Astoria Financial Corporation Reports Third Quarter Earnings Per Common Share Of $0.15

LAKE SUCCESS, N.Y., Oct. 16, 2013 /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 available to common shareholders of $14.7 million, or $0.15 diluted earnings per common share ("diluted EPS"), for the quarter ended September 30, 2013, increases of 10% and 7%, respectively, compared to net income available to common shareholders of $13.4 million, or $0.14 diluted EPS, for the quarter ended September 30, 2012. For the nine months ended September 30, 2013, net income available to common shareholders totaled $41.4 million, or $0.42 diluted EPS, compared to $36.2 million, or $0.38 diluted EPS, for the comparable 2012 period. Included in the 2013 nine month results is a $4.3 million prepayment charge ($2.8 million, or $0.03 per common share, after tax) for the early extinguishment of debt during the 2013 second quarter in connection with the redemption of $125 million of capital securities. Included in the 2012 nine months results are net charges totaling $3.4 million ($2.2 million, or $0.02 per common share, after-tax), reported in the 2012 first quarter, representing severance related expenses associated with cost control initiatives implemented in the 2012 first quarter, and a $1.2 million ($785,000, or $0.01 per common share, after tax) charge related to the early extinguishment of debt in the 2012 third quarter.

Nine Month Financial Highlights   
Loan Portfolio Shift Continues:

• Multifamily/commercial real estate ("MF/CRE") loan originations totaled $1.2 billion.
• MF/CRE loans continue to become a larger percentage of the loan portfolio, increasing to 32% of total loans at September 30, 2013 from 24% at December 31, 2012.
• At September 30, 2013, the MF/CRE pipeline totaled $352.3 million.

Business Banking:

• Business deposits increased 41% from December 31, 2012 to $689.6 million at September 30, 2013.
• Opened a business banking office in Manhattan during the third quarter.

Restructured Borrowings:

• Restructured $200 million of borrowed funds during the 2013 third quarter reducing their weighted average cost by 115 basis points while extending their average term by approximately 3 years.
• Restructured a total of $1.4 billion of higher-cost borrowings year-to-date resulting in an expected annual interest expense savings of approximately $12.7 million.

Net Interest Margin:

• For the quarter ended September 30, 2013, the net interest margin increased to 2.28% from 2.22% for the previous quarter and 2.09% for the 2012 third quarter.
• For the nine months ended September 30, 2013, the net interest margin increased to 2.23% from 2.15% for the 2012 comparable period.

Operating Expense Improvement:

• Year over year decline in operating expenses achieved through cost control initiatives implemented in 2012, resulting in lower compensation and benefits expense, primarily pension related, coupled with lower FDIC insurance premium expense and other expenses.

Monte N. Redman, President and Chief Executive Officer of Astoria, commenting on the 2013 third quarter stated, "We are pleased with the results that we have reported today. We continue to position the Company for future success as the interest rate environment becomes less challenging.  During the quarter, we started to see some light at the end of the tunnel with respect to interest rates as the longer end of the yield curve moved higher which we believe should begin to make our residential adjustable rate hybrid ARMs more desirable to our customers."

Mr. Redman added, "During the quarter, we continued to make great strides in diversifying the balance sheet.  Our MF/CRE loan portfolio continued to grow and now represents 32% of our total loan portfolio.  The pipeline at the end of September remains robust, positioning us as a leading originator of MF/CRE loans in the New York metropolitan area and on target to originate MF/CRE loans for the full-year 2013 at approximately the same levels as 2012.  On the liability side of the balance sheet, our aggressive approach to business banking continues to reap rewards. Business banking provides us with low-cost core deposits which now make up a greater share of total deposits, as well as higher yielding business loans.  Year to date through September 30, 2013, business banking deposits have grown by 41%.  Business loans originated through business banking relationships, including mortgage loans included with our MF/CRE mortgage loan portfolio and lines of credit extended, are up 166% for the nine months ended September 30, 2013 compared to the 2012 comparable period.  During the third quarter we opened our first business banking office in midtown Manhattan and continue to look for other prime locations to open our first branch in Manhattan, from which to better serve, and build, our business banking operations."

Board Declares Quarterly Cash Dividend of $0.04 Per Share  
The Board of Directors of the Company, at its October 16, 2013 meeting, declared a quarterly cash dividend of $0.04 per common share.  The dividend is payable on December 2, 2013 to shareholders of record as of November 15, 2013.  This is the seventy-fourth consecutive quarterly cash dividend declared by the Company.

Restructured Borrowings  
During the 2013 third quarter, the Company restructured $200 million of higher cost borrowings, reducing their weighted average cost by 115 basis points and extending their average term by approximately 3 years, resulting in an expected annual interest expense savings of approximately $2.3 million. For the nine months ended September 30, 2013, the Company has restructured a total of $1.4 billion of borrowings resulting in an expected annual interest expense savings of approximately $12.7 million. The Company did not incur any charges or other costs in connection with these restructurings.

Third Quarter and Nine Month Earnings Summary   
Net interest income for the quarter ended September 30, 2013 totaled $86.2 million compared to $84.9 million for the previous quarter and $86.0 million for the 2012 third quarter.  The net interest margin for the quarter ended September 30, 2013 increased to 2.28% from 2.22% for the previous quarter and 2.09% for the 2012 third quarter.  For the nine months ended September 30, 2013, net interest income totaled $255.1 million, compared to $260.9 million for the comparable 2012 period, and the net interest margin increased to 2.23% for the nine months ended September 30, 2013 from 2.15% for the nine months ended September 30, 2012. 

For the quarter ended September 30, 2013, a $2.5 million provision for loan losses was recorded compared to $4.5 million for the previous quarter and $9.5 million for the 2012 third quarter.  For the nine months ended September 30, 2013, the provision for loan losses totaled $16.2 million compared to $29.5 million for the comparable 2012 period. "The decline in the provision is a reflection of the continued improvement in our asset quality metrics, as well as the contraction of the overall loan portfolio.  The allowance for loan losses coverage ratio to the total loan portfolio remains strong at 1.14%, slightly higher than the 1.10% at December 31, 2012," Mr. Redman commented. 

Non-interest income for the quarter ended September 30, 2013 totaled $15.3 million compared to $16.6 million for the 2012 third quarter.  The decrease from the 2012 third quarter is due primarily to decreases in customer service fees and income from bank owned life insurance. Non-interest income for the nine months ended September 30, 2013 increased slightly to $52.2 million compared to $51.6 million for the comparable 2012 period.  This increase is primarily due to an increase in mortgage banking income, net, substantially offset by lower customer service fees, income from bank owned life insurance and gain on sales of securities.

General and administrative ("G&A") expense for the quarter ended September 30, 2013 totaled $72.5millioncompared to $74.4 million for the previous quarter and $72.6 million for the 2012 third quarter. The decrease from the previous quarter is primarily due to a decrease in extinguishment of debt expense relating to the early redemption of capital securities in the 2013 second quarter, partially offset by an increase in other expense.   The slight decrease from the 2012 third quarter is due to the decline in FDIC insurance premiums expense and the lack of any extinguishment of debt expenses in the 2013 quarter, substantially offset by increases in compensation and benefits expense and other expense.  For the nine months ended September 30, 2013, G&A expense decreased $8.4 million, or 4%, to $218.5 million from $226.9 million for the 2012 comparable period.  This decrease is primarily due to decreases in FDIC insurance premium expense, compensation and benefits expense, and other expense which were partially offset by increases in occupancy, equipment and systems expense and extinguishment of debt expense.

Balance Sheet Summary   
Total assets decreased $79.0 million and $474.6 million, from June 30, 2013 and December 31, 2012, respectively, and totaled $16.0 billion at September 30, 2013.  The declines were primarily due to decreases in the loan portfolio, partially offset by increases in the securities portfolio.  The loan portfolio decreased $127.5 million and $682.4 million from June 30, 2013 and December 31, 2012, respectively, and totaled $12.5 billion at September 30, 2013. 

The residential (one-to-four family) loan portfolio totaled $8.3 billion at September 30, 2013 compared to $8.6 billion at June 30, 2013 and $9.7 billion at December 31, 2012.  The declines were primarily due to the pace of residential loan prepayments exceeding the pace of residential loan originations due to historic low interest rates for 30-year fixed rate conforming loans, which we do not generally retain for our portfolio, thereby making such loans a more attractive alternative for borrowers than the hybrid ARM loan product that we retain for our portfolio.  For the quarter and nine months ended September 30, 2013, residential loan originations for portfolio totaled $370.0 million and $837.8 million, respectively, compared to $513.3 million and $2.3 billion, respectively, for the comparable 2012 periods.  The weighted average loan-to-value ratios of the residential loan production for portfolio were approximately 70% and 65% at origination for the quarter and nine months ended September 30, 2013, respectively, and the loan amounts averaged approximately $668,000 and $720,000, respectively.  Residential loan prepayments for the quarter and nine months ended September 30, 2013 totaled $598.4 million and $1.9 billion, respectively, compared to $692.2 million and $2.3 billion, respectively, for the comparable 2012 periods.

The MF/CRE loan portfolio increased $213.3 million, or 6%, from June 30, 2013 and $760.2 million, or 24%, from December 31, 2012 to $3.9 billion at September 30, 2013, and represents 32% of the total loan portfolio.  For the quarter and nine months ended September 30, 2013, MF/CRE loan originations totaled $353.2 million and $1.2 billion, respectively, compared to $333.9 million and $1.2 billion, respectively, for the 2012 comparable periods.  The 2013 quarter and nine months ended September 30, 2013 MF/CRE loans were originated with weighted average loan-to-value ratios of approximately 42% and 46%, respectively, weighted average debt coverage ratios of approximately 1.76% for both periods, and loan balances averaging approximately $2.3 million and $2.6 million, respectively.  MF/CRE loan prepayments for the quarter and nine months ended September 30, 2013 totaled $112.5 million and $370.3 million, respectively, compared to $177.8 million and $544.2 million for the comparable 2012 periods.  At September 30, 2013, the MF/CRE pipeline totaled $352.3 million.

Deposits decreased $185.0 million and $383.6 million, respectively, from June 30, 2013 and December 31, 2012, respectively, to $10.1 billion at September 30, 2013.  The decreases were primarily due to decreases in higher cost certificates of deposit ("CDs"), partially offset by an increase in lower cost core deposits since December. Core deposits totaled $6.6 billion, or 66% of total deposits, and had a weighted average rate of 10 basis points at September 30, 2013, compared to 62% of total deposits at December 31, 2012.  CDs, which totaled $3.5 billion at September 30, 2013, or 34% of total deposits, declined 13% from December 31, 2012.  At September 30, 2013, total deposits include business deposits of $689.6 million, an increase of 41% since year-end 2012.  "The expansion of our business banking operations continues to be a critical component of our strategic shift in the balance sheet, facilitating growth in low cost core deposits.  The opening of our first business banking office in midtown Manhattan during the quarter is another big step forward as we continue to implement this strategic shift," Mr. Redman commented.

Borrowings totaled $4.1 billion at September 30, 2013, a decrease of $264.5 million from December 31, 2012. The decrease in borrowings, coupled with the growth in business banking deposits and decrease in CDs, is a further reflection of our continuing efforts to reposition the mix of liabilities.  

Stockholders' equity totaled $1.5 billion, or 9.10% of total assets, at September 30, 2013, an increase of $163.9 million from December 31, 2012, primarily the result of the issuance of preferred stock in the 2013 first quarter.  Astoria Federal continues to be designated as well-capitalized with Tier 1 leverage, Tangible, Total risk-based and Tier 1 risk-based capital ratios of 9.61%, 9.61%, 16.87% and 15.61%, respectively, at September 30, 2013.

Asset Quality  
Non-performing loans ("NPLs"), including troubled debt restructurings ("TDRs") of $117.1 million, totaled $351.3 million, or 2.19% of total assets, at September 30, 2013 compared to $356.9 million, including TDRs of $109.3 million, or 2.22% of total assets, at June 30, 2013. Included in the $351.3 million of non-performing loans at September 30, 2013 are $87.9 million of loans which are current or less than 90 days past due.

Residential NPLs totaled $318.4 million, of which $244.7 million are 90 days or more delinquent, at September 30, 2013 compared to $334.8 million, of which $262.8 million are 90 days or more delinquent, at June 30, 2013. Of the $244.7 million of residential NPLs delinquent 90 or more days, $213.6 million, or 87%, represent 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.  MF/CRE NPLs totaled $26.4 million and consumer and other NPLs totaled $6.5 million at September 30, 2013 compared to $15.4 million and $6.7 million, respectively, at June 30, 2013.

The following table illustrates a two-year migration trend for loan delinquencies and NPLs:

The table below details, as of September 30, 2013, the ten largest concentrations by state of residential mortgage loans and the respective non-performing loan totals in those states. 

Included in the $3.0 million of residential loan net charge-offs in the 2013 third quarter are $2.4 million of charge-offs on $15.6 million of NPLs which, at 180 days delinquent and annually thereafter, were reviewed in the 2013 third quarter and charged-off, as needed, to the estimated fair value of the underlying collateral less estimated selling costs.  "Although we have seen an increase in the number of loans shifting from NPL status to real estate owned during the quarter, we expect the level of NPLs 90 days or more delinquent will remain somewhat elevated for some time, especially in those states requiring judicial foreclosure.  It is important to note that the loss potential remaining on these NPLs has been greatly reduced as a result of our having already reviewed, marked down, and charged-off as necessary, 87% of the residential NPLs 90 days or more delinquent, to their adjusted fair value less estimated selling costs," Mr. Redman noted.

Future Outlook 
Commenting on the future outlook, Mr. Redman stated, "While the operating environment continues to be challenging, we are encouraged by the steepening of the yield curve we have witnessed over the last several months and excited about the positive effects we believe it will have. Higher long-term rates should make our residential hybrid ARM products more attractive to borrowers and should lead to a slowing down of residential loan prepayments, signs of which we have begun to see towards the end of the third quarter. As loan prepayments slow, so does the premium amortization expense associated with the loans providing us with yet an additional benefit. We believe these factors should lead to a stabilization of our residential loan portfolio and growth in the total loan portfolio, perhaps as early as the fourth quarter.  Our focus continues to be on the strategic shift in the balance sheet through the repositioning of assets and liabilities.  We continue to concentrate on growing the MF/CRE loan portfolio, reducing higher cost CDs and increasing low cost core deposits, all of which should continue to positively impact the net interest margin. I continue to be pleased with the strength of our MF/CRE loan closings and pipeline as well as the strong growth in business deposits this year.  We look forward to this growth continuing in the future, especially as we add new team members to our business banking operations, as well as strategically located new branches from which to service our customers over the coming months."

About Astoria Financial Corporation    
Astoria Financial Corporation, with assets of $16.0 billion, is the holding company for Astoria Federal Savings and Loan Association.  Established in 1888, Astoria Federal, with deposits in New York totaling $10.1 billion, is the second 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 branch locations, one business banking office, and multiple delivery channels, including its enhanced website, www.astoriafederal.com.  Astoria Federal commands a significant 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 press release 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; enhanced supervision and examination by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the Consumer Financial Protection Bureau; 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 press release.

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