THIRD QUARTER 2018¹ HIGHLIGHTS

• GAAP diluted EPS was $0.61, up 27.1% QoQ and 74.3% YoY
• Core diluted EPS was $0.54, up 10.2% QoQ and 45.9% YoY
• Net interest income of $41.5 million, down 2.6% QoQ, and 3.5% YoY
• Net interest margin was 2.71%, down 5bps QoQ and 19bps YoY
• GAAP and core ROAE were 12.9% and 11.4%, compared with 10.5% and 10.6%, respectively in 2Q18
• GAAP and core ROAA were 1.1% and 1.0%, respectively, compared with 0.9% for each in 2Q18
• Tax benefit of $0.06 per diluted share due to release of previously accrued tax liability

UNIONDALE, N.Y., Oct. 23, 2018 (GLOBE NEWSWIRE) -- Flushing Financial Corporation (the “Company”) (Nasdaq-GS: FFIC), the parent holding company for Flushing Bank (the “Bank”), today announced its financial results for the third quarter ended September 30, 2018.

John R. Buran, President and Chief Executive Officer, stated, “We are pleased to report earnings per diluted common share of $0.61 for the third quarter of 2018, an increase of 27% and 74% from 2Q18 and 3Q17, respectively, driven by continued strong execution of our strategic objectives and the release of previously accrued tax liability.”

“Our strategic focus of increasing net interest income through emphasizing rate over volume and reducing our liability sensitive position has resulted in net loans growth of 0.9% (non-annualized) for the third quarter. Similar to the prior quarter, we allowed $62 million of participations with another financial institution to repay, as the rates offered during the refinancing process did not meet our rate criteria. Year-to-date, we have allowed approximately $139 million of participations to repay rather than refinance at a rate below our criteria. During the quarter, approximately 70% of our new loans and 40% of our new investment securities were adjustable rate products allowing us to reduce future compression on the net interest margin as spreads are fixed. Additionally, approximately $450 million of forward swaps entered in late 2017 have provided a benefit of 1bp to the quarter’s net interest margin. We expect these swaps to continue to benefit our net interest margin as interest rates rise. These swaps coupled with the extension of the maturity of liabilities has mitigated our liability sensitive position.”  

“The yield on the loan portfolio increased 21bps from the linked quarter and 28bps from the same quarter in 2017 representing successful execution of our strategic objectives. The yield on mortgage loan originations increased 8bps from the linked quarter and 35bps from the same quarter in 2017. The yield on new loan originations decreased 8bps during the quarter primarily due to the initial rate recorded on certain adjustable rate C&I loans, which have an average rate reset of 3 months. Over the past five quarters, C&I loans represent 39% of new loan originations, which are primarily adjustable rate loans. As we have previously disclosed, we have approximately $2 billion of loans repricing through 2020, of which $127 million mortgage loans have repriced up an average of 68bps during the third quarter, further enhancing loan yields. In addition, the pipeline remains strong at $355 million with an average yield of 4.68% compared to $323 million at 4.67% in the linked quarter.”  

“Despite this good news on yields, margin pressure continued to be driven by higher cost of funds. The cost of funds increased 22bps QoQ and 48bps YoY, as the Federal Reserve increased benchmark rates by 100bps since the third quarter of 2017. The competition for deposits this quarter was most acute in the municipal government sector as the cost of NOW and money market accounts increased 39bps and 32bps, respectively. We expect continued competition for deposits and additional compression on the NIM through 2019.”

“Retail deposits increased $106 million QoQ. A prominent feature in the growth of retail deposits is the “Win Flushing” program, which focuses on increasing our deposit market share in the Asian Community of Flushing, Queens. Through the third quarter of 2018, we have captured over $100 million in deposit growth through this program and remain on pace to add $160 million in deposits by the end of 1Q19. Central to the “Win Flushing” program was the conversion of the Flushing branches to the Universal Banker model permitting staff to spend more time with customers. In the 11 branches that have been converted we have experienced an increase of over 120% in transactions processed at ATMs, to almost 60% of all branch transactions, reducing our customer’s reliance on tellers, allowing our branch staff to focus more time on sales opportunities. As previously discussed, we expect to have the remaining branches converted to the Universal Banker model by the end of 2019 and a branch in Chinatown opening in 4Q18.”   

Mr. Buran continued, “As we’ve continued to improve loan yields we have retained our focus on credit quality. Non-performing assets decreased by 30% and, total delinquencies have decreased 17% since December 31, 2017. The allowance for loan losses to gross loans was 0.38% while the allowance for loan losses to non-performing loans improved to 161% from 137% in the linked quarter. The loan-to-value ratio on our non-performing real estate loans at September 30, 2018 remains conservative at 35%. The net recoveries of $89,000 for the quarter reflect the Company’s conservative underwriting and diligence in the collection process.”

The Company retains its focus on preserving strong risk management practices, including conservative underwriting standards and improving yields to achieve improved risk-adjusted returns.

• Multi-family (excluding underlying co-operative mortgages), commercial real estate, and one-to-four family mixed-use property mortgage loans originated during 3Q18 had a yield of 4.38%, an increase of 11bps from 4.27% for 2Q18 and an increase of 27bps from 4.12% for 3Q17. We have maintained our asset quality as these loans had an average loan-to-value ratio of 42% and an average debt coverage ratio of 173%.
• We remain committed to our strategy of focusing on C&I loans, multi-family and commercial real estate loans as in the third quarter, originations and purchases represented 43%, 33%, and 12%, respectively, of all originations, which were made while maintaining conservative loan-to-value and debt coverage ratios, and increasing yield.
• The average rate of mortgage loan applications in the pipeline totaled 4.68% at September 30, 2018 as compared to  4.04% at September 30, 2017.

Mr. Buran concluded, “Overall, we remain well capitalized and positioned to deliver profitable growth and long-term value to our shareholders as we continue to execute on our strategic objectives.”

Summary of Strategic Objectives

• Increase core deposits and continue to improve funding mix
• Manage net interest income by leveraging loan pricing opportunities and portfolio mix
• Enhance core earnings power by improving scalability and efficiency
• Manage credit risk
• Maintain well capitalized levels under all stress test scenarios

Earnings Summary:

Net Interest Income

Net interest income for 3Q18 was $41.5 million, a decrease of $1.5 million, or 3.5% YoY (3Q18 compared to 3Q17) and a decrease of $1.1 million, or 2.6% QoQ (3Q18 compared to 2Q18). During 3Q18 the increase in the cost of funds outpaced the increase in the yield of interest-earning assets.

• Net interest margin of 2.71%, decreased 19bps YoY and 5bps QoQ
• Net interest spread of 2.51%, decreased 26bps YoY and 9bps QoQ
• Net interest income includes prepayment penalty income from loans and securities totaling $1.9 million in 3Q18 compared with $1.6 million in 3Q17 and $1.6 million in 2Q18 and recovered interest from delinquent loans of $1.1 million in 3Q18, compared to $0.3 million in 3Q17 and $0.2 million in 2Q18
• Excluding prepayment penalty income and recovered interest from nonaccrual loans, the yield on interest-earning assets was 4.08% in 3Q18, an improvement from 3.87% in 3Q17 and 3.98% in 2Q18, and the net interest margin was 2.51% in 3Q18, which decreased from 2.77% in 3Q17 and from 2.64% in 2Q18
• Average balance of total interest-earning assets of $6,130.4 million, increased $194.3 million, or 3.3%, YoY but decreased $50.8 million, or 0.8%, QoQ, primarily due to our opting to allow lower yielding loans to prepay rather than refinance at rates below our criteria
• Yield on interest-earning assets of 4.27%, increased 27bps YoY and 17bps QoQ
• Cost of interest-bearing liabilities of 1.76%, increased 53bps YoY and 26bps QoQ
• Cost of funds of 1.63%, increased 48bps YoY and 22bps QoQ, driven by increases in rates paid on deposits and short-term borrowings resulting from the recent increases in the Fed Funds rate  

Provision for loan losses

As a result of continued strong credit quality, there was no provision recorded for 3Q18 compared to $3.3 million in 3Q17 and none in 2Q18.

Non-interest Income

Non-interest income for 3Q18 was $5.0 million, an increase of $3.3 million, or 198.3% YoY, and an increase of $1.8 million or 56.4% QoQ.

• Non-interest income included gains from life insurance proceeds of $2.2 million in 3Q18 and $0.2 million in 3Q17 and net losses from fair value adjustments of $0.2 million in 3Q18, $1.3 million in 3Q17 and $0.3 million in 2Q18
• Additionally, non-interest income included net gains from the sale of loans of $10,000 in 3Q18, $0.2 million in 3Q17 and $0.4 million in 2Q18
• Absent all above items, non-interest income was $2.9 million, an increase of $0.3 million YoY, but a decrease of $0.1 million QoQ

Non-interest Expense

Non-interest expense for 3Q18 was $27.2 million, an increase of $1.3 million, or 4.9% YoY, but a decrease of $0.2 million, or 0.6% QoQ.

• Non-interest expense increased YoY primarily due to increases in salaries and benefits, consulting, legal and depreciation expense due to the growth of the Bank, but decreased $0.2 million QoQ primarily due to reduction in foreclosure expenses
• The efficiency ratio was 61.3% in 3Q18 compared to 56.5% in 3Q17 and 59.6% in 2Q18

Provision for Income Taxes

The provision for income taxes in 3Q18 was $1.9 million, a decrease of $3.4 million, or 63.9% YoY and a decrease of $2.6 million, or 57.5% QoQ.

• Pre-tax income increased by $3.8 million, or 24.4% YoY and by $0.8 million, or 4.5% QoQ
• The effective tax rates were 9.9% in 3Q18, 34.2% in 3Q17 and 24.4% in 2Q18
• 3Q18 reflects the release of a previously accrued tax liability totaling $1.8 million
• We anticipate the Company’s effective tax rate to increase to approximately 21% in the fourth quarter of 2018 and approximately 19% for the full year

Financial Condition Summary:

Loans:

• Net loans held for investment were $5,359.8 million reflecting an increase of 0.9% QoQ (not annualized) and 3.9% from December 31, 2017, as we continue to focus on the origination of multi-family, commercial real estate and commercial business loans with a full relationship while emphasizing rate over volume
• During the quarter, we continued to see an increase in loan satisfactions, which we decided not to refinance, as the interest rate demanded did not fit our strategy of emphasizing rate over volume
• Loan originations and purchases of multi-family, commercial real estate and commercial business loans totaled $274.2 million for 3Q18, or 88.8% of loan production
• Loan pipeline was $355.2 million at September 30, 2018, compared to $417.0 million at September 30, 2017 and $322.9 million at June 30, 2018
• The loan-to-value ratio on our portfolio of real estate dependent loans as of September 30, 2018 totaled 38.7%

The following table shows the weighted average rate received from loan originations and purchases for the periods indicated:

Credit Quality:

• Non-performing loans totaled $12.6 million, a decrease of $5.5 million, or 30.3%, from $18.1 million at December 31, 2017
• Non-performing assets totaled $12.7 million, a decrease of $5.5 million, or 30.1%, from $18.1 million at December 31, 2017
• Classified assets totaled $47.7 million, an increase of $13.8 million, or 40.5%, from $34.0 million at December 31, 2017, primarily due to nine business loan relationships being downgraded as they did not meet certain loan covenants; these loans remain current and accruing
• Loans classified as troubled debt restructured (TDR) totaled $11.4 million, a decrease of $1.8 million, or 13.3%, from $13.2 million at December 31, 2017, primarily due to the sale of one commercial TDR in 2Q18
• We anticipate continued low loss content in the portfolio, as our strong underwriting standards coupled with our practice of obtaining updated appraisals and recording charge-offs early in the delinquency process has resulted in a 35.1% average loan-to-value for non-performing loans collateralized by real estate at September 30, 2018
• Net charge-offs totaled $0.2 million during the nine months ended September 30, 2018

Capital Management:

• The Company and Bank, at September 30, 2018, were both well capitalized under all applicable regulatory requirements
• During 3Q18, stockholders’ equity increased $3.7 million, or 0.7%, to $541.8 million due to net income of $17.3 million, partially offset by the declaration and payment of dividends on the Company’s common stock and repurchases of the Company’s common stock
• During 3Q18, the Company repurchased 299,509 treasury shares at an average cost of $25.58 per share; as of September 30, 2018, up to 509,327 shares may be repurchased under the authorized stock repurchase program, which has no expiration or maximum dollar limit
• Book value per common share increased to $19.33 at September 30, 2018, from $19.00 at June 30, 2018 and tangible book value per common share, a non-GAAP measure, increased to $18.77 at September 30, 2018, from $18.44 June 30, 2018

Conference Call Information:

• John R. Buran, President and Chief Executive Officer, and Susan K. Cullen, Senior Executive Vice President and Chief Financial Officer, will host a conference call on Wednesday, October 24, 2018 at 9:30 AM (ET) to discuss the Company’s strategy and results for the third quarter of 2018
• Dial-in for Live Call: 1-877-509-5836
• Webcast: https://services.choruscall.com/links/ffic181024.html 
• Dial-in for Replay: 1-877-344-7529
• Replay Access Code: 10123645
• The conference call will be simultaneously webcast and archived through 5:00 PM (ET) on October 24, 2019

About Flushing Financial Corporation

Flushing Financial Corporation (Nasdaq: FFIC) is the holding company for Flushing Bank^®, a New York State—chartered commercial bank insured by the Federal Deposit Insurance Corporation. The Bank serves consumers, businesses, professionals, corporate clients, and public entities by offering a full complement of deposit, loan, equipment finance, and cash management services through its banking offices located in Queens, Brooklyn, Manhattan, and Long Island. As a leader in real estate lending, the Bank’s experienced lending team creates mortgage solutions for real estate owners and property managers both within and outside the New York City metropolitan area. Flushing Bank is an Equal Housing Lender. The Bank also operates an online banking division consisting of iGObanking.com^®, which offers competitively priced deposit products to consumers nationwide, and BankPurely^®, our eco-friendly, healthier lifestyle community brand.

Additional information on Flushing Bank and Flushing Financial Corporation may be obtained by visiting the Company’s website at http://www.flushingbank.com.

“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, 2017 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.

¹ See the table entitled “Reconciliation of Non-GAAP Financial Measures.”

- Statistical Tables Follow -

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
(Unaudited)

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)
(Unaudited)

(1)  Calculated by dividing stockholders’ equity by shares outstanding.
(2)  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”.
(3)  Ratios are presented on an annualized basis, where appropriate.
(4)  Efficiency ratio, a non-GAAP measure, was calculated by dividing non-interest expense (excluding OREO expense and the net gain/loss from the sale of OREO) by the total of net interest income and non-interest income (excluding net gains and losses from the sale of securities, fair value adjustments and life insurance proceeds).

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands)
(Unaudited)

(1)  See “Calculation of Tangible Stockholders’ Common Equity to Tangible Assets”.
(2)  Excludes performing non-accrual TDR loans.

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
NET INTEREST MARGIN
(Dollars in thousands)
(Unaudited)

(1)  Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $1.2 million, $0.3 million and $0.9 million for the three months ended September 30, 2018, June 30, 2018 and September 30, 2017, respectively.
(2)  Interest income on tax-exempt securities does not include the tax benefit of the tax-exempt securities.

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
NET INTEREST MARGIN
(Dollars in thousands)
(Unaudited)

(1)  Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $1.6 million and $1.9 million for the nine months ended September 30, 2018 and 2017, respectively.
(2)  Interest income on tax-exempt securities does not include the tax benefit of the tax-exempt securities.

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
DEPOSIT COMPOSITION
(Unaudited)

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
LOANS
(Unaudited)

Loan Originations and Purchases 

Loan Composition

Net Loans Activity

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
NON-PERFORMING ASSETS and NET CHARGE-OFFS
(Unaudited)

⁽¹⁾  Not included in the above analysis are TDR taxi medallion loans totaling $5.4 million in 3Q18, $5.5 million in 2Q18, $5.7 million in 1Q18, $5.9 million in 4Q17 and $4.1 million in 3Q17.

Net Charge-Offs (Recoveries)

Core Diluted EPS, Core ROAE, Core ROAA, tangible book value per common share and core earnings before provision and income taxes are each non-GAAP measures used in this release. A reconciliation to the most directly comparable GAAP financial measures appears in tabular form at the end of this release. The Company believes that these measures are useful for both investors and management to understand the effects of certain non-interest items and provide an alternative view of the Company's performance over time and in comparison to the Company's competitors. These measures should not be viewed as a substitute for net income. The Company believes that tangible book value per common share is useful for both investors and management as these are measures commonly used by financial institutions, regulators and investors to measure the capital adequacy of financial institutions. The Company believes these measures facilitate comparison of the quality and composition of the Company's capital over time and in comparison to its competitors. These measures should not be viewed as a substitute for total shareholders' equity.

These non-GAAP measures have inherent limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for analysis of results reported under GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies.

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
RECONCILIATION OF GAAP EARNINGS and CORE EARNINGS
(Dollars in thousands, except per share data)
(Unaudited)

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CALCULATION OF TANGIBLE STOCKHOLDERS’
COMMON EQUITY to TANGIBLE ASSETS
(Unaudited)

Susan K. Cullen
Senior Executive Vice President, Treasurer and Chief Financial Officer                 
Flushing Financial Corporation                                                       
(718) 961-5400

Source: Flushing Financial Corporation