Flushing Financial Corporation earnings

Management highlights

- Profitability improvement: Both GAAP and core net interest margin (NIM) expanded 10 basis points QoQ, driven by asset repricing strategy; real estate loans expected to reprice ~147 basis points higher by 2027. - Deposit focus: Noninterest-bearing deposit base continued to grow, with revised incentive plans emphasizing this funding source; average noninterest-bearing deposits up 5.7% Y/Y. - Credit discipline: Operate with low-risk profile via conservative loan underwriting; net charge-offs significantly better than industry; multifamily and investor commercial real estate portfolios have strong debt coverage ratios; criticized and classified loans metrics favorable vs peers. - Liquidity and capital: Strong liquidity with $3.9 billion of undrawn lines and resources; tangible common equity ratio at 8.01%

Guidance

- NIM expected to expand further as loan portfolio reprices upward; real estate loans to reprice ~147 basis points higher by 2027. - Opportunity to lower deposit costs as Fed reduces rates; $770 million of CDs maturing in Q4 with potential to reprice at lower rates. - Noninterest income to benefit from ~$59 million in back-to-back swap loans closing by year-end; BOLI income expected at $2 million per quarter. - Core noninterest expense growth expected 4.5%-5.5% in 2025; effective tax rate expected 24.5%-26.5% for remainder of 2025

Segment performance

For the third quarter, Flushing Financial reported GAAP earnings per share of $0.30 and core earnings per share of $0.35, with core earnings improving 55% year-over-year. Net interest margin expanded 10 basis points quarter-over-quarter, with GAAP net interest margin at 2.64% and core net interest margin at 2.62%. Noninterest-bearing deposits grew 7.2% sequentially, with average noninterest-bearing deposits up 2.1% QoQ and 5.7% Y/Y. Net charge-offs totaled 7 basis points, improving 15 basis points from the second quarter, and nonperforming assets as a percentage of total assets were 70 basis points. The tangible common equity ratio was 8.01%, increasing 101 basis points from Q3 2024. Core net interest income increased by $8.6 million or over 19% Y/Y.

Risks & headwinds

- Macroeconomic uncertainty could impact financial performance. - Yield curve changes may affect net interest margin expansion; positively sloped curve aids NIM, negatively sloped curve challenges it. - Deposit cost reduction faces challenges; timing and extent of Fed rate cuts impact ability to lower deposit costs. - Swap maturities could impact margin, though forwards coming on board to mitigate some effects

Analyst Q&A

• Q: Talked about NIM, specifically miscellaneous fees and next quarter's range.

  A: Susan Cullen noted those have been higher than historical but expect them to be still elevated but not at Q3 levels.

• Q: Question on deposit beta and liability sensitivity.

  A: Susan Cullen said deposit beta would mirror Fed moves, balance sheet is a bit liability sensitive but moving to neutral.

• Q: Question on stock buybacks.

  A: John Buran stated focus is on maintaining dividend and keeping capital ready for portfolio growth.

• Q: Question on swap maturity cadence.

  A: Susan Cullen discussed swaps maturing, with forwards coming on board to mitigate impact, impact on margin small.

• Q: Question on balance sheet positioning and loan pipeline.

  A: Susan Cullen mentioned prefunding CLO calls and loan pipeline, with loan growth expected to relieve investment book