Flushing Financial Corporation Q2 FY2025 earnings call

• Focus on 3 key areas: improving profitability, maintaining credit discipline, and preserving strong liquidity and capital drove positive results.
• Net interest margin expanded 3 basis points quarter-over-quarter, with core net interest income up $10.5 million year-over-year. Loan yields increased 7 basis points quarter-over-quarter, offset by some swap maturities.
• Noninterest-bearing deposits grew, with new checking account openings up 21% year-over-year and 8% quarter-over-quarter. Funding costs increased 8 basis points quarter-over-quarter due to funding swaps.
• Credit discipline was maintained with strong loan underwriting standards; multifamily and investor commercial real estate portfolios had strong debt coverage ratios and improved criticized/classified loan levels.
• Tangible common equity grew to 8.04%, and liquidity remained robust with $3.6 billion of undrawn lines.

For the second quarter, Flushing Financial Corporation reported GAAP earnings per share of $0.41 and core earnings per share of $0.32, up 128% and 78% year-over-year respectively. Both GAAP and core net interest margin expanded 3 basis points quarter-over-quarter, with GAAP net interest margin at 2.54% and core at 2.52%. Average total deposits increased 6% year-over-year and 1% quarter-over-quarter to $7.6 billion, with noninterest-bearing deposits up 6% year-over-year and 2% quarter-over-quarter to $875 million. Pre-provision pretax net revenue was $23.1 million and core PPNR was $19 million in the second quarter. Credit metrics were strong: net charge-offs totaled 15 basis points, nonperforming assets were stable at 70-75 basis points, criticized and classified loans to total loans improved to 108 basis points, and commercial real estate concentration decreased to under 500% for the first time since Q3 2023. Tangible common equity grew by 25 basis points to 8.04%, and liquidity was strong with $3.6 billion of undrawn lines at quarter end.

• Expect total assets to remain stable with loan growth market-dependent. Net interest margin outlook affected by $391 million of retail CDs maturing in Q3, $373 million of loans contractually repricing in H2 2025, seasonal deposit outflows in Q3, and yield curve shape.
• Noninterest income expected to benefit from $41 million in back-to-back swap loans closing. Core noninterest expense growth revised to 4.5%-5.5% for 2025 from $159.6 million base in 2024.
• Effective tax rate expected in the range of 24.5%-26.5% for the remainder of 2025.

• Yield curve slope impacts net interest margin; negatively sloped curve makes margin expansion challenging.
• Seasonal deposit outflows, particularly in government deposits, in Q3 pose uncertainty.
• Potential policy changes related to New York City rent-regulated multifamily lending due to mayoral election could affect outlook.

Q: Mark Fitzgibbon asked about deposit decline, interest rate sensitivity with yield curve change, and impact of New York Mayor election on rent-regulated multifamily lending.

A: John Buran said most deposit decline was seasonal, return to normal yield curve is positive for margin, and Mayor's office can't unilaterally freeze rents without state approval.

Q: Thomas Reid asked about expense outlook and SBA hiring/de novo expansion.

A: Susan Cullen said expense decrease was due to truing up accruals and tight expense management, and plans to open 2 branches including a second in Chinatown.

Q: David Konrad asked about repricing yields on non-CD deposits.

A: John Buran said limited opportunity to lower funding costs until Fed moves, most help on NIM from asset side and loan repricing.

Q: Sharanjit Cheema asked about impact of loan repricing on credit.

A: Susan Cullen said loans that repriced were mostly current, with limited credit stress as they were stress-tested at origination