UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 FORM
10-Q
 
 x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
quarterly period ended March 31, 2010
 
 OR
 
  ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
transition period
from                                                         to
 
 Commission
file number 001-11967
 
 ASTORIA
FINANCIAL CORPORATION
 (Exact
name of registrant as specified in its charter)
 
 Delaware
                        11-3170868(State
      or other jurisdiction of
                        (I.R.S.
      Employer Identificationincorporation
      or organization)
                        Number)One Astoria Federal Plaza, Lake Success, New
      York
                        11042-1085(Address
      of principal executive offices)
                        (Zip
      Code)
 
 (516)
327-3000
 (Registrant's
telephone number, including area code)
 
 Indicate
by check mark whether the registrant (1) has filed all the reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  YES  x NO
 ̈
 
 Indicate  by
check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES  ̈ NO
 ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company (as
these items are defined in Rule 12b-2 of the Exchange Act).
 Large
accelerated filer x
Accelerated filer  ̈
Non-accelerated filer  ̈
Smaller reporting company  ̈
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  YES   ̈ NO
x
 
 Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
 
 Classes of Common Stock
                  Number of Shares Outstanding, April 30,
      2010.01 Par Value
                  97,895,929
  
 
 PagePART
      I — FINANCIAL INFORMATIONItem
      1.
                                                              Financial
      Statements (Unaudited):Consolidated Statements of Financial Condition at March 31,
      2010 and December 31, 2009
                                                              2Consolidated Statements of Income for the Three Months Ended
      March 31, 2010 and March 31, 2009
                                                              3Consolidated Statement of Changes in Stockholders' Equity for
      the Three Months Ended March 31, 2010
                                                              4Consolidated Statements of Cash Flows for the Three Months
      Ended March 31, 2010 and March 31, 2009
                                                              5Notes to Consolidated Financial Statements
                                                              6Item
      2.
                                                              Management's Discussion and Analysis of Financial Condition
      and  Results of Operations
                                                              21Item
      3.
                                                              Quantitative and Qualitative Disclosures about Market
      Risk
                                                              52Item
      4.
                                                              Controls and Procedures
                                                              54PART
      II — OTHER INFORMATIONItem
      1.
                                                              Legal Proceedings
                                                              55Item
      1A.
                                                              Risk Factors
                                                              56Item
      2.
                                                              Unregistered Sales of Equity Securities and Use of
      Proceeds
                                                              58Item
      3.
                                                              Defaults Upon Senior Securities
                                                              58Item
      4.
                                                              (Removed and Reserved)
                                                              58Item
      5.
                                                              Other Information
                                                              58Item
      6.
                                                              Exhibits
                                                              58Signature
                                                              58
  1
  ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
 Consolidated
Statements of Financial Condition
 
 (Unaudited)(In Thousands, Except Share Data)
                        
                        At March 31, 2010
                        
                        
                        At December 31, 2009Assets:Cash
      and due from banks
                        
                        $
                        54,818
                        
                        
                        $
                        71,540Repurchase
      agreements
                        
                        
                        54,400
                        
                        
                        
                        40,030Available-for-sale
      securities:Encumbered
                        
                        
                        732,662
                        
                        
                        
                        798,367Unencumbered
                        
                        
                        58,960
                        
                        
                        
                        62,327791,622
                        
                        
                        
                        860,694Held-to-maturity
      securities, fair value of $2,435,777 and $2,367,520,
      respectively:Encumbered
                        
                        
                        1,916,890
                        
                        
                        
                        1,955,163Unencumbered
                        
                        
                        462,253
                        
                        
                        
                        362,7222,379,143
                        
                        
                        
                        2,317,885Federal
      Home Loan Bank of New York stock, at cost
                        
                        
                        178,090
                        
                        
                        
                        178,929Loans
      held-for-sale, net
                        
                        
                        23,637
                        
                        
                        
                        34,274Loans
      receivable:Mortgage
      loans, net
                        
                        
                        15,308,082
                        
                        
                        
                        15,447,115Consumer and other loans,
    net
                        
                        
                        329,726
                        
                        
                        
                        333,60715,637,808
                        
                        
                        
                        15,780,722Allowance for loan losses
                        
                        
                        (210,748
                        )
                        
                        
                        (194,049
                        )Loans
      receivable, net
                        
                        
                        15,427,060
                        
                        
                        
                        15,586,673Mortgage
      servicing rights, net
                        
                        
                        9,263
                        
                        
                        
                        8,850Accrued
      interest receivable
                        
                        
                        68,461
                        
                        
                        
                        66,121Premises
      and equipment, net
                        
                        
                        135,677
                        
                        
                        
                        136,195Goodwill
                        
                        
                        185,151
                        
                        
                        
                        185,151Bank
      owned life insurance
                        
                        
                        403,711
                        
                        
                        
                        401,735Real
      estate owned, net
                        
                        
                        49,302
                        
                        
                        
                        46,220Other assets
                        
                        
                        300,708
                        
                        
                        
                        317,882Total assets
                        
                        $
                        20,061,043
                        
                        
                        $
                        20,252,179Liabilities:Deposits:Savings
                        
                        $
                        2,110,356
                        
                        
                        $
                        2,041,701Money
      market
                        
                        
                        331,362
                        
                        
                        
                        326,842NOW
      and demand deposit
                        
                        
                        1,654,089
                        
                        
                        
                        1,646,633Liquid
      certificates of deposit
                        
                        
                        644,787
                        
                        
                        
                        711,509Certificates of deposit
                        
                        
                        7,944,241
                        
                        
                        
                        8,085,553Total
      deposits
                        
                        
                        12,684,835
                        
                        
                        
                        12,812,238Reverse
      repurchase agreements
                        
                        
                        2,400,000
                        
                        
                        
                        2,500,000Federal
      Home Loan Bank of New York advances
                        
                        
                        2,984,000
                        
                        
                        
                        3,000,000Other
      borrowings, net
                        
                        
                        377,927
                        
                        
                        
                        377,834Mortgage
      escrow funds
                        
                        
                        152,354
                        
                        
                        
                        114,036Accrued expenses and other
      liabilities
                        
                        
                        245,419
                        
                        
                        
                        239,457Total
      liabilities
                        
                        
                        18,844,535
                        
                        
                        
                        19,043,565Stockholders'
      Equity:Preferred
      stock, $1.00 par value (5,000,000 shares authorized; none issued and
      outstanding)
                        
                        
                        -
                        
                        
                        
                        -Common
      stock, $.01 par value (200,000,000 shares authorized; 166,494,888 shares
      issued; and 97,895,929 and 97,083,607 shares outstanding,
      respectively)
                        
                        
                        1,665
                        
                        
                        
                        1,665Additional
      paid-in capital
                        
                        
                        851,191
                        
                        
                        
                        857,662Retained
      earnings
                        
                        
                        1,823,683
                        
                        
                        
                        1,829,199Treasury
      stock (68,598,959 and 69,411,281 shares, at cost,
      respectively)
                        
                        
                        (1,417,575
                        )
                        
                        
                        (1,434,362
                        )Accumulated
      other comprehensive loss
                        
                        
                        (27,539
                        )
                        
                        
                        (29,779
                        )Unallocated
      common stock held by ESOP (4,071,488 and 4,304,635 shares,
      respectively)
                        
                        
                        (14,917
                        )
                        
                        
                        (15,771
                        )Total stockholders' equity
                        
                        
                        1,216,508
                        
                        
                        
                        1,208,614Total liabilities and stockholders'
      equity
                        
                        $
                        20,061,043
                        
                        
                        $
                        20,252,179
 
 See
accompanying Notes to Consolidated Financial Statements.
  2
  ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
 Consolidated
Statements of Income (Unaudited)
 
 For the Three Months Ended March 31,(In Thousands, Except Share Data)
                                    
                                    2010
                                    
                                    
                                    2009Interest
      income:Mortgage
      loans:One-to-four
      family
                                    
                                    $
                                    140,954
                                    
                                    
                                    $
                                    162,940Multi-family,
      commercial real estate and construction
                                    
                                    
                                    51,125
                                    
                                    
                                    
                                    56,614Consumer
      and other loans
                                    
                                    
                                    2,651
                                    
                                    
                                    
                                    2,678Mortgage-backed
      and other securities
                                    
                                    
                                    31,347
                                    
                                    
                                    
                                    43,104Repurchase
      agreements and interest-earning cash accounts
                                    
                                    
                                    15
                                    
                                    
                                    
                                    16Federal Home Loan Bank of New York
      stock
                                    
                                    
                                    2,496
                                    
                                    
                                    
                                    1,686Total interest income
                                    
                                    
                                    228,588
                                    
                                    
                                    
                                    267,038Interest
      expense:Deposits
                                    
                                    
                                    53,542
                                    
                                    
                                    
                                    90,760Borrowings
                                    
                                    
                                    60,694
                                    
                                    
                                    
                                    64,601Total interest expense
                                    
                                    
                                    114,236
                                    
                                    
                                    
                                    155,361Net
      interest income
                                    
                                    
                                    114,352
                                    
                                    
                                    
                                    111,677Provision
      for loan losses
                                    
                                    
                                    45,000
                                    
                                    
                                    
                                    50,000Net interest income after provision for loan
      losses
                                    
                                    
                                    69,352
                                    
                                    
                                    
                                    61,677Non-interest
      income:Customer
      service fees
                                    
                                    
                                    13,293
                                    
                                    
                                    
                                    14,839Other
      loan fees
                                    
                                    
                                    706
                                    
                                    
                                    
                                    939Gain
      on sales of securities
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,112Other-than-temporary
      impairment write-down of securities
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (5,300
                                    )Mortgage
      banking income, net
                                    
                                    
                                    1,557
                                    
                                    
                                    
                                    496Income
      from bank owned life insurance
                                    
                                    
                                    1,976
                                    
                                    
                                    
                                    1,979Other
                                    
                                    
                                    1,160
                                    
                                    
                                    
                                    877Total non-interest income
                                    
                                    
                                    18,692
                                    
                                    
                                    
                                    15,942Non-interest
      expense:General
      and administrative:Compensation
      and benefits
                                    
                                    
                                    35,251
                                    
                                    
                                    
                                    34,000Occupancy,
      equipment and systems
                                    
                                    
                                    16,449
                                    
                                    
                                    
                                    16,331Federal
      deposit insurance premiums
                                    
                                    
                                    6,597
                                    
                                    
                                    
                                    3,905Advertising
                                    
                                    
                                    1,820
                                    
                                    
                                    
                                    1,559Other
                                    
                                    
                                    8,142
                                    
                                    
                                    
                                    8,166Total non-interest expense
                                    
                                    
                                    68,259
                                    
                                    
                                    
                                    63,961Income
      before income tax expense
                                    
                                    
                                    19,785
                                    
                                    
                                    
                                    13,658Income tax expense
                                    
                                    
                                    6,859
                                    
                                    
                                    
                                    4,862Net income
                                    
                                    $
                                    12,926
                                    
                                    
                                    $
                                    8,796Basic earnings per common
    share
                                    
                                    $
                                    0.14
                                    
                                    
                                    $
                                    0.10Diluted earnings per common
      share
                                    
                                    $
                                    0.14
                                    
                                    
                                    $
                                    0.10Basic
      weighted average common shares
                                    
                                    
                                    91,460,463
                                    
                                    
                                    
                                    90,213,163Diluted
      weighted average common and common equivalent shares
                                    
                                    
                                    91,460,597
                                    
                                    
                                    
                                    90,213,406
 
 See
accompanying Notes to Consolidated Financial Statements.
  3
  ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
 Consolidated
Statement of Changes in Stockholders' Equity (Unaudited)
 For
the Three Months Ended March 31, 2010
 
 Accumulated
                              
                              
                              UnallocatedAdditional
                              
                              
                              
                              
                              
                              
                              
                              
                              Other
                              
                              
                              CommonCommon
                              
                              
                              Paid-in
                              
                              
                              Retained
                              
                              
                              Treasury
                              
                              
                              Comprehensive
                              
                              
                              Stock Held(In Thousands, Except Share Data)
                              
                              Total
                              
                              
                              Stock
                              
                              
                              Capital
                              
                              
                              Earnings
                              
                              
                              Stock
                              
                              
                              Loss
                              
                              
                              by ESOPBalance
      at December 31, 2009
                              
                              $
                              1,208,614
                              
                              
                              $
                              1,665
                              
                              
                              $
                              857,662
                              
                              
                              $
                              1,829,199
                              
                              
                              $
                              (1,434,362
                              )
                              
                              $
                              (29,779
                              )
                              
                              $
                              (15,771
                              )Comprehensive
      income:Net
      income
                              
                              
                              12,926
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              12,926
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Other
      comprehensive income, net of tax:Net
      unrealized gain on securities
                              
                              
                              1,131
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,131
                              
                              
                              
                              -Reclassification
      of prior service cost
                              
                              
                              24
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              24
                              
                              
                              
                              -Reclassification
      of net actuarial loss
                              
                              
                              1,038
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,038
                              
                              
                              
                              -Reclassification
      of loss on cash flow hedge
                              
                              
                              47
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              47
                              
                              
                              
                              -Comprehensive
      income
                              
                              
                              15,166Dividends
      on common stock ($0.13 per share)
                              
                              
                              (12,069
                              )
                              
                              
                              -
                              
                              
                              
                              106
                              
                              
                              
                              (12,175
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Exercise
      of stock options and related tax benefit (12,000 shares
      issued)
                              
                              
                              126
                              
                              
                              
                              -
                              
                              
                              
                              14
                              
                              
                              
                              (136
                              )
                              
                              
                              248
                              
                              
                              
                              -
                              
                              
                              
                              -Restricted
      stock grants (806,428 shares)
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (10,484
                              )
                              
                              
                              (6,181
                              )
                              
                              
                              16,665
                              
                              
                              
                              -
                              
                              
                              
                              -Tax
      benefit shortfall on stock-based compensation
                              
                              
                              (87
                              )
                              
                              
                              -
                              
                              
                              
                              (87
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Forfeitures
      of restricted stock (6,106 shares)
                              
                              
                              4
                              
                              
                              
                              -
                              
                              
                              
                              80
                              
                              
                              
                              50
                              
                              
                              
                              (126
                              )
                              
                              
                              -
                              
                              
                              
                              -Stock-based
      compensation and allocation of ESOP stock
                              
                              
                              4,754
                              
                              
                              
                              -
                              
                              
                              
                              3,900
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              854Balance
      at March 31, 2010
                              
                              $
                              1,216,508
                              
                              
                              $
                              1,665
                              
                              
                              $
                              851,191
                              
                              
                              $
                              1,823,683
                              
                              
                              $
                              (1,417,575
                              )
                              
                              $
                              (27,539
                              )
                              
                              $
                              (14,917
                              )
 
 See
accompanying Notes to Consolidated Financial Statements.
  4
  ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
 Consolidated
Statements of Cash Flows (Unaudited)
 
 For the Three Months EndedMarch 31,(In Thousands)
                                  
                                  2010
                                  
                                  
                                  2009Cash
      flows from operating activities:Net
      income
                                  
                                  $
                                  12,926
                                  
                                  
                                  $
                                  8,796Adjustments
      to reconcile net income to net cash provided by operating
      activities:Net
      premium amortization on mortgage loans and mortgage-backed
      securities
                                  
                                  
                                  8,024
                                  
                                  
                                  
                                  4,352Net
      amortization of deferred costs on consumer and other loans, other
      securities and borrowings
                                  
                                  
                                  525
                                  
                                  
                                  
                                  651Net
      provision for loan and real estate losses
                                  
                                  
                                  45,365
                                  
                                  
                                  
                                  51,000Depreciation
      and amortization
                                  
                                  
                                  2,790
                                  
                                  
                                  
                                  2,823Net
      gain on sales of loans and securities
                                  
                                  
                                  (1,054
                                  )
                                  
                                  
                                  (2,757
                                  )Other-than-temporary
      impairment write-down of securities
                                  
                                  
                                  -
                                  
                                  
                                  
                                  5,300Originations
      of loans held-for-sale
                                  
                                  
                                  (60,806
                                  )
                                  
                                  
                                  (80,843
                                  )Proceeds
      from sales and principal repayments of loans held-for-sale
                                  
                                  
                                  79,762
                                  
                                  
                                  
                                  44,411Stock-based
      compensation and allocation of ESOP stock
                                  
                                  
                                  4,758
                                  
                                  
                                  
                                  4,155(Increase)
      decrease in accrued interest receivable
                                  
                                  
                                  (2,340
                                  )
                                  
                                  
                                  1,583Mortgage
      servicing rights amortization and valuation allowance adjustments,
      net
                                  
                                  
                                  485
                                  
                                  
                                  
                                  1,086Bank
      owned life insurance income and insurance proceeds received,
      net
                                  
                                  
                                  (1,976
                                  )
                                  
                                  
                                  2,255Decrease
      (increase) in other assets
                                  
                                  
                                  16,309
                                  
                                  
                                  
                                  (16,421
                                  )Increase in accrued expenses and other
      liabilities
                                  
                                  
                                  7,602
                                  
                                  
                                  
                                  59,476Net cash provided by operating
      activities
                                  
                                  
                                  112,370
                                  
                                  
                                  
                                  85,867Cash
      flows from investing activities:Originations
      of loans receivable
                                  
                                  
                                  (725,457
                                  )
                                  
                                  
                                  (377,824
                                  )Loan
      purchases through third parties
                                  
                                  
                                  (140,421
                                  )
                                  
                                  
                                  (49,439
                                  )Principal
      payments on loans receivable
                                  
                                  
                                  936,420
                                  
                                  
                                  
                                  666,817Proceeds
      from sales of delinquent and non-performing loans
                                  
                                  
                                  8,697
                                  
                                  
                                  
                                  11,993Purchases
      of securities held-to-maturity
                                  
                                  
                                  (308,656
                                  )
                                  
                                  
                                  -Principal
      payments on securities held-to-maturity
                                  
                                  
                                  247,081
                                  
                                  
                                  
                                  210,680Principal
      payments on securities available-for-sale
                                  
                                  
                                  70,807
                                  
                                  
                                  
                                  77,591Proceeds
      from sales of securities available-for-sale
                                  
                                  
                                  -
                                  
                                  
                                  
                                  91,391Net
      redemptions of Federal Home Loan Bank of New York stock
                                  
                                  
                                  839
                                  
                                  
                                  
                                  28,353Proceeds
      from sales of real estate owned, net
                                  
                                  
                                  15,355
                                  
                                  
                                  
                                  7,713Purchases of premises and equipment, net of
      proceeds from sales
                                  
                                  
                                  (2,272
                                  )
                                  
                                  
                                  (2,205
                                  )Net cash provided by investing
      activities
                                  
                                  
                                  102,393
                                  
                                  
                                  
                                  665,070Cash
      flows from financing activities:Net
      (decrease) increase in deposits
                                  
                                  
                                  (127,403
                                  )
                                  
                                  
                                  149,254Net
      decrease in borrowings with original terms of three months or
      less
                                  
                                  
                                  (16,000
                                  )
                                  
                                  
                                  (813,000
                                  )Proceeds
      from borrowings with original terms greater than three
    months
                                  
                                  
                                  200,000
                                  
                                  
                                  
                                  185,000Repayments
      of borrowings with original terms greater than three
months
                                  
                                  
                                  (300,000
                                  )
                                  
                                  
                                  (200,000
                                  )Net
      increase in mortgage escrow funds
                                  
                                  
                                  38,318
                                  
                                  
                                  
                                  24,849Cash
      dividends paid to stockholders
                                  
                                  
                                  (12,175
                                  )
                                  
                                  
                                  (11,941
                                  )Cash
      received for options exercised
                                  
                                  
                                  112
                                  
                                  
                                  
                                  252Tax benefit excess (shortfall) from share-based
      payment arrangements, net
                                  
                                  
                                  33
                                  
                                  
                                  
                                  (897
                                  )Net cash used in financing
      activities
                                  
                                  
                                  (217,115
                                  )
                                  
                                  
                                  (666,483
                                  )Net
      (decrease) increase in cash and cash equivalents
                                  
                                  
                                  (2,352
                                  )
                                  
                                  
                                  84,454Cash and cash equivalents at beginning of
      period
                                  
                                  
                                  111,570
                                  
                                  
                                  
                                  100,293Cash and cash equivalents at end of
      period
                                  
                                  $
                                  109,218
                                  
                                  
                                  $
                                  184,747Supplemental
      disclosures:Cash
      paid during the period:Interest
                                  
                                  $
                                  108,826
                                  
                                  
                                  $
                                  148,935Income taxes
                                  
                                  $
                                  4,660
                                  
                                  
                                  $
                                  8,136Additions to real estate
    owned
                                  
                                  $
                                  18,802
                                  
                                  
                                  $
                                  13,405Loans transferred to
      held-for-sale
                                  
                                  $
                                  16,860
                                  
                                  
                                  $
                                  11,993
 
 See
accompanying Notes to Consolidated Financial Statements.
  5
  ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements (Unaudited)
 
 1.
              Basis of
      Presentation
 
 The
accompanying consolidated financial statements include the accounts of Astoria
Financial Corporation and its wholly-owned subsidiaries: Astoria Federal Savings
and Loan Association and its subsidiaries, referred to as Astoria Federal, and
AF Insurance Agency, Inc.  As used in this quarterly report, “we,”
“us” and “our” refer to Astoria Financial Corporation and its consolidated
subsidiaries.  All significant inter-company accounts and transactions
have been eliminated in consolidation.
 
 In
addition to Astoria Federal and AF Insurance Agency, Inc., we have another
subsidiary, Astoria Capital Trust I, which is not consolidated with Astoria
Financial Corporation for financial reporting purposes.  Astoria
Capital Trust I was formed in 1999 for the purpose of issuing $125.0 million
aggregate liquidation amount of 9.75% Capital Securities due November 1, 2029,
or Capital Securities, and $3.9 million of common securities which are 100%
owned by Astoria Financial Corporation, and using the proceeds to acquire Junior
Subordinated Debentures issued by Astoria Financial Corporation.  The
Junior Subordinated Debentures total $128.9 million, have an interest rate of
9.75%, mature on November 1, 2029 and are the sole assets of Astoria Capital
Trust I.  The Junior Subordinated Debentures are prepayable, in whole
or in part, at our option at declining premiums to November 1, 2019, after which
the Junior Subordinated Debentures are prepayable at par value.  The
Capital Securities have the same prepayment provisions as the Junior
Subordinated Debentures.  Astoria Financial Corporation has fully and
unconditionally guaranteed the Capital Securities along with all obligations of
Astoria Capital Trust I under the trust agreement relating to the Capital
Securities.  See Note 10 of Notes to Consolidated Financial Statements
included in Item 8, “Financial Statements and Supplementary Data” of our 2009
Annual Report on Form 10-K for restrictions on our subsidiaries’ ability to pay
dividends to us.
 
 In our
opinion, the accompanying consolidated financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of our financial condition as of March 31, 2010 and December
31, 2009, our results of operations for the three months ended March 31, 2010
and 2009, changes in our stockholders’ equity for the three months ended March
31, 2010 and our cash flows for the three months ended March 31, 2010 and
2009.  In preparing the consolidated financial statements, we are
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities for the consolidated statements of financial condition as
of March 31, 2010 and December 31, 2009, and amounts of revenues and expenses in
the consolidated statements of income for the three months ended March 31, 2010
and 2009.  The results of operations for the three months ended March
31, 2010 are not necessarily indicative of the results of operations to be
expected for the remainder of the year.  Certain information and note
disclosures normally included in financial statements prepared in accordance
with U.S. generally accepted accounting principles, or GAAP, have been condensed
or omitted pursuant to the rules and regulations of the Securities and Exchange
Commission, or SEC.  Certain reclassifications have been made to prior
year amounts to conform to the current year presentation.
  6
  These
consolidated financial statements should be read in conjunction with our
December 31, 2009 audited consolidated financial statements and related notes
included in our 2009 Annual Report on Form 10-K.
 
 2.
              Securities
 
 The
following tables set forth the amortized cost and estimated fair value of
securities available-for-sale and held-to-maturity at the dates
indicated.
 
 At March 31, 2010(In Thousands)
                      
                      Amortized
                        Cost
                      
                      
                      Gross
                        Unrealized
                        Gains
                      
                      
                      Gross
                        Unrealized
                        Losses
                      
                      
                      Estimated
                        Fair
                        ValueAvailable-for-sale:Residential
      mortgage-backed securities:GSE
      (1) issuance REMICs and CMOs (2)
                      
                      $
                      708,794
                      
                      
                      $
                      20,622
                      
                      
                      $
                      (3
                      )
                      
                      $
                      729,413Non-GSE
      issuance REMICs and CMOs
                      
                      
                      25,872
                      
                      
                      
                      -
                      
                      
                      
                      (1,026
                      )
                      
                      
                      24,846GSE pass-through
    certificates
                      
                      
                      32,393
                      
                      
                      
                      1,123
                      
                      
                      
                      (5
                      )
                      
                      
                      33,511Total
      residential mortgage-backed securities
                      
                      
                      767,059
                      
                      
                      
                      21,745
                      
                      
                      
                      (1,034
                      )
                      
                      
                      787,770Freddie
      Mac preferred stock
                      
                      
                      -
                      
                      
                      
                      3,826
                      
                      
                      
                      -
                      
                      
                      
                      3,826Other securities
                      
                      
                      40
                      
                      
                      
                      -
                      
                      
                      
                      (14
                      )
                      
                      
                      26Total securities
      available-for-sale
                      
                      $
                      767,099
                      
                      
                      $
                      25,571
                      
                      
                      $
                      (1,048
                      )
                      
                      $
                      791,622Held-to-maturity:Residential
      mortgage-backed securities:GSE
      issuance REMICs and CMOs
                      
                      $
                      2,051,130
                      
                      
                      $
                      57,147
                      
                      
                      $
                      (623
                      )
                      
                      $
                      2,107,654Non-GSE
      issuance REMICs and CMOs
                      
                      
                      71,617
                      
                      
                      
                      23
                      
                      
                      
                      (1,239
                      )
                      
                      
                      70,401GSE pass-through
    certificates
                      
                      
                      1,009
                      
                      
                      
                      62
                      
                      
                      
                      -
                      
                      
                      
                      1,071Total
      residential mortgage-backed securities
                      
                      
                      2,123,756
                      
                      
                      
                      57,232
                      
                      
                      
                      (1,862
                      )
                      
                      
                      2,179,126Obligations
      of U.S. government and GSEs
                      
                      
                      250,959
                      
                      
                      
                      1,264
                      
                      
                      
                      -
                      
                      
                      
                      252,223Obligations of states and political
      subdivisions
                      
                      
                      4,428
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      4,428Total securities
      held-to-maturity
                      
                      $
                      2,379,143
                      
                      
                      $
                      58,496
                      
                      
                      $
                      (1,862
                      )
                      
                      $
                      2,435,777
 
 (1)  Government-sponsored
enterprise
 (2)  Real
estate mortgage investment conduits and collateralized mortgage
obligations
 
 At December 31, 2009(In Thousands)
                      
                      Amortized
                        Cost
                      
                      
                      Gross
                        Unrealized
                        Gains
                      
                      
                      Gross
                        Unrealized
                        Losses
                      
                      
                      Estimated
                        Fair
                        ValueAvailable-for-sale:Residential
      mortgage-backed securities:GSE
      issuance REMICs and CMOs
                      
                      $
                      777,098
                      
                      
                      $
                      19,157
                      
                      
                      $
                      (15
                      )
                      
                      $
                      796,240Non-GSE
      issuance REMICs and CMOs
                      
                      
                      27,165
                      
                      
                      
                      3
                      
                      
                      
                      (899
                      )
                      
                      
                      26,269GSE pass-through
    certificates
                      
                      
                      33,441
                      
                      
                      
                      941
                      
                      
                      
                      (7
                      )
                      
                      
                      34,375Total
      residential mortgage-backed securities
                      
                      
                      837,704
                      
                      
                      
                      20,101
                      
                      
                      
                      (921
                      )
                      
                      
                      856,884Freddie
      Mac preferred stock
                      
                      
                      -
                      
                      
                      
                      3,784
                      
                      
                      
                      -
                      
                      
                      
                      3,784Other securities
                      
                      
                      40
                      
                      
                      
                      -
                      
                      
                      
                      (14
                      )
                      
                      
                      26Total securities
      available-for-sale
                      
                      $
                      837,744
                      
                      
                      $
                      23,885
                      
                      
                      $
                      (935
                      )
                      
                      $
                      860,694Held-to-maturity:Residential
      mortgage-backed securities:GSE
      issuance REMICs and CMOs
                      
                      $
                      1,979,296
                      
                      
                      $
                      50,387
                      
                      
                      $
                      -
                      
                      
                      $
                      2,029,683Non-GSE
      issuance REMICs and CMOs
                      
                      
                      82,014
                      
                      
                      
                      33
                      
                      
                      
                      (2,214
                      )
                      
                      
                      79,833GSE pass-through
    certificates
                      
                      
                      1,097
                      
                      
                      
                      66
                      
                      
                      
                      -
                      
                      
                      
                      1,163Total
      residential mortgage-backed securities
                      
                      
                      2,062,407
                      
                      
                      
                      50,486
                      
                      
                      
                      (2,214
                      )
                      
                      
                      2,110,679Obligations
      of U.S. government and GSEs
                      
                      
                      250,955
                      
                      
                      
                      1,363
                      
                      
                      
                      -
                      
                      
                      
                      252,318Obligations of states and political
      subdivisions
                      
                      
                      4,523
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      4,523Total securities
      held-to-maturity
                      
                      $
                      2,317,885
                      
                      
                      $
                      51,849
                      
                      
                      $
                      (2,214
                      )
                      
                      $
                      2,367,520
  7
  The
following tables set forth the estimated fair values of securities with gross
unrealized losses at March 31, 2010 and December 31, 2009, segregated between
securities that have been in a continuous unrealized loss position for less than
twelve months at the respective dates and those that have been in a continuous
unrealized loss position for twelve months or longer.
 
 At March 31, 2010Less Than Twelve Months
                                              
                                              
                                              Twelve Months orLonger
                                              
                                              
                                              Total(In Thousands)
                                              
                                              Estimated
                                                Fair Value
                                              
                                              
                                              Gross
                                                Unrealized
                                                Losses
                                              
                                              
                                              Estimated
                                                Fair Value
                                              
                                              
                                              Gross
                                                Unrealized
                                                Losses
                                              
                                              
                                              Estimated
                                                Fair Value
                                              
                                              
                                              Gross
                                                Unrealized
                                                LossesAvailable-for-sale:GSE
      issuance REMICs and CMOs
                                              
                                              $
                                              375
                                              
                                              
                                              $
                                              (3
                                              )
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              375
                                              
                                              
                                              $
                                              (3
                                              )Non-GSE
      issuance REMICs and CMOs
                                              
                                              
                                              713
                                              
                                              
                                              
                                              (34
                                              )
                                              
                                              
                                              24,133
                                              
                                              
                                              
                                              (992
                                              )
                                              
                                              
                                              24,846
                                              
                                              
                                              
                                              (1,026
                                              )GSE
      pass-through certificates
                                              
                                              
                                              657
                                              
                                              
                                              
                                              (4
                                              )
                                              
                                              
                                              132
                                              
                                              
                                              
                                              (1
                                              )
                                              
                                              
                                              789
                                              
                                              
                                              
                                              (5
                                              )Other securities
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1
                                              
                                              
                                              
                                              (14
                                              )
                                              
                                              
                                              1
                                              
                                              
                                              
                                              (14
                                              )Total temporarily impaired securities
      available-for-sale
                                              
                                              $
                                              1,745
                                              
                                              
                                              $
                                              (41
                                              )
                                              
                                              $
                                              24,266
                                              
                                              
                                              $
                                              (1,007
                                              )
                                              
                                              $
                                              26,011
                                              
                                              
                                              $
                                              (1,048
                                              )Held-to-maturity:GSE
      issuance REMICs and CMOs
                                              
                                              $
                                              45,335
                                              
                                              
                                              $
                                              (623
                                              )
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              45,335
                                              
                                              
                                              $
                                              (623
                                              )Non-GSE issuance REMICs and
      CMOs
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              63,823
                                              
                                              
                                              
                                              (1,239
                                              )
                                              
                                              
                                              63,823
                                              
                                              
                                              
                                              (1,239
                                              )Total temporarily impaired securities
      held-to-maturity
                                              
                                              $
                                              45,335
                                              
                                              
                                              $
                                              (623
                                              )
                                              
                                              $
                                              63,823
                                              
                                              
                                              $
                                              (1,239
                                              )
                                              
                                              $
                                              109,158
                                              
                                              
                                              $
                                              (1,862
                                              )
 
 At December 31, 2009Less Than Twelve Months
                                    
                                    
                                    Twelve Months or Longer
                                    
                                    
                                    Total(In Thousands)
                                    
                                    Estimated
                                      Fair Value
                                    
                                    
                                    Gross
                                      Unrealized
                                      Losses
                                    
                                    
                                    Estimated
                                      Fair Value
                                    
                                    
                                    Gross
                                      Unrealized
                                      Losses
                                    
                                    
                                    Estimated
                                      Fair Value
                                    
                                    
                                    Gross
                                      Unrealized
                                      LossesAvailable-for-sale:GSE
      issuance REMICs and CMOs
                                    
                                    $
                                    1,489
                                    
                                    
                                    $
                                    (15
                                    )
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    1,489
                                    
                                    
                                    $
                                    (15
                                    )Non-GSE
      issuance REMICs and CMOs
                                    
                                    
                                    549
                                    
                                    
                                    
                                    (54
                                    )
                                    
                                    
                                    25,557
                                    
                                    
                                    
                                    (845
                                    )
                                    
                                    
                                    26,106
                                    
                                    
                                    
                                    (899
                                    )GSE
      pass-through certificates
                                    
                                    
                                    1,309
                                    
                                    
                                    
                                    (4
                                    )
                                    
                                    
                                    377
                                    
                                    
                                    
                                    (3
                                    )
                                    
                                    
                                    1,686
                                    
                                    
                                    
                                    (7
                                    )Other
      securities
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1
                                    
                                    
                                    
                                    (14
                                    )
                                    
                                    
                                    1
                                    
                                    
                                    
                                    (14
                                    )Total
      temporarily impaired securities available-for-sale
                                    
                                    $
                                    3,347
                                    
                                    
                                    $
                                    (73
                                    )
                                    
                                    $
                                    25,935
                                    
                                    
                                    $
                                    (862
                                    )
                                    
                                    $
                                    29,282
                                    
                                    
                                    $
                                    (935
                                    )Total
      temporarily impaired
    securities  held-to-maturity:Non-GSE
      issuance REMICs and CMOs
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    70,589
                                    
                                    
                                    $
                                    (2,214
                                    )
                                    
                                    $
                                    70,589
                                    
                                    
                                    $
                                    (2,214
                                    )
 
 We held
43 securities which had an unrealized loss at March 31, 2010 and 46 at December
31, 2009.  At March 31, 2010 and December 31, 2009, substantially all
of the securities in an unrealized loss position had a fixed interest rate and
the cause of the temporary impairment is directly related to the change 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 generally view changes in
fair value caused by changes in interest rates as temporary, which is consistent
with our experience.  None of the unrealized losses are related to
credit losses.  Therefore, at March 31, 2010 and December 31, 2009,
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.
  There
were no other-than-temporary impairment, or OTTI, write-down of securities
charges during the three months ended March 31, 2010.  During the
three months ended March 31, 2009, we recorded a $5.3 million OTTI charge to
write-off the remaining cost basis of our investment
 
 8
  in two
issues of Freddie Mac perpetual preferred securities.  Our analysis of
the market value trends of these securities indicated that based on the duration
of the unrealized loss and the unlikelihood of a near-term market value
recovery, as of March 31, 2009, our Freddie Mac preferred securities were
other-than-temporarily impaired and of such little value that a write-off of our
remaining cost basis was warranted.  The securities’ market values
totaled $3.8 million at March 31, 2010, which is recorded as an unrealized gain
on our available-for-sale securities.  OTTI charges are included as a
component of non-interest income in the consolidated statements of
income.
 
 For
additional information regarding securities impairment, see “Critical Accounting
Policies” in Item 2, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” or “MD&A.”
 
 There
were no sales of securities from the available-for-sale portfolio during the
three months ended March 31, 2010.  During the three months ended
March 31, 2009, proceeds from sales of securities from the available-for-sale
portfolio totaled $91.4 million resulting in gross realized gains of $2.1
million.  Gains and losses on the sale of all securities are
determined using the specific identification method.
 
 The
amortized cost and estimated fair value of debt securities at March 31, 2010, by
contractual maturity, excluding mortgage-backed securities, are summarized in
the following table.  Actual maturities will differ from contractual
maturities because borrowers may have the right to prepay obligations with or
without prepayment penalties.  In addition, issuers of certain
securities have the right to call obligations with or without prepayment
penalties.
 
 At March 31, 2010(In Thousands)
                      
                      Amortized
                        Cost
                      
                      
                      Estimated
                        Fair
                        ValueAvailable-for-sale:Due in one year or less
                      
                      $
                      25
                      
                      
                      $
                      25Total available-for-sale
                      
                      $
                      25
                      
                      
                      $
                      25Held-to-maturity:Due
      after one year through five years
                      
                      $
                      250,959
                      
                      
                      $
                      252,223Due after five years through ten
      years
                      
                      
                      4,428
                      
                      
                      
                      4,428Total held-to-maturity
                      
                      $
                      255,387
                      
                      
                      $
                      256,651
 
 The
balance of accrued interest receivable for securities totaled $11.7 million at
March 31, 2010 and $10.3 million at December 31, 2009.
 
 As of
March 31, 2010, the amortized cost of the callable securities in our portfolio
totaled $251.0 million, all of which are callable within one year and at various
times thereafter.
 
 3.
              Non-performing Loans
      Held-for-Sale, net
 
 Non-performing
loans held-for-sale are included in loans held-for-sale, net, and totaled $15.0
million, net of a $681,000 valuation allowance, as of March 31, 2010 and totaled
$6.9 million, net of a $1.1 million valuation allowance, at December 31,
2009.
  We sold
certain delinquent and non-performing mortgage loans totaling $8.7 million, net
of charge-offs of $3.3 million, during the three months ended March 31, 2010,
consisting of multi-
 
 9
   
 4.
              Loans Receivable,
      net
 
 The
following table sets forth the composition of our loans receivable portfolio in
dollar amounts and in percentages of the portfolio at the dates
indicated.
 
 At March 31, 2010
                            
                            
                            At December 31, 2009Percent
                            
                            
                            
                            
                            
                            Percent(Dollars in Thousands)
                            
                            Amount
                            
                            
                            of Total
                            
                            
                            Amount
                            
                            
                            of TotalMortgage
      loans (gross):One-to-four
      family
                            
                            $
                            11,846,514
                            
                            
                            
                            76.26
                            %
                            
                            $
                            11,895,362
                            
                            
                            
                            75.88
                            %Multi-family
                            
                            
                            2,490,070
                            
                            
                            
                            16.03
                            
                            
                            
                            2,559,058
                            
                            
                            
                            16.33Commercial
      real estate
                            
                            
                            851,113
                            
                            
                            
                            5.48
                            
                            
                            
                            866,804
                            
                            
                            
                            5.53Construction
                            
                            
                            20,853
                            
                            
                            
                            0.13
                            
                            
                            
                            23,599
                            
                            
                            
                            0.15Total mortgage loans
                            
                            
                            15,208,550
                            
                            
                            
                            97.90
                            
                            
                            
                            15,344,823
                            
                            
                            
                            97.89Consumer
      and other loans (gross):Home
      equity
                            
                            
                            298,745
                            
                            
                            
                            1.92
                            
                            
                            
                            302,410
                            
                            
                            
                            1.93Commercial
                            
                            
                            13,894
                            
                            
                            
                            0.09
                            
                            
                            
                            13,588
                            
                            
                            
                            0.09Other
                            
                            
                            13,717
                            
                            
                            
                            0.09
                            
                            
                            
                            14,020
                            
                            
                            
                            0.09Total consumer and other
    loans
                            
                            
                            326,356
                            
                            
                            
                            2.10
                            
                            
                            
                            330,018
                            
                            
                            
                            2.11Total
      loans (gross)
                            
                            
                            15,534,906
                            
                            
                            
                            100.00
                            %
                            
                            
                            15,674,841
                            
                            
                            
                            100.00
                            %Net unamortized premiums and deferred loan
      costs
                            
                            
                            102,902
                            
                            
                            
                            
                            
                            
                            
                            105,881Total
      loans
                            
                            
                            15,637,808
                            
                            
                            
                            
                            
                            
                            
                            15,780,722Allowance for loan losses
                            
                            
                            (210,748
                            )
                            
                            
                            
                            
                            
                            
                            (194,049
                            )Total loans, net
                            
                            $
                            15,427,060
                            
                            
                            
                            
                            
                            
                            $
                            15,586,673
 
 Activity
in the allowance for loan losses is summarized as follows:
 
 (In Thousands)
                                                    
                                                    For the
                                                      ThreeMonths
                                                      Ended
                                                      March 31, 2010Balance
      at January 1, 2010
                                                    
                                                    $
                                                    194,049Provision
      charged to operations
                                                    
                                                    
                                                    45,000Charge-offs
                                                    
                                                    
                                                    (31,636
                                                    )Recoveries
                                                    
                                                    
                                                    3,335Balance at March 31, 2010
                                                    
                                                    $
                                                    210,748
 
 For
additional information regarding the composition of our loan portfolio,
non-performing loans and our allowance for loan losses, see “Asset Quality” in
Item 2, “MD&A.”
 
 5.
              Income
    Taxes
 
 Gross
unrecognized tax benefits totaled $3.0 million at March 31, 2010 compared to
$5.3 million at December 31, 2009.  The decrease was primarily a
result of settlements with taxing authorities.  It is reasonably
possible that additional decreases in gross unrecognized tax benefits totaling
$1.1 million may occur in the next twelve months as a result of settlements with
taxing authorities.  If realized, all of our unrecognized tax benefits
at March 31, 2010 would affect our
 
 10
  effective
income tax rate.  After the related deferred tax effects, realization
of those benefits would reduce income tax expense by $2.3
million.
  In
addition to the above unrecognized tax benefits, we have accrued liabilities for
interest and penalties related to uncertain tax positions totaling $1.6 million
at March 31, 2010 compared to $2.0 million at December 31, 2009.  The
decrease was primarily a result of settlements with taxing authorities,
partially offset by interest accrued during the three months ended March 31,
2010.  Realization of all of our unrecognized tax benefits would
result in a further reduction in income tax expense of $1.1 million for the
reversal of accrued interest and penalties, net of the related deferred tax
effects.
 
 6.
              Earnings Per Share, or
      EPS
 
 The
following table is a reconciliation of basic and diluted EPS.
 
 For the Three Months Ended
                            March 31,(In Thousands, Except Per Share Data)
                          
                          2010
                          
                          
                          2009Net
      income
                          
                          $
                          12,926
                          
                          
                          $
                          8,796Income allocated to participating securities
      (restricted stock)
                          
                          
                          (312
                          )
                          
                          
                          (225
                          )Income attributable to common
      shareholders
                          
                          $
                          12,614
                          
                          
                          $
                          8,571Average
      number of common shares outstanding – basic
                          
                          
                          91,460
                          
                          
                          
                          90,213Dilutive effect of stock options
      (1)
                          
                          
                          1
                          
                          
                          
                          -Average number of common shares outstanding –
      diluted
                          
                          
                          91,461
                          
                          
                          
                          90,213Income
      per common share attributable to common shareholders:Basic
                          
                          $
                          0.14
                          
                          
                          $
                          0.10Diluted
                          
                          $
                          0.14
                          
                          
                          $
                          0.10
 
 (1)
              Excludes
      options to purchase 8,033,330 shares of common stock which were
      outstanding during the three months ended March 31, 2010 and options to
      purchase 8,680,865 shares of common stock which were outstanding during
      the three months ended March 31, 2009 because their inclusion would be
      anti-dilutive.
 
 7.
              Stock Incentive
      Plans
 
 On
February 1, 2010, 778,740 shares of restricted stock were granted to select
officers under the 2005 Re-designated, Amended and Restated Stock Incentive Plan
for Officers and Employees of Astoria Financial Corporation, or the 2005
Employee Stock Plan, and 27,688 shares of restricted stock were granted to
directors under the Astoria Financial Corporation 2007 Non-Employee Directors
Stock Plan, or the 2007 Director Stock Plan.  Of the restricted stock
granted to select officers, 135,720 shares vest one-third per year and 643,020
shares vest one-fifth per year on December 14th, beginning December 14,
2010.  In the event the grantee terminates his/her employment due to
death or disability, or in the event we experience a change in control, as
defined and specified in the 2005 Employee Stock Plan, all restricted stock
granted pursuant to such grants immediately vests.  The restricted
stock granted in 2010 under the 2007 Director Stock Plan vests 100% on February
1, 2013, although awards will immediately vest upon death, disability, mandatory
retirement, involuntary termination or a change in control, as such terms are
defined in the plan.
  11
  Restricted
stock activity in our stock incentive plans for the three months ended March 31,
2010 is summarized as follows:
 
 Number of
                                      Shares
                                    Weighted
                                      Average
                                      Grant Date
                                      Fair ValueNonvested
      at January 1, 2010
                                    
                                    
                                    1,522,420
                                    
                                    
                                    $
                                    16.02Granted
                                    
                                    
                                    806,428
                                    
                                    
                                    
                                    13.00Vested
                                    
                                    
                                    (21,470
                                    )
                                    
                                    
                                    (25.13
                                    )Forfeited
                                    
                                    
                                    (6,106
                                    )
                                    
                                    
                                    (13.16
                                    )Nonvested
      at March 31, 2010
                                    
                                    
                                    2,301,272
                                    
                                    
                                    
                                    14.88
 
 Stock-based
compensation expense is recognized on a straight-line basis over the vesting
period  and totaled $1.2 million, net of taxes of $640,000, for the
three months ended March 31, 2010, and $899,000, net of taxes of $484,000, for
the three months ended March 31, 2009.  At March 31, 2010, pre-tax
compensation cost related to all nonvested awards of restricted stock not yet
recognized totaled $24.2 million and will be recognized over a weighted average
period of approximately 3.5 years.
 
 8.
              Pension Plans and Other
      Postretirement Benefits
 
 The
following table sets forth information regarding the components of net periodic
cost for our defined benefit pension plans and other postretirement benefit
plan.
 
 Other PostretirementPension Benefits
                                    
                                    BenefitsFor the Three Months Ended
                                    
                                    For the Three Months EndedMarch 31,
                                    
                                    March 31,(In Thousands)
                                    2010
                                    2009
                                    
                                    2010
                                    2009Service
      cost
                                    
                                    $
                                    933
                                    
                                    
                                    $
                                    871
                                    
                                    
                                    
                                    $
                                    89
                                    
                                    
                                    $
                                    81Interest
      cost
                                    
                                    
                                    2,899
                                    
                                    
                                    
                                    2,812
                                    
                                    
                                    
                                    
                                    283
                                    
                                    
                                    
                                    267Expected
      return on plan assets
                                    
                                    
                                    (2,355
                                    )
                                    
                                    
                                    (2,129
                                    )
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Amortization
      of prior service cost (credit)
                                    
                                    
                                    62
                                    
                                    
                                    
                                    62
                                    
                                    
                                    
                                    
                                    (25
                                    )
                                    
                                    
                                    (25
                                    )Recognized net actuarial
    loss
                                    
                                    
                                    1,602
                                    
                                    
                                    
                                    2,062
                                    
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Net periodic cost
                                    
                                    $
                                    3,141
                                    
                                    
                                    $
                                    3,678
                                    
                                    
                                    
                                    $
                                    347
                                    
                                    
                                    $
                                    323
 
 9.
              Fair Value
      Measurements
 
 On
January 1, 2010, we adopted Accounting Standards Update, or ASU, 2010-06, “Fair
Value Measurements and Disclosures (Topic 820) Improving Disclosures about Fair
Value Measurements,” which amends Subtopic 820-10 of the Financial Accounting
Standards Board, or FASB, Accounting Standards Codification, or ASC, to require
new disclosures about transfers in and out of Level 1 and Level 2 fair value
measurements and the roll forward of activity in Level 3 fair value
measurements.  ASU 2010-06 also clarifies existing disclosure
requirements regarding the level of disaggregation of each class of assets and
liabilities within a line item in the statement of financial condition and
clarifies that a reporting entity should provide disclosures about the valuation
techniques and inputs used to measure fair value for both recurring and
nonrecurring fair value measurements that fall in either Level 2 or Level 3 fair
value measurements.  The update also includes conforming amendments to
the guidance on employers’ disclosures about postretirement benefit plan
assets.  The new disclosures about the roll forward of activity in
Level 3 fair value measurements are effective for fiscal years beginning after
December 15, 2010 and for interim periods within those fiscal
years.  Since the
 
 12
  provisions
of ASU 2010-06 are disclosure related, our adoption of this guidance did not
have an impact on our financial condition or results of
operations.
  We use
fair value measurements to record fair value adjustments to certain assets and
liabilities and to determine fair value disclosures.  Our securities
available-for-sale are recorded at fair value on a recurring
basis.  Additionally, from time to time, we may be required to record
at fair value other assets or liabilities on a non-recurring basis, such as
mortgage servicing rights, or MSR, loans receivable, certain assets
held-for-sale and real estate owned, or REO.  These non-recurring fair
value adjustments involve the application of lower of cost or market accounting
or write-downs of individual assets.  Additionally, in connection with
our mortgage banking activities we have commitments to fund loans held-for-sale
and commitments to sell loans, which are considered free-standing derivative
instruments, the fair values of which are not material to our financial
condition or results of operations.
 
 We group
our assets and liabilities at fair value in three levels, based on the markets
in which the assets are traded and the reliability of the assumptions used to
determine fair value.  These levels are:
 
 •
              Level
      1 – Valuation is based upon quoted prices for identical instruments traded
      in active markets.
 
 •
              Level
      2 – Valuation is based upon quoted prices for similar instruments in
      active markets, quoted prices for identical or similar instruments in
      markets that are not active and model-based valuation techniques for which
      all significant assumptions are observable in the
  market.
 
 •
              Level
      3 – Valuation is generated from model-based techniques that use
      significant assumptions not observable in the market. These unobservable
      assumptions reflect our own estimates of assumptions that market
      participants would use in pricing the asset or liability. Valuation
      techniques include the use of option pricing models, discounted cash flow
      models and similar techniques. The results cannot be determined with
      precision and may not be realized in an actual sale or immediate
      settlement of the asset or
liability.
 
 We base
our fair values on the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date, with additional considerations when the volume and level
of activity for an asset or liability have significantly decreased and on
identifying circumstances that indicate a transaction is not
orderly.  GAAP requires us to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair
value.
 
 The
following is a description of valuation methodologies used for assets measured
at fair value on a recurring basis.
 
 Securities
available-for-sale
 Our
available-for-sale securities portfolio is carried at estimated fair value on a
recurring basis, with any unrealized gains and losses, net of taxes, reported as
accumulated other comprehensive income/loss in stockholders'
equity.
  13
  Residential
mortgage-backed securities
 Substantially
all of our securities available-for-sale portfolio consists of mortgage-backed
securities.  The fair values for these securities are obtained from an
independent nationally recognized pricing service.  Our pricing
service uses various modeling techniques to determine pricing for our
mortgage-backed securities, including option pricing and discounted cash flow
models.  The inputs to these models include benchmark yields, reported
trades, broker/dealer quotes, issuer spreads, benchmark securities, bids,
offers, reference data, monthly payment information and collateral
performance.  At March 31, 2010, 97% of our available-for-sale
residential mortgage-backed securities portfolio was comprised of GSE securities
for which an active market exists for similar securities, making observable
inputs readily available.
 
 We
analyze changes in the pricing service fair values from month to month taking
into consideration changes in market conditions including changes in mortgage
spreads, changes in treasury yields and changes in generic pricing on fifteen
year and thirty year securities.  Each month we conduct a review of
the estimated values of our fixed rate REMICs and CMOs available-for-sale which
represent substantially all of these securities priced by our pricing
service.  We generate prices based upon a “spread matrix” approach for
estimating values.  Market spreads are obtained from independent third
party firms who trade these types of securities.  Any notable
differences between the pricing service prices and “spread matrix” prices on
individual securities are analyzed further, including a review of prices
provided by other independent parties, a yield analysis and review of average
life changes using Bloomberg analytics and a review of historical pricing on the
particular security.  Based upon our review of the prices provided by
our pricing service, the fair values of securities incorporate observable market
inputs commonly used by buyers and sellers of these types of securities at the
measurement date in orderly transactions between market participants, and, as
such, are classified as Level 2.
 
 Other
securities
 The fair
values of the other securities in our available-for-sale portfolio are obtained
from quoted market prices for identical instruments in active markets and, as
such, are classified as Level 1.
  14
  The
following tables set forth the carrying value of our assets measured at fair
value on a recurring basis and the level within the fair value hierarchy in
which the fair value measurement falls at March 31, 2010 and December 31,
2009.
 
 Carrying Value at March 31,
      2010(In Thousands)
                    
                    Total
                    
                    
                    Level 1
                    
                    
                    Level 2
                    
                    
                    Level 3Securities
      available-for-sale:Residential
      mortgage-backed securities:GSE
      issuance REMICs and CMOs
                    
                    $
                    729,413
                    
                    
                    $
                    -
                    
                    
                    $
                    729,413
                    
                    
                    $
                    -Non-GSE
      issuance REMICs and CMOs
                    
                    
                    24,846
                    
                    
                    
                    -
                    
                    
                    
                    24,846
                    
                    
                    
                    -GSE
      pass-through certificates
                    
                    
                    33,511
                    
                    
                    
                    -
                    
                    
                    
                    33,511
                    
                    
                    
                    -Other securities
                    
                    
                    3,852
                    
                    
                    
                    3,852
                    
                    
                    
                    -
                    
                    
                    
                    -Total securities
      available-for-sale
                    
                    $
                    791,622
                    
                    
                    $
                    3,852
                    
                    
                    $
                    787,770
                    
                    
                    $
                    -
 
 Carrying Value at December 31,
      2009(In Thousands)
                    
                    Total
                    
                    
                    Level 1
                    
                    
                    Level 2
                    
                    
                    Level 3Securities
      available-for-sale:Residential
      mortgage-backed securities:GSE
      issuance REMICs and CMOs
                    
                    $
                    796,240
                    
                    
                    $
                    -
                    
                    
                    $
                    796,240
                    
                    
                    $
                    -Non-GSE
      issuance REMICs and CMOs
                    
                    
                    26,269
                    
                    
                    
                    -
                    
                    
                    
                    26,269
                    
                    
                    
                    -GSE
      pass-through certificates
                    
                    
                    34,375
                    
                    
                    
                    -
                    
                    
                    
                    34,375
                    
                    
                    
                    -Other securities
                    
                    
                    3,810
                    
                    
                    
                    3,810
                    
                    
                    
                    -
                    
                    
                    
                    -Total securities
      available-for-sale
                    
                    $
                    860,694
                    
                    
                    $
                    3,810
                    
                    
                    $
                    856,884
                    
                    
                    $
                    -
 
 The
following is a description of valuation methodologies used for assets measured
at fair value on a non-recurring basis.
 
 Non-performing
loans held-for-sale, net
 Non-performing
loans held-for-sale are comprised primarily of multi-family mortgage loans at
March 31, 2010 and December 31, 2009.  Fair values of non-performing
loans held-for-sale are estimated through either bids received on the loans or a
discounted cash flow analysis of the underlying collateral and adjusted as
necessary, by management, to reflect current market conditions and, as such, are
classified as Level 3.
 
 Loans
receivable, net (impaired loans)
 Loans
which meet certain criteria are evaluated individually for
impairment.  A loan is considered impaired when, based upon current
information and events, it is probable that we will be unable to collect all
amounts due, including principal and interest, according to the contractual
terms of the loan agreement.  Impaired loans are comprised primarily
of one-to-four family mortgage loans at March 31, 2010 and December 31,
2009.  Our impaired loans are generally collateral dependent and, as
such, are carried at the estimated fair value of the collateral less estimated
selling costs.  Fair values are estimated through current appraisals,
broker opinions or automated valuation models and adjusted as necessary, by
management, to reflect current market conditions and, as such, are classified as
Level 3.  Substantially all of the impaired loans at March 31, 2010
and December 31, 2009 for which a fair value adjustment was recognized were
one-to-four family mortgage loans.
  MSR,
net
 The right
to service loans for others is generally obtained through the sale of
one-to-four family mortgage loans with servicing retained.  MSR are
carried at the lower of cost or estimated fair value.  The estimated
fair value of MSR is obtained through independent third party valuations through
an analysis of future cash flows, incorporating estimates of assumptions market
 
 15
  participants
would use in determining fair value including market discount rates, prepayment
speeds, servicing income, servicing costs, default rates and other market driven
data, including the market’s perception of future interest rate movements and,
as such, are classified as Level 3.  At March 31, 2010, our MSR were
valued based on expected future cash flows considering a weighted average
discount rate of 10.99%, a weighted average constant prepayment rate on
mortgages of 20.42% and a weighted average life of 3.8 years.  At
December 31, 2009, our MSR were valued based on expected future cash flows
considering a weighted average discount rate of 11.02%, a weighted average
constant prepayment rate on mortgages of 20.85% and a weighted average life of
3.8 years.  Management reviews the assumptions used to estimate the
fair value of MSR to ensure they reflect current and anticipated market
conditions.
 
 REO,
net
 REO
represents real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure, all of which are one-to-four family properties at March 31, 2010
and December 31, 2009, and is carried, net of allowances for losses, at the
lower of cost or fair value less estimated selling costs.  The fair
value of REO is estimated through current appraisals, in conjunction with a
drive-by inspection and comparison of the REO property with similar properties
in the area by either a licensed appraiser or real estate broker.  As
these properties are actively marketed, estimated fair values are periodically
adjusted by management to reflect current market conditions and, as such, are
classified as Level 3.
 
 The
following tables set forth the carrying value of our assets measured at fair
value on a non-recurring basis and the level within the fair value hierarchy in
which the fair value measurement falls at March 31, 2010 and December 31,
2009.
 
 Carrying Value at March 31, 2010(In Thousands)
                    
                    Total
                    
                    
                    Level 1
                    
                    
                    Level 2
                    
                    
                    Level 3Non-performing loans held-for-sale, net
                    
                    $
                    15,033
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    15,033Impaired
      loans
                    
                    
                    165,186
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    165,186MSR,
      net
                    
                    
                    9,263
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    9,263REO, net
                    
                    
                    47,103
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    47,103Total
                    
                    $
                    236,585
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    236,585
 
 Carrying Value at December 31,
      2009(In Thousands)
                    
                    Total
                    
                    
                    Level 1
                    
                    
                    Level 2
                    
                    
                    Level 3Non-performing
      loans held-for-sale, net
                    
                    $
                    6,865
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    6,865Impaired
      loans
                    
                    
                    145,250
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    145,250MSR,
      net
                    
                    
                    8,850
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    8,850REO, net
                    
                    
                    43,958
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    43,958Total
                    
                    $
                    204,923
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    204,923
  16
  The
following table provides information regarding the losses recognized on our
assets measured at fair value on a non-recurring basis for the three months
ended March 31, 2010 and 2009.
 
 Losses
      For TheThree Months EndedMarch 31,(In Thousands)
                    2010
                    2009Non-performing
      loans held-for-sale, net (1)
                    
                    $
                    5,571
                    
                    
                    $
                    -Impaired
      loans (2)
                    
                    
                    16,649
                    
                    
                    
                    5,294MSR,
      net
                    
                    
                    -
                    
                    
                    
                    -REO, net (3)
                    
                    
                    6,351
                    
                    
                    
                    6,456Total
                    
                    $
                    28,571
                    
                    
                    $
                    11,750
 
 (1)
              Losses
      are charged against the allowance for loan losses in the case of a
      write-down upon the reclassification of a loan to
      held-for-sale.  Losses subsequent to the reclassification of a
      loan to held-for-sale are charged to other non-interest
      income.
 (2)
              Losses
      are charged against the allowance for loan
  losses.
 (3)
              Losses
      are charged against the allowance for loan losses in the case of a
      write-down upon the transfer of a loan to REO.  Losses
      subsequent to the transfer of a loan to REO are charged to REO expense
      which is a component of other non-interest
  expense.
 
 10.
                Fair Value of Financial
      Instruments
 
 Quoted
market prices available in formal trading marketplaces are typically the best
evidence of fair value of financial instruments.  In many cases,
financial instruments we hold are not bought or sold in formal trading
marketplaces.  Accordingly, fair values are derived or estimated based
on a variety of valuation techniques in the absence of quoted market
prices.  Fair value estimates are made at a specific point in time,
based on relevant market information about the financial
instrument.  These estimates do not reflect any possible tax
ramifications, estimated transaction costs, or any premium or discount that
could result from offering for sale at one time our entire holdings of a
particular financial instrument.  Because no market exists for a
certain portion of our financial instruments, fair value estimates are based on
judgments regarding future loss experience, current economic conditions, risk
characteristics, and other such factors.  These estimates are
subjective in nature, involve uncertainties and, therefore, cannot be determined
with precision.  Changes in assumptions could significantly affect the
estimates.  For these reasons and others, the estimated fair value
disclosures presented herein do not represent our entire underlying
value.  As such, readers are cautioned in using this information for
purposes of evaluating our financial condition and/or value either alone or in
comparison with any other company.
 
 The
following table summarizes the carrying amounts and estimated fair values of our
financial instruments which are carried on the consolidated statements of
financial condition at either cost or at lower of cost or fair value, in
accordance with GAAP, and not measured or recorded at fair value on a recurring
basis.
  17
 
 At March 31, 2010
                  
                  
                  At December 31, 2009Carrying
                  
                  
                  Estimated
                  
                  
                  Carrying
                  
                  
                  Estimated(In Thousands)
                  
                  Amount
                  
                  
                  Fair Value
                  
                  
                  Amount
                  
                  
                  Fair ValueFinancial
      Assets:Repurchase
      agreements
                  
                  $
                  54,400
                  
                  
                  $
                  54,400
                  
                  
                  $
                  40,030
                  
                  
                  $
                  40,030Securities
      held-to-maturity
                  
                  
                  2,379,143
                  
                  
                  
                  2,435,777
                  
                  
                  
                  2,317,885
                  
                  
                  
                  2,367,520FHLB-NY
      stock
                  
                  
                  178,090
                  
                  
                  
                  178,090
                  
                  
                  
                  178,929
                  
                  
                  
                  178,929Loans
      held-for-sale, net (1)
                  
                  
                  23,637
                  
                  
                  
                  23,832
                  
                  
                  
                  34,274
                  
                  
                  
                  34,585Loans
      receivable, net (1)
                  
                  
                  15,427,060
                  
                  
                  
                  15,953,802
                  
                  
                  
                  15,586,673
                  
                  
                  
                  16,030,427MSR,
      net (1)
                  
                  
                  9,263
                  
                  
                  
                  9,277
                  
                  
                  
                  8,850
                  
                  
                  
                  8,866Financial
      Liabilities:Deposits
                  
                  
                  12,684,835
                  
                  
                  
                  12,869,691
                  
                  
                  
                  12,812,238
                  
                  
                  
                  12,978,569Borrowings,
      net
                  
                  
                  5,761,927
                  
                  
                  
                  6,193,930
                  
                  
                  
                  5,877,834
                  
                  
                  
                  6,332,288
 
 (1)
              Includes
      totals for assets measured at fair value on a non-recurring basis as
      disclosed in Note 9.
 
 Methods
and assumptions used to estimate fair values are as follows:
 
 Repurchase
agreements
 The
carrying amounts of repurchase agreements approximate fair values since all
mature in one month or less.
 
 Securities
held-to-maturity
 The fair
values for substantially all of our securities held-to-maturity are obtained
from an independent nationally recognized pricing service using similar methods
and assumptions as used for our securities available-for-sale which are
described further in Note 9.
 
 Federal
Home Loan Bank of New York, or FHLB-NY, stock
 The
carrying amount of FHLB-NY stock equals cost.  The fair value of
FHLB-NY stock is based on redemption at par value.
 
 Loans
held-for-sale, net
 The fair
values of loans held-for-sale are estimated by reference to published pricing
for similar loans sold in the secondary market.  The fair values of
non-performing loans held-for-sale are estimated through either bids received on
such loans or a discounted cash flow analysis adjusted to reflect current market
conditions.
 
 Loans
receivable, net
 Fair
values of loans are estimated by reference to published pricing for similar
loans sold in the secondary market.  Loans are grouped by similar
characteristics.  The loans are first segregated by type, such as
one-to-four family, multi-family, commercial real estate, construction and
consumer and other, and then further segregated into fixed and adjustable rate
and seasoned and nonseasoned categories.  Published pricing is based
on new loans of similar type and purpose, adjusted, when necessary, for factors
such as servicing cost, credit risk, interest rate and remaining
term.
 
 This
technique of estimating fair value is extremely sensitive to the assumptions and
estimates used.  While we have attempted to use assumptions and
estimates which are the most reflective of the loan portfolio and the current
market, a greater degree of subjectivity is inherent in determining these fair
values than for fair values obtained from formal trading
marketplaces.  In
 
 18
  addition,
our valuation method for loans, which is consistent with accounting guidance,
does not fully incorporate an exit price approach to fair value.
  MSR,
net
 The fair
value of MSR is obtained through independent third party valuations through an
analysis of future cash flows, incorporating estimates of assumptions market
participants would use in determining fair value including market discount
rates, prepayment speeds, servicing income, servicing costs, default rates and
other market driven data, including the market’s perception of future interest
rate movements.
 
 Deposits
 The fair
values of deposits with no stated maturity, such as savings accounts, NOW
accounts, money market accounts and demand deposit accounts, are equal to the
amount payable on demand.  The fair values of certificates of deposit
and Liquid certificates of deposit, or Liquid CDs, are based on discounted
contractual cash flows using the weighted average remaining life of the
portfolio discounted by the corresponding LIBOR Swap Curve as posted by the
Office of Thrift Supervision, or OTS.
 
 Borrowings,
net
 The fair
values of callable borrowings are based upon third party dealers’ estimated
market values.  The fair values of non-callable borrowings are based
on discounted cash flows using the weighted average remaining life of the
portfolio discounted by the corresponding FHLB nominal funding
rate.
 
 Outstanding
commitments
 Outstanding
commitments include (1) commitments to extend credit and unadvanced lines of
credit for which fair values were estimated based on an analysis of the interest
rates and fees currently charged to enter into similar transactions and (2)
commitments to sell residential mortgage loans for which fair values were
estimated based on current secondary market prices for commitments with similar
terms.  The fair values of these commitments are immaterial to our
financial condition and are not presented in the table above.
 
 11.
              Litigation
 
 In the
ordinary course of our business, we are routinely made a defendant in or a party
to pending or threatened legal actions or proceedings which, in some cases, seek
substantial monetary damages from or other forms of relief against
us.  In our opinion, after consultation with legal counsel, we believe
it unlikely that such actions or proceedings will have a material adverse effect
on our financial condition, results of operations or liquidity.
 
 Goodwill
Litigation
 We have
been a party to an action against the United States involving an assisted
acquisition made in the early 1980’s and supervisory goodwill accounting
utilized in connection therewith.  The trial in this action, entitled
AstoriaFederal
Savings and Loan Association vs. United States, took place during 2007
before the U.S. Court of Federal Claims, or Federal Claims Court.  The
Federal Claims Court, by decision filed on January 8, 2008, awarded to us $16.0
million in damages from the U.S. Government.  No portion of the $16.0
million award was recognized in our consolidated financial
statements.  The U.S. Government appealed such decision to the U.S.
Court of Appeals for the Federal Circuit, or Court of Appeals.  In an
opinion dated May 28,
 
 19
  2009, the
Court of Appeals affirmed in part and reversed in part the lower court’s ruling
and remanded the case to the Federal Claims Court for further
proceedings.
  On April
12, 2010, we agreed to a final binding settlement of this matter with the U.S.
Government in an amount equal to $6.2 million.  Legal expense related
to this matter has been recognized as it has been incurred.  The
settlement will be recognized in our consolidated statement of income in April
2010.
 
 Automated Transactions LLC
Litigation
 On
November 20, 2009, an action entitled Automated
Transactions LLC v. Astoria Financial Corporation and Astoria Federal Savings
and Loan Association was commenced in the United States District Court
for the Southern District of New York against us by Automated Transactions LLC,
alleging patent infringement involving integrated banking and transaction
machines that we utilize.  We were served with the summons and
complaint in such action on March 2, 2010.  We understand that the
term “integrated banking and transaction machines” is intended to include
automated teller machines.  The plaintiff also filed a similar suit on
the same day against another financial institution and its holding
company.  The plaintiff seeks unspecified monetary damages and an
injunction preventing us from continuing to utilize the allegedly infringing
machines.  We are vigorously defending this lawsuit, and filed an
answer and counterclaims to the plaintiff’s complaint on March 23, 2010, to
which the plaintiff filed a reply on April 12, 2010.  We have also
tendered requests for indemnification from the manufacturer and from the
transaction processor utilized with respect to the accused products, and have
filed a third party complaint against the manufacturer and the processor for
indemnification and contribution.  An adverse result in this lawsuit
may include an award of monetary damages, on-going royalty obligations, and/or
may result in a change in our business practice, which could result in a loss of
revenue.  No assurance can be given at this time that this litigation
will be resolved amicably, that this litigation will not be costly to defend,
that this litigation will not have an impact on our financial condition or
results of operations or that, ultimately, any such impact will not be
material.
 
 12.
              Impact of Accounting Standards
      and Interpretations
 
 In
December 2009, the FASB issued ASU 2009-16, “Transfers and Servicing (Topic 860)
Accounting for Transfers of Financial Assets,” which amends the FASB ASC as a
result of Statement of Financial Accounting Standards, or SFAS, No. 166,
“Accounting for Transfers of Financial Assets,” issued by the FASB in June
2009.  This new accounting guidance eliminates the concept of a
qualifying special-purpose entity; changes the requirements for derecognizing
financial assets; and requires additional disclosures.  This guidance
enhances information reported to users of financial statements by providing
greater transparency about transfers of financial assets and an entity’s
continuing involvement in transferred financial assets.  Our adoption
of this guidance on January 1, 2010 did not have a material impact on our
financial condition or results of operations.
 
 In
December 2009, the FASB issued ASU 2009-17, “Consolidations (Topic 810)
Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities,” which amends the FASB ASC as a result of SFAS No. 167,
“Amendments to FASB Interpretation No. 46(R),” issued by the FASB in June
2009.  This new accounting guidance was issued to improve financial
reporting by companies involved with variable interest entities.  This
guidance amends
 
 20
  existing
guidance for determining whether an entity is a variable interest entity, amends
the criteria for identification of the primary beneficiary of a variable
interest entity by requiring a qualitative analysis rather than a quantitative
analysis and requires continuous reassessments of whether an enterprise is the
primary beneficiary of a variable interest entity.  Our adoption of
this guidance on January 1, 2010 did not have a material impact on our financial
condition or results of operations.
  ITEM 2.
              Management's
      Discussion and Analysis of Financial Condition and Results
      of  Operations
 
 This
Quarterly Report on Form 10-Q contains a number of forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, or
the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act.  These statements may be identified by
the use of the words “anticipate,” “believe,” “could,” “estimate,” “expect,”
“intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “should,”
“will,” “would” and similar terms and phrases, including references to
assumptions.
 
 Forward-looking
statements are based on various assumptions and analyses made by us in light of
our management’s experience and perception of historical trends, current
conditions and expected future developments, as well as other factors we believe
are appropriate under the circumstances.  These statements are not
guarantees of future performance and are subject to risks, uncertainties and
other factors (many of which are beyond our control) that could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements.  These factors include, without
limitation, the following:
 
 ·
              the
      timing and occurrence or non-occurrence of events may be subject to
      circumstances beyond our control;
 ·
              there
      may be increases in competitive pressure among financial institutions or
      from non-financial institutions;
 ·
              changes
      in the interest rate environment may reduce interest margins or affect the
      value of our investments;
 ·
              changes
      in deposit flows, loan demand or real estate values may adversely affect
      our business;
 ·
              changes
      in accounting principles, policies or guidelines may cause our financial
      condition to be perceived
differently;
 ·
              general
      economic conditions, either nationally or locally in some or all areas in
      which we do business, or conditions in the real estate or securities
      markets or the banking industry may be less favorable than we currently
      anticipate;
 ·
              legislative
      or regulatory changes may adversely affect our
  business;
 ·
              technological
      changes may be more difficult or expensive than we
    anticipate;
 ·
              success
      or consummation of new business initiatives may be more difficult or
      expensive than we anticipate; or
 ·
              litigation
      or other matters before regulatory agencies, whether currently existing or
      commencing in the future, may be determined adverse to us or may delay the
      occurrence or non-occurrence of events longer than we
      anticipate.
 
 We have
no obligation to update any forward-looking statements to reflect events or
circumstances after the date of this document.
  21




Executive
Summary
 
 The
following overview should be read in conjunction with our MD&A in its
entirety.
 
 Astoria
Financial Corporation is a Delaware corporation organized as the unitary savings
and loan association holding company of Astoria Federal.  Our primary
business is the operation of Astoria Federal.  Astoria Federal's
principal business is attracting retail deposits from the general public and
investing those deposits, together with funds generated from operations,
principal repayments on loans and securities and borrowings, primarily in
one-to-four family mortgage loans, multi-family mortgage loans, commercial real
estate loans and mortgage-backed securities.  Our results of
operations are dependent primarily on our net interest income, which is the
difference between the interest earned on our assets, primarily our loan and
securities portfolios, and the interest paid on our deposits and
borrowings.  Our earnings are also significantly affected by general
economic and competitive conditions, particularly changes in market interest
rates and U.S. Treasury yield curves, government policies and actions of
regulatory authorities.
 
 As the
premier Long Island community bank, our goals are to enhance shareholder value
while building a solid banking franchise.  We focus on growing our
core businesses of mortgage portfolio lending and retail banking while
maintaining strong asset quality and controlling operating
expenses.  We also provide returns to shareholders through dividends
and stock repurchases although we have suspended our stock repurchase program to
preserve capital and increase our capital ratios in the current economic
environment.
 
 During
the three months ended March 31, 2010, the national economy continued to show
signs of improvement as evidenced by, among other things, a decrease in the
unemployment rate from December 2009 and nominal job growth.  However,
weaknesses in the housing and real estate markets persist and unemployment
levels remain elevated with a national unemployment rate of 9.7% for March
2010.
 
 Total
assets decreased during the three months ended March 31, 2010, primarily due to
a decrease in our loan portfolio.  The decrease in our loan portfolio
was primarily due to decreases in each of our mortgage loan portfolios,
primarily multi-family and one-to-four family mortgage loans, resulting from
repayments which outpaced our origination and purchase
volume.  One-to-four family loan repayments remained at elevated
levels as interest rates on thirty year fixed rate mortgages remained at
historic lows and more loans in our portfolio qualified under the expanded loan
amount limits that conform to GSE guidelines, or the expanded conforming loan
limits, and were refinanced into fixed rate mortgages.  In response to
declining customer demand for adjustable rate products, we currently originate
and retain for portfolio jumbo fifteen year fixed rate mortgage
loans.  The securities portfolio decreased slightly as securities
repayments were substantially offset by securities purchases during the first
quarter.
 
 Total
deposits decreased during the three months ended March 31, 2010, 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 2010 first quarter, 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
appear to reflect customer preference for the liquidity these types of deposits
provide over the rates
  22
   
 Net
income increased for the three months ended March 31, 2010 compared to the three
months ended March 31, 2009.  This increase was primarily due to
increases in net interest income and non-interest income and a decrease in
provision for loan losses, partially offset by an increase in non-interest
expense.
 
 Net
interest income, the net interest margin and the net interest rate spread for
the three months ended March 31, 2010 increased compared to the three months
ended March 31, 2009, primarily due to the cost of interest-bearing liabilities
declining more rapidly than the yield on interest-earning
assets.  Interest expense for the three months ended March 31, 2010
decreased compared to the three months ended March 31, 2009, primarily due to a
decrease in the average cost of certificates of deposit and Liquid CDs, coupled
with decreases in the average balances of certificates of deposit, borrowings
and Liquid CDs.  Interest income for the three months ended March 31,
2010 decreased compared to the three months ended March 31, 2009, primarily due
to decreases in the average yields on one-to-four family mortgage loans and
mortgage-backed and other securities, coupled with decreases in the average
balances of mortgage-backed and other securities, multi-family, commercial real
estate and construction loans and one-to-four family mortgage
loans.
 
 The
allowance for loan losses and non-performing loans increased somewhat from
December 31, 2009 to March 31, 2010, however, there was a decrease in the
provision for loan losses for the three months ended March 31, 2010 compared to
the three months ended March 31, 2009 which is the first reduction in the level
of the provision in four quarters. The decrease reflects the beginning of a
stabilizing trend in overall credit quality, particularly the decrease in early
stage loan delinquencies, while recognizing continued challenges represented by
current economic conditions.  The increase in the allowance for loan
losses for the three months ended March 31, 2010 reflects the levels and
composition of our loan delinquencies, non-performing loans and net loan
charge-offs, as well as our evaluation of the continued weakness in the housing
and real estate markets and overall economy,
particularly the high unemployment rate.
 
 The
increase in non-interest income for the three months ended March 31, 2010
compared to the three months ended March 31, 2009 was primarily due to the OTTI
charge recorded in the 2009 first quarter and an increase in mortgage banking
income, net, partially offset by a gain on sales of securities recorded in the
2009 first quarter and a decrease in customer service fees.  The
increase in non-interest expense for the three months ended March 31, 2010
compared to the three months ended March 31, 2009 was primarily due to an
increase in Federal Deposit Insurance Corporation, or FDIC, insurance premiums
and an increase in compensation and benefits expense.
 
 While it
appears that a moderate economic recovery is underway, the housing market
remains weak and high unemployment persists, which may restrain the pace of the
recovery.  The long-term outlook for credit is improving which should
result in declining credit costs and improved financial performance during the
remainder of 2010.  Assuming the interest rate for thirty year fixed
rate conforming mortgage loans increases, we would anticipate that loan
prepayments should decline, which should result in mortgage loan portfolio
growth during the second half of
  23
    Available
Information
 
 Our
internet website address is www.astoriafederal.com.  Our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and all amendments to those reports can be obtained free of charge from our
Investor Relations website at http://ir.astoriafederal.com.  The above
reports are available on our website immediately after they are electronically
filed with or furnished to the SEC.  Such reports are also available
on the SEC’s website at www.sec.gov/edgar/searchedgar/webusers.htm.
 
 Critical
Accounting Policies
 
 Note 1 of
Notes to Consolidated Financial Statements in Item 8, “Financial Statements and
Supplementary Data,” of our 2009 Annual Report on Form 10-K, as supplemented by
this report, contains a summary of our significant accounting
policies.  Various elements of our accounting policies, by their
nature, are inherently subject to estimation techniques, valuation assumptions
and other subjective assessments.  Our policies with respect to the
methodologies used to determine the allowance for loan losses, the valuation of
MSR and judgments regarding goodwill and securities impairment are our most
critical accounting policies because they are important to the presentation of
our financial condition and results of operations, involve a higher degree of
complexity and require management to make difficult and subjective judgments
which often require assumptions or estimates about highly uncertain
matters.  The use of different judgments, assumptions and estimates
could result in material differences in our results of operations or financial
condition.  These critical accounting policies are reviewed quarterly
with the Audit Committee of our Board of Directors.  The following
description of these policies should be read in conjunction with the
corresponding section of our 2009 Annual Report on Form 10-K.
 
 Allowance for Loan
Losses
 
 Our
allowance for loan losses is established and maintained through a provision for
loan losses based on our evaluation of the probable inherent losses in our loan
portfolio.  We evaluate the adequacy of our allowance on a quarterly
basis.  The allowance is comprised of both specific valuation
allowances and general valuation allowances.
 
 Specific
valuation allowances are established in connection with individual loan reviews
and the asset classification process, including the procedures for impairment
recognition under GAAP.  Such evaluation, which includes a review of
loans on which full collectibility is not reasonably assured, considers the
current estimated fair value of the underlying collateral, if any, current and
anticipated economic and regulatory conditions, current and historical loss
experience of similar loans and other factors that determine risk exposure to
arrive at an adequate loan loss allowance.
 
 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 in excess of $2.0 million, commercial business loans in excess of
$200,000, one-to-four family mortgage loans in excess of $1.0 million and
troubled debt restructurings.  In addition, we generally review
annually borrowing relationships whose combined outstanding balance exceeds $2.0
million.
 
 24
  Approximately
fifty percent of the outstanding principal balance of these loans to a single
borrowing entity will be reviewed annually.
 
 The
primary considerations in establishing specific valuation allowances are the
current estimated value of a loan’s underlying collateral and the loan’s payment
history.  We update our estimates of collateral value for
non-performing multi-family, commercial real estate and construction mortgage
loans in excess of $1.0 million and one-to-four family mortgage loans which are
180 days or more delinquent, annually, and certain other loans when the Asset
Classification Committee believes repayment of such loans may be dependent on
the value of the underlying collateral.  For one-to-four family
mortgage loans, updated estimates of collateral value are obtained primarily
through automated valuation models.  For multi-family and commercial
real estate properties, we estimate collateral value through appraisals or
internal cash flow analyses when current financial information is available,
coupled with, in most cases, an inspection of the property.  Other
current and anticipated economic conditions on which our specific valuation
allowances rely are the impact that national and/or local economic and business
conditions may have on borrowers, the impact that local real estate markets may
have on collateral values, the level and direction of interest rates and their
combined effect on real estate values and the ability of borrowers to service
debt.  For multi-family and commercial real estate loans, additional
factors specific to a borrower or the underlying collateral are
considered.  These factors include, but are not limited to, the
composition of tenancy, occupancy levels for the property, location of the
property, cash flow estimates and, to a lesser degree, the existence of personal
guarantees.  We also review all regulatory notices, bulletins and
memoranda with the purpose of identifying upcoming changes in regulatory
conditions which may impact our calculation of specific valuation
allowances.  The OTS periodically reviews our reserve methodology
during regulatory examinations and any comments regarding changes to reserves or
loan classifications are considered by management in determining valuation
allowances.
 
 Pursuant
to our policy, loan losses are charged-off in the period the loans, or portions
thereof, are deemed uncollectible, or, in the case of one-to-four family
mortgage loans, at 180 days past due for the portion of the recorded investment
in the loan in excess of the estimated fair value of the underlying collateral
less estimated selling costs.  The determination of the loans on which
full collectibility is not reasonably assured, the estimates of the fair value
of the underlying collateral and the assessment of economic and regulatory
conditions are subject to assumptions and judgments by
management.  Specific valuation allowances and charge-off amounts
could differ materially as a result of changes in these assumptions and
judgments.
 
 General
valuation allowances represent loss allowances that have been established to
recognize the inherent risks associated with our lending activities, which,
unlike specific allowances, have not been allocated to particular
loans.  The determination of the adequacy of the general valuation
allowances takes into consideration a variety of factors.  We segment
our one-to-four family mortgage loan portfolio by interest-only and amortizing
loans, full documentation and reduced documentation loans and year of
origination and analyze our historical loss experience and delinquency levels
and trends of these segments.  The resulting range of allowance
percentages is used as an integral part of our judgment in developing estimated
loss percentages to apply to the portfolio segments.  We segment our
consumer and other loan portfolio by home equity lines of credit, business
loans, revolving credit lines and installment loans and perform similar
historical loss analyses.  We monitor credit risk on interest-only
hybrid adjustable rate mortgage, or ARM, loans that were underwritten at the
initial note rate, which may have been a discounted rate, in the same manner
that we monitor credit risk on all interest-only hybrid ARM
 
 25
  loans.  We
monitor interest rate reset dates of our portfolio, in the aggregate, and the
current interest rate environment and consider the impact, if any, on borrowers’
ability to continue to make timely principal and interest payments in
determining our allowance for loan losses.  We also consider the size,
composition, risk profile, delinquency levels and cure rates of our portfolio,
as well as our credit administration and asset management
procedures.  We monitor property value trends in our market areas by
reference to various industry and market reports, economic releases and surveys,
and our general and specific knowledge of the real estate markets in which we
lend, in order to determine what impact, if any, such trends may have on the
level of our general valuation allowances.  In determining our
allowance coverage percentages for non-performing loans, we consider our
historical loss experience with respect to the ultimate disposition of the
underlying collateral.  In addition, we evaluate and consider the
impact that current and anticipated economic and market conditions may have on
the portfolio and known and inherent risks in the portfolio.
 
 We use
ratio analyses as a supplemental tool for evaluating the overall reasonableness
of the allowance for loan losses.  As such, we evaluate and consider
our asset quality ratios as well as the allowance ratios and coverage
percentages set forth in both peer group and regulatory agency
data.  We also consider any comments from the OTS resulting from their
review of our general valuation allowance methodology during regulatory
examinations.  We consider the observed trends in our asset quality
ratios in combination with our primary focus on our historical loss experience
and the impact of current economic conditions.  After evaluating these
variables, we determine appropriate allowance coverage percentages for each of
our portfolio segments and the appropriate level of our allowance for loan
losses.  We do not determine the appropriate level of our allowance
for loan losses based exclusively on a single factor or asset quality
ratio.  Our evaluation of general valuation allowances is inherently
subjective because, even though it is based on objective data, it is
management’s interpretation of that data that determines the amount of the
appropriate allowance.  Therefore, we periodically review the actual
performance and charge-off history of our portfolio and compare that to our
previously determined allowance coverage percentages and specific valuation
allowances.  In doing so, we evaluate the impact the previously
mentioned variables may have had on the portfolio to determine which changes, if
any, should be made to our assumptions and analyses.
 
 As a
result of our updated charge-off and loss analyses, we modified certain
allowance coverage percentages during the 2010 first quarter 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 continued weakness in the housing and real estate markets
and overall economy, in particular, the continued high unemployment rate and the
levels and composition of our loan delinquencies, non-performing loans and net
loan charge-offs, we determined that an allowance for loan losses of $210.7
million was required at March 31, 2010, compared to $194.0 million at December
31, 2009, resulting in a provision for loan losses of $45.0 million for the
three months ended March 31, 2010.  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.
 
 Actual
results could differ from our estimates as a result of changes in economic or
market conditions.  Changes in estimates could result in a material
change in the allowance for loan losses.  While we believe that the
allowance for loan losses has been established and maintained at levels that
reflect the risks inherent in our loan portfolio, future adjustments may be
necessary
 
 26
   
 For
additional information regarding our allowance for loan losses, see “Provision
for Loan Losses” and “Asset Quality” in this document and Part II, Item 7,
“MD&A,” in our 2009 Annual Report on Form 10-K.
 
 Valuation of
MSR
 
 The
initial asset recognized for originated MSR is measured at fair
value.  The fair value of MSR is estimated by reference to current
market values of similar loans sold servicing released.  MSR are
amortized in proportion to and over the period of estimated net servicing
income.  We apply the amortization method for measurement of our
MSR.  MSR are assessed for impairment based on fair value at each
reporting date.  Impairment exists if the carrying value of MSR
exceeds the estimated fair value. The estimated fair value of MSR is obtained
through independent third party valuations.  MSR impairment, if any,
is recognized in a valuation allowance through charges to
earnings.  Increases in the fair value of impaired MSR are recognized
only up to the amount of the previously recognized valuation
allowance.
 
 At March
31, 2010, our MSR, net, had an estimated fair value of $9.3 million and were
valued based on expected future cash flows considering a weighted average
discount rate of 10.99%, a weighted average constant prepayment rate on
mortgages of 20.42% and a weighted average life of 3.8 years.  At
December 31, 2009, our MSR, net, had an estimated fair value of $8.9 million and
were valued based on expected future cash flows considering a weighted average
discount rate of 11.02%, a weighted average constant prepayment rate on
mortgages of 20.85% and a weighted average life of 3.8 years.
 
 The fair
value of MSR is highly sensitive to changes in assumptions.  Changes
in prepayment speed assumptions generally have the most significant impact on
the fair value of our MSR.  Generally, as interest rates decline,
mortgage loan prepayments accelerate due to increased refinance activity, which
results in a decrease in the fair value of MSR.  As interest rates
rise, mortgage loan prepayments slow down, which results in an increase in the
fair value of MSR.  Thus, any measurement of the fair value of our MSR
is limited by the conditions existing and the assumptions utilized as of a
particular point in time, and those assumptions may not be appropriate if they
are applied at a different point in time.  Assuming an increase in
interest rates of 100 basis points at March 31, 2010, the estimated fair value
of our MSR would have been $3.2 million greater.  Assuming a decrease
in interest rates of 100 basis points at March 31, 2010, the estimated fair
value of our MSR would have been $2.9 million lower.
 
 Goodwill
Impairment
 
 Goodwill
is presumed to have an indefinite useful life and is tested, at least annually,
for impairment at the reporting unit level. Impairment exists when the carrying
amount of goodwill exceeds its implied fair value.  For purposes of
our goodwill impairment testing, we have identified a single reporting
unit.  We consider the quoted market price of our common stock on our
impairment testing date as an initial indicator of estimating the fair value of
our reporting unit.  In addition, we consider our average stock price,
both before and after our impairment test date, as well as market-based control
premiums in determining the estimated fair value of our reporting
unit.  If the estimated fair value of our reporting unit exceeds its
carrying amount,
 
 27
   
 At March
31, 2010, the carrying amount of our goodwill totaled $185.2
million.  On September 30, 2009, we performed our annual goodwill
impairment test and determined the estimated fair value of our reporting unit to
be in excess of its carrying amount.  Accordingly, as of our annual
impairment test date, there was no indication of goodwill
impairment.  We would test our goodwill for impairment between annual
tests if an event occurs or circumstances change that would more likely than not
reduce the fair value of our reporting unit below its carrying
amount.  No events have occurred and no circumstances have changed
since our annual impairment test date that would more likely than not reduce the
fair value of our reporting unit below its carrying amount.  The
identification of additional reporting units or the use of other valuation
techniques could result in materially different evaluations of
impairment.
 
 Securities
Impairment
 
 Our
available-for-sale securities portfolio is carried at estimated fair value with
any unrealized gains and losses, net of taxes, reported as accumulated other
comprehensive income/loss in stockholders’ equity.  Debt securities
which we have the positive intent and ability to hold to maturity are classified
as held-to-maturity and are carried at amortized cost.  The fair values for
our securities are obtained from an independent nationally recognized pricing
service.
 
 Our
investment portfolio is comprised primarily of fixed rate mortgage-backed
securities guaranteed by a GSE as issuer.  GSE issuance
mortgage-backed securities comprised 89% of our securities portfolio at March
31, 2010.  Non-GSE issuance mortgage-backed securities at March 31,
2010 comprised 3% of our securities portfolio and had an amortized cost of $97.5
million, 27% of which are classified as available-for-sale and 73% of which are
classified as held-to-maturity.  Substantially all of our non-GSE
issuance securities have a AAA credit rating and they have performed similarly
to our GSE issuance securities.  Credit quality concerns have not
significantly impacted the performance of our non-GSE securities or our ability
to obtain reliable prices.
 
 The fair
value of our investment portfolio is primarily impacted by changesin 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 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 March 31, 2010, we had 43 securities with an estimated fair
value totaling $135.2 million which had an unrealized loss totaling $2.9
million.  Of the securities in an unrealized loss position at March
31, 2010, $88.1 million, with an unrealized loss of $2.2 million, have been in a
continuous unrealized loss position for more than twelve months.  At
March 31, 2010, the
 
 28
  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.
 
 There
were no OTTI charges during the three months ended March 31,
2010.  During the three months ended March 31, 2009, we recorded a
$5.3 million OTTI charge to write-off the remaining cost basis of our investment
in two issues of Freddie Mac perpetual preferred securities.  For
additional information regarding securities impairment and the OTTI charge, see
Note 2 of Notes to Consolidated Financial Statements in Item 1, “Financial
Statements (Unaudited).”
 
 Liquidity
and Capital Resources
 
 Our
primary source of funds is cash provided by principal and interest payments on
loans and securities.  The most significant liquidity challenge we
face is the variability in cash flows as a result of changes in mortgage
refinance activity.  Principal payments on loans and securities
totaled $1.25 billion for the three months ended March 31, 2010 and $955.1
million for the three months ended March 31, 2009.  The increase in
loan and securities repayments for the three months ended March 31, 2010,
compared to the three months ended March 31, 2009, was primarily due to an
increase in loan repayments which reflects the continued historic low interest
rates for thirty year fixed rate mortgages, coupled with the expanded conforming
loan limits.
 
 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.  Net cash provided by operating
activities totaled $112.4 million during the three months ended March 31, 2010
and $85.9 million during the three months ended March 31,
2009.  Deposits decreased $127.4 million during the three months ended
March 31, 2010 and increased $149.3 million during the three months ended March
31, 2009.  The net decrease in deposits for the three months ended
March 31, 2010 was 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 2010 first quarter, 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 2010 first quarter appear to reflect
customer preference for the liquidity these types of deposits provide over the
rates currently offered for long term certificates of deposit.  The
net increase in deposits for the three months ended March 31, 2009 was due to
increases in all deposit accounts, except Liquid CDs which decreased slightly,
and reflects the diminished intense competition for core community deposits,
from that which we experienced during 2008.
 
 Net
borrowings decreased $115.9 million during the three months ended March 31, 2010
and decreased $827.9 million during the three months ended March 31,
2009.  The decrease in net borrowings for the three months ended March
31, 2010 was primarily due to cash flows from mortgage loan repayments in excess
of mortgage loan originations and purchases which enabled us to repay a portion
of our matured borrowings.  The decrease in net borrowings during the
three months ended March 31, 2009 was primarily the result of deposit growth and
cash flows
 
 29
  from
mortgage loan and securities repayments exceeding mortgage loan originations and
purchases which enabled us to repay a portion of our matured borrowings.
 
 Our
primary use of funds is for the origination and purchase of mortgage
loans.  Gross mortgage loans originated and purchased for portfolio
during the three months ended March 31, 2010 totaled $838.9 million, of which
$699.6 million were originations and $139.3 million were purchases, all of which
were one-to-four family mortgage loans.  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 mortgages and the
expanded conforming loan limits resulting in more borrowers opting for thirty
year fixed rate mortgages which we do not retain for portfolio.  This
compares to gross mortgage loans originated and purchased for portfolio during
the three months ended March 31, 2009 totaling $391.9 million, of which $342.9
million were originations and $49.0 million were purchases, substantially all of
which were one-to-four family mortgage loans.  Our 2009 first quarter
one-to-four family mortgage loan origination and purchase volume was negatively
affected by significant fallout from our mortgage loan application
pipeline.  We also originated loans held-for-sale totaling $60.8
million during the three months ended March 31, 2010 and $80.8 million during
the three months ended March 31, 2009.  During the three months ended
March 31, 2010, we purchased securities to offset the cash flows from securities
repayments.  Purchases of securities totaled $308.7 million during the
three months ended March 31, 2010.  There were no purchases of
securities during the three months ended March 31, 2009.
 
 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 $109.2 million at March 31, 2010, compared to $111.6
million at December 31, 2009.  At March 31, 2010, we had $1.64 billion
in borrowings with a weighted average rate of 3.25% maturing over the next
twelve months.  We have the flexibility to either repay or rollover
these borrowings as they mature.  In addition, we had $5.61 billion in
certificates of deposit and Liquid CDs at March 31, 2010 with a weighted average
rate of 1.83% 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.
  30
 
 The
following table details borrowing, certificate of deposit and Liquid CD
maturities and their weighted average rates at March 31, 2010.
 
 Certificates of DepositBorrowings
                                                                                  
                                                                                  
                                                                                  and Liquid CDsWeighted
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  WeightedAverage
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  Average(Dollars in Millions)
                                                                                  
                                                                                  Amount
                                                                                  
                                                                                  
                                                                                  
                                                                                  Rate
                                                                                  
                                                                                  
                                                                                  Amount
                                                                                  
                                                                                  
                                                                                  
                                                                                  RateContractual
      Maturity:Twelve
      months or less
                                                                                  
                                                                                  $
                                                                                  1,640
                                                                                  
                                                                                  
                                                                                  
                                                                                  3.25
                                                                                  %
                                                                                  
                                                                                  $
                                                                                  5,605
                                                                                  
                                                                                  (1)
                                                                                  
                                                                                  1.83
                                                                                  %Thirteen
      to thirty-six months
                                                                                  
                                                                                  
                                                                                  1,944
                                                                                  
                                                                                  (2)
                                                                                  
                                                                                  4.23
                                                                                  
                                                                                  
                                                                                  
                                                                                  2,343
                                                                                  
                                                                                  
                                                                                  
                                                                                  3.11Thirty-seven
      to sixty months
                                                                                  
                                                                                  
                                                                                  200
                                                                                  
                                                                                  (3)
                                                                                  
                                                                                  3.27
                                                                                  
                                                                                  
                                                                                  
                                                                                  641
                                                                                  
                                                                                  
                                                                                  
                                                                                  3.36Over sixty months
                                                                                  
                                                                                  
                                                                                  1,979
                                                                                  
                                                                                  (4)
                                                                                  
                                                                                  4.70
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -Total
                                                                                  
                                                                                  $
                                                                                  5,763
                                                                                  
                                                                                  
                                                                                  
                                                                                  4.08
                                                                                  %
                                                                                  
                                                                                  $
                                                                                  8,589
                                                                                  
                                                                                  
                                                                                  
                                                                                  2.29
                                                                                  %
 
 (1)
              Includes
      $644.8 million of Liquid CDs with a weighted average rate of 0.50% and
      $4.96 billion of certificates of deposit with a weighted average rate of
      2.00%.
 (2)
              Includes
      $975.0 million of borrowings, with a weighted average rate of 4.45%, which
      are callable by the counterparty within the next twelve months and at
      various times thereafter.
 (3)
              Includes
      $100.0 million of borrowings, with a rate of 4.16%, which are callable by
      the counterparty within the next twelve months and at various times
      thereafter.
 (4)
              Includes
      $1.85 billion of borrowings, with a weighted average rate of 4.35%, which
      are callable by the counterparty within the next twelve months and at
      various times thereafter.
 
 Additional
sources of liquidity at the holding company level have included issuances of
securities into the capital markets, including private issuances of trust
preferred securities and senior debt.  Holding company debt obligations
are included in other borrowings.  Our ability to continue to access
the capital markets for additional financing at favorable terms may be limited
by, among other things, market conditions, interest rates, our capital levels,
Astoria Federal’s ability to pay dividends to Astoria Financial Corporation, our
credit profile and ratings and our business model.
 
 Astoria
Financial Corporation’s primary uses of funds include payment of dividends,
payment of interest on its debt obligations and repurchases of common
stock.  On March 1, 2010, we paid a quarterly cash dividend of $0.13
per share on shares of our common stock outstanding as of the close of business
on February 16, 2010 totaling $12.2 million.  On April 21, 2010, we
declared a quarterly cash dividend of $0.13 per share on shares of our common
stock payable on June 1, 2010 to stockholders of record as of the close of
business on May 17, 2010.  As of March 31, 2010, we are not currently
repurchasing additional shares of our common stock and have not since the 2008
third quarter.  Our twelfth stock repurchase plan, approved by our
Board of Directors on April 18, 2007, authorized the purchase of 10,000,000
shares, or approximately 10% of our common stock then outstanding, in
open-market or privately negotiated transactions.  At March 31, 2010,
a maximum of 8,107,300 shares may yet be purchased under this
plan.
 
 Our
ability to pay dividends, service our debt obligations and repurchase common
stock is dependent primarily upon receipt of capital distributions from Astoria
Federal.  Since Astoria Federal is a federally chartered savings
association, there are limits on its ability to make distributions to Astoria
Financial Corporation.  During the three months ended March 31, 2010,
Astoria Federal paid dividends to Astoria Financial Corporation totaling $25.9
million.
 
 See
“Financial Condition” for further discussion of the changes in stockholders’
equity.
  31
 
 At March
31, 2010, Astoria Federal’s capital levels exceeded all of its regulatory
capital requirements with a tangible capital ratio of 6.94%, leverage capital
ratio of 6.94% and total risk-based capital ratio of 13.11%.  The
minimum regulatory requirements are a tangible capital ratio of 1.50%, leverage
capital ratio of 4.00% and total risk-based capital ratio of
8.00%.  Astoria Federal’s Tier 1 risk-based capital ratio was 11.84%
at March 31, 2010.  As of March 31, 2010, Astoria Federal continues to
be a well capitalized institution for all bank regulatory purposes.
 
 Off-Balance
Sheet Arrangements and Contractual Obligations
 
 We are a
party to financial instruments with off-balance sheet risk in the normal course
of our business in order to meet the financing needs of our customers and in
connection with our overall interest rate risk management
strategy.  These instruments involve, to varying degrees, elements of
credit, interest rate and liquidity risk.  In accordance with GAAP,
these instruments are either not recorded in the consolidated financial
statements or are recorded in amounts that differ from the notional
amounts.  Such instruments primarily include lending commitments and
lease commitments.
 
 Lending
commitments include commitments to originate and purchase loans and commitments
to fund unused lines of credit.  Additionally, in connection with our
mortgage banking activities, we have commitments to fund loans held-for-sale and
commitments to sell loans which are considered derivative
instruments.  Commitments to sell loans totaled $38.9 million at March
31, 2010.  The fair values of our mortgage banking derivative
instruments are immaterial to our financial condition and results of
operations.  We also have contractual obligations related to operating
lease commitments which have not changed significantly from December 31,
2009.
 
 The
following table details our contractual obligations at March 31,
2010.
 
 Payments due by periodLess than
                              
                              
                              One to
                              
                              
                              Three to
                              
                              
                              More than(In Thousands)
                              
                              Total
                              
                              
                              One Year
                              
                              
                              Three Years
                              
                              
                              Five Years
                              
                              
                              Five YearsContractual
      Obligations:Borrowings
      with original terms greater than three months
                              
                              $
                              5,688,866
                              
                              
                              $
                              1,566,000
                              
                              
                              $
                              1,944,000
                              
                              
                              $
                              200,000
                              
                              
                              $
                              1,978,866Commitments
      to originate and purchase loans (1)
                              
                              
                              432,324
                              
                              
                              
                              432,324
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Commitments to fund unused lines of credit
      (2)
                              
                              
                              304,031
                              
                              
                              
                              304,031
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Total
                              
                              $
                              6,425,221
                              
                              
                              $
                              2,302,355
                              
                              
                              $
                              1,944,000
                              
                              
                              $
                              200,000
                              
                              
                              $
                              1,978,866
 
 (1)
              Commitments
      to originate and purchase loans include commitments to originate loans
      held-for-sale of $32.8 million.
 (2)
              Unused
      lines of credit relate primarily to home equity lines of
      credit.
 
 In
addition to the contractual obligations previously discussed, we have
liabilities for gross unrecognized tax benefits and interest and penalties
related to uncertain tax positions.  For further information regarding
these liabilities, see Note 5 of Notes to Consolidated Financial Statements in
Item 1, “Financial Statements (Unaudited).”  We also have contingent
liabilities related to assets sold with recourse and standby letters of credit
which have not changed significantly from December 31, 2009.
 
 For
further information regarding our off-balance sheet arrangements and contractual
obligations, see Part II, Item 7, “MD&A,” in our 2009 Annual Report on Form
10-K.
  32
  Comparison
of Financial Condition as of March 31, 2010 and December 31, 2009 and Operating
Results for the Three Months Ended March 31, 2010 and 2009
 
 Financial
Condition
 
 Total
assets decreased $191.1 million to $20.06 billion at March 31, 2010, from $20.25
billion at December 31, 2009.  The decrease in total assets primarily
reflects a decrease in loans receivable.
 
 Loans
receivable, net, decreased $159.6 million to $15.43 billion at March 31, 2010,
from $15.59 billion at December 31, 2009.  This decrease was primarily
due to a decrease in our mortgage loan portfolio resulting from elevated levels
of repayments which outpaced our origination and purchase volume during the
three months ended March 31, 2010, coupled with an increase of $16.7 million in
the allowance for loan losses to $210.7 million at March 31, 2010, from $194.0
million at December 31, 2009.  For additional information on the
allowance for loan losses, see “Provision for Loan Losses” and “Asset
Quality.”
 
 Mortgage
loans, net, decreased $139.0 million to $15.31 billion at March 31, 2010, from
$15.45 billion at December 31, 2009.  This decrease was due to
decreases in each of our mortgage loan portfolios, primarily multi-family and
one-to-four family mortgage loans.  Mortgage loan repayments increased
to $912.2 million for the three months ended March 31, 2010, from $636.4 million
for the three months ended March 31, 2009.  Gross mortgage loans
originated and purchased for portfolio during the three months ended March 31,
2010 totaled $838.9 million, of which $699.6 million were originations and
$139.3 million were purchases, all of which were one-to-four family mortgage
loans.  This compares to gross mortgage loans originated and purchased
for portfolio totaling $917.7 million during the three months ended December 31,
2009, of which $800.9 million were originations and $116.8 million were
purchases, and $391.9 million during the three months ended March 31, 2009, of
which $342.9 million were originations and $49.0 million were purchases,
substantially all of which were one-to-four family mortgage loans.  In
addition, we originated loans held-for-sale totaling $60.8 million during the
three months ended March 31, 2010, compared to $79.0 million during the three
months ended December 31, 2009 and $80.8 million during the three months ended
March 31, 2009.
 
 Our
mortgage loan portfolio, as well as our originations and purchases, continue to
consist primarily of one-to-four family mortgage loans.  Our
one-to-four family mortgage loan portfolio decreased $48.8 million to $11.85
billion at March 31, 2010, from $11.90 billion at December 31, 2009, and
represented 76.3% of our total loan portfolio at March 31, 2010.  The
decrease was primarily the result of the levels of repayments which outpaced our
originations and purchases during the three months ended March 31,
2010.  One-to-four family mortgage loan origination and purchase
volume for portfolio has been negatively affected by the historic low interest
rates for thirty year fixed rate mortgages and the expanded conforming loan
limits resulting in more borrowers opting for thirty year fixed rate mortgages
which we do not retain for portfolio.  During the three months ended
March 31, 2010, the loan-to-value ratio of our one-to-four family mortgage loan
originations and purchases for portfolio, at the time of origination or
purchase, averaged approximately 62% and the loan amount averaged approximately
$720,000.
 
 Our
multi-family mortgage loan portfolio decreased $69.0 million to $2.49 billion at
March 31, 2010, from $2.56 billion at December 31, 2009.  Our
commercial real estate loan portfolio decreased $15.7 million to $851.1 million
at March 31, 2010, from $866.8 million at December
 
 33
   
 Securities
decreased slightly to $3.17 billion at March 31, 2010, from $3.18 billion at
December 31, 2009.  This decrease was primarily the result of
principal payments received of $317.9 million,substantially offset by
purchases of $308.7 million.  For additional information regarding our
securities portfolio, see Note 2 of Notes to Consolidated Financial Statements
in Item 1, “Financial Statements (Unaudited).” At March 31, 2010, our securities
portfolio was comprised primarily of fixed rate REMIC and CMO
securities.  The amortized cost of our fixed rate REMICs and CMOs
totaled $2.85 billion at March 31, 2010 and had a weighted average current
coupon of 4.13%, a weighted average collateral coupon of 5.60% and a weighted
average life of 2.1 years.
 
 Deposits
decreased $127.4 million to $12.68 billion at March 31, 2010, from $12.81
billion at December 31, 2009, 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.  Certificates of deposit decreased
$141.3 million since December 31, 2009 to $7.94 billion at March 31,
2010.  Liquid CDs decreased $66.7 million since December 31, 2009 to
$644.8 million at March 31, 2010.  Savings accounts increased $68.7
million since December 31, 2009 to $2.11 billion at March 31,
2010.  NOW and demand deposit accounts increased $7.5 million since
December 31, 2009 to $1.65 billion at March 31, 2010.  Money market
accounts increased $4.5 million since December 31, 2009 to $331.4 million at
March 31, 2010.  During the 2010 first quarter, 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 2010 first quarter appear to reflect
customer preference for the liquidity these types of deposits provide over the
rates currently offered on long term certificates of deposit.
 
 Total
borrowings, net, decreased $115.9 million to $5.76 billion at March 31, 2010,
from $5.88 billion at December 31, 2009.  The decrease in total
borrowings was primarily due to cash flows from mortgage loan repayments in
excess of mortgage loan originations and purchases which enabled us to repay a
portion of our matured borrowings during the 2010 first quarter.
 
 Stockholders’
equity increased $7.9 million to $1.22 billion at March 31, 2010, from $1.21
billion at December 31, 2009.  The increase in stockholders’ equity
was due to net income of $12.9 million, stock-based compensation and the
allocation of shares held by the employee stock ownership plan, or ESOP, of $4.8
million and a decrease in accumulated other comprehensive loss of $2.2
million.  These increases were partially offset by dividends declared
of $12.2 million.
  34
 
 Results
of Operations
 
 General
 
 Net
income for the three months ended March 31, 2010 increased $4.1 million to $12.9
million, from $8.8 million for the three months ended March 31,
2009.  Diluted earnings per common share increased to $0.14 per share
for the three months ended March 31, 2010, from $0.10 per share for the three
months ended March 31, 2009.  Return on average assets increased to
0.26% for the three months ended March 31, 2010, from 0.16% for the three months
ended March 31, 2009, primarily due to the increase in net income, coupled with
a decrease in average assets.  Return on average stockholders’ equity
increased to 4.27% for the three months ended March 31, 2010, from 2.96% for the
three months ended March 31, 2009.  Return on average tangible
stockholders’ equity increased to 5.04% for the three months ended March 31,
2010, from 3.50% for the three months ended March 31, 2009.  The
increases in the returns on average stockholders’ equity and average tangible
stockholders’ equity for the three months ended March 31, 2010, compared to the
three months ended March 31, 2009, were primarily due to the increase in net
income.
 
 Our
results of operations for the three months ended March 31, 2009 include a $5.3
million, before-tax ($3.4 million, after-tax), OTTI charge to write-off the
remaining cost basis of our investment in two issues of Freddie Mac perpetual
preferred securities.  This charge reduced diluted earnings per common
share by $0.04 per share for the three months ended March 31,
2009.  This charge also reduced our return on average assets by 7
basis points, return on average stockholders’ equity by 115 basis points and
return on average tangible stockholders’ equity by 137 basis
points.  For further discussion of the OTTI charge, see Note 2 of
“Notes to Consolidated Financial Statements” in Item 1, “Financial Statements
(Unaudited).”
 
 Net Interest
Income
 
 Net
interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
primarily upon the volume of interest-earning assets and interest-bearing
liabilities and the corresponding interest rates earned or paid. Our net
interest income is significantly impacted by changes in interest rates and
market yield curves and their related impact on cash flows.  See Item
3, “Quantitative and Qualitative Disclosures About Market Risk,” for further
discussion of the potential impact of changes in interest rates on our results
of operations.
 
 For the
three months ended March 31, 2010, net interest income increased $2.7 million to
$114.4 million, from $111.7 million for the three months ended March 31,
2009.  The net interest margin increased to 2.39% for the three months
ended March 31, 2010, from 2.16% for the three months ended March 31,
2009.  The net interest rate spread increased to 2.32% for the three
months ended March 31, 2010, from 2.07% for the three months ended March 31,
2009.  The average balance of net interest-earning assets decreased
$10.8 million to $550.7 million for the three months ended March 31, 2010, from
$561.5 million for the three months ended March 31, 2009.
 
 The
increases in net interest income, the net interest margin and the net interest
rate spread for the three months ended March 31, 2010, compared to the three
months ended March 31, 2009, were primarily due to the costs of our
interest-bearing liabilities declining more rapidly than the
 
 35
   
 The
changes in average interest-earning assets and interest-bearing liabilities and
their related yields and costs are discussed in greater detail under “Interest
Income” and “Interest Expense.”
 
 Analysis of Net Interest
Income
 
 The
following table sets forth certain information about the average balances of our
assets and liabilities and their related yields and costs for the three months
ended March 31, 2010 and 2009.  Average yields are derived by dividing
income by the average balance of the related assets and average costs are
derived by dividing expense by the average balance of the related liabilities,
for the periods shown.  Average balances are derived from average
daily balances.  The yields and costs include amortization of fees,
costs, premiums and discounts which are considered adjustments to interest
rates.
  36
 
 For the Three Months Ended March 31,2010
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            2009(Dollars in Thousands)
                                                                                                                                            
                                                                                                                                            Average
                                                                                                                                              Balance
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            Interest
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            Average
                                                                                                                                              Yield/
                                                                                                                                              Cost
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            Average
                                                                                                                                              Balance
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            Interest
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            Average
                                                                                                                                              Yield/
                                                                                                                                              Cost(Annualized)
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            (Annualized)Assets:Interest-earning
      assets:Mortgage
      loans (1):One-to-four
      family
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            12,003,619
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            140,954
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            4.70
                                                                                                                                            %
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            12,373,027
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            162,940
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            5.27
                                                                                                                                            %Multi-family,
      commercial real estate and construction
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            3,426,708
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            51,125
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            5.97
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            3,862,820
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            56,614
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            5.86Consumer
      and other loans (1)
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            332,355
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            2,651
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            3.19
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            340,389
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            2,678
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            3.15Total
      loans
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            15,762,682
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            194,730
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            4.94
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            16,576,236
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            222,232
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            5.36Mortgage-backed
      and other securities (2)
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            3,139,875
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            31,347
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            3.99
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            3,884,464
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            43,104
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            4.44Repurchase
      agreements and interest-earning cash accounts
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            81,361
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            15
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            0.07
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            29,451
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            16
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            0.22FHLB-NY
      stock
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            183,279
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            2,496
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            5.45
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            193,887
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            1,686
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            3.48Total
      interest-earning assets
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            19,167,197
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            228,588
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            4.77
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            20,684,038
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            267,038
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            5.16Goodwill
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            185,151
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            185,151Other
      non-interest-earning assets
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            897,307
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            853,628Total
      assets
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            20,249,655
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            21,722,817Liabilities
      and stockholders’ equity:Interest-bearing
      liabilities:Savings
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            2,069,767
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            2,065
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            0.40
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            1,849,591
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            1,847
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            0.40Money
      market
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            328,994
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            358
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            0.44
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            294,873
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            679
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            0.92NOW
      and demand deposit
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            1,615,957
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            257
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            0.06
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            1,468,953
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            278
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            0.08Liquid
      CDs
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            672,635
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            823
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            0.49
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            979,723
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            4,977
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            2.03Total
      core deposits
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            4,687,353
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            3,503
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            0.30
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            4,593,140
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            7,781
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            0.68Certificates
      of deposit
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            7,986,739
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            50,039
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            2.51
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            8,999,236
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            82,979
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            3.69Total
      deposits
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            12,674,092
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            53,542
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            1.69
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            13,592,376
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            90,760
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            2.67Borrowings
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            5,942,452
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            60,694
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            4.09
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            6,530,207
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            64,601
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            3.96Total
      interest-bearing liabilities
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            18,616,544
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            114,236
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            2.45
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            20,122,583
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            155,361
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            3.09Non-interest-bearing
      liabilities
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            422,655
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            410,152Total
      liabilities
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            19,039,199
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            20,532,735Stockholders’
      equity
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            1,210,456
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            1,190,082Total
      liabilities and stockholders’ equity
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            20,249,655
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            21,722,817Net
      interest income/net interest rate spread (3)
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            114,352
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            2.32
                                                                                                                                            %
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            111,677
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            2.07
                                                                                                                                            %Net
      interest-earning assets/net interest margin (4)
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            550,653
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            2.39
                                                                                                                                            %
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            561,455
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            2.16
                                                                                                                                            %Ratio
      of interest-earning assets to interest-bearing liabilities
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            1.03
                                                                                                                                            x
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            1.03
                                                                                                                                            x
  
 (1)
              Mortgage
      loans and consumer and other loans include loans held-for-sale and
      non-performing loans and exclude the allowance for loan
      losses.
 (2)
              Securities
      available-for-sale are included at average amortized
  cost.
 (3)
              Net
      interest rate spread represents the difference between the average yield
      on average interest-earning assets and the average cost of average
      interest-bearing liabilities.
 (4)
              Net
      interest margin represents net interest income divided by average
      interest-earning assets.
  Rate/Volume
Analysis
 
 The
following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected our interest income and interest expense during the
periods indicated.  Information is provided in each category with
 
 37
   
 Three Months Ended March 31, 2010
                          Compared to
                          Three Months Ended March 31, 2009Increase (Decrease)(In Thousands)
                        
                        Volume
                        
                        
                        Rate
                        
                        
                        NetInterest-earning
      assets:Mortgage
      loans:One-to-four
      family
                        
                        $
                        (4,756
                        )
                        
                        $
                        (17,230
                        )
                        
                        $
                        (21,986
                        )Multi-family,
      commercial real estate and construction
                        
                        
                        (6,528
                        )
                        
                        
                        1,039
                        
                        
                        
                        (5,489
                        )Consumer
      and other loans
                        
                        
                        (62
                        )
                        
                        
                        35
                        
                        
                        
                        (27
                        )Mortgage-backed
      and other securities
                        
                        
                        (7,691
                        )
                        
                        
                        (4,066
                        )
                        
                        
                        (11,757
                        )Repurchase
      agreements and interest-earning cash accounts
                        
                        
                        15
                        
                        
                        
                        (16
                        )
                        
                        
                        (1
                        )FHLB-NY stock
                        
                        
                        (97
                        )
                        
                        
                        907
                        
                        
                        
                        810Total
                        
                        
                        (19,119
                        )
                        
                        
                        (19,331
                        )
                        
                        
                        (38,450
                        )Interest-bearing
      liabilities:Savings
                        
                        
                        218
                        
                        
                        
                        -
                        
                        
                        
                        218Money
      market
                        
                        
                        70
                        
                        
                        
                        (391
                        )
                        
                        
                        (321
                        )NOW
      and demand deposit
                        
                        
                        36
                        
                        
                        
                        (57
                        )
                        
                        
                        (21
                        )Liquid
      CDs
                        
                        
                        (1,214
                        )
                        
                        
                        (2,940
                        )
                        
                        
                        (4,154
                        )Certificates
      of deposit
                        
                        
                        (8,573
                        )
                        
                        
                        (24,367
                        )
                        
                        
                        (32,940
                        )Borrowings
                        
                        
                        (5,973
                        )
                        
                        
                        2,066
                        
                        
                        
                        (3,907
                        )Total
                        
                        
                        (15,436
                        )
                        
                        
                        (25,689
                        )
                        
                        
                        (41,125
                        )Net change in net interest
      income
                        
                        $
                        (3,683
                        )
                        
                        $
                        6,358
                        
                        
                        $
                        2,675
 
 Interest
Income
 
 Interest
income decreased $38.4 million to $228.6 million for the three months ended
March 31, 2010, from $267.0 million for the three months ended March 31, 2009,
due to the combined effect of a decrease in the average yield on
interest-earning assets to 4.77% for the three months ended March 31, 2010, from
5.16% for the three months ended March 31, 2009 and a decrease of $1.51 billion
in the average balance of interest-earning assets to $19.17 billion for the
three months ended March 31, 2010, from $20.68 billion for the three months
ended March 31, 2009.   The decrease in the average yield on
interest-earning assets was primarily due to decreases in the average yields on
one-to-four family mortgage loans and mortgage-backed and other
securities.  The decrease in the average balance of interest-earning
assets was primarily due to decreases in the average balances of mortgage-backed
and other securities, multi-family, commercial real estate and construction
loans and one-to-four family mortgage loans.
 
 Interest
income on one-to-four family mortgage loans decreased $21.9 million to $141.0
million for the three months ended March 31, 2010, from $162.9 million for the
three months ended March 31, 2009, primarily due to a decrease in the average
yield to 4.70% for the three months ended March 31, 2010, from 5.27% for the
three months ended March 31, 2009, coupled with a $369.4 million decrease in the
average balance of such loans.  The decrease in the average yield was
primarily due to new originations at lower interest rates than the rates on
loans repaid over the past year, the impact of the downward repricing of our ARM
loans, the increase in non-performing loans, and an increase in loan premium
amortization.  Net premium amortization on
  38
   
 Interest
income on multi-family, commercial real estate and construction loans decreased
$5.5 million to $51.1 million for the three months ended March 31, 2010, from
$56.6 million for the three months ended March 31, 2009, primarily due to a
decrease of $436.1 million in the average balance of such loans, partially
offset by an increase in the average yield to 5.97% for the three months ended
March 31, 2010, from 5.86% for the three months ended March 31,
2009.  The decrease in the average balance of multi-family, commercial
real estate and construction loans reflects our decision to only selectively
pursue such loans in the current economic environment. The increase in the
average yield on multi-family, commercial real estate and construction loans
reflects a decrease in non-performing loans for the 2010 first quarter compared
to the 2009 first quarter, due primarily to the sale of certain delinquent and
non-performing loans over the past year, coupled with the upward repricing of
our ARM loans.  Multi-family and commercial real estate loans are tied
to a higher index than one-to-four family mortgage loans and in some cases has
resulted in those mortgages repricing higher than their initial
rate.  Prepayment penalties increased $64,000 to $568,000 for the
three months ended March 31, 2010, from $504,000 for the three months ended
March 31, 2009.
 
 Interest
income on mortgage-backed and other securities decreased $11.8 million to $31.3
million for the three months ended March 31, 2010, from $43.1 million for the
three months ended March 31, 2009.  This decrease was primarily due to
a decrease of $744.6 million in the average balance of the portfolio, coupled
with a decrease in the average yield to 3.99% for the three months ended March
31, 2010, from 4.44% for the three months ended March 31, 2009.  The
decrease in the average balance of mortgage-backed and other securities was the
result of repayments and sales exceeding securities purchased over the past
year.  The decrease in the average yield was primarily due to elevated
repayment levels of higher yielding securities and purchases of new securities
with lower coupons than the weighted average coupon for the
portfolio.
 
 Dividend
income on FHLB-NY stock increased $810,000 to $2.5 million for the three months
ended March 31, 2010, from $1.7 million for the three months ended March 31,
2009, primarily due to an increase in the average yield to 5.45% for the three
months ended March 31, 2010, from 3.48% for the three months ended March 31,
2009, partially offset by a $10.6 million decrease in the average balance.The increase in the
average yield was the result of an increase in the dividend rate paid by the
FHLB-NY during the three months ended March 31, 2010, compared to the three
months ended March 31, 2009.  The decrease in the average balance of
FHLB-NY stock reflects a reduction in the level of FHLB-NY borrowings for the
three months ended March 31, 2010, compared to the three months ended March 31,
2009.
  Interest
Expense
 
 Interest
expense decreased $41.2 million to $114.2 million for the three months ended
March 31, 2010, from $155.4 million for the three months ended March 31, 2009,
primarily due to a decrease in the average cost of interest-bearing liabilities
to 2.45% for the three months ended
 
 39
   
 Interest
expense on deposits decreased $37.3 million to $53.5 million for the three
months ended March 31, 2010, from $90.8 million for the three months ended March
31, 2009, primarily due to a decrease in the average cost to 1.69% for the three
months ended March 31, 2010, from 2.67% for the three months ended March 31,
2009, coupled with a decrease of $918.3 million in the average balance of total
deposits to $12.67 billion for the three months ended March 31, 2010, from
$13.59 billion for the three months ended March 31, 2009.  The
decrease in the average cost of total deposits was primarily due to the impact
of the decline in short-term interest rates during 2009 on our Liquid CDs and
certificates of deposit which matured and were replaced at lower interest
rates.  The decrease in the average balance of total deposits was
primarily due to decreases in the average balances of certificates of deposit
and Liquid CDs, partially offset by increases in the average balances of
savings, NOW and demand deposit and money market accounts.
 
 Interest
expense on certificates of deposit decreased $33.0 million to $50.0 million for
the three months ended March 31, 2010, from $83.0 million for the three months
ended March 31, 2009, primarily due to a decrease in the average cost to 2.51%
for the three months ended March 31, 2010, from 3.69% for the three months ended
March 31, 2009, coupled with a decrease of $1.01 billion in the average
balance.  The decrease in the average cost of certificates of deposit
reflects the impact of certificates of deposit at higher rates maturing and
being replaced at lower interest rates.  The decrease in the average
balance of certificates of deposit was primarily the result of our reduced focus
on certificates of deposit since the second half of 2009 in response to the
acceleration of mortgage loan and securities repayments.  During the
three months ended March 31, 2010, $2.49 billion of certificates of deposit,
with a weighted average rate of 2.89% and a weighted average maturity at
inception of fourteen months, matured and $2.29 billion of certificates of
deposit were issued or repriced, with a weighted average rate of 1.63% and a
weighted average maturity at inception of eighteen months.
 
 Interest
expense on Liquid CDs decreased $4.2 million to $823,000 for the three months
ended March 31, 2010, from $5.0 million for the three months ended March 31,
2009, primarily due to a decrease in the average cost to 0.49% for the three
months ended March 31, 2010, from 2.03% for the three months ended March 31,
2009, coupled with a decrease of $307.1 million in the average
balance.  The decrease in the average cost of Liquid CDs reflects the
decline in short-term interest rates during 2009.  The decrease in the
average balance of Liquid CDs was primarily a result of our decision to maintain
our pricing discipline as short-term interest rates declined.
 
 Interest
expense on borrowings decreased $3.9 million to $60.7 million for the three
months ended March 31, 2010, from $64.6 million for the three months ended March
31, 2009, primarily due to a decrease of $587.8 million in the average balance,
partially offset by an increase in the average cost to 4.09% for the three
months ended March 31, 2010, from 3.96% for the three
  40
   
 Provision for Loan
Losses
 
 We
continue to closely monitor the local and national real estate markets and other
factors related to risks inherent in our loan portfolio.  As a
geographically diversified residential lender, we have been affected by negative
consequences arising from the economic recession that continued throughout most
of 2009 and, in particular, a sharp downturn in the housing industry nationally,
as well as economic and housing industry weaknesses in the New York metropolitan
area.  We are particularly vulnerable to a job loss
recession.  Although the national economy continued to show signs of
improvement during the 2010 first quarter, based on our evaluation of the
continued weakness in the housing and real estate markets and overall economy,
in particular, the continued high unemployment rate, and the levels and
composition of our delinquencies, non-performing loans and net loan charge-offs,
we determined that an increase in the allowance for loan losses was warranted at
March 31, 2010.
 
 The
allowance for loan losses was $210.7 million at March 31, 2010 and $194.0
million at December 31, 2009.  The provision for loan losses decreased
$5.0 million to $45.0 million for the three months ended March 31, 2010, from
$50.0 million for the three months ended March 31, 2009.  The decrease
in the provision for loan losses for the three months ended March 31, 2010,
compared to the three months ended March 31, 2009, is the first reduction in the
level of the provision in four quarters.  The decrease reflects the
beginning of a stabilizing trend in overall credit quality, particularly the
decrease in early stage loan delinquencies (loans 30-89 days delinquent), while
recognizing continued challenges represented by current economic
conditions.  The increase in the allowance for loan losses for the
three months ended March 31, 2010 reflects the levels and composition of our
loan delinquencies, non-performing loans and net loan charge-offs, as well as
our evaluation of the continued weakness in the housing and real estate markets
and overall economy,
particularly the high unemployment rate.  The allowance for loan
losses as a percentage of total loans increased to 1.35% at March 31, 2010, from
1.23% at December 31, 2009, primarily due to the increase in the allowance for
loan losses.  The allowance for loan losses as a percentage of
non-performing loans increased to 50.29% at March 31, 2010, from 47.49% at
December 31, 2009, primarily due to the increase in the allowance for loan
losses, partially offset by the increase in non-performing loans.  The
increases in non-performing loans during any period are taken into account when
determining the allowance for loan losses because the allowance coverage
percentages we apply to our non-performing loans are higher than the allowance
coverage percentages applied to our performing loans.
 
 As
previously discussed, we use ratio analyses as a supplemental tool for
evaluating the overall reasonableness of the allowance for loan
losses.  The adequacy of the allowance for loan losses is ultimately
determined by the actual losses and charges recognized in the
portfolio.  Our analysis of loss severity during the 2010 first
quarter, defined as the ratio of net write-downs taken through disposition of
the asset (typically the sale of REO) to the loan’s original principal balance
on one-to-four family mortgage loans during the twelve months ended December 31,
 
 41
   
 When
analyzing our asset quality trends, consideration must be given to our
accounting for non-performing loans, particularly when reviewing our allowance
for loan losses to non-performing loans ratio.  Included in our
non-performing loans are one-to-four family mortgage loans which are 180 days or
more past due.  Our primary federal banking regulator, the OTS,
requires us to update our collateral values on one-to-four family mortgage loans
which are 180 days past due.  If the estimated fair value of the loan
collateral less estimated selling costs is less than the recorded investment in
the loan, a charge-off of the difference is recorded to reduce the loan to its
fair value less estimated selling costs.  Therefore certain losses
inherent in our non-performing one-to-four family mortgage loans are being
recognized at 180 days of delinquency and annually thereafter and accordingly
are charged off.  The impact of updating these estimates of collateral
value and recognizing any required charge-offs is to increase charge-offs and
reduce the allowance for loan losses required on these loans.  In
effect, these loans have been written down to their fair value less estimated
selling costs and the inherent loss has been recognized.  Therefore,
when reviewing the allowance for loan losses as a percentage of non-performing
loans, the impact of these charge-offs should be considered.  At March
31, 2010, non-performing loans included one-to-four family mortgage loans
which were 180 days or more past due totaling $246.1 million, net of the
charge-offs related to such loans, which had a related allowance for loan losses
totaling $10.9 million.  Excluding one-to-four family
mortgage loans which were 180 days or more past due at March 31, 2010 and
their related allowance, our ratio of the allowance for loan losses to
non-performing loans would be approximately 116%.  The slight increase
in the allowance for loan losses as a percentage of non-performing loans as well
as the allowance for loan losses as a percentage of total loans at March 31,
2010 compared to December 31, 2009 reflects the continued challenges in the
economy and high unemployment levels as well as the continued elevated levels of
non-performing loans and net loan charge-offs.
 
 We review
our allowance for loan losses on a quarterly basis.  Material factors
considered during our quarterly review are our loss experience, the composition
and direction of loan delinquencies
 
 42
   
 We
continue to adhere to prudent underwriting standards.  We underwrite
our one-to-four family mortgage loans primarily based upon our evaluation of the
borrower’s ability to pay.  We obtain updated estimates of collateral
value for non-performing multi-family, commercial real estate and construction
loans with balances in excess of $1.0 million or for other classified loans when
requested by our Asset Classification Committee, or, in the case of one-to-four
family mortgage loans, when such loans are 180 days delinquent and annually
thereafter.  We monitor property value trends in our market areas to
determine what impact, if any, such trends may have on our loan-to-value ratios
and the adequacy of the allowance for loan losses.
 
 During
the 2010 first quarter, total delinquencies decreased reflecting a decrease in
30-89 day delinquent loans, partially offset by an increase in non-performing
loans.  The unemployment rate decreased slightly to 9.7% for March
2010 and there was nominal job gains for the quarter totaling 162,000 at the
time of our analysis.  Net loan charge-offs also decreased for the
2010 first quarter compared to the 2009 fourth quarter.  We continued
to update our charge-off and loss analysis during the 2010 first quarter and
modified our allowance coverage percentages accordingly.  The
combination of these factors, as well as our evaluation of the continued
weakness in the housing and real estate markets and overall economy, resulted in
an increase in our allowance for loan losses to $210.7 million at March 31, 2010
and a provision for loan losses of $45.0 million for the 2010 first
quarter.
 
 There are
no material assumptions relied on by management which have not been made
apparent in our disclosures or reflected in our asset quality ratios and
activity in the allowance for loan losses.  We believe our allowance
for loan losses has been established and maintained at levels that reflect the
risks inherent in our loan portfolio, giving consideration to the composition
and size of our loan portfolio, delinquencies, charge-off experience,
non-accrual and non-performing loans and the current economic
environment.  The balance of our allowance for loan losses represents
management’s best estimate of the probable inherent losses in our loan portfolio
at March 31, 2010 and December 31, 2009.
  43




For
further discussion of the methodology used to determine the allowance for loan
losses, see “Critical Accounting Policies-Allowance for Loan Losses” and for
further discussion of our loan portfolio composition and non-performing loans,
see “Asset Quality.”
 
 Non-Interest
Income
 
 Non-interest
income increased $2.8 million to $18.7 million for the three months ended March
31, 2010, from $15.9 million for the three months ended March 31,
2009.  This increase was primarily due to the previously discussed
$5.3 million OTTI charge recorded in the 2009 first quarter and an increase in
mortgage banking income, net, partially offset by a gain on sales of securities
recorded in the 2009 first quarter and a decrease in customer service
fees.
 
 Mortgage
banking income, net, which includes loan servicing fees, net gain on sales of
loans, amortization of MSR and valuation allowance adjustments for the
impairment of MSR, increased $1.1 million to $1.6 million for the three months
ended March 31, 2010, from $496,000 for the three months ended March 31, 2009,
primarily due to an increase in net gain on sales of loans and a decrease in
amortization of MSR.  The increase in net gain on sales of loans
reflects an increase in the volume of loans sold during the three months ended
March 31, 2010, compared to the three months ended March 31, 2009.  We
generally sell our fifteen and thirty year conforming fixed rate one-to-four
family mortgage loan production.  The expanded conforming loans limits
and historic low interest rates on thirty year mortgages have resulted in
increased consumer demand for these fixed rate products resulting in higher
levels of loans sold.
 
 Customer
service fees decreased $1.5 million to $13.3 million for the three months ended
March 31, 2010, from $14.8 million for the three months ended March 31, 2009,
primarily due to decreases in commissions on sales of annuities and insufficient
fund fees related to transaction accounts.  There were no sales of
securities during the three months ended March 31, 2010.  During the
three months ended March 31, 2009, proceeds from the sales of securities from
the available-for-sale portfolio totaled $91.4 million resulting in gross
realized gains totaling $2.1 million.
 
 Non-Interest
Expense
 
 Non-interest
expense increased $4.3 million to $68.3 million for the three months ended March
31, 2010, from $64.0 million for the three months ended March 31,
2009.  This increase was primarily due to an increase in FDIC
insurance premiums and an increase in compensation and benefits
expense.  Our percentage of general and administrative expense to
average assets, annualized, increased to 1.35% for the three months ended March
31, 2010, from 1.18% for the three months ended March 31, 2009, due to the
increase in general and administrative expense, coupled with a decrease in
average assets.
 
 FDIC
insurance premiums increased $2.7 million to $6.6 million for the three months
ended March 31, 2010, from $3.9 million for the three months ended March 31,
2009, reflecting the increases in our assessment rates during 2009 resulting
from the FDIC restoration plan to increase the Deposit Insurance Fund, or
DIF.  In addition, during the 2009 first quarter we utilized the
remaining balance of our FDIC One-Time Assessment Credit to offset a portion of
our deposit insurance assessment.  The restoration plan included an
increase in assessment rates for the 2009 first quarter with an additional
increase beginning in the 2009 second quarter.  For a
  44
 
  Compensation
and benefits expense increased $1.3 million to $35.3 million for the three
months ended March 31, 2010, from $34.0 million for the three months ended March
31, 2009, primarily due to increases in officer incentive accruals, stock-based
compensation costs, ESOP related expense and salaries, partially offset by a
decrease in the net periodic cost of pension and other postretirement
benefits.  The decrease in the net periodic cost of pension and other
postretirement benefits primarily reflects a decrease in the amortization of the
net actuarial loss and an increase in the expected return on plan assets.
 
 Income Tax
Expense
 
 For the
three months ended March 31, 2010, income tax expense totaled $6.9 million,
representing an effective tax rate of 34.7%, compared to $4.9 million for the
three months ended March 31, 2009, representing an effective tax rate of
35.6%.  The decrease in the effective tax rate for the three months
ended March 31, 2010, compared to the three months ended March 31, 2009,
reflects an increase in pretax book income with a reduction in state and local
taxes.
 
 Asset
Quality
 
 One of
our key operating objectives has been and continues to be to maintain a high
level of asset quality.  We continue to employ sound underwriting
standards for new loan originations.  Through a variety of strategies,
including, but not limited to, collection efforts and the marketing of
delinquent and non-performing loans and foreclosed properties, we have been
proactive in addressing problem and non-performing assets which, in turn, has
helped to maintain the strength of our financial condition.
 
 The
composition of our loan portfolio, by property type, has remained relatively
consistent over the last several years.  At March 31, 2010 and
December 31, 2009, our loan portfolio was comprised of 76% one-to-four family
mortgage loans, 16% multi-family mortgage loans, 6% commercial real estate loans
and 2% other loan categories. At March 31, 2010 and December 31, 2009, full
documentation loans comprise 83% of our one-to-four family mortgage loan
portfolio and 87% of our total mortgage loan portfolio.
  45
  The
following table provides further details on the composition of our one-to-four
family and multi-family and commercial real estate mortgage loan portfolios in
dollar amounts and percentages of the portfolio at the dates
indicated.
 
 At March 31, 2010
                            
                            
                            At December 31, 2009Percent
                            
                            
                            
                            
                            
                            Percent(Dollars in Thousands)
                            
                            Amount
                            
                            
                            of Total
                            
                            
                            Amount
                            
                            
                            of TotalOne-to-four
      family:Full
      documentation interest-only (1)
                            
                            $
                            4,486,773
                            
                            
                            
                            37.87
                            %
                            
                            $
                            4,688,796
                            
                            
                            
                            39.42
                            %Full
      documentation amortizing
                            
                            
                            5,379,615
                            
                            
                            
                            45.42
                            
                            
                            
                            5,152,021
                            
                            
                            
                            43.31Reduced
      documentation interest-only (1)(2)
                            
                            
                            1,510,688
                            
                            
                            
                            12.75
                            
                            
                            
                            1,576,378
                            
                            
                            
                            13.25Reduced
      documentation amortizing (2)
                            
                            
                            469,438
                            
                            
                            
                            3.96
                            
                            
                            
                            478,167
                            
                            
                            
                            4.02Total
      one-to-four family
                            
                            $
                            11,846,514
                            
                            
                            
                            100.00
                            %
                            
                            $
                            11,895,362
                            
                            
                            
                            100.00
                            %Multi-family
      and commercial real estate:Full
      documentation amortizing
                            
                            $
                            2,787,524
                            
                            
                            
                            83.43
                            %
                            
                            $
                            2,861,607
                            
                            
                            
                            83.53
                            %Full
      documentation interest-only
                            
                            
                            553,659
                            
                            
                            
                            16.57
                            
                            
                            
                            564,255
                            
                            
                            
                            16.47Total
      multi-family and commercial real estate
                            
                            $
                            3,341,183
                            
                            
                            
                            100.00
                            %
                            
                            $
                            3,425,862
                            
                            
                            
                            100.00
                            %
 (1)
              Interest-only
      loans require the borrower to pay interest only during the first ten years
      of the loan term.  After the tenth anniversary of the loan,
      principal and interest payments are required to amortize the loan over the
      remaining loan term.  One-to-four family interest-only loans
      include interest-only hybrid ARM loans which were underwritten at the
      initial note rate, which may have been a discounted rate, totaling $3.34
      billion at March 31, 2010 and $3.50 billion at December 31,
      2009.
 (2)
              One-to-four
      family reduced documentation loans include SISA loans totaling $301.9
      million at March 31, 2010 and $310.7 million at December 31,
      2009.
 
 We do not
originate negative amortization loans, payment option loans or other loans with
short-term interest-only periods.  Additionally, we do not originate
one-year ARM loans.  The ARM loans in our portfolio which currently
reprice annually represent hybrid ARM loans (interest-only and amortizing) which
have passed their initial fixed rate period.  Prior to 2006 we would
underwrite our one-to-four family interest-only hybrid ARM loans using the
initial note rate, which may have been a discounted rate.  In 2006, we
began underwriting our one-to-four family interest-only hybrid ARM loans based
on a fully amortizing loan (in effect, underwriting interest-only hybrid ARM
loans as if they were amortizing hybrid ARM loans).  In 2007, we began
underwriting our one-to-four family interest-only hybrid ARM loans at the higher
of the fully indexed rate or the initial note rate.  In 2009, we began
underwriting our one-to-four family interest-only and amortizing hybrid ARM
loans at the higher of the fully indexed rate, the initial note rate or
6.00%.  Our reduced documentation loans are comprised primarily of
SIFA (stated income, full asset) loans.  To a lesser extent, reduced
documentation loans in our portfolio also include SISA (stated income, stated
asset) loans.  Reduced documentation loans include both hybrid ARM
loans (interest-only and amortizing) and fixed rate loans.  SIFA and
SISA loans required a prospective borrower to complete a standard mortgage loan
application.  During the fourth quarter of 2007, we stopped offering
reduced documentation loans.
  The
market does not apply a uniform definition of what constitutes “subprime”
lending.  Our reference to subprime lending relies upon the “Statement
on Subprime Mortgage Lending” issued by the OTS and the other federal bank
regulatory agencies, or the Agencies, on June 29, 2007, which further references
the “Expanded Guidance for Subprime Lending Programs,” or the Expanded Guidance,
issued by the Agencies by press release dated January 31, 2001.  In
the Expanded Guidance, the Agencies indicated that subprime lending does not
refer to individual subprime loans originated and managed, in the ordinary
course of business, as exceptions to prime risk selection
standards.  The Agencies recognize that many prime loan portfolios
will
 46
 
 Although
FICO scores are considered as part of our underwriting process, they have not
always been recorded on our mortgage loan system and are not available for all
of the one-to-four family mortgage loans on our mortgage loan
system.  However, substantially all of our one-to-four family mortgage
loans originated since March 2005 have credit scores available on our mortgage
loan system.  At March 31, 2010, one-to-four family mortgage loans
which had FICO scores available on our mortgage loan system totaled $10.18
billion, or 86% of our total one-to-four family mortgage loan portfolio, of
which $524.6 million, or 5%, had FICO scores of 660 or below at the date of
origination.  At December 31, 2009, one-to-four family mortgage loans
which had FICO scores available on our mortgage loan system totaled $10.17
billion, or 85% of our total one-to-four family mortgage loan portfolio, of
which $542.3 million, or 5%, had FICO scores of 660 or below at the date of
origination.  Of our one-to-four family mortgage loans to borrowers
with known FICO scores of 660 or below, 74% are interest-only hybrid ARM loans,
25% are amortizing hybrid ARM loans and 1% are amortizing fixed rate loans at
March 31, 2010 and December 31, 2009.  In addition, at March 31, 2010,
66% of our loans to borrowers with known FICO scores of 660 or below were full
documentation loans and 34% were reduced documentation loans and at December 31,
2009, 67% of our loans to borrowers with known FICO scores of 660 or below were
full documentation loans and 33% were reduced documentation loans. We believe
the aforementioned loans, when originated, were amply collateralized and
otherwise conformed to our prime lending standards and do not present a greater
risk of loss or other asset quality risk relative to comparable loans in our
portfolio to other borrowers with higher credit scores.  We do not
have FICO scores recorded on our mortgage loan system for 14% of our one-to-four
family mortgage loans at March 31, 2010 and 15% of our one-to-four family
mortgage loans at December 31, 2009. Of our one-to-four
family mortgage loans without a FICO score available on our mortgage loan system
at March 31, 2010,
 47
 65% are
amortizing hybrid ARM loans, 27% are interest-only hybrid ARM loans and 8% are
amortizing fixed rate loans, and at December 31, 2009, 64% are amortizing hybrid
ARM loans, 27% are interest-only hybrid ARM loans and 9% are amortizing fixed
rate loans.
  Non-Performing
Assets
 
 The
following table sets forth information regarding non-performing assets at the
dates indicated.
 
 (Dollars in Thousands)
                      
                      At March31,
                        2010
                      
                      
                      At December31,
                        2009Non-accrual
      delinquent mortgage loans
                      
                      $
                      413,300
                      
                      
                      $
                      403,148Non-accrual
      delinquent consumer and other loans
                      
                      
                      4,906
                      
                      
                      
                      4,824Mortgage
      loans delinquent 90 days or more andstill
      accruing interest (1)
                      
                      
                      846
                      
                      
                      
                      600Total
      non-performing loans (2)
                      
                      
                      419,052
                      
                      
                      
                      408,572REO,
      net (3)
                      
                      
                      49,302
                      
                      
                      
                      46,220Total
      non-performing assets
                      
                      $
                      468,354
                      
                      
                      $
                      454,792Non-performing
      loans to total loans
                      
                      
                      2.68
                      %
                      
                      
                      2.59
                      %Non-performing
      loans to total assets
                      
                      
                      2.09
                      
                      
                      
                      2.02Non-performing
      assets to total assets
                      
                      
                      2.33
                      
                      
                      
                      2.25Allowance
      for loan losses to non-performing loans
                      
                      
                      50.29
                      
                      
                      
                      47.49Allowance
      for loan losses to total loans
                      
                      
                      1.35
                      
                      
                      
                      1.23
 
 (1)
              Mortgage
      loans delinquent 90 days or more and still accruing interest consist
      primarily of loans delinquent 90 days or more as to their maturity date
      but not their interest due.
 (2)
              Non-performing
      loans exclude loans which have been restructured and are accruing and
      performing in accordance with the restructured terms for a satisfactory
      period of time.  Restructured accruing loans totaled $28.2
      million at March 31, 2010 and $26.0 million at December 31,
      2009.
 (3)
              REO,
      all of which are one-to-four family properties, is net of allowance for
      losses totaling $773,000 at March 31, 2010 and $816,000 at December 31,
      2009.
 
 Total
non-performing assets increased $13.6 million to $468.4 million at March 31,
2010, from $454.8 million at December 31, 2009.  This increase was due
to an increase in non-performing loans, coupled with an increase of $3.1 million
in REO, net.  Non-performing loans, the most significant component of
non-performing assets, increased $10.5 million to $419.1 million at March 31,
2010, from $408.6 million at December 31, 2009.  This increase was
primarily due to an increase of $19.5 million in non-performing one-to-four
family mortgage loans, partially offset by a decrease of $9.1 million in
non-performing multi-family, commercial real estate and construction
loans.  The increase in non-performing one-to-four family mortgage
loans reflects a greater concentration in non-performing reduced documentation
loans.  Reduced documentation loans represent only 17% of the
one-to-four family mortgage loan portfolio, yet represent 56% of non-performing
one-to-four family mortgage loans at March 31, 2010.  The ratio of
non-performing loans to total loans increased to 2.68% at March 31, 2010, from
2.59% at December 31, 2009.  The ratio of non-performing assets to
total assets increased to 2.33% at March 31, 2010, from 2.25% at December 31,
2009.
 
 As
previously discussed, we proactively manage our non-performing assets, in part,
through the sale of certain delinquent and non-performing
loans.  During the three months ended March 31, 2010, we sold $8.7
million, net of $3.3 million in net charge-offs, of delinquent and
non-performing mortgage loans, consisting of multi-family and commercial real
estate loans.  In addition, included in loans held-for-sale, net, are
non-performing loans totaling $15.0 million, net of $11.1 million in net
charge-offs and a $681,000 lower of cost or market valuation allowance, at March
31, 2010 and $6.9 million, net of $6.8 million in net charge-offs and a $1.1
million lower of cost or market valuation allowance, at December 31,
2009.  Such loans, which
 48
  The
following table provides further details on the composition of our
non-performing one-to-four family and multi-family and commercial real estate
mortgage loans in dollar amounts and percentages of the portfolio, at the dates
indicated.
 
 At March 31, 2010
                            
                            
                            At December 31, 2009Percent
                            
                            
                            
                            
                            
                            Percent(Dollars in Thousands)
                            
                            Amount
                            
                            
                            of Total
                            
                            
                            Amount
                            
                            
                            of TotalNon-performing
      one-to-four family:Full
      documentation interest-only
                            
                            $
                            111,834
                            
                            
                            
                            31.99
                            %
                            
                            $
                            106,441
                            
                            
                            
                            32.25
                            %Full
      documentation amortizing
                            
                            
                            41,318
                            
                            
                            
                            11.82
                            
                            
                            
                            40,875
                            
                            
                            
                            12.38Reduced
      documentation interest-only
                            
                            
                            167,994
                            
                            
                            
                            48.07
                            
                            
                            
                            158,164
                            
                            
                            
                            47.92Reduced
      documentation amortizing
                            
                            
                            28,397
                            
                            
                            
                            8.12
                            
                            
                            
                            24,602
                            
                            
                            
                            7.45Total
      non-performing one-to-four family
                            
                            $
                            349,543
                            
                            
                            
                            100.00
                            %
                            
                            $
                            330,082
                            
                            
                            
                            100.00
                            %Non-performing
      multi-family and commercial real estate:Full
      documentation amortizing
                            
                            $
                            33,575
                            
                            
                            
                            58.92
                            %
                            
                            $
                            42,637
                            
                            
                            
                            62.51
                            %Full
      documentation interest-only
                            
                            
                            23,411
                            
                            
                            
                            41.08
                            
                            
                            
                            25,571
                            
                            
                            
                            37.49Total
      non-performing multi-family and commercial real estate
                            
                            $
                            56,986
                            
                            
                            
                            100.00
                            %
                            
                            $
                            68,208
                            
                            
                            
                            100.00
                            %
 
 The
following table provides details on the geographic composition of both our total
and non-performing one-to-four family mortgage loans as of March 31,
2010.
 
 One-to-Four Family Mortgage LoansAt March 31, 2010Percent of
                            
                            
                            Non-PerformingTotal
                            
                            
                            Total
                            
                            
                            LoansPercent of
                            
                            
                            Non-Performing
                            
                            
                            Non-Performing
                            
                            
                            as Percent of(Dollars in Millions)
                            
                            Total Loans
                            
                            
                            Total Loans
                            
                            
                            Loans
                            
                            
                            Loans
                            
                            
                            State TotalsState:New
      York
                            
                            $
                            3,121.1
                            
                            
                            
                            26.3
                            %
                            
                            $
                            47.4
                            
                            
                            
                            13.7
                            %
                            
                            
                            1.52
                            %Illinois
                            
                            
                            1,476.6
                            
                            
                            
                            12.5
                            
                            
                            
                            45.5
                            
                            
                            
                            13.0
                            
                            
                            
                            3.08Connecticut
                            
                            
                            1,155.9
                            
                            
                            
                            9.8
                            
                            
                            
                            31.6
                            
                            
                            
                            9.0
                            
                            
                            
                            2.73California
                            
                            
                            1,022.9
                            
                            
                            
                            8.6
                            
                            
                            
                            44.2
                            
                            
                            
                            12.6
                            
                            
                            
                            4.32New
      Jersey
                            
                            
                            898.6
                            
                            
                            
                            7.6
                            
                            
                            
                            48.0
                            
                            
                            
                            13.7
                            
                            
                            
                            5.34Massachusetts
                            
                            
                            843.4
                            
                            
                            
                            7.1
                            
                            
                            
                            16.0
                            
                            
                            
                            4.6
                            
                            
                            
                            1.90Virginia
                            
                            
                            758.0
                            
                            
                            
                            6.4
                            
                            
                            
                            20.3
                            
                            
                            
                            5.8
                            
                            
                            
                            2.68Maryland
                            
                            
                            742.7
                            
                            
                            
                            6.3
                            
                            
                            
                            39.8
                            
                            
                            
                            11.4
                            
                            
                            
                            5.36Washington
                            
                            
                            355.7
                            
                            
                            
                            3.0
                            
                            
                            
                            2.9
                            
                            
                            
                            0.8
                            
                            
                            
                            0.82Florida
                            
                            
                            256.4
                            
                            
                            
                            2.2
                            
                            
                            
                            26.9
                            
                            
                            
                            7.7
                            
                            
                            
                            10.49All
      other states (1)
                            
                            
                            1,215.2
                            
                            
                            
                            10.2
                            
                            
                            
                            26.9
                            
                            
                            
                            7.7
                            
                            
                            
                            2.21Total
                            
                            $
                            11,846.5
                            
                            
                            
                            100.0
                            %
                            
                            $
                            349.5
                            
                            
                            
                            100.0
                            %
                            
                            
                            2.95
                            %
 
 (1)
              Includes
      28 states and Washington, D.C.
  At March
31, 2010, the geographic composition of our multi-family and commercial real
estate mortgage loan portfolio was 93% in the New York metropolitan area, 3% in
Florida and 4% in
 49
 
 We
discontinue accruing interest on loans when they become 90 days delinquent as to
their payment due date.  In addition, we reverse all previously
accrued and uncollected interest through a charge to interest
income.  While loans are in non-accrual status, interest due is
monitored and income is recognized only to the extent cash is received until a
return to accrual status is warranted.
 
 If all
non-accrual loans at March 31, 2010 and 2009 had been performing in accordance
with their original terms, we would have recorded interest income, with respect
to such loans, of $6.4 million for the three months ended March 31, 2010 and
$5.1 million for the three months ended March 31, 2009.  This compares
to actual payments recorded as interest income, with respect to such loans, of
$1.3 million for the three months ended March 31, 2010 and $714,000 for the
three months ended March 31, 2009.
 
 We may
agree to modify the contractual terms of a borrower’s loan.  In cases
where such modifications represent a concession to a borrower experiencing
financial difficulty, the modification is considered a troubled debt
restructuring.  Loans modified in a troubled debt restructuring are
placed on non-accrual status until we determine that future collection of
principal and interest is reasonably assured, which requires that the borrower
demonstrate performance according to the restructured terms generally for a
period of six months.  Loans modified in a troubled debt restructuring
which are included in non-accrual loans totaled $59.9 million at March 31, 2010
and $57.2 million at December 31, 2009.  Excluded from non-performing
assets are restructured loans that have complied with the terms of their
restructure agreement for a satisfactory period of time and have, therefore,
been returned to performing status.  Restructured accruing loans
totaled $28.2 million at March 31, 2010 and $26.0 million at December 31,
2009.
 
 In
addition to non-performing loans, we had $148.0 million of potential problem
loans at March 31, 2010, compared to $145.9 million at December 31,
2009.  Such loans include loans which are 60-89 days delinquent as
shown in the following table and certain other internally classified
loans.
  50
  Delinquent
Loans
 
 The
following table shows a comparison of delinquent loans at March 31, 2010 and
December 31, 2009.  Delinquent loans are reported based on the number
of days the loan payments are past due.
 
 30-59 Days
                            
                            
                            60-89 Days
                            
                            
                            90 Days or MoreNumber
                            
                            
                            
                            
                            
                            Number
                            
                            
                            
                            
                            
                            Numberof
                            
                            
                            
                            
                            
                            of
                            
                            
                            
                            
                            
                            of(Dollars in Thousands)
                            
                            Loans
                            
                            
                            Amount
                            
                            
                            Loans
                            
                            
                            Amount
                            
                            
                            Loans
                            
                            
                            AmountAt
      March 31, 2010:Mortgage
      loans:One-to-four
      family
                            
                            
                            408
                            
                            
                            $
                            136,400
                            
                            
                            
                            169
                            
                            
                            $
                            62,593
                            
                            
                            
                            994
                            
                            
                            $
                            349,543Multi-family
                            
                            
                            46
                            
                            
                            
                            34,089
                            
                            
                            
                            18
                            
                            
                            
                            11,963
                            
                            
                            
                            45
                            
                            
                            
                            52,511Commercial
      real estate
                            
                            
                            11
                            
                            
                            
                            9,882
                            
                            
                            
                            5
                            
                            
                            
                            6,300
                            
                            
                            
                            5
                            
                            
                            
                            4,475Construction
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1
                            
                            
                            
                            215
                            
                            
                            
                            3
                            
                            
                            
                            7,617Consumer
      and other loans
                            
                            
                            111
                            
                            
                            
                            5,262
                            
                            
                            
                            29
                            
                            
                            
                            1,674
                            
                            
                            
                            61
                            
                            
                            
                            4,906Total
      delinquent loans
                            
                            
                            576
                            
                            
                            $
                            185,633
                            
                            
                            
                            222
                            
                            
                            $
                            82,745
                            
                            
                            
                            1,108
                            
                            
                            $
                            419,052Delinquent
      loans to total loans
                            
                            
                            
                            
                            
                            
                            1.19
                            %
                            
                            
                            
                            
                            
                            
                            0.53
                            %
                            
                            
                            
                            
                            
                            
                            2.68
                            %At
      December 31, 2009:Mortgage
      loans:One-to-four
      family
                            
                            
                            431
                            
                            
                            $
                            146,918
                            
                            
                            
                            182
                            
                            
                            $
                            62,522
                            
                            
                            
                            936
                            
                            
                            $
                            330,082Multi-family
                            
                            
                            64
                            
                            
                            
                            48,137
                            
                            
                            
                            18
                            
                            
                            
                            12,392
                            
                            
                            
                            53
                            
                            
                            
                            59,526Commercial
      real estate
                            
                            
                            8
                            
                            
                            
                            13,512
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            4
                            
                            
                            
                            8,682Construction
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            2
                            
                            
                            
                            5,458Consumer
      and other loans
                            
                            
                            136
                            
                            
                            
                            4,327
                            
                            
                            
                            39
                            
                            
                            
                            1,400
                            
                            
                            
                            61
                            
                            
                            
                            4,824Total
      delinquent loans
                            
                            
                            639
                            
                            
                            $
                            212,894
                            
                            
                            
                            239
                            
                            
                            $
                            76,314
                            
                            
                            
                            1,056
                            
                            
                            $
                            408,572Delinquent
      loans to total loans
                            
                            
                            
                            
                            
                            
                            1.35
                            %
                            
                            
                            
                            
                            
                            
                            0.48
                            %
                            
                            
                            
                            
                            
                            
                            2.59
                            %
 
 Allowance for Loan
Losses
 
 Activity
in the allowance for loan losses is summarized as follows:
 
 For the
                                          ThreeMonths
                                          Ended(In Thousands)
                                        
                                        March 31, 2010Balance
      at January 1, 2010
                                        
                                        $
                                        194,049Provision
      charged to operations
                                        
                                        
                                        45,000Charge-offs:One-to-four
      family (1)
                                        
                                        
                                        (20,690
                                        )Multi-family
                                        
                                        
                                        (6,308
                                        )Commercial
      real estate
                                        
                                        
                                        (4,305
                                        )Consumer
      and other loans
                                        
                                        
                                        (333
                                        )Total
      charge-offs
                                        
                                        
                                        (31,636
                                        )Recoveries:One-to-four
      family (1)
                                        
                                        
                                        3,311Multi-family
                                        
                                        
                                        4Consumer
      and other loans
                                        
                                        
                                        20Total
      recoveries
                                        
                                        
                                        3,335Net
      charge-offs
                                        
                                        
                                        (28,301
                                        )Balance
      at March 31, 2010
                                        
                                        $
                                        210,748(1)   Includes
      $9.1 million of net charge-offs related to reduced documentation
      loans.
  51
  ITEM 3.
              Quantitative and Qualitative
      Disclosures about Market
Risk
 
 As a
financial institution, the primary component of our market risk is interest rate
risk, or IRR.  The objective of our IRR management policy is to
maintain an appropriate mix and level of assets, liabilities and off-balance
sheet items to enable us to meet our earnings and/or growth objectives, while
maintaining specified minimum capital levels as required by the OTS, in the case
of Astoria Federal, and as established by our Board of Directors.  We
use a variety of analyses to monitor, control and adjust our asset and liability
positions, primarily interest rate sensitivity gap analysis, or gap analysis,
and net interest income sensitivity, or NII sensitivity,
analysis.  Additional IRR modeling is done by Astoria Federal in
conformity with OTS requirements.
 
 Gap
Analysis
 
 Gap
analysis measures the difference between the amount of interest-earning assets
anticipated to mature or reprice within specific time periods and the amount of
interest-bearing liabilities anticipated to mature or reprice within the same
time periods.  Gap analysis does not indicate the impact of general
interest rate movements on our net interest income because the actual repricing
dates of various assets and liabilities will differ from our estimates and it
does not give consideration to the yields and costs of the assets and
liabilities or the projected yields and costs to replace or retain those assets
and liabilities.  Callable features of certain assets and liabilities,
in addition to the foregoing, may also cause actual experience to vary from the
analysis.
 
 The
following table, referred to as the Gap Table, sets forth the amount of
interest-earning assets and interest-bearing liabilities outstanding at March
31, 2010 that we anticipate will reprice or mature in each of the future time
periods shown using certain assumptions based on our historical experience and
other market-based data available to us.  The Gap Table includes $2.93
billion of callable borrowings classified according to their maturity dates,
primarily in the more than one year to three years and more than five years
categories, which are callable within one year and at various times
thereafter.  In addition, the Gap Table includes callable securities
with an amortized cost of $251.0 million classified according to their maturity
dates, in the more than one year to three years and more than three years to
five years categories, which are callable within one year and at various times
thereafter.  The classifications of callable borrowings and
securitiesaccording to their
maturity dates are based on our experience with, and expectations of, these
types of instruments and the current interest rate environment.  As
indicated in the Gap Table, our one-year cumulative gap at March 31, 2010 was
negative 5.91% compared to negative 6.77% at December 31, 2009.
  52
 
 At March 31, 2010More than
                          
                          
                          More thanOne Year
                          
                          
                          Three YearsOne Year
                          
                          
                          to
                          
                          
                          to
                          
                          
                          More than(Dollars in Thousands)
                          
                          or Less
                          
                          
                          Three Years
                          
                          
                          Five Years
                          
                          
                          Five Years
                          
                          
                          TotalInterest-earning
      assets:Mortgage
      loans (1)
                          
                          $
                          5,104,353
                          
                          
                          $
                          4,824,619
                          
                          
                          $
                          4,222,735
                          
                          
                          $
                          665,927
                          
                          
                          $
                          14,817,634Consumer
      and other loans (1)
                          
                          
                          321,445
                          
                          
                          
                          33
                          
                          
                          
                          -
                          
                          
                          
                          379
                          
                          
                          
                          321,857Repurchase
      agreements and interest-earning cash accounts
                          
                          
                          79,311
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          79,311Securities
      available-for-sale
                          
                          
                          264,096
                          
                          
                          
                          333,906
                          
                          
                          
                          145,119
                          
                          
                          
                          25,248
                          
                          
                          
                          768,369Securities
      held-to-maturity
                          
                          
                          786,787
                          
                          
                          
                          1,207,007
                          
                          
                          
                          373,541
                          
                          
                          
                          4,669
                          
                          
                          
                          2,372,004FHLB-NY
      stock
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          178,090
                          
                          
                          
                          178,090Total
      interest-earning assets
                          
                          
                          6,555,992
                          
                          
                          
                          6,365,565
                          
                          
                          
                          4,741,395
                          
                          
                          
                          874,313
                          
                          
                          
                          18,537,265Net
      unamortized purchase premiums and deferred costs (2)
                          
                          
                          38,843
                          
                          
                          
                          35,673
                          
                          
                          
                          29,671
                          
                          
                          
                          4,584
                          
                          
                          
                          108,771Net
      interest-earning assets (3)
                          
                          
                          6,594,835
                          
                          
                          
                          6,401,238
                          
                          
                          
                          4,771,066
                          
                          
                          
                          878,897
                          
                          
                          
                          18,646,036Interest-bearing
      liabilities:Savings
                          
                          
                          269,102
                          
                          
                          
                          448,446
                          
                          
                          
                          448,446
                          
                          
                          
                          944,362
                          
                          
                          
                          2,110,356Money
      market
                          
                          
                          145,606
                          
                          
                          
                          92,166
                          
                          
                          
                          92,166
                          
                          
                          
                          1,424
                          
                          
                          
                          331,362NOW
      and demand deposit
                          
                          
                          120,007
                          
                          
                          
                          240,026
                          
                          
                          
                          240,026
                          
                          
                          
                          1,054,030
                          
                          
                          
                          1,654,089Liquid
      CDs
                          
                          
                          644,787
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          644,787Certificates
      of deposit
                          
                          
                          4,961,035
                          
                          
                          
                          2,342,472
                          
                          
                          
                          640,734
                          
                          
                          
                          -
                          
                          
                          
                          7,944,241Borrowings,
      net
                          
                          
                          1,639,628
                          
                          
                          
                          1,943,433
                          
                          
                          
                          200,000
                          
                          
                          
                          1,978,866
                          
                          
                          
                          5,761,927Total
      interest-bearing liabilities
                          
                          
                          7,780,165
                          
                          
                          
                          5,066,543
                          
                          
                          
                          1,621,372
                          
                          
                          
                          3,978,682
                          
                          
                          
                          18,446,762Interest
      sensitivity gap
                          
                          
                          (1,185,330
                          )
                          
                          
                          1,334,695
                          
                          
                          
                          3,149,694
                          
                          
                          
                          (3,099,785
                          )
                          
                          $
                          199,274Cumulative
      interest sensitivity gap
                          
                          $
                          (1,185,330
                          )
                          
                          $
                          149,365
                          
                          
                          $
                          3,299,059
                          
                          
                          $
                          199,274Cumulative
      interest sensitivity gap as a percentage of total assets
                          
                          
                          (5.91
                          )%
                          
                          
                          0.74
                          %
                          
                          
                          16.45
                          %
                          
                          
                          0.99
                          %Cumulative
      net interest-earning assets as a percentage of interest-bearing
      liabilities
                          
                          
                          84.76
                          %
                          
                          
                          101.16
                          %
                          
                          
                          122.80
                          %
                          
                          
                          101.08
                          %
 
 (1)
              Mortgage
      loans and consumer and other loans include loans held-for-sale and exclude
      non-performing loans and the allowance for loan
  losses.
 (2)
              Net
      unamortized purchase premiums and deferred costs are
    prorated.
 (3)
              Includes
      securities available-for-sale at amortized
cost.
 
 NII
Sensitivity Analysis
 
 In
managing IRR, we also use an internal income simulation model for our NII
sensitivity analyses.  These analyses measure changes in projected net
interest income over various time periods resulting from hypothetical changes in
interest rates.  The interest rate scenarios most commonly analyzed
reflect gradual and reasonable changes over a specified time period, which is
typically one year.  The base net interest income projection utilizes
similar assumptions as those reflected in the Gap Table, assumes that cash flows
are reinvested in similar assets and liabilities and that interest rates as of
the reporting date remain constant over the projection period.  For
each alternative interest rate scenario, corresponding changes in the cash flow
and repricing assumptions of each financial instrument are made to determine the
impact on net interest income.
  We
perform analyses of interest rate increases and decreases of up to 300 basis
points although changes in interest rates of 200 basis points is a more common
and reasonable scenario for analytical purposes.  Assuming the entire
yield curve was to increase 200 basis points, through
 53
 quarterly
parallel increments of 50 basis points, our projected net interest income for
the twelve month period beginning April 1, 2010 would increase by approximately
0.18% from the base projection.  At December 31, 2009, in the up 200
basis point scenario, our projected net interest income for the twelve month
period beginning January 1, 2010 would have increased by approximately 1.16%
from the base projection.  The current low interest rate environment
prevents us from performing an income simulation for a decline in interest rates
of the same magnitude and timing as our rising interest rate simulation, since
certain asset yields, liability costs and related indexes are below
2.00%.  However, assuming the entire yield curve was to decrease 100
basis points, through quarterly parallel decrements of 25 basis points, our
projected net interest income for the twelve month period beginning April 1,
2010 would decrease by approximately 1.73% from the base
projection.  At December 31, 2009, in the down 100 basis point
scenario, our projected net interest income for the twelve month period
beginning January 1, 2010 would have decreased by approximately 2.53% from the
base projection.  The down 100 basis point scenarios include some
limitations as well since certain indices, yields and costs are already below
1.00%.
 
 Various
shortcomings are inherent in both the Gap Table and NII sensitivity
analyses.  Certain assumptions may not reflect the manner in which
actual yields and costs respond to market changes.  Similarly,
prepayment estimates and similar assumptions are subjective in nature, involve
uncertainties and, therefore, cannot be determined with
precision.  Changes in interest rates may also affect our operating
environment and operating strategies as well as those of our
competitors.  In addition, certain adjustable rate assets have
limitations on the magnitude of rate changes over specified periods of
time.  Accordingly, although our NII sensitivity analyses may provide
an indication of our IRR exposure, such analyses are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
our net interest income and our actual results will
differ.  Additionally, certain assets, liabilities and items of income
and expense which may be affected by changes in interest rates, albeit to a much
lesser degree, and which do not affect net interest income, are excluded from
this analysis.  These include income from bank owned life insurance
and changes in the fair value of MSR.  With respect to these items
alone, and assuming the entire yield curve was to increase 200 basis points,
through quarterly parallel increments of 50 basis points, our projected net
income for the twelve month period beginning April 1, 2010 would increase by
approximately $5.2 million.  Conversely, assuming the entire yield
curve was to decrease 100 basis points, through quarterly parallel decrements of
25 basis points, our projected net income for the twelve month period beginning
April 1, 2010 would decrease by approximately $2.8 million with respect to these
items alone.
 
 For
further information regarding our market risk and the limitations of our gap
analysis and NII sensitivity analysis, see Part II, Item 7A, “Quantitative and
Qualitative Disclosures about Market Risk,” included in our 2009 Annual Report
on Form 10-K.
 
 ITEM 4.
              Controls
      and Procedures
 
 George L.
Engelke, Jr., our Chairman and Chief Executive Officer, and Frank E. Fusco, our
Executive Vice President, Treasurer and Chief Financial Officer, conducted an
evaluation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act, as of March 31,
2010.  Based upon their evaluation, they each found that our
disclosure controls and procedures were effective to ensure that information
required to be disclosed in the reports we file and submit under the Exchange
Act is recorded, processed, summarized and reported as and when required and
that such information is accumulated and
 54
  There
were no changes in our internal controls over financial reporting that occurred
during the three months ended March 31, 2010 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
 
 PART
II - OTHER INFORMATION
 
 ITEM 1.
              Legal
      Proceedings
 
 In the
ordinary course of our business, we are routinely made a defendant in or a party
to pending or threatened legal actions or proceedings which, in some cases, seek
substantial monetary damages from or other forms of relief against
us.  In our opinion, after consultation with legal counsel, we believe
it unlikely that such actions or proceedings will have a material adverse effect
on our financial condition, results of operations or liquidity.
 
 Goodwill
Litigation
 
 We have
been a party to an action against the United States involving an assisted
acquisition made in the early 1980’s and supervisory goodwill accounting
utilized in connection therewith.  The trial in this action, entitled
AstoriaFederal
Savings and Loan Association vs. United States, took place during 2007
before the Federal Claims Court.  The Federal Claims Court, by
decision filed on January 8, 2008, awarded to us $16.0 million in damages from
the U.S. Government.  No portion of the $16.0 million award was
recognized in our consolidated financial statements.  The U.S.
Government appealed such decision to the Court of Appeals.  In an
opinion dated May 28, 2009, the Court of Appeals affirmed in part and reversed
in part the lower court’s ruling and remanded the case to the Federal Claims
Court for further proceedings.
 
 On April
12, 2010, we agreed to a final binding settlement of this matter with the U.S.
Government in an amount equal to $6.2 million.  Legal expense related
to this matter has been recognized as it has been incurred.  The
settlement will be recognized in our consolidated statement of income in April
2010.
 
 Automated Transactions LLC
Litigation
 
 On
November 20, 2009, an action entitled Automated
Transactions LLC v. Astoria Financial Corporation and Astoria Federal Savings
and Loan Association was commenced in the United States District Court
for the Southern District of New York against us by Automated Transactions LLC,
alleging patent infringement involving integrated banking and transaction
machines that we utilize.  We were served with the summons and
complaint in such action on March 2, 2010.  We understand that the
term “integrated banking and transaction machines” is intended to include
automated teller machines.  The plaintiff also filed a similar suit on
the same day against another financial institution and its holding
company.  The plaintiff seeks unspecified monetary damages and an
injunction preventing us from continuing to utilize the allegedly infringing
machines.  We are vigorously defending this lawsuit, and filed an
answer and counterclaims to the plaintiff’s complaint on March 23, 2010, to
which the plaintiff filed a reply on April 12, 2010.  We have also
tendered requests for indemnification from the manufacturer and from the
transaction processor utilized with respect to the accused products, and have
filed a
 55
  ITEM 1A.
              Risk
      Factors
 
 For a
summary of risk factors relevant to our operations, see Part I, Item 1A, “Risk
Factors,” in our 2009 Annual Report on Form 10-K.  There are no other
material changes in risk factors relevant to our operations since December 31,
2009 except as discussed below.
 
 The
potential adoption of significant aspects of proposed regulatory reform
legislation may have a material effect on our operations.
 
 On
December 11, 2009, the House of Representatives passed the Wall Street Reform
and Consumer Protection Act of 2009, or the Reform Bill. The Reform Bill is
intended to address perceived weaknesses in the U.S. financial regulatory system
and prevent future economic and financial crises. The Reform Bill, among other
things, would create three new governmental agencies: the Financial Services
Oversight Council, the Federal Insurance Office and the Consumer Financial
Protection Agency, or the CFPA. The CFPA would have the authority to implement
and enforce a variety of existing consumer protection statutes and to issue new
regulations. In addition, the Reform Bill would establish the Division of Thrift
Supervision within the Office of the Comptroller of the Currency, or OCC, to
abolish the OTS and transfer its functions and personnel to the Division of
Thrift Supervision.  The Reform Bill preserves the federal thrift
charter for thrifts, such as Astoria Federal.  Most significantly for
us, the Reform Bill contains provisions which would result in thrift holding
companies, such as Astoria Financial Corporation, becoming bank holding
companies subject to consolidated capital requirements, Bank Holding Company Act
limitations and supervision by the Board of Governors of the Federal Reserve
System, or FRB.
 
 On March
15, 2010, Senate Banking Committee Chairman Christopher Dodd released a revised
draft of financial regulatory reform legislation, the Restoring American
Financial Stability Act.  On March 22, 2010, the Senate Banking
Committee voted to report Chairman Dodd’s bill to the full Senate for
consideration, as modified.  Like the Reform Bill, Chairman Dodd’s
bill contemplates the elimination of the OTS and the transfer of supervisory
authority over federal thrifts to the OCC.  Unlike the Reform Bill,
Chairman Dodd’s bill does not eliminate the thrift holding company, nor does it
expressly provide that thrift holding companies would be regulated as bank
holding companies.  Instead, under Chairman Dodd’s bill, thrift
holding companies would survive, with holding companies of federal thrifts with
less than $50 billion in consolidated assets, like us, being regulated by the
OCC.  However, under Chairman Dodd’s bill, the FRB would have
rulemaking authority over all thrift holding companies, regardless of size, as
well as over all bank holding companies, though the FRB must consult with the
OCC and the FDIC before proposing or adopting regulations that apply to holding
companies of federal thrifts with less than $50 billion in consolidated
assets.  If the FRB obtains rulemaking authority over thrift holding
companies, as proposed in Chairman Dodd’s bill, existing thrift holding
companies, like us, may become subject to consolidated capital requirements,
activities
 56
  The exact
requirements and timing of any final legislation cannot be determined at this
time.  If the more significant provisions of the Reform Bill or
Chairman Dodd’s bill become final, our operations would be significantly
affected.
 
 The
FDIC’s restoration plan and the related proposed rulemaking may have a further
material effect on our results of operations.
 
 The
failures of a number of banks and thrifts over the past several years has
resulted in a significant increase in the loss provisions of the DIF of the
FDIC. This has resulted in a decline in the DIF reserve ratio. Because the DIF
reserve ratio declined below 1.15% and is expected to remain below 1.15%, the
FDIC was required to establish a restoration plan to restore the reserve ratio
to 1.15% within a period of five years, which was subsequently extended to eight
years.  In February 2009, the FDIC adopted a final rule which set the
initial base assessment rates beginning April 1, 2009 and provided for the
following adjustments to an institution's assessment rate: (1) a decrease for
long-term unsecured debt, including most senior and subordinated debt; (2) an
increase for secured liabilities in excess of 25% of domestic deposits; and (3)
for institutions not placed in the lowest risk category for assessment purposes,
an increase for brokered deposits above a threshold amount.  Additionally,
in September 2009, the FDIC adopted an amendment to the restoration plan that
increases the deposit insurance assessment rate schedule by 3 basis points
(annualized) of insured deposits beginning January 1, 2011.
 
 On April
13, 2010, the Board of Directors of the FDIC approved a Notice of Proposed
Rulemaking to revise the deposit insurance assessment system for large
institutions that pose unique and concentrated risks to the DIF.  The
FDIC proposes to revise the assessment system applicable to large institutions
to better capture risk at the time an institution assumes the risk, to better
differentiate institutions during periods of good economic and banking
conditions based on how they would fare during periods of stress or economic
downturns, and to better take into account the losses that the FDIC may incur if
an institution fails.  Under the proposal, risk categories and
long-term debt ratings would no longer be used to categorize large institutions
for purposes of assigning a range of potential assessment rates, but the FDIC
would continue to use the supervisory ratings as a factor in measuring
risk.  The FDIC would replace the financial ratios currently used with
two scorecards: one for large institutions and the other for highly complex
institutions.  A highly complex institution would be defined as an
insured depository institution with greater than $50 billion in total assets
that is wholly owned by a parent company with more than $500 billion in
total assets.  A large institution would be defined as an insured
depository institution with $10 billion or greater in total assets for at least
four consecutive quarters.  Accordingly, we would be considered a
large institution under the proposal.
 
 Each
scorecard would have two components—a performance score and loss severity
score.  The two scores would be combined to produce a total score,
which would be translated into an initial assessment rate.  Similar to
the current system, the FDIC would retain an ability to make limited
discretionary adjustments.  The FDIC proposes that the Board of
Directors of the FDIC adopt new initial and total base assessment rate schedules
effective January 1, 2011.  For large institutions, the initial base
assessment rate would range from 10 to 50 basis points, and the total base
assessment rate would range from 5 to 85 basis points, effective January 1, 2011
(excluding the aforementioned 3 basis point increase in assessment rates
beginning January 1, 2011).
  57
 The
potential effects on us of this Notice of Proposed Rulemaking are unknown at
this time.  However, if adopted as proposed, these new rules could
result in even higher FDIC deposit insurance assessments effective January 1,
2011, which could further increase non-interest expense and have a material
impact on our results of operations.
 
 ITEM 2.
              Unregistered
      Sales of Equity Securities and Use of
Proceeds
 
 During
the three months ended March 31, 2010, there were no repurchases of our common
stock.  Our twelfth stock repurchase plan, approved by our Board of
Directors on April 18, 2007, authorized the purchase of 10,000,000 shares, or
approximately 10% of our common stock outstanding, in open-market or privately
negotiated transactions.  At March 31, 2010, a maximum of 8,107,300
shares may yet be purchased under this plan.  As of March 31, 2010, we
are not currently repurchasing additional shares of our common
stock.
 
 ITEM 3.
              Defaults
      Upon Senior Securities
 
 Not
applicable.
 
 ITEM 4.
              (Removed
      and Reserved)
 
 ITEM 5.
              Other
      Information
 
 Not
applicable.
 
 ITEM 6.
              Exhibits
 
 See Index
of Exhibits on page 59.
 
 SIGNATURE
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
 
 Astoria
      Financial CorporationDated:
                    May 7, 2010
                    
                    By:
                    /s/
                    Frank E. FuscoFrank
      E. FuscoExecutive
      Vice President,Treasurer
      and Chief Financial Officer(Principal
      Accounting
Officer)
  58
  ASTORIA
FINANCIAL CORPORATION AND SUBSIDIARIES
 INDEX
OF EXHIBITS
 
 Exhibit No.
                
                Identification of Exhibit31.1
                
                Certifications
      of Chief Executive Officer.31.2
                
                Certifications
      of Chief Financial Officer.32.1
                
                Written
      Statement of Chief Executive Officer furnished pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
      1350.  Pursuant to SEC rules, this exhibit will not be deemed
      filed for purposes of Section 18 of the Exchange Act or otherwise subject
      to the liability of that section.32.2
                
                Written
      Statement of Chief Financial Officer furnished pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
      1350.  Pursuant to SEC rules, this exhibit will not be deemed
      filed for purposes of Section 18 of the Exchange Act or otherwise subject
      to the liability of that
section.
  59