Record Loan Closings; Loan Growth with Stable NIM QoQ

John R. Buran, President and CEO Commentary

UNIONDALE, N.Y., July 26, 2022 (GLOBE NEWSWIRE) -- The Company reported second quarter 2022 GAAP EPS of $0.81, up 32.8% YoY, with a ROAA of 1.22%, and ROAE of 15.0%. Core 2Q22 EPS was $0.70, a decrease of 4.1% YoY, with a ROAA of 1.05% and the ROAE of 12.90%.

NIM Stable QoQ; Loan Pipeline Remains Strong. Record net interest income of $64.7 million increased 6.0% YoY and 2.0% QoQ. NIM FTE was 3.35% in 2Q22 compared to 3.36% in 1Q22 and 3.14% a year ago. Core NIM FTE increased by 19 bps to 3.33% YoY and 2 bps QoQ. Period end net loans, excluding PPP, increased 2.6% QoQ, with commercial business and other loans growing 3.2%. Record loan closings, excluding PPP, were up 63% YoY and repayment speeds remained elevated. The Company continued to benefit from the merger disruption in our markets as we have hired 42 people, including 18 revenue producers since March 31, 2021 from institutions involved with mergers.

Returned 61% of Earnings in 2Q22; Tangible Book Value Per Share Increased 6% YoY. The Company repurchased 387,689 shares of common stock at an average price of $22.01 during the quarter. Book value and tangible book value per share were $22.38 and $21.71, respectively, while TCE/TA¹ was 7.82% at June 30, 2022 compared to 8.05% at March 31, 2022.

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

• Net interest income increased 2.0% QoQ (as average earning assets increased 2.2% QoQ), and 6.0% YoY to a record $64.7 million; Core net interest income grew 3.0% QoQ and 5.4% YoY to a record $64.4 million
• Net interest margin FTE decreased 1 bps QoQ but increased 21 bps YoY to 3.35%; Core net interest margin FTE increased 2 bps QoQ and 19 bps YoY to 3.33%; Core NIM expansion QoQ was primarily driven by loan yields increasing greater than deposit costs
• Excluding PPP, period end net loans increased 2.6% QoQ and 3.4% YoY; loan closings were a record $503.8 million in 2Q22, up 53.0% QoQ and 63.0% YoY
• Average deposits, including mortgage escrow, increased 0.5% QoQ, but decreased 1.1% YoY to $6.4 billion, with core deposits comprising 87.3% of total average deposits; record average noninterest bearing deposits were up 13.1% YoY
• Loan pipeline increased 34.7% YoY to $582.6 million
• Provision for credit losses was $1.6 million in 2Q22 compared to a benefit for credit losses of $1.6 million in 2Q21; net recoveries were $0.5 million in 2Q22 compared to net charge-offs of $0.9 million in 2Q21
• NPAs increased to $48.9 million, up from $14.1 million at 1Q22 and $17.6 million at 2Q21. The increase in NPAs primarily relates to a previously identified $24.1 million criticized investment security and related loan (combined LTV of 63%) and two commercial relationships (one was resolved after quarter end)
• Tangible Common Equity to Tangible Assets was 7.82% down from 8.05% at 1Q22; the change in AOCI (primarily from rising rates) impacted this ratio by an additional 19 bps in 2Q22 compared to 1Q22
• Repurchased 387,689 shares at an average price of $22.01; dividends and share repurchases were 61% of net income in 2Q22

¹ See Reconciliation of GAAP Earnings and Core Earnings

Net interest income totaled $64.7 million in 2Q22 (an increase of 6.0% YoY, and 2.0% QoQ), compared to $63.5 million in 1Q22, $62.7 million in 4Q21, $63.4 million in 3Q21, and $61.0 million in 2Q21.

• Net interest margin, FTE (“NIM”) of 3.35% increased 21 bps YoY, but decreased 1 bp QoQ; PPP loans caused a 2 bps, 3 bps, 3 bps, and 2 bps positive impact on the NIM in 2Q22, 1Q22, 4Q21, and 3Q21, respectively, and were neutral in 2Q21
• 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 $2.6 million (13 bps to the NIM) in 2Q22 compared to $2.6 million (14 bps) in 1Q22, $3.1 million (16 bps) in 4Q21, $3.4 million (19 bps) in 3Q21, and $1.9 million (10 bps) in 2Q21
• Excluding the items in the previous bullet, net interest margin was 3.22% in 2Q22 and in 1Q22, 3.13% in 4Q21, 3.15% in 3Q21, and 3.04% in 2Q21, or an increase of 17 bps YoY and stable QoQ
• Net PPP loan fees were $0.5 million in 2Q22, $0.9 million in 1Q22, $1.2 million in 4Q21, $1.3 million in 3Q21, and $1.2 million in 2Q21

The Company recorded a provision for credit losses of $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 and $1.6 million in 2Q21.

• 2Q22 provision for credit losses of $1.6 million was primarily due to loan growth
• Net charge-offs (recoveries) were $(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), $(0.6) million in 3Q21 ((4) bps of average loans), and $0.9 million in 2Q21 (5 bps of average loans)

Noninterest income (loss) was $7.4 million in 2Q22, $1.3 million in 1Q22, $(0.3) million in 4Q21, $0.9 million in 3Q21, and $(3.2) million in 2Q21.

• Noninterest income included net gains (losses) from fair value adjustments of $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, $(2.3) million in 3Q21 or $(0.05) per share, net of tax, and $(6.5) million or $(0.15) per share, net of tax in 2Q21
• 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 $3.3 million in 2Q22, up 2.1% YoY, and 5.2% QoQ
• After a pilot program, the Company made the decision to suspend its agreement with NYDIG to offer bitcoin services; all pilot program customers have been notified and all accounts have been closed; the financial impact was immaterial
• 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 $35.5 million in 2Q22 (an increase of 4.4% YoY, but a decrease of 8.4% QoQ) compared to $38.8 million in 1Q22, $38.8 million in 4Q21, $36.3 million in 3Q21, and $34.0 million in 2Q21.

• 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, $2.1 million of pre-tax merger charges ($0.05 per share, net of tax) in 3Q21, and $0.5 million of pre-tax merger benefits ($(0.01) per share, net of tax) in 2Q21
• Excluding the effects of the merger and other immaterial adjustments, core operating expenses were $35.4 million in 2Q22, up 3.0% YoY, but down 8.5% QoQ
• The efficiency ratio was 52.3% in 2Q22, 58.9% in 1Q22, 58.7% in 4Q21, 52.3% in 3Q21, and 53.4% in 2Q21

The provision for income taxes was $9.9 million in 2Q22 compared to $6.4 million in 1Q22, $4.7 million in 4Q21, $9.4 million in 3Q21, and $6.2 million in 2Q21.

• The effective tax rate was 28.4% in 2Q22, 26.1% in 1Q22, 20.8% in 4Q21, 27.0% in 3Q21, and 24.2% in 2Q21
• The 2Q22 effective tax rate includes a loss of a certain state and city tax deductions and a resolution of certain examinations
• The 4Q21 effective tax rate declined due to lower levels of taxable state income and higher percentage of permanent differences
• The 2Q21 effective tax rate includes $0.8 million benefit from a state tax rate change; absent this benefit the effective tax rate would have been 27.2%

Average loans were $6.6 billion, a decrease of 0.7% YoY, but up 0.9% QoQ.

• Period end net loans, excluding PPP loans, totaled $6.7 billion, up 3.4% YoY and 2.6% QoQ
• Total loan closings were a record $503.8 million in 2Q22, $329.3 million in 1Q22, $362.7 million in 4Q21, $243.9 million in 3Q21, and $324.4 million ($309.0 million excluding PPP) in 2Q21
• The loan pipeline was $582.6 million at June 30, 2022, up 34.7% YoY, but down 12.2% from record levels QoQ
• PPP loans held at the end of each quarter totaled $22.2 million at 2Q22, $43.2 million at 1Q22, $77.4 million at 4Q21, $130.8 million at 3Q21, and $197.3 million at 2Q21; forgiven PPP loans were $21.0 million in 2Q22, $34.1 million in 1Q22, $53.4 million in 4Q21, $66.5 million in 3Q21, and $69.2 million in 2Q21

Average Deposits totaled $6.4 billion, decreasing 1.1% YoY, but up 0.5% QoQ.

• Average core deposits (non-CD deposits) increased to 87.3% of total average deposits (including escrow deposits) in 2Q22, compared to 84.0% a year ago
• Average noninterest bearing deposits increased 13.1% YoY and 4.3% QoQ and comprised 16.2% of total average deposits (including escrow deposits) in 2Q22 compared to 14.2% a year ago

Credit Quality: Nonperforming loans held at the end of each quarter totaled $27.9 million at 2Q22, $14.1 million at 1Q22, $14.9 million at 4Q21, $20.2 million at 3Q21, and $17.6 million at 2Q21.

• The $13.8 million QoQ increase in NPLs was primarily driven by three previously identified as criticized and classified commercial business credits (one resolved subsequent to quarter end)
• Nonperforming assets totaled $48.9 million, up from $14.1 million at 1Q22 and $17.6 million at 2Q21; the increase in nonperforming assets primarily relates to a previously disclosed criticized investment security and loan totaling $24.1 million that has a combined LTV of 63%
• Criticized and classified loans totaled $57.1 million at 2Q22 (85 bps of loans), $59.5 million at 1Q22 (90 bps of loans), $57.7 million at 4Q21 (87 bps of loans), $68.9 million at 3Q21 (104 bps of loans), and $69.2 million at 2Q21 (103 bps of loans)
• 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 2Q22, 1Q22, 4Q21, and 3Q21
• Loans classified as troubled debt restructured (TDR) totaled $14.8 million at 2Q22 compared to $15.1 million at 1Q22 and $15.5 million a year ago
• Over 87% of gross loans are collateralized by real estate with an average loan-to-value ratio of <38% as of June 30, 2022
• Allowance for credit losses were 0.58% of loans at 2Q22 compared to 0.57% at 1Q22 and 0.64% a year ago
• Allowance for credit losses were 141.1% of nonperforming loans at 2Q22 compared to 266.1% at 1Q22 and 242.6% a year ago

Capital: Book value per common share was $22.38 at 2Q22, up 0.5% QoQ and 5.8% YoY; tangible book value per common share, a non-GAAP measure, was $21.71 at 2Q22, up 0.5% QoQ and 5.9% YoY.

• The Company paid a dividend of $0.22 per share and repurchased 387,689 shares at an average price of $22.01 in 2Q22
• During the quarter, the Board of Directors authorized an increase of 1 million shares to the current share repurchase program; as of the end of 2Q22, 1,100,498 shares remain subject to repurchase under the authorized stock repurchase programs, which has no expiration or maximum dollar limit
• Tangible common equity to tangible assets was 7.82% at 2Q22 compared to 8.05% at 1Q22 and 7.80% at 2Q21
• The Company and the Bank remain well capitalized under all applicable regulatory requirements
• The leverage ratio was 8.91% at 2Q22 compared to 9.05% at 1Q22 and 8.50% at 2Q21
  

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 27, 2022, at 9:30 AM (ET) to discuss the Company’s second quarter 2022 results and strategy.
• Dial-in for Live Call: 1-877-509-5836; Canada 855-669-9657
• Webcast: https://services.choruscall.com/links/ffic220727.html
• Dial-in for Replay: 1-877-344-7529; Canada 855-669-9658
• Replay Access Code: 3593053
• The conference call will be simultaneously webcast and archived

Third Quarter 2022 Earnings Release Date:

The Company plans to release Third Quarter 2022 financial results after the market close on October 25, 2022; followed by a conference call at 9:30 AM (ET) on October 26, 2022.

A detailed announcement will be issued prior to the third 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 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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