Astoria Faces Impairment

Astoria Financial Corp. here earned net income of $37.1 million in the fourth quarter, down from $57.7 million in the fourth quarter of 2005, and impairment to the company's mortgage servicing rights factored into the decline.

Earnings per share were $0.39 in the fourth quarter, down from $0.57 in the fourth quarter of 2005. Full-year net income, at $174.9 million in 2006, also was down from the year before.

Astoria highlighted growth in its asset base, including a 5% increase in both its single-family home loan portfolio and its multifamily home loan portfolio, saying that loan growth helps position the company for earnings growth in the future.

Despite taking an amortization charge against its mortgage servicing rights, Astoria earned net income of $1 million from mortgage banking in the fourth quarter, up from $900,000 in the fourth quarter of 2005.

George Engelke, chairman, president and CEO of Astoria, blamed the weak earnings on the persistence of an inverted yield curve last year, when long-term interest rates were often below short-term rates. He remained cautious about the outlook for next year as well.

"The interest rate environment continues to remain very challenging, characterized by a prolonged inversion of the yield curve. During 2007, we continue to expect a gradual flattening of the yield curve and a relatively stable net interest margin, similar to the 2006 fourth quarter," Mr. Engelke said in the company's earnings release.

In that economic environment, he said Astoria will continue to focus on reducing its securities portfolio while emphasizing deposit and loan growth to improve the company's balance sheet and earnings.

Despite the earnings decline, Astoria raised its dividend by 8% to $0.26 per share, payable on March 1 to shareholders of record on Feb. 15. The company also repurchased 1.9 million shares of its common stock at an average cost of $29.55 per share during the fourth quarter.

With $21.6 billion of assets, Astoria is the fifth largest thrift institution in the United States. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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