Astoria Financial (AF) will continue to stake its success on a shift in its balance sheet.
The $16.5 billion-asset company in Lake Success, N.Y., said Thursday it aims to increase the share of multifamily and commercial loans in its portfolio and to boost business lending.
Though Astoria's loan book of $13.2 billion was roughly unchanged from the fourth quarter of 2011, it reflected a shift in priorities that the company — which has historically been a single-family lender — hopes will improve future profits. Multifamily and commercial estate loans made up 24% of the total, compared with 18% in the fourth quarter of 2011, while its volume of lower-yielding single-family loans continued to shrink. In the fourth-quarter, the company originated $220 million of residential loans, compared to more than $1 billion of originations in the same period in 2011.
The company is also letting many of its certificates of deposit run off and is aiming to replace them with stickier business deposits.
"We expect in the next three years to have that residential loan portfolio reduced to less than 50% of the total loan portfolio and our [certificates of deposit] to less than 20% of our total deposits," Monte Redman, Astoria's chief executive, told analysts on a conference call.
To aid the makeover, Astoria said it would open branches throughout the Long Island metropolitan area in locations that offer opportunities to attract commercial customers.
Redman said that Astoria, which has roughly 86 locations, expects to add "a couple of branches per year, the next couple of years" in Manhattan, Brooklyn and Queens in New York City as well as throughout Nassau and Suffolk counties on Long Island.
The strategy comes amid profit pressures on many banks that stem from a combination of low interest rates and high-cost deposits.
Though earnings at Astoria rose 44% during the fourth quarter of 2012 from a year earlier, to $17 million, net interest income of $87.4 million remained roughly unchanged year over year. The net interest margin increased 1 basis point from a year earlier, to 2.21%.
Astoria expects to add $1.5 billion in multifamily and commercial loans in 2013, according to Redman, who said the company started the year with applications for roughly $560 in multi-family and commercial loans pending, up 12% from the third quarter of 2012.
Redman said that Astoria would hire "seasoned business relationship managers" to fuel commercial deposit growth. He declined to rule out buying business deposits but said the company is "looking at internal and organic growth as being our primary driver."
Though shares of Astoria fell 20 cents on Thursday, to $9.74, some analysts have endorsed the bank's blueprint.
Mark Fitzgibbon, an analyst at Sandler O'Neill & Partners, reiterated his "buy" rating on Astoria, calling the company's plan to lift its net interest margin in the coming year "very achievable in light of the positive mix shifts on both sides of the balance sheet."
In a research note last month, Fitzgibbon also pegged Astoria as a potential takeover target, citing its focus on commercial lending and a stock price that continues to trade at a discount.