Flushing Financial Corporation (NASDAQ:FFIC) is a New York-based bank holding company that operates primarily through its subsidiary, Flushing Bank. The company has a strong presence in the New York metropolitan area, with a focus on serving the needs of small to medium-sized businesses, consumers, and the Asian-American community.

Financials

For the full year 2023, Flushing Financial reported net income of $28.7 million on total revenue of $420.9 million. The company's annual operating cash flow was $34.6 million, while its free cash flow stood at $29.1 million. These financial results demonstrate the company's ability to generate consistent earnings and cash flow, despite the challenging operating environment.

In the first quarter of 2024, Flushing Financial reported net income of $3.7 million, or $0.12 per diluted common share. This represents a decrease of 8.9% from the $4.0 million, or $0.13 per diluted common share, earned in the comparable prior year period. The decrease in net income was primarily driven by decreases in net interest income and non-interest income, as well as an increase in non-interest expense, partially offset by a decrease in the provision for credit losses.

The company's net interest margin (NIM) decreased 21 basis points to 2.06% in the first quarter of 2024 from 2.27% in the comparable prior year period. Excluding net gains (losses) from qualifying hedges and purchase accounting adjustments, the NIM decreased 19 basis points to 2.06% for the first quarter of 2024 from 2.25% in the comparable prior year period. The decrease in NIM was primarily due to the rising interest rate environment, which has caused the company's deposits to shift more towards higher-rate CDs and reduced other deposit types.

Loan Portfolio and Credit Quality

Flushing Financial's loan portfolio is predominantly collateralized by real estate, with an average loan-to-value ratio of less than 36%. The company has a long history of disciplined underwriting and strong credit quality, which is reflected in its resilient loan portfolio. At the end of the first quarter of 2024, the company's allowance for credit losses (ACL) - loans stood at 60 basis points of gross loans and 164.1% of non-performing loans. Non-performing assets at the end of the quarter were 53 basis points of total assets.

The company's multifamily residential portfolio, which is the largest segment of its loan portfolio, has a weighted average loan-to-value ratio of 45% and a debt coverage ratio of 1.8x. This portfolio has exhibited minimal credit issues, with low non-performing loans, delinquencies, and criticized and classified loans. The company's commercial real estate portfolio, which is the next largest segment, shares similar characteristics, with a weighted average loan-to-value ratio of 49% and a debt coverage ratio of 2x.

Asian Market Opportunity

Flushing Financial's Asian markets, which account for one-third of its branches, continue to be an important growth opportunity for the company. As of the first quarter of 2024, the company had over $1.3 billion in deposits and $746 million in loans in these markets, representing 18% of its total deposits. The company's approach to this market is supported by its multilingual staff, Asian advisory board, and participation in cultural activities through corporate sponsorships.

Capital Position

The company's capital position remains strong, with a tangible common equity ratio of 7.4% as of the end of the first quarter of 2024. Flushing Financial's book value and tangible book value per share increased year-over-year, demonstrating the strength of its balance sheet.

Outlook

Looking ahead, the company expects stable loan balances and normal seasonal patterns in deposits, with certain deposits experiencing declines in the summer months. The company believes its net interest margin is close to the bottom and should start to expand in the second half of 2024, driven by loan originations and the repricing of certificates of deposit (CDs). Noninterest income is expected to be primarily driven by fees earned from back-to-back swap loan closings, while noninterest expenses are expected to follow normal seasonal patterns, with a sequential quarter decline in the second quarter and low to mid-single digit growth for the full year.

Flushing Financial's management team is focused on four key areas to improve profitability: increasing the net interest margin and reducing volatility, maintaining its credit discipline and low-risk credit profile, ensuring strong capital and liquidity, and bending the expense curve with lower expense growth in 2024. While the operating environment remains challenging, the company is taking steps to control what it can control and set the foundation for improving profitability over the long term.

Conclusion

Overall, Flushing Financial's performance in the first quarter of 2024 reflects the company's conservative underwriting, strong credit quality, and diversified business model. The company's focus on serving the needs of its local communities, particularly the Asian-American market, and its commitment to disciplined growth and risk management position it well for the future.