Astoria Financial Corporation Reports 17% Increase In Third Quarter Earnings Per Share To $0.14

LAKE SUCCESS, N.Y., Oct. 17, 2012 /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 $13.4 million, or $0.14 diluted earnings per share ("diluted EPS"), for the quarter ended September 30, 2012, increases of 20% and 17%, respectively, compared to net income of $11.2 million, or $0.12 diluted EPS, for the quarter ended September 30, 2011. For the nine months ended September 30, 2012, net income totaled $36.2 million, or $0.38 diluted EPS, compared to net income of $55.4 million, or $0.58 diluted EPS, for the comparable 2011 period.

Third Quarter Highlights

• Net income and diluted EPS up from both prior quarter and same period one year earlier
• Cost control initiatives continue to benefit operating efficiency
• Higher-yielding multi-family/commercial real estate loans continue to become a larger percentage of the loan portfolio
• Core deposits continue to become a larger percentage of deposit liabilities
• Non-performing assets continue to improve
• $250 million aggregate principal amount of 5.75% senior notes redeemed on September 13, 2012

Commenting on the 2012 third quarter results, Monte N. Redman, President and Chief Executive Officer of Astoria, stated,"I am pleased to report improvement in quarterly earnings, both on a linked quarter basis and as compared to the prior year. Our focus on controlling operating expenses has resulted in a positive contribution to earnings, while efforts to reposition both the asset and liability sides of our balance sheet continue to progress, and asset quality continues to improve. It is important to note that the improvement in earnings was achieved even though we carried an additional $250 million of senior notes for much of the quarter. This additional carry reflected the timing gap between completion of our 5% senior note issuance in June and repayment of our previously outstanding senior notes in September. The additional carry had a negative impact on the 2012 third quarter net interest margin of approximately nine basis points. In addition, our operating expense level for the 2012 third quarter included $1.2 million in early extinguishment charges associated with the repayment of the 5.75% senior notes."

Board Declares Quarterly Cash Dividend of $0.04 Per Share
The Board of Directors of the Company, at its October 17, 2012 meeting, declared a quarterly cash dividend of $0.04 per common share. The dividend is payable on December 1, 2012 to shareholders of record as of November 15, 2012. This is the seventieth consecutive quarterly cash dividend declared by the Company.

Third Quarter and Nine Months Earnings Summary
Net interest income for the quarter ended September 30, 2012 totaled $86.0 million compared to $86.7 million for the previous quarter and $90.6 million for the 2011 third quarter. For the nine months ended September 30, 2012, net interest income totaled $260.9 million compared to $287.9 million for the comparable 2011 period. The net interest margin for the quarter ended September 30, 2012 was 2.09% compared to 2.14% for the previous quarter and 2.27% for the 2011 third quarter. The short-term interest carry associated with the $250 million aggregate principal amount of 5.00% Senior Notes due 2017 ("5% Senior Notes") issued in June 2012 for purposes of repaying the Company's previously outstanding $250 million aggregate principal amount of 5.75% Senior Notes due October 2012 ("5.75% Senior Notes") had the effect of reducing the 2012 third quarter net interest income by approximately $2.5 million, and had a negative impact on the net interest margin for the 2012 third quarter of approximately nine basis points. The 5.75% Senior Notes were repaid on September 13, 2012. For the nine months ended September 30, 2012, the net interest margin was 2.15% compared to 2.34% for the comparable 2011 period.

For the quarter ended September 30, 2012, a $9.5 million provision for loan losses was recorded, which compares to $10.0 million for both the previous quarter and the 2011 third quarter. For the nine months ended September 30, 2012, the provision for loan losses totaled $29.5 million compared to $27.0 million for the comparable 2011 period.

Non-interest income totaled $16.6 million for the quarter ended September 30, 2012, up $1.1 million from the previous quarter and essentially unchanged from the 2011 third quarter. For the nine months ended September 30, 2012, non-interest income totaled $51.6 million, essentially unchanged from the comparable 2011 period.

General and administrative ("G&A") expense for the quarter ended September 30, 2012 totaled $72.6 million compared to $72.1 million for the previous quarter and $78.6 million for the 2011 third quarter. Included in the 2012 third quarter is a $1.2 million expense related to the early extinguishment of debt. The year over year quarter decline is due primarily to reduced compensation and benefits expense as a result of the cost control initiatives implemented in the 2012 first quarter.

For the nine months ended September 30, 2012, G&A expense totaled $226.9 million compared to $224.2 million for the nine months ended September 30, 2011. The 2012 nine month period includes, in addition to the expense related to the early extinguishment of debt, net charges totaling $3.4 million representing severance related expenses associated with cost control initiatives implemented in the 2012 first quarter. As a part of those cost control initiatives, a non-recurring expense of approximately $2.0 million, related to the settlement of employment agreements associated with previously announced executive retirements, will be incurred in the 2012 fourth quarter.

Balance Sheet Summary
Total assets decreased $535.3 million from June 30, 2012 and increased $16.1 million from December 31, 2011 and totaled $17.0 billion at September 30, 2012. The linked quarter decline is due to the redemption of the Company's 5.75% Senior Notes in September 2012 and a decrease in both the loan and securities portfolios.

The residential (one-to-four family) loan portfolio decreased $292.7 million from June 30, 2012 to $10.2 billion at September 30, 2012. The decline was due to the pace of residential mortgage loan prepayments exceeding the pace of residential loan origination volume resulting from a further decline in the interest rate for 30-year fixed rate conforming loans during the quarter, thereby making the hybrid ARM product less attractive to borrowers. For the quarter and nine months ended September 30, 2012, residential loan originations for portfolio totaled $513.3 million and $2.3 billion, respectively, compared to $1.0 billion and $2.4 billion, respectively, for the comparable 2011 periods. The third quarter decline in residential loan originations reflects reduced demand for jumbo hybrid ARM loans. The loan-to-value ratio of the residential loan production for portfolio for the 2012 third quarter and nine months averaged approximately 61% and 60%, respectively, at origination and the loan amount averaged approximately $715,000 and $734,000, respectively. Residential loan prepayments for the quarter and nine months ended September 30, 2012 totaled $692.2 million and $2.3 billion, respectively, compared to $892.9 million and $2.3 billion, respectively, for the comparable 2011 periods. "We expect the level of residential loan prepayments to continue to remain elevated and residential ARM production to remain tepid as 30-year fixed rate mortgage interest rates are expected to remain at historic lows for some time," Mr. Redman noted.

The combined multi-family and commercial real estate ("MF/CRE") portfolios increased $132.9 million, or 5%, from June 30, 2012 and $623.6 million, or 26%, from December 31, 2011 to $3.0 billion at September 30, 2012, and represents 22% of the total loan portfolio. For the quarter and nine months ended September 30, 2012, MF/CRE loan originations totaled $333.9 million and $1.2 billion, respectively, compared to just $1.1 million for each of the comparable 2011 periods, reflecting the resumption of such lending in the 2011 third quarter. The $1.2 billion of MF/CRE loans originated during the first nine months of 2012 have loan to value ratios averaging 53% at origination and balances averaging $3.2 million with a weighted average coupon of 3.67%. Commenting on the loan volume, Mr. Redman noted, "As anticipated, MF/CRE loan origination volume was lower on a linked quarter basis due primarily to seasonality, as the second and fourth quarters traditionally reflect stronger MF/CRE loan origination volume. With a loan pipeline of approximately $500 million at September 30, 2012, we are well poised to exceed our goal of originating in excess of $1.5 billion of MF/CRE loans this year." MF/CRE loan prepayments for the quarter and nine months ended September 30, 2012 totaled $177.8 million and $544.2 million, respectively, compared to $176.1 million and $502.5 million for the comparable 2011 periods.

The securities portfolio declined $92.9 million, or 4%, from June 30, 2012 and $196.2 million, or 8% from December 31, 2011 and totaled $2.3 billion at September 30, 2012.

Deposits decreased $175.3 million from June 30, 2012 and $706.7 million from December 31, 2011, due to decreases of $224.5 million and $1.2 billion, respectively, in high cost CDs, offset by an increase of $49.2 million and $488.0 million, respectively, in low cost core deposits, to $10.5 billion at September 30, 2012. Core deposits totaled $6.2 billion, or 59% of total deposits, at September 30, 2012. The growth in core deposits is a result of our efforts to reposition the mix of both assets and liabilities. Business deposits for the first nine months of 2012 increased 13% and totaled $497.2 million at September 30, 2012. Mr. Redman, commenting on the growth in business banking, stated, "Our business banking expansion initiatives are generating new core relationships within the community and deepening our existing relationships while helping to facilitate the growth in low cost core deposits."

Borrowings decreased $363.9 million from June 30, 2012 and increased $687.8 million from December 31, 2011 to $4.8 billion at September 30, 2012. Excluding the newly-issued 5.00% Senior Notes, during the first nine months of 2012, we extended $700.0 million of borrowings with a weighted average rate of 1.05% and a weighted average term of 46 months. In addition, notwithstanding the decline in CDs, during the first nine months of 2012, we extended $581.6 million of CDs for terms of two years or more. These transactions were initiated in an effort to help limit our exposure to future increases in interest rates.

Stockholders' equity totaled $1.3 billion, or 7.60% of total assets, at September 30, 2012. Astoria Federal continues to be designated as well-capitalized with leverage, tangible, risk-based and Tier 1 risk-based capital ratios of 8.86%, 8.86%, 15.90% and 14.64%, respectively, at September 30, 2012.

Asset Quality
Non-performing loans ("NPLs"), including troubled debt restructurings of $28.6 million, totaled $322.2 million, or 1.89% of total assets, at September 30, 2012, a decrease of $21.1 million from the previous quarter. Residential NPLs totaled $294.7 million, multi-family/CRE/construction NPLs totaled $21.4 million and consumer and other NPLs totaled $6.1 million, compared to $294.8 million, $41.7 million and $6.9 million, respectively, at June 30, 2012. Of the $294.7 million of residential NPLs, $244.5 million, or 83%, 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 a two-year migration trend for loan delinquencies:

The table below details, as of September 30, 2012, the ten largest concentrations by state of residential loans and the respective non-performing loan totals in those states.

(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.

Selected Asset Quality Metrics
(at or for the three months ended September 30, 2012, except as noted)

(1) Includes home equity loans of $237.8 million
(2) Includes $72.7 million of net unamortized premiums and deferred loan costs
(3) Includes $244.5 million of NPLs reviewed, and charged-off as needed, at 180 days delinquent and annually thereafter
(4) Includes TDRs of $9.4 million
(5) Includes TDRs of $1.9 million
(6) Does not foot due to rounding

Included in the 2012 third quarter residential net loan charge-offs are $4.9 million of charge-offs on $27.5 million of NPLs which, at 180 days delinquent and annually thereafter, were reviewed in the 2012 third quarter and charged-off, as needed, to the estimated fair value of the underlying collateral less estimated selling costs. "While the trend of lower NPLs is continuing, we expect NPL levels will remain somewhat 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, 83% 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 2013, Mr. Redman stated, "With the yield curve flattening further due to the Federal Reserve's extension of "Operation Twist" and the outlook for rates to remain at historic lows for the next several years, we continue to face headwinds. This notwithstanding, we are confident that our strong multi-family loan origination platform coupled with our focus on repositioning our assets and liabilities, from lower yielding residential loans to higher yielding MF/CRE loans and from higher cost CDs to lower cost core deposits, will benefit the net interest margin and enhance future earnings. MF/CRE loans now represent 22% of the overall loan portfolio, up from 18% at year-end 2011 and core deposits now represent 59% of total deposits, up from 51% at year-end 2011."

Earnings Conference Call October 18, 2012 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 18, 2012 at 10:00 a.m. (ET). The toll-free dial-in number is (877) 709-8150. A telephone replay will be available on October 18, 2012 from 1:00 p.m. (ET) through Saturday, October 27, 2012 at 11:59 p.m.(ET). The replay number is (877) 660-6853, ID# 400756. 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 $10.5 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 residential mortgage loans through its banking and loan production offices in New York, a broker network in four states, primarily along the East Coast, and through correspondent relationships covering nine states and the District of Columbia. Astoria Federal also originates multi-family and commercial real estate loans, primarily on rent controlled and rent stabilized apartment buildings, located in New York City and the metropolitan area.

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, 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 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.

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SOURCE Astoria Financial Corporation