Loading...
Docoh

Flushing Financial (FFIC)

Filed: 7 May 21, 4:05pm

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, 2021

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 York 11556

(Address of principal executive offices)

(718) 961-5400

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

FFIC

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    X   Yes        __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).    X   Yes        __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  __

Accelerated filer  X

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    X   No

The number of shares of the registrant’s Common Stock outstanding as of April 30, 2021 was 30,954,774.

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.

-1-

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.

-2-

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.

-3-

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)

-4-

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.

-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, 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.

-6-

Table of Contents

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.

-7-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

3.     Earnings Per Share

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

For the three months ended

March 31, 

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.

-8-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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

$

-9-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the Company’s portfolio of securities 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.

-10-

Table of Contents

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

-11-

Table of Contents

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.

-12-

Table of Contents

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)

-13-

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.

-14-

Table of Contents

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.

-15-

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 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.

-16-

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

-17-

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

-18-

Table of Contents

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, 2021

One-to-four

family -

One-to-four

Small

Commercial

Multi-family

Commercial

mixed-use

family -

Construction

Business

Taxi

business and

(In thousands)

    

residential

    

real estate

    

property

    

residential

    

loans

    

Administration

    

medallion

    

other

    

Total

Allowance for credit losses:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Beginning balance

$

6,557

$

8,327

$

1,986

$

869

$

497

$

2,251

$

$

24,666

$

45,153

Charge-off's

 

(43)

 

(64)

 

(29)

 

 

 

(2,758)

 

(28)

 

(2,922)

Recoveries

 

10

 

 

10

 

5

 

 

10

 

 

22

 

57

Provision (benefit)

 

620

 

93

 

(94)

 

(164)

 

253

 

(134)

 

2,758

 

(521)

 

2,811

Ending balance

$

7,144

$

8,356

$

1,873

$

710

$

750

$

2,127

$

$

24,139

$

45,099

March 31, 2020

One-to-four

family -

One-to-four

Small

Commercial

Multi-family

Commercial

mixed-use

family -

Construction

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-off's

 

(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

-19-

Table of Contents

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.

-20-

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

-21-

Table of Contents

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.

-22-

Table of Contents

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

-23-

Table of Contents

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

%

-24-

Table of Contents

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

-25-

Table of Contents

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.

-26-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the Phantom Stock Plan at or for the three months ended March 31, 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.

-27-

Table of Contents

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).

-28-

Table of Contents

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

-29-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table sets forth the Company’s assets and liabilities that are carried at fair value on a recurring basis, 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

%

-30-

Table of Contents

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%

-31-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

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.

-32-

Table of Contents

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

-33-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

outstanding,