Flushing Financial Corporation Reports Record Second Quarter GAAP Diluted EPS of $1.05 Driven by the Sale of a Building; Core Diluted EPS of $0.39, Up 8.3% YoY Driven by 21.6% Annualized Loan Growth

Second Quarter 2016

• GAAP diluted EPS was $1.05, up 105.9% YoY, materially impacted by the sale of one of the Bank’s branch buildings for a pre-tax gain of $33.8 million
• Notable items in GAAP include net gains on sale of buildings and securities, net loss from fair value adjustments and prepayment penalties from the extinguishment of debt that, combined, increased diluted EPS by $0.66
• Core diluted EPS was $0.39, up 8.3% YoY
• Net interest margin was 2.99%, compared to 3.03% for the second quarter of 2015
• Excluding prepayment penalty income from loans and recovered interest from nonaccrual loans, the net interest margin improved to 2.87%, an increase of four basis points QoQ
• GAAP ROAE was 25.0%, compared with 12.7% for the second quarter of 2015
• Core ROAE was 9.3%, compared with 9.1% for the second quarter of 2015
• GAAP ROAA was 2.1%, compared with 1.1% for the second quarter of 2015
• Core ROAA was 0.8%, the same as the second quarter of 2015
• Net interest income was a record totaling $41.9 million, up 9.8% YoY

UNIONDALE, N.Y., July 26, 2016 (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, 2016.

John R. Buran, President and Chief Executive Officer, stated: “We are pleased to report record earnings per diluted common share of $1.05 for the second quarter of 2016. The quarter’s earnings were driven by the gain recognized on the sale of one of our properties in Flushing, Queens. The planned sale is part of our greater strategy of reducing non-interest-earning assets and redeploying those assets into our growing markets.

“The current quarter’s earnings were aided by continuing the strategy of originating and purchasing multi-family, commercial real estate, and commercial business loans. Loan originations and purchases for these loans totaled $368.8 million, or 95.1%, of the total second quarter loan production of $387.9 million. This level of loan production resulted in net loans increasing a record $237.5 million, or a 21.6% annualized growth rate, while maintaining our underwriting standards. Loan originations for these loan products, excluding underlying co-operative mortgages, had an average loan-to-value of 52.7% and an average debt coverage ratio of 184%. The loan pipeline remains strong totaling $329.8 million at June 30, 2016.”

Core earnings, a non-GAAP measure, exclude the effects of net gains/losses from the sale of buildings and securities, net gains/losses from fair value adjustments, prepayment penalties from the extinguishment of debt, and the gain from life insurance proceeds.

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

Earnings Summary:

Quarter ended June 30, 2016 (2Q16) compared to the quarters ended June 30, 2015 (2Q15) and March 31, 2016 (1Q16)

Net Interest Income

Net interest income for 2Q16 was $41.9 million, an increase of 9.8% YoY and 1.8% QoQ.

• Average balance of total interest-earning assets of $5,612.9 million, increased $579.2 million, or 11.5% YoY and increased $122.2 million, or 2.2% QoQ
• Yield on interest-earning assets of 3.93% decreased 6 basis points YoY and 3 basis points QoQ
• Cost of interest-bearing liabilities of 1.05% decreased 1 basis point YoY and 2 basis points QoQ
• Net interest spread and net interest margin of 2.88% and 2.99%, respectively, decreased 5 basis points and 4 basis points, respectively YoY and decreased 1 basis point each QoQ
• Includes prepayment penalty income from loans of $1.4 million, compared with $1.5 million in 2Q15 and $2.2 million in 1Q16, and recovered interest from nonaccrual loans of $0.2 million, compared with $0.1 million in 2Q15 and 1Q16
• Excluding prepayment penalty income and recovered interest from nonaccrual loans, the yield on total loans, net, would be 4.10%, compared with 4.27% in 2Q15 and 4.13% in 1Q16, and the net interest margin would be 2.87%, compared with 2.90% in 2Q15 and 2.83% in 1Q16
• Cost of total deposits of 0.84% decreased 2 basis points YoY but was flat QoQ
• Cost of borrowed funds of 1.70% decreased 5 basis points YoY and 11 basis points QoQ, primarily due to the extinguishment of debt at an average cost of 4.16%

The following table shows the basis points increase (decrease) in the cost of interest-bearing liabilities:

Non-interest Income

Non-interest income for 2Q16 was $37.7 million, an increase of $27.8 million YoY and $35.2 million QoQ.

• Gain of $33.8 million recorded from the planned sale of one of our properties in Flushing, Queens (the “Building Sale”)
• Net gain of $2.4 million recorded from the sale of $64.6 million in securities in connection with the extinguishment of debt
• Decrease in fair value adjustments of $1.9 million compared to 2Q15 and $0.1 compared to 1Q16, which also included net gains of $0.4 million from life insurance proceeds and $0.3 million from the sale of loans

Non-interest Expense

Non-interest expense for 2Q16 was $28.5 million, an increase of $4.2 million, or 17.3%, YoY and essentially unchanged QoQ.

• The 2Q16 includes 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 decreased $3.0 million, or 10.4% QoQ
• Salaries and benefits increased YoY by $0.8 million primarily due to annual salary increases and additions in staffing but declined $2.3 million QoQ due to 1Q16 including seasonal expenses from annual restricted stock unit awards for employees and higher payroll taxes
• Professional services increased $0.7 million YoY due to increased legal and consulting expenses but declined $0.1 QoQ
• The efficiency ratio improved to 57.1% from 57.5% in 2Q15 and 64.5% in 1Q16

Provision for Income Taxes

The provision for income taxes in 2Q16 was $20.7 million, an increase of $11.2 million YoY and $15.1 million QoQ.

• Increase in income before income taxes of $26.8 million YoY and $36.0 million QoQ, primarily due to the net gain from the Building Sale
• Higher effective tax rate of 40.5% from 39.1% in 2Q15 and 37.0% in 1Q16 mainly reflects the reduced impact of preferential tax items as a result of the Building Sale

Loans:

• Net loans were $4,674.1 million reflecting an increase of 5.4% QoQ (not annualized) and 7.0% 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
• Total loan originations and purchases were $617.1 million year-to-date, an increase of $113.7 million YoY
• Loan purchases, which are underwritten to the same standards as organic originations, were $138.0 million year-to-date, an increase of $11.9 million YoY
• Loan pipeline remains strong, totaling $329.8 million at June 30, 2016 compared with $330.5 million at December 31, 2015
• Multi-family (excluding underlying co-operative mortgages), commercial real estate and one-to-four family mixed-use property mortgage loans originated during the quarter had an average loan-to-value ratio of 53.7% and an average debt coverage ratio of 184%

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

Credit Quality:

• Credit quality continues to improve with non-performing loans totaling $21.9 million, a decrease of $4.2 million, or 15.9%, from $26.1 million at December 31, 2015
• Classified assets totaled $44.8 million, an increase of $0.9 million, or 2.0%, from $43.9 million at December 31, 2015
• Loans classified as troubled debt restructured totaled $8.3 million, a decrease of $1.2 million, or 12.7%, from $9.5 million at December 31, 2015
• Strong underwriting standards coupled with our practice of obtaining updated appraisals and recording charge-offs, when necessary, has resulted in a 41.8% average loan-to-value for non-performing loans collateralized by real estate
• Year-to-date, no provision for loan losses was recorded compared with a benefit of $1.3 million recorded in the comparable prior year period
• Net recoveries totaled $0.7 million year-to-date, amid continued improvement in credit conditions
• Properties obtained through foreclosure have been sold at amounts that approximate book value
• The Bank takes a proactive approach to managing delinquent loans, including conducting site examinations and encouraging borrowers to meet with a Bank representative
• We anticipate continued low loss content in the loan portfolio

Capital Management:

• The Bank and Company are subject to the same regulatory capital requirements and at June 30, 2016, both were well-capitalized under all regulatory requirements
• Year-to-date, stockholders’ equity increased $35.8 million, or 7.6% to $508.9 million due to net income of $40.0 million and an improvement in other comprehensive income of $8.7 million, mainly due to an increase in the fair value of the securities portfolio and the net impact of $4.5 million from the vesting and exercising of shares of employee and director stock plans
• Increases above were partially offset by the declaration and payment of dividends on the Company’s common stock of $0.34 per common share totaling $9.9 million and the purchase of 378,695 treasury shares, at an average price of $19.78 per share, for a total cost of $7.5 million
• As of June 30, 2016, 520,905 shares may still be repurchased under the currently authorized stock repurchase program, which has no expiration or maximum dollar amount
• Book value per common share was $17.77 at June 30, 2016, compared with $16.41 at December 31, 2015
• Tangible book value per common share, a non-GAAP measure, was $17.22, compared with $15.86 at December 31, 2015

About Flushing Financial Corporation

Flushing Financial Corporation is the holding company for Flushing Bank, a New York State-chartered commercial bank insured by the Federal Deposit Insurance Corporation. The Bank serves consumers, businesses, and public entities by offering a full complement of deposit, loan, and cash management services through its 19 banking offices located in Queens, Brooklyn, Manhattan, and Nassau County. The Bank also operates an online banking division, iGObanking.com®, which offers competitively priced deposit products to consumers nationwide.

Additional information on Flushing Financial Corporation may be obtained by visiting the Company’s website at http://www.flushingbank.com.

 “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Statements in this Press Release relating to plans, strategies, economic performance and trends, projections of results of specific activities or investments and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, risk factors discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 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 -

Core Diluted EPS, Core ROAE, Core ROAA, tangible book value per share and tangible common stockholders’ equity 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 share and tangible common stockholders’ equity are 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.