Expanding Into Asian Markets And SBA Loan Sales Will Diversify Revenue Streams In 2025

Key Takeaways

• Expanding non-interest-bearing deposits and repricing loans are poised to improve net interest margins and drive revenue growth.
  
• Growing presence in Asian markets and diversifying revenue streams can enhance deposit growth and support earnings expansion.
  
• Flushing Financial faces profitability challenges from restructuring losses, regulatory costs, increased expenses, and competitive market pressures, potentially impacting future earnings and margins.

Catalysts

Operates as the bank holding company for Flushing Bank that provides banking products and services primarily to consumers, businesses, and governmental units.

• The company's balance sheet restructuring and recent $70 million equity raise are expected to enhance net interest margin (NIM) by 10 to 15 basis points in the first quarter, likely improving profitability and earnings.
  
• The planned repricing of approximately $750 million in loans in 2025 to higher rates is anticipated to support net interest income and drive future revenue growth.
  
• Flushing Financial's focus on expanding non-interest-bearing deposits through revamped customer relationship strategies and incentives could reduce funding costs, thus potentially increasing net interest margins and earnings.
  
• The expansion of the SBA team and planned sales of SBA loans in 2025 are expected to diversify revenue streams and increase non-interest income, supporting earnings growth.
  
• The company’s strategy to grow its presence in Asian markets, which currently make up 18% of total deposits, by opening new branches and leveraging cultural ties is positioned to capture additional market share and boost deposit growth, supporting revenue expansion.

Flushing Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Flushing Financial's revenue will grow by 14.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.4% today to 25.9% in 3 years time.
• Analysts expect earnings to reach $75.7 million (and earnings per share of $2.07) by about January 2028, up from $26.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.7x on those 2028 earnings, down from 18.5x today. This future PE is lower than the current PE for the US Banks industry at 12.3x.
• Analysts expect the number of shares outstanding to grow by 2.75% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.95%, as per the Simply Wall St company report.

Flushing Financial Future Earnings Per Share Growth

Risks

• The company reported a GAAP loss per share of $1.61, primarily due to a $76 million pre-tax loss from balance sheet restructuring, which could affect future earnings and net margins.
  
• Non-interest expense is projected to increase by 5% to 8% in 2025 due to new branch openings and business investments, which could pressure net margins.
  
• A significant portion of deposits are in the Asian markets, where they hold only a 3% market share, implying potential market challenges that could affect revenue growth.
  
• The company faces competition for deposits in the New York metro market, which could impact their ability to reduce funding costs and pressure net interest margins.
  
• The crossing of the $10 billion asset threshold will involve regulatory challenges and costs, potentially impacting profitability and operating expenses.

Valuation

• The analysts have a consensus price target of $17.83 for Flushing Financial based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $292.6 million, earnings will come to $75.7 million, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of $14.32, the analyst's price target of $17.83 is 19.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.