Astoria Financial Corp.’s
In an interview with National Mortgage News, Monte Redman said the $0.13 per share profit even after a $4.3 million prepayment penalty for redeeming trust preferred securities shows it was a very good quarter.
Then there is the fact that the company’s loan portfolio now consists of 30% multifamily and commercial loans, and those loans have a loan-to-value ratio of under 50%, and a debt service coverage ratio of 1.8%. Core deposits are now 65% of total deposits. And business banking deposits are at $639 million.
Astoria has also made inroads in the business banking community, adding 13 people because of its growth; it is getting ready to open a business banking team office in Manhattan to better serve the market. Redman added 31 of its 85 branches are managed by commercial bankers. Experienced people are seeking out jobs at Astoria, he said later.
Historically, the company has been a portfolio residential mortgage lender, with its primary product being a 5/1 hybrid adjustable-rate mortgage. While the second-quarter results showed a sharp decline in originations, which means Astoria is not able to replenish the run-off from its portfolio, the interest rate rise in recent weeks has brought a change.
As rates rose starting in late May, Redman noted its residential loan pipeline is now one-third larger than it was at the end of March.
One of the reasons behind this increase is because of the increased spread between the 5/1 ARM and the conforming mortgage loan, he pointed out. Rates on both products have risen.
At the start of May, the 5/1 was at 2.5%, while the conforming 30-year fixed was at 3.5%, making for a 100 basis point spread. Now, the 5/1 is at 2.875% but the 30-year conforming is 4.5%, making the differential more than 160 bps, he stated.
“People are looking at the 5/1 hybrid ARM as the product to go to” as a result of that difference, Redman continued. But it has not yet seen a drop-off in loans already in portfolio refinancing into a 30-year FRM, but he noted it usually takes two to three months to see that activity take hold. So by August, this should start being seen and that will be good news for Astoria’s loan portfolio, which has shrunk by over $1 billion in the first half of the year because of the low interest rates.
Residential loans are originated in its retail branches, through mortgage brokers and through correspondent loan purchases. The key, Redman said, is all of the loans are “underwritten to our strong standards.” Through all of the delivery channels, the loans it originated had an average 62% LTV.
Rising rates have less of an impact on commercial and multifamily lending. Typically the borrowers of these loans when the term ends, are in a better position because of increasing rents, and they are able to refinance with more cash on hand, he said.
“Results prove the point more than words, and I think doing $1.6 billion last year in multifamily and doing almost $900 million the first half of this year” is a sign of the success in the shift in Astoria’s business model, as well as the growth in its business banking operation.
