THIRD QUARTER 2019¹ HIGHLIGHTS
GAAP diluted EPS was $0.37, unchanged QoQ and down 39.3% YoYCore diluted EPS was $0.48, up 14.3% QoQ and down 11.1% YoYRecord quarterly loan originations driven by C&I closings totaling $237.9 millionNet interest margin was 2.37%, down 8bps QoQ and 35bps YoYCore net interest margin was 2.33%, down 7bps QoQ and 20bps YoYGAAP net interest income of $38.9 million, down 2.6% QoQ and 6.2% YoYCore net interest income of $40.2 million, down 1.5% QoQ and 3.2% YoYGAAP and core ROAE were 7.6% and 9.8%, respectively, compared with 7.5% and 8.6%, respectively in 2Q19GAAP and core ROAA were 0.6% and 0.8%, respectively, compared with 0.6% and 0.7%, respectively in 2Q19Provision for loan losses of $0.7 million, or $0.02 after-tax per diluted common share, driven mainly by growth in the C&I portfolioUNIONDALE, N.Y., Oct. 29, 2019 (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 third quarter ended September 30, 2019.John R. Buran, President and Chief Executive Officer, stated, “We are pleased to report core diluted earnings per share increased 14%, while GAAP earnings per diluted share was unchanged from 2Q19. The primary difference between GAAP and core earnings is the non-cash net losses from fair value adjustments, or $0.10 per diluted share, which is discussed in more detail later in this release. Core earnings for 3Q19 included the benefit of the FDIC small business assessment credit of $0.03, after-tax per diluted common share and the true-up of our effective tax rate to 22% from 24% which equated to $0.02 per diluted common share. Our core ROAE increased to 9.8% for the quarter compared to 8.6% for the linked quarter and our GAAP ROAE increased seven basis points during the same period to 7.6%. Similarly, the core ROAA increased nine basis points to 0.79% compared to 0.70% for 2Q19 and GAAP ROAA increased one basis point to 0.62%.”“We generated robust loan growth of 9% (annualized) for the quarter, as we booked record quarterly loan closings driven by record C&I production. This marks the second consecutive quarter of record C&I closings. Total loan closings for the quarter amounted to $398 million, with $238 million, or 60% from C&I closings. The strong C&I production aids the continuing diversification of our loan portfolio. These C&I loans are generally floating rate and represent 19% of total loans at September 30, 2019, compared to 16% at September 30, 2018. At September 30, 2019, the loan pipeline remains strong at $419 million.”“The net interest margin compressed 8bps QoQ. During the quarter, loan yields on originations decreased 50bps from 2Q19, as we continued to experience pricing pressure due to the inverted yield curve at the pricing point for our loan tenor. Although the Federal Reserve has recently cut rates, we still experienced margin compression on the liability side, with the cost of funds increasing 4bps primarily driven by pricing pressure on our retail and municipal deposits, as competition from traditional bank and non-bank competitors remains very strong. We have experienced an increase in the cost of funds throughout the first two quarters of 2019 and into the middle of 3Q19. Starting in late 3Q19, the cost of funds began to improve. The Company has approximately $1 billion of retail CDs maturing before 3Q20 at an average rate of 2.33%. At quarter-end, our average new CD cost was less than 2.00%. Additionally, in order to continue to diversify deposit gathering channels, we have embarked on a digital transformation strategy. This strategy will enhance our current technological offerings to state of the art digital services. We expect the new technologies to be fully operational in the first quarter of 2020.”“We remain focused on preserving strong risk management practices, including conservative underwriting standards and improving yields to achieve improved risk-adjusted returns. We continue to focus on increasing the amount of direct loan business, as approximately 65% of 3Q19 loan closings were non-brokered loans.”Multi-family (excluding underlying co-operative mortgages), commercial real estate, and one-to-four family mixed-use property mortgage loans originated during 3Q19 had a yield of 4.32%, a decrease of 28bps from 4.60% for 2Q19 and 6bps from 4.38% for 3Q18. As noted, the decrease in the yield of 3Q19 originations was due to the inverted yield curve. We maintained our asset quality as these loans had an average loan-to-value ratio of 40% and an average debt coverage ratio of 191%.We remain committed to our strategy of focusing on C&I loans, commercial real estate loans and multi-family. In 3Q19, these loan closings represented 60%, 17%, and 15%, respectively, of all originations, while maintaining conservative loan-to-value and debt coverage ratios.“Overall, we remain well capitalized and well positioned to deliver profitable growth and long-term value to our shareholders as we continue to execute our strategic objectives.”“As previously announced we are opening a new branch in Hicksville, NY, which expands our presence on Long Island.”Mr. Buran continued, “We are excited about the signing of the definitive merger agreement to acquire Empire Bancorp, Inc. As previously reported, the transaction is valued at an estimated $111.6 million, based on our closing price on October 24, 2019. The combined company at close is expected to have approximately $8.0 billion in assets, $6.3 billion in loans and $5.8 billion in deposits.”Mr. Buran concluded, “The combination of the new branch opening and merger will provide our customers with an expanded network of 24 branches, with 16 branches in New York City, five branches in Nassau County and three branches in Suffolk County.” Summary of Strategic ObjectivesManage cost of funds and continue to improve funding mixIncrease interest income by leveraging loan pricing opportunities and portfolio mixEnhance core earnings power by improving scalability and efficiencyManage credit riskRemain well capitalized under all stress test scenariosEarnings Summary:Net Interest IncomeNet interest income for 3Q19 was $38.9 million, a decrease of $2.6 million, or 6.2% YoY (3Q19 compared to 3Q18) and $1.1 million, or 2.6% QoQ (3Q19 compared to 2Q19).Net interest margin of 2.37%, decreased 35bps YoY and 8bps QoQNet interest spread of 2.15%, decreased 38bps YoY and 8bps QoQYield on average interest-earning assets of 4.22%, decreased 7bps YoY and 4bps QoQCost of average interest-bearing liabilities of 2.07%, increased 31bps YoY and 4bps QoQCost of funds of 1.94%, increased 30bps YoY and 4bps QoQAverage balance of total interest-earning assets of $6,589.5 million, increased $459.1 million, or 7.5%, YoY and $49.4 million, or 0.8%, QoQNet interest income includes prepayment penalty income from loans totaling $1.7 million in 3Q19, $1.1 million in 2Q19 and $1.9 million in 3Q18; recovered interest from delinquent loans of $0.3 million in 3Q19, $0.5 million in 2Q19 and $1.1 million in 3Q18; and losses from fair value adjustments on qualifying hedges totaling $1.3 million in 3Q19, $0.8 million in 2Q19 and none in 3Q18Absent all above items noted in the preceding bullet, the yield on interest-earning assets was 4.18% in 3Q19, a decrease of 3bps from 2Q19 but an increase of 9bps from 3Q18 and the net interest margin was 2.33% in 3Q19, which decreased 7bps from 2Q19 and 20bps from 3Q18Provision for loan lossesThe Company recorded a provision of $0.7 million compared to $1.5 million in 2Q19 and none in 3Q18.3Q19 provision for loan losses was primarily due to growth in the commercial business loan portfolioRecorded net charge-offs (recoveries) of $0.2 million in 3Q19, $1.0 million in 2Q19, and ($0.1) million in 3Q18Non-interest IncomeNon-interest income for 3Q19 was $1.0 million, a decrease of $3.9 million YoY, and $1.4 million QoQNon-interest income included net losses from fair value adjustments of $2.1 million in 3Q19, $2.0 million in 2Q19, and $0.2 million in 3Q18Additionally, non-interest income included net gain on sale of loans of $0.2 million in 3Q19, $0.1 million in 2Q19 and $10,000 in 3Q18; capital gain of $0.5 million in 2Q19, net gain on sale of assets of $0.8 million in 2Q19 and life insurance proceeds of $2.2 million in 3Q18Absent all above items, non-interest income was $3.0 million in 3Q19 and 2Q19 compared to $2.9 million in 3Q18Non-interest ExpenseNon-interest expense for 3Q19 was $26.0 million, a decrease of $1.2 million, or 4.4 % YoY, and $1.1 million, or 4.1% QoQNon-interest expense improved QoQ and YoY, primarily due to a reduction in FDIC insurance expense resulting from the FDIC small business assessment creditAbsent the benefit of the FDIC small business assessment credit, non-interest expense was $27.3 million, an increase of $0.1 million, or 0.2% YoY, and $0.1 million, or 0.5% QoQThe ratio of non-interest expense to average assets improved to 1.49% in 3Q19 compared to 1.58% in 2Q19 and 1.69% in 3Q18The efficiency ratio was 58.9% in 3Q19 compared to 61.1% in 2Q19 and 61.0% in 3Q18Provision for Income TaxesThe provision for income taxes in 3Q19 was $2.5 million, an increase of $0.6 million, or 32.8% YoY but a decrease of $0.7 million, or 22.5% QoQ.Pre-tax income decreased by $6.0 million, or 31.1% YoY, and by $0.6 million, or 4.1% QoQThe effective tax rates were 19.1% in 3Q19, 23.7% in 2Q19 and 9.9% in 3Q18The 3Q19 effective tax rate reflects a reduction in the estimated full year tax rate to 22% from 24%Financial Condition Summary:Loans:Net loans held for investment were $5,743.7 million reflecting an increase of 2.3% QoQ (not annualized) and 7.2% from September 30, 2018, as we continue to focus on the origination of full banking relationship loans through C&I loans, multi-family loans and commercial real estateLoan closings of commercial business loans, multi-family loans and commercial real estate totaled $364.9 million for 3Q19, or 91.6% of loan productionLoan pipeline was $418.9 million at September 30, 2019, compared to $423.9 million at June 30, 2019 and $355.2 million at September 30, 2018The loan-to-value ratio on our portfolio of real estate dependent loans as of September 30, 2019 totaled 38.4%
Credit Quality:
Non-performing loans totaled $14.7 million, a decrease of $1.5 million, or 9.5%, from $16.3 million at December 31, 2018Non-performing assets totaled $15.0 million, a decrease of $1.3 million, or 8.0%, from $16.3 million at December 31, 2018Classified assets totaled $31.3 million, a decrease of $15.2 million, or 32.6%, from $46.5 million at December 31, 2018Loans classified as troubled debt restructured (TDR) totaled $7.0 million, a decrease of $1.3 million, or 16.0%, from $8.4 million at December 31, 2018We 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 34.5% average loan-to-value for non-performing loans collateralized by real estateNet charge-offs totaled $2.0 million during the nine months ended September 30, 2019 driven mainly by charge-offs of one commercial business loan relationshipCapital Management:The Company and Bank, at September 30, 2019, were both well capitalized under all applicable regulatory requirementsThrough 3Q19, stockholders’ equity increased $18.9 million, or 3.4%, to $568.4 million due to net income of $28.3 million, partially offset by the declaration and payment of dividends on the Company’s common stockDuring 3Q19, the Company repurchased 40,000 shares at an average cost of $19.28 per share; as of September 30, 2019, up to 427,211 shares remained subject to repurchase under the authorized stock repurchase program, which has no expiration or maximum dollar limitBook value per common share increased to $20.19 at September 30, 2019, from $19.64 at December 31, 2018 and tangible book value per common share, a non-GAAP measure, increased to $19.62 at September 30, 2019, from $19.07 at December 31, 2018Conference 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, October 30, 2019 at 9:30 AM (ET) to discuss the Company’s strategy and results for the third quarterDial-in for Live Call: 1-877-509-5836Webcast: https://services.choruscall.com/links/ffic191030.htmlDial-in for Replay: 1-877-344-7529Replay Access Code: 10129663The conference call will be simultaneously webcast and archived through 5:00 PM (ET) on October 30, 2020
About Flushing Financial CorporationFlushing 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, equipment finance, and cash management services through its banking offices located in Queens, Brooklyn, Manhattan, and on Long Island. 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. Flushing Bank is an Equal Housing Lender. The Bank also operates an online banking division consisting of iGObanking.com®, which offers competitively priced deposit products to consumers nationwide, and BankPurely®, an eco-friendly, healthier lifestyle community brand.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, 2018 and in other documents filed by the Company with the Securities and Exchange Commission from time to time. Forward-looking statements may be identified by terms such as “may”, “will”, “should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “forecasts”, “goals”, “potential” or “continue” or similar terms or the negative of these terms. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The Company has no obligation to update these forward-looking statements.– Statistical Tables Follow –
Non-cash Fair Value Adjustments to GAAP Earnings
During the current year, core earnings were higher than GAAP earnings primarily due to the impact of non-cash net losses from fair value adjustments. These fair value adjustments relate primarily to swaps designated to protect against rising rates. As the swaps get closer to maturity the volatility in fair value adjustments will dissipate. Overall, the interest movement of the swaps is benefitting the core net interest margin while the fair value adjustments are offsetting the benefit. In a declining interest rate environment, the movement in the curve exaggerates our mark-to-market loss position. In a rising interest rate environment or a steepening of the yield curve the loss position would experience an improvement.Core Diluted EPS, Core ROAE, Core ROAA, Core Net Interest Income, Core Yield on Total Loans, Core Net Interest Margin 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 below in tabular form. The Company believes that these measures are useful for both investors and management to understand the effects of certain interest and 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.
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¹ See the tables entitled “Reconciliation of GAAP Earnings and Core Earnings” and “Reconciliation of GAAP Net Interest Income and Net Interest Margin to Core Net Interest Income and Net Interest Margin.”
Susan K. Cullen
Senior Executive Vice President, Treasurer and Chief Financial Officer
Flushing Financial Corporation
(718) 961-5400
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