SECOND QUARTER 2020¹ HIGHLIGHTS

• GAAP diluted EPS was $0.63, compared to ($0.05) in 1Q20 and $0.37 in 2Q19
• Core diluted EPS was $0.36 compared to $0.19 in 1Q20 and $0.42 in 2Q19
• Net interest margin was 2.87%, up 43bps QoQ and 42bps YoY
• Core net interest margin was 2.85%, up 36bps QoQ and 45bps YoY
• Record GAAP net interest income of $48.7 million, up 19.3% QoQ and 21.8% YoY
• Record Core net interest income of $49.1 million, up 14.4% QoQ and 20.2% YoY
• GAAP and core ROAE 13.1% and 7.4%, respectively, compared with (1.0)% and 3.8%, respectively in 1Q20
• GAAP and core ROAA were 1.0% and 0.6%, respectively, compared with (0.1)% and 0.3%, respectively in 1Q20
• Loan pipeline remains strong at $310.8 million
• Provision for credit losses of $9.6 million, $0.25 after-tax per diluted common share, driven mainly by economic conditions arising from COVID-19 pandemic
• Net charge-offs were $1.0 million, compared to $1.1 million in 1Q20

UNIONDALE, N.Y., July 21, 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 second quarter ended June 30, 2020.

John R. Buran, President and Chief Executive Officer stated, “I want to thank our employees for their outstanding work during these unprecedented times. The health and welfare of our employees and customers remain our highest priority.”

Mr. Buran continued, “We are pleased to announce our second quarter earnings totaled $18.3 million, or $0.63 per diluted common share.  Our GAAP earnings for the quarter were positively impacted by two items. First, we executed on our strategic objective to manage our cost of funds and improve funding mix. We achieved record net interest income as a result of  the Company’s quick response to the Fed decreasing interest rates in late March resulting in cost of funds decreasing 62 basis points from the previous quarter with additional opportunity to further reduce funding costs in the third quarter. Adding to the reduction of cost of funds in the second quarter, core deposits increased 7% while the net interest margin expanded 43 basis points from the previous quarter.”

“The second item positively affecting our GAAP net earnings was the non-cash fair value adjustment on our junior subordinated debt of $10.3 million, or $0.27 per diluted common share, after-tax, due to market conditions.”

“Core earnings for the quarter totaled $10.3 million, or $0.36 per diluted common share. Pre-provision pre-tax net revenue totaled $33.7 million, an increase of $28.1 million from the previous quarter. Non-performing assets at the end of the quarter were 29 basis points of total assets. Our loan portfolio is 88% collateralized by real estate with an average loan to value of less than 40%. Despite the current economic environment due to COVID-19, we have a long history and foundation built upon disciplined underwriting, good credit quality and a resilient seasoned loan portfolio with strong asset protection.”

“We continue to actively assist our customers during these turbulent times. As a result of COVID-19, we granted forbearances to our customers.  Originally, we granted forbearances for one to six months. In anticipation of an extended relief period, we have most recently predominately granted forbearance of principal and interest for six months. At the height of the request period, April and May 2020, COVID-19 forbearances peaked at $1.5 billion. By June 30, 2020, we reduced that number to $1.3 billion comprised of 82% real estate loans. Through July 10^th, 63% of the $146 million in loans scheduled to return to regularly scheduled payments have done so.”

“Additionally, we have actively participated in the SBA Paycheck Protection Program originating $93 million of these loans. We are one of nine banks in the State of New York participating in the Main Street Lending Program. We are also a proud participant in the FHLBNY Small Business Recovery Grant Program, helping our customers and communities navigate through the current environment.”

“During this pandemic, our customers have utilized our enhanced technology platform with new mobile banking capabilities that went live in March 2020. Mobile deposits have increased over 13% from April 2020 through June 2020. Similarly, the usage of ATMs has increased with over 75% of all transactions now completed via ATM. The number of accounts enrolling in online banking and opening new accounts online has also grown during the current quarter to 19% of retail account openings.”

“Given the current economic environment at the end of the quarter, we adjusted our economic forecast in our current expected credit loss (“CECL”) model resulting in a provision for credit losses of $9.6 million, or $0.25 per diluted share, after-tax.  Our allowance for credit losses stands at 61 basis points of gross loans and 182% of non-performing loans. As a reminder, our maximum charge-offs were only 64 basis points in the midst of the Great Recession while industry peak charge-offs were nearly 5x.”

“As we previously disclosed, the pending acquisition of Empire Bancorp was delayed due to the severe instability and volatility in the U.S. financial and stock markets caused by the pandemic. The Company continues to believe that the merger offers benefits to both shareholders and customers of Empire Bancorp and Flushing. We will be refraining from any additional comments at this time.”

Mr. Buran concluded by saying, “Overall, we made good progress in the second quarter to achieve our strategic objectives.  Importantly, the Company remains committed to building and fostering an environment of diversity and inclusion in our workforce and the communities we serve. In light of recent events, we have formed a Diversity and Inclusion Committee chaired by the EVP/Director of Human Resources, reporting directly to me. The role of this Committee is to make recommendations ensuring Flushing Financial continues to provide a safe and inclusive environment for all employees and ensure our message of inclusion is supported by our actions and participation in community organizations.”

 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 2Q20 was $48.7 million, an increase of $8.7 million, or 21.8% YoY and $7.9 million, or 19.3% QoQ.

• Net interest margin of 2.87%, increased 42bps YoY and 43bps QoQ
• Net interest spread of 2.72%, increased 49bps YoY and 48bps QoQ
• Yield on average interest-earning assets of 3.81%, decreased 45bps YoY and 17bps QoQ
• Cost of average interest-bearing liabilities of 1.09%, decreased 94bpsYoY and 65bps QoQ
• Cost of funds of 0.99%, decreased 91bps YoY and 62bps QoQ
• Average balance of total interest-earning assets of $6,809.9 million, increased $269.7 million, or 4.1%, YoY and $90.0 million, or 1.3%, QoQ
• Net interest income includes prepayment penalty income from loans totaling $0.7 million in 2Q20, $0.8 million in 1Q20 and $1.1 million in 2Q19; recovered interest from delinquent loans of $0.1 million in 2Q20, $0.4 million in 1Q20 and $0.5 million in 2Q19; net losses from fair value adjustments on qualifying hedges totaling $0.4 million in 2Q20, $2.1 million in 1Q20 and $0.8 million in 2Q19
• Absent all above items noted in the preceding bullet, the net interest margin was 2.85% in 2Q20, an increase of 45bps YoY and 36bps QoQ

Provision for Credit Losses

The Company recorded a provision for credit losses of $9.6 million in 2Q20 compared to a provision of $7.2 million in 1Q20 and a provision of $1.5 million in 2Q19.

• 2Q20 and 1Q20 provision for credit losses were primarily driven by the negative economic forecast resulting from the impact of COVID-19
• Net charge-offs of $1.0 million in 2Q20, $1.1 million in 1Q20 and $1.0 million in 2Q19

Non-interest Income

Non-interest income for 2Q20 was $13.7 million, an increase of $11.3 million YoY, and $16.6 million QoQ.

• Non-interest income included net gains from fair value adjustments of $10.2 million in 2Q20; net losses from fair value adjustments of $6.0 million and $2.0 million in 1Q20 and 2Q19, respectively
• Additionally, non-interest income included life insurance proceeds totaling $0.7 million in 2Q20, net gain on sale of assets of $0.8 million and capital gain of $0.5 million, both in 2Q19
• Absent all above items, non-interest income was $2.9 million in 2Q20, a decrease of $0.2 million, or 7.7% YoY, and $0.3 million, or 8.2% QoQ

Non-interest Expense

Non-interest expense for 2Q20 was $28.8 million, a decrease of $3.6 million, or 11.2 % QoQ, and an increase of $1.6 million or 5.9% YoY.

• Non-interest expense improved QoQ primarily due to 1Q20 including seasonal expenses, and increased YoY primarily due to Company growth
• Additionally, non-interest expense included merger expenses totaling $0.2 million in 2Q20 and $0.9 million in 1Q20
• The ratio of non-interest expense to average assets was 1.60% in 2Q20 compared to 1.82% in 1Q20 and 1.58% in 2Q19
• The efficiency ratio improved to 54.9% in 2Q20 compared to 68.2% in 1Q20 and 61.1% in 2Q19

Provision for Income Taxes

The provision for income taxes in 2Q20 was $5.8 million, compared to benefit of $0.2 million in 1Q20 and a provision of $3.3 million in 2Q19.

• Pre-tax income increased by $10.3 million YoY and $25.7 million QoQ
• The effective tax rates were 24.1% in 2Q20, 12.9% in 1Q20 and 23.7% in 2Q19

Financial Condition Summary:

Loans:

• Net loans held for investment were $5,946.6 million reflecting an increase of 3.4% from December 31, 2019, as we continue to focus on the origination of full banking relationship loans through C&I loans, multi-family loans and commercial real estate
• SBA Paycheck Protection Program (“PPP”) closings totaled $93.2 million in 2Q20
• Loan closings of commercial business loans, multi-family loans and commercial real estate totaled $126.9 million for 2Q20, or 90.3% of loan production, excluding PPP closings
• Loan pipeline was $310.8 million at June 30, 2020, compared to $324.5 million at December 31, 2019

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

Credit Quality:

• Non-performing loans totaled $20.2 million, an increase of $6.9 million, or 52.3%, from $13.3 million at December 31, 2019
• Non-performing assets totaled $20.4 million, an increase of $6.9 million, or 51.0%, from $13.5 million at December 31, 2019
• Classified assets totaled $25.1 million, an increase of $0.5 million, or 2.0%, from $24.6 million at December 31, 2019
• Loans classified as troubled debt restructured (TDR) totaled $6.0 million, a decrease of $0.5 million, or 8.2%, from $6.5 million at December 31, 2019
• 799 active COVID-19 forbearances outstanding at July 10^th for loans with a combined principal balance of $1.3 billion at the time of forbearance; total combined deferment of $36.4 million in principal, interest and escrow
• Over 88% of our gross loans are collateralized by real estate
• The loan-to-value ratio on our portfolio of real estate dependent loans as of June 30, 2020 totaled 38.1%
• Net charge-offs totaled $1.0 million

Capital Management:

• The Company and Bank, at June 30, 2020, were both well capitalized under all applicable regulatory requirements
• Through 2Q20, stockholders’ equity decreased $7.8 million, or 1.3%, from December 31, 2019, to $571.9 million primarily due to unrealized losses in the fair value of securities and interest rate swaps, coupled with the declaration and payment of dividends on the Company’s common stock, partially offset by net income of $16.9 million
• During 2Q20, the Company did not repurchase any shares; as of June 30, 2020, up to 284,806 shares remained subject to repurchase under the authorized stock repurchase program, which has no expiration or maximum dollar limit
• Book value per common share was $20.27 at June 30, 2020, compared to $20.59 at December 31, 2019
• Tangible book value per common share, a non-GAAP measure, was $19.71 at June 30, 2020, compared to $20.02 at December 31, 2019

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, July 22, 2020 at 9:30 AM (ET) to discuss the Company’s strategy and results for the second quarter
• Dial-in for Live Call: 1-877-509-5836
• Webcast: https://services.choruscall.com/links/ffic200722.html
• Dial-in for Replay: 1-877-344-7529
• Replay Access Code: 10138500
• The conference call will be simultaneously webcast and archived through July 22, 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, 2019 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.

- Statistical Tables Follow -

_____________________
⁽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 gains and losses from fair value adjustments on qualifying hedges) and non-interest income (excluding life insurance proceeds, net gains and losses from the sale of securities and fair value adjustments).

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

_____________________
⁽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, $0.2 million and $0.4 million for the three months ended June 30, 2020, March 31, 2020 and June 30, 2019, respectively.

⁽²⁾ Loan interest income includes net losses from fair value adjustments on qualifying hedges of $0.4 million, $2.1 million and $0.8 million for the three months ended June 30, 2020, March 31, 2020 and June 30, 2019, respectively.
⁽³⁾ Interest and yields are calculated on the tax equivalent basis using the statutory federal income tax rate of 21% for the periods presented totaling $0.1 million in each period.

_____________________
⁽¹⁾ Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $0.5 million and $0.9 million for the six months ended June 30, 2020 and June 30, 2019, respectively.
⁽²⁾ Loan interest income includes net losses from fair value adjustments on qualifying hedges of $2.4 million and $1.5 million for the six months ended June 30, 2020 and June 30, 2019, respectively.
⁽³⁾ Interest and yields are calculated on the tax equivalent basis using the statutory federal income tax rate of 21% for the periods presented totaling $0.3 million for each of the six month periods ended June 30, 2020 and 2019.

_____________________
⁽¹⁾ Includes $93.2 million of PPP closings for the three and six months ended June 30, 2020.

_____________________
⁽¹⁾ Includes $93.2 million of PPP loans at June 30, 2020.

_____________________
⁽¹⁾ Not included in the above analysis are non-accrual performing TDR taxi medallion loans totaling $1.5 million in 2Q20, $1.5 million in 1Q20, $1.7 million in 4Q19, $2.2 million in 3Q19, and $2.2 million in 2Q19 and non-accrual performing TDR commercial business loans totaling $1.0 million in 1Q20, $1.0 million in 1Q20, $0.9 million in 4Q19 and $1.0 million in 3Q19.