By Linda Goodspeed
After four straight years of record earnings, Flushing Financial Corporation’s march toward diversity in funding, loans and operations appears to be paying off.
Flushing Financial, with $4.4 billion in assets, is the parent company of Flushing Savings Bank, a full-service bank with 17 branches in Queens, Brooklyn, Manhattan and Nassau County.
Over the past several years, Flushing has been steadily moving from a traditional thrift to a more commercial enterprise. In October it completed that journey when it filed an application to merge the savings bank with its wholly owned subsidiary, Flushing Commercial Bank and convert from a federally-chartered savings bank to a New York state-chartered commercial bank.
“Characterizing us as a thrift is no longer relevant,” said John R. Buran, president and CEO. “We have a more balanced and diversified loan portfolio, more diversified funding sources. There are still improvements to be made. But we’ve come to a milestone in our evolution.”
Mark Fitzgibbon, director of research at Sandler O’Neill, which recently upgraded Flushing’s stock to “buy,” agreed: “They’ve transformed from a sleepy little savings and loan bank out on Long Island into a dynamic little commercial bank.”
“They’ve made a couple of interesting moves that have put them in a good position,” said Thomas Alonso, vice president and senior analyst at MacQuarie Securities group. “They’ve historically been a thrift, but began to push into the commercial side. On the deposit side, they’ve benefited from being in the New York market, which has been a bit more stable.”
Since 2006, Flushing has grown deposits 12 percent annually. Core deposits have grown at an even faster rate (nearly 20 percent annually) thanks in part to a new interest bearing checking account for businesses that became permissible under the Dodd-Frank Act. Flushing began offering the new business checking account in July 2011.
“That new account has enabled us to rapidly grow our business deposit base to more than $100 million,” Buran noted.
Flushing has also built its deposit base through its online banking division, iGObanking.com, which offers competitively priced deposit products to consumers nationwide.
“We opened that in ’06, and it now provides around $450 million for funding,” Buran said.
Flushing’s strategy also includes reaching out to the area’s many ethnic groups, particularly Chinese and Korean residents. Many branches have staff who can converse with customers in their native languages and dialects. The bank translates marketing materials into different languages and advertises in media outlets that reach these groups. It has also put prominent members of these communities on its advisory board, and supports various cultural and charitable events in these communities. The result is a $400 million Asian “bank within a bank.”
“We feel we are in a unique position to serve these communities,” Buran said.
A Balancing Act
On the lending side, Flushing has also worked to diversify and balance its portfolio.
“At one time we were a little heavier in commercial real estate and single-family homes,” Buran said. “Over time we started shifting the mix.”
A big part of this new mix is multi-family housing and mixed-use real estate, including shopping centers, professional office buildings, community service facilities and other income-producing commercial properties. Together, these two sectors now account for 65 percent of Flushing’s loan portfolio.
“Over the last few years, we began to de-emphasize non owner-occupied commercial real estate,” Buran said. “We wanted to develop full relationships with our customers. Growing our deposit relationship was part of our strategy of re-shaping our loan portfolio. It makes for a better risk dynamic and better overall returns.”
Flushing has also succeeded in reducing delinquent, non-performing and classified loans, although not as quickly as Buran would like. At the end of 2011, loans delinquent over 30 days totaled $186.8 million, a decrease of $25.8 million from the previous year.
“A lot of these loans have been held up in the court system,” Buran said. “It can take three to four years to get a foreclosure through the courts. But we feel we’ve turned the corner. Our nonperforming loans have started to stabilize and trend down.”
Going forward, Buran is “cautiously optimistic.”
He notes the bank still has the ability to reduce funding costs further even if and when interest rates begin to rise.
“None of us know what will happen with the interest rate environment,” he said. “By laddering out our borrowing and our liabilities and funding sources, we are in position to take advantage of rate changes.”