Astoria Financial Earnings Call Insights: Mortgage Banking Earnings and Prepayment Penalty Income
Astoria Financial Corporation (NYSE:AF) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.
Mortgage Banking Earnings
Robert Ramsey – FBR: The mortgage bank had, what looks like, record profitability possibly. I’m just curious sort of how the mortgage banking earnings basically doubled or even more this quarter and there is anything in there unusual, and what the outlook is from here.
Monte N. Redman – President and CEO: I think we talked about it in January. Because of the Superstorm Sandy what we did is, we went back and reinspected every loan that was in that secondary market pipeline. The result was that a lot of the loans that would have closed in the fourth quarter closed in the first quarter. So the income in mortgage banking was up in the first quarter. We expect that the overall gain on sale of loans probably would be somewhere close to half in the second quarter as compared to first quarter.
Robert Ramsey – FBR: On the expense line, I know you highlighted in the press release that there was about $2.5 million of one-time charge in the occupancy line. I’m assuming that goes away in full next quarter and will really help bring down the expense level. That sort of coupled with seasonal factors, how are you thinking about the absolute expense level in the second quarter?
Monte N. Redman – President and CEO: Well, there were two things in the press release we noted in terms of G&A expense. The occupancy one you noted. There was also a $3.1 million one-time adjustment in compensation related to various compensation policies that were changed in the first quarter. So ultimately in terms of a core ratio, I would say that we were closer to the $72 million in the quarter rather than the $71.6 million. The savings realized from our cost control initiatives we implemented in the first quarter of 2012 have resulted in a somewhat greater savings than we anticipated and is reflected in the overall first quarter core G&A expense level. We expect that the core level of approximately $72 million will gradually increase over the remaining quarters this year, as we implement our repositioning strategy and hiring more business banking personnel.
Robert Ramsey – FBR: But the $3.1 million that was entirely one-time, and so those expenses come back next quarter?
Monte N. Redman – President and CEO: Both those things were one-time.
Prepayment Penalty Income
Steven Alexopoulos – JPMorgan: My first question, just a technical one, what was the level of prepayment penalty income in the quarter?
Monte N. Redman – President and CEO: Multi-family, our prepayment penalty income was about $1.4 million. If you want to – that compares to about $2.5 million in the first quarter of 2012 and about $2 million in the fourth quarter of 2012. So, somewhat less as we have less loans re-fi’ing away from us.
Steven Alexopoulos – JPMorgan: And then on the New York City multi-family and commercial real estate market, I know the market has gotten better, but most banks are talking about that as a source of growth this year. Can you talk about what you’re seeing on the pricing side and maybe what your expectations are there?
Monte N. Redman – President and CEO: Well, I think we are looking at it in terms of a growth portfolio, and I think based on the fact that our pipeline is up significantly from where it was at the end of the year, we are definitely looking at growth. The pricing competition is the very tough. I would say that the pricing for 5/5 multifamily is approximately 3%. And commercial real estate properties, given the same type of quality, would be somewhere about 0.5 point higher. It’s a very competitive market, but it is still a significant premium over residential, which in a similar type of strong underwriting for a 5/1 hybrid ARMs were somewhere around 2.5%, and I’m paying a point for the residential and I am not paying anything for the multifamily in terms of (indiscernible). So it is a very competitive market but it is still something that we feel is helping improving your margin in the long run as we reposition the balance sheet.
Steven Alexopoulos – JPMorgan: Then a final question. If I understood you correctly, you are saying core expenses of around $72 million in 1Q and it will grow from that level through the year. Could you give us a sense of what the business banker build-out is going to cost you this year, incrementally?
Monte N. Redman – President and CEO: Well in 2011, we had about eight people in the business banking operation. We have about 26 today. It is built up a little bit more. I don’t have the specific of the whole operation, but it should be a little more expense as we go forward but it is not going to be dramatic.