes of determining whether a Default or Event of Default has occurred hereunder or under the Promissory Note and nothing in this section 2.6(b) shall be construed as providing a defense to any remedies otherwise available upon a Default or an Event of Default hereunder (other than the remedy of specific performance). Section 2.7 Security. (a) In order to secure the due payment and performance by the Borrower of all of its obligations under this Loan Agreement, simultaneously with the execution and delivery of this Loan Agreement by the Borrower, the Borrower shall: (i) pledge to the Lender as Collateral (as defined in the Pledge Agreement), and grant to the Lender a first priority lien on and security interest in, 12 9- all assets pledged by the Borrower as collateral security for the Outstanding Indebtedness by the execution and delivery to the Lender of a Pledge Agreement in the form attached hereto as Exhibit 2; and (ii) execute and deliver, or cause to be executed and delivered, such other agreements, instruments and documents as the Lender may reasonably require in order to effect the purposes of the Pledge Agreement and this Loan Agreement. (b) The Lender shall release from encumbrance under the Pledge Agreement and transfer to the Borrower, as of the date on which any payment or prepayment is made, an amount of Collateral determined pursuant to section Treasury Regulation ss. 54.4975-7(b)(8)(i). Section 2.8 Registration of the Promissory Note. (a) The Lender shall maintain a Register providing for the registration of the Principal Amount and any stated interest and of transfer and exchange of the Promissory Note. Transfer of the Promissory Note may be effected only by the surrender of the old instrument and either the reissuance by the Borrower of the old instrument to the new holder or the issuance by the Borrower of a new instrument to the new holder. The old Promissory Note so surrendered shall be canceled by the Lender and returned to the Borrower after such cancellation. (b) Any new Promissory Note issued pursuant to section 2.8(a) shall carry the same rights to interest (unpaid and to accrue) carried by the Promissory Note so transferred or ex changed so that there will not be any loss or gain of interest on the note surrendered. Such new Promissory Note shall be subject to all of the provisions and entitled to all of the benefits of this Agreement. Prior to due presentment for registration or transfer, the Borrower may deem and treat the registered holder of any Promissory Note as the holder thereof for purposes of payment and all other purposes. A notation shall be made on each new Promissory Note of the amount of all payments of principal and interest theretofore paid. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BORROWER The Borrower hereby represents and warrants to the Lender as follows: Section 3.1 Power, Authority, Consents. 13 10- The Borrower has the power to execute, deliver and perform this Loan Agreement, the Promissory Note and the Pledge Agreement, all of which have been duly authorized by all neces sary and proper corporate or other action. Section 3.2 Due Execution, Validity, Enforceability. Each of the Loan Documents, including, without limitation, this Loan Agreement, the Promissory Note and the Pledge Agreement, have been duly executed and delivered by the Borrower; and each constitutes the valid and legally binding obligation of the Borrower, enforceable in accordance with its terms. Section 3.3 Properties, Priority of Liens. The liens which have been created and granted by the Pledge Agreement constitute valid, first liens on the properties and assets covered by the Pledge Agreement, subject to no prior or equal lien. Section 3.4 No Defaults, Compliance with Laws. The Borrower is not in default in any material respect under any agreement, ordinance, resolution, decree, bond, note, indenture, order or judgment to which it is a party or by which it is bound, or any other agreement or other instrument by which any of the properties or assets owned by it is materially affected. Section 3.5 Marketable Title; Legality. The Borrower has valid, legal and marketable title to all of the Shares and other assets pledged as collateral pursuant to the Pledge Agreement, free and clear of any liens, other than a pledge to the Lender of such assets pursuant to the Pledge Agreement. Neither the execution and delivery of the Loan Documents nor the performance of any obligation thereunder violates any provision of law or conflicts with or results in a breach of or creates (with or without the giving of notice or lapse of time, or both) a default under any agreement to which the Borrower is a party or by which it is bound or any of its properties is affected. No consent of any federal, state or local governmental authority, agency or other regulatory body, the absence of which could have a materially adverse effect on the Borrower or the Trustee, is or was required to be obtained in connection with the execution, delivery or performance of the Loan Documents and the transactions contemplated therein or in connection therewith, including, without limitation, with respect to the transfer of the Shares purchased with the proceeds of the Loan pursuant thereto. ARTICLE IV 14 11- REPRESENTATIONS AND WARRANTIES OF THE LENDER The Lender hereby represents and warrants to the Borrower as follows: Section 4.1 Power, Authority, Consents. The Lender has the power to execute, deliver and perform this Loan Agreement, the Pledge Agreement and all documents executed by the Lender in connection with the Loan, all of which have been duly authorized by all necessary and proper corporate or other action. No consent, authorization or approval or other action by any governmental authority or regulatory body, and no notice by the Lender to, or filing by the Lender with, any governmental authority or regulatory body is required for the due execution, delivery and performance of this Loan Agreement. Section 4.2 Due Execution, Validity, Enforceability. This Loan Agreement and the Pledge Agreement have been duly executed and delivered by the Lender; and each constitutes a valid and legally binding obligation of the Lender, enforceable in accordance with its terms. Section 4.3 ESOP; Contributions. The ESOP and the Borrower have been duly created, organized and maintained by the Lender in compliance with all applicable laws, regulations and rulings. The ESOP qualifies as an "employee stock ownership plan" as defined in section 4975(e)(7) the Code. The ESOP provides that the Lender may make contributions to the ESOP in an amount necessary to enable the Trustee to amortize the Loan in accordance with the terms of the Promissory Note and this Loan Agreement, and the Lender will make such contributions; provided, however, that no such contributions shall be required if they would adversely affect the qualification of the ESOP under section 401(a) of the Code. Section 4.4 Compliance with Laws; Actions. Neither the execution and delivery by the Lender of this Loan Agreement or any instruments required thereby, nor compliance with the terms and provisions of any such documents by the Lender, constitutes a violation of any provision of any law or any regulation, order, writ, injunction or decree of any court or governmental instrumentality, or an event of default under any agreement, to which the Lender is a party or by which the Lender is bound or to which the Lender is subject, which violation or event of default would have a material adverse effect on the Lender. There is no action or proceeding pending or threatened against either of the ESOP or the Borrower before any court or administrative agency. 15 12- ARTICLE V EVENTS OF DEFAULT Section 5.1 Events of Default under Loan Agreement. Each of the following events shall constitute an "Event of Default" hereunder: (a) Failure to make any payment or mandatory prepayment of principal of the Promissory Note, or failure to make any payment of interest on the Promissory Note, within five (5) Business Days after the date when due; provided, however, that a default shall be deemed to have occurred only if and to the extent that the Borrower has received a contribution from the Lender to be used to make such payment or the Borrower has received dividends which it is permitted to apply to make such payment and the Borrower fails to apply such contribution or dividends to such payment. Section 5.2 Lender's Rights upon Event of Default. If an Event of Default under this Loan Agreement shall occur and be continuing, the Lender shall have no rights to assets of the Borrower other than: (a) contributions (other than contributions of Common Stock) that are made by the Lender to enable the Borrower to meet its obligations pursuant to this Loan Agreement and earnings attributable to the investment of such contributions and (b) "Eligible Collateral" (as defined in the Pledge Agreement); provided, however, that: (i) the value of the Borrower's assets transferred to the Lender following an Event of Default in satisfaction of the due and unpaid amount of the Loan shall not exceed the amount in default (without regard to amounts owing solely as a result of any acceleration of the Loan); (ii) the Borrower's assets shall be transferred to the Lender following an Event of Default only to the extent of the failure of the Borrower to meet the payment schedule of the Loan resulting from the failure of the Borrower to use dividend income received by it on Pledged Shares and employer contributions received by it for purposes of debt service to make Loan payments when due; and (iii) all rights of the Lender to the Collateral covered by the Pledge Agreement following an Event of Default shall be governed by the terms of the Pledge Agreement. ARTICLE VI MISCELLANEOUS PROVISIONS 16 13- Section 6.1 Payments. All payments hereunder and under the Promissory Note shall be made without set-off or counterclaim and in such amounts as may be necessary in order that all such payments shall not be less than the amounts otherwise specified to be paid under this Loan Agreement and the Promissory Note, subject to any applicable tax withholding requirements. Upon payment in full of the Promissory Note, the Lender shall mark such Promissory Note "PAID IN FULL" and return it to the Borrower. Section 6.2 Survival. All agreements, representations and warranties made herein shall survive the delivery of this Loan Agreement and the Promissory Note. Section 6.3 Modifications, Consents and Waivers; Entire Agreement. No modification, amendment or waiver of or with respect to any provision of this Loan Agreement, the Promissory Note, the Pledge Agreement, or any of the other Loan Documents, nor consent to any departure from any of the terms or conditions thereof, shall in any event be effective unless it shall be in writing and signed by the party against whom enforcement thereof is sought. Any such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No consent to or demand on a party in any case shall, of itself, entitle it to any other or further notice or demand in similar or other circumstances. This Loan Agreement embodies the entire agreement and understanding between the Lender and the Borrower and supersedes all prior agreements and understandings relating to the subject matter hereof. Section 6.4 Remedies Cumulative. Each and every right granted to the Lender hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of the Lender or the holder of the Promissory Note to exercise, and no delay in exercising, any right shall operate as a waiver thereof, nor shall any single or partial exercise of any right preclude any other or future exercise thereof or the exercise of any other right. The due payment and performance of the obligations under the Loan Documents shall be without regard to any counterclaim, right of offset or any other claim whatsoever which the Borrower may have against the Lender and without regard to any other obligation of any nature whatsoever which the Lender may have to the Borrower, and no such counterclaim or offset shall be asserted by the Borrower in any action, suit or proceeding instituted by the Lender for payment or performance of such obligations. Section 6.5 Further Assurances; Compliance with Covenants. At any time and from time to time, upon the request of the Lender, the Borrower shall execute, deliver and acknowledge or cause to be executed, delivered and acknowledged, such 17 14- further documents and instruments and do such other acts and things as the Lender may reasonably request in order to fully effect the terms of this Loan Agreement, the Promissory Note, the Pledge Agreement, the other Loan Documents and any other agreements, instruments and documents delivered pursuant hereto or in connection with the Loan. Section 6.6 Notices. Except as otherwise specifically provided for herein, all notices, requests, reports and other communications pursuant to this Loan Agreement shall be in writing, either by letter (delivered by hand or commercial messenger service or sent by registered or certified mail, return receipt requested, except for routine reports delivered in compliance with Article VI hereof which may be sent by ordinary first-class mail) or telex or facsimile, addressed as follows: (a) If to the Borrower: Astoria Federal Savings and Loan Association Employee Stock Ownership Plan Trust c/o State Street Bank and Trust Company Investment Services Office 200 Newport Avenue North Quincy, Massachusetts 02171 with copies to: Astoria Federal Savings and Loan Association Employee Stock Ownership Plan Trust c/o Astoria Federal Savings and Loan Association One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel (b) If to the Lender: Astoria Financial Corporation One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand or by commercial messenger service, or sent by telex or facsimile, to such party at its address specified above, or, if sent by mail, on the third Business Day after the day deposited in the mail, postage prepaid, addressed as aforesaid. Any party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; 18 15- provided, however, that any such notice shall be deemed to have been given only when actually received by the party to whom it is addressed. Section 6.8 Counterparts. This Loan Agreement may be signed in any number of counterparts which, when taken together, shall constitute one and the same document. Section 6.9 Construction; Governing Law. The headings used in the table of contents and in this Loan Agreement are for convenience only and shall not be deemed to constitute a part hereof. All uses herein of any gender or of singular or plural terms shall be deemed to include uses of the other genders or plural or singular terms, as the context may require. All references in this Loan Agreement to an Article or section shall be to an Article or section of this Loan Agreement, unless otherwise specified. This Loan Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts to be performed wholly within the State of New York entered into between parties all of whom are citizens and residents of the State of New York. It is intended that the transactions contemplated by this Loan Agreement constitute an "exempt loan" within the meaning of Treasury Regulation ss. 54.4975-7(b)(1)(iii) and Department of Labor Regulation ss. 2550.408b-3, and the provisions hereof shall be construed and enforced in such manner as shall be necessary to give effect to such intent. Section 6.10 Severability. Wherever possible, each provision of this Loan Agreement shall be interpreted in such manner as to be effective and valid under applicable law; however, the provisions of this Loan Agreement are severable, and if any clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision in this Loan Agreement in any jurisdiction. Each of the covenants, agreements and conditions contained in this Loan Agreement is independent, and compliance by a party with any of them shall not excuse non-compliance by such party with any other. The Borrower shall not take any action the effect of which shall constitute a breach or violation of any provision of this Loan Agreement. Section 6.11 Binding Effect; No Assignment or Delegation. This Loan Agreement shall be binding upon and inure to the benefit of the Borrower and its successors and the Lender and its successors and assigns. The rights and obligations of the Borrower under this Agreement shall not be assigned or delegated without the prior written consent of the Lender, and any purported assignment or delegation without such consent shall be void. 19 16- IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be duly executed as of the date first above written. ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST By STATE STREET BANK AND TRUST COMPANY, solely as Trustee and not in any other capacity By: /S/ Marianne E. Sullivan Name: Marianne E. Sullivan Title: Vice President ASTORIA FINANCIAL CORPORATION By: /S/ Alan P. Eggleston Name: Alan P. Eggleston Title: Executive Vice President and General Counsel 20 EXHIBIT 1 PROMISSORY NOTE $18,614,833.29 Lake Success, New York January 1, 2000 FOR VALUE RECEIVED, the undersigned, ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST (the "Borrower"), acting through and by its Trustee, STATE STREET BANK AND TRUST COMPANY (the "Trustee"), hereby promises to pay to the order of ASTORIA FINANCIAL CORPORATION (the "Lender") the sum of EIGHTEEN MILLION SIX HUNDRED FOURTEEN THOUSAND EIGHT HUNDRED THIRTY-THREE DOLLARS AND TWENTY-NINE CENTS ($18,614,833.29) payable in annual installments, each of which shall be in the amount determined pursuant to sections 2.4 and 2.5(b) of the Amended and Restated Loan Agreement made and entered into as of January 1, 2000 by and between the Borrower and the Lender (the "Loan Agreement"), as of the last Business Day of December, 2000 and as of the last Business Day of each December thereafter, through and including the last business day of December 2029, at which date the entire principal amount then outstanding shall be due and payable. Principal payments may be deferred, in whole or in part, to the extent provided in the Loan Agreement. This Promissory Note shall bear interest at the rate of six percent (6.00%) per annum set forth or established under the Loan Agreement from the date of the Loan Agreement, such interest to be payable at the time and in the manner set forth in the Loan Agreement commencing on the last Business Day of 2000 and thereafter on the last Business Day of each succeeding calendar year. Interest accrued shall cumulate until paid but shall not be compounded. Anything herein to the contrary notwithstanding, the obligation of the Borrower to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to the Lender to the extent that the Lender's receipt thereof would not be permissible under the law or laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Any such payments of interest which are not made as a result of the limitation referred to in the preceding sentence shall be made by the Borrower to the Lender on the earliest interest payment date or dates on which the receipt thereof would be permissible under the laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Such deferred interest shall not bear interest. Payments of both principal and interest on this Promissory Note are to be made at the principal office of the Lender at One Astoria Federal Plaza, Lake Success, New York 11042 or such other place as the holder hereof shall designate to the Borrower in writing, in lawful money of the United States of America in immediately available funds. 21 Failure to make any payment of principal on this Promissory Note, or failure to make any payment of interest on this Promissory Note, not later than five (5) Business Days after the date when due, shall constitute a default hereunder, whereupon the principal amount of and accrued interest on this Promissory Note shall immediately become due and payable in accordance with, but also subject to the limitations set forth in, the terms of the Loan Agreement. This Promissory Note is subject, in all respects, to the terms and provisions of the Loan Agreement, which is incorporated herein by this reference, and is secured by a Pledge Agreement between the Borrower and the Lender of even date herewith and is entitled to the benefits thereof. ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST By: State Street Bank and Trust Company, solely as Trustee and not in any other capacity By: Name: Title: 22 EXHIBIT 2 PLEDGE AGREEMENT This PLEDGE AGREEMENT ("Pledge Agreement") is made as of the 1st day of January, 2000, by and between the ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST, acting by and through its Trustee, STATE STREET BANK AND TRUST COMPANY, a banking corporation organized under the laws of the Massachusetts ("Pledgor"), and ASTORIA FINANCIAL CORPORATION ("Pledgee"), a corporation organized and existing under the laws of the State of Delaware. W I T N E S S E T H : -------------------- WHEREAS, this Pledge Agreement is being executed and delivered to the Pledgee pursuant to the terms of An Amended and Restated Loan Agreement of even date herewith ("Loan Agreement"), by and between the Pledgor and the Pledgee; NOW, THEREFORE, in consideration of the mutual agreements contained herein and in the Loan Agreement, the parties hereto do hereby covenant and agree as follows: Section 1. Definitions. The following definitions shall apply for purposes of this Pledge Agreement, except to the extent that a different meaning is plainly indicated by the context; all capitalized terms used but not defined herein shall have the respective meanings assigned to them in the Loan Agreement: (a) "Collateral" shall mean the Pledged Shares and the Pledged Assets and, subject to section 5 hereof, and to the extent permitted by applicable law, all rights with respect thereto, and all proceeds of such Pledged Shares, Pledged Assets and rights. (b) "Event of Default" shall mean an event so defined in the Loan Agreement. (c) "Liabilities" shall mean all the obligations of the Pledgor to the Pledgee, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under the Loan Agreement and the Promissory Note. (d) "Pledged Assets" means all assets of the Borrower pledged, as of January 1, 2000, as collateral security for the Borrower's performance of its obligations under that certain Loan Agreement between the Borrower and the Lender dated April 14, 1994, excluding any Pledged Shares. 1 23 (e) "Pledged Shares" shall mean all the shares of common stock, par value $ .01 per share, of Astoria Financial Corporation purchased by the Pledgor with the proceeds of the loan made by the Pledgee to the Pledgor pursuant to the Loan Agreement dated April 14, 1994, but excluding any such shares previously released pursuant to section 4. Section 2. Pledge. To secure the payment of and performance of all the Liabilities, the Pledgor hereby pledges to the Pledgee, and grants to the Pledgee a security interest in and lien upon the Collateral. Section 3. Representations and Warranties of the Pledgor. The Pledgor represents, warrants, and covenants to the Pledgee as follows: (a) to the actual knowledge of the Trustee, the execution, delivery and performance of this Pledge Agreement and the pledging of the Collateral hereunder do not and will not conflict with, result in a violation of, or constitute a default under any agreement binding upon the Pledgor; (b) the Pledged Shares are and will continue to be owned by the Pledgor free and clear of any liens or rights of any other person except the lien hereunder and under the Loan Agreement in favor of the Pledgee, and the security interest of the Pledgee in the Pledged Shares and the proceeds thereof is and will continue to be prior to and senior to the rights of all others; (c) to the actual knowledge of the Trustee, this Pledge Agreement is the legal, valid and binding obligation of the Pledgor and is enforceable against the Pledgor in accordance with its terms; (d) the Pledgor shall, from time to time, upon request of the Pledgee, promptly deliver to the Pledgee such financing statements, stock powers, proxies, and similar documents, satisfactory in form and substance to the Pledgee, with respect to the Collateral as the Pledgee may reasonably request; and (e) subject to the first sentence of section 4(b), the Pledgor shall not, so long as any Liabilities are outstanding, sell, assign, exchange, pledge or otherwise transfer or encumber any of its rights in and to any of the Collateral. Section 4. Eligible Collateral. (a) As used herein the term "Eligible Collateral" shall mean that amount of Collateral which has an aggregate fair market value equal to the amount by which the Pledgor is in default (without regard to any amounts owing solely as the result of an acceleration of the Loan 2 24 Agreement) or such lesser amount of Collateral as may be required pursuant to section 12 of this Pledge Agreement. (b) The Collateral shall be released from this Pledge Agreement in a manner conforming to the requirements of Treasury Regulation ss. 54.4975-7(b)(8)(i), as the same may be from time to time amended or supplemented. In the event of a termination of the ESOP or the occurrence of a Change in Control after December 31, 2009, all Pledged Shares shall be forthwith released from this Pledge Agreement and shall not be applied to satisfy any Liabilities. In the event of a Change in Control prior to January 1, 2010, all Pledged Shares in excess of the number determined under the following table shall be forthwith released from this Pledge Agreement and shall not be applied to satisfy any Liabilities: YEAR OF PLEDGED YEAR OF PLEDGED CHANGE SHARES CHANGE SHARES IN IN CONTROL CONTROL -------- --------- -------- ------- 2001 1,048,266 2006 0 2002 827,371 2007 0 2003 606,476 2008 0 2004 385,581 2009 0 2005 164,686 To the extent that the Collateral consists of assets other than or in addition to Pledged Shares, the provisions of such Regulations shall be applied separately to each class of security or each class or other type of asset included in the Collateral. Subject to such Regulations, the Pledgee may from time to time, after any Default or Event of Default, and without prior notice to the Pledgor, transfer all or any part of the Eligible Collateral into the name of the Pledgee or its nominee, with or without disclosing that such Eligible Collateral is subject to any rights of the Pledgor and may from time to time, whether before or after any of the Liabilities shall become due and payable, without notice to the Pledgor, take all or any of the following actions: (i) notify the parties obligated on any of the Collateral to make payment to the Pledgee of any amounts due or to become due thereunder, (ii) release or exchange all or any part of the Collateral, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, and (iii) take control of any proceeds of the Collateral. Section 5. Delivery; Further Assurances. (a) The Pledgor shall deliver to the Pledgee upon execution of this Pledge Agreement an assignment by the Pledgor of all the Pledgor's rights to and interest in the Collateral. (b) So long as no Default or Event of Default shall have occurred and be continuing, (i) the Pledgor shall be entitled to exercise any and all voting and other rights pertaining to the 3 25 Collateral or any part thereof for any purpose not inconsistent with the terms of this Pledge Agreement, and (ii) the Pledgor shall be entitled to receive any and all cash dividends or other distributions paid in respect of the Collateral. (c) For so long as this Pledge Agreement shall be in effect, the Pledgor shall take such other actions and execute and deliver such other documents as the Pledgee may reasonably request in order to secure for the Pledgee's benefit a perfected first priority lien and security interest in any or all of the Collateral under the New York Uniform Commercial Code; provided, however, that the Pledgee shall not be required to take any action or execute or deliver any document pursuant to this section 5(c) to the extent that it determines, in reliance on an opinion of legal counsel, that the taking of such action or the execution or delivery of such document would result in a prohibited transaction under section 4975 of the Code or section 406 of ERISA, impair the status of the ESOP as a tax-qualified plan under section 401(a) of the Code or an employee stock ownership plan under section 4975 of the Code, impair the tax-exempt status of the Borrower under section 501(a) of the Code or violate any other requirement of ERISA applicable to the ESOP. Section 6. Events of Default. (a) If a Default or an Event of Default shall be existing, in addition to the rights it may have under the Loan Agreement, the Promissory Note, and this Pledge Agreement, or by virtue of any other instrument, (i) the Pledgee may exercise, with respect to Eligible Collateral, from time to time any rights and remedies available to it under the Uniform Commercial Code as in effect from time to time in the State of New York or otherwise available to it and (ii) the Pledgee shall have the right, for and in the name, place and stead of the Pledgor, to execute endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Eligible Collateral. Written notification of intended disposition of any of the Eligible Collateral shall be given by the Pledgee to the Pledgor at least three (3) Business Days before such disposition. Subject to section 13 below, any proceeds of any disposition of Eligible Collateral may be applied by the Pledgee to the payment of expenses in connection with the Eligible Collateral, including, without limitation, reasonable attorneys' fees and legal expenses, and any balance of such proceeds may be applied by the Pledgee toward the payment of such of the Liabilities as are in Default, and in such order of application, as the Pledgee may from time to time elect. No action of the Pledgee permitted hereunder shall impair or affect its rights in and to the Eligible Collateral. All rights and remedies of the Pledgee expressed hereunder are in addition to all other rights and remedies possessed by it, including, without limitation, those contained in the documents referred to in the definition of Liabilities in section 1 hereof. (b) In any sale of any of the Eligible Collateral after a Default or an Event of Default shall have occurred, the Pledgee is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers or further restrict such prospective bidders or purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Eligible Collateral), 4 26 or in order to obtain such required approval of the sale or of the purchase by any governmental regulatory authority or official, and the Pledgor further agrees that such compliance shall not result in such sale's being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Pledgee be liable or accountable to the Pledgor for any discount allowed by reason of the fact that such Eligible Collateral is sold in compliance with any such limitation or restriction. Section 7. Payment in Full. Upon the payment in full of all outstanding Liabili ties, this Pledge Agreement shall terminate and the Pledgee shall forthwith assign, transfer and deliver to the Pledgor, against receipt and without recourse to the Pledgee, all Collateral then held by the Pledgee pursuant to this Pledge Agreement. Section 8. No Waiver. No failure or delay on the part of the Pledgee in exer cising any right or remedy hereunder or under any other document which confers or grants any rights in the Pledgee in respect of the Liabilities shall operate as a waiver thereof nor shall any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy of the Pledgee. Section 9. Binding Effect; No Assignment or Delegation. This Pledge Agreement shall be binding upon and inure to the benefit of the Pledgor, the Pledgee and their respective successors and assigns, except that the Pledgor may not assign or transfer its rights hereunder without the prior written consent of the Pledgee (which consent shall not unreasonably be withheld). Each duty or obligation of the Pledgor to the Pledgee pursuant to the provisions of this Pledge Agreement shall be performed in favor of any person or entity designated by the Pledgee, and any duty or obligation of the Pledgee to the Pledgor may be performed by any other person or entity designated by the Pledgee. Section 10. Governing Law. This Pledge Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts to be performed wholly within the State of New York entered into between parties all of whom are citizens and residents of the State of New York. Section 11. Notices. All notices, requests, instructions or documents hereunder shall be in writing and delivered by hand or commercial messenger service or sent by United States mail, registered or certified, return receipt requested, with proper postage prepaid, or by telex or facsimile, addressed as follows: (a) If to the Pledgee: Astoria Financial Corporation One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel 5 27 (b) If to the Pledgor: Astoria Federal Savings and Loan Association Employee Stock Ownership Plan Trust State Street Bank and Trust Company Investment Services Office 200 Newport Avenue North Quincy, Massachusetts 02171 with copies to: Astoria Federal Savings and Loan Association Employee Stock Ownership Plan Trust c/o Astoria Federal Savings and Loan Association One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand or by commercial messenger service, or sent by telex or facsimile, to such party at its address specified above, or, if sent by mail, on the third Business Day after the day deposited in the mail, postage prepaid, addressed as aforesaid. Any party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; provided, however, that any such notice shall be deemed to have been given only when actually received by the party to whom it is addressed. Section 12. Interpretation. Wherever possible each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision hereof shall be prohibited by or invalid under such law, such provisions shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions hereof. Section 13. Construction. All provisions hereof shall be construed so as to maintain (a) the ESOP as a qualified leveraged employee stock ownership plan under section 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986 (the "Code"), (b) the Trust as exempt from taxation under section 501(a) of the Code and (c) the loan made pursuant to the Loan Agreement as an exempt loan under Treasury Regulation ss. 54.4975-7(b) and as described in Department of Labor Regulation ss. 2550.408b-3. 6 28 IN WITNESS WHEREOF, this Pledge Agreement has been duly executed by the parties hereto as of the day and year first above written. ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST By STATE STREET BANK AND TRUST COMPANY solely as Trustee and not in any other capacity By: Name: Title: ASTORIA FINANCIAL CORPORATION By: Name: Title: 7 EX-10.3 6 y46647ex10-3.txt PROMISSORY NOTE:ASTORIA FEDERAL EMP STOCK OWN P.T. 1 EXHIBIT 10.3 PROMISSORY NOTE $18,614,833.29 Lake Success, New York January 1, 2000 FOR VALUE RECEIVED, the undersigned, ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST (the "Borrower"), acting through and by its Trustee, STATE STREET BANK AND TRUST COMPANY (the "Trustee"), hereby promises to pay to the order of ASTORIA FINANCIAL CORPORATION (the "Lender") the sum of EIGHTEEN MILLION SIX HUNDRED FOURTEEN THOUSAND EIGHT HUNDRED THIRTY-THREE DOLLARS AND TWENTY-NINE CENTS ($18,614,833.29) payable in annual installments, each of which shall be in the amount determined pursuant to sections 2.4 and 2.5(b) of the Amended and Restated Loan Agreement made and entered into as of January 1, 2000 by and between the Borrower and the Lender (the "Loan Agreement"), as of the last Business Day of December, 2000 and as of the last Business Day of each December thereafter, through and including the last business day of December 2029, at which date the entire principal amount then outstanding shall be due and payable. Principal payments may be deferred, in whole or in part, to the extent provided in the Loan Agreement. This Promissory Note shall bear interest at the rate of six percent (6.00%) per annum set forth or established under the Loan Agreement from the date of the Loan Agreement, such interest to be payable at the time and in the manner set forth in the Loan Agreement commencing on the last Business Day of 2000 and thereafter on the last Business Day of each succeeding calendar year. Interest accrued shall cumulate until paid but shall not be compounded. Anything herein to the contrary notwithstanding, the obligation of the Borrower to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to the Lender to the extent that the Lender's receipt thereof would not be permissible under the law or laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Any such payments of interest which are not made as a result of the limitation referred to in the preceding sentence shall be made by the Borrower to the Lender on the earliest interest payment date or dates on which the receipt thereof would be permissible under the laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Such deferred interest shall not bear interest. Payments of both principal and interest on this Promissory Note are to be made at the principal office of the Lender at One Astoria Federal Plaza, Lake Success, New York 11042 or such other place as the holder hereof shall designate to the Borrower in writing, in lawful money of the United States of America in immediately available funds. 2 Failure to make any payment of principal on this Promissory Note, or failure to make any payment of interest on this Promissory Note, not later than five (5) Business Days after the date when due, shall constitute a default hereunder, whereupon the principal amount of and accrued interest on this Promissory Note shall immediately become due and payable in accordance with, but also subject to the limitations set forth in, the terms of the Loan Agreement. This Promissory Note is subject, in all respects, to the terms and provisions of the Loan Agreement, which is incorporated herein by this reference, and is secured by a Pledge Agreement between the Borrower and the Lender of even date herewith and is entitled to the benefits thereof. ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST By: State Street Bank and Trust Company, solely as Trustee and not in any other capacity By: /S/ Marianne E. Sullivan ------------------------------------------- Name: Marianne E. Sullivan ------------------------------------------- Title: Vice President ------------------------------------------- EX-10.4 7 y46647ex10-4.txt PLEDGE AGREEMENT: ASTORIA FINANCIAL/ASTORIA FED 1 EXHIBIT 10.4 PLEDGE AGREEMENT This PLEDGE AGREEMENT ("Pledge Agreement") is made as of the 1st day of January, 2000, by and between the ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST, acting by and through its Trustee, STATE STREET BANK AND TRUST COMPANY, a banking corporation organized under the laws of the Massachusetts ("Pledgor"), and ASTORIA FINANCIAL CORPORATION ("Pledgee"), a corporation organized and existing under the laws of the State of Delaware. W I T N E S S E T H : --------------------- WHEREAS, this Pledge Agreement is being executed and delivered to the Pledgee pursuant to the terms of An Amended and Restated Loan Agreement of even date herewith ("Loan Agreement"), by and between the Pledgor and the Pledgee; NOW, THEREFORE, in consideration of the mutual agreements contained herein and in the Loan Agreement, the parties hereto do hereby covenant and agree as follows: Section 1. Definitions. The following definitions shall apply for purposes of this Pledge Agreement, except to the extent that a different meaning is plainly indicated by the context; all capitalized terms used but not defined herein shall have the respective meanings assigned to them in the Loan Agreement: (a) "Collateral" shall mean the Pledged Shares and the Pledged Assets and, subject to section 5 hereof, and to the extent permitted by applicable law, all rights with respect thereto, and all proceeds of such Pledged Shares, Pledged Assets and rights. (b) "Event of Default" shall mean an event so defined in the Loan Agreement. (c) "Liabilities" shall mean all the obligations of the Pledgor to the Pledgee, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under the Loan Agreement and the Promissory Note. (d) "Pledged Assets" means all assets of the Borrower pledged, as of January 1, 2000, as collateral security for the Borrower's performance of its obligations under that certain Loan Agreement between the Borrower and the Lender dated April 14, 1994, excluding any Pledged Shares. 1 2 (e) "Pledged Shares" shall mean all the shares of common stock, par value $ .01 per share, of Astoria Financial Corporation purchased by the Pledgor with the proceeds of the loan made by the Pledgee to the Pledgor pursuant to the Loan Agreement dated April 14, 1994, but excluding any such shares previously released pursuant to section 4. Section 2. Pledge. To secure the payment of and performance of all the Liabilities, the Pledgor hereby pledges to the Pledgee, and grants to the Pledgee a security interest in and lien upon the Collateral. Section 3. Representations and Warranties of the Pledgor. The Pledgor represents, warrants, and covenants to the Pledgee as follows: (a) to the actual knowledge of the Trustee, the execution, delivery and performance of this Pledge Agreement and the pledging of the Collateral hereunder do not and will not conflict with, result in a violation of, or constitute a default under any agreement binding upon the Pledgor; (b) the Pledged Shares are and will continue to be owned by the Pledgor free and clear of any liens or rights of any other person except the lien hereunder and under the Loan Agreement in favor of the Pledgee, and the security interest of the Pledgee in the Pledged Shares and the proceeds thereof is and will continue to be prior to and senior to the rights of all others; (c) to the actual knowledge of the Trustee, this Pledge Agreement is the legal, valid and binding obligation of the Pledgor and is enforceable against the Pledgor in accordance with its terms; (d) the Pledgor shall, from time to time, upon request of the Pledgee, promptly deliver to the Pledgee such financing statements, stock powers, proxies, and similar documents, satisfactory in form and substance to the Pledgee, with respect to the Collateral as the Pledgee may reasonably request; and (e) subject to the first sentence of section 4(b), the Pledgor shall not, so long as any Liabilities are outstanding, sell, assign, exchange, pledge or otherwise transfer or encumber any of its rights in and to any of the Collateral. Section 4. Eligible Collateral. (a) As used herein the term "Eligible Collateral" shall mean that amount of Collateral which has an aggregate fair market value equal to the amount by which the Pledgor is in default (without regard to any amounts owing solely as the result of an acceleration of the Loan Agreement) or such lesser amount of Collateral as may be required pursuant to section 12 of this Pledge Agreement. 2 3 (b) The Collateral shall be released from this Pledge Agreement in a manner conforming to the requirements of Treasury Regulation ss. 54.4975-7(b)(8)(i), as the same may be from time to time amended or supplemented. In the event of a termination of the ESOP or the occurrence of a Change in Control after December 31, 2009, all Pledged Shares shall be forthwith released from this Pledge Agreement and shall not be applied to satisfy any Liabilities. In the event of a Change in Control prior to January 1, 2010, all Pledged Shares in excess of the number determined under the following table shall be forthwith released from this Pledge Agreement and shall not be applied to satisfy any Liabilities: YEAR OF PLEDGED YEAR OF PLEDGED CHANGE SHARES CHANGE SHARES IN IN CONTROL CONTROL ------- ---------- -------- ------- 2001 1,048,266 2006 0 2002 827,371 2007 0 2003 606,476 2008 0 2004 385,581 2009 0 2005 164,686 To the extent that the Collateral consists of assets other than or in addition to Pledged Shares, the provisions of such Regulations shall be applied separately to each class of security or each class or other type of asset included in the Collateral. Subject to such Regulations, the Pledgee may from time to time, after any Default or Event of Default, and without prior notice to the Pledgor, transfer all or any part of the Eligible Collateral into the name of the Pledgee or its nominee, with or without disclosing that such Eligible Collateral is subject to any rights of the Pledgor and may from time to time, whether before or after any of the Liabilities shall become due and payable, without notice to the Pledgor, take all or any of the following actions: (i) notify the parties obligated on any of the Collateral to make payment to the Pledgee of any amounts due or to become due thereunder, (ii) release or exchange all or any part of the Collateral, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, and (iii) take control of any proceeds of the Collateral. Section 5. Delivery; Further Assurances. (a) The Pledgor shall deliver to the Pledgee upon execution of this Pledge Agreement an assignment by the Pledgor of all the Pledgor's rights to and interest in the Collateral. (b) So long as no Default or Event of Default shall have occurred and be continuing, (i) the Pledgor shall be entitled to exercise any and all voting and other rights pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms of this Pledge Agreement, and (ii) the Pledgor shall be entitled to receive any and all cash dividends or other distributions paid in respect of the Collateral. 3 4 (c) For so long as this Pledge Agreement shall be in effect, the Pledgor shall take such other actions and execute and deliver such other documents as the Pledgee may reasonably request in order to secure for the Pledgee's benefit a perfected first priority lien and security interest in any or all of the Collateral under the New York Uniform Commercial Code; provided, however, that the Pledgee shall not be required to take any action or execute or deliver any document pursuant to this section 5(c) to the extent that it determines, in reliance on an opinion of legal counsel, that the taking of such action or the execution or delivery of such document would result in a prohibited transaction under section 4975 of the Code or section 406 of ERISA, impair the status of the ESOP as a tax-qualified plan under section 401(a) of the Code or an employee stock ownership plan under section 4975 of the Code, impair the tax-exempt status of the Borrower under section 501(a) of the Code or violate any other requirement of ERISA applicable to the ESOP. Section 6. Events of Default. (a) If a Default or an Event of Default shall be existing, in addition to the rights it may have under the Loan Agreement, the Promissory Note, and this Pledge Agreement, or by virtue of any other instrument, (i) the Pledgee may exercise, with respect to Eligible Collateral, from time to time any rights and remedies available to it under the Uniform Commercial Code as in effect from time to time in the State of New York or otherwise available to it and (ii) the Pledgee shall have the right, for and in the name, place and stead of the Pledgor, to execute endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Eligible Collateral. Written notification of intended disposition of any of the Eligible Collateral shall be given by the Pledgee to the Pledgor at least three (3) Business Days before such disposition. Subject to section 13 below, any proceeds of any disposition of Eligible Collateral may be applied by the Pledgee to the payment of expenses in connection with the Eligible Collateral, including, without limitation, reasonable attorneys' fees and legal expenses, and any balance of such proceeds may be applied by the Pledgee toward the payment of such of the Liabilities as are in Default, and in such order of application, as the Pledgee may from time to time elect. No action of the Pledgee permitted hereunder shall impair or affect its rights in and to the Eligible Collateral. All rights and remedies of the Pledgee expressed hereunder are in addition to all other rights and remedies possessed by it, including, without limitation, those contained in the documents referred to in the definition of Liabilities in section 1 hereof. (b) In any sale of any of the Eligible Collateral after a Default or an Event of Default shall have occurred, the Pledgee is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers or further restrict such prospective bidders or purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Eligible Collateral), or in order to obtain such required approval of the sale or of the purchase by any governmental regulatory authority or official, and the Pledgor further agrees that such compliance shall not result in such sale's being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Pledgee be liable or accountable to the Pledgor for any discount allowed by reason of the fact that such Eligible Collateral is sold in compliance with any such limitation or 4 5 restriction. Section 7. Payment in Full. Upon the payment in full of all outstanding Liabili ties, this Pledge Agreement shall terminate and the Pledgee shall forthwith assign, transfer and deliver to the Pledgor, against receipt and without recourse to the Pledgee, all Collateral then held by the Pledgee pursuant to this Pledge Agreement. Section 8. No Waiver. No failure or delay on the part of the Pledgee in exer cising any right or remedy hereunder or under any other document which confers or grants any rights in the Pledgee in respect of the Liabilities shall operate as a waiver thereof nor shall any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy of the Pledgee. Section 9. Binding Effect; No Assignment or Delegation. This Pledge Agreement shall be binding upon and inure to the benefit of the Pledgor, the Pledgee and their respective successors and assigns, except that the Pledgor may not assign or transfer its rights hereunder without the prior written consent of the Pledgee (which consent shall not unreasonably be withheld). Each duty or obligation of the Pledgor to the Pledgee pursuant to the provisions of this Pledge Agreement shall be performed in favor of any person or entity designated by the Pledgee, and any duty or obligation of the Pledgee to the Pledgor may be performed by any other person or entity designated by the Pledgee. Section 10. Governing Law. This Pledge Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts to be performed wholly within the State of New York entered into between parties all of whom are citizens and residents of the State of New York. Section 11. Notices. All notices, requests, instructions or documents hereunder shall be in writing and delivered by hand or commercial messenger service or sent by United States mail, registered or certified, return receipt requested, with proper postage prepaid, or by telex or facsimile, addressed as follows: (a) If to the Pledgee: Astoria Financial Corporation One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel (b) If to the Pledgor: Astoria Federal Savings and Loan Association Employee Stock Ownership Plan Trust State Street Bank and Trust Company 5 6 Investment Services Office 200 Newport Avenue North Quincy, Massachusetts 02171 with copies to: Astoria Federal Savings and Loan Association Employee Stock Ownership Plan Trust c/o Astoria Federal Savings and Loan Association One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand or by commercial messenger service, or sent by telex or facsimile, to such party at its address specified above, or, if sent by mail, on the third Business Day after the day deposited in the mail, postage prepaid, addressed as aforesaid. Any party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; provided, however, that any such notice shall be deemed to have been given only when actually received by the party to whom it is addressed. Section 12. Interpretation. Wherever possible each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision hereof shall be prohibited by or invalid under such law, such provisions shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions hereof. Section 13. Construction. All provisions hereof shall be construed so as to maintain (a) the ESOP as a qualified leveraged employee stock ownership plan under section 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986 (the "Code"), (b) the Trust as exempt from taxation under section 501(a) of the Code and (c) the loan made pursuant to the Loan Agreement as an exempt loan under Treasury Regulation ss. 54.4975-7(b) and as described in Department of Labor Regulation ss. 2550.408b-3. 6 7 IN WITNESS WHEREOF, this Pledge Agreement has been duly executed by the parties hereto as of the day and year first above written. ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST By STATE STREET BANK AND TRUST COMPANY solely as Trustee and not in any other capacity By: /S/ Marianne E. Sullivan ------------------------------------- Name: Marianne E. Sullivan ------------------------------------- Title: Vice President ------------------------------------- ASTORIA FINANCIAL CORPORATION By: /S/ Alan P. Eggleston ------------------------------------- Name: Alan P. Eggleston ------------------------------------- Title: Executive Vice President and General Counsel 7 EX-10.5 8 y46647ex10-5.txt A/R LOAN AGREEMENT: ASTORIA FINANCIAL/LI SAVINGS 1 EXHIBIT 10.5 AMENDED AND RESTATED LOAN AGREEMENT by and between THE LONG ISLAND SAVINGS BANK EMPLOYEE STOCK OWNERSHIP PLAN TRUST and ASTORIA FINANCIAL CORPORATION Made and Entered Into as of January 1, 2000 2 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS Section 1.1 Business Day................................................1 Section 1.2 Code........................................................2 Section 1.3 Default.....................................................2 Section 1.4 ERISA.......................................................2 Section 1.5 Event of Default............................................2 Section 1.6 Independent Counsel.........................................2 Section 1.7 Loan........................................................2 Section 1.8 Loan Documents..............................................2 Section 1.9 Pledge Agreement............................................2 Section 1.10 Principal Amount............................................2 Section 1.11 Promissory Note.............................................2 Section 1.12 Register....................................................2 ARTICLE II THE LOAN; PRINCIPAL AMOUNT; INTEREST; SECURITY Section 2.1 The Loan; Principal Amount; Repayment of Outstanding Indebtedness..................................2 Section 2.2 Interest....................................................3 Section 2.3 Promissory Note.............................................4 Section 2.4 Payment of Loan.............................................4 Section 2.5 Prepayment..................................................5 Section 2.6 Method of Payments..........................................6 Section 2.7 Security....................................................7 Section 2.8 Registration of the Promissory Note.........................7 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BORROWER Section 3.1 Power, Authority, Consents..................................8 Section 3.2 Due Execution, Validity, Enforceability.....................8 Section 3.3 Properties, Priority of Liens...............................8 Section 3.4 No Defaults, Compliance with Laws...........................8 Section 3.5 Marketable Title; Legality..................................8 (i) 3 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE LENDER Section 4.1 Power, Authority, Consents..................................9 Section 4.2 Due Execution, Validity, Enforceability.....................9 Section 4.3 ESOP; Contributions.........................................9 Section 4.4 Compliance with Laws; Actions...............................9 ARTICLE V EVENTS OF DEFAULT Section 5.1 Events of Default under Loan Agreement.....................10 Section 5.2 Lender's Rights upon Event of Default......................10 ARTICLE VI MISCELLANEOUS PROVISIONS Section 6.1 Payments...................................................11 Section 6.2 Survival...................................................11 Section 6.3 Modifications, Consents and Waivers; Entire Agreement......11 Section 6.4 Remedies Cumulative........................................11 Section 6.5 Further Assurances; Compliance with Covenants..............12 Section 6.6 Notices....................................................12 Section 6.7 Counterparts...............................................13 Section 6.8 Construction; Governing Law................................13 Section 6.9 Severability...............................................13 Section 6.10 Binding Effect; No Assignment or Delegation................13 EXHIBIT 1 Form of Promissory Note ..................................1-1 EXHIBIT 2 Form of Pledge Agreement .................................2-1 (ii) 4 -1- LOAN AGREEMENT This LOAN AGREEMENT (the "Loan Agreement") is made and entered into as of the 1st day of January, 2000, by and between THE LONG ISLAND SAVINGS BANK EMPLOYEE FSB STOCK OWNERSHIP PLAN TRUST (the "Borrower"), a trust forming part of THE LONG ISLAND SAVINGS BANK FSB EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP"), acting through and by its Trustee, CG TRUST COMPANY (the "Trustee"), a banking corporation organized under the laws of the state of Illinois; and ASTORIA FINANCIAL CORPORATION (the "Lender"), a corporation organized and existing under the laws of the state of Delaware. W I T N E S S E T H: ------------------- WHEREAS, the Lender's wholly-owned subsidiary, ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION (the "Association"), maintains the ESOP for the benefit of eligible employees as successor by merger to The Long Island Savings Bank FSB; and WHEREAS, the Borrower and the Lender, in its capacity as successor by merger to Long Island Bancorp, Inc., are parties to a Loan Agreement dated April 14, 1994 (the "Prior Agreement"), pursuant to which the Borrower has borrowed funds from the Lender to finance the purchase of shares of common stock, par value $.01 per share, of the Lender ("Shares") and has an outstanding indebtedness in the amount of TWENTY MILLION NINE HUNDRED SEVENTY-EIGHT THOUSAND EIGHT HUNDRED EIGHTY-ONE DOLLARS AND TWO CENTS ($20,978,881.02) (the "Outstanding Indebtedness"), plus accrued and unpaid interest from December 31, 1999; and WHEREAS, the Borrower and the Lender have determined that it is in their mutual interests to modify the terms of repayment of the Outstanding Indebtedness in the manner set forth in this Agreement; NOW, THEREFORE, the parties hereto agree that the Prior Agreement shall be amended and restated in its entirety effective as of January 1, 2000, as follows: ARTICLE I DEFINITIONS The following definitions shall apply for purposes of this Loan Agreement, except to the extent that a different meaning is plainly indicated by the context: Section 1.1 Business Day means any day other than a Saturday, Sunday or other day on which banks are authorized or required to close under federal law or the laws of the State of New York. 5 -2- Section 1.2 Code means the Internal Revenue Code of 1986 (including the corresponding provisions of any succeeding law). Section 1.3 Default means an event or condition which would constitute an Event of Default. The determination as to whether an event or condition would constitute an Event of Default shall be determined without regard to any applicable requirement of notice or lapse of time. Section 1.4 ERISA means the Employee Retirement Income Security Act of 1974, as amended (including the corresponding provisions of any succeeding law). Section 1.5 Event of Default means an event or condition described in Article V. Section 1.6 Independent Counsel means legal counsel mutually satisfactory to both the Lender and the Borrower. Section 1.7 Loan means the loan described in section 2.1. Section 1.8 Loan Documents means, collectively, this Loan Agreement, the Promissory Note and the Pledge Agreement and all other documents now or hereafter executed and delivered in connection with such documents, including all amendments, modifications and supplements of or to all such documents. Section 1.9 Pledge Agreement means the agreement described in section 2.7. Section 1.10 Principal Amount means the face amount of the Promissory Note, determined as set forth in section 2.1(a). Section 1.11 Promissory Note means the promissory note described in section 2.3. Section 1.12 Register means the register described in section 2.8. ARTICLE II THE LOAN; PRINCIPAL AMOUNT; INTEREST; SECURITY Section 2.1 The Loan; Principal Amount; Repayment of Outstanding Indebtedness. (a) The Lender hereby lends to the Borrower TWENTY MILLION NINE HUNDRED SEVENTY-EIGHT THOUSAND EIGHT HUNDRED EIGHTY-ONE DOLLARS AND TWO CENTS ($20,978,881.02). For all purposes of this Loan Agreement, the Principal Amount on any date shall be equal to the excess, if any, of: (i) the aggregate amount lent by the Lender pursuant to this section 2.1; over 6 -3- (ii) the aggregate amount of any repayments of such amount made before such date. The Lender shall maintain on the Register a record of, and shall record on the Promissory Note, the Principal Amount, any changes in the Principal Amount and the effective date of any changes in the Principal Amount. (b) Concurrently with the execution and delivery of this Agreement, the Lender shall deliver to the Borrower the Borrower's original promissory note issued pursuant to the Prior Agreement and evidencing the Outstanding Indebtedness marked "PAID IN FULL". (c) The transactions contemplated by this Agreement shall be deemed a refinancing of the Outstanding Indebtedness for purposes of Treasury Regulation ss. 54.4975-7. Section 2.2 Interest. (a) The Borrower shall pay to the Lender interest on the Principal Amount, for the period commencing on the date of this Loan Agreement and continuing until the Principal Amount shall be paid in full, at the rate of six percent (6.00%) per annum. Interest payable under this Agreement for any calendar month period shall be computed on the basis of a year of 360 days and months consisting of 30 days each. For any period shorter than one calendar month, interest payable under this Loan Agreement shall be computed on the basis of a rate equal to six percent (6.00%) multiplied by a fraction equal to the actual number of days in the period (including the first day but excluding the last) divided by 360. The Lender shall remit to the Borrower, at least three (3) Business Days before the end of each calendar year, a statement of the accrued interest for such calendar year and the aggregate accrued and unpaid interest as of the last day of such calendar year; provided, however, that a delay or failure by the Lender in providing the Borrower with such statement shall not alter the Borrower's obligation to make any payment of interest that may be due but shall excuse any error in the computation of the amount of interest due that is promptly cured upon receipt of written notice of such error from the Lender. Accrued and unpaid interest shall cumulate until paid but shall not be compounded. (b) Anything in this Loan Agreement or the Promissory Note to the contrary notwithstanding, the obligation of the Borrower to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to the Lender to the extent that the Lender's receipt thereof would not be permissible under the law or laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Any such payment referred to in the preceding sentence shall be made by the Borrower to the Lender on the earliest interest payment date or dates on which the receipt thereof would be permissible under the laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Such deferred interest shall not bear interest. 7 -4- Section 2.3 Promissory Note. The Loan shall be evidenced by a Promissory Note of the Borrower in substantially the form of Exhibit 1 attached hereto, dated January 1, 2000, payable to the order of the Lender in the Principal Amount and otherwise duly completed. Section 2.4 Payment of Loan. The Loan shall be repaid in annual installments payable on the last Business Day of each December ending after the date of this Agreement. The amount (if any) of each such annual installment shall be equal to the maximum amount of principal and interest accrued to and including the date of the payment that may be paid without resulting in the release for allocation to participants in the ESOP, pursuant to the Pledge Agreement, of a fraction of the Shares pledged as collateral security pursuant to the Pledge Agreement as of the first day of the calendar year in which the payment is made that is greater than the fraction set forth in Column II below: Column I Column II Year of Payment Fraction of Collateral Released ----------------- ------------------- 2000 1/30 2001 1/29 2002 1/28 2003 1/27 2004 1/26 2005 1/25 2006 1/24 2007 1/23 2008 1/22 2009 1/21 2010 1/20 2011 1/19 2012 1/18 2013 1/17 2014 1/16 2015 1/15 2016 1/14 2017 1/13 2018 1/12 2019 1/11 2020 1/10 8 -5- Column I Column II Year of Payment Fraction of Collateral Released ----------------- ------------------- 2021 1/9 2022 1/8 2023 1/7 2024 1/6 2025 1/5 2026 1/4 2027 1/3 2028 1/2 2029 1 provided, however, that the Borrower shall not be required to make any payment of principal due to be made in any period to the extent that such payment would not be deductible for federal income tax purposes under section 404 of the Code. Payments may be deferred to the extent that such payments would be in excess of the amount described above or otherwise would be nondeductible for federal income tax purposes. Any payment shall be applied first to the payment of accrued interest and second, if and to the extent that all accrued interest has been or is then being paid, to the payment of all or part of the Principal Amount. Section 2.5 Prepayment. (a) The Borrower may, with the prior written consent of the Lender, prepay the Loan in whole or in part, at any time and from time to time. Any such prepayment shall be: (i) permanent and irrevocable: (ii) made without premium or penalty; and (iii) applied first to the payment of accrued interest and second, if and to the extent that all accrued interest has been or is then being paid, to the payment of all or part of the Principal Amount. (b) For each calendar year after 1999 during which the Loan is outstanding, a mandatory prepayment of all or part of the Loan (the "Mandatory Prepayment") shall be made if the aggregate Fair Market Value (as hereinafter defined) of the Shares pledged pursuant to the Pledge Agreement and pursuant to the Pledge Agreement of even date herewith between the Astoria Federal Savings and Loan Association Employee Stock Ownership Plan Trust, acting by and through its Trustee, State Street Bank and Trust Company and the Lender (the "ASFL Pledge Agreement"), and released pursuant to Sections 4(b) and 7 of the Pledge Agreement and pursuant to Sections 4(b) and 7 of the AFSL Pledge Agreement, and allocated to the accounts of participants in the ESOP as a result of the payments described in Sections 2.4 and 2.5(a) of this Loan Agreement and the payments described in Section 2.4 and 2.5(a) of the Loan Agreement of even date herewith between the Astoria Federal Savings and Loan Association Employee Stock Ownership Plan Trust, acting by and through its Trustee, State Street Bank and Trust Company and the Lender (the "AFSL Loan Agreement") for such calendar year is less than an amount equal to 14% of the total compensation taken into account 9 -6- under the ESOP for the purpose of allocations to the accounts of participants in the ESOP of Shares pledged pursuant to the Pledge Agreement and the AFSL Pledge Agreement ("Minimum Annual Release Value"). The amount of the Mandatory Prepayment for any calendar year shall be equal to that amount of principal and/or interest which, when added to the payment described in Sections 2.4 and 2.5(a) of this Loan Agreement and the payments described in Sections 2.4, 2.5(a) and 2.5(b) of the AFSL Loan Agreement made or then being made for such calendar year, will result in the release for allocation to participant accounts of the lesser of (A) a number of Shares pledged pursuant to the Pledge Agreement and the AFSL Pledge Agreement with an aggregate Fair Market Value equal to the Minimum Annual Release Value or (B) the entire number of Shares pledged pursuant to the Pledge Agreement and the AFSL Pledge Agreement that are currently unallocated. For purposes of this section 4(c), the "Fair Market Value" of a Share for any year shall be equal to the average of the closing sales prices for a share of Share on the Nasdaq Stock Market National Market System (or other principal national securities exchange on which Shares are then listed or admitted to trading) on each of the last 20 trading days preceding December 1st of such year on which a sale of a Share occurs, as reported in the New York City edition Wall Street Journal or such other reputable source of stock quotations as Astoria Federal Savings and Loan Association may select. (c) In the event of the termination of the ESOP or the occurrence of a "Change in Control (as hereinafter defined), the entire outstanding Principal Amount and all accrued but unpaid interest shall thereupon become immediately due and payable. A "Change of Control shall be deemed to have occurred upon the happening of any of the following events: (i) any event upon which any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than (A) a trustee or other fiduciary holding securities under any employee benefit plan maintained for the benefit of employees of Astoria Financial Corporation; (B) a corporation owned, directly or indirectly, by the stockholders of Astoria Financial Corporation in substantially the same proportions as their ownership of stock of Astoria Financial Corporation; or (C) any group constituting a person in which employees of Astoria Financial Corporation are substantial members, becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities issued by Astoria Financial Corporation representing 25% or more of the combined voting power of all of Astoria Financial Corporation's then outstanding securities; or (ii) any event upon which the individuals who on December 30, 2000 were members of the Board of Directors of Astoria Financial Corporation, together with individuals whose election by such Board or nomination for election by Astoria Financial Corporation's stockholders was approved by the affirmative vote of at least two-thirds of the members of such Board then in office who were either members of such Board on December 30, 2000 or whose nomination or election was previously so approved, cease for any reason to constitute a majority of the members of such Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of Astoria Financial Corporation (as such terms are used in Rule 10 -7- 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934);as amended or (iii) the consummation of either: (A) a merger or consolidation of Astoria Financial Corporation with any other corporation, other than a merger or consolidation following which both of the following conditions are satisfied: (I) either (1) the members of the Board of Directors of Astoria Financial Corporation immediately prior to such merger or consolidation constitute at least a majority of the members of the governing body of the institution resulting from such merger or consolidation; or (2) the shareholders of Astoria Financial Corporation own securities of the institution resulting from such merger or consolidation representing 60% or more of the combined voting power of all such securities then outstanding in substantially the same proportions as their ownership of voting securities of Astoria Financial Corporation before such merger or consolidation; and (II) the entity which results from such merger or consolidation expressly agrees in writing to assume and perform Astoria Financial Corporation's obligations under the ESOP; or (B) a complete liquidation of Astoria Financial Corporation or an agreement for the sale or disposition by Astoria Financial Corporation of all or substantially all of its assets; or (iv) any event that would be described in this section if "Astoria Federal Savings and Loan Association" were substituted for "Astoria Financial Corporation." therein. Section 2.6 Method of Payments. (a) All payments of principal, interest, other charges and other amounts payable by the Borrower hereunder shall be made in lawful money of the United States, in immediately available funds, to the Lender at the address specified in or pursuant to this Loan Agreement for notices to the Lender, not later than 3:00 P.M., Eastern Standard time, on the date on which such payment shall become due. Any such payment made on such date but after such time shall, if the amount paid bears interest, and except as expressly provided to the contrary herein, be deemed to have been made on, and interest shall continue to accrue and be payable thereon until, the next succeeding Business Day. If any payment of principal or interest becomes due on a day other than a Business Day, such payment may be made on the next succeeding Business Day. 11 -8- (b) Notwithstanding anything to the contrary contained in this Loan Agreement or the Promissory Note, neither the Borrower nor the Trustee shall be obligated to make any payment, repayment or prepayment on the Promissory Note or take or refrain from taking any other action hereunder or under the Promissory Note if doing so would cause the ESOP to cease to be an employee stock ownership plan within the meaning of section 4975(e)(7) of the Code or qualified under section 401(a) of the Code or cause the Borrower to cease to be a tax exempt trust under section 501(a) of the Code or if such act or failure to act would cause the Borrower or the Trustee to engage in any "prohibited transaction" as such term is defined in section 4975(c) of the Code and the regulations promulgated thereunder which is not exempted by section 4975(c)(2) or (d) of the Code and the regulations promulgated thereunder or in section 406 of ERISA and the regulations promulgated thereunder which is not exempted by section 408(b) of ERISA and the regulations promulgated thereunder; provided, however, that in each case, the Borrower or the Trustee or both, as the case may be, shall have acted or refrained from acting pursuant to this section 2.6(b) in reliance on an opinion of Independent Counsel. Any opinion of such Independent Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by the Trustee or the Borrower hereunder in good faith and in accordance with such opinion of Independent Counsel. Nothing contained in this section 2.6(b) shall be construed as imposing a duty on either the Borrower or the Trustee to consult with Independent Counsel. Any obligation of the Borrower or the Trustee to make any payment, repayment or prepayment on the Promissory Note or to take or refrain from taking any other act hereunder or under the Promissory Note which is excused pursuant to this section 2.6(b) shall be considered a binding obligation of the Borrower or the Trustee, or both, as the case may be, for the purposes of determining whether a Default or Event of Default has occurred hereunder or under the Promissory Note and nothing in this section 2.6(b) shall be construed as providing a defense to any remedies otherwise available upon a Default or an Event of Default hereunder (other than the remedy of specific performance). Section 2.7 Security. In order to secure the due payment and performance by the Borrower of all of its obligations under this Loan Agreement, simultaneously with the execution and delivery of this Loan Agreement by the Borrower, the Borrower shall: (i) pledge to the Lender as Collateral (as defined in the Pledge Agreement), and grant to the Lender a first priority lien on and security interest in, all assets pledged by the Borrower as collateral security for the Outstanding Indebtedness by the execution and delivery to the Lender of a Pledge Agreement in the form attached hereto as Exhibit 2; and (ii) execute and deliver, or cause to be executed and delivered, such other agreements, instruments and documents as the Lender may reasonably require in order to effect the purposes of the Pledge Agreement and this Loan Agreement. (a) The Lender shall release from encumbrance under the Pledge Agreement and transfer to the Borrower, as of the date on which any payment or prepayment is made, an amount of Collateral determined pursuant to section Treasury Regulation ss. 54.4975-7(b)(8)(i). 12 -9- Section 2.8 Registration of the Promissory Note. (a) The Lender shall maintain a Register providing for the registration of the Principal Amount and any stated interest and of transfer and exchange of the Promissory Note. Transfer of the Promissory Note may be effected only by the surrender of the old instrument and either the reissuance by the Borrower of the old instrument to the new holder or the issuance by the Borrower of a new instrument to the new holder. The old Promissory Note so surrendered shall be canceled by the Lender and returned to the Borrower after such cancellation. (b) Any new Promissory Note issued pursuant to section 2.8(a) shall carry the same rights to interest (unpaid and to accrue) carried by the Promissory Note so transferred or exchanged so that there will not be any loss or gain of interest on the note surrendered. Such new Promissory Note shall be subject to all of the provisions and entitled to all of the benefits of this Agreement. Prior to due presentment for registration or transfer, the Borrower may deem and treat the registered holder of any Promissory Note as the holder thereof for purposes of payment and all other purposes. A notation shall be made on each new Promissory Note of the amount of all payments of principal and interest theretofore paid. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BORROWER The Borrower hereby represents and warrants to the Lender as follows: Section 3.1 Power, Authority, Consents. The Borrower has the power to execute, deliver and perform this Loan Agreement, the Promissory Note and the Pledge Agreement, all of which have been duly authorized by all necessary and proper corporate or other action. Section 3.2 Due Execution, Validity, Enforceability. Each of the Loan Documents, including, without limitation, this Loan Agreement, the Promissory Note and the Pledge Agreement, have been duly executed and delivered by the Borrower; and each constitutes the valid and legally binding obligation of the Borrower, enforceable in accordance with its terms. Section 3.3 Properties, Priority of Liens. The liens which have been created and granted by the Pledge Agreement constitute valid, first liens on the properties and assets covered by the Pledge Agreement, subject to no prior or equal lien. 13 -10- Section 3.4 No Defaults, Compliance with Laws. The Borrower is not in default in any material respect under any agreement, ordinance, resolution, decree, bond, note, indenture, order or judgment to which it is a party or by which it is bound, or any other agreement or other instrument by which any of the properties or assets owned by it is materially affected. Section 3.5 Marketable Title; Legality. The Borrower has valid, legal and marketable title to all of the Shares and other assets pledged as collateral pursuant to the Pledge Agreement, free and clear of any liens, other than a pledge to the Lender of such assets pursuant to the Pledge Agreement. Neither the execution and delivery of the Loan Documents nor the performance of any obligation thereunder violates any provision of law or conflicts with or results in a breach of or creates (with or without the giving of notice or lapse of time, or both) a default under any agreement to which the Borrower is a party or by which it is bound or any of its properties is affected. No consent of any federal, state or local governmental authority, agency or other regulatory body, the absence of which could have a materially adverse effect on the Borrower or the Trustee, is or was required to be obtained in connection with the execution, delivery or performance of the Loan Documents and the transactions contemplated therein or in connection therewith, including, without limitation, with respect to the transfer of the Shares purchased with the proceeds of the Loan pursuant thereto. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE LENDER The Lender hereby represents and warrants to the Borrower as follows: Section 4.1 Power, Authority, Consents. The Lender has the power to execute, deliver and perform this Loan Agreement, the Pledge Agreement and all documents executed by the Lender in connection with the Loan, all of which have been duly authorized by all necessary and proper corporate or other action. No consent, authorization or approval or other action by any governmental authority or regulatory body, and no notice by the Lender to, or filing by the Lender with, any governmental authority or regulatory body is required for the due execution, delivery and performance of this Loan Agreement. Section 4.2 Due Execution, Validity, Enforceability. This Loan Agreement and the Pledge Agreement have been duly executed and delivered by the Lender; and each constitutes a valid and legally binding obligation of the Lender, enforceable in accordance with its terms. 14 -11- Section 4.3 ESOP; Contributions. The ESOP and the Borrower have been duly created, organized and maintained by the Lender in compliance with all applicable laws, regulations and rulings. The ESOP qualifies as an "employee stock ownership plan" as defined in section 4975(e)(7) the Code. The ESOP provides that the Lender may make contributions to the ESOP in an amount necessary to enable the Trustee to amortize the Loan in accordance with the terms of the Promissory Note and this Loan Agreement, and the Lender will make such contributions; provided, however, that no such contributions shall be required if they would adversely affect the qualification of the ESOP under section 401(a) of the Code. Section 4.4 Compliance with Laws; Actions. Neither the execution and delivery by the Lender of this Loan Agreement or any instruments required thereby, nor compliance with the terms and provisions of any such documents by the Lender, constitutes a violation of any provision of any law or any regulation, order, writ, injunction or decree of any court or governmental instrumentality, or an event of default under any agreement, to which the Lender is a party or by which the Lender is bound or to which the Lender is subject, which violation or event of default would have a material adverse effect on the Lender. There is no action or proceeding pending or threatened against either of the ESOP or the Borrower before any court or administrative agency. ARTICLE V EVENTS OF DEFAULT Section 5.1 Events of Default under Loan Agreement. Each of the following events shall constitute an "Event of Default" hereunder: (a) Failure to make any payment or mandatory prepayment of principal of the Promissory Note, or failure to make any payment of interest on the Promissory Note, within five (5) Business Days after the date when due, provided, however, that a default shall be deemed to have occurred only if and to the extent that the Borrower has received a contribution from the Lender to be used to make such payment or the Borrower has received dividends which it is permitted to apply to make such payment and the Borrower fails to apply such contribution or dividends to such payment. Section 5.2 Lender's Rights upon Event of Default. If an Event of Default under this Loan Agreement shall occur and be continuing, the Lender shall have no rights to assets of the Borrower other than: (a) contributions (other than contributions of Common Stock) that are made by the Lender to enable the Borrower to meet its obligations pursuant to this Loan Agreement and earnings attributable to the investment of such contributions and (b) "Eligible Collateral" (as defined in the Pledge Agreement); provided, however, 15 -12- that: (i) the value of the Borrower's assets transferred to the Lender following an Event of Default in satisfaction of the due and unpaid amount of the Loan shall not exceed the amount in default (without regard to amounts owing solely as a result of any acceleration of the Loan); (ii) the Borrower's assets shall be transferred to the Lender following an Event of Default only to the extent of the failure of the Borrower to meet the payment schedule of the Loan resulting from the failure of the Borrower to use dividend income received by it on Pledged Shares and employer contributions received by it for purposes of debt service to make loan payments when due; and (iii) all rights of the Lender to the Collateral covered by the Pledge Agreement following an Event of Default shall be governed by the terms of the Pledge Agreement. ARTICLE VI MISCELLANEOUS PROVISIONS Section 6.1 Payments. All payments hereunder and under the Promissory Note shall be made without set-off or counterclaim and in such amounts as may be necessary in order that all such payments shall not be less than the amounts otherwise specified to be paid under this Loan Agreement and the Promissory Note, subject to any applicable tax withholding requirements. Upon payment in full of the Promissory Note, the Lender shall mark such Promissory Note "PAID IN FULL" and return it to the Borrower. Section 6.2 Survival. All agreements, representations and warranties made herein shall survive the delivery of this Loan Agreement and the Promissory Note. Section 6.3 Modifications, Consents and Waivers; Entire Agreement. No modification, amendment or waiver of or with respect to any provision of this Loan Agreement, the Promissory Note, the Pledge Agreement, or any of the other Loan Documents, nor consent to any departure from any of the terms or conditions thereof, shall in any event be effective unless it shall be in writing and signed by the party against whom enforcement thereof is sought. Any such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No consent to or demand on a party in any case shall, of itself, entitle it to any other or further notice or demand in similar or other circumstances. This Loan Agreement embodies the entire agreement and understanding between the Lender and the Borrower and supersedes all prior agreements and understandings relating to the subject matter hereof. Section 6.4 Remedies Cumulative. Each and every right granted to the Lender hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of the Lender or the holder of the 16 -13- Promissory Note to exercise, and no delay in exercising, any right shall operate as a waiver thereof, nor shall any single or partial exercise of any right preclude any other or future exercise thereof or the exercise of any other right. The due payment and performance of the obligations under the Loan Documents shall be without regard to any counterclaim, right of offset or any other claim whatsoever which the Borrower may have against the Lender and without regard to any other obligation of any nature whatsoever which the Lender may have to the Borrower, and no such counterclaim or offset shall be asserted by the Borrower in any action, suit or proceeding instituted by the Lender for payment or performance of such obligations. Section 6.5 Further Assurances; Compliance with Covenants. At any time and from time to time, upon the request of the Lender, the Borrower shall execute, deliver and acknowledge or cause to be executed, delivered and acknowledged, such further documents and instruments and do such other acts and things as the Lender may reasonably request in order to fully effect the terms of this Loan Agreement, the Promissory Note, the Pledge Agreement, the other Loan Documents and any other agreements, instruments and documents delivered pursuant hereto or in connection with the Loan. Section 6.6 Notices. Except as otherwise specifically provided for herein, all notices, requests, reports and other communications pursuant to this Loan Agreement shall be in writing, either by letter (delivered by hand or commercial messenger service or sent by registered or certified mail, return receipt requested, except for routine reports delivered in compliance with Article VI hereof which may be sent by ordinary first-class mail) or telex or facsimile, addressed as follows: (a) If to the Borrower: The Long Island Savings Bank FSB Employee Stock Ownership Plan Trust CG Trust Company 525 W. Monroe, Suite 1900 Chicago, Illinois 60601 with copies to: The Long Island Savings Bank FSB Employee Stock Ownership Plan Trust c/o Astoria Federal Savings and Loan Association One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel (b) If to the Lender: Astoria Financial Corporation 17 -14- One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand or by commercial messenger service, or sent by telex or facsimile, to such party at its address specified above, or, if sent by mail, on the third Business Day after the day deposited in the mail, postage prepaid, addressed as aforesaid. Any party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; provided, however, that any such notice shall be deemed to have been given only when actually received by the party to whom it is addressed. Section 6.7 Counterparts. This Loan Agreement may be signed in any number of counterparts which, when taken together, shall constitute one and the same document. Section 6.8 Construction; Governing Law. The headings used in the table of contents and in this Loan Agreement are for convenience only and shall not be deemed to constitute a part hereof. All uses herein of any gender or of singular or plural terms shall be deemed to include uses of the other genders or plural or singular terms, as the context may require. All references in this Loan Agreement to an Article or section shall be to an Article or section of this Loan Agreement, unless otherwise specified. This Loan Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts to be performed wholly within the State of New York entered into between parties all of whom are citizens and residents of the State of New York. It is intended that the transactions contemplated by this Loan Agreement constitute an "exempt loan" within the meaning of Treasury Regulation ss. 54.4975-7(b)(1)(iii) and Department of Labor Regulation ss. 2550.408b-3, and the provisions hereof shall be construed and enforced in such manner as shall be necessary to give effect to such intent. Section 6.9 Severability. Wherever possible, each provision of this Loan Agreement shall be interpreted in such manner as to be effective and valid under applicable law; however, the provisions of this Loan Agreement are severable, and if any clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision in this Loan Agreement in any jurisdiction. Each of the covenants, agreements and conditions contained in this Loan Agreement is independent, and compliance by a party with any of them shall not excuse non- compliance by such party with any other. The Borrower shall not take any action the effect of which shall constitute a breach or violation of any provision of this Loan Agreement. 18 -15- Section 6.10 Binding Effect; No Assignment or Delegation. This Loan Agreement shall be binding upon and inure to the benefit of the Borrower and its successors and the Lender and its successors and assigns. The rights and obligations of the Borrower under this Agreement shall not be assigned or delegated without the prior written consent of the Lender, and any purported assignment or delegation without such consent shall be void. 19 -16- [This page intentionally left blank.] 20 -17- IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be duly executed as of the date first above written. THE LONG ISLAND SAVINGS BANK EMPLOYEE STOCK OWNERSHIP PLAN TRUST By CG TRUST COMPANY, solely as Trustee and not in any other capacity By: /S/ Mary Lou Filiault ----------------------------------- Name: Mary Lou Filiault ------------------------------------ Title: Vice President ------------------------------------ ASTORIA FINANCIAL CORPORATION By: /S/ Alan P. Eggleston ------------------------------------ Name: Alan P. Eggleston ------------------------------------ Title: Executive Vice President and General Counsel 21 EXHIBIT 1 PROMISSORY NOTE $20,978,881.02 Lake Success, New York January 1, 2000 FOR VALUE RECEIVED, the undersigned, THE LONG ISLAND SAVINGS BANK FSB EMPLOYEE STOCK OWNERSHIP PLAN TRUST (the "Borrower"), acting by and through its Trustee, CG TRUST COMPANY (the "Trustee"), hereby promises to pay to the order of ASTORIA FINANCIAL CORPORATION (the "Lender") the sum of TWENTY MILLION NINE HUNDRED SEVENTY- EIGHT THOUSAND EIGHT HUNDRED EIGHTY-ONE DOLLARS AND TWO CENTS ($20,978,881.02) payable in annual installments, each of which shall be in the amount determined pursuant to sections 2.4 and 2.5(b) of the Amended and Restated Loan Agreement made and entered into as of January 1, 2000 by and between the Borrower and the Lender (the "Loan Agreement"), as of the last Business Day of December, 2000 and as of the last Business Day of each December thereafter, through and including the last business day of December 2029, at which date the entire principal amount then outstanding shall be due and payable. Principal payments may be deferred, in whole or in part, to the extent provided in the Loan Agreement. This Promissory Note shall bear interest at the rate of six percent (6.00%) per annum set forth or established under the Loan Agreement from the date of the Loan Agreement, such interest to be payable at the time and in the manner set forth in the Loan Agreement commencing on the last Business Day of 2000 and thereafter on the last Business Day of each succeeding calendar year. Interest accrued shall cumulate until paid but shall not be compounded. Anything herein to the contrary notwithstanding, the obligation of the Borrower to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to the Lender to the extent that the Lender's receipt thereof would not be permissible under the law or laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Any such payments of interest which are not made as a result of the limitation referred to in the preceding sentence shall be made by the Borrower to the Lender on the earliest interest payment date or dates on which the receipt thereof would be permissible under the laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Such deferred interest shall not bear interest. Payments of both principal and interest on this Promissory Note are to be made at the principal office of the Lender at One Astoria Federal Plaza, Lake Success, New York 11042 or such other place as the holder hereof shall designate to the Borrower in writing, in lawful money of the United States of America in immediately available funds. 22 Failure to make any payment of principal on this Promissory Note, or failure to make any payment of interest on this Promissory Note, not later than five (5) Business Days after the date when due, shall constitute a default hereunder, whereupon the principal amount of and accrued interest on this Promissory Note shall immediately become due and payable in accordance with, but also subject to the limitations set forth in, the terms of the Loan Agreement. This Promissory Note is subject, in all respects, to the terms and provisions of the Loan Agreement, which is incorporated herein by this reference, and is secured by a Pledge Agreement between the Borrower and the Lender of even date herewith and is entitled to the benefits thereof. THE LONG ISLAND SAVINGS BANK FSB EMPLOYEE STOCK OWNERSHIP PLAN TRUST By: CG Trust Company, solely as Trustee and not in any other capacity By: -------------------------------------- Name: -------------------------------------- Title: -------------------------------------- 23 EXHIBIT 2 PLEDGE AGREEMENT This PLEDGE AGREEMENT ("Pledge Agreement") is made as of the 1st day of January, 2000, by and between THE LONG ISLAND SAVINGS BANK FSB EMPLOYEE STOCK OWNERSHIP PLAN TRUST, acting by and through its Trustee, CG TRUST COMPANY, a banking corporation organized under the laws of the Illinois ("Pledgor"), and ASTORIA FINANCIAL CORPORATION ("Pledgee"), a corporation organized and existing under the laws of the State of Delaware. W I T N E S S E T H : -------------------- WHEREAS, this Pledge Agreement is being executed and delivered to the Pledgee pursuant to the terms of An Amended and Restated Loan Agreement of even date herewith ("Loan Agreement"), by and between the Pledgor and the Pledgee; NOW, THEREFORE, in consideration of the mutual agreements contained herein and in the Loan Agreement, the parties hereto do hereby covenant and agree as follows: Section 1. Definitions. The following definitions shall apply for purposes of this Pledge Agreement, except to the extent that a different meaning is plainly indicated by the context; all capitalized terms used but not defined herein shall have the respective meanings assigned to them in the Loan Agreement: (a) "Collateral" shall mean the Pledged Shares and the Pledged Assets and, subject to section 5 hereof, and to the extent permitted by applicable law, all rights with respect thereto, and all proceeds of such Pledged Shares, Pledged Assets and rights. (b) "Event of Default" shall mean an event so defined in the Loan Agreement. (c) "Liabilities" shall mean all the obligations of the Pledgor to the Pledgee, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under the Loan Agreement and the Promissory Note. (d) "Pledged Assets" means all assets of the Borrower pledged, as of January 1, 2000, as collateral security for the Borrower's performance of its obligations under that certain Loan Agreement between the Borrower and the Lender dated April 14, 1994, excluding any Pledged Shares. -20- 24 (e) "Pledged Shares" shall mean all the shares of common stock, par value $ .01 per share, of Astoria Financial Corporation issued in exchange for shares of common stock of Long Island Bancorp, Inc. pursuant to the acquisition of Long Island Bancorp, Inc. by Astoria Federal Corporation, which shares of common stock of Long Island Bancorp, Inc. were purchased by the Pledgor with the proceeds of the loan made by the Pledgee to the Pledgor pursuant to the Loan Agreement dated April 14, 1994, but excluding any such shares previously released pursuant to section 4. Section 2. Pledge. To secure the payment of and performance of all the Liabilities, the Pledgor hereby pledges to the Pledgee, and grants to the Pledgee a security interest in and lien upon the Collateral. Section 3. Representations and Warranties of the Pledgor. The Pledgor represents, warrants, and covenants to the Pledgee as follows: (a) to the actual knowledge of the Trustee, the execution, delivery and performance of this Pledge Agreement and the pledging of the Collateral hereunder do not and will not conflict with, result in a violation of, or constitute a default under any agreement binding upon the Pledgor; (b) the Pledged Shares are and will continue to be owned by the Pledgor free and clear of any liens or rights of any other person except the lien hereunder and under the Loan Agreement in favor of the Pledgee, and the security interest of the Pledgee in the Pledged Shares and the proceeds thereof is and will continue to be prior to and senior to the rights of all others; (c) to the actual knowledge of the Trustee, this Pledge Agreement is the legal, valid and binding obligation of the Pledgor and is enforceable against the Pledgor in accordance with its terms; (d) the Pledgor shall, from time to time, upon request of the Pledgee, promptly deliver to the Pledgee such financing statements, stock powers, proxies, and similar documents, satisfactory in form and substance to the Pledgee, with respect to the Collateral as the Pledgee may reasonably request; and (e) subject to the first sentence of section 4(b), the Pledgor shall not, so long as any Liabilities are outstanding, sell, assign, exchange, pledge or otherwise transfer or encumber any of its rights in and to any of the Collateral. Section 4. Eligible Collateral. (a) As used herein the term "Eligible Collateral" shall mean that amount of Collateral which has an aggregate fair market value equal to the amount by which the Pledgor is in -2- 25 default (without regard to any amounts owing solely as the result of an acceleration of the Loan Agreement) or such lesser amount of Collateral as may be required pursuant to section 12 of this Pledge Agreement. (b) The Collateral shall be released from this Pledge Agreement in a manner conforming to the requirements of Treasury Regulation ss. 54.4975-7(b)(8)(i), as the same may be from time to time amended or supplemented. In the event of a termination of the ESOP or the occurrence of a Change in Control after December 31, 2009, all Pledged Shares shall be forthwith released from this Pledge Agreement and shall not be applied to satisfy any Liabilities. In the event of a Change in Control prior to January 1, 2010, all Pledged Shares in excess of the number determined under the following table shall be forthwith released from this Pledge Agreement and shall not be applied to satisfy any Liabilities: YEAR OF PLEDGED YEAR OF PLEDGED CHANGE SHARES CHANGE SHARES IN IN CONTROL CONTROL -------- ---------- -------- ----------- 2001 1,708,900 2006 1,611,725 2002 1,689,463 2007 1,592,288 2003 1,670,026 2008 1,572,851 2004 1,650,589 2009 1,553,414 2005 1,591,152 To the extent that the Collateral consists of assets other than or in addition to Pledged Shares, the provisions of such Regulations shall be applied separately to each class of security or each class or other type of asset included in the Collateral. Subject to such Regulations, the Pledgee may from time to time, after any Default or Event of Default, and without prior notice to the Pledgor, transfer all or any part of the Eligible Collateral into the name of the Pledgee or its nominee, with or without disclosing that such Eligible Collateral is subject to any rights of the Pledgor and may from time to time, whether before or after any of the Liabilities shall become due and payable, without notice to the Pledgor, take all or any of the following actions: (i) notify the parties obligated on any of the Collateral to make payment to the Pledgee of any amounts due or to become due thereunder, (ii) release or exchange all or any part of the Collateral, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, and (iii) take control of any proceeds of the Collateral. Section 5. Delivery; Further Assurances. (a) The Pledgor shall deliver to the Pledgee upon execution of this Pledge Agreement an assignment by the Pledgor of all the Pledgor's rights to and interest in the Collateral. (b) So long as no Default or Event of Default shall have occurred and be continuing, (i) the Pledgor shall be entitled to exercise any and all voting and other rights pertaining to the -3- 26 Collateral or any part thereof for any purpose not inconsistent with the terms of this Pledge Agreement, and (ii) the Pledgor shall be entitled to receive any and all cash dividends or other distributions paid in respect of the Collateral. (c) For so long as this Pledge Agreement shall be in effect, the Pledgor shall take such other actions and execute and deliver such other documents as the Pledgee may reasonably request in order to secure for the Pledgee's benefit a perfected first priority lien and security interest in any or all of the Collateral under the New York Uniform Commercial Code; provided, however, that the Pledgee shall not be required to take any action or execute or deliver any document pursuant to this section 5(c) to the extent that it determines, in reliance on an opinion of legal counsel, that the taking of such action or the execution or delivery of such document would result in a prohibited transaction under section 4975 of the Code or section 406 of ERISA, impair the status of the ESOP as a tax-qualified plan under section 401(a) of the Code or an employee stock ownership plan under section 4975 of the Code, impair the tax-exempt status of the Borrower under section 501(a) of the Code or violate any other requirement of ERISA applicable to the ESOP. Section 6. Events of Default. (a) If a Default or an Event of Default shall be existing, in addition to the rights it may have under the Loan Agreement, the Promissory Note, and this Pledge Agreement, or by virtue of any other instrument, (i) the Pledgee may exercise, with respect to Eligible Collateral, from time to time any rights and remedies available to it under the Uniform Commercial Code as in effect from time to time in the State of New York or otherwise available to it and (ii) the Pledgee shall have the right, for and in the name, place and stead of the Pledgor, to execute endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Eligible Collateral. Written notification of intended disposition of any of the Eligible Collateral shall be given by the Pledgee to the Pledgor at least three (3) Business Days before such disposition. Subject to section 13 below, any proceeds of any disposition of Eligible Collateral may be applied by the Pledgee to the payment of expenses in connection with the Eligible Collateral, including, without limitation, reasonable attorneys' fees and legal expenses, and any balance of such proceeds may be applied by the Pledgee toward the payment of such of the Liabilities as are in Default, and in such order of application, as the Pledgee may from time to time elect. No action of the Pledgee permitted hereunder shall impair or affect its rights in and to the Eligible Collateral. All rights and remedies of the Pledgee expressed hereunder are in addition to all other rights and remedies possessed by it, including, without limitation, those contained in the documents referred to in the definition of Liabilities in section 1 hereof. (b) In any sale of any of the Eligible Collateral after a Default or an Event of Default shall have occurred, the Pledgee is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers or further restrict such prospective bidders or purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Eligible Collateral), -4- 27 or in order to obtain such required approval of the sale or of the purchase by any governmental regulatory authority or official, and the Pledgor further agrees that such compliance shall not result in such sale's being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Pledgee be liable or accountable to the Pledgor for any discount allowed by reason of the fact that such Eligible Collateral is sold in compliance with any such limitation or restriction. Section 7. Payment in Full. Upon the payment in full of all outstanding Liabili ties, this Pledge Agreement shall terminate and the Pledgee shall forthwith assign, transfer and deliver to the Pledgor, against receipt and without recourse to the Pledgee, all Collateral then held by the Pledgee pursuant to this Pledge Agreement. Section 8. No Waiver. No failure or delay on the part of the Pledgee in exer cising any right or remedy hereunder or under any other document which confers or grants any rights in the Pledgee in respect of the Liabilities shall operate as a waiver thereof nor shall any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy of the Pledgee. Section 9. Binding Effect; No Assignment or Delegation. This Pledge Agreement shall be binding upon and inure to the benefit of the Pledgor, the Pledgee and their respective successors and assigns, except that the Pledgor may not assign or transfer its rights hereunder without the prior written consent of the Pledgee (which consent shall not unreasonably be withheld). Each duty or obligation of the Pledgor to the Pledgee pursuant to the provisions of this Pledge Agreement shall be performed in favor of any person or entity designated by the Pledgee, and any duty or obligation of the Pledgee to the Pledgor may be performed by any other person or entity designated by the Pledgee. Section 10. Governing Law. This Loan Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts to be performed wholly within the State of New York entered into between parties all of whom are citizens and residents of the State of New York. Section 11. Notices. All notices, requests, instructions or documents hereunder shall be in writing and delivered by hand or commercial messenger service or sent by United States mail, registered or certified, return receipt requested, with proper postage prepaid, or by telex or facsimile, addressed as follows: (a) If to the Pledgee: Astoria Financial Corporation One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel -5- 28 (b) If to the Pledgor: The Long Island Savings Bank FSB Employee Stock Ownership Plan Trust CG Trust Company 525 W. Monroe, Suite 1900 Chicago, Illinois 60601 with copies to: The Long Island Savings Bank FSB Employee Stock Ownership Plan Trust c/o Astoria Federal Savings and Loan Association One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand or by commercial messenger service, or sent by telex or facsimile, to such party at its address specified above, or, if sent by mail, on the third Business Day after the day deposited in the mail, postage prepaid, addressed as aforesaid. Any party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; provided, however, that any such notice shall be deemed to have been given only when actually received by the party to whom it is addressed. Section 12. Interpretation. Wherever possible each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision hereof shall be prohibited by or invalid under such law, such provisions shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions hereof. Section 13. Construction. All provisions hereof shall be construed so as to maintain (a) the ESOP as a qualified leveraged employee stock ownership plan under section 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986 (the "Code"), (b) the Trust as exempt from taxation under section 501(a) of the Code and (c) the loan made pursuant to the Loan Agreement as an exempt loan under Treasury Regulation ss. 54.4975-7(b) and as described in Department of Labor Regulation ss. 2550.408b-3. -6- 29 IN WITNESS WHEREOF, this Pledge Agreement has been duly executed by the parties hereto as of the day and year first above written. -7- 30 THE LONG ISLAND SAVINGS BANK FSB EMPLOYEE STOCK OWNERSHIP PLAN TRUST By CG TRUST COMPANY solely as Trustee and not in any other capacity By: ----------------------------- Name: ---------------------------- Title: ----------------------------- ASTORIA FINANCIAL CORPORATION By: ----------------------------- Name: ----------------------------- Title: ----------------------------- -8- EX-10.6 9 y46647ex10-6.txt PROMISSORY NOTE: LI SAVINGS EMP STOCK OWN P.T. 1 EXHIBIT 10.6 PROMISSORY NOTE $20,978,881.02 Lake Success, New York January 1, 2000 FOR VALUE RECEIVED, the undersigned, THE LONG ISLAND SAVINGS BANK FSB EMPLOYEE STOCK OWNERSHIP PLAN TRUST (the "Borrower"), acting by and through its Trustee, CG TRUST COMPANY (the "Trustee"), hereby promises to pay to the order of ASTORIA FINANCIAL CORPORATION (the "Lender") the sum of TWENTY MILLION NINE HUNDRED SEVENTY- EIGHT THOUSAND EIGHT HUNDRED EIGHTY-ONE DOLLARS AND TWO CENTS ($20,978,881.02) payable in annual installments, each of which shall be in the amount determined pursuant to sections 2.4 and 2.5(b) of the Amended and Restated Loan Agreement made and entered into as of January 1, 2000 by and between the Borrower and the Lender (the "Loan Agreement"), as of the last Business Day of December, 2000 and as of the last Business Day of each December thereafter, through and including the last business day of December 2029, at which date the entire principal amount then outstanding shall be due and payable. Principal payments may be deferred, in whole or in part, to the extent provided in the Loan Agreement. This Promissory Note shall bear interest at the rate of six percent (6.00%) per annum set forth or established under the Loan Agreement from the date of the Loan Agreement, such interest to be payable at the time and in the manner set forth in the Loan Agreement commencing on the last Business Day of 2000 and thereafter on the last Business Day of each succeeding calendar year. Interest accrued shall cumulate until paid but shall not be compounded. Anything herein to the contrary notwithstanding, the obligation of the Borrower to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to the Lender to the extent that the Lender's receipt thereof would not be permissible under the law or laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Any such payments of interest which are not made as a result of the limitation referred to in the preceding sentence shall be made by the Borrower to the Lender on the earliest interest payment date or dates on which the receipt thereof would be permissible under the laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Such deferred interest shall not bear interest. Payments of both principal and interest on this Promissory Note are to be made at the principal office of the Lender at One Astoria Federal Plaza, Lake Success, New York 11042 or such other place as the holder hereof shall designate to the Borrower in writing, in lawful money of the United States of America in immediately available funds. 2 Failure to make any payment of principal on this Promissory Note, or failure to make any payment of interest on this Promissory Note, not later than five (5) Business Days after the date when due, shall constitute a default hereunder, whereupon the principal amount of and accrued interest on this Promissory Note shall immediately become due and payable in accordance with, but also subject to the limitations set forth in, the terms of the Loan Agreement. This Promissory Note is subject, in all respects, to the terms and provisions of the Loan Agreement, which is incorporated herein by this reference, and is secured by a Pledge Agreement between the Borrower and the Lender of even date herewith and is entitled to the benefits thereof. THE LONG ISLAND SAVINGS BANK FSB EMPLOYEE STOCK OWNERSHIP PLAN TRUST By: CG Trust Company, solely as Trustee and not in any other capacity By: /S/ Mary Lou Filiault --------------------------------------------- Name: Mary Lou Filiault --------------------------------------------- Title: Vice President --------------------------------------------- EX-10.7 10 y46647ex10-7.txt PLEDGE AGREEMENT: ASTORIA FINANCIAL/LI SAVINGS 1 EXHIBIT 10.7 PLEDGE AGREEMENT This PLEDGE AGREEMENT ("Pledge Agreement") is made as of the 1st day of January, 2000, by and between THE LONG ISLAND SAVINGS BANK FSB EMPLOYEE STOCK OWNERSHIP PLAN TRUST, acting by and through its Trustee, CG TRUST COMPANY, a banking corporation organized under the laws of the Illinois ("Pledgor"), and ASTORIA FINANCIAL CORPORATION ("Pledgee"), a corporation organized and existing under the laws of the State of Delaware. W I T N E S S E T H : -------------------- WHEREAS, this Pledge Agreement is being executed and delivered to the Pledgee pursuant to the terms of An Amended and Restated Loan Agreement of even date herewith ("Loan Agreement"), by and between the Pledgor and the Pledgee; NOW, THEREFORE, in consideration of the mutual agreements contained herein and in the Loan Agreement, the parties hereto do hereby covenant and agree as follows: Section 1. Definitions. The following definitions shall apply for purposes of this Pledge Agreement, except to the extent that a different meaning is plainly indicated by the context; all capitalized terms used but not defined herein shall have the respective meanings assigned to them in the Loan Agreement: (a) "Collateral" shall mean the Pledged Shares and the Pledged Assets and, subject to section 5 hereof, and to the extent permitted by applicable law, all rights with respect thereto, and all proceeds of such Pledged Shares, Pledged Assets and rights. (b) "Event of Default" shall mean an event so defined in the Loan Agreement. (c) "Liabilities" shall mean all the obligations of the Pledgor to the Pledgee, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under the Loan Agreement and the Promissory Note. (d) "Pledged Assets" means all assets of the Borrower pledged, as of January 1, 2000, as collateral security for the Borrower's performance of its obligations under that certain Loan Agreement between the Borrower and the Lender dated April 14, 1994, excluding any Pledged Shares. 1 2 (e) "Pledged Shares" shall mean all the shares of common stock, par value $ .01 per share, of Astoria Financial Corporation issued in exchange for shares of common stock of Long Island Bancorp, Inc. pursuant to the acquisition of Long Island Bancorp, Inc. by Astoria Federal Corporation, which shares of common stock of Long Island Bancorp, Inc. were purchased by the Pledgor with the proceeds of the loan made by the Pledgee to the Pledgor pursuant to the Loan Agreement dated April 14, 1994, but excluding any such shares previously released pursuant to section 4. Section 2. Pledge. To secure the payment of and performance of all the Liabilities, the Pledgor hereby pledges to the Pledgee, and grants to the Pledgee a security interest in and lien upon the Collateral. Section 3. Representations and Warranties of the Pledgor. The Pledgor represents, warrants, and covenants to the Pledgee as follows: (a) to the actual knowledge of the Trustee, the execution, delivery and performance of this Pledge Agreement and the pledging of the Collateral hereunder do not and will not conflict with, result in a violation of, or constitute a default under any agreement binding upon the Pledgor; (b) the Pledged Shares are and will continue to be owned by the Pledgor free and clear of any liens or rights of any other person except the lien hereunder and under the Loan Agreement in favor of the Pledgee, and the security interest of the Pledgee in the Pledged Shares and the proceeds thereof is and will continue to be prior to and senior to the rights of all others; (c) to the actual knowledge of the Trustee, this Pledge Agreement is the legal, valid and binding obligation of the Pledgor and is enforceable against the Pledgor in accordance with its terms; (d) the Pledgor shall, from time to time, upon request of the Pledgee, promptly deliver to the Pledgee such financing statements, stock powers, proxies, and similar documents, satisfactory in form and substance to the Pledgee, with respect to the Collateral as the Pledgee may reasonably request; and (e) subject to the first sentence of section 4(b), the Pledgor shall not, so long as any Liabilities are outstanding, sell, assign, exchange, pledge or otherwise transfer or encumber any of its rights in and to any of the Collateral. Section 4. Eligible Collateral. (a) As used herein the term "Eligible Collateral" shall mean that amount of Collateral which has an aggregate fair market value equal to the amount by which the Pledgor is in default (without regard to any amounts owing solely as the result of an acceleration of the Loan 2 3 Agreement) or such lesser amount of Collateral as may be required pursuant to section 12 of this Pledge Agreement. (b) The Collateral shall be released from this Pledge Agreement in a manner conforming to the requirements of Treasury Regulation ss. 54.4975-7(b)(8)(i), as the same may be from time to time amended or supplemented. In the event of a termination of the ESOP or the occurrence of a Change in Control after December 31, 2009, all Pledged Shares shall be forthwith released from this Pledge Agreement and shall not be applied to satisfy any Liabilities. In the event of a Change in Control prior to January 1, 2010, all Pledged Shares in excess of the number determined under the following table shall be forthwith released from this Pledge Agreement and shall not be applied to satisfy any Liabilities: YEAR OF PLEDGED YEAR OF PLEDGED CHANGE SHARES CHANGE SHARES IN IN CONTROL CONTROL 2001 1,708,900 2006 1,611,725 2002 1,689,463 2007 1,592,288 2003 1,670,026 2008 1,572,851 2004 1,650,589 2009 1,553,414 2005 1,591,152 To the extent that the Collateral consists of assets other than or in addition to Pledged Shares, the provisions of such Regulations shall be applied separately to each class of security or each class or other type of asset included in the Collateral. Subject to such Regulations, the Pledgee may from time to time, after any Default or Event of Default, and without prior notice to the Pledgor, transfer all or any part of the Eligible Collateral into the name of the Pledgee or its nominee, with or without disclosing that such Eligible Collateral is subject to any rights of the Pledgor and may from time to time, whether before or after any of the Liabilities shall become due and payable, without notice to the Pledgor, take all or any of the following actions: (i) notify the parties obligated on any of the Collateral to make payment to the Pledgee of any amounts due or to become due thereunder, (ii) release or exchange all or any part of the Collateral, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, and (iii) take control of any proceeds of the Collateral. Section 5. Delivery; Further Assurances. (a) The Pledgor shall deliver to the Pledgee upon execution of this Pledge Agreement an assignment by the Pledgor of all the Pledgor's rights to and interest in the Collateral. (b) So long as no Default or Event of Default shall have occurred and be continuing, (i) the Pledgor shall be entitled to exercise any and all voting and other rights pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms of this Pledge Agreement, and (ii) the Pledgor shall be entitled to receive any and all cash dividends or other 3 4 distributions paid in respect of the Collateral. (c) For so long as this Pledge Agreement shall be in effect, the Pledgor shall take such other actions and execute and deliver such other documents as the Pledgee may reasonably request in order to secure for the Pledgee's benefit a perfected first priority lien and security interest in any or all of the Collateral under the New York Uniform Commercial Code; provided, however, that the Pledgee shall not be required to take any action or execute or deliver any document pursuant to this section 5(c) to the extent that it determines, in reliance on an opinion of legal counsel, that the taking of such action or the execution or delivery of such document would result in a prohibited transaction under section 4975 of the Code or section 406 of ERISA, impair the status of the ESOP as a tax-qualified plan under section 401(a) of the Code or an employee stock ownership plan under section 4975 of the Code, impair the tax-exempt status of the Borrower under section 501(a) of the Code or violate any other requirement of ERISA applicable to the ESOP. Section 6. Events of Default. (a) If a Default or an Event of Default shall be existing, in addition to the rights it may have under the Loan Agreement, the Promissory Note, and this Pledge Agreement, or by virtue of any other instrument, (i)the Pledgee may exercise, with respect to Eligible Collateral, from time to time any rights and remedies available to it under the Uniform Commercial Code as in effect from time to time in the State of New York or otherwise available to it and (ii) the Pledgee shall have the right, for and in the name, place and stead of the Pledgor, to execute endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Eligible Collateral. Written notification of intended disposition of any of the Eligible Collateral shall be given by the Pledgee to the Pledgor at least three (3) Business Days before such disposition. Subject to section 13 below, any proceeds of any disposition of Eligible Collateral may be applied by the Pledgee to the payment of expenses in connection with the Eligible Collateral, including, without limitation, reasonable attorneys' fees and legal expenses, and any balance of such proceeds may be applied by the Pledgee toward the payment of such of the Liabilities as are in Default, and in such order of application, as the Pledgee may from time to time elect. No action of the Pledgee permitted hereunder shall impair or affect its rights in and to the Eligible Collateral. All rights and remedies of the Pledgee expressed hereunder are in addition to all other rights and remedies possessed by it, including, without limitation, those contained in the documents referred to in the definition of Liabilities in section 1 hereof. (b) In any sale of any of the Eligible Collateral after a Default or an Event of Default shall have occurred, the Pledgee is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers or further restrict such prospective bidders or purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Eligible Collateral), or in order to obtain such required approval of the sale or of the purchase by any governmental regulatory authority or official, and the Pledgor further agrees that such compliance shall not result in such sale's being considered or deemed not to have been made in a commercially reasonable 4 5 manner, nor shall the Pledgee be liable or accountable to the Pledgor for any discount allowed by reason of the fact that such Eligible Collateral is sold in compliance with any such limitation or restriction. Section 7. Payment in Full. Upon the payment in full of all outstanding Liabili ties, this Pledge Agreement shall terminate and the Pledgee shall forthwith assign, transfer and deliver to the Pledgor, against receipt and without recourse to the Pledgee, all Collateral then held by the Pledgee pursuant to this Pledge Agreement. Section 8. No Waiver. No failure or delay on the part of the Pledgee in exer cising any right or remedy hereunder or under any other document which confers or grants any rights in the Pledgee in respect of the Liabilities shall operate as a waiver thereof nor shall any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy of the Pledgee. Section 9. Binding Effect; No Assignment or Delegation. This Pledge Agreement shall be binding upon and inure to the benefit of the Pledgor, the Pledgee and their respective successors and assigns, except that the Pledgor may not assign or transfer its rights hereunder without the prior written consent of the Pledgee (which consent shall not unreasonably be withheld). Each duty or obligation of the Pledgor to the Pledgee pursuant to the provisions of this Pledge Agreement shall be performed in favor of any person or entity designated by the Pledgee, and any duty or obligation of the Pledgee to the Pledgor may be performed by any other person or entity designated by the Pledgee. Section 10. Governing Law. This Loan Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts to be performed wholly within the State of New York entered into between parties all of whom are citizens and residents of the State of New York. Section 11. Notices. All notices, requests, instructions or documents hereunder shall be in writing and delivered by hand or commercial messenger service or sent by United States mail, registered or certified, return receipt requested, with proper postage prepaid, or by telex or facsimile, addressed as follows: (a) If to the Pledgee: Astoria Financial Corporation One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel --------------- (b) If to the Pledgor: The Long Island Savings Bank FSB 5 6 Employee Stock Ownership Plan Trust CG Trust Company 525 W. Monroe, Suite 1900 Chicago, Illinois 60601 with copies to: The Long Island Savings Bank FSB Employee Stock Ownership Plan Trust c/o Astoria Federal Savings and Loan Association One Astoria Federal Plaza Lake Success, New York 11042 Attention: General Counsel --------------- Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand or by commercial messenger service, or sent by telex or facsimile, to such party at its address specified above, or, if sent by mail, on the third Business Day after the day deposited in the mail, postage prepaid, addressed as aforesaid. Any party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; provided, however, that any such notice shall be deemed to have been given only when actually received by the party to whom it is addressed. Section 12. Interpretation. Wherever possible each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision hereof shall be prohibited by or invalid under such law, such provisions shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions hereof. Section 13. Construction. All provisions hereof shall be construed so as to maintain (a) the ESOP as a qualified leveraged employee stock ownership plan under section 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986 (the "Code"), (b) the Trust as exempt from taxation under section 501(a) of the Code and (c) the loan made pursuant to the Loan Agreement as an exempt loan under Treasury Regulation ss. 54.4975-7(b) and as described in Department of Labor Regulation ss. 2550.408b-3. IN WITNESS WHEREOF, this Pledge Agreement has been duly executed by the parties hereto as of the day and year first above written. 6 7 THE LONG ISLAND SAVINGS BANK FSB EMPLOYEE STOCK OWNERSHIP PLAN TRUST By CG TRUST COMPANY solely as Trustee and not in any other capacity By: /S/ Mary Lou Filiault -------------------------------------- Name: Mary Lou Filiault -------------------------------------- Title: Vice President -------------------------------------- ASTORIA FINANCIAL CORPORATION By: /S/ Alan P. Eggleston -------------------------------------- Name: Alan P. Eggleston -------------------------------------- Title: Executive Vice President and General Counsel 7 EX-10.18 11 y46647ex10-18.txt AMENDMENT TO SECTION 4.5 OF '99 SOP OUTSIDE DIRECT 1 EXHIBIT 10.18 AMENDMENT TO SECTION 4.5 OF THE 1999 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS OF ASTORIA FINANCIAL CORPORATION Section 4.5 Method of Exercise. ... (b) The Exercise Price of Shares to be purchased upon exercise of any Option shall be paid in full (i) in cash (by certified or bank check or such other instrument as the Company may accept); (ii) in the form of Shares already owned beneficially for a period of more than six months by the Option holder having an aggregate Fair Market Value on the date the Option is exercised equal to the aggregate Exercise Price to be paid; or (iii) by a combination thereof. Payment for any Shares to be purchased upon exercise of an Option may also be made by delivering a properly executed exercise notice to the Company, together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds to pay the purchase price. To facilitate the foregoing, the Company may enter into agreements for coordinated procedures with one or more brokerage firms. EX-10.26 12 y46647ex10-26.txt EMPLOYMENT TERM/RELEASE AGREEMENT: CONEFRY 1 EXHIBIT 10.26 EMPLOYMENT TERMINATION AND RELEASE AGREEMENT This EMPLOYMENT TERMINATION AND RELEASE AGREEMENT (hereinafter referred to as the "Agreement") is made and entered into by and among JOHN J. CONEFRY, JR. (referred to below as "You" or "Your"), ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION (referred to below as the "Company") and ASTORIA FINANCIAL CORPORATION (referred to below as the "Holding Company"). PRELIMINARY STATEMENT Your employment with the Holding Company and/or the Company is being terminated. The Holding Company is prepared to pay You severance benefits, but will do so only if You give up Your rights to bring or participate in certain types of lawsuits. By signing this Agreement, You will give up those rights, and the Holding Company will agree to pay You severance benefits. This Agreement was given to You on November 21, 2000. This Agreement will be of no force or effect unless it is properly signed and returned to the Company no later than December 29, 2000. YOU SHOULD THOROUGHLY REVIEW AND UNDERSTAND THE TERMS, CONDITIONS AND EFFECT OF THIS AGREEMENT. THEREFORE, YOU HAVE A MINIMUM OF TWENTY-ONE (21) DAYS AFTER THIS AGREEMENT IS GIVEN TO YOU TO CONSIDER IT BEFORE SIGNING IT. YOU ARE ADVISED TO CONSULT WITH AN ATTORNEY BEFORE YOU SIGN. AGREEMENT 1. You shall resign from your position as an operating officer, as well as from any and all other positions that You hold in Your capacity as an employee of the Holding Company, the Company and their direct or indirect subsidiaries and affiliates, effective at the close of business on December 29, 2000 (the "Termination Date"). Your resignation shall have no effect on Your status as a non-employee Vice Chairman and director of the Company or the Holding Company and shall result in the commencement, on the day after the Termination Date, of the Consulting Period under the Litigation Advisory Committee Consulting Agreement between You and the Holding Company made and entered into as of April 2, 1998 (the "Litigation Committee Agreement"). 2. Your compensation and fringe benefits as an employee will continue through the Termination Date in accordance with Your Employment Agreement dated April 2, 1998 by and between You and the Holding Company. You acknowledge that, because Your Termination Date is prior to January 1, 2001, You will not be eligible for a bonus under the Astoria Financial Corporation Executive Officer Annual Incentive Plan for the fiscal year ending December 31, 2000. In recognition of this fact, the Company will pay You on or before January 26, 2001 (or, if later, the date on which this Agreement becomes irrevocable) such sum as would have been due and payable 1 2 to you pursuant to the Astoria Financial Corporation Executive Officer Annual Incentive Plan had Your employment not terminated until after December 31, 2000 based upon the terms and conditions of the Astoria Financial Corporation Executive Officer Annual Incentive Plan consistently applied to all of the Astoria Financial Corporation Executive Officer Annual Incentive Plan's participants for the 2000 Plan year. In addition, the Company will provide to you a continuation of Your life, health and medical insurance coverages upon the same terms and conditions that would apply to you as an active employee (including, but not limited to, premium sharing arrangements, deductibles and co-payments) for a period of 3 years beginning on the Termination Date (the "Continued Benefits"). Any period for which You may be entitled to elect "continuation coverage" under any applicable federal, state or local law shall not commence running until the expiration of the period for which Continued Benefits are provided hereunder. You acknowledge that, because Your Termination Date is prior to December 31, 2000, You will not be eligible for a year end allocation under the Astoria Federal Savings and Loan Association Employee Stock Ownership Plan (the "ESOP") for the fiscal year ending December 31, 2000. In recognition of this fact, the Company will pay You as soon as practicable following the determination of what such allocation would have been had You been employed by the Company through December 31, 2000 (or, if later, the date on which this Agreement becomes irrevocable) such sum in cash as would have been due and payable to you pursuant to the ESOP had Your employment not terminated until after December 31, 2000 based upon the terms and conditions of the ESOP consistently applied to all of the ESOP's participants for the 2000 Plan year. Such payments shall be subject to deductions for applicable federal, state and local withholding taxes. 3. The Company will provide You with all of the post-employment benefits for which You are eligible under the Company's post-employment benefit plans, in accordance with the plans' prevailing terms and conditions. You acknowledge that such benefits do not include benefits under any severance benefits or plans, however denominated, maintained by the Company or the Holding Company. In addition, the Company will pay You $5,426,127.08 on January 12, 2001 (or, if later, the date on which the Agreement becomes irrevocable), representing the aggregate amount potentially due to You pursuant to sections 9(b)(iv), (v), (vi) and (vii) of the Employment Agreement between You and the Holding Company dated April 2, 1998 (the "Employment Agreement"). All such compensation and benefits shall be subject to deductions for applicable federal, state and local withholding taxes. You will be deemed fully vested in all restricted stock awards and unexercised stock options outstanding to You as of December 29, 2000 under any stock option or restricted stock plan, program or arrangement of the Company or the Holding Company. For purposes of determining any post-termination exercise period for Your outstanding stock options, the Termination Date shall be considered the date of termination of Your employment, notwithstanding Your continued performance of service as a non-employee director or pursuant to the Litigation Advisor Committee Consulting Agreement. In making these payments, neither the Company nor the Holding Company concedes that it is contractually liable for them under the Employment Agreement. 4. You hereby agree that You, on behalf of Yourself and also on behalf of any other person or persons claiming or deriving a right from You, unconditionally and irrevocably forever release and discharge the Company, the Holding Company and their respective shareholders, 2 3 agents, servants, employees, directors, officers, affiliates and/or subsidiaries, and any shareholders, agents, servants, employees, directors and/or officers of all such affiliates and/or subsidiaries and their respective heirs, successors and assigns ("the Releasees") from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, actions, demands, debts, costs, expenses, damages, injuries or causes of action ("Claims") which You now have, or ever have had, arising out of Your employment by, or termination of employment by, the Holding Company and/or the Company, up to and including the date on which You sign this Agreement, whether arising in equity or pursuant to any law, rule or regulation, including any Claims of which You are not aware or do not suspect to exist as of the date on which You sign this Agreement, and specifically including claims under section 9 of the Employment Agreement; provided, however, that nothing contained herein shall be deemed a release or waiver of Your rights pursuant to Section 6 of Your Employment Agreement dated April 2, 1998 by and between You and the Holding Company. 5. The release contained in Paragraph 4 of this Agreement includes, but is not limited to, any Claims that You (or any person or persons claiming or deriving a right from You) may have based on discrimination due to age, race, sex, religion or national origin, or any other claims pursuant to the Worker Adjustment and Retraining Notification Act, the Age Discrimination in Employment Act of 1967, as amended, the National Labor Relations Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Family and Medical Leave Act, the Rehabilitation Act of 1973, the Americans with Disabilities Act, the Equal Pay Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, as amended, the Internal Revenue Code of 1986, as amended, Executive Orders Nos. 11246 and 11141, the New York Human Rights Law, the New York Equal Pay Law, the New York Equal Rights Law, and any other federal, state or local statute, rule, constitutional provision, regulation, ordinance or common law, including, but not limited to, those for wrongful discharge, fraud, intentional or negligent infliction of emotional distress and breach of any expressed or implied covenant of good faith and fair dealing, and including but not limited to, any Claims for recovery of attorney's fees. YOU UNDERSTAND THAT BY SIGNING THIS RELEASE, YOU ARE GIVING UP ALL RIGHTS THAT YOU HAVE UNDER THESE AND OTHER LAWS. 6. You acknowledge that: (a) the payments and benefits provided in Paragraphs 2 and 3 of this Agreement ("Additional Benefits") are in consideration for the release contained herein and are in addition to what You are otherwise entitled to receive from the Company; (b) You have been advised to consult an attorney before signing this Agreement and have been afforded the opportunity to do so; (c) You have had the opportunity to consider this Agreement for at least 21 days; (d) You have read this Agreement in its entirety, understand its terms, and knowingly and voluntarily consent to its terms and conditions; 3 4 (e) the releases made by You in Paragraphs 4 and 5 of this Agreement are made knowingly and voluntarily, and without coercion by the Company, the Holding Company or any of the Releasees; and (f) the filing of a Claim against the Company, the Holding Company or any of the Releasees by You (or any person or persons claiming or deriving a right from You) shall be a violation of this Agreement resulting in Your obligation to repay to the Company the Additional Benefits You have received in consideration of the releases made by You in Paragraphs 4 and 5 of this Agreement and forfeiture of Your rights to any future Additional Benefits, in addition to any costs or liabilities that may be imposed on You by a court for a violation of this Agreement. 7. The Holding Company and the Company agree that upon Your execution of this Agreement, the Holding Company shall cause to be released a press release which shall contain a statement as the termination of Your employment from the Holding Company and the reason(s) for such termination as set forth in Exhibit A to this Agreement. Neither the Holding Company or the Company will make any other disclosures concerning Your employment or other information regarding You except for confirming employment, job title, dates of service and rate of pay, plus additional information as, and only as, required pursuant to subpoena or otherwise required by law. You agree hereafter not to disclose or make reference to the terms of this Agreement except to Your attorney and Your immediate family or as required by law without the prior written consent of the Company. You further understand and agree that You shall not hereafter contact or communicate with employees of the Company or former employees of the Company regarding the subject matter of this Agreement and will not join in, facilitate or otherwise participate in any action, proceeding or investigation against the Company. To the extent provided by law, You will not be prohibited from filing claims, or participating in claims filed by others, with the Equal Employment Opportunity Commission. 8. Neither Your termination of employment nor the execution of this Agreement shall affect our respective rights and obligations under the Litigation Committee Agreement or sections 6, 13, 14 or 15 of the Employment Agreement, all of which shall continue in effect. For purposes of determining the period during which sections 6, 13 and 15 of the Employment Agreement shall apply, the Termination Date shall be deemed to be the last day of the Employment Period and the date of termination of your employment. 9. This Agreement constitutes the entire understanding between the parties, and supersedes any and all prior understandings and agreements between the parties. 10.The parties acknowledge that no representations, promises, consideration or inducements have been made by the Company or by any of the Releasees to You other than what is contained in this Agreement. 11.This Agreement may not be modified except by a writing signed by all parties. 4 5 12.The parties acknowledge that this Agreement does not constitute or imply any admission of liability by the Company, or by any of the Releasees, to You or to anyone deriving or claiming a right through You or on Your behalf. 13.If any provision in this Agreement is declared or determined by any court to be illegal, void, or unenforceable, the illegality or unenforceability of such provision shall have no effect upon, and shall not impair, the enforceability or validity of any other provisions in this Agreement. 14.You agree and understand that any action by You in violation of this Agreement shall void the Company's payments to You of all Additional Benefits provided for herein and shall require Your immediate repayment of the value of all consideration paid to You pursuant to this Agreement, and shall further require You to pay all reasonable costs and attorneys' fees in defending any action You bring plus any other damages to which the Company may be entitled. You further consent to the issuance of a temporary restraining order and/or injunction as an appropriate remedy for violation of this Agreement and will not contest the entry of same if a violation is shown. 15.This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 16.The parties acknowledge that this Agreement will only become effective and irrevocable on the eighth day following the day it is signed by You and delivered by You to the Company and only if it is delivered by You to the Company no later than December 29, 2000. You may revoke this Agreement at any time prior to its effective date by giving written notice of revocation to the Company by registered or certified mailed addressed as follows: Astoria Federal Savings and Loan Association, One Astoria Federal Plaza, Lake Success, New York 11042-1085, Attention: General Counsel. No payments will be made or benefits provided until this Agreement has become irrevocable. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first herein written. ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION /s/ John J. Conefry, Jr. By:/s/ George L. Engelke, Jr. - ---------------------------- -------------------------- Employee Signature Name:George L. Engelke, Jr. Title: Chairman, President and Chief Executive Officer November 21, 2000 November 21, 2000 - ---------------------------------- ----------------------------------- Date of Signature Date of Delivery of Signed Agreement 5 6 ASTORIA FINANCIAL CORPORATION By: /s/ George L. Engelke, Jr. ------------------------------ Name: George L. Engelke, Jr. Title: Chairman, President and Chief Executive Officer Exhibit A Contact: Peter J. Cunningham First Vice President Investor Relations 516-327-7877 FOR IMMEDIATE RELEASE JOHN J. CONEFRY, JR., VICE CHAIRMAN, TO RESIGN AS AN OPERATING OFFICER OF ASTORIA FINANCIAL CORPORATION Lake Success, New York, November 22, 2000 -- George L. Engelke, Jr. Chairman, President and Chief Executive Officer of Astoria Financial Corporation (Nasdaq: ASFC), announced today that Astoria Financial Corporation has agreed, effective December 29, 2000, to accept the resignation of John J. ("Jay") Conefry, Jr. as an operating officer of Astoria Financial Corporation. No replacement will be named for Mr. Conefry, who will continue to serve as a Vice Chairman of the Board of Directors of Astoria Financial Corporation and Astoria Federal Savings and Loan Association. Mr. Engelke commented, "We are grateful for the significant contribution Jay Conefry made to Astoria in assisting with the seamless integration of The Long Island Savings Bank, FSB into Astoria Federal Savings and Loan Association following its acquisition by Astoria Financial Corporation. We are also very pleased that Jay will continue to serve as a director." In accordance with his employment contract, Mr. Conefry will receive a severance payment which will result in an after-tax charge to operations in the fourth quarter ending December 31, 2000 of approximately $3.5 million, or $0.07 per diluted common share. Astoria Financial Corporation, the holding company for Astoria Federal Savings and Loan Association with assets of $22.2 billion, is the second largest thrift institution in New York and sixth largest in the United States. Astoria Federal, through its 87 banking offices, provides retail banking, mortgage, consumer and small business loan services to 700,000 customers. Astoria commands the third largest deposit market share in the attractive Long Island market, which includes Brooklyn, Queens, Nassau and Suffolk counties with a population exceeding that of 39 individual states. Astoria originates mortgage loans through an extensive broker network and/or loan production offices in fourteen states: New York, New Jersey, Connecticut, Pennsylvania, Ohio, Massachusetts, Delaware, Maryland, Illinois, Virginia, North Carolina, South Carolina, Georgia and Florida. # # # 6 EX-10.43 13 y46647ex10-43.txt CHANGE OF CONTROL SEVERANCE AGREEMENT: LEISTMANN 1 EXHIBIT 10.43 CHANGE OF CONTROL SEVERANCE AGREEMENT This CHANGE OF CONTROL SEVERANCE AGREEMENT (the "Agreement") is made and entered into as of December 20, 2000 by and among ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION, a savings and loan association organized and existing under the laws of the United States of America and having an office at One Astoria Federal Plaza, Lake Success, New York 11042 (the "Bank"), ASTORIA FINANCIAL CORPORATION, a business corporation organized and existing under the laws of the State of Delaware and having an office at One Astoria Federal Plaza, Lake Success, New York 11042 (the "Company") and Harold R. Leistmann, an individual residing at 29 Shenandoah Boulevard, Coram, New York 11727 (the "Officer"). INTRODUCTORY STATEMENT WHEREAS, the Boards of Directors of the Bank and the Company have approved the Bank and the Company entering into Change of Control Severance Agreements with certain key officers of the Bank, WHEREAS, the Officer is a key officer of the Bank; WHEREAS, should the possibility of a Pending Change of Control or Change of Control of the Bank or the Company arise, the Boards of Directors of the Bank and the Company believe it is imperative that the Bank, the Company and the Boards of Directors of the Bank and the Company should be able to rely upon the Officer to continue in his or her position, and that the Bank and the Company should be able to receive and rely upon the Officer's advice, if requested, as to the best interests of the Bank and the Company and their respective shareholders without concern that the Officer might be distracted by the personal uncertainties and risks created by the possibility of a Pending Change of Control or Change of Control; WHEREAS, should the possibility of a Pending Change of Control or Change of Control arise, in addition to his or her regular duties, the Officer may be called upon to assist in the assessment of such possible Pending Change of Control or Change of Control, advise management and the Board as to whether such Pending Change of Control or Change of Control would be in the best interests of the Bank, the Company and their respective shareholders, and to take such other actions as the Boards of Directors of the Bank and the Company might determine to be appropriate; and NOW, THEREFORE, to assure the Bank and the Company that they will have the continued dedication of the Officer and the availability of his or her advice and counsel notwithstanding the possibility, threat, or occurrence of a Pending Change of Control or Change of Control of the Bank or the Company, and to induce the Officer to remain in the employ of the Bank, in consideration of the mutual premises and agreements set forth herein and for other good and valuable consideration, the Bank, the Company and the Officer agree as follows: Page -1- 2 AGREEMENT Section 1. Effective Date; Term; Pending Change of Control and Change of Control Defined. (a) This Agreement shall take effect on December 20, 2000 (the "Effective Date") and shall remain in effect during the period (the "Term") beginning on the Effective Date and ending on the earlier of : (i) the date, prior to the occurrence of a Pending Change of Control or a Change of Control, as defined below, respectively, on which the Officer's employment by the Bank terminates whether by discharge, resignation, death, disability or retirement, or (ii) the later of: (A) the first anniversary of the date on which the Bank notifies the Executive of its intent to discontinue the Agreement (the "Initial Expiration Date") or, (B) the second anniversary of the latest Change of Control, as defined below, that occurs after the Effective Date and before the Initial Expiration Date, or (b) For purposes of this Agreement, a "Change of Control" shall be deemed to have occurred upon the happening of any of the following events: (i) the consummation of a reorganization, merger or consolidation of the Company with one or more other persons, other than a transaction following which: (A) at least 51% of the equity ownership interests of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act")) in substantially the same relative proportions by persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at least 51% of the outstanding equity ownership interests in the Company; and Page -2- 3 (B) at least 51% of the securities entitled to vote generally in the election of directors of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the same relative proportions by persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at least 51% of the securities entitled to vote generally in the election of directors of the Company; (ii) the acquisition of all or substantially all of the assets of the Company or beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the outstanding securities of the Company entitled to vote generally in the election of directors by any person or by any persons acting in concert; (iii) a complete liquidation or dissolution of the Company; (iv) the occurrence of any event if, immediately following such event, at least 50% of the members of the Board of Directors of the Company do not belong to any of the following groups: (A) individuals who were members of the Board of Directors of the Company on the Effective Date of this Agreement; or (B) individuals who first became members of the Board of Directors of the Company after the Effective Date of this Agreement either: (1) upon election to serve as a member of the Board of Directors of the Company by affirmative vote of three-quarters of the members of such Board, or of a nominating committee thereof, in office at the time of such first election; or (2) upon election by the shareholders of the Board of Directors of the Company to serve as a member of such Board, but only if nominated for election by affirmative vote of three-quarters of the members of the Board of Directors of the Company, or of a nominating committee thereof, in office at the time of such first nomination; provided, however, that such individual's election or nomination did not result from an actual or threatened election contest (within the meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or Page -3- 4 consents (within the meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) other than by or on behalf of the Board of Directors of the Company; or (v) any event which would be described in section 1(b)(i), (ii), (iii) or (iv) if the term "Bank" were substituted for the term "Company" therein. In no event, however, shall a Change of Control be deemed to have occurred as a result of any acquisition of securities or assets of the Company, the Bank, or a subsidiary of either of them, by the Company, the Bank, or any subsidiary of either of them, or by any employee benefit plan maintained by any of them. For purposes of this section 1(b), the term "person" shall have the meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act. (c) For purposes of this Agreement, a "Pending Change of Control" shall mean: (i) the approval by the shareholders of the Bank or the Company of a definitive agreement for a transaction which, if consummated, would result in a Change of Control; or (ii) the approval by the shareholders of the Bank or the Company of a transaction which, if consummated, would result in a Change of Control. Section 2. Discharge Prior to a Pending Change of Control. The Bank may discharge the Officer at any time prior to the occurrence of a Pending Change of Control or, if no Pending Change of Control has occurred, a Change of Control, for any reason or for no reason. In such event: (a) The Bank shall pay to the Officer or the Officer's estate his or her earned but unpaid compensation, including, without limitation, salary and all other items which constitute wages under applicable law, as of the date of the Officer's termination of employment. This payment shall be made at the time and in the manner prescribed by law applicable to the payment of wages but in no event later than 30 days after the date of the Officer's termination of employment. (b) The Bank shall provide the benefits due, if any, to the Officer or the Officer's estate, surviving dependents or designated beneficiaries, as applicable, under the employee benefit plans and programs and compensation plans and programs maintained for the benefit of the officers and employees of the Bank. The time and manner of payment or other delivery of these benefits and the recipients of such benefits shall be determined according to the terms and conditions of the applicable plans and programs. Page -4- 5 The payments and benefits described in sections 2(a) and (b) shall be referred to in this Agreement as the "Standard Termination Entitlements." Section 3. Termination of Employment Due to Death. The Officer's employment with the Bank shall terminate automatically, and without any further action on the part of any party to this Agreement, on the date of the Officer's death. In such event, the Bank shall pay and deliver to the Officer's estate and surviving dependents and designated beneficiaries, as applicable, the Standard Termination Entitlements. Section 4. Termination Due to Disability after a Pending Change of Control or a Change of Control. The Bank may terminate the Officer's employment during the Term and after the occurrence of a Pending Change of Control or a Change of Control upon a determination by the Board of Directors of the Bank, by the affirmative vote of 75% of its entire membership, acting in reliance on the written advice of a medical professional acceptable to it, that the Officer is suffering from a physical or mental impairment which, at the date of the determination, has prevented the Officer from performing the Officer's assigned duties on a substantially full-time basis for a period of at least one hundred and eighty (180) days during the period of one (1) year ending with the date of the determination or is likely to result in death or prevent the Officer from performing the Officer's assigned duties on a substantially full-time basis for a period of at least one hundred and eighty (180) days during the period of one (1) year beginning with the date of the determination. In such event: (a) The Bank shall pay and deliver the Standard Termination Entitlements to the Officer or, in the event of the Officer's death following such termination but before payment, to the Officer's estate, surviving dependents or designated beneficiaries, as applicable. (b) In addition to the Standard Termination Entitlements, the Bank shall continue to pay the Officer his or her base salary, at the annual rate in effect for the Officer immediately prior to the termination of the Officer's employment, during a period ending on the earliest of: (i) the expiration of one hundred and eighty (180) days after the date of termination of the Officer's employment; (ii) the date on which long-term disability insurance benefits are first payable to the Officer under any long-term disability insurance plan covering employees of the Bank; or (iii) the date of the Officer's death. A termination of employment due to disability under this section 4 shall be effected by a notice of termination given to the Officer by the Bank and shall take effect on the later of the effective date of termination specified in such notice or, if no such date is specified, the date on which the notice of termination is deemed given to the Officer. Page -5- 6 Section 5. Discharge with Cause after a Pending Change of Control or Change of Control. (a) The Bank may terminate the Officer's employment with "Cause" during the Term and after the occurrence of a Pending Change of Control or a Change of Control, but a termination shall be deemed to have occurred with "Cause" only if: (i) (A) the Board of Directors of the Bank, by the affirmative vote of 75% of its entire membership, determines that the Officer is guilty of personal dishonesty, incompetence, wilful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, wilful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease and desist order, or any material breach of this Agreement, in each case measured against standards generally prevailing at the relevant time in the savings and community banking industry; (B) prior to the vote contemplated by section 5(a)(i)(A), the Board of Directors of the Bank shall provide the Officer with notice of the Bank's intent to discharge the Officer for Cause, detailing with particularity the facts and circumstances which are alleged to constitute Cause (the "Notice of Intent to Discharge"); and (C) after the giving of the Notice of Intent to Discharge and before the taking of the vote contemplated by section 5(a)(i)(A), the Officer, together with the Officer's legal counsel, if he so desires, are afforded a reasonable opportunity to make both written and oral presentations before the Board of Directors of the Bank for the purpose of refuting the alleged grounds for Cause for the Officer's discharge; and (D) after the vote contemplated by section 5(a)(i)(A), the Bank has furnished to the Officer a notice of termination which shall specify the effective date of the Officer's termination of employment (which shall in no event be earlier than the date on which such notice is deemed given) and include a copy of a resolution or resolutions adopted by the Board of Directors of the Bank, certified by its corporate secretary, authorizing the termination of the Officer's employment with Cause and stating with particularity the facts and circumstances found to constitute Cause for the Officer's discharge (the "Final Discharge Notice"); or (ii) the Officer, during the 90 day period commencing on the delivery to the Page -6- 7 Officer by the Bank of the Notice of Intent to Discharge specified in section 5(a)(i)(B), resigns his or her employment with the Bank prior to the delivery to the Officer by the Bank of the Final Discharge Notice specified in section 5(a)(i)(D). For purposes of this section 5, no act or failure to act, on the part of the Officer, shall be considered "willful" unless it is done, or omitted to be done, by the Officer in bad faith or without reasonable belief that the Officer's action or omission was in the best interests of the Bank or the Company, respectively. Any act or failure to act based upon authority given pursuant to a resolution duly adopted by the Board of Directors of the Bank or the Company or based upon the written advice of counsel for the Bank or the Company shall be conclusively presumed to be done or omitted to be done by the Officer in good faith and in the best interests of the Bank or the Company, respectively. (b) If the Officer is discharged with Cause during the Term and after a Pending Change of Control or a Change of Control, the Bank shall pay and provide to him or, in the event of the Officer's death following such discharge but prior to payment and providing, to the Officer's estate, surviving dependents or designated beneficiaries, as applicable, the Standard Termination Entitlements only. (c) Following the giving of a Notice of Intent to Discharge, the Bank may temporarily suspend the Officer's duties and authority and, in such event, may also suspend the payment of salary and other cash compensation, but not the Officer's participation in retirement, insurance and other employee benefit plans. If the Officer is not discharged or is discharged without Cause within forty-five (45) days after the giving of a Notice of Intent to Discharge, payments of salary and cash compensation shall resume, and all payments withheld during the period of suspension shall be promptly restored. If the Officer is discharged with Cause not later than forty-five (45) days after the giving of the Notice of Intent to Discharge, all payments withheld during the period of suspension shall be deemed forfeited and shall not be included in the Standard Termination Entitlements. If a Final Discharge Notice is given later than forty-five (45) days, but sooner than ninety (90) days, after the giving of the Notice of Intent to Discharge, all payments made to the Officer during the period beginning with the giving of the Notice of Intent to Discharge and ending with the Officer's discharge with Cause shall be retained by the Officer and shall not be applied to offset the Standard Termination Entitlements. If the Bank does not give a Final Discharge Notice to the Officer within ninety (90) days after giving a Notice of Intent to Discharge, the Notice of Intent to Discharge shall be deemed withdrawn and any future action to discharge the Officer with Cause shall require the giving of a new Notice of Intent to Discharge. If the Officer resigns pursuant to Section 5(a)(ii), the Officer shall forfeit his or her right to suspended amounts that have not been restored as of the date of the Officer's resignation or notice of resignation, whichever is Page -7- 8 earlier. Section 6. Discharge Without Cause after a Pending Change of Control or Change of Control. The Bank may discharge the Officer without Cause at any time after the occurrence of a Pending Change of Control or a Change of Control, and in such event: (a) The Bank shall pay and deliver the Standard Termination Entitlements to the Officer or, in the event of the Officer's death following the Officer's discharge but before payment, to the Officer's estate, surviving dependents or designated beneficiaries, as applicable. (b) In addition to the Standard Termination Entitlements: (i) the Bank shall provide for a period of two years following the date of the Officer's discharge (the "Assurance Period") for the benefit of the Officer and the Officer's spouse and dependents continued group life, health (including hospitalization, medical and major medical), dental, accident and long-term disability insurance benefits on substantially the same terms and conditions (including any co-payments and deductibles, but excluding any premium sharing arrangements, it being the intention of the parties to this Agreement that the premiums for such insurance benefits shall be the sole cost and expense of the Bank) in effect for them immediately prior to the Officer's discharge. The coverage provided under this section 6(b)(i) may, at the election of the Bank, be secondary to the coverage provided as part of the Standard Termination Entitlements and to any employer-paid coverage provided by a subsequent employer or through Medicare, with the result that benefits under the other coverages will offset the coverage required by this section 6(b)(i), provided, however, that for purposes of this section 6(b)(i) benefits provided at the cost of the Officer or the Officer's spouse or dependants pursuant to the Comprehensive Omnibus Budget Reconciliation Act, as amended, shall not be considered Standard Termination Entitlements. (ii) The Bank shall make a lump sum payment to the Officer or, in the event of the Officer's death following the Officer's discharge but before payment, to the Officer's estate in an amount equal to the salary that the Officer would have earned if he had continued working for the Bank during the Assurance Period at the highest annual rate of salary achieved during the period of three (3) years ending immediately prior to the date of termination (the "Salary Severance Payment"). The Salary Severance Payment shall be computed using the following formula: Page -8- 9 SSP = BS x NY where: "SSP" is the amount of the Salary Severance Payment, before the deduction of applicable federal, state and local withholding taxes; "BS" is the highest annual rate of salary achieved by the Officer during the period of three (3) years ending immediately prior to the date of termination; and "NY" is the Assurance Period expressed as a number of years (rounded, if such period is not a whole number, to the next highest whole number). The Salary Severance Payment shall be made within thirty (30) days after the Officer's termination of employment and shall be in lieu of any claim to a continuation of base salary which the Officer might otherwise have and in lieu of cash severance benefits under any severance benefits program which may be in effect for officers or employees of the Bank. (iii) The Bank shall make a lump sum payment to the Officer or, in the event of the Officer's death following the Officer's discharge but before payment, to the Officer's estate in an amount equal to the potential annual bonuses that the Officer would have earned if the Officer had continued working for the Bank during the Assurance Period at the highest annual rate of salary achieved during the period of three (3) years ending immediately prior to the date of termination (the "Bonus Severance Payment"). The Bonus Severance Payment shall be computed using the following formula: BSP = ((BS x TIO x IP) + ( BS x TIO x FP x AP)) x NY where: "BSP" is the amount of the Bonus Severance Payment, before the deduction of applicable federal, state and local withholding taxes; "BS" is the highest annual rate of salary achieved by the Officer during the period of three (3) years ending immediately prior to the date of termination; "TIO" is the target incentive opportunity for the Officer expressed as a percentage as established by the Compensation Committee of the Board of Directors of the Bank pursuant to the Bank's Annual Incentive Plan for Select Executives for the year in which the employment of the Officer by the Bank Page -9- 10 terminates or, if no target incentive opportunity is established by the Compensation Committee of the Board of Directors of the Bank for such year with respect to the Officer, then the highest target incentive opportunity established by the Compensation Committee of the Board of Directors of the Bank for the Officer pursuant to the Annual Incentive Plan for Select Executives during the period of three (3) years ending immediately prior to the date of termination; "IP" is either (i) the percentage of the TIO which is to be determined by the individual performance of the Officer as established by the Compensation Committee of the Board of Directors of the Bank pursuant to the Bank's Annual Incentive Plan for Select Executives for the year in which the employment of the Officer by the Bank terminates or, (ii) if no target incentive opportunity has been established with respect to the Officer by the Compensation Committee of the Board of Directors of the Bank for the year in which the employment of the Officer by the Bank terminates, then the lowest percentage of the target incentive opportunity to be determined by the individual performance of the Officer established by the Compensation Committee of the Board of Directors of the Bank for the Officer pursuant to the Annual Incentive Plan for Select Executives during the period of three (3) years ending immediately prior to the date of termination; "FP" is either (i) the percentage of the TIO with respect to the Officer which is to be determined by the financial performance of the Company as established by the Compensation Committee of the Board of Directors of the Bank pursuant to the Bank's Annual Incentive Plan for Select Executives for the year in which the employment of the Officer by the Bank terminates or, (ii) if no target incentive opportunity has been established with respect to the Officer by the Compensation Committee of the Board of Directors of the Bank for the year in which the employment of the Officer by the Bank terminates, then a percentage equal to 100% minus the IP; "AP" is the highest award percentage available to the Officer with respect to the financial performance of the Company as established by the Compensation Committee of the Board of Directors of the Bank pursuant to the Bank's Annual Incentive Plan for Select Executives for the year in which the employment of the Officer by the Bank terminates or, (ii) if no target incentive opportunity has been established with respect to the Officer by the Compensation Committee of the Board of Directors of the Bank for the year in which the employment of the Officer by the Bank terminates, then the highest award percentage available to the Officer with respect to the financial performance of the Company established by the Compensation Committee of the Board of Directors of the Bank for the Officer pursuant to the Annual Page -10- 11 Incentive Plan for Select Executives during the period of three (3) years ending immediately prior to the date of termination; "NY" is the Assurance Period expressed as a number of years (rounded, if such period is not a whole number, to the next highest whole number). The Bonus Severance Payment shall be made within thirty (30) days after the Officer's termination of employment and shall be in lieu of any claim to a continuation of participation in annual bonus plans of the Bank which the Officer might otherwise have. The payments and benefits described in section 6(b) are referred to in this Agreement as the "Additional Termination Entitlements". The payments described in section 6(b)(ii) and (iii) shall be computed at the expense of the Company by an attorney of the firm of Thacher Proffitt & Wood, Two World Trade Center, New York, New York 10048 or, if such firm is unavailable or unwilling to perform such calculation, by a firm of independent certified public accountants selected by the Officer and reasonably satisfactory to the Company (the "Computation Advisor"). The determination of the Computation Advisor as to the amount of such payments shall be final and binding in the absence of manifest error. Section 7. Tax Indemnification. (a) If the Officer's employment terminates under circumstances entitling the Officer or, in the event of the Officer's death following such termination but before payment, his or her estate to the Additional Termination Entitlements, the Company shall pay to the Officer or, in the event of the Officer's death, his or her estate an additional amount intended to indemnify the Officer against the financial effects of the excise tax imposed on excess parachute payments under section 28OG of the Code (the "Tax Indemnity Payment"). The Tax Indemnity Payment shall be determined under the following formula: E x P TIP = -------------------------------------------- 1 - (( FI x ( 1 - SLI )) + SLI + E + M ) where: "TIP" is the Tax Indemnity Payment, before the deduction of applicable federal, state and local withholding taxes; "E" is the percentage rate at which an excise tax is assessed under section 4999 of the Code; Page -11- 12 "P" is the amount with respect to which such excise tax is assessed, determined without regard to this section 16; "FI" is the highest marginal rate of income tax applicable to the Officer under the Code for the taxable year in question; "SLI" is the sum of the highest marginal rates of income tax applicable to the Officer under all applicable state and local laws for the taxable year in question; and "M" is the highest marginal rate of Medicare tax applicable to the Officer under the Code for the taxable year in question. Such computation shall be made at the expense of the Company by the Computation Advisor and shall be based on the following assumptions: (i) that a change in ownership, a change in effective ownership or control or a change in the ownership of a substantial portion of the assets of the Bank or the Company has occurred within the meaning of section 28OG of the Code (a "28OG Change of Control"); (ii) that all direct or indirect payments made to or benefits conferred upon the Officer on account of the Officer's termination of employment are "parachute payments" within the meaning of section 28OG of the Code; and (iii) that no portion of such payments is reasonable compensation for services rendered prior to the Officer's termination of employment. (b) With respect to any payment that is presumed to be a parachute payment for purposes of section 28OG of the Code, the Tax Indemnity Payment shall be made to the Officer on the earlier of the date the Company, the Bank or any direct or indirect subsidiary or affiliate of the Company or the Bank is required to withhold such tax or the date the tax is required to be paid by the Officer, unless, prior to such date, the Company delivers to the Officer the written opinion (the "Opinion Letter"), in form and substance reasonably satisfactory to the Officer, of the Computation Advisor or, if the Computation Advisor is unable to provide such opinion, of an attorney or firm of independent certified public accountants selected by the Company and reasonably satisfactory to the Officer, to the effect that the Officer has a reasonable basis on which to conclude that: (i) no 28OG Change in Control has occurred, or (ii) all or part of the payment or benefit in question is not a parachute payment for purposes of section 28OG of the Code, or Page -12- 13 (iii) all or a part of such payment or benefit constitutes reasonable compensation for services rendered prior to the 28OG Change of Control, or (iv) for some other reason which shall be set forth in detail in such letter, no excise tax is due under section 4999 of the Code with respect to such payment or benefit. If the Company delivers an Opinion Letter, the Computation Advisor shall re- compute, and the Company shall make, the Tax Indemnity Payment in reliance on the information contained in the Opinion Letter. (c) In the event that the Officer's liability for the excise tax under section 4999 of the Code for a taxable year is subsequently determined to be different than the amount with respect to which the Tax Indemnity Payment is made, the Officer or the Company, as the case may be, shall pay to the other party at the time that the amount of such excise tax is finally determined, an appropriate amount, plus interest, such that the payment made pursuant to sections 7(a) or 7(b), when increased by the amount of the payment made to the Officer pursuant to this section 7(c), or when reduced by the amount of the payment made to the Company pursuant to this section 7(c), equals the amount that should have properly been paid to the Officer under section 7(a). The interest paid to the Company under this section 7(c) shall be determined at the rate provided under section 1274(b)(2)(B) of the Code. The payment made to the Officer shall include such amount of interest as is necessary to satisfy any interest assessment made by the Internal Revenue Service and an additional amount equal to any monetary penalties assessed by the Internal Revenue Service on account of an underpayment of the excise tax. To confirm that the proper amount, if any, was paid to the Officer under this section 7, the Officer shall furnish to the Company a copy of each tax return which reflects a liability for an excise tax, at least 20 days before the date on which such return is required to be filed with the Internal Revenue Service. Nothing in this Agreement shall give the Company any right to control or otherwise participate in any action, suit or proceeding to which the Officer is a party as a result of positions taken on the Officer's federal income tax return with respect to the Officer's liability for excise taxes under section 4999 of the Code. Section 8. Indemnification upon and following a Change of Control. (a) From and after the effective date of a Change of Control through the sixth anniversary of such effective date, the Bank and the Company agree to indemnify and hold harmless the Officer, against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities (collectively, "Costs") incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of Page -13- 14 matters existing or occurring at or prior to the time the Change of Control became effective whether asserted or claimed prior to, at or after the effective date of the Change of Control, and to advance any such Costs to the Officer as they are from time to time incurred, in each case to the fullest extent the Officer would have been indemnified as a director or officer of the Bank or the Company, as applicable, and as then permitted under applicable law. (b) The Officer, seeking to claim indemnification under section 8(a) of this Agreement and upon learning of any such claim, action, suit, proceeding or investigation, shall promptly notify the Bank thereof, but the failure to so notify shall not relieve the Bank or the Company of any liability it may have pursuant to this Agreement to the Officer if such failure does not materially and substantially prejudice the Bank or the Company. In the event of any such claim, action, suit, proceeding or investigation, (i) the Bank and the Company shall have the right to assume the defense thereof with counsel reasonably acceptable to the Officer, and the Bank and the Company shall not be liable to the Officer for any legal expenses of other counsel subsequently incurred by the Officer in connection with the defense thereof, except that if the Bank and the Company do not elect to assume such defense within a reasonable time or counsel for the Officer at any time advises that there are issues which raise conflicts of interest between the Bank or the Company and the Officer (and counsel for the Bank or the Company does not disagree), the Officer may retain counsel satisfactory to the Officer, and the Bank and the Company shall remain responsible for the reasonable fees and expenses of such counsel as set forth above, to be paid promptly as statements therefor are received; provided, however, that the Bank and the Company shall be obligated pursuant to this paragraph (b)(i) to pay for only one firm of counsel for all indemnified parties in any one jurisdiction with respect to any given claim, action, suit, proceeding or investigation unless the use of one counsel for such indemnified parties, including the Officer, would present such counsel with a conflict of interest; (ii) the Officer will reasonably cooperate in the defense of any such matter; and (iii) the Bank and the Company shall not be liable for any settlement effected by the Officer without their prior written consent, which shall not be unreasonably withheld. Section 9. Resignation. (a) The Officer may resign from the Officer's employment with the Bank at any time. A resignation under this section 9 shall be effected by notice of resignation given by the Officer to the Bank and shall take effect on the later of the effective date of Page -14- 15 termination specified in such notice or the date on which the notice of termination is deemed given by the Officer. For purposes of this Agreement, retirement of the Officer from the employment of the Bank or the Company under circumstances defined as "normal retirement" or "early retirement" pursuant to any qualified defined benefit or qualified defined contribution pension plan maintained by the Bank shall be deemed a resignation by the Officer's of the Officer's employment with the Bank. A resignation by the Officer as described in section 5(a)(ii) of this Agreement, for purposes of this Agreement shall be deemed to be termination with "Cause". The Officer's resignation of any of the positions within the Bank or the Company to which he has been assigned shall be deemed a resignation from all such positions. (b) The Officer's resignation shall be deemed to be for "Good Reason" if the effective date of resignation occurs during the Term, but on or after the effective date of a Pending Change of Control or Change of Control, and is on account of: (i) the failure of the Bank (whether by act or omission of the Board of Directors, or otherwise) to appoint, re-appoint, elect or re-elect the Officer to the office and position with the Bank that he held immediately prior to the Change of Control or Pending Change of Control (the "Assigned Office") or to a more senior office and position; (ii) if the Officer is or becomes a member of the Board of Directors of the Bank, the failure of the shareholders of the Bank (whether in an election in which the Officer stands as a nominee or in an election where the Officer is not a nominee), to elect or re-elect the Officer to such directorship at the expiration of the Officer's term as a director, unless such failure is a result of the Officer's refusal to stand for election; (iii) a material failure by the Bank, whether by amendment of the charter or organization, by-laws, action of the Board of Directors of the Bank or otherwise, to vest in the Officer the functions, duties, or responsibilities customarily associated with the Assigned Office; provided that the Officer shall have given notice of such failure to the Bank, and the Bank has not fully cured such failure within thirty (30) days after such notice is deemed given; (iv) any reduction of the Officer's rate of base salary in effect from time to time, whether or not material, or any failure, other than due to reasonable administrative error that is fully cured within 5 days after notice of such administrative error is deemed given, to pay any portion of the Officer's compensation as and when due; (v) any change in the terms and conditions of any compensation or benefit program in which the Officer participates which, either individually or Page -15- 16 together with other changes, has a material adverse effect on the aggregate value of the Officer's total compensation package; provided that the Officer shall have given notice of such material adverse effect to the Bank, and the Bank has not fully cured such failure within thirty (30) days after such notice is deemed given; (vi) any material breach by the Company or the Bank of any material term, condition or covenant contained in this Agreement; provided that the Officer shall have given notice to the Company and the Bank of such material adverse effect, and the Company or the Bank have not fully cured such failure within thirty (30) days after such notice is deemed given; or (vii) a change in the Officer's principal place of employment to a location that is outside of Nassau County or Queens County, New York. In all other cases, a resignation by the Officer shall be deemed to be without Good Reason. In the event of resignation, the Officer shall state in the Officer's notice of resignation whether the Officer considers his or her resignation to be a resignation with Good Reason, and if he does, he shall state in such notice the grounds which constitute Good Reason. The Officer's determination of the existence of Good Reason shall be conclusive in the absence of fraud, bad faith or manifest error. (c) In the event of the Officer's resignation for any reason, the Bank shall pay and deliver the Standard Termination Entitlements. In the event of the Officer's resignation with Good Reason and such resignation is effective within six (6) months of the effective date of the Change of Control (the "Resignation Window Period"), the Bank shall also pay and deliver the Additional Termination Entitlements. In the event the Officer's resignation with Good Reason is based upon section 9(b)(iii),(iv),(v) or (vi) and the notice required by such provision has been given within six months of the effective date of the Change of Control but the applicable cure period will not expire until on or after the date which is six months following the effective date of the Change of Control, the Resignation Window Period shall be extended so as expire 30 days following the expiration of the applicable cure period. Section 10. Terms and Conditions of the Additional Termination Entitlements. The Bank and the Officer hereby stipulate that the damages which may be incurred by the Officer following any termination of employment are not capable of accurate measurement as of the date first above written and that the Additional Termination Entitlements constitute reasonable damages under the circumstances and shall be payable without any requirement of proof of actual damage and without regard to the Officer's efforts, if any, to mitigate damages. The Bank and the Officer further agree that the Bank may condition the payment and delivery of the Additional Termination Entitlements on the receipt of: Page -16- 17 (a) the Officer's resignation from any and all positions which he holds as an officer, director or committee member with respect to the Bank or any subsidiary or affiliate of the Bank; and (b) a release of the Bank and the Company and their officers, directors, shareholders, subsidiaries and affiliates, in form and substance satisfactory to the Bank, of any liability to the Officer, whether for compensation or damages, in connection with the Officer's employment with the Bank and the termination of such employment, except for the Standard Termination Entitlements, the Additional Termination Entitlements, the Tax Indemnity Payment and indemnification payments due the Officer pursuant to section 8 or section 16 of this Agreement. To the extent the Bank conditions the payment and delivery of the Additional Termination Entitlements or any other amount due under this Agreement upon the receipt of the release provided in section 10(b) of this Agreement and such release by law may not be effective until the expiration of a required prior notice and/or a recission period following its execution by the Officer, then any payment required to be made pursuant to this Agreement may be deferred until the expiration of the period which is the sum of the period within which such payment was required to be made under the terms of this Agreement but for this section 10 and the period of any required prior notice and recission periods, provided, however, that the Bank shall pay to the Officer for each day of such deferral interest in addition to any other amounts due and owing under this Agreement at the rate of the federal short term rate established under section 1274 of the Code for the month in which the Officer's termination of employment occurs calculated on the basis of a 360 day year for the actual number of days of such deferral on the amount so deferred. Section 11. Confidentiality. Unless the Officer obtains the prior written consent of the Bank or the Company, the Officer shall keep confidential and shall refrain from using for the benefit of himself or herself, or any person or entity other than the Company or any entity which is a subsidiary of the Company or of which the Company is a subsidiary, any material document or information obtained from the Company, or from its parent or subsidiaries, in the course of the Officer's employment with any of them concerning their properties, operations or business (unless such document or information is readily ascertainable from public or published information or trade sources or has otherwise been made available to the public through no fault of the Officer) until the same ceases to be material (or becomes so ascertainable or available); provided, however, that nothing in this section 11 shall prevent the Officer, with or without the Company's consent, from participating in or disclosing documents or information in connection with any judicial or administrative investigation, inquiry or proceeding to the extent that such participation or disclosure is required under applicable law. Section 12. No Effect on Employee Benefit Plans or Programs. Except to the extent specifically provided herein, the termination of the Officer's employment Page -17- 18 during the Assurance Period or thereafter, whether by the Bank or by the Officer, shall have no effect on the rights and obligations of the parties hereto under the Bank's qualified or non-qualified retirement, pension, savings, thrift, profit-sharing or stock bonus plans, group life, health (including hospitalization, medical and major medical), dental, accident and long term disability insurance plans or such other employee benefit plans or programs, or compensation plans or programs, as may be maintained by, or cover employees of, the Bank from time to time; provided, however, that nothing in this Agreement shall be deemed to duplicate any compensation or benefits provided under any severance agreement, plan or program covering the Officer to which the Bank or Company is a party and any duplicative amount payable under any such agreement, plan or program shall be applied as an offset to reduce the amounts otherwise payable hereunder. The Additional Termination Entitlements provided hereunder, when due and payable or provided to the Officer, or in the case of the Officer's death, to his or her estate, surviving dependants or designated beneficiaries, as applicable, are acknowledged to be in lieu of any benefits that would otherwise be provided under such circumstances pursuant to the Bank's Severance Pay Plan, as amended, or Severance Compensation Plan, as amended. Section 13. Successors and Assigns. This Agreement will inure to the benefit of and be binding upon the Officer, the Officer's legal representatives and testate or intestate distributees, and the Company and the Bank and their respective successors and assigns, including any successor by merger or consolidation or a statutory receiver or any other person or firm or corporation to which all or substantially all of the assets and business of the Company or the Bank may be sold or otherwise transferred. Failure of the Company to obtain from any successor its express written assumption of the Company's or Bank's obligations hereunder at least 60 days in advance of the scheduled effective date of any such succession shall, if such succession constitutes a Change of Control, constitute Good Reason for the Officer's resignation on or at any time during the Term following the occurrence of such succession. Section 14. No Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect. Section 15. Notices. Any communication required or permitted to be given under this Agreement, including any notice, direction, designation, consent, instruction, objection or waiver, shall be in writing and shall be deemed to have been given at such time as it is delivered personally, or five days after mailing if Page -18- 19 mailed, postage prepaid, by registered or certified mail, return receipt requested, addressed to such party at the address listed below or at such other address as one such party may by written notice specify to the other party: If to the Officer: Harold R. Leistmann 29 Shenandoah Boulevard Coram, New York 11727 If to the Company or the Bank: Astoria Financial Corporation One Astoria Federal Plaza Lake Success, New York 11042 Attention: Chairman, President and Chief Executive Officer with a copy to: Thacher Proffitt & Wood Two World Trade Center New York, New York 10048 Attention: W. Edward Bright, Esq. Section 16. Indemnification for Attorneys' Fees. (a) The Bank shall indemnify, hold harmless and defend the Officer against reasonable costs, including legal fees, incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved, as a result of the Officer's efforts, in good faith, to defend or enforce the terms of this Agreement; provided, however, that the Officer shall have substantially prevailed on the merits pursuant to a judgment, decree or order of a court of competent jurisdiction or of an arbitrator in an arbitration proceeding, or in a settlement.. For purposes of this Agreement, any settlement agreement which provides for payment of any amounts in settlement of the Bank's obligations under this Agreement shall be conclusive evidence of the Officer's entitlement to indemnification under this Agreement, and any such indemnification payments shall be in addition to amounts payable pursuant to such settlement agreement, unless such settlement agreement expressly provides otherwise. (b) The Bank's or the Company's obligation to make the payments provided for in this Page -19- 20 Agreement and otherwise to perform their respective obligations under this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Bank or the Company may have against the Officer or others. In no event shall the Officer be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Officer under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Officer obtains other employment. Unless it is determined that the Officer has acted frivolously or in bad faith, the Bank shall pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Officer may reasonably incur as a result of or in connection with the Officer's consultation with legal counsel or arising out of any action, suit, proceeding, tax controversy, appeal or contest (regardless of the outcome thereof) by the Bank, the Company, the Officer or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Officer about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in section 7872(f)(2)(A) of the Code. Section 17. Employment Rights and Funding Obligations. (a) Nothing expressed or implied in this Agreement shall create any right or duty on the part of the Bank, the Company or the Officer to have the Officer continue as an officer of the Bank or the Company or to remain in the employment of the Bank, the Company. (b) Nothing expressed or implied in this Agreement shall create any right or duty on the part of the Bank, the Company or the Officer to create a trust of any kind to fund any benefits which may be payable pursuant to this Agreement, and to the extent that the Officer acquires a right to receive benefits from the Bank or the Company pursuant to this Agreement, such right shall be no greater than the right of any unsecured general creditor of the Bank or the Company, respectively. Section 18. Withholding. The Bank or the Company, as applicable, shall have the right to deduct and withhold from any amounts paid in cash pursuant to this Agreement by the Bank or the Company, respectively, any taxes or other amounts required by law to be withheld with respect to such payment. Section 19. Severability. A determination that any provision of this Agreement is invalid or unenforceable shall not affect the validity or enforceability of any other provision hereof. Page -20- 21 Section 20. Survival. The rights and obligations of the Bank, the Company and the Officer under this Agreement, unless otherwise expressly provided in this Agreement, shall survive the expiration of the term or other termination of this Agreement. Page -21- 22 Section 21. Waiver. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant, or condition. A waiver of any provision of this Agreement must be made in writing, designated as a waiver, and signed by the party against whom its enforcement is sought. Any waiver or relinquishment of any right or power hereunder at any one or more times shall not be deemed a waiver or relinquishment of such right or power at any other time or times. Section 22. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same Agreement. Section 23. Governing Law. Except to the extent preempted by federal law, this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts entered into and to be performed entirely within the State of New York. Section 24. Headings and Construction. The headings of sections in this Agreement are for convenience of reference only and are not intended to qualify the meaning of any section. Any reference to a section number shall refer to a section of this Agreement, unless otherwise stated. Section 25. Entire Agreement; Modifications. This instrument contains the entire agreement of the parties relating to the subject matter hereof, and supersedes in its entirety any and all prior agreements, understandings or representations relating to the subject matter hereof. No modifications of this Agreement shall be valid unless made in writing and signed by the parties hereto. Section 26. Required Regulatory Provisions. The following provisions are included for the purposes of complying with various laws, rules and regulations applicable to the Bank: (a) Notwithstanding anything herein contained to the contrary, in no event shall the aggregate amount of compensation payable to the Officer on account of the Officer's termination of employment exceed three times the Officer's average annual total compensation for the last five consecutive calendar years to end prior to the Officer's Page -22- 23 termination of employment with the Bank (or for the Officer's entire period of employment with the Bank if less than five calendar years). (b) Notwithstanding anything herein contained to the contrary, any payments to the Officer by the Bank, whether pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with section 18(k) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. ss.1828(k), and any regulations promulgated thereunder. (c) Notwithstanding anything herein contained to the contrary, if the Officer is suspended from office and/or temporarily prohibited from participating in the conduct of the affairs of the Bank pursuant to a notice served under section 8(e)(3) or 8(g)(1) of the FDI Act, 12 U.S.C.ss.1818(e)(3) or 1818(g)(1), the Bank's obligations under this Agreement shall be suspended as of the date of service of such notice, unless stayed by appropriate proceedings. If the charges in such notice are dismissed, the Bank, in its discretion, may (i) pay to the Officer all or part of the compensation withheld while the Bank's obligations hereunder were suspended and (ii) reinstate, in whole or in part, any of the obligations which were suspended. (d) Notwithstanding anything herein contained to the contrary, if the Officer is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under section 8(e)(4) or 8(g)(1) of the FDI Act, 12 U.S.C. ss.1818(e)(4) or (g)(1), all prospective obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights and obligations of the Bank and the Officer shall not be affected. (e) Notwithstanding anything herein contained to the contrary, if the Bank is in default (within the meaning of section 3(x)(1) of the FDI Act, 12 U.S.C. ss.1813(x)(1), all prospective obligations of the Bank under this Agreement shall terminate as of the date of default, but vested rights and obligations of the Bank and the Officer shall not be affected. (f) Notwithstanding anything herein contained to the contrary, all prospective obligations of the Bank hereunder shall be terminated, except to the extent that a continuation of this Agreement is necessary for the continued operation of the Bank: (i) by the Director of the Office of Thrift Supervision ("OTS") or his designee or the Federal Deposit Insurance Corporation ("FDIC"), at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in section 13(c) of the FDI Act, 12 U.S.C.ss.1823(c); (ii) by the Director of the OTS or his designee at the time such Director or designee approves a supervisory merger to resolve problems related to the operation of the Bank or when the Bank is determined by such Director to be in an unsafe or unsound condition. The vested rights and obligations of the parties shall not be affected. Page -23- 24 If and to the extent that any of the foregoing provisions shall cease to be required or by applicable law, rule or regulation, the same shall become inoperative as though eliminated by formal amendment of this Agreement. None of the foregoing provisions, other than section 26(b) shall limit any obligations of the Company under this Agreement. Section 27. Guaranty. The Company hereby irrevocably and unconditionally guarantees to the Officer the payment of all amounts, and the performance of all other obligations, due from the Bank in accordance with the terms of this Agreement as and when due without any requirement of presentment, demand of payment, protest or notice of dishonor or nonpayment. Solely for purposes of determining the extent of the Company's guarantee, the obligations of the Bank under this Agreement shall be determined as though section 26(a), (c), (d), (e) and (f) did not apply to the Bank. IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement to be executed and the Officer has hereunto set the Officer's hand, all as of the day and year first above written. /S/ Harold R. Leistmann ------------------------- HAROLD R. LEISTMANN Attest: ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION By: /S/ William K. Sheerin By: /S/ George L. Engelke, Jr. ----------------------------- ----------------------------- Name: William K. Sheerin Name: George L. Engelke, Jr. Title: Executive Vice President and Title: Chairman, President and Chief Secretary Executive Officer Attest: ASTORIA FINANCIAL CORPORATION By: /S/ William K. Sheerin By: /S/ George L. Engelke, Jr. ---------------------------- ---------------------------- Name: William K. Sheerin Name: George L. Engelke, Jr. Title: Executive Vice President and Title: Chairman, President and Chief Secretary Executive Officer Page -24- EX-10.44 14 y46647ex10-44.txt CHANGE OF CONTROL SEVERANCE AGREEMENT: EDWARDS 1 EXHIBIT 10.44 Change of Control Severance Agreement This Change of Control Severance Agreement (the "Agreement") is made and entered into as of December 20, 2000 by and among Astoria Federal Savings and Loan Association, a savings and loan association organized and existing under the laws of the United States of America and having an office at One Astoria Federal Plaza, Lake Success, New York 11042 (the "Bank"), Astoria Financial Corporation, a business corporation organized and existing under the laws of the State of Delaware and having an office at One Astoria Federal Plaza, Lake Success, New York 11042 (the "Company") and Brian T. Edwards, an individual residing at 37 Club Drive, Massapequa, New York 11758 (the "Officer"). Introductory Statement Whereas, the Boards of Directors of the Bank and the Company have approved the Bank and the Company entering into Change of Control Severance Agreements with certain key officers of the Bank, Whereas, the Officer is a key officer of the Bank; Whereas, should the possibility of a Pending Change of Control or Change of Control of the Bank or the Company arise, the Boards of Directors of the Bank and the Company believe it is imperative that the Bank, the Company and the Boards of Directors of the Bank and the Company should be able to rely upon the Officer to continue in his or her position, and that the Bank and the Company should be able to receive and rely upon the Officer's advice, if requested, as to the best interests of the Bank and the Company and their respective shareholders without concern that the Officer might be distracted by the personal uncertainties and risks created by the possibility of a Pending Change of Control or Change of Control; Whereas, should the possibility of a Pending Change of Control or Change of Control arise, in addition to his or her regular duties, the Officer may be called upon to assist in the assessment of such possible Pending Change of Control or Change of Control, advise management and the Board as to whether such Pending Change of Control or Change of Control would be in the best interests of the Bank, the Company and their respective shareholders, and to take such other actions as the Boards of Directors of the Bank and the Company might determine to be appropriate; and Now, Therefore, to assure the Bank and the Company that they will have the continued dedication of the Officer and the availability of his or her advice and counsel notwithstanding the possibility, threat, or occurrence of a Pending Change of Control or Change of Control of the Bank or the Company, and to induce the Officer to remain in the employ of the Bank, in consideration of the mutual premises and agreements set forth herein and for other good and valuable consideration, the Bank, the Company and the Officer agree as follows: Page - 1 - 2 Agreement Section 1. Effective Date; Term; Pending Change of Control and Change of Control Defined. (a) This Agreement shall take effect on December 20, 2000 (the "Effective Date") and shall remain in effect during the period (the "Term") beginning on the Effective Date and ending on the earlier of : (i) the date, prior to the occurrence of a Pending Change of Control or a Change of Control, as defined below, respectively, on which the Officer's employment by the Bank terminates whether by discharge, resignation, death, disability or retirement, or (ii) the later of: (A) the first anniversary of the date on which the Bank notifies the Executive of its intent to discontinue the Agreement (the "Initial Expiration Date") or, (B) the second anniversary of the latest Change of Control, as defined below, that occurs after the Effective Date and before the Initial Expiration Date, or (b) For purposes of this Agreement, a "Change of Control" shall be deemed to have occurred upon the happening of any of the following events: (i) the consummation of a reorganization, merger or consolidation of the Company with one or more other persons, other than a transaction following which: (A) at least 51% of the equity ownership interests of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act")) in substantially the same relative proportions by persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at least 51% of the outstanding equity ownership interests in the Company; and (B) at least 51% of the securities entitled to vote generally in the election Page - 2 - 3 of directors of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the same relative proportions by persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at least 51% of the securities entitled to vote generally in the election of directors of the Company; (ii) the acquisition of all or substantially all of the assets of the Company or beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the outstanding securities of the Company entitled to vote generally in the election of directors by any person or by any persons acting in concert; (iii) a complete liquidation or dissolution of the Company; (iv) the occurrence of any event if, immediately following such event, at least 50% of the members of the Board of Directors of the Company do not belong to any of the following groups: (A) individuals who were members of the Board of Directors of the Company on the Effective Date of this Agreement; or (B) individuals who first became members of the Board of Directors of the Company after the Effective Date of this Agreement either: (1) upon election to serve as a member of the Board of Directors of the Company by affirmative vote of three-quarters of the members of such Board, or of a nominating committee thereof, in office at the time of such first election; or (2) upon election by the shareholders of the Board of Directors of the Company to serve as a member of such Board, but only if nominated for election by affirmative vote of three-quarters of the members of the Board of Directors of the Company, or of a nominating committee thereof, in office at the time of such first nomination; provided, however, that such individual's election or nomination did not result from an actual or threatened election contest (within the meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents (within the meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) other than by or on behalf of the Board of Directors of the Company; or Page - 3 - 4 (v) any event which would be described in section 1(b)(i), (ii), (iii) or (iv) if the term "Bank" were substituted for the term "Company" therein. In no event, however, shall a Change of Control be deemed to have occurred as a result of any acquisition of securities or assets of the Company, the Bank, or a subsidiary of either of them, by the Company, the Bank, or any subsidiary of either of them, or by any employee benefit plan maintained by any of them. For purposes of this section 1(b), the term "person" shall have the meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act. (c) For purposes of this Agreement, a "Pending Change of Control" shall mean: (i) the approval by the shareholders of the Bank or the Company of a definitive agreement for a transaction which, if consummated, would result in a Change of Control; or (ii) the approval by the shareholders of the Bank or the Company of a transaction which, if consummated, would result in a Change of Control. Section 2. Discharge Prior to a Pending Change of Control. The Bank may discharge the Officer at any time prior to the occurrence of a Pending Change of Control or, if no Pending Change of Control has occurred, a Change of Control, for any reason or for no reason. In such event: (a) The Bank shall pay to the Officer or the Officer's estate his or her earned but unpaid compensation, including, without limitation, salary and all other items which constitute wages under applicable law, as of the date of the Officer's termination of employment. This payment shall be made at the time and in the manner prescribed by law applicable to the payment of wages but in no event later than 30 days after the date of the Officer's termination of employment. (b) The Bank shall provide the benefits due, if any, to the Officer or the Officer's estate, surviving dependents or designated beneficiaries, as applicable, under the employee benefit plans and programs and compensation plans and programs maintained for the benefit of the officers and employees of the Bank. The time and manner of payment or other delivery of these benefits and the recipients of such benefits shall be determined according to the terms and conditions of the applicable plans and programs. The payments and benefits described in sections 2(a) and (b) shall be referred to in this Agreement as the "Standard Termination Entitlements." Section 3. Termination of Employment Due to Death. Page - 4 - 5 The Officer's employment with the Bank shall terminate automatically, and without any further action on the part of any party to this Agreement, on the date of the Officer's death. In such event, the Bank shall pay and deliver to the Officer's estate and surviving dependents and designated beneficiaries, as applicable, the Standard Termination Entitlements. Section 4. Termination Due to Disability after a Pending Change of Control or a Change of Control. The Bank may terminate the Officer's employment during the Term and after the occurrence of a Pending Change of Control or a Change of Control upon a determination by the Board of Directors of the Bank, by the affirmative vote of 75% of its entire membership, acting in reliance on the written advice of a medical professional acceptable to it, that the Officer is suffering from a physical or mental impairment which, at the date of the determination, has prevented the Officer from performing the Officer's assigned duties on a substantially full-time basis for a period of at least one hundred and eighty (180) days during the period of one (1) year ending with the date of the determination or is likely to result in death or prevent the Officer from performing the Officer's assigned duties on a substantially full-time basis for a period of at least one hundred and eighty (180) days during the period of one (1) year beginning with the date of the determination. In such event: (a) The Bank shall pay and deliver the Standard Termination Entitlements to the Officer or, in the event of the Officer's death following such termination but before payment, to the Officer's estate, surviving dependents or designated beneficiaries, as applicable. (b) In addition to the Standard Termination Entitlements, the Bank shall continue to pay the Officer his or her base salary, at the annual rate in effect for the Officer immediately prior to the termination of the Officer's employment, during a period ending on the earliest of: (i) the expiration of one hundred and eighty (180) days after the date of termination of the Officer's employment; (ii) the date on which long-term disability insurance benefits are first payable to the Officer under any long-term disability insurance plan covering employees of the Bank; or (iii) the date of the Officer's death. A termination of employment due to disability under this section 4 shall be effected by a notice of termination given to the Officer by the Bank and shall take effect on the later of the effective date of termination specified in such notice or, if no such date is specified, the date on which the notice of termination is deemed given to the Officer. Page - 5 - 6 Section 5. Discharge with Cause after a Pending Change of Control or Change of Control. (a) The Bank may terminate the Officer's employment with "Cause" during the Term and after the occurrence of a Pending Change of Control or a Change of Control, but a termination shall be deemed to have occurred with "Cause" only if: (i) (A) the Board of Directors of the Bank, by the affirmative vote of 75% of its entire membership, determines that the Officer is guilty of personal dishonesty, incompetence, wilful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, wilful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease and desist order, or any material breach of this Agreement, in each case measured against standards generally prevailing at the relevant time in the savings and community banking industry; (B) prior to the vote contemplated by section 5(a)(i)(A), the Board of Directors of the Bank shall provide the Officer with notice of the Bank's intent to discharge the Officer for Cause, detailing with particularity the facts and circumstances which are alleged to constitute Cause (the "Notice of Intent to Discharge"); and (C) after the giving of the Notice of Intent to Discharge and before the taking of the vote contemplated by section 5(a)(i)(A), the Officer, together with the Officer's legal counsel, if he so desires, are afforded a reasonable opportunity to make both written and oral presentations before the Board of Directors of the Bank for the purpose of refuting the alleged grounds for Cause for the Officer's discharge; and (D) after the vote contemplated by section 5(a)(i)(A), the Bank has furnished to the Officer a notice of termination which shall specify the effective date of the Officer's termination of employment (which shall in no event be earlier than the date on which such notice is deemed given) and include a copy of a resolution or resolutions adopted by the Board of Directors of the Bank, certified by its corporate secretary, authorizing the termination of the Officer's employment with Cause and stating with particularity the facts and circumstances found to constitute Cause for the Officer's discharge (the "Final Discharge Notice"); or (ii) the Officer, during the 90 day period commencing on the delivery to the Officer by the Bank of the Notice of Intent to Discharge specified in section 5(a)(i)(B), resigns his or her employment with the Bank prior to the delivery Page - 6 - 7 to the Officer by the Bank of the Final Discharge Notice specified in section 5(a)(i)(D). For purposes of this section 5, no act or failure to act, on the part of the Officer, shall be considered "willful" unless it is done, or omitted to be done, by the Officer in bad faith or without reasonable belief that the Officer's action or omission was in the best interests of the Bank or the Company, respectively. Any act or failure to act based upon authority given pursuant to a resolution duly adopted by the Board of Directors of the Bank or the Company or based upon the written advice of counsel for the Bank or the Company shall be conclusively presumed to be done or omitted to be done by the Officer in good faith and in the best interests of the Bank or the Company, respectively. (b) If the Officer is discharged with Cause during the Term and after a Pending Change of Control or a Change of Control, the Bank shall pay and provide to him or, in the event of the Officer's death following such discharge but prior to payment and providing, to the Officer's estate, surviving dependents or designated beneficiaries, as applicable, the Standard Termination Entitlements only. (c) Following the giving of a Notice of Intent to Discharge, the Bank may temporarily suspend the Officer's duties and authority and, in such event, may also suspend the payment of salary and other cash compensation, but not the Officer's participation in retirement, insurance and other employee benefit plans. If the Officer is not discharged or is discharged without Cause within forty-five (45) days after the giving of a Notice of Intent to Discharge, payments of salary and cash compensation shall resume, and all payments withheld during the period of suspension shall be promptly restored. If the Officer is discharged with Cause not later than forty-five (45) days after the giving of the Notice of Intent to Discharge, all payments withheld during the period of suspension shall be deemed forfeited and shall not be included in the Standard Termination Entitlements. If a Final Discharge Notice is given later than forty-five (45) days, but sooner than ninety (90) days, after the giving of the Notice of Intent to Discharge, all payments made to the Officer during the period beginning with the giving of the Notice of Intent to Discharge and ending with the Officer's discharge with Cause shall be retained by the Officer and shall not be applied to offset the Standard Termination Entitlements. If the Bank does not give a Final Discharge Notice to the Officer within ninety (90) days after giving a Notice of Intent to Discharge, the Notice of Intent to Discharge shall be deemed withdrawn and any future action to discharge the Officer with Cause shall require the giving of a new Notice of Intent to Discharge. If the Officer resigns pursuant to Section 5(a)(ii), the Officer shall forfeit his or her right to suspended amounts that have not been restored as of the date of the Officer's resignation or notice of resignation, whichever is earlier. Section 6. Discharge Without Cause after a Pending Change of Control or Change of Page - 7 - 8 Control. The Bank may discharge the Officer without Cause at any time after the occurrence of a Pending Change of Control or a Change of Control, and in such event: (a) The Bank shall pay and deliver the Standard Termination Entitlements to the Officer or, in the event of the Officer's death following the Officer's discharge but before payment, to the Officer's estate, surviving dependents or designated beneficiaries, as applicable. (b) In addition to the Standard Termination Entitlements: (i) the Bank shall provide for a period of two years following the date of the Officer's discharge (the "Assurance Period") for the benefit of the Officer and the Officer's spouse and dependents continued group life, health (including hospitalization, medical and major medical), dental, accident and long-term disability insurance benefits on substantially the same terms and conditions (including any co-payments and deductibles, but excluding any premium sharing arrangements, it being the intention of the parties to this Agreement that the premiums for such insurance benefits shall be the sole cost and expense of the Bank) in effect for them immediately prior to the Officer's discharge. The coverage provided under this section 6(b)(i) may, at the election of the Bank, be secondary to the coverage provided as part of the Standard Termination Entitlements and to any employer-paid coverage provided by a subsequent employer or through Medicare, with the result that benefits under the other coverages will offset the coverage required by this section 6(b)(i), provided, however, that for purposes of this section 6(b)(i) benefits provided at the cost of the Officer or the Officer's spouse or dependants pursuant to the Comprehensive Omnibus Budget Reconciliation Act, as amended, shall not be considered Standard Termination Entitlements. (ii) The Bank shall make a lump sum payment to the Officer or, in the event of the Officer's death following the Officer's discharge but before payment, to the Officer's estate in an amount equal to the salary that the Officer would have earned if he had continued working for the Bank during the Assurance Period at the highest annual rate of salary achieved during the period of three (3) years ending immediately prior to the date of termination (the "Salary Severance Payment"). The Salary Severance Payment shall be computed using the following formula: SSP = BS x NY where: "SSP" is the amount of the Salary Severance Payment, before the deduction Page - 8 - 9 of applicable federal, state and local withholding taxes; "BS" is the highest annual rate of salary achieved by the Officer during the period of three (3) years ending immediately prior to the date of termination; and "NY" is the Assurance Period expressed as a number of years (rounded, if such period is not a whole number, to the next highest whole number). The Salary Severance Payment shall be made within thirty (30) days after the Officer's termination of employment and shall be in lieu of any claim to a continuation of base salary which the Officer might otherwise have and in lieu of cash severance benefits under any severance benefits program which may be in effect for officers or employees of the Bank. (iii)The Bank shall make a lump sum payment to the Officer or, in the event of the Officer's death following the Officer's discharge but before payment, to the Officer's estate in an amount equal to the potential annual bonuses that the Officer would have earned if the Officer had continued working for the Bank during the Assurance Period at the highest annual rate of salary achieved during the period of three (3) years ending immediately prior to the date of termination (the "Bonus Severance Payment"). The Bonus Severance Payment shall be computed using the following formula: BSP = ((BS x TIO x IP) + ( BS x TIO x FP x AP)) x NY where: "BSP" is the amount of the Bonus Severance Payment, before the deduction of applicable federal, state and local withholding taxes; "BS" is the highest annual rate of salary achieved by the Officer during the period of three (3) years ending immediately prior to the date of termination; "TIO" is the target incentive opportunity for the Officer expressed as a percentage as established by the Compensation Committee of the Board of Directors of the Bank pursuant to the Bank's Annual Incentive Plan for Select Executives for the year in which the employment of the Officer by the Bank terminates or, if no target incentive opportunity is established by the Compensation Committee of the Board of Directors of the Bank for such year with respect to the Officer, then the highest target incentive opportunity established by the Compensation Committee of the Board of Directors of the Bank for the Officer pursuant to the Annual Incentive Plan for Select Executives during the period of three (3) years ending immediately prior to the date of termination; Page - 9 - 10 "IP" is either (i) the percentage of the TIO which is to be determined by the individual performance of the Officer as established by the Compensation Committee of the Board of Directors of the Bank pursuant to the Bank's Annual Incentive Plan for Select Executives for the year in which the employment of the Officer by the Bank terminates or, (ii) if no target incentive opportunity has been established with respect to the Officer by the Compensation Committee of the Board of Directors of the Bank for the year in which the employment of the Officer by the Bank terminates, then the lowest percentage of the target incentive opportunity to be determined by the individual performance of the Officer established by the Compensation Committee of the Board of Directors of the Bank for the Officer pursuant to the Annual Incentive Plan for Select Executives during the period of three (3) years ending immediately prior to the date of termination; "FP" is either (i) the percentage of the TIO with respect to the Officer which is to be determined by the financial performance of the Company as established by the Compensation Committee of the Board of Directors of the Bank pursuant to the Bank's Annual Incentive Plan for Select Executives for the year in which the employment of the Officer by the Bank terminates or, (ii) if no target incentive opportunity has been established with respect to the Officer by the Compensation Committee of the Board of Directors of the Bank for the year in which the employment of the Officer by the Bank terminates, then a percentage equal to 100% minus the IP; "AP" is the highest award percentage available to the Officer with respect to the financial performance of the Company as established by the Compensation Committee of the Board of Directors of the Bank pursuant to the Bank's Annual Incentive Plan for Select Executives for the year in which the employment of the Officer by the Bank terminates or, (ii) if no target incentive opportunity has been established with respect to the Officer by the Compensation Committee of the Board of Directors of the Bank for the year in which the employment of the Officer by the Bank terminates, then the highest award percentage available to the Officer with respect to the financial performance of the Company established by the Compensation Committee of the Board of Directors of the Bank for the Officer pursuant to the Annual Incentive Plan for Select Executives during the period of three (3) years ending immediately prior to the date of termination; "NY" is the Assurance Period expressed as a number of years (rounded, if such period is not a whole number, to the next highest whole number). The Bonus Severance Payment shall be made within thirty (30) days after the Officer's termination of employment and shall be in lieu of any claim to a continuation of participation in annual bonus plans of the Bank which the Officer might otherwise have. Page - 10 - 11 The payments and benefits described in section 6(b) are referred to in this Agreement as the "Additional Termination Entitlements". The payments described in section 6(b)(ii) and (iii) shall be computed at the expense of the Company by an attorney of the firm of Thacher Proffitt & Wood, Two World Trade Center, New York, New York 10048 or, if such firm is unavailable or unwilling to perform such calculation, by a firm of independent certified public accountants selected by the Officer and reasonably satisfactory to the Company (the "Computation Advisor"). The determination of the Computation Advisor as to the amount of such payments shall be final and binding in the absence of manifest error. Section 7. Tax Indemnification. (a) If the Officer's employment terminates under circumstances entitling the Officer or, in the event of the Officer's death following such termination but before payment, his or her estate to the Additional Termination Entitlements, the Company shall pay to the Officer or, in the event of the Officer's death, his or her estate an additional amount intended to indemnify the Officer against the financial effects of the excise tax imposed on excess parachute payments under section 28OG of the Code (the "Tax Indemnity Payment"). The Tax Indemnity Payment shall be determined under the following formula: E x P TIP = ------------------------------------------- 1 - (( FI x ( 1 - SLI )) + SLI + E + M ) where: "TIP" is the Tax Indemnity Payment, before the deduction of applicable federal, state and local withholding taxes; "E" is the percentage rate at which an excise tax is assessed under section 4999 of the Code; "P" is the amount with respect to which such excise tax is assessed, determined without regard to this section 16; "FI" is the highest marginal rate of income tax applicable to the Officer under the Code for the taxable year in question; "SLI" is the sum of the highest marginal rates of income tax applicable to the Officer under all applicable state and local laws for the taxable year in question; and "M" is the highest marginal rate of Medicare tax applicable to the Officer under the Code for the taxable year in question. Such computation shall be made at the expense of the Company by the Computation Page - 11 - 12 Advisor and shall be based on the following assumptions: (i) that a change in ownership, a change in effective ownership or control or a change in the ownership of a substantial portion of the assets of the Bank or the Company has occurred within the meaning of section 28OG of the Code (a "28OG Change of Control"); (ii) that all direct or indirect payments made to or benefits conferred upon the Officer on account of the Officer's termination of employment are "parachute payments" within the meaning of section 28OG of the Code; and (iii)that no portion of such payments is reasonable compensation for services rendered prior to the Officer's termination of employment. (b) With respect to any payment that is presumed to be a parachute payment for purposes of section 28OG of the Code, the Tax Indemnity Payment shall be made to the Officer on the earlier of the date the Company, the Bank or any direct or indirect subsidiary or affiliate of the Company or the Bank is required to withhold such tax or the date the tax is required to be paid by the Officer, unless, prior to such date, the Company delivers to the Officer the written opinion (the "Opinion Letter"), in form and substance reasonably satisfactory to the Officer, of the Computation Advisor or, if the Computation Advisor is unable to provide such opinion, of an attorney or firm of independent certified public accountants selected by the Company and reasonably satisfactory to the Officer, to the effect that the Officer has a reasonable basis on which to conclude that: (i) no 28OG Change in Control has occurred, or (ii) all or part of the payment or benefit in question is not a parachute payment for purposes of section 28OG of the Code, or (iii)all or a part of such payment or benefit constitutes reasonable compensation for services rendered prior to the 28OG Change of Control, or (iv) for some other reason which shall be set forth in detail in such letter, no excise tax is due under section 4999 of the Code with respect to such payment or benefit. If the Company delivers an Opinion Letter, the Computation Advisor shall re- compute, and the Company shall make, the Tax Indemnity Payment in reliance on the information contained in the Opinion Letter. (c) In the event that the Officer's liability for the excise tax under section 4999 of the Code for a taxable year is subsequently determined to be different than the amount with respect to which the Tax Indemnity Payment is made, the Officer or the Page - 12 - 13 Company, as the case may be, shall pay to the other party at the time that the amount of such excise tax is finally determined, an appropriate amount, plus interest, such that the payment made pursuant to sections 7(a) or 7(b), when increased by the amount of the payment made to the Officer pursuant to this section 7(c), or when reduced by the amount of the payment made to the Company pursuant to this section 7(c), equals the amount that should have properly been paid to the Officer under section 7(a). The interest paid to the Company under this section 7(c) shall be determined at the rate provided under section 1274(b)(2)(B) of the Code. The payment made to the Officer shall include such amount of interest as is necessary to satisfy any interest assessment made by the Internal Revenue Service and an additional amount equal to any monetary penalties assessed by the Internal Revenue Service on account of an underpayment of the excise tax. To confirm that the proper amount, if any, was paid to the Officer under this section 7, the Officer shall furnish to the Company a copy of each tax return which reflects a liability for an excise tax, at least 20 days before the date on which such return is required to be filed with the Internal Revenue Service. Nothing in this Agreement shall give the Company any right to control or otherwise participate in any action, suit or proceeding to which the Officer is a party as a result of positions taken on the Officer's federal income tax return with respect to the Officer's liability for excise taxes under section 4999 of the Code. Section 8. Indemnification upon and following a Change of Control. (a) From and after the effective date of a Change of Control through the sixth anniversary of such effective date, the Bank and the Company agree to indemnify and hold harmless the Officer, against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities (collectively, "Costs") incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or prior to the time the Change of Control became effective whether asserted or claimed prior to, at or after the effective date of the Change of Control, and to advance any such Costs to the Officer as they are from time to time incurred, in each case to the fullest extent the Officer would have been indemnified as a director or officer of the Bank or the Company, as applicable, and as then permitted under applicable law. (b) The Officer, seeking to claim indemnification under section 8(a) of this Agreement and upon learning of any such claim, action, suit, proceeding or investigation, shall promptly notify the Bank thereof, but the failure to so notify shall not relieve the Bank or the Company of any liability it may have pursuant to this Agreement to the Officer if such failure does not materially and substantially prejudice the Bank or the Company. In the event of any such claim, action, suit, proceeding or investigation, (i) the Bank and the Company shall have the right to assume the defense thereof with counsel reasonably acceptable to the Officer, and the Bank and the Page - 13 - 14 Company shall not be liable to the Officer for any legal expenses of other counsel subsequently incurred by the Officer in connection with the defense thereof, except that if the Bank and the Company do not elect to assume such defense within a reasonable time or counsel for the Officer at any time advises that there are issues which raise conflicts of interest between the Bank or the Company and the Officer (and counsel for the Bank or the Company does not disagree), the Officer may retain counsel satisfactory to the Officer, and the Bank and the Company shall remain responsible for the reasonable fees and expenses of such counsel as set forth above, to be paid promptly as statements therefor are received; provided, however, that the Bank and the Company shall be obligated pursuant to this paragraph (b)(i) to pay for only one firm of counsel for all indemnified parties in any one jurisdiction with respect to any given claim, action, suit, proceeding or investigation unless the use of one counsel for such indemnified parties, including the Officer, would present such counsel with a conflict of interest; (ii) the Officer will reasonably cooperate in the defense of any such matter; and (iii)the Bank and the Company shall not be liable for any settlement effected by the Officer without their prior written consent, which shall not be unreasonably withheld. Section 9. Resignation. (a) The Officer may resign from the Officer's employment with the Bank at any time. A resignation under this section 9 shall be effected by notice of resignation given by the Officer to the Bank and shall take effect on the later of the effective date of termination specified in such notice or the date on which the notice of termination is deemed given by the Officer. For purposes of this Agreement, retirement of the Officer from the employment of the Bank or the Company under circumstances defined as "normal retirement" or "early retirement" pursuant to any qualified defined benefit or qualified defined contribution pension plan maintained by the Bank shall be deemed a resignation by the Officer's of the Officer's employment with the Bank. A resignation by the Officer as described in section 5(a)(ii) of this Agreement, for purposes of this Agreement shall be deemed to be termination with "Cause". The Officer's resignation of any of the positions within the Bank or the Company to which he has been assigned shall be deemed a resignation from all such positions. (b) The Officer's resignation shall be deemed to be for "Good Reason" if the effective date of resignation occurs during the Term, but on or after the effective date of a Pending Change of Control or Change of Control, and is on account of: (i) the failure of the Bank (whether by act or omission of the Board of Directors, or otherwise) to appoint, re-appoint, elect or re-elect the Officer to the office and position with the Bank that he held immediately prior to the Change of Page - 14 - 15 Control or Pending Change of Control (the "Assigned Office") or to a more senior office and position; (ii) if the Officer is or becomes a member of the Board of Directors of the Bank, the failure of the shareholders of the Bank (whether in an election in which the Officer stands as a nominee or in an election where the Officer is not a nominee), to elect or re-elect the Officer to such directorship at the expiration of the Officer's term as a director, unless such failure is a result of the Officer's refusal to stand for election; (iii)a material failure by the Bank, whether by amendment of the charter or organization, by-laws, action of the Board of Directors of the Bank or otherwise, to vest in the Officer the functions, duties, or responsibilities customarily associated with the Assigned Office; provided that the Officer shall have given notice of such failure to the Bank, and the Bank has not fully cured such failure within thirty (30) days after such notice is deemed given; (iv) any reduction of the Officer's rate of base salary in effect from time to time, whether or not material, or any failure, other than due to reasonable administrative error that is fully cured within 5 days after notice of such administrative error is deemed given, to pay any portion of the Officer's compensation as and when due; (v) any change in the terms and conditions of any compensation or benefit program in which the Officer participates which, either individually or together with other changes, has a material adverse effect on the aggregate value of the Officer's total compensation package; provided that the Officer shall have given notice of such material adverse effect to the Bank, and the Bank has not fully cured such failure within thirty (30) days after such notice is deemed given; (vi) any material breach by the Company or the Bank of any material term, condition or covenant contained in this Agreement; provided that the Officer shall have given notice to the Company and the Bank of such material adverse effect, and the Company or the Bank have not fully cured such failure within thirty (30) days after such notice is deemed given; or (vii)a change in the Officer's principal place of employment to a location that is outside of Nassau County or Queens County, New York. In all other cases, a resignation by the Officer shall be deemed to be without Good Reason. In the event of resignation, the Officer shall state in the Officer's notice of resignation whether the Officer considers his or her resignation to be a resignation with Good Reason, and if he does, he shall state in such notice the grounds which constitute Good Reason. The Officer's determination of the existence of Good Page - 15 - 16 Reason shall be conclusive in the absence of fraud, bad faith or manifest error. (c) In the event of the Officer's resignation for any reason, the Bank shall pay and deliver the Standard Termination Entitlements. In the event of the Officer's resignation with Good Reason and such resignation is effective within six (6) months of the effective date of the Change of Control (the "Resignation Window Period"), the Bank shall also pay and deliver the Additional Termination Entitlements. In the event the Officer's resignation with Good Reason is based upon section 9(b)(iii),(iv),(v) or (vi) and the notice required by such provision has been given within six months of the effective date of the Change of Control but the applicable cure period will not expire until on or after the date which is six months following the effective date of the Change of Control, the Resignation Window Period shall be extended so as expire 30 days following the expiration of the applicable cure period. Section 10. Terms and Conditions of the Additional Termination Entitlements. The Bank and the Officer hereby stipulate that the damages which may be incurred by the Officer following any termination of employment are not capable of accurate measurement as of the date first above written and that the Additional Termination Entitlements constitute reasonable damages under the circumstances and shall be payable without any requirement of proof of actual damage and without regard to the Officer's efforts, if any, to mitigate damages. The Bank and the Officer further agree that the Bank may condition the payment and delivery of the Additional Termination Entitlements on the receipt of: (a) the Officer's resignation from any and all positions which he holds as an officer, director or committee member with respect to the Bank or any subsidiary or affiliate of the Bank; and (b) a release of the Bank and the Company and their officers, directors, shareholders, subsidiaries and affiliates, in form and substance satisfactory to the Bank, of any liability to the Officer, whether for compensation or damages, in connection with the Officer's employment with the Bank and the termination of such employment, except for the Standard Termination Entitlements, the Additional Termination Entitlements, the Tax Indemnity Payment and indemnification payments due the Officer pursuant to section 8 or section 16 of this Agreement. To the extent the Bank conditions the payment and delivery of the Additional Termination Entitlements or any other amount due under this Agreement upon the receipt of the release provided in section 10(b) of this Agreement and such release by law may not be effective until the expiration of a required prior notice and/or a recission period following its execution by the Officer, then any payment required to be made pursuant to this Agreement may be deferred until the expiration of the period which is the sum of the period within which such payment was required to be made under the terms of this Agreement but for this section 10 and the period of any required prior notice and recission periods, provided, however, that the Bank shall pay to the Officer for each day of such deferral interest in addition to any other amounts due and owing under this Agreement at the rate of Page - 16 - 17 the federal short term rate established under section 1274 of the Code for the month in which the Officer's termination of employment occurs calculated on the basis of a 360 day year for the actual number of days of such deferral on the amount so deferred. Section 11. Confidentiality. Unless the Officer obtains the prior written consent of the Bank or the Company, the Officer shall keep confidential and shall refrain from using for the benefit of himself or herself, or any person or entity other than the Company or any entity which is a subsidiary of the Company or of which the Company is a subsidiary, any material document or information obtained from the Company, or from its parent or subsidiaries, in the course of the Officer's employment with any of them concerning their properties, operations or business (unless such document or information is readily ascertainable from public or published information or trade sources or has otherwise been made available to the public through no fault of the Officer) until the same ceases to be material (or becomes so ascertainable or available); provided, however, that nothing in this section 11 shall prevent the Officer, with or without the Company's consent, from participating in or disclosing documents or information in connection with any judicial or administrative investigation, inquiry or proceeding to the extent that such participation or disclosure is required under applicable law. Section 12. No Effect on Employee Benefit Plans or Programs. Except to the extent specifically provided herein, the termination of the Officer's employment during the Assurance Period or thereafter, whether by the Bank or by the Officer, shall have no effect on the rights and obligations of the parties hereto under the Bank's qualified or non-qualified retirement, pension, savings, thrift, profit-sharing or stock bonus plans, group life, health (including hospitalization, medical and major medical), dental, accident and long term disability insurance plans or such other employee benefit plans or programs, or compensation plans or programs, as may be maintained by, or cover employees of, the Bank from time to time; provided, however, that nothing in this Agreement shall be deemed to duplicate any compensation or benefits provided under any severance agreement, plan or program covering the Officer to which the Bank or Company is a party and any duplicative amount payable under any such agreement, plan or program shall be applied as an offset to reduce the amounts otherwise payable hereunder. The Additional Termination Entitlements provided hereunder, when due and payable or provided to the Officer, or in the case of the Officer's death, to his or her estate, surviving dependants or designated beneficiaries, as applicable, are acknowledged to be in lieu of any benefits that would otherwise be provided under such circumstances pursuant to the Bank's Severance Pay Plan, as amended, or Severance Compensation Plan, as amended. Section 13. Successors and Assigns. This Agreement will inure to the benefit of and be binding upon the Officer, the Officer's legal representatives and testate or intestate distributees, and the Company and the Bank and their respective successors and assigns, including any successor by merger or consolidation or a statutory receiver or any other person or firm or corporation to which all or substantially all of the assets and business of the Company or the Bank may be sold or otherwise transferred. Failure of the Company Page - 17 - 18 to obtain from any successor its express written assumption of the Company's or Bank's obligations hereunder at least 60 days in advance of the scheduled effective date of any such succession shall, if such succession constitutes a Change of Control, constitute Good Reason for the Officer's resignation on or at any time during the Term following the occurrence of such succession. Section 14. No Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect. Section 15. Notices. Any communication required or permitted to be given under this Agreement, including any notice, direction, designation, consent, instruction, objection or waiver, shall be in writing and shall be deemed to have been given at such time as it is delivered personally, or five days after mailing if mailed, postage prepaid, by registered or certified mail, return receipt requested, addressed to such party at the address listed below or at such other address as one such party may by written notice specify to the other party: If to the Officer: Brian T. Edwards 37 Club Drive Massapequa, New York 11758 If to the Company or the Bank: Astoria Financial Corporation One Astoria Federal Plaza Lake Success, New York 11042 Attention: Chairman, President and Chief Executive Officer with a copy to: Thacher Proffitt & Wood Two World Trade Center New York, New York 10048 Attention: W. Edward Bright, Esq. Page - 18 - 19 Section 16. Indemnification for Attorneys' Fees. (a) The Bank shall indemnify, hold harmless and defend the Officer against reasonable costs, including legal fees, incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved, as a result of the Officer's efforts, in good faith, to defend or enforce the terms of this Agreement; provided, however, that the Officer shall have substantially prevailed on the merits pursuant to a judgment, decree or order of a court of competent jurisdiction or of an arbitrator in an arbitration proceeding, or in a settlement.. For purposes of this Agreement, any settlement agreement which provides for payment of any amounts in settlement of the Bank's obligations under this Agreement shall be conclusive evidence of the Officer's entitlement to indemnification under this Agreement, and any such indemnification payments shall be in addition to amounts payable pursuant to such settlement agreement, unless such settlement agreement expressly provides otherwise. (b) The Bank's or the Company's obligation to make the payments provided for in this Agreement and otherwise to perform their respective obligations under this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Bank or the Company may have against the Officer or others. In no event shall the Officer be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Officer under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Officer obtains other employment. Unless it is determined that the Officer has acted frivolously or in bad faith, the Bank shall pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Officer may reasonably incur as a result of or in connection with the Officer's consultation with legal counsel or arising out of any action, suit, proceeding, tax controversy, appeal or contest (regardless of the outcome thereof) by the Bank, the Company, the Officer or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Officer about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in section 7872(f)(2)(A) of the Code. Section 17. Employment Rights and Funding Obligations. (a) Nothing expressed or implied in this Agreement shall create any right or duty on the part of the Bank, the Company or the Officer to have the Officer continue as an officer of the Bank or the Company or to remain in the employment of the Bank, the Company. (b) Nothing expressed or implied in this Agreement shall create any right or duty on the part of the Bank, the Company or the Officer to create a trust of any kind to fund any benefits which may be payable pursuant to this Agreement, and to the extent that the Page - 19 - 20 Officer acquires a right to receive benefits from the Bank or the Company pursuant to this Agreement, such right shall be no greater than the right of any unsecured general creditor of the Bank or the Company, respectively. Section 18. Withholding. The Bank or the Company, as applicable, shall have the right to deduct and withhold from any amounts paid in cash pursuant to this Agreement by the Bank or the Company, respectively, any taxes or other amounts required by law to be withheld with respect to such payment. Section 19. Severability. A determination that any provision of this Agreement is invalid or unenforceable shall not affect the validity or enforceability of any other provision hereof. Section 20. Survival. The rights and obligations of the Bank, the Company and the Officer under this Agreement, unless otherwise expressly provided in this Agreement, shall survive the expiration of the term or other termination of this Agreement. Page - 20 - 21 Section 21. Waiver. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant, or condition. A waiver of any provision of this Agreement must be made in writing, designated as a waiver, and signed by the party against whom its enforcement is sought. Any waiver or relinquishment of any right or power hereunder at any one or more times shall not be deemed a waiver or relinquishment of such right or power at any other time or times. Section 22. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same Agreement. Section 23. Governing Law. Except to the extent preempted by federal law, this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts entered into and to be performed entirely within the State of New York. Section 24. Headings and Construction. The headings of sections in this Agreement are for convenience of reference only and are not intended to qualify the meaning of any section. Any reference to a section number shall refer to a section of this Agreement, unless otherwise stated. Section 25. Entire Agreement; Modifications. This instrument contains the entire agreement of the parties relating to the subject matter hereof, and supersedes in its entirety any and all prior agreements, understandings or representations relating to the subject matter hereof. No modifications of this Agreement shall be valid unless made in writing and signed by the parties hereto. Section 26. Required Regulatory Provisions. The following provisions are included for the purposes of complying with various laws, rules and regulations applicable to the Bank: (a) Notwithstanding anything herein contained to the contrary, in no event shall the aggregate amount of compensation payable to the Officer on account of the Officer's termination of employment exceed three times the Officer's average annual total compensation for the last five consecutive calendar years to end prior to the Officer's termination of employment with the Bank (or for the Officer's entire period of employment with the Bank if less than five calendar years). Page - 21 - 22 (b) Notwithstanding anything herein contained to the contrary, any payments to the Officer by the Bank, whether pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with section 18(k) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. ss. 1828(k), and any regulations promulgated thereunder. (c) Notwithstanding anything herein contained to the contrary, if the Officer is suspended from office and/or temporarily prohibited from participating in the conduct of the affairs of the Bank pursuant to a notice served under section 8(e)(3) or 8(g)(1) of the FDI Act, 12 U.S.C. ss. 1818(e)(3) or 1818(g)(1), the Bank's obligations under this Agreement shall be suspended as of the date of service of such notice, unless stayed by appropriate proceedings. If the charges in such notice are dismissed, the Bank, in its discretion, may (i) pay to the Officer all or part of the compensation withheld while the Bank's obligations hereunder were suspended and (ii) reinstate, in whole or in part, any of the obligations which were suspended. (d) Notwithstanding anything herein contained to the contrary, if the Officer is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under section 8(e)(4) or 8(g)(1) of the FDI Act, 12 U.S.C. ss. 1818(e)(4) or (g)(1), all prospective obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights and obligations of the Bank and the Officer shall not be affected. (e) Notwithstanding anything herein contained to the contrary, if the Bank is in default (within the meaning of section 3(x)(1) of the FDI Act, 12 U.S.C. ss.1813(x)(1), all prospective obligations of the Bank under this Agreement shall terminate as of the date of default, but vested rights and obligations of the Bank and the Officer shall not be affected. (f) Notwithstanding anything herein contained to the contrary, all prospective obligations of the Bank hereunder shall be terminated, except to the extent that a continuation of this Agreement is necessary for the continued operation of the Bank: (i) by the Director of the Office of Thrift Supervision ("OTS") or his designee or the Federal Deposit Insurance Corporation ("FDIC"), at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in section 13(c) of the FDI Act, 12 U.S.C. ss. 1823(c); (ii) by the Director of the OTS or his designee at the time such Director or designee approves a supervisory merger to resolve problems related to the operation of the Bank or when the Bank is determined by such Director to be in an unsafe or unsound condition. The vested rights and obligations of the parties shall not be affected. If and to the extent that any of the foregoing provisions shall cease to be required or by applicable law, rule or regulation, the same shall become inoperative as though eliminated by formal amendment of this Agreement. None of the foregoing provisions, other than section 26(b) shall limit any obligations of the Company under this Agreement. Page - 22 - 23 Section 27. Guaranty. The Company hereby irrevocably and unconditionally guarantees to the Officer the payment of all amounts, and the performance of all other obligations, due from the Bank in accordance with the terms of this Agreement as and when due without any requirement of presentment, demand of payment, protest or notice of dishonor or nonpayment. Solely for purposes of determining the extent of the Company's guarantee, the obligations of the Bank under this Agreement shall be determined as though section 26(a), (c), (d), (e) and (f) did not apply to the Bank. In Witness Whereof, the Bank and the Company have caused this Agreement to be executed and the Officer has hereunto set the Officer's hand, all as of the day and year first above written. /S/ Brian T. Edwards ------------------------- Brian T. Edwards Attest: Astoria Federal Savings and Loan Association By: /S/ William K. Sheerin By: /S/ George L. Engelke, Jr. --------------------------- ----------------------------- Name: William K. Sheerin Name: George L. Engelke, Jr. Title: Executive Vice President and Title: Chairman, President and Chief Secretary Executive Officer Attest: Astoria Financial Corporation By: /S/ William K. Sheerin By: /S/ George L. Engelke, Jr. --------------------------- ----------------------------- Name: William K. Sheerin Name: George L. Engelke, Jr. Title: Executive Vice President and Title: Chairman, President and Chief Secretary Executive Officer Page - 23 - EX-11.1 15 y46647ex11-1.txt STATEMENT RE: COMPUTATION OF EARINGS PER SHARE 1 EXHIBIT 11.1 STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE Year Ended December 31, 2000 (In Thousands, Except Per Share Data) 1. Net Income $216,549 Less: Preferred stock dividends declared 6,000 -------- Net income available to common shareholders $210,549 ======== 2. Weighted average common shares outstanding 50,822 3. ESOP shares not committed to be released (2,869) -------- 4. Total weighted average common shares outstanding 47,953 ======== 5. Basic earnings per common share $ 4.39 ======== 6. Total weighted average common shares outstanding 47,953 7. Dilutive effect of stock options using the treasury stock method 764 -------- 8. Total average common and common equivalent shares 48,717 ======== 9. Diluted earnings per common share $ 4.32 ======== EX-21.1 16 y46647ex21-1.txt SUBSIDIARIES 1 Exhibit 21.1 Subsidiaries of the Registrant Jurisdiction of Incorporation Subsidiaries of Astoria Financial Corporation Astoria Federal Savings and Loan Association United States a/k/a Astoria Federal Savings Astoria Capital Trust I Delaware A.F. Insurance Agency, Inc. New York Subsidiaries of Astoria Federal Savings and Loan Association A.F. Agency, Inc. New York A.F. Roosevelt Avenue Corp. New York Astoria Federal Mortgage Corp. New York Astoria Federal Savings and Loan Association Revocable Grantor Trust New York Entrust Holding Corp. New York Infoserve Corporation New York Star Preferred Holding Corp. New Jersey Suffco Service Corporation New York 201 Old Country Road, Inc. New York Astoria Federal has four subsidiaries which may qualify for alternative tax treatment under Article 9A of the New York State Tax Law and therefore, although inactive, are retained by Astoria Federal. Astoria Federal has seven subsidiaries, four of which are single purpose entities that have interests in individual real estate investments, which individually and in the aggregate are not material to our financial condition, and two of which have no assets or operations but may be used to acquire interests in real estate in the future. The seventh such subsidiary serves as a holding company for one of the other six. Astoria Federal has five additional subsidiaries, all of which are inactive and which Astoria Federal intends to dissolve or is in the process of dissolving. Subsidiaries of Star Preferred Holding Corporation Astoria Preferred Funding Corporation Delaware Starline Development Corp. New York EX-23 17 y46647ex23.txt CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 KPMG LLP Letterhead 1305 Walt Whitman Road Melville, NY 11747 Independent Auditors' Consent The Board of Directors Astoria Financial Corporation: We consent to incorporation by reference in the Registration Statements (Nos. 33-86248, 33-86250, 33-98500, 333-36807 and 333-64895) on Form S-8, (Nos. 333-29901, 333-58897 and 333-30792) on Form S-4 and (No.33-98532) on Form S-3 of Astoria Financial Corporation of our report dated January 17, 2001, relating to the consolidated statements of financial condition of Astoria Financial Corporation and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000, which report appears in the December 31, 2000 Annual Report on Form 10-K of Astoria Financial Corporation. /s/ KPMG LLP Melville, New York March 23, 2000 -----END PRIVACY-ENHANCED MESSAGE-----