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Third-quarter profit at Astoria Financial (AF) improved as it continues to emphasize multifamily and commercial real estate loans, and cut costs.
October 18 -
Astoria Financial, Texas Capital Bancshares and three other large community banks look more vulnerable to buyout efforts after M&T's agreement to buy Hudson City.
September 4 -
It may be hard for banks like Toronto-Dominion and New York Community to resist trying to outbid M&T for Hudson City, which agree to sell itself for a relatively low-priced offer.
August 29
Astoria Financial continues to grow despite growing speculation over its future.
The Lake Success, N.Y., company recently produced
Astoria is intent on pursuing more commercial business and retail deposits across its home turf of Long Island, says Monte Redman, who became the $17 billion-asset company's president and chief executive in July 2011.
In a wide-ranging interview Wednesday, Redman discussed Astoria's quarterly performance, balance sheet initiatives and how Hudson City's pending sale will affect his company. Here is an edited transcript.
What were the third-quarter's highlights and what does the performance say about your strategy?
MONTE REDMAN: We're on the right path to do everything that we've set out to do. The asset and liability mix change will be a positive for earnings and returns going forward. We've been able to grow the multifamily part of our loan book to 22% from 18% in the first nine months [of 2012] while reducing the residential loan portfolio. Our philosophy is making a significant change in our asset mix, which will help our [net interest] margin.
On liabilities, core deposits are now 59% of total deposits, compared to 51% [at the end of last year]. A lot of that had to do with our growth in business banking, where we've had several initiatives. We're working on relationship banking and we think that's a big part of it. We've got 17,000 customers within our community. We've grown our business banking by 13% this year, almost to 500 million accounts, so the core deposit mix is changing.
Our margin was 2.09% for this quarter [compared with 2.14% at June 30], but it was impacted by the negative carry of our senior notes. We're working on efficiency and credit quality is improving. Nonperforming loans are down over [15% from a year earlier], and our coverage ratios remained very strong.
That's really the story. It shows that our strategy can work.
Has it been difficult to shift from an emphasis on residential mortgages to multifamily and commercial lending?
We've been in multifamily since 1992, so it is something that we know. We got out of the [commercial lending] market in 2009 because of the local and national economy and what was going on with jobs.
We were out of the market for a couple of years, but we hired a seasoned team from Independence Savings Bank [in February 2011] to lead our effort and we now have 60 people in that area. It wasn't something that was new to us, and we're doing a better job today.
What can you say about your focus on core deposits?
The emphasis is on personal and business checking accounts. We have 85 branches, with 82 on Long Island. Our emphasis is on relationship banking.
When you look at Long Island, it has 7.6 million people and 220,000 different businesses. You've got big box international banks and the very small banks, and what has been missing is banks in the middle — the medium-sized banks — and that's what we provide.
We've had a significant foothold in terms of business banking. There are people rushing to do business with us. We're not just throwing products at them. The people who [come to us] know their business, but they don't know necessarily how to get a loan.
A lot of banks have seen margins contract. What is the trend at Astoria?
Ours are holding up despite the fact that interest rates are low and the yield curve has been reduced. We still see great potential [to keep margins stable] because we have a lot of CDs repricing and rolling over. It is something that we're the contrarian on out there.
Hudson City recently agreed to sell itself to M&T. Could this encourage Astoria to
Hudson City had some problems. They were talking publicly in terms of their long-term structured debt and their model was different from ours. They were talking about adding hundreds of commercial bankers.
We were profitable throughout the financial crisis. We believe our strategy is accurate and correct and that it works within the community where we operate. We have no brokered deposits. About 95% of our deposits come within five miles of our branches.
How important are retail branches to Astoria's strategy?
Branches are very important. We average about $130 million in deposits per branch. We have ATM, mobile and Internet. It is not like we count on branches for all the activity, but we find that branches allow us to do more selling.
People use branches. They do come in for help, if you will. We offer transactional help and we have good core deposit customers, especially in Brooklyn and Queens. We hire people who speak the language and our ATMs actually transact business in seven different languages. Our goal is to be in the fabric of the communities we serve.
Where do you want your assets to be in terms of proportions of multifamily/commercial lending as a percentage of total loans?
We're at 18% to 22% now. In three years, we hope it is at 40% of our portfolio.
You can't fight Freddie Mac, Fannie Mae and [the Federal Housing Administration]. They do 90% of the residential mortgages. We're not going to put 30-year conforming mortgages on our books, because we think the interest rate risk is crazy. At Astoria we're not going to do that.
We're making hybrid ARMs and jumbo loans, but we see our residential loan book shrinking. We expect the multifamily portfolio will grow faster than the residential book will shrink.
