KBRA Affirms Ratings for Flushing Financial Corporation; Revises Outlook to Stable

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Uniondale, New York-based Flushing Financial Corporation (NASDAQ: FFIC) (“Flushing” or “the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for its subsidiary, Flushing Bank. The Outlook for all long-term ratings is revised to Stable from Negative.

Key Credit Considerations

The revision to Stable Outlook is supported by an improvement in core earnings following a balance sheet restructuring contributing to 25 bps of NIM expansion since 4Q24 to 2.64% for 3Q25. In 4Q24, FFIC sold $445 million lower yielding securities, a portion of which was reinvested into higher yielding securities, prepaid $251 million of long-term FHLB advances which were replaced with short-term FHLB advances at a lower rate, and moved $74 million lower-yielding loans to held for sale. While these actions resulted in an operating loss for 2024, the impact was partially offset by $70 million in gross proceeds from a common stock offering. Additionally, management’s disciplined pricing and conservative underwriting continue to support strong credit performance. As such, core ROAA improved to 0.55% in 3Q25 which we note still tracks below peer averages, but has contributed to modest capital ratio improvement. Prospectively, ongoing loan repricing activity combined with opportunities to reduce deposit costs following recent rate cuts in 2H25 and the upcoming maturity of a sizable portion of the CD portfolio should further support margin improvement and, in turn, profitability.

While investor CRE concentration remains elevated at 475% of RBC, the portfolio is dominated by multifamily loans (37% of total loans), which have demonstrated strong credit performance including, but not limited to, during the GFC. Although exposure to New York City rent-regulated multifamily properties is notable (properties with >50% of rent regulated units at ~18% of loans), the company maintains conservative underwriting with average LTV and DSCR of 55% and 1.7x, respectively, for the rent-regulated portfolio. We recognize that FFIC’s capital levels have historically trailed peers, albeit are largely consistent with a comparatively conservative loan portfolio. The CET1 ratio declined to 10.1% at YE24 amid earnings pressure but has since improved by roughly 40 bps through 9M25 supported by the common stock issuance, balance sheet contraction, improving earnings, and the absence of share repurchases. That said, we note that that loss absorbing capacity – loan loss reserves plus core capital – tracks modestly below peers, providing less of a buffer against potentially rising credit costs. However, the company has maintained conservative underwriting standards, highlighted by low LTVs and strong DSCRs for its largest lending segments. Furthermore, low historical loss rates for NYC rent-regulated multifamily lending, have resulted in negligible loss content over contemporary operating history.

Rating Sensitivities

The revision to Stable Outlook reflects KBRA's view that a rating change is unlikely over the medium term. However, continued asset quality outperformance, meaningful revenue diversification with earnings tracking more in line with higher rated peers, and capital levels more consistent with peers, could support positive rating momentum over time. Conversely, aggressive capital management, deterioration in asset quality negatively impacting earnings, or a material increase in noncore funding sources could result in rating pressure.

To access ratings and relevant documents, click here.

Methodologies