Flushing Financial Corporation Reports 2Q24 GAAP and Core EPS of $0.18; Net Interest Income Up QoQ

"Our long-term success is derived from executing against the four focus areas we outlined in 2023. For the quarter, GAAP and Core NIM declined 1 and 3 bps, respectively. As loan originations were less than paydowns, we purchased adjustable-rate securities, which led to net interest income increasing 0.9% QoQ. We anticipate the loan pipeline, which increased approximately 88% QoQ, will help to stabilize NIM, which is our first area of focus. Our second area of focus is credit quality, which remains quite strong. At the end of the quarter, we had NPAs to total assets of 61 bps, criticized and classified loans to total loans of 113 bps, and net recoveries of 1 bp. We remain confident that our strong underwriting will continue to drive toward low loss content. The third area of focus is preserving strong liquidity and capital. The Company has over $3 billion of unused lines of credit available as of June 30, 2024, and notwithstanding the normal flows of certain deposit portfolios, average deposits increased 4% YoY and 2% QoQ. Capital ratios remained strong with a leverage ratio of 8.18%. Our last area of focus is bending the expense curve. GAAP and core noninterest expense each increased 6% in the first half of the year compared to the same period a year ago. We are making investments in the business in new lending staff and branches to improve profitability over the long term and expect expense growth in 2024 will be more in line with our historical growth rate of mid-single digits. While progress will not always be in a straight line, we remain confident that adherence to these four areas of focus will favorably impact the long-term profitability of the Company."

- John R. Buran, President and CEO

UNIONDALE, NY / ACCESSWIRE / July 29, 2024 / Growth in Average Deposits; Solid Credit Quality Metrics. Second quarter 2024 GAAP and Core EPS were both $0.18 compared to $0.29, and $0.26, respectively, a year ago. 2Q24 GAAP and Core NIM were 2.05% and 2.03%, down 1 bp and 3 bps QoQ, respectively. Absent episodic items1, NIM was 2.02% in 2Q24 compared to 2.01% in the prior quarter. Average total deposits increased 4.3% YoY and 1.6% QoQ, notwithstanding normal flows of certain portfolios.

Strong Credit Quality; Capital Remains Solid. Credit quality metrics were at low levels with criticized and classified loans to gross loans of 113 bps, nonperforming assets to total assets of 61 bps, and net recoveries of 1 bp in 2Q24. Capital continues to be sound with TCE/TA2 of 7.12% at 2Q24 compared to 7.40% at 1Q24.

Key Financial Metrics3

Note: In certain circumstances, reclassifications have been made to prior periods to conform to the current presentation.

1 Episodic items include prepayment penalty income, customer swap termination fees, net reversals and recovered interest from nonaccrual loans, net gain/loss from fair value on qualifying hedges, and purchase accounting adjustments. 2 Tangible Common Equity ("TCE")/Total Assets ("TA"). 3 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." 4 Net Interest Margin ("NIM") Fully Taxable Equivalent ("FTE").

2Q24 Highlights

• Net interest margin FTE decreased 13 bps YoY, but only 1 bp QoQ to 2.05%; Core net interest margin FTE decreased 14 bps YoY and 3 bps QoQ to 2.03%; absent episodic items1, NIM was 2.02% in 2Q24 compared to 2.15% in 2Q23 and 2.01% in 1Q24

• Average total deposits increased 4.3% YoY and 1.6% QoQ to $7.2 billion; Average noninterest bearing deposits were 11.4% of total average deposits compared to 12.3% in 2Q23 and 11.8% in 1Q24. Average CDs were $2.4 billion, up 19.4% YoY and 1.5% QoQ

• Period end net loans decreased 0.9% YoY and 0.7% QoQ to $6.7 billion; Loan closings were $126.0 million, down 20.7% YoY and 3.1% QoQ; The yields on closings increased 63 bps YoY and 57 bps QoQ to 7.77%; Back-to-back swap loan originations were $27.4 million compared to $15.3 million in 1Q24 and generated $0.5 million and $0.2 million of noninterest income, respectively; Loan pipeline decreased 21.1% YoY, but increased 88.4% QoQ to $327.7 million; Approximately 9% of the loan pipeline consists of back-to-back swap loans

• NPAs increased from a very low base of $39.6 million a year ago and $46.3 million in the prior quarter to $55.8 million equating to only 61 bps of assets compared to 47 bps in 2Q23 and 53 bps in 1Q24

• Year to date noninterest expense growth was 6.3%, while core noninterest expense growth was 5.7%; The Company remains on target to have core expense growth of mid-single digits for 2024

• Year to date noninterest expense growth was 6.3%, while core noninterest expense growth was 5.7%; The Company remains on target to have core expense growth of mid-single digits for 2024

• Provision for credit losses was $0.8 million in 2Q24 compared to $1.4 million in 2Q23 and $0.6 million in 1Q24; Net charge-offs (recoveries) were $(92,000) in 2Q24 compared to $1.6 million in 2Q23 and $4,000 in 1Q24

• Tangible Common Equity to Tangible Assets was 7.12% at June 30, 2024, compared to 7.40% at March 31, 2024; Tangible book value per share was $22.24 compared to $22.47 a year ago

Areas of Focus

1 Episodic items include prepayment penalty income, customer swap termination fees, net reversals and recovered interest from nonaccrual loans, net gain/loss from fair value on qualifying hedges, and purchase accounting adjustments, which totaled $0.7 million or 3 bps in 2Q24 compared to $0.5 million or 3 bps in 2Q23 and $1.0 million or 5 bps in 1Q24

Income Statement Highlights

1 See Reconciliation of GAAP Earnings and Core Earnings

Net interest income decreased YoY but increased QoQ.

• Net Interest Margin FTE of 2.05% decreased 13 bps YoY and 1 bp QoQ

• Episodic items of prepayment penalty income, customer swap termination fees, 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 $0.7 million (3 bps to NIM) in 2Q24, compared to $1.0 million (5 bps to NIM) in 1Q24, $3.0 million (15 bps to NIM) in 4Q23, $2.6 million (13 bps to NIM) in 3Q23, and $0.5 million (3 bps to NIM) in 2Q23

• Excluding the items in the previous bullet, net interest margin was 2.02% compared to in 2Q24, 2.01% in 1Q24, 2.14% in 4Q23, 2.09% in 3Q23, and 2.15% in 2Q23

The provision for credit losses decreased YoY but increased QoQ.

• Net charge-offs (recoveries) were $(92,000) ((1) bp of average loans) in 2Q24 compared to $4,000 (less than 1 bp of average loans) in 1Q24, $60,000 in 4Q23 (less than 1 bp of average loans), $(42,000) in 3Q23 (less than (1) bp of average loans), and $1.6 million in 2Q23 (9 bps of average loans)

Noninterest income decreased YoY but increased QoQ.

• Back-to-back swap loan closings of $27.4 million in 2Q24 (compared to $11.5 million in 2Q23 and $15.3 million in 1Q24) generated $0.5 million of fee income (compared to $0.2 million of fee income in both 2Q23 and 1Q24)

• Net gains (losses) from fair value adjustments were $0.1 million in 2Q24 (less than $0.01 per share, net of tax), $(0.8) million in 1Q24 ($(0.02) per share, net of tax), $0.9 million in 4Q23 ($0.02 per share, net of tax), $(1.2) million in 3Q23 ($(0.03) per share, net of tax), and $0.3 million in 2Q23 ($0.01 per share, net of tax)

• Life insurance proceeds were $0.7 million in 4Q23 ($0.02 per share), $23,000 in 3Q23 (less than $0.01 per share), and $0.6 million ($0.02 per share) in 2Q23

• Absent the items in the previous two bullets and other immaterial adjustments, core noninterest income was $4.2 million in 2Q24, down 0.1% YoY, but up 6.2% QoQ

Noninterest expense increased YoY but declined QoQ.

• Seasonal compensation expense was $1.6 million in 1Q24 and did not repeat in 2Q24

• Excluding the effects of immaterial adjustments, core operating expenses were $38.5 million in 2Q24, up 9.9% YoY, but down 3.4% QoQ; year over year increases primarily relate to business investments in people, and higher deposit insurance premiums and data processing costs

• GAAP noninterest expense to average assets was 1.77% in 2Q24, 1.83% in 1Q24, 1.90% in 4Q23, 1.71% in 3Q23, and 1.66% in 2Q23

Provision for income taxes decreased YoY but increased QoQ.

• The effective tax rate was 25.4% in 2Q24, 26.3% in 1Q24, 31.1% in 4Q23, 27.1% in 3Q23, and 26.8% in 2Q23

• The 4Q23 effective tax rate increased because of preferential tax items having a smaller impact due to higher pre-tax income than estimated in 3Q23 and 2Q23

Balance Sheet, Credit Quality, and Capital Highlights

Average loans decreased slightly YoY and QoQ.

• Period end net loans totaled $6.7 billion, down 0.9% YoY and 0.7% QoQ

• Total loan closings were $126.0 million in 2Q24, $130.0 million in 1Q24, $244.3 million in 4Q23, $241.5 million in 3Q23, and $158.8 million in 2Q23; the loan pipeline was $327.7 million at June 30, 2024, down 21.1% YoY, but up 88.4% QoQ

• The diversified loan portfolio is approximately 90% collateralized by real estate with an average loan-to-value ratio of