Flushing Financial got battered Friday in the stock market after the New York bank said it was raising $70 million to restructure its balance sheet, joining the ranks of banks that have recently announced common stock offerings.
Buran also contended that the recent disruption in the New York banking market —
"We felt that this is really an appropriate time to accelerate the performance dynamics of the company by entering into a balance sheet restructuring, so that we can see some immediate improvements," Buran said. "We see this transaction and this additional capital as being a catalyst for these baseline trends that have been taking place only in the last few months or so."
But Flushing's transaction priced its shares at $15.25, an 11.5% discount from their value when the market closed on Thursday. By the end of Friday, the $9.3 billion-asset company's share price had dropped about 12.5%, to $15.09.
Other banks that have raised capital lately, like
Flushing's transaction will help the bank boost its return on average assets and earnings per share, Buran said. Flushing plans to sell about $400 to $500 million in securities and about $100 million in CRE loans. The bank also expects to reduce its government deposits — acquired through relationships with municipalities in New York — by about $150 million.
While the balance sheet moves are expected to result in a fourth-quarter loss of about $85 million, Flushing hopes to reinvest about $405 million into investments that yield, in some cases, more than double what its current assets are fetching.
Flushing expects the deal to increase annualized net income by about $12 million. The bank also projects that the transaction will improve its capital position, increasing its Common Equity Tier 1 ratio by 21 basis points, to 10.37%
"As things settle in, and we restructure our balance sheet, it'll become more and more apparent that the things that we're projecting, with respect to improvements in earnings and capital, will come to fruition," Buran said.
Jeff Davis, a former bank analyst who now leads the financial institutions group at the advisory firm Mercer Capital, said he doesn't think markets are dinging banks for realizing losses in balance sheet restructurings. He figures that Flushing's stock price took a hit Friday, in part, due to the discounted price of its shares in the transaction.
While low-yielding assets can hamstring banks' profitability, dumping them is a "painful reminder of mistakes" made in the low-rate era leading up to 2022, Davis said.
"It's putting it in the past to set the institution up for much better earnings on a go-forward basis," Davis said. "But it comes at a cost."
The added capital will help the New Jersey-based regional bank reduce its commercial real estate footprint faster and give it wiggle room to grow elsewhere, analysts said.
In recent months, about a dozen publicly traded banks have announced common stock offerings, and a number of them are "not coincidentally" heavy players in CRE lending, Davis said.
At Flushing, commercial real estate loans make up more than two-thirds of its portfolio. The debt it's selling is generally not connected to its strong depository business, and Flushing doesn't plan to pull back from the CRE business, Buran said.
The recent spate of capital raises may be coming to an end, or at least a pause, Davis said, as banks look to leave any losses in 2024. Flushing's experience on Friday may also make other banks cautious about launching stock offerings before the end of the year.
"Flushing is maybe a bucket of cold water on everyone else," Davis said. "Even if everyone else who's considering it doesn't have Flushing's unique attributes that have caused it to bomb in the markets today."
