NEW YORK (TheStreet) -- Astoria Financial (AF) has been growing its multifamily and commercial real estate loan portfolio at a strong pace, and KBW analyst Brian Kleinhanzl expects the company to "benefit from higher long-term rates in multiple ways."

The analyst on Wednesday upgraded Astoria to an "outperform" rating from "market perform," while leaving his 2014 earnings estimate for the bank unchanged at 70 cents a share, but raising his 2015 EPS estimate to $1.00 from $0.85.

Astoria has been going through a multi-year repositioning of its balance sheet, as the company prepays wholesale borrowings and focuses more on building its multifamily and commercial mortgage business, while de-emphasizing its traditional focus on one-to-four family mortgage lending.

The company had $16.1 billion in total assets as of Sept. 30, down 8% from a year earlier, mainly reflecting a 19% decline in one-to-four family mortgage loans, to $8.499 billion.  But that was partially offset by a 32% increase in more profitable multifamily and commercial real estate loans, to $3.829 billion, as of Sept. 30.

Astoria's net interest margin -- the spread between the average yield on loans and investments and the average cost for deposits and borrowings -- widened to 2.28% in the third quarter, from 2.22% the previous quarter and 2.09% a year earlier.

The margin, along with Astoria's overall profitability, was helped by  an 8% year-over-year increase in NOW and demand deposits to $2.2013 billion as of Sept. 30., with an average cost of just 5 basis points.

Astoria's return on average assets for the third quarter was 0.42%, improving from 0.31% a year earlier, while its return on tangible common equity improved to 5.20% from 4.84%. 

The improved returns are still not impressive, and "2014 will be another transitional year for Astoria's balance sheet," according to Kleinhanzl, however the analyst also believes that as Astoria moves past its balance sheet restructuing, "the company's stock valuation [will] improve as investors get a clearer picture of the true earnings power of Astoria post balance sheet repositioning."

Kleinhanzl raised his price target for Astoria to $17 from $13, "largely on improved expected returns in the forward years."

Astoria's shares closed at $13.84, returning 50% during 2013, assuming the reinvestment of dividends.  With a quarterly payout of 4 cents, the shares have a dividend yield of 1.16%.

The shares trade for 1.2 times their reported Sept. 30 tangible book value of $11.59, and for 17.5 times the consensus 2015 EPS estimate of 79 cents.  The consensus 2014 EPS estimate is 64 cents.

It will be fascinating to see whether or not the consensus 2015 EPS estimate rises significantly this year against Kleinhanzl's 2015 EPS estimate of $1.00.

The following chart shows Astoria's performance during 2013 against the KBW Bank Index (I:BKX) and the S&P 500I:GSPC:

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AF data by YCharts

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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 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.