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Flushing Financial Corporation Announces Second Quarter GAAP Diluted EPS of $0.44 and Record Core Diluted EPS of $0.46, Driven by Record Net Interest Income, Strong Credit Quality and Solid Loan Growth

SECOND QUARTER 20171

  • GAAP diluted EPS was $0.44, up 4.8% QoQ but down 58.1% YoY, largely due to net gain on sale of buildings in 2Q16
  • Record core diluted EPS was $0.46, up 17.9% YoY and 15.0% QoQ
  • Record net interest income of $43.6 million, an improvement of 4.1% YoY and 0.5% QoQ
  • Net interest margin was 2.95%, unchanged QoQ
  • GAAP and core ROAE improved to 9.6% and 10.2%, compared with 9.5% and 9.1% in 1Q17
  • GAAP and core ROAA was 0.8% and 0.9%, compared with 0.8% for both in 1Q17

UNIONDALE, N.Y., July 25, 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 three and six months ended June 30, 2017.

John R. Buran, President and Chief Executive Officer, stated, “We are pleased to report record core earnings for the second quarter of 2017 driven by record net interest income and our continued discipline regarding non-interest expense. Credit quality continued to improve, as our non-performing assets have decreased by over 29% since the end of 2016 and net charge-offs remain minimal. We saw tangible results from our strategy change announced in mid-2016 to focus origination efforts on higher yielding loans. The yield on recent quarter loan production increased 19 basis points over the prior quarter and 33 basis points from the comparable quarter of 2016. For the first time since 2010, quarterly new loan yields exceed that quarter’s average yield on total interest-earning assets. Our total loan portfolio, including loans held for sale, grew 2% during the recent quarter and 5% for the first six months of 2017 while meeting our strong underwriting standards.”

“We continue to implement our strategy of enhancing operational scalability and efficiency by converting our branch network to the more cost effective Universal Banker model. We expect to convert half of our 19 branches by the end of 2017. Although total deposits increased 8% year-over-year, deposits declined 3% quarter-over-quarter primarily caused by seasonal government deposit outflows, which we anticipate returning in the fourth quarter.”

“As a result of recent rate increases by the Federal Reserve, we have started to experience some rate pressure on liabilities. During the recent quarter, our cost of funds increased 4 basis points due to a combination of an increase in the rates we pay on some of our deposit products to stay competitive within our market and the funding mix, as seasonal government deposit outflows were replaced by slightly more expensive borrowed funds.”

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

  • In the second quarter, multi-family, commercial real estate, and commercial business loan originations and purchases represented 24%, 47%, and 19%, respectively, of all originations while maintaining conservative loan-to-values, debt coverage ratios, and increasing yield.
  • The average interest rate obtained for second quarter originations and purchases improved to 4.04% compared to 3.85% for 1Q17 and 3.71% for 2Q16.
  • The average rate of mortgage loan applications in the pipeline totaled 4.17% at June 30, 2017, as compared to 4.20% at December 31, 2016 and 3.94% at June 30, 2016.
  • Multi-family (excluding underlying co-operative mortgages), commercial real estate, and one-to-four family mixed-use property mortgage loans originated during the second quarter of 2017 had an increased yield of 4.19% compared to 4.01% for the previous quarter and 3.81% for the same quarter in 2016. While the yields have been increasing, we have kept our asset quality as these loans had a low average loan-to-value ratio of 46.2% and an average debt coverage ratio of 198%.

Mr. 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.”

_____________________
1 See the table entitled “Reconciliation of Non-GAAP Financial Measures.”

Summary of Strategic Objectives

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

Earnings Summary:

Quarter ended June 30, 2017 (2Q17) compared to the quarters ended June 30, 2016 (2Q16) and March 31, 2017 (1Q17).

June 30, 2017 compared to March 31, 2017 (“QoQ”); June 30, 2017 compared to June 30, 2016 (“YoY”).

Net Interest Income

Net interest income for 2Q17 was $43.6 million, an increase of 4.1% YoY and 0.5% QoQ.

  • Net interest margin of 2.95%, decreased 4bps YoY but remains unchanged QoQ
  • Net interest spread of 2.83%, decreased 5bps YoY and 1bp QoQ
  • Net interest income includes prepayment penalty income from loans of $1.0 million in 2Q17 compared with $1.4 million in 2Q16 and $1.1 million in 1Q17, and recovered interest from nonaccrual loans of $0.3 million in 2Q17 compared with $0.2 million in 2Q16 and $0.5 million in 1Q17
  • Net interest income includes $0.4 million in accelerated accretion of discount upon the call of CLO securities totaling $27.5 million
  • Excluding prepayment penalty income, accelerated accretion of discount and recovered interest from nonaccrual loans, the yield on interest-earning assets would have improved to 3.82% in 2Q17, compared with 3.81% in 2Q16 and 3.80% in 1Q17, and the net interest margin would have decreased to 2.83% in 2Q17, compared with 2.87% in 2Q16 and 2.85% in 1Q17
  • Average balance of total interest-earning assets of $5,919.0 million, increased $306.0 million, or 5.5% YoY and increased $45.2 million, or 0.8% QoQ
  • Yield on interest-earning assets of 3.94%, increased 1bp YoY and 4bps QoQ
  • Cost of interest-bearing liabilities of 1.11%, increased 6bps YoY and 5bps QoQ
  • Cost of funds of 1.05%, increased 6bps YoY and 4bps QoQ, driven by an increase in rates paid on our core deposits and short-term borrowings

Non-interest Income

Non-interest income for 2Q17 was $1.9 million, a decrease of $35.8 million YoY and $1.7 million QoQ.

  • Non-interest income included net losses from fair value adjustments of $1.2 million in 2Q17, $1.1 million in 2Q16 and $0.4 million in 1Q17
  • 2Q16 included a gain of $33.8 million recorded from the sale of one of our properties in Flushing, Queens and a gain on the sale of securities of $2.4 million and 1Q17 included a gain from life insurance proceeds of $1.2 million
  • Absent the above items non-interest income was $3.1 million, an increase of $0.5 million YoY and $0.2 million QoQ

Non-interest Expense

Non-interest expense for 2Q17 was $26.1 million, a decrease of $2.4 million, or 8.4%, YoY and $3.5 million, or 11.8% QoQ.

  • 2Q16 included a non-recurring penalty of $2.1 million on the prepayment of $38.0 million in repurchase agreements and a write-down of $0.8 million on one OREO property. Absent these two items, non-interest expense increased $0.5 million, or 1.9% YoY, driven by increased salaries and benefits from annual salary increases and additions in staffing, partially offset by reductions in FDIC insurance expense, due to lower assessment rates, and decreased foreclosure expense due to continued improvement in asset quality
  • Lower costs associated with FDIC insurance and foreclosure expense should be sustainable
  • 1Q17 included the impact of annual grants of employee and director restricted stock unit awards totaling $3.3 million. Absent this item in 1Q17, non-interest expense decreased $0.2 million or 0.8%, primarily driven by decreased foreclosure expense
  • The efficiency ratio improved to 55.8% from 57.1% in 2Q16 and 64.0% in 1Q17

Provision for Income Taxes

The provision for income taxes in 2Q17 was $6.8 million, a decrease of $13.9 million YoY but an increase of $1.5 million QoQ.

  • Pre-tax income decreased by $31.7 million, or 61.9% YoY but increased $2.0 million, or 11.3% QoQ
  • The effective tax rates were 34.7% in 2Q17, 40.5% in 2Q16 and 30.0% in 1Q17
  • The improvement in the Company’s effective tax rate compared to 2Q16 was primarily due to a change in the accounting treatment of deductible stock compensation expense from prior years; in prior years, the tax impact of deductible stock compensation expense flowed through additional paid-in-capital and did not have an impact on the Company’s effective tax rate
  • The increase in the Company’s effective tax rate compared to 1Q17 was primarily due to the requirement that stock compensation be treated, for tax purposes, as a discrete tax item in the period the shares vest; our stock awards generally vest in the first quarter, therefore reducing 1Q17 effective tax rate
  • We anticipate the effective tax rate to approximate the 2Q17 rate for the remainder of the year

Financial Condition Summary:

Loans:

  • Net loans held for investment were $5,023.5 million reflecting an increase of 1.4% QoQ (not annualized) and 4.4% year-to-date as we continue to focus on the origination of multi-family, commercial real estate and commercial business loans with a full relationship
  • Loan originations and purchases of multi-family, commercial real estate and commercial business loans totaled $236.3 million for 2Q17, or 90.5% of loan production
  • Loan pipeline was $279.1 million at June 30, 2017, compared to $303.1 million at March 31, 2017 and $329.8 million at June 30, 2016
  • The loan-to-value ratio on our portfolio of real estate dependent loans as of June 30, 2017 totaled 39.8%

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

For the three months ended
June 30, March 31, June 30,
Loan type 2017 2017 2016
Mortgage loans 4.01% 3.78% 3.53%
Non-mortgage loans 4.13% 4.02% 4.29%
Total loans 4.04% 3.85% 3.71%

Credit Quality:

  • Non-performing loans totaled $15.5 million, a decrease of $6.0 million, or 27.8%, from $21.4 million at December 31, 2016
  • Classified assets totaled $44.7 million, an increase of $0.7 million, or 1.7%, from $44.0 million at December 31, 2016, primarily due to an increase in substandard taxi medallion loans, partially offset by reductions in non-performing assets
  • Loans classified as troubled debt restructured (TDR) totaled $21.4 million, an increase of $3.9 million, or 22.6%, from $17.4 million at December 31, 2016, attributable to the addition of five taxi medallion TDRs
  • We anticipate continued low loss content in the portfolio, as our strong underwriting standards coupled with our practice of obtaining updated appraisals and recording charge-offs early in the delinquency process has resulted in a 38.5% average loan-to-value for non-performing loans collateralized by real estate at June 30, 2017
  • No provision for loan losses was recorded in the six months ended June 30, 2017 or all of 2016 due to continued strong credit quality, with net charge-offs totaling $0.1 million for the six months ended June 30, 2017 and net recoveries of $0.7 million for all of 2016

Capital Management:

  • The Company and Bank are subject to the same regulatory requirements and at June 30, 2017, both were well capitalized under all applicable regulatory requirements
  • During six months ended June 30, 2017, stockholders’ equity increased $20.2 million, or 3.9%, to $534.1 million due to net income of $25.0 million and $1.8 million of other comprehensive income, partially offset by the declaration and payment of dividends on the Company’s common stock
  • During the six months ended June 30, 2017, the Company repurchased 10,000 treasury shares at an average cost of $27.80 per share; as of June 30, 2017, up to 485,905 shares may be repurchased under the current authorized stock repurchase program, which has no expiration or maximum dollar limit
  • Book value per common share increased to $18.54 at June 30, 2017, from $17.95 at December 31, 2016 and $17.77 at June 30, 2016
  • Tangible book value per common share, a non-GAAP measure, increased to $18.00 at June 30, 2017, from $17.40 at December 31, 2016 and $17.22 at June 30, 2016

Inaugural 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, July 26, 2017 at 9:30 AM (ET) to discuss the Company’s strategy and results for the second quarter of 2017
  • Dial-in for Live Call: 1-888-317-6016
  • Webcast: https://services.choruscall.com/links/ffic170726.html
  • Dial-in for Replay: 1-877-344-7529
  • The conference call will be simultaneously webcast and archived through 5:00 PM (ET) on September 30, 2017

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. 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. 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, 2016 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 six months ended
June 30, March 31, June 30, June 30,
2017 2017 2016 2017 2016
Interest and Dividend Income
Interest and fees on loans $51,631 $50,885 $48,413 $102,516 $95,971
Interest and dividends on securities:
Interest 6,432 6,095 6,510 12,527 13,102
Dividends 123 121 120 244 239
Other interest income 129 153 48 282 142
Total interest and dividend income 58,315 57,254 55,091 115,569 109,454
Interest Expense
Deposits 9,510 8,980 8,097 18,490 16,070
Other interest expense 5,188 4,885 5,105 10,073 10,362
Total interest expense 14,698 13,865 13,202 28,563 26,432
Net Interest Income 43,617 43,389 41,889 87,006 83,022
Provision for loan losses - - - - -
Net Interest Income After Provision for Loan Losses 43,617 43,389 41,889 87,006 83,022
Non-interest Income
Banking services fee income 1,014 874 973 1,888 1,949
Net gain on sale of securities - - 2,363 - 2,363
Net gain on sale of loans 34 210 3 244 344
Net gain on sale of buildings - - 33,814 - 33,814
Net loss from fair value adjustments (1,159) (378) (1,115) (1,537) (2,102)
Federal Home Loan Bank of New York stock dividends 643 823 582 1,466 1,205
Gains from life insurance proceeds 6 1,161 - 1,167 411
Bank owned life insurance 807 795 694 1,602 1,389
Other income 603 204 403 807 884
Total non-interest income 1,948 3,689 37,717 5,637 40,257
Non-interest Expense
Salaries and employee benefits 15,424 17,104 13,968 32,528 30,229
Occupancy and equipment 2,654 2,496 2,352 5,150 4,722
Professional services 1,919 1,996 2,027 3,915 4,177
FDIC deposit insurance 503 326 940 829 1,844
Data processing 1,321 1,203 1,199 2,524 2,290
Depreciation and amortization 1,155 1,165 1,062 2,320 2,094
Other real estate owned/foreclosure (income) expense (96) 351 405 255 558
Prepayment penalty on borrowings - - 2,082 - 2,082
Other operating expenses 3,185 4,923 4,419 8,108 8,955
Total non-interest expense 26,065 29,564 28,454 55,629 56,951
Income Before Income Taxes 19,500 17,514 51,152 37,014 66,328
Provision for Income Taxes
Federal 5,576 4,749 15,203 10,325 19,950
State and local 1,199 505 5,514 1,704 6,382
Total taxes 6,775 5,254 20,717 12,029 26,332
Net Income $12,725 $12,260 $30,435 $24,985 $39,996
Basic earnings per common share $0.44 $0.42 $1.05 $0.86 $1.38
Diluted earnings per common share $0.44 $0.42 $1.05 $0.86 $1.38
Dividends per common share $0.18 $0.18 $0.17 $0.36 $0.34


FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
(Unaudited)
June 30, March 31, December 31,
2017 2017 2016
ASSETS
Cash and due from banks$48,539 $51,215 $35,857
Securities held-to-maturity:
Mortgage-backed securities 7,983 - -
Other securities 24,451 36,406 37,735
Securities available for sale:
Mortgage-backed securities 520,012 537,905 516,476
Other securities 317,693 346,238 344,905
Loans held for sale 30,565 - -
Loans:
Multi-family residential 2,243,643 2,261,946 2,178,504
Commercial real estate 1,349,634 1,268,770 1,246,132
One-to-four family ― mixed-use property 556,906 561,355 558,502
One-to-four family ― residential 181,213 184,201 185,767
Co-operative apartments 7,069 7,216 7,418
Construction 16,842 12,413 11,495
Small Business Administration 10,591 10,519 15,198
Taxi medallion 18,303 18,832 18,996
Commercial business and other 644,262 632,503 597,122
Net unamortized premiums and unearned loan fees 17,217 16,836 16,559
Allowance for loan losses (22,157) (22,211) (22,229)
Net loans 5,023,523 4,952,380 4,813,464
Interest and dividends receivable 21,439 20,602 20,228
Bank premises and equipment, net 26,592 26,026 26,561
Federal Home Loan Bank of New York stock 66,630 57,384 59,173
Bank owned life insurance 130,631 129,824 132,508
Goodwill 16,127 16,127 16,127
Other assets 51,051 57,378 55,453
Total assets$6,285,236 $6,231,485 $6,058,487
LIABILITIES
Due to depositors:
Non-interest bearing$349,302 $344,028 $333,163
Interest-bearing:
Certificate of deposit accounts 1,332,377 1,411,819 1,372,115
Savings accounts 325,815 254,822 254,283
Money market accounts 837,565 851,129 843,370
NOW accounts 1,368,441 1,487,120 1,362,484
Total interest-bearing deposits 3,864,198 4,004,890 3,832,252
Mortgagors' escrow deposits 41,303 61,828 40,216
Borrowed funds 1,425,779 1,227,852 1,266,563
Other liabilities 70,563 67,485 72,440
Total liabilities 5,751,145 5,706,083 5,544,634
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 June 30, 2017, March 31, 2017 and December 31, 2016; 28,803,937
shares, 28,811,160 shares and 28,632,904 shares outstanding at June 30, 2017,
March 31, 2017 and December 31, 2016, respectively) 315 315 315
Additional paid-in capital 216,447 215,501 214,462
Treasury stock (2,726,658 shares, 2,719,435 shares and 2,897,691 shares at
June 30, 2017, March 31, 2017 and December 31, 2016, respectively) (51,483) (51,224) (53,754)
Retained earnings 375,388 367,944 361,192
Accumulated other comprehensive loss, net of taxes (6,576) (7,134) (8,362)
Total stockholders' equity 534,091 525,402 513,853
Total liabilities and stockholders' equity$6,285,236 $6,231,485 $6,058,487


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 six months ended
June 30, March 31, June 30, June 30,
2017 2017 2016 2017 2016
Per Share Data
Basic earnings per share $0.44 $0.42 $1.05 $0.86 $1.38
Diluted earnings per share $0.44 $0.42 $1.05 $0.86 $1.38
Average number of shares outstanding for:
Basic earnings per common share computation 29,135,339 29,019,070 29,022,122 29,077,526 29,059,393
Diluted earnings per common share computation 29,135,945 29,022,745 29,034,454 29,080,182 29,072,813
Shares outstanding 28,803,937 28,811,160 28,631,243 28,803,937 28,631,243
Book value per common share (1) $18.54 $18.24 $17.77 $18.54 $17.77
Tangible book value per common share (2) $18.00 $17.69 $17.22 $18.00 $17.22
Stockholders' Equity
Stockholders' equity 534,091 525,402 508,883 534,091 508,883
Tangible stockholders' equity 518,355 509,666 493,163 518,355 493,163
Average Balances
Total loans, net $4,962,734 $4,868,048 $4,567,019 $4,915,652 $4,478,175
Total interest-earning assets 5,918,981 5,873,799 5,612,935 5,896,514 5,551,825
Total assets 6,218,072 6,168,848 5,897,858 6,193,596 5,836,304
Total due to depositors 4,065,810 4,088,031 3,779,256 4,076,859 3,762,762
Total interest-bearing liabilities 5,287,720 5,254,640 5,046,162 5,271,271 5,002,863
Stockholders' equity 529,451 517,800 486,261 523,658 482,843
Performance Ratios (3)
Return on average assets 0.82% 0.79% 2.06% 0.81% 1.37%
Return on average equity 9.61 9.47 25.04 9.54 16.57
Yield on average interest-earning assets 3.94 3.90 3.93 3.92 3.94
Cost of average interest-bearing liabilities 1.11 1.06 1.05 1.08 1.06
Interest rate spread during period 2.83 2.84 2.88 2.84 2.88
Net interest margin 2.95 2.95 2.99 2.95 2.99
Non-interest expense to average assets 1.68 1.92 1.93 1.80 1.95
Efficiency ratio (4) 55.80 63.98 57.09 59.87 60.78
Average interest-earning assets to average
interest-bearing liabilities 1.12X 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 “Calculation of Tangible Stockholders’ Common Equity to Tangible Assets”.
(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 six At or for the year At or for the six
months ended ended months ended
June 30, 2017 December 31, 2016 June 30, 2016
Selected Financial Ratios and Other Data
Regulatory capital ratios (for Flushing Financial Corporation):
Tier 1 capital $558,756 $539,228 $516,551
Common equity Tier 1 capital 524,830 506,432 490,015
Total risk-based capital 655,913 636,457 538,749
Tier 1 leverage capital (well capitalized = 5%) 9.00% 9.00% 8.80%
Common equity Tier 1 risk-based capital (well capitalized = 6.5%) 11.43 11.79 11.45
Tier 1 risk-based capital (well capitalized = 8.0%) 12.17 12.56 12.07
Total risk-based capital (well capitalized = 10.0%) 14.29 14.82 12.59
Regulatory capital ratios (for Flushing Bank only):
Tier 1 capital $624,074 $607,033 $522,961
Common equity Tier 1 capital 624,074 607,033 522,961
Total risk-based capital 646,231 629,262 545,159
Tier 1 leverage capital (well capitalized = 5%) 10.04% 10.12% 8.89%
Common equity Tier 1 risk-based capital (well capitalized = 6.5%) 13.58 14.12 12.20
Tier 1 risk-based capital (well capitalized = 8.0%) 13.58 14.12 12.20
Total risk-based capital (well capitalized = 10.0%) 14.07 14.64 12.72
Capital ratios:
Average equity to average assets 8.45% 8.40% 8.27%
Equity to total assets 8.50 8.48 8.50
Tangible common equity to tangible assets (1) 8.27 8.24 8.26
Asset quality:
Non-accrual loans (2) $14,130 $21,030 $20,381
Non-performing loans 15,459 21,416 21,923
Non-performing assets 15,459 21,949 25,591
Net charge-offs/ (recoveries) 72 (694) (663)
Asset quality ratios:
Non-performing loans to gross loans 0.31% 0.44% 0.47%
Non-performing assets to total assets 0.25 0.36 0.43
Allowance for loan losses to gross loans 0.44 0.46 0.47
Allowance for loan losses to non-performing assets 143.33 101.28 86.74
Allowance for loan losses to non-performing loans 143.33 103.80 101.25
Full-service customer facilities 19 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
June 30, 2017 March 31, 2017 June 30, 2016
Average Yield/ Average Yield/ Average Yield/
BalanceInterestCost BalanceInterestCost BalanceInterestCost
Interest-earning Assets:
Mortgage loans, net $4,297,697$44,8794.18%$4,213,482$44,4294.22%$3,983,615$42,9694.31%
Other loans, net 665,037 6,7524.06 654,566 6,4563.95 583,404 5,4443.73
Total loans, net (1) 4,962,734 51,6314.16 4,868,048 50,8854.18 4,567,019 48,4134.24
Taxable securities:
Mortgage-backed
securities 532,938 3,4202.57 529,942 3,3672.54 599,247 3,7072.47
Other securities 217,599 2,3614.34 239,345 2,0723.46 249,956 2,1333.41
Total taxable securities 750,537 5,7813.08 769,287 5,4392.83 849,203 5,8402.75
Tax-exempt securities: (2)
Other securities 145,812 7742.12 146,502 7772.12 147,230 7902.15
Total tax-exempt securities 145,812 7742.12 146,502 7772.12 147,230 7902.15
Interest-earning deposits
and federal funds sold 59,898 1290.86 89,962 1530.68 49,483 480.39
Total interest-earning
assets 5,918,981 58,3153.94 5,873,799 57,2543.90 5,612,935 55,0913.93
Other assets 299,091 295,049 284,923
Total assets$6,218,072 $6,168,848 $5,897,858
Interest-bearing Liabilities:
Deposits:
Savings accounts$279,723 3990.57 $254,255$3070.48 $265,856 3060.46
NOW accounts 1,517,726 2,3310.61 1,568,267 2,2070.56 1,612,704 1,9620.49
Money market accounts 858,066 1,6510.77 860,779 1,4990.70 483,317 6810.56
Certificate of deposit
accounts 1,410,295 5,0991.45 1,404,730 4,9401.41 1,417,379 5,1211.45
Total due to depositors 4,065,810 9,4800.93 4,088,031 8,9530.88 3,779,256 8,0700.85
Mortgagors' escrow
accounts 73,838 300.16 54,616 270.20 67,728 270.16
Total interest-bearing
deposits 4,139,648 9,5100.92 4,142,647 8,9800.87 3,846,984 8,0970.84
Borrowings 1,148,072 5,1881.81 1,111,993 4,8851.76 1,199,178 5,1051.70
Total interest-bearing
liabilities 5,287,720 14,6981.11 5,254,640 13,8651.06 5,046,162 13,2021.05
Non interest-bearing
demand deposits 336,036 330,215 296,597
Other liabilities 64,865 66,193 68,838
Total liabilities 5,688,621 5,651,048 5,411,597
Equity 529,451 517,800 486,261
Total liabilities and
equity$6,218,072 $6,168,848 $5,897,858
Net interest income /
net interest rate spread $43,6172.83% $43,3892.84% $41,8892.88%
Net interest-earning assets /
net interest margin$631,261 2.95%$619,159 2.95%$566,773 2.99%
Ratio of interest-earning
assets to interest-bearing
liabilities 1.12X 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 $0.3 million, $0.6 million and $1.0 million for the three months ended June 30, 2017, March 31, 2017 and June 30, 2016, 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 six months ended
June 30, 2017 June 30, 2016
Average Yield/ Average Yield/
BalanceInterestCost BalanceInterestCost
Interest-earning Assets:
Mortgage loans, net $4,255,822$89,3084.20% $3,911,470$85,4234.37%
Other loans, net 659,830 13,2084.00 566,705 10,5483.72
Total loans, net (1) 4,915,652 102,5164.17 4,478,175 95,9714.29
Taxable securities:
Mortgage-backed
securities 531,448 6,7872.55 629,006 7,8812.51
Other securities 228,412 4,4333.88 239,973 3,8783.23
Total taxable securities 759,860 11,2202.95 868,979 11,7592.71
Tax-exempt securities: (2)
Other securities 146,155 1,5512.12 137,293 1,5822.30
Total tax-exempt securities 146,155 1,5512.12 137,293 1,5822.30
Interest-earning deposits
and federal funds sold 74,847 2820.75 67,378 1420.42
Total interest-earning
assets 5,896,514 115,5693.92 5,551,825 109,4543.94
Other assets 297,082 284,479
Total assets$6,193,596 $5,836,304
Interest-bearing Liabilities:
Deposits:
Savings accounts$267,059 7060.53 $264,150 6040.46
NOW accounts 1,542,857 4,5380.59 1,617,241 3,8840.48
Money market accounts 859,415 3,1500.73 470,606 1,2870.55
Certificate of deposit
accounts 1,407,528 10,0391.43 1,410,765 10,2421.45
Total due to depositors 4,076,859 18,4330.90 3,762,762 16,0170.85
Mortgagors' escrow
accounts 64,280 570.18 58,838 530.18
Total interest-bearing
deposits 4,141,139 18,4900.89 3,821,600 16,0700.84
Borrowings 1,130,132 10,0731.78 1,181,263 10,3621.75
Total interest-bearing
liabilities 5,271,271 28,5631.08 5,002,863 26,4321.06
Non interest-bearing
demand deposits 333,142 285,267
Other liabilities 65,525 65,331
Total liabilities 5,669,938 5,353,461
Equity 523,658 482,843
Total liabilities and
equity$6,193,596 $5,836,304
Net interest income /
net interest rate spread $87,0062.84% $83,0222.88%
Net interest-earning assets /
net interest margin$625,243 2.95% $548,962 2.99%
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 $1.0 million and $2.5 million for the six months ended June 30, 2017 and 2016, 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)
June 2017 vs. June 2017 vs.
June 30, March 31, December 31, December 2016 September 30, June 30, June 2016
(Dollars in thousands)2017 2017 2016 % Change 2016 2016 % Change
Deposits
Non-interest bearing$349,302 $344,028 $333,163 4.8% $320,060 $317,112 10.2%
Interest bearing:
Certificate of deposit
accounts 1,332,377 1,411,819 1,372,115 -2.9% 1,384,551 1,411,550 -5.6%
Savings accounts 325,815 254,822 254,283 28.1% 258,058 260,528 25.1%
Money market accounts 837,565 851,129 843,370 -0.7% 733,361 452,589 85.1%
NOW accounts 1,368,441 1,487,120 1,362,484 0.4% 1,296,475 1,453,540 -5.9%
Total interest-bearing
deposits 3,864,198 4,004,890 3,832,252 0.8% 3,672,445 3,578,207 8.0%
Total deposits$4,213,500 $4,348,918 $4,165,415 1.2% $3,992,505 $3,895,319 8.2%


FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
LOANS
(Unaudited)

Loan Origination and Purchases
For the three months For the six months ended
June 30, March 31, June 30, June 30,
(In thousands) 2017 2017 2016 2017 2016
Multi-family residential $63,469 $126,708 $162,364 $190,177 $232,007
Commercial real estate 123,559 35,732 114,007 159,291 176,144
One-to-four family – mixed-use property 13,656 18,542 11,630 32,198 29,875
One-to-four family – residential 4,860 5,920 4,195 10,780 13,688
Co-operative apartments - - 470 - 470
Construction 4,429 2,544 2,427 6,973 4,114
Small Business Administration 1,870 641 314 2,511 6,315
Taxi medallion - - - - -
Commercial business and other 49,312 76,484 92,456 125,796 154,490
Total $261,155 $266,571 $387,863 $527,726 $617,103


Loan Composition
June 30, 2017 vs. June 2017 vs.
June 30, March 31, December 31, December 2016 September 30, June 30, June 2016
(Dollars in thousands) 2017 2017 2016 % Change 2016 2016 % Change
Loans held for investment:
Multi-family residential$2,243,643 $2,261,946 $2,178,504 3.0% $2,171,289 $2,159,138 3.9%
Commercial real estate 1,349,634 1,268,770 1,246,132 8.3% 1,195,266 1,146,400 17.7%
One-to-four family ―
mixed-use property 556,906 561,355 558,502 -0.3% 555,691 566,702 -1.7%
One-to-four family ― residential 181,213 184,201 185,767 -2.5% 183,993 190,251 -4.8%
Co-operative apartments 7,069 7,216 7,418 -4.7% 7,494 7,571 -6.6%
Construction 16,842 12,413 11,495 46.5% 11,250 9,899 70.1%
Small Business Administration 10,591 10,519 15,198 -30.3% 14,339 14,718 -28.0%
Taxi medallion 18,303 18,832 18,996 -3.6% 20,536 20,641 -11.3%
Commercial business and other 644,262 632,503 597,122 7.9% 564,972 564,084 14.2%
Net unamortized premiums
and unearned loan fees 17,217 16,836 16,559 4.0% 16,447 16,875 2.0%
Allowance for loan losses (22,157) (22,211) (22,229) -0.3% (21,795) (22,198) -0.2%
Net loans$5,023,523 $4,952,380 $4,813,464 4.4% $4,719,482 $4,674,081 7.5%


Loans Held for Investment Activity
Three Months Ended
June 30, March 31, December 31, September 30, June 30,
(In thousands) 2017 2017 2016 2016 2016
Loans originated and purchased$261,155 $266,571 $282,592 $233,243 $387,863
Principal reductions (143,195) (122,897) (187,780) (183,583) (149,308)
Loans transferred to held-for-sale (30,565) - - - -
Loans sold (16,337) (4,874) - (3,693) (2,310)
Loan charged-offs (350) (179) (370) (541) (101)
Foreclosures - - (138) - -
Net change in deferred (fees) and costs 381 277 112 (428) 1,594
Net change in the allowance for loan losses 54 18 (434) 403 (205)
Total loan activity$71,143 $138,916 $93,982 $45,401 $237,533


FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
NON-PERFORMING ASSETS and NET CHARGE-OFFS
(Unaudited)
June 30, March 31, December 31, September 30, June 30,
(Dollars in thousands) 2017 2017 2016 2016 2016
Loans 90 Days Or More Past Due
and Still Accruing:
Multi-family residential $- $- $- $- $574
Commercial real estate - 75 - 1,183 320
One-to-four family - mixed-use property - - 386 470 635
One-to-four family - residential - - - - 13
Construction 602 602 - - -
Taxi medallion 727 - - - -
Commercial business and other - - - - -
Total 1,329 677 386 1,653 1,542
Non-accrual Loans:
Multi-family residential 1,537 1,354 1,837 1,649 3,162
Commercial real estate 1,948 1,462 1,148 1,157 2,299
One-to-four family - mixed-use property 2,971 3,328 4,025 4,534 6,005
One-to-four family - residential 7,616 7,847 8,241 8,340 8,406
Small Business Administration 53 58 1,886 2,132 185
Taxi medallion - 3,771 3,825 3,971 196
Commercial business and other 5 38 68 99 128
Total 14,130 17,858 21,030 21,882 20,381
Total Non-performing Loans 15,459 18,535 21,416 23,535 21,923
Other Non-performing Assets:
Real estate acquired through foreclosure - - 533 2,839 3,668
Total - - 533 2,839 3,668
Total Non-performing Assets $15,459 $18,535 $21,949 $26,374 $25,591
Non-performing Assets to Total Assets 0.25% 0.30% 0.36% 0.44% 0.43%
Allowance For Loan Losses to Non-performing Loans 143.3% 119.8% 103.8% 92.6% 101.3%


Net Charge-Offs (Recoveries)
Three Months Ended
June 30, March 31, December 31, September 30, June 30,
(In thousands) 2017 2017 2016 2016 2016
Multi-family residential $(53) $(16) $(103) $79 $(183)
Commercial real estate 4 (68) - (11) -
One-to-four family – mixed-use property (67) 34 (520) 24 36
One-to-four family – residential 170 - 40 - 7
Small Business Administration 14 26 186 317 (42)
Taxi medallion - 54 142 - -
Commercial business and other (14) (12) (179) (6) (23)
Total net loan charge-offs (recoveries) $54 $18 $(434) $403 $(205)

Core Diluted EPS, Core ROAE, Core ROAA, 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 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 common share is useful for both investors and management as these are measures commonly used by financial institutions, regulators and investors to measure the capital adequacy of financial institutions. The Company believes these measures facilitate comparison of the quality and composition of the Company's capital over time and in comparison to its competitors. These measures should not be viewed as a substitute for total shareholders' equity.

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

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
RECONCILIATION OF GAAP EARNINGS and CORE EARNINGS
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30,March 31,June 30, June 30,June 30,
2017 2017 2016 2017 2016
GAAP income before income taxes$19,500 $17,514 $51,152 $37,014 $66,328
Net loss from fair value adjustments 1,159 378 1,115 1,537 2,102
Net gain on sale of securities - - (2,363) - (2,363)
Gain from life insurance proceeds (6) (1,161) - (1,167) (411)
Net gain on sale of buildings - - (33,814) - (33,814)
Prepayment penalty on borrowings - - 2,082 - 2,082
Core income before taxes 20,653 16,731 18,172 37,384 33,924
Provision for income taxes for core income 7,129 5,020 6,851 12,149 12,892
Core net income$13,524 $11,711 $11,321 $25,235 $21,032
GAAP diluted earnings per common share$0.44 $0.42 $1.05 $0.86 $1.38
Net (gain) loss from fair value adjustments, net of tax 0.02 0.01 0.02 0.04 0.04
Net gain on sale of securities, net of tax - - (0.05) - (0.05)
Gain from life insurance proceeds - (0.04) - (0.04) (0.01)
Net gain on sale of buildings, net of tax - - (0.67) - (0.67)
Prepayment penalty on borrowings - - 0.04 - 0.04
Core diluted earnings per common share*$0.46 $0.40 $0.39 $0.87 $0.72
Core net income, as calculated above$13,524 $11,711 $11,321 $25,235 $21,032
Average assets 6,218,072 6,168,848 5,897,858 6,193,596 5,836,304
Average equity 529,451 517,800 486,261 523,658 482,843
Core return on average assets** 0.87% 0.76% 0.77% 0.81% 0.72%
Core return on average equity** 10.22% 9.05% 9.31% 9.64% 8.71%
* 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)
June 30,December 31,June 30,
(Dollars in thousands) 2017 2016 2016
Total Equity $534,091 $513,853 $508,883
Less:
Goodwill (16,127) (16,127) (16,127)
Intangible deferred tax liabilities 391 389 407
Tangible Stockholders' Common Equity$ 518,355 $ 498,115 $ 493,163
Total Assets $6,285,236 $6,058,487 $5,986,727
Less:
Goodwill (16,127) (16,127) (16,127)
Intangible deferred tax liabilities 391 389 407
Tangible Assets $6,269,500 $6,042,749 $5,971,007
Tangible Stockholders' Common Equity to Tangible Assets 8.27% 8.24% 8.26%

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

Source:Flushing Financial Corporation