The
following table is a reconciliation of basic and diluted earnings per share, or
EPS.
|
|
|
For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
|
(In Thousands, Except Per Share Data)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Net
income
|
|
$
|
15,546
|
|
|
$
|
2,700
|
|
|
$
|
28,472
|
|
|
$
|
11,496
|
|
|
Income allocated to participating securities
(restricted stock)
|
|
|
(379
|
)
|
|
|
(234
|
)
|
|
|
(688
|
)
|
|
|
(459
|
)
|
|
Income attributable to common
shareholders
|
|
$
|
15,167
|
|
|
$
|
2,466
|
|
|
$
|
27,784
|
|
|
$
|
11,037
|
|
|
Average
number of common shares outstanding – basic
|
|
|
91,622
|
|
|
|
90,526
|
|
|
|
91,542
|
|
|
|
90,370
|
|
|
Dilutive effect of stock options
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Average number of common shares outstanding –
diluted
|
|
|
91,622
|
|
|
|
90,526
|
|
|
|
91,542
|
|
|
|
90,370
|
|
|
Income
per common share attributable to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.17
|
|
|
$
|
0.03
|
|
|
$
|
0.30
|
|
|
$
|
0.12
|
|
|
Diluted
|
|
$
|
0.17
|
|
|
$
|
0.03
|
|
|
$
|
0.30
|
|
|
$
|
0.12
|
|
|
(1)
|
Excludes
options to purchase 7,999,253 shares of common stock which were
outstanding during the three months ended June 30, 2010; options to
purchase 8,651,295 shares of common stock which were outstanding during
the three months ended June 30, 2009; options to purchase 8,016,292 shares
of common stock which were outstanding during the six months ended June
30, 2010; and options to purchase 8,666,080 shares of common stock which
were outstanding during the six months ended June 30, 2009 because their
inclusion would be anti-dilutive.
|
On
February 1, 2010, 778,740 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 27,688 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, 135,720 shares vest one-third per year and 643,020
shares vest one-fifth per year on December 14
th
of each
year, beginning December 14, 2010. 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 2010 under the 2007 Director
Stock Plan vests 100% on February 1, 2013, 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 six months ended June 30,
2010 is summarized as follows:
|
|
|
Number of
Shares
|
|
Weighted Average
Grant Date Fair Value
|
|
|
Nonvested
at January 1, 2010
|
|
|
1,522,420
|
|
|
$
|
16.02
|
|
|
Granted
|
|
|
806,428
|
|
|
|
13.00
|
|
|
Vested
|
|
|
(32,230
|
)
|
|
|
(20.93
|
)
|
|
Forfeited
|
|
|
(10,282
|
)
|
|
|
(12.09
|
)
|
|
Nonvested
at June 30, 2010
|
|
|
2,286,336
|
|
|
|
14.90
|
|
Stock-based
compensation expense is recognized on a straight-line basis over the vesting
period and totaled $1.4 million, net of taxes of $739,000, for the
three months ended June 30, 2010 and
totaled
$2.5 million, net of taxes of $1.4 million, for the six months ended June 30,
2010. Stock-based compensation expense recognized for the three
months ended June 30, 2009 totaled $978,000, net of taxes of $527,000, and
totaled $1.9 million, net of taxes of $1.0 million, for the six months ended
June 30, 2009. At June 30, 2010, pre-tax compensation cost related to
all nonvested awards of restricted stock not yet recognized totaled $22.1
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
|
|
|
June 30,
|
|
June 30,
|
|
(In Thousands)
|
2010
|
2009
|
|
2010
|
2009
|
|
Service
cost
|
$
|
934
|
|
|
$
|
871
|
|
|
$
|
90
|
|
|
$
|
81
|
|
|
Interest
cost
|
|
2,897
|
|
|
|
2,812
|
|
|
|
283
|
|
|
|
268
|
|
|
Expected
return on plan assets
|
|
(2,356
|
)
|
|
|
(2,129
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Amortization
of prior service cost (credit)
|
|
62
|
|
|
|
62
|
|
|
|
(25
|
)
|
|
|
(25
|
)
|
|
Recognized
net actuarial loss (gain)
|
|
1,603
|
|
|
|
2,062
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
Net
periodic cost
|
$
|
3,140
|
|
|
$
|
3,678
|
|
|
$
|
348
|
|
|
$
|
323
|
|
|
|
|
|
Other Postretirement
|
|
|
Pension Benefits
|
|
Benefits
|
|
|
For the Six Months Ended
|
|
For the Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
(In Thousands)
|
2010
|
2009
|
|
2010
|
2009
|
|
Service
cost
|
$
|
1,867
|
|
|
$
|
1,742
|
|
|
$
|
179
|
|
|
$
|
162
|
|
|
Interest
cost
|
|
5,796
|
|
|
|
5,624
|
|
|
|
566
|
|
|
|
535
|
|
|
Expected
return on plan assets
|
|
(4,711
|
)
|
|
|
(4,258
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Amortization
of prior service cost (credit)
|
|
124
|
|
|
|
124
|
|
|
|
(50
|
)
|
|
|
(50
|
)
|
|
Recognized
net actuarial loss (gain)
|
|
3,205
|
|
|
|
4,124
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
Net
periodic cost
|
$
|
6,281
|
|
|
$
|
7,356
|
|
|
$
|
695
|
|
|
$
|
646
|
|
|
10.
|
Fair Value
Measurements
|
On
January 1, 2010, we adopted Accounting Standards Update, or ASU, 2010-06, “Fair
Value Measurements and Disclosures (Topic 820) Improving Disclosures about Fair
Value Measurements,” which amends Subtopic 820-10 of the Financial Accounting
Standards Board, or FASB, Accounting Standards Codification, or ASC, to require
new disclosures about transfers in and out of Level 1 and Level 2 fair value
measurements and the roll forward of activity in Level 3 fair value
measurements. ASU 2010-06 also clarifies existing disclosure
requirements regarding the level of disaggregation of each class of assets and
liabilities within a line item in the statement of financial condition and
clarifies that a reporting entity should provide disclosures about the valuation
techniques and inputs used to measure fair value for both recurring and
nonrecurring fair value measurements that fall in either Level 2 or Level 3 fair
value measurements. The update also includes conforming amendments to
the guidance on employers’ disclosures about postretirement benefit plan
assets. The new disclosures about the roll forward of activity in
Level 3 fair value measurements are effective for fiscal years beginning after
December 15, 2010 and for interim periods within those fiscal
years. Since the
provisions
of ASU 2010-06 are disclosure related, our adoption of this guidance did not
have an impact on our financial condition or results of operations.
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 impairment 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, with additional considerations 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. GAAP requires us to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair
value.
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, bids,
offers, reference data, monthly payment information and collateral
performance. At June 30, 2010, 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 fifteen
year and thirty 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 tables set forth the carrying value of our assets measured at fair
value on a recurring basis and the level within the fair value hierarchy in
which the fair value measurement falls at the dates indicated.
|
|
|
Carrying Value at June 30, 2010
|
|
|
(In Thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance REMICs and CMOs
|
|
$
|
670,747
|
|
|
$
|
-
|
|
|
$
|
670,747
|
|
|
$
|
-
|
|
|
Non-GSE
issuance REMICs and CMOs
|
|
|
23,762
|
|
|
|
-
|
|
|
|
23,762
|
|
|
|
-
|
|
|
GSE
pass-through certificates
|
|
|
32,525
|
|
|
|
-
|
|
|
|
32,525
|
|
|
|
-
|
|
|
Other
securities
|
|
|
1,582
|
|
|
|
1,582
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
securities available-for-sale
|
|
$
|
728,616
|
|
|
$
|
1,582
|
|
|
$
|
727,034
|
|
|
$
|
-
|
|
|
|
|
Carrying Value at December 31, 2009
|
|
|
(In Thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance REMICs and CMOs
|
|
$
|
796,240
|
|
|
$
|
-
|
|
|
$
|
796,240
|
|
|
$
|
-
|
|
|
Non-GSE
issuance REMICs and CMOs
|
|
|
26,269
|
|
|
|
-
|
|
|
|
26,269
|
|
|
|
-
|
|
|
GSE
pass-through certificates
|
|
|
34,375
|
|
|
|
-
|
|
|
|
34,375
|
|
|
|
-
|
|
|
Other
securities
|
|
|
3,810
|
|
|
|
3,810
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
securities available-for-sale
|
|
$
|
860,694
|
|
|
$
|
3,810
|
|
|
$
|
856,884
|
|
|
$
|
-
|
|
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
Non-performing
loans held-for-sale are comprised primarily of multi-family and commercial real
estate mortgage loans at June 30, 2010 and December 31, 2009. 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. Impaired loans are comprised primarily
of one-to-four family mortgage loans at June 30, 2010 and December 31,
2009. 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. Substantially all of the impaired loans at June 30, 2010 and
December 31, 2009 for which a fair value adjustment was recognized were
one-to-four family mortgage loans.
MSR,
net
The right
to service loans for others is generally obtained through the sale of
one-to-four family mortgage loans with servicing retained. 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. At June 30,
2010, our MSR were valued based on expected future cash flows considering a
weighted average discount rate of 10.98%, a weighted average constant prepayment
rate on mortgages of 22.68% and a weighted average life of 3.5
years. At December 31, 2009, our MSR were valued based on expected
future cash flows considering a weighted average discount rate of 11.02%, a
weighted average constant prepayment rate on mortgages of 20.85% and a weighted
average life of 3.8 years. Management reviews the assumptions used to
estimate the fair value of MSR to ensure they reflect current and anticipated
market conditions.
Premises
and Equipment, net
Included
in premises and equipment, net, is an office building, which was classified as
held-for-sale prior to September 30, 2009 and was measured at the lower of its
carrying value or estimated fair value less estimated selling
costs. During the 2009 second quarter, we recorded a lower of cost or
market write-down to reduce the carrying amount of the building to its estimated
fair value less selling costs. During the 2010 second quarter, we
evaluated the building for impairment and recorded an impairment write-down to
reduce the carrying amount of the building to its estimated fair value less
selling costs as of June 30, 2010. Fair value was estimated based on
negotiations for the sale of the property with potential buyers and, as such, is
classified as Level 3.
REO,
net
REO
represents real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure, substantially all of which are one-to-four family properties at
June 30, 2010 and December 31, 2009, 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 REO property
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 tables set forth the carrying value of those of our assets which were
measured at fair value on a non-recurring basis and the level within the fair
value hierarchy in which the fair value measurement falls at the dates
indicated.
|
|
|
Carrying Value at June 30, 2010
|
|
|
(In Thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Non-performing
loans held-for-sale, net
|
|
$
|
13,949
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13,949
|
|
|
Impaired
loans
|
|
|
176,357
|
|
|
|
-
|
|
|
|
-
|
|
|
|
176,357
|
|
|
MSR,
net
|
|
|
8,649
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,649
|
|
|
Premises
and equipment, net
|
|
|
14,948
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,948
|
|
|
REO,
net
|
|
|
44,356
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44,356
|
|
|
Total
|
|
$
|
258,259
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
258,259
|
|
|
|
|
Carrying Value at December 31, 2009
|
|
|
(In Thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Non-performing
loans held-for-sale, net
|
|
$
|
6,865
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,865
|
|
|
Impaired
loans
|
|
|
145,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
145,250
|
|
|
MSR,
net
|
|
|
8,850
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,850
|
|
|
REO,
net
|
|
|
43,958
|
|
|
|
-
|
|
|
|
-
|
|
|
|
43,958
|
|
|
Total
|
|
$
|
204,923
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
204,923
|
|
The
following table provides information regarding the losses recognized on our
assets measured at fair value on a non-recurring basis for the six months ended
June 30, 2010 and 2009.
|
|
Losses For The
|
|
|
Six Months Ended
|
|
|
June 30,
|
|
(In Thousands)
|
2010
|
2009
|
|
Non-performing
loans held-for-sale, net (1)
|
$
|
11,936
|
|
|
$
|
10,851
|
|
|
Impaired
loans (2)
|
|
31,753
|
|
|
|
17,726
|
|
|
MSR,
net
|
|
-
|
|
|
|
-
|
|
|
Premises
and equipment, net (3)
|
|
1,515
|
|
|
|
1,588
|
|
|
REO,
net (4)
|
|
11,065
|
|
|
|
12,031
|
|
|
Total
|
$
|
56,269
|
|
|
$
|
42,196
|
|
|
(1)
|
Losses
are 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 are charged to other non-interest
income.
|
|
(2)
|
Losses
are charged against the allowance for loan
losses.
|
|
(3)
|
Losses
are charged to other non-interest
income.
|
|
(4)
|
Losses
are 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 are charged to REO expense
which is a component of other non-interest
expense.
|
|
11.
|
Fair Value of Financial
Instruments
|
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 are carried on the consolidated statements of
financial condition 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 June 30, 2010
|
|
|
At December 31, 2009
|
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
(In Thousands)
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Financial
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
|
$
|
41,900
|
|
|
$
|
41,900
|
|
|
$
|
40,030
|
|
|
$
|
40,030
|
|
|
Securities
held-to-maturity
|
|
|
2,008,109
|
|
|
|
2,069,935
|
|
|
|
2,317,885
|
|
|
|
2,367,520
|
|
|
FHLB-NY
stock
|
|
|
185,768
|
|
|
|
185,768
|
|
|
|
178,929
|
|
|
|
178,929
|
|
|
Loans
held-for-sale, net (1)
|
|
|
34,859
|
|
|
|
35,829
|
|
|
|
34,274
|
|
|
|
34,585
|
|
|
Loans
receivable, net (1)
|
|
|
15,155,328
|
|
|
|
15,699,650
|
|
|
|
15,586,673
|
|
|
|
16,030,427
|
|
|
MSR,
net (1)
|
|
|
8,649
|
|
|
|
8,663
|
|
|
|
8,850
|
|
|
|
8,866
|
|
|
Financial
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
12,248,441
|
|
|
|
12,455,599
|
|
|
|
12,812,238
|
|
|
|
12,978,569
|
|
|
Borrowings,
net
|
|
|
5,813,019
|
|
|
|
6,326,186
|
|
|
|
5,877,834
|
|
|
|
6,332,288
|
|
(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 held-to-maturity are obtained
from an independent nationally recognized pricing service using similar methods
and assumptions as used for our securities available-for-sale which are
described further in Note 10.
Federal
Home Loan Bank of 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.
This
technique of estimating fair value is extremely sensitive to the assumptions and
estimates used. While we have attempted to use assumptions and
estimates which are the most reflective of the loan portfolio and the current
market, a greater degree of subjectivity is inherent in determining these fair
values than for fair values obtained from formal trading
marketplaces. In addition, our valuation method for loans, which is
consistent with accounting guidance, does not fully incorporate an exit price
approach to fair value.
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 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. The fair values of these commitments are immaterial to our
financial condition and are not presented in the table above.
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 U.S. Court of Federal Claims, or 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 U.S. Court of Appeals for the Federal Circuit, or 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.
On April
12, 2010, we entered into a final binding settlement of this matter with the
U.S. Government in an amount equal to $6.2 million. Legal expense
related to this matter has been recognized as it has been
incurred. The settlement was recognized in other non-interest income
in our consolidated statements of income for the three and six months ended June
30, 2010.
McAnaney
Litigation
In 2004,
an action entitled
Da
vi
d
M
c
Ananey
and
Ca
r
ol
yn
M
cA
naney
,
i
ndividually
and on behalf of all others simil
a
rl
y
situated
v
s.
A
storia
Fi
nan
c
i
a
l
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, and the New York State Deceptive
Practices Act, and alleges actions based upon breach of contract, unjust
enrichment and common law fraud.
During
the fourth quarter of 2008, 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. Our 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. For
further information regarding the history of this action, see Part I, Item 3,
“Legal Proceedings,” in our 2009 Annual Report on Form 10-K.
On June
29, 2010, we reached an agreement in principle to settle the remaining claims in
such action in the amount of $7.9 million. A stipulation, or the
Agreement, detailing the terms of that settlement was entered into on July 30,
2010. In entering into the Agreement, we did not acknowledge any
liability in the matter and further indicated that the Agreement is intended to
resolve all claims arising from or related to the aforementioned
case. The Agreement is subject to approval by the District
Court. The settlement was recognized in other non-interest expense in
our consolidated statements of income for the three and six months ended June
30, 2010.
Automated Transactions LLC
Litigation
On
November 20, 2009, an action entitled
Automated
Transactions LLC v. Astoria Financial Corporation and Astoria Federal Savings
and Loan Association
was commenced in the U.S. District Court for the
Southern District of New York, or the Southern District Court, against us by
Automated Transactions LLC, alleging patent infringement involving integrated
banking and
transaction
machines, including automated teller machines, that we utilize. We
were served with the summons and complaint in such action on March 2,
2010. The plaintiff also filed a similar suit on the same day against
another financial institution and its holding company. The plaintiff
seeks unspecified monetary damages and an injunction preventing us from
continuing to utilize the allegedly infringing machines. We are
vigorously defending this lawsuit, and filed an answer and counterclaims to the
plaintiff’s complaint on March 23, 2010, to which the plaintiff filed a reply on
April 12, 2010. On May 18, 2010 the plaintiff filed an amended
complaint at the direction of the Southern District Court, containing
substantially the same allegations as the original complaint. On May 27, 2010 we
moved to dismiss the amended complaint which motion is currently pending before
the Southern District Court. An adverse result in this lawsuit may
include an award of monetary damages, on-going royalty obligations, and/or may
result in a change in our business practice, which could result in a loss of
revenue.
We have
tendered requests for indemnification from the manufacturer and from the
transaction processor utilized with respect to the integrated banking and
transaction machines, and have filed a third party complaint against the
manufacturer and the transaction processor for indemnification and contribution
with respect to the lawsuit by Automated Transactions LLC.
No
assurance can be given at this time that the litigation against us will be
resolved amicably, that if this litigation results in an adverse decision that
we will be successful in seeking indemnification, 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.
|
13.
|
Impact of Accounting Standards
and Interpretations
|
In July
2010, the FASB issued ASU 2010-20, “Receivables (Topic 310) Disclosures about
the Credit Quality of Financing Receivables and the Allowance for Credit
Losses,” which amends existing disclosure guidance to require an entity to
provide a greater level of disaggregated information about the credit quality of
its financing receivables and its allowance for credit losses. The
amendments require an entity to disclose credit quality indicators, past due
information and modifications of its financing receivables. The
objective of these expanded disclosures is to provide financial statement users
with greater transparency about an entity’s allowance for credit losses and the
credit quality of its financing receivables. For public entities, the
disclosures required by this guidance as of the end of a reporting period are
effective for interim and annual reporting periods ending on or after December
15, 2010. The disclosures required by this guidance about activity
that occurs during a reporting period are effective for interim and annual
reporting periods beginning on or after December 15,
2010. Comparative disclosures for reporting periods ending after
initial adoption are required. Since the provisions of ASU 2010-20
are disclosure related, our adoption of this guidance will not have an impact on
our financial condition or results of operations.
In
December 2009, the FASB issued ASU 2009-16, “Transfers and Servicing (Topic 860)
Accounting for Transfers of Financial Assets,” which amends the FASB ASC as a
result of Statement of Financial Accounting Standards, or SFAS, No. 166,
“Accounting for Transfers of Financial Assets,” issued by the FASB in June
2009. This new accounting 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. Our adoption
of this guidance on January 1, 2010 did not have a material impact on our
financial condition or results of operations.
In
December 2009, the FASB issued ASU 2009-17, “Consolidations (Topic 810)
Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities,” which amends the FASB ASC as a result of SFAS No. 167,
“Amendments to FASB Interpretation No. 46(R),” issued by the FASB in June
2009. This new accounting guidance was issued 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, 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. Our adoption of this guidance on January 1, 2010 did not have
a material impact 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.
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.
During
the six months ended June 30, 2010, the national economy continued to show signs
of improvement as evidenced by, among other things, a decrease in the
unemployment rate from December 2009 and moderate
job
growth. However, softness in the housing and real estate markets
persist and unemployment levels remain elevated with a national unemployment
rate of 9.5% for June 2010 compared to 10.0% for December 2009. On
July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010, or the Reform Act. The Reform
Act is intended to address perceived weaknesses in the U.S. financial regulatory
system and prevent future economic and financial crises. Certain
aspects of the Reform Act will have an impact on us, as described in more detail
in Part II, Item 1A, “Risk Factors.”
Total
assets decreased during the six months ended June 30, 2010, primarily due to
decreases in our securities and loan portfolios, partially offset by an increase
in cash and due from banks. The decrease in our securities portfolio
was primarily due to cash flows from repayments and calls exceeding securities
purchased which reflects our decision to limit purchases of securities in the
current low interest rate environment. 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 mortgage
loans, resulting from repayments which outpaced our origination and purchase
volume. One-to-four family loan repayments remained at elevated
levels as interest rates on thirty year fixed rate mortgages remained at
historic lows and more loans in our portfolio qualified under the expanded loan
limits that conform to GSE guidelines, or the expanded conforming loan limits,
and were refinanced into fixed rate mortgages. The decrease in the
loan portfolio reflects our decision not to aggressively compete against the
thirty year fixed rate mortgage market in the current low interest rate
environment. In response to declining customer demand for adjustable
rate products, we currently originate and retain for portfolio jumbo fifteen
year fixed rate mortgage loans. The increase in cash and due from
banks reflects the cash flows
from
securities calls and new borrowings which were not redeployed by the end of the
2010 second quarter.
Total
deposits decreased during the six months ended June 30, 2010, due to decreases
in certificates of deposit and Liquid CDs, partially offset by increases in
savings, NOW and demand deposit and money market accounts. During the
first half of 2010, we continued to allow high cost certificates of deposit to
run off as total assets declined. The increases in low cost savings,
NOW and demand deposit and money market accounts appear to reflect customer
preference for the liquidity these types of deposits provide over the rates
currently offered for longer term certificates of deposit. We have,
however, recently begun to offer aggressive rates on long term certificates of
deposit to extend these deposits. Borrowings were down slightly from
December 31, 2009. During the latter half of the 2010 second quarter,
we increased longer-term borrowings to take advantage of the current rates on
such borrowings in anticipation of borrowings scheduled to mature in the 2010
third quarter. Our efforts to extend certificates of deposit and
borrowings aid in our interest rate risk management by reducing our exposure to
rising interest rates.
Net
income increased for the three and six months ended June 30, 2010 compared to
the three and six months ended June 30, 2009. These increases were
primarily due to decreases in provision for loan losses, coupled with increases
in net interest income and non-interest income, partially offset by increases in
income tax expense. For the six months ended June 30, 2010, these
increases were also partially offset by an increase in non-interest
expense.
The
allowance for loan losses and non-performing loans increased somewhat from
December 31, 2009 to June 30, 2010, but remained relatively the same from March
31, 2010. The provision for loan losses decreased for the three and
six months ended June 30, 2010 compared to the three and six months ended June
30, 2009. The decreases reflect the stabilizing trend in overall
asset quality experienced in 2010. The allowance for loan losses at
June 30, 2010 reflects the levels and composition of our loan delinquencies,
non-performing loans and net loan charge-offs, as well as our evaluation of the
housing and real estate markets and overall economy.
Net
interest income, the net interest margin and the net interest rate spread for
the three and six months ended June 30, 2010 increased compared to the three and
six months ended June 30, 2009, primarily due to the cost of interest-bearing
liabilities declining more rapidly than the yield on interest-earning
assets. This net cost savings is reflective of the magnitude and
timing of the downward repricing of our liabilities in the current low interest
rate environment. Interest expense for the three and six months ended
June 30, 2010 decreased, compared to the three and six months ended June 30,
2009, primarily due to decreases in the average costs of certificates of deposit
and Liquid CDs, coupled with decreases in the average balances of certificates
of deposit, borrowings and Liquid CDs. Interest income for the three
and six months ended June 30, 2010 decreased, compared to the three and six
months ended June 30, 2009, primarily due to decreases in the average yields on
one-to-four family mortgage loans and mortgage-backed and other securities,
coupled with decreases in the average balances of multi-family, commercial real
estate and construction loans, mortgage-backed and other securities and
one-to-four family mortgage loans.
The
increase in non-interest income for the three months ended June 30, 2010
compared to the three months ended June 30, 2009 was primarily due to the
Goodwill Litigation settlement recorded in other non-interest income in the 2010
second quarter, partially offset by decreases in
mortgage
banking income, net, and customer service fees. The increase in
non-interest income for the six months ended June 30, 2010 compared to the six
months ended June 30, 2009 was primarily due to the Goodwill Litigation
settlement and the OTTI charge recorded in the 2009 first quarter, partially
offset by a decrease in customer service fees, a gain on sales of securities
recorded in the 2009 first quarter and a decrease in mortgage banking income,
net.
Non-interest
expense for the three months ended June 30, 2010 decreased slightly compared to
the three months ended June 30, 2009 primarily due to the Federal Deposit
Insurance Corporation, or FDIC, special assessment recorded in the 2009 second
quarter, substantially offset by the McAnaney Litigation settlement, recorded in
other non-interest expense, in the 2010 second quarter and an increase in
compensation and benefits expense. The increase in non-interest
expense for the six months ended June 30, 2010 compared to the six months ended
June 30, 2009 was primarily due to the McAnaney Litigation settlement and
increases in compensation and benefits expense and FDIC insurance premiums,
partially offset by the absence of the FDIC special
assessment. Income tax expense increased for the three and six
months ended June 30, 2010, compared to the three and six months ended June 30,
2009 primarily due to the increases in pre-tax income. For further
discussion of the Goodwill and McAnaney Litigation settlements, see Note 12 of
Notes to Consolidated Financial Statements in Item 1, “Financial Statements
(Unaudited).”
With the
national economic recovery underway, and despite the fact that the pace of the
recovery appears to be moderating and the housing market remains soft, the
long-term outlook for our credit quality is improving which we believe should
result in lower credit costs and further improvement in our financial
performance during the remainder of 2010. Due to the fact that the
U.S. government continues to subsidize the residential mortgage market with
programs designed to keep the interest rate for thirty year fixed rate
conforming mortgage loans below normal market rate levels, coupled with expanded
conforming loan limits in many of the markets we operate in,
we do not anticipate our
loan production increasing at this time which, more than likely, will result in
a slight decline in our loan portfolio and balance sheet for the remainder of
2010.
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 in Item 8, “Financial Statements and
Supplementary Data,” of our 2009 Annual Report on Form 10-K, as supplemented by
our quarterly report on Form 10-Q for the quarter ended March 31, 2010 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 2009 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 primarily
through 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, and annually thereafter, 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
that 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 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.
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 the 2010 first and second quarters 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 housing and real estate markets and overall economy, in
particular, the unemployment rate and the levels and composition of our loan
delinquencies, non-performing loans and net loan charge-offs, we determined that
an allowance for loan losses of $211.0 million was required at June 30, 2010,
compared to $210.7 million at March 31, 2010 and $194.0 million at December 31,
2009, resulting in a provision for loan losses of $80.0 million for the six
months ended June 30, 2010. 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 2009 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 June
30, 2010, our MSR, net, had an estimated fair value of $8.7 million and were
valued based on expected future cash flows considering a weighted average
discount rate of 10.98%, a
weighted
average constant prepayment rate on mortgages of 22.68% and a weighted average
life of 3.5 years. At December 31, 2009, our MSR, net, had an
estimated fair value of $8.9 million and were valued based on expected future
cash flows considering a weighted average discount rate of 11.02%, a weighted
average constant prepayment rate on mortgages of 20.85% and a weighted average
life of 3.8 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 June 30, 2010, the estimated fair value of
our MSR would have been $3.4 million greater. Assuming a decrease in
interest rates of 100 basis points at June 30, 2010, the estimated fair value of
our MSR would have been $3.2 million lower.
Goodwill
Impairment
Goodwill
is presumed to have an indefinite useful life and is tested, at least annually,
for impairment at the reporting unit level. Impairment exists when the carrying
amount of goodwill exceeds its implied fair value. 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 June
30, 2010, 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. No events have occurred and no circumstances have changed
since our annual impairment test date that would more likely than not reduce the
fair value of our reporting unit below its carrying amount. The
identification of additional reporting units or the use of other valuation
techniques could result in materially different evaluations of
impairment.
Securities
Impairment
Our
available-for-sale securities portfolio is carried at estimated fair value with
any unrealized gains and losses, net of taxes, reported as accumulated other
comprehensive 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 97% of our securities portfolio at June 30,
2010. Non-GSE issuance mortgage-backed securities at June 30, 2010
comprised 3% of our securities portfolio and had an amortized cost of $88.0
million, 28% of which are classified as available-for-sale and 72% 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. Credit quality concerns have not
significantly impacted the performance of our non-GSE securities 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, except for the amount of the
total OTTI for a debt security that does not represent credit losses which is
recognized in other comprehensive income/loss, net of applicable
taxes. At June 30, 2010, we had 32 securities with an estimated fair
value totaling $109.4 million which had an unrealized loss totaling $1.2
million. Of the securities in an unrealized loss position at June 30,
2010, $81.9 million, with an unrealized loss of $953,000, have been in a
continuous unrealized loss position for more than twelve months. At
June 30, 2010, 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.
There
were no OTTI charges during the six months ended June 30,
2010. During the six months ended June 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. For
additional information regarding securities impairment and the OTTI charge, 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 $2.74 billion for the six months ended June 30, 2010 and $2.49 billion
for the six months ended June 30, 2009. The increase in loan and
securities repayments for the six months ended June 30, 2010, compared to the
six months ended June 30, 2009, was due to an increase in loan
repayments
which reflects the continued historic low interest rates for thirty year fixed
rate mortgages and expanded conforming loan limits, coupled with an increase in
securities repayments primarily as a result of securities which were called
during the 2010 second quarter.
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 $134.7 million during the six months ended June 30, 2010 and
$87.3 million during the six months ended June 30, 2009. Deposits
decreased $563.8 million during the six months ended June 30, 2010 and increased
$130.3 million during the six months ended June 30, 2009. The net
decrease in deposits for the six months ended June 30, 2010 was primarily due to
decreases in certificates of deposit and Liquid CDs, partially offset by
increases in savings, NOW and demand deposit and money market
accounts. During the first half of 2010, we continued to allow high
cost certificates of deposit to run off as total assets declined. The
increases in low cost savings, NOW and demand deposit and money market accounts
during the first half of 2010 appear to reflect customer preference for the
liquidity these types of deposits provide over the rates currently offered for
longer term certificates of deposit. We have, however, recently begun
to offer aggressive rates on long term certificates of deposit to extend these
deposits. The net increase in deposits for the six months ended June
30, 2009 was due to increases in savings, NOW and demand deposit and money
market accounts, partially offset by decreases in Liquid CDs and certificates of
deposit, and reflects the decrease in competition for core community deposits
from that which we experienced during 2008.
Net
borrowings decreased $64.8 million during the six months ended June 30, 2010 and
decreased $1.08 billion during the six months ended June 30,
2009. During the latter half of the 2010 second quarter, we increased
longer term borrowings to take advantage of the current rates on such borrowings
in anticipation of borrowings scheduled to mature in the 2010 third
quarter. The decrease in net borrowings during the six months ended
June 30, 2009 was primarily the result of cash flows from mortgage loan and
securities repayments and deposit growth exceeding mortgage loan originations
and purchases and securities purchases which enabled us to repay a portion of
our matured borrowings.
Our
primary use of funds is for the origination and purchase of mortgage
loans. Gross mortgage loans originated and purchased for portfolio
during the six months ended June 30, 2010 totaled $1.60 billion, of which $1.35
billion were originations and $243.4 million were purchases, all of which were
one-to-four family mortgage loans. This compares to gross mortgage
loans originated and purchased for portfolio during the six months ended June
30, 2009 totaling $1.06 billion, of which $932.4 million were originations and
$128.8 million were purchases, substantially all of which were one-to-four
family mortgage loans. Overall one-to-four family mortgage loan
origination and purchase volume for portfolio has been negatively affected by
the historic low 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. Additionally, one-to-four family mortgage loan origination
and purchase volume during the first half of 2009 was negatively affected by
wider funding and mortgage interest rate spreads over market indices coupled
with continued fallout from our mortgage loan application pipeline and an upward
trend in interest rates. We also originated loans held-for-sale
totaling $115.2 million during the six months ended June 30, 2010 and $248.0
million during the six months ended June 30, 2009. During the six
months ended June 30, 2010 and 2009, we purchased securities to partially offset
the cash flows from securities repayments. Purchases of
securities
totaled $390.9 million during the six months ended June 30, 2010 and $300.8
million during the six months ended June 30, 2009.
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 $250.3 million to $361.9 million at June 30, 2010,
from $111.6 million at December 31, 2009. This increase reflects the
cash flows from securities calls and new borrowings which were not redeployed by
the end of the 2010 second quarter. At June 30, 2010, we had $1.59
billion in borrowings with a weighted average rate of 3.39% maturing over the
next twelve months. We have the flexibility to either repay or
rollover these borrowings as they mature. In addition, we had $5.2
billion in certificates of deposit and Liquid CDs at June 30, 2010 with a
weighted average rate of 1.76% 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. As previously discussed, our efforts to extend
certificates of deposit and borrowings aid in our interest rate risk management
by reducing our exposure to rising interest rates.
The
following table details our borrowing, certificate of deposit and Liquid CD
maturities and their weighted average rates at June 30, 2010.
|
|
|
|
|
|
|
Certificates of Deposit
|
|
|
|
Borrowings
|
|
and Liquid CDs
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
(Dollars in Millions)
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Contractual
Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
months or less
|
|
$
|
1,591
|
|
|
|
3.39
|
%
|
|
$
|
5,217
|
|
(1)
|
|
1.76
|
%
|
|
Thirteen
to thirty-six months
|
|
|
1,769
|
|
(2)
|
|
4.24
|
|
|
|
2,072
|
|
|
|
2.94
|
|
|
Thirty-seven
to sixty months
|
|
|
575
|
|
(3)
|
|
2.79
|
|
|
|
751
|
|
|
|
3.25
|
|
|
Over
sixty months
|
|
|
1,879
|
|
(4)
|
|
4.72
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
$
|
5,814
|
|
|
|
4.02
|
%
|
|
$
|
8,040
|
|
|
|
2.20
|
%
|
|
(1)
|
Includes
$607.9 million of Liquid CDs with a weighted average rate of 0.50% and
$4.61 billion of certificates of deposit with a weighted average rate of
1.92%.
|
|
(2)
|
Includes
$975.0 million of borrowings, with a weighted average rate of 4.45%, which
are callable by the counterparty within the next three months and at
various times thereafter.
|
|
(3)
|
Includes
$200.0 million of borrowings, with an average rate of 4.18%, which are
callable by the counterparty within the next three months and at various
times thereafter.
|
|
(4)
|
Includes
$1.75 billion of borrowings, with a weighted average rate of 4.35%, 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.
On May
19, 2010, we filed an automatic shelf registration statement on Form S-3 with
the SEC, which was declared effective immediately upon filing. This
shelf registration statement allows
us to
periodically offer and sell, from time to time, in one or more offerings,
individually or in any combination, common stock, preferred stock, debt
securities, capital securities, guarantees, warrants to purchase common stock or
preferred stock and units consisting of one or more of the
foregoing. The shelf registration statement provides us with greater
capital management flexibility and enables us to readily access the capital
markets in order to pursue growth opportunities that may become available to us
in the future or should there be any changes in the regulatory environment that
call for increased capital requirements. Although the shelf
registration statement does not limit the amount of the foregoing items that we
may offer and sell pursuant to the shelf registration statement, our ability and
any decision to do so is subject to market conditions and our capital
needs. At this time, we do not have any immediate plans or
current commitments to sell securities under the shelf registration
statement.
Astoria
Financial Corporation’s primary uses of funds include payment of dividends,
payment of interest on its debt obligations and repurchases of common
stock. On June 1, 2010, 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 May 17, 2010 totaling $12.2 million. On July 21, 2010, we declared
a quarterly cash dividend of $0.13 per share on shares of our common stock
payable on September 1, 2010 to stockholders of record as of the
close of business on August 16, 2010. As of June 30, 2010, we are not
currently repurchasing additional shares of our common stock and have not since
the 2008 third quarter. 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. At June 30, 2010, a
maximum of 8,107,300 shares may yet be purchased under this plan.
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 six months ended June 30, 2010,
Astoria Federal paid dividends to Astoria Financial Corporation totaling $38.6
million.
See
“Financial Condition” for further discussion of the changes in stockholders’
equity.
At June
30, 2010, Astoria Federal’s capital levels exceeded all of its regulatory
capital requirements with a tangible capital ratio of 7.15%, leverage capital
ratio of 7.15% and total risk-based capital ratio of 13.47%. 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 12.21%
at June 30, 2010. As of June 30, 2010, 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 $60.9 million at June
30, 2010. 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,
2009.
The
following table details our contractual obligations at June 30,
2010.
|
|
|
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
|
|
$
|
5,813,866
|
|
|
$
|
1,591,000
|
|
|
$
|
1,769,000
|
|
|
$
|
575,000
|
|
|
$
|
1,878,866
|
|
|
Commitments
to originate and purchase loans (1)
|
|
|
396,580
|
|
|
|
396,580
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Commitments
to fund unused lines of credit (2)
|
|
|
294,376
|
|
|
|
294,376
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
$
|
6,504,822
|
|
|
$
|
2,281,956
|
|
|
$
|
1,769,000
|
|
|
$
|
575,000
|
|
|
$
|
1,878,866
|
|
(1) Commitments
to originate and purchase loans include commitments to originate loans
held-for-sale of $38.2 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,
2009.
For
further information regarding our off-balance sheet arrangements and contractual
obligations, see Part II, Item 7, “MD&A,” in our 2009 Annual Report on Form
10-K.
Comparison
of Financial Condition as of June 30, 2010 and December 31, 2009 and Operating
Results for the Three and Six Months Ended June 30, 2010 and 2009
Total
assets decreased $582.2 million to $19.67 billion at June 30, 2010, from $20.25
billion at December 31, 2009. The decrease in total assets primarily
reflects decreases in securities and loans receivable, partially offset by an
increase in cash and due from banks.
Loans
receivable, net, decreased $431.3 million to $15.16 billion at June 30, 2010,
from $15.59 billion at December 31, 2009. This decrease was a result
of repayments outpacing our mortgage loan origination and purchase volume during
the six months ended June 30, 2010, coupled with an increase of $17.0 million in
the allowance for loan losses to $211.0 million at June 30, 2010, from $194.0
million at December 31, 2009. For additional information on the
allowance for loan losses, see “Provision for Loan Losses” and “Asset
Quality.”
Mortgage
loans, net, decreased $407.3 million to $15.04 billion at June 30, 2010, from
$15.45 billion at December 31, 2009. This decrease was due to
decreases in each of our mortgage loan portfolios, primarily one-to-four family
and multi-family mortgage loans. Mortgage loan repayments increased
to $1.85 billion for the six months ended June 30, 2010, from $1.66 billion
for the
six months ended June 30, 2009. Gross mortgage loans originated and
purchased for portfolio during the six months ended June 30, 2010 totaled $1.60
billion, of which $1.35 billion were originations and $243.4 million were
purchases, all of which were one-to-four family mortgage loans. This
compares to gross mortgage loans originated and purchased for portfolio totaling
$1.06 billion during the six months ended June 30, 2009, of which $932.4 million
were originations and $128.8 million were purchases, substantially all of which
were one-to-four family mortgage loans. In addition, we originated
loans held-for-sale totaling $115.2 million during the six months ended June 30,
2010, compared to $248.0 million during the six months ended June 30,
2009.
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 loan portfolio decreased $186.4 million to $11.71
billion at June 30, 2010, from $11.90 billion at December 31, 2009, and
represented 76.7% of our total loan portfolio at June 30, 2010. The
decrease was primarily the result of the levels of repayments which outpaced our
originations and purchases during the six months ended June 30,
2010. One-to-four family mortgage loan origination and purchase
volume for portfolio has been negatively affected by the historic low 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 six months ended
June 30, 2010, 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 61% and the loan amount averaged approximately
$737,000.
Our
multi-family mortgage loan portfolio decreased $161.9 million to $2.40 billion
at June 30, 2010, from $2.56 billion at December 31, 2009. Our
commercial real estate loan portfolio decreased $45.9 million to $820.9 million
at June 30, 2010, from $866.8 million at December 31, 2009. The
decreases in these loan portfolios are attributable to repayments, the sale or
transfer to held-for-sale of various delinquent and non-performing loans and the
absence of new multi-family and commercial real estate loan
originations. We are currently only offering to originate
multi-family and commercial real estate loans to select existing customers in
New York and did not originate any such loans during the first half of
2010. Multi-family and commercial real estate loan originations
totaled $11.5 million for the year ended December 31, 2009, and were primarily
originated in the first quarter of 2009.
Securities
decreased $441.9 million to $2.74 billion at June 30, 2010, from $3.18 billion
at December 31, 2009. This decrease was primarily the result of
principal payments received of $835.8 million, including $251.0 million related
to securities which were called, partially offset by purchases of $390.9
million. At June 30, 2010, our securities portfolio was comprised
primarily of fixed rate REMIC and CMO securities. The amortized cost
of our fixed rate REMICs and CMOs totaled $2.67 billion at June 30, 2010 and had
a weighted average current coupon of 4.12%, a weighted average collateral coupon
of 5.57% and a weighted average life of 1.9 years. For additional
information regarding our securities portfolio, see Note 2 of Notes to
Consolidated Financial Statements in Item 1, “Financial Statements
(Unaudited).”
Cash and
due from banks increased $248.5 million to $320.0 million at June 30, 2010, from
$71.5 million at December 31, 2009. This increase reflects the cash
flows from securities calls and new borrowings which were not redeployed by the
end of the 2010 second quarter.
Deposits
decreased $563.8 million to $12.25 billion at June 30, 2010, from $12.81 billion
at December 31, 2009, due to decreases in certificates of deposit and Liquid
CDs, partially offset by increases in savings, NOW and demand deposit and money
market accounts. Certificates of deposit decreased $652.9 million
since December 31, 2009 to $7.43 billion at June 30, 2010. Liquid CDs
decreased $103.7 million since December 31, 2009 to $607.9 million at June 30,
2010. Savings accounts increased $141.6 million since December 31,
2009 to $2.18 billion at June 30, 2010. NOW and demand deposit
accounts increased $40.5 million since December 31, 2009 to $1.69 billion at
June 30, 2010. Money market accounts increased $10.6 million since
December 31, 2009 to $337.5 million at June 30, 2010. During the
first half of 2010, we continued to allow high cost certificates of deposit to
run off as total assets declined. The increases in low cost savings,
NOW and demand deposit and money market accounts during the first half of 2010
appear to reflect customer preference for the liquidity these types of deposits
provide over the rates currently offered on longer term certificates of
deposit. We have, however, recently begun to offer aggressive rates
on long term certificates of deposit to extend these deposits.
Total
borrowings, net, decreased $64.8 million to $5.81 billion at June 30, 2010, from
$5.88 billion at December 31, 2009. During the latter half of the
2010 second quarter, we increased longer term borrowings to take advantage of
the current rates on such borrowings in anticipation of borrowings scheduled to
mature in the 2010 third quarter.
Stockholders’
equity increased $18.4 million to $1.23 billion at June 30, 2010, from $1.21
billion at December 31, 2009. The increase in stockholders’ equity
was due to net income of $28.5 million, the allocation of shares held by the
employee stock ownership plan, or ESOP, of $5.5 million, a decrease in
accumulated other comprehensive loss of $4.7 million and stock-based
compensation of $3.9 million. These increases were partially offset
by dividends declared of $24.3 million.
Results
of Operations
General
Net
income for the three months ended June 30, 2010 increased $12.8 million to $15.5
million, from $2.7 million for the three months ended June 30,
2009. Diluted earnings per common share increased to $0.17 per share
for the three months ended June 30, 2010, from $0.03 per share for the three
months ended June 30, 2009. Return on average assets increased to
0.31% for the three months ended June 30, 2010, from 0.05% for the three months
ended June 30, 2009. Return on average stockholders’ equity increased
to 5.09% for the three months ended June 30, 2010, from 0.90% for the three
months ended June 30, 2009. Return on average tangible stockholders’
equity, which represents average stockholders’ equity less average goodwill,
increased to 6.01% for the three months ended June 30, 2010, from 1.06% for the
three months ended June 30, 2009.
Net
income for the six months ended June 30, 2010 increased $17.0 million to $28.5
million, from $11.5 million for the six months ended June 30,
2009. Diluted earnings per common share increased to $0.30 per share
for the six months ended June 30, 2010, from $0.12 per share for the
six months ended June 30, 2009. Return on average assets increased to
0.28% for the six months ended June 30, 2010, from 0.11% for the six months
ended June 30, 2009. Return on average stockholders’ equity increased
to 4.69% for the six months ended June 30, 2010, from 1.92% for the six months
ended June 30, 2009. Return on average tangible stockholders’ equity
increased
to 5.53% for the six months ended June 30, 2010, from 2.28% for the six months
ended June 30, 2009. The increases in the returns on average assets
for the three and six months ended June 30, 2010, compared to the three and six
months ended June 30, 2009, were primarily due to the increases in net income,
coupled with the decreases in average assets. The increases in the
returns on average stockholders’ equity and average tangible stockholders’
equity for the three and six months ended June 30, 2010, compared to the three
and six months ended June 30, 2009, were primarily due to the increases in net
income.
Our
results of operations for the three and six months ended June 30, 2010 include
$6.2 million ($4.0 million, after tax) of non-interest income related to the
Goodwill Litigation settlement, $7.9 million ($5.1 million, after tax) of
non-interest expense related to the McAnaney Litigation settlement, and a $1.5
million ($981,000, after tax) charge against non-interest income related to an
impairment write-down of premises and equipment. For the three months
ended June 30, 2010, these net charges reduced diluted earnings per common share
by $0.02 per share, return on average assets by 4 basis points, return on
average stockholders’ equity by 69 basis points and return on average tangible
stockholders’ equity by 80 basis points. For the six months ended
June 30, 2010, these net charges reduced diluted earnings per common share by
$0.02 per share, return on average assets by 2 basis points, return on average
stockholders’ equity by 34 basis points and return on average tangible
stockholders’ equity by 40 basis points. For further discussion of
the litigation settlements, see Note 12 and for further discussion of the
impairment write-down of premises and equipment, see Note 5 of Notes to
Consolidated Financial Statements in Item 1, “Financial Statements
(Unaudited).”
Our
results of operations for the three and six months ended June 30, 2009 include
$9.9 million ($6.4 million, after-tax) of non-interest expense related to the
FDIC special assessment and a $1.6 million ($1.0 million, after-tax) charge
against non-interest income related to a lower of cost or market write-down of
premises and equipment held-for-sale. Our results of operations for
the six months ended June 30, 2009 also include a $5.3 million ($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. For the
three months ended June 30, 2009, these charges reduced diluted earnings per
common share by $0.08 per share, return on average assets by 14 basis points,
return on average stockholders’ equity by 248 basis points and return on average
tangible stockholders’ equity by 293 basis points. For the six months
ended June 30, 2009, these charges reduced diluted earnings per common share by
$0.12 per share, return on average assets by 10 basis points, return on average
stockholders’ equity by 183 basis points and return on average tangible
stockholders’ equity by 215 basis points. For further discussion of
the FDIC special assessment, see “Non-Interest Expense.” For further
discussion of the lower of cost or market write-down of premises and equipment
held-for-sale, see Note 5 and for further discussion of the OTTI charge, see
Note 2 of 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 June 30, 2010, net interest income increased $2.8 million to
$111.9 million, from $109.1 million for the three months ended June 30, 2009,
and increased $5.6 million to $226.3 million for the six months ended June 30,
2010, from $220.7 million for the six months ended June 30, 2009. The
net interest margin increased to 2.37% for the three months ended June 30, 2010,
from 2.16% for the three months ended June 30, 2009, and increased to 2.38% for
the six months ended June 30, 2010, from 2.16% for the six months ended June 30,
2009. The net interest rate spread increased to 2.30% for the three
months ended June 30, 2010, from 2.07% for the three months ended June 30, 2009,
and increased to 2.31% for the six months ended June 30, 2010, from 2.07% for
the six months ended June 30, 2009. The average balance of net
interest-earning assets decreased $32.8 million to $603.6 million for the three
months ended June 30, 2010, from $636.4 million for the three months ended June
30, 2009, and decreased $52.9 million to $577.3 million for the six months ended
June 30, 2010, from $630.2 million for the six months ended June 30,
2009.
The
increases in net interest income, the net interest margin and the net interest
rate spread for the three and six months ended June 30, 2010, compared to the
three and six months ended June 30, 2009, were primarily due to the costs of our
interest-bearing liabilities declining more rapidly than the yields on our
interest-earning assets. Interest expense for the three and six
months ended June 30, 2010 decreased, compared to the three and six months ended
June 30, 2009, primarily due to decreases in the average costs of certificates
of deposit and Liquid CDs, coupled with decreases in the average balances of
certificates of deposit, borrowings and Liquid CDs. Interest income
for the three and six months ended June 30, 2010 decreased, compared to the
three and six months ended June 30, 2009, primarily due to decreases in the
average yields on one-to-four family mortgage loans and mortgage-backed and
other securities, coupled with decreases in the average balances of
multi-family, commercial real estate and construction loans, mortgage-backed and
other securities and one-to-four family mortgage loans.
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 six
months ended June 30, 2010 and 2009. 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 June 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
(Dollars
in Thousands)
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average
Yield/
Cost
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average
Yield/
Cost
|
|
|
|
|
|
|
|
|
|
|
(Annualized)
|
|
|
|
|
|
|
|
|
(Annualized)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
11,891,353
|
|
|
$
|
136,750
|
|
|
|
4.60
|
%
|
|
$
|
12,143,060
|
|
|
$
|
154,547
|
|
|
|
5.09
|
%
|
|
Multi-family,
commercial
real
estate and construction
|
|
|
3,332,007
|
|
|
|
49,598
|
|
|
|
5.95
|
|
|
|
3,745,255
|
|
|
|
55,978
|
|
|
|
5.98
|
|
|
Consumer
and other loans (1)
|
|
|
328,613
|
|
|
|
2,668
|
|
|
|
3.25
|
|
|
|
337,085
|
|
|
|
2,657
|
|
|
|
3.15
|
|
|
Total
loans
|
|
|
15,551,973
|
|
|
|
189,016
|
|
|
|
4.86
|
|
|
|
16,225,400
|
|
|
|
213,182
|
|
|
|
5.26
|
|
|
Mortgage-backed
and other securities (2)
|
|
|
3,003,555
|
|
|
|
29,636
|
|
|
|
3.95
|
|
|
|
3,389,962
|
|
|
|
37,223
|
|
|
|
4.39
|
|
|
Repurchase
agreements and interest-
earning
cash accounts
|
|
|
127,810
|
|
|
|
54
|
|
|
|
0.17
|
|
|
|
373,430
|
|
|
|
215
|
|
|
|
0.23
|
|
|
FHLB-NY
stock
|
|
|
174,339
|
|
|
|
1,921
|
|
|
|
4.41
|
|
|
|
178,107
|
|
|
|
2,677
|
|
|
|
6.01
|
|
|
Total
interest-earning assets
|
|
|
18,857,677
|
|
|
|
220,627
|
|
|
|
4.68
|
|
|
|
20,166,899
|
|
|
|
253,297
|
|
|
|
5.02
|
|
|
Goodwill
|
|
|
185,151
|
|
|
|
|
|
|
|
|
|
|
|
185,151
|
|
|
|
|
|
|
|
|
|
|
Other
non-interest-earning assets
|
|
|
852,970
|
|
|
|
|
|
|
|
|
|
|
|
864,792
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
19,895,798
|
|
|
|
|
|
|
|
|
|
|
$
|
21,216,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
2,150,272
|
|
|
|
2,167
|
|
|
|
0.40
|
|
|
$
|
1,927,125
|
|
|
|
1,945
|
|
|
|
0.40
|
|
|
Money
market
|
|
|
337,851
|
|
|
|
374
|
|
|
|
0.44
|
|
|
|
317,167
|
|
|
|
607
|
|
|
|
0.77
|
|
|
NOW
and demand deposit
|
|
|
1,684,022
|
|
|
|
271
|
|
|
|
0.06
|
|
|
|
1,550,791
|
|
|
|
269
|
|
|
|
0.07
|
|
|
Liquid
CDs
|
|
|
622,381
|
|
|
|
769
|
|
|
|
0.49
|
|
|
|
943,623
|
|
|
|
2,956
|
|
|
|
1.25
|
|
|
Total
core deposits
|
|
|
4,794,526
|
|
|
|
3,581
|
|
|
|
0.30
|
|
|
|
4,738,706
|
|
|
|
5,777
|
|
|
|
0.49
|
|
|
Certificates
of deposit
|
|
|
7,732,442
|
|
|
|
45,915
|
|
|
|
2.38
|
|
|
|
8,822,247
|
|
|
|
76,184
|
|
|
|
3.45
|
|
|
Total
deposits
|
|
|
12,526,968
|
|
|
|
49,496
|
|
|
|
1.58
|
|
|
|
13,560,953
|
|
|
|
81,961
|
|
|
|
2.42
|
|
|
Borrowings
|
|
|
5,727,065
|
|
|
|
59,182
|
|
|
|
4.13
|
|
|
|
5,969,501
|
|
|
|
62,282
|
|
|
|
4.17
|
|
|
Total
interest-bearing liabilities
|
|
|
18,254,033
|
|
|
|
108,678
|
|
|
|
2.38
|
|
|
|
19,530,454
|
|
|
|
144,243
|
|
|
|
2.95
|
|
|
Non-interest-bearing
liabilities
|
|
|
421,163
|
|
|
|
|
|
|
|
|
|
|
|
485,819
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
18,675,196
|
|
|
|
|
|
|
|
|
|
|
|
20,016,273
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
1,220,602
|
|
|
|
|
|
|
|
|
|
|
|
1,200,569
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
19,895,798
|
|
|
|
|
|
|
|
|
|
|
$
|
21,216,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income/net interest
rate
spread (3)
|
|
|
|
|
|
$
|
111,949
|
|
|
|
2.30
|
%
|
|
|
|
|
|
$
|
109,054
|
|
|
|
2.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest-earning assets/net
interest
margin (4)
|
|
$
|
603,644
|
|
|
|
|
|
|
|
2.37
|
%
|
|
$
|
636,445
|
|
|
|
|
|
|
|
2.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Six Months Ended June 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
(Dollars
in Thousands)
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average
Yield/
Cost
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average
Yield/
Cost
|
|
|
|
|
|
|
|
|
|
|
(Annualized)
|
|
|
|
|
|
|
|
|
(Annualized)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
11,947,176
|
|
|
$
|
277,704
|
|
|
|
4.65
|
%
|
|
$
|
12,257,408
|
|
|
$
|
317,487
|
|
|
|
5.18
|
%
|
|
Multi-family,
commercial
real
estate and construction
|
|
|
3,379,096
|
|
|
|
100,723
|
|
|
|
5.96
|
|
|
|
3,803,712
|
|
|
|
112,592
|
|
|
|
5.92
|
|
|
Consumer
and other loans (1)
|
|
|
330,474
|
|
|
|
5,319
|
|
|
|
3.22
|
|
|
|
338,727
|
|
|
|
5,335
|
|
|
|
3.15
|
|
|
Total
loans
|
|
|
15,656,746
|
|
|
|
383,746
|
|
|
|
4.90
|
|
|
|
16,399,847
|
|
|
|
435,414
|
|
|
|
5.31
|
|
|
Mortgage-backed
and other securities (2)
|
|
|
3,071,338
|
|
|
|
60,983
|
|
|
|
3.97
|
|
|
|
3,635,847
|
|
|
|
80,327
|
|
|
|
4.42
|
|
|
Repurchase
agreements and interest-
earning
cash accounts
|
|
|
104,714
|
|
|
|
69
|
|
|
|
0.13
|
|
|
|
233,408
|
|
|
|
231
|
|
|
|
0.20
|
|
|
FHLB-NY
stock
|
|
|
178,784
|
|
|
|
4,417
|
|
|
|
4.94
|
|
|
|
185,954
|
|
|
|
4,363
|
|
|
|
4.69
|
|
|
Total
interest-earning assets
|
|
|
19,011,582
|
|
|
|
449,215
|
|
|
|
4.73
|
|
|
|
20,455,056
|
|
|
|
520,335
|
|
|
|
5.09
|
|
|
Goodwill
|
|
|
185,151
|
|
|
|
|
|
|
|
|
|
|
|
185,151
|
|
|
|
|
|
|
|
|
|
|
Other
non-interest-earning assets
|
|
|
874,848
|
|
|
|
|
|
|
|
|
|
|
|
827,412
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
20,071,581
|
|
|
|
|
|
|
|
|
|
|
$
|
21,467,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
2,110,242
|
|
|
|
4,232
|
|
|
|
0.40
|
|
|
$
|
1,888,572
|
|
|
|
3,792
|
|
|
|
0.40
|
|
|
Money
market
|
|
|
333,447
|
|
|
|
732
|
|
|
|
0.44
|
|
|
|
306,082
|
|
|
|
1,286
|
|
|
|
0.84
|
|
|
NOW
and demand deposit
|
|
|
1,650,178
|
|
|
|
528
|
|
|
|
0.06
|
|
|
|
1,510,098
|
|
|
|
547
|
|
|
|
0.07
|
|
|
Liquid
CDs
|
|
|
647,369
|
|
|
|
1,592
|
|
|
|
0.49
|
|
|
|
961,573
|
|
|
|
7,933
|
|
|
|
1.65
|
|
|
Total
core deposits
|
|
|
4,741,236
|
|
|
|
7,084
|
|
|
|
0.30
|
|
|
|
4,666,325
|
|
|
|
13,558
|
|
|
|
0.58
|
|
|
Certificates
of deposit
|
|
|
7,858,888
|
|
|
|
95,954
|
|
|
|
2.44
|
|
|
|
8,910,252
|
|
|
|
159,163
|
|
|
|
3.57
|
|
|
Total
deposits
|
|
|
12,600,124
|
|
|
|
103,038
|
|
|
|
1.64
|
|
|
|
13,576,577
|
|
|
|
172,721
|
|
|
|
2.54
|
|
|
Borrowings
|
|
|
5,834,163
|
|
|
|
119,876
|
|
|
|
4.11
|
|
|
|
6,248,305
|
|
|
|
126,883
|
|
|
|
4.06
|
|
|
Total
interest-bearing liabilities
|
|
|
18,434,287
|
|
|
|
222,914
|
|
|
|
2.42
|
|
|
|
19,824,882
|
|
|
|
299,604
|
|
|
|
3.02
|
|
|
Non-interest-bearing
liabilities
|
|
|
421,905
|
|
|
|
|
|
|
|
|
|
|
|
448,195
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
18,856,192
|
|
|
|
|
|
|
|
|
|
|
|
20,273,077
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
1,215,389
|
|
|
|
|
|
|
|
|
|
|
|
1,194,542
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
20,071,581
|
|
|
|
|
|
|
|
|
|
|
$
|
21,467,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income/net interest
rate
spread (3)
|
|
|
|
|
|
$
|
226,301
|
|
|
|
2.31
|
%
|
|
|
|
|
|
$
|
220,731
|
|
|
|
2.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest-earning assets/net
interest
margin (4)
|
|
$
|
577,295
|
|
|
|
|
|
|
|
2.38
|
%
|
|
$
|
630,174
|
|
|
|
|
|
|
|
2.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 30, 2010
Compared
to
Three
Months Ended June 30, 2009
|
|
|
Six
Months Ended June 30, 2010
Compared
to
Six
Months Ended June 30, 2009
|
|
|
|
|
Increase
(Decrease)
|
|
|
Increase
(Decrease)
|
|
|
(In
Thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
(3,153
|
)
|
|
$
|
(14,644
|
)
|
|
$
|
(17,797
|
)
|
|
$
|
(7,889
|
)
|
|
$
|
(31,894
|
)
|
|
$
|
(39,783
|
)
|
|
Multi-family,
commercial real estate and construction
|
|
|
(6,102
|
)
|
|
|
(278
|
)
|
|
|
(6,380
|
)
|
|
|
(12,627
|
)
|
|
|
758
|
|
|
|
(11,869
|
)
|
|
Consumer
and other loans
|
|
|
(70
|
)
|
|
|
81
|
|
|
|
11
|
|
|
|
(133
|
)
|
|
|
117
|
|
|
|
(16
|
)
|
|
Mortgage-backed
and other securities
|
|
|
(4,037
|
)
|
|
|
(3,550
|
)
|
|
|
(7,587
|
)
|
|
|
(11,683
|
)
|
|
|
(7,661
|
)
|
|
|
(19,344
|
)
|
|
Repurchase
agreements and interest-earning cash accounts
|
|
|
(115
|
)
|
|
|
(46
|
)
|
|
|
(161
|
)
|
|
|
(99
|
)
|
|
|
(63
|
)
|
|
|
(162
|
)
|
|
FHLB-NY
stock
|
|
|
(56
|
)
|
|
|
(700
|
)
|
|
|
(756
|
)
|
|
|
(172
|
)
|
|
|
226
|
|
|
|
54
|
|
|
Total
|
|
|
(13,533
|
)
|
|
|
(19,137
|
)
|
|
|
(32,670
|
)
|
|
|
(32,603
|
)
|
|
|
(38,517
|
)
|
|
|
(71,120
|
)
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
222
|
|
|
|
-
|
|
|
|
222
|
|
|
|
440
|
|
|
|
-
|
|
|
|
440
|
|
|
Money
market
|
|
|
39
|
|
|
|
(272
|
)
|
|
|
(233
|
)
|
|
|
106
|
|
|
|
(660
|
)
|
|
|
(554
|
)
|
|
NOW
and demand deposit
|
|
|
30
|
|
|
|
(28
|
)
|
|
|
2
|
|
|
|
52
|
|
|
|
(71
|
)
|
|
|
(19
|
)
|
|
Liquid
CDs
|
|
|
(785
|
)
|
|
|
(1,402
|
)
|
|
|
(2,187
|
)
|
|
|
(2,012
|
)
|
|
|
(4,329
|
)
|
|
|
(6,341
|
)
|
|
Certificates
of deposit
|
|
|
(8,622
|
)
|
|
|
(21,647
|
)
|
|
|
(30,269
|
)
|
|
|
(17,165
|
)
|
|
|
(46,044
|
)
|
|
|
(63,209
|
)
|
|
Borrowings
|
|
|
(2,508
|
)
|
|
|
(592
|
)
|
|
|
(3,100
|
)
|
|
|
(8,544
|
)
|
|
|
1,537
|
|
|
|
(7,007
|
)
|
|
Total
|
|
|
(11,624
|
)
|
|
|
(23,941
|
)
|
|
|
(35,565
|
)
|
|
|
(27,123
|
)
|
|
|
(49,567
|
)
|
|
|
(76,690
|
)
|
|
Net
change in net interest income
|
|
$
|
(1,909
|
)
|
|
$
|
4,804
|
|
|
$
|
2,895
|
|
|
$
|
(5,480
|
)
|
|
$
|
11,050
|
|
|
$
|
5,570
|
|
Interest
Income
Interest
income decreased $32.7 million to $220.6 million for the three months ended June
30, 2010, from $253.3 million for the three months ended June 30, 2009, due to a
decrease in the average yield on interest-earning assets to 4.68% for the three
months ended June 30, 2010, from 5.02% for the three months ended June 30, 2009,
coupled with a decrease of $1.31 billion in the average balance of
interest-earning assets to $18.86 billion for the three months ended June 30,
2010, from $20.17 billion for the three months ended June 30,
2009. The decrease in the average yield on interest-earning assets
was primarily due to decreases in the average yields on one-to-four family
mortgage loans and mortgage-backed and other securities. The decrease
in the average balance of interest-earning assets was primarily due to decreases
in the average balances of multi-family, commercial real estate and construction
loans, mortgage-backed and other securities and one-to-four family mortgage
loans.
Interest
income on one-to-four family mortgage loans decreased $17.7 million to $136.8
million for the three months ended June 30, 2010, from $154.5 million for the
three months ended June 30, 2009, due to a decrease in the average yield to
4.60% for the three months ended June 30, 2010, from 5.09% for the three months
ended June 30, 2009, coupled with a decrease of $251.7
million
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 and the increase in non-performing loans. The
decrease in the average balance of one-to-four family mortgage loans was
primarily due to the levels of repayments over the past year which have outpaced
the levels of originations and purchases. The lower interest rates
and decrease in the average balance are attributable to the U.S. government
subsidizing the residential mortgage market with programs designed to keep the
interest rate for thirty year fixed rate conforming mortgage loans below normal
market rate levels, coupled with expanded conforming loan limits. Net
premium amortization on one-to-four family mortgage loans decreased $466,000 to
$7.6 million for the three months ended June 30, 2010, from $8.0 million for the
three months ended June 30, 2009.
Interest
income on multi-family, commercial real estate and construction loans decreased
$6.4 million to $49.6 million for the three months ended June 30, 2010, from
$56.0 million for the three months ended June 30, 2009, due to a decrease of
$413.2 million in the average balance of such loans, coupled with a decrease in
the average yield to 5.95% for the three months ended June 30, 2010, from 5.98%
for the three months ended June 30, 2009. The decrease in the average
balance of multi-family, commercial real estate and construction loans reflects
our decision to only selectively pursue such loans in the current economic
environment. The decrease in the average yield on multi-family,
commercial real estate and construction loans reflects a decrease in prepayment
penalties, partially offset by a decrease in non-performing loans for the 2010
second quarter compared to the 2009 second quarter and the upward repricing of
our ARM loans. Multi-family and commercial real estate loans are tied
to a higher index than one-to-four family mortgage loans and in some cases has
resulted in those mortgages repricing higher than their initial
rate. Prepayment penalties decreased $407,000 to $660,000 for the
three months ended June 30, 2010, from $1.1 million for the three months ended
June 30, 2009.
Interest
income on mortgage-backed and other securities decreased $7.6 million to $29.6
million for the three months ended June 30, 2010, from $37.2 million for the
three months ended June 30, 2009. This decrease was due to a decrease
of $386.4 million in the average balance of the portfolio, coupled with a
decrease in the average yield to 3.95% for the three months ended June 30, 2010,
from 4.39% for the three months ended June 30, 2009. The decrease in
the average balance of mortgage-backed and other securities was the result of
repayments, calls 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 in the prevailing lower interest rate environment than the
weighted average coupon for the portfolio.
Dividend
income on FHLB-NY stock decreased $756,000 to $1.9 million for the three months
ended June 30, 2010, from $2.7 million for the three months ended June 30, 2009,
primarily due to a decrease in the average yield to 4.41% for the three months
ended June 30, 2010, from 6.01% for the three months ended June 30,
2009. The decrease in the average yield on FHLB-NY stock was the
result of a decrease in the dividend rate paid by the FHLB-NY during the three
months ended June 30, 2010, compared to the three months ended June 30,
2009.
Interest
income decreased $71.1 million to $449.2 million for the six months ended June
30, 2010, from $520.3 million for the six months ended June 30, 2009, due to a
decrease in the average yield on interest-earning assets to 4.73% for the six
months ended June 30, 2010, from 5.09% for the six months ended June 30, 2009,
coupled with a decrease of $1.45 billion in the
average
balance of interest-earning assets to $19.01 billion for the six months ended
June 30, 2010, from $20.46 billion for the six months ended June 30,
2009.
Interest
income on one-to-four family mortgage loans decreased $39.8 million to $277.7
million for the six months ended June 30, 2010, from $317.5 million for the six
months ended June 30, 2009, due to a decrease in the average yield to 4.65% for
the six months ended June 30, 2010, from 5.18% for the six months ended June 30,
2009, coupled with a decrease of $310.2 million 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 $2.1 million to $15.4 million for the six months ended June 30,
2010, from $13.3 million for the six months ended June 30, 2009. This
increase reflects the increase in mortgage loan prepayments for the six months
ended June 30, 2010, compared to the six months ended June 30,
2009.
Interest
income on multi-family, commercial real estate and construction loans decreased
$11.9 million to $100.7 million for the six months ended June 30, 2010, from
$112.6 million for the six months ended June 30, 2009, due to a decrease of
$424.6 million in the average balance of such loans, slightly offset by an
increase in the average yield to 5.96% for the six months ended June 30, 2010,
from 5.92% for the six months ended June 30, 2009. The increase in
the average yield on multi-family, commercial real estate and construction loans
reflects a decrease in non-performing loans for the first half of 2010 compared
to the first half of 2009 and the upward repricing of our ARM loans, partially
offset by a decrease in prepayment penalties. Prepayment penalties
decreased $343,000 to $1.2 million for the six months ended June 30, 2010, from
$1.6 million for the six months ended June 30, 2009.
Interest
income on mortgage-backed and other securities decreased $19.3 million to $61.0
million for the six months ended June 30, 2010, from $80.3 million for the six
months ended June 30, 2009. This decrease was the result of a
decrease of $564.5 million in the average balance of the portfolio, coupled with
a decrease in the average yield to 3.97% for the six months ended June 30, 2010,
from 4.42% for the six months ended June 30, 2009.
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 six months ended June
30, 2010 are consistent with the principal reasons for the changes noted for the
three months ended June 30, 2010.
Interest
Expense
Interest
expense decreased $35.5 million to $108.7 million for the three months ended
June 30, 2010, from $144.2 million for the three months ended June 30, 2009, due
to a decrease in the average cost of interest-bearing liabilities to 2.38% for
the three months ended June 30, 2010, from 2.95% for the three months ended June
30, 2009, coupled with a decrease of $1.28 billion in the average balance of
interest-bearing liabilities to $18.25 billion for the three months ended June
30, 2010, from $19.53 billion for the three months ended June 30,
2009. 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. The decrease in the average balance of
interest-
bearing
liabilities was primarily due to decreases in the average balances of
certificates of deposit, borrowings and Liquid CDs.
Interest
expense on deposits decreased $32.5 million to $49.5 million for the three
months ended June 30, 2010, from $82.0 million for the three months ended June
30, 2009, due to a decrease in the average cost to 1.58% for the three months
ended June 30, 2010, from 2.42% for the three months ended June 30, 2009,
coupled with a decrease of $1.03 billion in the average balance of total
deposits to $12.53 billion for the three months ended June 30, 2010, from $13.56
billion for the three months ended June 30, 2009. The decrease in the
average cost of total deposits was primarily due to the impact of the decline in
short-term interest rates during 2009 on our certificates of deposit and Liquid
CDs which matured and were replaced at lower interest rates. The
decrease in the average balance of total deposits was primarily due to decreases
in the average balances of certificates of deposit and Liquid CDs, partially
offset by increases in the average balances of savings, NOW and demand deposit
and money market accounts.
Interest
expense on certificates of deposit decreased $30.3 million to $45.9 million for
the three months ended June 30, 2010, from $76.2 million for the three months
ended June 30, 2009, due to a decrease in the average cost to 2.38% for the
three months ended June 30, 2010, from 3.45% for the three months ended June 30,
2009, coupled with a decrease of $1.09 billion in the average
balance. The decrease in the average cost of certificates of deposit
reflects the impact of certificates of deposit at higher rates maturing and
being replaced at lower interest rates. The decrease in the average
balance of certificates of deposit was primarily the result of our reduced focus
on certificates of deposit since the second half of 2009 in response to the
acceleration of mortgage loan and securities repayments. During the
three months ended June 30, 2010, $1.49 billion of certificates of deposit, with
a weighted average rate of 2.04% and a weighted average maturity at inception of
twelve months, matured and $929.0 million of certificates of deposit were issued
or repriced, with a weighted average rate of 1.05% and a weighted average
maturity at inception of seventeen months.
Interest
expense on Liquid CDs decreased $2.2 million to $769,000 for the three months
ended June 30, 2010, from $3.0 million for the three months ended June 30, 2009,
due to a decrease in the average cost to 0.49% for the three months ended June
30, 2010, from 1.25% for the three months ended June 30, 2009, coupled with a
decrease of $321.2 million in the average balance. The decrease in
the average cost of Liquid CDs reflects the decline in short-term interest rates
during 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 $3.1 million to $59.2 million for the three
months ended June 30, 2010, from $62.3 million for the three months ended June
30, 2009, due to a decrease of $242.4 million in the average balance, coupled
with a decrease in the average cost to 4.13% for the three months ended June 30,
2010, from 4.17% for the three months ended June 30, 2009. The
decrease in the average balance of borrowings was the result of cash flows from
mortgage loan and securities repayments exceeding mortgage loan originations and
purchases and securities purchases which enabled us to repay a portion of our
matured borrowings.
Interest
expense decreased $76.7 million to $222.9 million for the six months ended June
30, 2010, from $299.6 million for the six months ended June 30,
2009, due to a decrease in the average cost of interest-bearing
liabilities to 2.42% for the six months ended June 30, 2010, from 3.02% for the
six months ended June 30, 2009, coupled with a decrease of $1.39 billion in the
average
balance of interest-bearing liabilities to $18.43 billion for the six months
ended June 30, 2010, from $19.82 billion for the six months ended June 30,
2009.
Interest
expense on deposits decreased $69.7 million to $103.0 million for the six months
ended June 30, 2010, from $172.7 million for the six months ended June 30, 2009,
due to a decrease in the average cost to 1.64% for the six months ended June 30,
2010, from 2.54% for the six months ended June 30, 2009, coupled with a decrease
of $976.5 million in the average balance of total deposits to $12.60 billion for
the six months ended June 30, 2010, from $13.58 billion for the six months ended
June 30, 2009.
Interest
expense on certificates of deposit decreased $63.2 million to $96.0 million for
the six months ended June 30, 2010, from $159.2 million for the six months ended
June 30, 2009, due to a decrease in the average cost to 2.44% for the six months
ended June 30, 2010, from 3.57% for the six months ended June 30, 2009, coupled
with a decrease of $1.05 billion in the average balance. During the
six months ended June 30, 2010, $3.97 billion of certificates of deposit, with a
weighted average rate of 2.58% and a weighted average maturity at inception of
thirteen months, matured and $3.22 billion of certificates of deposit were
issued or repriced, with a weighted average rate of 1.47% and a weighted average
maturity at inception of eighteen months.
Interest
expense on Liquid CDs decreased $6.3 million to $1.6 million for the six months
ended June 30, 2010, from $7.9 million for the six months ended June 30, 2009,
due to a decrease in the average cost to 0.49% for the six months ended June 30,
2010, from 1.65% for the six months ended June 30, 2009, coupled with a decrease
of $314.2 million in the average balance.
Interest
expense on borrowings decreased $7.0 million to $119.9 million for the six
months ended June 30, 2010, from $126.9 million for the six months ended June
30, 2009, due to a decrease of $414.1 million in the average balance, partially
offset by an increase in the average cost to 4.11% for the six months ended June
30, 2010, from 4.06% for the six months ended June 30, 2009. The
increase in the average cost of borrowings reflects the upward repricing of long
term variable rate borrowings which reset into higher fixed rates during the
2009 second quarter.
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 six months ended
June 30, 2010 are consistent with the principal reasons for the changes noted
for the three months ended June 30, 2010.
Provision for Loan
Losses
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. We continue to closely monitor the local and national
real estate markets and other factors related to risks inherent in our loan
portfolio. As a geographically diversified residential lender, we
have been affected by negative consequences arising from the economic recession
that continued throughout most of 2009 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 and although the national economy continued
to show signs of improvement during the
first
half of 2010, the pace of the recovery appears to have moderated during the 2010
second quarter.
The
allowance for loan losses was $211.0 million at June 30, 2010, $210.7 million at
March 31, 2010 and $194.0 million at December 31, 2009. The allowance
for loan losses reflects the levels and composition of our loan delinquencies,
non-performing loans and net loan charge-offs, as well as our evaluation of the
housing and real estate markets and overall economy
,
particularly the unemployment rate. The provision for loan losses
decreased $15.0 million to $35.0 million for the three months ended June 30,
2010, from $50.0 million for the three months ended June 30, 2009, and decreased
$20.0 million to $80.0 million for the six months ended June 30, 2010, from
$100.0 million for the six months ended June 30, 2009. The decreases
in the provision for loan losses reflect the continuing stabilizing trend in
overall asset quality. The allowance for loan losses as a percentage
of total loans increased to 1.37% at June 30, 2010, from 1.23% at December 31,
2009, primarily due to the increase in the allowance for loan losses, coupled
with a decrease in total loans. The allowance for loan losses as a
percentage of non-performing loans increased to 50.83% at June 30, 2010, from
50.29% at March 31, 2010 and 47.49% at December 31, 2009, primarily due to the
increase in the allowance for loan losses
,
partially offset by the
slight increase in non-performing loans. Non-performing loans totaled
$415.1 million at June 30, 2010, $419.1 million at March 31, 2010 and $408.6
million at December 31, 2009. The changes 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.
W
hen 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.
O
ur 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
June 30
, 20
10
, non-performing loans included
one-to-four family
mortgage
loans which were 180 days or more past
due
totaling
$
245.4
million
, net
of
the charge-offs related to such loans,
which had a related
allowance for loan losses totaling $
6.8
million.
Excluding one-to-four family
mortgage
loans which were 180 days or more past
due at
June 30
, 20
10
and their related allowance, our ratio
of the allowance for loan losses to non-performing loans would be approximately
120
%
.
The slight increase in the allowance for
loan losses as a percentage of non-performing loans as well as the allowance for
loan losses as a percentage of total loans at June 30, 2010 compared to December
31, 2009 reflects the continued challenges in the economy and high unemployment
levels as well as the continued elevated levels of non-performing loans and net
loan charge-offs.
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. 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.
Our analysis of loss
severity
during the 2010
second 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 mortgage
loans
during
the twelve months ended March 31, 2010,
indicate
d
a
n average
loss severity of approximately
27
%
compared to approximately 28% for the
twelve months ended December 31, 2009
. This analysis
primarily
reviewed one-to-four family REO sales
which occurred
during the
twelve months ended March 31, 2010
and included both full documentation 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 March 31,
2010, indicated an average loss severity of approximately
40
%
compared to approximately 41% for the
twelve months ended December 31, 2009. We consider our average 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
environment.
The ratio of the allowance for loan
losses to non-performing loans
was
approximately
51
% at
June
3
0
, 20
10,
which exceeds
our
average
loss severity experience
for our mortgage loan
portfolios
, indicating that
our allowance for loan losses
sh
ould be adequate to cover potential
losses.
Net loan
charge-offs totaled $34.7 million, or eighty-nine basis points of average loans
outstanding, annualized, for the three months ended June 30, 2010 and $63.1
million, or eighty-one basis points of average loans outstanding, annualized,
for the six months ended June 30, 2010. This compares to net loan
charge-offs of $38.9 million, or ninety-six basis points of average loans
outstanding, annualized, for the three months ended June 30, 2009 and $58.8
million, or seventy-two basis points of average loans outstanding, annualized,
for the six months ended June 30, 2009. The decrease in net loan
charge-offs for the three months ended June 30, 2010, compared to the three
months ended June 30, 2009, was primarily due to a decrease in multi-family,
commercial real estate and construction loan net charge-offs. The
increase in net loan charge-offs for the six months ended June 30, 2010,
compared to the six months ended June 30, 2009, was primarily due to an increase
in one-to-four family loan charge-offs during the 2010 first quarter on loans
180 days or more past due. Our non-performing loans, which are
comprised primarily of mortgage loans, increased $6.5 million to $415.1 million,
or 2.70% of total loans, at June 30, 2010, from $408.6 million, or 2.59% of
total loans, at December 31, 2009. This increase was primarily due to
an increase of $20.6 million in non-performing one-to-four family mortgage
loans, partially offset by a decrease of $14.5 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
mortgage loans, primarily multi-family and commercial real estate loans, during
the six months ended June 30, 2010 had not occurred, the increase in
non-performing loans would have been $57.3 million
greater,
which amount is gross of $22.9 million in net charge-offs and 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 non-performing multi-family, commercial real estate and construction
loans with balances in excess of $1.0 million or for other classified loans when
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.
During
the 2010 first quarter, total delinquencies decreased reflecting a decrease in
30-89 day delinquent loans, partially offset by an increase in non-performing
loans. The unemployment rate decreased slightly to 9.7% for March
2010 and there were nominal job gains for the quarter totaling 162,000 at the
time of our analysis. Net loan charge-offs also decreased for the
2010 first quarter compared to the 2009 fourth quarter. We continued
to update our charge-off and loss analysis during the 2010 first quarter and
modified our allowance coverage percentages accordingly. The
combination of these factors, as well as our evaluation of the continued
weakness in the housing and real estate markets and overall economy, resulted in
an increase in our allowance for loan losses to $210.7 million at March 31, 2010
and a provision for loan losses of $45.0 million for the 2010 first
quarter. During the 2010 second quarter, total delinquencies
increased primarily due to an increase in 30-59 day delinquent loans, primarily
attributable to two borrowing relationships totaling $33.1 million at June 30,
2010 for which the June loan payments were received shortly after June 30, 2010,
partially offset by decreases in 60-89 day delinquent loans and non-performing
loans. The unemployment rate decreased further to 9.5% and there were
job gains for the quarter totaling 621,000 at the time of our
analysis. Net loan charge-offs increased for the 2010 second quarter
compared to the 2010 first quarter, primarily due to an increase in
non-performing loans sold or reclassified to held-for-sale and their related
charge-offs during the 2010 second quarter. We continued to update
our charge-off and loss analysis during the 2010 second quarter and modified our
allowance coverage percentages accordingly. As a result of these
factors, our allowance for loan losses remained flat compared to March 31, 2010
and totaled $211.0 million at June 30, 2010 which resulted in a provision for
loan losses totaling $35.0 million for the three months ended June 30, 2010 and
$80.0 million for the six months ended June 30, 2010.
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 June 30, 2010 and December 31, 2009.
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 increased $2.8 million to $23.2 million for the three months ended June
30, 2010, from $20.4 million for the three months ended June 30, 2009, primarily
due to an increase in other non-interest income, partially offset by decreases
in mortgage banking income, net, and customer service fees. For the
six months ended June 30, 2010, non-interest income increased $5.5 million to
$41.9 million, from $36.4 million for the six months ended June 30, 2009,
primarily due to an increase in other non-interest income and a $5.3 million
OTTI charge recorded in the 2009 first quarter, partially offset by a decrease
in customer service fees, a gain on sales of securities recorded in the 2009
first quarter and a decrease in mortgage banking income, net.
Other
non-interest income increased $6.6 million to $6.0 million for the three months
ended June 30, 2010, from a loss of $600,000 for the three months ended June 30,
2009, and increased $6.8 million to $7.1 million for the six months ended June
30, 2010, from $277,000 for the six months ended June 30, 2009. These
increases were primarily due to the Goodwill Litigation settlement payment we
received in the 2010 second quarter of $6.2 million and losses recognized for
the three and six months ended June 30, 2009 in a trust account previously
established for certain former directors. For further information
regarding the settlement of the Goodwill Litigation, see Part II, Item 1, “Legal
Proceedings.” In addition, other non-interest income includes
asset impairment charges totaling $1.5 million for the three and six months
ended June 30, 2010 and $1.6 million for the three and six months ended June 30,
2009 related to an office building previously held-for-sale included in premises
and equipment, net.
Mortgage
banking income, net, which includes loan servicing fees, net gain on sales of
loans, amortization of MSR and valuation allowance adjustments for the
impairment of MSR, decreased $2.8 million to $600,000 for the three months ended
June 30, 2010, from $3.4 million for the three months ended June 30, 2009, and
decreased $1.7 million to $2.2 million for the six months ended June 30, 2010,
from $3.9 million for the six months ended June 30, 2009. These
decreases were primarily due to changes in the valuation allowance adjustments
for the impairment of MSR and net gains on sales of loans. We
recorded a provision of $202,000 in the valuation allowance for the impairment
of MSR for the three months ended June 30, 2010, compared to a recovery of $1.4
million for the three months ended June 30, 2009, and a recovery of $130,000 for
the six months ended June 30, 2010, compared to a recovery of $1.6 million for
the six months ended June 30, 2009. The recoveries recorded in the
valuation allowance for the impairment of MSR for the three and six months ended
June 30, 2009 reflected an improvement in market conditions during 2009 from
that which existed in the 2008 fourth quarter when a lack of market demand for
MSR due to the turmoil in the credit markets at that time negatively impacted
the pricing of loan servicing. The decreases in net gain on sales of
loans reflect decreases in the volume of loans sold and less favorable pricing
opportunities during the three and six months ended June 30, 2010, compared to
the three and six months ended June 30, 2009. We generally sell our
fifteen and thirty year conforming fixed rate one-to-four family mortgage loan
production. The expanded conforming loans limits and historic low
interest rates on thirty year mortgages resulted in increased consumer demand
for these fixed rate products during 2009 resulting in higher levels of loans
sold. However, the interest rate on thirty year conforming fixed rate
mortgage loans remained above 5.00% for most of the first half of 2010 resulting
in a reduction in the levels of originations and sales of such loans during the
2010 second quarter.
Customer
service fees decreased $868,000 to $13.4 million for the three months ended June
30, 2010, from $14.2 million for the three months ended June 30, 2009, and
decreased $2.4 million to $26.7 million for the six months ended June 30, 2010,
from $29.1 million for the six months ended June 30, 2009. These
decreases were primarily due to decreases in commissions on sales of annuities
and insufficient fund fees related to transaction accounts.
There
were no sales of securities from the available-for-sale portfolio during the
three and six months ended June 30, 2010. During the six months ended
June 30, 2009, we sold mortgage-backed securities from the available-for-sale
portfolio with an amortized cost of $89.3 million resulting in gross realized
gains totaling $2.1 million.
Non-Interest
Expense
Non-interest
expense totaled $75.8 million for the three months ended June 30, 2010, compared
to $76.0 million for the three months ended June 30, 2009. The $9.9
million FDIC special assessment recorded in the 2009 second quarter was
substantially offset by the increase in other non-interest expense resulting
from the settlement of the McAnaney Litigation in which we agreed to pay $7.9
million which was recorded in the 2010 second quarter and an increase in
compensation and benefits expense. For further information regarding
the settlement of the McAnaney Litigation, see Part II, Item 1, “Legal
Proceedings.” Non-interest expense increased $4.1 million to $144.1
million for the six months ended June 30, 2010, from $140.0 million for the six
months ended June 30, 2009, primarily due to an increase in other non-interest
expense resulting from the McAnaney Litigation settlement and increases in
compensation and benefits expense and FDIC insurance premiums, partially offset
by the absence of the FDIC special assessment.
Included in other non-interest expense is REO related expense which totaled $2.0
million for the three months ended June 30, 2010, compared to $2.2 million for
the three months ended June 30, 2009, and $3.7 million for the six months ended
June 30, 2010, compared to $4.2 million for the six months ended June 30,
2009. Our percentage of general and administrative expense to average
assets, annualized, increased to 1.52% for the three months ended June 30, 2010,
from 1.43% for the three months ended June 30, 2009, and increased to 1.44% for
the six months ended June 30, 2010, from 1.30% for the six months ended June 30,
2009. The increases in these ratios were primarily due to the
decreases in average assets for the three and six months ended June 30, 2010,
compared to the three and six months ended June 30, 2009.
Compensation
and benefits expense increased $1.2 million to $34.6 million for the three
months ended June 30, 2010, from $33.4 million for the three months ended June
30, 2009 and $2.5 million to $69.9 million for the six months ended June 30,
2010, from $67.4 million for the six months ended June 30, 2009, primarily due
to increases in stock-based compensation costs, officer incentive accruals,
salaries and ESOP related expense, partially offset by decreases in the net
periodic cost of pension and other postretirement benefits. The
decreases in the net periodic cost of pension and other postretirement benefits
primarily reflect the decreases in the amortization of the net actuarial loss
and the increases in the expected return on plan assets.
FDIC
insurance premiums increased $2.4 million to $13.2 million for the six months
ended June 30, 2010, from $10.8 million for the six months ended June 30, 2009,
reflecting the increases in our assessment rates during 2009 resulting from the
FDIC restoration plan to increase the Deposit Insurance Fund, or
DIF. 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. The restoration plan included an
increase in assessment rates for the 2009
first
quarter with an additional increase beginning in 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
increased our ratio of general and administrative expense to average assets by
eighteen basis points for the three months ended June 30, 2009 and by nine basis
points for the six months ended June 30, 2009.
Income Tax
Expense
For the
three months ended June 30, 2010, income tax expense totaled $8.7 million,
representing an effective tax rate of 36.0%, compared to $763,000 for the three
months ended June 30, 2009, representing an effective tax rate of
22.0%. The increase in the effective tax rate for the three months
ended June 30, 2010, compared to the three months ended June 30, 2009, reflects
a significant increase in pre-tax book income without any significant changes in
net favorable permanent differences. For the six months ended June
30, 2010, income tax expense totaled $15.6 million, representing an effective
tax rate of 35.4%, compared to $5.6 million for the six months ended June 30,
2009, representing an effective tax rate of 32.9%.
Asset
Quality
One of
our key operating objectives has been and continues to be to maintain a high
level of asset quality. We continue to employ sound underwriting
standards for new loan originations. Through a variety of strategies,
including, but not limited to, 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 June 30, 2010, our loan
portfolio was comprised of 77% one-to-four family mortgage loans, 16%
multi-family mortgage loans, 5% commercial real estate loans and 2% other loan
categories. This compares to 76% one-to-four family mortgage loans,
16% multi-family mortgage loans, 6% commercial real estate loans and 2% other
loan categories at December 31, 2009. At June 30, 2010, full
documentation loans comprised 84% of our one-to-four family mortgage loan
portfolio, compared to 83% at December 31, 2009. At June 30, 2010 and
December 31, 2009, full documentation loans comprised 87% of our total mortgage
loan portfolio.
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
June 30, 2010
|
|
|
At
December 31, 2009
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
(Dollars
in Thousands)
|
|
Amount
|
|
|
of
Total
|
|
|
Amount
|
|
|
of
Total
|
|
|
One-to-four
family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
documentation interest-only (1)
|
|
$
|
4,313,951
|
|
|
|
36.84
|
%
|
|
$
|
4,688,796
|
|
|
|
39.42
|
%
|
|
Full
documentation amortizing
|
|
|
5,491,781
|
|
|
|
46.91
|
|
|
|
5,152,021
|
|
|
|
43.31
|
|
|
Reduced
documentation interest-only (1)(2)
|
|
|
1,443,044
|
|
|
|
12.32
|
|
|
|
1,576,378
|
|
|
|
13.25
|
|
|
Reduced
documentation amortizing (2)
|
|
|
460,206
|
|
|
|
3.93
|
|
|
|
478,167
|
|
|
|
4.02
|
|
|
Total
one-to-four family
|
|
$
|
11,708,982
|
|
|
|
100.00
|
%
|
|
$
|
11,895,362
|
|
|
|
100.00
|
%
|
|
Multi-family
and commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
documentation amortizing
|
|
$
|
2,738,947
|
|
|
|
85.11
|
%
|
|
$
|
2,861,607
|
|
|
|
83.53
|
%
|
|
Full
documentation interest-only
|
|
|
479,146
|
|
|
|
14.89
|
|
|
|
564,255
|
|
|
|
16.47
|
|
|
Total
multi-family and commercial real estate
|
|
$
|
3,218,093
|
|
|
|
100.00
|
%
|
|
$
|
3,425,862
|
|
|
|
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 $3.18
billion at June 30, 2010 and $3.50 billion at December 31,
2009.
|
|
(2)
|
One-to-four
family reduced documentation loans include SISA loans totaling $291.5
million at June 30, 2010 and $310.7 million at December 31,
2009.
|
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%. During the 2010 second quarter, we reduced the underwriting
interest rate floor from 6.00% to 5.00% to reflect the current interest rate
environment. Our reduced documentation loans are comprised primarily
of SIFA (stated income, full asset) loans. To a lesser extent,
reduced documentation loans in our portfolio also include SISA (stated income,
stated asset) 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. During the fourth quarter of 2007, we stopped
offering 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
current underwriting standards would generally preclude us from originating
loans to borrowers with a credit history containing a bankruptcy or foreclosure
within the last five 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 June 30, 2010, one-to-four family mortgage loans
which had FICO scores available on our mortgage loan system totaled $10.11
billion, or 86% of our total one-to-four family mortgage loan portfolio, of
which $505.5 million, or 5%, had FICO scores of 660 or below at the date of
origination. At December 31, 2009, one-to-four family mortgage loans
which had FICO scores available on our mortgage loan system totaled $10.17
billion, or 85% of our total one-to-four family mortgage loan portfolio, of
which $542.3 million, or 5%, had FICO scores of 660 or below at the date of
origination.
Of our
one-to-four family mortgage loans to borrowers with known FICO scores of 660 or
below, 73% are interest-only hybrid ARM loans, 26% are amortizing hybrid ARM
loans and 1% are amortizing fixed rate loans at June 30, 2010 and 74% are
interest-only hybrid ARM loans, 25% are amortizing hybrid ARM loans and 1% are
amortizing fixed rate loans at December 31, 2009. In addition, at
June 30, 2010 and December 31, 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. 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. We do not have FICO scores recorded on our
mortgage loan system for 14% of our one-to-four family mortgage loans at June
30, 2010 and 15% of our one-to-four family mortgage loans at December
31, 2009.
Of our one-to-four
family mortgage loans without a FICO score available on our mortgage loan system
at June 30, 2010, 65% are amortizing hybrid ARM loans, 27% are interest-only
hybrid ARM loans and 8% are amortizing fixed rate loans, and at December 31,
2009, 64% are amortizing hybrid ARM loans, 27% 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.
|
(Dollars
in Thousands)
|
|
At
June 30, 2010
|
|
|
At
December 31, 2009
|
|
|
Non-accrual
delinquent mortgage loans
|
|
|
$ 409,342
|
|
|
|
$ 403,148
|
|
|
Non-accrual
delinquent consumer and other loans
|
|
|
5,308
|
|
|
|
4,824
|
|
|
Mortgage
loans delinquent 90 days or more and
|
|
|
|
|
|
|
|
|
|
still
accruing interest (1)
|
|
|
455
|
|
|
|
600
|
|
|
Total
non-performing loans (2)
|
|
|
415,105
|
|
|
|
408,572
|
|
|
REO,
net (3)
|
|
|
54,428
|
|
|
|
46,220
|
|
|
Total
non-performing assets
|
|
|
$ 469,533
|
|
|
|
$ 454,792
|
|
|
Non-performing
loans to total loans
|
|
|
2.70
|
%
|
|
|
2.59
|
%
|
|
Non-performing
loans to total assets
|
|
|
2.11
|
|
|
|
2.02
|
|
|
Non-performing
assets to total assets
|
|
|
2.39
|
|
|
|
2.25
|
|
|
Allowance
for loan losses to non-performing loans
|
|
|
50.83
|
|
|
|
47.49
|
|
|
Allowance
for loan losses to total loans
|
|
|
1.37
|
|
|
|
1.23
|
|
|
(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)
|
Non-performing
loans exclude loans which have been restructured and are accruing and
performing in accordance with the restructured terms for a satisfactory
period of time. Restructured accruing loans totaled $34.4
million at June 30, 2010 and $26.0 million at December 31,
2009.
|
|
(3)
|
REO,
substantially all of which are one-to-four family properties, is net of
allowance for losses totaling $698,000 at June 30, 2010 and $816,000 at
December 31,
2009.
|
Total
non-performing assets increased $14.7 million to $469.5 million at June 30,
2010, from $454.8 million at December 31, 2009. This increase was due
to an increase of $8.2 million in REO, net, coupled with an increase in
non-performing loans. Non-performing loans, the most significant
component of non-performing assets, increased $6.5 million to $415.1 million at
June 30, 2010, from $408.6 million at December 31, 2009. This
increase was primarily due to an increase of $20.6 million in non-performing
one-to-four family mortgage loans, partially offset by a decrease of $14.5
million in non-performing multi-family, commercial real estate and construction
loans. Non-performing one-to-four family mortgage loans reflect a
greater concentration in non-performing reduced documentation
loans. Reduced documentation loans represent only 16% of the
one-to-four family mortgage loan portfolio, yet represent 55% of non-performing
one-to-four family mortgage loans at June 30, 2010. The ratio of
non-performing loans to total loans increased to 2.70% at June 30, 2010, from
2.59% at December 31, 2009. The ratio of non-performing assets to
total assets increased to 2.39% at June 30, 2010, from 2.25% at December 31,
2009.
As
previously discussed, we proactively manage our non-performing assets, in part,
through the sale of certain delinquent and non-performing
loans. During the six months ended June 30, 2010, we sold $22.6
million, net of $12.3 million in net charge-offs, of delinquent and
non-performing mortgage loans, primarily multi-family and commercial real estate
loans. In addition, included in loans held-for-sale, net, are
delinquent and non-performing mortgage loans totaling $13.9 million, net of
$11.8 million in net charge-offs and a $117,000 lower of cost or
market
valuation allowance, at June 30, 2010 and $6.9 million, net of $6.8 million in
net charge-offs and a $1.1 million lower of cost or market valuation allowance,
at December 31, 2009. Such loans, which are primarily multi-family
and commercial real estate loans, are excluded from non-performing loans,
non-performing assets and related ratios. Assuming we did not sell or
reclassify to held-for-sale any delinquent and non-performing loans during 2010,
at June 30, 2010 our non-performing loans and non-performing assets would have
been $57.3 million higher and our allowance for loan losses would have been
$22.7 million higher. Additionally, the ratio of non-performing loans
to total loans would have been 37 basis points higher, the ratio of
non-performing assets to total assets would have been 29 basis points higher and
the ratio of the allowance for loan losses to non-performing loans would have
been 135 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 percentages of the portfolio, at the dates
indicated.
|
|
|
At
June 30, 2010
|
|
|
At
December 31, 2009
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
(Dollars
in Thousands)
|
|
Amount
|
|
|
of
Total
|
|
|
Amount
|
|
|
of
Total
|
|
|
Non-performing
one-to-four family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
documentation interest-only
|
|
$
|
116,881
|
|
|
|
33.33
|
%
|
|
$
|
106,441
|
|
|
|
32.25
|
%
|
|
Full
documentation amortizing
|
|
|
39,660
|
|
|
|
11.31
|
|
|
|
40,875
|
|
|
|
12.38
|
|
|
Reduced
documentation interest-only
|
|
|
166,420
|
|
|
|
47.47
|
|
|
|
158,164
|
|
|
|
47.92
|
|
|
Reduced
documentation amortizing
|
|
|
27,682
|
|
|
|
7.89
|
|
|
|
24,602
|
|
|
|
7.45
|
|
|
Total
non-performing one-to-four family
|
|
$
|
350,643
|
|
|
|
100.00
|
%
|
|
$
|
330,082
|
|
|
|
100.00
|
%
|
|
Non-performing
multi-family and commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
documentation amortizing
|
|
$
|
34,115
|
|
|
|
63.53
|
%
|
|
$
|
42,637
|
|
|
|
62.51
|
%
|
|
Full
documentation interest-only
|
|
|
19,581
|
|
|
|
36.47
|
|
|
|
25,571
|
|
|
|
37.49
|
|
|
Total
non-performing multi-family and commercial real estate
|
|
$
|
53,696
|
|
|
|
100.00
|
%
|
|
$
|
68,208
|
|
|
|
100.00
|
%
|
The
following table provides details on the geographic composition of both our total
and non-performing one-to-four family mortgage loans as of June 30,
2010.
|
|
|
One-to-Four Family Mortgage Loans
|
|
|
|
At June
30, 2010
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
3,157.5
|
|
|
|
27.0
|
%
|
|
$
|
44.2
|
|
|
|
12.7
|
%
|
|
|
1.40
|
%
|
|
Illinois
|
|
|
1,463.3
|
|
|
|
12.5
|
|
|
|
51.6
|
|
|
|
14.7
|
|
|
|
3.53
|
|
|
Connecticut
|
|
|
1,114.3
|
|
|
|
9.5
|
|
|
|
29.6
|
|
|
|
8.4
|
|
|
|
2.66
|
|
|
California
|
|
|
975.6
|
|
|
|
8.3
|
|
|
|
45.3
|
|
|
|
12.9
|
|
|
|
4.64
|
|
|
New
Jersey
|
|
|
878.8
|
|
|
|
7.5
|
|
|
|
49.6
|
|
|
|
14.1
|
|
|
|
5.64
|
|
|
Massachusetts
|
|
|
831.3
|
|
|
|
7.1
|
|
|
|
14.6
|
|
|
|
4.2
|
|
|
|
1.76
|
|
|
Virginia
|
|
|
738.4
|
|
|
|
6.3
|
|
|
|
20.5
|
|
|
|
5.8
|
|
|
|
2.78
|
|
|
Maryland
|
|
|
721.9
|
|
|
|
6.2
|
|
|
|
39.8
|
|
|
|
11.4
|
|
|
|
5.51
|
|
|
Washington
|
|
|
350.3
|
|
|
|
3.0
|
|
|
|
2.4
|
|
|
|
0.7
|
|
|
|
0.69
|
|
|
Florida
|
|
|
246.4
|
|
|
|
2.1
|
|
|
|
26.2
|
|
|
|
7.5
|
|
|
|
10.63
|
|
|
All
other states (1)
|
|
|
1,231.2
|
|
|
|
10.5
|
|
|
|
26.8
|
|
|
|
7.6
|
|
|
|
2.18
|
|
|
Total
|
|
$
|
11,709.0
|
|
|
|
100.0
|
%
|
|
$
|
350.6
|
|
|
|
100.0
|
%
|
|
|
2.99
|
%
|
|
(1)
|
Includes
28 states and Washington, D.C.
|
At June
30, 2010, the geographic composition of our multi-family and commercial real
estate mortgage loan portfolio was 94% in the New York metropolitan area, 3% in
Florida and 3% in various other states and the geographic composition of
non-performing multi-family and commercial real estate mortgage loans was 87% in
the New York metropolitan area, 10% in Florida, 2% in Illinois 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 June 30, 2010 and 2009 had been performing in accordance
with their original terms, we would have recorded interest income, with respect
to such loans, of $12.8 million for the six months ended June 30, 2010 and $10.9
million for the six months ended June 30, 2009. This compares to
actual payments recorded as interest income, with respect to such loans, of $3.3
million for the six months ended June 30, 2010 and $2.9 million for the six
months ended June 30, 2009.
We may
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 requires that the borrower
demonstrate performance according to the restructured terms generally for a
period of six months. Loans modified in a troubled debt restructuring
which are included in non-accrual loans totaled $51.8 million at June 30, 2010
and $57.2 million at December 31, 2009. 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 accrual status. Restructured accruing loans totaled
$34.4 million at June 30, 2010 and $26.0 million at December 31,
2009.
In
addition to non-performing loans, we had $162.2 million of potential problem
loans at June 30, 2010, compared to $145.9 million at December 31,
2009. 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 June 30, 2010 and
December 31, 2009. 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
June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
|
456
|
|
|
$
|
148,032
|
|
|
|
175
|
|
|
$
|
60,789
|
|
|
|
1,016
|
|
|
$
|
350,643
|
|
|
Multi-family
|
|
|
53
|
|
|
|
68,451
|
|
|
|
10
|
|
|
|
7,099
|
|
|
|
43
|
|
|
|
52,115
|
|
|
Commercial
real estate
|
|
|
11
|
|
|
|
9,351
|
|
|
|
5
|
|
|
|
7,479
|
|
|
|
3
|
|
|
|
1,581
|
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
5,458
|
|
|
Consumer
and other loans
|
|
|
92
|
|
|
|
5,080
|
|
|
|
38
|
|
|
|
2,101
|
|
|
|
62
|
|
|
|
5,308
|
|
|
Total
delinquent loans
|
|
|
612
|
|
|
$
|
230,914
|
|
|
|
228
|
|
|
$
|
77,468
|
|
|
|
1,126
|
|
|
$
|
415,105
|
|
|
Delinquent
loans to total loans
|
|
|
|
|
|
|
1.50
|
%
|
|
|
|
|
|
|
0.50
|
%
|
|
|
|
|
|
|
2.70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
|
431
|
|
|
$
|
146,918
|
|
|
|
182
|
|
|
$
|
62,522
|
|
|
|
936
|
|
|
$
|
330,082
|
|
|
Multi-family
|
|
|
64
|
|
|
|
48,137
|
|
|
|
18
|
|
|
|
12,392
|
|
|
|
53
|
|
|
|
59,526
|
|
|
Commercial
real estate
|
|
|
8
|
|
|
|
13,512
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
8,682
|
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
5,458
|
|
|
Consumer
and other loans
|
|
|
136
|
|
|
|
4,327
|
|
|
|
39
|
|
|
|
1,400
|
|
|
|
61
|
|
|
|
4,824
|
|
|
Total
delinquent loans
|
|
|
639
|
|
|
$
|
212,894
|
|
|
|
239
|
|
|
$
|
76,314
|
|
|
|
1,056
|
|
|
$
|
408,572
|
|
|
Delinquent
loans to total loans
|
|
|
|
|
|
|
1.35
|
%
|
|
|
|
|
|
|
0.48
|
%
|
|
|
|
|
|
|
2.59
|
%
|
Allowance for Loan
Losses
Activity
in the allowance for loan losses is summarized as follows:
|
(In Thousands)
|
|
For
the Six Months Ended
June
30, 2010
|
|
Balance
at January 1, 2010
|
|
$
|
194,049
|
|
|
Provision
charged to operations
|
|
|
80,000
|
|
|
Charge-offs:
|
|
|
|
|
|
One-to-four
family (1)
|
|
|
(45,651
|
)
|
|
Multi-family
|
|
|
(17,511
|
)
|
|
Commercial
real estate
|
|
|
(6,565
|
)
|
|
Construction
|
|
|
(1,470
|
)
|
|
Consumer
and other loans
|
|
|
(851
|
)
|
|
Total
charge-offs
|
|
|
(72,048
|
)
|
|
Recoveries:
|
|
|
|
|
|
One-to-four
family (1)
|
|
|
8,128
|
|
|
Multi-family
|
|
|
102
|
|
|
Commercial
real estate
|
|
|
725
|
|
|
Consumer
and other loans
|
|
|
43
|
|
|
Total
recoveries
|
|
|
8,998
|
|
|
Net
charge-offs
|
|
|
(63,050
|
)
|
|
Balance
at June 30, 2010
|
|
$
|
210,999
|
|
|
|
|
|
|
|
|
(1) Includes
$21.6 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. The objective of our interest rate risk 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 analysis. Additional interest
rate risk 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 June 30,
2010 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 $2.93
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 one year and at various times
thereafter. The classification of callable borrowings according to
their maturity dates is 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 June 30, 2010 was
negative 3.99% compared to negative 6.77% at December 31,
2009.
|
|
|
At June
30, 2010
|
|
|
|
|
|
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)
|
|
$
|
5,018,534
|
|
|
$
|
4,708,590
|
|
|
$
|
4,004,315
|
|
|
$
|
837,350
|
|
|
$
|
14,568,789
|
|
|
Consumer
and other loans (1)
|
|
|
317,594
|
|
|
|
30
|
|
|
|
24
|
|
|
|
510
|
|
|
|
318,158
|
|
|
Repurchase
agreements and interest-earning cash accounts
|
|
|
329,669
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
329,669
|
|
|
Securities
available-for-sale
|
|
|
236,243
|
|
|
|
286,998
|
|
|
|
145,397
|
|
|
|
34,622
|
|
|
|
703,260
|
|
|
Securities
held-to-maturity
|
|
|
633,183
|
|
|
|
725,493
|
|
|
|
340,640
|
|
|
|
300,655
|
|
|
|
1,999,971
|
|
|
FHLB-NY
stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
185,768
|
|
|
|
185,768
|
|
|
Total
interest-earning assets
|
|
|
6,535,223
|
|
|
|
5,721,111
|
|
|
|
4,490,376
|
|
|
|
1,358,905
|
|
|
|
18,105,615
|
|
|
Net
unamortized purchase premiums and deferred costs (2)
|
|
|
37,789
|
|
|
|
33,981
|
|
|
|
27,926
|
|
|
|
6,450
|
|
|
|
106,146
|
|
|
Net
interest-earning assets (3)
|
|
|
6,573,012
|
|
|
|
5,755,092
|
|
|
|
4,518,302
|
|
|
|
1,365,355
|
|
|
|
18,211,761
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
278,450
|
|
|
|
463,902
|
|
|
|
463,902
|
|
|
|
977,096
|
|
|
|
2,183,350
|
|
|
Money
market
|
|
|
147,754
|
|
|
|
94,134
|
|
|
|
94,134
|
|
|
|
1,433
|
|
|
|
337,455
|
|
|
NOW
and demand deposit
|
|
|
122,527
|
|
|
|
245,066
|
|
|
|
245,066
|
|
|
|
1,074,504
|
|
|
|
1,687,163
|
|
|
Liquid
CDs
|
|
|
607,853
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
607,853
|
|
|
Certificates
of deposit
|
|
|
4,610,871
|
|
|
|
2,071,211
|
|
|
|
750,538
|
|
|
|
-
|
|
|
|
7,432,620
|
|
|
Borrowings,
net
|
|
|
1,590,628
|
|
|
|
1,768,525
|
|
|
|
575,000
|
|
|
|
1,878,866
|
|
|
|
5,813,019
|
|
|
Total
interest-bearing liabilities
|
|
|
7,358,083
|
|
|
|
4,642,838
|
|
|
|
2,128,640
|
|
|
|
3,931,899
|
|
|
|
18,061,460
|
|
|
Interest
sensitivity gap
|
|
|
(785,071
|
)
|
|
|
1,112,254
|
|
|
|
2,389,662
|
|
|
|
(2,566,544
|
)
|
|
$
|
150,301
|
|
|
Cumulative
interest sensitivity gap
|
|
$
|
(785,071
|
)
|
|
$
|
327,183
|
|
|
$
|
2,716,845
|
|
|
$
|
150,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
interest sensitivity gap as a percentage of total assets
|
|
|
(3.99
|
)%
|
|
|
1.66
|
%
|
|
|
13.81
|
%
|
|
|
0.76
|
%
|
|
|
|
|
|
Cumulative
net interest-earning assets as a percentage of interest-bearing
liabilities
|
|
|
89.33
|
%
|
|
|
102.73
|
%
|
|
|
119.23
|
%
|
|
|
100.83
|
%
|
|
|
|
|
|
(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.
|
Net
Interest Income Sensitivity Analysis
In
managing interest rate risk, we also use an internal income simulation model for
our net interest income 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.
We
perform analyses of interest rate increases and decreases of up to 300 basis
points although changes in interest rates of 200 basis points is a more common
and reasonable scenario for analytical purposes. 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 July 1, 2010 would increase by approximately
0.78% from the base projection. At December 31, 2009, in the up 200 basis point
scenario, our projected net interest income for the twelve month period
beginning January 1, 2010 would have increased by approximately 1.16% 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 indices 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 July 1, 2010
would decrease by approximately 2.04% from the base projection. At
December 31, 2009, in the down 100 basis point scenario, our projected net
interest income for the twelve month period beginning January 1, 2010 would have
decreased by approximately 2.53% 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 net interest income
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 net interest income sensitivity
analyses may provide an indication of our interest rate risk 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 bank owned
life insurance 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 July 1, 2010 would increase by
approximately $5.1 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
July 1, 2010 would decrease by approximately $3.0 million with respect to these
items alone.
For
further information regarding our market risk and the limitations of our gap
analysis and net interest income sensitivity analysis, see Part II, Item 7A,
“Quantitative and Qualitative Disclosures about Market Risk,” included in our
2009 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 June 30,
2010. 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 June 30, 2010 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.
On April
12, 2010, we entered into a final binding settlement of this matter with the
U.S. Government in an amount equal to $6.2 million. Legal expense
related to this matter has been recognized as it has been
incurred. The settlement was recognized in other non-interest income
in our consolidated statements of income for the three and six months ended June
30, 2010.
McAnaney
Litigation
I
n 2004
,
an action entitled
Da
vi
d
M
c
Ananey
and
Ca
r
ol
yn
M
cA
naney
,
i
ndividually
and on behalf of all others simil
a
rl
y
situated
v
s.
A
storia
Fi
nan
c
i
a
l
Corporation
,
et
al
.
was commenced in the Dis
t
r
i
c
t
Cou
r
t.
The action
,
commenced as a class action, alleges
that in connection with the satisfaction o
f
cer
ta
in mortgage loans made by
Asto
r
ia Federal, The Long Island Savings
Bank
,
FS
B
, which
w
as acqu
i
red by As
t
o
ri
a Federal in 1998, and their related
entit
i
es, customers were charged attorney
d
ocument prep
a
r
a
tion fees,
r
ecording
f
ees and facsimile fees
allegedl
y
in
v
iolation of the federal Truth in Lending
Act
,
RESPA
,
FDCA
and
the New York State Deceptive Practices
Act
,
and alleges actions based upon breach of
contract
,
unjust enrichment and
common law fraud
.
During
the fourth quarter of 2008, 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. Our 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. For further information regarding the history of this action,
see Part I, Item 3, “Legal Proceedings,” in our 2009 Annual Report on Form
10-K.
On June
29, 2010, we reached an agreement in principle to settle the remaining claims in
such action in the amount of $7.9 million. A stipulation, or the
Agreement, detailing the terms of that settlement was entered into on July 30,
2010. In entering into the Agreement, we did not acknowledge any
liability in the matter and further indicated that the Agreement is intended to
resolve all claims arising from or related to the aforementioned
case. The Agreement is subject to approval by the District
Court. The settlement was recognized in other non-interest expense in
our consolidated statements of income for the three and six months ended June
30, 2010.
Automated Transactions LLC
Litigation
On
November 20, 2009, an action entitled
Automated
Transactions LLC v. Astoria Financial Corporation and Astoria Federal Savings
and Loan Association
was commenced in the Southern District Court,
against us by Automated Transactions LLC, alleging patent infringement involving
integrated banking and transaction machines, including automated teller
machines, that we utilize. We were served with the summons and
complaint in such action on March 2, 2010. The plaintiff also filed a
similar suit on the same day against another financial institution and its
holding company. The plaintiff seeks unspecified monetary damages and
an injunction preventing us from continuing to utilize the allegedly infringing
machines. We are vigorously defending this lawsuit, and filed an
answer and counterclaims to the plaintiff’s complaint on March 23, 2010, to
which the plaintiff filed a reply on April 12, 2010. On May 18, 2010
the plaintiff filed an amended complaint at the direction of the Southern
District Court, containing substantially the same allegations as the original
complaint. On May 27, 2010 we moved to dismiss the amended complaint which
motion is currently pending before the Southern District Court. An
adverse result in this lawsuit may include an award of monetary damages,
on-going royalty obligations, and/or may result in a change in our business
practice, which could result in a loss of revenue.
We have
tendered requests for indemnification from the manufacturer and from the
transaction processor utilized with respect to the integrated banking and
transaction machines, and have filed a third party complaint against the
manufacturer and the transaction processor for indemnification and contribution
with respect to the lawsuit by Automated Transactions LLC.
No
assurance can be given at this time that the litigation against us will be
resolved amicably, that if this litigation results in an adverse decision that
we will be successful in seeking indemnification, 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 2009 Annual Report on Form 10-K and Part II, Item 1A. “Risk
Factors,” in our March 31, 2010 Quarterly Report on Form 10-Q. There
are no other material changes in risk factors relevant to our operations since
March 31, 2010 except as discussed below.
The
recent adoption of regulatory reform legislation may have a material effect on
our operations and capital requirements.
On July
21, 2010, President Obama signed into law the Reform Act. The Reform Act is
intended to address perceived weaknesses in the U.S. financial regulatory system
and prevent future economic and financial crises. There are many provisions of
the Reform Act which are to be implemented through regulations to be adopted by
the federal bank regulatory agencies within specified time frames following the
effective date of the Reform Act, which creates a risk of uncertainty as to the
effect that such provisions will ultimately have. Although it is not
possible for us to determine at this time whether the Reform Act will have a
material effect on our business, financial condition or results of operations,
we believe the following provisions of the Reform Act will have an impact on
us:
|
|
·
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New Regulatory
Regime
. On July 21, 2011, unless the Secretary of the
Treasury opts to delay such date for up to an additional six months, the
OTS will be eliminated and the Office of the Comptroller of the Currency,
or OCC, will take over the regulation of all federal savings associations,
such as Astoria Federal. The Board of Governors of the Federal
Reserve System, or FRB, will acquire the OTS’s authority over all savings
and loan holding companies, such as Astoria Financial Corporation, and
will also become the supervisor of all subsidiaries of savings and loan
holding companies other than depository institutions. As a
result, we will now be subject to regulation, supervision and examination
by two federal banking agencies, the OCC and the FRB, rather than just by
the OTS, as is currently the case. The Reform Act also provides
for the creation of the Bureau of Consumer Financial Protection, or the
CFPB. The CFPB will have the authority to implement and enforce a variety
of existing consumer protection statutes and to issue new regulations and,
with respect to institutions with more than $10 billion in assets, such as
Astoria Federal, the CFPB will have exclusive examination and enforcement
authority with respect to such laws and regulations. As a new
independent bureau within the FRB, it is possible that the CFPB will focus
more attention on consumers and may impose requirements more severe than
the previous bank regulatory
agencies.
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|
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·
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Consolidated Holding
Company Capital Requirements
. The Reform Act requires
the federal banking agencies to establish consolidated risk-based and
leverage capital requirements for insured depository institutions,
depository institution holding companies and systemically important
nonbank financial companies. These requirements must be no less
than those to which insured depository institutions are currently subject,
and the new requirements will effectively eliminate the use of trust
preferred securities as a component of Tier 1 capital for depository
institution holding companies of our size. As a result, on the
fifth anniversary of the effective date of the Reform Act, we will become
subject to consolidated capital requirements which we have not been
subject to
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previously,
and we will not be permitted to include our Capital Securities as a
component of Tier 1 capital when we become subject to these consolidated
capital requirements.
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·
|
Deposit Insurance
Assessments
. The Reform Act increases the minimum
designated reserve ratio for the DIF from 1.15% to 1.35% of insured
deposits, which must be reached by September 30, 2020, and provides that
in setting the assessments necessary to meet the new requirement, the FDIC
shall offset the effect of this provision on insured depository
institutions with total consolidated assets of less than $10 billion, so
that more of the cost of raising the reserve ratio will be borne by the
institutions with more than $10 billion in assets, such as Astoria
Federal. In addition, deposit insurance assessments will now be
based on our average consolidated total assets minus our average tangible
equity, rather than on our deposit bases. As a result of these
provisions, our deposit insurance premiums are expected to increase, and
the increase may be
substantial.
|
|
|
·
|
Roll Back of Federal
Preemption
. The Reform Act significantly rolls back the
federal preemption of state consumer protection laws that is currently
enjoyed by federal savings associations and national banks by (1)
requiring that a state consumer financial law prevent or significantly
interfere with the exercise of a federal savings association’s or national
bank’s powers before it can be preempted, (2) mandating that any
preemption decision be made on a case by case basis rather than a blanket
rule; and (3) ending the applicability of preemption to subsidiaries and
affiliates of national banks and federal savings
associations. As a result, we may now be subject to state
consumer protection laws in each state where we do business, and those
laws may be interpreted and enforced differently in different
states.
|
The
Reform Act also includes provisions, subject to further rulemaking by the
federal bank regulatory agencies, that may affect our future operations,
including provisions that create minimum standards for the origination of
mortgages, restrict proprietary trading by banking entities, restrict the
sponsorship of and investment in hedge funds and private equity funds by banking
entities and that remove certain obstacles to the conversion of savings
associations to national banks. We will not be able to determine the
impact of these provisions until final rules are promulgated to implement these
provisions and other regulatory guidance is provided interpreting these
provisions.
ITEM 2. Unregistered Sales of Equity
Securities and Use of Proceeds
During
the six months ended June 30, 2010, 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 then outstanding, in open-market or
privately negotiated transactions. At June 30, 2010, a maximum of
8,107,300 shares may yet be purchased under this plan. As of June 30,
2010, we are not currently repurchasing additional shares of our common
stock.
ITEM 3. Defaults Upon Senior
Securities
Not
applicable.
ITEM 4. (Removed and Reserved)
ITEM 5. Other
Information
Not
applicable.
ITEM 6. Exhibits
See Index
of Exhibits on page 68.
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.
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|
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Astoria
Financial Corporation
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|
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|
Dated:
August 6,
2010
|
By:
|
/s/
Frank E. Fusco
|
|
|
|
|
Frank E. Fusco
|
|
|
|
|
Executive Vice President,
|
|
|
|
|
Treasurer and Chief Financial Officer
|
|
|
|
|
(Principal Accounting Officer)
|
|
ASTORIA
FINANCIAL CORPORATION AND SUBSIDIARIES
|
Exhibit
No.
|
|
Identification
of Exhibit
|
|
|
|
|
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4.1
|
|
Astoria
Financial Corporation Specimen Stock Certificate. (1)
|
|
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4.2
|
|
Bylaws
of Astoria Federal Savings and Loan Association, as amended effective June
16, 2010. (*)
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10.1
|
|
Amendment
No. 1 to Amended and Restated Employment Agreement by and between Astoria
Financial Corporation and George L. Engelke, Jr. dated as of April 21,
2010. (2)
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|
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10.2
|
|
Amendment
No. 1 to Amended and Restated Employment Agreement by and between Astoria
Federal Savings and Loan Association and George L. Engelke, Jr. dated as
of April 21, 2010. (2)
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10.3
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Amendment
No. 1 to Amended and Restated Employment Agreement by and between Astoria
Financial Corporation and Monte N. Redman dated as of April 21, 2010.
(2)
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|
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10.4
|
|
Amendment
No. 1 to Amended and Restated Employment Agreement by and between Astoria
Federal Savings and Loan Association and Monte N. Redman dated as of April
21, 2010. (2)
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|
|
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10.5
|
|
Amendment
No. 1 to Amended and Restated Employment Agreement by and between Astoria
Financial Corporation and Gerard C. Keegan dated as of April 21, 2010.
(2)
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|
|
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10.6
|
|
Amendment
No. 1 to Amended and Restated Employment Agreement by and between Astoria
Federal Savings and Loan Association and Gerard C. Keegan dated as of
April 21, 2010. (2)
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|
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10.7
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Amendment
No. 1 to Amended and Restated Employment Agreement by and between Astoria
Financial Corporation and Alan P. Eggleston dated as of April 21, 2010.
(2)
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10.8
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Amendment
No. 1 to Amended and Restated Employment Agreement by and between Astoria
Federal Savings and Loan Association and Alan P. Eggleston dated as of
April 21, 2010. (2)
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|
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10.9
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|
Amendment
No. 1 to Amended and Restated Employment Agreement by and between Astoria
Financial Corporation and Frank E. Fusco dated as of April 21, 2010.
(2)
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10.10
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Amendment
No. 1 to Amended and Restated Employment Agreement by and between Astoria
Federal Savings and Loan Association and Frank E. Fusco dated as of April
21, 2010. (2)
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Exhibit
No.
|
|
Identification
of Exhibit
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10.11
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Amendment
No. 1 to Amended and Restated Employment Agreement by and between Astoria
Financial Corporation and Arnold K. Greenberg dated as of April 21, 2010.
(2)
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10.12
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Amendment
No. 1 to Amended and Restated Employment Agreement by and between Astoria
Federal Savings and Loan Association and Arnold K. Greenberg dated as of
April 21, 2010. (2)
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10.13
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Amendment
No. 1 to Amended and Restated Employment Agreement by and between Astoria
Financial Corporation and Gary T. McCann dated as of April 21, 2010.
(2)
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10.14
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Amendment
No. 1 to Amended and Restated Employment Agreement by and between Astoria
Federal Savings and Loan Association and Gary T. McCann dated as of April
21, 2010. (2)
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10.15
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Amendment
No. 1 to Amended and Restated Change of Control Severance Agreement by and
among Astoria Financial Corporation, Astoria Federal Savings and Loan
Association and Josie Callari dated as of April 21, 2010.
(2)
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10.16
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Amendment
No. 1 to Amended and Restated Change of Control Severance Agreement by and
among Astoria Financial Corporation, Astoria Federal Savings and Loan
Association and Anthony S. DiCostanzo dated as of April 21, 2010.
(2)
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10.17
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Amendment
No. 1 to Amended and Restated Change of Control Severance Agreement by and
among Astoria Financial Corporation, Astoria Federal Savings and Loan
Association and Brian T. Edwards dated as of April 21, 2010.
(2)
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10.18
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Amendment
No. 1 to Amended and Restated Change of Control Severance Agreement by and
among Astoria Financial Corporation, Astoria Federal Savings and Loan
Association and Thomas E. Lavery dated as of April 21, 2010.
(2)
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10.19
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Amendment
No. 1 to Amended and Restated Change of Control Severance Agreement by and
among Astoria Financial Corporation, Astoria Federal Savings and Loan
Association and William J. Mannix, Jr. dated as of April 21, 2010.
(2)
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10.20
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Amendment
No. 1 to Amended and Restated Change of Control Severance Agreement by and
among Astoria Financial Corporation, Astoria Federal Savings and Loan
Association and Robert T. Volk dated as of April 21, 2010.
(2)
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10.21
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Amendment
No. 1 to Amended and Restated Change of Control Severance Agreement by and
among Astoria Financial Corporation, Astoria Federal Savings and Loan
Association and Ira M. Yourman dated as of April 21, 2010.
(2)
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10.22
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Amendment
No. 1 to Amended and Restated Change of Control Severance Agreement by and
among Astoria Financial Corporation, Astoria Federal Savings and Loan
Association and Robert J. DeStefano dated as of April 21, 2010.
(2)
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Exhibit
No.
|
|
Identification
of Exhibit
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31.1
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Certifications
of Chief Executive Officer. (*)
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31.2
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Certifications
of Chief Financial Officer. (*)
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32.1
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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. (*)
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32.2
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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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101.1
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The
following financial information from Astoria Financial Corporation’s
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010
formatted in XBRL: (1) Consolidated Statements of Financial Condition at
June 30, 2010 and December 31, 2009; (2) Consolidated Statements of Income
for the three and six months ended June 30, 2010 and 2009; (3)
Consolidated Statement of Changes in Stockholders’ Equity for the six
months ended June 30,
2010; (4)
Consolidated Statements of Cash Flows for the six months ended June 30,
2010 and 2009; and (5) Notes to Consolidated Financial Statements, tagged
as blocks of text. Pursuant to SEC rules, this exhibit will not
be deemed filed for purposes of Section 18 of the Exchange Act and
Sections 11 and 12 of the Securities Act or otherwise subject to the
liability of those
sections. (*)
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(*) Filed
herewith.
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(1)
|
Incorporated
by reference to Astoria Financial Corporation’s Registration Statement on
Form S-3 dated and filed with the SEC on May 19, 2010 (File number
333-166957).
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(2)
|
Incorporated
by reference to Astoria Financial Corporation’s Current Report on Form 8-K
dated and filed with the SEC on April 22, 2010 (File number
001-11967).
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