Record Net Interest Income, Loan Pipeline, and Core EPS
John R. Buran, President and CEO Commentary
UNIONDALE, N.Y., Oct. 26, 2021 (GLOBE NEWSWIRE) -- The Company reported third quarter 2021 GAAP EPS of $0.81, up 62.0% YoY, ROAA of 1.26% and ROAE of 15.42%. For the period, Core EPS of $0.88 increased 57.1% YoY with ROAA of 1.38% and ROAE of 16.88%. The strong results were from the successful implementation of our business strategy resulting in the sixth consecutive quarter of record net interest income, a record loan pipeline, and the second consecutive quarter of record core earnings.
| “Loans, excluding SBA Payment Protection Program (“PPP”), were flat QoQ but increased 12% YoY. The Company’s loan pipeline increased 35% YoY and 23% QoQ to record levels as the metro New York City economy continues to normalize. Additionally, there have been eight announced or recently closed bank mergers in the Long Island market. The market has $328 billion of deposits and 18% or $60 billion involve a merger participant. As a leading community bank in this market, Flushing Bank is poised to benefit from merger disruption. The combination of an improving economy, broad based and record loan pipelines, and merger disruption should lead to positive loan growth into 2022.” - John R. Buran, President and CEO |
Sixth Consecutive Quarter of Record Net Interest Income; Favorable Outlook. Net interest income of $63.4 million increased 27% YoY and 4% QoQ. NIM expanded 20 bps to 3.34% from 3.14% in 2Q21, while Core NIM increased by 13 bps to 3.27% during the same period. NIM expansion was the result of cost of funds declining 4 bps, while asset yields increased 15 bps, with 8 bps due to the change in hedge fair values, increased purchase accounting accretion, and net prepayment penalty income. The funding mix improved with core deposits totaling 84% of average deposits and average borrowings declined 37% YoY. Weighted average rate on loan closings (ex PPP) rose 13 bps QoQ and the steeper yield curve should have a positive impact on net interest income over time. Capital Target Achieved; Share Repurchase Activity Resumes. Following the closing of the Empire acquisition approximately one year ago, the Company announced the goal of a TCE ratio of 8% or better by the end of 2021. This target was achieved during 3Q21 even as the Company repurchased 285,643 shares of common stock at an average price of $22.42 per share. Our capital priorities remain to 1) profitabily grow the balance sheet, 2) return dividends to shareholders, and 3) opportunistically repurchase shares.
| Key Financial Metrics1 | |||||||||||||||||
| 3Q21 | 2Q21 | 1Q21 | 4Q20 | 3Q20 | |||||||||||||
| GAAP: | |||||||||||||||||
| EPS | $ | 0.81 | $ | 0.61 | $ | 0.60 | $ | 0.11 | $ | 0.50 | |||||||
| ROAA (%) | 1.26 | 0.93 | 0.93 | 0.18 | 0.81 | ||||||||||||
| ROAE (%) | 15.42 | 11.95 | 12.29 | 2.27 | 9.94 | ||||||||||||
| NIM FTE (%) | 3.34 | 3.14 | 3.18 | 3.08 | 3.00 | ||||||||||||
| Core: | |||||||||||||||||
| EPS | $ | 0.88 | $ | 0.73 | $ | 0.54 | $ | 0.58 | $ | 0.56 | |||||||
| ROAA (%) | 1.38 | 1.11 | 0.83 | 0.92 | 0.91 | ||||||||||||
| ROAE (%) | 16.88 | 14.27 | 10.96 | 11.67 | 11.22 | ||||||||||||
| Core NIM FTE (%) | 3.27 | 3.14 | 3.06 | 3.03 | 2.98 | ||||||||||||
| Efficiency Ratio (%) | 52.3 | 53.4 | 58.6 | 57.6 | 55.4 | ||||||||||||
| Credit Quality: | |||||||||||||||||
| NPAs/Loans&REO (%) | 0.31 | 0.26 | 0.31 | 0.31 | 0.42 | ||||||||||||
| LLRs/Loans (%) | 0.55 | 0.64 | 0.67 | 0.67 | 0.65 | ||||||||||||
| LLRs/NPLs (%) | 179.86 | 242.55 | 212.87 | 214.27 | 154.66 | ||||||||||||
| NCOs/Avg Loans (%) | (0.04 | ) | 0.05 | 0.17 | 0.04 | 0.06 | |||||||||||
| Balance Sheet: | |||||||||||||||||
| Avg Loans ($B) | $ | 6.6 | $ | 6.7 | $ | 6.7 | $ | 6.4 | $ | 5.9 | |||||||
| Avg Dep ($B) | $ | 6.4 | $ | 6.5 | $ | 6.3 | $ | 5.5 | $ | 5.0 | |||||||
| Book Value/Share | $ | 21.78 | $ | 21.16 | $ | 20.65 | $ | 20.11 | $ | 20.78 | |||||||
| Tangible BV/Share | $ | 21.13 | $ | 20.51 | $ | 19.99 | $ | 19.45 | $ | 20.22 | |||||||
| TCE/TA (%) | 8.04 | 7.80 | 7.60 | 7.52 | 8.10 | ||||||||||||
1 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.”
| 3Q21 Highlights |
- Record net interest income up 3.8% QoQ and 26.9% YoY to $63.4 million, due to a decrease in funding costs and an increase in asset yields from an increase in hedge fair values, purchase accounting accretion, and net prepayment penalty income; core net interest income was up 1.5% QoQ and 24.9% YoY to $62.1 million
- Net interest margin FTE increased 20 bps QoQ and 34 bps YoY to 3.34%, and core net interest margin FTE was up 13 bps QoQ and 29 bps YoY to 3.27%; Core NIM expansion QoQ primarily was due to an improvement in funding costs and a change in balance sheet mix
- Period end loans, excluding PPP, were flat QoQ but increased 11.6% YoY; loan closings were $243.9 million in 3Q21, down 24.8% QoQ but up 56.8% YoY
- Average deposits declined 1.6% QoQ, but increased 28.2% YoY to $6.4 billion, with core deposits 84% of total average deposits
- Loan pipeline increased 34.7% YoY to a record $530.7 million
- Benefit for credit losses was $6.9 million due to a better economic outlook, strong LTVs, and improving credit metrics; net recoveries were $0.6 million or 4 bps of average loans in 3Q21
- NPAs increased 14.9% QoQ to $20.2 million, but down 18.6% YoY; criticized and classified assets were down 0.4% QoQ to $68.9 million (representing 1.04% of loans)
- Tangible Common Equity to Tangible Assets improved to 8.04% from 7.80% in 2Q21
- Repurchased 285,643 shares at an average price of $22.42; dividends and share repurchases were 51.2% of net income in 3Q21
| Income Statement Highlights | ||||||||||||||||||||||||||
| Y/Y | Q/Q | |||||||||||||||||||||||||
| ($000s, except EPS) | 3Q21 | 2Q21 | 1Q21 | 4Q20 | 3Q20 | Change | Change | |||||||||||||||||||
| Net Interest Income | $ | 63,364 | $ | 61,039 | $ | 60,892 | $ | 55,732 | $ | 49,924 | 26.9 | % | 3.8 | % | ||||||||||||
| (Benefit) Provision for Credit Losses | (6,927 | ) | (1,598 | ) | 2,820 | 3,862 | 2,470 | (380.4 | ) | 333.5 | ||||||||||||||||
| Non-interest Income (Loss) | 866 | (3,210 | ) | 6,311 | (1,181 | ) | 1,351 | (35.9 | ) | (127.0 | ) | |||||||||||||||
| Non-interest Expense | 36,345 | 34,011 | 38,159 | 46,811 | 29,985 | 21.2 | 6.9 | |||||||||||||||||||
| Income Before Income Taxes | 34,812 | 25,416 | 26,224 | 3,878 | 18,820 | 85.0 | 37.0 | |||||||||||||||||||
| Provision for Income Taxes | 9,399 | 6,158 | 7,185 | 417 | 4,489 | 109.4 | 52.6 | |||||||||||||||||||
| Net Income | $ | 25,413 | $ | 19,258 | $ | 19,039 | $ | 3,461 | $ | 14,331 | 77.3 | 32.0 | ||||||||||||||
| Diluted EPS | $ | 0.81 | $ | 0.61 | $ | 0.60 | $ | 0.11 | $ | 0.50 | 62.0 | 32.8 | ||||||||||||||
| Avg. Diluted Shares (000s) | 31,567 | 31,677 | 31,604 | 30,603 | 28,874 | 9.3 | (0.3 | ) | ||||||||||||||||||
| Core Net Income1 | $ | 27,829 | $ | 22,994 | $ | 16,973 | $ | 17,784 | $ | 16,168 | 72.1 | 21.0 | ||||||||||||||
| Core EPS1 | $ | 0.88 | $ | 0.73 | $ | 0.54 | $ | 0.58 | $ | 0.56 | 57.1 | 20.5 | ||||||||||||||
1 See Reconciliation of GAAP Earnings and Core Earnings
Net interest income totaled $63.4 million in 3Q21 (an increase of 26.9% YoY and 3.8% QoQ), $61.0 million in 2Q21, $60.9 million in 1Q21, $55.7 million in 4Q20, and $49.9 million in 3Q20.
- Net interest margin, FTE (“NIM”) of 3.34%, increased 34 bps YoY and 20 bps QoQ; PPP loans caused a 2 bps positive impact on the NIM in 3Q21, neutral impact in 2Q21, and a drag of 4 bps in 1Q21, 3 bps in 4Q20, and 2 bps in 3Q20
- Prepayment penalty income from loans and securities, net reversals and recoveries of interest from non-accrual loans, net gains and losses from fair value adjustments on qualifying hedges, and purchase accounting accretion totaled $3.4 million or 19 bps to the NIM compared to $1.9 million (10 bps) in 2Q21, $3.3 million (17 bps) in 1Q21, $2.1 million (11 bps) in 4Q20, and $1.7 million (11 bps) in 3Q20, respectively
- Excluding the items in the previous bullet, net interest margin was 3.15% in 3Q21 compared to 3.04% in 2Q21, 3.01% in 1Q21, 2.97% in 4Q20, and 2.89% in 3Q20, or an increase of 26 bps YoY and 11 bps QoQ
- Net PPP loan fees were $1.3 million in 3Q21, $1.2 million in 2Q21, $0.5 million in 1Q21, $0.4 million in 4Q20, and $0.2 million in 3Q20
The Company recorded a benefit for credit losses of $6.9 million in 3Q21 compared to $1.6 million in 2Q21, and provisions for credit losses of $2.8 million in 1Q21, $3.9 million in 4Q20, and $2.5 million in 3Q20.
- 3Q21 benefit for credit losses ($0.16 per share, net of tax) was driven by the improving economic outlook supported by the low LTVs in the real estate portfolio and low inherent risk in the total portfolio
- Net charge-offs (recoveries) were $(0.6) million in 3Q21 ((4) bps of average loans), $0.9 million in 2Q21 (5 bps), $2.9 million in 1Q21 (17 bps), $0.6 million in 4Q20 (4 bps), and $0.8 million in 3Q20 (6 bps)
Non-interest income (loss) was $0.9 million in 3Q21, $(3.2) million in 2Q21, $6.3 million in 1Q21, $(1.2) million in 4Q20 and $1.4 million in in 3Q20.
- Non-interest income included net gains (losses) from fair value adjustments of $(2.3) million in 3Q21 $(0.05) per share, net of tax, $(6.5) million $(0.15) per share, net of tax in 2Q21, $1.0 million $0.02 per share, net of tax in 1Q21, $(4.1) million $(0.11) per share, net of tax in 4Q20, and $(2.2) million $(0.06) per share, net of tax in 3Q20
- Absent all above items and other immaterial adjustments, core non-interest income was $3.2 million in 3Q21, down 11.5% YoY, and 1.6% QoQ
Non-interest expense totaled $36.3 million in 3Q21 (an increase of 21.2% YoY and 6.9% QoQ), compared to $34.0 million in 2Q21, $38.2 million in 1Q21, $46.8 million in 4Q20, and $30.0 million in 3Q20.
- 3Q21 non-interest expense includes $2.1 million of pre-tax merger charges ($0.05 per share, net of tax)
- 2Q21 non-interest expense includes $0.5 million of pre-tax merger benefits primarily related to a refund received from a data processing vendor ($(0.01) per share, net of tax)
- 1Q21 non-interest expense includes $1.0 million of pre-tax merger charges ($0.02 per share, net of tax); 1Q21 includes $3.3 million of seasonal compensation expense
- 4Q20 non-interest expense includes $5.3 million pre-tax merger charges ($0.14 per share, net of tax) and $7.8 million pre-tax debt prepayment penalties ($0.20 per share, net of tax)
- 3Q20 non-interest expense includes merger charges of $0.4 million ($0.01 per share, net of tax)
- Excluding the above items and other immaterial adjustments, core operating expenses were $34.1 million in 3Q21, up 15.4% YoY, but down 0.7% QoQ
- The efficiency ratio was 52.3% in 3Q21, 53.4% in 2Q21, 58.6% in 1Q21, 57.6% in 4Q20, and 55.4% in 3Q20
The provision for income taxes was $9.4 million in 3Q21, compared to $6.2 million in 2Q21, $7.2 million in 1Q21, $0.4 million in 4Q20, and $4.5 million in 3Q20.
- The effective tax rate was 27.0% in 3Q21, 24.2% in 2Q21, 27.4% in 1Q21, 10.8% in 4Q20, and 23.9% in 3Q20
- 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%
| Balance Sheet, Credit Quality, and Capital Highlights | ||||||||||||||||||||||
| Y/Y | Q/Q | |||||||||||||||||||||
| ($000s, except per share data) | 3Q21 | 2Q21 | 1Q21 | 4Q20 | 3Q20 | Change | Change | |||||||||||||||
| Average Loans And Deposits | ||||||||||||||||||||||
| Loans | $ | 6,633 | $ | 6,687 | $ | 6,700 | $ | 6,376 | $ | 5,904 | 12.3 | % | (0.8 | )% | ||||||||
| Deposits | 6,408 | 6,511 | 6,285 | 5,515 | 4,999 | 28.2 | (1.6 | ) | ||||||||||||||
| Credit Quality | ||||||||||||||||||||||
| Nonperforming Loans | $ | 20,217 | $ | 17,592 | $ | 21,186 | $ | 21,073 | $ | 24,792 | (18.5 | )% | 14.9 | % | ||||||||
| Nonperforming Assets | 20,217 | 17,592 | 21,221 | 21,108 | 24,827 | (18.6 | ) | 14.9 | ||||||||||||||
| Criticized and Classified Assets | 68,913 | 69,161 | 63,130 | 71,691 | 42,181 | 63.4 | (0.4 | ) | ||||||||||||||
| Allowance for Credit Losses/Loans (%) | 0.55 | 0.64 | 0.67 | 0.67 | 0.65 | (10 | )bps | (9 | )bps | |||||||||||||
| Capital | ||||||||||||||||||||||
| Book Value/Share | $ | 21.78 | $ | 21.16 | $ | 20.65 | $ | 20.11 | $ | 20.78 | 4.8 | % | 2.9 | % | ||||||||
| Tangible Book Value/Share | 21.13 | 20.51 | 19.99 | 19.45 | 20.22 | 4.5 | 3.0 | |||||||||||||||
| Tang. Common Equity/Tang. Assets (%) | 8.04 | 7.80 | 7.60 | 7.52 | 8.10 | (6 | )bps | 24 | bps | |||||||||||||
| Leverage Ratio (%) | 8.83 | 8.50 | 8.44 | 8.38 | 9.03 | (20 | ) | 33 | ||||||||||||||
Average loans were $6.6 billion, an increase of 12.4% YoY, but a decline of 0.8% QoQ.
- Total loan closings were $243.9 million in 3Q21, $324.4 million in 2Q21, $322.9 million in 1Q21, $316.0 million in 4Q20, and $155.6 million in 3Q20
- The loan pipeline increased to a record $530.7 million at September 30, 2021, up 34.7% YoY and 22.7% QoQ
- PPP loans were $130.8 million at 3Q21, $197.3 million at 2Q21, $251.0 million at 1Q21, $151.9 million at 4Q20, and $111.6 million at 3Q20; forgiven PPP loans were $66.5 million in 3Q21, $69.2 million in 2Q21 and $24.1 million in 1Q21; unamortized net PPP fees were $3.2 million at September 30, 2021
- Period end loans, excluding PPP loans, totaled $6.5 billion, up 11.6% YoY and flat QoQ
Average Deposits totaled $6.4 billion, increasing 28.2% YoY, but down 1.6% QoQ.
- Average core deposits (non-CD deposits) increased to 83.8% of total average deposits (including escrow deposits) in 3Q21, compared to 77.9% a year ago
- Average non-interest bearing deposits increased 58.3% YoY and 1.1% QoQ and comprised 14.6% of total average deposits (including escrow deposits) in 3Q21 compared to 11.8% a year ago
Credit Quality; Non-performing loans totaled $20.2 million in 3Q21, $17.6 million in 2Q21, $21.2 million in 1Q21, $21.1 million in 4Q20 and $24.8 million in 3Q20.
- Non-performing assets totaled $20.2 million, down 18.6% YoY, but up 14.9% QoQ
- Criticized and classified assets totaled $68.9 million in 3Q21 (104 bps of loans), $69.2 million at 2Q21 (103 bps), $63.1 million at 1Q21 (94 bps), $71.7 million at 4Q20 (107 bps), and $42.2 million at 3Q20 (71 bps)
- Loans classified as troubled debt restructured (TDR) totaled $13.1 million compared to $15.5 million in 2Q21 and $5.1 million a year ago
- Active COVID-19 forbearances totaled 38 loans with a principal balance of $162.0 million at September 30, 2021, with $121.8 million making interest payments and only $40.2 million (0.6% of loans) with full payment deferrals; over 57% of the forbearances are scheduled to exit forbearance by year end 2021
- Over 87% of gross loans are collateralized by real estate and these loans have an average loan-to-value ratio of