Astoria Financial 10Q 2008 Q2 Quarterly report

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 June 30, 2008

o	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
(State or other jurisdiction of
incorporation or organization)

11-3170868
(I.R.S. Employer Identification
Number)

One Astoria Federal Plaza, Lake Success, New York
(Address of principal executive offices)

11042-1085
(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 o

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 o Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o 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, July 31, 2008
.01 Par Value		95,825,535

		Page
	PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):
	Consolidated Statements of Financial Condition at June 30, 2008 and December 31, 2007	2
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2008 and June 30, 2007	3
	Consolidated Statement of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2008	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and June 30, 2007	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	46
Item 4.	Controls and Procedures	48
	PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Submission of Matters to a Vote of Security Holders	51
Item 5.	Other Information	52
Item 6.	Exhibits	52
Signature		52

ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(In Thousands, Except Share Data)		(Unaudited) At June 30, 2008		At December 31, 2007

ASSETS:
Cash and due from banks	$	82,224			$	93,972
Repurchase agreements		42,130				24,218
Available-for-sale securities:
Encumbered		1,101,996				1,137,363
Unencumbered		203,278				175,943

		1,305,274				1,313,306
Held-to-maturity securities, fair value of $2,861,882 and $3,013,014, respectively:
Encumbered		2,676,324				2,839,017
Unencumbered		221,931				218,527

		2,898,255				3,057,544
Federal Home Loan Bank of New York stock, at cost		200,260				201,490
Loans held-for-sale, net		10,465				6,306
Loans receivable:
Mortgage loans, net		15,840,358				15,791,962
Consumer and other loans, net		340,018				363,052

		16,180,376				16,155,014
Allowance for loan losses		(81,843	)			(78,946	)

Loans receivable, net		16,098,533				16,076,068
Mortgage servicing rights, net		12,816				12,910
Accrued interest receivable		78,651				79,132
Premises and equipment, net		140,161				139,563
Goodwill		185,151				185,151
Bank owned life insurance		397,170				398,280
Other assets		168,981				131,428

Total assets	$	21,620,071			$	21,719,368

LIABILITIES:
Deposits:
Savings	$	1,886,470			$	1,891,618
Money market		316,607				333,914
NOW and demand deposit		1,506,549				1,478,362
Liquid certificates of deposit		1,246,359				1,447,341
Certificates of deposit		8,133,061				7,898,203

Total deposits		13,089,046				13,049,438
Reverse repurchase agreements		3,450,000				3,730,000
Federal Home Loan Bank of New York advances		3,091,000				3,058,000
Other borrowings, net		396,975				396,658
Mortgage escrow funds		141,566				129,412
Accrued expenses and other liabilities		227,636				144,516

Total liabilities		20,396,223				20,508,024
STOCKHOLDERS’ 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 95,935,535 and 95,728,562 shares outstanding, respectively)		1,665				1,665
Additional paid-in capital		846,343				846,227
Retained earnings		1,898,799				1,883,902
Treasury stock (70,559,353 and 70,766,326 shares, at cost, respectively)		(1,458,008	)			(1,459,865	)
Accumulated other comprehensive loss		(44,683	)			(39,476	)
Unallocated common stock held by ESOP (5,531,986 and 5,761,391 shares, respectively)		(20,268	)			(21,109	)

Total stockholders’ equity		1,223,848				1,211,344

Total liabilities and stockholders’ equity	$	21,620,071			$	21,719,368

See accompanying Notes to Consolidated Financial Statements.

ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

	For the Three Months Ended June 30,				For the Six Months Ended June 30,

(In Thousands, Except Share Data)		2008		2007		2008		2007

Interest income:
Mortgage loans:
One-to-four family	$	152,247	$	141,568	$	305,845	$	278,084
Multi-family, commercial real estate and construction		58,686		64,438		119,001		129,108
Consumer and other loans		4,177		7,812		9,609		16,006
Mortgage-backed and other securities		46,708		55,885		94,601		114,900
Federal funds sold and repurchase agreements		1,018		499		1,654		1,475
Federal Home Loan Bank of New York stock		3,803		2,749		8,025		5,347

Total interest income		266,639		272,951		538,735		544,920

Interest expense:
Deposits		97,851		114,096		208,054		224,454
Borrowings		76,208		75,964		157,315		150,048

Total interest expense		174,059		190,060		365,369		374,502

Net interest income		92,580		82,891		173,366		170,418
Provision for loan losses		7,000		—		11,000		—

Net interest income after provision for loan losses		85,580		82,891		162,366		170,418

Non-interest income:
Customer service fees		16,775		16,159		31,909		31,328
Other loan fees		1,090		1,110		2,129		2,328
Mortgage banking income, net		1,575		1,224		2,025		1,840
Income from bank owned life insurance		4,008		4,287		8,397		8,490
Other		1,385		3,500		2,810		4,891

Total non-interest income		24,833		26,280		47,270		48,877

Non-interest expense:
General and administrative:
Compensation and benefits		32,375		30,046		64,366		61,170
Occupancy, equipment and systems		16,847		16,494		33,751		33,015
Federal deposit insurance premiums		548		407		1,119		814
Advertising		1,550		1,977		2,623		3,892
Other		8,662		9,783		16,352		16,936

Total non-interest expense		59,982		58,707		118,211		115,827

Income before income tax expense		50,431		50,464		91,425		103,468
Income tax expense		16,981		16,400		29,072		33,627

Net income	$	33,450	$	34,064	$	62,353	$	69,841

Basic earnings per common share	$	0.37	$	0.38	$	0.70	$	0.77

Diluted earnings per common share	$	0.37	$	0.37	$	0.69	$	0.75

Dividends per common share	$	0.26	$	0.26	$	0.52	$	0.52

Basic weighted average common shares		89,550,934		90,704,749		89,511,918		91,062,161
Diluted weighted average common and common equivalent shares		90,859,457		92,166,978		90,914,571		92,864,131

See accompanying Notes to Consolidated Financial Statements.

ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)

For the Six Months Ended June 30, 2008

(In Thousands, Except Share Data)	Total			Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss				Unallocated Common Stock Held by ESOP

Balance at December 31, 2007	$	1,211,344		$	1,665	$	846,227		$	1,883,902		$	(1,459,865	)		$	(39,476	)		$	(21,109	)
Comprehensive income:
Net income		62,353			—		—			62,353			—				—				—
Other comprehensive (loss) income, net of tax:
Net unrealized loss on securities		(5,609	)		—		—			—			—				(5,609	)			—
Reclassification of prior service cost		67			—		—			—			—				67				—
Reclassification of net actuarial loss		239			—		—			—			—				239				—
Reclassification of loss on cash flow hedge		96			—		—			—			—				96				—

Comprehensive income		57,146

Common stock repurchased (590,000 shares)		(14,596	)		—		—			—			(14,596	)			—				—
Dividends on common stock ($0.52 per share)		(46,801	)		—		156			(46,957	)		—				—				—
Exercise of stock options and related tax benefit (406,008 shares issued)		7,370			—		1,151			(2,166	)		8,385				—				—
Restricted stock grants (394,840 shares)		—			—		(9,839	)		1,693			8,146				—				—
Tax benefit shortfall on vested restricted stock		(6	)		—		(6	)		—			—				—				—
Forfeitures of restricted stock (3,875 shares)		4			—		108			(26	)		(78	)			—				—
Stock-based compensation and allocation of ESOP stock		9,387			—		8,546			—			—				—				841

Balance at June 30, 2008	$	1,223,848		$	1,665	$	846,343		$	1,898,799		$	(1,458,008	)		$	(44,683	)		$	(20,268	)

See accompanying Notes to Consolidated Financial Statements.

ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

	For the Six Months Ended June 30,

(In Thousands)	2008			2007

Cash flows from operating activities:
Net income	$	62,353		$	69,841
Adjustments to reconcile net income to net cash provided by operating activities:
Net premium amortization on mortgage loans and mortgage-backed securities		17,174			9,530
Net amortization of deferred costs on consumer and other loans, other securities and borrowings		1,512			2,048
Net provision for loan and real estate losses		11,986			—
Depreciation and amortization		6,717			6,713
Net gain on sales of loans		(741	)		(994	)
Originations of loans held-for-sale		(76,804	)		(130,647	)
Proceeds from sales and principal repayments of loans held-for-sale		73,426			127,419
Stock-based compensation and allocation of ESOP stock		9,391			8,385
Decrease in accrued interest receivable		481			600
Mortgage servicing rights amortization, valuation allowance adjustments and capitalized amounts, net		94			590
Bank owned life insurance income and insurance proceeds received, net		1,110			(8,490	)
Increase in other assets		(25,802	)		(15,272	)
Increase in accrued expenses and other liabilities		83,591			11,461

Net cash provided by operating activities		164,488			81,184

Cash flows from investing activities:
Originations of loans receivable		(2,155,856	)		(2,033,525	)
Loan purchases through third parties		(233,577	)		(233,522	)
Principal payments on loans receivable		2,308,139			1,636,196
Proceeds from sales of non-performing loans		12,536			5,608
Purchases of securities held-to-maturity		(166,549	)		—
Purchases of securities available-for-sale		(106,645	)		—
Principal payments on securities held-to-maturity		326,627			389,353
Principal payments on securities available-for-sale		107,073			143,059
Net redemptions (purchases) of Federal Home Loan Bank of New York stock		1,230			(1,961	)
Proceeds from sales of real estate owned, net		5,284			585
Purchases of premises and equipment, net of proceeds from sales		(7,315	)		(4,459	)

Net cash provided by (used in) investing activities		90,947			(98,666	)

Cash flows from financing activities:
Net increase in deposits		39,608			223,832
Net decrease in borrowings with original terms of three months or less		(217,000	)		(438,000	)
Proceeds from borrowings with original terms greater than three months		750,000			2,100,000
Repayments of borrowings with original terms greater than three months		(780,000	)		(1,800,000	)
Net increase in mortgage escrow funds		12,154			19,653
Common stock repurchased		(14,596	)		(48,334	)
Cash dividends paid to stockholders		(46,957	)		(47,617	)
Cash received for options exercised		6,219			7,076
Excess tax benefits from share-based payment arrangements		1,301			2,053

Net cash (used in) provided by financing activities		(249,271	)		18,663

Net increase in cash and cash equivalents		6,164			1,181
Cash and cash equivalents at beginning of period		118,190			205,710

Cash and cash equivalents at end of period	$	124,354		$	206,891

Supplemental disclosures:
Cash paid during the period:
Interest	$	369,499		$	371,117

Income taxes	$	32,448		$	35,379

Additions to real estate owned	$	15,284		$	1,883

See accompanying Notes to Consolidated Financial Statements.

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 in accordance with Financial Accounting Standards Board, or FASB, revised Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.” 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 on or after November 1, 2009 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 9 of Notes to Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of our 2007 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 June 30, 2008 and December 31, 2007, our results of operations for the three and six months ended June 30, 2008 and 2007, changes in our stockholders’ equity for the six months ended June 30, 2008 and our cash flows for the six months ended June 30, 2008 and 2007. 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 June 30, 2008 and December 31, 2007, and amounts of revenues and expenses in the consolidated statements of income for the three and six months ended June 30, 2008 and 2007. The results of operations for the three and six months ended June 30, 2008 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.

These consolidated financial statements should be read in conjunction with our December 31, 2007 audited consolidated financial statements and related notes included in our 2007 Annual Report on Form 10-K.

2. Earnings Per Share, or EPS

The following table is a reconciliation of basic and diluted EPS.

	For the Three Months Ended June 30,

	2008				2007

(In Thousands, Except Per Share Data)	Basic EPS		Diluted EPS (1)		Basic EPS		Diluted EPS (2)

Net income	$	33,450	$	33,450	$	34,064	$	34,064

Total weighted average basic common shares outstanding		89,551		89,551		90,705		90,705
Effect of dilutive securities:
Options		—		1,043		—		1,346
Restricted stock		—		265		—		116

Total weighted average basic and diluted common shares outstanding		89,551		90,859		90,705		92,167

Net earnings per common share	$	0.37	$	0.37	$	0.38	$	0.37

	For the Six Months Ended June 30,

	2008				2007

(In Thousands, Except Per Share Data)	Basic EPS		Diluted EPS (3)		Basic EPS		Diluted EPS (4)

Net income	$	62,353	$	62,353	$	69,841	$	69,841

Total weighted average basic common shares outstanding		89,512		89,512		91,062		91,062
Effect of dilutive securities:
Options		—		1,159		—		1,697
Restricted stock		—		244		—		105

Total weighted average basic and diluted common shares outstanding		89,512		90,915		91,062		92,864

Earnings per common share	$	0.70	$	0.69	$	0.77	$	0.75

(1)	Options to purchase 4,579,330 shares of common stock were outstanding during the three months ended June 30, 2008, but were not included in the computation of diluted EPS because their inclusion would be anti-dilutive.

(2)	Options to purchase 3,179,650 shares of common stock were outstanding during the three months ended June 30, 2007, but were not included in the computation of diluted EPS because their inclusion would be anti-dilutive.

(3)	Options to purchase 3,888,681 shares of common stock were outstanding during the six months ended June 30, 2008, but were not included in the computation of diluted EPS because their inclusion would be anti-dilutive.

(4)	Options to purchase 2,245,308 shares of common stock and 106,700 shares of unvested restricted stock were outstanding during the six months ended June 30, 2007, but were not included in the computation of diluted EPS because their inclusion would be anti-dilutive.

3. Stock Incentive Plans

On January 28, 2008, 380,400 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 14,440 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 in January 2008, 311,500 shares vest 100% on the fifth anniversary of the grant date and 68,900 shares vest 30% on the first anniversary of the grant date, 30% on the second anniversary of the grant date and 40% on the third anniversary of the grant date. 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. Under the 2007 Director Stock Plan, restricted stock awards vest 100% on the third anniversary of the grant date, 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.

Restricted stock activity in our stock incentive plans for the six months ended June 30, 2008 is summarized as follows:

	Number of Shares		Weighted Average Grant Date Fair Value

Nonvested at January 1, 2008	466,339			$	29.94
Granted	394,840				24.92
Vested	(2,869	)			(29.89	)
Forfeited	(3,875	)			(27.88	)

Nonvested at June 30, 2008	854,435				27.63

Stock-based compensation expense recognized for stock options and restricted stock for the three months ended June 30, 2008 totaled $1.3 million, net of taxes of $688,000, and totaled $2.4 million, net of taxes of $1.3 million, for the six months ended June 30, 2008. Stock-based compensation expense recognized for stock options and restricted stock for the three months ended June 30, 2007 totaled $928,000, net of taxes of $500,000, and totaled $2.0 million, net of taxes of $1.1 million, for the six months ended June 30, 2007. At June 30, 2008, pre-tax compensation cost related to all nonvested awards of options and restricted stock not yet recognized totaled $16.0 million and will be recognized over a weighted average period of approximately 3.4 years.

4. Pension Plans and Other Postretirement Benefits

The following tables set forth information regarding the components of net periodic cost for our defined benefit pension plans and other postretirement benefit plan.

	Pension Benefits								Other Postretirement Benefits

	For the Three Months Ended June 30,								For the Three Months Ended June 30,

(In Thousands)	2008				2007				2008				2007

Service cost		$	699			$	785			$	57			$	100
Interest cost			2,731				2,620				253				239
Expected return on plan assets			(3,162	)			(3,212	)			—				—
Amortization of prior service cost (credit)			77				93				(25	)			42
Recognized net actuarial loss (gain)			191				478				(35	)			(11	)

Net periodic cost		$	536			$	764			$	250			$	370

	Pension Benefits								Other Postretirement Benefits

	For the Six Months Ended June 30,								For the Six Months Ended June 30,

(In Thousands)	2008				2007				2008				2007

Service cost		$	1,470			$	1,657			$	128			$	232
Interest cost			5,506				5,249				510				513
Expected return on plan assets			(6,326	)			(6,424	)			—				—
Amortization of prior service cost (credit)			153				184				(50	)			84
Recognized net actuarial loss (gain)			440				956				(71	)			(11	)

Net periodic cost		$	1,243			$	1,622			$	517			$	818

5. Premises and Equipment, net

Included in premises and equipment, net, is an office building with a net carrying value of $18.5 million which is classified as held-for-sale as of June 30, 2008. The office building, located in Lake Success, New York, formerly housed our lending operations, which were relocated in March 2008 to a facility which we currently lease in Mineola, New York. We performed an impairment analysis of the building and determined that the estimated fair value of the building exceeds the net carrying value and, as such, there is no impairment. Since the building is classified as held-for-sale, no future depreciation expense will be recorded.

6. Fair Value Measurements

Effective January 1, 2008, we adopted Statement of Financial Accounting Standards, or SFAS, No. 157 “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 applies only to fair value measurements already required or permitted by other accounting standards and does not impose requirements for additional fair value measures. SFAS No. 157 was issued to increase consistency and comparability in reporting fair values. Our adoption of SFAS No. 157 did not have a material impact on our financial condition or results of operations.

The following disclosures, which include certain disclosures which are generally not required in interim period financial statements, are included herein as a result of our adoption of SFAS No. 157.

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 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.

In accordance with SFAS No. 157, 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. SFAS No. 157 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 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. Approximately 94% of our securities available-for-sale portfolio consists of mortgage-backed securities. The fair values for substantially all of these securities are obtained from an independent nationally recognized pricing service. We use third party brokers to obtain prices for a small portion of the portfolio that we are not able to price using our third party pricing service. Our independent pricing service and third party brokers provide us with prices which are categorized as Level 2, as quoted prices in active markets for identical assets are generally not available for the majority of securities in our portfolio. Various modeling techniques are used 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, two-sided markets, benchmark securities, bids, offers and reference data. The remaining 6% of our securities available-for-sale portfolio is comprised primarily of Freddie Mac preferred equity securities for which fair values are obtained from quoted market prices in active markets and, as such, are classified as Level 1.

The following table provides the level of valuation assumptions used to determine the carrying value of our assets measured at fair value on a recurring basis at June 30, 2008.

		Carrying Value at June 30, 2008

(In Thousands)		Total	Level 1			Level 2			Level 3

Securities available-for-sale	$	1,305,274		$	77,010		$	1,228,264		$	—

The following is a description of valuation methodologies used for assets measured at fair value on a non-recurring basis.

MSR, net

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 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.

Loans Receivable

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. 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 value is estimated through current appraisals, where practical, or a drive-by inspection and a comparison of the property securing the loan with similar properties in the area by either a licensed appraiser

or real estate broker and adjusted as necessary, by management, to reflect current market conditions and, as such, is classified as Level 3.

REO, net

REO represents real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried, net of allowances for losses, at the lower of cost or fair value less estimated selling costs. Fair value is estimated through current appraisals, in conjunction with a drive-by inspection and comparison of the property securing the loan with similar properties in the area by either a licensed appraiser or real estate broker. As these properties are actively marketed, estimated fair value is periodically adjusted by management to reflect current market conditions and, as such, is classified as Level 3.

The following table provides the level of valuation assumptions used to determine the carrying value of our assets measured at fair value on a non-recurring basis at June 30, 2008.

	Carrying Value at June 30, 2008											Losses For the Six Months Ended June 30, 2008

(In Thousands)	Total			Level 1		Level 2			Level 3

MSR, net		$	12,816	$	—		$	—		$	12,816		$	—
Impaired loans (1)			12,620		—			—			12,620			3,297
REO, net (2)			12,249		—			—			12,249			3,460

Total		$	37,685	$	—		$	—		$	37,685		$	6,757

(1)	Losses for the six months ended June 30, 2008 were charged against the allowance for loan losses.

(2)	Losses for the six months ended June 30, 2008 were charged against the allowance for loan losses, in the case of a first write-down, upon the transfer of a loan to REO. Losses subsequent to the transfer of a loan to REO were charged to REO expense.

7. Goodwill Litigation

We are a party to two actions against the United States, involving assisted acquisitions made in the early 1980’s and supervisory goodwill accounting utilized in connection therewith, or goodwill litigation, which could result in a gain.

In one of the actions, entitled The Long Island Savings Bank, FSB et al vs. The United States, the U.S. Court of Federal Claims, or the Court of Federal Claims, rendered a decision on September 15, 2005 awarding us $435.8 million in damages from the U.S. Government. No portion of the $435.8 million award was recognized in our consolidated financial statements. On February 1, 2007, the United States Court of Appeals for the Federal Circuit, or the Court of Appeals, reversed such award. On April 2, 2007, we filed a petition for rehearing or rehearing en banc. Acting en banc, the Court of Appeals returned the case to the original panel of judges for revision. The panel, on September 13, 2007, withdrew and vacated its earlier opinion and issued a new decision. This decision also reversed the award of $435.8 million in damages awarded to us by the Court of Federal Claims. We again filed with the Court of Appeals a petition for rehearing or rehearing en banc. On December 28, 2007, the Court of Appeals denied our petition. We have filed a petition for a Writ of Certiorari with the Supreme Court of the United States.

The other action is entitled Astoria Federal Savings and Loan Association vs. United States. The trial in this action took place during 2007 before the Court of Federal Claims. The Court of Federal Claims, 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 has filed a Notice of Appeal in such action.

The ultimate outcomes of the two actions pending against the United States and the timing of such outcomes are uncertain and there can be no assurance that we will benefit financially from such litigation. Legal expense related to these two actions has been recognized as it has been incurred.

8. Impact of Accounting Standards and Interpretations

Effective January 1, 2008, we adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment of FASB Statement No. 115,” which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. At the effective date, an entity may elect the fair value option for eligible items that exist at that date and report the effect of the first remeasurement to fair value as a cumulative-effect adjustment to the opening balance of retained earnings. Subsequent to the effective date, unrealized gains and losses on items for which the fair value option has been elected are to be reported in earnings. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value and does not eliminate disclosure requirements included in other accounting standards. Upon adoption, we did not elect the fair value option for eligible items that existed at January 1, 2008.

Effective January 1, 2008, we adopted Emerging Issues Task Force, or EITF, Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards,” which clarifies the accounting for income tax benefits related to the payment of dividends on equity-classified employee share-based payment awards that are charged to retained earnings under revised SFAS No. 123, “Share-Based Payment.” The EITF concluded that a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity classified nonvested equity shares, nonvested equity share units and outstanding equity share options should be recognized as an increase to additional paid-in capital. Our adoption of EITF Issue No. 06-11 did not have a material impact on our financial condition or results of operations.

In June 2008, the FASB issued Staff Position, or FSP, No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities,” which addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing EPS under the two-class method described in SFAS No. 128, “Earnings per Share.” The FSP concluded that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and shall be included in the computation of EPS pursuant to the two-class method. Our restricted stock awards are considered participating securities. FSP No. EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period EPS data presented shall be adjusted retrospectively to conform with the provisions of the FSP. Early application is not permitted. FSP No. EITF 03-6-1 is not expected to have a material impact on our computation of EPS.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. SFAS No. 162 will be effective 60 days following the approval by the SEC of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” Any effect of applying the provisions of SFAS No. 162 shall be reported as a change in accounting principle in accordance with SFAS No. 154, “Accounting Changes and Error Corrections.” Additionally, the accounting principles that were used before and after the application of SFAS No. 162 and the reason why applying SFAS No. 162 resulted in a change in accounting principle are to be disclosed. SFAS No. 162 is not expected to result in any changes in our accounting principles and, therefore, will not have an impact on our financial condition or results of operations.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133.” SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” to provide users of financial statements with an enhanced understanding of: (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for; and (3) how such items affect an entity’s financial position, performance and cash flows. SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivative instruments, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS No. 161 also encourages, but does not require, disclosures for earlier periods presented for comparative purposes at initial adoption. Since the provisions of SFAS No. 161 are disclosure related, our adoption of SFAS No. 161 will not have an impact on our financial condition or results of operations.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51.” SFAS No. 160 amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements” to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Among other things, SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements and requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. SFAS No. 160 also amends SFAS No. 128 so that earnings per share calculations in consolidated financial statements will continue to be based on amounts attributable to the parent. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 and is applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for the presentation and disclosure requirements which are to be applied retrospectively for all periods presented. SFAS No. 160 is not expected to have a material impact on our financial condition or results of operations.

In December 2007, the FASB issued revised SFAS No. 141, “Business Combinations,” or SFAS No. 141(R). SFAS No. 141(R) retains the fundamental requirements of SFAS No. 141 that the acquisition method of accounting (formerly the purchase method) be used for all business combinations; that an acquirer be identified for each business combination; and that intangible assets be identified and recognized separately from goodwill. SFAS No. 141(R) requires the acquiring entity in a business combination to recognize the assets acquired, the liabilities

assumed and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. Additionally, SFAS No. 141(R) changes the requirements for recognizing assets acquired and liabilities assumed arising from contingencies and recognizing and measuring contingent consideration. SFAS No. 141(R) also enhances the disclosure requirements for business combinations. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 and may not be applied before that date. SFAS No. 141(R) is not expected to 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 its 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.

Executive Summary

The following overview should be read in conjunction with our Management’s Discussion and Analysis of Financial Condition and Results of Operations, or 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. Additionally, we continue to provide returns to shareholders through dividends and stock repurchases. We have been successful in achieving these goals over the past several years.

The national economy continues to border on, if not already having entered into, a recession and the housing and real estate markets continue to decline. The current operating environment is the result of the significant disruption and volatility in the financial and capital market places which began in the second half of 2007 and continued throughout the first half of 2008. Due to concerns over the economy, the Federal Open Market Committee, or FOMC, reduced the federal funds rate by 100 basis points during the second half of 2007 and by 225 basis points during the first half of 2008, primarily during the 2008 first quarter. These actions have resulted in a more positively sloped yield curve, as well as a reduction in mortgage loan interest rates. This decrease in mortgage loan interest rates led to a significant increase in the levels of residential mortgage loan prepayments during the first half of 2008 compared to the first half of 2007.

Total assets decreased slightly during the six months ended June 30, 2008, primarily due to a decrease in our securities portfolio, partially offset by an increase in our loan portfolio. The decrease in our securities portfolio is the result of cash flow from repayments exceeding purchases of securities. The increase in our total loan portfolio was primarily due to an increase in our one-to-four family mortgage loan portfolio, partially offset by decreases in each of our other loan portfolios. The increase in one-to-four family mortgage loans was attributable to strong originations and purchases of such loans which exceeded repayments during the 2008 second quarter, which more than offset the decrease in this loan portfolio which we experienced during the 2008 first quarter. During the 2008 first quarter, we experienced considerable fallout (the percentage of loan applications received which do not result in loan originations) from our mortgage loan application pipeline which existed at December 31, 2007 due primarily to the rapid decline in market interest rates, coupled with the further tightening of our underwriting standards in late 2007 and early 2008.

Total deposits increased slightly during the six months ended June 30, 2008. Increases in certificates of deposit and NOW and demand deposit accounts were substantially offset by decreases in Liquid CDs, money market accounts and savings accounts. We continue to experience intense competition for deposits; however, we have continued to maintain our deposit pricing discipline. Our borrowings portfolio decreased from December 31, 2007, as we deployed excess cash flows from loan and securities repayments to reduce short-term borrowings.

Net income for the three months ended June 30, 2008 was flat compared to the three months ended June 30, 2007 primarily due to an increase in net interest income, substantially offset by the provision for loan losses recorded in the 2008 second quarter, a decrease in non-interest income and an increase in non-interest expense. Net income for the six months ended June 30, 2008 decreased compared to the six months ended June 30, 2007 primarily due to the provision for loan losses recorded in 2008, a decrease in non-interest income and an increase in non-interest expense, partially offset by an increase in net interest income. The net interest margin and the net interest rate spread for the three and six months ended June 30, 2008 increased compared to the three and six months ended June 30, 2007.

The increases in net interest income, the net interest margin and the net interest rate spread for the three and six months ended June 30, 2008, compared to the three and six months ended June 30, 2007, were primarily due to decreases in interest expense, partially offset by decreases in interest income. The decrease in interest expense for the three months ended June 30, 2008, compared to the three months ended June 30, 2007, was primarily due to decreases in the average cost of our Liquid CDs, certificates of deposit and borrowings and a decrease in the average balance of Liquid CDs, partially offset by increases in the average balances of certificates of deposit and borrowings. The decrease in interest expense for the six months ended June 30, 2008, compared to the six months ended June 30, 2007, was primarily due to decreases in the average cost of Liquid CDs and certificates of deposit and a decrease in the average balance of Liquid CDs, partially offset by increases in the average balances of certificates of deposit and borrowings. The decreases in interest income for the three and six months ended June 30, 2008, compared to the three and six months ended June 30, 2007, were primarily due to decreases in the average yields on our interest earning assets. Although interest income on our one-to-four family mortgage loan portfolio increased for the three and six months ended June 30, 2008, compared to the three and six months ended June 30, 2007, net income, net interest income, the net interest margin and the net interest rate spread were negatively impacted by accelerated loan premium amortization resulting from the substantial increase in mortgage loan prepayments during the first half of 2008 compared to the first half of 2007.

The provision for loan losses recorded during the three and six months ended June 30, 2008 reflects the increase in and composition of our loan delinquencies, non-performing loans and net loan charge-offs, as well as our evaluation of the housing and real estate markets and the overall economic environment. Although we have never actively participated in high-risk subprime residential lending, as a geographically diversified residential lender, we are not immune to, and have been affected by, the negative consequences arising from overall economic weakness and, in particular, a sharp downturn in the housing industry nationally. The decreases in non-interest income are primarily due to a gain recognized in the 2007 second quarter related to insurance proceeds. The increases in non-interest expense are primarily due to increases in compensation and benefits expense, partially offset by decreases in advertising and other expense.

We continue to anticipate a positively sloped yield curve for the remainder of 2008 which should provide opportunities for earnings growth and continued expansion of our net interest margin. We expect both loan and deposit growth to continue. We anticipate our asset quality should remain strong as we maintain our conservative underwriting standards. However, due to overall

economic conditions and conditions in the real estate market, our non-performing loans and credit costs will continue to trend somewhat higher during the remainder of 2008. We expect the increased credit costs will be offset by the expansion of our net interest margin. Our tangible capital ratio target remains between 4.50% and 4.75%.

Available Information

Our internet website address is www.astoriafederal.com. Financial information, including 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 included in Item 8, “Financial Statements and Supplementary Data,” of our 2007 Annual Report on Form 10-K, as supplemented by our quarterly report on Form 10-Q for the quarter ended March 31, 2008 and 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 2007 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 SFAS No. 114, “Accounting by Creditors for Impairment of a Loan, an Amendment of FASB Statements No. 5 and 15,” and SFAS No. 118, “Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures, an amendment of FASB Statement No. 114.” Such evaluation, which includes a review of loans on which full collectibility is not reasonably assured, considers the 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 loans in excess of $2.5 million, commercial

business loans in excess of $200,000, one-to-four family loans in excess of $1.0 million and debt restructurings. In addition, we generally review annually at least fifty percent of the outstanding balances of multi-family, commercial real estate and construction loans to single borrowers with concentrations in excess of $2.5 million.

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 when loans are individually classified by our Asset Classification Committee as either substandard or doubtful, as well as for special mention and watch list loans in excess of $2.5 million, for one-to-four family loans which are 180 days delinquent and certain other loans when the Asset Classification Committee believes repayment of such loans may be dependent on the value of the underlying collateral. Updated estimates of collateral value are obtained through appraisals, where practical. In instances where we have not taken possession of the property or do not otherwise have access to the premises and, therefore, cannot obtain a complete appraisal, an estimated value of the property is obtained based primarily on a drive-by inspection and a comparison of the property securing the loan with similar properties in the area, by either a licensed appraiser or real estate broker for one-to-four family properties. For multi-family and commercial real estate properties, our internal Asset Review personnel estimate the collateral value based on an internal cash flow analysis, coupled with, in most cases, a drive-by 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, cash flow estimates and 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 Office of Thrift Supervision, or 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. 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 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, but which, unlike specific allowances, have not been allocated to particular loans. The determination of the adequacy of the general valuation allowance takes into consideration a variety of factors. We segment our loan portfolio into like categories by composition and size and perform analyses against each category. These include historical loss experience and delinquency levels and trends. We analyze our historical loan loss experience by category (loan type) over 3, 5, 10, 12 and 16-year periods. Losses within each loan category are stress tested by applying the highest level of charge-offs and the lowest amount of recoveries as a percentage of the average portfolio balance during those respective time horizons. 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. 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 philosophies and 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 existing and projected economic and market conditions may have on the portfolio, as well as known and inherent risks in the portfolio.

We also evaluate and consider the allowance ratios and coverage percentages set forth in both peer group and regulatory agency data and any comments from the OTS resulting from their review of our general valuation allowance methodology during regulatory examinations. Our focus, however, is primarily 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. Our allowance coverage percentages are used to estimate the amount of probable losses inherent in our loan portfolio in determining our general valuation allowances. 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 annually 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.

During the first half of 2008, the continued decline in the housing and real estate markets, as well as the overall economic environment, continued to contribute to an increase in our non-performing loans and net loan charge-offs. However, our 2008 analyses did not indicate that any material changes in our allowance coverage percentages were required. Accordingly, such analyses did not result in any change in our methodology for determining our general and specific valuation allowances or our emphasis on the factors that we consider in establishing such allowances. Effective January 1, 2008, we have revised our presentation of non-performing mortgage loans to report mortgage loans which have missed only two payments as 60-89 days delinquent instead of as non-accrual, which had been our previous practice. This change did not have a significant impact on the evaluation of the allowance for loan losses. For further discussion of this change in presentation, see “Asset Quality - Non-Performing Assets.” Based on our evaluation of the current real estate and housing markets, the overall economic environment, and the increase in and composition of our delinquencies, non-performing loans and net loan charge-offs, we determined that a provision for loan losses of $11.0 million was warranted for the six months ended June 30, 2008. The balance of our allowance for loan losses was $81.8 million at June 30, 2008 and $78.9 million at December 31, 2007 and represents management’s best estimate of the probable inherent losses in our loan portfolio at the respective 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 if portfolio performance or economic or market conditions differ substantially from the conditions that existed at the time of the initial determinations.

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 2007 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. 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 June 30, 2008, our MSR, net, had an estimated fair value of $12.8 million and were valued based on expected future cash flows considering a weighted average discount rate of 12.06%, a weighted average constant prepayment rate on mortgages of 11.87% and a weighted average life of 5.8 years. At December 31, 2007, our MSR, net, had an estimated fair value of $12.9 million and were valued based on expected future cash flows considering a weighted average discount rate of 9.52%, a weighted average constant prepayment rate on mortgages of 13.45% and a weighted average life of 5.1 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. In general, 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 June 30, 2008, the estimated fair value of our MSR would have been $2.1 million greater. Assuming a decrease in interest rates of 100 basis points at June 30, 2008, the estimated fair value of our MSR would have been $4.5 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. When performing the impairment test, if the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired.

At June 30, 2008, the carrying amount of our goodwill totaled $185.2 million. On September 30, 2007 we performed our annual goodwill impairment test and determined the fair value of our reporting unit to be in excess of its carrying amount by $1.35 billion, using the quoted market price of our common stock on our impairment testing date as the basis for determining the fair value. 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 substantially all of our securities are obtained from an independent nationally recognized pricing service. We use third party brokers to obtain prices for a small portion of the portfolio that we are not able to price using our third party pricing service.

Our investment portfolio is comprised primarily of fixed rate mortgage-backed securities guaranteed by a government sponsored enterprise, or GSE, as issuer. GSE issuance mortgage-backed securities comprised 92% of our securities portfolio at June 30, 2008. Non-GSE issuance mortgage-backed securities at June 30, 2008 comprised 6% of our securities portfolio and had an amortized cost of $242.3 million. Based on the disclosure documents for our non-GSE issuance securities, none were backed by pools consisting primarily of subprime mortgage loans. Substantially all of our non-GSE issuance securities have a AAA credit rating and they have performed similarly to our GSE issuance securities. While the current mortgage market conditions reflecting credit quality concerns might significantly impact lower grade securities, the impact on our non-GSE securities has not been significant. Based on the high quality of our investment portfolio, current market conditions have not significantly impacted the pricing of our portfolio or our ability to obtain reliable prices.

The fair value of our investment portfolio is primarily impacted by changes 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 conduct a periodic review and evaluation of the securities portfolio to determine if the decline in the fair value of any security below its cost basis is other-than-temporary. We generally view changes in fair value caused by changes in interest rates as temporary, which is consistent with our experience. If we deem such decline to be 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. At June 30, 2008, we had 156 securities with an estimated fair value totaling $3.34 billion which had an unrealized loss totaling $97.2 million. Primarily all of these securities are guaranteed by a GSE as issuer. Of the securities in an unrealized loss position at June 30, 2008, $959.0 million, with an unrealized loss of $58.4 million, have been in a continuous unrealized loss position for more than twelve months. At June 30, 2008, the impairments are deemed temporary based on the direct relationship of the decline in fair value to movements in interest rates, the estimated remaining life and high credit quality of the investments and our ability and intent to hold these investments until there is a full recovery of the unrealized loss, which may be until maturity. There were no other-than-temporary impairment write-downs during the three and six months ended June 30, 2008.

For additional information regarding changes in the fair value of our securities, see Part II, Item 1A, “Risk Factors.”

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 $2.74 billion for the six months ended June 30, 2008 and $2.17 billion for the six months ended June 30, 2007. The net increase in loan and securities repayments for the six months ended June 30, 2008, compared to the six months ended June 30, 2007, was primarily the result of an increase in loan repayments, due primarily to significantly elevated levels of residential mortgage loan prepayments from refinance activity due to the decline in mortgage loan interest rates, partially offset by a decrease in securities repayments.

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 $164.5 million for the six months ended June 30, 2008 and $81.2 million for the six months ended June 30, 2007. Deposits increased $39.6 million during the six months ended June 30, 2008 and $223.8 million during the six months ended June 30, 2007. The net increase in deposits for the six months ended June 30, 2008 was primarily due to increases in certificates of deposit and NOW and demand deposit accounts, substantially offset by decreases in Liquid CDs, money market accounts and savings accounts. We continue to experience intense competition for deposits; however, we have maintained our deposit pricing discipline. The net increase in deposits for the six months ended June 30, 2007 was primarily attributable to increases in Liquid CDs and certificates of deposit as a result of the success of our marketing efforts and competitive pricing strategies which focused on attracting these types of deposits.

Net borrowings decreased $246.7 million during the six months ended June 30, 2008 and $137.7 million during the six months ended June 30, 2007. The decrease in net borrowings during the six months ended June 30, 2008 was primarily the result of cash flows from mortgage loan and securities repayments exceeding mortgage loan originations and purchases. The decrease in net borrowings during the six months ended June 30, 2007 was the result of cash flows from deposit growth and securities repayments exceeding mortgage loan growth.

Our primary use of funds is for the origination and purchase of mortgage loans. Gross mortgage loans originated and purchased during the six months ended June 30, 2008 totaled $2.37 billion, of which $2.14 billion were originations and $231.3 million were purchases. This compares to gross mortgage loans originated and purchased during the six months ended June 30, 2007 totaling $2.28 billion, of which $2.05 billion were originations and $231.0 million were purchases. Total mortgage loans originated include originations of loans held-for-sale totaling $75.5 million during the six months ended June 30, 2008 and $129.9 million during the six months ended June 30, 2007. The increase in mortgage loan originations was the result of an increase in one-to-four family mortgage loan originations, partially offset by a decrease in multi-family and commercial real estate loan originations. Our one-to-four family mortgage loan originations and purchases during the 2008 second quarter were significantly higher than the first quarter of 2008. During the 2008 first quarter, we experienced considerable fallout from the mortgage loan application pipeline which existed at December 31, 2007, due primarily to the rapid decline in market interest rates during the 2008 first quarter, coupled with the further tightening of our underwriting standards in late 2007 and early 2008. However, our pipeline at the end of the 2008 first quarter included loan applications submitted under our more stringent underwriting standards and with interest rates at or near current market rates, resulting in increased one-to-four family mortgage loan originations during the 2008 second quarter. The decrease in multi-family and commercial real estate loan originations was the result of current market pricing for multi-family and commercial real estate loans which we do not believe supports aggressively pursuing such loans given the additional risks associated with this type of

lending, coupled with the decline in demand for these types of loans. As of June 30, 2008 we were only originating multi-family and commercial real estate loans in the New York metropolitan area.

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 $124.4 million at June 30, 2008 and $118.2 million at December 31, 2007. At June 30, 2008, we had $2.19 billion in borrowings with a weighted average rate of 4.31% maturing over the next twelve months. We have the flexibility to either repay or rollover these borrowings as they mature. The continued disruption in the credit markets has not impacted our ability to engage in ordinary course borrowings. In addition, we had $7.59 billion in certificates of deposit and Liquid CDs at June 30, 2008 with a weighted average rate of 3.74% maturing over the next twelve months. We expect to retain or replace a significant portion of such deposits based on our competitive pricing and historical experience.

The following table details our borrowing, certificate of deposit and Liquid CD maturities and their weighted average rates at June 30, 2008.

	Borrowings						Certificates of Deposit and Liquid CDs

(Dollars in Millions)	Amount				Weighted Average Rate		Amount				Weighted Average Rate

Contractual Maturity:
Six months or less		$	1,686	(1)	4.39	%		$	4,972	(2)	3.84	%
Seven to twelve months			500		4.05				2,619		3.56
Thirteen to thirty-six months			1,450		4.01				1,383		4.42
Thirty-seven to sixty months			1,225	(3)	4.72				386		4.70
Over sixty months			2,079	(4)	4.18				19		4.33

Total		$	6,940		4.28	%		$	9,379		3.88	%

(1)	Includes $366.0 million of overnight and other short-term borrowings with a weighted average rate of 2.37% and $1.32 billion of medium- and long-term borrowings with a weighted average rate of 4.95%.

(2)	Includes $1.25 billion of Liquid CDs with a weighted average rate of 2.47% and $3.72 billion of certificates of deposit with a weighted average rate of 4.29%.

(3)

Includes $125.0 million of borrowings, with a weighted average rate of 4.89%, which are callable by the counterparty within the next six months and at various times thereafter, $450.0 million of borrowings, with a weighted average rate of 4.63%, which are callable by the counterparty within the next seven to twelve months and at various times thereafter, and $400.0 million of borrowings, with a weighted average rate of 4.11%, which are callable within the next thirteen to thirty-six months and at various times thereafter.

(4)

Includes $1.00 billion of borrowings, with a weighted average rate of 4.21%, which are callable by the counterparty within the next six months and at various times thereafter and $950.0 million of borrowings, with a weighted average rate of 3.40%, which are callable by the counterparty within the next seven to 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 demand, 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 principal and interest on its debt obligations and repurchases of common stock. Astoria Financial Corporation paid interest on its debt obligations totaling $14.0 million during the six months ended June 30, 2008. Our payment of dividends and repurchases of our common stock totaled $61.6 million during the six months ended June 30, 2008. 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 six months ended June 30, 2008, Astoria Federal paid dividends to Astoria Financial Corporation totaling $88.0 million.

On July 3, 2008, our 7.67% senior unsecured notes, which were issued in a private placement, matured and the remaining principal balance of $20.0 million was repaid. As a result, we were released from the related debt covenants, previously disclosed in our 2007 Annual Report on Form 10-K, included in the terms of those notes.

On June 2, 2008, we paid a quarterly cash dividend of $0.26 per share on shares of our common stock outstanding as of the close of business on May 15, 2008 totaling $23.5 million. On July 16, 2008, we declared a quarterly cash dividend of $0.26 per share on shares of our common stock payable on September 2, 2008 to stockholders of record as of the close of business on August 15, 2008.

On April 18, 2007, our Board of Directors approved our twelfth stock repurchase plan authorizing the purchase of 10,000,000 shares, or approximately 10% of our common stock outstanding, in open-market or privately negotiated transactions. During the six months ended June 30, 2008, we repurchased 590,000 shares of our common stock, at an aggregate cost of $14.6 million. In total, as of June 30, 2008, we repurchased 1,727,700 shares of our common stock, at an aggregate cost of $43.4 million, under our twelfth stock repurchase plan. For further information on our common stock repurchases, see Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds.”

See “Financial Condition” for a further discussion of the changes in stockholders’ equity.

At June 30, 2008, Astoria Federal’s capital levels exceeded all of its regulatory capital requirements with a tangible capital ratio of 6.63%, leverage capital ratio of 6.63% and total risk-based capital ratio of 12.17%. 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%. As of June 30, 2008, Astoria Federal continues to be a well capitalized institution.

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 $28.7 million at June 30, 2008. 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, 2007.

The following table details our contractual obligations at June 30, 2008.

	Payments due by period

(In Thousands)	Total		Less than One Year		One to Three Years		Three to Five Years		More than Five Years

Contractual Obligations:
Borrowings with original terms greater than three months	$	6,573,866	$	1,820,000	$	1,450,000	$	1,225,000	$	2,078,866
Commitments to originate and purchase loans (1)		618,620		618,620		—		—		—
Commitments to fund unused lines of credit (2)		376,213		376,213		—		—		—

Total	$	7,568,699	$	2,814,833	$	1,450,000	$	1,225,000	$	2,078,866

(1)	Commitments to originate and purchase loans include commitments to originate loans held-for-sale of $24.1 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 as well as contingent liabilities related to assets sold with recourse and standby letters of credit. These liabilities and contingent liabilities as of June 30, 2008 have not changed significantly from December 31, 2007.

For further information regarding our off-balance sheet arrangements and contractual obligations, see Part II, Item 7, “MD&A,” in our 2007 Annual Report on Form 10-K.

Loan Portfolio

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 June 30, 2008					At December 31, 2007

(Dollars in Thousands)	Amount			Percent of Total		Amount			Percent of Total

Mortgage loans (gross):
One-to-four family	$	11,825,962		73.61	%	$	11,628,270		72.51	%
Multi-family		2,842,081		17.69			2,945,546		18.36
Commercial real estate		1,003,261		6.24			1,031,812		6.43
Construction		60,268		0.38			77,723		0.48

Total mortgage loans		15,731,572		97.92			15,683,351		97.78

Consumer and other loans (gross):
Home equity		307,222		1.91			320,884		1.99
Commercial		13,067		0.08			20,494		0.13
Other		14,383		0.09			15,443		0.10

Total consumer and other loans		334,672		2.08			356,821		2.22

Total loans (gross)		16,066,244		100.00	%		16,040,172		100.00	%
Net unamortized premiums and deferred loan costs		114,132					114,842

Total loans		16,180,376					16,155,014
Allowance for loan losses		(81,843	)				(78,946	)

Total loans, net	$	16,098,533				$	16,076,068

Securities Portfolio

The following table sets forth the amortized cost and estimated fair value of securities available-for-sale and held-to-maturity at the dates indicated.

	At June 30, 2008				At December 31, 2007

(In Thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value

Securities available-for-sale:
Mortgage-backed securities:
REMICs and CMOs (1):
GSE issuance	$	1,194,132	$	1,147,326	$	1,184,629	$	1,138,139
Non-GSE issuance		36,809		33,187		40,726		38,381
GSE pass-through certificates		46,886		47,751		51,992		53,202

Total mortgage-backed securities		1,277,827		1,228,264		1,277,347		1,229,722
FHLMC preferred stock		82,996		76,940		82,996		82,996
Other securities		65		70		565		588

Total securities available-for-sale	$	1,360,888	$	1,305,274	$	1,360,908	$	1,313,306

Securities held-to-maturity:
Mortgage-backed securities:
REMICs and CMOs:
GSE issuance	$	2,685,134	$	2,658,550	$	2,822,089	$	2,784,400
Non-GSE issuance		205,474		195,604		227,278		220,353
GSE pass-through certificates		1,771		1,852		2,108		2,192

Total mortgage-backed securities		2,892,379		2,856,006		3,051,475		3,006,945
Obligations of states and political subdivisions		5,876		5,876		6,069		6,069

Total securities held-to-maturity	$	2,898,255	$	2,861,882	$	3,057,544	$	3,013,014

(1)	Real estate mortgage investment conduits and collateralized mortgage obligations

Comparison of Financial Condition as of June 30, 2008 and December 31, 2007

and Operating Results for the Three and Six Months Ended June 30, 2008 and 2007

Financial Condition

Total assets decreased $99.3 million to $21.62 billion at June 30, 2008, from $21.72 billion at December 31, 2007. The decrease in total assets primarily reflects a decrease in securities, partially offset by increases in loans receivable and other assets.

Securities decreased $167.3 million to $4.20 billion at June 30, 2008, from $4.37 billion at December 31, 2007. This decrease was primarily the result of principal payments received of $433.7 million, partially offset by purchases of $273.2 million. We may continue to purchase securities to offset principal payments received. At June 30, 2008, our securities portfolio was comprised primarily of fixed rate REMIC and CMO securities. The amortized cost of our fixed rate REMICs and CMOs totaled $4.11 billion at June 30, 2008 and had a weighted average current coupon of 4.27%, a weighted average collateral coupon of 5.70% and a weighted average life of 3.2 years.

Our total loan portfolio increased $25.4 million to $16.18 billion at June 30, 2008, from $16.16 billion at December 31, 2007. The increase was a result of the levels of our mortgage loan origination and purchase volume outpacing the levels of repayments during the six months ended June 30, 2008.

Mortgage loans, net, increased $48.4 million to $15.84 billion at June 30, 2008, from $15.79 billion at December 31, 2007. This increase was primarily due to an increase in our one-to-four family mortgage loan portfolio, partially offset by decreases in our multi-family, commercial real estate and construction loan portfolios. Gross mortgage loans originated and purchased during the six months ended June 30, 2008 totaled $2.37 billion, of which $2.14 billion were originations and $231.3 million were purchases. This compares to gross mortgage loans originated and purchased during the six months ended June 30, 2007 totaling $2.28 billion, of which $2.05 billion were originations and $231.0 million were purchases. Total mortgage loans originated include originations of loans held-for-sale totaling $75.5 million during the six months ended June 30, 2008 and $129.9 million during the six months ended June 30, 2007. The increase in mortgage loan originations and purchases for the six months ended June 30, 2008, compared to the six months ended June 30, 2007, was primarily due to an increase in one-to-four family mortgage loan originations, partially offset by a decrease in multi-family and commercial real estate loan originations. Mortgage loan repayments increased to $2.22 billion for the six months ended June 30, 2008, from $1.51 billion for the six months ended June 30, 2007. The increase in mortgage loan repayments was primarily due to a decrease in interest rates and increased refinance activity during the first half of 2008 compared to the first half of 2007.

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 loans increased $197.7 million to $11.83 billion at June 30, 2008, from $11.63 billion at December 31, 2007, and represented 73.6% of our total loan portfolio at June 30, 2008. One-to-four family loan originations and purchases totaled $2.18 billion for the six months ended June 30, 2008 and $2.02 billion for the six months ended June 30, 2007. The increase in one-to-four family mortgage loan originations and purchases was primarily due to 2008 second quarter originations which were significantly higher than 2008 first quarter originations. During the 2008 first quarter, we experienced considerable fallout from the mortgage loan application pipeline which existed at December 31, 2007, due primarily to the rapid decline in market interest rates during the 2008 first quarter, coupled with the further tightening of our underwriting standards in late 2007 and early 2008. However, our pipeline at the end of the 2008 first quarter included loan applications submitted under our more stringent underwriting standards and with interest rates at or near current market interest rates, resulting in increased originations and growth in the one-to-four family mortgage loan portfolio during the 2008 second quarter. During the six months ended June 30, 2008, the loan-to-value ratio of our one-to-four family mortgage loan originations and purchases for portfolio averaged approximately 57% and the loan amount averaged approximately $675,000.

Our multi-family mortgage loan portfolio decreased $103.5 million to $2.84 billion at June 30, 2008, from $2.95 billion at December 31, 2007. Our commercial real estate loan portfolio decreased $28.6 million to $1.00 billion at June 30, 2008, from $1.03 billion at December 31, 2007. Multi-family and commercial real estate loan originations totaled $193.8 million for the six months ended June 30, 2008 and $253.9 million for the six months ended June 30, 2007. As previously discussed, we do not believe that current market pricing for multi-family and commercial real estate loans supports aggressively pursuing such loans given the additional risks associated with this type of lending. During the six months ended June 30, 2008, the loan-to-value ratio of our combined multi-family and commercial real estate loan originations averaged approximately 62% and the loan amount averaged approximately $1.8 million.

Our construction loan portfolio decreased $17.4 million to $60.3 million at June 30, 2008, from $77.7 million at December 31, 2007. This decrease was primarily the result of our decision to not pursue these types of loans in the current real estate market. Our consumer and other loan

portfolio decreased $22.1 million to $334.7 million at June 30, 2008, from $356.8 million at December 31, 2007. This decrease was primarily the result of our decision to not aggressively pursue the origination of home equity lines of credit in the current economic environment, coupled with more stringent underwriting standards implemented in the 2007 fourth quarter. Other assets increased $37.6 million to $169.0 million at June 30, 2008, from $131.4 million at December 31, 2007, primarily due to increases in REO and the net deferred tax asset. For additional information on REO, see “Asset Quality.”

Deposits increased $39.6 million to $13.09 billion at June 30, 2008, from $13.05 billion at December 31, 2007, primarily due to increases in certificates of deposit and NOW and demand deposit accounts, substantially offset by decreases in Liquid CDs, money market accounts and savings accounts. Certificates of deposit increased $234.9 million since December 31, 2007 to $8.13 billion at June 30, 2008. NOW and demand deposit accounts increased $28.2 million since December 31, 2007 to $1.51 billion at June 30, 2008. Liquid CDs decreased $201.0 million since December 31, 2007 to $1.25 billion at June 30, 2008. Money market accounts decreased $17.3 million since December 31, 2007 to $316.6 million at June 30, 2008. Savings accounts decreased $5.1 million since December 31, 2007 to $1.89 billion at June 30, 2008. We continue to experience intense competition for deposits; however, we have continued to maintain our deposit pricing discipline.

Total borrowings, net, decreased $246.7 million to $6.94 billion at June 30, 2008, from $7.18 billion at December 31, 2007. The net decrease in total borrowings was primarily the result of cash flows from mortgage loan and securities repayments exceeding mortgage loan originations and purchases during the six months ended June 30, 2008. For additional information, see “Liquidity and Capital Resources.” Accrued expenses and other liabilities increased $83.1 million to $227.6 million at June 30, 2008, from $144.5 million at December 31, 2007. This increase primarily reflects an increase in our official checks. Prior to February 2008, we funded our liability for official checks daily through an outside processing service. Effective February 2008, we discontinued using the outside processing service.

Stockholders’ equity increased $12.5 million to $1.22 billion at June 30, 2008, from $1.21 billion at December 31, 2007. The increase in stockholders’ equity was the result of net income of $62.4 million, stock-based compensation and the allocation of shares held by the employee stock ownership plan, or ESOP, of $9.4 million and the effect of stock options exercised and related tax benefit of $7.4 million. These increases were partially offset by dividends declared of $47.0 million, common stock repurchased of $14.6 million and other comprehensive loss, net of tax, of $5.2 million, which was primarily due to the net decrease in the fair value of our securities available-for-sale.

Results of Operations

General

Net income for the three months ended June 30, 2008 decreased $614,000 to $33.5 million, from $34.1 million for the three months ended June 30, 2007. Diluted earnings per common share was $0.37 per share for the three months ended June 30, 2008 and 2007. Return on average assets was 0.62% for the three months ended June 30, 2008 and 0.63% for the three months ended June 30, 2007. Return on average stockholders’ equity decreased to 10.96% for the three months ended June 30, 2008, from 11.35% for the three months ended June 30, 2007. Return on average tangible stockholders’ equity, which represents average stockholders’ equity less average goodwill, decreased to 12.92% for the three months ended June 30, 2008, from 13.42%

for the three months ended June 30, 2007. The decreases in the returns on average stockholders’ equity and average tangible stockholders’ equity were due to the decrease in net income, coupled with the increase in the average balance of stockholders’ equity.

Net income for the six months ended June 30, 2008 decreased $7.4 million to $62.4 million, from $69.8 million for the six months ended June 30, 2007. Diluted earnings per common share decreased to $0.69 per share for the six months ended June 30, 2008, from $0.75 per share for the six months ended June 30, 2007. Return on average assets decreased to 0.58% for the six months ended June 30, 2008, from 0.65% for the six months ended June 30, 2007. Return on average stockholders’ equity decreased to 10.22% for the six months ended June 30, 2008, from 11.59% for the six months ended June 30, 2007. Return on average tangible stockholders’ equity decreased to 12.05% for the six months ended June 30, 2008, from 13.70% for the six months ended June 30, 2007. The decreases in these returns were primarily due to the decrease in net income.

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 June 30, 2008, net interest income increased $9.7 million to $92.6 million, from $82.9 million for the three months ended June 30, 2007, and increased $3.0 million to $173.4 million for the six months ended June 30, 2008, from $170.4 million for the six months ended June 30, 2007. The net interest margin increased to 1.81% for the three months ended June 30, 2008, from 1.62% for the three months ended June 30, 2007, and increased to 1.69% for the six months ended June 30, 2008, from 1.66% for the six months ended June 30, 2007. The net interest rate spread increased to 1.70% for the three months ended June 30, 2008, from 1.50% for the three months ended June 30, 2007, and increased to 1.58% for the six months ended June 30, 2008, from 1.55% for the six months ended June 30, 2007. The average balance of net interest-earning assets increased $16.4 million to $634.2 million for the three months ended June 30, 2008, from $617.8 million for the three months ended June 30, 2007, and increased $7.0 million to $617.7 million for the six months ended June 30, 2008, from $610.7 million for the six months ended June 30, 2007.

June 30, 2008, compared to the three and six months ended June 30, 2007, were primarily due to decreases in the average yields on our interest earning assets. Although interest income on one-to-four family mortgage loans increased for the three and six months ended June 30, 2008, compared to the three and six months ended June 30, 2007, net income, net interest income, the net interest margin and the net interest rate spread were negatively impacted by accelerated loan premium amortization resulting from the substantial increase in mortgage loan prepayments during the first half of 2008 compared to the first half of 2007.

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 tables set forth certain information about the average balances of our assets and liabilities and their related yields and costs for the three and six months ended June 30, 2008 and 2007. 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.

	For the Three Months Ended June 30,

		2008						2007

(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	$	11,558,547		$	152,247	5.27	%	$	10,749,335		$	141,568	5.27	%
Multi-family, commercial real estate and construction		3,941,587			58,686	5.96			4,200,044			64,438	6.14
Consumer and other loans (1)		345,242			4,177	4.84			406,437			7,812	7.69

Total loans		15,845,376			215,110	5.43			15,355,816			213,818	5.57
Mortgage-backed and other securities (2)		4,234,398			46,708	4.41			4,964,564			55,885	4.50
Federal funds sold and repurchase agreements		183,413			1,018	2.22			37,742			499	5.29
FHLB-NY stock		194,783			3,803	7.81			155,056			2,749	7.09

Total interest-earning assets		20,457,970			266,639	5.21			20,513,178			272,951	5.32

Goodwill		185,151							185,151
Other non-interest-earning assets		844,802							763,554

Total assets	$	21,487,923						$	21,461,883

Liabilities and stockholders’ equity:
Interest-bearing liabilities:
Savings	$	1,884,583			1,899	0.40		$	2,061,648			2,074	0.40
Money market		317,185			799	1.01			391,139			970	0.99
NOW and demand deposit		1,508,664			319	0.08			1,495,582			214	0.06
Liquid CDs		1,302,494			8,894	2.73			1,659,796			20,241	4.88

Total core deposits		5,012,926			11,911	0.95			5,608,165			23,499	1.68
Certificates of deposit		8,008,650			85,940	4.29			7,724,775			90,597	4.69

Total deposits		13,021,576			97,851	3.01			13,332,940			114,096	3.42
Borrowings		6,802,152			76,208	4.48			6,562,399			75,964	4.63

Total interest-bearing liabilities		19,823,728			174,059	3.51			19,895,339			190,060	3.82

Non-interest-bearing liabilities		443,235							365,877

Total liabilities		20,266,963							20,261,216
Stockholders’ equity		1,220,960							1,200,667

Total liabilities and stockholders’ equity	$	21,487,923						$	21,461,883

Net interest income/net interest rate spread (3)				$	92,580	1.70	%				$	82,891	1.50	%

Net interest-earning assets/net interest margin (4)	$	634,242				1.81	%	$	617,839				1.62	%

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.

	For the Six Months Ended June 30,

	2008									2007

(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	$	11,590,151		$	305,845			5.28	%	$	10,568,690		$	278,084			5.26	%
Multi-family, commercial real estate and construction		3,973,630			119,001			5.99			4,214,404			129,108			6.13
Consumer and other loans (1)		350,650			9,609			5.48			418,631			16,006			7.65

Total loans		15,914,431			434,455			5.46			15,201,725			423,198			5.57
Mortgage-backed and other securities (2)		4,265,655			94,601			4.44			5,096,922			114,900			4.51
Federal funds sold and repurchase agreements		138,790			1,654			2.38			56,009			1,475			5.27
FHLB-NY stock		195,449			8,025			8.21			151,880			5,347			7.04

Total interest-earning assets		20,514,325			538,735			5.25			20,506,536			544,920			5.31

Goodwill		185,151									185,151
Other non-interest-earning assets		813,624									760,102

Total assets	$	21,513,100								$	21,451,789

Liabilities and stockholders’ equity:
Interest-bearing liabilities:
Savings	$	1,879,370			3,787			0.40		$	2,080,553			4,161			0.40
Money market		320,568			1,603			1.00			406,441			2,007			0.99
NOW and demand deposit		1,477,578			631			0.09			1,480,253			425			0.06
Liquid CDs		1,363,500			23,387			3.43			1,592,477			38,777			4.87

Total core deposits		5,041,016			29,408			1.17			5,559,724			45,370			1.63
Certificates of deposit		7,950,661			178,646			4.49			7,712,371			179,084			4.64

Total deposits		12,991,677			208,054			3.20			13,272,095			224,454			3.38
Borrowings		6,904,989			157,315			4.56			6,623,738			150,048			4.53

Total interest-bearing liabilities		19,896,666			365,369			3.67			19,895,833			374,502			3.76

Non-interest-bearing liabilities		395,973									351,122

Total liabilities		20,292,639									20,246,955
Stockholders’ equity		1,220,461									1,204,834

Total liabilities and stockholders’ equity	$	21,513,100								$	21,451,789

Net interest income/net interest rate spread (3)				$	173,366			1.58	%				$	170,418			1.55	%

Net interest-earning assets/net interest margin (4)	$	617,659						1.69	%	$	610,703						1.66	%

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 respect to (1) the changes attributable to changes in volume (changes in volume multiplied by prior rate), (2) the changes attributable to changes in rate (changes in rate multiplied by prior volume), and (3) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

	Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007									Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007

	Increase (Decrease)									Increase (Decrease)

(In Thousands)	Volume			Rate			Net			Volume			Rate			Net

Interest-earning assets:
Mortgage loans:
One-to-four family	$	10,679		$	—		$	10,679		$	26,710		$	1,051		$	27,761
Multi-family, commercial real estate and construction		(3,896	)		(1,856	)		(5,752	)		(7,221	)		(2,886	)		(10,107	)
Consumer and other loans		(1,050	)		(2,585	)		(3,635	)		(2,329	)		(4,068	)		(6,397	)
Mortgage-backed and other securities		(8,078	)		(1,099	)		(9,177	)		(18,535	)		(1,764	)		(20,299	)
Federal funds sold and repurchase agreements		955			(436	)		519			1,311			(1,132	)		179
FHLB-NY stock		755			299			1,054			1,696			982			2,678

Total		(635	)		(5,677	)		(6,312	)		1,632			(7,817	)		(6,185	)

Interest-bearing liabilities:
Savings		(175	)		—			(175	)		(374	)		—			(374	)
Money market		(190	)		19			(171	)		(424	)		20			(404	)
NOW and demand deposit		3			102			105			(1	)		207			206
Liquid CDs		(3,725	)		(7,622	)		(11,347	)		(5,035	)		(10,355	)		(15,390	)
Certificates of deposit		3,250			(7,907	)		(4,657	)		5,439			(5,877	)		(438	)
Borrowings		2,738			(2,494	)		244			6,286			981			7,267

Total		1,901			(17,902	)		(16,001	)		5,891			(15,024	)		(9,133	)

Net change in net interest income	$	(2,536	)	$	12,225		$	9,689		$	(4,259	)	$	7,207		$	2,948

Interest Income

Interest income decreased $6.4 million to $266.6 million for the three months ended June 30, 2008, from $273.0 million for the three months ended June 30, 2007, primarily due to a decrease in the average yield on interest-earning assets to 5.21% for the three months ended June 30, 2008, from 5.32% for the three months ended June 30, 2007. The decrease in the average yield on interest-earning assets was primarily the result of decreases in the average yields on total loans and mortgage-backed and other securities. The average balance of interest-earning assets decreased $55.2 million to $20.46 billion for the three months ended June 30, 2008, from $20.51 billion for the three months ended June 30, 2007, primarily due to a decrease in the average balance of mortgage-backed and other securities, substantially offset by increases in the average balances of total loans and federal funds sold and repurchase agreements.

Interest income on one-to-four family mortgage loans increased $10.6 million to $152.2 million for the three months ended June 30, 2008, from $141.6 million for the three months ended June 30, 2007, which was the result of an increase of $809.2 million in the average balance of such loans. The increase in the average balance of one-to-four family mortgage loans was the result of the strong levels of originations and purchases which outpaced the levels of repayments over the past year. The average yield on one-to-four family mortgage loans was 5.27% for both the three months ended June 30, 2008 and 2007. The average yield for the three months ended June 30, 2008 was negatively impacted by accelerated loan premium amortization resulting from the substantial increase in mortgage loan prepayments during the first half of 2008 compared to the first half of 2007. Net premium amortization on one-to-four family mortgage loans increased $2.7 million to $8.6 million for the three months ended June 30, 2008, from $5.9 million for the three months ended June 30, 2007. The increase in net premium amortization offset the impact of the upward repricing of our ARM loans and new originations at higher interest rates than the rates on loans repaid.

Interest income on multi-family, commercial real estate and construction loans decreased $5.7 million to $58.7 million for the three months ended June 30, 2008, from $64.4 million for the three months ended June 30, 2007, which was primarily the result of a decrease of $258.5 million in the average balance of such loans, coupled with a decrease in the average yield to 5.96% for the three months ended June 30, 2008, from 6.14% for the three months ended June 30, 2007. The decrease in the average balance of multi-family, commercial real estate and construction loans reflects the levels of repayments which outpaced the levels of originations over the past year. Our originations of multi-family, commercial real estate and construction loans have declined in recent periods due primarily to the competitive market pricing and our decision to not aggressively pursue such loans under current market conditions. The decrease in the average yield on multi-family, commercial real estate and construction loans reflects new loan originations at lower interest rates than the rates on the loans being repaid and/or remaining in the portfolio. Prepayment penalties totaled $1.4 million for the three months ended June 30, 2008 and $1.7 million for the three months ended June 30, 2007.

Interest income on consumer and other loans decreased $3.6 million to $4.2 million for the three months ended June 30, 2008, from $7.8 million for the three months ended June 30, 2007, primarily due to a decrease in the average yield to 4.84% for the three months ended June 30, 2008, from 7.69% for the three months ended June 30, 2007, coupled with a decrease of $61.2 million in the average balance of the portfolio. The decrease in the average yield on consumer and other loans was primarily the result of a decrease in the average yield on our home equity lines of credit which are adjustable rate loans which generally reset monthly and are indexed to the prime rate which decreased 100 basis points during the second half of 2007 and 225 basis points during the first half of 2008. Home equity lines of credit represented 91.8% of this portfolio at June 30, 2008. The decrease in the average balance of consumer and other loans was primarily the result of our decision to not aggressively pursue the origination of home equity lines of credit in the current economic environment, coupled with more stringent underwriting standards implemented in the 2007 fourth quarter.

Interest income on mortgage-backed and other securities decreased $9.2 million to $46.7 million for the three months ended June 30, 2008, from $55.9 million for the three months ended June 30, 2007. This decrease was primarily the result of a decrease of $730.2 million in the average balance of the portfolio, coupled with a decrease in the average yield to 4.41% for the three months ended June 30, 2008, from 4.50% for the three months ended June 30, 2007. The decrease in the average balance of mortgage-backed and other securities reflects our strategy in 2007 of reducing the securities portfolio through normal cash flow.

Interest income on federal funds sold and repurchase agreements increased $519,000 to $1.0 million for the three months ended June 30, 2008, primarily due to an increase of $145.7 million in the average balance of the portfolio, partially offset by a decrease in the average yield to 2.22% for the three months ended June 30, 2008, from 5.29% for the three months ended June 30, 2007. The increase in the average balance of federal funds sold and repurchase agreements reflects the excess cash flows from loan prepayments during the 2008 first quarter, which were used to fund loan originations during the 2008 second quarter. The decrease in the average yield reflects the previously discussed FOMC rate reductions.

Dividend income on Federal Home Loan Bank of New York, or FHLB-NY, stock increased $1.1 million to $3.8 million for the three months ended June 30, 2008, primarily due to an increase of $39.7 million in the average balance of FHLB-NY stock, coupled with an increase in the average yield to 7.81% for the three months ended June 30, 2008, from 7.09% for the three months ended June 30, 2007. The increase in the average balance of FHLB-NY stock was primarily due to an increase in the levels of FHLB-NY borrowings. The increase in the average yield on FHLB-NY stock was the result of an increase in the dividend rate paid by the FHLB-NY.

Interest income decreased $6.2 million to $538.7 million for the six months ended June 30, 2008, from $544.9 million for the six months ended June 30, 2007, primarily due to a decrease in the average yield on interest-earning assets to 5.25% for the six months ended June 30, 2008, from 5.31% for the six months ended June 30, 2007, partially offset by the slight increase in the average balance of interest-earning assets which totaled $20.51 billion for the six months ended June 30, 2008 and 2007. The slight increase in the average balance of interest-earning assets was primarily due to increases in the average balances of total loans and federal funds sold and repurchase agreements, substantially offset by a decrease in the average balance of mortgage-backed and other securities.

Interest income on one-to-four family mortgage loans increased $27.7 million to $305.8 million for the six months ended June 30, 2008, from $278.1 million for the six months ended June 30, 2007, which was primarily the result of an increase of $1.02 billion in the average balance of such loans, coupled with an increase in the average yield to 5.28% for the six months ended June 30, 2008, from 5.26% for the six months ended June 30, 2007. Net premium amortization on one-to-four family mortgage loans increased $7.4 million to $18.2 million for the six months ended June 30, 2008, from $10.8 million for the six months ended June 30, 2007.

Interest income on multi-family, commercial real estate and construction loans decreased $10.1 million to $119.0 million for the six months ended June 30, 2008, from $129.1 million for the six months ended June 30, 2007, which was primarily the result of a decrease of $240.8 million in the average balance of such loans, coupled with a decrease in the average yield to 5.99% for the six months ended June 30, 2008, from 6.13% for the six months ended June 30, 2007. Prepayment penalties totaled $3.0 million for the six months ended June 30, 2008 and $3.5 million for the six months ended June 30, 2007.

Interest income on consumer and other loans decreased $6.4 million to $9.6 million for the six months ended June 30, 2008, from $16.0 million for the six months ended June 30, 2007, primarily due to a decrease in the average yield to 5.48% for the six months ended June 30, 2008, from 7.65% for the six months ended June 30, 2007, coupled with a decrease of $68.0 million in the average balance of the portfolio.

Interest income on mortgage-backed and other securities decreased $20.3 million to $94.6 million for the six months ended June 30, 2008, from $114.9 million for the six months ended June 30, 2007. This decrease was primarily the result of a decrease of $831.3 million in the

average balance of the portfolio, coupled with a decrease in the average yield to 4.44% for the six months ended June 30, 2008, from 4.51% for the six months ended June 30, 2007.

Interest income on federal funds sold and repurchase agreements increased $179,000 to $1.7 million for the six months ended June 30, 2008, primarily due to an increase of $82.8 million in the average balance of the portfolio, substantially offset by a decrease in the average yield to 2.38% for the six months ended June 30, 2008, from 5.27% for the six months ended June 30, 2007.

Dividend income on FHLB-NY stock increased $2.7 million to $8.0 million for the six months ended June 30, 2008, primarily due to an increase of $43.6 million in the average balance of FHLB-NY stock, coupled with an increase in the average yield to 8.21% for the six months ended June 30, 2008, from 7.04% for the six months ended June 30, 2007.

The principal reasons for the changes in the average yields and average balances of the various assets noted above for the six months ended June 30, 2008 are consistent with the principal reasons for the changes noted for the three months ended June 30, 2008.

Interest Expense

Interest expense decreased $16.0 million to $174.1 million for the three months ended June 30, 2008, from $190.1 million for the three months ended June 30, 2007, primarily due to a decrease in the average cost of interest-bearing liabilities to 3.51% for the three months ended June 30, 2008, from 3.82% for the three months ended June 30, 2007, primarily due to the decreases in the average costs of certificates of deposit, Liquid CDs and borrowings. The average balance of interest-bearing liabilities decreased $71.6 million to $19.82 billion for the three months ended June 30, 2008, from $19.90 billion for the three months ended June 30, 2007, due to a decrease in the average balance of deposits, partially offset by an increase in the average balance of borrowings.

Interest expense on deposits decreased $16.2 million to $97.9 million for the three months ended June 30, 2008, from $114.1 million for the three months ended June 30, 2007, primarily due to a decrease in the average cost to 3.01% for the three months ended June 30, 2008, from 3.42% for the three months ended June 30, 2007. The decrease in the average cost of total deposits was primarily due to the impact of the decline in short-term interest rates over the past year on our Liquid CDs and our certificates of deposit which matured and were replaced at lower interest rates. The average balance of total deposits decreased $311.4 million to $13.02 billion for the three months ended June 30, 2008, from $13.33 billion for the three months ended June 30, 2007, primarily due to decreases in the average balances of Liquid CDs, savings accounts and money market accounts, partially offset by increases in the average balances of certificates of deposit.

Interest expense on Liquid CDs decreased $11.3 million to $8.9 million for the three months ended June 30, 2008, from $20.2 million for the three months ended June 30, 2007, primarily due to a decrease in the average cost to 2.73% for the three months ended June 30, 2008, from 4.88% for the three months ended June 30, 2007, coupled with a decrease of $357.3 million in the average balance. The decrease in the average cost of Liquid CDs reflects the decline in short-term interest rates over the past year. The decrease in the average balance of Liquid CDs was primarily a result of our decision to maintain our pricing discipline over the past year as short-term interest rates declined.

Interest expense on certificates of deposit decreased $4.7 million to $85.9 million for the three months ended June 30, 2008, from $90.6 million for the three months ended June 30, 2007, primarily due to a decrease in the average cost to 4.29% for the three months ended June 30, 2008, from 4.69% for the three months ended June 30, 2007, partially offset by an increase of $283.9 million in the average balance. The decrease in the average cost of certificates of deposit reflects the impact of the decrease in interest rates over the past year as certificates of deposit at higher rates matured and were replaced at lower interest rates. During the three months ended June 30, 2008, $2.65 billion of certificates of deposit, with a weighted average rate of 4.54% and a weighted average maturity at inception of twelve months, matured and $2.78 billion of certificates of deposit were issued or repriced, with a weighted average rate of 3.19% and a weighted average maturity at inception of eleven months. The increase in the average balance of certificates of deposit was primarily a result of the success of our marketing efforts and competitive pricing strategies during the 2008 second quarter.

Interest expense on borrowings increased slightly to $76.2 million for the three months ended June 30, 2008, from $76.0 million for the three months ended June 30, 2007, resulting from an increase of $239.8 million in the average balance, substantially offset by a decrease in the average cost to 4.48% for the three months ended June 30, 2008, from 4.63% for the three months ended June 30, 2007. The increase in the average balance of borrowings was primarily the result of our use of lower cost borrowings to fund some of our loan growth during the second half of 2007. The decrease in the average cost of borrowings reflects the impact of the decline in short-term interest rates over the past year on our short-term and variable rate borrowings, coupled with the downward repricing of borrowings which matured and were refinanced during the 2008 second quarter.

Interest expense decreased $9.1 million to $365.4 million for the six months ended June 30, 2008, from $374.5 million for the six months ended June 30, 2007, primarily due to a decrease in the average cost of interest-bearing liabilities to 3.67% for the six months ended June 30, 2008, from 3.76% for the six months ended June 30, 2007, primarily due to decreases in the average cost of Liquid CDs and certificates of deposit. The average balance of interest-bearing liabilities increased slightly and totaled $19.90 billion for the six months ended June 30, 2008 and 2007. The slight increase in the average balance of interest-bearing liabilities was due to an increase in the average balance of borrowings, substantially offset by a decrease in the average balance of deposits.

Interest expense on deposits decreased $16.4 million to $208.1 million for the six months ended June 30, 2008, from $224.5 million for the six months ended June 30, 2007, primarily due to a decrease in the average cost to 3.20% for the six months ended June 30, 2008, from 3.38% for the six months ended June 30, 2007. The average balance of total deposits decreased $280.4 million to $12.99 billion for the six months ended June 30, 2008, from $13.27 billion for the six months ended June 30, 2007, primarily due to decreases in the average balances of Liquid CDs, savings accounts and money market accounts, primarily as a result of continued competition for these types of deposits, partially offset by an increase in the average balance of certificates of deposit.

Interest expense on certificates of deposit decreased slightly to $178.6 million for the six months ended June 30, 2008, from $179.1 million for the six months ended June 30, 2007, primarily due to a decrease in the average cost to 4.49% for the six months ended June 30, 2008, from 4.64% for the six months ended June 30, 2007, substantially offset by an increase of $238.3 million in the average balance. During the six months ended June 30, 2008, $4.44 billion of certificates of deposit, with a weighted average rate of 4.57% and a weighted average maturity at inception of

thirteen months, matured and $4.50 billion of certificates of deposit were issued or repriced, with a weighted average rate of 3.36% and a weighted average maturity at inception of ten months.

Interest expense on Liquid CDs decreased $15.4 million to $23.4 million for the six months ended June 30, 2008, from $38.8 million for the six months ended June 30, 2007, primarily due to a decrease in the average cost to 3.43% for the six months ended June 30, 2008, from 4.87% for the six months ended June 30, 2007, coupled with a decrease of $229.0 million in the average balance.

Interest expense on borrowings increased $7.3 million to $157.3 million for the six months ended June 30, 2008, from $150.0 million for the six months ended June 30, 2007, resulting from an increase of $281.3 million in the average balance, coupled with an increase in the average cost to 4.56% for the six months ended June 30, 2008, from 4.53% for the six months ended June 30, 2007. The increase in the average cost of borrowings reflects the upward repricing of borrowings which matured and were refinanced during 2007, substantially offset by the impact of the decline in short-term interest rates over the past year on our short-term and variable rate borrowings.

Except as otherwise noted, the principal reasons for the changes in the average costs and average balances of the various liabilities noted above for the six months ended June 30, 2008 are consistent with the principal reasons for the changes noted for the three months ended June 30, 2008.

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. Subprime mortgage lending, which has been the riskiest sector of the residential housing market, is not a market that we have ever actively pursued. During the first half of 2008, the continued decline in the housing and real estate markets, as well as the overall economic environment, contributed to an increase in our non-performing loans and net loan charge-offs. As a geographically diversified lender, we are not immune to, and have been affected by, the negative consequences arising from overall economic weakness and, in particular, a sharp downturn in the housing industry nationally. Based on our evaluation of the issues regarding the real estate and housing markets, the overall economic environment, and the increase in and composition of our delinquencies, non-performing loans and net loan charge-offs, we determined that a provision for loan losses was warranted for the three and six months ended June 30, 2008.

The provision for loan losses totaled $7.0 million for the three months ended June 30, 2008 and $11.0 million for the six months ended June 30, 2008, reflecting the continued higher levels of non-performing loans and net loan charge-offs experienced since the second half of 2007. No provision for loan losses was recorded for the three and six months ended June 30, 2007. The allowance for loan losses was $81.8 million at June 30, 2008 and $78.9 million at December 31, 2007. The allowance for loan losses as a percentage of non-performing loans decreased to 63.64% at June 30, 2008, from 115.97% at December 31, 2007, primarily due to an increase in non-performing loans. The allowance for loan losses as a percentage of total loans was 0.51% at June 30, 2008 and 0.49% at December 31, 2007. 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 and non-accrual and non-performing loans. The balance of our allowance for loan losses represents management’s best estimate of the probable inherent losses in our loan portfolio at June 30, 2008 and December 31, 2007.

We review our allowance for loan losses on a quarterly basis. Material factors considered during our quarterly review include our historical loss experience, the composition and direction of loan delinquencies and the impact of current economic conditions. Net loan charge-offs totaled $5.2 million, or thirteen basis points of average loans outstanding, annualized, for the three months ended June 30, 2008 and $8.1 million, or ten basis points of average loans outstanding, annualized, for the six months ended June 30, 2008. This compares to net loan charge-offs of $698,000, or two basis points of average loans outstanding, annualized, for the three months ended June 30, 2007 and $543,000, or one basis point of average loans outstanding, annualized, for the six months ended June 30, 2007. Net loan charge-offs during the six months ended June 30, 2008 included a $1.5 million charge-off related to a single construction loan and a $1.4 million charge-off related to a single multi-family loan.

The composition of our loan portfolio, by property type, has remained relatively consistent over the last several years. At June 30, 2008, our loan portfolio was comprised of 74% one-to-four family mortgage loans, 18% multi-family mortgage loans, 6% commercial real estate loans and 2% consumer and other loan categories. Our loan-to-value ratios upon origination are low overall, have been consistent over the past several years and provide some level of protection in the event of default should property values decline. At June 30, 2008, the average loan-to-value ratio of our mortgage loan portfolio was less than 65% based on current principal balances and original appraisal values. However, the markets in which we lend have experienced declines in real estate values which we have taken into account in evaluating our allowance for loan losses.

Our non-performing loans, which are comprised primarily of mortgage loans, increased $60.5 million to $128.6 million, or 0.79% of total loans, at June 30, 2008, from $68.1 million, or 0.42% of total loans, at December 31, 2007. This increase was primarily due to increases in non-performing one-to-four family, multi-family and commercial real estate mortgage loans. Despite the increase in non-performing loans at June 30, 2008, our non-performing loans continue to remain at low levels relative to the size of our loan portfolio and those of other lending institutions.

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 generally do not obtain updated estimates of collateral value for loans until classified or requested by our Asset Classification Committee or, in the case of one-to-four family loans, when such loans are 180 days delinquent. 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. Based on our review of property value trends, including updated estimates of collateral value on classified loans and related loan charge-offs, we believe the current decline in the housing market has had some negative impact on the value of our non-performing loan collateral as of June 30, 2008.

Effective January 1, 2008, we have revised our presentation of non-performing mortgage loans to report mortgage loans which have missed only two payments as 60-89 days delinquent instead of as non-accrual, which had been our previous practice. All of the non-performing loan, non-performing asset and related asset quality ratio data as of December 31, 2007 has been revised to conform to the current year presentation. For a further discussion of this change in presentation, see “Asset Quality.”

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 decreased $1.5 million to $24.8 million for the three months ended June 30, 2008, from $26.3 million for the three months ended June 30, 2007, and decreased $1.6 million to $47.3 million for the six months ended June 30, 2008, from $48.9 million for the six months ended June 30, 2007. These decreases were primarily due to decreases in other non-interest income, partially offset by increases in customer service fees.

Other non-interest income decreased $2.1 million to $1.4 million for the three months ended June 30, 2008, from $3.5 million for the three months ended June 30, 2007, and decreased $2.1 million to $2.8 million for the six months ended June 30, 2008, from $4.9 million for the six months ended June 30, 2007. These decreases were primarily due to a gain recognized in the 2007 second quarter related to insurance proceeds from an individual life insurance policy on a former executive.

Customer service fees increased $616,000 to $16.8 million for the three months ended June 30, 2008, from $16.2 million for the three months ended June 30, 2007, and increased $581,000 to $31.9 million for the six months ended June 30, 2008, from $31.3 million for the six months ended June 30, 2007. These increases were primarily due to increases in commissions received from sales of tax-deferred annuities and mutual funds through an unaffiliated third party vendor, partially offset by decreases in insufficient fund fees related to transaction accounts and ATM fees.

Non-Interest Expense

Non-interest expense increased $1.3 million to $60.0 million for the three months ended June 30, 2008, from $58.7 million for the three months ended June 30, 2007, primarily due to an increase in compensation and benefits expense, partially offset by a decrease in other expense. For the six months ended June 30, 2008, non-interest expense increased $2.4 million to $118.2 million, from $115.8 million for the six months ended June 30, 2007, primarily due to an increase in compensation and benefits expense, partially offset by decreases in advertising expense and other expense. Our percentage of general and administrative expense to average assets, annualized, was 1.12% for the three months ended June 30, 2008, compared to 1.09% for the three months ended June 30, 2007, and 1.10% for the six months ended June 30, 2008, compared to 1.08% for the six months ended June 30, 2007.

Compensation and benefits expense increased $2.4 million, to $32.4 million for the three months ended June 30, 2008, from $30.0 million for the three months ended June 30, 2007, and increased $3.2 million, to $64.4 million for the six months ended June 30, 2008, from $61.2 million for the six months ended June 30, 2007. These increases were primarily due to increases in salaries, incentive compensation, stock-based compensation, ESOP expense and medical insurance costs, partially offset by decreases in the net periodic cost of pension and other postretirement benefits, which were primarily the result of decreases in the amortization of the net actuarial loss.

Other expense decreased $1.1 million to $8.7 million for the three months ended June 30, 2008, from $9.8 million for the three months ended June 30, 2007, primarily due to a $2.0 million decrease in goodwill litigation expense, partially offset by a $1.1 million increase in REO expense. Other expense decreased $584,000 to $16.4 million for the six months ended June 30, 2008, from $16.9 million for the six months ended June 30, 2007, primarily due to a $2.1 million decrease in goodwill litigation expense, partially offset by a $1.8 million increase in REO related expense. Advertising expense decreased $1.3 million to $2.6 million for the six months ended

June 30, 2008, from $3.9 million for the six months ended June 30, 2007, primarily due to a reduction in print advertising for certificates of deposit during the 2008 first quarter.

Income Tax Expense

For the three months ended June 30, 2008, income tax expense totaled $17.0 million, representing an effective tax rate of 33.7%, compared to $16.4 million for the three months ended June 30, 2007, representing an effective tax rate of 32.5%. For the six months ended June 30, 2008, income tax expense totaled $29.1 million, representing an effective tax rate of 31.8%, compared to $33.6 million for the six months ended June 30, 2007, representing an effective tax rate of 32.5%.

Asset Quality

One of our key operating objectives has been and continues to be to maintain a high level of asset quality. Our concentration on one-to-four family mortgage lending and the maintenance of sound credit standards for new loan originations have resulted in our maintaining a low level of non-performing assets relative to the size of our loan portfolio. Through a variety of strategies, including, but not limited to, aggressive collection efforts and the marketing of 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. At June 30, 2008, our loan portfolio was comprised of 74% one-to-four family mortgage loans, 18% multi-family mortgage loans, 6% commercial real estate loans and 2% consumer and other loan categories. This compares to 73% one-to-four family mortgage loans, 18% multi-family mortgage loans, 6% commercial real estate loans and 3% consumer and other loan categories at December 31, 2007.

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 in percentages of the portfolio at the dates indicated.

	At June 30, 2008				At December 31, 2007

(Dollars in Thousands)	Amount		Percent of Total		Amount		Percent of Total

One-to-four family:
Full documentation interest-only (1)	$	5,414,728	45.79	%	$	5,415,787	46.57	%
Full documentation amortizing		3,793,144	32.07			3,320,047	28.55
Reduced documentation interest-only (1) (2)		2,029,700	17.16			2,230,041	19.18
Reduced documentation amortizing (2)		588,390	4.98			662,395	5.70

Total one-to-four family	$	11,825,962	100.00	%	$	11,628,270	100.00	%

Multi-family and commercial real estate:
Full documentation amortizing	$	3,206,371	83.38	%	$	3,337,692	83.92	%
Full documentation interest-only		638,971	16.62			639,666	16.08

Total multi-family and commercial real estate	$	3,845,342	100.00	%	$	3,977,358	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.

(2)

Reduced documentation loans are comprised primarily of SIFA (stated income, full asset) loans which require a potential borrower to complete a standard mortgage loan application and require the verification of a potential borrower’s asset information on the loan application, but not the income information provided. In addition, SIFA loans require the receipt of an appraisal of the real estate used as collateral for the mortgage loan and a credit report on the prospective borrower. We discontinued originating reduced documentation loans during the 2007 fourth quarter.

We do not originate negative amortization loans, payment option loans or other loans with short-term interest-only periods. We are a portfolio lender and, as such, we review all data contained in borrower credit reports and do not base our underwriting decisions solely on FICO scores. We underwrite our one-to-four family interest-only hybrid ARM loans based on a fully amortizing thirty year loan using the higher of the fully indexed rate or the initial note rate.

Non-Performing Assets

Effective January 1, 2008, we have revised our presentation of non-performing mortgage loans to report mortgage loans which have missed only two payments as 60-89 days delinquent instead of as non-accrual, which had been our previous practice. This change was implemented to improve the transparency of loan migration through delinquency status (i.e., 30, 60 and 90 days delinquent); to be consistent with our presentation for reporting non-accrual consumer and other loans; and to improve comparability of our non-performing loan disclosures with other institutions. Under our revised presentation, mortgage loans are classified as non-accrual when such loans become 90 days delinquent as to their payment due date (missed three payments). Under our previous presentation, mortgage loans were classified as non-accrual when such loans became 90 days delinquent as to their interest due, even though in many instances the borrower had only missed two payments. At June 30, 2008, substantially all of the loans reported as 60-89 days delinquent would have been reported as non-accrual under the previous presentation. Loans which had missed two payments and were previously reported as non-accrual as of December 31, 2007 totaling $38.3 million have been reclassified from non-accrual to 60-89 days delinquent as of December 31, 2007 to conform the December 31, 2007 information to the current year presentation. All of the asset quality information presented for December 31, 2007 has been revised to conform to the current year presentation.

The following table sets forth information regarding non-performing assets at the dates indicated.

(Dollars in Thousands)	At June 30, 2008			At December 31, 2007

Non-accrual mortgage loans	$	126,399			$	66,126
Non-accrual consumer and other loans		2,082				1,476
Mortgage loans delinquent 90 days or more and still accruing interest (1)		122				474

Total non-performing loans		128,603				68,076
REO, net (2)		18,249				9,115

Total non-performing assets	$	146,852			$	77,191

Non-performing loans to total loans		0.79	%			0.42	%
Non-performing loans to total assets		0.59				0.31
Non-performing assets to total assets		0.68				0.36
Allowance for loan losses to non-performing loans		63.64				115.97
Allowance for loan losses to total loans		0.51				0.49

(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)	Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is carried in other assets, net of allowances for losses, at the lower of cost or fair value, less estimated selling costs. The allowance for losses was $1.1 million at June 30, 2008 and $493,000 at December 31, 2007.

Total non-performing assets increased $69.7 million to $146.9 million at June 30, 2008, from $77.2 million at December 31, 2007. Non-performing loans, the most significant component of non-performing assets, increased $60.5 million to $128.6 million at June 30, 2008, from $68.1 million at December 31, 2007. As previously discussed, these increases were primarily due to increases in non-performing one-to-four family, multi-family and commercial real estate

mortgage loans. During the first half of 2008, the continued decline in the housing and real estate markets, as well as the overall economic environment, continued to contribute to an increase in our non-performing loans. Despite the increase in non-performing loans at June 30, 2008, our non-performing loans continue to remain at low levels relative to the size of our loan portfolio. The ratio of non-performing loans to total loans was 0.79% at June 30, 2008 and 0.42% at December 31, 2007. The ratio of non-performing assets to total assets was 0.68% at June 30, 2008 and 0.36% at December 31, 2007. The allowance for loan losses as a percentage of total non-performing loans decreased to 63.64% at June 30, 2008, from 115.97% at December 31, 2007.

During the six months ended June 30, 2008, we sold $12.5 million of delinquent loans, primarily one-to-four family and multi-family mortgage loans. The sale of these loans did not have a material impact on our non-performing loans, non-performing assets and related ratios at June 30, 2008.

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 in percentages of the portfolio, at the dates indicated.

	At June 30, 2008				At December 31, 2007

(Dollars in Thousands)	Amount		Percent of Total		Amount		Percent of Total

Non-performing loans:
One-to-four family:
Full documentation interest-only	$	29,253	28.96	%	$	16,748	27.79	%
Full documentation amortizing		12,756	12.63			11,357	18.85
Reduced documentation interest-only		49,299	48.80			21,896	36.33
Reduced documentation amortizing		9,712	9.61			10,260	17.03

Total one-to-four family	$	101,020	100.00	%	$	60,261	100.00	%

Multi-family and commercial real estate:
Full documentation amortizing	$	17,595	71.68	%	$	5,067	100.00	%
Full documentation interest-only		6,950	28.32			—	—

Total multi-family and commercial real estate	$	24,545	100.00	%	$	5,067	100.00	%

The aggregate amounts of our non-performing one-to-four family interest-only and fully amortizing loans, as measured by their respective percentages of total non-performing one-to-four family loans, is relatively consistent with the aggregate amounts of these types of loans, as measured by their respective percentages, of the entire one-to-four family portfolio. However, our non-performing reduced documentation interest-only loans have increased at a greater pace than our other non-performing loan categories during the first half of 2008.

At June 30, 2008, the geographic composition of our non-performing one-to-four family mortgage loans was consistent with the geographic composition of our one-to-four family mortgage loan portfolio and, as of June 30, 2008, did not indicate a negative trend in any one particular geographic location as detailed in the following table.

	At June 30, 2008

(Dollars in Millions)	Total One-to-Four Family Loans			Percent of Total One-to-Four Family Loans		Total Non-Performing One-to-Four Family Loans			Percent of Total Non-Performing One-to-Four Family Loans		Non-Performing Loans as Percent of State Totals

State:
New York Metro (1)		$	4,947.8	42	%		$	33.3	33	%	0.67	%
California			1,420.8	12				8.9	9		0.63
Illinois			1,248.2	11				10.3	10		0.83
Virginia			955.3	8				13.4	13		1.40
Maryland			859.4	7				13.2	13		1.54
Massachusetts			798.9	7				4.7	5		0.59
Florida			333.9	3				8.5	8		2.55
Washington			208.7	2				—	—		—
Georgia			170.1	1				0.6	1		0.35
Washington D.C.			129.4	1				2.5	2		1.93
Pennsylvania			129.3	1				1.5	2		1.16
All other states (2)			624.2	5				4.1	4		0.66

Total		$	11,826.0	100	%		$	101.0	100	%	0.85	%

(1)	Includes New York, New Jersey and Connecticut

(2)	Includes 29 states

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. Prior to January 1, 2008, we discontinued accruing interest on mortgage loans when such loans became 90 days delinquent as to their interest due, even though in many instances the borrower had only missed two payments, and we discontinued accruing interest on consumer and other loans when such loans became 90 days delinquent as to their payment due date. The change in interest accrual for mortgage loans did not have a material impact on our interest income or accrued interest receivable.

If all non-accrual loans at June 30, 2008 and 2007 had been performing in accordance with their original terms, we would have recorded interest income, with respect to such loans, of $4.3 million for the six months ended June 30, 2008 and $2.1 million for the six months ended June 30, 2007. This compares to actual payments recorded as interest income, with respect to such loans, of $883,000 for the six months ended June 30, 2008 and $698,000 for the six months ended June 30, 2007. The foregone interest data for the period ended June 30, 2007 has not been revised for the current year change in presentation of non-accrual loans and, therefore, reflects foregone interest based on non-accrual loans totaling $63.4 million at June 30, 2007, as previously reported.

In addition to non-performing loans, we had $54.2 million of potential problem loans at June 30, 2008, compared to $39.1 million at December 31, 2007. Such loans include loans which are 60-89 days delinquent as shown in the following table and certain other internally classified loans.

Delinquent Loans

The following tables show a comparison of delinquent loans at June 30, 2008 and December 31, 2007. Delinquent loans are reported based on the number of days the loan payments are past due.

	At June 30, 2008

	30-59 Days				60-89 Days				90 Days or More

(Dollars in Thousands)	Number of Loans	Amount			Number of Loans	Amount			Number of Loans	Amount

Mortgage loans:
One-to-four family	287	$	84,819		92	$	33,951		291	$	101,020
Multi-family	45		43,354		9		13,676		24		20,464
Commercial real estate	6		4,097		2		1,230		3		4,081
Construction	—		—		1		1,667		2		956
Consumer and other loans	84		2,223		41		511		30		2,082

Total delinquent loans	422	$	134,493		145	$	51,035		350	$	128,603

Delinquent loans to total loans			0.83	%			0.32	%			0.79	%

	At December 31, 2007

	30-59 Days				60-89 Days				90 Days or More

(Dollars in Thousands)	Number of Loans	Amount			Number of Loans	Amount			Number of Loans	Amount

Mortgage loans:
One-to-four family	327	$	111,757		96	$	29,275		204	$	60,261
Multi-family	34		25,701		9		9,133		11		5,067
Commercial real estate	5		1,992		—		—		—		—
Construction	2		2,839		—		—		2		1,272
Consumer and other loans	96		2,136		30		673		41		1,476

Total delinquent loans	464	$	144,425		135	$	39,081		258	$	68,076

Delinquent loans to total loans			0.89	%			0.24	%			0.42	%

Allowance for Loan Losses

The following table sets forth the change in our allowance for losses on loans for the six months ended June 30, 2008.

	(In Thousands)
Balance at December 31, 2007	$	78,946
Provision charged to operations		11,000
Charge-offs:
One-to-four family		(5,070	)
Multi-family		(1,366	)
Construction		(1,484	)
Consumer and other loans		(477	)

Total charge-offs		(8,397	)

Recoveries:
One-to-four family		166
Consumer and other loans		128

Total recoveries		294

Net charge-offs		(8,103	)

Balance at June 30, 2008	$	81,843

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 June 30, 2008 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 $2.18 billion of callable borrowings classified according to their maturity dates, primarily in the more than five years category, which are callable within one year and at various times thereafter. The classification of callable borrowings according to their maturity dates is 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 June 30, 2008 was negative 20.14% compared to negative 24.01% at December 31, 2007. The change in our one-year cumulative gap is primarily due to an increase in projected mortgage loan repayments at June 30, 2008, as compared to December 31, 2007, coupled with a decrease in projected borrowings maturing and/or repricing at June 30, 2008, as compared to December 31, 2007.

	At June 30, 2008

(Dollars in Thousands)	One Year or Less			More than One Year to Three Years			More than Three Years to Five Years			More than Five Years			Total

Interest-earning assets:
Mortgage loans (1)	$	5,023,576		$	5,169,577		$	4,851,456		$	570,016		$	15,614,625
Consumer and other loans (1)		309,579			4,390			3,279			16,233			333,481
Repurchase agreements		42,130			—			—			—			42,130
Securities available-for-sale		235,637			500,917			300,696			326,468			1,363,718
Securities held-to-maturity		643,151			1,100,170			900,293			259,115			2,902,729
FHLB-NY stock		—			—			—			200,260			200,260

Total interest-earning assets		6,254,073			6,775,054			6,055,724			1,372,092			20,456,943
Net unamortized purchase premiums and deferred costs (2)		36,662			34,286			32,687			3,193			106,828

Net interest-earning assets (3)		6,290,735			6,809,340			6,088,411			1,375,285			20,563,771

Interest-bearing liabilities:
Savings		240,434			400,950			400,950			844,136			1,886,470
Money market		140,182			86,454			86,454			3,517			316,607
NOW and demand deposit		116,863			233,738			233,738			922,210			1,506,549
Liquid CDs		1,246,359			—			—			—			1,246,359
Certificates of deposit		6,365,224			1,381,981			385,856			—			8,133,061
Borrowings, net		2,535,400			1,449,180			1,224,535			1,728,860			6,937,975

Total interest-bearing liabilities		10,644,462			3,552,303			2,331,533			3,498,723			20,027,021

Interest sensitivity gap		(4,353,727	)		3,257,037			3,756,878			(2,123,438	)	$	536,750

Cumulative interest sensitivity gap	$	(4,353,727	)	$	(1,096,690	)	$	2,660,188		$	536,750

Cumulative interest sensitivity gap as a percentage of total assets		(20.14	)%		(5.07	)%		12.30	%		2.48	%
Cumulative net interest-earning assets as a percentage of interest-bearing liabilities		59.10	%		92.28	%		116.09	%		102.68	%

(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.

Assuming the entire yield curve was to increase 200 basis points, through quarterly parallel increments of 50 basis points, our projected net interest income for the twelve month period beginning July 1, 2008 would decrease by approximately 4.87% from the base projection. At December 31, 2007, in the up 200 basis point scenario, our projected net interest income for the twelve month period beginning January 1, 2008 would have decreased by approximately 9.85% from the base projection. Assuming the entire yield curve was to decrease 200 basis points, through quarterly parallel decrements of 50 basis points, our projected net interest income for the twelve month period beginning July 1, 2008 would increase by approximately

2.46% from the base projection. At December 31, 2007, in the down 200 basis point scenario, our projected net interest income for the twelve month period beginning January 1, 2008 would have increased by approximately 5.05% from the base projection.

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 July 1, 2008 would increase by approximately $4.2 million. Conversely, assuming the entire yield curve was to decrease 200 basis points, through quarterly parallel decrements of 50 basis points, our projected net income for the twelve month period beginning July 1, 2008 would decrease by approximately $7.8 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 2007 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 June 30, 2008. 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 communicated to our management as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal controls over financial reporting that occurred during the three months ended June 30, 2008 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 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

In one of the actions, entitled The Long Island Savings Bank, FSB et al vs. The United States, the Court of Federal Claims rendered a decision on September 15, 2005 awarding us $435.8 million in damages from the U.S. Government. No portion of the $435.8 million award was recognized in our consolidated financial statements. On February 1, 2007, the Court of Appeals reversed such award. On April 2, 2007, we filed a petition for rehearing or rehearing en banc. Acting en banc, the Court of Appeals returned the case to the original panel of judges for revision. The panel, on September 13, 2007, withdrew and vacated its earlier opinion and issued a new decision. This decision also reversed the award of $435.8 million in damages awarded to us by the Court of Federal Claims. We again filed with the Court of Appeals a petition for rehearing or rehearing en banc. On December 28, 2007, the Court of Appeals denied our petition. We have filed a petition for a Writ of Certiorari with the Supreme Court of the United States.

McAnaney Litigation

In 2004, an action entitled David McAnaney and Carolyn McAnaney, individually and on behalf of all others similarly situated vs. Astoria Financial Corporation, et al. was commenced in the U.S. District Court for the Eastern District of New York, or the District Court. The action, commenced as a class action, alleges that in connection with the satisfaction of certain mortgage loans made by Astoria Federal, The Long Island Savings Bank, FSB, which was acquired by Astoria Federal in 1998, and their related entities, customers were charged attorney document preparation fees, recording fees and facsimile fees allegedly in violation of the federal Truth in Lending Act, the Real Estate Settlement Procedures Act, or RESPA, the Fair

Debt Collection Act, or FDCA, the New York State Deceptive Practices Act, and alleges actions based upon unjust enrichment and common law fraud.

Astoria Federal previously moved to dismiss the amended complaint, which motion was granted in part and denied in part, dismissing claims based on violations of RESPA and FDCA. The District Court further determined that class certification would be considered prior to considering summary judgment. The District Court, on September 19, 2006, granted the plaintiff’s motion for class certification. Astoria Federal has denied the claims set forth in the complaint. Both we and the plaintiffs subsequently filed motions for summary judgment with the District Court. The District Court, on September 12, 2007, granted our motion for summary judgment on the basis that all named plaintiffs’ Truth in Lending claims are time barred. All other aspects of plaintiffs’ and defendant’s motions for summary judgment were dismissed without prejudice. The District Court found the named plaintiffs to be inadequate class representatives and provided plaintiffs’ counsel an opportunity to submit a motion for the substitution or intervention of new named plaintiffs. Plaintiffs’ counsel filed a motion with the District Court for partial reconsideration of its decision. The District Court, by order dated January 25, 2008, granted plaintiffs’ motion for partial reconsideration and again determined that all named plaintiffs’ Truth-in Lending claims are time barred. Plaintiffs’ counsel subsequently submitted a motion to intervene or substitute plaintiff proposing a single substitute plaintiff. On April 18, 2008, we filed with the District Court our opposition to such motion. We currently do not believe this action will likely have a material adverse impact on our financial condition or results of operations. However, 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.

ITEM 1A. Risk Factors

For a summary of risk factors relevant to our operations, see Part I, Item 1A, “Risk Factors,” in our 2007 Annual Report on Form 10-K and Part II, Item 1A, “Risk Factors,” in our March 31, 2008 Quarterly Report on Form 10-Q. There are no other material changes in risk factors relevant to our operations since March 31, 2008 except as discussed below.

Changes in the fair value of our securities may reduce our stockholders’ equity and net income.

At June 30, 2008, $1.31 billion of our securities were classified as available-for-sale. The estimated fair value of our available-for-sale securities portfolio may increase or decrease depending on changes in interest rates. In general, as interest rates rise, the estimated fair value of our fixed rate securities portfolio will decrease. Our securities portfolio is comprised primarily of fixed rate securities. We increase or decrease stockholders’ equity by the amount of the change in the unrealized gain or loss (difference between the estimated fair value and the amortized cost) of our available-for-sale securities portfolio, net of the related tax benefit, under the category of accumulated other comprehensive income/loss. Therefore, a decline in the estimated fair value of this portfolio will result in a decline in reported stockholders’ equity, as well as book value per common share and tangible book value per common share. This decrease will occur even though the securities are not sold. In the case of debt securities, if these securities are never sold, the decrease will be recovered over the life of the securities. In the case of equity securities, such as our Freddie Mac preferred stock, which have no stated maturity, the declines in fair value may or may not be recovered over time.

We conduct a periodic review and evaluation of the securities portfolio to determine if the decline in the fair value of any security below its cost basis is other-than-temporary. Factors which we consider in our analysis include, but are not limited to, the severity and duration of the decline in fair value of the security, the financial condition and near-term prospects of the issuer, whether the decline appears to be related to issuer conditions or general market or industry conditions, our intent and ability to retain the security for a period of time sufficient to allow for any anticipated recovery in fair value and the likelihood of any near-term fair value recovery. We generally view changes in fair value caused by changes in interest rates as temporary, which is consistent with our experience. If we deem such decline to be 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.

We own two preferred securities issued by Freddie Mac with an adjusted book value of $83.0 million and a related market value of $76.9 million at June 30, 2008. Subsequent to June 30, 2008, Freddie Mac has been subject to significant market disruption, as well as political and regulatory discussions, which has caused its preferred stock fair values to decline further. We will continue to monitor the fair value of the preferred stock we hold as related market events unfold as part of our ongoing other-than-temporary impairment evaluation process. No assurance can be given that we will not need to recognize an other-than-temporary impairment charge related to these securities if the fair values do not recover in the future.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth the repurchases of our common stock by month during the three months ended June 30, 2008.

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Number of Shares that May Yet Be Purchased Under the Plans

April 1, 2008 through April 30, 2008	110,000	$	26.06	110,000	8,462,300
May 1, 2008 through May 31, 2008	90,000	$	23.46	90,000	8,372,300
June 1, 2008 through June 30, 2008	100,000	$	22.09	100,000	8,272,300

Total	300,000	$	23.96	300,000

All of the shares repurchased during the three months ended June 30, 2008 were repurchased under our twelfth stock repurchase plan, approved by our Board of Directors on April 18, 2007, which authorized the purchase of 10,000,000 shares, or approximately 10% of our common stock outstanding, in open-market or privately negotiated transactions.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Submission of Matters to a Vote of Security Holders

Our Annual Meeting of shareholders, referred to as the Annual Meeting, was held May 21, 2008. At the Annual Meeting, our shareholders re-elected George L. Engelke, Jr., Peter C. Haeffner, Jr. and Ralph F. Palleschi as directors, each to serve for a three year term and Leo J. Waters to serve for a two year term. In all cases, directors serve until their respective successors are duly elected and

qualified. The shareholders also ratified our appointment of KPMG LLP as our independent registered public accounting firm for our 2008 fiscal year.

The number of votes cast with respect to each matter acted upon at the Annual Meeting was as follows:

(a)

Election of Directors:

	For	Withheld

George L. Engelke, Jr.	80,270,535	6,993,788
Peter C. Haeffner, Jr.	80,240,126	7,024,197
Ralph F. Palleschi	80,242,822	7,021,501
Leo J. Waters	85,875,723	1,388,600

There were no broker held non-voted shares represented at the meeting with respect to this proposal.

(b)

Ratification of the appointment of KPMG LLP as the independent registered public accounting firm of Astoria Financial Corporation for the 2008 fiscal year:

For:		78,609,245
Against:		8,588,651
Abstained:		66,427

There were no broker held non-voted shares represented at the meeting with respect to this proposal.

ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits

See Index of Exhibits on page 53.

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 Corporation

Dated:	August 8, 2008	By:	/s/ Frank E. Fusco

			Frank E. Fusco
			Executive Vice President, Treasurer and Chief Financial Officer (Principal Accounting Officer)

ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES

INDEX OF EXHIBITS

Exhibit No.		Identification of Exhibit

31.1		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.

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Avg

Astoria Financial Inactive 10-Q2008 Q2 Quarterly report

Content analysis

Average
Balance

Astoria Financial Inactive 10-Q2008 Q2 Quarterly report

Content analysis

AverageBalance

Average
Balance