Loan Growth Despite Rising Rates

John R. Buran, President and CEO Commentary

UNIONDALE, N.Y., Oct. 25, 2022 (GLOBE NEWSWIRE) -- The Company reported third quarter 2022 GAAP EPS of $0.76, down 6.2% YoY, with a ROAA of 1.11%, and ROAE of 13.91%. Core 3Q22 EPS was $0.62, a decrease of 29.5% YoY, with a ROAA of 0.90% and the ROAE of 11.24%.  

Loan Closings up 90.1% YoY; NIM Declined QoQ. Period end net loans, excluding PPP, increased 3.1% QoQ, with balanced growth between real estate and commercial business and other loans. Loan closings, excluding PPP, were up 90.1% YoY, while repayment speeds declined both YoY and QoQ. Despite the loan closings increasing, net interest income of $61.2 million decreased 3.4% YoY and 5.4% QoQ, primarily due to the increased funding costs. NIM FTE was 3.07% in 3Q22 compared to 3.35% in 2Q22 and 3.34% a year ago. Core NIM FTE decreased by 24 bps to 3.03% YoY and 30 bps QoQ. The Company hired 46 people, including 20 revenue producers, since March 31, 2021 from institutions involved with bank mergers.

Returned 40% of Earnings in 3Q22; Tangible Book Value Per Share Increased 3% YoY. The Company repurchased 131,174 shares of common stock at an average price of $20.47 during the quarter. Book value and tangible book value per share were $22.47 and $21.81, respectively, while TCE/TA¹ was 7.62% at September 30, 2022 compared to 7.82% at June 30, 2022.

¹ Tangible Common Equity (“TCE”)/Total Assets (“TA”) ² See “Reconciliation of GAAP Earnings and Core Earnings”, “Reconciliation of GAAP Revenue and Pre-Provision Pre-Tax Net Revenue”, and “Reconciliation of GAAP Net Interest Margin to Core Net Interest Income and Net Interest Margin.” ³ Net Interest Margin (“NIM”) Fully Taxable Equivalent (“FTE”)

• Period end net loans, excluding PPP, increased 3.1% QoQ and 6.8% YoY; loan closings were $463.7 million at 4.60% in 3Q22, down 8.0% from record levels QoQ, but up 90.1% YoY while the yield increased 68 bps QoQ and 96 bps YoY
• Loan pipeline decreased 41.8% YoY to $309.1 million as we become more selective in terms of rate and collateral type and borrowers adjusted to higher rates
• Issued $65 million of subordinated notes at 6.00% during the 3Q22
• NPAs increased to $50.0 million from $48.9 million at 2Q22 and from $20.2 million at 3Q21
• Provision for credit losses was $2.1 million in 3Q22 compared to a benefit for credit losses of $6.9 million in 3Q21; net charge-offs were $0.3 million in 3Q22 compared to net recoveries of $0.6 million in 3Q21
• Net interest income decreased 5.4% QoQ and 3.4% YoY to $61.2 million; Core net interest income declined 6.2% QoQ and 2.7% YoY to $60.4 million
• Net interest margin FTE decreased 28 bps QoQ and 27 bps YoY to 3.07%; Core net interest margin FTE decreased 30 bps QoQ and 24 bps YoY to 3.03%; The decline in GAAP and Core NIM QoQ was primarily driven by our liability sensitive balance sheet resulting in liabilities repricing faster than assets over the near term but reversing as loans reprice over the next couple of years
• Average deposits, including mortgage escrow, decreased 2.6% QoQ and 2.1% YoY to $6.3 billion, with core deposits comprising 83.1% of total average deposits
• Signed a lease to open a new branch in Brooklyn expanding our Asian banking footprint
• Tangible Common Equity to Tangible Assets was 7.62% down from 7.82% at 2Q22; the change in accumulated other comprehensive loss, net of taxes (primarily from rising rates) impacted this ratio by 18 bps in 3Q22 compared to 2Q22
• Repurchased 131,174 shares at an average price of $20.47; dividends and share repurchases were 40% of net income in 3Q22
  
  

¹ See Reconciliation of GAAP Earnings and Core Earnings

Net interest income totaled $61.2 million in 3Q22 compared to $64.7 million in 2Q22, $63.5 million in 1Q22, $62.7 million in 4Q21, and $63.4 million in 3Q21.

• Net interest margin, FTE (“NIM”) of 3.07% decreased 27 bps YoY and 28 bps QoQ
• Prepayment penalty income from loans and securities, net reversals and recoveries of interest from nonaccrual loans, net gains and losses from fair value adjustments on qualifying hedges, and purchase accounting accretion totaled $2.2 million (11 bps to the NIM) in 3Q22 compared to $2.6 million (13 bps) in 2Q22, $2.6 million (14 bps) in 1Q22, $3.1 million (16 bps) in 4Q21, and $3.4 million (19 bps) in 3Q21
• Excluding the items in the previous bullet, net interest margin was 2.96% in 3Q22, 3.22% in 2Q22 and in 1Q22, 3.13% in 4Q21, and 3.15% in 3Q21
  

The Company recorded a provision for credit losses of $2.1 million in 3Q22, $1.6 million in 2Q22, $1.4 million in 1Q22, and $0.8 million in 4Q21 compared to a benefit for credit losses of $6.9 million in 3Q21.

• 3Q22 provision for credit losses of $2.1 million was primarily due to increased reserves on two previously identified credits and loan growth
• Net charge-offs (recoveries) were $0.3 million in 3Q22 (2 bps of average loans), $(0.5) million in 2Q22 ((3) bps of average loans), $0.9 million in 1Q22 (6 bps of average loans), $(29) thousand in 4Q21 (negligible as compared to average loans), and $(0.6) million in 3Q21 ((4) bps of average loans)

Noninterest income (loss) was $9.0 million in 3Q22, $7.4 million in 2Q22, $1.3 million in 1Q22, $(0.3) million in 4Q21, and $0.9 million in 3Q21.

• Noninterest income included net gains (losses) from fair value adjustments of $5.6 million in 3Q22 or $0.13 per share, net of tax, $2.5 million in 2Q22 or $0.06 per share, net of tax, $(1.8) million in 1Q22 or $(0.04) per share, net of tax, $(5.1) million in 4Q21 or $(0.13) per share, net of tax, and $(2.3) million in 3Q21 or $(0.05) per share, net of tax
• Life insurance proceeds were $1.5 million ($0.05 per share) in 2Q22
• Absent all above items and other immaterial adjustments, core noninterest income was $3.4 million in 3Q22, up 6.4% YoY, and 2.6% QoQ
• Included in 4Q21 core noninterest income was a one-time $2.0 million ($0.05 per share, net of tax) dividend received on retirement plan investments

Noninterest expense totaled $35.6 million in 3Q22 (a decrease of 2.0% YoY, but an increase of 0.3% QoQ) compared to $35.5 million in 2Q22, $38.8 million in 1Q22, $38.8 million in 4Q21, and $36.3 million in 3Q21.

• Other operating expenses include $0.6 million reduction in reserves for unfunded commitments in 3Q22
• Included in 1Q22 noninterest expense was $4.3 million of seasonal compensation expense; 4Q21 noninterest expense included a one-time $4.3 million ($0.11 per share, net of tax) of increased compensation and benefits for all employees due to a record year of earnings in 2021 and employee performance through the pandemic
• Noninterest expense included $17 thousand pre-tax merger benefit (<$0.01 per share, net of tax) in 4Q21 and $2.1 million of pre-tax merger charges ($0.05 per share, net of tax) in 3Q21
• Excluding the effects of the merger and other immaterial adjustments, core operating expenses were $35.5 million in 3Q22, up 4.1% YoY and 0.3% QoQ
• GAAP noninterest expense to average assets was 1.69% in 3Q22, 1.73% in 2Q22, 1.93% in 1Q22, 1.92%in 4Q21, and 1.80% in 3Q21
  

The provision for income taxes was $9.0 million in 3Q22 compared to $9.9 million in 2Q22, $6.4 million in 1Q22, $4.7 million in 4Q21, and $9.4 million in 3Q21.

• The effective tax rate was 27.7% in 3Q22, 28.4% in 2Q22, 26.1% in 1Q22, 20.8% in 4Q21, and 27.0% in 3Q21
• The 2Q22 effective tax rate includes a loss of a certain state and city tax deductions and a resolution of certain examinations by taxing authorities
• The 4Q21 effective tax rate declined due to lower levels of taxable state income and higher percentage of permanent differences
  
  

Average loans were $6.9 billion, an increase of 3.4% YoY and 3.3% QoQ.

• Period end net loans, excluding PPP loans, totaled $6.9 billion, up 6.8% YoY and 3.1% QoQ
• Total loan closings were $463.7 million in 3Q22, $503.8 million in 2Q22, $329.3 million in 1Q22, $362.7 million in 4Q21, and $243.9 million in 3Q21
• The loan pipeline was $309.1 million at September 30, 2022, down 41.8% YoY and 46.9% QoQ
  

Average Deposits totaled $6.3 billion, decreasing 2.1% YoY and 2.6% QoQ.

• Average core deposits (non-CD deposits) were 83.1% of total average deposits (including escrow deposits) in 3Q22, compared to 83.8% a year ago
• Average noninterest bearing deposits increased 12.5% YoY and 0.5% QoQ and comprised 16.7% of total average deposits (including escrow deposits) in 3Q22 compared to 14.6% a year ago

Credit Quality: Nonperforming loans held at the end of each quarter totaled $29.0 million at 3Q22, $27.9 million at 2Q22, $14.1 million at 1Q22, $14.9 million at 4Q21, and $20.2 million at 3Q21.

• Criticized and classified were 89 bps of loans at 3Q22 compared to 85 bps at 2Q22, 90 bps at 1Q22, 87 bps at 4Q21, and 104 bps at 3Q21
• Criticized and classified assets are composed of criticized and classified loans, as detailed above, plus one criticized investment security totaling $21.0 million in each quarter of 3Q22, 2Q22, 1Q22, 4Q21, and 3Q21
• Over 88% of gross loans are collateralized by real estate with an average loan-to-value ratio of <37% as of September 30, 2022
• Allowance for credit losses were 142.3% of nonperforming loans at 3Q22 compared to 141.1% at 2Q22 and 179.9% a year ago

Capital: Book value per common share was $22.47 at 3Q22, up 0.4% QoQ and 3.2% YoY; tangible book value per common share, a non-GAAP measure, was $21.81 at 3Q22, up 0.5% QoQ and 3.2% YoY.

• The Company paid a dividend of $0.22 per share and repurchased 131,174 shares at an average price of $20.47 in 3Q22
• At the end of 3Q22, 969,324 shares remain subject to repurchase under the authorized stock repurchase program, which has no expiration or maximum dollar limit
• Tangible common equity to tangible assets was 7.62% at 3Q22 compared to 7.82% at 2Q22 and 8.04% at 3Q21
• The Company and the Bank remain well capitalized under all applicable regulatory requirements
• The leverage ratio was 8.74% at 3Q22 compared to 8.91% at 2Q22 and 8.83% at 3Q21
  
  

Conference Call Information:

• John R. Buran, President and Chief Executive Officer, and Susan K. Cullen, Senior Executive Vice President and Chief Financial Officer and Treasurer, will host a conference call on Wednesday, October 26, 2022, at 9:30 AM (ET) to discuss the Company’s third quarter 2022 results and strategy.
• Dial-in for Live Call: 1-877-509-5836; Canada 855-669-9657
• Webcast: https://services.choruscall.com/mediaframe/webcast.html?webcastid=xiCFFixk
• Dial-in for Replay: 1-877-344-7529; Canada 855-669-9658
• Replay Access Code: 8005279
• The conference call will be simultaneously webcast and archived

Fourth Quarter 2022 Earnings Release Date:

The Company plans to release Fourth Quarter and full year 2022 financial results after the market close on January 24, 2023; followed by a conference call at 9:30 AM (ET) on January 25, 2023.

A detailed announcement will be issued prior to the fourth quarter’s close confirming the date and time of the earnings release.

About Flushing Financial Corporation

Flushing Financial Corporation (Nasdaq: FFIC) is the holding company for Flushing Bank®, an FDIC insured, New York State—chartered commercial bank that operates banking offices in Queens, Brooklyn, Manhattan, and on Long Island. The Bank has been building relationships with families, business owners, and communities since 1929. Today, it offers the products, services, and conveniences associated with large commercial banks, including a full complement of deposit, loan, equipment finance, and cash management services. Rewarding customers with personalized attention and bankers that can communicate in the languages prevalent within these multicultural markets is what makes the Bank uniquely different. As an Equal Housing Lender and leader in real estate lending, the Bank’s experienced lending teams create mortgage solutions for real estate owners and property managers both within and outside the New York City metropolitan area. The Bank also fosters relationships with consumers nationwide through its online banking division with the iGObanking® and BankPurely® brands.

Additional information on Flushing Bank and Flushing Financial Corporation may be obtained by visiting the Company’s website at FlushingBank.com. Flushing Financial Corporation’s earnings release and presentation slides will be available prior to the conference call at www.FlushingBank.com under Investor Relations.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Statements in this Press Release relating to plans, strategies, economic performance and trends, projections of results of specific activities or investments and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, risk factors discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and in other documents filed by the Company with the Securities and Exchange Commission from time to time. Forward-looking statements may be identified by terms such as “may”, “will”, “should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “forecasts”, “goals”, “potential” or “continue” or similar terms or the negative of these terms. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The Company has no obligation to update these forward-looking statements.

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

#FF

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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
FINANCIAL HIGHLIGHTS
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⁽¹⁾ Ratios are presented on an annualized basis, where appropriate.
⁽²⁾ Yields are calculated on the tax equivalent basis using the statutory federal income tax rate of 21% for the periods presented.
⁽³⁾ Efficiency ratio, a non-GAAP measure, was calculated by dividing noninterest expense (excluding merger expense, OREO expense, prepayment penalty on borrowings, the net gain/loss from the sale of OREO and net amortization of purchase accounting adjustments) by the total of net interest income (excluding net gains and losses from fair value adjustments on qualifying hedges and net amortization of purchase accounting adjustments) and noninterest income (excluding life insurance proceeds, net gains and losses from the sale or disposition of securities, assets and fair value adjustments).
⁽⁴⁾ Calculated by dividing stockholders’ equity by shares outstanding.
⁽⁵⁾ Calculated by dividing tangible stockholders’ common equity, a non-GAAP measure, by shares outstanding. Tangible stockholders’ common equity is stockholders’ equity less intangible assets (goodwill, net of deferred taxes). See “Calculation of Tangible Stockholders’ Common Equity to Tangible Assets”.
⁽⁶⁾ See “Calculation of Tangible Stockholders’ Common Equity to Tangible Assets”.
⁽⁷⁾ Excludes performing nonaccrual TDR loans.

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