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FFIC Flushing Financial

Filed: 4 Aug 21, 4:31pm

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 June 30, 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 July 31, 2021 was 30,936,504.

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Financial Condition

(Unaudited)

Item 1.   Financial Statements

June 30, 

December 31, 

    

2021

    

2020

(Dollars in thousands, except per share data)

Assets

 

  

 

  

Cash and due from banks

$

145,971

$

157,388

Securities held-to-maturity:

 

  

 

Mortgage-backed securities (including assets pledged of $5,760 and $5,853 at June 30, 2021 and December 31, 2020, respectively; fair value of $8,848 and $8,991 at June 30, 2021 and December 31, 2020, respectively)

 

7,904

 

7,914

Other securities, net of allowance for credit losses of $844 and $907 at June 30, 2021 and December 31, 2020, respectively, (NaN pledged; fair value of $53,598 and $54,538 at June 30, 2021 and December 31, 2020, respectively)

 

49,986

 

49,918

Securities available for sale, at fair value:

 

  

 

Mortgage-backed securities (including assets pledged of $287,288 and $264,968 at June 30, 2021 and December 31, 2020, respectively; $441 and $505 at fair value pursuant to the fair value option at June 30, 2021 and December 31, 2020, respectively)

 

596,661

 

404,460

Other securities (including asset pledged of $6,000 and $6,453 at June 30, 2021 and December 31, 2020, respectively; $14,080 and $13,998 at fair value pursuant to the fair value option at June 30, 2021 and December 31, 2020, respectively)

 

224,784

 

243,514

Loans:

 

 

Multi-family residential

2,542,010

2,533,952

Commercial real estate

1,726,895

1,754,754

One-to-four family - mixed-use property

582,211

602,981

One-to-four family - residential

288,652

245,211

Co-operative apartments

7,883

8,051

Construction

62,802

83,322

Small Business Administration

215,158

167,376

Taxi medallion

2,757

Commercial business and other

1,291,526

1,303,225

Net unamortized premiums and unearned loan fees

1,669

3,045

Allowance for Credit losses - Loans

 

(42,670)

 

(45,153)

Net loans

 

6,676,136

 

6,659,521

Interest and dividends receivable

 

43,803

 

44,041

Bank premises and equipment, net

 

26,438

 

28,179

Federal Home Loan Bank of New York stock, at cost

 

41,630

 

43,439

Bank owned life insurance

 

183,715

 

181,710

Goodwill

 

17,636

 

17,636

Core deposit intangibles

2,859

3,172

Right of Use Asset

51,972

 

50,743

Other assets

 

89,850

 

84,759

Total assets

$

8,159,345

$

7,976,394

Liabilities

 

  

 

  

Due to depositors:

 

  

 

  

Non-interest bearing

$

945,491

$

778,672

Interest-bearing

 

5,353,299

 

5,312,061

Total Deposits

6,298,790

6,090,733

Mortgagors' escrow deposits

 

58,230

 

45,622

Borrowed funds:

 

 

Federal Home Loan Bank advances

 

831,932

 

887,579

Subordinated debentures

 

90,081

 

90,180

Junior subordinated debentures, at fair value

 

49,814

 

43,136

Total borrowed funds

 

971,827

 

1,020,895

Operating lease liability

56,151

59,100

Other liabilities

 

119,180

 

141,047

Total liabilities

 

7,504,178

 

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 June 30, 2021 and December 31, 2020; 30,961,504 shares and 30,775,854 shares outstanding at June 30, 2021 and December 31, 2020, respectively)

 

341

 

341

Additional paid-in capital

 

260,958

 

261,533

Treasury stock, at average cost (3,126,119 shares and 3,373,389 shares at June 30, 2021 and December 31, 2020, respectively)

 

(65,335)

 

(69,400)

Retained earnings

 

467,620

 

442,789

Accumulated other comprehensive loss, net of taxes

 

(8,417)

 

(16,266)

Total stockholders' equity

 

655,167

 

618,997

Total liabilities and stockholders' equity

$

8,159,345

$

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

For the six months ended

    

June 30, 

June 30, 

(Dollars in thousands, except per share data)

    

2021

    

2020

    

2021

    

2020

Interest and dividend income

Interest and fees on loans

$

67,999

$

60,557

$

137,020

$

121,666

Interest and dividends on securities:

 

  

 

  

 

  

 

  

Interest

 

3,685

4,182

 

6,757

9,438

Dividends

 

7

 

11

 

15

 

26

Other interest income

51

 

22

87

 

312

Total interest and dividend income

 

71,742

 

64,772

 

143,879

 

131,442

Interest expense

 

  

 

  

 

  

 

  

Deposits

 

5,539

 

9,971

 

11,644

 

28,749

Other interest expense

 

5,164

 

6,084

 

10,304

 

13,150

Total interest expense

 

10,703

 

16,055

 

21,948

 

41,899

Net interest income

 

61,039

 

48,717

 

121,931

 

89,543

(Benefit) provision for credit losses

 

(1,598)

 

9,619

 

1,222

 

16,797

Net interest income after (benefit) provision for credit losses

 

62,637

 

39,098

 

120,709

 

72,746

Non-interest income

 

  

 

  

 

  

 

  

Banking services fee income

 

1,233

 

944

 

3,958

 

1,742

Net gain (loss) on sale of securities

 

123

 

(54)

 

123

 

(91)

Net gain on sale of loans

 

127

 

 

158

 

42

Net gain on disposition of assets

 

 

 

621

 

0

Net gain (loss) from fair value adjustments

 

(6,548)

 

10,205

 

(5,566)

 

4,212

Life insurance proceeds

659

0

659

Federal Home Loan Bank of New York stock dividends

 

500

 

881

 

1,189

 

1,845

Bank owned life insurance

 

1,009

 

932

 

2,006

 

1,875

Other income

 

346

 

170

 

612

 

589

Total non-interest income (loss)

 

(3,210)

 

13,737

 

3,101

 

10,873

Non-interest expense

 

 

Salaries and employee benefits

 

19,879

 

16,184

 

42,543

 

34,804

Occupancy and equipment

 

3,522

 

2,827

 

6,889

 

5,667

Professional services

 

1,988

 

1,985

 

4,388

 

4,847

FDIC deposit insurance

 

729

 

737

��

 

1,942

 

1,387

Data processing

 

1,419

 

1,813

 

3,528

 

3,507

Depreciation and amortization

 

1,638

 

1,555

 

3,277

 

3,091

Other real estate owned/foreclosure expense (recoveries)

 

22

 

45

 

12

 

(119)

Other operating expenses

 

4,814

 

3,609

 

9,591

 

7,951

Total non-interest expense

 

34,011

 

28,755

 

72,170

 

61,135

Income before income taxes

 

25,416

 

24,080

 

51,640

 

22,484

Provision for income taxes

Federal

 

4,857

 

4,307

 

9,928

 

5,296

State and local

 

1,301

 

1,501

 

3,415

 

306

Total taxes

 

6,158

 

5,808

 

13,343

 

5,602

Net income

$

19,258

$

18,272

$

38,297

$

16,882

Basic earnings per common share

$

0.61

$

0.63

$

1.21

$

0.58

Diluted earnings per common share

$

0.61

$

0.63

$

1.21

$

0.58

Dividends per common share

$

0.21

$

0.21

$

0.42

$

0.42

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

For the six months ended

June 30, 

June 30, 

(In thousands)

    

2021

    

2020

    

2021

    

2020

    

Net income

$

19,258

$

18,272

$

38,297

16,882

Other comprehensive income (loss), net of tax:

 

  

 

  

 

  

 

  

Amortization of actuarial losses, net of taxes of ($41) and ($31) for the three months ended June 30, 2021 and 2020, respectively, and of ($77) and ($61) for the six months ended June 30, 2021 and 2020, respectively.

 

92

 

67

 

173

 

134

Amortization of prior service credits, net of taxes of $6 and $8 for the three months ended June 30, 2021 and 2020, respectively, and of $13 and $14 for the six months ended June 30, 2021 and 2020, respectively.

 

(15)

 

(15)

 

(30)

 

(29)

Net unrealized gains (losses) on securities, net of taxes of ($664) and ($5,193) for the three months ended June 30, 2021 and 2020, respectively, and of $322 and ($551) for the six months ended June 30, 2021 and 2020, respectively.

 

1,497

 

11,414

 

(720)

 

1,212

Reclassification adjustment for net losses included in income, net of taxes of $38 and ($17) for the three months ended June 30, 2021 and 2020, respectively and of $38 and ($29) for the six months ended June 30, 2021 and 2020, respectively.

 

(85)

 

37

 

(85)

 

62

Net unrealized gains (losses) on cash flow hedges, net of taxes of ($120) and $912 for the three months ended June 30, 2021 and 2020 respectively, and of ($3,574) and $7,102 for the six months ended June 30, 2021 and 2020 respectively.

 

521

 

(2,005)

 

8,319

 

(15,610)

Change in fair value of liabilities related to instrument-specific credit risk, net of taxes of ($147) and $259 for the three months ended June 30, 2021 and 2020, respectively, and of ($112) and ($230) for the six months ended June 30, 2021 and 2020, respectively.

 

276

 

(580)

 

192

 

516

Total other comprehensive income (loss), net of tax

 

2,286

 

8,918

 

7,849

 

(13,715)

Comprehensive income

$

21,544

$

27,190

$

46,146

$

3,167

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 six months ended June 30, 

    

2021

    

2020

(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

38,297

$

16,882

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

  

Provision for credit losses

 

1,222

 

16,797

Depreciation and amortization of bank premises and equipment

 

3,277

 

3,091

Amortization of premium, net of accretion of discount

(190)

3,235

Net (gain) loss from fair value adjustments

5,566

(4,212)

Net (gain) loss from fair value adjustments on qualifying hedges

(763)

2,438

Net gain from sale of loans

 

(158)

 

(42)

Net (gain) loss from sale of securities

 

(123)

 

91

Net gain from disposition of asset

 

(621)

 

0

Net loss from OREO

 

0

 

31

Income from bank owned life insurance

 

(2,006)

 

(1,875)

Life insurance proceeds

0

(659)

Amortization of core deposit intangibles

 

313

 

0

Stock-based compensation expense

 

4,539

 

4,531

Deferred compensation

 

(2,057)

 

(3,060)

Deferred income tax benefit

 

(762)

 

(2,546)

Decrease in other liabilities

 

(5,384)

 

(1,411)

Increase in other assets

 

(5,175)

 

(3,398)

Net cash provided by operating activities

 

35,975

 

29,893

CASH FLOWS FROM INVESTING ACTIVITIES

 

  

 

  

Purchases of bank premises and equipment

 

(1,536)

 

(1,433)

Net redemptions of Federal Home Loan Bank of New York shares

 

1,809

 

521

Proceeds from maturities and calls of securities held-to-maturity

 

0

 

180

Proceeds from prepayments of securities held-to-maturity

 

0

 

300

Purchases of securities available for sale

 

(478,155)

 

(130,344)

Proceeds from sales and calls of securities available for sale

 

38,623

 

139,741

Proceeds from maturities and prepayments of securities available for sale

 

263,640

 

87,658

Net repayments (originations) of loans

 

89,937

 

(72,371)

Purchases of loans

 

(130,706)

 

(112,245)

Proceeds from sale of loans

 

18,584

 

580

Net cash used in investing activities

 

(197,804)

 

(87,413)

-4-

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Cash Flows (Contd.)

(Unaudited)

For the six months ended June 30, 

    

2021

    

2020

(In thousands)

CASH FLOWS FROM FINANCING ACTIVITIES

Net increase in non-interest bearing deposits

166,819

146,809

Net increase (decrease) in interest-bearing deposits

 

41,312

 

(119,076)

Net increase in mortgagors' escrow deposits

 

12,608

 

4,150

Net proceeds from short-term borrowed funds

 

150,000

 

0

Proceeds from long-term borrowings

 

0

 

204,378

Repayment of long-term borrowings

 

(205,647)

 

(127,762)

Purchases of treasury stock

 

(1,375)

 

(3,865)

Cash dividends paid

 

(13,305)

 

(12,147)

Net cash provided by financing activities

 

150,412

 

92,487

Net (decrease) increase in cash and cash equivalents

 

(11,417)

 

34,967

Cash and cash equivalents, beginning of period

 

157,388

 

49,787

Cash and cash equivalents, end of period

$

145,971

$

84,754

SUPPLEMENTAL CASH FLOW DISCLOSURE

 

  

 

  

Interest paid

$

22,217

$

44,272

Income taxes paid

 

10,207

 

4,664

Taxes paid if excess tax benefits on stock-based compensation were not tax deductible

 

9,877

 

4,446

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

 

 

 

19,039

 

 

Award of common shares released from Employee Benefit Trust (5,682 shares)

 

74

 

 

74

 

 

 

Vesting of restricted stock unit awards (248,896 shares)

 

 

 

(5,058)

 

(153)

 

5,211

 

Stock-based compensation expense

 

3,470

 

 

3,470

 

 

 

Repurchase of shares to satisfy tax obligation (70,292 shares)

 

(1,290)

 

 

 

 

(1,290)

 

Dividends on common stock ($0.21 per share)

 

(6,652)

 

 

 

(6,652)

 

 

Other comprehensive income

 

5,563

 

 

 

 

 

5,563

Balance at March 31, 2021

 

639,201

 

341

 

260,019

 

455,023

 

(65,479)

 

(10,703)

Net income

 

19,258

19,258

Award of common shares released from Employee Benefit Trust (6,445 shares)

 

91

91

Vesting of restricted stock unit awards (10,932 shares)

 

(221)

(8)

229

Stock-based compensation expense

 

1,069

1,069

Repurchase of shares to satisfy tax obligation (3,886 shares)

 

(85)

(85)

Dividends on common stock ($0.21 per share)

 

(6,653)

(6,653)

Other comprehensive income

 

2,286

2,286

Balance at June 30, 2021

$

655,167

$

341

$

260,958

$

467,620

$

(65,335)

$

(8,417)

    

    

    

Additional

    

    

    

Accumulated Other

Common

Paid-in

Retained

Treasury

Comprehensive

(Dollars in thousands, except per share data)

Total

Stock

Capital

Earnings

Stock

Income (Loss)

Balance at December 31, 2019

$

579,672

$

315

$

226,691

$

433,960

$

(71,487)

$

(9,807)

Impact of adoption of ASC 326 - Credit Losses

 

(875)

 

 

 

(875)

 

 

Net loss

 

(1,390)

 

 

 

(1,390)

 

 

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

 

1,398

 

 

1,398

 

 

 

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

 

 

 

(5,626)

 

(156)

 

5,782

 

Stock-based compensation expense

 

3,430

 

 

3,430

 

 

 

Purchase of treasury shares (142,405 shares)

 

(2,342)

 

 

 

 

(2,342)

 

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

 

(1,493)

 

 

 

 

(1,493)

 

Dividends on common stock ($0.21 per share)

(6,084)

 

 

(6,084)

 

 

Other comprehensive loss

 

(22,633)

 

 

 

 

 

(22,633)

Balance at March 31, 2020

 

549,683

 

315

 

225,893

 

425,455

 

(69,540)

 

(32,440)

Net income

 

18,272

 

18,272

Award of common shares released from Employee Benefit Trust (10,956 shares)

 

40

 

40

Vesting of restricted stock unit awards (6,390 shares)

 

 

(133)

(1)

134

Stock-based compensation expense

 

1,101

 

1,101

Repurchase of shares to satisfy tax obligation (2,558 shares)

 

(30)

 

(30)

Dividends on common stock ($0.21 per share)

 

(6,063)

 

(6,063)

Other comprehensive income

 

8,918

 

8,918

Balance at June 30, 2020

$

571,921

$

315

$

226,901

$

437,663

$

(69,436)

$

(23,522)

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, which was dissolved as of June 30, 2021. 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.

In response to COVID-19, the Company is actively assisting customers by providing modifications in the form of deferrals of interest, principal and/or escrow for terms ranging from one to thirty months. At June 30, 2021, we had 69 active forbearances for loans with an aggregate outstanding loan balance of approximately $245.8 million resulting in total deferment of $16.2 million in principal, interest and escrow, down from 134 active forbearances for loans with an aggregate outstanding loan balance of $364.4 million at December 31, 2020. Given the pandemic and current economic environment, we continue to work with our customers to modify loans although the pace of requests slowed down. The Company actively participated in the Paycheck Protection Program (“PPP”), under the Coronavirus Aid, Relief and Economic

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Security Act (the “CARES Act”), closing $138.7 million of these loans during the three months ended June 30, 2021, with $69.2 million in PPP loans forgiven by the SBA during the same time period. We are also a participant in the Main Street Lending Program in order to assist customers. Pursuant to the CARES Act and later modified by Consolidated Appropriations Act, certain loan modifications are not classified as “troubled debt restructuring” (“TDR”), 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.

In addition, the economic pressures and uncertainties related to the COVID-19 pandemic have resulted in changes in consumer spending behaviors in the communities we serve, which may negatively impact the demand for loans and other services we offer. However, the Company’s capital and financial resources have not been materially impacted by the pandemic, as our results of operations depend primarily on net interest income, which benefited from the actions taken by the Federal Reserve to counteract the negative economic impact of the pandemic. Future operating results and near-and-long-term financial condition are subject to significant uncertainty. Our funding sources have not changed significantly, and we expect to continue to be able to timely service our debts and its obligations.

3.     Earnings Per Share

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

For the three months ended

For the six months ended

June 30, 

June 30, 

    

2021

    

2020

    

2021

    

2020

    

(In thousands, except per share data)

Net income

$

19,258

$

18,272

$

38,297

$

16,882

Divided by:

 

 

 

 

Total weighted average common shares outstanding and common stock equivalents

 

31,677

 

28,867

 

31,641

 

28,860

Basic earnings per common share

$

0.61

$

0.63

$

1.21

$

0.58

Diluted earnings per common share (1)

$

0.61

$

0.63

$

1.21

$

0.58

Dividend payout ratio

 

34.4

%  

 

33.3

%  

 

34.7

%  

 

72.4

%  

(1)For the three and six months ended June 30, 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 June 30, 2021 and December 31, 2020. Securities available for sale are recorded at fair value. Securities held-to-maturity (“HTM”) are recorded at amortized cost.

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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) : the first with an amortized cost of $29.9 million structured similar to a commercial owner occupied loan and modeled for credit losses similar to commercial business loans secured by real estate with a reserve of $0.2 million at June 30, 2021; the second with an amortized cost of $20.0 million that currently is under forbearance with a specific reserve of $0.6 million at June 30, 2021; and the third with an amortized cost of $7.9 million 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 at June 30, 2021 and December 31, 2020 and is excluded from estimates of credit losses.

The following table summarizes the Company’s portfolio of securities held-to-maturity at June 30, 2021:

Gross

Gross

Amortized

Unrecognized

Unrecognized

    

Cost

    

Fair Value

    

Gains

    

Losses

(In thousands)

Securities held-to-maturity:

 

  

 

  

 

  

 

  

Municipals

$

50,830

$

53,598

$

2,768

$

0

Total other securities

 

50,830

 

53,598

 

2,768

 

0

FNMA

 

7,904

 

8,848

 

944

 

0

Total mortgage-backed securities

 

7,904

 

8,848

 

944

 

0

Allowance for Credit Losses

(844)

Total

$

57,890

$

62,446

$

3,712

$

0

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 June 30, 2021:

Gross

Gross

Amortized

Unrealized

Unrealized

    

Cost

    

Fair Value

    

Gains

    

Losses

(In thousands)

Securities available for sale:

U.S Government Agencies

$

6,206

$

6,218

$

15

$

3

Corporate

 

117,420

 

117,602

 

461

 

279

Mutual funds

 

12,585

 

12,585

 

0

 

0

Collateralized loan obligations

 

87,148

 

86,884

 

18

 

282

Other

 

1,495

 

1,495

 

0

 

0

Total other securities

 

224,854

 

224,784

 

494

 

564

REMIC and CMO

 

222,748

 

224,065

 

3,042

 

1,725

GNMA

 

12,033

 

11,802

 

39

 

270

FNMA

 

205,159

 

205,782

 

1,783

 

1,160

FHLMC

 

155,944

 

155,012

 

589

 

1,521

Total mortgage-backed securities

 

595,884

 

596,661

 

5,453

 

4,676

Total securities available for sale

$

820,738

$

821,445

$

5,947

$

5,240

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 June 30, 2021 and December 31, 2020.

The corporate securities held by the Company at June 30, 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 June 30, 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

$

50,830

$

53,598

Total other securities

50,830

53,598

Mortgage-backed securities

7,904

8,848

Total held-to-maturity securities

58,734

62,446

Allowance for Credit Losses

(844)

Total held-to-maturity securities, net of allowance for credit losses

$

57,890

 

$

62,446

Amortized

Securities available for sale:

    

Cost

    

Fair Value

(In thousands)

Due after one year through five years

$

30,000

$

30,242

Due after five years through ten years

 

159,551

 

159,243

Due after ten years

22,718

22,714

Total

 

212,269

 

212,199

Mutual funds

 

12,585

 

12,585

Total other securities

224,854

224,784

Mortgage-backed securities

 

595,884

 

596,661

Total available for sale securities

$

820,738

$

821,445

-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 June 30, 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)

Available for sale securities

 

  

 

  

 

  

 

  

 

  

 

  

 

  

U.S Government Agencies

 

1

$

4,897

$

3

$

4,897

$

3

$

0

$

0

Corporate

 

7

 

52,141

 

279

 

22,403

 

16

 

29,738

 

263

Collateralized loan obligations

 

6

 

44,633

 

282

 

0

 

0

 

44,633

 

282

Total other securities

 

14

 

101,671

 

564

 

27,300

 

19

 

74,371

 

545

REMIC and CMO

 

11

 

112,847

 

1,725

 

112,847

 

1,725

 

0

 

0

GNMA

 

4

 

11,404

 

270

 

11,404

 

270

 

0

 

0

FNMA

 

16

 

107,883

 

1,160

 

107,883

 

1,160

 

0

 

0

FHLMC

 

10

 

85,084

 

1,521

 

85,084

 

1,521

 

0

 

0

Total mortgage-backed securities

 

41

 

317,218

 

4,676

 

317,218

 

4,676

 

0

 

0

Total securities available for sale

 

55

$

418,889

$

5,240

$

344,518

$

4,695

$

74,371

$

545

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 June 30, 2021 and December 31, 2020. At June 30, 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 to 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 $1.7 million and $1.3 million at June 30, 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.

Other Securities

For the three months ended

For the six months ended

June 30, 

June 30, 

    

2021

    

2020

    

2021

    

2020

(In thousands)

Beginning balance

$

915

$

402

$

907

$

340

Provision (benefit)

 

(71)

 

 

(63)

 

62

Allowance for credit losses

$

844

$

402

$

844

$

402

Realized gains and losses on the sales of securities are determined using the specific identification method. The Company sold $25.0 million in corporate securities during the three and six months ended June 30, 2021.The Company sold $66.2 million and $130.8 million in mortgage-backed securities during the three and six months ended June 30, 2020, respectively.

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

For the six months ended

June 30, 

June 30, 

    

2021

    

2020

    

2021

    

2020

(In thousands)

Gross gains from the sale of securities

$

123

$

763

$

123

$

1,476

Gross losses from the sale of securities

 

0

 

(817)

 

0

 

(1,567)

Net gains (losses) from the sale of securities

$

123

$

(54)

$

123

$

(91)

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.

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Interest on loans is recognized on the accrual basis. Accrued interest receivable totaled $40.6 million and $41.5 million at June 30, 2021 and December 31, 2020, respectively, 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.

During the three months ended June 30, 2021, the Company recorded a benefit for credit losses on loans totaling $1.5 million compared to a provision for credit losses on loans of $9.6 million for the three months ending June 30, 2020. The Company recorded a provision for credit losses on loans totaling $1.3 million and $16.7 million for the six months ended June 30, 2021 and 2020, respectively. The benefit recorded during the three months ended June 30, 2021 was driven by the improving economic outlook. During the three months ended June 30, 2021, the Company made an adjustment to decrease the reasonable and supportable forecast period and increase the reversion period to adjust for the model using a more favorable forecast based on national statistics compared to the Bank’s primary market area, the New York Tri-State area, where economic improvements lag behind the nation. This resulted in the ACL - loans totaling $42.7 million at June 30, 2021 compared to $45.2 million at December 31, 2020. At June 30, 2021, the ACL - loans represented 0.64% of gross loans and 242.6% of non-performing loans. At December 31, 2020, the ACL - loans represented 0.61% of gross loans and 181.9% of non-performing loans.

Pursuant to the CARES Act and later modified by Consolidated Appropriations Act, certain loan modifications are not classified as TDR, 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. 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.

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-

-14-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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 ACL 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 June 30, 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 ACL. There were 0 TDR loan modifications during the three and six months ended June 30, 2020.

For the three and six months ended

June 30, 2021

(Dollars in thousands)

    

Number

    

Balance

    

Modification description

    

Commercial business and other

 

2

674

 

Amortization period extended

 

Total

 

2

$

674

 

  

 

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

June 30, 2021

December 31, 2020

Number

Amortized

Number

Amortized

(Dollars in thousands)

    

of contracts

    

Cost

    

of contracts

    

Cost

Multi-family residential

 

6

$

1,673

 

6

$

1,700

Commercial real estate

1

7,583

1

 

7,702

One-to-four family - mixed-use property (1)

 

5

 

1,682

 

5

 

1,731

One-to-four family - residential

 

3

 

497

 

3

 

507

Taxi medallion (2)

2

440

Commercial business and other (1)

 

9

 

4,107

 

8

 

3,831

Total performing troubled debt restructured

 

24

$

15,542

 

25

$

15,911

(1)These loans 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 and six months ended June 30, 2021 there was 1 commercial business TDR loan totaling $0.3 million that defaulted within 12 months of its modification date. During the three and six months ended June 30, 2020, there were 0 TDR loans that defaulted 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:

June 30, 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

 

2

 

596

 

1

 

279

Total troubled debt restructurings that subsequently defaulted

 

2

$

596

 

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 six months ended June 30, 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

$

4,850

$

4,850

$

5

$

201

Commercial real estate

1,766

35

35

One-to-four family - mixed-use property (1)

1,706

2,706

2,706

2

One-to-four family - residential

5,313

6,404

6,404

1

Construction

Small Business Administration

1,168

992

992

Taxi medallion(2)

2,758

Commercial business and other(1)

5,660

4,715

725

52

Total

$

20,947

$

19,702

$

15,712

$

60

$

201

(1)   Included in the above analysis are non-accrual performing TDR one-to-four family – mixed-use property totaling $0.3 million, and non-accrual performing TDR commercial business loans totaling $2.2 million at June 30, 2021.

(2)   Taxi medallion loans were completely charged off during the six months ended June 30, 2021.

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)

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 and non-accrual performing TDR commercial business loans totaling $2.2 million at December 31, 2020.

-16-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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

For the three months ended

For the six months ended

June 30, 

June 30, 

    

2021

    

2020

    

2021

    

2020

(In thousands)

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

$

453

$

430

$

915

$

805

Less: Interest income included in the results of operations

 

163

 

73

 

323

 

162

Total foregone interest

$

290

$

357

$

592

$

643

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

June 30, 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

$

14,894

$

1,259

$

5,051

$

21,204

$

2,522,555

$

2,543,759

Commercial real estate

 

7,213

 

0

 

35

 

7,248

 

1,722,659

 

1,729,907

One-to-four family - mixed-use property

 

787

 

1,089

 

2,439

 

4,315

 

581,434

 

585,749

One-to-four family - residential

 

988

 

1,373

 

6,404

 

8,765

 

288,926

 

297,691

Construction

 

7,089

 

0

 

0

 

7,089

 

55,622

 

62,711

Small Business Administration

 

81

 

199

 

992

 

1,272

 

209,246

 

210,518

Taxi medallion

 

0

 

0

 

0

 

0

 

0

 

0

Commercial business and other

 

588

 

64

 

1,942

 

2,594

 

1,285,877

 

1,288,471

Total

$

31,640

$

3,984

$

16,863

$

52,487

$

6,666,319

$

6,718,806

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

-17-

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 ACL on loans for the three month periods indicated:

June 30, 2021

    

    

    

One-to-four

    

    

    

    

    

    

family -

One-to-four

Commercial

Multi-family

Commercial

mixed-use

family -

Construction

Small Business

Taxi

business and

(In thousands)

residential

real estate

property

residential

loans

Administration

medallion

other

Total

Allowance for credit losses:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Beginning balance

$

7,144

$

8,356

$

1,873

$

710

$

750

$

2,127

$

$

24,139

$

45,099

Charge-offs

 

 

 

(3)

 

 

 

 

 

(1,183)

 

(1,186)

Recoveries

 

 

 

 

2

 

 

9

 

222

 

51

 

284

Provision (benefit)

 

(585)

 

(2,488)

 

(378)

 

4

 

(565)

 

166

 

(222)

 

2,541

 

(1,527)

Ending balance

$

6,559

$

5,868

$

1,492

$

716

$

185

$

2,302

$

$

25,548

$

42,670

June 30, 2020

    

    

    

One-to-four

    

    

    

    

    

    

family -

One-to-four

Commercial

Multi-family

Commercial

mixed-use

family -

Construction

Small Business

Taxi

business and

(In thousands)

residential

real estate

property

residential

loans

Administration

medallion

other

Total

Allowance for credit losses:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Beginning balance

$

5,895

$

6,791

$

2,170

$

892

$

185

$

1,528

$

$

10,637

$

28,098

Charge-offs

 

 

 

(3)

 

 

 

(178)

 

 

(849)

 

(1,030)

Recoveries

 

7

 

 

 

3

 

 

13

 

 

 

23

Provision (benefit)

 

3,033

 

180

 

659

 

266

 

(2)

 

23

 

 

5,460

 

9,619

Ending balance

$

8,935

$

6,971

$

2,826

$

1,161

$

183

$

1,386

$

$

15,248

$

36,710

-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 ACL on loans for the six month periods indicated:

June 30, 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)

 

(32)

 

 

 

(2,758)

 

(1,211)

 

(4,108)

Recoveries

 

10

 

 

10

 

7

 

 

19

 

222

 

73

 

341

Provision (benefit)

 

35

 

(2,395)

 

(472)

 

(160)

 

(312)

 

32

 

2,536

 

2,020

 

1,284

Ending balance

$

6,559

$

5,868

$

1,492

$

716

$

185

$

2,302

$

$

25,548

$

42,670

June 30, 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

(650)

 

1,170

 

(55)

 

(160)

 

(279)

 

1,180

 

 

(827)

379

Charge-off's

 

(3)

(178)

(2,108)

 

(2,289)

Recoveries

 

13

 

 

78

 

8

 

 

20

 

 

14

 

133

Provision (benefit)

 

4,181

 

1,372

 

989

 

557

 

21

 

1

 

 

9,615

 

16,736

Ending balance

$

8,935

$

6,971

$

2,826

$

1,161

$

183

$

1,386

$

$

15,248

$

36,710

-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 June 30, 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

$

57,316

$

31,897

$

36,253

$

32,818

$

20,935

$

75,903

$

10,524

$

15,288

$

280,934

Watch

481

724

280

2,430

1,541

190

2,287

7,933

Special Mention

1,115

517

160

1,792

Substandard

1,836

4,167

1,029

7,032

Total 1-4 Family Residential

$

57,316

$

32,378

$

36,977

$

34,934

$

24,480

$

82,128

$

10,874

$

18,604

$

297,691

1-4 Family Mixed-Use

Pass

$

18,221

$

35,902

$

71,259

$

75,193

$

54,249

$

308,869

$

$

$

563,693

Watch

3,092

6,118

7,668

16,878

Special Mention

761

1,438

2,199

Substandard

501

2,478

2,979

Total 1-4 Family Mixed Use

$

18,221

$

35,902

$

71,259

$

78,786

$

61,128

$

320,453

$

$

$

585,749

Commercial Real Estate

Pass

$

58,238

$

171,433

$

256,707

$

266,369

$

180,000

$

680,308

$

$

$

1,613,055

Watch

4,179

934

3,433

5,708

2,657

83,926

100,837

Special Mention

6,855

1,542

8,397

Substandard

7,583

35

7,618

Total Commercial Real Estate

$

62,417

$

172,367

$

267,723

$

278,932

$

182,657

$

765,811

$

$

$

1,729,907

Construction

Pass

$

3,079

$

23,121

$

14,797

$

1,960

$

$

$

$

$

42,957

Watch

2,115

8,284

5,904

16,303

Special Mention

859

2,592

3,451

Substandard

Total Construction

$

3,079

$

23,121

$

16,912

$

11,103

$

8,496

$

$

$

$

62,711

Multifamily

Pass

$

168,396

$

240,612

$

340,195

$

449,407

$

360,108

$

941,236

$

6,346

$

$

2,506,300

Watch

2,111

4,205

12,605

10,834

398

30,153

Special Mention

792

468

1,260

Substandard

703

2,599

1,803

740

201

6,046

Total Multifamily

$

168,396

$

243,515

$

345,571

$

464,611

$

361,911

$

952,810

$

6,945

$

$

2,543,759

Commercial Business - Secured by RE

Pass

$

96,311

$

93,588

$

38,733

$

52,180

$

28,173

$

99,637

$

$

$

408,622

Watch

23,623

51,501

18,557

11,979

47,442

153,102

Special Mention

604

604

Substandard

4,228

4,228

Total Commercial Business - Secured by RE

$

96,311

$

117,211

$

90,838

$

70,737

$

40,152

$

151,307

$

$

$

566,556

Commercial Business

Pass

$

51,015

$

72,432

$

90,417

$

76,675

$

29,154

$

73,507

$

207,786

$

$

600,986

Watch

6

1,683

22,505

19,308

33,143

43

22,493

99,181

Special Mention

45

2,488

103

3,207

5,843

Substandard

4,900

535

320

4,957

1,903

995

13,610

Doubtful

929

1,235

2,164

Total Commercial Business

$

51,021

$

79,015

$

113,502

$

98,791

$

67,357

$

76,382

$

235,716

$

$

721,784

Small Business Administration

Pass

$

130,255

$

67,148

$

1,292

$

1,560

$

654

$

2,920

$

$

$

203,829

Watch

61

2,588

1,946

849

5,444

Special Mention

140

107

247

Substandard

992

6

998

Total Small Business Administration

$

130,255

$

67,148

$

1,353

$

4,148

$

3,732

$

3,882

$

$

$

210,518

Other

Pass

$

$

$

$

$

$

52

$

79

$

$

131

Total Other

$

$

$

$

$

$

52

$

79

$

$

131

Total Loans

$

587,016

$

770,657

$

944,135

$

1,042,042

$

749,913

$

2,352,825

$

253,614

$

18,604

$

6,718,806

-21-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Included within net loans as of June 30, 2021 and December 31, 2020 were $9.3 million and $5.9 million, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction.

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

June 30, 2021

December 31, 2020

(In thousands)

Real Estate

Business Assets

Real Estate

Business Assets

Multi-family residential

$

4,850

$

$

2,576

$

Commercial real estate

1,246

2,994

One-to-four family - mixed-use property

2,706

1,706

One-to-four family - residential

6,404

5,313

Small Business Administration

992

1,168

Commercial business and other

2,556

3,482

Taxi Medallion

2,758

Total

$

15,206

$

3,548

$

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 $499.8 million and $474.0 million at June 30, 2021 and December 31, 2020, respectively.

The following table presents the activity in the allowance for off balance sheet credit losses for the three and six months ended June 30, 2021 and 2020.

For the three months ended

For the six months ended

June 30, 

June 30, 

    

2021

    

2020

    

2021

    

2020

(In thousands)

Balance at beginning of period

$

1,304

$

797

$

1,815

$

Off-Balance Sheet - CECL Adoption

 

 

 

 

553

Off-Balance Sheet- Provision (benefit)

266

467

(245)

711

Allowance for Off-Balance Sheet - Credit losses (1)

$

1,570

$

1,264

$

1,570

$

1,264

(1)Included in “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 June 30, 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. There were 0 loans sold for the three months ended June 30, 2020.

The following tables show loans sold during the period indicated:

For the three months ended June 30, 2021

  

Net Recoveries

  

(Dollars in thousands)

    

Loans sold

    

Proceeds

    

(Charge-offs)

    

Net gain

Delinquent and non-performing loans

 

  

 

  

 

  

 

  

Multi-family residential

 

3

$

7,846

$

$

58

One-to-four family - mixed-use property

 

4

 

2,488

 

 

69

Total

 

7

$

10,334

$

$

127

For the six months ended June 30, 2021

  

Net Recoveries

  

(Dollars in thousands)

    

Loans sold

    

Proceeds

    

(Charge-offs)

    

Net gain

Delinquent and non-performing loans

 

  

 

  

 

  

 

  

Multi-family residential

 

8

$

10,752

$

(43)

$

63

Commercial real estate

 

3

 

3,036

 

(64)

 

17

One-to-four family - mixed-use property

 

10

 

4,796

 

(14)

 

78

Total

 

21

$

18,584

$

(121)

$

158

For the six months ended June 30, 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, 9 operating leases for vehicles, and 1 operating lease for equipment. Our leases have remaining lease terms ranging from four 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.

The Company has elected the short-term lease recognition exemption such that the Company will not recognize Right of Use (“ROU”) assets or lease liabilities for leases with a term of less than 12 months from the commencement date. The Company’s operating lease expense totaled $2.2 million and $1.9 million and was recorded in Occupancy and equipment on the Consolidated Statements of Income for the three month periods ended June 30, 2021 and 2020, respectively. The Company’s operating lease expense totaled $4.3 million and $3.8 million and was recorded in Occupancy and equipment on the Consolidated Statements of Income for the six month periods ended June 30, 2021 and 2020, respectively.

The Company has one agreement that qualifies as a short-term lease with expense totaling approximately $60,000 and $34,000 for the three month periods ended June 30, 2021 and 2020 and approximately $90,000 and $68,000 for the six month periods ended June 30, 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 June 30, 2021 and 2020. The Company has $0.6 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 six months ended June 30, 2021 and 2020. At June 30, 2021, the weighted-average remaining lease term for our operating leases is approximately eight years and the weighted average discount rate is 3.2%. Our lease agreements do not contain any residual value guarantees.

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)

June 30, 2021

December 31, 2020

Operating lease ROU asset

$

51,972

$

50,743

Operating lease liability

$

56,151

$

59,100

Weighted-average remaining lease term-operating leases

 

7.7 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:

 

For the three months ended

(Dollars in thousands)

June 30, 2021

June 30, 2020

Lease Cost

 

  

 

  

Operating lease cost

$

2,244

$

1,897

Short-term lease cost

 

60

 

34

Variable lease cost

 

298

 

287

Total lease cost

$

2,602

$

2,218

Other information

 

  

 

  

Cash paid for amounts included in the measurement of lease liabilities

 

  

 

  

Operating cash flows from operating leases

$

2,418

$

2,200

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

$

$

27

 

For the six months ended

(Dollars in thousands)

June 30, 2021

June 30, 2020

Lease Cost

 

  

 

  

Operating lease cost

$

4,348

$

3,782

Short-term lease cost

 

95

 

68

Variable lease cost

 

596

 

552

Total lease cost

$

5,039

$

4,402

Other information

 

  

 

  

Cash paid for amounts included in the measurement of lease liabilities

 

  

 

  

Operating cash flows from operating leases

$

8,048

$

4,182

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

$

$

50

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The Company’s minimum annual rental payments for Bank facilities due under non-cancelable leases are as follows as of June 30, 2021:

Minimum Rental

(In thousands)

Years ended December 31:

2021

$

4,369

2022

9,149

2023

9,281

2024

9,121

2025

8,479

Thereafter

22,898

Total minimum payments required

63,297

Less: Implied interest

7,146

Total lease obligations

$

56,151

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

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 June 30, 2021, PRSUs granted in 2021 and 2020 are being accrued at target and PRSUs granted in 2019 are being accrued above target.

On May 18, 2021, stockholders approved an amendment to the 2014 Omnibus Plan (the “Amendment”) authorizing an additional 1,100,000 shares available for future issuance. Including the additional shares authorized from the Amendment, 1,170,408 shares were available for future issuance under the 2014 Omnibus Plan at June 30, 2021.

For the three months ended June 30, 2021 and 2020, the Company’s net income, as reported, included $1.1 million and $0.9 million, respectively, of stock-based compensation costs, including the benefit or expense of phantom stock awards, and $0.3 million and $0.2 million of income tax benefits, respectively, related to the stock-based compensation plans. For the six months ended June 30, 2021 and 2020, the Company’s net income, as reported, included $5.2 million and $3.4

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

million, respectively, of stock-based compensation costs, including the benefit or expense of phantom stock awards, and $1.4 million and $0.8 million of income tax benefits, respectively, related to the stock-based compensation plans.

During the three months ended June 30, 2021 and 2020, the Company did not grant any RSU or PRSU’s. During the six months ended June 30, 2021 and 2020, the Company granted 238,985 and 172,228 RSU, respectively. During the six months ended June 30, 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 six months ended June 30, 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

 

(240,176)

 

21.22

 

(35,070)

 

18.81

Forfeited

 

(4,662)

 

20.61

 

0

 

0

Non-vested at June 30, 2021

 

331,045

$

21.51

 

94,300

$

20.31

Vested but unissued at June 30, 2021

 

214,829

$

21.03

 

102,185

$

20.48

As of June 30, 2021, there was $6.3 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 2.5 years. The total fair value of awards vested for the three months ended June 30, 2021 and 2020 was $0.2 million and $0.1 million, respectively. The total fair value of awards vested for the six months ended June 30, 2021 and 2020 was $5.0 million and $5.1 million, respectively. The vested but unissued RSU and PRSU awards consist of awards made to employees and directors who are eligible for retirement. According to the terms of these awards, which provide for vesting upon retirement, these employees and directors have no risk of forfeiture. These shares will be issued at the original contractual vesting and settlement dates.

Phantom Stock Plan: The Company maintains a non-qualified phantom stock plan as a supplement to its profit sharing plan for officers who have achieved the designated level and completed one year of service. The Company adjusts its liability under this plan to the fair value of the shares at the end of each period.

The following table summarizes the Phantom Stock Plan at or for the six months ended June 30, 2021:

Phantom Stock Plan

    

Shares

    

Fair Value

Outstanding at December 31, 2020

 

120,248

$

16.64

Granted

 

9,042

 

19.52

Forfeited

(11)

18.25

Distributions

 

(1,483)

 

17.15

Outstanding at June 30, 2021

 

127,796

$

21.43

Vested at June 30, 2021

 

127,685

$

21.43

The Company recorded stock-based compensation expense (benefit) for the Phantom Stock Plan of $0.1 million and ($0.2) million for the three months ended June 30, 2021 and 2020, respectively. The total fair value of the distributions from the Phantom Stock Plan was $2,000 and $7,000 for the three months ended June 30, 2021 and 2020, respectively.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The Company recorded stock-based compensation expense (benefit) for the Phantom Stock Plan of $0.6 million and ($1.1) million for the six months ended June 30, 2021 and 2020, respectively. The total fair value of the distributions from the Phantom Stock Plan was $25,000 and $8,000 for the six months ended June 30, 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

 

Six months ended

 

June 30, 

 

June 30, 

(In thousands)

    

2021

    

2020

    

2021

    

2020

Employee Pension Plan:

 

  

 

  

 

  

 

  

Interest cost

$

128

$

163

$

256

$

326

Amortization of actuarial loss

 

122

 

111

 

244

 

222

Expected return on plan assets

 

(274)

 

(257)

 

(548)

 

(514)

Net employee pension (benefit) expense

$

(24)

$

17

$

(48)

$

34

Outside Director Pension Plan:

 

  

 

  

 

  

 

  

Service cost

$

4

$

3

$

8

$

7

Interest cost

 

12

 

16

 

24

 

32

Amortization of actuarial gain

 

(5)

 

(13)

 

(10)

 

(27)

Amortization of past service liability

 

0

 

0

 

0

 

0

Net outside director pension expense

$

11

$

6

$

22

$

12

Other Postretirement Benefit Plans:

 

  

 

  

 

  

 

  

Service cost

$

73

$

68

$

146

$

137

Interest cost

 

58

 

65

 

116

 

130

Amortization of actuarial gain

 

16

 

 

16

 

Amortization of past service credit

 

(21)

 

(23)

 

(43)

 

(43)

Net other postretirement expense

$

126

$

110

$

235

$

224

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 June 30, 2021, the Company had contributed $72,000 to the Outside Director Pension Plan and $70,000 in contributions were made to the Other Postretirement Benefit Plans. As of June 30, 2021, the Company has not revised its expected contributions for the year ending December 31, 2021.

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 June 30, 2021, the Company carried financial assets and financial liabilities under the fair value option with fair values of $14.5 million and $49.8 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 and six months ended June 30, 2021 and 2020.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table presents the financial assets and financial liabilities reported at fair value under the fair value option, and the changes in fair value included in the Consolidated Statement of Income – Net gain (loss) from fair value adjustments, at or for the periods ended as indicated:

Fair Value

Fair Value

Changes in Fair Values For Items Measured at Fair Value

Measurements

Measurements

Pursuant to Election of the Fair Value Option

 

at June 30, 

 

at December 31,

 

Three Months Ended

Six Months Ended

(In thousands)

    

2021

    

2020

    

June 30, 2021

    

June 30, 2020

    

June 30, 2021

June 30, 2020

 

  

 

  

 

  

 

  

 

  

  

  

Mortgage-backed securities

$

441

$

505

$

(1)

$

(1)

$

(2)

$

2

Other securities

 

14,080

 

13,998

 

176

 

(182)

 

1

 

37

Borrowed funds

 

49,814

 

43,136

 

(5,528)

 

10,334

 

(6,988)

 

7,983

Net gain (loss) from fair value adjustments (1)(2)

$

(5,353)

$

10,151

$

(6,989)

$

8,022

(1)The net gain (loss) from fair value adjustments presented in the above table does not include net gains (losses) of ($1.2) million and $0.1 million for the three months ended June 30, 2021 and 2020, respectively, from the change in the fair value of interest rate swaps.
(2)The net gain (loss) from fair value adjustments presented in the above table does not include net gains (losses) of $1.4 million and ($3.8) million for the six months ended June 30, 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 June 30, 2021 and December 31, 2020. The fair value of borrowed funds includes accrued interest payable of $0.1 million each at June 30, 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).

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 June 30, 2021 and December 31, 2020, Level 1 included one mutual fund.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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 June 30, 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 June 30, 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 June 30, 2021 and December 31, 2020: