Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Flushing Financial Corp (FFIC, Financial) reported a stable credit profile with non-performing assets at 61 basis points and zero non-performing office loans.
- The company maintained strong liquidity with $3.1 billion available as of June 30, 2024, and low levels of uninsured and uncollateralized deposits.
- Average deposits increased by 4% year-over-year and 2% quarter-over-quarter, indicating growth in both retail and broker CDs.
- The loan portfolio is well-collateralized with an average loan-to-value (LTV) of less than 36% and a debt coverage ratio of 1.8 times for multifamily and investor commercial real estate portfolios.
- Flushing Financial Corp (FFIC) has a strong capital base with a leverage ratio over 8% and a tangible common equity ratio of about 7%.
Negative Points
- The company reported a challenging rate environment with a second quarter 2024 EPS of $0.18, reflecting ongoing pressure on earnings.
- Net interest margin (NIM) compressed by 1 basis point, with the cost of deposits increasing by 11 basis points in the quarter.
- Non-interest expenses grew by about 6% in the first half of 2024 compared to the same period in 2023, driven by strategic investments in new branches and personnel.
- The dividend payout ratio was high at 148%, raising concerns about sustainability without earnings improvement.
- The company faces aggressive deposit pricing competition from a major competitor, impacting funding costs and NIM.
Q & A Highlights
Q: Can you provide some color on the drivers behind the increase in the loan pipeline this quarter?
A: The market seems to be opening up, and borrowers are becoming more active. We've maintained our credit discipline and rate focus. Additionally, back-to-back swaps have generated interest due to a slightly improved rate environment. (John Buran, CEO)
Q: What is the mix between C&I and CRE in the loan pipeline?
A: There is more C&I activity than we've historically seen. (John Buran, CEO)
Q: Can you provide details on the multifamily non-performing loans this quarter?
A: We are confident in low loss content. One loan is past maturity, and we're working on an extension. The largest loan has a 21% loan-to-value ratio, and we are collecting default interest. (John Buran, CEO and Susan Cullen, CFO)
Q: What is the blended debt service coverage ratio for multifamily loans coming up for renewal?
A: The debt service coverage ratio for the entire portfolio repricing is 1.3. (John Buran, CEO)
Q: Why did you grow the securities portfolio by almost $400 million despite a strong loan pipeline?
A: The securities, being floating rate, serve as a potential liquidity source as the loan pipeline closes. The pipeline's growth was not as certain when we started purchasing securities. (John Buran, CEO and Susan Cullen, CFO)
Q: What impact would a 25-basis-point rate cut have on your net interest margin?
A: If everything reprices immediately, it would be about a $1 million impact over time, assuming no lag in cutting liability costs. (Susan Cullen, CFO)
Q: How do you view the near-term net interest margin (NIM) outlook?
A: We may see slight pressure before improvement, but we're close to a bottom. Aggressive competition has impacted funding costs, but we expect better opportunities to maintain or reduce these costs. (John Buran, CEO)
Q: What is the strategy for the loan portfolio mix in the medium to long term?
A: We aim to increase C&I loans and reduce CRE concentration. Real estate remains a strong asset, but we are adapting to market changes. (Susan Cullen, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
