UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended September 30, 2010
OR
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period
from to
Commission
file number 001-11967
ASTORIA
FINANCIAL CORPORATION
(Exact
name of registrant as specified in its charter)
|
Delaware
|
|
11-3170868
|
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer Identification
|
|
incorporation
or organization)
|
|
Number)
|
|
One Astoria Federal Plaza, Lake Success, New
York
|
|
11042-1085
|
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(516)
327-3000
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all the reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES
x
NO
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). YES
x
NO
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company (as
these items are defined in Rule 12b-2 of the Exchange Act).
Large
accelerated filer
x
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting
company
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES
o
NO
x
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
|
Classes of Common Stock
|
|
Number of Shares Outstanding, October 29, 2010
|
|
|
|
|
|
.01 Par Value
|
|
97,877,469
|
|
|
|
|
Page
|
PART I — FINANCIAL
INFORMATION
|
|
|
|
|
|
Item
1.
|
|
Financial
Statements (Unaudited):
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Financial Condition at September 30, 2010
|
|
|
|
|
and
December 31, 2009
|
|
2
|
|
|
|
|
|
|
|
Consolidated
Statements of Income for the Three and Nine Months
|
|
|
|
|
Ended
September 30, 2010 and September 30, 2009
|
|
3
|
|
|
|
|
|
|
|
Consolidated
Statement of Changes in Stockholders' Equity for the
|
|
|
|
|
Nine
Months Ended September 30, 2010
|
|
4
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the Nine Months Ended
|
|
|
|
|
September
30, 2010 and September 30, 2009
|
|
5
|
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
6
|
|
|
|
|
|
Item
2.
|
|
Management's
Discussion and Analysis of Financial Condition and
|
|
|
|
|
Results
of Operations
|
|
23
|
|
|
|
|
|
Item
3.
|
|
Quantitative
and Qualitative Disclosures about Market Risk
|
|
60
|
|
|
|
|
|
Item
4.
|
|
Controls
and Procedures
|
|
63
|
|
|
|
|
|
PART
II — OTHER INFORMATION
|
|
|
|
|
|
Item
1.
|
|
Legal
Proceedings
|
|
63
|
|
|
|
|
|
Item
1A.
|
|
Risk
Factors
|
|
65
|
|
|
|
|
|
Item
2.
|
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
66
|
|
|
|
|
|
Item
3.
|
|
Defaults
Upon Senior Securities
|
|
66
|
|
|
|
|
|
Item
4.
|
|
(Removed
and Reserved)
|
|
66
|
|
|
|
|
|
Item
5.
|
|
Other
Information
|
|
66
|
|
|
|
|
|
Item
6.
|
|
Exhibits
|
|
66
|
|
|
|
|
|
Signature
|
|
|
|
66
|
Consolidated
Statements of Financial Condition
|
|
(Unaudited)
|
|
|
|
|
(In Thousands, Except Share Data)
|
|
At September 30, 2010
|
|
|
At December 31, 2009
|
|
Assets:
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
241,514
|
|
|
$
|
71,540
|
|
Repurchase
agreements
|
|
|
32,040
|
|
|
|
40,030
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
Encumbered
|
|
|
587,535
|
|
|
|
798,367
|
|
Unencumbered
|
|
|
70,350
|
|
|
|
62,327
|
|
Total
available-for-sale securities
|
|
|
657,885
|
|
|
|
860,694
|
|
Held-to-maturity
securities, fair value of $1,996,017 and $2,367,520,
respectively:
|
|
|
|
|
|
|
|
|
Encumbered
|
|
|
1,750,784
|
|
|
|
1,955,163
|
|
Unencumbered
|
|
|
182,534
|
|
|
|
362,722
|
|
Total
held-to-maturity securities
|
|
|
1,933,318
|
|
|
|
2,317,885
|
|
Federal
Home Loan Bank of New York stock, at cost
|
|
|
163,501
|
|
|
|
178,929
|
|
Loans
held-for-sale, net
|
|
|
35,338
|
|
|
|
34,274
|
|
Loans
receivable:
|
|
|
|
|
|
|
|
|
Mortgage
loans, net
|
|
|
14,577,036
|
|
|
|
15,447,115
|
|
Consumer
and other loans, net
|
|
|
322,157
|
|
|
|
333,607
|
|
Total
loans receivable
|
|
|
14,899,193
|
|
|
|
15,780,722
|
|
Allowance
for loan losses
|
|
|
(206,231
|
)
|
|
|
(194,049
|
)
|
Loans
receivable, net
|
|
|
14,692,962
|
|
|
|
15,586,673
|
|
Mortgage
servicing rights, net
|
|
|
8,030
|
|
|
|
8,850
|
|
Accrued
interest receivable
|
|
|
61,768
|
|
|
|
66,121
|
|
Premises
and equipment, net
|
|
|
133,735
|
|
|
|
136,195
|
|
Goodwill
|
|
|
185,151
|
|
|
|
185,151
|
|
Bank
owned life insurance
|
|
|
408,470
|
|
|
|
401,735
|
|
Real
estate owned, net
|
|
|
64,763
|
|
|
|
46,220
|
|
Other
assets
|
|
|
318,374
|
|
|
|
317,882
|
|
Total
assets
|
|
$
|
18,936,849
|
|
|
$
|
20,252,179
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
2,234,606
|
|
|
$
|
2,041,701
|
|
Money
market
|
|
|
349,883
|
|
|
|
326,842
|
|
NOW
and demand deposit
|
|
|
1,662,000
|
|
|
|
1,646,633
|
|
Liquid
certificates of deposit
|
|
|
546,626
|
|
|
|
711,509
|
|
Certificates
of deposit
|
|
|
7,314,171
|
|
|
|
8,085,553
|
|
Total
deposits
|
|
|
12,107,286
|
|
|
|
12,812,238
|
|
Reverse
repurchase agreements
|
|
|
2,100,000
|
|
|
|
2,500,000
|
|
Federal
Home Loan Bank of New York advances
|
|
|
2,735,000
|
|
|
|
3,000,000
|
|
Other
borrowings, net
|
|
|
378,111
|
|
|
|
377,834
|
|
Mortgage
escrow funds
|
|
|
146,678
|
|
|
|
114,036
|
|
Accrued
expenses and other liabilities
|
|
|
228,083
|
|
|
|
239,457
|
|
Total
liabilities
|
|
|
17,695,158
|
|
|
|
19,043,565
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $1.00 par value (5,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
none
issued and outstanding)
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $.01 par value (200,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
166,494,888
shares issued; and 97,877,469 and 97,083,607
|
|
|
|
|
|
|
|
|
shares
outstanding, respectively)
|
|
|
1,665
|
|
|
|
1,665
|
|
Additional
paid-in capital
|
|
|
859,880
|
|
|
|
857,662
|
|
Retained
earnings
|
|
|
1,836,456
|
|
|
|
1,829,199
|
|
Treasury
stock (68,617,419 and 69,411,281 shares, at cost,
respectively)
|
|
|
(1,417,956
|
)
|
|
|
(1,434,362
|
)
|
Accumulated
other comprehensive loss
|
|
|
(24,876
|
)
|
|
|
(29,779
|
)
|
Unallocated
common stock held by ESOP (3,678,768 and 4,304,635
|
|
|
|
|
|
|
|
|
shares,
respectively)
|
|
|
(13,478
|
)
|
|
|
(15,771
|
)
|
Total
stockholders' equity
|
|
|
1,241,691
|
|
|
|
1,208,614
|
|
Total
liabilities and stockholders' equity
|
|
$
|
18,936,849
|
|
|
$
|
20,252,179
|
|
See
accompanying Notes to Consolidated Financial Statements.
Consolidated
Statements of Income (Unaudited)
|
|
For the
|
|
|
For the
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
(In Thousands, Except Share Data)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family mortgage loans
|
|
$
|
130,936
|
|
|
$
|
147,765
|
|
|
$
|
408,640
|
|
|
$
|
465,252
|
|
Multi-family,
commercial real estate and construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgage
loans
|
|
|
48,446
|
|
|
|
52,947
|
|
|
|
149,169
|
|
|
|
165,539
|
|
Consumer
and other loans
|
|
|
2,656
|
|
|
|
2,760
|
|
|
|
7,975
|
|
|
|
8,095
|
|
Mortgage-backed
and other securities
|
|
|
25,336
|
|
|
|
35,980
|
|
|
|
86,319
|
|
|
|
116,307
|
|
Repurchase
agreements and interest-earning cash accounts
|
|
|
188
|
|
|
|
163
|
|
|
|
257
|
|
|
|
394
|
|
Federal
Home Loan Bank of New York stock
|
|
|
1,999
|
|
|
|
2,487
|
|
|
|
6,416
|
|
|
|
6,850
|
|
Total
interest income
|
|
|
209,561
|
|
|
|
242,102
|
|
|
|
658,776
|
|
|
|
762,437
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
46,144
|
|
|
|
75,348
|
|
|
|
149,182
|
|
|
|
248,069
|
|
Borrowings
|
|
|
57,392
|
|
|
|
63,671
|
|
|
|
177,268
|
|
|
|
190,554
|
|
Total
interest expense
|
|
|
103,536
|
|
|
|
139,019
|
|
|
|
326,450
|
|
|
|
438,623
|
|
Net
interest income
|
|
|
106,025
|
|
|
|
103,083
|
|
|
|
332,326
|
|
|
|
323,814
|
|
Provision
for loan losses
|
|
|
20,000
|
|
|
|
50,000
|
|
|
|
100,000
|
|
|
|
150,000
|
|
Net
interest income after provision for loan losses
|
|
|
86,025
|
|
|
|
53,083
|
|
|
|
232,326
|
|
|
|
173,814
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
service fees
|
|
|
12,463
|
|
|
|
14,186
|
|
|
|
39,128
|
|
|
|
43,265
|
|
Other
loan fees
|
|
|
974
|
|
|
|
959
|
|
|
|
2,546
|
|
|
|
2,837
|
|
Gain
on sales of securities
|
|
|
-
|
|
|
|
3,820
|
|
|
|
-
|
|
|
|
5,932
|
|
Other-than-temporary
impairment write-down of securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,300
|
)
|
Mortgage
banking income, net
|
|
|
631
|
|
|
|
883
|
|
|
|
2,788
|
|
|
|
4,762
|
|
Income
from bank owned life insurance
|
|
|
2,383
|
|
|
|
2,131
|
|
|
|
6,735
|
|
|
|
6,578
|
|
Other
|
|
|
2,161
|
|
|
|
(1,899
|
)
|
|
|
9,279
|
|
|
|
(1,622
|
)
|
Total
non-interest income
|
|
|
18,612
|
|
|
|
20,080
|
|
|
|
60,476
|
|
|
|
56,452
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
35,999
|
|
|
|
31,850
|
|
|
|
105,884
|
|
|
|
99,213
|
|
Occupancy,
equipment and systems
|
|
|
16,506
|
|
|
|
15,969
|
|
|
|
49,592
|
|
|
|
48,365
|
|
Federal
deposit insurance premiums
|
|
|
6,509
|
|
|
|
6,928
|
|
|
|
19,722
|
|
|
|
17,732
|
|
Federal
deposit insurance special assessment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,851
|
|
Advertising
|
|
|
1,743
|
|
|
|
961
|
|
|
|
4,557
|
|
|
|
3,741
|
|
Other
|
|
|
10,147
|
|
|
|
7,531
|
|
|
|
35,236
|
|
|
|
24,319
|
|
Total
non-interest expense
|
|
|
70,904
|
|
|
|
63,239
|
|
|
|
214,991
|
|
|
|
203,221
|
|
Income
before income tax expense
|
|
|
33,733
|
|
|
|
9,924
|
|
|
|
77,811
|
|
|
|
27,045
|
|
Income
tax expense
|
|
|
12,282
|
|
|
|
1,876
|
|
|
|
27,888
|
|
|
|
7,501
|
|
Net
income
|
|
$
|
21,451
|
|
|
$
|
8,048
|
|
|
$
|
49,923
|
|
|
$
|
19,544
|
|
Basic
earnings per common share
|
|
$
|
0.23
|
|
|
$
|
0.09
|
|
|
$
|
0.53
|
|
|
$
|
0.21
|
|
Diluted
earnings per common share
|
|
$
|
0.23
|
|
|
$
|
0.09
|
|
|
$
|
0.53
|
|
|
$
|
0.21
|
|
Basic
weighted average common shares
|
|
|
91,863,115
|
|
|
|
90,696,563
|
|
|
|
91,650,000
|
|
|
|
90,480,277
|
|
Diluted
weighted average common and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
equivalent shares
|
|
|
91,863,115
|
|
|
|
90,702,558
|
|
|
|
91,650,045
|
|
|
|
90,482,356
|
|
See
accompanying Notes to Consolidated Financial Statements.
ASTORIA
FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated
Statement of Changes in Stockholders' Equity (Unaudited)
For
the Nine Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
Common
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
Stock Held
|
|
(In Thousands, Except Share Data)
|
|
Total
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock
|
|
|
Loss
|
|
|
by ESOP
|
|
Balance
at December 31, 2009
|
|
$
|
1,208,614
|
|
|
$
|
1,665
|
|
|
$
|
857,662
|
|
|
$
|
1,829,199
|
|
|
$
|
(1,434,362
|
)
|
|
$
|
(29,779
|
)
|
|
$
|
(15,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
49,923
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,923
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized gain on securities
|
|
|
1,555
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,555
|
|
|
|
-
|
|
Reclassification
of prior service cost
|
|
|
72
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72
|
|
|
|
-
|
|
Reclassification
of net actuarial loss
|
|
|
3,133
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,133
|
|
|
|
-
|
|
Reclassification
of loss on cash flow hedge
|
|
|
143
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
143
|
|
|
|
-
|
|
Comprehensive
income
|
|
|
54,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
on common stock ($0.39 per share)
|
|
|
(36,520
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(36,520
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock grants (806,428 shares)
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,484
|
)
|
|
|
(6,181
|
)
|
|
|
16,665
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures
of restricted stock (24,566 shares)
|
|
|
-
|
|
|
|
-
|
|
|
|
360
|
|
|
|
147
|
|
|
|
(507
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options (12,000 shares issued)
|
|
|
112
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(136
|
)
|
|
|
248
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
5,941
|
|
|
|
-
|
|
|
|
5,917
|
|
|
|
24
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
tax benefit excess from stock-based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
|
|
|
212
|
|
|
|
-
|
|
|
|
212
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation
of ESOP stock
|
|
|
8,506
|
|
|
|
-
|
|
|
|
6,213
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2010
|
|
$
|
1,241,691
|
|
|
$
|
1,665
|
|
|
$
|
859,880
|
|
|
$
|
1,836,456
|
|
|
$
|
(1,417,956
|
)
|
|
$
|
(24,876
|
)
|
|
$
|
(13,478
|
)
|
See
accompanying Notes to Consolidated Financial Statements.
ASTORIA
FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated
Statements of Cash Flows (Unaudited)
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
(In Thousands)
|
|
2010
|
|
|
2009
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$
|
49,923
|
|
|
$
|
19,544
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Net
premium amortization on loans
|
|
|
24,584
|
|
|
|
23,986
|
|
Net
amortization (accretion) on securities and borrowings
|
|
|
1,683
|
|
|
|
(1,513
|
)
|
Net
provision for loan and real estate losses
|
|
|
102,036
|
|
|
|
151,111
|
|
Depreciation
and amortization
|
|
|
8,436
|
|
|
|
8,199
|
|
Net
gain on sales of loans and securities
|
|
|
(3,659
|
)
|
|
|
(10,686
|
)
|
Other-than-temporary
impairment write-down of securities
|
|
|
-
|
|
|
|
5,300
|
|
Other
asset impairment charges
|
|
|
1,519
|
|
|
|
4,436
|
|
Originations
of loans held-for-sale
|
|
|
(171,086
|
)
|
|
|
(333,364
|
)
|
Proceeds
from sales and principal repayments of loans held-for-sale
|
|
|
183,316
|
|
|
|
321,354
|
|
Stock-based
compensation and allocation of ESOP stock
|
|
|
14,447
|
|
|
|
10,495
|
|
Decrease
in accrued interest receivable
|
|
|
4,353
|
|
|
|
5,577
|
|
Mortgage
servicing rights amortization and valuation allowance adjustments,
net
|
|
|
2,713
|
|
|
|
2,788
|
|
Bank
owned life insurance income and insurance proceeds received,
net
|
|
|
(6,735
|
)
|
|
|
(2,344
|
)
|
Increase
in other assets
|
|
|
(1,738
|
)
|
|
|
(35,150
|
)
|
(Decrease)
increase in accrued expenses and other liabilities
|
|
|
(6,425
|
)
|
|
|
45,422
|
|
Net
cash provided by operating activities
|
|
|
203,367
|
|
|
|
215,155
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Originations
of loans receivable
|
|
|
(1,959,185
|
)
|
|
|
(2,072,138
|
)
|
Loan
purchases through third parties
|
|
|
(363,323
|
)
|
|
|
(275,749
|
)
|
Principal
payments on loans receivable
|
|
|
2,960,693
|
|
|
|
2,868,045
|
|
Proceeds
from sales of delinquent and non-performing loans
|
|
|
37,583
|
|
|
|
35,591
|
|
Purchases
of securities held-to-maturity
|
|
|
(563,456
|
)
|
|
|
(706,630
|
)
|
Principal
payments on securities held-to-maturity
|
|
|
946,413
|
|
|
|
836,508
|
|
Principal
payments on securities available-for-sale
|
|
|
205,782
|
|
|
|
295,724
|
|
Proceeds
from sales of securities available-for-sale
|
|
|
-
|
|
|
|
182,844
|
|
Net
redemptions of Federal Home Loan Bank of New York stock
|
|
|
15,428
|
|
|
|
34,701
|
|
Proceeds
from sales of real estate owned, net
|
|
|
59,679
|
|
|
|
33,581
|
|
Purchases
of premises and equipment, net of proceeds from sales
|
|
|
(7,491
|
)
|
|
|
(6,491
|
)
|
Net
cash provided by investing activities
|
|
|
1,332,123
|
|
|
|
1,225,986
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Net
decrease in deposits
|
|
|
(704,952
|
)
|
|
|
(261,305
|
)
|
Net
decrease in borrowings with original terms of three months or
less
|
|
|
(90,000
|
)
|
|
|
(813,000
|
)
|
Proceeds
from borrowings with original terms greater than three
months
|
|
|
525,000
|
|
|
|
235,000
|
|
Repayments
of borrowings with original terms greater than three
months
|
|
|
(1,100,000
|
)
|
|
|
(550,000
|
)
|
Net
increase in mortgage escrow funds
|
|
|
32,642
|
|
|
|
16,740
|
|
Cash
dividends paid to stockholders
|
|
|
(36,520
|
)
|
|
|
(35,819
|
)
|
Cash
received for options exercised
|
|
|
112
|
|
|
|
252
|
|
Net
tax benefit excess (shortfall) from stock-based
compensation
|
|
|
212
|
|
|
|
(785
|
)
|
Net
cash used in financing activities
|
|
|
(1,373,506
|
)
|
|
|
(1,408,917
|
)
|
Net
increase in cash and cash equivalents
|
|
|
161,984
|
|
|
|
32,224
|
|
Cash
and cash equivalents at beginning of period
|
|
|
111,570
|
|
|
|
100,293
|
|
Cash
and cash equivalents at end of period
|
|
$
|
273,554
|
|
|
$
|
132,517
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
321,646
|
|
|
$
|
431,458
|
|
Income
taxes paid
|
|
$
|
38,445
|
|
|
$
|
47,134
|
|
Additions
to real estate owned
|
|
$
|
71,257
|
|
|
$
|
50,679
|
|
Loans
transferred to held-for-sale
|
|
$
|
52,600
|
|
|
$
|
55,027
|
|
See
accompanying Notes to Consolidated Financial Statements.
ASTORIA
FINANCIAL CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
The
accompanying consolidated financial statements include the accounts of Astoria
Financial Corporation and its wholly-owned subsidiaries: Astoria Federal Savings
and Loan Association and its subsidiaries, referred to as Astoria Federal, and
AF Insurance Agency, Inc. As used in this quarterly report, “we,”
“us” and “our” refer to Astoria Financial Corporation and its consolidated
subsidiaries. All significant inter-company accounts and transactions
have been eliminated in consolidation.
In
addition to Astoria Federal and AF Insurance Agency, Inc., we have another
subsidiary, Astoria Capital Trust I, which is not consolidated with Astoria
Financial Corporation for financial reporting purposes. Astoria
Capital Trust I was formed in 1999 for the purpose of issuing $125.0 million
aggregate liquidation amount of 9.75% Capital Securities due November 1, 2029,
or Capital Securities, and $3.9 million of common securities which are 100%
owned by Astoria Financial Corporation, and using the proceeds to acquire Junior
Subordinated Debentures issued by Astoria Financial Corporation. The
Junior Subordinated Debentures total $128.9 million, have an interest rate of
9.75%, mature on November 1, 2029 and are the sole assets of Astoria Capital
Trust I. The Junior Subordinated Debentures are prepayable, in whole
or in part, at our option at declining premiums to November 1, 2019, after which
the Junior Subordinated Debentures are prepayable at par value. The
Capital Securities have the same prepayment provisions as the Junior
Subordinated Debentures. Astoria Financial Corporation has fully and
unconditionally guaranteed the Capital Securities along with all obligations of
Astoria Capital Trust I under the trust agreement relating to the Capital
Securities. See Note 10 of Notes to Consolidated Financial Statements
included in Item 8, “Financial Statements and Supplementary Data” of our 2009
Annual Report on Form 10-K for restrictions on our subsidiaries’ ability to pay
dividends to us.
In our
opinion, the accompanying consolidated financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of our financial condition as of September 30, 2010 and
December 31, 2009, our results of operations for the three and nine months ended
September 30, 2010 and 2009, changes in our stockholders’ equity for the nine
months ended September 30, 2010 and our cash flows for the nine months ended
September 30, 2010 and 2009. In preparing the consolidated financial
statements, we are required to make estimates and assumptions that affect the
reported amounts of assets and liabilities for the consolidated statements of
financial condition as of September 30, 2010 and December 31, 2009, and amounts
of revenues and expenses in the consolidated statements of income for the three
and nine months ended September 30, 2010 and 2009. The results of
operations for the three and nine months ended September 30, 2010 are not
necessarily indicative of the results of operations to be expected for the
remainder of the year. Certain information and note disclosures
normally included in financial statements prepared in accordance with U.S.
generally accepted accounting principles, or GAAP, have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission, or SEC. Certain reclassifications have been made to prior
year amounts to conform to the current year presentation.
These
consolidated financial statements should be read in conjunction with our
December 31, 2009 audited consolidated financial statements and related notes
included in our 2009 Annual Report on Form 10-K.
2.
Securities
The
following tables set forth the amortized cost and estimated fair value of
securities available-for-sale and held-to-maturity at the dates
indicated.
|
|
At September 30, 2010
|
|
(In Thousands)
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
(1) issuance REMICs and CMOs (2)
|
|
$
|
579,525
|
|
|
$
|
23,303
|
|
|
$
|
-
|
|
|
$
|
602,828
|
|
Non-GSE
issuance REMICs and CMOs
|
|
|
22,759
|
|
|
|
4
|
|
|
|
(496
|
)
|
|
|
22,267
|
|
GSE
pass-through certificates
|
|
|
30,114
|
|
|
|
1,221
|
|
|
|
(1
|
)
|
|
|
31,334
|
|
Total
residential mortgage-backed securities
|
|
|
632,398
|
|
|
|
24,528
|
|
|
|
(497
|
)
|
|
|
656,429
|
|
Freddie
Mac preferred stock
|
|
|
-
|
|
|
|
1,456
|
|
|
|
-
|
|
|
|
1,456
|
|
Other
securities
|
|
|
15
|
|
|
|
-
|
|
|
|
(15
|
)
|
|
|
-
|
|
Total
securities available-for-sale
|
|
$
|
632,413
|
|
|
$
|
25,984
|
|
|
$
|
(512
|
)
|
|
$
|
657,885
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance REMICs and CMOs
|
|
$
|
1,851,106
|
|
|
$
|
61,259
|
|
|
$
|
(28
|
)
|
|
$
|
1,912,337
|
|
Non-GSE
issuance REMICs and CMOs
|
|
|
52,145
|
|
|
|
1,141
|
|
|
|
(58
|
)
|
|
|
53,228
|
|
GSE
pass-through certificates
|
|
|
835
|
|
|
|
48
|
|
|
|
-
|
|
|
|
883
|
|
Total
residential mortgage-backed securities
|
|
|
1,904,086
|
|
|
|
62,448
|
|
|
|
(86
|
)
|
|
|
1,966,448
|
|
Obligations
of U.S. government and GSEs
|
|
|
25,000
|
|
|
|
337
|
|
|
|
-
|
|
|
|
25,337
|
|
Obligations
of states and political subdivisions
|
|
|
4,232
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,232
|
|
Total
securities held-to-maturity
|
|
$
|
1,933,318
|
|
|
$
|
62,785
|
|
|
$
|
(86
|
)
|
|
$
|
1,996,017
|
|
(1) Government-sponsored
enterprise
(2) Real
estate mortgage investment conduits and collateralized mortgage
obligations
|
|
At December 31, 2009
|
|
(In Thousands)
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance REMICs and CMOs
|
|
$
|
777,098
|
|
|
$
|
19,157
|
|
|
$
|
(15
|
)
|
|
$
|
796,240
|
|
Non-GSE
issuance REMICs and CMOs
|
|
|
27,165
|
|
|
|
3
|
|
|
|
(899
|
)
|
|
|
26,269
|
|
GSE
pass-through certificates
|
|
|
33,441
|
|
|
|
941
|
|
|
|
(7
|
)
|
|
|
34,375
|
|
Total
residential mortgage-backed securities
|
|
|
837,704
|
|
|
|
20,101
|
|
|
|
(921
|
)
|
|
|
856,884
|
|
Freddie
Mac preferred stock
|
|
|
-
|
|
|
|
3,784
|
|
|
|
-
|
|
|
|
3,784
|
|
Other
securities
|
|
|
40
|
|
|
|
-
|
|
|
|
(14
|
)
|
|
|
26
|
|
Total
securities available-for-sale
|
|
$
|
837,744
|
|
|
$
|
23,885
|
|
|
$
|
(935
|
)
|
|
$
|
860,694
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance REMICs and CMOs
|
|
$
|
1,979,296
|
|
|
$
|
50,387
|
|
|
$
|
-
|
|
|
$
|
2,029,683
|
|
Non-GSE
issuance REMICs and CMOs
|
|
|
82,014
|
|
|
|
33
|
|
|
|
(2,214
|
)
|
|
|
79,833
|
|
GSE
pass-through certificates
|
|
|
1,097
|
|
|
|
66
|
|
|
|
-
|
|
|
|
1,163
|
|
Total
residential mortgage-backed securities
|
|
|
2,062,407
|
|
|
|
50,486
|
|
|
|
(2,214
|
)
|
|
|
2,110,679
|
|
Obligations
of U.S. government and GSEs
|
|
|
250,955
|
|
|
|
1,363
|
|
|
|
-
|
|
|
|
252,318
|
|
Obligations
of states and political subdivisions
|
|
|
4,523
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,523
|
|
Total
securities held-to-maturity
|
|
$
|
2,317,885
|
|
|
$
|
51,849
|
|
|
$
|
(2,214
|
)
|
|
$
|
2,367,520
|
|
The
following tables set forth the estimated fair values of securities with gross
unrealized losses at the dates indicated, segregated between securities that
have been in a continuous unrealized loss position for less than twelve months
at the respective dates and those that have been in a continuous unrealized loss
position for twelve months or longer.
|
|
At September 30, 2010
|
|
|
|
Less Than Twelve Months
|
|
|
Twelve Months or Longer
|
|
|
Total
|
|
(In Thousands)
|
|
Estimated
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GSE
issuance REMICs and CMOs
|
|
$
|
139
|
|
|
$
|
(1
|
)
|
|
$
|
21,770
|
|
|
$
|
(495
|
)
|
|
$
|
21,909
|
|
|
$
|
(496
|
)
|
GSE
pass-through certificates
|
|
|
176
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
176
|
|
|
|
(1
|
)
|
Other
securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15
|
)
|
|
|
-
|
|
|
|
(15
|
)
|
Total
temporarily impaired securities
available-for-sale
|
|
$
|
315
|
|
|
$
|
(2
|
)
|
|
$
|
21,770
|
|
|
$
|
(510
|
)
|
|
$
|
22,085
|
|
|
$
|
(512
|
)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance REMICs and CMOs
|
|
$
|
44,725
|
|
|
$
|
(28
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
44,725
|
|
|
$
|
(28
|
)
|
Non-GSE
issuance REMICs and CMOs
|
|
|
-
|
|
|
|
-
|
|
|
|
1,766
|
|
|
|
(58
|
)
|
|
|
1,766
|
|
|
|
(58
|
)
|
Total
temporarily impaired securities
held-to-maturity
|
|
$
|
44,725
|
|
|
$
|
(28
|
)
|
|
$
|
1,766
|
|
|
$
|
(58
|
)
|
|
$
|
46,491
|
|
|
$
|
(86
|
)
|
|
|
At December 31, 2009
|
|
|
|
Less Than Twelve Months
|
|
|
Twelve Months or Longer
|
|
|
Total
|
|
(In Thousands)
|
|
Estimated
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance REMICs and CMOs
|
|
$
|
1,489
|
|
|
$
|
(15
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,489
|
|
|
$
|
(15
|
)
|
Non-GSE
issuance REMICs and CMOs
|
|
|
549
|
|
|
|
(54
|
)
|
|
|
25,557
|
|
|
|
(845
|
)
|
|
|
26,106
|
|
|
|
(899
|
)
|
GSE
pass-through certificates
|
|
|
1,309
|
|
|
|
(4
|
)
|
|
|
377
|
|
|
|
(3
|
)
|
|
|
1,686
|
|
|
|
(7
|
)
|
Other
securities
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
(14
|
)
|
|
|
1
|
|
|
|
(14
|
)
|
Total
temporarily impaired securities
a
vailable-for-sale
|
|
$
|
3,347
|
|
|
$
|
(73
|
)
|
|
$
|
25,935
|
|
|
$
|
(862
|
)
|
|
$
|
29,282
|
|
|
$
|
(935
|
)
|
Total
temporarily impaired securities
held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GSE
issuance REMICs and CMOs
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
70,589
|
|
|
$
|
(2,214
|
)
|
|
$
|
70,589
|
|
|
$
|
(2,214
|
)
|
We held
26 securities which had an unrealized loss at September 30, 2010 and 46 at
December 31, 2009. At September 30, 2010 and December 31, 2009,
substantially all of the securities in an unrealized loss position had a fixed
interest rate and the cause of the temporary impairment is directly related to
the change in interest rates. In general, as interest rates rise, the
fair value of fixed rate securities will decrease; as interest rates fall, the
fair value of fixed rate securities will increase. We generally view
changes in fair value caused by changes in interest rates as temporary, which is
consistent with our experience. None of the unrealized losses are
related to credit losses. Therefore, at September 30, 2010 and
December 31, 2009, the impairments are deemed temporary based on (1) the direct
relationship of the decline in fair value to movements in interest rates, (2)
the estimated remaining life and high credit quality of the investments and (3)
the fact that we do not intend to sell these securities and it is not more
likely than not that we will be required to sell these securities before their
anticipated recovery of the remaining amortized cost basis and we expect to
recover the entire amortized cost basis of the security.
There
were no other-than-temporary impairment, or OTTI, write-down of securities
charges during the nine months ended September 30, 2010. During the
nine months ended September 30, 2009, we recorded a $5.3 million OTTI charge to
write-off the remaining cost basis of our investment in two issues of Freddie
Mac perpetual preferred securities. Our analysis of
the
market
value trends of these securities indicated that based on the duration of the
unrealized loss and the unlikelihood of a near-term market value recovery, as of
March 31, 2009, our Freddie Mac preferred securities were other-than-temporarily
impaired and of such little value that a write-off of our remaining cost basis
was warranted. The securities’ market values totaled $1.5 million at
September 30, 2010, which is recorded as an unrealized gain on our
available-for-sale securities. OTTI charges are included as a
component of non-interest income in the consolidated statements of
income.
For
additional information regarding securities impairment, see “Critical Accounting
Policies” in Item 2, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” or “MD&A.”
There
were no sales of securities from the available-for-sale portfolio during the
nine months ended September 30, 2010. During the nine months ended
September 30, 2009, proceeds from sales of securities from the
available-for-sale portfolio totaled $182.8 million resulting in gross realized
gains of $5.9 million.
Gains and losses on the
sale of all securities are determined using the specific identification
method.
Held-to-maturity
debt securities, excluding mortgage-backed securities, had an amortized cost of
$29.2 million and a fair value of $29.6 million at September 30,
2010. These securities will mature between 2017 and
2018. Actual maturities will differ from contractual maturities
because borrowers may have the right to prepay obligations with or without
prepayment penalties.
The
balance of accrued interest receivable for securities totaled $8.6 million at
September 30, 2010 and $10.3 million at December 31, 2009.
At
September 30, 2010, we held one security with an amortized cost of $25.0 million
which is callable within one year and at various times thereafter.
3.
Loans Held-for-Sale,
net
Loans
held-for-sale, net, includes fifteen and thirty year conforming fixed rate
one-to-four family mortgage loans originated for sale as well as certain
non-performing loans. Over the past several years we have sold
certain delinquent and non-performing loans held in portfolio. Upon
our decision to sell such loans, we reclassify them to held-for-sale at the
lower of cost or fair value, less estimated selling
costs. Non-performing loans held-for-sale, included in loans
held-for-sale, net, totaled $17.4 million at September 30, 2010 and $6.9
million, net of a $1.1 million valuation allowance, at December 31,
2009. Non-performing loans held-for-sale consisted primarily of
multi-family and commercial real estate loans at September 30, 2010 and December
31, 2009.
We sold
certain delinquent and non-performing mortgage loans totaling $36.4 million, net
of charge-offs of $20.9 million, during the nine months ended September 30,
2010, primarily multi-family and commercial real estate loans, and $35.6
million, net of charge-offs of $18.8 million, during the nine months ended
September 30, 2009, primarily multi-family, commercial real estate and
construction loans. Net gain on sales of non-performing loans totaled
$828,000 for the three months ended September 30, 2010 and $1.2 million for the
nine months ended September 30, 2010. Net loss on sales of
non-performing loans totaled $45,000 for the three months ended September 30,
2009 and $98,000 for the nine months ended September 30, 2009.
We
recorded net lower of cost or market recoveries on non-performing loans
held-for-sale totaling $93,000 for the three months ended September 30, 2010 and
net lower of cost or market write-downs on non-performing loans held-for-sale
totaling $4,000 for the nine months ended September 30, 2010. Net
lower of cost or market write-downs totaled $2.8 million for the three and nine
months ended September 30, 2009. Net lower of cost or market
write-downs on non-performing loans held-for-sale are included in other
non-interest income in the consolidated statements of income.
4.
Loans Receivable,
net
The
following table sets forth the composition of our loans receivable portfolio in
dollar amounts and percentages of the portfolio at the dates
indicated.
|
|
At September 30, 2010
|
|
|
At December 31, 2009
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
(Dollars in Thousands)
|
|
Amount
|
|
|
of Total
|
|
|
Amount
|
|
|
of Total
|
|
Mortgage
loans (gross):
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
11,368,864
|
|
|
|
76.77
|
%
|
|
$
|
11,895,362
|
|
|
|
75.88
|
%
|
Multi-family
|
|
|
2,309,120
|
|
|
|
15.60
|
|
|
|
2,559,058
|
|
|
|
16.33
|
|
Commercial
real estate
|
|
|
793,387
|
|
|
|
5.36
|
|
|
|
866,804
|
|
|
|
5.53
|
|
Construction
|
|
|
15,693
|
|
|
|
0.11
|
|
|
|
23,599
|
|
|
|
0.15
|
|
Total
mortgage loans
|
|
|
14,487,064
|
|
|
|
97.84
|
|
|
|
15,344,823
|
|
|
|
97.89
|
|
Consumer
and other loans (gross):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity
|
|
|
290,631
|
|
|
|
1.97
|
|
|
|
302,410
|
|
|
|
1.93
|
|
Commercial
|
|
|
15,097
|
|
|
|
0.10
|
|
|
|
13,588
|
|
|
|
0.09
|
|
Other
|
|
|
13,618
|
|
|
|
0.09
|
|
|
|
14,020
|
|
|
|
0.09
|
|
Total
consumer and other loans
|
|
|
319,346
|
|
|
|
2.16
|
|
|
|
330,018
|
|
|
|
2.11
|
|
Total
loans (gross)
|
|
|
14,806,410
|
|
|
|
100.00
|
%
|
|
|
15,674,841
|
|
|
|
100.00
|
%
|
Net
unamortized premiums
and
deferred loan costs
|
|
|
92,783
|
|
|
|
|
|
|
|
105,881
|
|
|
|
|
|
Total
loans
|
|
|
14,899,193
|
|
|
|
|
|
|
|
15,780,722
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(206,231
|
)
|
|
|
|
|
|
|
(194,049
|
)
|
|
|
|
|
Total
loans, net
|
|
$
|
14,692,962
|
|
|
|
|
|
|
$
|
15,586,673
|
|
|
|
|
|
Activity
in the allowance for loan losses is summarized as follows:
(In Thousands)
|
|
For the Nine
Months Ended
September 30, 2010
|
|
Balance
at January 1, 2010
|
|
$
|
194,049
|
|
Provision
charged to operations
|
|
|
100,000
|
|
Charge-offs
|
|
|
(101,204
|
)
|
Recoveries
|
|
|
13,386
|
|
Balance
at September 30, 2010
|
|
$
|
206,231
|
|
For
additional information regarding the composition of our loan portfolio,
non-performing loans and our allowance for loan losses, see “Asset Quality” in
Item 2, “MD&A.”
5.
Premises and Equipment,
net
Included
in premises and equipment, net, is an office building with a net carrying value
of $14.8 million at September 30, 2010 and $16.7 million at December 31, 2009,
which was classified as held-for-sale prior to September 30,
2009. The building, which is currently unoccupied, is located in Lake
Success, New York, and formerly housed our lending operations, which
were
relocated
in March 2008 to a facility which we currently lease in Mineola, New
York. During the 2009 second quarter, we recorded a lower of cost or
market write-down of $1.6 million to reduce the carrying amount of the building
to its estimated fair value less selling costs as of June 30,
2009. Due to economic and real estate market conditions, we were
unable to sell the building at a reasonable price within a reasonable period of
time. Therefore, as of September 30, 2009, the building was no longer
classified as held-for-sale. No depreciation expense was recorded
while the building was classified as held-for-sale. We resumed
depreciation of the building in October 2009 over its remaining useful life
based on the carrying value of $16.9 million at September 30, 2009.
During
the 2010 second quarter, several indications of interest on the building and
negotiations with potential buyers indicated a current market value below the
carrying value of the building. As a result, we evaluated the
building for impairment and recorded an impairment write-down of $1.5 million to
reduce the carrying amount of the building to its estimated fair value less
selling costs as of June 30, 2010.
Impairment
and lower of cost or market write-downs on premises and equipment are included
in other non-interest income in the consolidated statements of
income.
6.
Income Taxes
Gross
unrecognized tax benefits totaled $3.3 million at September 30, 2010 compared to
$5.3 million at December 31, 2009. The decrease was primarily a
result of settlements with taxing authorities. It is reasonably
possible that additional decreases in gross unrecognized tax benefits totaling
$1.1 million may occur in the next twelve months as a result of settlements with
taxing authorities. If realized, all of our unrecognized tax benefits
at September 30, 2010 would affect our effective income tax
rate. After the related federal tax effects, realization of those
benefits would reduce income tax expense by $2.5 million.
In
addition to the above unrecognized tax benefits, we have accrued liabilities for
interest and penalties related to uncertain tax positions totaling $1.7 million
at September 30, 2010 compared to $2.0 million at December 31,
2009. The decrease was primarily a result of settlements with taxing
authorities, partially offset by interest accrued during the nine months ended
September 30, 2010. Realization of all of our unrecognized tax
benefits would result in a further reduction in income tax expense of $1.2
million for the reversal of accrued interest and penalties, net of the related
federal tax effects.
7.
Earnings Per
Share
The
following table is a reconciliation of basic and diluted earnings per share, or
EPS.
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
(In Thousands, Except Per Share Data)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Net
income
|
|
$
|
21,451
|
|
|
$
|
8,048
|
|
|
$
|
49,923
|
|
|
$
|
19,544
|
|
Income
allocated to participating securities (restricted stock)
|
|
|
(502
|
)
|
|
|
(224
|
)
|
|
|
(1,185
|
)
|
|
|
(683
|
)
|
Income
attributable to common shareholders
|
|
$
|
20,949
|
|
|
$
|
7,824
|
|
|
$
|
48,738
|
|
|
$
|
18,861
|
|
Average
number of common shares outstanding – basic
|
|
|
91,863
|
|
|
|
90,697
|
|
|
|
91,650
|
|
|
|
90,480
|
|
Dilutive
effect of stock options (1)
|
|
|
-
|
|
|
|
6
|
|
|
|
-
|
|
|
|
2
|
|
Average
number of common shares outstanding – diluted
|
|
|
91,863
|
|
|
|
90,703
|
|
|
|
91,650
|
|
|
|
90,482
|
|
Income
per common share attributable to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.23
|
|
|
$
|
0.09
|
|
|
$
|
0.53
|
|
|
$
|
0.21
|
|
Diluted
|
|
$
|
0.23
|
|
|
$
|
0.09
|
|
|
$
|
0.53
|
|
|
$
|
0.21
|
|
(1)
|
Excludes
options to purchase 7,939,626 shares of common stock which were
outstanding during the three months ended September 30, 2010; options to
purchase 8,044,830 shares of common stock which were outstanding during
the three months ended September 30, 2009; options to purchase 7,990,736
shares of common stock which were outstanding during the nine months ended
September 30, 2010 and options to purchase 8,458,997 shares of common
stock which were outstanding during the nine months ended September 30,
2009 because their inclusion would be
anti-dilutive.
|
8.
Stock Incentive
Plans
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 their 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 nine months ended September
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
|
|
|
(24,566)
|
|
|
|
(14.63)
|
|
Nonvested
at September 30, 2010
|
|
|
2,272,052
|
|
|
|
14.89
|
|
Stock-based
compensation expense is recognized on a straight-line basis over the vesting
period and totaled $1.3 million, net of taxes of $715,000, for the
three months ended September 30, 2010 and $3.8 million, net of taxes of $2.1
million, for the nine months ended September 30, 2010. Stock-based
compensation expense totaled $938,000, net of taxes of $505,000, for
the
three
months ended September 30, 2009 and $2.8 million, net of taxes of $1.5 million,
for the nine months ended September 30, 2009. At September 30, 2010,
pre-tax compensation cost related to all nonvested awards of restricted stock
not yet recognized totaled $20.1 million and will be recognized over a weighted
average period of approximately 3.1 years.
9.
Pension Plans and Other
Postretirement Benefits
The
following tables set forth information regarding the components of net periodic
cost for our defined benefit pension plans and other postretirement benefit
plan.
|
|
|
|
|
Other Postretirement
|
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
|
For the Three Months Ended
|
|
|
For the Three Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
(In Thousands)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Service
cost
|
|
$
|
928
|
|
|
$
|
842
|
|
|
$
|
139
|
|
|
$
|
80
|
|
Interest
cost
|
|
|
2,905
|
|
|
|
2,799
|
|
|
|
358
|
|
|
|
298
|
|
Expected
return on plan assets
|
|
|
(2,354
|
)
|
|
|
(2,125
|
)
|
|
|
-
|
|
|
|
-
|
|
Amortization
of prior service cost (credit)
|
|
|
61
|
|
|
|
61
|
|
|
|
(24
|
)
|
|
|
(24
|
)
|
Recognized
net actuarial loss
|
|
|
1,633
|
|
|
|
2,012
|
|
|
|
-
|
|
|
|
1
|
|
Net
periodic cost
|
|
$
|
3,173
|
|
|
$
|
3,589
|
|
|
$
|
473
|
|
|
$
|
355
|
|
|
|
|
|
|
Other Postretirement
|
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
|
For the Nine Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
(In Thousands)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Service
cost
|
|
$
|
2,795
|
|
|
$
|
2,584
|
|
|
$
|
318
|
|
|
$
|
242
|
|
Interest
cost
|
|
|
8,701
|
|
|
|
8,423
|
|
|
|
924
|
|
|
|
833
|
|
Expected
return on plan assets
|
|
|
(7,065
|
)
|
|
|
(6,383
|
)
|
|
|
-
|
|
|
|
-
|
|
Amortization
of prior service cost (credit)
|
|
|
185
|
|
|
|
185
|
|
|
|
(74
|
)
|
|
|
(74
|
)
|
Recognized
net actuarial loss
|
|
|
4,838
|
|
|
|
6,136
|
|
|
|
-
|
|
|
|
-
|
|
Net
periodic cost
|
|
$
|
9,454
|
|
|
$
|
10,945
|
|
|
$
|
1,168
|
|
|
$
|
1,001
|
|
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 September 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 September 30, 2010
|
|
(In Thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE
issuance REMICs and CMOs
|
|
$
|
602,828
|
|
|
$
|
-
|
|
|
$
|
602,828
|
|
|
$
|
-
|
|
Non-GSE
issuance REMICs and CMOs
|
|
|
22,267
|
|
|
|
-
|
|
|
|
22,267
|
|
|
|
-
|
|
GSE
pass-through certificates
|
|
|
31,334
|
|
|
|
-
|
|
|
|
31,334
|
|
|
|
-
|
|
Other
securities
|
|
|
1,456
|
|
|
|
1,456
|
|
|
|
-
|
|
|
|
-
|
|
Total
securities available-for-sale
|
|
$
|
657,885
|
|
|
$
|
1,456
|
|
|
$
|
656,429
|
|
|
$
|
-
|
|
|
|
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 September 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 September 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 September 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 September
30, 2010, our MSR were valued based on expected future cash flows considering a
weighted average discount rate of 10.97%, a weighted average constant prepayment
rate on mortgages of 23.11% 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.
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
September 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 table sets forth the carrying value of those of our assets which were
measured at fair value on a non-recurring basis at the dates
indicated. The fair value measurement for all of these assets falls
within Level 3 of the fair value hierarchy.
|
|
Carrying Value
|
|
(In Thousands)
|
|
At September 30, 2010
|
|
|
At December 31, 2009
|
|
Non-performing
loans held-for-sale, net
|
|
$
|
17,353
|
|
|
$
|
6,865
|
|
Impaired
loans
|
|
|
190,071
|
|
|
|
145,250
|
|
MSR,
net
|
|
|
8,030
|
|
|
|
8,850
|
|
REO,
net
|
|
|
55,224
|
|
|
|
43,958
|
|
Total
|
|
$
|
270,678
|
|
|
$
|
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 periods
indicated.
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
|
September 30,
|
|
(In Thousands)
|
|
2010
|
|
|
2009
|
|
Non-performing
loans held-for-sale, net (1)
|
|
$
|
8,186
|
|
|
$
|
17,639
|
|
Impaired
loans (2)
|
|
|
41,706
|
|
|
|
28,562
|
|
MSR,
net (3)
|
|
|
221
|
|
|
|
-
|
|
REO,
net (4)
|
|
|
13,081
|
|
|
|
15,754
|
|
Total
|
|
$
|
63,194
|
|
|
$
|
61,955
|
|
(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 mortgage banking income,
net.
|
(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 September 30, 2010
|
|
|
At December 31, 2009
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
(In Thousands)
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
Financial
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
|
$
|
32,040
|
|
|
$
|
32,040
|
|
|
$
|
40,030
|
|
|
$
|
40,030
|
|
Securities
held-to-maturity
|
|
|
1,933,318
|
|
|
|
1,996,017
|
|
|
|
2,317,885
|
|
|
|
2,367,520
|
|
FHLB-NY
stock
|
|
|
163,501
|
|
|
|
163,501
|
|
|
|
178,929
|
|
|
|
178,929
|
|
Loans
held-for-sale, net (1)
|
|
|
35,338
|
|
|
|
35,976
|
|
|
|
34,274
|
|
|
|
34,585
|
|
Loans
receivable, net (1)
|
|
|
14,692,962
|
|
|
|
15,254,506
|
|
|
|
15,586,673
|
|
|
|
16,030,427
|
|
MSR,
net (1)
|
|
|
8,030
|
|
|
|
8,043
|
|
|
|
8,850
|
|
|
|
8,866
|
|
Financial
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
12,107,286
|
|
|
|
12,318,127
|
|
|
|
12,812,238
|
|
|
|
12,978,569
|
|
Borrowings,
net
|
|
|
5,213,111
|
|
|
|
6,093,431
|
|
|
|
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 fifteen and thirty year conforming fixed rate one-to-four family
mortgage loans originated 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
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.
12.
Litigation
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.
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, which received preliminary approval from the
District Court on September 13, 2010, is subject to final approval by the
District Court. The settlement was recognized in other non-interest
expense in our consolidated statements of income during the 2010 second
quarter.
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.
We cannot
at this time estimate the possible loss or range of loss, if any. 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.
City of New York Notice of
Determination
By
“Notice of Determination” dated September 14, 2010, the City of New York has
notified us of an alleged tax deficiency in the amount of $5.2 million,
including interest and penalties, related to our 2006 tax year. The
deficiency relates to our operation of two subsidiaries of Astoria Federal,
Fidata Service Corp., or Fidata, and Astoria Federal Mortgage Corp., or AF
Mortgage. Fidata is a passive investment company which maintains
offices in Connecticut. AF Mortgage is an operating subsidiary
through which Astoria Federal engages in lending activities outside the State of
New York. We disagree with the assertion of the tax deficiency and we
intend to file a Petition for Hearing with the City of New York to oppose the
Notice of Determination. At this time, management believes it is more
likely than not that we will succeed in refuting the City of New York’s
position, although defense costs may be significant. Accordingly, no liability
or reserve has been recognized in our consolidated statement of financial
condition at September 30, 2010 with respect to this matter.
No
assurance can be given as to whether or to what extent we will be required to
pay the amount of the tax deficiency asserted by the City of New York, whether
additional tax will be assessed for years subsequent to 2006, that this matter
will not be costly to oppose, that this matter 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 and mortgage-backed securities, and to a
lesser extent multi-family and commercial real estate mortgage
loans. 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 nine months ended September 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 9.6% for September 2010. 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. As described in more detail in Part
II, Item 1A, “Risk Factors,” in our June 30, 2010 Quarterly Report on Form 10-Q,
certain aspects of the Reform Act will have an impact on us, including the
combination of our primary regulator, the OTS, with the Office of the
Comptroller of the Currency, the imposition of consolidated holding company
capital requirements, changes to deposit insurance assessments and the roll back
of federal preemption applicable to certain of our operations.
Total
assets decreased during the nine months ended September 30, 2010, primarily due
to decreases in our loan and securities portfolios, partially offset by an
increase in cash and due from banks. 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 decrease in our securities
portfolio was primarily due to cash flows from
repayments
exceeding securities purchased which reflects our decision to limit purchases of
securities in the current low interest rate environment. The increase
in cash and due from banks reflects the cash flows from mortgage loan and
securities repayments in excess of mortgage loan originations and purchases,
securities purchases, deposit outflows and the repayment of borrowings, which
were not redeployed by the end of the 2010 third quarter.
Total
deposits decreased during the nine months ended September 30, 2010, due to
decreases in certificates of deposit and Liquid CDs, partially offset by
increases in savings, money market and NOW and demand deposit
accounts. During the nine months ended September 30, 2010, we
continued to allow high cost certificates of deposit to run off as total assets
declined. The increases in low cost savings, money market and NOW and
demand deposit 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. Cash flows from mortgage loan repayments and
securities repayments in excess of mortgage loan originations and purchases,
securities purchases and deposit outflows enabled us to repay a portion of our
matured borrowings during the nine months ended September 30, 2010, which
resulted in a decrease in our borrowings portfolio from December 31,
2009. During the latter half of the 2010 second quarter, we increased
longer term borrowings to take advantage of the then current rates on such
borrowings and during most of the 2010 third quarter, we offered aggressive
rates on long term certificates of deposit to extend the maturities of these
deposits. Our efforts to extend the maturities of 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 nine months ended September 30, 2010 compared
to the three and nine months ended September 30, 2009. These
increases were primarily due to decreases in provision for loan losses and
increases in net interest income, partially offset by increases in non-interest
expense and income tax expense. An increase in non-interest income
also contributed to the increase in net income for the nine months ended
September 30, 2010, although non-interest income decreased for the three months
ended September 30, 2010.
The
allowance for loan losses increased from December 31, 2009 to September 30,
2010, although the balance declined from June 30, 2010. Total loan
delinquencies, including non-performing loans, remained relatively flat during
the first half of 2010, but declined during the 2010 third quarter resulting in
a decrease from December 31, 2009 to September 30, 2010. The
provision for loan losses decreased for the three and nine months ended
September 30, 2010 compared to the three and nine months ended September 30,
2009. These decreases reflect the stabilizing trend in overall asset
quality experienced in 2010. The allowance for loan losses at
September 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 nine months ended September 30, 2010 increased compared to the
three and nine months ended September 30, 2009, primarily due to the costs of
interest-bearing liabilities declining more rapidly than the yields 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
nine months ended September 30, 2010 decreased, compared to the three and nine
months ended September 30, 2009, primarily due to decreases in the average costs
and average balances of certificates of deposit, coupled with
decreases
in the average balances of borrowings. Interest income for the three
and nine months ended September 30, 2010 decreased, compared to the three and
nine months ended September 30, 2009, primarily due to decreases in the average
balances of mortgage loans and mortgage-backed and other securities, coupled
with decreases in the average yields on one-to-four family mortgage loans and
mortgage-backed and other securities.
Non-interest
income for the three months ended September 30, 2010 decreased, compared to the
three months ended September 30, 2009, primarily due to the absence of gain on
sales of securities in 2010 and a decrease in customer service fees, partially
offset by an increase in other non-interest income. Non-interest
income for the nine months ended September 30, 2010 increased, compared to the
nine months ended September 30, 2009, primarily due to the settlement of the
action entitled
Astoria
Federal Savings and Loan Association vs. United States
, or Goodwill
Litigation, recorded in other non-interest income in the 2010 second quarter and
the OTTI charge recorded in the 2009 first quarter, partially offset by the
absence of gain on sales of securities in 2010 and decreases in customer service
fees and mortgage banking income, net. For further discussion of the
Goodwill Litigation settlement, see Part II, Item 1, “Legal Proceedings,” in our
June 30, 2010 Quarterly Report on Form 10-Q.
The
increase in non-interest expense for the three months ended September 30, 2010
compared to the three months ended September 30, 2009 was primarily due to an
increase in compensation and benefits expense and other non-interest
expense. The increase in non-interest expense for the nine months
ended September 30, 2010 compared to the nine months ended September 30, 2009
was primarily due to the McAnaney Litigation settlement recorded in other
non-interest expense in the 2010 second quarter and increases in compensation
and benefits expense and Federal Deposit Insurance Corporation, or FDIC,
insurance premiums, partially offset by the FDIC special assessment recorded in
the 2009 second quarter. Income tax expense increased for the
three and nine months ended September 30, 2010 compared to the three and nine
months ended September 30, 2009 primarily due to the increases in pre-tax
income. For further discussion of the McAnaney Litigation settlement,
see Part II, Item 1, “Legal Proceedings.”
Although
we remain cautiously optimistic with respect to the outlook for credit quality
and expect credit costs will continue to decline over the next several quarters
resulting in improved financial performance, the operating environment for
residential mortgage portfolio lenders remains challenging. 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, which we originate but do not retain for our portfolio, below
normal market rate levels. The U.S. Congress recently extended
through September 2011 the expanded conforming loan limits in many of our
operating markets. Therefore, we anticipate elevated levels of
mortgage prepayment activity will continue to outpace our loan
production. This will, more than likely, result in a further near
term decline in our mortgage loan portfolio and balance sheet. We
anticipate maintaining a relatively stable net interest margin which, when
coupled with lower credit costs, should mitigate the earnings impact from a
smaller balance sheet. We will continue to strengthen our balance
sheet by continuing to originate quality residential mortgage loans for
portfolio. We expect capital levels will continue to increase as
earnings continue to improve which should position us to take advantage of
future balance sheet growth opportunities that may arise.
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 March 31, 2010 and June 30, 2010 Quarterly Reports on Form 10-Q
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 each quarter of 2010 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 $206.2 million was required at September 30,
2010, compared to $211.0 million at June 30, 2010, $210.7 million at March 31,
2010 and $194.0 million at December 31, 2009, resulting in a provision for loan
losses of $100.0 million for the nine months ended September 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
September 30, 2010, our MSR, net, had an estimated fair value of $8.0 million
and were valued based on expected future cash flows considering a weighted
average discount rate of 10.97%, a weighted average constant prepayment rate on
mortgages of 23.11% 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.
Goodwill
Impairment
Goodwill
is presumed to have an indefinite useful life and is tested, at least annually,
for impairment at the reporting unit level. Impairment exists when the carrying
amount of goodwill exceeds its implied fair value. For purposes of
our goodwill impairment testing, we have identified a single reporting
unit. We consider the quoted market price of our common stock on our
impairment testing date as an initial indicator of estimating the fair value of
our reporting unit. In addition, we consider our average stock price,
both before and after our impairment test date, as well as market-based control
premiums in determining the estimated fair value of our reporting
unit. If the estimated fair value of our reporting unit exceeds its
carrying amount, further evaluation is not necessary. However, if the
fair value of our reporting unit is less than its carrying amount, further
evaluation is required to compare the implied fair value of the reporting unit’s
goodwill to its carrying amount to determine if a write-down of goodwill is
required.
At
September 30, 2010, the carrying amount of our goodwill totaled $185.2
million. On September 30, 2010, we performed our annual goodwill
impairment test and determined the
estimated
fair value of our reporting unit to be in excess of its carrying
amount. Accordingly, as of our annual impairment test date, there was
no indication of goodwill impairment. We would test our goodwill for
impairment between annual tests if an event occurs or circumstances change that
would more likely than not reduce the fair value of our reporting unit below its
carrying amount. The identification of additional reporting units or
the use of other valuation techniques could result in materially different
evaluations of impairment.
Securities
Impairment
Our
available-for-sale securities portfolio is carried at estimated fair value with
any unrealized gains and losses, net of taxes, reported as accumulated other
comprehensive income/loss in stockholders’ equity. Debt securities
which we have the positive intent and ability to hold to maturity are classified
as held-to-maturity and are carried at amortized cost.
T
he fair values for
our securities are obtained from an independent nationally recognized pricing
service.
Our
investment portfolio is comprised primarily of fixed rate mortgage-backed
securities guaranteed by a GSE as issuer. GSE issuance
mortgage-backed securities comprised 96% of our securities portfolio at
September 30, 2010. Non-GSE issuance mortgage-backed securities at
September 30, 2010 comprised 3% of our securities portfolio and had an amortized
cost of $74.9 million, 30% of which are classified as available-for-sale and 70%
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 September 30, 2010, we had 26 securities with an estimated
fair value totaling $68.6 million which had an unrealized loss totaling
$598,000. Of the securities in an unrealized loss position at
September 30, 2010, $23.5 million, with an unrealized loss of $568,000, have
been in a continuous unrealized loss position for more than twelve
months. At September 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 nine months ended September 30,
2010. During the nine months ended September 30, 2009, we recorded a
$5.3 million OTTI charge to write-off the remaining cost basis of our investment
in two issues of Freddie Mac perpetual preferred securities. 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 $4.11 billion for the nine months ended September 30, 2010 and $4.00
billion for the nine months ended September 30, 2009. The increase in
loan and securities repayments for the nine months ended September 30, 2010,
compared to the nine months ended September 30, 2009, was due to an increase in
loan repayments from customers refinancing their adjustable rate loans during
the continued historic low interest rate environment for thirty year fixed rate
mortgages, which we originate but do not retain for our portfolio, and expanded
conforming loan limits. The increase also reflects an increase in securities
repayments and calls of higher yielding securities. The underlying
collateral for our securities portfolio is also primarily fixed rate mortgage
loans.
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. However, for the nine months
ended September 30, 2010 and 2009, net deposit and borrowing activity resulted
in a use of funds. Net cash provided by operating activities totaled
$203.4 million during the nine months ended September 30, 2010 and $215.2
million during the nine months ended September 30, 2009. Deposits
decreased $705.0 million during the nine months ended September 30, 2010 and
decreased $261.3 million during the nine months ended September 30,
2009. The net decreases in deposits for the nine months ended
September 30, 2010 and 2009 were primarily due to decreases in certificates of
deposit and Liquid CDs, partially offset by increases in savings, money market
and NOW and demand deposit accounts. During the nine months ended
September 30, 2010, we continued to allow high cost certificates of deposit to
run off as total assets declined. The increases in low cost savings,
money market and NOW and demand deposit accounts during the nine months ended
September 30, 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. The increases in these types of accounts
during the nine months ended September 30, 2009 reflected the decrease in
competition for core community deposits from that which we experienced during
2008.
Net
borrowings decreased $664.7 million during the nine months ended September 30,
2010 and decreased $1.13 billion during the nine months ended September 30,
2009. The decrease in net borrowings during the nine months ended
September 30, 2010 was primarily due to cash flows from mortgage loan and
securities repayments in excess of mortgage loan originations and purchases,
securities purchases and deposit outflow which enabled us to repay a portion of
our matured borrowings. The decrease in net borrowings during the
nine months ended September 30, 2009 was primarily the result of cash flows from
mortgage loan and securities repayments, coupled with deposit growth during the
first half of 2009, in excess of mortgage loan originations and purchases and
securities purchases which enabled us to repay a portion of our matured
borrowings during the first half of 2009.
During
the latter half of the 2010 second quarter, we increased longer term borrowings
to take advantage of the then current rates on such borrowings and during most
of the 2010 third quarter, we offered aggressive rates on long term certificates
of deposit to extend the maturities of these deposits. As previously
discussed, our efforts to extend the maturities of certificates of deposit and
borrowings aid in our interest rate risk management by reducing our exposure to
rising interest rates.
Our
primary use of funds is for the origination and purchase of mortgage loans and,
to a lesser degree, for the purchase of securities. Gross mortgage
loans originated and purchased for portfolio during the nine months ended
September 30, 2010 totaled $2.24 billion, of which $1.88 billion were
originations and $360.2 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 nine months ended September
30, 2009 totaling $2.24 billion, of which $1.97 billion were originations and
$273.5 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. Purchases of securities totaled $563.5 million during the
nine months ended September 30, 2010 and $706.6 million during the nine months
ended September 30, 2009.
Our
policies and procedures with respect to managing funding and liquidity risk are
established to ensure our safe and sound operation in compliance with applicable
bank regulatory requirements. Our liquidity management process is
sufficient to meet our daily funding needs and cover both expected and
unexpected deviations from normal daily operations. Processes are in
place to appropriately identify, measure, monitor and control liquidity and
funding risk. The primary tools we use for measuring and managing
liquidity risk include cash flow projections, diversified funding sources,
stress testing, a cushion of liquid assets, and a formal, well developed
contingency funding plan.
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 $162.0 million to $273.6 million at September 30,
2010, from $111.6 million at December 31, 2009. This increase
reflects the cash flows from mortgage loan and securities repayments in excess
of mortgage loan originations and purchases, securities purchases, deposit
outflows and the repayment of borrowings, which were not redeployed by the end
of the 2010 third quarter. At September 30, 2010, we had $1.39
billion in borrowings with a weighted average rate of 3.67% maturing over the
next twelve months. We have the flexibility to either repay or
rollover these borrowings as they mature. In addition, we had $4.87
billion in certificates of deposit and Liquid CDs at September 30, 2010 with a
weighted average rate of 1.69% 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. However, should our balance sheet continue to contract,
we may see a reduction in borrowings and/or deposits.
The
following table details our borrowing, certificate of deposit and Liquid CD
maturities and their weighted average rates at September 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
|
|
$
|
1,391
|
|
|
|
3.67
|
%
|
|
$
|
4,872
|
(1)
|
|
|
1.69
|
%
|
Thirteen
to thirty-six months
|
|
|
1,544
|
(2)
|
|
|
4.04
|
|
|
|
2,065
|
|
|
|
2.79
|
|
Thirty-seven
to sixty months
|
|
|
400
|
(3)
|
|
|
3.13
|
|
|
|
924
|
|
|
|
3.10
|
|
Over
sixty months
|
|
|
1,879
|
(4)
|
|
|
4.72
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
5,214
|
|
|
|
4.12
|
%
|
|
$
|
7,861
|
|
|
|
2.14
|
%
|
(1)
|
Includes
$546.6 million of Liquid CDs with a weighted average rate of 0.38% and
$4.33 billion of certificates of deposit with a weighted average rate of
1.86%.
|
(2)
|
Includes
$875.0 million of borrowings, with a weighted average rate of 4.38%, 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. During the nine months ended September 30, 2010, Astoria
Financial Corporation paid interest totaling $13.3 million and dividends
totaling $36.5 million. On October 20, 2010, we declared a quarterly
cash dividend of $0.13 per share on shares of our common stock payable on
December 1, 2010 to stockholders of record as of the close of business on
November 15, 2010. As of September 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 September 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 nine months ended September 30,
2010, Astoria Federal paid dividends to Astoria Financial Corporation totaling
$38.6 million. On October 5, 2010, Astoria Federal paid a dividend to
Astoria Financial Corporation totaling $26.0 million.
See
“Financial Condition” for further discussion of the changes in stockholders’
equity.
At
September 30, 2010, Astoria Federal’s capital levels exceeded all of its
regulatory capital requirements with a tangible capital ratio of 7.59%, leverage
capital ratio of 7.59% and total risk-based capital ratio of
14.13%. 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
12.87% at September 30, 2010. As of September 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 $100.9 million at
September 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 September 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
|
|
On-balance
sheet contractual obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
with original terms greater than three months
|
|
$
|
5,213,866
|
|
|
$
|
1,391,000
|
|
|
$
|
1,544,000
|
|
|
$
|
400,000
|
|
|
$
|
1,878,866
|
|
Off-balance
sheet contractual obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
to originate and purchase loans (1)
|
|
|
346,756
|
|
|
|
346,756
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commitments
to fund unused lines of credit (2)
|
|
|
281,647
|
|
|
|
281,647
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
5,842,269
|
|
|
$
|
2,019,403
|
|
|
$
|
1,544,000
|
|
|
$
|
400,000
|
|
|
$
|
1,878,866
|
|
(1) Commitments
to originate and purchase loans include commitments to originate loans
held-for-sale of $84.0 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 September 30, 2010 and December 31, 2009 and
Operating Results for the Three and Nine Months Ended September 30, 2010 and
2009
Total
assets decreased $1.31 billion to $18.94 billion at September 30, 2010, from
$20.25 billion at December 31, 2009. The decrease in total assets
primarily reflects decreases in loans receivable and securities, partially
offset by an increase in cash and due from banks.
Loans
receivable, net, decreased $893.7 million to $14.69 billion at September 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 nine months ended September 30, 2010, coupled with an increase of
$12.2 million in the allowance for loan losses to $206.2 million at September
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 $870.1 million to $14.58 billion at September 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 $2.89 billion for the nine months ended September 30, 2010, from $2.78
billion for the nine months ended September 30, 2009. Gross mortgage
loans originated and purchased for portfolio during the nine months ended
September 30, 2010 totaled $2.24 billion, of which $1.88 billion were
originations and $360.2 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 $2.24 billion during the nine months
ended
September
30, 2009, of which $1.97 billion were originations and $273.5 million were
purchases, substantially all of which were one-to-four family mortgage
loans.
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 $526.5 million to $11.37
billion at September 30, 2010, from $11.90 billion at December 31, 2009, and
represented 76.8% of our total loan portfolio at September 30,
2010. The decrease was primarily the result of the levels of
repayments which outpaced our originations and purchases during the nine months
ended September 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 nine months ended September 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 62% and the loan amount averaged approximately
$734,000.
Our
multi-family mortgage loan portfolio decreased $249.9 million to $2.31 billion
at September 30, 2010, from $2.56 billion at December 31, 2009. Our
commercial real estate loan portfolio decreased $73.4 million to $793.4 million
at September 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 certain delinquent and non-performing loans and the
absence of new multi-family and commercial real estate loan
originations.
W
e 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 nine months ended September 30, 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 $587.4 million to $2.59 billion at September 30, 2010, from $3.18
billion at December 31, 2009. This decrease was primarily the result
of principal payments received of $1.15 billion, including $251.0 million
related to securities which were called, partially offset by purchases of $563.5
million. At September 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 $2.50 billion at
September 30, 2010 and had a weighted average current coupon of 4.02%, a
weighted average collateral coupon of 5.55% and a weighted average life of 1.8
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 $170.0 million to $241.5 million at September 30, 2010,
from $71.5 million at December 31, 2009. This increase reflects the
cash flows from mortgage loan and securities repayments in excess of mortgage
loan originations and purchases, securities purchases, deposit outflow and the
repayment of borrowings, which were not redeployed by the end of the 2010 third
quarter.
Deposits
decreased $705.0 million to $12.11 billion at September 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, money market and NOW and
demand deposit accounts. Certificates of deposit decreased $771.4
million since December 31, 2009 to $7.31 billion at September 30,
2010. Liquid CDs decreased $164.9 million since December 31, 2009 to
$546.6 million at
September
30, 2010. Savings accounts increased $192.9 million since December
31, 2009 to $2.23 billion at September 30, 2010. NOW and demand
deposit accounts increased $15.4 million since December 31, 2009 to $1.66
billion at September 30, 2010. Money market accounts increased $23.0
million since December 31, 2009 to $349.9 million at September 30,
2010. During the nine months ended September 30, 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 nine months ended September 30, 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.
Total
borrowings, net, decreased $664.7 million to $5.21 billion at September 30,
2010, from $5.88 billion at December 31, 2009. The decrease in total
borrowings was primarily the result of cash flows from mortgage loan and
securities repayments exceeding mortgage loan originations and purchases,
securities purchases and deposit outflow which enabled us to repay a portion of
our matured borrowings.
Stockholders' equity
increased $33.1 million to $1.24 billion at September 30, 2010, from $1.21
billion at December 31, 2009.
The increase in stockholders’
equity was due to net income of $49.9 million, the allocation of shares held by
the employee stock ownership plan, or ESOP, of $8.5 million, stock-based
compensation of $5.9 million and a decrease in accumulated other comprehensive
loss of $4.9 million. These increases were partially offset by
dividends declared of $36.5 million.
Results
of Operations
General
Net
income for the three months ended September 30, 2010 increased $13.5 million to
$21.5 million, from $8.0 million for the three months ended September 30,
2009. Diluted earnings per common share increased to $0.23 per share
for the three months ended September 30, 2010, from $0.09 per share
for the three months ended September 30, 2009. Return on average
assets increased to 0.44% for the three months ended September 30, 2010, from
0.15% for the three months ended September 30, 2009. Return on
average stockholders’ equity increased to 6.97% for the three months ended
September 30, 2010, from 2.69% for the three months ended September 30,
2009. Return on average tangible stockholders’ equity, which
represents average stockholders’ equity less average goodwill, increased to
8.21% for the three months ended September 30, 2010, from 3.18% for the three
months ended September 30, 2009.
Net
income for the nine months ended September 30, 2010 increased $30.4 million to
$49.9 million, from $19.5 million for the nine months ended September 30,
2009. Diluted earnings per common share increased to $0.53 per share
for the nine months ended September 30, 2010, from $0.21 per share for the nine
months ended September 30, 2009. Return on average assets increased
to 0.34% for the nine months ended September 30, 2010, from 0.12% for the nine
months ended September 30, 2009. Return on average stockholders’
equity increased to 5.45% for the nine months ended September 30, 2010, from
2.18% for the nine months ended September 30, 2009. Return on average
tangible stockholders’ equity increased to 6.43% for the nine months ended
September 30, 2010, from 2.58% for the nine months ended September 30,
2009. The increases in the returns on average assets for the three
and nine months ended September 30, 2010, compared to the three and nine months
ended September 30, 2009, were
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 nine months ended
September 30, 2010, compared to the three and nine months ended September 30,
2009, were primarily due to the increases in net income.
Our
results of operations for the nine months ended September 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. These net charges
reduced diluted earnings per common share by $0.02 per share, return on average
assets by 1 basis point, return on average stockholders’ equity by 23 basis
points and return on average tangible stockholders’ equity by 27 basis
points. For further discussion of the Goodwill Litigation settlement,
see Part II, Item 1, “Legal Proceedings,” in our June 30, 2010 Quarterly Report
on Form 10-Q. For further discussion of the McAnaney Litigation
settlement, see Part II, Item 1, “Legal Proceedings.” 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 nine months ended September 30, 2009 include $9.9
million ($6.4 million, after-tax) of non-interest expense related to the FDIC
special assessment, 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 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. These charges
reduced diluted earnings per common share by $0.12 per share, return on average
assets by 7 basis points, return on average stockholders’ equity by 121 basis
points and return on average tangible stockholders’ equity by 143 basis
points. For 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 September 30, 2010, net interest income increased $2.9
million to $106.0 million, from $103.1 million for the three months ended
September 30, 2009, and increased $8.5 million to $332.3 million for the nine
months ended September 30, 2010, from $323.8 million for the nine months ended
September 30, 2009. The net interest margin increased to 2.32% for
the three months ended September 30, 2010, from 2.07% for the three months ended
September 30, 2009, and increased to 2.36% for the nine months ended September
30, 2010, from 2.13% for the nine months ended September 30,
2009. The net interest rate spread
increased
to 2.25% for the three months ended September 30, 2010, from 1.98% for the three
months ended September 30, 2009, and increased to 2.29% for the nine months
ended September 30, 2010, from 2.03% for the nine months ended September 30,
2009. The average balance of net interest-earning assets decreased
$72.2 million to $562.5 million for the three months ended September 30, 2010,
from $634.7 million for the three months ended September 30, 2009, and decreased
$59.4 million to $572.3 million for the nine months ended September 30, 2010,
from $631.7 million for the nine months ended September 30, 2009.
The
increases in net interest income, the net interest margin and the net interest
rate spread for the three and nine months ended September 30, 2010, compared to
the three and nine months ended September 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
nine months ended September 30, 2010 decreased, compared to the three and nine
months ended September 30, 2009, primarily due to decreases in the average costs
and average balances of certificates of deposit, coupled with decreases in the
average balances of borrowings. Interest income for the three and
nine months ended September 30, 2010 decreased, compared to the three and nine
months ended September 30, 2009, primarily due to decreases in the average
balances of mortgage loans and mortgage-backed and other securities, coupled
with decreases in the average yields on one-to-four family mortgage loans and
mortgage-backed and other securities.
The
changes in average interest-earning assets and interest-bearing liabilities and
their related yields and costs are discussed in greater detail under “Interest
Income” and “Interest Expense.”
Analysis of Net Interest
Income
The
following tables set forth certain information about the average balances of our
assets and liabilities and their related yields and costs for the three and nine
months ended September 30, 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 September 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
|
|
$
|
11,678,392
|
|
|
$
|
130,936
|
|
|
|
4.48
|
%
|
|
$
|
12,071,749
|
|
|
$
|
147,765
|
|
|
|
4.90
|
%
|
Multi-family,
commercial
real
estate and construction
|
|
|
3,201,711
|
|
|
|
48,446
|
|
|
|
6.05
|
|
|
|
3,610,912
|
|
|
|
52,947
|
|
|
|
5.87
|
|
Consumer
and other loans (1)
|
|
|
323,916
|
|
|
|
2,656
|
|
|
|
3.28
|
|
|
|
334,282
|
|
|
|
2,760
|
|
|
|
3.30
|
|
Total
loans
|
|
|
15,204,019
|
|
|
|
182,038
|
|
|
|
4.79
|
|
|
|
16,016,943
|
|
|
|
203,472
|
|
|
|
5.08
|
|
Mortgage-backed
and other securities (2)
|
|
|
2,555,951
|
|
|
|
25,336
|
|
|
|
3.97
|
|
|
|
3,451,257
|
|
|
|
35,980
|
|
|
|
4.17
|
|
Repurchase
agreements and interest-
earning
cash accounts
|
|
|
332,171
|
|
|
|
188
|
|
|
|
0.23
|
|
|
|
299,242
|
|
|
|
163
|
|
|
|
0.22
|
|
FHLB-NY
stock
|
|
|
174,220
|
|
|
|
1,999
|
|
|
|
4.59
|
|
|
|
177,285
|
|
|
|
2,487
|
|
|
|
5.61
|
|
Total
interest-earning assets
|
|
|
18,266,361
|
|
|
|
209,561
|
|
|
|
4.59
|
|
|
|
19,944,727
|
|
|
|
242,102
|
|
|
|
4.86
|
|
Goodwill
|
|
|
185,151
|
|
|
|
|
|
|
|
|
|
|
|
185,151
|
|
|
|
|
|
|
|
|
|
Other
non-interest-earning assets
|
|
|
888,925
|
|
|
|
|
|
|
|
|
|
|
|
856,892
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
19,340,437
|
|
|
|
|
|
|
|
|
|
|
$
|
20,986,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
2,205,587
|
|
|
|
2,245
|
|
|
|
0.41
|
|
|
$
|
1,950,731
|
|
|
|
1,989
|
|
|
|
0.41
|
|
Money
market
|
|
|
342,453
|
|
|
|
385
|
|
|
|
0.45
|
|
|
|
328,826
|
|
|
|
447
|
|
|
|
0.54
|
|
NOW
and demand deposit
|
|
|
1,686,109
|
|
|
|
279
|
|
|
|
0.07
|
|
|
|
1,545,609
|
|
|
|
258
|
|
|
|
0.07
|
|
Liquid
CDs
|
|
|
585,814
|
|
|
|
689
|
|
|
|
0.47
|
|
|
|
860,239
|
|
|
|
1,708
|
|
|
|
0.79
|
|
Total
core deposits
|
|
|
4,819,963
|
|
|
|
3,598
|
|
|
|
0.30
|
|
|
|
4,685,405
|
|
|
|
4,402
|
|
|
|
0.38
|
|
Certificates
of deposit
|
|
|
7,356,689
|
|
|
|
42,546
|
|
|
|
2.31
|
|
|
|
8,738,587
|
|
|
|
70,946
|
|
|
|
3.25
|
|
Total
deposits
|
|
|
12,176,652
|
|
|
|
46,144
|
|
|
|
1.52
|
|
|
|
13,423,992
|
|
|
|
75,348
|
|
|
|
2.25
|
|
Borrowings
|
|
|
5,527,188
|
|
|
|
57,392
|
|
|
|
4.15
|
|
|
|
5,886,006
|
|
|
|
63,671
|
|
|
|
4.33
|
|
Total
interest-bearing liabilities
|
|
|
17,703,840
|
|
|
|
103,536
|
|
|
|
2.34
|
|
|
|
19,309,998
|
|
|
|
139,019
|
|
|
|
2.88
|
|
Non-interest-bearing
liabilities
|
|
|
405,907
|
|
|
|
|
|
|
|
|
|
|
|
478,697
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
18,109,747
|
|
|
|
|
|
|
|
|
|
|
|
19,788,695
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
1,230,690
|
|
|
|
|
|
|
|
|
|
|
|
1,198,075
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
19,340,437
|
|
|
|
|
|
|
|
|
|
|
$
|
20,986,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income/net interest
rate
spread (3)
|
|
|
|
|
|
$
|
106,025
|
|
|
|
2.25
|
%
|
|
|
|
|
|
$
|
103,083
|
|
|
|
1.98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest-earning assets/net
interest
margin (4)
|
|
$
|
562,521
|
|
|
|
|
|
|
|
2.32
|
%
|
|
$
|
634,729
|
|
|
|
|
|
|
|
2.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of interest-earning assets to
interest-bearing
liabilities
|
|
|
1.03
|
x
|
|
|
|
|
|
|
|
|
|
|
1.03
|
x
|
|
|
|
|
|
|
|
|
(1)
|
Mortgage
loans and consumer and other loans include loans held-for-sale and
non-performing loans and exclude the allowance for loan
losses.
|
(2)
|
Securities
available-for-sale are included at average amortized
cost.
|
(3)
|
Net
interest rate spread represents the difference between the average yield
on average interest-earning assets and the average cost of average
interest-bearing liabilities.
|
(4)
|
Net
interest margin represents net interest income divided by average
interest-earning assets.
|
|
|
For
the Nine Months Ended September 30,
|
|
|
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
|
|
$
|
11,856,597
|
|
|
$
|
408,640
|
|
|
|
4.60
|
%
|
|
$
|
12,194,836
|
|
|
$
|
465,252
|
|
|
|
5.09
|
%
|
Multi-family,
commercial
real
estate and construction
|
|
|
3,319,318
|
|
|
|
149,169
|
|
|
|
5.99
|
|
|
|
3,738,746
|
|
|
|
165,539
|
|
|
|
5.90
|
|
Consumer
and other loans (1)
|
|
|
328,264
|
|
|
|
7,975
|
|
|
|
3.24
|
|
|
|
337,229
|
|
|
|
8,095
|
|
|
|
3.20
|
|
Total
loans
|
|
|
15,504,179
|
|
|
|
565,784
|
|
|
|
4.87
|
|
|
|
16,270,811
|
|
|
|
638,886
|
|
|
|
5.24
|
|
Mortgage-backed
and other securities (2)
|
|
|
2,897,654
|
|
|
|
86,319
|
|
|
|
3.97
|
|
|
|
3,573,641
|
|
|
|
116,307
|
|
|
|
4.34
|
|
Repurchase
agreements and interest-
earning
cash accounts
|
|
|
181,366
|
|
|
|
257
|
|
|
|
0.19
|
|
|
|
255,594
|
|
|
|
394
|
|
|
|
0.21
|
|
FHLB-NY
stock
|
|
|
177,246
|
|
|
|
6,416
|
|
|
|
4.83
|
|
|
|
183,032
|
|
|
|
6,850
|
|
|
|
4.99
|
|
Total
interest-earning assets
|
|
|
18,760,445
|
|
|
|
658,776
|
|
|
|
4.68
|
|
|
|
20,283,078
|
|
|
|
762,437
|
|
|
|
5.01
|
|
Goodwill
|
|
|
185,151
|
|
|
|
|
|
|
|
|
|
|
|
185,151
|
|
|
|
|
|
|
|
|
|
Other
non-interest-earning assets
|
|
|
879,392
|
|
|
|
|
|
|
|
|
|
|
|
837,257
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
19,824,988
|
|
|
|
|
|
|
|
|
|
|
$
|
21,305,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
2,142,373
|
|
|
|
6,477
|
|
|
|
0.40
|
|
|
$
|
1,909,519
|
|
|
|
5,781
|
|
|
|
0.40
|
|
Money
market
|
|
|
336,482
|
|
|
|
1,117
|
|
|
|
0.44
|
|
|
|
313,747
|
|
|
|
1,733
|
|
|
|
0.74
|
|
NOW
and demand deposit
|
|
|
1,662,287
|
|
|
|
807
|
|
|
|
0.06
|
|
|
|
1,522,064
|
|
|
|
805
|
|
|
|
0.07
|
|
Liquid
CDs
|
|
|
626,625
|
|
|
|
2,281
|
|
|
|
0.49
|
|
|
|
927,424
|
|
|
|
9,641
|
|
|
|
1.39
|
|
Total
core deposits
|
|
|
4,767,767
|
|
|
|
10,682
|
|
|
|
0.30
|
|
|
|
4,672,754
|
|
|
|
17,960
|
|
|
|
0.51
|
|
Certificates
of deposit
|
|
|
7,689,649
|
|
|
|
138,500
|
|
|
|
2.40
|
|
|
|
8,852,402
|
|
|
|
230,109
|
|
|
|
3.47
|
|
Total
deposits
|
|
|
12,457,416
|
|
|
|
149,182
|
|
|
|
1.60
|
|
|
|
13,525,156
|
|
|
|
248,069
|
|
|
|
2.45
|
|
Borrowings
|
|
|
5,730,714
|
|
|
|
177,268
|
|
|
|
4.12
|
|
|
|
6,126,211
|
|
|
|
190,554
|
|
|
|
4.15
|
|
Total
interest-bearing liabilities
|
|
|
18,188,130
|
|
|
|
326,450
|
|
|
|
2.39
|
|
|
|
19,651,367
|
|
|
|
438,623
|
|
|
|
2.98
|
|
Non-interest-bearing
liabilities
|
|
|
416,514
|
|
|
|
|
|
|
|
|
|
|
|
458,474
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
18,604,644
|
|
|
|
|
|
|
|
|
|
|
|
20,109,841
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
1,220,344
|
|
|
|
|
|
|
|
|
|
|
|
1,195,645
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
19,824,988
|
|
|
|
|
|
|
|
|
|
|
$
|
21,305,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income/net interest
rate
spread (3)
|
|
|
|
|
|
$
|
332,326
|
|
|
|
2.29
|
%
|
|
|
|
|
|
$
|
323,814
|
|
|
|
2.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest-earning assets/net
interest
margin (4)
|
|
$
|
572,315
|
|
|
|
|
|
|
|
2.36
|
%
|
|
$
|
631,711
|
|
|
|
|
|
|
|
2.13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of interest-earning assets to
interest-bearing
liabilities
|
|
|
1.03
|
x
|
|
|
|
|
|
|
|
|
|
|
1.03
|
x
|
|
|
|
|
|
|
|
|
(1)
|
Mortgage
loans and consumer and other loans include loans held-for-sale and
non-performing loans and exclude the allowance for loan
losses.
|
(2)
|
Securities
available-for-sale are included at average amortized
cost.
|
(3)
|
Net
interest rate spread represents the difference between the average yield
on average interest-earning assets and the average cost of average
interest-bearing liabilities.
|
(4)
|
Net
interest margin represents net interest income divided by average
interest-earning assets.
|
Rate/Volume
Analysis
The
following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected our interest income and interest expense during the
periods indicated. Information is provided in each category
with
respect
to (1) the changes attributable to changes in volume (changes in volume
multiplied by prior rate), (2) the changes attributable to changes in rate
(changes in rate multiplied by prior volume), and (3) the net
change. The changes attributable to the combined impact of volume and
rate have been allocated proportionately to the changes due to volume and the
changes due to rate.
|
|
Three Months Ended September 30, 2010
Compared to
Three Months Ended September 30, 2009
|
|
Nine Months Ended September 30, 2010
Compared to
Nine Months Ended September 30, 2009
|
|
|
Increase (Decrease)
|
|
Increase (Decrease)
|
(In
Thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
(4,636
|
)
|
|
$
|
(12,193
|
)
|
|
$
|
(16,829
|
)
|
|
$
|
(12,662
|
)
|
|
$
|
(43,950
|
)
|
|
$
|
(56,612
|
)
|
Multi-family,
commercial real estate and construction
|
|
|
(6,100
|
)
|
|
|
1,599
|
|
|
|
(4,501
|
)
|
|
|
(18,854
|
)
|
|
|
2,484
|
|
|
|
(16,370
|
)
|
Consumer
and other loans
|
|
|
(87
|
)
|
|
|
(17
|
)
|
|
|
(104
|
)
|
|
|
(219
|
)
|
|
|
99
|
|
|
|
(120
|
)
|
Mortgage-backed
and other securities
|
|
|
(8,983
|
)
|
|
|
(1,661
|
)
|
|
|
(10,644
|
)
|
|
|
(20,671
|
)
|
|
|
(9,317
|
)
|
|
|
(29,988
|
)
|
Repurchase
agreements and interest-earning cash accounts
|
|
|
18
|
|
|
|
7
|
|
|
|
25
|
|
|
|
(103
|
)
|
|
|
(34
|
)
|
|
|
(137
|
)
|
FHLB-NY
stock
|
|
|
(42
|
)
|
|
|
(446
|
)
|
|
|
(488
|
)
|
|
|
(216
|
)
|
|
|
(218
|
)
|
|
|
(434
|
)
|
Total
|
|
|
(19,830
|
)
|
|
|
(12,711
|
)
|
|
|
(32,541
|
)
|
|
|
(52,725
|
)
|
|
|
(50,936
|
)
|
|
|
(103,661
|
)
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
256
|
|
|
|
-
|
|
|
|
256
|
|
|
|
696
|
|
|
|
-
|
|
|
|
696
|
|
Money
market
|
|
|
17
|
|
|
|
(79
|
)
|
|
|
(62
|
)
|
|
|
121
|
|
|
|
(737
|
)
|
|
|
(616
|
)
|
NOW
and demand deposit
|
|
|
21
|
|
|
|
-
|
|
|
|
21
|
|
|
|
91
|
|
|
|
(89
|
)
|
|
|
2
|
|
Liquid
CDs
|
|
|
(449
|
)
|
|
|
(570
|
)
|
|
|
(1,019
|
)
|
|
|
(2,456
|
)
|
|
|
(4,904
|
)
|
|
|
(7,360
|
)
|
Certificates
of deposit
|
|
|
(10,039
|
)
|
|
|
(18,361
|
)
|
|
|
(28,400
|
)
|
|
|
(27,366
|
)
|
|
|
(64,243
|
)
|
|
|
(91,609
|
)
|
Borrowings
|
|
|
(3,733
|
)
|
|
|
(2,546
|
)
|
|
|
(6,279
|
)
|
|
|
(11,948
|
)
|
|
|
(1,338
|
)
|
|
|
(13,286
|
)
|
Total
|
|
|
(13,927
|
)
|
|
|
(21,556
|
)
|
|
|
(35,483
|
)
|
|
|
(40,862
|
)
|
|
|
(71,311
|
)
|
|
|
(112,173
|
)
|
Net
change in net interest income
|
|
$
|
(5,903
|
)
|
|
$
|
8,845
|
|
|
$
|
2,942
|
|
|
$
|
(11,863
|
)
|
|
$
|
20,375
|
|
|
$
|
8,512
|
|
Interest
Income
Interest
income decreased $32.5 million to $209.6 million for the three months ended
September 30, 2010, from $242.1 million for the three months ended September 30,
2009, due to a decrease of $1.67 billion in the average balance of
interest-earning assets to $18.27 billion for the three months ended September
30, 2010, from $19.94 billion for the three months ended September 30, 2009,
coupled with a decrease in the average yield on interest-earning assets to 4.59%
for the three months ended September 30, 2010, from 4.86% for the three months
ended September 30, 2009. The decrease in the average balance of
interest-earning assets was primarily due to decreases in the average balances
of mortgage-backed and other securities, multi-family, commercial real estate
and construction loans and one-to-four family mortgage loans. 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, partially offset by an increase in the
average yield on multi-family, commercial real estate and construction
loans.
Interest
income on one-to-four family mortgage loans decreased $16.9 million to $130.9
million for the three months ended September 30, 2010, from $147.8 million for
the three months ended September 30, 2009, due to a decrease in the average
yield to 4.48% for the three months ended September 30, 2010, from 4.90% for the
three months ended September 30, 2009, coupled with a decrease of $393.4 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 an 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. Partially offsetting the decrease in the average yield on
one-to-four family mortgage loans was a decrease of $1.3 million in net premium
amortization on such loans to $8.0 million for the three months ended September
30, 2010, from $9.3 million for the three months ended September 30, 2009,
reflecting a decrease in mortgage loan prepayments for the three months ended
September 30, 2010, compared to the three months ended September 30,
2009.
Interest
income on multi-family, commercial real estate and construction loans decreased
$4.5 million to $48.4 million for the three months ended September 30, 2010,
from $52.9 million for the three months ended September 30, 2009, due to a
decrease of $409.2 million in the average balance of such loans, partially
offset by an increase in the average yield to 6.05% for the three months ended
September 30, 2010, from 5.87% for the three months ended September 30,
2009. The decrease in the average balance of multi-family, commercial
real estate and construction loans is attributable to repayments, the sale or
transfer to held-for-sale of certain delinquent and non-performing loans and the
absence of new multi-family, commercial real estate and construction loan
originations. The increase in the average yield on multi-family,
commercial real estate and construction loans reflects a decrease in
non-performing loans for the 2010 third quarter compared to the 2009 third
quarter, due primarily to the sale of certain delinquent and non-performing
loans over the past year, coupled with 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 increased $90,000 to $646,000 for the
three months ended September 30, 2010, from $556,000 for the three months ended
September 30, 2009.
Interest
income on mortgage-backed and other securities decreased $10.7 million to $25.3
million for the three months ended September 30, 2010, from $36.0 million for
the three months ended September 30, 2009, due to a decrease of $895.3 million
in the average balance of the portfolio, coupled with a decrease in the average
yield to 3.97% for the three months ended September 30, 2010, from 4.17% for the
three months ended September 30, 2009. The decrease in the average
balance of mortgage-backed and other securities was the result of repayments
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.
Interest
income decreased $103.6 million to $658.8 million for the nine months ended
September 30, 2010, from $762.4 million for the nine months ended September 30,
2009, due to a decrease of $1.52 billion in the average balance of
interest-earning assets to $18.76 billion for the nine months ended September
30, 2010, from $20.28 billion for the nine months ended September 30, 2009,
coupled with a decrease in the average yield on interest-earning assets to 4.68%
for the nine months ended September 30, 2010, from 5.01% for the nine months
ended September 30, 2009.
Interest
income on one-to-four family mortgage loans decreased $56.7 million to $408.6
million for the nine months ended September 30, 2010, from $465.3 million for
the nine months ended
September
30, 2009, due to a decrease in the average yield to 4.60% for the nine months
ended September 30, 2010, from 5.09% for the nine months ended September 30,
2009, coupled with a decrease of $338.2 million in the average balance of such
loans. Net premium amortization on one-to-four family mortgage loans
increased $774,000 to $23.4 million for the nine months ended September 30,
2010, from $22.6 million for the nine months ended September 30, 2009,
reflecting an increase in mortgage loan prepayments for the nine months ended
September 30, 2010, compared to the nine months ended September 30,
2009.
Interest
income on multi-family, commercial real estate and construction loans decreased
$16.3 million to $149.2 million for the nine months ended September 30, 2010,
from $165.5 million for the nine months ended September 30, 2009, due to a
decrease of $419.4 million in the average balance of such loans, partially
offset by an increase in the average yield to 5.99% for the nine months ended
September 30, 2010, from 5.90% for the nine months ended September 30,
2009. Prepayment penalties decreased $254,000 to $1.9 million for the
nine months ended September 30, 2010, from $2.1 million for the nine months
ended September 30, 2009.
Interest
income on mortgage-backed and other securities decreased $30.0 million to $86.3
million for the nine months ended September 30, 2010, from $116.3 million for
the nine months ended September 30, 2009. This decrease was the
result of a decrease of $676.0 million in the average balance of the portfolio,
coupled with a decrease in the average yield to 3.97% for the nine months ended
September 30, 2010, from 4.34% for the nine months ended September 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 nine months ended
September 30, 2010 are consistent with the principal reasons for the changes
noted for the three months ended September 30, 2010.
Interest
Expense
Interest
expense decreased $35.5 million to $103.5 million for the three months ended
September 30, 2010, from $139.0 million for the three months ended September 30,
2009, due to a decrease in the average cost of interest-bearing liabilities to
2.34% for the three months ended September 30, 2010, from 2.88% for the three
months ended September 30, 2009, coupled with a decrease of $1.61 billion in the
average balance of interest-bearing liabilities to $17.70 billion for the three
months ended September 30, 2010, from $19.31 billion for the three months ended
September 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, borrowings 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 total deposits decreased $29.2 million to $46.1 million for the three
months ended September 30, 2010, from $75.3 million for the three months ended
September 30, 2009, due to a decrease in the average cost to 1.52% for the three
months ended September 30, 2010, from 2.25% for the three months ended September
30, 2009, coupled with a decrease of $1.24 billion in the average balance of
total deposits to $12.18 billion for the three months ended September 30, 2010,
from $13.42 billion for the three months ended September 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 over the
past year 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 and NOW and demand deposit
accounts.
Interest
expense on certificates of deposit decreased $28.4 million to $42.5 million for
the three months ended September 30, 2010, from $70.9 million for the three
months ended September 30, 2009, due to a decrease in the average cost to 2.31%
for the three months ended September 30, 2010, from 3.25% for the three months
ended September 30, 2009, coupled with a decrease of $1.38 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 September 30, 2010, $901.9
million of certificates of deposit, with a weighted average rate of 1.99% and a
weighted average maturity at inception of fourteen months, matured and $740.7
million of certificates of deposit were issued or repriced, with a weighted
average rate of 1.34% and a weighted average maturity at inception of twenty-six
months.
Interest
expense on Liquid CDs decreased $1.0 million to $689,000 for the three months
ended September 30, 2010, from $1.7 million for the three months ended September
30, 2009, due to a decrease in the average cost to 0.47% for the three months
ended September 30, 2010, from 0.79% for the three months ended September 30,
2009, coupled with a decrease of $274.4 million in the average
balance. The decrease in the average cost of Liquid CDs reflects the
decline in short-term interest rates over the past year. 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 $6.3 million to $57.4 million for the three
months ended September 30, 2010, from $63.7 million for the three months ended
September 30, 2009, due to a decrease of $358.8 billion in the average balance,
coupled with a decrease in the average cost to 4.15% for the three months ended
September 30, 2010, from 4.33% for the three months ended September 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. The decrease in the
average cost of borrowings reflects the repayment of higher cost borrowings as
they matured and the downward repricing of borrowings which matured and were
refinanced over the past year.
Interest
expense decreased $112.1 million to $326.5 million for the nine months ended
September 30, 2010, from $438.6 million for the nine months ended September 30,
2009, due to a decrease in the average cost of interest-bearing liabilities to
2.39% for the nine months ended September 30, 2010, from 2.98% for the nine
months ended September 30, 2009, coupled with a decrease of $1.46 billion in the
average balance of interest-bearing liabilities to $18.19 billion for the nine
months ended September 30, 2010, from $19.65 billion for the nine months ended
September 30, 2009.
Interest
expense on total deposits decreased $98.9 million to $149.2 million for the nine
months ended September 30, 2010, from $248.1 million for the nine months ended
September 30, 2009,
due to a
decrease in the average cost to 1.60% for the nine months ended September 30,
2010, from 2.45% for the nine months ended September 30, 2009, coupled with a
decrease of $1.07 billion in the average balance of total deposits to $12.46
billion for the nine months ended September 30, 2010, from $13.53 billion for
the nine months ended September 30, 2009.
Interest
expense on certificates of deposit decreased $91.6 million to $138.5 million for
the nine months ended September 30, 2010, from $230.1 million for the nine
months ended September 30, 2009, due to a decrease in the average cost to 2.40%
for the nine months ended September 30, 2010, from 3.47% for the nine months
ended September 30, 2009, coupled with a decrease of $1.16 billion in the
average balance. During the nine months ended September 30, 2010,
$4.87 billion of certificates of deposit, with a weighted average rate of 2.47%
and a weighted average maturity at inception of thirteen months, matured and
$3.96 billion of certificates of deposit were issued or repriced, with a
weighted average rate of 1.44% and a weighted average maturity at inception of
nineteen months.
Interest
expense on Liquid CDs decreased $7.3 million to $2.3 million for the nine months
ended September 30, 2010, from $9.6 million for the nine months ended September
30, 2009, due to a decrease in the average cost to 0.49% for the nine months
ended September 30, 2010, from 1.39% for the nine months ended September 30,
2009, coupled with a decrease of $300.8 million in the average
balance.
Interest
expense on borrowings decreased $13.3 million to $177.3 million for the nine
months ended September 30, 2010, from $190.6 million for the nine months ended
September 30, 2009, due to a decrease of $395.5 million in the average balance,
coupled with a decrease in the average cost to 4.12% for the nine months ended
September 30, 2010, from 4.15% for the nine months ended September 30,
2009.
Except as
otherwise noted, the principal reasons for the changes in the average costs and
average balances of the various liabilities noted above for the nine months
ended September 30, 2010 are consistent with the principal reasons for the
changes noted for the three months ended September 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 nine months ended September 30, 2010,
the pace of the recovery appears to have moderated over the past six
months.
The
allowance for loan losses was $206.2 million at September 30, 2010, $211.0
million at June 30, 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 $30.0 million to $20.0 million for the three months ended September
30, 2010, from $50.0 million for the three months ended September 30, 2009, and
decreased $50.0 million to $100.0 million for the nine months ended September
30, 2010, from $150.0 million for the nine months ended September 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 1.38% at September
30, 2010, compared to 1.37% at June 30, 2010 and 1.23% at December 31, 2009,
reflecting an increase in the allowance for loan losses, coupled with a decrease
in total loans, at September 30, 2010 compared to December 31,
2009. The allowance for loan losses as a percentage of non-performing
loans increased to 51.61% at September 30, 2010, compared to 50.83% at June 30,
2010 and 47.49% at December 31, 2009, reflecting an increase in the allowance
for loan losses, coupled with a decrease in non-performing loans, at September
30, 2010 compared to December 31, 2009. Non-performing loans
decreased to $399.6 million at September 30, 2010, compared to $415.1 million at
June 30, 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.
When
analyzing our asset quality trends, consideration must be given to our
accounting for non-performing loans, particularly when reviewing our allowance
for loan losses to non-performing loans ratio. Included in our
non-performing loans are one-to-four family mortgage loans which are 180 days or
more past due. Our primary federal banking regulator, the OTS,
requires us to update our collateral values on one-to-four family mortgage loans
which are 180 days past due. If the estimated fair value of the loan
collateral less estimated selling costs is less than the recorded investment in
the loan, a charge-off of the difference is recorded to reduce the loan to its
fair value less estimated selling costs. Therefore, certain losses
inherent in our non-performing one-to-four family mortgage loans are being
recognized at 180 days of delinquency and annually thereafter and accordingly
are charged off. The impact of updating these estimates of collateral
value and recognizing any required charge-offs is to increase charge-offs and
reduce the allowance for loan losses required on these loans. In
effect, these loans have been written down to their fair value less estimated
selling costs and the inherent loss has been recognized. Therefore,
when reviewing the allowance for loan losses as a percentage of non-performing
loans, the impact of these charge-offs should be considered. At
September 30, 2010, non-performing loans included one-to-four family mortgage
loans which were 180 days or more past due totaling $247.8 million, net of the
charge-offs related to such loans, which had a related allowance for loan losses
totaling $7.3 million. Excluding one-to-four family mortgage loans
which were 180 days or more past due at September 30, 2010 and their related
allowance, the ratio of the allowance for loan losses to non-performing loans
would be approximately 131%, which is a non-GAAP financial measure, compared to
the ratio of the allowance for loan losses to non-performing loans of
approximately 52% noted above. The 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 September 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 third quarter, defined as the ratio of
net write-downs taken through disposition of the asset (typically the sale of
REO) to the loan’s original principal balance on one-to-four family mortgage
loans during the twelve months ended June 30, 2010, indicated an average loss
severity of approximately 26% compared to approximately 27% for the twelve
months ended March 31, 2010 and 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 June 30, 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 June 30, 2010, indicates an
average loss severity of approximately 41% compared to approximately 40% for the
twelve months ended March 31, 2010 and 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 52% at
September 30, 2010, which exceeds our average loss severity experience for
our mortgage loan portfolios, indicating that our allowance for loan losses
should be adequate to cover potential losses.
Net loan
charge-offs totaled $24.8 million, or sixty-five basis points of average loans
outstanding, annualized, for the three months ended September 30, 2010 and $87.8
million, or seventy-six basis points of average loans outstanding, annualized,
for the nine months ended September 30, 2010. This compares to net
loan charge-offs of $33.6 million, or eighty-four basis points of average loans
outstanding, annualized, for the three months ended September 30, 2009 and $92.4
million, or seventy-six basis points of average loans outstanding, annualized,
for the nine months ended September 30, 2009. The decrease in net
loan charge-offs for the three months ended September 30, 2010, compared to the
three months ended September 30, 2009, was primarily due to decreases in net
charge-offs on construction loans and one-to-four family mortgage loans,
partially offset by an increase in multi-family mortgage loan net
charge-offs. The decrease in net loan charge-offs for the nine months
ended September 30, 2010, compared to the nine months ended September 30, 2009,
was primarily due to decreases in net charge-offs on construction loans and
multi-family mortgage loans, partially offset by increases in net charge-offs on
commercial real estate loans and one-to-four family mortgage
loans. Our non-performing loans, which are comprised primarily of
mortgage loans, decreased $9.0 million to $399.6 million, or 2.68% of total
loans, at September 30, 2010, from $408.6 million, or 2.59% of total loans, at
December 31, 2009. This decrease was primarily due to a decrease of
$26.0 million in non-performing multi-family and commercial real estate loans,
partially offset by an increase of $15.7 million in non-performing one-to-four
family mortgage 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 nine months ended September 30, 2010
had not occurred, our non-performing loans would have
been
$78.8 million higher, which amount is gross of $27.0 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. During the 2010
third quarter, total delinquencies decreased primarily due to a decrease in
30-59 day delinquent loans, due in part to the two borrowing relationships at
June 30, 2010 discussed above which were current as of September 30, 2010,
coupled with decreases in non-performing loans and 60-89 day delinquent
loans. The unemployment rate increased slightly to 9.6% and there
were job losses for the quarter totaling 218,000 at the time of our
analysis. Net loan charge-offs decreased for the 2010 third quarter
compared to the 2010 second quarter. We continued to update our
charge-off and loss analysis during the 2010 third quarter and modified our
allowance coverage percentages accordingly. As a result of these
factors, our allowance for loan losses decreased compared to June 30, 2010 and
totaled $206.2 million at September 30, 2010 which resulted in a provision for
loan losses totaling $20.0 million for the three months ended September 30, 2010
and $100.0 million for the nine months ended September 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 September 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 decreased $1.5 million to $18.6 million for the three months ended
September 30, 2010, from $20.1 million for the three months ended September 30,
2009, primarily due to the absence of gain on sales of securities in 2010 and a
decrease in customer service fees, partially offset by an increase in other
non-interest income. For the nine months ended September 30, 2010,
non-interest income increased $4.0 million to $60.5 million, from $56.5 million
for the nine months ended September 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 the absence of gain on sales of securities in
2010 and decreases in customer service fees and mortgage banking income,
net.
Other
non-interest income increased $4.1 million to $2.2 million for the three months
ended September 30, 2010, from a loss of $1.9 million for the three months ended
September 30, 2009, primarily due to a $2.8 million lower of cost or market
write-down on non-performing loans held-for-sale recorded in the 2009 third
quarter and an increase in net gain on sales of non-performing loans
held-for-sale. For the nine months ended September 30, 2010, other
non-interest income increased $10.9 million to $9.3 million, from a loss of $1.6
million for the nine months ended September 30, 2009, primarily due to the $6.2
million Goodwill Litigation settlement payment we received in the 2010 second
quarter, the $2.8 million lower of cost or market write-down on non-performing
loans held-for-sale recorded in the 2009 third quarter, an increase in net gain
on sales of non-performing loans held-for-sale and losses recognized during the
nine months ended September 30, 2009 in a trust account previously established
for certain former directors. For further information regarding
the Goodwill Litigation settlement, see Part II, Item 1, “Legal Proceedings,” in
our June 30, 2010 Quarterly Report on Form 10-Q. In addition, other
non-interest income includes asset impairment charges totaling $1.5 million for
the nine months ended September 30, 2010 and $1.6 million for the nine months
ended September 30, 2009 related to an office building previously held-for-sale
included in premises and equipment, net.
There
were no sales of securities from the available-for-sale portfolio during the
three and nine months ended September 30, 2010. During the three
months ended September 30, 2009, we sold mortgage-backed securities from the
available-for-sale portfolio with an amortized cost of $87.6 million resulting
in gross realized gains totaling $3.8 million and during the nine months ended
September 30, 2009, we sold mortgage-backed securities from the
available-for-sale portfolio with an amortized cost of $176.9 million resulting
in gross realized gains totaling $5.9 million.
Customer
service fees decreased $1.7 million to $12.5 million for the three months ended
September 30, 2010, from $14.2 million for the three months ended September 30,
2009, and decreased $4.2 million to $39.1 million for the nine months ended
September 30, 2010, from $43.3 million for the nine months ended September 30,
2009. These decreases were primarily due to decreases in commissions
on sales of annuities and overdraft fees related to transaction
accounts.
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 $2.0 million to $2.8 million for the nine months
ended September 30, 2010, from $4.8 million for the nine months ended September
30, 2009, primarily due to a decrease in net gain on sales of
loans. The decrease in net gain on sales of loans reflects a decrease
in the volume of loans sold, as well as less favorable pricing opportunities
during the first half of 2010. During the nine months ended September
30, 2010, we sold $179.8 million of conforming fixed rate one-to-four family
mortgage loans, compared to $320.0 million during the nine months ended
September 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. Interest rates for such loans fell below 5.00%
during the latter part of the 2010 second quarter and we have recently seen an
increase in the application volume.
Non-Interest
Expense
Non-interest
expense increased $7.7 million to $70.9 million for the three months ended
September 30, 2010, from $63.2 million for the three months ended September 30,
2009, primarily due to increases in compensation and benefits expense and other
non-interest expense. Non-interest expense increased $11.8 million to
$215.0 million for the nine months ended September 30, 2010, from $203.2 million
for the nine months ended September 30, 2009, primarily due to increases in
other non-interest expense, compensation and benefits expense and FDIC insurance
premiums, partially offset by the FDIC special assessment recorded in the 2009
second quarter. Our percentage of general and administrative expense
to average assets, annualized, increased to 1.47% for the three months ended
September 30, 2010, from 1.21% for the three months ended September 30, 2009,
and increased to 1.45% for the nine months ended September 30, 2010, from 1.27%
for the nine months ended September 30, 2009. The increases in these
ratios were due to the increases in general and administrative expenses, coupled
with the decreases in average assets, for the three and nine months ended
September 30, 2010, compared to the three and nine months ended September 30,
2009.
Compensation
and benefits expense increased $4.1 million to $36.0 million for the three
months ended September 30, 2010, from $31.9 million for the three months ended
September 30, 2009, and increased $6.7 million to $105.9 million for the nine
months ended September 30, 2010, from $99.2 million for the nine months ended
September 30, 2009. These increases were primarily due to increases
in ESOP related expense, officer incentive accruals and stock-based compensation
costs, 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.
Other
non-interest expense increased $2.6 million to $10.1 million for the three
months ended September 30, 2010, from $7.5 million for the three months ended
September 30, 2009, primarily due to increases in REO related expense and legal
fees. For the nine months ended September 30, 2010, other
non-interest expense increased $10.9 million to $35.2 million, from $24.3
million for the nine months ended September 30, 2009, primarily due to the $7.9
million McAnaney Litigation settlement recorded in the 2010 second quarter,
coupled with increases in REO related expense and legal fees. REO
related expense totaled $2.8 million for the three months ended September 30,
2010, compared to $840,000 for the three months ended September 30, 2009, and
$6.5 million for the nine months ended September 30, 2010, compared to $5.1
million for the nine months ended September 30, 2009. For further
information regarding the McAnaney Litigation settlement, see Part II, Item 1,
“Legal Proceedings.”
FDIC
insurance premiums increased $2.0 million to $19.7 million for the nine months
ended September 30, 2010, from $17.7 million for the nine months ended September
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 six basis points for the nine
months ended September 30, 2009.
On
October 19, 2010, the Board of Directors of the FDIC adopted a new restoration
plan to ensure that the DIF reserve ratio reaches 1.35% by September 30, 2020,
as required by the Reform Act. Among other things, the new
restoration plan provides that the FDIC will forego the uniform three basis
point increase in initial assessments rates that was previously scheduled to
take effect on January 1, 2011. The FDIC intends to pursue further
rulemaking in 2011 regarding the method that will be used to reach the reserve
ratio of 1.35% by September 30, 2020 so that more of the cost of raising the
reserve ratio to 1.35% will be borne by institutions with more than $10 billion
in assets, such as Astoria Federal.
Income Tax
Expense
For the
three months ended September 30, 2010, income tax expense totaled $12.3 million,
representing an effective tax rate of 36.4%, compared to $1.9 million for the
three months ended September 30, 2009, representing an effective tax rate of
18.9%. For the nine months ended September 30, 2010, income tax
expense totaled $27.9 million, representing an effective tax rate of 35.8%,
compared to $7.5 million for the nine months ended September 30, 2009,
representing an effective tax rate of 27.7%. The increases in the
effective tax rate for the three and nine months ended September 30, 2010,
compared to the three and nine months ended September 30, 2009, reflects
significant increases in pre-tax book income without any significant changes in
net favorable permanent differences, coupled with a decrease in net unrecognized
tax benefits and related accrued interest resulting from the release of accruals
for previous tax positions that were settled with taxing authorities during the
three and nine months ended September 30,
2009.
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 September 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 September 30, 2010,
full documentation loans comprised 84% of our one-to-four family mortgage loan
portfolio, compared to 83% at December 31, 2009. At September 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 September 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)
|
|
$
|
4,081,438
|
|
|
|
35.90
|
%
|
|
$
|
4,688,796
|
|
|
|
39.42
|
%
|
Full
documentation amortizing
|
|
|
5,450,842
|
|
|
|
47.95
|
|
|
|
5,152,021
|
|
|
|
43.31
|
|
Reduced
documentation interest-only (1)(2)
|
|
|
1,388,981
|
|
|
|
12.21
|
|
|
|
1,576,378
|
|
|
|
13.25
|
|
Reduced
documentation amortizing (2)
|
|
|
447,603
|
|
|
|
3.94
|
|
|
|
478,167
|
|
|
|
4.02
|
|
Total
one-to-four family
|
|
$
|
11,368,864
|
|
|
|
100.00
|
%
|
|
$
|
11,895,362
|
|
|
|
100.00
|
%
|
Multi-family
and commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
documentation amortizing
|
|
$
|
2,677,220
|
|
|
|
86.29
|
%
|
|
$
|
2,861,607
|
|
|
|
83.53
|
%
|
Full
documentation interest-only
|
|
|
425,287
|
|
|
|
13.71
|
|
|
|
564,255
|
|
|
|
16.47
|
|
Total
multi-family and commercial real estate
|
|
$
|
3,102,507
|
|
|
|
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 $3.05
billion at September 30, 2010 and $3.50 billion at December 31,
2009.
|
(2)
|
One-to-four
family reduced documentation loans include SISA loans totaling $282.0
million at September 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. During the 2010 third quarter,
we stopped offering interest-only loans. 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 to new borrowers.
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;
low or no cash reserves; current loan-to-value ratios over 90%; short-term
interest-only periods 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 September 30, 2010,
one-to-four family mortgage loans which had FICO scores available on our
mortgage loan system totaled $9.84 billion, or 87% of our total one-to-four
family mortgage loan portfolio, of which $488.9 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 September 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 September 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 13% of our one-to-four
family mortgage loans at September 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 September 30, 2010, 66% are amortizing hybrid ARM loans, 26% 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 September 30, 2010
|
|
At December 31, 2009
|
Non-accrual
delinquent mortgage loans
|
|
$
|
393,990
|
|
|
$
|
403,148
|
|
Non-accrual
delinquent consumer and other loans
|
|
|
5,011
|
|
|
|
4,824
|
|
Mortgage
loans delinquent 90 days or more and
|
|
|
|
|
|
|
|
|
still
accruing interest (1)
|
|
|
619
|
|
|
|
600
|
|
Total
non-performing loans (2)
|
|
|
399,620
|
|
|
|
408,572
|
|
REO,
net (3)
|
|
|
64,763
|
|
|
|
46,220
|
|
Total
non-performing assets
|
|
$
|
464,383
|
|
|
$
|
454,792
|
|
Non-performing
loans to total loans
|
|
|
2.68
|
%
|
|
|
2.59
|
%
|
Non-performing
loans to total assets
|
|
|
2.11
|
|
|
|
2.02
|
|
Non-performing
assets to total assets
|
|
|
2.45
|
|
|
|
2.25
|
|
Allowance
for loan losses to non-performing loans
|
|
|
51.61
|
|
|
|
47.49
|
|
Allowance
for loan losses to total loans
|
|
|
1.38
|
|
|
|
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 $39.0
million at September 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 $1.7 million at September 30, 2010 and
$816,000 at December 31, 2009.
|
Total
non-performing assets increased $9.6 million to $464.4 million at September 30,
2010, from $454.8 million at December 31, 2009. This increase was due
to an increase of $18.6 million in REO, net, partially offset by a decrease in
non-performing loans. Non-performing loans, the most significant
component of non-performing assets, decreased $9.0 million to $399.6 million at
September 30, 2010, from $408.6 million at December 31, 2009. This
decrease was primarily due to a decrease of $26.0 million in non-performing
multi-family and commercial real estate loans, partially offset by an increase
of $15.7 million in non-performing one-to-four family mortgage
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 September 30, 2010. The ratio of
non-performing loans to total loans increased to 2.68% at September 30, 2010,
from 2.59% at December 31, 2009. The ratio of non-performing assets
to total assets increased to 2.45% at September 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 nine months ended September 30, 2010, we sold $36.4
million, net of $20.9 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 $17.4 million, net of $8.2
million in charge-offs, at September 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 September 30, 2010 our non-performing loans and non-performing
assets would have been $78.8 million higher and our allowance for loan losses
would have been $27.0 million higher. Additionally, the ratio of
non-performing loans to total loans would have been 53 basis points higher, the
ratio of non-performing assets to total assets would have been 42 basis points
higher and the ratio of the allowance for loan losses to non-performing loans
would have been 286 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 September 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
|
|
$
|
109,624
|
|
|
|
31.71
|
%
|
|
$
|
106,441
|
|
|
|
32.25
|
%
|
Full
documentation amortizing
|
|
|
44,878
|
|
|
|
12.98
|
|
|
|
40,875
|
|
|
|
12.38
|
|
Reduced
documentation interest-only
|
|
|
158,567
|
|
|
|
45.86
|
|
|
|
158,164
|
|
|
|
47.92
|
|
Reduced
documentation amortizing
|
|
|
32,675
|
|
|
|
9.45
|
|
|
|
24,602
|
|
|
|
7.45
|
|
Total
non-performing one-to-four family
|
|
$
|
345,744
|
|
|
|
100.00
|
%
|
|
$
|
330,082
|
|
|
|
100.00
|
%
|
Non-performing
multi-family and commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
documentation amortizing
|
|
$
|
27,551
|
|
|
|
65.28
|
%
|
|
$
|
42,637
|
|
|
|
62.51
|
%
|
Full
documentation interest-only
|
|
|
14,656
|
|
|
|
34.72
|
|
|
|
25,571
|
|
|
|
37.49
|
|
Total
non-performing multi-family and commercial real estate
|
|
$
|
42,207
|
|
|
|
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 September 30,
2010.
|
|
One-to-Four Family Mortgage Loans
|
|
|
At September
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
|
|
$
|
3,119.2
|
|
|
|
27.4
|
%
|
|
$
|
48.8
|
|
|
|
14.1
|
%
|
|
|
1.56
|
%
|
Illinois
|
|
|
1,430.9
|
|
|
|
12.6
|
|
|
|
51.1
|
|
|
|
14.8
|
|
|
|
3.57
|
|
Connecticut
|
|
|
1,057.6
|
|
|
|
9.3
|
|
|
|
30.9
|
|
|
|
8.9
|
|
|
|
2.92
|
|
California
|
|
|
911.7
|
|
|
|
8.0
|
|
|
|
41.3
|
|
|
|
11.9
|
|
|
|
4.53
|
|
New
Jersey
|
|
|
853.7
|
|
|
|
7.5
|
|
|
|
50.0
|
|
|
|
14.5
|
|
|
|
5.86
|
|
Massachusetts
|
|
|
787.3
|
|
|
|
6.9
|
|
|
|
11.8
|
|
|
|
3.4
|
|
|
|
1.50
|
|
Virginia
|
|
|
707.4
|
|
|
|
6.2
|
|
|
|
16.9
|
|
|
|
4.9
|
|
|
|
2.39
|
|
Maryland
|
|
|
699.0
|
|
|
|
6.1
|
|
|
|
41.9
|
|
|
|
12.1
|
|
|
|
5.99
|
|
Washington
|
|
|
330.7
|
|
|
|
2.9
|
|
|
|
0.6
|
|
|
|
0.2
|
|
|
|
0.18
|
|
Florida
|
|
|
236.2
|
|
|
|
2.1
|
|
|
|
26.9
|
|
|
|
7.8
|
|
|
|
11.39
|
|
All
other states (1)
|
|
|
1,235.2
|
|
|
|
11.0
|
|
|
|
25.5
|
|
|
|
7.4
|
|
|
|
2.06
|
|
Total
|
|
$
|
11,368.9
|
|
|
|
100.0
|
%
|
|
$
|
345.7
|
|
|
|
100.0
|
%
|
|
|
3.04
|
%
|
(1)
|
Includes
28 states and Washington, D.C.
|
At
September 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 90% in the New York metropolitan area, 7% in Florida and 3%
in Illinois.
We
discontinue accruing interest on loans when they become 90 days delinquent as to
their payment due date. In addition, we reverse all previously
accrued and uncollected interest through a charge to interest
income. While loans are in non-accrual status, interest due is
monitored and income is recognized only to the extent cash is received until a
return to accrual status is warranted.
If all
non-accrual loans at September 30, 2010 and 2009 had been performing in
accordance with their original terms, we would have recorded interest income,
with respect to such loans, of $18.4 million for the nine months ended September
30, 2010 and $18.8 million for the nine months ended September 30,
2009. This compares to actual payments recorded as interest income,
with respect to such loans, of $6.1 million for the nine months ended September
30, 2010 and $6.4 million for the nine months ended September 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 $53.5 million at September 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
$39.0 million at September 30, 2010 and $26.0 million at December 31,
2009.
In
addition to non-performing loans, we had $167.5 million of potential problem
loans at September 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 September 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
September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
|
439
|
|
|
$
|
147,078
|
|
|
|
173
|
|
|
$
|
64,873
|
|
|
|
1,039
|
|
|
$
|
345,744
|
|
Multi-family
|
|
|
44
|
|
|
|
22,106
|
|
|
|
6
|
|
|
|
3,972
|
|
|
|
38
|
|
|
|
38,521
|
|
Commercial
real estate
|
|
|
8
|
|
|
|
7,949
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
3,686
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
6,658
|
|
Consumer
and other loans
|
|
|
87
|
|
|
|
4,498
|
|
|
|
34
|
|
|
|
1,514
|
|
|
|
51
|
|
|
|
5,011
|
|
Total
delinquent loans
|
|
|
578
|
|
|
$
|
181,631
|
|
|
|
213
|
|
|
$
|
70,359
|
|
|
|
1,133
|
|
|
$
|
399,620
|
|
Delinquent
loans to total loans
|
|
|
|
|
|
|
1.22
|
%
|
|
|
|
|
|
|
0.47
|
%
|
|
|
|
|
|
|
2.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Nine
Months Ended
September 30, 2010
|
Balance
at January 1, 2010
|
|
$
|
194,049
|
|
Provision
charged to operations
|
|
|
100,000
|
|
Charge-offs:
|
|
|
|
|
One-to-four
family
|
|
|
(66,897
|
)
|
Multi-family
|
|
|
(24,055
|
)
|
Commercial
real estate
|
|
|
(6,970
|
)
|
Construction
|
|
|
(1,470
|
)
|
Consumer
and other loans
|
|
|
(1,812
|
)
|
Total
charge-offs
|
|
|
(101,204
|
)
|
Recoveries:
|
|
|
|
|
One-to-four
family
|
|
|
10,926
|
|
Multi-family
|
|
|
1,661
|
|
Commercial
real estate
|
|
|
725
|
|
Consumer
and other loans
|
|
|
74
|
|
Total
recoveries
|
|
|
13,386
|
|
Net
charge-offs (1)
|
|
|
(87,818
|
)
|
Balance
at September 30, 2010
|
|
$
|
206,231
|
|
|
(1)
|
Includes
$30.6 million of net charge-offs related to one-to-four family reduced
documentation mortgage loans and $27.0 million of net charge-offs related
to certain delinquent and non-performing loans transferred to
held-for-sale.
|
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
September 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 $2.83 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. In addition, the Gap
Table includes a callable security, with an amortized cost of $25.0 million,
classified according to its maturity date, in the more than five years category,
which is callable within one year and at various times
thereafter. The classification of callable borrowings and securities
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 September 30, 2010 was negative 0.61% compared to negative 6.77% at
December 31, 2009. The change in the one-year cumulative gap is
primarily due to a decrease in projected certificates of deposit maturing and/or
repricing within one year at September 30, 2010, compared to December 31,
2009.
|
|
At September
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)
|
|
$
|
5,062,277
|
|
|
$
|
4,752,922
|
|
|
$
|
3,452,414
|
|
|
$
|
860,167
|
|
|
$
|
14,127,780
|
|
Consumer
and other loans (1)
|
|
|
309,545
|
|
|
|
4,490
|
|
|
|
31
|
|
|
|
282
|
|
|
|
314,348
|
|
Repurchase
agreements and interest-earning cash accounts
|
|
|
236,295
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
236,295
|
|
Securities
available-for-sale
|
|
|
204,241
|
|
|
|
235,055
|
|
|
|
145,561
|
|
|
|
48,536
|
|
|
|
633,393
|
|
Securities
held-to-maturity
|
|
|
765,013
|
|
|
|
753,795
|
|
|
|
251,476
|
|
|
|
153,436
|
|
|
|
1,923,720
|
|
FHLB-NY
stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
163,501
|
|
|
|
163,501
|
|
Total
interest-earning assets
|
|
|
6,577,371
|
|
|
|
5,746,262
|
|
|
|
3,849,482
|
|
|
|
1,225,922
|
|
|
|
17,399,037
|
|
Net
unamortized purchase premiums and deferred costs (2)
|
|
|
37,777
|
|
|
|
33,897
|
|
|
|
23,518
|
|
|
|
6,209
|
|
|
|
101,401
|
|
Net
interest-earning assets (3)
|
|
|
6,615,148
|
|
|
|
5,780,159
|
|
|
|
3,873,000
|
|
|
|
1,232,131
|
|
|
|
17,500,438
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
145,249
|
|
|
|
290,498
|
|
|
|
290,498
|
|
|
|
1,508,361
|
|
|
|
2,234,606
|
|
Money
market
|
|
|
178,889
|
|
|
|
72,018
|
|
|
|
72,018
|
|
|
|
26,958
|
|
|
|
349,883
|
|
NOW
and demand deposit
|
|
|
144,386
|
|
|
|
288,772
|
|
|
|
288,772
|
|
|
|
940,070
|
|
|
|
1,662,000
|
|
Liquid
CDs
|
|
|
546,626
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
546,626
|
|
Certificates
of deposit
|
|
|
4,325,543
|
|
|
|
2,064,059
|
|
|
|
924,569
|
|
|
|
-
|
|
|
|
7,314,171
|
|
Borrowings,
net
|
|
|
1,390,628
|
|
|
|
1,543,617
|
|
|
|
400,000
|
|
|
|
1,878,866
|
|
|
|
5,213,111
|
|
Total
interest-bearing liabilities
|
|
|
6,731,321
|
|
|
|
4,258,964
|
|
|
|
1,975,857
|
|
|
|
4,354,255
|
|
|
|
17,320,397
|
|
Interest
sensitivity gap
|
|
|
(116,173
|
)
|
|
|
1,521,195
|
|
|
|
1,897,143
|
|
|
|
(3,122,124
|
)
|
|
$
|
180,041
|
|
Cumulative
interest sensitivity gap
|
|
$
|
(116,173
|
)
|
|
$
|
1,405,022
|
|
|
$
|
3,302,165
|
|
|
$
|
180,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
interest sensitivity gap as a percentage of total assets
|
|
|
(0.61
|
)%
|
|
|
7.42
|
%
|
|
|
17.44
|
%
|
|
|
0.95
|
%
|
|
|
|
|
Cumulative
net interest-earning assets as a percentage of interest-bearing
liabilities
|
|
|
98.27
|
%
|
|
|
112.78
|
%
|
|
|
125.47
|
%
|
|
|
101.04
|
%
|
|
|
|
|
(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 October 1, 2010 would increase by approximately 2.74%
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 October 1,
2010 would decrease by approximately 3.23% 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 October 1, 2010 would increase
by approximately $5.0 million. Conversely, assuming the entire yield
curve was to decrease 100
basis
points, through quarterly parallel decrements of 25 basis points, our projected
net income for the twelve month period beginning October 1, 2010 would decrease
by approximately $2.9 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 September 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 September 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.
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
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, 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, which received preliminary approval from the
District Court on September 13, 2010, is subject to final approval by the
District Court. The settlement was recognized in other non-interest
expense in our consolidated statements of income during the 2010 second
quarter.
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.
We cannot
at this time estimate the possible loss or range of loss, if any. 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.
City of New York Notice of
Determination
By
“Notice of Determination” dated September 14, 2010, the City of New York has
notified us of an alleged tax deficiency in the amount of $5.2 million,
including interest and penalties, related to our 2006 tax year. The
deficiency relates to our operation of two subsidiaries of Astoria Federal,
Fidata and AF Mortgage. Fidata is a passive investment company
which
maintains
offices in Connecticut. AF Mortgage is an operating subsidiary
through which Astoria Federal engages in lending activities outside the State of
New York. We disagree with the assertion of the tax deficiency and we
intend to file a Petition for Hearing with the City of New York to oppose the
Notice of Determination. At this time, management believes it is more
likely than not that we will succeed in refuting the City of New York’s
position, although defense costs may be significant. Accordingly, no
liability or reserve has been recognized in our consolidated statement of
financial condition at September 30, 2010 with respect to this
matter.
No
assurance can be given as to whether or to what extent we will be required to
pay the amount of the tax deficiency asserted by the City of New York, whether
additional tax will be assessed for years subsequent to 2006, that this matter
will not be costly to oppose, that this matter 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 and June 30, 2010 Quarterly Reports on Form
10-Q. There are no other material changes in risk factors relevant to
our operations since June 30, 2010 except as discussed below.
The
recently publicized foreclosure issues affecting the nation’s largest mortgage
loan servicers could impact our foreclosure process and timing to completion of
foreclosures.
Several
of the nation’s largest mortgage loan servicers have experienced highly
publicized issues with respect to their foreclosure processes. As a
result, some of these servicers have self imposed moratoriums on their
foreclosures and have been the subject of state attorney general scrutiny and
consumer lawsuits. In light of these issues, we have reviewed our
foreclosure policies and procedures and have not found it necessary to interrupt
any foreclosures. These foreclosure process issues and the potential
legal and regulatory responses could impact the foreclosure process and timing
to completion of foreclosures for residential mortgage lenders, including
Astoria Federal. Over the past few years, foreclosure timelines have
increased due to, among other reasons, delays associated with the significant
increase in the number of foreclosure cases as a result of the economic crisis,
additional consumer protection initiatives related to the foreclosure process
and voluntary and, in some cases, mandatory programs intended to permit or
require lenders to consider loan modifications or other alternatives to
foreclosure. Further increases in the foreclosure timeline may have
an adverse effect on collateral values and our ability to minimize our
losses.
Our
ability to originate mortgage loans for portfolio has been adversely affected by
the increased competition resulting from the unprecedented involvement of the
U.S. government and GSEs in the residential mortgage market.
Over the
past few years, we have faced increased competition for mortgage loans due to
the unprecedented involvement of the GSEs in the mortgage market as a result of
the recent economic crisis, which has caused the interest rate for thirty year
fixed rate mortgage loans that conform to GSE guidelines to remain artificially
low. In addition, the U.S. Congress recently extended through
September 2011 the expanded conforming loan limits in many of our operating
markets, allowing larger balance loans to continue to be acquired by the
GSEs. As a result, more
loans in
our portfolio qualified under the expanded conforming loan limits and were
refinanced into conforming fixed rate mortgages which we originate but do not
retain for portfolio. We expect that our one-to-four family mortgage
loan repayments will remain at elevated levels and will continue to outpace our
loan production as a result of these factors, making it difficult for us to grow
our mortgage loan portfolio and balance sheet.
ITEM
2. Unregistered Sales of Equity Securities and Use of
Proceeds
During
the nine months ended September 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 September 30,
2010, a maximum of 8,107,300 shares may yet be purchased under this
plan. As of September 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 67.
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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Astoria
Financial Corporation
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Dated:
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November 5, 2010
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By:
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/s/
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Frank E. Fusco
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Frank
E. Fusco
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Executive
Vice President,
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Treasurer
and Chief Financial Officer
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(Principal
Accounting Officer)
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ASTORIA
FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
OF EXHIBITS
Exhibit No.
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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 September 30,
2010 formatted in XBRL: (1) Consolidated Statements of Financial Condition
at September 30, 2010 and December 31, 2009; (2) Consolidated Statements
of Income for the three and nine months ended September 30, 2010 and 2009;
(3) Consolidated Statement of Changes in Stockholders’ Equity for the nine
months ended September 30, 2010; (4) Consolidated Statements of Cash Flows
for the nine months ended September 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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