LAKE SUCCESS, N.Y., Oct. 28, 2008 (GLOBE NEWSWIRE) -- Flushing Financial Corporation (the "Company") (Nasdaq:FFIC), the parent holding company for Flushing Savings Bank, FSB (the "Bank"), today announced its financial results for the three and nine months ended September 30, 2008.
Core earnings, which exclude certain non-operating items, was $5.1 million, or $0.25 per diluted share, for the third quarter of 2008, a decrease of $0.1 million, or $0.02 per diluted share, from the $5.3 million, or $0.27 per diluted share, for the third quarter of 2007.
Core earnings during the nine months ended September 30, 2008 was $18.5 million, or $0.92 per diluted share, an increase of $3.2 million, or $0.15 per diluted share from the $15.4 million, or $0.77 per diluted share, for the nine months ended September 30, 2007.
Net income for the three months ended September 30, 2008 includes two significant non-cash, non-operating items: an after-tax charge of $14.7 million to reduce the carrying amount of the Company's investments in preferred stocks of Freddie Mac and Fannie Mae and an after-tax net gain of $11.5 million recorded for the change in fair value of financial assets and financial liabilities carried at fair value under Statement of Financial Accounting Standards ("SFAS") No. 159.
The charge for the investments in Freddie Mac and Fannie Mae preferred stocks is an other-than-temporary impairment, non-cash, after-tax charge ("OTTI") to reduce the carrying amount of these investments to the securities market value of $1.9 million at September 30, 2008. This charge was recorded during the three months ended September 30, 2008. The effect of this OTTI on diluted earnings per share was $0.72 and $0.73 for the three- and nine-month periods ended September 30, 2008, respectively. The preferred stocks are held in the Company's available-for-sale portfolio. Prior to recording this OTTI, the impairment was recorded as an unrealized mark-to-market loss on securities available-for-sale, and had been reflected as a reduction to stockholders' equity through other comprehensive income.
The three- and nine-month periods ended September 30, 2008 also include non-cash, after-tax net gains of $11.5 million and $10.4 million, respectively, that were recorded for the change in fair value of financial assets and financial liabilities carried at fair value under SFAS No. 159. The effect of the net gains on diluted earnings per share was $0.57 and $0.51 for the three- and nine-month periods ended September 30, 2008, respectively. The net gain recorded in the three-month period ended September 30, 2008 was primarily the result of widening credit spreads in credit markets on trust preferred securities and the related junior subordinated debentures. The Company issued junior subordinated debentures with a face value of $61.9 million during 2007, and elected to measure them at fair value under SFAS No. 159. Recent issuances of these types of financial instruments had a significantly higher interest cost due to widening spreads against the indexes for which the interest rate is referenced. The debentures issued by the Company have a spread to their index of approximately 142 basis points. As a result of the widening spreads, the Company recorded a gain during the three-month period ended September 30, 2008 on its junior subordinated debentures carried under the fair value option.
Net income was $2.1 million for the third quarter ended September 30, 2008, a decrease of $3.6 million, or 62.8%, from the $5.7 million earned in the third quarter of 2007. Diluted earnings per share for the third quarter of 2008 was $0.11, a decrease of $0.18, or 62.1%, from the $0.29 earned in the comparable quarter a year ago.
Net income for the nine months ended September 30, 2008 was $15.8 million, a decrease of $0.1 million, or 0.7%, from the $15.9 million earned in the comparable 2007 period. Diluted earnings per share for the nine months ended September 30, 2008 was $0.78, a decrease of $0.02, or 2.5%, from the $0.80 earned in the comparable 2007 period.
Core earnings and net income both reflect a provision for loan losses of $3.0 million recorded in the third quarter of 2008. During the third quarter of 2008, the Bank experienced an increase in non-performing loans of $10.6 million to $18.5 million at September 30, 2008. The increase in the provision for loan losses recorded during the three months ended September 30, 2008 was determined necessary by management as a result of the regular quarterly analysis of the allowance for loan losses.
For a reconciliation of core earnings and core earnings per share to generally accepted accounting principles ("GAAP") net income and GAAP earnings per share, please refer to the tables in the section titled "Reconciliation of GAAP and Core Earnings."
John R. Buran, President and Chief Executive Officer, stated: "This has been a challenging time for the banking industry and the economy as a whole. During the third quarter of 2008 we recorded two large non-cash, non-operating adjustments which were the direct result of the turbulence seen in the financial markets, a $14.7 million OTTI on Freddie Mac and Fannie Mae preferred securities, and an $11.5 million net after-tax gain on financial assets and financial liabilities carried at fair value under SFAS No. 159. Despite the turmoil in the markets, our net interest margin for the three and nine months ended September 30, 2008 has improved over the prior year comparable periods by 23 basis points and 12 basis points, respectively. This resulted in increases in net interest income of $4.8 million and $12.2 million for the three and nine months ended September 30, 2008, respectively, compared to the comparable prior year periods. However, we did see a decline in core earnings for the third quarter of 2008 from that reported for the second quarter of 2008 and the comparable prior year period. This decline is primarily related to the additional provision for loan losses recorded in the third quarter of 2008 and the loss of dividend income on our investment in Freddie Mac preferred stock.
"During the third quarter of 2008 we recorded a provision for loan losses of $3.0 million, a $2.7 million increase from the second quarter of 2008, as the Bank's non-performing loans increased $10.6 million to $18.5 million at September 30, 2008. The increase in non-performing loans during the third quarter of 2008 is primarily attributed to multi-family residential and one-to-four family mixed use property mortgage loans. All but two of the non-performing loans have an outstanding principal balance of less than $1.0 million, with the largest non-performing loan being $1.2 million. The collateral for these loans is primarily properties located in the New York City metropolitan market, which have seen relatively stable market values over the past couple of years. Historically, we have not incurred losses on these types of loans, primarily due to our conservative underwriting standards that include, among other things, a loan to value ratio of 75% or less and a debt coverage ratio of at least 125%. As of September 30, 2008, using the current principal balance and the appraised value at time of origination, the average loan to value ratio for the non-performing mortgage loans was less than 60%. However, given the increase in non-performing loans and current economic uncertainties, we deemed it necessary to record an additional provision for loan losses in the third quarter of 2008. It should be noted that the Bank does not originate or hold in portfolio sub-prime loans. Although our non-performing loans have increased, our ratio of non-performing loans to gross loans remains at a very manageable level of 64 basis points.
"We have taken a proactive approach to managing delinquent loans, including conducting site examinations and encouraging borrowers to meet with a Bank representative. When deemed appropriate, we have been developing short-term payment plans that enable borrowers to bring their loans current, generally within six months. As a result, charge-offs for the nine months ended September 30, 2008 remained low at 2 basis points of average loans.
"Our cost of funds continued to decline in the third quarter of 2008, although it has improved at a slower pace than last quarter, primarily due to the residual effect of the Federal Open Market Committee ("FOMC") rate reductions, which lowered the overnight rate 225 basis points during the nine months ended 2008 to 2.00% as of September 30, 2008. These rate reductions, combined with a decrease in rate-based deposit competition in the New York Market, translated into a reduction in our funding costs as we took advantage of several funding sources, mixing rate reductions with duration increases. As a result, we were able to reduce our cost of funds to 3.92% for the third quarter of 2008, a decline of 62 basis points from the fourth quarter of 2007.
"As we continue to grow the balance sheet, we are mindful of our capital requirements. The Bank continues to be well-capitalized under regulatory requirements, with tangible and risk-weighted capital ratios of 6.87% and 10.87%, respectively, at September 30, 2008.
"We are reviewing the U.S. Treasury's capital purchase program, under which the U.S. Treasury may purchase qualifying capital in U.S. banking organization, including the Company. Under this program, we are eligible to submit an application for between $23 million and $69 million. At this time, we have not reached a decision on whether we will submit an application under this program."
Earnings Summary -- Three Months Ended September 30, 2008
For the three months ended September 30, 2008, net interest income was $22.1 million, an increase of $4.8 million, or 27.7%, from $17.3 million for the three months ended September 30, 2007. The increase in net interest income is attributed to an increase in the average balance of interest-earning assets of $479.6 million, to $3,409.4 million for the quarter ended September 30, 2008, combined with an increase in the net interest spread of 29 basis points to 2.44% for the quarter ended September 30, 2008 from 2.15% for the comparable period in 2007. The yield on interest-earning assets decreased 33 basis points to 6.36% for the three months ended September 30, 2008 from 6.69% in the three months ended September 30, 2007. However, this was more than offset by a decline in the cost of funds of 62 basis points to 3.92% for the three months ended September 30, 2008 from 4.54% for the comparable prior year period. The net interest margin improved 23 basis points to 2.60% for the three months ended September 30, 2008 from 2.37% for the three months ended September 30, 2007. Excluding prepayment penalty income, the net interest margin would have been 2.48% and 2.25% for the three month periods ended September 30, 2008 and 2007, respectively.
The decline in the yield of interest-earning assets was primarily due to a 27 basis point reduction in the yield of the loan portfolio combined with a $197.8 million increase in the average balance of the securities portfolio, which has a lower yield than total interest-earning assets. The 27 basis point decline in the yield of the loan portfolio to 6.63% for the three months ended September 30, 2008 from 6.90% for the three months ended September 30, 2007, was primarily the result of adjustable rate loans adjusting down, as rates have declined throughout 2008. The yield on mortgage loans was positively impacted by the average rate on mortgage loans originated during the past twelve months being higher than the average rate of both the existing loan portfolio and mortgage loans which were paid-in-full during the period. The yield on the mortgage loan portfolio declined 22 basis points to 6.64% for the three months ended September 30, 2008 from 6.86% for the three months ended September 30, 2007. The yield on the mortgage loan portfolio, excluding prepayment penalty income, declined 22 basis points to 6.50% for the three months ended September 30, 2008 from 6.72% for the three months ended September 30, 2007. The decline in the yield of interest-earning assets was partially offset by an increase of $282.1 million in the average balance of the loan portfolio to $2,880.5 million for the three months ended September 30, 2008.
The decrease in the cost of interest-bearing liabilities is primarily attributed to the FOMC lowering the overnight interest rate to 2.00% as of September 30, 2008. Certificates of deposit, money market accounts and saving accounts decreased 72 basis points, 131 basis points and 55 basis points respectively, for the three months ended September 30, 2008 compared to the three months ended September 30, 2007. NOW accounts increased 83 basis points for the three months ended September 30, 2008 compared to the three months ended September 30, 2007. This increase in the average cost of NOW accounts is due to the introduction and promotion of new products which, although carrying a higher rate than other products in these types of accounts, had a lower rate during the quarter ended September 30, 2008 than the average cost of deposits. This resulted in a decrease in the cost of due to depositors of 80 basis points to 3.56% for the three months ended September 30, 2008 compared to the three months ended September 30, 2007. The cost of borrowed funds also declined 37 basis points to 4.71% for the three months ended September 30, 2008 compared to the three months ended September 30, 2007. The average balance of the higher-costing certificates of deposit and borrowed funds increased $90.2 million and $237.3 million, respectively, for the quarter ended September 30, 2008 compared to the prior year period. In addition, the combined average balances of lower-costing savings, money market and NOW accounts increased a total of $155.0 million for the quarter ended September 30, 2008 compared to the prior year period.
The net interest margin for the three months ended September 30, 2008 decreased seven basis points to 2.60% from 2.67% for the quarter ended June 30, 2008. The yield on interest-earning assets decreased eight basis points during the quarter, while the cost of interest-bearing liabilities decreased three basis points. Excluding prepayment penalty income, the net interest margin would have been 2.48% for the quarter ended September 30, 2008, a decrease of nine basis points from 2.57% for the quarter ended June 30, 2008.
A provision for loan losses of $3.0 million was recorded for the three months ended September 30, 2008, a $2.7 million increase from $0.3 million that was recorded in each of the first and second quarters of 2008. The Company did not record a provision for loan losses for the three months ended September 30, 2007. The increase in non-performing loans during the third quarter of 2008 is primarily attributed to multi-family residential and one-to-four family mixed use property mortgage loans. The collateral for these loans is primarily properties located in the New York City metropolitan market, which have seen relatively stable market values over the past couple of years. Historically, the Bank has not incurred losses on these types of loans, primarily due to conservative underwriting standards that include, among other things, a loan to value ratio of 75% or less and a debt coverage ratio of at least 125%. However, given the increase in non-performing loans and current economic uncertainties, management, as a result of the regular quarterly analysis of the allowance for loans losses, deemed it necessary to record an additional provision for possible loan losses in the third quarter of 2008.
Non-interest income for the three months ended September 30, 2008 decreased by $6.5 million to a loss of $2.7 million from income of $3.8 million for the three months ended September 30, 2007. Increases of $0.1 million in income from Bank Owned Life Insurance ("BOLI") and a $19.8 million improvement in the net gain attributed to changes in fair value of financial assets and financial liabilities carried at fair value under SFAS No. 159 was more than offset by the other-than-temporary impairment charge of $26.3 million recorded to reduce the carrying value of the Company's investments in Freddie Mac and Fannie Mae preferred stocks to their market value in the third quarter of 2008.
Non-interest expense was $13.6 million for the three months ended September 30, 2008, an increase of $1.5 million, or 12.5%, from $12.1 million for the three months ended September 30, 2007. The increase from the comparable prior year period is primarily attributed to increases of: $0.8 million in employee salary and benefit expenses, $0.3 million in professional services, $0.1 million in data processing expenses, and $0.2 million in other operating expenses, each of which is primarily attributed to the growth of the Bank over the past twelve months. The efficiency ratio was 62.2% and 59.5% for the three month periods ended September 30, 2008 and 2007, respectively.
Net income for the three months ended September 30, 2008 was $2.1 million, a decrease of $3.6 million or 62.8%, as compared to $5.7 million for the three months ended September 30, 2007. Diluted earnings per share was $0.11 for the three months ended September 30, 2008, a decrease of $0.18, or 62.1%, from $0.29 for the three months ended September 30, 2007.
Return on average equity was 3.7% for the three months ended September 30, 2008 compared to 10.3% for the three months ended September 30, 2007. Return on average assets was 0.2% for the three months ended September 30, 2008 compared to 0.7% for the three months ended September 30, 2007.
Earnings Summary -- Nine months Ended September 30, 2008
For the nine months ended September 30, 2008, net interest income was $64.9 million, an increase of $12.2 million, or 23.2%, from $52.7 million for the nine months ended September 30, 2007. The increase in net interest income is attributed to an increase in the average balance of interest-earning assets of $494.3 million, to $3,311.5 million for the nine months ended September 30, 2008, combined with an increase in the net interest spread of 16 basis points to 2.44% for the nine months ended September 30, 2008 from 2.28% for the comparable period in 2007. The yield on interest-earning assets decreased 20 basis points to 6.48% for the nine months ended September 30, 2008 from 6.68% for the nine months ended September 30, 2007. However, this was more than offset by a decline in the cost of funds of 36 basis points to 4.04% for the nine months ended September 30, 2008 from 4.40% for the comparable prior year period. The net interest margin improved 12 basis points to 2.61% for the nine months ended September 30, 2008 from 2.49% for the nine months ended September 30, 2007. Excluding prepayment penalty income, the net interest margin would have been 2.50% and 2.36% for the nine month periods ended September 30, 2008 and 2007, respectively.
The decline in the yield of interest-earning assets was primarily due to a 17 basis point reduction in the yield of the loan portfolio combined with a $167.5 million increase in the combined average balances of the lower yielding securities portfolio and interest-earning deposits, with each having a lower yield than the average yield of total interest-earning assets. The 17 basis point reduction in the yield of the loan portfolio to 6.74% for the nine months ended September 30, 2008 from 6.91% for the nine months ended September 30, 2007 was primarily the result of adjustable rate loans adjusting down, as rates have declined throughout 2008. The yield was positively impacted by the average rate on mortgage loans originated during the past twelve months being higher than the average rate of both the existing loan portfolio and mortgage loans which were paid-in-full during the period. The yield on the mortgage loan portfolio declined 14 basis points to 6.74% for the nine months ended September 30, 2008 from 6.88% for the nine months ended September 30, 2007. The yield on the mortgage loan portfolio, excluding prepayment penalty income, declined 12 basis points to 6.60% for the nine months ended September 30, 2008 from 6.72% for the nine months ended September 30, 2007. The decline in the yield of interest-earning assets was partially offset by an increase of $326.8 million in the average balance of the loan portfolio to $2,813.1 million for the nine months ended September 30, 2008.
The decrease in the cost of interest-bearing liabilities is primarily attributed to the FOMC lowering the overnight interest rate to 2.00% as of September 30, 2008. Certificates of deposit, money market accounts and saving accounts decreased 40 basis points, 90 basis points and 11 basis points respectively, for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. NOW accounts increased 112 basis points for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007 due to the introduction and promotion of new products which, although carry a higher rate than other products in these types of accounts, had a lower rate during the nine months ended September 30, 2008 than the average cost of deposits. This resulted in a decrease in the cost of due to depositors of 47 basis points to 3.74% for the nine months ended September 30, 2008 compared to 4.21% for the nine months ended September 30, 2007. The cost of borrowed funds also decreased 27 basis points to 4.70% for the nine months ended September 30, 2008 compared to 4.97% for the nine months ended September 30, 2007. The average balance of higher-costing certificates of deposit and borrowed funds increased $69.4 million and $261.5 million, respectively, for the nine months ended September 30, 2008 compared to the prior year period. In addition, the combined average balances of lower-costing savings, money market and NOW accounts increased a total of $162.1 million for the nine months ended September 30, 2008 compared to the prior year period.
A provision for loan losses of $3.6 million was recorded for the nine months ended September 30, 2008. The Company did not record a provision for loan losses for the nine months ended September 30, 2007. The increase in non-performing loans during the third quarter of 2008 is primarily attributed to multi-family residential and one-to-four family mixed use property mortgage loans. The collateral for these loans is primarily properties located in the New York City metropolitan market, which have seen relatively stable market values over the past couple of years. Historically, the Bank has not incurred losses on these types of loans, primarily due to conservative underwriting standards that include, among other things, a loan to value ratio of 75% or less and a debt coverage ratio of at least 125%. However, given the increase in non-performing loans and current economic uncertainties, management, as a result of the regular quarterly analysis of the allowance for loans losses, deemed it necessary to record an additional provision for possible loan losses for the nine months ended September 30, 2008.
Non-interest income for the nine months ended September 30, 2008 decreased by $6.1 million, or 60.2%, to $4.1 million from $10.2 million for the nine months ended September 30, 2007. Increases of $17.7 million in the net gain attributed to changes in fair value of financial assets and financial liabilities carried at fair value under SFAS No. 159, $0.5 million in dividends received from FHLB-NY stock, and $0.4 million in income from BOLI were more than offset by the other-than-temporary impairment charge of $26.3 million recorded to reduce the carrying value of the Company's investments in Freddie Mac and Fannie Mae preferred stocks to their market value in the third quarter of 2008 and a $0.4 million decline in loan fee income. The nine months ended September 30, 2008 includes income of $2.4 million representing a partial recovery of a loss sustained in 2002 on a WorldCom, Inc. senior note. This amount was received as a result of a class action litigation settlement.
Non-interest expense was $41.2 million for the nine months ended September 30, 2008, an increase of $3.2 million, or 8.6%, from $37.9 million for the nine months ended September 30, 2007. The increase from the comparable prior year period is primarily attributed to increases of: $1.7 million in employee salary and benefits, $0.7 million in professional services, $0.4 million in data processing expense, and $0.4 million in other operating expense each of which is primarily attributed to the growth of the Bank over the past twelve months. The efficiency ratio was 58.5% and 61.2% for the nine month periods ended September 30, 2008 and 2007, respectively.
Net income for the nine months ended September 30, 2008 was $15.8 million, a decrease of $0.1 million or 0.7%, as compared to $15.9 million for the nine months ended September 30, 2007. Diluted earnings per share was $0.78 for the nine months ended September 30, 2008, a decrease of $0.02, or 2.5%, from $0.80 in the nine months ended September 30, 2007.
Return on average equity was 9.0% for the nine months ended September 30, 2008 compared to 9.7% for the nine months ended September 30, 2007. Return on average assets was 0.6% for the nine months ended September 30, 2008 compared to 0.7% for the nine months ended September 30, 2007.
Balance Sheet Summary
At September 30, 2008, total assets were $3,616.9 million, an increase of $262.4 million, or 7.8%, from $3,354.5 million at December 31, 2007. Total loans, net increased $195.0 million, or 7.2%, during the nine months ended September 30, 2008 to $2,897.1 million from $2,702.1 million at December 31, 2007. At September 30, 2008, loan applications in process totaled $274.1 million, compared to $218.7 million at September 30, 2007 and $201.0 million at December 31, 2007.
The following table shows loan originations and purchases for the periods indicated.
For the three months For the nine months
ended September 30, ended September 30,
--------------------- -------------------
(In thousands) 2008 2007 2008 2007
--------------------------------------------------------------------
Multi-family residential $ 42,098 $ 53,632 $ 118,067 $ 167,231
Commercial real estate 29,881 36,607 122,792 137,313
One-to-four family -
mixed-use property 33,922 37,421 105,824 129,155
One-to-four family -
residential 15,229 9,570 109,075 27,108
Construction 6,801 12,397 24,909 37,773
Commercial business
and other loans 14,010 32,404 48,364 80,697
--------- --------- --------- ---------
Total $ 141,941 $ 182,031 $ 529,031 $ 579,277
========= ========= ========= =========
Loan purchases included in the table above totaled $65.3 million and $9.1 million for nine months ended September 30, 2008 and September 30, 2007, respectively. There were no loan purchases for the three month periods ended September 30, 2008 and September 30, 2007.
As the Bank continues to increase its loan portfolio, management continues to adhere to the Bank's conservative underwriting standards. Although non-accrual loans have increased, the Bank has been able to minimize charge-offs of losses from impaired loans and maintain asset quality. Non-performing loans were $18.5 million at September 30, 2008 an increase of $12.6 million from $5.9 million at December 31, 2007, and an increase of $13.7 million from $4.8 million at September 30, 2007. Total non-performing assets as a percentage of total assets was 0.57% at September 30, 2008 compared to 0.18% at December 31, 2007 and 0.15% as of September 30, 2007. The ratio of allowance for loan losses to total non-performing loans was 52% at September 30, 2008, compared to 113% at December 31, 2007 and 141% at September 30, 2007.
During the nine months ended September 30, 2008, mortgage-backed securities increased $59.5 million to $422.2 million, while other securities decreased $14.5 million to $62.8 million. Mortgage-backed securities increased during the current year period to support the activities of Flushing Commercial Bank. During the nine months ended September 30, 2008, there were purchases of $209.7 million of mortgage-backed securities and sales of $87.5 million. During the third quarter of 2008 the Bank sold $82.5 million of Fannie Mae and Freddie Mac mortgaged-backed securities and used the proceeds to purchase Ginnie Mae mortgaged-backed securities. Under current regulatory capital requirements, Ginnie Mae securities have a lower risk-weighting rating factor than Fannie Mae and Freddie Mac securities. Therefore, this change of investments has the effect of increasing the Bank's risk-weighted capital ratio. Other securities primarily consists of securities issued by government agencies and mutual or bond funds that invest in government and government agency securities.
Total liabilities were $3,384.6 million at September 30, 2008, an increase of $263.8 million, or 8.5%, from December 31, 2007. During the nine months ended September 30, 2008, due to depositors increased $233.0 million to $2,235.9 million, as a result of increases of $174.6 million in certificates of deposit and core deposits of $58.4 million. The increase in certificates of deposit is attributed to an increase in brokered deposits of $168.2 million, combined with an increase of $6.4 million in retail certificates of deposit. Borrowed funds increased $18.0 million to partially fund balance sheet growth. In addition, mortgagors' escrow deposits increased $9.7 million during the nine months ended September 30, 2008.
Total stockholders' equity decreased $1.4 million, or 0.6%, to $232.2 million at September 30, 2008 from $233.7 million at December 31, 2007. Net income of $15.8 million for the nine months ended September 30, 2008 was offset by a net after-tax decrease of $14.7 million on the market value of securities available for sale, $7.8 million of cash dividends declared and paid during the nine months ended September 30, 2008, and a $0.6 million after-tax charge as a result of the adoption of EITF Issue No. 06-4, which requires the accrual of the post-retirement cost of endorsement split-dollar life insurance arrangements with employees. The exercise of stock options increased stockholders' equity by $2.9 million, including the income tax benefit realized by the Company upon the exercise of the options. Book value per share was $10.74 at September 30, 2008, compared to $10.96 per share at December 31, 2007 and $10.77 per share at September 30, 2007.
The Company did not repurchase any shares during the quarter ended September 30, 2008 under its current stock repurchase program. At September 30, 2008, 362,050 shares remain to be repurchased under the current stock repurchase program.
Reconciliation of GAAP and Core Earnings
Although core earnings are not a measure of performance calculated in accordance with GAAP, the Company believes that its core earnings are an important indication of performance through ongoing operations. The Company believes that core earnings are useful to management and investors in evaluating its ongoing operating performance, and in comparing its performance with other companies in the banking industry, particularly those that have not adopted SFAS No. 159. Core earnings should not be considered in isolation or as a substitute for GAAP earnings. During the periods presented the Company calculated core earnings by adding back or subtracting the fair value gain or loss recorded under SFAS No.159 and the income or expense of certain non-recurring items listed below.
Three Months Ended Nine Months Ended
---------------------------- -------------------
Sept. 30, Sept. 30, June 30 Sept. 30, Sept. 30,
2008 2007 2008 2008 2007
---------------------------- -------------------
(In thousands, except per share data)
GAAP net income $ 2,130 $ 5,727 $ 6,499 $ 15,780 $ 15,894
Net (gain) loss
under SFAS No. 159,
net of tax (11,452) (441) 189 (10,368) (536)
Other-than-temporary
impairment charge,
net of tax 14,660 -- -- 14,660 --
Net gain on sale
of securities,
net of tax (197) -- -- (197) --
Partial recovery
of WorldCom, Inc.
loss, net of tax 5 -- -- (1,347) --
--------------------------- ------------------
Core net income $ 5,146 $ 5,286 $ 6,688 $ 18,528 $ 15,358
=========================== ==================
GAAP diluted
earnings per share $ 0.11 $ 0.29 $ 0.32 $ 0.78 $ 0.80
Net (gain) loss
under SFAS No. 159,
net of tax (0.57) (0.02) 0.01 (0.51) (0.03)
Other-than-temporary
impairment charge,
net of tax 0.72 -- -- 0.73 --
Net gain on sale
of securities,
net of tax (0.01) -- -- (0.01) --
Partial recovery of
WorldCom, Inc.
loss, net of tax -- -- -- (0.07) --
--------------------------- ------------------
Core diluted
earnings per share $ 0.25 $ 0.27 $ 0.33 $ 0.92 $ 0.77
=========================== ==================
About Flushing Financial Corporation
Flushing Financial Corporation is the parent holding company for Flushing Savings Bank, FSB, a federally chartered stock savings bank insured by the FDIC. The Bank serves consumers and businesses by offering a full complement of deposit, loan, and cash management services through its fourteen banking offices located in Queens, Brooklyn, Manhattan, and Nassau County. The Bank also operates an online banking division, iGObanking.com(r), which enables the Bank to expand outside of its current geographic footprint. In 2007, the Bank established Flushing Commercial Bank, a wholly-owned subsidiary, to provide banking services to public entities including counties, towns, villages, school districts, libraries, fire districts and the various courts throughout the metropolitan area.
Additional information on Flushing Financial Corporation may be obtained by visiting the Company's website at http://www.flushingsavings.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, 2007 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 FINANCIAL CONDITION
(Dollars in thousands, except September 30, December 31
per share data) 2008 2007
--------------------------------------------------------------------
ASSETS (Unaudited)
------
Cash and due from banks $ 30,528 $ 36,148
Securities available for sale:
Mortgage-backed securities 422,232 362,729
Other securities 62,830 77,371
Loans:
Multi-family residential 985,578 964,455
Commercial real estate 706,025 625,843
One-to-four family -- mixed-use
property 751,145 686,921
One-to-four family -- residential 238,027 161,666
Co-operative apartments 6,624 7,070
Construction 105,443 119,745
Small Business Administration 19,413 18,922
Taxi medallion 12,388 68,250
Commercial business and other 65,084 41,796
Net unamortized premiums and
unearned loan fees 16,908 14,083
Allowance for loan losses (9,544) (6,633
----------- -----------
Net loans 2,897,091 2,702,118
Interest and dividends receivable 17,412 15,768
Bank premises and equipment, net 22,894 23,936
Federal Home Loan Bank of New
York stock 45,395 42,669
Bank owned life insurance 53,926 52,260
Goodwill 16,127 16,127
Core deposit intangible 2,459 2,810
Other assets 45,980 22,583
----------- -----------
Total assets $ 3,616,874 $ 3,354,519
=========== ===========
LIABILITIES
-----------
Due to depositors:
Non-interest bearing $ 71,527 $ 69,299
Interest-bearing:
Certificate of deposit accounts 1,341,984 1,167,399
Savings accounts 364,164 354,746
Money market accounts 290,521 340,694
NOW accounts 167,709 70,817
----------- -----------
Total interest-bearing
deposits 2,164,378 1,933,656
Mortgagors' escrow deposits 32,183 22,492
Borrowed funds 1,090,595 1,072,551
Other liabilities 25,951 22,867
----------- -----------
Total liabilities 3,384,634 3,120,865
----------- -----------
STOCKHOLDERS' EQUITY
--------------------
Preferred stock ($0.01 par value;
5,000,000 shares authorized;
none issued) -- --
Common stock ($0.01 par value;
40,000,000 shares authorized;
21,625,709 shares and 21,321,564
shares issued at September 30, 2008
and December 31, 2007, respectively;
21,625,709 shares and 21,321,564
shares outstanding at September 30,
2008 and December 31, 2007,
respectively) 216 213
Additional paid-in capital 80,176 74,861
Treasury stock (none at
September 30, 2008 and
December 31, 2007, respectively) -- --
Unearned compensation (1,502) (2,110
Retained earnings 168,906 161,598
Accumulated other comprehensive
loss, net of taxes (15,556) (908)
----------- -----------
Total stockholders' equity 232,240 233,654
----------- -----------
Total liabilities and
stockholders' equity $ 3,616,874 $ 3,354,519
=========== ===========
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in For the three months For the nine months
thousands, ended September 30, ended September 30,
except per ------------------------- -------------------------
share data) 2008 2007 2008 2007
====================================================================
Interest and
dividend income
---------------
Interest and
fees on loans $ 47,766 $ 44,839 $ 142,243 $ 128,870
Interest and
dividends on
securities:
Interest 5,916 3,834 15,952 11,580
Dividends 465 165 2,265 371
Other interest
income 57 158 533 337
----------- ----------- ----------- -----------
Total inter-
est and
dividend
income 54,204 48,996 160,993 141,158
----------- ----------- ----------- -----------
Interest
expense
--------
Deposits 18,962 20,543 56,950 56,851
Other interest
expense 13,112 11,117 39,105 31,596
----------- ----------- ----------- -----------
Total inte-
rest expense 32,074 31,660 96,055 88,447
----------- ----------- ----------- -----------
Net interest
income 22,130 17,336 64,938 52,711
Provision for
loan losses 3,000 -- 3,600 --
----------- ----------- ----------- -----------
Net interest
income after
provision for
loan losses 19,130 17,336 61,338 52,711
----------- ----------- ----------- -----------
Non-interest
income
------------
Loan fee income 655 702 2,051 2,494
Banking services
fee income 394 369 1,232 1,137
Net gain on sale
of loans held
for sale 102 11 133 269
Net gain (loss)
on sale of loans (84) 106 (15) 224
Other-than-tem-
porary impair-
ment charge on
securities (26,320) -- (26,320) --
Net gain on sale
of securities 354 -- 354 --
Net gain from
fair value
adjustments 20,555 789 18,614 960
Federal Home
Loan Bank of
New York stock
dividends 729 681 2,464 1,919
Bank owned life
insurance 563 442 1,666 1,295
Other income 390 690 3,872 1,886
----------- ----------- ----------- -----------
Total non-
interest
income (2,662) 3,790 4,051 10,184
----------- ----------- ----------- -----------
Non-interest
expense
------------
Salaries and
employee bene-
fits 6,518 5,765 19,799 18,146
Occupancy and
equipment 1,708 1,635 4,929 4,868
Professional
services 1,446 1,131 4,215 3,522
Data processing 991 861 2,964 2,572
Depreciation
and amortiza-
tion 613 597 1,804 1,794
Other operating
expenses 2,339 2,117 7,445 7,006
----------- ----------- ----------- -----------
Total non-
interest
expense 13,615 12,106 41,156 37,908
----------- ----------- ----------- -----------
Income before
income taxes 2,853 9,020 24,233 24,987
----------- ----------- ----------- -----------
Provision for
income taxes
-------------
Federal 847 2,658 6,942 7,620
State and local (124) 635 1,511 1,473
----------- ----------- ----------- -----------
Total taxes 723 3,293 8,453 9,093
----------- ----------- ----------- -----------
Net income $ 2,130 $ 5,727 $ 15,780 $ 15,894
=========== =========== =========== ===========
Basic earnings
per share $ 0.11 $ 0.29 $ 0.79 $ 0.81
Diluted earn-
-ings per
share $ 0.11 $ 0.29 $ 0.78 $ 0.80
Dividends per
share $ 0.13 $ 0.12 $ 0.39 $ 0.36
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
At or for the three months At or for the nine months
ended September 30, ended September 30,
------------------------- -------------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
Per Share Data
--------------
Basic earnings
per share $0.11 $0.29 $0.79 $0.81
Diluted earnings
per share $0.11 $0.29 $0.78 $0.80
Average number
of shares out-
standing for:
Basic earnings
per share
computation 20,109,629 19,673,754 19,955,380 19,592,265
Diluted earn-
ings per
share compu-
tation 20,273,444 19,891,397 20,143,810 19,829,250
Book value per
share (based
on 21,625,709
and 21,263,640
shares outsta-
nding at Sept-
ember 30, 2008
and 2007, res-
pectively) $10.74 $10.77 $10.74 $10.77
Average Balances
----------------
Total loans,
net $ 2,880,495 $ 2,598,430 $ 2,813,099 $ 2,486,257
Total interest-
earning assets 3,409,436 2,929,804 3,311,489 2,817,168
Total assets 3,593,128 3,094,014 3,499,126 2,979,695
Total due to
depositors 2,128,843 1,883,700 2,029,124 1,797,640
Total interest-
bearing liabi-
lities 3,272,910 2,788,743 3,172,719 2,677,451
Stockholders'
equity 230,183 222,697 232,775 218,426
Performance
Ratios (1)
-----------
Return on
average assets 0.24% 0.74% 0.60% 0.71%
Return on
average equity 3.70 10.29 9.04 9.70
Yield on
average inter-
est-earning
assets 6.36 6.69 6.48 6.68
Cost of average
interest-
bearing liabi-
lities 3.92 4.54 4.04 4.40
Interest rate
spread during
period 2.44 2.15 2.44 2.28
Net interest
margin 2.60 2.37 2.61 2.49
Non-interest
expense to
average assets 1.52 1.57 1.57 1.70
Efficiency ratio 62.23 59.53 58.53 61.24
Average inter-
est-earning
assets to
average inte-
rest-bearing
liabilities 1.04X 1.05X 1.04X 1.05X
(1) Ratios for the three- and nine- month periods ended September
30, 2008 and 2007 are presented on an annualized basis.
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands)
(Unaudited)
At or for the nine At or for the year
months ended ended
September 30, 2008 December 31, 2007
------------------ -------------------
Selected Financial Ratios
and Other Data
-------------------------
Regulatory capital
ratios (for Flushing
Savings Bank only):
Tangible capital
(minimum require-
ment = 1.5%) 6.87 % 7.27 %
Leverage and core
capital (minimum
requirement = 3%) 6.87 7.27
Total risk-based
capital (minimum
requirement = 8%) 10.87 11.20
Capital ratios:
Average equity to
average assets 6.65 % 7.19 %
Equity to total
assets 6.42 6.97
Asset quality:
Non-accrual loans $17,241 $5,140
Non-performing loans 18,490 5,893
Non-performing assets 20,476 5,893
Net charge-offs 689 424
Asset quality ratios:
Non-performing
loans to gross
loans 0.64 % 0.22 %
Non-performing
assets to
total assets 0.57 0.18
Allowance for loan
losses to gross
loans 0.33 0.25
Allowance for
loan losses to
non-performing
assets 46.61 112.57
Allowance for
loan losses to
non-performing
loans 51.62 112.57
Full-service customer
facilities 14 14
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
NET INTEREST MARGIN
(Dollars in Thousands)
(Unaudited)
For the three months ended September 30,
-----------------------------------------------------------
2008 2007
----------------------------- -----------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
============================= =============================
Assets
Interest-
earning
assets:
Mortgage
loans,
net (1)$ 2,785,271 $ 46,244 6.64% $ 2,495,318 $ 42,795 6.86%
Other
loans,
net (1) 95,224 1,522 6.39 103,112 2,044 7.93
----------------------------- -----------------------------
Total
loans,
net 2,880,495 47,766 6.63 2,598,430 44,839 6.90
----------------------------- -----------------------------
Mortgage-
backed
securi-
ties 420,062 5,487 5.22 275,833 3,414 4.95
Other
securi-
ties 96,000 894 3.73 42,397 585 5.52
----------------------------- -----------------------------
Total
secur-
ities 516,062 6,381 4.95 318,230 3,999 5.03
----------------------------- -----------------------------
Interest-
earning
deposits
and fe-
deral
funds
sold 12,879 57 1.77 13,144 158 4.81
----------------------------- -----------------------------
Total
interest-
earning
assets 3,409,436 54,204 6.36 2,929,804 48,996 6.69
---------------- ----------------
Other
assets 183,692 164,210
----------- -----------
Total
assets $ 3,593,128 $ 3,094,014
=========== ===========
Liabilit-
ies and
Equity
Interest-
bearing
liabili-
ties:
Deposits:
Savings
accounts $ 373,105 1,931 2.07 $ 317,896 2,080 2.62
NOW
accounts 173,914 1,147 2.64 60,620 274 1.81
Money
market
accounts 302,878 2,303 3.04 316,390 3,439 4.35
Certifi-
cate of
deposit
accounts 1,278,946 13,563 4.24 1,188,794 14,728 4.96
----------------------------- -----------------------------
Total
due to
depos-
itors 2,128,843 18,944 3.56 1,883,700 20,521 4.36
Mortga-
gors'
escrow
accounts 31,236 18 0.23 29,491 22 0.30
----------------------------- -----------------------------
Total
deposits 2,160,079 18,962 3.51 1,913,191 20,543 4.30
Borrowed
funds 1,112,831 13,112 4.71 875,552 11,117 5.08
----------------------------- -----------------------------
Total
interest-
bearing
liabil-
ities 3,272,910 32,074 3.92 2,788,743 31,660 4.54
---------------- ----------------
Non
interest-
bearing
deposits 69,407 65,017
Other
liabili-
ties 20,628 17,557
----------- -----------
Total
liabi-
lities 3,362,945 2,871,317
Equity 230,183 222,697
----------- -----------
Total
liabi-
lities
and
equity $ 3,593,128 $ 3,094,014
=========== ===========
Net
interest
income /
net int-
erest
rate
spread $ 22,130 2.44% $ 17,336 2.15%
================ ================
Net
interest-
earning
assets /
net int-
erest
margin $ 136,526 2.60% $ 141,061 2.37%
=========== ===== =========== =====
Ratio of
interest-
earning
assets
to inte-
rest-
bearing
liabili-
ties 1.04X 1.05X
===== =====
(1) Loan interest income includes loan fee income (which includes
net amortization of deferred fees and costs, late charges, and
prepayment penalties) of approximately $0.8 million and $0.8
million for the three-month periods ended September 30, 2008 and
2007, respectively.
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
NET INTEREST MARGIN
(Dollars in Thousands)
(Unaudited)
For the nine months ended September 30,
-----------------------------------------------------------
2008 2007
----------------------------- -----------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
============================= ============================
Assets
Interest-
earning
assets:
Mortgage
loans,
net (1)$ 2,699,362 $ 136,498 6.74% $ 2,398,690 $ 123,726 6.88%
Other
loans,
net (1) 113,737 5,745 6.73 87,567 5,144 7.83
----------------------------- -----------------------------
Total
loans,
net 2,813,099 142,243 6.74 2,486,257 128,870 6.91
----------------------------- -----------------------------
Mortgage-
backed
securi-
ties 383,540 14,887 5.18 278,959 10,248 4.90
Other
securi-
ties 84,364 3,330 5.26 42,537 1,703 5.34
----------------------------- -----------------------------
Total
secur-
ities 467,904 18,217 5.19 321,496 11,951 4.96
----------------------------- -----------------------------
Interest-
earning
deposits
and fe-
deral
funds
sold 30,486 533 2.33 9,415 337 4.77
----------------------------- -----------------------------
Total
interest-
earning
assets 3,311,489 160,993 6.48 2,817,168 141,158 6.68
--------------- ---------------
Other
assets 187,637 162,527
----------- -----------
Total
assets $ 3,499,126 $ 2,979,695
=========== ===========
Liabilit-
ies and
Equity
Interest-
bearing
liabili-
ties:
Deposits:
Savings
accounts $ 369,422 6,017 2.17 $ 297,416 5,092 2.28
NOW ac-
counts 120,767 2,247 2.48 55,303 563 1.36
Money
market
accounts 305,382 7,496 3.27 280,738 8,771 4.17
Certif-
icate
of de-
posit
accou-
nts 1,233,553 41,138 4.45 1,164,183 42,365 4.85
----------------------------- -----------------------------
Total
due to
depos-
itors 2,029,124 56,898 3.74 1,797,640 56,791 4.21
Mortga-
gors'
escrow
accou-
nts 34,143 52 0.20 31,873 60 0.25
----------------------------- -----------------------------
Total
depos-
its 2,063,267 56,950 3.68 1,829,513 56,851 4.14
Borrowed
funds 1,109,452 39,105 4.70 847,938 31,596 4.97
----------------------------- -----------------------------
Total
inter-
est-
bearing
liabi-
lities 3,172,719 96,055 4.04 2,677,451 88,447 4.40
--------------- ---------------
Non
interest-
bearing
deposits 73,125 65,425
Other li-
abilities 20,507 18,393
----------- -----------
Total
liabi-
lities 3,266,351 2,761,269
Equity 232,775 218,426
----------- -----------
Total
liabi-
lities
and
equity $ 3,499,126 $ 2,979,695
=========== ===========
Net inte-
rest
income /
net in-
terest
rate
spread $ 64,938 2.44% $ 52,711 2.28%
================ ================
Net inte-
rest-
earning
assets /
net int-
erest
margin $ 138,770 2.61% $ 139,717 2.49%
=========== ===== =========== =====
Ratio of
interest-
earning
assets to
interest-
bearing
liabilities 1.04X 1.05X
===== =====
(1) Loan interest income includes loan fee income (which includes
net amortization of deferred fees and costs, late charges, and
prepayment penalties) of approximately $2.9 million and $2.8
million for the nine-month periods ended September 30, 2008 and
2007, respectively.