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Flushing Financial Corporation Reports GAAP Diluted EPS of $0.37, Unchanged QoQ, and Core Diluted EPS of $0.48 up 14.3% QoQ; Record Quarterly Loan Closings; Quarter End Loan Pipeline Remains Strong at $419 Million

THIRD QUARTER 2019¹ HIGHLIGHTS

  • GAAP diluted EPS was $0.37, unchanged QoQ and down 39.3% YoY
  • Core diluted EPS was $0.48, up 14.3% QoQ and down 11.1% YoY
  • Record quarterly loan originations driven by C&I closings totaling $237.9 million
  • Net interest margin was 2.37%, down 8bps QoQ and 35bps YoY
  • Core net interest margin was 2.33%, down 7bps QoQ and 20bps YoY
  • GAAP net interest income of $38.9 million, down 2.6% QoQ and 6.2% YoY
  • Core net interest income of $40.2 million, down 1.5% QoQ and 3.2% YoY
  • GAAP and core ROAE were 7.6% and 9.8%, respectively, compared with 7.5% and 8.6%, respectively in 2Q19
  • GAAP and core ROAA were 0.6% and 0.8%, respectively, compared with 0.6% and 0.7%, respectively in 2Q19
  • Provision for loan losses of $0.7 million, or $0.02 after-tax per diluted common share, driven mainly by growth in the C&I portfolio

UNIONDALE, N.Y., Oct. 29, 2019 (GLOBE NEWSWIRE) -- Flushing Financial Corporation (the “Company”) (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 Objectives

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

Earnings Summary:

Net Interest Income

Net 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 QoQ
  • Net interest spread of 2.15%, decreased 38bps YoY and 8bps QoQ
  • Yield on average interest-earning assets of 4.22%, decreased 7bps YoY and 4bps QoQ
  • Cost of average interest-bearing liabilities of 2.07%, increased 31bps YoY and 4bps QoQ
  • Cost of funds of 1.94%, increased 30bps YoY and 4bps QoQ
  • Average 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%, QoQ
  • Net 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 3Q18
  • Absent 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 3Q18

Provision for loan losses

The 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 portfolio
  • Recorded net charge-offs (recoveries) of $0.2 million in 3Q19, $1.0 million in 2Q19, and ($0.1) million in 3Q18

Non-interest Income

Non-interest income for 3Q19 was $1.0 million, a decrease of $3.9 million YoY, and $1.4 million QoQ

  • Non-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 3Q18
  • Additionally, 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 3Q18
  • Absent all above items, non-interest income was $3.0 million in 3Q19 and 2Q19 compared to $2.9 million in 3Q18

Non-interest Expense

Non-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% QoQ

  • Non-interest expense improved QoQ and YoY, primarily due to a reduction in FDIC insurance expense resulting from the FDIC small business assessment credit
  • Absent 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% QoQ
  • The ratio of non-interest expense to average assets improved to 1.49% in 3Q19 compared to 1.58% in 2Q19 and 1.69% in 3Q18
  • The efficiency ratio was 58.9% in 3Q19 compared to 61.1% in 2Q19 and 61.0% in 3Q18

Provision for Income Taxes

The 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% QoQ
  • The effective tax rates were 19.1% in 3Q19, 23.7% in 2Q19 and 9.9% in 3Q18
  • The 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 estate
  • Loan closings of commercial business loans, multi-family loans and commercial real estate totaled $364.9 million for 3Q19, or 91.6% of loan production
  • Loan 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, 2018
  • The loan-to-value ratio on our portfolio of real estate dependent loans as of September 30, 2019 totaled 38.4%
 
The following table shows the weighted average rate received from loan closings for the periods indicated:
 
    For the three months ended
    September 30,   June 30,   September 30,
Loan type   2019
  2019
  2018
Mortgage loans   4.40 %   4.75 %   4.48 %
Non-mortgage loans   4.38 %   5.01 %   4.50 %
Total loans   4.39 %   4.89 %   4.49 %
             

 

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, 2018
  • Non-performing assets totaled $15.0 million, a decrease of $1.3 million, or 8.0%, from $16.3 million at December 31, 2018
  • Classified assets totaled $31.3 million, a decrease of $15.2 million, or 32.6%, from $46.5 million at December 31, 2018
  • Loans 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, 2018
  • 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 34.5% average loan-to-value for non-performing loans collateralized by real estate
  • Net charge-offs totaled $2.0 million during the nine months ended September 30, 2019 driven mainly by charge-offs of one commercial business loan relationship

Capital Management:

  • The Company and Bank, at September 30, 2019, were both well capitalized under all applicable regulatory requirements
  • Through 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 stock
  • During 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 limit
  • Book 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, 2018

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, October 30, 2019 at 9:30 AM (ET) to discuss the Company’s strategy and results for the third quarter
  • Dial-in for Live Call: 1-877-509-5836
  • Dial-in for Replay: 1-877-344-7529
  • Replay Access Code: 10129663
  • The conference call will be simultaneously webcast and archived through 5:00 PM (ET) on October 30, 2020

About Flushing Financial Corporation

Flushing Financial Corporation (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 -

 
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
 
    For the three months ended   For the nine months ended
    September 30,   June 30,   September 30,   September 30,   September 30,
      2019       2019       2018       2019       2018  
                     
Interest and Dividend Income                    
Interest and fees on loans   $ 62,825     $ 62,273     $ 59,658     $ 187,428     $ 171,997  
Interest and dividends on securities:                    
Interest     6,287       6,811       5,562       20,007       16,646  
Dividends     18       19       18       56       49  
Other interest income     259       472       248       1,286       873  
Total interest and dividend income     69,389       69,575       65,486       208,777       189,565  
                     
Interest Expense                    
Deposits     22,244       22,827       17,425       66,540       44,323  
Other interest expense     8,196       6,739       6,540       21,476       18,472  
Total interest expense     30,440       29,566       23,965       88,016       62,795  
                     
Net Interest Income     38,949       40,009       41,521       120,761       126,770  
Provision for loan losses     683       1,474       -       3,129       153  
Net Interest Income After Provision for Loan Losses     38,266       38,535       41,521       117,632       126,617  
                     
Non-interest Income                    
Banking services fee income     847       1,059       1,017       2,879       2,965  
Net loss on sale of securities     -       (15 )     -       (15 )     -  
Net gain on sale of loans     204       114       10       381       168  
Net gain on sale of assets     -       770       -       770       -  
Net loss from fair value adjustments     (2,124 )     (1,956 )     (170 )     (6,160 )     (537 )
Federal Home Loan Bank of New York stock dividends     834       826       873       2,563       2,630  
Life insurance proceeds     -       -       2,222       43       2,998  
Bank owned life insurance     1,000       810       782       2,550       2,320  
Other income     278       843       221       1,422       779  
Total non-interest income     1,039       2,451       4,955       4,433       11,323  
                     
Non-interest Expense                    
Salaries and employee benefits     15,461       15,668       15,720       50,295       49,466  
Occupancy and equipment     2,847       2,742       2,475       8,378       7,528  
Professional services     2,167       1,806       1,915       6,238       6,539  
FDIC deposit insurance     (589 )     667       596       563       1,643  
Data processing     1,490       1,420       1,427       4,402       4,254  
Depreciation and amortization     1,439       1,497       1,484       4,454       4,328  
Other real estate owned/foreclosure expense (benefit)     48       20       (102 )     145       34  
Net gain from sales of real estate owned     -       -       -       -       (27 )
Other operating expenses     3,182       3,338       3,718       11,147       12,158  
Total non-interest expense     26,045       27,158       27,233       85,622       85,923  
                     
Income Before Income Taxes     13,260       13,828       19,243       36,443       52,017  
                     
Provision for Income Taxes                    
Federal     2,457       2,981       2,307       7,381       8,225  
State and local     79       291       (397 )     714       1,124  
Total taxes     2,536       3,272       1,910       8,095       9,349  
                     
Net Income   $ 10,724     $ 10,556     $ 17,333     $ 28,348     $ 42,668  
                     
                     
Basic earnings per common share   $ 0.37     $ 0.37     $ 0.61     $ 0.99     $ 1.48  
Diluted earnings per common share   $ 0.37     $ 0.37     $ 0.61     $ 0.99     $ 1.48  
Dividends per common share   $ 0.21     $ 0.21     $ 0.20     $ 0.63     $ 0.60  


FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
(Unaudited)
 
  September 30,   June 30,   December 31,
    2019       2019       2018  
ASSETS          
Cash and due from banks $ 86,989     $ 56,484     $ 118,561  
Securities held-to-maturity:          
Mortgage-backed securities   7,939       7,944       7,953  
Other securities   52,101       52,242       24,065  
Securities available for sale:          
Mortgage-backed securities   579,010       554,481       557,953  
Other securities   246,465       254,172       264,702  
Loans:          
Multi-family residential   2,232,305       2,263,875       2,269,048  
Commercial real estate   1,559,581       1,524,693       1,542,547  
One-to-four family ― mixed-use property   587,100       582,264       577,741  
One-to-four family ― residential   184,432       184,024       190,350  
Co-operative apartments   9,089       8,137       8,498  
Construction   64,234       58,503       50,600  
Small Business Administration   13,982       14,511       15,210  
Taxi medallion   3,513       3,555       4,539  
Commercial business and other   1,096,164       983,573       877,763  
Net unamortized premiums and unearned loan fees   15,363       15,278       15,188  
Allowance for loan losses   (22,035 )     (21,510 )     (20,945 )
Net loans   5,743,728       5,616,903       5,530,539  
Interest and dividends receivable   26,566       26,552       25,485  
Bank premises and equipment, net   28,146       28,623       30,418  
Federal Home Loan Bank of New York stock   65,280       63,029       57,282  
Bank owned life insurance   158,604       157,604       131,788  
Goodwill   16,127       16,127       16,127  
Other real estate owned, net   239       239       -  
Right of use asset   42,400       42,557       -  
Other assets   57,301       68,677       69,303  
Total assets $ 7,110,895     $ 6,945,634     $ 6,834,176  
           
LIABILITIES          
Due to depositors:          
Non-interest bearing $ 421,786     $ 413,813     $ 413,747  
Certificate of deposit accounts   1,506,376       1,544,117       1,563,310  
Savings accounts   193,497       196,820       210,022  
Money market accounts   1,329,156       1,302,153       1,427,992  
NOW accounts   1,461,694       1,368,813       1,300,852  
Total deposits   4,912,509       4,825,716       4,915,923  
Mortgagors' escrow deposits   61,803       52,201       44,861  
Borrowed funds   1,422,440       1,371,890       1,250,843  
Operating lease liability   50,626       50,898       -  
Other liabilities   95,125       79,539       73,085  
Total liabilities   6,542,503       6,380,244       6,284,712  
           
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 September 30, 2019, June 30, 2019 and December 31, 2018; 28,157,206              
shares, 28,187,922 shares and 27,983,637 shares outstanding at September 30, 2019,              
June 30, 2019 and December 31, 2018, respectively)   315       315       315  
Additional paid-in capital   225,471       224,231       222,720  
Treasury stock (3,373,389 shares, 3,342,673 shares and 3,546,958 shares at          
September 30, 2019, June 30, 2019 and December 31, 2018, respectively)   (71,487 )     (70,913 )     (75,146 )
Retained earnings   427,062       422,373       414,327  
Accumulated other comprehensive loss, net of taxes   (12,969 )     (10,616 )     (12,752 )
Total stockholders' equity   568,392       565,390       549,464  
           
Total liabilities and stockholders' equity $ 7,110,895     $ 6,945,634     $ 6,834,176  


...
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 nine months ended
    September 30,   June 30,   September 30,   September 30,   September 30,
      2019       2019       2018       2019       2018  
Per Share Data                    
Basic earnings per share