Flushing Financial Corporation Reports 2010 Second Quarter GAAP and Core Net Income Increase of 49% and 25%, Respectively, From Prior Year Comparable Quarter; Total Delinquent Loans Show Stability

SECOND QUARTER 2010 HIGHLIGHTS

• Core earnings per common share was $0.27, which matched core earnings achieved for the three months ended March 31, 2010 and in the comparable prior year period.
• Core earnings per common share increased $0.06, or 12.8%, to $0.53 for the six months ended June 30, 2010 from $0.47 earned in the comparable prior year period.
• GAAP earnings per common share was $0.25, an increase of 25% from the comparable prior year quarter.
• The net interest margin decreased three basis points on a linked quarter basis to 3.36% from 3.39% due to an increase in non-performing loans.
• Record core pre provision pre tax ("PPPT") earnings of $18.3 million, a $0.1 million, or a 0.7% increase on a linked quarter basis and a $2.4 million, or 15.0% increase as compared to the comparable prior year quarter. (See Reconciliation of GAAP and Core Earnings before Provision for Loan Losses and Income Taxes)
• Total loans 30 days or more delinquent increased $1.7 million from the linked quarter, which represents the smallest quarterly increase in our delinquencies in over two years.
• Net charge-offs were 0.26% of average loans.
• Recorded a $5.0 million provision for loan losses.
• Recorded an other-than-temporary impairment ("OTTI") charge of $1.0 million on a pooled trust preferred security.
• Non-performing assets increased $20.5 million on a linked quarter basis to $119.1 million at June 30, 2010.
• Regulatory capital ratios were 9.00% for core capital and 13.83% for risk-weighted capital at June 30, 2010.
• Book value per common share increased to $12.15 at June 30, 2010.
• Tangible common equity to tangible assets increased to 8.57% at June 30, 2010.

LAKE SUCCESS, N.Y., July 20, 2010 (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 six months ended June 30, 2010.

John R. Buran, President and Chief Executive Officer, stated: "We are pleased to report strong core net income for the second quarter of 2010, which rose 25% over the same quarter last year to $8.1 million. Net income under GAAP posted a stronger gain of 49% over the same quarter last year coming in at $7.7 million. Year over year increases in shares outstanding kept core diluted earnings per common share for the second quarter of 2010 at $0.27, the same as the prior year comparable quarter. Our strong operating performance for the second quarter of 2010 was driven by strong net interest income of $33.4 million, an increase of $4.5 million, or 15.6%, from the comparable prior year quarter. The net interest margin for the second quarter of 2010 was 3.36%, an increase of 38 basis points from the prior year comparable quarter of 2.98%.

"Our net interest margin for the second quarter of 2010 represents a three basis point decline from the first quarter of 2010. This was due to adjustments recorded for non-accrual loans. The effect of the increase in non-accrual loans during the second quarter of 2010 reduced the net interest margin by six basis points. Excluding the effect of interest accrual adjustments for non-accruing loans in both linked quarters of 2010 shows an improvement in net interest margin of seven basis points for the current quarter.

"The second quarter showed mixed credit results. Non-performing loans increased $19.7 million from March 31, 2010. Included in the increase in non-accrual loans is a construction loan for $9.8 million. The project is near completion and we have a recent appraisal that indicates we should recover our full loan balance. The build-up of non-performing loans is influenced by a lengthy foreclosure process in our markets, which in some instances has resulted in loans remaining delinquent for as long as two years before we can obtain title to the underlying collateral. Once we have obtained title, we have been successful selling the properties, often within the same quarter.

"On a positive note, however, loans 30 days or more delinquent and classified loans showed little or no increase. The small delinquency increase is the lowest quarterly increase in over two years. Charge-offs once again remained extremely low at 26 basis points, reinforcing our confidence in the underlying collateral values of income producing properties in our primary market, the New York Metropolitan area. The majority of our non-performing loans are multi-family and mixed-use mortgage loans that continue to show low vacancy rates for rent stabilized units, thereby retaining more of their value. We anticipate that we will continue to see low loss content in this portfolio that constitutes the majority of non-performing loans. Consistent with last quarter we recorded a $5.0 million provision for loan losses increasing our allowance to 79 basis points of total loans.

"While we have continued to modestly grow our balance sheet and loan portfolio, we continued to emphasize developing quality customer relationships in consumer, business and government banking. Our product expansion undertaken over the past several years continues to result in growth in our core deposits, which increased $75.1 million during the second quarter of 2010, and $124.8 million during the first half of 2010. This has allowed us to reduce our dependence on higher-costing certificates of deposit and borrowed funds, which combined declined $36.4 million during the first half of 2010. The change in our funding mix combined with a favorable interest rate environment has resulted in a reduction of our cost of funds to 2.53% for the second quarter of 2010 from 2.96% in the fourth quarter of 2009.

"Our strong capital, our ability to grow core deposits, and our traditionally strong credit discipline have enabled us to increase net income in spite of the extreme economic challenges we face.  With an improving economic landscape and our expanded product base, we feel confident that the rest of 2010 will provide additional opportunities for growth, as some competitors continue to deal with the challenges of weakened profitability.

 "The Bank continues to be well-capitalized under regulatory requirements, with tangible and risk-weighted capital ratios of 9.00% and 13.83%, respectively, at June 30, 2010."

Core earnings, which exclude the effects of net gains and losses from fair value adjustments, OTTI charges, net gains from the sale of securities, and certain non-recurring items, was $8.1 million for the three months ended June 30, 2010, an increase of $1.6 million, or 25.0%, from $6.5 million in the comparable prior year period.  Core earnings per diluted common share were $0.27 for the three months ended June 30, 2010, unchanged from the comparable prior year period.  Core diluted earnings per common share were unchanged as the 25.0% increase in core net income was offset by the net effect of a 46.7% increase in common shares used in the computation of core earnings per common share and the redemption of preferred stock in October 2009. These additional shares were issued in the common stock offering completed in September 2009.   

Core earnings during the six months ended June 30, 2010 was $16.2 million, or $0.53 per diluted common share, an increase of $4.7 million, or $0.06 per diluted common share from the $11.5 million, or $0.47 per diluted share, for the six months ended June 30, 2009. Core diluted earnings per common share increased 12.8% as compared to an increase of 40.5% in core net income primarily due to the net effect of the common stock offering as discussed above.

For a reconciliation of core earnings and core earnings per common share to accounting principles generally accepted in the United States ("GAAP") net income and GAAP earnings per common share, please refer to the tables in the section titled Reconciliation of GAAP and Core Earnings.

The Company elected to reclassify owner-occupied commercial loans that were originated by the Business Banking Department prior to January 1, 2010, from commercial real estate loans to commercial business loans. All loan originations of this type from January 1, 2010 forward have been and will be reported as commercial business loans. These loans are underwritten using the same underwriting standards used to originate unsecured business loans, with the mortgage obtained as additional collateral. Based upon the underwriting standards used to originate the loans, it is more appropriate to report the loans as commercial business loans. Prior period amounts have been adjusted to reflect this change.

Earnings Summary - Three Months Ended June 30, 2010

Net income for the three months ended June 30, 2010 was $7.7 million, an increase of $2.5 million or 48.6%, as compared to $5.2 million for the three months ended June 30, 2009. Diluted earnings per common share were $0.25 for the three months ended June 30, 2010, an increase of $0.05, or 25.0%, from $0.20 for the three months ended June 30, 2009.

Return on average equity was 8.3% for the three months ended June 30, 2010 compared to 6.7% for the three months ended June 30, 2009. Return on average assets was 0.7% for the three months ended June 30, 2010 compared to 0.5% for the three months ended June 30, 2009.

For the three months ended June 30, 2010, net interest income was $33.4 million, an increase of $4.5 million, or 15.6%, from $28.9 million for the three months ended June 30, 2009. The increase in net interest income is attributed to an increase in the average balance of interest-earning assets of $96.0 million, to $3,977.7 million for the quarter ended June 30, 2010, combined with an increase in the net interest spread of 40 basis points to 3.20% for the quarter ended June 30, 2010 from 2.80% for the quarter ended June 30, 2009. The yield on interest-earning assets decreased 27 basis points to 5.73% for the three months ended June 30, 2010 from 6.00% in the three months ended June 30, 2009. However, this was more than offset by a decline in the cost of funds of 67 basis points to 2.53% for the three months ended June 30, 2010 from 3.20% for the comparable prior year period. The net interest margin improved 38 basis points to 3.36% for the three months ended June 30, 2010 from 2.98% for the three months ended June 30, 2009. Excluding prepayment penalty income, the net interest margin would have been 3.33% and 2.94% for the three month periods ended June 30, 2010 and 2009, respectively.

The decline in the yield of interest-earning assets was primarily due to a 35 basis point reduction in the yield of the loan portfolio to 6.05% for the quarter ended June 30, 2010 from 6.40% for the quarter ended June 30, 2009. The decrease was primarily due to a decline in the rates earned on new loan originations combined with an increase in non-accrual loans for which we do not accrue interest income.  The yield on the mortgage loan portfolio declined 38 basis points to 6.09% for the three months ended June 30, 2010 from 6.47% for the three months ended June 30, 2009. The yield on the mortgage loan portfolio, excluding prepayment penalty income, declined 31 basis points to 6.05% for the three months ended June 30, 2010 from 6.36% for the three months ended June 30, 2009. The decline in the yield of interest-earning assets was partially offset by an increase of $189.4 million in the average balance of the loan portfolio to $3,241.1 million for the three months ended June 30, 2010, combined with an $88.4 million decline in the average balance of the lower yielding securities portfolio for the three months ended June 30, 2010, which has a lower yield than the yield of total interest-earning assets.

The decrease in the cost of interest-bearing liabilities is primarily attributable to the Bank reducing the rates it pays on its deposit products and the Bank's focus on increasing lower costing core deposits. The cost of certificates of deposit, money market accounts, savings accounts and NOW accounts decreased 53 basis points, 65 basis points, 54 basis points and 34 basis points respectively, for the quarter ended June 30, 2010 compared to the same period in 2009. This resulted in a decrease in the cost of due to depositors of 68 basis points to 1.98% for the quarter ended June 30, 2010 from 2.66% for the quarter ended June 30, 2009. The cost of borrowed funds also decreased 22 basis points to 4.40% for the quarter ended June 30, 2010 from 4.62% for the quarter ended June 30, 2009. The combined average balances of lower-costing core deposits increased a total of $345.0 million for the quarter ended June 30, 2010 compared to the same period in 2009, while the average balance of higher-costing certificates of deposits decreased $107.4 million for the quarter ended June 30, 2010 compared to the comparable period in 2009. The average balance of borrowed funds declined $188.9 million to $880.2 million for the quarter ended June 30, 2010 from $1,069.1 million for the quarter ended June 30, 2009, as the increase in deposits allowed us to decrease borrowed funds. 

The net interest margin for the three months ended June 30, 2010 decreased three basis points to 3.36% from 3.39% for the quarter ended March 31, 2010. The yield on interest-earning assets decreased 12 basis points during the quarter, while the cost of interest-bearing liabilities decreased 10 basis points. Excluding prepayment penalty income, the net interest margin would have been 3.33% for the quarter ended June 30, 2010, a decrease of two basis points from 3.35% for the quarter ended March 31, 2010. The 12 basis point decline in the yield on interest-earning assets was primarily due to a decline in the rates earned on new originations combined with an increase in interest income reversed from non-accrual loans in the three months ended June 30, 2010 as compared to the three months ended March 31, 2010.

A provision for loan losses of $5.0 million was recorded for the quarter ended June 30, 2010, which was the same as recorded in the quarter ended June 30, 2009. During the three months ended June 30, 2010 non-performing loans increased $19.7 million to $111.3 million from $91.6 million at March 31, 2010. Net charge-offs for the quarter ended June 30, 2010 totaled $2.1 million. Non-performing loans primarily consists of mortgage loans collateralized by residential income producing properties located in the New York metropolitan market. The Bank continues to maintain 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 level of non-performing loans, the current economic uncertainties, and the level of charge-offs, management, as a result of the regular quarterly analysis of the allowance for loans losses, deemed it necessary to record a $5.0 million provision for loan losses in the second quarter of 2010.

Non-interest income for the three months ended June 30, 2010 was $1.7 million, a decrease of $0.6 million from $2.4 million for the three months ended June 30, 2009. The decrease in non-interest income was primarily due to a loss of $31,000 recorded from fair value adjustments as compared to a gain of $0.7 million recorded in the comparable prior year period. The three months ended June 30, 2010 includes an OTTI charge of $1.0 million for a pooled trust preferred security, while the three months ended June 30, 2009 included an OTTI charge of $1.1 million for a private issue collateralized mortgage obligation ("CMO").

Non-interest expense for the three months ended June 30, 2010 was $17.6 million, a decrease of $0.1 million from $17.7 million for the three months ended June 30, 2009. Employee salary and benefits increased $1.2 million, which is primarily attributed to the growth of the Bank and an increase in stock-based salary expense due to an increase in the stock price as compared to the prior year comparable period. Both professional services and other operating expense increased $0.2 million from the comparable prior year period due primarily to the growth of the Bank. Federal Deposit Insurance Corporation ("FDIC") insurance decreased $2.0 million from the comparable prior year period, as the FDIC levied a $2.0 million special assessment during the three months ended June 30, 2009 to partially replenish the deposit insurance fund. The efficiency ratio was 48.3% and 55.8% for the three months ended, June 30, 2010 and 2009, respectively.

Earnings Summary - Six Months Ended June 30, 2010

Net income for the six months ended June 30, 2010 was $15.7 million, an increase of $4.2 million or 36.5%, as compared to $11.5 million for the six months ended June 30, 2009. Diluted earnings per common share were $0.52 for the six months ended June 30, 2010, an increase of $0.06, or 13.0%, from $0.46 in the six months ended June 30, 2009.

Return on average equity was 8.6% for the six months ended June 30, 2010 compared to 7.5% for the six months ended June 30, 2009. Return on average assets was 0.8% for the six months ended June 30, 2010 compared to 0.6% for the six months ended June 30, 2009.

For the six months ended June 30, 2010, net interest income was $66.9 million, an increase of $12.0 million, or 21.8%, from $55.0 million for the six months ended June 30, 2009. The increase in net interest income is attributed to an increase in the average balance of interest-earning assets of $105.3 million, to $3,965.0 million for the six months ended June 30, 2010, combined with an increase in the net interest spread of 55 basis points to 3.21% for the six months ended June 30, 2010.  The yield on interest-earning assets decreased 19 basis points to 5.79% for the six months ended June 30, 2010 from 5.98% for the six months ended June 30, 2009. However, this was more than offset by a decline in the cost of funds of 74 basis points to 2.58% for the six months ended June 30, 2010 from 3.32% for the comparable prior year period. The net interest margin improved 53 basis points to 3.38% for the six months ended June 30, 2010 from 2.85% for the six months ended June 30, 2009. Excluding prepayment penalty income, the net interest margin would have been 3.34% and 2.81% for the six month periods ended June 30, 2010 and 2009, respectively.

The decline in the yield of interest-earning assets was primarily due to a 25 basis point reduction in the yield of the loan portfolio to 6.12% for the six months ended June 30, 2010 from 6.37% for the six months ended June 30, 2009. The decrease was primarily due to a decline in the rates earned on new loan originations combined with an increase in non-accrual loans for which we do not accrue interest income. The yield on the mortgage loan portfolio declined 26 basis points to 6.18% for the six months ended June 30, 2010 from 6.44% for the six months ended June 30, 2009. The yield on the mortgage loan portfolio, excluding prepayment penalty income, declined 25 basis points to 6.13% for the six months ended June 30, 2010 from 6.38% for the six months ended June 30, 2009. The decline in the yield of interest-earning assets was partially offset by an increase of $204.3 million in the average balance of the loan portfolio to $3,223.3 million for the six months ended June 30, 2010, combined with a $76.1 million decline in the average balance of the lower yielding securities portfolio for the six months ended June 30, 2010, which has a lower yield than the yield of total interest-earning assets.

The decrease in the cost of interest-bearing liabilities is primarily attributable to the Bank reducing the rates it pays on its deposit products and the Bank's focus on increasing lower costing core deposits. The cost of certificates of deposit, money market accounts, savings accounts and NOW accounts decreased 59 basis points, 84 basis points, 64 basis points and 48 basis points respectively, for the six months ended June 30, 2010 compared to the same period in 2009. This resulted in a decrease in the cost of due to depositors of 81 basis points to 2.00% for the six months ended June 30, 2010 from 2.81% for the six months ended June 30, 2009. The cost of borrowed funds also decreased 26 basis points to 4.36% for the six months ended June 30, 2010 from 4.62% for the six months ended June 30, 2009. The combined average balances of lower-costing core deposits increased a total of $364.3 million for the six months ended June 30, 2010 compared to the same period in 2009, while the average balance of higher-costing certificates of deposits decreased $179.7 million for the six months ended June 30, 2010 from the comparable prior year period. The average balance of borrowed funds declined $126.6 million to $939.4 million for the six months ended June 30, 2010 from $1,066.0 million for the six months ended June 30, 2009, as the increase in deposits allowed us to decrease borrowed funds. 

A provision for loan losses of $10.0 million was recorded for the six months ended June 30, 2010, which was an increase of $0.5 million from $9.5 million recorded for the six months ended June 30, 2009. During the six months ended June 30, 2010 non-performing loans increased $25.5 million to $111.3 million from $85.9 million at December 31, 2009. Net charge-offs for the six months ended June 30, 2010 totaled $4.4 million. Non-performing loans primarily consists of mortgage loans collateralized by residential income producing properties located in the New York metropolitan market. The Bank continues to maintain 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 level of non-performing loans, the current economic uncertainties, and the level of charge-offs, management, as a result of the regular quarterly analysis of the allowance for loans losses, deemed it necessary to record a $10.0 million provision for loan losses in the six months ended June 30, 2010.

Non-interest income decreased $2.7 million, or 39.0%, for the six months ended June 30, 2010 to $4.3 million, as compared to $7.0 million for the six months ended June 30, 2009. A loss of $0.1 million attributed to changes in fair value adjustments were recorded for the six months ended June 30, 2010 compared to a gain of $3.1 million recorded for the six months ended June 30, 2009. This decrease was partially offset by increased income from Bank Owned Life Insurance of $0.1 million and Federal Home Loan Bank of New York stock dividend income of $0.1 million for the six months ended June 30, 2010 from the comparable prior year period. The six months ended June 30, 2010 includes an OTTI charge of $1.0 million for a pooled trust preferred security, while the six months ended June 30, 2009 included an OTTI charge of $1.1 million for a private issue CMO.  

Non-interest expense for the six months ended June 30, 2010 was $35.5 million, an increase of $1.8 million, or 5.4%, from $33.7 million for the six months ended June 30, 2009. Employee salary and benefits increased $2.5 million, which is primarily attributed to the growth of the Bank and an increase in stock-based salary expense due to an increase in the stock price as compared to the prior year comparable period. Both professional services and other operating expense increased $0.3 million and $0.5 million, respectively, from the comparable prior year period due primarily to the growth of the Bank. FDIC insurance decreased $1.7 million from the comparable prior year period, primarily due to a $2.0 million special assessment  levied by the FDIC during the three months ended June 30, 2009 to partially replenish the deposit insurance fund. The efficiency ratio was 49.0% and 56.1% for the six months ended, June 30, 2010 and 2009, respectively.

Balance Sheet Summary

At June 30, 2010, total assets were $4,252.2 million, an increase of $108.9 million, or 2.6%, from $4,143.2 million at December 31, 2009. Total loans, net increased $62.3 million, or 1.9%, during the six months ended June 30, 2010 to $3,262.4 million from $3,200.2 million at December 31, 2009. Loan originations and purchases were $240.9 million for the six months ended June 30, 2010, a decrease of $3.7 million from $244.6 million for the six months ended June 30, 2009, as loan demand has declined due to the current economic environment and we tightened our underwriting standards during 2009 to ensure we continue to originate quality loans. At June 30, 2010, loan applications in process totaled $139.3 million, compared to $218.5 million at June 30, 2009 and $158.4 million at December 31, 2009.

The following table shows loan originations and purchases for the periods indicated. The table includes loan purchases of $5.2 million and $14.5 million for the three months ended June 30, 2010 and 2009, respectively, and $7.0 million and $35.4 million for the six months ended June 30, 2010 and 2009, respectively.

Interest income on loans is recognized on the accrual basis. The accrual of income on loans is discontinued when certain factors, such as contractual delinquency of 90 days or more, indicate reasonable doubt as to the timely collectability of such income. Uncollected interest previously recognized on non-accrual loans is reversed from interest income at the time the loan is placed on non-accrual status. Loans in default 90 days or more as to their maturity date but not their payments, continue to accrue interest as long as the borrower continues to remit monthly payments.

The following table shows non-performing assets at the periods indicated:

Loans delinquent 60 to 89 days were $33.1 million at June 30, 2010, an increase of $2.4 million from $30.7 million at March 31, 2010 and an increase of $7.7 million from $25.4 million at December 31, 2009.  Loans delinquent 30 to 59 days were $56.1 million at June 30, 2010, a decrease of $22.4 million from $78.5 million at March 31, 2010 and a decrease $16.2 million from $72.3 million at December 31, 2009.

As the Bank continues to increase its loan portfolio, management continues to adhere to the Bank's conservative underwriting standards. Non-accrual loans and charge-offs for impaired loans have increased, primarily due to the current economic environment. The majority of the Bank's non-performing loans are collateralized by residential income producing properties that are occupied, thereby retaining more of their value and reducing the potential loss. The Bank takes a proactive approach to managing delinquent loans, including conducting site examinations and encouraging borrowers to meet with a Bank representative. The Bank has been developing short-term payment plans that enable certain borrowers to bring their loans current. The Bank reviews its delinquencies on a loan by loan basis and continually explores ways to help borrowers meet their obligations and return them back to current status. In the past year, the Bank has increased staffing to handle delinquent loans by hiring people experienced in loan workouts. The Bank's non-performing assets were $119.1 million at June 30, 2010, an increase of $20.5 million from $98.5 million at March 31, 2010 and an increase of $25.8 million from $93.3 million at December 31, 2009. Total non-performing assets as a percentage of total assets were 2.80% at June 30, 2010 as compared to 2.36% at March 31, 2010 and 2.25% at December 31, 2009. The ratio of allowance for loan losses to total non-performing loans was 23% at June 30, 2010 as compared to 25% at March 31, 2010 and 24% at December 31, 2009.

Non-performing investment securities include two pooled trust preferred securities with a combined market value of $4.7 million for which we currently are not receiving payments.

The Bank recorded net charge-offs for impaired loans of $2.1 million and $5.9 million during the three months ended June 30, 2010 and 2009, respectively and net charge-offs for impaired loans of $4.4 million and $6.1 million during the six months ended June 30, 2010 and 2009, respectively. The following table shows net loan charge-offs (recoveries) for the periods indicated by type of loan:

A loan is considered impaired when, based upon current information; we believe it is probable that we will be unable to collect all amounts due, both principal and interest, according to the original contractual terms of the loan. All non-accrual loans are considered impaired. Impaired loans are measured based on the present value of the expected future cash flows discounted at the loan's effective interest rate or at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The property value of impaired mortgage loans are internally reviewed on a quarterly basis based on updated cash flows for income producing properties or updated independent appraisals. The loan balance of impaired mortgage loans is then compared to the properties updated estimated value and any balance over 90% of the loans updated estimated value is charged-off against the allowance for loan losses. 

During the six months ended June 30, 2010 mortgage-backed securities increased $45.4 million, or 7.0%, to $693.9 million from $648.4 million at December 31, 2009. The increase in mortgage-backed securities during the six months ended June 30, 2010 was primarily due to purchases of $121.7 million combined with an increase in the fair value of $16.8 million. These increases were partially offset by principal repayments of mortgage-backed securities of $92.0 million during the six months ended June 30, 2010. During the six months ended June 30, 2010, other securities increased $18.1 million, or 51.2%, to $53.4 million from $35.4 million at December 31, 2009. Other securities primarily consists of securities issued by government agencies and mutual or bond funds that invest in government and government agency securities. During the six months ended June 30, 2010, there were $35.4 million in purchases and $13.8 million in calls of government agency securities.

Total liabilities were $3,872.6 million at June 30, 2010, an increase of $89.5 million, or 2.4%, from $3,783.1 million at December 31, 2009. During the six months ended June 30, 2010, due to depositors increased $207.1 million, or 7.8%, to $2,873.4 million, as a result of increases of $124.8 million in core deposits and of $82.2 million in certificates of deposit. Borrowed funds decreased $118.6 million as the increase in deposits allowed us to reduce our borrowed funds.

Total stockholders' equity increased $19.5 million, or 5.4%, to $379.6 million at June 30, 2010 from $360.1 million at December 31, 2009. The increase is primarily due to net income of $15.7 million and an increase in other comprehensive income of $9.1 million for the six months ended June 30, 2010. The increase in other comprehensive income was primarily attributed to an increase in the fair value of securities held in the available for sale portfolio. These increases were partially offset by the declaration and payment of dividends on the Company's common stock of $7.9 million. Book value per common share was $12.15 at June 30, 2010 compared to $11.57 at December 31, 2009. Tangible book value per common share was $11.62 at June 30, 2010 compared to $11.03 at December 31, 2009.

The Company did not repurchase any shares during the six months ended June 30, 2010 under its current stock repurchase program. At June 30, 2010, 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 do not carry financial assets and financial liabilities at fair value. 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 net gain or loss recorded from fair value adjustments, OTTI charges, net gains on the sale of securities and certain non-recurring items.

Reconciliation of GAAP and Core Earnings before Provision for Loan Losses and Income Taxes

Although core earnings before the provision for loan losses and income taxes is not a measure of performance calculated in accordance with GAAP, the Company believes this measure of earnings is an important indication of earnings through ongoing operations that are available to cover possible loan losses. The Company believes this earnings measure is useful to management and investors in evaluating its ongoing operating performance. During the periods presented the Company calculated this earnings measure by adjusting GAAP income before income taxes by adding back the provision for loan losses and adding back or subtracting the net gain or loss recorded from fair value adjustments, OTTI charges, net gains on the sale of securities and certain non-recurring items.

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 fifteen banking offices located in Queens, Brooklyn, Manhattan, and Nassau County. The Bank also operates an online banking division, iGObanking.com^®, 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.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, 2009 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.

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