Flushing Financial - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 delivered sequential NIM expansion (GAAP NIM FTE 2.64%, +10 bps QoQ; Core NIM FTE 2.62%, +10 bps QoQ) and stable credit, with GAAP EPS $0.30 and Core EPS $0.35.
• Street comparison: Core EPS beat the S&P Global Primary EPS consensus ($0.35 vs $0.303*) while revenue missed ($57.0M vs $58.7M*)—a positive EPS surprise despite softer top-line* [GetEstimates].
• Deposit mix improved: average noninterest-bearing deposits rose 5.7% YoY and 2.1% QoQ to 12.2% of total; the company cut rates 20–25 bps on ~$1.8B deposits late September, with full benefit expected in Q4.
• Management reiterated 2025 expense and tax guidance, emphasized embedded NII tailwinds from ~$2.0B of loan repricings through 2027, and highlighted minimal office exposure (0.48% of gross loans), sustaining conservative credit posture.
• Near-term catalysts: further deposit cost relief (CD maturities ~$770M at 3.98%), back-to-back swap loan pipeline (~$59M) and BOLI income ($2M/quarter) supporting noninterest income; activist/buyback debate surfaced but capital prioritized for dividend and growth.

What Went Well and What Went Wrong

What Went Well

• Net interest margin expanded on both GAAP and core bases (+10 bps QoQ), aided by asset repricing and improving deposit mix; “turning point” in results per CEO commentary.
• Credit stability: NPAs fell to 70 bps of assets (from 75 bps in Q2); net charge-offs declined to 7 bps; allowance/loans at 0.63%—consistent with conservative underwriting.
• Management highlighted embedded earnings power: “approximately $2 billion” of loans scheduled to reprice through 2027; retained ~80% of repricing loans at +222 bps higher rates, confirming franchise stickiness.

Quotes:

• “These quarterly results marked a turning point for the Company… successful execution of our strategic priorities” — John R. Buran, CEO.
• “Core net interest income increased by $8.6 million, or a little over 19% year over year… loan pricing should drive NIM expansion” — Susan K. Cullen, CFO.

What Went Wrong

• Noninterest income declined QoQ (to $4.7M) driven by negative fair value adjustments (–$1.8M) and lower net gains vs Q2; core noninterest income dipped 1.9% QoQ.
• GAAP noninterest expense rose QoQ (+7.5%) to $43.4M, including ~+$1.05M of non-recurring professional expenses tied to strategic planning, with “more to follow” in Q4.
• Revenue (net interest + noninterest) tracked below S&P consensus*, producing a mixed headline—EPS beat but revenue miss* [GetEstimates].

Analyst concerns:

• NIM reliance on “episodic items” (9 bps in Q3 vs 6 bps in Q2); CFO cautioned these could normalize lower next quarter.
• Buyback hesitancy despite valuation discount; management prioritizes dividend and growth vs repurchases, prompting questions about near-term ROTCE improvement and activist risk.

Transcript

Operator (participant)

Welcome to the Flushing Financial Corporation's third quarter 2025 earnings conference call. Hosting the call today are John Buran, President and Chief Executive Officer, and Susan Cullen, Senior Executive Vice President, Chief Financial Officer and Treasurer. Today's call is being recorded. A copy of the earnings press release and slide presentation that the company will be referencing today are available on its investor relations at flushingbank.com. Before we begin, the company would like to remind you that discussions during this call contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contained in any such statements, including as set forth in the company's filings with the U.S. Securities and Exchange Commission, to which we refer you.

During this call, references will be made to non-GAAP financial measures as supplemental measures to review and assess operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about these non-GAAP measures and for a reconciliation to GAAP, please refer to the earnings release and or the presentation. I would now like to introduce John Buran, President and Chief Executive Officer, who will provide an overview of the strategy and results.

John Buran (President and CEO)

Thank you, Operator. Good morning, and thank you all for joining us on our third quarter 2025 earnings conference call. We're pleased to report strong third quarter results, continuing on the momentum we achieved in the first half of the year despite macroeconomic uncertainty and reflecting the considerable progress we've made on our three key focus areas to improve profitability, maintain credit discipline, and preserve strong liquidity and capital. Our team has remained focused, consistently executing on these objectives. For the third quarter, the company reported GAAP earnings per share of $0.30 and core earnings per share of $0.35. Core earnings improved 55% from a year ago. Turning to our financial highlights on Slide three, we showed improved results from throughout our business. Net interest margin expanded 10 basis points quarter over quarter, with GAAP net interest margin increasing to 2.64% while core net interest margin expanded to 2.62%.

We saw improvement from the first quarter of this year and 55 basis point growth from last year's third quarter core net interest margin. We also demonstrated stable to improving credit metrics this quarter, reflecting the strength of our conservative underwriting approach. Net charge-offs totaled 7 basis points for the third quarter, improving 15 basis points from the second quarter of this year. Non-performing assets as a percentage of total assets were at 70 basis points compared to 75 basis points in the second quarter of this year. During the third quarter, we also continued to see non-interest-bearing deposit growth, which increased 7.2% sequentially. Average non-interest-bearing deposits increased 2.1% quarter over quarter and 5.7% year over year. This strong operating performance also strengthened our balance sheet. Our tangible common equity ratio remained stable in the quarter at 8.01%, increasing 101 basis points from the third quarter of 2024.

Our liquidity remains strong with $3.9 billion of undrawn lines and resources as of September 30, 2025. While there's more work to be done, we're pleased with our execution to date while the real opportunity lies ahead as our loan portfolio reprices upward in 2026 and 2027. I will now turn it over to Susan to discuss this and other news. Susan?

Susan Cullen (Senior EVP, CFO, and Treasurer)

Thank you, John.

We continue to focus on improving profitability, the first key focus area in our strategy. As John mentioned, both GAAP and core NIM expanded 10 basis points quarter over quarter, demonstrating the benefit of our asset repricing strategy. Real estate loans are expected to reprice approximately 147 basis points higher throughout 2027, which should drive further net interest margin expansion. We continue to see additional growth in our non-interest-bearing deposit base, which is a key focus area with our revised incentive plans emphasizing this important funding source. We are also continuing to invest in the business, both in our people and our branches, in order to keep driving core business improvements. Given this, we expect capital to grow as profitability improves. On slide five, we provide further details on our net interest margin expansion.

Core net interest income increased by $8.6 million, or a little over 19% year over year, demonstrating our increased earnings power. Key drivers of the NIM quarter over quarter include loan security yields increasing 8 basis points and 15 basis points, respectively, which was partially offset by a 4 basis point increase in interest-bearing liabilities, which was driven by swap maturities. Episodic items, which include prepayment penalties, net reversals, and recovered interest from non-accrual and delinquent loans, fair value adjustments on hedges, and purchase accounting adjustments, were higher in the third quarter compared to the second. We remain confident that in the long term, loan pricing should drive NIM expansion, assuming no change in the current flat yield curve. A positively sloped yield curve will aid net interest margin expansion, while a negatively sloped curve will make margin expansion more challenging.

Slide 6 illustrates one of our most significant embedded earnings drivers, the contractual repricing of our real estate loan portfolio. For the remainder of 2025, approximately $175 million of loans are scheduled to reprice at rates 128 basis points higher than their current coupon. Through the end of 2027, approximately $2 billion of loans, or about a third of all of our loans, are scheduled to reprice at significantly higher rates, providing a substantial predictable tailwind. For our net interest income contractually and on an annualized basis, net interest income will increase $2 million from the fourth quarter of 2025, repricing $11 million from the 2026 repricings and $15 million from 2027's repricings. To demonstrate this point, as of June 30, 2025, $96 million of loans were due to reprice.

In the third quarter, we successfully retained 80% of these loans at a weighted average rate of 6.65%, 222 basis points higher than the prior rate. There aren't any loans in this bucket that are non-accrual. This clearly speaks to our strong client relationships and our disciplined pricing and confirms the earnings power embedded in our loan book. Our deposit franchise remains a key pillar of our funding profile. As seen on slide 7, average total deposits were $7.3 billion. Our strategic initiative to grow core relationships is continuing to pay off. The revamped incentive plans we've previously discussed, which emphasize non-interest-bearing deposit accounts, are delivering tangible results. Average non-interest-bearing deposits increased approximately 6% year over year. We continue to closely watch our funding costs as the overall cost of deposits increased slightly quarter over quarter to 3.11%.

In late September, we reduced the rate on approximately $1.8 billion of deposits 20 basis points-25 basis points, with the full benefit expected to be recognized in the fourth quarter. We continue to see opportunities to lower deposit costs over time as the Fed reduces rates. Total CDs are $2.4 billion or 33% of total deposits. At quarter end, approximately $770 million of CDs with a weighted average rate of 3.98% will mature in the fourth quarter and our current CD rates are 3.40% to 3.75%. Our second area of focus, as shown on slide eight, is to maintain credit discipline. We continue to operate with a low risk profile built on conservative loan underwriting standards and our long history of low credit losses. We have enhanced our focus on relationship pricing and are seeing positive results from these efforts.

As slide nine illustrates, we have a long proven history of net charge-offs significantly better than the industry, characterized by strong debt service coverage ratios. Our conservative underwriting standards and credit culture have been proven through multiple rate and economic cycles and we are committed to having a low risk credit profile. Our multifamily and investor commercial real estate portfolios maintain strong debt coverage ratios at 1.7x. Even when we stress test these ratios for higher rates and increased operating expenses, the debt coverage ratio remains strong in a stressed scenario with both a 200 basis point increase and a 10% increase in operating expenses. The weighted average debt coverage ratio is approximately 1.36x in all scenarios. The weighted average current loan-to-value is less than 50%. Slide 10 shows how our noncurrent loans have been outperforming the industry for well over two decades and throughout numerous credit cycles.

Flushing Financial Corporation has a proven track record of industry-leading credit quality. Our borrowers maintain low leverage with the average loan-to-values in our real estate portfolio of less than 35%. We have only $67 million of real estate loans with a loan-to-value greater than 75% and about $18.5 million of those have loans with mortgage insurance as of September 30, 2025. Our strength rests in the quality of our loan portfolios. There's a growing need for affordable housing in the New York City area as detailed on Slide 11. In our $2.4 billion multifamily portfolio, non-performing loans were just 53 basis points. Criticized and classified loans in this segment improved to 66 basis points compared to 73 basis points in the prior quarter and 16 basis points in the first quarter.

The portfolio maintains a very strong weighted average debt coverage ratio of 1.7x based on the most recent financial data from our Loan Portfolio Review Group for the rent-stabilized multifamily loan portfolio. Further details are included in the appendix. Slide 12 provides perspective on the positioning of our rent-stabilized portfolio compared to recent market data. Ariel Property Advisors published a report for the third quarter sales which provides great insight into the strength of our rent-stabilized multifamily portfolio. This slide details the facts supporting our level of confidence and concluding that there is a minimal risk in the rent-stabilized multifamily portfolio. This slide shows the average sales price at each of the boroughs for the third quarter. Actual sales of rent-stabilized multifamily units including sales under duress provide an accurate reflection of true market value.

For example, in the Bronx, the average sale price for each individual apartment was approximately $98,000 while our carrying value is approximately $60,000, implying equity of $38,000 per individual apartment. This conservative positioning provides substantial equity cushion and validates our disciplined underwriting in this portfolio segment. Slide 13 provides peer comparison data and our current multifamily credit quality statistics. Our criticized and classified multifamily loans to total multifamily loans are 66 basis points, which compares favorably to our peer group. 30 days-89 days past dues are 71 basis points. Non-performing loans are 53 basis points of total multifamily loans. Our multifamily allowance for credit losses to criticized and classified multifamily loans improved to 74 basis points, demonstrating appropriate reserve levels. During the third quarter, $49.4 million of multifamily loans were scheduled to reprice and mature.

Approximately 71% of these loans remained with the bank and repriced 250 basis points higher to a weighted average rate of 6%. With these credit metrics, we see limited potential risk and loss content. Slide 14 provides an overview of our investor commercial real estate portfolio, which is 29% of gross loans. The investor commercial real estate portfolio has 111 basis points of non-performing loans and 155 basis points of criticized and classified loans. These metrics provide a clear representation of our conservative investor commercial real estate portfolio. Finally, on slide 15, our third area of focus is preserving our strong liquidity and capital. We maintain an ample liquidity position with $3.9 billion in undrawn lodged resources at quarter end. In the third quarter, average non-interest-bearing deposits increased 5.7% year over year and 2.1% sequentially. Our reliance on wholesale funding remains limited due to our strong deposit levels.

Uninsured and uncollateralized deposits represent only 17% of total deposits, providing a stable and reliable funding base. Our tangible common equity to tangible assets ratio was 8.01% at September 30, 2025. In summary, the company and the bank remained well capitalized and our strong balance sheet and resources give us the financial flexibility to invest in our strategic initiatives designed to support our continued growth. With that, I'll now turn it back over to John. John?

John Buran (President and CEO)

Thanks Susan. Our strong financial results, as Susan just went through, are the result of our continued strategic execution throughout the course of the year. A key driver of our franchise growth is our focus and commitment to the Asian banking communities we serve. Here on Slide 16, you can see that due to our targeted efforts we have grown these deposits to $1.4 billion. This represents an 11.3% compound annual growth rate since the third quarter of 2022. Currently, about one third of our branches are in Asian communities with more to come in the future. With only a 3% market share in this $47 billion market, we continue to see tremendous opportunity to grow. Our growth in this market segment is aided by our multilingual staff serving our customer base, our Asian Advisory Board, and our active sponsorship of cultural activities within this vibrant community.

Now let's turn to our outlook for the remainder of the year. On Slide 17, we expect total assets to remain stable for the remainder of 2025 with loan growth being market dependent. As we stay focused on improving our overall asset and funding mix, we expect to see normal historical funding patterns during this time. There are a number of factors related to our outlook for net interest margin. First, we have $770 million of retail certificates of deposit at a weighted average rate of 3.98% to mature in the fourth quarter. The rate on September certificates of deposit that were retained was 3.54%. There's an opportunity to continue to reprice non-maturing deposits lower. Second, we have $175 million of loans scheduled to mature or reprice upwards of 128 basis points in the fourth quarter. Lastly, we have no swap maturities for the remainder of the year.

Non-interest income should continue to benefit from our healthy pipeline of approximately $59 million in back-to-back swap loans scheduled to close by the end of the year. We expect Banking Services income to benefit in the quarter as these loans close. BOLI income is expected to total $2 million per quarter. We are maintaining our disciplined approach to expenses and continue to expect core non-interest expense growth of 4.5%-5.5% for 2025 compared to the 2024 base of $160 million as we continue to invest in the company. Lastly, we are expecting an effective tax rate of 24.5%-26.5% for the remainder of 2025. In summary, on Slide 18, our key takeaways for the quarter reinforce the meaningful progress we made in all areas of our strategy.

First, we continue to improve profitability with another quarter of both GAAP and core NIM expansion and each growing 10 basis points. Other factors supporting this are real estate loans which are expected to reprice approximately 147 basis points higher through 2027. Additionally, there are opportunities to lower deposit costs. We are continuing to invest in our people and branches to drive core business improvements. At the same time, we remain focused on improving ROTCE over time. We expect capital to grow as our profitability improves. Second, we are maintaining our credit discipline. Our portfolio is 91% collateralized by real estate with an average loan-to-value ratio less than 35%. Further, our weighted average debt service coverage ratio is 1.7x for multifamily and investor commercial real estate loans while criticized and classified loans are 111 basis points of gross loans.

Our Manhattan office buildings exposure is also minimal at 0.48% of gross loans. Lastly, we're preserving our strong liquidity even as we grow capital. As of September 30, 2025, we have $3.9 billion of undrawn lines and resources. At quarter end, uninsured and uncollateralized deposits were 17% of total deposits. At the same time, average non-interest-bearing total deposits increased 5.7% year over year and our tangible common equity ratio stood at 8.01%. Our third quarter results clearly show that we've executed on our 2025 plan in all areas of focus. Our profitability is improving even as we maintain exceptional credit discipline and preserve strong liquidity and capital. We intend to keep executing on these priorities as we move forward and build even greater long-term value for our shareholders. Operator, I'll turn it over to you to open the line for questions.

Operator (participant)

We will now begin the question and answer session. To ask a question you may press Star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please press Star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from David Konrad with KBW

Please go ahead.

David Konrad (Managing Director)

Hey good morning.

Susan Cullen (Senior EVP, CFO, and Treasurer)

Good morning, David.

John Buran (President and CEO)

Morning David.

David Konrad (Managing Director)

Just want to talk a little bit about the NIM. Maybe a starting point next quarter even if you're kind enough to give us some sort of range. A couple specific questions would be I think you had 9 bps in the NIM of kind of miscellaneous fees and things versus 6 last quarter. Should we think about maybe losing the 3 next quarter? What's kind of a, if you will, normal run rate there for those types of benefits to the loan yields?

Susan Cullen (Senior EVP, CFO, and Treasurer)

I think, David, those have been running a little bit higher than they historically have been as we've seen the loans prepay. I would think they'd still be a little bit elevated, but maybe not as much as we had for the third quarter. Let me give you the starting point of the NIM for rolling into September. At the end of September, the NIM was 2.68. It was up a few more basis points from the average for the quarter.

David Konrad (Managing Director)

Got it, thank you. You gave us a lot of good information on the CDs. I just wondered what kind of deposit beta you would expect in the non-maturity deposits.

Susan Cullen (Senior EVP, CFO, and Treasurer)

Non-maturity we would expect to closely mirror what's been happening with the Fed. We would expect the beta to be very similar to what we had so far in this down cycle. As a reminder, at the very end of September, we lowered the rates 20 basis points-25 basis points on a $1.8 billion portfolio of deposits. That's not fully captured in that 268 number that I gave you.

David Konrad (Managing Director)

Perfect, thank you. Just last question with the Fed, with the Fed moves, it seems like your balance sheet is positioned to be liability sensitive. Would that be fair?

Susan Cullen (Senior EVP, CFO, and Treasurer)

It's a little bit liability sensitive. We've moved it more towards a neutral position, but there is a little bit of liability sensitivity that we will capture.

David Konrad (Managing Director)

Okay, great. Thank you. Appreciate it.

Susan Cullen (Senior EVP, CFO, and Treasurer)

Thank you, David.

Operator (participant)

Our next question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.

Mark Fitzgibbon (Managing Director and Head of FSG Research)

Good morning.

Susan Cullen (Senior EVP, CFO, and Treasurer)

Good morning, Mark.

Mark Fitzgibbon (Managing Director and Head of FSG Research)

First question, I guess, Susan. What was the miscellaneous non-recurring professional expense for, like, a little over $1 million this quarter?

Susan Cullen (Senior EVP, CFO, and Treasurer)

Those are related to some year end strategic planning we've been doing.

Mark Fitzgibbon (Managing Director and Head of FSG Research)

Okay, so those will all be gone in 4Q or there's more to follow.

Susan Cullen (Senior EVP, CFO, and Treasurer)

There's more to follow.

Mark Fitzgibbon (Managing Director and Head of FSG Research)

Okay.

I wondered if you could share with us your thoughts on stock buybacks. The stock's trading at 63% of tangible book value I think right now. The balance sheet growth has been, you've been sort of controlling that or managing that to flattish. Capital ratios look to be optically sufficient to be able to buy back stock. Why not buy back stock at these levels?

John Buran (President and CEO)

We're really concentrating on maintaining the dividend over time, and we also want to keep capital ready as the opportunities come up to recommence with growth in the portfolio.

Mark Fitzgibbon (Managing Director and Head of FSG Research)

I assume you think the value of the stock is really attractive, and if the market's not recognizing that, why not even shrink the balance sheet some more and take advantage of the fact that your stock is so, you know, deeply discounted relative to book.

John Buran (President and CEO)

I think we want to be focused. We want to have the opportunity to utilize any excess capital to grow the portfolio in the coming months.

Mark Fitzgibbon (Managing Director and Head of FSG Research)

Okay.

I guess I'm just wondering, is the economics more attractive of a buyback versus growth? I suspect they are today. It's obviously a riskless transaction.

John Buran (President and CEO)

Over.

Over the long haul.

We prefer to be in a position to grow the portfolio.

Mark Fitzgibbon (Managing Director and Head of FSG Research)

Okay.

I guess just sort of a bigger strategic question. John, do you worry if you can't get the ROTCE up into that double digit range soon? I mean, there's been so much activism in the industry. Do you worry that that's a risk for Flushing to become kind of a target for an activist?

John Buran (President and CEO)

I think there's a possibility of that. We clearly are on a path to improve the earnings of the company. As we said in our opening remarks, 2026 represents a better opportunity than 2025 and 2027. We have $1 billion worth of repricing, repricing loans. We think we're on a very, very strong path to certainly improve the ROAA and ROE.

Mark Fitzgibbon (Managing Director and Head of FSG Research)

I guess I'm curious, is there a line of sight in your strategic plan whether it's one year, three year, five year where you can get to a double digit ROTCE or ROE?

John Buran (President and CEO)

I think in late 2027, yes.

Mark Fitzgibbon (Managing Director and Head of FSG Research)

Okay, thank you.

Susan Cullen (Senior EVP, CFO, and Treasurer)

Thanks, Mark.

Operator (participant)

Our next question comes from Steve Moss with Raymond James. Please go ahead.

Steve Moss (Analyst Covering the Banking Sector)

Good morning.

Susan Cullen (Senior EVP, CFO, and Treasurer)

Morning, Steve.

Steve Moss (Analyst Covering the Banking Sector)

Morning, Susan.

Maybe, you know, following up on the.

Balance sheet positioning here, I know you have like $480 million of swaps, and if I recall correctly, they start to mature next year. Just kind of curious about the cadence of that maturity and just kind of, you know, how you guys are thinking about that.

Susan Cullen (Senior EVP, CFO, and Treasurer)

We think about those a lot. We have the ones that are maturing, we have partially repurchased, and we have forwards coming on board that will help to mitigate some of those that are rolling off. Unfortunately, those that are rolling off are at a very low cost. We're not going to be able to capture that 15 basis points or 75 basis points we had, but we have about $80 million worth that are—$180 million, excuse me—that are forwards coming back on.

Steve Moss (Analyst Covering the Banking Sector)

Okay. The impact of the margins can be small, relatively speaking, I guess.

Susan Cullen (Senior EVP, CFO, and Treasurer)

The overall scheme of our financial assets and liabilities.

Steve Moss (Analyst Covering the Banking Sector)

Okay, got you.

Susan Cullen (Senior EVP, CFO, and Treasurer)

Still benefit.

Steve Moss (Analyst Covering the Banking Sector)

In terms.

Right, okay, got you. In terms of the balance sheet positioning here, you guys added looks like some securities late in the quarter, and the loan pipeline being higher here. Just kind of curious, do we think about, I heard you on the flattish comments, but was there maybe like some of the loans just didn't close in the third quarter? Just kind of curious on those dynamics there.

Susan Cullen (Senior EVP, CFO, and Treasurer)

What we've seen is that we have a book of CLOs, and those are getting called pretty frequently, is probably the right word. We are pre-funding some of those calls that we've seen. Also, the loan pipeline, we did see some things close that we thought we would. What we've talked about in the past still holds, that as loan growth picks up, we'll start relieving some of the investment book.

Steve Moss (Analyst Covering the Banking Sector)

Okay, perfect. I guess just one more thing. I hear you on the deposit beta being similar here in the down cycle. You mentioned the 20 basis point-25 basis point reduction with a September cut. Are we going to be, for the $1.8 billion deposits, is that going to be similar for yesterday's cut?

John Buran (President and CEO)

I would think so. Good opportunity to do that as well.

Steve Moss (Analyst Covering the Banking Sector)

Okay. All right. That's everything for me. Appreciate all the call here.

Susan Cullen (Senior EVP, CFO, and Treasurer)

Thank you. Thank you.

John Buran (President and CEO)

Thank you.

Operator (participant)

This concludes our question and answer session. I would like to turn the conference back over to John Buran for any closing remarks.

John Buran (President and CEO)

I want to thank everyone for their attention, and we look forward to continuing to engage with you as we go into the fourth quarter of the year. Thank you.

Operator (participant)

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.