Flushing Financial 10Q 2021 Q1 Quarterly report

TABLE OF CONTENTS

	PAGE
PART I — FINANCIAL INFORMATION
ITEM 1. Financial Statements - (Unaudited)
Consolidated Statements of Financial Condition	1
Consolidated Statements of Income	2
Consolidated Statements of Comprehensive Income	3
Consolidated Statements of Cash Flows	4
Consolidated Statements of Changes in Stockholders’ Equity	6
Notes to Consolidated Financial Statements	7
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	56
ITEM 4. Controls and Procedures	56
PART II — OTHER INFORMATION
ITEM 1. Legal Proceedings	57
ITEM 1A. Risk Factors	57
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	57
ITEM 3. Defaults Upon Senior Securities	57
ITEM 4. Mine Safety Disclosures	57
ITEM 5. Other Information	57
ITEM 6. Exhibits	58
SIGNATURES	60

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Financial Condition

(Unaudited)

Item 1. Financial Statements


	March 31,		December 31,
	2021		2020

	(Dollars in thousands, except per share data)
Assets
Cash and due from banks	$	174,420	$	157,388
Securities held-to-maturity:
Mortgage-backed securities (including assets pledged of $5,529 and $5,853 at March 31, 2021 and December 31, 2020, respectively; fair value of $8,492 and $8,991 at March 31, 2021 and December 31, 2020, respectively)		7,909		7,914
Other securities, net of allowance for credit losses of $915 and $907 at March 31, 2021 and December 31, 2020, respectively, (NaN pledged; fair value of $52,543 and $54,538 at March 31, 2021 and December 31, 2020, respectively)		49,912		49,918
Securities available for sale, at fair value:
Mortgage-backed securities (including assets pledged of $301,048 and $264,968 at March 31, 2021 and December 31, 2020, respectively; $481 and $505 at fair value pursuant to the fair value option at March 31, 2021 and December 31, 2020, respectively)		518,781		404,460
Other securities (including asset pledged of $6,220 and $6,453 at March 31, 2021 and December 31, 2020, respectively; $13,867 and $13,998 at fair value pursuant to the fair value option at March 31, 2021 and December 31, 2020, respectively)		242,440		243,514
Loans:
Multi-family residential		2,525,967		2,533,952
Commercial real estate		1,721,702		1,754,754
One-to-four family - mixed-use property		595,431		602,981
One-to-four family - residential		239,391		245,211
Co-operative apartments		7,965		8,051
Construction		61,528		83,322
Small Business Administration		267,120		167,376
Taxi medallion		—		2,757
Commercial business and other		1,326,657		1,303,225
Net unamortized premiums and unearned loan fees		(445)		3,045
Allowance for loan losses		(45,099)		(45,153)
Net loans		6,700,217		6,659,521
Interest and dividends receivable		44,941		44,041
Bank premises and equipment, net		27,498		28,179
Federal Home Loan Bank of New York stock, at cost		41,498		43,439
Bank owned life insurance		182,707		181,710
Goodwill		17,636		17,636
Core deposit intangibles		3,013		3,172
Right of Use Asset		53,802		50,743
Other assets		94,410		84,759
Total assets	$	8,159,184	$	7,976,394

Liabilities
Due to depositors:
Non-interest bearing	$	917,189	$	778,672
Interest-bearing		5,409,388		5,312,061
Total Deposits		6,326,577		6,090,733
Mortgagors' escrow deposits		74,348		45,622
Borrowed funds:
Federal Home Loan Bank advances		814,218		887,579
Subordinated debentures		89,990		90,180
Junior subordinated debentures, at fair value		44,712		43,136
Total borrowed funds		948,920		1,020,895
Operating lease liability		58,080		59,100
Other liabilities		112,058		141,047
Total liabilities		7,519,983		7,357,397

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; 34,087,623 shares issued at March 31, 2021 and December 31, 2020; 30,954,458 shares and 30,775,854 shares outstanding at March 31, 2021 and December 31, 2020, respectively)		341		341
Additional paid-in capital		260,019		261,533
Treasury stock, at average cost (3,133,165 shares and 3,373,389 shares at March 31, 2021 and December 31, 2020, respectively)		(65,479)		(69,400)
Retained earnings		455,023		442,789
Accumulated other comprehensive loss, net of taxes		(10,703)		(16,266)
Total stockholders' equity		639,201		618,997

Total liabilities and stockholders' equity	$	8,159,184	$	7,976,394

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

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)


	For the three months ended
	March 31,
(Dollars in thousands, except per share data)	2021		2020

Interest and dividend income
Interest and fees on loans	$	69,021	$	61,109
Interest and dividends on securities:
Interest		3,072		5,256
Dividends		8		15
Other interest income		36		290
Total interest and dividend income		72,137		66,670
Interest expense
Deposits		6,105		18,778
Other interest expense		5,140		7,066
Total interest expense		11,245		25,844
Net interest income		60,892		40,826
Provision for credit losses		2,820		7,178
Net interest income after provision for credit losses		58,072		33,648
Non-interest income
Banking services fee income		2,725		798
Net loss on sale of securities		0		(37)
Net gain on sale of loans		31		42
Net gain on sale or disposition of assets		621		0
Net gain (loss) from fair value adjustments		982		(5,993)
Federal Home Loan Bank of New York stock dividends		689		964
Bank owned life insurance		997		943
Other income		266		419
Total non-interest income (loss)		6,311		(2,864)
Non-interest expense
Salaries and employee benefits		22,664		18,620
Occupancy and equipment	��	3,367		2,840
Professional services		2,400		2,862
FDIC deposit insurance		1,213		650
Data processing		2,109		1,694
Depreciation and amortization		1,639		1,536
Other real estate owned/foreclosure recoveries		(10)		(164)
Other operating expenses		4,777		4,342
Total non-interest expense		38,159		32,380
Income (loss) before income taxes		26,224		(1,596)
Provision(benefit) for income taxes
Federal		5,071		989
State and local		2,114		(1,195)
Total taxes		7,185		(206)
Net income (loss)	$	19,039	$	(1,390)

Basic earnings (loss) per common share	$	0.60	$	(0.05)
Diluted earnings (loss) per common share	$	0.60	$	(0.05)
Dividends per common share	$	0.21	$	0.21

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

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)


	For the three months ended
	March 31,
(In thousands)	2021		2020

Net income (loss)	$	19,039	$	(1,390)
Other comprehensive income (loss), net of tax:
Amortization of actuarial losses, net of taxes of ($36) and ($30) for the three months ended March 31, 2021 and 2020, respectively.		81		67
Amortization of prior service credits, net of taxes of $6 for each of the three months ended March 31, 2021 and 2020, respectively.		(15)		(14)
Net unrealized losses on securities, net of taxes of $986 and $4,642 for the three months ended March 31, 2021 and 2020, respectively.		(2,217)		(10,202)
Reclassification adjustment for net losses included in income, net of taxes of ($12) for the three months ended March 31, 2020.		0		25
Net unrealized gains (losses) on cash flow hedges, net of taxes of ($3,461) and $6,190 for the three months ended March 31, 2021 and 2020 respectively.		7,798		(13,605)
Change in fair value of liabilities related to instrument-specific credit risk, net of taxes of $36 and ($489) for the three months ended March 31, 2021 and 2020.		(84)		1,096

Total other comprehensive income (loss), net of tax		5,563		(22,633)

Comprehensive income (loss)	$	24,602	$	(24,023)

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

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)


	For the three months ended March 31,
	2021		2020

	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	19,039	$	(1,390)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for credit losses		2,820		7,178
Depreciation and amortization of bank premises and equipment		1,639		1,536
Amortization of premium, net of accretion of discount		107		1,642
Net (gain) loss from fair value adjustments		(982)		5,993
Net (gain) loss from fair value adjustments on qualifying hedges		(1,427)		2,073
Net gain from sale of loans		(31)		(42)
Net loss from sale of securities		0		37
Net gain from sale or disposition of asset		(621)		0
Net loss from OREO		0		31
Income from bank owned life insurance		(997)		(943)
Amortization of core deposit intangibles		159		0
Stock-based compensation expense		3,470		3,430
Deferred compensation		(1,754)		(1,296)
Deferred income tax benefit		0		(2,318)
Increase in other liabilities		(4,881)		(7,106)
(Increase) decrease in other assets		(6,972)		2,440
Net cash provided by operating activities		9,569		11,265
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of bank premises and equipment		(958)		(759)
Net redemptions (purchases) of Federal Home Loan Bank of New York shares		1,941		(17,079)
Proceeds from maturities and calls of securities held-to-maturity		0		180
Proceeds from prepayments of securities held-to-maturity		0		150
Purchases of securities available for sale		(352,637)		(63,434)
Proceeds from sales and calls of securities available for sale		7,500		64,600
Proceeds from maturities and prepayments of securities available for sale		227,829		40,383
Net originations of loans		(41,680)		(55,906)
Purchases of loans		(25,948)		(77,233)
Proceeds from sale of loans		8,249		580
Net cash used in investing activities		(175,704)		(108,518)

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Cash Flows (Contd.)

(Unaudited)


	For the three months ended March 31,
	2021		2020

	(In thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in non-interest bearing deposits		138,517		54,126
Net increase (decrease) in interest-bearing deposits		97,227		(247,777)
Net increase in mortgagors' escrow deposits		28,726		28,676
Net proceeds from short-term borrowed funds		0		410,000
Proceeds from long-term borrowings		0		50,000
Repayment of long-term borrowings		(73,361)		(80,456)
Purchases of treasury stock		(1,290)		(3,835)
Cash dividends paid		(6,652)		(6,084)
Net cash provided by financing activities		183,167		204,650
Net increase in cash and cash equivalents		17,032		107,397
Cash and cash equivalents, beginning of period		157,388		49,787
Cash and cash equivalents, end of period	$	174,420	$	157,184
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid	$	9,935	$	25,617
Income taxes paid		1,579		1,094
Taxes paid if excess tax benefits on stock-based compensation were not tax deductible		1,254		868

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

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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, 2020	$	618,997	$	341	$	261,533	$	442,789	$	(69,400)	$	(16,266)

Net Income		19,039		0		0		19,039		0		0
Award of common shares released from Employee Benefit Trust (5,682 shares)		74		0		74		0		0		0
Vesting of restricted stock unit awards (248,896 shares)		0		0		(5,058)		(153)		5,211		0
Stock-based compensation expense		3,470		0		3,470		0		0		0
Repurchase of shares to satisfy tax obligation (70,292 shares)		(1,290)		0		0		0		(1,290)		0
Dividends on common stock ($0.21 per share)		(6,652)		0		0		(6,652)		0		0
Other comprehensive income		5,563		0		0		0		0		5,563
Balance at March 31, 2021	$	639,201	$	341	$	260,019	$	455,023	$	(65,479)	$	(10,703)


					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)		0		0		(875)		0		0
Net loss		(1,390)		0		0		(1,390)		0		0
Award of common shares released from Employee Benefit Trust (116,414 shares)		1,398		0		1,398		0		0		0
Vesting of restricted stock unit awards (272,946 shares)		0		0		(5,626)		(156)		5,782		0
Stock-based compensation expense		3,430		0		3,430		0		0		0
Purchase of treasury shares (142,405 shares)		(2,342)		0		0		0		(2,342)		0
Repurchase of shares to satisfy tax obligation (74,145 shares)		(1,493)		0		0		0		(1,493)		0
Dividends on common stock ($0.21 per share)		(6,084)		0		0		(6,084)		0		0
Other comprehensive loss		(22,633)		0		0		0		0		(22,633)
Balance at March 31, 2020	$	549,683	$	315	$	225,893	$	425,455	$	(69,540)	$	(32,440)

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

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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, 2020.

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

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 novel Coronavirus Disease 2019 (“COVID-19”) related changes, are used in connection with the determination of the allowance for credit losses, the evaluation of goodwill for impairment, the review of the need for a valuation allowance of the Company’s deferred tax assets and the fair value of financial instruments.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

3. Earnings Per Share

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


	For the three months ended
	March 31,
	2021			2020

Net income (loss)	$	19,039		$	(1,390)
Divided by:
Total weighted average common shares outstanding and common stock equivalents		31,604			28,853
Basic earnings per common share	$	0.60		$	(0.05)
Diluted earnings per common share ⁽¹⁾	$	0.60		$	(0.05)
Dividend payout ratio		35.0	%		N/A	%

(1)	For the three months ended March 31, 2021 and 2020, there were 0 common stock equivalents and there were 0 common stock equivalents that were anti-dilutive.

4. Securities

The Company did 0t hold any trading securities at March 31, 2021 and December 31, 2020. Securities available for sale are recorded at fair value. Securities held-to-maturity (“HTM”) are recorded at amortized cost.

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 totaling $58.7 million (before allowance for credit losses) : 1 with an amortized cost of $29.8 million which is structured similar to a commercial owner occupied loan and is modeled for credit losses similar to commercial business loans secured by real estate with a reserve of $0.3 million at March 31, 2021. The second security with an amortized cost of $21.0 million that currently has an active forbearance with a specific reserve of $0.6 million at March 31, 2021 and the third security with an amortized cost of $7.9 million which 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. Accordingly, the Company assumes a zero loss expectation from the portfolio. The security currently in forbearance is considered current and as such, continues to accrue interest at its original contractual terms. Accrued interest receivable on held-to-maturity securities totaled $0.1 million each at March 31, 2021 and December 31, 2020 and is excluded from estimates of credit losses.

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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, 2021:


					Gross		Gross
	Amortized				Unrecognized		Unrecognized
	Cost		Fair Value		Gains		Losses

	(In thousands)
Securities held-to-maturity:
Municipals	$	50,827	$	52,543	$	1,981	$	265
Total other securities		50,827		52,543		1,981		265

FNMA		7,909		8,492		583		0
Total mortgage-backed securities		7,909		8,492		583		0

Allowance for Credit Losses		(915)		—		—		—
Total	$	57,821	$	61,035	$	2,564	$	265

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


					Gross		Gross
	Amortized				Unrecognized		Unrecognized
	Cost		Fair Value		Gains		Losses

	(In thousands)
Securities held-to-maturity:
Municipals	$	50,825	$	54,538	$	3,713	$	—
Total other securities		50,825		54,538		3,713		—

FNMA		7,914		8,991		1,077		—
Total mortgage-backed securities		7,914		8,991		1,077		—

Allowance for Credit Losses		(907)		—		—		—
Total	$	57,832	$	63,529	$	4,790	$	—

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the Company’s portfolio of securities available for sale at March 31, 2021:


					Gross		Gross
	Amortized				Unrealized		Unrealized
	Cost		Fair Value		Gains		Losses

	(In thousands)
Securities available for sale:
U.S Government Agencies	$	6,253	$	6,219	$	0	$	34
Corporate		130,000		129,598		538		940
Mutual funds		12,525		12,525		0		0
Collateralized loan obligations		93,120		92,756		40		404
Other		1,342		1,342		0		0
Total other securities		243,240		242,440		578		1,378
REMIC and CMO		210,836		213,146		3,570		1,260
GNMA		12,600		12,339		51		312
FNMA		171,453		171,074		1,817		2,196
FHLMC		124,432		122,222		472		2,682
Total mortgage-backed securities		519,321		518,781		5,910		6,450
Total securities available for sale	$	762,561	$	761,221	$	6,488	$	7,828

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


					Gross		Gross
	Amortized				Unrealized		Unrealized
	Cost		Fair Value		Gains		Losses

	(In thousands)
Securities available for sale:
U.S Government Agencies	$	6,452	$	6,453	$	2	$	1
Corporate		130,000		123,865		131		6,266
Mutual funds		12,703		12,703		0		0
Collateralized loan obligations		100,561		99,198		0		1,363
Other		1,295		1,295		0		0
Total other securities		251,011		243,514		133		7,630
REMIC and CMO		175,142		180,877		5,735		0
GNMA		13,009		13,053		66		22
FNMA		143,154		146,169		3,046		31
FHLMC		63,796		64,361		648		83
Total mortgage-backed securities		395,101		404,460		9,495		136
Total securities available for sale	$	646,112	$	647,974	$	9,628	$	7,766

We did 0t hold any private issue CMO’s that are collateralized by commercial real estate mortgages at March 31, 2021 and December 31, 2020.

The corporate securities held by the Company at March 31, 2021 and December 31, 2020 are issued by U.S. banking institutions.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following tables detail the amortized cost and fair value of the Company’s securities classified as held-to-maturity and available for sale at March 31, 2021, 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 after ten years	$	50,827	$	52,543
Total other securities		50,827		52,543
Mortgage-backed securities		7,909		8,492
Total held-to-maturity securities		58,736		61,035
Allowance for Credit Losses		(915)		—
Total held-to-maturity securities, net of allowance for credit losses	$	57,821	$	61,035


	Amortized
Securities available for sale:	Cost		Fair Value

	(In thousands)
Due after one year through five years	$	45,000	$	45,181
Due after five years through ten years		152,453		151,553
Due after ten years		33,262		33,181
Total		230,715		229,915
Mutual funds		12,525		12,525
Total other securities		243,240		242,440
Mortgage-backed securities		519,321		518,781
Total available for sale securities	$	762,561	$	761,221

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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, 2021
	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)
Held-to-maturity securities

Municipals	1	$	19,908	$	265	$	19,908	$	265	$	0	$	0
Total other securities	1		19,908		265		19,908		265		0		0

Total securities held-to-maturity	1	$	19,908	$	265	$	19,908	$	265	$	0	$	0

Available for sale securities

U.S Government Agencies	2	$	6,205	$	34	$	6,205	$	34	$	0	$	0
Corporate	8		79,061		940		0		0		79,061		940
Collateralized loan obligations	8		56,504		404		0		0		56,504		404
Total other securities	18		141,770		1,378		6,205		34		135,565		1,344

REMIC and CMO	8		56,685		1,260		56,685		1,260		0		0
GNMA	2		10,932		312		10,932		312		0		0
FNMA	16		116,082		2,196		116,082		2,196		0		0
FHLMC	13		97,765		2,682		97,765		2,682		0		0
Total mortgage-backed securities	39		281,464		6,450		281,464		6,450		0		0

Total securities available for sale	57	$	423,234	$	7,828	$	287,669	$	6,484	$	135,565	$	1,344


	At December 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

U.S Government Agencies	1	$	4,988	$	1	$	4,988	$	1	$	0	$	0
Corporate	14		113,734		6,266		0		0		113,734		6,266
Collateralized loan obligations	13		99,199		1,363		7,441		52		91,758		1,311
Total other securities	28		217,921		7,630		12,429		53		205,492		7,577

GNMA	1		10,341		22		10,341		22		0		0
FNMA	5		32,463		31		23,864		28		8,599		3
FHLMC	3		30,095		83		30,095		83		0		0
Total mortgage-backed securities	9		72,899		136		64,300		133		8,599		3

Total securities available for sale	37	$	290,820	$	7,766	$	76,729	$	186	$	214,091	$	7,580

The Company reviewed each available for sale debt security that had an unrealized loss at March 31, 2021 and December 31, 2020. At March 31, 2021 and December 31, 2020, the Company evaluated whether the decline in fair value of a debt security resulted from credit losses or other factors under Accounting Standards Codification (“ASC”) Topic 326, Credit Losses also referred as Current Expected Credit Losses (“CECL”). 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. 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.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

In determining the risk of loss for available for sale securities, the Company considered that mortgage-backed securities are either fully guaranteed or issued by a government sponsored enterprise, which has a credit rating and perceived credit risk comparable to U.S. government, the issuer of Corporate securities are global systematically important banks, and the tranche of the purchased CLO’s. Each of these securities is performing according to its terms and, in the opinion of management, will continue to perform according to its terms. Based on this review, management believes that the unrealized losses have resulted from other factors not deemed credit-related and 0 allowance for credit loss was recorded.

Accrued interest receivable on available-for-sale debt securities totaled $1.5 million and $1.3 million at March 31, 2021 and December 31, 2020, respectively, and is excluded from the estimate of credit losses.

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, 2021:


	Mortgage-backed securities		Other securities

	(In thousands)
Beginning balance	$	—	$	907
Provision		—		8
Allowance for credit losses	$	—	$	915

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, 2020:


	Mortgage-backed securities		Other securities

	(In thousands)
Beginning balance	$	—	$	—
CECL adoption		—		340
Provision		—		62
Allowance for credit losses	$	—	$	402

Realized gains and losses on the sales of securities are determined using the specific identification method. The Company sold $64.6 million in mortgage-backed securities during the three months ended March 31, 2020. The Company did not sell any securities during the three months ended March 31, 2021.

The following table represents the gross gains and gross losses realized from the sale of securities available for sale for the periods indicated:


	For the three months ended
	March 31,
	2021		2020

Gross gains from the sale of securities	$	0	$	713
Gross losses from the sale of securities		0		(750)

Net losses from the sale of securities	$	0	$	(37)

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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. 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. Accrued interest receivable totaled $41.9 million at March 31, 2021 and was reported in “Interest and dividends receivable” on the Consolidated Statements of Financial Condition. 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.

Allowance for credit losses

The 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 ACL when management believes that a loan balance is uncollectable based on quarterly analysis of credit risk.

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 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 Company recorded a provision for loans losses totaling $2.8 million and $7.1 million for the three months ending March 31, 2021 and 2020, respectively. The provision recorded during the three months ended March 31, 2021 was driven by the write-off of the remaining taxi medallion portfolio totaling $2.8 million. There were no material changes to the methodology used to calculate the ACL from December 31, 2020 to March 31, 2021. For the three months ended March 31, 2021, the qualitative factors were adjusted to reflect additional risk due to the lag recovery of NYC unemployment. This resulted in the allowance for loan losses totaling $45.1 million at March 31, 2021 representing 0.67% of gross loans and 212.9% of non-performing loans compared to $45.2 million at December 31, 2020.

Pursuant to the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) Act and later modified by Consolidated Appropriations Act, certain loan modifications are not classified as “troubled debt restructuring” (“TDR”)s, if the related loans were not more than 30 days past due as of December 31, 2019. The Company has elected that loans temporarily modified for borrowers directly impacted by COVID-19 are not considered TDR, assuming the above criteria is met and as such, these loans are considered current and continue to accrue interest at its original contractual terms until the completion of the deferred period. Once the deferred period is over, the borrower will resume making payment and normal delinquency-based non-accrual policies will apply.

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

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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 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, 2021, there were 0 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 0 TDR loan modifications during the three months ended March 31, 2021 and 2020.

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


	March 31, 2021			December 31, 2020
	Number	Amortized		Number	Amortized
(Dollars in thousands)	of contracts	Cost		of contracts	Cost
Multi-family residential	6	$	1,686	6	$	1,700
Commercial real estate	1		7,584	1		7,702
One-to-four family - mixed-use property ⁽¹⁾	5		1,720	5		1,731
One-to-four family - residential	3		501	3		507
Taxi medallion ⁽²⁾	—		—	2		440
Commercial business and other ⁽¹⁾	8		3,787	8		3,831
Total performing troubled debt restructured	23	$	15,278	25	$	15,911

(1)

These loans in the table above continue to pay as agreed, however the Company records interest received on a cash basis.

(2)

These loans were completely charged off during the three months ended March 31, 2021.

During the three months ended March 31, 2021 and 2020, there were 0 defaults of TDR loans within 12 months of their modification date.

The following table shows loans classified as TDR at amortized cost that are not performing according to their restructured terms at the periods indicated:


	March 31, 2021			December 31, 2020
	Number	Amortized		Number	Amortized
(Dollars in thousands)	of contracts	Cost		of contracts	Cost
Taxi medallion ⁽¹⁾	0	$	0	11	$	1,922
Commercial business and other	1		279	1		279
Total troubled debt restructurings that subsequently defaulted	1	$	279	12	$	2,201

(1)

These loans were completely charged off during the three months ended March 31, 2021.

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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 for the three months ended March 31, 2021
(In thousands)		Non-Accrual Amortized Cost Beginning of Reporting Period		Non-Accrual Amortized Cost Ending of Reporting Period		Non-Accrual with no related Allowance		Interest Income Recognized		Loans ninety days or more past due and still accruing:
Multi-family residential	$	2,576	$	4,435	$	4,435	$	—	$	201
Commercial real estate		1,766		35		35		—		—
One-to-four family - mixed-use property		1,706		2,753		2,753		—		—
One-to-four family - residential		5,313		6,789		6,789		—		—
Construction		—		—		—		—		2,381
Small Business Administration		1,168		1,168		1,168		—		—
Taxi medallion⁽²⁾		2,758		—		—		—		—
Commercial business and other⁽¹⁾		5,660		5,643		1,626		48		—
Total	$	20,947	$	20,823	$	16,806	$	48	$	2,582

(1) Included in the above analysis are non-accrual performing one-to-four family – mixed-use property totaling $0.3 million, and non-accrual performing TDR commercial business loans totaling $2.2 million at March 31, 2021.

(2) These loans were completely charged-off during the three months ended March 31, 2021.

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table 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 for the twelve months ended December 31, 2020
(In thousands)		Non-Accrual Amortized Cost Beginning of Reporting Period		Non-Accrual Amortized Cost Ending of Reporting Period		Non-Accrual with no related Allowance		Interest Income Recognized		Loans ninety days or more past due and still accruing:
Multi-family residential	$	2,723	$	2,576	$	2,576	$	—	$	201
Commercial real estate		2,714		1,766		1,766		—		2,547
One-to-four family - mixed-use property		1,704		1,706		1,706		—		—
One-to-four family - residential		9,992		5,313		5,313		—		—
Small Business Administration		1,169		1,168		1,168		—		—
Taxi medallion⁽¹⁾		2,318		2,758		2,758		—		—
Commercial business and other⁽¹⁾		7,406		5,660		1,593		58		—
Total	$	28,026	$	20,947	$	16,880	$	58	$	2,748

(1)

Included in the above analysis are non-accrual performing TDR one-to-four family – mixed-use property totaling $0.3 million, non-accrual performing TDR taxi medallion loans totaling $0.4 million at December 31, 2020 and non-accrual performing TDR commercial business loans totaling $2.2 million at December 31, 2020.

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,
	2021		2020

Interest income that would have been recognized had the loans performed in accordance with their original terms	$	462	$	375
Less: Interest income included in the results of operations		160		89
Total foregone interest	$	302	$	286

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following tables show the aging of the amortized cost basis in past-due loans at the period indicated by class of loans:


	March 31, 2021
					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	$	11,887	$	0	$	4,636	$	16,523	$	2,510,593	$	2,527,116
Commercial real estate		419		800		35		1,254		1,722,223		1,723,477
One-to-four family - mixed-use property		4,759		1,210		2,480		8,449		590,570		599,019
One-to-four family - residential		1,101		375		6,789		8,265		238,740		247,005
Construction		0		0		2,381		2,381		59,052		61,433
Small Business Administration		642		0		1,168		1,810		259,829		261,639
Taxi medallion		0		0		0		0		0		0
Commercial business and other		2,604		320		1,626		4,550		1,321,077		1,325,627
Total	$	21,412	$	2,705	$	19,115	$	43,232	$	6,702,084	$	6,745,316


	December 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	$	7,582	$	3,186	$	2,777	$	13,545	$	2,522,432	$	2,535,977
Commercial real estate		17,903		5,123		4,313		27,339		1,731,045		1,758,384
One-to-four family - mixed-use property		5,673		1,132		1,433		8,238		598,647		606,885
One-to-four family - residential		3,087		805		5,313		9,205		243,486		252,691
Construction loans		750		0		0		750		82,411		83,161
Small Business Administration		1,823		0		1,168		2,991		162,579		165,570
Taxi medallion		0		0		2,318		2,318		279		2,597
Commercial business and other		129		1,273		1,593		2,995		1,296,414		1,299,409
Total	$	36,947	$	11,519	$	18,915	$	67,381	$	6,637,293	$	6,704,674

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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 and management believes weakness is evident then we designate the loan as “Watch”, all other loans 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 Credit Losses. We designate a loan as Special Mention if the asset does not warrant classification within one of the other classifications, but does contain a potential weakness that deserves closer attention. Loans that are in forbearance pursuant to the CARES Act generally continued to be reported in the same category as they were reported immediately prior to modification.

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the risk category of mortgage and non-mortgage loans by loan portfolio segments and class of loans by year of origination at March 31, 2021:



														Revolving Loans,		Lines of Credit
														Amortized Cost		converted to
(In thousands)		2021		2020		2019		2018		2017		Prior		Basis		term loans		Total
1-4 Family Residential
Pass	$	841	$	32,075	$	36,958	$	33,729	$	20,948	$	77,700	$	10,421	$	15,298	$	227,970
Watch		—		483		722		—		3,569		1,575		1,249		2,369		9,967
Special Mention		—		—		—		—		—		989		—		371		1,360
Substandard		—		—		—		1,831		—		4,285		175		1,417		7,708
Total 1-4 Family Residential	$	841	$	32,558	$	37,680	$	35,560	$	24,517	$	84,549	$	11,845	$	19,455	$	247,005
1-4 Family Mixed-Use
Pass	$	9,680	$	36,229	$	72,302	$	75,961	$	55,411	$	322,422	$	—	$	—	$	572,005
Watch		—		—		—		3,689		7,237		10,262		—		—		21,188
Special Mention		—		—		—		528		—		2,284		—		—		2,812
Substandard		—		—		—		—		—		3,014		—		—		3,014
Total 1-4 Family Mixed Use	$	9,680	$	36,229	$	72,302	$	80,178	$	62,648	$	337,982	$	—	$	—	$	599,019
Commercial Real Estate
Pass	$	19,502	$	172,318	$	259,301	$	274,998	$	191,249	$	694,789	$	—	$	—	$	1,612,157
Watch		1,837		936		1,439		5,729		5,048		87,590		—		—		102,579
Special Mention		—		—		—		—		—		1,122		—		—		1,122
Substandard		—		—		7,584		—		—		35		—		—		7,619
Total Commercial Real Estate	$	21,339	$	173,254	$	268,324	$	280,727	$	196,297	$	783,536	$	—	$	—	$	1,723,477
Construction
Pass	$	2,354	$	20,510	$	15,552	$	2,823	$	—	$	—	$	—	$	—	$	41,239
Watch		—		—		1,115		7,299		5,956		—		—		—		14,370
Special Mention		—		—		—		859		2,584		—		—		—		3,443
Substandard		—		—		—		2,381		—		—		—		—		2,381
Total Construction	$	2,354	$	20,510	$	16,667	$	13,362	$	8,540	$	—	$	—	$	—	$	61,433
Multifamily
Pass	$	91,859	$	243,458	$	341,802	$	467,841	$	364,625	$	973,720	$	5,105	$	—	$	2,488,410
Watch		—		1,923		4,203		9,121		1,152		16,054		398		—		32,851
Special Mention		—		—		—		—		806		230		183		—		1,219
Substandard		—		—		701		1,997		1,002		735		201		—		4,636
Total Multifamily	$	91,859	$	245,381	$	346,706	$	478,959	$	367,585	$	990,739	$	5,887	$	—	$	2,527,116
Commercial Business - Secured by RE
Pass	$	71,965	$	108,227	$	38,984	$	52,512	$	34,540	$	103,314	$	—	$	—	$	409,542
Watch		—		23,655		51,079		18,563		13,129		47,474		—		—		153,900
Special Mention		—		—		607		—		—		—		—		—		607
Substandard		—		—		—		—		—		4,226		—		—		4,226
Total Commercial Business - Secured by RE	$	71,965	$	131,882	$	90,670	$	71,075	$	47,669	$	155,014	$	—	$	—	$	568,275
Commercial Business
Pass	$	15,647	$	91,117	$	111,749	$	93,011	$	48,402	$	75,988	$	201,571	$	—	$	637,485
Watch		—		500		22,509		25,308		20,383		4,171		25,733		—		98,604
Special Mention		—		—		285		2,742		74		2		236		—		3,339
Substandard		—		4,893		686		8		6,193		3,794		1,008		—		16,582
Doubtful		—		—		—		—		—		—		1,236		—		1,236
Total Commercial Business	$	15,647	$	96,510	$	135,229	$	121,069	$	75,052	$	83,955	$	229,784	$	—	$	757,246
Small Business Administration
Pass	$	120,132	$	127,810	$	1,376	$	1,574	$	806	$	2,649	$	—	$	—	$	254,347
Watch		—		288		—		2,592		1,947		1,242		—		—		6,069
Special Mention		—		—		—		—		—		49		—		—		49
Substandard		—		—		—		—		1,168		6		—		—		1,174
Total Small Business Administration	$	120,132	$	128,098	$	1,376	$	4,166	$	3,921	$	3,946	$	—	$	—	$	261,639
Other
Pass	$	—	$	—	$	—	$	—	$	—	$	23	$	83	$	—	$	106
Total Other	$	—	$	—	$	—	$	—	$	—	$	23	$	83	$	—	$	106

Total Loans	$	333,817	$	864,422	$	968,954	$	1,085,096	$	786,229	$	2,439,744	$	247,599	$	19,455	$	6,745,316

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

A loan is considered collateral dependent when the borrower is experiencing financial difficulties and repayment is expected to be substantially provided by the operation or sale of the collateral. The following table presents types of collateral-dependent loans by class of loans as of the periods indicated:


	Collateral Type
	March 31, 2021				December 31, 2020
(In thousands)		Real Estate		Business Assets		Real Estate		Business Assets
Multi-family residential	$	4,435	$	—	$	2,576	$	—
Commercial real estate		1,254		—		2,994		—
One-to-four family - mixed-use property		2,753		—		1,706		—
One-to-four family - residential		6,789		—		5,313		—
Small Business Administration		—		1,168		—		1,168
Commercial business and other		—		3,477		—		3,482
Taxi Medallion		—		—		—		2,758
Total	$	15,231	$	4,645	$	12,589	$	7,408

Off-Balance Sheet Credit Losses

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

Commitments to extend credit (principally real estate mortgage loans) and lines of credit (principally home equity lines of credit and business lines of credit) totaled $418.6 million at March 31, 2021.

The following table presents the activity in the allowance for off balance sheet credit losses for the three months ended March 31, 2021 and 2020.


	For the three months ended
	March 31,
	2021		2020

Balance at beginning of period	$	1,815	$	—
Off-Balance Sheet - CECL Adoption		—		553
Off-Balance Sheet- Provision (benefit)		(511)		244
Allowance for Off-Balance Sheet - Credit losses ⁽¹⁾	$	1,304	$	797

(1)

Included the “Other liabilities” on the Consolidated Statements of Financial Condition.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

6. Loans held for sale

Loans held for sale are carried at the lower of cost or estimated fair value. At March 31, 2021 and December 31, 2020, the Bank did 0t have any loans held for sale.

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

The following tables show loans sold during the period indicated:


	For the three months ended March 31, 2021
				Net Recoveries
(Dollars in thousands)	Loans sold	Proceeds		(Charge-offs)		Net gain
Delinquent and non-performing loans
Multi-family residential	5	$	2,906	$	(43)	$	5
Commercial real estate	3		3,036		(64)		17
One-to-four family - mixed-use property	6		2,307		(14)		9
Total	14	$	8,249	$	(121)	$	31


	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

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

7. Leases

The Company has 28 operating leases for branches (including headquarters) and office spaces, 10 operating leases for vehicles, and 1 operating lease for equipment. Our leases have remaining lease terms ranging from two months to approximately 15 years, none of which has a renewal option reasonably certain of exercise, which has been reflected in the Company’s calculation of lease term.

During the first quarter of 2021, the Company executed extensions for two of its current branches, and had a rent modification for one of its current branches. Additionally, the Company executed a modification and reduction of space at the former Empire Bancorp, Inc. (“Empire”) headquarters and branch in Islandia, which resulted in a gain of $0.6 million on the disposition of the Right of Use (“ROU”) asset.

The Company has elected the short-term lease recognition exemption such that the Company will not recognize 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 $2.1 million and $1.9 million and was recorded in Occupancy and equipment on the Consolidated Statements of Income for the three month periods ended March 31, 2021 and 2020, respectively.

The Company has one agreement that qualifies as a short-term lease with expense totaling approximately $35,000 for each of the three month periods ended March 31, 2021 and 2020, included in Professional services on the Consolidated Statements of Income. The Company has $0.3 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 each of the three months ended March 31, 2021 and 2020. At March 31, 2021, the weighted-average remaining lease term for our operating leases is approximately eight years and the weighted average discount rate is 3.2%.

Certain leases have escalation clauses for operating expenses and real estate taxes. The Company’s non-cancelable operating lease agreements expire through 2036.

Supplemental balance sheet information related to leases was as follows:




(Dollars in thousands)	March 31, 2021			December 31, 2020

Operating lease ROU asset	$	53,802		$	50,743

Operating lease liability	$	58,080		$	59,100

Weighted-average remaining lease term-operating leases		7.9 years			8.3 years
Weighted average discount rate-operating leases		3.2	%		3.2	%

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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


	At or for the three months ended
(Dollars in thousands)	March 31, 2021		March 31, 2020

Lease Cost
Operating lease cost	$	2,104	$	1,885
Short-term lease cost		35		34
Variable lease cost		298		264
Total lease cost	$	2,437	$	2,183

Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	5,630	$	1,982
Right-of-use assets obtained in exchange for new operating lease liabilities	$	4,760	$	23

The Company’s minimum annual rental payments for Bank facilities due under non-cancelable leases are as follows as of March 31, 2021:


	Minimum Rental
	(In thousands)
Years ended December 31:
2021	$	6,758
2022		9,145
2023		9,276
2024		9,119
2025		8,479
Thereafter		22,898
Total minimum payments required		65,675
Less: Implied interest		7,595
Total lease obligations	$	58,080

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


	Minimum Rental
	(In thousands)
Years ended December 31:
2021	$	8,757
2022		8,871
2023		9,006
2024		8,847
2024		8,212
Thereafter		23,547
Total minimum payments required	$	67,240
Less: Implied interest		8,140
Total lease obligations	$	59,100

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

8. Stock-Based Compensation

The Company has 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. As of March 31, 2021, PRSUs granted in 2021 and 2020 are being accrued at target and PRSUs granted in 2019 are being accrued above target.

For the three months ended March 31, 2021 and 2020, the Company’s net income, as reported, included $4.1 million and $2.5 million, respectively, of stock-based compensation costs, including the benefit or expense of phantom stock awards, and $1.1 million and $0.6 million of income tax benefits, respectively, related to the stock-based compensation plans. During the three months ended March 31, 2021 and 2020, the Company granted 238,985 and 170,228 RSU, respectively. During the three months ended March 31, 2021 and 2020, the Company granted 62,790 and 72,143 in PRSU awards, respectively.

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, 2021:


	RSU Awards			PRSU Awards
		Weighted-Average			Weighted-Average
		Grant-Date			Grant-Date
	Shares	Fair Value		Shares	Fair Value

Non-vested at December 31, 2020	336,898	$	23.48	66,580	$	21.26
Granted	238,985		18.44	62,790		18.46
Vested	(226,346)		21.29	(35,070)		18.81
Forfeited	(1,840)		20.38	0		0
Non-vested at March 31, 2021	347,697	$	21.45	94,300	$	20.31
Vested but unissued at March 31, 2021	211,931	$	21.22	102,185	$	20.48

As of March 31, 2021, there was $7.4 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 2.6 years. The total fair value of awards vested for the three months ended March 31, 2021 and 2020 was $4.8 million and $5.0 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.

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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, 2021:


Phantom Stock Plan	Shares	Fair Value
Outstanding at December 31, 2020	120,248	$	16.64
Granted	7,828		19.15
Distributions	(1,389)		16.84
Outstanding at March 31, 2021	126,687	$	21.23
Vested at March 31, 2021	126,566	$	21.23

The Company recorded stock-based compensation expense (benefit) for the Phantom Stock Plan of $0.6 million and ($0.9) million for the three months ended March 31, 2021 and 2020, respectively. The total fair value of the distributions from the Phantom Stock Plan was $23,000 and less than $1,000 for the three months ended March 31, 2021 and 2020, respectively.

9. 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)	2021		2020

Employee Pension Plan:
Interest cost	$	128	$	163
Amortization of actuarial loss		122		111
Expected return on plan assets		(274)		(257)
Net employee pension (benefit) expense	$	(24)	$	17

Outside Director Pension Plan:
Service cost	$	4	$	4
Interest cost		12		16
Amortization of actuarial gain		(5)		(14)
Amortization of past service liability		0		0
Net outside director pension expense	$	11	$	6

Other Postretirement Benefit Plans:
Service cost	$	73	$	69
Interest cost		58		65
Amortization of actuarial gain		—		—
Amortization of past service credit		(21)		(20)
Net other postretirement expense	$	110	$	114

The Company previously disclosed in its Consolidated Financial Statements for the year ended December 31, 2020 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, 2021. The Company does 0t expect to make a contribution to the Employee Pension Plan (the “Employee Pension Plan”). As of March 31, 2021, the Company had contributed $36,000 to the Outside Director Pension Plan and $53,000 in contributions were made to the Other Postretirement Benefit Plans. As of March 31, 2021, the Company has not revised its expected contributions for the year ending December 31, 2021.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

10. 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, 2021, the Company carried financial assets and financial liabilities under the fair value option with fair values of $14.3 million and $44.7 million, respectively. At December 31, 2020, the Company carried financial assets and financial liabilities under the fair value option with fair values of $14.5 million and $43.1 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, 2021 and 2020.

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)	2021		2020		March 31, 2021		March 31, 2020

Mortgage-backed securities	$	481	$	505	$	(1)	$	3
Other securities		13,867		13,998		(175)		219
Borrowed funds		44,712		43,136		(1,460)		(2,351)
Net gain (loss) from fair value adjustments ⁽¹⁾					$	(1,636)	$	(2,129)

(1)	The net gain (loss) from fair value adjustments presented in the above table does not include net gains (losses) of $2.6 million and ($3.9) million for the three months ended March 31, 2021 and 2020, respectively, from the change in the fair value of interest rate swaps.

Included in the fair value of the financial assets and financial liabilities selected for the fair value option is the accrued interest receivable or payable for the related instrument. The Company reports as interest income or interest expense in the Consolidated Statement of Income, the interest receivable or payable on the financial instruments selected for the fair value option at their respective contractual rates.

The borrowed funds had a contractual principal amount of $61.9 million at both March 31, 2021 and December 31, 2020. The fair value of borrowed funds includes accrued interest payable of $0.1 million each at March 31, 2021 and December 31, 2020.

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.

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).

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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 – when quoted market prices are available in an active market. At March 31, 2021 and December 31, 2020, 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, 2021 and December 31, 2020, Level 2 included mortgage-backed securities, CLO’s, corporate debt, municipals and interest rate swaps.

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, 2021 and December 31, 2020, 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.

The following table sets forth the Company’s assets and liabilities that are carried at fair value on a recurring basis, including those reported at fair value under the fair value option, and the level that was used to determine their fair value, at March 31, 2021 and December 31, 2020:


	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
	2021		2020		2021		2020		2021		2020		2021		2020

	(In thousands)
Assets:
Securities available for sale
Mortgage-backed Securities	$	0	$	0	$	518,781	$	404,460	$	0	$	0	$	518,781	$	404,460
Other securities		12,525		12,703		228,573		229,516		1,342		1,295		242,440		243,514
Interest rate swaps		0		0		9,366		1,319		0		0		9,366		1,319

Total assets	$	12,525	$	12,703	$	756,720	$	635,295	$	1,342	$	1,295	$	770,587	$	649,293

Liabilities:
Borrowings	$	0	$	0	$	0	$	0	$	44,712	$	43,136	$	44,712	$	43,136
Interest rate swaps		0		0		39,094		60,987		0		0		39,094		60,987

Total liabilities	$	0	$	0	$	39,094	$	60,987	$	44,712	$	43,136	$	83,806	$	104,123

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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, classified within Level 3 of the valuation hierarchy for the periods indicated:


	For the three months ended
	March 31, 2021				March 31, 2020
	Trust preferred		Junior subordinated		Trust preferred		Junior subordinated
	securities		debentures		securities		debentures

	(In thousands)

Beginning balance	$	1,295	$	43,136	$	1,332	$	44,384
Net gain from fair value adjustment of financial assets (1)		47		—		24		—
Net loss from fair value adjustment of financial liabilities (1)		—		1,460		—		2,351
Decrease in accrued interest receivable		—		—		(1)		—
Decrease in accrued interest payable		—		(4)		—		(24)
Change in unrealized gains included in other comprehensive income		—		120		—		(1,585)
Ending balance	$	1,342	$	44,712	$	1,355	$	45,126

Changes in unrealized gains held at period end	$	—		2,551		—		3,062

(1)	Totals in the table above are presented in the Consolidated Statements of Income under net gain (loss) from fair value adjustments.

During the three months ended March 31, 2021 and 2020, there were no transfers between Levels 1, 2 and 3.

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, 2021

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

(Dollars in thousands)

Assets:

Trust preferred securities

$

1,342

Discounted cash flows

Discount rate

n/a

4.1

%

Liabilities:

Junior subordinated debentures

$

44,712

Discounted cash flows

Discount rate

n/a

4.1

%

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

December 31, 2020

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

(Dollars in thousands)

Assets:

Trust preferred securities

$

1,295

Discounted cash flows

Discount rate

n/a

4.2

%

Liabilities:

Junior subordinated debentures

$

43,136

Discounted cash flows

Discount rate

n/a

4.2

%

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, 2021 and December 31, 2020, 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 fair value at March 31, 2021 and December 31, 2020:


	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
	2021		2020		2021		2020		2021		2020		2021		2020

	(In thousands)
Assets
Non-accrual loans	$	0	$	0	$	0	$	0	$	11,388	$	11,980	$	11,388	$	11,980

Total assets	$	0	$	0	$	0	$	0	$	11,388	$	11,980	$	11,388	$	11,980

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, 2021
	Fair Value		Valuation Technique	Unobservable Input	Range	Weighted Average

	(Dollars in thousands)
Assets:

Non-accrual loans	$	10,130	Sales approach	Reduction for planned expedited disposal	7.0% to 15.0%	11.4%

Non-accrual loans	$	1,075	Discounted Cashflow	Discount Rate	4.3% to 5.5%	4.8%
				Probability of Default	35.0%	35.0%

Non-accrual loans	$	183	Blended Income and Sales Approach	Adjustment to sales comparison value to reconcile differences between comparable sales	0.0% to 5.0%	2.5%
				Capitalization rate	8.3%	8.3%
				Probability of Default	15.0%	15.0%

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Notes to Consolidated Financial Statements

(Unaudited)


	At December 31, 2020
	Fair Value		Valuation Technique	Unobservable Input	Range	Weighted Average

	(Dollars in thousands)
Assets:

Non-accrual loans	$	10,690	Sales approach	Reduction for planned expedited disposal	(100.0%) to 15.0%	6.8%


Non-accrual loans	$	1,290	Discounted Cashflow	Discount Rate	4.3% to 5.5%	4.9%
				Probability of Default	20.0% to 35.0%	27.4%

The Company did 0t have any liabilities that were carried at fair value on a non-recurring basis at March 31, 2021 and December 31, 2020.

The methods and assumptions used to estimate fair value at March 31, 2021 and December 31, 2020 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.

Non-accrual Loans:

For non-accruing loans, fair value is generally estimated by discounting management’s estimate of future cash flows with a discount rate commensurate with the risk associated with such assets or, for collateral dependent loans, 85% of the appraised or internally estimated value of the property. See Note 5 (“Loans”) of the Notes to the Consolidated Financial Statements.

Junior Subordinated Debentures:

The fair value of the junior subordinated debentures was developed using a credit spread based on stated spreads for recently issued subordinated debt instruments for issuers of similar asset size and credit quality of the Company and with similar durations 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.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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


	March 31, 2021
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3

	(In thousands)
Assets:

Cash and due from banks	$	174,420	$	174,420	$	174,420	$	0	$	0
Securities held-to-maturity
Mortgage-backed securities		7,909		8,492		0		8,492		0
Other securities		49,912		52,543		0		0		52,543
Securities available for sale
Mortgage-backed securities		518,781		518,781		0		518,781		0
Other securities		242,440		242,440		12,525		228,573		1,342
Loans		6,745,316		6,803,451		0		0		6,803,451
FHLB-NY stock		41,498		41,498		0		41,498		0
Accrued interest receivable		44,941		44,942		2		1,502		43,438
Interest rate swaps		9,366		9,366		0		9,366		0

Liabilities:
Deposits	$	6,400,925	$	6,086,038	$	5,010,460	$	1,075,578	$	0
Borrowings		948,920		950,883		0		906,171		44,712
Accrued interest payable		6,207		6,207		0		6,207		0
Interest rate swaps		39,094		39,094		0		39,094		0


	December 31, 2020
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3

	(In thousands)
Assets:

Cash and due from banks	$	157,388	$	157,388	$	157,388	$	0	$	0
Securities held-to-maturity
Mortgage-backed securities		7,914		8,991		0		8,991		0
Other securities		49,918		54,538		0		0		54,538
Securities available for sale
Mortgage-backed securities		404,460		404,460		0		404,460		0
Other securities		243,514		243,514		12,703		229,516		1,295
Loans		6,704,674		6,793,885		0		0		6,793,885
FHLB-NY stock		43,439		43,439		0		43,439		0
Accrued interest receivable		44,041		44,041		2		1,389		42,650
Interest rate swaps		1,319		1,319		0		1,319		0

Liabilities:
Deposits	$	6,136,355	$	6,141,775	$	4,997,994	$	1,143,781	$	0
Borrowings		1,020,895		1,017,573		0		974,437		43,136
Accrued interest payable		4,755		4,755		0		4,755		0
Interest rate swaps		60,987		60,987		0		60,987		0

11. Derivative Financial Instruments

At March 31, 2021 and December 31, 2020, the Company’s derivative financial instruments consist of interest rate swaps. The Company’s interest rate swaps are used for four 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, 2021 and December 31, 2020; 2) to mitigate the Company’s exposure to rising interest rates on certain fixed rate loans totaling $313.5 million and $316.1 million at March 31, 2021 and December 31, 2020, respectively; 3) to facilitate risk management strategies for our loan customers with $221.1 million of swaps outstanding, which include $110.5 million with customers and $110.5 million with bank counterparties at March 31, 2021 and $125.6 million of swaps

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

outstanding,

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Bad


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


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

Flushing Financial (FFIC) 10-Q2021 Q1 Quarterly report

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