John R. Buran, President and CEO Commentary

UNIONDALE, N.Y., April 25, 2023 (GLOBE NEWSWIRE) -- Strong Credit Quality Despite Loss on One Singular Relationship. Results for the quarter were impacted by our decision to fully charge off a $9.2 million business credit placed on non-accrual in 2Q22. This credit was a participation where the domestic borrower had a significant customer who shipped its product internationally and was impacted by world events. Existing credit protection became more questionable during the quarter which led to the decision to charge-off. Consistent with our long-standing history of conservative underwriting, the remainder of the credit portfolio continued to perform well as delinquencies improved 16 basis points and criticized and classified assets declined QoQ.

NIM Outlook; Solid Capital and Liquidity. While rising rates temporarily compress our net interest margin, the NIM should begin to rebound, on a lagged basis, after the Fed stops raising rates. To limit additional margin squeeze, we moved closer to interest rate neutral, achieving approximately 40% of our target for 2023 in the first quarter. Capital continues to be strong with a TCE¹ of 7.73%. Liquidity is solid with $3.7 billion of availability while uninsured and uncollateralized deposits are a low $1.1 billion or 16.2% of total deposits.

¹ Tangible Common Equity (“TCE”)/Total Assets (“TA”) ² See “Reconciliation of GAAP Earnings and Core Earnings”, “Reconciliation of GAAP Revenue and Pre-Provision Pre-Tax Net Revenue”, and “Reconciliation of GAAP Net Interest Margin to Core Net Interest Income and Net Interest Margin.” ³ Net Interest Margin (“NIM”) Fully Taxable Equivalent (“FTE”)

• Average total deposits increased 2.0% QoQ and 6.2% YoY to $6.8 billion, with core deposits comprising 75.3% of total average deposits; opened new Hauppauge branch during the quarter
• Period end net loans declined slightly QoQ and increased 4.5% YoY; loan closings were $173.5 million down 22.9% QoQ and 47.3% YoY; the yield on closings increased 91 bps QoQ and 357 bps YoY to 7.01%
• Loan pipeline decreased 59.9% YoY, but increased 5.5% QoQ to $266.1 million reflecting higher rates and greater client selectivity
• Net interest margin FTE decreased 43 bps QoQ and 109 bps YoY to 2.27%; Core net interest margin FTE decreased 38 bps QoQ and 106 bps YoY to 2.25%; The decline in GAAP and Core NIM was primarily driven by our liability sensitive balance sheet resulting in liabilities repricing faster than assets; after a lag, the NIM is expected to expand when the Fed stops raising rates
• Achieved 40% of our goal of moving towards interest rate neutral in 1Q23. These actions include adding $200 million hedge on investments, $50 million (net) of funding swaps, increasing floating rate securities, and extending funding
• NPAs declined to $42.2 million from $53.4 million at 4Q22, but increased from $14.1 million at 1Q22
• Provision for credit losses was $7.5 million in 1Q23 compared to $1.4 million in 1Q22; net charge-offs were $9.2 million in 1Q23 compared to $0.9 million in 1Q22
• Tangible Common Equity to Tangible Assets was 7.73%, down from 7.82% at 4Q22; the change in accumulated other comprehensive loss, net of taxes negatively impacted this ratio by 2 bps in 1Q23; our swaps portfolio serves as a partial offset to the value of the AFS securities portfolio when rates change
• Repurchased 159,516 shares at an average price of $19.14

¹ See Reconciliation of GAAP Earnings and Core Earnings

Net interest income totaled $45.3 million in 1Q23 compared to $54.2 million in 4Q22, $61.2 million in 3Q22, $64.7 million in 2Q22, and $63.5 million in 1Q22.

• Net interest margin, FTE (“NIM”) of 2.27% decreased 109 bps YoY and 43 bps QoQ
• Prepayment penalty income from loans and securities, net reversals and recoveries of interest from nonaccrual loans, net gains and losses from fair value adjustments on qualifying hedges, and purchase accounting accretion totaled $1.1 million (6 bps to the NIM) in 1Q23 compared to $2.4 million (12 bps) in 4Q22, $2.2 million (11 bps) in 3Q22, $2.6 million (13 bps) in 2Q22, and $2.6 million (14 bps) in 1Q22
• Excluding the items in the previous bullet, net interest margin was 2.21% in 1Q23, 2.58% in 4Q22, 2.96% in 3Q22, and 3.22% in both 2Q22 and 1Q22
• In order to move more towards a neutral interest rate risk position, the following actions were taken:
  • Added $200 million of hedges against the investment portfolio converting securities yielding 1.90% into assets yielding 3.41%
  • Purchases $250.0 million of funding derivatives locking in funding at a weighted average cost of 3.72% with a duration approximately 3.2 years
  • Extended funding through FHLB advances totaling $71.7 million at 4.05%, with an average duration of 4.0 years
  • Purchased $66.7 million of floating (reprice within 90 days) rate securities with an initial weighted average yield of 6.45%
• The totality of these actions equates to approximately 40% of the goal of moving towards interest rate neutral
• Additionally, the balance sheet, as of March 31, 2023, consists of:        
  • Approximately $1.6 billion of assets were floating or swapped into floating rate assets
  • Funding derivatives totaled $921.5 million with $621.5 million effective at 2.53% for 2.4 years and $300.0 million forward starting at 1.80% with a remaining term of 2.7 years; this strategy was started in 2018
  • The Company has $2.5 billion of protection in place against a rising rate environment through floating assets and derivative strategy
    

The Company recorded a provision for credit losses of $7.5 million in 1Q23 compared to a benefit for credit losses of $12 thousand in 4Q22, a provision for credit losses of $2.1 million in 3Q22, $1.6 million in 2Q22, and $1.4 million in 1Q22.

• Net charge-offs (recoveries) were $9.2 million in 1Q23 (54 bps of average loans), $0.8 million in 4Q22 (5 bps of average loans), $0.3 million in 3Q22 (2 bps of average loans), $(0.5) million in 2Q22 ((3) bps of average loans), and $0.9 million in 1Q22 (6 bps of average loans)
• 1Q23 net charge-offs were primarily related to a commercial business relationship that was placed on nonaccrual in 2Q22

Noninterest income (loss) was $6.9 million in 1Q23, $(7.7) million in 4Q22, $9.0 million in 3Q22, $7.4 million in 2Q22, and $1.3 million in 1Q22.

• Noninterest income included net gains (losses) from fair value adjustments of $2.6 million in 1Q23 ($0.06 per share, net of tax), $(0.6) million in 4Q22 ($(0.02) per share, net of tax), $5.6 million in 3Q22 ($0.13 per share, net of tax), $2.5 million in 2Q22 ($0.06 per share, net of tax), and $(1.8) million in 1Q22 ($(0.04) per share, net of tax)
• Loss on the sale of securities was $10.9 million ($0.27 per share, net of tax) in 4Q22 as the Company sold $84.2 million of mortgage-based securities with an approximate yield of 1.17%; proceeds were primarily reinvested in 1Q23 into floating rate securities that have a yield that approximates 6.40%
• Life insurance proceeds were $0.3 million ($0.01 per share) in 4Q22 and $1.5 million ($0.05 per share) in 2Q22
• Absent all above items and other immaterial adjustments, core noninterest income was $4.3 million in 1Q23, up 37.4% YoY and 21.6% QoQ; investment product sales were a significant driver of the YOY and QoQ increase

Noninterest expense totaled $37.7 million in 1Q23 (a decrease of 2.8% YoY, but an increase of 11.7% QoQ) compared to $33.7 million in 4Q22, $35.6 million in 3Q22, $35.5 million in 2Q22, and $38.8 million in 1Q22.

• Given the challenging rate environment, management continues to actively review all noninterest expenses
• Salaries and employee benefits include $1.7 million and $1.4 million benefit from Employee Retention Tax Credit refunds in 1Q23 and 4Q22, respectively, and $2.8 million benefit from a lower discount rate for certain benefit plans in 4Q22
• Other operating expenses include $0.6 million reduction in reserves for unfunded commitments in 3Q22
• Seasonal compensation expense was $4.1 million and $4.3 million in 1Q23 and 1Q22, respectively
• Excluding the effects of other immaterial adjustments, core operating expenses were $37.6 million in 1Q23, down 2.8% YoY but up 11.8% QoQ; excluding the Employee Retention Tax Credit refund and the benefit from the lower discount rate in 4Q22, 1Q23 and 4Q22 core noninterest expense would have been $39.3 million and $37.8 million, respectively
• GAAP noninterest expense to average assets was 1.78% in 1Q23, 1.58% in 4Q22, 1.69% in 3Q22, 1.73% in 2Q22, and 1.93% in 1Q22

The provision for income taxes was $1.8 million in 1Q23 compared to $2.6 million in 4Q22, $9.0 million in 3Q22, $9.9 million in 2Q22, and $6.4 million in 1Q22.

• The effective tax rate was 25.9% in 1Q23, 20.0% in 4Q22, 27.7% in 3Q22, 28.4% in 2Q22, and 26.1% in 1Q22
• The 4Q22 effective tax rate declined due to preferential tax items having a larger impact due to lower levels of pre-tax income
• The 2Q22 effective tax rate includes a loss of certain state and city tax deductions and a resolution of certain examinations by taxing authorities
  
  

Average loans were $6.9 billion, an increase of 4.4% YoY and down 0.1% QoQ.

• Maintain the credit strategy of loans secured by real estate with an emphasis on rent regulated multifamily
• Period end net loans totaled $6.9 billion, up 4.5% YoY, but down 0.4% QoQ
• Total loan closings were $173.5 million in 1Q23, $225.2 million in 4Q22, $463.7 million in 3Q22, $503.8 million in 2Q22, and $329.3 million in 1Q22; the loan pipeline was $266.1 million at March 31, 2023, down 59.9% YoY, but up 5.5% QoQ
• The diversified loan portfolio is over 88% collateralized by real estate with an average loan-to-value ratio of <37%
• Midtown Manhattan office exposure is 0.1% of net loans
  

Average total deposits were $6.8 billion, increasing 6.2% YoY and 2.0% QoQ.

• Average core deposits (non-CD deposits) were 75.3% of total average deposits in 1Q23, compared to 86.1% a year ago
• Average noninterest bearing deposits decreased 10.5% YoY in 1Q23 and 8.5% QoQ and comprised 13.2% of average total deposits in 1Q23 compared to 15.6% a year ago
• Uninsured and uncollateralized deposits totaled $1.1 billion or 16.2% of total deposits; Bank liquidity remains strong with $3.7 billion of availability
  

Credit Quality: Nonperforming loans at the end of each quarter totaled $21.2 million at 1Q23, $32.4 million at 4Q22, $29.0 million at 3Q22, $27.9 million at 2Q22, and $14.1 million at 1Q22.

• Criticized and classified loans were 84 bps of gross loans at 1Q23 compared to 98 bps at 4Q22, 89 bps at 3Q22, 85 bps at 2Q22, and 90 bps at 1Q22
• Total delinquent loans improved 16 bps QoQ to 42 bps from 58 bps indicating further improvement in future credit quality
• Allowance for credit losses were 182.9% of nonperforming loans at 1Q23 compared to 124.9% at 4Q22, and 266.1% at 1Q22
  

Capital: Book value per common share was $22.84 at 1Q23, up 2.6% YoY, but down 0.6% QoQ; tangible book value per common share, a non-GAAP measure, was $22.18 at 1Q23, up 2.6% YoY, but down 0.6% QoQ.

• The Company paid a dividend of $0.22 per share; the Company has ample available liquidity to meet its obligations; Purchased 159,516 shares at an average price of $19.14 in 1Q23 with 434,946 shares remain subject to repurchase under the authorized stock repurchase program, which has no expiration or maximum dollar limit
• Tangible common equity to tangible assets was 7.73% at 1Q23 compared to 7.82% at 4Q22 and 8.05% at 1Q22; the swaps portfolio serves as a partial offset to market value changes in the AFS securities portfolio
• The Company and the Bank remain well capitalized under all applicable regulatory requirements
  
  

Conference Call Information:

• John R. Buran, President and Chief Executive Officer, and Susan K. Cullen, Senior Executive Vice President and Chief Financial Officer and Treasurer, will host a conference call on Wednesday, April 26, 2023, at 9:30 AM (ET) to discuss the Company’s first quarter results and strategy.
• Dial-in for Live Call: 1-877-509-5836; Canada 855-669-9657
• Webcast: https://event.choruscall.com/mediaframe/webcast.html?webcastid=LTE5H6Xo
• Dial-in for Replay: 1-877-344-7529; Canada 855-669-9658
• Replay Access Code: 2825200
• The conference call will be simultaneously webcast and archived

Second Quarter 2023 Earnings Release Date:

The Company plans to release Second Quarter 2023 financial results after the market close on July 25, 2023; followed by a conference call at 9:30 AM (ET) on July 26, 2023.

A detailed announcement will be issued prior to the second quarter’s close confirming the date and time of the earnings release.

About Flushing Financial Corporation

Flushing Financial Corporation (Nasdaq: FFIC) is the holding company for Flushing Bank®, an FDIC insured, New York State—chartered commercial bank that operates banking offices in Queens, Brooklyn, Manhattan, and on Long Island. The Bank has been building relationships with families, business owners, and communities since 1929. Today, it offers the products, services, and conveniences associated with large commercial banks, including a full complement of deposit, loan, equipment finance, and cash management services. Rewarding customers with personalized attention and bankers that can communicate in the languages prevalent within these multicultural markets is what makes the Bank uniquely different. As an Equal Housing Lender and leader in real estate lending, the Bank’s experienced lending teams create mortgage solutions for real estate owners and property managers both within and outside the New York City metropolitan area. The Bank also fosters relationships with consumers nationwide through its online banking division with the iGObanking® and BankPurely® brands.

Additional information on Flushing Bank and Flushing Financial Corporation may be obtained by visiting the Company’s website at FlushingBank.com. Flushing Financial Corporation’s earnings release and presentation slides will be available prior to the conference call at www.FlushingBank.com under Investor Relations.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Statements in this Press Release relating to plans, strategies, economic performance and trends, projections of results of specific activities or investments and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, risk factors discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and in other documents filed by the Company with the Securities and Exchange Commission from time to time. Forward-looking statements may be identified by terms such as “may”, “will”, “should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “forecasts”, “goals”, “potential” or “continue” or similar terms or the negative of these terms. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The Company has no obligation to update these forward-looking statements.

#FF

- Statistical Tables Follow -

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(Unaudited)

⁽¹⁾ Ratios are presented on an annualized basis, where appropriate.
⁽²⁾ Yields are calculated on the tax equivalent basis using the statutory federal income tax rate of 21% for the periods presented.
⁽³⁾ Efficiency ratio, a non-GAAP measure, was calculated by dividing core noninterest expense (excluding OREO expense and the net gain/loss from the sale of OREO) by the total of core net interest income and core noninterest income.
⁽⁴⁾ Calculated by dividing stockholders’ equity by shares outstanding.
⁽⁵⁾ Calculated by dividing tangible stockholders’ common equity, a non-GAAP measure, by shares outstanding. Tangible stockholders’ common equity is stockholders’ equity less intangible assets (goodwill, net of deferred taxes). See “Calculation of Tangible Stockholders’ Common Equity to Tangible Assets”.
⁽⁶⁾ See “Calculation of Tangible Stockholders’ Common Equity to Tangible Assets”.
⁽⁷⁾ Excludes performing nonaccrual TDR loans in periods prior to 1Q23.

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
AVERAGE BALANCE SHEETS
(Unaudited)

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
NET INTEREST INCOME AND NET INTEREST MARGIN
(Unaudited)

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⁽¹⁾ Yields are calculated on the tax equivalent basis using the statutory federal income tax rate of 21% for the periods presented.

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
DEPOSIT and LOAN COMPOSITION
(Unaudited)

Deposit Composition

Loan Composition

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⁽¹⁾ Includes $4.8 million, $5.2 million, $9.6 million, $22.2 million, and $43.2 million of PPP loans at March 31, 2023, December 31, 2022, September 30, 2022, June 30, 2022, and March 31, 2022, respectively.
⁽²⁾ Includes $5.1 million, $5.4 million, $5.8 million, $6.6 million, and $6.9 million of purchase accounting unamortized discount resulting from the acquisition of Empire Bancorp at March 31, 2023, December 31, 2022, September 30, 2022, June 30, 2022, and March 31, 2022, respectively.

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
LOAN CLOSINGS and RATES
(Unaudited)

Loan Closings