FFIC Flushing Financial Corporation

John R. Buran, President and CEO Commentary

UNIONDALE, N.Y., July 25, 2023 (GLOBE NEWSWIRE) -- EPS Improves QoQ; NIM Compression Slows. The Company reported second quarter 2023 GAAP EPS of $0.29, down 64% YoY, but up 71% QoQ. Core EPS totaled $0.26, a decrease of 63% YoY, but an increase of 160% QoQ. The improvement QoQ was primarily driven by the return to normalized credit costs, the absence of seasonal expenses, and the benefit derived from the interest rate hedge strategy. The interest rate hedges slowed the NIM compression, which was only 9 bps QoQ to 2.18%. The interest rate hedges, and other balance sheet actions, have reduced the liability sensitive position significantly over the past year and are beneficial in a “higher-for-longer” rate environment.

Credit Quality Improved; Strong Capital. QoQ, nonperforming assets and criticized and classified assets decreased 6% and 12%, respectively, while net charge offs were 9 basis points. Capital continues to be sound with a TCE¹ of 7.71%, stable QoQ.

¹ Tangible Common Equity (“TCE”)/Total Assets (“TA”) ² See “Reconciliation of GAAP Earnings and Core Earnings”, “Reconciliation of GAAP Revenue and Pre-Provision Pre-Tax Net Revenue”, and “Reconciliation of GAAP Net Interest Margin to Core Net Interest Income and Net Interest Margin.” ³ Net Interest Margin (“NIM”) Fully Taxable Equivalent (“FTE”)

• Net interest margin FTE decreased 117 bps YoY and 9 bps QoQ to 2.18%; Core net interest margin FTE decreased 116 bps YoY and 8 bps QoQ to 2.17%; Both GAAP and Core NIMs benefited from the $450 million of new hedges added in late 1Q23, an additional $400 million in 2Q23, and $250 million of forward hedges that became effective in 2Q23; Overall liability sensitivity has been reduced by 64% over the past year.
• Average total deposits increased 7.1% YoY and 1.3% QoQ to $6.9 billion; average CDs totaled $2.0 billion, up 149.5% YoY and 21.9% QoQ; growth in CDs generally lengthens the duration of customer deposits and helps reduce rate sensitivity
• Period end net loans increased 1.1% YoY, but decreased 1.0% QoQ; loan closings were $158.8 million down 68.5% YoY and 8.5% QoQ; the yield on closings increased 322 bps YoY and 13 bps QoQ to 7.14%
• Loan pipeline decreased 28.7% YoY, but increased 56.1% QoQ to $415.5 million; nearly 35% of the loan pipeline consists of back-to-back loan swaps
• NPAs declined to $39.6 million from $48.9 million a year ago and $42.2 million in the prior quarter
• Provision for credit losses was $1.4 million in 2Q23 compared to $1.6 million in 2Q22 and $7.5 million in 1Q23; net charge-offs were $1.6 million in 2Q23 compared to net recoveries of $0.5 million in 2Q22 and net charge-offs of 9.2 million in 1Q23
• Tangible Common Equity to Tangible Assets was stable at 7.71% at 2Q23 compared to 7.73% at 1Q23
• Repurchased 528,815 shares at an average price of $12.94 or at a 42.5% discount to June 30, 2023 tangible book value of $22.51

¹ See Reconciliation of GAAP Earnings and Core Earnings

Net interest income decreased YoY and QoQ.

• Net interest margin, FTE of 2.18% decreased 117 bps YoY and 9 bps QoQ
• Prepayment penalty income from loans and securities, net reversals and recoveries of interest from nonaccrual loans, net gains and losses from fair value adjustments on qualifying hedges, and purchase accounting accretion totaled $0.5 million (3 bps to the NIM) in 2Q23 compared to $1.1 million (6 bps) in 1Q23, $2.4 million (12 bps) in 4Q22, $2.2 million (11 bps) in 3Q22, and $2.6 million (13 bps) in 2Q22; Prepayment penalty income declined primarily due to the higher rate environment
• Excluding the items in the previous bullet, net interest margin was 2.15% in 2Q23, 2.21% in 1Q23, 2.58% in 4Q22, 2.96% in 3Q22, and 3.22% in 2Q22
• Quarterly NIM compression of 9 bps was the slowest decline in the past four quarters primarily due to the balance sheet actions taken in 1Q23 and 2Q23 that reduced liability sensitivity

The provision for credit losses declined YoY and QoQ.

• Net charge-offs (recoveries) were $1.6 million in 2Q23 (9 bps of average loans), $9.2 million in 1Q23 (54 bps of average loans), $0.8 million in 4Q22 (5 bps of average loans), $0.3 million in 3Q22 (2 bps of average loans), and $(0.5) million in 2Q22 ((3) bps of average loans)
• 1Q23 net charge-offs were primarily related to a commercial business relationship that was placed on nonaccrual in 2Q22

Noninterest income (loss) declined YoY and QoQ.

• Noninterest income included net gains (losses) from fair value adjustments of $0.3 million in 2Q23 ($0.01 per share, net of tax), $2.6 million in 1Q23 ($0.06 per share, net of tax), $(0.6) million in 4Q22 ($(0.02) per share, net of tax), $5.6 million in 3Q22 ($0.13 per share, net of tax), and $2.5 million in 2Q22 ($0.06 per share, net of tax)
• Loss on the sale of securities was $10.9 million ($0.27 per share, net of tax) in 4Q22 as the Company sold $84.2 million of mortgage-based securities with an approximate yield of 1.17%; proceeds were primarily reinvested in 1Q23 into floating rate securities that had a yield at that time that approximated 6.40%
• Life insurance proceeds were $0.6 million ($0.02 per share) in 2Q23, $0.3 million ($0.01 per share) in 4Q22 and $1.5 million ($0.05 per share) in 2Q22
• Absent all above items and other immaterial adjustments, core noninterest income was $4.3 million in 2Q23, up 29.9% YoY but down 0.5% QoQ

Noninterest expense decreased YoY and QoQ.

• Given the challenging rate environment, management continues to actively review all noninterest expenses
• Other operating expenses include $0.6 million reduction in reserves for unfunded commitments in 3Q22
• Seasonal compensation expense was $4.1 million in 1Q23
• Excluding the effects of other immaterial adjustments, core operating expenses were $35.2 million in 2Q23, down 0.6% YoY, and 6.4% QoQ
• GAAP noninterest expense to average assets was 1.67% in 2Q23, 1.78% in 1Q23, 1.58% in 4Q22, 1.69% in 3Q22, and 1.73% in 2Q22
  

Provision for income taxes declined YoY and increased QoQ.

• The effective tax rate was 26.9% in 2Q23, 25.9% in 1Q23, 20.0% in 4Q22, 27.7% in 3Q22, and 28.4% in 2Q22
• The 4Q22 effective tax rate declined due to preferential tax items having a larger impact due to lower levels of pre-tax income
• The 2Q22 effective tax rate includes a loss of certain state and city tax deductions and a resolution of certain examinations by taxing authorities
  
  

Average loans increased YoY but declined QoQ.

• Maintain the credit strategy of loans secured by real estate with a greater emphasis on back-to-back swap originations
• Period end net loans totaled $6.8 billion, up 1.1% YoY, but down 1.0% QoQ
• Total loan closings were $158.8 million in 2Q23, $173.5 million in 1Q23, $225.2 million in 4Q22, $463.7 million in 3Q22, and $503.8 million in 2Q22; the loan pipeline was $415.5 million at June 30, 2023, down 28.7% YoY, but up 56.1% QoQ; closings were impacted by customers adjusting to the higher rate environment
• The diversified loan portfolio is over 88% collateralized by real estate with an average loan-to-value ratio of <36%
• Manhattan office buildings are approximately 0.6% of net loans
  

Average total deposits increased YoY and QoQ.

• Average CDs totaled $2.0 billion, up 149.5% YoY and 21.9% QoQ; CDs generally lengthen the duration of customer deposits and reduce sensitivity to rising rates
• Average noninterest bearing deposits decreased 18.7% YoY and 5.2% QoQ in 2Q23 and comprised 12.3% of average total deposits in 2Q23 compared to 16.2% a year ago

Credit Quality: Nonperforming loans declined YoY and QoQ.

• Criticized and classified loans were 71 bps of gross loans at 2Q23 compared to 84 bps at 1Q23, 98 bps at 4Q22, 89 bps at 3Q22, and 85 bps at 2Q22
• Allowance for credit losses were 207.1% of nonperforming loans at 2Q23 compared to 182.9% at 1Q23, and 141.1% at 2Q22

Capital: Book value per common share and tangible book value per common share, a non-GAAP measure, both increased YoY and QoQ.

• The Company paid a dividend of $0.22 per share in 2Q23 and has ample available liquidity to meet its obligations
• The Company repurchased 528,815 shares in 2Q23 at an average price of $12.94, representing a 42.5% discount to tangible book value, with 906,131 shares remaining subject to repurchase under the authorized stock repurchase program, which has no expiration or maximum dollar limit
• Tangible common equity to tangible assets was 7.71% at 2Q23 compared to 7.73% at 1Q23 and 7.82% at 2Q22
• The Company and the Bank remain well capitalized under all applicable regulatory requirements
  
  

Conference Call Information:

• John R. Buran, President and Chief Executive Officer, and Susan K. Cullen, Senior Executive Vice President and Chief Financial Officer and Treasurer, will host a conference call on Wednesday, July 26, 2023, at 9:30 AM (ET) to discuss the Company’s first quarter results and strategy.
• Dial-in for Live Call: 1-877-509-5836; Canada 855-669-9657
• Webcast: https://event.choruscall.com/mediaframe/webcast.html?webcastid=Nb7q4ytY
• Dial-in for Replay: 1-877-344-7529; Canada 855-669-9658
• Replay Access Code: 7017400
• The conference call will be simultaneously webcast and archived

Third Quarter 2023 Earnings Release Date:

The Company plans to release Third Quarter 2023 financial results after the market close on October 31, 2023; followed by a conference call at 9:30 AM (ET) on November 1, 2023.

A detailed announcement will be issued prior to the third quarter’s close confirming the date and time of the earnings release.

About Flushing Financial Corporation

Flushing Financial Corporation (Nasdaq: FFIC) is the holding company for Flushing Bank®, an FDIC insured, New York State—chartered commercial bank that operates banking offices in Queens, Brooklyn, Manhattan, and on Long Island. The Bank has been building relationships with families, business owners, and communities since 1929. Today, it offers the products, services, and conveniences associated with large commercial banks, including a full complement of deposit, loan, equipment finance, and cash management services. Rewarding customers with personalized attention and bankers that can communicate in the languages prevalent within these multicultural markets is what makes the Bank uniquely different. As an Equal Housing Lender and leader in real estate lending, the Bank’s experienced lending teams create mortgage solutions for real estate owners and property managers both within and outside the New York City metropolitan area. The Bank also fosters relationships with consumers nationwide through its online banking division with the iGObanking® and BankPurely® brands.

Additional information on Flushing Bank and Flushing Financial Corporation may be obtained by visiting the Company’s website at FlushingBank.com. Flushing Financial Corporation’s earnings release and presentation slides will be available prior to the conference call at www.FlushingBank.com under Investor Relations.

“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, 2022 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.

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