AF Astoria Financial Corp. (delisted)

LAKE SUCCESS, N.Y., Oct. 20 /PRNewswire-FirstCall/ -- Astoria Financial Corporation (NYSE: AF) ("Astoria", the "Company"), the holding company for Astoria Federal Savings and Loan Association ("Astoria Federal"), today reported net income of $21.5 million, or $0.23 diluted earnings per share ("EPS"), for the quarter ended September 30, 2010, increases of 169% and 156%, respectively, over net income of $8.0 million, or $0.09 EPS, for the quarter ended September 30, 2009.  For the nine months ended September 30, 2010, net income totaled $49.9 million, or $0.53 EPS, compared to $19.5 million, or $0.21 EPS, for the comparable 2009 period.  

Included in the 2010 nine month period are net charges totaling $3.2 million ($2.1 million, or $0.02 per share, after-tax), which are not routine to our core operations.  Included in the 2009 nine month period are charges totaling $16.7 million ($10.9 million, or $0.12 per share, after-tax,) which are not routine to our core operations.  For further details of such items and a reconciliation of GAAP and non-GAAP measures, please refer to the "Reconciliation of GAAP Measures to Non-GAAP Measures" table included in this release.

Commenting on the 2010 third quarter results, George L. Engelke, Jr., Chairman and Chief Executive Officer of Astoria, stated, "I am pleased to report significantly improved earnings for the 2010 third quarter compared to both the prior quarter and last year's third quarter, despite considerable shrinkage of the balance sheet.  The improvement is due primarily to lower credit costs reflecting the overall improvement in asset quality, particularly lower loan delinquencies and non-performing loans."  

Board Declares Quarterly Cash Dividend of $0.13 Per Share

The Board of Directors of the Company, at their October 20, 2010 meeting, declared a quarterly cash dividend of $0.13 per common share.  The dividend is payable on December 1, 2010 to shareholders of record as of November 15, 2010.  This is the sixty-second consecutive quarterly cash dividend declared by the Company.

Third Quarter and Nine Month Earnings Summary

Net interest income for the quarter ended September 30, 2010 increased to $106.0 million from $103.1 million for the 2009 third quarter.  For the nine months ended September 30, 2010, net interest income increased to $332.3 million from $323.8 million for the comparable 2009 period.

The net interest margin for the quarter ended September 30, 2010 was 2.32%, five basis points lower than the previous quarter and 25 basis points higher than the 2009 third quarter.  The linked quarter decrease was primarily due to the effect of one extra day of interest expense in the third quarter. The year-over-year increase in the margin was due to the cost of interest-bearing liabilities declining more rapidly than the yield on interest-earning assets.  "The continued decline in liability costs, due primarily to lower certificates of deposit ("CD") repricing, should help to offset the decline in asset yields.  Non-Liquid CDs totaling $2.0 billion are scheduled to mature in the 2010 fourth quarter and $1.8 billion are scheduled to mature in the first half of 2011, with a weighted average rate of 1.81% and 1.92%, respectively.  On the asset side, $894.1 million of hybrid ARM loans, with a weighted average rate of 4.66%, are scheduled to reprice downward during the 2010 fourth quarter and $1.6 billion of hybrid ARM loans, with a weighted average rate of 4.46%, are scheduled to reprice downward during the first half of 2011,"  Mr. Engelke noted.

For the quarter ended September 30, 2010, a $20.0 million provision for loan losses was recorded which is $15.0 million lower than the previous quarter and $30.0 million lower than the 2009 third quarter.  For the nine months ended September 30, 2010, the provision for loan losses totaled $100.0 million compared to $150.0 million for the comparable period in 2009.  Mr. Engelke noted, "The decrease in the provision this year recognizes the improving trends in overall loan delinquencies, particularly, in our multi-family and CRE portfolios."

Non-interest income for the quarter ended September 30, 2010 totaled $18.6 million compared to $20.1 million for the 2009 third quarter.  The decrease is primarily due to the absence of gain on sales of securities in 2010 and a decrease in customer service fees, partially offset by an increase in other non-interest income.        

For the nine months ended September 30, 2010, non-interest income totaled $60.5 million compared to $56.5 million for the comparable 2009 period.  The increase is primarily due to an increase in other non-interest income, of which $6.2 million was from a goodwill litigation settlement in the 2010 second quarter, and an other-than-temporary impairment charge related to Freddie Mac securities recorded in the 2009 first quarter, partially offset by the absence of gain on sales of securities in 2010 and decreases in customer service fees and mortgage banking income, net.  

General and administrative ("G&A") expense for the quarter ended September 30, 2010 totaled $70.9 million compared to $63.2 million for the 2009 third quarter.  The increase is primarily due to a $4.1 million increase in compensation and benefits, primarily increased ESOP expense and accruals for incentive compensation, and a $2.6 million increase in other expense, primarily real estate owned related expense.

For the nine months ended September 30, 2010, G&A expense totaled $215.0 million compared to $203.2 million for the comparable 2009 period.  The increase was due primarily to the following:  a $6.7 million increase in compensation and benefits, primarily related to ESOP expense and accruals for incentive compensation, a $10.9 million increase in other expense, of which $7.9 million was related to the McAnaney litigation settlement, and a $2.0 million increase in regular FDIC insurance premiums, partially offset by the $9.9 million FDIC special assessment recorded in 2009.

Balance Sheet Summary

Total assets decreased $733.1 million from the previous quarter and $1.3 billion from December 31, 2009 and totaled $18.9 billion at September 30, 2010.  The loan portfolio declined $467.1 million from the previous quarter and $881.5 million from December 31, 2009 and totaled $14.9 billion at September 30, 2010.  The one-to-four family portfolio totaled $11.4 billion at September 30, 2010 compared to $11.7 billion at June 30, 2010 and $11.9 billion at December 31, 2009.  The combined multifamily/commercial real estate portfolio totaled $3.1 billion at September 30, 2010 compared to $3.2 billion at June 30, 2010 and $3.4 billion at December 31, 2009.  For the quarter and nine months ended September 30, 2010, securities decreased $145.5 million and $587.4 million, respectively, to $2.6 billion.  Commenting on the decrease in the balance sheet, Mr. Engelke stated, "The combination of conforming 30-year fixed-rate mortgage interest rates at historic lows and high conforming loan limits, resulting from the U.S. Government's efforts to stimulate housing loan demand, has had a negative impact on jumbo hybrid ARM portfolio lenders such as Astoria and has contributed to the decrease in our loan portfolio and balance sheet."

For the quarter and nine months ended September 30, 2010, one-to-four family loan originations for portfolio totaled $646.7 million and $2.2 billion, respectively, compared to $1.2 billion and $2.2 billion, respectively, for the comparable 2009 periods.  This production was achieved while maintaining strict underwriting standards.  The loan-to-value ratio of the one-to-four family loan production for portfolio for the 2010 third quarter and nine months averaged approximately 63% and 62%, respectively, at origination and the loan amount averaged approximately $728,000 and $734,000, respectively.  One-to-four family loan prepayments for the quarter and nine months ended September 30, 2010 totaled $848.3 million and $2.3 billion, respectively, compared to $939.6 million and $2.2 billion, respectively, for the comparable 2009 periods.  

Deposits for the quarter ended September 30, 2010 decreased $141.2 million from the previous quarter and $705.0 million from December 31, 2009, and totaled $12.1 billion at September 30, 2010.  The decreases were due primarily to decreases in CDs.  Importantly, low-cost savings, money market and checking account deposits increased $231.3 million from December 31, 2009, or 8% annualized.

Borrowings for the quarter ended September 30, 2010 decreased $599.9 million from the previous quarter and $664.7 million from December 31, 2009 to $5.2 billion.

Stockholders' equity totaled $1.2 billion, or 6.56% of total assets at September 30, 2010.  Astoria Federal continues to be designated as well-capitalized with core, tangible, risk-based and Tier 1 risk-based capital ratios of 7.59%, 7.59%, 14.13% and 12.87%, respectively, at September 30, 2010.

Asset Quality

Non-performing loans ("NPLs"), including troubled debt restructurings ("TDR") of $53.5 million, totaled $399.6 million, or 2.11% of total assets at September 30, 2010, a decrease of $15.5 million from the previous quarter.  During the 2010 third quarter, $22.3 million of NPLs were either sold or classified as held-for-sale.  At September 30, 2010, one-to-four family NPLs declined to $345.7 million, multi-family/CRE/construction NPLs declined to $48.9 million and consumer and other NPLs declined to $5.0 million compared to $350.6 million, $59.2 million and $5.3 million at June 30, 2010.  Of the $345.7 million of non-performing one-to-four family loans, $247.8 million, or 72%, represent residential loans which, at 180 days delinquent and annually thereafter, were reviewed and charged-off, as needed, to the estimated fair value of the underlying collateral at such time, less estimated selling costs.

The following table illustrates loan migration trends from 30 days delinquent to 90+ days delinquent:

The table below details, as of September 30, 2010, the ten largest concentrations by state of one-to-four family loans and the respective non-performing loan totals in those states.  More comprehensive state details are included in the "One-to-Four Family Residential Loan Portfolio-Geographic Analysis" table included in this release.  

Net loan charge-offs for the quarter ended September 30, 2010 totaled $24.8 million (including $18.4 million of one-to-four family loans and $5.4 million of multi-family/CRE loans) compared to $34.7 million (including $20.1 million of one-to-four family loans and $12.6 million of multi-family/CRE loans) for the previous quarter.  Included in the $18.4 million of one-to-four family net loan charge-offs are $16.2 million of charge-offs on $71.7 million of NPLs which, at 180 days delinquent and annually thereafter, were reviewed and adjusted, as needed, to the estimated fair value of the underlying collateral less selling costs.  "While we expect NPL levels may remain elevated for some time, it is important to note that the loss potential remaining has been greatly reduced as a result of our having already reviewed, marked down, and charged-off as necessary, 72% of the residential NPLs to their adjusted fair value less selling costs," Mr. Engelke noted.

Future Outlook  

Commenting on the near-term outlook, Mr. Engelke stated, "Although we remain cautiously optimistic with respect to the outlook for credit quality and we expect credit costs will continue to decline over the next several quarters resulting in improved financial performance, the operating environment for residential mortgage portfolio lenders, nonetheless, remains challenging. The U.S. government continues to subsidize the residential mortgage market with programs designed to keep 30-year fixed-rate conforming loans, which we originate but do not retain for our portfolio, below normal market rate levels.  In addition, the U.S. Congress recently extended the expanded conforming loan limits in many of the markets we operate in through September 2011, therefore, we anticipate that elevated levels of mortgage prepayment activity will continue to outpace our loan production.  This will, more than likely, result in the loan portfolio and balance sheet declining further in the near term.  We anticipate maintaining a relatively stable net interest margin which, when coupled with lower credit costs, should mitigate the earnings impact from a smaller balance sheet.  In the meantime, we will continue to strengthen the balance sheet by continuing to originate quality residential mortgage loans for portfolio.  We expect capital levels will continue to increase as earnings continue to improve which should position us to take advantage of future balance sheet growth opportunities that may arise."

Earnings Conference Call October 21, 2010 at 10:00 a.m. (ET)

The Company, as previously announced, indicated that Mr. Engelke will host an earnings conference call Thursday morning, October 21, 2010 at 10:00 a.m. (ET).   The toll-free dial-in number is (888) 562-3356, ID# 12186796.  A telephone replay will be available on October 21, 2010 from 1:00 p.m. (ET) through midnight October 30, 2010 (ET).   The replay number is (800) 642-1687, ID#: 12186796.  The conference call will also be simultaneously webcast on the Company's website www.astoriafederal.com and archived for one year.

Astoria Financial Corporation, with assets of $18.9 billion, is the holding company for Astoria Federal Savings and Loan Association.  Established in 1888, Astoria Federal, with deposits in New York totaling $12.1 billion, is the largest thrift depository in New York and embraces its philosophy of "Putting people first" by providing the customers and local communities it serves with quality financial products and services through 85 convenient banking office locations and multiple delivery channels, including its enhanced website, www.astoriafederal.com.  Astoria Federal commands the fourth largest deposit market share in the attractive Long Island market, which includes Brooklyn, Queens, Nassau, and Suffolk counties with a population exceeding that of 38 individual states.  Astoria Federal originates mortgage loans through its banking and loan production offices in New York, an extensive broker network covering sixteen states, primarily along the East Coast, and the District of Columbia, and through correspondent relationships covering seventeen states and the District of Columbia.

Forward Looking Statements

This document contains a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may be identified by the use of such words as "anticipate," "believe," "could," "estimate," "expect," "intend," "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 its 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 of the areas in which we do business, or conditions in the real estate or securities markets or the banking industry may be less favorable than we currently anticipate; legislative or regulatory changes may adversely affect our business; applicable 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 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 assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document.

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