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Flushing Financial Corporation Reports Record Full Year GAAP Diluted EPS of $2.24; 10.2% Annual Loan Growth While Credit Quality Remains Strong

FOURTH QUARTER 20161

  • GAAP diluted EPS was $0.50, up 35.1%, and core diluted EPS was $0.40, up 2.6% QoQ
  • Net interest income was $42.4 million, up 1.5%, and net interest margin was 2.96%, up 2bps QoQ
    • Excluding prepayment penalty income from loans and securities and recovered interest from nonaccrual loans, net interest margin was 2.81%, unchanged QoQ
  • GAAP ROAE was 11.2%, compared with 9.9% and core ROAE was 9.1%, compared with 10.3% for 4Q15
  • GAAP ROAA was 1.0%, compared with 0.8% and core ROAA was 0.8%, compared with 0.9% for 4Q15
  • Raised $75.0 million of subordinated debt
  • Sold two branch buildings for a pre-tax gain of $14.2 million
  • Restructured balance sheet by prepaying $130.0 million in advances at an average cost of 2.82% and $40.0 million in repurchase agreements at an average cost of 3.45%, recording a prepayment penalty of $8.3 million

FULL YEAR 20161

  • GAAP diluted EPS was a record $2.24, up 40.9%, and core diluted EPS was $1.52, up 2.0% YoY
  • Net interest income was a record $167.1 million, up 8.2%, and net interest margin was 2.97%, down 7bps YoY
    • Excluding prepayment penalty income from loans and securities and recovered interest from nonaccrual loans, the net interest margin was 2.83%, down 5bps YoY
  • GAAP ROAE was 13.1%, compared with 9.9% and core ROAE was 8.9%, compared with 9.3% for 2015
  • GAAP ROAA was 1.1%, compared with 0.9% and core ROAA was 0.7%, compared with 0.8% for 2015
  • Sold three branch buildings for a pre-tax gain of $48.0 million

UNIONDALE, N.Y., Jan. 31, 2017 (GLOBE NEWSWIRE) -- Flushing Financial Corporation (the “Company”) (Nasdaq:FFIC), the parent holding company for Flushing Bank (the “Bank”), today announced its financial results for the fourth quarter and the year ended December 31, 2016.

John R. Buran, President and Chief Executive Officer, remarked, “The results achieved for the fourth quarter reflect the continued successful execution of our strategy to maintain net loan growth and increase net interest income by focusing on yield, as opposed to volume. We emphasized assets with the best risk-adjusted returns, resulting in strong GAAP and core diluted EPS of $0.50 and $0.40, respectively. We are pleased to see the beginning of a return to pricing power as the yield on originated loans and commitments in the pipeline have both increased quarter over quarter while we maintain consistently prudent underwriting standards.”

____________________________________
1 Core earnings and core diluted earnings per common share (“EPS”) are not Generally Accepted Accounting Principle (“GAAP”) measures. Core earnings exclude the effects of the net gains/losses from the sale of buildings and securities and from fair value adjustments, prepayment penalties from the extinguishment of debt, and gains from life insurance proceeds.

For a reconciliation of core earnings and core diluted EPS to net income and GAAP diluted EPS, please refer to the table entitled “Reconciliation of GAAP Earnings and Core Earnings.”

“We made progress on our drive to improve operational scalability and efficiency by reconfiguring our fourth branch to our ‘tellerless’ universal banker model. We continued to effectively manage credit risk posting another net recovery this quarter. Also, we continued to grow core deposits as our consumer and business checking balances improved.”

Strategic Update:

The Company completed several strategic actions in this extremely productive year to position itself for profitable growth in 2017 and beyond.

  • Obtained favorable credit ratings with a Stable outlook for both the Company (A-/K2) and the Bank (BBB+/K2), from The Kroll Bond Rating Agency and raised $75.0 million of fixed-to-floating rate subordinated debt (5.25% fixed for five years) to fund balance sheet growth and further enhance our already strong regulatory capital ratios
  • Restructured our balance sheet to further benefit as the spread between 2- and 10-year Treasury yields widens and to support net interest margin in a rising rate environment
  • Sold two branch buildings in the fourth quarter, recognizing a pre-tax gain of $14.2 million, which brings the total for 2016 to three branch buildings sold for a pre-tax gain of $48.0 million
  • Completed the renovation of two branches during 2016 to the Universal Banker model, which will result in savings in both personnel and occupancy costs, and developed plans to convert an additional three branches during 2017. This will provide our customers with cutting-edge technology and a higher-quality experience in 8 of our 19 branches.
  • Obtained approval from the FDIC for two new full-service branches in the Flushing, Queens market, where we plan to move two of our traditional branches, as we continue to invest in technology and convert our branches to our Universal Banker model
  • Piloted an in branch program, “LISA” (Live Interactive Service Assistant), which allows customers to experience a ‘Facetime™-like’ conversation with a dedicated banker until 11 p.m., 7 days a week

The strategic plan continues to emphasize the diversified growth of multi-family, commercial real estate (“CRE”), and commercial business loans while maintaining a conservative approach to managing risk. In the fourth quarter, $243.2 million of multi-family, CRE, and commercial business loans were originated, representing 86.1% of all originations while maintaining conservative loan-to-values, debt coverage ratios, and increasing yield.

Mr. Buran added, “Stress testing and portfolio management have enhanced our disciplined approach to due diligence and overall risk management of CRE concentration. Furthermore, recently raised subordinated debt reduced our regulatory CRE concentration from 613% in 3Q16 to 545% in 4Q16.”

The Company continues to focus on maintaining strong risk management practices, including conservative underwriting standards and improving yields to achieve desired risk-adjusted returns.

  • The average interest rate obtained for fourth quarter originations was 3.81% compared to 3.74% for the linked quarter and 3.68% for the quarter ended December 31, 2015.
  • The average rate of mortgage loan applications in the pipeline totaled 4.20% at December 31, 2016 as compared to 4.05% at September 30, 2016, and 3.94% at December 31, 2015.
  • Multi-family (excluding underlying co-operative mortgages), commercial real estate, and one-to-four family mixed-use property mortgage loans originated during the fourth quarter of 2016 had a low average loan-to-value ratio of 47.0% and an average debt coverage ratio of 203%
  • The loan-to-value ratio on real estate dependent loans as of December 31, 2016 totaled just 40.5%.
  • Stress test the regulatory CRE concentration as if a $10 billion institution and have internal stress tests validated by an independent third party
  • Actively monitor and implement regulatory recommendations surrounding the enhanced due diligence of the regulatory CRE concentration

Buran concluded, “Overall, we remain well capitalized and positioned to deliver profitable growth and long-term value to our shareholders as we continue to execute on our strategic objectives.”

Summary of Strategic Objectives

  • Increase core deposits and continue to improve funding mix
  • Increase net interest income by leveraging loan pricing opportunities
  • Enhance core earnings power by managing net interest margin and improving scalability and efficiency
  • Manage credit risk
  • Maintain well capitalized levels under all stress test scenarios

Earnings Summary:

Quarter ended December 31, 2016 (4Q16) compared to the quarters ended December 31, 2015 (4Q15) and September 30, 2016 (3Q16).

Net Interest Income

Net interest income for 4Q16 was $42.4 million, an increase of 7.4% YoY and an increase of 1.5% QoQ.

  • Average balance of total interest-earning assets of $5,717.3 million increased $432.3 million, or 8.2% YoY and $32.9 million, or 0.6% QoQ
  • Yield on interest-earning assets of 3.92% decreased five basis points YoY but increased one basis point QoQ
  • Cost of interest-bearing liabilities of 1.08% decreased two basis points YoY and decreased one basis point QoQ, driven by an improvement in our funding mix
  • Net interest margin of 2.96%, decreased two basis points YoY but increased two basis points QoQ
  • Net interest spread of 2.84%, decreased three basis points YoY but increased two basis points QoQ
  • Includes prepayment penalty income from loans and securities of $1.6 million in each of 4Q16 and 4Q15, compared with $1.5 million in 3Q16, and recovered interest from nonaccrual loans of $0.6 million, compared with $0.2 million in 4Q15 and $0.3 million in 3Q16
  • Excluding prepayment penalty income from loans and securities and recovered interest from nonaccrual loans, the yield on interest-earning assets, would have been 3.77% in 4Q16, compared with 3.83% in 4Q15 and 3.81% in 3Q16, and the net interest margin would have been 2.81% in 4Q16, compared with 2.84% in 4Q15 and 2.81% in 3Q16
  • Cost of funds of 1.01% decreased three basis points YoY and decreased two basis points QoQ

Non-interest Income

Non-interest income (excluding: net gains on sale of buildings and net gain/losses on the sale of securities) for 4Q16 was $2.1 million, a decrease of $0.1 million, or 3.9% YoY, but an increase of $0.2 million, or 11.2% QoQ.

  • Increase in fair value adjustments of $0.4 million and $0.3 million compared to 4Q15 and 3Q16, respectively

Non-interest Expense

Non-interest expense for 4Q16 was $35.4 million, an increase of $11.6 million, or 48.5% YoY, and an increase of $9.1 million, or 34.6% QoQ, largely driven by a $8.3 million non-recurring prepayment penalty.

  • The $8.3 million non-recurring penalty on the prepayment of $130.0 million in advances and $40.0 million in repurchase agreements, as part of a balance sheet restructure, is expected to improve future net interest margin
  • Salaries and benefits increased $3.2 million YoY primarily due to annual salary increases, additions in staffing and an increase in stock-based compensation and increased $1.0 million QoQ due to an increase in year-end incentive accruals from exceeding certain performance targets, and an increase in stock-based compensation costs because of an increase in the Company’s stock price
  • 4Q16 and 3Q16 include write-downs of $0.2 and $0.8 million, respectively, on one OREO property that was sold in 4Q16
  • Non-interest expense (excluding: salaries and benefits expense, prepayment penalty on borrowings and net gain/losses on sale of OREO) totaled $11.0 million, a decrease of $0.2 million, or 1.6% YoY, but an increase of $0.4 million, or 3.5% QoQ
  • The efficiency ratio increased to 59.6% in 4Q16 from 56.0% in 4Q15 and 57.4% in 3Q16

Provision for Income Taxes

The provision for income taxes for 4Q16 was $8.1 million, an increase of $2.7 million YoY and an increase of $1.5 million QoQ.

  • Income before income taxes increased by $5.3 million YoY and $5.1 million QoQ
  • Effective tax rates of 36.2% in 4Q16, 38.5% in 3Q16 and 31.9% in 4Q15 were impacted by adjustments to the percentage of income allocated to New York City for municipal income taxes

Financial Condition Summary:

Loans:

  • Net loans were $4,813.5 million reflecting an increase of 2.0% QoQ (not annualized) and 10.2% YoY as we continue to focus on the origination of multi-family, commercial real estate and commercial business loans with a full banking relationship
  • Loan originations and purchases of multi-family, commercial real estate and commercial business loans totaled $1,020.7 million for the year, or 90.1% of loan production
  • Loan purchases which are underwritten to the same standards as organic originations, were $186.7 million for the year, a decrease of $92.2 million YoY
  • Loan pipeline totaled $310.9 million at December 31, 2016, compared to $289.3 million at September 30, 2016 and $330.5 million at December 31, 2015
  • Multi-family (excluding underlying co-operative mortgages), commercial real estate and one-to-four family mixed-use property mortgage loans originated during the quarter had an average loan-to-value ratio of 47.0% and an average debt coverage ratio of 203%

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

For the three months ended
December 31, September 30, December 31,
Loan type 2016
2016
2015
Mortgage loans 3.70% 3.52% 3.60%
Non-mortgage loans 4.05% 4.12% 3.88%
Total loans 3.81% 3.74% 3.68%

Credit Quality:

  • Non-performing loans totaled $21.4 million, a decrease of $4.7 million, or 17.9%, from $26.1 million at December 31, 2015
  • Classified assets totaled $44.0 million, an increase of $0.1 million, or 0.2%, from $43.9 million at December 31, 2015, primarily due to an increase in substandard taxi medallion loans, partially offset by reductions in non-performing assets
  • Loans classified as troubled debt restructured totaled $17.4 million, an increase of $7.9 million, or 83.4%, from $9.5 million at December 31, 2015, primarily due to the addition of restructured taxi medallion loans
  • Strong underwriting standards coupled with our practice of obtaining updated appraisals and recording charge-offs early in the delinquency process has resulted in a 39.1% average loan-to-value for non-performing loans collateralized by real estate
  • In 2016, no provision for loan losses was recorded compared with a benefit of $1.0 million recorded in the comparable prior year period
  • Net recoveries totaled $0.7 million in 2016, amid continued improvement in credit conditions
  • We anticipate continued low loss content in the loan portfolio given the average loan-to-value of 39.1% for non-performing loans collateralized by real estate using the appraised value at the time of origination

Capital Management:

  • The Company and Bank are subject to the same regulatory requirements and at December 31, 2016, both were well-capitalized under all regulatory requirements
  • For the year, stockholders’ equity increased $40.8 million, or 8.6%, to $513.9 million due to net income of $64.9 million, partially offset by a decline in other comprehensive income of $2.8 million, the declaration and payment of dividends on the Company’s common stock, and the repurchase of 403,695 shares
  • As of December 31, 2016, the Company had 495,905 shares that may be repurchased under the current authorized stock repurchase program, which has no expiration or maximum dollar limit
  • Book value per common share was $17.95 at December 31, 2016, compared to $17.90 at September 30, 2016 and $16.41 at December 31, 2015
  • Tangible book value, a non-GAAP measure, per common share was $17.40 at December 31, 2016, compared to $17.35 at September 30, 2016 and $15.86 at December 31, 2015

About Flushing Financial Corporation

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

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

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Statements in this Press Release relating to plans, strategies, economic performance and trends, projections of results of specific activities or investments and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, risk factors discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and in other documents filed by the Company with the Securities and Exchange Commission from time to time. Forward-looking statements may be identified by terms such as “may”, “will”, “should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “forecasts”, “potential” or “continue” or similar terms or the negative of these terms. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The Company has no obligation to update these forward-looking statements.

- Statistical Tables Follow

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
For the three months ended For the twelve months ended
December 31, September 30, December 31, December 31,
2016 2016 2015 2016 2015
Interest and Dividend Income
Interest and fees on loans $49,973 $49,181 $45,859 $195,125 $178,720
Interest and dividends on securities:
Interest 5,866 6,173 6,461 25,141 24,827
Dividends 121 121 118 481 473
Other interest income 59 49 30 250 126
Total interest and dividend income 56,019 55,524 52,468 220,997 204,146
Interest Expense
Deposits 8,760 8,520 7,740 33,350 30,336
Other interest expense 4,908 5,291 5,312 20,561 19,390
Total interest expense 13,668 13,811 13,052 53,911 49,726
Net Interest Income 42,351 41,713 39,416 167,086 154,420
Provision (benefit) for loan losses - - 664 - (956)
Net Interest Income After Provision (Benefit) for Loan Losses 42,351 41,713 38,752 167,086 155,376
Non-interest Income
Banking services fee income 983 826 1,245 3,758 3,805
Net (loss) gain on sale of securities (839) - - 1,524 167
Net gain on sale of loans - 240 67 584 422
Net gain on sale of buildings 14,204 - - 48,018 6,537
Net loss from fair value adjustments (509) (823) (920) (3,434) (1,841)
Federal Home Loan Bank of New York stock dividends 794 665 514 2,664 1,969
Gains from life insurance proceeds 2 47 - 460 -
Bank owned life insurance 701 707 723 2,797 2,880
Other income 90 191 516 1,165 1,780
Total non-interest income 15,426 1,853 2,145 57,536 15,719
Non-interest Expense
Salaries and employee benefits 15,801 14,795 12,622 60,825 53,093
Occupancy and equipment 2,550 2,576 2,415 9,848 10,206
Professional services 1,813 1,730 2,038 7,720 7,074
FDIC deposit insurance 613 536 859 2,993 3,236
Data processing 1,135 939 1,046 4,364 4,471
Depreciation and amortization 1,187 1,169 1,051 4,450 3,579
Other real estate owned/foreclosure expense 476 273 225 1,307 942
Prepayment penalty on borrowings 8,274 - - 10,356 -
Other operating expenses 3,526 4,259 3,568 16,740 15,118
Total non-interest expense 35,375 26,277 23,824 118,603 97,719
Income Before Income Taxes 22,402 17,289 17,073 106,019 73,376
Provision for Income Taxes
Federal 8,062 5,568 5,061 33,580 21,843
State and local 54 1,087 378 7,523 5,324
Total taxes 8,116 6,655 5,439 41,103 27,167
Net Income $14,286 $10,634 $11,634 $64,916 $46,209
Basic earnings per common share $0.50 $0.37 $0.40 $2.24 $1.59
Diluted earnings per common share $0.50 $0.37 $0.40 $2.24 $1.59
Dividends per common share $0.17 $0.17 $0.16 $0.68 $0.64


FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
(Unaudited)
December 31, September 30, December 31,
2016 2016 2015
ASSETS
Cash and due from banks$35,857 $47,880 $42,363
Securities held-to-maturity:
Other securities 37,735 33,274 6,180
Securities available for sale:
Mortgage-backed securities 516,476 545,067 668,740
Other securities 344,905 365,812 324,657
Loans:
Multi-family residential 2,178,504 2,171,289 2,055,228
Commercial real estate 1,246,132 1,195,266 1,001,236
One-to-four family ― mixed-use property 558,502 555,691 573,043
One-to-four family ― residential 185,767 183,993 187,838
Co-operative apartments 7,418 7,494 8,285
Construction 11,495 11,250 7,284
Small Business Administration 15,198 14,339 12,194
Taxi medallion 18,996 20,536 20,881
Commercial business and other 597,122 564,972 506,622
Net unamortized premiums and unearned loan fees 16,559 16,447 15,368
Allowance for loan losses (22,229) (21,795) (21,535)
Net loans 4,813,464 4,719,482 4,366,444
Interest and dividends receivable 20,228 19,833 18,937
Bank premises and equipment, net 26,561 26,000 25,622
Federal Home Loan Bank of New York stock 59,173 65,185 56,066
Bank owned life insurance 132,508 115,807 115,536
Goodwill 16,127 16,127 16,127
Other assets 55,453 44,788 63,962
Total assets$6,058,487 $5,999,255 $5,704,634
LIABILITIES
Due to depositors:
Non-interest bearing$333,163 $320,060 $269,469
Interest-bearing:
Certificate of deposit accounts 1,372,115 1,384,551 1,403,302
Savings accounts 254,283 258,058 261,748
Money market accounts 843,370 733,361 472,489
NOW accounts 1,362,484 1,296,475 1,448,695
Total interest-bearing deposits 3,832,252 3,672,445 3,586,234
Mortgagors' escrow deposits 40,216 49,276 36,844
Borrowed funds 1,266,563 1,360,515 1,271,676
Other liabilities 72,440 84,338 67,344
Total liabilities 5,544,634 5,486,634 5,231,567
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 December 31, 2016, September 30, 2016 and December 31, 2015; 28,632,904
shares, 28,632,796 shares and 28,830,558 shares outstanding at December 31, 2016,
September 30, 2016 and December 31, 2015, respectively) 315 315 315
Additional paid-in capital 214,462 213,488 210,652
Treasury stock (2,897,691 shares, 2,897,799 shares and 2,700,037 shares at
December 31, 2016, September 30, 2016 and December 31, 2015, respectively) (53,754) (53,373) (48,868)
Retained earnings 361,192 351,942 316,530
Accumulated other comprehensive income (loss), net of taxes (8,362) 249 (5,562)
Total stockholders' equity 513,853 512,621 473,067
Total liabilities and stockholders' equity$6,058,487 $5,999,255 $5,704,634


FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)
(Unaudited)
At or for the three months ended At or for the twelve months ended
December 31, September 30, December 31, December 31,
2016 2016 2015 2016 2015
Per Share Data
Basic earnings per share $0.50 $0.37 $0.40 $2.24 $1.59
Diluted earnings per share $0.50 $0.37 $0.40 $2.24 $1.59
Average number of shares outstanding for:
Basic earnings per common share computation 28,849,783 28,861,101 28,862,319 28,956,859 29,106,112
Diluted earnings per common share computation 28,859,665 28,874,979 28,878,829 28,969,582 29,126,108
Shares outstanding 28,632,904 28,632,796 28,830,558 28,632,904 28,830,558
Book value per common share (1) $17.95 $17.90 $16.41 $17.95 $16.41
Tangible book value per common share (2) $17.40 $17.35 $15.86 $17.40 $15.86
Stockholders' Equity
Stockholders' equity $513,853 $512,621 $473,067 $513,853 $473,067
Tangible stockholders' common equity 498,115 496,901 457,346 498,115 457,346
Average Balances
Total loans, net $4,757,124 $4,686,593 $4,230,033 $4,600,682 $4,033,478
Total interest-earning assets 5,717,298 5,684,413 5,284,978 5,626,748 5,084,179
Total assets 6,003,125 5,976,725 5,569,011 5,913,534 5,361,144
Total due to depositors 3,796,337 3,673,731 3,507,037 3,748,822 3,429,714
Total interest-bearing liabilities 5,077,893 5,059,620 4,765,134 5,035,989 4,586,446
Stockholders' equity 512,317 508,974 470,765 496,820 465,194
Performance Ratios (3)
Return on average assets 0.95% 0.71% 0.84% 1.10% 0.86%
Return on average equity 11.15 8.36 9.89 13.07 9.93
Yield on average interest-earning assets 3.92 3.91 3.97 3.93 4.02
Cost of average interest-bearing liabilities 1.08 1.09 1.10 1.07 1.08
Interest rate spread during period 2.84 2.82 2.87 2.86 2.94
Net interest margin 2.96 2.94 2.98 2.97 3.04
Non-interest expense to average assets 2.36 1.76 1.71 2.01 1.82
Efficiency ratio (4) 59.63 57.37 56.00 59.64 58.57
Average interest-earning assets to average
interest-bearing liabilities 1.13X 1.12X 1.11X 1.12X 1.11X

(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 “Reconciliation of GAAP Earnings and Core Earnings”.

(3) Ratios are presented on an annualized basis, where appropriate.

(4) Efficiency ratio, a non-GAAP measure, was calculated by dividing non-interest expense (excluding OREO expense, prepayment penalties from the extinguishment of debt and the net gain/loss from the sale of OREO) by the total of net interest income and non-interest income (excluding net gains and losses from fair value adjustments, net gain and losses from the sale of securities, life insurance proceeds, and sale of buildings).

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands)
(Unaudited)
At or for the year At or for the year
ended ended
December 31, 2016 December 31, 2015
Selected Financial Ratios and Other Data
Regulatory capital ratios (for Flushing Financial Corporation):
Tier 1 capital $539,228 $490,919
Common equity Tier 1 capital 506,432 462,883
Total risk-based capital 636,457 512,454
Tier 1 leverage capital (well capitalized = 5%) 9.00% 8.84%
Common equity Tier 1 risk-based capital (well capitalized = 6.5%) 11.79 11.83
Tier 1 risk-based capital (well capitalized = 8.0%) 12.56 12.55
Total risk-based capital (well capitalized = 10.0%) 14.82 13.10
Regulatory capital ratios (for Flushing Bank only):
Tier 1 capital $607,033 $494,690
Common equity Tier 1 capital 607,033 494,690
Total risk-based capital 629,262 516,226
Tier 1 leverage capital (well capitalized = 5%) 10.12% 8.89%
Common equity Tier 1 risk-based capital (well capitalized = 6.5%) 14.12 12.62
Tier 1 risk-based capital (well capitalized = 8.0%) 14.12 12.62
Total risk-based capital (well capitalized = 10.0%) 14.64 13.17
Capital ratios:
Average equity to average assets 8.40% 8.68%
Equity to total assets 8.48 8.29
Tangible stockholders' common equity to tangible assets (1) 8.24 8.04
Asset quality:
Non-accrual loans (2) $21,030 $22,817
Non-performing loans 21,416 26,077
Non-performing assets 21,949 31,009
Net charge-offs/ (recoveries) (694) 2,605
Asset quality ratios:
Non-performing loans to gross loans 0.44% 0.60%
Non-performing assets to total assets 0.36 0.54
Allowance for loan losses to gross loans 0.46 0.49
Allowance for loan losses to non-performing assets 101.28 69.45
Allowance for loan losses to non-performing loans 103.80 82.58
Full-service customer facilities 19 19

(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
December 31, 2016 September 30, 2016 December 31, 2015
Average Yield/ Average Yield/ Average Yield/
BalanceInterestCost BalanceInterestCost BalanceInterestCost
Interest-earning Assets:
Mortgage loans, net$4,140,511$44,2194.27%$4,093,240$43,7774.28%$3,697,169$41,1844.46%
Other loans, net 616,613 5,7543.73 593,353 5,4023.64 532,864 4,6753.51
Total loans, net (1) 4,757,124 49,9734.20 4,686,593 49,1794.20 4,230,033 45,8594.34
Taxable securities:
Mortgage-backed
securities 514,527 3,0022.33 554,515 3,3502.42 674,103 4,2812.54
Other securities 248,765 2,2033.54 245,477 2,1623.52 199,258 1,5013.01
Total taxable securities 763,292 5,2052.73 799,992 5,5122.76 873,361 5,7822.65
Tax-exempt securities: (2)
Other securities 147,184 7822.13 148,004 7842.12 128,024 7972.49
Total tax-exempt securities 147,184 7822.13 148,004 7842.12 128,024 7972.49
Interest-earning deposits
and federal funds sold 49,698 590.47 49,824 490.39 53,560 300.22
Total interest-earning
assets 5,717,298 56,0193.92 5,684,413 55,5243.91 5,284,978 52,4683.97
Other assets 285,827 292,312 284,033
Total assets$6,003,125 $5,976,725 $5,569,011
Interest-bearing Liabilities:
Deposits:
Savings accounts$256,677 3090.48 $258,884 3060.47 $262,103 2990.46
NOW accounts 1,370,618 2,0280.59 1,384,368 1,9790.57 1,405,933 1,7460.50
Money market accounts 780,233 1,3150.67 601,709 9900.66 463,551 5360.46
Certificate of deposit
accounts 1,388,809 5,0811.46 1,428,770 5,2131.46 1,375,450 5,1341.49
Total due to depositors 3,796,337 8,7330.92 3,673,731 8,4880.92 3,507,037 7,7150.88
Mortgagors' escrow
accounts 58,151 270.19 48,840 320.26 54,121 250.18
Total interest-bearing
deposits 3,854,488 8,7600.91 3,722,571 8,5200.92 3,561,158 7,7400.87
Borrowings 1,223,405 4,9081.60 1,337,049 5,2911.58 1,203,976 5,3121.76
Total interest-bearing
liabilities 5,077,893 13,6681.08 5,059,620 13,8111.09 4,765,134 13,0521.10
Non interest-bearing
demand deposits 331,232 318,188 270,651
Other liabilities 81,683 89,943 62,461
Total liabilities 5,490,808 5,467,751 5,098,246
Equity 512,317 508,974 470,765
Total liabilities and
equity$6,003,125 $5,976,725 $5,569,011
Net interest income /
net interest rate spread $42,3512.84% $41,7132.82% $39,4162.87%
Net interest-earning assets /
net interest margin$639,405 2.96%$624,793 2.94%$519,844 2.98%
Ratio of interest-earning
assets to interest-bearing
liabilities 1.13X 1.12X 1.11X

(1) Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $0.9 million, $0.9 million and $1.1 million for the three months ended December 31, 2016, September 30, 2016 and December 31, 2015, respectively.

(2) Interest income on tax-exempt securities does not include the tax benefit of the tax-exempt securities.

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
NET INTEREST MARGIN
(Dollars in thousands)
(Unaudited)
For the year ended
December 31, 2016 December 31, 2015
Average Yield/ Average Yield/
BalanceInterestCost BalanceInterestCost
Interest-earning Assets:
Mortgage loans, net$4,014,734$173,4194.32% $3,524,331$161,1154.57%
Other loans, net 585,948 21,7063.70 509,147 17,6053.46
Total loans, net (1) 4,600,682 195,1254.24 4,033,478 178,7204.43
Taxable securities:
Mortgage-backed
securities 581,505 14,2312.45 693,893 17,3092.49
Other securities 243,567 8,2433.38 163,604 4,3982.69
Total taxable securities 825,072 22,4742.72 857,497 21,7072.53
Tax-exempt securities: (2)
Other securities 142,472 3,1482.21 134,807 3,5932.67
Total tax-exempt securities 142,472 3,1482.21 134,807 3,5932.67
Interest-earning deposits
and federal funds sold 58,522 2500.43 58,397 1260.22
Total interest-earning
assets 5,626,748 220,9973.93 5,084,179 204,1464.02
Other assets 286,786 276,965
Total assets$5,913,534 $5,361,144
Interest-bearing Liabilities:
Deposits:
Savings accounts$260,948 1,2190.47 $264,891 1,1510.43
NOW accounts 1,496,712 7,8910.53 1,432,609 6,5930.46
Money market accounts 581,390 3,5920.62 380,595 1,5510.41
Certificate of deposit
accounts 1,409,772 20,5361.46 1,351,619 20,9431.55
Total due to depositors 3,748,822 33,2380.89 3,429,714 30,2380.88
Mortgagors' escrow
accounts 56,152 1120.20 52,364 980.19
Total interest-bearing
deposits 3,804,974 33,3500.88 3,482,078 30,3360.87
Borrowings 1,231,015 20,5611.67 1,104,368 19,3901.76
Total interest-bearing
liabilities 5,035,989 53,9111.07 4,586,446 49,7261.08
Non interest-bearing
demand deposits 305,096 250,488
Other liabilities 75,629 59,016
Total liabilities 5,416,714 4,895,950
Equity 496,820 465,194
Total liabilities and
equity$5,913,534 $5,361,144
Net interest income /
net interest rate spread $167,0862.86% $154,4202.94%
Net interest-earning assets /
net interest margin$590,759 2.97% $497,733 3.04%
Ratio of interest-earning
assets to interest-bearing
liabilities 1.12X 1.11X

(1) Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $4.2 million for each of the years ended December 31, 2016 and 2015, respectively.

(2) Interest income on tax-exempt securities does not include the tax benefit of the tax-exempt securities.

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
DEPOSIT COMPOSITION
(Unaudited)
December 2016 vs. December 2016 vs.
December 31, September 30, June 30, March 31, September, 2016 December 31, December 2015
(Dollars in thousands) 2016 2016 2016 2016 % Change 2015 % Change
Deposits
Non-interest bearing$333,163 $320,060 $317,112 $280,450 4.1% $269,469 23.6%
Interest bearing:
Certificate of deposit
accounts 1,372,115 1,384,551 1,411,550 1,362,062 (0.9%) 1,403,302 (2.2%)
Savings accounts 254,283 258,058 260,528 268,057 (1.5%) 261,748 (2.9%)
Money market accounts 843,370 733,361 452,589 485,774 15.0% 472,489 78.5%
NOW accounts 1,362,484 1,296,475 1,453,540 1,610,932 5.1% 1,448,695 (6.0%)
Total interest-bearing
deposits 3,832,252 3,672,445 3,578,207 3,726,825 4.4% 3,586,234 6.9%
Total deposits$4,165,415 $3,992,505 $3,895,319 $4,007,275 4.3% $3,855,703 8.0%

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
LOANS
(Unaudited)

Loan Origination and Purchases

For the three months For the year ended
December 31, September 30, December 31, December 31,
(In thousands) 2016 2016 2015 2016 2015
Multi-family residential $77,812 $61,378 $104,622 $371,197 $373,843
Commercial real estate 77,607 68,970 157,005 322,721 452,089
One-to-four family – mixed-use property 20,242 12,618 23,390 62,735 68,295
One-to-four family – residential 7,770 3,362 6,135 24,820 40,831
Co-operative apartments - - - 470 1,625
Construction 9,738 1,920 1,613 15,772 4,999
Small Business Administration 1,662 470 2,548 8,447 11,261
Commercial business and other 87,761 84,525 100,279 326,776 280,518
Total $282,592 $233,243 $395,592 $1,132,938 $1,233,461

Loan Composition

December 2016 vs. December 2016 vs.
December 31, September 30, June 30, March 31, September 2016 December 31, December 2015
(Dollars in thousands) 2016 2016 2016 2016 % Change 2015 % Change
Loans:
Multi-family residential$2,178,504 $2,171,289 $2,159,138 $2,039,794 0.3% $2,055,228 6.0%
Commercial real estate 1,246,132 1,195,266 1,146,400 1,058,028 4.3% 1,001,236 24.5%
One-to-four family ―
mixed-use property 558,502 555,691 566,702 571,846 0.5% 573,043 (2.5%)
One-to-four family ― residential 185,767 183,993 190,251 191,158 1.0% 187,838 (1.1%)
Co-operative apartments 7,418 7,494 7,571 8,182 (1.0%) 8,285 (10.5%)
Construction 11,495 11,250 9,899 7,472 2.2% 7,284 57.8%
Small Business Administration 15,198 14,339 14,718 14,701 6.0% 12,194 24.6%
Taxi medallion 18,996 20,536 20,641 20,757 (7.5%) 20,881 (9.0%)
Commercial business and other 597,122 564,972 564,084 531,322 5.7% 506,622 17.9%
Net unamortized premiums
and unearned loan fees 16,559 16,447 16,875 15,281 0.7% 15,368 7.7%
Allowance for loan losses (22,229) (21,795) (22,198) (21,993) 2.0% (21,535) 3.2%
Net loans$4,813,464 $4,719,482 $4,674,081 $4,436,548 2.0% $4,366,444 10.2%

Loan Activity

Three Months Ended
December 31, September 30, June 30, March 31, December 31,
(In thousands) 2016 2016 2016 2016 2015
Loans originated and purchased$282,592 $233,243 $387,863 $229,240 $395,592
Principal reductions (187,780) (183,583) (149,308) (152,521) (206,125)
Loans sold - (3,693) (2,310) (5,515) (1,164)
Loan charged-offs (370) (541) (101) (147) (2,478)
Foreclosures (138) - - (408) (34)
Net change in deferred (fees) and costs 112 (428) 1,594 (87) 1,239
Net change in the allowance for loan losses (434) 403 (205) (458) 1,438
Total loan activity$93,982 $45,401 $237,533 $70,104 $188,468


FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
NON-PERFORMING ASSETS and NET CHARGE-OFFS
(Unaudited)
December 31, September 30, June 30, March 31, December 31,
(Dollars in thousands) 2016 2016 2016 2016 2015
Loans 90 Days Or More Past Due
and Still Accruing:
Multi-family residential $- $- $574 $792 $233
Commercial real estate - 1,183 320 1,083 1,183
One-to-four family - mixed-use property 386 470 635 743 611
One-to-four family - residential - - 13 13 13
Construction - - - 570 1,000
Commercial business and other - - - - 220
Total 386 1,653 1,542 3,201 3,260
Non-accrual Loans:
Multi-family residential 1,837 1,649 3,162 3,518 3,561
Commercial real estate 1,148 1,157 2,299 3,295 2,398
One-to-four family - mixed-use property 4,025 4,534 6,005 5,519 5,952
One-to-four family - residential 8,241 8,340 8,406 8,861 10,120
Small business administration 1,886 2,132 185 201 218
Taxi Medallion 3,825 3,971 196 196 -
Commercial business and other 68 99 128 511 568
Total 21,030 21,882 20,381 22,101 22,817
Total Non-performing Loans 21,416 23,535 21,923 25,302 26,077
Other Non-performing Assets:
Real estate acquired through foreclosure 533 2,839 3,668 4,602 4,932
Total 533 2,839 3,668 4,602 4,932
Total Non-performing Assets $21,949 $26,374 $25,591 $29,904 $31,009
Non-performing Assets to Total Assets 0.36% 0.44% 0.43% 0.51% 0.54%
Allowance For Loan Losses to Non-performing Loans 103.8% 92.6% 101.3% 86.9% 82.6%

Net Charge-Offs (Recoveries)

Three Months Ended
December 31, September 30, June 30, March 31, December 31,
(In thousands) 2016 2016 2016 2016 2015
Multi-family residential $(103) $79 $(183) $29 $(35)
Commercial real estate - (11) - - -
One-to-four family – mixed-use property (520) 24 36 (173) 18
One-to-four family – residential 40 - 7 (299) 97
Small Business Administration 186 317 (42) (31) 17
Taxi Medallion 142 - - - -
Commercial business and other (179) (6) (23) 16 2,005
Total net loan charge-offs (recoveries) $(434) $403 $(205) $(458) $2,102

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

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

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
RECONCILIATION OF GAAP EARNINGS and CORE EARNINGS
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31,September 30,December 31, December 31,December 31,
2016 2016 2015 2016 2015
GAAP income before income taxes$22,402 $17,289 $17,073 $106,019 $73,376
Net loss from fair value adjustments 509 823 920 3,434 1,841
Net loss (gain) on sale of securities 839 - - (1,524) (167)
Gain from life insurance proceeds (2) (47) - (460) -
Net gain on sale of buildings (14,204) - - (48,018) (6,537)
Prepayment penalty on borrowings 8,274 - - 10,356 -
Core income before taxes 17,818 18,065 17,993 69,807 68,513
Provision for income taxes for core income 6,227 6,736 5,820 25,855 25,067
Core net income$11,591 $11,329 $12,173 $43,952 $43,446
GAAP diluted earnings per common share$0.50 $0.37 $0.40 $2.24 $1.59
Net loss from fair value adjustments, net of tax 0.01 0.03 0.02 0.07 0.03
Net loss (gain) on sale of securities, net of tax 0.02 - - (0.03) -
Gain from life insurance proceeds - - - (0.02) -
Net gain on sale of buildings, net of tax (0.29) - - (0.95) (0.13)
Prepayment penalty on borrowings, net of tax 0.17 - - 0.21 -
Core diluted earnings per common share*$0.40 $0.39 $0.42 $1.52 $1.49
Core net income, as calculated above$11,591 $11,329 $12,173 $43,952 $43,446
Average assets 6,003,125 5,976,725 5,569,011 5,913,534 5,361,144
Average equity 512,317 508,974 470,765 496,820 465,194
Core return on average assets** 0.77% 0.76% 0.87% 0.74% 0.81%
Core return on average equity** 9.05% 8.90% 10.34% 8.85% 9.34%
* Core diluted earnings per common share may not foot due to rounding.
** Ratios are calculated on an annualized basis.


FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CALCULATION OF TANGIBLE STOCKHOLDERS’
COMMON EQUITY to TANGIBLE ASSETS
(Unaudited)
December 31,December 31,
(Dollars in thousands) 2016 2015
Total Equity $513,853 $473,067
Less:
Goodwill (16,127) (16,127)
Intangible deferred tax liabilities 389 406
Tangible Stockholders' Common Equity$498,115 $457,346
Total Assets $6,058,487 $5,704,634
Less:
Goodwill (16,127) (16,127)
Intangible deferred tax liabilities 389 406
Tangible Assets $6,042,749 $5,688,913
Tangible Stockholders' Common Equity to Tangible Assets 8.24% 8.04%


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

Source:Flushing Financial Corporation