With more than a third of its assets invested in residential mortgages, handling interest rate risk is a major concern for Astoria Financial Corp.

So it's fitting that Astoria's president and chief executive, George Engelke Jr., a CPA, considers assessing the direction of rates something of a personal specialty.

"We've seen an awful lot of lethargy among bankers who watch rates going up and then they raise their rates but still have them up when the market turns down," the 58-year-old thrift executive said in a recent interview.

Despite the difficulties inherent in predicting the moves of the Federal Reserve Board, Mr. Engelke said he's convinced the best strategy for Astoria is to stay close to its core business, residential lending.

Even as thrifts across the country rush to become more banklike, $7.3 billion-asset Astoria will stick to its knitting, he said.

Mr. Engelke has the background to make this strategy work.

Before joining Astoria Financial in 1971 as vice president and treasurer, he specialized in thrifts for nine of his 11 years as an accountant with Peat Marwick, Mitchell & Co., the predecessor to KPMG Peat Marwick.

Mr. Engelke said his training and heritage make him "a financially focused person."

That shows in Astoria's success. Last year it more than tripled loan production to $900 million. Fourth-quarter earnings were up 20.4% to $13.6 million.

Profits for the full year would have jumped 18.5%, to $53.8 million, if not for a $16.9 million after-tax charge to recapitalize the Savings Association Insurance Fund. Profits after the one-time charge were down 18.7%, to $36.9 million.

"We were focused again on products we were good at, developing, monitoring, and controlling them while fitting them into our interest rate models," Mr. Engelke explained.

His accountant's conservatism has not gone unnoticed by colleagues.

According to Paul A. Schosberg, president of the thrift trade association American Community Bankers in Washington, Mr. Engelke "has an aversion to short-term expediencies and gimmickry." He's the kind of manager it takes to make a long-term franchise work, Mr. Schosberg added.

But no one envies the stiff competition Astoria faces on Long Island and in New York City. With the highly acquisitive North Fork Bancorp to the east, the money-center banks operating in most of the five boroughs of New York, and other large thrifts like Dime Bancorp and GreenPoint Financial Corp. also nearby, Astoria has its work cut out for it.

Mr. Engelke pointed out that in 109 years of operation, Astoria has learned to coexist with the likes of Citicorp and Chase Manhattan Corp. while holding its own against nonbank competitors Merrill Lynch & Co., PaineWebber Group, and the private mortgage brokers.

"There are many products to offer, but if the bank can win or hold one basis point we've done our job," he said.

Mr. Engelke maintained that his greatest challenge is not competition but Congress, where he has been busy lobbying to keep legislators from creating a new combined charter for banks and thrifts.

"Some like the bank charter because they think they'll get bank valuations on the market," Mr. Engelke said. "I don't find it a strong reason to change a charter when I can do all the business under the charter that I am in."

With 38 offices in Queens, Nassau, and Suffolk counties, and five branches in the upstate counties of Chenango and Ostego, Astoria Financial positions itself as a community bank.

It expects to reach $10 billion of assets by 2000-an interim goal, according to Mr. Engelke. Size brings efficiency, he says, but banks that focus on bigness for its own sake are "very boring."

"Efficient deployment of capital and driving efficiencies are our reasons-not being the biggest," he said.

Astoria's acquisition strategy has been careful and conservative. Mr. Engelke says he prefers in-market deals with institutions within 50 miles of his Nassau County headquarters.

Although the thrift hasn't ventured out of state, its acquisition strategy would allow it to make purchases in New Jersey and southern Connecticut.

Bank analysts are mostly satisfied with Astoria's performance but point out that has not expanded into nearby Brooklyn.

"Astoria will get there at some point, but I am not aware of any potential candidates," said Mark Fitzgibbon with Sandler O'Neill & Partners.

Mr. Engelke said his management team is studying the Brooklyn market. The borough's population of working-class homeowners is similar to the thrift's customer base in Queens. Brooklyn institutions of $300 million to $1 billion of assets could become prime targets in the next 12 to 18 months.

"Astoria itself is an attractive acquisition candidate," pointed out William B. Rubin, who manages the Select Home Finance Portfolio for Fidelity Management and Research Co. in Boston. Select Home Finance has owned 7.5% of Astoria's stock since the thrift went public in 1993.

Mr. Rubin and others said GreenPoint, North Fork, and Mahwah, N.J.-based Hubco Inc. might all be interested in buying Astoria. "Frankly, anything is possible in a market with excess capacity," Mr. Rubin said.

Consolidation doesn't scare Mr. Engelke. He holds 2.56% of Astoria's common stock and says management would seriously consider any offer. However, he told investors at a recent meeting that his strategy was to keep Astoria independent.

In the meantime, as head of the third-largest thrift in New York, behind Dime and GreenPoint, he has more pressing concerns.

"Consolidation makes a lot of sense," he said. "Some of us that do focus on certain things and do them well ... can deliver more efficiently than the next competitor."

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