Flushing Financial Corporation (FFIC) is a holding company for Flushing Bank, a New York-based community bank that has been serving its local markets for over 90 years. The bank has weathered numerous economic cycles, adapting its strategies to stay ahead of the curve and maintain its strong financial position. As FFIC navigates the current operating environment, the company's conservative underwriting, diversified deposit base, and strategic initiatives position it for long-term success.
Business Overview and History Flushing Financial Corporation was founded in 1929 as Flushing Savings Bank, a New York State-chartered mutual savings bank. In 1994, the holding company was formed when the bank converted from a mutual to a stock-form organization. The company expanded its operations over the years, acquiring several smaller banks and establishing a presence throughout the New York City metropolitan area. Today, Flushing Bank operates 28 full-service branches and an internet branch, serving customers in the boroughs of Queens, Brooklyn, and Manhattan, as well as Nassau and Suffolk counties.
The bank's primary business activities include attracting retail deposits and investing those funds in a diversified loan portfolio, with a focus on multi-family residential properties, commercial real estate, and commercial business loans. Over time, the bank has also invested in mortgage-backed securities, U.S. government securities, and other marketable securities. As of December 31, 2024, the company's loan portfolio totaled $6.74 billion, with 90% of the loans secured by real estate.
In the late 1990s, the bank formed subsidiaries Flushing Service Corporation to market insurance products and mutual funds, and FSB Properties Inc. to hold title to real estate owned obtained via foreclosure. In 2007, the holding company formed three Delaware business trusts to issue trust preferred securities, the proceeds of which were used to purchase junior subordinated debentures from the holding company.
The company has faced various challenges over the years, such as the 2008 financial crisis, which impacted its loan portfolio and asset quality. Through prudent risk management and a conservative credit culture, the company was able to navigate this difficult period and maintain solid asset quality metrics compared to its peers. The company has also had to adapt to a changing regulatory landscape, including the implementation of the Dodd-Frank Act, which imposed new requirements on bank holding companies.
The bank's prudent underwriting standards have resulted in a history of low credit losses, with net charge-offs averaging just 11 basis points over the past three years, well below the industry average.
Financial Performance and Ratios Flushing Financial's financial performance has been solid, with the company reporting annual net income of $31.33 million and revenue of $465.76 million in 2024. The bank's annual operating cash flow was $12.41 million, with annual free cash flow of $29.10 million.
In the fourth quarter of 2024, the company reported revenue of $126 million and net income of $49.24 million. However, the company reported a GAAP loss per share of $1.61 in Q4 2024, primarily due to a $76 million pre-tax loss from a balance sheet restructuring. This restructuring included selling low-yielding securities, repositioning FHLB borrowings, and moving $74 million of low-yielding loans to held-for-sale. Despite the GAAP loss, core earnings per share for the quarter were $0.14. These actions are expected to enhance the company's earnings profile by increasing the net interest margin by 10-15 basis points in 2025.
The company's financial ratios demonstrate its strength. As of December 31, 2024, Flushing Financial had a Tier 1 leverage ratio of 9.31%, a Tier 1 risk-based capital ratio of 12.51%, and a total risk-based capital ratio of 13.11% - all well above the regulatory requirements for a "well-capitalized" institution. The bank's liquidity position is also robust, with $3.6 billion in undrawn lines and resources, equivalent to 39.4% of total assets.
Flushing Financial's profitability metrics have been mixed in recent years. The company's efficiency ratio, a measure of operating expenses as a percentage of revenue, was 75.1% in 2023, compared to 56.7% in 2022. Management has identified improving profitability as a key focus area, with initiatives aimed at expanding the net interest margin, controlling expenses, and optimizing the balance sheet.
Loan Portfolio and Deposit Base Flushing Financial's loan portfolio is concentrated primarily in multi-family residential properties, commercial real estate, and commercial business loans, which together accounted for 87.9% of the company's gross loans as of December 31, 2024. The multi-family residential and commercial real estate loans generally have higher yields than one-to-four family residential loans but also carry greater risk, as they are typically dependent on the successful operation of the related property for repayment. To mitigate this risk, the company requires a loan-to-value ratio of no more than 75% at origination and maintains conservative underwriting standards.
The commercial business loan portfolio, which represented 21.1% of gross loans, also presents a higher level of risk than residential mortgages. These loans are generally secured by business assets and often require personal guarantees from the borrowers. The company's strategy for this portfolio is to focus on developing full banking relationships with the borrowers, including both loans and deposits.
Flushing Financial's primary source of funding is deposits, which totaled $7.18 billion as of December 31, 2024. The deposit base is significantly influenced by the current interest rate environment, with brokered deposits representing 18.4% of total deposits at the end of 2024, up from 16.2% the prior year. The company also utilizes reciprocal deposits, which totaled $753.2 million at the end of 2024, to help manage its liquidity and interest rate risk.
Strategies and Initiatives To navigate the current operating environment, Flushing Financial has implemented several strategic initiatives:
1. Margin Expansion The company is actively managing its interest rate risk, using interest rate swaps and other derivatives to mitigate the impact of rising rates on its net interest margin. Additionally, Flushing Financial is focusing on growing its lower-cost, non-interest-bearing deposit base to improve its funding mix. The company expects its net interest margin to continue expanding in 2025 as a result of the balance sheet restructuring and loan/deposit repricing.
2. Asset Quality Maintenance The bank's conservative underwriting standards have resulted in a high-quality loan portfolio, with non-performing assets representing just 0.57% of total assets as of December 31, 2024. Management remains committed to maintaining this strong credit profile through disciplined risk management practices.
3. Diversification and Expansion Flushing Financial is focused on diversifying its revenue streams, with initiatives to grow its commercial business and SBA lending divisions. The company is also expanding its presence in the Asian-American community, which currently accounts for approximately one-third of its branch network and deposit base. The Asian markets account for $1.3 billion in deposits and $749 million in loans, representing 18% of total deposits and 3% market share in the $40 billion Asian market. The company plans to open two new branches in its Asian markets during 2025.
4. Expense Management The bank is closely monitoring its operating expenses and looking for opportunities to increase efficiency, including investments in technology and process improvements. For 2025, the company expects non-interest expense to increase 5-8% off a base of $160 million, as they continue to invest in the business.
Liquidity and Capital Management As of December 31, 2024, Flushing Financial reported cash and cash equivalents of $152.57 million. The company's debt-to-equity ratio stood at 1.34, while both its current ratio and quick ratio were 36.94. The company also had $1.2 billion in uninsured and uncollateralized deposits, representing 17% of total deposits.
In addition to deposits, Flushing Financial utilizes borrowings, primarily from the Federal Home Loan Bank of New York, to supplement its funding sources. Total borrowings were $916.1 million as of December 31, 2024, up from $841.3 million the prior year. The company also has $188.3 million in subordinated debt outstanding and $48.8 million in junior subordinated debentures carried at fair value.
The company uses interest rate swaps to help manage its interest rate risk, with a total notional value of $2.5 billion at the end of 2024. This includes $950.8 million in cash flow hedges on certain short-term advances and brokered deposits.
Future Outlook and Guidance Looking ahead to 2025, Flushing Financial expects the balance sheet restructuring to increase core net interest margin (NIM) by 10-15 basis points in Q1 2025. The company anticipates continued demand for their back-to-back swap offerings and expects minimal loss content within their loan portfolio, even in a stress scenario of a 200 basis point rate increase and 10% increase in operating expenses.
The company projects its core net interest margin to expand during 2025, with benefits from CD and loan repricing. By the end of 2025, FFIC expects its core NIM to be in the range of 2.30%-2.40%. Non-interest income is expected to be aided by the closing of back-to-back swap loans in the pipeline and a BOLI 1035 exchange.
Flushing Financial anticipates an effective tax rate of 25-28% for 2025. The company remains committed to its expansion plans in the Asian markets, with two new branches scheduled to open during the year.
Conclusion Flushing Financial Corporation has demonstrated its resilience as a community bank, navigating challenging economic conditions while maintaining a strong financial position. The company's conservative underwriting, diversified deposit base, and strategic initiatives position it for continued success. As the bank adapts to the evolving operating environment, investors should closely monitor Flushing Financial's progress in improving profitability, managing interest rate risk, and capturing growth opportunities in its target markets.