Astoria Financial Corporation
Q1 2010 Earnings Call Transcript
April 22, 2010 10:00 am ET
George Engelke – Chairman and CEO
Monte Redman – President and COO
Frank Fusco – EVP, Treasurer and CFO
Matthew Clark – KBW
Bruce Harting – Barclays Capital
David Hochstim – Buckingham Research
Bob Ramsey – FBR Capital Markets
Christopher Nolan – Maxim Group
Matthew Kelley – Sterne Agee & Leach
Collyn Gilbert – Stifel Nicolaus
Tom Alonso – Macquarie
Previous Statements by AF
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Good day and welcome to Astoria Financial Corporation’s first quarter 2010 earnings conference call. At this time, all participants have been placed in a listen-only mode and the floor will be open for questions following the presentation. (Operator Instructions) Today’s call is being recorded.
Today’s conference call includes several forward-looking statements, which are intended to be covered under the Safe Harbor provision for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are 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. A decision of risk factors associated with these use of forward-looking statements is outlined on page six of our first quarter 2010 earnings release, which is available on our website or may be obtained from the Company upon request.
It is now my pleasure to turn the conference over to Mr. George L. Engelke, Jr., Chairman and Chief Executive Officer of Astoria. Please go ahead sir.
Thank you very much and good morning, and welcome to a review of Astoria Financial Corporation’s 2010 first quarter results. Joining me this morning are Monte Redman, President and Chief Operating Officer; Frank Fusco, CFO; and Peter Cunningham, our Investor Relations Officer. Following my brief remarks we will entertain any questions you may have.
Last night evening, we reported that for the 2010 first quarter, net income totaled $12.9 million or $0.14 per share. Included in the first quarter is a $45 million provision for loan losses, 5 million less than the 50 million provisions in each of the last four quarters.
In addition, we reported that the first quarter net interest income and net interest margin, both increased year-over-year, and on a linked quarter basis. The margin increased 24 basis points from the previous quarter, and 23 basis points from last year’s first quarter to 2.39%. And on a trailing quarter basis net interest income was up 9%, despite a smaller balance sheet.
With respect to credit quality, although non-performing loans have increased slightly from the previous quarter to $419 million, as we anticipated. We are encouraged by the improving trends in early-stage delinquencies.
Loans one and two months past due declined $21 million, or 7% from the previous quarter, and $53 million or 17% from the 2009 first quarter. While non-performing loan levels may remain elevated for some time as we work through the foreclosure process, it’s important to note that the loan potential remaining has been greatly reduced. We have already marked down and charged off as necessary over 70% of current residential non-performing loans to their adjusted fair value less selling costs.
For more comprehensive details on credit quality please refer to pages three, four and 13 of our press release.
During the first quarter, the balance sheet contracted at $191 million, as loan prepayments and amortization outpaced loan production. With respect to deposits, we continue to let high cost CD deposits run off. Total CD deposits decreased $208 million while low cost, passbook money market and checking accounts increased $81 million or 8% annualized.
With respect to the outlook for 2010 while it appears that a moderate economic recovery is underway, the housing market remains soft and high unemployment persists, which may somewhat restrain the pace of the recovery.
The long-term outlook for credit is improving, which should translate into continued declining credit costs and improved financial performance. In terms of loan growth, as the mortgage rate for 30 year fixed-rate conforming loans increases, we anticipate that loan prepayments will decline, which should result in portfolio growth in the second half of this year.
With that as an overview, I’d like to open the phone lines for your questions. Nicole, if you would take care of that please.
Thank you. The floor is now open for questions. (Operator Instructions) Please hold for your first question. Thank you. Our first question is coming from Matthew Clark of KBW.
Are you there Matt?
Mr. Clarke your line is open to speak.
Hi Matt, good morning.
Matthew Clark – KBW
Good morning. Just first, can you talk about your expectation for growth and what that assumes for volume, with higher rates and mortgage rates ticking up, and it sounds like you think obviously prepays will slow. But just want to get a better sense for what kind of confidence you have that you are going to be able to regain some of the volume that’s been maybe going away from you with the government now involved and now uninvolved to some degree?
All right Matt. In terms of loan growth per se our pipeline as of the end of the first quarter is about $250 million less than what’s at the end of the year. So, we are looking at a loan portfolio reducing, as well as a balance sheet in the second quarter. I will say this about a 16% of our applications coming in are for purchase. So the applications we’ve been seeing over the last year have been mostly refinanced. So, I am not sure what the government programs are doing in terms of helping the overall purchase market. What we’re hoping is that the overall mortgage rate increases – a 30-year fixed rate increases, with the government out of the purchase more with backed security area, and that our refinance has actually slowdown and decrease, which were in the second half of the year, which will allow for portfolio growth. We are not going to push our rate on our loans or credit quality just to get loan growth. So if that does not happen, we will continue to shrink the balance sheet as necessary, just putting on good-quality loans at good rates.