voluntary Capital Purchase Program (the "CPP") that allows qualifying financial institutions to sell preferred shares to the Treasury. Second, the FDIC announced the Temporary Liquidity Guarantee Program (the "TLGP"), enabling the FDIC to temporarily guarantee the senior debt of all FDIC-insured institutions and certain holding companies, as well as fully insure all deposits in non-interest bearing transaction accounts. Third, to further increase access to funding for businesses in all sectors of the economy, the FRB announced further details of its Commercial Paper Funding Facility program (the "CPFF"), which provides a broad backstop for the commercial paper market. These actions were intended to restore confidence in the banking system, ease liquidity concerns and stabilize the rapidly deteriorating economy. Eligible institutions are covered under the TLGP at no cost for the first 30 days. Institutions that do not want to continue to participate in one or both parts of the TLGP must notify the FDIC of their election to opt out on or before December 5, 2008. Institutions that do not opt out will be subject to a fee, after the first 30 days, of 75 basis points per annum based on the amount of senior unsecured debt issued and a 10 basis point surcharge (annualized) will be added to the institution's current insurance assessment for balances in non-interest bearing transaction accounts that exceed the existing deposit insurance limit of $250,000.
The EESA also authorizes the Treasury to establish the Troubled Asset Relief Program (the "TARP") to purchase certain troubled assets from financial institutions, including banks and thrifts. Under TARP, the Treasury may purchase residential and commercial mortgages, and securities, obligations or other instruments based on such mortgages, originated or issued on or before March 14, 2008 that the Secretary of the Treasury determines promotes market stability, as well as any other financial instrument that the Treasury, after consultation with the Chairman of the FRB, determines the purchase of which is necessary to promote market stability. In the case of a publicly-traded financial institution that sells troubled assets into the TARP, the Treasury must receive a warrant giving the Treasury the right to receive nonvoting common stock or preferred stock in such financial institution, or voting stock with respect to which the Treasury agrees not to exercise voting power, subject to certain de minimis exceptions. In addition, all financial institutions that sell troubled assets to the TARP and meet certain conditions will also be subject to certain executive compensation restrictions, which differ depending on how the troubled assets are acquired under the TARP.
We are currently well capitalized and continue to lend in our markets. To date, we have not participated in any of the new programs above.
Net income amounted to $121.9 million for the third quarter of 2008, as compared to $74.4 million for the third quarter of 2007. For the nine months ended September 30, 2008, net income amounted to $321.3 million as compared to $218.4 million for the 2007 period. For the three months ended September 30, 2008, our annualized return on average assets and average stockholders' equity were 0.97% and 10.19%, respectively compared with 0.73% and 6.41% for the third quarter of 2007. For the nine months ended September 30, 2008, our annualized return on average assets and average stockholders' equity were 0.90% and 9.03%, respectively as compared to 0.75% and 6.09% for the first nine months of 2007. The increases in our annualized returns on average equity and average assets are due primarily to the increase in our net income during the third quarter and first nine months of 2008 as compared to the third quarter and first nine months of 2007. The increases in our annualized returns on average equity were also due to decreases in average shareholders' equity due to significant stock repurchases during 2007.
Net interest income increased $92.9 million, or 57.3%, to $255.1 million for the third quarter of 2008 as compared to $162.2 million for the third quarter of 2007. Net interest income increased $205.2 million, or 43.1%, to $681.5 million for the nine months ended September 30, 2008 compared to $476.3 million for the corresponding period in 2007. During the third quarter of 2008, our net interest rate spread increased 56 basis points to 1.70% and our net interest margin increased 43 basis points to 2.08% as

compared to the third quarter of 2007. During the first nine months of 2008, our net interest rate spread increased 41 basis points to 1.52% and our net interest margin increased 27 basis points to 1.93% as compared to the same period in 2007. The increases in our net interest rate spread and net interest margin were due to a steeper yield curve which allowed us to reduce deposit costs while mortgage yields generally increased slightly.
The provision for loan losses amounted to $5.0 million for the third quarter of 2008 and $10.5 million for the nine months ended September 30, 2008 as compared to $2.0 million and $2.8 million for the same respective periods in 2007. The increase in the provision for loan losses reflects the risks inherent in our loan portfolio due to decreases in real estate values in our lending markets, the increase in non-performing loans, the increase in loan charge-offs and the overall growth of our loan portfolio. The ratio of non-performing loans to total loans was 0.50% at September 30, 2008 as compared to 0.33% at December 31, 2007. The increase in non-performing loans reflects the weakening of the overall economy coupled with the continued deterioration of the housing market. The conditions in the housing market are evidenced by declining house prices, reduced levels of home sales, increasing inventories of houses on the market, and an increase in the length of time houses remain on the market. Total non-interest expense increased $8.2 million, or 19.9%, to $49.4 million for the third quarter of 2008 from $41.2 million for the third quarter of 2007. The increase is primarily due to a $5.5 million increase in compensation and employee benefits expense, a $2.2 million increase in other non-interest expense and a $540,000 increase in Federal deposit insurance expense. Total non-interest expense increased $22.6 million, or 18.3%, to $145.8 million for the first nine months of 2008 from $123.2 million for the first nine months of 2007. The increase is primarily due to a $16.8 million increase in compensation and employee benefits expense and a $4.9 million increase in other non-interest expense. The increases in non-interest expenses were due primarily to various operating expenses related to the growth of our branch network and our increased retail loan production. At September 30, 2008 we had 125 branches as compared to 118 at September 30, 2007.
We have been able to grow our assets by 16.5% to $51.77 billion at September 30, 2008 from $44.42 billion at December 31, 2007, by originating and purchasing mortgage loans and purchasing mortgage-backed securities. Loans increased $4.32 billion to $28.52 billion at September 30, 2008 from $24.20 billion at December 31, 2007. While conditions in the housing markets deteriorated further during 2008, our competitive rates and the decreased lending competition have resulted in increased origination activity.
Total securities increased $2.64 billion to $21.38 billion at September 30, 2008 from $18.74 billion at December 31, 2007. The increase in securities was primarily due to purchases of mortgage-backed and investment securities of $5.47 billion and $1.90 billion, respectively, partially offset by principal collections on mortgage-backed securities of $1.83 billion and calls of investment securities of $2.71 billion.
The increase in our total assets was funded primarily by borrowings and customer deposits. Borrowed funds increased $5.14 billion to $29.28 billion at September 30, 2008 from $24.14 billion at December 31, 2007. Deposits increased $2.14 billion to $17.29 billion at September 30, 2008 from $15.15 billion at December 31, 2007. The additional borrowed funds were used primarily to fund our asset growth. The increase in deposits was attributable to growth in our time deposits and money market accounts. The increase in these accounts was a result of our competitive pricing strategies that focused on attracting these types of deposits as well as customer preferences for time deposits rather than other types of deposit accounts. In addition, we believe the turmoil in the credit and equity markets has made deposit products in strong financial institutions desirable for many customers.

Comparison of Financial Condition at September 30, 2008 and December 31, 2007 During the first nine months of 2008, our total assets increased $7.35 billion, or 16.5%, to $51.77 billion at September 30, 2008 from $44.42 billion at December 31, 2007.
Loans increased $4.32 billion, or 17.9%, to $28.52 billion at September 30, 2008 from $24.20 billion at December 31, 2007 due primarily to the origination of one-to four- family first mortgage loans in New Jersey, New York and Connecticut and our continued loan purchase activity. For the first nine months of 2008, we originated $4.01 billion and purchased $2.55 billion of loans, compared to originations of $2.65 billion and purchases of $3.06 billion for the comparable period in 2007. The origination and purchases of loans were partially offset by principal repayments of $2.22 billion in the first nine months of 2008 as compared to $1.73 billion for the first nine months of 2007. While the residential real estate markets have deteriorated during the past year, our competitive rates and the decreased mortgage lending competition have resulted in increased retail origination activity for the first nine months of 2008. The overall decrease in the purchase of mortgage loans was due primarily to the continued reduction of activity in the secondary residential mortgage market as a result of the disruption and volatility in the financial and capital marketplaces.
Our first mortgage loan originations and purchases were substantially in one-to four-family mortgage loans for the first nine months of 2008. Approximately 58.0% of mortgage loan originations for the first nine months of 2008 were variable-rate loans as compared to approximately 44.0% for the comparable period in 2007. Substantially all purchased mortgage loans during the nine months ended September 30, 2008 were fixed-rate loans since variable-rate loans available for purchase are typically outside of our defined geographic parameters and include features, such as option ARM's, that do not meet our underwriting standards. Fixed-rate mortgage loans accounted for 76.6% of our first mortgage loan portfolio at September 30, 2008 and 80.5% at December 31, 2007.
Total mortgage-backed securities increased $3.50 billion to $18.07 billion at September 30, 2008 from $14.57 billion at December 31, 2007. This increase in total mortgage-backed securities resulted from $5.47 billion in purchases, all of which were issued by U.S. government-sponsored enterprises. The increase was partially offset by repayments of $1.83 billion. At September 30, 2008, variable-rate mortgage-backed securities accounted for 82.2% of our portfolio compared with 82.3% at December 31, 2007. The purchase of variable-rate mortgage-backed securities is a component of our interest rate risk management strategy. Since our primary lending activities are the origination and purchase of fixed-rate mortgage loans, the purchase of variable-rate mortgage-backed securities provides us with an asset that reduces our exposure to interest rate fluctuations.
Total investment securities decreased $865.3 million to $3.31 billion at September 30, 2008 as compared to $4.17 billion at December 31, 2007. Investment securities held to maturity decreased $1.36 billion partially offset by a $493.1 million increase in investment securities available for sale. The decrease in total investment securities was the result of calls of held to maturity and available for sale investment securities of $1.36 billion and $1.35 billion, respectively. The calls were partially offset by purchases of investment securities available for sale of $1.90 billion for the first nine months of 2008.
Total cash and cash equivalents increased $167.5 million to $385.0 million at September 30, 2008 as compared to $217.5 million at December 31, 2007. Accrued interest receivable increased $36.5 million, primarily due to increased balances in loans and investments. Other assets increased by $45.9 million primarily due to an increase in deferred tax assets reflecting the tax effect of the change in net unrealized gains and losses on securities available for sale.

Total liabilities increased $7.18 billion, or 18.0%, to $46.99 billion at September 30, 2008 from $39.81 billion at December 31, 2007. The increase in total liabilities primarily reflected a $5.14 billion increase in borrowed funds and a $2.14 billion increase in deposits.
Total deposits amounted to $17.29 billion at September 30, 2008 as compared to $15.15 billion at December 31, 2007. The increase in total deposits reflected a $1.17 billion increase in our time deposits, a $957.6 million increase in our money market checking accounts and a $40.8 million increase in our demand accounts. The increase in our time deposits and money market checking accounts reflects our competitive pricing, our branch expansion and customer preference for these types of deposits. At September 30, 2008 we had 125 branches as compared to 118 at September 30, 2007. In addition, we believe that the turmoil in the credit and equity markets has made deposit products in strong financial institutions desirable for many customers.
Borrowings amounted to $29.28 billion at September 30, 2008 as compared to $24.14 billion at December 31, 2007. The increase in borrowed funds was the result of $5.50 billion of new borrowings at a weighted-average rate of 3.12%, partially offset by repayments of $366.0 million with a weighted average rate of 3.93%. The new borrowings have final maturities of ten years and initial reprice dates of one to three years. The additional borrowed funds were used primarily to fund our asset growth. Borrowed funds at September 30, 2008 were comprised of $14.43 billion of Federal Home Loan Bank ("FHLB") advances and $14.85 billion of securities sold under agreements to repurchase.
The Company has two collateralized borrowings in the form of repurchase agreements totaling $100.0 million with Lehman Brothers, Inc. Lehman Brothers, Inc. is currently in liquidation under the Securities Industry Protection Act. Mortgage-backed securities with a carrying value of approximately $114.4 million are pledged as collateral for these borrowings. We intend to pursue full recovery of the pledged collateral in accordance with the contractual terms of the repurchase agreement. If full recovery of the collateral does not occur, we will be pursuing a customer claim against the Lehman Brothers, Inc. estate for the $14.4 million difference between the carrying value of the securities and the amount of the underlying borrowings. There can be no assurances that the final settlement of this transaction will result in the full recovery of the collateral or the full amount of the claim.
Due to brokers amounted to $158.6 million at September 30, 2008 as compared to $281.9 million at December 31, 2007. Due to brokers at September 30, 2008 represents securities purchased in the third quarter of 2008 with settlement dates in the fourth quarter of 2008. Other liabilities increased to $267.5 million at September 30, 2008 as compared to $236.4 million at December 31, 2007. The increase is primarily the result of an increase in accrued interest payable on borrowings of $18.6 million.
Total shareholders' equity increased $174.8 million to $4.79 billion at September 30, 2008 from $4.61 billion at December 31, 2007. The increase was primarily due to net income of $321.3 million for the nine months ended September 30, 2008, partially offset by cash dividends paid to common shareholders of $154.8 million.
As of September 30, 2008, 54,973,550 shares were available for repurchase under our existing stock repurchase program. During the first nine months of 2008, we repurchased 224,262 shares of our outstanding common stock at a total cost of $3.6 million as compared to 36.7 million shares repurchased during the same period in 2007 at a total cost of $491.3 million. We repurchased fewer shares in the first nine months of 2008 because we were able to leverage our capital more effectively by growing our balance sheet as the yield curve became steeper.

The accumulated other comprehensive loss of $18.5 million at September 30, 2008 includes a $15.3 million after-tax net unrealized loss on securities available for sale ($25.9 million pre-tax). We invest primarily in mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, as well as other securities issued by U.S. government-sponsored enterprises. We do not purchase unrated or private label mortgage-backed securities or other higher risk securities such as those backed by sub-prime loans. In addition, we do not own any common or preferred stock issued by Fannie Mae or Freddie Mac. The unrealized loss in the available for sale portfolio at September 30, 2008 was caused by increases in market yields subsequent to purchase and is not attributable to credit quality concerns. There were no debt securities past due or securities for which the Company currently believes it is not probable that it will collect all amounts due according to the contractual terms of the security. Because the Company has the intent and the ability to hold securities with unrealized losses until a market price recovery (which, for debt securities may be until maturity), the Company did not consider these securities to be other-than-temporarily impaired at September 30, 2008.
At September 30, 2008, our shareholders' equity to asset ratio was 9.24%. Our book value per share, using the period-end number of outstanding shares, less purchased but unallocated employee stock ownership plan shares and less purchased but unvested recognition and retention plan shares, was $9.85 at September 30, 2008 as compared to $9.55 at December 31, 2007. Our tangible book value per share, calculated by deducting goodwill and the core deposit intangible from shareholders' equity, was $9.52 as of September 30, 2008 and $9.22 at December 31, 2007.

Comparison of Operating Results for the Three Months Ended September 30, 2008 and 2007
Average Balance Sheet. The following table presents the average balance sheets, average yields and costs and certain other information for the three months ended September 30, 2008 and 2007. The table presents the annualized average yield on interest-earning assets and the annualized average cost of interest-bearing liabilities. We derived the yields and costs by dividing annualized income or expense by the average balance of interest-earning assets and interest-bearing liabilities, respectively, for the periods shown. We derived average balances from daily balances over the periods indicated. Interest income includes fees that we considered to be adjustments to yields. Yields on tax-exempt obligations were not computed on a tax equivalent basis. Nonaccrual loans were included in the computation of average balances and therefore have a zero yield. The yields set forth below include the effect of deferred loan origination fees and costs, and purchase discounts and premiums that are accreted or amortized to interest income.

                                                            For the Three Months Ended September 30,
                                                   2008                                                  2007
                                                                    Average                                               Average
                                Average                             Yield/            Average                             Yield/
                                Balance           Interest           Cost             Balance           Interest           Cost
                                                                     (Dollars in thousands)
Assets:
Interest-earnings
assets:
First mortgage loans,
net (1)                       $ 27,431,258        $ 394,748             5.76 %      $ 21,990,493        $ 313,943             5.71 %
Consumer and other loans           418,760            6,245             5.97             432,061            7,107             6.58
Federal funds sold                 181,122              815             1.79             271,404            3,382             4.94
Mortgage-backed
securities at amortized
cost                            17,288,478          225,300             5.21          11,617,722          151,144             5.20
Federal Home Loan Bank
stock                              827,393           12,510             6.05             623,693           10,616             6.81
Investment securities,
at amortized cost                3,373,018           41,699             4.95           5,179,482           62,011             4.79

Total interest-earning
assets                          49,520,029          681,317             5.50          40,114,855          548,203             5.47

Noninterest-earnings
assets                             769,038                                               617,794

Total Assets                  $ 50,289,067                                          $ 40,732,649

Liabilities and
Shareholders' Equity:
Interest-bearing
liabilities:
Savings accounts              $    727,060            1,378             0.75        $    766,928            1,457             0.75
Interest-bearing
transaction accounts             1,609,380           12,248             3.03           1,715,934           14,538             3.36
Money market accounts            2,484,464           20,112             3.22           1,264,556           13,436             4.22
Time deposits                   11,435,317          100,245             3.49          10,099,706          125,624             4.93

Total interest-bearing
deposits                        16,256,221          133,983             3.28          13,847,124          155,055             4.44

Repurchase agreements           14,046,628          144,769             4.10          10,948,609          116,888             4.24
Federal Home Loan Bank
of New York advances            14,326,630          147,487             4.10          10,547,826          114,044             4.29

Total borrowed funds            28,373,258          292,256             4.10          21,496,435          230,932             4.26

Total interest-bearing
liabilities                     44,629,479          426,239             3.80          35,343,559          385,987             4.33

Noninterest-bearing
liabilities:
Noninterest-bearing
deposits                           587,553                                               529,775
Other
. . .