USA, Apr. 28, 2009 (Info-Prod Research) -- Moody's Investors Service downgraded the bankfinancial (NASDAQ:BFIN) strength rating (BFSR) and deposit and debt ratings of AstoriaFinancial Corporation and its rated subsidiaries, including those of itslead thrift subsidiary, Astoria Federal Savings and Loan Association.Astoria Financial Corporation's long-term senior rating was lowered toBaa1 from A2. Astoria Federal Savings and Loan Association's BFSR waslowered to C from B-, its long- and short-term term deposit ratings to A3and Prime-2 from A1 and Prime-1, respectively, and its issuer rating toA3 from A1. The outlook is negative. This concludes the review forpossible downgrade that was initiated on December 19, 2008. AstoriaFinancial Corporation and its subsidiaries are collectively referred tohereafter as 'Astoria'. The downgrade reflects Moody's view that increasing credit losses arising from Astoria's portfolio of residential mortgages over the next 12 to 18months are likely to result in weaker asset quality and profitabilityratios, and could pressure its regulatory capital ratios and ratio oftangible common equity to risk-weighted assets. Also a factor behind thedowngrade is the dependence of the holding company, Astoria FinancialCorporation, on remittances from its thrift subsidiary to meet itsoperational and financial obligations.Moody's observed that residential mortgages account for three-quarters ofAstoria's loan portfolio, and that jumbo residential mortgages,particularly those secured by properties in the metropolitan New Yorkarea, constitute a large concentration risk. Although the metro-New Yorksegment of the residential mortgage portfolio has performed well thus farin relation to residential mortgages secured by properties in otherregions of the country, Moody's expects asset quality indicators for theresidential mortgage portfolio to deteriorate as the effects of the U.S.recession translate into higher unemployment rates. Moody's recognizesthat Astoria's net charge-offs have been low to date, due to its soundunderwriting. Nevertheless, the rating agency is of the view that aconcentration of this size is a major credit concern, given the risk itposes for the firm's earnings and capital should credit losses be greaterthan expected. Moody's also expects credit losses from Astoria's non-owner-occupiedcommercial real estate portfolio, including multi-family andconstruction, to increase over the same time horizon. However, creditlosses from multifamily mortgages secured by rent-stabilized andrent-controlled properties are expected to be minimal, the rating agencyadded. With regard to the holding company's liquidity profile, Moody's observedthat Astoria's practice for some time now has been to maintain a highdouble leverage ratio, and to keep financial resources at the holdingcompany at a low level. More specifically, the holding company'sresources have been maintained at a level that is insufficient to coveroperational and financial obligations beyond one year, which makes itdependent on dividends from the thrift subsidiary, Moody's added. Whilethis practice is efficient from a cost perspective, Moody's believes thatthe heightened liquidity risk assumed through this practice is notcommensurate with its previous ratings in the current strained economicand capital markets environment. At the time Astoria's ratings were placed on review for possible downgrade in December 2008, Moody's expressed its concern that thecompany's ratio of core deposits to loans would weaken further as aresult of appreciably faster projected loan growth than projected depositgrowth in 2009. Astoria's ratio of core deposit funding as a percentageof its loan portfolio has been trending lower over several quarters, andat about 60% is among the weakest in the rating peer group. With theslowing of the economy, the company has scaled back its projected loangrowth, which should result in a more stable core funding ratio. Moody's said that Astoria's ratings continue to be supported by its goodmarket shares in Long Island, Queens, and Brooklyn, and its superioroperating efficiency.