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SEC Filings, Earing Reports, Press Releases
Astoria Financial Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 5, 2011 03:47PM
Astoria Financial Corp. (AF) filed Quarterly Report for the period ended 2011-06-30.
Highlight of Business Operations:
Loan reviews are completed quarterly for all loans individually classified by our Asset Classification Committee. Individual loan reviews are generally completed annually for multi-family, commercial real estate and construction mortgage loans with balances of $2.0 million or greater, commercial business loans with balances of $200,000 or greater and troubled debt restructurings. In addition, we generally review annually borrowing relationships whose combined outstanding balance is $2.0 million or greater. Approximately fifty percent of the outstanding principal balance of these loans to a single borrowing entity will be reviewed annually.
As a result of our updated charge-off and loss analyses, we modified certain allowance coverage percentages during the 2011 first and second quarters to reflect our current estimates of the amount of probable losses inherent in our loan portfolio in determining our general valuation allowances. Based on our evaluation of the housing and real estate markets and overall economy, including the unemployment rate, the levels and composition of our loan delinquencies, non-performing loans and net loan charge-offs and the size and composition of our loan portfolio, we determined that an allowance for loan losses of $182.7 million was required at June 30, 2011, compared to $189.5 million at March 31, 2011 and $201.5 million at December 31, 2010, resulting in a provision for loan losses of $17.0 million for the six months ended June 30, 2011. The balance of our allowance for loan losses represents management s best estimate of the probable inherent losses in our loan portfolio at the reporting dates.
The fair value of our investment portfolio is primarily impacted by changes in interest rates. In general, as interest rates rise, the fair value of fixed rate securities will decrease; as interest rates fall, the fair value of fixed rate securities will increase. We conduct a periodic review and evaluation of the securities portfolio to determine if a decline in the fair value of any security below its cost basis is other-than-temporary. Our evaluation of other-than-temporary impairment, or OTTI, considers the duration and severity of the impairment, our assessments of the reason for the decline in value, the likelihood of a near-term recovery and our intent and ability to not sell the securities. We generally view changes in fair value caused by changes in interest rates as temporary, which is consistent with our experience. If such decline is deemed other-than-temporary, the security is written down to a new cost basis and the resulting loss is charged to earnings as a component of non-interest income, except for the amount of the total OTTI for a debt security that does not represent credit losses which is recognized in other comprehensive income/loss, net of applicable taxes. At June 30, 2011, we had 41 securities with an estimated fair value totaling $240.2 million which had an unrealized loss totaling $804,000. Of the securities in an unrealized loss position at June 30, 2011, $17.7 million, with an unrealized loss of $332,000, have been in a continuous unrealized loss position for more than twelve months. At June 30, 2011, the impairments are deemed temporary based on (1) the direct relationship of the decline in fair value to movements in interest rates, (2) the estimated remaining life and high credit quality of the investments and (3) the fact that we do not intend to sell these securities and it is not more likely than not that we will be required to sell these securities before their anticipated recovery of the remaining amortized cost basis and we expect to recover the entire amortized cost basis of the security.
In addition to cash provided by principal and interest payments on loans and securities, our other sources of funds include cash provided by operating activities, deposits and borrowings. However, for the six months ended June 30, 2011 and 2010, net deposit and borrowing activity resulted in a use of funds. Net cash provided by operating activities totaled $126.0 million for the six months ended June 30, 2011 and $134.7 million for the six months ended June 30, 2010. Deposits decreased $388.4 million during the six months ended June 30, 2011 and decreased $563.8 million during the six months ended June 30, 2010. The net decreases in deposits for the six months ended June 30, 2011 and 2010 were primarily due to decreases in certificates of deposit and Liquid CDs, partially offset by increases in savings, NOW and demand deposit and money market accounts. During the six months ended June 30, 2011 and 2010, we continued to allow high cost certificates of deposit to run off as total assets declined. The increases in low cost savings, NOW and demand deposit and money market accounts during the six months ended June 30, 2011 and 2010 appear to reflect customer preference for the liquidity these types of deposits provide. However, we have achieved some success in extending the terms of our retained certificates of deposit during the first half of 2011. During the first half of 2011, we extended $538.2 million of certificates of deposit for terms of two years or more in an effort to help limit our exposure to future increases in interest rates.
Our primary use of funds is for the origination and purchase of mortgage loans and, to a lesser degree, for the purchase of securities. Gross mortgage loans originated and purchased for portfolio during the six months ended June 30, 2011 totaled $1.34 billion, of which $927.2 million were originations and $416.4 million were purchases. This compares to gross mortgage loans originated and purchased for portfolio during the six months ended June 30, 2010 totaling $1.60 billion, of which $1.35 billion were originations and $243.4 million were purchases. All of our mortgage loan originations and purchases during 2010 and the first half of 2011 were one-to-four family mortgage loans. Overall one-to-four family mortgage loan origination and purchase volume for portfolio has been negatively affected by the historic low interest rates on thirty year fixed rate conforming mortgages, which we do not retain for portfolio, and the expanded conforming loan limits. Purchases of securities totaled $356.7 million during the six months ended June 30, 2011 and $390.9 million during the six months ended June 30, 2010.
We maintain liquidity levels to meet our operational needs in the normal course of our business. The levels of our liquid assets during any given period are dependent on our operating, investing and financing activities. Cash and due from banks and repurchase agreements, our most liquid assets, totaled $108.0 million at June 30, 2011 and $119.0 million at December 31, 2010. At June 30, 2011, we had $1.03 billion in borrowings with a weighted average rate of 4.00% maturing over the next twelve months. We have the flexibility to either repay or rollover these borrowings as they mature. Included in our borrowings are various obligations which, by their terms, may be called by the securities dealers and the FHLB-NY. We believe the potential for these borrowings to be called does not present liquidity concerns as they have various call dates and coupons and we believe we can readily obtain replacement funding, albeit at higher rates. We do not believe any of our borrowing counterparty concentrations represent a material risk to our liquidity. In addition, we had $3.23 billion in certificates of deposit and Liquid CDs at June 30, 2011 with a weighted average rate of 1.43% maturing over the next twelve months. We have the ability to retain or replace a significant portion of such deposits based on our pricing and historical experience. However, should our balance sheet continue to contract, we may continue to see a reduction in borrowings and/or deposits.