Market Overview

Flushing Financial Corporation Announces Second Quarter GAAP Diluted EPS of $0.44 and Record Core Diluted EPS of $0.46, Driven by Record Net Interest Income, Strong Credit Quality and Solid Loan Growth

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SECOND QUARTER 20171

  • GAAP diluted EPS was $0.44, up 4.8% QoQ but down 58.1% YoY, largely due to net gain on sale of buildings in 2Q16
  • Record core diluted EPS was $0.46, up 17.9% YoY and 15.0% QoQ
  • Record net interest income of $43.6 million, an improvement of 4.1% YoY and 0.5% QoQ
  • Net interest margin was 2.95%, unchanged QoQ
  • GAAP and core ROAE improved to 9.6% and 10.2%, compared with 9.5% and 9.1% in 1Q17
  • GAAP and core ROAA was 0.8% and 0.9%, compared with 0.8% for both in 1Q17

UNIONDALE, N.Y., July 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 three and six months ended June 30, 2017.

John R. Buran, President and Chief Executive Officer, stated, "We are pleased to report record core earnings for the second quarter of 2017 driven by record net interest income and our continued discipline regarding non-interest expense. Credit quality continued to improve, as our non-performing assets have decreased by over 29% since the end of 2016 and net charge-offs remain minimal. We saw tangible results from our strategy change announced in mid-2016 to focus origination efforts on higher yielding loans.  The yield on recent quarter loan production increased 19 basis points over the prior quarter and 33 basis points from the comparable quarter of 2016. For the first time since 2010, quarterly new loan yields exceed that quarter's average yield on total interest-earning assets. Our total loan portfolio, including loans held for sale, grew 2% during the recent quarter and 5% for the first six months of 2017 while meeting our strong underwriting standards."

"We continue to implement our strategy of enhancing operational scalability and efficiency by converting our branch network to the more cost effective Universal Banker model.  We expect to convert half of our 19 branches by the end of 2017. Although total deposits increased 8% year-over-year, deposits declined 3% quarter-over-quarter primarily caused by seasonal government deposit outflows, which we anticipate returning in the fourth quarter."

"As a result of recent rate increases by the Federal Reserve, we have started to experience some rate pressure on liabilities. During the recent quarter, our cost of funds increased 4 basis points due to a combination of an increase in the rates we pay on some of our deposit products to stay competitive within our market and the funding mix, as seasonal government deposit outflows were replaced by slightly more expensive borrowed funds."

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

  • In the second quarter, multi-family, commercial real estate, and commercial business loan originations and purchases represented 24%, 47%, and 19%, respectively, of all originations while maintaining conservative loan-to-values, debt coverage ratios, and increasing yield. 
  • The average interest rate obtained for second quarter originations and purchases improved to 4.04% compared to 3.85% for 1Q17 and 3.71% for 2Q16.
  • The average rate of mortgage loan applications in the pipeline totaled 4.17% at June 30, 2017, as compared to 4.20% at December 31, 2016 and 3.94% at June 30, 2016.
  • Multi-family (excluding underlying co-operative mortgages), commercial real estate, and one-to-four family mixed-use property mortgage loans originated during the second quarter of 2017 had an increased yield of 4.19% compared to 4.01% for the previous quarter and 3.81% for the same quarter in 2016.  While the yields have been increasing, we have kept our asset quality as these loans had a low average loan-to-value ratio of 46.2% and an average debt coverage ratio of 198%.

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."

_____________________
1 See the table entitled "Reconciliation of Non-GAAP Financial Measures."

Summary of Strategic Objectives

  • Increase core deposits and continue to improve funding mix
  • Increase net 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:

Quarter ended June 30, 2017 (2Q17) compared to the quarters ended June 30, 2016 (2Q16) and March 31, 2017 (1Q17).

June 30, 2017 compared to March 31, 2017 ("QoQ"); June 30, 2017 compared to June 30, 2016 ("YoY").

Net Interest Income

Net interest income for 2Q17 was $43.6 million, an increase of 4.1% YoY and 0.5% QoQ.

  • Net interest margin of 2.95%, decreased 4bps YoY but remains unchanged QoQ
  • Net interest spread of 2.83%, decreased 5bps YoY and 1bp QoQ
  • Net interest income includes prepayment penalty income from loans of $1.0 million in 2Q17 compared with $1.4 million in 2Q16 and $1.1 million in 1Q17, and recovered interest from nonaccrual loans of $0.3 million in 2Q17 compared with $0.2 million in 2Q16 and $0.5 million in 1Q17
  • Net interest income includes $0.4 million in accelerated accretion of discount upon the call of CLO securities totaling $27.5 million
  • Excluding prepayment penalty income, accelerated accretion of discount and recovered interest from nonaccrual loans, the yield on interest-earning assets would have improved to 3.82% in 2Q17, compared with 3.81% in 2Q16 and 3.80% in 1Q17, and the net interest margin would have decreased to 2.83% in 2Q17, compared with 2.87% in 2Q16 and 2.85% in 1Q17
  • Average balance of total interest-earning assets of $5,919.0 million, increased $306.0 million, or 5.5% YoY and increased $45.2 million, or 0.8% QoQ
  • Yield on interest-earning assets of 3.94%, increased 1bp YoY and 4bps QoQ
  • Cost of interest-bearing liabilities of 1.11%, increased 6bps YoY and 5bps QoQ
  • Cost of funds of 1.05%, increased 6bps YoY and 4bps QoQ, driven by an increase in rates paid on our core deposits and short-term borrowings  

Non-interest Income

Non-interest income for 2Q17 was $1.9 million, a decrease of $35.8 million YoY and $1.7 million QoQ.

  • Non-interest income included net losses from fair value adjustments of $1.2 million in 2Q17, $1.1 million in 2Q16 and $0.4 million in 1Q17
  • 2Q16 included a gain of $33.8 million recorded from the sale of one of our properties in Flushing, Queens and a gain on the sale of securities of $2.4 million and 1Q17 included a gain from life insurance proceeds of $1.2 million
  • Absent the above items non-interest income was $3.1 million, an increase of $0.5 million YoY and $0.2 million QoQ

Non-interest Expense

Non-interest expense for 2Q17 was $26.1 million, a decrease of $2.4 million, or 8.4%, YoY and $3.5 million, or 11.8% QoQ.

  • 2Q16 included a non-recurring penalty of $2.1 million on the prepayment of $38.0 million in repurchase agreements and a write-down of $0.8 million on one OREO property. Absent these two items, non-interest expense increased $0.5 million, or 1.9% YoY, driven by increased salaries and benefits from annual salary increases and additions in staffing, partially offset by reductions in FDIC insurance expense, due to lower assessment rates, and decreased foreclosure expense due to continued improvement in asset quality
  • Lower costs associated with FDIC insurance and foreclosure expense should be sustainable
  • 1Q17 included the impact of annual grants of employee and director restricted stock unit awards totaling $3.3 million. Absent this item in 1Q17, non-interest expense decreased $0.2 million or 0.8%, primarily driven by decreased foreclosure expense
  • The efficiency ratio improved to 55.8% from 57.1% in 2Q16 and 64.0% in 1Q17

Provision for Income Taxes

The provision for income taxes in 2Q17 was $6.8 million, a decrease of $13.9 million YoY but an increase of $1.5 million QoQ.

  • Pre-tax income decreased by $31.7 million, or 61.9% YoY but increased $2.0 million, or 11.3% QoQ
  • The effective tax rates were 34.7% in 2Q17, 40.5% in 2Q16 and 30.0% in 1Q17
  • The improvement in the Company's effective tax rate compared to 2Q16 was primarily due to a change in 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 on the Company's effective tax rate
  • The increase in the Company's effective tax rate compared to 1Q17 was primarily due to the requirement that stock compensation 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 reducing 1Q17 effective tax rate
  • We anticipate the effective tax rate to approximate the 2Q17 rate for the remainder of the year

Financial Condition Summary:

Loans:

  • Net loans held for investment were $5,023.5 million reflecting an increase of 1.4% QoQ (not annualized) and 4.4% 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 $236.3 million for 2Q17, or 90.5% of loan production
  • Loan pipeline was $279.1 million at June 30, 2017, compared to $303.1 million at March 31, 2017 and $329.8 million at June 30, 2016
  • The loan-to-value ratio on our portfolio of real estate dependent loans as of June 30, 2017 totaled 39.8%

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

    For the three months ended
    June 30,   March 31,   June 30,
Loan type   2017     2017     2016  
Mortgage loans   4.01 %   3.78 %   3.53 %
Non-mortgage loans   4.13 %   4.02 %   4.29 %
Total loans   4.04 %   3.85 %   3.71 %
             

Credit Quality:

  • Non-performing loans totaled $15.5 million, a decrease of $6.0 million, or 27.8%, from $21.4 million at December 31, 2016
  • Classified assets totaled $44.7 million, an increase of $0.7 million, or 1.7%, 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 (TDR) totaled $21.4 million, an increase of $3.9 million, or 22.6%, from $17.4 million at December 31, 2016, attributable to the addition of five taxi medallion TDRs
  • 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 38.5% average loan-to-value for non-performing loans collateralized by real estate at June 30, 2017
  • No provision for loan losses was recorded in the six months ended June 30, 2017 or all of 2016 due to continued strong credit quality, with net charge-offs totaling $0.1 million for the six months ended June 30, 2017 and net recoveries of $0.7 million for all of 2016

Capital Management:

  • The Company and Bank are subject to the same regulatory requirements and at June 30, 2017, both were well capitalized under all applicable regulatory requirements
  • During six months ended June 30, 2017, stockholders' equity increased $20.2 million, or 3.9%, to $534.1 million due to net income of $25.0 million and $1.8 million of other comprehensive income, partially offset by the declaration and payment of dividends on the Company's common stock
  • During the six months ended June 30, 2017, the Company repurchased 10,000 treasury shares at an average cost of $27.80 per share; as of June 30, 2017, up to 485,905 shares may be repurchased under the current authorized stock repurchase program, which has no expiration or maximum dollar limit
  • Book value per common share increased to $18.54 at June 30, 2017, from $17.95 at December 31, 2016 and $17.77 at June 30, 2016
  • Tangible book value per common share, a non-GAAP measure, increased to $18.00 at June 30, 2017, from $17.40 at December 31, 2016 and $17.22 at June 30, 2016

Inaugural 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 26, 2017 at 9:30 AM (ET) to discuss the Company's strategy and results for the second quarter of 2017
  • Dial-in for Live Call: 1-888-317-6016
  • Webcast: https://services.choruscall.com/links/ffic170726.html 
  • Dial-in for Replay: 1-877-344-7529
  • The conference call will be simultaneously webcast and archived through 5:00 PM (ET) on September 30, 2017

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. 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. 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 -

 
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED 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,
        2017       2017       2016       2017       2016  
                   
Interest and Dividend Income                    
Interest and fees on loans   $ 51,631     $ 50,885     $ 48,413     $ 102,516     $ 95,971  
Interest and dividends on securities:                    
  Interest     6,432       6,095       6,510       12,527       13,102  
  Dividends     123       121       120       244       239  
Other interest income     129       153       48       282       142  
    Total interest and dividend income     58,315       57,254       55,091       115,569       109,454  
                       
Interest Expense                    
Deposits     9,510       8,980       8,097       18,490       16,070  
Other interest expense     5,188       4,885       5,105       10,073       10,362  
    Total interest expense     14,698       13,865       13,202       28,563       26,432  
                       
Net Interest Income     43,617       43,389       41,889       87,006       83,022  
Provision for loan losses     -       -       -       -       -  
Net Interest Income After Provision for Loan Losses     43,617       43,389       41,889       87,006       83,022  
                       
Non-interest Income                    
Banking services fee income     1,014       874       973       1,888       1,949  
Net gain on sale of securities     -       -       2,363       -       2,363  
Net gain on sale of loans      34       210       3       244       344  
Net gain on sale of buildings     -       -       33,814       -       33,814  
Net loss from fair value adjustments     (1,159 )     (378 )     (1,115 )     (1,537 )     (2,102 )
Federal Home Loan Bank of New York stock dividends     643       823       582       1,466       1,205  
Gains from life insurance proceeds     6       1,161       -       1,167       411  
Bank owned life insurance     807       795       694       1,602       1,389  
Other income     603       204       403       807       884  
    Total non-interest income     1,948       3,689       37,717       5,637       40,257  
                       
Non-interest Expense                    
Salaries and employee benefits     15,424       17,104       13,968       32,528       30,229  
Occupancy and equipment     2,654       2,496       2,352       5,150       4,722  
Professional services     1,919       1,996       2,027       3,915       4,177  
FDIC deposit insurance     503       326       940       829       1,844  
Data processing     1,321       1,203       1,199       2,524       2,290  
Depreciation and amortization     1,155       1,165       1,062       2,320       2,094  
Other real estate owned/foreclosure (income) expense     (96 )     351       405       255       558  
Prepayment penalty on borrowings     -       -       2,082       -       2,082  
Other operating expenses     3,185       4,923       4,419       8,108       8,955  
    Total non-interest expense     26,065       29,564       28,454       55,629       56,951  
                       
Income Before Income Taxes     19,500       17,514       51,152       37,014       66,328  
                       
Provision for Income Taxes                    
Federal     5,576       4,749       15,203       10,325       19,950  
State and local     1,199       505       5,514       1,704       6,382  
    Total taxes     6,775       5,254       20,717       12,029       26,332  
                       
Net Income   $ 12,725     $ 12,260     $ 30,435     $ 24,985     $ 39,996  
                       
                       
Basic earnings per common share   $ 0.44     $ 0.42     $ 1.05     $ 0.86     $ 1.38  
Diluted earnings per common share   $ 0.44     $ 0.42     $ 1.05     $ 0.86     $ 1.38  
Dividends per common share   $ 0.18     $ 0.18     $ 0.17     $ 0.36     $ 0.34  
                       


FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
(Unaudited)
 
        June 30,   March 31,   December 31,
          2017       2017       2016  
ASSETS            
Cash and due from banks $ 48,539     $ 51,215     $ 35,857  
Securities held-to-maturity:          
  Mortgage-backed securities   7,983       -       -  
  Other securities   24,451       36,406       37,735  
Securities available for sale:          
  Mortgage-backed securities   520,012       537,905       516,476  
  Other securities   317,693       346,238       344,905  
Loans held for sale   30,565       -       -  
Loans:            
  Multi-family residential   2,243,643       2,261,946       2,178,504  
  Commercial real estate   1,349,634       1,268,770       1,246,132  
  One-to-four family ― mixed-use property   556,906       561,355       558,502  
  One-to-four family ― residential   181,213       184,201       185,767  
  Co-operative apartments   7,069       7,216       7,418  
  Construction   16,842       12,413       11,495  
  Small Business Administration   10,591       10,519       15,198  
  Taxi medallion   18,303       18,832       18,996  
  Commercial business and other   644,262       632,503       597,122  
  Net unamortized premiums and unearned loan fees   17,217       16,836       16,559  
  Allowance for loan losses   (22,157 )     (22,211 )     (22,229 )
      Net loans   5,023,523       4,952,380       4,813,464  
Interest and dividends receivable   21,439       20,602       20,228  
Bank premises and equipment, net   26,592       26,026       26,561  
Federal Home Loan Bank of New York stock   66,630       57,384       59,173  
Bank owned life insurance   130,631       129,824       132,508  
Goodwill     16,127       16,127       16,127  
Other assets   51,051       57,378       55,453  
      Total assets $ 6,285,236     $ 6,231,485     $ 6,058,487  
                 
LIABILITIES          
Due to depositors:          
  Non-interest bearing $ 349,302     $ 344,028     $ 333,163  
  Interest-bearing:          
    Certificate of deposit accounts   1,332,377       1,411,819       1,372,115  
    Savings accounts   325,815       254,822       254,283  
    Money market accounts   837,565       851,129       843,370  
    NOW accounts   1,368,441       1,487,120       1,362,484  
      Total interest-bearing deposits   3,864,198       4,004,890       3,832,252  
Mortgagors' escrow deposits   41,303       61,828       40,216  
Borrowed funds    1,425,779       1,227,852       1,266,563  
Other liabilities   70,563       67,485       72,440  
      Total liabilities   5,751,145       5,706,083       5,544,634  
                 
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, 2017, March 31, 2017 and December 31, 2016; 28,803,937          
  shares, 28,811,160 shares and 28,632,904 shares outstanding at June 30, 2017,          
  March 31, 2017 and December 31, 2016, respectively)   315       315       315  
Additional paid-in capital   216,447       215,501       214,462  
Treasury stock (2,726,658 shares, 2,719,435 shares and 2,897,691 shares at          
  June 30, 2017, March 31, 2017 and December 31, 2016, respectively)   (51,483 )     (51,224 )     (53,754 )
Retained earnings   375,388       367,944       361,192  
Accumulated other comprehensive loss, net of taxes   (6,576 )     (7,134 )     (8,362 )
      Total stockholders' equity   534,091       525,402       513,853  
                 
      Total liabilities and stockholders' equity $ 6,285,236     $ 6,231,485     $ 6,058,487  
                 


 FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
SELECTED 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,  
      2017     2017     2016     2017     2016  
Per Share Data                      
Basic earnings per share   $ 0.44   $ 0.42   $ 1.05   $ 0.86   $ 1.38  
Diluted earnings per share   $ 0.44   $ 0.42   $ 1.05   $ 0.86   $ 1.38  
Average number of shares outstanding for:                      
  Basic earnings per common share computation     29,135,339     29,019,070     29,022,122     29,077,526     29,059,393  
  Diluted earnings per common share computation     29,135,945     29,022,745     29,034,454     29,080,182     29,072,813  
Shares outstanding     28,803,937     28,811,160     28,631,243     28,803,937     28,631,243  
Book value per common share (1)   $ 18.54   $ 18.24   $ 17.77   $ 18.54   $ 17.77  
Tangible book value per common share (2)   $ 18.00   $ 17.69   $ 17.22   $ 18.00   $ 17.22  
                       
Stockholders' Equity                      
Stockholders' equity     534,091     525,402     508,883     534,091     508,883  
Tangible stockholders' equity     518,355     509,666     493,163     518,355     493,163  
                       
Average Balances                      
Total loans, net   $ 4,962,734   $ 4,868,048   $ 4,567,019   $ 4,915,652   $ 4,478,175  
Total interest-earning assets     5,918,981     5,873,799     5,612,935     5,896,514     5,551,825  
Total assets     6,218,072     6,168,848     5,897,858     6,193,596     5,836,304  
Total due to depositors     4,065,810     4,088,031     3,779,256     4,076,859     3,762,762  
Total interest-bearing liabilities     5,287,720     5,254,640     5,046,162     5,271,271     5,002,863  
Stockholders' equity     529,451     517,800     486,261     523,658     482,843  
                       
Performance Ratios (3)                      
Return on average assets     0.82 %   0.79 %   2.06 %   0.81 %   1.37 %
Return on average equity     9.61     9.47     25.04     9.54     16.57  
Yield on average interest-earning assets     3.94     3.90     3.93     3.92     3.94  
Cost of average interest-bearing liabilities     1.11     1.06     1.05     1.08     1.06  
Interest rate spread during period     2.83     2.84     2.88     2.84     2.88  
Net interest margin     2.95     2.95     2.99     2.95     2.99  
Non-interest expense to average assets     1.68     1.92     1.93     1.80     1.95  
Efficiency ratio (4)     55.80     63.98     57.09     59.87     60.78  
Average interest-earning assets to average                      
  interest-bearing liabilities     1.12 X   1.12 X   1.11 X   1.12 X   1.11 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) 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).


FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands)
(Unaudited)
 
    At or for the six     At or for the year     At or for the six  
    months ended     ended     months ended  
    June 30, 2017     December 31, 2016     June 30, 2016  
                   
Selected Financial Ratios and Other Data                  
                   
Regulatory capital ratios (for Flushing Financial Corporation):                  
  Tier 1 capital   $ 558,756     $ 539,228       $ 516,551    
  Common equity Tier 1 capital     524,830       506,432         490,015    
  Total risk-based capital     655,913       636,457         538,749    
                   
  Tier 1 leverage capital (well capitalized = 5%)     9.00 %     9.00 %     8.80 %
  Common equity Tier 1 risk-based capital (well capitalized = 6.5%)     11.43       11.79         11.45    
  Tier 1 risk-based capital (well capitalized = 8.0%)     12.17       12.56         12.07    
  Total risk-based capital (well capitalized = 10.0%)     14.29       14.82         12.59    
                   
Regulatory capital ratios (for Flushing Bank only):                  
  Tier 1 capital   $ 624,074     $ 607,033       $ 522,961    
  Common equity Tier 1 capital     624,074       607,033         522,961    
  Total risk-based capital     646,231       629,262         545,159    
                   
  Tier 1 leverage capital (well capitalized = 5%)     10.04 %     10.12 %     8.89 %
  Common equity Tier 1 risk-based capital (well capitalized = 6.5%)     13.58       14.12         12.20    
  Tier 1 risk-based capital (well capitalized = 8.0%)     13.58       14.12         12.20    
  Total risk-based capital (well capitalized = 10.0%)     14.07       14.64         12.72    
                   
Capital ratios:                  
  Average equity to average assets     8.45 %     8.40 %     8.27 %
  Equity to total assets     8.50       8.48         8.50    
  Tangible common equity to tangible assets (1)     8.27       8.24         8.26    
                   
Asset quality:                  
  Non-accrual loans (2)   $ 14,130     $ 21,030       $ 20,381    
  Non-performing loans     15,459       21,416         21,923    
  Non-performing assets     15,459       21,949         25,591    
  Net charge-offs/ (recoveries)     72       (694 )       (663 )  
                   
Asset quality ratios:                  
  Non-performing loans to gross loans     0.31 %     0.44 %     0.47 %
  Non-performing assets to total assets     0.25       0.36         0.43    
  Allowance for loan losses to gross loans     0.44       0.46         0.47    
  Allowance for loan losses to non-performing assets     143.33       101.28         86.74    
  Allowance for loan losses to non-performing loans     143.33       103.80         101.25    
                   
Full-service customer facilities     19       19         19    


(1) See "Calculation of Tangible Stockholders' Common Equity to Tangible Assets".
(2) Excludes performing non-accrual TDR loans.


FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
NET INTEREST MARGIN
(Dollars in thousands)
(Unaudited)
  For the three months ended  
  June 30, 2017   March 31, 2017   June 30, 2016  
  Average   Yield/   Average   Yield/   Average   Yield/  
  Balance Interest Cost   Balance Interest Cost   Balance Interest Cost  
Interest-earning Assets:                        
  Mortgage loans, net  $ 4,297,697 $ 44,879 4.18 % $ 4,213,482 $ 44,429 4.22 % $ 3,983,615 $ 42,969 4.31 %
  Other loans, net    665,037   6,752 4.06     654,566   6,456 3.95     583,404   5,444 3.73  
     Total loans, net (1)   4,962,734   51,631 4.16     4,868,048   50,885 4.18     4,567,019   48,413 4.24  
 Taxable securities:                        
  Mortgage-backed                        
   securities   532,938   3,420 2.57     529,942   3,367 2.54     599,247   3,707 2.47  
  Other securities   217,599   2,361 4.34     239,345   2,072 3.46     249,956   2,133 3.41  
     Total taxable securities   750,537   5,781 3.08     769,287   5,439 2.83     849,203   5,840 2.75  
 Tax-exempt securities: (2)                        
  Other securities   145,812   774 2.12     146,502   777 2.12     147,230   790 2.15  
     Total tax-exempt securities   145,812   774 2.12     146,502   777 2.12     147,230   790 2.15  
  Interest-earning deposits                        
    and federal funds sold   59,898   129 0.86     89,962   153 0.68     49,483   48 0.39  
Total interest-earning                         
  assets   5,918,981   58,315 3.94     5,873,799   57,254 3.90     5,612,935   55,091 3.93  
Other assets   299,091         295,049         284,923      
     Total assets $ 6,218,072       $ 6,168,848       $ 5,897,858      
                         
                         
Interest-bearing Liabilities:                        
  Deposits:                        
     Savings accounts $ 279,723   399 0.57   $ 254,255 $ 307 0.48   $ 265,856   306 0.46  
     NOW accounts   1,517,726   2,331 0.61     1,568,267   2,207 0.56     1,612,704   1,962 0.49  
     Money market accounts   858,066   1,651 0.77     860,779   1,499 0.70     483,317   681 0.56  
     Certificate of deposit                        
      accounts   1,410,295   5,099 1.45     1,404,730   4,940 1.41     1,417,379   5,121 1.45  
   Total due to depositors   4,065,810   9,480 0.93     4,088,031   8,953 0.88     3,779,256   8,070 0.85  
  Mortgagors' escrow                        
      accounts   73,838   30 0.16     54,616   27 0.20     67,728   27 0.16  
  Total interest-bearing                        
      deposits   4,139,648   9,510 0.92     4,142,647   8,980 0.87     3,846,984   8,097 0.84  
  Borrowings   1,148,072   5,188 1.81     1,111,993   4,885 1.76     1,199,178   5,105 1.70  
    Total interest-bearing                        
      liabilities   5,287,720   14,698 1.11     5,254,640   13,865 1.06     5,046,162   13,202 1.05  
Non interest-bearing                        
  demand deposits   336,036         330,215         296,597      
Other liabilities   64,865         66,193         68,838      
  Total liabilities   5,688,621         5,651,048         5,411,597      
Equity   529,451         517,800         486,261      
  Total liabilities and                        
      equity $ 6,218,072       $ 6,168,848       $ 5,897,858      
                         
Net interest income /                        
  net interest rate spread   $ 43,617 2.83 %   $ 43,389 2.84 %   $ 41,889 2.88 %
                         
Net interest-earning assets /                        
  net interest margin $ 631,261   2.95 % $ 619,159   2.95 % $ 566,773   2.99 %
                         
Ratio of interest-earning                        
  assets to interest-bearing                        
  liabilities     1.12 X     1.12 X     1.11 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 $0.3 million, $0.6 million and $1.0 million for the three months ended June 30, 2017, March 31, 2017 and June 30, 2016, respectively.
(2) Interest income on tax-exempt securities does not include the tax benefit of the tax-exempt securities.


FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
NET INTEREST MARGIN
(Dollars in thousands)
(Unaudited)
 
  For the six months ended  
  June 30, 2017     June 30, 2016  
  Average   Yield/     Average   Yield/  
  Balance Interest Cost     Balance Interest Cost  
Interest-earning Assets:                  
  Mortgage loans, net  $ 4,255,822 $ 89,308 4.20 %   $ 3,911,470 $ 85,423 4.37 %
  Other loans, net    659,830   13,208 4.00       566,705   10,548 3.72  
     Total loans, net (1)   4,915,652   102,516 4.17       4,478,175   95,971 4.29  
 Taxable securities:                  
  Mortgage-backed                  
     securities   531,448   6,787 2.55       629,006   7,881 2.51  
  Other securities   228,412   4,433 3.88       239,973   3,878 3.23  
      Total taxable securities   759,860   11,220 2.95       868,979   11,759 2.71  
 Tax-exempt securities: (2)                  
  Other securities   146,155   1,551 2.12       137,293   1,582 2.30  
      Total tax-exempt securities   146,155   1,551 2.12       137,293   1,582 2.30  
  Interest-earning deposits                  
      and federal funds sold   74,847   282 0.75       67,378   142 0.42  
Total interest-earning                   
  assets   5,896,514   115,569 3.92       5,551,825   109,454 3.94  
Other assets   297,082           284,479      
      Total assets $ 6,193,596         $ 5,836,304      
                   
                   
Interest-bearing Liabilities:                  
  Deposits:                  
     Savings accounts $ 267,059   706 0.53     $ 264,150   604 0.46  
     NOW accounts   1,542,857   4,538 0.59       1,617,241   3,884 0.48  
     Money market accounts   859,415   3,150 0.73       470,606   1,287 0.55  
     Certificate of deposit                  
        accounts   1,407,528   10,039 1.43       1,410,765   10,242 1.45  
       Total due to depositors   4,076,859   18,433 0.90       3,762,762   16,017 0.85  
     Mortgagors' escrow                  
        accounts   64,280   57 0.18       58,838   53 0.18  
      Total interest-bearing                  
        deposits   4,141,139   18,490 0.89       3,821,600   16,070 0.84  
   Borrowings   1,130,132   10,073 1.78       1,181,263   10,362 1.75  
      Total interest-bearing                  
        liabilities   5,271,271   28,563 1.08       5,002,863   26,432 1.06  
   Non interest-bearing                  
     demand deposits   333,142           285,267      
   Other liabilities   65,525           65,331      
       Total liabilities   5,669,938           5,353,461      
Equity   523,658           482,843      
       Total liabilities and                  
          equity $ 6,193,596         $ 5,836,304      
                   
Net interest income /                  
  net interest rate spread   $ 87,006 2.84 %     $ 83,022 2.88 %
                   
Net interest-earning assets /                  
  net interest margin $ 625,243   2.95 %   $ 548,962   2.99 %
                   
Ratio of interest-earning                  
  assets to interest-bearing                  
  liabilities     1.12 X       1.11 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 $1.0 million and $2.5 million for the six months ended June 30, 2017 and 2016, respectively.
(2) Interest income on tax-exempt securities does not include the tax benefit of the tax-exempt securities.


FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
DEPOSIT COMPOSITION
(Unaudited)
 
                    June 2017 vs.           June 2017 vs.
        June 30,   March 31,   December 31,   December 2016   September 30,   June 30,   June 2016
(Dollars in thousands) 2017   2017   2016   % Change   2016   2016   % Change
Deposits                            
Non-interest bearing $ 349,302   $ 344,028   $ 333,163   4.8 %   $ 320,060   $ 317,112   10.2 %
Interest bearing:                          
  Certificate of deposit                          
    accounts   1,332,377     1,411,819     1,372,115   -2.9 %     1,384,551     1,411,550   -5.6 %
  Savings accounts   325,815     254,822     254,283   28.1 %     258,058     260,528   25.1 %
  Money market accounts   837,565     851,129     843,370   -0.7 %     733,361     452,589   85.1 %
  NOW accounts   1,368,441     1,487,120     1,362,484   0.4 %     1,296,475     1,453,540   -5.9 %
    Total interest-bearing                          
      deposits   3,864,198     4,004,890     3,832,252   0.8 %     3,672,445     3,578,207   8.0 %
                                 
      Total deposits $ 4,213,500   $ 4,348,918   $ 4,165,415   1.2 %   $ 3,992,505   $ 3,895,319   8.2 %


 
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
LOANS
(Unaudited)

Loan Origination and Purchases
 
    For the three months   For the six months ended
    June 30,   March 31,   June 30,   June 30,
(In thousands)   2017   2017   2016   2017   2016
Multi-family residential   $ 63,469   $ 126,708   $ 162,364   $ 190,177   $ 232,007
Commercial real estate     123,559     35,732     114,007     159,291     176,144
One-to-four family – mixed-use property     13,656     18,542     11,630     32,198     29,875
One-to-four family – residential     4,860     5,920     4,195     10,780     13,688
Co-operative apartments     -     -     470     -     470
Construction     4,429     2,544     2,427     6,973     4,114
Small Business Administration     1,870     641     314     2,511     6,315
Taxi medallion     -     -     -     -     -
Commercial business and other     49,312     76,484     92,456     125,796     154,490
  Total   $ 261,155   $ 266,571   $ 387,863   $ 527,726   $ 617,103


Loan Composition
 
                    June 30, 2017 vs.           June 2017 vs.
        June 30,   March 31,   December 31,   December 2016   September 30,   June 30,   June 2016
(Dollars in thousands)   2017       2017       2016     % Change     2016       2016     % Change
Loans held for investment:                              
Multi-family residential $ 2,243,643     $ 2,261,946     $ 2,178,504     3.0 %     $ 2,171,289     $ 2,159,138     3.9 %  
Commercial real estate   1,349,634       1,268,770       1,246,132     8.3 %       1,195,266       1,146,400     17.7 %  
One-to-four family ―                              
  mixed-use property   556,906       561,355       558,502     -0.3 %       555,691       566,702     -1.7 %  
One-to-four family ― residential   181,213       184,201       185,767     -2.5 %       183,993       190,251     -4.8 %  
Co-operative apartments   7,069       7,216       7,418     -4.7 %       7,494       7,571     -6.6 %  
Construction   16,842       12,413       11,495     46.5 %       11,250       9,899     70.1 %  
Small Business Administration   10,591       10,519       15,198     -30.3 %       14,339       14,718     -28.0 %  
Taxi medallion   18,303       18,832       18,996     -3.6 %       20,536       20,641     -11.3 %  
Commercial business and other   644,262       632,503       597,122     7.9 %       564,972       564,084     14.2 %  
Net unamortized premiums                              
  and unearned loan fees   17,217       16,836       16,559     4.0 %       16,447       16,875     2.0 %  
Allowance for loan losses   (22,157 )     (22,211 )     (22,229 )   -0.3 %       (21,795 )     (22,198 )   -0.2 %  
      Net loans $ 5,023,523     $ 4,952,380     $ 4,813,464     4.4 %     $ 4,719,482     $ 4,674,081     7.5 %  


Loans Held for Investment Activity
 
    Three Months Ended
    June 30,   March 31,   December 31,   September 30,   June 30,
(In thousands)     2017       2017       2016       2016       2016  
Loans originated and purchased $ 261,155     $ 266,571     $ 282,592     $ 233,243     $ 387,863  
Principal reductions   (143,195 )     (122,897 )     (187,780 )     (183,583 )     (149,308 )
Loans transferred to held-for-sale   (30,565 )     -       -       -       -  
Loans sold     (16,337 )     (4,874 )     -       (3,693 )     (2,310 )
Loan charged-offs   (350 )     (179 )     (370 )     (541 )     (101 )
Foreclosures     -       -       (138 )     -       -  
Net change in deferred (fees) and costs   381       277       112       (428 )     1,594  
Net change in the allowance for loan losses   54       18       (434 )     403       (205 )
  Total loan activity $ 71,143     $ 138,916     $ 93,982     $ 45,401     $ 237,533  


 
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
NON-PERFORMING ASSETS and NET CHARGE-OFFS
(Unaudited)
 
      June 30,   March 31,   December 31,   September 30,   June 30,
(Dollars in thousands)     2017       2017       2016       2016       2016  
Loans 90 Days Or More Past Due                    
  and Still Accruing:                    
Multi-family residential   $ -     $ -     $ -     $ -     $ 574  
Commercial real estate     -       75       -       1,183       320  
One-to-four family - mixed-use property     -       -       386       470       635  
One-to-four family - residential     -       -       -       -       13  
Construction     602       602       -       -       -  
Taxi medallion     727       -       -       -       -  
Commercial business and other     -       -       -       -       -  
  Total     1,329       677       386       1,653       1,542  
                       
Non-accrual Loans:                    
Multi-family residential     1,537       1,354       1,837       1,649       3,162  
Commercial real estate     1,948       1,462       1,148       1,157       2,299  
One-to-four family - mixed-use property     2,971       3,328       4,025       4,534       6,005  
One-to-four family - residential     7,616       7,847       8,241       8,340       8,406  
Small Business Administration     53       58       1,886       2,132       185  
Taxi medallion     -       3,771       3,825       3,971       196  
Commercial business and other     5       38       68       99       128  
  Total     14,130       17,858       21,030       21,882       20,381  
                       
  Total Non-performing Loans     15,459       18,535       21,416       23,535       21,923  
                       
Other Non-performing Assets:                    
Real estate acquired through foreclosure     -       -       533       2,839       3,668  
  Total     -       -       533       2,839       3,668  
                       
  Total Non-performing Assets   $ 15,459     $ 18,535     $ 21,949     $ 26,374     $ 25,591  
                       
Non-performing Assets to Total Assets     0.25 %     0.30 %     0.36 %     0.44 %     0.43 %
Allowance For Loan Losses to Non-performing Loans     143.3 %     119.8 %     103.8 %     92.6 %     101.3 %


Net Charge-Offs (Recoveries)  
   
      Three Months Ended  
      June 30,   March 31,   December 31,   September 30,   June 30,  
(In thousands)     2017       2017       2016       2016       2016    
Multi-family residential   $ (53 )   $ (16 )   $ (103 )   $ 79     $ (183 )  
Commercial real estate     4       (68 )     -       (11 )     -    
One-to-four family – mixed-use property     (67 )     34       (520 )     24       36    
One-to-four family – residential     170       -       40       -       7    
Small Business Administration     14       26       186       317       (42 )  
Taxi medallion     -       54       142       -       -    
Commercial business and other     (14 )     (12 )     (179 )     (6 )     (23 )  
  Total net loan charge-offs (recoveries)   $ 54     $ 18     $ (434 )   $ 403     $ (205 )  
                         

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.

 
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
RECONCILIATION 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,
      2017     2017     2016       2017     2016  
     
               
GAAP income before income taxes $ 19,500   $ 17,514   $ 51,152     $ 37,014   $ 66,328  
               
Net loss from fair value adjustments   1,159     378     1,115       1,537     2,102  
Net gain on sale of securities   -     -     (2,363 )     -     (2,363 )
Gain from life insurance proceeds   (6 )   (1,161 )   -       (1,167 )   (411 )
Net gain on sale of buildings   -     -     (33,814 )     -     (33,814 )
Prepayment penalty on borrowings   -     -     2,082       -     2,082  
               
Core income before taxes   20,653     16,731     18,172       37,384     33,924  
               
Provision for income taxes for core income   7,129     5,020     6,851       12,149     12,892  
               
Core net income $ 13,524   $ 11,711   $ 11,321     $ 25,235   $ 21,032  
               
GAAP diluted earnings per common share $ 0.44   $ 0.42   $ 1.05     $ 0.86   $ 1.38  
               
Net (gain) loss from fair value adjustments, net of tax   0.02     0.01     0.02       0.04     0.04  
Net gain on sale of securities, net of tax   -     -     (0.05 )     -     (0.05 )
Gain from life insurance proceeds   -     (0.04 )   -       (0.04 )   (0.01 )
Net gain on sale of buildings, net of tax   -     -     (0.67 )     -     (0.67 )
Prepayment penalty on borrowings   -     -     0.04       -     0.04  
               
Core diluted earnings per common share* $ 0.46   $ 0.40   $ 0.39     $ 0.87   $ 0.72  
               
               
Core net income, as calculated above $ 13,524   $ 11,711   $ 11,321     $ 25,235   $ 21,032  
Average assets   6,218,072     6,168,848     5,897,858       6,193,596     5,836,304  
Average equity   529,451     517,800     486,261       523,658     482,843  
Core return on average assets**   0.87 %   0.76 %   0.77 %     0.81 %   0.72 %
Core return on average equity**   10.22 %   9.05 %   9.31 %     9.64 %   8.71 %
               
*  Core diluted earnings per common share may not foot due to rounding.       
**  Ratios are calculated on an annualized basis.       


FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CALCULATION OF TANGIBLE STOCKHOLDERS'
COMMON EQUITY to TANGIBLE ASSETS
(Unaudited)
 
            June 30, December 31, June 30,
(Dollars in thousands)       2017     2016     2016  
Total Equity     $ 534,091   $ 513,853   $ 508,883  
Less:              
  Goodwill       (16,127 )   (16,127 )   (16,127 )
  Intangible deferred tax liabilities       391     389     407  
    Tangible Stockholders' Common Equity $   518,355   $   498,115   $   493,163  
                 
Total Assets     $ 6,285,236   $ 6,058,487   $ 5,986,727  
Less:              
  Goodwill       (16,127 )   (16,127 )   (16,127 )
  Intangible deferred tax liabilities       391     389     407  
    Tangible Assets     $ 6,269,500   $ 6,042,749   $ 5,971,007  
                 
Tangible Stockholders' Common Equity to Tangible Assets   8.27 %   8.24 %   8.26 %
                   

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

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