UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
Commission file number 001-33013
FLUSHING FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
11-3209278
(I.R.S. Employer Identification No.)
220 RXR Plaza, Uniondale, New York 11556
(Address of principal executive offices)
(718) 961-5400
(Registrant's telephone number, including area code)
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
Non-accelerated filer __
Emerging growth company __
Accelerated filer __
Smaller reporting company __
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the exchange act.__
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ___Yes X No
The number of shares of the registrant’s Common Stock outstanding as of July 31, 2019 was 28,187,922.
TABLE OF CONTENTS
PAGE
PART I — FINANCIAL INFORMATION
ITEM 1. Financial Statements - (Unaudited)
Consolidated Statements of Financial Condition
1
Consolidated Statements of Income
2
Consolidated Statements of Comprehensive Income
3
Consolidated Statements of Cash Flows
4
Consolidated Statements of Changes in Stockholders’ Equity
5
Notes to Consolidated Financial Statements
6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
47
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
62
ITEM 4. Controls and Procedures
PART II — OTHER INFORMATION
ITEM 1. Legal Proceedings
63
ITEM 1A. Risk Factors
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
ITEM 3. Defaults Upon Senior Securities
ITEM 4. Mine Safety Disclosures
ITEM 5. Other Information
ITEM 6. Exhibits
64
SIGNATURES
65
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
(Unaudited)
Item 1. Financial Statements
June 30,
December 31,
2019
2018
(Dollars in thousands, except per share data)
Assets
Cash and due from banks
Securities held-to-maturity:
Mortgage-backed securities (including assets pledged of $7,447 and $4,796 at June 30, 2019 and December 31, 2018, respectively; fair value of $8,038 and $7,366 at June 30, 2019 and December 31, 2018, respectively)
Other securities (none pledged; fair value of $54,131 and $22,508 at June 30, 2019 and December 31, 2018, respectively)
Securities available for sale, at fair value:
Mortgage-backed securities (including assets pledged of $226,071 and $152,670 at June 30, 2019 and December 31, 2018, respectively; $848 and $967 at fair value pursuant to the fair value option at June 30, 2019 and December 31, 2018, respectively)
Other securities (including assets pledged of none and $28,871 at June 30, 2019 and December 31, 2018, respectively; $13,346 and $12,843 at fair value pursuant to the fair value option at June 30, 2019 and December 31, 2018, respectively)
Loans:
Multi-family residential
Commercial real estate
One-to-four family — mixed-use property
One-to-four family — residential
Co-operative apartments
Construction
Small Business Administration
Taxi medallion
Commercial business and other
Net unamortized premiums and unearned loan fees
Allowance for loan losses
Net loans
Interest and dividends receivable
Bank premises and equipment, net
Federal Home Loan Bank of New York stock, at cost
Bank owned life insurance
Goodwill
Other real estate owned, net
Right of Use Asset
Other assets
Total assets
Liabilities
Due to depositors:
Non-interest bearing
Interest-bearing
Total Deposits
Mortgagors' escrow deposits
Borrowed funds:
Federal Home Loan Bank advances
Subordinated debentures
Junior subordinated debentures, at fair value
Total borrowed funds
Operating lease liability
Other liabilities
Total liabilities
Stockholders' Equity
Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued)
Common stock ($0.01 par value; 100,000,000 shares authorized; 31,530,595 shares issued at June, 30, 2019 and December 31, 2018; 28,187,922 shares and 27,983,637 shares outstanding at June 30, 2019 and December 31, 2018, respectively)
Additional paid-in capital
Treasury stock, at average cost (3,342,673 shares and 3,546,958 shares at June 30, 2019 and December 31, 2018, respectively)
Retained earnings
Accumulated other comprehensive loss, net of taxes
Total stockholders' equity
Total liabilities and stockholders' equity
The accompanying notes are an integral part of these consolidated financial statements.
For the three months
For the six months
ended June 30,
Interest and dividend income
Interest and fees on loans
Interest and dividends on securities:
Interest
Dividends
Other interest income
Total interest and dividend income
Interest expense
Deposits
Other interest expense
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income
Banking services fee income
Net loss on sale of securities
Net gain on sale of loans
Net gain on sale of assets
Net loss from fair value adjustments
Federal Home Loan Bank of New York stock dividends
Life insurance proceeds
Other income
Total non-interest income
Non-interest expense
Salaries and employee benefits
Occupancy and equipment
Professional services
FDIC deposit insurance
Data processing
Depreciation and amortization
Other real estate owned/foreclosure expense
Net gain from sales of real estate owned
Other operating expenses
Total non-interest expense
Income before income taxes
Provision for income taxes
Federal
State and local
Total taxes
Net income
Basic earnings per common share
Diluted earnings per common share
Dividends per common share
For the three months ended
For the six months ended
(In thousands)
Other comprehensive income (loss), net of tax:
Amortization of actuarial losses, net of taxes of ($9) and ($43) for the three months ended June 30, 2019 and 2018, respectively and of ($19) and ($84) for the six months ended June 30, 2019 and 2018, respectively.
Amortization of prior service credits, net of taxes of $6 and $3 for the three months ended June 30, 2019 and 2018, respectively and of $13 and $6 for the six months ended June 30, 2019 and 2018, respectively.
Net unrealized gains (losses) on securities, net of taxes of ($2,796) and $1,388 for three months ended June 30, 2019 and 2018, respectively and of ($5,320) and $4,443 for six months ended June 30, 2019 and 2018, respectively.
Reclassification adjustment for net losses included in income, net of taxes of ($5) for the three and six months ended June 30, 2019.
Net unrealized (losses) gains on cash flow hedges, net of taxes of $2,844 and ($961) for the three months ended June 30, 2019 and 2018, respectively and of $4,419 and ($3,565) for the six months ended June 30, 2019 and 2018, respectively.
Change in fair value of liabilities related to instrument-specific credit risk, net of taxes of ($16) and ($6) for the three months ended June 30, 2019 and 2018, respectively and of $(55) and ($6) for six months ended June 30, 2019 and 2018, respectively.
Total other comprehensive income (loss), net of tax
Comprehensive income
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of bank premises and equipment
Amortization of premium, net of accretion of discount
Net loss from fair value adjustments on qualifying hedges
Net gain from sale of loans
Net loss from sale of securities
Net gain from sale of asset
Net gain from sale of OREO
Income from bank owned life insurance
Stock-based compensation expense
Deferred compensation
Deferred income tax benefit
Increase in other liabilities
Decrease in other assets
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of bank premises and equipment
Net (purchases) redemptions of Federal Home Loan Bank of New York shares
Purchases of securities held-to-maturity
Proceeds from maturities and calls of securities held-to-maturity
Proceeds from prepayments of securities held-to-maturity
Purchases of securities available for sale
Proceeds from sales and calls of securities available for sale
Proceeds from maturities and prepayments of securities available for sale
Proceeds from sale of assets
Proceeds from bank owned life insurance
Purchase of bank owned life insurance
Net repayments (originations) of loans
Purchases of loans
Proceeds from sale of real estate owned
Proceeds from sale of loans
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in non-interest bearing deposits
Net (decrease) increase in interest-bearing deposits
Net increase in mortgagors' escrow deposits
Net proceeds from short-term borrowed funds
Proceeds from long-term borrowings
Repayment of long-term borrowings
Purchases of treasury stock
Proceeds from issuance of common stock upon exercise of stock options
Cash dividends paid
Net cash provided by financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid
Income taxes paid
Taxes paid if excess tax benefits were not tax deductible
Non-cash activities:
Loans transferred to Other Real Estate Owned or Other Assets
Reclassification of the Income tax effects of Tax Cuts and Jobs Act from AOCI to Retained Earnings
Consolidated Statement of Changes in Stockholders’ Equity
Total
Balance at December 31, 2018
Impact of adoption of ASC 842 - Leases
Award of common shares released from Employee Benefit Trust (138,775 shares)
Vesting of restricted stock unit awards (287,155 shares)
Exercise of stock options (300 shares)
Repurchase of shares to satisfy tax obligation (83,908 shares)
Dividends on common stock ($0.21 per share)
Other comprehensive income
Balance at March 31, 2019
Award of common shares released from Employee Benefit Trust (5,568 shares)
Vesting of restricted stock unit awards (1,120 shares)
Repurchase of shares to satisfy tax obligation (382 shares)
Other comprehensive loss
Balance at June 30, 2019
Balance at December 31, 2017
Reclassification of the Income Tax Effects of the Tax Cuts and Jobs Act from Accumulated Other Comprehensive Income (Loss) to Retained Earnings
Impact of adoption of Accounting Standard Update 2016-01
Award of common shares released from Employee Benefit Trust (116,229 shares)
Vesting of restricted stock unit awards (248,877 shares)
Purchase of treasury shares (217,863 shares)
Repurchase of shares to satisfy tax obligation (72,837 shares)
Dividends on common stock ($0.20 per share)
Balance at March 31, 2018
Award of common shares released from Employee Benefit Trust (4,455 shares)
Exercise of stock options (600 shares)
Purchase of treasury shares (227,581 shares)
Repurchase of shares to satisfy tax obligation (32 shares)
Balance at June 30, 2018
1. Basis of Presentation
The primary business of Flushing Financial Corporation (the “Holding Company”), a Delaware corporation, is the operation of its wholly owned subsidiary, Flushing Bank (the “Bank”).
The unaudited consolidated financial statements presented in this Quarterly Report on Form 10-Q (“Quarterly Report”) include the collective results of the Holding Company and its direct and indirect wholly-owned subsidiaries, including the Bank, Flushing Preferred Funding Corporation, Flushing Service Corporation, and FSB Properties Inc., which are collectively herein referred to as “we,” “us,” “our” and the “Company.”
The Holding Company also owns Flushing Financial Capital Trust II, Flushing Financial Capital Trust III, and Flushing Financial Capital Trust IV (the “Trusts”), which are special purpose business trusts. The Trusts are not included in the Company’s consolidated financial statements, as the Company would not absorb the losses of the Trusts if any losses were to occur.
The accompanying unaudited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and general practices within the banking industry. The information furnished in these interim statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for such presented periods of the Company. Such adjustments are of a normal recurring nature, unless otherwise disclosed in this Quarterly Report. All inter-company balances and transactions have been eliminated in consolidation. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for the full year.
The accompanying unaudited consolidated financial statements have been prepared in conformity with the instructions to Quarterly Report on Form 10-Q and Article 10, Rule 10-01 of Regulation S-X for interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited consolidated interim financial information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
When necessary, certain reclassifications were made to prior-year amounts to conform to the current-year presentation.
2. Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Estimates that are particularly susceptible to change in the near term are used in connection with the determination of the allowance for loan losses (“ALLL”), the evaluation of goodwill for impairment, the review of the need for a valuation allowance of the Company’s deferred tax assets, the fair value of financial instruments and the evaluation of other-than-temporary impairment (“OTTI”) on securities. Actual results could differ from these estimates.
3. Earnings Per Share
Earnings per common share have been computed based on the following:
Net income, as reported
Divided by:
Weighted average common shares outstanding
Weighted average common stock equivalents
Total weighted average common shares outstanding and common stock equivalents
Diluted earnings per common share (1)
Dividend payout ratio
(1)
For the three and six months ended June 30, 2019 and 2018, there were no common stock equivalents that were anti-dilutive.
4. Securities
The Company did not hold any trading securities at June 30, 2019 and December 31, 2018. Securities available for sale are recorded at fair value. Securities held-to-maturity are recorded at amortized cost.
The following table summarizes the Company’s portfolio of securities held-to-maturity at June 30, 2019:
Gross
Amortized
Unrealized
Cost
Fair Value
Gains
Losses
Municipals
Total other securities
FNMA
Total mortgage-backed securities
The following table summarizes the Company’s portfolio of securities held-to-maturity at December 31, 2018:
The following table summarizes the Company’s portfolio of securities available for sale at June 30, 2019:
Corporate
Mutual funds
Collateralized loan obligations
REMIC and CMO
GNMA
FHLMC
Total securities available for sale
The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2018:
We did not hold any private issue CMO’s that are collateralized by commercial real estate mortgages at June 30, 2019 and December 31, 2018.
The corporate securities held by the Company at June 30, 2019 and December 31, 2018 are issued by U.S. banking institutions.
The following tables detail the amortized cost and fair value of the Company’s securities classified as held-to-maturity and available for sale at June 30, 2019, by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Due in one year or less
Due after ten years
Mortgage-backed securities
Securities available for sale:
Due after one year through five years
Due after five years through ten years
The following tables show the Company’s securities with gross unrealized losses and their fair value, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position, at the dates indicated:
At June 30, 2019
Less than 12 months
12 months or more
Count
(Dollars in thousands)
Available for sale securities
CLO
At December 31, 2018
Held-to-maturity securities
Total securities held-to-maturity
OTTI losses on impaired securities must be fully recognized in earnings if an investor has the intent to sell the debt security or if it is more likely than not that the investor will be required to sell the debt security before recovery of its amortized cost. However, even if an investor does not expect to sell a debt security in an unrealized loss position, the investor must evaluate the expected cash flows to be received and determine if a credit loss has occurred. In the event that a credit loss has occurred, only the amount of impairment associated with the credit loss is recognized in earnings in the Consolidated Statements of Income. Amounts relating to factors other than credit losses are recorded in accumulated other comprehensive loss (“AOCL”) within Stockholders’ Equity. Unrealized losses on available for sale securities, that are deemed to be temporary, are recorded in AOCL, net of tax.
The Company reviewed each investment that had an unrealized loss at June 30, 2019 and December 31, 2018. The unrealized losses in held-to-maturity municipal securities at December 31, 2018 were caused by illiquidity in the market and movements in interest rates. The unrealized losses in held-to-maturity FNMA securities at December 31, 2018 were caused by movements in interest rates. The unrealized losses in securities available for sale at June 30, 2019 and December 31, 2018 were caused by movements in interest rates.
It is not anticipated that these securities would be settled at a price that is less than the amortized cost of the Company’s investment. Each of these securities is performing according to its terms and, in the opinion of management, will continue to perform according to its terms. The Company does not have the intent to sell these securities and it is more likely than not the Company will not be required to sell the securities before recovery of the securities’ amortized cost basis. This conclusion is based upon considering the Company’s cash and working capital requirements and contractual and regulatory obligations, none of which the Company believes would cause the sale of the securities. Therefore, the Company did not consider these investments to be other-than-temporarily impaired at June 30, 2019 and December 31, 2018.
Realized gains and losses on the sales of securities are determined using the specific identification method. The Company sold $26.4 million in mortgage-backed securities during the three and six months ended June 30, 2019. The Company did not sell any securities during the three and six months ended June 30, 2018.
The following table represents the gross gains and gross losses realized from the sale of securities available for sale for the periods indicated:
Gross gains from the sale of securities
Gross losses from the sale of securities
Net losses from the sale of securities
5. Loans
Loans are reported at their outstanding principal balance net of any unearned income, charge-offs, deferred loan fees and costs on originated loans and unamortized premiums or discounts on purchased loans. Loan fees and certain loan origination costs are deferred. Net loan origination costs and premiums or discounts on loans purchased are amortized into interest income over the contractual life of the loans using the level-yield method. Prepayment penalties received on loans which pay in full prior to their scheduled maturity are included in interest income in the period they are collected.
Interest on loans is recognized on the accrual basis. The accrual of income on loans is generally discontinued when certain factors, such as contractual delinquency of 90 days or more, indicate reasonable doubt as to the timely collectability of such income. Uncollected interest previously recognized on non-accrual loans is reversed from interest income at the time the loan is placed on non-accrual status. A non-accrual loan can be returned to accrual status when contractual delinquency returns to less than 90 days delinquent. Payments received on non-accrual loans that do not bring the loan to less than 90 days delinquent are recorded on a cash basis. Payments can also be applied first as a reduction of principal until all principal is recovered and then subsequently to interest, if in management’s opinion, it is evident that recovery of all principal due is likely to occur.
The Company recognizes a loan as non-performing when the borrower has demonstrated the inability to bring the loan current, or due to other circumstances which, in management’s opinion, indicate the borrower will be unable to bring the loan current within a reasonable time. All loans classified as non-performing, which includes all loans past due 90 days or more, are classified as non-accrual unless the loan is well secured and there is, in our opinion, compelling evidence the borrower will bring the loan current in the immediate future. Prior to a real estate secured loan becoming 90 days delinquent, an updated appraisal is ordered and/or an internal evaluation is prepared.
A loan is considered impaired when, based upon current information, the Company believes it is probable that it will be unable to collect all amounts due, both principal and interest, in accordance with the original terms of the loan. Impaired loans are measured based on the present value of the expected future cash flows discounted at the loan’s effective interest rate or at the loan’s observable market price or, as a practical expedient, the fair value of the collateral if the loan is collateral dependent. All non-accrual loans are considered impaired.
The Company maintains an allowance for loan losses at an amount, which, in management’s judgment, is adequate to absorb probable estimated losses inherent in the loan portfolio. Management’s judgment in determining the adequacy of the allowance is based on evaluations of the collectability of loans. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revisions as more information becomes available. An unallocated component may at times be maintained to cover uncertainties that could affect management's estimate of probable losses. When necessary an unallocated component of the allowance will reflect the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. The allowance is established through charges to earnings in the form of a provision for loan losses based on management’s evaluation of the risk inherent in the various components of the loan portfolio and other factors, including historical loan loss experience (which is updated quarterly), current economic conditions, delinquency and non-accrual trends, classified loan levels, risk in the portfolio and volumes and trends in loan types, recent trends in charge-offs, changes in underwriting standards, experience, ability and depth of the Company’s lenders, collection policies and experience, internal loan review function and other external factors. When a loan or a portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance, and subsequent recoveries, if any, are credited to the allowance.
The determination of the amount of the allowance for loan losses includes estimates that are susceptible to significant changes due to changes in appraisal values of collateral, national and local economic conditions and other factors. We review our loan portfolio by separate categories with similar risk and collateral characteristics. During the three months ended June 30, 2019, we changed our methodology for reviewing our loan portfolio, to further segregate the commercial business and other portfolio into two separate categories. The decision to separate was based on the risk characteristics and loss history being different between the two categories. The impact of this change in methodology reduced the ALLL by approximately $0.4 million from what would have been recorded if we did not change our methodology. Impaired loans are segregated and reviewed separately.
The Company reviews each impaired loan on an individual basis to determine if either a charge-off or a valuation allowance needs to be allocated to the loan. The Company does not charge-off or allocate a valuation allowance to loans for which management has concluded the current value of the underlying collateral will allow for recovery of the loan balance through the sale of the loan or by foreclosure and sale of the property.
The Company considers fair value of collateral dependent loans to be 85% of the appraised or internally estimated value of the property. The 85% is based on the actual net proceeds the Bank has received from the sale of other real estate owned (“OREO”) as a percentage of OREO’s appraised value. For collateral dependent taxi medallion loans, the Company considers fair value to be the value of the underlying medallion based upon the most recently reported arm’s length sales transaction. When there is no recent sale activity, the fair value is calculated using capitalization rates. For both collateral dependent mortgage loans and taxi medallion loans, the amount by which the loan’s book value exceeds fair value is charged-off.
The Company evaluates the underlying collateral through a third party appraisal, or when a third party appraisal is not available, the Company will use an internal evaluation. The internal evaluations are prepared using an income approach or a sales approach. The income approach is used for income producing properties and uses current revenues less operating expenses to determine the net cash flow of the property. Once the net cash flow is determined, the value of the property is calculated using an appropriate capitalization rate for the property. The sales approach uses comparable sales prices in the market. When an internal evaluation is used, we place greater reliance on the income approach to value the collateral.
The Company may restructure a loan to enable a borrower experiencing financial difficulties to continue making payments when it is deemed to be in the Company’s best long-term interest. This restructure may include reducing the interest rate or amount of the monthly payment for a specified period of time, after which the interest rate and repayment terms revert to the original terms of the loan. We classify these loans as Troubled Debt Restructured (“TDR”).
The Company believes that restructuring these loans in this manner will allow certain borrowers to become and remain current on their loans. All loans classified as TDR are considered impaired, however TDR loans which have been current for six consecutive months at the time they are restructured as TDR remain on accrual status and are not included as part of non-performing loans. Loans which were delinquent at the time they are restructured as a TDR are placed on non-accrual status and reported as non-accrual performing TDR loans until they have made timely payments for six consecutive months. These restructurings have not included a reduction of principal balance.
The allocation of a portion of the allowance for loan losses for a performing TDR loan is based upon the present value of the future expected cash flows discounted at the loan’s original effective rate, or for a non-performing TDR loan which is collateral dependent, the fair value of the collateral. At June 30, 2019, there were no commitments to lend additional funds to borrowers whose loans were modified to a TDR. The modification of loans to a TDR did not have a significant effect on our operating results, nor did it require a significant allocation of the allowance for loan losses.
There were no loan modifications as TDR during three and six months ended June 30, 2019 and 2018.
The following table shows our recorded investment for loans classified as TDR that are performing according to their restructured terms at the periods indicated:
June 30, 2019
December 31, 2018
Number
Recorded
of contracts
investment
One-to-four family - mixed-use property
One-to-four family - residential
Taxi medallion (1)
Total performing troubled debt restructured
Taxi medallion loans in the table above continue to pay as agreed, however the company records interest received on a cash basis.
During the three and six months ended June 30, 2019 and 2018, there were no defaults of TDR loans within 12 months of their modification date. During the six months ended June 30, 2018, we sold one commercial real estate TDR loan totaling $1.8 million, for a loss of $0.3 million and foreclosed on one taxi medallion TDR loan of $35,000, which is included in “Other Assets”.
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:
Total troubled debt restructurings that subsequently defaulted
The following table shows our non-performing loans at the periods indicated:
Non-accrual mortgage loans:
Non-accrual non-mortgage loans:
Total non-accrual loans
Total non-performing loans
The following is a summary of interest foregone on non-accrual loans and loans classified as TDR for the periods indicated:
Interest income that would have been recognized had the loans performed in accordance with their original terms
Less: Interest income included in the results of operations
Total foregone interest
The following tables show by delinquency an analysis of our recorded investment in loans at the periods indicated:
Greater
30 - 59 Days
60 - 89 Days
than
Total Past
Past Due
90 Days
Due
Current
Total Loans
Construction loans
The following tables show the activity in the allowance for loan losses for the three month periods indicated:
Allowance for credit losses:
Beginning balance
Charge-off's
Recoveries
Provision (Benefit)
Ending balance
June 30, 2018
Unallocated
The following tables show the activity in the allowance for loan losses for the six month periods indicated:
The following tables show the manner in which loans were evaluated for impairment at the periods indicated:
One-to-four family- residential
Financing Receivables:
Ending Balance
The following table shows our recorded investment, unpaid principal balance and allocated allowance for loan losses for impaired loans at the periods indicated:
Unpaid
Principal
Related
Investment
Balance
Allowance
With no related allowance recorded:
Mortgage loans:
One-to-four family mixed-use property
One-to-four family residential
Non-mortgage loans:
Total loans with no related allowance recorded
With an allowance recorded:
Total loans with an allowance recorded
Total Impaired Loans:
Total mortgage loans
Total non-mortgage loans
The following table shows our average recorded investment and interest income recognized for impaired loans for the three months ended:
Average
Income
Recognized
The following table shows our average recorded investment and interest income recognized for impaired loans for the six months ended:
`
In accordance with our policy and the current regulatory guidelines, we designate loans as “Special Mention,” which are considered “Criticized Loans,” and “Substandard,” “Doubtful,” or “Loss,” which are considered “Classified Loans”. If a loan does not fall within one of the previous mentioned categories then the loan would be considered “Pass.” Loans that are non-accrual are designated as Substandard, Doubtful or Loss. These loan designations are updated quarterly. We designate a loan as Substandard when a well-defined weakness is identified that may jeopardize the orderly liquidation of the debt. We designate a loan Doubtful when it displays the inherent weakness of a Substandard loan with the added provision that collection of the debt in full, on the basis of existing facts, is highly improbable. We designate a loan as Loss if it is deemed the debtor is incapable of repayment. The Company does not hold any loans designated as Loss, as loans that are designated as Loss are charged to the Allowance for Loan Losses. We designate a loan as Special Mention if the asset does not warrant classification within one of the other classifications, but does contain a potential weakness that deserves closer attention.
The following table sets forth the recorded investment in loans designated as Criticized or Classified at the periods indicated:
Special Mention
Substandard
Doubtful
Loss
Total loans
Commitments to extend credit (principally real estate mortgage loans) and lines of credit (principally home equity lines of credit and business lines of credit) amounted to $84.3 million and $233.2 million, respectively, at June 30, 2019.
6. Loans held for sale
Loans held for sale are carried at the lower of cost or estimated fair value. At June 30, 2019 and December 31, 2018, the Bank did not have any loans held for sale.
The Company has implemented a strategy of selling certain delinquent and non-performing loans. Once the Company has decided to sell a loan, the sale usually closes in a short period of time, generally within the same quarter. Loans designated held for sale are reclassified from loans held for investment to loans held for sale. Terms of sale include cash due upon the closing of the sale, no contingencies or recourse to the Company and servicing is released to the buyer. Additionally, at times the Company may sell participating interests in performing loans.
The following tables show loans sold during the period indicated:
For the three months ended June 30, 2019
Loans sold
Proceeds
Net gain
Performing loans
For the three months ended June 30, 2018
Delinquent and non-performing loans
For the six months ended June 30, 2019
Net Recoveries
For the six months ended June 30, 2018
Net gain (loss)
Multi-family - residential
7. Other Real Estate Owned
OREO are included in other assets on the Company’s Consolidated Statements of Financial Condition. The following table shows changes in OREO during the periods indicated:
Balance at beginning of period
Acquisitions
Sales
Balance at end of period
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:
Gross gains
Included within net loans as of June 30, 2019 and December 31, 2018 was a recorded investment of $7.1 million and $7.2 million, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction.
8. Leases
The Company has 19 operating leases for branches and office spaces, nine operating leases for vehicles, and two operating leases for equipment. Our leases have remaining lease terms ranging from 1 month to 13 years, none of which has a renewal option reasonably certain of exercise, which has been reflected in the Company’s calculation of lease term.
The Company has elected the short-term lease recognition exemption such that the Company will not recognize right-of-use assets or lease liabilities for leases with a term of less than 12 months from the commencement date. The Company has one agreement that qualifies as a short-term lease with expense totaling $34,000 and $68,000 for the three and six months ended June 30, 2019, respectively, included in Professional services on the Consolidated Statements of Income. The Company has $0.2 million and $0.4 million in variable lease payments, which include insurance and real estate tax expenses for the three and six months ended June 30, 2019, respectively. At June 30, 2019, the weighted-average remaining lease term for our operating leases is 8 years and the weighted average discount rate is 3.8%. At June 30, 2019, there were no significant leases entered into but not yet commenced. Our lease agreements do not contain any residual value guarantees.
Operating lease ROU assets
Operating lease liabilities
Lease Cost
Operating lease cost
Short-term lease cost
Variable lease cost
Total lease cost
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for new operating lease liabilities
Weighted-average remaining lease term-operating leases (in years)
Weighted average discount rate-operating leases
The Company’s minimum annual rental payments for Bank facilities due under non-cancelable leases are as follows:
Minimum Rental
Years ended December 31:
2020
2021
2022
2023
Thereafter
Total minimum payments required
Less: implied interest
Total lease obligations
Certain leases have escalation clauses for operating expenses and real estate taxes. The Company’s non-cancelable operating lease agreements expire through 2032.
9. Stock-Based Compensation
On January 31, 2019, the Board of Directors approved a 2019 long-term incentive compensation program for certain Company executive officers that includes grants of performance-based restricted stock units (“PRSUs”) in addition to time-based restricted stock units (“RSU”). Under the terms of the PRSU Agreement, the number of PRSUs that may be earned depends on the extent to which performance goals for the award are achieved over a 3-year performance period, as determined by the Compensation Committee of the Board. The number of PRSUs that may be earned ranges from 0% to 150% of the target award, with no PRSUs earned for below threshold-level performance, 50% of PRSUs earned for threshold-level performance, 100% of PRSUs earned for target-level performance, and 150% of PRSUs earned for maximum-level performance.
For the three months ended June 30, 2019 and 2018, the Company’s net income, as reported, included $1.4 million and $1.2 million, respectively, of stock-based compensation costs and $0.3 million and $0.3 million of income tax benefits, respectively, related to the stock-based compensation plans in each of the periods. For the six months ended June 30, 2019 and 2018, the Company’s net income, as reported, includes $5.4 million and $4.6 million, respectively, of stock-based compensation costs and $1.3 million and $1.0 million of income tax benefits, respectively, related to the stock-based compensation plans in each of the periods. During the six months ended June 30, 2019, the Company granted 263,574 and 57,870 in RSU awards and PRSU awards, respectively. During the three months ended June 30, 2019, the Company did not grant any RSU or PRSU awards. During the three and six months ended June 30, 2018, the Company granted 5,600 and 280,590 RSU awards, respectively. The Company has not granted stock options since 2009 and at June 30, 2019, had none outstanding.
The Company uses the fair value of the common stock on the date of award to measure compensation cost for restricted stock unit awards. Compensation cost is recognized over the vesting period of the award using the straight-line method.
The following table summarizes the Company’s RSU and PRSU awards at or for the six months ended June 30, 2019:
RSU Awards
PRSU Awards
Weighted-Average
Grant-Date
Shares
Non-vested at December 31, 2018
Granted
Vested
Forfeited
Non-vested at June 30, 2019
Vested but unissued at June 30, 2019
As of June 30, 2019, there was $10.0 million of total unrecognized compensation cost related to RSU and PRSU awards granted. That cost is expected to be recognized over a weighted-average period of 3.6 years. The total fair value of awards vested for the three months ended June 30, 2019 and 2018 was $0.2 million and $28,000, respectively. The total fair value of awards vested for the six months ended June 30, 2019 and 2018 was $6.2 million and $6.7 million, respectively. The vested but unissued RSU awards consist of awards made to employees and directors who are eligible for retirement. According to the terms of these awards, which provide for vesting upon retirement, these employees and directors have no risk of forfeiture. These shares will be issued at the original contractual vesting and settlement dates.
Phantom Stock Plan: The Company maintains a non-qualified phantom stock plan as a supplement to its profit sharing plan for officers who have achieved the designated level and completed 1 year of service. The Company adjusts its liability under this plan to the fair value of the shares at the end of each period.
The following table summarizes the Phantom Stock Plan at or for the six months ended June 30, 2019:
Phantom Stock Plan
Outstanding at December 31, 2018
Distributions
Outstanding at June 30, 2019
Vested at June 30, 2019
The Company recorded stock-based compensation expense (benefit) for the Phantom Stock Plan of $0.1 million and ($0.1) for the three months ended June 30, 2019 and 2018, respectively. The total fair value of the distributions from the Phantom Stock Plan was less than $1,000 for each of the three months ended June 30, 2019 and 2018, respectively.
The Company recorded stock-based compensation expense (benefit) for the Phantom Stock Plan of $0.1 million and ($0.1) million for the six months ended June 30, 2019 and 2018, respectively. The total fair value of the distributions from the Phantom Stock Plan was $22,000 and $1,000 for the six months ended June 30, 2019 and 2018, respectively.
10. Pension and Other Postretirement Benefit Plans
The following table sets forth information regarding the components of net expense for the pension and other postretirement benefit plans.
Three months ended
Six months ended
Employee Pension Plan:
Interest cost
Amortization of unrecognized loss
Expected return on plan assets
Net employee pension benefit
Outside Director Pension Plan:
Service cost
Amortization of unrecognized gain
Amortization of past service liability
Net outside director pension (benefit) expense
Other Postretirement Benefit Plans:
Amortization of past service credit
Net other postretirement expense
The Company previously disclosed in its Consolidated Financial Statements for the year ended December 31, 2018 that it expects to contribute $0.3 million to each of the Outside Director Pension Plan (the “Outside Director Pension Plan”) and the other postretirement benefit plans (the “Other Postretirement Benefit Plans”), during the year ending December 31, 2019. The Company does not expect to make a contribution to the Employee Pension Plan (the “Employee Pension Plan”). As of June 30, 2019, the Company had contributed $72,000 to the Outside Director Pension Plan and $37,000 in contributions were made to the Other Postretirement Benefit Plans. As of June 30, 2019, the Company has not revised its expected contributions for the year ending December 31, 2019.
11. Fair Value of Financial Instruments
The Company carries certain financial assets and financial liabilities at fair value in accordance with GAAP which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP permits entities to choose to measure many financial instruments and certain other items at fair value. At June 30, 2019, the Company carried financial assets and financial liabilities under the fair value option with fair values of $14.2 million and $43.4 million, respectively. At December 31, 2018, the Company carried financial assets and financial liabilities under the fair value option with fair values of $13.8 million and $41.8 million, respectively. The Company did not elect to carry any additional financial assets or financial liabilities under the fair value option during the three and six months ended June 30, 2019 and 2018.
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:
Changes in Fair Values For Items Measured at Fair Value
Measurements
Pursuant to Election of the Fair Value Option
at June 30,
at December 31,
Three Months Ended
Six Months Ended
Other securities
Borrowed funds
Net loss from fair value adjustments (1)(2)
The net loss from fair value adjustments presented in the above table does not include net (losses) gains of ($1.6) million and $0.7 million for the three months ended June 30, 2019 and 2018, respectively, from the change in the fair value of interest rate swaps.
(2)
The net loss from fair value adjustments presented in the above table does not include net (losses) gains of ($2.6) million and $2.4 million for the six months ended June 30, 2019 and 2018, respectively, from the change in the fair value of interest rate swaps.
Included in the fair value of the financial assets and financial liabilities selected for the fair value option is the accrued interest receivable or payable for the related instrument. The Company reports as interest income or interest expense in the Consolidated Statement of Income, the interest receivable or payable on the financial instruments selected for the fair value option at their respective contractual rates.
The borrowed funds had a contractual principal amount of $61.9 million at both June 30, 2019 and December 31, 2018. The fair value of borrowed funds includes accrued interest payable of $0.2 million at both June 30, 2019 and December 31, 2018, respectively.
The Company generally holds its earning assets, other than securities available for sale, to maturity and settles its liabilities at maturity. However, fair value estimates are made at a specific point in time and are based on relevant market information. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular instrument. Accordingly, as assumptions change, such as interest rates and prepayments, fair value estimates change and these amounts may not necessarily be realized in an immediate sale.
Disclosure of fair value does not require fair value information for items that do not meet the definition of a financial instrument or certain other financial instruments specifically excluded from its requirements. These items include core deposit intangibles and other customer relationships, premises and equipment, leases, income taxes and equity.
Further, fair value disclosure does not attempt to value future income or business. These items may be material and accordingly, the fair value information presented does not purport to represent, nor should it be construed to represent, the underlying “market” or franchise value of the Company.
Financial assets and financial liabilities reported at fair value are required to be measured based on either: (1) quoted prices in active markets for identical financial instruments (Level 1); (2) significant other observable inputs (Level 2); or (3) significant unobservable inputs (Level 3).
A description of the methods and significant assumptions utilized in estimating the fair value of the Company’s assets and liabilities that are carried at fair value on a recurring basis are as follows:
Level 1 – where quoted market prices are available in an active market. At June 30, 2019 and December 31, 2018, Level 1 included one mutual fund.
Level 2 – when quoted market prices are not available, fair value is estimated using quoted market prices for similar financial instruments and adjusted for differences between the quoted instrument and the instrument being valued. Fair value can also be estimated by using pricing models, or discounted cash flows. Pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices and credit spreads. In addition to observable market information, models also incorporate maturity and cash flow assumptions. At June 30, 2019 and December 31, 2018, Level 2 included mortgage related securities, corporate debt, municipals and interest rate swaps.
Level 3 – when there is limited activity or less transparency around inputs to the valuation, financial instruments are classified as Level 3. At June 30, 2019 and December 31, 2018, Level 3 included trust preferred securities owned and junior subordinated debentures issued by the Company.
The methods described above may produce fair values that may not be indicative of net realizable value or reflective of future fair values. While the Company believes, its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies, assumptions and models to determine fair value of certain financial instruments could produce different estimates of fair value at the reporting date.
The following table sets forth the assets and liabilities that are carried at fair value on a recurring basis and their respective category in the fair value hierarchy at June 30, 2019 and December 31, 2018:
Quoted Prices
in Active Markets
Significant Other
for Identical Assets
Observable Inputs
Unobservable Inputs
Total carried at fair value
(Level 1)
(Level 2)
(Level 3)
on a recurring basis
Assets:
Mortgage-backed Securities
Interest rate swaps
Liabilities:
Borrowings
The following tables sets forth the Company's assets and liabilities that are carried at fair value on a recurring basis, classified within Level 3 of the valuation hierarchy for the periods indicated:
Trust preferred
Junior subordinated
securities
debentures
Net gain from fair value adjustment of financial assets (1)
Net loss from fair value adjustment of financial liabilities (1)
Increase (decrease) in accrued interest receivable
Increase (decrease) in accrued interest payable
Change in unrealized gains included in other comprehensive income
Changes in unrealized gains held at period end
Increase in accrued interest receivable
Totals in the table above are presented in the Consolidated Statement of Income under net gains (losses) from fair value adjustments.
During the three and six months ended June 30, 2019 and 2018, there were no transfers between Levels 1, 2 and 3.
The following tables present the quantitative information about recurring Level 3 fair value of financial instruments and the fair value measurements at the periods indicated:
Valuation Technique
Unobservable Input
Range
Weighted Average
Trust preferred securities
Discounted cash flows
Discount rate
Junior subordinated debentures
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 June 30, 2019 and December 31, 2018, are the effective yields used in the cash flow models. Significant increases or decreases in the effective yield in isolation would result in a significantly lower or higher fair value measurement.
The following table sets forth the Company’s assets and liabilities that are carried at fair value on a non-recurring basis and their respective category in the fair value hierarchy at June 30, 2019 and December 31, 2018:
on a non-recurring basis
Impaired loans
Other repossesed assets
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:
Sales approach
Reduction for planned expedited disposal
Blended income and sales approach
Adjustment to sales comparison value to reconcile differences between comparable sales
Capitalization rate
Other real estate owned
Income approach
Reduction for planned expediated disposal
The Company did not have any liabilities that were carried at fair value on a non-recurring basis at June 30, 2019 and December 31, 2018.
The methods and assumptions used to estimate fair value at June 30, 2019 and December 31, 2018 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.
Impaired Loans:
For non-accruing loans, fair value is generally estimated by discounting management’s estimate of future cash flows with a discount rate commensurate with the risk associated with such assets or, for collateral dependent loans, 85% of the appraised or internally estimated value of the property, except for taxi medallion loans. The fair value of the underlying collateral of taxi medallion loans is the most recent reported arm’s length transaction. When there is no recent sale activity, the fair value is calculated using capitalization rates. See Note 5 (“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 the subordinated debt issued by the Company adjusting for differences in the junior subordinated debt’s credit rating, liquidity and time to maturity. The unrealized net gain/loss attributable to changes in our own credit risk was determined by adjusting the fair value as determined in the proceeding sentence by the average rate of default on debt instruments with a similar debt rating as our junior subordinated debentures, with the difference from the original calculation and this calculation resulting in the instrument-specific unrealized gain/loss.
Interest Rate Swaps:
The fair value of interest rate swaps is based upon broker quotes.
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:
Carrying
Fair
Amount
Value
Level 1
Level 2
Level 3
Securities held-to-maturity
Securities available for sale
Loans
FHLB-NY stock
Accrued interest receivable
Accrued interest payable
12. Derivative Financial Instruments
At June 30, 2019 and December 31, 2018, the Company’s derivative financial instruments consist of interest rate swaps. The Company’s interest rate swaps are used for three purposes: 1) to mitigate the Company’s exposure to rising interest rates on a portion ($18.0 million) of its floating rate junior subordinated debentures that have a contractual value of $61.9 million, at June 30, 2019 and December 31, 2018; 2) to mitigate the Company’s exposure to rising interest rates on certain fixed rate loans totaling $282.2 million and $286.1 million at June 30, 2019 and December 31, 2018, respectively; and 3) to mitigate exposure to rising interest rates on certain short-term advances totaling $541.5 million and $441.5 million at June 30, 2019 and December 31, 2018, respectively.
At June 30, 2019 and December 31, 2018, we held derivatives designated as cash flow hedges, fair value hedges and certain derivatives not designated as hedges.
The Company’s derivative instruments are carried at fair value in the Company’s financial statements as part of Other Assets for derivatives with positive fair values and Other Liabilities for derivatives with negative fair values. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not it qualifies and has been designated as a hedge for accounting purposes, and further, by the type of hedging relationship.
At June 30, 2019 and December 31, 2018, derivatives with a combined notional amount of $36.3 million were not designated as hedges. At June 30, 2019 and December 31, 2018, derivatives with a combined notional amount of $263.9 million and $267.8 million, respectively, were designated as fair value hedges. At June 30, 2019 and December 31, 2018, derivatives with a combined notional amount of $541.5 million and $441.5 million, respectively, were designated as cash flow hedges.
For cash flow hedges, the effective portion of changes in the fair value of the derivative is reported in AOCL, net of tax. Amounts in AOCL are reclassified into earnings in the same period during which the hedged forecasted transaction effects earnings. During the three months ended June 30, 2019 and 2018, $0.6 million and $0.3 million, respectively, were reclassified from accumulated other comprehensive loss to interest expense. During the six months ended June 30, 2019 and 2018, $0.8 million and $0.4 million, respectively, were reclassified from accumulated other comprehensive loss to interest expense.
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:
Notional
Net Carrying
Value (1)
Interest rate swaps (fair value hedge)
Interest rate swaps (cash flow hedge)
Interest rate swaps (non-hedge)
Total derivatives
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:
Financial Derivatives:
Interest rate swaps (non-hedge) (1)
Interest rate swaps (fair value hedge) (2)
Net (loss) gain
Net gains and losses are recorded as part of “Net gain/loss from fair value adjustments” in the Consolidated Statements of Income.
Net gains and losses recorded during the three and six months ended June 30, 2019, are recorded as part of “Interests and fees on loans” in the Consolidated Statements of Income. Net gains and losses recorded during the three and six months ended June 30, 2018, are recorded as part of “Net gain/loss from fair value adjustments” in the Consolidated Statements of Income.
The Company’s interest rate swaps are subject to master netting arrangements between the Company and its two designated counterparties. The Company has not made a policy election to offset its derivative positions.
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:
Gross Amounts Not Offset in the Consolidated Statement of Condition
Gross Amount of Recognized Assets
Gross Amount Offset in the Statement of Condition
Net Amount of Assets Presented in the Statement of Condition
Financial Instruments
Cash Collateral Received
Net Amount
Gross Amount of Recognized Liabilities
Net Amount of Liabilities Presented in the Statement of Condition
Cash Collateral Pledged
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 June 30, 2019, the Company is undergoing examination for its New York State income tax returns for 2014, 2015 and 2016 and its New York City income tax return for 2014.
Income tax provisions are summarized as follows:
Federal:
Deferred
Total federal tax provision
State and Local:
Total state and local tax provision
Total income tax provision
14. Accumulated Other Comprehensive Income (Loss):
The following tables sets forth the changes in accumulated other comprehensive income (loss) by component for the periods indicated:
Unrealized Gains
(Losses) on
Available for Sale
Cash flow
Defined Benefit
Option Elected
Securities
Hedges
Pension Items
on Liabilities
Beginning balance, net of tax
Other comprehensive income before reclassifications, net of tax
Amounts reclassified from accumulated other comprehensive income, net of tax
Net current period other comprehensive income (loss), net of tax
Ending balance, net of tax
Reclassification of the Income Tax Effects of the Tax Cuts and Jobs Act from AOCL to Retained Earnings
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
Net current period other comprehensive income, net of tax
The following tables set forth significant amounts reclassified from accumulated other comprehensive income (loss) by component for the periods indicated:
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
Unrealized gains (losses) on available for sale securities
Net of tax
Cash flow hedges:
Amortization of defined benefit pension items:
Actuarial gain (losses)
Other operating expense
Prior service credits
Total before tax
Actuarial losses
Other operating income
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. Regulatory Capital
Under current capital regulations, the Bank is required to comply with four separate capital adequacy standards. As June 30, 2019, 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 2.500%. The CCB for the Bank at June 30, 2019 was 5.07%.
Set forth below is a summary of the Bank’s compliance with banking regulatory capital standards.
Percent of
Tier I (leverage) capital:
Capital level
%
Requirement to be well capitalized
Excess
Common Equity Tier I risk-based capital:
Tier 1 risk-based capital:
Total risk-based capital:
The Holding Company is subject to the same regulatory capital requirements as the Bank. As of June 30, 2019, 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 June 30, 2019 was 5.22%.
Set forth below is a summary of the Holding Company’s compliance with banking regulatory capital standards.
16. New Authoritative Accounting Pronouncements
Accounting Standards Adopted in 2019:
In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (“ASU”) No. 2016-02, Leases, which requires lessees to recognize leases on the balance sheet, makes targeted changes to lessor accounting, and enhances disclosures to include key information about leasing arrangements. An entity may adopt the new guidance by either restating prior periods and recording a cumulative effect adjustment at the beginning of the earliest comparative period presented (the modified retrospective transition approach) or by recording a cumulative adjustment at the beginning of the period of adoption (the additional transition method). The Company adopted this standard using the additional transition method approach and elected to use the effective date, January 1, 2019, as the date of initial application. As part of the Company’s adoption of ASC 842, the Company undertook a detailed scoping exercise to identify all leasing arrangements subject to the new leasing guidance and believes that all arrangements that meet the definition of a lease under historic US GAAP will continue to meet the definition of a lease under ASC 842. Upon adoption, the Company recorded right of use assets totaling $45.4 million and operating lease liabilities totaling $54.0 million. Additionally, a deferred gain from the sale of buildings totaling $2.7 million, net of tax, was reclassified to retained earnings.
As the rate implicit in each of the Company’s leases is not readily determinable, the Company is required to apply the Company’s incremental borrowing rate (“IBR”) to calculate the lease liability and right-of-use (“ROU”) asset for its leasing arrangements. The Company has used its unsecured Kroll rating as a starting point for calculation of the IBR and will adjust for considerations of collateral (i.e., notch the Company’s Kroll rating from an unsecured to a secured rating). The Company will also consider lease renewal options reasonably certain of exercise for purposes of determining the term of the underlying borrowing. The Company has considered various other factors, including, economic environment and determined that these factors do not currently impact the Company’s IBR calculation. The Company will continue to assess the appropriateness of the conclusions reached herein with respect to each of the factors discussed above and will determine the appropriate IBR for each new lease arrangement or modification, as required.
The new leasing standard provides a number of optional practical expedients in transition. The Company has elected the “package of practical expedients”, which permits the Company not to reassess prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to the Company. ASC 842 also provides certain accounting policy elections for an entity’s ongoing accounting. For operating leases wherein the Company is the lessee, the Company has elected the practical expedient to not separate lease and non-lease components. See Note 8 (“Leases”) for additional information.
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815)” providing targeted improvements to the accounting for hedging activities, which is effective January 1, 2019, with early adoption permitted in any interim period or fiscal year before the effective date. The guidance introduces a number of amendments, several of which are optional, that are designed to simplify the application of hedge accounting, improve financial statement transparency and more closely align hedge accounting with an entity’s risk management strategies. This ASU eliminates the requirement to separately measure and report hedge ineffectiveness and changes the presentation so that all items that affect earnings are in the same income statement line as the hedged item. The Company adopted this standard January 1, 2019, as the date of initial application. As a result of adoption, fair value adjustments on qualifying fair value hedges were recorded in interest income during the three and six months ended June 30, 2019. These adjustments were recorded in non-interest income in prior periods. See Note 12 (“Derivative Financial Instruments”) for additional information.
Accounting Standards Pending Adoption:
In August 2018, the FASB issued ASU No. 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20)” providing targeted improvements to the disclosures required for Defined Benefit Plans. The amendments in in this Update are effective for fiscal years ended after December 15, 2020. Early adoption is permitted. The amendments are to be applied on a retrospective basis to all periods presented. We are currently evaluating the impact of adopting this new guidance on our disclosures.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820)”. The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2019. Early adoption is permitted. The amendments are to be applied on a retrospective basis to all periods presented. We are currently evaluating the impact of adopting this new guidance on our disclosures.
In January 2017, the FASB issued 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 is limited to the amount of goodwill allocated to that reporting unit. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. The guidance is not expected to have a significant impact on the Company's financial positions, results of operations or disclosures.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses” which sets forth a “current expected credit loss” (“CECL”) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and will apply to the measurement of credit losses on financial assets measured at amortized cost and to some off-balance sheet credit exposures. This ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company has been collecting and evaluating data and system requirements to implement this standard. Management has developed inter-departmental steering and working committees to evaluate and implement CECL. We have chosen a vendor solution to model CECL results and are in the middle stages of implementing this solution. The adoption of this update could have a material impact on the Company’s consolidated results of operations and financial condition. The extent of the impact is still unknown and will depend on many factors, such as the composition of the Company’s loan portfolio and expected loss history at adoption.
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, 2018. 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, 2018. 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.
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 (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 loan losses and specific provision for losses on real estate owned.
Our strategy is to continue our focus on being an institution serving consumers, businesses, and governmental units in our local markets. In furtherance of this objective, we intend to:
●
manage cost of funds and continue to improve funding mix;
manage interest income by leveraging loan pricing opportunities and portfolio mix;
enhance earnings power by improving scalability and efficiency;
manage credit risk;
remain well capitalized;
increase our commitment to the multi-cultural marketplace, with a particular focus on the Asian community;
manage enterprise-wide risk.
There can be no assurance that we will be able to effectively implement this strategy. Our strategy is subject to change by the Board of Directors.
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 at fair value 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 11 (“Fair Value of Financial Instruments”) of the Notes to the Consolidated Financial Statements.
During the three months ended June 30, 2019, we continued to experience pricing pressure due to the inverted yield curve at the pricing point for our loan tenor, which has slowed the pace of our mortgage loan closings. In the past, we have articulated our strategy of focusing on rate over volume. During the three months ended June 30, 2019, we modified our position due to the market conditions. As a result, the total loan pipeline increased $149.1 million to $423.9 million at June 30, 2019, which is the largest level since 1Q16. Overall loan closings for the three months ended June 30, 2019, totaled $296.4 million, an increase of 49.7% from the three months ended March 31, 2019.
During the three months ended June 30, 2019, the yield on interest-earning assets decreased three basis points, while the cost of interest-bearing liabilities increased 10 basis points from the three months ended March 31, 2019, resulting in net interest margin compression of 12 basis points. The increase in the cost of interest-bearing liabilities was primarily driven by pricing pressure on our retail and municipal deposits, as competition from traditional bank and non-bank competitors remains very strong.
Credit quality remained strong at June 30, 2019, as non-accrual and non-performing loans were essentially unchanged from March 31, 2019. The quarter’s $1.0 million in net charge-offs resulted primarily from one commercial business loan relationship that also had a partial charge-off in the first quarter. Additional information became available on this loan, which led to the charge-off recorded this quarter. At June 30, 2019, the relationship has a remaining book value of $0.2 million. The average loan-to-value on our non-performing real estate loans at June 30, 2019 remained conservative at 35.4%.
The Bank and Company are subject to the same regulatory capital requirements. See Note 15 (“Regulatory Capital”) of the Notes to the Consolidated Financial Statements.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018
General. Net income for the three months ended June 30, 2019 was $10.6 million, a decrease of $3.4 million, or 24.2%, compared to $13.9 million for the three months ended June 30, 2018. Diluted earnings per common share were $0.37 for the three months ended June 30, 2019, a decrease of $0.11, or 22.9%, from $0.48 for the three months ended June 30, 2018.
Return on average equity decreased to 7.5% for the three months ended June 30, 2019 from 10.5% for the three months ended June 30, 2018. Return on average assets decreased to 0.6% for the three months ended June 30, 2019 from 0.9% for the three months ended June 30, 2018.
Interest Income. Interest and dividend income increased $6.3 million, or 9.9%, to $69.6 million for the three months ended June 30, 2019 from $63.3 million for the three months ended June 30, 2018. The increase in interest income was primarily attributable to an increase of $358.9 million in the average balance of interest-earning assets to $6,540.1 million for the three months ended June 30, 2019 from $6,181.2 million for the comparable prior year period, combined with an increase of 15 basis points in the yield of interest-earning assets to 4.26% for the three months ended June 30, 2019, from 4.11% in the comparable prior year period. The increase in the yield on interest-earning assets was primarily due to an increase of $249.0 million in the average balance of total loans, net, which have a higher yield than the yield of total interest-earning assets and an improvement of 17 basis points, 16 basis points and 75 basis points in the yields of total loans, net, taxable securities and tax-exempt securities, respectively, for the three months ended June 30, 2019 from the comparable prior year period. Additionally, the yield on interest-earning deposits and federal funds sold increased 50 basis points for the three months ended June 30, 2019, from the comparable prior year period due to increases in the Federal Funds rate. The increase of 17 basis points in the yield on the total loans, net, was primarily due to loans being both originated and repriced at higher rates. The 16 basis points in taxable securities and 75 basis points in tax-exempt securities primarily resulted from the positive effect of the sale of lower yielding securities in fourth quarter of 2018 and purchases of new securities at higher yields than the existing portfolio yield. 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 increased 23 basis points to 4.42% for the three months ended June 30, 2019 from 4.19% for the three months ended June 30, 2018.
Interest Expense. Interest expense increased $8.9 million, or 43.2%, to $29.6 million for the three months ended June 30, 2019, from $20.7 million for the three months ended June 30, 2018. The increase in interest expense was primarily due to an increase of 53 basis points in the average cost of interest-bearing liabilities to 2.03% for the three months ended June 30, 2019, from 1.50% for the three months ended June 30, 2018, combined with an increase of $309.6 million in the average balance of interest-bearing liabilities to $5,825.2 million for the three months ended June 30, 2019, from $5,515.6 million for the comparable prior year period. The 53 basis point increase in the cost of interest-bearing liabilities was primarily due to increases in borrowing costs and in the rates we pay on some of our deposit products to stay competitive within our market.
Net Interest Income. Net interest income for the three months ended June 30, 2019, was $40.0 million, a decrease of $2.6 million, or 6.2%, from $42.6 million for the three months ended June 30, 2018. The decrease in net interest income was primarily due to the 53 basis point increase in the cost of interest-bearing liabilities to 2.03% for the three months ended June 30, 2019, from 1.50% for the comparable prior year period, partially offset by an increase of 15 basis points in the yield of interest-earning assets to 4.26% for the three months ended June 30, 2019, as compared to 4.11% for the three months ended June 30, 2018. The net effect of the above on both the net interest spread and net interest margin were decreases of 38 basis points to 2.23% and 32 basis points to 2.45%, respectively, for the quarter ended June 30, 2019, compared to the quarter ended June 30, 2018. Included in net interest income was prepayment penalty income from loans and securities totaling $1.1 million and $1.6 million for the three months ended June 30, 2019 and 2018, respectively, recovered interest from non-accrual loans totaling $0.5 million and $0.2 million for the three months ended June 30, 2019 and 2018, respectively, and net losses from fair value adjustments on qualifying hedges totaling $0.8 million for three months ended June 30, 2019. 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 June 30, 2019 was 2.40%, a decrease of 26 basis points, from to 2.66% for the three months ended June 30, 2018.
Provision for Loan Losses. During the three months ended June 30, 2019, a provision for loan losses was recorded for $1.5 million, compared to none for the three months ended June 30, 2018. The provision was primarily the result of one commercial business loan relationship being written down to a remaining book balance of $0.2 million at June 30, 2019 and growth in the loan portfolio. During the three months ended June 30, 2019, the Bank recorded net charge-offs totaling $1.0 million, while non-accrual loans decreased $0.6 million to $15.7 million from $16.3 million at December 31, 2018. The current average loan-to-value ratio for our non-performing loans collateralized by real estate was 35.4% at June 30, 2019. The Bank continues to maintain conservative underwriting standards. See “Allowance for Loan Losses” below and Note 5 (“Loans”) of the Notes to the Consolidated Financial Statements.
Non-Interest Income. Non-interest income for the three months ended June 30, 2019 was $2.5 million, a decrease of $0.7 million, or 22.6%, from $3.2 million for the three months ended June 30, 2018. The decrease in non-interest income was primarily due to an increase of $1.7 million in net losses from fair value adjustments, combined with a decrease of $0.3 million from net gains on sale of loans as compared to the three months ended June 30, 2018. These decreases in non-interest income were partially offset by a gain on sale of asset for $0.8 million and the recording of a $0.5 million capital gain from the redemption of $1.2 million in assets held in a rabbi trust during the three months ended June 30, 2019.
Non-Interest Expense. Non-interest expense was $27.2 million for the three months ended June 30, 2019, a decrease of $0.2 million, or 0.9%, from $27.4 million for the three months ended June 30, 2018. The decrease was primarily due to reductions in legal expenses, offset by the growth of the Bank resulting in increases in salaries and benefits, occupancy and equipment and depreciation expenses.
Income before Income Taxes. Income before the provision for income taxes decreased $4.6 million, or 24.9%, to $13.8 million for the three months ended June 30, 2019 from $18.4 million for the three months ended June 30, 2018 for the reasons discussed above.
Provision for Income Taxes. The provision for income taxes was $3.3 million for the three months ended June 30, 2019, a decrease of $1.2 million, or 27.1%, from $4.5 million for the three months ended June 30, 2018. The decrease was primarily due to a reduction in income before income taxes and a decrease in the effective tax rate to 23.7% for the three months ended June 30, 2019 from 24.4% in the comparable prior year period.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018
General. Net income for the six months ended June 30, 2019 was $17.6 million, a decrease of $7.7 million, or 30.4%, compared to $25.3 million for the six months ended June 30, 2018. Diluted earnings per common share were $0.61 for the six months ended June 30, 2019, a decrease of $0.27, or 30.7%, from $0.88 for the six months ended June 30, 2018.
Return on average equity decreased to 6.3% for the six months ended June 30, 2019 from 9.5% for the six months ended June 30, 2018. Return on average assets decreased to 0.5% for the six months ended June 30, 2019 from 0.8% for the six months ended June 30, 2018.
Interest Income. Interest and dividend income increased $15.3 million, or 12.3%, to $139.4 million for the six months ended June 30, 2019 from $124.1 million for the six months ended June 30, 2018. The increase in interest income was primarily attributable to an increase of $390.5 million in the average balance of interest-earning assets to $6,530.7 million for the six months ended June 30, 2019 from $6,140.2 million for the comparable prior year period, combined with an increase of 22 basis points in the yield of interest-earning assets to 4.28% for the six months ended June 30, 2019, from 4.06% in the comparable prior year period. The increase in the yield on interest-earning assets was primarily due to an increase of $281.0 million in the average balance of total loans, net, which have a higher yield than the yield of total interest-earning assets and an improvement of 23 basis points, 25 basis points and 67 basis points in the yields of total loans, net, taxable securities and tax-exempt securities, respectively, for the six months ended June 30, 2019 from the comparable prior year period. Additionally, the yield on interest-earning deposits and federal funds sold increased 67 basis points for the six months ended June 30, 2019, from the comparable prior year period due to increases in the Federal Funds rate. The increase of 23 basis points in the yield on the total loans, net, was primarily due to loans being both originated and repriced at higher rates. The 25 basis points in taxable securities and 67 basis points in tax-exempt securities primarily resulted from the positive effect of the sale of lower yielding securities in fourth quarter of 2018 and purchases of new securities at higher yields than the existing portfolio yield. 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 increased 27 basis points to 4.42% for the six months ended June 30, 2019 from 4.15% for the six months ended June 30, 2018.
Interest Expense. Interest expense increased $18.7 million, or 48.3%, to $57.6 million for the six months ended June 30, 2019, from $38.8 million for the six months ended June 30, 2018. The increase in interest expense was primarily due to an increase of 56 basis points in the average cost of interest-bearing liabilities to 1.98% for the six months ended June 30, 2019, from 1.42% for the six months ended June 30, 2018, combined with an increase of $339.0 million in the average balance of interest-bearing liabilities to $5,818.3 million for the six months ended June 30, 2019, from $5,479.3 million for the comparable prior year period. The 56 basis point increase in the cost of interest-bearing liabilities was primarily due to increases in borrowing costs and in the rates we pay on some of our deposit products to stay competitive within our market.
Net Interest Income. For the six months ended June 30, 2019, net interest income was $81.8 million, a decrease of $3.4 million, or 4.0%, from $85.2 million for the six months ended June 30, 2018. The decrease in net interest income was primarily due to the 56 basis point increase in the cost of interest-bearing liabilities to 1.98% for the six months ended June 30, 2019, from 1.42% for the comparable prior year period, partially offset by an increase of 22 basis points in the yield of interest-earning assets to 4.28% for the six months ended June 30, 2019, as compared to 4.06% for the six months ended June 30, 2018. The net effect of the above on both the net interest spread and net interest margin were decreases of 34 basis points to 2.30% and 28 basis points to 2.51%, respectively, for the six months ended June 30, 2019, compared to the six months ended June 30, 2018. Included in net interest income was prepayment penalty income from loans and securities totaling $1.9 million and $2.5 million for the six months ended June 30, 2019 and 2018, respectively, recovered interest from non-accrual loans totaling $1.2 million and $0.4 million for the six months ended June 30, 2019 and 2018, respectively, and net losses from fair value adjustments on qualifying hedges totaling $1.5 million for six months ended June 30, 2019. Excluding prepayment penalty income, recovered interest and net losses from fair value adjustment on qualifying hedges, the net interest margin for the six months ended June 30, 2019 was 2.46%, a decrease of 24 basis points, as compared to 2.70% for the six months ended June 30, 2018.
Provision for Loan Losses. During the six months ended June 30, 2019, a provision for loan losses was recorded for $2.4 million, compared to $0.2 million for the six months ended June 30, 2018. The provision was primarily the result of one commercial business loan relationship written down to a remaining book balance of $0.2 million at June 30, 2019 and growth in the loan portfolio. During the six months ended June 30, 2019, the Bank recorded net charge-offs totaling $1.9 million, while non-accrual loans decreased $0.6 million to $15.7 million from $16.3 million at December 31, 2018. The current average loan-to-value ratio for our non-performing loans collateralized by real estate was 35.4% at June 30, 2019. The Bank continues to maintain conservative underwriting standards. See “Allowance for Loan Losses” below and Note 5 (“Loans”) of the Notes to the Consolidated Financial Statements.
Non-Interest Income. Non-interest income for the six months ended June 30, 2019 was $3.4 million, a decrease of $3.0 million, or 46.7%, from $6.4 million for the six months ended June 30, 2018. The decrease in non-interest income was primarily due to an increase of $3.7 million in net losses from fair value adjustments, combined with a decrease of $0.7 million in life insurance proceeds as compared to the six months ended June 30, 2018. These decreases in non-interest income were partially offset by a gain on sale of asset totaling $0.8 million and the recording of a $0.5 million capital gain from the redemption of $1.2 million in assets held in a rabbi trust during the six months ended June 30, 2019.
Non-Interest Expense. Non-interest expense was $59.6 million for the six months ended June 30, 2019, an increase of $0.9 million, or 1.5%, from $58.7 million for the six months ended June 30, 2018. The increase was due to the accelerated vesting of restricted stock awards upon an employees’ death totaling $0.5 million, and due to the growth of the Bank increases in salaries and benefits, occupancy and equipment and depreciation expenses, partially offset by a reduction in legal expenses.
Income before Income Taxes. Income before the provision for income taxes decreased $9.6 million, or 29.3%, to $23.2 million for the six months ended June 30, 2019 from $32.8 million for the six months ended June 30, 2018 for the reasons discussed above.
Provision for Income Taxes. The provision for income taxes was $5.6 million for the six months ended June 30, 2019, a decrease of $1.9 million, or 25.3%, from $7.4 million for the six months ended June 30, 2018. The decrease was primarily due to a reduction in income before income taxes partially offset by an increase in the effective tax rate to 24.0% for the six months ended June 30, 2019 from 22.7% in the comparable prior year period.
FINANCIAL CONDITION
Assets. Total assets at June 30, 2019 were $6,945.6 million, an increase of $111.5 million, or 1.6%, from $6,834.2 million at December 31, 2018. Total loans, net increased $86.4 million, or 1.6%, during the six months ended June 30, 2019 to $5,616.9 million from $5,530.5 million at December 31, 2018. Loan originations and purchases were $494.4 million for the six months ended June 30, 2019, a decrease of $102.8 million, or 17.2%, from $597.2 million for the six months ended June 30, 2018. During the six months ended June 30, 2019, we continued to focus on the origination of multi-family residential, commercial real estate and commercial business loans with a full banking relationship. The loan pipeline increased to $423.9 million at June 30, 2019, compared to $196.6 million at December 31, 2018.
The following table shows loan originations and purchases for the periods indicated:
Multi-family residential (1)
Commercial real estate (2)
One-to-four family – mixed-use property (3)
One-to-four family – residential (4)
Co-operative appartments
Construction (5)
Commercial business and other (6)
Includes purchases of $0.8 million and $14.1 million for the three and six months ended June 30, 2018, respectively.
Includes purchases of $5.8 million for three and six months ended June 30, 2018.
(3)
Includes purchases of $0.7 million for three and six months ended June 30, 2019.
(4)
Includes purchases of $0.9 million for the six months ended June 30, 2018.
(5)
Includes purchases of $13.7 million and $16.0 million for the three and six months ended June 30, 2019, respectively.
(6)
Includes purchases of $44.9 million and $34.0 million for the three months ended June 30, 2019 and 2018, respectively. Includes purchases of $99.5 million and $88.7 million for the six months ended June 30, 2019 and 2018, 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 three months ended June 30, 2019 had an average loan-to-value ratio of 37.9% and an average debt coverage ratio of 192%.
The Bank’s non-performing assets totaled $16.0 million at June 30, 2019, a decrease of $0.3 million, or 1.9%, from $16.3 million at December 31, 2018. Total non-performing assets as a percentage of total assets were 0.23% at June 30, 2019 compared to 0.24% at December 31, 2018. The ratio of allowance for loan losses to total non-performing loans was 136.99% at June 30, 2019 and 128.87% at December 31, 2018.
During the six months ended June 30, 2019, mortgage-backed securities including held-to-maturity decreased $3.5 million, or 0.6%, to $562.4 million from $565.9 million at December 31, 2018. The decrease in mortgage-backed securities during the six months ended June 30, 2019 was primarily due to sales of securities totaling $26.4 million at an average yield of 3.10% and an increase in the fair value of $12.8 million, partially offset by principal repayments of $43.4 million.
During the six months ended June 30, 2019, other securities, including held-to-maturity, increased $17.6 million, or 6.1%, to $306.4 million from $288.8 million at December 31, 2018. The increase in other securities during the six months ended June 30, 2019, was primarily due to purchases totaling $47.9 million at an average yield of 3.78% and an increase in fair value of $4.4 million, partially offset by calls and maturities of municipals securities totaling $33.1 million and $1.6 million, respectively. At June 30, 2019 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 $6,380.2 million at June 30, 2019, an increase of $95.5 million, or 1.5%, from $6,284.7 million at December 31, 2018. During the six months ended June 30, 2019, due to depositors decreased $90.2 million, or 1.8%, to $4,825.7 million due to decreases of $71.0 million in non-maturity deposits, coupled with a decrease of $19.2 million in certificates of deposit. Included in deposits were brokered deposits totaling $199.1 million, a decrease of $102.5 million from $301.7 million at December 31, 2018. The decrease in non-maturity deposits was primarily due to a decrease of $125.8 million in money market accounts resulting from seasonal outflows of municipal deposits, partially offset by an increase of $68.0 million in NOW accounts. Borrowed funds increased $121.0 million during the six months ended June 30, 2019. The increase in borrowed funds was primarily due to an increase in FHLB-NY short-term borrowings to replace the seasonal outflow of government deposits.
Equity. Total stockholders’ equity increased $15.9 million, or 2.9%, to $565.4 million at June 30, 2019 from $549.5 million at December 31, 2018. Stockholders’ equity increased primarily due to net income of $17.6 million and the net impact of vesting and exercising of shares of employee and director stock plans totaling $5.5 million. Additionally, stockholders’ equity was also positively impacted by an improvement of $2.1 million in other comprehensive loss. These increases were partially offset the declaration and payment of dividends on the Company’s common stock of $0.42 per common share totaling $12.1 million. Book value per common share was $20.06 at June 30, 2019 compared to $19.64 at December 31, 2018.
Cash flow. During the six months ended June 30, 2019, funds provided by the Company's operating activities amounted to $33.3 million. These funds, combined with $22.4 million from financing activities and $118.6 million available from the beginning of the period were utilized to fund $117.8 million used in 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 six months ended June 30, 2019, the net total of loan originations and purchases less loan repayments and sales was $89.6 million. During the six months ended June 30, 2019, the Company also funded $72.5 million in purchases of securities available for sale, $30.0 million in purchases of securities held-to-maturity and $25.0 million in purchases of BOLI. During the six months ended June 30, 2019, funds were provided by an increase of $165.8 million and $15.0 million in net short-term borrowing and proceeds from long-term borrowings. The funds were used to repay $83.0 million in total deposits and $61.3 million in long-term borrowings. The Company also used funds of $12.1 million for dividend payments during the six months ended June 30, 2019.
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.
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, 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 June 30, 2019. 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 June 30, 2019, 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 June 30, 2019:
Projected Percentage Change In
Net Interest
Net Portfolio
Change in Interest Rate
Value Ratio
-200 Basis points
-100 Basis points
Base interest rate
+100 Basis points
+200 Basis points
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 six months ended June 30, 2019 and 2018, 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 June 30,
Yield/
Interest-earning assets:
Mortgage loans, net
Other loans, net
Total loans, net (1) (2)
Taxable securities:
Total taxable securities
Tax-exempt securities: (3)
Total tax-exempt securities
Interest-earning deposits and federal funds sold
Total interest-earning assets
Liabilities and Equity
Interest-bearing liabilities:
Deposits:
Savings accounts
NOW accounts
Money market accounts
Certificate of deposit accounts
Total due to depositors
Mortgagors' escrow accounts
Total deposits
Total interest-bearing liabilities
Non interest-bearing deposits
Equity
Total liabilities and equity
Net interest income / net interest rate spread (tax equivalent) (3)
Net interest-earning assets / net interest margin (tax equivalent)
Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $0.4 million and $0.3 million for the three months ended June 30, 2019 and 2018.
Loan interest income includes net losses from fair value adjustments on qualifying hedges of $0.8 million and none for three months ended June 30, 2019 and 2018, respectively.
Interest and yields are presented on tax equivalent basis using the statutory federal income tax rate of 21% for the periods presented totaling $125,000 and $228,000, respectively.
For the six months ended June 30,
Ratio of interest-earning assets to interest-bearing liabilities
Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $0.9 million and $0.4 million for the six months ended June 30, 2019 and 2018.
Loan interest income includes net losses from fair value adjustments on qualifying hedges of $1.5 million and none for six months ended June 30, 2019 and 2018, respectively.
Interest and yields are presented on tax equivalent basis using the statutory federal income tax rate of 21% for the periods presented totaling $250,000 and $455,000, respectively.
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.
Mortgage Loans
At beginning of period
Mortgage loans originated:
One-to-four family – mixed-use property
One-to-four family – residential
Total mortgage loans originated
Mortgage loans purchased:
Total mortgage loans purchased
Less:
Principal and other reductions
Loans transferred to OREO
At end of period
Non-Mortgage Loans
Other loans originated:
Commercial business
Other
Total other loans originated
Other loans purchased:
Total other loans purchased
TROUBLED DEBT RESTRUCUTURED (“TDR”) AND NON-PERFORMING ASSETS
The following table shows loans classified as TDR that are performing according to their restructured terms at the periods indicated:
Accrual Status:
Non-Accrual Status:
The following table shows non-performing assets at the periods indicated:
Non-accrual loans:
Small business administration
Other non-performing assets:
Real estate acquired through foreclosure
Other assets acquired through foreclosure
Total non-performing assets
Non-performing assets to total assets
Allowance for loan losses to non-performing loans
Not included in the above analysis are non-accrual TDR taxi medallion loans totaling $2.2 million and $3.9 million at June 30, 2019 and December 31, 2018, respectively.
Included in non-performing loans were six loans totaling $1.6 million at June 30, 2019 and two loans totaling $1.8 million at December 31, 2018, all of which were restructured as TDR and not performing in accordance with restructured terms.
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 June 30, 2019 and December 31, 2018. The Company had classified OREO and other assets acquired through foreclosure totaling $0.2 million and $35,000 at June 30, 2019 and December 31, 2018, respectively. The Company did not hold any criticized or classified investment securities at June 30, 2019 and December 31, 2018. Our total Criticized and Classified assets were $42.1 million at June 30, 2019, a decrease of $10.9 million from $53.1 million at December 31, 2018.
On a quarterly basis, all non-accrual collateral dependent loans that are classified as Substandard or Doubtful are internally reviewed for impairment, based on updated cash flows for income producing properties, or updated independent appraisals. The loan balances of collateral dependent loans reviewed for impairment are then compared to the loans updated fair value. We consider fair value of collateral dependent loans to be 85% of the appraised or internally estimated value of the property, except for taxi medallion loans. The fair value of the underlying collateral of taxi medallion loans is the value of the underlying medallion based upon the most recently reported arm’s length transaction. When there is no recent sale activity, the fair value is calculated using the income approach. All taxi medallion loans are classified and impaired. For collateral dependent mortgage loans and taxi medallion loans, the portion of the loan balance which exceeds fair value is generally charged-off. At June 30 2019, the current average loan-to-value ratio on our collateral dependent loans reviewed for impairment was 47.6%.
ALLOWANCE FOR LOAN LOSSES
The Allowance for loan losses (“ALLL”) represents the expense charged to earnings based upon management’s quarterly analysis of credit risk. The amount of the ALLL is based upon multiple factors that reflect management’s assessment of the credit quality of the loan portfolio. 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.
Management has developed a comprehensive analytical process to monitor the adequacy of the ALLL. The process and guidelines were developed using, among other factors, the guidance from federal banking regulatory agencies and GAAP. The results of this process, along with the conclusions of our independent loan review officer, support management’s assessment as to the adequacy of the ALLL at each balance sheet date. See Note 5 (“Loans”) of the Notes to the Consolidated Financial Statements for a detailed explanation of management’s methodology and policy.
As a component of the credit risk assessment, the Bank has established an Asset Classification Committee which carefully evaluates loans which are past due 90 days and/or are classified. The Asset Classification Committee thoroughly assesses 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, in our opinion, compelling evidence the borrower will bring the loan current in the immediate future.
As described in Note 5 (“Loans”) of the Notes to the Consolidated Financial Statements, during the three months ended June 30, 2019, the Company revised its ALLL methodology to further segregate the commercial business and other portfolio into two separate categories. During the six months ended June 30, 2019, the portion of the ALLL related to the loss history increased due to an increase in charge-offs and growth in the loan portfolio and the portion of the ALLL related to qualitative factors increased due to growth in the loan portfolio. The impact from the above resulted in the ALLL totaling $21.5 million, an increase of $0.6 million or 2.7%, from December 31, 2018. Based upon the ALLL methodology and review of the loan portfolio, management concluded a charge to earnings totaling $2.4 million for the six months ended June 30, 2019, to increase the ALLL was warranted. The ALLL represented 0.38% of gross loans outstanding at each of June 30, 2019 and December 31, 2018. The ALLL represented 137.0% of non-performing loans at June 30, 2019 compared to 128.9% at December 31, 2018.
Management recommends to the Board of Directors the amount of the ALLL quarterly. The Board of Directors approves the ALLL.
The following table sets forth the activity in the Company's allowance for loan losses for the periods indicated:
At or for the six months ended June 30,
Loans charged-off:
Total loans charged-off
Recoveries:
Total recoveries
Net charge-offs
Ratio of net charge-offs during the period to average loans outstanding during the period
Ratio of allowance for loan losses to gross loans at end of period
Ratio of allowance for loan losses to non-performing assets at end of period
Ratio of allowance for loan losses to non-performing loans at end of period
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 June 30, 2019, 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.
PART II – FINANCIAL INFORMATION
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
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, 2018.
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 months ended June 30, 2019:
Maximum
Total Number of
Number of
Shares Purchased
Shares That May
as Part of Publicly
Yet Be Purchased
of Shares
Average Price
Announced Plans
Under the Plans
Period
Purchased
Paid per Share
or Programs
April 1 to April 30, 2019
May 1 to May 31, 2019
June 1 to June 30, 2019
During the quarter ended June 30, 2019 the Company did not repurchase any shares of the Company’s common stock. As of June 30, 2019, 467,211 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
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)
3.4
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.
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 (filed herewith)
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)
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)
Incorporated by reference to Exhibit filed with Form 8-K filed September 27, 2006.
Incorporated by reference to Exhibits filed with Form S-8 filed May 31, 2002.
Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended September 30, 2002.
Incorporated by reference to Exhibit filed with Form 10-K for the year ended December 31, 2011.
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.
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:
August 7, 2019
By:
/s/ John R. Buran
John R. Buran
President and Chief Executive Officer
/s/ Susan K. Cullen
Susan K. Cullen
Senior Executive Vice President, Treasurer and
Chief Financial Officer
EXHIBIT INDEX
- 66 -