FOURTH QUARTER 2019¹ HIGHLIGHTS

• GAAP diluted EPS was $0.45, up 21.6% QoQ and 2.3% YoY
• Core diluted EPS was $0.41, down 14.6% QoQ and 24.1% YoY
• Net interest margin was 2.48%, up 11bps QoQ and down 9bps YoY
• Core net interest margin was 2.33%, unchanged QoQ and down 16bps YoY
• GAAP net interest income of $41.2 million, up 5.7% QoQ and 1.3% YoY
• Core net interest income of $40.1 million, down 0.2% QoQ and 1.2% YoY
• GAAP and core ROAE were 9.1% and 8.4%, respectively, compared with 7.6% and 9.8%, respectively in 3Q19
• GAAP and core ROAA were 0.7% and 0.7%, respectively, compared with 0.6% and 0.8%, respectively in 3Q19

FULL YEAR 2019¹ HIGHLIGHTS

• GAAP diluted EPS was $1.44, down 25.0% YoY
• Core diluted EPS was $1.65, down 14.9% YoY
• Net interest margin was 2.47%, down 25bps YoY
• Core net interest margin was 2.40%, down 20bps YoY
• GAAP net interest income of $161.9 million, down 3.3% YoY
• Core net interest income of $163.6 million, down 2.3% YoY
• GAAP and core ROAE were 7.4% and 8.4%, respectively, compared with 10.3% and 10.4%, respectively in 2018
• GAAP and core ROAA were 0.6% and 0.7%, respectively, compared with 0.9% and 0.9%, respectively in 2018
• Record C&I originations totaling $609.2 million
• Classified assets totaled $24.6 million, down 47.1% YoY

UNIONDALE, N.Y., Jan. 30, 2020 (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 fourth quarter and fiscal year ended December 31, 2019.

John R. Buran, President and Chief Executive Officer, stated, “We are pleased to report GAAP EPS of $0.45, an increase of 22% QoQ.  Net interest income increased 6% from 3Q19, as the net interest margin improved by 11bps.  The improvement in the net interest margin was driven by an 11bps decline in the cost of funds. The cost of funds has shown continuous improvement throughout the quarter. Concurrently, loan portfolio yields increased four basis points QoQ, as the negative effects on our floating rate C&I portfolio were recorded early in the quarter following the Fed decreasing rates. Our hedging strategies contributed positively to both net interest and non-interest income as the yield curve exhibited a small upward slope. We continue to see additional opportunities for repricing retail CDs downward as we have approximately $1 billion maturing in 2020, at an average cost of 2.20%, compared to the current average cost of new deposits of 1.53%. As a result of the above, our core net interest margin for 4Q19 was unchanged from 3Q19. Our strong credit metrics improved as classified loans hit the lowest level since 2008 and delinquent loans decreased to 34bps of the gross loan portfolio. Loan growth declined from 3Q19, however, we start 2020 with a pipeline of $325 million which exceeds the pipeline we started 2019 with by $128 million.”

“In preparation for 2020, we enhanced our distribution network.  We are currently in the testing phase of upgrading our mobile and online banking offerings, which are both components of our digital transformation strategy. We expect this digital transformation to significantly improve the customer experience for both business and consumer customers.  In December, we opened our 20^th branch. The new branch in Hicksville, NY will expand on our successful ethnic strategy in the Asian market. We also relocated our Bell Boulevard branch to better serve our growing Asian market.”

“Most importantly, is our pending acquisition of Empire Bancorp, Inc. The acquisition remains on track with an expected closing in the second quarter of 2020. All required applications and notifications have been filed with the respective agencies. As of December 31, 2019, our pro forma balance sheet would be approximately $8.0 billion in assets, $6.4 billion in loans, and $5.9 billion in deposits while expanding into the Suffolk County market. Suffolk County is one of the richest counties in the country with approximately 1.5 million people and 75,000 businesses.  Our plans for substantial cost reductions and improvements in the business remain on track.”

“We remain well capitalized and well positioned to deliver profitable growth and long-term value to our shareholders as we continue to execute our strategic objectives.”

Summary of Strategic Objectives

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

Earnings Summary:

Net Interest Income

Net interest income for 4Q19 was $41.2 million, an increase of $0.5 million, or 1.3% YoY (4Q19 compared to 4Q18) and $2.2 million, or 5.7% QoQ (4Q19 compared to 3Q19).

• Net interest margin of 2.48%, decreased 9bps YoY, but increased 11bps QoQ
• Net interest spread of 2.25%, decreased 10bps YoY, but increased 10bps QoQ
  
• Yield on average interest-earning assets of 4.21%, decreased 4bps YoY and 1bp QoQ
  
• Cost of average interest-bearing liabilities of 1.96%, increased 6bps YoY, but decreased 11bps QoQ
  
• Cost of funds of 1.83%, increased 6bps YoY, but decreased 11bps QoQ
  
• Average balance of total interest-earning assets of $6,677.3 million, increased $312.9 million, or 4.9%, YoY and $87.8 million, or 1.3%, QoQ
  
• Net interest income includes prepayment penalty income from loans totaling $0.9 million in 4Q19, $1.7 million in 3Q19 and $0.9 million in 4Q18; recovered interest from delinquent loans of $0.4 million in 4Q19, $0.3 million in 3Q19 and $0.3 million in 4Q18; net gains from fair value adjustments on qualifying hedges totaling $1.0 million in 4Q19 and net losses from fair value adjustments on qualifying hedges totaling $1.3 million in 3Q19 and none in 4Q18
  
• Absent all above items noted in the preceding bullet, the yield on interest-earning assets was 4.07% in 4Q19, a decrease of 11bps from 3Q19 and 4Q18 and the net interest margin was 2.33% in 4Q19 and 3Q19, but decreased 16bps from 4Q18
  

Provision (benefit) for loan losses

The Company recorded a benefit of $0.3 million in 4Q19 compared to a provision of $0.7 million in 3Q19 and $0.4 million in 4Q18.

• 4Q19 benefit for loan losses was primarily due to a change in the loan portfolio mix
• Net charge-offs (recoveries) of ($34,000) in 4Q19, $0.2 million in 3Q19, and ($0.2) million in 4Q18
  
• We continue to finalize our Day One impact assumptions and expect the adoption of CECL to increase the current allowance between 5% and 15%
  
• The CECL standard will create additional volatility to our future provisions due to the assumptions used for the macroeconomic variables, loan composition and product mix, as they are all subject to change
  

Non-interest Income

Non-interest income for 4Q19 was $5.0 million, an increase of $6.0 million YoY, and $4.0 million QoQ

• Non-interest income included net gains from fair value adjustments of $0.8 million in 4Q19 and net losses from fair value adjustments of $2.1 million in 3Q19 and $3.6 million in 4Q18
• Additionally, non-interest income included net losses from the sale of securities of $1.9 million in 4Q18; net gains from sale of assets of $1.1 million in 4Q18; net gains on sale of loans of $0.5 million in 4Q19 and $0.2 million in 3Q19 and life insurance proceeds of $0.4 million in 4Q19
  
• Absent all above items, non-interest income was $3.3 million in 4Q19, a decrease of $0.1 million, or 1.6% YoY, but an increase of $0.4 million, or 12.3% QoQ
  

Non-interest Expense

Non-interest expense for 4Q19 was $29.6 million, an increase of $3.9 million, or 15.1 % YoY, and $3.6 million, or 13.8% QoQ

• Non-interest expense included the benefit of the FDIC small business assessment credit of $0.3 million in 4Q19 and $1.3 million in 3Q19
• Additionally, non-interest expense included the impact of the change in the discount rate used to calculate the Company’s liability of BOLI split dollar insurance; the discount rate decreased in 4Q19 resulting in additional expense totaling $1.2 million, while the discount rate increased in 4Q18 resulting in a decrease in expense totaling $0.8 million
  
• Lastly, non-interest expense included merger expenses totaling $1.1 million in 4Q19 and $0.5 million in 3Q19
  
• Absent all above items, non-interest expense was $27.7 million in 4Q19, an increase of $1.2 million, or 4.4% YoY, and $0.9 million, or 3.4% QoQ
  
• The ratio of non-interest expense to average assets was to 1.68% in 4Q19 compared to 1.49% in 3Q19 and 1.54% in 4Q18; absent all above items non-interest expense to average assets was 1.57% in 4Q19 compared to 1.54% in 3Q19 and 1.59% in 4Q18
  
• The efficiency ratio was 65.0% in 4Q19 compared to 58.9% in 3Q19 and 58.5% in 4Q18
  

Provision for Income Taxes

The provision for income taxes in 4Q19 was $4.0 million, an increase of $2.9 million YoY and $1.4 million QoQ.

• Pre-tax income increased by $3.4 million, or 25.4% YoY, and $3.6 million, or 27.4% QoQ
• The effective tax rates were 23.4% in 4Q19, 19.1% in 3Q19 and 7.8% in 4Q18
  
• 4Q18 reflects the release of a previously accrued tax liability of $1.8 million
  

Financial Condition Summary:

Loans:

• Net loans held for investment were $5,750.5 million reflecting an increase of 4.0% from December 31, 2018, as we continue to focus on the origination of full banking relationship loans through C&I loans, multi-family loans and commercial real estate
• Loan closings of commercial business loans, multi-family loans and commercial real estate totaled $241.0 million for 4Q19, or 89.3% of loan production
  
• Loan pipeline was $324.5 million at December 31, 2019, compared to $418.9 million at September 30, 2019 and $196.6 million at December 31, 2018
  
• The loan-to-value ratio on our portfolio of real estate dependent loans as of December 31, 2019 totaled 38.2%
  

The following table shows the weighted average rate received from loan closings for the periods indicated:

Credit Quality:

• Non-performing loans totaled $13.3 million, a decrease of $3.0 million, or 18.4%, from $16.3 million at December 31, 2018
• Non-performing assets totaled $13.5 million, a decrease of $2.8 million, or 16.9%, from $16.3 million at December 31, 2018
  
• Classified assets totaled $24.6 million, a decrease of $21.9 million, or 47.1%, from $46.5 million at December 31, 2018
  
• Loans classified as troubled debt restructured (TDR) totaled $6.5 million, a decrease of $1.9 million, or 22.4%, from $8.4 million at December 31, 2018
  
• 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 26.2% average loan-to-value for non-performing loans collateralized by real estate
  
• Net charge-offs totaled $2.0 million during the year ended December 31, 2019 driven mainly by charge-offs of one commercial business loan relationship
  

Capital Management:

• The Company and Bank, at December 31, 2019, were both well capitalized under all applicable regulatory requirements
• Through 4Q19, stockholders’ equity increased $30.2 million, or 5.5%, to $579.7 million primarily due to net income of $41.3 million, partially offset by the declaration and payment of dividends on the Company’s common stock
  
• During 4Q19, the Company did not repurchase any shares; as of December 31, 2019, up to 427,211 shares remained subject to repurchase under the authorized stock repurchase program, which has no expiration or maximum dollar limit
  
• Book value per common share increased to $20.59 at December 31, 2019, from $19.64 at December 31, 2018 and tangible book value per common share, a non-GAAP measure, increased to $20.02 at December 31, 2019, from $19.07 at December 31, 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 Friday, January 31, 2020 at 9:30 AM (ET) to discuss the Company’s strategy and results for the fourth quarter
• Dial-in for Live Call: 1-877-509-5836
  
• Webcast: https://services.choruscall.com/links/ffic200131.html
  
• Dial-in for Replay: 1-877-344-7529
  
• Replay Access Code: 10137546
  
• The conference call will be simultaneously webcast and archived through January 31, 2021
  

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 on 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®, an 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, 2018 and in other documents filed by the Company with the Securities and Exchange Commission (the “SEC”) from time to time, including those additional risk factors discussed under the heading “Risk Factors” in our Registration Statement on Form S-4/A as filed with the SEC on January 9, 2020, relating to the pending acquisition of Empire Bancorp, Inc.  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.

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⁾ Yields are calculated on the tax equivalent basis using the statutory federal income tax rate of 21% for the periods presented.
⁽⁵⁾ Efficiency ratio, a non-GAAP measure, was calculated by dividing non-interest expense (excluding accelerated employee benefits upon officer’s death, merger expense, OREO expense and the net gain/loss from the sale of OREO) by the total of net interest income (excluding net losses from fair value adjustments on qualifying hedges) and non-interest income (excluding net gains and losses from the sale of securities, assets and 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 $0.3 million, $0.9 million and $0.5 million for the three months ended December 31, 2019, September 30, 2019 and December 31, 2018, respectively.
⁽²⁾ Loan interest income includes net gains from fair value adjustments on qualifying hedges of $1.0 million for the three months ended December 31, 2019 and net losses of $1.3 million for the three months ended September 30, 2019.
⁽³⁾ Interest and yields are calculated on the tax equivalent basis using the statutory federal income tax rate of 21% for the three months ended December 31, 2019, September 30, 2019 and December 31, 2018 totaling $0.1 million, $0.1 million and $0.2 million, respectively.

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 $2.0 million and $2.1 million for the year ended December 31, 2019 and 2018, respectively.
⁽²⁾ Loan interest income includes net losses from fair value adjustments on qualifying hedges of $1.7 million and none for the year ended December 31, 2019 and 2018, respectively.
⁽³⁾ Interest and yields are calculated on the tax equivalent basis using the statutory federal income tax rate of 21% for the year ended December 31, 2019 and 2018 totaling $0.5 million and $0.9 million, respectively.

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
DEPOSIT COMPOSITION
(Unaudited)

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
LOANS
(Unaudited)

Loan Closings

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 non-accrual performing TDR taxi medallion loans totaling $1.7 million in 4Q19, $2.2 million in 3Q19, $2.2 million in 2Q19, $2.5 million in 1Q19 and $3.9 million in 4Q18 and non-accrual performing TDR commercial business loans totaling $0.9 million in 4Q19 and $1.0 million in 3Q19.

Net Charge-Offs (Recoveries)

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
RECONCILIATION OF GAAP EARNINGS and CORE EARNINGS

Non-cash Fair Value Adjustments to GAAP Earnings

During 2019, core earnings were higher than GAAP earnings primarily due to the impact of non-cash net losses from fair value adjustments. These fair value adjustments relate primarily to swaps designated to protect against rising rates. As the swaps get closer to maturity the volatility in fair value adjustments will dissipate. Overall, the interest movement of the swaps is benefitting the core net interest margin while the fair value adjustments are offsetting the benefit. In a declining interest rate environment, the movement in the curve exaggerates our mark-to-market loss position. In a rising interest rate environment or a steepening of the yield curve the loss position would experience an improvement.

Core Diluted EPS, Core ROAE, Core ROAA, Core Net Interest Income, Core Yield on Total Loans, Core Net Interest Margin and tangible book value per common share are each non-GAAP measures used in this release. A reconciliation to the most directly comparable GAAP financial measures appears below in tabular form. The Company believes that these measures are useful for both investors and management to understand the effects of certain interest and 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)