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Flushing Financial Corporation Reports Record Full Year Net Interest Income; 7.1% Annual Loan Growth While Credit Quality Remains Strong; 11% Quarterly Dividend Increase Planned for 2018

FOURTH QUARTER 20171

  • GAAP diluted EPS was $0.21, down 40.0% QoQ and 58.0% YoY, largely due to pre-tax provision for loan losses of $6.6 million, or $0.13 per share after tax, primarily related to write-downs on our taxi medallion portfolio, and the impact of U.S. federal tax reform (“Tax Reform”) resulting in a charge of $3.8 million, or $0.13 per share, related to the revaluation of our net deferred tax assets
  • Core diluted EPS was $0.33, down 10.8% QoQ and 17.5% YoY, largely due to $6.6 million provision for loan losses
  • Net interest income was $43.1 million, an improvement of 1.7% YoY, but unchanged QoQ
  • Net interest margin was 2.90%, no change QoQ and down 6bps YoY
    • Excluding prepayment penalty income from loans and securities, recovered interest from nonaccrual loans and accelerated accretion of discount upon the call of CLO securities, the net interest margin was 2.77%, down 4bps YoY, but unchanged QoQ
  • Net charge-offs were $11.5 million for 4Q17, primarily due to write-downs of taxi medallion loans totaling $11.2 million, compared to $0.2 million in 3Q17 and recoveries of $0.4 million in 4Q16
  • GAAP and core ROAE were 4.4% and 7.2%, compared with 7.6% and 8.1%, respectively in 3Q17
  • GAAP and core ROAA were 0.4% and 0.6%, respectively, compared with both 0.7% in 3Q17

FULL YEAR 20171

  • GAAP diluted EPS was $1.41, down 37.1%, while core diluted EPS was $1.57, up 3.3% YoY
  • Net interest income was a record $173.1 million, up 3.6%, and net interest margin was 2.93%, down 4bps YoY
    • Excluding prepayment penalty income from loans and securities, recovered interest from nonaccrual loans and accelerated accretion of discount upon the call of CLO securities, the net interest margin was 2.81%, down 2bps YoY
  • GAAP ROAE was 7.8%, compared with 13.1% and core ROAE was 8.6%, compared with 8.9% for 2016
  • GAAP ROAA was 0.7%, compared with 1.1% for 2016 and core ROAA was 0.7% for 2017 and 2016

UNIONDALE, N.Y., Jan. 30, 2018 (GLOBE NEWSWIRE) -- Flushing Financial Corporation (the “Company”) (Nasdaq-GS:FFIC), the parent holding company for Flushing Bank (the “Bank”), today announced its financial results for the fourth quarter and the year ended December 31, 2017.

John R. Buran, President and Chief Executive Officer, stated, “I am very pleased to announce that we had record net interest income for 2017. The record net interest income was the result of executing our strategic objectives. During the year, loan growth totaled 7.1%. After essentially no loan growth in the third quarter of 2017, loan growth resumed at a rate of 2.2% (not annualized), with the yield on the fourth quarter’s originations exceeding the quarterly portfolio yield. In the fourth quarter, we undertook steps to reduce both our future credit and margin risks. In order to reduce future credit risk, we reduced the carrying value of the NYC taxi medallion portfolio by over 50% to an average carrying value of $164,000 per NYC taxi medallion by recognizing a provision for loan losses totaling $6.6 million. The remaining book value of this portfolio is $6.8 million. Future margin risk was reduced by entering into forward swap contracts totaling approximately $400 million beginning at various points in 2018 and 2019, with maturity dates five years from the start date. These swaps provide protection to minimize the effects of rising interest rates on interest-bearing liabilities. Our pre-tax, pre-provision core income for 4Q17 was $20.9 million, an increase of $0.9 million from 3Q17 and $3.1 million from 4Q16.”

“As a result of the Tax Reform, we recorded $3.8 million in tax expense related to the revaluation of our net deferred tax assets based on the new federal corporate tax rate of 21%. For 2018, we expect our effective corporate tax rate to be approximately 23%.”

“To further reduce the impact of rising interest rates on our net interest margin, in addition to entering into forward swaps, we continued our strategy of focusing our origination efforts on higher yielding loans. This effort provided a 31bps improvement in the yield received on loan originations and purchases in 2017 to 4.06% compared to 3.75% in 2016. Although, we experienced a decline of 10bps in the yield of originations and purchases received in the fourth quarter of 2017, compared to the third quarter of 2017, the yield for the fourth quarter of 2017 exceeded the fourth quarter of 2016 by 34bps. Additionally, the yield of originations and purchases for the fourth quarter of 2017 was 6bps greater than the quarterly average yield of our total loan portfolio for the same period, excluding prepayment penalty and recovered interest from delinquent loans. At December 31, 2017, our total loan portfolio had an average LTV of 39.1% for loans secured by real estate, while maintaining our strong underwriting standards. In the prior quarter we experienced a delay in closing loans resulting in an increase in the loan pipeline to $417.0 million. During the recent quarter, the pipeline has reduced to $359.8 million, yet remains strong and supports our expectation of solid loan growth in the first quarter of 2018. On the liability side of the balance sheet, the cost of funds increased two basis points from the quarter ended September 30, 2017, as government deposits did not replenish to the projected amount which caused us to rely more on relatively higher costing short-term borrowings.”

Mr. Buran continued, “We remain focused on credit quality. Credit quality improved as our non-performing assets decreased by 17% in 2017 and net charge-offs, excluding charge-offs of the taxi medallion loans, remain minimal. Also, total delinquencies have decreased 28% since December 31, 2016. The allowance for loan losses to gross loans has decreased to 0.39% from 0.46% at December 31, 2016 while the allowance for loan losses to non-performing loans increased to 112% from 104% at the end of 2016. The LTV on our non-performing real estate loans at December 31, 2017 is 39.8%.”

“We continued implementing the strategic objective of improving the scalability of our branch network. During the quarter, we opened two converted branches in the Flushing, Queens market, bringing our total conversions to nine branches at December 31, 2017, with the planned conversion of five more branches by the end of 2018. We estimate that the Universal Banker model provides on average a savings of 20% in compensation costs per converted branch.”

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 fourth quarter, commercial business, multi-family, and commercial real estate loan originations and purchases represented 37%, 36%, and 16%, respectively, of all originations, which were made while maintaining conservative loan-to-values, debt coverage ratios, and increasing yield.
  • The average interest rate obtained for fourth quarter originations and purchases totaled 4.15%, a decrease of 10bps compared to 4.25% for 3Q17 and an increase of 34bps compared to 3.81% for 4Q16.
  • The average rate of mortgage loan applications in the pipeline totaled 4.10% at December 31, 2017, as compared to 4.04% at September 30, 2017 and 4.20% at December 31, 2016.
  • Multi-family (excluding underlying co-operative mortgages), commercial real estate, and one-to-four family mixed-use property mortgage loans originated during 4Q17 had a yield of 3.91%, a decrease of 21bps from 4.12% for 3Q17 and an increase of 25bps from 3.66% for 4Q16. We have maintained our asset quality as these loans had an average loan-to-value ratio of 50.4% and an average debt coverage ratio of 172%.

Mr. Buran concluded, “As recently announced, we have already shared some of the anticipated benefits of the recent Tax Reform with our non-executive employees in the form of one-time bonuses and with our shareholders in the form of our planned 11% increase in our quarterly dividend. We continue to evaluate opportunities to invest additional tax savings into the business to position the Company for future growth. 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:

Net Interest Income

Net interest income for 4Q17 was $43.1 million, an increase of $0.7 million, or 1.7% YoY (December 31, 2017 compared to December 31, 2016) and was unchanged QoQ (December 31, 2017 compared to September 30, 2017).

  • Net interest margin of 2.90%, decreased 6bps YoY but remains unchanged QoQ
  • Net interest spread of 2.75%, decreased 9bps YoY and 2bps QoQ
  • Net interest income includes prepayment penalty income from loans and securities of $1.4 million in 4Q17 compared with $1.6 million in 4Q16 and 3Q17, and recovered interest from delinquent loans of $0.1 million in 4Q17, compared to $0.6 million in 4Q16 and $0.3 million in 3Q17
  • Net interest income includes $0.4 million in accelerated accretion of discount upon call of CLO securities in 4Q17
  • Excluding prepayment penalty income, accelerated accretion of discount and recovered interest from nonaccrual loans, the yield on interest-earning assets was 3.90% in 4Q17, an improvement from 3.77% in 4Q16 and 3.87% in 3Q17, and the net interest margin was 2.77% in 4Q17, which decreased from 2.81% in 4Q16 and was unchanged from 2.77% in 3Q17
  • Average balance of total interest-earning assets of $5,934.5 million, increased $217.2 million, or 3.8% YoY and decreased $1.6 million QoQ
  • Yield on interest-earning assets of 4.02%, increased 10bps YoY and 2bps QoQ
  • Cost of interest-bearing liabilities of 1.27%, increased 19bps YoY and 4bps QoQ
  • Cost of funds of 1.17%, increased 16bps YoY and 2bps QoQ, driven by increases in rates paid on certificates of deposit, government deposits and short-term borrowings resulting from increases in the Fed Funds rate during 2017

Provision for loan losses

Provision recorded for loan losses for 4Q17 was $6.6 million compared to none in 4Q16 and $3.3 million in 3Q17.

  • Provision was primarily driven by a reduction in the estimated fair value of NYC taxi medallions based on most recent sales data
  • Remaining balance of taxi medallion portfolio totals $6.8 million

Non-interest Income

Non-interest income for 4Q17 was $3.1 million, a decrease of $12.4 million, or 80.1%, YoY and an increase of $1.4 million, or 84.5% QoQ.

  • Non-interest income included net losses from fair value adjustments of $0.6 million in 4Q17, $0.5 million in 4Q16 and $1.3 million in 3Q17, net gains on sale of building of $14.2 million in 4Q16 and net losses from the sale of securities of $0.8 million in 4Q16 and $0.2 million in 3Q17
  • Absent above items, non-interest income was $3.7 million, an increase of $1.1 million YoY and $0.6 million QoQ

Non-interest Expense

Non-interest expense for 4Q17 was $25.9 million, a decrease of $9.5 million, or 26.8%, YoY and $0.1 million, or 0.3% QoQ.

  • As part of a balance sheet restructure, 4Q16 included a non-recurring pre-payment penalty on borrowings of $8.3 million; absent this item, non-interest expense decreased $1.2 million, or 4.5% YoY, driven by decreased salaries and benefits, foreclosure expense due to continued improvement in asset quality and a reduction in FDIC insurance expense, due to lower assessment rates
  • Lower costs associated with FDIC insurance and foreclosure expense should be sustainable
  • The efficiency ratio was 55.4% in 4Q17 compared to 59.6% in 4Q16 and 56.5% in 3Q17

Provision for Income Taxes

The provision for income taxes in 4Q17 was $7.7 million, a decrease of $0.4 million, or 5.2%, YoY and an increase of $2.4 million, or 45.4%, QoQ.

  • Additional tax expense totaling $3.8 million from revaluation of net deferred tax assets due to new federal corporate tax rate of 21%
  • Absent the above item, the effective tax rates were 28.7% in 4Q17, 36.2% in 4Q16 and 34.2% in 3Q17
  • The improvement in the Company’s effective tax rate in 4Q17 was primarily due to increased impact of preferential tax items

Financial Condition Summary:

Loans:

  • Net loans held for investment were $5,156.6 million reflecting an increase of 2.2% QoQ (not annualized) and 7.1% for 2017 as we continue to focus on the origination of multi-family, commercial real estate and commercial business loans with a full relationship while emphasizing rate over volume
  • Loan originations and purchases of multi-family, commercial real estate and commercial business loans totaled $293.8 million for 4Q17, or 89.3% of loan production
  • Loan pipeline was $359.8 million at December 31, 2017, compared to $417.0 million at September 30, 2017 and $310.9 million at December 31, 2016
  • The loan-to-value ratio on our portfolio of real estate dependent loans as of December 31, 2017 totaled 39.1%
  • Mortgage loan originations and purchases in 4Q17 were more heavily weighted towards multi-family loans, which generally have a lower average yield than commercial mortgages

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 2017 2017 2016
Mortgage loans 3.92% 4.13% 3.70%
Non-mortgage loans 4.52% 4.43% 4.05%
Total loans 4.15% 4.25% 3.81%


Credit Quality:

  • Non-performing loans totaled $18.1 million, a decrease of $3.3 million, or 15.3%, from $21.4 million at December 31, 2016
  • Classified assets totaled $34.0 million, a decrease of $10.0 million, or 22.8%, from $44.0 million at December 31, 2016, primarily due to reductions in non-performing loans and our exposure to taxi medallion loans
  • Loans classified as troubled debt restructured (TDR) totaled $13.2 million, a decrease of $4.2 million, or 24.3%, from $17.4 million at December 31, 2016, due to the reduction in our exposure to taxi medallion loans
  • 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 39.8% average loan-to-value for non-performing loans collateralized by real estate at December 31, 2017
  • Provision for loan losses of $9.9 million was recorded during the year ended December 31, 2017, as the estimated fair value of NYC taxi medallions was lowered based on most recent sales data, while no provision for loan losses was recorded during 2016; net charge-offs totaled $11.7 million during the year ended December 31, 2017, of which $11.2 million was related to taxi medallion loans, compared to net recoveries of $0.7 million for the year ended December 31, 2016

Capital Management:

  • The Company and Bank, at December 31, 2017, were both well capitalized under all applicable regulatory requirements
  • During the year ended December 31, 2017, stockholders’ equity increased $18.8 million, or 3.6%, to $532.6 million due to net income of $41.1 million, partially offset by the declaration and payment of dividends on the Company’s common stock and repurchases of the Company’s common stock
  • During the year ended December 31, 2017, the Company repurchased 241,625 treasury shares at an average cost of $27.59 per share; as of December 31, 2017, up to 254,280 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 $18.63 at December 31, 2017, from $17.95 at December 31, 2016 and tangible book value per common share, a non-GAAP measure, increased to $18.08 at December 31, 2017, from $17.40 at December 31, 2016

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, January 31, 2018 at 9:30 AM (ET) to discuss the Company’s strategy and results for the fourth quarter of 2017
  • Dial-in for Live Call: 1-888-317-6016
  • Webcast: https://services.choruscall.com/links/ffic180131.html
  • Dial-in for Replay: 1-877-344-7529
  • Replay Access Code: 10115613
  • The conference call will be simultaneously webcast and archived through 5:00 PM (ET) on January 31, 2019

About Flushing Financial Corporation

Flushing Financial Corporation (Nasdaq: FFIC) is the holding company for Flushing Bank®, a New York State-chartered commercial bank insured by the Federal Deposit Insurance Corporation. The Bank serves consumers, businesses, professionals, corporate clients, and public entities by offering a full complement of deposit, loan, and cash management services through its 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 Bank and Flushing Financial Corporation may be obtained by visiting the Company’s website at http://www.flushingbank.com.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Statements in this Press Release relating to plans, strategies, economic performance and trends, projections of results of specific activities or investments and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, risk factors discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 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 twelve months ended
December 31, September 30, December 31, December 31,
2017 2017 2016 2017 2016
Interest and Dividend Income
Interest and fees on loans $ 53,449 $ 53,318 $ 49,973 $ 209,283 $ 195,125
Interest and dividends on securities:
Interest 6,112 5,850 5,866 24,489 25,141
Dividends 13 30 121 287 481
Other interest income 123 121 59 526 250
Total interest and dividend income 59,697 59,319 56,019 234,585 220,997
Interest Expense
Deposits 11,174 10,655 8,760 40,319 33,350
Other interest expense 5,463 5,623 4,908 21,159 20,561
Total interest expense 16,637 16,278 13,668 61,478 53,911
Net Interest Income 43,060 43,041 42,351 173,107 167,086
Provision for loan losses 6,595 3,266 - 9,861 -
Net Interest Income After Provision for Loan Losses 36,465 39,775 42,351 163,246 167,086
Non-interest Income
Banking services fee income 1,383 885 983 4,156 3,758
Net (loss) gain on sale of securities - (186) (839) (186) 1,524
Net gain on sale of loans 207 152 - 603 584
Net gain on sale of buildings - - 14,204 - 48,018
Net loss from fair value adjustments (631) (1,297) (509) (3,465) (3,434)
Federal Home Loan Bank of New York stock dividends 875 740 794 3,081 2,664
Gains from life insurance proceeds - 238 2 1,405 460
Bank owned life insurance 809 816 701 3,227 2,797
Other income 421 313 90 1,541 1,165
Total non-interest income 3,064 1,661 15,426 10,362 57,536
Non-interest Expense
Salaries and employee benefits 14,249 15,310 15,801 62,087 60,825
Occupancy and equipment 2,757 2,502 2,550 10,409 9,848
Professional services 1,822 1,763 1,813 7,500 7,720
FDIC deposit insurance 487 499 613 1,815 2,993
Data processing 1,365 1,349 1,135 5,238 4,364
Depreciation and amortization 1,339 1,173 1,187 4,832 4,450
Other real estate owned/foreclosure expense 28 121 476 404 1,307
Net loss (gain) from sales of real estate owned - - 275 (50) 2,001
Prepayment penalty on borrowings - - 8,274 - 10,356
Other operating expenses 3,832 3,249 3,251 15,239 14,739
Total non-interest expense 25,879 25,966 35,375 107,474 118,603
Income Before Income Taxes 13,650 15,470 22,402 66,134 106,019
Provision for Income Taxes
Federal 7,838 4,680 8,062 22,844 33,580
State and local (145) 611 54 2,169 7,523
Total taxes 7,693 5,291 8,116 25,013 41,103
Net Income $ 5,957 $ 10,179 $ 14,286 $ 41,121 $ 64,916
Basic earnings per common share $ 0.21 $ 0.35 $ 0.50 $ 1.41 $ 2.24
Diluted earnings per common share $ 0.21 $ 0.35 $ 0.50 $ 1.41 $ 2.24
Dividends per common share $ 0.18 $ 0.18 $ 0.17 $ 0.72 $ 0.68



FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
(Unaudited)
December 31, September 30, December 31,
2017 2017 2016
ASSETS
Cash and due from banks$ 51,546 $ 60,161 $ 35,857
Securities held-to-maturity:
Mortgage-backed securities 7,973 7,978 -
Other securities 22,913 22,952 37,735
Securities available for sale:
Mortgage-backed securities 509,650 519,861 516,476
Other securities 228,704 276,698 344,905
Loans:
Multi-family residential 2,273,595 2,236,173 2,178,504
Commercial real estate 1,368,112 1,352,775 1,246,132
One-to-four family ― mixed-use property 564,206 556,723 558,502
One-to-four family ― residential 180,663 177,578 185,767
Co-operative apartments 6,895 7,035 7,418
Construction 8,479 15,811 11,495
Small Business Administration 18,479 14,485 15,198
Taxi medallion 6,834 18,165 18,996
Commercial business and other 732,973 674,706 597,122
Net unamortized premiums and unearned loan fees 16,763 16,925 16,559
Allowance for loan losses (20,351) (25,269) (22,229)
Net loans 5,156,648 5,045,107 4,813,464
Interest and dividends receivable 21,405 21,076 20,228
Bank premises and equipment, net 30,836 28,389 26,561
Federal Home Loan Bank of New York stock 60,089 55,228 59,173
Bank owned life insurance 131,856 131,047 132,508
Goodwill 16,127 16,127 16,127
Other assets 61,527 76,758 55,453
Total assets$6,299,274 $6,261,382 $6,058,487
LIABILITIES
Due to depositors:
Non-interest bearing$ 385,269 $ 362,509 $ 333,163
Interest-bearing:
Certificate of deposit accounts 1,351,933 1,404,555 1,372,115
Savings accounts 290,280 323,186 254,283
Money market accounts 979,958 991,706 843,370
NOW accounts 1,333,232 1,308,821 1,362,484
Total interest-bearing deposits 3,955,403 4,028,268 3,832,252
Mortgagors' escrow deposits 42,606 53,671 40,216
Borrowed funds 1,309,653 1,200,682 1,266,563
Other liabilities 73,735 76,643 72,440
Total liabilities 5,766,666 5,721,773 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 December 31, 2017, September 30, 2017 and December 31, 2016; 28,588,266 shares, 28,819,891 shares and 28,632,904 shares outstanding at December 31, 2017, September 30, 2017 and December 31, 2016, respectively) 315 315 315
Additional paid-in capital 217,906 216,929 214,462
Treasury stock (2,942,329 shares, 2,710,704 shares and 2,897,691 shares at December 31, 2017, September 30, 2017 and December 31, 2016, respectively) (57,675) (51,287) (53,754)
Retained earnings 381,048 380,316 361,192
Accumulated other comprehensive loss, net of taxes (8,986) (6,664) (8,362)
Total stockholders' equity 532,608 539,609 513,853
Total liabilities and stockholders' equity$6,299,274 $6,261,382 $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 twelve months ended
December 31, September 30, December 31, December 31,
2017 2017 2016 2017 2016
Per Share Data
Basic earnings per share $ 0.21 $ 0.35 $ 0.50 $ 1.41 $ 2.24
Diluted earnings per share $ 0.21 $ 0.35 $ 0.50 $ 1.41 $ 2.24
Average number of shares outstanding for:
Basic earnings per common share computation 29,045,491 29,119,753 28,849,783 29,080,095 28,956,859
Diluted earnings per common share computation 29,046,111 29,120,356 28,859,665 29,081,723 28,969,582
Shares outstanding 28,588,266 28,819,891 28,632,904 28,588,266 28,632,904
Book value per common share (1) $ 18.63 $ 18.72 $ 17.95 $ 18.63 $ 17.95
Tangible book value per common share (2) $ 18.08 $ 18.18 $ 17.40 $ 18.08 $ 17.40
Stockholders' Equity
Stockholders' equity 532,608 539,609 513,853 532,608 513,853
Tangible stockholders' equity 516,772 523,873 498,115 516,772 498,115
Average Balances
Total loans, net $ 5,087,102 $ 5,033,666 $ 4,757,124 $ 4,988,613 $ 4,600,682
Total interest-earning assets 5,934,493 5,936,129 5,717,298 5,916,073 5,626,748
Total assets 6,243,686 6,239,321 6,003,125 6,217,746 5,913,534
Total due to depositors 4,020,334 3,972,663 3,796,337 4,036,347 3,748,822
Total interest-bearing liabilities 5,254,030 5,275,937 5,077,893 5,268,100 5,035,989
Stockholders' equity 537,201 536,468 512,317 530,300 496,820
Performance Ratios (3)
Return on average assets 0.38% 0.65% 0.95% 0.66% 1.10%
Return on average equity 4.44 7.59 11.15 7.75 13.07
Yield on average interest-earning assets 4.02 4.00 3.92 3.97 3.93
Cost of average interest-bearing liabilities 1.27 1.23 1.08 1.17 1.07
Cost of funds 1.17 1.15 1.01 1.09 1.01
Interest rate spread during period 2.75 2.77 2.84 2.80 2.86
Net interest margin 2.90 2.90 2.96 2.93 2.97
Non-interest expense to average assets 1.66 1.66 2.36 1.73 2.01
Efficiency ratio (4) 55.35 56.51 59.63 57.90 59.64
Average interest-earning assets to average interest-bearing liabilities 1.13 X 1.13 X 1.13 X 1.12 X 1.12 X


(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 year At or for the year
ended ended
December 31, 2017 December 31, 2016
Selected Financial Ratios and Other Data
Regulatory capital ratios (for Flushing Financial Corporation):
Tier 1 capital $ 563,426 $ 539,228
Common equity Tier 1 capital 527,727 506,432
Total risk-based capital 658,777 636,457
Tier 1 leverage capital (well capitalized = 5%) 9.02 % 9.00 %
Common equity Tier 1 risk-based capital (well capitalized = 6.5%) 11.59 11.79
Tier 1 risk-based capital (well capitalized = 8.0%) 12.38 12.56
Total risk-based capital (well capitalized = 10.0%) 14.47 14.82
Regulatory capital ratios (for Flushing Bank only):
Tier 1 capital $ 631,285 $ 607,033
Common equity Tier 1 capital 631,285 607,033
Total risk-based capital 651,636 629,262
Tier 1 leverage capital (well capitalized = 5%) 10.11 % 10.12 %
Common equity Tier 1 risk-based capital (well capitalized = 6.5%) 13.87 14.12
Tier 1 risk-based capital (well capitalized = 8.0%) 13.87 14.12
Total risk-based capital (well capitalized = 10.0%) 14.31 14.64
Capital ratios:
Average equity to average assets 8.53 % 8.40 %
Equity to total assets 8.46 8.48
Tangible common equity to tangible assets (1) 8.22 8.24
Asset quality:
Non-accrual loans (2) $ 15,710 $ 21,030
Non-performing loans 18,134 21,416
Non-performing assets 18,134 21,949
Net charge-offs/ (recoveries) 11,739 (694)
Asset quality ratios:
Non-performing loans to gross loans 0.35 % 0.44 %
Non-performing assets to total assets 0.29 0.36
Allowance for loan losses to gross loans 0.39 0.46
Allowance for loan losses to non-performing assets 112.23 101.28
Allowance for loan losses to non-performing loans 112.23 103.80
Full-service customer facilities 18 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, 2017 September 30, 2017 December 31, 2016
Average Yield/ Average Yield/ Average Yield/
BalanceInterestCost BalanceInterestCost BalanceInterestCost
Interest-earning Assets:
Mortgage loans, net $ 4,355,973$ 45,577 4.19%$ 4,350,338$ 46,121 4.24%$ 4,140,511$ 44,219 4.27%
Other loans, net 731,129 7,872 4.31 683,328 7,197 4.21 616,613 5,754 3.73
Total loans, net (1) 5,087,102 53,449 4.20 5,033,666 53,318 4.24 4,757,124 49,973 4.20
Taxable securities:
Mortgage-backed securities 524,098 3,567 2.72 520,889 3,335 2.56 514,527 3,002 2.33
Other securities 151,565 1,883 4.97 189,957 1,787 3.76 248,765 2,203 3.54
Total taxable securities 675,663 5,450 3.23 710,846 5,122 2.88 763,292 5,205 2.73
Tax-exempt securities: (2)
Other securities 123,816 675 2.18 142,899 758 2.12 147,184 782 2.13
Total tax-exempt securities 123,816 675 2.18 142,899 758 2.12 147,184 782 2.13
Interest-earning deposits and federal funds sold 47,912 123 1.03 48,718 121 0.99 49,698 59 0.47
Total interest-earning assets 5,934,493 59,697 4.02 5,936,129 59,319 4.00 5,717,298 56,019 3.92
Other assets 309,193 303,192 285,827
Total assets$ 6,243,686 $ 6,239,321 $ 6,003,125
Interest-bearing Liabilities:
Deposits:
Savings accounts$ 306,273 519 0.68 $ 330,316$ 583 0.71 $ 256,677 309 0.48
NOW accounts 1,357,028 2,634 0.78 1,340,228 2,468 0.74 1,370,618 2,028 0.59
Money market accounts 984,619 2,664 1.08 927,067 2,337 1.01 780,233 1,315 0.67
Certificate of deposit accounts 1,372,414 5,322 1.55 1,375,052 5,218 1.52 1,388,809 5,081 1.46
Total due to depositors 4,020,334 11,139 1.11 3,972,663 10,606 1.07 3,796,337 8,733 0.92
Mortgagors' escrow accounts 65,127 35 0.21 54,236 49 0.36 58,151 27 0.19
Total interest-bearing deposits 4,085,461 11,174 1.09 4,026,899 10,655 1.06 3,854,488 8,760 0.91
Borrowings 1,168,569 5,463 1.87 1,249,038 5,623 1.80 1,223,405 4,908 1.60
Total interest-bearing liabilities 5,254,030 16,637 1.27 5,275,937 16,278 1.23 5,077,893 13,668 1.08
Non interest-bearing demand deposits 373,136 354,149 331,232
Other liabilities 79,319 72,767 81,683
Total liabilities 5,706,485 5,702,853 5,490,808
Equity 537,201 536,468 512,317
Total liabilities and equity$ 6,243,686 $ 6,239,321 $ 6,003,125
Net interest income / net interest rate spread $ 43,060 2.75% $ 43,041 2.77% $ 42,351 2.84%
Net interest-earning assets / net interest margin$ 680,463 2.90%$ 660,192 2.90%$ 639,405 2.96%
Ratio of interest-earning assets to interest-bearing liabilities 1.13 X 1.13 X 1.13 X


(1) Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $1.4 million, $1.6 million and $1.5 million for the three months ended December 31, 2017, September 30, 2017 and December 31, 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 year ended
December 31, 2017 December 31, 2016
Average Yield/ Average Yield/
BalanceInterestCost BalanceInterestCost
Interest-earning Assets:
Mortgage loans, net $ 4,304,889$ 181,006 4.20% $ 4,014,734$ 173,419 4.32%
Other loans, net 683,724 28,277 4.14 585,948 21,706 3.70
Total loans, net (1) 4,988,613 209,283 4.20 4,600,682 195,125 4.24
Taxable securities:
Mortgage-backed securities 526,934 13,689 2.60 581,505 14,231 2.45
Other securities 199,350 8,103 4.06 243,567 8,243 3.38
Total taxable securities 726,284 21,792 3.00 825,072 22,474 2.72
Tax-exempt securities: (2)
Other securities 139,704 2,984 2.14 142,472 3,148 2.21
Total tax-exempt securities 139,704 2,984 2.14 142,472 3,148 2.21
Interest-earning deposits and federal funds sold 61,472 526 0.86 58,522 250 0.43
Total interest-earning assets 5,916,073 234,585 3.97 5,626,748 220,997 3.93
Other assets 301,673 286,786
Total assets$ 6,217,746 $ 5,913,534
Interest-bearing Liabilities:
Deposits:
Savings accounts$ 292,887 1,808 0.62 $ 260,948 1,219 0.47
NOW accounts 1,444,944 9,640 0.67 1,496,712 7,891 0.53
Money market accounts 908,025 8,151 0.90 581,390 3,592 0.62
Certificate of deposit accounts 1,390,491 20,579 1.48 1,409,772 20,536 1.46
Total due to depositors 4,036,347 40,178 1.00 3,748,822 33,238 0.89
Mortgagors' escrow accounts 61,962 141 0.23 56,152 112 0.20
Total interest-bearing deposits 4,098,309 40,319 0.98 3,804,974 33,350 0.88
Borrowings 1,169,791 21,159 1.81 1,231,015 20,561 1.67
Total interest-bearing liabilities 5,268,100 61,478 1.17 5,035,989 53,911 1.07
Non interest-bearing demand deposits 348,518 305,096
Other liabilities 70,828 75,629
Total liabilities 5,687,446 5,416,714
Equity 530,300 496,820
Total liabilities and equity$ 6,217,746 $ 5,913,534
Net interest income / net interest rate spread $ 173,107 2.80% $ 167,086 2.86%
Net interest-earning assets / net interest margin$ 647,973 2.93% $ 590,759 2.97%
Ratio of interest-earning assets to interest-bearing liabilities 1.12 X 1.12 X


(1) Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $5.0 million and $6.6 million for the years ended December 31, 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)
December 2017 vs. December 2017 vs.
December 31,September 30, June 30, March 31, September 2017 December 31, December 2016,
(Dollars in thousands) 2017 2017 2017 2017 % Change 2016 % Change
Deposits
Non-interest bearing$ 385,269$ 362,509 $ 349,302 $ 344,028 6.3% $ 333,163 15.6%
Interest bearing:
Certificate of deposit accounts 1,351,933 1,404,555 1,332,377 1,411,819 -3.7% 1,372,115 -1.5%
Savings accounts 290,280 323,186 325,815 254,822 -10.2% 254,283 14.2%
Money market accounts 979,958 991,706 837,565 851,129 -1.2% 843,370 16.2%
NOW accounts 1,333,232 1,308,821 1,368,441 1,487,120 1.9% 1,362,484 -2.1%
Total interest-bearing deposits 3,955,403 4,028,268 3,864,198 4,004,890 -1.8% 3,832,252 3.2%
Total deposits$ 4,340,672$ 4,390,777 $ 4,213,500 $ 4,348,918 -1.1% $ 4,165,415 4.2%


FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
LOANS
(Unaudited)
Loan Originations and Purchases
For the three months For the year ended
December 31, September 30, December 31, December 31,
(In thousands) 2017 2017 2016 2017 2016
Multi-family residential $ 118,784 $ 64,551 $ 77,812 $ 373,512 $ 371,197
Commercial real estate 53,381 25,385 77,607 238,057 322,721
One-to-four family – mixed-use property 19,913 13,136 20,242 65,247 62,735
One-to-four family – residential 9,545 5,843 7,770 26,168 24,820
Co-operative apartments 100 232 - 332 470
Construction 726 148 9,738 7,847 15,772
Small Business Administration 4,772 4,276 1,662 11,559 8,447
Taxi medallion - - - - -
Commercial business and other 121,598 69,354 87,761 316,748 326,776
Total $ 328,819 $ 182,925 $ 282,592 $ 1,039,470 $ 1,132,938


Loan Composition
December 2017 vs. December 2017 vs.
December 31, September 30, June 30, March 31,September 2017 December 31, December 2016
(Dollars in thousands) 2017 2017 2017 2017 % Change 2016 % Change
Loans held for investment:
Multi-family residential$ 2,273,595 $ 2,236,173 $ 2,243,643 $ 2,261,946 1.7% $ 2,178,504 4.4%
Commercial real estate 1,368,112 1,352,775 1,349,634 1,268,770 1.1% 1,246,132 9.8%
One-to-four family ― mixed-use property 564,206 556,723 556,906 561,355 1.3% 558,502 1.0%
One-to-four family ― residential 180,663 177,578 181,213 184,201 1.7% 185,767 -2.7%
Co-operative apartments 6,895 7,035 7,069 7,216 -2.0% 7,418 -7.1%
Construction 8,479 15,811 16,842 12,413 -46.4% 11,495 -26.2%
Small Business Administration 18,479 14,485 10,591 10,519 27.6% 15,198 21.6%
Taxi medallion 6,834 18,165 18,303 18,832 -62.4% 18,996 -64.0%
Commercial business and other 732,973 674,706 644,262 632,503 8.6% 597,122 22.8%
Net unamortized premiums and unearned loan fees 16,763 16,925 17,217 16,836 -1.0% 16,559 1.2%
Allowance for loan losses (20,351) (25,269) (22,157) (22,211)-19.5% (22,229) -8.4%
Net loans$ 5,156,648 $ 5,045,107 $ 5,023,523 $ 4,952,380 2.2% $ 4,813,464 7.1%



Net Loans Activity
Three Months Ended
December 31, September, 30 June 30, March 31, December 31,
(In thousands) 2017 2017 2017 2017 2016
Loans originated and purchased$ 328,819 $ 182,925 $ 261,155 $ 266,571 $ 282,592
Principal reductions (209,400) (155,007) (143,195) (122,897) (187,780)
Loans transferred to held-for-sale - - (30,565) - -
Loans sold (1,018) (2,606) (16,337) (4,874) -
Loan charged-offs (11,616) (324) (350) (179) (370)
Foreclosures - - - - (138)
Net change in deferred (fees) and costs (162) (292) 381 277 112
Net change in the allowance for loan losses 4,918 (3,112) 54 18 (434)
Total loan activity$ 111,541 $ 21,584 $ 71,143 $ 138,916 $ 93,982


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) 2017 2017 2017 2017 2016
Loans 90 Days Or More Past Due and Still Accruing:
Multi-family residential $ - $ 415 $ - $ - $ -
Commercial real estate 2,424 38 - 75 -
One-to-four family - mixed-use property - 129 - - 386
Construction - - 602 602 -
Taxi medallion - 1,147 727 - -
Total 2,424 1,729 1,329 677 386
Non-accrual Loans:
Multi-family residential 3,598 1,309 1,537 1,354 1,837
Commercial real estate 1,473 1,147 1,948 1,462 1,148
One-to-four family - mixed-use property 1,867 2,217 2,971 3,328 4,025
One-to-four family - residential 7,808 7,434 7,616 7,847 8,241
Small Business Administration 46 50 53 58 1,886
Taxi medallion(1) 918 - - 3,771 3,825
Commercial business and other - 4 5 38 68
Total 15,710 12,161 14,130 17,858 21,030
Total Non-performing Loans 18,134 13,890 15,459 18,535 21,416
Other Non-performing Assets:
Real estate acquired through foreclosure - - - - 533
Total - - - - 533
Total Non-performing Assets $ 18,134 $ 13,890 $ 15,459 $ 18,535 $ 21,949
Non-performing Assets to Total Assets 0.29% 0.22% 0.25% 0.30% 0.36%
Allowance For Loan Losses to Non-performing Loans 112.2% 181.9% 143.3% 119.8% 103.8%


(1) Not included in the above analysis are troubled debt restructured taxi medallion loans totaling $5.9 million at December 31, 2017.

Net Charge-Offs (Recoveries)
Three Months Ended
December 31, September 30, June 30, March 31, December 31,
(In thousands) 2017 2017 2017 2017 2016
Multi-family residential $ (1) $ 224 $ (53) $ (16) $ (103)
Commercial real estate (3) (25) 4 (68) -
One-to-four family – mixed-use property (37) 1 (67) 34 (520)
One-to-four family – residential 212 (58) 170 - 40
Small Business Administration 109 (17) 14 26 186
Taxi medallion 11,229 - - 54 142
Commercial business and other 4 29 (14) (12) (179)
Total net loan charge-offs (recoveries) $ 11,513 $ 154 $ 54 $ 18 $ (434)


Core Diluted EPS, Core ROAE, Core ROAA, tangible book value per common share and core earnings before provision and income taxes 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 Twelve Months Ended
December 31,September 30,December 31, December 31,December 31,
2017 2017 2016 2017 2016
GAAP income before income taxes$ 13,650 $ 15,470 $ 22,402 $ 66,134 $ 106,019
Net loss from fair value adjustments 631 1,297 509 3,465 3,434
Net loss (gain) on sale of securities - 186 839 186 (1,524)
Gain from life insurance proceeds - (238) (2) (1,405) (460)
Net gain on sale of buildings - - (14,204) - (48,018)
Prepayment penalty on borrowings - - 8,274 - 10,356
Core income before taxes 14,281 16,715 17,818 68,380 69,807
Provision for income taxes for core income 4,652 5,812 6,227 22,613 25,855
Core net income$ 9,629 $ 10,903 $ 11,591 $ 45,767 $ 43,952
GAAP diluted earnings per common share$ 0.21 $ 0.35 $ 0.50 $ 1.41 $ 2.24
Net loss from fair value adjustments, net of tax 0.01 0.03 0.01 0.07 0.07
Net loss (gain) on sale of securities, net of tax - - 0.02 - (0.03)
Gain from life insurance proceeds - (0.01) - (0.05) (0.02)
Net gain on sale of buildings, net of tax - - (0.29) - (0.95)
Prepayment penalty on borrowings - - 0.17 - 0.21
Federal tax reform of 2017 0.13 - - 0.13 -
Core diluted earnings per common share*$ 0.33 $ 0.37 $ 0.40 $ 1.57 $ 1.52
Core net income, as calculated above$ 9,629 $ 10,903 $ 11,591 $ 45,767 $ 43,952
Average assets 6,243,686 6,239,321 6,003,125 6,217,746 5,913,534
Average equity 537,201 536,468 512,317 530,300 496,820
Core return on average assets** 0.62% 0.70% 0.77% 0.74% 0.74%
Core return on average equity** 7.17% 8.13% 9.05% 8.63% 8.85%
*Core diluted earnings per common share may not foot due to rounding.
**Ratios are calculated on an annualized basis.

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
RECONCILIATION OF GAAP EARNINGS and CORE EARNINGS
BEFORE PROVISION FOR LOAN LOSSES and INCOME TAXES
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31,September 30,December 31, December 31,December 31,
2017 2017 2016 2017 2016
GAAP income before income taxes$ 13,650$ 15,470 $ 22,402 $ 66,134 $ 106,019
Provision for loan losses 6,595 3,266 - 9,861 -
Net loss from fair value adjustments 631 1,297 509 3,465 3,434
Net loss (gain) on sale of securities - 186 839 186 (1,524)
Gain from life insurance proceeds - (238) (2) (1,405) (460)
Net gain on sale of buildings - - (14,204) - (48,018)
Prepayment penalty on borrowings - - 8,274 - 10,356
Core income before provision for loan losses and income taxes$ 20,876$ 19,981 $ 17,818 $ 78,241 $ 69,807

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CALCULATION OF TANGIBLE STOCKHOLDERS’
COMMON EQUITY to TANGIBLE ASSETS
(Unaudited)
December 31,December 31,
(Dollars in thousands) 2017 2016
Total Equity$ 532,608 $ 513,853
Less:
Goodwill (16,127) (16,127)
Intangible deferred tax liabilities 291 389
Tangible Stockholders' Common Equity$ 516,772 $ 498,115
Total Assets$ 6,299,274 $ 6,058,487
Less:
Goodwill (16,127) (16,127)
Intangible deferred tax liabilities 291 389
Tangible Assets$ 6,283,438 $ 6,042,749
Tangible Stockholders' Common Equity to Tangible Assets 8.22% 8.24%

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




Source:Flushing Financial Corporation