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, 2012
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 26, 2012 |
$0.01 Par Value |
| 98,419,939 |
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| Page |
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PART I — FINANCIAL INFORMATION | ||
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Item 1. | Financial Statements (Unaudited): |
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| Consolidated Statements of Financial Condition at September 30, 2012 and December 31, 2011 | 2 |
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| Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2012 and 2011 | 3 |
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| 4 | |
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| 5 | |
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| Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 | 6 |
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| 7 | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 31 | |
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73 | ||
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76 | ||
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76 | ||
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78 | ||
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79 | ||
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79 | ||
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79 | ||
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79 | ||
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79 | ||
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| 79 |
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
|
| (Unaudited) |
|
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| ||
(In Thousands, Except Share Data) |
| At September 30, 2012 |
| At December 31, 2011 |
| ||
Assets: |
|
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|
|
| ||
Cash and due from banks |
| $ | 113,573 |
| $ | 132,704 |
|
Available-for-sale securities: |
|
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|
|
| ||
Encumbered |
| 111,134 |
| 268,725 |
| ||
Unencumbered |
| 214,724 |
| 75,462 |
| ||
Total available-for-sale securities |
| 325,858 |
| 344,187 |
| ||
Held-to-maturity securities, fair value of $1,982,663 and $2,176,925, respectively: |
|
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| ||
Encumbered |
| 1,315,956 |
| 1,601,003 |
| ||
Unencumbered |
| 636,982 |
| 529,801 |
| ||
Total held-to-maturity securities |
| 1,952,938 |
| 2,130,804 |
| ||
Federal Home Loan Bank of New York stock, at cost |
| 181,832 |
| 131,667 |
| ||
Loans held-for-sale, net |
| 20,877 |
| 32,394 |
| ||
Loans receivable |
| 13,559,087 |
| 13,274,604 |
| ||
Allowance for loan losses |
| (148,472) |
| (157,185) |
| ||
Loans receivable, net |
| 13,410,615 |
| 13,117,419 |
| ||
Mortgage servicing rights, net |
| 7,147 |
| 8,136 |
| ||
Accrued interest receivable |
| 46,348 |
| 46,528 |
| ||
Premises and equipment, net |
| 116,877 |
| 119,946 |
| ||
Goodwill |
| 185,151 |
| 185,151 |
| ||
Bank owned life insurance |
| 415,789 |
| 409,637 |
| ||
Real estate owned, net |
| 30,825 |
| 48,059 |
| ||
Other assets |
| 230,276 |
| 315,423 |
| ||
Total assets |
| $ | 17,038,106 |
| $ | 17,022,055 |
|
Liabilities: |
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| ||
Deposits: |
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| ||
Savings |
| $ | 2,811,647 |
| $ | 2,750,715 |
|
Money market |
| 1,438,287 |
| 1,114,404 |
| ||
NOW and demand deposit |
| 1,964,636 |
| 1,861,488 |
| ||
Certificates of deposit |
| 4,324,312 |
| 5,519,007 |
| ||
Total deposits |
| 10,538,882 |
| 11,245,614 |
| ||
Reverse repurchase agreements |
| 1,300,000 |
| 1,700,000 |
| ||
Federal Home Loan Bank of New York advances |
| 3,133,000 |
| 2,043,000 |
| ||
Other borrowings, net |
| 376,366 |
| 378,573 |
| ||
Mortgage escrow funds |
| 132,077 |
| 110,841 |
| ||
Accrued expenses and other liabilities |
| 262,707 |
| 292,829 |
| ||
Total liabilities |
| 15,743,032 |
| 15,770,857 |
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Stockholders’ Equity: |
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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 98,417,939 and 98,537,715 shares outstanding, respectively) |
| 1,665 |
| 1,665 |
| ||
Additional paid-in capital |
| 883,354 |
| 875,395 |
| ||
Retained earnings |
| 1,877,998 |
| 1,861,592 |
| ||
Treasury stock (68,076,949 and 67,957,173 shares, at cost, respectively) |
| (1,406,784) |
| (1,404,311) |
| ||
Accumulated other comprehensive loss |
| (56,415) |
| (75,661) |
| ||
Unallocated common stock held by ESOP (1,295,073 and 2,042,367 shares, respectively) |
| (4,744) |
| (7,482) |
| ||
Total stockholders’ equity |
| 1,295,074 |
| 1,251,198 |
| ||
Total liabilities and stockholders’ equity |
| $ | 17,038,106 |
| $ | 17,022,055 |
|
See accompanying Notes to Consolidated Financial Statements.
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
|
| For the |
| For the |
| ||||||||
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
(In Thousands, Except Share Data) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
Interest income: |
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Residential mortgage loans |
| $ | 91,490 |
| $ | 105,769 |
| $ | 286,236 |
| $ | 332,314 |
|
Multi-family and commercial real estate mortgage loans |
| 38,127 |
| 39,338 |
| 111,088 |
| 124,915 |
| ||||
Consumer and other loans |
| 2,309 |
| 2,461 |
| 6,944 |
| 7,477 |
| ||||
Mortgage-backed and other securities |
| 14,453 |
| 19,670 |
| 49,445 |
| 63,432 |
| ||||
Repurchase agreements and interest-earning cash accounts |
| 182 |
| 54 |
| 282 |
| 221 |
| ||||
Federal Home Loan Bank of New York stock |
| 1,773 |
| 1,432 |
| 4,928 |
| 5,386 |
| ||||
Total interest income |
| 148,334 |
| 168,724 |
| 458,923 |
| 533,745 |
| ||||
Interest expense: |
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Deposits |
| 22,119 |
| 33,486 |
| 78,479 |
| 106,156 |
| ||||
Borrowings |
| 40,217 |
| 44,594 |
| 119,581 |
| 139,694 |
| ||||
Total interest expense |
| 62,336 |
| 78,080 |
| 198,060 |
| 245,850 |
| ||||
Net interest income |
| 85,998 |
| 90,644 |
| 260,863 |
| 287,895 |
| ||||
Provision for loan losses |
| 9,500 |
| 10,000 |
| 29,500 |
| 27,000 |
| ||||
Net interest income after provision for loan losses |
| 76,498 |
| 80,644 |
| 231,363 |
| 260,895 |
| ||||
Non-interest income: |
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Customer service fees |
| 10,487 |
| 11,867 |
| 30,480 |
| 35,696 |
| ||||
Other loan fees |
| 545 |
| 637 |
| 1,937 |
| 2,374 |
| ||||
Gain on sales of securities |
| — |
| — |
| 2,477 |
| — |
| ||||
Mortgage banking income, net |
| 2,015 |
| 40 |
| 5,147 |
| 2,843 |
| ||||
Income from bank owned life insurance |
| 2,446 |
| 2,738 |
| 7,073 |
| 7,602 |
| ||||
Other |
| 1,081 |
| 1,260 |
| 4,478 |
| 3,110 |
| ||||
Total non-interest income |
| 16,574 |
| 16,542 |
| 51,592 |
| 51,625 |
| ||||
Non-interest expense: |
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General and administrative: |
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Compensation and benefits |
| 30,758 |
| 39,496 |
| 105,060 |
| 113,197 |
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Occupancy, equipment and systems |
| 16,758 |
| 16,178 |
| 49,992 |
| 48,667 |
| ||||
Federal deposit insurance premiums |
| 12,533 |
| 10,837 |
| 35,600 |
| 27,529 |
| ||||
Advertising |
| 1,811 |
| 2,623 |
| 5,624 |
| 6,356 |
| ||||
Other |
| 10,783 |
| 9,462 |
| 30,667 |
| 28,420 |
| ||||
Total non-interest expense |
| 72,643 |
| 78,596 |
| 226,943 |
| 224,169 |
| ||||
Income before income tax expense |
| 20,429 |
| 18,590 |
| 56,012 |
| 88,351 |
| ||||
Income tax expense |
| 7,074 |
| 7,374 |
| 19,837 |
| 32,906 |
| ||||
Net income |
| $ | 13,355 |
| $ | 11,216 |
| $ | 36,175 |
| $ | 55,445 |
|
Basic earnings per common share |
| $ | 0.14 |
| $ | 0.12 |
| $ | 0.38 |
| $ | 0.58 |
|
Diluted earnings per common share |
| $ | 0.14 |
| $ | 0.12 |
| $ | 0.38 |
| $ | 0.58 |
|
Basic weighted average common shares |
| 95,555,816 |
| 93,338,310 |
| 95,303,453 |
| 93,009,518 |
| ||||
Diluted weighted average common and common equivalent shares |
| 95,555,816 |
| 93,338,310 |
| 95,303,453 |
| 93,009,518 |
|
See accompanying Notes to Consolidated Financial Statements.
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Unaudited)
|
| For the |
| For the |
| ||||||||
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
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(In Thousands) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
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Net income |
| $ | 13,355 |
| $ | 11,216 |
| $ | 36,175 |
| $ | 55,445 |
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Other comprehensive income (loss), net of tax: |
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Net unrealized (loss) gain on securities available-for-sale: |
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Net unrealized holding (loss) gain on securities arising during the period |
| (3,796) |
| (3,066) |
| (3,194) |
| 810 |
| ||||
Reclassification adjustment for gains included in net income |
| — |
| — |
| (1,604) |
| — |
| ||||
Net unrealized (loss) gain on securities available-for-sale |
| (3,796) |
| (3,066) |
| (4,798) |
| 810 |
| ||||
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Net actuarial loss adjustment on pension plans and other postretirement benefits: |
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Net actuarial loss adjustment arising during the period |
| — |
| — |
| 24,286 |
| — |
| ||||
Reclassification adjustment for net actuarial loss included in net income |
| 448 |
| 1,391 |
| 3,077 |
| 4,173 |
| ||||
Net actuarial loss adjustment on pension plans and other postretirement benefits |
| 448 |
| 1,391 |
| 27,363 |
| 4,173 |
| ||||
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Prior service cost adjustment on pension plans and other postretirement benefits: |
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Prior service cost adjustment arising during the period |
| — |
| — |
| (3,537) |
| — |
| ||||
Reclassification adjustment for prior service cost included in net income |
| 32 |
| 15 |
| 67 |
| 45 |
| ||||
Prior service cost adjustment on pension plans and other postretirement benefits |
| 32 |
| 15 |
| (3,470) |
| 45 |
| ||||
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Reclassification adjustment for loss on cash flow hedge included in net income |
| 56 |
| 48 |
| 151 |
| 143 |
| ||||
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Total other comprehensive (loss) income, net of tax |
| (3,260) |
| (1,612) |
| 19,246 |
| 5,171 |
| ||||
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Comprehensive income |
| $ | 10,095 |
| $ | 9,604 |
| $ | 55,421 |
| $ | 60,616 |
|
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, 2012
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| Accumulated |
| Unallocated |
| |||
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| Additional |
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| Other |
| Common |
| |||
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| 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, 2011 |
| $1,251,198 |
| $1,665 |
| $875,395 |
|
| $1,861,592 |
| $(1,404,311 | ) | $(75,661 | ) |
| $(7,482 | ) |
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Net income |
| 36,175 |
| — |
| — |
|
| 36,175 |
| — |
| — |
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| — |
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Other comprehensive income, net of tax |
| 19,246 |
| — |
| — |
|
| — |
| — |
| 19,246 |
|
| — |
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Dividends on common stock ($0.21 per share) |
| (20,249 | ) | — |
| — |
|
| (20,249 | ) | — |
| — |
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| — |
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Restricted stock grants (149,000 shares) |
| — |
| — |
| (1,466 | ) |
| (1,613 | ) | 3,079 |
| — |
|
| — |
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Forfeitures of restricted stock (268,776 shares) |
| — |
| — |
| 3,828 |
|
| 1,724 |
| (5,552 | ) | — |
|
| — |
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Stock-based compensation |
| 3,727 |
| — |
| 3,358 |
|
| 369 |
| — |
| — |
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| — |
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Net tax benefit shortfall from stock-based compensation |
| (2,067 | ) | — |
| (2,067 | ) |
| — |
| — |
| — |
|
| — |
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Allocation of ESOP stock |
| 7,044 |
| — |
| 4,306 |
|
| — |
| — |
| — |
|
| 2,738 |
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Balance at September 30, 2012 |
| $1,295,074 |
| $1,665 |
| $883,354 |
|
| $1,877,998 |
| $(1,406,784 | ) | $(56,415 | ) |
| $(4,744 | ) |
|
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) |
| 2012 |
| 2011 |
| |||
Cash flows from operating activities: |
|
|
|
|
| |||
Net income |
| $ | 36,175 |
|
| $ | 55,445 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
| ||
Net amortization on loans |
| 20,081 |
|
| 20,871 |
| ||
Net amortization on securities and borrowings |
| 11,919 |
|
| 5,133 |
| ||
Net provision for loan and real estate losses |
| 31,995 |
|
| 29,666 |
| ||
Depreciation and amortization |
| 8,906 |
|
| 8,716 |
| ||
Net gain on sales of loans and securities |
| (9,874 | ) |
| (2,327 | ) | ||
Net loss on dispositions of premises and equipment |
| 62 |
|
| 282 |
| ||
Other asset impairment charges |
| 457 |
|
| 448 |
| ||
Originations of loans held-for-sale |
| (268,766 | ) |
| (127,476 | ) | ||
Proceeds from sales and principal repayments of loans held-for-sale |
| 264,432 |
|
| 155,104 |
| ||
Stock-based compensation and allocation of ESOP stock |
| 10,771 |
|
| 19,040 |
| ||
Decrease in accrued interest receivable |
| 180 |
|
| 7,265 |
| ||
Mortgage servicing rights amortization and valuation allowance adjustments, net |
| 3,996 |
|
| 2,593 |
| ||
Bank owned life insurance income and insurance proceeds received, net |
| (6,152 | ) |
| 1,804 |
| ||
Decrease in other assets |
| 76,824 |
|
| 45,333 |
| ||
Increase in accrued expenses and other liabilities |
| 6,743 |
|
| 6,456 |
| ||
Net cash provided by operating activities |
| 187,749 |
|
| 228,353 |
| ||
Cash flows from investing activities: |
|
|
|
|
|
| ||
Originations of loans receivable |
| (2,741,316 | ) |
| (1,673,690 | ) | ||
Loan purchases through third parties |
| (850,905 | ) |
| (763,060 | ) | ||
Principal payments on loans receivable |
| 3,212,449 |
|
| 3,189,854 |
| ||
Proceeds from sales of delinquent and non-performing loans |
| 21,631 |
|
| 20,401 |
| ||
Purchases of securities held-to-maturity |
| (533,031 | ) |
| (651,260 | ) | ||
Purchases of securities available-for-sale |
| (208,195 | ) |
| — |
| ||
Principal payments on securities held-to-maturity |
| 699,899 |
|
| 575,162 |
| ||
Principal payments on securities available-for-sale |
| 166,554 |
|
| 161,187 |
| ||
Proceeds from sales of securities available-for-sale |
| 54,318 |
|
| — |
| ||
Net (purchases) redemptions of Federal Home Loan Bank of New York stock |
| (50,165 | ) |
| 22,415 |
| ||
Proceeds from sales of real estate owned, net |
| 48,235 |
|
| 71,013 |
| ||
Purchases of premises and equipment |
| (5,899 | ) |
| (10,405 | ) | ||
Proceeds from sales of premises and equipment |
| — |
|
| 14,396 |
| ||
Net cash (used in) provided by investing activities |
| (186,425 | ) |
| 956,013 |
| ||
Cash flows from financing activities: |
|
|
|
|
|
| ||
Net decrease in deposits |
| (706,732 | ) |
| (331,853 | ) | ||
Net increase (decrease) in borrowings with original terms of three months or less |
| 684,000 |
|
| (6,000 | ) | ||
Proceeds from borrowings with original terms greater than three months |
| 950,000 |
|
| 200,000 |
| ||
Repayments of borrowings with original terms greater than three months |
| (944,000 | ) |
| (1,041,000 | ) | ||
Cash payments for debt issuance costs |
| (2,643 | ) |
| — |
| ||
Net increase in mortgage escrow funds |
| 21,236 |
|
| 23,248 |
| ||
Cash dividends paid to stockholders |
| (20,249 | ) |
| (37,072 | ) | ||
Net tax benefit (shortfall) excess from stock-based compensation |
| (2,067 | ) |
| 181 |
| ||
Net cash used in financing activities |
| (20,455 | ) |
| (1,192,496 | ) | ||
Net decrease in cash and cash equivalents |
| (19,131 | ) |
| (8,130 | ) | ||
Cash and cash equivalents at beginning of period |
| 132,704 |
|
| 119,016 |
| ||
Cash and cash equivalents at end of period |
| $ | 113,573 |
|
| $ | 110,886 |
|
|
|
|
|
|
|
| ||
Supplemental disclosures: |
|
|
|
|
|
| ||
Interest paid |
| $ | 197,198 |
|
| $ | 241,663 |
|
Income taxes paid |
| $ | 5,524 |
|
| $ | 35,624 |
|
Additions to real estate owned |
| $ | 33,496 |
|
| $ | 60,659 |
|
Loans transferred to held-for-sale |
| $ | 1,982 |
|
| $ | 17,428 |
|
See accompanying Notes to Consolidated Financial Statements.
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
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 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 owned by Astoria Financial Corporation, and used 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 9 of Notes to Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of our 2011 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, 2012 and December 31, 2011, our results of operations and other comprehensive income for the three and nine months ended September 30, 2012 and 2011, changes in our stockholders’ equity for the nine months ended September 30, 2012 and our cash flows for the nine months ended September 30, 2012 and 2011. 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, 2012 and December 31, 2011, and amounts of revenues, expenses and other comprehensive income/loss in the consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2012 and 2011. The results of operations and other comprehensive income/loss for the three and nine months ended September 30, 2012 are not necessarily indicative of the results of operations and other comprehensive income/loss 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, 2011 audited consolidated financial statements and related notes included in our 2011 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, 2012 |
| |||||||||||
(In Thousands) |
| Amortized |
| Gross |
| Gross |
| Estimated |
| |||||
Available-for-sale: |
|
|
|
|
|
|
|
|
|
| ||||
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
| ||||
GSE (1) issuance REMICs and CMOs (2) |
| $ | 233,091 |
| $ | 5,921 |
| $ | (347 | ) |
| $ | 238,665 |
|
Non-GSE issuance REMICs and CMOs |
| 12,320 |
| 10 |
| (95 | ) |
| 12,235 |
| ||||
GSE pass-through certificates |
| 21,330 |
| 1,126 |
| (2 | ) |
| 22,454 |
| ||||
Total residential mortgage-backed securities |
| 266,741 |
| 7,057 |
| (444 | ) |
| 273,354 |
| ||||
Obligations of GSEs |
| 49,964 |
| 156 |
| — |
|
| 50,120 |
| ||||
Freddie Mac and Fannie Mae stock |
| 15 |
| 2,384 |
| (15 | ) |
| 2,384 |
| ||||
Total securities available-for-sale |
| $ | 316,720 |
| $ | 9,597 |
| $ | (459 | ) |
| $ | 325,858 |
|
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
| ||||
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
| ||||
GSE issuance REMICs and CMOs |
| $ | 1,943,382 |
| $ | 31,465 |
| $ | (1,964 | ) |
| $ | 1,972,883 |
|
Non-GSE issuance REMICs and CMOs |
| 6,558 |
| 133 |
| — |
|
| 6,691 |
| ||||
GSE pass-through certificates |
| 291 |
| 8 |
| (1 | ) |
| 298 |
| ||||
Total residential mortgage-backed securities |
| 1,950,231 |
| 31,606 |
| (1,965 | ) |
| 1,979,872 |
| ||||
Obligations of states and political subdivisions |
| 2,707 |
| 84 |
| — |
|
| 2,791 |
| ||||
Total securities held-to-maturity |
| $ | 1,952,938 |
| $ | 31,690 |
| $ | (1,965 | ) |
| $ | 1,982,663 |
|
(1) Government-sponsored enterprise
(2) Real estate mortgage investment conduits and collateralized mortgage obligations
|
| At December 31, 2011 |
| |||||||||||
(In Thousands) |
| Amortized |
| Gross |
| Gross |
| Estimated |
| |||||
Available-for-sale: |
|
|
|
|
|
|
|
|
|
| ||||
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
| ||||
GSE issuance REMICs and CMOs |
| $ | 286,862 |
| $ | 11,759 |
| $ | (1 | ) |
| $ | 298,620 |
|
Non-GSE issuance REMICs and CMOs |
| 16,092 |
| — |
| (297 | ) |
| 15,795 |
| ||||
GSE pass-through certificates |
| 24,168 |
| 1,026 |
| (2 | ) |
| 25,192 |
| ||||
Total residential mortgage-backed securities |
| 327,122 |
| 12,785 |
| (300 | ) |
| 339,607 |
| ||||
Freddie Mac and Fannie Mae stock |
| 15 |
| 4,580 |
| (15 | ) |
| 4,580 |
| ||||
Total securities available-for-sale |
| $ | 327,137 |
| $ | 17,365 |
| $ | (315 | ) |
| $ | 344,187 |
|
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
| ||||
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
| ||||
GSE issuance REMICs and CMOs |
| $ | 2,054,380 |
| $ | 45,929 |
| $ | (146 | ) |
| $ | 2,100,163 |
|
Non-GSE issuance REMICs and CMOs |
| 15,105 |
| 92 |
| (1 | ) |
| 15,196 |
| ||||
GSE pass-through certificates |
| 475 |
| 24 |
| — |
|
| 499 |
| ||||
Total residential mortgage-backed securities |
| 2,069,960 |
| 46,045 |
| (147 | ) |
| 2,115,858 |
| ||||
Obligations of GSEs |
| 57,868 |
| 140 |
| — |
|
| 58,008 |
| ||||
Obligations of states and political subdivisions |
| 2,976 |
| 83 |
| — |
|
| 3,059 |
| ||||
Total securities held-to-maturity |
| $ | 2,130,804 |
| $ | 46,268 |
| $ | (147 | ) |
| $ | 2,176,925 |
|
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 and those that have been in a continuous unrealized loss position for twelve months or longer at the dates indicated.
|
| At September 30, 2012 |
| |||||||||||||||||||
|
| Less Than Twelve Months |
| Twelve Months or Longer |
| Total |
| |||||||||||||||
(In Thousands) |
| Estimated |
| Gross |
| Estimated |
| Gross |
| Estimated |
| Gross |
| |||||||||
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
GSE issuance REMICs and CMOs |
| $ | 78,267 |
| $ | (347 | ) |
| $ | — |
| $ | — |
|
| $ | 78,267 |
| $ | (347 | ) |
|
Non-GSE issuance REMICs and CMOs |
| — |
| — |
|
| 11,689 |
| (95 | ) |
| 11,689 |
| (95 | ) |
| ||||||
GSE pass-through certificates |
| 100 |
| (1 | ) |
| 22 |
| (1 | ) |
| 122 |
| (2 | ) |
| ||||||
Freddie Mac and Fannie Mae stock |
| — |
| — |
|
| — |
| (15 | ) |
| — |
| (15 | ) |
| ||||||
Total temporarily impaired securities available-for-sale |
| $ | 78,367 |
| $ | (348 | ) |
| $ | 11,711 |
| $ | (111 | ) |
| $ | 90,078 |
| $ | (459 | ) |
|
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
GSE issuance REMICs and CMOs |
| $ | 313,242 |
| $ | (1,964 | ) |
| $ | — |
| $ | — |
|
| $ | 313,242 |
| $ | (1,964 | ) |
|
GSE pass-through certificates |
| 53 |
| (1 | ) |
| — |
| — |
|
| 53 |
| (1 | ) |
| ||||||
Total temporarily impaired securities held-to-maturity |
| $ | 313,295 |
| $ | (1,965 | ) |
| $ | — |
| $ | — |
|
| $ | 313,295 |
| $ | (1,965 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At December 31, 2011 |
| |||||||||||||||||||
|
| Less Than Twelve Months |
| Twelve Months or Longer |
| Total |
| |||||||||||||||
(In Thousands) |
| Estimated |
| Gross |
| Estimated |
| Gross |
| Estimated |
| Gross |
| |||||||||
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
GSE issuance REMICs and CMOs |
| $ | 360 |
| $ | (1 | ) |
| $ | — |
| $ | — |
|
| $ | 360 |
| $ | (1 | ) |
|
Non-GSE issuance REMICs and CMOs |
| 495 |
| (21 | ) |
| 15,261 |
| (276 | ) |
| 15,756 |
| (297 | ) |
| ||||||
GSE pass-through certificates |
| 623 |
| (2 | ) |
| — |
| — |
|
| 623 |
| (2 | ) |
| ||||||
Freddie Mac and Fannie Mae stock |
| — |
| — |
|
| — |
| (15 | ) |
| — |
| (15 | ) |
| ||||||
Total temporarily impaired securities available-for-sale |
| $ | 1,478 |
| $ | (24 | ) |
| $ | 15,261 |
| $ | (291 | ) |
| $ | 16,739 |
| $ | (315 | ) |
|
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
GSE issuance REMICs and CMOs |
| $ | 53,347 |
| $ | (146 | ) |
| $ | — |
| $ | — |
|
| $ | 53,347 |
| $ | (146 | ) |
|
Non-GSE issuance REMICs and CMOs |
| 1,247 |
| (1 | ) |
| — |
| — |
|
| 1,247 |
| (1 | ) |
| ||||||
Total temporarily impaired securities held-to-maturity |
| $ | 54,594 |
| $ | (147 | ) |
| $ | — |
| $ | — |
|
| $ | 54,594 |
| $ | (147 | ) |
|
We held 31 securities which had an unrealized loss at September 30, 2012 and 36 at December 31, 2011. At September 30, 2012 and December 31, 2011, 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. Although, during this period of historic low interest rates, securities backed by fixed rate residential mortgage loans with above market interest rates have experienced accelerated rates of prepayments as interest rates have declined which has resulted in a decline in the estimated life of these securities and a decline in fair value. 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, 2012 and December 31, 2011, the impairments are deemed temporary based on (1) the direct relationship of the decline in fair value to movements in interest rates, (2) the estimated remaining life and high credit quality of the investments and (3) the fact that we do not intend to sell these securities and it is not more likely than not that we will be required to sell these securities before their
anticipated recovery of the remaining amortized cost basis and we expect to recover the entire amortized cost basis of the security.
During the nine months ended September 30, 2012, proceeds from sales of securities from the available-for-sale portfolio totaled $54.3 million resulting in gross unrealized gains totaling $2.5 million. There were no sales of securities from the available-for-sale portfolio during the nine months ended September 30, 2011.
At September 30, 2012, available-for-sale debt securities excluding mortgage-backed securities had an amortized cost of $50.0 million, a fair value of $50.1 million and contractual maturities in 2022. At September 30, 2012, held-to-maturity debt securities excluding mortgage-backed securities had an amortized cost of $2.7 million, a fair value of $2.8 million and contractual maturities between 2017 and 2018. Actual maturities will differ from contractual maturities because issuers may have the right to prepay or call obligations with or without prepayment penalties.
The balance of accrued interest receivable for securities totaled $6.4 million at September 30, 2012 and $7.5 million at December 31, 2011.
At September 30, 2012, we held securities with an amortized cost of $50.0 million which are callable within one year and at various times thereafter.
3. Loans Held-for-Sale
Loans held-for-sale, net, includes fifteen and thirty year fixed rate one-to-four family, or residential, mortgage loans originated for sale that conform to GSE guidelines (conforming loans), as well as certain delinquent and non-performing loans. Upon our decision to sell certain delinquent and non-performing loans held in portfolio, 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 $779,000, net of a valuation allowance of $329,000, at September 30, 2012, consisting of multi-family mortgage loans, and $19.7 million, net of a valuation allowance of $63,000, at December 31, 2011, consisting primarily of multi-family and commercial real estate mortgage loans.
We sold certain delinquent and non-performing mortgage loans totaling $20.4 million, net of charge-offs of $11.0 million, during the nine months ended September 30, 2012, primarily multi-family and commercial real estate loans, and $20.4 million, net of charge-offs of $8.3 million, during the nine months ended September 30, 2011, primarily multi-family and residential loans. Net loss on sales of non-performing loans totaled $2,000 for the three months ended September 30, 2012 and net gain on sales of non-performing loans totaled $1.3 million for the nine months ended September 30, 2012. Net gain on sales of non-performing loans totaled $17,000 for the three months ended September 30, 2011 and net loss on sales of non-performing loans totaled $35,000 for the nine months ended September 30, 2011.
We recorded net lower of cost or market write-downs on non-performing loans held-for-sale totaling $234,000 for the three months ended September 30, 2012 and $457,000 for the nine months ended September 30, 2012. Net lower of cost or market write-downs on non-performing loans held-for-sale totaled $7,000 for the three months ended September 30, 2011 and $448,000 for the nine months ended September 30, 2011. Lower of cost or market write-downs and
recoveries on non-performing loans held-for-sale and gains and losses recognized on sales of such loans are included in other non-interest income in the consolidated statements of income.
4. Loans Receivable and Allowance for Loan Losses
The following tables set forth the composition of our loans receivable portfolio in dollar amounts and percentages of the portfolio and an aging analysis by segment and class at the dates indicated.
|
| At September 30, 2012 |
| |||||||||||||||||||||
|
| 30-59 Days |
| 60-89 Days |
| 90 Days or More Past Due |
| Total |
|
|
|
|
| Percent |
| |||||||||
(Dollars in Thousands) |
| Past Due |
| Past Due |
| Accruing |
| Non-Accrual |
| Past Due |
| Current |
| Total |
| of Total |
| |||||||
Mortgage loans (gross): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Full documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest-only |
| $ | 33,346 |
| $ | 10,675 |
| $ | — |
| $ | 96,845 |
| $ | 140,866 |
| $ | 1,976,044 |
| $ | 2,116,910 |
| 15.70% |
|
Amortizing |
| 30,659 |
| 5,185 |
| — |
| 45,227 |
| 81,071 |
| 6,597,990 |
| 6,679,061 |
| 49.52 |
| |||||||
Reduced documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest-only |
| 28,838 |
| 5,606 |
| — |
| 120,236 |
| 154,680 |
| 883,037 |
| 1,037,717 |
| 7.69 |
| |||||||
Amortizing |
| 11,141 |
| 4,332 |
| — |
| 32,424 |
| 47,897 |
| 357,806 |
| 405,703 |
| 3.01 |
| |||||||
Total residential |
| 103,984 |
| 25,798 |
| — |
| 294,732 |
| 424,514 |
| 9,814,877 |
| 10,239,391 |
| 75.92 |
| |||||||
Multi-family |
| 27,121 |
| 6,417 |
| — |
| 16,208 |
| 49,746 |
| 2,212,536 |
| 2,262,282 |
| 16.78 |
| |||||||
Commercial real estate |
| 13,923 |
| 3,653 |
| — |
| 5,217 |
| 22,793 |
| 692,136 |
| 714,929 |
| 5.30 |
| |||||||
Total mortgage loans |
| 145,028 |
| 35,868 |
| — |
| 316,157 |
| 497,053 |
| 12,719,549 |
| 13,216,602 |
| 98.00 |
| |||||||
Consumer and other loans (gross): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Home equity lines of credit |
| 3,990 |
| 1,120 |
| — |
| 6,000 |
| 11,110 |
| 226,645 |
| 237,755 |
| 1.76 |
| |||||||
Other |
| 83 |
| 237 |
| — |
| 60 |
| 380 |
| 31,672 |
| 32,052 |
| 0.24 |
| |||||||
Total consumer and other loans |
| 4,073 |
| 1,357 |
| — |
| 6,060 |
| 11,490 |
| 258,317 |
| 269,807 |
| 2.00 |
| |||||||
Total loans |
| $ | 149,101 |
| $ | 37,225 |
| $ | — |
| $ | 322,217 |
| $ | 508,543 |
| $ | 12,977,866 |
| $ | 13,486,409 |
| 100.00% |
|
Net unamortized premiums and deferred loan origination costs |
|
|
|
|
|
|
|
|
|
|
|
|
| 72,678 |
|
|
| |||||||
Loans receivable |
|
|
|
|
|
|
|
|
|
|
|
|
| 13,559,087 |
|
|
| |||||||
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
| (148,472 | ) |
|
| |||||||
Loans receivable, net |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 13,410,615 |
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| At December 31, 2011 |
| |||||||||||||||||||||
|
| 30-59 Days |
| 60-89 Days |
| 90 Days or More Past Due |
| Total |
|
|
|
|
| Percent |
| |||||||||
(Dollars in Thousands) |
| Past Due |
| Past Due |
| Accruing |
| Non-Accrual |
| Past Due |
| Current |
| Total |
| of Total |
| |||||||
Mortgage loans (gross): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Full documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest-only |
| $ | 40,582 |
| $ | 9,047 |
| $ | — |
| $ | 107,503 |
| $ | 157,132 |
| $ | 2,538,808 |
| $ | 2,695,940 |
| 20.43% |
|
Amortizing |
| 33,376 |
| 7,056 |
| 14 |
| 43,923 |
| 84,369 |
| 6,223,678 |
| 6,308,047 |
| 47.79 |
| |||||||
Reduced documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest-only |
| 38,570 |
| 9,695 |
| — |
| 131,301 |
| 179,566 |
| 965,774 |
| 1,145,340 |
| 8.68 |
| |||||||
Amortizing |
| 16,034 |
| 5,455 |
| — |
| 35,126 |
| 56,615 |
| 355,597 |
| 412,212 |
| 3.12 |
| |||||||
Total residential |
| 128,562 |
| 31,253 |
| 14 |
| 317,853 |
| 477,682 |
| 10,083,857 |
| 10,561,539 |
| 80.02 |
| |||||||
Multi-family |
| 29,109 |
| 14,915 |
| 148 |
| 7,874 |
| 52,046 |
| 1,641,825 |
| 1,693,871 |
| 12.84 |
| |||||||
Commercial real estate |
| 4,882 |
| 1,060 |
| — |
| 900 |
| 6,842 |
| 652,864 |
| 659,706 |
| 5.00 |
| |||||||
Total mortgage loans |
| 162,553 |
| 47,228 |
| 162 |
| 326,627 |
| 536,570 |
| 12,378,546 |
| 12,915,116 |
| 97.86 |
| |||||||
Consumer and other loans (gross): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Home equity lines of credit |
| 3,975 |
| 1,391 |
| — |
| 5,995 |
| 11,361 |
| 247,675 |
| 259,036 |
| 1.96 |
| |||||||
Other |
| 212 |
| 196 |
| — |
| 73 |
| 481 |
| 22,927 |
| 23,408 |
| 0.18 |
| |||||||
Total consumer and other loans |
| 4,187 |
| 1,587 |
| — |
| 6,068 |
| 11,842 |
| 270,602 |
| 282,444 |
| 2.14 |
| |||||||
Total loans |
| $ | 166,740 |
| $ | 48,815 |
| $ | 162 |
| $ | 332,695 |
| $ | 548,412 |
| $ | 12,649,148 |
| $ | 13,197,560 |
| 100.00% |
|
Net unamortized premiums and deferred loan origination costs |
|
|
|
|
|
|
|
|
|
|
|
|
| 77,044 |
|
|
| |||||||
Loans receivable |
|
|
|
|
|
|
|
|
|
|
|
|
| 13,274,604 |
|
|
| |||||||
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
| (157,185 | ) |
|
| |||||||
Loans receivable, net |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 13,117,419 |
|
|
|
The following tables set forth the changes in our allowance for loan losses by loan receivable segment for the periods indicated.
|
| For the Three Months Ended September 30, 2012 |
| ||||||||||||||||||
|
| Mortgage Loans |
| Consumer |
|
|
| ||||||||||||||
(In Thousands) |
| Residential |
| Multi- |
| Commercial |
| and Other |
| Total |
| ||||||||||
Balance at July 1, 2012 |
| $ | 87,394 |
|
| $ | 48,142 |
|
| $ | 9,109 |
|
| $ | 3,457 |
|
| $ | 148,102 |
|
|
Provision charged to operations |
| 9,210 |
|
| (6,168 | ) |
| 3,828 |
|
| 2,630 |
|
| 9,500 |
|
| |||||
Charge-offs |
| (8,195 | ) |
| (1,233 | ) |
| (1,379 | ) |
| (891 | ) |
| (11,698 | ) |
| |||||
Recoveries |
| 2,355 |
|
| 122 |
|
| — |
|
| 91 |
|
| 2,568 |
|
| |||||
Balance at September 30, 2012 |
| $ | 90,764 |
|
| $ | 40,863 |
|
| $ | 11,558 |
|
| $ | 5,287 |
|
| $ | 148,472 |
|
|
|
| For the Nine Months Ended September 30, 2012 |
| ||||||||||||||||||
|
| Mortgage Loans |
| Consumer |
|
|
| ||||||||||||||
(In Thousands) |
| Residential |
| Multi- |
| Commercial |
| and Other |
| Total |
| ||||||||||
Balance at January 1, 2012 |
| $ | 105,991 |
|
| $ | 35,422 |
|
| $ | 11,972 |
|
| $ | 3,800 |
|
| $ | 157,185 |
|
|
Provision charged to operations |
| 16,387 |
|
| 8,381 |
|
| 1,303 |
|
| 3,429 |
|
| 29,500 |
|
| |||||
Charge-offs |
| (37,598 | ) |
| (3,139 | ) |
| (1,718 | ) |
| (2,367 | ) |
| (44,822 | ) |
| |||||
Recoveries |
| 5,984 |
|
| 199 |
|
| 1 |
|
| 425 |
|
| 6,609 |
|
| |||||
Balance at September 30, 2012 |
| $ | 90,764 |
|
| $ | 40,863 |
|
| $ | 11,558 |
|
| $ | 5,287 |
|
| $ | 148,472 |
|
|
|
| For the Three Months Ended September 30, 2011 |
| ||||||||||||||||||
|
| Mortgage Loans |
| Consumer |
|
|
| ||||||||||||||
(In Thousands) |
| Residential |
| Multi- |
| Commercial |
| and Other |
| Total |
| ||||||||||
Balance at July 1, 2011 |
| $ | 114,713 |
|
| $ | 49,370 |
|
| $ | 14,570 |
|
| $ | 4,064 |
|
| $ | 182,717 |
|
|
Provision charged to operations |
| 7,418 |
|
| 1,355 |
|
| 1,195 |
|
| 32 |
|
| 10,000 |
|
| |||||
Charge-offs |
| (16,882 | ) |
| — |
|
| — |
|
| (105 | ) |
| (16,987 | ) |
| |||||
Recoveries |
| 2,161 |
|
| 432 |
|
| — |
|
| 28 |
|
| 2,621 |
|
| |||||
Balance at September 30, 2011 |
| $ | 107,410 |
|
| $ | 51,157 |
|
| $ | 15,765 |
|
| $ | 4,019 |
|
| $ | 178,351 |
|
|
|
| For the Nine Months Ended September 30, 2011 |
| ||||||||||||||||||
|
| Mortgage Loans |
| Consumer |
|
|
| ||||||||||||||
(In Thousands) |
| Residential |
| Multi- |
| Commercial |
| and Other |
| Total |
| ||||||||||
Balance at January 1, 2011 |
| $ | 125,524 |
|
| $ | 56,266 |
|
| $ | 15,563 |
|
| $ | 4,146 |
|
| $ | 201,499 |
|
|
Provision charged to operations |
| 23,701 |
|
| 1,505 |
|
| 958 |
|
| 836 |
|
| 27,000 |
|
| |||||
Charge-offs |
| (50,361 | ) |
| (7,116 | ) |
| (756 | ) |
| (1,072 | ) |
| (59,305 | ) |
| |||||
Recoveries |
| 8,546 |
|
| 502 |
|
| — |
|
| 109 |
|
| 9,157 |
|
| |||||
Balance at September 30, 2011 |
| $ | 107,410 |
|
| $ | 51,157 |
|
| $ | 15,765 |
|
| $ | 4,019 |
|
| $ | 178,351 |
|
|
We segment our residential 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. We analyze multi-family and commercial real estate loans by portfolio and geographic location. 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. In our analysis of non-performing loans, we consider our aggregate historical loss experience with respect to the ultimate disposition of the underlying collateral along with the migration of delinquent loans based on the portfolio segments noted above. These analyses and the resulting loss rates are used as an integral part of our judgment in developing estimated loss percentages to apply to the loan portfolio segments. We update our analyses quarterly and we are continually refining our evaluations as experience provides clearer guidance, our product offerings change and as economic conditions evolve.
We analyze our historical loss experience over twelve, fifteen, eighteen and twenty-four month periods. However, our quantitative allowance coverage percentages are based on our twelve month loss history. We believe the twelve month loss analysis is most reflective of current conditions and the potential impact on our future loss exposure. However, the longer periods provide further insight into trends or anomalies and can be a factor in making adjustments to the twelve month analysis. Also, for a particular loan type we may not have sufficient loss history to develop a reasonable estimate of loss and consider our loss experience for other, similar loan types. Additionally, multi-family and commercial real estate loss experience may be adjusted based on the composition of the losses (loan sales, short sales and partial charge-offs). We update our historical loss analyses quarterly and evaluate the need to modify our quantitative allowances as a result of our updated charge-off and loss analyses.
We then consider qualitative factors with the purpose of assessing the adequacy of the overall allowance for loan losses as well as the allocation of the allowance for loan losses by portfolio. The qualitative factors we consider generally include, but are not limited to, changes in (1) lending policies and procedures, (2) economic and business conditions and developments that affect collectibility of our loan portfolio, (3) the nature and volume of our loan portfolio and in the terms of loans, (4) the experience, ability and depth of lending management and other staff, (5) the volume and severity of past due, non-accrual and adversely classified loans, (6) the quality of the loan review system, (7) the value of underlying collateral, (8) the existence or effect of any credit concentrations and (9) external factors such as competition and legal or regulatory requirements. Also considered is certain analytical information, such as coverage ratios, peer analysis and uncertainties in assumptions.
During 2012, we refined our historical loss analyses on all of our loan portfolios, including further segmenting residential non-performing loans and segmenting multi-family and commercial real estate portfolios by property type and geographic location, and re-assessed the application of the qualitative factors noted above to each of the respective loan portfolios.
Allowance adequacy calculations are adjusted quarterly, based on the results of the above quantitative and qualitative analyses, to reflect our current estimates of the amount of probable losses inherent in our loan portfolio in determining our allowance for loan losses. Allocations of the allowance to each loan category are adjusted quarterly to reflect indicative inherent probable losses using the same quantitative and qualitative analyses used in connection with the overall allowance adequacy calculations. The portion of the allowance allocated to each loan category does not represent the total available to absorb losses which may occur within the loan category, since the total allowance for loan losses is available for losses applicable to the entire loan portfolio.
All of our residential mortgage loans are individually evaluated for impairment at 180 days delinquent and annually thereafter. Additionally, beginning in the 2012 first quarter, all of our residential loans to borrowers who have filed for bankruptcy are also individually evaluated for impairment initially when we are notified of the bankruptcy filing, using updated estimates of collateral values. Updated estimates of collateral values on residential loans are obtained primarily through automated valuation models. We record a charge-off 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. These partial charge-offs on residential loans impact our credit quality metrics and trends. The impact of updating the 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. This lowers our allowance for loan losses as a percentage of total loans and, more significantly, lowers our allowance for loan losses as a percentage of non-performing loans. We and our peers are required by regulatory guidelines to record such charge-offs. If any of our peers did not record such charge-offs, then we would expect our credit quality metrics to be lower than that of our peers, assuming all other factors are the same.
The following tables set forth the balances of our loans receivable by segment and impairment evaluation and the allowance for loan losses associated with such loans at the dates indicated.
|
| At September 30, 2012 |
| |||||||||||||||||
|
| Mortgage Loans |
| Consumer |
|
|
| |||||||||||||
(In Thousands) |
| Residential |
| Multi- |
| Commercial |
| and Other |
| Total |
| |||||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Individually evaluated for impairment |
| $ | 335,244 |
|
| $ | 722,642 |
|
| $ | 240,168 |
|
| $ | 12,748 |
|
| $ | 1,310,802 |
|
Collectively evaluated for impairment |
| 9,904,147 |
|
| 1,539,640 |
|
| 474,761 |
|
| 257,059 |
|
| 12,175,607 |
| |||||
Total loans |
| $ | 10,239,391 |
|
| $ | 2,262,282 |
|
| $ | 714,929 |
|
| $ | 269,807 |
|
| $ | 13,486,409 |
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Individually evaluated for impairment |
| $ | 12,309 |
|
| $ | 21,955 |
|
| $ | 6,690 |
|
| $ | 501 |
|
| $ | 41,455 |
|
Collectively evaluated for impairment |
| 78,455 |
|
| 18,908 |
|
| 4,868 |
|
| 4,786 |
|
| 107,017 |
| |||||
Total allowance for loan losses |
| $ | 90,764 |
|
| $ | 40,863 |
|
| $ | 11,558 |
|
| $ | 5,287 |
|
| $ | 148,472 |
|
|
| At December 31, 2011 |
| |||||||||||||||||
|
| Mortgage Loans |
| Consumer |
|
|
| |||||||||||||
(In Thousands) |
| Residential |
| Multi- |
| Commercial |
| and Other |
| Total |
| |||||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Individually evaluated for impairment |
| $ | 337,116 |
|
| $ | 889,137 |
|
| $ | 318,318 |
|
| $ | 4,535 |
|
| $ | 1,549,106 |
|
Collectively evaluated for impairment |
| 10,224,423 |
|
| 804,734 |
|
| 341,388 |
|
| 277,909 |
|
| 11,648,454 |
| |||||
Total loans |
| $ | 10,561,539 |
|
| $ | 1,693,871 |
|
| $ | 659,706 |
|
| $ | 282,444 |
|
| $ | 13,197,560 |
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Individually evaluated for impairment |
| $ | 10,967 |
|
| $ | 22,517 |
|
| $ | 7,996 |
|
| $ | 68 |
|
| $ | 41,548 |
|
Collectively evaluated for impairment |
| 95,024 |
|
| 12,905 |
|
| 3,976 |
|
| 3,732 |
|
| 115,637 |
| |||||
Total allowance for loan losses |
| $ | 105,991 |
|
| $ | 35,422 |
|
| $ | 11,972 |
|
| $ | 3,800 |
|
| $ | 157,185 |
|
The following table summarizes information related to our impaired loans by segment and class at the dates indicated. Impaired residential mortgage loans consist primarily of loans where a portion of the outstanding principal has been charged off.
|
| At September 30, 2012 |
| At December 31, 2011 |
| |||||||||||||||||||
(In Thousands) |
| Unpaid |
| Recorded |
| Related |
| Net |
| Unpaid |
| Recorded |
| Related |
| Net |
| |||||||
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only |
| $ 10,095 |
|
| $ 10,095 |
|
| $ (213 | ) |
| $ 9,882 |
|
| $ 10,588 |
|
| $ 10,588 |
|
| $ (1,240 | ) |
| $ 9,348 |
|
Amortizing |
| 4,194 |
|
| 4,194 |
|
| (142 | ) |
| 4,052 |
|
| 3,885 |
|
| 3,885 |
|
| (439 | ) |
| 3,446 |
|
Reduced documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only |
| 10,189 |
|
| 10,189 |
|
| (217 | ) |
| 9,972 |
|
| 11,713 |
|
| 11,713 |
|
| (1,409 | ) |
| 10,304 |
|
Amortizing |
| 2,545 |
|
| 2,545 |
|
| (47 | ) |
| 2,498 |
|
| 1,779 |
|
| 1,779 |
|
| (217 | ) |
| 1,562 |
|
Multi-family |
| 57,413 |
|
| 57,413 |
|
| (10,781 | ) |
| 46,632 |
|
| 39,399 |
|
| 36,273 |
|
| (8,650 | ) |
| 27,623 |
|
Commercial real estate |
| 10,202 |
|
| 10,202 |
|
| (701 | ) |
| 9,501 |
|
| 19,946 |
|
| 17,095 |
|
| (3,193 | ) |
| 13,902 |
|
Without an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only |
| 118,335 |
|
| 82,804 |
|
| — |
|
| 82,804 |
|
| 107,332 |
|
| 75,791 |
|
| — |
|
| 75,791 |
|
Amortizing |
| 21,877 |
|
| 16,565 |
|
| — |
|
| 16,565 |
|
| 22,184 |
|
| 17,074 |
|
| — |
|
| 17,074 |
|
Reduced documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only |
| 164,396 |
|
| 114,767 |
|
| — |
|
| 114,767 |
|
| 156,083 |
|
| 109,582 |
|
| — |
|
| 109,582 |
|
Amortizing |
| 23,776 |
|
| 18,137 |
|
| — |
|
| 18,137 |
|
| 20,021 |
|
| 15,259 |
|
| — |
|
| 15,259 |
|
Multi-family |
| 21,825 |
|
| 15,093 |
|
| — |
|
| 15,093 |
|
| 2,496 |
|
| 2,496 |
|
| — |
|
| 2,496 |
|
Commercial real estate |
| 11,845 |
|
| 7,286 |
|
| — |
|
| 7,286 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total impaired loans |
| $ 456,692 |
|
| $ 349,290 |
|
| $ (12,101 | ) |
| $ 337,189 |
|
| $ 395,426 |
|
| $ 301,535 |
|
| $ (15,148 | ) |
| $ 286,387 |
|
The following tables set forth the average recorded investment, interest income recognized and cash basis interest income related to our impaired loans by segment and class for the periods indicated.
|
| For the Three Months Ended September 30, |
| |||||||||||||||||||||
|
| 2012 |
| 2011 |
| |||||||||||||||||||
(In Thousands) |
| Average |
| Interest |
| Cash Basis |
| Average |
| Interest |
| Cash Basis |
| |||||||||||
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Full documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-only |
| $ | 10,254 |
|
| $ | 79 |
|
| $ | 77 |
|
| $ | 10,566 |
|
| $ | 102 |
|
| $ | 107 |
|
Amortizing |
| 4,210 |
|
| 40 |
|
| 41 |
|
| 3,997 |
|
| 39 |
|
| 43 |
| ||||||
Reduced documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-only |
| 10,469 |
|
| 130 |
|
| 122 |
|
| 11,610 |
|
| 145 |
|
| 133 |
| ||||||
Amortizing |
| 2,272 |
|
| 27 |
|
| 19 |
|
| 1,061 |
|
| 9 |
|
| 10 |
| ||||||
Multi-family |
| 60,560 |
|
| 1,146 |
|
| 590 |
|
| 60,256 |
|
| 586 |
|
| 604 |
| ||||||
Commercial real estate |
| 11,838 |
|
| 229 |
|
| 97 |
|
| 22,306 |
|
| 315 |
|
| 348 |
| ||||||
Without an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Full documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-only |
| 83,722 |
|
| 417 |
|
| 411 |
|
| 68,535 |
|
| 268 |
|
| 266 |
| ||||||
Amortizing |
| 16,611 |
|
| 117 |
|
| 108 |
|
| 14,237 |
|
| 49 |
|
| 43 |
| ||||||
Reduced documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-only |
| 118,021 |
|
| 742 |
|
| 728 |
|
| 109,726 |
|
| 403 |
|
| 424 |
| ||||||
Amortizing |
| 18,694 |
|
| 79 |
|
| 69 |
|
| 14,714 |
|
| 96 |
|
| 90 |
| ||||||
Multi-family |
| 12,517 |
|
| 503 |
|
| 227 |
|
| 320 |
|
| — |
|
| — |
| ||||||
Commercial real estate |
| 6,623 |
|
| 272 |
|
| 99 |
|
| — |
|
| — |
|
| — |
| ||||||
Total impaired loans |
| $ | 355,791 |
|
| $ | 3,781 |
|
| $ | 2,588 |
|
| $ | 317,328 |
|
| $ | 2,012 |
|
| $ | 2,068 |
|
|
| For the Nine Months Ended September 30, |
| ||||||||||||||||
|
| 2012 |
| 2011 |
| ||||||||||||||
(In Thousands) |
| Average |
| Interest |
| Cash Basis |
| Average |
| Interest |
| Cash Basis |
| ||||||
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only |
| $ 10,360 |
|
| $ 247 |
|
| $ 247 |
|
| $ 10,713 |
|
| $ 338 |
|
| $ 343 |
|
|
Amortizing |
| 4,071 |
|
| 121 |
|
| 122 |
|
| 5,814 |
|
| 127 |
|
| 127 |
|
|
Reduced documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only |
| 10,967 |
|
| 342 |
|
| 345 |
|
| 11,120 |
|
| 403 |
|
| 402 |
|
|
Amortizing |
| 2,084 |
|
| 86 |
|
| 78 |
|
| 1,115 |
|
| 33 |
|
| 32 |
|
|
Multi-family |
| 55,319 |
|
| 2,252 |
|
| 1,946 |
|
| 60,038 |
|
| 1,869 |
|
| 1,963 |
|
|
Commercial real estate |
| 13,196 |
|
| 430 |
|
| 321 |
|
| 20,682 |
|
| 1,085 |
|
| 1,115 |
|
|
Without an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only |
| 81,638 |
|
| 1,069 |
|
| 1,136 |
|
| 66,453 |
|
| 815 |
|
| 1,000 |
|
|
Amortizing |
| 17,452 |
|
| 221 |
|
| 234 |
|
| 13,054 |
|
| 81 |
|
| 101 |
|
|
Reduced documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only |
| 115,363 |
|
| 1,731 |
|
| 1,824 |
|
| 108,676 |
|
| 1,493 |
|
| 1,697 |
|
|
Amortizing |
| 17,293 |
|
| 291 |
|
| 303 |
|
| 13,848 |
|
| 227 |
|
| 234 |
|
|
Multi-family |
| 9,168 |
|
| 921 |
|
| 662 |
|
| 479 |
|
| — |
|
| — |
|
|
Commercial real estate |
| 4,812 |
|
| 541 |
|
| 389 |
|
| — |
|
| — |
|
| — |
|
|
Total impaired loans |
| $ 341,723 |
|
| $ 8,252 |
|
| $ 7,607 |
|
| $ 311,992 |
|
| $ 6,471 |
|
| $ 7,014 |
|
|
The following tables set forth the balances of our residential mortgage and consumer and other loan receivable segments by class and credit quality indicator at the dates indicated.
|
| At September 30, 2012 |
| ||||||||||
|
| Residential Mortgage Loans |
| Consumer and Other Loans |
| ||||||||
|
| Full Documentation |
| Reduced Documentation |
| Home Equity |
|
|
| ||||
(In Thousands) |
| Interest-only |
| Amortizing |
| Interest-only |
| Amortizing |
| Lines of Credit |
| Other |
|
Performing |
| $ 2,020,065 |
| $ 6,633,834 |
| $ 917,481 |
| $ 373,279 |
| $ 231,755 |
| $ 31,992 |
|
Non-performing |
| 96,845 |
| 45,227 |
| 120,236 |
| 32,424 |
| 6,000 |
| 60 |
|
Total |
| $ 2,116,910 |
| $ 6,679,061 |
| $ 1,037,717 |
| $ 405,703 |
| $ 237,755 |
| $ 32,052 |
|
|
| At December 31, 2011 |
| ||||||||||
|
| Residential Mortgage Loans |
| Consumer and Other Loans |
| ||||||||
|
| Full Documentation |
| Reduced Documentation |
| Home Equity |
|
|
| ||||
(In Thousands) |
| Interest-only |
| Amortizing |
| Interest-only |
| Amortizing |
| Lines of Credit |
| Other |
|
Performing |
| $ 2,588,437 |
| $ 6,264,110 |
| $ 1,014,039 |
| $ 377,086 |
| $ 253,041 |
| $ 23,335 |
|
Non-performing |
| 107,503 |
| 43,937 |
| 131,301 |
| 35,126 |
| 5,995 |
| 73 |
|
Total |
| $ 2,695,940 |
| $ 6,308,047 |
| $ 1,145,340 |
| $ 412,212 |
| $ 259,036 |
| $ 23,408 |
|
The following table sets forth the balances of our residential interest-only mortgage loans at September 30, 2012 by the period in which such loans are scheduled to enter their amortization period.
(In Thousands) |
| Recorded |
|
Amortization scheduled to begin: |
|
|
|
Within one year |
| $ 133,161 |
|
More than one year to three years |
| 1,067,579 |
|
More than three years to five years |
| 1,506,774 |
|
Over five years |
| 447,113 |
|
Total |
| $ 3,154,627 |
|
The following table sets forth the balances of our multi-family and commercial real estate mortgage loan receivable segments by credit quality indicator at the dates indicated.
|
| At September 30, 2012 |
| At December 31, 2011 |
| ||||||||
(In Thousands) |
| Multi-Family |
| Commercial |
| Multi-Family |
| Commercial |
| ||||
Not classified |
| $ 2,126,766 |
|
| $ 656,742 |
|
| $ 1,557,315 |
|
| $ 596,799 |
|
|
Classified |
| 135,516 |
|
| 58,187 |
|
| 136,556 |
|
| 62,907 |
|
|
Total |
| $ 2,262,282 |
|
| $ 714,929 |
|
| $ 1,693,871 |
|
| $ 659,706 |
|
|
The following tables set forth information about our loans receivable by segment and class at September 30, 2012 and 2011 which were modified in a troubled debt restructuring during the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Modifications During the Three Months Ended September 30, |
| ||||||||||||||||
|
| 2012 |
| 2011 |
| ||||||||||||||
(Dollars In Thousands) |
| Number |
| Pre- |
| Recorded |
| Number |
| Pre- |
| Recorded |
| ||||||
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only |
| 2 |
|
| $ 355 |
|
| $ 354 |
|
| 3 |
|
| $ 1,071 |
|
| $ 1,066 |
|
|
Amortizing |
| 3 |
|
| 805 |
|
| 786 |
|
| — |
|
| — |
|
| — |
|
|
Reduced documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only |
| 5 |
|
| 2,693 |
|
| 2,690 |
|
| 5 |
|
| 1,495 |
|
| 1,383 |
|
|
Amortizing |
| — |
|
| — |
|
| — |
|
| 2 |
|
| 284 |
|
| 238 |
|
|
Multi-family |
| — |
|
| — |
|
| — |
|
| 3 |
|
| 2,097 |
|
| 2,072 |
|
|
Commercial real estate |
| 3 |
|
| 3,437 |
|
| 3,325 |
|
| 1 |
|
| 950 |
|
| 910 |
|
|
Total |
| 13 |
|
| $ 7,290 |
|
| $ 7,155 |
|
| 14 |
|
| $ 5,897 |
|
| $ 5,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Modifications During the Nine Months Ended September 30, |
| ||||||||||||||||
|
| 2012 |
| 2011 |
| ||||||||||||||
(Dollars In Thousands) |
| Number |
| Pre-Modification |
| Recorded |
| Number |
| Pre-Modification |
| Recorded |
| ||||||
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only |
| 6 |
|
| $ 1,415 |
|
| $ 1,384 |
|
| 12 |
|
| $ 5,143 |
|
| $ 5,130 |
|
|
Amortizing |
| 3 |
|
| 805 |
|
| 786 |
|
| — |
|
| — |
|
| — |
|
|
Reduced documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only |
| 12 |
|
| 5,422 |
|
| 5,407 |
|
| 24 |
|
| 10,269 |
|
| 10,119 |
|
|
Amortizing |
| 5 |
|
| 1,950 |
|
| 1,840 |
|
| 5 |
|
| 721 |
|
| 667 |
|
|
Multi-family |
| 12 |
|
| 31,581 |
|
| 29,129 |
|
| 13 |
|
| 9,057 |
|
| 8,934 |
|
|
Commercial real estate |
| 6 |
|
| 7,671 |
|
| 6,120 |
|
| 4 |
|
| 7,176 |
|
| 6,692 |
|
|
Total |
| 44 |
|
| $ 48,844 |
|
| $ 44,666 |
|
| 58 |
|
| $ 32,366 |
|
| $ 31,542 |
|
|
The following table sets forth information about our loans receivable by segment and class at September 30, 2012 and 2011 which were modified in a troubled debt restructuring during the twelve months ended September 30, 2012 and 2011 and had a payment default subsequent to the modification during the periods indicated.
|
| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, |
| ||||||||||||||||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||||||||||||||
(Dollars In Thousands) |
| Number |
| Recorded |
| Number |
| Recorded |
| Number |
| Recorded |
| Number |
| Recorded |
| ||||||||
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only |
| — |
|
| $ — |
|
| 1 |
|
| $ 339 |
|
| — |
|
| $ — |
|
| 4 |
|
| $ 1,442 |
|
|
Amortizing | �� | 1 |
|
| 485 |
|
| — |
|
| — |
|
| 1 |
|
| 485 |
|
| 1 |
|
| 161 |
|
|
Reduced documentation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only |
| 3 |
|
| 1,174 |
|
| 10 |
|
| 4,173 |
|
| 5 |
|
| 1,821 |
|
| 11 |
|
| 4,594 |
|
|
Amortizing |
| — |
|
| — |
|
| 2 |
|
| 263 |
|
| 5 |
|
| 1,817 |
|
| 2 |
|
| 263 |
|
|
Multi-family |
| 1 |
|
| 2,062 |
|
| — |
|
| — |
|
| 2 |
|
| 3,743 |
|
| 1 |
|
| 755 |
|
|
Total |
| 5 |
|
| $ 3,721 |
|
| 13 |
|
| $ 4,775 |
|
| 13 |
|
| $ 7,866 |
|
| 19 |
|
| $ 7,215 |
|
|
For additional information regarding our loans receivable and allowance for loan losses, see “Asset Quality” and “Critical Accounting Policies” in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” or “MD&A.”
5. Earnings Per Share
The following table is a reconciliation of basic and diluted earnings per share.
|
| For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||
(In Thousands, Except Share Data) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
Net income |
| $ 13,355 |
|
| $ 11,216 |
|
| $ 36,175 |
|
| $ 55,445 |
|
|
Income allocated to participating securities (restricted stock) |
| (206 | ) |
| (304 | ) |
| (250 | ) |
| (1,385 | ) |
|
Income attributable to common shareholders |
| $ 13,149 |
|
| $ 10,912 |
|
| $ 35,925 |
|
| $ 54,060 |
|
|
Average number of common shares outstanding — basic |
| 95,555,816 |
|
| 93,338,310 |
|
| 95,303,453 |
|
| 93,009,518 |
|
|
Dilutive effect of stock options (1) |
| — |
|
| — |
|
| — |
|
| — |
|
|
Average number of common shares outstanding — diluted |
| 95,555,816 |
|
| 93,338,310 |
|
| 95,303,453 |
|
| 93,009,518 |
|
|
Income per common share attributable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ 0.14 |
|
| $ 0.12 |
|
| $ 0.38 |
|
| $ 0.58 |
|
|
Diluted |
| $ 0.14 |
|
| $ 0.12 |
|
| $ 0.38 |
|
| $ 0.58 |
|
|
(1) | Excludes options to purchase 5,452,028 shares of common stock which were outstanding during the three months ended September 30, 2012; options to purchase 6,868,628 shares of common stock which were outstanding during the three months ended September 30, 2011; options to purchase 5,674,912 shares of common stock which were outstanding during the nine months ended September 30, 2012; and options to purchase 6,891,205 shares of common stock which were outstanding during the nine months ended September 30, 2011 because their inclusion would be anti-dilutive. |
6. Pension Plans and Other Postretirement Benefits
On March 6, 2012, our Board of Directors and the Board of Directors of Astoria Federal approved amendments to the Astoria Federal Savings and Loan Association Employees’ Pension Plan, the Astoria Federal Savings and Loan Association Excess Benefit Plan and the Astoria Federal Savings and Loan Association Supplemental Benefit Plan, or the Excess and Supplemental Plans, and the Astoria Federal Savings and Loan Association Directors’ Retirement Plan, effective April 30, 2012 to change the manner in which benefits are computed for service through April 30, 2012 and to suspend accrual of additional benefits for all of the aforementioned plans effective April 30, 2012.
As a result, we remeasured our benefit obligations and the funded status of our defined benefit pension plans at March 31, 2012, updating the pension measurement assumptions. The remeasurement resulted in a $40.6 million increase in the funded status at March 31, 2012 compared to December 31, 2011. The increase was the result of a $20.4 million decrease in the projected pension benefit obligation at March 31, 2012 compared to December 31, 2011 resulting from the plan amendments and an increase of $20.2 million in the fair value of plan assets at March 31, 2012 compared to December 31, 2011 resulting from the return on plan assets and employer contributions during the 2012 first quarter.
The remeasurement also resulted in a $32.0 million reduction in the pre-tax component of accumulated other comprehensive loss at March 31, 2012 compared to December 31, 2011 related to pension plans. We expect that $5.4 million in net actuarial loss and $152,000 in prior service cost will be recognized as components of net periodic cost for 2012.
We expect the plan amendments will reduce estimated net periodic cost for our defined benefit pension plans to approximately $8.1 million for 2012, including approximately $2.0 million in settlement charges we expect to record in the 2012 fourth quarter in the Excess and Supplemental Plans related to the settlement of employment agreements associated with previously announced executive retirements, compared to $14.8 million for 2011.
The following tables set forth information regarding the components of net periodic cost for our defined benefit pension plans and other postretirement benefit plan for the periods indicated.
|
| Pension Benefits |
| Other Postretirement | |||||||||
|
| For the Three Months Ended |
| For the Three Months Ended | |||||||||
(In Thousands) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
Service cost |
| $ — |
|
| $ 1,161 |
|
| $ 265 |
|
| $ 132 |
|
|
Interest cost |
| 2,663 |
|
| 3,054 |
|
| 345 |
|
| 340 |
|
|
Expected return on plan assets |
| (3,109 | ) |
| (2,662 | ) |
| — |
|
| — |
|
|
Recognized net actuarial loss |
| 563 |
|
| 2,111 |
|
| 129 |
|
| 36 |
|
|
Amortization of prior service cost (credit) |
| 56 |
|
| 47 |
|
| (6 | ) |
| (24 | ) |
|
Net periodic cost |
| $ 173 |
|
| $ 3,711 |
|
| $ 733 |
|
| $ 484 |
|
|
|
| Pension Benefits |
| Other Postretirement | |||||||||
|
| For the Nine Months Ended |
| For the Nine Months Ended | |||||||||
(In Thousands) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
Service cost |
| $ 2,025 |
|
| $ 3,482 |
|
| $ 796 |
|
| $ 397 |
|
|
Interest cost |
| 8,327 |
|
| 9,159 |
|
| 1,034 |
|
| 1,020 |
|
|
Expected return on plan assets |
| (8,837 | ) |
| (7,986 | ) |
| — |
|
| — |
|
|
Recognized net actuarial loss |
| 4,366 |
|
| 6,334 |
|
| 387 |
|
| 110 |
|
|
Amortization of prior service cost (credit) |
| 122 |
|
| 143 |
|
| (18 | ) |
| (74 | ) |
|
Curtailment |
| 7 |
|
| — |
|
| — |
|
| — |
|
|
Net periodic cost |
| $ 6,010 |
|
| $ 11,132 |
|
| $ 2,199 |
|
| $ 1,453 |
|
|
7. Stock Incentive Plans
The following table summarizes restricted stock activity in our stock incentive plans for the nine months ended September 30, 2012.
|
| Number of |
| Weighted Average |
| |||
Nonvested at January 1, 2012 |
|
| 1,936,225 |
|
| $ 16.53 |
|
|
Granted |
|
| 149,000 |
|
| 9.84 |
|
|
Vested |
|
| (312,591 | ) |
| (27.24 | ) |
|
Forfeited |
|
| (268,776 | ) |
| (14.24 | ) |
|
Nonvested at September 30, 2012 |
|
| 1,503,858 |
|
| 14.05 |
|
|
As a result of the resignation and retirement of several executive officers, coupled with our cost control initiatives during the 2012 first quarter, 268,776 shares of restricted stock were forfeited during the six months ended June 30, 2012. This level of forfeitures significantly exceeded our original estimate of restricted stock forfeitures based on our prior experience. As a result, in the 2012 first quarter, we reversed stock-based compensation expense totaling $569,000, net of taxes of $310,000, representing stock-based compensation expense previously recognized on unvested shares of restricted stock which will not vest as a result of forfeitures.
Stock-based compensation expense is recognized on a straight-line basis over the vesting period and totaled $978,000, net of taxes of $533,000, for the three months ended September 30, 2012 and $2.4 million, net of taxes of $1.3 million, for the nine months ended September 30, 2012. Stock-based compensation expense totaled $1.6 million, net of taxes of $850,000, for the three months ended September 30, 2011 and $4.5 million, net of taxes of $2.5 million, for the nine months ended September 30, 2011. At September 30, 2012, pre-tax compensation cost related to all nonvested awards of restricted stock not yet recognized totaled $11.7 million and will be recognized over a weighted average period of approximately 2.5 years, which includes $860,000 of pre-tax compensation cost related to 65,000 shares granted in 2011 under a performance-based award for which compensation cost will begin to be recognized when the achievement of the performance conditions becomes probable.
8. Fair Value Measurements
We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. 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. We maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Recurring Fair Value Measurements
Our securities available-for-sale 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. 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.
The following tables set forth the carrying values of our assets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at the dates indicated.
|
| Carrying Value at September 30, 2012 |
|
| ||||||
(In Thousands) |
| Total |
|
| Level 1 |
|
| Level 2 |
|
|
Securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
GSE issuance REMICs and CMOs |
| $ 238,665 |
|
| $ — |
|
| $ 238,665 |
|
|
Non-GSE issuance REMICs and CMOs |
| 12,235 |
|
| — |
|
| 12,235 |
|
|
GSE pass-through certificates |
| 22,454 |
|
| — |
|
| 22,454 |
|
|
Obligations of GSEs |
| 50,120 |
|
| — |
|
| 50,120 |
|
|
Freddie Mac and Fannie Mae stock |
| 2,384 |
|
| 2,384 |
|
| — |
|
|
Total securities available-for-sale |
| $ 325,858 |
|
| $ 2,384 |
|
| $ 323,474 |
|
|
|
| Carrying Value at December 31, 2011 |
|
| ||||||
(In Thousands) |
| Total |
|
| Level 1 |
|
| Level 2 |
|
|
Securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
GSE issuance REMICs and CMOs |
| $ 298,620 |
|
| $ — |
|
| $ 298,620 |
|
|
Non-GSE issuance REMICs and CMOs |
| 15,795 |
|
| — |
|
| 15,795 |
|
|
GSE pass-through certificates |
| 25,192 |
|
| — |
|
| 25,192 |
|
|
Freddie Mac and Fannie Mae stock |
| 4,580 |
|
| 4,580 |
|
| — |
|
|
Total securities available-for-sale |
| $ 344,187 |
|
| $ 4,580 |
|
| $ 339,607 |
|
|
The following is a description of valuation methodologies used for assets measured at fair value on a recurring basis.
Residential mortgage-backed securities
Our securities available-for-sale portfolio consists primarily of residential 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, 2012, 96% 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 and thirty year securities. Each month we conduct a review of the estimated fair values of our fixed rate REMICs and CMOs available-for-sale which represent primarily all of the 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 estimated fair values 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.
Obligations of GSEs
Obligations of GSEs included in our securities available-for-sale portfolio consist of debt securities issued by GSEs, the fair values for which are obtained from an independent nationally recognized pricing service. Our pricing service gathers information from market sources and integrates relative credit information, observed market movement and sector news into their pricing applications and models. Spread scales, representing credit risk, are created and are based on the new issue market, secondary trading and dealer quotes. Option adjusted spread models are incorporated to adjust spreads of issues that have early redemption features. Based upon our review of the prices provided by our pricing service, the estimated fair values 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.
Freddie Mac and Fannie Mae stock
The fair values of the Freddie Mac and Fannie Mae stock in our available-for-sale securities portfolio are obtained from quoted market prices for identical instruments in active markets and, as such, are classified as Level 1.
Non-Recurring Fair Value Measurements
From time to time, we may be required to record at fair value 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.
The following table sets forth the carrying values of those of our assets which were measured at fair value on a non-recurring basis at the dates indicated. The fair value measurements for all of these assets fall within Level 3 of the fair value hierarchy.
|
| Carrying Value |
|
| |||||||
(In Thousands) |
| At September 30, 2012 |
|
| At December 31, 2011 |
| |||||
Non-performing loans held-for-sale, net |
| $ | 779 |
|
|
| $ | 19,744 |
|
| |
Impaired loans |
|
| 254,652 |
|
|
| 232,849 |
|
| ||
MSR, net |
|
| 7,147 |
|
|
| 8,136 |
|
| ||
REO, net |
|
| 21,807 |
|
|
| 36,956 |
|
| ||
Total |
| $ | 284,385 |
|
|
| $ | 297,685 |
|
| |
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 | |||||
(In Thousands) |
| 2012 |
| 2011 |
| ||
Non-performing loans held-for-sale, net (1) |
| $ 696 |
|
| $ 437 |
|
|
Impaired loans (2) |
| 31,555 |
|
| 36,308 |
|
|
MSR, net (3) |
| 1,089 |
|
| 336 |
|
|
REO, net (4) |
| 3,093 |
|
| 5,658 |
|
|
Total |
| $ 36,433 |
|
| $ 42,739 |
|
|
(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.
The following is a description of valuation methodologies used for assets measured at fair value on a non-recurring basis.
Loans-held-for-sale, net (non-performing loans held-for-sale)
Non-performing loans held-for-sale were comprised of multi-family mortgage loans at September 30, 2012 and were comprised primarily of multi-family and commercial real estate mortgage loans at December 31, 2011. 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 at September 30, 2012 were comprised of 74% residential mortgage loans and 26% multi-family and commercial real estate loans. At December 31, 2011, impaired loans consisted primarily of residential mortgage loans. Impaired loans for which a fair value adjustment was recognized consisted primarily of residential mortgage loans at September 30, 2012 and December 31, 2011. Our impaired loans are generally collateral dependent and, as such, are carried at the estimated fair value of the collateral less estimated selling costs.
We obtain updated estimates of collateral values on impaired residential loans at 180 days past due and annually thereafter and for loans to borrowers who have filed for bankruptcy initially when we are notified of the bankruptcy filing. Updated estimates of collateral value on residential loans are obtained primarily through automated valuation models. Additionally, our loan servicer performs property inspections to monitor and manage the collateral on our residential loans when they become 45 days past due and monthly thereafter until the foreclosure process is complete. We obtain updated estimates of collateral value using third party appraisals on non-performing impaired multi-family and commercial real estate loans with balances of $1.0 million or greater when the loans initially become non-performing and multi-family and
commercial real estate loans modified in a troubled debt restructuring at the time of the modification. Annually thereafter, we perform inspections of these properties to monitor the collateral. Appraisals on multi-family and commercial real estate loans are reviewed by our internal certified appraisers. Adjustments to final appraised values obtained from independent third party appraisers and automated valuation models are not made. The fair values of impaired loans cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the loan and, as such, are classified as Level 3.
MSR, net
The right to service loans for others is generally obtained through the sale of residential 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, 2012, our MSR were valued based on expected future cash flows considering a weighted average discount rate of 10.95%, a weighted average constant prepayment rate on mortgages of 23.04% and a weighted average life of 3.4 years. At December 31, 2011, our MSR were valued based on expected future cash flows considering a weighted average discount rate of 10.94%, a weighted average constant prepayment rate on mortgages of 20.30% and a weighted average life of 3.7 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, all of which were residential properties at September 30, 2012 and December 31, 2011, 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.
Fair Value of Financial Instruments
Quoted market prices available in formal trading marketplaces are typically the best evidence of the 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 tables set forth the carrying values 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 are not measured or recorded at fair value on a recurring basis, and the level within the fair value hierarchy in which the fair value measurements fall at the dates indicated.
|
| At September 30, 2012 | |||||||||
|
| Carrying |
| Estimated Fair Value | |||||||
(In Thousands) |
| Value |
| Total |
| Level 2 |
| Level 3 |
| ||
Financial Assets: |
|
|
|
|
|
|
|
|
| ||
Securities held-to-maturity |
| $ | 1,952,938 |
| $ | 1,982,663 |
| $ 1,982,663 |
| $ — |
|
FHLB-NY stock |
| 181,832 |
| 181,832 |
| 181,832 |
| — |
| ||
Loans held-for-sale, net (1) |
| 20,877 |
| 21,902 |
| — |
| 21,902 |
| ||
Loans receivable, net (1) |
| 13,410,615 |
| 13,688,968 |
| — |
| 13,688,968 |
| ||
MSR, net (1) |
| 7,147 |
| 7,147 |
| — |
| 7,147 |
| ||
Financial Liabilities: |
|
|
|
|
|
|
|
|
| ||
Deposits |
| 10,538,882 |
| 10,689,417 |
| 10,689,417 |
| — |
| ||
Borrowings, net |
| 4,809,366 |
| 5,318,282 |
| 5,318,282 |
| — |
| ||
(1) Includes assets measured at fair value on a non-recurring basis.
|
| At December 31, 2011 |
| ||||||||
|
| Carrying |
| Estimated Fair Value |
| ||||||
(In Thousands) |
| Value |
| Total |
| Level 2 |
| Level 3 |
| ||
Financial Assets: |
|
|
|
|
|
|
|
|
| ||
Securities held-to-maturity |
| $ | 2,130,804 |
| $ | 2,176,925 |
| $ 2,176,925 |
| $ — |
|
FHLB-NY stock |
| 131,667 |
| 131,667 |
| 131,667 |
| — |
| ||
Loans held-for-sale, net (1) |
| 32,394 |
| 32,611 |
| — |
| 32,611 |
| ||
Loans receivable, net (1) |
| 13,117,419 |
| 13,368,354 |
| — |
| 13,368,354 |
| ||
MSR, net (1) |
| 8,136 |
| 8,137 |
| — |
| 8,137 |
| ||
Financial Liabilities: |
|
|
|
|
|
|
|
|
| ||
Deposits |
| 11,245,614 |
| 11,416,033 |
| 11,416,033 |
| — |
| ||
Borrowings, net |
| 4,121,573 |
| 4,624,636 |
| 4,624,636 |
| — |
| ||
(1) Includes assets measured at fair value on a non-recurring basis.
The following is a description of the methods and assumptions used to estimate fair values of our financial instruments which are not measured or recorded at fair value on a recurring or non-recurring basis.
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 measured at fair value on a recurring basis.
Federal Home Loan Bank, or FHLB, of New York, or FHLB-NY, stock
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 residential mortgage loans originated for sale are estimated using an option-based pricing methodology designed to take into account interest rate volatility, which has a significant effect on the value of the options embedded in loans such as prepayments. This methodology involves generating simulated interest rates, calculating the option adjusted spread, or OAS, of a mortgage-backed security whose price is known, which serves as a benchmark price, and using the benchmark OAS to estimate the pricing on an instrument level for similar mortgage instruments whose prices are not known.
Loans receivable, net
Fair values of loans are estimated using an option-based pricing methodology designed to take into account interest rate volatility, which has a significant effect on the value of the options embedded in loans such as prepayments and interest rate caps and floors. This pricing methodology involves generating simulated interest rates, calculating the OAS of a mortgage-backed security whose price is known, which serves as a benchmark price, and using the benchmark OAS to estimate the pricing on an instrument level for similar mortgage instruments whose prices are not known.
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.
Deposits
The fair values of deposits with no stated maturity, such as savings, money market and NOW and demand deposit accounts, are equal to the amount payable on demand. The fair values of certificates of deposit 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 Federal Reserve.
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 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. The fair values of these commitments are immaterial to our financial condition.
9. 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.
City of New York Notice of Determination
By “Notice of Determination” dated September 14, 2010 and August 26, 2011, the City of New York has notified us of alleged tax deficiencies in the amount of $13.3 million, including interest and penalties, related to our 2006 through 2008 tax years. The deficiencies relate 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 through our third party loan origination program. We disagree with the assertion of the tax deficiencies and we filed Petitions for Hearings with the City of New York on December 6, 2010 and October 5, 2011 to oppose the Notices of Determination and to consolidate the hearings. A hearing in this matter is expected to occur in the 2012 fourth quarter. 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, 2012 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 deficiencies asserted by the City of New York, whether additional tax will be assessed for years subsequent to 2008, 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.
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, or ATMs, 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. On March 10, 2011, the Southern District Court entered an order on the record that dismissed all claims against Astoria Financial Corporation but denied the motion to dismiss the claims against Astoria Federal for alleged direct patent infringement. The order also dismissed in part the claims against Astoria Federal
for alleged inducement of our customers to violate plaintiff’s patents and for Astoria Federal’s allegedly willful violation of the plaintiff’s patents, allowing claims to continue only for alleged inducement and willful infringement after our receiving notice of the pending suit from plaintiff’s counsel. Based on the Southern District Court’s ruling, on March 31, 2011, we answered the amended complaint substantially denying the allegations of the amended complaint.
On July 18, 2012, we filed a motion for summary judgment for non-infringement based on a recent ruling by the U.S. Court of Appeals for the Federal District affirming the Delaware District Court’s decision to grant summary judgment in favor of a defendant in an action involving the same plaintiff making substantially similar allegations with respect to identical and substantially similar patents as those involved in the action against us. We intend to continue to vigorously defend this lawsuit.
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 we served third party complaints against Metavante Corporation and Diebold, Inc. seeking to enforce our indemnification rights.
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 cannot at this time estimate the possible loss or range of loss, if any. No assurance can be given at this time that this 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.
Lefkowitz Litigation
On February 27, 2012, a putative class action entitled Ellen Lefkowitz, individually and on behalf of all Persons similarly situated v. Astoria Federal Savings and Loan Association was commenced in the Supreme Court of The State of New York, County of Queens, or the Queens County Supreme Court, against us alleging that during the proposed class period, we improperly charged overdraft fees to customer accounts when accounts were not overdrawn, improperly reordered electronic debit transactions from the highest to the lowest dollar amount and processed debits before credits to deplete accounts and maximize overdraft fee income. The complaint contains the further assertion that we did not adequately inform our customers that they had the option to “opt-out” of overdraft services. We were served with the summons and complaint in such action on February 29, 2012 and were initially required to reply on or before April 30, 2012. By Stipulation between the parties, our time to answer was extended to May 7, 2012, at which time we moved to dismiss the complaint. On July 19, 2012, the Queens County Supreme Court issued an order dismissing the complaint in its entirety. On September 7, 2012, the plaintiff filed a notice of appeal with the Supreme Court of the State of New York, Appellate Division, Second Judicial Department, or Appellate Division. We intend to continue to vigorously defend this lawsuit. We cannot at this time estimate the possible loss or range of loss, if any. No assurance can be given at this time that this litigation against us will be resolved amicably, that this litigation will not be costly to defend, that this litigation will not have an impact on our financial condition or results of operations or that, ultimately, any such impact will not be material.
10. Impact of Accounting Standards and Interpretations
Effective January 1, 2012, we adopted the guidance in Accounting Standards Update, or ASU, 2011-05, “Comprehensive Income (Topic 220) Presentation of Comprehensive Income,” as amended by ASU 2011-12, “Comprehensive Income (Topic 220) Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standard Update No. 2011-05.” ASU 2011-05, as amended, eliminated the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity, which was one of three alternatives for presenting other comprehensive income and its components in financial statements. ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. We have elected the two-statement approach. Since the provisions of ASU 2011-05, as amended, are presentation related only, our adoption of this guidance did not have an impact on our financial condition or results of operations.
Effective January 1, 2012, we adopted the guidance in ASU 2011-04, “Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The guidance in ASU 2011-04 explains how to measure fair value, but does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting and results in common fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards. This guidance was not intended to result in a change in the application of the requirements in Topic 820. Some of this guidance clarifies the application of existing fair value measurement requirements while other aspects change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. Our adoption of this guidance on January 1, 2012 did not have an 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, including the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Reform Act, and any actions regarding foreclosures, may adversely affect our business;
· transition of our regulatory supervisor from the Office of Thrift Supervision to the Office of the Comptroller of the Currency, or OCC, and the Board of Governors of the Federal Reserve Board, or the FRB;
· effects of changes in existing U.S. government or government-sponsored mortgage programs;
· 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 residential mortgage loans, multi-family mortgage loans, commercial real estate loans and mortgage-backed securities. Our results of operations are dependent primarily on our net interest income, which is the difference between the interest earned on our assets, primarily our loan and securities portfolios, and the interest paid on our deposits and borrowings. Our earnings are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates and U.S. Treasury yield curves, government policies and actions of regulatory authorities.
As the premier Long Island community bank, our goals are to enhance shareholder value while building a solid banking franchise. We focus on growing our core businesses of mortgage portfolio lending and retail banking while maintaining strong asset quality and controlling operating expenses. We also provide returns to shareholders through dividends.
We are impacted by both national and regional economic factors. With residential mortgage loans from various regions of the country held in our portfolio, the condition of the national economy impacts our earnings. During 2011 and continuing into 2012, the U.S. economy has shown signs of a very slow and tenuous recovery from the recession which began in 2008. The national unemployment rate, while still at a high level, declined to 7.8% for September 2012, compared to a peak of 10.0% for October 2009, although new job growth remains slow. Softness in the housing and real estate markets persists, although the extent of such softness varies from region to region. While the trend of lower non-performing loans has continued during 2012, we expect the levels will remain somewhat elevated for some time, especially in certain states where judicial foreclosure proceedings are required. With respect to our multi-family mortgage loan origination activities, primarily focused in New York, we have observed favorable market conditions during the first nine months of 2012.
In addition to considering the challenging economic environment in which we compete, the regulation and oversight of our business changed during 2011. As described in more detail in Part I, Item 1A, “Risk Factors,” in our 2011 Annual Report on Form 10-K, as supplemented by our March 31, 2012 and June 30, 2012 Quarterly Reports on Form 10-Q, certain aspects of the Reform Act have an impact on us, including the expanded regulatory burden resulting from oversight of Astoria Federal by the OCC and the Consumer Financial Protection Bureau and oversight of Astoria Financial Corporation by the FRB, as well as changes to, and significant increases in, deposit insurance assessments, the imposition of consolidated holding company capital requirements and the roll back of federal preemption applicable to certain of our operations. The FRB has issued notices of proposed rulemaking during 2012 that would subject all savings and loan holding companies, including Astoria Financial Corporation, to consolidated capital requirements. These proposed rules also would revise the quantity and quality of required minimum risk-based and leverage capital requirements, consistent with the Reform Act and the Basel III capital standards, and would revise the rules for calculating risk-weighted assets to
enhance their risk sensitivity, which, among other things, would generally exclude trust preferred securities as a component of tier 1 capital. The proposed rules provide for various phase-in periods over the next several years. We are continuing to review the impact that the Reform Act, Basel III and related proposed rule-making will have on our business, financial condition and results of operations.
Net income for the three months ended September 30, 2012 increased compared to the three months ended September 30, 2011, reflecting a reduction of non-interest expense which more than offset a lower level of net interest income. For the nine months ended September 30, 2012, net income was lower in comparison to the nine months ended September 30, 2011. This decline was primarily attributable to a lower level of net interest income, coupled with an increase in non-interest expense.
Net interest income, the net interest rate spread and the net interest margin for the three and nine months ended September 30, 2012 were lower compared to the respective three and nine month periods in 2011, primarily due to more rapid declines in the yields on average interest-earning assets than the declines in the costs of average interest-bearing liabilities. On June 19, 2012, we completed the sale of $250.0 million aggregate principal amount of 5.00% senior unsecured notes due 2017, or 5.00% Senior Notes. The proceeds from the sale of the 5.00% Senior Notes were used to redeem our $250.0 million aggregate principal amount of 5.75% senior unsecured notes due October 2012, or 5.75% Senior Notes, on September 13, 2012. The repayment of the 5.75% Senior Notes and issuance of the 5.00% Senior Notes will result in a reduction of future annual interest expense with respect to our other borrowings. The short-term cost to carry the 5.00% Senior Notes until the 5.75% Senior Notes were repaid had the effect of reducing the 2012 third quarter net interest income and had a negative impact on the 2012 third quarter net interest margin of approximately nine basis points.
Interest income for the three months ended September 30, 2012 decreased compared to the three months ended September 30, 2011 primarily due to lower average yields on mortgage loans and mortgage-backed and other securities, partially offset by an increase in the average balance of multi-family and commercial real estate loans. For the nine months ended September 30, 2012, interest income decreased compared to the nine months ended September 30, 2011 primarily due to lower average yields on mortgage loans and mortgage-backed and other securities, coupled with a decline in the average balance of mortgage loans. Interest expense for the three and nine months ended September 30, 2012 also decreased in relation to the comparable 2011 periods, primarily due to decreases in interest expense on certificates of deposit and borrowings. The decreases in interest expense on certificates of deposit primarily reflect declines in the average balances of such accounts, although the average costs also declined. The declines in interest expense on borrowings were attributable to declines in the average costs of borrowings, offset by increases in the average balances.
The provision for loan losses for the 2012 third quarter totaled $9.5 million, resulting in a provision of $29.5 million for the first nine months of 2012, compared to $10.0 million for the 2011 third quarter and $27.0 million for the first nine months of 2011. The allowance for loan losses totaled $148.5 million at September 30, 2012, compared to $157.2 million at December 31, 2011. The decrease in the allowance for loan losses reflects the general stabilizing trend in overall asset quality we have experienced since 2010 as total delinquencies have continued a downward trend. The allowance for loan losses at September 30, 2012 reflects the composition and size of our loan portfolio, the levels and composition of our loan delinquencies and non-
performing loans, our loss history and our evaluation of the housing and real estate markets and overall economy, including the unemployment rate and other factors.
Non-interest income for the three and nine months ended September 30, 2012 remained flat in comparison to the three and nine months ended September 30, 2011. Lower customer service fees in 2012 were offset by increased mortgage banking income, net, and, for the nine months ended September 30, 2012, a gain on sales of securities and an increase in other non-interest income.
Non-interest expense decreased for the three months ended September 30, 2012 compared to the three months ended September 30, 2011 and increased for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011. The decrease for the 2012 third quarter compared to the 2011 third quarter is primarily attributable to reduced compensation and benefits expense, partially offset by increases in Federal Deposit Insurance Corporation, or FDIC, insurance premium expense and other non-interest expense. The increase for the first nine months of 2012 over the first nine months of 2011 is primarily the result of increased FDIC insurance premium expense, other non-interest expense and occupancy, equipment and systems expense, which more than offset a decline in compensation and benefits expense. The reductions in compensation and benefits expense in the 2012 periods, compared to the 2011 periods, reflect, in part, the benefits resulting from our cost control initiatives implemented in the 2012 first quarter. The increases in other non-interest expense for the three and nine months ended September 30, 2012, over the comparable 2011 periods, include an early extinguishment of debt charge associated with the prepayment of the 5.75% Senior Notes.
Total assets increased slightly during the nine months ended September 30, 2012, primarily due to an increase in our mortgage loan portfolio which was substantially offset by a decline in our securities portfolio and a decrease in other assets. During the first nine months of 2012, mortgage loan origination and purchase volume exceeded loan repayments, resulting in growth in our mortgage loan portfolio. This growth was fueled by an increase in our multi-family and commercial real estate loan portfolio, reflecting the resumption of such lending in the latter half of 2011 and strong loan production during the first nine months of 2012. The residential mortgage loan portfolio declined during the nine months ended September 30, 2012 as mortgage loan repayments, which remain at elevated levels but did not accelerate in 2012, more than offset our origination and purchase volume. At September 30, 2012, our multi-family and commercial real estate portfolio represented 22% of our total loan portfolio, up from 18% at December 31, 2011. This reflects our focus on repositioning the asset mix of our balance sheet, concentrating more on higher yielding multi-family loans than on lower yielding residential loans.
Total deposits decreased during the nine months ended September 30, 2012 as a result of a decline in certificates of deposit, while low cost savings, money market and NOW and demand deposit accounts increased. At September 30, 2012, low cost savings, money market and NOW and demand deposit accounts represented 59% of total deposits, up from 51% at December 31, 2011. This reflects our efforts to reposition the liability mix of our balance sheet, reducing high cost certificates of deposit and increasing low cost savings, money market and NOW and demand deposit accounts.
Our borrowings portfolio increased during the nine months ended September 30, 2012. The increase was due to an increase in FHLB-NY advances, partially offset by a decline in reverse repurchase agreements. Excluding the newly issued 5.00% Senior Notes, during the nine months
ended September 30, 2012 we extended $700.0 million of fixed rate, non-callable borrowings with a weighted average rate of 1.05% and a weighted average term of 3.8 years. During this period of historic low interest rates, we have utilized low cost borrowings to offset the decline in high cost certificates of deposit to help manage interest rate risk.
Stockholders’ equity increased as of September 30, 2012 compared to December 31, 2011 due primarily to earnings for the nine months ended September 30, 2012 and a reduction in accumulated other comprehensive loss, partially offset by dividends declared. The reduction in accumulated other comprehensive loss is primarily the result of the adjustment in the 2012 first quarter to reflect the remeasurement of our benefit obligations and the funded status of our defined benefit pension plans at March 31, 2012 pursuant to plan amendments which, among other things, suspended the accrual of additional pension benefits effective April 30, 2012 and resulted in reduced pension costs beginning in the 2012 second quarter.
With the yield curve flattening further due to the Federal Reserve’s extension of “Operation Twist” and the outlook for interest rates to remain at historic lows for some time, we continue to face challenges. This notwithstanding, we believe that our strong multi-family loan origination platform, coupled with our focus on repositioning the asset and liability mix of our balance sheet, will benefit the net interest margin and enhance future earnings.
On October 29, 2012, and continuing through October 30, 2012, the New York metropolitan area was hit by Hurricane Sandy, one of the most significant storm systems experienced in this area. As a result, we temporarily ceased all operations. Upon resumption of operations on October 31, 2012, certain of our branch locations were unable to re-open due to loss of power and other damage sustained and we experienced significant communication systems disruptions. Although we have since resumed operations in substantially all operating locations, we are continuing to assess and recover from the damage resulting from the storm. Repair and recovery costs could be significant. We cannot at this time assess the impact that this storm may have on our borrowers or on the related collateral for loans.
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 Part II, Item 8, “Financial Statements and Supplementary Data,” of our 2011 Annual Report on Form 10-K, as supplemented by our March 31, 2012 and June 30, 2012 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, judgments regarding goodwill and securities impairment and the estimates related to our pension plans and other postretirement benefits 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. Actual results may differ from our estimates and judgments. 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 2011 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 valuation allowances related to individual loans and general valuation allowances, although the total allowance for loan losses is available for losses applicable to the entire loan portfolio.
Valuation allowances on particular loans 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 delinquency status, 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 by our Asset Review Department are completed quarterly for all loans individually classified by our Asset Classification Committee. Individual loan reviews are generally completed annually for multi-family and commercial real estate mortgage loans with balances of $5.0 million or greater or which have been modified in a troubled debt restructuring and commercial business loans with balances of $500,000 or greater. Further, multi-family and commercial real estate portfolio management personnel generally complete annual reviews for multi-family and commercial real estate mortgage loans with balances of $750,000 or greater and recommend further review by the Asset Review Department as appropriate. In addition, our Asset Review Department will generally review annually borrowing relationships whose combined outstanding balance is $5.0 million or greater. 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 individual 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 values on residential mortgage loans at 180 days past due and annually thereafter and for loans to borrowers who have filed for bankruptcy initially when we are notified of the bankruptcy filing. Updated estimates of collateral values on residential loans are obtained primarily through automated valuation models. Additionally, our loan servicer performs property inspections to monitor and manage the collateral on our residential loans when they become 45 days past due and monthly thereafter until the foreclosure process is complete. We update our estimates of collateral values on non-performing multi-family and commercial real estate mortgage loans with balances of $1.0 million or greater when the loans initially become
non-performing and multi-family and commercial real estate loans modified in a troubled debt restructuring at the time of the modification. For multi-family and commercial real estate properties, we estimate collateral value through independent third party appraisals or internal cash flow analyses, when current financial information is available, coupled with, in most cases, an inspection of the property. Appraisals on multi-family and commercial real estate loans are reviewed by our internal certified appraisers. Annually thereafter, inspections of these properties are performed to monitor the collateral. We also obtain updated estimates of collateral for certain other loans when the Asset Classification Committee believes repayment of such loans may be dependent on the value of the underlying collateral. Adjustments to final appraised values obtained from independent third party appraisers and automated valuation models are not made. Other current and anticipated economic conditions on which our individual 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 individual valuation allowances. Our primary banking regulator 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 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. Such charge-offs are taken for residential mortgage loans at 180 days past due and annually thereafter and loans to borrowers who have filed for bankruptcy initially when we are notified of the bankruptcy filing and for impaired multi-family and commercial real estate mortgage loans when the loans are identified as impaired. 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. Individual 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 individual valuation 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 residential 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. We analyze multi-family and commercial real estate loans by portfolio and geographic location. 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. In our analysis of non-performing loans, we consider our aggregate historical loss experience with respect to the ultimate disposition of the underlying collateral along with the migration of delinquent loans based on the portfolio segments noted above. These analyses and the resulting loss rates are used as an integral part of
our judgment in developing estimated loss percentages to apply to the loan portfolio segments. 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 loan 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 and delinquency levels of our loan 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 addition, we evaluate and consider the impact that current and anticipated economic and market conditions may have on the loan portfolio and known and inherent risks in the portfolio. We update our analyses quarterly and we are continually refining our evaluations as experience provides clearer guidance, our product offerings change and as economic conditions evolve.
We analyze our historical loss experience over twelve, fifteen, eighteen and twenty-four month periods. However, our quantitative allowance coverage percentages are based on our twelve month loss history. We believe the twelve month loss analysis is most reflective of current conditions and the potential impact on our future loss exposure. However, the longer periods provide further insight into trends or anomalies and can be a factor in making adjustments to the twelve month analysis. Also, for a particular loan type we may not have sufficient loss history to develop a reasonable estimate of loss and consider our loss experience for other, similar loan types. Additionally, multi-family and commercial real estate loss experience may be adjusted based on the composition of the losses (loan sales, short sales and partial charge-offs). We update our historical loss analyses quarterly and evaluate the need to modify our quantitative allowances as a result of our updated charge-off and loss analyses.
We then consider qualitative factors with the purpose of assessing the adequacy of the overall allowance for loan losses as well as the allocation of the allowance for loan losses by portfolio. The qualitative factors we consider generally include, but are not limited to, changes in (1) lending policies and procedures, (2) economic and business conditions and developments that affect collectibility of our loan portfolio, (3) the nature and volume of our loan portfolio and in the terms of loans, (4) the experience, ability and depth of lending management and other staff, (5) the volume and severity of past due, non-accrual and adversely classified loans, (6) the quality of the loan review system, (7) the value of underlying collateral, (8) the existence or effect of any credit concentrations and (9) external factors such as competition and legal or regulatory requirements. Also considered is certain analytical information, such as coverage ratios, peer analysis and uncertainties in assumptions.
During 2012, we refined our historical loss analyses on all of our loan portfolios, including further segmenting residential non-performing loans and segmenting multi-family and commercial real estate portfolios by property type and geographic location, and re-assessed the application of the qualitative factors noted above to each of the respective loan portfolios.
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 our primary banking regulator 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 loan portfolio and compare that to our previously determined allowance coverage percentages and individual valuation allowances. In doing so, we evaluate the impact the previously mentioned variables may have had on the loan portfolio to determine which changes, if any, should be made to our assumptions and analyses.
Allowance adequacy calculations are adjusted quarterly, based on the results of our quantitative and qualitative analyses, to reflect our current estimates of the amount of probable losses inherent in our loan portfolio in determining our allowance for loan losses. Allocations of the allowance to each loan category are adjusted quarterly to reflect indicative inherent probable losses using the same quantitative and qualitative analyses used in connection with the overall allowance adequacy calculations. The portion of the allowance allocated to each loan category does not represent the total available to absorb losses which may occur within the loan category, since the total allowance for loan losses is available for losses applicable to the entire loan portfolio.
As a result of our updated charge-off and loss analyses, we modified certain allowance coverage percentages during each quarter of 2012 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, including the unemployment rate, the levels and composition of our loan delinquencies and non-performing loans, our loss history and the size and composition of our loan portfolio, we determined that an allowance for loan losses of $148.5 million was appropriate at September 30, 2012, compared to $148.1 million at June 30, 2012 and $157.2 million at December 31, 2011. The provision for loan losses totaled $29.5 million for the nine months ended September 30, 2012. 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 2011 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, 2012, our MSR had an estimated fair value of $7.1 million and were valued based on expected future cash flows considering a weighted average discount rate of 10.95%, a weighted average constant prepayment rate on mortgages of 23.04% and a weighted average life of 3.4 years. At December 31, 2011, our MSR had an estimated fair value of $8.1 million and were valued based on expected future cash flows considering a weighted average discount rate of 10.94%, a weighted average constant prepayment rate on mortgages of 20.30% and a weighted average life of 3.7 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. If the estimated fair value of the reporting unit exceeds its carrying amount, further evaluation is not necessary. However, if the fair value of the 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. 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. We also 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. In addition to our internal goodwill impairment analysis, we periodically obtain a goodwill impairment analysis from an independent third party valuation firm. The independent third party utilizes multiple valuation approaches including comparable transactions, control premium, public market peers and discounted cash flow. Management reviews the assumptions and inputs used in the third party analysis for reasonableness.
At September 30, 2012, the carrying amount of our goodwill totaled $185.2 million. On September 30, 2012, we performed our annual goodwill impairment test internally and obtained an independent third party analysis and concluded there was no 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, the use of other valuation techniques or changes to the input assumptions used in our analysis or the analysis by our third party valuation firm 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. The fair values for our securities are obtained from an independent nationally recognized pricing service.
Our securities portfolio is comprised primarily of fixed rate mortgage-backed securities guaranteed by a GSE as issuer. GSE issuance mortgage-backed securities comprised 97% of our securities portfolio at September 30, 2012. Non-GSE issuance mortgage-backed securities at September 30, 2012 comprised 1% of our securities portfolio and had an amortized cost of $18.9 million, 65% of which are classified as available-for-sale and 35% are classified as held-to-maturity. Primarily all of our non-GSE issuance securities are investment grade securities 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 securities 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. Although, during this period of historic low interest rates, securities backed by fixed rate residential mortgage loans with above market interest rates have experienced accelerated rates of prepayments as interest rates have declined which has resulted in a decline in the estimated life of these securities and a decline in fair value. 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 other-than-temporary impairment, or 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, 2012, we held 31 securities with an estimated fair value totaling $403.4 million which had an unrealized loss totaling $2.4 million. Of the securities in an unrealized loss position at September 30, 2012, $11.7 million, with an unrealized loss of $111,000, have been in a continuous unrealized loss position for more than twelve months. At September 30, 2012, 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.
Pension Benefits and Other Postretirement Benefit Plans
Astoria Federal has a qualified, non-contributory defined benefit pension plan covering employees meeting specified eligibility criteria. In addition, Astoria Federal has non-qualified and unfunded supplemental retirement plans covering certain officers and directors. We also sponsor a health care plan that provides for postretirement medical and dental coverage to select individuals.
We recognize the overfunded or underfunded status of our defined benefit pension plans and other postretirement benefit plan, which is measured as the difference between plan assets at fair value and the benefit obligation at the measurement date, in other assets or other liabilities in our consolidated statements of financial condition. Changes in the funded status are recognized through comprehensive income/loss in the period in which the changes occur.
There are several key assumptions which we provide our actuary which have a significant impact on the pension benefits and other postretirement benefit obligations as well as benefits expense. These include the discount rate and the expected return on plan assets. We continually review and evaluate all actuarial assumptions affecting the pension benefits and other postretirement benefit plans. We monitor these rates in relation to the current market interest rate environment and update our actuarial analysis accordingly.
The discount rate is used to calculate the present value of the benefit obligations at the measurement date and the expense to be recorded in the following period. A lower discount rate will result in a higher benefit obligation and expense, while a higher discount rate will result in a lower benefit obligation and expense. Discount rate assumptions are determined by reference to the Citigroup Pension Discount Curve, adjusted for Astoria Federal benefit plan specific cash flows. We compare these rates to other yield curves and market indices, such as the Mercer Mature Plan Index and Bloomberg AA Discount Curve, for reasonableness and make adjustments, as necessary, so the discount rates used reflect current market data and trends.
To determine the expected return on plan assets, we consider the long-term historical return information on plan assets, the mix of investments that comprise plan assets and the historical returns on indices comparable to the fund classes in which the plan invests.
For further information on the actuarial assumptions used for our pension benefits and other postretirement benefit plans see Note 14 of Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” in our 2011 Annual Report on Form 10-K.
During the 2012 first quarter, our Board of Directors approved amendments to our defined benefit pension plans which, among other things, suspended the accrual of additional pension benefits effective April 30, 2012. As a result, we remeasured our benefit obligations and the funded status of our defined benefit pension plans at March 31, 2012. For additional information
on the impact of the plan amendments, see Note 6 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 $4.08 billion for the nine months ended September 30, 2012, compared to $3.93 billion for the nine months ended September 30, 2011. The increase in loan and securities repayments for the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011, was primarily due to an increase in securities repayments. The increase in securities repayments reflects an increase in securities which were called during the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011, coupled with accelerated rates of prepayments on our fixed rate residential mortgage-backed securities portfolio. Mortgage loan repayments remain at elevated levels, but did not accelerate during the first nine months of 2012.
In addition to cash provided by principal and interest payments on loans and securities, our other sources of funds include cash provided by operating activities, deposits and borrowings. Net cash provided by operating activities totaled $187.7 million for the nine months ended September 30, 2012 and $228.4 million for the nine months ended September 30, 2011. Deposits decreased $706.7 million during the nine months ended September 30, 2012 and decreased $331.9 million during the nine months ended September 30, 2011. The net decreases in deposits for the nine months ended September 30, 2012 and 2011 were due to decreases in certificates of deposit, partially offset by increases in savings, money market and NOW and demand deposit accounts. During the nine months ended September 30, 2012 and 2011, we continued to allow high cost certificates of deposit to run off. However, we have achieved some success in extending the terms of our retained certificates of deposit. During the first nine months of 2012, we extended $581.6 million of certificates of deposit for terms of two years or more in an effort to help limit our exposure to future increases in interest rates. The increases in low cost savings, money market and NOW and demand deposit accounts during the nine months ended September 30, 2012 and 2011 appear to reflect customer preference for the liquidity these types of deposits provide.
Net borrowings increased $687.8 million during the nine months ended September 30, 2012 and decreased $846.7 million during the nine months ended September 30, 2011. The increase in net borrowings during the nine months ended September 30, 2012 was due to an increase in FHLB-NY advances, partially offset by a decrease in reverse repurchase agreements. On June 19, 2012, we completed the sale of our 5.00% Senior Notes. The proceeds from the sale of the 5.00% Senior Notes were used to redeem our 5.75% Senior Notes on September 13, 2012. Excluding the newly-issued 5.00% Senior Notes, during the nine months ended September 30, 2012, we extended $700.0 million of borrowings with a weighted average rate of 1.05% and a weighted average term of 3.8 years. During this period of historic low interest rates, we have utilized low cost borrowings to offset the decline in high cost certificates of deposit to help manage interest rate risk. The decrease in net borrowings during the nine months ended September 30, 2011 was primarily due to cash flows from mortgage loan and securities repayments in excess of mortgage loan originations and purchases, securities purchases and deposit outflows which enabled us to repay a portion of our matured borrowings.
Our primary use of funds is for the origination and purchase of mortgage loans 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, 2012 totaled $3.52 billion, of which $1.23 billion were multi-family and commercial real estate loan originations, $1.45 billion were residential loan originations and $841.0 million were purchases of individual residential mortgage loans through our third party loan origination program. This compares to gross mortgage loans originated and purchased for portfolio during the nine months ended September 30, 2011 totaling $2.37 billion, of which $1.1 million were multi-family loan originations, $1.61 billion were residential loan originations and $754.9 million were residential loan purchases. Residential mortgage loan origination and purchase volume for portfolio has been negatively affected for an extended period of time by the historic low interest rates on thirty year fixed rate conforming mortgage loans and the expanded conforming loan limits resulting in more borrowers opting for thirty year fixed rate conforming mortgage loans which we do not retain for portfolio. In addition, during the 2012 third quarter, residential loan originations and purchases declined compared to the 2012 second quarter levels primarily as a result of reduced demand for jumbo hybrid ARM loans. The increase in multi-family and commercial real estate loan originations during the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011, reflects the resumption of such lending in the second half of 2011 and strong loan production during the first nine months of 2012. Purchases of securities totaled $741.2 million during the nine months ended September 30, 2012 and $651.3 million during the nine months ended September 30, 2011.
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 contingency funding plans.
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 decreased $19.1 million to $113.6 million at September 30, 2012, from $132.7 million at December 31, 2011. At September 30, 2012, we had $1.38 billion in borrowings with a weighted average rate of 1.28% maturing over the next twelve months. We have the flexibility to either repay or rollover these borrowings as they mature. Included in our borrowings are various obligations which, by their terms, may be called by the securities dealers and the FHLB-NY. At September 30, 2012, we had $1.95 billion of borrowings which are callable within three months and at various times thereafter. We believe the potential for these borrowings to be called does not present liquidity concerns as they have various call dates and coupons and we believe we can readily obtain replacement funding, albeit at higher rates. At September 30, 2012, FHLB-NY advances totaled $3.13 billion, or 65% of total borrowings. We do not believe any of our borrowing counterparty concentrations represent a material risk to our liquidity. In addition, we had $1.79 billion of certificates of deposit at September 30, 2012 with a weighted average rate of 1.12% maturing over the next twelve months. We have the ability to retain or replace a significant portion of such deposits based on our pricing and historical experience.
The following table details our borrowing and certificate of deposit maturities and their weighted average rates at September 30, 2012.
|
| Borrowings |
|
| Certificates of Deposit |
| ||||||||
|
|
|
| Weighted |
|
|
|
| Weighted |
| ||||
|
|
|
| Average |
|
|
|
| Average |
| ||||
(Dollars in Millions) |
| Amount |
| Rate |
|
| Amount |
| Rate |
| ||||
Contractual Maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months or less |
| $ 1,383 |
|
| 1.28% |
|
|
| $ 1,794 |
|
| 1.12% |
|
|
Thirteen to twenty-four months |
| 250 |
|
| 1.90 |
|
|
| 793 |
|
| 1.67 |
|
|
Twenty-five to thirty-six months |
| 300 |
| (1) | 3.21 |
|
|
| 1,114 |
|
| 2.32 |
|
|
Thirty-seven to forty-eight months |
| 950 |
| (2) | 1.78 |
|
|
| 487 |
|
| 2.24 |
|
|
Forty-nine to sixty months |
| 1,800 |
| (3) | 4.44 |
|
|
| 136 |
|
| 1.30 |
|
|
Over sixty months |
| 129 |
|
| 9.75 |
|
|
| — |
|
| — |
|
|
Total |
| $ 4,812 |
|
| 2.94% |
|
|
| $ 4,324 |
|
| 1.66% |
|
|
(1) | Includes $200.0 million of borrowings, with a weighted average rate of 4.18%, which are callable by the counterparty within the next three months and at various times thereafter. |
(2) | Includes $200.0 million of borrowings, with a rate of 4.39%, which are callable by the counterparty within the next three months and at various times thereafter. |
(3) | Includes $1.55 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. Holding 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.
We have filed automatic shelf registration statements on Form S-3 with the SEC, which allow 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. These shelf registration statements provide us with greater capital management flexibility and enable us to more 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 statements do not limit the amount of the foregoing items that we may offer and sell, our ability and any decision to do so is subject to market conditions and our capital needs. On June 19, 2012, we sold $250.0 million aggregate principal amount of senior unsecured notes due in 2017 bearing a fixed interest rate of 5.00%. We may redeem all or part of the 5.00% Senior Notes at any time, subject to a 30 day minimum notice requirement, at par together with accrued and unpaid interest to the redemption date. The net proceeds from the 5.00% Senior Notes were used to prepay on September 13, 2012 our 5.75% Senior Notes which were due October 15, 2012. The repayment of the 5.75% Senior Notes and the issuance of the 5.00% Senior Notes will result in a reduction of future annual interest expense of approximately $2.0 million. At this time, we do not have immediate plans or current commitments to sell additional securities under any 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, 2012, Astoria Financial Corporation paid dividends totaling $20.2 million and interest totaling $19.2 million. On October 17, 2012, we declared a quarterly cash dividend of $0.04 per share on shares of our common stock payable on December 1, 2012 to stockholders of record as of the close of business on November 15, 2012. 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, 2012, a maximum of 8,107,300 shares may yet be purchased under this plan. However, we are not currently repurchasing additional shares of our common stock and have not since the 2008 third quarter.
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 regulatory limits on its ability to make distributions to Astoria Financial Corporation. See Part I, Item 1, “Regulation and Supervision,” in our 2011 Annual Report on Form 10-K for further discussion of these regulatory limits. Astoria Federal paid dividends to Astoria Financial Corporation totaling $21.3 million during the nine months ended September 30, 2012. On October 3, 2012, Astoria Federal paid a dividend in the amount of $19.5 million to Astoria Financial Corporation.
See “Financial Condition” for further discussion of the changes in stockholders’ equity.
At September 30, 2012, our tangible capital ratio, which represents stockholders’ equity less goodwill divided by total assets less goodwill, was 6.59%. At September 30, 2012, Astoria Federal’s capital levels exceeded all of its regulatory capital requirements with a tangible capital ratio of 8.86%, leverage capital ratio of 8.86% and total risk-based capital ratio of 15.90%. Astoria Federal’s tier 1 risk-based capital ratio was 14.64% at September 30, 2012. As of September 30, 2012, Astoria Federal continues to be a well capitalized institution for all bank regulatory purposes.
Pursuant to the Reform Act, we will be subject to new minimum capital requirements to be set by the FRB. The FRB recently issued notices of proposed rulemaking that would subject all savings and loan holding companies, including Astoria Financial Corporation, to consolidated capital requirements. These proposed rules would also revise the quantity and quality of required minimum risk-based and leverage capital requirements, consistent with the Reform Act and the Basel III capital standards, and propose an additional common equity tier 1 capital conservation buffer of 2.50% of risk-weighted assets, to be applied to the common equity tier 1 capital ratio, the tier 1 capital ratio and the total capital ratio, with restrictions on capital distributions and certain discretionary cash bonus payments if the capital conservation buffer is not met. The proposed rules would also revise the FRB rules for calculating risk-weighted assets to enhance their risk sensitivity, which, among other things, would generally exclude trust preferred securities as a component of tier 1 capital. The new minimum regulatory capital ratios and changes to the calculation of risk-weighted assets would be phased in, to provide time for banking organizations to meet the new capital standards, beginning January 1, 2013 with full implementation by January 1, 2015. The capital conservation buffer framework would phase-in between 2016 and 2018, with full implementation by January 1, 2019. We are continuing to
review the impact that the Reform Act, Basel III and related proposed rule-making will have on our business, financial condition and results of operations.
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 financial derivative instruments. Commitments to sell loans totaled $87.8 million at September 30, 2012. 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, 2011.
The following table details our contractual obligations at September 30, 2012.
|
| 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 |
| $ 3,953,866 |
| $ | 525,000 |
|
| $ 550,000 |
|
| $ 2,750,000 |
| $ 128,866 |
|
|
Off-balance sheet contractual obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Commitments to originate and purchase loans (1) |
| 565,568 |
| 565,568 |
|
| — |
|
| — |
| — |
|
| |
Commitments to fund unused lines of credit (2) |
| 226,182 |
| 226,182 |
|
| — |
|
| — |
| — |
|
| |
Total |
| $ 4,745,616 |
| $ | 1,316,750 |
|
| $ 550,000 |
|
| $ 2,750,000 |
| $ 128,866 |
|
|
(1) Includes commitments to originate loans held-for-sale of $68.1 million. (2) Includes commitments to fund unused home equity lines of credit of $151.0 million. |
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 which have not changed significantly from December 31, 2011. For further information regarding these liabilities, see Note 11 of Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data,” in our 2011 Annual Report on Form 10-K. We also have contingent liabilities related to assets sold with recourse and standby letters of credit which have not changed significantly from December 31, 2011.
For further information regarding our off-balance sheet arrangements and contractual obligations, see Part II, Item 7, “MD&A,” in our 2011 Annual Report on Form 10-K.
Comparison of Financial Condition as of September 30, 2012 and December 31, 2011 and Operating Results for the Three and Nine Months Ended September 30, 2012 and 2011
Financial Condition
Total assets increased $16.1 million to $17.04 billion at September 30, 2012, from $17.02 billion at December 31, 2011, primarily due to an increase in our mortgage loan portfolio, which was substantially offset by a decline in our securities portfolio and a decrease in other assets.
Loans receivable, net, increased $293.2 million to $13.41 billion at September 30, 2012, from $13.12 billion at December 31, 2011, primarily due to an increase in mortgage loans. Mortgage loans increased $301.5 million to $13.22 billion at September 30, 2012, from $12.92 billion at December 31, 2011, due to increases in our multi-family and commercial real estate mortgage loan portfolios, partially offset by a decrease in our residential mortgage loan portfolio. Gross mortgage loans originated and purchased for portfolio during the nine months ended September 30, 2012 totaled $3.52 billion, of which $1.23 billion were multi-family and commercial real estate loan originations, $1.45 billion were residential loan originations and $841.0 million were residential loan purchases. This compares to gross mortgage loans originated and purchased for portfolio during the nine months ended September 30, 2011 totaling $2.37 billion, of which $1.1 million were multi-family loan originations, $1.61 billion were residential loan originations and $754.9 million were residential loan purchases. Mortgage loan repayments increased to $3.14 billion for the nine months ended September 30, 2012, compared to $3.12 billion for the nine months ended September 30, 2011.
Our residential mortgage loan portfolio decreased $322.1 million to $10.24 billion at September 30, 2012, from $10.56 billion at December 31, 2011, and represented 76% of our total loan portfolio at September 30, 2012. Residential mortgage loan repayments remain at elevated levels, but did not accelerate during the first nine months of 2012. However, the levels of repayments outpaced our origination and purchase volume during the nine months ended September 30, 2012, resulting in a decline in the portfolio. During the nine months ended September 30, 2012, the loan-to-value ratio of our residential mortgage loan originations and purchases for portfolio, at the time of origination or purchase, averaged approximately 60% and the loan amount averaged approximately $734,000.
While our mortgage loan portfolio continues to consist primarily of residential mortgage loans, at September 30, 2012 our combined multi-family and commercial real estate mortgage loan portfolio represented 22% of our total loan portfolio, up from 18% at December 31, 2011. This reflects our focus on repositioning the asset mix of our balance sheet, concentrating more on higher yielding multi-family loans than on lower yielding residential loans. Our multi-family mortgage loan portfolio increased $568.4 million to $2.26 billion at September 30, 2012, from $1.69 billion at December 31, 2011, as a result of strong loan production during the first nine months of 2012 which outpaced repayments. Our commercial real estate loan portfolio increased $55.2 million to $714.9 million at September 30, 2012, from $659.7 million at December 31, 2011, resulting from originations of $180.5 million which surpassed the levels of repayments during the nine months ended September 30, 2012. We resumed multi-family and commercial real estate lending during the latter half of 2011, primarily in New York. During the nine months ended September 30, 2012, the loan-to-value ratio of our multi-family and commercial real estate mortgage loan originations, at the time of origination, averaged approximately 53% and the loan amount averaged approximately $3.2 million.
Securities repayments of $866.5 million and sales of $51.8 million were in excess of securities purchased totaling $741.2 million during the nine months ended September 30, 2012 and resulted in a decrease of $196.2 million in the securities portfolio to $2.28 billion at September 30, 2012, compared to $2.47 billion at December 31, 2011. At September 30, 2012, our securities portfolio was comprised primarily of fixed rate REMIC and CMO securities which had an amortized cost of $2.19 billion, a weighted average current coupon of 3.35%, a weighted average collateral coupon of 4.73% and a weighted average life of 2.3 years. For additional information regarding our securities portfolio, see Note 2 of Notes to Consolidated Financial Statements, in Item 1, “Financial Statements (Unaudited).”
Other assets decreased $85.1 million to $230.3 million at September 30, 2012, compared to $315.4 million at December 31, 2011. This decline primarily reflects the utilization of the remaining balance of our prepaid deposit insurance assessment with the FDIC, coupled with a decline in the balance of our net deferred tax asset.
Deposits decreased $706.7 million to $10.54 billion at September 30, 2012, from $11.25 billion at December 31, 2011, due to a decrease in certificates of deposit, offset by an increase of $488.0 million in money market, NOW and demand deposit and savings accounts. At September 30, 2012, low cost savings, money market and NOW and demand deposit accounts represented 59% of total deposits, up from 51% at December 31, 2011. This reflects our efforts to reposition the liability mix of our balance sheet, reducing high cost certificates of deposit, which decreased $1.19 billion since December 31, 2011 to $4.32 billion at September 30, 2012, and increasing low cost savings, money market and NOW and demand deposit accounts. Money market accounts increased $323.9 million since December 31, 2011 to $1.44 billion at September 30, 2012. NOW and demand deposit accounts increased $103.1 million since December 31, 2011 to $1.96 billion at September 30, 2012. Savings accounts increased $60.9 million since December 31, 2011 to $2.81 billion at September 30, 2012. The increases in low cost savings, money market and NOW and demand deposit accounts during the nine months ended September 30, 2012 appear to reflect customer preference for the liquidity these types of deposits provide, and, to a lesser degree, reflect the initial benefits from our efforts to expand our business banking customer base.
Total borrowings, net, increased $687.8 million to $4.81 billion at September 30, 2012, from $4.12 billion at December 31, 2011, primarily due to an increase of $1.09 billion in FHLB-NY advances, partially offset by a decrease of $400.0 million in reverse repurchase agreements. The increase in FHLB-NY advances is the result of our use of low cost borrowings during this period of historic low interest rates to offset the decline in high cost certificates of deposit to help manage interest rate risk.
Stockholders’ equity increased $43.9 million to $1.30 billion at September 30, 2012, from $1.25 billion at December 31, 2011. The increase in stockholders’ equity was primarily due to net income of $36.2 million, a decrease in accumulated other comprehensive loss of $19.2 million and the allocation of ESOP stock of $7.0 million, partially offset by dividends declared of $20.2 million. The decrease in accumulated other comprehensive loss was primarily due to an increase in the funded status of our defined benefit pension plans at March 31, 2012, compared to December 31, 2011, resulting from the remeasurement of the plan obligations and assets as of March 31, 2012 in response to plan amendments approved during the 2012 first quarter. For
further information on our defined benefit pension plans, see Note 6 of Notes to Consolidated Financial Statements in Item 1, “Financial Statements (Unaudited).”
Results of Operations
General
Net income for the three months ended September 30, 2012 increased $2.2 million to $13.4 million, from $11.2 million for the three months ended September 30, 2011, reflecting a reduction of non-interest expense which more than offset a lower level of net interest income. Diluted earnings per common share was $0.14 per share for the three months ended September 30, 2012, compared to $0.12 per share for the three months ended September 30, 2011. Return on average assets was 0.31% for the three months ended September 30, 2012, compared to 0.26% for the three months ended September 30, 2011. Return on average stockholders’ equity was 4.14% for the three months ended September 30, 2012, compared to 3.51% for the three months ended September 30, 2011. Return on average tangible stockholders’ equity, which represents average stockholders’ equity less average goodwill, was 4.84% for the three months ended September 30, 2012, compared to 4.11% for the three months ended September 30, 2011. The increases in these returns for the three months ended September 30, 2012, compared to the three months ended September 30, 2011, were primarily due to the increase in net income.
Net income for the nine months ended September 30, 2012 decreased $19.2 million to $36.2 million, from $55.4 million for the nine months ended September 30, 2011, primarily due to a lower level of net interest income, coupled with an increase in non-interest expense. Diluted earnings per common share was $0.38 per share for the nine months ended September 30, 2012, compared to $0.58 per share for the nine months ended September 30, 2011. Return on average assets was 0.28% for the nine months ended September 30, 2012, compared to 0.42% for the nine months ended September 30, 2011. Return on average stockholders’ equity was 3.79% for the nine months ended September 30, 2012, compared to 5.85% for the nine months ended September 30, 2011. Return on average tangible stockholders’ equity was 4.44% for the nine months ended September 30, 2012, compared to 6.85% for the nine months ended September 30, 2011. The decreases in these returns for the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011, were primarily due to the decrease in net income.
Our results of operations for the nine months ended September 30, 2012 include net charges of $3.4 million ($2.2 million, after tax) associated with cost control initiatives implemented in the 2012 first quarter and an early extinguishment of debt charge of $1.2 million ($785,000, after tax) associated with the prepayment of our 5.75% Senior Notes in the 2012 third quarter. See “Non-Interest Expense” for additional information on the cost control initiatives implemented in the 2012 first quarter and the 2012 third quarter extinguishment of debt charge.
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.
Net interest income decreased $4.6 million to $86.0 million for the three months ended September 30, 2012, from $90.6 million for the three months ended September 30, 2011, and decreased $27.0 million to $260.9 million for the nine months ended September 30, 2012, from $287.9 million for the nine months ended September 30, 2011. The net interest rate spread decreased to 2.02% for the three months ended September 30, 2012, from 2.19% for the three months ended September 30, 2011, and decreased to 2.08% for the nine months ended September 30, 2012, from 2.26% for the nine months ended September 30, 2011. The net interest margin decreased to 2.09% for the three months ended September 30, 2012, from 2.27% for the three months ended September 30, 2011, and decreased to 2.15% for the nine months ended September 30, 2012, from 2.34% for the nine months ended September 30, 2011. The decreases in net interest income, the net interest rate spread and the net interest margin for the three and nine months ended September 30, 2012, compared to the three and nine months ended September 30, 2011, are primarily due to more rapid declines in the yields on average interest-earning assets than the declines in the costs of average interest-bearing liabilities. In addition, the short-term cost to carry the 5.00% Senior Notes, issued in June 2012 for purposes of repaying the previously outstanding 5.75% Senior Notes which were prepaid in September 2012, had the effect of reducing the 2012 third quarter and nine month net interest income and had a negative impact on the net interest margin of approximately nine basis points for the 2012 third quarter and three basis points for the nine months ended September 30, 2012.
Interest income for the three months ended September 30, 2012 decreased, compared to the three months ended September 30, 2011, primarily due to lower average yields on mortgage loans and mortgage-backed and other securities, partially offset by an increase in the average balance of multi-family and commercial real estate loans. For the nine months ended September 30, 2012, interest income decreased compared to the nine months ended September 30, 2011. This decline was also primarily due to lower average yields on mortgage loans and mortgage-backed and other securities, coupled with a decrease in the average balance of mortgage loans. Interest expense for the three and nine months ended September 30, 2012 also decreased in relation to the three and nine months ended September 30, 2011, primarily due to decreases in interest expense on certificates of deposit and borrowings. The average balance of net interest-earning assets increased $123.3 million to $712.1 million for the three months ended September 30, 2012, from $588.8 million for the three months ended September 30, 2011, and increased $96.9 million to $685.1 million for the nine months ended September 30, 2012, from $588.2 million for the nine months ended September 30, 2011.
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, 2012 and 2011. 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, |
| ||||||||||||||||
|
| 2012 |
| 2011 |
| ||||||||||||||
(Dollars in Thousands) |
| Average |
| Interest |
| Average |
| Average |
| Interest |
| Average |
| ||||||
|
|
|
|
|
| (Annualized) |
|
|
|
|
| (Annualized) |
| ||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage loans (1): |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Residential |
| $ | 10,495,563 |
| $ | 91,490 |
| 3.49 | % |
| $ | 10,604,853 |
| $ | 105,769 |
| 3.99 | % |
|
Multi-family and commercial real estate |
| 2,908,993 |
| 38,127 |
| 5.24 |
|
| 2,515,957 |
| 39,338 |
| 6.25 |
|
| ||||
Consumer and other loans (1) |
| 271,309 |
| 2,309 |
| 3.40 |
|
| 293,238 |
| 2,461 |
| 3.36 |
|
| ||||
Total loans |
| 13,675,865 |
| 131,926 |
| 3.86 |
|
| 13,414,048 |
| 147,568 |
| 4.40 |
|
| ||||
Mortgage-backed and other securities (2) |
| 2,290,702 |
| 14,453 |
| 2.52 |
|
| 2,344,816 |
| 19,670 |
| 3.36 |
|
| ||||
Repurchase agreements and interest- earning cash accounts |
| 277,319 |
| 182 |
| 0.26 |
|
| 115,228 |
| 54 |
| 0.19 |
|
| ||||
FHLB-NY stock |
| 181,792 |
| 1,773 |
| 3.90 |
|
| 128,664 |
| 1,432 |
| 4.45 |
|
| ||||
Total interest-earning assets |
| 16,425,678 |
| 148,334 |
| 3.61 |
|
| 16,002,756 |
| 168,724 |
| 4.22 |
|
| ||||
Goodwill |
| 185,151 |
|
|
|
|
|
| 185,151 |
|
|
|
|
|
| ||||
Other non-interest-earning assets |
| 806,010 |
|
|
|
|
|
| 925,222 |
|
|
|
|
|
| ||||
Total assets |
| $ | 17,416,839 |
|
|
|
|
|
| $ | 17,113,129 |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities and stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Savings |
| $ | 2,843,856 |
| 710 |
| 0.10 |
|
| $ | 2,799,738 |
| 2,316 |
| 0.33 |
|
| ||
Money market |
| 1,406,949 |
| 2,234 |
| 0.64 |
|
| 646,966 |
| 1,491 |
| 0.92 |
|
| ||||
NOW and demand deposit |
| 1,943,448 |
| 228 |
| 0.05 |
|
| 1,804,760 |
| 301 |
| 0.07 |
|
| ||||
Total savings, money market and NOW and demand deposit |
| 6,194,253 |
| 3,172 |
| 0.20 |
|
| 5,251,464 |
| 4,108 |
| 0.31 |
|
| ||||
Certificates of deposit |
| 4,428,338 |
| 18,947 |
| 1.71 |
|
| 5,951,875 |
| 29,378 |
| 1.97 |
|
| ||||
Total deposits |
| 10,622,591 |
| 22,119 |
| 0.83 |
|
| 11,203,339 |
| 33,486 |
| 1.20 |
|
| ||||
Borrowings |
| 5,090,960 |
| 40,217 |
| 3.16 |
|
| 4,210,625 |
| 44,594 |
| 4.24 |
|
| ||||
Total interest-bearing liabilities |
| 15,713,551 |
| 62,336 |
| 1.59 |
|
| 15,413,964 |
| 78,080 |
| 2.03 |
|
| ||||
Non-interest-bearing liabilities |
| 413,756 |
|
|
|
|
|
| 421,604 |
|
|
|
|
|
| ||||
Total liabilities |
| 16,127,307 |
|
|
|
|
|
| 15,835,568 |
|
|
|
|
|
| ||||
Stockholders’ equity |
| 1,289,532 |
|
|
|
|
|
| 1,277,561 |
|
|
|
|
|
| ||||
Total liabilities and stockholders’ equity |
| $ | 17,416,839 |
|
|
|
|
|
| $ | 17,113,129 |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net interest income/ net interest rate spread (3) |
|
|
| $ | 85,998 |
| 2.02 | % |
|
|
| $ | 90,644 |
| 2.19 | % |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net interest-earning assets/ net interest margin (4) |
| $ | 712,127 |
|
|
| 2.09 | % |
| $ | 588,792 |
|
|
| 2.27 | % |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratio of interest-earning assets to interest-bearing liabilities |
| 1.05 | x |
|
|
|
| 1.04 | 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, |
| ||||||||||||||||
|
| 2012 |
| 2011 |
| ||||||||||||||
(Dollars in Thousands) |
| Average |
| Interest |
| Average |
| Average |
| Interest |
| Average |
| ||||||
|
|
|
|
|
| (Annualized) |
|
|
|
|
| (Annualized) |
| ||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage loans (1): |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Residential |
| $ | 10,589,227 |
| $ | 286,236 |
| 3.60 | % |
| $ | 10,701,179 |
| $ | 332,314 |
| 4.14 | % |
|
Multi-family and commercial real estate |
| 2,631,859 |
| 111,088 |
| 5.63 |
|
| 2,694,186 |
| 124,915 |
| 6.18 |
|
| ||||
Consumer and other loans (1) |
| 275,854 |
| 6,944 |
| 3.36 |
|
| 300,502 |
| 7,477 |
| 3.32 |
|
| ||||
Total loans |
| 13,496,940 |
| 404,268 |
| 3.99 |
|
| 13,695,867 |
| 464,706 |
| 4.52 |
|
| ||||
Mortgage-backed and other securities (2) |
| 2,381,407 |
| 49,445 |
| 2.77 |
|
| 2,441,661 |
| 63,432 |
| 3.46 |
|
| ||||
Repurchase agreements and interest- earning cash accounts |
| 160,272 |
| 282 |
| 0.23 |
|
| 153,312 |
| 221 |
| 0.19 |
|
| ||||
FHLB-NY stock |
| 159,774 |
| 4,928 |
| 4.11 |
|
| 134,549 |
| 5,386 |
| 5.34 |
|
| ||||
Total interest-earning assets |
| 16,198,393 |
| 458,923 |
| 3.78 |
|
| 16,425,389 |
| 533,745 |
| 4.33 |
|
| ||||
Goodwill |
| 185,151 |
|
|
|
|
|
| 185,151 |
|
|
|
|
|
| ||||
Other non-interest-earning assets |
| 843,811 |
|
|
|
|
|
| 908,537 |
|
|
|
|
|
| ||||
Total assets |
| $ | 17,227,355 |
|
|
|
|
|
| $ | 17,519,077 |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities and stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Savings |
| $ | 2,825,012 |
| 4,084 |
| 0.19 |
|
| $ | 2,770,622 |
| 7,812 |
| 0.38 |
|
| ||
Money market |
| 1,259,063 |
| 6,242 |
| 0.66 |
|
| 476,046 |
| 2,370 |
| 0.66 |
|
| ||||
NOW and demand deposit |
| 1,907,300 |
| 814 |
| 0.06 |
|
| 1,787,848 |
| 872 |
| 0.07 |
|
| ||||
Total savings, money market and NOW and demand deposit |
| 5,991,375 |
| 11,140 |
| 0.25 |
|
| 5,034,516 |
| 11,054 |
| 0.29 |
|
| ||||
Certificates of deposit |
| 4,896,215 |
| 67,339 |
| 1.83 |
|
| 6,318,082 |
| 95,102 |
| 2.01 |
|
| ||||
Total deposits |
| 10,887,590 |
| 78,479 |
| 0.96 |
|
| 11,352,598 |
| 106,156 |
| 1.25 |
|
| ||||
Borrowings |
| 4,625,679 |
| 119,581 |
| 3.45 |
|
| 4,484,543 |
| 139,694 |
| 4.15 |
|
| ||||
Total interest-bearing liabilities |
| 15,513,269 |
| 198,060 |
| 1.70 |
|
| 15,837,141 |
| 245,850 |
| 2.07 |
|
| ||||
Non-interest-bearing liabilities |
| 442,512 |
|
|
|
|
|
| 417,391 |
|
|
|
|
|
| ||||
Total liabilities |
| 15,955,781 |
|
|
|
|
|
| 16,254,532 |
|
|
|
|
|
| ||||
Stockholders’ equity |
| 1,271,574 |
|
|
|
|
|
| 1,264,545 |
|
|
|
|
|
| ||||
Total liabilities and stockholders’ equity |
| $ | 17,227,355 |
|
|
|
|
|
| $ | 17,519,077 |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net interest income/ net interest rate spread (3) |
|
|
| $ | 260,863 |
| 2.08 | % |
|
|
| $ | 287,895 |
| 2.26 | % |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net interest-earning assets/ net interest margin (4) |
| $ | 685,124 |
|
|
| 2.15 | % |
| $ | 588,248 |
|
|
| 2.34 | % |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratio of interest-earning assets to interest-bearing liabilities |
| 1.04 | x |
|
|
|
| 1.04 | 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.
|
| Increase (Decrease) for the |
| Increase (Decrease) for the |
| ||||||||||||||
(In Thousands) |
| Volume |
| Rate |
| Net |
| Volume |
| Rate |
| Net |
| ||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Residential |
| $ | (1,085 | ) | $ | (13,194 | ) | $ | (14,279 | ) | $ | (3,421 | ) | $ | (42,657 | ) | $ | (46,078 | ) |
Multi-family and commercial real estate |
| 5,650 |
| (6,861 | ) | (1,211 | ) | (2,853 | ) | (10,974 | ) | (13,827 | ) | ||||||
Consumer and other loans |
| (181 | ) | 29 |
| (152 | ) | (622 | ) | 89 |
| (533 | ) | ||||||
Mortgage-backed and other securities |
| (441 | ) | (4,776 | ) | (5,217 | ) | (1,541 | ) | (12,446 | ) | (13,987 | ) | ||||||
Repurchase agreements and interest- earning cash accounts |
| 102 |
| 26 |
| 128 |
| 11 |
| 50 |
| 61 |
| ||||||
FHLB-NY stock |
| 535 |
| (194 | ) | 341 |
| 908 |
| (1,366 | ) | (458 | ) | ||||||
Total |
| 4,580 |
| (24,970 | ) | (20,390 | ) | (7,518 | ) | (67,304 | ) | (74,822 | ) | ||||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Savings |
| 35 |
| (1,641 | ) | (1,606 | ) | 157 |
| (3,885 | ) | (3,728 | ) | ||||||
Money market |
| 1,310 |
| (567 | ) | 743 |
| 3,872 |
| — |
| 3,872 |
| ||||||
NOW and demand deposit |
| 23 |
| (96 | ) | (73 | ) | 67 |
| (125 | ) | (58 | ) | ||||||
Certificates of deposit |
| (6,882 | ) | (3,549 | ) | (10,431 | ) | (19,860 | ) | (7,903 | ) | (27,763 | ) | ||||||
Borrowings |
| 8,277 |
| (12,654 | ) | (4,377 | ) | 4,242 |
| (24,355 | ) | (20,113 | ) | ||||||
Total |
| 2,763 |
| (18,507 | ) | (15,744 | ) | (11,522 | ) | (36,268 | ) | (47,790 | ) | ||||||
Net change in net interest income |
| $ | 1,817 |
| $ | (6,463 | ) | $ | (4,646 | ) | $ | 4,004 |
| $ | (31,036 | ) | $ | (27,032 | ) |
Interest Income
Interest income decreased $20.4 million to $148.3 million for the three months ended September 30, 2012, from $168.7 million for the three months ended September 30, 2011, due to a decrease in the average yield on interest-earning assets to 3.61% for the three months ended September 30, 2012, from 4.22% for the three months ended September 30, 2011, partially offset by an increase of $422.9 million in the average balance of interest-earning assets to $16.43 billion for the three months ended September 30, 2012, from $16.00 billion for the three months ended September 30, 2011. The decrease in the average yield on interest-earning assets was primarily due to lower average yields on mortgage loans and mortgage-backed and other securities. The increase in the average balance of interest-earning assets was primarily due to increases in the average balances of multi-family and commercial real estate loans and repurchase agreements and interest-earning cash accounts, partially offset by a decrease in the average balance of residential mortgage loans.
Interest income on residential mortgage loans decreased $14.3 million to $91.5 million for the three months ended September 30, 2012, from $105.8 million for the three months ended September 30, 2011, primarily due to a decrease in the average yield to 3.49% for the three months ended September 30, 2012, from 3.99% for the three months ended September 30, 2011. 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 and the impact of the downward repricing of our ARM loans. The lower interest rates are attributable to the negative impact of the U.S. government programs that impede our ability to grow residential mortgage loans profitably. Net premium and deferred loan origination cost amortization on residential mortgage loans decreased $1.2 million to $6.0 million for the three months ended September 30, 2012, from $7.2 million for the three months ended September 30, 2011. The average balance of residential mortgage loans decreased $109.3 million to $10.50 billion for the three months ended September 30, 2012, reflecting the continued elevated levels of repayments on such loans which have outpaced our originations over the past year.
Interest income on multi-family and commercial real estate mortgage loans decreased $1.2 million to $38.1 million for the three months ended September 30, 2012, from $39.3 million for the three months ended September 30, 2011, due to a decrease in the average yield to 5.24% for the three months ended September 30, 2012, from 6.25% for the three months ended September 30, 2011, offset by an increase of $393.0 million in the average balance of such loans. The decrease in the average yield was due, in part, to new originations at interest rates below the weighted average rates of the portfolios and by a decrease in prepayment penalties. Prepayment penalties decreased $257,000 to $1.8 million for the three months ended September 30, 2012, from $2.1 million for the three months ended September 30, 2011. The increase in the average balance of multi-family and commercial real estate loans is attributable to the strong levels of originations of such loans which have exceeded repayments over the past year.
Interest income on mortgage-backed and other securities decreased $5.2 million to $14.5 million for the three months ended September 30, 2012, from $19.7 million for the three months ended September 30, 2011, primarily due to a decrease in the average yield to 2.52% for the three months ended September 30, 2012, from 3.36% for the three months ended September 30, 2011. The decrease in the average yield on mortgage-backed and other securities was primarily due to repayments on higher yielding securities and purchases of new securities with lower coupons than the weighted average coupon for the portfolio and an increase in net premium amortization. Net premium amortization increased $2.6 million to $4.5 million for the three months ended September 30, 2012, from $1.9 million for the three months ended September 30, 2011. The average balance of mortgage-backed and other securities decreased $54.1 million to $2.29 billion for the three months ended September 30, 2012, reflecting securities repayments and sales over the past year in excess of purchases.
Interest income decreased $74.8 million to $458.9 million for the nine months ended September 30, 2012, from $533.7 million for the nine months ended September 30, 2011. This decrease was due to a decrease in the average yield on interest-earning assets to 3.78% for the nine months ended September 30, 2012, from 4.33% for the nine months ended September 30, 2011, coupled with a decrease of $227.0 million in the average balance of interest-earning assets to $16.20 billion for the nine months ended September 30, 2012, from $16.43 billion for the nine months ended September 30, 2011. The decrease in the average balance of interest-earning assets reflects a decline in the average balance of total loans receivable, particularly residential mortgage loans, and mortgage-backed and other securities.
Interest income on residential mortgage loans decreased $46.1 million to $286.2 million for the nine months ended September 30, 2012, from $332.3 million for the nine months ended September 30, 2011, primarily due to a decrease in the average yield to 3.60% for the nine months ended September 30, 2012, from 4.14% for the nine months ended September 30, 2011.
The average balance of residential mortgage loans decreased $112.0 million to $10.59 billion for the nine months ended September 30, 2012. Net premium amortization on residential mortgage loans decreased $1.1 million to $18.5 million for the nine months ended September 30, 2012, from $19.6 million for the nine months ended September 30, 2011.
Interest income on multi-family and commercial real estate loans decreased $13.8 million to $111.1 million for the nine months ended September 30, 2012, from $124.9 million for the nine months ended September 30, 2011, due to a decrease in the average yield to 5.63% for the nine months ended September 30, 2012, from 6.18% for the nine months ended September 30, 2011, coupled with a decrease of $62.3 million in the average balance of such loans. The decrease in the average yield reflects new originations at interest rates below the weighted average rates of the portfolios, partially offset by an increase in prepayment penalties. Prepayment penalties increased $1.3 million to $6.5 million for the nine months ended September 30, 2012, from $5.2 million for the nine months ended September 30, 2011.
Interest income on mortgage-backed and other securities decreased $14.0 million to $49.4 million for the nine months ended September 30, 2012, from $63.4 million for the nine months ended September 30, 2011. This decrease was primarily due to a decrease in the average yield to 2.77% for the nine months ended September 30, 2012, from 3.46% for the nine months ended September 30, 2011. The average balance of the portfolio declined $60.3 million to $2.38 billion for the nine months ended September 30, 2012.
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, 2012 are consistent with the principal reasons for the changes noted for the three months ended September 30, 2012.
Interest Expense
Interest expense decreased $15.8 million to $62.3 million for the three months ended September 30, 2012, from $78.1 million for the three months ended September 30, 2011, due to a decrease in the average cost of interest-bearing liabilities to 1.59% for the three months ended September 30, 2012, from 2.03% for the three months ended September 30, 2011, offset by an increase of $299.6 million in the average balance of interest-bearing liabilities to $15.71 billion for the three months ended September 30, 2012, from $15.41 billion for the three months ended September 30, 2011. The decrease in the average cost of interest-bearing liabilities was primarily due to decreases in the average costs of borrowings, certificates of deposit and savings accounts. The increase in the average balance of interest-bearing liabilities was due to increases in the average balances of borrowings and total savings, money market and NOW and demand deposit accounts, particularly money market accounts, partially offset by a decrease in the average balance of certificates of deposit.
Interest expense on total deposits decreased $11.4 million to $22.1 million for the three months ended September 30, 2012, from $33.5 million for the three months ended September 30, 2011, due to a decrease of in the average cost to 0.83% for the three months ended September 30, 2012, from 1.20% for the three months ended September 30, 2011, coupled with a decrease of $580.7 million in the average balance of total deposits to $10.62 billion for the three months ended September 30, 2012, from $11.20 billion for the three months ended September 30, 2011. The decrease in the average cost of total deposits was primarily due to decreases in the average
costs of our certificates of deposit and savings accounts. The decrease in the average balance of total deposits was due to a decrease in the average balance of certificates of deposit, offset by increases in the average balances of money market, NOW and demand deposit and savings accounts.
Interest expense on certificates of deposit decreased $10.5 million to $18.9 million for the three months ended September 30, 2012, from $29.4 million for the three months ended September 30, 2011, due to a decrease of $1.52 billion in the average balance, coupled with a decrease in the average cost to 1.71% for the three months ended September 30, 2012, from 1.97% for the three months ended September 30, 2011. The decrease in the average balance of certificates of deposit was primarily the result of our reduced focus on certificates of deposit, reflecting our efforts in 2012 to reposition the liability mix of our balance sheet to increase our low cost savings, money market and NOW and demand deposit accounts and reduce high cost certificates of deposit. 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. During the three months ended September 30, 2012, $952.3 million of certificates of deposit, with a weighted average rate of 1.82% and a weighted average maturity at inception of twenty-four months, matured and $731.5 million of certificates of deposit were issued or repriced, with a weighted average rate of 0.93% and a weighted average maturity at inception of twenty-one months.
Interest expense on savings accounts decreased $1.6 million to $710,000 for the three months ended September 30, 2012, from $2.3 million for the three months ended September 30, 2011, primarily due to a decrease in the average cost to 0.10% for the three months ended September 30, 2012, compared to 0.33% for the three months ended September 30, 2011. Interest expense on money market accounts increased $743,000 to $2.2 million for the three months ended September 30, 2012, from $1.5 million for the three months ended September 30, 2011. This increase was due to an increase of $760.0 million in the average balance of money market accounts to $1.41 billion for the three months ended September 30, 2012, from $647.0 million for the three months ended September 30, 2011, offset by a decrease in the average cost to 0.64% for the three months ended September 30, 2012, from 0.92% for the three months ended September 30, 2011. The increase in the average balance of money market accounts for the 2012 third quarter compared to the 2011 third quarter reflects the success of our premium money market product which was introduced during the 2011 third quarter. The decline in the average cost of money market accounts reflects the decline in the interest rates offered on such accounts from that which was initially offered.
Interest expense on borrowings decreased $4.4 million to $40.2 million for the three months ended September 30, 2012, from $44.6 million for the three months ended September 30, 2011, due to a decrease in the average cost to 3.16% for the three months ended September 30, 2012, from 4.24% for the three months ended September 30, 2011, offset by an increase of $880.3 million in the average balance. The decrease in the average cost of borrowings was the result of the repayment of borrowings that matured over the past year which had a higher weighted average rate than the weighted average rate of the portfolio and increased utilization of low cost FHLB-NY advances during 2012, partially offset by the short-term cost to carry the 5.00% Senior Notes issued in June 2012 for purposes of repaying the previously outstanding 5.75% Senior Notes which were prepaid in September 2012. The increase in the average balance of borrowings was primarily the result of using low cost borrowings to help offset the decline in high cost certificates of deposit during 2012 and the issuance of the 5.00% Senior Notes in June 2012.
Interest expense decreased $47.8 million to $198.1 million for the nine months ended September 30, 2012, from $245.9 million for the nine months ended September 30, 2011, due to a decrease in the average cost of interest-bearing liabilities to 1.70% for the nine months ended September 30, 2012, from 2.07% for the nine months ended September 30, 2011, coupled with a decrease of $323.9 million in the average balance of interest-bearing liabilities to $15.51 billion for the nine months ended September 30, 2012, from $15.84 billion for the nine months ended September 30, 2011. The decrease in the average balance of interest-bearing liabilities was primarily due to a decrease in the average balance of certificates of deposit, partially offset by increases in the average balances of money market accounts, borrowings and savings accounts.
Interest expense on total deposits decreased $27.7 million to $78.5 million for the nine months ended September 30, 2012, from $106.2 million for the nine months ended September 30, 2011. This decrease was due to a decrease of $465.0 million in the average balance of total deposits to $10.89 billion for the nine months ended September 30, 2012, from $11.35 billion for the nine months ended September 30, 2011, coupled with a decrease in the average cost to 0.96% for the nine months ended September 30, 2012, from 1.25% for the nine months ended September 30, 2011.
Interest expense on certificates of deposit decreased $27.8 million to $67.3 million for the nine months ended September 30, 2012, from $95.1 million for the nine months ended September 30, 2011, due to a decrease of $1.42 billion in the average balance, coupled with a decrease in the average cost to 1.83% for the nine months ended September 30, 2012, from 2.01% for the nine months ended September 30, 2011. During the nine months ended September 30, 2012, $2.90 billion of certificates of deposit matured, with a weighted average rate of 1.57% and a weighted average maturity at inception of twenty-one months, and $1.72 billion of certificates of deposit were issued or repriced, with a weighted average rate of 0.60% and a weighted average maturity at inception of nineteen months.
Interest expense on savings accounts decreased $3.7 million to $4.1 million for the nine months ended September 30, 2012, from $7.8 million for the nine months ended September 30, 2011, primarily due to a decrease in the average cost to 0.19% for the nine months ended September 30, 2012, compared to 0.38% for the nine months ended September 30, 2011. Interest expense on money market accounts increased $3.8 million to $6.2 million for the nine months ended September 30, 2012, from $2.4 million for the nine months ended September 30, 2011. This increase was due to an increase of $783.0 million in the average balance of money market accounts. The average cost of money market accounts was 0.66% for the nine months ended September 30, 2012 and 2011.
Interest expense on borrowings decreased $20.1 million to $119.6 million for the nine months ended September 30, 2012, from $139.7 million for the nine months ended September 30, 2011. This decrease was due to a decrease in the average cost to 3.45% for the nine months ended September 30, 2012, from 4.15% for the nine months ended September 30, 2011, offset by an increase of $141.1 million in the average balance.
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, 2012 are consistent with the principal reasons for the changes noted for the three months ended September 30, 2012.
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, the size and composition of our loan portfolio 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. We are impacted by both national and regional economic factors. With residential mortgage loans from various regions of the country held in our portfolio, the condition of the national economy impacts our earnings. During 2011 and continuing into 2012, the U.S. economy has shown signs of a very slow and tenuous recovery from the recession which began in 2008. The national unemployment rate, while still at a high level, declined to 7.8% for September 2012, compared to a peak of 10.0% for October 2009, although new job growth remains slow. Softness in the housing and real estate markets persists, although the extent of such softness varies from region to region. While the trend of lower non-performing loans has continued during 2012, we expect the levels will remain somewhat elevated for some time, especially in certain states where judicial foreclosure proceedings are required. With respect to our multi-family mortgage loan origination activities, primarily focused in New York, we have observed favorable market conditions during the first nine months of 2012.
The provision for loan losses totaled $9.5 million for the three months ended September 30, 2012, compared to $10.0 million for the three months ended September 30, 2011. For the nine months ended September 30, 2012, the provision for loan losses totaled $29.5 million, compared to $27.0 million for the nine months ended September 30, 2011. The allowance for loan losses totaled $148.5 million at September 30, 2012, compared to $148.1 million at June 30, 2012 and $157.2 million at December 31, 2011. The allowance for loan losses reflects the composition and size of our loan portfolio, the levels and composition of our loan delinquencies and non-performing loans, our loss history and our evaluation of the housing and real estate markets and overall economy, including the unemployment rate and other factors. The decrease in the allowance for loan losses since December 31, 2011 reflects the general stabilizing trend in overall asset quality we have experienced since 2010 as total delinquencies have continued a downward trend. Total delinquencies were $508.5 million at September 30, 2012, a slight increase compared to $507.3 million at June 30, 2012 and a decrease of $39.9 million compared to $548.4 million at December 31, 2011. The slight increase in total delinquencies at September 30, 2012 compared to June 30, 2012 was due to an increase of $22.3 million in early stage loan delinquencies (loans 30-89 days past due), due in part to two borrowing relationships totaling $11.5 million at September 30, 2012 for which the September loan payments were received shortly after September 30, 2012, substantially offset by a decrease in non-performing loans. The decrease in total delinquencies since December 31, 2011 primarily reflects a decrease in early stage loan delinquencies, although non-performing loans also declined. Non-performing loans, which are comprised primarily of mortgage loans, totaled $322.2 million, or 2.38% of total loans, at September 30, 2012, a decrease of $21.1 million compared to $343.3 million, or 2.50% of total loans, at June 30, 2012 and a decrease of $10.7 million compared to $332.9 million, or 2.51% of total loans, at December 31, 2011. The decrease in non-performing loans since June 2012 primarily reflects a decline in non-performing multi-family loans. The decrease in non-performing loans at September 30, 2012 compared to December 31, 2011 was primarily due to a decrease of $23.2 million in non-performing residential mortgage loans, partially offset by an increase of $12.5 million in non-performing multi-family and commercial real estate
mortgage loans due, in part, to loans which were modified in a troubled debt restructuring during 2012. Net loan charge-offs totaled $9.1 million, or twenty-seven basis points of average loans outstanding, annualized, for the three months ended September 30, 2012 and $38.2 million, or thirty-eight basis points of average loans outstanding, annualized, for the nine months ended September 30, 2012. This compares to $14.4 million, or forty-three basis points of average loans outstanding, annualized, for the three months ended September 30, 2011 and $50.1 million, or forty-nine basis points of average loans outstanding, annualized, for the nine months ended September 30, 2011. The allowance for loan losses as a percentage of total loans was 1.09% at September 30, 2012, compared to 1.08% at June 30, 2012 and 1.18% at December 31, 2011. The allowance for loan losses as a percentage of non-performing loans was 46.08% at September 30, 2012, compared to 43.14% at June 30, 2012 and 47.22% at December 31, 2011. 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. In determining our allowance coverage percentages for non-performing loans, we consider our aggregate historical loss experience with respect to the ultimate disposition of the underlying collateral.
When analyzing our asset quality trends and coverage ratios, consideration is given to the 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 residential mortgage loans which are 180 days or more past due. We update our estimates of collateral values on residential mortgage loans at 180 days past due and annually thereafter. 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 estimated fair value less estimated selling costs. Therefore, certain losses inherent in our non-performing residential mortgage loans are being recognized through a charge-off at 180 days of delinquency and annually thereafter. 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. Therefore, when reviewing the adequacy of the allowance for loan losses as a percentage of non-performing loans, the impact of these charge-offs is considered. At September 30, 2012, non-performing loans included residential mortgage loans which were 180 days or more past due totaling $244.5 million, net of $79.7 million in charge-offs related to such loans, which had a related allowance for loan losses totaling $12.0 million.
While ratio analyses are used 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 2012 third quarter analysis of loss severity on residential mortgage loans, 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, during the twelve months ended June 30, 2012, indicated an average loss severity of approximately 33%, compared to approximately 31% in our 2012 first and second quarter analyses and approximately 30% in our 2011 fourth quarter analysis. Our analysis in the 2012 third quarter primarily reviewed residential REO sales which occurred during the twelve months ended June 30, 2012 and included both full documentation and reduced documentation loans in a variety of states with varying years of origination. Our 2012 third quarter analysis of charge-offs on multi-family and commercial real estate loans, primarily
related to loan sales, during the twelve months ended June 30, 2012 indicated an average loss severity of approximately 33%, compared to approximately 31% in our 2012 first and second quarter analyses and approximately 28% in our 2011 fourth quarter analysis. 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 and commercial real estate loan, particularly multi-family loans within New York City, many of which are rent stabilized, is also factored into our analyses. 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 46% at September 30, 2012, which exceeds our average loss severity experience for our mortgage loan portfolios, supporting our determination that our allowance for loan losses is adequate to cover potential losses.
We update our estimates of collateral value for residential mortgage loans at 180 days past due and annually thereafter and for loans to borrowers who have filed for bankruptcy initially when we are notified of the bankruptcy filing. Updated estimates of collateral value for residential loans are obtained primarily through automated valuation models. Additionally, our loan servicer performs property inspections to monitor and manage the collateral on our residential loans when they become 45 days past due and monthly thereafter until the foreclosure process is complete. We update our estimates of collateral value for non-performing multi-family and commercial real estate mortgage loans with balances of $1.0 million or greater when the loans initially become non-performing and multi-family and commercial real estate loans modified in a troubled debt restructuring at the time of the modification. For multi-family and commercial real estate properties, we estimate collateral value through independent third party appraisals or internal cash flow analyses, when current financial information is available, coupled with, in most cases, an inspection of the property. Appraisals on multi-family and commercial real estate loans are reviewed by our internal certified appraisers. Annually thereafter, inspections of these properties are performed to monitor the collateral. We also obtain updated estimates of collateral for certain other loans when the Asset Classification Committee believes repayment of such loans may be dependent on the value of the underlying collateral. Adjustments to final appraised values obtained from independent third party appraisers and automated valuation models are not made. 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 2012 first quarter, total delinquencies decreased primarily due to a decrease in early stage loan delinquencies, partially offset by an increase in non-performing loans. Net loan charge-offs decreased for the 2012 first quarter to $17.3 million compared to $31.2 million for the 2011 fourth quarter, primarily due to charge-offs in the 2011 fourth quarter related to certain delinquent and non-performing loans transferred to held-for-sale and certain impaired multi-family and commercial real estate mortgage loans. The national unemployment rate decreased to 8.2% for March 2012 and there were job gains for the quarter totaling 635,000 at the time of our analysis. We continued to update our charge-off and loss analysis during the 2012 first quarter and modified our allowance coverage percentages accordingly. As a result of these factors, our allowance for loan losses decreased compared to December 31, 2011 to $149.9 million at March 31, 2012 and the provision for loan losses totaled $10.0 million for the 2012 first quarter. During the 2012 second quarter, total delinquencies decreased primarily due to a decrease in non-performing residential mortgage loans. The national unemployment rate was 8.2% for June 2012 and job gains decreased for the 2012 second quarter compared to the 2012 first quarter and
totaled 225,000 at the time of our analysis. Net loan charge-offs decreased for the 2012 second quarter compared to the 2012 first quarter. We continued to update our charge-off and loss analysis during the 2012 second quarter and modified our allowance coverage percentages accordingly. As a result of these factors, our allowance for loan losses decreased slightly compared to March 31, 2012 to $148.1 million at June 30, 2012. The provision for loan losses totaled $10.0 million for the three months ended June 30, 2012 and $20.0 million for the six months ended June 30, 2012. During the 2012 third quarter, total delinquencies increased slightly. The national unemployment rate decreased to 7.8% for September 2012 and there were job gains for the quarter totaling 437,000 at the time of our analysis. Net loan charge-offs decreased for the 2012 third quarter compared to the 2012 second quarter. We continued to update our charge-off and loss analysis during the 2012 third quarter and modified our allowance coverage percentages accordingly. As a result of these factors, our allowance for loan losses increased slightly compared to June 30, 2012 and totaled $148.5 million at September 30, 2012 which resulted in a provision for loan losses of $9.5 million for the three months ended September 30, 2012 and $29.5 million for the nine months ended September 30, 2012. During the 2012 third quarter, we commenced a review of our allowance for loan loss, charge-off and impairment policies. We anticipate completing such review and implementing any changes to such policies in the 2012 fourth quarter.
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, the levels and composition of our loan delinquencies and non-performing loans, our loss history 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, 2012 and December 31, 2011.
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” and Note 4 of Notes to Consolidated Financial Statements in Item 1, “Financial Statements (Unaudited).”
Non-Interest Income
Non-interest income increased slightly to $16.6 million for the three months ended September 30, 2012, from $16.5 million for the three months ended September 30, 2011, primarily due to an increase in mortgage banking income, net, which was offset by lower customer service fees. Non-interest income was unchanged at $51.6 million for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011, primarily due to a decrease in customer service fees which was offset by gain on sales of securities in 2012 and increases in mortgage banking income, net, and other non-interest income.
Customer service fees decreased $1.4 million to $10.5 million for the three months ended September 30, 2012, from $11.9 million for the three months ended September 30, 2011 and decreased $5.2 million to $30.5 million for the nine months ended September 30, 2012, from $35.7 million for the nine months ended September 30, 2011. These decreases were primarily due to decreases in ATM fees, overdraft fees related to transaction accounts and commissions on sales of annuities, partially offset by increases in other checking account charges.
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, increased to $2.0 million for the three months ended September 30, 2012, compared to $40,000 for the three months ended September 30, 2011 and increased to $5.1 million for the nine months ended September 30, 2012, compared to $2.8 million for the nine months ended September 30, 2011. These increases were primarily due to increases in net gain on sales of loans. The increase in the gain on sales of loans was partially offset by a higher provision recorded in the valuation allowance for impairment of MSR and increased amortization of MSR during the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011.
During the nine months ended September 30, 2012, we sold mortgage-backed securities from the available-for-sale portfolio with an amortized cost of $51.8 million resulting in gross realized gains totaling $2.5 million. There were no sales of securities during 2011. Other non-interest income increased $1.4 million to $4.5 million for the nine months ended September 30, 2012, from $3.1 million for the nine months ended September 30, 2011, primarily due to an increase in net gain on sales of non-performing loans held-for-sale.
Non-Interest Expense
Non-interest expense decreased $6.0 million to $72.6 million for the three months ended September 30, 2012, from $78.6 million for the three months ended September 30, 2011, primarily due to a decrease in compensation and benefits expense, partially offset by increases in FDIC insurance premium expense and other non-interest expense. For the nine months ended September 30, 2012, non-interest expense increased $2.7 million to $226.9 million, from $224.2 million for the nine months ended September 30, 2011, primarily due to increases in FDIC insurance premium expense, other non-interest expense and occupancy, equipment and systems expense which more than offset a reduction in compensation and benefits expense. Our percentage of general and administrative expense to average assets, annualized, decreased to 1.67% for the three months ended September 30, 2012, from 1.84% for the three months ended September 30, 2011, due to the decrease in general and administrative expense, coupled with an increase in average assets. For the nine months ended September 30, 2012, our percentage of general and administrative expense to average assets, annualized, increased to 1.76%, from 1.71% for the nine months ended September 30, 2011, due to the increase in general and administrative expense, coupled with a decrease in average assets.
Over the past two years, we have incurred higher overall non-interest expense related to regulatory compliance and investment in our growing business lines, particularly multi-family and commercial real estate mortgage lending and, more recently, our business banking initiatives. In an effort to offset such increases in our non-interest expense we completed a corporate wide review of all components of compensation and staffing levels for the purpose of identifying areas where we could potentially recognize cost savings and efficiencies. We instituted a salary freeze for executive and senior officers and eliminated stock-based compensation awards for 2012. We reviewed our staffing levels and retirement benefit plans and identified additional savings. The additional savings identified included the elimination of 142 positions. In addition, our Board of Directors approved amendments to our defined benefit pension plans which, among other things, suspended the accrual of additional pension benefits effective April 30, 2012 which resulted in a decline in our benefit obligations and an increase in the funded status and resulted in a reduction of net periodic pension cost beginning in the 2012
second quarter. The savings resulting from these actions enabled us to control or limit the overall increase in our non-interest expense beginning in the 2012 second quarter.
Compensation and benefits expense decreased $8.7 million to $30.8 million for the three months ended September 30, 2012, from $39.5 million for the three months ended September 30, 2011 and decreased $8.1 million to $105.1 million for the nine months ended September 30, 2012, from $113.2 million for the nine months ended September 30, 2011. Compensation and benefits expense for the nine months ended September 30, 2012 includes $3.4 million in one-time net charges associated with the cost control initiatives implemented in the 2012 first quarter. These net charges were more than offset by cost savings realized in the 2012 second and third quarters resulting in the declines in compensation and benefits expense which include reductions in net periodic pension cost and stock-based compensation costs for the three and nine months ended September 30, 2012, compared to the three and nine months ended September 30, 2011. In addition, ESOP related expenses declined for the three and nine months ended September 30, 2012, compared to the three and nine months ended September 30, 2011. Occupancy, equipment and systems expense increased $1.3 million to $50.0 million for the nine months ended September 30, 2012, compared to $48.7 million for the nine months ended September 30, 2011. This increase is primarily due to an increase in rent expense resulting from the operating lease commitment entered into during the 2011 third quarter for office space in Jericho, New York to house our multi-family and commercial real estate lending department and other operations.
FDIC insurance premium expense increased $1.7 million to $12.5 million for the three months ended September 30, 2012, compared to $10.8 million for the three months ended September 30, 2011 and increased $8.1 million to $35.6 million for the nine months ended September 30, 2012, from $27.5 million for the nine months ended September 30, 2011. On February 7, 2011, the FDIC adopted a final rule that redefined the assessment base for deposit insurance assessments as average consolidated total assets minus average tangible equity, as required by the Reform Act, rather than on deposit bases, and revised the risk-based assessment system for all large insured depository institutions effective April 1, 2011 which resulted in significantly higher FDIC insurance premium expense. For further discussion of the changes in FDIC insurance premiums, see Part I, Item 1, “Business — Regulation and Supervision,” and Item 1A, “Risk Factors,” of our 2011 Annual Report on Form 10-K.
Other non-interest expense increased $1.3 million to $10.8 million for the three months ended September 30, 2012, from $9.5 million for the three months ended September 30, 2011, and increased $2.3 million to $30.7 million for the nine months ended September 30, 2012, from $28.4 million for the nine months ended September 30, 2011. These increases are primarily due to the early extinguishment of debt charge of $1.2 million related to the prepayment on September 13, 2012 of our 5.75% Senior Notes which were due on October 15, 2012.
Income Tax Expense
For the three months ended September 30, 2012, income tax expense totaled $7.1 million, representing an effective tax rate of 34.6%, compared to $7.4 million for the three months ended September 30, 2011, representing an effective tax rate of 39.7%. For the nine months ended September 30, 2012, income tax expense totaled $19.8 million, representing an effective tax rate of 35.4%, compared to $32.9 million for the nine months ended September 30, 2011, representing an effective tax rate of 37.2%. The declines in the effective tax rate for the three and nine months ended September 30, 2012, compared to the three and nine months ended
September 30, 2011, primarily reflect increases in net favorable permanent differences, coupled with, for the 2012 nine month period, a decline in pre-tax book income.
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 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. However, as a result of our efforts to reposition the asset mix of our balance sheet during 2012, concentrating more on higher yielding multi-family mortgage loans than on lower yielding residential mortgage loans, our multi-family mortgage loans increased to represent 17% of our total loan portfolio at September 30, 2012, compared to 13% at December 31, 2011, and our residential mortgage loan portfolio decreased to represent 76% of our total loan portfolio at September 30, 2012, compared to 80% at December 31, 2011. At September 30, 2012 and December 31, 2011, our total loan portfolio also included 5% commercial real estate loans and 2% other loan categories. Full documentation loans comprised 86% of our residential mortgage loan portfolio at September 30, 2012, compared to 85% at December 31, 2011, and comprised 89% of our total mortgage loan portfolio at September 30, 2012, compared to 88% at December 31, 2011.
The following table provides further details on the composition of our residential mortgage loan portfolio in dollar amounts and percentages of the portfolio at the dates indicated.
|
| At September 30, 2012 |
| At December 31, 2011 |
| ||||||||
(Dollars in Thousands) |
| Amount |
| Percent |
| Amount |
| Percent |
| ||||
Residential mortgage loans: |
|
|
|
|
|
|
|
|
| ||||
Full documentation interest-only (1) |
| $ | 2,116,910 |
| 20.67 | % |
| $ | 2,695,940 |
| 25.53 | % |
|
Full documentation amortizing |
| 6,679,061 |
| 65.23 |
|
| 6,308,047 |
| 59.73 |
|
| ||
Reduced documentation interest-only (1)(2) |
| 1,037,717 |
| 10.14 |
|
| 1,145,340 |
| 10.84 |
|
| ||
Reduced documentation amortizing (2) |
| 405,703 |
| 3.96 |
|
| 412,212 |
| 3.90 |
|
| ||
Total residential mortgage loans |
| $ | 10,239,391 |
| 100.00 | % |
| $ | 10,561,539 |
| 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. Includes interest-only hybrid ARM loans originated prior to 2007 which were underwritten at the initial note rate, which may have been a discounted rate, totaling $2.25 billion at September 30, 2012 and $2.50 billion at December 31, 2011.
(2) Includes SISA (stated income, stated asset) loans totaling $227.4 million at September 30, 2012 and $240.7 million at December 31, 2011.
We continue to adhere to prudent underwriting standards. We underwrite our residential mortgage loans primarily based upon our evaluation of the borrower’s ability to pay. 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. In 2006, we began underwriting
our residential 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). Prior to 2007, we would underwrite our residential interest-only hybrid ARM loans using the initial note rate, which may have been a discounted rate. In 2007, we began underwriting our residential interest-only hybrid ARM loans at the higher of the fully indexed rate or the initial note rate. In 2009, we began underwriting our residential 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 loans. SIFA and SISA loans required a prospective borrower to complete a standard mortgage loan application. During the 2007 fourth quarter, we stopped offering reduced documentation loans.
The market does not apply a uniform definition of what constitutes “subprime” lending. Our reference to subprime lending relies upon the “Statement on Subprime Mortgage Lending” issued by the 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; 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 a 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 residential 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 residential mortgage loans on our mortgage loan system. However, substantially all of our residential mortgage loans originated since March 2005 have FICO scores as of the loan origination date (original FICO scores) available on our mortgage loan system. At September 30, 2012, residential mortgage loans which had original FICO scores available on our mortgage loan system totaled $9.11 billion, or 89% of our total residential mortgage loan portfolio, of which $410.5 million, or 5%, had original FICO scores of 660 or below. At December 31, 2011, residential mortgage loans which had original FICO scores available on our mortgage loan system totaled $9.30 billion, or 88% of our total residential mortgage loan portfolio, of which $433.6 million, or 5%, had original FICO scores of 660 or below. Of our residential mortgage loans to borrowers with known original FICO scores of 660 or below, 71% are interest-only loans and 29% are amortizing loans at September 30, 2012 and December 31, 2011. In addition, 66% of our loans to borrowers with known original FICO scores of 660 or below were full documentation loans and 34% were reduced documentation loans at September 30, 2012 and 67% of our loans to borrowers with known original FICO scores of 660 or below were full documentation loans and 33% were reduced documentation loans at December 31, 2011. 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 have enhanced the FICO score data on our mortgage loan system to record, when available, current FICO scores on our borrowers. At September 30, 2012, residential mortgage loans which had current FICO scores available on our mortgage loan system totaled $9.87 billion, or 96% of our total residential mortgage loan portfolio, of which $854.9 million, or 9%, had current FICO scores of 660 or below. At December 31, 2011, residential mortgage loans which had current FICO scores available on our mortgage loan system totaled $9.47 billion, or 90% of our total residential mortgage loan portfolio, of which $918.1 million, or 10%, had current FICO scores of 660 or below. Of our residential mortgage loans to borrowers with known current FICO scores of 660 or below, 63% are interest-only loans and 37% are amortizing loans at September 30, 2012 and December 31, 2011. In addition, 62% of our loans to borrowers with known current FICO scores of 660 or below were full documentation loans and 38% were reduced documentation loans at September 30, 2012 and December 31, 2011.
Non-Performing Assets
The following table sets forth information regarding non-performing assets at the dates indicated.
(Dollars in Thousands) |
| At September 30, 2012 | At December 31, 2011 | ||
Non-accrual delinquent mortgage loans |
| $ 316,157 |
| $ 326,627 |
|
Non-accrual delinquent consumer and other loans |
| 6,060 |
| 6,068 |
|
Mortgage loans delinquent 90 days or more and still accruing interest (1) |
| — |
| 162 |
|
Total non-performing loans (2) |
| 322,217 |
| 332,857 |
|
REO, net (3) |
| 30,825 |
| 48,059 |
|
Total non-performing assets |
| $ 353,042 |
| $ 380,916 |
|
Non-performing loans to total loans |
| 2.38 | % | 2.51 | % |
Non-performing loans to total assets |
| 1.89 |
| 1.96 |
|
Non-performing assets to total assets |
| 2.07 |
| 2.24 |
|
Allowance for loan losses to non-performing loans |
| 46.08 |
| 47.22 |
|
Allowance for loan losses to total loans |
| 1.09 |
| 1.18 |
|
(1) | Consists primarily of loans delinquent 90 days or more as to their maturity date but not their interest due. |
(2) | Excludes loans which have been modified in a troubled debt restructuring and are accruing and performing in accordance with the restructured terms for a satisfactory period of time, generally six months. Restructured accruing loans totaled $96.1 million at September 30, 2012 and $73.7 million at December 31, 2011. Loans modified in a troubled debt restructuring included in non-performing loans totaled $28.6 million at September 30, 2012 and $18.8 million at December 31, 2011. |
(3) | REO, all of which are residential properties, is net of allowance for losses totaling $1.4 million at September 30, 2012 and $2.5 million at December 31, 2011. |
Total non-performing assets decreased $27.9 million to $353.0 million at September 30, 2012, from $380.9 million at December 31, 2011, due to a decrease of $17.2 million in REO, net, coupled with a decrease in non-performing loans. Non-performing loans, the most significant component of non-performing assets, decreased $10.7 million to $322.2 million at September 30, 2012, from $332.9 million at December 31, 2011, primarily due to a decrease of $23.2 million in non-performing residential mortgage loans, partially offset by an increase of $12.5 million in non-performing multi-family and commercial real estate mortgage loans. The increase in non-performing multi-family and commercial real estate loans at September 30, 2012, compared to December 31, 2011, was due, in part, to loans which were modified in a troubled debt restructuring during 2012 which are placed on non-accrual status until the borrowers demonstrate a period of performance according to the restructured terms, generally for a period of six months. Non-performing residential mortgage loans continue to reflect a greater concentration of reduced documentation loans. Reduced documentation loans represent only 14% of the residential mortgage loan portfolio, yet represent 52% of non-performing residential mortgage loans at September 30, 2012. The ratio of non-performing loans to total loans was 2.38% at September 30, 2012 and 2.51% at December 31, 2011. The ratio of non-performing assets to total assets decreased to 2.07% at September 30, 2012, from 2.24% at December 31, 2011, primarily due to the decrease in non-performing assets at September 30, 2012 compared to December 31, 2011.
We proactively manage our non-performing assets, in part, through the sale of certain delinquent and non-performing loans. Included in loans held-for-sale, net, are delinquent and non-performing mortgage loans totaling $779,000 at September 30, 2012, consisting of multi-family loans, and $19.7 million at December 31, 2011, primarily multi-family and commercial real estate loans. Such loans are excluded from non-performing loans, non-performing assets and related ratios. The decrease in non-performing loans held-for-sale is primarily due to sales of $20.4 million of such loans, primarily multi-family and commercial real estate loans, partially
offset by the reclassification of certain delinquent and non-performing loans to held-for-sale, primarily multi-family loans, during the nine months ended September 30, 2012. The reclassification of such loans during the nine months ended September 30, 2012 did not have a material impact on our non-performing loans and non-performing assets or related ratios as of September 30, 2012.
The following table provides further details on the composition of our non-performing residential mortgage loans in dollar amounts and percentages of the portfolio, at the dates indicated.
|
| At September 30, 2012 |
| At December 31, 2011 |
| ||||||||
(Dollars in Thousands) |
| Amount |
| Percent |
| Amount |
| Percent |
| ||||
Non-performing residential mortgage loans: |
|
|
|
|
|
|
|
|
| ||||
Full documentation interest-only |
| $ | 96,845 |
| 32.86 | % |
| $ | 107,503 |
| 33.82 | % |
|
Full documentation amortizing |
| 45,227 |
| 15.35 |
|
| 43,937 |
| 13.82 |
|
| ||
Reduced documentation interest-only |
| 120,236 |
| 40.79 |
|
| 131,301 |
| 41.31 |
|
| ||
Reduced documentation amortizing |
| 32,424 |
| 11.00 |
|
| 35,126 |
| 11.05 |
|
| ||
Total non-performing residential mortgage loans |
| $ | 294,732 |
| 100.00 | % |
| $ | 317,867 |
| 100.00 | % |
|
The following table provides details on the geographic composition of both our total and non-performing residential mortgage loans at September 30, 2012.
|
| Residential Mortgage Loans |
| |||||||||||||
|
| At September 30, 2012 |
| |||||||||||||
(Dollars in Millions) |
| Total Loans |
| Percent of |
| Total |
| Percent of |
| Non-Performing | ||||||
State: |
|
|
|
|
|
|
|
|
|
|
| |||||
New York |
| $ 2,932.7 |
| 28.6 | % | $ 42.4 |
| 14.4 | % | 1.45 | % | |||||
Illinois |
| 1,134.5 |
| 11.1 |
| 43.4 |
| 14.7 |
| 3.83 |
| |||||
Connecticut |
| 1,089.4 |
| 10.6 |
| 30.6 |
| 10.4 |
| 2.81 |
| |||||
Massachusetts |
| 832.4 |
| 8.1 |
| 8.2 |
| 2.8 |
| 0.99 |
| |||||
New Jersey |
| 742.1 |
| 7.3 |
| 58.1 |
| 19.7 |
| 7.83 |
| |||||
Virginia |
| 609.4 |
| 6.0 |
| 11.1 |
| 3.8 |
| 1.82 |
| |||||
California |
| 608.7 |
| 6.0 |
| 29.1 |
| 9.9 |
| 4.78 |
| |||||
Maryland |
| 593.8 |
| 5.8 |
| 34.0 |
| 11.5 |
| 5.73 |
| |||||
Washington |
| 288.0 |
| 2.8 |
| 3.0 |
| 1.0 |
| 1.04 |
| |||||
Texas |
| 269.1 |
| 2.6 |
| — |
| — |
| — |
| |||||
All other states (1) (2) |
| 1,139.3 |
| 11.1 |
| 34.8 |
| 11.8 |
| 3.05 |
| |||||
Total |
| $ 10,239.4 |
| 100.0 | % | $ 294.7 |
| 100.0 | % | 2.88 | % | |||||
(1) Includes 25 states and Washington, D.C.
(2) Includes Florida with $180.2 million total loans, of which $19.9 million are non-performing loans.
At September 30, 2012, the geographic composition of our multi-family and commercial real estate mortgage loan portfolio was 97% in the New York metropolitan area, which includes New York, New Jersey and Connecticut, and 3% in various other states and the geographic composition of non-performing multi-family and commercial real estate mortgage loans was 96% in the New York metropolitan area and 4% in Florida.
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, 2012 and 2011 had been performing in accordance with their original terms, we would have recorded interest income, with respect to such loans, of $13.1 million for the nine months ended September 30, 2012 and $16.5 million for the nine months ended September 30, 2011. This compares to actual payments recorded as interest income, with respect to such loans, of $2.7 million for the nine months ended September 30, 2012 and $4.7 million for the nine months ended September 30, 2011.
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 increased $9.8 million to $28.6 million at September 30, 2012, from $18.8 million at December 31, 2011, primarily due to multi-family and commercial real estate mortgage loans modified in a troubled debt restructuring during 2012, partially offset by the migration of restructured non-accrual loans to accrual status as borrowers complied with the terms of their restructure agreement for a satisfactory period of time. Loans modified in a troubled debt restructuring that have complied with the terms of their restructure agreement for a satisfactory period of time and have, therefore, been returned to accrual status are excluded from non-performing assets. Restructured accruing loans increased $22.4 million to $96.1 million at September 30, 2012, from $73.7 million at December 31, 2011, reflecting the aforementioned migration of restructured loans from non-accrual to accrual status.
In addition to non-performing loans, we had $174.0 million of potential problem loans at September 30, 2012, compared to $195.8 million at December 31, 2011. Such loans include loans which are 60-89 days delinquent as shown in the following table and certain other internally adversely classified loans.
Delinquent Loans
The following table shows a comparison of delinquent loans at the dates indicated. Delinquent loans are reported based on the number of days the loan payments are past due.
|
| 30-59 Days |
| 60-89 Days |
| 90 Days or More |
| ||||||||||||
(Dollars in Thousands) |
| Number |
| Amount |
| Number |
| Amount |
| Number |
| Amount |
| ||||||
At September 30, 2012: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Residential |
| 349 |
|
| $ 103,984 |
|
| 88 |
|
| $ 25,798 |
|
| 987 |
|
| $ 294,732 |
|
|
Multi-family |
| 46 |
|
| 27,121 |
|
| 14 |
|
| 6,417 |
|
| 26 |
|
| 16,208 |
|
|
Commercial real estate |
| 11 |
|
| 13,923 |
|
| 5 |
|
| 3,653 |
|
| 4 |
|
| 5,217 |
|
|
Consumer and other loans |
| 64 |
|
| 4,073 |
|
| 27 |
|
| 1,357 |
|
| 55 |
|
| 6,060 |
|
|
Total delinquent loans |
| 470 |
|
| $ 149,101 |
|
| 134 |
|
| $ 37,225 |
|
| 1,072 |
|
| $ 322,217 |
|
|
Delinquent loans to total loans |
|
|
|
| 1.10 | % |
|
|
|
| 0.27 | % |
|
|
|
| 2.38 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
| 357 |
|
| $ 128,562 |
|
| 111 |
|
| $ 31,253 |
|
| 1,027 |
|
| $ 317,867 |
|
|
Multi-family |
| 42 |
|
| 29,109 |
|
| 12 |
|
| 14,915 |
|
| 11 |
|
| 8,022 |
|
|
Commercial real estate |
| 3 |
|
| 4,882 |
|
| 2 |
|
| 1,060 |
|
| 1 |
|
| 900 |
|
|
Consumer and other loans |
| 94 |
|
| 4,187 |
|
| 33 |
|
| 1,587 |
|
| 54 |
|
| 6,068 |
|
|
Total delinquent loans |
| 496 |
|
| $ 166,740 |
|
| 158 |
|
| $ 48,815 |
|
| 1,093 |
|
| $ 332,857 |
|
|
Delinquent loans to total loans |
|
|
|
| 1.26 | % |
|
|
|
| 0.37 | % |
|
|
|
| 2.51 | % |
|
Allowance for Loan Losses
The following table summarizes activity in the allowance for loan losses.
(In Thousands) |
| For the Nine |
| |
Balance at January 1, 2012 |
| $ 157,185 |
|
|
Provision charged to operations |
| 29,500 |
|
|
Charge-offs: |
|
|
|
|
Residential |
| (37,598 | ) |
|
Multi-family |
| (3,139 | ) |
|
Commercial real estate |
| (1,718 | ) |
|
Consumer and other loans |
| (2,367 | ) |
|
Total charge-offs |
| (44,822 | ) |
|
Recoveries: |
|
|
|
|
Residential |
| 5,984 |
|
|
Multi-family |
| 199 |
|
|
Commercial real estate |
| 1 |
|
|
Consumer and other loans |
| 425 |
|
|
Total recoveries |
| 6,609 |
|
|
Net charge-offs (1) |
| (38,213 | ) |
|
Balance at September 30, 2012 |
| $ 148,472 |
|
|
(1) Includes net charge-offs of $15.2 million related to reduced documentation residential mortgage loans and $527,000 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 our primary banking regulator, 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 regulatory 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, 2012 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 $1.95 billion of callable borrowings classified according to their maturity dates, primarily in the more than three years to five years category, which are callable within one year and at various times thereafter. In addition, the Gap Table includes callable securities with an amortized cost of $50.0 million classified according to their maturity dates, in the more than five years category, which are 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, 2012 was positive 9.81% compared to positive 1.50% at December 31, 2011. The change in our one-year cumulative gap is primarily due to a decrease in certificates of deposit projected to mature or reprice within one year at September 30, 2012, compared to December 31, 2011.
|
| At September 30, 2012 |
| |||||||||||||||||
(Dollars in Thousands) |
| One Year |
| More than |
| More than |
| More than |
| Total |
| |||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
| |||||||||
Mortgage loans (1) |
| $ | 4,945,514 |
| $ | 3,642,722 |
| $ | 3,791,504 |
| $ | 541,582 |
| $ | 12,921,322 |
| ||||
Consumer and other loans (1) |
| 251,134 |
| 12,567 |
| 1 |
| 45 |
| 263,747 |
| |||||||||
Interest-earning cash accounts |
| 88,170 |
| — |
| — |
| — |
| 88,170 |
| |||||||||
Securities available-for-sale |
| 155,469 |
| 77,713 |
| 4,661 |
| 76,173 |
| 314,016 |
| |||||||||
Securities held-to-maturity |
| 745,093 |
| 643,348 |
| 383,843 |
| 148,376 |
| 1,920,660 |
| |||||||||
FHLB-NY stock |
| — |
| — |
| — |
| 181,832 |
| 181,832 |
| |||||||||
Total interest-earning assets |
| 6,185,380 |
| 4,376,350 |
| 4,180,009 |
| 948,008 |
| 15,689,747 |
| |||||||||
Net unamortized purchase premiums and deferred costs (2) |
| 42,743 |
| 31,436 |
| 26,981 |
| 6,500 |
| 107,660 |
| |||||||||
Net interest-earning assets (3) |
| 6,228,123 |
| 4,407,786 |
| 4,206,990 |
| 954,508 |
| 15,797,407 |
| |||||||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||||||
Savings |
| 432,675 |
| 430,733 |
| 430,733 |
| 1,517,506 |
| 2,811,647 |
| |||||||||
Money market |
| 847,403 |
| 285,729 |
| 285,729 |
| 19,426 |
| 1,438,287 |
| |||||||||
NOW and demand deposit |
| 100,379 |
| 200,771 |
| 200,771 |
| 1,462,715 |
| 1,964,636 |
| |||||||||
Certificates of deposit |
| 1,794,230 |
| 1,907,392 |
| 622,690 |
| — |
| 4,324,312 |
| |||||||||
Borrowings, net |
| 1,382,472 |
| 548,944 |
| 2,749,084 |
| 128,866 |
| 4,809,366 |
| |||||||||
Total interest-bearing liabilities |
| 4,557,159 |
| 3,373,569 |
| 4,289,007 |
| 3,128,513 |
| 15,348,248 |
| |||||||||
Interest sensitivity gap |
| 1,670,964 |
| 1,034,217 |
| (82,017 | ) | (2,174,005 | ) | $ | 449,159 |
| ||||||||
Cumulative interest sensitivity gap |
| $ | 1,670,964 |
| $ | 2,705,181 |
| $ | 2,623,164 |
| $ | 449,159 |
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Cumulative interest sensitivity gap as a percentage of total assets |
| 9.81 | % | 15.88 | % | 15.40 | % | 2.64 | % |
|
| |||||||||
Cumulative net interest-earning assets as a percentage of interest- bearing liabilities |
| 136.67 | % | 134.11 | % | 121.47 | % | 102.93 | % |
|
| |||||||||
(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 (when reasonably practical) of up to 400 basis points over various time horizons although changes in interest rates of 200 basis points over a one year horizon 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, 2012 would increase by approximately 5.34% from the base projection. At December 31, 2011, in the up 200 basis point scenario, our projected net interest income for the twelve month period beginning January 1, 2012 would have increased by approximately 2.08% 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, 2012 would decrease by approximately 4.34% from the base projection. At December 31, 2011, in the down 100 basis point scenario, our projected net interest income for the twelve month period beginning January 1, 2012 would have decreased by approximately 4.88% 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 gap analyses 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, 2012 would increase by approximately $4.8 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, 2012 would decrease by approximately $1.8 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 2011 Annual Report on Form 10-K.
ITEM 4. Controls and Procedures
Monte N. Redman, our President and Chief Executive Officer, and Frank E. Fusco, our Senior 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, 2012. 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, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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.
City of New York Notice of Determination
By “Notice of Determination” dated September 14, 2010 and August 26, 2011, the City of New York has notified us of alleged tax deficiencies in the amount of $13.3 million, including interest and penalties, related to our 2006 through 2008 tax years. The deficiencies relate 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 through our third party loan origination program. We disagree with the assertion of the tax deficiencies and we filed Petitions for Hearings with the City of New York on December 6, 2010 and October 5, 2011 to oppose the Notices of Determination and to consolidate the hearings. A hearing in this matter is expected to occur in the 2012 fourth quarter. 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, 2012 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 deficiencies asserted by the City of New York, whether additional tax will be assessed for years subsequent to 2008, 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.
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 ATMs, 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. On March 10, 2011, the Southern District Court entered an order on the record that dismissed all claims against Astoria Financial Corporation but denied the motion to dismiss the claims against Astoria Federal for alleged direct patent infringement. The order also dismissed in part the claims against Astoria Federal for alleged inducement of our customers to violate plaintiff’s patents and for Astoria Federal’s allegedly willful violation of the plaintiff’s patents, allowing claims to continue only for alleged inducement and willful infringement after our receiving notice of the pending suit from plaintiff’s counsel. Based on the Southern District Court’s ruling, on March 31, 2011, we answered the amended complaint substantially denying the allegations of the amended complaint.
On July 18, 2012, we filed a motion for summary judgment for non-infringement based on a recent ruling by the U.S. Court of Appeals for the Federal District affirming the Delaware District Court’s decision to grant summary judgment in favor of a defendant in an action involving the same plaintiff making substantially similar allegations with respect to identical and substantially similar patents as those involved in the action against us. We intend to continue to vigorously defend this lawsuit.
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 we served third party complaints against Metavante Corporation and Diebold, Inc. seeking to enforce our indemnification rights.
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 cannot at this time estimate the possible loss or range of loss, if any. No assurance can be given at this time that this 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.
Lefkowitz Litigation
On February 27, 2012, a putative class action entitled Ellen Lefkowitz, individually and on behalf of all Persons similarly situated v. Astoria Federal Savings and Loan Association was commenced in the Queens County Supreme Court against us alleging that during the proposed class period, we improperly charged overdraft fees to customer accounts when accounts were not overdrawn, improperly reordered electronic debit transactions from the highest to the lowest dollar amount and processed debits before credits to deplete accounts and maximize overdraft fee income. The complaint contains the further assertion that we did not adequately inform our customers that they had the option to “opt-out” of overdraft services. We were served with the summons and complaint in such action on February 29, 2012 and were initially required to reply on or before April 30, 2012. By Stipulation between the parties, our time to answer was extended to May 7, 2012, at which time we moved to dismiss the complaint. On July 19, 2012, the Queens County Supreme Court issued an order dismissing the complaint in its entirety. On September 7, 2012, the plaintiff filed a notice of appeal with the Appellate Division. We intend to continue to vigorously defend this lawsuit. We cannot at this time estimate the possible loss or range of loss, if any. No assurance can be given at this time that this litigation against us will be resolved amicably, that this litigation will not be costly to defend, that this litigation will not have an impact on our financial condition or results of operations or that, ultimately, any such impact will not be material.
For a summary of risk factors relevant to our operations, see Part I, Item 1A, “Risk Factors,” in our 2011 Annual Report on Form 10-K and Part II, Item 1A. “Risk Factors,” in our March 31, 2012 and June 30, 2012 Quarterly Reports on Form 10-Q. There were no material changes in risk factors relevant to our operations since June 30, 2012.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the nine months ended September 30, 2012, 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, 2012, a maximum of 8,107,300 shares may yet be purchased under this plan. However, we are not currently repurchasing additional shares of our common stock and have not since the 2008 third quarter.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Mine Safety Disclosures
Not applicable.
Not applicable.
See Index of Exhibits on page 80.
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: | November 7, 2012 |
| By: | /s/ | Monte N. Redman |
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| Monte N. Redman |
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| President and Chief Executive Officer |
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Dated: | November 7, 2012 |
| By: | /s/ | Frank E. Fusco |
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| Frank E. Fusco |
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| Senior Executive Vice President, |
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| Treasurer and Chief Financial Officer |
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| (Principal Accounting Officer) |
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX OF EXHIBITS
Exhibit No. |
| Identification of Exhibit |
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10.1 |
| Employment Agreement by and between Astoria Financial Corporation and Robert J. DeStefano, entered into as of January 1, 2012. |
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10.2 |
| Employment Agreement by and between Astoria Federal Savings and Loan Association and Robert J. DeStefano, entered into as of January 1, 2012. |
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31.1 |
| Certifications of Chief Executive Officer. |
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31.2 |
| Certifications of Chief Financial Officer. |
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32.1 |
| Written Statement of Chief Executive Officer and Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 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.INS |
| XBRL Instance Document |
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101.SCH |
| XBRL Taxonomy Extension Schema Document |
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101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
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101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
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101.DEF |
| XBRL Taxonomy Extension Definitions Linkbase Document |