Company Quick10K Filing
Quick10K
Flushing Financial
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$22.73 28 $641
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-29 Regulation FD, Exhibits
8-K 2019-05-29 Shareholder Vote
8-K 2019-05-07 Regulation FD, Exhibits
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-02-11 Officers, Exhibits
8-K 2019-01-31 Earnings, Exhibits
8-K 2019-01-31 Officers
8-K 2019-01-31 Officers, Exhibits
8-K 2018-12-27 Other Events, Exhibits
8-K 2018-11-20 Regulation FD, Exhibits
8-K 2018-11-01 Regulation FD, Exhibits
8-K 2018-10-23 Earnings, Exhibits
8-K 2018-09-27 Other Events, Exhibits
8-K 2018-08-28 Regulation FD, Exhibits
8-K 2018-07-27 Regulation FD, Exhibits
8-K 2018-07-24 Earnings, Exhibits
8-K 2018-06-27 Other Events, Exhibits
8-K 2018-05-30 Shareholder Vote
8-K 2018-05-24 Other Events
8-K 2018-04-24 Earnings, Exhibits
8-K 2018-04-09 Other Events, Exhibits
8-K 2018-02-27 Regulation FD, Exhibits
8-K 2018-02-21 Other Events
8-K 2018-01-30 Earnings, Exhibits
8-K 2018-01-05 Other Events, Exhibits
WEC WEC Energy Group 24,440
CIT CIT Group 4,960
SILK Silk Road Medical 1,230
FDEF First Defiance Financial 593
TRXC Transenterix 456
SVM Servicemaster Co 365
DUSA Dusa Pharmaceuticals 192
EGI Entree Resources 59
VBLT Vascular Biogenics 45
TOMI Tomi Environmental Solutions 0
FFIC 2019-03-31
Part I - Financial Information
Item 1. Financial Statements
Part I - Financial Information Flushing Financial Corporation and Subsidiariesnotes To Consolidated Financial Statements(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Part I - Financial Information Flushing Financial Corporation and Subsidiaries
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Informatiomtion
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Part II - Other Informatiomtion Flushing Financial Corporation and Subsidiaries
Item 6. Exhibits
EX-31.1 exh_311.htm
EX-31.2 exh_312.htm
EX-32.1 exh_321.htm
EX-32.2 exh_322.htm

Flushing Financial Earnings 2019-03-31

FFIC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 f10q_050819p.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

 

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)

 

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

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ___Yes     X   No

 

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

 

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

 

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

 

 

 

 

TABLE OF CONTENTS

 

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

 

 

 i 

 

PART I – FINANCIAL INFORMATION

 

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Financial Condition

(Unaudited)

Item 1. Financial Statements

 

   March 31,
2019
  December 31,
2018
   (Dollars in thousands, except per share data)
Assets          
Cash and due from banks  $58,677   $118,561 
Securities held-to-maturity:          
Mortgage-backed securities (including assets pledged of $5,030 and $4,796 at March 31, 2019 and at December 31, 2018, respectively; fair value of $7,726 and $7,366 at March 31, 2019 and December 31, 2018, respectively)   7,949    7,953 
Other securities (none pledged; fair value of $22,276 and $22,508 at March 31, 2019 and December 31, 2018, respectively)   22,532    24,065 
Securities available for sale, at fair value:          
Mortgage-backed securities (including assets pledged of $235,682 and $152,670 at March 31, 2019 and December 31, 2018, respectively; $934 and $967 at fair value pursuant to the fair value option at March 31, 2019 and December 31, 2018, respectively)   579,185    557,953 
Other securities (including assets pledged of $13,527 and $28,871 at March 31, 2019 and December 31, 2018, respectively; $13,091 and $12,843 at fair value pursuant to the fair value option at March 31, 2019 and December 31, 2018, respectively)   266,839    264,702 
Loans:          
Multi-family residential   2,256,447    2,269,048 
Commercial real estate   1,529,001    1,542,547 
One-to-four family ― mixed-use property   582,049    577,741 
One-to-four family ― residential   188,615    190,350 
Co-operative apartments   7,903    8,498 
Construction   54,933    50,600 
Small Business Administration   15,188    15,210 
Taxi medallion   3,891    4,539 
Commercial business and other   935,297    877,763 
Net unamortized premiums and unearned loan fees   15,422    15,188 
Allowance for loan losses   (21,015)   (20,945)
Net loans   5,567,731    5,530,539 
Interest and dividends receivable   27,226    25,485 
Bank premises and equipment, net   29,798    30,418 
Federal Home Loan Bank of New York stock, at cost   51,182    57,282 
Bank owned life insurance   131,794    131,788 
Goodwill   16,127    16,127 
Right of Use Asset   44,033     
Other assets   64,377    69,303 
Total assets  $6,867,450   $6,834,176 
           
Liabilities          
Due to depositors:          
Non-interest bearing  $401,064   $413,747 
Interest-bearing   4,609,030    4,502,176 
Total Deposits   5,010,094    4,915,923 
Mortgagors' escrow deposits   70,115    44,861 
Borrowed funds:          
Federal Home Loan Bank advances   999,401    1,134,993 
Subordinated debentures   74,074    74,001 
Junior subordinated debentures, at fair value   42,941    41,849 
Total borrowed funds   1,116,416    1,250,843 
Operating lease liability   52,510     
Other liabilities   58,756    73,085 
Total liabilities   6,307,891    6,284,712 
           
Stockholders' Equity          
Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued)        
Common stock ($0.01 par value; 100,000,000 shares authorized; 31,530,595 shares issued at March 31, 2019 and December 31, 2018;28,187,184 shares and 27,983,637 shares outstanding at March 31, 2019 and December 31, 2018, respectively)   315    315 
Additional paid-in capital   222,859    222,720 
Treasury stock, at average cost (3,343,411 shares and 3,546,958 shares at March 31, 2019 and December 31, 2018, respectively)   (70,929)   (75,146)
Retained earnings   417,856    414,327 
Accumulated other comprehensive loss, net of taxes   (10,542)   (12,752)
Total stockholders' equity   559,559    549,464 
           
Total liabilities and stockholders' equity  $6,867,450   $6,834,176 

 

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

 

 - 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)  2019  2018
    
Interest and dividend income          
Interest and fees on loans  $62,330   $55,017 
Interest and dividends on securities:          
Interest   6,909    5,468 
Dividends   19    14 
Other interest income   555    287 
Total interest and dividend income   69,813    60,786 
           
Interest expense          
Deposits   21,469    12,110 
Other interest expense   6,541    6,067 
Total interest expense   28,010    18,177 
           
Net interest income   41,803    42,609 
Provision for loan losses   972    153 
Net interest income after provision for loan losses   40,831    42,456 
           
Non-interest income          
Banking services fee income   973    948 
Net gain (loss) on sale of loans   63    (263)
Net loss from fair value adjustments   (2,080)   (100)
Federal Home Loan Bank of New York stock dividends   903    876 
Life insurance proceeds   43    776 
Bank owned life insurance   740    762 
Other income   301    201 
Total non-interest income   943    3,200 
           
Non-interest expense          
Salaries and employee benefits   19,166    18,455 
Occupancy and equipment   2,789    2,577 
Professional services   2,265    2,185 
FDIC deposit insurance   485    500 
Data processing   1,492    1,401 
Depreciation and amortization   1,518    1,389 
Other real estate owned/foreclosure expense   77    96 
Other operating expenses   4,627    4,691 
Total non-interest expense   32,419    31,294 
           
Income before income taxes   9,355    14,362 
           
Provision for income taxes          
Federal   1,943    2,607 
State and local   344    343 
Total taxes   2,287    2,950 
           
Net income  $7,068   $11,412 
           
           
Basic earnings per common share  $0.25   $0.39 
Diluted earnings per common share  $0.25   $0.39 
Dividends per common share  $0.21   $0.20 

 

 

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

 

 - 2 - 

 

 

PART I – FINANCIAL INFORMATION

 

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

 

   For the three months ended
March, 31
(In thousands)  2019  2018
       
Net income  $7,068   $11,412 
           
Other comprehensive income (loss), net of tax:          
Amortization of actuarial losses, net of taxes of ($10) and ($41) for the three months ended March 31, 2019 and 2018, respectively .   22    91 
Amortization of prior service credits, net of taxes of $7 and $3 for the three months ended March 31, 2019 and 2018, respectively.   (15)   (7)
Net unrealized gains (losses) on securities, net of taxes of ($2,524) and $3,055 for three months ended March 31, 2019 and 2018, respectively.   5,620    (6,640)
Net unrealized(losses) gains on cash flow hedges, net of taxes of $1,575 and ($2,604) three months ended March 31, 2019 and 2018, respectively .   (3,505)   5,661 
Change in fair value of liabilities related to instrument-specific credit risk, net of taxes of ($39) for the three months ended March 31, 2019.   88     
           
Total other comprehensive income (loss), net of tax   2,210    (895)
           
Comprehensive income  $9,278   $10,517 

 

 

 

 

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

 

 - 3 - 

 

 

PART I – FINANCIAL INFORMATION

 

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

 

   For the three months ended
March 31,
(In thousands)  2019  2018
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income  $7,068   $11,412 
Adjustments to reconcile net income to net cash provided by operating activities:          
Provision for loan losses   972    153 
Depreciation and amortization of bank premises and equipment   1,518    1,389 
Amortization of premium, net of accretion of discount   1,272    2,018 
Net loss from fair value adjustments   2,080    100 
Net loss from fair value adjustments on qualifying hedges   637     
Net (gain) loss from sale of loans   (63)   263 
Income from bank owned life insurance   (740)   (762)
Life insurance proceeds   (43)   (776)
Stock-based compensation expense   3,931    3,452 
Deferred compensation   (938)   (1,238)
Deferred income tax provision   805    350 
Decrease in other liabilities   (3,737)   (118)
Increase in other assets   (942)   (955)
Net cash provided by operating activities   11,820    15,288 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchases of bank premises and equipment   (898)   (1,867)
Net redemptions of Federal Home Loan Bank of New York shares   6,100    6,044 
Purchases of securities held-to-maturity   (180)   (353)
Proceeds from maturities and calls of securities held-to-maturity   1,568     
Proceeds from prepayments of securities held-to-maturity   146     
Purchases of securities available for sale   (45,730)   (32,646)
Proceeds from sales and calls of securities available for sale   13,295    10,000 
Proceeds from maturities and prepayments of securities available for sale   16,788    20,943 
Proceeds from bank owned life insurance   777    2,741 
Net repayments (originations) of loans   16,372    (83,734)
Purchases of loans   (56,995)   (68,818)
Proceeds from sale of loans   1,170    2,464 
Net cash used in investing activities   (47,587)   (145,226)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Net decrease in non-interest bearing deposits   (12,683)   (7,408)
Net increase in interest-bearing deposits   106,788    302,438 
Net increase in mortgagors' escrow deposits   25,254    23,373 
Net repayments from short-term borrowed funds   (84,250)   (10,500)
Repayment of long-term borrowings   (51,310)   (123,794)
Purchases of treasury stock   (1,877)   (7,963)
Proceeds from issuance of common stock upon exercise of stock options   3     
Cash dividends paid   (6,042)   (5,795)
Net cash (used) provided by financing activities   (24,117)   170,351 
           
Net (decrease) increase in cash and cash equivalents   (59,884)   40,413 
Cash and cash equivalents, beginning of period   118,561    51,546 
Cash and cash equivalents, end of period  $58,677   $91,959 
           
SUPPLEMENTAL CASH FLOW DISCLOSURE          
Interest paid  $25,830   $15,233 
Income taxes paid   1,141    1,103 
Taxes paid if excess tax benefits were not tax deductible   1,072    1,691 
Non-cash activities:          
Loans transferred to Other Real Estate Owned or Other Assets       744 
Reclassification of the Income tax effects of Tax Cuts and Jobs Act from AOCI to Retained Earnings       2,073 

 

 

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

 

 - 4 - 

 

 

PART I – FINANCIAL INFORMATION

 

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

For the three months ended March 31, 2019 and 2018

(Unaudited)

 

(Dollars in thousands, except per share data)  Total  Common
Stock
  Additional
Paid-in Capital
  Retained
Earnings
  Treasury
Stock
  Accumulated Other
Comprehensive
Income (Loss)
                   
Balance at December 31, 2018  $549,464   $315   $222,720   $414,327   $(75,146)  $(12,752)
                               
Impact of adoption of ASC 842 - Leases   2,716            2,716         
Net income   7,068            7,068         
Award of common shares released from Employee Benefit Trust (138,775 shares)   2,086        2,086             
Vesting of restricted stock unit awards (287,155 shares)           (5,878)   (210)   6,088     
Exercise of stock options (300 shares)   3            (3)   6     
Stock-based compensation expense   3,931        3,931             
Repurchase of shares to satisfy tax obligation (83,908 shares)   (1,877)               (1,877)    
Dividends on common stock ($0.21 per share)   (6,042)           (6,042)        
Other comprehensive income   2,210                    2,210 
Balance at March 31, 2019  $559,559   $315   $222,859   $417,856   $(70,929)  $(10,542)
                               
                               
Balance at December 31, 2017  $532,608   $315   $217,906   $381,048   $(57,675)  $(8,986)
Reclassification of the Income Tax Effects of the Tax Cuts and Jobs Act from Accumulated Other Comprehensive Income (Loss) to Retained Earnings               2,073        (2,073)
Impact of adoption of Accounting Standard  Update 2016-01               (775)       775 
Net income   11,412            11,412         
Award of common shares released from Employee Benefit Trust (116,229 shares)   2,488        2,488             
Vesting of restricted stock unit awards (248,877 shares)           (4,731)   (170)   4,901     
Stock-based compensation expense   3,452        3,452             
Purchase of treasury shares (217,863 shares)   (5,913)               (5,913)    
Repurchase of shares to satisfy tax obligation (72,837 shares)   (2,050)               (2,050)    
Dividends on common stock ($0.20 per share)   (5,795)           (5,795)        
Other comprehensive loss   (895)                   (895)
Balance at March 31, 2018  $535,307   $315   $219,115   $387,793   $(60,737)  $(11,179)

 

 

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

 

 - 5 - 

 

 

PART I – FINANCIAL INFORMATION

 

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

1.Basis of Presentation

 

The primary business of Flushing Financial Corporation (the “Holding Company”), a Delaware corporation, is the operation of its wholly owned subsidiary, Flushing Bank (the “Bank”).

 

The unaudited consolidated financial statements presented in this Quarterly Report on Form 10-Q (“Quarterly Report”) include the collective results of the Holding Company and its direct and indirect wholly-owned subsidiaries, including the Bank, Flushing Preferred Funding Corporation, Flushing Service Corporation, and FSB Properties Inc., which are collectively herein referred to as “we,” “us,” “our” and the “Company.”

 

The Holding Company also owns Flushing Financial Capital Trust II, Flushing Financial Capital Trust III, and Flushing Financial Capital Trust IV (the “Trusts”), which are special purpose business trusts. The Trusts are not included in the Company’s consolidated financial statements, as the Company would not absorb the losses of the Trusts if any losses were to occur.

 

The accompanying unaudited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and general practices within the banking industry. The information furnished in these interim statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for such presented periods of the Company. Such adjustments are of a normal recurring nature, unless otherwise disclosed in this Quarterly Report. All inter-company balances and transactions have been eliminated in consolidation. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for the full year.

 

The accompanying unaudited consolidated financial statements have been prepared in conformity with the instructions to Quarterly Report on Form 10-Q and Article 10, Rule 10-01 of Regulation S-X for interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited consolidated interim financial information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

 

When necessary, certain reclassifications were made to prior-year amounts to conform to the current-year presentation.

 

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 are used in connection with the determination of the allowance for loan losses (“ALLL”), the evaluation of goodwill for impairment, the review of the need for a valuation allowance of the Company’s deferred tax assets, the fair value of financial instruments and the evaluation of other-than-temporary impairment (“OTTI”) on securities. Actual results could differ from these estimates.

 

3.Earnings Per Share

 

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

 

   For the three months ended 
 March 31,
   2019  2018
   (Dollars in thousands, except per share data)
Net income, as reported  $7,068   $11,412 
Divided by:          
Weighted average common shares outstanding   28,621    28,974 
Weighted average common stock equivalents       1 
Total weighted average common shares outstanding and common stock equivalents   28,621    28,975 
           
Basic earnings per common share  $0.25   $0.39 
Diluted earnings per common share (1)  $0.25   $0.39 
Dividend payout ratio   84.0%   51.3%

 

(1)For the three months ended March 31, 2019 and 2018, there were no common stock equivalents that were anti-dilutive.

 

 - 6 - 

 

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

 

4.Securities

 

The Company did not hold any trading securities at March 31, 2019 and December 31, 2018. Securities available for sale are recorded at fair value. Securities held-to-maturity are recorded at amortized cost.

 

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

 

   Amortized
Cost
  Fair Value  Gross
Unrealized
Gains
  Gross
Unrealized
Losses
   (In thousands)
Securities held-to-maturity:                    
Municipals  $22,532   $22,276   $   $256 
                     
Total other securities   22,532    22,276        256 
                     
FNMA   7,949    7,726        223 
                     
Total mortgage-backed securities   7,949    7,726        223 
Total  $30,481   $30,002   $   $479 

 

 

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

 

   Amortized
Cost
  Fair Value  Gross
Unrealized
Gains
  Gross
Unrealized
Losses
   (In thousands)
Securities held-to-maturity:                    
Municipals  $24,065   $22,508   $   $1,557 
                     
Total other securities   24,065    22,508        1,557 
                     
FNMA   7,953    7,366        587 
                     
Total mortgage-backed securities   7,953    7,366        587 
         Total  $32,018   $29,874   $   $2,144 

 

 - 7 - 

 

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

 

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

 

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

 

 

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

 

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

 

 

We did not hold any private issue CMO’s that are collateralized by commercial real estate mortgages at March 31, 2019 and December 31, 2018.

 

The corporate securities held by the Company at March 31, 2019 and December 31, 2018 are issued by U.S. banking institutions.

 

 - 8 - 

 

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

 

The following tables detail the amortized cost and fair value of the Company’s securities classified as held-to-maturity and available for sale at March 31, 2019, 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.

 

Securities held-to-maturity:  Amortized
Cost
  Fair Value
   (In thousands)
       
Due in one year or less  $1,180   $1,180 
Due after ten years   21,352    21,096 
           
Total other securities   22,532    22,276 
Mortgage-backed securities   7,949    7,726 
           
Total  $30,481   $30,002 

 

 

Securities available for sale:  Amortized
Cost
  Fair Value
   (In thousands)
       
Due after one year through five years  $10,000   $9,587 
Due after five years through ten years   131,963    123,717 
Due after ten years   122,409    121,733 
           
Total other securities   264,372    255,037 
Mutual funds   11,802    11,802 
Mortgage-backed securities   584,384    579,185 
           
Total  $860,558   $846,024 

 

 - 9 - 

 

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, 2019
      Total  Less than 12 months  12 months or more
   Count  Fair Value  Unrealized
Losses
  Fair Value  Unrealized
Losses
  Fair Value  Unrealized
Losses
      (Dollars in thousands)
                      
Held-to-maturity securities                                   
Municipals   1   $21,096   $256   $   $   $21,096   $256 
Total other securities   1    21,096    256            21,096    256 
                                    
FNMA   1    7,726    223            7,726    223 
Total mortgage-backed securities   1    7,726    223            7,726    223 
Total   2   $28,822   $479   $   $   $28,822   $479 
                                    
                                    
Available for sale securities                                   
Corporate   16   $121,382   $8,618   $19,419   $581   $101,963   $8,037 
CLO   11    85,896    1,016    85,896    1,016         
Total other securities   27    207,278    9,634    105,315    1,597    101,963    8,037 
                                    
REMIC and CMO   36    215,761    5,351    20,259    79    195,502    5,272 
FNMA   12    77,992    1,465            77,992    1,465 
FHLMC   3    50,602    861    9,657    97    40,945    764 
Total mortgage-backed securities   51    344,355    7,677    29,916    176    314,439    7,501 
Total   78   $551,633   $17,311   $135,231   $1,773   $416,402   $15,538 

 

 

   At December 31, 2018
      Total  Less than 12 months  12 months or more
   Count  Fair Value  Unrealized
Losses
  Fair Value  Unrealized
Losses
  Fair Value  Unrealized
Losses
   (Dollars in thousands)
Held-to-maturity securities                                   
                                    
Municipals   1   $19,940   $1,557   $   $   $19,940   $1,557 
Total other securities   1    19,940    1,557            19,940    1,557 
                                    
FNMA   1    7,366    587            7,366    587 
Total mortgage-backed  securities   1    7,366    587            7,366    587 
                                    
Total securities held-to-maturity   2   $27,306   $2,144   $   $   $27,306   $2,144 
                                    
Available for sale securities                                   
Corporate   16   $118,535   $11,465   $19,113   $888   $99,422   $10,577 
Municipals   3    4,220        4,220             
CLO   11    86,752    1,645    86,752    1,645         
Total other securities   30    209,507    13,110    110,085    2,533    99,422    10,577 
                                    
REMIC and CMO   39    243,756    7,177    17,308    200    226,448    6,977 
GNMA   1    51        51             
FNMA   14    85,046    2,448    6,372    17    78,674    2,431 
FHLMC   3    51,288    1,396    10,116    95    41,172    1,301 
Total mortgage-backed  securities   57    380,141    11,021    33,847    312    346,294    10,709 
Total securities available for sale   87   $589,648   $24,131   $143,932   $2,845   $445,716   $21,286 

 

 - 10 - 

 

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

 

OTTI losses on impaired securities must be fully recognized in earnings if an investor has the intent to sell the debt security or if it is more likely than not that the investor will be required to sell the debt security before recovery of its amortized cost. However, even if an investor does not expect to sell a debt security in an unrealized loss position, the investor must evaluate the expected cash flows to be received and determine if a credit loss has occurred. In the event that a credit loss has occurred, only the amount of impairment associated with the credit loss is recognized in earnings in the Consolidated Statements of Income. Amounts relating to factors other than credit losses are recorded in accumulated other comprehensive loss (“AOCL”) within Stockholders’ Equity. Unrealized losses on available for sale securities, that are deemed to be temporary, are recorded in AOCL, net of tax.

 

The Company reviewed each investment that had an unrealized loss at March 31, 2019 and December 31, 2018. The unrealized losses in held-to-maturity municipal securities at March 31, 2019 and December 31, 2018 were caused by illiquidity in the market and movements in interest rates. The unrealized losses in held-to-maturity FNMA securities at March 31, 2019 and December 31, 2018 were caused by movements in interest rates. The unrealized losses in securities available for sale at March 31, 2019 and December 31, 2018 were caused by movements in interest rates.

 

It is not anticipated that these securities would be settled at a price that is less than the amortized cost of the Company’s investment. Each of these securities is performing according to its terms and, in the opinion of management, will continue to perform according to its terms. The Company does not have the intent to sell these securities and it is more likely than not the Company will not be required to sell the securities before recovery of the securities’ amortized cost basis. This conclusion is based upon considering the Company’s cash and working capital requirements and contractual and regulatory obligations, none of which the Company believes would cause the sale of the securities. Therefore, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2019 and December 31, 2018.

 

Realized gains and losses on the sales of securities are determined using the specific identification method. The Company did not sell any securities during the three months ended March 31, 2019 and 2018.

 

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. The accrual of income on loans is generally discontinued when certain factors, such as contractual delinquency of 90 days or more, indicate reasonable doubt as to the timely collectability of such income. Uncollected interest previously recognized on non-accrual loans is reversed from interest income at the time the loan is placed on non-accrual status. A non-accrual loan can be returned to accrual status when contractual delinquency returns to less than 90 days delinquent. Payments received on non-accrual loans that do not bring the loan to less than 90 days delinquent are recorded on a cash basis. Payments can also be applied first as a reduction of principal until all principal is recovered and then subsequently to interest, if in management’s opinion, it is evident that recovery of all principal due is likely to occur.

 

The Company recognizes a loan as non-performing when the borrower has demonstrated the inability to bring the loan current, or due to other circumstances which, in management’s opinion, indicate the borrower will be unable to bring the loan current within a reasonable time. All loans classified as non-performing, which includes all loans past due 90 days or more, are classified as non-accrual unless the loan is well secured and there is, in our opinion, compelling evidence the borrower will bring the loan current in the immediate future. Prior to a real estate secured loan becoming 90 days delinquent, an updated appraisal is ordered and/or an internal evaluation is prepared.

 

A loan is considered impaired when, based upon current information, the Company believes it is probable that it will be unable to collect all amounts due, both principal and interest, in accordance with the original terms of the loan. Impaired loans are measured based on the present value of the expected future cash flows discounted at the loan’s effective interest rate or at the loan’s observable market price or, as a practical expedient, the fair value of the collateral if the loan is collateral dependent. All non-accrual loans are considered impaired.

 

The Company maintains an allowance for loan losses at an amount, which, in management’s judgment, is adequate to absorb probable estimated losses inherent in the loan portfolio. Management’s judgment in determining the adequacy of the allowance is based on evaluations of the collectability of loans. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revisions as more information becomes available. An unallocated component may at times be maintained to cover uncertainties that could affect management's estimate of probable losses. When necessary an unallocated component of the allowance will reflect the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. The allowance is established through charges to earnings in the form of a provision for loan losses based on management’s evaluation of the risk inherent in the various components of the loan portfolio and other factors, including historical loan loss experience (which is updated quarterly), current economic conditions, delinquency and non-accrual trends, classified loan levels, risk in the portfolio and volumes and trends in loan types, recent trends in charge-offs, changes in underwriting standards, experience, ability and depth of the Company’s lenders, collection policies and experience, internal loan review function and other external factors. When a loan or a portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance, and subsequent recoveries, if any, are credited to the allowance.

 

 - 11 - 

 

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

 

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

 

The Company reviews each impaired loan on an individual basis to determine if either a charge-off or a valuation allowance needs to be allocated to the loan. The Company does not charge-off or allocate a valuation allowance to loans for which management has concluded the current value of the underlying collateral will allow for recovery of the loan balance through the sale of the loan or by foreclosure and sale of the property.

 

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

 

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

 

The Company may restructure a loan to enable a borrower experiencing financial difficulties to continue making payments when it is deemed to be in the Company’s best long-term interest. This restructure may include reducing the interest rate or amount of the monthly payment for a specified period of time, after which the interest rate and repayment terms revert to the original terms of the loan. We classify these loans as Troubled Debt Restructured (“TDR”).

 

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

 

The allocation of a portion of the allowance for loan losses for a performing TDR loan is based upon the present value of the future expected cash flows discounted at the loan’s original effective rate, or for a non-performing TDR loan which is collateral dependent, the fair value of the collateral. At March 31, 2019, there were no 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 no loan modifications as TDR during three months ended March 31, 2019 and 2018.

 

 - 12 - 

 

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

 

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

 

   March 31, 2019  December 31, 2018
(Dollars in thousands)  Number
 of contracts
  Recorded
investment
  Number
 of contracts
  Recorded
investment
             
Multi-family residential   7   $1,906    7   $1,916 
One-to-four family - mixed-use property   5    1,674    5    1,692 
One-to-four family - residential   3    547    3    552 
Taxi medallion (1)   10    2,518    15    3,926 
Commercial business and other           1    279 
Total performing troubled debt restructured   25   $6,645    31   $8,365 

 

(1) Taxi medallion loans in the table above continue to pay as agreed, however the company records interest received on a cash basis.

 

During the three months ended March 31, 2019 and 2018, there were no defaults of TDR loans within 12 months of their modification date.

 

The following table shows our recorded investment for loans classified as TDR that are not performing according to their restructured terms at the periods indicated:

 

   March 31, 2019  December 31, 2018
(Dollars in thousands)  Number
 of contracts
  Recorded
investment
  Number
 of contracts
  Recorded
investment
             
Multi-family residential   1   $383    1   $388 
Taxi medallion   3    768         
Commercial business and other   2    852    1    1,397 
Total troubled debt restructurings that subsequently defaulted   6   $2,003    2   $1,785 

 

Four TDR loans were transferred to non-performing status during the three ended March 31, 2019. During the three months ended March 31, 2018, one taxi medallion TDR was foreclosed upon and transferred to non-performing status. The three taxi medallion loans transferred to non-performing status during the three months ended March 31, 2019, were transferred due to the loans being over 90 days past their contractual maturity date, however these loans continue to make payments.

 

 - 13 - 

 

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

 

The following table shows our non-performing loans at the periods indicated:

 

(In thousands)  March 31, 
2019
  December 31, 
2018
       
Non-accrual mortgage loans:          
Multi-family residential  $2,009   $2,410 
Commercial real estate   1,050    1,379 
One-to-four family - mixed-use property   1,305    928 
One-to-four family - residential   5,708    6,144 
Construction   950     
Total   11,022    10,861 
           
Non-accrual non-mortgage loans:          
Small Business Administration   1,227    1,267 
Taxi medallion   1,372    613 
Commercial business and other   2,114    3,512 
Total   4,713    5,392 
           
Total non-accrual loans   15,735    16,253 
           
Total non-performing loans  $15,735   $16,253 

 

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,
   2019  2018
   (In thousands)
Interest income that would have been recognized had the loans performed in accordance with their original terms  $394   $406 
Less:  Interest income included in the results of operations   118    158 
Total foregone interest  $276   $248 

 

 - 14 - 

 

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

 

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

 

   March 31, 2019
(In thousands)  30 - 59 Days
Past Due
  60 - 89 Days
Past Due
  Greater
than
90 Days
  Total Past
Due
  Current  Total Loans
    
                   
Multi-family residential  $683   $   $2,009   $2,692   $2,253,755   $2,256,447 
Commercial real estate   786    1,794    1,050    3,630    1,525,371    1,529,001 
One-to-four family - mixed-use property   1,212        1,025    2,237    579,812    582,049 
One-to-four family - residential   1,532    155    5,708    7,395    181,220    188,615 
Co-operative apartments                   7,903    7,903 
Construction loans           950    950    53,983    54,933 
Small Business Administration           1,227    1,227    13,961    15,188 
Taxi medallion           768    768    3,123    3,891 
Commercial business and other   508    1,299    2,114    3,921    931,376    935,297 
Total  $4,721   $3,248   $14,851   $22,820   $5,550,504   $5,573,324 

 

 

   December 31, 2018
(In thousands)  30 - 59 Days
Past Due
  60 - 89 Days
Past Due
  Greater
than
90 Days
  Total Past
Due
  Current  Total Loans
    
                   
Multi-family residential  $1,887   $339   $2,410   $4,636   $2,264,412   $2,269,048 
Commercial real estate   379        1,379    1,758    1,540,789    1,542,547 
One-to-four family - mixed-use property   1,003    322    928    2,253    575,488    577,741 
One-to-four family - residential   1,564        6,144    7,708    182,642    190,350 
Co-operative apartments                   8,498    8,498 
Construction loans       730        730    49,870    50,600 
Small Business Administration   774    68    1,267    2,109    13,101    15,210 
Taxi medallion                   4,539    4,539 
Commercial business and other   1,306    281    2,216    3,803    873,960    877,763 
Total  $6,913   $1,740   $14,344   $22,997   $5,513,299   $5,536,296 

 

 - 15 - 

 

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, 2019
(In thousands)  Multi-family
residential
  Commercial
real estate
  One-to-four
family -
mixed-use
property
  One-to-four
family -
residential
  Construction
loans
  Small Business
Administration
  Taxi
medallion
  Commercial
business and
other
  Total
                            
Allowance for credit losses:                                             
Beginning balance  $5,676   $4,315   $1,867   $749   $329   $418   $   $7,591   $20,945 
Charge-off's           (1)                   (1,137)   (1,138)
Recoveries   13        86    4        4    84    45    236 
Provision (Benefit)   (196)   (37)   (161)   (22)   22    (13)   (84)   1,463    972 
Ending balance  $5,493   $4,278   $1,791   $731   $351   $409   $   $7,962   $21,015 

 

 

March 31, 2018
(In thousands)  Multi-family
residential
  Commercial
real estate
  One-to-four
family -
mixed-use
property
  One-to-four
family -
residential
  Construction
loans
  Small Business
Administration
  Taxi
medallion
  Commercial
business and
other
  Total
                            
Allowance for credit losses:                                             
Beginning balance  $5,823   $4,643   $2,545   $1,082   $68   $669   $   $5,521   $20,351 
Charge-off's   (53)           (1)       (25)       (6)   (85)
Recoveries   2            108        6        7    123 
Provision (Benefit)   (22)   (41)   (75)   (148)   123    25        291    153 
Ending balance  $5,750   $4,602   $2,470   $1,041   $191   $675   $   $5,813   $20,542 

 

 - 16 - 

 

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

 

The following tables show the manner in which loans were evaluated for impairment at the periods indicated:

 

March 31, 2019
(In thousands)  Multi-family
residential
  Commercial
real estate
  One-to-four
family - mixed-
use property
  One-to-four
family-
residential
  Co-operative
apartments
  Construction
loans
  Small Business
Administration
  Taxi
medallion
  Commercial
business and
other
  Total
Financing Receivables:                                                  
Ending Balance  $2,256,447   $1,529,001   $582,049   $188,615   $7,903   $54,933   $15,188   $3,891   $935,297   $5,573,324 
Ending balance: individually evaluated for impairment  $4,104   $1,097   $2,987   $6,463   $   $950   $1,227   $3,891   $2,114   $22,833 
Ending balance: collectively evaluated for impairment  $2,252,343   $1,527,904   $579,062   $182,152   $7,903   $53,983   $13,961   $   $933,183   $5,550,491 
Allowance for credit losses:                                                  
Ending balance: individually evaluated for impairment  $98   $   $54   $50   $   $   $   $   $178   $380 
Ending balance: collectively evaluated for impairment  $5,395   $4,278   $1,737   $681   $   $351   $409   $   $7,784   $20,635 

 

December 31, 2018
(In thousands)  Multi-family
residential
  Commercial
real estate
  One-to-four
family - mixed-
use property
  One-to-four
family-
residential
  Co-operative
apartments
  Construction
loans
  Small Business
Administration
  Taxi
medallion
  Commercial
business and
other
  Total
Financing Receivables:                                                  
Ending Balance  $2,269,048   $1,542,547   $577,741   $190,350   $8,498   $50,600   $15,210   $4,539   $877,763   $5,536,296 
Ending balance: individually evaluated for impairment   $4,500   $1,435   $3,098   $6,889   $   $   $1,267   $4,539   $3,791   $25,519 
Ending balance: collectively evaluated for impairment   $2,264,548   $1,541,112   $574,643   $183,461   $8,498   $50,600   $13,943   $   $873,972   $5,510,777 
Allowance for credit losses:                                                  
Ending balance: individually evaluated for impairment   $100   $   $143   $51   $   $   $   $   $866   $1,160 
Ending balance: collectively evaluated for impairment   $5,576   $4,315   $1,724   $698   $   $329   $418   $   $6,725   $19,785 

 

 - 17 - 

 

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

 

The following table shows our recorded investment, unpaid principal balance and allocated allowance for loan losses for impaired loans at the periods indicated:

 

   March 31, 2019  December 31, 2018
   Recorded  
Investment
  Unpaid 
 Principal 
Balance
  Related
Allowance
  Recorded  
Investment
  Unpaid 
 Principal 
Balance
  Related
Allowance
    
   (In thousands)
With no related allowance recorded:                              
Mortgage loans:                              
Multi-family residential  $2,835   $3,179   $   $3,225   $3,568   $ 
Commercial real estate   1,097    1,097        1,435    1,435     
One-to-four family mixed-use property   1,983    2,123        1,913    2,113     
One-to-four family residential   6,068    6,221        6,490    6,643     
Construction   950    950                 
Non-mortgage loans:                              
Small Business Administration   1,227    1,499        1,267    1,609     
Taxi medallion   3,891    11,049        4,539    12,788     
Commercial business and other   1,223    2,352                 
                               
Total loans with no related allowance recorded   19,274    28,470        18,869    28,156     
                               
With an allowance recorded:                              
Mortgage loans:                              
Multi-family residential   1,269    1,269    98    1,275    1,275    100 
One-to-four family mixed-use property   1,004    1,004    54    1,185    1,185    143 
One-to-four family residential   395    395    50    399    399    51 
Non-mortgage loans:                              
Commercial business and other   891    891    178    3,791    3,791    866 
                               
Total loans with an allowance recorded   3,559    3,559    380    6,650    6,650    1,160 
                               
Total Impaired Loans:                              
Total mortgage loans  $15,601   $16,238   $202   $15,922   $16,618   $294 
                               
Total non-mortgage loans  $7,232   $15,791   $178   $9,597   $18,188   $866 

  

 - 18 - 

 

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

 

The following table shows our average recorded investment and interest income recognized for impaired loans for the three months ended:

 

   March 31, 2019  March 31, 2018
   Average
 Recorded  
Investment
  Interest
Income
Recognized
  Average
 Recorded  
Investment
  Interest
Income
Recognized
             
   (In thousands)
With no related allowance recorded:                    
Mortgage loans:                    
Multi-family residential  $3,031   $9   $4,834   $20 
Commercial real estate   1,266        6,915    74 
One-to-four family mixed-use property   1,948    17    4,297    41 
One-to-four family residential   6,279    2    8,855    15 
Construction   475             
Non-mortgage loans:                    
Small Business Administration   1,247        118    1 
Taxi medallion   4,215    58    6,726    82 
Commercial business and other   611        196    2 
                     
Total loans with no related allowance recorded   19,072    86    31,941    235 
                     
With an allowance recorded:                    
Mortgage loans:                    
Multi-family residential   1,272    18    2,214    29 
Commercial real estate           993     
One-to-four family mixed-use property   1,095    10    1,222    9 
One-to-four family residential   397    4    413    4 
Non-mortgage loans:                    
Taxi medallion                
Commercial business and other   2,341        338    5 
                     
Total loans with an allowance recorded   5,105    32    5,180    47 
                     
Total Impaired Loans:                    
Total mortgage loans  $15,763   $60   $29,743   $192 
                     
Total non-mortgage loans  $8,414   $58   $7,378   $90 

 

 - 19 - 

 

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

 

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

 

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

 

   March 31, 2019
(In thousands)  Special Mention  Substandard  Doubtful  Loss  Total
                
Multi-family residential  $1,322   $3,938   $   $   $5,260 
Commercial real estate   374    3,635            4,009 
One-to-four family - mixed-use property   1,341    1,937            3,278 
One-to-four family - residential   297    6,156            6,453 
Construction       950            950 
Small Business Administration   473    121            594 
Taxi medallion       3,891            3,891 
Commercial business and other   4,293    16,632    1,834        22,759 
Total loans  $8,100   $37,260   $1,834   $   $47,194 

 

   December 31, 2018
(In thousands)  Special Mention  Substandard  Doubtful  Loss  Total
                
Multi-family residential  $2,498   $4,166   $   $   $6,664 
Commercial real estate   381    4,051            4,432 
One-to-four family - mixed-use property   1,199    2,034            3,233 
One-to-four family - residential   557    6,665            7,222 
Construction   730                730 
Small Business Administration    481    139            620 
Taxi medallion       4,539            4,539 
Commercial business and other   730    21,348    3,512        25,590 
Total loans  $6,576   $42,942   $3,512   $   $53,030 

 

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

 

 - 20 - 

 

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, 2019 and December 31, 2018, the Bank did not have any loans held for sale.

 

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

 

The following tables show loans sold during the period indicated:

 

   For the three months ended March 31, 2019
(Dollars in thousands)  Loans sold  Proceeds  Net Recoveries
(Charge-offs)
  Net gain
Delinquent and non-performing loans                    
Multi-family residential   2   $765   $   $63 
One-to-four family - mixed-use property   1    405    (1)    
                     
Total   3   $1,170   $(1)  $63 

 

   For the three months ended March 31, 2018
          
(Dollars in thousands)  Loans sold  Proceeds  Net loss
Delinquent and non-performing loans               
Multi-family residential   3   $964   $ 
Commercial real estate   1    1,500    (263)
                
Total   4   $2,464   $(263)

 

7. Other Real Estate Owned

 

During the three months ended March 31, 2019, we did not foreclose on any residential real estate property. We did not hold any foreclosed properties at March 31, 2019 and December 31, 2018. Included within net loans as of March 31, 2019 and December 31, 2018 was a recorded investment of $6.7 million and $7.2 million, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction.

 

 

 - 21 - 

 

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

 

8. Leases

 

The Company has 19 operating leases for branches and office spaces, nine operating leases for vehicles, and two operating leases for equipment. Our leases have remaining lease terms ranging from one month to 13 years, none of which has a renewal option reasonably certain of exercise, which has been reflected in the Company’s calculation of lease term.

 

The Company has elected the short-term lease recognition exemption such that the Company will not recognize ROU assets or lease liabilities for leases with a term of less than 12 months from the commencement date. The Company has one agreement that qualifies as a short-term lease with expense totaling $34,000 for the three months ended March 31, 2019, included in Professional services on the Consolidated Statements of Income. The Company has $0.2 million in variable lease payments, which include insurance and real estate tax expenses for the three months ended March 31, 2019. At March 31, 2019, the weighted-average remaining lease term for our operating leases is eight years and the weighted average discount rate is 3.8%. At March 31, 2019, there were no significant leases entered into but not yet commenced. Our lease agreements do not contain any residual value guarantees.

 

(Dollars in thousands)  Three months ended
March 31, 2019
    
Operating lease ROU assets  $44,033 
      
Operating lease liabilities  $52,510 
      
Lease Cost     
Operating lease cost  $1,892 
Short-term lease cost   34 
Variable lease cost   246 
Total lease cost  $2,172 
      
Other information     
Cash paid for amounts included in the measurement of lease liabilities     
Operating cash flows from operating leases  $2,025 
Right-of-use assets obtained in exchange for new operating lease liabilities  $21 
Weighted-average remaining lease term-operating leases (in years)   8.0 
Weighted average discount rate-operating leases   3.8%

 

 

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

 

     Minimum Rental  
    (In thousands) 
Years ended December 31:     
2019  $5,783 
2020   8,289 
2021   7,501 
2022   7,090 
2023   7,229 
Thereafter   25,490 
Total minimum payments required   61,382 
Less: implied interest   8,872 
Total lease obligations  $52,510 

 

Certain leases have escalation clauses for operating expenses and real estate taxes. The Company’s non-cancelable operating lease agreements expire through 2032.

 - 22 - 

 

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

 

9.  Stock-Based Compensation

 

On January 31, 2019, the Board of Directors approved a 2019 long-term incentive compensation program for certain Company executive officers that includes grants of performance-based restricted stock units (“PRSUs”) in addition to time-based restricted stock units (“RSU”). Under the terms of the PRSU Agreement, the number of PRSUs that may be earned depends on the extent to which performance goals for the award are achieved over a three-year performance period, as determined by the Compensation Committee of the Board. The number of PRSUs that may be earned ranges from 0% to 150% of the target award, with no PRSUs earned for below threshold-level performance, 50% of PRSUs earned for threshold-level performance, 100% of PRSUs earned for target-level performance, and 150% of PRSUs earned for maximum-level performance.

 

For the three months ended March 31, 2019 and 2018, the Company’s net income, as reported, included $4.0 million and $3.4 million, respectively, of stock-based compensation costs and $1.0 million and $0.7 million of income tax benefits, respectively, related to the stock-based compensation plans in each of the periods. During the three months ended March 31, 2019, the Company granted 263,574 and 57,870 in RSU awards and PRSU awards, respectively. During the three months ended March 31, 2018, the Company granted 274,990 in RSU awards. There were no stock options granted during the three months ended March 31, 2019 and 2018. The Company has not granted stock options since 2009 and at March 31, 2019, had none outstanding.

 

The Company uses the fair value of the common stock on the date of award to measure compensation cost for restricted stock unit awards. Compensation cost is recognized over the vesting period of the award using the straight-line method.

 

The following table summarizes the Company’s RSU and PRSU awards at or for the three months ended March 31, 2019 :

 

   RSU Awards  PRSU Awards
   Shares  Weighted-Average
Grant-Date
Fair Value
  Shares  Weighted-Average
Grant-DateFair Value
             
Non-vested at December 31, 2018   502,658   $24.93       $ 
Granted   263,574    22.38    57,870    22.38 
Vested   (248,579)   23.17    (27,110)   22.38 
Forfeited   (7,270)   24.94         
Non-vested at March 31, 2019   510,383   $24.47    30,760   $22.38 
                     
Vested but unissued at March 31, 2019   209,148   $24.64    21,310   $22.38 

 

As of March 31, 2019, there was $11.7 million of total unrecognized compensation cost related to RSU and PRSU awards granted. That cost is expected to be recognized over a weighted-average period of 3.6 years. The total fair value of awards vested for the three months ended March 31, 2019 and 2018 was $6.1 million and $6.7 million, respectively. The vested but unissued RSU 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 three months ended March 31, 2019:

 

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

 

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

 

 - 23 - 

 

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

 

10.  Pension and Other Postretirement Benefit Plans

 

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

 

   Three months ended
March 31,
(In thousands)  2019  2018
       
Employee Pension Plan:          
Interest cost  $199   $195 
Amortization of unrecognized loss   67    155 
Expected return on plan assets   (272)   (363)
Net employee pension benefit  $(6)  $(13)
           
Outside Director Pension Plan:          
Service cost  $10   $11 
Interest cost   21    20 
Amortization of unrecognized gain   (35)   (23)
Amortization of past service liability       3 
Net outside director pension (benefit) expense  $(4)  $11 
           
Other Postretirement Benefit Plans:          
Service cost  $70   $88 
Interest cost   85    77 
Amortization of past service credit   (22)   (13)
Net other postretirement expense  $133   $152 

 

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

 

 

11. Fair Value of Financial Instruments

 

The Company carries certain financial assets and financial liabilities at fair value in accordance with GAAP which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP permits entities to choose to measure many financial instruments and certain other items at fair value. At March 31, 2019, the Company carried financial assets and financial liabilities under the fair value option with fair values of $14.0 million and $42.9 million, respectively. At December 31, 2018, the Company carried financial assets and financial liabilities under the fair value option with fair values of $13.8 million and $41.8 million, respectively. The Company did not elect to carry any additional financial assets or financial liabilities under the fair value option during the three ended March 31, 2019.

 

 - 24 - 

 

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

 

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

 

     Fair Value      Fair Value     

Changes in Fair Values

For Items Measured at Fair Value

     Measurements      Measurements      Pursuant to Election of the Fair Value Option
     at March 31,      at December 31,      Three Months Ended
(In thousands)    2019      2018      March 31, 2019      March 31, 2018  
             
Mortgage-backed securities  $934   $967   $1   $(11)
Other securities   13,091    12,843    179    (138)
Borrowed funds   42,941    41,849    (1,210)   (1,681)
Net loss from fair value adjustments (1)            $(1,030)  $(1,830)

 

 

(1)The net loss from fair value adjustments presented in the above table does not include net (losses) gains of ($1.1) million and $1.7 million for the three months ended March 31, 2019 and 2018, respectively, from the change in the fair value of interest rate swaps.

 

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

 

The borrowed funds had a contractual principal amount of $61.9 million at both March 31, 2019 and December 31, 2018. The fair value of borrowed funds includes accrued interest payable of $0.3 million and $0.2 million at March 31, 2019 and December 31, 2018, respectively.

 

The Company generally holds its earning assets, other than securities available for sale, to maturity and settles its liabilities at maturity. However, fair value estimates are made at a specific point in time and are based on relevant market information. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular instrument. Accordingly, as assumptions change, such as interest rates and prepayments, fair value estimates change and these amounts may not necessarily be realized in an immediate sale.

 

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

 

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

 

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

 

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

 

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

 

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

- 25 -

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

Level 3 – when there is limited activity or less transparency around inputs to the valuation, financial instruments are classified as Level 3. At March 31, 2019 and December 31, 2018, 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 assets and liabilities that are carried at fair value on a recurring basis and their respective category in the fair value hierarchy, at March 31, 2019 and December 31, 2018:

 

 
 
 
 
 
 
 
 
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
 
 
 
 
 
Significant Other
Observable Inputs
(Level 2)
 
 
 
 
 
Significant Other
Unobservable Inputs
(Level 3)
 
 
 
 
 
 
Total carried at fair value
on a recurring basis
   2019  2018  2019  2018  2019  2018  2019  2018
   (In thousands)
                         
Assets:                        
Mortgage-backed                                        
Securities  $-   $-   $579,185   $557,953   $-   $-   $579,185   $557,953 
Other securities   11,802    11,586    253,748    251,860    1,289    1,256    266,839    264,702 
Interest rate swaps   -    -    6,474    15,961    -    -    6,474    15,961 
                                         
Total assets  $11,802   $11,586   $839,407   $825,774   $1,289   $1,256   $852,498   $838,616 
                                         
Liabilities:                                        
Borrowings  $-   $-   $-   $-   $42,941   $41,849   $42,941   $41,849 
Interest rate swaps   -    -    4,996    2,239    -    -    4,996    2,239 
                                         
Total liabilities  $-   $-   $4,996   $2,239   $42,941   $41,849   $47,937   $44,088 

 

The following tables sets 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, 2019  March 31, 2018
   Trust preferred
securities
  Junior subordinated
debentures
  Trust preferred
securities
  Junior subordinated
debentures
   (In thousands)
             
Beginning balance  $1,256   $41,849   $1,110   $36,986 
Net gain from fair value adjustment of financial assets (1)   33    -    51    - 
Net loss from fair value adjustment of financial liabilities (1)   -    1,210    -    1,681 
Decrease(increase) in accrued interest receivable   -    -    1    - 
Increase (decrease) in accrued interest payable   -    9    -    25 
Change in unrealized gains (losses) included in other comprehensive income   -    (127)   -    - 
Ending balance  $1,289   $42,941   $1,162   $38,692 
                     
Changes in unrealized gains (losses) held at period end  $-   $-   $-   $- 

 

 

(1)Totals in the table above are presented in the Consolidated Statement of Income under net gains (losses) from fair value adjustments.

 

- 26 -

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

 

During the three months ended March 31, 2019 and 2018, 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, 2019
                
   Fair Value  Valuation Technique  Unobservable Input  Range  Weighted Average
   (Dollars in thousands)
Assets:                     
                      
Trust preferred securities  $1,289   Discounted cash flows  Discount rate   n/a    4.6% 
                      
Liabilities:                     
                      
Junior subordinated debentures  $42,941   Discounted cash flows  Discount rate   n/a    4.6% 

 

   December 31, 2018
                
   Fair Value  Valuation Technique  Unobservable Input  Range  Weighted Average
   (Dollars in thousands)
Assets:                     
                      
Trust preferred securities  $1,256   Discounted cash flows  Discount rate   n/a    4.9%
                      
Liabilities:                     
                      
Junior subordinated debentures  $41,849   Discounted cash flows  Discount rate   n/a    4.9%

 

 

The significant unobservable inputs used in the fair value measurement of the Company’s trust preferred securities and junior subordinated debentures valued under Level 3 at March 31, 2019 and December 31, 2018, 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 their respective category in the fair value hierarchy at March 31, 2019 and December 31, 2018:

 

   Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
  Significant Other
Observable Inputs
(Level 2)
  Significant Other
Unobservable Inputs
(Level 3)
  Total carried at fair value
on a non-recurring basis
   2019  2018  2019  2018  2019  2018  2019  2018
   (In thousands)
                         
Assets                                        
Impaired loans  $-     $-     $-     $-     $1,928   $4,111   $1,928   $4,111 
Other repossesed assets   -      -      -      -      -      35    -      35 
                                         
Total assets  $-     $-     $-     $-     $1,928   $4,146   $1,928   $4,146 

 

 

- 27 -

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

 

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, 2019
       
   Fair Value  Valuation Technique  Unobservable Input  Range  Weighted Average
   (Dollars in thousands)
Assets:                     
                      
                      
Impaired loans  $1,656   Sales approach  Reduction for planned expedited disposal   20.0% to 54.5%    39.6% 
                      
                      
Impaired loans  $272   Blended income and sales approach  Adjustment to sales comparison value to reconcile differences between comparable sales   -10.0% to 15.0%    2.5% 
           Capitalization rate   9.5%    9.5% 
           Reduction for planned expedited disposal   15.0%    15.0% 

 

   At December 31, 2018
   Fair Value  Valuation Technique  Unobservable Input  Range  Weighted Average
   (Dollars in thousands)
Assets:               
                      
Impaired loans  $204   Income approach  Capitalization rate   8.5%    8.5% 
           Reduction for planned expedited disposal   15.0%    15.0% 
                      
Impaired loans  $2,724   Sales approach  Adjustment to sales comparison value to reconcile differences between comparable sales   0.0%    0.0% 
           Reduction for planned expedited disposal   -36.5% to 15.0%     10.4% 
                      
Impaired loans  $1,183   Blended income and sales approach  Adjustment to sales comparison value to reconcile differences between comparable sales   -30.0% to 10.0%     -7.8% 
           Capitalization rate   7.4% to 9.8%     8.7% 
           Reduction for planned expedited disposal   15.0%    15.0% 
                      
Other repossesed assets  $35   Sales approach  Reduction for planned expediated disposal   0.0%    0.0% 

 

The Company did not have any liabilities that were carried at fair value on a non-recurring basis at March 31, 2019 and December 31, 2018.

 

- 28 -

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

 

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

 

Securities:

 

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

 

Impaired Loans:

 

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

 

Junior Subordinated Debentures:

 

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

 

Interest Rate Swaps:

 

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

 

 

 

 

 

 

 

 

- 29 -

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, 2019 
   Carrying
Amount
   Fair 
Value
   Level 1   Level 2   Level 3 
   (In thousands) 
Assets:                    
                     
Cash and due from banks  $58,677   $58,677   $58,677   $-     $-   
Securities held-to-maturity                         
Mortgage-backed securities   7,949    7,726    -      7,726    -   
Other securities   22,532    22,276    -      -      22,276 
Securities available for sale                         
Mortgage-backed securities   579,185    579,185    -      579,185    -   
Other securities   266,839    266,839    11,802    253,748    1,289 
Loans   5,588,746    5,547,521    -      -      5,547,521 
FHLB-NY stock   51,182    51,182    -      51,182    -   
Accrued interest receivable   27,226    27,226    10    3,280    23,936 
Interest rate swaps   6,474    6,474    -      6,474    -   
                          
                          
Liabilities:                         
Deposits  $5,080,209   $5,079,020   $3,568,439   $1,510,581   $-   
Borrowings   1,116,416    1,111,670    -      1,068,729    42,941 
Accrued interest payable   7,989    7,989    -      7,989    -   
Interest rate swaps   4,996    4,996    -      4,996    -   

 

 

 

- 30 -

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

 

   December 31, 2018 
   Carrying
Amount
   Fair 
Value
   Level 1   Level 2   Level 3 
   (In thousands) 
Assets:                    
                     
Cash and due from banks  $118,561   $118,561   $118,561   $-     $-   
Securities held-to-maturity                         
Mortgage-backed securities   7,953    7,366    -      7,366    -   
Other securities   24,065    22,508    -      -      22,508 
Securities available for sale                         
Mortgage-backed securities   557,953    557,953    -      557,953    -   
Other securities   264,702    264,702    11,586    251,860    1,256 
Loans   5,551,484    5,496,266    -      -      5,496,266 
FHLB-NY stock   57,282    57,282    -      57,282    -   
Accrued interest receivable   25,485    25,485    54    2,756    22,675 
Interest rate swaps   15,961    15,961    -      15,961    -   
                          
                          
Liabilities:                         
Deposits  $4,960,784   $4,955,077   $3,397,474   $1,557,603   $-   
Borrowings   1,250,843    1,241,745    -      1,199,896    41,849 
Accrued interest payable   5,890    5,890    -      5,890    -   
Interest rate swaps   2,239    2,239    -      2,239    -   

 

12. Derivative Financial Instruments

 

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

 

At March 31, 2019 and December 31, 2018, we held derivatives designated as cash flow hedges, fair value hedges and certain derivatives not designated as hedges.

 

The Company’s derivative instruments are carried at fair value in the Company’s financial statements as part of Other Assets for derivatives with positive fair values and Other Liabilities for derivatives with negative fair values. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not it qualifies and has been designated as a hedge for accounting purposes, and further, by the type of hedging relationship.

 

At March 31, 2019 and December 31, 2018, derivatives with a combined notional amount of $36.3 million were not designated as hedges. At March 31, 2019 and December 31, 2018, derivatives with a combined notional amount of $265.8 million and $267.8 million were designated as fair value hedges. At March 31, 2019 and December 31, 2018, derivatives with a combined notional amount of $441.5 million were designated as cash flow hedges.

 

For cash flow hedges, the effective portion of changes in the fair value of the derivative is reported in AOCL, net of tax. Amounts in AOCL are reclassified into earnings in the same period during which the hedged forecasted transaction effects earnings. During the three months ended March 31, 2019, $0.2 million was reclassified from accumulated other comprehensive loss to interest expense.

 

- 31 -

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

 

Changes in the fair value of interest rate swaps not designated as hedges are reflected in “Net gain/loss from fair value adjustments” in the Consolidated Statements of Income.

 

The following table sets forth information regarding the Company’s derivative financial instruments at the periods indicated:

 

   March 31, 2019  December 31, 2018
   Notional
Amount
  Net Carrying
Value (1)
  Notional
Amount
  Net Carrying
Value (1)
   (In thousands)
             
Interest rate swaps (fair value hedge)  $189,307   $5,736   $248,330   $10,593 
Interest rate swaps (fair value hedge)   76,536    (1,759)   19,468    (502)
Interest rate swaps (cash flow hedge)   250,000    738    441,500    5,368 
Interest rate swaps (cash flow hedge)   191,500    (450)   -      -   
Interest rate swaps (non-hedge)   36,321    (2,787)   36,321    (1,737)
Total derivatives  $743,664   $1,478   $745,619   $13,722 

 

(1) Derivatives in a positive position are recorded as “Other assets” and derivatives in a negative position are recorded as “Other liabilities” in the Consolidated Statements of Financial Condition.

 

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

 

   For the three months ended
March 31,
(In thousands)  2019  2018
       
Financial Derivatives:          
Interest rate swaps (non-hedge) (1)  $(1,050)  $1,276 
Interest rate swaps (fair value hedge) (2)   (637)   454 
Net (loss) gain  $(1,687)  $1,730 

 

(1) Net gains and losses are recorded as part of “Net gain/loss from fair value adjustments” in the Consolidated Statements of Income.
(2) Net gains and losses recorded during the three months ended March 31, 2019, are recorded as part of “Interests and fees on loans” in the Consolidated Statements of Income. Net gains and losses recorded during the three months ended March 31, 2018, are recorded as part of “Net gain/loss from fair value adjustments” in the Consolidated Statements of Income.

 

The Company’s interest rate swaps are subject to master netting arrangements between the Company and its two designated counterparties. The Company has not made a policy election to offset its derivative positions.

 

- 32 -

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

 

The following tables present the effect of the master netting arrangements on the presentation of the derivative assets and liabilities in the Consolidated Statements of Condition as of the dates indicated:

 

   March 31, 2019 
               Gross Amounts Not Offset in the Consolidated Statement of Condition     
(In thousands) 

Gross Amount of

Recognized Assets

   Gross Amount Offset in the Statement of Condition  

Net Amount of

Assets Presented in

the Statement of

Condition

  

Financial

Instruments

  

Cash Collateral

Received

   Net Amount 
                               
Interest rate swaps  $6,474   $-     $6,474   $-     $570   $5,904 

 

               Gross Amounts Not Offset in the Consolidated Statement of Condition     
(In thousands) 

Gross Amount of

Recognized

Liabilities

  

Gross Amount Offset

in the Statement of

Condition

  

Net Amount of

Liabilities Presented

in the Statement of

Condition

  

Financial

Instruments

  

Cash Collateral

Pledged

   Net Amount 
                               
Interest rate swaps  $4,996   $-     $4,996   $430   $-     $4,566 

 

   December 31, 2018 
               Gross Amounts Not Offset in the Consolidated Statement of Condition     
(In thousands) 

Gross Amount of

Recognized Assets

  

Gross Amount Offset

in the Statement of

Condition

  

Net Amount of

Assets Presented in

the Statement of

Condition

  

Financial

Instruments

  

Cash Collateral

 

Received

   Net Amount 
                               
Interest rate swaps  $15,961   $-     $15,961   $-     $14,960   $1,001 

 

               Gross Amounts Not Offset in the Consolidated Statement of Condition     
(In thousands) 

Gross Amount of

Recognized

Liabilities

  

Gross Amount Offset

in the Statement of

Condition

  

Net Amount of

Liabilities Presented

in the Statement of

Condition

  

Financial

Instruments

  

Cash Collateral

Pledged

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

 

- 33 -

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

 

13. Income Taxes

 

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

 

Income tax provisions are summarized as follows:

 

   For the three months
ended March 31,
(In thousands)  2019  2018
Federal:          
Current  $1,326   $2,410 
Deferred   617    197 
Total federal tax provision   1,943    2,607 
State and Local:          
Current   156    190 
Deferred   188    153 
Total state and local tax provision   344    343 
           
Total income tax provision  $2,287   $2,950 

 

 

 

 

 

- 34 -

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

 

14. Accumulated Other Comprehensive Income (Loss):

 

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

 

   For the three months ended March 31, 2019
   Unrealized Gains
(Losses) on
Available for Sale
Securities
  Unrealized Gains
(Losses) on
Cash flow
Hedges
  Defined Benefit
Pension Items
  Fair Value
Option Elected
on Liabilities
  Total
   (In thousands)
                
Beginning balance, net of tax  $(15,649)  $3,704   $(1,673)  $866   $(12,752)
                          
Other comprehensive income before reclassifications, net of tax   5,620    (3,644)   -      88    2,064 
                          
Amounts reclassified from accumulated other comprehensive income, net of tax   -      139    7    -      146 
                          
Net current period other comprehensive income (loss), net of tax   5,620    (3,505)   7    88    2,210 
                          
Ending balance, net of tax  $(10,029)  $199   $(1,666)  $954   $(10,542)

 

   For the three months ended March 31, 2018
   Unrealized Gains
(Losses) on
Available for Sale
Securities
  Unrealized Gains
(Losses) on
Cash flow
Hedges
  Defined Benefit
Pension Items
  Fair Value
Option Elected
on Liabilities
  Total
   (In thousands)   
                
Beginning balance, net of tax  $(5,522)  $231   $(3,695)  $-     $(8,986)
                          
Reclassification of the Income Tax Effects of the Tax Cuts and Jobs Act from AOCL to Retained Earnings   (1,325)   50    (798)   -      (2,073)
                          
Impact of adoption of Accounting Standard Update 2016-01   -      -      -      775    775 
                          
Other comprehensive income before reclassifications, net of tax   (6,640)   5,481    -      -      (1,159)
                          
Amounts reclassified from accumulated other comprehensive income, net of tax   -      180    84    -      264 
                          
Net current period other comprehensive income, net of tax   (6,640)   5,661    84    -      (895)
                          
Ending balance, net of tax  $(13,487)  $5,942   $(4,409)  $775   $(11,179)

 

- 35 -

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

 

The following tables set forth significant amounts reclassified from accumulated other comprehensive income (loss) by component for the periods indicated:

 

For the three months ended March 31, 2019
       
Details about Accumulated Other
Comprehensive Loss Components
  Amounts Reclassified from
Accumulated Other
Comprehensive Loss
  Affected Line Item in the Statement
Where Net Income is Presented
   (In thousands)   
         
Cash flow hedges:        
Interest rate swaps  $(201)  Other interest expense
    62