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, 20192020
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'sRegistrant’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:
The number of shares of the registrant’s Common Stock outstanding as of April 30, 20192020 was 28,187,184.28,214,481.
TABLE OF CONTENTS
i
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.
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.
-1-
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.
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.
-2-
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 2018Comprehensive 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.
-3-
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-
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-
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-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
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-
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 loancredit 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 instrumentsinstruments.
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-temporarythe reporting unit to the carrying value and determine if impairment (“OTTI”) on securities. Actual results could differ from these estimates.is required.
-8-
PART I – FINANCIAL INFORMATION FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) |
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, |
4. Securities
The Company did not0t hold any trading securities at March 31, 20192020 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-
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 |
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-
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 not0t hold any private issue CMO’s that are collateralized by commercial real estate mortgages at March 31, 20192020 and December 31, 2018.
2019.
The corporate securities held by the Company at March 31, 20192020 and December 31, 20182019 are issued by U.S. banking institutions.
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 |
-11-
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 |
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 investmentavailable for sale debt securities that had an unrealized loss at March 31, 2019 and December 31, 2018. The unrealized2020 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 didconsidered 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 impaireddeemed 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, 20192020 and Decemberis excluded from the estimate of credit losses.
-12-
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 not0t sell any securities during the three months ended March 31, 20192019.
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. 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-
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 probablefirst considered these differences as follows:
-14-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. | 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. |
2. | 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. |
3. | 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. |
4. | 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. |
5. | 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:
6. | 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. |
7. | 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. |
8. | 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 unablethe remainder of the portfolio includes Overdraft lines of credit.
9. | 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 principal3 business units: Business Banking, Residential and interest, inReal Estate. In accordance with the original terms ofinteragency statement and SEC guidance, Management evaluates nine qualitative risk factors to determine if the loan. Impaired loans are measured based onrisk is captured elsewhere in the presentACL 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 atlevels 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 valueNYC GDP and national GDP, industry concentrations and riskiness and large borrower concentrations.
-15-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The Company maintainsrecorded an allowanceACL for loan losses at anloans in the amount which, in management’s judgment, is adequateof $7.1 million for the quarter ending March 31, 2020, primarily due to absorb probable estimated losses inherentthe 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 inherentresult in the underlying assumptions used inACL 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 allowanceCompany is established through charges to earningsactively 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 evaluationtermination of the risk inherent inCOVID-19 national emergency are not classified as TDRs if the various componentsrelated 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.
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 tohas 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 loanloans 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, 20192020 and 2018.2019.
-16-
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) | 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, 20192020 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.
-17-
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 | | $ | — |
(1) |
The following table shows our non-performing loans at the periodsperiod 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-
(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 |
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 |
-19-
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 |
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 |
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 |
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 |
-20-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
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 LoanCredit 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-
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-
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 periodsperiod 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:
| | | | | | |
| | | ||||
| | 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-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) |
Off-Balance Sheet Credit Losses
Loans held for sale are carried at the lower of cost or estimated fair value. At March 31, 20192020 and December 31, 2018,2019, the Bank did not0t 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-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
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, 2019gross 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, 20192020 and December 31, 20182019 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.
8. Leases |
The Company has 1921 operating leases for branches (including headquarters) and office spaces, nine9 operating leases for vehicles, and two1 operating leaseslease for equipment. Our leases have remaining lease terms ranging from one montheight 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 ROURight-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 monthsmonth 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 eightapproximately 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.
-25-
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:
| | | | | | | |
|
| |
| | | ||
|
| |
| | | ||
(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-
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, 20192020 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 263,574170,228 and 57,870263,574 in RSU awards and PRSU awards, respectively. During the three months ended March 31, 2018,2020 and 2019, the Company granted 274,99072,143 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 not0t granted stock options since 2009 and at March 31, 2019,2020, had noneNaN 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 3.62.7 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-
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, 20192020 and 2018,2019, respectively. The total fair value of the distributions from the Phantom Stock Plan was $22,000less than $1,000 and $1,000$22,000 for the three months ended March 31, 2020 and 2019, and 2018, respectively.
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-
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, 20182019 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 not0t 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. 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.
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 |
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, 20192020 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, 20192020 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-
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 – wherewhen quoted market prices are available in an active market. At March 31, 20192020 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, 20192020 and December 31, 2018,2019, Level 2 included mortgage relatedmortgage-backed securities, CLO’s, corporate debt, municipals and interest rate swaps.
- 25 -
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, 20192020 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-
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 inincluding 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, 20192020 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 setsset forth the Company'sCompany’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) | Totals in the table above are presented in the Consolidated Statement of Income under net |
- 26 -
During the three months ended March 31, 20192020 and 2018,2019, there were no transfers between Levels 1, 2 and 3.
-31-
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, 20192020 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, 20192020 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 -
-32-
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 not0t have any liabilities that were carried at fair value on a non-recurring basis at March 31, 20192020 and December 31, 2018.
- 28 -2019.
-33-
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, 20192020 and December 31, 20182019 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.
ImpairedNon-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-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
- 29 -(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 -
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. Derivative Financial Instruments |
At March 31, 20192020 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, 20192020 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, 20192020 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, 20192020 and December 31, 2018.2019, respectively.
-35-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
At March 31, 20192020 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, 20192020 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, 20192020 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, 20192020 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 AOCLaccumulated 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 waseach were reclassified from accumulated other comprehensive loss to interest expense.
- 31 -
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-
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) | |
(2) | Includes interest income (loss) recorded |
(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 -
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 -
-37-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
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 -
-38-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
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 -
-39-
PART I – FINANCIAL INFORMATION
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-
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 |
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
-41-
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, 20192020 was 5.49%4.98%.
- 36 -
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 -
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, 20192020 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 -
-42-
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 issuingCompany adopted Accounting Standards UpdateTopic 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 changescredit 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 partacquisition. 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 identifymodified retrospective method for all leasing arrangements subject to the new leasing guidancefinancial assets measured at amortized cost and believes that all arrangements that meet the definition of a leaseoff-balances sheet exposures. Results for reporting periods beginning after January 1, 2020 are presented under historic US GAAP willTopic 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 Companywe recorded right of use assetsa 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 reclassifiedtax. The transition adjustment includes changes to retained earnings.
As the rate implicit in eachthree 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 -
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 modifymodifies 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 appliedguidance did not have a significant impact on a retrospective basis to all periods presented. We are currently evaluating the impactCompany’s financial positions, results of adopting this new guidance on ouroperations or disclosures.
InEffective January 2017,1, 2020, the FASB issuedCompany 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'sunit’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 updateUpdate are effective for fiscal years beginningended after December 15, 2019, including interim periods within those fiscal years.2020. Early adoption is permitted for goodwill impairment tests performedpermitted. 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'sCompany’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 forthprovides 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 modelagreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would
-43-
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 unknownreference rate.
-44-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and will depend on many factors, such as the compositionSUBSIDIARIES
Management’s Discussions and Analysis of the Company’s loan portfolio
Financial Condition and expected loss history at adoption.
- 40 -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 17th, 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
-45-
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 loancredit losses and specific provision for losses on real estate owned.
- 41 -
|
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:
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.
-46-
Rate over volume remainsPART 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 quarterthree 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 continuedour 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% duringDuring 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, while2019, resulting in net interest margin compression of four basis points. The decrease in the cost of interest-bearing liabilities increased threewas 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 remains2020 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.
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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, 20192020 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 $0.392019.
Return (loss) on average equity decreased to (1.0)% for the three months ended March 31, 2018.
Return on average equity decreased to2020 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 to2020 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%, to2020 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 increasedecrease 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, 20192020 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 increasedecrease in the yield on interest-earning assets was primarily due to an increasedecreases of $313.3 million28 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 increasedecrease of 2928 basis points in the yield on the total loans, net, was primarily due to loans being both originated and repriced atthe 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 taxableyielding securities and 60 basis points in tax-exempt securities primarily resulted from the positive effect of the sale ofreplaced 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 31decreased 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%, to2020 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 increasedecrease in interest expense was primarily due to an increasea 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 withpartially 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 increasedecrease 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. ForNet interest income for the three months ended March 31, 2019, net interest income2020 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 increasedecrease in the costyield of interest-bearing liabilitiesinterest-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 yieldcost of interest-earning assetsinterest-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 comparedpartially 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 effectsnet 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, 20192020 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, 20192020 was 2.52%2.49%, a decrease of 22three basis points, as comparedfrom to 2.74%2.52% for the three months ended March 31, 2018.2019.
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Provision for LoanCredit Losses.During the three months ended March 31, 2019,2020, a provision for loancredit 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 balanceeconomic 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 $0.5increased $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 LoanCredit 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 incomeloss for the three months ended March 31, 20192020 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 decreaseadjustments.
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 ended2020, and March 31, 2019 compared2019.
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 $14.4for 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 was2020, 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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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 $274.8was $324.4 million at March 31, 2019,2020, compared to $196.6$324.5 million at December 31, 2018.
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|
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 |
(2) | Includes purchases of |
(3) | Includes purchases of $3.5 million and $2.4 million for three months ended March 31, |
(4) | Includes purchases of |
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, 20192020 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 decrease2020, 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, 20192020 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, 20192020 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 $21.2decreased $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 increasedecrease in mortgage-backed securities during the three months ended March 31, 20192020 was primarily due to purchasessale of $33.8securities totaling $64.6 million at an average yieldrate 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 $0.6decreased $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 increasedecrease in other securities during the three months ended March 31, 20192020, was primarily due to purchases totaling $12.1 million at an average yield of 4.62% and an increasea 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, 20192020 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 $94.2decreased $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 increaseincreases 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 demandaccounts and savings accounts, respectively. Borrowed funds decreased $134.4increased $380.4 million during the three months ended March 31, 2019.2020. The decreaseincrease in borrowed funds was primarily due to a decreasean increase in FHLB-NY short-termwholesale borrowings, as funding needs were provided by increased deposits.the Company sought to reduce the cost of funds.
Equity. Total stockholders’ equity increased $10.1decreased $30.0 million, or 1.8%5.2%, to $559.6$549.7 million at March 31, 20192020 from $549.5$579.7 million at December 31, 2018.2019. Stockholders’ equity increaseddecreased primarily due to an increase in accumulated comprehensive net incomeloss 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 impactadoption of vesting and exercising of shares of employee and director stock plansCECL totaling $4.1$0.9 million. Additionally, stockholders’ equity was also positively impacted by a decreasereduced due to the net loss of $2.2$1.4 million in other comprehensive loss. These increases were partially offsetand 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, 20192020 compared to $19.64$20.59 at December 31, 2018.2019.
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Cash flow. During the three months ended March 31, 2019,2020, funds provided by the Company'sCompany’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 periodfinancing 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'sCompany’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 increasesshort-term borrowing and $50.0 million in total deposits of $119.4 million. In addition to funding loan growth, theseproceeds 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
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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
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 |
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-51- |
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, 20192020 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 |
(2) | Loan interest income includes net losses from fair value adjustments on qualifying hedges of |
(3) | Interest and yields are presented on tax equivalent basis using the statutory federal income tax rate of 21% for the periods presented totaling |
- 47 -
|
-52-
LOANSPART 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 -
-53- |
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management’s Discussions and Analysis of
Financial Condition and Results of Operations
TROUBLED DEBT RESTRUCUTUREDRESTRUCTURED (“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 -
-54- |
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 periodsperiod 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 |
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 -
|
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, 20192020 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, 20192020 and December 31, 2018.2019, respectively. The Company did not hold any criticized or classified investment securities at March 31, 20192020 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-
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 valuerecorded $7.1 million provision for credit losses for the first quarter of collateral dependent loans2020 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 qualitativeimpact 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 growth2020. 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 reduced2020.
| | | | |
| | 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 | |
-56-
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 increaseSUBSIDIARIES
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 reviewResults 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
|
The following table sets forth the activity in the Company'sCompany’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
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.
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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'sCompany’s consolidated financial condition, results of operations and cash flows.
ITEM 1A. RISK FACTORS
ThereExcept as set forth below, there have been no material changes from the risk factors disclosed in the Company’s Annual Reportannual 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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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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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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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 | |
|
During the quarter ended March 31, 20192020, the Company did not repurchase anyrepurchased 142,405 shares of the Company’s common stock. Asstock at an average cost of $16.45 per share. On March 31, 2019, 467,2112020, 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
ITEM 6. EXHIBITS
| | |
Exhibit No. | Description | |
| | |
3.1 P | | Certificate of Incorporation of Flushing Financial Corporation (1) |
3.2 | | Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (3) |
3.3 | | Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (5) |
3.4 | | |
3.5 | | |
3.6 | | Amended and Restated By-Laws of Flushing Financial Corporation (6) |
4.1 | | |
4.2 | | |
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 | | |
31.2 | | |
32.1 | | |
32.2 | | |
101.INS | | XBRL Instance Document |
101.SCH | | XBRL Taxonomy Extension Schema Document (filed herewith) |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith) |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document (filed herewith) |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document (filed herewith) |
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-
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
EXHIBIT INDEX
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.
| | | |
Exhibit No. | Description | ||
| | | |
- 56 -
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
EXHIBIT INDEX
3.1 P | | Certificate of Incorporation of Flushing Financial Corporation (1) | |
3.2 | | Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (3) | |
3.3 | | Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (5) | |
3.4 | | ||
3.5 | | ||
3.6 | | Amended and Restated By-Laws of Flushing Financial Corporation (6) | |
4.1 | | ||
4.2 | | ||
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 | | ||
31.2 | | ||
32.1 | | ||
32.2 | | ||
101.INS | | XBRL Instance Document | |
101.SCH | | XBRL Taxonomy Extension Schema Document (filed herewith) | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith) | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document (filed herewith) | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document (filed herewith) | |
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.
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