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 ~~September~~June 30, ~~2020~~2021

Commission file number 001-33013

FLUSHING FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

11-3209278

(I.R.S. Employer Identification No.)

220 RXR Plaza, Uniondale, New York 11556

(Address of principal executive offices)

(718) 961-5400

(Registrant’s telephone number, including area code)

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


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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). X Yes __No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


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

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

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

The number of shares of the registrant’s Common Stock outstanding as of ~~October 30, 2020~~July 31, 2021 was ~~28,218,427.~~30,936,504.

Table of Contents

TABLE OF CONTENTS

	PAGE
PART I — FINANCIAL INFORMATION
ITEM 1. Financial Statements - (Unaudited)
Consolidated Statements of Financial Condition	1
Consolidated Statements of Income	2
Consolidated Statements of Comprehensive Income	3
Consolidated Statements of Cash Flows	4
Consolidated Statements of Changes in Stockholders’ Equity	6
Notes to Consolidated Financial Statements	87
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	5445
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	7160
ITEM 4. Controls and Procedures	7160
PART II — OTHER INFORMATION
ITEM 1. Legal Proceedings	7261
ITEM 1A. Risk Factors	7261
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	7261
ITEM 3. Defaults Upon Senior Securities	7261
ITEM 4. Mine Safety Disclosures	7261
ITEM 5. Other Information	7261
ITEM 6. Exhibits	7362
SIGNATURES	7564

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Financial Condition

(Unaudited)

Item 1. Financial Statements


	September 30,		December 31,		June 30,		December 31,
	2020		2019		2021		2020

	(Dollars in thousands, except per share data)				(Dollars in thousands, except per share data)
Assets
Cash and due from banks	$	75,560	$	49,787	$	145,971	$	157,388
Securities held-to-maturity:
Mortgage-backed securities (including assets pledged of $8,942 and $5,283 at September 30, 2020 and December 31, 2019, respectively; fair value of $9,198 and $8,114 at September 30, 2020 and December 31, 2019, respectively)		7,919		7,934
Other securities, net of allowance for credit losses of $402 (NaN pledged; fair value of $53,268 and $53,998 at September 30, 2020 and December 31, 2019, respectively)		50,252		50,954
Mortgage-backed securities (including assets pledged of $5,760 and $5,853 at June 30, 2021 and December 31, 2020, respectively; fair value of $8,848 and $8,991 at June 30, 2021 and December 31, 2020, respectively)						7,904		7,914
Other securities, net of allowance for credit losses of $844 and $907 at June 30, 2021 and December 31, 2020, respectively, (NaN pledged; fair value of $53,598 and $54,538 at June 30, 2021 and December 31, 2020, respectively)						49,986		49,918
Securities available for sale, at fair value:
Mortgage-backed securities (including assets pledged of $238,818 and $212,038 at September 30, 2020 and December 31, 2019, respectively; $672 and $772 at fair value pursuant to the fair value option at September 30, 2020 and December 31, 2019, respectively)		386,235		523,849
Other securities (NaN pledged; $13,841 and $13,548 at fair value pursuant to the fair value option at September 30, 2020 and December 31, 2019, respectively)		234,721		248,651
Mortgage-backed securities (including assets pledged of $287,288 and $264,968 at June 30, 2021 and December 31, 2020, respectively; $441 and $505 at fair value pursuant to the fair value option at June 30, 2021 and December 31, 2020, respectively)						596,661		404,460
Other securities (including asset pledged of $6,000 and $6,453 at June 30, 2021 and December 31, 2020, respectively; $14,080 and $13,998 at fair value pursuant to the fair value option at June 30, 2021 and December 31, 2020, respectively)						224,784		243,514
Loans:
Multi-family residential		2,252,757		2,238,591		2,542,010		2,533,952
Commercial real estate		1,636,659		1,582,008		1,726,895		1,754,754
One-to-four family - mixed-use property		585,159		592,471		582,211		602,981
One-to-four family - residential		191,011		188,216		288,652		245,211
Co-operative apartments		8,132		8,663		7,883		8,051
Construction		63,567		67,754		62,802		83,322
Small Business Administration		124,649		14,445		215,158		167,376
Taxi medallion		2,317		3,309		—		2,757
Commercial business and other		1,063,429		1,061,478		1,291,526		1,303,225
Net unamortized premiums and unearned loan fees		13,718		15,271		1,669		3,045
Allowance for loan losses		(38,343)		(21,751)
Allowance for Credit losses - Loans						(42,670)		(45,153)
Net loans		5,903,055		5,750,455		6,676,136		6,659,521
Interest and dividends receivable		36,068		25,722		43,803		44,041
Bank premises and equipment, net		25,766		28,676		26,438		28,179
Federal Home Loan Bank of New York stock, at cost		57,119		56,921		41,630		43,439
Bank owned life insurance		158,701		157,713		183,715		181,710
Goodwill		16,127		16,127		17,636		17,636
Other real estate owned, net		—		239
Core deposit intangibles						2,859		3,172
Right of Use Asset		42,326		41,254		51,972		50,743
Other assets		69,207		59,494		89,850		84,759
Total assets	$	7,063,056	$	7,017,776	$	8,159,345	$	7,976,394

Liabilities
Due to depositors:
Non-interest bearing	$	607,954	$	435,072	$	945,491	$	778,672
Interest-bearing		4,298,405		4,586,977		5,353,299		5,312,061
Total Deposits		4,906,359		5,022,049		6,298,790		6,090,733
Mortgagors' escrow deposits		57,136		44,375		58,230		45,622
Borrowed funds:
Federal Home Loan Bank advances		1,211,122		1,118,528		831,932		887,579
Subordinated debentures		74,566		74,319		90,081		90,180
Junior subordinated debentures, at fair value		38,287		44,384		49,814		43,136
Total borrowed funds		1,323,975		1,237,231		971,827		1,020,895
Operating lease liability		49,737		49,367		56,151		59,100
Other liabilities		139,443		85,082		119,180		141,047
Total liabilities		6,476,650		6,438,104		7,504,178		7,357,397

Stockholders' Equity
Preferred stock ($0.01 par value; 5,000,000 shares authorized; NaN issued)		—		—		—		—
Common stock ($0.01 par value; 100,000,000 shares authorized; 31,530,595 shares issued at September 30, 2020 and December 31, 2019; 28,218,427 shares and 28,157,206 shares outstanding at September 30, 2020 and December 31, 2019, respectively)		315		315
Common stock ($0.01 par value; 100,000,000 shares authorized; 34,087,623 shares issued at June 30, 2021 and December 31, 2020; 30,961,504 shares and 30,775,854 shares outstanding at June 30, 2021 and December 31, 2020, respectively)						341		341
Additional paid-in capital		227,877		226,691		260,958		261,533
Treasury stock, at average cost (3,312,168 shares and 3,373,389 shares at September 30, 2020 and December 31, 2019, respectively)		(69,409)		(71,487)
Treasury stock, at average cost (3,126,119 shares and 3,373,389 shares at June 30, 2021 and December 31, 2020, respectively)						(65,335)		(69,400)
Retained earnings		445,931		433,960		467,620		442,789
Accumulated other comprehensive loss, net of taxes		(18,308)		(9,807)		(8,417)		(16,266)
Total stockholders' equity		586,406		579,672		655,167		618,997

Total liabilities and stockholders' equity	$	7,063,056	$	7,017,776	$	8,159,345	$	7,976,394

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

-1-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

For the three months ended

For the nine months ended


September 30,

September 30,
(Dollars in thousands, except per share data)

2020

2019

2020

2019

Interest and dividend income

Interest and fees on loans

$
60,367

$
62,825

$
182,033

$
187,428
Interest and dividends on securities:








Interest

3,525

6,287

12,963

20,007
Dividends

9

18

35

56
Other interest income

13

259

325

1,286
Total interest and dividend income

63,914

69,389

195,356

208,777
Interest expense








Deposits

7,093

22,244

35,842

66,540
Other interest expense

6,897

8,196

20,047

21,476
Total interest expense

13,990

30,440

55,889

88,016
Net interest income

49,924

38,949

139,467

120,761
Provision for credit losses

2,470

683

19,267

3,129
Net interest income after provision for credit losses

47,454

38,266

120,200

117,632
Non-interest income








Banking services fee income

1,316

847

3,058

2,879
Net loss on sale of securities

0

0

(91)

(15)
Net gain on sale of loans

0

204

42

381
Net gain on sale of assets

0

0

0

770
Net gain (loss) from fair value adjustments

(2,225)

(2,124)

1,987

(6,160)
Federal Home Loan Bank of New York stock dividends

874

834

2,719

2,563
Life insurance proceeds

0

0

659

43
Bank owned life insurance

923

1,000

2,798

2,550
Other income

463

278

1,052

1,422
Total non-interest income

1,351

1,039

12,224

4,433
Non-interest expense

Salaries and employee benefits

17,335

15,461

52,139

50,295
Occupancy and equipment

3,021

2,847

8,688

8,378
Professional services

2,064

2,167

6,911

6,238
FDIC deposit insurance

727

(589)

2,114

563
Data processing

1,668

1,490

5,175

4,402
Depreciation and amortization

1,542

1,439

4,633

4,454
Other real estate owned/foreclosure expense

240

48

121

145
Net loss from other real estate owned

5

0

36

0
Other operating expenses

3,383

3,182

11,303

11,147
Total non-interest expense

29,985

26,045

91,120

85,622
Income before income taxes

18,820

13,260

41,304

36,443
Provision for income taxes

Federal

3,359

2,457

8,655

7,381
State and local

1,130

79

1,436

714
Total taxes expense

4,489

2,536

10,091

8,095
Net income

$
14,331

$
10,724

$
31,213

$
28,348

Basic earnings per common share

$
0.50

$
0.37

$
1.08

$
0.99
Diluted earnings per common share

$
0.50

$
0.37

$
1.08

$
0.99
Dividends per common share

$
0.21

$
0.21

$
0.63

$
0.63


	For the three months ended					For the six months ended
	June 30,					June 30,
(Dollars in thousands, except per share data)	2021		2020			2021		2020

Interest and dividend income
Interest and fees on loans	$	67,999	$	60,557		$	137,020	$	121,666
Interest and dividends on securities:
Interest		3,685		4,182			6,757		9,438
Dividends		7		11			15		26
Other interest income		51		22			87		312
Total interest and dividend income		71,742		64,772			143,879		131,442
Interest expense
Deposits		5,539		9,971			11,644		28,749
Other interest expense		5,164		6,084			10,304		13,150
Total interest expense		10,703		16,055			21,948		41,899
Net interest income		61,039		48,717			121,931		89,543
(Benefit) provision for credit losses		(1,598)		9,619			1,222		16,797
Net interest income after (benefit) provision for credit losses		62,637		39,098			120,709		72,746
Non-interest income
Banking services fee income		1,233		944			3,958		1,742
Net gain (loss) on sale of securities		123		(54)			123		(91)
Net gain on sale of loans		127		—			158		42
Net gain on disposition of assets		—		—			621		0
Net gain (loss) from fair value adjustments		(6,548)		10,205			(5,566)		4,212
Life insurance proceeds		—		659			0		659
Federal Home Loan Bank of New York stock dividends		500		881			1,189		1,845
Bank owned life insurance		1,009		932			2,006		1,875
Other income		346		170			612		589
Total non-interest income (loss)		(3,210)		13,737			3,101		10,873
Non-interest expense
Salaries and employee benefits		19,879		16,184			42,543		34,804
Occupancy and equipment		3,522		2,827			6,889		5,667
Professional services		1,988		1,985			4,388		4,847
FDIC deposit insurance		729		737	��		1,942		1,387
Data processing		1,419		1,813			3,528		3,507
Depreciation and amortization		1,638		1,555			3,277		3,091
Other real estate owned/foreclosure expense (recoveries)		22		45			12		(119)
Other operating expenses		4,814		3,609			9,591		7,951
Total non-interest expense		34,011		28,755			72,170		61,135
Income before income taxes		25,416		24,080			51,640		22,484
Provision for income taxes
Federal		4,857		4,307			9,928		5,296
State and local		1,301		1,501			3,415		306
Total taxes		6,158		5,808			13,343		5,602
Net income	$	19,258	$	18,272		$	38,297	$	16,882

Basic earnings per common share	$	0.61	$	0.63		$	1.21	$	0.58
Diluted earnings per common share	$	0.61	$	0.63		$	1.21	$	0.58
Dividends per common share	$	0.21	$	0.21		$	0.42	$	0.42

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

-2-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)


	For the three months ended				For the nine months ended				For the three months ended				For the six months ended
	September 30,				September 30,				June 30,				June 30,
(In thousands)	2020		2019		2020		2019		2021		2020		2021		2020

Net income	$	14,331		10,724		31,213		28,348	$	19,258	$	18,272	$	38,297		16,882
Other comprehensive income (loss), net of tax:
Amortization of actuarial losses, net of taxes of ($30) and ($11) for the three months ended September 30, 2020 and 2019, respectively and of ($91) and ($30) for the nine months ended September 30, 2020 and 2019, respectively.		67		22		201		66
Amortization of prior service credits, net of taxes of $6 and $7 for the three months ended September 30, 2020 and 2019, respectively and of $20 and $20 for nine months ended September 30, 2020 and 2019, respectively.		(15)		(15)		(44)		(44)
Net unrealized gains(losses) on securities, net of taxes of ($1,449) and $218 for the three months ended September 30, 2020 and 2019, respectively and of ($2,000) and ($5,102) for nine months ended September 30, 2020 and 2019, respectively.		3,185		(475)		4,397		11,349
Reclassification adjustment for net losses included in income, net of taxes of ($29) and ($5) for the nine months ended September 30, 2020 and 2019, respectively.		—		—		62		10
Net unrealized gains (losses) on cash flow hedges, net of taxes of ($849) and $874 for the three months ended September 30, 2020 and 2019 respectively and of $6,253 and $5,293 for nine months ended September 30, 2020 and 2019, respectively.		1,866		(1,946)		(13,744)		(11,782)
Change in fair value of liabilities related to instrument-specific credit risk, net of taxes of ($50) and ($27) for the three months ended September 30, 2020 and 2019 respectively and of ($280) and ($81) for the nine months ended September 30, 2020 and 2019, respectively.		111		61		627		184
Amortization of actuarial losses, net of taxes of ($41) and ($31) for the three months ended June 30, 2021 and 2020, respectively, and of ($77) and ($61) for the six months ended June 30, 2021 and 2020, respectively.										92		67		173		134
Amortization of prior service credits, net of taxes of $6 and $8 for the three months ended June 30, 2021 and 2020, respectively, and of $13 and $14 for the six months ended June 30, 2021 and 2020, respectively.										(15)		(15)		(30)		(29)
Net unrealized gains (losses) on securities, net of taxes of ($664) and ($5,193) for the three months ended June 30, 2021 and 2020, respectively, and of $322 and ($551) for the six months ended June 30, 2021 and 2020, respectively.										1,497		11,414		(720)		1,212
Reclassification adjustment for net losses included in income, net of taxes of $38 and ($17) for the three months ended June 30, 2021 and 2020, respectively and of $38 and ($29) for the six months ended June 30, 2021 and 2020, respectively.										(85)		37		(85)		62
Net unrealized gains (losses) on cash flow hedges, net of taxes of ($120) and $912 for the three months ended June 30, 2021 and 2020 respectively, and of ($3,574) and $7,102 for the six months ended June 30, 2021 and 2020 respectively.										521		(2,005)		8,319		(15,610)
Change in fair value of liabilities related to instrument-specific credit risk, net of taxes of ($147) and $259 for the three months ended June 30, 2021 and 2020, respectively, and of ($112) and ($230) for the six months ended June 30, 2021 and 2020, respectively.										276		(580)		192		516

Total other comprehensive income (loss), net of tax		5,214		(2,353)		(8,501)		(217)		2,286		8,918		7,849		(13,715)

Comprehensive income	$	19,545	$	8,371	$	22,712	$	28,131	$	21,544	$	27,190	$	46,146	$	3,167

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

-3-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)


	For the nine months ended September 30,				For the six months ended June 30,
	2020		2019		2021		2020

	(In thousands)				(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	31,213	$	28,348	$	38,297	$	16,882
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit loan losses		19,267		3,129
Provision for credit losses						1,222		16,797
Depreciation and amortization of bank premises and equipment		4,633		4,454		3,277		3,091
Amortization of premium, net of accretion of discount		4,721		4,932		(190)		3,235
Net (gain) loss from fair value adjustments		(1,987)		6,160		5,566		(4,212)
Net loss from fair value adjustments on qualifying hedges		2,208		2,717
Net (gain) loss from fair value adjustments on qualifying hedges						(763)		2,438
Net gain from sale of loans		(42)		(381)		(158)		(42)
Net loss from sale of securities		91		15
Net gain from sale of asset		0		(770)
Net (gain) loss from sale of securities						(123)		91
Net gain from disposition of asset						(621)		0
Net loss from OREO		36		0		0		31
Income from bank owned life insurance		(2,798)		(2,550)		(2,006)		(1,875)
Life insurance proceeds		(659)		(43)		0		(659)
Amortization of core deposit intangibles						313		0
Stock-based compensation expense		5,510		6,617		4,539		4,531
Deferred compensation		(3,579)		(2,526)		(2,057)		(3,060)
Deferred income tax benefit		(4,174)		(3,777)		(762)		(2,546)
Increase in other liabilities		6,143		4,358
Decrease (increase) in other assets		(15,043)		1,659
Decrease in other liabilities						(5,384)		(1,411)
Increase in other assets						(5,175)		(3,398)
Net cash provided by operating activities		45,540		52,342		35,975		29,893
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of bank premises and equipment		(1,723)		(2,182)		(1,536)		(1,433)
Net purchases of Federal Home Loan Bank of New York shares		(198)		(7,998)
Purchases of securities held-to-maturity		0		(30,030)
Net redemptions of Federal Home Loan Bank of New York shares						1,809		521
Proceeds from maturities and calls of securities held-to-maturity		180		1,568		0		180
Proceeds from prepayments of securities held-to-maturity		129		434		0		300
Purchases of securities available for sale		(130,397)		(141,798)		(478,155)		(130,344)
Proceeds from sales and calls of securities available for sale		143,376		65,493		38,623		139,741
Proceeds from maturities and prepayments of securities available for sale		142,320		88,217		263,640		87,658
Proceeds from sale of assets		0		813
Proceeds from bank owned life insurance		2,477		777
Purchase of bank owned life insurance		0		(25,000)
Net originations of loans		(11,295)		(9,660)
Net repayments (originations) of loans						89,937		(72,371)
Purchases of loans		(132,893)		(193,703)		(130,706)		(112,245)
Proceeds from sale of real estate owned		203		0
Proceeds from sale of loans		580		7,187		18,584		580
Net cash provided by (used in) investing activities		12,759		(245,882)
Net cash used in investing activities						(197,804)		(87,413)

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Cash Flows (Contd.)

(Unaudited)


	For the nine months ended September 30,				For the six months ended June 30,
	2020		2019		2021		2020

	(In thousands)				(In thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in non-interest bearing deposits		172,882		8,039		166,819		146,809
Net decrease in interest-bearing deposits		(288,694)		(11,643)
Net increase (decrease) in interest-bearing deposits						41,312		(119,076)
Net increase in mortgagors' escrow deposits		12,761		16,942		12,608		4,150
Net proceeds from short-term borrowed funds		0		115,750		150,000		0
Proceeds from long-term borrowings		240,378		184,950		0		204,378
Repayment of long-term borrowings		(147,771)		(131,301)		(205,647)		(127,762)
Purchases of treasury stock		(3,872)		(2,656)		(1,375)		(3,865)
Proceeds from issuance of common stock upon exercise of stock options		0		3
Cash dividends paid		(18,210)		(18,116)		(13,305)		(12,147)
Net cash provided by (used in) financing activities		(32,526)		161,968
Net increase (decrease) in cash and cash equivalents		25,773		(31,572)
Net cash provided by financing activities						150,412		92,487
Net (decrease) increase in cash and cash equivalents						(11,417)		34,967
Cash and cash equivalents, beginning of period		49,787		118,561		157,388		49,787
Cash and cash equivalents, end of period	$	75,560	$	86,989	$	145,971	$	84,754
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid	$	57,334	$	85,346	$	22,217	$	44,272
Income taxes paid		13,594		8,531		10,207		4,664
Taxes paid if excess tax benefits were not tax deductible		13,404		8,523
Non-cash activities:
Loans transferred to REO		0		239
Taxes paid if excess tax benefits on stock-based compensation were not tax deductible						9,877		4,446

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

-5-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statement of Changes in Stockholders’ Equity

(Unaudited)

Additional





Accumulated Other

Common

Paid-in

Retained

Treasury

Comprehensive
(Dollars in thousands, except per share data)

Total

Stock

Capital

Earnings

Stock

Income (Loss)

Balance at December 31, 2019

$
579,672

$
315

$
226,691

$
433,960

$
(71,487)

$
(9,807)

Impact of adoption of ASC 326 - Credit Losses

(875)

0

0

(875)

0

0
Net loss

(1,390)

0

0

(1,390)

0

0
Award of common shares released from Employee Benefit Trust (116,414 shares)

1,398

0

1,398

0

0

0
Vesting of restricted stock unit awards (272,946 shares)

0

0

(5,626)

(156)

5,782

0
Stock-based compensation expense

3,430

0

3,430

0

0

0
Purchase of treasury shares (142,405 shares)

(2,342)

0

0

0

(2,342)

0
Repurchase of shares to satisfy tax obligation (74,145 shares)

(1,493)

0

0

0

(1,493)

0
Dividends on common stock ($0.21 per share)

(6,084)

0

0

(6,084)

0

0
Other comprehensive loss

(22,633)

0

0

0

0

(22,633)
Balance at March 31, 2020

549,683

315

225,893

425,455

(69,540)

(32,440)

Net income

18,272

0

0

18,272

0

0
Award of common shares released from Employee Benefit Trust (10,956 shares)

40

0

40

0

0

0
Vesting of restricted stock unit awards (6,390 shares)

0

0

(133)

(1)

134

0
Stock-based compensation expense

1,101

0

1,101

0

0

0
Repurchase of shares to satisfy tax obligation (2,558 shares)

(30)

0

0

0

(30)

0
Dividends on common stock ($0.21 per share)

(6,063)

0

0

(6,063)

0

0
Other comprehensive income

8,918

0

0

0

0

8,918
Balance at June 30, 2020

571,921

315

226,901

437,663

(69,436)

(23,522)

Net income

14,331

0

0

14,331

0

0
Award of common shares released from Employee Benefit Trust (9,384 shares)

31

0

31

0

0

0
Vesting of restricted stock unit awards (1,640 shares)

0

0

(34)

0

34

0
Stock-based compensation expense

979

0

979

0

0

0
Repurchase of shares to satisfy tax obligation (647 shares)

(7)

0

0

0

(7)

0
Dividends on common stock ($0.21 per share)

(6,063)

0

0

(6,063)

0

0
Other comprehensive loss

5,214

0

0

0

0

5,214
Balance at September 30, 2020

$
586,406

$
315

$
227,877

$
445,931

$
(69,409)

$
(18,308)


					Additional						Accumulated Other
			Common		Paid-in		Retained		Treasury		Comprehensive
(Dollars in thousands, except per share data)	Total		Stock		Capital		Earnings		Stock		Income (Loss)

Balance at December 31, 2020	$	618,997	$	341	$	261,533	$	442,789	$	(69,400)	$	(16,266)

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

Net income		19,258		—		—		19,258		—		—
Award of common shares released from Employee Benefit Trust (6,445 shares)		91		—		91		—		—		—
Vesting of restricted stock unit awards (10,932 shares)		—		—		(221)		(8)		229		—
Stock-based compensation expense		1,069		—		1,069		—		—		—
Repurchase of shares to satisfy tax obligation (3,886 shares)		(85)		—		—		—		(85)		—
Dividends on common stock ($0.21 per share)		(6,653)		—		—		(6,653)		—		—
Other comprehensive income		2,286		—		—		—		—		2,286
Balance at June 30, 2021	$	655,167	$	341	$	260,958	$	467,620	$	(65,335)	$	(8,417)

~~-6-~~

~~Table of Contents~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Consolidated Statement of Changes in Stockholders’ Equity (Contd.)~~

~~(Unaudited)~~

Additional





Accumulated Other

Common

Paid-in

Retained

Treasury

Comprehensive
(Dollars in thousands, except per share data)

Total

Stock

Capital

Earnings

Stock

Income (Loss)
Balance at December 31, 2018

$
549,464

$
315

$
222,720

$
414,327

$
(75,146)

$
(12,752)

Impact of adoption of ASC 842-Leases

2,716

0

0

2,716

0

0
Net income

7,068

0

0

7,068

0

0
Award of common shares released from Employee Benefit Trust (138,775 shares)

2,086

0

2,086

0

0

0
Vesting of restricted stock unit awards (287,155 shares)



0

(5,878)

(210)

6,088

0
Exercise of stock options (300 shares)

3

0

0

(3)

6

0
Stock-based compensation expense

3,931

0

3,931

0

0

0
Repurchase of shares to satisfy tax obligation (83,908 shares)

(1,877)

0

0

0

(1,877)

0
Dividends on common stock ($0.21 per share)

(6,042)

0

0

(6,042)

0

0
Other comprehensive income

2,210

0

0

0

0

2,210
Balance at March 31, 2019

559,559

315

222,859

417,856

(70,929)

(10,542)

Net income

10,556

0

0

10,556

0

0
Award of common shares released from Employee Benefit Trust (5,568 shares)

81

0

81

0

0

0
Vesting of restricted stock unit awards (1,120 shares)

0

0

(24)

0

24

0
Stock-based compensation expense

1,315

0

1,315

0

0

0
Repurchase of shares to satisfy tax obligation (382 shares)

(8)

0

0

0

(8)

0
Dividends on common stock ($0.21 per share)

(6,039)

0

0

(6,039)

0

0
Other comprehensive loss

(74)

0

0

0

0

(74)
Balance at June 30, 2019

565,390

315

224,231

422,373

(70,913)

(10,616)

Net income

10,724

0

0

10,724

0

0
Award of common shares released from Employee Benefit Trust (5,015 shares)

66

0

66

0

0

0
Vesting of restricted stock unit awards (9,284 shares)

0

0

(197)

0

197

0
Stock-based compensation expense

1,371

0

1,371

0

0

0
Purchase of treasury shares (40,000 shares)

(771)

0

0

0

(771)

0
Dividends on common stock ($0.21 per share)

(6,035)

0

0

(6,035)

0

0
Other comprehensive loss

(2,353)

0

0

0

0

(2,353)
Balance at September 30, 2019

$
568,392

$
315

$
225,471

$
427,062

$
(71,487)

$
(12,969)


					Additional						Accumulated Other
			Common		Paid-in		Retained		Treasury		Comprehensive
(Dollars in thousands, except per share data)	Total		Stock		Capital		Earnings		Stock		Income (Loss)
Balance at December 31, 2019	$	579,672	$	315	$	226,691	$	433,960	$	(71,487)	$	(9,807)

Impact of adoption of ASC 326 - Credit Losses		(875)		—		—		(875)		—		—
Net loss		(1,390)		—		—		(1,390)		—		—
Award of common shares released from Employee Benefit Trust (116,414 shares)		1,398		—		1,398		—		—		—
Vesting of restricted stock unit awards (272,946 shares)		—		—		(5,626)		(156)		5,782		—
Stock-based compensation expense		3,430		—		3,430		—		—		—
Purchase of treasury shares (142,405 shares)		(2,342)		—		—		—		(2,342)		—
Repurchase of shares to satisfy tax obligation (74,145 shares)		(1,493)		—		—		—		(1,493)		—
Dividends on common stock ($0.21 per share)		(6,084)		—		—		(6,084)		—		—
Other comprehensive loss		(22,633)		—		—		—		—		(22,633)
Balance at March 31, 2020		549,683		315		225,893		425,455		(69,540)		(32,440)

Net income		18,272		—		—		18,272		—		—
Award of common shares released from Employee Benefit Trust (10,956 shares)		40		—		40		—		—		—
Vesting of restricted stock unit awards (6,390 shares)		—		—		(133)		(1)		134		—
Stock-based compensation expense		1,101		—		1,101		—		—		—
Repurchase of shares to satisfy tax obligation (2,558 shares)		(30)		—		—		—		(30)		—
Dividends on common stock ($0.21 per share)		(6,063)		—		—		(6,063)		—		—
Other comprehensive income		8,918		—		—		—		—		8,918
Balance at June 30, 2020	$	571,921	$	315	$	226,901	$	437,663	$	(69,436)	$	(23,522)

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

~~-7-~~-6-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

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

The unaudited consolidated financial statements presented in this Quarterly Report on Form 10-Q (“Quarterly Report”) include the collective results of the Holding Company and its direct and indirect wholly-owned subsidiaries, including the Bank, Flushing Preferred Funding Corporation, which was dissolved as of June 30, 2021. Flushing Service Corporation, and FSB Properties Inc., which are collectively herein referred to as “we,” “us,” “our” and the “Company.”

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

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

The accompanying unaudited consolidated financial statements have been prepared in conformity with the instructions to Quarterly Report on Form 10-Q and Article 10, Rule 10-01 of Regulation S-X for interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited consolidated interim financial information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

When necessary, certain reclassifications were made to prior-year amounts to conform to the current-year presentation. Such reclassifications had no effect on prior period net income or shareholders’ equity and were insignificant amounts.

2. Use of Estimates

In December 2019, a novel coronavirus (COVID-19) was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. The outbreak of COVID-19 has adversely impacted a broad range of industries in which the Company’s customers operate and could impair their ability to fulfill their financial obligations to the Company. The World Health Organization has declared COVID-19 to be a global pandemic indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The spread of the outbreak has caused significant disruptions in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Company operates.

As a result of the emergence of the pandemic and the uncertainty, it is not possible to determine the overall impact of the pandemic on the Company’s business. However, if the pandemic continues for an extended period of time, there could be a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.

On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief and Economic Security (“CARES”) Act in response to the coronavirus pandemic. This legislation aims at providing relief for individuals and businesses that have been negatively impacted by the coronavirus pandemic.

~~-8-~~

~~Table of Contents~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

The CARES Act includes a provision for the Company to opt out of applying the “troubled-debt restructuring” (“TDR”) accounting guidance in Accounting Standards Codification (“ASC”) 310-40 for certain loan modifications. Loan modifications made between March 1, 2020 and the earlier of i) December 30, 2020 or ii) 60 days after the President declares a termination of the COVID-19 national emergency are eligible for this relief if the related loans were not more than 30 days past due as of December 31, 2019. The Bank adopted this provision and at September 30, 2020, we have 509 active forbearances for loans with an aggregate outstanding loan balance of approximately $846 million resulting in total deferment of $28.4 million in principal, interest and escrow, as disclosed more fully in Note 5 (“Loans”) of the Notes to the Consolidated Financial Statements.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Estimates that are particularly susceptible to change in the near term, including ~~COVID-19~~novel Coronavirus Disease 2019 (“COVID-19”) related changes, are used in connection with the determination of the allowance for credit losses, the evaluation of goodwill for impairment, the review of the need for a valuation allowance of the Company’s deferred tax assets and the fair value of financial instruments.

~~Goodwill~~

~~Goodwill~~In response to COVID-19, the Company is presumed to have an indefinite life and is tested annually for impairment, or more frequently when certain conditions are met. If the fair value of the reporting unit is greater than the carrying value, no further evaluation is required. If the fair value of the reporting unit is less than the carrying value, further evaluation would be required to compare the fair value of the reporting unit to the carrying value and determine if impairment is required.

Quoted market prices in active markets are the best evidence of fair value and are to be used as the basis for measurement, when available. Other acceptable valuation methods include an asset approach, which determines a fair value based upon the value of assets net of liabilities, an income approach, which determines fair value using one or more methods that convert anticipated economic benefits into a present single amount, and a market approach, which determines a fair value based on the similar businesses that have been sold.

~~Volatility~~actively assisting customers by providing modifications in the ~~Company’s stock price primarily driven by~~form of deferrals of interest, principal and/or escrow for terms ranging from one to thirty months. At June 30, 2021, we had 69 active forbearances for loans with an aggregate outstanding loan balance of approximately $245.8 million resulting in total deferment of $16.2 million in principal, interest and escrow, down from 134 active forbearances for loans with an aggregate outstanding loan balance of $364.4 million at December 31, 2020. Given the ~~COVID-19~~ pandemic ~~has resulted~~and current economic environment, we continue to work with our customers to modify loans although the pace of requests slowed down. The Company actively participated in the ~~net book value of our reporting unit exceeding market capitalization, however,~~Paycheck Protection Program (“PPP”), under the fair value of our reporting unit is not driven solely by the market price of our stock. As described above, fair value of our reporting unit is derived using a combination of an asset approach, an income approachCoronavirus Aid, Relief and a market approach. These valuation techniques consider several other factors beyond our market capitalization, such as the estimated future cash flows of our reporting unit, the discount rate used to present value such cash flows and the market multiples of comparable companies. Changes to input assumptions used in the analysis could result in materially different evaluations of goodwill impairment. We qualitatively assess whether the carrying value of our reporting unit exceeds fair value. If this qualitative assessment determines that it is more likely than not that the carrying value exceeds fair value, further qualitative evaluation for impairment would be required to compare the fair value of the reporting unit to the carrying value and determine if impairment is required.Economic

In performing the goodwill impairment testing, the Company has identified a single reporting unit. The Company continues to evaluate the impact of the COVID-19 pandemic and as such, evaluated goodwill for impairment at September 30, 2020. The Company conducted a quantitative impairment test of goodwill as of September 30, 2020, which did not indicate an impairment of goodwill. Management will continue to monitor if events requiring further goodwill impairment testing have occurred. At September 30, 2020 and December 31, 2019, the carrying amount of goodwill totaled $16.1 million. The identification of additional reporting units, the use of other valuation techniques and/or changes to input assumptions used in the analysis could result in materially different evaluations of goodwill impairment.-7-

~~-9-~~

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Security Act (the “CARES Act”), closing $138.7 million of these loans during the three months ended June 30, 2021, with $69.2 million in PPP loans forgiven by the SBA during the same time period. We are also a participant in the Main Street Lending Program in order to assist customers. Pursuant to the CARES Act and later modified by Consolidated Appropriations Act, certain loan modifications are not classified as “troubled debt restructuring” (“TDR”), if the related loans were not more than 30 days past due as of December 31, 2019. The Company has elected that loans temporarily modified for borrowers directly impacted by COVID-19 are not considered TDR, assuming the above criteria is met and as such, these loans are considered current and continue to accrue interest at its original contractual terms until the completion of the deferred period. Once the deferred period is over, the borrower will resume making payment and normal delinquency-based non-accrual policies will apply.

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

3. Earnings Per Share

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


	For the three months ended						For the nine months ended						For the three months ended						For the six months ended
	September 30,						September 30,						June 30,						June 30,
	2020			2019			2020			2019			2021			2020			2021			2020

	(In thousands, except per share data)												(In thousands, except per share data)
Net income	$	14,331		$	10,724		$	31,213		$	28,348		$	19,258		$	18,272		$	38,297		$	16,882
Divided by:
Weighted average common shares outstanding		28,874			28,730			28,865			28,704
Weighted average common stock equivalents		0			0			0			0
Total weighted average common shares outstanding and common stock equivalents		28,874			28,730			28,865			28,704			31,677			28,867			31,641			28,860
Basic earnings per common share	$	0.50		$	0.37		$	1.08		$	0.99		$	0.61		$	0.63		$	1.21		$	0.58
Diluted earnings per common share ⁽¹⁾	$	0.50		$	0.37		$	1.08		$	0.99		$	0.61		$	0.63		$	1.21		$	0.58
Dividend payout ratio		42.0	%		56.8	%		58.3	%		63.6	%		34.4	%		33.3	%		34.7	%		72.4	%

(1)	For the three and ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, there were 0 common stock equivalents and ~~2019,~~ there were 0 common stock equivalents that were anti-dilutive.

4. Securities

The Company did 0t hold any trading securities at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. Securities available for sale are recorded at fair value. Securities held-to-maturity (“HTM”) are recorded at amortized cost.

~~Allowance for credit losses~~

The Company’s estimate of expected credit losses for held-to-maturity debt securities is based on historical information, current conditions and a reasonable and supportable forecast. The Company’s portfolio is made up of 3 securities, 2 of which are structured similar to a commercial owner occupied loan, which is modeled for credit losses similar to commercial business loans secured by real estate. The other security is issued and guaranteed by Fannie Mae, which is a government sponsored enterprise that has a credit rating and perceived credit risk comparable to the U.S. government and therefore the Company assumes a zero loss expectation. As of September 30, 2020, we have 1 active forbearance for held-to-maturity securities with an outstanding balance of $20.9 million. During the time this security is in forbearance, it is considered current and as such, continues to accrue interest at its original contractual terms. Accrued interest receivable on held-to-maturity securities totaled $0.1 million at September 30, 2020 and is excluded from estimates of credit losses.

~~The following table summarizes the Company’s portfolio of securities held-to-maturity at September 30, 2020:~~

Gross

Gross

Allowance

Amortized

Unrealized

Unrealized

for Credit


Cost

Fair Value

Gains

Losses

Losses

(In thousands)
Securities held-to-maturity:










Municipals

$
50,654

$
53,268

$
2,614

$
0

$
(402)
Total other securities

50,654

53,268

2,614

0

(402)

FNMA

7,919

9,198

1,279

0

—
Total mortgage-backed securities

7,919

9,198

1,279

0

—
Total

$
58,573

$
62,466

$
3,893

$
0

$
(402)

~~-10-~~

~~Table of Contents~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

Gross

Gross

Amortized

Unrealized

Unrealized


Cost

Fair Value

Gains

Losses

(In thousands)
Securities held-to-maturity:








Municipals

$
50,954

$
53,998

$
3,044

$
—
Total other securities

50,954

53,998

3,044

—

FNMA

7,934

8,114

180

—
Total mortgage-backed securities

7,934

8,114

180

—
Total

$
58,888

$
62,112

$
3,224

$
—

~~The following table summarizes the Company’s portfolio of securities available for sale at September 30, 2020:~~

Gross

Gross

Amortized

Unrealized

Unrealized


Cost

Fair Value

Gains

Losses

(In thousands)
Securities available for sale:

Corporate

$
130,000

$
123,516

$
192

$
6,676
Municipals

65

65

0

0
Mutual funds

12,691

12,691

0

0
Collateralized loan obligations

100,473

97,300

0

3,173
Other

1,149

1,149

0

0
Total other securities

244,378

234,721

192

9,849
REMIC and CMO

206,973

213,941

7,007

39
GNMA

505

554

49

0
FNMA

129,140

132,001

2,883

22
FHLMC

39,266

39,739

504

31
Total mortgage-backed securities

375,884

386,235

10,443

92
Total securities available for sale

$
620,262

$
620,956

$
10,635

$
9,941

~~-11-~~-8-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Allowance for credit losses

The Company’s estimate of expected credit losses for held-to-maturity debt securities is based on historical information, current conditions and a reasonable and supportable forecast. The Company’s portfolio is made up of 3 securities totaling $58.7 million (before allowance for credit losses) : the first with an amortized cost of $29.9 million structured similar to a commercial owner occupied loan and modeled for credit losses similar to commercial business loans secured by real estate with a reserve of $0.2 million at June 30, 2021; the second with an amortized cost of $20.0 million that currently is under forbearance with a specific reserve of $0.6 million at June 30, 2021; and the third with an amortized cost of $7.9 million issued and guaranteed by Fannie Mae, which is a government sponsored enterprise that has a credit rating and perceived credit risk comparable to the U.S. government. Accordingly, the Company assumes a zero loss expectation from the portfolio. The security currently in forbearance is considered current and as such, continues to accrue interest at its original contractual terms. Accrued interest receivable on held-to-maturity securities totaled $0.1 million at June 30, 2021 and December 31, 2020 and is excluded from estimates of credit losses.

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


					Gross		Gross
	Amortized				Unrecognized		Unrecognized
	Cost		Fair Value		Gains		Losses

	(In thousands)
Securities held-to-maturity:
Municipals	$	50,830	$	53,598	$	2,768	$	0
Total other securities		50,830		53,598		2,768		0

FNMA		7,904		8,848		944		0
Total mortgage-backed securities		7,904		8,848		944		0

Allowance for Credit Losses		(844)		—		—		—
Total	$	57,890	$	62,446	$	3,712	$	0

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


					Gross		Gross
	Amortized				Unrecognized		Unrecognized
	Cost		Fair Value		Gains		Losses

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

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

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

-9-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the Company’s portfolio of securities available for sale at June 30, 2021:


					Gross		Gross
	Amortized				Unrealized		Unrealized
	Cost		Fair Value		Gains		Losses

	(In thousands)
Securities available for sale:
U.S Government Agencies	$	6,206	$	6,218	$	15	$	3
Corporate		117,420		117,602		461		279
Mutual funds		12,585		12,585		0		0
Collateralized loan obligations		87,148		86,884		18		282
Other		1,495		1,495		0		0
Total other securities		224,854		224,784		494		564
REMIC and CMO		222,748		224,065		3,042		1,725
GNMA		12,033		11,802		39		270
FNMA		205,159		205,782		1,783		1,160
FHLMC		155,944		155,012		589		1,521
Total mortgage-backed securities		595,884		596,661		5,453		4,676
Total securities available for sale	$	820,738	$	821,445	$	5,947	$	5,240

The following table summarizes the Company’s portfolio of securities available for sale at December 31, ~~2019:~~2020:


					Gross		Gross						Gross		Gross
	Amortized				Unrealized		Unrealized		Amortized				Unrealized		Unrealized
	Cost		Fair Value		Gains		Losses		Cost		Fair Value		Gains		Losses

	(In thousands)								(In thousands)
Securities available for sale:
U.S Government Agencies									$	6,452	$	6,453	$	2	$	1
Corporate	$	130,000	$	123,050	$	0	$	6,950		130,000		123,865		131		6,266
Municipals		12,797		12,916		119		0
Mutual funds		12,216		12,216		0		0		12,703		12,703		0		0
Collateralized loan obligations		100,349		99,137		0		1,212		100,561		99,198		0		1,363
Other		1,332		1,332		0		0		1,295		1,295		0		0
Total other securities		256,694		248,651		119		8,162		251,011		243,514		133		7,630
REMIC and CMO		348,236		348,989		2,193		1,440		175,142		180,877		5,735		0
GNMA		653		704		51		0		13,009		13,053		66		22
FNMA		104,235		104,882		1,073		426		143,154		146,169		3,046		31
FHLMC		68,476		69,274		871		73		63,796		64,361		648		83
Total mortgage-backed securities		521,600		523,849		4,188		1,939		395,101		404,460		9,495		136
Total securities available for sale	$	778,294	$	772,500	$	4,307	$	10,101	$	646,112	$	647,974	$	9,628	$	7,766

We did 0t hold any private issue CMO’s that are collateralized by commercial real estate mortgages at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

The corporate securities held by the Company at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are issued by U.S. banking institutions.

-10-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following tables detail the amortized cost and fair value of the Company’s securities classified as held-to-maturity and available for sale at ~~September~~June 30, ~~2020,~~2021, by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Amortized				Amortized
Securities held-to-maturity:	Cost		Fair Value		Cost		Fair Value

	(In thousands)				(In thousands)
Due after ten years	$	50,654	$	53,268	$	50,830	$	53,598
Total other securities		50,654		53,268		50,830		53,598
Mortgage-backed securities		7,919		9,198		7,904		8,848
Total	$	58,573	$	62,466
Total held-to-maturity securities						58,734		62,446
Allowance for Credit Losses						(844)		—
Total held-to-maturity securities, net of allowance for credit losses					$	57,890	$	62,446


	Amortized				Amortized
Securities available for sale:	Cost		Fair Value		Cost		Fair Value

	(In thousands)				(In thousands)
Due after one year through five years	$	45,000	$	43,654	$	30,000	$	30,242
Due after five years through ten years		110,431		104,599		159,551		159,243
Due after ten years		76,256		73,777		22,718		22,714
Total						212,269		212,199
Mutual funds						12,585		12,585
Total other securities		231,687		222,030		224,854		224,784
Mutual funds		12,691		12,691
Mortgage-backed securities		375,884		386,235		595,884		596,661
Total	$	620,262	$	620,956
Total available for sale securities					$	820,738	$	821,445

~~-12-~~-11-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following tables show the Company’s securities with gross unrealized losses and their fair value, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position, at the dates indicated:

At September 30, 2020

Total

Less than 12 months

12 months or more

Unrealized

Unrealized

Unrealized


Count

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(Dollars in thousands)
Available for sale securities















Corporate

14

$
113,324

$
6,676

$
0

$
0

$
113,324

$
6,676
Collateralized loan obligations

13

97,299

3,173

7,293

183

90,006

2,990
Total other securities

27

210,623

9,849

7,293

183

203,330

9,666

REMIC and CMO

2

5,663

39

5,663

39

0

0
GNMA ⁽¹⁾

1

48

—

48

0

0

0
FNMA

1

8,652

22

0

0

8,652

22
FHLMC

1

13,449

31

13,449

31

0

0
Total mortgage-backed securities

5

27,812

92

19,160

70

8,652

22

Total securities available for sale

32

$
238,435

$
9,941

$
26,453

$
253

$
211,982

$
9,688

~~(1)~~

~~At September 30, 2020, the unrealized loss was less than $1,000 and in a continuous loss position for less than 12 months.~~


	At June 30, 2021
	Total					Less than 12 months				12 months or more
				Unrealized				Unrealized				Unrealized
	Count	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

	(Dollars in thousands)

Available for sale securities

U.S Government Agencies	1	$	4,897	$	3	$	4,897	$	3	$	0	$	0
Corporate	7		52,141		279		22,403		16		29,738		263
Collateralized loan obligations	6		44,633		282		0		0		44,633		282
Total other securities	14		101,671		564		27,300		19		74,371		545

REMIC and CMO	11		112,847		1,725		112,847		1,725		0		0
GNMA	4		11,404		270		11,404		270		0		0
FNMA	16		107,883		1,160		107,883		1,160		0		0
FHLMC	10		85,084		1,521		85,084		1,521		0		0
Total mortgage-backed securities	41		317,218		4,676		317,218		4,676		0		0

Total securities available for sale	55	$	418,889	$	5,240	$	344,518	$	4,695	$	74,371	$	545


	At December 31, 2019													At December 31, 2020
	Total					Less than 12 months				12 months or more				Total					Less than 12 months				12 months or more
				Unrealized				Unrealized				Unrealized					Unrealized				Unrealized				Unrealized
	Count	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses		Count	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

	(Dollars in thousands)													(Dollars in thousands)
Available for sale securities

Available for sale securities
U.S Government Agencies														1	$	4,988	$	1	$	4,988	$	1	$	0	$	0
Corporate	16	$	123,050	$	6,950	$	0	$	0	$	123,050	$	6,950	14		113,734		6,266		0		0		113,734		6,266
Collateralized loan obligations	13		99,137		1,212		25,451		108		73,686		1,104	13		99,199		1,363		7,441		52		91,758		1,311
Total other securities	29		222,187		8,162		25,451		108		196,736		8,054	28		217,921		7,630		12,429		53		205,492		7,577

REMIC and CMO	23		120,989		1,440		102,384		1,117		18,605		323
GNMA	1		49		0		49		0		0		0	1		10,341		22		10,341		22		0		0
FNMA	8		67,618		426		19,073		138		48,545		288	5		32,463		31		23,864		28		8,599		3
FHLMC	1		30,200		73		0		0		30,200		73	3		30,095		83		30,095		83		0		0
Total mortgage-backed securities	33		218,856		1,939		121,506		1,255		97,350		684	9		72,899		136		64,300		133		8,599		3

Total securities available for sale	62	$	441,043	$	10,101	$	146,957	$	1,363	$	294,086	$	8,738	37	$	290,820	$	7,766	$	76,729	$	186	$	214,091	$	7,580

The Company reviewed each available for sale debt security that had an unrealized loss at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. At ~~September~~June 30, 2021 and December 31, 2020, the Company evaluated whether the decline in fair value of a debt security resulted from credit losses or other factors under ~~ASC 326.~~Accounting Standards Codification (“ASC”) Topic 326, Credit Losses also referred to as Current Expected Credit Losses(“CECL”). The Company does not have the intent to sell these securities and it is more likely than not the Company will not be required to sell the securities before recovery of the securities’ amortized cost basis. This conclusion is based upon considering the Company’s cash and working capital requirements and contractual and regulatory obligations, none of which the Company believes would cause the sale of the securities. All of these securities are rated investment grade or above and have a long history of no credit losses. It is not anticipated that these securities would be settled at a price that is less than the amortized cost of the Company’s investment.

~~-13-~~-12-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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

Accrued interest receivable on available-for-sale debt securities totaled ~~$1.4~~$1.7 million and $1.3 million at ~~September~~June 30, 2021 and December 31, 2020, respectively, and is excluded from the estimate of credit losses.

Upon adoption of ASC Topic 326, “Credit Losses” on January 1, 2020, see Note 17 related to the adoption of Topic 326, we recorded a transition adjustment of $0.3 million in the allowance for credit losses for held-to-maturity debt securities.

The following table presents the activity in the allowance for credit losses for debt securities ~~held-to-maturity for the three months ended September 30, 2020:~~held-to-maturity.

Mortgage-backed securities

Other securities

(In thousands)

Beginning balance

$
—

$
402

Provision

—

—

Allowance for credit losses - securities

$
—

$
402

~~The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity for the nine months ended September 30, 2020:~~


					Other Securities
					For the three months ended				For the six months ended
					June 30,				June 30,
	Mortgage-backed securities		Other securities		2021		2020		2021		2020

	(In thousands)				(In thousands)
Beginning balance	$	—	$	—	$	915	$	402	$	907	$	340
CECL adoption		—		340
Provision		—		62
Allowance for credit losses - securities	$	—	$	402
Provision (benefit)						(71)		—		(63)		62

Allowance for credit losses					$	844	$	402	$	844	$	402

Realized gains and losses on the sales of securities are determined using the specific identification method. The Company ~~did 0t sell any~~sold $25.0 million in corporate securities during the three and six months ended ~~September~~June 30, ~~2020 and 2019. The~~2021.The Company sold ~~$130.8~~$66.2 million and ~~$26.4~~$130.8 million in mortgage-backed securities during the ~~nine~~three and six months ended ~~September~~June 30, 2020, ~~and 2019,~~ respectively.

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


	For the three months ended				For the nine months ended				For the three months ended				For the six months ended
	September 30,				September 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020

	(In thousands)								(In thousands)
Gross gains from the sale of securities	$	—	$	—	$	1,476	$	423	$	123	$	763	$	123	$	1,476
Gross losses from the sale of securities		—		—		(1,567)		(438)		0		(817)		0		(1,567)

Net losses from the sale of securities	$	—	$	—	$	(91)	$	(15)
Net gains (losses) from the sale of securities									$	123	$	(54)	$	123	$	(91)

~~-14-~~

~~Table of Contents~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

5. Loans

Loans are reported at their outstanding principal balance net of any unearned income, charge-offs, deferred loan fees and costs on originated loans and unamortized premiums or discounts on purchased loans. Loan fees and certain loan origination costs are deferred. Net loan origination costs and premiums or discounts on loans purchased are amortized into interest income over the contractual life of the loans using the level-yield method. Prepayment penalties received on loans which pay in full prior to their scheduled maturity are included in interest income in the period they are collected.

-13-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Interest on loans is recognized on the accrual basis. Accrued interest receivable totaled ~~$33.5~~$40.6 million and $41.5 million at ~~September~~June 30, 2021 and December 31, 2020, respectively, and was reported in “Interest and dividends receivable” on the Consolidated Statements of Financial Condition. The accrual of income on loans is generally discontinued when certain factors, such as contractual delinquency of 90 days or more, indicate reasonable doubt as to the timely collectability of such income. Uncollected interest previously recognized on non-accrual loans is reversed from interest income at the time the loan is placed on non-accrual status. A non-accrual loan can be returned to accrual status when contractual delinquency returns to less than 90 days delinquent. Payments received on non-accrual loans that do not bring the loan to less than 90 days delinquent are recorded on a cash basis. Payments can also be applied first as a reduction of principal until all principal is recovered and then subsequently to interest, if in management’s opinion, it is evident that recovery of all principal due is likely to occur.

Pursuant to the CARES Act, loan modifications made between March 1, 2020 and the earlier of i) December 30, 2020 or ii) 60 days after the President declares a termination of the COVID-19 national emergency are not classified as TDRs if the related loans were not more than 30 days past due as of December 31, 2019. The Company has elected that loans temporarily modified for borrowers directly impacted by COVID-19 are not considered TDR, assuming the above criteria is met and as such, these loans are considered current and continue to accrue interest at its original contractual terms. Deferrals granted under the Cares Act are deemed in accrual status and interest income is accrued until the end of deferral period even if there are no payments being collected. When the forbearance period is over, borrowers are expected to resume contractual payments. The determination of whether a loan is past due is based on the modified terms of the agreement. Once the deferral period is over, the borrower will resume making payments and normal delinquency-based non-accrual policies will apply.

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.

Allowance for credit losses

The Allowance for credit losses (“ACL”) is an estimate that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial assets. Loans are charged off against that ACL when management believes that a loan balance is uncollectable based on quarterly analysis of credit risk.

~~As of January 1, 2020, the Company adopted Topic 326, see Note 17 related to the adoption of Topic 326.~~

The amount of the ACL is based upon a loss rate model that considers multiple factors which reflects management’s assessment of the credit quality of the loan portfolio. Management estimates the allowance balance using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The factors are both quantitative and qualitative in nature including, but not limited to, historical losses, economic conditions, trends in delinquencies, value and adequacy of underlying collateral, volume and portfolio mix, and internal loan processes.

~~-15-~~

~~Table of Contents~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~The quantitative allowance is calculated using~~During the three months ended June 30, 2021, the Company recorded a number of inputs and assumptions. The process and guidelines were developed using, among other factors, the guidance from federal banking regulatory agencies and GAAP. The results of this process, support management’s assessment as to the adequacy of the ACL at each balance sheet date.

~~The process for calculating the allowance~~benefit for credit losses ~~begins with our historical losses by portfolio segment. The losses are then incorporated into reasonable and supportable forecast~~on loans totaling $1.5 million compared to ~~develop the quantitative component of the allowance~~a provision for credit ~~losses.~~

~~The Bank has established an Asset Classification Committee which carefully evaluates~~losses on loans ~~which are past due 90 days and/or are classified. The Asset Classification Committee thoroughly assesses~~of $9.6 million for the condition and circumstances surrounding each loan meeting the criteria. The Bank also has a Delinquency Committee that evaluates loans meeting specific criteria. The Bank’s loan policy requires loans to be placed into non-accrual status once the loan becomes 90 days delinquent unless there is, compelling evidence the borrower will bring the loan current in the immediate future.

For the quantitative measurement, the Company’s portfolio consists of mortgage loans secured by real estate (both commercial and retail) and non-mortgage loans, which are primarily commercial business term loans and line of credit. Based on the Company’s evaluation of the loan portfolio, listed below are the pools that were established as a baseline level of segmentation with their primary risk factor. The Company confirms this data remains relevant in absence of changes to the composition of the portfolio.

The mortgage portfolio is a substantial component of Company’s portfolio and it is a focus of the Company’s lending strategy, primarily focusing on multi-family and commercial real estate. While the mortgage portfolio consists of real-estate secured loans, the source of repayment and types of properties securing these loans varies and thus the Company first considered these differences as follows:

~~One-to-four family residential property~~ – These loans are secured by residential properties for which the primary source of repayment is the income generated by the residential borrower. Delinquency status is considered a risk factor in this pool.

~~One-to-four family mixed use~~ – These loans are secured by residential properties for which the primary source of repayment is the income generated by the property. Unlike the one-to-four residential credits, properties securing mixed use loans include a commercial space component. Delinquency status is considered a risk factor in this pool.

~~Multi-family residential~~ – These loans are secured by multi-unit residential buildings for which the primary source of repayment is the income generated by the property. Properties securing multifamily loans have five or more residential units and thus a greater number of cash flow streams compared to one-to-four mixed use loans. Delinquency status and risk rating are considered risk factors in this pool.

~~Commercial real estate (CRE)~~ – These loans are secured by properties for commercial use for which the primary source of repayment is the income generated by the property. Delinquency status, risk rating and collateral type are considered risk factors in this pool.

~~Construction~~ – These loans are provided to fund construction projects for both residential and commercial properties. These loans are inherently different from all others as they represent “work in progress” and expose the Company to risk from non-completion and less recovery value should the sponsor of an unfinished property default. Delinquency status and risk rating are considered risk factors in this pool.

~~Relative to the non-mortgage portfolio, the Company considered the following categories as a baseline for evaluation:~~

~~Commercial Business~~ – These loans are not typically secured by real estate. The primary source of repayment is cash flows from operations of the borrower’s business. Within this category are Small Business Administration (“SBA”) credits and equipment finance credits. Delinquency status, risk rating and industry are considered a risk factors in this pool.

~~-16-~~

~~Table of Contents~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Commercial Business secured by real estate~~ – These loans are secured by properties used by the borrower for commercial use where the primary source of repayment is expected to be the income generated by the borrower’s business use of the property. As a result of the Coronavirus pandemic and the strain placed upon many businesses, the Company recognized in circumstances where the borrower is not performing, the real estate collateral would be the source of repayment. The Company considers these credits to be less risky than commercial business loans, however, riskier than commercial real estate loans. Delinquency status, risk rating and industry are considered risk factors in this pool.

~~Taxi Medallions~~ – These loans consist primarily of loans made to New York taxi medallion owners and are secured by liens on the taxi medallions. No new taxi medallions have been originated since 2014, the remaining portfolio is running off and all credits are individually evaluated for expected credit losses.

~~Lastly, the Company identified that the remainder of the portfolio includes overdraft lines of credit.~~

~~Overdrafts~~ ~~– These are unsecured consumer lines of credits and are an immaterial component of the Company’s portfolio.~~

For the qualitative measurement, the Company aggregated the portfolio segments according to 3 business units: business banking, residential and commercial real estate. In accordance with the interagency statement and SEC guidance, Management evaluates nine qualitative risk factors to determine if the risk is captured elsewhere in the ACL process. If not captured elsewhere, the Company has identified specific risk factors to evaluate and incorporate into its Qualitative Framework. Some risk factors include time to maturity, origination loan-to-value, loan type composition, the value of underlying collateral, changes in policies and procedures for lending strategies and underwriting standards, collection and recovery practices, internal credit review, changes in personnel, divergence between the levels of NYC and national unemployment, divergence between the NYC GDP and national GDP, industry concentrations and riskiness and large borrower concentrations.

three months ending June 30, 2020. The Company recorded a provision for credit losses on loans ~~losses~~ totaling ~~$2.5~~$1.3 million and ~~$19.2~~$16.7 million for the six months ended June 30, 2021 and 2020, respectively. The benefit recorded during the three months ~~and nine~~ended June 30, 2021 was driven by the improving economic outlook. During the three months ~~ending September~~ended June 30, ~~2020, respectively, primarily due~~2021, the Company made an adjustment to ~~the economic conditions resulting from COVID-19 and the growth in the loan portfolio. The Company specifies both~~decrease the reasonable and supportable forecast period and reversion periods in three economic conditions (expansion, transition, contraction). When calculating the ACL estimate for September 30, 2020, Management acknowledged deteriorated economic conditions as a result of the COVID-19 pandemic were captured in the forecast within the model platform. As such, when determining the reasonable and supportable forecast, Management adjusted the period to reflect a forecast of four quarters, to align with a previously established framework for contraction periods. Similarly,increase the reversion period ~~was adjusted~~ to ~~four quarters. Management believed these adjustments are necessary as~~adjust for the model using a more favorable forecast ~~has suggested more stability than at~~based on national statistics compared to the ~~beginning of~~Bank’s primary market area, the ~~COVID-19 pandemic.~~New York Tri-State area, where economic improvements lag behind the nation. This resulted in the ACL ~~for~~- loans totaling ~~$38.3~~$42.7 million at ~~September~~June 30, ~~2020, representing 0.65%~~2021 compared to $45.2 million at December 31, 2020. At June 30, 2021, the ACL - loans represented 0.64% of gross loans and ~~154.7%~~242.6% of non-performing ~~loans compared to $21.8 million at~~loans. At December 31, ~~2019.~~2020, the ACL - loans represented 0.61% of gross loans and 181.9% of non-performing loans.

~~In response to COVID-19, the Company is actively assisting customers by providing modifications in the form of deferrals of interest, principal and/or escrow for terms ranging from~~ ~~one~~ to twelve months. At September 30, 2020, we have 509 active forbearances for loans with an aggregate outstanding loan balance of approximately $846.2 million resulting in total deferment of $28.4 million in principal, interest and escrow, down from 808 active forbearances for loans with an aggregate outstanding loan balance of approximately $1.3 billion at June 30, 2020. Given the pandemic and current economic environment, we continue to work with our customers to modify loans although the pace of requests slowed late in the second quarter. The Company actively participated in the SBA Paycheck Protection Program, closing $111.6 million of these loans. We are also a proud participant in the Main Street Lending Program in order to assist customers. As previously discussed, pursuantPursuant to the CARES Act and later modified by Consolidated Appropriations Act, certain loan modifications ~~made between March 1, 2020 and the earlier of i) December 30, 2020 or ii) 60 days after the President declares a termination of the COVID-19 national emergency~~ are not classified as ~~TDRs~~TDR, if the related loans were not more than 30 days past due as of December 31, 2019. The Company has elected that loans temporarily modified for borrowers directly impacted by COVID-19 are not considered TDR, assuming the above criteria is ~~met and as~~met. As such, these loans are considered current and continue to accrue interest at its original contractual terms until the completion of the deferred period. Once the deferred period is over, the borrower will resume making payment

~~-17-~~

~~Table of Contents~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

and normal delinquency-based non-accrual policies will apply. ~~These loans were captured in the portfolio segments described above and the potential losses captured in the variables used in the ACL calculation.~~

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

The Company believes that restructuring these loans in this manner will allow certain borrowers to become and remain current on their loans. All loans classified as TDR are individually evaluated, however TDR loans which have been current for six consecutive months at the time they are restructured as TDR remain on accrual status and are not included as part of non-performing loans. Loans which were delinquent at the time they are restructured as a TDR are placed on non-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 September 30, 2020, there were 0 commitments to lend additional funds to borrowers whose loans were modified to a TDR. The modification of loans to a TDR did not have a significant effect on our operating results, nor did it require a significant allocation of the allowance for loan losses. The following table shows TDR loan modifications and classified as TDR loans during the periods indicated.

For the three and nine months ended

September 30, 2020

September 30, 2019
(Dollars in thousands)

Number

Balance

Modification description

Number

Balance

Modification description
One-to-four family - mixed-use property

1

$
270

Below market interest rate.

—

—

Commercial business and other

—

—

3

$
951

Amortization extension
Total

1

$
270



3

$
951

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

September 30, 2020

Number

Amortized
(Dollars in thousands)

of contracts

Cost
Multi-family residential

7

$
1,876
One-to-four family - mixed-use property ⁽¹⁾

5

1,744
One-to-four family - residential

3

513
Taxi medallion ⁽¹⁾

1

99
Commercial business and other ⁽¹⁾

3

950
Total performing troubled debt restructured

19

$
5,182

~~(1)~~

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

non-

~~-18-~~

~~Table of Contents~~

~~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 :~~

December 31, 2019

Number

Recorded
(Dollars in thousands)

of contracts

investment
Multi-family residential

7

$
1,873
One-to-four family - mixed-use property
��
4

1,481
One-to-four family - residential

3

531
Taxi medallion ⁽¹⁾

7

1,668
Commercial business and other⁽¹⁾

3

941
Total performing troubled debt restructured

24

$
6,494

~~(1)~~

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

~~During the three and nine months ended September 30, 2020 and 2019, there were 0 defaults of TDR loans within 12 months of their modification date.~~

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

September 30, 2020

Number

Amortized
(Dollars in thousands)

of contracts

Cost
Taxi medallion

10

$
1,823
Commercial business and other

1

279
Total troubled debt restructurings that subsequently defaulted

11

$
2,102

~~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:~~

December 31, 2019

Number

Recorded
(Dollars in thousands)

of contracts

investment
Taxi medallion

4

$
1,065
Commercial business and other

1

279
Total troubled debt restructurings that subsequently defaulted

5

$
1,344

~~-19-~~-14-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table shows our non-accrual loans at amortized cost with no related allowance and interest income recognized for loans ninety days or more past due and still accruing for period shown below:

At or for the nine months ended September 30, 2020

Non-Accrual

Loans ninety days

Total Non-Accrual

with no related

Interest Income

or more past due
(In thousands)

Amortized Cost

Allowance

Recognized

and still accruing:
Multi-family residential

$
2,723

$
2,723

$
—

$
—
Commercial real estate

2,714

2,714

—

—
One-to-four family - mixed-use property

1,704

1,704

—

—
One-to-four family - residential

5,922

5,922

—

—
Small Business Administration

1,169

1,169

—

—
Taxi medallion⁽¹⁾

2,318

2,318

—

—
Commercial business and other⁽¹⁾

9,278

6,456

32

—
Total

$
25,828

$
23,006

$
32

$
—

~~(1)~~Included in the above analysis are non-accrual performing one-to-four family – mixed-use property totaling $0.3 million, non-accrual performing TDR taxi medallion loans totaling $0.1 million September 30, 2020 and non-accrual performing TDR commercial business loans totaling $1.0 million at September 30, 2020.

~~-20-~~

~~Table of Contents~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

accrual status and reported as non-accrual performing TDR loans until they have made timely payments for six consecutive months. These restructurings have not included a reduction of principal balance.

The ~~following table shows our non-performing loans~~allocation of a portion of the ACL for a performing TDR loan is based upon the present value of the future expected cash flows discounted at the ~~period indicated:~~loan’s original effective rate, or for a non-performing TDR loan which is collateral dependent, the fair value of the collateral. At June 30, 2021, there were 0 commitments to lend additional funds to borrowers whose loans were modified to a TDR. The modification of loans to a TDR did not have a significant effect on our operating results, nor did it require a significant allocation of the ACL. There were 0 TDR loan modifications during the three and six months ended June 30, 2020.

December 31,
(In thousands)

2019
Loans ninety days or more past due and still accruing:


Multi-family residential

$
445
Total

445
Non-accrual mortgage loans:


Multi-family residential

2,296
Commercial real estate

367
One-to-four family - mixed-use property

274
One-to-four family - residential

5,139
Total

8,076
Non-accrual non-mortgage loans:


Small Business Administration

1,151
Taxi medallion⁽¹⁾

1,641
Commercial business and other⁽¹⁾

1,945
Total

4,737
Total non-accrual loans

12,813
Total non-performing loans

$
13,258

~~(1)~~

Not included in the above analysis are non-accrual performing TDR taxi medallion loans totaling $1.7 million at December 31, 2019, respectively and non-accrual performing TDR commercial business loans totaling $0.9 million at December 31, 2019.


	For the three and six months ended
	June 30, 2021
(Dollars in thousands)	Number	Balance		Modification description
Commercial business and other	2		674	Amortization period extended
Total	2	$	674

The following ~~is a summary of interest foregone on non-accrual loans and~~table shows loans classified as TDR ~~for~~at amortized cost that are performing according to their restructured terms at the periods indicated:


	For the three months ended				For the nine months ended				June 30, 2021			December 31, 2020
	September 30,				September 30,				Number	Amortized		Number	Amortized
	2020		2019		2020		2019

	(In thousands)
Interest income that would have been recognized had the loans performed in accordance with their original terms	$	491	$	416	$	1,296	$	1,224
Less: Interest income included in the results of operations		78		89		240		330
Total foregone interest	$	413	$	327	$	1,056	$	894
(Dollars in thousands)									of contracts	Cost		of contracts	Cost
Multi-family residential									6	$	1,673	6	$	1,700
Commercial real estate									1		7,583	1		7,702
One-to-four family - mixed-use property ⁽¹⁾									5		1,682	5		1,731
One-to-four family - residential									3		497	3		507
Taxi medallion ⁽²⁾									—		—	2		440
Commercial business and other ⁽¹⁾									9		4,107	8		3,831
Total performing troubled debt restructured									24	$	15,542	25	$	15,911

(1)

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

(2)

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

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

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


	June 30, 2021			December 31, 2020
	Number	Amortized		Number	Amortized
(Dollars in thousands)	of contracts	Cost		of contracts	Cost
Taxi medallion ⁽¹⁾	0	$	0	11	$	1,922
Commercial business and other	2		596	1		279
Total troubled debt restructurings that subsequently defaulted	2	$	596	12	$	2,201

(1)

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

~~-21-~~-15-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


	At or for the six months ended June 30, 2021
(In thousands)		Non-Accrual Amortized Cost Beginning of Reporting Period		Non-Accrual Amortized Cost Ending of Reporting Period		Non-Accrual with no related Allowance		Interest Income Recognized		Loans ninety days or more past due and still accruing:
Multi-family residential	$	2,576	$	4,850	$	4,850	$	5	$	201
Commercial real estate		1,766		35		35		—		—
One-to-four family - mixed-use property ⁽¹⁾		1,706		2,706		2,706		2		—
One-to-four family - residential		5,313		6,404		6,404		1		—
Construction		—		—		—		—		—
Small Business Administration		1,168		992		992		—		—
Taxi medallion⁽²⁾		2,758		—		—		—		—
Commercial business and other⁽¹⁾		5,660		4,715		725		52		—
Total	$	20,947	$	19,702	$	15,712	$	60	$	201

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

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


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

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

-16-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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


	For the three months ended				For the six months ended
	June 30,				June 30,
	2021		2020		2021		2020

	(In thousands)
Interest income that would have been recognized had the loans performed in accordance with their original terms	$	453	$	430	$	915	$	805
Less: Interest income included in the results of operations		163		73		323		162
Total foregone interest	$	290	$	357	$	592	$	643

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


	September 30, 2020												June 30, 2021
					Greater												Greater
	30 - 59 Days		60 - 89 Days		than		Total Past						30 - 59 Days		60 - 89 Days		than		Total Past
(In thousands)	Past Due		Past Due		90 Days		Due		Current		Total Loans		Past Due		Past Due		90 Days		Due		Current		Total Loans
Multi-family residential	$	4,499	$	777	$	2,723	$	7,999	$	2,251,453	$	2,259,452	$	14,894	$	1,259	$	5,051	$	21,204	$	2,522,555	$	2,543,759
Commercial real estate		525		192		2,714		3,431		1,635,986		1,639,417		7,213		0		35		7,248		1,722,659		1,729,907
One-to-four family - mixed-use property		3,048		559		1,429		5,036		584,562		589,598		787		1,089		2,439		4,315		581,434		585,749
One-to-four family - residential		2,118		689		5,922		8,729		192,052		200,781		988		1,373		6,404		8,765		288,926		297,691
Construction loans		0		0		0		0		63,406		63,406
Construction														7,089		0		0		7,089		55,622		62,711
Small Business Administration		0		0		1,169		1,169		122,311		123,480		81		199		992		1,272		209,246		210,518
Taxi medallion		198		99		2,021		2,318		0		2,318		0		0		0		0		0		0
Commercial business and other		112		0		6,456		6,568		1,056,378		1,062,946		588		64		1,942		2,594		1,285,877		1,288,471
Total	$	10,500	$	2,316	$	22,434	$	35,250	$	5,906,148	$	5,941,398	$	31,640	$	3,984	$	16,863	$	52,487	$	6,666,319	$	6,718,806

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

December 31, 2019

Greater

30 - 59 Days

60 - 89 Days

than

Total Past


Past Due

Past Due

90 Days

Due

Current

Total Loans
Multi-family residential

$
4,042

$
1,563

$
2,741

$
8,346

$
2,230,245

$
2,238,591
Commercial real estate

0

4,941

367

5,308

1,576,700

1,582,008
One-to-four family - mixed-use property

1,117

496

274

1,887

590,584

592,471
One-to-four family - residential

720

1,022

5,139

6,881

181,335

188,216
Co-operative apartments

0

0

0

0

8,663

8,663
Construction loans

0

0

0

0

67,754

67,754
Small Business Administration

0

0

1,151

1,151

13,294

14,445
Taxi medallion

0

0

1,065

1,065

2,244

3,309
Commercial business and other

2,340

5

1,945

4,290

1,057,188

1,061,478
Total

$
8,219

$
8,027

$
12,682

$
28,928

$
5,728,007

$
5,756,935


	December 31, 2020
					Greater
	30 - 59 Days		60 - 89 Days		than		Total Past
(In thousands)	Past Due		Past Due		90 Days		Due		Current		Total Loans
Multi-family residential	$	7,582	$	3,186	$	2,777	$	13,545	$	2,522,432	$	2,535,977
Commercial real estate		17,903		5,123		4,313		27,339		1,731,045		1,758,384
One-to-four family - mixed-use property		5,673		1,132		1,433		8,238		598,647		606,885
One-to-four family - residential		3,087		805		5,313		9,205		243,486		252,691
Construction loans		750		0		0		750		82,411		83,161
Small Business Administration		1,823		0		1,168		2,991		162,579		165,570
Taxi medallion		0		0		2,318		2,318		279		2,597
Commercial business and other		129		1,273		1,593		2,995		1,296,414		1,299,409
Total	$	36,947	$	11,519	$	18,915	$	67,381	$	6,637,293	$	6,704,674

~~-22-~~-17-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following tables show the activity in the ~~allowance for loan losses~~ACL on loans for the three month periods indicated:

September 30, 2020






One-to-four












family -

One-to-four

Commercial

Multi-family

Commercial

mixed-use

family -

Construction

Small Business

Taxi

business and

(In thousands)

residential

real estate

property

residential

loans

Administration

medallion

other

Total
Allowance for credit losses:


















Beginning balance

$
8,935

$
6,971

$
2,826

$
1,161

$
183

$
1,386

$
—

$
15,248

$
36,710
Charge-offs

—

—

—

—

—

—

(951)

(13)

(964)
Recoveries

14

—

60

2

—

47

—

4

127
Provision (benefit)

(1,553)

1,576

(1,208)

(483)

35

450

951

2,702

2,470
Ending balance

$
7,396

$
8,547

$
1,678

$
680

$
218

$
1,883

$
—

$
17,941

$
38,343


	September 30, 2019																		June 30, 2021
					One-to-four																		One-to-four
					family -		One-to-four								Commercial								family -		One-to-four								Commercial
	Multi-family		Commercial		mixed-use		family -		Construction		Small Business		Taxi		business and				Multi-family		Commercial		mixed-use		family -		Construction		Small Business		Taxi		business and
(In thousands)	residential		real estate		property		residential		loans		Administration		medallion		other		Total		residential		real estate		property		residential		loans		Administration		medallion		other		Total
Allowance for credit losses:
Beginning balance	$	5,506	$	4,265	$	1,786	$	746	$	381	$	382	$	—	$	8,444	$	21,510	$	7,144	$	8,356	$	1,873	$	710	$	750	$	2,127	$	—	$	24,139	$	45,099
Charge-offs		(189)		—		—		—		—		—		—		(242)		(431)		—		—		(3)		—		—		—		—		(1,183)		(1,186)
Recoveries		6		—		140		3		—		32		—		92		273		—		—		—		2		—		9		222		51		284
Provision (benefit)		54		99		(120)		(4)		37		(57)		—		674		683		(585)		(2,488)		(378)		4		(565)		166		(222)		2,541		(1,527)
Ending balance	$	5,377	$	4,364	$	1,806	$	745	$	418	$	357	$	—	$	8,968	$	22,035	$	6,559	$	5,868	$	1,492	$	716	$	185	$	2,302	$	—	$	25,548	$	42,670


	June 30, 2020
					One-to-four
					family -		One-to-four								Commercial
	Multi-family		Commercial		mixed-use		family -		Construction		Small Business		Taxi		business and
(In thousands)	residential		real estate		property		residential		loans		Administration		medallion		other		Total
Allowance for credit losses:
Beginning balance	$	5,895	$	6,791	$	2,170	$	892	$	185	$	1,528	$	—	$	10,637	$	28,098
Charge-offs		—		—		(3)		—		—		(178)		—		(849)		(1,030)
Recoveries		7		—		—		3		—		13		—		—		23
Provision (benefit)		3,033		180		659		266		(2)		23		—		5,460		9,619
Ending balance	$	8,935	$	6,971	$	2,826	$	1,161	$	183	$	1,386	$	—	$	15,248	$	36,710

~~See also Note 17 for the adoption of ASC Topic 326, “Credit Loses”.~~

~~-23-~~-18-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following tables show the activity in the ~~allowance for loan losses~~ACL on loans for the ~~nine~~six month periods indicated:


	September 30, 2020																		June 30, 2021
					One-to-four																		One-to-four
					family -		One-to-four				Small				Commercial								family -		One-to-four				Small				Commercial
	Multi-family		Commercial		mixed-use		family -		Construction		Business		Taxi		business and				Multi-family		Commercial		mixed-use		family -		Construction		Business		Taxi		business and
(In thousands)	residential		real estate		property		residential		loans		Administration		medallion		other		Total		residential		real estate		property		residential		loans		Administration		medallion		other		Total

Allowance for credit losses:
Beginning balance	$	5,391	$	4,429	$	1,817	$	756	$	441	$	363	$	—	$	8,554	$	21,751	$	6,557	$	8,327	$	1,986	$	869	$	497	$	2,251	$	—	$	24,666	$	45,153
Impact of CECL Adoption		(650)		1,170		(55)		(160)		(279)		1,180		—		(827)		379
Charge-off's		—		—		(3)		—		—		(178)		(951)		(2,121)		(3,253)		(43)		(64)		(32)		—		—		—		(2,758)		(1,211)		(4,108)
Recoveries		27		—		138		10		—		67		—		18		260		10		—		10		7		—		19		222		73		341
Provision		2,628		2,948		(219)		74		56		451		951		12,317		19,206
Provision (benefit)																				35		(2,395)		(472)		(160)		(312)		32		2,536		2,020		1,284
Ending balance	$	7,396	$	8,547	$	1,678	$	680	$	218	$	1,883	$	—	$	17,941	$	38,343	$	6,559	$	5,868	$	1,492	$	716	$	185	$	2,302	$	—	$	25,548	$	42,670


	September 30, 2019																		June 30, 2020
					One-to-four																		One-to-four
					family -		One-to-four				Small				Commercial								family -		One-to-four				Small				Commercial
	Multi-family		Commercial		mixed-use		family -		Construction		Business		Taxi		business and				Multi-family		Commercial		mixed-use		family -		Construction		Business		Taxi		business and
(In thousands)	residential		real estate		property		residential		loans		Administration		medallion		other		Total		residential		real estate		property		residential		loans		Administration		medallion		other		Total

Allowance for credit losses:
Beginning balance	$	5,676	$	4,315	$	1,867	$	749	$	329	$	418	$	—	$	7,591	$	20,945	$	5,391	$	4,429	$	1,817	$	756	$	441	$	363	$	—	$	8,554	$	21,751
Impact of CECL Adoption																				(650)		1,170		(55)		(160)		(279)		1,180		—		(827)		379
Charge-off's		(190)		—		(1)		(113)		—		—		—		(2,379)		(2,683)		—		—		(3)		—		—		(178)		—		(2,108)		(2,289)
Recoveries		30		7		228		10		—		52		134		183		644		13		—		78		8		—		20		—		14		133
Provision (Benefit)		(139)		42		(288)		99		89		(113)		(134)		3,573		3,129
Provision (benefit)																				4,181		1,372		989		557		21		1		—		9,615		16,736
Ending balance	$	5,377	$	4,364	$	1,806	$	745	$	418	$	357	$	—	$	8,968	$	22,035	$	8,935	$	6,971	$	2,826	$	1,161	$	183	$	1,386	$	—	$	15,248	$	36,710

~~See also Note 17 for the adoption of ASC Topic 326, “Credit Loses”.~~

~~-24-~~-19-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

In accordance with our policy and the current regulatory guidelines, we designate loans as “Special Mention,” which are considered “Criticized Loans,” and “Substandard,” “Doubtful,” or “Loss,” which are considered “Classified Loans”. If a loan does not fall within one of the previous mentioned categories and management believes weakness is evident then we designate the loan as “Watch”, all other loans would be considered “Pass.” Loans that are non-accrual are designated as Substandard, Doubtful or Loss. These loan designations are updated quarterly. We designate a loan as Substandard when a well-defined weakness is identified that may jeopardize the orderly liquidation of the debt. We designate a loan Doubtful when it displays the inherent weakness of a Substandard loan with the added provision that collection of the debt in full, on the basis of existing facts, is highly improbable. We designate a loan as Loss if it is deemed the debtor is incapable of repayment. The Company does not hold any loans designated as Loss, as loans that are designated as Loss are charged to the Allowance for Credit Losses. We designate a loan as Special Mention if the asset does not warrant classification within one of the other classifications, but does contain a potential weakness that deserves closer attention. Loans that are in forbearance pursuant to the CARES Act ~~primarily~~generally continued to be reported in the same category as they were reported immediately prior to modification.

~~-25-~~-20-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the risk category of mortgage and non-mortgage loans by loan portfolio segments and class of loans by year of origination :at June 30, 2021:


	For the year ended
														Revolving Loans,		Lines of Credit														Revolving Loans,		Lines of Credit
														Amortized Cost		converted to														Amortized Cost		converted to
(In thousands)		2020		2019		2018		2017		2016		Prior		Basis		term loans		2021		2020		2019		2018		2017		Prior		Basis		term loans		Total
1-4 Family Residential
Pass	$	22,735	$	25,030	$	27,827	$	15,548	$	11,231	$	59,657	$	7,678	$	18,095	$	57,316	$	31,897	$	36,253	$	32,818	$	20,935	$	75,903	$	10,524	$	15,288	$	280,934
Watch		489		—		—		—		—		2,936		299		2,011		—		481		724		280		2,430		1,541		190		2,287		7,933
Special Mention		—		—		—		—		—		667		—		492		—		—		—		—		1,115		517		160		—		1,792
Substandard		—		—		—		—		960		3,390		—		1,736		—		—		—		1,836		—		4,167		—		1,029		7,032
Total 1-4 Family Residential	$	23,224	$	25,030	$	27,827	$	15,548	$	12,191	$	66,650	$	7,977	$	22,334	$	57,316	$	32,378	$	36,977	$	34,934	$	24,480	$	82,128	$	10,874	$	18,604	$	297,691
1-4 Family Mixed-Use
Pass	$	27,156	$	66,500	$	74,828	$	59,923	$	53,344	$	288,858	$	—	$	—	$	18,221	$	35,902	$	71,259	$	75,193	$	54,249	$	308,869	$	—	$	—	$	563,693
Watch		—		1,873		903		2,013		1,146		8,556		—		—		—		—		—		3,092		6,118		7,668		—		—		16,878
Special Mention		—		—		379		—		—		1,179		—		—		—		—		—		—		761		1,438		—		—		2,199
Substandard		—		620		806		—		—		1,514		—		—		—		—		—		501		—		2,478		—		—		2,979
Total 1-4 Family Mixed Use	$	27,156	$	68,993	$	76,916	$	61,936	$	54,490	$	300,107	$	—	$	—	$	18,221	$	35,902	$	71,259	$	78,786	$	61,128	$	320,453	$	—	$	—	$	585,749
Commercial Real Estate
Pass	$	118,019	$	248,812	$	281,920	$	189,592	$	213,553	$	482,495	$	—	$	—	$	58,238	$	171,433	$	256,707	$	266,369	$	180,000	$	680,308	$	—	$	—	$	1,613,055
Watch		—		8,606		—		4,883		28,203		58,587		—		—		4,179		934		3,433		5,708		2,657		83,926		—		—		100,837
Special Mention		—		981		—		192		—		861		—		—		—		—		—		6,855		—		1,542		—		—		8,397
Substandard		—		1,702		—		—		—		1,011		—		—		—		—		7,583		—		—		35		—		—		7,618
Total Commercial Real Estate	$	118,019	$	260,101	$	281,920	$	194,667	$	241,756	$	542,954	$	—	$	—	$	62,417	$	172,367	$	267,723	$	278,932	$	182,657	$	765,811	$	—	$	—	$	1,729,907
Construction
Pass	$	10,058	$	14,751	$	31,402	$	—	$	—	$	—	$	—	$	—	$	3,079	$	23,121	$	14,797	$	1,960	$	—	$	—	$	—	$	—	$	42,957
Watch		—		886		5,631		—		—		—		—		—		—		—		2,115		8,284		5,904		—		—		—		16,303
Special Mention		—		—		678		—		—		—		—		—		—		—		—		859		2,592		—		—		—		3,451
Substandard																		—		—		—		—		—		—		—		—		—
Total Construction	$	10,058	$	15,637	$	37,711	$	—	$	—	$	—	$	—	$	—	$	3,079	$	23,121	$	16,912	$	11,103	$	8,496	$	—	$	—	$	—	$	62,711
Multifamily
Pass	$	174,397	$	309,564	$	364,298	$	356,206	$	269,388	$	749,946	$	3,433	$	—	$	168,396	$	240,612	$	340,195	$	449,407	$	360,108	$	941,236	$	6,346	$	—	$	2,506,300
Watch		—		1,571		—		2,537		2,784		19,504		865		—		—		2,111		4,205		12,605		—		10,834		398		—		30,153
Special Mention		—		—		—		—		699		776		—		—		—		792		468		—		—		—		—		—		1,260
Substandard		—		—		1,999		—		—		1,485		—		—		—		—		703		2,599		1,803		740		201		—		6,046
Total Multifamily	$	174,397	$	311,135	$	366,297	$	358,743	$	272,871	$	771,711	$	4,298	$	—	$	168,396	$	243,515	$	345,571	$	464,611	$	361,911	$	952,810	$	6,945	$	—	$	2,543,759
Commercial Business - Secured by RE
Pass	$	68,713	$	91,282	$	56,704	$	22,051	$	47,335	$	82,368	$	—	$	—	$	96,311	$	93,588	$	38,733	$	52,180	$	28,173	$	99,637	$	—	$	—	$	408,622
Watch		—		—		7,080		1,320		—		416		—		—		—		23,623		51,501		18,557		11,979		47,442		—		—		153,102
Special Mention																		—		—		604		—		—		—		—		—		604
Substandard		—		—		—		—		—		3,331		—		—		—		—		—		—		—		4,228		—		—		4,228
Total Commercial Business - Secured by RE	$	68,713	$	91,282	$	63,784	$	23,371	$	47,335	$	86,115	$	—	$	—	$	96,311	$	117,211	$	90,838	$	70,737	$	40,152	$	151,307	$	—	$	—	$	566,556
Commercial Business
Pass	$	59,956	$	137,475	$	108,265	$	64,737	$	17,573	$	67,940	$	186,882	$	—	$	51,015	$	72,432	$	90,417	$	76,675	$	29,154	$	73,507	$	207,786	$	—	$	600,986
Watch		—		2,889		4,112		7,880		—		10		10,935		—		6		1,683		22,505		19,308		33,143		43		22,493		—		99,181
Special Mention		—		51		2,411		—		2,418		—		(26)		—		—		—		45		2,488		103		—		3,207		—		5,843
Substandard		39		—		—		4,810		—		1,711		171		—		—		4,900		535		320		4,957		1,903		995		—		13,610
Doubtful		—		—		—		—		—				1,872		—		—		—		—		—		—		929		1,235		—		2,164
Total Commercial Business	$	59,995	$	140,415	$	114,788	$	77,427	$	19,991	$	69,661	$	199,834	$	—	$	51,021	$	79,015	$	113,502	$	98,791	$	67,357	$	76,382	$	235,716	$	—	$	721,784
Small Business Administration
Pass	$	110,121	$	1,067	$	3,590	$	1,043	$	2,551	$	1,625	$	—	$	—	$	130,255	$	67,148	$	1,292	$	1,560	$	654	$	2,920	$	—	$	—	$	203,829
Watch		—		—		—		2,257		—		—		—		—		—		—		61		2,588		1,946		849		—		—		5,444
Special Mention		—		—		—		—		—		50		—		—		—		—		—		—		140		107		—		—		247
Substandard		—		—		—		1,169		7		—		—		—		—		—		—		—		992		6		—		—		998
Total Small Business Administration	$	110,121	$	1,067	$	3,590	$	4,469	$	2,558	$	1,675	$	—	$	—	$	130,255	$	67,148	$	1,353	$	4,148	$	3,732	$	3,882	$	—	$	—	$	210,518
Taxi Medallions
Substandard	$	—	$	—	$	—	$	—	$	—	$	2,318	$	—	$	—
Total Taxi Medallions	$	—	$	—	$	—	$	—	$	—	$	2,318	$	—	$	—
Other
Pass	$	—	$	—	$	—	$	—	$	—	$	136	$	99	$	—	$	—	$	—	$	—	$	—	$	—	$	52	$	79	$	—	$	131
Total Other	$	—	$	—	$	—	$	—	$	—	$	136	$	99	$	—	$	—	$	—	$	—	$	—	$	—	$	52	$	79	$	—	$	131

Total Loans	$	591,683	$	913,660	$	972,833	$	736,161	$	651,192	$	1,841,327	$	212,208	$	22,334	$	587,016	$	770,657	$	944,135	$	1,042,042	$	749,913	$	2,352,825	$	253,614	$	18,604	$	6,718,806

~~-26-~~-21-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

~~The following table sets forth the recorded investment in~~Included within net loans ~~designated~~ as ~~Criticized or Classified at the period indicated:~~

December 31, 2019
(In thousands)

Special Mention

Substandard

Doubtful

Loss

Total
Multi-family residential

$
1,563

$
2,743

$
0

$
0

$
4,306
Commercial real estate

5,525

367

0

0

5,892
One-to-four family - mixed-use property

1,585

453

0

0

2,038
One-to-four family - residential

1,095

5,787

0

0

6,882
Construction

0

0

0

0

0
Small Business Administration

55

85

0

0

140
Taxi medallion

0

3,309

0

0

3,309
Commercial business and other

3,924

11,289

266

0

15,479
Total loans

$
13,747

$
24,033

$
266

$
0

$
38,046

~~Commitments to extend credit (principally~~of June 30, 2021 and December 31, 2020 were $9.3 million and $5.9 million, respectively, of consumer mortgage loans secured by residential real estate ~~mortgage loans)~~properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction.

A loan is considered collateral dependent when the borrower is experiencing financial difficulties and ~~lines~~repayment is expected to be substantially provided by the operation or sale of ~~credit (principally home equity lines of credit and business lines of credit) amounted to $86.2 million and $282.5 million, respectively, at September 30, 2020.~~

the collateral. The following table presents types of collateral-dependent loans by class of loans as of ~~September 30, 2020:~~the periods indicated:


					Collateral Type
	Collateral Type				June 30, 2021				December 31, 2020
(In thousands)		Real Estate		Business Assets		Real Estate		Business Assets		Real Estate		Business Assets
Multi-family residential	$	2,723	$	—	$	4,850	$	—	$	2,576	$	—
Commercial real estate		6,045		—		1,246		—		2,994		—
One-to-four family - mixed-use property		1,704		—		2,706		—		1,706		—
One-to-four family - residential		5,922		—		6,404		—		5,313		—
Small Business Administration		—		1,169		—		992		—		1,168
Commercial business and other		—		4,996		—		2,556		—		3,482
Taxi Medallion		—		2,318		—		—		—		2,758
Total	$	16,394	$	8,483	$	15,206	$	3,548	$	12,589	$	7,408

~~-27-~~

~~Table of Contents~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Off-Balance Sheet Credit Losses

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

~~The Company estimates expected credit losses over the contractual period in which the company is exposed to credit risk through a contractual obligation~~Commitments to extend credit ~~unless that obligation is unconditionally cancellable by~~(principally real estate mortgage loans) and lines of credit (principally home equity lines of credit and business lines of credit) totaled $499.8 million and $474.0 million at June 30, 2021 and December 31, 2020, respectively.

The following table presents the ~~Company. The~~activity in the allowance for off balance sheet credit losses ~~on losses on off-balance sheet exposures is adjusted as a provision~~ for credit loss expense. The Company uses similar assumptions and risk factors that are developed for collectively evaluated financing receivables. This estimates includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments to be funded over its estimated life.

~~At September 30, 2020, allowance for off-balance-sheet credit losses is $1.6 million, which is included the “Other liabilities” on the Consolidated Statements of Financial Condition. During~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, the Company has $0.3 million~~2021 and ~~$1.0 million, respectively, in credit loss expense for off-balance-sheet items, which is included in the “Other operating expense” on the Consolidated Statements of Income.~~2020.


	For the three months ended				For the six months ended
	June 30,				June 30,
	2021		2020		2021		2020

	(In thousands)
Balance at beginning of period	$	1,304	$	797	$	1,815	$	—
Off-Balance Sheet - CECL Adoption		—		—		—		553
Off-Balance Sheet- Provision (benefit)		266		467		(245)		711
Allowance for Off-Balance Sheet - Credit losses ⁽¹⁾	$	1,570	$	1,264	$	1,570	$	1,264

(1)

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

-22-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

6. Loans held for sale

Loans held for sale are carried at the lower of cost or estimated fair value. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Bank did 0t have any loans held for sale.

The Company has implemented a strategy of selling certain delinquent and non-performing loans. Once the Company has decided to sell a loan, the sale usually closes in a short period of time, generally within the same quarter. Loans designated held for sale are reclassified from loans held for investment to loans held for sale. Terms of sale include cash due upon the closing of the sale, no contingencies or recourse to the Company and servicing is released to the buyer. Additionally, at times the Company may sell participating interests in performing loans. There were 0 ~~loan sales~~loans sold for the three months ended ~~September~~June 30, 2020.

The following tables show loans sold during the period indicated:


	For the three months ended June 30, 2021
				Net Recoveries
(Dollars in thousands)	Loans sold	Proceeds		(Charge-offs)		Net gain
Delinquent and non-performing loans
Multi-family residential	3	$	7,846	$	—	$	58
One-to-four family - mixed-use property	4		2,488		—		69
Total	7	$	10,334	$	—	$	127


	For the three months ended September 30, 2019							For the six months ended June 30, 2021
				Net Recoveries							Net Recoveries
(Dollars in thousands)	Loans sold	Proceeds		(Charge-offs)		Net gain		Loans sold	Proceeds		(Charge-offs)		Net gain
Delinquent and non-performing loans
Multi-family residential	1	$	700	$	—	$	204	8	$	10,752	$	(43)	$	63
Commercial business and other	1		3,248		—		—
Commercial real estate								3		3,036		(64)		17
One-to-four family - mixed-use property								10		4,796		(14)		78
Total	2	$	3,948	$	—	$	204	21	$	18,584	$	(121)	$	158


	For the six months ended June 30, 2020
				Net Recoveries
(Dollars in thousands)	Loans sold	Proceeds		(Charge-offs)		Net gain
Delinquent and non-performing loans
Multi-family residential	1	$	284	$	—	$	42
One-to-four family - mixed-use property	1		296		—		—
Total	2	$	580	$	—	$	42

~~-28-~~-23-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

7. Leases

The Company has 28 operating leases for branches (including headquarters) and office spaces, 9 operating leases for vehicles, and 1 operating lease for equipment. Our leases have remaining lease terms ranging from four months to approximately 15 years, none of which has a renewal option reasonably certain of exercise, which has been reflected in the Company’s calculation of lease term.

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

The Company has one agreement that qualifies as a short-term lease with expense totaling approximately $60,000 and $34,000 for the three month periods ended June 30, 2021 and 2020 and approximately $90,000 and $68,000 for the six month periods ended June 30, 2021 and 2020, included in Professional services on the Consolidated Statements of Income. The Company has $0.3 million in variable lease payments, which include insurance and real estate tax expenses and was recorded in Occupancy and equipment on the Consolidated Statements of Income, for each of the three months ended June 30, 2021 and 2020. The Company has $0.6 million in variable lease payments, which include insurance and real estate tax expenses and was recorded in Occupancy and equipment on the Consolidated Statements of Income, for each of the six months ended June 30, 2021 and 2020. At June 30, 2021, the weighted-average remaining lease term for our operating leases is approximately eight years and the weighted average discount rate is 3.2%. Our lease agreements do not contain any residual value guarantees.

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

Supplemental balance sheet information related to leases was as follows:




(Dollars in thousands)	June 30, 2021			December 31, 2020

Operating lease ROU asset	$	51,972		$	50,743

Operating lease liability	$	56,151		$	59,100

Weighted-average remaining lease term-operating leases		7.7 years			8.3 years
Weighted average discount rate-operating leases		3.2	%		3.2	%

-24-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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

For the nine months ended September 30, 2020



Net Recoveries



(Dollars in thousands)

Loans sold

Proceeds

(Charge-offs)

Net gain
Delinquent and non-performing loans








Multi-family residential

1

$
284

$
0

$
42
One-to-four family - mixed-use property

1

296

0

0
Total

2

$
580

$
0

$
42

For the nine months ended September 30, 2019

Net Recoveries

(Dollars in thousands)

Loans sold

Proceeds

(Charge-offs)

Net gain (loss)
Delinquent and non-performing loans








Multi-family residential

3

$
1,465

$
0

$
267
One-to-four family - mixed-use property

1

405

(1)

0
Commercial real estate

1

$
3,248

$
0

$
0
Total

5

$
5,118

$
(1)

$
267
Performing loans








Small Business Administration

3

$
2,069

$
0

$
114
Total

3

$
2,069

$
0

$
114


	For the three months ended
(Dollars in thousands)	June 30, 2021		June 30, 2020

Lease Cost
Operating lease cost	$	2,244	$	1,897
Short-term lease cost		60		34
Variable lease cost		298		287
Total lease cost	$	2,602	$	2,218

Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	2,418	$	2,200
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—	$	27


	For the six months ended
(Dollars in thousands)	June 30, 2021		June 30, 2020

Lease Cost
Operating lease cost	$	4,348	$	3,782
Short-term lease cost		95		68
Variable lease cost		596		552
Total lease cost	$	5,039	$	4,402

Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	8,048	$	4,182
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—	$	50

~~-29-~~-25-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

~~7. Other Real Estate Owned~~

The ~~following table shows changes in Other Real Estate Owned (“OREO”) during the periods indicated:~~Company’s minimum annual rental payments for Bank facilities due under non-cancelable leases are as follows as of June 30, 2021:

For the three months ended

For the nine months ended

September 30,

September 30,


2020

2019

2020

2019

(In thousands)
Balance at beginning of period

$
208

$
239

$
239

$
0
Acquisitions

—

—

0

239
Reductions to carrying value

—

—

(31)

0
Sales

(208)

—

(208)

0
Balance at end of period

$
—

$
239

$
0

$
239

~~The following table shows the gross gains, gross losses and write-downs of OREO reported in the Consolidated Statements of Income during the periods indicated:~~

For the three months ended

For the nine months ended

September 30,

September 30,


2020

2019

2020

2019

(In thousands)
Gross gains

$
0

$
0

$
0

$
0
Gross losses

(5)

—

(5)

—
Write-down of carrying value

—

—

(31)

—
Total income

$
(5)

$
—

$
(36)

$
—

Included within net loans as of September 30, 2020 and December 31, 2019 were $6.1 million and $6.6 million, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction.

~~8. Leases~~

The Company has 22 operating leases for branches (including headquarters) and office spaces, 9 operating leases for vehicles, and 1 operating lease for equipment. Our leases have remaining lease terms ranging from two months to 15 years, none of which has a renewal option reasonably certain of exercise, which has been reflected in the Company’s calculation of lease term.

During the third quarter of 2020, the Company entered into 1 new branch lease, which is expected to open in the fourth quarter of 2020. Additionally, the Company executed an extension for one of its current branches and reduced office space at another location.

~~-30-~~

~~Table of Contents~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

The Company has elected the short-term lease recognition exemption such that the Company will not recognize Right-Of-Use (“ROU”) assets or lease liabilities for leases with a term of less than 12 months from the commencement date. The Company’s operating lease expense totaled $1.9 million and was recorded in Occupancy and equipment on the Consolidated Statements of Income for each of the three month periods ended September 30, 2020 and 2019. The Company’s operating lease expense totaled $5.7 million and was recorded in Occupancy and equipment on the Consolidated Statements of Income for each of the nine month periods ended September 30, 2020 and 2019.

The Company has one agreement that qualifies as a short-term lease with expense totaling approximately $34,000 for each of the three month periods ended September 30, 2020 and 2019 and approximately $102,000 for each of the nine month periods ended September 30, 2020 and 2019, included in Professional services on the Consolidated Statements of Income. The Company has $0.3 million and $0.2 million in variable lease payments, which include insurance and real estate tax expenses and was recorded in Occupancy and equipment on the Consolidated Statements of Income, for the three months ended September 30, 2020 and 2019, respectively. The Company has $0.8 million and $0.6 million in variable lease payments, which include insurance and real estate tax expenses and was recorded in Occupancy and equipment on the Consolidated Statements of Income, for the nine months ended September 30, 2020 and 2019, respectively. At September 30, 2020, the weighted-average remaining lease term for our operating leases is approximately ~~eight years~~ and the weighted average discount rate is 3.6%. At September 30, 2020, the Company is evaluating the lease portfolio to assess present and future contracts, including but not limited to, real estate, vehicles and equipment.

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

~~Supplemental balance sheet information related to leases was as follows:~~

(Dollars in thousands)

September 30, 2020

December 31, 2019

Operating lease ROU assets

$
42,326

$
41,254

Operating lease liabilities

$
49,737

$
49,367

Weighted-average remaining lease term-operating leases

8.2 years

8.0 years

Weighted average discount rate-operating leases

3.6
%

3.8
%

~~-31-~~

~~Table of Contents~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

For the three months ended

(Dollars in thousands)

September 30, 2020

September 30, 2019

Lease Cost





Operating lease cost

$
1,895

$
1,891

Short-term lease cost

34

34

Variable lease cost

281

267

Total lease cost

$
2,210

$
2,192

Other information





Cash paid for amounts included in the measurement of lease liabilities





Operating cash flows from operating leases

$
2,101

$
2,002

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

$
6,772

$
1,253

For the nine months ended
(Dollars in thousands)

September 30, 2020

September 30, 2019

Lease Cost




Operating lease cost

$
5,676

$
5,676
Short-term lease cost

102

102
Variable lease cost

832

757
Total lease cost

$
6,610

$
6,535

Other information




Cash paid for amounts included in the measurement of lease liabilities




Operating cash flows from operating leases

$
6,283

$
6,052
Right-of-use assets obtained in exchange for new operating lease liabilities

$
6,822

$
1,295


	Minimum Rental
	(In thousands)
Years ended December 31:
2021	$	4,369
2022		9,149
2023		9,281
2024		9,121
2025		8,479
Thereafter		22,898
Total minimum payments required		63,297
Less: Implied interest		7,146
Total lease obligations	$	56,151

The Company’s minimum annual rental payments for Bank facilities due under non-cancelable leases are as follows as of ~~September 30,~~December 31, 2020:


	Minimum Rental		Minimum Rental
	(In thousands)		(In thousands)
Years ended December 31:
2020	$	1,715
2021		7,739	$	8,757
2022		7,491		8,871
2023		7,612		9,006
2024				8,847
2024		7,650		8,212
Thereafter		24,935		23,547
Total minimum payments required		57,142	$	67,240
Less: Implied interest		7,405		8,140
Total lease obligations	$	49,737	$	59,100

~~-32-~~

~~Table of Contents~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

9.8. Stock-Based Compensation

~~On January 31, 2019, the Board of Directors approved a 2019~~The Company has long-term incentive compensation program for certain Company executive officers that includes grants of performance-based restricted stock units (“PRSUs”) in addition to time-based restricted stock units (“RSU”). Under the terms of the PRSU Agreement, the number of PRSUs that may be earned depends on the extent to which performance goals for the award are achieved over a three-year performance period, as determined by the Compensation Committee of the Board. The number of PRSUs that may be earned ranges from 0% to 150% of the target award, with no PRSUs earned for below threshold-level performance, 50% of PRSUs earned for threshold-level performance, 100% of PRSUs earned for target-level performance, and 150% of PRSUs earned for maximum-level performance. As of ~~September~~June 30, ~~2020, PRSU’s~~2021, PRSUs granted in 2021 and 2020 are being accrued at target and ~~PRSU’s~~PRSUs granted in 2019 are being accrued above target. ~~The different levels of accrual are commensurate with~~

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

For the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, the Company’s net income, as reported, included ~~$0.9~~$1.1 million and ~~$1.2~~$0.9 million, respectively, of stock-based compensation costs, including the benefit or expense of phantom stock awards, and ~~$0.2~~$0.3 million and $0.2 million of income tax benefits, respectively, related to the stock-based compensation plans. For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, the Company’s net income, as reported, included ~~$4.3~~$5.2 million and ~~$6.5~~ $3.4

-26-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

million, respectively, of stock-based compensation costs, including the benefit or expense of phantom stock awards, and ~~$1.0~~$1.4 million and ~~$1.5~~$0.8 million of income tax benefits, respectively, related to the stock-based compensation plans.

During the three months ended ~~September~~June 30, ~~2020,~~2021 and ~~2019, the Company did 0t grant any RSU awards. During the three months ended September 30,~~ 2020, the Company did 0tnot grant any ~~PRSU awards.~~RSU or PRSU’s. During the ~~three~~six months ended ~~September~~June 30, ~~2019,~~2021 and 2020, the Company granted ~~8,260 in PRSU awards.~~238,985 and 172,228 RSU, respectively. During the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, the Company granted ~~172,728~~62,790 and ~~263,574 in RSU awards, respectively. During the nine months ended September 30, 2020 and 2019, the Company granted~~ 72,143 ~~and 66,130~~ in PRSU awards, respectively. ~~The Company has not granted stock options since 2009 and at September 30, 2020, had NaN 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 ~~nine~~six months ended ~~September~~June 30, ~~2020:~~2021:


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

Non-vested at December 31, 2019	428,295	$	24.42	34,186	$	22.38
Non-vested at December 31, 2020							336,898	$	23.48	66,580	$	21.26
Granted	172,728		19.66	72,143		20.38	238,985		18.44	62,790		18.46
Vested	(241,246)		22.38	(35,149)		20.54	(240,176)		21.22	(35,070)		18.81
Forfeited	(5,545)		24.62	0		0	(4,662)		20.61	0		0
Non-vested at September 30, 2020	354,232	$	23.48	71,180	$	21.26
Vested but unissued at September 30, 2020	217,642	$	23.26	62,515	$	21.35
Non-vested at June 30, 2021							331,045	$	21.51	94,300	$	20.31
Vested but unissued at June 30, 2021							214,829	$	21.03	102,185	$	20.48

As of ~~September~~June 30, ~~2020,~~2021, there was $6.3 million of total unrecognized compensation cost related to RSU and PRSU awards granted. That cost is expected to be recognized over a weighted-average period of 2.5 years. The total fair value of awards vested for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was $0.2 million and ~~$0.7~~$0.1 million, respectively. The total fair value of awards vested for the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020 ~~and 2019~~ was ~~$5.2~~$5.0 million and ~~$6.9~~

~~-33-~~

~~Table of Contents~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

$5.1 million, respectively. The vested but unissued RSU and PRSU awards consist of awards made to employees and directors who are eligible for retirement. According to the terms of these awards, which provide for vesting upon retirement, these employees and directors have no risk of forfeiture. These shares will be issued at the original contractual vesting and settlement dates.

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

The following table summarizes the Phantom Stock Plan at or for the ~~nine~~six months ended ~~September~~June 30, ~~2020:~~2021:


Phantom Stock Plan	Shares	Fair Value		Shares	Fair Value
Outstanding at December 31, 2019	109,226	$	21.61
Outstanding at December 31, 2020				120,248	$	16.64
Granted	10,392		14.58	9,042		19.52
Forfeited				(11)		18.25
Distributions	(890)		11.73	(1,483)		17.15
Outstanding at September 30, 2020	118,728	$	10.52
Vested at September 30, 2020	118,677	$	10.52
Outstanding at June 30, 2021				127,796	$	21.43
Vested at June 30, 2021				127,685	$	21.43

The Company recorded stock-based compensation ~~benefit~~expense (benefit) for the Phantom Stock Plan of $0.1 million and ~~$0.2~~($0.2) million for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The total fair value of the distributions from the Phantom Stock Plan was ~~$3,000~~$2,000 and ~~less than $1,000~~$7,000 for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019, respectively.~~

~~The Company recorded stock-based compensation benefit for the Phantom Stock Plan of $1.2 million and $0.1 million for the nine months ended September 30,~~ 2020, ~~and 2019, respectively. The total fair value of the distributions from the Phantom Stock Plan was less than $10,000 and $23,000 for the nine months ended September 30, 2020 and 2019,~~ respectively.

~~-34-~~-27-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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

~~10.~~9. Pension and Other Postretirement Benefit Plans

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


	Three months ended				Nine months ended				Three months ended				Six months ended
	September 30,				September 30,				June 30,				June 30,
(In thousands)	2020		2019		2020		2019		2021		2020		2021		2020

Employee Pension Plan:
Interest cost	$	163	$	199	$	489	$	597	$	128	$	163	$	256	$	326
Amortization of actuarial loss		111		68		333		201		122		111		244		222
Expected return on plan assets		(257)		(272)		(771)		(816)		(274)		(257)		(548)		(514)
Net employee pension expense (benefit)	$	17	$	(5)	$	51	$	(18)
Net employee pension (benefit) expense									$	(24)	$	17	$	(48)	$	34

Outside Director Pension Plan:
Service cost	$	4	$	10	$	11	$	30	$	4	$	3	$	8	$	7
Interest cost		16		21		48		63		12		16		24		32
Amortization of actuarial gain		(14)		(35)		(41)		(105)		(5)		(13)		(10)		(27)
Amortization of past service liability		0		0		0		0		0		0		0		0
Net outside director pension expense (benefit)	$	6	$	(4)	$	18	$	(12)
Net outside director pension expense									$	11	$	6	$	22	$	12

Other Postretirement Benefit Plans:
Service cost	$	69	$	70	$	206	$	210	$	73	$	68	$	146	$	137
Interest cost		64		85		194		255		58		65		116		130
Amortization of actuarial gain										16		—		16		—
Amortization of past service credit		(21)		(22)		(64)		(64)		(21)		(23)		(43)		(43)
Net other postretirement expense	$	112	$	133	$	336	$	401	$	126	$	110	$	235	$	224

The Company previously disclosed in its Consolidated Financial Statements for the year ended December 31, ~~2019~~2020 that it expects to contribute $0.3 million to each of the Outside Director Pension Plan (the “Outside Director Pension Plan”) and the other postretirement benefit plans (the “Other Postretirement Benefit Plans”), during the year ending December 31, ~~2020.~~2021. The Company does 0t expect to make a contribution to the Employee Pension Plan (the “Employee Pension Plan”). As of ~~September~~June 30, ~~2020,~~2021, the Company had contributed ~~$108,000~~$72,000 to the Outside Director Pension Plan and ~~$59,000~~$70,000 in contributions were made to the Other Postretirement Benefit Plans. As of ~~September~~June 30, ~~2020,~~2021, the Company has not revised its expected contributions for the year ending December 31, ~~2020.~~2021.

~~11.~~10. Fair Value of Financial Instruments

The Company carries certain financial assets and financial liabilities at fair value in accordance with GAAP which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP permits entities to choose to measure many financial instruments and certain other items at fair value. At ~~September~~June 30, 2021, the Company carried financial assets and financial liabilities under the fair value option with fair values of $14.5 million and $49.8 million, respectively. At December 31, 2020, the Company carried financial assets and financial liabilities under the fair value option with fair values of $14.5 million and ~~$38.3 million, respectively. At December 31, 2019, the Company carried financial assets and financial liabilities under the fair value option with fair values of $14.3 million and $44.4~~$43.1 million, respectively. The Company did not elect to carry any additional financial assets or financial liabilities under the fair value option during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020.

~~-35-~~-28-

Table of Contents

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								Fair Value		Fair Value		Changes in Fair Values For Items Measured at Fair Value
	Measurements		Measurements		Pursuant to Election of the Fair Value Option								Measurements		Measurements		Pursuant to Election of the Fair Value Option
	at September 30,		at December 31,		Three Months Ended				Nine Months Ended				at June 30,		at December 31,		Three Months Ended				Six Months Ended
(In thousands)	2020		2019		September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019		2021		2020		June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020

Mortgage-backed securities	$	672	$	772	$	(1)	$	0	$	1	$	2	$	441	$	505	$	(1)	$	(1)	$	(2)	$	2
Other securities		13,841		13,548		83		107		120		470		14,080		13,998		176		(182)		1		37
Borrowed funds		38,287		44,384		(2,897)		(599)		5,086		(2,353)		49,814		43,136		(5,528)		10,334		(6,988)		7,983
Net gain (loss) from fair value adjustments ⁽¹⁾⁽²⁾					$	(2,815)	$	(492)	$	5,207	$	(1,881)					$	(5,353)	$	10,151	$	(6,989)	$	8,022

(1)

The net gain (loss) from fair value adjustments presented in the above table does not include net gains (losses) of ~~$0.6~~($1.2) million and ~~($1.6)~~$0.1 million for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, from the change in the fair value of interest rate swaps.

(2)

The net gain (loss) from fair value adjustments presented in the above table does not include net ~~losses~~gains (losses) of ~~$3.2~~$1.4 million and ~~$4.3~~($3.8) million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, from the change in the fair value of interest rate swaps.

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

The borrowed funds had a contractual principal amount of $61.9 million at both ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. The fair value of borrowed funds includes accrued interest payable of $0.1 million ~~and $0.2 million~~each at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019, respectively.~~2020.

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

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

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

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

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

Level 1 – when quoted market prices are available in an active market. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, Level 1 included one mutual fund.

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Notes to Consolidated Financial Statements

(Unaudited)

Level 2 – when quoted market prices are not available, fair value is estimated using quoted market prices for similar financial instruments and adjusted for differences between the quoted instrument and the instrument being valued. Fair value can also be estimated by using pricing models, or discounted cash flows. Pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices and credit spreads. In addition to observable market information, models also incorporate maturity and cash flow assumptions. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, Level 2 included mortgage-backed securities, CLO’s, corporate debt, municipals and interest rate swaps.

Level 3 – when there is limited activity or less transparency around inputs to the valuation, financial instruments are classified as Level 3. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, Level 3 included trust preferred securities owned and junior subordinated debentures issued by the Company.

The methods described above may produce fair values that may not be indicative of net realizable value or reflective of future fair values. While the Company believes its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies, assumptions and models to determine fair value of certain financial instruments could produce different estimates of fair value at the reporting date.

The following table sets forth the Company’s assets and liabilities that are carried at fair value on a recurring basis, including those reported at fair value under the fair value option, and the level that was used to determine their fair value, at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


	Quoted Prices																Quoted Prices
	in Active Markets				Significant Other				Significant Other								in Active Markets				Significant Other				Significant Other
	for Identical Assets				Observable Inputs				Unobservable Inputs				Total carried at fair value				for Identical Assets				Observable Inputs				Unobservable Inputs				Total carried at fair value
	(Level 1)				(Level 2)				(Level 3)				on a recurring basis				(Level 1)				(Level 2)				(Level 3)				on a recurring basis
	2020		2019		2020		2019		2020		2019		2020		2019		2021		2020		2021		2020		2021		2020		2021		2020

	(In thousands)																(In thousands)
Assets:
Securities available for sale
Mortgage-backed Securities	$	0	$	0	$	386,235	$	523,849	$	0	$	0	$	386,235	$	523,849	$	0	$	0	$	596,661	$	404,460	$	0	$	0	$	596,661	$	404,460
Other securities		12,691		12,216		220,881		235,103		1,149		1,332		234,721		248,651		12,585		12,703		210,704		229,516		1,495		1,295		224,784		243,514
Interest rate swaps		0		0		416		2,352		0		0		416		2,352		0		0		6,998		1,319		0		0		6,998		1,319

Total assets	$	12,691	$	12,216	$	607,532	$	761,304	$	1,149	$	1,332	$	621,372	$	774,852	$	12,585	$	12,703	$	814,363	$	635,295	$	1,495	$	1,295	$	828,443	$	649,293


Liabilities:
Borrowings	$	0	$	0	$	0	$	0	$	38,287	$	44,384	$	38,287	$	44,384	$	0	$	0	$	0	$	0	$	49,814	$	43,136	$	49,814	$	43,136
Interest rate swaps		0		0		69,595		19,653		0		0		69,595		19,653		0		0		42,520		60,987		0		0		42,520		60,987

Total liabilities	$	0	$	0	$	69,595	$	19,653	$	38,287	$	44,384	$	107,882	$	64,037	$	0	$	0	$	42,520	$	60,987	$	49,814	$	43,136	$	92,334	$	104,123

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following ~~tables set~~table sets forth the Company’s assets and liabilities that are carried at fair value on a recurring basis, classified within Level 3 of the valuation hierarchy for the periods indicated:

For the three months ended

September 30, 2020

September 30, 2019

Trust preferred

Junior subordinated

Trust preferred

Junior subordinated


securities

debentures

securities

debentures

(In thousands)

Beginning balance

$
1,068

$
35,570

$
1,303

$
43,414
Net (loss) gain from fair value adjustment of financial assets ⁽¹⁾

82

—

15

—
Net (gain) loss from fair value adjustment of financial liabilities ⁽¹⁾

—

2,897

—

599
Decrease in accrued interest receivable

(1)

—

—

—
Decrease in accrued interest payable

—

(19)

—

(15)
Change in unrealized gains included in other comprehensive income

—

(161)

—

(88)
Ending balance

$
1,149

$
38,287

$
1,318

$
43,910

Changes in unrealized gains held at period end

$
—

2,384

—

1,513

~~(1)~~

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


	For the nine months ended								For the three months ended
	September 30, 2020				September 30, 2019				June 30, 2021				June 30, 2020
	Trust preferred		Junior subordinated		Trust preferred		Junior subordinated		Trust preferred		Junior subordinated		Trust preferred		Junior subordinated
	securities		debentures		securities		debentures		securities		debentures		securities		debentures

									(In thousands)
	(In thousands)
Beginning balance	$	1,332	$	44,384	$	1,256	$	41,849	$	1,342	$	44,712	$	1,355	$	45,126
Net (loss) gain from fair value adjustment of financial assets ⁽¹⁾		(180)		—		64		—		153		—		(285)		—
Net (gain) loss from fair value adjustment of financial liabilities⁽¹⁾		—		(5,086)		—		2,353		—		5,528		—		(10,334)
Decrease in accrued interest receivable		(3)		—		(2)		—		—		—		(2)		—
Decrease in accrued interest payable		—		(104)		—		(27)		—		(3)		—		(61)
Change in unrealized gains included in other comprehensive income		—		(907)		—		(265)		—		(423)		—		839
Ending balance	$	1,149	$	38,287	$	1,318	$	43,910	$	1,495	$	49,814	$	1,068	$	35,570

Changes in unrealized gains held at period end	$	—		2,384		—		1,513	$	—		2,973		—		2,223

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


	For the six months ended
	June 30, 2021				June 30, 2020
	Trust preferred		Junior subordinated		Trust preferred		Junior subordinated
	securities		debentures		securities		debentures

	(In thousands)
Beginning balance	$	1,295	$	43,136	$	1,332	$	44,384
Net gain from fair value adjustment of financial assets ⁽¹⁾		200		—		(261)		—
Net loss from fair value adjustment of financial liabilities⁽¹⁾		—		6,987		—		(7,983)
Decrease in accrued interest receivable		—		—		(3)		—
Increase (decrease) in accrued interest payable		—		(6)		—		(85)
Change in unrealized gains included in other comprehensive income		—		(303)		—		(746)
Ending balance	$	1,495	$	49,814	$	1,068	$	35,570

Changes in unrealized gains held at period end	$	—		2,973		—		2,223

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

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, there were no0 transfers between Levels 1, 2 and 3.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following tables present the quantitative information about recurring Level 3 fair value of financial instruments and the fair value measurements at the periods indicated:

September 30, 2020

June 30, 2021

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

(Dollars in thousands)

Assets:

Trust preferred securities

1,149

Discounted cash flows

Discount rate

n/a

5.0

1,495

Discounted cash flows

Discount rate

n/a

3.2

Liabilities:

Junior subordinated debentures

38,287

Discounted cash flows

Discount rate

n/a

5.0

49,814

Discounted cash flows

Discount rate

n/a

3.2

December 31, 2019

December 31, 2020

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

(Dollars in thousands)

Assets:

Trust preferred securities

1,332

Discounted cash flows

Discount rate

n/a

4.2

1,295

Discounted cash flows

Discount rate

n/a

4.2

Liabilities:

Junior subordinated debentures

44,384

Discounted cash flows

Discount rate

n/a

4.2

43,136

Discounted cash flows

Discount rate

n/a

4.2

The significant unobservable inputs used in the fair value measurement of the Company’s trust preferred securities and junior subordinated debentures valued under Level 3 at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, are the effective yields used in the cash flow models. Significant increases or decreases in the effective yield in isolation would result in a significantly lower or higher fair value measurement.

The following table sets forth the Company’s assets and liabilities that are carried at fair value on a non-recurring basis and the level that was used to determine their fair value at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


	Quoted Prices																Quoted Prices
	in Active Markets				Significant Other				Significant Other								in Active Markets				Significant Other				Significant Other
	for Identical Assets				Observable Inputs				Unobservable Inputs				Total carried at fair value				for Identical Assets				Observable Inputs				Unobservable Inputs				Total carried at fair value
	(Level 1)				(Level 2)				(Level 3)				on a non-recurring basis				(Level 1)				(Level 2)				(Level 3)				on a non-recurring basis
	2020		2019		2020		2019		2020		2019		2020		2019		2021		2020		2021		2020		2021		2020		2021		2020

	(In thousands)																(In thousands)
Assets
Non-accrual loans	$	0	$	0	$	0	$	0	$	4,167	$	1,081	$	4,167	$	1,081	$	0	$	0	$	0	$	0	$	10,105	$	11,980	$	10,105	$	11,980
Other real estate owned		0		0		0		0		0		239		0		239

Total assets	$	0	$	0	$	0	$	0	$	4,167	$	1,320	$	4,167	$	1,320	$	0	$	0	$	0	$	0	$	10,105	$	11,980	$	10,105	$	11,980

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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:

September 30, 2020

June 30, 2021

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

(Dollars in thousands)

Assets:

Non-accrual loans

2,112

Sales approach

Reduction for planned expedited disposal

(100.0%) to 15.0%

(74.0%)

8,865

Sales approach

Reduction for planned expedited disposal

8.0% to 15.0%

12.0%

Non-accrual loans

1,057

Discounted Cashflow

Discount Rate

4.3% to 5.5%

4.8%

Probability of Default

35.0% to 50.0%

41.7%

Non-accrual loans

2,055

Discounted Cash flow

Discount Rate

4.3% to 6.4%

5.1%

183

Blended Income and Sales Approach

Adjustment to sales comparison value to reconcile differences between comparable sales

0.0% to 5.0%

2.5%

Probability of Default

20.0% to 35.0%

29.0%

Capitalization rate

8.3%

Probability of Default

15.0%

At December 31, 2019

At December 31, 2020

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

(Dollars in thousands)

Assets:

Impaired loans

809

Discounted Cash flow

Discount Rate

6.4%

Non-accrual loans

10,690

Sales approach

Reduction for planned expedited disposal

(100.0%) to 15.0%

6.8%

Probability of Default

20.0%

Impaired loans

272

Blended income and sales approach

Adjustment to sales comparison value to reconcile differences between comparable sales

(10.0%) to 15.0%

2.5%

Non-accrual loans

1,290

Discounted Cashflow

Discount Rate

4.3% to 5.5%

4.9%

Capitalization Rate

9.5%

Probability of Default

20.0% to 35.0%

27.4%

Reduction for planned expedited disposal

15.0%

Other real estate owned

239

Sales approach

Reduction for planned expedited disposal

0.5% to 12.5%

6.5%

The Company did 0t have any liabilities that were carried at fair value on a non-recurring basis at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

The methods and assumptions used to estimate fair value at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are as follows:

Securities:

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

Non-accrual Loans:

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

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PART I – FINANCIAL INFORMATION

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Notes to Consolidated Financial Statements

(Unaudited)

appraised or internally estimated value of the property, except for taxi medallion loans. The fair value of the underlying collateral of taxi medallion loans is the most recent reported arm’s length transaction. When there is no recent sale activity, the fair value is calculated using capitalization rates. See Note 5 (“Loans”) of the Notes to the Consolidated Financial Statements.

Junior Subordinated Debentures:

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

Other Real Estate Owned and Other Repossessed Assets:

The fair value for OREO is based on appraised value through a current appraisal, or sometimes through an internal review, additionally adjusted by the estimated costs to sell the property. The fair value for other repossessed assets are based upon the most recently reported arm’s length sales transaction. When there is no recent sale activity, the fair value is calculated using capitalization rates.

Interest Rate Swaps:

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

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:


	September 30, 2020										June 30, 2021
	Carrying		Fair								Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3		Amount		Value		Level 1		Level 2		Level 3

	(In thousands)										(In thousands)
Assets:

Cash and due from banks	$	75,560	$	75,560	$	75,560	$	0	$	0	$	145,971	$	145,971	$	145,971	$	0	$	0
Securities held-to-maturity
Mortgage-backed securities		7,919		9,198		0		9,198		0		7,904		8,848		0		8,848		0
Other securities		50,654		53,268		0		0		53,268		49,986		53,598		0		0		53,598
Securities available for sale
Mortgage-backed securities		386,235		386,235		0		386,235		0		596,661		596,661		0		596,661		0
Other securities		234,721		234,721		12,691		220,881		1,149		224,784		224,784		12,585		210,704		1,495
Loans		5,941,398		6,030,154		0		0		6,030,154		6,718,806		6,702,618		0		0		6,702,618
FHLB-NY stock		57,119		57,119		0		57,119		0		41,630		41,630		0		41,630		0
Accrued interest receivable		36,068		36,068		1		1,473		34,594		43,803		43,803		2		1,705		42,096
Interest rate swaps		416		416		0		416		0		6,998		6,998		0		6,998		0

Liabilities:
Deposits	$	4,963,495	$	4,970,920	$	3,911,851	$	1,059,069	$	0	$	6,357,020	$	6,361,050	$	5,336,405	$	1,024,645	$	0
Borrowings		1,323,975		1,333,147		0		1,294,860		38,287		971,827		973,198		0		923,384		49,814
Accrued interest payable		6,111		6,111		0		6,111		0		4,675		4,675		0		4,675		0
Interest rate swaps		69,595		69,595		0		69,595		0		42,520		42,520		0		42,520		0

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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


	December 31, 2019										December 31, 2020
	Carrying		Fair								Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3		Amount		Value		Level 1		Level 2		Level 3

	(In thousands)										(In thousands)
Assets:

Cash and due from banks	$	49,787	$	49,787	$	49,787	$	0	$	0	$	157,388	$	157,388	$	157,388	$	0	$	0
Securities held-to-maturity
Mortgage-backed securities		7,934		8,114		0		8,114		0		7,914		8,991		0		8,991		0
Other securities		50,954		53,998		0		0		53,998		49,918		54,538		0		0		54,538
Securities available for sale
Mortgage-backed securities		523,849		523,849		0		523,849		0		404,460		404,460		0		404,460		0
Other securities		248,651		248,651		12,216		235,103		1,332		243,514		243,514		12,703		229,516		1,295
Loans		5,772,206		5,822,124		0		0		5,822,124		6,704,674		6,793,885		0		0		6,793,885
FHLB-NY stock		56,921		56,921		0		56,921		0		43,439		43,439		0		43,439		0
Accrued interest receivable		25,722		25,722		9		2,519		23,194		44,041		44,041		2		1,389		42,650
Interest rate swaps		2,352		2,352		0		2,352		0		1,319		1,319		0		1,319		0

Liabilities:
Deposits	$	5,066,424	$	5,070,046	$	3,628,534	$	1,441,512	$	0	$	6,136,355	$	6,141,775	$	4,997,994	$	1,143,781	$	0
Borrowings		1,237,231		1,389,883		0		1,345,499		44,384		1,020,895		1,017,573		0		974,437		43,136
Accrued interest payable		6,752		6,752		0		6,752		0		4,755		4,755		0		4,755		0
Interest rate swaps		19,653		19,653		0		19,653		0		60,987		60,987		0		60,987		0

~~12. ��~~11. Derivative Financial Instruments

At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company’s derivative financial instruments consist of interest rate swaps. The Company’s interest rate swaps are used for four purposes: 1) to mitigate the Company’s exposure to rising interest rates on a portion ($18.0 million) of its floating rate junior subordinated debentures that have a contractual value of $61.9 million, at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019;~~2020; 2) to mitigate the Company’s exposure to rising interest rates on certain fixed rate loans totaling ~~$318.6~~$310.9 million and ~~$326.0~~$316.1 million at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively; 3) to facilitate risk management strategies for our loan customers with ~~$41.2~~$231.4 million of swaps outstanding, which include ~~$20.6~~$115.7 million with customers and ~~$20.6~~$115.7 million ~~were from~~with bank counterparties at ~~September~~June 30, ~~2020~~2021 and $125.6 million of swaps outstanding, which include $62.8 million with customers and $62.8 million with bank counterparties at December 31, 2020; and 4) to mitigate exposure to rising interest rates on certain short-term advances totaling $996.5 million and $1,021.5 million ~~and $541.5 million~~ at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, derivatives with a combined notional amount of ~~$59.2~~$249.4 million and ~~$18.0~~$143.6 million, respectively, were not designated as hedges. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, derivatives with a combined notional amount of ~~$318.6~~$310.9 million and ~~$326.0~~$316.1 million, respectively, were designated as fair value hedges. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, derivatives with a combined notional amount of ~~$1,021.5~~$996.5 million and ~~$541.5~~$1,021.5 million, respectively, were designated as cash flow hedges.

For cash flow hedges, the changes in the fair value of the derivative is reported in accumulated other comprehensive income (loss), net of tax. Amounts in accumulated other comprehensive income (loss) are reclassified into earnings in the same period during which the hedged forecasted transaction effects earnings. During the three months ended ~~September~~June 30, 2021 and 2020, ~~and 2019, $1.4~~$2.6 million and ~~$0.4~~$0.2 million, respectively, were reclassified from accumulated other comprehensive loss to ~~interest expense. During the nine months ended September 30, 2020 and 2019, $2.1 million and $1.3 million,~~

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

~~respectively, were reclassified from accumulated other comprehensive loss to~~ interest expense. The estimated amount to be reclassified in the next 12 months out of ~~the~~ accumulated other comprehensive income (loss) ~~into earnings~~ is ~~$2.9~~$10.5 million.

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

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


	September 30, 2020				December 31, 2019				June 30, 2021				December 31, 2020
	Notional		Net Carrying		Notional		Net Carrying		Notional		Net Carrying		Notional		Net Carrying
	Amount		Value ⁽¹⁾		Amount		Value ⁽¹⁾		Amount		Value ⁽¹⁾		Amount		Value ⁽¹⁾

	(In thousands)								(In thousands)
Interest rate swaps (fair value hedge)	$	—	$	—	$	139,960	$	2,352
Interest rate swaps (non-hedge)		20,600		416		—		—	$	115,681	$	3,241	$	62,779	$	1,319
Interest rate swaps (cash flow hedge)										355,000		3,757		—		—
Interest rate swaps (fair value hedge)		318,569		(34,078)		186,009		(7,769)		310,939		(17,858)		316,051		(28,689)
Interest rate swaps (cash flow hedge)		1,021,500		(28,527)		541,500		(8,350)		641,500		(17,165)		1,021,500		(25,300)
Interest rate swaps (non-hedge)		38,600		(6,990)		18,000		(3,534)		133,681		(7,497)		80,779		(6,998)
Total derivatives	$	1,399,269	$	(69,179)	$	885,469	$	(17,301)	$	1,556,801	$	(35,522)	$	1,481,109	$	(59,668)

(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

For the nine months ended

September 30,

September 30,
(In thousands)
Affected Line Item in the Statement Where Net income is Presented

2020

2019

2020

2019
Financial Derivatives:









Other interest expense

$
(132)

$
(38)

$
(298)

$
(87)

Net gain (loss) from fair value adjustments

590

(1,632)

(3,220)

(4,279)
Interest rate swaps (non-hedge)

458

(1,670)

(3,518)

(4,366)

Interest rate swaps (fair value hedge)
Interest and fees on loans

(1,158)

(1,041)

(4,863)

(1,833)

Interest rate swaps (cash flow hedge)
Other interest expense

(2,511)

301

(4,057)

1,362

Net loss

$
(3,211)

$
(2,410)

$
(12,438)

$
(4,837)


		For the three months ended				For the six months ended
		June 30,				June 30,
(In thousands)	Affected Line Item in the Statement Where Net income is Presented	2021		2020		2021		2020
Financial Derivatives:
	Other interest expense	$	(138)	$	(101)	$	(272)	$	(166)
	Net gain (loss) from fair value adjustments		(1,195)		54		1,423		(3,810)
Interest rate swaps (non-hedge)			(1,333)		(47)		1,151		(3,976)

Interest rate swaps (fair value hedge)	Interest and fees on loans		(2,062)		(1,456)		(2,025)		(3,705)

Interest rate swaps (cash flow hedge)	Other interest expense		(2,619)		(1,156)		(5,205)		(1,546)

Net loss		$	(6,014)	$	(2,659)	$	(6,079)	$	(9,227)

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

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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:


	September 30, 2020												June 30, 2021
							Gross Amounts Not Offset in the												Gross Amounts Not Offset in the
							Consolidated Statement of												Consolidated Statement of
			Gross Amount Offset in		Net Amount of Assets		Condition								Gross Amount Offset in		Net Amount of Assets		Condition
	Gross Amount of		the Statement of		Presented in the Statement of		Financial		Cash Collateral				Gross Amount of		the Statement of		Presented in the Statement of		Financial		Cash Collateral
(In thousands)	Recognized Assets		Condition		Condition		Instruments		Received		Net Amount		Recognized Assets		Condition		Condition		Instruments		Received		Net Amount

Interest rate swaps	$	416	$	0	$	416	$	0	$	0	$	416	$	6,998	$	0	$	6,998	$	0	$	0	$	6,998

							Gross Amounts Not Offset in the												Gross Amounts Not Offset in the
							Consolidated Statement of												Consolidated Statement of
	Gross Amount of		Gross Amount Offset in		Net Amount of Liabilities		Condition						Gross Amount of		Gross Amount Offset in		Net Amount of Liabilities		Condition
	Recognized		the Statement of		Presented in the Statement of		Financial		Cash Collateral				Recognized		the Statement of		Presented in the Statement of		Financial		Cash Collateral
(In thousands)	Liabilities		Condition		Condition		Instruments		Pledged		Net Amount		Liabilities		Condition		Condition		Instruments		Pledged		Net Amount

Interest rate swaps	$	69,595	$	0	$	69,595	$	73,812	$	450	$	(4,667)	$	42,520	$	0	$	42,520	$	0	$	41,817	$	703


	December 31, 2019												December 31, 2020
							Gross Amounts Not Offset in the												Gross Amounts Not Offset in the
							Consolidated Statement of												Consolidated Statement of
			Gross Amount Offset in		Net Amount of Assets		Condition								Gross Amount Offset in		Net Amount of Assets		Condition
	Gross Amount of		the Statement of		Presented in the Statement of		Financial		Cash Collateral				Gross Amount of		the Statement of		Presented in the Statement of		Financial		Cash Collateral
(In thousands)	Recognized Assets		Condition		Condition		Instruments		Received		Net Amount		Recognized Assets		Condition		Condition		Instruments		Received		Net Amount

Interest rate swaps	$	2,352	$	0	$	2,352	$	0	$	—	$	2,352	$	1,319	$	0	$	1,319	$	0	$	—	$	1,319

							Gross Amounts Not Offset in the												Gross Amounts Not Offset in the
							Consolidated Statement of												Consolidated Statement of
	Gross Amount of		Gross Amount Offset in		Net Amount of Liabilities		Condition						Gross Amount of		Gross Amount Offset in		Net Amount of Liabilities		Condition
	Recognized		the Statement of		Presented in the Statement of		Financial		Cash Collateral				Recognized		the Statement of		Presented in the Statement of		Financial		Cash Collateral
(In thousands)	Liabilities		Condition		Condition		Instruments		Pledged		Net Amount		Liabilities		Condition		Condition		Instruments		Pledged		Net Amount

Interest rate swaps	$	19,653	$	0	$	19,653	$	19,265	$	0	$	388	$	60,987	$	0	$	60,987	$	99	$	63,517	$	(2,629)

~~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 September 30, 2020, the Company is undergoing examination for its New York State income tax returns for 2014, 2015 and 2016 and its New York City income tax return for 2015, 2016 and 2017.

~~-44-~~

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~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Income tax provisions are summarized as follows:~~

For the three months

For the nine months

ended September 30,

ended September 30,


2020

2019

2020

2019

(In thousands)

Federal:









Current

$
4,626

$
3,578

$
11,290

$
9,354

Deferred

(1,267)

(1,121)

(2,635)

(1,973)

Total federal tax provision

3,359

2,457

8,655

7,381

State and Local:

Current

1,491

1,345

2,975

2,518

Deferred

(361)

(1,266)

(1,539)

(1,804)

Total state and local tax provision

1,130

79

1,436

714

Total income tax provision

$
4,489

$
2,536

$
10,091

$
8,095

~~-45-~~-37-

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

~~14.~~12. Accumulated Other Comprehensive Income (Loss):

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


	For the three months ended September 30, 2020										For the three months ended June 30, 2021
	Unrealized Gains		Unrealized Gains								Unrealized Gains		Unrealized Gains
	(Losses) on		(Losses) on				Fair Value				(Losses) on		(Losses) on				Fair Value
	Available for Sale		Cash flow		Defined Benefit		Option Elected				Available for Sale		Cash flow		Defined Benefit		Option Elected
	Securities		Hedges		Pension Items		on Liabilities		Total		Securities		Hedges		Pension Items		on Liabilities		Total

	(In thousands)										(In thousands)

Beginning balance, net of tax	$	(2,708)	$	(21,473)	$	(878)	$	1,537	$	(23,522)	$	(927)	$	(9,723)	$	(1,818)	$	1,765	$	(10,703)

Other comprehensive income before reclassifications, net of tax		3,185		937		0		111		4,233		1,497		(1,267)		0		276		506

Amounts reclassified from accumulated other comprehensive income, net of tax		0		929		52		0		981		(85)		1,788		77		0		1,780

Net current period other comprehensive income, net of tax		3,185		1,866		52		111		5,214		1,412		521		77		276		2,286

Ending balance, net of tax	$	477	$	(19,607)	$	(826)	$	1,648	$	(18,308)	$	485	$	(9,202)	$	(1,741)	$	2,041	$	(8,417)

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


	For the three months ended September 30, 2019										For the three months ended June 30, 2020
	Unrealized Gains		Unrealized Gains								Unrealized Gains		Unrealized Gains
	(Losses) on		(Losses) on				Fair Value				(Losses) on		(Losses) on				Fair Value
	Available for Sale		Cash flow		Defined Benefit		Option Elected				Available for Sale		Cash flow		Defined Benefit		Option Elected
	Securities		Hedges		Pension Items		on Liabilities		Total		Securities		Hedges		Pension Items		on Liabilities		Total

	(In thousands)										(In thousands)

Beginning balance, net of tax	$	(3,815)	$	(6,132)	$	(1,658)	$	989	$	(10,616)	$	(14,159)	$	(19,468)	$	(930)	$	2,117	$	(32,440)

Other comprehensive income before reclassifications, net of tax		(475)		(1,664)		0		61		(2,078)		11,414		(2,404)		0		(580)		8,430

Amounts reclassified from accumulated other comprehensive income, net of tax		0		(282)		7		0		(275)		37		399		52		0		488

Net current period other comprehensive income (loss), net of tax		(475)		(1,946)		7		61		(2,353)		11,451		(2,005)		52		(580)		8,918

Ending balance, net of tax	$	(4,290)	$	(8,078)	$	(1,651)	$	1,050	$	(12,969)	$	(2,708)	$	(21,473)	$	(878)	$	1,537	$	(23,522)


	For the nine months ended September 30, 2020										For the six months ended June 30, 2021
	Unrealized Gains		Unrealized Gains								Unrealized Gains		Unrealized Gains
	(Losses) on		(Losses) on				Fair Value				(Losses) on		(Losses) on				Fair Value
	Available for Sale		Cash flow		Defined Benefit		Option Elected				Available for Sale		Cash flow		Defined Benefit		Option Elected
	Securities		Hedges		Pension Items		on Liabilities		Total		Securities		Hedges		Pension Items		on Liabilities		Total

	(In thousands)										(In thousands)

Beginning balance, net of tax	$	(3,982)	$	(5,863)	$	(983)	$	1,021	$	(9,807)	$	1,290	$	(17,521)	$	(1,884)	$	1,849	$	(16,266)

Other comprehensive income before reclassifications, net of tax		4,397		(15,215)		0		627		(10,191)		(720)		4,706		—		192		4,178

Amounts reclassified from accumulated other comprehensive income, net of tax		62		1,471		157		0		1,690		(85)		3,613		143		—		3,671

Net current period other comprehensive income (loss), net of tax		4,459		(13,744)		157		627		(8,501)		(805)		8,319		143		192		7,849

Ending balance, net of tax	$	477	$	(19,607)	$	(826)	$	1,648	$	(18,308)	$	485	$	(9,202)	$	(1,741)	$	2,041	$	(8,417)

~~-47-~~

~~Table of Contents~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

For the nine months ended September 30, 2019

Unrealized Gains

Unrealized Gains

(Losses) on

(Losses) on

Fair Value

Available for Sale

Cash flow

Defined Benefit

Option Elected


Securities

Hedges

Pension Items

on Liabilities

Total

(In thousands)

Beginning balance, net of tax

$
(15,649)

$
3,704

$
(1,673)

$
866

$
(12,752)

Other comprehensive income before reclassifications, net of tax

11,349

(10,914)

0

184

619

Amounts reclassified from accumulated other comprehensive income (loss), net of tax

10

(868)

22

0

(836)

Net current period other comprehensive income, net of tax

11,359

(11,782)

22

184

(217)

Ending balance, net of tax

$
(4,290)

$
(8,078)

$
(1,651)

$
1,050

$
(12,969)

~~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 September 30, 2020~~
	~~Amounts Reclassified from~~
~~Details about Accumulated Other~~	~~Accumulated Other~~			~~Affected Line Item in the Statement~~
~~Comprehensive Loss Components~~	~~Comprehensive Loss~~			~~Where Net Income is Presented~~
~~(In thousands)~~
~~Cash flow hedges:~~
~~Interest rate swaps~~	$	~~(1,352)~~		~~Other interest expense~~
		~~423~~		~~Provision for income taxes~~
	$	~~(929)~~		~~Net of tax~~
~~Amortization of defined benefit pension items:~~
~~Actuarial losses~~	$	~~(97)~~	⁽¹⁾	~~Other operating expense~~
~~Prior service credits~~		21	⁽¹⁾	~~Other operating expense~~
		~~(76)~~		~~Total before tax~~
		24		~~Provision for income taxes~~
	$	~~(52)~~		~~Net of tax~~

~~-48-~~-39-

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


For the three months ended September 30, 2019
	Amounts Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Statement
Comprehensive Loss Components	Comprehensive Loss			Where Net Income is Presented
(In thousands)

Cash flow hedges:
Interest rate swaps	$	409		Other interest expense
		(127)		Provision for income taxes
	$	282		Net of tax	For the six months ended June 30, 2020
					Unrealized Gains		Unrealized Gains
Amortization of defined benefit pension items:
Actuarial losses	$	(33)	⁽¹⁾	Other operating expense
Prior service credits		22	⁽¹⁾	Other operating expense
		(11)		Total before tax	(Losses) on		(Losses) on				Fair Value
		4		Provision for income taxes	Available for Sale		Cash flow		Defined Benefit		Option Elected
	$	(7)		Net of tax	Securities		Hedges		Pension Items		on Liabilities		Total

					(In thousands)

Beginning balance, net of tax					$	(3,982)	$	(5,863)	$	(983)	$	1,021	$	(9,807)

Other comprehensive income before reclassifications, net of tax						1,212		(16,152)		—		516		(14,424)

Amounts reclassified from accumulated other comprehensive income (loss), net of tax						62		542		105		—		709

Net current period other comprehensive income, net of tax						1,274		(15,610)		105		516		(13,715)

Ending balance, net of tax					$	(2,708)	$	(21,473)	$	(878)	$	1,537	$	(23,522)

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 June 30, 2021
	Amounts Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Statement
Comprehensive Loss Components	Comprehensive Loss			Where Net Income is Presented
(In thousands)
Unrealized gains on available for sale securities	$	123		Net gains on sale of securities
		(38)		Provision for income taxes
	$	85		Net of tax
Cash flow hedges:
Interest rate swaps	$	(2,605)		Other interest expense
		817		Provision for income taxes
	$	(1,788)		Net of tax
Amortization of defined benefit pension items:
Actuarial losses	$	(133)	⁽¹⁾	Other operating expense
Prior service credits		21	⁽¹⁾	Other operating expense
		(112)		Total before tax
		35		Provision for income taxes
	$	(77)		Net of tax

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


For the ~~nine~~three months ended ~~September~~June 30, 2020
	Amounts Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Statement
Comprehensive Loss Components	Comprehensive Loss			Where Net Income is Presented
(In thousands)

Unrealized losses on available for sale securities	$	(54)		Net loss on sale of securities
		17		Provision for income taxes
	$	(37)		Net of tax

Cash flow hedges:
Interest rate swaps	$	(581)		Other interest expense
		182		Provision for income taxes
	$	(399)		Net of tax

Amortization of defined benefit pension items:
Actuarial losses	$	(98)	⁽¹⁾	Other operating expense
Prior service credits		23	⁽¹⁾	Other operating expense
		(75)		Total before tax
		23		Provision for income taxes
	$	(52)		Net of tax

(1)	These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 10 (“Pension and Other Postretirement Benefit Plans”) for additional information.


For the six months ended June 30, 2021
	Amounts Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Statement
Comprehensive Loss Components	Comprehensive Loss			Where Net Income is Presented
(In thousands)
Unrealized gains on available for sale securities	$	123		Net gains on sale of securities
		(38)		Provision for income taxes
	$	85		Net of tax
Cash flow hedges:
Interest rate swaps	$	(5,242)		Other interest expense
		1,629		Tax benefit
	$	(3,613)		Net of tax
Amortization of defined benefit pension items:
Actuarial losses	$	(250)	⁽¹⁾	Other operating expense
Prior service credits		43	⁽¹⁾	Other operating expense
		(207)		Total before tax
		64		Provision for income taxes
	$	(143)		Net of tax

-41-

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


For the six months ended June 30, 2020
	Amounts Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Statement
Comprehensive Loss Components	Comprehensive Loss			Where Net Income is Presented
(In thousands)

Unrealized losses on available for sale securities	$	(91)		Net loss on sale of securities
		29		Provision for income taxes
	$	(62)		Net of tax
~~Cash flow hedges:~~
Cash flow hedges:
Interest rate swaps	$	~~(2,140)~~(789)		Other interest expense
		~~669~~247		~~Tax benefit~~Provision for income taxes
	$	~~(1,471)~~(542)		Net of tax

Amortization of defined benefit pension items:
Actuarial losses	$	~~(292)~~(195)	⁽¹⁾	Other operating expense
Prior service credits		6443	⁽¹⁾	Other operating expense
		~~(228)~~(152)		Total before tax
		7147		Provision for income taxes
	$	~~(157)~~(105)		Net of tax

~~-49-~~

~~Table of Contents~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

For the nine months ended September 30, 2019

Amounts Reclassified from

Details about Accumulated Other

Accumulated Other

Affected Line Item in the Statement
Comprehensive Loss Components

Comprehensive Loss

Where Net Income is Presented
(In thousands)




Unrealized losses on available for sale securities

$
(15)

Net loss on sale of securities

5

Provision for income taxes

$
(10)

Net of tax

Cash flow hedges:



Interest rate swaps

$
1,257

Other interest expense

(389)

Provision for income taxes

$
868

Net of tax

Amortization of defined benefit pension items:



Actuarial losses

$
(96)
⁽¹⁾
Other operating expense
Prior service credits

64
⁽¹⁾
Other operating expense

(32)

Total before tax

10

Provision for income taxes

$
(22)

Net of tax

(1)	These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 10 (“Pension and Other Postretirement Benefit Plans”) for additional information.

~~15.~~13. Regulatory Capital

Under current capital regulations, the Bank is required to comply with four separate capital adequacy ~~standards.~~standards and a Capital Conservation Buffer (“CCB”). As of ~~September~~June 30, ~~2020,~~2021, the Bank continues to be categorized as “well-capitalized” under the prompt corrective action regulations and continues to exceed all regulatory capital requirements. The Bank is also required to comply with a Capital Conservation Buffer (“CCB”). The CCB is designed to establish a capital range above minimum capital requirements and impose constraints on dividends, share buybacks and discretionary bonus payments when capital levels fall below prescribed levels. The minimum CCB is 2.50%. The CCB for the Bank at ~~September~~June 30, 2021 and December 31, 2020 was ~~5.54%.~~4.88% and 4.30%, respectively.

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Notes to Consolidated Financial Statements

(Unaudited)

Set forth below is a summary of the Bank’s compliance with banking regulatory capital standards.


	September 30, 2020				December 31, 2019				June 30, 2021				December 31, 2020
			Percent of				Percent of				Percent of				Percent of
	Amount		Assets		Amount		Assets		Amount		Assets		Amount		Assets

	(Dollars in thousands)								(Dollars in thousands)
Tier I (leverage) capital:
Capital level	$	694,041	9.93	%	$	680,749	9.65	%	$	778,707	9.49	%	$	733,010	9.27	%
Requirement to be well capitalized		349,453	5.00			352,581	5.00			410,271	5.00			395,510	5.00
Excess		344,588	4.93			328,168	4.65			368,436	4.49			337,500	4.27

Common Equity Tier I risk-based capital:
Capital level	$	694,041	12.88	%	$	680,749	13.02	%	$	778,707	12.27	%	$	733,010	11.65	%
Requirement to be well capitalized		350,156	6.50			339,944	6.50			412,598	6.50			408,929	6.50
Excess		343,885	6.38			340,805	6.52			366,109	5.77			324,081	5.15

Tier 1 risk-based capital:
Capital level	$	694,041	12.88	%	$	680,749	13.02	%	$	778,707	12.27	%	$	733,010	11.65	%
Requirement to be well capitalized		430,962	8.00			418,393	8.00			507,813	8.00			503,297	8.00
Excess		263,079	4.88			262,356	5.02			270,894	4.27			229,713	3.65

Total risk-based capital:
Capital level	$	729,160	13.54	%	$	702,500	13.43	%	$	817,410	12.88	%	$	773,807	12.30	%
Requirement to be well capitalized		538,702	10.00			522,991	10.00			634,767	10.00			629,121	10.00
Excess		190,458	3.54			179,509	3.43			182,643	2.88			144,686	2.30

The Holding Company is subject to the same regulatory capital requirements as the Bank. As of ~~September~~June 30, ~~2020,~~2021, the Holding Company continues to be categorized as “well-capitalized” under the prompt corrective action regulations and continues to exceed all regulatory capital requirements. The CCB for the Holding Company at ~~September~~June 30, 2021 and December 31, 2020 was ~~5.71%.~~4.98% and 4.54%, respectively.

Set forth below is a summary of the Holding Company’s compliance with banking regulatory capital standards.


	September 30, 2020				December 31, 2019				June 30, 2021				December 31, 2020
			Percent of				Percent of				Percent of				Percent of
	Amount		Assets		Amount		Assets		Amount		Assets		Amount		Assets

	(Dollars in thousands)								(Dollars in thousands)
Tier I (leverage) capital:
Capital level	$	630,380	9.03	%	$	615,500	8.73	%	$	697,591	8.50	%	$	662,987	8.38	%
Requirement to be well capitalized		349,174	5.00			352,581	5.00			410,118	5.00			395,439	5.00
Excess		281,206	4.03			262,919	3.73			287,473	3.50			267,548	3.38

Common Equity Tier I risk-based capital:
Capital level	$	593,344	11.02	%	$	572,651	10.95	%	$	649,367	10.24	%	$	621,247	9.88	%
Requirement to be well capitalized		349,826	6.50			339,929	6.50			412,365	6.50			408,694	6.50
Excess		243,518	4.52			232,722	4.45			237,002	3.74			212,553	3.38

Tier 1 risk-based capital:
Capital level	$	630,380	11.71	%	$	615,500	11.77	%	$	697,591	11.00	%	$	662,987	10.54	%
Requirement to be well capitalized		430,555	8.00			418,374	8.00			507,526	8.00			503,008	8.00
Excess		199,825	3.71			197,126	3.77			190,065	3.00			159,979	2.54

Total risk-based capital:
Capital level	$	740,499	13.76	%	$	712,251	13.62	%	$	823,494	12.98	%	$	794,034	12.63	%
Requirement to be well capitalized		538,194	10.00			522,967	10.00			634,408	10.00			628,760	10.00
Excess		202,305	3.76			189,284	3.62			189,086	2.98			165,274	2.63

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Notes to Consolidated Financial Statements

(Unaudited)

~~16. Subsequent Events~~

Effective close of business October 31, 2020, Flushing Financial Corporation completed its acquisition of Empire Bancorp, Inc. based in Islandia, NY. At the time of the merger, each outstanding share of Empire Bancorp., Inc. was converted into the right to receive $14.04 per share payable in in cash or 0.6548 shares of Flushing Financial Corporation common stock with total consideration consisting 50% in stock and 50% in cash.

Since the closing date of the acquisition occurred after the end of the period covered by this Quarterly Report on Form 10-Q, the Company's unaudited consolidated financial statements included do not reflect the consummation of acquisition. ~~The fair value of the total consideration transferred in the acquisition totaled $87.5 million that consisted of $54.8 million in cash and 2,557,286 shares of~~ ~~Flushing Financial Corporation~~ common stock for all outstanding stock of Empire Bancorp., Inc., which resulted in 100% ownership interest. The Company is still evaluating the fair values of the assets and liabilities assumed in the Empire Bancorp., Inc. acquisition.

Merger-related expenses totaling $1.5 million were recorded in the nine months ended September 30, 2020. At September 30, 2020, Empire Bancorp, Inc. reported total loans of $672.3 million and total deposits of $803.0 million and operated 4 branch locations on Long Island.

~~17.~~14. New Authoritative Accounting Pronouncements

Accounting Standards ~~Adopted in 2020:~~

Effective January 1, 2020, the Company adopted Accounting Standards Topic 326, “Financial Instruments – Credit Losses” which replaced the previously existing U.S. GAAP “incurred loss” approach to “expected credit losses” approach, which is referred as Current Expected Credit Losses (“CECL”). CECL measures the credit loss associated with financial assets carried at amortize cost, including loan receivables, held-to-maturity debt securities, off balance sheet credit exposures and certain leases recognized by a lessor. CECL introduced the concept of purchased credit-deteriorated (PCD) financial assets, in which it requires the estimate of expected credit losses embedded in the purchase price of PCD assets to be estimated and separately recognized as an allowance as of the date of acquisition. It also modifies the accounting of impairment on available-for-sale debt securities by recognizing a credit loss through an allowance for credit.

The Company adopted Topic 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balances sheet exposures. Results for reporting periods beginning after January 1, 2020 are presented under Topic 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. Upon adoption we recorded a cumulative-effect adjustment to retained earnings totaling $1.3 million, $0.9 million, net of tax. The transition adjustment includes changes to the three applicable components of the ACL: increases of $0.4 million in the allowance for loan losses, $0.3 million in the allowance for held-to-maturity debt securities and $0.6 million in the allowance for off-balance sheet items.

~~At January 1, 2020, the reasonable and supportable forecast indicated economic growth and low unemployment.~~

Effective January 1, 2020, the Company adopted ASU No. 2018-13, “Fair Value Measurement (Topic 820)”. The Update modifies the disclosure requirements on fair value measurements in Topic 820. The guidance did not have a significant impact on the Company’s financial positions, results of operations or disclosures.

Effective January 1, 2020, the Company adopted ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The ASU simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. Under this ASU, the Company should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The impairment charge

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~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~is limited to the amount of goodwill allocated to that reporting unit. The guidance did not have a significant impact on the Company’s financial positions, results of operations or disclosures.~~

~~Accounting Standards~~ Pending Adoption:

In ~~August 2018,~~January 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-01, “Reference Rate Reform” (Topic 848), which clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU ~~No. 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20)” providing targeted improvements~~2021-01 also amends the expedients and exceptions in ASC 848 to capture the ~~disclosures required for Defined Benefit Plans. The amendments in in this Update are~~incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by discounting transition. ASU 2021-01 was effective ~~for fiscal years ended after December 15, 2020. Early adoption is permitted. The amendments are to~~upon issuance and generally can be applied ~~on a retrospective basis to all periods presented. The guidance is not expected to have a significant impact on the Company’s financial positions, results of operations or disclosures.~~through December 31, 2022.

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform” (Topic 848), which provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or re-measurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for derivative accounting. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. We anticipate this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old contract resulting in writing off unamortized fees/costs. We are evaluating the impacts of this ASU and have not yet determined whether LIBOR transition and this ASU will have material effects on our business operations and consolidated financial statements. The amendments in this Update apply to contract modifications that replace a reference rate reform and contemporaneous modifications of other terms related to the replacement of the reference rate.

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Management’s Discussions and Analysis of

Financial Condition and Results of Operations

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report should be read in conjunction with the more detailed and comprehensive disclosures included in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. In addition, please read this section in conjunction with our Consolidated Financial Statements and Notes to Consolidated Financial Statements contained herein.

As used in this Quarterly Report, the words “we,” “us,” “our” and the “Company” are used to refer to Flushing Financial Corporation and its direct and indirect wholly owned subsidiaries, Flushing Bank (the “Bank”), Flushing Preferred Funding Corporation, Flushing Service Corporation, and FSB Properties Inc.

Statements contained in this Quarterly Report relating to plans, strategies, objectives, economic performance and trends, projections of results of specific activities or investments and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is inherently subject to risks and uncertainties and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed elsewhere in this Quarterly Report and in other documents filed by us with the Securities and Exchange Commission from time to time, including, without limitation, our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. Forward-looking statements may be identified by terms such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “forecasts,” “goals,” “potential” or “continue” or similar terms or the negative of these terms. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We have no obligation to update these forward-looking statements.

Impact of COVID-19

~~Overview~~Update

In ~~March 2020, the World Health Organization recognized the outbreak of~~response to the novel Coronavirus Disease 2019 (“COVID-19”) as a pandemic. The Spread of COVID-19 has created a global public health crisis that has resulted in unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity, the Company is actively assisting customers by providing modifications in the ~~United States~~form of deferrals of interest, principal and/or escrow for terms ranging from one to thirty months. At June 30, 2021, we had 69 active forbearances for loans with an aggregate outstanding loan balance of approximately $245.8 million resulting in total deferment of $16.2 million in principal, interest and ~~globally, including the markets we serve. In response to~~escrow, down from 134 active forbearances for loans with an aggregate outstanding loan balance of $364.4 million at December 31, 2020. Given the pandemic and current economic environment, we continue to work with our customers to modify loans although the ~~government placed orders for shelter~~pace of requests slowed down. The Company actively participated in ~~place, maintaining social distancing and closed businesses that are not deemed essential.~~

~~Legislative Developments~~

~~On March 27, 2020,~~the Paycheck Protection Program (“PPP”), under the Coronavirus Aid, Relief and Economic Security ~~(“CARES”)~~ Act ~~was signed~~(the “CARES Act”), closing $138.7 million of these loans during the three months ended June 30, 2021 , with $69.2 million in PPP loans forgiven by the SBA during the same time period. We are also a participant in the Main Street Lending Program in order to ~~law. It contains substantial tax and spending provisions intended~~assist customers. Pursuant to ~~address~~ the ~~impact of the COVID-19 pandemic. The~~ CARES Act ~~includes a provision for the Company to opt out of applying the “troubled-debt~~and later modified by Consolidated Appropriations Act, certain loan modifications are not classified as “troubled debt restructuring” (“TDR”) accounting guidance in Accounting Standards Codification (“ASC”) 310-40 for certain loan modifications. Loan modifications made between March 1, 2020 and the earlier of i) December 30, 2020 or ii) 60 days after the President declares a termination of the COVID-19 national emergency are eligible for this relief, if the related loans were not more than 30 days past due as of December 31, 2019. The ~~CARES Act includes~~Company has elected that loans temporarily modified for borrowers directly impacted by COVID-19 are not considered TDR, assuming the ~~Paycheck Protection Program (“PPP”), a program to aid small~~above criteria is met and ~~medium- sized businesses through federally guaranteed loans distributed through banks. These~~as such, these loans are ~~intended to guarantee eight weeks of payroll~~considered current and ~~other costs to help those businesses remain viable and allow their workers to pay their bills.~~

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~~Management’s Discussions and Analysis of~~

~~Financial Condition and Results of Operations~~

During these tumultuous times, we are actively assisting our customers by providing short-term forbearances in the form of deferrals of interest, principal and/or escrow for terms ranging from one to twelve months. At September 30, 2020, we have 509 active forbearances for loans with an aggregate outstanding loan balance of approximately $846.2 million resulting in total deferment of $28.4 million in principal, interest and escrow. Given the pandemic and current economic environment, we continue to ~~work with our customers to modify loans. We actively participated in~~accrue interest at its original contractual terms until the ~~PPP, closing $111.6 million~~completion of ~~these loans through September 30, 2020. We are one of nine banks in~~ the ~~State of New York participating in~~deferred period. Once the ~~Main Street Lending Program. We are also a proud participant in~~deferred period is over, the ~~FHLBNY Small Business Recovery Grant Program, helping our customers~~borrower will resume making payment and ~~communities navigate through the current environment.~~

~~Impact on Our Financial Statements and Results of operations~~

Financial institutions are dependent upon the ability of their loan customers to meet their loan obligations and the availability of their workforce and vendors. Early in the second quarter of 2020, shelter-at-home mandates and other remediation from the COVID-19 pandemic were enacted. The pandemic and these remediation measures have directly impacted the communities we serve, where commercial activity decreased significantly. As of September 30, 2020, that commercial activity had improved but not returned to pre-pandemic levels. This continuing impact on commercial activity may have continuing adverse results, including on our customers’ ability to meet their obligations to us.normal delinquency-based non-accrual policies will apply.

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Management’s Discussions and Analysis of

Financial Condition and Results of Operations

long-term financial condition are subject to significant uncertainty. Our funding sources have not changed significantly and we expect to continue to be able to timely service our debts and its obligations.

The Company has elected that loans temporarily modified for borrowers directly impacted by COVID-19 are not considered TDR, assuming that CARES Act criteria is met and as such, these loans are considered current and continue to accrue interest at its original contractual terms. The Company was quick to respond to the pandemic with new health and safety measures, including social distancing, appointment banking and expansion of our remote capabilities. Our staff responded to these changes in a superb fashion and continue to provide our customers with excellent service. Today our staff is returning to work with A and B schedules to maintain social distancing. On any given day, as many as 85% of staff have the capability to work from home. The Federal Reserve’s dramatic 150 basis point drop in rates provided the country with much needed liquidity to counteract the negative economic effects of the pandemic.

Executive Summary

We are a Delaware corporation organized in May 1994. The Bank was organized in 1929 as a New York State-chartered mutual savings bank. Today the Bank operates as a full-service New York State commercial bank. The Bank’s primary regulator is the New York State Department of Financial Services, and its primary federal regulator is the Federal Deposit Insurance Corporation (“FDIC”). Deposits are insured to the maximum allowable amount by the FDIC. Additionally, the Bank is a member of the Federal Home Loan Bank system. The primary business of Flushing Financial Corporation has been the operation of the Bank. The Bank owns three subsidiaries: Flushing Preferred Funding Corporation, Flushing Service Corporation, and FSB Properties Inc. The Bank also operates an internet branch, which operates under the brands of iGObanking.com® and BankPurely® (the “Internet Branch”). The activities of Flushing Financial Corporation are primarily funded by dividends, if any, received from the Bank, issuances of subordinated debt, junior subordinated debt, and issuances of equity securities. Flushing Financial Corporation’s common stock is traded on the NASDAQ Global Select Market under the symbol “FFIC.”

Our principal business is attracting retail deposits from the general public and investing those deposits together with funds generated from ongoing operations and borrowings, primarily in (1) originations and purchases of multi-family residential loans, commercial business loans, commercial real estate mortgage loans and, to a lesser extent, one-to-four family loans

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~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Management’s Discussions and Analysis of~~

~~Financial Condition and Results of Operations~~

~~(focusing~~ (focusing on mixed-use properties, which are properties that contain both residential dwelling units and commercial units); (2) Small Business Administration (“SBA”) loans and other small business loans; (3) construction loans; (4) mortgage loan surrogates such as mortgage-backed securities; and (5) U.S. government securities, corporate fixed-income securities and other marketable securities. We also originate certain other consumer loans including overdraft lines of credit. Our results of operations depend primarily on net interest income, which is the difference between the income earned on our interest-earning assets and the cost of our interest-bearing liabilities. Net interest income is the result of our net interest rate margin, which is the difference between the average yield earned on interest-earning assets and the average cost of interest-bearing liabilities, adjusted for the difference in the average balance of interest-earning assets as compared to the average balance of interest-bearing liabilities. We also generate non-interest income primarily from loan fees, service charges on deposit accounts, mortgage servicing fees, and other fees, income earned on Bank Owned Life Insurance (“BOLI”), dividends on Federal Home Loan Bank of New York (“FHLB-NY”) stock and net gains and losses on sales of securities and loans. Our operating expenses consist principally of employee compensation and benefits, occupancy and equipment costs, other general and administrative expenses and income tax expense. Our results of operations also can be significantly affected by changes in the fair value of financial assets and financial liabilities for which changes in value are recorded through earnings, our periodic provision for credit losses and specific provision for losses on real estate owned.

Our investment policy, which is approved by the Board of Directors, is designed primarily to manage the interest rate sensitivity of our overall assets and liabilities, to generate a favorable return without incurring undue interest rate risk and credit risk, to complement our lending activities and to provide and maintain liquidity. In establishing our investment strategies, we consider our business and growth strategies, the economic environment, our interest rate risk exposure, our interest rate sensitivity “gap” position, the types of securities to be held and other factors. We classify our investment securities as available for sale or held-to-maturity.

We carry a portion of our financial assets and financial liabilities under the fair value option and record changes in their fair value through earnings in non-interest income on our Consolidated Statements of Income and Comprehensive Income. A description of the financial assets and financial liabilities that are carried at fair value through earnings can be found in Note 1110 (“Fair Value of Financial Instruments”) of the Notes to the Consolidated Financial Statements.

During the three months ended September 30, 2020, we reported net income of $14.3 million, or $0.50 per diluted common share. We successfully executed on our strategic objective to manage our cost of funds and improve funding mix. We achieved record net interest income for the second consecutive quarter as a result of the cost of funds decreasing 10 basis points from the previous quarter with additional opportunity to further reduce funding costs in the fourth quarter. Adding to the reduction of cost of funds in the third quarter, non-interest bearing deposits increased 4% while the net interest margin expanded 13 basis points from the previous quarter.

Given the current economic environment at the end of the quarter, we adjusted our economic forecast in our current expected credit loss (“CECL”) model resulting in a provision for credit losses of $2.5 million, or $0.07 per diluted share, after-tax. At September 30, 2020 our allowance for credit losses stands at 65 basis points of gross loans and 155% of non-performing loans. CECL requires consideration of a broader range of information in order to update expected credit losses to capture life of loan and held-to-maturity debt securities estimated losses. These losses are estimated using historical loss experience, current conditions, and a reasonable and supportable forecast that affect the collectability of the reported amount.

~~During the three months ended September 30, 2020, the yield on interest-earning assets increased three basis points, while the cost of interest-bearing liabilities decreased 11 basis points from~~For the three months ended June 30, ~~2020, which resulted in~~2021, we reported net income of $19.3 million, or $0.61 per diluted common share, an increase of ~~13 bps in net interest margin to 3.00%~~$0.2 million, or $0.01 per diluted common share from ~~2.87% in the same period. This improvement in the net interest margin resulted in our net interest income increasing $1.2 million to a record $49.9 million for~~March 31, 2021. During the three months ended ~~September 30, 2020 from $48.7 million for the three months ended~~ June ~~2020.~~

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Management’s Discussions and Analysis of

Financial Condition and Results of Operations

~~Non-performing~~30, 2021, we produced record net interest income for the fifth consecutive quarter totaling $61.0 million. The record results were achieved primarily through growth in net-interest earning assets atand a reduction in the ~~end~~cost of funds, partially offset by an increase in net losses from qualifying hedges.

During the ~~quarter were 35~~three months ended June 30, 2021, the yield on interest-earning assets decreased eight basis points, while the cost of ~~total assets.~~ interest-bearing liabilities decreased three basis points from the three months ended March 31, 2021, which resulted in a decrease of four basis points in net interest margin to 3.14% from 3.18% for the three months ended March 31, 2021. Excluding net gains/losses from qualifying hedges and purchase accounting adjustments, the net interest margin increased eight basis points to 3.14% for the three months ended June 30, 2021 from 3.06% for the three months ended March 31, 2021.

Our loan portfolio is ~~88%~~85% collateralized by real estate with an average loan to value of less than 40%. ~~Despite the current economic environment due to COVID-19, we~~We have a long history and foundation built upon disciplined underwriting, good credit quality and a resilient seasoned loan portfolio with strong asset protection. ~~Net charge-offs totaled $0.8 million for the three months ended September 30, 2020, primarily due to taxi medallion loans.~~ The average loan-to-value on our non-performing real estate loans at ~~September~~June 30, ~~2020~~2021 remained conservative at approximately ~~30.6%~~30.4%. At June 30 2021, our ACL - loans stands at 64 basis points of gross loans and 243% of non-performing loans. Non-performing assets at the end of the quarter were 22 basis points of total assets.

The Bank and Company remain well capitalized under current capital regulations and are subject to the same regulatory capital requirements. See Note 1513 (“Regulatory Capital”) of the Notes to the Consolidated Financial Statements.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED ~~SEPTEMBER~~JUNE 30, 2021 AND 2020 ~~and 2019~~

General. Net income for the three months ended ~~September~~June 30, ~~2020~~2021 was ~~$14.3~~$19.3 million, an increase of ~~$3.6~~$1.0 million ~~or 33.6%, compared to $10.7~~from $18.3 million for the three months ended ~~September~~June 30, ~~2019.~~2020. Diluted earnings per common share were ~~$0.50~~$0.61 for the three months ended ~~September~~June 30, ~~2020, an increase~~2021, a decrease of ~~$0.13, or 35.1%,~~$0.02 from ~~$0.37~~$0.63 for the three months ended ~~September~~June 30, ~~2019.~~2020.

Return on average equity ~~increased~~decreased to ~~9.9%~~11.95% for the three months ended ~~September~~June 30, ~~2020~~2021 from ~~7.6%~~13.11% for the three months ended ~~September~~June 30, ~~2019.~~2020. Return on average assets ~~increased~~decreased to ~~0.8%~~0.93% for the three months ended ~~September~~June 30, ~~2020~~2021 from ~~0.6%~~1.01% for the three months ended ~~September~~June 30, ~~2019.~~2020.

Interest Income. Interest and dividend income ~~decreased $5.5~~increased $7.0 million, or ~~7.9%~~10.8%, to ~~$63.9~~$71.7 million for the three months ended ~~September~~June 30, ~~2020~~2021 from ~~$69.4~~$64.8 million for the three months ended ~~September~~June 30, ~~2019.~~2020. The ~~decrease~~increase in interest income was primarily attributable to an increase of $980.3 million in the average balance of interest-earning assets to $7,790.2 million for the three months ended June 30, 2021 from $6,809.8 million for the comparable prior year period, partially offset by a decrease in the yield of average interest earning assets of 3812 basis points. The increase in the average balance was primarily driven by the acquisition of Empire Bancorp, Inc. (“Empire”) in the fourth quarter of 2020 coupled with organic growth throughout 2020. The decrease in the yield on interest-earning assets was primarily due to the decrease of 47 basis points in the yield of taxable securities. The decrease in the yield of taxable securities was primarily due to higher yielding securities paying down and being replaced by lower yielding securities. Excluding prepayment penalty income from loans, net recoveries/reversals of interest from non-accrual loans, net gains from fair value adjustments on qualifying hedges, and purchase accounting adjustments, the yield on total loans, net, decreased 11 basis points to 3.94% for the three months ended June 30, 2021 from 4.05% for the three months ended June 30, 2020.

Interest Expense. Interest expense decreased $5.4 million, or 33.3%, to $10.7 million for the three months ended June 30, 2021 from $16.1 million for the three months ended June 30, 2020. The decrease in interest expense was primarily due to a decrease of 43 basis points in the average cost of interest-bearing liabilities to 0.66% for the three months ended June 30, 2021 from 1.09% for the three months ended June 30, 2020, partially offset by an increase of ~~$86.4~~$620.1 million in the average balance of interest-bearing liabilities to $6,532.9 million for the three months ended June 30, 2021 from $5,912.8 million for the comparable prior year period. The decrease in the cost of interest-bearing liabilities was primarily due to the Company’s response to the Federal Reserve lowering rates.

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Management’s Discussions and Analysis of

Financial Condition and Results of Operations

Net Interest Income. Net interest income for the three months ended June 30, 2021 was $61.0 million, an increase of $12.3 million, or 25.3%, from $48.7 million for the three months ended June 30, 2020. The increase in net interest income was primarily due to an increase of 27 basis points in the net interest margin to 3.14% for the quarter ended June 30, 2021 compared to 2.87% for the quarter ended June 30, 2020, coupled with net interest-earning assets growing $360.2 million to $1,257.3 million during the same period. Included in net interest income was prepayment penalty income from loans totaling $2.2 million and $0.7 million for the three months ended June 30, 2021 and 2020, respectively, net losses from fair value adjustments on qualifying hedges totaling $0.7 million and $0.4 million for three months ended June 30, 2021 and 2020, respectively, and purchase accounting income adjustments of $0.6 million for the three months ended June 30, 2021. Excluding all of these items and other immaterial items, the net interest margin for the three months ended June 30, 2021 was 3.04%, an increase of 19 basis points, from to 2.85% for the three months ended June 30, 2020.

(Benefit) Provision for Credit Losses. During the three months ended June 30, 2021, a benefit for credit losses was recorded totaling $1.6 million, compared to a provision of $9.6 million for the three months ended June 30, 2020. The benefit recorded during the three months ended June 30, 2021 was driven by the improving conditions of economy. During the six months ended June 30, 2021, non-accrual loans decreased $0.9 million to $17.4 million from $18.3 million at December 31, 2020. The current average loan-to-value ratio for our non-performing loans collateralized by real estate was 30.4% at June 30, 2021. The Bank continues to maintain conservative underwriting standards.

Non-Interest (Loss) Income. Non-interest loss for the three months ended June 30, 2021 was $3.2 million, a decrease of $16.9 million from income of $13.7 million recorded in the prior year comparable period. The decrease was primarily due to a decrease in net gains from fair value adjustments totaling $16.8 million.

Non-Interest Expense. Non-interest expense for the three months ended June 30, 2021 was $34.0 million, an increase of $5.3 million, or 18.3%, from $28.8 million for the three months ended June 30, 2020. The increase in non-interest expense was primarily due to the growth of the Company, which includes the impact of the acquisition of Empire.

Income before Income Taxes. Income before income taxes for the three months ended June 30, 2020 was $25.4 million, an increase of $1.3 million, or 5.5%, from $24.1 million for the three months ended June 30, 2020 for the reasons discussed above.

Provision for Income Taxes. The provision for income taxes was $6.2 million for the three months ended June 30, 2021, an increase of $0.4 million, or 6.0%, from $5.8 million for the three months ended June 30, 2020. The increase was primarily due to an increase in income before income taxes. The effective tax rate for three months ended June 30, 2021 was 24.2% compared to 24.1% for the three months ended June 30, 2020.

COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020

General. Net income for the six months ended June 30, 2021 was $38.3 million, an increase of $21.4 million, or 126.9%, from $16.9 million for the six months ended June 30, 2020. Diluted earnings per common share were $1.21 for the six months ended June 30, 2021, an increase of $0.63, or 108.6%, from $0.58 for the six months ended June 30, 2020.

Return on average equity increased to 12.11% for the six months ended June 30, 2021 from 5.95% for the six months ended June 30, 2020. Return on average assets increased to 0.93% for the six months ended June 30, 2021 from 0.47% for the six months ended June 30, 2020.

Interest Income. Interest and dividend income increased $12.4 million, or 9.5%, to $143.9 million for the six months ended June 30, 2021 from $131.4 million for the six months ended June 30, 2020. The increase in interest income was primarily attributable to an increase of $964.2 million in the average balance of interest-earning assets to ~~$6,675.9~~$7,729.0 million for the ~~three~~six months ended ~~September~~June 30, ~~2020~~2021 from ~~$6,589.5~~$6,764.8 million for the comparable prior year ~~period.~~period, partially offset by a decrease in the yield of average interest earning assets of 16 basis points. The increase in the average balance was primarily driven by the acquisition of Empire in the fourth quarter of 2020 coupled with organic growth through out 2020. The decrease in the yield on interest-earning assets was primarily due to decreases of 36five basis points and 9377 basis points in

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the yield of total loans and taxable securities, respectively, partially offset by an improvement in asset mix, as the average balance of higher yielding total loans increased $258.5 million, while the average balance of lower yielding taxable securities decreased $161.9 million.respectively. The decrease ~~of 36 basis points~~ in the yield on the total loans, net, was primarily due to loans being both originated and repriced at lower rates. The decrease in the yield of securities was primarily due to higher yielding securities paying down and being replaced by lower yielding securities. Excluding prepayment penalty income from loans, ~~and securities, recovered~~net recoveries/(reversals) of interest from non-accrual loans, ~~and~~ net gains (losses) from fair value adjustments on qualifying hedges, and purchase accounting adjustments, the yield on total loans, net, ~~would have~~ decreased 4222 basis points to ~~3.98%~~3.94% for the ~~three~~six months ended ~~September~~June 30, ~~2020~~2021 from ~~4.40%~~4.16% for the ~~three~~six months ended ~~September~~June 30, ~~2019.~~2020.

Interest Expense. Interest expense decreased ~~$16.5~~$20.0 million, or ~~54.0%~~47.6%, to ~~$14.0~~$21.9 million for the ~~three~~six months ended ~~September~~June 30, ~~2020~~2021 from ~~$30.4~~$41.9 million for the ~~three~~six months ended ~~September~~June 30, ~~2019.~~2020. The decrease in interest expense was primarily due to a decrease of ~~109~~74 basis points in the average cost of interest-bearing liabilities to ~~0.98%~~0.67% for the ~~three~~six months ended ~~September~~June 30, 2021 from 1.41% for the six months ended June 30, 2020, ~~from 2.07% for the three months ended September 30, 2019, coupled with a decrease~~partially offset by an increase of ~~$145.8~~$573.2 million in the average balance of interest-bearing liabilities to ~~$5,731.9~~$6,505.5 million for the ~~three~~six months ended ~~September~~June 30, ~~2020~~2021 from ~~$5,877.7~~$5,932.4 million for the comparable prior year period. The decrease in the cost of interest-bearing liabilities was primarily due to the Company’s quick response to the Federal Reserve lowering rates.

Net Interest Income. Net interest income for the ~~three~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$49.9~~$121.9 million, an increase of ~~$11.0~~$32.4 million, or ~~28.2%~~36.2%, from ~~$38.9~~$89.5 million for the ~~three~~six months ended ~~September~~June 30, ~~2019.~~2020. The increase in net interest income was primarily due to an increase of 63$391.0 million in net interest-earning assets to $1,223.5 million for the six months ended June 30, 2021 from $832.5 million for the comparable prior year period, coupled with a 50 basis ~~points~~point increase in the net interest margin to ~~3.00%~~3.16% for the ~~quarter~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~quarter~~six months ended ~~September~~June 30, ~~2019.~~2020. Included in net interest income was prepayment penalty income from loans ~~and securities~~ totaling ~~$1.4~~$3.2 million and ~~$1.7~~$1.5 million for the ~~three~~six months ended ~~September~~June 30, 2021 and 2020, ~~and 2019,~~ respectively, net (reversals)/ recovered interest from non-accrual loans totaling ~~$0.1~~($0.2) million and ~~$0.3~~$0.5 million for the ~~three~~six months ended ~~September~~June 30, 2021 and 2020, ~~and 2019,~~ respectively, ~~and~~ net gains (losses) from fair value adjustments on qualifying hedges totaling $0.8 million and ($2.4) million for six months ended June 30, 2021 and 2020, respectively, and purchase accounting income adjustments of $1.5 million for the six months ended June 30, 2021. Excluding all of these items, the net interest margin for the six months ended June 30, 2021 was 3.02%, an increase of 35 basis points, from to 2.67% for the six months ended June 30, 2020.

Provision for Credit Losses. During the six months ended June 30, 2021, a provision for credit losses was recorded totaling $1.2 million, compared to $16.8 million for the six months ended June 30, 2020. The provision recorded during the six months ended June 30, 2021 was driven by the charge-off of the remaining taxi medallion portfolio totaling $2.8 million, partially offset by improving conditions of economy. During the six months ended June 30, 2021, non-accrual loans decreased $0.9 million to $17.4 million from $18.3 million at December 31, 2020. The current average loan-to-value ratio for our non-performing loans collateralized by real estate was 30.4% at June 30, 2021. The Bank continues to maintain conservative underwriting standards.

Non-Interest Income. Non-interest income for the six months ended June 30, 2021 was $3.1 million, a decrease of $7.8 million from the prior year comparable period. The decrease was primarily due to a decrease in net gains from fair value adjustments totaling $9.8 million coupled with $0.7 million in gain from life insurance for the six months ended June 30, 2020, partially offset with $1.7 million in customer loan swap fee income and a $0.6 million net gain from the disposition of assets during the six months ended June 30, 2021.

Non-Interest Expense. Non-interest expense for the six months ended June 30, 2021 was $72.2 million, an increase of $11.0 million, or 18.1%, from $61.1 million for the six months ended June 30, 2020. The increase in non-interest expense was primarily due to the growth of the Company, which includes the impact of the acquisition of Empire.

Income before Income Taxes. Income before income taxes increased $29.2 million, to $51.6 million for the six months ended June 30, 2021 from $22.5 million for the six months ended June 30, 2020 for the reasons discussed above.

Provision for Income Taxes. The provision for income taxes was $13.3 million for the six months ended June 30, 2021, an increase of $7.7 million from $5.6 million for the six months ended June 30, 2020. The increase was primarily due to an increase in income before income taxes. The effective tax rate for six months ended June 30, 2021 was 25.8% compared

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~~qualifying hedges totaling $0.2 million and ($1.3) million~~to 24.9% for ~~three~~the six months ended September 30, 2020 and 2019, respectively. Excluding prepayment penalty income, recovered interest, and net losses from fair value adjustment on qualifying hedges, the net interest margin for the three months ended September 30, 2020 was 2.89%, an increase of 56 basis points, from to 2.33% for the three months ended September 30, 2019.

~~Provision for Credit Losses.~~ During the three months ended September 30, 2020, a provision for credit losses was recorded totaling $2.5 million, compared to $0.7 million for the three months ended September 30, 2019. The provision was primarily the result of economic deterioration resulting from the impact of COVID-19. During the three months ended September 30, 2020, the Bank recorded net charge-offs totaling $0.8 million, while non-accrual loans increased $12.0 million to $24.8 million from $12.8 million at December 31, 2019. The current average loan-to-value ratio for our non-performing loans collateralized by real estate was 30.6% at SeptemberJune 30, 2020. The Bank continues to maintain conservative underwriting standards. See “Allowance for Credit Losses” below, Note 5 (“Loans”) and Note 17 (“New Authoritative Accounting Pronouncements”) of the Notes to the Consolidated Financial Statements.

~~Non-Interest Income.~~ ~~Non-interest income for the three months ended September 30, 2020 was $1.4 million, an increase of $0.3 million from the prior year comparable period primarily due to~~ increase in ~~other fee income of $0.5 million.~~

~~Non-Interest Expense.~~ ~~Non-interest expense increased $3.9 million, or 15.1%, to $30.0 million for~~ the three months ended September 30, 2020 from $26.0 million for the three months ended September 30, 2019. The increase in non-interest expense was primarily due to the growth of the Company, coupled with 3Q19 including FDIC small business assessment credit.

~~Income before Income Taxes.~~ Income before the provision for income taxes increased $5.6 million, or 41.9%, to $18.8 million for the three months ended September 30, 2020 from $13.3 million for the three months ended September 30, 2019 for the reasons discussed above.

~~Provision for Income Taxes.~~ The provision for income taxes was $4.5 million for the three months ended September 30, 2020, an increase of $2.0 million, or 77.0%, from $2.5 million for the three months ended September 30, 2019. The increase was primarily due to an increase in income before income taxes. The effective tax rate for the ~~three~~six months ended ~~September~~June 30, ~~2020 was 23.9% compared~~2021, reflects the discontinuation of New York State and New York City tax benefits provided by the Company’s subsidiary, Flushing Preferred Funding Corporation. Due to ~~19.1% for~~regulations, the ~~three months ended September 30, 2019.~~

~~COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 and 2019~~

~~General.~~ ~~Net income for the nine months ended September 30, 2020 was $31.2 million, an increase of $2.9 million, or 10.1%, compared~~benefit is not available to $28.3 million for the nine months ended September 30, 2019. Diluted earnings per common share were $1.08 for the nine months ended September 30, 2020, an increase of $0.09, or 9.1%, from $0.99 for the nine months ended September 30, 2019.

~~Return on average equity increased to 7.3% for the nine months ended September 30, 2020 from 6.8% for the nine months ended September 30, 2019. Return on~~banks with average assets of greater than $8.0 billion. Flushing Preferred Funding Corporation was ~~0.6% for each~~dissolved as of ~~the nine months ended September~~June 30, ~~2020 and 2019.~~2021.

~~Interest Income.~~ Interest and dividend income decreased $13.4 million, or 6.4%, to $195.4 million for the nine months ended September 30, 2020 from $208.8 million for the nine months ended September 30, 2019. The decrease in interest income was primarily attributable to a decrease in the yield of average interest earning assets of 38 basis points, partially offset by an increase of $184.5 million in the average balance of interest-earning assets to $6,735.0 million for the nine months ended September 30, 2020 from $6,550.5 million for the comparable prior year period. The decrease in the yield on interest-earning assets was primarily due to decreases of 34 basis points and 84 basis points in the yield of total loans and taxable securities, respectively, partially offset by an improvement in asset mix, as the average balance of higher yielding total loans increased $296.4 million, while the average balance of lower yielding taxable securities decreased $115.1 million. The decrease of 34 basis points in the yield on the total loans, net, was primarily due to loans being both

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~~Financial Condition and Results of Operations~~

originated and repriced at lower rates. The decrease in the yield of securities was primarily due to higher yielding securities replaced by lower yielding securities. Excluding prepayment penalty income, recovered interest from loans and net losses from fair value adjustments on qualifying hedges, the yield on total loans, net, would have decreased 32 basis points to 4.10% for the nine months ended September 30, 2020 from 4.42% for the nine months ended September 30, 2019.

~~Interest Expense.~~ Interest expense decreased $32.1 million, or 36.5%, to $55.9 million for the nine months ended September 30, 2020 from $88.0 million for the nine months ended September 30, 2019. The decrease in interest expense was primarily due to a decrease of 74 basis points in the average cost of interest-bearing liabilities to 1.27% for the nine months ended September 30, 2020 from 2.01% for the nine months ended September 30, 2019, partially offset by an increase of $26.7 million in the average balance of interest-bearing liabilities to $5,865.0 million for the nine months ended September 30, 2020 from $5,838.3 million for the comparable prior year period. The decrease in the cost of interest-bearing liabilities was primarily due to the Company’s quick response to the Federal Reserve lowering rates.

~~Net Interest Income.~~ Net interest income for the nine months ended September 30, 2020 was $139.5 million, an increase of $18.7 million, or 15.5%, from $120.8 million for the nine months ended September 30, 2019. The increase in net interest income was primarily due to an increase of 30 basis points in the net interest margin to 2.77% for the nine months ended September 30, 2020 compared to 2.47% for the nine months ended September 30, 2019. Included in net interest income was prepayment penalty income from loans and securities totaling $2.9 million and $3.6 million for the nine months ended September 30, 2020 and 2019, respectively, recovered interest from non-accrual loans totaling $0.6 million and $1.5 million for the nine months ended September 30, 2020 and 2019, respectively, and net losses from fair value adjustments on qualifying hedges totaling $2.2 million and $2.7 million for nine months ended September 30, 2020 and 2019, respectively. Excluding prepayment penalty income, recovered interest, and net losses from fair value adjustment on qualifying hedges, the net interest margin for the nine months ended September 30, 2020 was 2.74%, an increase of 32 basis points, from to 2.42% for the nine months ended September 30, 2019.

~~Provision for Credit Losses.~~ During the nine months ended September 30, 2020, a provision for credit losses was recorded totaling $19.3 million, compared to $3.1 million for the nine months ended September 30, 2019. The provision was primarily the result of economic deterioration resulting from the impact of COVID-19. During the nine months ended September 30, 2020, the Bank recorded net charge-offs totaling $3.0 million, while non-accrual loans increased $12.0 million to $24.8 million from $12.8 million at December 31, 2019. The current average loan-to-value ratio for our non-performing loans collateralized by real estate was 30.6% at September 30, 2020. The Bank continues to maintain conservative underwriting standards. See “Allowance for Credit Losses” below, Note 5 (“Loans”) and Note 17 (“New Authoritative Accounting Pronouncements”) of the Notes to the Consolidated Financial Statements.

~~Non-Interest Income.~~ Non-interest income for the nine months ended September 30, 2020 was $12.2 million, an increase of $7.8 million from the prior year comparable period. The increase in non-interest income was primarily due to an increase of $8.1 million in net gains from fair value adjustments and life insurance proceeds of $0.6 million for nine months ended September 30, 2020, partially offset by net gain on sale of asset totaling $0.8 million recorded during the nine months ended September 30, 2019. The increase in net gains was primarily due to net gains recorded on our junior subordinated debentures, as credit spreads had widened due to the COVID-19 crisis.

~~Non-Interest Expense.~~ Non-interest expense for the nine months ended September 30, 2020 was $91.1 million, an increase of $5.5 million, or 6.4% from $85.6 million for the prior year comparable period. The increase in non-interest expense was primarily due to the growth of the Company coupled with the prior comparable period including FDIC small business assessment credit.

~~Income before Income Taxes.~~ Income before the provision for income taxes increased $4.9 million, or 13.3%, to $41.3 million for the nine months ended September 30, 2020 from $36.4 million for the nine months ended September 30, 2019 for the reasons discussed above.

~~Provision for Income Taxes.~~ ~~The provision for income taxes for the nine months ended September 30, 2020 was $10.1 million, an increase of $2.0 million or 24.7% from $8.1 million for the nine months ended September 30, 2019. The~~

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~~Management’s Discussions and Analysis of~~

~~Financial Condition and Results of Operations~~

~~effective tax rate for the nine months ended September 30, 2020 was 24.4% compared to 22.2% for the nine months ended September 30, 2019.~~

FINANCIAL CONDITION

Assets. Total assets at ~~September~~June 30, ~~2020~~2021 were ~~$7,063.1~~$8,159.3 million, an increase of ~~$45.3~~$183.0 million, or ~~0.6%~~2.3%, from ~~$7,017.8~~$7,976.4 million at December 31, ~~2019.~~2020. Total loans, net increased ~~$152.6~~$16.6 million, or ~~2.7%~~0.2%, during the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, to ~~$5,903.1~~$6,676.1 million from ~~$5,750.5~~$6,659.5 million at December 31, ~~2019.~~2020. Loan originations and purchases were ~~$688.1~~$647.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020, a decrease~~2021, an increase of ~~$204.5~~$114.8 million, or ~~22.9%~~21.6%, from ~~$892.6~~$532.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. In ~~response~~order to ~~the~~support our customers during this COVID-19 pandemic, we have originated ~~$111.6~~$138.7 million of PPP ~~loans.~~loans during the six months ended June 30, 2021. We continue to focus on the origination of multi-family residential, commercial real estate and commercial business loans with a full banking relationship. The loan pipeline was ~~$394.1~~$432.6 million at ~~September~~June 30, ~~2020,~~2021, compared to ~~$324.5~~$354.6 million at December 31, ~~2019.~~2020.

The following table shows loan originations and purchases for the periods indicated:


	For the three months				For the nine months				For the three months				For the six months
	ended September 30,				ended September 30,				ended June 30,				ended June 30,
(In thousands)	2020		2019		2020		2019		2021		2020		2021		2020
Multi-family residential ⁽¹⁾	$	33,733	$	60,454	$	160,705	$	143,297	$	66,913	$	59,654	$	125,466	$	126,972
Commercial real estate ⁽²⁾		26,644		66,648		134,218		123,289		37,963		8,003		55,119		107,574
One-to-four family – mixed-use property		3,867		18,167		25,439		47,475		7,135		8,117		15,847		21,572
One-to-four family – residential(3)		2,296		7,421		13,383		19,191		59,494		2,674		62,625		11,087
Co-operative apartments		—		1,817		704		2,117		—		—		—		704
Construction ⁽³⁾⁽⁴⁾		5,420		5,761		14,990		30,377		5,281		2,821		12,404		9,570
Small Business Administration⁽⁴⁾⁽⁵⁾		18,456		121		111,754		2,705		17,585		93,241		142,678		93,298
Commercial business and other ⁽⁵⁾⁽⁶⁾		65,160		237,754		226,895		524,113		130,036		59,287		233,154		161,735
Total	$	155,576	$	398,143	$	688,088	$	892,564	$	324,407	$	233,797	$	647,293	$	532,512

(1)	Includes purchases of $3.1 million for the ~~nine~~six months ended ~~September~~June 30, 2020.

(2)	Includes purchases of $30.0 million for ~~nine~~the six months ended ~~September~~June 30, 2020.

(3)	Includes purchases of ~~$1.2 million and $4.6~~$58.0 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, respectively. Includes purchases of $0.9 million and $16.9 million for the three and nine months ended September 30, 2019, respectively.~~2021.

(4)	Includes ~~$18.4~~purchases of $3.6 million and ~~$111.6 million of PPP loans~~$43,000 for the three ~~and nine~~ months ended ~~September~~June 30, 2021 and 2020, respectively. Includes purchases of $6.9 million and $3.4 million for the six months ended June 30, 2021 and 2020, respectively.

(5)	Includes $15.5 million and $93.2 million of SBA PPP loans for the three months ended June 30, 2021 and 2020, respectively. Includes $138.7 million and $93.2 million of SBA PPP loans for the six months ended June 30, 2021 and 2020, respectively.

(6)

Includes purchases of ~~$19.5~~$43.2 million and ~~$95.2~~$35 million for the three ~~and nine~~ months ended ~~September~~June 30, 2021 and 2020, respectively. Includes purchases of ~~$77.3~~$65.8 million and ~~$176.8~~$75.7 million for the ~~three and nine~~six months ended ~~September~~June 30, ~~2019,~~2021 and 2020, respectively.

The Bank maintains its conservative underwriting standards that include, among other things, a loan-to-value ratio of 75% or less and a debt coverage ratio of at least 125%. Multi-family residential (excluding underlying co-operative mortgages), commercial real estate and one-to-four family mixed-use property mortgage loans originated and purchased during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 had an average loan-to-value ratio of ~~45.3%~~46.7% and an average debt coverage ratio of ~~184%~~175%.

The Bank’s non-performing assets totaled ~~$24.8~~$17.6 million at ~~September~~June 30, ~~2020, an increase~~2021, a decrease of ~~$11.3~~$3.5 million, or ~~83.5%~~16.7%, from ~~$13.5~~$21.1 million at December 31, ~~2019.~~2020. Total non-performing assets as a percentage of total assets were ~~0.35%~~0.22% at ~~September~~June 30, ~~2020 compared to 0.19%~~2021 and 0.26% at December 31, ~~2019.~~2020. The ratio of ~~allowance for loan losses~~ACL - loans to total non-performing loans was ~~154.7%~~242.6% at ~~September~~June 30, ~~2020~~2021 and ~~164.1%~~214.3% at December 31, ~~2019.~~2020.

During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, mortgage-backed securities ~~decreased $137.6~~increased $192.2 million, or ~~25.9%~~46.6%, to ~~$394.2~~$604.6 million from ~~$531.8~~$412.4 million at December 31, ~~2019.~~2020. The ~~decrease~~increase in mortgage-backed securities during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was primarily due to the ~~sale~~purchase of securities totaling ~~$130.8~~$290.6 million ~~that~~ at ~~the time~~an average rate of ~~sale, due to increased prepayment speeds, had a negative weighted average book yield and principal repayments of $142.3~~1.28%,

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

partially offset by maturities and principal repayments of securities totaling $88.4 million, and the decline in the fair value of the securities totaling $8.6 million.

During the six months ended June 30, 2021, other securities, decreased $18.7 million, or 6.4%, to $274.8 million from $293.4 million at December 31, 2020. The decrease in other securities during the six months ended June 30, 2021, was primarily due to maturities, sales and calls totaling $213.5 million, partially offset by ~~purchase~~purchases of ~~securities totaling $130.2~~$187.4 million at an average rate of ~~1.84%~~0.34% and an increase in the fair value of ~~$8.1 million.~~

During the nine months ended September 30,, 2020, other securities, decreased $14.6 million, or 4.9%, to $285.0 million from $299.6 million at December 31, 2019. The decrease in other securities during the nine months ended September 30, 2020, was primarily due to the calls totaling $12.6 million coupled with a decrease in the fair value of other securities of ~~$1.5~~$7.4 million. At ~~September~~June 30, ~~2020~~2021 other securities primarily consist of securities issued by mutual or bond funds that invest in government and government agency securities, municipal bonds, corporate bonds and CLO’s.

Liabilities. Total liabilities were ~~$6,476.7~~$7,504.2 million at ~~September~~June 30, ~~2020,~~2021, an increase of ~~$38.5~~$146.8 million, or ~~0.6%~~2.0%, from ~~$6,438.1~~$7,357.4 million at December 31, ~~2019.~~2020. During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, due to depositors ~~decreased $115.7~~increased $208.1 million, or ~~2.3%~~3.4%, to ~~$4,906.4~~$6,298.8 million due to an increase of $325.8 million in non-maturity deposits, partially offset by a decrease of ~~$386.2~~$117.7 million in certificates of ~~deposit, partially offset by an increase of $270.6 million in non-maturity deposits.~~deposit. The decrease in certificates of deposit was due to management’s decision to allow these deposits to mature and replace with lower cost funding. The increase in non-maturity deposits was due to increases of ~~$339.3~~$374.8 million and ~~$172.9~~$166.8 million in ~~NOW~~money market accounts and demand deposits accounts, respectively, partially offset by ~~decreases~~a decrease of ~~$210.5~~$200.6 million and ~~$31.2~~$15.3 million in ~~money market~~NOW accounts and savings accounts, respectively. Included in deposits were brokered deposits totaling ~~$684.3~~$494.7 million, ~~an increase~~a decrease of ~~$295.5~~$579.4 million from ~~$388.8~~$1,074.1 million at December 31, ~~2019.~~2020. Borrowed funds ~~increased $86.7~~decreased $49.1 million during the ~~nine~~six months ended ~~September~~June 30, ~~2020. The increase in borrowed funds was primarily due to an increase in wholesale borrowings, partially offset by a decrease in the fair value on junior subordinate debentures.~~2021.

Equity. Total stockholders’ equity increased ~~$6.7~~$36.2 million, or ~~1.2%~~5.8%, to ~~$586.4~~$655.2 million at ~~September~~June 30, ~~2020~~2021 from ~~$579.7~~$619.0 million at December 31, ~~2019.~~2020. Stockholders’ equity increased due to net income totaling ~~$31.2~~$38.3 million, an increase in accumulated other comprehensive income of $7.8 million and the net impact of vesting and exercising of shares of employee and director stock plans totaling ~~$5.4~~$3.3 million. ~~The~~These increases were partially offset by declaration and payment of dividends on the Company’s common stock of ~~$0.63~~$0.42 per common share totaling $18.2 million, an increase in accumulated comprehensive net loss of $8.5 million combined with the purchase of 142,405 treasury shares, at an average cost of $16.45 per share, totaling $2.3 million and the adoption of CECL totaling $0.9$13.3 million. Book value per common share ~~was $20.78~~improved to $21.16 at ~~September~~June 30, ~~2020~~2021 compared to ~~$20.59~~$20.11 at December 31, ~~2019.~~2020.

Cash flow. During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, funds provided by the Company’s operating and financing activities amounted to ~~$45.5 million.~~$36.0 million and $150.4 million, respectively. These funds ~~combined with $12.8 million from investing activities and $49.8 million available from the beginning of the period~~ were utilized to fund ~~$32.5~~$197.8 million used in ~~financing~~investing activities. The Company’s primary business objective is the origination and purchase of multi-family residential loans, commercial business loans and commercial real estate mortgage loans and to a lesser extent one-to-four family (including mixed-use properties) and SBA loans. During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the net total of loan ~~originations and~~ purchases less loan repayments and sales was ~~$143.6~~$22.2 million. During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company also funded ~~$130.4~~$478.2 million in purchases of securities available for sale. During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, funds were provided by sales, calls, prepayments and maturities of available for sale securities totaling ~~$285.7~~$302.3 million. During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, funds were provided by increases in deposits and short term borrowings totaling of ~~$240.4 million in proceeds from long-term borrowings, partially offset by decreases in deposit of $103.1~~$370.7 million. The funds were used to repay ~~$147.8~~$205.6 million in long-term borrowings. The Company also used funds of ~~$18.2~~$13.3 million for dividend payments and ~~$3.9~~$1.4 million in purchases of treasury stock during the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021.

INTEREST RATE RISK

The Consolidated Statements of Financial Position have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in fair value of certain investments due to changes in interest rates. Generally, the fair value of financial investments such as loans and securities fluctuates inversely with changes in interest rates. As a result, increases in interest rates could result in decreases in the fair value of the Company’s interest-earning assets which could adversely affect the Company’s results of operations if such assets were sold, or, in the case of securities classified as available for sale, decreases in the Company’s stockholders’ equity, if such securities were retained.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

~~case of securities classified as available for sale, decreases in the Company’s stockholders’ equity, if such securities were retained.~~

The Company manages the mix of interest-earning assets and interest-bearing liabilities on a continuous basis to maximize return and adjust its exposure to interest rate risk. On a quarterly basis, management prepares the “Earnings and Economic Exposure to Changes in Interest Rate” report for review by the Asset Liability Committee of the Board of Directors, as summarized below. This report quantifies the potential changes in net interest income and net portfolio value should interest rates go up ~~or down (shocked)~~ 200 basis points or down 100 basis points (shocked), assuming the yield curves of the rate shocks will be parallel to each other. ~~The Company’s regulators currently place focus on the net portfolio value, focusing on a rate shock up or down of 200 basis points.~~ Net portfolio value is defined as the market value of assets net of the market value of liabilities. The market value of assets and liabilities is determined using a discounted cash flow calculation. The net portfolio value ratio is the ratio of the net portfolio value to the market value of assets. All changes in income and value are measured as percentage changes from the projected net interest income and net portfolio value at the base interest rate scenario. The base interest rate scenario assumes interest rates at ~~September~~June 30, ~~2020.~~2021. Various estimates regarding prepayment assumptions are made at each level of rate shock. However, prepayment penalty income is excluded from this analysis. Actual results could differ significantly from these estimates. At ~~September~~June 30, ~~2020,~~2021, the Company was within the guidelines set forth by the Board of Directors for each interest rate level.

The following table presents the Company’s interest rate shock as of ~~September~~June 30, ~~2020:~~2021:


	Projected Percentage Change In				Net Portfolio		Projected Percentage Change In
Change in Interest Rate	Net Interest Income		Net Portfolio Value		Value Ratio		Net Interest Income		Net Portfolio Value		Net Portfolio Value Ratio
-200 Basis points	1.07	%	1.99	%	9.11	%
-100 Basis points	2.73		10.68		9.90		2.32	%	(14.45)	%	9.20	%
Base interest rate	—		—		9.19		—		—		10.91
+100 Basis points	(5.61)		(14.63)		8.11		(7.02)		(3.29)		10.80
+200 Basis points	(10.92)		(22.28)		7.57		(14.08)		(7.45)		10.58

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

AVERAGE BALANCES

Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends upon the relative amount of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them. The following tables sets forth certain information relating to the Company’s Consolidated Statements of Financial Condition and Consolidated Statements of Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown. Average balances are derived from average daily balances. The yields include amortization of fees which are considered adjustments to yields.


	For the three months ended September 30,												For the three months ended June 30,
	2020						2019						2021						2020
	Average				Yield/		Average				Yield/		Average				Yield/		Average				Yield/
	Balance		Interest		Cost		Balance		Interest		Cost		Balance		Interest		Cost		Balance		Interest		Cost

Assets	(Dollars in thousands)												(Dollars in thousands)
Interest-earning assets:		��
Mortgage loans, net	$	4,721,742	$	49,814	4.22	%	$	4,598,898	$	50,462	4.39	%	$	5,130,400	$	52,987	4.13	%	$	4,762,068	$	49,719	4.18	%
Other loans, net		1,182,309		10,553	3.57			1,046,605		12,363	4.72			1,556,488		15,012	3.86			1,184,344		10,838	3.66
Total loans, net^{(1) (2)}		5,904,051		60,367	4.09			5,645,503		62,825	4.45			6,686,888		67,999	4.07			5,946,412		60,557	4.07
Taxable securities:
Mortgage-backed securities		413,902		1,928	1.86			574,756		3,765	2.62			578,134		2,233	1.54			465,365		2,327	2.00
Other securities		243,754		1,166	1.91			244,757		1,982	3.24			232,020		1,037	1.79			243,867		1,358	2.23
Total taxable securities		657,656		3,094	1.88			819,513		5,747	2.81			810,154		3,270	1.61			709,232		3,685	2.08
Tax-exempt securities: ⁽³⁾
Other securities		51,652		557	4.31			65,709		706	4.30			50,830		535	4.21			60,280		643	4.27
Total tax-exempt securities		51,652		557	4.31			65,709		706	4.30			50,830		535	4.21			60,280		643	4.27
Interest-earning deposits and federal funds sold		62,537		13	0.08			58,773		259	1.76			242,302		51	0.08			93,911		22	0.09
Total interest-earning assets		6,675,896		64,031	3.84			6,589,498		69,537	4.22			7,790,174		71,855	3.69			6,809,835		64,907	3.81
Other assets		407,132						382,905						473,379						396,224
Total assets	$	7,083,028					$	6,972,403					$	8,263,553					$	7,206,059
Liabilities and Equity

Interest-bearing liabilities
Deposits:
Savings accounts	$	160,100		65	0.16		$	194,736		344	0.71		$	153,113		66	0.17		$	188,587		74	0.16
NOW accounts		1,625,109		1,242	0.31			1,347,145		5,654	1.68			2,255,581		1,499	0.27			1,440,147		2,099	0.58
Money market accounts		1,461,996		2,108	0.58			1,306,634		6,859	2.10			2,043,257		2,060	0.40			1,580,652		3,208	0.81
Certificate of deposit accounts		1,106,355		3,700	1.34			1,573,535		9,321	2.37			1,043,985		1,913	0.73			1,185,842		4,564	1.54
Total due to depositors		4,353,560		7,115	0.65			4,422,050		22,178	2.01			5,495,936		5,538	0.40			4,395,228		9,945	0.91
Mortgagors' escrow accounts		55,868		(22)	(0.16)			60,084		66	0.44			91,545		1	—			87,058		26	0.12
Total deposits		4,409,428		7,093	0.64			4,482,134		22,244	1.99			5,587,481		5,539	0.40			4,482,286		9,971	0.89
Borrowed funds		1,322,471		6,897	2.09			1,395,606		8,196	2.35			945,410		5,164	2.18			1,430,488		6,084	1.70
Total interest-bearing liabilities		5,731,899		13,990	0.98			5,877,740		30,440	2.07			6,532,891		10,703	0.66			5,912,774		16,055	1.09
Non interest-bearing deposits		589,674						400,762
Non-interest-bearing deposits														923,220						560,637
Other liabilities		184,943						129,646						162,752						175,234
Total liabilities		6,506,516						6,408,148						7,618,863						6,648,645
Equity		576,512						564,255						644,690						557,414
Total liabilities and equity	$	7,083,028					$	6,972,403					$	8,263,553					$	7,206,059
Net interest income / net interest rate spread (tax equivalent) ⁽³⁾			$	50,041	2.86	%			$	39,097	2.15	%			$	61,152	3.03	%			$	48,852	2.72	%
Net interest-earning assets / net interest margin(tax equivalent)	$	943,997			3.00	%	$	711,758			2.37	%	$	1,257,283			3.14	%	$	897,061			2.87	%
Ratio of interest-earning assets to interest-bearing liabilities					1.16	X					1.12	X					1.19	X					1.15	X

(1)

Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately ~~$0.8~~$3.2 million and ~~$0.9~~$0.3 million for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

(2)

Loan interest income includes net ~~gains (losses)~~losses from fair value adjustments on qualifying hedges of ~~$0.2~~$0.7 million and ~~($1.3)~~$0.4 million for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

(3)

Interest and yields are calculated on the tax equivalent basis using the statutory federal income tax rate of 21% for the periods presented totaling $0.1 million in each period.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

For the nine months ended September 30,

2020

2019

Average

Yield/

Average

Yield/

Balance

Interest

Cost

Balance

Interest

Cost

Assets

(Dollars in thousands)

Interest-earning assets:
















Mortgage loans, net

$
4,727,094

$
148,945

4.20
%
$
4,602,896

$
151,513

4.39
%
Other loans, net

1,154,764

33,088

3.82

982,549

35,915

4.87

Total loans, net^{(1) (2)}

5,881,858

182,033

4.13

5,585,445

187,428

4.47

Taxable securities:









Mortgage-backed securities

462,216

7,295

2.10

578,020

12,238

2.82

Other securities

243,782

4,221

2.31

243,071

6,328

3.47

Total taxable securities

705,998

11,516

2.17

821,091

18,566

3.01

Tax-exempt securities: ⁽³⁾









Other securities

58,464

1,876

4.28

60,010

1,895

4.21

Total tax-exempt securities

58,464

1,876

4.28

60,010

1,895

4.21

Interest-earning deposits and federal funds sold

88,659

325

0.49

83,963

1,286

2.04

Total interest-earning assets

6,734,979

195,750

3.88

6,550,509

209,175

4.26

Other assets

396,871

360,568

Total assets

$
7,131,850

$
6,911,077

Liabilities and Equity

















Deposits:









Savings accounts

$
180,829

420

0.31

$
200,246

1,053

0.70

NOW accounts

1,495,473

7,989

0.71

1,458,801

18,326

1.67

Money market accounts

1,579,712

12,358

1.04

1,340,841

20,654

2.05

Certificate of deposit accounts

1,186,188

15,031

1.69

1,537,981

26,326

2.28

Total due to depositors

4,442,202

35,798

1.07

4,537,869

66,359

1.95

Mortgagors' escrow accounts

69,427

44

0.08

68,678

181

0.35

Total deposits

4,511,629

35,842

1.06

4,606,547

66,540

1.93

Borrowed funds

1,353,416

20,047

1.97

1,231,760

21,476

2.32

Total interest-bearing liabilities

5,865,045

55,889

1.27

5,838,307

88,016

2.01

Non interest-bearing deposits

533,563



398,085



Other liabilities

163,044



115,476



Total liabilities

6,561,652



6,351,868



Equity

570,198



559,209



Total liabilities and equity

$
7,131,850



$
6,911,077



Net interest income / net interest rate spread (tax equivalent) ⁽³⁾



$
139,861

2.61
%



$
121,159

2.25
%
Net interest-earning assets / net interest margin(tax equivalent)

$
869,934



2.77
%
$
712,202



2.47
%
Ratio of interest-earning assets to interest-bearing liabilities





1.15
X





1.12
X


		For the six months ended June 30,
		2021						2020
		Average				Yield/		Average				Yield/
		Balance		Interest		Cost		Balance		Interest		Cost

Assets		(Dollars in thousands)
Interest-earning assets:
Mortgage loans, net		$	5,143,117	$	108,206	4.21	%	$	4,729,800	$	99,131	4.19	%
Other loans, net			1,550,527		28,814	3.72			1,140,840		22,535	3.95
Total loans, net^{(1) (2)}			6,693,644		137,020	4.09			5,870,640		121,666	4.14
Taxable securities:
Mortgage-backed securities			506,424		3,931	1.55			486,638		5,367	2.21
Other securities			266,234		2,000	1.50			243,796		3,055	2.51
Total taxable securities			772,658		5,931	1.54			730,434		8,422	2.31
Tax-exempt securities: ⁽³⁾
Other securities			50,829		1,065	4.19			61,908		1,319	4.26
Total tax-exempt securities			50,829		1,065	4.19			61,908		1,319	4.26
Interest-earning deposits and federal funds sold			211,904		87	0.08			101,864		312	0.61
Total interest-earning assets			7,729,035		144,103	3.73			6,764,846		131,719	3.89
Other assets			476,919						391,683
Total assets		$	8,205,954					$	7,156,529
Liabilities and Equity
Interest-bearing liabilities
Deposits:
Savings accounts		$	161,549		141	0.17		$	191,307		355	0.37
NOW accounts			2,220,677		3,205	0.29			1,429,943		6,747	0.94
Money market accounts	��		1,974,781		4,160	0.42			1,639,217		10,250	1.25
Certificate of deposit accounts			1,073,151		4,135	0.77			1,226,544		11,331	1.85
Total due to depositors			5,430,158		11,641	0.43			4,487,011		28,683	1.28
Mortgagors' escrow accounts			78,531		3	0.01			76,281		66	0.17
Total deposits			5,508,689		11,644	0.42			4,563,292		28,749	1.26
Borrowed funds			996,845		10,304	2.07			1,369,058		13,150	1.92
Total interest-bearing liabilities			6,505,534		21,948	0.67			5,932,350		41,899	1.41
Non-interest-bearing deposits			889,821						505,199
Other liabilities			178,361						151,974
Total liabilities			7,573,716						6,589,523
Equity			632,228						567,006
Total liabilities and equity		$	8,205,944					$	7,156,529
Net interest income / net interest rate spread (tax equivalent) ⁽³⁾				$	122,155	3.06	%			$	89,820	2.48	%
Net interest-earning assets / net interest margin(tax equivalent)		$	1,223,501			3.16	%	$	832,496			2.66	%
Ratio of interest-earning assets to interest-bearing liabilities						1.19	X					1.14	X

(1)

Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately ~~$1.3~~$4.8 million and ~~$1.7~~$0.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

(2)

Loan interest income includes net ~~losses~~gains (losses) from fair value adjustments on qualifying hedges of ~~$2.2~~$0.8 million and ~~$2.7~~($2.4) million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

(3)

Interest and yields are calculated on the tax equivalent basis using the statutory federal income tax rate of 21% for the periods presented totaling ~~$0.4~~$0.2 million and $0.3 million for ~~each of~~ the ~~nine month periods~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020.

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

LOANS

The following table sets forth the Company’s loan originations (including the net effect of refinancing) and the changes in the Company’s portfolio of loans, including purchases, sales and principal reductions for the periods indicated.


	For the nine months ended September 30,				For the six months ended June 30,
(In thousands)	2020		2019		2021		2020

Mortgage Loans
At beginning of period	$	4,677,703	$	4,638,784	$	5,228,271	$	4,677,703

Mortgage loans originated:
Multi-family residential		157,577		143,297		125,466		123,844
Commercial real estate		104,213		123,289		55,119		77,569
One-to-four family – mixed-use property		25,439		47,475		15,847		21,572
One-to-four family – residential		13,383		19,191		4,673		11,087
Co-operative apartments		704		2,117		—		704
Construction		10,384		13,483		5,468		6,132
Total mortgage loans originated		311,700		348,852		206,573		240,908

Mortgage loans purchased:
Multi-family residential		3,128		—		—		3,128
Commercial real estate		30,005		—		—		30,005
One-to-four family - mixed-use property						—		—
One-to-four family - residential						57,952		—
Construction		4,606		16,894		6,936		3,438
Total mortgage loans purchased		37,739		16,894		64,888		36,571

Less:
Principal and other reductions		289,356		366,197		271,294		169,097
Sales		498		1,353		17,846		498
Charge-offs		3		—		139		3
Loans transferred to OREO		—		239
At end of period	$	4,737,285	$	4,636,741	$	5,210,453	$	4,785,584

Non-Mortgage Loans
At beginning of period	$	1,079,232	$	897,512	$	1,473,358	$	1,079,232
Other loans originated:
Small Business Administration ⁽¹⁾		111,754		2,705		142,678		93,298
Commercial business		128,079		345,895		164,166		83,500
Other		3,662		1,409		3,170		2,561
Total other loans originated		243,495		350,009		310,014		179,359

Other loans purchased:
Commercial business		95,154		176,809		65,818		75,674
Total other loans purchased		95,154		176,809		65,818		75,674

Less:
Principal and other reductions		224,236		303,079		338,537		148,274
Sales		—		5,213
Charge-offs		3,250		2,379		3,969		2,286
At end of period	$	1,190,395	$	1,113,659	$	1,506,684	$	1,183,705

(1)	Includes SBA PPP originations totaling ~~$111.6~~$138.7 million and $93.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021 and 2020, respectively.

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

TROUBLED DEBT RESTRUCTURED (“TDR”) AND NON-PERFORMING ASSETS

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

September 30,
(In thousands)

2020
Accrual Status:


Multi-family residential

$
1,876
One-to-four family - mixed-use property

1,469
One-to-four family - residential

513
Total

3,858

Non-Accrual Status:


One-to-four family - mixed-use property

275
Commercial business and other

950
Taxi medallion

99
Total

1,324

Total performing troubled debt restructured

$
5,182

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

December 31,
(In thousands)

2019
Accrual Status:


Multi-family residential

$
1,873
One-to-four family - mixed-use property

1,481
One-to-four family - residential

531
Total

3,885

Non-Accrual Status:


Commercial business and other

941
Taxi medallion

1,668
Total

2,609

Total performing troubled debt restructured

$
6,494


	June 30,		December 31,
(In thousands)	2021		2020
Accrual Status:
Multi-family residential	$	1,673	$	1,700
Commercial real estate		7,583		7,702
One-to-four family - mixed-use property		1,414		1,459
One-to-four family - residential		497		507
Commercial business and other		1,868		1,588
Total		13,035		12,956

Non-Accrual Status:
One-to-four family - mixed-use property		268		272
Commercial business and other		2,239		2,243
Taxi medallion		—		440
Total		2,507		2,955

Total performing troubled debt restructured	$	15,542	$	15,911

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

The following table shows our non-performing assets at ~~amortized cost at~~ the period indicated:



	September 30,			June 30,			December 31,
(In thousands)	2020			2021			2020

Loans 90 days or more past due and still accruing:
Multi-family residential				$	201		$	201
Commercial real estate					—			2,547
Total					201			2,748
Non-accrual loans:
Multi-family residential		2,723			4,669			2,524
Commercial real estate		2,714			8			1,683
One-to-four family - mixed-use property ⁽¹⁾		1,429			2,309			1,366
One-to-four family - residential		5,922			6,940			5,854
Small business administration		1,169			976			1,151
Taxi medallion⁽¹⁾		2,219			—			2,317
Commercial Business and other ⁽¹⁾		8,328			2,489			3,430
Total		24,504			17,391			18,325
Total non-performing loans		24,504			17,592			21,073
Other non-performing assets:
Other assets acquired through foreclosure		35			—			35
Total		35			—			35
Total non-performing assets	$	24,539		$	17,592		$	21,108

Non-performing assets to total assets		0.35	%		0.22	%		0.26	%
Allowance for loan losses to non-performing loans		154.66	%
ACL - loans to non-performing loans					242.55	%		214.27	%

(1) Not included in the above analysis are non-accrual performing TDR mixed-use property loans totaling $0.3 million at June 30, 2021 and December 31, 2020; non-accrual performing TDR taxi medallion loans totaling ~~$0.1~~$0.4 million at ~~September 30,~~December 31, 2020 and non-accrual performing TDR commercial business loans totaling ~~$1.0~~$2.2 million at ~~September~~June 30, 2021 and December 31, 2020.

~~-67-~~

~~Table of Contents~~

~~PART I – FINANCIAL INFORMATION~~

~~FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES~~

~~Management’s Discussions and Analysis of~~

~~Financial Condition and Results of Operations~~

~~The following table shows non-performing assets at the period indicated:~~

December 31,

(In thousands)

2019

Loans 90 days or more past due and still accruing:

Multi-family residential

$
445

Total

445

Non-accrual loans:



Multi-family residential

2,296

Commercial real estate

367

One-to-four family - mixed-use property

274

One-to-four family - residential

5,139

Small business administration

1,151

Taxi medallion⁽¹⁾

1,641

Commercial business and other⁽¹⁾

1,945

Total

12,813

Total non-performing loans

13,258

Other non-performing assets:



Real estate acquired through foreclosure

239

Other assets acquired through foreclosure

35

Total

274

Total non-performing assets

$
13,532

Non-performing assets to total assets

0.19
%
Allowance for loan losses to non-performing loans

164.05
%

~~(1)~~

CRITICIZED AND CLASSIFIED ASSETS

Our policy is to review our assets, focusing primarily on the loan portfolio, OREO and the investment portfolios, to ensure that credit quality is maintained at the highest levels. See Note 5 (“Loans”) of the Notes to the Consolidated Financial Statements for a description of how loans are determined to be criticized or classified and a table displaying criticized and classified loans at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. The Company did not hold any criticized or classified investment securities at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. Our total Criticized and Classified assets were ~~$42.2~~$68.5 million at ~~September~~June 30, ~~2020, an increase~~2021, a decrease of ~~$3.9~~$3.2 million from ~~$38.3~~$71.7 million at December 31, ~~2019. The company did not hold any OREO~~2020.

Included within net loans as of June 30, 2021 and held $35,000 in the other asset acquired through foreclosure at September 30, 2020. Included in classified assets are classified OREO and other assets acquired through foreclosure totaling $0.3 million at December 31, ~~2019, respectively.~~2020 were $9.3 million and $5.9 million, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction.

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

ALLOWANCE FOR CREDIT LOSSES

~~Upon adoption of CECL, the~~The following table shows allowance for credit losses ~~(“ACL”) increased by $1.3 million that included an increase of $0.6 million to~~at the allowance for off-balance sheet credit losses, $0.4 million to the allowance for loan losses and $0.3 million to the allowance for HTM securities losses. We recorded $19.2 million provision for loan losses for the nine months ended September 30, 2020 utilizing the CECL methodology. The increase resulted primarily due to the effect of the COVID-19 pandemic on the economic forecast used in our CECL model, which includes adjusted reasonable and supportable period of four quarters and reversion period of four quarters. Additionally, it increased due to growth in the loan portfolio. The impact from the above resulted in the ACL totaling $40.3 million at September 30, 2020. We recorded $3.0 million in net charge-offs during the nine months ended September 30, 2020.indicated:


	At or for the nine months ended September 30,		At or for the six months ended June 30,
(Dollars in thousands)		2020		2021		2020

Balance at beginning of period	$	21,751	$	45,153	$	21,751
Loans- CECL Adoption		379		—		379
Loans- Charge-off		(3,253)		(4,108)		(2,289)
Loans- Recovery		260		341		133
Loans- Provision		19,206		1,284		16,736
Allowance for loan losses	$	38,343
ACL - loans			$	42,670	$	36,710


Balance at beginning of period	$	—	$	907	$	—
HTM Securities- CECL Adoption		340		—		340
HTM Securities- Provision		62
Allowance for HTM Securities losses	$	402
HTM Securities- Provision (Benefit)				(63)		62
ACL - HTM Securities			$	844	$	402


Balance at beginning of period	$	—	$	1,815	$	—
Off-Balance Sheet - CECL Adoption		553		—		553
Off-Balance Sheet- Provision		1,006
Allowance for Off-Balance Sheet losses	$	1,559
Off-Balance Sheet- Provision (Benefit)				(245)		711
ACL - Off-Balance Sheet			$	1,570	$	1,264

Allowance for Credit Losses	$	40,304	$	45,084	$	38,376

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

The following table sets forth the activity in the Company’s ~~allowance for loan losses~~ACL - loans for the periods indicated:


	At or for the nine months ended September 30,						At or for the six months ended June 30,
(Dollars in thousands)	2020			2019			2021			2020

Balance at beginning of period	$	21,751		$	20,945		$	45,153		$	21,751
CECL Adoption		379			—			—			379
Provision for loan losses		19,206			3,129
Provision for credit losses on loans								1,284			16,736

Loans charged-off:
Multi-family residential		—			(190)			(43)			—
One-to-four family - residential		—			(113)
Commercial real estate								(64)			—
One-to-four family - mixed-use property		(3)			(1)			(32)			(3)
Construction		—			—
Small Business Administration		(178)			—			—			(178)
Taxi medallion		(951)			—			(2,758)			—
Commercial business and other		(2,121)			(2,379)			(1,211)			(2,108)
Total loans charged-off		(3,253)			(2,683)			(4,108)			(2,289)

Recoveries:
Multi-family residential		27			30			10			13
Commercial real estate		—			7
One-to-four family - mixed-use property		138			228			10			78
One-to-four family - residential		10			10			7			8
Small Business Administration		67			52			19			20
Taxi medallion		—			134			222			—
Commercial business and other		18			183			73			14
Total recoveries		260			644			341			133

Net charge-offs		(2,993)			(2,039)			(3,767)			(2,156)
Balance at end of period	$	38,343		$	22,035		$	42,670		$	36,710

Ratio of net charge-offs during the period to average loans outstanding during the period		0.07	%		0.05	%		0.11	%		0.07	%
Ratio of allowance for loan losses to gross loans at end of period		0.65	%		0.38	%
Ratio of allowance for loan losses to non-performing assets at end of period		154.44	%		147.11	%
Ratio of allowance for loan losses to non-performing loans at end of period		154.66	%		149.85	%
Ratio of ACL - loans to gross loans at end of period								0.64	%		0.61	%
Ratio of ACL - loans to non-performing assets at end of period								0.22	%		179.68	%
Ratio of ACL - loans to non-performing loans at end of period								242.55	%		181.85	%

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of the qualitative and quantitative disclosures about market risk, see the information under the caption "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Risk."

ITEM 4. CONTROLS AND PROCEDURES

The Company carried out, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of ~~September~~June 30, ~~2020,~~2021, the design and operation of these disclosure controls and procedures were effective. During the period covered by this Quarterly Report, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~-71-~~-60-

Table of Contents

PART II – OTHER INFORMATIOMTION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

ITEM 1. LEGAL PROCEEDINGS

The Company is a defendant in various lawsuits. Management of the Company, after consultation with outside legal counsel, believes that the resolution of these various matters will not result in any material adverse effect on the Company’s consolidated financial condition, results of operations and cash flows.

ITEM 1A. RISK FACTORS

~~Except as set forth below, there~~There have been no material changes from the risk factors disclosed in the Company’s annual report on Form 10-K for the year ended December ~~31, 2019 as updated by the risk factors disclosed in the Company’s quarterly report on Form 10-Q for the quarter ended March~~ 31, 2020.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth information regarding the shares of common stock repurchased by the Company during the ~~three~~six months ended ~~September~~June 30, ~~2020:~~2021:


					Maximum
				Total Number of	Number of
	Total			Shares Purchased	Shares That May
	Number			as Part of Publicly	Yet Be Purchased
	of Shares	Average Price		Announced Plans	Under the Plans
Period	Purchased	Paid per Share		or Programs	or Programs
~~July~~April 1 to ~~July 31, 2020~~April 30, 2021	—	$	—	—	284,806
~~August~~May 1 to ~~August~~May 31, ~~2020~~2021	—		—	—	284,806
~~September~~June 1 to ~~September~~June 30, ~~2020~~2021	—		—	—	284,806
Total	—		—	—

During the quarter ended ~~September~~June 30, ~~2020,~~2021, the Company did not repurchase any shares of the Company’s common stock. On ~~September~~June 30, ~~2020,~~2021, 284,806 shares remained to be repurchased under the currently authorized stock repurchase program. Stock will be purchased under the current stock repurchase programs from time to time, in the open market or through private transactions, subject to market conditions. There is no expiration or maximum dollar amount under these authorizations.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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Table of Contents

PART II – OTHER INFORMATIOMTION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

ITEM 6. EXHIBITS


Exhibit No.		Description

3.1 P		Certificate of Incorporation of Flushing Financial Corporation (1)
3.2		Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (3)
3.3		Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (5)
3.4		Certificate of Designations of Series A Junior Participating Preferred Stock of Flushing Financial Corporation (4)
3.5		Certificate of Increase of Shares Designated as Series A Junior Participating Preferred Stock of Flushing Financial Corporation (2)
3.6		Amended and Restated By-Laws of Flushing Financial Corporation (6)
4.1		Subordinated Indenture, dated as of December 12, 2016, by and between the Company and Wilmington Trust, National Association, as Trustee. (7)
4.2		First Supplemental Indenture, dated as of December 12, 2016, by and between the Company and Wilmington Trust, National Association, as Trustee, including the form of the Notes attached as Exhibit A thereto. (7)
4.3		Flushing Financial Corporation has outstanding certain long-term debt. None of such debt exceeds ten percent of Flushing Financial Corporation's total assets; therefore, copies of constituent instruments defining the rights of the holders of such debt are not included as exhibits. Copies of instruments with respect to such long-term debt will be furnished to the Securities and Exchange Commission upon request.
10.1		Amended Flushing Financial Corporation 2014 Omnibus Plan (filed herewith)
31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith)
31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith)
32.1		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 by the Chief Executive Officer (furnished herewith)
32.2		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 by the Chief Financial Officer (furnished herewith)
101.INS		XBRL Instance Document -the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		XBRL Taxonomy Extension Schema Document (filed herewith)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)
101.LAB		XBRL Taxonomy Extension Label Linkbase Document (filed herewith)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

(1)	Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1 filed

September 1, 1995, Registration No. 33-96488. (P: Indicates a filing submitted in paper)

(2)	Incorporated by reference to Exhibit filed with Form 8-K filed September 27, 2006.

(3)	Incorporated by reference to Exhibits filed with Form S-8 filed May 31, 2002.

(4)	Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended

September 30, 2002.

(5)	Incorporated by reference to Exhibit filed with Form 10-K for the year ended December 31, 2011.

(6)	Incorporated by reference to Exhibit filed with Form 10-Q for the quarter ended June 30, 2014.

(7)	Incorporated by reference to Exhibit filed with Form 8-K filed December 12, 2016.

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Table of Contents

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

EXHIBIT INDEX


Exhibit No.		Description

3.1 P		Certificate of Incorporation of Flushing Financial Corporation (1)
3.2		Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (3)
3.3		Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (5)
3.4		Certificate of Designations of Series A Junior Participating Preferred Stock of Flushing Financial Corporation (4)
3.5		Certificate of Increase of Shares Designated as Series A Junior Participating Preferred Stock of Flushing Financial Corporation (2)
3.6		Amended and Restated By-Laws of Flushing Financial Corporation (6)
4.1		Subordinated Indenture, dated as of December 12, 2016, by and between the Company and Wilmington Trust, National Association, as Trustee. (7)
4.2		First Supplemental Indenture, dated as of December 12, 2016, by and between the Company and Wilmington Trust, National Association, as Trustee, including the form of the Notes attached as Exhibit A thereto. (7)
4.3		Flushing Financial Corporation has outstanding certain long-term debt. None of such debt exceeds ten percent of Flushing Financial Corporation's total assets; therefore, copies of constituent instruments defining the rights of the holders of such debt are not included as exhibits. Copies of instruments with respect to such long-term debt will be furnished to the Securities and Exchange Commission upon request.
10.1		Amended Flushing Financial Corporation 2014 Omnibus Plan (filed herewith)
31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith)
31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith)
32.1		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 by the Chief Executive Officer (furnished herewith)
32.2		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 by the Chief Financial Officer (furnished herewith)
101.INS		XBRL Instance Document -the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		XBRL Taxonomy Extension Schema Document (filed herewith)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)
101.LAB		XBRL Taxonomy Extension Label Linkbase Document (filed herewith)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

(1)	Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1 filed

September 1, 1995, Registration No. 33-96488. (P: Indicates a filing submitted in paper)

(2)	Incorporated by reference to Exhibit filed with Form 8-K filed September 27, 2006.

(3)	Incorporated by reference to Exhibits filed with Form S-8 filed May 31, 2002.

(4)	Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended

September 30, 2002.

(5)	Incorporated by reference to Exhibit filed with Form 10-K for the year ended December 31, 2011.

(6)	Incorporated by reference to Exhibit filed with Form 10-Q for the quarter ended June 30, 2014.

(7)	Incorporated by reference to Exhibit filed with Form 8-K filed December 12, 2016.

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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Flushing Financial Corporation,



Dated:	~~November 9, 2020~~August 4, 2021	By:	/s/John R. Buran
			John R. Buran
			President and Chief Executive Officer



Dated:	~~November 9, 2020~~August 4, 2021	By:	/s/Susan K. Cullen
			Susan K. Cullen
			Senior Executive Vice President, Treasurer and
			Chief Financial Officer

~~-75-~~-64-


					Gross		Gross		Allowance
	Amortized				Unrealized		Unrealized		for Credit
	Cost		Fair Value		Gains		Losses		Losses

	(In thousands)
Securities held-to-maturity:
Municipals	$	50,654	$	53,268	$	2,614	$	0	$	(402)
Total other securities		50,654		53,268		2,614		0		(402)

FNMA		7,919		9,198		1,279		0		—
Total mortgage-backed securities		7,919		9,198		1,279		0		—
Total	$	58,573	$	62,466	$	3,893	$	0	$	(402)


	At September 30, 2020
	Total					Less than 12 months				12 months or more
				Unrealized				Unrealized				Unrealized
	Count	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

	(Dollars in thousands)
Available for sale securities

Corporate	14	$	113,324	$	6,676	$	0	$	0	$	113,324	$	6,676
Collateralized loan obligations	13		97,299		3,173		7,293		183		90,006		2,990
Total other securities	27		210,623		9,849		7,293		183		203,330		9,666

REMIC and CMO	2		5,663		39		5,663		39		0		0
GNMA ⁽¹⁾	1		48		—		48		0		0		0
FNMA	1		8,652		22		0		0		8,652		22
FHLMC	1		13,449		31		13,449		31		0		0
Total mortgage-backed securities	5		27,812		92		19,160		70		8,652		22

Total securities available for sale	32	$	238,435	$	9,941	$	26,453	$	253	$	211,982	$	9,688


	For the three and nine months ended
	September 30, 2020				September 30, 2019
(Dollars in thousands)	Number	Balance		Modification description	Number	Balance		Modification description
One-to-four family - mixed-use property	1	$	270	Below market interest rate.	—		—
Commercial business and other	—		—		3	$	951	Amortization extension
Total	1	$	270		3	$	951


		December 31, 2019
		Number	Recorded
(Dollars in thousands)		of contracts	investment
Multi-family residential		7	$	1,873
One-to-four family - mixed-use property	��	4		1,481
One-to-four family - residential		3		531
Taxi medallion ⁽¹⁾		7		1,668
Commercial business and other⁽¹⁾		3		941
Total performing troubled debt restructured		24	$	6,494


	At or for the nine months ended September 30, 2020
				Non-Accrual				Loans ninety days
		Total Non-Accrual		with no related		Interest Income		or more past due
(In thousands)		Amortized Cost		Allowance		Recognized		and still accruing:
Multi-family residential	$	2,723	$	2,723	$	—	$	—
Commercial real estate		2,714		2,714		—		—
One-to-four family - mixed-use property		1,704		1,704		—		—
One-to-four family - residential		5,922		5,922		—		—
Small Business Administration		1,169		1,169		—		—
Taxi medallion⁽¹⁾		2,318		2,318		—		—
Commercial business and other⁽¹⁾		9,278		6,456		32		—
Total	$	25,828	$	23,006	$	32	$	—