UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended September 30, 2009
OR
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period
from to
Commission
file number 001-11967
ASTORIA
FINANCIAL CORPORATION
(Exact
name of registrant as specified in its charter)
Delaware
|
11-3170868
|
(State
or other jurisdiction of
|
(I.R.S.
Employer Identification
|
incorporation
or organization)
|
Number)
|
|
|
One Astoria Federal Plaza, Lake Success, New
York
|
11042-1085
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(516)
327-3000
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all the reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES
x
NO
¨
Indicate by
check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES
¨
NO
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company (as
these items are defined in Rule 12b-2 of the Exchange Act).
Large
accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES
¨
NO
x
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Classes of Common Stock
|
Number of Shares Outstanding, October 30,
2009
|
|
|
.01 Par Value
|
97,048,374
|
|
|
Page
|
PART
I — FINANCIAL INFORMATION
|
|
|
|
|
Item
1.
|
Financial
Statements (Unaudited):
|
|
|
|
|
|
Consolidated
Statements of Financial Condition at September 30, 2009 and December 31,
2008
|
2
|
|
|
|
|
Consolidated
Statements of Income for the Three and Nine Months Ended September 30,
2009 and September 30, 2008
|
3
|
|
|
|
|
Consolidated
Statement of Changes in Stockholders' Equity for the Nine Months Ended
September 30, 2009
|
4
|
|
|
|
|
Consolidated
Statements of Cash Flows for the Nine Months Ended September 30, 2009 and
September 30, 2008
|
5
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
6
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
21
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
58
|
|
|
|
Item
4.
|
Controls
and Procedures
|
60
|
|
|
|
PART
II — OTHER INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
61
|
|
|
|
Item
1A.
|
Risk
Factors
|
62
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
64
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
64
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
64
|
|
|
|
Item
5.
|
Other
Information
|
64
|
|
|
|
Item
6.
|
Exhibits
|
64
|
|
|
|
Signature
|
|
65
|
ASTORIA
FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated
Statements of Financial Condition
|
|
(Unaudited)
|
|
|
|
|
|
|
At
|
|
|
At
|
|
(In Thousands, Except Share Data)
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
87,137
|
|
|
$
|
76,233
|
|
Repurchase
agreements
|
|
|
45,380
|
|
|
|
24,060
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
Encumbered
|
|
|
884,555
|
|
|
|
1,017,769
|
|
Unencumbered
|
|
|
69,521
|
|
|
|
372,671
|
|
|
|
|
954,076
|
|
|
|
1,390,440
|
|
Held-to-maturity
securities, fair value of $2,575,908 and $2,643,955,
respectively:
|
|
|
|
|
|
|
|
|
Encumbered
|
|
|
1,884,514
|
|
|
|
2,204,289
|
|
Unencumbered
|
|
|
633,718
|
|
|
|
442,573
|
|
|
|
|
2,518,232
|
|
|
|
2,646,862
|
|
Federal
Home Loan Bank of New York stock, at cost
|
|
|
177,199
|
|
|
|
211,900
|
|
Loans
held-for-sale, net
|
|
|
34,841
|
|
|
|
5,272
|
|
Loans
receivable:
|
|
|
|
|
|
|
|
|
Mortgage
loans, net
|
|
|
15,634,222
|
|
|
|
16,372,383
|
|
Consumer and other loans,
net
|
|
|
335,585
|
|
|
|
340,061
|
|
|
|
|
15,969,807
|
|
|
|
16,712,444
|
|
Allowance for loan losses
|
|
|
(176,638
|
)
|
|
|
(119,029
|
)
|
Loans
receivable, net
|
|
|
15,793,169
|
|
|
|
16,593,415
|
|
Mortgage
servicing rights, net
|
|
|
9,211
|
|
|
|
8,216
|
|
Accrued
interest receivable
|
|
|
74,012
|
|
|
|
79,589
|
|
Premises
and equipment, net
|
|
|
136,532
|
|
|
|
139,828
|
|
Goodwill
|
|
|
185,151
|
|
|
|
185,151
|
|
Bank
owned life insurance
|
|
|
403,624
|
|
|
|
401,280
|
|
Other assets
|
|
|
254,715
|
|
|
|
219,865
|
|
Total assets
|
|
$
|
20,673,279
|
|
|
$
|
21,982,111
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
1,959,171
|
|
|
$
|
1,832,790
|
|
Money
market
|
|
|
330,299
|
|
|
|
289,135
|
|
NOW
and demand deposit
|
|
|
1,522,017
|
|
|
|
1,466,916
|
|
Liquid
certificates of deposit
|
|
|
812,141
|
|
|
|
981,733
|
|
Certificates of deposit
|
|
|
8,594,991
|
|
|
|
8,909,350
|
|
Total
deposits
|
|
|
13,218,619
|
|
|
|
13,479,924
|
|
Reverse
repurchase agreements
|
|
|
2,500,000
|
|
|
|
2,850,000
|
|
Federal
Home Loan Bank of New York advances
|
|
|
2,960,000
|
|
|
|
3,738,000
|
|
Other
borrowings, net
|
|
|
377,723
|
|
|
|
377,274
|
|
Mortgage
escrow funds
|
|
|
150,396
|
|
|
|
133,656
|
|
Accrued expenses and other
liabilities
|
|
|
260,662
|
|
|
|
221,488
|
|
Total
liabilities
|
|
|
19,467,400
|
|
|
|
20,800,342
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
|
Preferred
stock, $1.00 par value (5,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
none
issued and outstanding)
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $.01 par value (200,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
166,494,888
shares issued; and 97,048,374 and 95,881,132
|
|
|
|
|
|
|
|
|
shares
outstanding, respectively)
|
|
|
1,665
|
|
|
|
1,665
|
|
Additional
paid-in capital
|
|
|
854,050
|
|
|
|
856,021
|
|
Retained
earnings
|
|
|
1,833,377
|
|
|
|
1,864,257
|
|
Treasury
stock (69,446,514 and 70,613,756 shares, at cost,
respectively)
|
|
|
(1,435,090
|
)
|
|
|
(1,459,211
|
)
|
Accumulated
other comprehensive loss
|
|
|
(31,442
|
)
|
|
|
(61,865
|
)
|
Unallocated
common stock held by ESOP (4,553,093 and 5,212,668
|
|
|
|
|
|
|
|
|
shares,
respectively)
|
|
|
(16,681
|
)
|
|
|
(19,098
|
)
|
Total stockholders' equity
|
|
|
1,205,879
|
|
|
|
1,181,769
|
|
Total liabilities and stockholders'
equity
|
|
$
|
20,673,279
|
|
|
$
|
21,982,111
|
|
See
accompanying Notes to Consolidated Financial Statements.
ASTORIA
FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated
Statements of Income (Unaudited)
|
|
For the
|
|
|
For the
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
(In Thousands, Except Share Data)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
147,765
|
|
|
$
|
163,154
|
|
|
$
|
465,252
|
|
|
$
|
468,999
|
|
Multi-family,
commercial real estate and construction
|
|
|
52,947
|
|
|
|
57,982
|
|
|
|
165,539
|
|
|
|
176,983
|
|
Consumer
and other loans
|
|
|
2,760
|
|
|
|
4,103
|
|
|
|
8,095
|
|
|
|
13,712
|
|
Mortgage-backed
and other securities
|
|
|
35,980
|
|
|
|
45,341
|
|
|
|
116,307
|
|
|
|
139,942
|
|
Federal
funds sold, repurchase agreements and interest earning cash
accounts
|
|
|
163
|
|
|
|
214
|
|
|
|
394
|
|
|
|
1,868
|
|
Federal Home Loan Bank of New York
stock
|
|
|
2,487
|
|
|
|
3,148
|
|
|
|
6,850
|
|
|
|
11,173
|
|
Total interest income
|
|
|
242,102
|
|
|
|
273,942
|
|
|
|
762,437
|
|
|
|
812,677
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
75,348
|
|
|
|
92,967
|
|
|
|
248,069
|
|
|
|
301,021
|
|
Borrowings
|
|
|
63,671
|
|
|
|
73,902
|
|
|
|
190,554
|
|
|
|
231,217
|
|
Total interest expense
|
|
|
139,019
|
|
|
|
166,869
|
|
|
|
438,623
|
|
|
|
532,238
|
|
Net
interest income
|
|
|
103,083
|
|
|
|
107,073
|
|
|
|
323,814
|
|
|
|
280,439
|
|
Provision
for loan losses
|
|
|
50,000
|
|
|
|
13,000
|
|
|
|
150,000
|
|
|
|
24,000
|
|
Net interest income after provision for loan
losses
|
|
|
53,083
|
|
|
|
94,073
|
|
|
|
173,814
|
|
|
|
256,439
|
|
Non-interest
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
service fees
|
|
|
14,186
|
|
|
|
15,752
|
|
|
|
43,265
|
|
|
|
47,661
|
|
Other
loan fees
|
|
|
959
|
|
|
|
927
|
|
|
|
2,837
|
|
|
|
3,056
|
|
Gain
on sales of securities
|
|
|
3,820
|
|
|
|
-
|
|
|
|
5,932
|
|
|
|
-
|
|
Other-than-temporary
impairment write-down of securities
|
|
|
-
|
|
|
|
(77,696
|
)
|
|
|
(5,300
|
)
|
|
|
(77,696
|
)
|
Mortgage
banking income (loss), net
|
|
|
883
|
|
|
|
(279
|
)
|
|
|
4,762
|
|
|
|
1,786
|
|
Income
from bank owned life insurance
|
|
|
2,131
|
|
|
|
4,273
|
|
|
|
6,578
|
|
|
|
12,670
|
|
Other
|
|
|
(1,899
|
)
|
|
|
1,725
|
|
|
|
(1,622
|
)
|
|
|
4,495
|
|
Total non-interest income
(loss)
|
|
|
20,080
|
|
|
|
(55,298
|
)
|
|
|
56,452
|
|
|
|
(8,028
|
)
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
31,850
|
|
|
|
31,594
|
|
|
|
99,213
|
|
|
|
95,960
|
|
Occupancy,
equipment and systems
|
|
|
15,969
|
|
|
|
16,460
|
|
|
|
48,365
|
|
|
|
50,211
|
|
Federal
deposit insurance premiums
|
|
|
6,928
|
|
|
|
549
|
|
|
|
17,732
|
|
|
|
1,668
|
|
Federal
deposit insurance special assessment
|
|
|
-
|
|
|
|
-
|
|
|
|
9,851
|
|
|
|
-
|
|
Advertising
|
|
|
961
|
|
|
|
2,346
|
|
|
|
3,741
|
|
|
|
4,969
|
|
Other
|
|
|
7,531
|
|
|
|
7,855
|
|
|
|
24,319
|
|
|
|
24,207
|
|
Total non-interest expense
|
|
|
63,239
|
|
|
|
58,804
|
|
|
|
203,221
|
|
|
|
177,015
|
|
Income
(loss) before income tax expense (benefit)
|
|
|
9,924
|
|
|
|
(20,029
|
)
|
|
|
27,045
|
|
|
|
71,396
|
|
Income tax expense
(benefit)
|
|
|
1,876
|
|
|
|
(3,570
|
)
|
|
|
7,501
|
|
|
|
25,502
|
|
Net income
(loss)
|
|
$
|
8,048
|
|
|
$
|
(16,459
|
)
|
|
$
|
19,544
|
|
|
$
|
45,894
|
|
Basic earnings (loss) per common share
|
|
$
|
0.09
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.21
|
|
|
$
|
0.51
|
|
Diluted earnings (loss) per common share
|
|
$
|
0.09
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.21
|
|
|
$
|
0.50
|
|
Dividends per common share
|
|
$
|
0.13
|
|
|
$
|
0.26
|
|
|
$
|
0.39
|
|
|
$
|
0.78
|
|
Basic
weighted average common shares
|
|
|
90,696,563
|
|
|
|
89,546,664
|
|
|
|
90,480,277
|
|
|
|
89,523,584
|
|
Diluted
weighted average common and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
equivalent shares
|
|
|
90,702,558
|
|
|
|
89,546,664
|
|
|
|
90,482,356
|
|
|
|
90,552,829
|
|
See
accompanying Notes to Consolidated Financial Statements.
ASTORIA
FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated
Statement of Changes in Stockholders' Equity (Unaudited)
For
the Nine Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
Stock
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
Held
|
|
(In Thousands, Except Share
Data)
|
|
Total
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock
|
|
|
Loss
|
|
|
by ESOP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
$
|
1,181,769
|
|
|
$
|
1,665
|
|
|
$
|
856,021
|
|
|
$
|
1,864,257
|
|
|
$
|
(1,459,211
|
)
|
|
$
|
(61,865
|
)
|
|
$
|
(19,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
19,544
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,544
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized gain on securities
|
|
|
26,220
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,220
|
|
|
|
-
|
|
Reclassification
of prior service cost
|
|
|
72
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72
|
|
|
|
-
|
|
Reclassification
of net actuarial loss
|
|
|
3,988
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,988
|
|
|
|
-
|
|
Reclassification
of loss on cash flow hedge
|
|
|
143
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
143
|
|
|
|
-
|
|
Comprehensive
income
|
|
|
49,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
on common stock ($0.39 per share)
|
|
|
(35,574
|
)
|
|
|
-
|
|
|
|
245
|
|
|
|
(35,819
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options and related tax benefit (18,000 shares
issued)
|
|
|
270
|
|
|
|
-
|
|
|
|
18
|
|
|
|
(119
|
)
|
|
|
371
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock grants (1,172,232 shares)
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,606
|
)
|
|
|
(14,618
|
)
|
|
|
24,224
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
benefit shortfall on stock-based compensation
|
|
|
(1,048
|
)
|
|
|
-
|
|
|
|
(1,048
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures
of restricted stock (22,990 shares)
|
|
|
17
|
|
|
|
-
|
|
|
|
359
|
|
|
|
132
|
|
|
|
(474
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation and allocation of ESOP stock
|
|
|
10,478
|
|
|
|
-
|
|
|
|
8,061
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2009
|
|
$
|
1,205,879
|
|
|
$
|
1,665
|
|
|
$
|
854,050
|
|
|
$
|
1,833,377
|
|
|
$
|
(1,435,090
|
)
|
|
$
|
(31,442
|
)
|
|
$
|
(
16,681
|
)
|
See accompanying Notes to Consolidated Financial Statements
ASTORIA
FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated
Statements of Cash Flows (Unaudited)
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
(In Thousands)
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$
|
19,544
|
|
|
$
|
45,894
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Net
premium amortization on mortgage loans and mortgage-backed
securities
|
|
|
20,574
|
|
|
|
21,843
|
|
Net
amortization of deferred costs on consumer and other loans and
borrowings
|
|
|
1,899
|
|
|
|
2,200
|
|
Net
provision for loan and real estate losses
|
|
|
151,111
|
|
|
|
25,515
|
|
Depreciation
and amortization
|
|
|
8,199
|
|
|
|
9,878
|
|
Net
gain on sales of loans and securities
|
|
|
(10,686
|
)
|
|
|
(1,083
|
)
|
Other-than-temporary
impairment write-down of securities
|
|
|
5,300
|
|
|
|
77,696
|
|
Lower
of cost or market write-down of assets held-for-sale
|
|
|
4,436
|
|
|
|
-
|
|
Originations
of loans held-for-sale
|
|
|
(333,364
|
)
|
|
|
(109,004
|
)
|
Proceeds
from sales and principal repayments of loans held-for-sale
|
|
|
321,354
|
|
|
|
106,964
|
|
Stock-based
compensation and allocation of ESOP stock
|
|
|
10,495
|
|
|
|
14,068
|
|
Decrease
(increase) in accrued interest receivable
|
|
|
5,577
|
|
|
|
(3,249
|
)
|
Mortgage
servicing rights amortization and valuation allowance adjustments,
net
|
|
|
2,788
|
|
|
|
2,148
|
|
Bank
owned life insurance income and insurance proceeds received,
net
|
|
|
(2,344
|
)
|
|
|
(3,163
|
)
|
Increase
in other assets
|
|
|
(35,150
|
)
|
|
|
(48,985
|
)
|
Increase in accrued expenses and other
liabilities
|
|
|
45,422
|
|
|
|
66,967
|
|
Net cash provided by operating
activities
|
|
|
215,155
|
|
|
|
207,689
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Originations
of loans receivable
|
|
|
(2,072,138
|
)
|
|
|
(3,324,411
|
)
|
Loan
purchases through third parties
|
|
|
(275,749
|
)
|
|
|
(405,750
|
)
|
Principal
payments on loans receivable
|
|
|
2,868,045
|
|
|
|
3,080,819
|
|
Proceeds
from sales of delinquent and non-performing loans
|
|
|
35,591
|
|
|
|
14,394
|
|
Purchases
of securities held-to-maturity
|
|
|
(706,630
|
)
|
|
|
(166,549
|
)
|
Purchases
of securities available-for-sale
|
|
|
-
|
|
|
|
(322,285
|
)
|
Principal
payments on securities held-to-maturity
|
|
|
836,508
|
|
|
|
463,718
|
|
Principal
payments on securities available-for-sale
|
|
|
295,724
|
|
|
|
158,110
|
|
Proceeds
from sales of securities available-for-sale
|
|
|
182,844
|
|
|
|
-
|
|
Net
redemptions (purchases) of Federal Home Loan Bank of New York
stock
|
|
|
34,701
|
|
|
|
(25,345
|
)
|
Proceeds
from sales of real estate owned, net
|
|
|
33,581
|
|
|
|
9,237
|
|
Purchases
of premises and equipment, net of proceeds from sales
|
|
|
(6,491
|
)
|
|
|
(8,848
|
)
|
Net cash provided by (used in) investing
activities
|
|
|
1,225,986
|
|
|
|
(526,910
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in deposits
|
|
|
(261,305
|
)
|
|
|
59,745
|
|
Net
(decrease) increase in borrowings with original terms of three months or
less
|
|
|
(813,000
|
)
|
|
|
565,100
|
|
Proceeds
from borrowings with original terms greater than three
months
|
|
|
235,000
|
|
|
|
1,550,000
|
|
Repayments
of borrowings with original terms greater than three
months
|
|
|
(550,000
|
)
|
|
|
(1,800,000
|
)
|
Net
increase in mortgage escrow funds
|
|
|
16,740
|
|
|
|
33,962
|
|
Common
stock repurchased
|
|
|
-
|
|
|
|
(18,090
|
)
|
Cash
dividends paid to stockholders
|
|
|
(35,819
|
)
|
|
|
(70,379
|
)
|
Cash
received for options exercised
|
|
|
252
|
|
|
|
7,133
|
|
Tax benefit (shortfall) excess from share-based
payment arrangements, net
|
|
|
(785
|
)
|
|
|
1,524
|
|
Net cash (used in) provided by financing
activities
|
|
|
(1,408,917
|
)
|
|
|
328,995
|
|
Net
increase in cash and cash equivalents
|
|
|
32,224
|
|
|
|
9,774
|
|
Cash and cash equivalents at beginning of period
|
|
|
100,293
|
|
|
|
118,190
|
|
Cash and cash equivalents at end of
period
|
|
$
|
132,517
|
|
|
$
|
127,964
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
Cash
paid during the period:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
431,458
|
|
|
$
|
534,442
|
|
Income taxes
|
|
$
|
47,134
|
|
|
$
|
51,215
|
|
Additions to real estate
owned
|
|
$
|
50,679
|
|
|
$
|
23,700
|
|
Loans transferred to
held-for-sale
|
|
$
|
55,027
|
|
|
$
|
14,394
|
|
See
accompanying Notes to Consolidated Financial Statements.
ASTORIA
FINANCIAL CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
The
accompanying consolidated financial statements include the accounts of Astoria
Financial Corporation and its wholly-owned subsidiaries: Astoria Federal Savings
and Loan Association and its subsidiaries, referred to as Astoria Federal, and
AF Insurance Agency, Inc. As used in this quarterly report, “we,”
“us” and “our” refer to Astoria Financial Corporation and its consolidated
subsidiaries. All significant inter-company accounts and transactions
have been eliminated in consolidation.
In
addition to Astoria Federal and AF Insurance Agency, Inc., we have another
subsidiary, Astoria Capital Trust I, which is not consolidated with Astoria
Financial Corporation for financial reporting purposes. Astoria
Capital Trust I was formed in 1999 for the purpose of issuing $125.0 million
aggregate liquidation amount of 9.75% Capital Securities due November 1, 2029,
or Capital Securities, and $3.9 million of common securities which are 100%
owned by Astoria Financial Corporation, and using the proceeds to acquire Junior
Subordinated Debentures issued by Astoria Financial Corporation. The
Junior Subordinated Debentures total $128.9 million, have an interest rate of
9.75%, mature on November 1, 2029 and are the sole assets of Astoria Capital
Trust I. The Junior Subordinated Debentures are prepayable, in whole
or in part, at our option on or after November 1, 2009 at declining premiums to
November 1, 2019, after which the Junior Subordinated Debentures are prepayable
at par value. The Capital Securities have the same prepayment
provisions as the Junior Subordinated Debentures. Astoria Financial
Corporation has fully and unconditionally guaranteed the Capital Securities
along with all obligations of Astoria Capital Trust I under the trust agreement
relating to the Capital Securities. See Note 9 of Notes to
Consolidated Financial Statements included in Item 8, “Financial Statements and
Supplementary Data” of our 2008 Annual Report on Form 10-K for restrictions on
our subsidiaries’ ability to pay dividends to us.
In our
opinion, the accompanying consolidated financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of our financial condition as of September 30, 2009 and
December 31, 2008, our results of operations for the three and nine months ended
September 30, 2009 and 2008, changes in our stockholders’ equity for the nine
months ended September 30, 2009 and our cash flows for the nine months ended
September 30, 2009 and 2008. In preparing the consolidated financial
statements, we are required to make estimates and assumptions that affect the
reported amounts of assets and liabilities for the consolidated statements of
financial condition as of September 30, 2009 and December 31, 2008, and amounts
of revenues and expenses in the consolidated statements of income for the three
and nine months ended September 30, 2009 and 2008. The results of
operations for the three and nine months ended September 30, 2009 are not
necessarily indicative of the results of operations to be expected for the
remainder of the year. Certain information and note disclosures
normally included in financial statements prepared in accordance with U.S.
generally accepted accounting principles, or GAAP, have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission, or SEC. Certain reclassifications have been made to prior
year amounts to conform to the current year presentation. In
preparing these financial statements, we have evaluated events occurring
subsequent to September 30, 2009 through November 6, 2009, the date our
financial statements were issued, for potential recognition and
disclosure.
Effective
July 1, 2009, we adopted the provisions of Financial Accounting Standards Board,
or FASB, Accounting Standards Codification
TM
, or the
FASB ASC, which is now the source of
authoritative,
nongovernmental GAAP. While the FASB ASC did not change GAAP, all
existing authoritative accounting literature, with certain exceptions, was
superseded and codified into the FASB ASC. The references to
authoritative accounting literature contained in our disclosures have been
modified to refer to general accounting topics within the FASB ASC.
These
consolidated financial statements should be read in conjunction with our
December 31, 2008 audited consolidated financial statements and related notes
included in our 2008 Annual Report on Form 10-K.
2.
Securities
In April
2009, the FASB issued new accounting guidance, which we adopted on April 1,
2009, which amended previous other-than-temporary-impairment, or OTTI, guidance
for debt securities to make the guidance more operational and to improve the
presentation and disclosure of OTTI on debt and equity securities in the
financial statements. This guidance modified previous requirements
for recognizing OTTI on debt securities but did not amend existing recognition
and measurement guidance related to OTTI of equity securities. This
guidance expanded and increased the frequency of existing disclosures about OTTI
for debt and equity securities and requires new disclosures to help users of
financial statements understand the significant inputs used in determining a
credit loss, as well as a rollforward of that amount each period. As
of September 30, 2009, we have not recognized OTTI on any debt
securities. Our adoption of this guidance did not have a
material
impact on
our financial condition or results of operations.
The
following table sets forth the amortized cost and estimated fair value of
securities available-for-sale and held-to-maturity at the dates
indicated.
|
|
At September 30, 2009
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
(In Thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
REMICs
and CMOs (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
(2) issuance
|
|
$
|
861,511
|
|
|
$
|
20,903
|
|
|
$
|
(5
|
)
|
|
$
|
882,409
|
|
Non-GSE
issuance
|
|
|
28,666
|
|
|
|
-
|
|
|
|
(584
|
)
|
|
|
28,082
|
|
GSE
pass-through certificates
|
|
|
36,330
|
|
|
|
797
|
|
|
|
(20
|
)
|
|
|
37,107
|
|
Total
mortgage-backed securities
|
|
|
926,507
|
|
|
|
21,700
|
|
|
|
(609
|
)
|
|
|
947,598
|
|
Freddie
Mac preferred stock
|
|
|
-
|
|
|
|
6,452
|
|
|
|
-
|
|
|
|
6,452
|
|
Other
securities
|
|
|
40
|
|
|
|
-
|
|
|
|
(14
|
)
|
|
|
26
|
|
Total
securities available-for-sale
|
|
$
|
926,547
|
|
|
$
|
28,152
|
|
|
$
|
(623
|
)
|
|
$
|
954,076
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REMICs
and CMOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance
|
|
$
|
2,164,447
|
|
|
$
|
58,125
|
|
|
$
|
(251
|
)
|
|
$
|
2,222,321
|
|
Non-GSE
issuance
|
|
|
96,934
|
|
|
|
32
|
|
|
|
(2,368
|
)
|
|
|
94,598
|
|
GSE
pass-through certificates
|
|
|
1,199
|
|
|
|
63
|
|
|
|
-
|
|
|
|
1,262
|
|
Total
mortgage-backed securities
|
|
|
2,262,580
|
|
|
|
58,220
|
|
|
|
(2,619
|
)
|
|
|
2,318,181
|
|
Obligations
of U.S. government and GSEs
|
|
|
250,950
|
|
|
|
2,075
|
|
|
|
-
|
|
|
|
253,025
|
|
Obligations
of states and political subdivisions
|
|
|
4,702
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,702
|
|
Total
securities held-to-maturity
|
|
$
|
2,518,232
|
|
|
$
|
60,295
|
|
|
$
|
(2,619
|
)
|
|
$
|
2,575,908
|
|
(1)
Real
estate mortgage investment conduits and collateralized mortgage
obligations
(2)
Government-sponsored
enterprise
|
|
At December 31, 2008
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
(In
Thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
REMICs
and CMOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance
|
|
$
|
1,324,004
|
|
|
$
|
8,642
|
|
|
$
|
(13,470
|
)
|
|
$
|
1,319,176
|
|
Non-GSE
issuance
|
|
|
33,795
|
|
|
|
-
|
|
|
|
(4,355
|
)
|
|
|
29,440
|
|
GSE
pass-through certificates
|
|
|
40,383
|
|
|
|
487
|
|
|
|
(204
|
)
|
|
|
40,666
|
|
Total
mortgage-backed securities
|
|
|
1,398,182
|
|
|
|
9,129
|
|
|
|
(18,029
|
)
|
|
|
1,389,282
|
|
Freddie
Mac preferred stock
|
|
|
5,300
|
|
|
|
-
|
|
|
|
(4,168
|
)
|
|
|
1,132
|
|
Other
securities
|
|
|
40
|
|
|
|
-
|
|
|
|
(14
|
)
|
|
|
26
|
|
Total
securities available-for-sale
|
|
$
|
1,403,522
|
|
|
$
|
9,129
|
|
|
$
|
(22,211
|
)
|
|
$
|
1,390,440
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REMICs
and CMOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance
|
|
$
|
2,451,155
|
|
|
$
|
16,119
|
|
|
$
|
(2,200
|
)
|
|
$
|
2,465,074
|
|
Non-GSE
issuance
|
|
|
188,473
|
|
|
|
-
|
|
|
|
(16,887
|
)
|
|
|
171,586
|
|
GSE
pass-through certificates
|
|
|
1,558
|
|
|
|
61
|
|
|
|
-
|
|
|
|
1,619
|
|
Total
mortgage-backed securities
|
|
|
2,641,186
|
|
|
|
16,180
|
|
|
|
(19,087
|
)
|
|
|
2,638,279
|
|
Obligations
of states and political subdivisions
|
|
|
5,676
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,676
|
|
Total
securities held-to-maturity
|
|
$
|
2,646,862
|
|
|
$
|
16,180
|
|
|
$
|
(19,087
|
)
|
|
$
|
2,643,955
|
|
The
following tables set forth the estimated fair values of securities with gross
unrealized losses at September 30, 2009 and December 31, 2008, segregated
between securities that have been in a continuous unrealized loss position for
less than twelve months at the respective dates and those that have been in a
continuous unrealized loss position for twelve months or longer.
|
|
At September 30, 2009
|
|
|
|
Less Than Twelve Months
|
|
|
Twelve Months or Longer
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
(In
Thousands)
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REMICs
and CMOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance
|
|
$
|
668
|
|
|
$
|
(5
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
668
|
|
|
$
|
(5
|
)
|
Non-GSE
issuance
|
|
|
776
|
|
|
|
(41
|
)
|
|
|
27,306
|
|
|
|
(543
|
)
|
|
|
28,082
|
|
|
|
(584
|
)
|
GSE
pass-through certificates
|
|
|
3,076
|
|
|
|
(13
|
)
|
|
|
575
|
|
|
|
(7
|
)
|
|
|
3,651
|
|
|
|
(20
|
)
|
Other
securities
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
(14
|
)
|
|
|
2
|
|
|
|
(14
|
)
|
Total
temporarily impaired securities available-for-sale
|
|
$
|
4,520
|
|
|
$
|
(59
|
)
|
|
$
|
27,883
|
|
|
$
|
(564
|
)
|
|
$
|
32,403
|
|
|
$
|
(623
|
)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REMICs
and CMOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance
|
|
$
|
49,821
|
|
|
$
|
(251
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
49,821
|
|
|
$
|
(251
|
)
|
Non-GSE
issuance
|
|
|
-
|
|
|
|
-
|
|
|
|
82,785
|
|
|
|
(2,368
|
)
|
|
|
82,785
|
|
|
|
(2,368
|
)
|
Total
temporarily impaired securities held-to-maturity
|
|
$
|
49,821
|
|
|
$
|
(251
|
)
|
|
$
|
82,785
|
|
|
$
|
(2,368
|
)
|
|
$
|
132,606
|
|
|
$
|
(2,619
|
)
|
|
|
At December 31, 2008
|
|
|
|
Less Than Twelve Months
|
|
|
Twelve Months or Longer
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
(In
Thousands)
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REMICs
and CMOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance
|
|
$
|
167,797
|
|
|
$
|
(499
|
)
|
|
$
|
537,772
|
|
|
$
|
(12,971
|
)
|
|
$
|
705,569
|
|
|
$
|
(13,470
|
)
|
Non-GSE
issuance
|
|
|
962
|
|
|
|
(50
|
)
|
|
|
28,205
|
|
|
|
(4,305
|
)
|
|
|
29,167
|
|
|
|
(4,355
|
)
|
GSE
pass-through certificates
|
|
|
18,013
|
|
|
|
(169
|
)
|
|
|
1,389
|
|
|
|
(35
|
)
|
|
|
19,402
|
|
|
|
(204
|
)
|
Freddie
Mac preferred stock
|
|
|
1,132
|
|
|
|
(4,168
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,132
|
|
|
|
(4,168
|
)
|
Other
securities
|
|
|
1
|
|
|
|
(13
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
(14
|
)
|
Total
temporarily impaired securities available-for-sale
|
|
$
|
187,905
|
|
|
$
|
(4,899
|
)
|
|
$
|
567,367
|
|
|
$
|
(17,312
|
)
|
|
$
|
755,272
|
|
|
$
|
(22,211
|
)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REMICs
and CMOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance
|
|
$
|
357,335
|
|
|
$
|
(1,202
|
)
|
|
$
|
95,249
|
|
|
$
|
(998
|
)
|
|
$
|
452,584
|
|
|
$
|
(2,200
|
)
|
Non-GSE
issuance
|
|
|
75,830
|
|
|
|
(1,991
|
)
|
|
|
95,733
|
|
|
|
(14,896
|
)
|
|
|
171,563
|
|
|
|
(16,887
|
)
|
Total
temporarily impaired securities held-to-maturity
|
|
$
|
433,165
|
|
|
$
|
(3,193
|
)
|
|
$
|
190,982
|
|
|
$
|
(15,894
|
)
|
|
$
|
624,147
|
|
|
$
|
(19,087
|
)
|
We held
56 securities which had an unrealized loss at September 30, 2009 and 146 at
December 31, 2008. At September 30, 2009 and December 31, 2008,
substantially all of the securities in an unrealized loss position had a fixed
interest rate and the cause of the temporary impairment is directly related to
the change in interest rates. In general, as interest rates rise, the
fair value of fixed rate securities will decrease; as interest rates fall, the
fair value of fixed rate securities will increase. We generally view
changes in fair value caused by changes in interest rates as temporary, which is
consistent with our experience. None of the unrealized losses are
related to credit losses. Therefore, at September 30, 2009 and
December 31, 2008, the impairments are deemed temporary based on (1) the direct
relationship of the decline in fair value to movements in interest rates, (2)
the estimated remaining life and high credit quality of the investments and (3)
the fact that we do not intend to sell these securities and it is not more
likely than not that we will be required to sell these securities before their
anticipated recovery of the remaining amortized cost basis and we expect to
recover the entire amortized cost basis of the security.
During
the nine months ended September 30, 2009, we recorded a $5.3 million OTTI charge
to write-off the remaining cost basis of our investment in two issues of Freddie
Mac perpetual preferred securities. OTTI charges are included as a
component of non-interest income in the consolidated statements of income and
are discussed in greater detail below.
During
the 2008 third quarter, we recorded a $77.7 million OTTI charge to reduce the
cost basis of our Freddie Mac preferred securities to their market values
totaling $5.3 million as of September 30, 2008. The decision to
recognize the OTTI charge in the 2008 third quarter was based on the severity of
the decline in the market values of these securities during the quarter and the
unlikelihood of any near-term market value recovery. The significant
decline in the market value occurred primarily as a result of the reported
financial difficulties of Freddie Mac and the announcement by the U.S.
Department of Treasury and the Federal Housing Finance Agency, or FHFA, that,
among other things, Freddie Mac was being placed under conservatorship; that the
FHFA was assuming the powers of Freddie Mac’s Board and management; and that
dividends on Freddie Mac preferred stock were suspended
indefinitely. At December 31, 2008, our Freddie Mac stock had an
unrealized loss of $4.2 million. Although the market values of these
securities declined from September 30, 2008 to December 31, 2008, they also
reflected a significant amount of price volatility and had traded near or above
our cost basis during the 2008 fourth quarter. Additionally, shortly
after December 31, 2008, the securities again traded at market prices close to
our cost basis established at September 30, 2008. In reviewing the
changes in the market values during and subsequent to the 2008 fourth quarter,
we believed that the changes
were not
due to company specific news, either positive or negative, but appeared to be
more reflective of the volatility in the equity and bond markets. We
believed that the volatility measures, the trades near or above our cost basis
during the 2008 fourth quarter and the significant increase in values shortly
after December 31, 2008 provided sufficient evidence to support the likelihood
of a possible near-term recovery in market value. Based on the
likelihood of a possible near-term market value recovery, coupled with the short
duration of the unrealized loss and no significant change in the status of
Freddie Mac, economic or otherwise, we concluded this impairment was not
other-than-temporary at December 31, 2008.
During
the 2009 first quarter, the market values of these securities trended downward
from the values observed in the beginning of January. Our analysis of
the market value trends indicated that there was no longer a likelihood of a
near-term market value recovery. Based on the increased duration of
the unrealized loss and the unlikelihood of a near-term market value recovery,
we concluded, as of March 31, 2009, our Freddie Mac preferred securities were
other-than-temporarily impaired and of such little value that a write-off of our
remaining cost basis was warranted. At September 30, 2009, the
securities’ market values totaled $6.5 million which is recorded as an
unrealized gain on our available-for-sale securities.
For
additional information regarding securities impairment, see “Critical Accounting
Policies” in Item 2, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” or “MD&A.”
During
the nine months ended September 30, 2009, proceeds from sales of securities from
the available-for-sale portfolio totaled $182.8 million resulting in gross
realized gains of $5.9 million. There were no sales of securities
from the available-for-sale portfolio during the nine months ended September 30,
2008.
Gains and losses on the
sale of all securities are determined using the specific identification
method.
The
amortized cost and estimated fair value of debt securities at September 30,
2009, by contractual maturity, excluding mortgage-backed securities, are
summarized in the following table. Actual maturities will differ from
contractual maturities because borrowers may have the right to prepay
obligations with or without prepayment penalties. In addition,
issuers of certain securities have the right to call obligations with or without
prepayment penalties.
|
|
At September 30, 2009
|
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Fair
|
|
(In
Thousands)
|
|
Cost
|
|
|
Value
|
|
Available-for-sale:
|
|
|
|
|
|
|
Due
in one year or less
|
|
$
|
25
|
|
|
$
|
25
|
|
Total
available-for-sale
|
|
$
|
25
|
|
|
$
|
25
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
Due
after one year through five years
|
|
$
|
250,950
|
|
|
$
|
253,025
|
|
Due
after five years through ten years
|
|
|
4,702
|
|
|
|
4,702
|
|
Total
held-to-maturity
|
|
$
|
255,652
|
|
|
$
|
257,727
|
|
The
balance of accrued interest receivable for securities totaled $13.0 million at
September 30, 2009 and $14.7 million at December 31, 2008.
As of
September 30, 2009, the amortized cost of the callable securities in our
portfolio totaled $251.0 million, all of which are callable within one year and
at various times thereafter.
3.
Loans Held-for-Sale,
net
Loans
held-for-sale, net, includes fifteen and thirty year conforming fixed rate
one-to-four family mortgage loans originated for sale as well as certain
non-performing loans. From time to time, we have sold certain
delinquent and non-performing loans held in portfolio. Upon our
decision to sell such loans, we reclassify them to held-for-sale at the lower of
cost or fair value, less estimated selling costs. Non-performing
loans held-for-sale, included in loans held-for-sale, net, totaled $16.6
million, net of a $2.8 million valuation allowance, as of September 30,
2009. During the 2009 third quarter, we recorded a lower of cost or
market write-down totaling $2.8 million which is included in other non-interest
income in the consolidated statements of income. There were no
non-performing loans held-for-sale at December 31, 2008.
4.
Loans Receivable,
net
The
following table sets forth the composition of our loans receivable portfolio in
dollar amounts and in percentages of the portfolio at the dates
indicated.
|
|
At September 30, 2009
|
|
|
At December 31, 2008
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
(Dollars
in Thousands)
|
|
Amount
|
|
|
of Total
|
|
|
Amount
|
|
|
of Total
|
|
Mortgage
loans (gross):
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
12,005,690
|
|
|
|
75.70
|
%
|
|
$
|
12,349,617
|
|
|
|
74.42
|
%
|
Multi-family
|
|
|
2,618,996
|
|
|
|
16.51
|
|
|
|
2,911,733
|
|
|
|
17.55
|
|
Commercial
real estate
|
|
|
876,697
|
|
|
|
5.53
|
|
|
|
941,057
|
|
|
|
5.67
|
|
Construction
|
|
|
27,186
|
|
|
|
0.17
|
|
|
|
56,829
|
|
|
|
0.34
|
|
Total
mortgage loans
|
|
|
15,528,569
|
|
|
|
97.91
|
|
|
|
16,259,236
|
|
|
|
97.98
|
|
Consumer
and other loans (gross):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity
|
|
|
304,103
|
|
|
|
1.91
|
|
|
|
307,831
|
|
|
|
1.85
|
|
Commercial
|
|
|
13,650
|
|
|
|
0.09
|
|
|
|
13,331
|
|
|
|
0.08
|
|
Other
|
|
|
13,998
|
|
|
|
0.09
|
|
|
|
14,216
|
|
|
|
0.09
|
|
Total
consumer and other loans
|
|
|
331,751
|
|
|
|
2.09
|
|
|
|
335,378
|
|
|
|
2.02
|
|
Total
loans (gross)
|
|
|
15,860,320
|
|
|
|
100.00
|
%
|
|
|
16,594,614
|
|
|
|
100.00
|
%
|
Net
unamortized premiums and deferred loan costs
|
|
|
109,487
|
|
|
|
|
|
|
|
117,830
|
|
|
|
|
|
Total
loans
|
|
|
15,969,807
|
|
|
|
|
|
|
|
16,712,444
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(176,638
|
)
|
|
|
|
|
|
|
(119,029
|
)
|
|
|
|
|
Total
loans, net
|
|
$
|
15,793,169
|
|
|
|
|
|
|
$
|
16,593,415
|
|
|
|
|
|
Activity
in the allowance for loan losses is summarized as follows:
|
|
For
the
|
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
(In
Thousands)
|
|
September 30, 2009
|
|
Balance
at December 31, 2008
|
|
$
|
119,029
|
|
Provision
charged to operations
|
|
|
150,000
|
|
Charge-offs
|
|
|
(96,904
|
)
|
Recoveries
|
|
|
4,513
|
|
Balance
at September 30, 2009
|
|
$
|
176,638
|
|
For
additional information regarding the composition of our loan portfolio,
non-performing loans and our allowance for loan losses, see “Asset Quality” in
Item 2, “MD&A.”
5.
Premises and Equipment,
net
Included
in premises and equipment, net, is an office building with a carrying value of
$16.9 million which was classified as held-for-sale prior to September 30,
2009. The office building, which is currently unoccupied, is located
in Lake Success, New York, and formerly housed our lending operations, which
were relocated in March 2008 to a facility which we currently lease in Mineola,
New York. During the 2009 second quarter, we recorded a lower of cost
or market write-down of $1.6 million to reduce the carrying amount of the
building to its estimated fair value less selling costs. This charge
is included in other non-interest income in the consolidated statements of
income. Due to the current economy and real estate market, we have
been unable to sell the building at a reasonable price within a reasonable
period of time. Therefore, as of September 30, 2009, the office
building is no longer classified as held-for-sale. We will resume
depreciation of the building over its remaining useful life, based on the
current carrying value of $16.9 million, beginning October 2009.
6.
Income Taxes
Gross
unrecognized tax benefits totaled $4.0 million at September 30, 2009 compared to
$6.0 million at December 31, 2008. The decrease was primarily a
result of settlements with taxing authorities coupled with reductions resulting
from tax positions taken during a prior period. It is reasonably
possible that additional decreases in gross unrecognized tax benefits totaling
$2.6 million may occur in the next twelve months as a result of a lapse in the
applicable statute of limitations. If realized, all of our
unrecognized tax benefits at September 30, 2009 would affect our effective
income tax rate. After the related deferred tax effects, realization
of those benefits would reduce income tax expense by $3.0 million.
In
addition to the above unrecognized tax benefits, we have accrued liabilities for
interest and penalties related to uncertain tax positions totaling $2.7 million
at September 30, 2009 compared to $3.6 million at December 31,
2008. The decrease was primarily a result of settlements with taxing
authorities, partially offset by interest accrued during the nine months ended
September 30, 2009. Realization of all of our unrecognized tax
benefits would result in a further reduction in income tax expense of $2.0
million for the reversal of accrued interest and penalties, net of the related
deferred tax effects.
7.
Earnings Per Share, or
EPS
In June
2008, the FASB issued additional accounting guidance, which we adopted on
January 1, 2009, related to participating securities which clarified the
treatment of such securities for EPS computation purposes. The
guidance concluded that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents are participating
securities and are to be included in the computation of EPS pursuant to the
two-class method. Our restricted stock awards are considered
participating securities pursuant to this guidance. The two-class
method excludes from EPS calculations any dividends paid to participating
securities and any undistributed earnings attributable to participating
securities from the numerator and excludes the dilutive impact of the
participating securities from the denominator. Prior period EPS data
has been presented in accordance with this guidance.
The
following table is a reconciliation of basic and diluted EPS.
|
|
For the Three
|
|
|
For the Nine
|
|
|
|
Months Ended September 30,
|
|
|
Months Ended September 30,
|
|
(In Thousands, Except Per Share Data)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
income (loss)
|
|
$
|
8,048
|
|
|
$
|
(16,459
|
)
|
|
$
|
19,544
|
|
|
$
|
45,894
|
|
Income allocated to participating securities
(restricted stock)
|
|
|
(224
|
)
|
|
|
(222
|
)
|
|
|
(683
|
)
|
|
|
(664
|
)
|
Income (loss) attributable to common
shareholders
|
|
$
|
7,824
|
|
|
$
|
(16,681
|
)
|
|
$
|
18,861
|
|
|
$
|
45,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of common shares outstanding – basic
|
|
|
90,697
|
|
|
|
89,547
|
|
|
|
90,480
|
|
|
|
89,524
|
|
Dilutive effect of stock options
(1)
|
|
|
6
|
|
|
|
-
|
|
|
|
2
|
|
|
|
1,029
|
|
Average number of common shares outstanding –
diluted
|
|
|
90,703
|
|
|
|
89,547
|
|
|
|
90,482
|
|
|
|
90,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) per common share attributable to common
shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.09
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.21
|
|
|
$
|
0.51
|
|
Diluted
|
|
$
|
0.09
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.21
|
|
|
$
|
0.50
|
|
(1)
|
Excludes
options to purchase 8,044,830 shares of common stock which were
outstanding during the three months ended September 30, 2009; options to
purchase 8,850,966 shares of common stock which were outstanding during
the three months ended September 30, 2008; options to purchase 8,458,997
shares of common stock which were outstanding during the nine months ended
September 30, 2009; and options to purchase 4,118,897 shares of common
stock which were outstanding during the nine months ended September 30,
2008 because their inclusion would be
anti-dilutive.
|
8.
Stock Incentive
Plans
During
2009, 1,126,280 shares of restricted stock were granted to select officers under
the 2005 Re-designated, Amended and Restated Stock Incentive Plan for Officers
and Employees of Astoria Financial Corporation, or the 2005 Employee Stock Plan,
and 45,952 shares of restricted stock were granted to directors under the
Astoria Financial Corporation 2007 Non-Employee Directors Stock Plan, or the
2007 Director Stock Plan. Of the restricted stock granted to select
officers, 204,570 shares vest one-third per year and 921,710 shares vest
one-fifth per year on December 15, beginning December 15, 2009. In
the event the grantee terminates his/her employment due to death or disability,
or in the event we experience a change in control, as defined and specified in
the 2005 Employee Stock Plan, all restricted stock granted pursuant to such
grants immediately vests. The restricted stock granted in 2009 under
the 2007 Director Stock Plan vests 100% on February 2, 2012, although awards
will immediately vest upon death, disability, mandatory retirement, involuntary
termination or a change in control, as such terms are defined in the
plan.
Restricted
stock activity in our stock incentive plans for the nine months ended September
30, 2009 is summarized as follows:
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Grant Date Fair Value
|
|
Nonvested
at January 1, 2009
|
|
|
846,422
|
|
|
|
$27.63
|
|
Granted
|
|
|
1,172,232
|
|
|
|
8.19
|
|
Vested
|
|
|
(218,151
|
)
|
|
|
28.09
|
|
Forfeited
|
|
|
(22,990
|
)
|
|
|
15.60
|
|
Nonvested
at September 30, 2009
|
|
|
1,777,513
|
|
|
|
14.91
|
|
Stock-based
compensation expense is recognized on a straight-line basis over the vesting
period and totaled $938,000, net of taxes of $505,000, for the three
months ended September 30, 2009 and totaled $2.8 million, net of taxes of $1.5
million, for the nine months ended September 30, 2009. Stock-based
compensation expense recognized for the three months ended September 30, 2008
totaled $1.3 million, net of taxes of $688,000, and totaled $3.7 million, net of
taxes of $2.0 million, for the nine months ended September 30,
2008. At September 30, 2009, pre-tax
compensation
cost related to all nonvested awards of restricted stock not yet recognized
totaled $17.0 million and will be recognized over a weighted average period of
approximately 3.3 years.
9.
Pension Plans and Other
Postretirement Benefits
The
following tables set forth information regarding the components of net periodic
cost for our defined benefit pension plans and other postretirement benefit
plan.
|
|
|
|
|
Other Postretirement
|
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
|
For the Three Months Ended
|
|
|
For the Three Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
(In Thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Service
cost
|
|
$
|
842
|
|
|
$
|
737
|
|
|
$
|
80
|
|
|
$
|
63
|
|
Interest
cost
|
|
|
2,799
|
|
|
|
2,753
|
|
|
|
298
|
|
|
|
255
|
|
Expected
return on plan assets
|
|
|
(2,125
|
)
|
|
|
(3,163
|
)
|
|
|
-
|
|
|
|
-
|
|
Amortization
of prior service cost (credit)
|
|
|
61
|
|
|
|
76
|
|
|
|
(24
|
)
|
|
|
(24
|
)
|
Recognized net actuarial loss
(gain)
|
|
|
2,012
|
|
|
|
219
|
|
|
|
1
|
|
|
|
(36
|
)
|
Net periodic cost
|
|
$
|
3,589
|
|
|
$
|
622
|
|
|
$
|
355
|
|
|
$
|
258
|
|
|
|
|
|
|
Other Postretirement
|
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
|
For the Nine Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
(In Thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Service
cost
|
|
$
|
2,584
|
|
|
$
|
2,207
|
|
|
$
|
242
|
|
|
$
|
191
|
|
Interest
cost
|
|
|
8,423
|
|
|
|
8,259
|
|
|
|
833
|
|
|
|
765
|
|
Expected
return on plan assets
|
|
|
(6,383
|
)
|
|
|
(9,489
|
)
|
|
|
-
|
|
|
|
-
|
|
Amortization
of prior service cost (credit)
|
|
|
185
|
|
|
|
229
|
|
|
|
(74
|
)
|
|
|
(74
|
)
|
Recognized net actuarial loss
(gain)
|
|
|
6,136
|
|
|
|
659
|
|
|
|
-
|
|
|
|
(107
|
)
|
Net periodic cost
|
|
$
|
10,945
|
|
|
$
|
1,865
|
|
|
$
|
1,001
|
|
|
$
|
775
|
|
10.
Fair Value
Measurements
We use
fair value measurements to record fair value adjustments to certain assets and
liabilities and to determine fair value disclosures. Our securities
available-for-sale are recorded at fair value on a recurring
basis. Additionally, from time to time, we may be required to record
at fair value other assets or liabilities on a non-recurring basis, such as
mortgage servicing rights, or MSR, loans receivable, certain assets
held-for-sale and real estate owned, or REO. These non-recurring fair
value adjustments involve the application of lower of cost or market accounting
or write-downs of individual assets. Additionally, in connection with
our mortgage banking activities we have commitments to fund loans held-for-sale
and commitments to sell loans, which are considered free-standing derivative
instruments, the fair values of which are not material to our financial
condition or results of operations.
We group
our assets and liabilities at fair value in three levels, based on the markets
in which the assets are traded and the reliability of the assumptions used to
determine fair value. These levels are:
•
|
Level
1 – Valuation is based upon quoted prices for identical instruments traded
in active markets.
|
•
|
Level
2 – Valuation is based upon quoted prices for similar instruments in
active markets, quoted prices for identical or similar instruments in
markets that are not active and model-based valuation techniques for which
all significant assumptions are observable in the
market.
|
•
|
Level
3 – Valuation is generated from model-based techniques that use
significant assumptions not observable in the market. These
unobservable assumptions reflect our own estimates of assumptions that
market participants would use in pricing the asset or
liability. Valuation techniques include the use of option
pricing models, discounted cash flow models and similar
techniques. The results cannot be determined with precision and
may not be realized in an actual sale or immediate settlement of the asset
or liability.
|
We base
our fair values on the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. GAAP requires us to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring
fair value.
In April
2009, the FASB issued additional accounting guidance, which we adopted on April
1, 2009, for estimating fair value when the volume and level of activity for an
asset or liability have significantly decreased and on identifying circumstances
that indicate a transaction is not orderly. Our adoption of this
guidance did not result in a change in valuation techniques and related inputs,
or their application, and therefore did not have any material
impact on our financial
condition or results of operations.
The
following is a description of valuation methodologies used for assets measured
at fair value on a recurring basis.
Securities
available-for-sale
Our
available-for-sale securities portfolio is carried at estimated fair value on a
recurring basis, with any unrealized gains and losses, net of taxes, reported as
accumulated other comprehensive income/loss in stockholders'
equity.
Residential
mortgage-backed securities
Substantially
all of our securities available-for-sale portfolio consists of mortgage-backed
securities. The fair values for these securities are obtained from an
independent nationally recognized pricing service. Our pricing
service uses various modeling techniques to determine pricing for our
mortgage-backed securities, including option pricing and discounted cash flow
models. The inputs to these models include benchmark yields, reported
trades, broker/dealer quotes, issuer spreads, benchmark securities, available
trade information, bids, offers, reference data, monthly payment information and
collateral performance. At September 30, 2009, 97% of our
available-for-sale residential mortgage-backed securities portfolio was
comprised of GSE securities for which an active market exists for similar
securities, making observable inputs readily available.
We
analyze changes in the pricing service fair values from month to month taking
into consideration changes in market conditions including changes in mortgage
spreads, changes in treasury yields and changes in generic pricing on 15 year
and 30 year securities. Each month we conduct a review of the
estimated values of our fixed rate REMICs and CMOs available-for-sale which
represent substantially all of these securities priced by our pricing
service. We generate prices based upon a “spread matrix” approach for
estimating values. Market spreads are obtained from independent third
party firms who trade these types of securities. Any notable
differences between the pricing service prices and “spread matrix” prices on
individual securities are analyzed further, including a review of prices
provided by other independent parties, a yield analysis and review of average
life changes using Bloomberg analytics and a review of historical pricing on the
particular security. Based upon our review of the prices provided by
our pricing
service,
the fair values of securities incorporate observable market inputs commonly used
by buyers and sellers of these types of securities at the measurement date in
orderly transactions between market participants, and, as such, are classified
as Level 2.
Other
securities
The fair
values of the other securities in our available-for-sale portfolio are obtained
from quoted market prices for identical instruments in active markets and, as
such, are classified as Level 1.
The
following table provides the level of valuation assumptions used to determine
the carrying value of our assets measured at fair value on a recurring basis at
September 30, 2009.
|
|
Carrying Value at September 30, 2009
|
|
(In Thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance REMICs and CMOs
|
|
$
|
882,409
|
|
|
$
|
-
|
|
|
$
|
882,409
|
|
|
$
|
-
|
|
Non-GSE
issuance REMICs and CMOs
|
|
|
28,082
|
|
|
|
-
|
|
|
|
28,082
|
|
|
|
-
|
|
GSE
pass-through certificates
|
|
|
37,107
|
|
|
|
-
|
|
|
|
37,107
|
|
|
|
-
|
|
Other securities
|
|
|
6,478
|
|
|
|
6,478
|
|
|
|
-
|
|
|
|
-
|
|
Total securities
available-for-sale
|
|
$
|
954,076
|
|
|
$
|
6,478
|
|
|
$
|
947,598
|
|
|
$
|
-
|
|
The
following is a description of valuation methodologies used for assets measured
at fair value on a non-recurring basis.
Non-performing
loans held-for-sale, net
Fair
values of non-performing loans held-for-sale are estimated through either bids
received on the loans or a discounted cash flow analysis of the underlying
collateral and adjusted as necessary, by management, to reflect current market
conditions and, as such, are classified as Level 3.
Loans
receivable, net (impaired loans)
Loans
which meet certain criteria are evaluated individually for
impairment. A loan is considered impaired when, based upon current
information and events, it is probable that we will be unable to collect all
amounts due, including principal and interest, according to the contractual
terms of the loan agreement. Our impaired loans are generally
collateral dependent and, as such, are carried at the estimated fair value of
the collateral less estimated selling costs. Fair values are
estimated through current appraisals, broker opinions or automated valuation
models and adjusted as necessary, by management, to reflect current market
conditions and, as such, are classified as Level 3.
MSR,
net
MSR are
carried at the lower of cost or estimated fair value. The estimated
fair value of MSR is obtained through independent third party valuations through
an analysis of future cash flows, incorporating estimates of assumptions market
participants would use in determining fair value including market discount
rates, prepayment speeds, servicing income, servicing costs, default rates and
other market driven data, including the market’s perception of future interest
rate movements and, as such, are classified as Level 3. Management
reviews the assumptions used to estimate the fair value of MSR to ensure they
reflect current and anticipated market conditions.
REO,
net
REO
represents real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure and is carried, net of allowances for losses, at the lower of cost
or fair value less estimated selling costs. The fair value of REO is
estimated through current appraisals, in conjunction with a drive-by inspection
and comparison of the property securing the loan with similar properties in the
area by either a licensed appraiser or real estate broker. As these
properties are actively marketed, estimated fair values are periodically
adjusted by management to reflect current market conditions and, as such, are
classified as Level 3.
The
following table provides the level of valuation assumptions used to determine
the carrying value of our assets measured at fair value on a non-recurring basis
at September 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine
|
|
|
|
Carrying Value at September 30, 2009
|
|
|
Months Ended
|
|
(
In Thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
September
30, 2009
|
|
Non-performing
loans held-for-sale, net (1)
|
|
$
|
16,574
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
16,574
|
|
|
$
|
17,639
|
|
Impaired
loans (2)
|
|
|
111,483
|
|
|
|
-
|
|
|
|
-
|
|
|
|
111,483
|
|
|
|
28,562
|
|
MSR,
net
|
|
|
9,211
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,211
|
|
|
|
-
|
|
REO, net (3)
|
|
|
37,432
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,432
|
|
|
|
15,754
|
|
Total
|
|
$
|
174,700
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
174,700
|
|
|
$
|
61,955
|
|
(1)
|
Losses
for the nine months ended September 30, 2009 were charged against the
allowance for loan losses in the case of a write-down upon the
reclassification of a loan to held-for-sale. Losses subsequent
to the reclassification of a loan to held-for-sale were charged to other
non-interest income.
|
(2)
|
Losses
for the nine months ended September 30, 2009 were charged against the
allowance for loan losses.
|
(3)
|
Losses
for the nine months ended September 30, 2009 were charged against the
allowance for loan losses in the case of a write-down upon the transfer of
a loan to REO. Losses subsequent to the transfer of a loan to
REO were charged to REO expense.
|
11.
Fair Value of Financial
Instruments
In April
2009, the FASB issued new accounting guidance, which we adopted on April 1,
2009, which requires disclosures about fair value of financial instruments for
interim reporting periods of publicly traded companies as well as in annual
financial statements. In addition, this guidance requires disclosure
of the methods and significant assumptions used to estimate the fair value of
financial instruments as well as any changes in the methods and significant
assumptions used during the period. Since this guidance is disclosure
related, our adoption did not have an impact on our financial condition or
results of operations.
Quoted
market prices available in formal trading marketplaces are typically the best
evidence of fair value of financial instruments. In many cases,
financial instruments we hold are not bought or sold in formal trading
marketplaces. Accordingly, fair values are derived or estimated based
on a variety of valuation techniques in the absence of quoted market
prices. Fair value estimates are made at a specific point in time,
based on relevant market information about the financial
instrument. These estimates do not reflect any possible tax
ramifications, estimated transaction costs, or any premium or discount that
could result from offering for sale at one time our entire holdings of a
particular financial instrument. Because no market exists for a
certain portion of our financial instruments, fair value estimates are based on
judgments regarding future loss experience, current economic conditions, risk
characteristics, and other such factors. These estimates are
subjective in nature, involve uncertainties and, therefore, cannot be determined
with precision. Changes in assumptions could significantly affect the
estimates. For these reasons and others, the estimated fair value
disclosures presented herein do not represent our entire underlying
value. As such, readers are cautioned in using this information for
purposes of
evaluating
our financial condition and/or value either alone or in comparison with any
other company.
The
following table summarizes the carrying amounts and estimated fair values of our
financial instruments which were carried on the consolidated financial
statements at either cost or at lower of cost or fair value, in accordance with
GAAP, and not measured or recorded at fair value on a recurring
basis.
|
|
At September 30, 2009
|
|
|
At December 31, 2008
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
(In Thousands)
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
Financial
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
|
$
|
45,380
|
|
|
$
|
45,380
|
|
|
$
|
24,060
|
|
|
$
|
24,060
|
|
Securities
held-to-maturity
|
|
|
2,518,232
|
|
|
|
2,575,908
|
|
|
|
2,646,862
|
|
|
|
2,643,955
|
|
FHLB-NY
stock
|
|
|
177,199
|
|
|
|
177,199
|
|
|
|
211,900
|
|
|
|
211,900
|
|
Loans
held-for-sale, net (1)
|
|
|
34,841
|
|
|
|
35,476
|
|
|
|
5,272
|
|
|
|
5,391
|
|
Loans
receivable, net (1)
|
|
|
15,793,169
|
|
|
|
16,165,038
|
|
|
|
16,593,415
|
|
|
|
16,843,033
|
|
MSR,
net (1)
|
|
|
9,211
|
|
|
|
9,229
|
|
|
|
8,216
|
|
|
|
8,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
13,218,619
|
|
|
|
13,383,683
|
|
|
|
13,479,924
|
|
|
|
13,636,753
|
|
Borrowings,
net
|
|
|
5,837,723
|
|
|
|
6,331,893
|
|
|
|
6,965,274
|
|
|
|
7,567,454
|
|
(1) Includes
totals for assets measured at fair value on a non-recurring basis as disclosed
in Note 10.
Methods
and assumptions used to estimate fair values are as follows:
Repurchase
agreements
The
carrying amounts of repurchase agreements approximate fair values since all
mature in one month or less.
Securities
held-to-maturity
The fair
values for substantially all of our securities are obtained from an independent
nationally recognized pricing service.
Federal
Home Loan Bank-New York, or FHLB-NY, stock
The
carrying amount of FHLB-NY stock equals cost. The fair value of
FHLB-NY stock is based on redemption at par value.
Loans
held-for-sale, net
The fair
values of loans held-for-sale are estimated by reference to published pricing
for similar loans sold in the secondary market. The fair values of
non-performing loans held-for-sale are estimated through either bids received on
such loans or a discounted cash flow analysis adjusted to reflect current market
conditions.
Loans
receivable, net
Fair
values of loans are estimated by reference to published pricing for similar
loans sold in the secondary market. Loans are grouped by similar
characteristics. The loans are first segregated by type, such as
one-to-four family, multi-family, commercial real estate, construction and
consumer and other, and then further segregated into fixed and adjustable rate
and seasoned and nonseasoned categories. Published pricing is based
on new loans of similar type and purpose, adjusted, when necessary, for factors
such as servicing cost, credit risk, interest rate and remaining
term.
MSR,
net
The fair
value of MSR is obtained through independent third party valuations through an
analysis of future cash flows, incorporating estimates of assumptions market
participants would use in determining fair value including market discount
rates, prepayment speeds, servicing income, servicing costs, default rates and
other market driven data, including the market’s perception of future interest
rate movements.
Deposits
The fair
values of deposits with no stated maturity, such as savings accounts, NOW
accounts, money market accounts and demand deposit accounts, are equal to the
amount payable on demand. The fair values of certificates of deposit
and Liquid certificates of deposit, or Liquid CDs, are based on discounted
contractual cash flows using the weighted average remaining life of the
portfolio discounted by the corresponding LIBOR Swap Curve as posted by the
Office of Thrift Supervision, or OTS.
Borrowings,
net
The fair
values of callable borrowings are based upon third party dealers’ estimated
market values. The fair values of non-callable borrowings are based
on discounted cash flows using the weighted average remaining life of the
portfolio discounted by the corresponding FHLB nominal funding
rate.
Outstanding
commitments
Outstanding
commitments include (1) commitments to extend credit and unadvanced lines of
credit for which fair values were estimated based on an analysis of the interest
rates and fees currently charged to enter into similar transactions, considering
the remaining terms of the commitments and the creditworthiness of the potential
borrowers and (2) commitments to sell residential mortgage loans for which fair
values were estimated based on current secondary market prices for commitments
with similar terms. Due to the short-term nature of our outstanding
commitments, the fair values of these commitments are immaterial to our
financial condition and are not presented in the table above.
12.
Goodwill
Litigation
We have
been a party to an action against the United States involving an assisted
acquisition made in the early 1980’s and supervisory goodwill accounting
utilized in connection therewith. The trial in this action, entitled
Astoria
Federal
Savings and Loan Association vs. United States
, took place during 2007
before the U.S. Court of Federal Claims, or Federal Claims Court. The
Federal Claims Court, by decision filed on January 8, 2008, awarded to us $16.0
million in damages from the U.S. Government. No portion of the $16.0
million award was recognized in our consolidated financial
statements. The U.S. Government appealed such decision to the U.S.
Court of Appeals for the Federal Circuit, or Court of Appeals.
In an
opinion dated May 28, 2009, the Court of Appeals affirmed in part and reversed
in part the lower court’s ruling and remanded the case to the Federal Claims
Court for further proceedings. The original damage award was
primarily based on a request for damages for lost profits covering the period
1990 to 1995. The Court of Appeals directed the Federal Claims Court
to re-examine the period from 1990 to July 1992 with respect to the calculation
of lost profits as impacted by certain growth restrictions that otherwise may
have been imposed by bank regulatory authorities.
The
ultimate outcome of this action and the timing of such outcome is uncertain and
there can be no assurance that we will benefit financially from such
litigation. Legal expense related to this action has been recognized
as it has been incurred.
13.
Impact of Accounting Standards and
Interpretations
In
December 2008, the FASB issued new accounting guidance related to employer’s
disclosures about plan assets of a defined benefit pension or other
postretirement plan. This guidance clarifies that the objectives of
the disclosures about postretirement benefit plan assets are to provide users of
financial statements with an understanding of: (1) how investment allocation
decisions are made, including the factors that are pertinent to an understanding
of investment policies and strategies; (2) the major categories of plan assets;
(3) the inputs and valuation techniques used to measure the fair value of plan
assets; (4) the effect of fair value measurements using significant unobservable
inputs (Level 3) on changes in plan assets for the period; and (5) significant
concentrations of risk within plan assets. In addition, this guidance
expands the disclosures related to these overall objectives. The
disclosures about plan assets required by this guidance are effective for fiscal
years ending after December 15, 2009. Upon initial application, the
disclosures are not required for earlier periods that are presented for
comparative purposes, although earlier application is permitted.
In June
2009, the FASB issued new accounting guidance related to accounting for
transfers of financial assets. This guidance eliminates the concept
of a qualifying special-purpose entity; changes the requirements for
derecognizing financial assets; and requires additional
disclosures. This guidance enhances information reported to users of
financial statements by providing greater transparency about transfers of
financial assets and an entity’s continuing involvement in transferred financial
assets. This guidance is effective as of the beginning of a reporting
entity’s first annual reporting period that begins after November 15,
2009. We are currently evaluating the impact this guidance will have
on our financial condition and results of operations.
In June
2009, the FASB issued new accounting guidance to improve financial reporting by
companies involved with variable interest entities. This guidance
amends existing guidance for determining whether an entity is a variable
interest entity and amends the criteria for identification of the primary
beneficiary of a variable interest entity by requiring a qualitative analysis
rather than a quantitative analysis; and requires continuous reassessments of
whether an enterprise is the primary beneficiary of a variable interest
entity. This guidance is effective as of the beginning of a reporting
entity’s first annual reporting period that begins after November 15,
2009. We are currently evaluating the impact this guidance will have
on our financial condition and results of operations.
In August
2009, the FASB issued new accounting guidance related to the measurement of the
fair value of a liability in the absence of a quoted price in an active market
for an identical liability. This guidance is effective for the first
reporting period, including interim periods, beginning after August 2009, with
early application permitted if financial statements for prior periods have not
been issued. Revisions resulting from a change in valuation technique
or its application shall be accounted for as a change in accounting
estimate. In the period of adoption, a reporting entity shall
disclose a change, if any, in valuation technique and related inputs resulting
from the application of this guidance and quantify the total effect, if
practicable. As we do not have any material liabilities measured at
fair value on a recurring or non-recurring basis, this guidance will not have a
material effect on our financial condition or results of
operations.
ITEM
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
This
Quarterly Report on Form 10-Q contains a number of forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, or
the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. These statements may be identified by
the use of the words “anticipate,” “believe,” “could,” “estimate,” “expect,”
“intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “should,”
“will,” “would” and similar terms and phrases, including references to
assumptions.
Forward-looking
statements are based on various assumptions and analyses made by us in light of
our management’s experience and perception of historical trends, current
conditions and expected future developments, as well as other factors we believe
are appropriate under the circumstances. These statements are not
guarantees of future performance and are subject to risks, uncertainties and
other factors (many of which are beyond our control) that could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. These factors include, without
limitation, the following:
|
·
|
the
timing and occurrence or non-occurrence of events may be subject to
circumstances beyond our control;
|
|
·
|
there
may be increases in competitive pressure among financial institutions or
from non-financial institutions;
|
|
·
|
changes
in the interest rate environment may reduce interest margins or affect the
value of our investments;
|
|
·
|
changes
in deposit flows, loan demand or real estate values may adversely affect
our business;
|
|
·
|
changes
in accounting principles, policies or guidelines may cause our financial
condition to be perceived
differently;
|
|
·
|
general
economic conditions, either nationally or locally in some or all areas in
which we do business, or conditions in the real estate or securities
markets or the banking industry may be less favorable than we currently
anticipate;
|
|
·
|
legislative
or regulatory changes may adversely affect our
business;
|
|
·
|
technological
changes may be more difficult or expensive than we
anticipate;
|
|
·
|
success
or consummation of new business initiatives may be more difficult or
expensive than we anticipate; or
|
|
·
|
litigation
or other matters before regulatory agencies, whether currently existing or
commencing in the future, may be determined adverse to us or may delay the
occurrence or non-occurrence of events longer than we
anticipate.
|
We have
no obligation to update any forward-looking statements to reflect events or
circumstances after the date of this document.
Executive
Summary
The
following overview should be read in conjunction with our MD&A in its
entirety.
Astoria
Financial Corporation is a Delaware corporation organized as the unitary savings
and loan association holding company of Astoria Federal. Our primary
business is the operation of Astoria Federal. Astoria Federal's
principal business is attracting retail deposits from the general public and
investing those deposits, together with funds generated from operations,
principal
repayments
on loans and securities and borrowings, primarily in one-to-four family mortgage
loans, multi-family mortgage loans, commercial real estate loans and
mortgage-backed securities. Our results of operations are dependent
primarily on our net interest income, which is the difference between the
interest earned on our assets, primarily our loan and securities portfolios, and
the interest paid on our deposits and borrowings. Our earnings are
also significantly affected by general economic and competitive conditions,
particularly changes in market interest rates and U.S. Treasury yield curves,
government policies and actions of regulatory authorities.
During
the nine months ended September 30, 2009, the national economy remained in a
recession, with continued weakness in the housing and real estate markets and
rising unemployment. During the nine months ended September 30, 2009,
job losses totaled 4.1 million and the unemployment rate increased to 9.8% for
September 2009. Although there was continued weakness in the economy
during the 2009 third quarter, the nine months ended September 30, 2009 have
shown a gradual improvement over the 2008 fourth quarter, during which time the
disruption and volatility in the financial and capital markets reached a crisis
level as national and global credit markets ceased to function
effectively. Concern for the stability of the banking and financial
systems reached a magnitude which resulted in unprecedented government
intervention including, but not limited to, the passage of the Emergency
Economic Stabilization Act of 2008 and the implementation of the Capital
Purchase Program, or CPP, the Temporary Liquidity Guarantee Program, or TLGP,
the Troubled Asset Relief Program, the Commercial Paper Funding Facility, the
Capital Assistance Program, the Supervisory Capital Assessment Program and the
Public-Private Investment Program, which are described in greater detail in Part
II, Item 1A. “Risk Factors” in our June 30, 2009 Quarterly Report on Form 10-Q
and in Item 1. “Business” of our 2008 Annual Report on Form
10-K. During 2009, some of these programs were expanded to stimulate
the economy and stabilize the housing market.
The
Federal Open Market Committee, or FOMC, has responded with monetary stimulus as
well. The FOMC reduced the federal funds rate by 400+ basis points in
2008, bringing the target rate to 0.00% to 0.25%, where it remained through
September 30, 2009.
As the
premier Long Island community bank, our goals are to enhance shareholder value
while building a solid banking franchise. We focus on growing our
core businesses of mortgage portfolio lending and retail banking while
maintaining strong asset quality and controlling operating
expenses. We also provide returns to shareholders through dividends
and stock repurchases although we have currently suspended our stock repurchase
program and reduced our dividend to preserve capital and increase our capital
ratios during this period of widespread economic distress.
Total
assets decreased during the nine months ended September 30, 2009, primarily due
to decreases in our loan and securities portfolios. The decrease in
our loan portfolio was primarily due to decreases in each of our mortgage loan
portfolios, primarily one-to-four family and multi-family loans, resulting from
repayments outpacing origination and purchase volume. Repayments
remained at elevated levels as interest rates on thirty year fixed rate
mortgages declined and more loans in our portfolio qualified under the expanded
loan amount limits that conform to GSE guidelines, or the expanded conforming
loan limits, and were refinanced into fixed rate mortgages. During
the 2009 second quarter, in response to declining customer demand for adjustable
rate products, we began originating and retaining for portfolio jumbo fifteen
year mortgage loans. The decrease in our securities portfolio was
primarily the result of cash flow from repayments and sales exceeding securities
purchased.
Total
deposits decreased during the nine months ended September 30,
2009. This decrease was primarily due to decreases in certificates of
deposit and Liquid CDs, partially offset by increases in savings, money market
and NOW and demand deposit accounts. The increases in low cost
savings, money market and NOW and demand deposit accounts reflect the decrease
in competition for core community deposits, from that which we experienced
during 2008, as credit markets have eased somewhat and larger institutions have
utilized these alternative funding sources. Deposits decreased during
the 2009 third quarter as we reduced our focus on certificates of deposit to
offset the impact of accelerated prepayment activity in our loan and securities
portfolios. Cash flows from mortgage loan and securities repayments,
coupled with deposit growth during the first half of 2009, in excess of mortgage
loan originations and purchases and securities purchases enabled us to repay a
portion of our matured borrowings during the first half of 2009, which resulted
in a decrease in our borrowings portfolio from December 31, 2008.
Net
income increased for the three months ended September 30, 2009, compared to a
net loss for the three months ended September 30, 2008. This increase
is primarily due to a decrease in OTTI charges resulting from a $77.7 million,
pre-tax, OTTI charge recorded in the 2008 third quarter related to our
investment in two issues of Freddie Mac perpetual preferred securities,
discussed in Note 2 of Notes to Consolidated Financial Statements in Item 1,
“Financial Statements (Unaudited),” partially offset by increases in the
provision for loan losses and non-interest expense and a decrease in net
interest income. Net income for the nine months ended September 30,
2009 decreased compared to the nine months ended September 30,
2008. This decrease was primarily due to increases in the provision
for loan losses and non-interest expense, partially offset by a decrease in OTTI
charges and an increase in net interest income.
Net
interest income decreased for the three months ended September 30, 2009,
compared to the three months ended September 30, 2008, due to a decrease in
interest income, substantially offset by a decrease in interest
expense. For the nine months ended September 30, 2009, net interest
income increased, compared to the nine months ended September 30, 2008, as a
result of a decrease in interest expense, partially offset by a decrease in
interest income. The net interest margin and the net interest rate
spread for the three and nine months ended September 30, 2009 increased compared
to the three and nine months ended September 30, 2008. The decreases
in interest income were primarily due to decreases in the average yields on
interest-earning assets, due in part to increases in our non-performing loans,
and decreases in the average balances of mortgage-backed and other securities
and multi-family, commercial real estate and construction loans, which, for the
nine months ended September 30, 2009, were partially offset by an increase in
the average balance of one-to-four family mortgage loans. The
decreases in interest expense were primarily due to decreases in the average
costs of our certificates of deposit and Liquid CDs and decreases in the average
balances of borrowings and Liquid CDs, partially offset by increases in the
average balances of certificates of deposit. Also contributing to the
decrease in interest expense for the nine months ended September 30, 2009 was a
decrease in the average cost of our borrowings.
The
provisions for loan losses recorded during the three and nine months ended
September 30, 2009 reflect the increase in and composition of our loan
delinquencies, non-performing loans and net loan charge-offs, as well as our
evaluation of the continued weakness in the housing and real estate markets and
overall economy
,
particularly the continued pace of job losses. As a primarily
residential lender, we are vulnerable to the impact of a severe job loss
recession, due to its negative impact on the financial condition of residential
borrowers and their ability to remain current on their mortgage
loans. Non-interest income increased primarily due to the decreases
in OTTI charges, coupled with increases in gain on sales of securities and
mortgage banking
income,
net, partially offset by decreases in other non-interest income, income from
BOLI and customer service fees. The increase in non-interest expense
for the three months ended September 30, 2009 was primarily due to a significant
increase in regular Federal Deposit Insurance Corporation, or FDIC, insurance
premiums, partially offset by a decrease in advertising expense. For
the nine months ended September 30, 2009, the increase in non-interest expense
was primarily due to a significant increase in regular FDIC insurance premiums,
the second quarter $9.9 million FDIC special assessment and an increase in
compensation and benefits expense, primarily pension expense, partially offset
by decreases in occupancy, equipment and systems expense and advertising
expense.
Although
the economy is beginning to show signs of improvement, we continue to face
challenges associated with high unemployment and depressed real estate
values. We expect that job losses and economic weakness will continue
to strain the financial condition of prime residential borrowers and their
ability to remain current on their mortgage loans and the ability of tenants to
pay rent in multi-family properties. This may result in somewhat
higher non-performing loans and total delinquencies, although total loan
delinquencies have recently shown signs of stabilizing. We are
encouraged by the consecutive quarterly decline in 30 to 89 day loan
delinquencies. If this trend continues, it should have a positive
impact on future credit costs. In the near term, as a result of low
interest rates for thirty year conforming mortgage loans, which we do not retain
for our portfolio, coupled with the expanded conforming loan limits in many of
the markets we operate in, loan prepayments will remain elevated and temper loan
growth. We expect modest increases in the net interest margin going
forward as we begin to realize the benefit from the reduction in excess
liquidity and the significant certificate of deposit repricing opportunities in
the 2009 fourth quarter and 2010 first quarter.
Available
Information
Our
internet website address is www.astoriafederal.com. Our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and all amendments to those reports can be obtained free of charge from our
Investor Relations website at http://ir.astoriafederal.com. The above
reports are available on our website immediately after they are electronically
filed with or furnished to the SEC. Such reports are also available
on the SEC’s website at www.sec.gov/edgar/searchedgar/webusers.htm.
Critical
Accounting Policies
Note 1 of
Notes to Consolidated Financial Statements included in Item 8, “Financial
Statements and Supplementary Data,” of our 2008 Annual Report on Form 10-K, as
supplemented by our quarterly reports on Form 10-Q for the quarters ended March
31, 2009 and June 30, 2009 and this report, contains a summary of our
significant accounting policies. Various elements of our accounting
policies, by their nature, are inherently subject to estimation techniques,
valuation assumptions and other subjective assessments. Our policies
with respect to the methodologies used to determine the allowance for loan
losses, the valuation of MSR and judgments regarding goodwill and securities
impairment are our most critical accounting policies because they are important
to the presentation of our financial condition and results of operations,
involve a higher degree of complexity and require management to make difficult
and subjective judgments which often require assumptions or estimates about
highly uncertain matters. The use of different judgments, assumptions
and estimates could result in material differences in our results of operations
or financial condition. These critical accounting policies are
reviewed quarterly with the Audit Committee of our Board of
Directors. The following description of these policies
should be
read in conjunction with the corresponding section of our 2008 Annual Report on
Form 10-K.
Allowance for Loan
Losses
Our
allowance for loan losses is established and maintained through a provision for
loan losses based on our evaluation of the probable inherent losses in our loan
portfolio. We evaluate the adequacy of our allowance on a quarterly
basis. The allowance is comprised of both specific valuation
allowances and general valuation allowances.
Specific
valuation allowances are established in connection with individual loan reviews
and the asset classification process, including the procedures for impairment
recognition under GAAP. Such evaluation, which includes a review of
loans on which full collectibility is not reasonably assured, considers the
current estimated fair value of the underlying collateral, if any, current and
anticipated economic and regulatory conditions, current and historical loss
experience of similar loans and other factors that determine risk exposure to
arrive at an adequate loan loss allowance.
Loan
reviews are completed quarterly for all loans individually classified by our
Asset Classification Committee. Individual loan reviews are generally
completed annually for multi-family, commercial real estate and construction
mortgage loans in excess of $2.0 million, commercial business loans in excess of
$200,000, one-to-four family mortgage loans in excess of $1.0 million and
troubled debt restructurings. In addition, we generally review
annually borrowing relationships whose combined outstanding balance exceeds $2.0
million. Approximately fifty percent of the outstanding principal
balance of these loans to a single borrowing entity will be reviewed
annually.
The
primary considerations in establishing specific valuation allowances are the
current estimated value of a loan’s underlying collateral and the loan’s payment
history. We update our estimates of collateral value for
non-performing multi-family, commercial real estate and construction mortgage
loans in excess of $1.0 million and one-to-four family mortgage loans which are
180 days or more delinquent, annually, and certain other loans when the Asset
Classification Committee believes repayment of such loans may be dependent on
the value of the underlying collateral. For one-to-four family
mortgage loans, updated estimates of collateral value are obtained through
appraisals, broker opinions or automated valuation models. For
multi-family and commercial real estate properties, we estimate collateral value
through appraisals or internal cash flow analyses when current financial
information is available, coupled with, in most cases, an inspection of the
property. Other current and anticipated economic conditions on which
our specific valuation allowances rely are the impact that national and/or local
economic and business conditions may have on borrowers, the impact that local
real estate markets may have on collateral values, the level and direction of
interest rates and their combined effect on real estate values and the ability
of borrowers to service debt. For multi-family and commercial real
estate loans, additional factors specific to a borrower or the underlying
collateral are considered. These factors include, but are not limited
to, the composition of tenancy, occupancy levels for the property, location of
the property, cash flow estimates and, to a lesser degree, the existence of
personal guarantees. We also review all regulatory notices, bulletins
and memoranda with the purpose of identifying upcoming changes in regulatory
conditions which may impact our calculation of specific valuation
allowances. The OTS periodically reviews our reserve methodology
during regulatory examinations and any comments regarding changes to reserves or
loan classifications are considered by management in determining valuation
allowances.
Pursuant
to our policy, loan losses are charged-off in the period the loans, or portions
thereof, are deemed uncollectible, or, in the case of one-to-four family
mortgage loans, at 180 days past due for the portion of the recorded investment
in the loan in excess of the estimated fair value of the underlying collateral
less estimated selling costs. The determination of the loans on which
full collectibility is not reasonably assured, the estimates of the fair value
of the underlying collateral and the assessment of economic and regulatory
conditions are subject to assumptions and
judgments
by management. Specific valuation allowances and charge-off amounts
could differ materially as a result of changes in these assumptions and
judgments.
General
valuation allowances represent loss allowances that have been established to
recognize the inherent risks associated with our lending activities which,
unlike specific allowances, have not been allocated to particular
loans. The determination of the adequacy of the general valuation
allowances takes into consideration a variety of factors. We segment
our one-to-four family mortgage loan portfolio by interest-only and amortizing
loans, full documentation and reduced documentation loans and year of
origination and analyze our historical loss experience and delinquency levels
and trends of these segments. The resulting range of allowance
percentages is used as an integral part of our judgment in developing estimated
loss percentages to apply to the portfolio segments. We segment our
consumer and other loan portfolio by home equity lines of credit, business
loans, revolving credit lines and installment loans and perform similar
historical loss analyses. We monitor credit risk on interest-only
hybrid adjustable rate mortgage, or ARM, loans that were underwritten at the
initial note rate, which may have been a discounted rate, in the same manner as
we monitor credit risk on all interest-only hybrid ARM loans. We
monitor interest rate reset dates of our portfolio, in the aggregate, and the
current interest rate environment and consider the impact, if any, on the
borrowers’ ability to continue to make timely principal and interest payments in
determining our allowance for loan losses. We also consider the size,
composition, risk profile, delinquency levels and cure rates of our portfolio,
as well as our credit administration and asset management
procedures. We monitor property value trends in our market areas by
reference to various industry and market reports, economic releases and surveys,
and our general and specific knowledge of the real estate markets in which we
lend, in order to determine what impact, if any, such trends may have on the
level of our general valuation allowances. In determining our
allowance coverage percentages for non-performing loans, we consider our
historical loss experience with respect to the ultimate disposition of the
underlying collateral. In addition, we evaluate and consider the
impact that current and anticipated economic and market conditions may have on
the portfolio and known and inherent risks in the portfolio.
Consistent
with the Interagency Policy Statement on the Allowance for Loan and Lease Losses
issued by the Federal Financial Regulatory Agencies in December 2006, we use
ratio analyses as a supplemental tool for evaluating the overall reasonableness
of the allowance for loan losses. As such, we evaluate and consider
our asset quality ratios as well as the allowance ratios and coverage
percentages set forth in both peer group and regulatory agency
data. We also consider any comments from the OTS resulting from their
review of our general valuation allowance methodology during regulatory
examinations. We consider the observed trends in our asset quality
ratios in combination with our primary focus on our historical loss experience
and the impact of current economic conditions. After evaluating these
variables, we determine appropriate allowance coverage percentages for each of
our portfolio segments and the appropriate level of our allowance for loan
losses. We do not determine the appropriate level of our allowance
for loan losses based exclusively on a single factor or asset quality
ratio. Our evaluation of general valuation allowances is inherently
subjective because, even though it is based on objective data, it is
management’s interpretation of that data that determines the amount of the
appropriate allowance. Therefore, we periodically review the actual
performance and
charge-off
history of our portfolio and compare that to our previously determined allowance
coverage percentages and specific valuation allowances. In doing so,
we evaluate the impact the previously mentioned variables may have had on the
portfolio to determine which changes, if any, should be made to our assumptions
and analyses.
As a
result of our updated charge-off and loss analyses, we modified certain
allowance coverage percentages during each quarter of 2009 to reflect our
current estimates of the amount of probable losses inherent in our loan
portfolio in determining our general valuation allowances. Based on
our evaluation of the continued weakness in the housing and real estate markets
and overall economy, in particular, the significant increase in unemployment,
and the increase in and composition of our delinquencies, non-performing loans
and net loan charge-offs, we determined that an allowance for loan losses of
$176.6 million was required at September 30, 2009, compared to $119.0 million at
December 31, 2008, resulting in a provision for loan losses of $150.0 million
for the nine months ended September 30, 2009. The balance of our
allowance for loan losses represents management’s best estimate of the probable
inherent losses in our loan portfolio at the reporting dates.
Actual
results could differ from our estimates as a result of changes in economic or
market conditions. Changes in estimates could result in a material
change in the allowance for loan losses. While we believe that the
allowance for loan losses has been established and maintained at levels that
reflect the risks inherent in our loan portfolio, future adjustments may be
necessary if portfolio performance or economic or market conditions differ
substantially from the conditions that existed at the time of the initial
determinations.
For
additional information regarding our allowance for loan losses, see “Provision
for Loan Losses” and “Asset Quality” in this document and Part II, Item 7,
“MD&A,” in our 2008 Annual Report on Form 10-K.
Valuation of
MSR
The
initial asset recognized for originated MSR is measured at fair
value. The fair value of MSR is estimated by reference to current
market values of similar loans sold servicing released. MSR are
amortized in proportion to and over the period of estimated net servicing
income. We apply the amortization method for measurement of our
MSR. MSR are assessed for impairment based on fair value at each
reporting date. Impairment exists if the carrying value of MSR
exceeds the estimated fair value. The estimated fair value of MSR is obtained
through independent third party valuations. MSR impairment, if any,
is recognized in a valuation allowance through charges to
earnings. Increases in the fair value of impaired MSR are recognized
only up to the amount of the previously recognized valuation
allowance.
At
September 30, 2009, our MSR, net, had an estimated fair value of $9.2 million
and were valued based on expected future cash flows considering a weighted
average discount rate of 11.04%, a weighted average constant prepayment rate on
mortgages of 18.69% and a weighted average life of 4.2 years. At
December 31, 2008, our MSR, net, had an estimated fair value of $8.2 million and
were valued based on expected future cash flows considering a weighted average
discount rate of 12.99%, a weighted average constant prepayment rate on
mortgages of 17.26% and a weighted average life of 4.3 years.
The fair
value of MSR is highly sensitive to changes in assumptions. Changes
in prepayment speed assumptions generally have the most significant impact on
the fair value of our MSR. Generally, as interest rates decline,
mortgage loan prepayments accelerate due to increased
refinance
activity, which results in a decrease in the fair value of MSR. As
interest rates rise, mortgage loan prepayments slow down, which results in an
increase in the fair value of MSR. Thus, any measurement of the fair
value of our MSR is limited by the conditions existing and the assumptions
utilized as of a particular point in time, and those assumptions may not be
appropriate if they are applied at a different point in
time. Assuming an increase in interest rates of 100 basis points at
September 30, 2009, the estimated fair value of our MSR would have
been
$3.2
million greater. Assuming a decrease in interest rates of 100 basis
points at September 30, 2009, the estimated fair value of our MSR would have
been $3.4 million lower.
Goodwill
Impairment
Goodwill
is presumed to have an indefinite useful life and is tested, at least annually,
for impairment at the reporting unit level. Impairment exists when the carrying
amount of goodwill exceeds its implied fair value. For purposes of
our goodwill impairment testing, we have identified a single reporting
unit. We consider the quoted market price of our common stock on our
impairment testing date as an initial indicator of estimating the fair value of
our reporting unit. In addition, we consider our average stock price,
both before and after our impairment test date, as well as market-based control
premiums in determining the estimated fair value of our reporting
unit. If the estimated fair value of our reporting unit exceeds its
carrying amount, further evaluation is not necessary. However, if the
fair value of our reporting unit is less than its carrying amount, further
evaluation is required to compare the implied fair value of the reporting unit’s
goodwill to its carrying amount to determine if a write-down of goodwill is
required.
At
September 30, 2009, the carrying amount of our goodwill totaled $185.2
million. On September 30, 2009, we performed our annual goodwill
impairment test and determined the estimated fair value of our reporting unit to
be in excess of its carrying amount. Accordingly, as of our annual
impairment test date, there was no indication of goodwill
impairment. We would test our goodwill for impairment between annual
tests if an event occurs or circumstances change that would more likely than not
reduce the fair value of our reporting unit below its carrying
amount. The identification of additional reporting units or the use
of other valuation techniques could result in materially different evaluations
of impairment.
Securities
Impairment
Our
available-for-sale securities portfolio is carried at estimated fair value with
any unrealized gains and losses, net of taxes, reported as accumulated other
comprehensive income/loss in stockholders’ equity. Debt securities
which we have the positive intent and ability to hold to maturity are classified
as held-to-maturity and are carried at amortized cost.
T
he fair values for
our securities are obtained from an independent nationally recognized pricing
service.
Our
investment portfolio is comprised primarily of fixed rate mortgage-backed
securities guaranteed by a GSE as issuer. GSE issuance
mortgage-backed securities comprised 89% of our securities portfolio at
September 30, 2009. Non-GSE issuance mortgage-backed securities at
September 30, 2009 comprised 4% of our securities portfolio and had an amortized
cost of $125.6 million, 23% of which are classified as available-for-sale and
77% of which are classified as held-to-maturity. Substantially all of
our non-GSE issuance securities have a AAA credit rating and they have performed
similarly to our GSE issuance securities. The current mortgage market
conditions reflecting credit quality concerns have not significantly impacted
the performance of our non-GSE securities. Based on the high quality
of our investment portfolio, current market conditions have not significantly
impacted the pricing of our portfolio or our ability to obtain reliable
prices.
The fair
value of our investment portfolio is primarily impacted by changes
in interest
rates.
In general, as interest rates rise, the fair value of
fixed rate securities will decrease; as interest rates fall, the fair value of
fixed rate securities will increase. We conduct a periodic review and
evaluation of the securities portfolio to determine if a decline in the fair
value of any security below its cost basis is
other-than-temporary. Our evaluation of OTTI considers the duration
and severity of the impairment, our assessments of the reason for the decline in
value, the likelihood of a near-term recovery and our intent and ability to not
sell the securities. We generally view changes in fair value caused
by changes in interest rates as temporary, which is consistent with our
experience. If such decline is deemed other-than-temporary, the
security is written down to a new cost basis and the resulting loss is charged
to earnings as a component of non-interest income. At September 30,
2009, we had 56 securities with an estimated fair value totaling $165.0 million
which had an unrealized loss totaling $3.2 million. Of the securities
in an unrealized loss position at September 30, 2009, $110.7 million, with an
unrealized loss of $2.9 million, have been in a continuous unrealized loss
position for more than twelve months. At September 30, 2009, the
impairments are deemed temporary based on (1) the direct relationship of the
decline in fair value to movements in interest rates, (2) the estimated
remaining life and high credit quality of the investments and (3) the fact that
we do not intend to sell these securities and it is not more likely than not
that we will be required to sell these securities before their anticipated
recovery of the remaining amortized cost basis and we expect to recover the
entire amortized cost basis of the security.
During
the nine months ended September 30, 2009, we recorded a $5.3 million OTTI charge
to write-off the remaining cost basis of our investment in two issues of Freddie
Mac perpetual preferred securities. D
uring the nine months
ended September 30, 2008, we recorded a $77.7 million OTTI charge to reduce the
carrying amount of our investment in these securities to their market value of
$5.3 million at September 30, 2008.
For additional information
regarding securities impairment and the OTTI charges, see Note 2 of Notes to
Consolidated Financial Statements in Item 1, “Financial Statements (Unaudited).”
Liquidity
and Capital Resources
Our
primary source of funds is cash provided by principal and interest payments on
loans and securities. The most significant liquidity challenge we
face is the variability in cash flows as a result of changes in mortgage
refinance activity. Principal payments on loans and securities
totaled $4.00 billion for the nine months ended September 30, 2009 and $3.70
billion for the nine months ended September 30, 2008. The net
increase in loan and securities repayments for the nine months ended September
30, 2009, compared to the nine months ended September 30, 2008, was primarily
due to an increase in securities repayments, partially offset by a decrease in
loan repayments.
In
addition to cash provided by principal and interest payments on loans and
securities, our other sources of funds include cash provided by operating
activities, deposits and borrowings. Net cash provided by operating
activities totaled $215.2 million for the nine months ended September 30, 2009
and $207.7 million for the nine months ended September 30,
2008. Deposits decreased $261.3 million during the nine months ended
September 30, 2009 and increased $59.7 million during the nine months ended
September 30, 2008. The net decrease in deposits for the nine months
ended September 30, 2009 was primarily due to decreases in certificates of
deposit and Liquid CDs, partially offset by increases in savings, money market
and NOW and demand deposit accounts. The increases in low cost
savings, money market and NOW and demand deposit accounts reflect the decrease
in competition for core community deposits, from that which we experienced
during 2008, as credit markets have eased somewhat
and
larger institutions have utilized these alternative funding
sources. Deposits decreased during the 2009 third quarter as we
reduced our focus on certificates of deposit to offset the impact of accelerated
prepayment activity in our loan and securities portfolios. The net
increase in deposits for the nine months ended September 30, 2008 was primarily
due to an increase in certificates of deposit, partially offset by decreases in
all other deposit accounts, primarily Liquid CDs.
Net
borrowings decreased $1.13 billion during the nine months ended September 30,
2009 and increased $315.6 million during the nine months ended September 30,
2008. The decrease in net borrowings during the nine months ended
September 30, 2009 was primarily the result of cash flows from mortgage loan and
securities repayments, coupled with deposit growth during the first half of
2009, in excess of mortgage loan originations and purchases and securities
purchases which enabled us to repay a portion of our matured borrowings during
the first half of 2009. The increase in net borrowings during the
nine months ended September 30, 2008 was primarily the result of our use of
lower cost borrowings to fund asset growth, particularly in the 2008 third
quarter.
Our
primary use of funds is for the origination and purchase of mortgage
loans. Gross mortgage loans originated and purchased for portfolio
during the nine months ended September 30, 2009 totaled $2.24 billion, of which
$1.97 billion were originations and $273.5 million were
purchases. This compares to gross mortgage loans originated and
purchased for portfolio during the nine months ended September 30, 2008 totaling
$3.59 billion, of which $3.19 billion were originations and $402.3 million were
purchases. The decrease in mortgage loan originations and purchases
was due to a decrease in one-to-four family mortgage loan originations and
purchases, coupled with a decrease in multi-family and commercial real estate
loan originations. One-to-four family mortgage loan origination and
purchase volume has been negatively affected by decreases in interest rates on
thirty year fixed rate mortgages and the expanded conforming loan limits
resulting in more borrowers opting for thirty year fixed rate mortgages which we
do not retain for portfolio. We originated loans held-for-sale
totaling $333.3 million during the nine months ended September 30, 2009,
compared to $107.5 million during the nine months ended September 30,
2008. The increase in originations of loans held-for-sale reflects
the impact of the expanded conforming loan limits and rapid decline in interest
rates for these fixed rate products. The decrease in multi-family and
commercial real estate loan originations reflects our decision to currently only
offer such loans to select existing customers in New York. During the
nine months ended September 30, 2009, we purchased securities to utilize a
portion of the cash flows from mortgage loan and securities repayments in excess
of mortgage loan originations and purchases. Purchases of securities
totaled $706.6 million during the nine months ended September 30, 2009 and
$488.8 million during the nine months ended September 30, 2008.
We
maintain liquidity levels to meet our operational needs in the normal course of
our business. The levels of our liquid assets during any given period
are dependent on our operating, investing and financing
activities. Cash and due from banks and repurchase agreements, our
most liquid assets, increased $32.2 million to $132.5 million at September 30,
2009, from $100.3 million at December 31, 2008. At September 30,
2009, we had $1.15 billion in borrowings with a weighted average rate of 3.79%
maturing over the next twelve months. We have the flexibility to
either repay or rollover these borrowings as they mature. In
addition, we had $7.23 billion in certificates of deposit and Liquid CDs at
September 30, 2009 with a weighted average rate of 2.68% maturing over the next
twelve months. We have the ability to retain or replace a significant
portion of such deposits based on our pricing and historical
experience.
The
following table details our borrowing, certificate of deposit and Liquid CD
maturities and their weighted average rates at September 30, 2009.
|
|
|
|
|
|
|
|
Certificates of Deposit
|
|
|
|
Borrowings
|
|
|
and Liquid CDs
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
(Dollars in Millions)
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
Contractual
Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
months or less
|
|
$
|
1,150
|
|
|
|
3.79
|
%
|
|
$
|
7,230
|
(1)
|
|
|
2.68
|
%
|
Thirteen
to thirty-six months
|
|
|
2,160
|
(2)
|
|
|
3.92
|
|
|
|
1,654
|
|
|
|
3.79
|
|
Thirty-seven
to sixty months
|
|
|
450
|
(3)
|
|
|
4.93
|
|
|
|
521
|
|
|
|
3.67
|
|
Over sixty months
|
|
|
2,079
|
(4)
|
|
|
4.67
|
|
|
|
2
|
|
|
|
3.97
|
|
Total
|
|
$
|
5,839
|
|
|
|
4.24
|
%
|
|
$
|
9,407
|
|
|
|
2.93
|
%
|
(1)
|
Includes
$812.1 million of Liquid CDs with a weighted average rate of 0.64% and
$6.42 billion of certificates of deposit with a weighted average rate of
2.94%.
|
(2)
|
Includes
$1.08 billion of borrowings, with a weighted average rate of 4.39%, which
are callable by the counterparty within the next three months and at
various times thereafter.
|
(3)
|
Includes
$200.0 million of borrowings, with a weighted average rate of 3.90%, which
are callable by the counterparty within the next three months and at
various times thereafter.
|
(4)
|
Includes
$1.95 billion of borrowings, with a weighted average rate of 4.34%, which
are callable by the counterparty within the next three months and at
various times thereafter.
|
Additional
sources of liquidity at the holding company level have included issuances of
securities into the capital markets, including private issuances of trust
preferred securities and senior debt.
H
olding company debt obligations
are included in other borrowings. Our ability to continue to access
the capital markets for additional financing at favorable terms may be limited
by, among other things, market conditions, interest rates, our capital levels,
Astoria Federal’s ability to pay dividends to Astoria Financial Corporation, our
credit profile and ratings and our business model.
Astoria
Financial Corporation’s primary uses of funds include payment of dividends,
payment of interest on its debt obligations and repurchases of common stock,
although as of September 30, 2009 we are not currently repurchasing additional
shares of our common stock and have not since the 2008 third
quarter. Astoria Financial Corporation paid interest on its debt
obligations totaling $13.3 million during the nine months ended September 30,
2009. Our payment of dividends totaled $35.8 million during the nine
months ended September 30, 2009. Our ability to pay dividends,
service our debt obligations and repurchase common stock is dependent primarily
upon receipt of capital distributions from Astoria Federal. Since
Astoria Federal is a federally chartered savings association, there are limits
on its ability to make distributions to Astoria Financial
Corporation. During the nine months ended September 30, 2009, Astoria
Federal paid dividends to Astoria Financial Corporation totaling $68.6
million.
We have
elected to participate in the FDIC’s TLGP which permits the FDIC to guarantee
certain senior unsecured debt issued prior to October 31, 2009 and fully insure
our non-interest bearing transaction deposit accounts through June 30,
2010. The debt guarantee component of the TLGP concluded on October
31, 2009; however, the FDIC has established a limited emergency guarantee
facility, for debt issued on or before April 30, 2010, that will be available on
an application basis to TLGP participants that are unable to issue
non-guaranteed debt to replace maturing senior unsecured debt because of market
disruptions or other circumstances beyond their control. We have not
issued any senior unsecured debt since the FDIC’s adoption of the TLGP and we do
not have any senior unsecured debt maturing prior to April 30,
2010. In addition, we have elected not to participate in the
CPP.
On
September 1, 2009, we paid a quarterly cash dividend of $0.13 per share on
shares of our common stock outstanding as of the close of business on August 17,
2009 totaling $11.9 million.
On
October 21, 2009, we declared a quarterly cash dividend of $0.13 per share on
shares of our common stock payable on December 1, 2009 to stockholders of record
as of the close of business on November 16, 2009.
Our
twelfth stock repurchase plan, approved by our Board of Directors on April 18,
2007, authorized the purchase of 10,000,000 shares, or approximately 10% of our
common stock then outstanding, in open-market or privately negotiated
transactions. During the nine months ended September 30, 2009, there
were no repurchases of our common stock. At September 30, 2009, a
maximum of 8,107,300 shares may yet be purchased under this plan.
See
“Financial Condition” for further discussion of the changes in stockholders’
equity.
At
September 30, 2009, Astoria Federal’s capital levels exceeded all of its
regulatory capital requirements with a tangible capital ratio of 6.72%, leverage
capital ratio of 6.72% and total risk-based capital ratio of
12.77%. The minimum regulatory requirements are a tangible capital
ratio of 1.50%, leverage capital ratio of 4.00% and total risk-based capital
ratio of 8.00%. Astoria Federal’s Tier 1 risk-based capital ratio was
11.49% at September 30, 2009. As of September 30, 2009, Astoria
Federal continues to be a well capitalized institution for all bank regulatory
purposes.
Off-Balance
Sheet Arrangements and Contractual Obligations
We are a
party to financial instruments with off-balance sheet risk in the normal course
of our business in order to meet the financing needs of our customers and in
connection with our overall interest rate risk management
strategy. These instruments involve, to varying degrees, elements of
credit, interest rate and liquidity risk. In accordance with GAAP,
these instruments are either not recorded in the consolidated financial
statements or are recorded in amounts that differ from the notional
amounts. Such instruments primarily include lending commitments and
lease commitments.
Lending
commitments include commitments to originate and purchase loans and commitments
to fund unused lines of credit. Additionally, in connection with our
mortgage banking activities, we have commitments to fund loans held-for-sale and
commitments to sell loans which are considered derivative
instruments. Commitments to sell loans totaled $59.6 million at
September 30, 2009. The fair values of our mortgage banking
derivative instruments are immaterial to our financial condition and results of
operations. We also have contractual obligations related to operating
lease commitments which have not changed significantly from December 31,
2008.
The
following table details our contractual obligations at September 30,
2009.
|
|
Payments due by period
|
|
|
|
|
|
|
Less
than
|
|
|
One
to
|
|
|
Three
to
|
|
|
More
than
|
|
(In Thousands)
|
|
Total
|
|
|
One Year
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Five Years
|
|
Contractual
Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
with original terms greater than three months
|
|
$
|
5,838,866
|
|
|
$
|
1,150,000
|
|
|
$
|
2,160,000
|
|
|
$
|
450,000
|
|
|
$
|
2,078,866
|
|
Commitments
to originate and purchase loans (1)
|
|
|
604,736
|
|
|
|
604,736
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commitments
to fund unused lines of credit (2)
|
|
|
316,027
|
|
|
|
316,027
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
6,759,629
|
|
|
$
|
2,070,763
|
|
|
$
|
2,160,000
|
|
|
$
|
450,000
|
|
|
$
|
2,078,866
|
|
(1) Commitments
to originate and purchase loans include commitments to originate loans
held-for-sale of $50.2 million.
(2) Unused
lines of credit relate primarily to home equity lines of
credit.
In
addition to the contractual obligations previously discussed, we have
liabilities for gross unrecognized tax benefits and interest and penalties
related to uncertain tax positions. For further information regarding
these liabilities, see Note 6 of Notes to Consolidated Financial Statements in
Item 1, “Financial Statements (Unaudited).” We also have contingent
liabilities related to
assets
sold with recourse and standby letters of credit which have not changed
significantly from December 31, 2008.
For
further information regarding our off-balance sheet arrangements and contractual
obligations, see Part II, Item 7, “MD&A,” in our 2008 Annual Report on Form
10-K.
Comparison
of Financial Condition as of September 30, 2009 and December 31, 2008 and
Operating Results for the Three and Nine Months Ended September 30, 2009 and
2008
Total
assets decreased $1.31 billion to $20.67 billion at September 30, 2009, from
$21.98 billion at December 31, 2008. The decrease in total assets
primarily reflects decreases in loans receivable and securities.
Loans
receivable, net, decreased $800.2 million to $15.79 billion at September 30,
2009, from $16.59 billion at December 31, 2008. This decrease was a
result of the levels of repayments outpacing our mortgage loan origination and
purchase volume during the nine months ended September 30, 2009, coupled with an
increase of $57.6 million in the allowance for loan losses to $176.6 million at
September 30, 2009, from $119.0 million at December 31, 2008. For
additional information on the allowance for loan losses, see “Provision for Loan
Losses” and “Asset Quality.”
Mortgage
loans, net, decreased $738.2 million to $15.63 billion at September 30, 2009,
from $16.37 billion at December 31, 2008. This decrease was due to
decreases in each of our mortgage loan portfolios, primarily one-to-four family
and multi-family loans. Mortgage loan repayments decreased to $2.78
billion for the nine months ended September 30, 2009, from $2.96 billion for the
nine months ended September 30, 2008. Gross mortgage loans originated
and purchased for portfolio during the nine months ended September 30, 2009
totaled $2.24 billion, of which $1.97 billion were originations and $273.5
million were purchases. This compares to gross mortgage loans originated and
purchased for portfolio during the nine months ended September 30, 2008 totaling
$3.59 billion, of which $3.19 billion were originations and $402.3 million were
purchases. In addition, we originated loans held-for-sale totaling
$333.3 million during the nine months ended September 30, 2009 and $107.5
million during the nine months ended September 30, 2008.
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 decreased $343.9 million to $12.01 billion at
September 30, 2009, from $12.35 billion at December 31, 2008, and represented
75.7% of our total loan portfolio at September 30, 2009. The decrease
was primarily the result of the levels of repayments which outpaced our
originations and purchases during the nine months ended September 30,
2009. One-to-four family mortgage loan originations and purchases for
portfolio totaled $2.23 billion for the nine months ended September 30, 2009 and
$3.24 billion for the nine months ended September 30,
2008. One-to-four family mortgage loan origination and purchase
volume for portfolio has been negatively affected by declining interest rates
for thirty year fixed rate mortgages and the
expanded
conforming loan limits resulting in more borrowers opting for thirty year fixed
rate mortgages which we do not retain for portfolio. During the nine
months ended September 30, 2009, the loan-to-value ratio of our one-to-four
family mortgage loan originations and purchases for portfolio, at the time of
origination or purchase, averaged approximately 57% and the loan amount averaged
approximately $725,000.
Our
multi-family mortgage loan portfolio decreased $292.7 million to $2.62 billion
at September 30, 2009, from $2.91 billion at December 31, 2008. Our
commercial real estate loan portfolio decreased $64.4 million to $876.7 million
at September 30, 2009, from $941.1 million at December 31,
2008. Multi-family and commercial real estate loan originations
totaled $10.2 million for the nine months ended September 30, 2009 and $347.9
million for the nine months ended September 30, 2008.
W
e are currently
only offering to originate such loans to select existing customers in New York
and did not originate any such loans during the 2009 third quarter.
Securities
decreased $565.0 million to $3.47 billion at September 30, 2009, from $4.04
billion at December 31, 2008. This decrease was primarily the result
of principal payments received of $1.13 billion, sales of $176.9 million and the
$5.3 million OTTI charge previously discussed, partially offset by purchases of
$706.6 million and a net increase of $40.6 million in the fair value of our
securities available-for-sale. For additional information regarding
our securities portfolio and the OTTI charge, see Note 2 of Notes to
Consolidated Financial Statements, in Item 1, “Financial Statements
(Unaudited).” At September 30, 2009, our securities portfolio was comprised
primarily of fixed rate REMIC and CMO securities. The amortized cost
of our fixed rate REMICs and CMOs totaled $3.15 billion at September 30, 2009
and had a weighted average current coupon of 4.19%, a weighted average
collateral coupon of 5.69% and a weighted average life of 1.9
years.
Deposits
decreased $261.3 million to $13.22 billion at September 30, 2009, from $13.48
billion at December 31, 2008, primarily due to decreases in certificates of
deposit and Liquid CDs, partially offset by increases in savings, money market
and NOW and demand deposit accounts. Certificates of deposit
decreased $314.4 million since December 31, 2008 to $8.59 billion at September
30, 2009. Liquid CDs decreased $169.6 million since December 31, 2008
to $812.1 million at September 30, 2009. Savings accounts increased
$126.4 million since December 31, 2008 to $1.96 billion at September 30,
2009. NOW and demand deposit accounts increased $55.1 million since
December 31, 2008 to $1.52 billion at September 30, 2009. Money
market accounts increased $41.2 million since December 31, 2008 to $330.3
million at September 30, 2009. The increases in savings, NOW and
demand deposit and money market accounts reflects the diminished intense
competition for core community deposits from that which we experienced during
2008. Deposits decreased during the 2009 third quarter as we reduced
our focus on certificates of deposit to offset the impact of accelerated
prepayment activity in our loan and securities portfolios.
Total
borrowings, net, decreased $1.13 billion to $5.84 billion at September 30, 2009,
from $6.97 billion at December 31, 2008. The decrease in total
borrowings was primarily the result of cash flows from mortgage loan and
securities repayments, coupled with deposit growth during the first half of
2009, in excess of mortgage loan originations and purchases and securities
purchases which enabled us to repay a portion of our matured borrowings during
the first half of 2009.
Stockholders'
equity increased $24.1 million to $1.21 billion at September 30, 2009, from
$1.18 billion at December 31, 2008. The increase in stockholders’
equity was due to a decrease in accumulated other comprehensive loss of $30.4
million, primarily due to a net unrealized gain on securities
available-for-sale, net income of $19.5 million and stock-based compensation and
the allocation of shares held by the employee stock ownership plan, or ESOP, of
$10.5 million. These increases were partially offset by dividends
declared of $35.8 million.
Results
of Operations
General
Net
income for the three months ended September 30, 2009 increased $24.5 million to
$8.0 million, from a net loss of $16.5 million for the three months ended
September 30, 2008. Diluted earnings per common share was $0.09 per
share for the three months ended September 30, 2009, compared to
$0.19 diluted loss per common share for the three months ended September 30,
2008. Return on average assets increased to 0.15% for the three
months ended September 30, 2009, from negative 0.30% for the three months ended
September 30, 2008. Return on average stockholders’ equity increased
to 2.69% for the three months ended September 30, 2009, from negative 5.47% for
the three months ended September 30, 2008. Return on average tangible
stockholders’ equity, which represents average stockholders’ equity less average
goodwill, increased to 3.18% for the three months ended September 30, 2009, from
negative 6.47% for the three months ended September 30, 2008. The
increases in these returns were primarily due to the increase in net
income.
Net
income for the nine months ended September 30, 2009 decreased $26.4 million to
$19.5 million, from $45.9 million for the nine months ended September 30,
2008. Diluted earnings per common share decreased to $0.21 per share
for the nine months ended September 30, 2009, from $0.50 per share for the nine
months ended September 30, 2008. Return on average assets decreased
to 0.12% for the nine months ended September 30, 2009, from 0.28% for the nine
months ended September 30, 2008. Return on average stockholders’
equity decreased to 2.18% for the nine months ended September 30, 2009, from
5.04% for the nine months ended September 30, 2008. Return on average
tangible stockholders’ equity decreased to 2.58% for the nine months ended
September 30, 2009, from 5.95% for the nine months ended September 30,
2008. The decreases in these returns were primarily due to the
decrease in net income.
Our
results of operations for the nine months ended September 30, 2009 include a
$9.9 million, before-tax ($6.4 million, after-tax), FDIC special assessment, a
$5.3 million, before-tax ($3.4 million, after-tax), OTTI charge to write-off the
remaining cost basis of our investment in two issues of Freddie Mac perpetual
preferred securities and a $1.6 million, before-tax ($1.0 million, after-tax),
lower of cost or market write-down of premises and equipment
held-for-sale. These charges reduced diluted earnings per common
share by $0.12 per share for the nine months ended September 30,
2009. These charges also reduced our return on average assets by 7
basis points, return on average stockholders’ equity by 121 basis points and
return on average tangible stockholders’ equity by 143 basis points for the nine
months ended September 30, 2009.
Our
results of operations for the three and nine months ended September 30, 2008
include a $77.7 million, before-tax ($57.9 million, after-tax), OTTI charge to
reduce the carrying amount of our investment in two issues of Freddie Mac
perpetual preferred securities to their market value of $5.3 million at
September 30, 2008. For the three and nine months ended September 30,
2008, this charge reduced diluted earnings per common share by $0.64 per share.
For the
three
months ended September 30, 2008, this charge reduced our return on average
assets by 106 basis points, return on average stockholders’ equity by 1,924
basis points and return on average tangible stockholders’ equity by 2,275 basis
points. For the nine months ended September 30, 2008, this charge
reduced our return on average assets by 36 basis points, return on average
stockholders’ equity by 637 basis points and return on average tangible
stockholders’ equity by 751 basis points. The tax benefit recognized
on this charge was based on the treatment of the charge as a capital loss for
income tax purposes which limited the tax benefit we recognized during the three
and nine months ended September 30, 2008. The tax treatment of gains
or losses from the sale or exchange of Fannie Mae or Freddie Mac preferred stock
by an “applicable financial institution,” such as us, was changed in the 2008
fourth quarter, to treat the charge as an ordinary loss for income tax purposes,
and enabled us to recognize an additional tax benefit of $7.4 million in the
2008 fourth quarter.
For
further discussion of the FDIC special assessment, see “Non-Interest
Expense.” See Note 2 for further discussion of the OTTI charges and
see Note 5 for further discussion of the lower of cost or market write-down of
premises and equipment held-for-sale in Notes to Consolidated Financial
Statements in Item 1, “Financial Statements (Unaudited).”
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, 2009, net interest income decreased $4.0
million to $103.1 million, from $107.1 million for the three months ended
September 30, 2008, primarily due to a decrease in interest income,
substantially offset by a decrease in interest expense. For the nine
months ended September 30, 2009, net interest income increased $43.4 million to
$323.8 million for the nine months ended September 30, 2009, from $280.4 million
for the nine months ended September 30, 2008, primarily due to a decrease in
interest expense, partially offset by a decrease in interest
income. The net interest margin increased to 2.07% for the three
months ended September 30, 2009, from 2.06% for the three months ended September
30, 2008 and increased to 2.13% for the nine months ended September 30, 2009,
from 1.81% for the nine months ended September 30, 2008. The net
interest rate spread increased to 1.98% for the three months ended September 30,
2009, from 1.96% for the three months ended September 30, 2008 and increased to
2.03% for the nine months ended September 30, 2009, from 1.71% for the nine
months ended September 30, 2008. The average balance of net
interest-earning assets increased $40.9 million to $634.7 million for the three
months ended September 30, 2009, from $593.8 million for the three months ended
September 30, 2008, and increased $22.1 million to $631.7 million for the nine
months ended September 30, 2009, from $609.6 million for the nine months ended
September 30, 2008.
The
decreases in interest income for the three and nine months ended September 30,
2009, compared to the three and nine months ended September 30, 2008, were
primarily due to decreases in the average yields on interest-earning assets and
decreases in the average balances of mortgage-backed and other securities and
multi-family, commercial real estate and
construction
loans, which, for the nine months ended September 30, 2009, were partially
offset by an increase in the average balance of one-to-four family mortgage
loans. The decreases in interest expense for the three and nine
months ended September 30, 2009, compared to the three and nine months ended
September 30, 2008, were primarily due to decreases in the average costs of
certificates of deposit and Liquid CDs and decreases in the average balances of
borrowings and Liquid CDs, partially offset by increases in the average balances
of certificates of deposit. Also contributing to the decrease in
interest expense for the nine months ended September 30, 2009, compared to the
nine months ended September 30, 2008, was a decrease in the average cost of our
borrowings.
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, 2009 and 2008. Average yields are derived
by dividing income by the average balance of the related assets and average
costs are derived by dividing expense by the average balance of the related
liabilities, for the periods shown. Average balances are derived from
average daily balances. The yields and costs include amortization of
fees, costs, premiums and discounts which are considered adjustments to interest
rates.
|
|
For the Three Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
12,071,749
|
|
|
$
|
147,765
|
|
|
|
4.90
|
%
|
|
$
|
12,159,385
|
|
|
$
|
163,154
|
|
|
|
5.37
|
%
|
Multi-family,
commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
real
estate and construction
|
|
|
3,610,912
|
|
|
|
52,947
|
|
|
|
5.87
|
|
|
|
3,915,922
|
|
|
|
57,982
|
|
|
|
5.92
|
|
Consumer
and other loans (1)
|
|
|
334,282
|
|
|
|
2,760
|
|
|
|
3.30
|
|
|
|
338,947
|
|
|
|
4,103
|
|
|
|
4.84
|
|
Total
loans
|
|
|
16,016,943
|
|
|
|
203,472
|
|
|
|
5.08
|
|
|
|
16,414,254
|
|
|
|
225,239
|
|
|
|
5.49
|
|
Mortgage-backed
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
securities (2)
|
|
|
3,451,257
|
|
|
|
35,980
|
|
|
|
4.17
|
|
|
|
4,146,498
|
|
|
|
45,341
|
|
|
|
4.37
|
|
Repurchase
agreements and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest-earning
cash accounts
|
|
|
299,242
|
|
|
|
163
|
|
|
|
0.22
|
|
|
|
40,133
|
|
|
|
214
|
|
|
|
2.13
|
|
FHLB-NY
stock
|
|
|
177,285
|
|
|
|
2,487
|
|
|
|
5.61
|
|
|
|
215,409
|
|
|
|
3,148
|
|
|
|
5.85
|
|
Total
interest-earning assets
|
|
|
19,944,727
|
|
|
|
242,102
|
|
|
|
4.86
|
|
|
|
20,816,294
|
|
|
|
273,942
|
|
|
|
5.26
|
|
Goodwill
|
|
|
185,151
|
|
|
|
|
|
|
|
|
|
|
|
185,151
|
|
|
|
|
|
|
|
|
|
Other
non-interest-earning assets
|
|
|
856,892
|
|
|
|
|
|
|
|
|
|
|
|
881,458
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
20,986,770
|
|
|
|
|
|
|
|
|
|
|
$
|
21,882,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders' equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
1,950,731
|
|
|
|
1,989
|
|
|
|
0.41
|
|
|
$
|
1,865,841
|
|
|
|
1,898
|
|
|
|
0.41
|
|
Money
market
|
|
|
328,826
|
|
|
|
447
|
|
|
|
0.54
|
|
|
|
312,224
|
|
|
|
811
|
|
|
|
1.04
|
|
NOW
and demand deposit
|
|
|
1,545,609
|
|
|
|
258
|
|
|
|
0.07
|
|
|
|
1,477,188
|
|
|
|
336
|
|
|
|
0.09
|
|
Liquid
CDs
|
|
|
860,239
|
|
|
|
1,708
|
|
|
|
0.79
|
|
|
|
1,157,399
|
|
|
|
7,195
|
|
|
|
2.49
|
|
Total
core deposits
|
|
|
4,685,405
|
|
|
|
4,402
|
|
|
|
0.38
|
|
|
|
4,812,652
|
|
|
|
10,240
|
|
|
|
0.85
|
|
Certificates
of deposit
|
|
|
8,738,587
|
|
|
|
70,946
|
|
|
|
3.25
|
|
|
|
8,259,422
|
|
|
|
82,727
|
|
|
|
4.01
|
|
Total
deposits
|
|
|
13,423,992
|
|
|
|
75,348
|
|
|
|
2.25
|
|
|
|
13,072,074
|
|
|
|
92,967
|
|
|
|
2.84
|
|
Borrowings
|
|
|
5,886,006
|
|
|
|
63,671
|
|
|
|
4.33
|
|
|
|
7,150,428
|
|
|
|
73,902
|
|
|
|
4.13
|
|
Total
interest-bearing liabilities
|
|
|
19,309,998
|
|
|
|
139,019
|
|
|
|
2.88
|
|
|
|
20,222,502
|
|
|
|
166,869
|
|
|
|
3.30
|
|
Non-interest-bearing
liabilities
|
|
|
478,697
|
|
|
|
|
|
|
|
|
|
|
|
457,316
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
19,788,695
|
|
|
|
|
|
|
|
|
|
|
|
20,679,818
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
1,198,075
|
|
|
|
|
|
|
|
|
|
|
|
1,203,085
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders'
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equity
|
|
$
|
20,986,770
|
|
|
|
|
|
|
|
|
|
|
$
|
21,882,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income/net interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rate
spread (3)
|
|
|
|
|
|
$
|
103,083
|
|
|
|
1.98
|
%
|
|
|
|
|
|
$
|
107,073
|
|
|
|
1.96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest-earning assets/net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
margin (4)
|
|
$
|
634,729
|
|
|
|
|
|
|
|
2.07
|
%
|
|
$
|
593,792
|
|
|
|
|
|
|
|
2.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
12,194,836
|
|
|
$
|
465,252
|
|
|
|
5.09
|
%
|
|
$
|
11,781,281
|
|
|
$
|
468,999
|
|
|
|
5.31
|
%
|
Multi-family,
commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
real
estate and construction
|
|
|
3,738,746
|
|
|
|
165,539
|
|
|
|
5.90
|
|
|
|
3,954,253
|
|
|
|
176,983
|
|
|
|
5.97
|
|
Consumer
and other loans (1)
|
|
|
337,229
|
|
|
|
8,095
|
|
|
|
3.20
|
|
|
|
346,720
|
|
|
|
13,712
|
|
|
|
5.27
|
|
Total
loans
|
|
|
16,270,811
|
|
|
|
638,886
|
|
|
|
5.24
|
|
|
|
16,082,254
|
|
|
|
659,694
|
|
|
|
5.47
|
|
Mortgage-backed
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
securities (2)
|
|
|
3,573,641
|
|
|
|
116,307
|
|
|
|
4.34
|
|
|
|
4,225,646
|
|
|
|
139,942
|
|
|
|
4.42
|
|
Federal
funds sold, repurchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agreements
and interest-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earning
cash accounts
|
|
|
255,594
|
|
|
|
394
|
|
|
|
0.21
|
|
|
|
105,665
|
|
|
|
1,868
|
|
|
|
2.36
|
|
FHLB-NY
stock
|
|
|
183,032
|
|
|
|
6,850
|
|
|
|
4.99
|
|
|
|
202,151
|
|
|
|
11,173
|
|
|
|
7.37
|
|
Total
interest-earning assets
|
|
|
20,283,078
|
|
|
|
762,437
|
|
|
|
5.01
|
|
|
|
20,615,716
|
|
|
|
812,677
|
|
|
|
5.26
|
|
Goodwill
|
|
|
185,151
|
|
|
|
|
|
|
|
|
|
|
|
185,151
|
|
|
|
|
|
|
|
|
|
Other
non-interest-earning assets
|
|
|
837,257
|
|
|
|
|
|
|
|
|
|
|
|
834,947
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
21,305,486
|
|
|
|
|
|
|
|
|
|
|
$
|
21,635,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders' equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
1,909,519
|
|
|
|
5,781
|
|
|
|
0.40
|
|
|
$
|
1,874,828
|
|
|
|
5,685
|
|
|
|
0.40
|
|
Money
market
|
|
|
313,747
|
|
|
|
1,733
|
|
|
|
0.74
|
|
|
|
317,766
|
|
|
|
2,414
|
|
|
|
1.01
|
|
NOW
and demand deposit
|
|
|
1,522,064
|
|
|
|
805
|
|
|
|
0.07
|
|
|
|
1,477,447
|
|
|
|
967
|
|
|
|
0.09
|
|
Liquid
CDs
|
|
|
927,424
|
|
|
|
9,641
|
|
|
|
1.39
|
|
|
|
1,294,298
|
|
|
|
30,582
|
|
|
|
3.15
|
|
Total
core deposits
|
|
|
4,672,754
|
|
|
|
17,960
|
|
|
|
0.51
|
|
|
|
4,964,339
|
|
|
|
39,648
|
|
|
|
1.06
|
|
Certificates
of deposit
|
|
|
8,852,402
|
|
|
|
230,109
|
|
|
|
3.47
|
|
|
|
8,054,333
|
|
|
|
261,373
|
|
|
|
4.33
|
|
Total
deposits
|
|
|
13,525,156
|
|
|
|
248,069
|
|
|
|
2.45
|
|
|
|
13,018,672
|
|
|
|
301,021
|
|
|
|
3.08
|
|
Borrowings
|
|
|
6,126,211
|
|
|
|
190,554
|
|
|
|
4.15
|
|
|
|
6,987,400
|
|
|
|
231,217
|
|
|
|
4.41
|
|
Total
interest-bearing liabilities
|
|
|
19,651,367
|
|
|
|
438,623
|
|
|
|
2.98
|
|
|
|
20,006,072
|
|
|
|
532,238
|
|
|
|
3.55
|
|
Non-interest-bearing
liabilities
|
|
|
458,474
|
|
|
|
|
|
|
|
|
|
|
|
416,570
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
20,109,841
|
|
|
|
|
|
|
|
|
|
|
|
20,422,642
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
1,195,645
|
|
|
|
|
|
|
|
|
|
|
|
1,213,172
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders'
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equity
|
|
$
|
21,305,486
|
|
|
|
|
|
|
|
|
|
|
$
|
21,635,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income/net interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rate
spread (3)
|
|
|
|
|
|
$
|
323,814
|
|
|
|
2.03
|
%
|
|
|
|
|
|
$
|
280,439
|
|
|
|
1.71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest-earning assets/net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
margin (4)
|
|
$
|
631,711
|
|
|
|
|
|
|
|
2.13
|
%
|
|
$
|
609,644
|
|
|
|
|
|
|
|
1.81
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
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, 2009
|
|
|
Nine Months Ended September 30, 2009
|
|
|
|
Compared to
|
|
|
Compared to
|
|
|
|
Three Months Ended September 30, 2008
|
|
|
Nine Months Ended September 30, 2008
|
|
|
|
Increase (Decrease)
|
|
|
Increase (Decrease)
|
|
(In Thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
(1,171
|
)
|
|
$
|
(14,218
|
)
|
|
$
|
(15,389
|
)
|
|
$
|
16,113
|
|
|
$
|
(19,860
|
)
|
|
$
|
(3,747
|
)
|
Multi-family,
commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
real
estate and construction
|
|
|
(4,543
|
)
|
|
|
(492
|
)
|
|
|
(5,035
|
)
|
|
|
(9,418
|
)
|
|
|
(2,026
|
)
|
|
|
(11,444
|
)
|
Consumer
and other loans
|
|
|
(55
|
)
|
|
|
(1,288
|
)
|
|
|
(1,343
|
)
|
|
|
(366
|
)
|
|
|
(5,251
|
)
|
|
|
(5,617
|
)
|
Mortgage-backed
and other securities
|
|
|
(7,354
|
)
|
|
|
(2,007
|
)
|
|
|
(9,361
|
)
|
|
|
(21,154
|
)
|
|
|
(2,481
|
)
|
|
|
(23,635
|
)
|
Federal
funds sold, repurchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agreements
and interest-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earning
cash accounts
|
|
|
292
|
|
|
|
(343
|
)
|
|
|
(51
|
)
|
|
|
1,178
|
|
|
|
(2,652
|
)
|
|
|
(1,474
|
)
|
FHLB-NY
stock
|
|
|
(537
|
)
|
|
|
(124
|
)
|
|
|
(661
|
)
|
|
|
(980
|
)
|
|
|
(3,343
|
)
|
|
|
(4,323
|
)
|
Total
|
|
|
(13,368
|
)
|
|
|
(18,472
|
)
|
|
|
(31,840
|
)
|
|
|
(14,627
|
)
|
|
|
(35,613
|
)
|
|
|
(50,240
|
)
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
91
|
|
|
|
-
|
|
|
|
91
|
|
|
|
96
|
|
|
|
-
|
|
|
|
96
|
|
Money
market
|
|
|
41
|
|
|
|
(405
|
)
|
|
|
(364
|
)
|
|
|
(30
|
)
|
|
|
(651
|
)
|
|
|
(681
|
)
|
NOW
and demand deposit
|
|
|
12
|
|
|
|
(90
|
)
|
|
|
(78
|
)
|
|
|
34
|
|
|
|
(196
|
)
|
|
|
(162
|
)
|
Liquid
CDs
|
|
|
(1,500
|
)
|
|
|
(3,987
|
)
|
|
|
(5,487
|
)
|
|
|
(7,048
|
)
|
|
|
(13,893
|
)
|
|
|
(20,941
|
)
|
Certificates
of deposit
|
|
|
4,595
|
|
|
|
(16,376
|
)
|
|
|
(11,781
|
)
|
|
|
24,176
|
|
|
|
(55,440
|
)
|
|
|
(31,264
|
)
|
Borrowings
|
|
|
(13,645
|
)
|
|
|
3,414
|
|
|
|
(10,231
|
)
|
|
|
(27,506
|
)
|
|
|
(13,157
|
)
|
|
|
(40,663
|
)
|
Total
|
|
|
(10,406
|
)
|
|
|
(17,444
|
)
|
|
|
(27,850
|
)
|
|
|
(10,278
|
)
|
|
|
(83,337
|
)
|
|
|
(93,615
|
)
|
Net
change in net interest income
|
|
$
|
(2,962
|
)
|
|
$
|
(1,028
|
)
|
|
$
|
(3,990
|
)
|
|
$
|
(4,349
|
)
|
|
$
|
47,724
|
|
|
$
|
43,375
|
|
Interest
Income
Interest
income decreased $31.8 million to $242.1 million for the three months ended
September 30, 2009, from $273.9 million for the three months ended September 30,
2008, primarily due to a decrease in the average yield on interest-earning
assets to 4.86% for the three months ended September 30, 2009, from 5.26% for
the three months ended September 30, 2008, coupled with a decrease of $871.6
million in the average balance of interest-earning assets to $19.94 billion for
the three months ended September 30, 2009, from $20.82 billion for the three
months ended September 30, 2008. The decrease in the average yield on
interest-earning assets was the result of decreases in the average yields on all
asset categories. The decrease in the average balance of
interest-earning assets was primarily due to decreases in the average balances
of mortgage-backed and other securities and mortgage loans, partially offset by
an increase in the average balance of repurchase agreements and interest-earning
cash accounts.
Interest
income on one-to-four family mortgage loans decreased $15.4 million to $147.8
million for the three months ended September 30, 2009, from $163.2 million for
the three months ended September 30, 2008, primarily due to a decrease in the
average yield to 4.90% for the three months ended September 30, 2009, from 5.37%
for the three months ended September 30, 2008, coupled with a slight decrease in
the average balance of such loans. The decrease in the average yield
was primarily due to new originations at lower interest rates than the rates on
loans repaid over the past year, the impact of the downward repricing of our ARM
loans, the increase in non-performing loans and an increase in loan premium
amortization. Net premium amortization on one-to-four family mortgage
loans increased $4.2 million to $9.3 million for the three months ended
September 30, 2009, from $5.1 million for the three months ended September 30,
2008. This increase reflects the increase in mortgage loan
prepayments for the three months ended September 30, 2009, compared to the three
months ended September 30, 2008.
Interest
income on multi-family, commercial real estate and construction loans decreased
$5.1 million to $52.9 million for the three months ended September 30, 2009,
from $58.0 million for the three months ended September 30, 2008, primarily due
to a decrease of $305.0 million in the average balance of such loans, coupled
with a decrease in the average yield to 5.87% for the three months ended
September 30, 2009, from 5.92% for the three months ended September 30,
2008. 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 over the past year. Our portfolio
of multi-family, commercial real estate and construction loans has declined over
the past several years due primarily to the competitive market pricing and our
decision to not aggressively pursue such loans. The decrease in the
average yield on multi-family, commercial real estate and construction loans
reflects the increase in non-performing loans, coupled with a decrease in
prepayment penalties. Prepayment penalties decreased $411,000 to
$556,000 for the three months ended September 30, 2009, from $967,000 for the
three months ended September 30, 2008.
Interest
income on consumer and other loans decreased $1.3 million to $2.8 million for
the three months ended September 30, 2009, from $4.1 million for the three
months ended September 30, 2008, primarily due to a decrease in the average
yield to 3.30% for the three months ended September 30, 2009, from 4.84% for the
three months ended September 30, 2008. The decrease in the average
yield on consumer and other loans was primarily the result of a decrease in the
average yield on our home equity lines of credit which are adjustable rate loans
which generally reset monthly and are indexed to the prime rate which decreased
400 basis points during 2008. Home equity lines of credit represented
91.7% of this portfolio at September 30, 2009.
Interest
income on mortgage-backed and other securities decreased $9.3 million to $36.0
million for the three months ended September 30, 2009, from $45.3 million for
the three months ended September 30, 2008. This decrease was
primarily due to a decrease of $695.2 million in the average balance of the
portfolio, coupled with a decrease in the average yield to 4.17% for the three
months ended September 30, 2009, from 4.37% for the three months ended September
30, 2008. The decrease in the average balance of mortgage-backed and
other securities is the result of repayments and sales exceeding securities
purchased over the past year. The decrease in the average yield was
primarily due to elevated repayment levels of higher yielding securities and
purchases of new securities with lower coupons than the weighted average coupon
for the portfolio.
Interest
income decreased $50.3 million to $762.4 million for the nine months ended
September 30, 2009, from $812.7 million for the nine months ended September 30,
2008, primarily due to a decrease in the average yield on interest-earning
assets to 5.01% for the nine months ended
September
30, 2009, from 5.26% for the nine months ended September 30, 2008, coupled with
a decrease of $332.6 million in the average balance of interest-earning assets
to $20.28 billion for the nine months ended September 30, 2009, from $20.62
billion for the nine months ended September 30, 2008. The decrease in
the average balance of interest-earning assets was primarily due to decreases in
the average balances of mortgage-backed and other securities and multi-family,
commercial real estate and construction loans, partially offset by increases in
the average balances of one-to-four family mortgage loans and federal funds
sold, repurchase agreements and interest-earning cash accounts.
Interest
income on one-to-four family mortgage loans decreased $3.7 million to $465.3
million for the nine months ended September 30, 2009, from $469.0 million for
the nine months ended September 30, 2008, primarily due to a decrease in the
average yield to 5.09% for the nine months ended September 30, 2009, from 5.31%
for the nine months ended September 30, 2008, substantially offset by an
increase of $413.6 million in the average balance of such loans. Net premium
amortization on one-to-four family mortgage loans decreased $746,000 to $22.6
million for the nine months ended September 30, 2009, from $23.4 million for the
nine months ended September 30, 2008. The increase in the average
balance of one-to-four family mortgage loans reflects the levels of originations
and purchases which outpaced the levels of repayments over the past
year.
Interest
income on multi-family, commercial real estate and construction loans decreased
$11.5 million to $165.5 million for the nine months ended September 30, 2009,
from $177.0 million for the nine months ended September 30, 2008, primarily due
to a decrease of $215.5 million in the average balance of such loans, coupled
with a decrease in the average yield to 5.90% for the nine months ended
September 30, 2009, from 5.97% for the nine months ended September 30,
2008. Prepayment penalties decreased $1.8 million to $2.1 million for
the nine months ended September 30, 2009, from $3.9 million for the nine months
ended September 30, 2008.
Interest
income on consumer and other loans decreased $5.6 million to $8.1 million for
the nine months ended September 30, 2009, from $13.7 million for the nine months
ended September 30, 2008, primarily due to a decrease in the average yield to
3.20% for the nine months ended September 30, 2009, from 5.27% for the nine
months ended September 30, 2008, coupled with a decrease of $9.5 million in the
average balance of the portfolio. The decrease in the average balance
of consumer and other loans was primarily the result of our decision to not
aggressively pursue the origination of home equity lines of credit in the
current economic environment.
Interest
income on mortgage-backed and other securities decreased $23.6 million to $116.3
million for the nine months ended September 30, 2009, from $139.9 million for
the nine months ended September 30, 2008. This decrease was primarily
the result of a decrease of $652.0 million in the average balance of the
portfolio, coupled with a decrease in the average yield to 4.34% for the nine
months ended September 30, 2009, from 4.42% for the nine months ended September
30, 2008.
Dividend
income on FHLB-NY stock decreased $4.3 million to $6.9 million for the nine
months ended September 30, 2009, from $11.2 million for the nine months ended
September 30, 2008, primarily due to a decrease in the average yield to 4.99%
for the nine months ended September 30, 2009, from 7.37% for the nine months
ended September 30, 2008. The decrease in the average yield was the
result of a decrease in the dividend rate paid by the FHLB-NY during the nine
months ended September 30, 2009, compared to the nine months ended September 30,
2008.
Interest
income on federal funds sold, repurchase agreements and interest-earning cash
accounts decreased $1.5 million to $394,000 for the nine months ended September
30, 2009, from $1.9 million for the nine months ended September 30, 2008,
primarily due to a decrease in the average yield to 0.21% for the nine months
ended September 30, 2009, from 2.36% for the nine months ended September 30,
2008, partially offset by an increase of $149.9 million in the average
balance. The decrease in the average yield reflects the decline in
short-term interest rates during 2008. The increase in the average
balance was a result of excess cash flow from loan and securities repayments
during the 2009 second and third quarters.
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, 2009 are consistent with the principal reasons for the changes
noted for the three months ended September 30, 2009.
Interest
Expense
Interest
expense decreased $27.9 million to $139.0 million for the three months ended
September 30, 2009, from $166.9 million for the three months ended September 30,
2008, primarily due to a decrease in the average cost of interest-bearing
liabilities to 2.88% for the three months ended September 30, 2009, from 3.30%
for the three months ended September 30, 2008, coupled with a decrease of $912.5
million in the average balance of interest-bearing liabilities to $19.31 billion
for the three months ended September 30, 2009, from $20.22 billion for the three
months ended September 30, 2008. The decrease in the average cost of
interest-bearing liabilities was primarily due to decreases in the average costs
of certificates of deposit and Liquid CDs, partially offset by an increase in
the average cost of borrowings. The decrease in the average balance
of interest-bearing liabilities was primarily due to the decreases in the
average balances of borrowings and Liquid CDs, partially offset by an increase
in the average balance of certificates of deposit.
Interest
expense on deposits decreased $17.7 million to $75.3 million for the three
months ended September 30, 2009, from $93.0 million for the three months ended
September 30, 2008, primarily due to a decrease in the average cost to 2.25% for
the three months ended September 30, 2009, from 2.84% for the three months ended
September 30, 2008, partially offset by an increase of $351.9 million in the
average balance of total deposits to $13.42 billion for the three months ended
September 30, 2009, from $13.07 billion for the three months ended September 30,
2008. The decrease in the average cost of total deposits was
primarily due to the impact of the decline in short-term interest rates during
2008 on our Liquid CDs and certificates of deposit which matured and were
replaced at lower interest rates. The increase in the average balance
of total deposits was primarily due to an increase in the average balance of
certificates of deposit, partially offset by a decrease in the average balance
of Liquid CDs.
Interest
expense on certificates of deposit decreased $11.8 million to $70.9 million for
the three months ended September 30, 2009, from $82.7 million for the three
months ended September 30, 2008, primarily due to a decrease in the average cost
to 3.25% for the three months ended September 30, 2009, from 4.01% for the three
months ended September 30, 2008, partially offset by an increase of $479.2
million in the average balance. The decrease in the average cost of
certificates of deposit reflects the impact of the decrease in interest rates
during 2008 as certificates of deposit at higher rates matured and were replaced
at lower interest rates. The increase in the average balance of
certificates of deposit was primarily a result of the success of our marketing
efforts and competitive pricing strategies, particularly during the 2008 fourth
quarter and 2009 first quarter. During the three months ended
September 30, 2009, $1.15 billion
of
certificates of deposit, with a weighted average rate of 3.18% and a weighted
average maturity at inception of thirteen months, matured and $786.8 million of
certificates of deposit were issued or repriced, with a weighted average rate of
1.40% and a weighted average maturity at inception of fourteen
months.
Interest
expense on Liquid CDs decreased $5.5 million to $1.7 million for the three
months ended September 30, 2009, from $7.2 million for the three months ended
September 30, 2008, primarily due to a decrease in the average cost to 0.79% for
the three months ended September 30, 2009, from 2.49% for the three months ended
September 30, 2008, coupled with a decrease of $297.2 million in the average
balance. The decrease in the average cost of Liquid CDs reflects the
decline in short-term interest rates during 2008 and 2009. The
decrease in the average balance of Liquid CDs was primarily a result of our
decision to maintain our pricing discipline as short-term interest rates
declined.
Interest
expense on borrowings decreased $10.2 million to $63.7 million for the three
months ended September 30, 2009, from $73.9 million for the three months ended
September 30, 2008, primarily due to a decrease of $1.26 billion in the average
balance, partially offset by an increase in the average cost to 4.33% for the
three months ended September 30, 2009, from 4.13% for the three months ended
September 30, 2008. The decrease in the average balance of borrowings
is the result of cash flows from mortgage loan and securities repayments,
coupled with deposit growth during the first half of 2009, exceeding mortgage
loan originations and purchases and securities purchases which enabled us to
repay a portion of our matured borrowings during the first half of 2009. The
increase in the average cost of borrowings reflects the upward repricing of our
variable rate borrowings which reset into higher fixed rates during the 2009
second quarter.
Interest
expense decreased $93.6 million to $438.6 million for the nine months ended
September 30, 2009, from $532.2 million for the nine months ended September 30,
2008, primarily due to a decrease in the average cost of interest-bearing
liabilities to 2.98% for the nine months ended September 30, 2009, from 3.55%
for the nine months ended September 30, 2008, coupled with a decrease of $354.7
million in the average balance of interest-bearing liabilities to $19.65 billion
for the nine months ended September 30, 2009, from $20.01 billion for the nine
months ended September 30, 2008. The decrease in the average cost of
interest-bearing liabilities was primarily due to decreases in the average costs
of certificates of deposit, Liquid CDs and borrowings.
Interest
expense on deposits decreased $52.9 million to $248.1 million for the nine
months ended September 30, 2009, from $301.0 million for the nine months ended
September 30, 2008, primarily due to a decrease in the average cost to 2.45% for
the nine months ended September 30, 2009, from 3.08% for the nine months ended
September 30, 2008, partially offset by an increase of $506.5 million in the
average balance of total deposits to $13.53 billion for the nine months ended
September 30, 2009, from $13.02 billion for the nine months ended September 30,
2008.
Interest
expense on certificates of deposit decreased $31.3 million to $230.1 million for
the nine months ended September 30, 2009, from $261.4 million for the nine
months ended September 30, 2008, primarily due to a decrease in the average cost
to 3.47% for the nine months ended September 30, 2009, from 4.33% for the nine
months ended September 30, 2008, partially offset by an increase of $798.1
million in the average balance. During the nine months ended
September 30, 2009, $5.40 billion of certificates of deposit, with a weighted
average rate of 3.33% and a weighted average maturity at inception of twelve
months, matured and $4.85 billion
of
certificates of deposit were issued or repriced, with a weighted average rate of
2.06% and a weighted average maturity at inception of thirteen
months.
Interest
expense on Liquid CDs decreased $21.0 million to $9.6 million for the nine
months ended September 30, 2009, from $30.6 million for the nine months ended
September 30, 2008, primarily due to a decrease in the average cost to 1.39% for
the nine months ended September 30, 2009, from 3.15% for the nine months ended
September 30, 2008, coupled with a decrease of $366.9 million in the average
balance.
Interest
expense on borrowings decreased $40.6 million to $190.6 million for the nine
months ended September 30, 2009, from $231.2 million for the nine months ended
September 30, 2008, primarily due to a decrease of $861.2 million in the average
balance, coupled with a decrease in the average cost to 4.15% for the nine
months ended September 30, 2009, from 4.41% for the nine months ended September
30, 2008. The decrease in the average cost of borrowings reflects the
impact of the decline in interest rates on our variable rate borrowings, coupled
with the downward repricing of borrowings which matured and were refinanced over
the past year.
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, 2009 are consistent with the principal reasons for the
changes noted for the three months ended September 30, 2009.
Provision for Loan
Losses
We
continue to closely monitor the local and national real estate markets and other
factors related to risks inherent in our loan portfolio. The
continued weakness in the housing and real estate markets and overall economy
contributed to an increase in our delinquencies, non-performing loans and net
loan charge-offs during the nine months ended September 30, 2009. Net
charge-offs were also impacted by the sale and reclassification to held-for-sale
of certain delinquent and non-performing loans. As a geographically
diversified residential lender, we have been affected by negative consequences
arising from the ongoing economic recession and, in particular, a sharp downturn
in the housing industry nationally, as well as economic and housing industry
weaknesses in the New York metropolitan area. We are particularly
vulnerable to a job loss recession. Based on our evaluation of the
issues regarding the continued weakness in the housing and real estate markets
and overall economy, coupled with the increase in and composition of our
delinquencies, non-performing loans and net loan charge-offs, we determined that
an increase in the allowance for loan losses was warranted at September 30,
2009.
The
allowance for loan losses was $176.6 million at September 30, 2009 and $119.0
million at December 31, 2008. The provision for loan losses increased
$37.0 million to $50.0 million for the three months ended September 30, 2009,
from $13.0 million for the three months ended September 30, 2008, and increased
$126.0 million to $150.0 million for the nine months ended September 30, 2009,
from $24.0 million for the nine months ended September 30, 2008. The
increases in the provisions for loan losses for the three and nine months ended
September 30, 2009, compared to the three and nine months ended September 30,
2008, reflect the increases in the allowance for loan losses resulting from the
deterioration in the housing and real estate markets and the economy during 2008
and into 2009, in particular, the increase in the unemployment rate, which
contributed to increases in our delinquencies, non-performing loans and
charge-offs throughout 2008 and 2009. Accordingly, we increased our
allowance for loan losses each quarter in 2008 and 2009. The
allowance for loan losses as a percentage of total loans increased to 1.11% at
September 30, 2009, from 0.71% at December 31, 2008, primarily
due to
the increase in the allowance for loan losses. The allowance for loan
losses as a percentage of non-performing loans decreased to 43.25% at September
30, 2009, from 49.88% at December 31, 2008, primarily
due to
the increase in non-performing loans, partially offset by the increase in the
allowance for loan losses. The increases in non-performing loans
during any period are taken into account when determining the allowance for loan
losses because the allowance coverage percentages we apply to our non-performing
loans are higher than the allowance coverage percentages applied to our
performing loans.
As
previously discussed, we use ratio analyses as a supplemental tool for
evaluating the overall reasonableness of the allowance for loan
losses. The adequacy of the allowance for loan losses is ultimately
determined by the actual losses and charges recognized in the
portfolio. Our analysis of loss severity during the 2009 third
quarter, defined as the ratio of net write-downs taken through disposition of
the asset (typically the sale of REO) to the loan’s original principal balance
on one-to-four family loans during the twelve months ended June 30, 2009,
indicates a loss severity of approximately 27%. This analysis
primarily reviewed one-to-four family REO sales which occurred during the twelve
months ended June 30, 2009 and included both full documentation loans and
reduced documentation loans in a variety of states with varying years of
origination. An analysis of charge-offs on multi-family, commercial
real estate and construction loans, primarily related to loan sales, during the
twelve months ended June 30, 2009, indicates an average loss severity of
approximately 38%. We consider our average multi-family, commercial
real estate and construction loan loss severity experience as a gauge in
evaluating the overall adequacy of our allowance for loan
losses. However, the uniqueness of each multi-family, commercial real
estate and construction loan, particularly multi-family loans within New York
City, many of which are rent stabilized, is also factored into our
analyses. We also obtain updated estimates of collateral value on our
non-performing multi-family, commercial real estate and construction loans in
excess of $1.0 million. We believe that using the loss experience of
the past year (twelve months prior to the quarterly analysis) is reflective
of the current economic and real estate downturn. The ratio of the
allowance for loan losses to non-performing loans was approximately 43% at
September 30, 2009, which exceeds our average loss severity experience for
our mortgage loan portfolios, indicating that our allowance for loan losses
should be adequate to cover potential losses. Additionally, as
discussed later, consideration of our accounting for loans delinquent 180 days
or more provides further insight when analyzing our asset quality
ratios. We update our loss analyses quarterly to ensure that our
allowance coverage percentages are adequate and the overall allowance for loan
losses is our best estimate of loss as of a particular point in
time.
Although
the ratio of the allowance for loan losses to non-performing loans declined at
September 30, 2009, compared to December 31, 2008, several other asset
quality metrics continued to move directionally consistent with the increasing
trend in our delinquencies reflecting our analyses and views of the increasing
risk in the portfolio; namely, the increase in the total allowance for loan
losses and the ratio of the allowance for loan losses to total
loans. Additionally, when analyzing our asset quality trends,
consideration must be given to our accounting for non-performing loans,
particularly when reviewing our allowance for loan losses to non-performing
loans ratio. Included in our non-performing loans are one-to-four
family mortgage loans which are 180 days or more past due. Our
primary federal banking regulator, the OTS, requires us to update our collateral
values on one-to-four family mortgage loans which are 180 days past
due. If the estimated fair value of the loan collateral less
estimated selling costs is less than the recorded investment in the loan, a
charge-off of the difference is recorded to reduce the loan to its fair value
less estimated selling costs. Therefore certain losses inherent in
our non-performing one-to-four family mortgage loans are being recognized at 180
days of delinquency and annually thereafter and accordingly are charged off. The
impact of updating these estimates
of
collateral value and recognizing any required charge-offs is to increase
charge-offs and reduce the allowance for loan losses required on these
loans. In effect, these loans have been written down to their fair
value less estimated selling costs and the inherent loss has been
recognized. Therefore, when reviewing the allowance for loan losses
as a percentage of non-performing loans, the impact of these charge-offs should
be considered. At September 30, 2009, non-performing loans included
one-to-four family mortgage loans which were 180 days or more past due totaling
$195.6 million, net of the charge-offs related to such loans, which had a
related allowance for loan losses totaling $7.8 million. Excluding
one-to-four family mortgage loans which were 180 days or more past due at
September 30, 2009 and their related allowance, our ratio of the allowance for
loan losses to non-performing loans would be approximately 79%, which is
substantially more than our average loss severity experience for our mortgage
loan portfolios. This compares to our reported ratio of the allowance for
loan losses to non-performing loans at September 30, 2009 of approximately
43%.
We review
our allowance for loan losses on a quarterly basis. Material factors
considered during our quarterly review are our loss experience, the composition
and direction of loan delinquencies and the impact of current economic
conditions. Net loan charge-offs totaled $33.6 million, or
eighty-four basis points of average loans outstanding, annualized, for the three
months ended September 30, 2009 and $92.4 million, or seventy-six basis points
of average loans outstanding, annualized, for the nine months ended September
30, 2009. This compares to net loan charge-offs of $8.5 million, or
twenty-one basis points of average loans outstanding, annualized, for the three
months ended September 30, 2008 and $16.6 million, or fourteen basis points of
average loans outstanding, annualized, for the nine months ended September 30,
2008. For the three months ended September 30, 2009, one-to-four
family mortgage loan net charge-offs increased $16.8 million to $22.1 million
and multi-family, commercial real estate and construction loan net charge-offs
increased $8.2 million to $11.1 million, compared to the three months ended
September 30, 2008. For the nine months ended September 30, 2009,
one-to-four family mortgage loan net charge-offs increased $43.7 million to
$53.9 million and multi-family, commercial real estate and construction loan net
charge-offs increased $31.4 million to $37.1 million, compared to the nine
months ended September 30, 2008. The increase in one-to-four family
charge-offs for the nine months ended September 30, 2009, compared to the nine
months ended September 30, 2008, was primarily attributable to a $29.2 million
increase in charge-offs on loans 180 days or more past due. The
increase in multi-family, commercial real estate and construction loan
charge-offs for the nine months ended September 30, 2009, compared to the nine
months ended September 30, 2008, was primarily due to $33.3 million in net
charge-offs related to certain delinquent and non-performing loans sold or
transferred to held-for-sale during the nine months ended September 30,
2009. Our non-performing loans, which are comprised primarily of
mortgage loans, increased $169.9 million to $408.5 million, or 2.56% of total
loans, at September 30, 2009, from $238.6 million, or 1.43% of total loans, at
December 31, 2008. This increase was primarily due to increases of
$146.3 million in non-performing one-to-four family mortgage loans and $22.0
million in non-performing multi-family, commercial real estate and construction
loans. We proactively manage our non-performing assets, in part,
through the sale of certain delinquent and non-performing loans. If
the sale and reclassification to held-for-sale of certain delinquent and
non-performing loans, primarily multi-family, commercial real estate and
construction loans, during the nine months ended September 30, 2009 had not
occurred, the increase in non-performing loans would have been $88.6 million
greater, which amount is gross of $33.6 million in net charge-offs and $2.8
million in lower of cost or market write-downs taken on such loans.
We
continue to adhere to prudent underwriting standards. We underwrite
our one-to-four family mortgage loans primarily based upon our evaluation of the
borrower’s ability to pay. We obtain updated estimates of collateral
value for loans when classified or requested by our Asset Classification
Committee, or, in the case of one-to-four family mortgage loans, when such loans
are 180 days delinquent and annually thereafter. We monitor property
value trends in our market areas to determine what impact, if any, such trends
may have on our loan-to-value ratios and the adequacy of the allowance for loan
losses. Based on our review of property value trends, including
updated estimates of collateral value on classified loans and related loan
charge-offs, we believe the weakness in the housing market continues to have a
negative impact on the value of our non-performing loan collateral as of
September 30, 2009.
During
the 2009 first quarter, we experienced increases in delinquencies,
non-performing loans and charge-offs, along with a further acceleration of job
losses which totaled 2.0 million for the 2009 first quarter, and a further
increase in the unemployment rate to 8.5% for March 2009. Additionally, as a
result of our updated charge-off and loss analysis, we modified certain
allowance coverage percentages during the 2009 first quarter to be more
reflective of our current estimates of the amount of probable inherent losses in
our loan portfolio. The combination of these factors resulted in the
increase in our allowance for loan losses to $149.2 million at March 31, 2009
and a provision for loan losses of $50.0 million for the 2009 first
quarter. Delinquencies, non-performing loans and charge-offs
continued to increase in the 2009 second quarter. Job losses totaled
1.3 million in the 2009 second quarter and the unemployment rate increased to
9.5% for June 2009. We continued to update our charge-off and loss
analysis during the 2009 second quarter and modified our allowance coverage
percentages accordingly. The combination of these factors resulted in
an increase in our allowance for loan losses to $160.3 million at June 30, 2009
and a provision for loan losses of $50.0 million for the 2009 second
quarter. During the 2009 third quarter, increases in delinquencies,
non-performing loans and charge-offs continued. The nation
experienced continued job losses, which totaled 768,000 during the 2009 third
quarter, and the unemployment rate increased to 9.8% for September
2009. We continued to update our charge-off and loss analysis during
the 2009 third quarter and have modified our allowance coverage percentages
accordingly. As a result of these factors, we increased our allowance
for loan losses to $176.6 million at September 30, 2009 and recorded a provision
for loan losses of $50.0 million for the 2009 third quarter, resulting in a
provision for loan losses totaling $150.0 million for the nine months ended
September 30, 2009.
There are
no material assumptions relied on by management which have not been made
apparent in our disclosures or reflected in our asset quality ratios and
activity in the allowance for loan losses. 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, delinquencies, charge-off experience,
non-accrual and non-performing loans and the current economic
environment. The balance of our allowance for loan losses represents
management’s best estimate of the probable inherent losses in our loan portfolio
at September 30, 2009 and December 31, 2008.
For
further discussion of the methodology used to determine the allowance for loan
losses, see “Critical Accounting Policies-Allowance for Loan Losses” and for
further discussion of our loan portfolio composition and non-performing loans,
see “Asset Quality.”
Non-Interest
Income
Non-interest
income (loss) increased $75.4 million to income of $20.1 million for the three
months ended September 30, 2009, compared to a loss of $55.3 million for the
three months
ended
September 30, 2008, and increased $64.5 million to income of $56.5 million for
the nine months ended September 30, 2009, compared to a loss of $8.0 million for
the nine months ended September 30, 2008. These increases were
primarily due to decreases in OTTI charges and increases in gain on sales of
securities and mortgage banking income, net, partially offset by decreases in
other non-interest income, income from BOLI and customer service
fees.
During
the nine months ended September 30, 2009, we recorded a $5.3 million OTTI charge
related to our investment in two issues of Freddie Mac perpetual preferred
securities. There were no OTTI charges during the three months ended
September 30, 2009. This compares to an OTTI charge of $77.7 million
for the three and nine months ended September 30, 2008 related to these
securities. For further discussion of the OTTI charges, see Note 2 of
Notes to Consolidated Financial Statements in Item 1, “Financial Statements
(Unaudited).”
During
the three months ended September 30, 2009, we sold mortgage-backed securities
from the available-for-sale portfolio with an amortized cost of $87.6 million
resulting in gross realized gains totaling $3.8 million and during the nine
months ended September 30, 2009, we sold mortgage-backed securities from the
available-for-sale portfolio with an amortized cost of $176.9 million resulting
in gross realized gains totaling $5.9 million. There were no sales of
securities during the three and nine months ended September 30,
2008.
Mortgage
banking income (loss), net, which includes loan servicing fees, net gain on
sales of loans, amortization of MSR and valuation allowance adjustments for the
impairment of MSR, increased $1.2 million to income of $883,000 for the three
months ended September 30, 2009, compared to a loss of $279,000 for the three
months ended September 30, 2008. For the nine months ended September
30, 2009, mortgage banking income, net, increased $3.0 million to $4.8 million,
from $1.8 million for the nine months ended September 30, 2008. These
increases were primarily due to increases in net gain on sales of loans.
The increases in net
gain on sales of loans reflects increases in the volume of loans sold during the
three and nine months ended September 30, 2009, compared to the three and nine
months ended September 30, 2008. We generally sell our fifteen and
thirty year conforming fixed rate one-to-four family mortgage loan
production. The expanded conforming loans limits and decline in
interest rates on thirty year mortgages have resulted in increased consumer
demand for these fixed rate products resulting in significantly higher levels of
loans sold.
Other
non-interest income decreased $3.6 million to a loss of $1.9 million for the
three months ended September 30, 2009, compared to income of $1.7 million for
the three months ended September 30, 2008, and decreased $6.1 million to a loss
of $1.6 million for the nine months ended September 30, 2009, compared to income
of $4.5 million for the nine months ended September 30, 2008. These
decreases were primarily due to a $2.8 million
lower of cost or market
write-down on non-performing loans held-for-sale recorded in the 2009 third
quarter, and, for the nine months ended September 30, 2009, a $1.6 million lower
of cost or market write-down on premises and equipment held-for-sale at June 30,
2009 which was recorded in the 2009 second quarter. In addition,
other non-interest income for the three and nine months ended September 30, 2008
include a gain on sale of a vacant parcel of land and we recognized investment
losses during the three and nine months ended September 30, 2009 related to a
trust account previously established for certain former directors by one of the
banks we acquired, compared to income for the three and nine months ended
September 30, 2008. See Note 3 and Note 10 for further discussion of
non-performing loans held-for-sale and the related lower of cost or market
write-down and Note 5 for further discussion of the lower of cost or market
write-down on premises and equipment held-for-sale in Notes to Consolidated
Financial Statements in Item 1, “Financial Statements
(Unaudited).”
Income
from BOLI decreased $2.2 million to $2.1 million for the three months ended
September 30, 2009, from $4.3 million for the three months ended September 30,
2008, and decreased $6.1 million to $6.6 million for the nine months ended
September 30, 2009, from $12.7 million for the nine months ended September 30,
2008. These decreases were primarily due to a reduction in the
crediting rate paid on our investment reflecting the overall decline in market
interest rates.
Customer
service fees decreased $1.6 million to $14.2 million for the three months ended
September 30, 2009, from $15.8 million for the three months ended September 30,
2008, and decreased $4.4 million to $43.3 million for the nine months ended
September 30, 2009, from $47.7 million for the nine months ended September 30,
2008. These decreases were primarily due to decreases in insufficient
fund fees related to transaction accounts, commissions on sales of annuities,
other checking charges, ATM fees and minimum balance fees.
Non-Interest
Expense
Non-interest
expense increased $4.4 million to $63.2 million for the three months ended
September 30, 2009, from $58.8 million for the three months ended September 30,
2008, primarily due to a significant increase in regular
FDIC insurance premiums,
partially offset by a decrease in advertising expense. For the nine
months ended September 30, 2009, non-interest expense increased $26.2 million to
$203.2 million, from $177.0 million for the nine months ended September 30,
2008, also primarily due to an increase in regular FDIC insurance premiums,
coupled with an FDIC special assessment and an increase in compensation and
benefits expense, partially offset by decreases in occupancy, equipment and
systems expense and advertising expense. Our percentage of general
and administrative expense to average assets, annualized, increased to 1.21% for
the three months ended September 30, 2009, compared to 1.07% for the three
months ended September 30, 2008, and increased to 1.27% for the nine months
ended September 30, 2009, compared to 1.09% for the nine months ended September
30, 2008. The increases in these ratios were primarily due to the
increases in general and administrative expense for the three and nine months
ended September 30, 2009, compared to the three and nine months ended September
30, 2008.
Regular FDIC insurance
premiums increased $6.4 million to $6.9 million for the three months ended
September 30, 2009, from $549,000 for the three months ended September 30, 2008,
and increased $16.0 million to $17.7 million for the nine months ended September
30, 2009, from $1.7 million for the nine months ended September 30,
2008. These increases reflect the increases in our assessment rates
for 2009 resulting from the FDIC restoration plan described below. In
addition, during the 2009 first quarter we utilized the remaining balance of our
FDIC One-Time Assessment Credit to offset a portion of our deposit insurance
assessment.
Non-interest expense for the nine months ended
September 30, 2009 also includes a $9.9 million FDIC special
assessment. The FDIC adopted a restoration plan to increase the
Deposit Insurance Fund, or DIF, in response to significant losses incurred by
the DIF due to the failures of a number of banks and thrifts which resulted in a
decline in the DIF reserve ratio below the minimum reserve ratio of 1.15% and to
help maintain public confidence in the banking system. The
restoration plan included an increase in assessment rates for the 2009 first
quarter with an additional increase for the 2009 second quarter. In
addition, an emergency special assessment of five basis points on each
FDIC-insured depository institution's assets minus its Tier 1 capital, as of
June 30, 2009, was imposed. The special assessment was collected on
September 30, 2009. The special assessment increased our ratio of
general and administrative expense to average assets by six basis points for the
nine months ended September 30, 2009. For further discussion of the FDIC
restoration plan, see Part II, Item 1A, “Risk Factors.”
Compensation
and benefits expense increased $256,000 to $31.9 million for the three months
ended September 30, 2009, from $31.6 million for the three months ended
September 30, 2008, and increased $3.2 million to $99.2 million for the nine
months ended September 30, 2009, from $96.0 million for the nine months ended
September 30, 2008, primarily due to increases in the net periodic cost of
pension and other postretirement benefits and salaries, partially offset by
decreases in corporate incentive bonuses, ESOP related expense and stock-based
compensation costs. The increases in the net periodic cost of pension
and other postretirement benefits primarily reflect increases in the
amortization of the net actuarial loss and decreases in the expected return on
plan assets which are primarily the result of the decrease in the fair value of
pension plan assets resulting from the decline in the equities markets in
2008.
Occupancy,
equipment and systems expense decreased $491,000 to $16.0 million for the three
months ended September 30, 2009, from $16.5 million for the three months ended
September 30, 2008 and decreased $1.8 million to $48.4 million for the nine
months ended September 30, 2009, from $50.2 million for the nine months ended
September 30, 2008, primarily due to a decrease in depreciation
expense. Advertising expense decreased $1.4 million to $961,000 for
the three months ended September 30, 2009, from $2.3 million for the three
months ended September 30, 2008, and decreased $1.3 million to $3.7 million for
the nine months ended September 30, 2009, from $5.0 million for the nine months
ended September 30, 2008, primarily due to a reduction in print advertising
related to certificates of deposit.
Included
in other non-interest expense is REO related expense which increased $2.3
million to $5.1 million for the nine months ended September 30, 2009, from $2.8
million for the nine months ended September 30, 2008, reflecting the increasing
balance of REO. This increase was substantially offset by a decrease
in legal fees and other costs, primarily related to the goodwill
litigation.
Income Tax
Expense
For the
three months ended September 30, 2009, income tax expense totaled $1.9 million,
representing an effective tax rate of 18.9%, compared to an income tax benefit
of $3.6 million for the three months ended September 30, 2008, representing an
effective tax benefit rate of 17.8%. The increase in the effective
tax rate for the three months ended September 30, 2009, compared to the three
months ended September 30, 2008, reflects a significant increase in pre-tax book
income, coupled with a reduction in the amount of net unrecognized tax benefits
and related accrued interest released from accruals, partially offset by the
impact of the limitation of the tax benefit recognized on the OTTI charge during
the 2008 third quarter as the charge was treated as a capital loss for income
tax purposes. For the nine months ended September 30, 2009, income
tax expense totaled $7.5 million, representing an effective tax rate of 27.7%,
compared to $25.5 million for the nine months ended September 30, 2008,
representing an effective tax rate of 35.7%. The decrease in the
effective tax rate for the nine months ended September 30, 2009, compared to the
nine months ended September 30, 2008, reflects a significant reduction in
pre-tax book income, coupled with the impact of the limitation of the tax
benefit recognized on the OTTI charge during the 2008 third quarter, partially
offset by a reduction in the amount of net unrecognized tax benefits and related
accrued interest released from accruals. See Note 2 for additional
information regarding the OTTI charge and see Note 6 for additional information
regarding net unrecognized tax benefits and related accrued interest in 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. Although the continued weakness in the
economy and real estate market resulted in an increase in non-performing loans,
we continue to employ sound underwriting standards for new loan
originations. Through a variety of strategies, including, but not
limited to, aggressive collection efforts and the marketing of delinquent and
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.
The
composition of our loan portfolio, by property type, has remained relatively
consistent over the last several years. At September 30, 2009, our
loan portfolio was comprised of 76% one-to-four family mortgage loans, 16%
multi-family mortgage loans, 6% commercial real estate loans and 2% other loan
categories. This compares to 74% one-to-four family mortgage loans,
18% multi-family mortgage loans, 6% commercial real estate loans and 2% other
loan categories at December 31, 2008.
At September 30, 2009,
full documentation loans comprise 82% of our one-to-four family mortgage loan
portfolio, compared to 80% at December 31, 2008. At September 30,
2009, full documentation loans comprise 86% of our total mortgage loan
portfolio, compared to 85% at December 31, 2008.
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 percentages of the portfolio at the dates
indicated.
|
|
At
September 30, 2009
|
|
|
At
December 31, 2008
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
(Dollars
in Thousands)
|
|
Amount
|
|
|
of
Total
|
|
|
Amount
|
|
|
of
Total
|
|
One-to-four
family:
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
documentation interest-only (1)
|
|
$
|
4,933,145
|
|
|
|
41.09
|
%
|
|
$
|
5,501,989
|
|
|
|
44.55
|
%
|
Full
documentation amortizing
|
|
|
4,928,392
|
|
|
|
41.05
|
|
|
|
4,389,618
|
|
|
|
35.54
|
|
Reduced
documentation interest-only (1)(2)
|
|
|
1,657,368
|
|
|
|
13.81
|
|
|
|
1,911,160
|
|
|
|
15.48
|
|
Reduced
documentation amortizing (2)
|
|
|
486,785
|
|
|
|
4.05
|
|
|
|
546,850
|
|
|
|
4.43
|
|
Total
one-to-four family
|
|
$
|
12,005,690
|
|
|
|
100.00
|
%
|
|
$
|
12,349,617
|
|
|
|
100.00
|
%
|
Multi-family
and commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
documentation amortizing
|
|
$
|
2,911,296
|
|
|
|
83.28
|
%
|
|
$
|
3,146,103
|
|
|
|
81.66
|
%
|
Full
documentation interest-only
|
|
|
584,397
|
|
|
|
16.72
|
|
|
|
706,687
|
|
|
|
18.34
|
|
Total
multi-family and commercial real estate
|
|
$
|
3,495,693
|
|
|
|
100.00
|
%
|
|
$
|
3,852,790
|
|
|
|
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. One-to-four family interest-only loans
include interest-only hybrid ARM loans which were underwritten at the
initial note rate, which may have been a discounted rate, totaling $3.70
billion at September 30, 2009 and $4.41 billion at December 31,
2008.
|
(2)
|
One-to-four
family reduced documentation loans include SISA loans totaling $322.5
million at September 30, 2009 and $359.2 million at December 31, 2008 and
Super Streamline loans totaling $29.8 million at September 30, 2009 and
$36.9 million at December 31, 2008.
|
We do not
originate negative amortization loans, payment option loans or other loans with
short-term interest-only periods. Additionally, we do not originate
one-year ARM loans. The ARM loans in our portfolio which currently
reprice annually represent hybrid ARM loans (interest-only and amortizing) which
have passed their initial fixed rate period. Prior to 2006 we would
underwrite our one-to-four family interest-only hybrid ARM loans using the
initial note rate, which may have been a discounted rate. In 2006, we
began underwriting our one-to-four family interest-only hybrid ARM loans based
on a fully amortizing loan (in effect, underwriting interest-only hybrid ARM
loans as if they were amortizing hybrid ARM loans). In 2007,
we
began
underwriting our one-to-four family interest-only hybrid ARM loans at the higher
of the fully indexed rate or the initial note rate. In 2009, we began
underwriting our one-to-four family interest-only and amortizing hybrid ARM
loans at the higher of the fully indexed rate, the initial note rate or
6.00%. Within our one-to-four family mortgage loan portfolio we have
reduced documentation loan products. Reduced documentation loans are
comprised primarily of SIFA (stated income, full asset) loans. To a
lesser extent, our portfolio of reduced documentation loans also includes SISA
(stated income, stated asset) and Super Streamline loans. Reduced
documentation loans include both hybrid ARM loans (interest-only and amortizing)
and fixed rate loans. SIFA and SISA loans required a prospective
borrower to complete a standard mortgage loan application while the Super
Streamline product required the completion of an abbreviated application and is,
in effect, considered a “no documentation” loan. Effective January
2008 we no longer offer reduced documentation loans.
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 credit (FICO) score of
660 or below. However, we do not associate a particular FICO score
with our definition of subprime loans. Consistent with the guidance
provided by federal bank regulatory agencies, we consider subprime loans to be
loans to borrowers with a credit history containing one or more of the following
at the time of origination: (1) bankruptcy within the last four years; (2)
foreclosure within the last two years; or (3) two 30 day mortgage delinquencies
in the last twelve months. In addition, subprime loans generally
display the risk layering of the following features: high debt-to-income ratio
(50/50); low or no cash reserves; current loan-to-value ratios over 90%; 2/28,
3/27 or negative amortization loan products; or reduced or no documentation
loans. Our underwriting standards would generally preclude us from
originating loans to borrowers with a credit history containing a bankruptcy
within the last four years, a foreclosure within the last two years or two 30
day mortgage delinquencies in the last twelve months. Based upon the
definition and exclusions described above, we are a prime
lender. Within our portfolio of one-to-four family mortgage loans, we
have loans to borrowers who had FICO scores of 660 or below at the time of
origination. However, as a portfolio lender we underwrite our loans considering
all credit criteria, as well as collateral value, and do not base our
underwriting decisions solely on FICO scores. Based on our
underwriting criteria, particularly the average loan-to-value ratios at
origination, we consider our loans to borrowers with FICO scores of 660 or below
at origination to be prime loans.
Although
FICO scores are considered as part of our underwriting process, they have not
always been recorded on our mortgage loan system and are not available for all
of the one-to-four family mortgage loans on our mortgage loan
system. However, substantially all of our one-to-four family mortgage
loans originated since March 2005 have credit scores available on our mortgage
loan system. At September 30, 2009, one-to-four family mortgage loans
which had FICO scores
available
on our mortgage loan system totaled $10.18 billion, or 85% of our total
one-to-four family mortgage loan portfolio, of which $564.6 million, or 6%, had
FICO scores of 660 or below at the date of origination. At December
31, 2008, one-to-four family mortgage loans which had FICO scores available on
our mortgage loan system totaled $10.15 billion, or 82% of our total one-to-four
family mortgage loan portfolio, of which $621.3 million, or 6%, had FICO scores
of 660 or below at the date of origination.
We do not have FICO
scores recorded on our mortgage loan system for 15% of our one-to-four family
mortgage loans at September 30, 2009 and 18% of our one-to-four family mortgage
loans at December 31, 2008.
Consistent with our
one-to-four family mortgage loan portfolio composition, substantially all of our
loans to borrowers with known FICO scores of 660 or below are hybrid ARM
loans. Of these loans, 75% are interest-only and 25% are amortizing
at September 30, 2009 and December 31, 2008. In addition, at
September 30, 2009, 67% of our loans to borrowers with known FICO scores of 660
or below were full documentation loans and 33% were reduced documentation loans
and at December 31, 2008, 66% of our loans to borrowers with known FICO scores
of 660 or below were full documentation loans and 34% were reduced documentation
loans.
We believe
the aforementioned loans, when originated, were amply collateralized and
otherwise conformed to our prime lending standards and do not present a greater
risk of loss or other asset quality risk relative to comparable loans in our
portfolio to other borrowers with higher credit scores. Of our
one-to-four family mortgage loans without a FICO score available on our mortgage
loan system at September 30, 2009, 64% are amortizing hybrid ARM loans, 27% are
interest-only hybrid ARM loans and 9% are amortizing fixed rate loans, and at
December 31, 2008, 63% are amortizing hybrid ARM loans, 28% are interest-only
hybrid ARM loans and 9% are amortizing fixed rate loans.
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)
|
|
2009
|
|
|
2008
|
|
Non-accrual
delinquent mortgage loans
|
|
$
|
404,658
|
|
|
$
|
236,366
|
|
Non-accrual
delinquent consumer and other loans
|
|
|
3,779
|
|
|
|
2,221
|
|
Mortgage
loans delinquent 90 days or more and
|
|
|
|
|
|
|
|
|
still
accruing interest (1)
|
|
|
21
|
|
|
|
33
|
|
Total
non-performing loans
|
|
|
408,458
|
|
|
|
238,620
|
|
REO,
net (2)
|
|
|
41,468
|
|
|
|
25,481
|
|
Total
non-performing assets
|
|
$
|
449,926
|
|
|
$
|
264,101
|
|
|
|
|
|
|
|
|
|
|
Non-performing
loans to total loans
|
|
|
2.56
|
%
|
|
|
1.43
|
%
|
Non-performing
loans to total assets
|
|
|
1.98
|
|
|
|
1.09
|
|
Non-performing
assets to total assets
|
|
|
2.18
|
|
|
|
1.20
|
|
Allowance
for loan losses to non-performing loans
|
|
|
43.25
|
|
|
|
49.88
|
|
Allowance
for loan losses to total loans
|
|
|
1.11
|
|
|
|
0.71
|
|
(1)
|
Mortgage
loans delinquent 90 days or more and still accruing interest consist
primarily of loans delinquent 90 days or more as to their maturity date
but not their interest due.
|
(2)
|
REO,
substantially all of which are one-to-four family properties, is net of
allowance for losses totaling $1.3 million at September 30, 2009 and $2.0
million at December 31, 2008.
|
Total
non-performing assets increased $185.8 million to $449.9 million at September
30, 2009, from $264.1 million at December 31, 2008. This increase was
due to an increase in non-performing loans, coupled with an increase of $16.0
million in REO, net. Non-performing loans, the most significant
component of non-performing assets, increased $169.9 million to $408.5 million
at September 30, 2009, from $238.6 million at December 31,
2008. These increases
were
primarily due to an increase of $146.3 million in non-performing one-to-four
family mortgage loans, coupled with an increase of $22.0 million in
non-performing multi-family, commercial real estate and construction
loans. The continued weakness in the housing and real estate markets,
as well as the overall economy, particularly rising unemployment, continued to
contribute to an increase in our non-performing loans. The increase
in non-performing one-to-four family mortgage loans reflects a greater
concentration in non-performing reduced documentation loans. Reduced
documentation loans represent only 18% of the one-to-four family mortgage loan
portfolio, yet represent 58% of non-performing one-to-four family mortgage loans
at September 30, 2009. The ratio of non-performing loans to total
loans increased to 2.56% at September 30, 2009, from 1.43% at December 31,
2008. The ratio of non-performing assets to total assets increased to
2.18% at September 30, 2009, from 1.20% at December 31, 2008.
As
previously discussed, we proactively manage our non-performing assets, in part,
through the sale of certain delinquent and non-performing
loans. During the nine months ended September 30, 2009, we sold $35.6
million, net of charge-offs of $18.8 million, of delinquent and non-performing
mortgage loans, primarily multi-family, commercial real estate and construction
loans. In addition, at September 30, 2009, included in loans
held-for-sale, net, are $16.6 million, net of charge-offs of $14.8 million and
lower of cost or market write-downs of $2.8 million, of non-performing
multi-family and construction loans held-for-sale. Such loans are
excluded from non-performing loans, non-performing assets and related
ratios. There were no non-performing loans held-for-sale at December
31, 2008. Assuming we did not sell or reclassify to held-for-sale any
non-performing loans during 2009, at September 30, 2009 our non-performing loans
and non-performing assets would have been $88.6 million higher and our allowance
for loan losses would have been $33.6 million higher. Additionally,
the ratio of non-performing loans to total loans would have been 55 basis points
higher, the ratio of non-performing assets to total assets would have been 42
basis points higher and the ratio of the allowance for loan losses to
non-performing loans would have been 96 basis points lower.
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 and in percentages of the portfolio, at the
dates indicated.
|
|
At
September 30, 2009
|
|
|
At
December 31, 2008
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
(Dollars
in Thousands)
|
|
Amount
|
|
|
of
Total
|
|
|
Amount
|
|
|
of
Total
|
|
Non-performing
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family:
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
documentation interest-only
|
|
$
|
96,060
|
|
|
|
29.66
|
%
|
|
$
|
50,636
|
|
|
|
28.52
|
%
|
Full
documentation amortizing
|
|
|
41,064
|
|
|
|
12.68
|
|
|
|
18,565
|
|
|
|
10.46
|
|
Reduced
documentation interest-only
|
|
|
161,851
|
|
|
|
49.98
|
|
|
|
92,863
|
|
|
|
52.30
|
|
Reduced
documentation amortizing
|
|
|
24,871
|
|
|
|
7.68
|
|
|
|
15,478
|
|
|
|
8.72
|
|
Total
one-to-four family
|
|
$
|
323,846
|
|
|
|
100.00
|
%
|
|
$
|
177,542
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
and commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
documentation amortizing
|
|
$
|
44,590
|
|
|
|
59.16
|
%
|
|
$
|
43,097
|
|
|
|
84.35
|
%
|
Full
documentation interest-only
|
|
|
30,785
|
|
|
|
40.84
|
|
|
|
7,995
|
|
|
|
15.65
|
|
Total
multi-family and commercial real estate
|
|
$
|
75,375
|
|
|
|
100.00
|
%
|
|
$
|
51,092
|
|
|
|
100.00
|
%
|
The
following table provides further details on the geographic composition of both
our total and non-performing one-to-four family mortgage loans as of September
30, 2009.
|
|
One-to-Four Family Mortgage Loans
|
|
|
|
At September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
Non-Performing
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Total
|
|
|
Loans
|
|
|
|
|
|
|
Percent of
|
|
|
Non-Performing
|
|
|
Non-Performing
|
|
|
as Percent of
|
|
(Dollars in Millions)
|
|
Total Loans
|
|
|
Total Loans
|
|
|
Loans
|
|
|
Loans
|
|
|
State Totals
|
|
State:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
York
|
|
$
|
3,030.6
|
|
|
|
25.3
|
%
|
|
$
|
35.3
|
|
|
|
10.9
|
%
|
|
|
1.16
|
%
|
Illinois
|
|
|
1,392.8
|
|
|
|
11.6
|
|
|
|
39.4
|
|
|
|
12.2
|
|
|
|
2.83
|
|
Connecticut
|
|
|
1,242.1
|
|
|
|
10.3
|
|
|
|
27.2
|
|
|
|
8.4
|
|
|
|
2.19
|
|
California
|
|
|
1,156.4
|
|
|
|
9.6
|
|
|
|
53.8
|
|
|
|
16.5
|
|
|
|
4.65
|
|
New
Jersey
|
|
|
948.0
|
|
|
|
7.9
|
|
|
|
36.5
|
|
|
|
11.3
|
|
|
|
3.85
|
|
Massachusetts
|
|
|
849.3
|
|
|
|
7.1
|
|
|
|
17.4
|
|
|
|
5.4
|
|
|
|
2.05
|
|
Virginia
|
|
|
823.9
|
|
|
|
6.9
|
|
|
|
21.1
|
|
|
|
6.5
|
|
|
|
2.56
|
|
Maryland
|
|
|
795.2
|
|
|
|
6.6
|
|
|
|
38.9
|
|
|
|
12.0
|
|
|
|
4.89
|
|
Washington
|
|
|
341.0
|
|
|
|
2.8
|
|
|
|
2.9
|
|
|
|
0.9
|
|
|
|
0.85
|
|
Florida
|
|
|
277.5
|
|
|
|
2.3
|
|
|
|
23.8
|
|
|
|
7.4
|
|
|
|
8.58
|
|
All other states (1)
|
|
|
1,148.9
|
|
|
|
9.6
|
|
|
|
27.5
|
|
|
|
8.5
|
|
|
|
2.39
|
|
Total
|
|
$
|
12,005.7
|
|
|
|
100.0
|
%
|
|
$
|
323.8
|
|
|
|
100.0
|
%
|
|
|
2.70
|
%
|
(1)
|
Includes
29 states and Washington, D.C.
|
At
September 30, 2009, the geographic composition of our multi-family and
commercial real estate mortgage loan portfolio was 93% in the New York
metropolitan area, 3% in Florida and 4% in various other states and the
geographic composition of non-performing multi-family and commercial real estate
mortgage loans was 62% in the New York metropolitan area, 37% in Florida and 1%
in Massachusetts.
We
discontinue accruing interest on loans when they become 90 days delinquent as to
their payment due date. In addition, we reverse all previously
accrued and uncollected interest through a charge to interest
income. While loans are in non-accrual status, interest due is
monitored and income is recognized only to the extent cash is received until a
return to accrual status is warranted.
If all
non-accrual loans at September 30, 2009 and 2008 had been performing in
accordance with their original terms, we would have recorded interest income,
with respect to such loans, of $18.8 million for the nine months ended September
30, 2009 and $8.2 million for the nine months ended September 30,
2008. This compares to actual payments recorded as interest income,
with respect to such loans, of $6.4 million for the nine months ended September
30, 2009 and $2.7 million for the nine months ended September 30,
2008.
We may
from time to time agree to modify the contractual terms of a borrower’s
loan. In cases where such modifications represent a concession to a
borrower experiencing financial difficulty, the modification is considered a
troubled debt restructuring. Loans modified in a troubled debt
restructuring are placed on non-accrual status until we determine that future
collection of principal and interest is reasonably assured, which generally
requires that the borrower demonstrate performance according to the restructured
terms for a period of at least six months. Loans modified in a
troubled debt restructuring which are included in non-accrual loans totaled
$55.4 million at September 30, 2009 and $6.9 million at December 31,
2008. Excluded from non-performing assets are restructured loans that
have complied with the terms of their restructure agreement for a satisfactory
period of time and have, therefore, been returned to performing
status. Restructured accruing loans totaled $22.9 million at
September 30, 2009 and $1.1 million at December 31, 2008.
In
addition to non-performing loans, we had $108.9 million of potential problem
loans at September 30, 2009, compared to $84.2 million at December 31,
2008. Such loans include loans which are 60-89 days delinquent as
shown in the following table and certain other internally classified
loans.
Delinquent
Loans
The
following table shows a comparison of delinquent loans at September 30, 2009 and
December 31, 2008. Delinquent loans are reported based on the number
of days the loan payments are past due.
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
90 Days or More
|
|
|
|
Number
|
|
|
|
|
|
Number
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
of
|
|
|
|
|
|
of
|
|
|
|
|
|
of
|
|
|
|
|
(Dollars in Thousands)
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
|
497
|
|
|
$
|
164,428
|
|
|
|
181
|
|
|
$
|
60,512
|
|
|
|
868
|
|
|
$
|
323,846
|
|
Multi-family
|
|
|
42
|
|
|
|
25,159
|
|
|
|
11
|
|
|
|
11,254
|
|
|
|
62
|
|
|
|
65,394
|
|
Commercial
real estate
|
|
|
7
|
|
|
|
4,159
|
|
|
|
1
|
|
|
|
2,047
|
|
|
|
8
|
|
|
|
9,981
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
5,458
|
|
Consumer
and other loans
|
|
|
95
|
|
|
|
3,814
|
|
|
|
42
|
|
|
|
2,062
|
|
|
|
64
|
|
|
|
3,779
|
|
Total
delinquent loans
|
|
|
641
|
|
|
$
|
197,560
|
|
|
|
235
|
|
|
$
|
75,875
|
|
|
|
1,004
|
|
|
$
|
408,458
|
|
Delinquent
loans to total loans
|
|
|
|
|
|
|
1.24
|
%
|
|
|
|
|
|
|
0.48
|
%
|
|
|
|
|
|
|
2.56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
|
465
|
|
|
$
|
145,989
|
|
|
|
135
|
|
|
$
|
50,749
|
|
|
|
489
|
|
|
$
|
177,542
|
|
Multi-family
|
|
|
64
|
|
|
|
63,015
|
|
|
|
16
|
|
|
|
13,125
|
|
|
|
50
|
|
|
|
50,392
|
|
Commercial
real estate
|
|
|
11
|
|
|
|
16,612
|
|
|
|
4
|
|
|
|
5,123
|
|
|
|
1
|
|
|
|
700
|
|
Construction
|
|
|
1
|
|
|
|
1,133
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
7,765
|
|
Consumer
and other loans
|
|
|
119
|
|
|
|
3,085
|
|
|
|
45
|
|
|
|
1,065
|
|
|
|
43
|
|
|
|
2,221
|
|
Total
delinquent loans
|
|
|
660
|
|
|
$
|
229,834
|
|
|
|
200
|
|
|
$
|
70,062
|
|
|
|
588
|
|
|
$
|
238,620
|
|
Delinquent
loans to total loans
|
|
|
|
|
|
|
1.38
|
%
|
|
|
|
|
|
|
0.42
|
%
|
|
|
|
|
|
|
1.43
|
%
|
Allowance for Loan
Losses
Activity
in the allowance for loan losses is summarized as follows:
|
|
For the
|
|
|
|
Nine Months
|
|
|
|
Ended
|
|
(In Thousands)
|
|
September 30, 2009
|
|
Balance
at December 31, 2008
|
|
$
|
119,029
|
|
Provision
charged to operations
|
|
|
150,000
|
|
Charge-offs:
|
|
|
|
|
One-to-four
family (1)
|
|
|
(57,569
|
)
|
Multi-family
|
|
|
(25,808
|
)
|
Commercial
real estate
|
|
|
(1,711
|
)
|
Construction
|
|
|
(10,361
|
)
|
Consumer and other loans
|
|
|
(1,455
|
)
|
Total charge-offs
|
|
|
(96,904
|
)
|
Recoveries:
|
|
|
|
|
One-to-four
family (1)
|
|
|
3,629
|
|
Multi-family
|
|
|
753
|
|
Commercial
real estate
|
|
|
27
|
|
Construction
|
|
|
16
|
|
Consumer and other loans
|
|
|
88
|
|
Total recoveries
|
|
|
4,513
|
|
Net charge-offs
|
|
|
(92,391
|
)
|
Balance at September 30,
2009
|
|
$
|
176,638
|
|
(1) Includes
$36.1 million of net charge-offs related to reduced documentation
loans.
ITEM
3.
Quantitative and Qualitative
Disclosures about Market Risk
As a
financial institution, the primary component of our market risk is interest rate
risk, or IRR. The objective of our IRR management policy is to
maintain an appropriate mix and level of assets, liabilities and off-balance
sheet items to enable us to meet our earnings and/or growth objectives, while
maintaining specified minimum capital levels as required by the OTS, in the case
of Astoria Federal, and as established by our Board of Directors. We
use a variety of analyses to monitor, control and adjust our asset and liability
positions, primarily interest rate sensitivity gap analysis, or gap analysis,
and net interest income sensitivity, or NII sensitivity,
analysis. Additional IRR modeling is done by Astoria Federal in
conformity with OTS requirements.
Gap
Analysis
Gap
analysis measures the difference between the amount of interest-earning assets
anticipated to mature or reprice within specific time periods and the amount of
interest-bearing liabilities anticipated to mature or reprice within the same
time periods. Gap analysis does not indicate the impact of general
interest rate movements on our net interest income because the actual repricing
dates of various assets and liabilities will differ from our estimates and it
does not give consideration to the yields and costs of the assets and
liabilities or the projected yields and costs to replace or retain those assets
and liabilities. Callable features of certain assets and liabilities,
in addition to the foregoing, may also cause actual experience to vary from the
analysis.
The
following table, referred to as the Gap Table, sets forth the amount of
interest-earning assets and interest-bearing liabilities outstanding at
September 30, 2009 that we anticipate will reprice or mature in each of the
future time periods shown using certain assumptions based on our historical
experience and other market-based data available to us. The Gap Table
includes $3.23 billion of callable borrowings classified according to their
maturity dates, primarily in the more than one year to three years and more than
five years categories, which are callable within three months and at various
times thereafter. In addition, the Gap Table includes callable
securities with an amortized cost of $251.0 million classified according to
their maturity dates, in the more than one year to three years and more than
three years to five years categories, which are callable within one year and at
various times thereafter. The classifications of callable borrowings
and securities according to their maturity dates are based on our experience
with, and expectations of, these types of instruments and the current interest
rate environment. As indicated in the Gap Table, our one-year
cumulative gap at September 30, 2009 was negative 9.57% compared to negative
19.06% at December 31, 2008. The change in the one-year cumulative
gap is primarily due to an increase in projected mortgage loan and securities
repayments at September 30, 2009, compared to December 31, 2008, primarily due
to increased refinance activity, coupled with a decrease in projected borrowings
maturing and/or repricing at September 30, 2009, compared to December 31, 2008,
primarily due to the repayment of a portion of our matured borrowings during the
nine months ended September 30, 2009.
|
|
At September 30, 2009
|
|
|
|
|
|
|
More than
|
|
|
More than
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year
|
|
|
Three Years
|
|
|
|
|
|
|
|
|
|
One Year
|
|
|
to
|
|
|
to
|
|
|
More than
|
|
|
|
|
(Dollars in Thousands)
|
|
or Less
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Five Years
|
|
|
Total
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans (1)
|
|
$
|
5,411,218
|
|
|
$
|
5,600,411
|
|
|
$
|
3,662,404
|
|
|
$
|
484,291
|
|
|
$
|
15,158,324
|
|
Consumer
and other loans (1)
|
|
|
303,994
|
|
|
|
4,522
|
|
|
|
2,855
|
|
|
|
17,008
|
|
|
|
328,379
|
|
Repurchase
agreements
|
|
|
45,380
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45,380
|
|
Securities
available-for-sale
|
|
|
296,771
|
|
|
|
317,646
|
|
|
|
190,154
|
|
|
|
123,673
|
|
|
|
928,244
|
|
Securities
held-to-maturity
|
|
|
812,325
|
|
|
|
971,918
|
|
|
|
596,480
|
|
|
|
137,301
|
|
|
|
2,518,024
|
|
FHLB-NY stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
177,199
|
|
|
|
177,199
|
|
Total
interest-earning assets
|
|
|
6,869,688
|
|
|
|
6,894,497
|
|
|
|
4,451,893
|
|
|
|
939,472
|
|
|
|
19,155,550
|
|
Net
unamortized purchase premiums
and deferred
costs (2)
|
|
|
39,926
|
|
|
|
39,068
|
|
|
|
25,572
|
|
|
|
3,432
|
|
|
|
107,998
|
|
Net interest-earning assets
(3)
|
|
|
6,909,614
|
|
|
|
6,933,565
|
|
|
|
4,477,465
|
|
|
|
942,904
|
|
|
|
19,263,548
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
249,698
|
|
|
|
416,358
|
|
|
|
416,358
|
|
|
|
876,757
|
|
|
|
1,959,171
|
|
Money
market
|
|
|
146,038
|
|
|
|
91,422
|
|
|
|
91,422
|
|
|
|
1,417
|
|
|
|
330,299
|
|
NOW
and demand deposit
|
|
|
111,031
|
|
|
|
222,074
|
|
|
|
222,074
|
|
|
|
966,838
|
|
|
|
1,522,017
|
|
Liquid
CDs
|
|
|
812,141
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
812,141
|
|
Certificates
of deposit
|
|
|
6,419,712
|
|
|
|
1,653,871
|
|
|
|
521,408
|
|
|
|
-
|
|
|
|
8,594,991
|
|
Borrowings, net
|
|
|
1,149,609
|
|
|
|
2,159,248
|
|
|
|
450,000
|
|
|
|
2,078,866
|
|
|
|
5,837,723
|
|
Total interest-bearing
liabilities
|
|
|
8,888,229
|
|
|
|
4,542,973
|
|
|
|
1,701,262
|
|
|
|
3,923,878
|
|
|
|
19,056,342
|
|
Interest sensitivity gap
|
|
|
(1,978,615
|
)
|
|
|
2,390,592
|
|
|
|
2,776,203
|
|
|
|
(2,980,974
|
)
|
|
$
|
207,206
|
|
Cumulative interest sensitivity
gap
|
|
$
|
(1,978,615
|
)
|
|
$
|
411,977
|
|
|
$
|
3,188,180
|
|
|
$
|
207,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
interest sensitivity gap as a percentage of total assets
|
|
|
(9.57
|
)%
|
|
|
1.99
|
%
|
|
|
15.42
|
%
|
|
|
1.00
|
%
|
|
|
|
|
Cumulative
net interest-earning assets as a percentage of interest-bearing
liabilities
|
|
|
77.74
|
%
|
|
|
103.07
|
%
|
|
|
121.07
|
%
|
|
|
101.09
|
%
|
|
|
|
|
(1)
|
Mortgage
loans and consumer and other loans include loans held-for-sale and exclude
non-performing loans and the
allowance
for loan losses.
|
(2)
|
Net
unamortized purchase premiums and deferred costs are
prorated.
|
(3)
|
Includes
securities available-for-sale at amortized
cost.
|
NII
Sensitivity Analysis
In
managing IRR, we also use an internal income simulation model for our NII
sensitivity analyses. These analyses measure changes in projected net
interest income over various time periods resulting from hypothetical changes in
interest rates. The interest rate scenarios most commonly analyzed
reflect gradual and reasonable changes over a specified time period, which is
typically one year. The base net interest income projection utilizes
similar assumptions as those reflected in the Gap Table, assumes that cash flows
are reinvested in similar assets and liabilities and that interest rates as of
the reporting date remain constant over the projection period. For
each alternative interest rate scenario, corresponding changes in the cash flow
and repricing assumptions of each financial instrument are made to determine the
impact on net interest income.
Assuming
the entire yield curve was to increase 200 basis points, through quarterly
parallel increments of 50 basis points, our projected net interest income for
the twelve month period beginning October 1, 2009 would decrease by
approximately 0.71% from the base projection. At December 31, 2008, in the up
200 basis point scenario, our projected net interest income for the twelve month
period beginning January 1, 2009 would have decreased by approximately 4.37%
from the base projection. The current low interest rate
environment
prevents
us from performing an income simulation for a decline in interest rates of the
same magnitude and timing as our rising interest rate simulation, since certain
asset yields, liability costs and related indexes are below
2.00%. However, assuming the entire yield curve was to decrease 100
basis points, through quarterly parallel decrements of 25 basis points, our
projected net interest income for the twelve month period beginning October 1,
2009 would decrease by approximately 1.45% from the base
projection. At December 31, 2008, in the down 100 basis point
scenario, our projected net interest income for the twelve month period
beginning January 1, 2009 would have increased by approximately 1.77% from the
base projection. The down 100 basis point scenarios include some
limitations as well since certain indices, yields and costs are already below
1.00%.
Various
shortcomings are inherent in both the Gap Table and NII sensitivity
analyses. Certain assumptions may not reflect the manner in which
actual yields and costs respond to market changes. Similarly,
prepayment estimates and similar assumptions are subjective in nature, involve
uncertainties and, therefore, cannot be determined with
precision. Changes in interest rates may also affect our operating
environment and operating strategies as well as those of our
competitors. In addition, certain adjustable rate assets have
limitations on the magnitude of rate changes over specified periods of
time. Accordingly, although our NII sensitivity analyses may provide
an indication of our IRR exposure, such analyses are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
our net interest income and our actual results will
differ. Additionally, certain assets, liabilities and items of income
and expense which may be affected by changes in interest rates, albeit to a much
lesser degree, and which do not affect net interest income, are excluded from
this analysis. These include income from BOLI and changes in the fair
value of MSR. With respect to these items alone, and assuming the
entire yield curve was to increase 200 basis points, through quarterly parallel
increments of 50 basis points, our projected net income for the twelve month
period beginning October 1, 2009 would increase by approximately $5.0
million. Conversely, assuming the entire yield curve was to decrease
100 basis points, through quarterly parallel decrements of 25 basis points, our
projected net income for the twelve month period beginning October 1, 2009 would
decrease by approximately $3.1 million with respect to these items
alone.
For
further information regarding our market risk and the limitations of our gap
analysis and NII sensitivity analysis, see Part II, Item 7A, “Quantitative and
Qualitative Disclosures about Market Risk,” included in our 2008 Annual Report
on Form 10-K.
ITEM
4. Controls and Procedures
George L.
Engelke, Jr., our Chairman and Chief Executive Officer, and Frank E. Fusco, our
Executive Vice President, Treasurer and Chief Financial Officer, conducted an
evaluation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30,
2009. Based upon their evaluation, they each found that our
disclosure controls and procedures were effective to ensure that information
required to be disclosed in the reports we file and submit under the Exchange
Act is recorded, processed, summarized and reported as and when required and
that such information is accumulated and communicated to our management as
appropriate to allow timely decisions regarding required
disclosure.
There
were no changes in our internal controls over financial reporting that occurred
during the three months ended September 30, 2009 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
PART
II - OTHER INFORMATION
ITEM
1. Legal Proceedings
In the
ordinary course of our business, we are routinely made a defendant in or a party
to pending or threatened legal actions or proceedings which, in some cases, seek
substantial monetary damages from or other forms of relief against
us. In our opinion, after consultation with legal counsel, we believe
it unlikely that such actions or proceedings will have a material adverse effect
on our financial condition, results of operations or liquidity.
Goodwill
Litigation
We have
been a party to an action against the United States involving an assisted
acquisition made in the early 1980’s and supervisory goodwill accounting
utilized in connection therewith. The trial in this action, entitled
Astoria
Federal
Savings and Loan Association vs. United States
, took place during 2007
before the Federal Claims Court. The Federal Claims Court, by
decision filed on January 8, 2008, awarded to us $16.0 million in damages from
the U.S. Government. No portion of the $16.0 million award was
recognized in our consolidated financial statements. The U.S.
Government appealed such decision to the Court of Appeals.
In an
opinion dated May 28, 2009, the Court of Appeals affirmed in part and reversed
in part the lower court’s ruling and remanded the case to the Federal Claims
Court for further proceedings. The original damage award was
primarily based on a request for damages for lost profits covering the period
1990 to 1995. The Court of Appeals directed the Federal Claims Court
to re-examine the period from 1990 to July 1992 with respect to the calculation
of lost profits as impacted by certain growth restrictions that otherwise may
have been imposed by bank regulatory authorities.
The
ultimate outcome of this action and the timing of such outcome is uncertain and
there can be no assurance that we will benefit financially from such
litigation. Legal expense related to this action has been recognized
as it has been incurred.
McAnaney
Litigation
In 2004,
an action entitled
David
McAnaney and Carolyn McAnaney, individually and on behalf of all others
similarly situated vs. Astoria Financial Corporation, et al.
was
commenced in the U.S. District Court for the Eastern District of New York, or
the District Court. The action, commenced as a class action, alleges
that in connection with the satisfaction of certain mortgage loans made by
Astoria Federal, The Long Island Savings Bank, FSB, which was acquired by
Astoria Federal in 1998, and their related entities, customers were charged
attorney document preparation fees, recording fees and facsimile fees allegedly
in violation of the federal Truth in Lending Act, the Real Estate Settlement
Procedures Act, or RESPA, the Fair Debt Collection Act, or FDCA, the New York
State Deceptive Practices Act, and alleges actions based upon breach of
contract, unjust enrichment and common law fraud.
Astoria
Federal previously moved to dismiss the amended complaint, which motion was
granted in part and denied in part, dismissing claims based on violations of
RESPA and FDCA. The District Court further determined that class
certification would be considered prior to considering summary
judgment. The District Court, on September 19, 2006, granted the
plaintiff’s motion for class certification. Astoria Federal has
denied the claims set forth
in the
complaint. Both we and the plaintiffs subsequently filed motions for
summary judgment with the District Court. The District Court, on
September 12, 2007, granted our motion for summary judgment on the basis that
all named plaintiffs’ Truth in Lending claims are time barred. All
other aspects of plaintiffs’ and defendants’ motions for summary judgment were
dismissed without prejudice. The District Court found the named
plaintiffs to be inadequate class representatives and provided plaintiffs’
counsel an opportunity to submit a motion for the substitution or intervention
of new named plaintiffs. Plaintiffs’ counsel filed a motion with the
District Court for partial reconsideration of its decision. The
District Court, by order dated January 25, 2008, granted plaintiffs’ motion for
partial reconsideration and again determined that all named plaintiffs’ Truth-in
Lending claims are time barred. Plaintiffs’ counsel subsequently
submitted a motion to intervene or substitute plaintiff proposing a single
substitute plaintiff. On April 18, 2008, we filed with the District
Court our opposition to such motion. The District Court on September
29, 2008 granted the plaintiffs’ motion allowing a new single named plaintiff to
be substituted. The District Court also established a schedule for
the plaintiffs to amend the complaint, for the defendants to respond and for
consideration of summary judgment on the merits. During the fourth
quarter of 2008, the plaintiffs amended their complaint to assert the claim of
the new substitute plaintiff, the defendants answered denying such claims and
both parties cross-moved for summary judgment. On September 29, 2009,
the District Court issued a decision regarding the parties’ cross motions for
summary judgment. Plaintiff’s motion was denied in its
entirety. The defendant’s motion was granted in part and denied in
part. All claims asserted against Astoria Financial Corporation and
Long Island Bancorp, Inc. were dismissed. All remaining claims
against Astoria Federal were dismissed, except those based upon alleged
violations of the federal Truth in Lending Act, the New York State Deceptive
Practices Act and breach of contract. The District Court held, with
respect to these claims, that there exist triable issues of fact.
We
currently do not believe this action will likely have a material adverse impact
on our financial condition or results of operations. However, no
assurance can be given at this time that this litigation will be resolved
amicably, that this litigation will not be costly to defend, that this
litigation will not have an impact on our financial condition or results of
operations or that, ultimately, any such impact will not be
material.
ITEM
1A. Risk Factors
For a
summary of risk factors relevant to our operations, see Part I, Item 1A, “Risk
Factors,” in our 2008 Annual Report on Form 10-K and Part II, Item 1A. “Risk
Factors,” in our March 31, 2009 and June 30, 2009 Quarterly Reports on Form
10-Q. There are no other material changes in risk factors relevant to
our operations since June 30, 2009 except as discussed below.
Our
results of operations are affected by economic conditions in the New York
metropolitan area and nationally.
Our
retail banking and a significant portion of our lending business (approximately
43% of our one-to-four family and 93% of our multi-family and commercial real
estate mortgage loan portfolios at September 30, 2009) are concentrated in the
New York metropolitan area, which includes New York, New Jersey and
Connecticut. As a result of this geographic concentration, our
results of operations largely depend upon economic conditions in this area,
although they also depend on economic conditions in other
areas.
We are
operating in a challenging and uncertain economic environment, both nationally
and locally. Financial institutions continue to be affected by
continued weakness in the real estate market and constrained financial
markets. Declines in real estate values, home sales volumes and
financial stress on borrowers as a result of the economic recession, including
job losses, could have an adverse effect on our borrowers or their customers,
which could adversely affect our financial condition and results of
operations. In addition, decreases in real estate values could
adversely affect the value of property used as collateral for our
loans. At September 30, 2009, the average loan-to-value ratio of our
mortgage loan portfolio was less than 65% based on current principal balances
and original appraised values. However, no assurance can be given
that the original appraised values are reflective of current market conditions
as we have experienced significant declines in real estate values in all markets
in which we lend.
We have
experienced increases in loan delinquencies and charge-offs in
2009. Our non-performing loans, which are comprised primarily of
mortgage loans, increased $169.9 million to $408.5 million, or 2.56% of total
loans, at September 30, 2009, from $238.6 million, or 1.43% of total loans, at
December 31, 2008. Our net loan charge-offs totaled $33.6 million for
the three months ended September 30, 2009, compared to $38.9 million for the
three months ended June 30, 2009, $19.8 million for the three months ended March
31, 2009 and $28.9 million for the year ended December 31, 2008. Our
provision for loan losses totaled $50.0 million for each quarter during 2009 or
$150.0 million for the nine months ended September 30, 2009, compared to $69.0
million for the year ended December 31, 2008. As a residential
lender, we are particularly vulnerable to the impact of a severe job loss
recession. Significant increases in job losses and unemployment will
have a negative impact on the financial condition of residential borrowers and
their ability to remain current on their mortgage loans. Continued
weakness or further deterioration in national and local economic conditions,
including an accelerating pace of job losses, particularly in the New York
metropolitan area, could have a material adverse impact on the quality of our
loan portfolio, which could result in further increases in loan delinquencies,
causing a decrease in our interest income as well as an adverse impact on our
loan loss experience, causing an increase in our allowance for loan losses and
related provision and a decrease in net income. Such deterioration
could also adversely impact the demand for our products and services, and,
accordingly, our results of operations.
The
FDIC’s recently adopted restoration plan and the related increased assessment
rate schedule may have a material effect on our results of
operations.
In 2008,
the FDIC adopted a restoration plan that raised the deposit insurance assessment
rate schedule, uniformly across all four risk categories into which the FDIC
assigns insured institutions, by seven basis points (annualized) of insured
deposits beginning on January 1, 2009. Additionally, beginning with the second
quarter of 2009, the initial base assessment rates were increased further
depending on an institution’s risk category, with adjustments resulting in
increased assessment rates for institutions with a significant reliance on
secured liabilities and brokered deposits. Our deposit insurance
assessments totaled $17.7 million for the nine months ended September 30, 2009,
compared to $1.7 million for the nine months ended September 30,
2008.
The FDIC
also adopted a final rule in May 2009, imposing a five basis point special
assessment on each insured depository institution’s assets minus Tier 1 capital
as of June 30, 2009, which was collected on September 30, 2009. Our
FDIC special assessment totaled $9.9 million for the nine months ended September
30, 2009.
On
September 29, 2009, the FDIC adopted an amendment to the restoration plan that
increases the deposit insurance assessment rate schedule uniformly across all
four risk categories by three basis points (annualized) of insured deposits
beginning January 1, 2011. In addition, the FDIC issued a notice of
proposed rulemaking and request for comment which would require insured
depository institutions to prepay their quarterly deposit insurance assessments
for the fourth quarter of 2009 and for all of 2010, 2011 and 2012 on December
30, 2009, together with their regular deposit insurance assessment for the third
quarter of 2009. We expect we would have to prepay approximately
$100.0 million in deposit insurance assessments on December 30, 2009 if the
prepayment proposal is adopted.
There is
no guarantee that the higher premiums, special assessment and assessment
prepayment described above will be sufficient for the DIF to meet its funding
requirements, which may necessitate further special assessments or increases in
deposit insurance premiums. Any such future assessments or increases
could have a further material impact on our results of operations.
ITEM
2. Unregistered Sales of Equity Securities and Use of
Proceeds
During
the nine months ended September 30, 2009, there were no repurchases of our
common stock. Our twelfth stock repurchase plan, approved by our
Board of Directors on April 18, 2007, authorized the purchase of 10,000,000
shares, or approximately 10% of our common stock outstanding, in open-market or
privately negotiated transactions. At September 30, 2009, a maximum
of 8,107,300 shares may yet be purchased under this plan.
As
of September 30, 2009, we are not currently repurchasing additional shares of
our common stock.
ITEM
3. Defaults Upon Senior Securities
Not
applicable.
ITEM
4. Submission of Matters to a Vote of Security Holders
Not
applicable.
ITEM
5. Other Information
Not
applicable.
ITEM
6. Exhibits
See Index
of Exhibits on page 66.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
Astoria
Financial Corporation
|
|
|
|
|
Dated:
|
November 6, 2009
|
|
By:
|
/s/
Frank E. Fusco
|
|
|
|
Frank E. Fusco
|
|
|
|
Executive Vice President,
|
|
|
|
Treasurer and Chief Financial Officer
|
|
|
|
(Principal Accounting
Officer)
|
ASTORIA
FINANCIAL CORPORATION AND SUBSIDIARIES
Index
of Exhibits
Exhibit No.
|
|
Identification of Exhibit
|
|
|
|
|
|
4.1
|
|
Astoria
Federal Savings and Loan Association Bylaws, as amended effective August
19, 2009.
|
|
|
|
|
|
31.1
|
|
Certifications
of Chief Executive Officer.
|
|
|
|
|
|
31.2
|
|
Certifications
of Chief Financial Officer.
|
|
|
|
|
|
32.1
|
|
Written
Statement of Chief Executive Officer furnished pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350. Pursuant to SEC rules, this exhibit will not be deemed
filed for purposes of Section 18 of the Exchange Act or otherwise subject
to the liability of that section.
|
|
|
|
|
|
32.2
|
|
Written
Statement of Chief Financial Officer furnished pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350. Pursuant to SEC rules, this exhibit will not be deemed
filed for purposes of Section 18 of the Exchange Act or otherwise subject
to the liability of that
section.
|
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