10-Q

 

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, 2010

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                               to

Commission file number 001-11967

ASTORIA FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	11-3170868
(State or other jurisdiction of	(I.R.S. Employer Identification
incorporation or organization)	Number)
One Astoria Federal Plaza, Lake Success, New York	11042-1085
(Address of principal executive offices)	(Zip Code)

(516) 327-3000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all the reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as these items are defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES ¨ NO x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Classes of Common Stock	Number of Shares Outstanding, July 30, 2010
.01 Par Value	97,877,469

		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):
	Consolidated Statements of Financial Condition at June 30, 2010 and December 31, 2009	2
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2010 and June 30, 2009	3
	Consolidated Statement of Changes in Stockholders' Equity for the Six Months Ended June 30, 2010	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and June 30, 2009	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	60
Item 4.	Controls and Procedures	62
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	63
Item 1A.	Risk Factors	65
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 3.	Defaults Upon Senior Securities	66
Item 4.	(Removed and Reserved)	66
Item 5.	Other Information	67
Item 6.	Exhibits	67
Signature		67

 

1

 

ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition

	(Unaudited)
(In Thousands, Except Share Data)	At June 30, 2010			At December 31, 2009
Assets:
Cash and due from banks	$	319,997		$	71,540
Repurchase agreements		41,900			40,030
Available-for-sale securities:
Encumbered		614,269			798,367
Unencumbered		114,347			62,327
Total available-for-sale securities		728,616			860,694
Held-to-maturity securities, fair value of $2,069,935 and $2,367,520, respectively:
Encumbered		1,817,737			1,955,163
Unencumbered		190,372			362,722
Total held-to-maturity securities		2,008,109			2,317,885
Federal Home Loan Bank of New York stock, at cost		185,768			178,929
Loans held-for-sale, net		34,859			34,274
Loans receivable:
Mortgage loans, net		15,039,766			15,447,115
Consumer and other loans, net		326,561			333,607
Total loans receivable		15,366,327			15,780,722
Allowance for loan losses		(210,999	)		(194,049	)
Loans receivable, net		15,155,328			15,586,673
Mortgage servicing rights, net		8,649			8,850
Accrued interest receivable		65,653			66,121
Premises and equipment, net		133,765			136,195
Goodwill		185,151			185,151
Bank owned life insurance		406,087			401,735
Real estate owned, net		54,428			46,220
Other assets		341,688			317,882
Total assets	$	19,669,998		$	20,252,179
Liabilities:
Deposits:
Savings	$	2,183,350		$	2,041,701
Money market		337,455			326,842
NOW and demand deposit		1,687,163			1,646,633
Liquid certificates of deposit		607,853			711,509
Certificates of deposit		7,432,620			8,085,553
Total deposits		12,248,441			12,812,238
Reverse repurchase agreements		2,200,000			2,500,000
Federal Home Loan Bank of New York advances		3,235,000			3,000,000
Other borrowings, net		378,019			377,834
Mortgage escrow funds		131,578			114,036
Accrued expenses and other liabilities		249,915			239,457
Total liabilities		18,442,953			19,043,565
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 97,891,753 and 97,083,607 shares outstanding, respectively)		1,665			1,665
Additional paid-in capital		855,352			857,662
Retained earnings		1,827,098			1,829,199
Treasury stock (68,603,135 and 69,411,281 shares, at cost, respectively)		(1,417,661	)		(1,434,362	)
Accumulated other comprehensive loss		(25,092	)		(29,779	)
Unallocated common stock held by ESOP (3,907,866 and 4,304,635 shares, respectively)		(14,317	)		(15,771	)
Total stockholders' equity		1,227,045			1,208,614
Total liabilities and stockholders' equity	$	19,669,998		$	20,252,179

See accompanying Notes to Consolidated Financial Statements.

2

ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

	For the					For the
	Three Months Ended					Six Months Ended
	June 30,					June 30,
(In Thousands, Except Share Data)	2010		2009			2010		2009
Interest income:
Mortgage loans:
One-to-four family	$	136,750	$	154,547		$	277,704	$	317,487
Multi-family, commercial real estate and construction		49,598		55,978			100,723		112,592
Consumer and other loans		2,668		2,657			5,319		5,335
Mortgage-backed and other securities		29,636		37,223			60,983		80,327
Repurchase agreements and interest-earning cash accounts		54		215			69		231
Federal Home Loan Bank of New York stock		1,921		2,677			4,417		4,363
Total interest income		220,627		253,297			449,215		520,335
Interest expense:
Deposits		49,496		81,961			103,038		172,721
Borrowings		59,182		62,282			119,876		126,883
Total interest expense		108,678		144,243			222,914		299,604
Net interest income		111,949		109,054			226,301		220,731
Provision for loan losses		35,000		50,000			80,000		100,000
Net interest income after provision for loan losses		76,949		59,054			146,301		120,731
Non-interest income:
Customer service fees		13,372		14,240			26,665		29,079
Other loan fees		866		939			1,572		1,878
Gain on sales of securities		-		-			-		2,112
Other-than-temporary impairment write-down of securities		-		-			-		(5,300	)
Mortgage banking income, net		600		3,383			2,157		3,879
Income from bank owned life insurance		2,376		2,468			4,352		4,447
Other		5,958		(600	)		7,118		277
Total non-interest income		23,172		20,430			41,864		36,372
Non-interest expense:
General and administrative:
Compensation and benefits		34,634		33,363			69,885		67,363
Occupancy, equipment and systems		16,637		16,065			33,086		32,396
Federal deposit insurance premiums		6,616		6,899			13,213		10,804
Federal deposit insurance special assessment		-		9,851			-		9,851
Advertising		994		1,221			2,814		2,780
Other		16,947		8,622			25,089		16,788
Total non-interest expense		75,828		76,021			144,087		139,982
Income before income tax expense		24,293		3,463			44,078		17,121
Income tax expense		8,747		763			15,606		5,625
Net income	$	15,546	$	2,700		$	28,472	$	11,496
Basic earnings per common share	$	0.17	$	0.03		$	0.30	$	0.12
Diluted earnings per common share	$	0.17	$	0.03		$	0.30	$	0.12
Basic weighted average common shares		91,621,997		90,525,669			91,541,675		90,370,279
Diluted weighted average common and common equivalent shares		91,621,997		90,525,669			91,541,742		90,370,400

See accompanying Notes to Consolidated Financial Statements.

3

ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statement of Changes in Stockholders' Equity (Unaudited)

For the Six Months Ended June 30, 2010

															Accumulated			Unallocated
						Additional									Other			Common
				Common		Paid-in			Retained			Treasury			Comprehensive			Stock Held
(In Thousands, Except Share Data)	Total			Stock		Capital			Earnings			Stock			Loss			by ESOP
Balance at December 31, 2009	$	1,208,614		$	1,665	$	857,662		$	1,829,199		$	(1,434,362	)	$	(29,779	)	$	(15,771	)
Comprehensive income:
Net income		28,472			-		-			28,472			-			-			-
Other comprehensive income, net of tax:
Net unrealized gain on securities		2,469			-		-			-			-			2,469			-
Reclassification of prior service cost		48			-		-			-			-			48			-
Reclassification of net actuarial loss		2,075			-		-			-			-			2,075			-
Reclassification of loss on cash flow hedge		95			-		-			-			-			95			-
Comprehensive income		33,159
Dividends on common stock ($0.26 per share)		(24,349	)		-		-			(24,349	)		-			-			-
Restricted stock grants (806,428 shares)		-			-		(10,484	)		(6,181	)		16,665			-			-
Forfeitures of restricted stock (10,282 shares)		-			-		125			87			(212	)		-			-
Exercise of stock options (12,000 shares issued)		112			-		-			(136	)		248			-			-
Stock-based compensation		3,912			-		3,906			6			-			-			-
Net tax benefit excess from stock-based compensation		124			-		124			-			-			-			-
Allocation of ESOP stock		5,473			-		4,019			-			-			-			1,454
Balance at June 30, 2010	$	1,227,045		$	1,665	$	855,352		$	1,827,098		$	(1,417,661	)	$	(25,092	)	$	(14,317	)

See accompanying Notes to Consolidated Financial Statements.

4

ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

	For the Six Months Ended
	June 30,
(In Thousands)	2010			2009
Cash flows from operating activities:
Net income	$	28,472		$	11,496
Adjustments to reconcile net income to net cash provided by operating activities:
Net premium amortization on loans		16,207			14,246
Net amortization (accretion) on securities and borrowings		870			(1,298	)
Net provision for loan and real estate losses		80,829			101,529
Depreciation and amortization		5,593			5,532
Net gain on sales of loans and securities		(1,973	)		(4,849	)
Other-than-temporary impairment write-down of securities		-			5,300
Other asset impairment charges		1,612			1,588
Originations of loans held-for-sale		(115,237	)		(248,058	)
Proceeds from sales and principal repayments of loans held-for-sale		123,299			181,494
Stock-based compensation and allocation of ESOP stock		9,385			8,121
Decrease in accrued interest receivable		468			4,579
Mortgage servicing rights amortization and valuation allowance adjustments, net		1,486			740
Bank owned life insurance income and insurance proceeds received, net		(4,352	)		(213	)
Increase in other assets		(25,724	)		(48,669	)
Increase in accrued expenses and other liabilities		13,737			55,810
Net cash provided by operating activities		134,672			87,348
Cash flows from investing activities:
Originations of loans receivable		(1,406,022	)		(1,001,654	)
Loan purchases through third parties		(245,332	)		(129,879	)
Principal payments on loans receivable		1,901,613			1,724,412
Proceeds from sales of delinquent and non-performing loans		22,987			23,694
Purchases of securities held-to-maturity		(390,890	)		(300,820	)
Principal payments on securities held-to-maturity		699,839			564,050
Principal payments on securities available-for-sale		135,917			197,648
Proceeds from sales of securities available-for-sale		-			91,391
Net (purchases) redemptions of Federal Home Loan Bank of New York stock		(6,839	)		34,446
Proceeds from sales of real estate owned, net		44,428			22,939
Purchases of premises and equipment, net of proceeds from sales		(4,678	)		(4,712	)
Net cash provided by investing activities		751,023			1,221,515
Cash flows from financing activities:
Net (decrease) increase in deposits		(563,797	)		130,257
Net decrease in borrowings with original terms of three months or less		(90,000	)		(813,000	)
Proceeds from borrowings with original terms greater than three months		525,000			235,000
Repayments of borrowings with original terms greater than three months		(500,000	)		(500,000	)
Net increase (decrease) in mortgage escrow funds		17,542			(825	)
Cash dividends paid to stockholders		(24,349	)		(23,882	)
Cash received for options exercised		112			252
Net tax benefit excess (shortfall) from stock-based compensation		124			(827	)
Net cash used in financing activities		(635,368	)		(973,025	)
Net increase in cash and cash equivalents		250,327			335,838
Cash and cash equivalents at beginning of period		111,570			100,293
Cash and cash equivalents at end of period	$	361,897		$	436,131
Supplemental disclosures:
Interest paid	$	223,801		$	299,391
Income taxes paid	$	37,605		$	43,535
Additions to real estate owned	$	46,565		$	30,930
Loans transferred to held-for-sale	$	34,528		$	42,378

See accompanying Notes to Consolidated Financial Statements.

5

ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

1.     Basis of Presentation

The accompanying consolidated financial statements include the accounts of Astoria Financial Corporation and its wholly-owned subsidiaries: Astoria Federal Savings and Loan Association and its subsidiaries, referred to as Astoria Federal, and AF Insurance Agency, Inc.  As used in this quarterly report, “we,” “us” and “our” refer to Astoria Financial Corporation and its consolidated subsidiaries.  All significant inter-company accounts and transactions have been eliminated in consolidation.

In addition to Astoria Federal and AF Insurance Agency, Inc., we have another subsidiary, Astoria Capital Trust I, which is not consolidated with Astoria Financial Corporation for financial reporting purposes.  Astoria Capital Trust I was formed in 1999 for the purpose of issuing $125.0 million aggregate liquidation amount of 9.75% Capital Securities due November 1, 2029, or Capital Securities, and $3.9 million of common securities which are 100% owned by Astoria Financial Corporation, and using the proceeds to acquire Junior Subordinated Debentures issued by Astoria Financial Corporation.  The Junior Subordinated Debentures total $128.9 million, have an interest rate of 9.75%, mature on November 1, 2029 and are the sole assets of Astoria Capital Trust I.  The Junior Subordinated Debentures are prepayable, in whole or in part, at our option at declining premiums to November 1, 2019, after which the Junior Subordinated Debentures are prepayable at par value.  The Capital Securities have the same prepayment provisions as the Junior Subordinated Debentures.  Astoria Financial Corporation has fully and unconditionally guaranteed the Capital Securities along with all obligations of Astoria Capital Trust I under the trust agreement relating to the Capital Securities.  See Note 10 of Notes to Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of our 2009 Annual Report on Form 10-K for restrictions on our subsidiaries’ ability to pay dividends to us.

In our opinion, the accompanying consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of our financial condition as of June 30, 2010 and December 31, 2009, our results of operations for the three and six months ended June 30, 2010 and 2009, changes in our stockholders’ equity for the six months ended June 30, 2010 and our cash flows for the six months ended June 30, 2010 and 2009.  In preparing the consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities for the consolidated statements of financial condition as of June 30, 2010 and December 31, 2009, and amounts of revenues and expenses in the consolidated statements of income for the three and six months ended June 30, 2010 and 2009.  The results of operations for the three and six months ended June 30, 2010 are not necessarily indicative of the results of operations to be expected for the remainder of the year.  Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles, or GAAP, have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC.  Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

6

These consolidated financial statements should be read in conjunction with our December 31, 2009 audited consolidated financial statements and related notes included in our 2009 Annual Report on Form 10-K.

2.     Securities

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

	At June 30, 2010
(In Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale:
Residential mortgage-backed securities:
GSE (1) issuance REMICs and CMOs (2)	$	646,453	$	24,294	$	-		$	670,747
Non-GSE issuance REMICs and CMOs		24,337		2		(577	)		23,762
GSE pass-through certificates		31,329		1,196		-			32,525
Total residential mortgage-backed securities		702,119		25,492		(577	)		727,034
Freddie Mac preferred stock		-		1,582		-			1,582
Other securities		15		-		(15	)		-
Total securities available-for-sale	$	702,134	$	27,074	$	(592	)	$	728,616
Held-to-maturity:
Residential mortgage-backed securities:
GSE issuance REMICs and CMOs	$	1,939,196	$	62,344	$	(199	)	$	2,001,341
Non-GSE issuance REMICs and CMOs		63,669		8		(385	)		63,292
GSE pass-through certificates		913		58		-			971
Total residential mortgage-backed securities		2,003,778		62,410		(584	)		2,065,604
Obligations of states and political subdivisions		4,331		-		-			4,331
Total securities held-to-maturity	$	2,008,109	$	62,410	$	(584	)	$	2,069,935

(1)  Government-sponsored enterprise

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

	At December 31, 2009
(In Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale:
Residential mortgage-backed securities:
GSE issuance REMICs and CMOs	$	777,098	$	19,157	$	(15	)	$	796,240
Non-GSE issuance REMICs and CMOs		27,165		3		(899	)		26,269
GSE pass-through certificates		33,441		941		(7	)		34,375
Total residential mortgage-backed securities		837,704		20,101		(921	)		856,884
Freddie Mac preferred stock		-		3,784		-			3,784
Other securities		40		-		(14	)		26
Total securities available-for-sale	$	837,744	$	23,885	$	(935	)	$	860,694
Held-to-maturity:
Residential mortgage-backed securities:
GSE issuance REMICs and CMOs	$	1,979,296	$	50,387	$	-		$	2,029,683
Non-GSE issuance REMICs and CMOs		82,014		33		(2,214	)		79,833
GSE pass-through certificates		1,097		66		-			1,163
Total residential mortgage-backed securities		2,062,407		50,486		(2,214	)		2,110,679
Obligations of U.S. government and GSEs		250,955		1,363		-			252,318
Obligations of states and political subdivisions		4,523		-		-			4,523
Total securities held-to-maturity	$	2,317,885	$	51,849	$	(2,214	)	$	2,367,520

7

The following tables set forth the estimated fair values of securities with gross unrealized losses at the dates indicated, segregated between securities that have been in a continuous unrealized loss position for less than twelve months at the respective dates and those that have been in a continuous unrealized loss position for twelve months or longer.

	At June 30, 2010
	Less Than Twelve Months					Twelve Months or Longer					Total
(In Thousands)	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
Available-for-sale:
Non-GSE issuance REMICs and CMOs	$	608	$	(24	)	$	22,784	$	(553	)	$	23,392	$	(577	)
Other securities		-		-			-		(15	)		-		(15	)
Total temporarily impaired securities available-for-sale	$	608	$	(24	)	$	22,784	$	(568	)	$	23,392	$	(592	)
Held-to-maturity:
GSE issuance REMICs and CMOs	$	26,841	$	(199	)	$	-	$	-		$	26,841	$	(199	)
Non-GSE issuance REMICs and CMOs		-		-			59,137		(385	)		59,137		(385	)
Total temporarily impaired securities held-to-maturity	$	26,841	$	(199	)	$	59,137	$	(385	)	$	85,978	$	(584	)

	At December 31, 2009
	Less Than Twelve Months					Twelve Months or Longer					Total
(In Thousands)	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
Available-for-sale:
GSE issuance REMICs and CMOs	$	1,489	$	(15	)	$	-	$	-		$	1,489	$	(15	)
Non-GSE issuance REMICs and CMOs		549		(54	)		25,557		(845	)		26,106		(899	)
GSE pass-through certificates		1,309		(4	)		377		(3	)		1,686		(7	)
Other securities		-		-			1		(14	)		1		(14	)
Total temporarily impaired securities available-for-sale	$	3,347	$	(73	)	$	25,935	$	(862	)	$	29,282	$	(935	)
Total temporarily impaired securities  held-to-maturity:
Non-GSE issuance REMICs and CMOs	$	-	$	-		$	70,589	$	(2,214	)	$	70,589	$	(2,214	)

We held 32 securities which had an unrealized loss at June 30, 2010 and 46 at December 31, 2009.  At June 30, 2010 and December 31, 2009, substantially all of the securities in an unrealized loss position had a fixed interest rate and the cause of the temporary impairment is directly related to the change in interest rates.  In general, as interest rates rise, the fair value of fixed rate securities will decrease; as interest rates fall, the fair value of fixed rate securities will increase.  We generally view changes in fair value caused by changes in interest rates as temporary, which is consistent with our experience.  None of the unrealized losses are related to credit losses.  Therefore, at June 30, 2010 and December 31, 2009, the impairments are deemed temporary based on (1) the direct relationship of the decline in fair value to movements in interest rates, (2) the estimated remaining life and high credit quality of the investments and (3) the fact that we do not intend to sell these securities and it is not more likely than not that we will be required to sell these securities before their anticipated recovery of the remaining amortized cost basis and we expect to recover the entire amortized cost basis of the security

There were no other-than-temporary impairment, or OTTI, write-down of securities charges during the six months ended June 30, 2010.  During the six months ended June 30, 2009, we recorded a $5.3 million OTTI charge to write-off the remaining cost basis of our investment in two issues of Freddie Mac perpetual preferred securities.  Our analysis of the market value trends

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of these securities indicated that based on the duration of the unrealized loss and the unlikelihood of a near-term market value recovery, as of March 31, 2009, our Freddie Mac preferred securities were other-than-temporarily impaired and of such little value that a write-off of our remaining cost basis was warranted.  The securities’ market values totaled $1.6 million at June 30, 2010, which is recorded as an unrealized gain on our available-for-sale securities.  OTTI charges are included as a component of non-interest income in the consolidated statements of income.

For additional information regarding securities impairment, see “Critical Accounting Policies” in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” or “MD&A.”

There were no sales of securities from the available-for-sale portfolio during the six months ended June 30, 2010.  During the six months ended June 30, 2009, proceeds from sales of securities from the available-for-sale portfolio totaled $91.4 million resulting in gross realized gains of $2.1 million.  Gains and losses on the sale of all securities are determined using the specific identification method.

Held-to-maturity debt securities, excluding mortgage-backed securities, had an amortized cost and fair value of $4.3 million at June 30, 2010.  These securities will mature between 2017 and 2018.  Actual maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.

The balance of accrued interest receivable for securities totaled $9.3 million at June 30, 2010 and $10.3 million at December 31, 2009.

3.     Loans Held-for-Sale, net

Loans held-for-sale, net, includes fifteen and thirty year conforming fixed rate one-to-four family mortgage loans originated for sale as well as certain non-performing loans.  Over the past several years we have sold certain delinquent and non-performing loans held in portfolio.  Upon our decision to sell such loans, we reclassify them to held-for-sale at the lower of cost or fair value, less estimated selling costs.  Non-performing loans held-for-sale, included in loans held-for-sale, net, totaled $13.9 million, net of a $117,000 valuation allowance, as of June 30, 2010 and totaled $6.9 million, net of a $1.1 million valuation allowance, at December 31, 2009.  Non-performing loans held-for-sale consisted primarily of multi-family and commercial real estate loans at June 30, 2010 and December 31, 2009.

We sold certain delinquent and non-performing mortgage loans totaling $22.6 million, net of charge-offs of $12.3 million, during the six months ended June 30, 2010, primarily multi-family and commercial real estate loans, and $23.7 million, net of charge-offs of $11.9 million, during the six months ended June 30, 2009, primarily multi-family loans.  Net gain on sales of non-performing loans totaled $352,000 for the three months ended June 30, 2010 and $357,000 for the six months ended June 30, 2010.  Net loss on sales of non-performing loans totaled $26,000 for the three months ended June 30, 2009 and $53,000 for the six months ended June 30, 2009.

We recorded net lower of cost or market write-downs on non-performing loans held-for-sale totaling $97,000 for the three and six months ended June 30, 2010.  There were no lower of cost or market write-downs for the six months ended June 30, 2009.

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4.     Loans Receivable, net

The following table sets forth the composition of our loans receivable portfolio in dollar amounts and percentages of the portfolio at the dates indicated.

	At June 30, 2010						At December 31, 2009
				Percent						Percent
(Dollars in Thousands)	Amount			of Total			Amount			of Total
Mortgage loans (gross):
One-to-four family	$	11,708,982			76.69	%	$	11,895,362			75.88	%
Multi-family		2,397,171			15.70			2,559,058			16.33
Commercial real estate		820,922			5.38			866,804			5.53
Construction		16,665			0.11			23,599			0.15
Total mortgage loans		14,943,740			97.88			15,344,823			97.89
Consumer and other loans (gross):
Home equity		295,769			1.94			302,410			1.93
Commercial		14,014			0.09			13,588			0.09
Other		13,670			0.09			14,020			0.09
Total consumer and other loans		323,453			2.12			330,018			2.11
Total loans (gross)		15,267,193			100.00	%		15,674,841			100.00	%
Net unamortized premiums and deferred loan costs		99,134						105,881
Total loans		15,366,327						15,780,722
Allowance for loan losses		(210,999	)					(194,049	)
Total loans, net	$	15,155,328					$	15,586,673

Activity in the allowance for loan losses is summarized as follows:

(In Thousands)	For the Six Months Ended June 30, 2010
Balance at January 1, 2010	$	194,049
Provision charged to operations		80,000
Charge-offs		(72,048	)
Recoveries		8,998
Balance at June 30, 2010	$	210,999

For additional information regarding the composition of our loan portfolio, non-performing loans and our allowance for loan losses, see “Asset Quality” in Item 2, “MD&A.”

5.     Premises and Equipment, net

Included in premises and equipment, net, is an office building with a net carrying value of $14.9 million at June 30, 2010 and $16.7 million at December 31, 2009, which was classified as held-for-sale prior to September 30, 2009.  The building, which is currently unoccupied, is located in Lake Success, New York, and formerly housed our lending operations, which were relocated in March 2008 to a facility which we currently lease in Mineola, New York.  During the 2009 second quarter, we recorded a lower of cost or market write-down of $1.6 million to reduce the carrying amount of the building to its estimated fair value less selling costs as of June 30, 2009.  Due to economic and real estate market conditions, we were unable to sell the building at a reasonable price within a reasonable period of time.  Therefore, as of September 30, 2009, the building was no longer classified as held-for-sale.  No depreciation expense was recorded while

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the building was classified as held-for-sale.  We resumed depreciation of the building in October 2009 over its remaining useful life based on the carrying value of $16.9 million at September 30, 2009.

During the 2010 second quarter, we received several indications of interest on the building which we are currently evaluating.  Negotiations with potential buyers indicate a current market value below the carrying value of the building.  As a result, we evaluated the building for impairment and recorded an impairment write-down of $1.5 million to reduce the carrying amount of the building to its estimated fair value less selling costs as of June 30, 2010.

The charges for the impairment write-down recorded in the 2010 second quarter and the lower of cost or market write-down recorded in the 2009 second quarter are included in other non-interest income in the consolidated statements of income.

6.     Income Taxes

Gross unrecognized tax benefits totaled $3.2 million at June 30, 2010 compared to $5.3 million at December 31, 2009.  The decrease was primarily a result of settlements with taxing authorities.  It is reasonably possible that additional decreases in gross unrecognized tax benefits totaling $1.1 million may occur in the next twelve months as a result of settlements with taxing authorities.  If realized, all of our unrecognized tax benefits at June 30, 2010 would affect our effective income tax rate.  After the related deferred tax effects, realization of those benefits would reduce income tax expense by $2.4 million.

In addition to the above unrecognized tax benefits, we have accrued liabilities for interest and penalties related to uncertain tax positions totaling $1.7 million at June 30, 2010 compared to $2.0 million at December 31, 2009.  The decrease was primarily a result of settlements with taxing authorities, partially offset by interest accrued during the six months ended June 30, 2010.  Realization of all of our unrecognized tax benefits would result in a further reduction in income tax expense of $1.1 million for the reversal of accrued interest and penalties, net of the related deferred tax effects.

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7. Earnings Per Share

The following table is a reconciliation of basic and diluted earnings per share, or EPS.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(In Thousands, Except Per Share Data)	2010			2009			2010			2009
Net income	$	15,546		$	2,700		$	28,472		$	11,496
Income allocated to participating securities (restricted stock)		(379	)		(234	)		(688	)		(459	)
Income attributable to common shareholders	$	15,167		$	2,466		$	27,784		$	11,037
Average number of common shares outstanding – basic		91,622			90,526			91,542			90,370
Dilutive effect of stock options (1)		-			-			-			-
Average number of common shares outstanding – diluted		91,622			90,526			91,542			90,370
Income per common share attributable to common shareholders:
Basic	$	0.17		$	0.03		$	0.30		$	0.12
Diluted	$	0.17		$	0.03		$	0.30		$	0.12

(1) Excludes options to purchase 7,999,253 shares of common stock which were outstanding during the three months ended June 30, 2010; options to purchase 8,651,295 shares of common stock which were outstanding during the three months ended June 30, 2009; options to purchase 8,016,292 shares of common stock which were outstanding during the six months ended June 30, 2010; and options to purchase 8,666,080 shares of common stock which were outstanding during the six months ended June 30, 2009 because their inclusion would be anti-dilutive.

8. Stock Incentive Plans

On February 1, 2010, 778,740 shares of restricted stock were granted to select officers under the 2005 Re-designated, Amended and Restated Stock Incentive Plan for Officers and Employees of Astoria Financial Corporation, or the 2005 Employee Stock Plan, and 27,688 shares of restricted stock were granted to directors under the Astoria Financial Corporation 2007 Non-Employee Directors Stock Plan, or the 2007 Director Stock Plan.  Of the restricted stock granted to select officers, 135,720 shares vest one-third per year and 643,020 shares vest one-fifth per year on December 14th of each year, beginning December 14, 2010.  In the event the grantee terminates his/her employment due to death or disability, or in the event we experience a change in control, as defined and specified in the 2005 Employee Stock Plan, all restricted stock granted pursuant to such grants immediately vests.  The restricted stock granted in 2010 under the 2007 Director Stock Plan vests 100% on February 1, 2013, although awards will immediately vest upon death, disability, mandatory retirement, involuntary termination or a change in control, as such terms are defined in the plan.

Restricted stock activity in our stock incentive plans for the six months ended June 30, 2010 is summarized as follows:

	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2010		1,522,420		$	16.02
Granted		806,428			13.00
Vested		(32,230	)		(20.93	)
Forfeited		(10,282	)		(12.09	)
Nonvested at June 30, 2010		2,286,336			14.90

Stock-based compensation expense is recognized on a straight-line basis over the vesting period  and totaled $1.4 million, net of taxes of $739,000, for the three months ended June 30, 2010 and

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totaled $2.5 million, net of taxes of $1.4 million, for the six months ended June 30, 2010.  Stock-based compensation expense recognized for the three months ended June 30, 2009 totaled $978,000, net of taxes of $527,000, and totaled $1.9 million, net of taxes of $1.0 million, for the six months ended June 30, 2009.  At June 30, 2010, pre-tax compensation cost related to all nonvested awards of restricted stock not yet recognized totaled $22.1 million and will be recognized over a weighted average period of approximately 3.3 years.

9. 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.

								Other Postretirement
	Pension Benefits							Benefits
	For the Three Months Ended							For the Three Months Ended
	June 30,							June 30,
(In Thousands)	2010			2009				2010			2009
Service cost	$	934			$	871		$	90			$	81
Interest cost		2,897				2,812			283				268
Expected return on plan assets		(2,356	)			(2,129	)		-				-
Amortization of prior service cost (credit)		62				62			(25	)			(25	)
Recognized net actuarial loss (gain)		1,603				2,062			-				(1	)
Net periodic cost	$	3,140			$	3,678		$	348			$	323

								Other Postretirement
	Pension Benefits							Benefits
	For the Six Months Ended							For the Six Months Ended
	June 30,							June 30,
(In Thousands)	2010			2009				2010			2009
Service cost	$	1,867			$	1,742		$	179			$	162
Interest cost		5,796				5,624			566				535
Expected return on plan assets		(4,711	)			(4,258	)		-				-
Amortization of prior service cost (credit)		124				124			(50	)			(50	)
Recognized net actuarial loss (gain)		3,205				4,124			-				(1	)
Net periodic cost	$	6,281			$	7,356		$	695			$	646

10. Fair Value Measurements

On January 1, 2010, we adopted Accounting Standards Update, or ASU, 2010-06, “Fair Value Measurements and Disclosures (Topic 820) Improving Disclosures about Fair Value Measurements,” which amends Subtopic 820-10 of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, to require new disclosures about transfers in and out of Level 1 and Level 2 fair value measurements and the roll forward of activity in Level 3 fair value measurements.  ASU 2010-06 also clarifies existing disclosure requirements regarding the level of disaggregation of each class of assets and liabilities within a line item in the statement of financial condition and clarifies that a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 fair value measurements.  The update also includes conforming amendments to the guidance on employers’ disclosures about postretirement benefit plan assets.  The new disclosures about the roll forward of activity in Level 3 fair value measurements are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years.  Since the

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provisions of ASU 2010-06 are disclosure related, our adoption of this guidance did not have an impact on our financial condition or results of operations.

We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.  Our securities available-for-sale are recorded at fair value on a recurring basis.  Additionally, from time to time, we may be required to record at fair value other assets or liabilities on a non-recurring basis, such as mortgage servicing rights, or MSR, loans receivable, certain assets held-for-sale and real estate owned, or REO.  These non-recurring fair value adjustments involve the application of lower of cost or market accounting or impairment write-downs of individual assets.  Additionally, in connection with our mortgage banking activities we have commitments to fund loans held-for-sale and commitments to sell loans, which are considered free-standing derivative instruments, the fair values of which are not material to our financial condition or results of operations.

We group our assets and liabilities at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value.  These levels are:

• Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.

• Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.

• Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market.  These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability.  Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.  The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.

We base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, with additional considerations when the volume and level of activity for an asset or liability have significantly decreased and on identifying circumstances that indicate a transaction is not orderly.  GAAP requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

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

Securities available-for-sale

Our available-for-sale securities portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income/loss in stockholders' equity.

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Residential mortgage-backed securities

Substantially all of our securities available-for-sale portfolio consists of mortgage-backed securities.  The fair values for these securities are obtained from an independent nationally recognized pricing service.  Our pricing service uses various modeling techniques to determine pricing for our mortgage-backed securities, including option pricing and discounted cash flow models.  The inputs to these models include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, reference data, monthly payment information and collateral performance.  At June 30, 2010, 97% of our available-for-sale residential mortgage-backed securities portfolio was comprised of GSE securities for which an active market exists for similar securities, making observable inputs readily available.

We analyze changes in the pricing service fair values from month to month taking into consideration changes in market conditions including changes in mortgage spreads, changes in treasury yields and changes in generic pricing on fifteen year and thirty year securities.  Each month we conduct a review of the estimated values of our fixed rate REMICs and CMOs available-for-sale which represent substantially all of these securities priced by our pricing service.  We generate prices based upon a “spread matrix” approach for estimating values.  Market spreads are obtained from independent third party firms who trade these types of securities.  Any notable differences between the pricing service prices and “spread matrix” prices on individual securities are analyzed further, including a review of prices provided by other independent parties, a yield analysis and review of average life changes using Bloomberg analytics and a review of historical pricing on the particular security.  Based upon our review of the prices provided by our pricing service, the fair values of securities incorporate observable market inputs commonly used by buyers and sellers of these types of securities at the measurement date in orderly transactions between market participants, and, as such, are classified as Level 2.

Other securities

The fair values of the other securities in our available-for-sale portfolio are obtained from quoted market prices for identical instruments in active markets and, as such, are classified as Level 1.

The following tables set forth the carrying value of our assets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurement falls at the dates indicated.

	Carrying Value at June 30, 2010
(In Thousands)	Total		Level 1		Level 2		Level 3
Securities available-for-sale:
Residential mortgage-backed securities:
GSE issuance REMICs and CMOs	$	670,747	$	-	$	670,747	$	-
Non-GSE issuance REMICs and CMOs		23,762		-		23,762		-
GSE pass-through certificates		32,525		-		32,525		-
Other securities		1,582		1,582		-		-
Total securities available-for-sale	$	728,616	$	1,582	$	727,034	$	-

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	Carrying Value at December 31, 2009
(In Thousands)	Total		Level 1		Level 2		Level 3
Securities available-for-sale:
Residential mortgage-backed securities:
GSE issuance REMICs and CMOs	$	796,240	$	-	$	796,240	$	-
Non-GSE issuance REMICs and CMOs		26,269		-		26,269		-
GSE pass-through certificates		34,375		-		34,375		-
Other securities		3,810		3,810		-		-
Total securities available-for-sale	$	860,694	$	3,810	$	856,884	$	-

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

Non-performing loans held-for-sale, net

Non-performing loans held-for-sale are comprised primarily of multi-family and commercial real estate mortgage loans at June 30, 2010 and December 31, 2009.  Fair values of non-performing loans held-for-sale are estimated through either bids received on the loans or a discounted cash flow analysis of the underlying collateral and adjusted as necessary, by management, to reflect current market conditions and, as such, are classified as Level 3.

Loans receivable, net (impaired loans)

Loans which meet certain criteria are evaluated individually for impairment.  A loan is considered impaired when, based upon current information and events, it is probable that we will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan agreement.  Impaired loans are comprised primarily of one-to-four family mortgage loans at June 30, 2010 and December 31, 2009.  Our impaired loans are generally collateral dependent and, as such, are carried at the estimated fair value of the collateral less estimated selling costs.  Fair values are estimated through current appraisals, broker opinions or automated valuation models and adjusted as necessary, by management, to reflect current market conditions and, as such, are classified as Level 3.  Substantially all of the impaired loans at June 30, 2010 and December 31, 2009 for which a fair value adjustment was recognized were one-to-four family mortgage loans.

MSR, net

The right to service loans for others is generally obtained through the sale of one-to-four family mortgage loans with servicing retained.  MSR are carried at the lower of cost or estimated fair value.  The estimated fair value of MSR is obtained through independent third party valuations through an analysis of future cash flows, incorporating estimates of assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the market’s perception of future interest rate movements and, as such, are classified as Level 3.  At June 30, 2010, our MSR were valued based on expected future cash flows considering a weighted average discount rate of 10.98%, a weighted average constant prepayment rate on mortgages of 22.68% and a weighted average life of 3.5 years.  At December 31, 2009, our MSR were valued based on expected future cash flows considering a weighted average discount rate of 11.02%, a weighted average constant prepayment rate on mortgages of 20.85% and a weighted average life of 3.8 years.  Management reviews the assumptions used to estimate the fair value of MSR to ensure they reflect current and anticipated market conditions.

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Premises and Equipment, net

Included in premises and equipment, net, is an office building, which was classified as held-for-sale prior to September 30, 2009 and was measured at the lower of its carrying value or estimated fair value less estimated selling costs.  During the 2009 second quarter, we recorded a lower of cost or market write-down to reduce the carrying amount of the building to its estimated fair value less selling costs.  During the 2010 second quarter, we evaluated the building for impairment and recorded an impairment write-down to reduce the carrying amount of the building to its estimated fair value less selling costs as of June 30, 2010.  Fair value was estimated based on negotiations for the sale of the property with potential buyers 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, substantially all of which are one-to-four family properties at June 30, 2010 and December 31, 2009, and is carried, net of allowances for losses, at the lower of cost or fair value less estimated selling costs.  The fair value of REO is estimated through current appraisals, in conjunction with a drive-by inspection and comparison of the REO property with similar properties in the area by either a licensed appraiser or real estate broker.  As these properties are actively marketed, estimated fair values are periodically adjusted by management to reflect current market conditions and, as such, are classified as Level 3.

The following tables set forth the carrying value of those of our assets which were measured at fair value on a non-recurring basis and the level within the fair value hierarchy in which the fair value measurement falls at the dates indicated.

	Carrying Value at June 30, 2010
(In Thousands)	Total		Level 1		Level 2		Level 3
Non-performing loans held-for-sale, net	$	13,949	$	-	$	-	$	13,949
Impaired loans		176,357		-		-		176,357
MSR, net		8,649		-		-		8,649
Premises and equipment, net		14,948		-		-		14,948
REO, net		44,356		-		-		44,356
Total	$	258,259	$	-	$	-	$	258,259

	Carrying Value at December 31, 2009
(In Thousands)	Total		Level 1		Level 2		Level 3
Non-performing loans held-for-sale, net	$	6,865	$	-	$	-	$	6,865
Impaired loans		145,250		-		-		145,250
MSR, net		8,850		-		-		8,850
REO, net		43,958		-		-		43,958
Total	$	204,923	$	-	$	-	$	204,923

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The following table provides information regarding the losses recognized on our assets measured at fair value on a non-recurring basis for the six months ended June 30, 2010 and 2009.

	Losses For The
	Six Months Ended
	June 30,
(In Thousands)	2010		2009
Non-performing loans held-for-sale, net (1)	$	11,936		$	10,851
Impaired loans (2)		31,753			17,726
MSR, net		-			-
Premises and equipment, net (3)		1,515			1,588
REO, net (4)		11,065			12,031
Total	$	56,269		$	42,196

(1) Losses are charged against the allowance for loan losses in the case of a write-down upon the reclassification of a loan to held-for-sale.  Losses subsequent to the reclassification of a loan to held-for-sale are charged to other non-interest income.

(2) Losses are charged against the allowance for loan losses.

(3) Losses are charged to other non-interest income.

(4) Losses are charged against the allowance for loan losses in the case of a write-down upon the transfer of a loan to REO.  Losses subsequent to the transfer of a loan to REO are charged to REO expense which is a component of other non-interest expense.

11. Fair Value of Financial Instruments

Quoted market prices available in formal trading marketplaces are typically the best evidence of fair value of financial instruments.  In many cases, financial instruments we hold are not bought or sold in formal trading marketplaces.  Accordingly, fair values are derived or estimated based on a variety of valuation techniques in the absence of quoted market prices.  Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument.  These estimates do not reflect any possible tax ramifications, estimated transaction costs, or any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument.  Because no market exists for a certain portion of our financial instruments, fair value estimates are based on judgments regarding future loss experience, current economic conditions, risk characteristics, and other such factors.  These estimates are subjective in nature, involve uncertainties and, therefore, cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.  For these reasons and others, the estimated fair value disclosures presented herein do not represent our entire underlying value.  As such, readers are cautioned in using this information for purposes of evaluating our financial condition and/or value either alone or in comparison with any other company.

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The following table summarizes the carrying amounts and estimated fair values of our financial instruments which are carried on the consolidated statements of financial condition at either cost or at lower of cost or fair value, in accordance with GAAP, and not measured or recorded at fair value on a recurring basis.

	At June 30, 2010				At December 31, 2009
	Carrying		Estimated		Carrying		Estimated
(In Thousands)	Amount		Fair Value		Amount		Fair Value
Financial Assets:
Repurchase agreements	$	41,900	$	41,900	$	40,030	$	40,030
Securities held-to-maturity		2,008,109		2,069,935		2,317,885		2,367,520
FHLB-NY stock		185,768		185,768		178,929		178,929
Loans held-for-sale, net (1)		34,859		35,829		34,274		34,585
Loans receivable, net (1)		15,155,328		15,699,650		15,586,673		16,030,427
MSR, net (1)		8,649		8,663		8,850		8,866
Financial Liabilities:
Deposits		12,248,441		12,455,599		12,812,238		12,978,569
Borrowings, net		5,813,019		6,326,186		5,877,834		6,332,288

(1)  Includes totals for assets measured at fair value on a non-recurring basis as disclosed in Note 10.

Methods and assumptions used to estimate fair values are as follows:

Repurchase agreements

The carrying amounts of repurchase agreements approximate fair values since all mature in one month or less.

Securities held-to-maturity

The fair values for substantially all of our securities held-to-maturity are obtained from an independent nationally recognized pricing service using similar methods and assumptions as used for our securities available-for-sale which are described further in Note 10.

Federal Home Loan Bank of New York, or FHLB-NY, stock

The carrying amount of FHLB-NY stock equals cost.  The fair value of FHLB-NY stock is based on redemption at par value.

Loans held-for-sale, net

The fair values of loans held-for-sale are estimated by reference to published pricing for similar loans sold in the secondary market.  The fair values of non-performing loans held-for-sale are estimated through either bids received on such loans or a discounted cash flow analysis adjusted to reflect current market conditions.

Loans receivable, net

Fair values of loans are estimated by reference to published pricing for similar loans sold in the secondary market.  Loans are grouped by similar characteristics.  The loans are first segregated by type, such as one-to-four family, multi-family, commercial real estate, construction and consumer and other, and then further segregated into fixed and adjustable rate and seasoned and nonseasoned categories.  Published pricing is based on new loans of similar type and purpose, adjusted, when necessary, for factors such as servicing cost, credit risk, interest rate and remaining term.

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This technique of estimating fair value is extremely sensitive to the assumptions and estimates used.  While we have attempted to use assumptions and estimates which are the most reflective of the loan portfolio and the current market, a greater degree of subjectivity is inherent in determining these fair values than for fair values obtained from formal trading marketplaces.  In addition, our valuation method for loans, which is consistent with accounting guidance, does not fully incorporate an exit price approach to fair value.

MSR, net

The fair value of MSR is obtained through independent third party valuations through an analysis of future cash flows, incorporating estimates of assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the market’s perception of future interest rate movements.

Deposits

The fair values of deposits with no stated maturity, such as savings accounts, NOW accounts, money market accounts and demand deposit accounts, are equal to the amount payable on demand.  The fair values of certificates of deposit and Liquid certificates of deposit, or Liquid CDs, are based on discounted contractual cash flows using the weighted average remaining life of the portfolio discounted by the corresponding LIBOR Swap Curve as posted by the Office of Thrift Supervision, or OTS.

Borrowings, net

The fair values of callable borrowings are based upon third party dealers’ estimated market values.  The fair values of non-callable borrowings are based on discounted cash flows using the weighted average remaining life of the portfolio discounted by the corresponding FHLB nominal funding rate.

Outstanding commitments

Outstanding commitments include (1) commitments to extend credit and unadvanced lines of credit for which fair values were estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions and (2) commitments to sell residential mortgage loans for which fair values were estimated based on current secondary market prices for commitments with similar terms.  The fair values of these commitments are immaterial to our financial condition and are not presented in the table above.

12. Litigation

In the ordinary course of our business, we are routinely made a defendant in or a party to pending or threatened legal actions or proceedings which, in some cases, seek substantial monetary damages from or other forms of relief against us.  In our opinion, after consultation with legal counsel, we believe it unlikely that such actions or proceedings will have a material adverse effect on our financial condition, results of operations or liquidity.

Goodwill Litigation

We have been a party to an action against the United States involving an assisted acquisition made in the early 1980’s and supervisory goodwill accounting utilized in connection therewith.  The trial in this action, entitled AstoriaFederal Savings and Loan Association vs. United States,

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took place during 2007 before the U.S. Court of Federal Claims, or the Federal Claims Court.  The Federal Claims Court, by decision filed on January 8, 2008, awarded to us $16.0 million in damages from the U.S. Government.  No portion of the $16.0 million award was recognized in our consolidated financial statements.  The U.S. Government appealed such decision to the U.S. Court of Appeals for the Federal Circuit, or the Court of Appeals.  In an opinion dated May 28, 2009, the Court of Appeals affirmed in part and reversed in part the lower court’s ruling and remanded the case to the Federal Claims Court for further proceedings.

On April 12, 2010, we entered into a final binding settlement of this matter with the U.S. Government in an amount equal to $6.2 million.  Legal expense related to this matter has been recognized as it has been incurred.  The settlement was recognized in other non-interest income in our consolidated statements of income for the three and six months ended June 30, 2010.

McAnaney Litigation

In 2004, an action entitled David McAnaneyand 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, and the New York State Deceptive Practices Act, and alleges actions based upon breach of contract, unjust enrichment and common law fraud.

During the fourth quarter of 2008, both parties cross-moved for summary judgment.  On September 29, 2009, the District Court issued a decision regarding the parties' cross motions for summary judgment.  Plaintiff's motion was denied in its entirety.  Our motion was granted in part and denied in part.  All claims asserted against Astoria Financial Corporation and Long Island Bancorp, Inc. were dismissed.  All remaining claims against Astoria Federal were dismissed, except those based upon alleged violations of the federal Truth in Lending Act, the New York State Deceptive Practices Act and breach of contract.  The District Court held, with respect to these claims, that there exist triable issues of fact.  For further information regarding the history of this action, see Part I, Item 3, “Legal Proceedings,” in our 2009 Annual Report on Form 10-K.

On June 29, 2010, we reached an agreement in principle to settle the remaining claims in such action in the amount of $7.9 million.  A stipulation, or the Agreement, detailing the terms of that settlement was entered into on July 30, 2010.  In entering into the Agreement, we did not acknowledge any liability in the matter and further indicated that the Agreement is intended to resolve all claims arising from or related to the aforementioned case.  The Agreement is subject to approval by the District Court.  The settlement was recognized in other non-interest expense in our consolidated statements of income for the three and six months ended June 30, 2010.

Automated Transactions LLC Litigation

On November 20, 2009, an action entitled Automated Transactions LLC v. Astoria Financial Corporation and Astoria Federal Savings and Loan Association was commenced in the U.S. District Court for the Southern District of New York, or the Southern District Court, against us by Automated Transactions LLC, alleging patent infringement involving integrated banking and

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transaction machines, including automated teller machines, that we utilize.  We were served with the summons and complaint in such action on March 2, 2010.  The plaintiff also filed a similar suit on the same day against another financial institution and its holding company.  The plaintiff seeks unspecified monetary damages and an injunction preventing us from continuing to utilize the allegedly infringing machines.  We are vigorously defending this lawsuit, and filed an answer and counterclaims to the plaintiff’s complaint on March 23, 2010, to which the plaintiff filed a reply on April 12, 2010.  On May 18, 2010 the plaintiff filed an amended complaint at the direction of the Southern District Court, containing substantially the same allegations as the original complaint. On May 27, 2010 we moved to dismiss the amended complaint which motion is currently pending before the Southern District Court.  An adverse result in this lawsuit may include an award of monetary damages, on-going royalty obligations, and/or may result in a change in our business practice, which could result in a loss of revenue.

We have tendered requests for indemnification from the manufacturer and from the transaction processor utilized with respect to the integrated banking and transaction machines, and have filed a third party complaint against the manufacturer and the transaction processor for indemnification and contribution with respect to the lawsuit by Automated Transactions LLC.

No assurance can be given at this time that the litigation against us will be resolved amicably, that if this litigation results in an adverse decision that we will be successful in seeking indemnification, 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.

13. Impact of Accounting Standards and Interpretations

In July 2010, the FASB issued ASU 2010-20, “Receivables (Topic 310) Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” which amends existing disclosure guidance to require an entity to provide a greater level of disaggregated information about the credit quality of its financing receivables and its allowance for credit losses.  The amendments require an entity to disclose credit quality indicators, past due information and modifications of its financing receivables.  The objective of these expanded disclosures is to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables.  For public entities, the disclosures required by this guidance as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010.  The disclosures required by this guidance about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010.  Comparative disclosures for reporting periods ending after initial adoption are required.  Since the provisions of ASU 2010-20 are disclosure related, our adoption of this guidance will not have an impact on our financial condition or results of operations.

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In December 2009, the FASB issued ASU 2009-16, “Transfers and Servicing (Topic 860) Accounting for Transfers of Financial Assets,” which amends the FASB ASC as a result of Statement of Financial Accounting Standards, or SFAS, No. 166, “Accounting for Transfers of Financial Assets,” issued by the FASB in June 2009.  This new accounting guidance eliminates the concept of a qualifying special-purpose entity; changes the requirements for derecognizing financial assets; and requires additional disclosures.  This guidance enhances information reported to users of financial statements by providing greater transparency about transfers of financial assets and an entity’s continuing involvement in transferred financial assets.  Our adoption of this guidance on January 1, 2010 did not have a material impact on our financial condition or results of operations.

In December 2009, the FASB issued ASU 2009-17, “Consolidations (Topic 810) Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” which amends the FASB ASC as a result of SFAS No. 167, “Amendments to FASB Interpretation No. 46(R),” issued by the FASB in June 2009.  This new accounting guidance was issued to improve financial reporting by companies involved with variable interest entities.  This guidance amends existing guidance for determining whether an entity is a variable interest entity, amends the criteria for identification of the primary beneficiary of a variable interest entity by requiring a qualitative analysis rather than a quantitative analysis and requires continuous reassessments of whether an enterprise is the primary beneficiary of a variable interest entity.  Our adoption of this guidance on January 1, 2010 did not have a material impact on our financial condition or results of operations.

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ITEM 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.  These statements may be identified by the use of the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar terms and phrases, including references to assumptions.

Forward-looking statements are based on various assumptions and analyses made by us in light of our management’s experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances.  These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors (many of which are beyond our control) that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.  These factors include, without limitation, the following:

· the timing and occurrence or non-occurrence of events may be subject to circumstances beyond our control;

· there may be increases in competitive pressure among financial institutions or from non-financial institutions;

· changes in the interest rate environment may reduce interest margins or affect the value of our investments;

· changes in deposit flows, loan demand or real estate values may adversely affect our business;

· changes in accounting principles, policies or guidelines may cause our financial condition to be perceived differently;

· general economic conditions, either nationally or locally in some or all areas in which we do business, or conditions in the real estate or securities markets or the banking industry may be less favorable than we currently anticipate;

· legislative or regulatory changes may adversely affect our business;

· technological changes may be more difficult or expensive than we anticipate;

· success or consummation of new business initiatives may be more difficult or expensive than we anticipate; or

· litigation or other matters before regulatory agencies, whether currently existing or commencing in the future, may be determined adverse to us or may delay the occurrence or non-occurrence of events longer than we anticipate.

We have no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document.

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Executive Summary

The following overview should be read in conjunction with our MD&A in its entirety.

Astoria Financial Corporation is a Delaware corporation organized as the unitary savings and loan association holding company of Astoria Federal.  Our primary business is the operation of Astoria Federal.  Astoria Federal's principal business is attracting retail deposits from the general public and investing those deposits, together with funds generated from operations, principal repayments on loans and securities and borrowings, primarily in one-to-four family mortgage loans, multi-family mortgage loans, commercial real estate loans and mortgage-backed securities.  Our results of operations are dependent primarily on our net interest income, which is the difference between the interest earned on our assets, primarily our loan and securities portfolios, and the interest paid on our deposits and borrowings.  Our earnings are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates and U.S. Treasury yield curves, government policies and actions of regulatory authorities.

As the premier Long Island community bank, our goals are to enhance shareholder value while building a solid banking franchise.  We focus on growing our core businesses of mortgage portfolio lending and retail banking while maintaining strong asset quality and controlling operating expenses.  We also provide returns to shareholders through dividends.

During the six months ended June 30, 2010, the national economy continued to show signs of improvement as evidenced by, among other things, a decrease in the unemployment rate from December 2009 and moderatejob growth.  However, softness in the housing and real estate markets persist and unemployment levels remain elevated with a national unemployment rate of 9.5% for June 2010 compared to 10.0% for December 2009.  On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Reform Act.  The Reform Act is intended to address perceived weaknesses in the U.S. financial regulatory system and prevent future economic and financial crises.  Certain aspects of the Reform Act will have an impact on us, as described in more detail in Part II,    Item 1A, “Risk Factors.”

Total assets decreased during the six months ended June 30, 2010, primarily due to decreases in our securities and loan portfolios, partially offset by an increase in cash and due from banks.  The decrease in our securities portfolio was primarily due to cash flows from repayments and calls exceeding securities purchased which reflects our decision to limit purchases of securities in the current low interest rate environment.  The decrease in our loan portfolio was primarily due to decreases in each of our mortgage loan portfolios, primarily one-to-four family  and multi-family mortgage loans, resulting from repayments which outpaced our origination and purchase volume.  One-to-four family loan repayments remained at elevated levels as interest rates on thirty year fixed rate mortgages remained at historic lows and more loans in our portfolio qualified under the expanded loan limits that conform to GSE guidelines, or the expanded conforming loan limits, and were refinanced into fixed rate mortgages.  The decrease in the loan portfolio reflects our decision not to aggressively compete against the thirty year fixed rate mortgage market in the current low interest rate environment.  In response to declining customer demand for adjustable rate products, we currently originate and retain for portfolio jumbo fifteen year fixed rate mortgage loans.  The increase in cash and due from banks reflects the cash flows

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from securities calls and new borrowings which were not redeployed by the end of the 2010 second quarter.

Total deposits decreased during the six months ended June 30, 2010, due to decreases in certificates of deposit and Liquid CDs, partially offset by increases in savings, NOW and demand deposit and money market accounts.  During the first half of 2010, we continued to allow high cost certificates of deposit to run off as total assets declined.  The increases in low cost savings, NOW and demand deposit and money market accounts appear to reflect customer preference for the liquidity these types of deposits provide over the rates currently offered for longer term certificates of deposit.  We have, however, recently begun to offer aggressive rates on long term certificates of deposit to extend these deposits.  Borrowings were down slightly from December 31, 2009.  During the latter half of the 2010 second quarter, we increased longer-term borrowings to take advantage of the current rates on such borrowings in anticipation of borrowings scheduled to mature in the 2010 third quarter.  Our efforts to extend certificates of deposit and borrowings aid in our interest rate risk management by reducing our exposure to rising interest rates.

Net income increased for the three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009.  These increases were primarily due to decreases in provision for loan losses, coupled with increases in net interest income and non-interest income, partially offset by increases in income tax expense.  For the six months ended June 30, 2010, these increases were also partially offset by an increase in non-interest expense.

The allowance for loan losses and non-performing loans increased somewhat from December 31, 2009 to June 30, 2010, but remained relatively the same from March 31, 2010.  The provision for loan losses decreased for the three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009.  The decreases reflect the stabilizing trend in overall asset quality experienced in 2010.  The allowance for loan losses at June 30, 2010 reflects the levels and composition of our loan delinquencies, non-performing loans and net loan charge-offs, as well as our evaluation of the housing and real estate markets and overall economy.

Net interest income, the net interest margin and the net interest rate spread for the three and six months ended June 30, 2010 increased compared to the three and six months ended June 30, 2009, primarily due to the cost of interest-bearing liabilities declining more rapidly than the yield on interest-earning assets.  This net cost savings is reflective of the magnitude and timing of the downward repricing of our liabilities in the current low interest rate environment.  Interest expense for the three and six months ended June 30, 2010 decreased, compared to the three and six months ended June 30, 2009, primarily due to decreases in the average costs of certificates of deposit and Liquid CDs, coupled with decreases in the average balances of certificates of deposit, borrowings and Liquid CDs.  Interest income for the three and six months ended June 30, 2010 decreased, compared to the three and six months ended June 30, 2009, primarily due to decreases in the average yields on one-to-four family mortgage loans and mortgage-backed and other securities, coupled with decreases in the average balances of multi-family, commercial real estate and construction loans, mortgage-backed and other securities and one-to-four family mortgage loans.

The increase in non-interest income for the three months ended June 30, 2010 compared to the three months ended June 30, 2009 was primarily due to the Goodwill Litigation settlement recorded in other non-interest income in the 2010 second quarter, partially offset by decreases in

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mortgage banking income, net, and customer service fees.  The increase in non-interest income for the six months ended June 30, 2010 compared to the six months ended June 30, 2009 was primarily due to the Goodwill Litigation settlement and the OTTI charge recorded in the 2009 first quarter, partially offset by a decrease in customer service fees, a gain on sales of securities recorded in the 2009 first quarter and a decrease in mortgage banking income, net.  

Non-interest expense for the three months ended June 30, 2010 decreased slightly compared to the three months ended June 30, 2009 primarily due to the Federal Deposit Insurance Corporation, or FDIC, special assessment recorded in the 2009 second quarter, substantially offset by the McAnaney Litigation settlement, recorded in other non-interest expense, in the 2010 second quarter and an increase in compensation and benefits expense.  The increase in non-interest expense for the six months ended June 30, 2010 compared to the six months ended June 30, 2009 was primarily due to the McAnaney Litigation settlement and increases in compensation and benefits expense and FDIC insurance premiums, partially offset by the absence of the FDIC special assessment.   Income tax expense increased for the three and six months ended June 30, 2010, compared to the three and six months ended June 30, 2009 primarily due to the increases in pre-tax income.  For further discussion of the Goodwill and McAnaney Litigation settlements, see Note 12 of Notes to Consolidated Financial Statements in Item 1, “Financial Statements (Unaudited).”

With the national economic recovery underway, and despite the fact that the pace of the recovery appears to be moderating and the housing market remains soft, the long-term outlook for our credit quality is improving which we believe should result in lower credit costs and further improvement in our financial performance during the remainder of 2010.  Due to the fact that the U.S. government continues to subsidize the residential mortgage market with programs designed to keep the interest rate for thirty year fixed rate conforming mortgage loans below normal market rate levels, coupled with expanded conforming loan limits in many of the markets we operate in,we do not anticipate our loan production increasing at this time which, more than likely, will result in a slight decline in our loan portfolio and balance sheet for the remainder of 2010.

Available Information

Our internet website address is www.astoriafederal.com.  Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports can be obtained free of charge from our Investor Relations website at http://ir.astoriafederal.com.  The above reports are available on our website immediately after they are electronically filed with or furnished to the SEC.  Such reports are also available on the SEC’s website at www.sec.gov/edgar/searchedgar/webusers.htm.

Critical Accounting Policies

Note 1 of Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data,” of our 2009 Annual Report on Form 10-K, as supplemented by our quarterly report on Form 10-Q for the quarter ended March 31, 2010 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

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impairment are our most critical accounting policies because they are important to the presentation of our financial condition and results of operations, involve a higher degree of complexity and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters.  The use of different judgments, assumptions and estimates could result in material differences in our results of operations or financial condition.  These critical accounting policies are reviewed quarterly with the Audit Committee of our Board of Directors.  The following description of these policies should be read in conjunction with the corresponding section of our 2009 Annual Report on Form 10-K.

Allowance for Loan Losses

Our allowance for loan losses is established and maintained through a provision for loan losses based on our evaluation of the probable inherent losses in our loan portfolio.  We evaluate the adequacy of our allowance on a quarterly basis.  The allowance is comprised of both specific valuation allowances and general valuation allowances.

Specific valuation allowances are established in connection with individual loan reviews and the asset classification process, including the procedures for impairment recognition under GAAP.  Such evaluation, which includes a review of loans on which full collectibility is not reasonably assured, considers the current estimated fair value of the underlying collateral, if any, current and anticipated economic and regulatory conditions, current and historical loss experience of similar loans and other factors that determine risk exposure to arrive at an adequate loan loss allowance.

Loan reviews are completed quarterly for all loans individually classified by our Asset Classification Committee.  Individual loan reviews are generally completed annually for multi-family, commercial real estate and construction mortgage loans in excess of $2.0 million, commercial business loans in excess of $200,000, one-to-four family mortgage loans in excess of $1.0 million and troubled debt restructurings.  In addition, we generally review annually borrowing relationships whose combined outstanding balance exceeds $2.0 million. Approximately fifty percent of the outstanding principal balance of these loans to a single borrowing entity will be reviewed annually.

The primary considerations in establishing specific valuation allowances are the current estimated value of a loan’s underlying collateral and the loan’s payment history.  We update our estimates of collateral value for non-performing multi-family, commercial real estate and construction mortgage loans in excess of $1.0 million and one-to-four family mortgage loans which are 180 days or more delinquent, annually, and certain other loans when the Asset Classification Committee believes repayment of such loans may be dependent on the value of the underlying collateral.  For one-to-four family mortgage loans, updated estimates of collateral value are obtained primarily through automated valuation models.  For multi-family and commercial real estate properties, we estimate collateral value through appraisals or internal cash flow analyses when current financial information is available, coupled with, in most cases, an inspection of the property.  Other current and anticipated economic conditions on which our specific valuation allowances rely are the impact that national and/or local economic and business conditions may have on borrowers, the impact that local real estate markets may have on collateral values, the level and direction of interest rates and their combined effect on real estate values and the ability of borrowers to service debt.  For multi-family and commercial real estate loans, additional factors specific to a borrower or the underlying collateral are considered.  These factors include, but are not limited to, the composition of tenancy, occupancy levels for

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the property, location of the property, cash flow estimates and, to a lesser degree, the existence of personal guarantees.  We also review all regulatory notices, bulletins and memoranda with the purpose of identifying upcoming changes in regulatory conditions which may impact our calculation of specific valuation allowances.  The OTS periodically reviews our reserve methodology during regulatory examinations and any comments regarding changes to reserves or loan classifications are considered by management in determining valuation allowances.

Pursuant to our policy, loan losses are charged-off in the period the loans, or portions thereof, are deemed uncollectible, or, in the case of one-to-four family mortgage loans, at 180 days past due, and annually thereafter, for the portion of the recorded investment in the loan in excess of the estimated fair value of the underlying collateral less estimated selling costs.  The determination of the loans on which full collectibility is not reasonably assured, the estimates of the fair value of the underlying collateral and the assessment of economic and regulatory conditions are subject to assumptions and judgments by management.  Specific valuation allowances and charge-off amounts could differ materially as a result of changes in these assumptions and judgments.

General valuation allowances represent loss allowances that have been established to recognize the inherent risks associated with our lending activities which, unlike specific allowances, have not been allocated to particular loans.  The determination of the adequacy of the general valuation allowances takes into consideration a variety of factors.  We segment our one-to-four family mortgage loan portfolio by interest-only and amortizing loans, full documentation and reduced documentation loans and year of origination and analyze our historical loss experience and delinquency levels and trends of these segments.  The resulting range of allowance percentages is used as an integral part of our judgment in developing estimated loss percentages to apply to the portfolio segments.  We segment our consumer and other loan portfolio by home equity lines of credit, business loans, revolving credit lines and installment loans and perform similar historical loss analyses.  We monitor credit risk on interest-only hybrid adjustable rate mortgage, or ARM, loans that were underwritten at the initial note rate, which may have been a discounted rate, in the same manner that we monitor credit risk on all interest-only hybrid ARM loans.  We monitor interest rate reset dates of our portfolio, in the aggregate, and the current interest rate environment and consider the impact, if any, on borrowers’ ability to continue to make timely principal and interest payments in determining our allowance for loan losses.  We also consider the size, composition, risk profile, delinquency levels and cure rates of our portfolio, as well as our credit administration and asset management procedures.  We monitor property value trends in our market areas by reference to various industry and market reports, economic releases and surveys, and our general and specific knowledge of the real estate markets in which we lend, in order to determine what impact, if any, such trends may have on the level of our general valuation allowances.  In determining our allowance coverage percentages for non-performing loans, we consider our historical loss experience with respect to the ultimate disposition of the underlying collateral.  In addition, we evaluate and consider the impact that current and anticipated economic and market conditions may have on the portfolio and known and inherent risks in the portfolio.

We use ratio analyses as a supplemental tool for evaluating the overall reasonableness of the allowance for loan losses.  As such, we evaluate and consider our asset quality ratios as well as the allowance ratios and coverage percentages set forth in both peer group and regulatory agency data.  We also consider any comments from the OTS resulting from their review of our general valuation allowance methodology during regulatory examinations.  We consider the observed trends in our asset quality ratios in combination with our primary focus on our historical loss

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experience and the impact of current economic conditions.  After evaluating these variables, we determine appropriate allowance coverage percentages for each of our portfolio segments and the appropriate level of our allowance for loan losses.  We do not determine the appropriate level of our allowance for loan losses based exclusively on a single factor or asset quality ratio.  Our evaluation of general valuation allowances is inherently subjective because, even though it is based on objective data, it is management’s interpretation of that data that determines the amount of the appropriate allowance.  Therefore, we periodically review the actual performance and charge-off history of our portfolio and compare that to our previously determined allowance coverage percentages and specific valuation allowances.  In doing so, we evaluate the impact the previously mentioned variables may have had on the portfolio to determine which changes, if any, should be made to our assumptions and analyses.

As a result of our updated charge-off and loss analyses, we modified certain allowance coverage percentages during the 2010 first and second quarters to reflect our current estimates of the amount of probable losses inherent in our loan portfolio in determining our general valuation allowances.  Based on our evaluation of the housing and real estate markets and overall economy, in particular, the unemployment rate and the levels and composition of our loan delinquencies, non-performing loans and net loan charge-offs, we determined that an allowance for loan losses of $211.0 million was required at June 30, 2010, compared to $210.7 million at March 31, 2010 and $194.0 million at December 31, 2009, resulting in a provision for loan losses of $80.0 million for the six months ended June 30, 2010.  The balance of our allowance for loan losses represents management’s best estimate of the probable inherent losses in our loan portfolio at the reporting dates.

Actual results could differ from our estimates as a result of changes in economic or market conditions.  Changes in estimates could result in a material change in the allowance for loan losses.  While we believe that the allowance for loan losses has been established and maintained at levels that reflect the risks inherent in our loan portfolio, future adjustments may be necessary 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 2009 Annual Report on Form 10-K.

Valuation of MSR

The initial asset recognized for originated MSR is measured at fair value.  The fair value of MSR is estimated by reference to current market values of similar loans sold servicing released.  MSR are amortized in proportion to and over the period of estimated net servicing income.  We apply the amortization method for measurement of our MSR.  MSR are assessed for impairment based on fair value at each reporting date.  Impairment exists if the carrying value of MSR exceeds the estimated fair value. The estimated fair value of MSR is obtained through independent third party valuations.  MSR impairment, if any, is recognized in a valuation allowance through charges to earnings.  Increases in the fair value of impaired MSR are recognized only up to the amount of the previously recognized valuation allowance.

At June 30, 2010, our MSR, net, had an estimated fair value of $8.7 million and were valued based on expected future cash flows considering a weighted average discount rate of 10.98%, a

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weighted average constant prepayment rate on mortgages of 22.68% and a weighted average life of 3.5 years.  At December 31, 2009, our MSR, net, had an estimated fair value of $8.9 million and were valued based on expected future cash flows considering a weighted average discount rate of 11.02%, a weighted average constant prepayment rate on mortgages of 20.85% and a weighted average life of 3.8 years.

The fair value of MSR is highly sensitive to changes in assumptions.  Changes in prepayment speed assumptions generally have the most significant impact on the fair value of our MSR.  Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of MSR.  As interest rates rise, mortgage loan prepayments slow down, which results in an increase in the fair value of MSR.  Thus, any measurement of the fair value of our MSR is limited by the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different point in time.  Assuming an increase in interest rates of 100 basis points at June 30, 2010, the estimated fair value of our MSR would have been $3.4 million greater.  Assuming a decrease in interest rates of 100 basis points at June 30, 2010, the estimated fair value of our MSR would have been $3.2 million lower.

Goodwill Impairment

Goodwill is presumed to have an indefinite useful life and is tested, at least annually, for impairment at the reporting unit level. Impairment exists when the carrying amount of goodwill exceeds its implied fair value.  For purposes of our goodwill impairment testing, we have identified a single reporting unit.  We consider the quoted market price of our common stock on our impairment testing date as an initial indicator of estimating the fair value of our reporting unit.  In addition, we consider our average stock price, both before and after our impairment test date, as well as market-based control premiums in determining the estimated fair value of our reporting unit.  If the estimated fair value of our reporting unit exceeds its carrying amount, further evaluation is not necessary.  However, if the fair value of our reporting unit is less than its carrying amount, further evaluation is required to compare the implied fair value of the reporting unit’s goodwill to its carrying amount to determine if a write-down of goodwill is required.

At June 30, 2010, the carrying amount of our goodwill totaled $185.2 million.  On September 30, 2009, we performed our annual goodwill impairment test and determined the estimated fair value of our reporting unit to be in excess of its carrying amount.  Accordingly, as of our annual impairment test date, there was no indication of goodwill impairment.  We would test our goodwill for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of our reporting unit below its carrying amount.  No events have occurred and no circumstances have changed since our annual impairment test date that would more likely than not reduce the fair value of our reporting unit below its carrying amount.  The identification of additional reporting units or the use of other valuation techniques could result in materially different evaluations of impairment.

Securities Impairment

Our available-for-sale securities portfolio is carried at estimated fair value with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income/loss in stockholders’ equity.  Debt securities which we have the positive intent and ability to hold to

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maturity are classified as held-to-maturity and are carried at amortized cost.  The fair values for our securities are obtained from an independent nationally recognized pricing service.

Our investment portfolio is comprised primarily of fixed rate mortgage-backed securities guaranteed by a GSE as issuer.  GSE issuance mortgage-backed securities comprised 97% of our securities portfolio at June 30, 2010.  Non-GSE issuance mortgage-backed securities at June 30, 2010 comprised 3% of our securities portfolio and had an amortized cost of $88.0 million, 28% of which are classified as available-for-sale and 72% of which are classified as held-to-maturity.  Substantially all of our non-GSE issuance securities have a AAA credit rating and they have performed similarly to our GSE issuance securities.  Credit quality concerns have not significantly impacted the performance of our non-GSE securities or our ability to obtain reliable prices.

The fair value of our investment portfolio is primarily impacted by 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 a decline in the fair value of any security below its cost basis is other-than-temporary.  Our evaluation of OTTI considers the duration and severity of the impairment, our assessments of the reason for the decline in value, the likelihood of a near-term recovery and our intent and ability to not sell the securities.  We generally view changes in fair value caused by changes in interest rates as temporary, which is consistent with our experience.  If such decline is deemed other-than-temporary, the security is written down to a new cost basis and the resulting loss is charged to earnings as a component of non-interest income, except for the amount of the total OTTI for a debt security that does not represent credit losses which is recognized in other comprehensive income/loss, net of applicable taxes.  At June 30, 2010, we had 32 securities with an estimated fair value totaling $109.4 million which had an unrealized loss totaling $1.2 million.  Of the securities in an unrealized loss position at June 30, 2010, $81.9 million, with an unrealized loss of $953,000, have been in a continuous unrealized loss position for more than twelve months.  At June 30, 2010, the impairments are deemed temporary based on (1) the direct relationship of the decline in fair value to movements in interest rates, (2) the estimated remaining life and high credit quality of the investments and (3) the fact that we do not intend to sell these securities and it is not more likely than not that we will be required to sell these securities before their anticipated recovery of the remaining amortized cost basis and we expect to recover the entire amortized cost basis of the security.

There were no OTTI charges during the six months ended June 30, 2010.  During the six months ended June 30, 2009, we recorded a $5.3 million OTTI charge to write-off the remaining cost basis of our investment in two issues of Freddie Mac perpetual preferred securities.  For additional information regarding securities impairment and the OTTI charge, see Note 2 of Notes to Consolidated Financial Statements in Item 1, “Financial Statements (Unaudited).”   

Liquidity and Capital Resources

Our primary source of funds is cash provided by principal and interest payments on loans and securities.  The most significant liquidity challenge we face is the variability in cash flows as a result of changes in mortgage refinance activity.  Principal payments on loans and securities totaled $2.74 billion for the six months ended June 30, 2010 and $2.49 billion for the six months ended June 30, 2009.  The increase in loan and securities repayments for the six months ended June 30, 2010, compared to the six months ended June 30, 2009, was due to an increase in loan

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repayments which reflects the continued historic low interest rates for thirty year fixed rate mortgages and expanded conforming loan limits, coupled with an increase in securities repayments primarily as a result of securities which were called during the 2010 second quarter.

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 $134.7 million during the six months ended June 30, 2010 and $87.3 million during the six months ended June 30, 2009.  Deposits decreased $563.8 million during the six months ended June 30, 2010 and increased $130.3 million during the six months ended June 30, 2009.  The net decrease in deposits for the six months ended June 30, 2010 was primarily due to decreases in certificates of deposit and Liquid CDs, partially offset by increases in savings, NOW and demand deposit and money market accounts.  During the first half of 2010, we continued to allow high cost certificates of deposit to run off as total assets declined.  The increases in low cost savings, NOW and demand deposit and money market accounts during the first half of 2010 appear to reflect customer preference for the liquidity these types of deposits provide over the rates currently offered for longer term certificates of deposit.  We have, however, recently begun to offer aggressive rates on long term certificates of deposit to extend these deposits.  The net increase in deposits for the six months ended June 30, 2009 was due to increases in savings, NOW and demand deposit and money market accounts, partially offset by decreases in Liquid CDs and certificates of deposit, and reflects the decrease in competition for core community deposits from that which we experienced during 2008.

Net borrowings decreased $64.8 million during the six months ended June 30, 2010 and decreased $1.08 billion during the six months ended June 30, 2009.  During the latter half of the 2010 second quarter, we increased longer term borrowings to take advantage of the current rates on such borrowings in anticipation of borrowings scheduled to mature in the 2010 third quarter.  The decrease in net borrowings during the six months ended June 30, 2009 was primarily the result of cash flows from mortgage loan and securities repayments and deposit growth exceeding mortgage loan originations and purchases and securities purchases which enabled us to repay a portion of our matured borrowings.

Our primary use of funds is for the origination and purchase of mortgage loans.  Gross mortgage loans originated and purchased for portfolio during the six months ended June 30, 2010 totaled $1.60 billion, of which $1.35 billion were originations and $243.4 million were purchases, all of which were one-to-four family mortgage loans.  This compares to gross mortgage loans originated and purchased for portfolio during the six months ended June 30, 2009 totaling $1.06 billion, of which $932.4 million were originations and $128.8 million were purchases, substantially all of which were one-to-four family mortgage loans.  Overall one-to-four family mortgage loan origination and purchase volume for portfolio has been negatively affected by the historic low interest rates on thirty year fixed rate mortgages and the expanded conforming loan limits resulting in more borrowers opting for thirty year fixed rate mortgages which we do not retain for portfolio.  Additionally, one-to-four family mortgage loan origination and purchase volume during the first half of 2009 was negatively affected by wider funding and mortgage interest rate spreads over market indices coupled with continued fallout from our mortgage loan application pipeline and an upward trend in interest rates.  We also originated loans held-for-sale totaling $115.2 million during the six months ended June 30, 2010 and $248.0 million during the six months ended June 30, 2009.  During the six months ended June 30, 2010 and 2009, we purchased securities to partially offset the cash flows from securities repayments.  Purchases of

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securities totaled $390.9 million during the six months ended June 30, 2010 and $300.8 million during the six months ended June 30, 2009.  

We maintain liquidity levels to meet our operational needs in the normal course of our business.  The levels of our liquid assets during any given period are dependent on our operating, investing and financing activities.  Cash and due from banks and repurchase agreements, our most liquid assets, increased $250.3 million to $361.9 million at June 30, 2010, from $111.6 million at December 31, 2009.  This increase reflects the cash flows from securities calls and new borrowings which were not redeployed by the end of the 2010 second quarter.  At June 30, 2010, we had $1.59 billion in borrowings with a weighted average rate of 3.39% maturing over the next twelve months.  We have the flexibility to either repay or rollover these borrowings as they mature.  In addition, we had $5.2 billion in certificates of deposit and Liquid CDs at June 30, 2010 with a weighted average rate of 1.76% maturing over the next twelve months.  We have the ability to retain or replace a significant portion of such deposits based on our pricing and historical experience.  As previously discussed, our efforts to extend certificates of deposit and borrowings aid in our interest rate risk management by reducing our exposure to rising interest rates.

The following table details our borrowing, certificate of deposit and Liquid CD maturities and their weighted average rates at June 30, 2010.

							Certificates of Deposit
	Borrowings						and Liquid CDs
				Weighted						Weighted
				Average						Average
(Dollars in Millions)	Amount			Rate			Amount			Rate
Contractual Maturity:
Twelve months or less	$	1,591			3.39	%	$	5,217	(1)		1.76	%
Thirteen to thirty-six months		1,769	(2)		4.24			2,072			2.94
Thirty-seven to sixty months		575	(3)		2.79			751			3.25
Over sixty months		1,879	(4)		4.72			-			-
Total	$	5,814			4.02	%	$	8,040			2.20	%

(1)	Includes $607.9 million of Liquid CDs with a weighted average rate of 0.50% and $4.61 billion of certificates of deposit with a weighted average rate of 1.92%.
(2)	Includes $975.0 million of borrowings, with a weighted average rate of 4.45%, which are callable by the counterparty within the next three months and at various times thereafter.
(3)	Includes $200.0 million of borrowings, with an average rate of 4.18%, which are callable by the counterparty within the next three months and at various times thereafter.
(4)	Includes $1.75 billion of borrowings, with a weighted average rate of 4.35%, which are callable by the counterparty within the next three months and at various times thereafter.

Additional sources of liquidity at the holding company level have included issuances of securities into the capital markets, including private issuances of trust preferred securities and senior debt.  Holding company debt obligations are included in other borrowings.  Our ability to continue to access the capital markets for additional financing at favorable terms may be limited by, among other things, market conditions, interest rates, our capital levels, Astoria Federal’s ability to pay dividends to Astoria Financial Corporation, our credit profile and ratings and our business model.

On May 19, 2010, we filed an automatic shelf registration statement on Form S-3 with the SEC, which was declared effective immediately upon filing.  This shelf registration statement allows

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us to periodically offer and sell, from time to time, in one or more offerings, individually or in any combination, common stock, preferred stock, debt securities, capital securities, guarantees, warrants to purchase common stock or preferred stock and units consisting of one or more of the foregoing.  The shelf registration statement provides us with greater capital management flexibility and enables us to readily access the capital markets in order to pursue growth opportunities that may become available to us in the future or should there be any changes in the regulatory environment that call for increased capital requirements.  Although the shelf registration statement does not limit the amount of the foregoing items that we may offer and sell pursuant to the shelf registration statement, our ability and any decision to do so is subject to market conditions and our capital needs.   At this time, we do not have any immediate plans or current commitments to sell securities under the shelf registration statement.

Astoria Financial Corporation’s primary uses of funds include payment of dividends, payment of interest on its debt obligations and repurchases of common stock.  On June 1, 2010, we paid a quarterly cash dividend of $0.13 per share on shares of our common stock outstanding as of the close of business on May 17, 2010 totaling $12.2 million.  On July 21, 2010, we declared a quarterly cash dividend of $0.13 per share on shares of our common stock payable on  September 1, 2010 to stockholders of record as of the close of business on August 16, 2010.  As of June 30, 2010, we are not currently repurchasing additional shares of our common stock and have not since the 2008 third quarter.  Our twelfth stock repurchase plan, approved by our Board of Directors on April 18, 2007, authorized the purchase of 10,000,000 shares, or approximately 10% of our common stock then outstanding, in open-market or privately negotiated transactions.  At June 30, 2010, a maximum of 8,107,300 shares may yet be purchased under this plan.

Our ability to pay dividends, service our debt obligations and repurchase common stock is dependent primarily upon receipt of capital distributions from Astoria Federal.  Since Astoria Federal is a federally chartered savings association, there are limits on its ability to make distributions to Astoria Financial Corporation.  During the six months ended June 30, 2010, Astoria Federal paid dividends to Astoria Financial Corporation totaling $38.6 million.

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

At June 30, 2010, Astoria Federal’s capital levels exceeded all of its regulatory capital requirements with a tangible capital ratio of 7.15%, leverage capital ratio of 7.15% and total risk-based capital ratio of 13.47%.  The minimum regulatory requirements are a tangible capital ratio of 1.50%, leverage capital ratio of 4.00% and total risk-based capital ratio of 8.00%.  Astoria Federal’s Tier 1 risk-based capital ratio was 12.21% at June 30, 2010.  As of June 30, 2010, Astoria Federal continues to be a well capitalized institution for all bank regulatory purposes.

Off-Balance Sheet Arrangements and Contractual Obligations

We are a party to financial instruments with off-balance sheet risk in the normal course of our business in order to meet the financing needs of our customers and in connection with our overall interest rate risk management strategy.  These instruments involve, to varying degrees, elements of credit, interest rate and liquidity risk.  In accordance with GAAP, these instruments are either not recorded in the consolidated financial statements or are recorded in amounts that differ from the notional amounts.  Such instruments primarily include lending commitments and lease commitments.

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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 $60.9 million at June 30, 2010.  The fair values of our mortgage banking derivative instruments are immaterial to our financial condition and results of operations.  We also have contractual obligations related to operating lease commitments which have not changed significantly from December 31, 2009.

The following table details our contractual obligations at June 30, 2010.

	Payments due by period
			Less than		One to		Three to		More than
(In Thousands)	Total		One Year		Three Years		Five Years		Five Years
Contractual Obligations:
Borrowings with original terms greater than three months	$	5,813,866	$	1,591,000	$	1,769,000	$	575,000	$	1,878,866
Commitments to originate and purchase loans (1)		396,580		396,580		-		-		-
Commitments to fund unused lines of credit (2)		294,376		294,376		-		-		-
Total	$	6,504,822	$	2,281,956	$	1,769,000	$	575,000	$	1,878,866

(1) Commitments to originate and purchase loans include commitments to originate loans held-for-sale of $38.2 million.

(2) Unused lines of credit relate primarily to home equity lines of credit.

In addition to the contractual obligations previously discussed, we have liabilities for gross unrecognized tax benefits and interest and penalties related to uncertain tax positions.  For further information regarding these liabilities, see Note 6 of Notes to Consolidated Financial Statements in Item 1, “Financial Statements (Unaudited).”  We also have contingent liabilities related to assets sold with recourse and standby letters of credit which have not changed significantly from December 31, 2009.

For further information regarding our off-balance sheet arrangements and contractual obligations, see Part II, Item 7, “MD&A,” in our 2009 Annual Report on Form 10-K.

Comparison of Financial Condition as of June 30, 2010 and December 31, 2009 and Operating Results for the Three and Six Months Ended June 30, 2010 and 2009

Financial Condition

Total assets decreased $582.2 million to $19.67 billion at June 30, 2010, from $20.25 billion at December 31, 2009.  The decrease in total assets primarily reflects decreases in securities and loans receivable, partially offset by an increase in cash and due from banks.

Loans receivable, net, decreased $431.3 million to $15.16 billion at June 30, 2010, from $15.59 billion at December 31, 2009.  This decrease was a result of repayments outpacing our mortgage loan origination and purchase volume during the six months ended June 30, 2010, coupled with an increase of $17.0 million in the allowance for loan losses to $211.0 million at June 30, 2010, from $194.0 million at December 31, 2009.  For additional information on the allowance for loan losses, see “Provision for Loan Losses” and “Asset Quality.”

Mortgage loans, net, decreased $407.3 million to $15.04 billion at June 30, 2010, from $15.45 billion at December 31, 2009.  This decrease was due to decreases in each of our mortgage loan portfolios, primarily one-to-four family and multi-family mortgage loans.  Mortgage loan repayments increased to $1.85 billion for the six months ended June 30, 2010, from $1.66 billion

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for the six months ended June 30, 2009.  Gross mortgage loans originated and purchased for portfolio during the six months ended June 30, 2010 totaled $1.60 billion, of which $1.35 billion were originations and $243.4 million were purchases, all of which were one-to-four family mortgage loans.  This compares to gross mortgage loans originated and purchased for portfolio totaling $1.06 billion during the six months ended June 30, 2009, of which $932.4 million were originations and $128.8 million were purchases, substantially all of which were one-to-four family mortgage loans.  In addition, we originated loans held-for-sale totaling $115.2 million during the six months ended June 30, 2010, compared to $248.0 million during the six months ended June 30, 2009.

Our mortgage loan portfolio, as well as our originations and purchases, continue to consist primarily of one-to-four family mortgage loans.  Our one-to-four family mortgage loan portfolio decreased $186.4 million to $11.71 billion at June 30, 2010, from $11.90 billion at December 31, 2009, and represented 76.7% of our total loan portfolio at June 30, 2010.  The decrease was primarily the result of the levels of repayments which outpaced our originations and purchases during the six months ended June 30, 2010.  One-to-four family mortgage loan origination and purchase volume for portfolio has been negatively affected by the historic low interest rates for thirty year fixed rate mortgages and the expanded conforming loan limits resulting in more borrowers opting for thirty year fixed rate mortgages which we do not retain for portfolio.  During the six months ended June 30, 2010, the loan-to-value ratio of our one-to-four family mortgage loan originations and purchases for portfolio, at the time of origination or purchase, averaged approximately 61% and the loan amount averaged approximately $737,000.

Our multi-family mortgage loan portfolio decreased $161.9 million to $2.40 billion at June 30, 2010, from $2.56 billion at December 31, 2009.  Our commercial real estate loan portfolio decreased $45.9 million to $820.9 million at June 30, 2010, from $866.8 million at December 31, 2009.  The decreases in these loan portfolios are attributable to repayments, the sale or transfer to held-for-sale of various delinquent and non-performing loans and the absence of new multi-family and commercial real estate loan originations.  We are currently only offering to originate multi-family and commercial real estate loans to select existing customers in New York and did not originate any such loans during the first half of 2010.  Multi-family and commercial real estate loan originations totaled $11.5 million for the year ended December 31, 2009, and were primarily originated in the first quarter of 2009.  

Securities decreased $441.9 million to $2.74 billion at June 30, 2010, from $3.18 billion at December 31, 2009.  This decrease was primarily the result of principal payments received of $835.8 million, including $251.0 million related to securities which were called, partially offset by purchases of $390.9 million.  At June 30, 2010, our securities portfolio was comprised primarily of fixed rate REMIC and CMO securities.  The amortized cost of our fixed rate REMICs and CMOs totaled $2.67 billion at June 30, 2010 and had a weighted average current coupon of 4.12%, a weighted average collateral coupon of 5.57% and a weighted average life of 1.9 years.  For additional information regarding our securities portfolio, see Note 2 of Notes to Consolidated Financial Statements in Item 1, “Financial Statements (Unaudited).”

Cash and due from banks increased $248.5 million to $320.0 million at June 30, 2010, from $71.5 million at December 31, 2009.  This increase reflects the cash flows from securities calls and new borrowings which were not redeployed by the end of the 2010 second quarter.

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Deposits decreased $563.8 million to $12.25 billion at June 30, 2010, from $12.81 billion at December 31, 2009, due to decreases in certificates of deposit and Liquid CDs, partially offset by increases in savings, NOW and demand deposit and money market accounts.  Certificates of deposit decreased $652.9 million since December 31, 2009 to $7.43 billion at June 30, 2010.  Liquid CDs decreased $103.7 million since December 31, 2009 to $607.9 million at June 30, 2010.  Savings accounts increased $141.6 million since December 31, 2009 to $2.18 billion at June 30, 2010.  NOW and demand deposit accounts increased $40.5 million since December 31, 2009 to $1.69 billion at June 30, 2010.  Money market accounts increased $10.6 million since December 31, 2009 to $337.5 million at June 30, 2010.  During the first half of 2010, we continued to allow high cost certificates of deposit to run off as total assets declined.  The increases in low cost savings, NOW and demand deposit and money market accounts during the first half of 2010 appear to reflect customer preference for the liquidity these types of deposits provide over the rates currently offered on longer term certificates of deposit.  We have, however, recently begun to offer aggressive rates on long term certificates of deposit to extend these deposits.

Total borrowings, net, decreased $64.8 million to $5.81 billion at June 30, 2010, from $5.88 billion at December 31, 2009.  During the latter half of the 2010 second quarter, we increased longer term borrowings to take advantage of the current rates on such borrowings in anticipation of borrowings scheduled to mature in the 2010 third quarter.

Stockholders’ equity increased $18.4 million to $1.23 billion at June 30, 2010, from $1.21 billion at December 31, 2009.  The increase in stockholders’ equity was due to net income of $28.5 million, the allocation of shares held by the employee stock ownership plan, or ESOP, of $5.5 million, a decrease in accumulated other comprehensive loss of $4.7 million and stock-based compensation of $3.9 million.  These increases were partially offset by dividends declared of $24.3 million.

Results of Operations

General

Net income for the three months ended June 30, 2010 increased $12.8 million to $15.5 million, from $2.7 million for the three months ended June 30, 2009.  Diluted earnings per common share increased to $0.17 per share for the three months ended June 30, 2010, from $0.03 per share for the three months ended June 30, 2009.  Return on average assets increased to 0.31% for the three months ended June 30, 2010, from 0.05% for the three months ended June 30, 2009.  Return on average stockholders’ equity increased to 5.09% for the three months ended June 30, 2010, from 0.90% for the three months ended June 30, 2009.  Return on average tangible stockholders’ equity, which represents average stockholders’ equity less average goodwill, increased to 6.01% for the three months ended June 30, 2010, from 1.06% for the three months ended June 30, 2009.

Net income for the six months ended June 30, 2010 increased $17.0 million to $28.5 million, from $11.5 million for the six months ended June 30, 2009.  Diluted earnings per common share increased to $0.30 per share for the six months ended June 30, 2010,  from $0.12 per share for the six months ended June 30, 2009.  Return on average assets increased to 0.28% for the six months ended June 30, 2010, from 0.11% for the six months ended June 30, 2009.  Return on average stockholders’ equity increased to 4.69% for the six months ended June 30, 2010, from 1.92% for the six months ended June 30, 2009.  Return on average tangible stockholders’ equity

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increased to 5.53% for the six months ended June 30, 2010, from 2.28% for the six months ended June 30, 2009.  The increases in the returns on average assets for the three and six months ended June 30, 2010, compared to the three and six months ended June 30, 2009, were primarily due to the increases in net income, coupled with the decreases in average assets.  The increases in the returns on average stockholders’ equity and average tangible stockholders’ equity for the three and six months ended June 30, 2010, compared to the three and six months ended June 30, 2009, were primarily due to the increases in net income.

Our results of operations for the three and six months ended June 30, 2010 include $6.2 million ($4.0 million, after tax) of non-interest income related to the Goodwill Litigation settlement, $7.9 million ($5.1 million, after tax) of non-interest expense related to the McAnaney Litigation settlement, and a $1.5 million ($981,000, after tax) charge against non-interest income related to an impairment write-down of premises and equipment.  For the three months ended June 30, 2010, these net charges reduced diluted earnings per common share by $0.02 per share, return on average assets by 4 basis points, return on average stockholders’ equity by 69 basis points and return on average tangible stockholders’ equity by 80 basis points.  For the six months ended June 30, 2010, these net charges reduced diluted earnings per common share by $0.02 per share, return on average assets by 2 basis points, return on average stockholders’ equity by 34 basis points and return on average tangible stockholders’ equity by 40 basis points.  For further discussion of the litigation settlements, see Note 12 and for further discussion of the impairment write-down of premises and equipment, see Note 5 of Notes to Consolidated Financial Statements in Item 1, “Financial Statements (Unaudited).”

Our results of operations for the three and six months ended June 30, 2009 include $9.9 million ($6.4 million, after-tax) of non-interest expense related to the FDIC special assessment and a $1.6 million ($1.0 million, after-tax) charge against non-interest income related to a lower of cost or market write-down of premises and equipment held-for-sale.  Our results of operations for the six months ended June 30, 2009 also include a $5.3 million ($3.4 million, after-tax) OTTI charge to write-off the remaining cost basis of our investment in two issues of Freddie Mac perpetual preferred securities.  For the three months ended June 30, 2009, these charges reduced diluted earnings per common share by $0.08 per share, return on average assets by 14 basis points, return on average stockholders’ equity by 248 basis points and return on average tangible stockholders’ equity by 293 basis points.  For the six months ended June 30, 2009, these charges reduced diluted earnings per common share by $0.12 per share, return on average assets by 10 basis points, return on average stockholders’ equity by 183 basis points and return on average tangible stockholders’ equity by 215 basis points.  For further discussion of the FDIC special assessment, see “Non-Interest Expense.”  For further discussion of the lower of cost or market write-down of premises and equipment held-for-sale, see Note 5 and for further discussion of the OTTI charge, see Note 2 of Notes to Consolidated Financial Statements in Item 1, “Financial Statements (Unaudited).”

Net Interest Income

Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends primarily upon the volume of interest-earning assets and interest-bearing liabilities and the corresponding interest rates earned or paid. Our net interest income is significantly impacted by changes in interest rates and market yield curves and their related impact on cash flows.  See Item 3, “Quantitative and Qualitative

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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, 2010, net interest income increased $2.8 million to $111.9 million, from $109.1 million for the three months ended June 30, 2009, and increased $5.6 million to $226.3 million for the six months ended June 30, 2010, from $220.7 million for the six months ended June 30, 2009.  The net interest margin increased to 2.37% for the three months ended June 30, 2010, from 2.16% for the three months ended June 30, 2009, and increased to 2.38% for the six months ended June 30, 2010, from 2.16% for the six months ended June 30, 2009.  The net interest rate spread increased to 2.30% for the three months ended June 30, 2010, from 2.07% for the three months ended June 30, 2009, and increased to 2.31% for the six months ended June 30, 2010, from 2.07% for the six months ended June 30, 2009.  The average balance of net interest-earning assets decreased $32.8 million to $603.6 million for the three months ended June 30, 2010, from $636.4 million for the three months ended June 30, 2009, and decreased $52.9 million to $577.3 million for the six months ended June 30, 2010, from $630.2 million for the six months ended June 30, 2009.

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, 2010, compared to the three and six months ended June 30, 2009, were primarily due to the costs of our interest-bearing liabilities declining more rapidly than the yields on our interest-earning assets.  Interest expense for the three and six months ended June 30, 2010 decreased, compared to the three and six months ended June 30, 2009, primarily due to decreases in the average costs of certificates of deposit and Liquid CDs, coupled with decreases in the average balances of certificates of deposit, borrowings and Liquid CDs.  Interest income for the three and six months ended June 30, 2010 decreased, compared to the three and six months ended June 30, 2009, primarily due to decreases in the average yields on one-to-four family mortgage loans and mortgage-backed and other securities, coupled with decreases in the average balances of multi-family, commercial real estate and construction loans, mortgage-backed and other securities and one-to-four family mortgage loans.

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, 2010 and 2009.  Average yields are derived by dividing income by the average balance of the related assets and average costs are derived by dividing expense by the average balance of the related liabilities, for the periods shown.  Average balances are derived from average daily balances.  The yields and costs include amortization of fees, costs, premiums and discounts which are considered adjustments to interest rates.

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	For the Three Months Ended June 30,
	2010								2009
(Dollars in Thousands)	Average Balance			Interest		Average Yield/ Cost			Average Balance			Interest		Average Yield/ Cost
						(Annualized)								(Annualized)
Assets:
Interest-earning assets:
Mortgage loans (1):
One-to-four family	$	11,891,353		$	136,750		4.60	%	$	12,143,060		$	154,547		5.09	%
Multi-family, commercial real estate and construction		3,332,007			49,598		5.95			3,745,255			55,978		5.98
Consumer and other loans (1)		328,613			2,668		3.25			337,085			2,657		3.15
Total loans		15,551,973			189,016		4.86			16,225,400			213,182		5.26
Mortgage-backed and other securities (2)		3,003,555			29,636		3.95			3,389,962			37,223		4.39
Repurchase agreements and interest- earning cash accounts		127,810			54		0.17			373,430			215		0.23
FHLB-NY stock		174,339			1,921		4.41			178,107			2,677		6.01
Total interest-earning assets		18,857,677			220,627		4.68			20,166,899			253,297		5.02
Goodwill		185,151								185,151
Other non-interest-earning assets		852,970								864,792
Total assets	$	19,895,798							$	21,216,842
Liabilities and stockholders’ equity:
Interest-bearing liabilities:
Savings	$	2,150,272			2,167		0.40		$	1,927,125			1,945		0.40
Money market		337,851			374		0.44			317,167			607		0.77
NOW and demand deposit		1,684,022			271		0.06			1,550,791			269		0.07
Liquid CDs		622,381			769		0.49			943,623			2,956		1.25
Total core deposits		4,794,526			3,581		0.30			4,738,706			5,777		0.49
Certificates of deposit		7,732,442			45,915		2.38			8,822,247			76,184		3.45
Total deposits		12,526,968			49,496		1.58			13,560,953			81,961		2.42
Borrowings		5,727,065			59,182		4.13			5,969,501			62,282		4.17
Total interest-bearing liabilities		18,254,033			108,678		2.38			19,530,454			144,243		2.95
Non-interest-bearing liabilities		421,163								485,819
Total liabilities		18,675,196								20,016,273
Stockholders’ equity		1,220,602								1,200,569
Total liabilities and stockholders’ equity	$	19,895,798							$	21,216,842
Net interest income/net interest  rate spread (3)				$	111,949		2.30	%				$	109,054		2.07	%
Net interest-earning assets/net  interest margin (4)	$	603,644					2.37	%	$	636,445					2.16	%
Ratio of interest-earning assets to  interest-bearing liabilities		1.03	x							1.03	x

(1) Mortgage loans and consumer and other loans include loans held-for-sale and non-performing loans and exclude the allowance for loan losses.

(2) Securities available-for-sale are included at average amortized cost.

(3) Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities.

(4) Net interest margin represents net interest income divided by average interest-earning assets.

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	For the Six Months Ended June 30,
	2010								2009
(Dollars in Thousands)	Average Balance			Interest		Average Yield/ Cost			Average Balance			Interest		Average Yield/ Cost
						(Annualized)								(Annualized)
Assets:
Interest-earning assets:
Mortgage loans (1):
One-to-four family	$	11,947,176		$	277,704		4.65	%	$	12,257,408		$	317,487		5.18	%
Multi-family, commercial real estate and construction		3,379,096			100,723		5.96			3,803,712			112,592		5.92
Consumer and other loans (1)		330,474			5,319		3.22			338,727			5,335		3.15
Total loans		15,656,746			383,746		4.90			16,399,847			435,414		5.31
Mortgage-backed and other securities (2)		3,071,338			60,983		3.97			3,635,847			80,327		4.42
Repurchase agreements and interest- earning cash accounts		104,714			69		0.13			233,408			231		0.20
FHLB-NY stock		178,784			4,417		4.94			185,954			4,363		4.69
Total interest-earning assets		19,011,582			449,215		4.73			20,455,056			520,335		5.09
Goodwill		185,151								185,151
Other non-interest-earning assets		874,848								827,412
Total assets	$	20,071,581							$	21,467,619
Liabilities and stockholders’ equity:
Interest-bearing liabilities:
Savings	$	2,110,242			4,232		0.40		$	1,888,572			3,792		0.40
Money market		333,447			732		0.44			306,082			1,286		0.84
NOW and demand deposit		1,650,178			528		0.06			1,510,098			547		0.07
Liquid CDs		647,369			1,592		0.49			961,573			7,933		1.65
Total core deposits		4,741,236			7,084		0.30			4,666,325			13,558		0.58
Certificates of deposit		7,858,888			95,954		2.44			8,910,252			159,163		3.57
Total deposits		12,600,124			103,038		1.64			13,576,577			172,721		2.54
Borrowings		5,834,163			119,876		4.11			6,248,305			126,883		4.06
Total interest-bearing liabilities		18,434,287			222,914		2.42			19,824,882			299,604		3.02
Non-interest-bearing liabilities		421,905								448,195
Total liabilities		18,856,192								20,273,077
Stockholders’ equity		1,215,389								1,194,542
Total liabilities and stockholders’ equity	$	20,071,581							$	21,467,619
Net interest income/net interest  rate spread (3)				$	226,301		2.31	%				$	220,731		2.07	%
Net interest-earning assets/net  interest margin (4)	$	577,295					2.38	%	$	630,174					2.16	%
Ratio of interest-earning assets to  interest-bearing liabilities		1.03	x							1.03	x

(1) Mortgage loans and consumer and other loans include loans held-for-sale and non-performing loans and exclude the allowance for loan losses.

(2) Securities available-for-sale are included at average amortized cost.

(3) Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities.

(4) Net interest margin represents net interest income divided by average interest-earning assets.

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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, 2010 Compared to Three Months Ended June 30, 2009									Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009
	Increase (Decrease)									Increase (Decrease)
(In Thousands)	Volume			Rate			Net			Volume			Rate			Net
Interest-earning assets:
Mortgage loans:
One-to-four family	$	(3,153	)	$	(14,644	)	$	(17,797	)	$	(7,889	)	$	(31,894	)	$	(39,783	)
Multi-family, commercial real estate and construction		(6,102	)		(278	)		(6,380	)		(12,627	)		758			(11,869	)
Consumer and other loans		(70	)		81			11			(133	)		117			(16	)
Mortgage-backed and other securities		(4,037	)		(3,550	)		(7,587	)		(11,683	)		(7,661	)		(19,344	)
Repurchase agreements and interest-earning cash accounts		(115	)		(46	)		(161	)		(99	)		(63	)		(162	)
FHLB-NY stock		(56	)		(700	)		(756	)		(172	)		226			54
Total		(13,533	)		(19,137	)		(32,670	)		(32,603	)		(38,517	)		(71,120	)
Interest-bearing liabilities:
Savings		222			-			222			440			-			440
Money market		39			(272	)		(233	)		106			(660	)		(554	)
NOW and demand deposit		30			(28	)		2			52			(71	)		(19	)
Liquid CDs		(785	)		(1,402	)		(2,187	)		(2,012	)		(4,329	)		(6,341	)
Certificates of deposit		(8,622	)		(21,647	)		(30,269	)		(17,165	)		(46,044	)		(63,209	)
Borrowings		(2,508	)		(592	)		(3,100	)		(8,544	)		1,537			(7,007	)
Total		(11,624	)		(23,941	)		(35,565	)		(27,123	)		(49,567	)		(76,690	)
Net change in net interest income	$	(1,909	)	$	4,804		$	2,895		$	(5,480	)	$	11,050		$	5,570

Interest Income

Interest income decreased $32.7 million to $220.6 million for the three months ended June 30, 2010, from $253.3 million for the three months ended June 30, 2009, due to a decrease in the average yield on interest-earning assets to 4.68% for the three months ended June 30, 2010, from 5.02% for the three months ended June 30, 2009, coupled with a decrease of $1.31 billion in the average balance of interest-earning assets to $18.86 billion for the three months ended June 30, 2010, from $20.17 billion for the three months ended June 30, 2009.  The decrease in the average yield on interest-earning assets was primarily due to decreases in the average yields on one-to-four family mortgage loans and mortgage-backed and other securities.  The decrease in the average balance of interest-earning assets was primarily due to decreases in the average balances of multi-family, commercial real estate and construction loans, mortgage-backed and other securities and one-to-four family mortgage loans.

Interest income on one-to-four family mortgage loans decreased $17.7 million to $136.8 million for the three months ended June 30, 2010, from $154.5 million for the three months ended June 30, 2009, due to a decrease in the average yield to 4.60% for the three months ended June 30, 2010, from 5.09% for the three months ended June 30, 2009, coupled with a decrease of $251.7

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million in the average balance of such loans.  The decrease in the average yield was primarily due to new originations at lower interest rates than the rates on loans repaid over the past year, the impact of the downward repricing of our ARM loans and the increase in non-performing loans.  The decrease in the average balance of one-to-four family mortgage loans was primarily due to the levels of repayments over the past year which have outpaced the levels of originations and purchases.  The lower interest rates and decrease in the average balance are attributable to the U.S. government subsidizing the residential mortgage market with programs designed to keep the interest rate for thirty year fixed rate conforming mortgage loans below normal market rate levels, coupled with expanded conforming loan limits.  Net premium amortization on one-to-four family mortgage loans decreased $466,000 to $7.6 million for the three months ended June 30, 2010, from $8.0 million for the three months ended June 30, 2009.

Interest income on multi-family, commercial real estate and construction loans decreased $6.4 million to $49.6 million for the three months ended June 30, 2010, from $56.0 million for the three months ended June 30, 2009, due to a decrease of $413.2 million in the average balance of such loans, coupled with a decrease in the average yield to 5.95% for the three months ended June 30, 2010, from 5.98% for the three months ended June 30, 2009.  The decrease in the average balance of multi-family, commercial real estate and construction loans reflects our decision to only selectively pursue such loans in the current economic environment.  The decrease in the average yield on multi-family, commercial real estate and construction loans reflects a decrease in prepayment penalties, partially offset by a decrease in non-performing loans for the 2010 second quarter compared to the 2009 second quarter and the upward repricing of our ARM loans.  Multi-family and commercial real estate loans are tied to a higher index than one-to-four family mortgage loans and in some cases has resulted in those mortgages repricing higher than their initial rate.  Prepayment penalties decreased $407,000 to $660,000 for the three months ended June 30, 2010, from $1.1 million for the three months ended June 30, 2009.

Interest income on mortgage-backed and other securities decreased $7.6 million to $29.6 million for the three months ended June 30, 2010, from $37.2 million for the three months ended June 30, 2009.  This decrease was due to a decrease of $386.4 million in the average balance of the portfolio, coupled with a decrease in the average yield to 3.95% for the three months ended June 30, 2010, from 4.39% for the three months ended June 30, 2009.  The decrease in the average balance of mortgage-backed and other securities was the result of repayments, calls and sales exceeding securities purchased over the past year.  The decrease in the average yield was primarily due to elevated repayment levels of higher yielding securities and purchases of new securities with lower coupons in the prevailing lower interest rate environment than the weighted average coupon for the portfolio.  

Dividend income on FHLB-NY stock decreased $756,000 to $1.9 million for the three months ended June 30, 2010, from $2.7 million for the three months ended June 30, 2009, primarily due to a decrease in the average yield to 4.41% for the three months ended June 30, 2010, from 6.01% for the three months ended June 30, 2009.  The decrease in the average yield on FHLB-NY stock was the result of a decrease in the dividend rate paid by the FHLB-NY during the three months ended June 30, 2010, compared to the three months ended June 30, 2009.  

Interest income decreased $71.1 million to $449.2 million for the six months ended June 30, 2010, from $520.3 million for the six months ended June 30, 2009, due to a decrease in the average yield on interest-earning assets to 4.73% for the six months ended June 30, 2010, from 5.09% for the six months ended June 30, 2009, coupled with a decrease of $1.45 billion in the

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average balance of interest-earning assets to $19.01 billion for the six months ended June 30, 2010, from $20.46 billion for the six months ended June 30, 2009.

Interest income on one-to-four family mortgage loans decreased $39.8 million to $277.7 million for the six months ended June 30, 2010, from $317.5 million for the six months ended June 30, 2009, due to a decrease in the average yield to 4.65% for the six months ended June 30, 2010, from 5.18% for the six months ended June 30, 2009, coupled with a decrease of $310.2 million in the average balance of such loans.  The decrease in the average yield was primarily due to new originations at lower interest rates than the rates on loans repaid over the past year, the impact of the downward repricing of our ARM loans, the increase in non-performing loans and an increase in loan premium amortization.  Net premium amortization on one-to-four family mortgage loans increased $2.1 million to $15.4 million for the six months ended June 30, 2010, from $13.3 million for the six months ended June 30, 2009.  This increase reflects the increase in mortgage loan prepayments for the six months ended June 30, 2010, compared to the six months ended June 30, 2009.

Interest income on multi-family, commercial real estate and construction loans decreased $11.9 million to $100.7 million for the six months ended June 30, 2010, from $112.6 million for the six months ended June 30, 2009, due to a decrease of $424.6 million in the average balance of such loans, slightly offset by an increase in the average yield to 5.96% for the six months ended June 30, 2010, from 5.92% for the six months ended June 30, 2009.  The increase in the average yield on multi-family, commercial real estate and construction loans reflects a decrease in non-performing loans for the first half of 2010 compared to the first half of 2009 and the upward repricing of our ARM loans, partially offset by a decrease in prepayment penalties.  Prepayment penalties decreased $343,000 to $1.2 million for the six months ended June 30, 2010, from $1.6 million for the six months ended June 30, 2009.

Interest income on mortgage-backed and other securities decreased $19.3 million to $61.0 million for the six months ended June 30, 2010, from $80.3 million for the six months ended June 30, 2009.  This decrease was the result of a decrease of $564.5 million in the average balance of the portfolio, coupled with a decrease in the average yield to 3.97% for the six months ended June 30, 2010, from 4.42% for the six months ended June 30, 2009.

Except as otherwise noted, 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, 2010 are consistent with the principal reasons for the changes noted for the three months ended June 30, 2010.

Interest Expense

Interest expense decreased $35.5 million to $108.7 million for the three months ended June 30, 2010, from $144.2 million for the three months ended June 30, 2009, due to a decrease in the average cost of interest-bearing liabilities to 2.38% for the three months ended June 30, 2010, from 2.95% for the three months ended June 30, 2009, coupled with a decrease of $1.28 billion in the average balance of interest-bearing liabilities to $18.25 billion for the three months ended June 30, 2010, from $19.53 billion for the three months ended June 30, 2009.  The decrease in the average cost of interest-bearing liabilities was primarily due to decreases in the average costs of certificates of deposit and Liquid CDs.  The decrease in the average balance of interest-

45

bearing liabilities was primarily due to decreases in the average balances of certificates of deposit, borrowings and Liquid CDs.

Interest expense on deposits decreased $32.5 million to $49.5 million for the three months ended June 30, 2010, from $82.0 million for the three months ended June 30, 2009, due to a decrease in the average cost to 1.58% for the three months ended June 30, 2010, from 2.42% for the three months ended June 30, 2009, coupled with a decrease of $1.03 billion in the average balance of total deposits to $12.53 billion for the three months ended June 30, 2010, from $13.56 billion for the three months ended June 30, 2009.  The decrease in the average cost of total deposits was primarily due to the impact of the decline in short-term interest rates during 2009 on our certificates of deposit and Liquid CDs which matured and were replaced at lower interest rates.  The decrease in the average balance of total deposits was primarily due to decreases in the average balances of certificates of deposit and Liquid CDs, partially offset by increases in the average balances of savings, NOW and demand deposit and money market accounts.

Interest expense on certificates of deposit decreased $30.3 million to $45.9 million for the three months ended June 30, 2010, from $76.2 million for the three months ended June 30, 2009, due to a decrease in the average cost to 2.38% for the three months ended June 30, 2010, from 3.45% for the three months ended June 30, 2009, coupled with a decrease of $1.09 billion in the average balance.  The decrease in the average cost of certificates of deposit reflects the impact of certificates of deposit at higher rates maturing and being replaced at lower interest rates.  The decrease in the average balance of certificates of deposit was primarily the result of our reduced focus on certificates of deposit since the second half of 2009 in response to the acceleration of mortgage loan and securities repayments.  During the three months ended June 30, 2010, $1.49 billion of certificates of deposit, with a weighted average rate of 2.04% and a weighted average maturity at inception of twelve months, matured and $929.0 million of certificates of deposit were issued or repriced, with a weighted average rate of 1.05% and a weighted average maturity at inception of seventeen months.

Interest expense on Liquid CDs decreased $2.2 million to $769,000 for the three months ended June 30, 2010, from $3.0 million for the three months ended June 30, 2009, due to a decrease in the average cost to 0.49% for the three months ended June 30, 2010, from 1.25% for the three months ended June 30, 2009, coupled with a decrease of $321.2 million in the average balance.  The decrease in the average cost of Liquid CDs reflects the decline in short-term interest rates during 2009.  The decrease in the average balance of Liquid CDs was primarily a result of our decision to maintain our pricing discipline as short-term interest rates declined.

Interest expense on borrowings decreased $3.1 million to $59.2 million for the three months ended June 30, 2010, from $62.3 million for the three months ended June 30, 2009, due to a decrease of $242.4 million in the average balance, coupled with a decrease in the average cost to 4.13% for the three months ended June 30, 2010, from 4.17% for the three months ended June 30, 2009.  The decrease in the average balance of borrowings was the result of cash flows from mortgage loan and securities repayments exceeding mortgage loan originations and purchases and securities purchases which enabled us to repay a portion of our matured borrowings.

Interest expense decreased $76.7 million to $222.9 million for the six months ended June 30, 2010, from $299.6 million for the six months ended June 30, 2009,  due to a decrease in the average cost of interest-bearing liabilities to 2.42% for the six months ended June 30, 2010, from 3.02% for the six months ended June 30, 2009, coupled with a decrease of $1.39 billion in the

46

average balance of interest-bearing liabilities to $18.43 billion for the six months ended June 30, 2010, from $19.82 billion for the six months ended June 30, 2009.

Interest expense on deposits decreased $69.7 million to $103.0 million for the six months ended June 30, 2010, from $172.7 million for the six months ended June 30, 2009, due to a decrease in the average cost to 1.64% for the six months ended June 30, 2010, from 2.54% for the six months ended June 30, 2009, coupled with a decrease of $976.5 million in the average balance of total deposits to $12.60 billion for the six months ended June 30, 2010, from $13.58 billion for the six months ended June 30, 2009.

Interest expense on certificates of deposit decreased $63.2 million to $96.0 million for the six months ended June 30, 2010, from $159.2 million for the six months ended June 30, 2009, due to a decrease in the average cost to 2.44% for the six months ended June 30, 2010, from 3.57% for the six months ended June 30, 2009, coupled with a decrease of $1.05 billion in the average balance.  During the six months ended June 30, 2010, $3.97 billion of certificates of deposit, with a weighted average rate of 2.58% and a weighted average maturity at inception of thirteen months, matured and $3.22 billion of certificates of deposit were issued or repriced, with a weighted average rate of 1.47% and a weighted average maturity at inception of eighteen months.

Interest expense on Liquid CDs decreased $6.3 million to $1.6 million for the six months ended June 30, 2010, from $7.9 million for the six months ended June 30, 2009, due to a decrease in the average cost to 0.49% for the six months ended June 30, 2010, from 1.65% for the six months ended June 30, 2009, coupled with a decrease of $314.2 million in the average balance.

Interest expense on borrowings decreased $7.0 million to $119.9 million for the six months ended June 30, 2010, from $126.9 million for the six months ended June 30, 2009, due to a decrease of $414.1 million in the average balance, partially offset by an increase in the average cost to 4.11% for the six months ended June 30, 2010, from 4.06% for the six months ended June 30, 2009.  The increase in the average cost of borrowings reflects the upward repricing of long term variable rate borrowings which reset into higher fixed rates during the 2009 second quarter.  

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, 2010 are consistent with the principal reasons for the changes noted for the three months ended June 30, 2010.

Provision for Loan Losses

We review our allowance for loan losses on a quarterly basis.  Material factors considered during our quarterly review are our loss experience, the composition and direction of loan delinquencies and the impact of current economic conditions.  We continue to closely monitor the local and national real estate markets and other factors related to risks inherent in our loan portfolio.  As a geographically diversified residential lender, we have been affected by negative consequences arising from the economic recession that continued throughout most of 2009 and, in particular, a sharp downturn in the housing industry nationally, as well as economic and housing industry weaknesses in the New York metropolitan area.  We are particularly vulnerable to a job loss recession and although the national economy continued to show signs of improvement during the

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first half of 2010, the pace of the recovery appears to have moderated during the 2010 second quarter.  

The allowance for loan losses was $211.0 million at June 30, 2010, $210.7 million at March 31, 2010 and $194.0 million at December 31, 2009.  The allowance for loan losses reflects the levels 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 overall economy, particularly the unemployment rate.  The provision for loan losses decreased $15.0 million to $35.0 million for the three months ended June 30, 2010, from $50.0 million for the three months ended June 30, 2009, and decreased $20.0 million to $80.0 million for the six months ended June 30, 2010, from $100.0 million for the six months ended June 30, 2009.  The decreases in the provision for loan losses reflect the continuing stabilizing trend in overall asset quality.  The allowance for loan losses as a percentage of total loans increased to 1.37% at June 30, 2010, from 1.23% at December 31, 2009, primarily due to the increase in the allowance for loan losses, coupled with a decrease in total loans.  The allowance for loan losses as a percentage of non-performing loans increased to 50.83% at June 30, 2010, from 50.29% at March 31, 2010 and 47.49% at December 31, 2009, primarily due to the increase in the allowance for loan losses, partially offset by the slight increase in non-performing loans.  Non-performing loans totaled $415.1 million at June 30, 2010, $419.1 million at March 31, 2010 and $408.6 million at December 31, 2009.  The changes in non-performing loans during any period are taken into account when determining the allowance for loan losses because the allowance coverage percentages we apply to our non-performing loans are higher than the allowance coverage percentages applied to our performing loans.

When analyzing our asset quality trends, consideration must be given to our accounting for non-performing loans, particularly when reviewing our allowance for loan losses to non-performing loans ratio.  Included in our non-performing loans are one-to-four family mortgage loans which are 180 days or more past due.  Our primary federal banking regulator, the OTS, requires us to update our collateral values on one-to-four family mortgage loans which are 180 days past due.  If the estimated fair value of the loan collateral less estimated selling costs is less than the recorded investment in the loan, a charge-off of the difference is recorded to reduce the loan to its fair value less estimated selling costs.  Therefore certain losses inherent in our non-performing one-to-four family mortgageloans are being recognized at 180 days of delinquency and annually thereafter and accordingly are charged off.  The impact of updating these estimates of collateral value and recognizing any required charge-offs is to increase charge-offs and reduce the allowance for loan losses required on these loans.  In effect, these loans have been written down to their fair value less estimated selling costs and the inherent loss has been recognized.  Therefore, when reviewing the allowance for loan losses as a percentage of non-performing loans, the impact of these charge-offs should be considered.  At June 30, 2010, non-performing loans included one-to-four family mortgageloans which were 180 days or more past due totaling $245.4 million, net of the charge-offs related to such loans, which had a related allowance for loan losses totaling $6.8 million.Excluding one-to-four family mortgageloans which were 180 days or more past due at June 30, 2010 and their related allowance, our ratio of the allowance for loan losses to non-performing loans would be approximately 120%.The slight increase in the allowance for loan losses as a percentage of non-performing loans as well as the allowance for loan losses as a percentage of total loans at June 30, 2010 compared to December 31, 2009 reflects the continued challenges in the economy and high unemployment levels as well as the continued elevated levels of non-performing loans and net loan charge-offs.

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As previously discussed, we use ratio analyses as a supplemental tool for evaluating the overall reasonableness of the allowance for loan losses.  The adequacy of the allowance for loan losses is ultimately determined by the actual losses and charges recognized in the portfolio.  We update our loss analyses quarterly to ensure that our allowancecoverage percentages are adequate and the overall allowance for loan losses is our best estimate of loss as of a particular point in time.Our analysis of loss severity during the 2010 second quarter, defined as the ratio of net write-downs taken through disposition of the asset (typically the sale of REO) to the loan’s original principal balance on one-to-four family mortgage loans during the twelve months ended March 31, 2010, indicated an average loss severity of approximately 27% compared to approximately 28% for the twelve months ended December 31, 2009.  This analysis primarily reviewed one-to-four family REO sales which occurred during the twelve months ended March 31, 2010 and included both full documentation and reduced documentation loans in a variety of states with varying years of origination.  An analysis of charge-offs on multi-family, commercial real estate and construction loans, primarily related to loan sales, during the twelve months ended March 31, 2010, indicated an average loss severity of approximately40% compared to approximately 41% for the twelve months ended December 31, 2009.  We consider our average loss severity experience as a gauge in evaluating the overall adequacy of our allowance for loan losses. However, the uniqueness of each multi-family, commercial real estate and construction loan, particularly multi-family loans within New York City, many of which are rent stabilized, is also factored into our analyses.  We also obtain updated estimates of collateral value on our non-performing multi-family, commercial real estate and construction loans in excess of $1.0 million.  We believe that using the loss experience of the past year (twelve months prior to the quarterly analysis)is reflective of the current economic and real estate environment.The ratio of the allowance for loan losses to non-performing loans was approximately 51% at June 30, 2010,which exceeds our average loss severity experience for our mortgage loan portfolios, indicating that our allowance for loan losses should be adequate to cover potential losses.  

Net loan charge-offs totaled $34.7 million, or eighty-nine basis points of average loans outstanding, annualized, for the three months ended June 30, 2010 and $63.1 million, or eighty-one basis points of average loans outstanding, annualized, for the six months ended June 30, 2010.  This compares to net loan charge-offs of $38.9 million, or ninety-six basis points of average loans outstanding, annualized, for the three months ended June 30, 2009 and $58.8 million, or seventy-two basis points of average loans outstanding, annualized, for the six months ended June 30, 2009.  The decrease in net loan charge-offs for the three months ended June 30, 2010, compared to the three months ended June 30, 2009, was primarily due to a decrease in multi-family, commercial real estate and construction loan net charge-offs.  The increase in net loan charge-offs for the six months ended June 30, 2010, compared to the six months ended June 30, 2009, was primarily due to an increase in one-to-four family loan charge-offs during the 2010 first quarter on loans 180 days or more past due.  Our non-performing loans, which are comprised primarily of mortgage loans, increased $6.5 million to $415.1 million, or 2.70% of total loans, at June 30, 2010, from $408.6 million, or 2.59% of total loans, at December 31, 2009.  This increase was primarily due to an increase of $20.6 million in non-performing one-to-four family mortgage loans, partially offset by a decrease of $14.5 million in non-performing multi-family, commercial real estate and construction loans.  We proactively manage our non-performing assets, in part, through the sale of certain delinquent and non-performing loans.  If the sale and reclassification to held-for-sale of certain delinquent and non-performing mortgage loans, primarily multi-family and commercial real estate loans, during the six months ended June 30, 2010 had not occurred, the increase in non-performing loans would have been $57.3 million

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greater, which amount is gross of $22.9 million in net charge-offs and lower of cost or market write-downs taken on such loans.

We continue to adhere to prudent underwriting standards.  We underwrite our one-to-four family mortgage loans primarily based upon our evaluation of the borrower’s ability to pay.  We obtain updated estimates of collateral value for non-performing multi-family, commercial real estate and construction loans with balances in excess of $1.0 million or for other classified loans when requested by our Asset Classification Committee, or, in the case of one-to-four family mortgage loans, when such loans are 180 days delinquent and annually thereafter.  We monitor property value trends in our market areas to determine what impact, if any, such trends may have on our loan-to-value ratios and the adequacy of the allowance for loan losses.

During the 2010 first quarter, total delinquencies decreased reflecting a decrease in 30-89 day delinquent loans, partially offset by an increase in non-performing loans.  The unemployment rate decreased slightly to 9.7% for March 2010 and there were nominal job gains for the quarter totaling 162,000 at the time of our analysis.  Net loan charge-offs also decreased for the 2010 first quarter compared to the 2009 fourth quarter.  We continued to update our charge-off and loss analysis during the 2010 first quarter and modified our allowance coverage percentages accordingly.  The combination of these factors, as well as our evaluation of the continued weakness in the housing and real estate markets and overall economy, resulted in an increase in our allowance for loan losses to $210.7 million at March 31, 2010 and a provision for loan losses of $45.0 million for the 2010 first quarter.  During the 2010 second quarter, total delinquencies increased primarily due to an increase in 30-59 day delinquent loans, primarily attributable to two borrowing relationships totaling $33.1 million at June 30, 2010 for which the June loan payments were received shortly after June 30, 2010, partially offset by decreases in 60-89 day delinquent loans and non-performing loans.  The unemployment rate decreased further to 9.5% and there were job gains for the quarter totaling 621,000 at the time of our analysis.  Net loan charge-offs increased for the 2010 second quarter compared to the 2010 first quarter, primarily due to an increase in non-performing loans sold or reclassified to held-for-sale and their related charge-offs during the 2010 second quarter.  We continued to update our charge-off and loss analysis during the 2010 second quarter and modified our allowance coverage percentages accordingly.  As a result of these factors, our allowance for loan losses remained flat compared to March 31, 2010 and totaled $211.0 million at June 30, 2010 which resulted in a provision for loan losses totaling $35.0 million for the three months ended June 30, 2010 and $80.0 million for the six months ended June 30, 2010.

There are no material assumptions relied on by management which have not been made apparent in our disclosures or reflected in our asset quality ratios and activity in the allowance for loan losses.  We believe our allowance for loan losses has been established and maintained at levels that reflect the risks inherent in our loan portfolio, giving consideration to the composition and size of our loan portfolio, delinquencies, charge-off experience, non-accrual and non-performing loans and the current economic environment.  The balance of our allowance for loan losses represents management’s best estimate of the probable inherent losses in our loan portfolio at June 30, 2010 and December 31, 2009.

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.”

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Non-Interest Income

Non-interest income increased $2.8 million to $23.2 million for the three months ended June 30, 2010, from $20.4 million for the three months ended June 30, 2009, primarily due to an increase in other non-interest income, partially offset by decreases in mortgage banking income, net, and customer service fees.  For the six months ended June 30, 2010, non-interest income increased $5.5 million to $41.9 million, from $36.4 million for the six months ended June 30, 2009, primarily due to an increase in other non-interest income and a $5.3 million OTTI charge recorded in the 2009 first quarter, partially offset by a decrease in customer service fees, a gain on sales of securities recorded in the 2009 first quarter and a decrease in mortgage banking income, net.

Other non-interest income increased $6.6 million to $6.0 million for the three months ended June 30, 2010, from a loss of $600,000 for the three months ended June 30, 2009, and increased $6.8 million to $7.1 million for the six months ended June 30, 2010, from $277,000 for the six months ended June 30, 2009.  These increases were primarily due to the Goodwill Litigation settlement payment we received in the 2010 second quarter of $6.2 million and losses recognized for the three and six months ended June 30, 2009 in a trust account previously established for certain former directors.  For further information regarding the settlement of the Goodwill Litigation, see Part II, Item 1, “Legal Proceedings.”   In addition, other non-interest income includes asset impairment charges totaling $1.5 million for the three and six months ended June 30, 2010 and $1.6 million for the three and six months ended June 30, 2009 related to an office building previously held-for-sale included in premises and equipment, net.

Mortgage banking income, net, which includes loan servicing fees, net gain on sales of loans, amortization of MSR and valuation allowance adjustments for the impairment of MSR, decreased $2.8 million to $600,000 for the three months ended June 30, 2010, from $3.4 million for the three months ended June 30, 2009, and decreased $1.7 million to $2.2 million for the six months ended June 30, 2010, from $3.9 million for the six months ended June 30, 2009.  These decreases were primarily due to changes in the valuation allowance adjustments for the impairment of MSR and net gains on sales of loans.  We recorded a provision of $202,000 in the valuation allowance for the impairment of MSR for the three months ended June 30, 2010, compared to a recovery of $1.4 million for the three months ended June 30, 2009, and a recovery of $130,000 for the six months ended June 30, 2010, compared to a recovery of $1.6 million for the six months ended June 30, 2009.  The recoveries recorded in the valuation allowance for the impairment of MSR for the three and six months ended June 30, 2009 reflected an improvement in market conditions during 2009 from that which existed in the 2008 fourth quarter when a lack of market demand for MSR due to the turmoil in the credit markets at that time negatively impacted the pricing of loan servicing.  The decreases in net gain on sales of loans reflect decreases in the volume of loans sold and less favorable pricing opportunities during the three and six months ended June 30, 2010, compared to the three and six months ended June 30, 2009.  We generally sell our fifteen and thirty year conforming fixed rate one-to-four family mortgage loan production.  The expanded conforming loans limits and historic low interest rates on thirty year mortgages resulted in increased consumer demand for these fixed rate products during 2009 resulting in higher levels of loans sold.  However, the interest rate on thirty year conforming fixed rate mortgage loans remained above 5.00% for most of the first half of 2010 resulting in a reduction in the levels of originations and sales of such loans during the 2010 second quarter.

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Customer service fees decreased $868,000 to $13.4 million for the three months ended June 30, 2010, from $14.2 million for the three months ended June 30, 2009, and decreased $2.4 million to $26.7 million for the six months ended June 30, 2010, from $29.1 million for the six months ended June 30, 2009.  These decreases were primarily due to decreases in commissions on sales of annuities and insufficient fund fees related to transaction accounts.

There were no sales of securities from the available-for-sale portfolio during the three and six months ended June 30, 2010.  During the six months ended June 30, 2009, we sold mortgage-backed securities from the available-for-sale portfolio with an amortized cost of $89.3 million resulting in gross realized gains totaling $2.1 million.

Non-Interest Expense

Non-interest expense totaled $75.8 million for the three months ended June 30, 2010, compared to $76.0 million for the three months ended June 30, 2009.  The $9.9 million FDIC special assessment recorded in the 2009 second quarter was substantially offset by the increase in other non-interest expense resulting from the settlement of the McAnaney Litigation in which we agreed to pay $7.9 million which was recorded in the 2010 second quarter and an increase in compensation and benefits expense.  For further information regarding the settlement of the McAnaney Litigation, see Part II, Item 1, “Legal Proceedings.”  Non-interest expense increased $4.1 million to $144.1 million for the six months ended June 30, 2010, from $140.0 million for the six months ended June 30, 2009, primarily due to an increase in other non-interest expense resulting from the McAnaney Litigation settlement and increases in compensation and benefits expense and FDIC insurance premiums, partially offset by the absence of the FDIC special assessment. Included in other non-interest expense is REO related expense which totaled $2.0 million for the three months ended June 30, 2010, compared to $2.2 million for the three months ended June 30, 2009, and $3.7 million for the six months ended June 30, 2010, compared to $4.2 million for the six months ended June 30, 2009.  Our percentage of general and administrative expense to average assets, annualized, increased to 1.52% for the three months ended June 30, 2010, from 1.43% for the three months ended June 30, 2009, and increased to 1.44% for the six months ended June 30, 2010, from 1.30% for the six months ended June 30, 2009.  The increases in these ratios were primarily due to the decreases in average assets for the three and six months ended June 30, 2010, compared to the three and six months ended June 30, 2009.

Compensation and benefits expense increased $1.2 million to $34.6 million for the three months ended June 30, 2010, from $33.4 million for the three months ended June 30, 2009 and $2.5 million to $69.9 million for the six months ended June 30, 2010, from $67.4 million for the six months ended June 30, 2009, primarily due to increases in stock-based compensation costs, officer incentive accruals, salaries and ESOP related expense, partially offset by decreases in the net periodic cost of pension and other postretirement benefits.  The decreases in the net periodic cost of pension and other postretirement benefits primarily reflect the decreases in the amortization of the net actuarial loss and the increases in the expected return on plan assets.

FDIC insurance premiums increased $2.4 million to $13.2 million for the six months ended June 30, 2010, from $10.8 million for the six months ended June 30, 2009, reflecting the increases in our assessment rates during 2009 resulting from the FDIC restoration plan to increase the Deposit Insurance Fund, or DIF.  In addition, during the 2009 first quarter we utilized the remaining balance of our FDIC One-Time Assessment Credit to offset a portion of our deposit insurance assessment.  The restoration plan included an increase in assessment rates for the 2009

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first quarter with an additional increase beginning in the 2009 second quarter.  In addition, an emergency special assessment of five basis points on each FDIC-insured depository institution’s assets minus its Tier 1 capital, as of June 30, 2009, was imposed.  The special assessment increased our ratio of general and administrative expense to average assets by eighteen basis points for the three months ended June 30, 2009 and by nine basis points for the six months ended June 30, 2009.

Income Tax Expense

For the three months ended June 30, 2010, income tax expense totaled $8.7 million, representing an effective tax rate of 36.0%, compared to $763,000 for the three months ended June 30, 2009, representing an effective tax rate of 22.0%.  The increase in the effective tax rate for the three months ended June 30, 2010, compared to the three months ended June 30, 2009, reflects a significant increase in pre-tax book income without any significant changes in net favorable permanent differences.  For the six months ended June 30, 2010, income tax expense totaled $15.6 million, representing an effective tax rate of 35.4%, compared to $5.6 million for the six months ended June 30, 2009, representing an effective tax rate of 32.9%.

Asset Quality

One of our key operating objectives has been and continues to be to maintain a high level of asset quality.  We continue to employ sound underwriting standards for new loan originations.  Through a variety of strategies, including, but not limited to, collection efforts and the marketing of delinquent and non-performing loans and foreclosed properties, we have been proactive in addressing problem and non-performing assets which, in turn, has helped to maintain the strength of our financial condition.

The composition of our loan portfolio, by property type, has remained relatively consistent over the last several years.  At June 30, 2010, our loan portfolio was comprised of 77% one-to-four family mortgage loans, 16% multi-family mortgage loans, 5% commercial real estate loans and 2% other loan categories.  This compares to 76% one-to-four family mortgage loans, 16% multi-family mortgage loans, 6% commercial real estate loans and 2% other loan categories at December 31, 2009.  At June 30, 2010, full documentation loans comprised 84% of our one-to-four family mortgage loan portfolio, compared to 83% at December 31, 2009.  At June 30, 2010 and December 31, 2009, full documentation loans comprised 87% of our total mortgage loan portfolio.

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The following table provides further details on the composition of our one-to-four family and multi-family and commercial real estate mortgage loan portfolios in dollar amounts and percentages of the portfolio at the dates indicated.

	At June 30, 2010					At December 31, 2009
			Percent					Percent
(Dollars in Thousands)	Amount		of Total			Amount		of Total
One-to-four family:
Full documentation interest-only (1)	$	4,313,951		36.84	%	$	4,688,796		39.42	%
Full documentation amortizing		5,491,781		46.91			5,152,021		43.31
Reduced documentation interest-only (1)(2)		1,443,044		12.32			1,576,378		13.25
Reduced documentation amortizing (2)		460,206		3.93			478,167		4.02
Total one-to-four family	$	11,708,982		100.00	%	$	11,895,362		100.00	%
Multi-family and commercial real estate:
Full documentation amortizing	$	2,738,947		85.11	%	$	2,861,607		83.53	%
Full documentation interest-only		479,146		14.89			564,255		16.47
Total multi-family and commercial real estate	$	3,218,093		100.00	%	$	3,425,862		100.00	%

(1)

Interest-only loans require the borrower to pay interest only during the first ten years of the loan term.  After the tenth anniversary of the loan, principal and interest payments are required to amortize the loan over the remaining loan term.  One-to-four family interest-only loans include interest-only hybrid ARM loans which were underwritten at the initial note rate, which may have been a discounted rate, totaling $3.18 billion at  June 30, 2010 and $3.50 billion at December 31, 2009.

(2)

One-to-four family reduced documentation loans include SISA loans totaling $291.5 million at June 30, 2010 and $310.7 million at December 31, 2009.

We do not originate negative amortization loans, payment option loans or other loans with short-term interest-only periods.  Additionally, we do not originate one-year ARM loans.  The ARM loans in our portfolio which currently reprice annually represent hybrid ARM loans (interest-only and amortizing) which have passed their initial fixed rate period.  Prior to 2006 we would underwrite our one-to-four family interest-only hybrid ARM loans using the initial note rate, which may have been a discounted rate.  In 2006, we began underwriting our one-to-four family interest-only hybrid ARM loans based on a fully amortizing loan (in effect, underwriting interest-only hybrid ARM loans as if they were amortizing hybrid ARM loans).  In 2007, we began underwriting our one-to-four family interest-only hybrid ARM loans at the higher of the fully indexed rate or the initial note rate.  In 2009, we began underwriting our one-to-four family interest-only and amortizing hybrid ARM loans at the higher of the fully indexed rate, the initial note rate or 6.00%.  During the 2010 second quarter, we reduced the underwriting interest rate floor from 6.00% to 5.00% to reflect the current interest rate environment.  Our reduced documentation loans are comprised primarily of SIFA (stated income, full asset) loans.  To a lesser extent, reduced documentation loans in our portfolio also include SISA (stated income, stated asset) loans.  Reduced documentation loans include both hybrid ARM loans (interest-only and amortizing) and fixed rate loans.  SIFA and SISA loans required a prospective borrower to complete a standard mortgage loan application.  During the fourth quarter of 2007, we stopped offering reduced documentation loans.

The market does not apply a uniform definition of what constitutes “subprime” lending.  Our reference to subprime lending relies upon the “Statement on Subprime Mortgage Lending” issued by the OTS and the other federal bank regulatory agencies, or the Agencies, on June 29, 2007, which further references the “Expanded Guidance for Subprime Lending Programs,” or the Expanded Guidance, issued by the Agencies by press release dated January 31, 2001.  In the Expanded Guidance, the Agencies indicated that subprime lending does not refer to individual

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subprime loans originated and managed, in the ordinary course of business, as exceptions to prime risk selection standards.  The Agencies recognize that many prime loan portfolios will contain such accounts.  The Agencies also excluded prime loans that develop credit problems after acquisition and community development loans from the subprime arena.  According to the Expanded Guidance, subprime loans are other loans to borrowers which display one or more characteristics of reduced payment capacity.  Five specific criteria, which are not intended to be exhaustive and are not meant to define specific parameters for all subprime borrowers and may not match all markets or institutions’ specific subprime definitions, are set forth, including having a credit (FICO) score of 660 or below.  However, we do not associate a particular FICO score with our definition of subprime loans.  Consistent with the guidance provided by federal bank regulatory agencies, we consider subprime loans to be loans to borrowers with a credit history containing one or more of the following at the time of origination: (1) bankruptcy within the last four years; (2) foreclosure within the last two years; or (3) two 30 day mortgage delinquencies in the last twelve months.  In addition, subprime loans generally display the risk layering of the following features: high debt-to-income ratio (50/50); low or no cash reserves; current loan-to-value ratios over 90%; 2/28, 3/27 or negative amortization loan products; or reduced or no documentation loans.  Our current underwriting standards would generally preclude us from originating loans to borrowers with a credit history containing a bankruptcy or foreclosure within the last five years or two 30 day mortgage delinquencies in the last twelve months.  Based upon the definition and exclusions described above, we are a prime lender.  Within our portfolio of one-to-four family mortgage loans, we have loans to borrowers who had FICO scores of 660 or below at the time of origination. However, as a portfolio lender we underwrite our loans considering all credit criteria, as well as collateral value, and do not base our underwriting decisions solely on FICO scores.  Based on our underwriting criteria, particularly the average loan-to-value ratios at origination, we consider our loans to borrowers with FICO scores of 660 or below at origination to be prime loans.

Although FICO scores are considered as part of our underwriting process, they have not always been recorded on our mortgage loan system and are not available for all of the one-to-four family mortgage loans on our mortgage loan system.  However, substantially all of our one-to-four family mortgage loans originated since March 2005 have credit scores available on our mortgage loan system.  At June 30, 2010, one-to-four family mortgage loans which had FICO scores available on our mortgage loan system totaled $10.11 billion, or 86% of our total one-to-four family mortgage loan portfolio, of which $505.5 million, or 5%, had FICO scores of 660 or below at the date of origination.  At December 31, 2009, one-to-four family mortgage loans which had FICO scores available on our mortgage loan system totaled $10.17 billion, or 85% of our total one-to-four family mortgage loan portfolio, of which $542.3 million, or 5%, had FICO scores of 660 or below at the date of origination.Of our one-to-four family mortgage loans to borrowers with known FICO scores of 660 or below, 73% are interest-only hybrid ARM loans, 26% are amortizing hybrid ARM loans and 1% are amortizing fixed rate loans at June 30, 2010 and 74% are interest-only hybrid ARM loans, 25% are amortizing hybrid ARM loans and 1% are amortizing fixed rate loans at December 31, 2009.  In addition, at June 30, 2010 and December 31, 2009, 67% of our loans to borrowers with known FICO scores of 660 or below were full documentation loans and 33% were reduced documentation loans.  We believe the aforementioned loans, when originated, were amply collateralized and otherwise conformed to our prime lending standards and do not present a greater risk of loss or other asset quality risk relative to comparable loans in our portfolio to other borrowers with higher credit scores.  We do not have FICO scores recorded on our mortgage loan system for 14% of our one-to-four family mortgage loans at June 30, 2010 and 15% of our one-to-four family mortgage loans at December

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31, 2009. Of our one-to-four family mortgage loans without a FICO score available on our mortgage loan system at June 30, 2010, 65% are amortizing hybrid ARM loans, 27% are interest-only hybrid ARM loans and 8% are amortizing fixed rate loans, and at December 31, 2009, 64% are amortizing hybrid ARM loans, 27% are interest-only hybrid ARM loans and 9% are amortizing fixed rate loans.

Non-Performing Assets

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

(Dollars in Thousands)	At June 30, 2010			At December 31, 2009
Non-accrual delinquent mortgage loans		$  409,342			$  403,148
Non-accrual delinquent consumer and other loans		5,308			4,824
Mortgage loans delinquent 90 days or more and
still accruing interest (1)		455			600
Total non-performing loans (2)		415,105			408,572
REO, net (3)		54,428			46,220
Total non-performing assets		$  469,533			$  454,792
Non-performing loans to total loans		2.70	%		2.59	%
Non-performing loans to total assets		2.11			2.02
Non-performing assets to total assets		2.39			2.25
Allowance for loan losses to non-performing loans		50.83			47.49
Allowance for loan losses to total loans		1.37			1.23

(1)	Mortgage loans delinquent 90 days or more and still accruing interest consist primarily of loans delinquent 90 days or more as to their maturity date but not their interest due.
(2)	Non-performing loans exclude loans which have been restructured and are accruing and performing in accordance with the restructured terms for a satisfactory period of time.  Restructured accruing loans totaled $34.4 million at June 30, 2010 and $26.0 million at December 31, 2009.
(3)	REO, substantially all of which are one-to-four family properties, is net of allowance for losses totaling $698,000 at June 30, 2010 and $816,000 at December 31, 2009.

Total non-performing assets increased $14.7 million to $469.5 million at June 30, 2010, from $454.8 million at December 31, 2009.  This increase was due to an increase of $8.2 million in REO, net, coupled with an increase in non-performing loans.  Non-performing loans, the most significant component of non-performing assets, increased $6.5 million to $415.1 million at June 30, 2010, from $408.6 million at December 31, 2009.  This increase was primarily due to an increase of $20.6 million in non-performing one-to-four family mortgage loans, partially offset by a decrease of $14.5 million in non-performing multi-family, commercial real estate and construction loans.  Non-performing one-to-four family mortgage loans reflect a greater concentration in non-performing reduced documentation loans.  Reduced documentation loans represent only 16% of the one-to-four family mortgage loan portfolio, yet represent 55% of non-performing one-to-four family mortgage loans at June 30, 2010.  The ratio of non-performing loans to total loans increased to 2.70% at June 30, 2010, from 2.59% at December 31, 2009.  The ratio of non-performing assets to total assets increased to 2.39% at June 30, 2010, from 2.25% at December 31, 2009.

As previously discussed, we proactively manage our non-performing assets, in part, through the sale of certain delinquent and non-performing loans.  During the six months ended June 30, 2010, we sold $22.6 million, net of $12.3 million in net charge-offs, of delinquent and non-performing mortgage loans, primarily multi-family and commercial real estate loans.  In addition, included in loans held-for-sale, net, are delinquent and non-performing mortgage loans totaling $13.9 million, net of $11.8 million in net charge-offs and a $117,000 lower of cost or

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market valuation allowance, at June 30, 2010 and $6.9 million, net of $6.8 million in net charge-offs and a $1.1 million lower of cost or market valuation allowance, at December 31, 2009.  Such loans, which are primarily multi-family and commercial real estate loans, are excluded from non-performing loans, non-performing assets and related ratios.  Assuming we did not sell or reclassify to held-for-sale any delinquent and non-performing loans during 2010, at June 30, 2010 our non-performing loans and non-performing assets would have been $57.3 million higher and our allowance for loan losses would have been $22.7 million higher.  Additionally, the ratio of non-performing loans to total loans would have been 37 basis points higher, the ratio of non-performing assets to total assets would have been 29 basis points higher and the ratio of the allowance for loan losses to non-performing loans would have been 135 basis points lower.

The following table provides further details on the composition of our non-performing one-to-four family and multi-family and commercial real estate mortgage loans in dollar amounts and percentages of the portfolio, at the dates indicated.

	At June 30, 2010					At December 31, 2009
			Percent					Percent
(Dollars in Thousands)	Amount		of Total			Amount		of Total
Non-performing one-to-four family:
Full documentation interest-only	$	116,881		33.33	%	$	106,441		32.25	%
Full documentation amortizing		39,660		11.31			40,875		12.38
Reduced documentation interest-only		166,420		47.47			158,164		47.92
Reduced documentation amortizing		27,682		7.89			24,602		7.45
Total non-performing one-to-four family	$	350,643		100.00	%	$	330,082		100.00	%
Non-performing multi-family and commercial real estate:
Full documentation amortizing	$	34,115		63.53	%	$	42,637		62.51	%
Full documentation interest-only		19,581		36.47			25,571		37.49
Total non-performing multi-family and commercial real estate	$	53,696		100.00	%	$	68,208		100.00	%

The following table provides details on the geographic composition of both our total and non-performing one-to-four family mortgage loans as of June 30, 2010.

	One-to-Four Family Mortgage Loans
	At June 30, 2010
								Percent of			Non-Performing
						Total		Total			Loans
			Percent of			Non-Performing		Non-Performing			as  Percent of
(Dollars in Millions)	Total Loans		Total Loans			Loans		Loans			State Totals
State:
New York	$	3,157.5		27.0	%	$	44.2		12.7	%		1.40	%
Illinois		1,463.3		12.5			51.6		14.7			3.53
Connecticut		1,114.3		9.5			29.6		8.4			2.66
California		975.6		8.3			45.3		12.9			4.64
New Jersey		878.8		7.5			49.6		14.1			5.64
Massachusetts		831.3		7.1			14.6		4.2			1.76
Virginia		738.4		6.3			20.5		5.8			2.78
Maryland		721.9		6.2			39.8		11.4			5.51
Washington		350.3		3.0			2.4		0.7			0.69
Florida		246.4		2.1			26.2		7.5			10.63
All other states (1)		1,231.2		10.5			26.8		7.6			2.18
Total	$	11,709.0		100.0	%	$	350.6		100.0	%		2.99	%

(1) Includes 28 states and Washington, D.C.

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At June 30, 2010, the geographic composition of our multi-family and commercial real estate mortgage loan portfolio was 94% in the New York metropolitan area, 3% in Florida and 3% in various other states and the geographic composition of non-performing multi-family and commercial real estate mortgage loans was 87% in the New York metropolitan area, 10% in Florida, 2% in Illinois and 1% in Massachusetts.

We discontinue accruing interest on loans when they become 90 days delinquent as to their payment due date.  In addition, we reverse all previously accrued and uncollected interest through a charge to interest income.  While loans are in non-accrual status, interest due is monitored and income is recognized only to the extent cash is received until a return to accrual status is warranted.

If all non-accrual loans at June 30, 2010 and 2009 had been performing in accordance with their original terms, we would have recorded interest income, with respect to such loans, of $12.8 million for the six months ended June 30, 2010 and $10.9 million for the six months ended June 30, 2009.  This compares to actual payments recorded as interest income, with respect to such loans, of $3.3 million for the six months ended June 30, 2010 and $2.9 million for the six months ended June 30, 2009.

We may agree to modify the contractual terms of a borrower’s loan.  In cases where such modifications represent a concession to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring.  Loans modified in a troubled debt restructuring are placed on non-accrual status until we determine that future collection of principal and interest is reasonably assured, which requires that the borrower demonstrate performance according to the restructured terms generally for a period of six months.  Loans modified in a troubled debt restructuring which are included in non-accrual loans totaled $51.8 million at June 30, 2010 and $57.2 million at December 31, 2009.  Excluded from non-performing assets are restructured loans that have complied with the terms of their restructure agreement for a satisfactory period of time and have, therefore, been returned to accrual status.  Restructured accruing loans totaled $34.4 million at June 30, 2010 and $26.0 million at December 31, 2009.

In addition to non-performing loans, we had $162.2 million of potential problem loans at June 30, 2010, compared to $145.9 million at December 31, 2009.  Such loans include loans which are 60-89 days delinquent as shown in the following table and certain other internally classified loans.

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Delinquent Loans

The following table shows a comparison of delinquent loans at June 30, 2010 and December 31, 2009.  Delinquent loans are reported based on the number of days the loan payments are past due.

	30-59 Days					60-89 Days					90 Days or More
	Number					Number					Number
	of					of					of
(Dollars in Thousands)	Loans		Amount			Loans		Amount			Loans		Amount
At June 30, 2010:
Mortgage loans:
One-to-four family		456	$	148,032			175	$	60,789			1,016	$	350,643
Multi-family		53		68,451			10		7,099			43		52,115
Commercial real estate		11		9,351			5		7,479			3		1,581
Construction		-		-			-		-			2		5,458
Consumer and other loans		92		5,080			38		2,101			62		5,308
Total delinquent loans		612	$	230,914			228	$	77,468			1,126	$	415,105
Delinquent loans to total loans				1.50	%				0.50	%				2.70	%
At December 31, 2009:
Mortgage loans:
One-to-four family		431	$	146,918			182	$	62,522			936	$	330,082
Multi-family		64		48,137			18		12,392			53		59,526
Commercial real estate		8		13,512			-		-			4		8,682
Construction		-		-			-		-			2		5,458
Consumer and other loans		136		4,327			39		1,400			61		4,824
Total delinquent loans		639	$	212,894			239	$	76,314			1,056	$	408,572
Delinquent loans to total loans				1.35	%				0.48	%				2.59	%

Allowance for Loan Losses

Activity in the allowance for loan losses is summarized as follows:

(In Thousands)	For the Six Months Ended June 30, 2010
Balance at January 1, 2010	$	194,049
Provision charged to operations		80,000
Charge-offs:
One-to-four family (1)		(45,651	)
Multi-family		(17,511	)
Commercial real estate		(6,565	)
Construction		(1,470	)
Consumer and other loans		(851	)
Total charge-offs		(72,048	)
Recoveries:
One-to-four family (1)		8,128
Multi-family		102
Commercial real estate		725
Consumer and other loans		43
Total recoveries		8,998
Net charge-offs		(63,050	)
Balance at June 30, 2010	$	210,999
(1) Includes $21.6 million of net charge-offs related to reduced documentation loans.

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ITEM 3.   Quantitative and Qualitative Disclosures about Market Risk

As a financial institution, the primary component of our market risk is interest rate risk.  The objective of our interest rate risk 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 analysis.  Additional interest rate risk 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, 2010 that we anticipate will reprice or mature in each of the future time periods shown using certain assumptions based on our historical experience and other market-based data available to us.  The Gap Table includes $2.93 billion of callable borrowings classified according to their maturity dates, primarily in the more than one year to three years and more than five years categories, which are callable within one year and at various times thereafter.  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, 2010 was negative 3.99% compared to negative 6.77% at December 31, 2009.  

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	At June 30, 2010
				More than			More than
				One Year			Three Years
	One Year			to			to			More than
(Dollars in Thousands)	or Less			Three Years			Five Years			Five Years			Total
Interest-earning assets:
Mortgage loans (1)	$	5,018,534		$	4,708,590		$	4,004,315		$	837,350		$	14,568,789
Consumer and other loans (1)		317,594			30			24			510			318,158
Repurchase agreements and interest-earning cash accounts		329,669			-			-			-			329,669
Securities available-for-sale		236,243			286,998			145,397			34,622			703,260
Securities held-to-maturity		633,183			725,493			340,640			300,655			1,999,971
FHLB-NY stock		-			-			-			185,768			185,768
Total interest-earning assets		6,535,223			5,721,111			4,490,376			1,358,905			18,105,615
Net unamortized purchase premiums and deferred costs (2)		37,789			33,981			27,926			6,450			106,146
Net interest-earning assets (3)		6,573,012			5,755,092			4,518,302			1,365,355			18,211,761
Interest-bearing liabilities:
Savings		278,450			463,902			463,902			977,096			2,183,350
Money market		147,754			94,134			94,134			1,433			337,455
NOW and demand deposit		122,527			245,066			245,066			1,074,504			1,687,163
Liquid CDs		607,853			-			-			-			607,853
Certificates of deposit		4,610,871			2,071,211			750,538			-			7,432,620
Borrowings, net		1,590,628			1,768,525			575,000			1,878,866			5,813,019
Total interest-bearing liabilities		7,358,083			4,642,838			2,128,640			3,931,899			18,061,460
Interest sensitivity gap		(785,071	)		1,112,254			2,389,662			(2,566,544	)	$	150,301
Cumulative interest sensitivity gap	$	(785,071	)	$	327,183		$	2,716,845		$	150,301
Cumulative interest sensitivity gap as a percentage of total assets		(3.99	)%		1.66	%		13.81	%		0.76	%
Cumulative net interest-earning assets as a percentage of interest-bearing liabilities		89.33	%		102.73	%		119.23	%		100.83	%

(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.

Net Interest Income Sensitivity Analysis

In managing interest rate risk, we also use an internal income simulation model for our net interest income sensitivity analyses.  These analyses measure changes in projected net interest income over various time periods resulting from hypothetical changes in interest rates.  The interest rate scenarios most commonly analyzed reflect gradual and reasonable changes over a specified time period, which is typically one year.  The base net interest income projection utilizes similar assumptions as those reflected in the Gap Table, assumes that cash flows are reinvested in similar assets and liabilities and that interest rates as of the reporting date remain constant over the projection period.  For each alternative interest rate scenario, corresponding changes in the cash flow and repricing assumptions of each financial instrument are made to determine the impact on net interest income.

We perform analyses of interest rate increases and decreases of up to 300 basis points although changes in interest rates of 200 basis points is a more common and reasonable scenario for analytical purposes.  Assuming the entire yield curve was to increase 200 basis points, through

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quarterly parallel increments of 50 basis points, our projected net interest income for the twelve month period beginning July 1, 2010 would increase by approximately 0.78% from the base projection. At December 31, 2009, in the up 200 basis point scenario, our projected net interest income for the twelve month period beginning January 1, 2010 would have increased by approximately 1.16% from the base projection.  The current low interest rate environment prevents us from performing an income simulation for a decline in interest rates of the same magnitude and timing as our rising interest rate simulation, since certain asset yields, liability costs and related indices are below 2.00%.  However, assuming the entire yield curve was to decrease 100 basis points, through quarterly parallel decrements of 25 basis points, our projected net interest income for the twelve month period beginning July 1, 2010 would decrease by approximately 2.04% from the base projection.  At December 31, 2009, in the down 100 basis point scenario, our projected net interest income for the twelve month period beginning January 1, 2010 would have decreased by approximately 2.53% from the base projection.  The down 100 basis point scenarios include some limitations as well since certain indices, yields and costs are already below 1.00%.

Various shortcomings are inherent in both the Gap Table and net interest income 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 net interest income sensitivity analyses may provide an indication of our interest rate risk 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, 2010 would increase by approximately $5.1 million.  Conversely, assuming the entire yield curve was to decrease 100 basis points, through quarterly parallel decrements of 25 basis points, our projected net income for the twelve month period beginning July 1, 2010 would decrease by approximately $3.0 million with respect to these items alone.

For further information regarding our market risk and the limitations of our gap analysis and net interest income sensitivity analysis, see Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” included in our 2009 Annual Report on Form 10-K.

ITEM 4.   Controls and Procedures

George L. Engelke, Jr., our Chairman and Chief Executive Officer, and Frank E. Fusco, our Executive Vice President, Treasurer and Chief Financial Officer, conducted an evaluation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2010.  Based upon their evaluation, they each found that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed,

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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, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.   Legal Proceedings

In the ordinary course of our business, we are routinely made a defendant in or a party to pending or threatened legal actions or proceedings which, in some cases, seek substantial monetary damages from or other forms of relief against us.  In our opinion, after consultation with legal counsel, we believe it unlikely that such actions or proceedings will have a material adverse effect on our financial condition, results of operations or liquidity.

Goodwill Litigation

We have been a party to an action against the United States involving an assisted acquisition made in the early 1980’s and supervisory goodwill accounting utilized in connection therewith.  The trial in this action, entitled AstoriaFederal Savings and Loan Association vs. United States, took place during 2007 before the Federal Claims Court.  The Federal Claims Court, by decision filed on January 8, 2008, awarded to us $16.0 million in damages from the U.S. Government.  No portion of the $16.0 million award was recognized in our consolidated financial statements.  The U.S. Government appealed such decision to the Court of Appeals.  In an opinion dated May 28, 2009, the Court of Appeals affirmed in part and reversed in part the lower court’s ruling and remanded the case to the Federal Claims Court for further proceedings.  

On April 12, 2010, we entered into a final binding settlement of this matter with the U.S. Government in an amount equal to $6.2 million.  Legal expense related to this matter has been recognized as it has been incurred.  The settlement was recognized in other non-interest income in our consolidated statements of income for the three and six months ended June 30, 2010.

McAnaney Litigation

In 2004, an action entitled David McAnaneyand Carolyn McAnaney, individually and on behalf of all others similarly situated vs. Astoria Financial Corporation,et al.was commenced in 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, RESPA, FDCA andthe New York State Deceptive Practices Act, and alleges actions based upon breach of contract, unjust enrichment andcommon law fraud.

During the fourth quarter of 2008, both parties cross-moved for summary judgment.  On September 29, 2009, the District Court issued a decision regarding the parties' cross motions for summary judgment.  Plaintiff's motion was denied in its entirety.  Our motion was granted in part

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and denied in part.  All claims asserted against Astoria Financial Corporation and Long Island Bancorp, Inc. were dismissed.  All remaining claims against Astoria Federal were dismissed, except those based upon alleged violations of the federal Truth in Lending Act, the New York State Deceptive Practices Act and breach of contract.  The District Court held, with respect to these claims, that there exist triable issues of fact.  For further information regarding the history of this action, see Part I, Item 3, “Legal Proceedings,” in our 2009 Annual Report on Form 10-K.

On June 29, 2010, we reached an agreement in principle to settle the remaining claims in such action in the amount of $7.9 million.  A stipulation, or the Agreement, detailing the terms of that settlement was entered into on July 30, 2010.  In entering into the Agreement, we did not acknowledge any liability in the matter and further indicated that the Agreement is intended to resolve all claims arising from or related to the aforementioned case.  The Agreement is subject to approval by the District Court.  The settlement was recognized in other non-interest expense in our consolidated statements of income for the three and six months ended June 30, 2010.

Automated Transactions LLC Litigation

On November 20, 2009, an action entitled Automated Transactions LLC v. Astoria Financial Corporation and Astoria Federal Savings and Loan Association was commenced in the Southern District Court, against us by Automated Transactions LLC, alleging patent infringement involving integrated banking and transaction machines, including automated teller machines, that we utilize.  We were served with the summons and complaint in such action on March 2, 2010.  The plaintiff also filed a similar suit on the same day against another financial institution and its holding company.  The plaintiff seeks unspecified monetary damages and an injunction preventing us from continuing to utilize the allegedly infringing machines.  We are vigorously defending this lawsuit, and filed an answer and counterclaims to the plaintiff’s complaint on March 23, 2010, to which the plaintiff filed a reply on April 12, 2010.  On May 18, 2010 the plaintiff filed an amended complaint at the direction of the Southern District Court, containing substantially the same allegations as the original complaint. On May 27, 2010 we moved to dismiss the amended complaint which motion is currently pending before the Southern District Court.  An adverse result in this lawsuit may include an award of monetary damages, on-going royalty obligations, and/or may result in a change in our business practice, which could result in a loss of revenue.

We have tendered requests for indemnification from the manufacturer and from the transaction processor utilized with respect to the integrated banking and transaction machines, and have filed a third party complaint against the manufacturer and the transaction processor for indemnification and contribution with respect to the lawsuit by Automated Transactions LLC.

No assurance can be given at this time that the litigation against us will be resolved amicably, that if this litigation results in an adverse decision that we will be successful in seeking indemnification, 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.

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ITEM 1A.   Risk Factors

For a summary of risk factors relevant to our operations, see Part I, Item 1A, “Risk Factors,” in our 2009 Annual Report on Form 10-K and Part II, Item 1A. “Risk Factors,” in our March 31, 2010 Quarterly Report on Form 10-Q.  There are no other material changes in risk factors relevant to our operations since March 31, 2010 except as discussed below.

The recent adoption of regulatory reform legislation may have a material effect on our operations and capital requirements.

On July 21, 2010, President Obama signed into law the Reform Act. The Reform Act is intended to address perceived weaknesses in the U.S. financial regulatory system and prevent future economic and financial crises. There are many provisions of the Reform Act which are to be implemented through regulations to be adopted by the federal bank regulatory agencies within specified time frames following the effective date of the Reform Act, which creates a risk of uncertainty as to the effect that such provisions will ultimately have.  Although it is not possible for us to determine at this time whether the Reform Act will have a material effect on our business, financial condition or results of operations, we believe the following provisions of the Reform Act will have an impact on us:

· New Regulatory Regime.  On July 21, 2011, unless the Secretary of the Treasury opts to delay such date for up to an additional six months, the OTS will be eliminated and the Office of the Comptroller of the Currency, or OCC, will take over the regulation of all federal savings associations, such as Astoria Federal.  The Board of Governors of the Federal Reserve System, or FRB, will acquire the OTS’s authority over all savings and loan holding companies, such as Astoria Financial Corporation, and will also become the supervisor of all subsidiaries of savings and loan holding companies other than depository institutions.  As a result, we will now be subject to regulation, supervision and examination by two federal banking agencies, the OCC and the FRB, rather than just by the OTS, as is currently the case.  The Reform Act also provides for the creation of the Bureau of Consumer Financial Protection, or the CFPB. The CFPB will have the authority to implement and enforce a variety of existing consumer protection statutes and to issue new regulations and, with respect to institutions with more than $10 billion in assets, such as Astoria Federal, the CFPB will have exclusive examination and enforcement authority with respect to such laws and regulations.  As a new independent bureau within the FRB, it is possible that the CFPB will focus more attention on consumers and may impose requirements more severe than the previous bank regulatory agencies.

· Consolidated Holding Company Capital Requirements.  The Reform Act requires the federal banking agencies to establish consolidated risk-based and leverage capital requirements for insured depository institutions, depository institution holding companies and systemically important nonbank financial companies.  These requirements must be no less than those to which insured depository institutions are currently subject, and the new requirements will effectively eliminate the use of trust preferred securities as a component of Tier 1 capital for depository institution holding companies of our size.  As a result, on the fifth anniversary of the effective date of the Reform Act, we will become subject to consolidated capital requirements which we have not been subject to

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previously, and we will not be permitted to include our Capital Securities as a component of Tier 1 capital when we become subject to these consolidated capital requirements.

·

Deposit Insurance Assessments.  The Reform Act increases the minimum designated reserve ratio for the DIF from 1.15% to 1.35% of insured deposits, which must be reached by September 30, 2020, and provides that in setting the assessments necessary to meet the new requirement, the FDIC shall offset the effect of this provision on insured depository institutions with total consolidated assets of less than $10 billion, so that more of the cost of raising the reserve ratio will be borne by the institutions with more than $10 billion in assets, such as Astoria Federal.  In addition, deposit insurance assessments will now be based on our average consolidated total assets minus our average tangible equity, rather than on our deposit bases.  As a result of these provisions, our deposit insurance premiums are expected to increase, and the increase may be substantial.

· Roll Back of Federal Preemption.  The Reform Act significantly rolls back the federal preemption of state consumer protection laws that is currently enjoyed by federal savings associations and national banks by (1) requiring that a state consumer financial law prevent or significantly interfere with the exercise of a federal savings association’s or national bank’s powers before it can be preempted, (2) mandating that any preemption decision be made on a case by case basis rather than a blanket rule; and (3) ending the applicability of preemption to subsidiaries and affiliates of national banks and federal savings associations.  As a result, we may now be subject to state consumer protection laws in each state where we do business, and those laws may be interpreted and enforced differently in different states.

The Reform Act also includes provisions, subject to further rulemaking by the federal bank regulatory agencies, that may affect our future operations, including provisions that create minimum standards for the origination of mortgages, restrict proprietary trading by banking entities, restrict the sponsorship of and investment in hedge funds and private equity funds by banking entities and that remove certain obstacles to the conversion of savings associations to national banks.  We will not be able to determine the impact of these provisions until final rules are promulgated to implement these provisions and other regulatory guidance is provided interpreting these provisions.

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

During the six months ended June 30, 2010, there were no repurchases of our common stock.  Our twelfth stock repurchase plan, approved by our Board of Directors on April 18, 2007, authorized the purchase of 10,000,000 shares, or approximately 10% of our common stock then outstanding, in open-market or privately negotiated transactions.  At June 30, 2010, a maximum of 8,107,300 shares may yet be purchased under this plan.  As of June 30, 2010, we are not currently repurchasing additional shares of our common stock.

ITEM 3.   Defaults Upon Senior Securities

Not applicable.

ITEM 4.   (Removed and Reserved)

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ITEM 5.    Other Information

Not applicable.

ITEM 6.   Exhibits

See Index of Exhibits on page 68.

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 6, 2010	By:	/s/ Frank E. Fusco
		Frank E. Fusco
		Executive Vice President,
		Treasurer and Chief Financial Officer
		(Principal Accounting Officer)

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ASTORIA FINANCIAL CORPORATION AND SUBSIDIARIES

INDEX OF EXHIBITS

Exhibit No.	Identification of Exhibit
4.1	Astoria Financial Corporation Specimen Stock Certificate. (1)
4.2	Bylaws of Astoria Federal Savings and Loan Association, as amended effective June 16, 2010. (*)
10.1	Amendment No. 1 to Amended and Restated Employment Agreement by and between Astoria Financial Corporation and George L. Engelke, Jr. dated as of April 21, 2010. (2)
10.2	Amendment No. 1 to Amended and Restated Employment Agreement by and between Astoria Federal Savings and Loan Association and George L. Engelke, Jr. dated as of April 21, 2010. (2)
10.3	Amendment No. 1 to Amended and Restated Employment Agreement by and between Astoria Financial Corporation and Monte N. Redman dated as of April 21, 2010. (2)
10.4	Amendment No. 1 to Amended and Restated Employment Agreement by and between Astoria Federal Savings and Loan Association and Monte N. Redman dated as of April 21, 2010. (2)
10.5	Amendment No. 1 to Amended and Restated Employment Agreement by and between Astoria Financial Corporation and Gerard C. Keegan dated as of April 21, 2010. (2)
10.6	Amendment No. 1 to Amended and Restated Employment Agreement by and between Astoria Federal Savings and Loan Association and Gerard C. Keegan dated as of April 21, 2010. (2)
10.7	Amendment No. 1 to Amended and Restated Employment Agreement by and between Astoria Financial Corporation and Alan P. Eggleston dated as of April 21, 2010. (2)
10.8	Amendment No. 1 to Amended and Restated Employment Agreement by and between Astoria Federal Savings and Loan Association and Alan P. Eggleston dated as of April 21, 2010. (2)
10.9	Amendment No. 1 to Amended and Restated Employment Agreement by and between Astoria Financial Corporation and Frank E. Fusco dated as of April 21, 2010. (2)
10.10	Amendment No. 1 to Amended and Restated Employment Agreement by and between Astoria Federal Savings and Loan Association and Frank E. Fusco dated as of April 21, 2010. (2)

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Exhibit No.	Identification of Exhibit
10.11	Amendment No. 1 to Amended and Restated Employment Agreement by and between Astoria Financial Corporation and Arnold K. Greenberg dated as of April 21, 2010. (2)
10.12	Amendment No. 1 to Amended and Restated Employment Agreement by and between Astoria Federal Savings and Loan Association and Arnold K. Greenberg dated as of April 21, 2010. (2)
10.13	Amendment No. 1 to Amended and Restated Employment Agreement by and between Astoria Financial Corporation and Gary T. McCann dated as of April 21, 2010. (2)
10.14	Amendment No. 1 to Amended and Restated Employment Agreement by and between Astoria Federal Savings and Loan Association and Gary T. McCann dated as of April 21, 2010. (2)
10.15	Amendment No. 1 to Amended and Restated Change of Control Severance Agreement by and among Astoria Financial Corporation, Astoria Federal Savings and Loan Association and Josie Callari dated as of April 21, 2010. (2)
10.16	Amendment No. 1 to Amended and Restated Change of Control Severance Agreement by and among Astoria Financial Corporation, Astoria Federal Savings and Loan Association and Anthony S. DiCostanzo dated as of April 21, 2010. (2)
10.17	Amendment No. 1 to Amended and Restated Change of Control Severance Agreement by and among Astoria Financial Corporation, Astoria Federal Savings and Loan Association and Brian T. Edwards dated as of April 21, 2010. (2)
10.18	Amendment No. 1 to Amended and Restated Change of Control Severance Agreement by and among Astoria Financial Corporation, Astoria Federal Savings and Loan Association and Thomas E. Lavery dated as of April 21, 2010. (2)
10.19	Amendment No. 1 to Amended and Restated Change of Control Severance Agreement by and among Astoria Financial Corporation, Astoria Federal Savings and Loan Association and William J. Mannix, Jr. dated as of April 21, 2010. (2)
10.20	Amendment No. 1 to Amended and Restated Change of Control Severance Agreement by and among Astoria Financial Corporation, Astoria Federal Savings and Loan Association and Robert T. Volk dated as of April 21, 2010. (2)
10.21	Amendment No. 1 to Amended and Restated Change of Control Severance Agreement by and among Astoria Financial Corporation, Astoria Federal Savings and Loan Association and Ira M. Yourman dated as of April 21, 2010. (2)
10.22	Amendment No. 1 to Amended and Restated Change of Control Severance Agreement by and among Astoria Financial Corporation, Astoria Federal Savings and Loan Association and Robert J. DeStefano dated as of April 21, 2010. (2)

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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.  (*)
101.1	The following financial information from Astoria Financial Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010 formatted in XBRL: (1) Consolidated Statements of Financial Condition at June 30, 2010 and December 31, 2009; (2) Consolidated Statements of Income for the three and six months ended June 30, 2010 and 2009; (3) Consolidated Statement of Changes in Stockholders’ Equity for the six months ended June 30, 2010;          (4) Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009; and (5) Notes to Consolidated Financial Statements, tagged as blocks of text.  Pursuant to SEC rules, this exhibit will not be deemed filed for purposes of Section 18 of the Exchange Act and Sections 11 and 12 of the Securities Act or otherwise subject to the liability of those sections.  (*)

(*) Filed herewith.

(1) Incorporated by reference to Astoria Financial Corporation’s Registration Statement on Form S-3 dated and filed with the SEC on May 19, 2010 (File number 333-166957).

(2) Incorporated by reference to Astoria Financial Corporation’s Current Report on Form 8-K dated and filed with the SEC on April 22, 2010 (File number 001-11967).

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EX-4.2

Exhibit 4.2

BYLAWS

OF

ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION

Amended and Restated Effective as of January 31, 1995

As Amended Effective July 17, 1996

As Amended Effective September 30, 1997

As Amended Effective September 30, 1998

As Amended Effective July 21, 1999

As Amended Effective April 24, 2000

As Amended Effective November 17, 2004

As Amended Effective May 18, 2005

As Amended Effective April 19, 2006

As Amended Effective May 20, 2009

As Amended Effective August 19, 2009

As Amended Effective June 16, 2010

BYLAWS OF

ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION

ARTICLE I. HOME OFFICE

The home office of Astoria Federal Savings and Loan ("ASSOCIATION") is 37-16 30th Avenue, Long Island City, New York 11103.

ARTICLE II. SHAREHOLDERS

Section 1. Place of Meetings. All annual and special meetings of shareholders shall be held at the administrative office of the ASSOCIATION located at One Astoria Federal Plaza, Lake Success, New York or at such other place in the State in which the principal place of business of the ASSOCIATION is located as the board of directors may determine.

Section 2. Annual Meeting. A meeting of the shareholders of the ASSOCIATION for the election of directors and for the transaction of any other business of the ASSOCIATION shall be held annually within 120 days after the end of the ASSOCIATION's fiscal year.

Section 3. Special Meetings. For a period of five years from the date of the completion of the conversion of the ASSOCIATION from mutual to stock form, special meetings of the shareholders relating to a change in control of the ASSOCIATION or to an amendment of the Charter of the ASSOCIATION may be called only by the board of directors. Thereafter, special meetings of the shareholders for any purpose or purposes, unless otherwise prescribed by the regulations of the Office of Thrift Supervision ("OTS"), may be called at any time by the chairman of the board, the president, or a majority of the board of directors, and shall be called by the chairman of the board, the president or the secretary upon the written request of the holders of not less than one-tenth of all the outstanding capital stock of the ASSOCIATION entitled to vote at the meeting. Such written request shall state the purpose or purposes of the meeting and shall be delivered at the home office of the ASSOCIATION addressed to the chairman of the board, the president or the secretary.

Section 4. Conduct of Meetings. Annual and special meetings shall be conducted in accordance with the most current edition of Robert's Rules of Order unless otherwise prescribed by regulations of the OTS or these bylaws. The board of directors shall designate, when present, either the chairman of the board or president to preside at such meetings.

Section 5. Notice of Meetings. Written notice stating the place, day and hour of the meeting and the purpose(s) for which the meeting is called shall be delivered not fewer than 20 nor more than 50 days before the date of the meeting, either personally or by mail, by or at the direction of the chairman of the board, the president, the secretary, or the directors calling the meeting, to each

shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the mail, addressed to the shareholder at the address as it appears on the stock transfer books or records of the ASSOCIATION as of the record date prescribed in Section 6 of this Article II, with postage prepaid. When any shareholders' meeting, either annual or special, is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. It shall not be necessary to give any notice of the time and place of any meeting adjourned for less than 30 days or of the business to be transacted at the meeting, other than an announcement at the meeting at which such adjournment is taken.

Section 6. Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors shall fix in advance a date as the record date for any such determination of shareholders. Such date in any case shall be not more than 60 days and, in case of a meeting of shareholders, not fewer than 10 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment.

Section 7. Voting Lists. At least 20 days before each meeting of the shareholders, the officer or agent having charge of the stock transfer books for shares of the ASSOCIATION shall make a complete list of the shareholders entitled to vote at such meeting, or any adjournment, arranged in alphabetical order, with the address and the number of shares held by each. This list of shareholders shall be kept on file at the home office of the ASSOCIATION and shall be subject to inspection by any shareholder at any time during usual business hours, for a period of 20 days prior to such meeting. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection by any shareholder during the entire time of the meeting. The original stock transfer book shall constitute prima facie evidence of the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders.

In lieu of making the shareholder list available for inspection by shareholders as provided in the preceding paragraph, the board of directors may elect to follow the procedures prescribed in §552.6(d) of the OTS's Regulations as now or hereafter in effect.

Section 8. Quorum. A majority of the outstanding shares of the ASSOCIATION entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares is represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to constitute less than a quorum.

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Section 9. Proxies. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Proxies solicited on behalf of the management shall be voted as directed by the shareholder or, in the absence of such direction, as determined by a majority of the board of directors. No proxy shall be valid more than eleven months from the date of its execution except for a proxy coupled with an interest.

Section 10. Voting of Shares in the Name of Two or More Persons. When ownership stands in the name of two or more persons, in the absence of written directions to the ASSOCIATION to the contrary, at any meeting of the shareholders of the ASSOCIATION any one or more of such shareholders may cast, in person or by proxy, all votes to which such ownership is entitled. In the event an attempt is made to cast conflicting votes, in person or by proxy, by the several persons in whose names shares of stock stand, the vote or votes to which those persons are entitled shall be cast as directed by a majority of those holding such and present in person or by proxy at such meeting, but no votes shall be cast for such stock if a majority cannot agree.

Section 11. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by any officer, agent or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer into his name if authority to do so is contained in an appropriate order of the court or other public authority by which such receiver was appointed.

A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee and thereafter the pledgee, shall be entitled to vote the shares so transferred.

Neither treasury shares of its own stock held by the ASSOCIATION, nor shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the ASSOCIATION, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting.

Section 12. Cumulative Voting. Shareholders shall not be entitled to cumulate their votes for election of directors.

Section 13. Inspectors of Election. In advance of any meeting of shareholders, the board of directors may appoint any persons other than nominees for office as inspectors of election to act at such meeting or any adjournment. The number of inspectors shall be either one or three. Any such appointment shall not be altered at the meeting. If inspectors of election are not so appointed, the

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chairman of the board or the president may, or on the request of not fewer than 10 percent of the votes represented at the meeting shall, make such appointment at the meeting. If appointed at the meeting, the majority of the votes present shall determine whether one or three inspectors are to be appointed. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the board of directors in advance of the meeting, or at the meeting by the chairman of the board or the president.

Unless otherwise prescribed by regulations of the OTS, the duties of such inspectors shall include: determining the number of shares and the voting power of each share, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; receiving votes, ballots, or consents; hearing and determining all challenges and questions in any way arising in connection with the rights to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all shareholders.

Section 14. Nominating Committee. The board of directors shall act as a nominating committee for selecting the nominees for election as directors. Except in the case of a nominee substituted as a result of the death or other incapacity of a nominee, the nominating committee shall deliver written nominations to the secretary at least 20 days prior to the date of the annual meeting. Upon delivery, such nominations shall be posted in a conspicuous place in each office of the ASSOCIATION. No nominations for directors except those made by the nominating committee shall be voted upon at the annual meeting unless other nominations by shareholders are made in writing and delivered to the secretary of the ASSOCIATION at least five days prior to the date of the annual meeting. Upon delivery, such nominations shall be posted in a conspicuous place in each office of the ASSOCIATION. Ballots bearing the names of all persons nominated by the nominating committee and by shareholders shall be provided for use at the annual meeting. However, if the nominating committee shall fail or refuse to act at least 20 days prior to the annual meeting, nominations for directors may be made at the annual meeting by any shareholder entitled to vote and shall be voted upon.

Section 15. New Business. Any new business to be taken up at the annual meeting shall be stated in writing and filed with the secretary of the ASSOCIATION at least five days before the date of the annual meeting, and all business so stated, proposed, and filed shall be considered at the annual meeting, but no other proposal shall be acted upon at the annual meeting. Any shareholder may make any other proposal at the annual meeting and the same may be discussed and considered, but unless stated in writing and filed with the secretary at least five days before the meeting, such proposal shall be laid over for action at an adjourned, special, or annual meeting of the shareholders taking place 30 days or more thereafter. This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees; but in connection with such reports no new business shall be acted upon at such annual meeting unless stated and filed as herein provided.

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Section 16. Informal Action by Shareholders. Any action required to be taken at a meeting of shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if consent in writing, setting forth the action so taken, shall be given by all of the shareholders entitled to vote with respect to the subject matter.

ARTICLE III. BOARD OF DIRECTORS

Section 1. General Powers.  The business and affairs of the ASSOCIATION shall be under the direction of its board of directors. The board of directors shall annually elect a chairman of the board and a president from among its members and shall designate, when present, either the chairman of the board or the president to preside at its meetings.

Section 2. Number and Term. The board of directors shall consist of nine members and shall be divided into three classes as nearly equal in number as possible. The members of each class shall be elected for a term of three years and until their successors are elected and qualified. One class shall be elected by ballot annually.

Section 3. Regular Meetings. A regular meeting of the board of directors shall be held without other notice than this bylaw immediately after, and at the same place as, the annual meeting of shareholders. The board of directors may provide, by resolution, the time and place, within the ASSOCIATION's normal lending territory, for the holding of additional regular meetings without other notice than such resolution.

Section 4. Qualification. Each director shall at all times be the beneficial owner of not less than 100 shares of capital stock of the ASSOCIATION unless the ASSOCIATION is a wholly owned subsidiary of a holding company.

Section 5. Special Meetings. Special meetings of the board of directors may be called by or at the request of the chairman of the board, the president or one-third of the directors. The persons authorized to call special meetings of the board of directors may fix any place, within the ASSOCIATION's normal lending territory, as the place for holding any special meeting of the board of directors called by such persons.

Members of the board of directors may participate in special meetings by means of conference telephone, or by means of similar communications equipment by which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person but shall not constitute attendance for the purpose of compensation pursuant to Section 12 of this Article.

Section 6. Notice. Written notice of any special meeting shall be given to each director at least two days prior thereto when delivered personally or by telegram, or at least five days prior thereto when delivered by mail at the address at which the director is most likely to be reached. Such notice shall be deemed to be delivered when deposited in the mail so addressed, with postage

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prepaid if mailed, or when delivered to the telegraph company if sent by telegram. Any director may waive notice of any meeting by a writing filed with the secretary. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the board of directors need be specified in the notice or waiver of notice of such meeting.

Section 7. Quorum. A majority of the number of directors fixed by Section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the board of directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 6 of this Article III.

Section 8. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless a greater number is prescribed by regulation of the OTS or by these bylaws.

Section 9. Action Without a Meeting. Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors.

Section 10. Resignation. Any director may resign at any time by sending a written notice of such resignation to the home office of the ASSOCIATION addressed to the chairman of the board or president. Unless otherwise specified such resignation shall take effect upon receipt by the chairman of the board or president. More than three consecutive absences from regular meetings of the board of directors, unless excused by resolution of the board of directors, shall automatically constitute a resignation, effective when such resignation is accepted by the board of directors.

Section 11. Vacancies. Any vacancy occurring in the board of directors may be filled by the affirmative vote of a majority of the remaining directors, although less than a quorum of the board of directors. A director elected to fill a vacancy shall be elected to serve until the next election of directors by the shareholders.  Any directorship to be filled by reason of an increase in the number of directors may be filled by election by the board of directors for a term of office continuing only until the next election of directors by the shareholders.

Section 12. Compensation. Directors, as such, may receive a stated salary for their services. By resolution of the board of directors, a reasonable fixed sum, and reasonable expenses of attendance, if any, may be allowed for actual attendance at each regular or special meeting of the board of directors. Members of either standing or special committees may be allowed such compensation for actual attendance at committee meetings as the board of directors may determine.

Section 13. Presumption of Assent. A director of the ASSOCIATION who is present at a meeting of the board of directors at which action on any ASSOCIATION matter is taken shall be presumed to have assented to the action taken unless his dissent or abstention shall be entered in the

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minutes of the meeting or unless he shall file a written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the ASSOCIATION within five days after the date a copy of the minutes of the meeting is received. Such right to dissent shall not apply to a director who voted in favor of such action.

Section 14. Removal of Directors. At a meeting of shareholders called expressly for that purpose, any director may be removed for cause by a vote of the holders of a majority of the shares then entitled to vote at an election of directors. Whenever the holders of the shares of any class are entitled to elect one or more directors by the provisions of the Charter or supplemental sections thereto, the provisions of this section shall apply, in respect to the removal of a director or directors so elected, to the vote of the holders of the outstanding shares of that class and not to the vote of the outstanding shares as a whole.

Section 15. Age Limitation of Directors. No person 75 or above years of age shall be eligible for election, reelection, appointment, or reappointment to the board of directors of the ASSOCIATION. No director shall serve as such beyond the regular meeting of the ASSOCIATION which immediately precedes the director becoming 75 years of age. This age limitation does not apply to an advisory director.

ARTICLE IV. EXECUTIVE AND OTHER COMMITTEES

Section 1. Appointment. The board of directors, by resolution adopted by a majority of the full board, may designate the chief executive officer and two or more of the other directors to constitute an executive committee. The designation of any committee pursuant to this Article IV and the delegation of authority shall not operate to relieve the board of directors, or any director, of any responsibility imposed by law or regulation.

Section 2. Authority. The executive committee, when the board of directors is not in session, shall have and may exercise all of the authority of the board of directors except to the extent, if any, that such authority shall be limited by the resolution appointing the executive committee; and except also that the executive committee shall not have the authority of the board of directors with reference to: the declaration of dividends; the amendment of the Charter or bylaws of the ASSOCIATION, or recommending to the shareholders a plan of merger, consolidation, or conversion; the sale, lease or other disposition of all or substantially all of the property and assets of the ASSOCIATION otherwise than in the usual and regular course of its business; a voluntary dissolution of the ASSOCIATION; a revocation of any of the foregoing; or the approval of a transaction in which any member of the executive committee, directly or indirectly, has any material beneficial interest.

Section 3. Tenure. Subject to the provisions of Section 8 of this Article IV, each member of the executive committee shall hold office until the next regular annual meeting of the board of directors following his or her designation and until a successor is designated as a member of the executive committee.

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Section 4. Meetings. Regular meetings of the executive committee may be held without notice at such times and places as the executive committee may fix from time to time by resolution. Special meetings of the executive committee may be called by any member thereof upon not less than one day's notice stating the place, date and hour of the meeting, which notice may be written or oral. Any member of the executive committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of the executive committee need not state the business proposed to be transacted at the meeting.

Section 5. Quorum. A majority of the members of the executive committee shall constitute a quorum for the transaction of business at any meeting thereof, and action of the executive committee must be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present.

Section 6. Action Without a Meeting. Any action required or permitted to be taken by the executive committee at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the members of the executive committee.

Section 7. Vacancies. Any vacancy in the executive committee may be filled by a resolution adopted by a majority of the full board of directors.

Section 8. Resignations and Removal. Any member of the executive committee may be removed at any time with or without cause by resolution adopted by a majority of the full board of directors. Any member of the executive committee may resign from the executive committee at any time by giving written notice to the president or secretary of the ASSOCIATION. Unless otherwise specified, such resignation shall take effect upon its receipt; the acceptance of such resignation shall not be necessary to make it effective.

Section 9. Procedure. The executive committee shall elect a presiding officer from its members and may fix its own rules of procedure which shall not be inconsistent with these bylaws. It shall keep regular minutes of its proceedings and report the same to the board of directors for its information at the meeting held next after the proceedings shall have occurred.

Section 10. Other Committees. The board of directors may by resolution establish an audit, loan, or other committees composed of directors as they may determine to be necessary or appropriate for the conduct of the business of the ASSOCIATION and may prescribe the duties, constitution and procedures thereof.

ARTICLE V. OFFICERS

Section 1. Positions. The officers of the ASSOCIATION shall be a president, one or more vice presidents, a secretary and a treasurer, each of whom shall be elected by the board of directors. The board of directors may also designate the chairman of the board as an officer. The president

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shall be the chief executive officer, unless the board of directors designates the chairman of the board as chief executive officer. The president shall be a director of the ASSOCIATION. The offices of the secretary and treasurer may be held by the same person and a vice president may also be either the secretary or the treasurer. The board of directors may designate one or more vice presidents as executive vice president or senior vice president. The board of directors may also elect or authorize the appointment of such other officers as the business of the ASSOCIATION may require. The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine. In the absence of action by the board of directors, the officers shall have such powers and duties as generally pertain to their respective offices.

Section 2. Election and Term of Office. The officers of the ASSOCIATION shall be elected annually at the first meeting of the board of directors held after each annual meeting of the shareholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as possible. Each officer shall hold office until a successor has been duly elected and qualified or until the officer's death, resignation or removal in the manner hereinafter provided. Election or appointment of an officer, employee or agent shall not of itself create contractual rights. The board of directors may authorize the ASSOCIATION to enter into an employment contract with any officer in accordance with regulations of the OTS; but no such contract shall impair the right of the board of directors to remove any officer at any time in accordance with Section 3 of this Article V.

Section 3. Removal. Any officer may be removed by the board of directors whenever in its judgment the best interests of the ASSOCIATION will be served thereby, but such removal, other than for cause, shall be without prejudice to the contractual rights, if any, of the person so removed.

Section 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term.

Section 5. Remuneration. The remuneration of the officers shall be fixed from time to time by the board of directors.

ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS

Section 1. Contracts. To the extent permitted by regulations of the OTS, and except as otherwise prescribed by these bylaws with respect to certificates for shares, the board of directors may authorize any officer, employee, or agent of the ASSOCIATION to enter into any contract or execute and deliver any instrument in the name of and on behalf of the ASSOCIATION. Such authority may be general or confined to specific instances.

Section 2. Loans. No loans shall be contracted on behalf of the ASSOCIATION and no evidence of indebtedness shall be issued in its name unless authorized by the board of directors. Such authority may be general or confined to specific instances.

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Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the ASSOCIATION shall be signed by one or more officers, employees or agents of the ASSOCIATION in such manner as shall from time to time be determined by the board of directors.

Section 4. Deposits. All funds of the ASSOCIATION not otherwise employed shall be deposited from time to time to the credit of the ASSOCIATION in any duly authorized depositories as the board of directors may select.

ARTICLE VII. CERTIFICATES FOR SHARES

AND THEIR TRANSFER

Section 1. Certificates for Shares. Certificates representing shares of capital stock of the ASSOCIATION shall be in such form as shall be determined by the board of directors and approved by the OTS. Such certificates shall be signed by the chief executive officer or by any other officer of the ASSOCIATION authorized by the board of directors, attested by the secretary or an assistant secretary, and sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar, other than the ASSOCIATION itself or one of its employees. Each certificate for shares of capital stock shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the ASSOCIATION. All certificates surrendered to the ASSOCIATION for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares has been surrendered and cancelled, except that in case of a lost or destroyed certificate, a new certificate may be issued upon such terms and indemnity to the ASSOCIATION as the board of directors may prescribe.

Section 2. Transfer of Shares. Transfer of shares of capital stock of the ASSOCIATION shall be made only on its stock transfer books. Authority for such transfer shall be given only by the holder of record or by his legal representative, who shall furnish proper evidence of such authority, or by his attorney authorized by a duly executed power of attorney and filed with the ASSOCIATION. Such transfer shall be made only on surrender for cancellation of the certificate for such shares. The person in whose name shares of capital stock stand on the books of the ASSOCIATION shall be deemed by the ASSOCIATION to be the owner for all purposes.

ARTICLE VIII. FISCAL YEAR; ANNUAL AUDIT

The fiscal year of the ASSOCIATION shall end on December 31 of each year. The ASSOCIATION shall be subject to an annual audit as of the end of its fiscal year by independent public accountants appointed by and responsible to the board of directors. The appointment of such accountants shall be subject to annual ratification by the shareholders.

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ARTICLE IX. DIVIDENDS

Subject to the terms of the ASSOCIATION's Charter and the regulations and orders of the OTS, the board of directors may, from time to time, declare, and the ASSOCIATION may pay, dividends on its outstanding shares of capital stock.

ARTICLE X. CORPORATE SEAL

The board of directors shall provide an ASSOCIATION seal, which shall be two concentric circles between which shall be the name of the ASSOCIATION. The year of incorporation or an emblem may appear in the center.

ARTICLE XI. AMENDMENTS

These bylaws may be amended in a manner consistent with regulations of the OTS at any time by a majority vote of the full board of directors, or by a majority vote of the votes cast by the shareholders of the ASSOCIATION at any legal meeting.

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, George L. Engelke, Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Astoria Financial Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:   August 6, 2010

/s/   George L. Engelke, Jr. 

George L. Engelke, Jr.

Chairman and Chief Executive Officer

Astoria Financial Corporation

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Frank E. Fusco, certify that:

1.  I have reviewed this Quarterly Report on Form 10-Q of Astoria Financial Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:   August 6, 2010

/s/   Frank E. Fusco 

Frank E. Fusco

Executive Vice President, Treasurer and Chief Financial Officer

Astoria Financial Corporation

EX-32.1

Exhibit 32.1

STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350

The undersigned, George L. Engelke, Jr., is the Chairman and Chief Executive Officer of Astoria Financial Corporation (the “Company”).

This statement is being furnished in connection with the filing by the Company of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (the “Report”).

By execution of this statement, I certify that:

(A) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and

(B) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.

August 6, 2010	/s/      George L. Engelke, Jr.
Dated	George L. Engelke, Jr.

EX-32.2

Exhibit 32.2

STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350

The undersigned, Frank E. Fusco, is the Executive Vice President, Treasurer and Chief Financial Officer of Astoria Financial Corporation (the “Company”).

This statement is being furnished in connection with the filing by the Company of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (the “Report”).

By execution of this statement, I certify that:

(A) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and

(B) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.

August 6, 2010	/s/      Frank E. Fusco
Dated	Frank E. Fusco