AF Astoria Financial Corp. (delisted)

LAKE SUCCESS, N.Y., Oct. 19, 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 $11.2 million, or $0.12 diluted earnings per share ("diluted EPS"), for the quarter ended September 30, 2011 compared to net income of $21.5 million, or $0.23 diluted EPS, for the quarter ended September 30, 2010.  For the nine months ended September 30, 2011, net income totaled $55.4 million, or $0.58 diluted EPS, increases of 11% and 9%, respectively, over net income of $49.9 million, or $0.53 diluted EPS, for the comparable 2010 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.  For further details, please refer to the "Reconciliation of GAAP Measures to Non-GAAP Measures" table included in this release.

Commenting on the 2011 third quarter results, Monte N. Redman, President and Chief Executive Officer of Astoria, stated, "Our financial results for the quarter were negatively impacted by two events: the decrease in average interest-earning assets by almost $400 million from the 2011 second quarter, due in part to the flattening of the U.S. Treasury yield curve which kept residential mortgage prepayment activity at elevated levels, and a non-cash increase of over $3 million in ESOP expense, due to our lower stock price during the third quarter.  On a more positive note, the pace of the decline in the balance sheet and loan portfolio has slowed significantly in the third quarter and we expect to see modest growth in the 2011 fourth quarter, accelerating further in 2012."

Financial Highlights

• Low cost savings, money market and checking accounts increased $389.6 million, or 31% annualized, to $5.4 billion, from June 30, 2011 and increased $987.7 million, or 22%, from September 30, 2010.
• Early stage loan delinquencies (30-89 days past due) decreased $18.7 million, or 9%, to $188.5 million, from June 30, 2011 and $63.5 million, or 25%, from September 30, 2010.
• Total past due loans and REO decreased $23.6 million, or 4%, to $619.2 million, from June 30, 2011 and $97.1 million, or 14%, from September 30, 2010.
• The Company's tangible common equity ratio increased to 6.55%, up 9 basis points from June 30, 2011 and 92 basis points from September 30, 2010.
• Astoria Federal's leverage and tangible capital ratios increased to 8.75%, up 14 basis points from June 30, 2011 and 116 basis points from September 30, 2010.  
• Astoria Federal's Tier 1 risk-based capital ratio increased to 14.89%, up 41 basis points from June 30, 2011 and 202 basis points from September 30, 2010.  
• The residential loan pipeline, excluding our own customer loan refinances, totaled $1.0 billion at September 30, 2011, 28% higher than June 30, 2011
• The multi-family loan pipeline totaled $252.7 million at September 30, 2011 versus no pipeline at June 30, 2011

Board Declares Quarterly Cash Dividend of $0.13 Per Share

The Board of Directors of the Company, at their October 19, 2011 meeting, declared a quarterly cash dividend of $0.13 per common share.  The dividend is payable on December 1, 2011 to shareholders of record as of November 15, 2011.  This is the sixty-sixth consecutive quarterly cash dividend declared by the Company.

Third Quarter and Nine Months Earnings Summary

Net interest income for the quarter ended September 30, 2011 totaled $90.6 million compared to $95.7 million for the previous quarter and $106.0 million for the 2010 third quarter.  For the nine months ended September 30, 2011, net interest income totaled $287.9 million compared to $332.3 million for the comparable 2010 period.  The decreases in net interest income are due primarily to decreases in average interest-earning assets of $385.5 million on a linked quarter basis and $2.3 billion for both the year over year quarter and nine month periods and asset yields declining greater than the cost of funds, due to the prolonged low interest rate environment.  The net interest margin for the quarter ended September 30, 2011 was 2.27% compared to 2.34% for the previous quarter and 2.32% for the 2010 third quarter.  Approximately 2 basis points of the linked quarter decrease is due to one extra day of interest expense in the 2011 third quarter.  For the nine months ended September 30, 2011, the net interest margin was 2.34% compared to 2.36% for the comparable 2010 nine month period.

For the quarter ended September 30, 2011, a $10.0 million provision for loan losses was recorded, which was equal to the provision for the previous quarter and 50% lower than the $20.0 million provision recorded for the 2010 third quarter.  For the nine months ended September 30, 2011, the provision for loan losses totaled $27.0 million compared to $100.0 million for the comparable 2010 period.   Mr. Redman noted, "Despite the improved credit metrics of the loan portfolio, including the noted decline in total loan delinquencies, we felt it prudent, at this time, to maintain our strong allowance for loan losses coverage ratio, which was 1.34% of total loans at September 30, 2011."

Non-interest income for the quarter ended September 30, 2011 totaled $16.5 million compared to $17.0 million for the previous quarter and $18.6 million for the 2010 third quarter.  Non-interest income for the nine months ended September 30, 2011 totaled $51.6 million compared to $60.5 million for the comparable 2010 period.  The decrease for the nine months ended September 30, 2011 is due to a $6.2 million gain relating to a litigation settlement recorded in 2010, partially offset by a $1.5 million impairment write-down of premises and equipment recorded in 2010, coupled with a decrease of $3.4 million in customer service fees.  

General and administrative ("G&A") expense for the quarter ended September 30, 2011 totaled $78.6 million compared to $76.0 million for the previous quarter and $70.9 million for the 2010 third quarter. The linked quarter increase is primarily due to an increase in compensation and benefits expense, primarily a non-cash increase in ESOP expense of over $3 million, due to the lower stock price in the 2011 third quarter, partially offset by lower incentive bonus expense.  The quarterly year over year increase is due to a $4.3 million increase in FDIC deposit insurance expense and a $3.5 million increase in compensation and benefits expense, primarily ESOP expense.  Mr. Redman stated, "Excluding the increase in the non-cash ESOP expense, G&A expenses remained essentially flat on a linked quarter basis."

For the nine months ended September 30, 2011, G&A expense totaled $224.2 million compared to $215.0 million for the nine months ended September 30, 2010.  The increase is due to a $7.8 million increase in FDIC deposit insurance expense, a $7.3 million increase in compensation and benefits expense, primarily ESOP and pension expense, and a $1.8 million increase in advertising expense, partially offset by a $7.9 million litigation settlement expense recorded in 2010.

Balance Sheet Summary

Total assets decreased $143.7 million from June 30, 2011 and $1.1 billion from December 31, 2010 and totaled $17.0 billion at September 30, 2011.  The decline is primarily due to a decrease in the loan portfolio.  "We believe the decline in the balance sheet has reached an inflection point in the third quarter, evidenced by the smallest quarterly decline in the balance sheet in two years.  As previously stated, our expectation for modest loan and balance sheet growth in the 2011 fourth quarter and more significant growth in 2012 is predicated on two factors.  The one-to-four family loan pipeline at September 30, 2011, excluding our own customer loan refinances, was $1.0 billion, or 28%, higher than it was at June 30, 2011, which should mitigate the effect of elevated prepayment activity, and the multi-family loan pipeline at September 30, 2011 was $252.7 million and growing, due to the resumption of lending in the 2011 third quarter," Mr. Redman noted.

The one-to-four family portfolio increased $11.4 million from June 30, 2011 to $10.6 billion at September 30, 2011, the first increase in the portfolio in more than two years.  For the quarter and nine months ended September 30, 2011, one-to-four family loan originations for portfolio totaled $1.0 billion and $2.4 billion, respectively, compared to $646.7 million and $2.2 billion, respectively, for the comparable 2010 periods.  The loan-to-value ratio of the one-to-four family loan production for portfolio for the 2011 third quarter and nine months each averaged approximately 60% at origination and the loan amount averaged approximately $782,000 and $766,000, respectively.  One-to-four family loan prepayments for the quarter and nine months ended September 30, 2011 totaled $892.9 million and $2.3 billion, respectively, compared to $848.3 million and $2.3 billion, respectively, for the comparable 2010 periods.

The combined multi-family/commercial real estate ("CRE") portfolio totaled $2.4 billion at September 30, 2011 compared to $2.6 billion at June 30, 2011 and $3.0 billion at December 31, 2010.  Multi-family/CRE loan prepayments for the quarter and nine months ended September 30, 2011 totaled $176.1 million and $502.5 million, respectively, compared to $70.1 million and $186.4 million for the comparable 2010 periods.  

The securities portfolio increased $61.7 million from June 30, 2011 and totaled $2.5 billion at September 30, 2011.  We expect to maintain the securities portfolio at, or slightly higher than, current levels throughout the remainder of the year.

Deposits increased $56.5 million from June 30, 2011 and decreased $331.9 million from December 31, 2010 to $11.3 billion at September 30, 2011.  Importantly, low-cost savings, money market and checking account deposits increased $389.6 million, or 31% annualized, from June 30, 2011 and $618.9 million, or 17% annualized, from December 31, 2010.  Certificate of deposit ("CD") accounts (including Liquid CDs) decreased $333.1 million from the previous quarter and $950.7 million from December 31, 2010.  Notwithstanding the decline in CDs, during the nine months ended September 30, 2011, we extended $606.5 million of CDs for terms of two years or more in an effort to help limit our exposure to future increases in interest rates.  At September 30, 2011, our one-year interest rate sensitivity gap was positive 3.22%.

Borrowings decreased $263.9 million from June 30, 2011 and $846.7 million from December 31, 2010 to $4.0 billion at September 30, 2011.

Stockholders' equity totaled $1.3 billion, or 7.57% of total assets, at September 30, 2011.  Astoria Federal continues to be designated as well-capitalized with leverage, tangible, risk-based and Tier 1 risk-based capital ratios of 8.75%, 8.75%, 16.18% and 14.89%, respectively, at September 30, 2011.

Asset Quality

Non-performing loans ("NPLs"), including troubled debt restructurings of $36.8 million, totaled $380.0 million, or 2.24% of total assets, at September 30, 2011, an increase of $3.7 million from the previous quarter.  One-to-four family NPLs totaled $324.9 million, multi-family/CRE/construction NPLs totaled $49.6 million and consumer and other NPLs totaled $5.5 million, compared to $329.6 million, $41.6 million and $5.2 million, respectively, at June 30, 2011.  Of the $324.9 million of one-to-four family NPLs, $258.7 million, or 80%, 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, 2011, 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 and nine months ended September 30, 2011 totaled $14.4 million and $50.1 million, respectively, down from $24.8 million and $87.8 million, respectively, for the comparable 2010 periods.  Included in the 2011 third quarter one-to-four family net loan charge-offs are $13.9 million of charge-offs on $59.7 million of NPLs which, at 180 days delinquent and annually thereafter, were reviewed in the 2011 third quarter and charged-off, as needed, to the estimated fair value of the underlying collateral less estimated selling costs.  "While we expect NPL levels will remain elevated for some time, especially in those states requiring judicial foreclosure, 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, 80% of the residential NPLs to their adjusted fair value less estimated selling costs," Mr. Redman noted.

Future Outlook  

Commenting on the outlook for the fourth quarter and 2012, Mr. Redman stated, "We continue to operate in a challenging environment; economic growth remains weak, unemployment stubbornly remains elevated and home values continue to remain soft.  In addition, the implementation of Operation Twist by the Federal Reserve has contributed to a flattening of the U.S. Treasury yield curve, putting further downward pressure on long term interest rates and current mortgage product offerings, as well as increasing mortgage loan prepayments. However, we are optimistic that the increase in our loan pipeline, coupled with the reduction in the expanded conforming loan limits that commenced October 1, 2011 and the resumption of multi-family/commercial real estate lending, should facilitate modest loan and balance sheet growth in the fourth quarter and more robust growth in 2012.  With respect to the net interest margin, we expect that, in the current low interest rate environment, with increased loan prepayment activity, the margin for the 2011 fourth quarter will be down slightly from the third quarter and for 2012 may be somewhat lower than the margin for 2011."

Earnings Conference Call October 20, 2011 at 10:00 a.m. (ET)

The Company, as previously announced, indicated that Monte N. Redman, President & CEO will host an earnings conference call Thursday morning, October 20, 2011 at 10:00 a.m. (ET).  The toll-free dial-in number is (888) 562-3356, ID# 12289136.  A telephone replay will be available on October 20, 2011 from 1:00 p.m. (ET) through midnight October 29, 2011 (ET).  The replay number is (800) 585-8367, ID# 12289136.  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 $17.0 billion, is the holding company for Astoria Federal Savings and Loan Association.  Established in 1888, Astoria Federal, with deposits in New York totaling $11.3 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 fourteen states, primarily along the East Coast, and the District of Columbia, and through correspondent relationships covering fifteen 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," "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, may adversely affect our business; technological changes may be more difficult or expensive than we anticipate; success or consummation of new business initiatives may be more difficult or expensive than we anticipate; or litigation or other matters before regulatory agencies, whether currently existing or commencing in the future, may be determined adverse to us or may delay the occurrence or non-occurrence of events longer than we anticipate. We have no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document.

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