Astoria Financial Corporation Announces 21% Increase in First Quarter

LAKE SUCCESS, N.Y., April 21 /PRNewswire-FirstCall/ -- Astoria Financial Corporation ("Astoria"), the holding company for Astoria Federal Savings and Loan Association ("Astoria Federal"), today reported net income increased to $59.5 million, or $0.57 diluted earnings per share ("EPS"), for the quarter ended March 31, 2005, up 11% and 21%, respectively, from $53.4 million, or $0.47 diluted EPS, for the 2004 first quarter. For the 2005 first quarter, annualized returns on average equity, average tangible equity and average assets increased to 17.42%, 20.15% and 1.02%, respectively, from 15.05%, 17.31% and 0.95%, respectively, for the comparable 2004 period.

First Quarter 2005 Highlights: * Diluted EPS: $0.57, increased $0.10, or 21%, from comparable period last year * Net interest margin: 2.24%, increased 10 basis points, or 5%, from comparable period last year * Return on average equity: 17.42%, increased 16% from comparable period last year * Return on average tangible equity: 20.15%, increased 16% from comparable period last year * Return on average assets: 1.02%, increased 7% from comparable period last year * Total deposits increased $246 million, or 8% annualized -- Core deposits (1) increased $99 million, or 7% annualized -- Cost of core deposits: 44 basis points * Loan portfolio increased $297 million, or 9% annualized -- Multifamily/Commercial Real Estate ("CRE") loan portfolios increased $110 million, or 13% annualized, and represent 27% of total loans -- One-to-Four Family loan portfolio increased $178 million, or 8% annualized * Securities portfolio declined $388 million, or 18% annualized * Borrowings declined $488 million, or 21% annualized * Non-performing assets declined $3.4 million to $30.1 million, or 0.13% of total assets * Repurchased 1.1 million common shares (1) Includes savings, money market, checking and Liquid CD accounts

Commenting on the first quarter results, George L. Engelke, Jr., Chairman, President and Chief Executive Officer of Astoria, noted, "Our financial performance in the first quarter was marked by solid increases in earnings, earnings per share and related returns, reflecting our success in improving the quality of the balance sheet and earnings through robust growth of retail deposits and mortgage loans, both core businesses."

Board Declares Quarterly Cash Dividend of $0.20 Per Share

The Board of Directors of the Company, at their April 20, 2005 meeting, declared a quarterly cash dividend of $0.20 per common share. The dividend is payable on June 1, 2005 to shareholders of record as of May 16, 2005. This is the fortieth consecutive quarterly cash dividend declared by the Company.

Tenth Stock Repurchase Program Continues

During the first quarter, Astoria repurchased 1.1 million shares of its common stock at an average cost of $25.53 per share. To date, under the tenth program that commenced during the 2004 third quarter, Astoria has repurchased 6.3 million shares of the 12 million shares authorized.

First Quarter 2005 Earnings Summary

Net interest income for the quarter ended March 31, 2005 totaled $125.2 million, an increase of 9% from $114.5 million a year ago, primarily attributable to an increase in interest earning assets and a decline in the cost of liabilities.

Astoria's net interest margin for the quarter ended March 31, 2005 increased ten basis points from a year ago to 2.24%, primarily due to a decline in the cost of liabilities as higher cost borrowings were repriced at lower rates. On a linked quarter basis, the net interest margin increased six basis points, due to the benefit derived from two less days of interest expense in the first quarter compared to the fourth quarter.

Non-interest income for the quarter ended March 31, 2005 totaled $24.7 million compared to $22.1 million for the 2004 first quarter. The improvement is due to increases in customer service fees of $1.2 million and mortgage banking income, net, of $4.0 million as described below, partially offset by the absence of gains on sales of securities in the 2005 first quarter compared to gains on sales of securities of $2.4 million for the 2004 first quarter.

The components of mortgage banking income, net, which is included in non- interest income, are detailed below:

(Dollars in millions) 1Q05 1Q04 Loan servicing fees $ 1.3 $ 1.5 Amortization of MSR* (1.5) (2.0) MSR* valuation adjustments 2.4 (1.3) Net gain on sale of loans 0.7 0.7 Mortgage banking income, net $ 2.9 $(1.1) *Mortgage servicing rights

General and administrative expense ("G&A") for the quarter ended March 31, 2005 totaled $60.5 million compared to $57.0 million for the comparable 2004 period. The increase is primarily due to increased advertising expense related to, among other things, the introduction of a business deposit marketing campaign and $1.8 million of increased goodwill litigation expense associated with the commencement of the trial of the Long Island Bancorp case in January 2005, partially offset by lower compensation and benefits expense and occupancy, equipment and systems expense. G&A expenses in future quarters this year are expected to be somewhat lower due to reduced advertising and goodwill litigation expense.

Balance Sheet Summary

Due to the current flattening yield curve environment and lower spread availability, as previously announced, we reduced our non-core business activities during the first quarter of 2005. Total securities declined $387.6 million, or 18% annualized, to $8.3 billion at March 31, 2005 representing 36% of total assets, of which $2.2 billion, or 10% of total assets, are categorized as available-for-sale. Borrowings also declined in the first quarter by $488.4 million, or 21% annualized, to $9.0 billion at March 31, 2005 representing 39% of total assets. Total assets declined $165.4 million from December 31, 2004 to $23.3 billion at March 31, 2005 while our core lending and deposit businesses grew.

Key balance sheet highlights, reflecting the improvement in the quality of the Company's balance sheet since December 31, 1999, follow:

(Dollars in millions) 12/31/99 12/31/00 12/31/01 12/31/02 Assets $22,700 $22,341 $22,672 $21,702 Loans $10,286 $11,422 $12,167 $12,059 MBS & Other Sec. $10,763 $9,415 $8,013 $7,834 Deposits $9,555 $10,072 $10,904 $11,067 Core Deposits (1) $4,625 $4,922 $5,743 $5,914 Borrowings $11,528 $10,324 $9,826 $8,825 Change (Dollars in millions) 12/31/03 12/31/04 3/31/05 12/31/99- 3/31/05 Assets $22,462 $23,416 $23,250 +2% Loans $12,687 $13,263 $13,560 +32% MBS & Other Sec. $8,448 $8,710 $8,322 -23% Deposits $11,187 $12,323 $12,569 +32% Core Deposits (1) $5,685 $5,475 $5,574 +21% Borrowings $9,632 $9,470 $8,981 -22% (1) Includes savings, money market, checking and Liquid CD accounts

During the 2005 first quarter, the 1-4 family mortgage loan portfolio increased $177.6 million, or 8% annualized, to $9.2 billion at March 31, 2005. Loan originations and purchases totaled $726.8 million for the 2005 first quarter compared to $617.3 million in the year-ago first quarter. 77% of the 2005 first quarter production consisted of 3/1 and 5/1 hybrid adjustable rate mortgage loans.

During the 2005 first quarter, the multifamily and CRE loan portfolio increased $110.3 million, or 13% annualized, to $3.6 billion at March 31, 2005. Originations totaled $256.6 million for the 2005 first quarter compared to $240.0 million for the comparable 2004 period. The average loan-to-value ratio of the multifamily and CRE loan portfolio continues to be less than 65%, based on current principal balance and original appraised value, and the average loan balance is less than $1 million.

At March 31, 2005, non-performing loans declined to $29.7 million, or 0.13%, of total assets from $32.6 million, or 0.14% of total assets, at December 31, 2004. Net charge-offs for the 2005 first quarter totaled just $28,000, or an annualized rate of less than one basis point of the average total loans outstanding. The ratio of the allowance for loan losses to non- performing loans at March 31, 2005 was 279%.

Deposits for the quarter ended March 31, 2005 increased $246.1 million, or 8% on an annualized basis, to $12.6 billion from $12.3 billion at December 31, 2004. The increase was due, in part, to an increase in core deposits resulting from the successful introduction of a Liquid CD account during the quarter. Total core deposits rose $99.2 million, or 7% annualized, to $5.6 billion at March 31, 2005. The cost of core deposits was just 44 basis points, up 8 basis points from the previous quarter.

During the first quarter, we also continued to grow our medium-term CD deposits at a significant discount to alternative funding sources that, in addition to contributing to the management of interest rate risk, permits us to reduce our borrowing levels and continues to produce new customers from our communities, creating relationship development opportunities. During the 2005 first quarter, $1.0 billion of CDs, with an average rate of 3.10% and an average original maturity of 25 months matured and $1.1 billion of non-Liquid CDs were issued or repriced at an average rate of 3.00% and an average maturity of 20 months.

Stockholders' equity was $1.4 billion, or 5.88% of total assets at March 31, 2005. Astoria Federal continues to maintain capital ratios in excess of regulatory requirements with core, tangible and risk-based capital ratios of 6.31%, 6.31% and 12.82%, respectively, at March 31, 2005.

Future Outlook

Commenting on the outlook for 2005, Mr. Engelke stated, "We continue to face a challenging operating environment as a result of rising short term interest rates and a continuing flattening of the yield curve. Accordingly, we anticipate a continued shrinkage of the balance sheet with the reduction in borrowings and securities through normal cash flow, while we continue to grow deposits and loans, all of which will continue to improve the quality of the balance sheet and earnings. This strategy should better position us to take advantage of more profitable asset growth opportunities when the yield curve steepens."

Astoria Financial Corporation, the holding company for Astoria Federal Savings and Loan Association, with assets of $23.3 billion is the fifth largest thrift institution in the United States. Established in 1888, Astoria Federal is the largest thrift depository headquartered in New York with deposits of $12.6 billion and embraces its philosophy of Putting people first by providing the customers and local communities it serves with quality financial products and services through 86 convenient banking office locations and multiple delivery channels, including its enhanced website, http://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 39 individual states. Astoria Federal originates mortgage loans through its banking offices and loan production offices in New York, an extensive broker network in twenty-three states, primarily the East Coast and the District of Columbia, and through correspondent relationships in forty-four states and the District of Columbia.

Earnings Conference Call April 21, 2005 at 3:30 p.m. (ET)

The Company, as previously announced, indicated that Mr. Engelke will host an earnings conference call Thursday afternoon, April 21, 2005 at 3:30 p.m. (ET). The toll-free dial-in number is (800) 269-6183.

A replay will be available on April 21, 2005 from 7:00 p.m. (ET) through April 29, 2005, 11:59 p.m. (ET). The replay number is (888) 203-1112, passcode: 3750147. The conference call will also be simultaneously webcast on the Company's website http://www.astoriafederal.com/ and archived for one year.

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 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 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.

ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In Thousands, Except Share Data) At At March 31, December 31, 2005 2004 ASSETS Cash and due from banks $120,110 $138,809 Repurchase agreements 219,500 267,578 Mortgage-backed and other securities available-for-sale 2,241,648 2,406,883 Mortgage-backed and other securities held-to-maturity (fair value of $6,000,015 and $6,306,760, respectively) 6,080,565 6,302,936 Federal Home Loan Bank of New York stock, at cost 124,300 163,700 Loans held-for-sale, net 32,549 23,802 Loans receivable: Mortgage loans, net 13,039,149 12,746,134 Consumer and other loans, net 521,327 517,145 13,560,476 13,263,279 Allowance for loan losses (82,730) (82,758) Total loans receivable, net 13,477,746 13,180,521 Mortgage servicing rights, net 18,535 16,799 Accrued interest receivable 80,291 79,144 Premises and equipment, net 155,402 157,107 Goodwill 185,151 185,151 Bank owned life insurance 378,894 374,719 Other assets 135,732 118,720 TOTAL ASSETS $23,250,423 $23,415,869 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits $12,569,369 $12,323,257 Reverse repurchase agreements 7,580,000 7,080,000 Federal Home Loan Bank of New York advances 944,000 1,934,000 Other borrowings, net 457,441 455,835 Mortgage escrow funds 168,991 122,088 Accrued expenses and other liabilities 164,120 130,925 TOTAL LIABILITIES 21,883,921 22,046,105 Stockholders' equity: Preferred stock, $1.00 par value; 5,000,000 shares authorized: Series A (1,800,000 shares authorized and - 0 - shares issued and outstanding) - - Series B (2,000,000 shares authorized and - 0 - shares issued and outstanding) - - Common stock, $.01 par value; (200,000,000 shares authorized; 166,494,888 shares issued; and 109,465,965 and 110,304,669 shares outstanding, respectively) 1,665 1,665 Additional paid-in capital 815,153 811,777 Retained earnings 1,661,275 1,623,571 Treasury stock (57,028,923 and 56,190,219 shares, at cost, respectively) (1,037,160) (1,013,726) Accumulated other comprehensive loss (49,897) (28,592) Unallocated common stock held by ESOP (6,696,140 and 6,802,146 shares, respectively) (24,534) (24,931) TOTAL STOCKHOLDERS' EQUITY 1,366,502 1,369,764 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $23,250,423 $23,415,869 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Share Data) For the Three Months Ended March 31, 2005 2004 Interest income: Mortgage loans: One-to-four family $111,582 $111,350 Multi-family, commercial real estate and construction 58,196 53,631 Consumer and other loans 6,781 4,890 Mortgage-backed and other securities 93,922 90,131 Federal funds sold and repurchase agreements 1,449 154 Federal Home Loan Bank of New York stock 1,173 938 Total interest income 273,103 261,094 Interest expense: Deposits 64,960 54,230 Borrowed funds 82,930 92,351 Total interest expense 147,890 146,581 Net interest income 125,213 114,513 Provision for loan losses - - Net interest income after provision for loan losses 125,213 114,513 Non-interest income: Customer service fees 14,946 13,749 Other loan fees 1,164 1,262 Net gain on sales of securities - 2,372 Mortgage banking income (loss), net 2,946 (1,118) Income from bank owned life insurance 4,175 4,450 Other 1,511 1,424 Total non-interest income 24,742 22,139 Non-interest expense: General and administrative: Compensation and benefits 30,790 31,464 Occupancy, equipment and systems 16,025 16,717 Federal deposit insurance premiums 448 449 Advertising 3,905 1,709 Other 9,344 6,704 Total non-interest expense 60,512 57,043 Income before income tax expense 89,443 79,609 Income tax expense 29,964 26,196 Net income $59,479 $53,413 Basic earnings per common share $0.58 $0.48 Diluted earnings per common share $0.57 $0.47 Basic weighted average common shares 103,160,491 110,874,674 Diluted weighted average common and common equivalent shares 104,957,469 113,014,577 ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL RATIOS AND OTHER DATA At or For the Three Months Ended March 31, 2005 2004 Selected Returns and Financial Ratios (annualized) Return on average stockholders' equity 17.42 % 15.05 % Return on average tangible stockholders' equity (1) 20.15 17.31 Return on average assets 1.02 0.95 General and administrative expense to average assets 1.03 1.02 Efficiency ratio (2) 40.35 41.74 Net interest rate spread (3) 2.16 2.05 Net interest margin (4) 2.24 2.14 Asset Quality Data (dollars in thousands) Non-performing loans/total loans 0.22 % 0.19 % Non-performing loans/total assets 0.13 0.11 Non-performing assets/total assets 0.13 0.12 Allowance for loan losses/ non-performing loans 278.74 337.27 Allowance for loan losses/ non-accrual loans 301.21 342.79 Allowance for loan losses/total loans 0.61 0.65 Net charge-offs to average loans outstanding (annualized) 0.00 0.00 Non-performing assets $30,132 $26,470 Non-performing loans 29,680 24,599 Loans 90 days past maturity but still accruing interest 2,214 396 Non-accrual loans 27,466 24,203 Net charge-offs 28 155 Capital Ratios (Astoria Federal) Tangible 6.31 % 7.19 % Core 6.31 7.19 Risk-based 12.82 14.98 Other Data Cash dividends paid per common share $0.20 $0.16 Dividend payout ratio 35.09 % 34.04 % Book value per common share (5) $13.30 $13.07 Tangible book value per common share (6) 11.50 11.39 Average equity/average assets 5.83 % 6.33 % Mortgage loans serviced for others (in thousands) $1,644,742 $1,821,561 Full time equivalent employees 1,863 1,951 (1) Average tangible stockholders' equity represents average stockholders' equity less average goodwill. (2) The efficiency ratio represents general and administrative expense divided by the sum of net interest income plus non-interest income. (3) Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities. (4) Net interest margin represents net interest income divided by average interest-earning assets. (5) Book value per common share represents common stockholders' equity divided by outstanding common shares, excluding unallocated Employee Stock Ownership Plan, or ESOP, shares. (6) Tangible book value per common share represents common stockholders' equity less goodwill divided by outstanding common shares, excluding unallocated ESOP shares. ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES AVERAGE BALANCE SHEETS (Dollars in Thousands) For the Three Months Ended March 31, 2005 Average Average Yield/ Balance Interest Cost (Annualized) Assets: Interest-earning assets: Mortgage loans (1): One-to-four family $9,270,153 $111,582 4.81 % Multi-family, commercial real estate and construction 3,680,918 58,196 6.32 Consumer and other loans (1) 522,515 6,781 5.19 Total loans 13,473,586 176,559 5.24 Mortgage-backed and other securities (2) 8,524,571 93,922 4.41 Federal funds sold and repurchase agreements 243,598 1,449 2.38 Federal Home Loan Bank stock 142,347 1,173 3.30 Total interest-earning assets 22,384,102 273,103 4.88 Goodwill 185,151 Other non-interest-earning assets 863,209 Total assets $23,432,462 Liabilities and stockholders' equity: Interest-bearing liabilities: Savings $2,870,120 2,842 0.40 Money market 915,147 1,922 0.84 NOW and demand deposit 1,560,087 230 0.06 Liquid certificates of deposit 176,275 1,073 2.43 Certificates of deposit 6,933,248 58,893 3.40 Total deposits 12,454,877 64,960 2.09 Borrowed funds 9,279,580 82,930 3.57 Total interest-bearing liabilities 21,734,457 147,890 2.72 Non-interest-bearing liabilities 331,872 Total liabilities 22,066,329 Stockholders' equity 1,366,133 Total liabilities and stockholders' equity $23,432,462 Net interest income/net interest rate spread $125,213 2.16 % Net interest-earning assets/net interest margin $649,645 2.24 % Ratio of interest-earning assets to interest-bearing liabilities 1.03x For the Three Months Ended March 31, 2004 Average Average Yield/ Balance Interest Cost (Annualized) Assets: Interest-earning assets: Mortgage loans (1): One-to-four family $9,041,043 $111,350 4.93 % Multi-family, commercial real estate and construction 3,253,227 53,631 6.59 Consumer and other loans (1) 450,098 4,890 4.35 Total loans 12,744,368 169,871 5.33 Mortgage-backed and other securities (2) 8,365,022 90,131 4.31 Federal funds sold and repurchase agreements 64,895 154 0.95 Federal Home Loan Bank stock 227,810 938 1.65 Total interest-earning assets 21,402,095 261,094 4.88 Goodwill 185,151 Other non-interest-earning assets 854,561 Total assets $22,441,807 Liabilities and stockholders' equity: Interest-bearing liabilities: Savings $2,960,199 2,945 0.40 Money market 1,188,176 1,608 0.54 NOW and demand deposit 1,466,733 221 0.06 Liquid certificates of deposit - - - Certificates of deposit 5,644,019 49,456 3.51 Total deposits 11,259,127 54,230 1.93 Borrowed funds 9,472,213 92,351 3.90 Total interest-bearing liabilities 20,731,340 146,581 2.83 Non-interest-bearing liabilities 290,865 Total liabilities 21,022,205 Stockholders' equity 1,419,602 Total liabilities and stockholders' equity $22,441,807 Net interest income/net interest rate spread $114,513 2.05 % Net interest-earning assets/net interest margin $670,755 2.14 % Ratio of interest-earning assets to interest-bearing liabilities 1.03x (1) Mortgage and consumer and other loans include loans held-for-sale and non-performing loans and exclude the allowance for loan losses. (2) Securities available-for-sale are reported at average amortized cost.