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Fierce competition, a run-up in prices, and an expected jump in interest rates in the years ahead could spell bad news for banks that hold multifamily loans on their balance sheets. Cheap financing from Fannie and Freddie is also fueling concerns of a bubble.
February 8
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."
