Astoria Financial (AF) in Lake Success, N.Y., reported strong second-quarter results thanks to a decline in expenses and improving credit quality.

The $16.1 billion-asset thrift posted a quarterly profit of $12.8 million, essentially flat with a year earlier, though per-share earnings of 13 cents a share beat analysts' consensus estimates by two pennies, according to Bloomberg. Since the quarterly results included a $4.3 million prepayment charge for the early extinguishment of debt, analysts pegged core earnings per share at 14 cents a share, a 7% jump from a year earlier.

Investors lauded the improvements, sending Astoria's stock up nearly 5% as of late Thursday, to $12.17 a share.

Mark Fitzgibbon, a principal and director of research at Sandler O'Neill & Partners said there were "a whole bunch of little things moving in the right direction" for Astoria in the second quarter.

"Investors are slowing warming to Astoria as a deep value transition story," Fitzgibbon wrote in a research note Thursday.

Astoria continues to shift its asset mix with multifamily and commercial loans rising to 30% in the second quarter, up from 24% of total lending at year-end. Meanwhile low-yielding residential loans fell to 69% of total lending. The mix should change to 50% each by mid-2015, Fitzgibbon says.

At a time when most banks are seeing their net interest margin compress, Astoria's increased to 2.22%, from 2.14% a year earlier. Operating expenses fell about 2% in the quarter despite significant investments in the thrift's business banking unit. Astoria's business banking deposits jumped 29% to $630.7 million at June 30, compared with year-end.

"We will continue to concentrate on growing the multifamily/commercial loan portfolio, reducing high-cost [certificates of deposit] and increasing low-cost core deposits, all of which should positively impact the net interest margin," Astoria's president and Chief Executive Monte Redman said in the thrift's earnings release Wednesday. "With long-term mortgage rates trending higher, we hope to see a possible slowdown in residential loan prepayments and the stabilization of our residential loan portfolio."

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