THIRD QUARTER 2016

• GAAP diluted EPS was $0.37, down 64.8% QoQ
  
• Core diluted EPS was $0.39, flat QoQ
• Net interest income was $41.7 million, up 6.1% YoY
• Net interest margin was 2.94%, compared to 2.99% for the second quarter of 2016
• Excluding prepayment penalty income from loans and securities and recovered interest from nonaccrual loans, the net interest margin was 2.81%, a decrease of six basis points QoQ
• GAAP ROAE was 8.4%, compared with 9.5% for the third quarter of 2015
• Core ROAE was 8.9%, compared with 10.0% for the third quarter of 2015
• GAAP ROAA was 0.7%, compared with 0.8% for the third quarter of 2015
• Core ROAA was 0.8%, compared with 0.9% for the third quarter of 2015

UNIONDALE, N.Y., Oct. 25, 2016 (GLOBE NEWSWIRE) -- Flushing Financial Corporation (the “Company”) (Nasdaq:FFIC), the parent holding company for Flushing Bank (the “Bank”), today announced its financial results for the three and nine months ended September 30, 2016.

John R. Buran, President and Chief Executive Officer, stated: “We are pleased to report core earnings per diluted common share of $0.39 for the third quarter of 2016.

“Our main focus continues to be growing multi-family, commercial real estate, and commercial business loans while maintaining our conservative underwriting standards. During the quarter ended September 30, 2016, loan originations for multi-family, commercial real estate and commercial business loans totaled 26%, 30% and 36%, respectively, of total loan production. We produced solid earnings this quarter through continued strong credit quality, a small uptick in the coupon rates on loan originations, and by reducing our expenses. We have begun to successfully execute on the strategy change to increase net interest income through increasing rates as opposed to increasing volume. The interest rates on our mortgage loan pipeline increased 11 basis points to 4.05% from 3.94% at June 30, 2016. This strategy shift positions the Company to reap the benefits of an increase in rates. Conversely, the cost of funds increased four basis points to 1.03% on a linked quarter basis, as rates on certain government deposits were raised.”

Core earnings, a non-GAAP measure, exclude the effects of net gains/losses from the sale of buildings and securities, net gains/losses from fair value adjustments, prepayment penalties from the extinguishment of debt, and the gain from life insurance proceeds.

For a reconciliation of core earnings and core diluted earnings per common share to accounting principles generally accepted in the United States (“GAAP”) net income and GAAP diluted earnings per common share, please refer to the table titled “Reconciliation of GAAP Earnings and Core Earnings."

Earnings Summary:

Quarter ended September 30, 2016 (3Q16) compared to the quarters ended September 30, 2015 (3Q15) and June 30, 2016 (2Q16).

Net Interest Income

Net interest income for 3Q16 was $41.7 million, an increase of 6.1% YoY but a decrease of 0.4% QoQ.

• Average balance of total interest-earning assets of $5,684.4 million, increased $533.4 million, or 10.4% YoY and $71.5 million, or 1.3% QoQ
• Yield on interest-earning assets of 3.91% decreased 12 basis points YoY and 2 basis points QoQ
• Cost of interest-bearing liabilities of 1.09% remained unchanged YoY but increased 4 basis points QoQ
• Net interest spread and net interest margin of 2.82% and 2.94%, respectively, decreased 12 basis points and 11 basis points, respectively YoY and decreased 6 basis points and 5 basis points, respectively QoQ
• Includes prepayment penalty income from loans and securities of $1.5 million, compared with $2.2 million in 3Q15 and $1.4 million in 2Q16, and recovered interest from nonaccrual loans of $0.3 million, compared with $0.4 million in 3Q15 and $0.2 million in 2Q16
• Excluding prepayment penalty income from loans and securities and recovered interest from nonaccrual loans, the yield on interest-earning assets, would be 3.78%, compared with 3.83% in 3Q15 and 3.81% in 2Q16, and the net interest margin would be 2.81%, compared with 2.85% in 3Q15 and 2.87% in 2Q16
• Cost of total deposits of 0.92% increased 4 basis points YoY and 8 basis points QoQ
• Cost of borrowed funds of 1.58% decreased 16 basis points YoY and 12 basis points QoQ, primarily due to an increase in the average balance of lower-costing short-term borrowings

The following table shows the basis points increase (decrease) in the cost of interest-bearing liabilities: 

Non-interest Income

Non-interest income (excluding: net gains on sale of buildings and securities) for 3Q16 was $1.9 million, an increase of $0.3 million YoY and QoQ.

• Increase in fair value adjustments of $0.3 million compared to 3Q15 and 2Q16

Non-interest Expense

Non-interest expense for 3Q16 was $26.3 million, an increase of $2.6 million, or 10.8% YoY but a decrease of $2.2 million, or 7.7% QoQ.

• 2Q16 includes a non-recurring penalty of $2.1 million on the prepayment of $38.0 million in repurchase agreements
• Salaries and benefits increased YoY by $2.1 million primarily due to annual salary increases and additions in staffing and increased $0.8 million QoQ due to increased staffing and stock-based compensation costs as a result of the recent increase in the Company’s stock price
• 3Q16 and 2Q16 both include a write-down of $0.8 million on one OREO property
• Non-interest expense (excluding: salaries and benefits expense, prepayment penalty on borrowings and net gain/losses on sale of OREO) totaled $10.7 million, a decrease of $0.4 million, or 3.7% YoY and $0.8 million, or 7.1% QoQ
• The efficiency ratio increased to 57.4% in 3Q16 from 56.2% in 3Q15 and 57.1% in 2Q16

Provision for Income Taxes

The provision for income taxes for 3Q16 was $6.7 million, essentially unchanged YoY but was a decrease of $14.1 million QoQ.

• Income before income taxes decreased by $33.9 million QoQ, primarily due to the net gain from the Building Sale, which also reduced impact of preferential tax items in 2Q16
• Effective tax rates of 38.5% in 3Q16, 40.5% in 2Q16 and 37.7% in 3Q15.

Loans:

• Net loans were $4,719.5 million reflecting an increase of 1.0% QoQ (not annualized) and 8.1% year-to-date as we continue to focus on the origination of multi-family, commercial real estate and commercial business loans with a full relationship
• Loan originations and purchases of multi-family, commercial real estate and commercial business loans totaled $777.5 million year-to-date, or 91.4% of loan production during the period
• Total loan originations and purchases were $850.3 million year-to-date, an increase of $12.5 million YoY
• Loan purchases, which are underwritten to the same standards as organic originations, were $138.0 million year-to-date, a decrease of $78.3 million YoY
• Loan pipeline totaled $289.3 million at September 30, 2016 compared with $330.5 million at December 31, 2015
• Multi-family (excluding underlying co-operative mortgages), commercial real estate and one-to-four family mixed-use property mortgage loans originated during the quarter had an average loan-to-value ratio of 41.9% and an average debt coverage ratio of 204%

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

Credit Quality:

• Non-performing loans totaled $23.5 million, a decrease of $2.5 million, or 9.7%, from $26.1 million at December 31, 2015
• Classified assets totaled $48.7 million, an increase of $4.8 million, or 10.9%, from $43.9 million at December 31, 2015, primarily due to an increase in substandard taxi medallion loans
• Loans classified as troubled debt restructured totaled $8.2 million, a decrease of $1.3 million, or 13.7%, from $9.5 million at December 31, 2015
• Strong underwriting standards coupled with our practice of obtaining updated appraisals and recording charge-offs, when necessary, has resulted in a 40.3% average loan-to-value for non-performing loans collateralized by real estate
• Year-to-date, no provision for loan losses was recorded compared with a benefit of $1.6 million recorded in the comparable prior year period
• 3Q16 included a charge-off of $0.4 million on one SBA loan
• Net recoveries totaled $0.3 million year-to-date, amid continued improvement in credit conditions
• We anticipate continued low loss content in the loan portfolio

Capital Management:

• The Bank and Company are subject to the same regulatory capital requirements and at September 30, 2016, both were well-capitalized under all regulatory requirements
• Year-to-date, stockholders’ equity increased $39.6 million, or 8.4% to $512.6 million due to net income of $50.6 million and an improvement in other comprehensive income of $5.8 million, mainly due to an increase in the fair value of the securities portfolio
• Increases noted above were partially offset by the declaration and payment of dividends on the Company’s common stock of $0.51 per common share totaling $14.8 million and the purchase of 378,695 treasury shares, at an average price of $19.78 per share, for a total cost of $7.5 million
• As of September 30, 2016, 520,905 shares may still be repurchased under the currently authorized stock repurchase program, which has no expiration or maximum dollar amount
• Book value per common share was $17.90 at September 30, 2016, compared with $16.41 at December 31, 2015
• Tangible book value per common share, a non-GAAP measure, was $17.35, compared with $15.86 at December 31, 2015

About Flushing Financial Corporation

Flushing Financial Corporation 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, and public entities by offering a full complement of deposit, loan, and cash management services through its 19 banking offices located in Queens, Brooklyn, Manhattan, and Nassau County. The Bank also operates an online banking division, iGObanking.com®, which offers competitively priced deposit products to consumers nationwide.

Additional information on 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, 2015 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”, “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 “Reconciliation of GAAP Earnings and Core Earnings”.

(3)   Ratios are presented on an annualized basis.  

(4)   Efficiency ratio, a non-GAAP measure, was calculated by dividing non-interest expense (excluding OREO expense, prepayment penalties from the extinguishment of debt 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 fair value adjustments, net gain and losses from the sale of securities, life insurance proceeds, and sale of buildings). See “Reconciliation of GAAP Earnings and Core Earnings”.

(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 $0.9 million , $1.0 million and $1.4 million for the three months ended September 30, 2016, June 30, 2016 and September 30, 2015, respectively.
(2) Interest income on tax-exempt securities does not include the tax benefit of the tax-exempt securities.
(3) Includes prepayment penalty income of approximately $26,000 and $0.2 million for the three months ended September 30, 2016 and 2015. There was no prepayment penalty income during the three months ended June 30, 2016.

(1) Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $3.4 million and $3.2 million for the nine months ended September 30, 2016 and 2015, respectively.
(2) Interest income on tax-exempt securities does not include the tax benefit of the tax-exempt securities.
(3) Includes prepayment penalty income of approximately $26,000 and $0.2 million for the nine months ended September 30, 2016 and 2015.