FFIC Flushing Financial Corporation

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, 2019.

John R. Buran, President and Chief Executive Officer, stated, “We are pleased to report quarterly earnings growth as diluted earnings per share rose 48% from 1Q19, while core earnings rose 27%. Both results were down from 2Q18, as net interest margin pressure returned, driven by the inversion of the yield curve, coupled with increased competitive pressure on our deposit business.”

“During the quarter, we experienced more robust loan growth as closings increased 50% from 1Q19. Total loan closings for the quarter amounted to $296 million. In addition, the loan pipeline increased over 50% to $424 million during the same period, our largest pipeline since the first quarter of 2016. The mortgage pipeline has an average yield of 4.63%, which is 21bps greater than the 2Q19 core yield of total loans. Due to the size of the pipeline and our strong track record of closing loans in the pipeline, we anticipate loan growth will accelerate in the second half of 2019, resulting in full year loan growth in the mid-single digit range.”

“We continued to diversify the loan portfolio during the quarter, as we produced record C&I closings of $158 million, representing 53% of 2Q19 loan closings. These loans are generally floating rate loans and represented 18% of total loans at June 30, 2019, compared to 15% at June 30, 2018. We also recognized improved closing levels for our mortgage loans as they increased $71 million QoQ.”

“The net interest margin compressed 12bps QoQ, with both sides of the balance sheet contributing to the compression. We continue to experience pricing pressure due to the inverted yield curve at the pricing point for our loan tenor. In the past, we have articulated our strategy of focusing on rate over volume. During 2Q19, we modified our position and rates due to market conditions. The increase in the cost of funds was primarily driven by pricing pressure on our retail and municipal deposits, as competition from traditional bank and non-bank competitors remains very strong. Although the rates paid on retail and municipal deposits have increased, they remain less expensive than alternative funding sources, including wholesale funding. Given an inverted yield curve, we continue to proactively mitigate the NIM compression through the closing of C&I floating rate loans and our swap strategy. In June 2019, we entered into an additional $100 million of swaps on borrowings bringing total swaps on borrowings to $542 million at the end of 2Q19. Our long-term goal is to move towards being more interest rate neutral which allows us to perform better in all interest rate environments.”

Mr. Buran continued, “We remain focused on preserving strong risk management practices, including conservative underwriting standards and improving yields to achieve improved risk-adjusted returns. We continue to focus on increasing the amount of direct loan business, as approximately 63% of 2Q19 loan closings were non-brokered loans.”

• Multi-family (excluding underlying co-operative mortgages), commercial real estate, and one-to-four family mixed-use property mortgage loans originated during 2Q19 had a yield of 4.60%, which is above our core yield of total loans for the same period, a decrease of 41bps from 5.01% for 1Q19 and an increase of 33bps from 4.27% for 2Q18. As noted, the decrease in the yield of 2Q19 originations was due to the inverted yield curve. We maintained our asset quality as these loans had an average loan-to-value ratio of 38% and an average debt coverage ratio of 192%.
• We remain committed to our strategy of focusing on C&I loans, commercial real estate loans and multi-family. In the 2Q19, these loan closings represented 53%, 14%, and 19%, respectively, of all originations, which were made while maintaining conservative loan-to-value and debt coverage ratios.

Mr. Buran concluded, “Overall, 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
• Maintain well capitalized levels under all stress test scenarios

Earnings Summary:

Net Interest Income

Net interest income for 2Q19 was $40.0 million, a decrease of $2.6 million, or 6.1% YoY (2Q19 compared to 2Q18) and $1.8 million, or 4.3% QoQ (2Q19 compared to 1Q19).

• Net interest margin of 2.45%, decreased 32bps YoY and 12bps QoQ
• Net interest spread of 2.23%, decreased 38bps YoY and 13bps QoQ
• Yield on average interest-earning assets of 4.26%, increased 15bps YoY but decreased 3bps QoQ
• Cost of average interest-bearing liabilities of 2.03%, increased 53bps YoY and 10bps QoQ
• Cost of funds of 1.90%, increased 50bps YoY and 10bps QoQ, driven by increases in rates paid on deposits and short-term borrowings resulting from increases in the Fed Funds rate 
• Average balance of total interest-earning assets of $6,540.1 million, increased $358.9 million, or 5.8%, YoY and $19.0 million, or 0.3%, QoQ
• Net interest income includes prepayment penalty income from loans and securities totaling $1.1 million in 2Q19, $0.8 million in 1Q19 and $1.6 million in 2Q18; recovered interest from delinquent loans of $0.5 million in 2Q19, $0.7 million in 1Q19 and $0.2 million in 2Q18; and losses from fair value adjustments on qualifying hedges totaling $0.8 million in 2Q19, $0.6 million in 1Q19 and none in 2Q18
• Absent all above items noted in the preceding bullet, the yield on interest-earning assets was 4.21% in 2Q19, a decrease of 3bps from 1Q19 and 22bps from 2Q18 and the net interest margin was 2.40% in 2Q19, which decreased 12bps from 1Q19 and 26bps from 2Q18

Provision for loan losses

The Company recorded a provision of $1.5 million compared to $1.0 million in 1Q19 and none in 2Q18.

• 2Q19 includes charge-offs from one commercial business loan relationship, after charge-off the remaining book balance for this relationship was $0.2 million, equaling the value of the underlying collateral
• Recorded net charge-offs of $1.0 million in 2Q19, $0.9 million in 1Q19, and $0.3 million in 2Q18

Non-interest Income

Non-interest income for 2Q19 was $2.5 million, a decrease of $0.7 million YoY, but an increase of $1.5 million QoQ

• Non-interest income included net gain on sale of assets of $0.8 million in 2Q19, net gain on sale of loans of $0.1 million in each of 2Q19 and 1Q19 and $0.4 million in 2Q18
• Additionally, non-interest income included net losses from fair value adjustments of $2.0 million in 2Q19, $2.1 million in 1Q19, and $0.3 million in 2Q18
• Absent all above items, non-interest income was $3.5 million, an increase of $0.5 million, or 16.9%, YoY, and $0.6 million, or 19.0%, QoQ, resulting primarily from a capital gain of $0.5 million recorded in 2Q19 from the redemption of $1.2 million in assets held in a rabbi trust

Non-interest Expense

Non-interest expense for 2Q19 was $27.2 million, a decrease of $0.2 million, or 0.9% YoY, and $5.3 million, or 16.2% QoQ.

• Non-interest expense improved QoQ, primarily due to 1Q19 including seasonal and one-time expenses
• The ratio of non-interest expense to average assets improved to 1.58% in 2Q19 compared to 1.89% in 1Q19 and 1.69% in 2Q18
• The efficiency ratio was 61.1% in 2Q19 compared to 70.4% in 1Q19 and 59.6% in 2Q18

Provision for Income Taxes

The provision for income taxes in 2Q19 was $3.3 million, a decrease of $1.2 million, or 27.1% YoY but an increase of $1.0 million, or 43.1% QoQ.

• Pre-tax income decreased by $4.6 million, or 24.9% YoY but increased by $4.5 million, or 47.8% QoQ
• The effective tax rates were 23.7% in 2Q19, 24.5% in 1Q19 and 24.4% in 2Q18

Financial Condition Summary:

Loans:

• Net loans held for investment were $5,616.9 million reflecting an increase of 0.9% QoQ (not annualized) and 5.7% from June 30, 2018, as we continue to focus on the origination of multi-family, commercial real estate and commercial business loans with a full relationship
• Loan closings of multi-family, commercial real estate and commercial business loans totaled $254.4 million for 2Q19, or 85.8% of loan production
• Loan pipeline was $423.9 million at June 30, 2019, compared to $274.8 million at March 31, 2019 and $322.9 million at June 30, 2018
• The loan-to-value ratio on our portfolio of real estate dependent loans as of June 30, 2019 totaled 38.4%

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

	For the three months ended
	June 30,		March 31,		June 30,
Loan type	2019		2019		2018
Mortgage loans	4.75%		5.14%		4.40%
Non-mortgage loans	5.01%		4.96%		4.90%
Total loans	4.89%		5.02%		4.57%

Credit Quality:

• Non-performing loans totaled $15.7 million, a decrease of $0.6 million, or 3.4%, from $16.3 million at December 31, 2018
• Non-performing assets totaled $16.0 million, a decrease of $0.3 million, or 1.9%, from $16.3 million at December 31, 2018
• Classified assets totaled $31.9 million, a decrease of $14.6 million, or 31.4%, from $46.5 million at December 31, 2018
• Loans classified as troubled debt restructured (TDR) totaled $6.3 million, a decrease of $2.1 million, or 24.8%, 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 35.4% average loan-to-value for non-performing loans collateralized by real estate
• Net charge-offs totaled $1.9 million during the six months ended June 30, 2019

Capital Management:

• The Company and Bank, at June 30, 2019, were both well capitalized under all applicable regulatory requirements
• Through 2Q19, stockholders’ equity increased $15.9 million, or 2.9%, to $565.4 million due to net income of $17.6 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 2Q19, the Company did not repurchase any shares; as of June 30, 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 $20.06 at June 30, 2019, from $19.64 at December 31, 2018 and tangible book value per common share, a non-GAAP measure, increased to $19.50 at June 30, 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, July 24, 2019 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/ffic190724.html
• Dial-in for Replay: 1-877-344-7529
• Replay Access Code: 10129655
• The conference call will be simultaneously webcast and archived through 5:00 PM (ET) on July 24, 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 SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(Dollars in thousands, except per share data)(Unaudited)

		For the three months ended												For the six months ended
		June 30,				March 31				June 30,				June 30,				June 30,
			2019				2019				2018				2019				2018
Interest and Dividend Income
Interest and fees on loans		$	62,273			$	62,330			$	57,322			$	124,603			$	112,339
Interest and dividends on securities:
Interest			6,811				6,909				5,616				13,720				11,084
Dividends			19				19				17				38				31
Other interest income			472				555				338				1,027				625
Total interest and dividend income			69,575				69,813				63,293				139,388				124,079
Interest Expense
Deposits			22,827				21,469				14,788				44,296				26,898
Other interest expense			6,739				6,541				5,865				13,280				11,932
Total interest expense			29,566				28,010				20,653				57,576				38,830
Net Interest Income			40,009				41,803				42,640				81,812				85,249
Provision for loan losses			1,474				972				-				2,446				153
Net Interest Income After Provision for Loan Losses			38,535				40,831				42,640				79,366				85,096
Non-interest Income
Banking services fee income			1,059				973				1,000				2,032				1,948
Net loss on sale of securities			(15	)			-				-				(15	)			-
Net gain on sale of loans			114				63				421				177				158
Net gain on sale of assets			770				-				-				770				-
Net loss from fair value adjustments			(1,956	)			(2,080	)			(267	)			(4,036	)			(367	)
Federal Home Loan Bank of New York stock dividends			826				903				881				1,729				1,757
Life insurance proceeds			-				43				-				43				776
Bank owned life insurance			810				740				776				1,550				1,538
Other income			843				301				357				1,144				558
Total non-interest income			2,451				943				3,168				3,394				6,368
Non-interest Expense
Salaries and employee benefits			15,668				19,166				15,291				34,834				33,746
Occupancy and equipment			2,742				2,789				2,476				5,531				5,053
Professional services			1,806				2,265				2,439				4,071				4,624
FDIC deposit insurance			667				485				547				1,152				1,047
Data processing			1,420				1,492				1,426				2,912				2,827
Depreciation and amortization			1,497				1,518				1,455				3,015				2,844
Other real estate owned/foreclosure expense			20				77				40				97				136
Net gain from sales of real estate owned			-				-				(27	)			-				(27	)
Other operating expenses			3,338				4,627				3,749				7,965				8,440
Total non-interest expense			27,158				32,419				27,396				59,577				58,690
Income Before Income Taxes			13,828				9,355				18,412				23,183				32,774
Provision for Income Taxes
Federal			2,981				1,943				3,311				4,924				5,918
State and local			291				344				1,178				635				1,521
Total taxes			3,272				2,287				4,489				5,559				7,439
Net Income		$	10,556			$	7,068			$	13,923			$	17,624			$	25,335
Basic earnings per common share		$	0.37			$	0.25			$	0.48			$	0.61			$	0.88
Diluted earnings per common share		$	0.37			$	0.25			$	0.48			$	0.61			$	0.88
Dividends per common share		$	0.21			$	0.21			$	0.20			$	0.42			$	0.40

 

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION(Dollars in thousands, except per share data)(Unaudited)

				June 30,				March 31,				December 31,
					2019				2019				2018
ASSETS
Cash and due from banks				$	56,484			$	58,677			$	118,561
Securities held-to-maturity:
	Mortgage-backed securities				7,944				7,949				7,953
	Other securities				52,242				22,532				24,065
Securities available for sale:
	Mortgage-backed securities				554,481				579,185				557,953
	Other securities				254,172				266,839				264,702
Loans:
	Multi-family residential				2,263,875				2,256,447				2,269,048
	Commercial real estate				1,524,693				1,529,001				1,542,547
	One-to-four family ― mixed-use property				582,264				582,049				577,741
	One-to-four family ― residential				184,024				188,615				190,350
	Co-operative apartments				8,137				7,903				8,498
	Construction				58,503				54,933				50,600
	Small Business Administration				14,511				15,188				15,210
	Taxi medallion				3,555				3,891				4,539
	Commercial business and other				983,573				935,297				877,763
	Net unamortized premiums and unearned loan fees				15,278				15,422				15,188
	Allowance for loan losses				(21,510	)			(21,015	)			(20,945	)
			Net loans		5,616,903				5,567,731				5,530,539
Interest and dividends receivable					26,552				27,226				25,485
Bank premises and equipment, net					28,623				29,798				30,418
Federal Home Loan Bank of New York stock					63,029				51,182				57,282
Bank owned life insurance					157,604				131,794				131,788
Goodwill					16,127				16,127				16,127
Other real estate owned, net					239				-				-
Right of Use Asset					42,557				44,033				-
Other assets					68,677				64,377				69,303
			Total assets	$	6,945,634			$	6,867,450			$	6,834,176
LIABILITIES
Due to depositors:
		Non-interest bearing		$	413,813			$	401,064			$	413,747
		Certificate of deposit accounts			1,544,117				1,511,770				1,563,310
		Savings accounts			196,820				201,811				210,022
		Money market accounts			1,302,153				1,352,843				1,427,992
		NOW accounts			1,368,813				1,542,606				1,300,852
			Total  deposits		4,825,716				5,010,094				4,915,923
Mortgagors' escrow deposits					52,201				70,115				44,861
Borrowed funds					1,371,890				1,116,416				1,250,843
Operating Lease Liability					50,898				52,510				-
Other liabilities					79,539				58,756				73,085
			Total liabilities		6,380,244				6,307,891				6,284,712
STOCKHOLDERS' EQUITY
Preferred stock (5,000,000 shares authorized; none issued)					-				-				-
Common stock ($0.01 par value; 100,000,000 shares authorized; 31,530,595 shares
	issued at June 30, 2019, March 31, 2019 and December 31, 2018; 28,187,922
	shares, 28,187,184 shares and 27,983,637 shares outstanding at June 30, 2019,
	March 31, 2019 and December 31, 2018, respectively)				315				315				315
Additional paid-in capital					224,231				222,859				222,720
Treasury stock (3,342,673 shares, 3,343,411 shares and 3,546,958  shares at
	June 30, 2019, March 31, 2019 and December 31, 2018, respectively)				(70,913	)			(70,929	)			(75,146	)
Retained earnings					422,373				417,856				414,327
Accumulated other comprehensive loss, net of taxes					(10,616	)			(10,542	)			(12,752	)
			Total stockholders' equity		565,390				559,559				549,464
			Total liabilities and stockholders' equity	$	6,945,634			$	6,867,450			$	6,834,176

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIESSELECTED CONSOLIDATED FINANCIAL DATA(Dollars in thousands, except per share data)(Unaudited)

	At or for the three months ended									At or for the six months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2019			2019			2018			2019			2018
Per Share Data
Basic earnings per share	$	0.37		$	0.25		$	0.48		$	0.61		$	0.88
Diluted earnings per share	$	0.37		$	0.25		$	0.48		$	0.61		$	0.88
Average number of shares outstanding for:
Basic earnings per common share computation		28,760,816			28,621,018			28,844,829			28,691,303			28,909,135
Diluted earnings per common share computation		28,760,816			28,621,030			28,845,611			28,691,309			28,910,034
Shares outstanding		28,187,922			28,187,184			28,319,213			28,187,922			28,319,213
Book value per common share (1)	$	20.06		$	19.85		$	19.00		$	20.06		$	19.00
Tangible book value per common share (2)	$	19.50		$	19.29		$	18.44		$	19.50		$	18.44
Stockholders' Equity
Stockholders' equity	$	565,390		$	559,559		$	538,044		$	565,390		$	538,044
Tangible stockholders' equity		549,549			543,722			522,208			549,549			522,208
Average Balances
Total loans, net	$	5,565,057		$	5,544,667		$	5,316,033		$	5,554,919		$	5,273,939
Total interest-earning assets		6,540,134			6,521,142			6,181,186			6,530,692			6,140,173
Total assets		6,891,541			6,868,140			6,484,882			6,879,905			6,444,364
Total due to depositors		4,595,189			4,598,305			4,310,461			4,596,738			4,243,844
Total interest-bearing liabilities		5,825,187			5,811,263			5,515,580			5,818,263			5,479,268
Stockholders' equity		560,624			552,621			532,027			556,645			530,662
Performance Ratios (3)
Return on average assets		0.61	%		0.41	%		0.86	%		0.51	%		0.79	%
Return on average equity		7.53			5.12			10.47			6.33			9.55
Yield on average interest-earning assets (4)		4.26			4.29			4.11			4.28			4.06
Cost of average interest-bearing liabilities		2.03			1.93			1.50			1.98			1.42
Cost of funds		1.90			1.80			1.40			1.85			1.33
Interest rate spread during period (4)		2.23			2.36			2.61			2.30			2.64
Net interest margin (4)		2.45			2.57			2.77			2.51			2.79
Non-interest expense to average assets		1.58			1.89			1.69			1.73			1.82
Efficiency ratio (5)		61.06			70.37			59.58			67.36			64.41
Average interest-earning assets to average
interest-bearing liabilities		1.12	X		1.12	X		1.12	X		1.12	X		1.12	X

(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 officers death, 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 SUBSIDIARIESSELECTED CONSOLIDATED FINANCIAL DATA(Dollars in thousands)(Unaudited)

	At or for the six				At or for the year					At or for the six
	ended				ended					months ended
	June 30, 2019				December 31, 2018					June 30, 2018
Selected Financial Ratios and Other Data
Regulatory capital ratios (for Flushing Financial Corporation):
Tier 1 capital	$	600,730			$	586,582				$	572,189
Common equity Tier 1 capital		558,848				546,230					534,036
Total risk-based capital		697,240				682,527					667,409
Tier 1 leverage capital (well capitalized = 5%)		8.72	%			8.74	%				8.79	%
Common equity Tier 1 risk-based capital (well capitalized = 6.5%)		10.60				10.98					11.07
Tier 1 risk-based capital (well capitalized = 8.0%)		11.39				11.79					11.87
Total risk-based capital (well capitalized = 10.0%)		13.22				13.72					13.84
Regulatory capital ratios (for Flushing Bank only):
Tier 1 capital	$	667,882			$	660,782				$	644,880
Common equity Tier 1 capital		667,882				660,782					644,880
Total risk-based capital		689,392				681,727					665,100
Tier 1 leverage capital (well capitalized = 5%)		9.69	%			9.85	%				9.90	%
Common equity Tier 1 risk-based capital (well capitalized = 6.5%)		12.66				13.28					13.37
Tier 1 risk-based capital (well capitalized = 8.0%)		12.66				13.28					13.37
Total risk-based capital (well capitalized = 10.0%)		13.07				13.70					13.79
Capital ratios:
Average equity to average assets		8.09	%			8.22	%				8.23	%
Equity to total assets		8.14				8.04					8.32
Tangible common equity to tangible assets (1)		7.93				7.83					8.09
Asset quality:
Non-accrual loans (2)	$	15,702			$	16,253				$	14,059
Non-performing loans		15,702				16,253					14,789
Non-performing assets		15,976				16,288					14,824
Net charge-offs/ (recoveries)		1,881				(19	)				284
Asset quality ratios:
Non-performing loans to gross loans		0.28	%			0.29	%				0.28	%
Non-performing assets to total assets		0.23				0.24					0.23
Allowance for loan losses to gross loans		0.38				0.38					0.38
Allowance for loan losses to non-performing assets		134.64				128.60					136.40
Allowance for loan losses to non-performing loans		136.99				128.87					136.72
Full-service customer facilities		19				19					18
(1) See “Calculation of Tangible Stockholders’ Common Equity to Tangible Assets”.
(2) Excludes performing non-accrual TDR loans.

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

	For the three months ended
	June 30, 2019						March 31, 2019						June 30, 2018
	Average				Yield/		Average				Yield/		Average				Yield/
	Balance		Interest		Cost		Balance		Interest		Cost		Balance		Interest		Cost
	(Dollars in thousands)
Interest-earning Assets:
Mortgage loans, net	$	4,590,429	$	50,206	4.37	%	$	4,619,587	$	50,845	4.40	%	$	4,509,778	$	47,673	4.23	%
Other loans, net		974,628		12,067	4.95			925,080		11,485	4.97			806,255		9,649	4.79
Total loans, net (1) (2)		5,565,057		62,273	4.48			5,544,667		62,330	4.50			5,316,033		57,322	4.31
Taxable securities:
Mortgage-backed
securities		585,892		4,225	2.88			573,397		4,248	2.96			533,088		3,754	2.82
Other securities		242,560		2,135	3.52			241,863		2,211	3.66			122,601		1,023	3.34
Total taxable securities		828,452		6,360	3.07			815,260		6,459	3.17			655,689		4,777	2.91
Tax-exempt securities: (3)
Other securities		56,064		595	4.25			58,173		594	4.08			124,058		1,084	3.50
Total tax-exempt securities		56,064		595	4.25			58,173		594	4.08			124,058		1,084	3.50
Interest-earning deposits
and federal funds sold		90,561		472	2.08			103,042		555	2.15			85,406		338	1.58
Total interest-earning
assets		6,540,134		69,700	4.26			6,521,142		69,938	4.29			6,181,186		63,521	4.11
Other assets		351,407						346,998						303,696
Total assets	$	6,891,541					$	6,868,140					$	6,484,882
Interest-bearing Liabilities:
Deposits:
Savings accounts	$	200,349		348	0.69		$	205,775		361	0.70		$	235,564		285	0.48
NOW accounts		1,541,956		6,641	1.72			1,488,859		6,031	1.62			1,444,889		3,364	0.93
Money market accounts		1,336,526		6,974	2.09			1,380,172		6,821	1.98			1,110,690		3,983	1.43
Certificate of deposit
accounts		1,516,358		8,802	2.32			1,523,499		8,203	2.15			1,519,348		7,118	1.87
Total due to depositors		4,595,189		22,765	1.98			4,598,305		21,416	1.86			4,310,491		14,750	1.37
Mortgagors' escrow
accounts		83,799		62	0.30			62,174		53	0.34			77,343		38	0.20
Total interest-bearing
deposits		4,678,988		22,827	1.95			4,660,479		21,469	1.84			4,387,834		14,788	1.35
Borrowings		1,146,199		6,739	2.35			1,150,784		6,541	2.27			1,127,746		5,865	2.08
Total interest-bearing
liabilities		5,825,187		29,566	2.03			5,811,263		28,010	1.93			5,515,580		20,653	1.50
Non interest-bearing
demand deposits		394,642						398,829						370,790
Other liabilities		111,088						105,427						66,485
Total liabilities		6,330,917						6,315,519						5,952,855
Equity		560,624						552,621						532,027
Total liabilities and
equity	$	6,891,541					$	6,868,140					$	6,484,882
Net interest income /
net interest rate spread (tax equivalent) (3)			$	40,134	2.23	%			$	41,928	2.36	%			$	42,868	2.61	%
Net interest-earning assets /
net interest margin (tax equivalent)	$	714,947			2.45	%	$	709,879			2.57	%	$	665,606			2.77	%
Ratio of interest-earning
assets to interest-bearing
liabilities					1.12	X					1.12	X					1.12	X

(1)	Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $0.4 million, $0.5 million and $0.3 million for the three months ended June 30, 2019, March 31, 2019 and June 30, 2018, respectively.
(2)	Loan interest income includes net losses from fair value adjustments on qualifying hedges of $0.8 million, $0.6 million and none for the three months ended June 30, 2019, March 31, 2019 and June 30, 2018, respectively.
(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 June 30, 2019, March 31, 2019 and June 30, 2018 totaling $125,000, $125,000 and $228,000, respectively.

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

	For the six months ended
	June 30, 2019							June 30, 2018
	Average				Yield/			Average				Yield/
	Balance		Interest		Cost			Balance		Interest		Cost
Interest-earning Assets:
Mortgage loans, net	$	4,604,928	$	101,051	4.39	%		$	4,476,509	$	93,785	4.19	%
Other loans, net		949,991		23,552	4.96				797,430		18,554	4.65
Total loans, net (1) (2)		5,554,919		124,603	4.49				5,273,939		112,339	4.26
Taxable securities:
Mortgage-backed
securities		579,679		8,473	2.92				528,922		7,261	2.75
Other securities		242,214		4,346	3.59				126,816		2,144	3.38
Total taxable securities		821,893		12,819	3.12				655,738		9,405	2.87
Tax-exempt securities: (3)
Other securities		57,113		1,189	4.16				124,091		2,165	3.49
Total tax-exempt securities		57,113		1,189	4.16				124,091		2,165	3.49
Interest-earning deposits
and federal funds sold		96,767		1,027	2.12				86,405		625	1.45
Total interest-earning
assets		6,530,692		139,638	4.28				6,140,173		124,534	4.06
Other assets		349,213							304,191
Total assets	$	6,879,905						$	6,444,364
Interest-bearing Liabilities:
Deposits:
Savings accounts	$	203,047		709	0.70			$	250,646		674	0.54
NOW accounts		1,515,554		12,672	1.67				1,492,413		6,512	0.87
Money market accounts		1,358,228		13,795	2.03				1,068,443		7,058	1.32
Certificate of deposit
accounts		1,519,909		17,005	2.24				1,432,342		12,581	1.76
Total due to depositors		4,596,738		44,181	1.92				4,243,844		26,825	1.26
Mortgagors' escrow
accounts		73,046		115	0.31				68,202		73	0.21
Total interest-bearing
deposits		4,669,784		44,296	1.90				4,312,046		26,898	1.25
Borrowings		1,148,479		13,280	2.31				1,167,222		11,932	2.04
Total interest-bearing
liabilities		5,818,263		57,576	1.98				5,479,268		38,830	1.42
Non interest-bearing
demand deposits		396,724							367,903
Other liabilities		108,273							66,531
Total liabilities		6,323,260							5,913,702
Equity		556,645							530,662
Total liabilities and
equity	$	6,879,905						$	6,444,364
Net interest income /
net interest rate spread (tax equivalent) (3)			$	82,062	2.30	%				$	85,704	2.64	%
Net interest-earning assets /
net interest margin (tax equivalent)	$	712,429			2.51	%		$	660,905			2.79	%
Ratio of interest-earning
assets to interest-bearing
liabilities					1.12	X						1.12	X

(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 and $0.4 million for the six months ended June 30, 2019 and 2018, respectively.
(2)	Loan interest income includes net losses from fair value adjustments on qualifying hedges of $1.5 million and none for the six months ended June 30, 2019 and June 30, 2018, respectively.
(3)	Interest and yields are calculated on the tax equivalent basis using the statutory federal income tax rate of 21% for the six months ended June 30, 2019 and June 30, 2018 totaling $250,000 and $455,000, respectively.

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIESDEPOSIT COMPOSITION(Unaudited)

													June 2019 vs.								June 2019 vs.
				June 30,			March 31,			December 31,			December 2018		September 30,			June 30,			June 2018
(Dollars in thousands)				2019			2019			2018			% Change		2018			2018			% Change
Deposits
Non-interest bearing				$	413,813		$	401,064		$	413,747		0.0%		$	398,606		$	388,467		6.5%
Interest bearing:
	Certificate of deposit
		accounts			1,544,117			1,511,770			1,563,310		-1.2%			1,562,962			1,452,016		6.3%
	Savings accounts				196,820			201,811			210,022		-6.3%			216,976			225,815		-12.8%
	Money market accounts				1,302,153			1,352,843			1,427,992		-8.8%			1,223,640			1,069,835		21.7%
	NOW accounts				1,368,813			1,542,606			1,300,852		5.2%			1,255,464			1,422,745		-3.8%
		Total interest-bearing
			deposits		4,411,903			4,609,030			4,502,176		-2.0%			4,259,042			4,170,411		5.8%
			Total deposits	$	4,825,716		$	5,010,094		$	4,915,923		-1.8%		$	4,657,648		$	4,558,878		5.9%

 

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIESLOANS (Unaudited)

Loan Closings

	For the three months									For the six months ended
	June 30,			March 31			June 30,			June 30,			June 30,
(In thousands)	2019			2019			2018			2019			2018
Multi-family residential	$	55,629		$	27,214		$	70,972		$	82,843		$	152,153
Commercial real estate		42,700			13,941			64,890			56,641			136,444
One-to-four family – mixed-use property		12,885			16,423			12,294			29,308			28,362
One-to-four family – residential		7,884			3,886			6,974			11,770			23,942
Co-operative apartments		300			-			1,500			300			1,500
Construction		18,715			5,901			9,940			24,616			24,619
Small Business Administration		2,255			329			228			2,584			2,195
Commercial business and other		156,029			130,330			88,612			286,359			228,019
Total	$	296,397		$	198,024		$	255,410		$	494,421		$	597,234

 

Loan Composition

																June 2019 vs.										June 2019 vs.
				June 30,				March 31,				December 31,				December 2018		September 30,				June 30,				June 2018
(Dollars in thousands)				2019				2019				2018				% Change		2018				2018				% Change
Loans held for investment:
Multi-family residential				$	2,263,875			$	2,256,447			$	2,269,048			-0.2%		$	2,235,370			$	2,247,852			0.7%
Commercial real estate					1,524,693				1,529,001				1,542,547			-1.2%			1,460,555				1,471,894			3.6%
One-to-four family ―
	mixed-use property				582,264				582,049				577,741			0.8%			565,302				564,474			3.2%
One-to-four family ― residential					184,024				188,615				190,350			-3.3%			188,975				187,741			-2.0%
Co-operative apartments					8,137				7,903				8,498			-4.2%			7,771				7,839			3.8%
Construction					58,503				54,933				50,600			15.6%			40,239				33,826			73.0%
Small Business Administration					14,511				15,188				15,210			-4.6%			14,322				14,405			0.7%
Taxi medallion					3,555				3,891				4,539			-21.7%			6,078				6,225			-42.9%
Commercial business and other					983,573				935,297				877,763			12.1%			846,224				783,904			25.5%
Net unamortized premiums
	and unearned loan fees				15,278				15,422				15,188			0.6%			15,226				15,647			-2.4%
Allowance for loan losses					(21,510	)			(21,015	)			(20,945	)		2.7%			(20,309	)			(20,220	)		6.4%
			Net loans	$	5,616,903			$	5,567,731			$	5,530,539			1.6%		$	5,359,753			$	5,313,587			5.7%

Net Loans Activity

 

	Three Months Ended
	June 30,				March 31,				December 31,				September 30,				June 30,
(In thousands)		2019				2019				2018				2018				2018
Loans originated and purchased	$	296,397			$	198,024			$	344,732			$	308,825			$	255,410
Principal reductions		(243,263	)			(158,815	)			(173,061	)			(257,902	)			(226,030	)
Loans sold		(1,970	)			(1,043	)			-				(4,027	)			(7,273	)
Loan charged-offs		(1,114	)			(1,138	)			(211	)			(220	)			(416	)
Foreclosures		(239	)			-				-				-				-
Net change in deferred fees and costs		(144	)			234				(38	)			(421	)			(748	)
Net change in the allowance for loan losses		(495	)			(70	)			(636	)			(89	)			322
Total loan activity	$	49,172			$	37,192			$	170,786			$	46,166			$	21,265

 

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIESNON-PERFORMING ASSETS and NET CHARGE-OFFS(Unaudited)

		June 30,				March 31,				December 31,				September 30,				June 30,
(Dollars in thousands)		2019				2019				2018				2018				2018
Loans 90 Days Or More Past Due
	and Still Accruing:
Commercial real estate		$	-			$	-			$	-			$	111			$	-
Construction			-				-				-				-				730
	Total		-				-				-				111				730
Non-accrual Loans:
Multi-family residential			2,008				2,009				2,410				862				2,165
Commercial real estate			1,488				1,050				1,379				1,398				1,448
One-to-four family - mixed-use property			1,752				1,305				928				795				2,157
One-to-four family - residential			5,411				5,708				6,144				6,610				6,969
Co-operative apartments			-				-				-				-				575
Construction			-				950				-				-				-
Small Business Administration			1,224				1,227				1,267				1,395				-
Taxi medallion(1)			1,361				1,372				613				712				743
Commercial business and other			2,458				2,114				3,512				761				2
	Total		15,702				15,735				16,253				12,533				14,059
	Total Non-performing Loans		15,702				15,735				16,253				12,644				14,789
Other Non-performing Assets:
Real estate acquired through foreclosure			239				-				-				-				-
Other asset acquired through foreclosure			35				35				35				35				35
	Total		274				35				35				35				35
	Total Non-performing Assets	$	15,976			$	15,770			$	16,288			$	12,679			$	14,824
Non-performing Assets to Total Assets			0.23	%			0.23	%			0.24	%			0.19	%			0.23	%
Allowance For Loan Losses to Non-performing Loans			137.0	%			133.6	%			128.9	%			160.6	%			136.7	%
(1)	Not included in the above analysis are non-accrual performing TDR taxi medallion loans totaling $2.2 million in 2Q19, $2.5 million in 1Q19, $3.9 million in 4Q18, $5.4 million in 3Q18 and $5.5 million in 2Q18.

Net Charge-Offs (Recoveries)

	Three Months Ended
	June 30,				March 31,				December 31,				September 30,				June 30,
(In thousands)	2019				2019				2018				2018				2018
Multi-family residential	$	(10	)		$	(13	)		$	(4	)		$	18			$	28
Commercial real estate		(7	)			-				-				-				-
One-to-four family – mixed-use property		(2	)			(85	)			(18	)			(36	)			(79	)
One-to-four family – residential		110				(4	)			(199	)			(258	)			(4	)
Small Business Administration		(16	)			(4	)			170				134				18
Taxi medallion		(50	)			(84	)			(143	)			40				353
Commercial business and other		954				1,092				(20	)			13				6
Total net loan charge-offs (recoveries)	$	979			$	902			$	(214	)		$	(89	)		$	322

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 SUBSIDIARIESRECONCILIATION OF GAAP EARNINGS and CORE EARNINGS(Dollars in thousands, except per share data)(Unaudited)

	Three Months Ended										Six Months Ended
	June 30,			March 31,			June 30,				June 30,			June 30,
	2019			2019			2018				2019			2018
GAAP income before income taxes	$	13,828		$	9,355		$	18,412			$	23,183		$	32,774
Net loss from fair value adjustments		1,956			2,080			267				4,036			367
Net loss on sale of securities		15			-			-				15			-
Life insurance proceeds		-			(43	)		-				(43	)		(776	)
Net gain on sale of assets		(770	)		-			-				(770	)		-
Net losses from fair value adjustments on qualifying hedges		818			637			-				1,455			-
Accelerated employee benefits upon Officer's death		-			455			-				455			-
Core income before taxes		15,847			12,484			18,679				28,331			32,365
Provision for income taxes for core income		3,771			3,033			4,573				6,804			7,555
Core net income	$	12,076		$	9,451		$	14,106			$	21,527		$	24,810
GAAP diluted earnings per common share	$	0.37		$	0.25		$	0.48			$	0.61		$	0.88
Net loss from fair value adjustments, net of tax		0.05			0.05			0.01				0.10			0.01
Net loss on sale of securities, net of tax		-			-			-				-			-
Life insurance proceeds		-			-			-				-			(0.03	)
Net gain on sale of assets, net of tax		(0.02	)		-			-				(0.02	)		-
Net losses from fair value adjustments on qualifying hedges, net of tax		0.02			0.02			-				0.04			-
Accelerated employee benefits upon Officer's death, net of tax		-			0.01			-				0.01			-
Core diluted earnings per common share1	$	0.42		$	0.33		$	0.49			$	0.75		$	0.86
Core net income, as calculated above	$	12,076		$	9,451		$	14,106			$	21,527		$	24,810
Average assets		6,891,541			6,868,140			6,484,882				6,879,905			6,444,364
Average equity		560,624			552,621			532,027				556,645			530,662
Core return on average assets2		0.70	%		0.55	%		0.87	%			0.63	%		0.77	%
Core return on average equity2		8.62	%		6.84	%		10.61	%			7.73	%		9.35	%
(1)  Core diluted earnings per common share may not foot due to rounding.
(2)  Ratios are calculated on an annualized basis.

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIESRECONCILIATION OF GAAP NET INTEREST INCOME and NET INTEREST MARGINTo CORE NET INTEREST INCOME and NET INTEREST MARGIN(Dollars in thousands)(Unaudited)

	Three Months Ended										Six Months Ended
	June 30,			March 31,			June 30,				June 30,			June 30,
	2019			2019			2018				2019			2018
GAAP net interest income	$	40,009		$	41,803		$	42,640			$	81,812		$	85,249
Net losses from fair value adjustments on qualifying hedges		818			637			-				1,455			-
Core net interest income	$	40,827		$	42,440		$	42,640			$	83,267		$	85,249
GAAP interest income on total loans, net	$	62,273		$	62,330		$	57,322			$	124,603		$	112,339
Net losses from fair value adjustments on qualifying hedges		818			637			-				1,455			-
Prepayment penalties received on loans		(1,120	)		(805	)		(1,451	)			(1,925	)		(2,364	)
Net recoveries of interest from non-accrual loans		(519	)		(714	)		(248	)			(1,233	)		(414	)
Core interest income on total loans, net	$	61,452		$	61,448		$	55,623			$	122,900		$	109,561
Average total loans, net	$	5,565,057		$	5,544,667		$	5,316,033			$	5,554,919		$	5,273,939
Core yield on total loans		4.42	%		4.43	%		4.19	%			4.42	%		4.15	%
Net interest income tax equivalent	$	40,134		$	41,928		$	42,868			$	82,062		$	85,704
Net losses from fair value adjustments on qualifying hedges		818			637			-				1,455			-
Prepayment penalties received on loans and securities		(1,120	)		(805	)		(1,553	)			(1,925	)		(2,466	)
Net recoveries of interest from non-accrual loans		(519	)		(714	)		(248	)			(1,233	)		(414	)
Net interest income used in calculation of Core net interest margin	$	39,313		$	41,046		$	41,067			$	80,359		$	82,824
Total average interest-earning assets	$	6,540,134		$	6,521,142		$	6,181,186			$	6,530,692		$	6,140,173
Core net interest margin		2.40	%		2.52	%		2.66	%			2.46	%		2.70	%

 

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIESCALCULATION OF TANGIBLE STOCKHOLDERS’ COMMON EQUITY to TANGIBLE ASSETS(Unaudited)

			June 30,			December 31,			June 30,
(Dollars in thousands)			2019			2018			2018
Total Equity			$	565,390		$	549,464		$	538,044
Less:
	Goodwill			(16,127	)		(16,127	)		(16,127	)
	Intangible deferred tax liabilities			286			290			291
		Tangible Stockholders' Common Equity	$	549,549		$	533,627		$	522,208
Total Assets			$	6,945,634		$	6,834,176		$	6,467,616
Less:
	Goodwill			(16,127	)		(16,127	)		(16,127	)
	Intangible deferred tax liabilities			286			290			291
		Tangible Assets	$	6,929,793		$	6,818,339		$	6,451,780
Tangible Stockholders' Common Equity to Tangible Assets				7.93	%		7.83	%		8.09	%

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