Free Motion in Limine - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ____________________________________ ) ASTORIA FEDERAL SAVINGS & ) LOAN ASSOCIATION, ) ) Plaintiff, ) ) v. ) No. 95-468C ) (Judge Thomas C. Wheeler) THE UNITED STATES, ) ) Defendant. ) ) ____________________________________) DEFENDANT'S MOTION IN LIMINE TO PRECLUDE PLAINTIFF'S NEW AND PREVIOUSLY UNDISCLOSED EXPERT ANALYSIS Pursuant to Rule 7 and Appendix A of the Rules of the United States Court of Federal Claims, ("RCFC"), defendant, the United States, respectfully submits this motion in limine to prevent plaintiff's expert, Dr. Donald Kaplan, from testifying in support of a new and previously undisclosed damages theory. Because this analysis was first disclosed to us as of the end of the trial day on Monday, April 30, 2007, and we expect Dr. Kaplan's testimony to begin as early as Thursday, May 3, 2007, we respectfully request that the Court rule upon this motion prior to the start of Dr. Kaplan's direct examination. I. Plaintiff's Untimely Disclosure At 4:00 p.m. on Monday, April 30, 2007, we received from plaintiffs, Astoria Federal Savings & Loan Association ("Astoria"), copies of 107 demonstrative exhibits to be presented in conjunction with the testimony of their damages expert, Dr. Kaplan, numbered "PDX 1" to "PDX 107." Among these documents are calculations and explanations pertaining to a new, previously undisclosed lost profits damage calculation purportedly measuring the lost profits that

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Fidelity, N.Y. ("Fidelity") suffered if, absent the phase-out of goodwill, it would not have merged with Astoria. These calculations and explanations are found at PDX 9, 59, 81, 83, 86, 95 and 107. See Exhibit 1. In these demonstratives, Dr. Kaplan appears to be trying to demonstrate that, assuming Fidelity would not have merged with Astoria absent the breach, Fidelity suffered $70.872 million in damages. This new claim appears to be an alternative to a previously disclosed lost profits damages calculation of $127.43 million ­ an amount of lost profits Dr. Kaplan contends Fidelity suffered if, absent the breach, it would have merged with Astoria. We challenge the introduction of a new damages claim for a variety of reasons. We had no notice of any damage claim amounting to $70.872 million. We had not learned of any damage claim premised upon the assumption that Fidelity would not have merged with Astoria. We had no notice of Dr. Kaplan's new supporting analyses, e.g., the new "leverage ratio," which is not based upon Astoria's leverage ratio, the composition of Fidelity's presumed assets absent the acquisition by Astoria, or the spread Fidelity would have earned absent the merger with Astoria, among other things. We also lacked notice of other elements of the demonstratives. In addition to this new damages calculation, it appears that Dr. Kaplan is planning to proffer several new opinions, reflected at PDX 45, 46, 72, 73, and 78, which appear to relate to the goodwill derived from Fidelity's acquisition of Dollar Federal Savings & Loan Association, and to risk-controlled arbitrage. See Exhibit 1. In addition, Dr. Kaplan's demonstratives include several new analyses, to which we also object, that will presumably be used to support Dr. Kaplan's damage theories. See PDX 7, 8, 30-34, 43-44, 53-57, 65, 71 and 79 (Exhibit 1).1 As
1

In addition to having provided these major new revisions to his existing opinions for the first time in his demonstratives, Dr. Kaplan has added several new and previously undisclosed minor changes to his existing analyses, mostly including previously undisclosed background 2

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we demonstrate below, these disclosures of a new damages theory, new opinions, and new supporting analyses, reflects a flagrant violation of the rules, and prejudices our ability to gain information respecting the claim that we need to know in order to defend against it at trial. II. Plaintiff's New Calculations Were Not Previously Disclosed A. New Theory, Opinions, And Analyses Not Previously Disclosed

Dr. Kaplan filed an initial expert report on June 29, 2001. He was deposed following this report on September 24-26, 2001. Following this deposition, Dr. Kaplan submitted an affidavit revising his expert report on August 20, 2003. Following this affidavit, he was again deposed, on November 25, 2003, and then again on March 14, 2005.2 In neither his report, nor his affidavit, nor his depositions, did Dr. Kaplan ever reveal that he believed either that Fidelity would not have been acquired by Astoria absent the breach, or that the lost profits Fidelity suffered as a consequence of the breach, assuming that Astoria did not acquire Fidelity, amounted to $70.872 million. Nor did Dr. Kaplan ever reveal his new opinions respecting the Dollar goodwill or riskcontrolled arbitrage, or the supporting analyses we have identified above.3 Accordingly, the first

numerical adjustments, at PDX 4, 6, 16, 19, 22, 23, 29, 35, 41, 42, 51, 52, 67, 68, and 74-76. See Exhibit 1. Moreover, PDX 85 reveals that Dr. Kaplan has updated his damage calculation for the post-Astoria acquisition period. See Exhibit 1. We do not object to these demonstratives. Dr. Kaplan's original report began the lost profits calculation during the first quarter of 1989. See PX 1314 (Kaplan Original Report) at Exh. 9 (attached at Exhibit 3). Dr. Kaplan's affidavit measured lost profits beginning in both the first quarter of 1989 and the first quarter of 1990. See DX 1233 (Kaplan Affidavit) at Exh. A, B (attached at Exhibit 3). We note that Dr. Kaplan's demonstratives reveal that his pre-Astoria merger lost profits calculation begins in the third quarter of 1989. See PDX 79 (Exhibit 1). Specifically, with regard to the supporting analyses, we note that in his original report, Dr. Kaplan's opinion that Fidelity's actual wholesale spread "was always greater than 78 basis points" for each post-breach period. PX 1314 at ¶ 61 (attached at Exhibit 3). Dr. Kaplan, however, failed to measure Fidelity's spreads during the fiscal year ended 1990 and the quarter 3
3 2

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time that we had notice of these new analyses was at 4:00 p.m., eleven days after trial began, and three days before Dr. Kaplan plans to testify. B. Damages Based Upon No Astoria Merger Not Disclosed

To the extent that Dr. Kaplan ever addressed the question of whether Fidelity would have been acquired by Astoria absent the breach, he addressed it in regards to the lost profits calculation that he previously disclosed, which results in $127.43 million in damages. At first, Dr. Kaplan took no position respecting whether that merger would have occurred absent the breach, but later disclosed that his $127.43 million lost profits model assumed that the acquisition would have taken place. In his original report, Dr. Kaplan opined that he could not "determine whether Fidelity would have merged with Astoria in the absence of the breach." PX 1314 at ¶ 56 (attached at Exhibit 3). During his September 25, 2001 deposition, in response to our questions regarding this topic, Dr. Kaplan confirmed this opinion: Q. A. Q. A. Q. But is it your opinion, sir, that the lost profits model is equally applicable to the scenario of Fidelity ­ Yes. ­ operating independently? Yes. And did you form after your review of all the documents and financial data, did you form an opinion as to whether Fidelity would have operated independently in lieu of merging with Astoria? I thought what my report says was that I didn't have a basis for forming such an opinion and so I made ­ I have no opinion on that.

A.

ended December 1994. See PX 1314 at Exh. 8A (attached at Exhibit 3). Dr. Kaplan's demonstratives reveal that he has revised his calculation to include those missing periods. See PDX 71 (Exhibit 1). This new analysis appears to confirm that Fidelity's actual wholesale spread did not always exceed 78 basis points as Dr. Kaplan originally opined. 4

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Deposition Tr. 248:2-14 (Sept. 25, 2001) (attached at Exhibit 2). Accordingly, Dr. Kaplan at first took no position, in his $127.43 million damages model, as to whether the merger would have occurred absent the breach. In his latest deposition, however, Dr. Kaplan stated that, in calculating his $127.43 million lost profits number, he assumed Astoria would have acquired Fidelity absent the breach, Dr. Kaplan appeared to indicate that his model assumed the merger would have taken place: So it could be an increase of assets of mortgage loans? It wouldn't make any difference to you? MR. EISENHART: Objection, argumentative. A. Mr. Roberson, I have to say, you seem to still not understand, the $963 million of assets reflected in column D on Exhibit 16 is a quantification of the leveraging by Astoria, and you're asking about the composition of those assets, and my answer continues to be that's not critical for my lost profits calculation, no. Deposition Tr. 57:22-58:7 (Mar. 14, 2005) (emphasis added); see also Deposition Tr. 55:18-57:4; 60:25-61:24 (attached at Exhibit 2). Dr. Kaplan also testified at the end of his latest deposition that he did not contemplate making any additional changes to his expert report or affidavit: Q. You're not saving us a minute. You're costing us a minute, so let me repeat the question again. Have you contemplated making any additional changes to your expert report other than those set forth in your affidavit dated August 20th, 2003? MR. EISENHART: Fine, that would have been about a two-second clarification. Go ahead, answer the question subject to my objection. THE WITNESS: I haven't, no. Deposition Tr. 75:2-10 (Mar. 14, 2005) (attached at Exhibit 2). Given these statements, Dr. Kaplan had represented that Fidelity would have been acquired by Astoria absent the breach, and that any lost profits model he sponsored would so reflect. Accordingly, we had no notice that 5 Q.

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any alternative lost profits model would be sponsored, let alone any models assuming that, absent the breach, Fidelity would not have been acquired by Astoria. C. Leverage Ratio And Spread Analyses Not Disclosed

In addition to failing to disclose the existence of any expert opinion calculating lost damages in the amount of $70.872 million, and in addition to failing to disclose any lost profits model premised upon a non-breach world in which Fidelity is not acquired by Astoria, Astoria did not disclose until 4:00 p.m. on Monday, April 30, 2007, that Dr. Kaplan was planning to present new analyses revealed in his demonstratives. First, Dr. Kaplan did not previously reveal that if Fidelity remained independent, it would have leveraged the goodwill at a ratio of 15.8 percent. See PDX 81 (Exhibit 1). This calculation contrasts with Dr. Kaplan's deposition testimony in which he testified that he made no attempt to determine what Fidelity's leverage ratio would have been absent the breach: Q. Okay. But I think you said earlier you didn't make any attempt to determine what Fidelity's actual leverage ratios would have been from 1994 to 2001? That's correct. But nonetheless I still am responding to your question.

A.

Deposition Tr. 273:18-23 (Sept. 25, 2001). Second, Dr. Kaplan also never revealed that the foregone assets after 1994 would have continued to be incremental adjustable rate mortgage backed securities. See PDX 81 (Exhibit 1). In fact, during his September 25, 2001 deposition, he testified that not only did he fail to identify what the foregone assets would have been after the Astoria acquisition, but he did not even consider doing so: Q. Are you saying, Dr. Kaplan, what types of assets would have been invested in using the goodwill, remaining balance of goodwill after the Astoria 6

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A.

Q. A. Q. A.

merger? I think that what the report says is that the same 80 basis point incremental ROA would have been earned on the incremental assets. And I believe that's what the report says. But are you identifying what those incremental assets would have been? No, I don't think I have done that. Okay. Did you consider doing that? I think -- I think the answer is no from the outset. I did not, um, do that.

Deposition Tr. 259:3-15 (Sept. 25, 2001) (attached at Exhibit 2). In addition, Dr. Kaplan now apparently plans to opine that if Fidelity had remained independent, it would have earned a "spread of at least 80 basis points" on the incremental assets. PDX 81 (Exhibit 1). This is quite a contrast to his testimony during his September 25, 2001 deposition, where he specifically testified that he did not do an analysis of the spread that Fidelity would have earned after 1994 if it had remained independent: Q. A. Did you make any attempt, sir, to determine what wholesale asset spreads would be during the post 1994 period? No.

Deposition Tr. 276:12-15 (Sept. 25, 2001) (attached at Exhibit 2). Q. Okay. Did you consider doing an analysis of wholesale asset spreads from 1994 period on, in the event that Fidelity stayed as an independent company and did not merge with Astoria? I didn't perform that analysis.

A.

Deposition Tr. 277:11-15 (Sept. 25, 2001) (attached at Exhibit 2). Accordingly, with respect to each of these new analyses, the first notice provided to defendants was at 4:00 p.m. on Monday, April 30, 2007.

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III.

Plaintiff's Untimely Disclosure Violates The Applicable Rules And Precedent Under RCFC 26(a)(1)(C), a party is required to disclose as part of its initial disclosures "a

computation of any category of damages claimed by the disclosing party, making available for inspection and copying as under RCFC 34 the documents or other evidentiary material, not privileged or protected from disclosure, on which such computation is based, including materials bearing on the nature and extent of the injuries suffered." Under RCFC26(a)(2)(B), a party who proffers an expert must submit a report prepared by that expert, which "shall contain a complete statement of all opinions to be expressed and the basis and reasons therefor; [and] any data or other information considered by the witness in forming the opinions[,]" among other things. Under RCFC 26(b)(4)(B), an opposing party is entitled to depose a proffered expert "whose opinions may be presented at trial. If a report from the expert is required under subdivision (a)(2)(B), the deposition shall not be conducted until after the report is provided." RCFC 26(e)(1) imposes a duty upon a party proffering an expert who has filed a report to supplement incomplete or incorrect information, including "information contained in the report and . . . information provided through a deposition of an expert." Finally, RCFC 37(c)(1) provides that "[a] party that without substantial justification fails to disclose information required by RCFC 26(a) or 26(e)(1), or to amend a prior response to discovery as required by Rule 26(e)(2), is not, unless such failure is harmless, permitted to use as evidence at trial, at a hearing or on a motion any witness or information not so disclosed." The specific rules applicable to Winstar-related cases positively preclude this Court from hearing expert testimony respecting an opinion that was not disclosed in an expert report: 2. Absent agreement of the parties, each plaintiff shall deliver to 8

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defendant a final written report prepared and signed by each [expert] witness . . . within 60 days after identification. The written report shall contain: (a) a complete statement of all opinions to be expressed by the witness and the basis and reasons for all opinions; (b) the data or other information considered by the witness in forming the opinions; and (c) all exhibits to be used as a summary of or in support for the opinions of the witness . . . 4. If a plaintiff fails to comply with the provisions of this section with regard to any expert witness it proposes to call, no opinion testimony will be received from the witness of that plaintiff. Procedural Order No. 2 ("Discovery Plan") (Aug. 7, 1997) (attached at Exhibit 4). The Discovery Plan provided for a single round of expert discovery. Indeed, in La Van v. United States, Discovery Judge Hodges found that, although an expert in a Winstar-related case may make non-substantive, typographical, or simple arithmetic changes, experts are not permitted to raise new theories or opinions following the close of discovery. See La Van v. United States, No. 90-581C, Orders (Fed. Cl. Jul. 13, 2000) and (Fed. Cl. Aug. 2, 2000) (attached at Exhibit 4). Cases support the exclusion of untimely disclosed expert testimony. In United States v. Diaz, 189 F.3d 1239 (10th Cir. 1999), the United States Court of Appeals for the Tenth Circuit affirmed the exclusion of expert testimony that was disclosed five months after the deadline for motions to introduce expert testimony had expired. Id. at 1247; see also Essence, Inc. v. City of Federal Heights, 285 F.3d 1272, 1288-89 (10th Cir. 2002) (upholding exclusion of untimely disclosed expert disclosure). In MRO Communications, Inc. v. American Telephone & Telegraph Co., 1999 WL 1178964 (9th Cir. Dec. 13, 1994) (table), the Ninth Circuit affirmed exclusion of untimely an submitted exhibit and expert testimony that established a new damages theory. Id. at *7. This Court's predecessor, in Owen v. United States, 20 Cl. Ct. 574 (1990), refused to accept testimony from an untimely disclosed expert witness. Id. at 589 n.12.

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The purpose of these rules, as demonstrated by the cases cited above, is to prevent trial by ambush. Expert discovery permits an opposing party to learn in advance of trial what an expert's opinions are so that the opposing party can assess their merit, probe their validity at deposition, and be able to effectively defend itself against the expert's claims at trial. By providing new damages calculations not only late, but during trial, and only three days before the expert is to testify, Astoria has committed an egregious violation of the rules. Astoria's actions have rendered obsolete its prior disclosures and the depositions of Dr. Kaplan, and Astoria has prevented the Government from gaining any fair benefit from the process. IV. Plaintiff's Untimely Disclosure Prejudices The Government By providing its new damages analyses at such a late time, Astoria has prejudiced us from being able to defend against them. In addition to receiving new damage theories, opinions, and analyses, the demonstratives do not tell us crucial information respecting Dr. Kaplan's new claim, which we must therefore learn for the first time at trial: 1) What are the start and end dates of the new damage calculation? 2) Would Fidelity have been acquired by Astoria? 3) What benefit offsets are incorporated into the new damages calculation, if any, and why? 4) What analyses did Dr. Kaplan perform respecting the mortgage-backed securities market after 1994? More generally, we do not know the bases for many of the assumptions Dr. Kaplan has made regarding his new analyses and his newly disclosed opinions, nor is it clear how some demonstratives even relate to his damages theories.4
4

Absent having had the opportunity to ascertain the answers to these and other questions, and absent sufficient time to analyze those answers, our ability to defend against these claims has been prejudiced. Moreover, Dr. Kaplan's new analyses also prejudice us because they will require additional analyses by our experts and additional expenses to be incurred. See Godley v. United States, 5 F.3d 1473, 1476 (Fed. Cir. 1993) (noting that incurring additional expenses 10

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CONCLUSION For the foregoing reasons, we respectfully request that the Court preclude Dr. Kaplan from testifying regarding any of the new and previously undisclosed damages analyses identified in this motion. Respectfully submitted, MICHAEL F. HERTZ Deputy Assistant Attorney General JEANNE E. DAVIDSON Director /s/ Kenneth M. Dintzer KENNETH M. DINTZER Assistant Director /s/ John H. Roberson JOHN H. ROBERSON Trial Attorney Commercial Litigation Branch Civil Division Department of Justice 1100 L Street, N.W. Attn: Classification Unit, 8th Floor Washington, D.C. 20530 Tel: (202) 353-7972 Fax: (202) 514-8640 Attorneys for Defendant

OF COUNSEL: ARLENE PIANKO GRONER ELIZABETH M. HOSFORD BRIAN A. MIZOGUCHI JOHN J. TODOR SAMEER YERAWADEKAR

May 1, 2007

constitutes prejudice); see also Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc., 252 F.3d 218, 230 (2d Cir. 2001) ("undue delay or expense" is a "form of recognized prejudice"). 11

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CERTIFICATE OF FILING I hereby certify that on this 1st day of May, 2007, a copy of the foregoing "DEFENDANT'S MOTION IN LIMINE TO PRECLUDE PLAINTIFF'S NEW AND PREVIOUSLY UNDISCLOSED EXPERT ANALYSIS" was filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system.

/s/ John H. Roberson John H. Roberson

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Dechert

LLP

1775 1 Street, N.W. Washington, DC 20006-2401 +1 202 261 3300 Main +I 202 261 3333 Fax www.dechert.com

CRAIG G, FALL5

cralg,fells@decherLcom +1 202 261 3373 Direct +1 202 261 3333 Fax

April 30, 2007
VIA E-MAIL AND HAND DELWERY

John H. Koberson, Esq. U.S. Department of Justice Civil Division - Commercial Litigation Branch 1100 L S~reet, NW 8th Floor Washington, D.C. 20530 Re: Astoria Federa! Savings & Loan Association v. United States, No. 95-468C Dear John: Pursuant to the Court's Pretrial Order of September 19, 2006, we are providing you with two paper copies and a compact disc containing a PDF file of Plaintiff's Exhibits PDX 2-PDX 107. We intend to use these exhibits in our examination of Dr. Donald M. Kaplan on Thursday, May 03, 2007. This letter will also be transmitted to you via e-mail with an electro~a]c copy of the exhibits attached. If you have any questions about the exhibits, please call Frank Eisenhart at (202) 261-3306 or me at (202) 261-3373. Best regards, ~lls

Enclosures

U.S. Austin Boston Charlotte Harrisburg Hartford New Yerk Newport Beach Pale Alto Philadelphia Princeton San Francisco Washington DC EUROPE Brussels London Lux¢mbourg Munich Paris

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Fidelity's Total Assets December 1979 to December 1994 (Millions)
$2,500
Dollar Acquisition i Suburbia Acquistio8 Jul 1, 1982--~ ~ Oct 31, 1984--~.: FIRREA Enacted Aug 9, 1989---~:" Stock Conversion Astoria Acq. May 3, 1993~.. Jan 31, 1995

$2,000

$1,500
Compound Annua~ Growth Rate Dec 1979 - Jun 19~9 - 28.9%

$1,000

$500

$0

Source: Fidefity Thrift Financial Reports (PX 1321)

PDX 4

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Fidelity's Earnings, Like Those of the Thrift Industry, Were Affected by Interest Rates (Thousands)
$25,000
$20,228 In the Jan 17, 1990 Board meeting, management advised the Board that December 1989 was the first month Fidelity experienced negative net income in the past 11years, (PX-537) $1 217 $16,582

$20,000
N

$15,000
'~- ) $12,454

$10,000
$5,616

$8,o ~
$3,604 $2,040 ~ $638 $183 $594 1982 1983 1984 1985 1986 1987 1988 1989 1990

$5,000

$0

~ ,,

°N
1991 1992 1993 1994

1980 1981

$(1,0151

$(5,000)

Source: Fidefity Thrift Financial Reports (PX 1321)

PDX 8

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Summary of Damages (Millions)
Independent Fidelity No Merger
Lost Profits: Lost Profits on Forgone Assets 1989-1994 Lost Profits on Forgone Assets 1995-2014 Loss from Premature Sale of FHLMC Stock Wounded Bank Costs Total With Astoria Merger

17.973 40.604 10.863 1.432
$ 70.872

17.973 97.162 10.863 1.432 127.430

Restitution: Avoided Liquidation Costs (Net) Wounded Bank Costs Total Reliance: Investment in Suburbia (Net) Wounded Bank Costs Total

$128.259 1.432
$129.691 $140.416 1.432 $141.848

Source: Kaplan Report Exhibits 17 (revised), 18, 22 (PX 1314)

PDX 9

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Suburbia's Capital Position Fell by $.87 Million in Four Years (As of March 31, In Millions)
$40 $30
~I ~" '~"

$29.5 Million Capital at Mar. 31, 1979

I

I

$27.9
$21.0

$20 $10
$1.0

$$11.7)

$(10) $(20) $(30) $(40) $(501
$(53.6)

$(8.5)

[] Total Annual Loss [] Ending Capital
$(32.5)

$141.11

$(60) $(70) 1979 1980 1981 1982 1983

$(57.7) Million Capital at March 31, 1984

1984

Source: Suburbia Censofidated Financial Statements, 1980-!984 (PX 1286-1290)

I

PDX16

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Reconcilation of Suburbia's Net Worth Under Generally Accepted and Regulatory Accounting Standards March 31, 1984 (Thousands)
Amount Book Value Deficit Calculated Following GAAP Deferred Losses on the Sales of Loans and Securities Appraised Equity Capital Net Worth Certificates Miscellaneous Differences Between Suburbia's Books and GAAP Regulatory Capital Reported to the FHLBB as of March 31, 1984 (57,679) 44,531 5,078 9,525 1,876 3,331

7 Approximate Minimum Regulatory Net Worth Requirement as of March 31, 1984 8 9 Net Worth Deficit Under Regulatory Accounting Net Worth Deficit Under GAAP Accounting

19,200 (15,869) (76,879)

Notes: Lines 1, 2, 4 from Suburbia Consolidated Financial Statements (PX 1290) Line 5 from Suburbia Consolidated Financial Statements (PX 1290 at 11) Lines 3, 6 from March 31, 1984 Suburbia Thrift Financial Report (PX 1316) Lines 7 equals 3% of total liabilities reported to the FHLBB as of March 31, 1984 (PX 1316)

Source: Suburbia Consofidated Financial Statements, March 31, 1984 (PX 1290); Surburbia Thrift Financial Report, March 31, 1984 (PX 1316)

PDX 19

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Accounting for the Suburbia Acquisition Pro Forma as of March 31, 1984 (Thousands)
Suburbia GAAP Book Value (a)
1

Purchase Accounting Adjustments (b) (102,414) 160,093 57,679

Suburbia GAAP Market Value (c)= a + b 401,700 20,355 38,157 160,093 23,529 643,834 601,614 29,242 12,979 643,834

Fidelity Book Value (d) 245,055 70,499 105,700 24,309 23,826 469,389 368,664 69,161 11,364 449,189

Fidelity Plus Suburbia at Market Value (e) = c + d 646,755 ¯ 90,854 143,857 184,402 47,355 1,113,223 970,278 98,403 24,343 1,093,023

Plus: Contractual Benefits

(0

Fidelity After Merger (g) = e + f 646,755 90,854

Loans Receivable Investments FSLIC Capital Note

504,114 20,355 38,157

2 Mortgage-Backed Securities 3 4 5

16,000 9,175

159,857 9,175 184,402 47,355

Goodwill 6 Other Assets 7 Total Assets 8 Deposits 9 Borrowed Money lO Other Liabilities

23,529 586,155 601,614 29,242 12,979 643,834

25,175

1,138,398 970,278 98,403 24,343 1,093,023

11

Total Liabilities

12 FSLIC Net Worth Certificate 13 Retained Earnings 14 Total Net Worth (Capital) 15 Total Liabilities and Net Worth 18 Capital Ratio (line 14/11)

(57,679) (57,679) 586,155 -8.96%

57,679 643,834 0.00%

20,200 20,200 469,389 4.50%

20,200 20,200 1,113,223 1.85%

9,175 16,000 25,175 25,175

9,175 36,200 45,375 1,138,398 4.15%

Notes: (b) Represents the net impact of the final purchase accounting adjustments determined after the acquisition was completed; no mark to market analysis of Suburbia as of March 31, 1984 was ever performed. Net purchase accounting adjustments of,$102.414 million, shown in row 2 of column b, represent the difference between the final goodwill figure and the net worth deficit as of March 31, 1984.

Source:Suburbia Consolidated Financial Statements (PX 1290); Fidelity Thrift Financial Report (PX 1317), KPMG Workpapers (PX 569). (PX 1247 at KPMG 007084)

PDX 22

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Suburbia Federal Savings and Loan Association Purchase Accounting Adjustments as of October 31, 1984 (Thousands)
Historical Amounts
1 2 3 4 5 6 7 8 First Mortgage Loans Other Loans Investments Office Property and Equipment Other assets Deferred Losses Goodwill Total .Assets 593,914 8,819 46,246 11,910 23,309 43,788 727,987 628,046 69,325 13,900 16,497 5,012 9,175 (13,968) 727,987

Accounting Debit
2,581

Accounting Credit
105,476 1,222 1,128 43,788 2,581 154,196 811 610 45 13,968 169,630

Adjusted Amounts
491,018 8,819 45,024 11,910 22,181 159,457 738,409 628,857 69,935 13,900 16,542 9,175 738,409

162,037 164,618

9 Deposits 10 FHLB Advances 11 Other Borrowed Money 12 Other Liabilities 13 Appraised Equity Capital 14 NetWorth Certificates 15 Net Worth 16 Total Liabilities

5,012 169,630

Reconcilation to final goodwill amount: Goodwill from above Add: Profits booked on Shoreham (PX 569 at KPMG 001667) Add: Unrecoverable NYS facilities tax (PX 569 at KPMG 001667) Final Goodwill Amount

159,457 300 337 160,093

Notes: (1) Deducting the deferred losses of $43.788 million (line 6) from deficit net worth of $13.968 (line 15) produces a book value deficit of $57.756 million. (2) The addition of the appraised equity capital (line 13) and the net worth certificates (line 14) to the net worth deficit (line 15) produces a small positive RAP net worth of $O. 219 million, exclusive of certain minor differences between RAP and GAAP income recognition. Source: KPMG Audit Workpapers (PX 1247 at KPMG 007084, PX 569 at KPMG 001667)

PDX 23

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Page 6 of 6

1oo~)$ (os~)$ (oo~)$ (os)$ o$
os$ oo1.$

(suo!ll!lAI) 1766 L o~, 1786 L JeqLueoeG le~!dec) elq!6ue/s,A~!leP!=l

Case 1:95-cv-00468-TCW

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Fidelity's Asset Growth Exceeded the Government's Projections (Millions)
$2,500
Govt. projected annual growth rates ranged from 6.8% to 8.5% over ten-year forecast period

[] Actual [] Projected $2,000

2,000 1,704

$1,500
1,248

1,487 1,358 1,309

1,506

$1,000

$5OO

$0 1984 1985 1986 1987 1988

Source: Fidefity Thrift Financial Reports (PX 1321), Viability Analysis of September& 1984 (PX 210)

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Fidelity's Earnings Exceeded the Government's Projections (Thousands)
$30,000 [] Actual [] Projected
$25,000

$20,000
17,217

$15,000 $10,000 $5,000
9,190

8,062

$0 1985
19 8~

~

19 (2,186)

1988

1989

$(5,ooo) $(lO,OOO)

(3,745)

Source: Fidelity Thrift Financial Reports (PX 1321), Viabifity Analysis of September 6, 1984 (PX 210)

P DX 31

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Fidelity's Capital Ratios Exceeded the Government's

Projections
7.00% [] Actual [] Projected
6.58% 6.23%

6.00%

5.55%

5.00%
4.45% 4.12%

4.00%
3.22% 3.00% 3.41% 3.18%

2.00%

1.00%

0.00%
1984 1985 1986 1987 1988

Source: Fidefity Thrift Financial Reports (PX 1321); Viability Analysis of September 6, 1984 (PX 210)

I

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Profitability- Net Income to Avg Assets, Fidelity Compared to All FSLiC-Regulated S~Ls, 1 979-1988
2.00%
1.75% 1.50%

1.25% 1.00% 0.75% 0.50% 0.25%

0.o0%
-0.25% -0.50% -0.75% -1.00%
I~AII S&Ls 1980 0,36% 0,14% 1981 0,09% -0,74% 1982 0,72% -0,63% 1983 1,37% 0,26% 1984 0,87% 0,12% t I 1985 1,82% 0,38% 1987 0,51%. -0,60% 1988 0,51% -1,00% 1989 0,88% -0,54%

[] Fidelity I~AII S&Ls

Source: Fidefity Thrift Financial Reports (PX 1321); OTS Fact Book (PX 1322)

I

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Financial Condition - Net Worth to Liabilities, .Fidelity Compared to All FSLiC-Regulated S~Ls, 1979-1988
9.00% [] Fidelity [] All S&Ls 8.00%

7.00%

6.00%

5.00%

4.00%

3.00%

2.00%
RAIl S&Ls t

1979 6.40% 5.70%

1980 6.31% 5.36%

1981 5.44% 4,23%

1982 3.76% 3.73%

1983 4.45% 4.22%

1984 4.12% 2.83%

1985 5.69% 3.27%

1986 6.58% 3.56%

1987 6.23% 2,97%

1988 5.55% 3.62%

Source: Fidelity Thrift Financial Reports (PX 1321); Fidelity Intemal Financial Reports, 1984 to 1988 (PX 306, 361, 386, 421, 463); OTS Fact Book (PX 1322)

I

PDX 34

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(sedA.L IIV) sep.!Jnoes pe>loeS-e6e6~olAI

q~oJD 6u!~oJJo8 pu~!$ode~

s~.ess~, alq!6ue_L

s~.ess~y le~o±

(suo!ll!lAI) 886 L o~ 1786 L "L ~ JeqtueoeCi q~AOJ£) uo!~!s!nbov-~SOcl s,A~!Iep!-!

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Page 1 of 6

Impact of FIRREA on Fidelity's Regulatory Capital Calculated Pro Forma As of March 31, 1989 (Millions)
Pre-FIRREA
$150
Actual, $121

Post-FI RREA Tangible

Post-FIRREA Core

$100

Required, $55

$5O
Required, $28

Actual, $(18)

$(50)

Actual, $(46)

Deficit, $(73)

Deficit, $(73)

$(100)
Source: Fidelity Consolidated Financial Statements as of March 31, 1989 (PX476 at 1 and 22]

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Impact of FIRREA on Fidelity's Regulatory Capital Calculated Pro Forma As of March 31, 1989 (Thousands)
Line Pre-FIRREA Regulatory Capital: Net Worth Under GAAP (per balance sheet, after restatement of Suburbia goodwill) Additional Non-GAAP Contractual Supervisory Goodwill from Suburbia Net Worth Certificates from Suburbia General Valuation Allowances Other Regulatory Items (deferred losses, loan fees and discounts) Total Regulatory Capital Regulatory Capital Requirement as of March 31, 1989 Excess (Deficit) Pre-FIRREA Capital OTS FIRREA Tangible Capital Requirement: Net Worth Under GAAP Less: GAAP Supervisory Goodwill (Suburbia & Dollar) Tangible Capital (Deficit) Tangible Capital Requirement (1.5% tangible assets) Excess (Deficit) FIRREA Tangible Capital OTS FIRREA Core Capital Requirement: Tangible Capital (Deficit) Plus: Qualifying Supervisory Goodwill (up to 1.5% tangible assets) Total Core Capital (Deficit) 31-Mar-89 Audit 54,994 50,438 5,123 3,887 6,471 120,913 64,229 56,684 54,994 (100,591) (45,597) 27,537 (73,134) (45,597) 27,537 (18,060) 55,074 (73,134)

1 2 3 4 5 6 7 8 9 10 11 12 13

14 15 16

17 Core Capital Requirement (3% of tangible assets) 18 Excess (Deficit) FIRREA Core Capital (Deficit)

Source: Fidelity Consolidated Financial Statements as of Maich 31, 1989 (PX 476 at 1 and 22)

I

PDX 42

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Fidelity's Regulatory Capital But For the Breach Calculated Pro Forma as of March 31, 1989 (Millions)
Tangible
$140

Core

Risk-Based

$120
But For, $111

But For, $114

$100
But For, $91

$8o -Surplus, $62 ~equired, $61 Surplus, $53

$60

$40
~equired, $2!

$20 i--

N
~~

Source: Fidelity Consofidated Financial Statements as of March 31, 1989 (PX 476 at I and 22]

I

PDX 43 I

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Fidelity's Non-Breached Regulatory Capital Calculated Pro Forma as of March 31, 1989 (Thousands)
Line OTS FIRREA Tangible Capital Requirement: Net Worth Under GAAP (per balance sheet, after restatement of Suburbia goodwill) Additional Contractual Supervisory Goodwill from Suburbia Net Worth Certificates from Suburbia Less: GAAP Supervisory Goodwill (Suburbia & Dollar) Tangible Capital Tangible Capital Requirement 1o5% tangible assets) Excess (Deficit) Tangible Capital Tangible Capital Ratio OTS FIRREA Core Capital Requirement: Tangible Capital Surplus (Deficit) Plus: Qualifying Supervisory. Goodwill (up to 1.5% tangible assets) Total Core Capital Core Capital Requirement (3% of tangible assets) Core Capital Surplus (Deficit) Core Capital Ratio 31-Mar-89 Breached 54,994 31-Mar-89 But For 54,994 50,438 5,123 (20,007) 90,548 28,746 61,802 4.72% 90,548 20,007 110,555 57,491 .53,064 5.77% 110,555 3,88i 114,442 61,324 53,118 11.94%

1 2 3 4 5 6 7 8 9 10 11

(100,591) (45,597) 27,537 (73,134) -2.48% (45,597) 27,537 (18,060) 55,074 (73,134) -0.98% (18,060) (18,060) 58,745 (76,805) -1.97%

12 13 14

OTS FIRREA Risk-Based Capital Requirement: 15 Core Capital 16 Plus: General Valuation Allowances (if tangible capital is positive) Total Risk-Based Capital 17 18 19 20 Risk-Based Capital Requirement (6.4% of risk-weighted assets) Risk-Based Capital Surplus (Deficit) Risk-Based Capital Ratio

Note: (18) Assumes rfsk-weighted assets were equal to 50% of unweighted total tangible assets; at 3/31/90 the ratio was 48% Source: Fidefily Consolidated Financial Statements as of March 31, 1989 (PX 476 at I and 22]

PDX 44 I

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:

Immediate Impact of FIRREA on Fidelity's Core Capital Absent the Breach December 31, 1989 (Millions)
Line Amount Lost Amount Immediately Pre-FIRREA Regulatory Capital Loan Discounts Recognized Prematurely under RAP Loan Fees Recognized Prematurely under RAP GeneraIValuation Allowances Deferred Loan Losses Net Worth Certificates Dollar Federal Goodwill Total Percent of Regulatory Capital $136.828 2.266 1.086 4.010 2.851 4.664 ¯ 19.330 $ 34.207 25% Comment
Calculated as $34.207 divided by 25%

1 2
3

$ 2.266 Not permanently lost; fully recognized under GAAP 1.086 Not permanently lost; fully recognized under GAAP 4.010 Counted toward the risk-based capital requirement 2.851 Eliminated immediately instead of over the folkJwing 4 years
Contractual; in December 1990, Fidelity received a cash buyout for $3.0 million, plus $0.7 million of interest forgiveness Includable in core capital pursuant to the phase-out through 1994

4 5 6 7 8 9

$10.213 7%

Source: Defendant's Memorandum of Contentions of Fact and Law, March 15, 2007

PDX 45 [

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Absent the Breach, Most of the Dollar Federal Goodwill Would Have Counted as Core and Risk-Based Capital Through 1994 (Dollar Amounts in Millions)
As of Dec-89 No Asset Growth 1989-1994: Tangible Assets Maximum SGW includable in Core Capital: Percent of Tangible Assets Maximum Amount Dollar Federal Goodwill Outstanding (1) Dollar Federal Goodwill Deducted from Capital But For Asset Growth 1989-1994: Non-breached Tangible Assets Maximum SGW Includable in Core Capital: Percent of Tangible Assets Maximum Amount Dollar Federal Goodwill Outstanding (1) Dollar Federal Goodwill Deducted from Capital 1,919 1.500% 29 19 _ 2,077 1.500% 31 18 2,248 1.500% 34 17 2,433 1.000% . 24 16 2,634 0.750% 20 15 2,542 0.375% 10 14 (5) 1,847 1.500% 28 19 1,847 1.500% 28 18 1,847 1.500% 28 17 1,847 1.000% 18 16 1,847 0.750% 14 15 (2) 1,847 0.375% 7 14 For the Year Ended Dec-92 Dec-93 Dec-91

Dec-90

Dec-94

(8)

(1) Based on starting balance of $19, 326, 203 and 20-year amortization factor of $978,827 per year, that reflected the 20-year FIRREA amortization requirement (KPMG 1990 Work Papers, PX 576 at KPMG 001676)

Source: Kaplan Report, Exhibit 9 (Revised), (PX 1314); KPMG 1990 Wod{paper (PX 576)

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Fidelity's Regulatory Capital As of December 31, 1989 (Thousands)
Line OTS FIRREA Tangible Capital Requirement: Net Worth Under GAAP Less: GAAP Supervisory Goodwill Tangible Capital (Deficit) Tangible Capital Requirement Excess (Deficit) Tangible Capital Amount Ratio

1 2 3 4 5

63,316 (93,002) (29,686) 27,456 (57,142) (29,686) 27,456 (2,230) 54,912 (57,142) (2,230)

3.46% -5.08% -1.62% 1.50% -3.12% -1.62% 1.50% -0.12% 3.00% -3.12% -0.24% 0.00% 0.00% -0.24% 6.40% -6.64%

OTS FIRREA Core Capital Requirement: 6 Tangible Capital (Deficit) 7 Plus: Qualifying Supervisory Goodwill 8 Total Core Capital (Deficit) 9 Core Capital Requirement 10 Core Capital (Deficit) 11 12 13 14 15 16 OTS FIRREA Risk-Based Capital Requirement: Core Capital (Deficit) Plus: Supplementary Capital Plus: Qualifying Supervisory Goodwill Total Risk-Based Capital (Deficit) Risk-Based Capital Requirement Risk-Based Capital (Deficit)

(2,230) 59,271 (61,501)

Note: Line 12 - Fidefity initially was not eligible to count general valuation allowances as supplementary risk-based capital because it had negative core capital.

Source: Capital ~estoration Plan (PX 534 at AST0705451)

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Projected and Required Levels of the Tangible Component of Core Capital (Percent of Assets)
4.00%

3.0O%
Required tangible portion of minimum core capital requireme tr~ 2.00%

1.00%

Tangible Capital P~

0.00%
1989 ~ 1 .' , 1992

'

1993

'

. 1994

-1,00%

of
11194 and

/zero at 1/'I/95, thereby increasing the implicit tangible capital requirement

-2.00%

l

Source: Capital Restoration Plan (PX 534)

PDX 52

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Fidelity's Tangible Capital Ratio Compared to All U.S. Thrifts As of December 31, 1989 to 1 994
8.00%
7.00% 6.88% 7.08%

6.00%

Fidelity All Thrifts

6.21%
5.23%

5.00%
4.00%
3.00%

4.90%

2.00% 1.00%

1.45%

0.0o%
1991 1992 1993

1994

-1.00%
-2,00% -1.50%

Source: Fidelity Thrift Financial Reports (PX 1321); OTS Fact Book (PX1322); Fidelity's capital ratio at 12/31/89 is as of 3/31/90

PDX 53

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Fidelity's Core Capital Ratio Compared to All U.S. Thrifts As of December 31, 1989 to 1994
8.00%
Fidelity All Thrifts
7.00% 6.00% 5.27%
FDICIA Cap 6.43% 5.60%

7.08%

7.12%

5.46%

5.00%
4.27%

4.00%

3,83%

3.00%
2.00% 1.00% 0.00% 0"00°41989 -1.00% 1990 1991

2.45%

1992

1993

1994

Source: Fidefity Thrift Financial Reports (PX 1321); OTS Fact Book (PX1322); Fidefity's capital ratio at 12/31/89 is as of 3/31/90

PDX 54 I

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Fidelity's FIRREA Capital Ratios Compared to All U.S. Thrifts As of December 31, 1989 to December 31, 1994
1989 Tangible Capital: Fidelity All Thrifts Core Capital: Fidelity All Thrifts Risk-Based Capital: Fidelity All Thrifts -1.50% 3.11% 0.00% 3.83% -0.01% 7.19% 1990 -0.77% 3.94% 0.73% 4.27% 2.62% 8.49% 1991 0.16% 4.99% 1.66% 5.27% 5.25% 10.16% 1992 1.45% 6.21% 2.45% 6.43% 7.78% 13.28% 1993 4.90% 6.88% 5.46% 7.08% 18.26% 14.64% 1994 5.23% 7.08% 5.60% 7.12% 18.95% 14.79%

Source: Fidefity Thrift Financial Reports (PX 1321); OTS Fact Book (PX 1322); Fidelity's capital ratio at 12/31/89 is as of 3/31/90

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Profitability- Net Income to Average Assets, 1989 to 1 993, Fidelity Compared to All Thrifts
1.25% [] Fidelity [] All S&Ls 1.00%
0.87%

0.75% 0.61% 0.50%

0.65%

0.63%

0.25%

U.19%

0.00% 1992 -0.25%
-0.35%

1993

-0.50%
Source: Fidelity Thrift Financial Reports (PX 1321); OTS Fact Book (PX 1322)

PDX 56

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Asset Quality- Fidelity Compared to all Thrifts 1989 to 1 993 (Dollar Amounts in Millions)
(Troubled Assets as a Percentage of Total Assets, Fidelity versus All U.S. at Dec. 31)

4.50%

4.00%
3.50%

[] Fidelity [] All U.S.
3.80%

3.44% 3.10%

3.51%

3,23%

3.08%

3.00%

2.50%
2.00%
1.96%

1.50%

1 .oo% 0.50%
0.00%
1989 1990 1991 1992 1993 1994
Troubled Assets consist of accrual and non-accrual loans 90 days or more past due and real estate acquired through foreclosure

Source: Fidefity 1993 Annual Report (PX 1048 at 20); 9/30/94 IOQ (PX 1 !48 at 14); OTS 1998 Fact Book (PX 1322, Table 5.1)o Fidefity ratios for 1989-1991 are as of March 31, 1990-1992; 1994 data are as of September 30, 1994

PDX 57

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Post-Conversion Operations

Fidelity resumed growing its asset base following the conversion, but had no meaningful cushion above FDICIA wellcapitalized standard, limiting operating and strategic options o Absent the breach, Fidelity would have had higher capital, higher earnings, and more choices Fidelity .entered into preliminary discussions to acquire a New York thrift, but was limited in what it could offer by its financial condition o Absent the breach, Fidelity would have been viable as an acquirer of other thrifts or branch offices Fidelity assessed its longer-term strategic options and elected to enter into negotiations to be acquired as the best strategy to maximize stockholder value o The conversion proceeds did not fully mitigate the loss of supervisory goodwill On July 13, 1994, Fidelity agreed to be acquired by Astoria Financial Corporation for $29 per share in cash o Absent the breach, Fidelity would have been an even more attractive acquisition candidate, but would have had the ability to do so when it chose and on more favorable terms o Absent the breach, Fidelity might be still be operating as an independent company

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Fidelity's Projected Non-Breached Growth Rates 1988 Three Year Plan, Updated Jan 17, 1989 (Millions)
Total Assets (a) Dec-88 Mar-89 Jun-89 Sep-89 Dec-89 Mar-90 Jun-90 Sep-90 Dec-90 Mar-91 J u n-91 Sep-91 Dec-91 2,020 2,039 2,084 2,111 2,109 2,149 2,197 2,245 2,298 2,347 2,398 2,451 2,503 Total Assets Quarterly Growth Rate (b) 0.96% 2.21% 1.28% -0.08% 1.88% 2.26% 2.15% 2.36% 2.13% 2.20% 2.21% 2.10% 4.42% 8.94% 8.92% 7.41% Goodwill & Regulatory Intangibles (c) 154 152 151 149 148 146 144 143 141 140 138 137 135 Tangible Assets (d) = (a) - (c) 1,866 1,887 1,934 1,962 1,962 2,003 2,053 2,102 2, 156 2,207 2,260 2,314 2,367 Tangible Assets Quarterly Growth Rate (e) 1.12% 2.47% 1.45% -0.01% 2.10% 2.50% 2.38% 2.60% 2.34% 2.40% 2.41% 2.29% 5.10% 9.92% 9.78% 8.25%

Annual Growth Rates: 1989 1990 1991 1989-1991 (compound annual)

Note: (c) Regulatory accounting, includes capital credit and 30-year amortization

Source: Fidelity New York Budget Model (PX 463 at AST0703570-87)

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Composition of Earning Assets 1988 to 1994 (Millions)
$2,500

$2,000

Investments $1,500 Other Mortgage-Backed Securities

$1,000

$500

Mar 1988

Mar 1989

Mar 1990

Mar 1991

Mar 1992

Dec 1992

Dec 1993

Dec 1994

Source: Fidefity Consolidated Financial Statements 1988-1994 (PX 476, 707, 867, 949, DX 1199, PX 1323); Investment Committee Report Schedules 1988-1994

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Composition of Funding Sources 1988 to 1994 (Millions)
$2,500 [] [] [] [] Other Borrowings Reverse Repos Tangible Capital Deposits FHLB Advances & Other Borrowings $1,500 Reverse Repurchase Agreements

$2,000

$1,000

$50O

g

Mar 1988

Mar 1989

Mar 1990

Mar 1991

Mar 1992

Dec 1992

Dec 1993

Dec 1994

Source: Fidelity Consofidated Financial Statements, 1988-1994 (PX476, 707, 887, 949, DX 1199, PX 1323)

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Fidelity New York, FSB Wholesale Spreads - All MBS Less All Borrowings

Yield on All MBS(a) 12 Mths ended Mar. 1990 (c) 12 Mths ended Mar. 1991 12 Mths ended Mar. 1992 9 Mths ended Dec. 1992 12 Mths ended Dec. 1993 9 Mths ended Sep. 1994 3 Mths ended D~c. 1994 Average Spread(d) 8.79% 9.13% 8.15% 6.56% 5.56% 5.38% 5.82%

Cost of All Borrowings(b) 9.09% 8.26% 6.34% 5.20% 4.71% 4.60% 5.51%

Yield-Cost Spread -0.30% 0.87% 1.81% 1.36% 0.85% 0.78% 0.31% 0.91%

Notes: (a) Interest income, including amodization of premiums and discounts on all types of mortgage-backed securities, fixed and adjustable rate, divided by the monthly average balances of such securities outstanding during the periods. Excludes gains or losses on the sale of securities. (b) Interest expense on all types of borrowings, short-term repurchase agreements, short and long-term FHLB advances, and other borrowings outstanding divided by the mon!hly average balances of such borrowings outstanding during the periods. (c) Yields and costs calculated from 1990 audited financials, using beginning and end of year balances (d) Weighted by the number of months in each period, except for the period ended March 31, 1990, which is weighted for 9 months

Sources: Exhibit 8A (Revised) (PX 1314); PX 1291; PX 980 at 57-58, PX 1250 at 14, September 30, 1994 IOQ at 10 (PX 1148), and Dec.ember 31, 1994 Quarterly Financials (PX 1315)

I

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Fidelity's Yield on Adjustable Rate Securities Compared tO Cost of Borrowings, Jul 1989-Dec 1-994
11.000% 10.000% 9.000% 8.000% 7.000% Borrowings-Av~. Jul 1989- ~ 6.000% -~z~,,~_,o, ~ .,

Rate Received on Adjustable Rate MBS jAvg. Jul 1989-Dec 1994 = 7.75%

5.000%
4.000% Cost of One-Year FHLB Advance~ Over a 12-Month Period Avg. Jul 1989-Dec 1994 - 6.22 Vo ~ ~%~ ~=~~~~ ~'<~h~ ~~~ ~ ~

3.000%

Note: Fide/ity's rotes on ARM MBS am weighted by principa/ ba/ances including premiums; actua/ rates paid on mveme repos; advance rates from FHLB Des Moines

I
Soume: Fide/ity Month/y /nvestment Comittee Repo~ Schedu/es, 1989-1994; FHLB of Des Moines (~w.fh/bdm.com/rg_histo~.htm) PDX 72 ~

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Fidelity's Spread on Adjustable Rate Securities Compared to Cost of Borrowings, Jul 1989-Dec 1994
4.000% 3.500%
3.000%

2.500% 2.000% 1.500% 1.000% 0.500%

.W' /
Average Spread Using All One Year Advances Jul 1989-Dec 1994 = 1.53%

0.000%

Note: Fidelity's rates on ARM MBS are weighted by principal balances including premiums; actual rates paid on reverse repos; advance rates from FHLB Des Moines Source: Fidefity Monthly Investment Comittee Report Schedules, 1989-1994; FHLB of Des Moines (www.thlbdm.com/rg_history.htm)

I

PDX 731

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Adjustable Rate Mortgage-Backed Securities Portfolio August 1988 to December 1 994 (Millions)
$1,200

$1,000

$800

$600

$400

$200

Source: Fidelity Investment Committee Report Schedules, 1988-1994

PDX 74

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Fidel ity's Monthly Sales of Adjustable Rate MBS 1989-1992 (Millions)
$30.0

$25.0

$20.0

$15.0

$10.0

$5.0

Source: Fidelity Investment Committee Report Schedules, 1989-1994

PDX 75

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Fidelit~is Cumulative Sales of Adjustable Rate 1989-1992 (Millions)
$1,200

MBS

$1,000

$8O0

$600

$400

$200

Source: Fidelity Investment Committee Report Schedules, 1989-1994

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Borrowed Funds Ratios at Selected U.S. Thrift Institutions As of December 31, 1994 (Millions)
Total Assets 1,919 2,643 1,686 4,273 325 662 8,384 3,121 322 148 4,770 4,479 2,643 424 15,687 2,429 Total Deposits 1,092 1,092 0 516 31 197 2,724 1,084 109 23 1,698 1,613 1,092 188 7,003 1,081 Total Borrowings 708 1,333 1,682 3,553 238 436 5,079 1,775 182 76 2,465 2,264 1,333 207 7,662 1,152 Borrowings/ Assets 37% 5O% 100% 83% 73% 66% 61% 57% 57% 52% 52% 51% 50% 49% 49% 47%

Institution Fidelity: Actual Non-Breached(I) 1 2 3 4 5 6 7 8 9 10 New West FS&LA ITT Federal Bank, FSB Fifth Third SB of Western KY Plaza Home Mtg Bank, A FSB First Federal of Michigan Bluebonnet Savings Bank FSB Pocahontas FS&LA Heritage S&LA USAA FSB Bank of America, FSB Fidelity-Non-breached ~1 Standard Pacific Savings, FA 12 Glendale Federal Bank, FSB ~3 Local Federal Bank, FSB

City Floral Park

State NY

Stockton Newport Beach Louisville Santa Ana Detroit Dallas Pocahontas St George San Antonio Portland Floral Park Newport Beach Glendale Oklahoma City

CA CA KY CA MI TX AR UT TX OR NY CA CA OK

(1) Total assets equal actual assets plus incremental assets of $625 million plus contractual goodwill of $98.8 million. Total borrowings equal actual borrowings plus additional borrowings equal to the incremental assets of $625 million.

Source: Kaplan Report Exhibit Borrowed Funds Ratios (PX 1314); Fidelity Consofidated Financial Statements at Dec 31, 1994 (PX 1323); Kaplan Report Exhibit 9revised (PX 1314), and Sheshunoff lnformation Services

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Lost Profits Damages Before Astoria Merger (Millions) July 1, 1989 to December 31, 1 994
Ending Balance Total Tangible Assets Actual Non-Breach (a) (b) (c) 1,846 1,850 1,844 1,844 1,820 1,881 1,847 1,919 1,814 1,957 1,996 1,825 1,830 2,036 1,835 2,077 1,846 2,119 1,856 2,161 2,204 1,854 1,857 2,248 1,867 2,293 1,861 2,339 1,862 2,386 1,853 2,433 2,482 1,835 1,858 2,532 1,954 2,582 2,007 2,634 2,062 2,687 1,983 2,608 1,983 2,608 1,917 2,542 Average Balance Forgone Assets (f) 31 67 107 157 189 224 257 289 327 370 409 452 501 552 614 660 651 628 626 625 625 625 Return on Forgone Assets Lost Profits on Forgone Assets

Forgone (d) (e)

Dec-88 Mar-89 Jun-89 Sep-89 Dec-89 Mar-90 Jun-90 Sep-90 Dec-90 Mar-91 Jun-91 Sep-91 Dec-91 Mar-92 Jun-92 Sep-92 Dec-92 Mar-93 Jun-93 Sep-93 Dec-93 Mar-94 Jun-94 Sep-94 Dec-94 Total

62 72 143 171 206 242 273 304 350 391 426 478 524 581 647 673 629 627 625 625 625 625

0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0:80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%

-0.062 0.134 0.215 0.314 0.377 0.448 0.515 0.577 0.655 0.741 0.817 0.904 1.002 1.104 1.227 1.320 1.302 1.256 1.252 1.250 .1.250 1.250 $ 17.973

(a) From Thdft Financial Reports (b) Assumes 8% annual growth rate (2% per quarter) through March 1994, actual dollar change in assets thereafter (c) Column (b) minus (a). (d) Average balance of column (c) (e) Annual rate. (f) Columns (d) times (e) divided by four (quarterly). Source: Kaplan Report Exhibit 9 (Revised) (PX 1314)

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VII. Lost Profits Damages After 1994
Absent the breach, if Fidelity had not been acquired by Astoria, it would have continued to use its goodwill capital to support the incremental ARM MBS portfolio, which would decline steadily as the goodwill was amortized. o As of December 31, 1994, Fidelity would have had incremental assets of $625 million and remaining contractual goodwill of $98.7 million, a leverage percentage of 15.8%, i.e., $1 dollar of SGW would support $6.30 of assets. o Fidelity would have continued to earn a spread of at least 80 basis points to incremental assets. o The amount of that portfolio directly supported by the remaining contractual goodwill would diminish in size as the contractual goodwill was amortized. ¯ Absent the breach, if Astoria still purchased Fidelity: o Astoria would have acquired Fidelity's profitable $625 million wholesale asset portfolio, in addition to the Fidelity assets and liabilities it did acquire. o Astoria would have used its ample capital position to increase the size of the portfolio from $625 million to $963 million, based on its actual balance sheet leverage ratio. o Astoria would have earned at least the same 80 b.p. spread that Fidelity would have earned. o The amount of that portfolio directly supported by the remaining contractual goodwill would diminish in size as the contractual goodwill was amortized.
o

If Astoria chose to use the additional regulatory capital for other purposes, the economic conclusion would be that such purposes had a value equal to or greater than the forgone return of maintaining the wholesale portfolio. PDX 81

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Lost Profits Damages- Independent Fidelity, No Merger 1995 to 2014 (Dollars in Millions)
Contractual Goodwill And Capital Credit Calendar Ending Average Year Balance Balance (a) (b) 1994 98.783 1995 93.802 96.293 1996 88.821 91.312 1997 83.840 86.331 78.859 81.350 1998 ~999 73.878 76.369 2000 68.897 71.388 2001 63.916 66.407 2002 58.935 61.426 2003 53.954 56.445 2004 48.973 51.464 2005 43.992 46.483 2006 39.011 41,502 2007 34.030 36.521 Total,Through 2007 2008 2009 2010 2011 2012 2013 2014 29.049 24.068 19,087 14.106 9.125 4.144 Total After 2007 Grand Total 31.540 26.559 21.578 16.597 11.616 6.635 2,072 . Leverage Ratio (c) t5.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% ,15.8% Forgone Earning A.ssets (d) 513 487 460 434 407 380 354 327 301 274 248 221 195 168 142 115 88 62 35 11 Return on Forgone Assets (e) 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0,80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% Lost Profits on Forgone Assets (f) 4.105 3.893 3.681 3,468 3,256 3,043 2.831 2.619 2.406 2.194 1.982 1.769 1.557 36.804 1.345 1,132 0,920 0.708 0,495 0.283 0,088 4.971 Present Value of Lost Profits 10.50% (g) 4.105 3.893 3.681 3.468 3.256 3.043 2.831 2.619 2,406 2.194 1.982 1.769 1.557 36,804 1,217 0.927 0.682 0,475 0.301 0.155 0,044 3.800 $ 40.604

(a) See Exhibit 15 (b) Average balance of column (a) (c) Equals Fidelity's remaining contractual goodwill of $98.783 million divided by forgone assets of $625 million (December 31, 1994) from Exhibits 9R & 15 (d) Column (b) divided by (c) minus (b) (goodwill is a nonbearing asset). (f) ROAA times column (d) (g) Column (f) discounted at 10.5% for the period after the year 2007. Source: Kaplan Report Exhibit 16B (PX 1314)

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Summary of Lost Earnings (Millions)
Independent Fidelity No Merger Lost Earnings: Lost Profits on Forgone Assets 1989-1994 Lost Profits on Forgone Assets 1995-2014 Total $ 17.973 40.604

With Astoria Merger

$ 17.973 97.162 $ 115.135

$ 58.577

Source: Kaplan Report Exhibit 17 (revised) (PX 1314)

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Total Lost Profits Damages (Dollars.in Millions)
Independent Fidelity No Merger Lost Earnings (1989-1994) (Exhibit 9-Revised) Lost Earnings (1995-2014) (Exhibits 16, 16-B) Total Lost Earnings Wounded Bank Damages (Exhibits 10 & 11) Loss from Premature FHLMC Stock Sale (Exhibit 12) Total Total Lost Profits $ 17.973 40.604 58.577 1.432 10.863 12.295 $ 70.872

Assuming Astoria Merger $ 17.973 97.162 115.135
1.432 10.863 12.295 $ 127.430

Source: Kaplan Report Exhibit 17 (Revised) (PX 1314)

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Summary of Damages (Millions)
Independent Fidelity No Merger
Lost Profits: Lost Profits on Forgone Assets 1989-1994 Lost Profits on Forgone Assets 1995-2014 Loss from Premature Sale of FHLMC Stock Wounded Bank Costs Total 17.973 40.604 10.863 1.432 $ 70.872

With Astoria Merger
17.973 97.t62 10.863 1.432 $ 127.430

Restitution: Avoided Liquidation Costs (Net) Wounded Bank Costs Total Reliance: Investment in Suburbia (Net) Wounded Bank Costs Total

$128.259 1.432
$129.691

$140.416 1.432 $141.848

Source: Kaplan Report Exhibits 17 (revised), 18, 22 (PX 1314)

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Case 1:95-cv-00468-TCW

Document 204-10
Washington, D.C.

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9/25/2001

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS
x

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3 4 ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION, Plaintiff,
VS.

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7

Court File No. 95-468

THE UNITED STATES, Defendant. V O L U M E II

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Continuation of the videotaped deposition of DR. DONALD M. KAPLAN, held at the offices of Department of Justice, ii00 L Street, N.W., Washington, D.C., commencing at 9:35 a.m., Tuesday, September 25, 2001, before Elizabeth Mingione, Notary Public.

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Alderson Reporting Company I ! t I 14th Street, N.W. Suite 400 1-800-FOR-DEPO Washington, DC 20005

Case 1:95-cv-00468-TCW
Donald M Kaplan

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9/25/2001

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Astoria would have purchased Fidelity? A. Urn, 1 guess I think the -- what the point 1 was trying to articulate is I really, 1 don't because you don't need to. Urn, I have presented my calculation, and my recolleclion is that there's nothing I've done that, um, goes one way or the otheron that. Q. Okay. A. 1 did a calculation, um, that was designed to deal with the fact that I didn't have separate financials. And, urn, if Mr. Wesp is right and lhev wouldn't have in the nonbreach world, that doesn't change the ability to do the calculation. Because in the breach world we don't have those separate financials. Q. Okay. So this lost profits model is equally applicable to the scenario of Fidelity merging with Astoria as Fidelity operating independently? A. It -- it abstracts from it but I do adopt, urn, or identify, um, some things that, um, and in particular the leveraging assumption is I do explain that 1 looked at Fidelity -- looked at Astoria, urn, as part of the process by which 1 selected my, urn, my assumptions that I used in the

1 2 3 4 5 6 7 8 9 0 I 2 3 4 5 6 7 8 19 2o 21 22 23 24 25

an essential opinion for me to develop. And so I didn't -- I don't believe I set forth an opinion on it because I didn't need to. Q. Okay. Urn, and under your lost profits model, Dr. Kaplan, Fidelity was able to grow from 1989 to 1994. And would you agree then that Fidelity would be more valuable as a thrift in 1994 in the "but for" world than it was in the actual world? A. More valuable? A. What do you mean?

Q. Yes.

Q.

Would it have been worth more?

A. Well, what I have addressed is that it

would have been larger. It would have had a stronger capital position. It would have been more profitable. Q. Okay. A. I haven't addressed in my report what its value would have been. Um, so I guess I don't have an, I mean, that's not an investigation l've undertaken. Q. Okay. Let's assume that Astoria in the "but for" world would have bought Fidelity. If Fidelity in 1994 was bigger, more profitable, had a

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model. Q. But is it your opinion, sir, that the losl profits model is equally applicable to the scenario of Fidelity-A. Yes. Q. -- operating independently? A. Yes. Q. And did you form after your review of all the documents and financial data, did you form an opinion as to whether Fidelity would have operated independently in lieu of merging with Astoria? A. I thought what my report says was that 1 didn't have a basis for forming such an opinion and so I made -- 1 have no opinion on that. Q. Okay. Why didn't you decide to rely upon Mr. Wesp's opinion that Fidelity would have operated? A. What I recall I said was, um, well, we are splitting hairs here. Um, I'm comfortable relying on Mr. Wesp's view that he believes that they wouldn't have. But what ] tried to say was in any event it doesn't change the way 1 believe is the right way to compute the lost profits damages beginning in 1995. So it really was sort of not a, um, not

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stronger capital position, then wouldn't Astoria have paid a higher price for this "but for" Fidelity bank than it did for the breached Fidelity? A. Well, you know, you are treading into another area that I haven't investigated, l would direct you to speak with Mr. Engelke. l'm not sure l can tell you what his answer would be. Q. Okay. In your experience, sir, you couldn't say whether the purchase price for stronger, a bank with a stronger capital position, larger, more profitable, would be higher than for a bank that didn't have? A. Of course 1 can but that wasn't the question you asked me. Q. Okay. A. You asked me, l'm sure I heard you clearly, Mr. McClain. You asked me whether Astoria would have paid more. And that's a different question. Q. Right. A. And my answer is I can'l answer that question. That's not the question you are now speaking about, so. Q. Okay. A. Tel! me which one you -17 (Pages 247 to 250)

Alderson Reporting Company 1111 14th Street, N.W. Suite 400 1-800-FOR-DEPO Washington, DC 20005

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Donald M. Kaplan

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that the goodwill -- let me start over. Are you saying, Dr. Kaplan, what types of assets would have been invested in using the goodwill, remaining balance of goodwill after the Astoria merger? A. I think that what the report says is that the same 80 basis point incremental ROA would have been earned on the incremental assets. And I believe that's what the report says. Q. But are you identifying what those incremental assets would have been? A. No, I don't think I have done that. Q. Okay. Did y