in mortgage loan originations is the result of an increase in one-to-four family loan originations, partially offset by a decrease in multi-family and commercial real estate loan originations. Mortgage loan repayments increased to
$2.15 billion for the nine months ended September 30, 2007, from $1.81 billion for the nine months ended September 30, 2006.
Our mortgage loan portfolio, as well as our originations and purchases, continue to consist primarily of one-to-four family mortgage loans. Our one-to-four family mortgage loans increased $1.14 billion to $11.35 billion at
September 30, 2007, from $10.21 billion at December 31, 2006, and represented 71.7% of our total loan portfolio at September 30, 2007. One-to-four family loan originations and purchases totaled $3.00 billion for the nine months ended September 30,
2007 and $1.78 billion for the nine months ended September 30, 2006. The increase in one-to-four family loan originations is primarily attributable to mortgage refinance opportunities, our competitive pricing and the recent dislocations in the
secondary residential mortgage market, as previously discussed.
Our multi-family mortgage loan portfolio totaled $2.99 billion at September 30, 2007 and at December 31, 2006. Our commercial real estate loan portfolio decreased $55.9 million to $1.04 billion at September 30, 2007, from $1.10
billion at December 31, 2006. Multi-family and commercial real estate loan originations totaled $344.4 million for the nine months ended September 30, 2007 and $559.4 million for the nine months ended September 30, 2006. As previously discussed,
we do not believe that current market pricing for multi-family and commercial real estate loans supports aggressively pursuing such loans given the additional risks associated with this type of lending. At September 30, 2007, the average loan
balance within our combined multi-family and commercial real estate loan portfolio continues to be less than $1.0 million and the average loan-to-value ratio, based on current principal balance and original appraised value, continues to be less than
65%.
Our construction loan portfolio decreased $50.8 million to $89.4 million at September 30, 2007, from $140.2 million at December 31, 2006. This decrease is primarily the result of our decision to not aggressively pursue these types
of loans in the current real estate market. Our consumer and other loan portfolio decreased $61.1 million to $369.7 million at September 30, 2007, from $430.8 million at December 31, 2006. This decrease is primarily the result of a decline in
consumer demand for home equity lines of credit resulting from increases in the prime rate during the first half of 2006.
Securities decreased $771.1 million to $4.57 billion at September 30, 2007, from $5.34 billion at December 31, 2006. This decrease, which reflects our previously discussed strategy of reducing the securities portfolio, was
primarily the result of principal payments received. At September 30, 2007, our securities portfolio is comprised primarily of fixed rate REMIC and CMO securities. The amortized cost of our fixed rate REMICs and CMOs totaled $4.45 billion at
September 30, 2007, and had a weighted average coupon of 4.27%, a weighted average collateral coupon of 5.73% and a weighted average life of 3.4 years.
Deposits increased $42.0 million to $13.27 billion at September 30, 2007, from $13.22 billion at December 31, 2006, primarily due to increases in certificates of deposit and Liquid CDs, substantially offset by decreases in
savings, money market and NOW and demand deposit accounts.
Certificates of deposit increased $351.6 million to $8.07 billion at September 30, 2007, from $7.71 billion at December 31, 2006. Liquid CDs increased $16.4 million to $1.46 billion at September 30, 2007, from $1.45 billion at
December 31, 2006. Our certificates of deposit and Liquid CDs increased primarily as a result of the continued success of our marketing efforts and
26
competitive pricing strategies during the first half of 2007. We continue to experience intense competition for deposits. During the 2007 third quarter, as short-term market interest rates declined, retail deposit pricing
remained at higher levels. In response, we have taken advantage of lower cost borrowings for funding some of our loan growth in the third quarter, which has resulted in net deposit outflows. Savings accounts decreased $189.1 million since December
31, 2006 to $1.94 billion at September 30, 2007. Money market accounts decreased $82.8 million since December 31, 2006 to $352.9 million at September 30, 2007. NOW and demand deposit accounts decreased $54.1 million since December 31, 2006 to $1.44
billion at September 30, 2007. The decreases in savings, money market and NOW and demand deposits accounts for the nine months ended September 30, 2007 were significantly lower than the decreases we had experienced during the nine months ended
September 30, 2006.
Total borrowings, net, increased $93.5 million to $6.93 billion at September 30, 2007, from $6.84 billion at December 31, 2006, primarily due to an increase in Federal Home Loan Bank of New York, or FHLB-NY, advances, partially
offset by a decrease in reverse repurchase agreements. The net increase in total borrowings is a result of our use of lower cost borrowings to fund some of our loan growth in the 2007 third quarter. For additional information, see Liquidity
and Capital Resources.
Stockholders' equity decreased $10.1 million to $1.21 billion at September 30, 2007, from $1.22 billion at December 31, 2006. The decrease in stockholders equity was the result of dividends declared of $71.1 million and
common stock repurchased of $67.4 million. These decreases were partially offset by net income of $105.1 million, stock-based compensation and the allocation of shares held by the employee stock ownership plan, or ESOP, of $11.9 million and the
effect of stock options exercised and related tax benefit of $11.0 million.
Results of Operations
General
Net income for the three months ended September 30, 2007 decreased $5.8 million to $35.3 million, from $41.1 million for the three months ended September 30, 2006. Diluted earnings per common share decreased to $0.39 per share for
the three months ended September 30, 2007, from $0.43 per share for the three months ended September 30, 2006. Return on average assets decreased to 0.66% for the three months ended September 30, 2007, from 0.76% for the three months ended September
30, 2006. Return on average stockholders equity decreased to 11.82% for the three months ended September 30, 2007, from 13.06% for the three months ended September 30, 2006. Return on average tangible stockholders equity, which
represents average stockholders equity less average goodwill, decreased to 13.99% for the three months ended September 30, 2007, from 15.31% for the three months ended September 30, 2006.
Net income for the nine months ended September 30, 2007 decreased $32.7 million to $105.1 million, from $137.8 million for the nine months ended September 30, 2006. Diluted earnings per common share decreased to $1.14 per share
for the nine months ended September 30, 2007, from $1.40 per share for the nine months ended September 30, 2006. Return on average assets decreased to 0.65% for the nine months ended September 30, 2007, from 0.84% for the nine months ended September
30, 2006. Return on average stockholders equity decreased to 11.67% for the nine months ended September 30, 2007, from 14.27% for the nine months ended September 30, 2006. Return on average tangible stockholders equity decreased to
13.79% for the nine months ended September 30, 2007, from 16.67% for the nine months ended September 30, 2006. The decreases in the returns on average assets, average stockholders equity and average tangible stockholders equity for the
three and nine months ended September 30, 2007,
27
compared to the three and nine months ended September 30, 2006, were primarily due to the decreases in net income.
Net Interest Income
Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends primarily upon the volume of interest-earning assets and
interest-bearing liabilities and the corresponding interest rates earned or paid. Our net interest income is significantly impacted by changes in interest rates and market yield curves and their related impact on cash flows. See Item 3,
Quantitative and Qualitative Disclosures About Market Risk, for further discussion of the potential impact of changes in interest rates on our results of operations.
For the three months ended September 30, 2007, net interest income decreased $9.5 million to $81.2 million, from $90.7 million for the three months ended September 30, 2006. For the nine months ended September 30, 2007, net
interest income decreased $51.9 million to $251.6 million, from $303.5 million for the nine months ended September 30, 2006. The decreases in net interest income for the three and nine months ended September 30, 2007 were primarily the result of
increases in interest expense due to the upward repricing of our liabilities which are more sensitive to increases in interest rates than our assets, partially offset by increases in interest income. While the U.S. Treasury yield curve remained
flat-to-inverted during 2006 and the first half of 2007, it did so at progressively higher levels of interest rates. These higher interest rates, coupled with a very competitive environment for deposits, resulted in significant increases in the
costs of our certificates of deposit, Liquid CDs and borrowings.
The net interest margin decreased to 1.58% for the three months ended September 30, 2007, from 1.75% for the three months ended September 30, 2006, and decreased to 1.63% for the nine months ended September 30, 2007, from 1.93%
for the nine months ended September 30, 2006. The net interest rate spread decreased to 1.46% for the three months ended September 30, 2007 from 1.64% for the three months ended September 30, 2006, and decreased to 1.52% for the nine months ended
September 30, 2007, from 1.83% for the nine months ended September 30, 2006. The decreases in the net interest margin and the net interest rate spread were primarily due to the cost of our interest-bearing liabilities rising more rapidly than the
yield on our interest-earning assets. Our borrowings, Liquid CDs and certificates of deposit reprice more frequently, reflecting increases in interest rates more rapidly, than our mortgage loans and securities which have longer repricing intervals
and terms. In addition, the average balances of our Liquid CDs and certificates of deposit, which have a higher average cost than our other deposit products, have increased significantly. The average balance of net interest-earning assets decreased
$34.1 million to $605.2 million for the three months ended September 30, 2007, from $639.3 million for the three months ended September 30, 2006, and $50.2 million to $608.9 million for the nine months ended September 30, 2007, from $659.1 million
for the nine months ended September 30, 2006.
The changes in average interest-earning assets and interest-bearing liabilities and their related yields and costs are discussed in greater detail under Interest Income and Interest Expense.
Analysis of Net Interest Income
The following tables set forth certain information about the average balances of our assets and liabilities and their related yields and costs for the three and nine months ended September 30, 2007 and 2006. Average yields are
derived by dividing income by the average balance of the related assets and average costs are derived by dividing expense by the average balance of the
28
related liabilities, for the periods shown. Average balances are derived from average daily balances. The yields and costs include amortization of fees, costs, premiums and discounts which are considered adjustments to interest
rates.
|
|
For
the Three Months Ended September 30,
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
Yield/
|
|
Average
|
|
|
|
|
Yield/
|
(Dollars
in Thousands)
|
|
Balance
|
|
Interest
|
|
Cost
|
|
Balance
|
|
Interest
|
|
Cost
|
|
|
|
|
|
|
|
|
|
(Annualized)
|
|
|
|
|
|
|
|
|
(Annualized)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
11,171,094
|
|
|
$
|
150,645
|
|
5.39
|
%
|
|
$
|
9,952,037
|
|
|
$
|
127,735
|
|
5.13
|
%
|
Multi-family,
commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
real
estate and construction
|
|
|
4,154,097
|
|
|
|
63,052
|
|
6.07
|
|
|
|
4,268,318
|
|
|
|
65,933
|
|
6.18
|
|
Consumer
and other loans (1)
|
|
|
384,019
|
|
|
|
7,472
|
|
7.78
|
|
|
|
468,436
|
|
|
|
9,099
|
|
7.77
|
|
Total
loans
|
|
|
15,709,210
|
|
|
|
221,169
|
|
5.63
|
|
|
|
14,688,791
|
|
|
|
202,767
|
|
5.52
|
|
Mortgage-backed
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
securities (2)
|
|
|
4,711,162
|
|
|
|
53,227
|
|
4.52
|
|
|
|
5,774,554
|
|
|
|
64,946
|
|
4.50
|
|
Repurchase
agreements
|
|
|
25,631
|
|
|
|
337
|
|
5.26
|
|
|
|
95,969
|
|
|
|
1,266
|
|
5.28
|
|
FHLB-NY
stock
|
|
|
166,938
|
|
|
|
2,899
|
|
6.95
|
|
|
|
142,998
|
|
|
|
2,049
|
|
5.73
|
|
Total interest-earning
assets
|
|
|
20,612,941
|
|
|
|
277,632
|
|
5.39
|
|
|
|
20,702,312
|
|
|
|
271,028
|
|
5.24
|
|
Goodwill
|
|
|
185,151
|
|
|
|
|
|
|
|
|
|
185,151
|
|
|
|
|
|
|
|
Other non-interest-earning
assets
|
|
|
749,522
|
|
|
|
|
|
|
|
|
|
778,978
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
21,547,614
|
|
|
|
|
|
|
|
|
$
|
21,666,441
|
|
|
|
|
|
|
|
|
Liabilities and stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
1,983,161
|
|
|
|
2,016
|
|
0.41
|
|
|
$
|
2,277,608
|
|
|
|
2,309
|
|
0.41
|
|
Money
market
|
|
|
365,919
|
|
|
|
926
|
|
1.01
|
|
|
|
506,959
|
|
|
|
1,281
|
|
1.01
|
|
NOW
and demand deposit
|
|
|
1,453,669
|
|
|
|
214
|
|
0.06
|
|
|
|
1,482,642
|
|
|
|
218
|
|
0.06
|
|
Liquid
CDs
|
|
|
1,570,599
|
|
|
|
18,501
|
|
4.71
|
|
|
|
1,243,914
|
|
|
|
15,184
|
|
4.88
|
|
Total
core deposits
|
|
|
5,373,348
|
|
|
|
21,657
|
|
1.61
|
|
|
|
5,511,123
|
|
|
|
18,992
|
|
1.38
|
|
Certificates
of deposit
|
|
|
7,946,982
|
|
|
|
95,293
|
|
4.80
|
|
|
|
7,505,903
|
|
|
|
83,111
|
|
4.43
|
|
Total
deposits
|
|
|
13,320,330
|
|
|
|
116,950
|
|
3.51
|
|
|
|
13,017,026
|
|
|
|
102,103
|
|
3.14
|
|
Borrowings
|
|
|
6,687,400
|
|
|
|
79,505
|
|
4.76
|
|
|
|
7,045,962
|
|
|
|
78,258
|
|
4.44
|
|
Total interest-bearing
liabilities
|
|
|
20,007,730
|
|
|
|
196,455
|
|
3.93
|
|
|
|
20,062,988
|
|
|
|
180,361
|
|
3.60
|
|
Non-interest-bearing
liabilities
|
|
|
345,377
|
|
|
|
|
|
|
|
|
|
344,467
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
20,353,107
|
|
|
|
|
|
|
|
|
|
20,407,455
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
1,194,507
|
|
|
|
|
|
|
|
|
|
1,258,986
|
|
|
|
|
|
|
|
Total liabilities and stockholders'
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equity
|
|
$
|
21,547,614
|
|
|
|
|
|
|
|
|
$
|
21,666,441
|
|
|
|
|
|
|
|
|
Net interest income/net interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rate
spread (3)
|
|
|
|
|
|
$
|
81,177
|
|
1.46
|
%
|
|
|
|
|
|
$
|
90,667
|
|
1.64
|
%
|
|
Net interest-earning assets/net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
margin (4)
|
|
$
|
605,211
|
|
|
|
|
|
1.58
|
%
|
|
$
|
639,324
|
|
|
|
|
|
1.75
|
%
|
|
Ratio of interest-earning
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to interest-bearing
liabilities
|
|
|
1.03
|
x
|
|
|
|
|
|
|
|
|
1.03
|
x
|
|
|
|
|
|
|
(1)
|
Mortgage loans and consumer and other loans include loans held-for-sale and non-performing loans and exclude the allowance for loan losses.
|
|
(2)
|
Securities available-for-sale are included at average amortized cost.
|
|
(3)
|
Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities.
|
|
(4)
|
Net interest margin represents net interest income divided by average interest-earning assets.
|
|
29
|
|
For
the Nine Months Ended September 30,
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
Yield/
|
|
Average
|
|
|
|
|
Yield/
|
(Dollars
in Thousands)
|
|
Balance
|
|
Interest
|
|
Cost
|
|
Balance
|
|
Interest
|
|
Cost
|
|
|
|
|
|
|
|
|
|
(Annualized)
|
|
|
|
|
|
|
|
|
(Annualized)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
10,771,698
|
|
|
$
|
428,729
|
|
5.31
|
%
|
|
$
|
9,921,036
|
|
|
$
|
378,226
|
|
5.08
|
%
|
Multi-family,
commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
real
estate and construction
|
|
|
4,194,081
|
|
|
|
192,160
|
|
6.11
|
|
|
|
4,192,095
|
|
|
|
192,178
|
|
6.11
|
|
Consumer
and other loans (1)
|
|
|
406,967
|
|
|
|
23,478
|
|
7.69
|
|
|
|
488,223
|
|
|
|
26,918
|
|
7.35
|
|
Total
loans
|
|
|
15,372,746
|
|
|
|
644,367
|
|
5.59
|
|
|
|
14,601,354
|
|
|
|
597,322
|
|
5.45
|
|
Mortgage-backed
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
securities (2)
|
|
|
4,966,923
|
|
|
|
168,127
|
|
4.51
|
|
|
|
6,098,527
|
|
|
|
205,373
|
|
4.49
|
|
Federal
funds sold and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
repurchase
agreements
|
|
|
45,772
|
|
|
|
1,812
|
|
5.28
|
|
|
|
145,121
|
|
|
|
5,205
|
|
4.78
|
|
FHLB-NY
stock
|
|
|
156,955
|
|
|
|
8,246
|
|
7.00
|
|
|
|
141,577
|
|
|
|
5,535
|
|
5.21
|
|
Total interest-earning
assets
|
|
|
20,542,396
|
|
|
|
822,552
|
|
5.34
|
|
|
|
20,986,579
|
|
|
|
813,435
|
|
5.17
|
|
Goodwill
|
|
|
185,151
|
|
|
|
|
|
|
|
|
|
185,151
|
|
|
|
|
|
|
|
Other non-interest-earning
assets
|
|
|
756,862
|
|
|
|
|
|
|
|
|
|
788,337
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
21,484,409
|
|
|
|
|
|
|
|
|
$
|
21,960,067
|
|
|
|
|
|
|
|
|
Liabilities and stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
2,047,732
|
|
|
|
6,177
|
|
0.40
|
|
|
$
|
2,380,057
|
|
|
|
7,164
|
|
0.40
|
|
Money
market
|
|
|
392,785
|
|
|
|
2,933
|
|
1.00
|
|
|
|
563,485
|
|
|
|
4,135
|
|
0.98
|
|
NOW
and demand deposit
|
|
|
1,471,293
|
|
|
|
639
|
|
0.06
|
|
|
|
1,512,951
|
|
|
|
662
|
|
0.06
|
|
Liquid
CDs
|
|
|
1,585,104
|
|
|
|
57,278
|
|
4.82
|
|
|
|
981,897
|
|
|
|
32,636
|
|
4.43
|
|
Total
core deposits
|
|
|
5,496,914
|
|
|
|
67,027
|
|
1.63
|
|
|
|
5,438,390
|
|
|
|
44,597
|
|
1.09
|
|
Certificates
of deposit
|
|
|
7,791,434
|
|
|
|
274,377
|
|
4.70
|
|
|
|
7,513,758
|
|
|
|
230,760
|
|
4.09
|
|
Total
deposits
|
|
|
13,288,348
|
|
|
|
341,404
|
|
3.43
|
|
|
|
12,952,148
|
|
|
|
275,357
|
|
2.83
|
|
Borrowings
|
|
|
6,645,192
|
|
|
|
229,553
|
|
4.61
|
|
|
|
7,375,315
|
|
|
|
234,549
|
|
4.24
|
|
Total interest-bearing
liabilities
|
|
|
19,933,540
|
|
|
|
570,957
|
|
3.82
|
|
|
|
20,327,463
|
|
|
|
509,906
|
|
3.34
|
|
Non-interest-bearing
liabilities
|
|
|
349,186
|
|
|
|
|
|
|
|
|
|
345,408
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
20,282,726
|
|
|
|
|
|
|
|
|
|
20,672,871
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
1,201,683
|
|
|
|
|
|
|
|
|
|
1,287,196
|
|
|
|
|
|
|
|
Total liabilities and stockholders'
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equity
|
|
$
|
21,484,409
|
|
|
|
|
|
|
|
|
$
|
21,960,067
|
|
|
|
|
|
|
|
|
Net interest income/net interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rate
spread (3)
|
|
|
|
|
|
$
|
251,595
|
|
1.52
|
%
|
|
|
|
|
|
$
|
303,529
|
|
1.83
|
%
|
|
Net interest-earning assets/net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
margin (4)
|
|
$
|
608,856
|
|
|
|
|
|
1.63
|
%
|
|
$
|
659,116
|
|
|
|
|
|
1.93
|
%
|
|
Ratio of interest-earning
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to interest-bearing
liabilities
|
|
|
1.03
|
x
|
|
|
|
|
|
|
|
|
1.03
|
x
|
|
|
|
|
|
|
(1)
|
Mortgage loans and consumer and other loans include loans held-for-sale and non-performing loans and exclude the allowance for loan losses.
|
|
(2)
|
Securities available-for-sale are included at average amortized cost.
|
|
(3)
|
Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities.
|
|
(4)
|
Net interest margin represents net interest income divided by average interest-earning assets.
|
|
30
Rate/Volume Analysis
The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the
periods indicated. Information is provided in each category with respect to (1) the changes attributable to changes in volume (changes in volume multiplied by prior rate), (2) the changes attributable to changes in rate (changes in rate multiplied
by prior volume), and (3) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
|
|
Three Months
Ended September 30, 2007
|
|
Nine Months
Ended September 30, 2007
|
|
|
Compared
to
|
|
Compared
to
|
|
|
Three
Months Ended September 30, 2006
|
|
Nine
Months Ended September 30, 2006
|
|
|
Increase
(Decrease)
|
|
Increase
(Decrease)
|
(In
Thousands)
|
|
Volume
|
|
Rate
|
|
Net
|
|
Volume
|
|
Rate
|
|
Net
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
16,205
|
|
|
$
|
6,705
|
|
|
$
|
22,910
|
|
|
$
|
33,051
|
|
|
$
|
17,452
|
|
|
$
|
50,503
|
|
Multi-family,
commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
real
estate and construction
|
|
|
(1,730
|
)
|
|
|
(1,151
|
)
|
|
|
(2,881
|
)
|
|
|
(18
|
)
|
|
|
-
|
|
|
|
(18
|
)
|
Consumer
and other loans
|
|
|
(1,639
|
)
|
|
|
12
|
|
|
|
(1,627
|
)
|
|
|
(4,640
|
)
|
|
|
1,200
|
|
|
|
(3,440
|
)
|
Mortgage-backed
and other securities
|
|
|
(12,007
|
)
|
|
|
288
|
|
|
|
(11,719
|
)
|
|
|
(38,160
|
)
|
|
|
914
|
|
|
|
(37,246
|
)
|
Federal
funds sold and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
repurchase
agreements
|
|
|
(924
|
)
|
|
|
(5
|
)
|
|
|
(929
|
)
|
|
|
(3,887
|
)
|
|
|
494
|
|
|
|
(3,393
|
)
|
FHLB-NY
stock
|
|
|
374
|
|
|
|
476
|
|
|
|
850
|
|
|
|
651
|
|
|
|
2,060
|
|
|
|
2,711
|
|
Total
|
|
|
279
|
|
|
|
6,325
|
|
|
|
6,604
|
|
|
|
(13,003
|
)
|
|
|
22,120
|
|
|
|
9,117
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
(293
|
)
|
|
|
-
|
|
|
|
(293
|
)
|
|
|
(987
|
)
|
|
|
-
|
|
|
|
(987
|
)
|
Money market
|
|
|
(355
|
)
|
|
|
-
|
|
|
|
(355
|
)
|
|
|
(1,285
|
)
|
|
|
83
|
|
|
|
(1,202
|
)
|
NOW and
demand deposit
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
(23
|
)
|
|
|
-
|
|
|
|
(23
|
)
|
Liquid
CDs
|
|
|
3,862
|
|
|
|
(545
|
)
|
|
|
3,317
|
|
|
|
21,553
|
|
|
|
3,089
|
|
|
|
24,642
|
|
Certificates
of deposit
|
|
|
5,031
|
|
|
|
7,151
|
|
|
|
12,182
|
|
|
|
8,662
|
|
|
|
34,955
|
|
|
|
43,617
|
|
Borrowings
|
|
|
(4,150
|
)
|
|
|
5,397
|
|
|
|
1,247
|
|
|
|
(24,411
|
)
|
|
|
19,415
|
|
|
|
(4,996
|
)
|
Total
|
|
|
4,091
|
|
|
|
12,003
|
|
|
|
16,094
|
|
|
|
3,509
|
|
|
|
57,542
|
|
|
|
61,051
|
|
Net
change in net interest income
|
|
$
|
(3,812
|
)
|
|
$
|
(5,678
|
)
|
|
$
|
(9,490
|
)
|
|
$
|
(16,512
|
)
|
|
$
|
(35,422
|
)
|
|
$
|
(51,934
|
)
|
Interest Income
Interest income for the three months ended September 30, 2007 increased $6.6 million to $277.6 million, from $271.0 million for the three months ended September 30, 2006. This increase was primarily the result of an increase in
the average yield on interest-earning assets to 5.39% for the three months ended September 30, 2007, from 5.24% for the three months ended September 30, 2006. The average balance of interest-earning assets decreased $89.4 million to $20.61 billion
for the three months ended September 30, 2007, from $20.70 billion for the three months ended September 30, 2006. The increase in the average yield on interest-earning assets was primarily the result of the overall increase in interest rates over
the past several years. The decrease in the average balance of interest-earning assets was due to decreases in the average balances of mortgage-backed and other securities and repurchase agreements, partially offset by increases in the average
balances of loans and FHLB-NY stock.
Interest income on one-to-four family mortgage loans increased $22.9 million to $150.6 million for the three months ended September 30, 2007, from $127.7 million for the three months ended September 30, 2006, which was primarily
the result of an increase of $1.22 billion in the average
31
balance of such loans, coupled with an increase in the average yield to 5.39% for the three months ended September 30, 2007, from 5.13% for the three months ended September 30, 2006. The increase in the average balance of
one-to-four family mortgage loans is the result of strong levels of originations and purchases which have outpaced the levels of repayments over the past year. The increase in the average yield on one-to-four family mortgage loans is primarily due
to the impact of the upward repricing of our adjustable rate mortgage loans, coupled with new loan originations at higher interest rates than the rates on the loans being repaid.
Interest income on multi-family, commercial real estate and construction loans decreased $2.8 million to $63.1 million for the three months ended September 30, 2007, from $65.9 million for the three months ended September 30,
2006, which was the result of a decrease of $114.2 million in the average balance of such loans, coupled with a decrease in the average yield to 6.07% for the three months ended September 30, 2007, from 6.18% for the three months ended September 30,
2006. Prepayment penalties totaled $1.7 million for the three months ended September 30, 2007 and $2.1 million for the three months ended September 30, 2006. The decrease in the average balance of multi-family, commercial real estate and
construction loans reflects the levels of repayments which outpaced the levels of originations. Our originations of, and yields on, these loans have declined in recent periods due primarily to the competitive market pricing previously
discussed.
Interest income on consumer and other loans decreased $1.6 million to $7.5 million for the three months ended September 30, 2007, from $9.1 million for the three months ended September 30, 2006, primarily due to a decrease of
$84.4 million in the average balance of the portfolio. The average yield was 7.78% for the three months ended September 30, 2007 and 7.77% for the three months ended September 30, 2006. The decrease in the average balance of consumer and other loans
was primarily the result of a decline in consumer demand for home equity lines of credit resulting from increases in the prime rate during the first half of 2006. Home equity lines of credit represented 89.7% of this portfolio at September 30,
2007.
Interest income on mortgage-backed and other securities decreased $11.7 million to $53.2 million for the three months ended September 30, 2007, from $64.9 million for the three months ended September 30, 2006. This decrease was
primarily the result of a decrease of $1.06 billion in the average balance of the portfolio. The average yield was 4.52% for the three months ended September 30, 2007 and 4.50% for the three months ended September 30, 2006. The decrease in the
average balance of mortgage-backed and other securities reflects our previously discussed strategy of reducing the securities portfolio.
Interest income on repurchase agreements decreased $929,000 to $337,000 for the three months ended September 30, 2007, primarily due to a decrease of $70.3 million in the average balance of the portfolio. The average yield was
5.26% for the three months ended September 30, 2007 and 5.28% for the three months ended September 30, 2006. Dividend income on FHLB-NY stock increased $850,000 to $2.9 million for the three months ended September 30 2007, primarily due to an
increase in the average yield to 6.95% for the three months ended September 30, 2007, from 5.73% for the three months ended September 30, 2006, as a result of increases in the dividend rates paid by the FHLB-NY, coupled with an increase of $23.9
million in the average balance of FHLB-NY stock.
Interest income for the nine months ended September 30, 2007 increased $9.2 million to $822.6 million, from $813.4 million for the nine months ended September 30, 2006. This increase was primarily the result of an increase in the
average yield on interest-earning assets to 5.34% for the nine months ended September 30, 2007, from 5.17% for the nine months ended September 30, 2006, partially offset by a decrease of $444.2 million in the average balance of
interest-earning
32
assets to $20.54 billion for the nine months ended September 30, 2007, from $20.99 billion for the nine months ended September 30, 2006.
Interest income on one-to-four family mortgage loans increased $50.5 million to $428.7 million for the nine months ended September 30, 2007, from $378.2 million for the nine months ended September 30, 2006, which was primarily the
result of an increase of $850.7 million in the average balance of such loans, coupled with an increase in the average yield to 5.31% for the nine months ended September 30, 2007, from 5.08% for the nine months ended September 30, 2006.
Interest income on multi-family, commercial real estate and construction loans was $192.2 million for both the nine months ended September 30, 2007 and 2006. The average balance of such loans totaled $4.19 billion and the average
yield was 6.11% for each of the nine month periods ended September 30, 2007 and 2006. Prepayment penalties totaled $5.1 million for the nine months ended September 30, 2007 and $5.8 million for the nine months ended September 30, 2006.
Interest income on consumer and other loans decreased $3.4 million to $23.5 million for the nine months ended September 30, 2007, from $26.9 million for the nine months ended September 30, 2006, primarily due to a decrease of
$81.3 million in the average balance of the portfolio, partially offset by an increase in the average yield to 7.69% for the nine months ended September 30, 2007, from 7.35% for the nine months ended September 30, 2006. The increase in the average
yield on consumer and other loans was primarily the result of an increase in the average yield on our home equity lines of credit due to the increase in the prime rate during the first half of 2006.
Interest income on mortgage-backed and other securities decreased $37.3 million to $168.1 million for the nine months ended September 30, 2007, from $205.4 million for the nine months ended September 30, 2006. This decrease was
primarily the result of a decrease of $1.13 billion in the average balance of the portfolio. The average yield was 4.51% for the nine months ended September 30, 2007 and 4.49% for the nine months ended September 30, 2006.
Interest income on federal funds sold and repurchase agreements decreased $3.4 million to $1.8 million for the nine months ended September 30, 2007, primarily due to a decrease of $99.3 million in the average balance of the
portfolio, partially offset by an increase in the average yield to 5.28% for the nine months ended September 30, 2007, from 4.78% for the nine months ended September 30, 2006. The increase in the average yield reflects the federal funds rate
increases during the first half of 2006. Dividend income on FHLB-NY stock increased $2.7 million to $8.2 million for the nine months ended September 30, 2007, primarily due to an increase in the average yield to 7.00% for the nine months ended
September 30, 2007, from 5.21% for the nine months ended September 30, 2006, coupled with an increase of $15.4 million in the average balance of FHLB-NY stock.
Except as otherwise noted, the principal reasons for the changes in the average yields and average balances of the various assets noted above for the nine months ended September 30, 2007 are consistent with the principal reasons
for the changes noted for the three months ended September 30, 2007.
Interest Expense
Interest expense for the three months ended September 30, 2007 increased $16.1 million to $196.5 million, from $180.4 million for the three months ended September 30, 2006. This
33
increase was primarily the result of an increase in the average cost of interest-bearing liabilities to 3.93% for the three months ended September 30, 2007, from 3.60% for the three months ended September 30, 2006. The increase in
the average cost of interest-bearing liabilities was primarily due to the impact of the increase in interest rates on our certificates of deposit and borrowings, coupled with the increases in the average balances of certificates of deposit and
Liquid CDs, which have a higher average cost than our other deposit products. The average balance of interest-bearing liabilities decreased $55.3 million to $20.01 billion for the three months ended September 30, 2007, from $20.06 billion for the
three months ended September 30, 2006, due to a decrease in the average balance of borrowings, substantially offset by an increase in the average balance of deposits.
Interest expense on deposits increased $14.9 million to $117.0 million for the three months ended September 30, 2007, from $102.1 million for the three months ended September 30, 2006, primarily due to an increase of $303.3
million in the average balance of total deposits, coupled with an increase in the average cost of total deposits to 3.51% for the three months ended September 30, 2007, from 3.14% for the three months ended September 30, 2006. The increase in the
average balance of total deposits was primarily the result of increases in the average balances of certificates of deposit and Liquid CDs, partially offset by decreases in the average balances of savings, money market and NOW and demand deposit
accounts primarily as a result of continued competition for these types of deposits. The increase in the average cost of total deposits was primarily due to the impact of higher interest rates on our certificates of deposit, coupled with the
increases in the average balances of certificates of deposit and Liquid CDs.
Interest expense on certificates of deposit increased $12.2 million to $95.3 million for the three months ended September 30, 2007, from $83.1 million for the three months ended September 30, 2006, primarily due to an increase in
the average cost to 4.80% for the three months ended September 30, 2007, from 4.43% for the three months ended September 30, 2006, coupled with an increase of $441.1 million in the average balance. During the three months ended September 30, 2007,
$2.15 billion of certificates of deposit, with a weighted average rate of 4.85% and a weighted average maturity at inception of fifteen months, matured and $2.23 billion of certificates of deposit were issued or repriced, with a weighted average
rate of 4.97% and a weighted average maturity at inception of eleven months. Interest expense on Liquid CDs increased $3.3 million to $18.5 million for the three months ended September 30, 2007, from $15.2 million for the three months ended
September 30, 2006, primarily due to an increase of $326.7 million in the average balance, partially offset by a decrease in the average cost to 4.71% for the three months ended September 30, 2007, from 4.88% for the three months ended September 30,
2006. The increases in the average balances of certificates of deposit and Liquid CDs were primarily a result of the success of our marketing efforts and competitive pricing strategies throughout 2006 and the first half of 2007 which focused on
attracting these types of deposits. As previously discussed, during the 2007 third quarter, retail deposit pricing remained very competitive even as short-term market interest rates declined. We maintained our pricing discipline which contributed to
the decrease in the average cost of our Liquid CDs in the 2007 third quarter compared to the 2006 third quarter.
Interest expense on savings accounts decreased $293,000 to $2.0 million for the three months ended September 30, 2007, from $2.3 million for the three months ended September 30, 2006, as a result of a decrease of $294.4 million in
the average balance. Interest expense on money market accounts decreased $355,000 to $926,000 for the three months ended September 30, 2007, from $1.3 million for the three months ended September 30, 2006, as a result of a decrease of $141.0
million in the average balance. The decreases in the average balances of these accounts reflect the previously discussed continued intense competition for deposits.
34
Interest expense on borrowings for the three months ended September 30, 2007 increased $1.2 million to $79.5 million, from $78.3 million for the three months ended September 30, 2006, primarily due to an increase in the average
cost to 4.76% for the three months ended September 30, 2007, from 4.44% for the three months ended September 30, 2006, partially offset by a decrease of $358.6 million in the average balance. The increase in the average cost of borrowings reflects
the upward repricing of borrowings which matured and were refinanced over the past year. The decrease in the average balance of borrowings was primarily the result of our strategy in 2006 of reducing both the securities and borrowings portfolios
through normal cash flow, while emphasizing deposit and loan growth.
Interest expense for the nine months ended September 30, 2007 increased $61.1 million to $571.0 million, from $509.9 million for the nine months ended September 30, 2006. This increase was primarily the result of an increase in
the average cost of interest-bearing liabilities to 3.82% for the nine months ended September 30, 2007, from 3.34% for the nine months ended September 30, 2006. The average balance of interest-bearing liabilities decreased $393.9 million to $19.93
billion for the nine months ended September 30, 2007, from $20.33 billion for the nine months ended September 30, 2006.
Interest expense on deposits increased $66.0 million to $341.4 million for the nine months ended September 30, 2007, from $275.4 million for the nine months ended September 30, 2006, primarily due to an increase in the average
cost of total deposits to 3.43% for the nine months ended September 30, 2007, from 2.83% for the nine months ended September 30, 2006, coupled with an increase of $336.2 million in the average balance of total deposits. The increase in the average
cost of total deposits was primarily due to the impact of higher interest rates on our certificates of deposit and Liquid CDs. The increase in the average balance of total deposits was primarily the result of increases in the average balances of
Liquid CDs and certificates of deposit, partially offset by decreases in the average balances of savings, money market and NOW and demand deposit accounts. The decreases in savings, money market and NOW and demand deposits accounts during the nine
months ended September 30, 2007 were significantly lower than the decreases we had experienced during the nine months ended September 30, 2006.
Interest expense on certificates of deposit increased $43.6 million to $274.4 million for the nine months ended September 30, 2007, from $230.8 million for the nine months ended September 30, 2006, primarily due to an increase in
the average cost to 4.70% for the nine months ended September 30, 2007, from 4.09% for the nine months ended September 30, 2006, coupled with an increase of $277.7 million in the average balance. During the nine months ended September 30, 2007,
$5.58 billion of certificates of deposit, with a weighted average rate of 4.76% and a weighted average maturity at inception of fifteen months, matured and $5.65 billion of certificates of deposit were issued or repriced, with a weighted average
rate of 4.95% and a weighted average maturity at inception of eleven months. Interest expense on Liquid CDs increased $24.7 million to $57.3 million for the nine months ended September 30, 2007, from $32.6 million for the nine months ended
September 30, 2006, primarily due to an increase of $603.2 million in the average balance, coupled with an increase in the average cost to 4.82% for the nine months ended September 30, 2007, from 4.43% for the nine months ended September 30,
2006.
Interest expense on savings accounts decreased $1.0 million to $6.2 million for the nine months ended September 30, 2007, from $7.2 million for the nine months ended September 30, 2006, as a result of a decrease of $332.3 million
in the average balance. Interest expense on money market accounts decreased $1.2 million to $2.9 million for the nine months ended September 30,
35
2007, from $4.1 million for the nine months ended September 30, 2006, as a result of a decrease of $170.7 million in the average balance.
Interest expense on borrowings for the nine months ended September 30, 2007 decreased $4.9 million to $229.6 million, from $234.5 million for the nine months ended September 30, 2006, resulting from a decrease of $730.1 million in
the average balance, partially offset by an increase in the average cost to 4.61% for the nine months ended September 30, 2007, from 4.24% for the nine months ended September 30, 2006.
Except as otherwise noted, the principal reasons for the changes in the average costs and average balances of the various liabilities noted above for the nine months ended September 30, 2007 are consistent with the principal
reasons for the changes noted for the three months ended September 30, 2007.
Provision for Loan Losses
The provision for loan losses was $500,000 for the three and nine months ended September 30, 2007, reflecting the higher levels of non-performing loans and net loan charge-offs experienced during the 2007 third quarter. No
provision for loan losses was recorded for the three and nine months ended September 30, 2006. The allowance for loan losses was $78.3 million at September 30, 2007 and $79.9 million at December 31, 2006. The allowance for loan losses as a
percentage of non-performing loans decreased to 95.06% at September 30, 2007, from 134.55% at December 31, 2006, primarily due to an increase in non-performing loans. The allowance for loan losses as a percentage of total loans was 0.49% at
September 30, 2007 and 0.53% at December 31, 2006. We believe our allowance for loan losses has been established and maintained at levels that reflect the risks inherent in our loan portfolio, giving consideration to the composition and size of our
loan portfolio, charge-off experience and non-accrual and non-performing loans. The balance of our allowance for loan losses represents managements estimate of the probable inherent losses in our loan portfolio at September 30, 2007 and
December 31, 2006.
We review our allowance for loan losses on a quarterly basis. Material factors considered during our quarterly review are our historical loss experience and the impact of current economic conditions. Our net loan charge-off
experience was four basis points of average loans outstanding, annualized, for the three months ended September 30, 2007 and two basis points of average loans outstanding, annualized, for the nine months ended September 30, 2007, compared to three
basis points of average loans outstanding, annualized, for the three months ended September 30, 2006 and one basis point of average loans outstanding, annualized, for the nine months ended September 30, 2006. Net loan charge-offs totaled $1.6
million for the three months ended September 30, 2007 and $2.2 million for the nine months ended September 30, 2007. Net loan charge-offs totaled $1.1 million for the three months ended September 30, 2006 and $1.2 million for the nine months ended
September 30, 2006. Net loan charge-offs included a $1.5 million charge-off in the 2007 third quarter related to a non-performing construction loan which was sold and a $947,000 charge-off in the 2006 third quarter related to a non-performing
multi-family loan which was sold in 2006.
The composition of our loan portfolio has remained relatively consistent over the last several years. At September 30, 2007, our loan portfolio was comprised of 72% one-to-four family mortgage loans, 19% multi-family mortgage
loans, 7% commercial real estate loans and 2% other loan categories. Our non-performing loans continue to remain at low levels relative to the size of our loan portfolio. Our non-performing loans, which are comprised primarily of mortgage loans,
increased $22.9 million to $82.3 million, or 0.52% of total loans, at September
36
30, 2007, from $59.4 million, or 0.40% of total loans, at December 31, 2006. This increase was primarily due to an increase of $27.1 million in non-performing one-to-four family mortgage loans, partially offset by a decrease of
$6.2 million in non-performing multi-family mortgage loans. We sold non-performing mortgage loans totaling $9.4 million, primarily multi-family and commercial real estate loans, during the nine months ended September 30, 2007. The increase in
non-performing loans and assets occurred primarily during the 2007 third quarter.
We continue to closely monitor the local and national real estate markets and other factors related to risks inherent in our loan portfolio. Subprime mortgage lending, which has been the riskiest sector of the residential housing
market, is not a market that we have ever actively pursued. Our loss experience in 2007 has been relatively consistent with our experience over the past several years and in recent years has been primarily attributable to a small number of loans.
Additionally, we continue to adhere to prudent underwriting standards. However, based on our evaluation of the foregoing factors, and in recognition of the recent increases in non-performing loans and net loan charge-offs, our 2007 third quarter
analyses indicated that a modest provision for loan losses was warranted for the period ended September 30, 2007.
For further discussion of the methodology used to evaluate the allowance for loan losses, see Critical Accounting Policies and for further discussion of our loan portfolio composition and non-performing loans, see
Asset Quality.
Non-Interest Income
Non-interest income for the three months ended September 30, 2007 increased $1.9 million to $24.8 million, from $22.9 million for the three months ended September 30, 2006, primarily due to a $2.0 million gain on the sale of an
equity security in the 2007 third quarter. There were no sales of securities in 2006.
For the nine months ended September 30, 2007, non-interest income increased $6.2 million to $73.7 million, from $67.5 million for the nine months ended September 30, 2006, primarily due to an increase in other non-interest income
and the net gain on sales of securities in the 2007 third quarter, partially offset by decreases in customer service fees and mortgage banking income, net.
Other non-interest income increased $6.6 million to $6.2 million for the nine months ended September 30, 2007, from a loss of $348,000 for the nine months ended September 30, 2006. This increase is primarily due to a $5.5 million
charge for the termination of our interest rate swap agreements in March 2006, coupled with a gain recognized in the 2007 second quarter related to insurance proceeds from an individual life insurance policy on a former executive.
Mortgage banking income, net, which includes loan servicing fees, net gain on sales of loans, amortization of MSR and valuation allowance adjustments for the impairment of MSR, decreased $1.8 million to $2.0 million for the nine
months ended September 30, 2007, from $3.8 million for the nine months ended September 30, 2006. This decrease was primarily due to a decrease in the recovery of the valuation allowance for the impairment of MSR. For the nine months ended September
30, 2007, we recorded a recovery of $285,000, compared to $1.5 million for the nine months ended September 30, 2006. The recoveries recorded for the nine months ended September 30, 2007 and 2006 primarily reflect decreases in projected loan
prepayment speeds. Net gain on sales of loans decreased $357,000 to $1.3 million for the nine months ended September 30, 2007, from $1.7 million for the nine months ended September 30, 2006, primarily due to less favorable pricing opportunities for
the nine months ended September 30, 2007, compared to the nine months ended September 30, 2006.
37
Customer service fees decreased $2.0 million to $47.2 million for the nine months ended September 30, 2007, from $49.2 million for the nine months ended September 30, 2006. This decrease was primarily the result of decreases in
insufficient fund fees related to transaction accounts, ATM fees and other checking charges.
Non-Interest Expense
Non-interest expense increased $3.2 million to $56.5 million for the three months ended September 30, 2007, from $53.3 million for the three months ended September 30, 2006, and increased $7.6 million to $172.4 million for the
nine months ended September 30, 2007, from $164.8 million for the nine months ended September 30, 2006. These increases were primarily due to increases in compensation and benefits expense and other non-interest expense
,
partially offset by decreases in advertising expense.
Compensation and benefits expense increased $3.0 million, to $30.6 million for the three months ended September 30, 2007, from $27.6 million for the three months ended September 30, 2006, and increased $5.4 million to $91.8
million for the nine months ended September 30, 2007, from $86.4 million for the nine months ended September 30, 2006. These increases were primarily due to increases in salaries, stock-based compensation, corporate incentive bonuses and ESOP
expense, partially offset by decreases in the net periodic cost of pension benefits. The increases in salaries expense primarily reflect normal performance increases over the past year. The increases in stock-based compensation expense reflect the
additional expense related to restricted stock granted in December 2006. The increases in ESOP expense primarily reflect an increase in estimated shares to be released in 2007 as compared to 2006. The decreases in the net periodic cost of pension
benefits are primarily the result of decreases in the amortization of the net actuarial loss.
Other expense increased $646,000 to $8.0 million for the three months ended September 30, 2007, from $7.4 million for the three months ended September 30, 2006, and increased $2.7 million to $25.0 million for the nine months ended
September 30, 2007, from $22.3 million for the nine months ended September 30, 2006. These increases were primarily due to increased legal fees and other costs as a result of the goodwill litigation. See Note 6 of Notes to Consolidated Financial
Statements in Item 1, Financial Statements (Unaudited), for further discussion of the goodwill litigation.
Advertising expense decreased $449,000 to $1.4 million for the three months ended September 30, 2007, from $1.8 million for the three months ended September 30, 2006, and decreased $386,000 to $5.3 million for the nine months
ended September 30, 2007, from $5.7 million for the nine months ended September 30, 2006. These decreases were primarily due to a decrease in print advertising for our deposit products in September 2007.
Our percentage of general and administrative expense to average assets increased to 1.05% for the three months ended September 30, 2007, from 0.98% for the three months ended September 30, 2006, and increased to 1.07% for the nine
months ended September 30, 2007, from 1.00% for the nine months ended September 30, 2006, primarily due to the previously discussed increases in non-interest expense. The efficiency ratio, which represents general and administrative expense divided
by the sum of net interest income plus non-interest income, was 53.35% for the three months ended September 30, 2007 and 52.99% for the nine months ended September 30, 2007, compared to 46.96% for the three months ended September 30, 2006 and 44.43%
for the nine months ended September 30, 2006. The increases in the efficiency ratios were primarily due to the previously discussed decreases in net interest income.
38
Income Tax Expense
Income tax expense totaled $13.6 million for the three months ended September 30, 2007, representing an effective tax rate of 27.9%, and $47.3 million for the nine months ended September 30, 2007, representing an effective tax
rate of 31.0% . Income tax expense totaled $19.1 million for the three months ended September 30, 2006, representing an effective tax rate of 31.8%, and $68.4 million for the nine months ended September 30, 2006, representing an effective tax rate
of 33.2% . The decrease in the effective tax rate for 2007 was primarily due to a decrease in net unrecognized tax benefits and related accrued interest, resulting from the release of accruals for previous tax positions that have statutorily
expired, coupled with a decrease in pre-tax book income without any significant change in the amount of non-temporary differences, such as tax exempt income. For additional information regarding net unrecognized tax benefits, see Note 5 of Notes to
Consolidated Financial Statements in Item 1. Financial Statements (Unaudited).
Asset Quality
One of our key operating objectives has been and continues to be to maintain a high level of asset quality. Our concentration on one-to-four family mortgage lending and the maintenance of sound credit standards for new loan
originations have resulted in our maintaining a low level of non-performing assets relative to the size of our loan portfolio. Through a variety of strategies, including, but not limited to, aggressive collection efforts and the marketing of
non-performing loans and foreclosed properties, we have been proactive in addressing problem and non-performing assets which, in turn, has helped to maintain the strength of our financial condition.
As previously discussed, the composition of our loan portfolio, by property type, has remained consistent over the last several years. At September 30, 2007, our loan portfolio was comprised of 72% one-to-four family mortgage
loans, 19% multi-family mortgage loans, 7% commercial real estate loans and 2% other loan categories. This compares to 69% one-to-four family mortgage loans, 20% multi-family mortgage loans, 7% commercial real estate loans and 4% other loan
categories at December 31, 2006.
39
The following table provides further details on the composition of our one-to-four family and multi-family and commercial real estate mortgage loan portfolios in dollar amounts and in percentages of the portfolio at the dates
indicated.
|
|
At
September 30, 2007
|
|
At
December 31, 2006
|
|
|
|
|
|
Percent
|
|
|
|
|
Percent
|
(Dollars
in Thousands)
|
|
Amount
|
|
of
Total
|
|
Amount
|
|
of
Total
|
|
One-to-four family:
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
documentation interest-only (1)
|
|
$
|
5,139,689
|
|
45.28
|
%
|
|
$
|
4,023,693
|
|
39.39
|
%
|
Full
documentation amortizing
|
|
|
3,247,335
|
|
28.61
|
|
|
|
3,288,462
|
|
32.20
|
|
Reduced
documentation interest-only (1) (2)
|
|
|
2,284,176
|
|
20.13
|
|
|
|
2,149,782
|
|
21.05
|
|
Reduced
documentation amortizing (2)
|
|
|
678,458
|
|
5.98
|
|
|
|
752,209
|
|
7.36
|
|
Total
one-to-four family
|
|
$
|
11,349,658
|
|
100.00
|
%
|
|
$
|
10,214,146
|
|
100.00
|
%
|
|
Multi-family and commercial
real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
documentation amortizing
|
|
$
|
3,413,667
|
|
84.64
|
%
|
|
$
|
3,545,178
|
|
86.73
|
%
|
Full
documentation interest-only
|
|
|
619,645
|
|
15.36
|
|
|
|
542,571
|
|
13.27
|
|
Total
multi-family and commercial real estate
|
|
$
|
4,033,312
|
|
100.00
|
%
|
|
$
|
4,087,749
|
|
100.00
|
%
|
(1)
|
Interest-only loans require the borrower to pay interest only during the first ten years of the loan term. After the tenth anniversary of the loan, principal and interest payments are required to amortize the loan over the
remaining loan term.
|
|
(2)
|
Reduced documentation loans are comprised primarily of SIFA (stated income, full asset) loans which require a potential borrower to complete a standard mortgage loan application and require the verification of a potential
borrowers asset information on the loan application, but not the income information provided. In addition, SIFA loans require the receipt of an appraisal of the real estate used as collateral for the mortgage loan and a credit report on the
prospective borrower. Effective November 1, 2007, we have discontinued originating reduced documentation loans.
|
We do not originate negative amortization loans, payment option loans, or other loans with short-term interest-only periods. During the second quarter of 2006, we began underwriting our one-to-four family interest-only adjustable
rate mortgage, or ARM, loans based on a fully amortizing thirty year loan. Additionally, effective in 2007, in accordance with federal banking regulatory requirements, we began underwriting our one-to-four family interest-only ARM loans at the fully
indexed rate. Based on our underwriting standards and cumulative experience with our interest-only loans, these loans have performed as well as our fully amortizing loan products. The respective allowance coverage factors utilized for interest-only
and amortizing loans give appropriate recognition to the potential for increased risk of default (and risk of loss) attributable to payment increases on interest-only loans once principal amortization begins. Our interest-only multi-family and
commercial real estate loans do not represent a material component of our loan portfolio.
Our loan-to-value ratios upon origination are low overall and have been consistent over the past several years. The average loan-to-value ratios, based on current principal balance and original appraised value, of total
one-to-four family loans outstanding as of September 30, 2007, by year of origination, were 66% for 2007, 67% for 2006, 69% for 2005, 68% for 2004 and 57% for pre-2004 originations. As of September 30, 2007, average loan-to-value ratios, based on
current principal balance and original appraised value, of total multi-family and commercial real estate loans outstanding, by year of origination, were 63% for 2007, 67% for 2006, 67% for 2005, 63% for 2004 and 58% for pre-2004
originations.
The average loan-to-value ratios, based on current principal balance and original appraised value, of total one-to-four family loans outstanding as of December 31, 2006, by year of origination, were 67% for 2006, 69% for 2005, 69%
for 2004 and 62% for pre-2004 originations. As of
40
December 31, 2006, average loan-to-value ratios, based on current principal balance and original appraised value, of total multi-family and commercial real estate loans outstanding, by year of origination, were 62% for 2006, 66%
for 2005, 65% for 2004 and 60% for pre-2004 originations.
As previously discussed, subprime mortgage lending, which has been the riskiest sector of the residential housing market, is not a market that we have ever actively pursued. The market does not apply a uniform definition of what
constitutes subprime lending. Our reference to subprime lending relies upon the Statement on Subprime Mortgage Lending issued by the OTS and the other federal bank regulatory agencies, or the Agencies, on June 29, 2007,
which further references the Expanded Guidance for Subprime Lending Programs, or the Expanded Guidance, issued by the Agencies by press release dated January 31, 2001. In the Expanded Guidance, the Agencies indicated that subprime
lending does not refer to individual subprime loans originated and managed, in the ordinary course of business, as exceptions to prime risk selection standards. The Agencies recognize that many prime loan portfolios will contain such accounts. The
Agencies also excluded prime loans that develop credit problems after acquisition and community development loans from the subprime arena. According to the Expanded Guidance, subprime loans are other loans to borrowers which display one or more
characteristics of reduced payment capacity. Five specific criteria
,
which are not intended to be exhaustive and are not meant to define specific parameters for all subprime borrowers and
may not match all markets or institutions specific subprime definitions, are set forth, including having a FICO score of 660 or below. Based upon the definition and exclusions described above, we are a prime lender. Within our loan portfolio,
we have loans that, at the time of origination, had FICO scores of 660 or below. However, as we are a portfolio lender we review all data contained in borrower credit reports and do not base our underwriting decisions solely on FICO scores. We
believe the aforementioned loans, when made, were amply collateralized and otherwise conformed to our prime lending standards.
Non-Performing Assets
The following table sets forth information regarding non-performing assets at the dates indicated.
|
|
At September
30,
|
|
At December
31,
|
(Dollars
in Thousands)
|
|
2007
|
|
2006
|
Non-accrual delinquent mortgage
loans
|
|
|
$77,761
|
|
|
|
$58,110
|
|
Non-accrual delinquent consumer
and other loans
|
|
|
1,453
|
|
|
|
818
|
|
Mortgage loans delinquent
90 days or more and
|
|
|
|
|
|
|
|
|
still
accruing interest (1)
|
|
|
3,103
|
|
|
|
488
|
|
Total non-performing loans
|
|
|
82,317
|
|
|
|
59,416
|
|
Real
estate owned, net (2)
|
|
|
4,336
|
|
|
|
627
|
|
Total
non-performing assets
|
|
|
$86,653
|
|
|
|
$60,043
|
|
|
Non-performing loans to total
loans
|
|
|
0.52
|
%
|
|
|
0.40
|
%
|
Non-performing loans to total
assets
|
|
|
0.38
|
|
|
|
0.28
|
|
Non-performing assets to
total assets
|
|
|
0.40
|
|
|
|
0.28
|
|
Allowance for loan losses
to non-performing loans
|
|
|
95.06
|
|
|
|
134.55
|
|
Allowance for loan losses
to total loans
|
|
|
0.49
|
|
|
|
0.53
|
|
(1)
|
Mortgage loans delinquent 90 days or more and still accruing interest consist solely of loans delinquent 90 days or more as to their maturity date but not their interest due.
|
|
(2)
|
Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is recorded at the lower of cost or fair value, less estimated selling costs, and is comprised of one-to-four family properties.
|
|
Non-performing assets increased $26.7 million to $86.7 million at September 30, 2007, from $60.0 million at December 31, 2006. Our ratio of non-performing assets to total assets was
41
0.40% at September 30, 2007 and 0.28% at December 31, 2006.
Non-performing loans, the most significant component of non-performing assets,
increased $22.9 million to $82.3 million at September 30, 2007, from $59.4 million
at December 31, 2006. The ratio of non-performing loans to total loans was 0.52%
at September 30, 2007 and 0.40% at December 31, 2006. Non-performing mortgage
loans, the most significant component of non-performing loans, totaled $80.9
million at September 30, 2007 and $58.6 million at December 31, 2006. The
increases in non-performing loans and assets were primarily due to an increase
of $27.1 million in non-performing one-to-four family mortgage loans, partially
offset by a decrease of $6.2 million in non-performing multi-family mortgage
loans. We sold non-performing mortgage loans totaling $9.4 million, primarily
multi-family and commercial real estate loans, during the nine months ended September
30, 2007. The increase in non-performing loans and assets occurred primarily
during the 2007 third quarter. We believe the increase is primarily due to the
overall increase in our loan portfolio and to the softening of the real estate
market. Despite the increase in non-performing loans at September 30, 2007, our
non-performing loans continue to remain at low levels relative to the size of
our loan portfolio.
The following table provides further details on the composition of our non-performing one-to-four family and multi-family and commercial real estate mortgage loans in dollar amounts, percentages of the portfolio and loan-to-value
ratios, based on current principal balance and original appraised value, at the dates indicated.
|
|
At September 30, 2007
|
|
At December 31, 2006
|
|
|
|
|
Percent
|
|
Loan
|
|
|
|
Percent
|
|
Loan
|
|
|
|
|
of
|
|
-to-
|
|
|
|
of
|
|
-to-
|
(Dollars
in Thousands)
|
|
Amount
|
|
Total
|
|
Value
|
|
Amount
|
|
Total
|
|
Value
|
Non-performing loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full documentation interest-only
|
|
$17,121
|
|
25.11
|
%
|
|
77
|
%
|
|
$ 8,513
|
|
20.70
|
%
|
|
77
|
%
|
Full documentation amortizing
|
|
19,095
|
|
28.00
|
|
|
70
|
|
|
16,404
|
|
39.89
|
|
|
71
|
|
Reduced documentation interest-only
|
|
20,871
|
|
30.61
|
|
|
72
|
|
|
5,945
|
|
14.46
|
|
|
74
|
|
Reduced documentation amortizing
|
|
11,101
|
|
16.28
|
|
|
66
|
|
|
10,262
|
|
24.95
|
|
|
68
|
|
Total one-to-four family
|
|
$68,188
|
|
100.00
|
%
|
|
72
|
%
|
|
$41,124
|
|
100.00
|
%
|
|
72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family and commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full documentation amortizing
|
|
$ 9,404
|
|
100.00
|
%
|
|
65
|
%
|
|
$17,474
|
|
100.00
|
%
|
|
70
|
%
|
At September 30, 2007, the geographic composition of our non-performing one-to-four family mortgage loans was consistent with the geographic composition of our one-to-four family mortgage loan portfolio and, as of September 30,
2007, did not indicate a negative trend in any one particular geographic location.
We discontinue accruing interest on mortgage loans when such loans become 90 days delinquent as to their interest due, even though in some instances the borrower has only missed two payments. At September 30, 2007, $24.1 million
of mortgage loans classified as non-performing had missed only two payments, compared to $17.3 million at December 31, 2006. We discontinue accruing interest on consumer and other loans when such loans become 90 days delinquent as to their payment
due. In addition, we reverse all previously accrued and uncollected interest through a charge to interest income. While loans are in non-accrual status, interest due is monitored and income is recognized only to the extent cash is received until a
return to accrual status is warranted.
42
If all non-accrual loans at September 30, 2007 and 2006 had been performing in accordance with their original terms, we would have recorded interest income, with respect to such loans, of $3.8 million for the nine months ended
September 30, 2007 and $2.5 million for the nine months ended September 30, 2006. This compares to actual payments recorded as interest income, with respect to such loans, of $1.8 million for the nine months ended September 30, 2007 and $1.1 million
for the nine months ended September 30, 2006.
In addition to non-performing loans, we had $1.7 million of potential problem loans at September 30, 2007, compared to $734,000 at December 31, 2006. Such loans are 60-89 days delinquent as shown in the following table.
Delinquent Loans
The following table shows a comparison of delinquent loans at the dates indicated. Delinquent loans are reported based on the number of days the loan payments are past due, except in the case of mortgage loans 90 days or more
which are reported as such when the loans become 90 days delinquent as to their interest due, even though in some cases the borrower has only missed two payments.
|
|
At September 30, 2007
|
|
At December 31, 2006
|
|
|
60-89 Days
|
|
90 Days or More
|
|
60-89 Days
|
|
90 Days or More
|
|
|
Number
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
of
|
|
|
|
|
|
|
of
|
|
|
|
|
|
|
of
|
|
|
|
|
|
|
of
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Loans
|
|
Amount
|
|
Loans
|
|
Amount
|
|
Loans
|
|
Amount
|
|
Loans
|
|
Amount
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
3
|
|
|
|
$ 571
|
|
|
235
|
|
|
|
$68,188
|
|
|
2
|
|
|
|
$ 92
|
|
|
159
|
|
|
|
$41,124
|
|
Multi-family
|
|
-
|
|
|
|
-
|
|
|
20
|
|
|
|
8,390
|
|
|
-
|
|
|
|
-
|
|
|
21
|
|
|
|
14,627
|
|
Commercial real estate
|
|
-
|
|
|
|
-
|
|
|
4
|
|
|
|
1,014
|
|
|
-
|
|
|
|
-
|
|
|
5
|
|
|
|
2,847
|
|
Construction
|
|
-
|
|
|
|
-
|
|
|
3
|
|
|
|
3,272
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
Consumer and other loans
|
|
41
|
|
|
|
1,091
|
|
|
34
|
|
|
|
1,453
|
|
|
38
|
|
|
|
642
|
|
|
33
|
|
|
|
818
|
|
|
Total delinquent loans
|
|
44
|
|
|
|
$1,662
|
|
|
296
|
|
|
|
$82,317
|
|
|
40
|
|
|
|
$734
|
|
|
218
|
|
|
|
$59,416
|
|
|
Delinquent loans to total loans
|
|
|
|
|
|
0.01%
|
|
|
|
|
|
|
0.52%
|
|
|
|
|
|
|
0.00%
|
|
|
|
|
|
|
0.40%
|
|
Allowance for Loan Losses
The following table sets forth the change in our allowance for losses on loans for the nine months ended September 30, 2007.
|
|
|
(In Thousands)
|
|
|
Balance at December 31, 2006
|
|
$
|
79,942
|
|
|
|
Provision charged to operations
|
|
|
500
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
One-to-four family
|
|
|
(239
|
)
|
|
|
Multi-family
|
|
|
(73
|
)
|
|
|
Commercial real estate
|
|
|
(242
|
)
|
|
|
Construction
|
|
|
(1,454
|
)
|
|
|
Consumer and other loans
|
|
|
(522
|
)
|
|
|
Total charge-offs
|
|
|
(2,530
|
)
|
|
|
Recoveries:
|
|
|
|
|
|
|
One-to-four family
|
|
|
4
|
|
|
|
Commercial real estate
|
|
|
197
|
|
|
|
Consumer and other loans
|
|
|
141
|
|
|
|
Total recoveries
|
|
|
342
|
|
|
|
Net loan charge-offs
|
|
|
(2,188
|
)
|
|
|
Balance at September 30, 2007
|
|
$
|
78,254
|
|
|
43