Flushing Financial's Q3 2025: Contradictions Emerge on Deposit Repricing, Buybacks, and Rate Sensitivity

Date of Call: October 30, 2025

Financials Results

• EPS: $0.30 GAAP; $0.35 core EPS; core EPS up 55% YOY

Guidance:

• Total assets expected to remain stable for remainder of 2025.
• Loan growth market-dependent; expect normal historical funding patterns.
• $770M retail CDs maturing in Q4; opportunity to reprice nonmaturing deposits lower.
• $175M loans repricing in Q4; repricings to add ~$2M (Q4), ~$11M (2026), ~$15M (2027) to annualized NII.
• Expect ~$59M of swap loans to close boosting noninterest income.
• BOLI income ~$2M per quarter.
• Core noninterest expense growth guidance 4.5%–5.5% (2025 vs $160M base).
• Effective tax rate 24.5%–26.5% for remainder of 2025.

Business Commentary:

• Profitability Improvement and NIM Expansion:
• Flushing Financial reported core earnings per share of $0.35, showing a 55% increase from the previous year.

• The company's core net interest margin expanded by 10 basis points to 2.62%. This growth was driven by the asset repricing strategy and loan repricing opportunities scheduled for 2026 and 2027.

• Deposit Growth and Cost Management:

• Average noninterest-bearing deposits increased by 7.2% sequentially and 5.7% year-over-year.

• The strategic initiative to grow core relationships and revamped incentive plans for noninterest-bearing deposits contributed significantly to this growth. Additionally, the company reduced deposit rates by 20 to 25 basis points for $1.8 billion of deposits, lowering funding costs.

• Credit Discipline and Asset Quality:

• Net charge-offs were 7 basis points, improving from 15 basis points in the previous quarter. Nonperforming assets remained at 70 basis points of total assets.

• The company's strong credit discipline, conservative underwriting standards, and low-risk credit profile contributed to stable credit metrics and reduced default rates.

• Loan Growth and Portfolio Strategy:

• The company's loan pipeline is expected to benefit from approximately $59 million in back-to-back swap loans closing by year-end.
• This loan growth, combined with strategic asset repricing, positions the bank for future profitability improvements, particularly as loan yields increase through 2026 and 2027.

Sentiment Analysis:

Overall Tone: Positive

• Management said they were "pleased to report strong third quarter results"; core EPS $0.35, up 55% YOY. NIM expanded 10 bps QoQ (GAAP NIM 2.64%, core NIM 2.62%). Tangible common equity 8.01% and $3.9B of undrawn liquidity. Management highlighted multi-year loan repricings adding ~$2M (Q4), $11M (2026) and $15M (2027) to NII.

Q&A:

• Question from David Konrad (Keefe, Bruyette, & Woods, Inc., Research Division): Just want to talk a little bit about the NIM, maybe a starting point next quarter, even if you're kind of have to give us some sort of range, but a couple of 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?
  Response: Prepayment-related miscellaneous NIM benefits have been elevated and may moderate; NIM at end of September was 2.68% (above the quarter average).

• Question from David Konrad (Keefe, Bruyette, & Woods, Inc., Research Division): And then maybe on the deposit side, you gave us a lot of good information on the CD. Just wondering what kind of deposit beta you would expect on the nonmaturity deposits?
  Response: Nonmaturity deposit beta is expected to closely mirror Fed moves and be similar to the beta observed so far in the down cycle; note a recent 20–25 bp reduction on a $1.8B deposit portfolio.

• Question from David Konrad (Keefe, Bruyette, & Woods, Inc., Research Division): With the Fed moves, it seems like your balance sheet is positioned to be liability sensitive. Would that be fair?
  Response: Balance sheet is slightly liability sensitive but has been shifted closer to neutral.

• Question from Mark Fitzgibbon (Piper Sandler & Co., Research Division): First question, what was the miscellaneous nonrecurring professional expense for like a little over $1 million this quarter?
  Response: Those costs relate to year-end strategic planning activities.

• Question from Mark Fitzgibbon (Piper Sandler & Co., Research Division): So those will all be gone in 4Q or there's more to follow?
  Response: There will likely be additional related expenses continuing into Q4.

• Question from Mark Fitzgibbon (Piper Sandler & Co., Research Division): I wondered if you could share your thoughts on stock buybacks given the stock trading at ~63% of tangible book value—why not buy back stock at these levels?
  Response: Priority is maintaining the dividend and preserving capital to support future portfolio growth; therefore repurchases are not the focus now.

• Question from Mark Fitzgibbon (Piper Sandler & Co., Research Division): Is there line of sight in your strategic plan (1/3/5-year) to get to double-digit ROTCE or ROE?
  Response: Management believes yes—expects meaningful improvement in 2026 and sees a path to double-digit ROTCE by late 2027 driven by large repricings.

• Question from Stephen Moss (Raymond James & Associates, Inc., Research Division): I know you have $480 million of swaps and they start to mature next year—curious about the cadence of that maturity and how you're thinking about that.
  Response: They've partially repurchased some swaps and are using forwards to replace others; about $180M of forwards are coming back on, mitigating roll-off impact.

• Question from Stephen Moss (Raymond James & Associates, Inc., Research Division): So the impact on the margin is going to be small, relatively speaking?
  Response: Yes—the overall impact is small in our balance sheet context but still beneficial to margin.

• Question from Stephen Moss (Raymond James & Associates, Inc., Research Division): You added some securities late in the quarter and the loan pipeline was higher—were some loans just not closed in the third quarter?
  Response: Some CLOs were called and were prefunded with securities; some loans expected to close were delayed—investment securities will be reduced as loan growth resumes.

• Question from Stephen Moss (Raymond James & Associates, Inc., Research Division): For the $1.8 billion of deposits where you cut rates 20–25 bps in September, would you take similar action for the recent cut?
  Response: Management sees a good opportunity to apply similar rate reductions to that deposit cohort.

Contradiction Point 1

Deposit Repricing and Interest Rate Sensitivity

It involves conflicting expectations regarding the impact of interest rate changes on net interest margins, which is crucial for assessing the bank's financial performance and strategy.

Will the September rate cut's deposit beta mirror yesterday's? - Stephen Moss (Raymond James & Associates, Inc., Research Division)

2025Q3: A return to a more normal curve is positive for us. A 25 basis point rate cut and a steepening yield curve would lead to a couple of basis points improvement in the net interest margin. - John R. Buran(President, CEO & Director)

Can you clarify your interest rate sensitivity and how a 25-basis-point rate cut and a steepening yield curve would impact your margin? - Mark Thomas Fitzgibbon (Piper Sandler)

2025Q2: There is limited opportunity to reduce funding costs until the Fed acts. Most of the help in expanding the net interest margin will come from loan repricing, with limited support from the liability side until the Fed moves. - John R. Buran(President, CEO & Director)

Contradiction Point 2

Stock Buybacks and Capital Allocation

It reflects differing opinions on the appropriateness of stock buybacks, which can influence investor expectations and capital allocation strategy.

Why not consider stock buybacks given the discount to tangible book value? - Mark Fitzgibbon (Piper Sandler & Co., Research Division)

2025Q3: We're not currently considering share buybacks. Our priority remains to build capital further and maintain our dividend. We plan to focus on profitable growth and capital strength before considering repurchases. - Susan K. Cullen(Senior EVP, Treasurer & CFO)

Given your stock trades at 58% of tangible book value, are you considering share buybacks in H2? - Mark Thomas Fitzgibbon (Piper Sandler)

2025Q2: We're not currently considering share buybacks. Our priority remains to build capital further and maintain our dividend. We plan to focus on profitable growth and capital strength before considering repurchases. - Susan K. Cullen(Senior EVP, Treasurer & CFO)

Contradiction Point 3

Deposit Beta and Rate Sensitivity

It involves differences in expectations regarding the bank's deposit beta and liability sensitivity, which directly affect the bank's interest rate risk management and earnings projections.

What is the deposit beta for nonmaturity deposits? - David Konrad(Keefe, Bruyette, & Woods, Inc.)

2025Q3: The deposit beta is expected to closely mirror the Fed's actions. In late September, rates were reduced by 20 to 25 basis points on a $1.8 billion deposit portfolio. - Susan Cullen(CFO)

How should we assess interest rate sensitivity on the liability side of the balance sheet in the current environment, and what rate do you expect to achieve if a 1% liability is attainable? - Chris O'Connell(KBW)

2025Q1: We do have a liability-sensitive rate book that we're expecting to go to 1%. And we do have a lock-in for the next quarter that will be a little bit higher than 1% on our rates. - Susan Cullen(CFO)

Contradiction Point 4

Interest Rate Sensitivity Positioning

It involves the company's interest rate sensitivity positioning, which is crucial for managing risk and optimizing financial performance.

Is your balance sheet liability-sensitive? - David Konrad (Keefe, Bruyette, & Woods, Inc., Research Division)

2025Q3: The balance sheet is slightly liability sensitive, but it has been moved more towards a neutral position to capture potential benefits. - Susan Cullen(CFO)

How do you plan to manage interest rate sensitivity in the future? Will shorter-duration remaining swaps increase liability sensitivity, and how do you manage the balance sheet mix? - Steve Moss (Raymond James & Associates, Inc., Research Division)

2024Q4: We're largely neutral. So we think we can manage either movements up or movements down without significant issues. - John Buran(CEO)

Contradiction Point 5

Stock Buybacks and Capital Allocation

It involves differing views on the potential for stock buybacks, which directly impacts investor expectations on capital allocation and shareholder returns.

Why not consider stock buybacks given the discount to tangible book value? - Mark Fitzgibbon(Piper Sandler & Co.)

2025Q3: Our focus remains on maintaining our dividend and having capital ready to support our portfolio growth opportunities. - John Buran(CEO)

How should we think about the potential for buybacks given the stock's discount and Q2 results/capital ratios? - Mark Fitzgibbon(Piper Sandler)

2025Q1: It is something we are taking a hard look at. We will review the financials at the end of the year and make a decision based on what the financials are and what our capital needs are for growth. - John Buran(CEO)