FFIC Flushing Financial Corporation

John R. Buran, President and CEO Commentary

UNIONDALE, N.Y., Oct. 31, 2023 (GLOBE NEWSWIRE) -- QoQ, EPS Increases; GAAP NIM Expands; Minimal Core NIM Compression. The Company reported third quarter 2023 GAAP EPS of $0.32, up 10.3% QoQ, but down 57.9% YoY. Core EPS totaled $0.31, an increase of 19.2% QoQ, but a decrease of 50.0% YoY. The improvement in core EPS QoQ was primarily driven by lower credit costs, higher noninterest income, and lower operating expenses, partially offset by slight NIM compression. GAAP NIM of 2.22% increased 4 bps QoQ but declined 85 bps YoY; while Core NIM of 2.14% compressed 3 bps QoQ and 89 bps YoY. Our actions to reduce interest rate risk, including adding interest rate hedges and floating rate loans, assisted in reducing the NIM compression and are beneficial in a “higher-for-longer” rate environment.

Strong Credit Quality; Stable Capital. Nonperforming assets decreased 23.2% YoY and 3.1% QoQ while net recoveries were $42,000 in 3Q23. Capital continues to be sound with TCE/TA¹ of 7.59% at September 30, 2023, compared to 7.71% at June 30, 2023.

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 increased 4 bps QoQ, but decreased 85 bps YoY to 2.22%; Core net interest margin FTE decreased 3 bps QoQ and 89 bps YoY to 2.14%; Both GAAP and Core NIMs benefited from $100 million of new interest rate hedges added during the quarter and the closing of $120.5 million of back-to-back swap loans that generate noninterest income immediately and interest income over the life of the loan while adding floating rate assets to provide additional interest rate risk neutralization
• Average total deposits increased 8.6% YoY, but declined 1.2% QoQ to $6.8 billion; Noninterest bearing deposits increased $46.6 million QoQ despite new checking account openings declining 5% YoY in 3Q23; average CDs totaled $2.3 billion, up 116.6% YoY and 11.9% QoQ; growth in CDs generally lengthens the duration of customer deposits and helps reduce rate sensitivity
• Bensonhurst branch opened on September 29, 2023, which expands our Asian market presence
• Period end net loans decreased 0.8% YoY, but increased 0.9% QoQ; loan closings were $241.5 million down 47.9% YoY, but up 52.1% QoQ; the yield on closings increased 288 bps YoY and 34 bps QoQ to 7.48%
• Loan pipeline increased 17.5% YoY, but decreased 12.6% QoQ to $363.3 million; approximately 60% of the loan pipeline consists of floating rate loans including back-to-back swap loans
• NPAs declined to $38.4 million from $50.0 million a year ago and $39.6 million in the prior quarter
• Provision for credit losses was $0.6 million in 3Q23 compared to $2.1 million in 3Q22 and $1.4 million in 2Q23; net recoveries were $42,000 in 3Q23 compared to net charge-offs of $0.3 million in 3Q22 and $1.6 million in 2Q23
• Tangible Common Equity to Tangible Assets declined to 7.59% at 3Q23 compared to 7.71% at 2Q23
• Repurchased 59,352 shares at an average price of $15.88 or a 29.4% discount to September 30, 2023, tangible book value of $22.48

¹ See Reconciliation of GAAP Earnings and Core Earnings

Net interest income decreased YoY but increased QoQ.

• Net interest margin, FTE of 2.22% decreased 85 bps YoY, but increased 4 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 $2.6 million (13 bps to the NIM) compared to $0.5 million (3 bps) in 2Q23, $1.1 million (6 bps) in 1Q23, $2.4 million (12 bps) in 4Q22, and $2.2 million (11 bps) in 3Q22
• Excluding the items in the previous bullet, net interest margin was 2.09% in 3Q23, 2.15% in 2Q23, 2.21% in 1Q23, 2.58% in 4Q22, and 2.96% in 3Q22
  

The provision for credit losses declined YoY and QoQ.

• Net charge-offs (recoveries) were $(42,000) in 3Q23 (less than (1) bp of average loans) compared to $1.6 million in 2Q23 (9 bps), $9.2 million in 1Q23 (54 bps of average loans), $0.8 million in 4Q22 (5 bps of average loans), and $0.3 million in 3Q22 (2 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 $(1.2) million in 3Q23 ($(0.03) per share, net of tax), $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), and $5.6 million in 3Q22 ($0.13 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 $23,000 in 3Q23 (less than $0.01 per share), $0.6 million ($0.02 per share) in 2Q23, and $0.3 million ($0.01 per share) in 4Q22
• Absent all above items and other immaterial adjustments, core noninterest income was $4.7 million in 3Q23, up 39.5% YoY and 10.1% QoQ
• Back-to-back swap loan closings of $120.5 million in 3Q23 (compared to $11.5 million in 2Q23) contributed to the growth in core noninterest income; the Company earns fee income on back-to-back swap loan closings
  

Noninterest expense decreased YoY and QoQ.

• 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 $34.3 million in 3Q23, down 3.4% YoY, and 2.4% QoQ
• GAAP noninterest expense to average assets was 1.62% in 3Q23, 1.67% in 2Q23, 1.78% in 1Q23, 1.58% in 4Q22, and 1.69% in 3Q22
• Noninterest expense largely includes $3.3 million benefit from Employee Retention Tax Credit refunds in 3Q23 and $7.0 million year to date; these refunds are not expected to be repeated in 2024

Provision for income taxes declined YoY and increased QoQ.

• The effective tax rate was 27.1% in 3Q23, 26.9% in 2Q23, 25.9% in 1Q23, 20.0% in 4Q22, and 27.7% in 3Q22
• The 4Q22 effective tax rate declined due to preferential tax items having a larger impact due to lower levels of pre-tax income

Average loans decreased YoY and QoQ.

• Period end net loans totaled $6.9 billion, down 0.8% YoY, but up 0.9% QoQ
• Total loan closings were $241.5 million in 3Q23, $158.8 million in 2Q23, $173.5 million in 1Q23, $225.2 million in 4Q22, and $463.7 million in 3Q22; the loan pipeline was $363.3 million at September 30, 2023, up 17.5% YoY, but down 12.6% QoQ
• The diversified loan portfolio is over 88% collateralized by real estate with an average loan-to-value ratio of less than 36%
• Manhattan office buildings are approximately 0.6% of net loans

Average total deposits increased YoY but declined QoQ.

• Average CDs totaled $2.3 billion, up 116.6% YoY and 11.9% QoQ; CDs generally lengthen the duration of customer deposits and reduce sensitivity to rising rates
• Average noninterest bearing deposits decreased 18.9% YoY, but increased 0.2% QoQ in 3Q23 and comprised 12.5% of average total deposits in 3Q23 compared to 16.7% a year ago
• Period end noninterest bearing deposits decreased 11.9% YoY, but increased 5.6% QoQ
  

Credit Quality: Nonperforming loans declined YoY and QoQ.

• Criticized and classified loans were 108 bps of gross loans at 3Q23 compared to 71 bps at 2Q23, 84 bps at 1Q23, 98 bps at 4Q22, and 89 bps at 3Q22
• Allowance for credit losses were 225.4% of nonperforming loans at 3Q23 compared to 207.1 % at 2Q23, and 142.3% at 3Q22

Capital: Book value per common share and tangible book value per common share, a non-GAAP measure, increased YoY but declined slightly QoQ to $23.15 and $22.48, respectively.

• The Company paid a dividend of $0.22 per share in 3Q23 and has ample available liquidity to meet its obligations
• The Company repurchased 59,352 shares in 3Q23 at an average price of $15.88, representing a 29.4% discount to tangible book value, with 846,779 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 7.59% at 3Q23 compared to 7.71% at 2Q23 and 7.62% at 3Q22
  

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, November 1, 2023, at 9:30 AM (ET) to discuss the Company’s third 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=trpzpC32
• Dial-in for Replay: 1-877-344-7529; Canada 855-669-9658
• Replay Access Code: 2779651
• The conference call will be simultaneously webcast and archived

Fourth Quarter 2023 Earnings Release Date:

The Company plans to release Fourth Quarter 2023 financial results after the market close on January 25, 2024; followed by a conference call at 11:00 AM (ET) on January 26, 2024.

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.

Investor Contact: Susan K. Cullen, SEVP, CFO and Treasurer, 718-961-5400

#FF

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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
FINANCIAL HIGHLIGHTS
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⁽¹⁾ Ratios are presented on an annualized basis, where appropriate.
⁽²⁾ Yields are calculated on the tax equivalent basis using the statutory federal income tax rate of 21% for the periods presented.
⁽³⁾ Efficiency ratio, a non-GAAP measure, was calculated by dividing core noninterest expense (excluding OREO expense and the net gain/loss from the sale of OREO) by the total of core net interest income and core noninterest income.
⁽⁴⁾ Calculated by dividing stockholders’ equity by shares outstanding.
⁽⁵⁾ Calculated by dividing tangible stockholders’ common equity, a non-GAAP measure, by shares outstanding. Tangible stockholders’ common equity is stockholders’ equity less intangible assets. See “Calculation of Tangible Stockholders’ Common Equity to Tangible Assets”.
⁽⁶⁾ See “Calculation of Tangible Stockholders’ Common Equity to Tangible Assets”.
⁽⁷⁾ Excludes performing nonaccrual TDR loans in periods prior to 1Q23.

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
AVERAGE BALANCE SHEETS
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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
NET INTEREST INCOME AND NET INTEREST MARGIN
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