Flushing Financial Corporation Reports First Quarter 2020 Results

FIRST QUARTER 20201 HIGHLIGHTS

• GAAP diluted EPS was ($0.05), compared to $0.45 in 4Q19 and $0.25 in 1Q19
• Core diluted EPS was $0.19, compared to $0.41 in 4Q19 and $0.33 in 1Q19
• Net interest margin was 2.44%, down 4bps QoQ and 13bps YoY
• Core net interest margin was 2.49%, up 16bps QoQ and down 3bps YoY
• GAAP net interest income of $40.8 million, down 0.9% QoQ and 2.3% YoY
• Core net interest income of $42.9 million, up 7.0% QoQ and 1.1% YoY
• GAAP and core ROAE (1.0)% and 3.8%, respectively, compared with 9.1% and 8.4%, respectively in 4Q19
• GAAP and core ROAA were (0.1)% and 0.3%, respectively, compared with 0.7% and 0.7%, respectively in 4Q19
• Loan pipeline remains strong at $324.4 million
• Provision for credit losses of $7.2 million, $0.18 after-tax per diluted common share, driven mainly by economic conditions arising from COVID-19 pandemic
• Net charge-offs were $1.1 million, compare to net recoveries of $34,000 in 4Q19 and net charge-offs of $0.9 million in 1Q19

UNIONDALE, N.Y., April 28, 2020 (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, 2020.

John R. Buran, President and Chief Executive Officer stated, “Our thoughts go out to those most affected by COVID-19, especially those on the front lines. The health and welfare of our employees and customers remains our top priority as we navigate through the COVID-19 pandemic.”

“We were quick to respond to the pandemic with new health and safety measures, including social distancing, appointment banking and expansion of our remote capabilities. Our staff responded to these changes in a superb fashion and continue to provide our customers with excellent service. Today we have the capability of having our entire staff work remotely. On any given day, as many as 85% of staff work from home.”

“Our GAAP earnings for the quarter were affected by two COVID-19 related non-cash charges totaling $0.38 per share, after-tax, that caused the Company to record a loss of $0.05 per diluted share for the quarter. The Federal Reserve’s dramatic 150 basis point drop in rates provided the country with much needed liquidity to counteract the negative economic effects of the COVID-19 pandemic. As a result, we recorded mark to market adjustments on items carried at fair value under the fair value option and on our derivative portfolio totaling $0.20 per share, after-tax.”

“Given the negative economic environment at the end of the quarter caused by the COVID-19 pandemic, we adjusted our economic forecast in our current expected credit loss (“CECL”) modeling resulting in a $7.2 million charge, or $0.18 per share, after-tax to earnings for the quarter. When the Company adopted CECL on January 1, 2020, in the then favorable economic environment resulted in a $1.3 million increase in the allowance. As a result of CECL, our overall allowance for credit losses increased by approximately 30%.”

“Core earnings for the quarter were $5.5 million, or $0.19 per diluted share. Core earnings were driven by 3% (not annualized) loan growth for the quarter and a 16 basis point improvement in core net interest margin. Our core revenue before provision for credit losses and taxes totaled $46.1 million, an increase of $2.1 million quarter over quarter.”

“Our non-performing assets at the end of the quarter were 23 basis points of total assets. Today, 87% of our portfolio is real estate based with an average loan to value of less than 40% and an average debt coverage ratio of 1.83.”

“As a result of the pandemic, almost all industries have experienced adverse impact, including those represented in our loan portfolio. At March 31, 2020, we had approximately $1.5 billion in loans to industries severely impacted by COVID-19.”

“During these tumultuous times, we are actively assisting our customers by providing short-term forbearances in the form of deferrals of interest, principal and/or escrow for terms ranging from one to six months. Through April 17th, we have approved forbearances for loans with an aggregate outstanding loan balance of approximately $839 million of which $673 million is in our real estate portfolio and $166 million is in our business banking portfolio. Given the pandemic and current economic environment, we continue to see the need for our customers to modify loans. We actively participated in the SBA Paycheck Protection Program, gaining approval to fund up to $64 million of these loans.  We also expect to participate in the Main Street Lending Program in order to assist our customers.”

Mr. Buran concluded, “When the restrictive economic environment begins to lift, we expect to be the beneficiaries of a workforce that is more flexible and dynamic as a result of this experience coupled with a customer base that is highly attuned to our online and mobile banking capabilities, which we have very recently expanded.  We remain committed to helping our communities and customers get through this difficult time.”

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
• Remain well capitalized under all stress test scenarios

Earnings Summary:

Net Interest Income

Net interest income for 1Q20 was $40.8 million, a decrease of $1.0 million, or 2.3% YoY (1Q20 compared to 1Q19) and $0.4 million, or 0.9% QoQ (1Q20 compared to 4Q19).

• Net interest margin of 2.44%, decreased 13bps YoY and 4bps QoQ
• Net interest spread of 2.24%, decreased 12bps YoY and 1bps QoQ
• Yield on average interest-earning assets of 3.98%, decreased 31bps YoY and 23bp QoQ
• Cost of average interest-bearing liabilities of 1.74%, decreased 19bps YoY and 22bps QoQ
• Cost of funds of 1.61%, decreased 19bps YoY and 22bps QoQ
• Average balance of total interest-earning assets of $6,719.9 million, increased $198.7 million, or 3.0%, YoY and $42.5 million, or 0.6%, QoQ
• Net interest income includes prepayment penalty income from loans totaling $0.8 million in 1Q20, $0.9 million in 4Q19 and $0.8 million in 1Q19; recovered interest from delinquent loans of $0.4 million, each in 1Q20 and 4Q19 and $0.7 million in 1Q19; net losses from fair value adjustments on qualifying hedges totaling $2.1 million in 1Q20 and $0.6 million in 1Q19 and net gain from fair value adjustments on qualifying hedges totaling $1.0 million in 4Q19
• Absent all above items noted in the preceding bullet, the yield on interest-earning assets was 4.03% in 1Q20, a decrease of 4bps from 4Q19 and 21bps from 1Q19 and the net interest margin was 2.49% in 1Q20, 2.33% in 4Q19 and 2.52% in 1Q19

Provision for credit losses

The Company recorded a provision for credit losses of $7.2 million in 1Q20 compared to a benefit of $0.3 million in 4Q19 and a provision of $1.0 million in 1Q19.

• 1Q20 provision for credit losses was primarily driven by deteriorating economic conditions resulting from the impact of COVID-19
• The effect of the deteriorating economic conditions resulted in $4.9 million of provision
• Net charge-offs (recoveries) of $1.1 million in 1Q20, ($34,000) in 4Q19 and $0.9 million in 1Q19
• Provision expense of approximately $1.2 million was recognized due to growth in the loan portfolio
• The adoption of CECL has increased the current allowance and may introduce volatility in future provisions due to the assumptions used for the macroeconomic variables, loan composition and product mix, as they are all subject to change

Non-interest Income (Loss)

Non-interest loss for 1Q20 was $2.9 million, a decrease of $3.8 million YoY, and $7.9 million QoQ

• Non-interest income included net losses from fair value adjustments of $6.0 million in 1Q20 and net gains from fair value adjustments of $0.8 million in 4Q19 and net losses from fair value of $2.1 million in 1Q19
• Additionally, non-interest income included net gains on sale of loans of $42,000 in 1Q20, $0.5 million in 4Q19 and $0.1 million in 1Q19; and life insurance proceeds of $0.4 million in 4Q19 and $43,000 in 1Q19
• Absent all above items, non-interest income was $3.1 million in 1Q20, an increase of $0.2 million, or 5.8% YoY, but a decrease of $0.2 million, or 7.1% QoQ

Non-interest Expense

Non-interest expense for 1Q20 was $32.4 million, an increase of $2.7 million, or 9.2 % QoQ, and remained unchanged YoY

• The first quarter of each year includes the impact of annual grants of employee and directors restricted stock awards; restricted stock expense totaling $3.4 million in 1Q20, $1.1 million in 4Q19 and $3.9 million in 1Q19
• Additionally, non-interest expense included merger expenses totaling $0.9 million in 1Q20 and $1.1 million in 4Q19;
• Absent all above items, non-interest expense was $28.1 million in 1Q20, a decrease of $0.5 million, or 1.6% YoY, but an increase of $0.6 million, or 2.2% QoQ
• The ratio of non-interest expense to average assets was to 1.82% in 1Q20 compared to 1.68% in 4Q19 and 1.89% in 1Q19; absent all above items non-interest expense to average assets was 1.58% in 1Q20 compared to 1.55% in 4Q19 and 1.66% in 1Q19
• The efficiency ratio was 68.2% in 1Q20 compared to 65.0% in 4Q19 and 70.4% in 1Q19

Provision (benefit) for Income Taxes

The benefit for income taxes in 1Q20 was $0.2 million, compared to tax expense of $2.3 million in 1Q19 and $4.0 million in 4Q19.

• Pre-tax income decreased by $11.0 million, or 117.1% YoY, and $18.5 million, or 109.5% QoQ
• The effective tax rates were 12.9% in 1Q20, 23.4% in 4Q19 and 24.4% in 1Q19
• Both 1Q20 and 1Q19 reflects the vesting of restricted stock awards, which are treated as discrete items for tax purposes
• Absent the above item, the effective tax rates were 23.7% in 1Q20, 23.4% in 4Q19 and 23.8% in 1Q19

Financial Condition Summary:

Loans:

• Net loans held for investment were $5,904.0 million reflecting an increase of 2.7% from December 31, 2019, as we continue to focus on the origination of full banking relationship loans through C&I loans, multi-family loans and commercial real estate
• Loan closings of commercial business loans, multi-family loans and commercial real estate totaled $269.3 million for 1Q20, or 90.2% of loan production
• Loan pipeline was $324.4 million at March 31, 2020, compared to $324.5 million at December 31, 2019

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

Credit Quality:

• Non-performing loans totaled $16.8 million, an increase of $3.5 million, or 26.4%, from $13.3 million at December 31, 2019
• Non-performing assets totaled $17.0 million, an increase of $3.5 million, or 25.6%, from $13.5 million at December 31, 2019
• Classified assets totaled $27.3 million, an increase of $2.7 million, or 11.0%, from $24.6 million at December 31, 2019
• Loans classified as troubled debt restructured (TDR) totaled $6.3 million, a decrease of $0.2 million, or 2.6%, from $6.5 million at December 31, 2019
• Upon adoption of CECL, we increased the allowance for credit losses by $1.3 million, including $0.6 million for off-balance sheet exposures
• 552 COVID-19 forbearances approved through April 17th totaling $838.7 million
• Over 87% of our gross loans are collateralized by real estate
• The loan-to-value ratio on our portfolio of real estate dependent loans as of March 31, 2020 totaled 38.2%
• Our largest exposures to industries severely impacted by COVID-19 are as follows:

ο Retail – 11.89% of gross loans, with 93.9% of exposure secured by real estate

o Hotels – 4.05% of gross loans, with 95.5% of exposure secured by real estate

o Travel and Leisure – 3.10% of gross loans, with 31.0% of exposure secured by real estate

o Contractors – 3.08% of gross loans, with 66.3% of exposure secured by real estate

o Transportation – 1.75% of gross loans, with 27.4% of exposure secured by real estate

o Restaurants and Catering Halls – 1.22% of gross loans, with 81.5% of exposure secured by real estate

o Schools and Day Care – 0.68% of gross loans, with 78.7% of exposure secured by real estate

• Net charge-offs totaled $1.1 million

Capital Management:

• The Company and Bank, at March 31, 2020, were both well capitalized under all applicable regulatory requirements
• Through 1Q20, stockholders’ equity decreased $30.0 million, or 5.2%, to $549.7 million primarily due to unrealized losses in the fair value of securities and interest rate swaps, coupled with the declaration and payment of dividends on the Company’s common stock
• During 1Q20, the Company repurchase 142,405 shares at an average cost of $16.45 per share; as of March 31, 2020, up to 284,806 shares remained subject to repurchase under the authorized stock repurchase program, which has no expiration or maximum dollar limit
• Book value per common share decreased to $19.48 at March 31, 2020, from $20.59 at December 31, 2019 and tangible book value per common share, a non-GAAP measure, decreased to $18.92 at March 31, 2020, from $20.02 at December 31, 2019

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, April 29, 2020 at 9:30 AM (ET) to discuss the Company’s strategy and results for the fourth quarter
• Dial-in for Live Call: 1-877-509-5836
• Webcast: https://services.choruscall.com/links/ffic200429.html
• Dial-in for Replay: 1-877-344-7529
• Replay Access Code: 10138497
• The conference call will be simultaneously webcast and archived through April 29, 2021

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, 2019 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.

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

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

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

(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 officer’s death, merger expense, OREO expense and the net gain/loss from the sale of OREO) by the total of net interest income (excluding net gains and losses from fair value adjustments on qualifying hedges) and non-interest income (excluding life insurance proceeds, net gains and losses from the sale of securities and fair value adjustments).

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

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

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

(1) Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $0.2 million, $0.3 million and $0.5 million for the three months ended March 31, 2020, December 31, 2019 and March 31, 2019, respectively.(2) Loan interest income includes net losses from fair value adjustments on qualifying hedges of $2.1 million and $0.6 million for the three months ended March 31, 2020 and 2019, respectively; net gains from fair value adjustments on qualifying hedges of $1.0 million for the three months ended December 31, 2019.(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 $0.1 million in each, period.

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIESDEPOSIT COMPOSITION(Unaudited)

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIESLOANS(Unaudited)

Loan Closings

Loan Composition

Net Loans Activity

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

(1) Not included in the above analysis are non-accrual performing TDR taxi medallion loans totaling $1.5 million in 1Q20, $1.7 million in 4Q19, $2.2 million in 3Q19, $2.2 million in 2Q19, and $2.5 million in 1Q19 and non-accrual performing TDR commercial business loans totaling $1.0 million in 1Q20, $0.9 million in 4Q19 and $1.0 million in 3Q19.

Net Charge-Offs (Recoveries)

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIESRECONCILIATION OF GAAP EARNINGS and CORE EARNINGS

Non-cash Fair Value Adjustments to GAAP Earnings

During 2020 and 2019, core earnings were higher than GAAP earnings primarily due to the impact of non-cash net losses from fair value adjustments. These fair value adjustments relate primarily to swaps designated to protect against rising rates. As the swaps get closer to maturity, the volatility in fair value adjustments will dissipate. In a declining interest rate environment, the movement in the curve exaggerates our mark-to-market loss position. In a rising interest rate environment or a steepening of the yield curve the loss position would experience an improvement.

Core Diluted EPS, Core ROAE, Core ROAA, Core Revenue before Provision for Credit Losses and Income Taxes, 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 SUBSIDIARIESRECONCILIATION OF GAAP EARNINGS and CORE EARNINGS(Dollars in thousands, except per share data)(Unaudited)

(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 SUBSIDIARIESRECONCILIATION OF GAAP REVENUE and CORE REVENUEBEFORE PROVISION FOR CREDIT LOSSES and INCOME TAXES(Dollars in thousands, except per share data)(Unaudited)

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIESRECONCILIATION OF GAAP NET INTEREST INCOME and NET INTEREST MARGINTo CORE NET INTEREST INCOME and NET INTEREST MARGIN(Dollars in thousands)(Unaudited)

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

__________________________________

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.”

Susan K. CullenSenior Executive Vice President, Treasurer and Chief Financial OfficerFlushing Financial Corporation(718) 961-5400