Flushing Financial Corporation Reports First Quart

FIRST QUARTER 2017 ¹

• GAAP diluted EPS was $0.42, up 27.3% YoY but down 16.0% QoQ, largely due to net gain on sale of buildings in 4Q16, and core diluted EPS was $0.40, up 21.2% YoY and unchanged QoQ
• Record net interest income of $43.4 million, an improvement of 2.5% QoQ
• Net interest margin was 2.95%, down 1bp QoQ
  • Excluding prepayment penalty income from loans and securities and recovered interest from nonaccrual loans, net interest margin improved to 2.85%, up 4bps QoQ
• GAAP and core ROAE improved to 9.5% and 9.1%, compared with 8.0% and 8.1% for 1Q16
• GAAP and core ROAA both improved to 0.8%, compared with 0.7% for 1Q16
• Increased quarterly dividend by 6% to $0.18 per share

UNIONDALE, N.Y., April 25, 2017 (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 first quarter ended March 31, 2017.

John R. Buran, President and Chief Executive Officer, remarked, “The positive momentum we saw at the end of last year carried over to a strong start in 2017. Loan growth of 3% coupled with an uptick on the yield of loan originations and purchases during the first quarter resulted in record net interest income. Credit quality remains a Company strength as we recorded minimal net charge offs and the percentage of non-performing assets to total assets improved from December 31, 2016. We continue to be well positioned for the future, as our loan pipeline totals over $300 million at an average rate of 4.15% as of March 31, 2017.”

“We moved further ahead with our strategy of enhancing operational scalability and efficiency by converting our fifth branch to the Universal Banker model, which provides our customers with cutting-edge technology and a higher-quality experience, while allowing us to operate our branches with reduced facilities and staffing costs. We sustained deposit growth, as total deposits increased 4% for the quarter and 9% from March 31, 2016, while our core deposits increased 4% from both the linked quarter and March 31, 2016.”

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

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¹  Core diluted earnings per common share (“core diluted EPS”), core ROAE and core ROAA are not Generally Accepted Accounting Principle (“GAAP”) measures.

For a GAAP to non-GAAP reconciliation of core diluted EPS, core ROAE and core ROAA, refer to the table entitled “Reconciliation of Non-GAAP Financial Measures.”

• In the first quarter, $238.9 million of multi-family, commercial real estate, and commercial business loans were originated and purchased, representing 89.6% of all originations while maintaining conservative loan-to-values, debt coverage ratios, and increasing yield. 
• The average interest rate obtained for first quarter originations and purchases improved to 3.85% compared to 3.81% for the linked quarter and 3.77% for 1Q16.
• The average rate of mortgage loan applications in the pipeline totaled 4.15% at March 31, 2017 as compared to 4.20% at December 31, 2016, and 4.03% at March 31, 2016.
• Multi-family (excluding underlying co-operative mortgages), commercial real estate, and one-to-four family mixed-use property mortgage loans originated during the first quarter of 2017 had a low average loan-to-value ratio of 49.7% and an average debt coverage ratio of 176%
• Monitor and enhance due diligence to realize strategically favorable multi-family and commercial real estate concentration levels.

As in prior years, the first quarter results include seasonal non-interest expenses related to annual restricted stock awards for employees and directors along with increased payroll taxes. The seasonal items increased non-interest expense by approximately $3 million, or $0.06 per diluted common share. The restricted stock awards also affected the Company’s tax rate by reducing the tax rate to approximately 30%. We anticipate an annual tax rate of approximately 35% for 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
• Increase net interest income by leveraging loan pricing opportunities
• Enhance core earnings power by managing net interest margin and improving scalability and efficiency
• Manage credit risk
• Maintain well capitalized levels under all stress test scenarios

Earnings Summary:

Quarter ended March 31, 2017 (1Q17) compared to the quarters ended March 31, 2016 (1Q16) and December 31, 2016 (4Q16).

March 31, 2017 compared to December 31, 2016 (“QoQ”) March 31, 2017 compared to March 31, 2016 (“YoY”).

Net Interest Income

Net interest income for 1Q17 improved to $43.4 million, an increase of 5.5% YoY and 2.5% QoQ.

• Net interest margin of 2.95%, decreased 5bpsYoY and decreased 1bp QoQ
• Net interest spread of 2.84%, decreased 5bps YoY but remains unchanged QoQ
• Net interest income includes prepayment penalty income from loans and securities of $1.1 million in 1Q17 compared with $2.2 million in 1Q16 and $1.6 million in 4Q16, and recovered interest from nonaccrual loans of $0.5 million in 1Q17, compared with $0.1 million in 1Q16 and $0.6 million in 4Q16
• Excluding prepayment penalty income from loans and securities and recovered interest from nonaccrual loans, the yield on interest-earning assets would have been 3.80% in both 1Q17 and 1Q16 and 3.77% in 4Q16, and the net interest margin would have improved to 2.85% in 1Q17, compared with 2.83% in 1Q16 and 2.81% in 4Q16
• Average balance of total interest-earning assets of $5,873.8 million increased $383.1 million, or 7.0% YoY and $156.5 million, or 2.7% QoQ
• Yield on interest-earning assets of 3.90% decreased 6bps YoY and decreased 2bps QoQ
• Cost of interest-bearing liabilities of 1.06% decreased 1bp YoY and decreased 2bps QoQ, driven by an improvement in our funding mix
• Cost of funds of 1.01% a decrease of 1bp YoY but remains unchanged QoQ

Non-interest Income

Non-interest income for 1Q17 was $3.7 million, an increase of $1.1 million, or 45.2% YoY, but a decrease of $11.7 million, or 76.1% QoQ, largely driven by a decrease of $14.2 million from the net gain on sale of buildings in 4Q16.

• The 1Q17 includes a gain from life insurance proceeds of $1.2 million compared to proceeds of $0.4 million in 1Q16 and $2,000 in 4Q16.
• Losses from fair value adjustments decreased in 1Q17 to $0.4 million which was a reduction of $0.6 million from 1Q16 and $0.1 million from 4Q16.

Non-interest Expense

Non-interest expense for 1Q17 was $29.6 million, an increase of $1.1 million, or 3.7% YoY, and a decrease of $5.8 million, or 16.4% QoQ, largely driven by a decrease of $8.3 million relating to a non-recurring prepayment penalty in 4Q16.

• Salaries and benefits increased $0.8 million YoY primarily due to annual salary increases and additions in staffing and increased $1.3 million QoQ due to annual salary increases, annual restricted stock unit awards to employees and increased payroll taxes partially offset by a decline in other stock-based compensation costs because of a decrease in the Company’s stock price
• The first quarter of each year includes the impact of annual grants of employee and director restricted stock unit awards; restricted stock expense totaled $3.3 million in 1Q17 compared to $3.0 million in 1Q16 and $0.7 million in 4Q16   
• Non-interest expense (excluding: salaries and benefits expense, director restricted stock unit awards, prepayment penalty on borrowings and net gain/losses on sale of OREO) totaled $11.3 million in 1Q17 and 1Q16 but was an increase of $0.3 million, or 3.1% QoQ
• The efficiency ratio improved to 64.0% in 1Q17 from 64.5% in 1Q16 but increased from 59.6% in 4Q16, primarily driven by annual grants of restricted stock awards

Provision for Income Taxes

The provision for income taxes for 1Q17 was $5.3 million, a decrease of $0.4 million YoY and $2.9 million QoQ.

• Pre-tax income increased by $2.3 million, or 15.4% YoY and decreased $4.9 million, or 21.8% QoQ
• The effective tax rates were 30.0% in 1Q17, 37.0% in 1Q16 and 36.2% in 4Q16
• The improvement in the Company’s effective tax rate was primarily due to a change in 1Q17 to the accounting treatment of deductible stock compensation expense from prior years; in prior years the tax impact of deductible stock compensation expense flowed through additional paid-in-capital and did not have an impact of the Company’s effective tax rate
• Deductible stock compensation is required to be treated, for tax purposes, as a discrete tax item in the period the shares vest; our stock awards generally vest in the first quarter, therefore we anticipate the Company’s effective tax rate to increase to approximately 36.0% in the second quarter of 2017 and be approximately 35% for the full year   
• Exclusive of the deductible stock compensation expense the effective tax rate for 1Q17 would have been approximately 36.0% which would reduce both GAAP and core EPS by $0.03

Financial Condition Summary:

Loans:

• Net loans were $4,952.4 million reflecting an increase of 2.9% QoQ (not annualized) and 11.6% YoY as we continue to focus on the origination of multi-family, commercial real estate and commercial business loans with a full banking relationship
• Loan originations and purchases of multi-family, commercial real estate and commercial business loans totaled $238.9 million for the quarter, or 89.6% of loan production
• Loan pipeline totaled $303.1 million at March 31, 2017, compared to $310.9 million at December 31, 2016 and $436.5 million at March 31, 2016
• The loan-to-value ratio on our portfolio of real estate dependent loans as of March 31, 2017 totaled 40.3%.

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

Credit Quality

• Non-performing loans totaled $18.5 million, a decrease of $2.9 million, or 13.5%, from $21.4 million at December 31, 2016
• Classified assets totaled $47.8 million, an increase of $3.8 million, or 8.7%, from $44.0 million at December 31, 2016, primarily due to an increase in substandard taxi medallion loans, partially offset by reductions in non-performing assets
• Loans classified as troubled debt restructured totaled $17.3 million, a decrease of $0.2 million, or 1.0%, from $17.4 million at December 31, 2016
• 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 38.3% average loan-to-value for non-performing loans collateralized by real estate at March 31, 2017
• No provision for loan losses was recorded in the first quarter of 2017 or all of 2016 due to continued strong credit quality

Capital Management

• The Company and Bank are subject to the same regulatory requirements and at March 31, 2017, both were well capitalized under all regulatory requirements
• During 1Q17, stockholders’ equity increased $11.5 million, or 2.2%, to $525.4 million due to net income of $12.3 million and an increase in other comprehensive income, partially offset by the declaration and payment of dividends on the Company’s common stock
• As of March 31, 2017, up to 495,905 shares may be repurchased under the current authorized stock repurchase program, which has no expiration or maximum dollar limit; there were no purchases in 1Q17
• Book value per common share increased to $18.24 at March 31, 2017, from $17.95 at December 31, 2016 and $16.83 at March 31, 2016
• Tangible book value per common share, a non-GAAP measure, increased to $17.69 at March 31, 2017, from $17.40 at December 31, 2016 and $16.29 at March 31, 2016

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, 2016 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 “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, 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).

(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 $0.6 million, $0.9 million and $1.5 million for the three months ended March 31, 2017, December 31, 2016 and March 31, 2016, respectively.

(2) Interest income on tax-exempt securities does not include the tax benefit of the tax-exempt securities.

Core Diluted EPS, Core ROAE, Core ROAA, 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 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.

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