Flushing Financial Corporation's 1Q25 Results: NIM Expansion Masks Strategic Challenges Amid Goodwill Impairment

Flushing Financial Corporation (NASDAQ: FFIC) reported mixed first-quarter 2025 results, showcasing resilience in its core operations while grappling with a significant non-cash goodwill impairment charge. The company’s net interest margin (NIM) expanded meaningfully, reflecting disciplined cost management, yet a strategic review of its reporting units led to a $17.6 million impairment, masking underlying operational strength. Here’s what investors need to know.

Net Interest Margin: A Bright Spot in a Challenging Environment

Flushing Financial’s GAAP NIM rose to 2.51% in 1Q25, a 12-basis-point (bps) sequential improvement from the prior quarter and a 45-bps jump year-over-year. This expansion was driven by a 27-bps decline in the cost of funds to 1.04%, as the bank aggressively re-priced deposits amid a flattening yield curve. The core NIM, excluding certain accretion items, increased even more sharply, hitting 2.49%, a 24-bps sequential rise.

However, the yield on interest-earning assets dipped 14 bps QoQ to 3.68%, reflecting the headwinds of an inverted yield curve and elevated macroeconomic uncertainty. Management emphasized that deposit growth—up 6.8% year-over-year to $7.6 billion—provided a critical buffer, enabling the bank to navigate rate-sensitive environments.

Goodwill Impairment: A One-Time Hit, Not a Structural Weakness

The $17.6 million goodwill impairment, stemming from a strategic review of its reporting units, was the primary driver of a GAAP net loss of $(0.29) per share, missing consensus estimates of $0.21. Crucially, this charge was non-cash and had no impact on regulatory capital ratios, which remained robust at a Tangible Common Equity (TCE)/Assets ratio of 7.79%.

Excluding the impairment, core EPS of $0.23 slightly outperformed estimates, underscoring the separation between one-time accounting adjustments and operational fundamentals. Management framed the impairment as a proactive step to align assets with evolving strategic priorities, not a reflection of deteriorating business conditions.

Credit Quality and Balance Sheet Health

While NIM and deposits provided optimism, credit metrics flagged some caution. Nonperforming assets (NPAs) rose to 71 bps of total assets in 1Q25, up from 57 bps in 4Q24, driven by a single multifamily loan relationship. Management maintained that this was an isolated issue and that credit underwriting standards remained stringent.

The tangible book value per share dipped 0.9% QoQ to $20.78, largely due to the impairment charge. Meanwhile, liquidity stayed strong, with $4.0 billion in undrawn lines, reinforcing the bank’s capacity to weather volatility.

Strategic Priorities: Navigating the Next Quarter

Flushing Financial’s dividend of $0.22 per share was maintained, and $808,000 in shares remained available under its repurchase program, signaling confidence in capital allocation. Looking ahead, the bank’s focus on deposit growth, cost discipline, and selective lending positions it to capitalize on potential rate cuts later in 2025.

Conclusion: A Solid Foundation Amid Transient Headwinds

Flushing Financial’s 1Q25 results highlight a company balancing operational strength with strategic adjustments. The NIM expansion—particularly in core metrics—suggests effective management of funding costs, while the goodwill impairment underscores prudent risk assessment.

Investors should focus on the $0.23 core EPS beat, which aligns with a return on assets (ROA) of 0.88% and a return on equity (ROE) of 6.9%, both in line with regional peers. The bank’s $7.6 billion in deposits and $4.0 billion in liquidity further solidify its defensive positioning.

While the NPA uptick and declining asset yields warrant monitoring, the absence of systemic credit issues and the bank’s capital resilience suggest this is a temporary setback. With 2Q25 results due on July 24, investors will watch for continued NIM stability and progress in reducing the cost of deposits.

For now, Flushing Financial remains a hold with upside potential if macroeconomic conditions stabilize, allowing its core banking operations to shine through. The key metric to watch: whether the cost of funds continues to decline, potentially offsetting yield pressures and driving NIMs higher in the quarters ahead.