Fitch Affirms Astoria Financial's Ratings; Outlook Remains Negative

Business Wire, July 25, 2008

NEW YORK -- Fitch Ratings has affirmed Astoria Financial Corporation's (AF) Long-Term and Short-Term Issuer Default Ratings (IDR) at 'BBB+' and 'F2', respectively. The Outlook remains Negative.

AF's ratings are as follows:

--Long-Term IDR at 'BBB+';

--Short-Term IDR at 'F2';

--Individual rating at 'B/C';

--Senior unsecured at 'BBB+';

--Support at '5';

--Support Floor at 'NF'.

The Negative Outlook reflects Fitch's view that AF's operating performance will remain below peer levels and that asset quality may be pressured due to continued adverse macro-economic factors. While the company experienced an improvement to the margin during second-quarter 2008, profitability is considerably lower than historical standards, driven largely by a high level of interest rate risk exposure. AF funds its adjustable rate loan portfolio primarily with short-term deposits; however, the flat yield curve over the last several years has driven many depositors to shorter term maturities, exposing the company to interest rate risk more so than many of AF's peers. Fitch would view a more proactive interest rate risk mitigation strategy positively, one that would allow management to position the balance sheet in such a way that when interest rates change, the sensitivity to earnings will be minimized.

Management has indicated the willingness for a lower level of tangible capital, which Fitch considers somewhat aggressive in light of the volatility in the real estate market and AF's low level of equity generation. Offsetting the aforementioned weaknesses is the absence of any material asset quality deterioration, especially when compared to AF's peers and similarly rated issuers. Sustained and improved profitability, continued stable credit metrics and a more conservative approach to capital management could result in a return to a Stable Outlook.

The ratings affirmation reflects AF's historically solid asset quality, adequate regulatory capital and a reasonable level of loan loss reserves given its favorable charge-off experience. Asset quality has been a differentiating factor and a significant support of the company's rating. Conservative underwriting and appropriately timed actions to limit credit risk have been the impetus for solid credit metrics. Nonetheless, AF's loan portfolio may be affected by the continued deterioration in the housing sector and economic conditions, particularly its exposure to riskier reduced documentation mortgage loans. Fitch will closely monitor the performance of the reduced documentation portfolio, which represents approximately 25% of loans. While the company no longer originates this type of loan, asset quality weaknesses largely originate from this loan type. Given the lower credit risk characteristics of the current balance sheet (i.e. average loan-to-value of its residential loan portfolio is 65%) and historical loss experience, management believes tangible capital levels are appropriate, a view Fitch views as imprudent in light of headwinds expected in the residential real estate market.

The following related entities are also affirmed, with a Negative Outlook:

Astoria Federal Savings & Loan

--Long-term IDR at 'BBB+';

--Long-term Deposits at 'A-';

--Short-Term IDR at 'F2';

--Short-Term Deposits at 'F2';

--Individual Rating at 'B/C';

--Support at '5';

--Support Floor at 'NF'.

Astoria Capital Trust I

--Preferred stock at 'BBB'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.