Bleak earnings prospects fueled by continued pressure from the flat yield curve caused one analyst to downgrade three New York thrift companies' stocks Monday.
Jeff K. Davis, an analyst at First Horizon National Corp.'s FTN Midwest Securities Corp., lowered his ratings on New York Community Bancorp Inc., Astoria Financial Corp., and Dime Community Bancshares Inc. to "sell," from "neutral."
In an interview Monday, Mr. Davis said that more interest rate hikes by the Federal Reserve Board - past what many considered the final hike last month - will further hurt earnings this year.
"This is going to be a tough year for any depository [institution] that does not have a significant level" of deposits that do not pay interest. For thrifts, it will be "especially tough as their liabilities reprice and have very limited yield relief," he said. "All three companies will have a significant amount of repricing this year."
Mr. Davis does not expect New York Community, of Westbury, N.Y., to report any earnings surprises, but he wrote in a note that its first-quarter results would be "just more of the same in which the net interest margin declines." He cut his earnings estimates by 7 cents a share for this year, to $1, and by 10 cents for next year, to $1.10.
Anthony R. Davis, an analyst with BankAtlantic Bancorp's Ryan Beck & Co. Inc., is more optimistic about the $26.3 billion-asset New York Community, which he rates "market perform."
Multifamily lenders need "a steepness in the yield curve and a pickup in prepayment and refinance activity," he said in an interview Monday. "The [recent] steepening of the five-year yields is going to accelerate prepayments, and that will be good for fee income and margins."
On a positive note, FTN Midwest's Mr. Davis expects New York Community to report first-quarter loan growth in the "upper teens," as it continues to shift its earning asset mix from securities to multifamily and other forms of commercial real estate loans. The company has also been acquisitive. It bought Long Island Financial Corp. of Islandia, N.Y., for $69.8 million in December. It is expected to complete its $400 million purchase of Atlantic Bank of New York, a Manhattan unit of the National Bank of Greece, this quarter.
Astoria, of Lake Success, N.Y., will have earnings pressure similar to that of New York Community, said FTN Midwest's Mr. Davis. He cut his earnings estimates for the company by 2 cents a share for this year, to $2.13, and 20 cents next year, to $2.25.
Yet Astoria "has much more capital flexibility," he said. "They are an active share repurchaser and tend to run the balance sheet a little more even matched between assets and liabilities."
Mark T. Fitzgibbon, the director of research at Sandler O'Neill & Partners LP, has a "buy" rating on Astoria's stock.
"Although the environment is very challenging, we think they are better positioned than many thrifts to hold their margin," Mr. Fitzgibbon said in an interview Monday. The company is an attractive acquisition target for a larger banking company looking "to establish a beachhead in the New York market," particularly after several recent deal announcements in the area.
FTN Midwest's Mr. Davis wrote that the operating environment points to lower earnings at Dime as well. He cut his estimates by 1 cent for this year, to 86 cents, and by 8 cents for next year, to 95 cents.
On Monday, Ryan Beck's Mr. Davis upgraded the $3.1 billion-asset Dime, of Brooklyn, N.Y., to "market perform," from "underperform," even though he acknowledged that Dime's earnings are under pressure.
The upgrade stems from the fact that Dime's shares have lagged the broader market over the past year, though the company is poised to benefit once interest rates stabilize, and its 21 branches got a boost in "scarcity value" as a result of the recent deals, he wrote in a note.
Ken Mahon, Dime's chief financial officer, said Monday that competition from commercial banks in the New York market provides his company with "an opportunity to pick up old-line thrift customers out of those shops." He would not discuss either analyst's notes further.
New York Community and Astoria did not return phone calls on Monday.
