Why Flushing Financial Corp (FFIC) Stock is a Compelling Investment Case

Gator Capital Management recently released its Q3 2020 Investor Letter, a copy of which you can download here. The fund posted a return of 13.18% for the third quarter, outperforming its benchmark, the S&P 500 Index which returned 8.93% in the same quarter. You should check out Gator Capital Management’s top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.

In the said letter, Gator Capital Management highlighted a few stocks and Flushing Financial Corp (NASDAQ:FFIC) is one of them. Flushing Financial Corp (NASDAQ:FFIC) is a bank holding company. Year-to-date, Flushing Financial Corp (NASDAQ:FFIC) stock lost 41.8% and on October 29th it had a closing price of $12.58. Here is what Gator Capital Management said:

“Flushing Financial (“FFIC”) is a bank with 20 branches on Long Island. Originally, FFIC was mutual thrift that converted to stock ownership in 1995. The bank has had a long history of strong credit quality, but investors have sold the stock due to COVID-19. We think the valuation is way too low given the bank’s long history of strong credit and incremental changes management is making to the business to improve returns.

1. Strong credit – FFIC has a history of strong credit quality. During the GFC, its peak charge-offs were only 0.65%, which was a fraction of the industry’s charge-offs. We see FFIC’s real estate loans average less than 50% loan-to-value ratio.

2. Pending merger will improve returns – FFIC is in the process of closing an acquisition to buy Empire Bancorp (“EMPK”). EMPK has four branches and will expand the FFIC footprint towards the eastern end of Long Island. FFIC is buying EMPK for 96% of book value. With the cost savings, the acquisition will be 20% accretive to FFIC 2021 earnings. FFIC’s estimated return on equity (“ROE”) will increase from 8% to 10%.

3. Expanding NIM in current environment – FFIC’s net interest margin (“NIM”) expanded in the last two quarters. Management expects the margin to continue to expand as deposits reprice lower. As a former thrift, FFIC has higher-cost deposits. Their customers have been consumers buying CDs rather than businesses with operating checking accounts. With the ample liquidity in this environment, FFIC is growing their deposits while lowering their deposit rates paid. FFIC’s loans are mostly fixed-rate assets that will reprice more slowly.

4. High, well-covered dividend – FFIC pays a 21 cent per share quarterly dividend, which translates to a 7.2% yield. With FFIC earning 35 per quarter this year while adding to its loan loss reserve, we believe the dividend is well-covered. As the loan loss provision declines and the Empire Bancorp deal closes, we think FFIC’s earnings will trend towards 50 cents per share a quarter in 2021.

5. Valuation – FFIC trades at 0.59x price-to-tangible book ratio and 5.7x 2021 earnings estimate. Peer banks in New York trade at 1.2x tangible book and 10.2x 2021 earnings estimates.

6. Not widely followed by sell-side – Only KBW and Piper Sandler provide sell-side research coverage on FFIC. KBW’s analyst has been lukewarm on the Empire acquisition. The Piper analyst has been restricted because the firm is an advisor on the Empire deal and has not published research on FFIC in many months. We like stocks like FFIC where there is little to no research coverage.

7. No well-known short thesis –FFIC only has 2.7 days volume of its shares sold short. This number has ranged between 1.7 days and 28 days with an average above 10 days. We talked with a few investors who have avoided FFIC because some of the commercial real estate loans have exposure to street-level retail stores in Brooklyn and Queens. We acknowledge this risk and believe FFIC’s low loan-to-value ratio on its loan portfolio protects against this risk.


1. Merger Integration – FFIC’s deal to buy Empire Bancorp is its first acquisition since 2006, so there may be higher than average integration risk. The good news is Empire only has 4 branches, so this is not an overly complex deal to integrate.

2. Loan-to-deposit ratio >100% – FFIC’s loan-to-deposit ratio will be 110% after the Empire Bancorp deal closes. We think a lower loan-to-deposit ratio proves the stability of the franchise.

3. Commercial Real Estate concentration – FFIC has one of the highest concentrations of Commercial Real Estate (“CRE”) loans. Regulators have a long history of wanting to limit CRE concentrations. However, regulators softened this guidance in the last several years to account for strong collateral and a history of low credit losses. We think this applies directly to FFIC. Their credit losses have been wellbelow banking industry averages because most of their CRE exposures are on rent-controlled apartment buildings in New York City. Rent-control apartment buildings in New York City have a history of low credit losses. This is result of few vacancies that do not last long.

4. Lower than peer fee income – FFIC history as a thrift means most of its revenue has come from spread revenue and less has come from fee income. Historically, commercial banks have had higher fee income than thrifts which has led to commercial banks having higher margins and higher returns than thrifts. Even though FFIC has shifted its balance sheet to have more commercial and industrial loans, FFIC has not grown its fee income proportionality.

We think FFIC is too cheap for a profitable bank with a history of low credit risk. From a 0.59x price-to-tangible book ratio, we believe FFIC can trade up to a 1.1x price-to-tangible book level. This is the level at which FFIC traded from 2013 to 2019. In fact, FFIC traded at 1.4x in 2017-18. If FFIC were to make substantially more progress in remixing its deposit base, we believe there is further upside to the valuation.

We are not arguing that CNOB and FFIC are the greatest companies in the world. We are using them as examples of the opportunities we see in the bank stocks. We think both CNOB and FFIC could double in the next three years. If they did double, they would be trading in-line with their median historical valuation.”

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In Q1 2020, the number of bullish hedge fund positions on Flushing Financial Corp (NASDAQ:FFIC) stock remained unchanged from the previous quarter (see the chart here). Our calculations showed that Flushing Financial Corp (NASDAQ:FFIC) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.