FIRST QUARTER 2019¹ HIGHLIGHTS

• Net interest margin was 2.57%, unchanged QoQ and down 24bps YoY
• Core net interest margin was 2.52%, up 3bps QoQ and down 22bps YoY
• GAAP diluted EPS was $0.25, down 43.2% QoQ and 35.9% YoY
• Core diluted EPS was $0.33, down 38.9% QoQ and 10.8% YoY
• GAAP net interest income of $41.8 million, up 2.9% QoQ and down 1.9% YoY
• Core net interest income of $42.4 million, up 4.4% QoQ and down 0.4% YoY
• GAAP and core ROAE were 5.1% and 6.8%, respectively, compared with 9.2% and 11.4%, respectively in 4Q18
• GAAP and core ROAA were 0.4% and 0.6%, respectively, compared with 0.7% and 0.9%, respectively in 4Q18
• Provision for loan losses of $1.0 million, or $0.02 after-tax per diluted common share, driven mainly by a charge-off on one commercial loan
• Increased quarterly dividend by 5% to $0.21 per share
• Exceeded growth goal for Win Flushing Program
• The first quarter of each year includes the impact of annual grants of employee and director restricted stock unit awards; restricted stock expense totaled $3.9 million in 1Q19, $1.0 million in 4Q18 and $3.5 million in 1Q18

UNIONDALE, N.Y., April 30, 2019 (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 first quarter ended March 31, 2019.

John R. Buran, President and Chief Executive Officer, stated, “While quarterly results were impacted by seasonal expense increases, fair market value adjustments, and provision expense, we were pleased to see several positive trends including net interest margin stabilization, loan yield improvement, loan pipeline growth, continued growth in the C&I portfolio and deposit growth, particularly in the Flushing market.”

“The most significant of these trends was the stabilization of the net interest margin. The net interest margin was flat in 1Q19 compared to 4Q18 while core net interest margin increased three basis points during the same period.  Importantly, the pace of the increase in the cost of funds has slowed from the 26 bps increase in the cost of interest bearing liabilities between 2Q18 and 3Q18 to three basis points between 1Q19 and 4Q18. The yield on interest earning assets has increased more gradually over the same periods as a result of our strategic focus on rate over volume, resulting in easing of net interest margin pressure.”

“Another component of the net interest margin stabilization is the $2 billion of loans scheduled to upwardly reprice through 2021 an average of 96bps. We may not reprice to the full contractual rate but we will reprice somewhere between the market and the contract price as loans begin to refinance.”

“Additionally, the swap strategy remains an important component in stabilizing the net interest margin.  For 1Q19, the forward swaps totaling $442 million provided a benefit of four basis points while the loan swaps totaling $284 million provided two basis points of benefit. Our strategic focus on yield over volume in loan pricing continues to aid in stabilizing the net interest margin as the yield on loan closings increased 12bps during 1Q19 and 75bps from 1Q18. Finally, the loan pipeline improved significantly in 1Q19, growing 40% to $275 million from $197 million at December 31, 2018. The loan pipeline has an average yield of 4.80% providing for additional yield growth in the portfolio with 53% of our pipeline from adjustable rate loans at March 31, 2019.”

“Our strategy on loan growth is to move our balance sheet toward more floating rate C&I business while simultaneously focusing on yield over volume on our mortgage business. During 1Q19, our C&I loan closings totaled over $130 million, representing over 65% of our total loan closings. This performance was part of a trend that has been seen over the past four quarters. During that time period C&I loans, which are primarily adjustable rate, represented 43% of new loan closings. On the mortgage side the yield on loan closings increased 35bps in 1Q19 from 4Q18 and 99bps from 1Q18. Mortgage loan closings were down in 1Q19, primarily due to the pipeline at December 31, 2018 being lower than historical norms, particularly in commercial real estate.”

“Total deposits increased $94.2 million, or 1.9% (non-annualized) QoQ. The majority of this increase was transaction deposits, which increased 4.3% (non-annualized) QoQ. The “Win Flushing” program, which focuses on increasing our deposit market share in the Asian Community of Flushing, Queens, was the centerpiece of our retail deposits growth of $72 million QoQ. As of March 31, 2019, we have captured $175 million of deposits, exceeding our target of $160 million in deposit growth by the end of 1Q19. The program was predicated on the conversion of Flushing branches to the Universal Banker model, which allows staff to spend more time with customers, increasing sales opportunities. In the branches that have been converted, we experienced an increase of approximately 100% in transactions processed at ATMs, to almost 55% of all branch transactions, reducing our customer’s reliance on tellers. As a result, branch sales have increased over 30%, as sales per employee increased approximately 50% due to our branch staff focusing 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. As of March 31, 2019, we had 15 out of our 19 total branches operating under the Universal Banker model.” 

“Credit quality remained strong, as non-accrual and non-performing loans decreased by 3% in 1Q19. The quarter’s $0.9 million in charge-offs were mainly isolated to one commercial business loan relationship. The loan-to-value on our non-performing real estate loans at March 31, 2019 remained conservative at 33.9%.”

Mr. Buran continued, “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 1Q19 had a yield of 5.01%, an increase of 28bps from 4.73% for 4Q18 and an increase of 104bps from 3.97% for 1Q18. We maintained our asset quality as these loans had an average loan-to-value ratio of 41% and an average debt coverage ratio of 171%.
  
  
• We remain committed to our strategy of focusing on C&I loans, commercial real estate loans and multi-family. In the first quarter, loan closings represented 66%, 7%, and 14%, respectively, of all originations, which were made while maintaining conservative loan-to-value and debt coverage ratios, and increasing yield.
  
  
• Over 75% of 1Q19 loan closings were non-brokered loans.

Mr. Buran concluded, “Overall, we remain well capitalized and committed to the successful execution of our strategic objectives of managing our funding mix, emphasizing loan yields over volume, improving scalability and efficiency of our branch network and continuing to manage credit risk.”

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
  
  
• Maintain well capitalized levels under all stress test scenarios

Earnings Summary:

Net Interest Income

Net interest income for 1Q19 was $41.8 million, a decrease of $0.8 million, or 1.9% YoY (1Q19 compared to 1Q18) but an increase of $1.2 million, or 2.9% QoQ (1Q19 compared to 4Q18).

• Net interest margin of 2.57%, decreased 24bps YoY and unchanged QoQ
  
  
• Net interest spread of 2.36%, decreased 30bps YoY and increased 1bps QoQ
  
  
• Yield on average interest-earning assets of 4.29%, increased 29bps YoY and 4bps QoQ
  
  
• Cost of average interest-bearing liabilities of 1.93%, increased 59bps YoY and 3bps QoQ
  
  
• Cost of funds of 1.80%, increased 55bps YoY and 3bps QoQ, driven by increases in rates paid on deposits and short-term borrowings resulting from increases in the Fed Funds rate 
  
  
• Net interest margin stabilization in 1Q19 due to:
  
  
  • Cost of interest-bearing liabilities increasing only 3bps QoQ
    
    
  • Interest rate swaps totaling $726 million provided a benefit of 6bps to net interest margin
    
    
  • Over $2 billion of loans scheduled to upwardly reprice an average of 96bps through 2021
    
    
• Average balance of total interest-earning assets of $6,521.1 million, increased $422.4 million, or 6.9%, YoY and $156.7 million, or 2.5%, QoQ
  
  
• Net interest income includes prepayment penalty income from loans totaling $0.8 million in 1Q19 compared with $0.9 million, each in 4Q18 and 1Q18, recovered interest from delinquent loans of $0.7 million in 1Q19, compared to $0.3 million in 4Q18 and $0.2 million in 1Q18, and losses from fair value adjustments on qualifying hedges totaling $0.6 million compared to none in 4Q18 and 1Q18
  
  
• Absent all above items, the yield on interest-earning assets was 4.24% in 1Q19, an improvement of 6bps from 4Q18 and 31bps from 1Q18 and the net interest margin was 2.52% in 1Q19, which increased 3bps from 4Q18 but decreased 22bps from 1Q18

Provision for loan losses

The Company recorded a provision of $1.0 million compared to $0.4 million in 4Q18 and $0.2 million in 1Q18.

• 1Q19 includes charge-offs totaling $1.1 million from one commercial business relationship, after charge-off the remaining book balance for this relationship was $0.9 million
  
  
• Recorded net charge-offs (recoveries) of $0.9 million in 1Q19, ($0.2) million in 4Q18 and ($38,000) in 1Q18

Non-interest Income

Non-interest income for 1Q19 was $0.9 million, a decrease of $2.3 million YoY, but an increase of $1.9 million QoQ.

• Non-interest income included net losses from fair value adjustments of $2.1 million in 1Q19, $3.6 million in 4Q18,  and $0.1 million in 1Q18, losses from the sale of securities of $1.9 million in 4Q18, gains from sale of assets of $1.1 million in 4Q18 and life insurance proceeds of $43,000 in 1Q19 and $0.8 million in 1Q18
  
  
• Absent all above items, non-interest income was $3.0 million, an increase of $0.5 million, or 18.1% YoY, but a decrease of $0.4 million, 11.8% QoQ

Non-interest Expense

Non-interest expense for 1Q19 was $32.4 million, an increase of $1.1 million, or 3.6% YoY, and $6.7 million, or 25.9% QoQ.

• 1Q19 includes seasonal expenses totaling $3.0 million and a one-time expense of $0.5 million from the acceleration of employee benefits upon an officer’s death
  
  
• Salaries and benefits increased $0.7 million YoY primarily due to annual salary increases and $4.1 million QoQ
  
  
• Non-interest expense (excluding: salaries and benefits expense and director restricted stock unit expense) totaled $12.2 million in 1Q19, an increase of $0.6 million, or 5.3% YoY and $1.6 million, or 15.6% QoQ
  
  
• The ratio of non-interest expense to average assets was 1.89% in 1Q19 compared to 1.54% in 4Q18 and 1.95% in 1Q18
  
  
• The efficiency ratio was 70.4% in 1Q19 compared to 58.5% in 4Q18 and 69.3% in 1Q18

Provision for Income Taxes

The provision for income taxes in 1Q19 was $2.3 million, a decrease of $0.7 million, or 22.5% YoY but an increase of $1.2 million, or 118.6% QoQ.

• Pre-tax income decreased by $5.0 million, or 34.9% YoY and by $4.1 million, or 30.5% QoQ
  
  
• The effective tax rates were 24.5% in 1Q19, 7.8% in 4Q18 and 20.5% in 1Q18
  
  
• Both 1Q19 and 1Q18 reflects the vesting of restricted stock awards, which are treated as discrete items for tax purposes. Additionally, 4Q18 reflects the release of a previously accrued tax liability of $1.8 million
  
  
• Absent the above items, the effective tax rates were 23.8% in 1Q19, 20.9% in 4Q18 and 24.6% in 1Q18

Financial Condition Summary:

Loans:

• Net loans held for investment were $5,567.7 million reflecting an increase of 0.7% QoQ (not annualized) and 5.2% from March 31, 2018, 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
  
  
• Loan closings of multi-family, commercial real estate and commercial business loans totaled $171.5 million for 1Q19, or 86.6% of loan production
  
  
• Loan pipeline was $274.8 million at March 31, 2019, compared to $196.6 million at December 31, 2018 and $325.6 million at March 31, 2018
  
  
• The loan-to-value ratio on our portfolio of real estate dependent loans as of March 31, 2019 totaled 38.7%

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

Credit Quality:

• Non-performing assets and loans totaled $15.7 million, a decrease of $0.5 million, or 3.2%, from $16.3 million at December 31, 2018
  
  
• Classified assets totaled $39.1 million, a decrease of $7.4 million, or 15.8%, from $46.5 million at December 31, 2018, primarily due to two commercial business loan relationships totaling $6.6 million; one relationship made substantial payments and upgraded while the other relationship was written-down by $1.1 million to a remaining book value of $0.9 million
  
  
• Loans classified as troubled debt restructured (TDR) totaled $6.6 million, a decrease of $1.7 million, or 20.6%, 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 33.9% average loan-to-value for non-performing loans collateralized by real estate
  
  
• Net charge-offs totaled $0.9 million

Capital Management:

• The Company and Bank, at March 31, 2019, were both well capitalized under all applicable regulatory requirements
  
  
• During 1Q19, stockholders’ equity increased $10.1 million, or 1.8%, to $559.6 million due to net income of $7.1 million and an improvement in the fair value of the securities portfolio, partially offset by the declaration and payment of dividends on the Company’s common stock
  
  
• During 1Q19, the Company did not repurchase any shares; as of March 31, 2019, up to 467,211 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 $19.85 at March 31, 2019, from $19.64 at December 31, 2018 and tangible book value per common share, a non-GAAP measure, increased to $19.29 at March 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 Wednesday, May 1, 2019 at 9:30 AM (ET) to discuss the Company’s strategy and results for the first quarter
  
  
• Dial-in for Live Call: 1-877-509-5836
  
  
• Webcast: https://services.choruscall.com/links/ffic190501.html
  
  
• Dial-in for Replay: 1-877-344-7529
  
  
• Replay Access Code: 10129183
  
  
• The conference call will be simultaneously webcast and archived through 5:00 PM (ET) on May 1, 2020

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 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 tables entitled “Reconciliation of GAAP Earnings and Core Earnings” and “Reconciliation of GAAP Net Interest Income and Net Interest Margin to Core Net Interest Income and Net Interest Margin.”

- 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)

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

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

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 $2.5 million in 1Q19, $3.9 million in 4Q18, $5.4 million in 3Q18, $5.5 million in 2Q18 and $5.7 million in 1Q18.

Net Charge-Offs (Recoveries)

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) 

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
RECONCILIATION OF GAAP NET INTEREST INCOME and NET INTEREST MARGIN
To CORE NET INTEREST INCOME and NET INTEREST MARGIN
(Dollars in thousands)
(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