'Storm Is Brewing' for Banks

Astoria Financial
Shares of Astoria Financial (AF) of Lake Success, N.Y., closed at $10.01 Monday, returning 20% year-to-date, following a 36% decline during 2011. AF data by YCharts

The shares trade for 0.9 times their reported March 31 tangible book value of $11.22, and for 15 times the consensus 2013 EPS estimate of 65 cents. The consensus 2012 EPS estimate is 53 cents.

Astoria during the first quarter cut its quarterly dividend to four cents from 13 cents, as the company suffered year-over-year declines in net interest income and margin. Based on the current payout the shares have a dividend yield of 1.60%.

The company will report its second-quarter results on July 18, with analysts expecting a 13-cent profit, following EPS of 11 cents the previous quarter and 18 cents a year earlier.

The company's first-quarter net interest margin was a relatively narrow 2.20%, unchanged from the fourth quarter, but declining from 2.40% during the first quarter of 2011.

Alexopoulos rates Astoria "Underweight," and on Tuesday called the company one of his "top shorts," and said he expects the second-quarter net interest margin to contract by two basis points to 2.18%, and with the dividend cut, expects the company's tangible common equity ratio "to improve modestly to ~6.5%."

Alexopoulos expects Astoria to earn 46 cents a share this year, followed by 2013 EPS of 52 cents.

The analyst said on Tuesday that "even looking all the way to 2016, [there is] still no clear path to AF earning above its cost of capital," and with "AF now under the regulatory guidance [for capital ratios] of one of the toughest regulators, the OCC, in our view, it's very unlikely that the company will return to [its] previously thin level of tangible common equity."

Interested in more on Astoria Financial? See TheStreet Ratings' report card for this stock.

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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