UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2019~~2020

Commission file number 001-33013

FLUSHING FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

11-3209278

(I.R.S. Employer Identification No.)

220 RXR Plaza, Uniondale, New York11556

(Address of principal executive offices)

(718)961-5400

(~~Registrant's~~Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	FFIC	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. XYes ~~___ No~~__No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). XYes ~~___ No~~__No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer X	Accelerated filer ~~___~~__
Non-accelerated filer ~~___~~__	Smaller reporting company ~~___~~__
Emerging growth company ~~___~~__

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the exchange act.__

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ___Yes XNo

~~Securities registered pursuant to Section 12(b) of the Act:~~

~~Title of each class~~	~~Trading Symbol(s)~~	~~Name of each exchange on which registered~~
~~Common Stock, $0.01 par value~~	~~FFIC~~	~~The Nasdaq Stock Market LLC~~

The number of shares of the registrant’s Common Stock outstanding as of April 30, ~~2019~~2020 was ~~28,187,184.~~28,214,481.

Table of Contents

TABLE OF CONTENTS

	PAGE
PART I — FINANCIAL INFORMATION
ITEM 1. Financial Statements - (Unaudited)	1
Consolidated Statements of Financial Condition	1
Consolidated Statements of Income	2
Consolidated Statements of Comprehensive Income	3
Consolidated Statements of Cash Flows	4
Consolidated Statements of Changes in Stockholders’ Equity	5 6
Notes to Consolidated Financial Statements	6 7
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	42 45
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	54 58
ITEM 4. Controls and Procedures	54 58
PART II — OTHER INFORMATION
ITEM 1. Legal Proceedings	55 59
ITEM 1A. Risk Factors	55 59
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	55 62
ITEM 3. Defaults Upon Senior Securities	55 62
ITEM 4. Mine Safety Disclosures	55 62
ITEM 5. Other Information	55 62
ITEM 6. Exhibits	56 63
SIGNATURES	57 65

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Financial Condition

(Unaudited)

Item 1. Financial Statements

March 31,
2019 December 31,
2018
(Dollars in thousands, except per share data)
Assets
Cash and due from banks $ 58,677 $ 118,561
Securities held-to-maturity:
Mortgage-backed securities (including assets pledged of $5,030 and $4,796 at March 31, 2019 and at December 31, 2018, respectively; fair value of $7,726 and $7,366 at March 31, 2019 and December 31, 2018, respectively) 7,949 7,953
Other securities (none pledged; fair value of $22,276 and $22,508 at March 31, 2019 and December 31, 2018, respectively) 22,532 24,065
Securities available for sale, at fair value:
Mortgage-backed securities (including assets pledged of $235,682 and $152,670 at March 31, 2019 and December 31, 2018, respectively; $934 and $967 at fair value pursuant to the fair value option at March 31, 2019 and December 31, 2018, respectively) 579,185 557,953
Other securities (including assets pledged of $13,527 and $28,871 at March 31, 2019 and December 31, 2018, respectively; $13,091 and $12,843 at fair value pursuant to the fair value option at March 31, 2019 and December 31, 2018, respectively) 266,839 264,702
Loans:
Multi-family residential 2,256,447 2,269,048
Commercial real estate 1,529,001 1,542,547
One-to-four family ― mixed-use property 582,049 577,741
One-to-four family ― residential 188,615 190,350
Co-operative apartments 7,903 8,498
Construction 54,933 50,600
Small Business Administration 15,188 15,210
Taxi medallion 3,891 4,539
Commercial business and other 935,297 877,763
Net unamortized premiums and unearned loan fees 15,422 15,188
Allowance for loan losses (21,015 ) (20,945 )
Net loans 5,567,731 5,530,539
Interest and dividends receivable 27,226 25,485
Bank premises and equipment, net 29,798 30,418
Federal Home Loan Bank of New York stock, at cost 51,182 57,282
Bank owned life insurance 131,794 131,788
Goodwill 16,127 16,127
Right of Use Asset 44,033 –
Other assets 64,377 69,303
Total assets $ 6,867,450 $ 6,834,176

Liabilities
Due to depositors:
Non-interest bearing $ 401,064 $ 413,747
Interest-bearing 4,609,030 4,502,176
Total Deposits 5,010,094 4,915,923
Mortgagors' escrow deposits 70,115 44,861
Borrowed funds:
Federal Home Loan Bank advances 999,401 1,134,993
Subordinated debentures 74,074 74,001
Junior subordinated debentures, at fair value 42,941 41,849
Total borrowed funds 1,116,416 1,250,843
Operating lease liability 52,510 –
Other liabilities 58,756 73,085
Total liabilities 6,307,891 6,284,712

Stockholders' Equity
Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued) – –
Common stock ($0.01 par value; 100,000,000 shares authorized; 31,530,595 shares issued at March 31, 2019 and December 31, 2018;28,187,184 shares and 27,983,637 shares outstanding at March 31, 2019 and December 31, 2018, respectively) 315 315
Additional paid-in capital 222,859 222,720
Treasury stock, at average cost (3,343,411 shares and 3,546,958 shares at March 31, 2019 and December 31, 2018, respectively) (70,929 ) (75,146 )
Retained earnings 417,856 414,327
Accumulated other comprehensive loss, net of taxes (10,542 ) (12,752 )
Total stockholders' equity 559,559 549,464

Total liabilities and stockholders' equity $ 6,867,450 $ 6,834,176

~~The accompanying notes are an integral part of these consolidated financial statements~~.

~~- 1 -~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Consolidated Statements of Income~~

March 31,

December 31,


2020

2019

(Dollars in thousands, except per share data)
Assets




Cash and due from banks

$
157,184

$
49,787
Securities held-to-maturity:



Mortgage-backed securities (including assets pledged of $8,704 and $5,283 at March 31, 2020 and December 31, 2019, respectively; fair value of $8,953 and $8,114 at March 31, 2020 and December 31, 2019, respectively)

7,929

7,934
Other securities, net of allowance for credit losses of $402 (none pledged; fair value of $51,938 and $53,998 at March 31, 2020 and December 31, 2019, respectively)

50,225

50,954
Securities available for sale, at fair value:



Mortgage-backed securities (including assets pledged of $242,862 and $212,038 at March 31, 2020 and December 31, 2019, respectively; $738 and $772 at fair value pursuant to the fair value option at March 31, 2020 and December 31, 2019, respectively)

489,556

523,849
Other securities (NaN pledged; $13,831 and $13,548 at fair value pursuant to the fair value option at March 31, 2020 and December 31, 2019, respectively)

225,856

248,651
Loans:

Multi-family residential

2,272,343

2,238,591
Commercial real estate

1,664,934

1,582,008
One-to-four family - mixed-use property

592,109

592,471
One-to-four family - residential

189,774

188,216
Co-operative apartments

8,493

8,663
Construction

66,727

67,754
Small Business Administration

14,076

14,445
Taxi medallion

3,281

3,309
Commercial business and other

1,104,967

1,061,478
Net unamortized premiums and unearned loan fees

15,384

15,271
Allowance for loan losses

(28,098)

(21,751)
Net loans

5,903,990

5,750,455
Interest and dividends receivable

25,526

25,722
Bank premises and equipment, net

27,899

28,676
Federal Home Loan Bank of New York stock, at cost

74,000

56,921
Bank owned life insurance

158,655

157,713
Goodwill

16,127

16,127
Other real estate owned, net

208

239
Right of Use Asset

39,729

41,254
Other assets

68,526

59,494
Total assets

$
7,245,410

$
7,017,776

Liabilities




Due to depositors:




Non-interest bearing

$
489,198

$
435,072
Interest-bearing

4,339,237

4,586,977
Total Deposits

4,828,435

5,022,049
Mortgagors' escrow deposits

73,051

44,375
Borrowed funds:

Federal Home Loan Bank advances

1,498,058

1,118,528
Subordinated debentures

74,398

74,319
Junior subordinated debentures, at fair value

45,126

44,384
Total borrowed funds

1,617,582

1,237,231
Operating lease liability

47,726

49,367
Other liabilities

128,933

85,082
Total liabilities

6,695,727

6,438,104

Stockholders' Equity




Preferred stock ($0.01 par value; 5,000,000 shares authorized; NaN issued)

—

—
Common stock ($0.01 par value; 100,000,000 shares authorized; 31,530,595 shares issued at March 31, 2020 and December 31, 2019; 28,213,602 shares and 28,157,206 shares outstanding at March 31, 2020 and December 31, 2019, respectively)

315

315
Additional paid-in capital

225,893

226,691
Treasury stock, at average cost (3,316,993 shares and 3,373,389 shares at March 31, 2020 and December 31, 2019, respectively)

(69,540)

(71,487)
Retained earnings

425,455

433,960
Accumulated other comprehensive loss, net of taxes

(32,440)

(9,807)
Total stockholders' equity

549,683

579,672

Total liabilities and stockholders' equity

$
7,245,410

$
7,017,776
~~(Unaudited)~~
For the three months
ended March 31,
(Dollars in thousands, except per share data) 2019 2018

Interest and dividend income
Interest and fees on loans $ 62,330 $ 55,017
Interest and dividends on securities:
Interest 6,909 5,468
Dividends 19 14
Other interest income 555 287
Total interest and dividend income 69,813 60,786

Interest expense
Deposits 21,469 12,110
Other interest expense 6,541 6,067
Total interest expense 28,010 18,177

Net interest income 41,803 42,609
Provision for loan losses 972 153
Net interest income after provision for loan losses 40,831 42,456

Non-interest income
Banking services fee income 973 948
Net gain (loss) on sale of loans 63 (263 )
Net loss from fair value adjustments (2,080 ) (100 )
Federal Home Loan Bank of New York stock dividends 903 876
Life insurance proceeds 43 776
Bank owned life insurance 740 762
Other income 301 201
Total non-interest income 943 3,200

Non-interest expense
Salaries and employee benefits 19,166 18,455
Occupancy and equipment 2,789 2,577
Professional services 2,265 2,185
FDIC deposit insurance 485 500
Data processing 1,492 1,401
Depreciation and amortization 1,518 1,389
Other real estate owned/foreclosure expense 77 96
Other operating expenses 4,627 4,691
Total non-interest expense 32,419 31,294

Income before income taxes 9,355 14,362

Provision for income taxes
Federal 1,943 2,607
State and local 344 343
Total taxes 2,287 2,950

Net income $ 7,068 $ 11,412

Basic earnings per common share $ 0.25 $ 0.39
Diluted earnings per common share $ 0.25 $ 0.39
Dividends per common share $ 0.21 $ 0.20

The accompanying notes are an integral part of these consolidated financial statements.

~~- 2 -~~
-1-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of ~~Comprehensive~~ Income

(Unaudited)

For the three months ended
March, 31
(In thousands) 2019 2018

Net income $ 7,068 $ 11,412

Other comprehensive income (loss), net of tax:
Amortization of actuarial losses, net of taxes of ($10) and ($41) for the three months ended March 31, 2019 and 2018, respectively . 22 91
Amortization of prior service credits, net of taxes of $7 and $3 for the three months ended March 31, 2019 and 2018, respectively. (15 ) (7 )
Net unrealized gains (losses) on securities, net of taxes of ($2,524) and $3,055 for three months ended March 31, 2019 and 2018, respectively. 5,620 (6,640 )
Net unrealized(losses) gains on cash flow hedges, net of taxes of $1,575 and ($2,604) three months ended March 31, 2019 and 2018, respectively . (3,505 ) 5,661
Change in fair value of liabilities related to instrument-specific credit risk, net of taxes of ($39) for the three months ended March 31, 2019. 88 –

Total other comprehensive income (loss), net of tax 2,210 (895 )

Comprehensive income $ 9,278 $ 10,517

~~The accompanying notes are an integral part of these consolidated financial statements~~.

~~- 3 -~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Consolidated Statements of Cash Flows~~

For the three months ended


March 31,
(Dollars in thousands, except per share data)

2020

2019

Interest and dividend income

Interest and fees on loans

$
61,109

$
62,330
Interest and dividends on securities:




Interest

5,256

6,909
Dividends

15

19
Other interest income

290

555
Total interest and dividend income

66,670

69,813
Interest expense




Deposits

18,778

21,469
Other interest expense

7,066

6,541
Total interest expense

25,844

28,010
Net interest income

40,826

41,803
Provision for credit losses

7,178

972
Net interest income after provision for credit losses

33,648

40,831
Non-interest income




Banking services fee income

798

��
973
Net loss on sale of securities

(37)

—
Net gain on sale of loans

42

63
Net loss from fair value adjustments

(5,993)

(2,080)
Federal Home Loan Bank of New York stock dividends

964

903
Life insurance proceeds

—

43
Bank owned life insurance

943

740
Other income

419

301
Total non-interest (loss) income

(2,864)

943
Non-interest expense

Salaries and employee benefits

18,620

19,166
Occupancy and equipment

2,840

2,789
Professional services

2,862

2,265
FDIC deposit insurance

650

485
Data processing

1,694

1,492
Depreciation and amortization

1,536

1,518
Other real estate owned/foreclosure expense (benefit)

(164)

77
Net loss from other real estate owned

31

—
Other operating expenses

4,311

4,627
Total non-interest expense

32,380

32,419
(Loss) Income before income taxes

(1,596)

9,355
Provision (Benefit) for income taxes

Federal

989

1,943
State and local

(1,195)

344
Total taxes

(206)

2,287
Net income (Loss)

$
(1,390)

$
7,068

Basic (loss) earnings per common share

$
(0.05)

$
0.25
Diluted (loss) earnings per common share

$
(0.05)

$
0.25
Dividends per common share

$
0.21

$
0.21
~~(Unaudited)~~
For the three months ended
March 31,
(In thousands) 2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,068 $ 11,412
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 972 153
Depreciation and amortization of bank premises and equipment 1,518 1,389
Amortization of premium, net of accretion of discount 1,272 2,018
Net loss from fair value adjustments 2,080 100
Net loss from fair value adjustments on qualifying hedges 637 –
Net (gain) loss from sale of loans (63 ) 263
Income from bank owned life insurance (740 ) (762 )
Life insurance proceeds (43 ) (776 )
Stock-based compensation expense 3,931 3,452
Deferred compensation (938 ) (1,238 )
Deferred income tax provision 805 350
Decrease in other liabilities (3,737 ) (118 )
Increase in other assets (942 ) (955 )
Net cash provided by operating activities 11,820 15,288

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of bank premises and equipment (898 ) (1,867 )
Net redemptions of Federal Home Loan Bank of New York shares 6,100 6,044
Purchases of securities held-to-maturity (180 ) (353 )
Proceeds from maturities and calls of securities held-to-maturity 1,568 –
Proceeds from prepayments of securities held-to-maturity 146 –
Purchases of securities available for sale (45,730 ) (32,646 )
Proceeds from sales and calls of securities available for sale 13,295 10,000
Proceeds from maturities and prepayments of securities available for sale 16,788 20,943
Proceeds from bank owned life insurance 777 2,741
Net repayments (originations) of loans 16,372 (83,734 )
Purchases of loans (56,995 ) (68,818 )
Proceeds from sale of loans 1,170 2,464
Net cash used in investing activities (47,587 ) (145,226 )

CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in non-interest bearing deposits (12,683 ) (7,408 )
Net increase in interest-bearing deposits 106,788 302,438
Net increase in mortgagors' escrow deposits 25,254 23,373
Net repayments from short-term borrowed funds (84,250 ) (10,500 )
Repayment of long-term borrowings (51,310 ) (123,794 )
Purchases of treasury stock (1,877 ) (7,963 )
Proceeds from issuance of common stock upon exercise of stock options 3 –
Cash dividends paid (6,042 ) (5,795 )
Net cash (used) provided by financing activities (24,117 ) 170,351

Net (decrease) increase in cash and cash equivalents (59,884 ) 40,413
Cash and cash equivalents, beginning of period 118,561 51,546
Cash and cash equivalents, end of period $ 58,677 $ 91,959

SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid $ 25,830 $ 15,233
Income taxes paid 1,141 1,103
Taxes paid if excess tax benefits were not tax deductible 1,072 1,691
Non-cash activities:
Loans transferred to Other Real Estate Owned or Other Assets – 744
Reclassification of the Income tax effects of Tax Cuts and Jobs Act from AOCI to Retained Earnings – 2,073

The accompanying notes are an integral part of these consolidated financial statements.

~~- 4 -~~
-2-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of ~~Changes in Stockholders’ Equity~~

~~For the three months ended March 31, 2019 and 2018~~Comprehensive Income

(Unaudited)

For the three months ended

March 31,

(In thousands)

2020

2019


Net (loss) income

(1,390)

7,068

Other comprehensive income (loss), net of tax:





Amortization of actuarial losses, net of taxes of ($30) and ($10) for the three months ended March 31, 2020 and 2019, respectively.

67

22

Amortization of prior service credits, net of taxes of $6 and $7 for the three months ended March 31, 2020 and 2019, respectively.

(14)

(15)

Net unrealized (losses) gains on securities, net of taxes of $4,642 and ($2,524) for the three months ended March 31, 2020 and 2019, respectively.

(10,202)

5,620

Reclassification adjustment for net losses included in income, net of taxes of ($12) for the three months ended March 31, 2020.

25

—

Net unrealized losses on cash flow hedges, net of taxes of $6,190 and $1,575 for the three months ended March 31, 2020 and 2019 respectively.

(13,605)

(3,505)

Change in fair value of liabilities related to instrument-specific credit risk, net of taxes of ($489) and ($39) for the three months ended March 31, 2020 and 2019 respectively.

1,096

88

Total other comprehensive (loss) income , net of tax

(22,633)

2,210

Comprehensive (loss) income

$
(24,023)

$
9,278

(Dollars in thousands, except per share data) Total Common
Stock Additional
Paid-in Capital Retained
Earnings Treasury
Stock Accumulated Other
Comprehensive
Income (Loss)

Balance at December 31, 2018 $ 549,464 $ 315 $ 222,720 $ 414,327 $ (75,146 ) $ (12,752 )

Impact of adoption of ASC 842 - Leases 2,716 – – 2,716 – –
Net income 7,068 – – 7,068 – –
Award of common shares released from Employee Benefit Trust (138,775 shares) 2,086 – 2,086 – – –
Vesting of restricted stock unit awards (287,155 shares) – – (5,878 ) (210 ) 6,088 –
Exercise of stock options (300 shares) 3 – – (3 ) 6 –
Stock-based compensation expense 3,931 – 3,931 – – –
Repurchase of shares to satisfy tax obligation (83,908 shares) (1,877 ) – – – (1,877 ) –
Dividends on common stock ($0.21 per share) (6,042 ) – – (6,042 ) – –
Other comprehensive income 2,210 – – – – 2,210
Balance at March 31, 2019 $ 559,559 $ 315 $ 222,859 $ 417,856 $ (70,929 ) $ (10,542 )

Balance at December 31, 2017 $ 532,608 $ 315 $ 217,906 $ 381,048 $ (57,675 ) $ (8,986 )
Reclassification of the Income Tax Effects of the Tax Cuts and Jobs Act from Accumulated Other Comprehensive Income (Loss) to Retained Earnings – – – 2,073 – (2,073 )
Impact of adoption of Accounting Standard  Update 2016-01 – – – (775 ) – 775
Net income 11,412 – – 11,412 – –
Award of common shares released from Employee Benefit Trust (116,229 shares) 2,488 – 2,488 – – –
Vesting of restricted stock unit awards (248,877 shares) – – (4,731 ) (170 ) 4,901 –
Stock-based compensation expense 3,452 – 3,452 – – –
Purchase of treasury shares (217,863 shares) (5,913 ) – – – (5,913 ) –
Repurchase of shares to satisfy tax obligation (72,837 shares) (2,050 ) – – – (2,050 ) –
Dividends on common stock ($0.20 per share) (5,795 ) – – (5,795 ) – –
Other comprehensive loss (895 ) – – – – (895 )
Balance at March 31, 2018 $ 535,307 $ 315 $ 219,115 $ 387,793 $ (60,737 ) $ (11,179 )
The accompanying notes are an integral part of these consolidated financial ~~statements~~.statements.

~~- 5 -~~
-3-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Cash Flows
(Unaudited)

For the three months ended March 31,


2020

2019

(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES

Net (loss) income

$
(1,390)

$
7,068
Adjustments to reconcile net income to net cash provided by operating activities:




Provision for credit loan losses

7,178

972
Depreciation and amortization of bank premises and equipment

1,536

1,518
Amortization of premium, net of accretion of discount

1,642

1,272
Net loss from fair value adjustments

5,993

2,080
Net loss from fair value adjustments on qualifying hedges

2,073

637
Net gain from sale of loans

(42)

(63)
Net loss from sale of securities

37

—
Net loss from OREO

31

—
Income from bank owned life insurance

(943)

(740)
Life insurance proceeds

—

(43)
Stock-based compensation expense

3,430

3,931
Deferred compensation

(1,296)

(938)
Deferred income tax (benefit) expense

(2,318)

805
Decrease in other liabilities

(7,106)

(3,737)
Decrease (increase) in other assets

2,440

(942)
Net cash provided by operating activities

11,265

11,820
CASH FLOWS FROM INVESTING ACTIVITIES




Purchases of bank premises and equipment

(759)

(898)
Net (purchases) redemptions of Federal Home Loan Bank of New York shares

(17,079)

6,100
Purchases of securities held-to-maturity

—

(180)
Proceeds from maturities and calls of securities held-to-maturity

180

1,568
Proceeds from prepayments of securities held-to-maturity

150

146
Purchases of securities available for sale

(63,434)

(45,730)
Proceeds from sales and calls of securities available for sale

64,600

13,295
Proceeds from maturities and prepayments of securities available for sale

40,383

16,788
Proceeds from bank owned life insurance

—

777
Net (originations) repayments of loans

(55,906)

16,372
Purchases of loans

(77,233)

(56,995)
Proceeds from sale of loans

580

1,170
Net cash used in investing activities

(108,518)

(47,587)

-4-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Cash Flows (Contd)

(Unaudited)

For the three months ended March 31,


2020

2019

(In thousands)
CASH FLOWS FROM FINANCING ACTIVITIES

Net increase (decrease) in non-interest bearing deposits

54,126

(12,683)
Net (decrease) increase in interest-bearing deposits

(247,777)

106,788
Net increase in mortgagors' escrow deposits

28,676

25,254
Net proceeds from short-term borrowed funds

410,000

(84,250)
Proceeds from long-term borrowings

50,000

—
Repayment of long-term borrowings

(80,456)

(51,310)
Purchases of treasury stock

(3,835)

(1,877)
Proceeds from issuance of common stock upon exercise of stock options

—

3
Cash dividends paid

(6,084)

(6,042)
Net cash provided by (used in) financing activities

204,650

(24,117)
Net increase (decrease) in cash and cash equivalents

107,397

(59,884)
Cash and cash equivalents, beginning of period

49,787

118,561
Cash and cash equivalents, end of period

$
157,184

$
58,677
SUPPLEMENTAL CASH FLOW DISCLOSURE




Interest paid

$
25,617

$
25,830
Income taxes paid

1,094

1,141
Taxes paid if excess tax benefits were not tax deductible

868

1,072
Non-cash activities:

Right-Of-Use assets

—

42,869
Operating lease liabilities

—

51,780

The accompanying notes are an integral part of these consolidated financial statements.

-5-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statement of Changes in Stockholders’ Equity
(Unaudited)






Additional





Accumulated Other

Common

Paid-in

Retained

Treasury

Comprehensive
(Dollars in thousands, except per share data)

Total

Stock

Capital

Earnings

Stock

Income (Loss)

Balance at December 31, 2019

$
579,672

$
315

$
226,691

$
433,960

$
(71,487)

$
(9,807)

Impact of adoption of ASC 326 - Credit Losses

(875)

—

—

(875)

—

—
Net loss

(1,390)

—

—

(1,390)

—

—
Award of common shares released from Employee Benefit Trust (116,414 shares)

1,398

—

1,398

—

—

—
Vesting of restricted stock unit awards (272,946 shares)

—

—

(5,626)

(156)

5,782

—
Stock-based compensation expense

3,430

—

3,430

—

—

—
Purchase of treasury shares (142,405 shares)

(2,342)

—

—

—

(2,342)

—
Repurchase of shares to satisfy tax obligation (74,145 shares)

(1,493)

—

—

—

(1,493)

—
Dividends on common stock ($0.21 per share)

(6,084)

—

—

(6,084)

—

—
Other comprehensive loss

(22,633)

—

—

—

—

(22,633)
Balance at March 31, 2020

$
549,683

$
315

$
225,893

$
425,455

$
(69,540)

$
(32,440)






Additional





Accumulated Other

Common

Paid-in

Retained

Treasury

Comprehensive
(Dollars in thousands, except per share data)

Total

Stock

Capital

Earnings

Stock

Income (Loss)
Balance at December 31, 2018

$
549,464

$
315

$
222,720

$
414,327

$
(75,146)

$
(12,752)

Impact of adoption of ASC 842-Leases

2,716

—

—

2,716

—

—
Net income

7,068

—

—

7,068

—

—
Award of common shares released from Employee Benefit Trust (138,775 shares)

2,086

—

2,086

—

—

—
Vesting of restricted stock unit awards (287,155 shares)



—

(5,878)

(210)

6,088

—
Exercise of stock options (300 shares)

3

—

—

(3)

6

—
Stock-based compensation expense

3,931

—

3,931

—

—

—
Repurchase of shares to satisfy tax obligation (83,908 shares)

(1,877)

—

—

—

(1,877)

—
Dividends on common stock ($0.21 per share)

(6,042)

—

—

(6,042)

—

—
Other comprehensive income

2,210

—

—

—

—

2,210
Balance at March 31, 2019

$
559,559

$
315

$
222,859

$
417,856

$
(70,929)

$
(10,542)

The accompanying notes are an integral part of these consolidated financial statements.

-6-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

1. 1. Basis of Presentation
The primary business of Flushing Financial Corporation (the “Holding Company”), a Delaware corporation, is the operation of its wholly owned subsidiary, Flushing Bank (the “Bank”).
The unaudited consolidated financial statements presented in this Quarterly Report on Form 10-Q (“Quarterly Report”) include the collective results of the Holding Company and its direct and indirect wholly-owned subsidiaries, including the Bank, Flushing Preferred Funding Corporation, Flushing Service Corporation, and FSB Properties Inc., which are collectively herein referred to as “we,” “us,” “our” and the “Company.”
The Holding Company also owns Flushing Financial Capital Trust II, Flushing Financial Capital Trust III, and Flushing Financial Capital Trust IV (the “Trusts”), which are special purpose business trusts. The Trusts are not included in the Company’s consolidated financial statements, as the Company would not absorb the losses of the Trusts if any losses were to occur.
The accompanying unaudited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and general practices within the banking industry. The information furnished in these interim statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for such presented periods of the Company. Such adjustments are of a normal recurring nature, unless otherwise disclosed in this Quarterly Report. All inter-company balances and transactions have been eliminated in consolidation. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for the full year.
The accompanying unaudited consolidated financial statements have been prepared in conformity with the instructions to Quarterly Report on Form 10-Q and Article 10, Rule 10-01 of Regulation S-X for interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited consolidated interim financial information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~
2019.
When necessary, certain reclassifications were made to prior-year amounts to conform to the current-year presentation. Such reclassifications had no effect on prior period net income or shareholders’ equity and were insignificant amounts.

2. Use of Estimates
In December 2019, a novel coronavirus (COVID-19) was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. The outbreak of COVID-19 has adversely impacted a broad range of industries in which the Company’s customers operate and could impair their ability to fulfill their financial obligations to the Company. The World Health Organization has declared COVID-19 to be a global pandemic indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The spread of the outbreak has caused significant disruptions in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Company operates.
As a result of the recent emergence of the pandemic and the uncertainty, it is not possible to determine the overall impact of the pandemic on the Company’s business. However, if the pandemic continues for an extended period of time, there could be a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.
On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief and Economic Security (“CARES”) Act in response to the coronavirus pandemic. This legislation aims at providing relief for individuals and businesses that have been negatively impacted by the coronavirus pandemic.
-7-

~~Use of Estimates~~

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The CARES Act includes a provision for the Company to opt out of applying the “troubled-debt restructuring” (“TDR”) accounting guidance in Accounting Standards Codification (“ASC”) 310-40 for certain loan modifications. Loan modifications made between March 1, 2020 and the earlier of i) December 30, 2020 or ii) 60 days after the President declares a termination of the COVID-19 national emergency are eligible for this relief if the related loans were not more than 30 days past due as of December 31, 2019. The Bank adopted this provision as disclosed more fully in Note 5 (“Loans”) of the Notes to the Consolidated Financial Statements.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Estimates that are particularly susceptible to change in the near term, including COVID-19 related changes, are used in connection with the determination of the allowance for ~~loan~~credit losses, ~~(“ALLL”),~~ the evaluation of goodwill for impairment, the review of the need for a valuation allowance of the Company’s deferred tax assets and the fair value of financial ~~instruments~~instruments.

Goodwill

Goodwill is presumed to have an indefinite life and is tested annually for impairment, or more frequently when certain conditions are met. If the fair value of the reporting unit is greater than the carrying value, no further evaluation is required. If the fair value of the reporting unit is less than the carrying value, further evaluation would be required to compare the fair value of the reporting unit to the carrying value and determine if impairment is required.

Quoted market prices in active markets are the best evidence of fair value and are to be used as the basis for measurement, when available. Other acceptable valuation methods include an asset approach, which determines a fair value based upon the value of assets net of liabilities, an income approach, which determines fair value using one or more methods that convert anticipated economic benefits into a present single amount, and a market approach, which determines a fair value based on the similar businesses that have been sold.

In performing the goodwill impairment testing, the Company has identified a single reporting unit. The Company identified the COVID-19 pandemic as a triggering event and as such evaluated goodwill for impairment at March 31, 2020. The Company performed a step 1 impairment test and concluded as of March 31, 2020, that there was no goodwill impairment. Management will continue to monitor if an additional triggering event requiring further goodwill impairment testing has occurred. At March 31, 2020 and December 31, 2019, the carrying amount of goodwill totaled $16.1 million. The identification of additional reporting units, the use of other valuation techniques and/or changes to input assumptions used in the analysis could result in materially different evaluations of goodwill impairment.

Volatility in the Company’s stock price primarily driven by the COVID-19 pandemic has resulted in the net book value of our reporting unit exceeding market capitalization, however, the fair value of our reporting unit is not driven solely by the market price of our stock. As described above, fair value of our reporting unit is derived using a combination of an asset approach, an income approach and a market approach. These valuation techniques consider several other factors beyond our market capitalization, such as the estimated future cash flows of our reporting unit, the discount rate used to present value such cash flows and the market multiples of comparable companies. Changes to input assumptions used in the analysis could result in materially different evaluations of goodwill impairment. We qualitatively assess whether the carrying value of our reporting unit exceeds fair value. If this qualitative assessment determines that it is more likely than not that the carrying value exceeds fair value, further qualitative evaluation for impairment would be required to compare the fair value of ~~other-than-temporary~~the reporting unit to the carrying value and determine if impairment ~~(“OTTI”) on securities. Actual results could differ from these estimates.~~is required.

-8-

3.	Table of Contents PART I – FINANCIAL INFORMATION FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) 3. Earnings Per Share

Earnings per common share have been computed based on the following:

For the three months ended

March 31,

2020

2019


Net income (loss)
$
(1,390)

$
7,068

Divided by:

Weighted average common shares outstanding

28,853

28,621

Weighted average common stock equivalents

—

—

Total weighted average common shares outstanding and common stock equivalents

28,853

28,621

Basic earnings (loss) per common share
$
(0.05)

$
0.25

Diluted earnings (loss) per common share ⁽¹⁾
$
(0.05)

$
0.25

Dividend payout ratio

n/a

84.0
%
For the three months ended
March 31,
2019 2018
(Dollars in thousands, except per share data)
Net income, as reported $ 7,068 $ 11,412
Divided by:
Weighted average common shares outstanding 28,621 28,974
Weighted average common stock equivalents – 1
Total weighted average common shares outstanding and common stock equivalents 28,621 28,975

Basic earnings per common share $ 0.25 $ 0.39
Diluted earnings per common share ⁽¹⁾ $ 0.25 $ 0.39
Dividend payout ratio 84.0 % 51.3 %
(1) For the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, there were no0 common stock equivalents that were anti-dilutive.

~~- 6 -~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

4.	~~Securities~~

4. Securities

The Company did ~~not~~0t hold any trading securities at March 31, ~~2019~~2020 and December 31, ~~2018.~~2019. Securities available for sale are recorded at fair value. Securities held-to-maturity (“HTM”) are recorded at amortized cost.

Upon adoption of ASC Topic 326, “Credit Losses” on January 1, 2020, see Note 16 related to the adoption of Topic 326, we recorded a transition adjustment of $0.3 million in the allowance for credit losses for held-to-maturity debt securities.

Allowance for credit losses

The Company’s estimate of expected credit losses for held-to-maturity debt securities is based on historical information, current conditions and a reasonable and supportable forecast. The Company’s portfolio is made up of 3 securities, 2 of which are structured similar to a Commercial owner occupied loan, which is modeled for credit losses similar to Commercial business loans secured by real estate. The other security is issued and guaranteed by Fannie Mae, which is a government sponsored enterprise that has a credit rating and perceived credit risk comparable to the U.S. government and therefore the Company assumes a zero loss expectation. Accrued interest receivable on held-to-maturity securities totaled $0.1 million at March 31, 2020 and is excluded from estimates of credit losses.

-9-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the Company’s portfolio of securities held-to-maturity at March 31, ~~2019:~~2020:

Gross

Gross

Allowance

Amortized

Unrealized

Unrealized

for Credit


Cost

Fair Value

Gains

Losses

Losses

(In thousands)
Securities held-to-maturity:










Municipals

$
50,627

$
51,938

$
1,311

$
—

$
(402)
Total other securities

50,627

51,938

1,311

—

(402)

FNMA

7,929

8,953

1,024

—

—
Total mortgage-backed securities

7,929

8,953

1,024

—

—
Total

$
58,556

$
60,891

$
2,335

$
—

$
(402)
Amortized
Cost Fair Value Gross
Unrealized
Gains Gross
Unrealized
Losses
(In thousands)
Securities held-to-maturity:
Municipals $ 22,532 $ 22,276 $ – $ 256

Total other securities 22,532 22,276 – 256

FNMA 7,949 7,726 – 223

Total mortgage-backed securities 7,949 7,726 – 223
Total $ 30,481 $ 30,002 $ – $ 479

The following table summarizes the Company’s portfolio of securities held-to-maturity at December 31, ~~2018:~~2019:

Gross

Gross

Amortized

Unrealized

Unrealized


Cost

Fair Value

Gains

Losses

(In thousands)
Securities held-to-maturity:








Municipals

$
50,954

$
53,998

$
3,044

$
—
Total other securities

50,954

53,998

3,044

—

FNMA

7,934

8,114

180

—
Total mortgage-backed securities

7,934

8,114

180

—
Total

$
58,888

$
62,112

$
3,224

$
—
Amortized
Cost Fair Value Gross
Unrealized
Gains Gross
Unrealized
Losses
(In thousands)
Securities held-to-maturity:
Municipals $ 24,065 $ 22,508 $ – $ 1,557

Total other securities 24,065 22,508 – 1,557

FNMA 7,953 7,366 – 587

Total mortgage-backed securities 7,953 7,366 – 587
         Total $ 32,018 $ 29,874 $ – $ 2,144
~~- 7 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
~~(Unaudited)~~

The following table summarizes the Company’s portfolio of securities available for sale at March 31, ~~2019:~~2020:

Gross

Gross

Amortized

Unrealized

Unrealized


Cost

Fair Value

Gains

Losses

(In thousands)
Securities available for sale:

Corporate

$
130,000

$
111,852

$
—

$
18,148
Municipals

12,743

12,801

58

—
Mutual funds

12,476

12,476

—

—
Collateralized loan obligations

100,361

87,372

—

12,989
Other

1,355

1,355

—

—
Total other securities

256,935

225,856

58

31,137
REMIC and CMO

341,170

348,109

7,329

390
GNMA

602

659

57

—
FNMA

99,676

102,224

2,572

24
FHLMC

37,630

38,564

934

—
Total mortgage-backed securities

479,078

489,556

10,892

414
Total securities available for sale

$
736,013

$
715,412

$
10,950

$
31,551

-10-

Table of Contents

Amortized
Cost Fair Value Gross
Unrealized
Gains Gross
Unrealized
Losses
(In thousands)
Corporate $ 130,000 $ 121,382 $ – $ 8,618
Municipals 32,772 33,061 289 –
Mutual funds 11,802 11,802 – –
Collateralized loan obligations 100,311 99,305 10 1,016
Other 1,289 1,289 – –
Total other securities 276,174 266,839 299 9,634
REMIC and CMO 400,522 396,890 1,719 5,351
GNMA 766 810 44 –
FNMA 95,360 94,197 302 1,465
FHLMC 87,736 87,288 413 861
Total mortgage-backed securities 584,384 579,185 2,478 7,677
Total securities available for sale $ 860,558 $ 846,024 $ 2,777 $ 17,311

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the Company’s portfolio of securities available for sale at December 31, ~~2018:~~2019:

Gross

Gross

Amortized

Unrealized

Unrealized


Cost

Fair Value

Gains

Losses

(In thousands)
Securities available for sale:

Corporate

$
130,000

$
123,050

$
—

$
6,950
Municipals

12,797

12,916

119

—
Mutual funds

12,216

12,216

—

—
Collateralized loan obligations

100,349

99,137

—

1,212
Other

1,332

1,332

—

—
Total other securities

256,694

248,651

119

8,162
REMIC and CMO

348,236

348,989

2,193

1,440
GNMA

653

704

51

—
FNMA

104,235

104,882

1,073

426
FHLMC

68,476

69,274

871

73
Total mortgage-backed securities

521,600

523,849

4,188

1,939
Total securities available for sale

$
778,294

$
772,500

$
4,307

$
10,101
Amortized
Cost Fair Value Gross
Unrealized
Gains Gross
Unrealized
Losses
(In thousands)
Corporate $ 130,000 $ 118,535 $ – $ 11,465
Municipals 46,231 46,574 343 –
Mutual funds 11,586 11,586 – –
Collateralized loan obligations 88,396 86,751 – 1,645
Other 1,256 1,256 – –
Total other securities 277,469 264,702 343 13,110
REMIC and CMO 382,632 376,340 885 7,177
GNMA 785 826 41 –
FNMA 94,069 91,693 72 2,448
FHLMC 90,377 89,094 113 1,396
Total mortgage-backed securities 567,863 557,953 1,111 11,021
Total securities available for sale $ 845,332 $ 822,655 $ 1,454 $ 24,131

We did ~~not~~0t hold any private issue CMO’s that are collateralized by commercial real estate mortgages at March 31, ~~2019~~2020 and December 31, ~~2018.~~
2019.
The corporate securities held by the Company at March 31, ~~2019~~2020 and December 31, ~~2018~~2019 are issued by U.S. banking institutions.
~~- 8 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
~~(Unaudited)~~
The following tables detail the amortized cost and fair value of the Company’s securities classified as held-to-maturity and available for sale at March 31, ~~2019,~~2020, by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Amortized

Securities held-to-maturity:

Cost

Fair Value

(In thousands)
Due in one year or less

$
—

$
—
Due after ten years

50,627

51,938
Total other securities

50,627

51,938
Mortgage-backed securities

7,929

8,953
Total

$
58,556

$
60,891

Securities held-to-maturity: Amortized
Cost Fair Value
(In thousands)

Due in one year or less $ 1,180 $ 1,180

Amortized

Securities available for sale:

Cost

Fair Value

(In thousands)
Due after one year through five years

$
20,000

$
18,276
Due after five years through ten years

127,923

109,510
Due after ten years 21,352 21,096

96,536

85,594

Total other securities 22,532 22,276

244,459

213,380
Mutual funds

12,476

12,476
Mortgage-backed securities 7,949 7,726

479,078

489,556

Total $ 30,481 $ 30,002

$
736,013

$
715,412

Securities available for sale: Amortized
Cost Fair Value
(In thousands)

Due after one year through five years $ 10,000 $ 9,587
Due after five years through ten years 131,963 123,717
Due after ten years 122,409 121,733

Total other securities 264,372 255,037
Mutual funds 11,802 11,802
Mortgage-backed securities 584,384 579,185

Total $ 860,558 $ 846,024
~~- 9 -~~
-11-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

(Unaudited)

The following tables show the Company’s securities with gross unrealized losses and their fair value, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position, at the dates indicated:

At March 31, 2020

Total

Less than 12 months

12 months or more

Unrealized

Unrealized

Unrealized


Count

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(Dollars in thousands)
Available for sale securities














Corporate

16

$
111,853

$
18,148

$
9,620

$
380

$
102,233

$
17,768
Collateralized loan obligations

13

87,372

12,989

22,521

3,046

64,851

9,943
Total other securities

29

199,225

31,137

32,141

3,426

167,084

27,711

REMIC and CMO

12

67,416

390

64,541

371

2,875

19
FNMA

1

8,812

24

—

—

8,812

24

Total mortgage-backed securities

13

76,228

414

64,541

371

11,687

43
Total

42

$
275,453

$
31,551

$
96,682

$
3,797

$
178,771

$
27,754

At March 31, 2019
Total Less than 12 months 12 months or more
Count Fair Value Unrealized
Losses Fair Value Unrealized
Losses Fair Value Unrealized
Losses
(Dollars in thousands)

Held-to-maturity securities
Municipals 1 $ 21,096 $ 256 $ – $ – $ 21,096 $ 256
Total other securities 1 21,096 256 – – 21,096 256

FNMA 1 7,726 223 – – 7,726 223
Total mortgage-backed securities 1 7,726 223 – – 7,726 223
Total 2 $ 28,822 $ 479 $ – $ – $ 28,822 $ 479

At December 31, 2019

Total

Less than 12 months

12 months or more

Unrealized

Unrealized

Unrealized


Count

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(Dollars in thousands)

Available for sale securities














Corporate 16 $ 121,382 $ 8,618 $ 19,419 $ 581 $ 101,963 $ 8,037

16

$
123,050

$
6,950

$
—

$
—

$
123,050

$
6,950
CLO 11 85,896 1,016 85,896 1,016 – –
Collateralized loan obligations

13

99,137

1,212

25,451

108

73,686

1,104
Total other securities 27 207,278 9,634 105,315 1,597 101,963 8,037

29

222,187

8,162

25,451

108

196,736

8,054

REMIC and CMO 36 215,761 5,351 20,259 79 195,502 5,272

23

120,989

1,440

102,384

1,117

18,605

323
GNMA

1

49

—

49

—

—

—
FNMA 12 77,992 1,465 – – 77,992 1,465

8

67,618

426

19,073

138

48,545

288
FHLMC 3 50,602 861 9,657 97 40,945 764

1

30,200

73

—

—

30,200

73
Total mortgage-backed securities 51 344,355 7,677 29,916 176 314,439 7,501

33

218,856

1,939

121,506

1,255

97,350

684
Total 78 $ 551,633 $ 17,311 $ 135,231 $ 1,773 $ 416,402 $ 15,538

Total securities available for sale

62

$
441,043

$
10,101

$
146,957

$
1,363

$
294,086

$
8,738
At December 31, 2018
Total Less than 12 months 12 months or more
Count Fair Value Unrealized
Losses Fair Value Unrealized
Losses Fair Value Unrealized
Losses
(Dollars in thousands)
Held-to-maturity securities

Municipals 1 $ 19,940 $ 1,557 $ – $ – $ 19,940 $ 1,557
Total other securities 1 19,940 1,557 – – 19,940 1,557

FNMA 1 7,366 587 – – 7,366 587
Total mortgage-backed  securities 1 7,366 587 – – 7,366 587

Total securities held-to-maturity 2 $ 27,306 $ 2,144 $ – $ – $ 27,306 $ 2,144

Available for sale securities
Corporate 16 $ 118,535 $ 11,465 $ 19,113 $ 888 $ 99,422 $ 10,577
Municipals 3 4,220 – 4,220 – – –
CLO 11 86,752 1,645 86,752 1,645 – –
Total other securities 30 209,507 13,110 110,085 2,533 99,422 10,577

REMIC and CMO 39 243,756 7,177 17,308 200 226,448 6,977
GNMA 1 51 – 51 – – –
FNMA 14 85,046 2,448 6,372 17 78,674 2,431
FHLMC 3 51,288 1,396 10,116 95 41,172 1,301
Total mortgage-backed  securities 57 380,141 11,021 33,847 312 346,294 10,709
Total securities available for sale 87 $ 589,648 $ 24,131 $ 143,932 $ 2,845 $ 445,716 $ 21,286
~~- 10 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
~~(Unaudited)~~
OTTI losses on impaired securities must be fully recognized in earnings if an investor has the intent to sell the debt security or if it is more likely than not that the investor will be required to sell the debt security before recovery of its amortized cost. However, even if an investor does not expect to sell a debt security in an unrealized loss position, the investor must evaluate the expected cash flows to be received and determine if a credit loss has occurred. In the event that a credit loss has occurred, only the amount of impairment associated with the credit loss is recognized in earnings in the Consolidated Statements of Income. Amounts relating to factors other than credit losses are recorded in accumulated other comprehensive loss (“AOCL”) within Stockholders’ Equity. Unrealized losses on available for sale securities, that are deemed to be temporary, are recorded in AOCL, net of tax.

The Company reviewed each ~~investment~~available for sale debt securities that had an unrealized loss at March 31, ~~2019 and December 31, 2018. The unrealized~~2020 to evaluate whether the decline in fair value resulted from credit losses in held-to-maturity municipal securities at March 31, 2019 and December 31, 2018 were caused by illiquidity in the market and movements in interest rates. The unrealized losses in held-to-maturity FNMA securities at March 31, 2019 and December 31, 2018 were caused by movements in interest rates. The unrealized losses in securities available for sale at March 31, 2019 and December 31, 2018 were caused by movements in interest rates.
It is not anticipated that these securities would be settled at a price that is less than the amortized cost of the Company’s investment. Each of these securities is performing according to its terms and, in the opinion of management, will continue to perform according to its terms.or other factors. The Company does not have the intent to sell these securities and it is more likely than not the Company will not be required to sell the securities before recovery of the securities’ amortized cost basis. This conclusion is based upon considering the Company’s cash and working capital requirements and contractual and regulatory obligations, none of which the Company believes would cause the sale of the securities. ~~Therefore,~~All of these securities are rated investment grade or above and have a long history of no credit losses. It is not anticipated that these securities would be settled at a price that is less than the amortized cost of the Company’s investment.
In determining the risk of loss for available for sale securities, the Company ~~did~~considered that Mortgage-Backed Securities are either fully guaranteed or issued by a government sponsored enterprise, which has a credit rating and perceived credit risk comparable to U.S. government, the issuer of Corporate securities are global systematically important banks, and the tranche of the purchased CLO’s. Each of these securities is performing according to its terms and, in the opinion of management, will continue to perform according to its terms. Based on this review management believes that the unrealized losses have resulted from other factors not ~~consider these investments to be other-than-temporarily impaired~~deemed credit-related and 0 allowance for credit loss was recorded.
Accrued interest receivable on available-for-sale debt securities totaled $2.4 million at March 31, ~~2019~~2020 and ~~December~~is excluded from the estimate of credit losses.

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity for the three months ended March 31, ~~2018.~~2020:

Mortgage-backed securities

Other securities

(In thousands)

Beginning balance

$
—

$
—

CECL adoption

—

340

Provision

—

62

Allowance for credit losses - securities

$
—

$
402

Realized gains and losses on the sales of securities are determined using the specific identification method. The Company sold $64.6 million in mortgage-backed securities during the three months ended March 31, 2020. The Company did ~~not~~0t sell any securities during the three months ended March 31, ~~2019~~2019.
The following table represents the gross gains and ~~2018.~~gross losses realized from the sale of securities available for sale for the periods indicated:

For the three months ended

March 31,


2020

2019

Gross gains from the sale of securities

$
713

$
—
Gross losses from the sale of securities

(750)

—

Net losses from the sale of securities

$
(37)

$
—

5.

5.     Loans
Loans are reported at their outstanding principal balance net of any unearned income, charge-offs, deferred loan fees and costs on originated loans and unamortized premiums or discounts on purchased loans. Loan fees and certain loan origination costs are deferred. Net loan origination costs and premiums or discounts on loans purchased are amortized into interest income over the contractual life of the loans using the level-yield method. Accrued interest receivable totaled $23.0 million at March 31, 2020 and was reported in “Interest and dividends receivable” on the Consolidated Statements of Financial Condition. Prepayment penalties received on loans which pay in full prior to their scheduled maturity are included in interest income in the period they are collected.
Interest on loans is recognized on the accrual basis. The accrual of income on loans is generally discontinued when certain factors, such as contractual delinquency of 90 days or more, indicate reasonable doubt as to the timely collectability of such income. Uncollected interest previously recognized on non-accrual loans is reversed from interest income at the time the loan is placed on non-accrual status. A non-accrual loan can be returned to accrual status when contractual delinquency returns to less than 90 days delinquent. Payments received on non-accrual loans that do not bring the loan to less than 90 days delinquent are recorded on a cash basis. Payments can also be applied first as a reduction of principal until all principal is recovered and then subsequently to interest, if in management’s opinion, it is evident that recovery of all principal due is likely to occur.
The Company recognizes a loan as non-performing when the borrower has demonstrated the inability to bring the loan current, or due to other circumstances which, in management’s opinion, indicate the borrower will be unable to bring the loan current within a reasonable time. All loans classified as non-performing, which includes all loans past due 90 days or
-13-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

more, are classified as non-accrual unless the loan is well secured and there is, in our opinion, compelling evidence the borrower will bring the loan current in the immediate future. Prior to a real estate secured loan becoming 90 days delinquent, an updated appraisal is ordered and/or an internal evaluation is prepared.

Allowance for credit losses

AThe Allowance for credit losses (“ACL”) is an estimate that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial assets. Loans are charged off against that allowance when management believes that a loan balance is ~~considered impaired when,~~uncollectable based on quarterly analysis of credit risk.

As of January 1, 2020, the Company adopted Topic 326, see Note 16 related to the adoption of Topic 326.

The amount of the ACL is based upon a loss rate model that considers multiple factors which reflects management’s assessment of the credit quality of the loan portfolio. Management estimates the allowance balance using relevant information, from internal and external sources, relating to past events, current ~~information,~~conditions, and reasonable and supportable forecasts. The factors are both quantitative and qualitative in nature including, but not limited to, historical losses, economic conditions, trends in delinquencies, value and adequacy of underlying collateral, volume and portfolio mix, and internal loan processes.

The quantitative allowance is calculated using a number of input and assumptions. The process and guidelines were developed using, among other factors, the guidance from federal banking regulatory agencies and GAAP. The results of this process, support management’s assessment as to the adequacy of the ACL at each balance sheet date.

The process for calculating the allowance for credit losses begins with our historical losses by portfolio segment. The losses are then incorporated into reasonable and supportable forecast to develop the quantitative component of the allowance for credit losses.

The Company specifies both the reasonable and supportable forecast and reversion periods in three economic conditions (expansion, transition, contraction) which could range from 6 months to 24 months. When calculating the ACL estimate for March 31, 2020, Management acknowledged the deteriorating economic conditions as a result of the COVID-19 pandemic were not fully captured in the forecast within the model platform. As such, when determining the reasonable and supportable forecast, Management adjusted the period to reflect a supportable forecast of six months, to align with a previously established framework for contraction periods. Similarly, a reversion period of six quarters was adjusted to reflect the shorter end of a contraction period.

The Bank has established an Asset Classification Committee which carefully evaluates loans which are past due 90 days and/or are classified. The Asset Classification Committee thoroughly assesses the condition and circumstances surrounding each loan meeting the criteria. The Bank also has a Delinquency Committee that evaluates loans meeting specific criteria. The Bank’s loan policy requires loans to be placed into non-accrual status once the loan becomes 90 days delinquent unless there is, compelling evidence the borrower will bring the loan current in the immediate future.

For the quantitative measurement, the Company’s portfolio consists of mortgage loans secured by real estate (both commercial and retail) and non-mortgage loans, which are primarily commercial business term loans and line of credit. Based on the Company’s evaluation of the loan portfolio, below are the pools that were established as a baseline level of segmentation with their primary risk factor. The Company confirms this data remains relevant in absence of changes to the composition of the portfolio.

The mortgage portfolio is a substantial component of Company’s portfolio and it is a focus of the Company’s lending strategy, primarily focusing on multi-family and commercial real estate. While the mortgage portfolio consists of real-estate secured loans, the source of repayment and types of properties securing these loans varies and thus the Company ~~believes it is probable~~first considered these differences as follows:

-14-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

One-to-four family residential property – These loans are secured by residential properties for which the primary source of repayment is the income generated by the residential borrower. Delinquency status is considered a risk factor in this pool.

One-to-four family mixed use – These loans are secured by residential properties for which the primary source of repayment is the income generated by the property. Unlike the one-to-four residential credits, properties securing mixed use loans include a commercial space component. Delinquency status is considered a risk factor in this pool.

Multi-family residential – These loans are secured by multi-unit residential buildings for which the primary source of repayment is the income generated by the property. Properties securing multifamily loans have five or more residential units and thus a greater number of cash flow streams compared to one-to-four mixed use loans. Delinquency status and risk rating are considered risk factors in this pool.

Commercial real estate (CRE) – These loans are secured by properties for commercial use for which the primary source of repayment is the income generated by the property. Delinquency status, risk rating and collateral type are considered risk factors in this pool.

Construction – These loans are provided to fund construction projects for both residential and commercial properties. These loans are inherently different from all others as they represent “work in progress” and expose the Company to risk from non-completion and less recovery value should the sponsor of an unfinished property default. Delinquency status and risk rating are considered risk factors in this pool.

Relative to the non-mortgage portfolio, the Company considered the following categories as a baseline for evaluation:

Commercial Business – These loans are not typically secured by real estate. The primary source of repayment is cash flows from operations of the borrower’s business. Within this category are Small Business Administration (“SBA”) credits and Equipment Finance credits. Delinquency status, risk rating and industry are considered a risk factors in this pool.

Commercial Business secured by real estate – While these loans are secured by properties used by the borrower for commercial use, the primary source of repayment is the income generated by the borrower’s business use of the property and thus these are considered Commercial Business loans. Delinquency status, risk rating and industry are considered risk factors in this pool.

Taxi Medallions These loans consist primarily of loans made to New York taxi medallion owners and are secured by liens on the taxi medallions. No new taxi medallions have been originated since 2014, the remaining portfolio is running off and all credits are individually evaluated for expected credit losses. As a result, a segmentation analysis is not relevant for this portfolio.

Lastly, the Company identified that ~~it will be unable~~the remainder of the portfolio includes Overdraft lines of credit.

Overdrafts – These are unsecured consumer lines of credits and are an immaterial component of the Company’s portfolio.

For the qualitative measurement, the Company aggregated the portfolio segments according to ~~collect all amounts due, both principal~~3 business units: Business Banking, Residential and ~~interest, in~~Real Estate. In accordance with the ~~original terms of~~interagency statement and SEC guidance, Management evaluates nine qualitative risk factors to determine if the ~~loan. Impaired loans are measured based on~~risk is captured elsewhere in the ~~present~~ACL process. If not captured elsewhere, the Company has identified specific risk factors to evaluate and incorporate into its Qualitative Framework. Some risk factors include time to maturity, origination loan-to-value, loan type composition, the value of underlying collateral, changes in policies and procedures for lending strategies and underwriting standards, collection and recovery practices, internal credit review, changes in personnel, divergence between the ~~expected future cash flows discounted at~~levels of NYC and national unemployment, divergence between the ~~loan’s effective interest rate or at the loan’s observable market price or, as a practical expedient, the fair value~~NYC GDP and national GDP, industry concentrations and riskiness and large borrower concentrations.

-15-

Table of ~~the collateral if the loan is collateral dependent. All non-accrual loans are considered impaired.~~Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The Company ~~maintains~~recorded an ~~allowance~~ACL for ~~loan losses at an~~loans in the amount ~~which, in management’s judgment, is adequate~~of $7.1 million for the quarter ending March 31, 2020, primarily due to ~~absorb probable estimated losses inherent~~the deteriorating economic conditions from COVID-19 and growth in the loan portfolio. ~~Management’s judgment in determining the adequacy of the allowance is based on evaluations of the collectability of loans.~~ This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revisions as more information becomes available. An unallocated component may at times be maintained to cover uncertainties that could affect management's estimate of probable losses. When necessary an unallocated component of the allowance will ~~reflect the margin of imprecision inherent~~result in the ~~underlying assumptions used in~~ACL for loans totaling $28.1 million at March 31, 2020, representing 0.47% of gross loans and 167.73% of non-performing loans.

In response to COVID-19, the ~~methodologies for estimating specific and general losses in the portfolio. The allowance~~Company is ~~established through charges to earnings~~actively assisting customers by providing short-term modifications in the form of deferrals of interest, principal and/or escrow for terms ranging from one to six months. Through April 17th, modifications for loans with an aggregate outstanding loan balance of approximately $839 million of which $673 million is in our real estate portfolio and $166 million is in our business banking portfolio have been approved. Given the COVID-19 pandemic and current economic environment, we continue to see interest from our customers to modify their loans. The Company actively participated in the SBA Paycheck Protection Program, gaining approval to fund up to $64 million of these loans and expects to participate in the Main Street Lending Program in order to assist customers. Pursuant to the CARES Act, loan modifications made between March 1, 2020 and the earlier of i) December 30, 2020 or ii) 60 days after the President declares a ~~provision for loan losses based on management’s evaluation~~termination of the ~~risk inherent in~~COVID-19 national emergency are not classified as TDRs if the ~~various components~~related loans were not more than 30 days past due as of the loan portfolio and other factors, including historical loan loss experience (which is updated quarterly), current economic conditions, delinquency and non-accrual trends, classified loan levels, risk in the portfolio and volumes and trends in loan types, recent trends in charge-offs, changes in underwriting standards, experience, ability and depth of the Company’s lenders, collection policies and experience, internal loan review function and other external factors. When a loan or a portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance, and subsequent recoveries, if any, are credited to the allowance.

~~- 11 -~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

The determination of the amount of the allowance for loan losses includes estimates that are susceptible to significant changes due to changes in appraisal values of collateral, national and local economic conditions and other factors. We review our loan portfolio by separate categories with similar risk and collateral characteristics. Impaired loans are segregated and reviewed separately.

December 31, 2019. The Company ~~reviews each impaired loan on an individual basis to determine if either a charge-off or a valuation allowance needs to be allocated to~~has elected that loans temporarily modified for borrowers directly impacted by COVID-19 are not considered TDR, assuming the loan. The Company does not charge-off or allocate a valuation allowance to loans for which management has concluded the current value of the underlying collateral will allow for recovery of the loan balance through the sale of the loan or by foreclosure and sale of the property.

~~The Company considers fair value of collateral dependent loans to be 85% of the appraised or internally estimated value of the property. The 85%~~above criteria is ~~based on the actual net proceeds the Bank has received from the sale of other real estate owned (“OREO”) as a percentage of OREO’s appraised value.~~ For collateral dependent taxi medallion loans, the Company considers fair value to be the value of the underlying medallion based upon the most recently reported arm’s length sales transaction. When there is no recent sale activity, the fair value is calculated using capitalization rates. For both collateral dependent mortgage loans and taxi medallion loans, the amount by which the loan’s book value exceeds fair value is charged-off.

The Company evaluates the underlying collateral through a third party appraisal, or when a third party appraisal is not available, the Company will use an internal evaluation. The internal evaluations are prepared using an income approach or a sales approach. The income approach is used for income producing properties and uses current revenues less operating expenses to determine the net cash flow of the property. Once the net cash flow is determined, the value of the property is calculated using an appropriate capitalization rate for the property. The sales approach uses comparable sales prices in the market. When an internal evaluation is used, we place greater reliance on the income approach to value the collateral.

met.

The Company may restructure ~~a loan~~loans that are not directly impacted by COVID-19 to enable a borrower experiencing financial difficulties to continue making payments when it is deemed to be in the Company’s best long-term interest. This restructure may include reducing the interest rate or amount of the monthly payment for a specified period of time, after which the interest rate and repayment terms revert to the original terms of the loan. We classify these loans as ~~Troubled Debt Restructured (“TDR”).~~

TDR.

The Company believes that restructuring these loans in this manner will allow certain borrowers to become and remain current on their loans. All loans classified as TDR are ~~considered impaired,~~individually evaluated, however TDR loans which have been current for six consecutive months at the time they are restructured as TDR remain on accrual status and are not included as part of non-performing loans. Loans which were delinquent at the time they are restructured as a TDR are placed on non-accrual status and reported as non-accrual performing TDR loans until they have made timely payments for six consecutive months. These restructurings have not included a reduction of principal balance.

The allocation of a portion of the allowance for loan losses for a performing TDR loan is based upon the present value of the future expected cash flows discounted at the loan’s original effective rate, or for a non-performing TDR loan which is collateral dependent, the fair value of the collateral. At March 31, ~~2019,~~2020, there were no0 commitments to lend additional funds to borrowers whose loans were modified to a TDR. The modification of loans to a TDR did not have a significant effect on our operating results, nor did it require a significant allocation of the allowance for loan losses.

There were no0 TDR loan modifications ~~as TDR~~ during the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019.

~~- 12 -~~

-16-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

(Unaudited)

The following table shows our recorded investment for loans classified as TDR that are performing according to their restructured terms at the periods indicated:

March 31, 2020

December 31, 2019

Number

Recorded

Number

Recorded
(Dollars in thousands)

of contracts

investment

of contracts

investment
Multi-family residential

7

$
1,868

7

$
1,873
One-to-four family - mixed-use property

4

1,483

4

1,481
One-to-four family - residential

3

525

3

531
Taxi medallion ⁽¹⁾

6

1,520

7

1,668
Commercial business and other

3

950

3

941
Total performing troubled debt restructured

23

$
6,346

24

$
6,494
March 31, 2019 December 31, 2018
(Dollars in thousands) Number
of contracts Recorded
investment Number
of contracts Recorded
investment

Multi-family residential 7 $ 1,906 7 $ 1,916
One-to-four family - mixed-use property 5 1,674 5 1,692
One-to-four family - residential 3 547 3 552
Taxi medallion ⁽¹⁾ 10 2,518 15 3,926
Commercial business and other – – 1 279
Total performing troubled debt restructured 25 $ 6,645 31 $ 8,365
⁽¹⁾ (1) Taxi medallion loans in the table above continue to pay as agreed, however the company records interest received on a cash basis.
During the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, there were no0 defaults of TDR loans within 12 months of their modification date.
NaN loan was transferred to non-performing status during the three months ended March 31, 2020. The following table shows our recorded investment for loans classified as TDR that are not performing according to their restructured terms at the periods indicated:

March 31, 2020

December 31, 2019

Number

Recorded

Number

Recorded
(Dollars in thousands)

of contracts

investment

of contracts

investment
Taxi medallion

5

$
1,195

4

$
1,065
Commercial business and other

1

279

1

279
Total troubled debt restructurings that subsequently defaulted

6

$
1,474

5

$
1,344

March 31, 2019 December 31, 2018
(Dollars in thousands) Number
of contracts Recorded
investment Number
of contracts Recorded
investment

Multi-family residential 1 $ 383 1 $ 388
Taxi medallion 3 768 – –
Commercial business and other 2 852 1 1,397
Total troubled debt restructurings that subsequently defaulted 6 $ 2,003 2 $ 1,785
Four TDR loans were transferred to non-performing status during the three ended March 31, 2019. During the three months ended March 31, 2018, one taxi medallion TDR was foreclosed upon and transferred to non-performing status. The three taxi medallion loans transferred to non-performing status during the three months ended March 31, 2019, were transferred due to the loans being over 90 days past their contractual maturity date, however these loans continue to make payments.
~~- 13 -~~
-17-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table shows our non-accrual loans at amortized cost with no related allowance and interest income recognized for loans ninety days or more past due and still accruing for period shown below:

At or three months ended March 31, 2020

Non-Accrual

Loans ninety days

Total Non-Accrual

with no related

Interest Income

or more past due
(In thousands)

Amortized Cost

Allowance

Recognized

and still accruing:
Multi-family residential

$
2,763

$
2,763

$
—

$
—
Commercial real estate

8

8

—

—
One-to-four family - mixed-use property

627

346

—

—
One-to-four family - residential

4,588

4,588

—

—
Construction loans

—

—

—

—
Small Business Administration

1,544

1,544

—

—
Taxi Medallion ⁽¹⁾

1,763

1,763

9

—
Commercial business and other ⁽¹⁾

5,006

5,001

—

—
Total

$
16,299

$
16,013

$
9

$
—

~~PART I – FINANCIAL INFORMATION~~
(1)
~~FLUSHING FINANCIAL CORPORATION~~Not included in the above analysis are non-accrual performing TDR taxi medallion loans totaling $1.5 million at March 31, 2020 and ~~SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
~~(Unaudited)~~non-accrual performing TDR commercial business loans totaling $1.0 million at March 31, 2020.
The following table shows our non-performing loans at the ~~periods~~period indicated:

December 31,
(In thousands)

2019
Loans ninety days or more past due and still accruing:


Multi-family residential

$
445
Total

445
Non-accrual mortgage loans:


Multi-family residential

2,296
Commercial real estate

367
One-to-four family - mixed-use property

274
One-to-four family - residential

5,139
Total

8,076
Non-accrual non-mortgage loans:


Small Business Administration

1,151
Taxi medallion⁽¹⁾

1,641
Commercial business and other ⁽¹⁾

1,945
Total

4,737
Total non-accrual loans

12,813
Total non-performing loans

$
13,258
(1) Not included in the above analysis are non-accrual performing TDR taxi medallion loans totaling $1.7 million at December 31, 2019, respectively and non-accrual performing TDR commercial business loans totaling $0.9 million at December 31, 2019.

-18-

Table of Contents

(In thousands) March 31,
2019 December 31,
2018

Non-accrual mortgage loans:
Multi-family residential $ 2,009 $ 2,410
Commercial real estate 1,050 1,379
One-to-four family - mixed-use property 1,305 928
One-to-four family - residential 5,708 6,144
Construction 950 –
Total 11,022 10,861

Non-accrual non-mortgage loans:
Small Business Administration 1,227 1,267
Taxi medallion 1,372 613
Commercial business and other 2,114 3,512
Total 4,713 5,392

Total non-accrual loans 15,735 16,253

Total non-performing loans $ 15,735 $ 16,253

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following is a summary of interest foregone on non-accrual loans and loans classified as TDR for the periods indicated:

For the three months ended

March 31,


2020

2019

Interest income that would have been recognized had the loans performed in accordance with their original terms

$
375

$
394
Less: Interest income included in the results of operations

89

118
Total foregone interest

$
286

$
276

For the three months ended
March 31,
2019 2018
(In thousands)
Interest income that would have been recognized had the loans performed in accordance with their original terms $ 394 $ 406
Less:  Interest income included in the results of operations 118 158
Total foregone interest $ 276 $ 248
The following tables shows the aging of the amortized cost basis in past-due loans at the period indicated by class of loans:

March 31, 2020

Greater

30 - 59 Days

60 - 89 Days

than

Total Past

(In thousands)

Past Due

Past Due

90 Days

Due

Current

Total Loans
Multi-family residential

$
1,919

$
—

$
2,763

$
4,682

$
2,274,090

$
2,278,772
Commercial real estate

5,206

—

8

5,214

1,661,599

1,666,813
One-to-four family - mixed-use property

3,283

—

627

3,910

592,435

596,345
One-to-four family - residential

1,322

381

4,588

6,291

193,593

199,884
Construction loans

—

—

—

—

66,524

66,524
Small Business Administration

—

—

1,544

1,544

12,961

14,505
Taxi medallion

—

—

1,195

1,195

2,087

3,282
Commercial business and other

645

153

4,968

5,766

1,100,197

1,105,963
Total

$
12,375

$
534

$
15,693

$
28,602

$
5,903,486

$
5,932,088

~~- 14 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
~~(Unaudited)~~

The following tables show by delinquency an analysis of our recorded investment in loans at the periods ~~indicated:~~indicated by class of loans:

December 31, 2019

Greater

30 - 59 Days

60 - 89 Days

than

Total Past

(In thousands)

Past Due

Past Due

90 Days

Due

Current

Total Loans
Multi-family residential

$
4,042

$
1,563

$
2,741

$
8,346

$
2,230,245

$
2,238,591
Commercial real estate

—

4,941

367

5,308

1,576,700

1,582,008
One-to-four family - mixed-use property

1,117

496

274

1,887

590,584

592,471
One-to-four family - residential

720

1,022

5,139

6,881

181,335

188,216
Co-operative apartments

—

—

—

—

8,663

8,663
Construction loans

—

—

—

—

67,754

67,754
Small Business Administration

—

—

1,151

1,151

13,294

14,445
Taxi medallion

—

—

1,065

1,065

2,244

3,309
Commercial business and other

2,340

5

1,945

4,290

1,057,188

1,061,478
Total

$
8,219

$
8,027

$
12,682

$
28,928

$
5,728,007

$
5,756,935

March 31, 2019
(In thousands) 30 - 59 Days
Past Due 60 - 89 Days
Past Due Greater
than
90 Days Total Past
Due Current Total Loans

Multi-family residential $ 683 $ – $ 2,009 $ 2,692 $ 2,253,755 $ 2,256,447
Commercial real estate 786 1,794 1,050 3,630 1,525,371 1,529,001
One-to-four family - mixed-use property 1,212 – 1,025 2,237 579,812 582,049
One-to-four family - residential 1,532 155 5,708 7,395 181,220 188,615
Co-operative apartments – – – – 7,903 7,903
Construction loans – – 950 950 53,983 54,933
Small Business Administration – – 1,227 1,227 13,961 15,188
Taxi medallion – – 768 768 3,123 3,891
Commercial business and other 508 1,299 2,114 3,921 931,376 935,297
Total $ 4,721 $ 3,248 $ 14,851 $ 22,820 $ 5,550,504 $ 5,573,324

December 31, 2018
(In thousands) 30 - 59 Days
Past Due 60 - 89 Days
Past Due Greater
than
90 Days Total Past
Due Current Total Loans

Multi-family residential $ 1,887 $ 339 $ 2,410 $ 4,636 $ 2,264,412 $ 2,269,048
Commercial real estate 379 – 1,379 1,758 1,540,789 1,542,547
One-to-four family - mixed-use property 1,003 322 928 �� 2,253 575,488 577,741
One-to-four family - residential 1,564 – 6,144 7,708 182,642 190,350
Co-operative apartments – – – – 8,498 8,498
Construction loans – 730 – 730 49,870 50,600
Small Business Administration 774 68 1,267 2,109 13,101 15,210
Taxi medallion – – – – 4,539 4,539
Commercial business and other 1,306 281 2,216 3,803 873,960 877,763
Total $ 6,913 $ 1,740 $ 14,344 $ 22,997 $ 5,513,299 $ 5,536,296
~~- 15 -~~
-19-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

(Unaudited)

The following tables show the activity in the allowance for loan losses for the three month periods indicated:

March 31, 2020






One-to-four












family -

One-to-four

Commercial

Multi-family

Commercial

mixed-use

family -

Construction

Small Business

Taxi

business and

(In thousands)

residential

real estate

property

residential

loans

Administration

medallion

other

Total
Allowance for credit losses:


















Beginning balance

$
5,391

$
4,429

$
1,817

$
756

$
441

$
363

$
—

$
8,554

$
21,751
Impact of CECL Adoption

(651)

1,170

(55)

(159)

(279)

1,180

—

(827)

379
Charge-offs

—

—

—

—

—

—

—

(1,259)

(1,259)
Recoveries

7

—

78

4

—

7

—

14

110
Provision (benefit)

1,148

1,192

330

291

23

(22)

—

4,155

7,117
Ending balance

$
5,895

$
6,791

$
2,170

$
892

$
185

$
1,528

$
—

$
10,637

$
28,098

March 31, 2019






One-to-four












family -

One-to-four

Commercial

Multi-family

Commercial

mixed-use

family -

Construction

Small Business

Taxi

business and

(In thousands)

residential

real estate

property

residential

loans

Administration

medallion

other

Total
Allowance for credit losses:







��











Beginning balance

$
5,676

$
4,315

$
1,867

$
749

$
329

$
418

$
—

$
7,591

$
20,945
Charge-offs

—

—

(1)

—

—

—

—

(1,137)

(1,138)
Recoveries

13

—

86

4

—

4

84

45

236
Provision (benefit)

(196)

(37)

(161)

(22)

22

(13)

(84)

1,463

972
Ending balance

$
5,493

$
4,278

$
1,791

$
731

$
351

$
409

$
—

$
7,962

$
21,015

March 31, 2019
(In thousands) Multi-family
residential Commercial
real estate One-to-four
family -
mixed-use
property One-to-four
family -
residential Construction
loans Small Business
Administration Taxi
medallion Commercial
business and
other Total

Allowance for credit losses:
Beginning balance $ 5,676 $ 4,315 $ 1,867 $ 749 $ 329 $ 418 $ – $ 7,591 $ 20,945
Charge-off's – – (1 ) – – – – (1,137 ) (1,138 )
Recoveries 13 – 86 4 – 4 84 45 236
Provision (Benefit) (196 ) (37 ) (161 ) (22 ) 22 (13 ) (84 ) 1,463 972
Ending balance $ 5,493 $ 4,278 $ 1,791 $ 731 $ 351 $ 409 $ – $ 7,962 $ 21,015

March 31, 2018
(In thousands) Multi-family
residential Commercial
real estate One-to-four
family -
mixed-use
property One-to-four
family -
residential Construction
loans Small Business
Administration Taxi
medallion Commercial
business and
other Total

Allowance for credit losses:
Beginning balance $ 5,823 $ 4,643 $ 2,545 $ 1,082 $ 68 $ 669 $ – $ 5,521 $ 20,351
Charge-off's (53 ) – – (1 ) – (25 ) – (6 ) (85 )
Recoveries 2 – – 108 – 6 – 7 123
Provision (Benefit) (22 ) (41 ) (75 ) (148 ) 123 25 – 291 153
Ending balance $ 5,750 $ 4,602 $ 2,470 $ 1,041 $ 191 $ 675 $ – $ 5,813 $ 20,542
-See also Note 16 -
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
~~(Unaudited)~~
~~The following tables show the manner in which loans were evaluated for impairment at the periods indicated:~~
March 31, 2019
(In thousands) Multi-family
residential Commercial
real estate One-to-four
family - mixed-
use property One-to-four
family-
residential Co-operative
apartments Construction
loans Small Business
Administration Taxi
medallion Commercial
business and
other Total
Financing Receivables:
Ending Balance $ 2,256,447 $ 1,529,001 $ 582,049 $ 188,615 $ 7,903 $ 54,933 $ 15,188 $ 3,891 $ 935,297 $ 5,573,324
Ending balance: individually evaluated for impairment $ 4,104 $ 1,097 $ 2,987 $ 6,463 $ – $ 950 $ 1,227 $ 3,891 $ 2,114 $ 22,833
Ending balance: collectively evaluated for impairment $ 2,252,343 $ 1,527,904 $ 579,062 $ 182,152 $ 7,903 $ 53,983 $ 13,961 $ – $ 933,183 $ 5,550,491
Allowance for credit losses:
Ending balance: individually evaluated for impairment $ 98 $ – $ 54 $ 50 $ – $ – $ – $ – $ 178 $ 380
Ending balance: collectively evaluated for impairment $ 5,395 $ 4,278 $ 1,737 $ 681 $ – $ 351 $ 409 $ – $ 7,784 $ 20,635
December 31, 2018
(In thousands) Multi-family
residential Commercial
real estate One-to-four
family - mixed-
use property One-to-four
family-
residential Co-operative
apartments Construction
loans Small Business
Administration Taxi
medallion Commercial
business and
other Total
Financing Receivables:
Ending Balance $ 2,269,048 $ 1,542,547 $ 577,741 $ 190,350 $ 8,498 $ 50,600 $ 15,210 $ 4,539 $ 877,763 $ 5,536,296
Ending balance: individually evaluated for impairment $ 4,500 $ 1,435 $ 3,098 $ 6,889 $ – $ – $ 1,267 $ 4,539 $ 3,791 $ 25,519
Ending balance: collectively evaluated for impairment $ 2,264,548 $ 1,541,112 $ 574,643 $ 183,461 $ 8,498 $ 50,600 $ 13,943 $ – $ 873,972 $ 5,510,777
Allowance for credit losses:
Ending balance: individually evaluated for impairment $ 100 $ – $ 143 $ 51 $ – $ – $ – $ – $ 866 $ 1,160
Ending balance: collectively evaluated for impairment $ 5,576 $ 4,315 $ 1,724 $ 698 $ – $ 329 $ 418 $ – $ 6,725 $ 19,785
~~- 17 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
~~(Unaudited)~~
~~The following table shows our recorded investment, unpaid principal balance and allocated allowance for loan losses for impaired loans at the periods indicated:~~
March 31, 2019 December 31, 2018
Recorded
Investment Unpaid
Principal
Balance Related
Allowance Recorded
Investment Unpaid
Principal
Balance Related
Allowance

(In thousands)
With no related allowance recorded:
Mortgage loans:
Multi-family residential $ 2,835 $ 3,179 $ – $ 3,225 $ 3,568 $ –
Commercial real estate 1,097 1,097 – 1,435 1,435 –
One-to-four family mixed-use property 1,983 2,123 – 1,913 2,113 –
One-to-four family residential 6,068 6,221 – 6,490 6,643 –
Construction 950 950 – – – –
Non-mortgage loans:
Small Business Administration 1,227 1,499 – 1,267 1,609 –
Taxi medallion 3,891 11,049 – 4,539 12,788 –
Commercial business and other 1,223 2,352 – – – –

Total loans with no related allowance recorded 19,274 28,470 – 18,869 28,156 –

With an allowance recorded:
Mortgage loans:
Multi-family residential 1,269 1,269 98 1,275 1,275 100
One-to-four family mixed-use property 1,004 1,004 54 1,185 1,185 143
One-to-four family residential 395 395 50 399 399 51
Non-mortgage loans:
Commercial business and other 891 891 178 3,791 3,791 866

Total loans with an allowance recorded 3,559 3,559 380 6,650 6,650 1,160

Total Impaired Loans:
Total mortgage loans $ 15,601 $ 16,238 $ 202 $ 15,922 $ 16,618 $ 294

Total non-mortgage loans $ 7,232 $ 15,791 $ 178 $ 9,597 $ 18,188 $ 866
~~- 18 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
~~(Unaudited)~~
~~The following table shows our average recorded investment and interest income recognized for impaired loans~~ for the ~~three months ended:~~adoption of ASC Topic 326, “Credit Loses”.

March 31, 2019 March 31, 2018
Average
Recorded
Investment Interest
Income
Recognized Average
Recorded
Investment Interest
Income
Recognized

(In thousands)
With no related allowance recorded:
Mortgage loans:
Multi-family residential $ 3,031 $ 9 $ 4,834 $ 20
Commercial real estate 1,266 – 6,915 74
One-to-four family mixed-use property 1,948 17 4,297 41
One-to-four family residential 6,279 2 8,855 15
Construction 475 – – –
Non-mortgage loans:
Small Business Administration 1,247 – 118 1
Taxi medallion 4,215 58 6,726 82
Commercial business and other 611 – 196 2

Total loans with no related allowance recorded 19,072 86 31,941 235

With an allowance recorded:
Mortgage loans:
Multi-family residential 1,272 18 2,214 29
Commercial real estate – – 993 –
One-to-four family mixed-use property 1,095 10 1,222 9
One-to-four family residential 397 4 413 4
Non-mortgage loans:
Taxi medallion – – – –
Commercial business and other 2,341 – 338 5

Total loans with an allowance recorded 5,105 32 5,180 47

Total Impaired Loans:
Total mortgage loans $ 15,763 $ 60 $ 29,743 $ 192

Total non-mortgage loans $ 8,414 $ 58 $ 7,378 $ 90

~~- 19 -~~
-20-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

Notes to Consolidated Financial Statements

(Unaudited)

In accordance with our policy and the current regulatory guidelines, we designate loans as “Special Mention,” which are considered “Criticized Loans,” and “Substandard,” “Doubtful,” or “Loss,” which are considered “Classified Loans”. If a loan does not fall within one of the previous mentioned categories then the loan would be considered “Pass.” Loans that are non-accrual are designated as Substandard, Doubtful or Loss. These loan designations are updated quarterly. We designate a loan as Substandard when a well-defined weakness is identified that may jeopardize the orderly liquidation of the debt. We designate a loan Doubtful when it displays the inherent weakness of a Substandard loan with the added provision that collection of the debt in full, on the basis of existing facts, is highly improbable. We designate a loan as Loss if it is deemed the debtor is incapable of repayment. The Company does not hold any loans designated as Loss, as loans that are designated as Loss are charged to the Allowance for ~~Loan~~Credit Losses. We designate a loan as Special Mention if the asset does not warrant classification within one of the other classifications, but does contain a potential weakness that deserves closer attention.

-21-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the risk category of mortgage and non-mortgage loans by loan portfolio segments and class of loans by year of origination :

For the year ended

Revolving Loans,

Lines of Credit

Amortized Cost

converted to
(In thousands)

2020

2019

2018

2017

2016

Prior

Basis

term loans
1-4 Family Residential

Pass

$
8,526

$
26,292

$
29,807

$
16,352

$
11,399

$
65,998

$
9,361

$
22,132
Watch

—

—

—

—

—

2,759

—

1,809
Special Mention

—

—

—

—

—

444

146

147
Substandard

—

—

—

—

950

2,906

—

856
Total 1-4 Family Residential

$
8,526

$
26,292

$
29,807

$
16,352

$
12,349

$
72,107

$
9,507

$
24,944
1-4 Family Mixed-Use

Pass

$
15,189

$
70,064

$
78,136

$
63,655

$
54,009

$
304,415

$
—

$
—
Watch

—

—

793

—

1,325

7,148

—

—
Special Mention

—

—

—

—

—

984

—

—
Substandard

—

—

—

—

—

627

—

—
Total 1-4 Family Mixed Use

$
15,189

$
70,064

$
78,929

$
63,655

$
55,334

$
313,174

$
—

$
—
Commercial Real Estate

Pass

$
75,893

$
254,086

$
283,515

$
194,618

$
239,116

$
511,871

$
—

$
—
Watch

4,979

9,762

—

4,963

20,748

66,711

—

—
Special Mention

—

—

—

—

—

543

—

—
Substandard

—

—

—

—

—

8

—

—
Total Commercial Real Estate

$
80,872

$
263,848

$
283,515

$
199,581

$
259,864

$
579,133

$
—

$
—
Construction

Pass

$
4,885

$
15,633

$
35,934

$
—

$
9,394

$
—

$
—

$
—
Special Mention

—

—

678

—

—

—

—

—
Total Construction

$
4,885

$
15,633

$
36,612

$
—

$
9,394

$
—

$
—

$
—
Multifamily

Pass

$
68,498

$
313,608

$
369,264

$
376,202

$
283,128

$
846,228

$
4,460

$
—
Watch

—

—

—

2,158

2,843

9,620

—

—
Substandard

—

—

1,974

—

—

789

—

—
Total Multifamily

$
68,498

$
313,608

$
371,238

$
378,360

$
285,971

$
856,637

$
4,460

$
—
Commercial Business - Secured by RE

Pass

$
27,601

$
117,070

$
59,408

$
22,399

$
44,964

$
85,736

$
—

$
—
Watch

—

—

6,647

1,320

2,701

3,276

—

—
Special Mention

—

—

—

—

—

423

—

—
Substandard

—

—

—

—

—

2,330

—

—
Total Commercial Business - Secured by RE

$
27,601

$
117,070

$
66,055

$
23,719

$
47,665

$
91,765

$
—

$
—
Commercial Business

Pass

$
39,770

$
151,169

$
117,548

$
73,802

$
18,931

$
73,775

$
213,463

$
—
Watch

1,221

1,001

2,372

3,114

445

587

19,162

—
Special Mention

—

—

15

2,683

463

317

—
Substandard

—

577

340

3,386

6,255

1,211

94

—
Doubtful

—

—

—

—

—

108

—

—
Total Commercial Business

$
40,991

$
152,747

$
120,275

$
80,302

$
28,314

$
76,144

$
233,036

$
—
Small Business Administration

Pass

$
—

$
986

$
3,626

$
1,072

$
2,704

$
2,220

$
—

$
—
Watch

—

—

—

2,299

—

—

—

—
Special Mention

—

—

—

—

—

54

—

—
Substandard

—

—

—

1,170

374

—

—

—
Total Small Business Administration

$
—

$
986

$
3,626

$
4,541

$
3,078

$
2,274

$
—

$
—
Taxi Medallions

Substandard

—

—

—

—

—

3,282

—

—
Total Taxi Medallions

$
—

$
—

$
—

$
—

$
—

$
3,282

$
—

$
—
Other

Pass

$
—

$
—

$
—

$
—

$
—

$
105

$
171

$
—
Watch

—

—

—

—

—

—

3

—
Total Other

$
—

$
—

$
—

$
—

$
—

$
105

$
174

$
—

Total Loans

$
246,562

$
960,248

$
990,057

$
766,510

$
701,969

$
1,994,621

$
247,177

$
24,944

-22-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table sets forth the recorded investment in loans designated as Criticized or Classified at the ~~periods~~period indicated:

March 31, 2019

December 31, 2019
(In thousands) Special Mention Substandard Doubtful Loss Total

Special Mention

Substandard

Doubtful

Loss

Total

Multi-family residential $ 1,322 $ 3,938 $ – $ – $ 5,260

$
1,563

$
2,743

$
—

$
—

$
4,306
Commercial real estate 374 3,635 – – 4,009

5,525

367

—

—

5,892
One-to-four family - mixed-use property 1,341 1,937 – – 3,278

1,585

453

—

—

2,038
One-to-four family - residential 297 6,156 – – 6,453

1,095

5,787

—

—

6,882
Construction – 950 – – 950

—

—

—

—

—
Small Business Administration 473 121 – – 594

55

85

—

—

140
Taxi medallion – 3,891 – – 3,891

—

3,309

—

—

3,309
Commercial business and other 4,293 16,632 1,834 – 22,759

3,924

11,289

266

—

15,479
Total loans $ 8,100 $ 37,260 $ 1,834 $ – $ 47,194

$
13,747

$
24,033

$
266

$
—

$
38,046
December 31, 2018
(In thousands) Special Mention Substandard Doubtful Loss Total

Multi-family residential $ 2,498 $ 4,166 $ – $ – $ 6,664
Commercial real estate 381 4,051 – – 4,432
One-to-four family - mixed-use property 1,199 2,034 – – 3,233
One-to-four family - residential 557 6,665 – – 7,222
Construction 730 – – – 730
Small Business Administration 481 139 – – 620
Taxi medallion – 4,539 – – 4,539
Commercial business and other 730 21,348 3,512 – 25,590
Total loans $ 6,576 $ 42,942 $ 3,512 $ – $ 53,030

Commitments to extend credit (principally real estate mortgage loans) and lines of credit (principally home equity lines of credit and business lines of credit) amounted to ~~$82.6~~$51.9 million and ~~$250.4~~$259.9 million, respectively, at March 31, ~~2019.~~2020.

The following tables presents types of collateral-dependent loans by class of loans as of March 31, 2020:

~~- 20 -~~

Collateral Type
(In thousands)

Real Estate

Business Assets
Multi-family residential

$
2,763

$
—
Commercial real estate

8

—
One-to-four family - mixed-use property

627

—
One-to-four family - residential

4,588

—
Small Business Administration

—

1,544
Commercial business and other

—

5,000
Taxi Medallion

—

3,282
Total

$
7,986

$
9,826

-23-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

(Unaudited)

Off-Balance Sheet Credit Losses

Also included within scope of the CECL standard are off-balance sheet loan commitments, which includes the unfunded portion of committed lines of credit and commitments “in-process”. Commitments “in‐process” reflect loans not in the Company’s books but rather negotiated loan / line of credit terms and rates that the Company has offered to customers and is committed to honoring. In reference to “in‐process” credits, the Company defines an unfunded commitment as a credit that has been offered to and accepted by a borrower, which has not closed and by which the obligation is not unconditionally cancellable.

The Company estimates expected credit losses over the contractual period in which the company is exposed to credit risk through a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on losses on off-balance sheet exposures is adjusted as a provision for credit loss expense. The Company uses similar assumptions and risk factors that are developed for collectively evaluated financing receivables. This estimates includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments to be funded over its estimated life.

At March 31, 2020, allowance for off-balance-sheet credit losses is $0.8 million, which is included the “Other liabilities” on the Consolidated Statements of Financial Condition. During the first quarter 2020, the Company has $0.2 million in credit loss expense for off-balance-sheet items, which is included in the “Other operating expense” on the Consolidated Statements of Income.

6. Loans held for sale

Loans held for sale are carried at the lower of cost or estimated fair value. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the Bank did ~~not~~0t have any loans held for sale.

The Company has implemented a strategy of selling certain delinquent and non-performing loans. Once the Company has decided to sell a loan, the sale usually closes in a short period of time, generally within the same quarter. Loans designated held for sale are reclassified from loans held for investment to loans held for sale. Terms of sale include cash due upon the closing of the sale, no contingencies or recourse to the Company and servicing is released to the buyer. Additionally, at times the Company may sell participating interests in performing loans.

The following tables show loans sold during the period indicated:

For the three months ended March 31, 2019
(Dollars in thousands) Loans sold Proceeds Net Recoveries
(Charge-offs) Net gain
Delinquent and non-performing loans
Multi-family residential 2 $ 765 $ – $ 63
One-to-four family - mixed-use property 1 405 (1 ) –

Total 3 $ 1,170 $ (1 ) $ 63

For the three months ended March 31, 2020



Net Recoveries



(Dollars in thousands)

Loans sold

Proceeds

(Charge-offs)

Net gain
Delinquent and non-performing loans








Multi-family residential

1

$
284

$
—

$
42
One-to-four family - mixed-use property

1

296

—

—
Total

2

$
580

$
—

$
42

For the three months ended March 31, 2019

Net Recoveries

(Dollars in thousands)

Loans sold

Proceeds

(Charge-offs)

Net gain (loss)
Delinquent and non-performing loans








Multi-family residential

2

$
765

$
—

$
63
One-to-four family - mixed-use property

1

405

(1)

—
Total

3

$
1,170

$
(1)

$
63

For the three months ended March 31, 2018

(Dollars in thousands) Loans sold Proceeds Net loss
Delinquent and non-performing loans
Multi-family residential 3 $ 964 $ –
Commercial real estate 1 1,500 (263 )

Total 4 $ 2,464 $ (263 )
-24-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

7.     Other Real Estate Owned
7. ~~Other Real Estate Owned~~
The following table shows changes in Other Real Estate Owned (“OREO”) during the periods indicated:
~~During~~

For the three months ended

March 31,


2020

2019

Balance at beginning of period

$
239

$
—
Reductions to carrying value

(31)

—
Balance at end of period

$
208

$
—

The following table shows the ~~three months ended March 31, 2019, we did not foreclose on any residential real estate property. We did not hold any foreclosed properties at March 31, 2019~~gross gains, gross losses and ~~December 31, 2018.~~ write-downs of OREO reported in the Consolidated Statements of Income during the periods indicated:

For the three months ended

March 31,


2020

2019

Gross gains

$
—

$
—
Gross losses

—

—
Write-down of carrying value

(31)

—
Total income

$
(31)

$
—

Included within net loans as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 was a recorded investment of ~~$6.7~~$5.2 million and ~~$7.2~~$6.6 million, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction.

~~- 21 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
~~(Unaudited)~~
8. 8.     Leases
The Company has 1921 operating leases for branches (including headquarters) and office spaces, ~~nine~~9 operating leases for vehicles, and ~~two~~1 operating ~~leases~~lease for equipment. Our leases have remaining lease terms ranging from ~~one month~~eight months to 1312 years, none of which has a renewal option reasonably certain of exercise, which has been reflected in the Company’s calculation of lease term.
The Company has elected the short-term lease recognition exemption such that the Company will not recognize ~~ROU~~Right-Of-Use (“ROU”) assets or lease liabilities for leases with a term of less than 12 months from the commencement date. The Company’s operating lease expense totaled $1.9 million and was recorded in Occupancy and equipment on the Consolidated Statements of Income for each of the three month periods ended March 31, 2020 and 2019. The Company has one agreement that qualifies as a short-term lease with expense totaling approximately $34,000 for each of the three ~~months~~month periods ended March 31, 2020 and 2019, included in Professional services on the Consolidated Statements of Income. The Company has $0.3 million and $0.2 million in variable lease payments, which include insurance and real estate tax expenses and was recorded in Occupancy and equipment on the Consolidated Statements of Income, for the three months ended March 31, ~~2019.~~2020 and 2019, respectively. At March 31, ~~2019,~~2020, the weighted-average remaining lease term for our operating leases is ~~eight~~approximately seven years and the weighted average discount rate is 3.8%. ~~At March 31, 2019, there were no significant leases entered into but not yet commenced.~~ Our lease agreements do not contain any residual value guarantees.
(Dollars in thousands) Three months ended
March 31, 2019

Operating lease ROU assets $ 44,033

Operating lease liabilities $ 52,510

Lease Cost
Operating lease cost $ 1,892
Short-term lease cost 34
Variable lease cost 246
Total lease cost $ 2,172

Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases $ 2,025
Right-of-use assets obtained in exchange for new operating lease liabilities $ 21
Weighted-average remaining lease term-operating leases (in years) 8.0
Weighted average discount rate-operating leases 3.8 %
~~The Company’s minimum annual rental payments for Bank facilities due under non-cancelable leases are as follows:~~
Minimum Rental
(In thousands)
Years ended December 31:
2019 $ 5,783
2020 8,289
2021 7,501
2022 7,090
2023 7,229
Thereafter 25,490
Total minimum payments required 61,382
Less: implied interest 8,872
Total lease obligations $ 52,510

Certain leases have escalation clauses for operating expenses and real estate taxes. The Company’s non-cancelable operating lease agreements expire through 2032.
~~- 22 -~~
-25-
Table of Contents
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
(Unaudited)
Supplemental balance sheet information related to leases was as follows:
9. ~~Stock-Based Compensation~~





(Dollars in thousands)

March 31, 2020

December 31, 2019

Operating lease ROU assets

$
39,729

$
41,254

Operating lease liabilities

$
47,726

$
49,367

Weighted-average remaining lease term-operating leases

7.4 years

8.0 years

Weighted average discount rate-operating leases

3.8
%

3.8
%

The components of lease expense and cash flow information related to leases were as follows:

For the three months ended

(Dollars in thousands)

March 31, 2020

March 31, 2019

Lease Cost





Operating lease cost

$
1,885

$
1,892

Short-term lease cost

34

34

Variable lease cost

264

246

Total lease cost

$
2,183

$
2,172

Other information





Cash paid for amounts included in the measurement of lease liabilities





Operating cash flows from operating leases

$
1,982

$
2,025

Right-of-use assets obtained in exchange for new operating lease liabilities

$
23

$
21

The Company’s minimum annual rental payments for Bank facilities due under non-cancelable leases are as follows as of March 31, 2020 and December 31, 2019:

Minimum Rental

(In thousands)
Years ended December 31:

2020

$
6,004
2021

7,680
2022

7,265
2023

7,398
2024

7,425
Thereafter

19,148
Total minimum payments required

54,920
Less: implied interest

7,194
Total lease obligations

$
47,726

-26-
Table of Contents
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
9.     Stock-Based Compensation
On January 31, 2019, the Board of Directors approved a 2019 long-term incentive compensation program for certain Company executive officers that includes grants of performance-based restricted stock units (“PRSUs”) in addition to time-based restricted stock units (“RSU”). Under the terms of the PRSU Agreement, the number of PRSUs that may be earned depends on the extent to which performance goals for the award are achieved over a three-year performance period, as determined by the Compensation Committee of the Board. The number of PRSUs that may be earned ranges from 0% to 150% of the target award, with no PRSUs earned for below threshold-level performance, 50% of PRSUs earned for threshold-level performance, 100% of PRSUs earned for target-level performance, and 150% of PRSUs earned for maximum-level performance.
As of March 31, 2020, PRSU’s granted in 2020 are being accrued at target and PRSU’s granted in 2019 are being accrued above target. The different levels of accrual are commensurate with the projected performance of the respective grant.
For the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, the Company’s net income, as reported, included ~~$4.0~~$2.5 million and ~~$3.4~~$4.0 million, respectively, of stock-based compensation costs and ~~$1.0~~$0.6 million and ~~$0.7~~$1.0 million of income tax benefits, respectively, related to the stock-based compensation plans in each of the periods. During the three months ended March 31, 2020 and 2019, the Company granted ~~263,574~~170,228 and ~~57,870~~263,574 in RSU ~~awards and PRSU~~ awards, respectively. During the three months ended March 31, ~~2018,~~2020 and 2019, the Company granted ~~274,990~~72,143 and 57,870 in ~~RSU awards. There were no stock options granted during the three months ended March 31, 2019 and 2018.~~PRSU awards, respectively. The Company has ~~not~~0t granted stock options since 2009 and at March 31, ~~2019,~~2020, had ~~none~~NaN outstanding.
The Company uses the fair value of the common stock on the date of award to measure compensation cost for restricted stock unit awards. Compensation cost is recognized over the vesting period of the award using the straight-line method.
The following table summarizes the Company’s RSU and PRSU awards at or for the three months ended March 31, ~~2019 :~~2020:

RSU Awards

PRSU Awards

Weighted-Average

Weighted-Average

Grant-Date

Grant-Date


Shares

Fair Value

Shares

Fair Value

Non-vested at December 31, 2019

428,295

$
24.42

34,186

$
22.38
Granted

170,228

19.79

72,143

20.38
Vested

(232,351)

22.28

(35,149)

20.54
Forfeited

(2,415)

24.62

—

—
Non-vested at March 31, 2020

363,757

$
23.62

71,180

$
21.26
Vested but unissued at March 31, 2020

216,777

$
23.26

62,515

$
21.35
RSU Awards PRSU Awards
Shares Weighted-Average
Grant-Date
Fair Value Shares Weighted-Average
Grant-DateFair Value

Non-vested at December 31, 2018 502,658 $ 24.93 – $ –
Granted 263,574 22.38 57,870 22.38
Vested (248,579 ) 23.17 (27,110 ) 22.38
Forfeited (7,270 ) 24.94 – –
Non-vested at March 31, 2019 510,383 $ 24.47 30,760 $ 22.38

Vested but unissued at March 31, 2019 209,148 $ 24.64 21,310 $ 22.38

As of March 31, ~~2019,~~2020, there was ~~$11.7~~$8.4 million of total unrecognized compensation cost related to RSU and PRSU awards granted. That cost is expected to be recognized over a weighted-average period of ~~3.6~~2.7 years. The total fair value of awards vested for the three months ended March 31, 2020 and 2019 ~~and 2018~~ was ~~$6.1~~$5.0 million and ~~$6.7~~$6.1 million, respectively. The vested but unissued RSU and PRSU awards consist of awards made to employees and directors who are eligible for retirement. According to the terms of these awards, which provide for vesting upon retirement, these employees and directors have no risk of forfeiture. These shares will be issued at the original contractual vesting and settlement dates.
Phantom Stock Plan: The Company maintains a non-qualified phantom stock plan as a supplement to its profit sharing plan for officers who have achieved the designated level and completed one year of service. The Company adjusts its liability under this plan to the fair value of the shares at the end of each period.
-27-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the Phantom Stock Plan at or for the three months ended March 31, ~~2019:~~2020:

Phantom Stock Plan

Shares

Fair Value
Outstanding at December 31, 2019

109,226

$
21.61
Granted

5,798

17.77
Distributions

(26)

20.45
Outstanding at March 31, 2020

114,998

$
13.36
Vested at March 31, 2020

114,627

$
13.36
Phantom Stock Plan Shares Fair Value

Outstanding at December 31, 2018 99,313 $ 21.53
Granted 8,168 22.15
Distributions (1,004 ) 22.01
Outstanding at March 31, 2019 106,477 $ 21.93
Vested at March 31, 2019 105,935 $ 21.93

The Company recorded stock-based compensation (benefit) expense ~~(benefit)~~ for the Phantom Stock Plan of ~~$0.1~~($0.9) million and ~~($37,000)~~$0.1 million for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. The total fair value of the distributions from the Phantom Stock Plan was ~~$22,000~~less than $1,000 and ~~$1,000~~$22,000 for the three months ended March 31, 2020 and 2019, ~~and 2018,~~ respectively.

~~- 23 -~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

10.

Pension and Other Postretirement Benefit Plans

The following table sets forth information regarding the components of net expense for the pension and other postretirement benefit plans.

Three months ended

March 31,
(In thousands)
2020

2019

Employee Pension Plan:




Interest cost
$
163

$
199
Amortization of unrecognized loss

111

67
Expected return on plan assets

(257)

(272)
Net employee pension expense (benefit)
$
17

$
(6)

Outside Director Pension Plan:




Service cost
$
4

$
10
Interest cost

16

21
Amortization of unrecognized gain

(14)

(35)
Amortization of past service liability

—

—
Net outside director pension expense (benefit)
$
6

$
(4)

Other Postretirement Benefit Plans:




Service cost
$
69

$
70
Interest cost

65

85
Amortization of past service credit

(20)

(22)
Net other postretirement expense
$
114

$
133

-28-

Table of Contents

Three months ended
March 31,
(In thousands) 2019 2018

Employee Pension Plan:
Interest cost $ 199 $ 195
Amortization of unrecognized loss 67 155
Expected return on plan assets (272 ) (363 )
Net employee pension benefit $ (6 ) $ (13 )

Outside Director Pension Plan:
Service cost $ 10 $ 11
Interest cost 21 20
Amortization of unrecognized gain (35 ) (23 )
Amortization of past service liability – 3
Net outside director pension (benefit) expense $ (4 ) $ 11

Other Postretirement Benefit Plans:
Service cost $ 70 $ 88
Interest cost 85 77
Amortization of past service credit (22 ) (13 )
Net other postretirement expense $ 133 $ 152

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The Company previously disclosed in its Consolidated Financial Statements for the year ended December 31, ~~2018~~2019 that it expects to contribute $0.3 million to each of the Outside Director Pension Plan (the “Outside Director Pension Plan”) and the other postretirement benefit plans (the “Other Postretirement Benefit Plans”), during the year ending December 31, ~~2019.~~2020. The Company does ~~not~~0t expect to make a contribution to the Employee Pension Plan (the “Employee Pension Plan”). As of March 31, ~~2019,~~2020, the Company had contributed $36,000 to the Outside Director Pension Plan and ~~$15,000~~$18,000 in contributions were made to the Other Postretirement Benefit Plans. As of March 31, ~~2019,~~2020, the Company has not revised its expected contributions for the year ending December 31, ~~2019.~~2020.

~~11.~~ 11.     Fair Value of Financial Instruments
The Company carries certain financial assets and financial liabilities at fair value in accordance with GAAP which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP permits entities to choose to measure many financial instruments and certain other items at fair value. At March 31, 2020, the Company carried financial assets and financial liabilities under the fair value option with fair values of $14.6 million and $45.1 million, respectively. At December 31, 2019, the Company carried financial assets and financial liabilities under the fair value option with fair values of ~~$14.0~~$14.3 million and ~~$42.9 million, respectively. At December 31, 2018, the Company carried financial assets and financial liabilities under the fair value option with fair values of $13.8 million and $41.8~~$44.4 million, respectively. The Company did not elect to carry any additional financial assets or financial liabilities under the fair value option during the three months ended March 31, 2020 and 2019.
~~- 24 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
~~(Unaudited)~~
The following table presents the financial assets and financial liabilities reported at fair value under the fair value option, and the changes in fair value included in the Consolidated Statement of Income – Net gain (loss) from fair value adjustments, at or for the periods ended as indicated:

Fair Value

Fair Value

Measurements

Measurements

at March 31,

at December 31,

Three Months Ended
(In thousands)

2020

2019


March 31, 2020

March 31, 2019









Mortgage-backed securities

$
738

$
772

$
3

$
1
Other securities

13,831

13,548

��

219

179
Borrowed funds

45,126

44,384

(2,351)

(1,210)
Net loss from fair value adjustments ⁽¹⁾

$
(2,129)

$
(1,030)
Fair Value Fair Value
Changes in Fair Values
For Items Measured at Fair Value
Measurements Measurements Pursuant to Election of the Fair Value Option
at March 31, at December 31, Three Months Ended
(In thousands) 2019 2018 March 31, 2019 March 31, 2018

Mortgage-backed securities $ 934 $ 967 $ 1 $ (11 )
Other securities 13,091 12,843 179 (138 )
Borrowed funds 42,941 41,849 (1,210 ) (1,681 )
Net loss from fair value adjustments ⁽¹⁾ $ (1,030 ) $ (1,830 )
(1) The net loss from fair value adjustments presented in the above table does not include ~~net (losses) gains~~losses of ~~($1.1)~~$3.9 million and ~~$1.7~~$1.1 million for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively, from the change in the fair value of interest rate swaps.
Included in the fair value of the financial assets and financial liabilities selected for the fair value option is the accrued interest receivable or payable for the related instrument. The Company reports as interest income or interest expense in the Consolidated Statement of Income, the interest receivable or payable on the financial instruments selected for the fair value option at their respective contractual rates.
The borrowed funds had a contractual principal amount of $61.9 million at both March 31, ~~2019~~2020 and December 31, ~~2018.~~2019. The fair value of borrowed funds includes accrued interest payable of ~~$0.3 million and~~ $0.2 million at both March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.
The Company generally holds its earning assets, other than securities available for sale, to maturity and settles its liabilities at maturity. However, fair value estimates are made at a specific point in time and are based on relevant market information. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular instrument. Accordingly, as assumptions change, such as interest rates and prepayments, fair value estimates change and these amounts may not necessarily be realized in an immediate sale.
-29-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Disclosure of fair value does not require fair value information for items that do not meet the definition of a financial instrument or certain other financial instruments specifically excluded from its requirements. These items include core deposit intangibles and other customer relationships, premises and equipment, leases, income taxes and equity.

Further, fair value disclosure does not attempt to value future income or business. These items may be material and accordingly, the fair value information presented does not purport to represent, nor should it be construed to represent, the underlying “market” or franchise value of the Company.

Financial assets and financial liabilities reported at fair value are required to be measured based on either: (1) quoted prices in active markets for identical financial instruments (Level 1); (2) significant other observable inputs (Level 2); or (3) significant unobservable inputs (Level 3).

A description of the methods and significant assumptions utilized in estimating the fair value of the Company’s assets and liabilities that are carried at fair value on a recurring basis are as follows:

Level 1 – ~~where~~when quoted market prices are available in an active market. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, Level 1 included one mutual fund.

Level 2 – when quoted market prices are not available, fair value is estimated using quoted market prices for similar financial instruments and adjusted for differences between the quoted instrument and the instrument being valued. Fair value can also be estimated by using pricing models, or discounted cash flows. Pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices and credit spreads. In addition to observable market information, models also incorporate maturity and cash flow assumptions. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, Level 2 included ~~mortgage related~~mortgage-backed securities, CLO’s, corporate debt, municipals and interest rate swaps.

~~- 25 -~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Level 3 – when there is limited activity or less transparency around inputs to the valuation, financial instruments are classified as Level 3. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, Level 3 included trust preferred securities owned and junior subordinated debentures issued by the Company.

The methods described above may produce fair values that may not be indicative of net realizable value or reflective of future fair values. While the Company believes its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies, assumptions and models to determine fair value of certain financial instruments could produce different estimates of fair value at the reporting date.

-30-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table sets forth the Company’s assets and liabilities that are carried at fair value on a recurring basis, ~~and their respective category in~~including those reported at fair value under the fair value ~~hierarchy,~~option, and the level that was used to determine their fair value, at March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:

Quoted Prices

in Active Markets

Significant Other

Significant Other

for Identical Assets

Observable Inputs

Unobservable Inputs

Total carried at fair value

(Level 1)

(Level 2)

(Level 3)

on a recurring basis


2020

2019

2020

2019

2020

2019

2020

2019

(In thousands)
Assets:

Securities available for sale

Mortgage-backed Securities

$
—

$
—

$
489,556

$
523,849

$
—

$
—

$
489,556

$
523,849
Other securities

12,476

12,216

212,025

235,103

1,355

1,332

225,856

248,651
Interest rate swaps

—

—

—

2,352

—

—

—

2,352

Total assets

$
12,476

$
12,216

$
701,581

$
761,304

$
1,355

$
1,332

$
715,412

$
774,852

Liabilities:
















Borrowings

$
—

$
—

$
—

$
—

$
45,126

$
44,384

$
45,126

$
44,384
Interest rate swaps

—

—

70,611

19,653

—

—

70,611

19,653

Total liabilities

$
—

$
—

$
70,611

$
19,653

$
45,126

$
44,384

$
115,737

$
64,037

Quoted Prices
in Active Markets
for Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant Other
Unobservable Inputs
(Level 3)

Total carried at fair value
on a recurring basis
2019 2018 2019 2018 2019 2018 2019 2018
(In thousands)

Assets:
Mortgage-backed
Securities $ - $ - $ 579,185 $ 557,953 $ - $ - $ 579,185 $ 557,953
Other securities 11,802 11,586 253,748 251,860 1,289 1,256 266,839 264,702
Interest rate swaps - - 6,474 15,961 - - 6,474 15,961

Total assets $ 11,802 $ 11,586 $ 839,407 $ 825,774 $ 1,289 $ 1,256 $ 852,498 $ 838,616

Liabilities:
Borrowings $ - $ - $ - $ - $ 42,941 $ 41,849 $ 42,941 $ 41,849
Interest rate swaps - - 4,996 2,239 - - 4,996 2,239

Total liabilities $ - $ - $ 4,996 $ 2,239 $ 42,941 $ 41,849 $ 47,937 $ 44,088

The following tables ~~sets~~set forth the ~~Company's~~Company’s assets and liabilities that are carried at fair value on a recurring basis, classified within Level 3 of the valuation hierarchy for the periods indicated:


For the three months ended

March 31, 2020

March 31, 2019

Trust preferred

Junior subordinated

Trust preferred

Junior subordinated


securities

debentures

securities

debentures

(In thousands)

Beginning balance

$
1,332

$
44,384

$
1,256

$
41,849
Net gain from fair value adjustment of financial assets⁽¹⁾

24

—

33

—
Net loss from fair value adjustment of financial liabilities⁽¹⁾

—

2,351

—

1,210
Decrease in accrued interest receivable

(1)

—

—

—
(Decrease) increase in accrued interest payable

—

(24)

—

9
Change in unrealized gains included in other comprehensive income

—

(1,585)

—

(127)
Ending balance

$
1,355

$
45,126

$
1,289

$
42,941

Changes in unrealized gains held at period end

$
—

3,062

—

1,375
For the three months ended
March 31, 2019 March 31, 2018
Trust preferred
securities Junior subordinated
debentures Trust preferred
securities Junior subordinated
debentures
(In thousands)

Beginning balance $ 1,256 $ 41,849 $ 1,110 $ 36,986
Net gain from fair value adjustment of financial assets ⁽¹⁾ 33 - 51 -
Net loss from fair value adjustment of financial liabilities ⁽¹⁾ - 1,210 - 1,681
Decrease(increase) in accrued interest receivable - - 1 -
Increase (decrease) in accrued interest payable - 9 - 25
Change in unrealized gains (losses) included in other comprehensive income - (127 ) - -
Ending balance $ 1,289 $ 42,941 $ 1,162 $ 38,692

Changes in unrealized gains (losses) held at period end $ - $ - $ - $ -
(1) ⁽¹⁾ Totals in the table above are presented in the Consolidated Statement of Income under net ~~gains (losses)~~loss from fair value adjustments.
~~- 26 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
~~(Unaudited)~~
During the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, there were no transfers between Levels 1, 2 and 3.

-31-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following tables present the quantitative information about recurring Level 3 fair value of financial instruments and the fair value measurements at the periods indicated:

March 31, 2019

Fair Value Valuation Technique Unobservable Input Range Weighted Average
(Dollars in thousands)

March 31, 2020


Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

(Dollars in thousands)

Assets:

Trust preferred securities $ 1,289 Discounted cash flows Discount rate n/a 4.6%

$
1,355

Discounted cash flows

Discount rate

n/a

3.7
%

Liabilities:











Junior subordinated debentures $ 42,941 Discounted cash flows Discount rate n/a 4.6%

$
45,126

Discounted cash flows

Discount rate

n/a

3.7
%


December 31, 2019


Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

(Dollars in thousands)

Assets:











Trust preferred securities

$
1,332

Discounted cash flows

Discount rate

n/a

4.2
%

Liabilities:











Junior subordinated debentures

$
44,384

Discounted cash flows

Discount rate

n/a

4.2
%
December 31, 2018

Fair Value Valuation Technique Unobservable Input Range Weighted Average
(Dollars in thousands)
Assets:

Trust preferred securities $ 1,256 Discounted cash flows Discount rate n/a 4.9%

Liabilities:

Junior subordinated debentures $ 41,849 Discounted cash flows Discount rate n/a 4.9%

The significant unobservable inputs used in the fair value measurement of the Company’s trust preferred securities and junior subordinated debentures valued under Level 3 at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, are the effective yields used in the cash flow models. Significant increases or decreases in the effective yield in isolation would result in a significantly lower or higher fair value measurement.
The following table sets forth the Company’s assets and liabilities that are carried at fair value on a non-recurring basis and the level that was used to determine their ~~respective category in the~~ fair value ~~hierarchy~~ at March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:

Quoted Prices










in Active Markets

Significant Other

Significant Other

for Identical Assets

Observable Inputs

Unobservable Inputs

Total carried at fair value

(Level 1)

(Level 2)

(Level 3)

on a non-recurring basis


2020

2019

2020

2019

2020

2019

2020

2019

(In thousands)
Assets
















Non-accrual loans

$
—

$
—

$
—

$
—

$
1,259

$
1,081

$
1,259

$
1,081
Other real estate owned

—

—

—

—

208

239

208

239

Total assets

$
—

$
—

$
—

$
—

$
1,467

$
1,320

$
1,467

$
1,320
Quoted Prices
in Active Markets
for Identical Assets
(Level 1) Significant Other
Observable Inputs
(Level 2) Significant Other
Unobservable Inputs
(Level 3) Total carried at fair value
on a non-recurring basis
2019 2018 2019 2018 2019 2018 2019 2018
(In thousands)

Assets
Impaired loans $ -   $ -   $ -   $ -   $ 1,928 $ 4,111 $ 1,928 $ 4,111
Other repossesed assets -   -   -   -   -   35 -   35

Total assets $ -   $ -   $ -   $ -   $ 1,928 $ 4,146 $ 1,928 $ 4,146
~~- 27 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
~~(Unaudited)~~
-32-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following tables present the qualitative information about non-recurring Level 3 fair value of financial instruments and the fair value measurements at the periods indicated:


March 31, 2020


Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

(Dollars in thousands)
Assets:











Non-accrual loans

$
169

Sales approach

Adjustment to sales comparison value to reconcile differences between comparable sales

0.0%

0.0%

Reduction for planned expedited disposal

47.8%

47.8%

Non-accrual loans

$
818

Discounted Cash flow

Discount Rate

6.4%

6.4%

Probability of Default

20.0%

20.0%

Non-accrual loans

$
272

Blended income and sales approach

Adjustment to sales comparison value to reconcile differences between comparable sales

(10.0) to 15.0%

2.5%

Capitalization rate

9.5%

9.5%

Reduction for planned expedited disposal

15.0%

15.0%

Other real estate owned

208

Sales approach

Adjustment to sales comparison value to reconcile differences between comparable sales

0.5% to 12.5%

6.5%

Reduction for planned expedited disposal

0.0%

0.0%

March 31, 2019

Fair Value Valuation Technique Unobservable Input Range Weighted Average
(Dollars in thousands)


At December 31, 2019


Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

(Dollars in thousands)
Assets:











Impaired loans $ 1,656 Sales approach Reduction for planned expedited disposal 20.0% to 54.5% 39.6%

$
809

Discounted Cash flow

Discount Rate

6.4%

6.4%

Probability of Default

20.0%

20.0%

Impaired loans $ 272 Blended income and sales approach Adjustment to sales comparison value to reconcile differences between comparable sales -10.0% to 15.0% 2.5%

$
272

Blended income and sales approach

Adjustment to sales comparison value to reconcile differences between comparable sales

(10.0) to 15.0

2.5%
Capitalization rate 9.5% 9.5%
Reduction for planned expedited disposal 15.0% 15.0%

Capitalization Rate

9.5%

9.5%

Reduction for planned expedited disposal

15.0%

15.0%

Other real estate owned

$
239

Sales approach

Reduction for planned expedited disposal

0.5 to 12.5

6.5%

At December 31, 2018
Fair Value Valuation Technique Unobservable Input Range Weighted Average
(Dollars in thousands)
Assets:

Impaired loans $ 204 Income approach Capitalization rate 8.5% 8.5%
Reduction for planned expedited disposal 15.0% 15.0%

Impaired loans $ 2,724 Sales approach Adjustment to sales comparison value to reconcile differences between comparable sales 0.0% 0.0%
Reduction for planned expedited disposal -36.5% to 15.0% 10.4%

Impaired loans $ 1,183 Blended income and sales approach Adjustment to sales comparison value to reconcile differences between comparable sales -30.0% to 10.0% -7.8%
Capitalization rate 7.4% to 9.8% 8.7%
Reduction for planned expedited disposal 15.0% 15.0%

Other repossesed assets $ 35 Sales approach Reduction for planned expediated disposal 0.0% 0.0%

The Company did ~~not~~0t have any liabilities that were carried at fair value on a non-recurring basis at March 31, ~~2019~~2020 and December 31, ~~2018.~~
~~- 28 -~~2019.
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
~~(Unaudited)~~
-33-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The methods and assumptions used to estimate fair value at March 31, ~~2019~~2020 and December 31, ~~2018~~2019 are as follows:

Securities:

The fair values of securities are contained in Note 4 (“Securities”) of the Notes to Consolidated Financial Statements. Fair value is based upon quoted market prices, where available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities and adjusted for differences between the quoted instrument and the instrument being valued. When there is limited activity or less transparency around inputs to the valuation, securities are valued using discounted cash flows.

~~Impaired~~Non-accrual Loans:

For non-accruing loans, fair value is generally estimated by discounting management’s estimate of future cash flows with a discount rate commensurate with the risk associated with such assets or, for collateral dependent loans, 85% of the appraised or internally estimated value of the property, except for taxi medallion loans. The fair value of the underlying collateral of taxi medallion loans is the most recent reported arm’s length transaction. When there is no recent sale activity, the fair value is calculated using capitalization rates. See Note 5 (“Loans”) of the Notes to the Consolidated Financial ~~Statements (“loans”).~~

Statements.

Junior Subordinated Debentures:

The fair value of the junior subordinated debentures was developed using a credit spread based on the subordinated debt issued by the Company adjusting for differences in the junior subordinated debt’s credit rating, liquidity and time to maturity. The unrealized net gain/loss attributable to changes in our own credit risk was determined by adjusting the fair value as determined in the proceeding sentence by the average rate of default on debt instruments with a similar debt rating as our junior subordinated debentures, with the difference from the original calculation and this calculation resulting in the instrument-specific unrealized gain/loss.

Other Real Estate Owned and Other Repossessed Assets:

The fair value for OREO is based on appraised value through a current appraisal, or sometimes through an internal review, additionally adjusted by the estimated costs to sell the property. The fair value for other repossessed assets are based upon the most recently reported arm’s length sales transaction. When there is no recent sale activity, the fair value is calculated using capitalization rates.

Interest Rate Swaps:

The fair value of interest rate swaps is based upon broker quotes.

-34-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

~~- 29 -~~(Unaudited)

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

The following tables set forth the carrying amounts and estimated fair values of selected financial instruments based on the assumptions described above used by the Company in estimating fair value at the periods indicated:


March 31, 2020

Carrying

Fair


Amount

Value

Level 1

Level 2

Level 3

(In thousands)
Assets:











Cash and due from banks

$
157,184

$
157,184

$
157,184

$
—

$
—
Securities held-to-maturity










Mortgage-backed securities

7,929

8,953

—

8,953

—
Other securities

50,225

51,938

—

—

51,938
Securities available for sale










Mortgage-backed securities

489,556

489,556

—

489,556

—
Other securities

225,856

225,856

12,476

212,025

1,355
Loans

5,932,088

6,035,453

—

—

6,035,453
FHLB-NY stock

74,000

74,000

—

74,000

—
Accrued interest receivable

25,526

25,527

2

2,254

23,271

Liabilities:










Deposits

$
4,901,486

$
4,914,041

$
3,729,105

$
1,184,936

$
—
Borrowings

1,617,582

1,624,010

—

1,578,884

45,126
Accrued interest payable

7,492

7,492

—

7,492

—
Interest rate swaps

70,611

70,611

—

70,611

—


December 31, 2019

Carrying

Fair


Amount

Value

Level 1

Level 2

Level 3

(In thousands)
Assets:











Cash and due from banks

$
49,787

$
49,787

$
49,787

$
—

$
—
Securities held-to-maturity










Mortgage-backed securities

7,934

8,114

—

8,114

—
Other securities

50,954

53,998

—

—

53,998
Securities available for sale










Mortgage-backed securities

523,849

523,849

—

523,849

—
Other securities

248,651

248,651

12,216

235,103

1,332
Loans

5,772,206

5,822,124

—

—

5,822,124
FHLB-NY stock

56,921

56,921

—

56,921

—
Accrued interest receivable

25,722

25,722

9

2,519

23,194
Interest rate swaps

2,352

2,352

—

2,352

—

Liabilities:










Deposits

$
5,066,424

$
5,070,046

$
3,628,534

$
1,441,512

$
—
Borrowings

1,237,231

1,389,883

—

1,345,499

44,384
Accrued interest payable

6,752

6,752

—

6,752

—
Interest rate swaps

19,653

19,653

—

19,653

—

March 31, 2019
Carrying
Amount Fair
Value Level 1 Level 2 Level 3
(In thousands)
Assets:

Cash and due from banks $ 58,677 $ 58,677 $ 58,677 $ -   $ -
Securities held-to-maturity
Mortgage-backed securities 7,949 7,726 -   7,726 -
Other securities 22,532 22,276 -   -   22,276
Securities available for sale
Mortgage-backed securities 579,185 579,185 -   579,185 -
Other securities 266,839 266,839 11,802 253,748 1,289
Loans 5,588,746 5,547,521 -   -   5,547,521
FHLB-NY stock 51,182 51,182 -   51,182 -
Accrued interest receivable 27,226 27,226 10 3,280 23,936
Interest rate swaps 6,474 6,474 -   6,474 -

Liabilities:
Deposits $ 5,080,209 $ 5,079,020 $ 3,568,439 $ 1,510,581 $ -
Borrowings 1,116,416 1,111,670 -   1,068,729 42,941
Accrued interest payable 7,989 7,989 -   7,989 -
Interest rate swaps 4,996 4,996 -   4,996 -

~~- 30 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
~~(Unaudited)~~
December 31, 2018
Carrying
Amount Fair
Value Level 1 Level 2 Level 3
(In thousands)
Assets:

Cash and due from banks $ 118,561 $ 118,561 $ 118,561 $ -   $ -
Securities held-to-maturity
Mortgage-backed securities 7,953 7,366 -   7,366 -
Other securities 24,065 22,508 -   -   22,508
Securities available for sale
Mortgage-backed securities 557,953 557,953 -   557,953 -
Other securities 264,702 264,702 11,586 251,860 1,256
Loans 5,551,484 5,496,266 -   -   5,496,266
FHLB-NY stock 57,282 57,282 -   57,282 -
Accrued interest receivable 25,485 25,485 54 2,756 22,675
Interest rate swaps 15,961 15,961 -   15,961 -

Liabilities:
Deposits $ 4,960,784 $ 4,955,077 $ 3,397,474 $ 1,557,603 $ -
Borrowings 1,250,843 1,241,745 -   1,199,896 41,849
Accrued interest payable 5,890 5,890 -   5,890 -
Interest rate swaps 2,239 2,239 -   2,239 -

~~12.~~

12. Derivative Financial Instruments

At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company’s derivative financial instruments consist of interest rate swaps. The Company’s interest rate swaps are used for three purposes: 1) to mitigate the Company’s exposure to rising interest rates on a portion ($18.0 million) of its floating rate junior subordinated debentures that have a contractual value of $61.9 million, at March 31, ~~2019~~2020 and December 31, ~~2018;~~2019; 2) to mitigate the Company’s exposure to rising interest rates on certain fixed rate loans totaling ~~$284.2~~$323.5 million and ~~$286.1~~$326.0 million at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively; and 3) to mitigate exposure to rising interest rates on certain short-term advances totaling ~~$441.5~~$866.5 million and $541.5 million at March 31, ~~2019~~2020 and December 31, ~~2018.~~2019, respectively.

-35-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, we held derivatives designated as cash flow hedges, fair value hedges and certain derivatives not designated as hedges.
The Company’s derivative instruments are carried at fair value in the Company’s financial statements as part of Other Assets for derivatives with positive fair values and Other Liabilities for derivatives with negative fair values. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not it qualifies and has been designated as a hedge for accounting purposes, and further, by the type of hedging relationship.
At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, derivatives with a combined notional amount of ~~$36.3~~$18.0 million were not designated as hedges. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, derivatives with a combined notional amount of ~~$265.8~~$323.5 million and ~~$267.8~~$326.0 million, respectively, were designated as fair value hedges. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, derivatives with a combined notional amount of ~~$441.5~~$866.5 million and $541.5 million, respectively, were designated as cash flow hedges.
For cash flow hedges, the ~~effective portion of~~ changes in the fair value of the derivative is reported in ~~AOCL,~~accumulated other comprehensive income (loss), net of tax. Amounts in ~~AOCL~~accumulated other comprehensive income (loss) are reclassified into earnings in the same period during which the hedged forecasted transaction effects earnings. During the three months ended March 31, 2020 and 2019, $0.2 million ~~was~~each were reclassified from accumulated other comprehensive loss to interest expense.
~~- 31 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
~~(Unaudited)~~
The estimated amount to be reclassified in the next 12 months out of the accumulated comprehensive income (loss) into earnings is $0.6 million.
Changes in the fair value of interest rate swaps not designated as hedges are reflected in “Net gain/loss from fair value adjustments” in the Consolidated Statements of Income.
The following table sets forth information regarding the Company’s derivative financial instruments at the periods indicated:


March 31, 2020

December 31, 2019

Notional

Net Carrying

Notional

Net Carrying


Amount

Value ⁽¹⁾

Amount

Value ⁽¹⁾

(In thousands)
Interest rate swaps (fair value hedge)

$
—

$
—

$
139,960

$
2,352
Interest rate swaps (fair value hedge)

323,525

(35,069)

186,009

(7,769)
Interest rate swaps (cash flow hedge)

866,500

(28,325)

541,500

(8,350)
Interest rate swaps (non-hedge)

18,000

(7,217)

18,000

(3,534)
Total derivatives

$
1,208,025

$
(70,611)

$
885,469

$
(17,301)
March 31, 2019 December 31, 2018
Notional
Amount Net Carrying
Value ⁽¹⁾ Notional
Amount Net Carrying
Value ⁽¹⁾
(In thousands)

Interest rate swaps (fair value hedge) $ 189,307 $ 5,736 $ 248,330 $ 10,593
Interest rate swaps (fair value hedge) 76,536 (1,759 ) 19,468 (502 )
Interest rate swaps (cash flow hedge) 250,000 738 441,500 5,368
Interest rate swaps (cash flow hedge) 191,500 (450 ) -   -
Interest rate swaps (non-hedge) 36,321 (2,787 ) 36,321 (1,737 )
Total derivatives $ 743,664 $ 1,478 $ 745,619 $ 13,722
(1) Derivatives in a positive position are recorded as “Other assets” and derivatives in a negative position are recorded as “Other liabilities” in the Consolidated Statements of Financial Condition.

-36-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table sets forth the effect of derivative instruments on the Consolidated Statements of Income for the periods indicated:


For the three months ended

March 31,
(In thousands)

2020

2019
Financial Derivatives:




Interest rate swaps (non-hedge) ⁽¹⁾

$
(3,929)

$
(1,072)
Interest rate swaps (fair value hedge) ⁽²⁾

(2,249)

(292)
Interest rate swaps (cash flow hedge) ⁽³⁾

(391)

611
Net loss

$
(6,569)

$
(753)

For the three months ended
March 31,
(In thousands) 2019 2018

Financial Derivatives:
Interest rate swaps (non-hedge) ⁽¹⁾ $ (1,050 ) $ 1,276
Interest rate swaps (fair value hedge) ⁽²⁾ (637 ) 454
Net (loss) gain $ (1,687 ) $ 1,730
(1) ~~Net~~Includes interest income (loss) recorded in “Interest and fees on loans” in the Consolidated Statements of Income of ($0.1) million and ($22,000) for the three months ended March 31, 2020 and 2019, respectively. Also includes net gains and ~~losses are~~(losses) recorded ~~as part of~~in “Net ~~gain/~~loss from fair value adjustments” in the Consolidated Statements of ~~Income.~~
~~(2)~~ ~~Net gains~~Income of ($3.9) million and ~~losses recorded during~~($1.1) million for the three months ended March 31, 2020 and 2019, ~~are~~respectively.
(2) Includes interest income (loss) recorded ~~as part of “Interests~~in “Interest and fees on loans” in the Consolidated Statements of ~~Income. Net gains~~Income of ($0.2) million and ~~losses recorded during~~$0.3 million for the three months ended March 31, ~~2018, are~~2020 and 2019, respectively. Also includes net gains and (losses) recorded ~~as part of~~in “Net ~~gain/~~loss from fair value adjustments” in the Consolidated Statements of Income of ($2.1) million and ($0.6) million for the three months ended March 31, 2020 and 2019, respectively.
(3) Recorded as part of “Other interest expense” in the Consolidated Statements of Income.

The Company’s interest rate swaps are subject to master netting arrangements between the Company and its two designated counterparties. The Company has not made a policy election to offset its derivative positions.
~~- 32 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
~~(Unaudited)~~
The following tables present the effect of the master netting arrangements on the presentation of the derivative assets and liabilities in the Consolidated Statements of Condition as of the dates indicated:

March 31, 2020

Gross Amounts Not Offset in the

Consolidated Statement of

Gross Amount of

Gross Amount Offset in

Net Amount of Liabilities

Condition

Recognized

the Statement of

Presented in the Statement of

Financial

Cash Collateral

(In thousands)

Liabilities

Condition

Condition

Instruments

Pledged

Net Amount

Interest rate swaps

$
70,611

$
—

$
70,611

$
72,526

$
—

$
(1,915)

December 31, 2019

Gross Amounts Not Offset in the

Consolidated Statement of

Gross Amount Offset in

Net Amount of Assets

Condition

Gross Amount of

the Statement of

Presented in the Statement of

Financial

Cash Collateral

(In thousands)

Recognized Assets

Condition

Condition

Instruments

Received

Net Amount

Interest rate swaps

$
2,352

$
—

$
2,352

$
—

$
—

$
2,352

Gross Amounts Not Offset in the

Consolidated Statement of

Gross Amount of

Gross Amount Offset in

Net Amount of Liabilities

Condition

Recognized

the Statement of

Presented in the Statement of

Financial

Cash Collateral

(In thousands)

Liabilities

Condition

Condition

Instruments

Pledged

Net Amount

Interest rate swaps

$
19,653

$
—

$
19,653

$
19,265

$
—

$
388

March 31, 2019
Gross Amounts Not Offset in the Consolidated Statement of Condition
(In thousands)
Gross Amount of
Recognized Assets
Gross Amount Offset in the Statement of Condition
Net Amount of
Assets Presented in
the Statement of
Condition

Financial
Instruments

Cash Collateral
Received
Net Amount

Interest rate swaps $ 6,474 $ -   $ 6,474 $ -   $ 570 $ 5,904
Gross Amounts Not Offset in the Consolidated Statement of Condition
(In thousands)
Gross Amount of
Recognized
Liabilities

Gross Amount Offset
in the Statement of
Condition

Net Amount of
Liabilities Presented
in the Statement of
Condition

Financial
Instruments

Cash Collateral
Pledged
Net Amount

Interest rate swaps $ 4,996 $ -   $ 4,996 $ 430 $ -   $ 4,566
December 31, 2018
Gross Amounts Not Offset in the Consolidated Statement of Condition
(In thousands)
Gross Amount of
Recognized Assets

Gross Amount Offset
in the Statement of
Condition

Net Amount of
Assets Presented in
the Statement of
Condition

Financial
Instruments

Cash Collateral

Received
Net Amount

Interest rate swaps $ 15,961 $ -   $ 15,961 $ -   $ 14,960 $ 1,001
Gross Amounts Not Offset in the Consolidated Statement of Condition
(In thousands)
Gross Amount of
Recognized
Liabilities

Gross Amount Offset
in the Statement of
Condition

Net Amount of
Liabilities Presented
in the Statement of
Condition

Financial
Instruments

Cash Collateral
Pledged
Net Amount

Interest rate swaps $ 2,239 $ -   $ 2,239 $ -   $ -   $ 2,239

~~- 33 -~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

-37-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

~~13.~~

13. Income Taxes

Flushing Financial Corporation files consolidated Federal and combined New York State and New York City income tax returns with its subsidiaries, with the exception of the Company’s trusts, which file separate Federal income tax returns as trusts, and Flushing Preferred Funding Corporation, which files a separate Federal income tax return as a real estate investment trust. Additionally, the Bank files New Jersey State tax returns. As of March 31, ~~2019,~~2020, the Company is undergoing examination for its New York State income tax returns for 2014, 2015 and 2016 and its New York City income tax return for ~~2014.~~

2015, 2016 and 2017.

Income tax provisions are summarized as follows:

For the three months

ended March 31,


2020

2019

(In thousands)

Federal:





Current

$
1,950

$
1,326

Deferred

(961)

617

Total federal tax provision

989

1,943

State and Local:

Current

162

156

Deferred

(1,357)

188

Total state and local tax (benefit) provision

(1,195)

344

Total income tax (benefit) provision

$
(206)

$
2,287

For the three months
ended March 31,
(In thousands) 2019 2018
Federal:
Current $ 1,326 $ 2,410
Deferred 617 197
Total federal tax provision 1,943 2,607
State and Local:
Current 156 190
Deferred 188 153
Total state and local tax provision 344 343

Total income tax provision $ 2,287 $ 2,950

~~- 34 -~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

~~14.~~

14. Accumulated Other Comprehensive Income (Loss):

The following tables sets forth the changes in accumulated other comprehensive income (loss) by component for the periods indicated:

For the three months ended March 31, 2020

Unrealized Gains

Unrealized Gains

(Losses) on

(Losses) on

Fair Value

Available for Sale

Cash flow

Defined Benefit

Option Elected


Securities

Hedges

Pension Items

on Liabilities

Total

(In thousands)

Beginning balance, net of tax

$
(3,982)

$
(5,863)

$
(983)

$
1,021

$
(9,807)

Other comprehensive income before reclassifications, net of tax

(10,202)

(13,748)

—

1,096

(22,854)

Amounts reclassified from accumulated other comprehensive income, net of tax

25

143

53

—

221

Net current period other comprehensive income (loss), net of tax

(10,177)

(13,605)

53

1,096

(22,633)

Ending balance, net of tax

$
(14,159)

$
(19,468)

$
(930)

$
2,117

$
(32,440)
For the three months ended March 31, 2019
Unrealized Gains
(Losses) on
Available for Sale
Securities Unrealized Gains
(Losses) on
Cash flow
Hedges Defined Benefit
Pension Items Fair Value
Option Elected
on Liabilities Total
(In thousands)

Beginning balance, net of tax $ (15,649 ) $ 3,704 $ (1,673 ) $ 866 $ (12,752 )

Other comprehensive income before reclassifications, net of tax 5,620 (3,644 ) -   88 2,064

Amounts reclassified from accumulated other comprehensive income, net of tax -   139 7 -   146

Net current period other comprehensive income (loss), net of tax 5,620 (3,505 ) 7 88 2,210

Ending balance, net of tax $ (10,029 ) $ 199 $ (1,666 ) $ 954 $ (10,542 )
For the three months ended March 31, 2018
Unrealized Gains
(Losses) on
Available for Sale
Securities Unrealized Gains
(Losses) on
Cash flow
Hedges Defined Benefit
Pension Items Fair Value
Option Elected
on Liabilities Total
(In thousands)

Beginning balance, net of tax $ (5,522 ) $ 231 $ (3,695 ) $ -   $ (8,986 )

Reclassification of the Income Tax Effects of the Tax Cuts and Jobs Act from AOCL to Retained Earnings (1,325 ) 50 (798 ) -   (2,073 )

Impact of adoption of Accounting Standard Update 2016-01 -   -   -   775 775

Other comprehensive income before reclassifications, net of tax (6,640 ) 5,481 -   -   (1,159 )

Amounts reclassified from accumulated other comprehensive income, net of tax -   180 84 -   264

Net current period other comprehensive income, net of tax (6,640 ) 5,661 84 -   (895 )

Ending balance, net of tax $ (13,487 ) $ 5,942 $ (4,409 ) $ 775 $ (11,179 )
~~- 35 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
~~(Unaudited)~~
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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

For the three months ended March 31, 2019

Unrealized Gains

Unrealized Gains

(Losses) on

(Losses) on

Fair Value

Available for Sale

Cash flow

Defined Benefit

Option Elected


Securities

Hedges

Pension Items

on Liabilities

Total

(In thousands)

Beginning balance, net of tax

$
(15,649)

$
3,704

$
(1,673)

$
866

$
(12,752)

Other comprehensive income before reclassifications, net of tax

5,620

(3,644)

—

88

2,064

Amounts reclassified from accumulated other comprehensive income (loss), net of tax

—

139

7

—

146

Net current period other comprehensive income, net of tax

5,620

(3,505)

7

88

2,210

Ending balance, net of tax

$
(10,029)

$
199

$
(1,666)

$
954

$
(10,542)

-40-

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following tables set forth significant amounts reclassified from accumulated other comprehensive income (loss) by component for the periods indicated:
For the three months ended March 31, 2019

Details about Accumulated Other
Comprehensive Loss Components Amounts Reclassified from
Accumulated Other
Comprehensive Loss Affected Line Item in the Statement
Where Net Income is Presented
(In thousands)

Cash flow hedges:
Interest rate swaps $ (201 ) Other interest expense
62 Tax benefit
$ (139 ) Net of tax
Amortization of defined benefit pension items:
Actuarial gain (losses) $ (32 )(1) Other operating expense
Prior service credits 22 ⁽¹⁾ Other operating expense
(10 ) Total before tax
(3 ) Tax benefit
$ (7 ) Net of tax
For the three months ended March 31, 2018

Details about Accumulated Other
Comprehensive Loss Components Amounts Reclassified from
Accumulated Other
Comprehensive Loss Affected Line Item in the Statement
Where Net Income is Presented
(In thousands)

Cash flow hedges:
Interest rate swaps $ (263 ) Interest expense
83 Tax benefit
$ (180 ) Net of tax

Amortization of defined benefit pension items:
Actuarial losses $ (132 )⁽¹⁾ Other operating expense
Prior service credits 10 ⁽¹⁾ Other operating expense
(122 ) Total before tax
38 Tax benefit
$ (84 ) Net of tax

For the three months ended March 31, 2020

Amounts Reclassified from

Details about Accumulated Other
Accumulated Other

Affected Line Item in the Statement
Comprehensive Loss Components
Comprehensive Loss
Where Net Income is Presented
(In thousands)
Unrealized gains (losses) on available for sale securities

$
(37)

Net loss on sale of securities

12

Provision for income taxes

$
(25)

Net of tax
Cash flow hedges:

Interest rate swaps

$
(208)

Other interest expense

65

Tax benefit

$
(143)

Net of tax
Amortization of defined benefit pension items:

Actuarial gain (losses)

$
(97)
⁽¹⁾
Other operating expense
Prior service credits

20
⁽¹⁾
Other operating expense

(77)

Total before tax

24

Provision for income taxes

$
(53)

Net of tax

For the three months ended March 31, 2019

Amounts Reclassified from

Details about Accumulated Other
Accumulated Other
Affected Line Item in the Statement
Comprehensive Loss Components
Comprehensive Loss

Where Net Income is Presented
(In thousands)

Cash flow hedges:

Interest rate swaps

$
(201)

Interest expense

62

Tax benefit

$
(139)

Net of tax

Amortization of defined benefit pension items:

Actuarial losses

$
(32)
⁽¹⁾
Other operating expense
Prior service credits

22
⁽¹⁾
Other operating expense

(10)

Total before tax

3

Tax benefit

$
(7)

Net of tax
(1) These accumulated other comprehensive loss components are included in the computation of net periodic pension ~~cost (See~~cost. See Note ~~9 of the Notes to Consolidated Financial Statements “Pension~~10 (“Pension and Other Postretirement Benefit Plans”.) for additional information.

~~15.~~

~~Regulatory Capital~~

15.Regulatory Capital

Under current capital regulations, the Bank is required to comply with four separate capital adequacy standards. As of March 31, ~~2019,~~2020, the Bank continues to be categorized as “well-capitalized” under the prompt corrective action regulations and continues to exceed all regulatory capital requirements. The Bank is also required to comply with a Capital Conservation Buffer (“CCB”). The CCB is designed to establish a capital range above minimum capital requirements and impose

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

constraints on dividends, share buybacks and discretionary bonus payments when capital levels fall below prescribed levels. The minimum CCB is 2.500%. The CCB for the Bank at March 31, ~~2019~~2020 was ~~5.49%~~4.98%.
~~- 36 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
~~(Unaudited)~~
Set forth below is a summary of the Bank’s compliance with banking regulatory capital standards.


March 31, 2020

December 31, 2019

Percent of

Percent of


Amount

Assets

Amount

Assets

(Dollars in thousands)

Tier I (leverage) capital:









Capital level

$
676,267

9.51
%
$
680,749

9.65
%
Requirement to be well capitalized

355,552

5.00

352,581

5.00

Excess

320,715

4.51

328,168

4.65

Common Equity Tier I risk-based capital:









Capital level

$
676,267

12.48
%
$
680,749

13.02
%
Requirement to be well capitalized

352,240

6.50

339,944

6.50

Excess

324,027

5.98

340,805

6.52

Tier 1 risk-based capital:









Capital level

$
676,267

12.48
%
$
680,749

13.02
%
Requirement to be well capitalized

433,526

8.00

418,393

8.00

Excess

242,741

4.48

262,356

5.02

Total risk-based capital:









Capital level

$
703,130

12.98
%
$
702,500

13.43
%
Requirement to be well capitalized

541,908

10.00

522,991

10.00

Excess

161,222

2.98

179,509

3.43

March 31, 2019 December 31, 2018
Amount Percent of
Assets Amount Percent of
Assets
(Dollars in thousands)

Tier I (leverage) capital:
Capital level $ 663,467 9.64 % $ 660,782 9.85 %
Requirement to be well capitalized 344,216 5.00 335,512 5.00
Excess 319,251 4.64 325,270 4.85

Common Equity Tier I risk-based capital:
Capital level $ 663,467 13.08 % $ 660,782 13.28 %
Requirement to be well capitalized 329,701 6.50 323,386 6.50
Excess 333,766 6.58 337,396 6.78

Tier 1 risk-based capital:
Capital level $ 663,467 13.08 % $ 660,782 13.28 %
Requirement to be well capitalized 405,786 8.00 398,014 8.00
Excess 257,681 5.08 262,768 5.28

Total risk-based capital:
Capital level $ 684,482 13.49 % $ 681,727 13.70 %
Requirement to be well capitalized 507,232 10.00 497,517 10.00
Excess 177,250 3.49 184,210 3.70
~~- 37 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Notes to Consolidated Financial Statements~~
~~(Unaudited)~~

The Holding Company is subject to the same regulatory capital requirements as the Bank. As of March 31, ~~2019,~~2020, the Holding Company continues to be categorized as “well-capitalized” under the prompt corrective action regulations and continues to exceed all regulatory capital requirements. The CCB for the Holding Company at March 31, ~~2019~~2020 was ~~5.61%~~5.16%.
Set forth below is a summary of the Holding Company’s compliance with banking regulatory capital standards.


March 31, 2020

December 31, 2019

Percent of

Percent of


Amount

Assets

Amount

Assets

(Dollars in thousands)

Tier I (leverage) capital:









Capital level

$
610,898

8.59
%
$
615,500

8.73
%
Requirement to be well capitalized

355,470

5.00

352,581

5.00

Excess

255,428

3.59

262,919

3.73

Common Equity Tier I risk-based capital:









Capital level

$
567,306

10.47
%
$
572,651

10.95
%
Requirement to be well capitalized

352,184

6.50

339,929

6.50

Excess

215,122

3.97

232,722

4.45

Tier 1 risk-based capital:









Capital level

$
610,898

11.28
%
$
615,500

11.77
%
Requirement to be well capitalized

433,458

8.00

418,374

8.00

Excess

177,440

3.28

197,126

3.77

Total risk-based capital:









Capital level

$
712,761

13.16
%
$
712,251

13.62
%
Requirement to be well capitalized

541,822

10.00

522,967

10.00

Excess

170,939

3.16

189,284

3.62

March 31, 2019 December 31, 2018
Amount Percent of
Assets Amount Percent of
Assets
(Dollars in thousands)

Tier I (leverage) capital:
Capital level $ 594,196 8.63 % $ 586,582 8.74 %
Requirement to be well capitalized 344,147 5.00 335,616 5.00
Excess 250,049 3.63 250,966 3.74

Common Equity Tier I risk-based capital:
Capital level $ 552,793 10.90 % $ 546,230 10.98 %
Requirement to be well capitalized 329,661 6.50 323,382 6.50
Excess 223,132 4.40 222,848 4.48

Tier 1 risk-based capital:
Capital level $ 594,196 11.72 % $ 586,582 11.79 %
Requirement to be well capitalized 405,737 8.00 398,008 8.00
Excess 188,459 3.72 188,574 3.79

Total risk-based capital:
Capital level $ 690,211 13.61 % $ 682,527 13.72 %
Requirement to be well capitalized 507,171 10.00 497,511 10.00
Excess 183,040 3.61 185,016 3.72

~~- 38 -~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

-42-

~~16.~~

~~New Authoritative Accounting Pronouncements~~

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

16. New Authoritative Accounting Pronouncements

Accounting Standards Adopted in ~~2019:~~2020:

~~In February 2016,~~Effective January 1, 2020, the ~~FASB established Topic 842,~~~~Leases~~~~, by issuing~~Company adopted Accounting Standards ~~Update~~Topic 326, “Financial Instruments – Credit Losses” which replaced the previously existing U.S. GAAP “incurred loss” approach to “expected credit losses” approach, which is referred as Current Expected Credit Losses (“~~ASU”~~CECL”)~~No. 2016-02,~~~~Leases~~~~, which requires lessees to recognize leases on~~. CECL measures the credit loss associated with financial assets carried at amortize cost, including loan receivables, held-to-maturity debt securities, off balance sheet ~~makes targeted changes~~credit exposures and certain leases recognized by a lessor. CECL introduced the concept of purchased credit-deteriorated (PCD) financial assets, in which it requires the estimate of expected credit losses embedded in the purchase price of PCD assets to ~~lessor accounting,~~be estimated and enhances disclosures to include key information about leasing arrangements. An entity may adopt the new guidance by either restating prior periods and recording a cumulative effect adjustment at the beginningseparately recognized as an allowance as of the earliest comparative period presented (the modified retrospective transition approach) or by recording a cumulative adjustment at the beginning of the period of adoption (the additional transition method). The Company adopted this standard using the additional transition method approach and elected to use the effective date, January 1, 2019, as the date of ~~initial application. As part~~acquisition. It also modifies the accounting of impairment on available-for-sale debt securities by recognizing a credit loss through an allowance for credit.

The company adopted Topic 326 using the ~~Company’s adoption of ASC 842, the Company undertook a detailed scoping exercise to identify~~modified retrospective method for all ~~leasing arrangements subject to the new leasing guidance~~financial assets measured at amortized cost and ~~believes that all arrangements that meet the definition of a lease~~off-balances sheet exposures. Results for reporting periods beginning after January 1, 2020 are presented under ~~historic US GAAP will~~Topic 326 while prior period amounts continue to ~~meet the definition of a lease under ASC 842.~~be reported in accordance with previously applicable GAAP. Upon adoption ~~the Company~~we recorded ~~right of use assets~~a cumulative-effect adjustment to retained earnings totaling ~~$45.4~~$1.3 million, ~~and operating lease liabilities totaling $54.0 million. Additionally, a deferred gain from the sale of buildings totaling $2.7~~$0.9 million, net of ~~tax, was reclassified~~tax. The transition adjustment includes changes to ~~retained earnings.~~

As the ~~rate implicit in each~~three applicable components of the ~~Company’s leases is not readily determinable,~~ACL: increases of $0.4 million in the allowance for loan losses, $0.3 million in the allowance for held-to-maturity debt securities and $0.6 million in the allowance for off-balance sheet items.

At January 1, 2020 the reasonable and supportable forecast indicated economic growth and low unemployment.

Effective January 1, 2020, the Company is required to apply the Company’s incremental borrowing rate (“IBR”) to calculate the lease liability and right-of-use (“ROU”) asset for its leasing arrangements. The Company has used its unsecured Kroll rating as a starting point for calculation of the IBR and will adjust for considerations of collateral (i.e., notch the Company’s Kroll rating from an unsecured to a secured rating). The Company will also consider lease renewal options reasonably certain of exercise for purposes of determining the term of the underlying borrowing. The Company has considered various other factors, including, economic environment and determined that these factors do not currently impact the Company’s IBR calculation. The Company will continue to assess the appropriateness of the conclusions reached herein with respect to each of the factors discussed above and will determine the appropriate IBR for each new lease arrangement or modification, as required.

The new leasing standard provides a number of optional practical expedients in transition. The Company has elected the “package of practical expedients”, which permits the Company not to reassess prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to the Company. ASC 842 also provides certain accounting policy elections for an entity’s ongoing accounting. For operating leases wherein the Company is the lessee, the Company has elected the practical expedient to not separate lease and non-lease components. See Note 8 “Leases” for additional information.

~~In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815)”~~ providing targeted improvements to the accounting for hedging activities, which is effective January 1, 2019, with early adoption permitted in any interim period or fiscal year before the effective date. The guidance introduces a number of amendments, several of which are optional, that are designed to simplify the application of hedge accounting, improve financial statement transparency and more closely align hedge accounting with an entity’s risk management strategies. This ASU eliminates the requirement to separately measure and report hedge ineffectiveness and changes the presentation so that all items that affect earnings are in the same income statement line as the hedged item. ~~The Company~~ adopted this standard January 1, 2019, as the date of initial application. As a result of adoption, fair value adjustments on qualifying fair value hedges were recorded in interest income during the three months ended March 31, 2019. These adjustments were recorded in non-interest income in prior periods. See Note 12 “Derivative Financial Instruments” for additional information.

~~- 39 -~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Accounting Standards Pending Adoption:~~

~~In August 2018, the FASB issued ASU No. 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20)”~~ providing targeted improvements to the disclosures required for Defined Benefit Plans. The amendments in in this Update are effective for fiscal years ended after December 15, 2020. Early adoption is permitted. The amendments are to be applied on a retrospective basis to all periods presented. ~~We are currently evaluating the impact of adopting this new guidance on our disclosures.~~

~~In August 2018, the FASB issued~~ ASU No. 2018-13, “Fair Value Measurement (Topic 820)”.: The ~~amendments in this~~ Update ~~modify~~modifies the disclosure requirements on fair value measurements in Topic 820. The ~~amendments in this Update are effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2019. Early adoption is permitted. The amendments are to be applied~~guidance did not have a significant impact on ~~a retrospective basis to all periods presented.~~ ~~We are currently evaluating~~ the ~~impact~~Company’s financial positions, results of ~~adopting this new guidance on our~~operations or disclosures.

InEffective January ~~2017,~~1, 2020, the ~~FASB issued~~Company adopted ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The ASU simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. Under this ASU, the Company should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting ~~unit's~~unit’s fair value. The impairment charge is limited to the amount of goodwill allocated to that reporting unit. The guidance did not have a significant impact on the Company’s financial positions, results of operations or disclosures.

Accounting Standards Pending Adoption:

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20)” providing targeted improvements to the disclosures required for Defined Benefit Plans. The amendments in in this ~~update~~Update are effective for fiscal years ~~beginning~~ended after December 15, ~~2019, including interim periods within those fiscal years.~~2020. Early adoption is ~~permitted for goodwill impairment tests performed~~permitted. The amendments are to be applied on ~~testing dates after January 1, 2017.~~a retrospective basis to all periods presented. The guidance is not expected to have a significant impact on the ~~Company's~~Company’s financial positions, results of operations or disclosures.

In ~~June 2016,~~March 2020, the FASB issued ASU No. ~~2016-13, “Financial Instruments – Credit Losses”~~2020-04, “Reference Rate Reform” (Topic 848), which ~~sets forth~~provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a “current expected credit loss” (“CECL”) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replacescontinuation of the existing ~~incurred loss model~~agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for derivative accounting. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. We anticipate this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old contract resulting in writing off unamortized fees/costs. We are evaluating the impacts of this ASU and have not yet determined whether LIBOR transition and this ASU will have material effects on our business operations and consolidated financial statements. The amendments in this Update apply to contract modifications that replace a reference rate reform and contemporaneous modifications of other terms related to the measurement of credit losses on financial assets measured at amortized cost and to some off-balance sheet credit exposures. This ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company has been collecting and evaluating data and system requirements to implement this standard. Management has developed inter-departmental steering and working committees to evaluate and implement CECL. We have chosen a vendor solution to model CECL results and are in the middle stages of implementing this solution. The adoption of this update could have a material impact on the Company’s consolidated results of operations and financial condition. The extentreplacement of the ~~impact is still unknown~~reference rate.

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and ~~will depend on many factors, such as the composition~~SUBSIDIARIES

Management’s Discussions and Analysis of ~~the Company’s loan portfolio~~

Financial Condition and ~~expected loss history at adoption.~~

~~- 40 -~~Results of Operations

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Management’s Discussions and Analysis of~~

~~Financial Condition and Results of Operations~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report should be read in conjunction with the more detailed and comprehensive disclosures included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. In addition, please read this section in conjunction with our Consolidated Financial Statements and Notes to Consolidated Financial Statements contained herein.

As used in this Quarterly Report, the words “we,” “us,” “our” and the “Company” are used to refer to Flushing Financial Corporation and its direct and indirect wholly owned subsidiaries, Flushing Bank (the “Bank”), Flushing Preferred Funding Corporation, Flushing Service Corporation, and FSB Properties Inc.

Statements contained in this Quarterly Report relating to plans, strategies, objectives, 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 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, factors discussed elsewhere in this Quarterly Report and in other documents filed by us with the Securities and Exchange Commission from time to time, including, without limitation, our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. 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. We have no obligation to update these forward-looking statements.

Impact of COVID-19

In March 2020, the World Health Organization recognized the outbreak of the novel Coronavirus Disease 2019 (“COVID-19”) as a pandemic. The Spread of COVID-19 has created a global public health crisis that has resulted in unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in United States and globally, including the markets we serve. In response to the pandemic, government placed orders for shelter in place, maintain social distancing and closed businesses that are not deemed essential.

The Company was quick to respond to the pandemic with new health and safety measures, including social distancing, appointment banking and expansion of our remote capabilities. Our staff responded to these changes in a superb fashion and continue to provide our customers with excellent service. Today we have the capability of having our entire staff work remotely. On any given day, as many as 85% of staff work from home. The Federal Reserve’s dramatic 150 basis point drop in rates provided the country with much needed liquidity to counteract the negative economic effects of the COVID-19 pandemic. As a result, we recorded mark to market adjustments on items carried at fair value under the fair value option and on our derivative portfolio totaling $0.20 per share, after-tax.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed in to law. It contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act includes the Paycheck Protection Program (“PPP”), a program to aid small and medium- sized businesses through federally guaranteed loans distributed through banks. These loans are intended to guarantee eight weeks of payroll and other costs to help those businesses remain viable and allow their workers to pay their bills.

During these tumultuous times, we are actively assisting our customers by providing short-term forbearances in the form of deferrals of interest, principal and/or escrow for terms ranging from one to six months. Through April 17^th, 2020, we have approved forbearances for loans with an aggregate outstanding loan balance of approximately $839 million of which $673 million is in our real estate portfolio and $166 million is in our business banking portfolio. Given the pandemic and

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

current economic environment, we continue to see interest from our customers to modify loans. We actively participated in the PPP, gaining approval to fund up to $64 million of these loans. We also expect to participate in the Main Street Lending Program in order to assist our customers.

Executive Summary

We are a Delaware corporation organized in May 1994. The Bank was organized in 1929 as a New York State-chartered mutual savings bank. Today the Bank operates as a full-service New York State commercial bank. The Bank’s primary regulator is the New York State Department of Financial Services, and its primary federal regulator is the Federal Deposit Insurance Corporation (“FDIC”). Deposits are insured to the maximum allowable amount by the FDIC. Additionally, the Bank is a member of the Federal Home Loan Bank system. The primary business of Flushing Financial Corporation has been the operation of the Bank. The Bank owns three subsidiaries: Flushing Preferred Funding Corporation, Flushing Service Corporation, and FSB Properties Inc. The Bank also operates an internet branch, which operates under the brands of iGObanking.com® and BankPurely® (the “Internet Branch”). The activities of Flushing Financial Corporation are primarily funded by dividends, if any, received from the Bank, issuances of subordinated debt, junior subordinated debt, and issuances of equity securities. Flushing Financial Corporation’s common stock is traded on the NASDAQ Global Select Market under the symbol “FFIC.”

Our principal business is attracting retail deposits from the general public and investing those deposits together with funds generated from ongoing operations and borrowings, primarily in (1) originations and purchases of multi-family residential loans, commercial business loans, commercial real estate mortgage loans and, to a lesser extent, one-to-four family loans (focusing on mixed-use properties, which are properties that contain both residential dwelling units and commercial units); (2) Small Business Administration (“SBA”) loans and other small business loans; (3) construction loans; (4) mortgage loan surrogates such as mortgage-backed securities; and (5) U.S. government securities, corporate fixed-income securities and other marketable securities. We also originate certain other consumer loans including overdraft lines of credit. Our results of operations depend primarily on net interest income, which is the difference between the income earned on our interest-earning assets and the cost of our interest-bearing liabilities. Net interest income is the result of our net interest rate margin, which is the difference between the average yield earned on interest-earning assets and the average cost of interest-bearing liabilities, adjusted for the difference in the average balance of interest-earning assets as compared to the average balance of interest-bearing liabilities. We also generate non-interest income primarily from loan fees, service charges on deposit accounts, mortgage servicing fees, and other fees, income earned on Bank Owned Life Insurance (“BOLI”), dividends on Federal Home Loan Bank of New York (“FHLB-NY”) stock and net gains and losses on sales of securities and loans. Our operating expenses consist principally of employee compensation and benefits, occupancy and equipment costs, other general and administrative expenses and income tax expense. Our results of operations also can be significantly affected by changes in the fair value of financial assets and financial liabilities for which changes in value are recorded through earnings, our periodic provision for ~~loan~~credit losses and specific provision for losses on real estate owned.

~~- 41 -~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Management’s Discussions and Analysis of~~

~~Financial Condition and Results of Operations~~

~~Our strategy is to continue our focus on being an institution serving consumers, businesses, and governmental units in our local markets. In furtherance of this objective, we intend to:~~

~~manage cost of funds and continue to improve funding mix;~~

~~increase interest income by leveraging loan pricing opportunities and portfolio mix;~~

~~enhance earnings power by improving scalability and efficiency;~~

~~manage credit risk;~~

~~remain well capitalized;~~

~~increase our commitment to the multi-cultural marketplace, with a particular focus on the Asian community;~~

~~manage enterprise-wide risk.~~

~~There can be no assurance that we will be able to effectively implement this strategy. Our strategy is subject to change by the Board of Directors.~~

Our investment policy, which is approved by the Board of Directors, is designed primarily to manage the interest rate sensitivity of our overall assets and liabilities, to generate a favorable return without incurring undue interest rate risk and credit risk, to complement our lending activities and to provide and maintain liquidity. In establishing our investment strategies, we consider our business and growth strategies, the economic environment, our interest rate risk exposure, our interest rate sensitivity “gap” position, the types of securities to be held and other factors. We classify our investment securities as available for sale or held-to-maturity.

We carry a portion of our financial assets and financial liabilities atunder the fair value option and record changes in their fair value through earnings in non-interest income on our Consolidated Statements of Income and Comprehensive Income. A description of the financial assets and financial liabilities that are carried at fair value through earnings can be found in Note 11 (“Fair Value of Financial Instruments”) of the Notes to the Consolidated Financial Statements.

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~~Rate over volume remains~~PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

Our net interest margin for three months ended March 31, 2020 decreased $0.4 million to $40.8 million from $41.2 million from the three months ended December 2019. The provision for credit losses for loans was increased $7.5 million from the three months ended December 31, 2019 primarily due to the adoption of CECL beginning January 1, 2020 and the impact of negative economic conditions resulting from the COVID-19 pandemic. CECL requires consideration of a ~~major strategic focus.~~ broader range of information in order to update expected credit losses to capture life of loan and held-to-maturity debt securities estimated losses. These losses are estimated using historical loss experience, current conditions, and a reasonable and supportable forecast that affect the collectability of the reported amount. Since current economic conditions were negatively impacted by COVID-19 pandemic, the CECL model factored in the current condition which increased our allowance for loan losses by approximately 30%.

During the ~~first quarter~~three months ended March 31, 2020, our loan pipeline remained strong at $324 million. The strong C&I production aids to the diversification of ~~2019, we continued~~our loan portfolio, these loans are generally floating rate loans which represents 19% of our loan portfolio at March 31, 2020. Loan closings for three months ended March 31, 2020 increased to ~~experience improvement on rates recognized on new loans, as rates received increased 12 basis points~~$299 million compared to ~~5.02% from 4.90%~~$270 million for three months ended December 31, ~~2018 and 75 basis points from 4.27% for the comparable quarter of 2018. During the recent quarter, approximately 78% of our new loans were adjustable rate products.~~2019.

~~The yield on interest-earning assets increased four basis points to 4.29% during~~During the three months ended March 31, ~~2019,~~2020, the yield on interest-earning assets decreased 23 basis points, while the cost of interest-bearing liabilities decreased 22 basis points from ~~4.25% for~~ the three months ended December 31, ~~2018, while~~2019, resulting in net interest margin compression of four basis points. The decrease in the cost of interest-bearing liabilities ~~increased three~~was primarily driven by Federal Reserve dropping the rates 150 basis points to ~~1.93% from 1.90% during the same period. This resulted in the net interest margin remaining flat at 2.57% for the three months ended March 31, 2019,~~combat against COVID-19 pandemic.

Our non-accrual and ~~for the linked quarter.~~

~~Non-performing assets decreased by 3.2% since December 31, 2018. The allowance for loan losses to gross loans was 0.38% while the allowance for loan losses to~~ non-performing loans increased ~~to 134%~~$3.9 million and $3.5 million, respectively from ~~129% in the linked quarter.~~December 31, 2019. Net charge-offs totaled $1.1 million. The average loan-to-value on our non-performing real estate loans at March 31, ~~2019 remains~~2020 remained conservative at ~~33.9%~~approximately 29.0%. During the three months ended March 31, 2019 we recorded net charge-offs of $0.9 million primarily due to one commercial business loan relationship written-down $1.1 million to a remaining book balance of $0.9 million.

The Bank and Company remain well capitalized under current capital regulations and are subject to the same regulatory capital requirements. See Note 15 (“Regulatory Capital”) of the Notes to the Consolidated Financial ~~Statements “Regulatory Capital.”~~Statements.

~~- 42 -~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Management’s Discussions and Analysis of~~

~~Financial Condition and Results of Operations~~

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED

MARCH 31, 2020 and 2019 ~~AND 2018~~

General. Net income (loss) for the three months ended March 31, ~~2019~~2020 was ~~$7.1~~($1.4) million, a decrease of ~~$4.3~~$8.5 million, or ~~38.1%~~119.7%, compared to ~~$11.4~~$7.1 million for the three months ended March 31, ~~2018.~~2019. Diluted earnings (loss) per common share were ($0.05) for the three months ended March 31, 2020, a decrease of $0.30, or 120.0%, from $0.25 for the three months ended March 31, ~~2019, a decrease of $0.14, or 35.9%, from $0.39~~2019.

Return (loss) on average equity decreased to (1.0)% for the three months ended March 31, ~~2018.~~

~~Return on average equity decreased to~~2020 from 5.1% for the three months ended March 31, ~~2019 from 8.6%~~2019. Return on average assets decreased to (0.1)% for the three months ended March 31, ~~2018. Return on average assets decreased to~~2020 from 0.4% for the three months ended March 31, ~~2019 from 0.7%~~2019.

Interest Income. Interest and dividend income decreased $3.1 million, or 4.5%, to $66.7 million for the three months ended March 31, ~~2018.~~

~~Interest Income.~~ ~~Interest and dividend income increased $9.0 million, or 14.9%, to~~2020 from $69.8 million for the three months ended March 31, ~~2019 from $60.8 million for the three months ended March 31, 2018.~~2019. The ~~increase~~decrease in interest income was primarily attributable to a decrease in the yield of average interest earning assets of 31 basis points, partially offset by an increase of ~~$422.4~~$198.7 million in the average balance of interest-earning assets to ~~$6,521.1~~$6,719.9 million for the three months ended March 31, ~~2019~~2020 from ~~$6,098.7~~$6,521.1 million for the comparable prior year ~~period, combined with an increase of 29 basis points in the yield of interest-earning assets to 4.29% for the three months ended March 31, 2019, from 4.00% in the comparable prior year~~ period. The ~~increase~~decrease in the yield on interest-earning assets was primarily due to ~~an increase~~decreases of ~~$313.3 million~~28 basis points and 65 basis points in ~~the average balance of total loans, net, which have a higher yield than~~ the yield of total interest-earning assets, partially offset by an increase of $93.5 million in the average balance of total securities, which have a lower yield than the yield of total interest-earning assets. The yield of interest-earning assets also improved due to increases of 29 basis points, 35 basis pointsloans and ~~60 basis points in the yields of total loans, net,~~ taxable securities, and tax-exempt securities, respectively, for the three months ended March 31, 2019 from the comparable prior year period. Additionally, the yield on interest-earning deposits and federal funds sold increased 84 basis points for the three months ended March 31, 2019, from the comparable prior year period due to increases in the Federal Funds rate.respectively. The ~~increase~~decrease of 2928 basis points in the yield on the total loans, net, was primarily due to ~~loans being both originated and repriced at~~the impact of net losses from fair value adjustments on qualifying hedges totaling $2.1 million compared to $0.6 million for the three months ended March 31, 2019. The decrease in the yield of securities was primarily due to higher ~~rates. The 35 basis points in taxable~~yielding securities ~~and 60 basis points in tax-exempt securities primarily resulted from the positive effect of the sale of~~replaced by lower yielding ~~securities in fourth quarter of 2018 and purchases of new securities at higher yields than the existing portfolio yield.~~securities. Excluding prepayment penalty income, recovered interest from loans and net losses from fair value adjustments on qualifying hedges, the yield on total loans, net, would have ~~increased 31~~decreased 15 basis points to 4.28% for the three months ended March 31, 2020 from 4.43% for the three months ended March 31, 2019, ~~from 4.12%~~primarily due to loans being both originated and repriced at lower rates.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

Interest Expense. Interest expense decreased $2.2 million, or 7.7%, to $25.8 million for the three months ended March 31, ~~2018.~~

~~Interest Expense.~~ ~~Interest expense increased $9.8 million, or 54.1%, to~~2020 from $28.0 million for the three months ended March 31, ~~2019, from $18.2 million for the three months ended March 31, 2018.~~2019. The ~~increase~~decrease in interest expense was primarily due to ~~an increase~~a decrease of 5919 basis points in the average cost of interest-bearing liabilities to 1.74% for the three months ended March 31, 2020 from 1.93% for the three months ended March 31, 2019, ~~from 1.34% for the three months ended March 31, 2018, combined with~~partially offset by an increase of ~~$368.7~~$140.7 million in the average balance of interest-bearing liabilities to ~~$5,811.3~~$5,951.9 million for the three months ended March 31, ~~2019,~~2020 from ~~$5,442.6~~$5,811.3 million for the comparable prior year period. Additionally, the cost of borrowed funds decreased to 2.16% from 2.27% in the prior year period. The ~~59 basis point increase~~decrease in the cost of interest-bearing liabilities was primarily due to ~~increases in the rates we pay on some of our deposit products to stay competitive within our market and in borrowing costs.~~Federal Reserve lowering rates.

Net Interest Income. ~~For~~Net interest income for the three months ended March 31, ~~2019, net interest income~~2020 was ~~$41.8~~$40.8 million, a decrease of ~~$0.8~~$1.0 million, or ~~1.9%~~2.3%, from ~~$42.6~~$41.8 million for the three months ended March 31, ~~2018.~~2019. The decrease in net interest income was primarily due to the 5931 basis point ~~increase~~decrease in the ~~cost~~yield of ~~interest-bearing liabilities~~interest-earning assets to ~~1.93% for the three months ended March 31, 2019,~~3.98% from ~~1.34%~~4.29% for the comparable prior year period, partially offset by an increase in the average balance of 29$198.7 million for the three months ended March 31, 2020. Additionally, net interest income was positively impacted by a decrease of 19 basis points in the ~~yield~~cost of ~~interest-earning assets~~interest-bearing liabilities to ~~4.29%~~1.74% for the three months ended March 31, 2020 as compared to 1.93% for the three months ended March 31, 2019, ~~as compared~~partially offset by increase of $140.7 million in the average balance of interest-bearing liabilities to ~~4.00% for~~$5,951.9 million from $5,811.3 million in the ~~three months ended March 31, 2018.~~prior year period. The ~~effects~~net effect of the above on both the net interest spread and net interest margin were decreases of 3012 basis points to ~~2.36%~~2.24% and 2413 basis points to ~~2.57%~~2.44%, respectively, for the quarter ended March 31, ~~2019,~~2020 compared to the quarter ended March 31, ~~2018.~~2019. Included in net interest income was prepayment penalty income from loans totaling ~~$0.8~~$0.7 million in each of the three month periods ended March 31, 2020 and 2019, recovered interest from non-accrual loans totaling $0.4 million and ~~$0.9~~$0.7 million for the three months ended March 31, ~~2019~~2020 and ~~2018, respectively, recovered interest from non-accrual loans totaling $0.7 million and $0.2 million for the three months ended March 31,~~ 2019, ~~and 2018,~~ respectively, and net losses from fair value adjustments on qualifying hedges totaling $2.1 million and $0.6 million for three months ended March 31, ~~2019.~~2020 and 2019, respectively. Excluding prepayment penalty income, recovered interest, and net losses from fair value adjustment on qualifying hedges, the net interest margin for the three months ended March 31, ~~2019~~2020 was ~~2.52%~~2.49%, a decrease of 22three basis points, ~~as compared~~from to ~~2.74%~~2.52% for the three months ended March 31, ~~2018.~~2019.

~~- 43 -~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Management’s Discussions and Analysis of~~

~~Financial Condition and Results of Operations~~

Provision for ~~Loan~~Credit Losses.During the three months ended March 31, ~~2019,~~2020, a provision for ~~loan~~credit losses was recorded for ~~$1.0~~$7.2 million, compared to ~~$0.2~~$1.0 million for the three months ended March 31, ~~2018.~~2019. The provision was aprimarily the result of ~~one commercial business loan relationship written down by $1.1 million to a remaining book balance~~economic deterioration resulting from the impact of ~~$0.9 million.~~COVID-19. During the three months ended March 31, ~~2019,~~2020, the Bank recorded net charge-offs totaling ~~$0.9~~$1.1 million, while non-accrual loans ~~decreased $0.5~~increased $3.9 million to ~~$15.7~~$16.8 million from ~~$16.3~~$12.8 million at December 31, ~~2018.~~2019. The current average loan-to-value ratio for our non-performing loans collateralized by real estate was ~~33.9%~~28.9% at March 31, ~~2019.~~2020. The Bank continues to maintain conservative underwriting standards. ~~We anticipate that we will continue to experience low loss content in our loan portfolio.~~ See “Allowance for ~~Loan~~Credit Losses” below, Note 5 (“Loans”) and Note 516 (“New Authoritative Accounting Pronouncements”) of the Notes to the Consolidated Financial ~~Statements “Loans”.~~Statements.

Non-Interest ~~Income.~~Income (Loss). Non-interest ~~income~~loss for the three months ended March 31, ~~2019~~2020 was ~~$0.9~~($2.9) million, a decrease of ~~$2.3~~$3.8 million ~~or 70.5%,~~ from ~~$3.2 million for~~ the ~~three months ended March 31, 2018.~~prior year comparable period. The decrease in non-interest income was primarily due to an increase of ~~$2.0~~$3.9 million in net losses from fair value ~~adjustments, combined with a decrease~~adjustments.

Non-Interest Expense. Non-interest expense was $32.4 million for each of ~~$0.7 million in life insurance proceeds as compared to~~ the three months ended March 31, ~~2018. These decreases were partially offset by a gain on sale of loans for $0.1 million during the three months ended~~2020, and March 31, ~~2019 compared~~2019.

Income (Loss) before Income Taxes. Income before the provision for income taxes decreased $11.0 million, or 117.1%, to ~~a loss on sale of loans for $0.3 million recorded during the three months ended March 31, 2018.~~

~~Non-Interest Expense.~~ ~~Non-interest expense was $32.4~~($1.6) million for the three months ended March 31, ~~2019, an increase of $1.1 million, or 3.6%,~~2020 from $31.3 million for the three months ended March 31, 2018. The increase was due to the accelerated vesting of restricted stock awards upon an employees’ death totaling $0.5 million, and due to the growth of the Bank increases in salaries and benefits, occupancy and equipment and depreciation expenses.

~~Income before Income Taxes.~~ ~~Income before the provision for income taxes decreased $5.0 million, or 34.9%, to~~ $9.4 million for the three months ended March 31, 2019 ~~from $14.4~~for the reasons discussed above.

Provision(benefit) for Income Taxes. The benefit for income taxes was ($0.2) million for the three months ended March 31, ~~2018 for the reasons discussed above.~~

~~Provision for Income Taxes.~~ ~~The provision for income taxes was~~2020, a decrease of $2.5 million, or 109.0%, from $2.3 million for the three months ended March 31, ~~2019,~~2019. The decrease was primarily due to a decrease in income before income taxes.

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Table of ~~$0.7~~Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

FINANCIAL CONDITION

Assets. Total assets at March 31, 2020 were $7,245.4 million, an increase of $227.6 million, or ~~22.5%~~3.2%, from ~~$3.0~~$7,017.8 million at December 31, 2019. Total loans, net increased $153.5 million, or 2.7%, during the three months ended March 31, 2020, to $5,904.0 million from $5,750.5 million at December 31, 2019. Loan originations and purchases were $298.7 million for the three months ended March 31, 2018. The effective tax rate increased to 24.5% for the three months ended March 31, 2019, from 20.5% in the comparable prior year period primarily due to a reduction in tax preferential items, which resulted in an increase in effective tax rate .

~~FINANCIAL CONDITION~~

~~Assets.~~ ~~Total assets at March 31, 2019 were $6,867.5 million,~~2020, an increase of ~~$33.3~~$100.7 million, or ~~0.5%~~50.8%, from $6,834.2 million at December 31, 2018. Total loans, net increased $37.2 million, or 0.7%, during the three months ended March 31, 2019 to $5,567.7 million from $5,530.5 million at December 31, 2018. Loan originations and purchases were $198.0 million for the three months ended March 31, ~~2019, a decrease of $143.8 million, or 42.1%, from $341.8 million for the three months ended March 31, 2018.~~2019. During the three months ended March 31, ~~2019,~~2020, we continued to focus on the origination of multi-family residential, commercial real estate and commercial business loans with a full banking relationship. The loan pipeline ~~increased to $274.8~~was $324.4 million at March 31, ~~2019,~~2020, compared to ~~$196.6~~$324.5 million at December 31, ~~2018.~~

~~- 44 -~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Management’s Discussions and Analysis of~~

~~Financial Condition and Results of Operations~~

2019.

The following table shows loan originations and purchases for the periods indicated:

For the three months
ended March 31,
(In thousands) 2019 2018
Multi-family residential ⁽¹⁾ $ 27,214 $ 81,181
Commercial real estate 13,941 71,554
One-to-four family – mixed-use property 16,423 16,068
One-to-four family – residential ⁽²⁾ 3,886 16,968
Construction ⁽³⁾ 5,901 14,679
Small Business Administration 329 1,967
Commercial business and other ⁽⁴⁾ 130,330 139,407
Total $ 198,024 $ 341,824

For the three months

ended March 31,
(In thousands)

2020

2019
Multi-family residential ⁽¹⁾

$
67,318

$
27,214
Commercial real estate ⁽²⁾

99,571

13,941
One-to-four family – mixed-use property

13,455

16,423
One-to-four family – residential

8,413

3,886
Co-operative apartments

704

—
Construction ⁽³⁾

6,749

5,901
Small Business Administration

57

329
Commercial business and other ⁽⁴⁾

102,448

130,330
Total

$
298,715

$
198,024
(1) Includes purchases of ~~$13.3~~$3.1 million for the three months ended March 31, ~~2018.~~2020.
(2) Includes purchases of ~~$0.9~~$30.0 million for three months ended March 31, ~~2018.~~2020.
(3) Includes purchases of $3.5 million and $2.4 million for three months ended March 31, ~~2019.~~2020 and March 31, 2019, respectively.
(4) Includes purchases of ~~$54.6~~$40.7 million and ~~$54.7~~$54.6 million for the three months ended March 31, 2020 and March 31, 2019, ~~and 2018,~~ respectively.

The Bank maintains its conservative underwriting standards that include, among other things, a loan-to-value ratio of 75% or less and a debt coverage ratio of at least 125%. Multi-family residential (excluding underlying co-operative mortgages), commercial real estate and one-to-four family mixed-use property mortgage loans originated and purchased during the three months ended March 31, ~~2019~~2020 had an average loan-to-value ratio of ~~40.5%~~42.7% and an average debt coverage ratio of ~~171%~~181%.
The Bank’s non-performing assets totaled ~~$15.8~~$17.0 million at March 31, ~~2019, a decrease~~2020, an increase of ~~$0.5~~$3.5 million, or ~~3.2%~~25.6%, from ~~$16.3~~$13.5 million at December 31, ~~2018.~~2019. Total non-performing assets as a percentage of total assets were 0.23% at March 31, ~~2019~~2020 compared to ~~0.24%~~0.19% at December 31, ~~2018.~~2019. The ratio of allowance for loan losses to total non-performing loans was ~~133.55%~~167.7% at March 31, ~~2019~~2020 and ~~128.87%~~164.1% at December 31, ~~2018.~~
2019.
During the three months ended March 31, ~~2019,~~2020, mortgage-backed securities ~~including held-to-maturity increased $21.2~~decreased $34.3 million, or ~~3.8%~~6.4%, to ~~$587.1~~$497.5 million from ~~$565.9~~$531.8 million at December 31, ~~2018.~~2019. The ~~increase~~decrease in mortgage-backed securities during the three months ended March 31, ~~2019~~2020 was primarily due to ~~purchases~~sale of ~~$33.8~~securities totaling $64.6 million at an average ~~yield~~rate of ~~3.37%~~3.46% and principal repayments of $40.4 million, partially offset by purchase of securities totaling $63.4 million at an average rate of 2.20% and an increase in the fair value of ~~$4.7 million, partially offset by principal repayments of $16.8~~$8.2 million.
During the three months ended March 31, ~~2019,~~2020, other securities, ~~including held-to-maturity, increased $0.6~~decreased $23.5 million, or ~~0.2%~~8.5%, to ~~$289.4~~$276.1 million from ~~$288.8~~$299.6 million at December 31, ~~2018.~~2019. The ~~increase~~decrease in other securities during the three months ended March 31, ~~2019~~2020, was primarily due to ~~purchases totaling $12.1 million at an average yield of 4.62% and an increase~~a decrease in fair value of ~~$3.6 million, partially offset by calls and maturities of municipals securities totaling $13.3 million and $1.6 million, respectively.~~$23.0 million. At March 31, ~~2019~~2020 other securities primarily consist of securities issued by mutual or bond funds that invest in government and government agency securities, municipal bonds, corporate bonds and CLO’s.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

Liabilities. Total liabilities were ~~$6,307.9~~$6,695.7 million at March 31, ~~2019,~~2020, an increase of ~~$23.2~~$257.6 million, or ~~0.4%~~4.0%, from ~~$6,284.7~~$6,438.1 million at December 31, ~~2018.~~2019. During the three months ended March 31, ~~2019,~~2020, due to depositors ~~increased $94.2~~decreased $193.6 million, or ~~1.9%~~3.9%, to ~~$5,010.1~~$4,828.4 million due to ~~increases of $145.7 million in non-maturity deposits, partially offset by~~ a decrease of ~~$51.5~~$265.5 million in certificates of ~~deposit.~~deposit, partially offset by an increase of $71.9 million in non-maturity deposits. Included in deposits were brokered deposits totaling ~~$173.0~~$115.6 million, a decrease of ~~$128.6~~$273.2 million from ~~$301.7~~$388.8 million at December 31, ~~2018.~~2019. The increase in non-maturity deposits was due to ~~increase~~increases of ~~$241.8~~$54.1 million, $12.0 million, $5.1 million and $0.7 million in demand deposits, NOW accounts, ~~partially offset by decreases of $75.1 million, $12.7 million and $8.2 million in~~ money market ~~demand~~accounts and savings accounts, respectively. Borrowed funds ~~decreased $134.4~~increased $380.4 million during the three months ended March 31, ~~2019.~~2020. The ~~decrease~~increase in borrowed funds was primarily due to ~~a decrease~~an increase in ~~FHLB-NY short-term~~wholesale borrowings, as ~~funding needs were provided by increased deposits.~~the Company sought to reduce the cost of funds.

Equity. Total stockholders’ equity ~~increased $10.1~~decreased $30.0 million, or ~~1.8%~~5.2%, to ~~$559.6~~$549.7 million at March 31, ~~2019~~2020 from ~~$549.5~~$579.7 million at December 31, ~~2018.~~2019. Stockholders’ equity ~~increased~~decreased primarily due to an increase in accumulated comprehensive net ~~income~~loss of ~~$7.1~~$22.6 million combined with the purchase of 142,405 treasury shares at an average cost of $16.45 per share, totaling $2.3 million and the ~~net impact~~adoption of ~~vesting and exercising of shares of employee and director stock plans~~CECL totaling ~~$4.1~~$0.9 million. Additionally, stockholders’ equity was ~~also positively impacted by a decrease~~reduced due to the net loss of ~~$2.2~~$1.4 million ~~in other comprehensive loss. These increases were partially offset~~and the declaration and payment of dividends on the Company’s common stock of $0.21 per common share totaling ~~$6.0~~$6.1 million. These decreases were partially offset by the net impact of vesting and exercising of shares of employee and director stock plans totaling $3.3 million. Book value per common share was ~~$19.85~~$19.48 at March 31, ~~2019~~2020 compared to ~~$19.64~~$20.59 at December 31, ~~2018.~~2019.

~~- 45 -~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Management’s Discussions and Analysis of~~

~~Financial Condition and Results of Operations~~

Cash flow. During the three months ended March 31, ~~2019,~~2020, funds provided by the ~~Company's~~Company’s operating activities amounted to ~~$11.8~~$11.3 million. These funds, combined with ~~$118.6~~$204.7 million ~~available~~ from ~~the beginning of the period~~financing activities were utilized to fund ~~$24.1 million and $47.6~~$108.5 million used in ~~financing activities and~~ investing ~~activities, respectively.~~activities. The ~~Company's~~Company’s primary business objective is the origination and purchase of multi-family residential loans, commercial business loans and commercial real estate mortgage loans and to a lesser extent one-to-four family (including mixed-use properties) and SBA loans. During the three months ended March 31, ~~2019,~~2020, the net total of loan originations and purchases less loan repayments and sales was ~~$39.5~~$133.1 million. During the three months ended March 31, ~~2019,~~2020, the Company also funded ~~$45.7~~$64.4 million in purchases of securities available for ~~sale and $0.2 million of securities held-to-maturity.~~sale. During the three months ended March 31, ~~2019,~~2020, funds were provided by increases of $410.0 million in net ~~increases~~short-term borrowing and $50.0 million in ~~total deposits of $119.4 million. In addition to funding loan growth, these~~proceeds from long-term borrowings. The funds were used to fund deposit withdrawals totaling $165.0 million and repay ~~$84.3 million in short-term borrowings and $51.3~~$80.5 million in long-term borrowings. The Company also used funds of ~~$6.0~~$6.1 million for dividend payments and $3.8 million in purchases of treasury stock during the three months ended March 31, ~~2019.~~2020.

INTEREST RATE RISK

The Consolidated Statements of Financial Position have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in fair value of certain investments due to changes in interest rates. Generally, the fair value of financial investments such as loans and securities fluctuates inversely with changes in interest rates. As a result, increases in interest rates could result in decreases in the fair value of the Company’s interest-earning assets which could adversely affect the Company’s results of operations if such assets were sold, or, in the case of securities classified as available for sale, decreases in the Company’s stockholders’ equity, if such securities were retained.

The Company manages the mix of interest-earning assets and interest-bearing liabilities on a continuous basis to maximize return and adjust its exposure to interest rate risk. On a quarterly basis, management prepares the “Earnings and Economic Exposure to Changes in Interest Rate” report for review by the Asset Liability Committee of the Board of Directors, as summarized below. This report quantifies the potential changes in net interest income and net portfolio value should interest rates go up or down (shocked) 200 basis points, assuming the yield curves of the rate shocks will be parallel to each other. The Company’s regulators currently place focus on the net portfolio value, focusing on a rate shock up or down of 200 basis points. Net portfolio value is defined as the market value of assets net of the market value of liabilities. The market value of assets and liabilities is determined using a discounted cash flow calculation. The net portfolio value ratio is the ratio of the net portfolio value to the market value of assets. All changes in income and value are measured

-50-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

as percentage changes from the projected net interest income and net portfolio value at the base interest rate scenario. The base interest rate scenario assumes interest rates at March 31, ~~2019.~~2020. Various estimates regarding prepayment assumptions are made at each level of rate shock. However, prepayment penalty income is excluded from this analysis. Actual results could differ significantly from these estimates. At March 31, ~~2019,~~2020, the Company was within the guidelines set forth by the Board of Directors for each interest rate level.

The following table presents the Company’s interest rate shock as of March 31, ~~2019:~~2020:

Projected Percentage Change In

Net Portfolio

Change in Interest Rate

Net Interest Income

Net Portfolio Value

Value Ratio

-200 Basis points

4.57
%
30.00
%
11.51
%
-100 Basis points

3.75

18.14

10.68

Base interest rate

—

—

9.37

+100 Basis points

(5.66)

(12.46)

8.45

+200 Basis points

(11.36)

(20.64)

7.86

Projected Percentage Change In

Change in Interest Rate
Net Interest
Income
Net Portfolio
Value
Net Portfolio
Value Ratio
-200 Basis points 10.38 % 26.00 % 12.10 %
-100 Basis points 5.15 8.83 10.83
Base interest rate 0.00 0.00 10.22
+100 Basis points -5.42 -7.69 9.68
+200 Basis points -10.82 -15.05 9.12
~~- 46 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Management’s Discussions and Analysis of~~
-51-
~~Financial Condition and Results of Operations~~

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

AVERAGE BALANCES

Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends upon the relative amount of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them. The following tables sets forth certain information relating to the Company’s Consolidated Statements of Financial Condition and Consolidated Statements of Income for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown. Average balances are derived from average daily balances. The yields include amortization of fees which are considered adjustments to yields.

For the three months ended March 31,
2019 2018

Average
Balance

Interest
Yield/
Cost
Average
Balance

Interest
Yield/
Cost
Assets (Dollars in thousands)
Interest-earning assets:
Mortgage loans, net $ 4,619,587 $ 50,845 4.40 % $ 4,442,870 $ 46,112 4.15 %
Other loans, net 925,080 11,485 4.97 788,507 8,905 4.52
Total loans, net ^{(1) (2)} 5,544,667 62,330 4.50 5,231,377 55,017 4.21
Taxable securities:
Mortgage-backed securities 573,397 4,248 2.96 524,710 3,507 2.67
Other securities 241,863 2,211 3.66 131,078 1,121 3.42
Total taxable securities 815,260 6,459 3.17 655,788 4,628 2.82
Tax-exempt securities: ⁽³⁾
Other securities 58,173 594 4.08 124,125 1,081 3.48
Total tax-exempt securities 58,173 594 4.08 124,125 1,081 3.48
Interest-earning deposits and federal funds sold 103,042 555 2.15 87,416 287 1.31
Total interest-earning assets 6,521,142 69,938 4.29 6,098,706 61,013 4.00
Other assets 346,998 304,690
Total assets $ 6,868,140 $ 6,403,396

Liabilities and Equity
Interest-bearing liabilities:
Deposits:
Savings accounts $ 205,775 361 0.70 $ 265,895 389 0.59
NOW accounts 1,488,859 6,031 1.62 1,540,465 3,148 0.82
Money market accounts 1,380,172 6,821 1.98 1,025,727 3,075 1.20
Certificate of deposit accounts 1,523,499 8,203 2.15 1,344,370 5,463 1.63
Total due to depositors 4,598,305 21,416 1.86 4,176,457 12,075 1.16
Mortgagors' escrow accounts 62,174 53 0.34 58,960 35 0.24
Total deposits 4,660,479 21,469 1.84 4,235,417 12,110 1.14
Borrowed funds 1,150,784 6,541 2.27 1,207,137 6,067 2.01
Total interest-bearing liabilities 5,811,263 28,010 1.93 5,442,554 18,177 1.34
Non interest-bearing deposits 398,829 364,983
Other liabilities 105,427 66,578
Total liabilities 6,315,519 5,874,115
Equity 552,621 529,281
Total liabilities and equity 6,868,140 $ 6,403,396

Net interest income / net interest rate spread (tax equivalent) ⁽³⁾ $ 41,928 2.36 % $ 42,836 2.66 %

Net interest-earning assets / net interest margin(tax equivalent) $ 709,879 2.57 % $ 656,152 2.81 %

Ratio of interest-earning assets to interest-bearing liabilities 1.12 X 1.12 X

For the three months ended March 31,

2020

2019

Average

Yield/

Average

Yield/

Balance

Interest

Cost

Balance

Interest

Cost

Assets

(Dollars in thousands)

Interest-earning assets:
















Mortgage loans, net

$
4,697,531

$
49,412

4.21
%
$
4,619,587

$
50,845

4.40
%
Other loans, net

1,097,335

11,697

4.26

925,080

11,485

4.97

Total loans, net^{(1) (2)}

5,794,866

61,109

4.22

5,544,667

62,330

4.50

Taxable securities:









Mortgage-backed securities

507,912

3,040

2.39

573,397

4,248

2.96

Other securities

243,726

1,697

2.79

241,863

2,211

3.66

Total taxable securities

751,638

4,737

2.52

815,260

6,459

3.17

Tax-exempt securities: ⁽³⁾









Other securities

63,535

676

4.26

58,173

594

4.08

Total tax-exempt securities

63,535

676

4.26

58,173

594

4.08

Interest-earning deposits and federal funds sold

109,818

290

1.06

103,042

555

2.15

Total interest-earning assets

6,719,857

66,812

3.98

6,521,142

69,938

4.29

Other assets

387,141

346,998

Total assets

$
7,106,998

$
6,868,140

Liabilities and Equity









Interest-bearing liabilities:









Deposits:









Savings accounts

$
194,026

281

0.58

$
205,775

361

0.70

NOW accounts

1,419,739

4,648

1.31

1,488,859

6,031

1.62

Money market accounts

1,697,783

7,042

1.66

1,380,172

6,821

1.98

Certificate of deposit accounts

1,267,245

6,767

2.14

1,523,499

8,203

2.15

Total due to depositors

4,578,793

18,738

1.64

4,598,305

21,416

1.86

Mortgagors' escrow accounts

65,503

40

0.24

62,174

53

0.34

Total deposits

4,644,296

18,778

1.62

4,660,479

21,469

1.84

Borrowed funds

1,307,629

7,066

2.16

1,150,784

6,541

2.27

Total interest-bearing liabilities

5,951,925

25,844

1.74

5,811,263

28,010

1.93

Non interest-bearing deposits

449,761



398,829



Other liabilities

128,715



105,427



Total liabilities

6,530,401



6,315,519



Equity

576,597



552,621



Total liabilities and equity

$
7,106,998



$
6,868,140



Net interest income / net interest rate spread (tax equivalent) ⁽³⁾



$
40,968

2.24
%



$
41,928

2.36
%
Net interest-earning assets / net interest margin(tax equivalent)

$
767,932



2.44
%
$
709,879



2.57
%
Ratio of interest-earning assets to interest-bearing liabilities





1.13
X





1.12
X
(1) Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately ~~$0.5~~$0.2 million and ~~$0.1~~$0.5 million for the three months ended March 31, 2020 and 2019, ~~and 2018.~~respectively.
(2) Loan interest income includes net losses from fair value adjustments on qualifying hedges of ~~$0.6~~$2.1 million and ~~none~~$0.6 million for three months ended March 31, 2020 and 2019, ~~and 2018,~~ respectively.
(3) Interest and yields are presented on tax equivalent basis using the statutory federal income tax rate of 21% for the periods presented totaling ~~$125,000~~$0.1 million each for three months ended March 31, 2020 and ~~$227,000, respectively.~~
~~- 47 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Management’s Discussions and Analysis of~~
~~Financial Condition and Results of Operations~~2019.
-52-

Table of Contents

~~LOANS~~PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

LOANS

The following table sets forth the Company’s loan originations (including the net effect of refinancing) and the changes in the Company’s portfolio of loans, including purchases, sales and principal reductions for the periods indicated.

For the three months ended March 31,
(In thousands)

2020

2019

Mortgage Loans




At beginning of period

$
4,677,703

$
4,638,784




Mortgage loans originated:

Multi-family residential

64,190

27,214
Commercial real estate

69,566

13,941
One-to-four family – mixed-use property

13,455

16,423
One-to-four family – residential

8,413

3,886
Co-operative apartments

704

—
Construction

3,354

3,524
Total mortgage loans originated

159,682

64,988

Mortgage loans purchased:




Multi-family residential

3,128

—
Commercial real estate

30,005

—
Construction

3,395

2,377
Total mortgage loans purchased

36,528

2,377

Less:




Principal and other reductions

79,035

86,159
Sales

498

1,042
At end of period

$
4,794,380

$
4,618,948

Non-Mortgage Loans




At beginning of period

$
1,079,232

$
897,515
Other loans originated:

Small Business Administration

57

329
Commercial business

61,208

75,393
Other

535

319
Total other loans originated

61,800

76,041

Other loans purchased:




Commercial business

40,705

54,618
Total other loans purchased

40,705

54,618

Less:




Principal and other reductions

58,154

72,661
Charge-offs

1,259

1,137
At end of period

$
1,122,324

$
954,376
For the three months ended March 31,
(In thousands) 2019 2018

Mortgage Loans

At beginning of period $ 4,638,784 $ 4,401,950

Mortgage loans originated:
Multi-family residential 27,214 67,891
Commercial real estate 13,941 71,554
One-to-four family – mixed-use property 16,423 16,068
One-to-four family – residential 3,886 16,093
Construction 3,524 14,679
Total mortgage loans originated 64,988 186,285

Mortgage loans purchased:
Multi-family residential -   13,290
One-to-four family – residential -   875
Construction 2,377 -
Total mortgage loans purchased 2,377 14,165

Less:
Principal and other reductions 86,159 98,288
Sales 1,042 2,703

At end of period $ 4,618,948 $ 4,501,409

Non-Mortgage Loans

At beginning of period $ 897,515 $ 758,286

Other loans originated:
Small Business Administration 329 1,967
Commercial business 75,393 84,388
Other 319 366
Total other loans originated 76,041 86,721

Other loans purchased:
Commercial business 54,618 54,653
Total other loans purchased 54,618 54,653

Less:
Principal and other reductions 73,798 104,600

At end of period $ 954,376 $ 795,060
~~- 48 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Management’s Discussions and Analysis of~~
-53-
~~Financial Condition and Results of Operations~~

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

TROUBLED DEBT ~~RESTRUCUTURED~~RESTRUCTURED (“TDR”) AND NON-PERFORMING ASSETS

The following table shows loans classified as TDR that are performing according to their restructured terms at the periods

indicated:

March 31,

December 31,
(In thousands)

2020

2019
Accrual Status:




Multi-family residential

$
1,868

$
1,873
One-to-four family - mixed-use property

1,483

1,481
One-to-four family - residential

525

531
Total

3,876

3,885

Non-Accrual Status:




Commercial business and other

950

941
Taxi medallion

1,520

1,668
Total

2,470

2,609

Total performing troubled debt restructured

$
6,346

$
6,494

(In thousands)
March 31,
2019
December 31,
2018
Accrual Status:
Multi-family residential $ 1,906 $ 1,916
One-to-four family - mixed-use property 1,674 1,692
One-to-four family - residential 547 552
Commercial business and other -   279
Total 4,127 4,439

Non-Accrual Status:
Taxi medallion 2,518 3,926
Total 2,518 3,926

Total performing troubled debt restructured $ 6,645 $ 8,365

The following table shows our non-performing assets at amortized cost at the period indicated:

March 31,

(In thousands)

2020

Non-accrual loans:



Multi-family residential

2,763

Commercial real estate

8

One-to-four family - mixed-use property

627

One-to-four family - residential

4,588

Construction

—

Small business administration

1,544

Taxi medallion⁽¹⁾

1,763

Commercial business and other⁽¹⁾

5,006

Total

16,299

Total non-performing loans

16,299

Other non-performing assets:



Real estate acquired through foreclosure

208

Other assets acquired through foreclosure

35

Total

243

Total non-performing assets

$
16,542

(1) Not included in the above analysis are non-accrual performing TDR taxi medallion loans totaling $1.5 million at March 31, 2020 and non-accrual performing TDR commercial business loans totaling $1.0 million at March 31, 2020.

~~- 49 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Management’s Discussions and Analysis of~~
-54-
~~Financial Condition and Results of Operations~~

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

The following table shows non-performing assets at the ~~periods~~period indicated:

(In thousands) March 31,
2019 December 31,
2018
Non-accrual loans:
Multi-family residential $ 2,009 $ 2,410
Commercial real estate 1,050 1,379
One-to-four family - mixed-use property 1,305 928
One-to-four family - residential 5,708 6,144
Construction 950 -
Small business administration 1,227 1,267
Taxi medallion ⁽¹⁾ 1,372 613
Commercial business and other 2,114 3,512
Total non-performing loans 15,735 16,253

Other non-performing assets:
Other assets acquired through foreclosure 35 35
Total 35 35

Total non-performing assets $ 15,770 $ 16,288

Non-performing assets to total assets 0.23 % 0.24 %
Allowance for loan losses to non-performing loans 133.55 % 128.87 %

December 31,

(In thousands)

2019

Loans 90 days or more past due and still accruing:

Multi-family residential

$
445

Total

445

Non-accrual loans:



Multi-family residential

2,296

Commercial real estate

367

One-to-four family - mixed-use property

274

One-to-four family - residential

5,139

Small business administration

1,151

Taxi medallion⁽¹⁾

1,641

Commercial business and other⁽¹⁾

1,945

Total

12,813

Total non-performing loans

13,258

Other non-performing assets:



Real estate acquired through foreclosure

239

Other assets acquired through foreclosure

35

Total

274

Total non-performing assets

$
13,532

Non-performing assets to total assets

0.19
%
Allowance for loan losses to non-performing loans

164.05
%
(1) Not included in the above analysis are non-accrual performing TDR taxi medallion loans totaling ~~$2.5 million and $3.9~~$1.7 million at ~~March~~December 31, 2019, respectively and non-accrual performing TDR commercial business loans totaling $0.9 million at December 31, ~~2018, respectively.~~2019.
Included in non-performing loans were six loans totaling $2.0 million at March 31, 2019 and two loans totaling $1.8 million at December 31, 2018, all of which were restructured as TDR and not performing in accordance with restructured terms.
~~- 50 -~~
~~PART I – FINANCIAL INFORMATION~~
~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~
~~Management’s Discussions and Analysis of~~
~~Financial Condition and Results of Operations~~
CRITICIZED AND CLASSIFIED ASSETS
Our policy is to review our assets, focusing primarily on the loan portfolio, OREO and the investment portfolios, to ensure that credit quality is maintained at the highest levels. See Note 5 (“Loans”) of the Notes to the Consolidated Financial Statements ~~“Loans”~~ for a description of how loans are determined to be criticized or classified and a table displaying criticized and classified loans at March 31, ~~2019~~2020 and December 31, ~~2018.~~2019. The Company had classified OREO and other assets acquired through foreclosure totaling ~~$35,000~~$0.2 million and $0.3 million at March 31, ~~2019~~2020 and December 31, ~~2018.~~2019, respectively. The Company did not hold any criticized or classified investment securities at March 31, ~~2019~~2020 and December 31, ~~2018.~~2019. Our total Criticized and Classified assets were ~~$47.2~~$34.0 million at March 31, ~~2019,~~2020, a decrease of ~~$5.8~~$4.1 million from ~~$53.0~~$38.0 million at December 31, ~~2018.~~2019.

-55-

Table of Contents

On a quarterly basis, all non-accrual collateral dependent loans that are classified as Substandard or Doubtful are internally reviewed for impairment, based on updated cash flows for income producing properties, or updated independent appraisals. The loan balancesPART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of ~~collateral dependent loans reviewed for impairment are then compared~~

Financial Condition and Results of Operations

ALLOWANCE FOR CREDIT LOSSES

Upon adoption of CECL, ACL increased by $1.3 million, included an increase of $0.6 million to the ~~loans updated fair value.~~allowance of off-balance sheet credit losses and $0.3 million to the allowance of credit losses of securities. We ~~consider fair value~~recorded $7.1 million provision for credit losses for the first quarter of ~~collateral dependent loans~~2020 utilizing the CECL methodology. The increase resulted primarily due to ~~be 85%~~the effect of the appraised or internally estimated value of the property, except for taxi medallion loans. The fair value of the underlying collateral of taxi medallion loans is the value of the underlying medallion based upon the most recently reported arm’s length transaction. When there is no recent sale activity, the fair value is calculated using the income approach. All taxi medallion loans are classifiedCOVID-19 and impaired. For collateral dependent mortgage loans and taxi medallion loans, the portion of the loan balance which exceeds fair value is generally charged-off. At March 31, 2019, the current average loan-to-value ratio on our collateral dependent loans reviewed for impairment was 47.5%.

~~ALLOWANCE FOR LOAN LOSSES~~

The Allowance for loan losses (“ALLL”) represents the expense charged to earnings based upon management’s quarterly analysis of credit risk. The amount of the ALLL is based upon multiple factors that reflect management’s assessment of the credit quality ofgrowth in the loan portfolio. The ~~factors are both quantitative and qualitative~~impact from the above resulted in nature including, but not limited to, historical losses, economic conditions, trends in delinquencies, value and adequacy of underlying collateral, volume and portfolio mix, and internal loan processes.

Management has developed a comprehensive analytical process to monitor the adequacy of the ALLL. The process and guidelines were developed using, among other factors, the guidance from federal banking regulatory agencies and GAAP. The results of this process, along with the conclusions of our independent loan review officer, support management’s assessment as to the adequacy of the ALLLACL totaling $29.3 million at ~~each balance sheet date. See Note 5 of the Notes to the Consolidated Financial Statements “Loans” for a detailed explanation of management’s methodology and policy.~~

As a component of the credit risk assessment, the Bank has established an Asset Classification Committee which carefully evaluates loans which are past due 90 days and/or are classified. The Asset Classification Committee thoroughly assesses the condition and circumstances surrounding each loan meeting the criteria. The Bank also has a Delinquency Committee that evaluates loans meeting specific criteria. The Bank’s loan policy requires loans to be placed into non-accrual status once the loan becomes 90 days delinquent unless there is, in our opinion, compelling evidence the borrower will bring the loan current in the immediate future.

~~During the three months ended~~ March 31, ~~2019, the portion of ALLL related to loss history and qualitative factors increased due to growth~~2020. We recorded $1.1 million in loan portfolio, particularly in commercial business loans. These increases were partially offset by a decrease in the allocated component of the ALLL, as one loan relationship with an allocated reserve at December 31, 2018 made payments and was upgradednet charge-offs during the three months ended March 31, ~~2019, therefore an allocated component was reduced~~2020.

March 31,

(Dollars in thousands)

2020

Balance at beginning of period

$
21,751

Loans- CECL Adoption

379

Loans- Charge-off

(1,259)

Loans- Recovery

110

Loans- Provision

7,117

Allowance for loan losses

$
28,098

Balance at beginning of period

$
—

HTM Securities- CECL Adoption

340

HTM Securities- Provision

62

Allowance for HTM Securities losses

$
402

Balance at beginning of period

$
—

Off-Balance Sheet - CECL Adoption

553

Off-Balance Sheet- Provision

244

Allowance for Off-Balance Sheet losses

$
797

Allowance for Credit Losses

$
29,297

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and ~~the other relationship was partially charged-off. The impact from the above resulted in the ALLL totaling $21.0 million, an increase~~SUBSIDIARIES

Management’s Discussions and Analysis of ~~$0.1 million or 0.3%, from December 31, 2018. Based upon management consistently applying the ALLL methodology~~

Financial Condition and ~~review~~Results of the loan portfolio, management concluded a charge to earnings totaling $1.0 million to increase the ALLL was warranted. The ALLL at March 31, 2019 and December 31, 2018, represented 0.38% of gross loans outstanding. The ALLL represented 135.6% of non-performing loans at March 31, 2019 compared to 128.9% at December 31, 2018.

~~Management recommends to the Board of Directors the amount of the ALLL quarterly. The Board of Directors approves the ALLL.~~

~~- 51 -~~Operations

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Management’s Discussions and Analysis of~~

~~Financial Condition and Results of Operations~~

The following table sets forth the activity in the ~~Company's~~Company’s allowance for loan losses for the periods indicated:

At or for the three months ended March 31,

(Dollars in thousands)

2020

2019

Balance at beginning of period

$
21,751

$
20,945

CECL Adoption

379

—

Provision for loan losses

7,117

972

Loans charged-off:





Multi-family residential

—

(1)

Commercial business and other

(1,259)

(1,137)

Total loans charged-off

(1,259)

(1,138)

Recoveries:





Multi-family residential

6

13

One-to-four family - mixed-use property

78

86

One-to-four family - residential

5

4

Small Business Administration

7

4

Taxi medallion

—

84

Commercial business and other

14

45

Total recoveries

110

236

Net charge-offs

(1,149)

(902)

Balance at end of period

$
28,098

$
21,015

Ratio of net charge-offs during the period to average loans outstanding during the period

0.08
%

0.07
%
Ratio of allowance for loan losses to gross loans at end of period

0.47
%

0.38
%
Ratio of allowance for loan losses to non-performing assets at end of period

165.32
%

133.26
%
Ratio of allowance for loan losses to non-performing loans at end of period

167.73
%

133.55
%

At or for the three months ended March 31,
(Dollars in thousands) 2019 2018

Balance at beginning of period $ 20,945 $ 20,351

Provision for loan losses 972 153

Loans charged-off:
Multi-family residential -   (53 )
One-to-four family – mixed-use property (1 ) (1 )
Small Business Administration -   (25 )
Commercial business and other (1,137 ) (6 )
Total loans charged-off (1,138 ) (85 )

Recoveries:
Multi-family residential 13 2
One-to-four family – mixed-use property 86 -
One-to-four family – residential 4 108
Small Business Administration 4 6
Taxi medallion 84 -
Commercial business and other 45 7
Total recoveries 236 123

Net (charge-offs) recoveries (902 ) 38

Balance at end of period $ 21,015 $ 20,542

Ratio of net charge-offs during the period toaverage loans outstanding during the period 0.07 % -   %
Ratio of allowance for loan losses to gross loans at end of period 0.38 % 0.39 %
Ratio of allowance for loan losses to non-performing assets at end of period 133.26 % 118.17 %
Ratio of allowance for loan losses to non-performing loans at end of period 133.55 % 123.45 %

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PART I – FINANCIAL INFORMATION

~~- 52 -~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of the qualitative and quantitative disclosures about market risk, see the information under the caption ~~"Management's~~"Management’s Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Risk."

ITEM 4. CONTROLS AND PROCEDURES

The Company carried out, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, ~~2019,~~2020, the design and operation of these disclosure controls and procedures were effective. During the period covered by this Quarterly Report, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~- 53 -~~

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PART II – OTHER INFORMATIOMTION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits. Management of the Company, after consultation with outside legal counsel, believes that the resolution of these various matters will not result in any material adverse effect on the ~~Company's~~Company’s consolidated financial condition, results of operations and cash flows.

ITEM 1A. RISK FACTORS
~~There~~Except as set forth below, there have been no material changes from the risk factors disclosed in the Company’s ~~Annual Report~~annual report on Form 10-K for the year ended December 31, ~~2018.~~2019.

The novel Coronavirus Disease 2019 ("COVID-19") pandemic has adversely affected us and our customers, employees and third-party service providers, and the adverse impacts on our business, financial position, operations and prospects could be significant.

The COVID-19 pandemic has created a global public health crisis that has resulted in unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally. Governmental responses to the pandemic have included orders closing businesses not deemed essential and directing individuals to restrict their movements, observe social distancing and shelter in place. These actions, together with responses to the pandemic by businesses and individuals, have resulted in rapid decreases in commercial and consumer activity, temporary closures of many businesses that have led to loss of revenues and a rapid increase in unemployment, material decreases in oil and gas prices and in business valuations, disrupted global supply chains, market downturns and volatility, changes in consumer behavior related to pandemic fears, related emergency response legislation and an expectation that Federal Reserve policy will maintain a low interest rate environment for the foreseeable future. These changes have a significant adverse effect on the regions and markets in which we conduct our business and the demand for our products and services.

Business and consumer customers of Flushing Bank are experiencing varying degrees of financial distress, which is expected to increase over coming months and will likely adversely affect their ability to timely pay interest and principal on their loans and the value of the collateral securing their obligations. This in turn has influenced the recognition of credit losses in our loan portfolios and has increased our allowance for credit losses, particularly as businesses remain closed and as more customers are expected to draw on their lines of credit or seek additional loans to help finance their businesses. These developments as a consequence of the COVID-19 pandemic materially impact our business and the businesses of our customers and are expected to have a material adverse effect on our financial results for 2020, as evidenced by our first quarter results.

In order to protect the health of our customers and employees, and to comply with applicable government directives, we have modified our business practices, including restricting employee travel, directing employees to work from home insofar as is possible, cancelling in-person meetings and implementing business continuity plans and protocols to the extent necessary.

We may take further such actions that we determine are in the best interest of our employees, customers and communities or as may be required by government order. These actions in response to the COVID-19 pandemic, and similar actions by our vendors and business partners, have not materially impaired our ability to support our employees, conduct our business and serve our customers, but there is no assurance that these actions will be sufficient to successfully mitigate the risks presented by COVID-19 or that our ability to operate will not be materially affected going forward. For instance, our business operations may be disrupted if key personnel or significant portions of our employees are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the COVID-19 pandemic. Similarly, if any of our vendors or business partners become unable to continue to provide their products and services, which we rely upon to maintain our day-to-day operations, our ability to serve our customers could be impacted.

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PART II – OTHER INFORMATIOMTION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

COVID-19 does not yet appear to be contained and could affect significantly more households and businesses. Given the ongoing and dynamic nature of the circumstances, it is not possible to accurately predict the extent, severity or duration of these conditions or when normal economic and operating conditions will resume. For this reason, the extent to which the COVID-19 pandemic affects our business, operations and financial condition, as well as our regulatory capital and liquidity ratios and credit ratings, is highly uncertain and unpredictable and depends on, among other things, new information that may emerge concerning the scope, duration and severity of the COVID-19 pandemic and actions taken by governmental authorities and other parties in response to the pandemic. If the pandemic is prolonged, the adverse impact on the markets in which we operate and on our business, operations and financial condition could deepen. Particular concerns referenced above include:

Credit Risk. Our risks of timely loan repayment and the value of collateral supporting the loans are affected by the strength of our borrower’s business. Concern about the spread of COVID-19 has caused and is likely to continue to cause business shutdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and commercial property vacancy rates, reduced profitability and ability for property owners to make mortgage payments, and overall economic and financial market instability, all of which may cause our customers to be unable to make scheduled loan payments. If the effects of COVID-19 result in widespread and sustained repayment shortfalls on loans in our portfolio, we could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover our exposure. The future effects of COVID-19 on economic activity could negatively affect the collateral values associated with our existing loans, the ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of our lending and services, and the financial condition and credit risk of our customers. Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent us from making our business decisions or may result in a delay in our taking certain remediation actions, such as foreclosure. In addition, we have unfunded commitments to extend credit to customers. During a challenging economic environment like now, our customers are more dependent on our credit commitments and increased borrowings under these commitments could adversely impact our liquidity. Furthermore, in an effort to support our communities during the pandemic, we are participating in the Paycheck Protection Program (“PPP”) under the CARES Act whereby loans to small businesses are made and those loans are subject to the regulatory requirements that would require forbearance of loan payments for a specified time or that would limit our ability to pursue all available remedies in the event of a loan default. If the borrower under a PPP loan fails to qualify for loan forgiveness, we are at the heightened risk of holding that loan at unfavorable interest rates as compared to the loans to customers that we would have otherwise extended credit.

Strategic Risk. Our success may be affected by a variety of external factors that may affect the price or marketability of our products and services, changes in interest rates that may increase our funding costs, reduced demand for our financial products due to economic conditions and the various response of governmental and nongovernmental authorities. In recent weeks, the COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruption and volatility in the global capital markets. Furthermore, many of the governmental actions have been directed toward curtailing household and business activity to contain COVID-19. These actions have been rapidly expanding in scope and intensity. For example, in many of our markets, local governments have acted to temporarily close or restrict the operations of most businesses. The future effects of COVID-19 on economic activity could negatively affect the future banking products we provide, including a decline in originating of loans.

Operational Risk. Current and future restrictions on our workforce’s access to our facilities could limit our ability to meet customer servicing expectations and have a material adverse effect on our operations. We rely on business processes and branch activity that largely depend on people and technology, including access to information technology systems as well as information, applications, payment systems and other services provided by third parties. In response to COVID-19, we have modified our business practices with a portion of our employees working remotely from their homes to have our operations uninterrupted as much as possible. Further, technology in employees’ homes may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than in our offices. The continuation of these work-from-home measures also introduces additional operational risk, including increased cybersecurity risk. These cyber risks include greater phishing, malware, and other cybersecurity attacks, vulnerability to disruptions of our information technology infrastructure and telecommunications

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PART II – OTHER INFORMATIOMTION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

systems for remote operations, increased risk of unauthorized dissemination of confidential information, limited ability to restore the systems in the event of a systems failure or interruption, greater risk of a security breach resulting in destruction or misuse of valuable information, and potential impairment of our ability to perform critical functions, including wiring funds, all of which could expose us to risks of data or financial loss, litigation and liability and could seriously disrupt our operations and the operations of any impacted customers.

Interest Rate Risk. Our net interest income, lending activities, deposits and profitability could be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19. In March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0 to 0.25 percent, citing concerns about the impact of COVID-19 on markets and stress in the energy sector. A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies. Higher income volatility from changes in interest rates and spreads to benchmark indices could cause a loss of future net interest income and a decrease in current fair market values of our assets. Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.

Material risks relating to our business that are enhanced due to the COVID-19 pandemic are addressed at Item 1A Risk Factors in the Form 10-K for the fiscal year ended December 31, 2019 under the headings:

●

Changes in Interest Rates May Significantly Impact Our Financial Condition and Results of Operations.

●

Our Lending Activities Involve Risks that May Be Exacerbated Depending on the Mix of Loan Types

●

Failure to Effectively Manage Our Liquidity Could Significantly Impact Our Financial Condition and Results of Operations

●

Our Ability to Obtain Brokered Deposits as an Additional Funding Source Could be Limited

●

The Markets in Which We Operate Are Highly Competitive

●

Our Results of Operations May Be Adversely Affected by Changes in National and/or Local Economic Conditions

●

Changes in Laws and Regulations Could Adversely Affect Our Business

●

Current Conditions in, and Regulation of, the Banking Industry May Have a Material Adverse Effect on Our Results of Operation.

●

A Failure in or Breach of Our Operational or Security Systems or Infrastructure, or Those of Our Third Party Vendors and Other Service Providers, Including as a Result of Cyber Attacks, could Disrupt Our Business, Result in the Disclosure or Misuse of Confidential or Proprietary Information, Damage Our Reputation, Increase Our Costs and Cause Losses

●

We May Experience Increased Delays in Foreclosure Proceedings

●

Goodwill Recorded as a Result of Acquisitions Could Become Impaired, Negatively Impacting Our Earnings and Capital

●

We May Not Fully Realize the Expected Benefit of Our Deferred Tax Asset

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PART II – OTHER INFORMATIOMTION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth information regarding the shares of common stock repurchased by the Company during the three months ended March 31, ~~2019:~~2020:


					Maximum
				Total Number of	Number of
	Total			Shares Purchased	Shares That May
	Number			as Part of Publicly	Yet Be Purchased
	of Shares	Average Price		Announced Plans	Under the Plans
Period	Purchased	Paid per Share		or Programs	or Programs
January 1 to January 31, 2020	—	$	—	—	427,211
February 1 to February 29, 2020	12,405		18.28	12,405	414,806
March 1 to March 31, 2020	130,000		16.27	130,000	284,806
Total	142,405		16.45	142,405

~~Period~~

~~Total~~
~~Number~~
~~of Shares~~
~~Purchased~~

~~Average Price~~
~~Paid per Share~~

~~Total Number of~~
~~Shares Purchased~~
~~as Part of Publicly~~
~~Announced Plans~~
~~or Programs~~

~~Maximum~~
~~Number of~~
~~Shares That May~~
~~Yet Be Purchased~~
~~Under the Plans~~
~~or Programs~~

~~January 1 to January 31, 2019~~

~~467,211~~

~~February 1 to February 28, 2019~~

~~467,211~~

~~March 1 to March 31, 2019~~

~~467,211~~

~~Total~~

During the quarter ended March 31, ~~2019~~2020, the Company ~~did not repurchase any~~repurchased 142,405 shares of the Company’s common ~~stock. As~~stock at an average cost of $16.45 per share. On March 31, ~~2019, 467,211~~2020, 284,806 shares remained to be repurchased under the currently authorized stock repurchase program. Stock will be purchased under the current stock repurchase programs from time to time, in the open market or through private transactions, subject to market conditions. There is no expiration or maximum dollar amount under these authorizations.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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PART II – OTHER INFORMATIOMTION

~~- 54 -~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

~~PART II – OTHER INFORMATIOMTION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

ITEM 6. EXHIBITS

~~Exhibit No.~~	~~Description~~
Exhibit No.		Description

3.1 P		Certificate of Incorporation of Flushing Financial Corporation (1)
3.2	~~3.2~~	Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (3)
3.3	~~3.3~~	Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (5)
3.4	~~3.4~~	Certificate of Designations of Series A Junior Participating Preferred Stock of Flushing Financial Corporation (4)
3.5	~~3.5~~	Certificate of Increase of Shares Designated as Series A Junior Participating Preferred Stock of Flushing Financial Corporation (2)
3.6	~~3.6~~	Amended and Restated By-Laws of Flushing Financial Corporation (6)
4.1	~~4.1~~	Subordinated Indenture, dated as of December 12, 2016, by and between the Company and Wilmington Trust, National Association, as Trustee. (7)
4.2	~~4.2~~	First Supplemental Indenture, dated as of December 12, 2016, by and between the Company and Wilmington Trust, National Association, as Trustee, including the form of the Notes attached as Exhibit A thereto. (7)
4.3	~~4.3~~	Flushing Financial Corporation has outstanding certain long-term debt. None of such debt exceeds ten percent of Flushing Financial Corporation's total assets; therefore, copies of constituent instruments defining the rights of the holders of such debt are not included as exhibits. Copies of instruments with respect to such long-term debt will be furnished to the Securities and Exchange Commission upon request.
31.1	~~31.1~~	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith)
31.2	~~31.2~~	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith)
32.1	~~32.1~~	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 by the Chief Executive Officer (furnished herewith)
32.2	~~32.2~~	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 by the Chief Financial Officer (furnished herewith)
101.INS	~~101.INS~~	XBRL Instance Document ~~(filed herewith)~~-the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	~~101.SCH~~	XBRL Taxonomy Extension Schema Document (filed herewith)
101.CAL	~~101.CAL~~	XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
101.DEF	~~101.DEF~~	XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)
101.LAB	~~101.LAB~~	XBRL Taxonomy Extension Label Linkbase Document (filed herewith)
101.PRE	~~101.PRE~~	XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

(1)	Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1 filed

~~(1) Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1 filed~~ September 1, 1995, Registration No. 33-96488. (P: Indicates a filing submitted in paper)

(2)	Incorporated by reference to Exhibit filed with Form 8-K filed September 27, 2006.

(3)	Incorporated by reference to Exhibits filed with Form S-8 filed May 31, 2002.

(4)	Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended

~~(2) Incorporated by reference to Exhibit filed with Form 8-K filed September 27, 2006.~~

~~(3) Incorporated by reference to Exhibits filed with Form S-8 filed May 31, 2002.~~

~~(4) Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended~~ September 30, 2002.

~~(5)~~
(5) Incorporated by reference to Exhibit filed with Form 10-K for the year ended December 31, 2011.
(6) Incorporated by reference to Exhibit filed with Form 10-Q for the quarter ended June 30, 2014.
(7) Incorporated by reference to Exhibit filed with Form 8-K filed December 12, 2016.

~~(6) Incorporated by reference to Exhibit filed with Form 10-Q for the quarter ended June 30, 2014.~~

~~(7) Incorporated by reference to Exhibit filed with Form 8-K filed December 12, 2016.~~

~~- 55 -~~-63-

Table of Contents

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

EXHIBIT INDEX

~~SIGNATURES~~

~~Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~

	~~Flushing Financial Corporation,~~
Exhibit No.		Description

~~Dated:~~ ~~May 8, 2019~~	~~By:~~	~~/s/ John R. Buran~~
	~~John R. Buran~~
	~~President and Chief Executive Officer~~

~~Dated:~~ ~~May 8, 2019~~	~~By:~~	~~/s/ Susan K. Cullen~~
	~~Susan K. Cullen~~
	~~Senior Executive Vice President, Treasurer and~~
	~~Chief Financial Officer~~

~~- 56 -~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~EXHIBIT INDEX~~

~~Exhibit No.~~		~~Description~~

	3.1 P		Certificate of Incorporation of Flushing Financial Corporation (1)
3.2	~~3.2~~	Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (3)
3.3	~~3.3~~	Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (5)
3.4	~~3.4~~	Certificate of Designations of Series A Junior Participating Preferred Stock of Flushing Financial Corporation (4)
3.5	~~3.5~~	Certificate of Increase of Shares Designated as Series A Junior Participating Preferred Stock of Flushing Financial Corporation (2)
3.6	~~3.6~~	Amended and Restated By-Laws of Flushing Financial Corporation (6)
4.1	~~4.1~~	Subordinated Indenture, dated as of December 12, 2016, by and between the Company and Wilmington Trust, National Association, as Trustee. (7)
4.2	~~4.2~~	First Supplemental Indenture, dated as of December 12, 2016, by and between the Company and Wilmington Trust, National Association, as Trustee, including the form of the Notes attached as Exhibit A thereto. (7)
4.3	~~4.3~~	Flushing Financial Corporation has outstanding certain long-term debt. None of such debt exceeds ten percent of Flushing Financial Corporation's total assets; therefore, copies of constituent instruments defining the rights of the holders of such debt are not included as exhibits. Copies of instruments with respect to such long-term debt will be furnished to the Securities and Exchange Commission upon request.
31.1	~~31.1~~	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith)
31.2	~~31.2~~	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith)
32.1	~~32.1~~	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 by the Chief Executive Officer (furnished herewith)
32.2	~~32.2~~	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 by the Chief Financial Officer (furnished herewith)
101.INS	~~101.INS~~	XBRL Instance Document ~~(filed herewith)~~-the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	~~101.SCH~~	XBRL Taxonomy Extension Schema Document (filed herewith)
101.CAL	~~101.CAL~~	XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
101.DEF	~~101.DEF~~	XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)
101.LAB	~~101.LAB~~	XBRL Taxonomy Extension Label Linkbase Document (filed herewith)
101.PRE	~~101.PRE~~	XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

(1)	Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1 filed

~~(1) Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1 filed~~ September 1, 1995, Registration No. 33-96488. (P: Indicates a filing submitted in paper)

(2)	Incorporated by reference to Exhibit filed with Form 8-K filed September 27, 2006.

(3)	Incorporated by reference to Exhibits filed with Form S-8 filed May 31, 2002.

(4)	Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended

~~(2) Incorporated by reference to Exhibit filed with Form 8-K filed September 27, 2006.~~

~~(3) Incorporated by reference to Exhibits filed with Form S-8 filed May 31, 2002.~~

~~(4) Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended~~ September 30, 2002.

(5)	Incorporated by reference to Exhibit filed with Form 10-K for the year ended December 31, 2011.

(6)	Incorporated by reference to Exhibit filed with Form 10-Q for the quarter ended June 30, 2014.

(7)	Incorporated by reference to Exhibit filed with Form 8-K filed December 12, 2016.

~~(5) Incorporated~~

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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by ~~reference to Exhibit filed with Form 10-K for~~ the ~~year ended December 31, 2011.~~undersigned thereunto duly authorized.

~~(6) Incorporated by reference to Exhibit filed with Form 10-Q for the quarter ended June 30, 2014.~~

		Flushing Financial Corporation,



Dated:	May 11, 2020	By:	/s/John R. Buran
			John R. Buran
			President and Chief Executive Officer



Dated:	May 11, 2020	By:	/s/Susan K. Cullen
			Susan K. Cullen
			Senior Executive Vice President, Treasurer and
			Chief Financial Officer

~~(7) Incorporated by reference to Exhibit filed with Form 8-K filed December 12, 2016.~~

~~- 57 -~~

-65-

	March 31, 2019			December 31, 2018
	(Dollars in thousands, except per share data)
Assets
Cash and due from banks	$	58,677		$	118,561
Securities held-to-maturity:
Mortgage-backed securities (including assets pledged of $5,030 and $4,796 at March 31, 2019 and at December 31, 2018, respectively; fair value of $7,726 and $7,366 at March 31, 2019 and December 31, 2018, respectively)		7,949			7,953
Other securities (none pledged; fair value of $22,276 and $22,508 at March 31, 2019 and December 31, 2018, respectively)		22,532			24,065
Securities available for sale, at fair value:
Mortgage-backed securities (including assets pledged of $235,682 and $152,670 at March 31, 2019 and December 31, 2018, respectively; $934 and $967 at fair value pursuant to the fair value option at March 31, 2019 and December 31, 2018, respectively)		579,185			557,953
Other securities (including assets pledged of $13,527 and $28,871 at March 31, 2019 and December 31, 2018, respectively; $13,091 and $12,843 at fair value pursuant to the fair value option at March 31, 2019 and December 31, 2018, respectively)		266,839			264,702
Loans:
Multi-family residential		2,256,447			2,269,048
Commercial real estate		1,529,001			1,542,547
One-to-four family ― mixed-use property		582,049			577,741
One-to-four family ― residential		188,615			190,350
Co-operative apartments		7,903			8,498
Construction		54,933			50,600
Small Business Administration		15,188			15,210
Taxi medallion		3,891			4,539
Commercial business and other		935,297			877,763
Net unamortized premiums and unearned loan fees		15,422			15,188
Allowance for loan losses		(21,015	)		(20,945	)
Net loans		5,567,731			5,530,539
Interest and dividends receivable		27,226			25,485
Bank premises and equipment, net		29,798			30,418
Federal Home Loan Bank of New York stock, at cost		51,182			57,282
Bank owned life insurance		131,794			131,788
Goodwill		16,127			16,127
Right of Use Asset		44,033			–
Other assets		64,377			69,303
Total assets	$	6,867,450		$	6,834,176

Liabilities
Due to depositors:
Non-interest bearing	$	401,064		$	413,747
Interest-bearing		4,609,030			4,502,176
Total Deposits		5,010,094			4,915,923
Mortgagors' escrow deposits		70,115			44,861
Borrowed funds:
Federal Home Loan Bank advances		999,401			1,134,993
Subordinated debentures		74,074			74,001
Junior subordinated debentures, at fair value		42,941			41,849
Total borrowed funds		1,116,416			1,250,843
Operating lease liability		52,510			–
Other liabilities		58,756			73,085
Total liabilities		6,307,891			6,284,712

Stockholders' Equity
Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued)		–			–
Common stock ($0.01 par value; 100,000,000 shares authorized; 31,530,595 shares issued at March 31, 2019 and December 31, 2018;28,187,184 shares and 27,983,637 shares outstanding at March 31, 2019 and December 31, 2018, respectively)		315			315
Additional paid-in capital		222,859			222,720
Treasury stock, at average cost (3,343,411 shares and 3,546,958 shares at March 31, 2019 and December 31, 2018, respectively)		(70,929	)		(75,146	)
Retained earnings		417,856			414,327
Accumulated other comprehensive loss, net of taxes		(10,542	)		(12,752	)
Total stockholders' equity		559,559			549,464

Total liabilities and stockholders' equity	$	6,867,450		$	6,834,176


	March 31,		December 31,
	2020		2019
	(Dollars in thousands, except per share data)
Assets
Cash and due from banks	$	157,184	$	49,787
Securities held-to-maturity:
Mortgage-backed securities (including assets pledged of $8,704 and $5,283 at March 31, 2020 and December 31, 2019, respectively; fair value of $8,953 and $8,114 at March 31, 2020 and December 31, 2019, respectively)		7,929		7,934
Other securities, net of allowance for credit losses of $402 (none pledged; fair value of $51,938 and $53,998 at March 31, 2020 and December 31, 2019, respectively)		50,225		50,954
Securities available for sale, at fair value:
Mortgage-backed securities (including assets pledged of $242,862 and $212,038 at March 31, 2020 and December 31, 2019, respectively; $738 and $772 at fair value pursuant to the fair value option at March 31, 2020 and December 31, 2019, respectively)		489,556		523,849
Other securities (NaN pledged; $13,831 and $13,548 at fair value pursuant to the fair value option at March 31, 2020 and December 31, 2019, respectively)		225,856		248,651
Loans:
Multi-family residential		2,272,343		2,238,591
Commercial real estate		1,664,934		1,582,008
One-to-four family - mixed-use property		592,109		592,471
One-to-four family - residential		189,774		188,216
Co-operative apartments		8,493		8,663
Construction		66,727		67,754
Small Business Administration		14,076		14,445
Taxi medallion		3,281		3,309
Commercial business and other		1,104,967		1,061,478
Net unamortized premiums and unearned loan fees		15,384		15,271
Allowance for loan losses		(28,098)		(21,751)
Net loans		5,903,990		5,750,455
Interest and dividends receivable		25,526		25,722
Bank premises and equipment, net		27,899		28,676
Federal Home Loan Bank of New York stock, at cost		74,000		56,921
Bank owned life insurance		158,655		157,713
Goodwill		16,127		16,127
Other real estate owned, net		208		239
Right of Use Asset		39,729		41,254
Other assets		68,526		59,494
Total assets	$	7,245,410	$	7,017,776

Liabilities
Due to depositors:
Non-interest bearing	$	489,198	$	435,072
Interest-bearing		4,339,237		4,586,977
Total Deposits		4,828,435		5,022,049
Mortgagors' escrow deposits		73,051		44,375
Borrowed funds:
Federal Home Loan Bank advances		1,498,058		1,118,528
Subordinated debentures		74,398		74,319
Junior subordinated debentures, at fair value		45,126		44,384
Total borrowed funds		1,617,582		1,237,231
Operating lease liability		47,726		49,367
Other liabilities		128,933		85,082
Total liabilities		6,695,727		6,438,104

Stockholders' Equity
Preferred stock ($0.01 par value; 5,000,000 shares authorized; NaN issued)		—		—
Common stock ($0.01 par value; 100,000,000 shares authorized; 31,530,595 shares issued at March 31, 2020 and December 31, 2019; 28,213,602 shares and 28,157,206 shares outstanding at March 31, 2020 and December 31, 2019, respectively)		315		315
Additional paid-in capital		225,893		226,691
Treasury stock, at average cost (3,316,993 shares and 3,373,389 shares at March 31, 2020 and December 31, 2019, respectively)		(69,540)		(71,487)
Retained earnings		425,455		433,960
Accumulated other comprehensive loss, net of taxes		(32,440)		(9,807)
Total stockholders' equity		549,683		579,672

Total liabilities and stockholders' equity	$	7,245,410	$	7,017,776

	For the three months ended March 31,
(Dollars in thousands, except per share data)	2019			2018

Interest and dividend income
Interest and fees on loans	$	62,330		$	55,017
Interest and dividends on securities:
Interest		6,909			5,468
Dividends		19			14
Other interest income		555			287
Total interest and dividend income		69,813			60,786

Interest expense
Deposits		21,469			12,110
Other interest expense		6,541			6,067
Total interest expense		28,010			18,177

Net interest income		41,803			42,609
Provision for loan losses		972			153
Net interest income after provision for loan losses		40,831			42,456

Non-interest income
Banking services fee income		973			948
Net gain (loss) on sale of loans		63			(263	)
Net loss from fair value adjustments		(2,080	)		(100	)
Federal Home Loan Bank of New York stock dividends		903			876
Life insurance proceeds		43			776
Bank owned life insurance		740			762
Other income		301			201
Total non-interest income		943			3,200

Non-interest expense
Salaries and employee benefits		19,166			18,455
Occupancy and equipment		2,789			2,577
Professional services		2,265			2,185
FDIC deposit insurance		485			500
Data processing		1,492			1,401
Depreciation and amortization		1,518			1,389
Other real estate owned/foreclosure expense		77			96
Other operating expenses		4,627			4,691
Total non-interest expense		32,419			31,294

Income before income taxes		9,355			14,362

Provision for income taxes
Federal		1,943			2,607
State and local		344			343
Total taxes		2,287			2,950

Net income	$	7,068		$	11,412


Basic earnings per common share	$	0.25		$	0.39
Diluted earnings per common share	$	0.25		$	0.39
Dividends per common share	$	0.21		$	0.20

	For the three months ended March, 31
(In thousands)	2019			2018

Net income	$	7,068		$	11,412

Other comprehensive income (loss), net of tax:
Amortization of actuarial losses, net of taxes of ($10) and ($41) for the three months ended March 31, 2019 and 2018, respectively .		22			91
Amortization of prior service credits, net of taxes of $7 and $3 for the three months ended March 31, 2019 and 2018, respectively.		(15	)		(7	)
Net unrealized gains (losses) on securities, net of taxes of ($2,524) and $3,055 for three months ended March 31, 2019 and 2018, respectively.		5,620			(6,640	)
Net unrealized(losses) gains on cash flow hedges, net of taxes of $1,575 and ($2,604) three months ended March 31, 2019 and 2018, respectively .		(3,505	)		5,661
Change in fair value of liabilities related to instrument-specific credit risk, net of taxes of ($39) for the three months ended March 31, 2019.		88			–

Total other comprehensive income (loss), net of tax		2,210			(895	)

Comprehensive income	$	9,278		$	10,517


	For the three months ended
	March 31,
(Dollars in thousands, except per share data)	2020		2019

Interest and dividend income
Interest and fees on loans	$	61,109	$	62,330
Interest and dividends on securities:
Interest		5,256		6,909
Dividends		15		19
Other interest income		290		555
Total interest and dividend income		66,670		69,813
Interest expense
Deposits		18,778		21,469
Other interest expense		7,066		6,541
Total interest expense		25,844		28,010
Net interest income		40,826		41,803
Provision for credit losses		7,178		972
Net interest income after provision for credit losses		33,648		40,831
Non-interest income
Banking services fee income		798	��	973
Net loss on sale of securities		(37)		—
Net gain on sale of loans		42		63
Net loss from fair value adjustments		(5,993)		(2,080)
Federal Home Loan Bank of New York stock dividends		964		903
Life insurance proceeds		—		43
Bank owned life insurance		943		740
Other income		419		301
Total non-interest (loss) income		(2,864)		943
Non-interest expense
Salaries and employee benefits		18,620		19,166
Occupancy and equipment		2,840		2,789
Professional services		2,862		2,265
FDIC deposit insurance		650		485
Data processing		1,694		1,492
Depreciation and amortization		1,536		1,518
Other real estate owned/foreclosure expense (benefit)		(164)		77
Net loss from other real estate owned		31		—
Other operating expenses		4,311		4,627
Total non-interest expense		32,380		32,419
(Loss) Income before income taxes		(1,596)		9,355
Provision (Benefit) for income taxes
Federal		989		1,943
State and local		(1,195)		344
Total taxes		(206)		2,287
Net income (Loss)	$	(1,390)	$	7,068

Basic (loss) earnings per common share	$	(0.05)	$	0.25
Diluted (loss) earnings per common share	$	(0.05)	$	0.25
Dividends per common share	$	0.21	$	0.21

	For the three months ended March 31,
(In thousands)	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	7,068		$	11,412
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		972			153
Depreciation and amortization of bank premises and equipment		1,518			1,389
Amortization of premium, net of accretion of discount		1,272			2,018
Net loss from fair value adjustments		2,080			100
Net loss from fair value adjustments on qualifying hedges		637			–
Net (gain) loss from sale of loans		(63	)		263
Income from bank owned life insurance		(740	)		(762	)
Life insurance proceeds		(43	)		(776	)
Stock-based compensation expense		3,931			3,452
Deferred compensation		(938	)		(1,238	)
Deferred income tax provision		805			350
Decrease in other liabilities		(3,737	)		(118	)
Increase in other assets		(942	)		(955	)
Net cash provided by operating activities		11,820			15,288

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of bank premises and equipment		(898	)		(1,867	)
Net redemptions of Federal Home Loan Bank of New York shares		6,100			6,044
Purchases of securities held-to-maturity		(180	)		(353	)
Proceeds from maturities and calls of securities held-to-maturity		1,568			–
Proceeds from prepayments of securities held-to-maturity		146			–
Purchases of securities available for sale		(45,730	)		(32,646	)
Proceeds from sales and calls of securities available for sale		13,295			10,000
Proceeds from maturities and prepayments of securities available for sale		16,788			20,943
Proceeds from bank owned life insurance		777			2,741
Net repayments (originations) of loans		16,372			(83,734	)
Purchases of loans		(56,995	)		(68,818	)
Proceeds from sale of loans		1,170			2,464
Net cash used in investing activities		(47,587	)		(145,226	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in non-interest bearing deposits		(12,683	)		(7,408	)
Net increase in interest-bearing deposits		106,788			302,438
Net increase in mortgagors' escrow deposits		25,254			23,373
Net repayments from short-term borrowed funds		(84,250	)		(10,500	)
Repayment of long-term borrowings		(51,310	)		(123,794	)
Purchases of treasury stock		(1,877	)		(7,963	)
Proceeds from issuance of common stock upon exercise of stock options		3			–
Cash dividends paid		(6,042	)		(5,795	)
Net cash (used) provided by financing activities		(24,117	)		170,351

Net (decrease) increase in cash and cash equivalents		(59,884	)		40,413
Cash and cash equivalents, beginning of period		118,561			51,546
Cash and cash equivalents, end of period	$	58,677		$	91,959

SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid	$	25,830		$	15,233
Income taxes paid		1,141			1,103
Taxes paid if excess tax benefits were not tax deductible		1,072			1,691
Non-cash activities:
Loans transferred to Other Real Estate Owned or Other Assets		–			744
Reclassification of the Income tax effects of Tax Cuts and Jobs Act from AOCI to Retained Earnings		–			2,073


	For the three months ended
	March 31,
(In thousands)	2020		2019

Net (loss) income		(1,390)		7,068
Other comprehensive income (loss), net of tax:
Amortization of actuarial losses, net of taxes of ($30) and ($10) for the three months ended March 31, 2020 and 2019, respectively.		67		22
Amortization of prior service credits, net of taxes of $6 and $7 for the three months ended March 31, 2020 and 2019, respectively.		(14)		(15)
Net unrealized (losses) gains on securities, net of taxes of $4,642 and ($2,524) for the three months ended March 31, 2020 and 2019, respectively.		(10,202)		5,620
Reclassification adjustment for net losses included in income, net of taxes of ($12) for the three months ended March 31, 2020.		25		—
Net unrealized losses on cash flow hedges, net of taxes of $6,190 and $1,575 for the three months ended March 31, 2020 and 2019 respectively.		(13,605)		(3,505)
Change in fair value of liabilities related to instrument-specific credit risk, net of taxes of ($489) and ($39) for the three months ended March 31, 2020 and 2019 respectively.		1,096		88

Total other comprehensive (loss) income , net of tax		(22,633)		2,210

Comprehensive (loss) income	$	(24,023)	$	9,278

(Dollars in thousands, except per share data)	Total			Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)

Balance at December 31, 2018	$	549,464		$	315	$	222,720		$	414,327		$	(75,146	)	$	(12,752	)

Impact of adoption of ASC 842 - Leases		2,716			–		–			2,716			–			–
Net income		7,068			–		–			7,068			–			–
Award of common shares released from Employee Benefit Trust (138,775 shares)		2,086			–		2,086			–			–			–
Vesting of restricted stock unit awards (287,155 shares)		–			–		(5,878	)		(210	)		6,088			–
Exercise of stock options (300 shares)		3			–		–			(3	)		6			–
Stock-based compensation expense		3,931			–		3,931			–			–			–
Repurchase of shares to satisfy tax obligation (83,908 shares)		(1,877	)		–		–			–			(1,877	)		–
Dividends on common stock ($0.21 per share)		(6,042	)		–		–			(6,042	)		–			–
Other comprehensive income		2,210			–		–			–			–			2,210
Balance at March 31, 2019	$	559,559		$	315	$	222,859		$	417,856		$	(70,929	)	$	(10,542	)


Balance at December 31, 2017	$	532,608		$	315	$	217,906		$	381,048		$	(57,675	)	$	(8,986	)
Reclassification of the Income Tax Effects of the Tax Cuts and Jobs Act from Accumulated Other Comprehensive Income (Loss) to Retained Earnings		–			–		–			2,073			–			(2,073	)
Impact of adoption of Accounting Standard Update 2016-01		–			–		–			(775	)		–			775
Net income		11,412			–		–			11,412			–			–
Award of common shares released from Employee Benefit Trust (116,229 shares)		2,488			–		2,488			–			–			–
Vesting of restricted stock unit awards (248,877 shares)		–			–		(4,731	)		(170	)		4,901			–
Stock-based compensation expense		3,452			–		3,452			–			–			–
Purchase of treasury shares (217,863 shares)		(5,913	)		–		–			–			(5,913	)		–
Repurchase of shares to satisfy tax obligation (72,837 shares)		(2,050	)		–		–			–			(2,050	)		–
Dividends on common stock ($0.20 per share)		(5,795	)		–		–			(5,795	)		–			–
Other comprehensive loss		(895	)		–		–			–			–			(895	)
Balance at March 31, 2018	$	535,307		$	315	$	219,115		$	387,793		$	(60,737	)	$	(11,179	)


	For the three months ended March 31,
	2020		2019
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(1,390)	$	7,068
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit loan losses		7,178		972
Depreciation and amortization of bank premises and equipment		1,536		1,518
Amortization of premium, net of accretion of discount		1,642		1,272
Net loss from fair value adjustments		5,993		2,080
Net loss from fair value adjustments on qualifying hedges		2,073		637
Net gain from sale of loans		(42)		(63)
Net loss from sale of securities		37		—
Net loss from OREO		31		—
Income from bank owned life insurance		(943)		(740)
Life insurance proceeds		—		(43)
Stock-based compensation expense		3,430		3,931
Deferred compensation		(1,296)		(938)
Deferred income tax (benefit) expense		(2,318)		805
Decrease in other liabilities		(7,106)		(3,737)
Decrease (increase) in other assets		2,440		(942)
Net cash provided by operating activities		11,265		11,820
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of bank premises and equipment		(759)		(898)
Net (purchases) redemptions of Federal Home Loan Bank of New York shares		(17,079)		6,100
Purchases of securities held-to-maturity		—		(180)
Proceeds from maturities and calls of securities held-to-maturity		180		1,568
Proceeds from prepayments of securities held-to-maturity		150		146
Purchases of securities available for sale		(63,434)		(45,730)
Proceeds from sales and calls of securities available for sale		64,600		13,295
Proceeds from maturities and prepayments of securities available for sale		40,383		16,788
Proceeds from bank owned life insurance		—		777
Net (originations) repayments of loans		(55,906)		16,372
Purchases of loans		(77,233)		(56,995)
Proceeds from sale of loans		580		1,170
Net cash used in investing activities		(108,518)		(47,587)


					Additional						Accumulated Other
			Common		Paid-in		Retained		Treasury		Comprehensive
(Dollars in thousands, except per share data)	Total		Stock		Capital		Earnings		Stock		Income (Loss)

Balance at December 31, 2019	$	579,672	$	315	$	226,691	$	433,960	$	(71,487)	$	(9,807)

Impact of adoption of ASC 326 - Credit Losses		(875)		—		—		(875)		—		—
Net loss		(1,390)		—		—		(1,390)		—		—
Award of common shares released from Employee Benefit Trust (116,414 shares)		1,398		—		1,398		—		—		—
Vesting of restricted stock unit awards (272,946 shares)		—		—		(5,626)		(156)		5,782		—
Stock-based compensation expense		3,430		—		3,430		—		—		—
Purchase of treasury shares (142,405 shares)		(2,342)		—		—		—		(2,342)		—
Repurchase of shares to satisfy tax obligation (74,145 shares)		(1,493)		—		—		—		(1,493)		—
Dividends on common stock ($0.21 per share)		(6,084)		—		—		(6,084)		—		—
Other comprehensive loss		(22,633)		—		—		—		—		(22,633)
Balance at March 31, 2020	$	549,683	$	315	$	225,893	$	425,455	$	(69,540)	$	(32,440)


					Gross		Gross		Allowance
	Amortized				Unrealized		Unrealized		for Credit
	Cost		Fair Value		Gains		Losses		Losses
	(In thousands)
Securities held-to-maturity:
Municipals	$	50,627	$	51,938	$	1,311	$	—	$	(402)
Total other securities		50,627		51,938		1,311		—		(402)

FNMA		7,929		8,953		1,024		—		—
Total mortgage-backed securities		7,929		8,953		1,024		—		—
Total	$	58,556	$	60,891	$	2,335	$	—	$	(402)

	Amortized Cost		Fair Value		Gross Unrealized Gains		Gross Unrealized Losses
	(In thousands)
Securities held-to-maturity:
Municipals	$	22,532	$	22,276	$	–	$	256

Total other securities		22,532		22,276		–		256

FNMA		7,949		7,726		–		223

Total mortgage-backed securities		7,949		7,726		–		223
Total	$	30,481	$	30,002	$	–	$	479

Securities available for sale:	Amortized Cost		Fair Value
	(In thousands)

Due after one year through five years	$	10,000	$	9,587
Due after five years through ten years		131,963		123,717
Due after ten years		122,409		121,733

Total other securities		264,372		255,037
Mutual funds		11,802		11,802
Mortgage-backed securities		584,384		579,185

Total	$	860,558	$	846,024


	At March 31, 2020
	Total					Less than 12 months				12 months or more
				Unrealized				Unrealized				Unrealized
	Count	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(Dollars in thousands)
Available for sale securities
Corporate	16	$	111,853	$	18,148	$	9,620	$	380	$	102,233	$	17,768
Collateralized loan obligations	13		87,372		12,989		22,521		3,046		64,851		9,943
Total other securities	29		199,225		31,137		32,141		3,426		167,084		27,711

REMIC and CMO	12		67,416		390		64,541		371		2,875		19
FNMA	1		8,812		24		—		—		8,812		24

Total mortgage-backed securities	13		76,228		414		64,541		371		11,687		43
Total	42	$	275,453	$	31,551	$	96,682	$	3,797	$	178,771	$	27,754

	At March 31, 2019
			Total				Less than 12 months				12 months or more
	Count		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
			(Dollars in thousands)

Held-to-maturity securities
Municipals		1	$	21,096	$	256	$	–	$	–	$	21,096	$	256
Total other securities		1		21,096		256		–		–		21,096		256

FNMA		1		7,726		223		–		–		7,726		223
Total mortgage-backed securities		1		7,726		223		–		–		7,726		223
Total		2	$	28,822	$	479	$	–	$	–	$	28,822	$	479



															At December 31, 2019
															Total					Less than 12 months				12 months or more
																		Unrealized				Unrealized				Unrealized
															Count	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
															(Dollars in thousands)

Available for sale securities
Corporate		16	$	121,382	$	8,618	$	19,419	$	581	$	101,963	$	8,037	16	$	123,050	$	6,950	$	—	$	—	$	123,050	$	6,950
CLO		11		85,896		1,016		85,896		1,016		–		–
Collateralized loan obligations															13		99,137		1,212		25,451		108		73,686		1,104
Total other securities		27		207,278		9,634		105,315		1,597		101,963		8,037	29		222,187		8,162		25,451		108		196,736		8,054


REMIC and CMO		36		215,761		5,351		20,259		79		195,502		5,272	23		120,989		1,440		102,384		1,117		18,605		323
GNMA															1		49		—		49		—		—		—
FNMA		12		77,992		1,465		–		–		77,992		1,465	8		67,618		426		19,073		138		48,545		288
FHLMC		3		50,602		861		9,657		97		40,945		764	1		30,200		73		—		—		30,200		73
Total mortgage-backed securities		51		344,355		7,677		29,916		176		314,439		7,501	33		218,856		1,939		121,506		1,255		97,350		684
Total		78	$	551,633	$	17,311	$	135,231	$	1,773	$	416,402	$	15,538

Total securities available for sale															62	$	441,043	$	10,101	$	146,957	$	1,363	$	294,086	$	8,738

	At December 31, 2018
			Total				Less than 12 months				12 months or more
	Count		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
Held-to-maturity securities

Municipals		1	$	19,940	$	1,557	$	–	$	–	$	19,940	$	1,557
Total other securities		1		19,940		1,557		–		–		19,940		1,557

FNMA		1		7,366		587		–		–		7,366		587
Total mortgage-backed securities		1		7,366		587		–		–		7,366		587

Total securities held-to-maturity		2	$	27,306	$	2,144	$	–	$	–	$	27,306	$	2,144

Available for sale securities
Corporate		16	$	118,535	$	11,465	$	19,113	$	888	$	99,422	$	10,577
Municipals		3		4,220		–		4,220		–		–		–
CLO		11		86,752		1,645		86,752		1,645		–		–
Total other securities		30		209,507		13,110		110,085		2,533		99,422		10,577

REMIC and CMO		39		243,756		7,177		17,308		200		226,448		6,977
GNMA		1		51		–		51		–		–		–
FNMA		14		85,046		2,448		6,372		17		78,674		2,431
FHLMC		3		51,288		1,396		10,116		95		41,172		1,301
Total mortgage-backed securities		57		380,141		11,021		33,847		312		346,294		10,709
Total securities available for sale		87	$	589,648	$	24,131	$	143,932	$	2,845	$	445,716	$	21,286


	Mortgage-backed securities		Other securities
	(In thousands)
Beginning balance	$	—	$	—
CECL adoption		—		340
Provision		—		62
Allowance for credit losses - securities	$	—	$	402


	March 31, 2020			December 31, 2019
	Number	Recorded		Number	Recorded
(Dollars in thousands)	of contracts	investment		of contracts	investment
Multi-family residential	7	$	1,868	7	$	1,873
One-to-four family - mixed-use property	4		1,483	4		1,481
One-to-four family - residential	3		525	3		531
Taxi medallion ⁽¹⁾	6		1,520	7		1,668
Commercial business and other	3		950	3		941
Total performing troubled debt restructured	23	$	6,346	24	$	6,494

	March 31, 2019				December 31, 2018
(Dollars in thousands)	Number of contracts		Recorded investment		Number of contracts		Recorded investment

Multi-family residential		7	$	1,906		7	$	1,916
One-to-four family - mixed-use property		5		1,674		5		1,692
One-to-four family - residential		3		547		3		552
Taxi medallion ⁽¹⁾		10		2,518		15		3,926
Commercial business and other		–		–		1		279
Total performing troubled debt restructured		25	$	6,645		31	$	8,365


	At or three months ended March 31, 2020
				Non-Accrual				Loans ninety days
		Total Non-Accrual		with no related		Interest Income		or more past due
(In thousands)		Amortized Cost		Allowance		Recognized		and still accruing:
Multi-family residential	$	2,763	$	2,763	$	—	$	—
Commercial real estate		8		8		—		—
One-to-four family - mixed-use property		627		346		—		—
One-to-four family - residential		4,588		4,588		—		—
Construction loans		—		—		—		—
Small Business Administration		1,544		1,544		—		—
Taxi Medallion ⁽¹⁾		1,763		1,763		9		—
Commercial business and other ⁽¹⁾		5,006		5,001		—		—
Total	$	16,299	$	16,013	$	9	$	—


	March 31, 2020
					Greater
	30 - 59 Days		60 - 89 Days		than		Total Past
(In thousands)	Past Due		Past Due		90 Days		Due		Current		Total Loans
Multi-family residential	$	1,919	$	—	$	2,763	$	4,682	$	2,274,090	$	2,278,772
Commercial real estate		5,206		—		8		5,214		1,661,599		1,666,813
One-to-four family - mixed-use property		3,283		—		627		3,910		592,435		596,345
One-to-four family - residential		1,322		381		4,588		6,291		193,593		199,884
Construction loans		—		—		—		—		66,524		66,524
Small Business Administration		—		—		1,544		1,544		12,961		14,505
Taxi medallion		—		—		1,195		1,195		2,087		3,282
Commercial business and other		645		153		4,968		5,766		1,100,197		1,105,963
Total	$	12,375	$	534	$	15,693	$	28,602	$	5,903,486	$	5,932,088

	March 31, 2019
(In thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans


Multi-family residential	$	683	$	–	$	2,009	$	2,692	$	2,253,755	$	2,256,447
Commercial real estate		786		1,794		1,050		3,630		1,525,371		1,529,001
One-to-four family - mixed-use property		1,212		–		1,025		2,237		579,812		582,049
One-to-four family - residential		1,532		155		5,708		7,395		181,220		188,615
Co-operative apartments		–		–		–		–		7,903		7,903
Construction loans		–		–		950		950		53,983		54,933
Small Business Administration		–		–		1,227		1,227		13,961		15,188
Taxi medallion		–		–		768		768		3,123		3,891
Commercial business and other		508		1,299		2,114		3,921		931,376		935,297
Total	$	4,721	$	3,248	$	14,851	$	22,820	$	5,550,504	$	5,573,324


	March 31, 2020
					One-to-four
					family -		One-to-four								Commercial
	Multi-family		Commercial		mixed-use		family -		Construction		Small Business		Taxi		business and
(In thousands)	residential		real estate		property		residential		loans		Administration		medallion		other		Total
Allowance for credit losses:
Beginning balance	$	5,391	$	4,429	$	1,817	$	756	$	441	$	363	$	—	$	8,554	$	21,751
Impact of CECL Adoption		(651)		1,170		(55)		(159)		(279)		1,180		—		(827)		379
Charge-offs		—		—		—		—		—		—		—		(1,259)		(1,259)
Recoveries		7		—		78		4		—		7		—		14		110
Provision (benefit)		1,148		1,192		330		291		23		(22)		—		4,155		7,117
Ending balance	$	5,895	$	6,791	$	2,170	$	892	$	185	$	1,528	$	—	$	10,637	$	28,098

March 31, 2019
(In thousands)	Multi-family residential			Commercial real estate			One-to-four family - mixed-use property			One-to-four family - residential			Construction loans		Small Business Administration			Taxi medallion			Commercial business and other			Total

Allowance for credit losses:
Beginning balance	$	5,676		$	4,315		$	1,867		$	749		$	329	$	418		$	–		$	7,591		$	20,945
Charge-off's		–			–			(1	)		–			–		–			–			(1,137	)		(1,138	)
Recoveries		13			–			86			4			–		4			84			45			236
Provision (Benefit)		(196	)		(37	)		(161	)		(22	)		22		(13	)		(84	)		1,463			972
Ending balance	$	5,493		$	4,278		$	1,791		$	731		$	351	$	409		$	–		$	7,962		$	21,015

March 31, 2018
(In thousands)	Multi-family residential			Commercial real estate			One-to-four family - mixed-use property			One-to-four family - residential			Construction loans		Small Business Administration			Taxi medallion		Commercial business and other			Total

Allowance for credit losses:
Beginning balance	$	5,823		$	4,643		$	2,545		$	1,082		$	68	$	669		$	–	$	5,521		$	20,351
Charge-off's		(53	)		–			–			(1	)		–		(25	)		–		(6	)		(85	)
Recoveries		2			–			–			108			–		6			–		7			123
Provision (Benefit)		(22	)		(41	)		(75	)		(148	)		123		25			–		291			153
Ending balance	$	5,750		$	4,602		$	2,470		$	1,041		$	191	$	675		$	–	$	5,813		$	20,542

	March 31, 2019				March 31, 2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

	(In thousands)
With no related allowance recorded:
Mortgage loans:
Multi-family residential	$	3,031	$	9	$	4,834	$	20
Commercial real estate		1,266		–		6,915		74
One-to-four family mixed-use property		1,948		17		4,297		41
One-to-four family residential		6,279		2		8,855		15
Construction		475		–		–		–
Non-mortgage loans:
Small Business Administration		1,247		–		118		1
Taxi medallion		4,215		58		6,726		82
Commercial business and other		611		–		196		2

Total loans with no related allowance recorded		19,072		86		31,941		235

With an allowance recorded:
Mortgage loans:
Multi-family residential		1,272		18		2,214		29
Commercial real estate		–		–		993		–
One-to-four family mixed-use property		1,095		10		1,222		9
One-to-four family residential		397		4		413		4
Non-mortgage loans:
Taxi medallion		–		–		–		–
Commercial business and other		2,341		–		338		5

Total loans with an allowance recorded		5,105		32		5,180		47

Total Impaired Loans:
Total mortgage loans	$	15,763	$	60	$	29,743	$	192

Total non-mortgage loans	$	8,414	$	58	$	7,378	$	90


	For the year ended
														Revolving Loans,		Lines of Credit
														Amortized Cost		converted to
(In thousands)		2020		2019		2018		2017		2016		Prior		Basis		term loans
1-4 Family Residential
Pass	$	8,526	$	26,292	$	29,807	$	16,352	$	11,399	$	65,998	$	9,361	$	22,132
Watch		—		—		—		—		—		2,759		—		1,809
Special Mention		—		—		—		—		—		444		146		147
Substandard		—		—		—		—		950		2,906		—		856
Total 1-4 Family Residential	$	8,526	$	26,292	$	29,807	$	16,352	$	12,349	$	72,107	$	9,507	$	24,944
1-4 Family Mixed-Use
Pass	$	15,189	$	70,064	$	78,136	$	63,655	$	54,009	$	304,415	$	—	$	—
Watch		—		—		793		—		1,325		7,148		—		—
Special Mention		—		—		—		—		—		984		—		—
Substandard		—		—		—		—		—		627		—		—
Total 1-4 Family Mixed Use	$	15,189	$	70,064	$	78,929	$	63,655	$	55,334	$	313,174	$	—	$	—
Commercial Real Estate
Pass	$	75,893	$	254,086	$	283,515	$	194,618	$	239,116	$	511,871	$	—	$	—
Watch		4,979		9,762		—		4,963		20,748		66,711		—		—
Special Mention		—		—		—		—		—		543		—		—
Substandard		—		—		—		—		—		8		—		—
Total Commercial Real Estate	$	80,872	$	263,848	$	283,515	$	199,581	$	259,864	$	579,133	$	—	$	—
Construction
Pass	$	4,885	$	15,633	$	35,934	$	—	$	9,394	$	—	$	—	$	—
Special Mention		—		—		678		—		—		—		—		—
Total Construction	$	4,885	$	15,633	$	36,612	$	—	$	9,394	$	—	$	—	$	—
Multifamily
Pass	$	68,498	$	313,608	$	369,264	$	376,202	$	283,128	$	846,228	$	4,460	$	—
Watch		—		—		—		2,158		2,843		9,620		—		—
Substandard		—		—		1,974		—		—		789		—		—
Total Multifamily	$	68,498	$	313,608	$	371,238	$	378,360	$	285,971	$	856,637	$	4,460	$	—
Commercial Business - Secured by RE
Pass	$	27,601	$	117,070	$	59,408	$	22,399	$	44,964	$	85,736	$	—	$	—
Watch		—		—		6,647		1,320		2,701		3,276		—		—
Special Mention		—		—		—		—		—		423		—		—
Substandard		—		—		—		—		—		2,330		—		—
Total Commercial Business - Secured by RE	$	27,601	$	117,070	$	66,055	$	23,719	$	47,665	$	91,765	$	—	$	—
Commercial Business
Pass	$	39,770	$	151,169	$	117,548	$	73,802	$	18,931	$	73,775	$	213,463	$	—
Watch		1,221		1,001		2,372		3,114		445		587		19,162		—
Special Mention		—		—		15				2,683		463		317		—
Substandard		—		577		340		3,386		6,255		1,211		94		—
Doubtful		—		—		—		—		—		108		—		—
Total Commercial Business	$	40,991	$	152,747	$	120,275	$	80,302	$	28,314	$	76,144	$	233,036	$	—
Small Business Administration
Pass	$	—	$	986	$	3,626	$	1,072	$	2,704	$	2,220	$	—	$	—
Watch		—		—		—		2,299		—		—		—		—
Special Mention		—		—		—		—		—		54		—		—
Substandard		—		—		—		1,170		374		—		—		—
Total Small Business Administration	$	—	$	986	$	3,626	$	4,541	$	3,078	$	2,274	$	—	$	—
Taxi Medallions
Substandard		—		—		—		—		—		3,282		—		—
Total Taxi Medallions	$	—	$	—	$	—	$	—	$	—	$	3,282	$	—	$	—
Other
Pass	$	—	$	—	$	—	$	—	$	—	$	105	$	171	$	—
Watch		—		—		—		—		—		—		3		—
Total Other	$	—	$	—	$	—	$	—	$	—	$	105	$	174	$	—

Total Loans	$	246,562	$	960,248	$	990,057	$	766,510	$	701,969	$	1,994,621	$	247,177	$	24,944



	Collateral Type
(In thousands)		Real Estate		Business Assets
Multi-family residential	$	2,763	$	—
Commercial real estate		8		—
One-to-four family - mixed-use property		627		—
One-to-four family - residential		4,588		—
Small Business Administration		—		1,544
Commercial business and other		—		5,000
Taxi Medallion		—		3,282
Total	$	7,986	$	9,826

	For the three months ended March 31, 2019
(Dollars in thousands)	Loans sold		Proceeds		Net Recoveries (Charge-offs)			Net gain
Delinquent and non-performing loans
Multi-family residential		2	$	765	$	–		$	63
One-to-four family - mixed-use property		1		405		(1	)		–

Total		3	$	1,170	$	(1	)	$	63


	For the three months ended March 31, 2020
				Net Recoveries
(Dollars in thousands)	Loans sold	Proceeds		(Charge-offs)		Net gain
Delinquent and non-performing loans
Multi-family residential	1	$	284	$	—	$	42
One-to-four family - mixed-use property	1		296		—		—
Total	2	$	580	$	—	$	42