Flushing Financial Corporation Strategic Focus on Rate Over Volume Helps to Stabilize Net Interest Margin in 1Q19, Core NIM Increases 3bps

| Source: Flushing Financial Corporation Flushing Financial Corporation

FIRST QUARTER 20191 HIGHLIGHTS

  • Net interest margin was 2.57%, unchanged QoQ and down 24bps YoY
  • Core net interest margin was 2.52%, up 3bps QoQ and down 22bps YoY
  • GAAP diluted EPS was $0.25, down 43.2% QoQ and 35.9% YoY
  • Core diluted EPS was $0.33, down 38.9% QoQ and 10.8% YoY
  • GAAP net interest income of $41.8 million, up 2.9% QoQ and down 1.9% YoY
  • Core net interest income of $42.4 million, up 4.4% QoQ and down 0.4% YoY
  • GAAP and core ROAE were 5.1% and 6.8%, respectively, compared with 9.2% and 11.4%, respectively in 4Q18
  • GAAP and core ROAA were 0.4% and 0.6%, respectively, compared with 0.7% and 0.9%, respectively in 4Q18
  • Provision for loan losses of $1.0 million, or $0.02 after-tax per diluted common share, driven mainly by a charge-off on one commercial loan
  • Increased quarterly dividend by 5% to $0.21 per share
  • Exceeded growth goal for Win Flushing Program
  • The first quarter of each year includes the impact of annual grants of employee and director restricted stock unit awards; restricted stock expense totaled $3.9 million in 1Q19, $1.0 million in 4Q18 and $3.5 million in 1Q18

UNIONDALE, N.Y., April 30, 2019 (GLOBE NEWSWIRE) -- Flushing Financial Corporation (the “Company”) (Nasdaq-GS: FFIC), the parent holding company for Flushing Bank (the “Bank”), today announced its financial results for the first quarter ended March 31, 2019.

John R. Buran, President and Chief Executive Officer, stated, “While quarterly results were impacted by seasonal expense increases, fair market value adjustments, and provision expense, we were pleased to see several positive trends including net interest margin stabilization, loan yield improvement, loan pipeline growth, continued growth in the C&I portfolio and deposit growth, particularly in the Flushing market.”

“The most significant of these trends was the stabilization of the net interest margin. The net interest margin was flat in 1Q19 compared to 4Q18 while core net interest margin increased three basis points during the same period.  Importantly, the pace of the increase in the cost of funds has slowed from the 26 bps increase in the cost of interest bearing liabilities between 2Q18 and 3Q18 to three basis points between 1Q19 and 4Q18. The yield on interest earning assets has increased more gradually over the same periods as a result of our strategic focus on rate over volume, resulting in easing of net interest margin pressure.”

“Another component of the net interest margin stabilization is the $2 billion of loans scheduled to upwardly reprice through 2021 an average of 96bps. We may not reprice to the full contractual rate but we will reprice somewhere between the market and the contract price as loans begin to refinance.”

“Additionally, the swap strategy remains an important component in stabilizing the net interest margin.  For 1Q19, the forward swaps totaling $442 million provided a benefit of four basis points while the loan swaps totaling $284 million provided two basis points of benefit. Our strategic focus on yield over volume in loan pricing continues to aid in stabilizing the net interest margin as the yield on loan closings increased 12bps during 1Q19 and 75bps from 1Q18. Finally, the loan pipeline improved significantly in 1Q19, growing 40% to $275 million from $197 million at December 31, 2018. The loan pipeline has an average yield of 4.80% providing for additional yield growth in the portfolio with 53% of our pipeline from adjustable rate loans at March 31, 2019.”

“Our strategy on loan growth is to move our balance sheet toward more floating rate C&I business while simultaneously focusing on yield over volume on our mortgage business. During 1Q19, our C&I loan closings totaled over $130 million, representing over 65% of our total loan closings. This performance was part of a trend that has been seen over the past four quarters. During that time period C&I loans, which are primarily adjustable rate, represented 43% of new loan closings. On the mortgage side the yield on loan closings increased 35bps in 1Q19 from 4Q18 and 99bps from 1Q18. Mortgage loan closings were down in 1Q19, primarily due to the pipeline at December 31, 2018 being lower than historical norms, particularly in commercial real estate.”

“Total deposits increased $94.2 million, or 1.9% (non-annualized) QoQ. The majority of this increase was transaction deposits, which increased 4.3% (non-annualized) QoQ. The “Win Flushing” program, which focuses on increasing our deposit market share in the Asian Community of Flushing, Queens, was the centerpiece of our retail deposits growth of $72 million QoQ. As of March 31, 2019, we have captured $175 million of deposits, exceeding our target of $160 million in deposit growth by the end of 1Q19. The program was predicated on the conversion of Flushing branches to the Universal Banker model, which allows staff to spend more time with customers, increasing sales opportunities. In the branches that have been converted, we experienced an increase of approximately 100% in transactions processed at ATMs, to almost 55% of all branch transactions, reducing our customer’s reliance on tellers. As a result, branch sales have increased over 30%, as sales per employee increased approximately 50% due to our branch staff focusing more time on sales opportunities. As previously discussed, we expect to have the remaining branches converted to the Universal Banker model by the end of 2019. As of March 31, 2019, we had 15 out of our 19 total branches operating under the Universal Banker model.” 

“Credit quality remained strong, as non-accrual and non-performing loans decreased by 3% in 1Q19. The quarter’s $0.9 million in charge-offs were mainly isolated to one commercial business loan relationship. The loan-to-value on our non-performing real estate loans at March 31, 2019 remained conservative at 33.9%.”

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

  • Multi-family (excluding underlying co-operative mortgages), commercial real estate, and one-to-four family mixed-use property mortgage loans originated during 1Q19 had a yield of 5.01%, an increase of 28bps from 4.73% for 4Q18 and an increase of 104bps from 3.97% for 1Q18. We maintained our asset quality as these loans had an average loan-to-value ratio of 41% and an average debt coverage ratio of 171%.

  • We remain committed to our strategy of focusing on C&I loans, commercial real estate loans and multi-family. In the first quarter, loan closings represented 66%, 7%, and 14%, respectively, of all originations, which were made while maintaining conservative loan-to-value and debt coverage ratios, and increasing yield.

  • Over 75% of 1Q19 loan closings were non-brokered loans.

Mr. Buran concluded, “Overall, we remain well capitalized and committed to the successful execution of our strategic objectives of managing our funding mix, emphasizing loan yields over volume, improving scalability and efficiency of our branch network and continuing to manage credit risk.”

Summary of Strategic Objectives

  • Manage cost of funds and continue to improve funding mix

  • Increase interest income by leveraging loan pricing opportunities and portfolio mix

  • Enhance core earnings power by improving scalability and efficiency

  • Manage credit risk

  • Maintain well capitalized levels under all stress test scenarios

Earnings Summary:

Net Interest Income

Net interest income for 1Q19 was $41.8 million, a decrease of $0.8 million, or 1.9% YoY (1Q19 compared to 1Q18) but an increase of $1.2 million, or 2.9% QoQ (1Q19 compared to 4Q18).

  • Net interest margin of 2.57%, decreased 24bps YoY and unchanged QoQ

  • Net interest spread of 2.36%, decreased 30bps YoY and increased 1bps QoQ

  • Yield on average interest-earning assets of 4.29%, increased 29bps YoY and 4bps QoQ

  • Cost of average interest-bearing liabilities of 1.93%, increased 59bps YoY and 3bps QoQ

  • Cost of funds of 1.80%, increased 55bps YoY and 3bps QoQ, driven by increases in rates paid on deposits and short-term borrowings resulting from increases in the Fed Funds rate 

  • Net interest margin stabilization in 1Q19 due to:

    • Cost of interest-bearing liabilities increasing only 3bps QoQ

    • Interest rate swaps totaling $726 million provided a benefit of 6bps to net interest margin

    • Over $2 billion of loans scheduled to upwardly reprice an average of 96bps through 2021

  • Average balance of total interest-earning assets of $6,521.1 million, increased $422.4 million, or 6.9%, YoY and $156.7 million, or 2.5%, QoQ

  • Net interest income includes prepayment penalty income from loans totaling $0.8 million in 1Q19 compared with $0.9 million, each in 4Q18 and 1Q18, recovered interest from delinquent loans of $0.7 million in 1Q19, compared to $0.3 million in 4Q18 and $0.2 million in 1Q18, and losses from fair value adjustments on qualifying hedges totaling $0.6 million compared to none in 4Q18 and 1Q18

  • Absent all above items, the yield on interest-earning assets was 4.24% in 1Q19, an improvement of 6bps from 4Q18 and 31bps from 1Q18 and the net interest margin was 2.52% in 1Q19, which increased 3bps from 4Q18 but decreased 22bps from 1Q18

Provision for loan losses

The Company recorded a provision of $1.0 million compared to $0.4 million in 4Q18 and $0.2 million in 1Q18.

  • 1Q19 includes charge-offs totaling $1.1 million from one commercial business relationship, after charge-off the remaining book balance for this relationship was $0.9 million

  • Recorded net charge-offs (recoveries) of $0.9 million in 1Q19, ($0.2) million in 4Q18 and ($38,000) in 1Q18

Non-interest Income

Non-interest income for 1Q19 was $0.9 million, a decrease of $2.3 million YoY, but an increase of $1.9 million QoQ.

  • Non-interest income included net losses from fair value adjustments of $2.1 million in 1Q19, $3.6 million in 4Q18,  and $0.1 million in 1Q18, losses from the sale of securities of $1.9 million in 4Q18, gains from sale of assets of $1.1 million in 4Q18 and life insurance proceeds of $43,000 in 1Q19 and $0.8 million in 1Q18

  • Absent all above items, non-interest income was $3.0 million, an increase of $0.5 million, or 18.1% YoY, but a decrease of $0.4 million, 11.8% QoQ

Non-interest Expense

Non-interest expense for 1Q19 was $32.4 million, an increase of $1.1 million, or 3.6% YoY, and $6.7 million, or 25.9% QoQ.

  • 1Q19 includes seasonal expenses totaling $3.0 million and a one-time expense of $0.5 million from the acceleration of employee benefits upon an officer’s death

  • Salaries and benefits increased $0.7 million YoY primarily due to annual salary increases and $4.1 million QoQ

  • Non-interest expense (excluding: salaries and benefits expense and director restricted stock unit expense) totaled $12.2 million in 1Q19, an increase of $0.6 million, or 5.3% YoY and $1.6 million, or 15.6% QoQ

  • The ratio of non-interest expense to average assets was 1.89% in 1Q19 compared to 1.54% in 4Q18 and 1.95% in 1Q18

  • The efficiency ratio was 70.4% in 1Q19 compared to 58.5% in 4Q18 and 69.3% in 1Q18

Provision for Income Taxes

The provision for income taxes in 1Q19 was $2.3 million, a decrease of $0.7 million, or 22.5% YoY but an increase of $1.2 million, or 118.6% QoQ.

  • Pre-tax income decreased by $5.0 million, or 34.9% YoY and by $4.1 million, or 30.5% QoQ

  • The effective tax rates were 24.5% in 1Q19, 7.8% in 4Q18 and 20.5% in 1Q18

  • Both 1Q19 and 1Q18 reflects the vesting of restricted stock awards, which are treated as discrete items for tax purposes. Additionally, 4Q18 reflects the release of a previously accrued tax liability of $1.8 million

  • Absent the above items, the effective tax rates were 23.8% in 1Q19, 20.9% in 4Q18 and 24.6% in 1Q18

Financial Condition Summary:

Loans:

  • Net loans held for investment were $5,567.7 million reflecting an increase of 0.7% QoQ (not annualized) and 5.2% from March 31, 2018, as we continue to focus on the origination of multi-family, commercial real estate and commercial business loans with a full relationship while emphasizing rate over volume

  • Loan closings of multi-family, commercial real estate and commercial business loans totaled $171.5 million for 1Q19, or 86.6% of loan production

  • Loan pipeline was $274.8 million at March 31, 2019, compared to $196.6 million at December 31, 2018 and $325.6 million at March 31, 2018

  • The loan-to-value ratio on our portfolio of real estate dependent loans as of March 31, 2019 totaled 38.7%

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

  For the three months ended 
  March 31, December 31, March 31, 
Loan type 2019 2018 2018 
Mortgage loans 5.14% 4.79% 4.15% 
Non-mortgage loans 4.96% 5.11% 4.43% 
Total loans 5.02% 4.90% 4.27% 
        

Credit Quality:

  • Non-performing assets and loans totaled $15.7 million, a decrease of $0.5 million, or 3.2%, from $16.3 million at December 31, 2018

  • Classified assets totaled $39.1 million, a decrease of $7.4 million, or 15.8%, from $46.5 million at December 31, 2018, primarily due to two commercial business loan relationships totaling $6.6 million; one relationship made substantial payments and upgraded while the other relationship was written-down by $1.1 million to a remaining book value of $0.9 million

  • Loans classified as troubled debt restructured (TDR) totaled $6.6 million, a decrease of $1.7 million, or 20.6%, from $8.4 million at December 31, 2018

  • We anticipate continued low loss content in the portfolio, as our strong underwriting standards coupled with our practice of obtaining updated appraisals and recording charge-offs early in the delinquency process has resulted in a 33.9% average loan-to-value for non-performing loans collateralized by real estate

  • Net charge-offs totaled $0.9 million

Capital Management:

  • The Company and Bank, at March 31, 2019, were both well capitalized under all applicable regulatory requirements

  • During 1Q19, stockholders’ equity increased $10.1 million, or 1.8%, to $559.6 million due to net income of $7.1 million and an improvement in the fair value of the securities portfolio, partially offset by the declaration and payment of dividends on the Company’s common stock

  • During 1Q19, the Company did not repurchase any shares; as of March 31, 2019, up to 467,211 shares remained subject to repurchase under the authorized stock repurchase program, which has no expiration or maximum dollar limit

  • Book value per common share increased to $19.85 at March 31, 2019, from $19.64 at December 31, 2018 and tangible book value per common share, a non-GAAP measure, increased to $19.29 at March 31, 2019, from $19.07 at December 31, 2018

Conference Call Information:

  • John R. Buran, President and Chief Executive Officer, and Susan K. Cullen, Senior Executive Vice President and Chief Financial Officer, will host a conference call on Wednesday, May 1, 2019 at 9:30 AM (ET) to discuss the Company’s strategy and results for the first quarter

  • Dial-in for Live Call: 1-877-509-5836

  • Webcast: https://services.choruscall.com/links/ffic190501.html

  • Dial-in for Replay: 1-877-344-7529

  • Replay Access Code: 10129183

  • The conference call will be simultaneously webcast and archived through 5:00 PM (ET) on May 1, 2020

About Flushing Financial Corporation

Flushing Financial Corporation (Nasdaq: FFIC) is the holding company for Flushing Bank®, a New York State-chartered commercial bank insured by the Federal Deposit Insurance Corporation. The Bank serves consumers, businesses, professionals, corporate clients, and public entities by offering a full complement of deposit, loan, equipment finance, and cash management services through its banking offices located in Queens, Brooklyn, Manhattan, and on Long Island. As a leader in real estate lending, the Bank’s experienced lending team creates mortgage solutions for real estate owners and property managers both within and outside the New York City metropolitan area. Flushing Bank is an Equal Housing Lender. The Bank also operates an online banking division consisting of iGObanking.com®, which offers competitively priced deposit products to consumers nationwide, and BankPurely®, an eco-friendly, healthier lifestyle community brand.

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

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Statements in this Press Release relating to plans, strategies, economic performance and trends, projections of results of specific activities or investments and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, risk factors discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and in other documents filed by the Company with the Securities and Exchange Commission from time to time. Forward-looking statements may be identified by terms such as “may”, “will”, “should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “forecasts”, “goals”, “potential” or “continue” or similar terms or the negative of these terms. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The Company has no obligation to update these forward-looking statements. 

1 See the tables entitled “Reconciliation of GAAP Earnings and Core Earnings” and “Reconciliation of GAAP Net Interest Income and Net Interest Margin to Core Net Interest Income and Net Interest Margin.”

- Statistical Tables Follow -

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)

   For the three months ended
   March 31 December 31, March 31
    2019   2018   2018 
        
Interest and Dividend Income      
Interest and fees on loans $  62,330  $  60,722  $  55,017 
Interest and dividends on securities:      
  Interest    6,909     6,376     5,468 
  Dividends    19     18     14 
Other interest income    555     317     287 
    Total interest and dividend income    69,813     67,433     60,786 
        
Interest Expense      
Deposits    21,469     20,174     12,110 
Other interest expense    6,541     6,623     6,067 
    Total interest expense    28,010     26,797     18,177 
        
Net Interest Income    41,803     40,636     42,609 
Provision for loan losses    972     422     153 
Net Interest Income After Provision for Loan Losses    40,831     40,214     42,456 
        
Non-interest Income      
Banking services fee income    973     1,065     948 
Net loss on sale of securities    -      (1,920)    -  
Net gain (loss) on sale of loans     63     -      (263)
Net gain on sale of assets     -      1,141     -  
Net loss from fair value adjustments    (2,080)    (3,585)    (100)
Federal Home Loan Bank of New York stock dividends    903     946     876 
Life insurance proceeds    43     -      776 
Bank owned life insurance    740     779     762 
Other income    301     588     201 
    Total non-interest income (loss)    943     (986)    3,200 
        
Non-interest Expense      
Salaries and employee benefits    19,166     15,094     18,455 
Occupancy and equipment    2,789     2,551     2,577 
Professional services    2,265     1,821     2,185 
FDIC deposit insurance    485     472     500 
Data processing    1,492     1,409     1,401 
Depreciation and amortization    1,518     1,464     1,389 
Other real estate owned/foreclosure expense (benefit)    77     (128)    96 
Other operating expenses    4,627     3,077     4,691 
    Total non-interest expense    32,419     25,760     31,294 
        
Income Before Income Taxes    9,355     13,468     14,362 
        
Provision for Income Taxes      
Federal    1,943     349     2,607 
State and local    344     697     343 
    Total taxes    2,287     1,046     2,950 
        
Net Income $  7,068  $  12,422  $  11,412 
        
        
Basic earnings per common share $  0.25  $  0.44  $  0.39 
Diluted earnings per common share $  0.25  $  0.44  $  0.39 
Dividends per common share $  0.21  $  0.20  $  0.20 
        

 

 

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

    March 31, December 31, March 31,
     2019   2018   2018 
ASSETS      
Cash and due from banks$  58,677  $  118,561  $  91,959 
Securities held-to-maturity:     
 Mortgage-backed securities   7,949     7,953     7,968 
 Other securities   22,532     24,065     23,267 
Securities available for sale:     
 Mortgage-backed securities   579,185     557,953     512,781 
 Other securities   266,839     264,702     216,480 
Loans:      
 Multi-family residential   2,256,447     2,269,048     2,286,803 
 Commercial real estate   1,529,001     1,542,547     1,426,847 
 One-to-four family ― mixed-use property   582,049     577,741     566,930 
 One-to-four family ― residential   188,615     190,350     190,115 
 Co-operative apartments   7,903     8,498     6,826 
 Construction   54,933     50,600     23,887 
 Small Business Administration   15,188     15,210     20,004 
 Taxi medallion   3,891     4,539     6,617 
 Commercial business and other   935,297     877,763     768,440 
 Net unamortized premiums and unearned loan fees   15,422     15,188     16,395 
 Allowance for loan losses   (21,015)    (20,945)    (20,542)
   Net loans   5,567,731     5,530,539     5,292,322 
Interest and dividends receivable   27,226     25,485     22,578 
Bank premises and equipment, net   29,798     30,418     31,314 
Federal Home Loan Bank of New York stock   51,182     57,282     54,045 
Bank owned life insurance   131,794     131,788     130,653 
Goodwill    16,127     16,127     16,127 
Right of Use Asset   44,033     -     - 
Other assets   64,377     69,303     83,277 
   Total assets$  6,867,450  $  6,834,176  $  6,482,771 
         
LIABILITIES     
Due to depositors:     
  Non-interest bearing$  401,064  $  413,747  $  377,861 
  Certificate of deposit accounts   1,511,770     1,563,310     1,499,326 
  Savings accounts   201,811     210,022     246,888 
  Money market accounts   1,352,843     1,427,992     1,032,409 
  NOW accounts   1,542,606     1,300,852     1,479,319 
   Total  deposits   5,010,094     4,915,923     4,635,803 
Mortgagors' escrow deposits   70,115     44,861     65,979 
Borrowed funds    1,116,416     1,250,843     1,177,101 
Operating Lease Liability   52,510     -     - 
Other liabilities   58,756     73,085     68,581 
   Total liabilities   6,307,891     6,284,712     5,947,464 
         
STOCKHOLDERS' EQUITY     
Preferred stock (5,000,000 shares authorized; none issued)   -     -     - 
Common stock ($0.01 par value; 100,000,000 shares authorized; 31,530,595 shares     
 issued at March 31, 2019, December 31, 2018 and March 31, 2018; 28,187,184     
 shares, 27,983,637 shares and 28,546,443 shares outstanding at March 31, 2019,      
 December 31, 2018 and March 31, 2018, respectively)   315     315     315 
Additional paid-in capital   222,859     222,720     219,115 
Treasury stock (3,343,411 shares, 3,546,958 shares and 2,984,152 shares at     
 March 31, 2019, December  31, 2018 and March 31, 2018, respectively)   (70,929)    (75,146)    (60,737)
Retained earnings   417,856     414,327     388,568 
Accumulated other comprehensive loss, net of taxes   (10,542)    (12,752)    (11,954)
   Total stockholders' equity   559,559     549,464     535,307 
         
   Total liabilities and stockholders' equity$  6,867,450  $  6,834,176  $  6,482,771 
         

 

 

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

  At or for the three months ended 
  March 31, December 31, March 31, 
  2019 2018 2018 
Per Share Data       
Basic earnings per share $  0.25 $  0.44 $  0.39 
Diluted earnings per share $  0.25 $  0.44 $  0.39 
Average number of shares outstanding for:       
  Basic earnings per common share computation    28,621,018    28,422,215    28,974,156 
  Diluted earnings per common share computation    28,621,030    28,422,517    28,974,757 
Shares outstanding    28,187,184    27,983,637    28,546,443 
Book value per common share (1) $  19.85 $  19.64 $  18.75 
Tangible book value per common share (2) $  19.29 $  19.07 $  18.20 
        
Stockholders' Equity       
Stockholders' equity $  559,559 $  549,464 $  535,307 
Tangible stockholders' equity    543,722    533,627    519,471 
        
Average Balances       
Total loans, net $  5,544,667 $  5,438,418 $  5,231,377 
Total interest-earning assets    6,521,142    6,364,456    6,098,706 
Total assets    6,868,140    6,681,161    6,403,396 
Total due to depositors    4,598,305    4,453,200    4,176,457 
Total interest-bearing liabilities    5,811,263    5,654,560    5,442,554 
Stockholders' equity    552,621    541,067    529,281 
        
Performance Ratios (3)       
Return on average assets    0.41%   0.74%   0.71%
Return on average equity    5.12    9.18    8.62 
Yield on average interest-earning assets (4)    4.29    4.25    4.00 
Cost of average interest-bearing liabilities    1.93    1.90    1.34 
Cost of funds    1.80    1.77    1.25 
Interest rate spread during period (4)    2.36    2.35    2.66 
Net interest margin (4)    2.57    2.57    2.81 
Non-interest expense to average assets    1.89    1.54    1.95 
Efficiency ratio (5)    70.37    58.53    69.34 
Average interest-earning assets to average       
  interest-bearing liabilities    1.12 X   1.13 X   1.12 X
        


(1)  Calculated by dividing stockholders’ equity by shares outstanding.
(2)  Calculated by dividing tangible stockholders’ common equity, a non-GAAP measure by shares outstanding. Tangible stockholders’ common equity is stockholders’ equity less intangible assets (goodwill, net of deferred taxes). See “Calculation of Tangible Stockholders’ Common Equity to Tangible Assets”.
(3)  Ratios are presented on an annualized basis, where appropriate.
(4)  Yields are calculated on the tax equivalent basis using the statutory federal income tax rate of 21% for the periods presented.
(5)  Efficiency ratio, a non-GAAP measure, was calculated by dividing non-interest expense (excluding accelerated employee benefits upon officers death, OREO expense and the net gain/loss from the sale of OREO) by the total of net interest income (excluding net losses from fair value adjustments on qualifying hedges) and non-interest income (excluding net gains and losses from the sale of securities, assets and fair value adjustments and life insurance proceeds).

    

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands)
(Unaudited)

  At or for the three  At or for the year  At or for the three 
  ended  ended  months ended 
  March 31, 2019  December 31, 2018  March 31, 2018 
          
Selected Financial Ratios and Other Data         
          
Regulatory capital ratios (for Flushing Financial Corporation):         
  Tier 1 capital $  594,196  $  586,582  $  568,635 
  Common equity Tier 1 capital    552,793     546,230     531,305 
  Total risk-based capital    690,211     682,527     664,177 
          
  Tier 1 leverage capital (well capitalized = 5%)    8.63 %    8.74 %    8.86 %
  Common equity Tier 1 risk-based capital (well capitalized = 6.5%)    10.90     10.98     11.17 
  Tier 1 risk-based capital (well capitalized = 8.0%)    11.72     11.79     11.95 
  Total risk-based capital (well capitalized = 10.0%)    13.61     13.72     13.96 
          
Regulatory capital ratios (for Flushing Bank only):         
  Tier 1 capital $  663,467  $  660,782  $  637,091 
  Common equity Tier 1 capital    663,467     660,782     637,091 
  Total risk-based capital    684,482     681,727     657,633 
          
  Tier 1 leverage capital (well capitalized = 5%)    9.64 %    9.85 %    9.92 %
  Common equity Tier 1 risk-based capital (well capitalized = 6.5%)    13.08     13.28     13.39 
  Tier 1 risk-based capital (well capitalized = 8.0%)    13.08     13.28     13.39 
  Total risk-based capital (well capitalized = 10.0%)    13.49     13.70     13.82 
          
Capital ratios:         
  Average equity to average assets    8.05 %    8.22 %    8.27 %
  Equity to total assets    8.15     8.04     8.26 
  Tangible common equity to tangible assets (1)    7.94     7.83     8.03 
          
Asset quality:         
  Non-accrual loans (2) $  15,735  $  16,253  $  14,972 
  Non-performing loans    15,735     16,253     16,640 
  Non-performing assets    15,770     16,288     17,384 
  Net charge-offs/ (recoveries)    902     (19)    (38)
          
Asset quality ratios:         
  Non-performing loans to gross loans    0.28 %    0.29 %    0.31 %
  Non-performing assets to total assets    0.23     0.24     0.27 
  Allowance for loan losses to gross loans    0.38     0.38     0.39 
  Allowance for loan losses to non-performing assets    133.26     128.60     118.17 
  Allowance for loan losses to non-performing loans    133.55     128.87     123.45 
          
Full-service customer facilities    19     19     18 
          

 

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

 

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

 For the three months ended  
 March 31, 2019 December 31, 2018 March 31, 2018  
 Average Yield/ Average Yield/ Average Yield/  
 BalanceInterestCost BalanceInterestCost BalanceInterestCost  
 (Dollars in thousands)  
Interest-earning Assets:             
  Mortgage loans, net $  4,619,587$  50,845  4.40%$  4,555,895$  49,789  4.37%$  4,442,870$  46,112  4.15% 
  Other loans, net    925,080   11,485  4.97    882,523   10,933  4.96    788,507   8,905  4.52  
    Total loans, net (1) (2)   5,544,667   62,330  4.50    5,438,418   60,722  4.47    5,231,377   55,017  4.21  
 Taxable securities:             
  Mortgage-backed             
  securities   573,397   4,248  2.96    558,693   4,004  2.87    524,710   3,507  2.67  
  Other securities   241,863   2,211  3.66    184,592   1,586  3.44    131,078   1,121  3.42  
    Total taxable securities   815,260   6,459  3.17    743,285   5,590  3.01    655,788   4,628  2.82  
 Tax-exempt securities: (3)             
  Other securities   58,173   594  4.08    114,079   1,018  3.57    124,125   1,081  3.48  
    Total tax-exempt securities   58,173   594  4.08    114,079   1,018  3.57    124,125   1,081  3.48  
  Interest-earning deposits             
  and federal funds sold   103,042   555  2.15    68,674   317  1.85    87,416   287  1.31  
Total interest-earning              
  assets   6,521,142   69,938  4.29    6,364,456   67,647  4.25    6,098,706   61,013  4.00  
Other assets   346,998      316,705      304,690    
      Total assets$  6,868,140   $  6,681,161   $  6,403,396    
              
              
Interest-bearing Liabilities:             
  Deposits:             
   Savings accounts$  205,775   361  0.70 $  213,091   392  0.74 $  265,895   389  0.59  
   NOW accounts   1,488,859   6,031  1.62    1,312,834   4,968  1.51    1,540,465   3,148  0.82  
   Money market accounts   1,380,172   6,821  1.98    1,348,873   6,523  1.93    1,025,727   3,075  1.20  
   Certificate of deposit             
    accounts   1,523,499   8,203  2.15    1,578,402   8,276  2.10    1,344,370   5,463  1.63  
   Total due to depositors   4,598,305   21,416  1.86    4,453,200   20,159  1.81    4,176,457   12,075  1.16  
   Mortgagors' escrow             
    accounts   62,174   53  0.34    71,108   15  0.08    58,960   35  0.24  
     Total interest-bearing             
      deposits   4,660,479   21,469  1.84    4,524,308   20,174  1.78    4,235,417   12,110  1.14  
   Borrowings   1,150,784   6,541  2.27    1,130,252   6,623  2.34    1,207,137   6,067  2.01  
     Total interest-bearing             
       liabilities   5,811,263   28,010  1.93    5,654,560   26,797  1.90    5,442,554   18,177  1.34  
Non interest-bearing             
  demand deposits   398,829      406,501      364,983    
Other liabilities   105,427      79,033      66,578    
      Total liabilities   6,315,519      6,140,094      5,874,115    
Equity   552,621      541,067      529,281    
      Total liabilities and             
        equity$  6,868,140   $  6,681,161   $  6,403,396    
              
Net interest income /             
  net interest rate spread (tax equivalent) (3) $  41,928  2.36% $  40,850  2.35% $  42,836  2.66% 
              
Net interest-earning assets /             
  net interest margin (tax equivalent)$  709,879   2.57%$  709,896   2.57%$  656,152   2.81% 
              
Ratio of interest-earning             
  assets to interest-bearing             
  liabilities    1.12X    1.13X    1.12 X  


(1)  Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $0.5 million, $0.5 million and $0.1 million for the three months ended March 31, 2019, December 31, 2018 and March 31, 2018, respectively.
(2)  Loan interest income includes net losses from fair value adjustments on qualifying hedges of $0.6 million, none and none for the three months ended March 31, 2019, December 31, 2018 and March 31, 2018, respectively.
(3)  Interest and yields are calculated on the tax equivalent basis using the statutory federal income tax rate of 21% for the periods presented totaling $125,000, $214,000 and $227,000, respectively.


FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
DEPOSIT COMPOSITION
(Unaudited)

            March 2019 vs.   March 2019 vs. 
    March 31, December 31, September 30, June 30, December 2018  March 31, March 2018 
(Dollars in thousands)2019 2018 2018 2018 % Change 2018 % Change 
Deposits               
Non-interest bearing$  401,064 $  413,747 $  398,606 $  388,467 -3.1% $  377,861 6.1% 
Interest bearing:              
 Certificate of deposit              
  accounts   1,511,770    1,563,310    1,562,962    1,452,016 -3.3%    1,499,326 0.8% 
 Savings accounts   201,811    210,022    216,976    225,815 -3.9%    246,888 -18.3% 
 Money market accounts   1,352,843    1,427,992    1,223,640    1,069,835 -5.3%    1,032,409 31.0% 
 NOW accounts   1,542,606    1,300,852    1,255,464    1,422,745 18.6%    1,479,319 4.3% 
  Total interest-bearing              
   deposits   4,609,030    4,502,176    4,259,042    4,170,411 2.4%    4,257,942 8.2% 
                  
   Total deposits$  5,010,094 $  4,915,923 $  4,657,648 $  4,558,878 1.9% $  4,635,803 8.1% 


 

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
LOANS
(Unaudited)

Loan Closings

   For the three months 
   March 31 December 31, March 31 
 (In thousands)  2019  2018  2018 
 Multi-family residential $  27,214 $  85,095 $  81,181 
 Commercial real estate    13,941    95,772    71,554 
 One-to-four family – mixed-use property    16,423    28,924    16,068 
 One-to-four family – residential    3,886    7,356    16,968 
 Co-operative apartments    -     948    -  
 Construction    5,901    8,968    14,679 
 Small Business Administration    329    1,304    1,967 
 Commercial business and other    130,330    116,365    139,407 
   Total $  198,024 $  344,732 $  341,824 
         

Loan Composition

            March 2019 vs.   March 2019 vs.
    March 31, December 31, September 30, June 30, December 2018 March 31, March 2018
(Dollars in thousands) 2019   2018   2018   2018  % Change  2018  % Change
Loans held for investment:               
Multi-family residential$  2,256,447  $  2,269,048  $  2,235,370  $  2,247,852  -0.6%  $  2,286,803  -1.3% 
Commercial real estate   1,529,001     1,542,547     1,460,555     1,471,894  -0.9%     1,426,847  7.2% 
One-to-four family ―               
 mixed-use property   582,049     577,741     565,302     564,474  0.7%     566,930  2.7% 
One-to-four family ― residential   188,615     190,350     188,975     187,741  -0.9%     190,115  -0.8% 
Co-operative apartments   7,903     8,498     7,771     7,839  -7.0%     6,826  15.8% 
Construction   54,933     50,600     40,239     33,826  8.6%     23,887  130.0% 
Small Business Administration   15,188     15,210     14,322     14,405  -0.1%     20,004  -24.1% 
Taxi medallion   3,891     4,539     6,078     6,225  -14.3%     6,617  -41.2% 
Commercial business and other   935,297     877,763     846,224     783,904  6.6%     768,440  21.7% 
Net unamortized premiums               
 and unearned loan fees   15,422     15,188     15,226     15,647  1.5%     16,395  -5.9% 
Allowance for loan losses   (21,015)    (20,945)    (20,309)    (20,220) 0.3%     (20,542) 2.3% 
   Net loans$  5,567,731  $  5,530,539  $  5,359,753  $  5,313,587  0.7%  $  5,292,322  5.2% 

 

Net Loans Activity

  Three Months Ended
  March 31, December 31, September 30, June 30, March 31,
(In thousands)  2019   2018   2018   2018   2018 
Loans originated and purchased$  198,024  $  344,732  $  308,825  $  255,410  $  341,824 
Principal reductions   (158,815)    (173,061)    (257,902)    (226,030)    (202,059)
Loans sold    (1,043)    -      (4,027)    (7,273)    (2,703)
Loan charged-offs   (1,138)    (211)    (220)    (416)    (85)
Foreclosures    -      -      -      -      (744)
Net change in deferred fees and costs   234     (38)    (421)    (748)    (368)
Net change in the allowance for loan losses   (70)    (636)    (89)    322     (191)
 Total loan activity$  37,192  $  170,786  $  46,166  $  21,265  $  135,674 

 

 

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

   March 31, December 31, September 30, June 30, March 31,
(Dollars in thousands)  2019   2018   2018   2018   2018 
Loans 90 Days Or More Past Due          
 and Still Accruing:          
Commercial real estate $  -  $  -  $  111  $  -  $  1,668 
Construction    -     -     -     730     - 
 Total    -     -     111     730     1,668 
            
Non-accrual Loans:          
Multi-family residential    2,009     2,410     862     2,165     2,193 
Commercial real estate    1,050     1,379     1,398     1,448     1,894 
One-to-four family - mixed-use property    1,305     928     795     2,157     2,396 
One-to-four family - residential    5,708     6,144     6,610     6,969     7,542 
Co-operative apartments    -     -     -     575     - 
Construction    950     -     -     -     - 
Small Business Administration    1,227     1,267     1,395     -     41 
Taxi medallion(1)    1,372     613     712     743     906 
Commercial business and other    2,114     3,512     761     2     - 
 Total    15,735     16,253     12,533     14,059     14,972 
            
 Total Non-performing Loans    15,735     16,253     12,644     14,789     16,640 
            
Other Non-performing Assets:          
Real estate acquired through foreclosure    -     -     -     -     638 
Other asset acquired through foreclosure    35     35     35     35     106 
 Total    35     35     35     35     744 
            
 Total Non-performing Assets $  15,770  $  16,288  $  12,679  $  14,824  $  17,384 
            
Non-performing Assets to Total Assets  0.23%  0.24%  0.19%  0.23%  0.27%
Allowance For Loan Losses to Non-performing Loans  133.6%  128.9%  160.6%  136.7%  123.5%
            

(1)  Not included in the above analysis are non-accrual performing TDR taxi medallion loans totaling $2.5 million in 1Q19, $3.9 million in 4Q18, $5.4 million in 3Q18, $5.5 million in 2Q18 and $5.7 million in 1Q18.

Net Charge-Offs (Recoveries)

   Three Months Ended 
   March 31, December 31, September 30, June 30, March 31, 
(In thousands)  2019   2018   2018   2018   2018  
Multi-family residential $  (13) $  (4) $  18  $  28  $  51  
Commercial real estate    -     -     -     -     -  
One-to-four family – mixed-use property    (85)    (18)    (36)    (79)    -  
One-to-four family – residential    (4)    (199)    (258)    (4)    (107) 
Small Business Administration    (4)    170     134     18     19  
Taxi medallion    (84)    (143)    40     353     -  
Commercial business and other    1,092     (20)    13     6     (1) 
  Total net loan charge-offs (recoveries) $  902  $  (214) $  (89) $  322  $  (38) 
             

Core Diluted EPS, Core ROAE, Core ROAA, Core Net Interest Income, Core Yield on Total Loans, Core Net Interest Margin and tangible book value per common share are each non-GAAP measures used in this release. A reconciliation to the most directly comparable GAAP financial measures appears below in tabular form. The Company believes that these measures are useful for both investors and management to understand the effects of certain interest and non-interest items and provide an alternative view of the Company's performance over time and in comparison to the Company's competitors. These measures should not be viewed as a substitute for net income. The Company believes that tangible book value per common share is useful for both investors and management as these are measures commonly used by financial institutions, regulators and investors to measure the capital adequacy of financial institutions. The Company believes these measures facilitate comparison of the quality and composition of the Company's capital over time and in comparison to its competitors. These measures should not be viewed as a substitute for total shareholders' equity.

These non-GAAP measures have inherent limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for analysis of results reported under GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies.

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
RECONCILIATION OF GAAP EARNINGS and CORE EARNINGS
(Dollars in thousands, except per share data)
(Unaudited) 

  Three Months Ended 
  March 31,December 31,March 31, 
   2019  2018  2018  
            
   
      
GAAP income before income taxes$  9,355 $  13,468 $  14,362  
      
Net loss from fair value adjustments   2,080    3,585    100  
Net loss on sale of securities   -    1,920    -  
Gain from life insurance proceeds   (43)   -    (776) 
Net gain on sale of assets   -    (1,141)   -  
Net losses from fair value adjustments on qualifying hedges   637    -    -  
Accelerated employee benefits upon Officer's death   455    -    -  
      
Core income before taxes   12,484    17,832    13,686  
      
Provision for income taxes for core income   3,033    2,395    2,982  
      
Core net income$  9,451 $  15,437 $  10,704  
      
GAAP diluted earnings per common share$  0.25 $  0.44 $  0.39  
      
Net loss from fair value adjustments, net of tax   0.05    0.09    -   
Net loss on sale of securities, net of tax   -     0.05    -   
Gain from life insurance proceeds   -     -     (0.03) 
Net gain on sale of assets, net of tax   -     (0.03)   -   
Net losses from fair value adjustments on qualifying hedges, net of tax   0.02    -     -   
Accelerated employee benefits upon Officer's death, net of tax   0.01    -     -   
      
Core diluted earnings per common share1$  0.33 $  0.54 $  0.37  
      
      
Core net income, as calculated above$  9,451 $  15,437 $  10,704  
Average assets   6,868,140    6,681,161    6,403,396  
Average equity   552,621    541,067    529,281  
Core return on average assets2 0.55% 0.92% 0.67% 
Core return on average equity2 6.84% 11.41% 8.09% 
      
      
(1)  Core diluted earnings per common share may not foot due to rounding.   
(2)  Ratios are calculated on an annualized basis.    
      


FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
RECONCILIATION OF GAAP NET INTEREST INCOME and NET INTEREST MARGIN
To CORE NET INTEREST INCOME and NET INTEREST MARGIN
(Dollars in thousands)
(Unaudited) 

  Three Months Ended 
  March 31,December 31,March 31, 
   2019  2018  2018  
            
   
      
GAAP net interest income$  41,803 $  40,636 $  42,609  
Net losses from fair value adjustments on qualifying hedges   637    -    -  
Core net interest income$  42,440 $  40,636 $  42,609  
      
      
GAAP interest income on total loans, net$  62,330 $  60,722 $  55,017  
Net losses from fair value adjustments on qualifying hedges   637    -    -  
Prepayment penalties received on loans   (805)   (892)   (913) 
Net recoveries of interest from non-accrual loans   (714)   (276)   (166) 
Core interest income on total loans, net$  61,448 $  59,554 $  53,938  
Average total loans, net$  5,544,667 $  5,438,418 $  5,231,377  
Core yield total loans, net 4.43% 4.38% 4.12% 
      
      
Net interest income tax equivalent$  41,928 $  40,850 $  42,836  
Net losses from fair value adjustments on qualifying hedges   637    -    -  
Prepayment penalties received on loans   (805)   (892)   (913) 
Net recoveries of interest from non-accrual loans   (714)   (276)   (166) 
Net interest income used in calculation of Core net interest margin$  41,046 $  39,682 $  41,757  
Total average interest-earning assets$  6,521,142 $  6,364,456 $  6,098,706  
Core net interest margin 2.52% 2.49% 2.74% 

 

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

      March 31,December 31,March 31,
(Dollars in thousands)   2019  2018  2018 
Total Equity  $  559,559 $  549,464 $  535,307 
Less:       
 Goodwill     (16,127)   (16,127)   (16,127)
 Intangible deferred tax liabilities    290    290    291 
  Tangible Stockholders' Common Equity$  543,722 $  533,627 $  519,471 
         
Total Assets  $  6,867,450 $  6,834,176 $  6,482,771 
Less:       
 Goodwill     (16,127)   (16,127)   (16,127)
 Intangible deferred tax liabilities    290    290    291 
  Tangible Assets  $  6,851,613 $  6,818,339 $  6,466,935 
         
Tangible Stockholders' Common Equity to Tangible Assets 7.94% 7.83% 8.03%


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