Flushing Financial Corporation

Welcome to the Flushing Financial Corporation's third quarter 2025 earnings conference call. Hosting the call today are John Burin, President and Chief Executive Officer, and Susan Cullen, Senior Executive Vice President, Chief Financial Officer, and Treasurer. Today's call is being recorded. A copy of the earnings press release and slide presentation that the company will be referencing today are available on its investor relations website at flushingbank.com. Before we begin, the company would like to remind you that discussions during this call contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contained in any such statements, including as set forth in the company's filings with the U.S. Securities and Exchange Commission to which we refer you. During this call, references will be made to non-GAAP financial measures as supplemental measures to review and assess operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about these non-GAAP measures and for a reconciliation to GAAP, please refer to the earnings release and or the presentation. I would now like to introduce John Buren, President and Chief Executive Officer, who will provide an overview of the strategy and results.

Thank you, operator. Good morning. And thank you all for joining us on our third quarter 2025 earnings conference call. We're pleased to report strong third quarter results, continuing on the momentum we achieved in the first half of the year, despite macroeconomic uncertainty and reflecting the considerable progress we've made on our three key focus areas to improve profitability, maintain credit discipline, and preserve strong liquidity and capital. Our team has remained focused, consistently executing on these objectives. For the third quarter, the company reported gap earnings per share of 30 cents and core earnings per share of 35 cents. Core earnings improved 55% from a year ago. Turning to our financial highlights on slide three, we showed improved results throughout our business. Net interest margin expanded 10 basis points quarter over quarter, with gap net interest margin increasing to 2.64%, while core net interest margin expanded to 2.62%. We saw improvement from the first quarter of this year and 55 basis point growth from last year's third quarter core net interest margin. We also demonstrated stable to improving credit metrics this quarter, reflecting the strength of our conservative underwriting approach. Net charge-offs totaled seven basis points for the third quarter, improving 15 basis points from the second quarter of this year. Non-performing assets as a percentage of total assets were at 70 basis points compared to 75 basis points in the second quarter of this year. During the third quarter, We also continue to see non-interest-bearing deposit growth, which increased 7.2% sequentially. Average non-interest-bearing deposits increased 2.1% quarter-over-quarter and 5.7% year-over-year. This strong operating performance also strengthened our balance sheet. Our tangible common equity ratio remained stable in the quarter at 8.01%, increasing 101 basis points from the third quarter of 2024. Our liquidity remains strong with $3.9 billion of undrawn lines and resources as of September 30th, 2025. While there's more work to be done, we're pleased with our execution to date, while the real opportunity lies ahead as our loan portfolio reprices upward in 2026 and 2027. I will now turn it over to Susan to discuss this and other news. Susan.

Thank you, John. We continue to focus on improving profitability, the first key focus area in our strategy. As John mentioned, both GAAP and CoreNIM expanded 10 basis points quarter over quarter, demonstrating the benefit of our asset repricing strategy. Real estate loans are expected to reprice approximately 147 basis points higher throughout 2027, which should drive further net interest margin expansion. We continue to see additional growth in our non-interest-bearing deposit base, which is a key focus area with our revised incentive plans emphasizing this important funding source. We are also continuing to invest in the business, both in our people and our branches, in order to keep driving core business improvements. Given this, we expect capital to grow as profitability improves. On slide five, we provide further details on our net interest margin expansion. Core net interest income increased by $8.6 million, or a little over 19% year over year, demonstrating our increased earnings power. Key drivers of the NIM quarter per quarter include loan security yields increasing eight basis points and 15 basis points respectively, which was partially offset by a four-base point increase in interest-bearing liabilities, which was driven by swap maturities. Episodic items, which include prepayment penalties, net reversals and recovered interest from non-accrual and delinquent loans, fair value adjustments on hedges, and purchase accounting adjustments, were higher in the third quarter compared to the second. We remain confident that in the long term, loan pricing should drive NIM expansion, assuming no change in the current flat yield curve. A positively sloped yield curve will aid net interest margin expansion, while a negatively sloped curve will make margin expansion more challenging. Slide six illustrates one of our most significant embedded earnings drivers, the contractual repricing of our real estate loan portfolio. For the remainder of 2025, approximately $175 million of loans are scheduled to reprice at rates 128 basis points higher than their current coupon. Through the end of 2027, approximately $2 billion of loans, or about a third of all of our loans, are scheduled to reprice at significantly higher rates, providing substantial predictable tailwind for our net interest income. Contractually and on an annualized basis, net interest income will increase $2 million from the fourth quarter of 2025 repricing, $11 million from the 2026 repricings, and $15 million from 2027's repricings. To demonstrate this point, as of June 30, 2025, $96 million of loans were due to reprice in the third quarter. We successfully retained 80% of these loans at a weighted average rate of 6.65%, 222 base points higher than the prior rate, and there aren't any loans in this bucket that are non-accrual. This clearly speaks to our strong client relationships and our disciplined pricing and confirms the earnings power embedded in our loan books. Our deposit franchise remains a key pillar of our funding profile. As seen on slide seven, average total deposits were $7.3 billion. Our strategic initiative to grow core relationships are continuing to pay off. The revamped incentive plans we've previously discussed, which emphasize non-interest bearing deposit accounts, are delivering tangible results. Average non-interest bearing deposits increased approximately 6% year over year. We continue to closely watch our funding costs as the overall cost of deposits increased slightly quarter-by-quarter to 3.11%. In late September, we reduced the rate on approximately $1.8 billion of deposits, 20 to 25 basis points, with the full benefit expected to be recognized in the fourth quarter. We continue to see opportunities to lower deposit costs over time as the Fed reduces rates. Total CDs are $2.4 billion, or 33% of total deposits at quarter-end. Approximately $770 million of CDs with a weighted average rate of 3.98% will mature in the fourth quarter, and our current CD rates are 340 to 3.75%. Our second area of focus, as shown on slide 8, is to maintain credit discipline. We continue to operate with a low-risk profile built on conservative loan underwriting standards and our long history of low credit losses. We have enhanced our focus on relationship pricing and are seeing positive results from these efforts. As slide 9 illustrates, we have a long proven history of net charge-offs significantly better than the industry, characterized by strong debt coverage ratios. Our conservative underwriting standards and credit culture has been proven through multiple rate and economic cycles, and we are committed to having a low-risk credit profile. Our multifamily and investor commercial real estate portfolios may train strong debt coverage ratios at 1.7 times, Even when we stress test these ratios for higher rates and increased operating expenses, the debt coverage ratio remains strong. In a stress scenario with both a 200 basis point increase and a 10% increase in operating expenses, the weighted average debt coverage ratio is approximately 1.36 times. In all scenarios, the weighted average current loan-to-value is less than 50%. Slide 10 shows how our non-current loans have been outperforming the industry for well over two decades, and throughout numerous credit cycles. Flushing Financial has a proven track record of industry-leading credit quality. Our borrowers maintain low leverage with the average loan-to-values in our real estate portfolio of less than 35%. We have only $67 million of real estate loans with a loan-to-value greater than 75%, and about 18.5 million of those have loans with mortgage insurance as of September 30, 2025. Our strength rests in the quality of our loan portfolios. There's a growing need for affordable housing in the New York City area. As detailed on slide 11, in our $2.4 billion multifamily portfolio, non-performing loans were just 53 basis points. Criticizing classified loans in this segment improved to 66 basis points compared to 73 basis points in the prior quarter and 116 basis points in the first quarter. The portfolio maintains a very strong weighted average debt coverage ratio of 1.7 times based on the most recent financial data from our Loan Portfolio Review Group for the rent-stabilized multifamily loan portfolio. Further details are included in the appendix. Slide 12 provides perspective on the positioning of our rent-stabilized portfolio compared to recent market data. Aerial Property Advisors published a report for the third quarter sales, which provides great insight into the strength of our rent-stabilized multifamily portfolio. This slide details the facts supporting our level of confidence in concluding that there is a minimal risk in the rent-stabilized multifamily portfolio. This slide shows the average sales price at each of the boroughs for the third quarter actual sales of rent-stabilized multifamily units, including sales under duress, providing an accurate reflection of true market value. For example, in the Bronx, the average sale price for each individual apartment was approximately $98,000, while our carrying value is approximately $60,000, implying equity of $38,000 per individual apartment. This conservative positioning provides substantial equity cushion and validates our discipline underwriting in this portfolio segment. Slide 13 provides peer comparison data and our current multifamily credit quality statistics. Our criticized and classified multifamily loans to total multifamily loans are 66 base points, which compares favorably to our peer group. 30 to 89 days past dues are 71 base points. Non-performing loans are 53 base points of total multifamily loans. Our multifamily allowance for credit losses to criticized and classified multifamily loans improved to 74 base points, demonstrating appropriate reserve levels. During the third quarter, $49.4 million of multifamily loans were scheduled to reprice and mature. Approximately 71% of these loans remained with the bank and repriced 250 basis points higher to a weighted average rate of 6.5%. With these credit metrics, we see limited potential risk and loss content. Slide 14 provides an overview of our investor commercial real estate portfolio, which is 29% of gross loans. The investor commercial real estate portfolio has 111 basis points of non-performing loans and 155 basis points of criticized and classified loans. These metrics provide a clear representation of our conservative investor commercial real estate portfolio. Finally, on slide 15, our third area of focus is preserving our strong liquidity and capital. We maintain an ample liquidity position with $3.9 billion and drawn lines of resources at quarter end. In the third quarter, average non-interest-bearing deposits increased 5.7% year-over-year and 2.1% sequentially. Our reliance on wholesale funding remains limited due to our strong deposit levels. Uninsured and uncollateralized deposits represent only 17% of total deposits, providing a stable and reliable funding base. Our tangible common equity to tangible assets ratio was 8.01% at September 30, 2025. In summary, the company and the bank remain well capitalized, and our strong balance sheet and resources give us the financial flexibility to invest in our strategic initiatives designed to support our continued growth. With that, I'll now turn it back over to John. John?