AF Astoria Financial Corp. (delisted)

LAKE SUCCESS, N.Y., Jan. 26, 2011 /PRNewswire/ -- 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 $23.8 million, or $0.25 diluted earnings per share ("diluted EPS"), for the quarter ended December 31, 2010, increases of 193% and 178%, respectively, over net income of $8.1 million, or $0.09 diluted EPS, for the quarter ended December 31, 2009.  For the year ended December 31, 2010, net income totaled $73.7 million, or $0.78 diluted EPS, compared to $27.7 million, or $0.30 diluted EPS, for the year ended December 31, 2009, increases of 166% and 160%, respectively.  

The year ended December 31, 2010 includes net charges totaling $3.2 million ($2.1 million, or $0.02 per share, after-tax), which are not routine to our core operations.  The year ended December 31, 2009 includes 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, please refer to the "Reconciliation of GAAP Measures to Non-GAAP Measures" table included in this release.

Commenting on the fourth quarter and full year results, George L. Engelke, Jr., Chairman and Chief Executive Officer of Astoria, stated, "I am very pleased to report significantly improved earnings for both the fourth quarter and full year, despite a reduction of the balance sheet during the year.  The improvements are due primarily to lower credit costs, reflecting an overall improvement in asset quality, particularly lower loan delinquencies and non-performing loans."  

Full Year Financial Highlights

• Net interest margin increased 22 basis points, or 10%, to 2.35%
• Net income increased $46.0 million, or 166%, to $73.7 million
• Diluted EPS increased $0.48, or 160%, to $0.78
• Low cost savings, money market and checking accounts increased $535.2 million, or 13%, to $4.6 billion
• Early stage loan delinquencies (30-89 days past due) decreased $69.1 million, or 24%, to $220.1 million
• Non-performing loans decreased $17.9 million, or 4%, to $390.7 million
• Total loan delinquencies decreased $87.0 million, or 12%, to $610.8 million
• Coverage ratio (allowance for loan losses to total loans) increased 19 basis points, or 15%, to 1.42%
• The Company's tangible common equity ratio increased 80 basis points to 5.90%
• Astoria Federal's leverage and tangible capital ratios increased 105 basis points to 7.94%
• Astoria Federal's tier 1 risk-based capital ratio increased 161 basis points to 13.33%      

Executive Management Changes Scheduled

George L. Engelke, Jr. 72, Chairman and Chief Executive Officer of both the Company and Astoria Federal, announced today that, effective July 1, 2011, he will relinquish his position as Chief Executive Officer of both organizations, after which time he will continue to serve as Chairman.  The Board also announced today that Monte N. Redman, 60, President and Chief Operating Officer of the Company and Astoria Federal, will become President and Chief Executive Officer of both organizations effective July 1, 2011.

In announcing his decision, Mr. Engelke stated, "After a wonderful forty year career at Astoria Federal, including 22 years as Chief Executive Officer, it is the right time to step down as CEO.  I am very proud of the accomplishments achieved over this period, particularly our conversion to a public company in 1993 and the fivefold growth in our balance sheet and the expansion of our retail banking franchise to its current leadership position in the markets in which we operate.  And, as the past two years presented financial institutions with unprecedented challenges, I am also very gratified that the execution of our conservative business model helped us remain profitable throughout this period. I am also very pleased that the Board will be designating Monte Redman as CEO.  With over 33 years of experience at Astoria in various executive capacities, including the past three years as President and Chief Operating Officer, he has clearly demonstrated his ability to serve in this position.  I look forward to continuing to serve Astoria as Chairman of the Board."

Board Declares Quarterly Cash Dividend of $0.13 Per Share; Sets Annual Shareholders Meeting Date

The Board of Directors of the Company, at their January 26, 2011 meeting, declared a quarterly cash dividend of $0.13 per common share.  The dividend is payable on March 1, 2011 to shareholders of record as of February 15, 2011.  This is the sixty-third consecutive quarterly cash dividend declared by the Company.

The Board also established May 18, 2011 as the date for the Annual Meeting of Shareholders, with a voting record date of March 25, 2011.

Fourth Quarter and Full Year Earnings Summary

Net interest income for the quarter ended December 31, 2010 totaled $101.2 million compared to $105.0 million for the 2009 fourth quarter.   For the year ended December 31, 2010, net interest income increased to $433.6 million from $428.8 million for the year ended December 31, 2009.

The net interest margin for the quarter ended December 31, 2010 was 2.32%, unchanged from the previous quarter and 17 basis points higher than the 2009 fourth quarter.  The net interest margin for the full year 2010 was 2.35%, 22 basis points higher than the 2009 full year margin.  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 yield on interest-earning assets for the 2010 fourth quarter declined nine basis points from the previous quarter and 32 basis points from the 2009 fourth quarter, while the cost of interest-earning liabilities declined nine basis points and 51 basis points, respectively. For the full year 2010, the yield on interest-earning assets declined 33 basis points and the cost of interest-bearing liabilities declined 57 basis points, compared to the full year 2009.  

For the quarter ended December 31, 2010, a $15.0 million provision for loan losses was recorded, $5.0 million lower than the previous quarter and $35.0 million lower than the 2009 fourth quarter.  For the year ended December 31, 2010, the provision for loan losses totaled $115.0 million, or $85.0 million lower than the full year provision for 2009.  Mr. Engelke noted, "The significant decrease in the provision this year reflects the improving trends in asset quality over the past twelve months, notably a 24% decrease in early stage delinquencies, a 4% decrease in non-performing loans and a 12% decrease in total loan delinquencies, coupled with the high quality of loans originated for portfolio during the year, with $2.9 billion originated with loan-to-value ratios averaging approximately 61% at origination."

Non-interest income for the quarter ended December 31, 2010 totaled $20.7 million compared to $23.3 million for the 2009 fourth quarter.  The decrease is primarily due to lower customer service fees, the absence of gain on sales of securities in 2010 and lower other income and income from bank owned life insurance (BOLI), partially offset by higher mortgage banking income, net.        

For the year ended December 31, 2010, non-interest income totaled $81.2 million compared to $79.8 million for the year ended December 31, 2009.  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 a gain on sales of securities in 2009 and a decrease in customer service fees for 2010 compared to 2009.  

General and administrative ("G&A") expense for the quarter ended December 31, 2010 totaled $69.9 million compared to $66.8 million for the 2009 fourth quarter.  The increase is primarily due to a $2.3 million increase in other expense, primarily increased real estate owned ("REO") related expense, and a $1.6 million increase in compensation and benefits expense.

For the year ended December 31, 2010, G&A expense totaled $284.9 million compared to $270.1 million for the year ended December 31, 2009.  The increase was due primarily to an $8.2 million increase in compensation and benefits expense, primarily related to increases in ESOP expense and incentive and stock-based compensation, a $13.2 million increase in other expense, of which $7.9 million was related to the McAnaney litigation settlement in the 2010 second quarter and $3.1 million was attributable to an increase in REO related expenses, and a $1.4 million increase in regular FDIC insurance premiums.  These increases were partially offset by a $9.9 million FDIC special assessment recorded in 2009.

Balance Sheet Summary

Total assets decreased $847.6 million from the previous quarter and $2.2 billion from December 31, 2009 and totaled $18.1 billion at December 31, 2010.  The loan portfolio declined $676.1 million from the previous quarter and $1.6 billion from December 31, 2009 and totaled $14.2 billion at December 31, 2010.  The one-to-four family portfolio totaled $10.9 billion at December 31, 2010 compared to $11.4 billion at September 30, 2010 and $11.9 billion at December 31, 2009.  The combined multifamily/commercial real estate portfolio totaled $3.0 billion at December 31, 2010 compared to $3.1 billion at September 30, 2010 and $3.4 billion at December 31, 2009.  For the quarter and year ended December 31, 2010, securities decreased $25.5 million and $612.8 million, respectively, to $2.6 billion at December 31, 2010.  

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, with mortgage loan prepayments outpacing our loan origination volume, resulting in a contraction of the loan portfolio and balance sheet.  We have chosen not to retain for portfolio 30 year fixed-rate conforming mortgage loans or loosen our credit standards simply to facilitate balance sheet growth."      

For the quarter and year ended December 31, 2010, one-to-four family loan originations for portfolio totaled $643.6 million and $2.9 billion, respectively, compared to $916.4 million and $3.1 billion, respectively, for the comparable 2009 periods.  The loan-to-value ratio of the one-to-four family loan production for portfolio for the 2010 fourth quarter and full year 2010 averaged approximately 60% and 61%, respectively, at origination and the loan amount averaged approximately $734,000 for both periods.  One-to-four family loan prepayments for the quarter and year ended December 31, 2010 totaled $1.0 billion and $3.4 billion, respectively, compared to $891.3 million and $3.1 billion, respectively, for the comparable 2009 periods.  

Deposits at December 31, 2010 totaled $11.6 billion compared to $12.1 billion at September 30, 2010 and $12.8 billion at December 31, 2009.  The decreases were due primarily to decreases in high cost CDs.   In an effort to reduce future interest rate risk, during 2010, we extended approximately $1.5 billion of CDs for terms of two years or more and extended $525.0 million of borrowings for terms of three years or more.  These actions, among other things, helped improve our one-year interest rate sensitivity gap to a positive 5.18% at December 31, 2010 as compared to a negative 6.77% at December 31, 2009. Importantly, low-cost savings, money market and checking account deposits increased $535.2 million, or 13%, from December 31, 2009.

Borrowings during the quarter ended December 31, 2010 decreased $343.9 million from the previous quarter and $1.0 billion from December 31, 2009 and totaled $4.9 billion at December 31, 2010.

Stockholders' equity totaled $1.2 billion, or 6.86% of total assets at December 31, 2010.  Astoria Federal continues to be designated as well-capitalized with leverage, tangible, risk-based and Tier 1 risk-based capital ratios of 7.94%, 7.94%, 14.60% and 13.33%, respectively, at December 31, 2010.

Asset Quality

Non-performing loans ("NPLs"), including troubled debt restructurings ("TDRs") of $47.5 million, totaled $390.7 million, or 2.16% of total assets at December 31, 2010, a decrease of $8.9 million from the previous quarter.  During the 2010 fourth quarter, $11.6 million of NPLs were either sold or classified as held-for-sale.  At December 31, 2010, one-to-four family NPLs declined to $342.3 million, multi-family/CRE/construction NPLs declined to $42.8 million and consumer and other NPLs increased to $5.6 million compared to $345.7 million, $48.9 million and $5.0 million, respectively, at September 30, 2010.  Of the $342.3 million of one-to-four family NPLs, $257.4 million, or 75%, 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 December 31, 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 December 31, 2010 totaled $19.7 million (including $15.6 million of one-to-four family loans and $2.6 million of multi-family/CRE loans) compared to $24.8 million (including $18.4 million of one-to-four family loans and $5.4 million of multi-family/CRE loans) for the previous quarter.  Included in the $15.6 million of one-to-four family net loan charge-offs are $12.6 million of charge-offs on $47.7 million of NPLs which, at 180 days delinquent and annually thereafter, were reviewed in the 2010 fourth quarter and charged-off, as needed, to the estimated fair value of the underlying collateral less selling costs.  "While we expect NPL levels will 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, 75% 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, "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.  However, the operating environment for residential mortgage portfolio lenders remains challenging.  While the U.S. government continues to subsidize the residential mortgage market, the recent interest rate increase in 30 year fixed-rate mortgage loans should result in lower loan prepayments which will, more than likely, result in less portfolio shrinkage.  For 2011, we anticipate maintaining a relatively stable net interest margin which, when coupled with lower credit costs, should mitigate the earnings impact from a smaller average balance sheet and the anticipated impact of higher FDIC insurance premium expense.  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 January 27, 2011 at 10:00 a.m. (ET)

The Company, as previously announced, indicated that Mr. Engelke will host an earnings conference call Thursday morning, January 27, 2011 at 10:00 a.m. (ET).   The toll-free dial-in number is (888) 562-3356, ID# 32093033.  A telephone replay will be available on January 27, 2011 from 1:00 p.m. (ET) through midnight February 5, 2011 (ET).   The replay number is (800) 642-1687, ID#: 32093033.  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 $18.1 billion, is the holding company for Astoria Federal Savings and Loan Association.  Established in 1888, Astoria Federal, with deposits in New York totaling $11.6 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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